UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QFORM 10-Q
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ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the quarterly period ended SeptemberJune 30, 20172022 or |
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-07283
REGAL BELOITREXNORD CORPORATION
(Exact name of registrant as specified in its charter)
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| Wisconsin | | 39-0875718 |
(State ofor other jurisdiction of
incorporation)
| | (IRS Employer
Identification No.)
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200 State Street, Beloit, Wisconsin 53511
(Address of principal executive office)
(608) 364-8800
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: |
| | | | | | | |
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| Common Stock | RRX | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO ¨Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý NO ¨Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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| Large Accelerated Filer | | ý☒ | | Accelerated Filer | | ¨☐ |
| Non-accelerated filer | o (Do not check if a smaller reporting company)
☐ | | Smaller Reporting Company | ¨☐ |
| | | | Emerging growth company | | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO ýYes ☐ No ☒
As of November 2, 2017 there were 44,304,003On August 3, 2022 the registrant had outstanding 66,477,529 shares of the registrant’s common stock, $.01$0.01 par value per share, outstanding.
share.
REGAL BELOITREXNORD CORPORATION
INDEX
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CAUTIONARY STATEMENT
Certain statements made in thisThis Quarterly Report on Form 10-Q are “forward-looking statements” intendedcontains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company’s current estimates, expectations and projections about the Company’s future results, performance, prospects and opportunities. Such forward-looking statements may include, among other things, statements relating to qualifythe merger with the Rexnord Process & Motion Control business (the "Rexnord PMC business") (the "Rexnord Transaction") or the acquisition of Arrowhead Systems, LLC ("Arrowhead") (the "Arrowhead Transaction" and, together with the Rexnord Transaction, the "Transactions"), and the benefits and synergies of the Transactions, future opportunities for the safe harbor from liability established byCompany, and any other statements regarding the Private Securities Litigation Reform Act of 1995. Company’s future operations, anticipated business levels, future earnings, planned activities, anticipated growth, market opportunities, strategies, competition and other expectations and estimates for future periods.Forward-looking statements include statements that are based on management’s expectations, beliefs, current assumptions,not historical facts and projections. When used in this Quarterly Report on Form 10-Q,can be identified by forward-looking words such as “may,“anticipate,” “will,“believe,” “confident,” “estimate,” “expect,” “intend,” “estimate,“plan,” “may,” “will,” “project,” “forecast,” “anticipate,” “believe,” “should,” “project” or “plan” or the negative thereof or"would," "could," "should," and similar words are intended to identify forward-looking statements.expressions. These forward-looking statements are not guarantees of future performancebased upon information currently available to the Company and are subject to a number of risks, uncertainties, assumptions and other factors some of which are beyond our control, whichthat could cause actual results, performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause actual results to differ materially from those expressedthe results referred to in the forward-looking statements the Company makes in this report include:
•dependence on key suppliers and the potential effects of supply disruptions;
•fluctuations in commodity prices and raw material costs;
•any unforeseen changes to or implied by such forward-looking statements. Those factors include, but are not limited to:the effects on liabilities, future capital expenditures, revenue, expenses, synergies, indebtedness, financial condition, losses and future prospects;
•the possibility that the Company may be unable to achieve expected synergies and operating efficiencies in connection with the Transactions within the expected time-frames or at all and to successfully integrate the Rexnord PMC and Arrowhead businesses;
•expected or targeted future financial and operating performance and results;
•operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) being greater than expected following the Transactions;
•the Company's ability to retain key executives and employees;
•the continued financial and operational impacts of and uncertainties relating to the COVID-19 pandemic on customers and suppliers and the geographies in which they operate;
•uncertainties regarding ourthe ability to execute our restructuring plans within expected costs and timing;
increases in our overall debt levels as a result•challenges to the tax treatment that was elected with respect to the Rexnord Transaction and related transactions;
•requirements to abide by potentially significant restrictions with respect to the tax treatment of the acquisition ofRexnord Transaction which could limit the Power Transmission Solutions business of Emerson Electric Co. ("PTS") or otherwise and ourCompany’s ability to repay principal and interest on our outstanding debt;undertake certain corporate actions that otherwise could be advantageous;
•actions taken by our competitors and ourtheir ability to effectively compete in the increasingly competitive global electric motor, drives and controls, power generation and mechanical motion controlpower transmission industries;
our•the ability to develop new products based on technological innovation, such as the Internet of Things, and marketplace acceptance of new and existing products;products, including products related to technology not yet adopted or utilized in geographic locations in which the Company does business;
fluctuations in commodity prices and raw material costs;
our •dependence on significant customers;
•seasonal impact on sales of products into HVAC systems and other residential applications;
•risks associated with global manufacturing, including risks associated with public health crises and political, societal or economic instability, including instability caused by the conflict between Russia and Ukraine;
•issues and costs arising from the integration of acquired companies and businesses including PTS and the timing and impact of purchase accounting adjustments;
•the Company's overall debt levels and its ability to repay principal and interest on its outstanding debt;
•prolonged declines in one or more markets, such as heating, ventilation, air conditioning, refrigeration, power generation, oil and gas, up stream capital spending;unit material handling, water heating and aerospace;
•economic changes in global markets, where we do business, such as reduced demand for the products, we sell, currency exchange rates, inflation rates, interest rates, recession, government policies, including policy changes affecting taxation, trade, tariffs, immigration, customs, border actions and the like, and other external factors that wethe Company cannot control;
•product liability, asbestos and other litigation, or claims by end users, government agencies or others that our products or our customers’customers' applications failed to perform as anticipated, particularly in high volume applications or where such failures are alleged to be the cause of property or casualty claims;
•unanticipated liabilities of acquired businesses;
•unanticipated adverse effects or liabilities from business exits or divestitures;
•unanticipated costs or expenses wethat may incurbe incurred related to product warranty issues;
our dependence on key suppliers and the potential effects of supply disruptions;
•infringement of our intellectual property by third parties, challenges to our intellectual property and claims of infringement by us ofon third party technologies;
•effects on earnings of any significant impairment of goodwillgoodwill;
•losses from failures, breaches, attacks or intangible assets;disclosures involving information technology infrastructure and data;
•cyclical downturns affecting the global market for capital goods; and
•and other risks and uncertainties including, but not limited, to those described in “Risk Factors”in ourthe Company's Annual Report on Form 10-K on file with the SEC and from time to time in ourother filed reports filedincluding the Company's Quarterly Reports on Form 10-Q. For a more detailed description of the risk factors associated with US Securitiesthe Company, please refer to Part I, Item 1A in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2022 on file with the SEC and Exchange Commission.
subsequent SEC filings.
Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this Quarterly Report on Form 10-Qreport are made only as of the date of this report, and we undertakethe Company undertakes no obligation to update these statementsany forward-looking information contained in this report to reflect subsequent events or circumstances. Additional information regarding these and other risks and factors is included in Part I -Item 1A - Risk Factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2017.
PART I—FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
REGAL BELOITREXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in Millions, Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | July 3, 2021 | | June 30, 2022 | | July 3, 2021 |
| Net Sales | $ | 1,349.4 | | | $ | 886.9 | | | $ | 2,647.9 | | | $ | 1,701.0 | |
| Cost of Sales | 915.9 | | | 629.2 | | | 1,792.5 | | | 1,193.5 | |
| Gross Profit | 433.5 | | | 257.7 | | | 855.4 | | | 507.5 | |
| Operating Expenses | 238.6 | | | 140.2 | | | 490.6 | | | 288.5 | |
| | | | | | | |
| | | | | | | |
| Asset Impairments | — | | | 2.3 | | | — | | | 2.3 | |
| Total Operating Expenses | 238.6 | | | 142.5 | | | 490.6 | | | 290.8 | |
| Income from Operations | 194.9 | | | 115.2 | | | 364.8 | | | 216.7 | |
| Other Income, Net | (1.5) | | | (1.2) | | | (2.8) | | | (2.4) | |
| Interest Expense | 13.4 | | | 11.5 | | | 22.4 | | | 24.1 | |
| Interest Income | (0.8) | | | (1.7) | | | (1.9) | | | (3.2) | |
| Income before Taxes | 183.8 | | | 106.6 | | | 347.1 | | | 198.2 | |
| Provision for Income Taxes | 40.6 | | | 20.6 | | | 76.8 | | | 41.9 | |
| Net Income | 143.2 | | | 86.0 | | | 270.3 | | | 156.3 | |
| Less: Net Income Attributable to Noncontrolling Interests | 1.2 | | | 1.6 | | | 2.7 | | | 3.0 | |
| Net Income Attributable to Regal Rexnord Corporation | $ | 142.0 | | | $ | 84.4 | | | $ | 267.6 | | | $ | 153.3 | |
| Earnings Per Share Attributable to Regal Rexnord Corporation: | | | | | | | |
| Basic | $ | 2.13 | | | $ | 2.07 | | | $ | 3.99 | | | $ | 3.78 | |
| Assuming Dilution | $ | 2.12 | | | $ | 2.06 | | | $ | 3.96 | | | $ | 3.74 | |
| Weighted Average Number of Shares Outstanding: | | | | | | | |
| Basic | 66.8 | | | 40.7 | | | 67.1 | | | 40.6 | |
| Assuming Dilution | 67.1 | | | 41.0 | | | 67.5 | | | 41.0 | |
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| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Net Sales | $ | 856.9 |
| | $ | 809.6 |
| | $ | 2,539.6 |
| | $ | 2,466.4 |
|
| Cost of Sales | 629.9 |
| | 577.9 |
| | 1,874.0 |
| | 1,794.4 |
|
| Gross Profit | 227.0 |
| | 231.7 |
| | 665.6 |
| | 672.0 |
|
| Operating Expenses | 133.0 |
| | 141.9 |
| | 413.8 |
| | 421.5 |
|
| Income From Operations | 94.0 |
| | 89.8 |
| | 251.8 |
| | 250.5 |
|
| Interest Expense | 13.5 |
| | 14.4 |
| | 42.6 |
| | 44.2 |
|
| Interest Income | 0.7 |
| | 1.1 |
| | 2.7 |
| | 3.4 |
|
| Income Before Taxes | 81.2 |
| | 76.5 |
| | 211.9 |
| | 209.7 |
|
| Provision For Income Taxes | 17.6 |
| | 15.4 |
| | 46.4 |
| | 47.5 |
|
| Net Income | 63.6 |
| | 61.1 |
| | 165.5 |
| | 162.2 |
|
| Less: Net Income Attributable to Noncontrolling Interests | 1.4 |
| | 1.5 |
| | 4.0 |
| | 4.4 |
|
| Net Income Attributable to Regal Beloit Corporation | $ | 62.2 |
| | $ | 59.6 |
| | $ | 161.5 |
| | $ | 157.8 |
|
| Earnings Per Share Attributable to Regal Beloit Corporation: | | | | | | | |
| Basic | $ | 1.40 |
| | $ | 1.33 |
| | $ | 3.62 |
| | $ | 3.53 |
|
| Assuming Dilution | $ | 1.39 |
| | $ | 1.32 |
| | $ | 3.59 |
| | $ | 3.51 |
|
| Cash Dividends Declared Per Share | $ | 0.26 |
| | $ | 0.24 |
| | $ | 0.76 |
| | $ | 0.71 |
|
| Weighted Average Number of Shares Outstanding: | | | | | | | |
| Basic | 44.4 |
| | 44.8 |
| | 44.7 |
| | 44.7 |
|
| Assuming Dilution | 44.8 |
| | 45.0 |
| | 45.0 |
| | 45.0 |
|
See accompanyingAccompanying Notes to Condensed Consolidated Financial Statements
REGAL BELOITREXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in Millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | July 3, 2021 | | June 30, 2022 | | July 3, 2021 |
| Net Income | $ | 143.2 | | | $ | 86.0 | | | $ | 270.3 | | | $ | 156.3 | |
| Other Comprehensive Income (Loss) Net of Tax: | | | | | | | |
| Foreign Currency Translation Adjustments | (120.8) | | | 10.0 | | | (121.2) | | | (11.7) | |
| | | | | | | |
| Hedging Activities: | | | | | | | |
| Increase (Decrease) in Fair Value of Hedging Activities, Net of Tax Effects of $(10.5) Million and $4.2 Million for the Three Months Ended June 30, 2022 and July 3, 2021 and $(2.2) Million and $8.8 Million for the Six Months Ended June 30, 2022 and July 3, 2021, Respectively | (32.9) | | | 13.3 | | | (6.8) | | | 27.9 | |
| Reclassification of (Gains) Losses included in Net Income, Net of Tax Effects of $(1.5) Million and $(2.7) Million for the Three Months Ended June 30, 2022 and July 3, 2021 and $(3.5) Million and $(5.5) Million for the Six Months Ended June 30, 2022 and July 3, 2021, Respectively | (5.3) | | | (8.6) | | | (11.3) | | | (17.3) | |
| Pension and Post Retirement Plans: | | | | | | | |
| | | | | | | |
| Reclassification Adjustments for Pension and Post Retirement Benefits included in Net Income, Net of Tax Effects of $0.1 Million and $0.1 Million for the Three Months Ended June 30, 2022 and July 3, 2021 and $0.1 Million and $0.2 Million for the Six Months Ended June 30, 2022 and July 3, 2021, Respectively | 0.1 | | | 0.4 | | | 0.3 | | | 0.7 | |
| Other Comprehensive (Loss) Income | (158.9) | | | 15.1 | | | (139.0) | | | (0.4) | |
| Comprehensive (Loss) Income | (15.7) | | | 101.1 | | | 131.3 | | | 155.9 | |
| Less: Comprehensive (Loss) Income Attributable to Noncontrolling Interests | (1.1) | | | 2.3 | | | 0.8 | | | 3.4 | |
| Comprehensive (Loss) Income Attributable to Regal Rexnord Corporation | $ | (14.6) | | | $ | 98.8 | | | $ | 130.5 | | | $ | 152.5 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Net Income | $ | 63.6 |
| | $ | 61.1 |
| | $ | 165.5 |
| | $ | 162.2 |
|
| Other Comprehensive Income (Loss) Net of Tax: | | | | | | | |
| Foreign Currency Translation Adjustments | 24.6 |
| | (2.4 | ) | | 93.1 |
| | (9.2 | ) |
| Hedging Activities: | | | | | | | |
| Increase (Decrease) in Fair Value of Hedging Activities, Net of Tax Effects of $5.5 Million and $(3.8) Million for the Three Months ended September 30, 2017 and October 1, 2016 and $23.5 Million and $(9.2) Million for the Nine Months ended September 30, 2017 and October 1, 2016 Respectively | 8.8 |
| | (6.3 | ) | | 38.2 |
| | (15.1 | ) |
| Reclassification of Losses included in Net Income, Net of Tax Effects of $(0.2) Million and $4.6 Million for the Three Months ended September 30, 2017 and October 1, 2016 and $6.0 Million and $14.3 Million for the Nine Months ended September 30, 2017 and October 1, 2016 Respectively | (0.1 | ) | | 7.7 |
| | 9.9 |
| | 23.4 |
|
| Pension and Post Retirement Plans: | | | | | | | |
Reclassification Adjustments for Pension and Post Retirement Benefits included in Net Income, Net of Tax Effects of $0.2 Million and $0.3 Million for the Three Months Ended September 30, 2017 and October 1, 2016 and $0.6 Million and $0.9 Million for the Nine Months Ended September 30, 2017 and October 1, 2016, Respectively
| 0.4 |
| | 0.5 |
| | 1.2 |
| | 1.8 |
|
| Other Comprehensive Income (Loss) | 33.7 |
| | (0.5 | ) | | 142.4 |
| | 0.9 |
|
| Comprehensive Income | 97.3 |
| | 60.6 |
| | 307.9 |
| | 163.1 |
|
| Less: Comprehensive Income Attributable to Noncontrolling Interests | 2.0 |
| | 1.6 |
| | 5.6 |
| | 4.0 |
|
| Comprehensive Income Attributable to Regal Beloit Corporation | $ | 95.3 |
| | $ | 59.0 |
| | $ | 302.3 |
| | $ | 159.1 |
|
See accompanyingAccompanying Notes to Condensed Consolidated Financial Statements
REGAL BELOITREXNORD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Millions, Except Per Share Data)
| | | | September 30,
2017 | | December 31,
2016 | | June 30, 2022 | | January 1, 2022 |
| ASSETS | | | | ASSETS | | | |
| Current Assets: | | | | Current Assets: | |
| Cash and Cash Equivalents | $ | 186.6 |
| | $ | 284.5 |
| Cash and Cash Equivalents | $ | 702.5 | | | $ | 672.8 | |
| Trade Receivables, Less Allowances of $10.2 Million in 2017 and $11.5 Million in 2016 | 527.3 |
| | 462.2 |
| |
| Trade Receivables, Less Allowances of $18.7 Million and $18.7 Million in 2022 and 2021, Respectively | | Trade Receivables, Less Allowances of $18.7 Million and $18.7 Million in 2022 and 2021, Respectively | 854.8 | | | 785.8 | |
| Inventories | 734.9 |
| | 660.8 |
| Inventories | 1,388.4 | | | 1,192.4 | |
| Prepaid Expenses and Other Current Assets | 181.4 |
| | 124.5 |
| Prepaid Expenses and Other Current Assets | 141.2 | | | 145.1 | |
| Assets Held for Sale | | Assets Held for Sale | 10.6 | | | 12.5 | |
| Total Current Assets | 1,630.2 |
| | 1,532.0 |
| Total Current Assets | 3,097.5 | | | 2,808.6 | |
| Net Property, Plant and Equipment | 633.7 |
| | 627.5 |
| Net Property, Plant and Equipment | 822.0 | | | 908.5 | |
| Operating Lease Assets | | Operating Lease Assets | 114.4 | | | 112.4 | |
| Goodwill | 1,475.2 |
| | 1,453.2 |
| Goodwill | 4,026.0 | | | 4,039.2 | |
| Intangible Assets, Net of Amortization | 682.4 |
| | 711.7 |
| Intangible Assets, Net of Amortization | 2,326.6 | | | 2,429.2 | |
| Deferred Income Tax Benefits | 28.7 |
| | 22.4 |
| Deferred Income Tax Benefits | 35.7 | | | 35.7 | |
| Other Noncurrent Assets | 13.8 |
| | 11.7 |
| Other Noncurrent Assets | 36.3 | | | 33.8 | |
| Total Assets | $ | 4,464.0 |
| | $ | 4,358.5 |
| Total Assets | $ | 10,458.5 | | | $ | 10,367.4 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
| Current Liabilities: | | | | Current Liabilities: | |
| Accounts Payable | $ | 417.2 |
| | $ | 334.2 |
| Accounts Payable | $ | 652.8 | | | $ | 643.8 | |
| Dividends Payable | 11.5 |
| | 10.7 |
| Dividends Payable | 23.3 | | | 22.3 | |
| Current Hedging Obligations | 9.1 |
| | 49.0 |
| |
| | Accrued Compensation and Employee Benefits | 78.8 |
| | 70.1 |
| Accrued Compensation and Employee Benefits | 124.8 | | | 143.9 | |
| Other Accrued Expenses | 117.7 |
| | 137.0 |
| Other Accrued Expenses | 261.9 | | | 253.2 | |
| | Current Operating Lease Liabilities | | Current Operating Lease Liabilities | 27.4 | | | 27.2 | |
| Current Maturities of Long-Term Debt | 100.6 |
| | 100.6 |
| Current Maturities of Long-Term Debt | 30.6 | | | 4.9 | |
| Total Current Liabilities | 734.9 |
| | 701.6 |
| Total Current Liabilities | 1,120.8 | | | 1,095.3 | |
| Long-Term Debt | 1,113.8 |
| | 1,310.9 |
| Long-Term Debt | 2,132.5 | | | 1,913.6 | |
| Deferred Income Taxes | 158.6 |
| | 97.7 |
| Deferred Income Taxes | 620.1 | | | 679.7 | |
| Noncurrent Hedging Obligations | 0.6 |
| | 17.6 |
| |
| | Pension and Other Post Retirement Benefits | 102.8 |
| | 106.5 |
| Pension and Other Post Retirement Benefits | 102.9 | | | 111.7 | |
| Noncurrent Operating Lease Liabilities | | Noncurrent Operating Lease Liabilities | 90.5 | | | 89.5 | |
| Other Noncurrent Liabilities | 50.9 |
| | 46.0 |
| Other Noncurrent Liabilities | 76.0 | | | 69.4 | |
| Commitments and Contingencies (see Note 12) |
| |
| |
| Contingencies (see Note 12) | | Contingencies (see Note 12) | 0 | | 0 |
| Equity: | | | | Equity: | |
| Regal Beloit Corporation Shareholders' Equity: | | | | |
| Common Stock, $.01 par value, 100.0 Million Shares Authorized, 44.3 Million and 44.8 Million Shares Issued and Outstanding in 2017 and 2016, Respectively | 0.4 |
| | 0.4 |
| |
| Regal Rexnord Corporation Shareholders' Equity: | | Regal Rexnord Corporation Shareholders' Equity: | |
| Common Stock, $0.01 par value, 100.0 Million Shares Authorized, 66.5 Million and 67.6 Million Shares Issued and Outstanding for 2022 and 2021, Respectively | | Common Stock, $0.01 par value, 100.0 Million Shares Authorized, 66.5 Million and 67.6 Million Shares Issued and Outstanding for 2022 and 2021, Respectively | 0.7 | | | 0.7 | |
| Additional Paid-In Capital | 874.5 |
| | 904.5 |
| Additional Paid-In Capital | 4,611.6 | | | 4,651.8 | |
| Retained Earnings | 1,571.5 |
| | 1,452.0 |
| Retained Earnings | 1,996.6 | | | 1,912.6 | |
| Accumulated Other Comprehensive Loss | (177.3 | ) | | (318.1 | ) | Accumulated Other Comprehensive Loss | (332.2) | | | (195.1) | |
| Total Regal Beloit Corporation Shareholders' Equity | 2,269.1 |
| | 2,038.8 |
| |
| Total Regal Rexnord Corporation Shareholders' Equity | | Total Regal Rexnord Corporation Shareholders' Equity | 6,276.7 | | | 6,370.0 | |
| Noncontrolling Interests | 33.3 |
| | 39.4 |
| Noncontrolling Interests | 39.0 | | | 38.2 | |
| Total Equity | 2,302.4 |
| | 2,078.2 |
| Total Equity | 6,315.7 | | | 6,408.2 | |
| Total Liabilities and Equity | $ | 4,464.0 |
| | $ | 4,358.5 |
| Total Liabilities and Equity | $ | 10,458.5 | | | $ | 10,367.4 | |
See accompanyingAccompanying Notes to Condensed Consolidated Financial Statements.
REGAL BELOITREXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Dollars in Millions, Except Per Share Data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock $.01 Par Value | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non- controlling Interests | | Total Equity |
| Balance as of January 2, 2016 | $ | 0.4 |
| | $ | 900.8 |
| | $ | 1,291.1 |
| | $ | (255.0 | ) | | $ | 45.5 |
| | $ | 1,982.8 |
|
| Net Income | — |
| | — |
| | 157.8 |
| | — |
| | 4.4 |
| | 162.2 |
|
| Other Comprehensive Income (Loss) | — |
| | — |
| | — |
| | 1.3 |
| | (0.4 | ) | | 0.9 |
|
| Dividends Declared ($0.71 Per Share) | — |
| | — |
| | (31.7 | ) | | — |
| | — |
| | (31.7 | ) |
| Stock Options Exercised, Including Income Tax Benefit and Share Cancellations | — |
| | (2.1 | ) | | — |
| | — |
| | — |
| | (2.1 | ) |
| Dividends Declared to Noncontrolling Interests | — |
| | — |
| | — |
| | — |
| | (0.3 | ) | | (0.3 | ) |
| Share-based Compensation | — |
| | 10.1 |
| | — |
| | — |
| | — |
| | 10.1 |
|
| Purchase of Subsidiary Shares from Noncontrolling Interest | — |
| | (7.2 | ) | | — |
| | (2.7 | ) | | (9.7 | ) | | (19.6 | ) |
| Balance as of October 1, 2016 | $ | 0.4 |
| | $ | 901.6 |
| | $ | 1,417.2 |
| | $ | (256.4 | ) | | $ | 39.5 |
| | $ | 2,102.3 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| Common Stock $0.01 Par Value | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Equity |
| March 31, 2022 | $ | 0.7 | | | $ | 4,631.1 | | | $ | 1,927.5 | | | $ | (175.6) | | | $ | 40.1 | | | $ | 6,423.8 | |
| Net Income | — | | | — | | | 142.0 | | | — | | | 1.2 | | | 143.2 | |
| Other Comprehensive Loss | — | | | — | | | — | | | (156.6) | | | (2.3) | | | (158.9) | |
| Dividends Declared ($0.35 Per Share) | — | | | — | | | (23.2) | | | — | | | — | | | (23.2) | |
| Stock Options Exercised | — | | | (4.3) | | | — | | | — | | | — | | | (4.3) | |
| Stock Repurchase | — | | | (20.1) | | | (49.7) | | | — | | | — | | | (69.8) | |
| Share-Based Compensation | — | | | 4.9 | | | — | | | — | | | — | | | 4.9 | |
| | | | | | | | | | | |
| June 30, 2022 | $ | 0.7 | | | $ | 4,611.6 | | | $ | 1,996.6 | | | $ | (332.2) | | | $ | 39.0 | | | $ | 6,315.7 | |
| | | | | | | | | | | |
| April 3, 2021 | $ | 0.4 | | | $ | 698.1 | | | $ | 2,105.8 | | | $ | (178.5) | | | $ | 33.7 | | | $ | 2,659.5 | |
| | | | | | | | | | | |
| Net Income | — | | | — | | | 84.4 | | | — | | | 1.6 | | | 86.0 | |
| Other Comprehensive Income | — | | | — | | | — | | | 14.4 | | | 0.7 | | | 15.1 | |
| Dividends Declared ($0.33 Per Share) | — | | | — | | | (13.4) | | | — | | | — | | | (13.4) | |
| Stock Options Exercised | — | | | (4.2) | | | — | | | — | | | — | | | (4.2) | |
| | | | | | | | | | | |
| Share-Based Compensation | — | | | 4.5 | | | — | | | — | | | — | | | 4.5 | |
| Dividends Declared to Noncontrolling Interests | — | | | — | | | — | | | — | | | (4.5) | | | (4.5) | |
| | | | | | | | | | | |
| July 3, 2021 | $ | 0.4 | | | $ | 698.4 | | | $ | 2,176.8 | | | $ | (164.1) | | | $ | 31.5 | | | $ | 2,743.0 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock $.01 Par Value | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non- controlling Interests | | Total Equity |
| Balance as of December 31, 2016 | $ | 0.4 |
| | $ | 904.5 |
| | $ | 1,452.0 |
| | $ | (318.1 | ) | | $ | 39.4 |
| | $ | 2,078.2 |
|
| Net Income | — |
| | — |
| | 161.5 |
| | — |
| | 4.0 |
| | 165.5 |
|
| Other Comprehensive Income | — |
| | — |
| | — |
| | 140.8 |
| | 1.6 |
| | 142.4 |
|
| Dividends Declared ($0.76 Per Share) | — |
| | — |
| | (33.9 | ) | | — |
| | — |
| | (33.9 | ) |
| Stock Options Exercised | — |
| | (3.3 | ) | | — |
| | — |
| | — |
| | (3.3 | ) |
| Stock Repurchase | — |
| | (37.0 | ) | | (8.1 | ) | | — |
| | — |
| | (45.1 | ) |
| Dividends Declared to Noncontrolling Interests | — |
| | — |
| | — |
| | — |
| | (11.7 | ) | | (11.7 | ) |
| Share-based Compensation | — |
| | 10.3 |
| | — |
| | — |
| | — |
| | 10.3 |
|
| Balance as of September 30, 2017 | $ | 0.4 |
| | $ | 874.5 |
| | $ | 1,571.5 |
| | $ | (177.3 | ) | | $ | 33.3 |
| | $ | 2,302.4 |
|
See accompanyingAccompanying Notes to Condensed Consolidated Financial Statements.
REGAL BELOITREXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Dollars in Millions, Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| Common Stock $0.01 Par Value | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Equity |
| January 1, 2022 | $ | 0.7 | | | $ | 4,651.8 | | | $ | 1,912.6 | | | $ | (195.1) | | | $ | 38.2 | | | $ | 6,408.2 | |
| Net Income | — | | | — | | | 267.6 | | | — | | | 2.7 | | | 270.3 | |
| Other Comprehensive Loss | — | | | — | | | — | | | (137.1) | | | (1.9) | | | (139.0) | |
| Dividends Declared ($0.68 Per Share) | — | | | — | | | (45.3) | | | — | | | — | | | (45.3) | |
| Stock Options Exercised | — | | | (5.7) | | | — | | | — | | | — | | | (5.7) | |
| Stock Repurchase | — | | | (45.7) | | | (138.3) | | | — | | | — | | | (184.0) | |
| Share-Based Compensation | — | | | 11.2 | | | — | | | — | | | — | | | 11.2 | |
| | | | | | | | | | | |
| June 30, 2022 | $ | 0.7 | | | $ | 4,611.6 | | | $ | 1,996.6 | | | $ | (332.2) | | | $ | 39.0 | | | $ | 6,315.7 | |
| | | | | | | | | | | |
| January 2, 2021 | 0.4 | | | 696.6 | | | 2,049.1 | | | (163.3) | | | 32.6 | | | 2,615.4 | |
| Net Income | — | | | — | | | 153.3 | | | — | | | 3.0 | | | 156.3 | |
| Other Comprehensive (Loss) Income | — | | | — | | | — | | | (0.8) | | | 0.4 | | | (0.4) | |
| Dividends Declared ($0.63 Per Share) | — | | | — | | | (25.6) | | | — | | | — | | | (25.6) | |
| Stock Options Exercised | — | | | (6.0) | | | — | | | — | | | — | | | (6.0) | |
| | | | | | | | | | | |
| Share-Based Compensation | — | | | 7.8 | | | — | | | — | | | — | | | 7.8 | |
| Dividends Declared to Noncontrolling Interests | — | | | — | | | — | | | — | | | (4.5) | | | (4.5) | |
| | | | | | | | | | | |
| July 3, 2021 | $ | 0.4 | | | $ | 698.4 | | | $ | 2,176.8 | | | $ | (164.1) | | | $ | 31.5 | | | $ | 2,743.0 | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | Nine Months Ended | | Six Months Ended |
| | September 30,
2017 | | October 1,
2016 | | June 30, 2022 | | July 3, 2021 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net Income | $ | 165.5 |
| | $ | 162.2 |
| Net Income | $ | 270.3 | | | $ | 156.3 | |
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities (Net of Acquisitions and Divestitures): | | | | |
| Adjustments to Reconcile Net Income to Net Cash (Used in) Provided by Operating Activities (Net of Acquisitions and Divestitures): | | Adjustments to Reconcile Net Income to Net Cash (Used in) Provided by Operating Activities (Net of Acquisitions and Divestitures): | |
| Depreciation and Amortization | 103.1 |
| | 116.6 |
| Depreciation and Amortization | 156.3 | | | 62.3 | |
| | Asset Impairments | | Asset Impairments | — | | | 2.3 | |
| Noncash Lease Expense | | Noncash Lease Expense | 20.6 | | | 12.4 | |
| (Gain) Loss on Sale or Disposition of Assets, Net | (2.0 | ) | | 0.9 |
| (Gain) Loss on Sale or Disposition of Assets, Net | (1.7) | | | 0.5 | |
| Share-Based Compensation Expense | 10.3 |
| | 10.1 |
| Share-Based Compensation Expense | 11.2 | | | 7.8 | |
| Exit of Business | 3.9 |
| | — |
| |
| Gain on Sale of Businesses | (0.1 | ) | | (11.6 | ) | |
| Change in Operating Assets and Liabilities, Net of Acquisitions and Divestitures | (45.7 | ) | | 52.2 |
| |
| Net Cash Provided By Operating Activities | 235.0 |
| | 330.4 |
| |
| Financing Fees Amortization | | Financing Fees Amortization | 1.4 | | | 8.6 | |
| | Change in Operating Assets and Liabilities | | Change in Operating Assets and Liabilities | (353.2) | | | (113.6) | |
| Net Cash Provided by Operating Activities | | Net Cash Provided by Operating Activities | 104.9 | | | 136.6 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | |
| Additions to Property, Plant and Equipment | (49.0 | ) | | (46.1 | ) | Additions to Property, Plant and Equipment | (32.6) | | | (24.3) | |
| Sales of Investment Securities | 0.9 |
| | 43.2 |
| |
| Purchases of Investment Securities | (0.9 | ) | | (53.7 | ) | |
| Proceeds from Sale of Businesses | 1.1 |
| | 25.5 |
| |
| Proceeds from Sale of Assets | 5.9 |
| | 1.6 |
| |
| Net Cash Used In Investing Activities | (42.0 | ) | | (29.5 | ) | |
| Proceeds Received from Sales of Property, Plant and Equipment | | Proceeds Received from Sales of Property, Plant and Equipment | 5.5 | | | 1.8 | |
| | Business Acquisitions, Net of Cash Acquired | | Business Acquisitions, Net of Cash Acquired | (35.0) | | | (3.8) | |
| | Net Cash Used in Investing Activities | | Net Cash Used in Investing Activities | (62.1) | | | (26.3) | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | |
| Borrowings Under Revolving Credit Facility | 938.4 |
| | 447.0 |
| Borrowings Under Revolving Credit Facility | 1,521.5 | | | 183.7 | |
| Repayments Under Revolving Credit Facility | (926.9 | ) | | (437.0 | ) | Repayments Under Revolving Credit Facility | (1,698.2) | | | (183.7) | |
| Proceeds from Short-Term Borrowings | 18.2 |
| | 20.9 |
| Proceeds from Short-Term Borrowings | 6.0 | | | 6.2 | |
| Repayments of Short-Term Borrowings | (18.2 | ) | | (27.7 | ) | Repayments of Short-Term Borrowings | (8.0) | | | (6.2) | |
| Proceeds from Long-Term Borrowings | 0.3 |
| | — |
| Proceeds from Long-Term Borrowings | 1,536.8 | | | — | |
| Repayments of Long-Term Borrowings | (212.2 | ) | | (218.1 | ) | Repayments of Long-Term Borrowings | (1,108.4) | | | (50.2) | |
| Dividends Paid to Shareholders | (33.1 | ) | | (31.3 | ) | Dividends Paid to Shareholders | (44.3) | | | (24.4) | |
| Shares Surrendered for Taxes | (3.7 | ) | | (2.2 | ) | Shares Surrendered for Taxes | (8.1) | | | (6.1) | |
| Proceeds from the Exercise of Stock Options | 0.4 |
| | 0.5 |
| Proceeds from the Exercise of Stock Options | 3.4 | | | 0.1 | |
| Payments of Contingent Consideration | (5.3 | ) | | — |
| |
| | Repurchase of Common Stock | (45.1 | ) | | — |
| Repurchase of Common Stock | (184.0) | | | — | |
| Distributions to Noncontrolling Interests | (11.7 | ) | | (0.3 | ) | Distributions to Noncontrolling Interests | — | | | (4.5) | |
| Purchase of Subsidiary Shares from Noncontrolling Interest | — |
| | (19.6 | ) | |
| Net Cash Used In Financing Activities | (298.9 | ) | | (267.8 | ) | |
| | Financing Fees Paid | | Financing Fees Paid | (6.5) | | | (17.0) | |
| Net Cash Provided by (Used in) Financing Activities | | Net Cash Provided by (Used in) Financing Activities | 10.2 | | | (102.1) | |
| EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS | 8.0 |
| | (4.4 | ) | EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS | (23.3) | | | (1.0) | |
| Net Increase (Decrease) in Cash and Cash Equivalents | (97.9 | ) | | 28.7 |
| |
| Net Increase in Cash and Cash Equivalents | | Net Increase in Cash and Cash Equivalents | 29.7 | | | 7.2 | |
| Cash and Cash Equivalents at Beginning of Period | 284.5 |
| | 252.9 |
| Cash and Cash Equivalents at Beginning of Period | 672.8 | | | 611.3 | |
| Cash and Cash Equivalents at End of Period | $ | 186.6 |
| | $ | 281.6 |
| Cash and Cash Equivalents at End of Period | $ | 702.5 | | | $ | 618.5 | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
| Cash Paid For: | | | | Cash Paid For: | |
| Interest | $ | 46.8 |
| | $ | 46.7 |
| Interest | $ | 20.0 | | | $ | 15.3 | |
| Income taxes | $ | 45.0 |
| | $ | 54.6 |
| Income taxes | $ | 96.7 | | | $ | 46.3 | |
See accompanyingAccompanying Notes to Condensed Consolidated Financial Statements.
REGAL BELOITREXNORD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172022
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying (a) condensed consolidated balance sheetCondensed Consolidated Balance Sheet of Regal BeloitRexnord Corporation (the “Company”), as of December 31, 2016,January 1, 2022, which has been derived from audited consolidated financial statements,Consolidated Financial Statements, and (b) unaudited interim condensed consolidated financial statementsCondensed Consolidated Financial Statements as of SeptemberJune 30, 20172022 and for the three and ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016,July 3, 2021, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
It is suggested that these condensed consolidated financial statementsCondensed Consolidated Financial Statements be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and the notesNotes thereto included in the Company’s 20162021 Annual Report on Form 10-K filed on March 1, 2017.2, 2022.
In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Except as otherwise discussed, such adjustments consist of only those of a normal recurring nature. Operating results for the three and ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 30, 2017.31, 2022.
The condensed consolidated financial statementsCondensed Consolidated Financial Statements have been prepared in accordance with GAAP, which requirerequires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statementsCondensed Consolidated Financial Statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company uses estimates in accounting for, among other items, allowance for doubtful accounts; excess and obsolete inventory; share-based compensation; acquisitions; product warranty obligations; pension and post retirement assets and liabilities; derivative fair values; goodwill and other asset impairments; health care reserves; retirement benefits; rebates and incentives; litigation claims and contingencies, including environmental matters; and income taxes. The Company accounts for changes to estimates and assumptions when warranted by factually based experience.
TheEffective for fiscal year 2022, the Company operates onapproved a 52/53change in the fiscal year end from a 52-53 week fiscal year ending on the Saturday closest to December 31. to a calendar year ending on December 31. The Company made the fiscal year change on a prospective basis and did not adjust operating results for prior periods. While this change will impact the comparability of future results with each of the fiscal quarters and the annual fiscal period in 2022, the impact is not expected to be material to our quarterly or annual results.
NewChange in Accounting Principle
As of January 2, 2022, the Company changed its methodology for valuing certain inventories to the first-in, first-out ("FIFO") cost method from the last-in, first-out ("LIFO") cost method. The effects of this change have been retrospectively applied to all periods presented. See Note 2 for additional information.
Recently Issued Accounting Standards
In August 2017,October 2021, the Financial Accounting Standards Board (the "FASB"("FASB") issued Accounting Standards Update ("ASU") 2017-12, Derivatives and HedgingASU 2021-08, Business Combinations (Topic 815) - Targeted Improvements to805) Accounting for Hedging Activities. The amendments in this update better align an entity’s risk management activitiesContract Assets and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.Contract Liabilities from Contracts with Customers. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company plans to adopt this pronouncement for fiscal years beginning December 30, 2018. Early adoption is permitted. The Company is currently evaluatingimproves the impact of the pending adoption of this standard on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Stock Compensation - Scope of Modification Accounting. The ASU amends the scope of modification accounting for share-based payment arrangements. Theacquired revenue contracts with customers in a business combination. This ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification ("ASC") 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted and prospective application is required. The Company plans to adopt this pronouncement for fiscal years beginning December 31, 2017 and will consider the impact that this standard may have on future share based award changes, should they occur.
In February 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU amends current guidance to require employers that present a measure of operating income in their statement of income to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in nonoperating expenses. Employers that do not present a measure of operating income are required to include the service cost component in the same line item as other employee compensation costs. The ASU also stipulates that only the
service cost component of net benefit cost is eligible for capitalization. The changes, which respond to input from financial statement users, are intended to classify costs according to their natures, and better align the effect of defined benefit plans on operating income with International Financial Reporting Standards. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company plans to adopt this pronouncement for fiscal years beginning December 31, 2017. The ASU will impact the components of income before taxes but will not impact the amount of income before taxes.
In February 2016, the FASB issued ASU 2016-02, Leases. The core principle of ASU 2016-02 is that an entity should recognize on its balance sheet assets and liabilities arising from a lease. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying leased asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on the lease classification as a finance or operating lease. This new accounting guidance isbecomes effective for fiscal years beginning after December 15, 2018 under a modified retrospective approach and31, 2022, with early adoption is permitted. The Company has identified a six step processis evaluating the effect of adopting this new accounting guidance.
2. OTHER FINANCIAL INFORMATION
Inventories
As of January 2, 2022, the Company changed its method for valuing certain inventories to successfully implement the new Lease standard: Form a task force to become experts and takeFIFO cost method from the lead on understanding and implementing the new Lease standard; Update lease inventories; Decide on transition method; Review legal agreements and debt covenants; Consider IT needs; Discuss with stakeholders.LIFO cost method. The Company believes that this change in accounting is currently evaluatingpreferable as it provides a better matching of costs and revenues, more closely resembles the impactphysical flow of inventory, better reflects acquisition cost of inventory on the adoptionbalance sheet, conforms the Company's method of ASU 2016-02 willinventory valuation to a single method, results in improved comparability with industry peers and reduces the administrative burden of determining the LIFO valuation.
The effects of this change have on its consolidated financial statements and has commenced the first step of identifying a task forcebeen retrospectively applied to take the leadall periods presented. This change resulted in implementing the new Lease standard.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), a comprehensive new revenue recognition standard that supersedes current revenue recognition requirements. This update requires the Company to recognize revenue at amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services at the time of transfer. The new standard will also require additional qualitative and quantitative disclosures about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized from the costs to obtain or fulfill a contract. ASU No. 2014-09 (and related updates) will become effective for the Company at the beginning of its 2018 fiscal year. The standard allows the option of using either a full retrospective or a modified retrospective approach for the adoption of the standard. The Company plans to adopt this accounting standard update using the modified retrospective method which will result in a cumulative effect adjustmentan increase to retained earnings of $38.4 million as of January 1, 2018.2, 2021.
The Company has identified a four step process to implement the new revenue standard - data gathering, assessment, solution development, and solution implementation. The Company has substantially completed step one, data gathering and step two, assessment. The Company expects to be complete with step three, solution development and step four, solution implementation by the first quarter of 2018. The Company has not finalized the impact on reported revenues and earnings of adopting the new standard, however, the Company does not expect the new revenue standard to have a material impact on the Company's pattern of revenue recognition, operating revenue, results of operations orIn addition, certain financial position. The Company isstatement line items in the process of drafting updated accounting policies, evaluating new disclosure requirements, and identifying and implementing appropriate changes to its business processes, systems and controls to support revenue recognition and disclosure under the new guidance.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The new guidance includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The provisions include:
| |
a. | recording all tax effects associated with stock-based compensation through the income statement, as opposed to recording certain amounts in other paid-in capital, which eliminates the requirement to calculate a "windfall pool"; |
| |
b. | allowing entities to withhold shares to satisfy the employer's statutory tax withholding requirement up to the highest marginal tax rate applicable to employees rather than the employer's minimum statutory rate, without requiring liability classification for the award; |
| |
c. | modifying the requirement to estimate the number of awards that will ultimately vest by providing an accounting policy election to either estimate the number of forfeitures or recognize forfeitures as they occur; |
| |
d. | changing certain presentation requirements in the statement of cash flows, including removing the requirement to present excess tax benefits as an inflow from financing activities and an outflow from operating activities, and requiring the cash paid to taxing authorities arising from withheld shares to be classified as a financing activity; and |
| |
e. | the assumed proceeds from applying the treasury stock method when computing earnings per share is amended to exclude the amount of excess tax benefits that previously would have been recognized in additional paid-in capital. |
The Company adopted the provisions of ASU 2016-09 on January 1, 2017. As a result of adopting the standard, the Changes in Operating Assets and Liabilities, Net of Acquisitions and Divestitures line in the Cash Flows From Operating Activities section on theour Condensed Consolidated Statements of Cash FlowsOperations and Condensed Consolidated Statements of Comprehensive Income for the Shares Surrendered for Taxes line in the Cash Flows from Financing Activities section were both adjusted by $2.2 million for 2016. The presentation on thethree and six months ended July 3, 2021, Condensed Consolidated Statements of Cash Flows for shares surrendered by employees to meet the minimum statutory withholding requirementsix months ended July 3, 2021 and excess
tax benefits were applied retrospectively. In addition, the Excess Tax Expense from Share-Based Compensation lines in the Cash Flows from Operating Activities section and the Cash Flows from Financing Activities section were removed. The Company removed the excess tax benefits from the calculation of dilutive shares on a prospective basis. In addition, the Company began recording all tax effects associated with stock-based compensation through the income statement on a prospective basis. The Company did not have any awards classified as liability awards due to the statutory tax withholding requirementsour Condensed Consolidated Balance Sheet as of January 1, 2017. The Company made an accounting policy election to continue to estimate forfeitures2022, were adjusted as it had previously.follows (dollars in millions):
2. OTHER FINANCIAL INFORMATION | | | | | | | | | | | | | | | | | | | | |
| | As Originally Reported | | Effect of Change | | As Adjusted |
| Condensed Consolidated Statement of Operations for the three months ended July 3, 2021 | | | | | | |
| Cost of Sales | | $ | 635.4 | | | $ | (6.2) | | | $ | 629.2 | |
| Provision for Income Taxes | | $ | 19.2 | | | $ | 1.4 | | | $ | 20.6 | |
| Net income attributable to Regal Rexnord Corporation | | $ | 79.6 | | | $ | 4.8 | | | $ | 84.4 | |
| | | | | | |
| Earnings Per Share Attributable to Regal Rexnord Corporation: | | | | | | |
| Basic | | $ | 1.96 | | | $ | 0.12 | | | $ | 2.07 | |
| Assuming Dilution | | $ | 1.94 | | | $ | 0.12 | | | $ | 2.06 | |
| | | | | | |
| Condensed Consolidated Statement of Operations for the six months ended July 3, 2021 | | | | | | |
| Cost of Sales | | $ | 1,204.1 | | | $ | (10.6) | | | $ | 1,193.5 | |
| Provision for Income Taxes | | $ | 39.4 | | | $ | 2.5 | | | $ | 41.9 | |
| Net income attributable to Regal Rexnord Corporation | | $ | 145.2 | | | $ | 8.1 | | | $ | 153.3 | |
| | | | | | |
| Earnings Per Share Attributable to Regal Rexnord Corporation: | | | | | | |
| Basic | | $ | 3.57 | | | $ | 0.21 | | | $ | 3.78 | |
| Assuming Dilution | | $ | 3.54 | | | $ | 0.20 | | | $ | 3.74 | |
| | | | | | |
| Condensed Consolidated Balance Sheet as of January 1, 2022 | | | | | | |
| Inventories | | $ | 1,106.6 | | | $ | 85.8 | | | $ | 1,192.4 | |
| Deferred Income Taxes | | $ | 652.0 | | | $ | 27.7 | | | $ | 679.7 | |
| Retained Earnings | | $ | 1,854.5 | | | $ | 58.1 | | | $ | 1,912.6 | |
| | | | | | |
| Condensed Consolidated Statement of Cash Flows for the six months ended July 3, 2021 | | | | | | |
| Net Income | | $ | 148.2 | | | $ | 8.1 | | | $ | 156.3 | |
| Change in Operating Assets and Liabilities | | $ | (105.5) | | | $ | (8.1) | | | $ | (113.6) | |
| | | | | | |
| Condensed Consolidated Statement of Comprehensive Income for the three months ended July 3, 2021 | | | | | | |
| Comprehensive income attributable to Regal Rexnord Corporation | | $ | 94.0 | | | $ | 4.8 | | | $ | 98.8 | |
| | | | | | |
| Condensed Consolidated Statement of Comprehensive Income for the six months ended July 3, 2021 | | | | | | |
| Comprehensive income attributable to Regal Rexnord Corporation | | $ | 144.4 | | | $ | 8.1 | | | $ | 152.5 | |
Inventories
The following table presents approximate percentage distribution between major classes of inventories was as follows:inclusive of the accounting method change discussed above:
| | | | September 30,
2017 | | December 31,
2016 | | June 30, 2022 | | January 1, 2022 |
| Raw Material and Work in Process | 48% | | 45% | Raw Material and Work in Process | 47.6% | | 43.4% |
| Finished Goods and Purchased Parts | 52% | | 55% | Finished Goods and Purchased Parts | 52.4% | | 56.6% |
Inventories are stated at cost, which is not in excess of market. Cost for approximately 53% of the Company'sAll inventory at September 30, 2017, and 55% at December 31, 2016 was determinedis valued using the LIFOFIFO cost method.
Property, Plant, and Equipment
Property,The following table presents property, plant, and equipment by major classification was as follows (dollars in millions):
| | | | | | | | | | | | | | | | | |
| Useful Life in Years | | June 30, 2022 | | January 1, 2022 |
| Land and Improvements | | | $ | 104.8 | | | $ | 109.1 | |
| Buildings and Improvements | 3 - 50 | | 412.3 | | | 449.6 | |
| Machinery and Equipment | 3 - 15 | | 1,125.1 | | | 1,164.8 | |
| Property, Plant and Equipment | | | 1,642.2 | | | 1,723.5 | |
| Less: Accumulated Depreciation | | | (820.2) | | | (815.0) | |
| Net Property, Plant and Equipment | | | $ | 822.0 | | | $ | 908.5 | |
|
| | | | | | | | | |
| | Useful Life in Years | | September 30,
2017 | | December 31,
2016 |
| Land and Improvements | | | $ | 78.9 |
| | $ | 76.7 |
|
| Buildings and Improvements | 3 - 50 | | 294.8 |
| | 280.4 |
|
| Machinery and Equipment | 3 - 15 | | 979.2 |
| | 929.9 |
|
| Property, Plant and Equipment | | | 1,352.9 |
| | 1,287.0 |
|
| Less: Accumulated Depreciation | | | (719.2 | ) | | (659.5 | ) |
| Net Property, Plant and Equipment | | | $ | 633.7 |
| | $ | 627.5 |
|
Other
As part ofFor the purchase agreement of the 2008 acquisition of the Wuxi Hwada Motor Co.,three and six months ended June 30, 2022, the Company agreed that if certain relocation compensation was received forrecognized no material asset impairments. For the relocation of the business,three and six months ended July 3, 2021, the Company would pay a portionrecognized $2.3 million of that compensation to the seller as part of a deferred contingent purchase price. During the first quarter of 2017, a final deferred contingent purchase price payment of $5.3 million was made under this agreement.
3. ACQUISITIONS AND DIVESTITURES
There were no acquisition related expenses for the nine months ended September 30, 2017 and October 1, 2016.
2016 Acquisitions
Elco Purchase
On January 18, 2016, the Company purchased the remaining shares owned by the joint venture partner in its Elco Group B.V. (“Elco”) joint venture increasing the Company’s ownership from 55.0% to 100.0% for $19.6 million. The purchase price of Elco is reflected as a component of equity.
2016 Divestitures
Mastergear Worldwide
On June 1, 2016, the Company sold its Mastergear Worldwide ("Mastergear") business to Rotork PLC for a purchase price of $25.7 million. Mastergear was included in the Company's Power Transmission Solutions segment. Gainsasset impairments related to the transfer of assets to held for sale.
Revenue Recognition
The Company recognizes revenue from the sale of $0.1 millionelectric motors, electrical motion controls, power generation and $11.6 million were recordedpower transmission products. The Company recognizes revenue when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.
Nature of Goods and Services
The Company sells products with multiple applications as well as customized products that have a single application such as those manufactured for its OEM customers. The Company reports in 4 operating segments: Commercial Systems, Industrial Systems, Climate Solutions and Motion Control Solutions. See Note 6 for a description of the different segments.
Nature of Performance Obligations
The Company’s contracts with customers typically consist of purchase orders, invoices and master supply agreements. At contract inception, across all 4 segments, the Company assesses the goods and services promised in its sales arrangements with customers and identifies a performance obligation for each promise to transfer to the customer a good or service that is distinct. The Company’s primary performance obligations consist of product sales and customized system/solutions.
Product:
The nature of products varies from segment to segment but across all segments, individual products are not integrated and represent separate performance obligations.
Customized system/solutions:
The Company provides customized system/solutions which consist of multiple products engineered and designed to specific customer specification, combined or integrated into one combined solution for a specific customer application. The goods are transferred to the customer and revenue is typically recognized over time as the performance obligations are satisfied.
When Performance Obligations are Satisfied
For performance obligations related to substantially all of the Company's product sales, the Company determines that the customer obtains control upon shipment and recognizes revenue accordingly. Once a product has shipped, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from the asset. The Company considers control to have transferred upon shipment because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.
For a limited number of contracts, the Company transfers control and recognizes revenue over time. The Company satisfies its performance obligations over time and the Company uses a cost-based input method to measure progress. In applying the cost-based method of revenue recognition, the Company uses actual costs incurred to date relative to the total estimated costs for the contract in conjunction with the customer's commitment to perform in determining the amount of revenue and cost to recognize. The Company has determined that the cost-based input method provides a faithful depiction of the transfer of goods to the customer.
Payment Terms
The arrangement with the customer states the final terms of the sale, including the description, quantity, and price of each product or service purchased. Payment terms vary by customer but typically range from due upon delivery to 120 days after delivery. For contracts recognized at a point in time, revenue and billing typically occur simultaneously. The Company generally has payment terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider the time value of money. For contracts recognized using the cost-based input method, revenue recognized in excess of customer billings and billings in excess of revenue recognized are reviewed to determine the net asset or net liability position and classified as such on the Condensed Consolidated Balance Sheets.
Returns, Refunds, and Warranties
The Company’s contracts do not explicitly offer a “general” right of return to its customers (e.g., customers ordered excess products and return unused items). Warranties are classified as either assurance type or service type warranties. A warranty is considered an assurance type warranty if it provides the customer with assurance that the product will function as intended. A warranty that goes above and beyond ensuring basic functionality is considered a service type warranty. The Company generally only offers limited warranties which are considered to be assurance type warranties and are not accounted for as separate performance obligations. Customers generally receive repair or replacement on products that do not function to specification. Estimated product warranties are provided for specific product groups and the Company accrues for estimated future warranty cost in the period in which the sale is recognized. The Company estimates the accrual requirements based on historical warranty loss experience and the cost is included in Cost of Sales.
Volume Rebates
In some cases, the nature of the Company’s contract may give rise to variable consideration including volume based sales incentives. If the customer achieves specific sales targets, they are entitled to rebates. The Company estimates the projected amount of the rebates that will be achieved and recognizes the estimated costs as a reduction to Operating ExpensesNet Sales as revenue is recognized.
Disaggregation of Revenue
The following tables presents the Company’s revenues disaggregated by geographical region (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| June 30, 2022 | | Commercial Systems | | Industrial Systems | | Climate Solutions | | Motion Control Solutions | | Total |
| North America | | $ | 210.8 | | | $ | 92.4 | | | $ | 254.3 | | | $ | 427.0 | | | $ | 984.5 | |
| Asia | | 44.6 | | | 37.6 | | | 10.0 | | | 38.4 | | | 130.6 | |
| Europe | | 33.9 | | | 13.3 | | | 14.1 | | | 102.9 | | | 164.2 | |
| Rest-of-World | | 12.6 | | | 11.4 | | | 15.1 | | | 31.0 | | | 70.1 | |
| Total | | $ | 301.9 | | | $ | 154.7 | | | $ | 293.5 | | | $ | 599.3 | | | $ | 1,349.4 | |
| | | | | | | | | | |
| July 3, 2021 | | Commercial Systems | | Industrial Systems | | Climate Solutions | | Motion Control Solutions | | Total |
| North America | | $ | 176.1 | | | $ | 73.9 | | | $ | 226.7 | | | $ | 173.2 | | | $ | 649.9 | |
| Asia | | 53.5 | | | 46.9 | | | 7.7 | | | 7.4 | | | 115.5 | |
| Europe | | 26.7 | | | 12.1 | | | 10.4 | | | 25.1 | | | 74.3 | |
| Rest-of-World | | 13.0 | | | 12.3 | | | 12.5 | | | 9.4 | | | 47.2 | |
| Total | | $ | 269.3 | | | $ | 145.2 | | | $ | 257.3 | | | $ | 215.1 | | | $ | 886.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended |
| June 30, 2022 | | Commercial Systems | | Industrial Systems | | Climate Solutions | | Motion Control Solutions | | Total |
| North America | | $ | 416.7 | | | $ | 174.8 | | | $ | 492.8 | | | $ | 835.5 | | | $ | 1,919.8 | |
| Asia | | 86.8 | | | 77.0 | | | 18.2 | | | 72.8 | | | 254.8 | |
| Europe | | 66.6 | | | 25.6 | | | 27.7 | | | 201.0 | | | 320.9 | |
| Rest-of-World | | 25.1 | | | 22.0 | | | 28.7 | | | 76.6 | | | 152.4 | |
| Total | | $ | 595.2 | | | $ | 299.4 | | | $ | 567.4 | | | $ | 1,185.9 | | | $ | 2,647.9 | |
| | | | | | | | | | |
| July 3, 2021 | | Commercial Systems | | Industrial Systems | | Climate Solutions | | Motion Control Solutions | | Total |
| North America | | $ | 330.2 | | | $ | 145.0 | | | $ | 436.4 | | | $ | 337.0 | | | $ | 1,248.6 | |
| Asia | | 99.5 | | | 90.1 | | | 17.0 | | | 14.3 | | | 220.9 | |
| Europe | | 51.4 | | | 23.7 | | | 19.9 | | | 48.6 | | | 143.6 | |
| Rest-of-World | | 25.2 | | | 22.8 | | | 23.1 | | | 16.8 | | | 87.9 | |
| Total | | $ | 506.3 | | | $ | 281.6 | | | $ | 496.4 | | | $ | 416.7 | | | $ | 1,701.0 | |
3. HELD FOR SALE, DIVESTITURES AND ACQUISITIONS
Assets Held for Sale
The balances that were classified as Assets Held for Sale as of June 30, 2022 and January 1, 2022 were $10.6 million and $12.5 million, respectively.
2021 Acquisitions
Rexnord Transaction
On October 4, 2021, in accordance with the terms and conditions of the Agreement and Plan of Merger, dated as of February 15, 2021 (the “Merger Agreement”), the Company completed its combination with the Rexnord Process & Motion Control business (“Rexnord PMC business”) of Zurn Elkay Water Solutions Corporation (formerly known as Rexnord Corporation) (“Zurn”) in a Reverse Morris Trust transaction (the “Rexnord Transaction”). Pursuant to the Rexnord Transaction, (i) Zurn transferred to its then-subsidiary Land Newco, Inc. (“Land”) substantially all of the assets, and Land assumed substantially all of the liabilities, of the Rexnord PMC business (the “Reorganization”), (ii) 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 Zurn were distributed in a series of distributions to Zurn’s stockholders (the “Distributions”, and the final distribution of Land common stock from Zurn to Zurn’s stockholders, which was made pro rata for no consideration, the “Spin-Off”) and (iii) immediately after the Spin-Off, a subsidiary of the Company (“Merger Sub”) merged with and into Land (the “Merger”) and all shares of Land common stock (other than those held by Zurn, Land, the Company, Merger Sub or their respective subsidiaries) were converted as of the effective time of the Merger (the “Effective Time”) into the right to receive 0.22296103 shares of common stock, $0.01 par value per share, of the Company (“Company common stock”), as calculated in the Condensed Consolidated StatementsMerger Agreement.
As of Income during fiscal 2017 and 2016, respectively.the Effective Time, Land, which held the Rexnord PMC business, became a wholly owned subsidiary of the Company.
Venezuelan Subsidiary
On July 7, 2016,Pursuant to the Merger, the Company soldissued approximately 27,055,945 shares of Company common stock to holders of Land common stock, which represents approximately 39.9% of the approximately 67,756,732 outstanding shares of Company common stock immediately following the Effective Time. In addition, holders of record of Company common stock as of October 1, 2021 received $6.99 per share of Company common stock pursuant to a previously announced special dividend in connection with the Transactions (the “Special Dividend”).
In connection with the Rexnord Transaction, two directors designated by Zurn were appointed to the Company's Board of Directors. The current chief executive officer of the Company continued as the chief executive officer of the combined company after the Rexnord Transaction and a majority of the senior management of the Company immediately prior the consummation of the Rexnord Transaction remained executive officers of the Company immediately after the Rexnord Transaction. The Company's management determined that the Company is the accounting acquirer in the Rexnord Transaction based on the facts and circumstances noted within this section and other relevant factors. As such, the Company applied the acquisition method of accounting to the identifiable assets and liabilities of Rexnord PMC business, which have been measured at estimated fair value as of the date of the business combination.
In connection with the Rexnord Transaction, the Company entered into certain financing arrangements, which are described in Note 7.
The tax matters agreement the Company entered into in connection with the Rexnord Transaction imposes certain restrictions on the Company, Land and Zurn during the two-year period following the Spin-Off, subject to certain exceptions, with respect to actions that could cause the Reorganization and the Distributions to fail to qualify for the intended tax treatment. As a result of these restrictions, the Company's and Land’s ability to engage in certain transactions, such as the issuance or purchase of stock or certain business combinations, may be limited.
The total consideration transferred for the acquisition of Land was approximately $4.0 billion subject to finalization of purchase accounting adjustments. The total assets and liabilities assumed will be adjusted, based on the final balances per the terms included within the Separation and Distribution Agreement.
The preliminary purchase price of the Rexnord PMC business consisted of the following (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | As Reported as of January 1, 2022 | | Measurement period adjustments | | As Reported as of June 30, 2022 |
| | | | | | |
| Fair value of Company common stock issued to Zurn (a) | | $ | 3,896.3 | | | $ | — | | | $ | 3,896.3 | |
| Stock based compensation (b) | | 47.1 | | | — | | | 47.1 | |
| Adjustment amount (c) | | 30.9 | | | 4.1 | | | 35.0 | |
| Land Financing Fees paid by the Company (d) | | 3.9 | | | — | | | 3.9 | |
| Preexisting Relationships (e) | | (0.8) | | | — | | | (0.8) | |
| Preliminary purchase price | | $ | 3,977.4 | | | $ | 4.1 | | | $ | 3,981.5 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(a) Represents approximately 27 million new shares of Company common stock issued to Zurn stockholders in the exchange offer, based on the Company's October 4, 2021, closing share price of $151.00, less the Special Dividend amount of $6.99, which the Zurn stockholders were not entitled to receive.
(b) Represents fair value of replacement equity-based awards and Company common stock issued in settlement of other Zurn share based awards. The portion of the fair value attributable to pre-Merger service was recorded as part of the consideration transferred in the Merger - see Note 10.
(c) Represents working capital adjustment pursuant to the terms of the purchase agreement. The entire amount was settled and paid in cash by the Company as of March 31, 2022.
(d) Represents financing fees paid by the Company for the Bridge Facility and Land Term Facility (as defined in Note 7) that were determined to be costs of Zurn.
(e) Represents effective settlement of outstanding payables and receivables between the Company and the Rexnord PMC business. No gain or loss was recognized on this settlement.
Purchase Price Allocation
The Rexnord PMC business’s assets and liabilities were measured at estimated fair values at October 4, 2021, primarily using Level 3 inputs. Estimates of fair value represent management’s best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates and customer attrition rates and others. Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates expected as of the acquisition date.
Due to the timing of the business combinationand the nature of the net assets acquired, at June 30, 2022, the valuation process to determine the fair values is not complete and further adjustments are expected during the measurement period. The Company has estimated the preliminary fair value of net assets acquired based on information currently available and will continue to adjust those estimates as additional information becomes available, including the refinement of market participant assumptions. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price allocation adjustments will be recorded during the measurement period, but no later than one year from the date of the acquisition. The Company will reflect measurement period adjustments in the period in which the adjustments are determined.
The preliminary fair value and subsequent measurement period adjustments of the assets acquired and liabilities and noncontrolling interests assumed were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | As Reported as of January 1, 2022 | | Measurement period adjustments | | As Reported as of June 30, 2022 |
| | | | | | |
| Cash and Cash Equivalents | | $ | 192.8 | | | $ | — | | | $ | 192.8 | |
| Trade Receivables | | 186.9 | | | (4.4) | | | 182.5 | |
| Inventories | | 262.5 | | | (8.9) | | | 253.6 | |
| Prepaid Expenses and Other Current Assets | | 21.0 | | | — | | | 21.0 | |
| Assets Held for Sale | | 1.4 | | | — | | | 1.4 | |
| Deferred Income Tax Benefits | | 8.8 | | | (7.7) | | | 1.1 | |
| Property, Plant and Equipment | | 412.3 | | | (38.4) | | | 373.9 | |
| Operating Lease Assets | | 46.4 | | | — | | | 46.4 | |
| | | | | | |
| Intangible Assets | | 1,831.0 | | | 23.0 | | | 1,854.0 | |
| Other Noncurrent Assets | | 12.3 | | | 3.7 | | | 16.0 | |
| Accounts Payable | | (121.1) | | | — | | | (121.1) | |
| Accrued Compensation and Benefits | | (44.0) | | | 2.6 | | | (41.4) | |
| Other Accrued Expenses | | (55.7) | | | (4.0) | | | (59.7) | |
| Current Operating Lease Liabilities | | (8.1) | | | — | | | (8.1) | |
| Current Maturities of Long-Term Debt | | (2.5) | | | — | | | (2.5) | |
| Long-Term Debt | | (558.2) | | | — | | | (558.2) | |
| Deferred Income Taxes | | (508.2) | | | 12.1 | | | (496.1) | |
| Pension and Other Post Retirement Benefits | | (75.1) | | | — | | | (75.1) | |
| Noncurrent Operating Lease Liabilities | | (38.0) | | | — | | | (38.0) | |
| Other Noncurrent Liabilities | | (17.0) | | | — | | | (17.0) | |
| Total Identifiable Net Assets | | 1,547.5 | | | (22.0) | | | 1,525.5 | |
| Goodwill | | 2,433.2 | | | 26.1 | | | 2,459.3 | |
| Noncontrolling Interests | | (3.3) | | | — | | | (3.3) | |
| Preliminary purchase price | | $ | 3,977.4 | | | $ | 4.1 | | | $ | 3,981.5 | |
During six months ended June 30, 2022, the Company made a cash payment of its Venezuelan subsidiary, which had$35.0 million to Zurn in connection with finalizing the acquisition date trade working capital. The preliminary purchase price allocations were also adjusted by the refinement of the estimated fair value of the assets received and liabilities assumed. The cumulative impact of the adjustments during the six months ended June 30, 2022 resulted in $26.1 million of additional goodwill.
Results of the Rexnord PMC business Subsequent to the Acquisition
The financial results of the Rexnord PMC business have been included in the Company's CommercialMotion Control Solutions segment from the date of acquisition.
Arrowhead Transaction
On November 23, 2021, the Company acquired all of the outstanding equity interests of Arrowhead Systems, LLC ("Arrowhead") (the "Arrowhead Transaction"), for $315.6 million in cash, net of $1.1 million of cash acquired. Arrowhead is a global leader in providing industrial process automation solutions including conveyors and Industrial Systems segment,(de)palletizers to a private company for $3.0 million. Of this amount, $1.0 million was received on the transaction closingfood & beverage, aluminum can, and consumer staples end markets, among others. Arrowhead is now part of the Automation Solutions division of the Company's Motion Control Solutions segment.
The Consolidated Statements of Income include the results of operations of Arrowhead since the date of acquisition, and $2.0 million is being received in 24 monthly installments. The Company may receive additional amountssuch results are reflected in the Motion Control Solutions segment.
Purchase Price Allocation
Arrowhead's assets and liabilities were measured at estimated fair values at November 23, 2021. Estimates of fair value represent management’s best estimate of assumptions about future events and uncertainties, including significant judgments related to certain accounts receivablefuture cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates
and customer attrition rates and others. Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates expected as of this business. the acquisition date.
The gains will be recognizedpreliminary fair value of the assets acquired and liabilities assumed were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | As Reported as of January 1, 2022 | | Measurement period adjustments | | as of June 30, 2022 |
| | | | | | |
| Cash and Cash Equivalents | | $ | 1.1 | | | $ | — | | | $ | 1.1 | |
| Trade Receivables | | 19.1 | | | (0.3) | | | 18.8 | |
| Inventories | | 12.8 | | | — | | | 12.8 | |
| Prepaid Expenses and Other Current Assets | | 7.6 | | | — | | | 7.6 | |
| | | | | | |
| | | | | | |
| Property, Plant and Equipment | | 3.7 | | | — | | | 3.7 | |
| | | | | | |
| | | | | | |
Intangible Assets(1) | | 160.0 | | | — | | | 160.0 | |
| | | | | | |
| Accounts Payable | | (4.7) | | | — | | | (4.7) | |
| Accrued Compensation and Benefits | | (2.6) | | | — | | | (2.6) | |
| Other Accrued Expenses | | (25.0) | | | — | | | (25.0) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total Identifiable Net Assets | | 172.0 | | | (0.3) | | | 171.7 | |
| Goodwill | | 143.6 | | | 0.3 | | | 143.9 | |
| Preliminary purchase price | | $ | 315.6 | | | $ | — | | | $ | 315.6 | |
(1) Includes $124.0 million related to Customer Relationships, $18.0 million related to Trademarks and $18.0 million related to Technology.
The allocation of purchase price is subject to finalization during a period not to exceed one year from the cash is received.acquisition date.Adjustments to the preliminary allocation of purchase price may occur related to finalization of the working capital adjustment,finalization of the valuation of intangibles and other long-lived assets, adjustment to income tax assets and liabilities and other changes related to the valuation of assets acquired and liabilities assumed. The Company wrote down its investment and ceased operationscumulative impact of this subsidiarythe adjustments during the six months ended June 30, 2022 resulted in 2015.$0.3 million of additional goodwill.
4. ACCUMULATED OTHER COMPREHENSIVE LOSSINCOME (LOSS)
Foreign currency translation adjustments, hedging activities and pension and post retirementpost-retirement benefit adjustments are included in Equity in Accumulated Other Comprehensive LossIncome (Loss) ("AOCI"). a component of Total Equity.
The following tables present changes in AOCI by component for the three and ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016 were as followsJuly 3, 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| June 30, 2022 | | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total |
| Beginning Balance | | $ | 41.1 | | | $ | (13.9) | | | $ | (202.8) | | | $ | (175.6) | |
| Other Comprehensive (Loss) Income before Reclassifications | | (43.4) | | | 0.3 | | | (118.8) | | | (161.9) | |
| Tax Impact | | 10.5 | | | — | | | — | | | 10.5 | |
| Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | (6.8) | | | 0.2 | | | — | | | (6.6) | |
| Tax Impact | | 1.5 | | | (0.1) | | | — | | | 1.4 | |
| Net Current Period Other Comprehensive (Loss) Income | | (38.2) | | | 0.4 | | | (118.8) | | | (156.6) | |
| | | | | | | | |
| Ending Balance | | $ | 2.9 | | | $ | (13.5) | | | $ | (321.6) | | | $ | (332.2) | |
| | | | | | | | |
| July 3, 2021 | | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total |
| Beginning Balance | | $ | 29.4 | | | $ | (30.8) | | | $ | (177.1) | | | $ | (178.5) | |
| Other Comprehensive Income before Reclassifications | | 17.5 | | | — | | | 9.3 | | | 26.8 | |
| Tax Impact | | (4.2) | | | — | | | — | | | (4.2) | |
| Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | (11.3) | | | 0.5 | | | — | | | (10.8) | |
| Tax Impact | | 2.7 | | | (0.1) | | | — | | | 2.6 | |
| | | | | | | | |
| Net Current Period Other Comprehensive Income | | 4.7 | | | 0.4 | | | 9.3 | | | 14.4 | |
| | | | | | | | |
| Ending Balance | | $ | 34.1 | | | $ | (30.4) | | | $ | (167.8) | | | $ | (164.1) | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | Six Months Ended |
| June 30, 2022 | | June 30, 2022 | | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total |
| Beginning Balance | | Beginning Balance | | $ | 21.0 | | | $ | (14.3) | | | $ | (201.8) | | | $ | (195.1) | |
| Other Comprehensive (Loss) Income before Reclassifications | | Other Comprehensive (Loss) Income before Reclassifications | | (9.0) | | | 0.5 | | | (119.8) | | | (128.3) | |
| Tax Impact | | Tax Impact | | 2.2 | | | — | | | — | | | 2.2 | |
| Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | (14.8) | | | 0.4 | | | — | | | (14.4) | |
| Tax Impact | | Tax Impact | | 3.5 | | | (0.1) | | | — | | | 3.4 | |
| Net Current Period Other Comprehensive (Loss) Income | | Net Current Period Other Comprehensive (Loss) Income | | (18.1) | | | 0.8 | | | (119.8) | | | (137.1) | |
| | Three Months Ended | |
| Ending Balance | | Ending Balance | | $ | 2.9 | | | $ | (13.5) | | | $ | (321.6) | | | $ | (332.2) | |
| | September 30, 2017 | | | | | | | | |
| | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total | |
| July 3, 2021 | | July 3, 2021 | | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total |
| Beginning Balance | $ | (1.7 | ) | | $ | (35.5 | ) | | $ | (173.2 | ) | | $ | (210.4 | ) | Beginning Balance | | $ | 23.5 | | | $ | (31.1) | | | $ | (155.7) | | | $ | (163.3) | |
| Other Comprehensive Income (Loss) before Reclassifications | 14.3 |
| | (0.2 | ) | | 24.2 |
| | 38.3 |
| Other Comprehensive Income (Loss) before Reclassifications | | 36.7 | | | — | | | (12.1) | | | 24.6 | |
| Tax Impact | (5.5 | ) | | — |
| | — |
| | (5.5 | ) | Tax Impact | | (8.8) | | | — | | | — | | | (8.8) | |
| Amounts Reclassified from Accumulated Other Comprehensive Loss | (0.3 | ) | | 0.6 |
| | — |
| | 0.3 |
| |
| Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | (22.8) | | | 0.9 | | | — | | | (21.9) | |
| Tax Impact | 0.2 |
| | (0.2 | ) | | — |
| | — |
| Tax Impact | | 5.5 | | | (0.2) | | | — | | | 5.3 | |
| Net Current Period Other Comprehensive Income | 8.7 |
| | 0.2 |
| | 24.2 |
| | 33.1 |
| |
| Net Current Period Other Comprehensive Income (Loss) | | Net Current Period Other Comprehensive Income (Loss) | | 10.6 | | | 0.7 | | | (12.1) | | | (0.8) | |
| | Ending Balance | $ | 7.0 |
| | $ | (35.3 | ) | | $ | (149.0 | ) | | $ | (177.3 | ) | Ending Balance | | $ | 34.1 | | | $ | (30.4) | | | $ | (167.8) | | | $ | (164.1) | |
| | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | |
| | October 1, 2016 | |
| | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total | |
| Beginning Balance | $ | (40.6 | ) | | $ | (33.6 | ) | | $ | (181.6 | ) | | $ | (255.8 | ) | |
| Other Comprehensive Income (Loss) before Reclassifications | (10.1 | ) | | 0.1 |
| | (2.6 | ) | | (12.6 | ) | |
| Tax Impact | 3.8 |
| | — |
| | — |
| | 3.8 |
| |
| Amounts Reclassified from Accumulated Other Comprehensive Loss | 12.3 |
| | 0.8 |
| | — |
| | 13.1 |
| |
| Tax Impact | (4.6 | ) | | (0.3 | ) | | — |
| | (4.9 | ) | |
| Net Current Period Other Comprehensive Income (Loss) | 1.4 |
| | 0.6 |
| | (2.6 | ) | | (0.6 | ) | |
| Ending Balance | $ | (39.2 | ) | | $ | (33.0 | ) | | $ | (184.2 | ) | | $ | (256.4 | ) | |
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 |
| | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total |
| Beginning Balance | $ | (41.1 | ) | | $ | (36.0 | ) | | $ | (241.0 | ) | | $ | (318.1 | ) |
| Other Comprehensive Income (Loss) before Reclassifications | 61.7 |
| | (0.5 | ) | | 92.0 |
| | 153.2 |
|
| Tax Impact | (23.5 | ) | | — |
| | — |
| | (23.5 | ) |
| Amounts Reclassified from Accumulated Other Comprehensive Loss | 15.9 |
| | 1.8 |
| | — |
| | 17.7 |
|
| Tax Impact | (6.0 | ) | | (0.6 | ) | | — |
| | (6.6 | ) |
| Net Current Period Other Comprehensive Income | 48.1 |
| | 0.7 |
| | 92.0 |
| | 140.8 |
|
| Ending Balance | $ | 7.0 |
| | $ | (35.3 | ) | | $ | (149.0 | ) | | $ | (177.3 | ) |
| | | | | | | | |
| | | | | | | | |
| | Nine Months Ended |
| | October 1, 2016 |
| | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total |
| Beginning Balance | $ | (47.5 | ) | | $ | (35.4 | ) | | $ | (172.1 | ) | | $ | (255.0 | ) |
| Other Comprehensive Income (Loss) before Reclassifications | (24.3 | ) | | 0.6 |
| | (9.4 | ) | | (33.1 | ) |
| Tax Impact | 9.2 |
| | — |
| | — |
| | 9.2 |
|
| Amounts Reclassified from Accumulated Other Comprehensive Loss | 37.7 |
| | 2.7 |
| | — |
| | 40.4 |
|
| Tax Impact | (14.3 | ) | | (0.9 | ) | | — |
| | (15.2 | ) |
| Net Current Period Other Comprehensive Income (Loss) | 8.3 |
| | 2.4 |
| | (9.4 | ) | | 1.3 |
|
| Purchase of Subsidiary Shares from Noncontrolling Interest | — |
| | — |
| | (2.7 | ) | | (2.7 | ) |
| Ending Balance | $ | (39.2 | ) | | $ | (33.0 | ) | | $ | (184.2 | ) | | $ | (256.4 | ) |
The Condensed Consolidated Statements of Income line items affected by the hedging activities reclassified from accumulated other comprehensive lossAOCI in the tables above are disclosed in Note 13 of Notes to Condensed Consolidated Financial Statements.13.
The reclassification amounts for pension and post retirementpost-retirement benefit adjustments in the tables above are part of net periodic benefit costs recorded in Operating ExpensesOther Income, Net (see also Note 8 of Notes to Condensed Consolidated Financial Statements)8).
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill
As required, the Company performs an annual impairment test of goodwill as of the end of the October fiscal month or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting units below their carrying value.
The following informationtable presents changes to goodwill during the ninesix months ended SeptemberJune 30, 20172022 (in millions): | | | | Total | | Commercial Systems | | Industrial Systems | | Climate Solutions | | Motion Control Solutions |
| Balance as of January 1, 2022 | | Balance as of January 1, 2022 | $ | 4,039.2 | | | $ | 428.9 | | | $ | 128.8 | | | $ | 330.5 | | | $ | 3,151.0 | |
| | | | Total | | Commercial and Industrial Systems | | Climate Solutions | | Power Transmission Solutions | |
| Balance as of December 31, 2016 | $ | 1,453.2 |
| | $ | 540.6 |
| | $ | 341.8 |
| | $ | 570.8 |
| |
| | Acquisition and Valuation Adjustments | | Acquisition and Valuation Adjustments | 26.4 | | | — | | | — | | | — | | | 26.4 | |
| | Translation Adjustments | 22.0 |
| | 8.9 |
| | 1.1 |
| | 12.0 |
| Translation Adjustments | (39.6) | | | (5.0) | | | (1.6) | | | (0.5) | | | (32.5) | |
| Balance as of September 30, 2017 | $ | 1,475.2 |
| | $ | 549.5 |
| | $ | 342.9 |
| | $ | 582.8 |
| |
| Balance as of June 30, 2022 | | Balance as of June 30, 2022 | $ | 4,026.0 | | | $ | 423.9 | | | $ | 127.2 | | | $ | 330.0 | | | $ | 3,144.9 | |
| | | | | | | | | | | | | | | | | | |
| Cumulative Goodwill Impairment Charges | $ | 275.7 |
| | $ | 244.8 |
| | $ | 7.7 |
| | $ | 23.2 |
| Cumulative Goodwill Impairment Charges | $ | 328.7 | | | $ | 183.2 | | | $ | 105.1 | | | $ | 17.2 | | | $ | 23.2 | |
Intangible Assets
IntangibleThe following table presents intangible assets consisted of the following (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | June 30, 2022 | | | | January 1, 2022 |
| | | Weighted Average Amortization Period (Years) | | Gross Value | | Accumulated Amortization | | | | Gross Value | | Accumulated Amortization |
| Amortizable Intangible Assets: | | | | | | | | | | | | |
| Customer Relationships | | 16 | | $ | 2,326.1 | | | $ | 465.8 | | | | | $ | 2,335.4 | | | $ | 405.0 | |
| Technology | | 13 | | 246.9 | | | 119.0 | | | | | 250.1 | | | 114.1 | |
| Trademarks | | 10 | | 393.4 | | | 55.0 | | | | | 400.0 | | | 37.2 | |
| Patent and Engineering Drawings | | 5 | | 16.6 | | | 16.6 | | | | | 16.6 | | | 16.6 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | $ | 2,983.0 | | | $ | 656.4 | | | | | $ | 3,002.1 | | | $ | 572.9 | |
| | | | | | | | | | | | |
| Intangible Assets, Net of Amortization | | | | $ | 2,326.6 | | | | | | | $ | 2,429.2 | | | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | September 30, 2017 | | December 31, 2016 |
| | | Weighted Average Amortization Period (Years) | | Gross Value | | Accumulated Amortization | | Gross Value | | Accumulated Amortization |
| Amortizable Intangible Assets: | | | | | | | | | | |
| Customer Relationships | | 16 | | $ | 718.8 |
| | $ | 240.1 |
| | $ | 703.6 |
| | $ | 201.6 |
|
| Technology | | 13 | | 191.8 |
| | 118.0 |
| | 189.7 |
| | 109.5 |
|
| Trademarks | | 15 | | 32.7 |
| | 25.3 |
| | 31.8 |
| | 23.3 |
|
| Patent and Engineering Drawings | | 5 | | 16.6 |
| | 16.6 |
| | 16.6 |
| | 16.6 |
|
| Non-Compete Agreements | | 8 | | 8.4 |
| | 8.3 |
| | 8.3 |
| | 8.1 |
|
| | | | | 968.3 |
| | 408.3 |
| | 950.0 |
| | 359.1 |
|
| Non-Amortizable Trade Names | | | | 122.4 |
| | — |
| | 120.8 |
| | — |
|
| | | | | $ | 1,090.7 |
| | $ | 408.3 |
| | $ | 1,070.8 |
| | $ | 359.1 |
|
| | | | | | | | | | | |
Amortization expense recorded for the three and ninesix months ended SeptemberJune 30, 20172022 was $13.9$46.5 million and $41.9$93.8 million, respectively. Amortization expense recorded for the three and ninesix months ended October 1, 2016July 3, 2021 was $15.6$11.1 million and $47.0$22.3 million, respectively. Amortization expense for 2017fiscal year 2022 is estimated to be $55.9$187.0 million. There were no intangible asset impairments during the three and six months ended June 30, 2022 and July 3, 2021, respectively.
Estimated expectedThe following table presents future estimated annual amortization for intangible assets is as follows (in millions):
| | | | | | | | |
| Year | | Estimated Amortization |
| 2023 | | $ | 186.4 | |
| 2024 | | 185.8 | |
| 2025 | | 183.7 | |
| 2026 | | 180.3 | |
| 2027 | | 145.7 | |
| | |
| | |
| | |
6. SEGMENT INFORMATION
|
| | | | |
| Year | | Estimated Amortization |
| 2018 | | $ | 53.9 |
|
| 2019 | | 53.5 |
|
| 2020 | | 50.4 |
|
| 2021 | | 42.6 |
|
| 2022 | | 41.0 |
|
6. BUSINESS SEGMENTSThe Company is comprised of 4 operating segments: Commercial Systems, Industrial Systems, Climate Solutions and Motion Control Solutions.
Commercial Systems segment designs and Industrial Systems produces mediumfractional to approximately 5 horsepower AC and largeDC motors, electronic variable speed controls, fans, and blowers for commercial and industrial equipment, generator and custom drives and systems.applications. These products serve markets including commercial Heating, Ventilation,building ventilation and Air Conditioning ("HVAC"),HVAC, pool and spa, standbyirrigation, dewatering, agriculture, and critical powergeneral commercial equipment.
Industrial Systems segment designs and produces integral motors, automatic transfer switches, alternators and switchgear for industrial applications, along with aftermarket parts and kits to support such products. These products serve markets including agriculture, marine, mining, oil and gas, systems.
food and beverage, data centers, healthcare, prime and standby power, and general industrial equipment.
Climate Solutions segment designs and produces small motors, electronic variable speed controls and air moving solutions serving markets including residential and light commercial HVAC, water heaters and commercial refrigeration.
Power TransmissionMotion Control Solutions manufactures, sellssegment designs, produces and services belt and chain drives, helical and worm gearing, mounted and unmounted bearings, conveyor products, conveying automation solutions, couplings, modular plastic belts, conveying chainsmechanical power transmission drives and components, hydraulic pump drives, large open gearinggearboxes and specialty mechanicalgear motors, aerospace components, special components products and industrial powertrain components and solutions serving a broad range of markets including food and beverage, bulk handling, metals, special machinery,eCommerce/warehouse distribution, energy, aerospace and general industrial.
The Company evaluates performance based on the segment's income from operations. Corporate costs have been allocated to each segment based on the net sales of each segment. The reported external net sales of each segment are from external customers.
The following sets forth certain financial information attributable to the Company's operating segments for the three and ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016July 3, 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2022 | Commercial Systems | | Industrial Systems | | Climate Solutions | | Motion Control Solutions | | Eliminations | | Total |
| External Sales | $ | 301.9 | | | $ | 154.7 | | | $ | 293.5 | | | $ | 599.3 | | | $ | — | | | $ | 1,349.4 | |
| Intersegment Sales | 26.1 | | | 7.9 | | | 4.4 | | | 2.3 | | | (40.7) | | | — | |
| Total Sales | 328.0 | | | 162.6 | | | 297.9 | | | 601.6 | | | (40.7) | | | 1,349.4 | |
| Gross Profit | 82.1 | | | 44.0 | | | 74.6 | | | 232.8 | | | — | | | 433.5 | |
| Operating Expenses | 40.4 | | | 22.8 | | | 30.3 | | | 145.1 | | | — | | | 238.6 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total Operating Expenses | 40.4 | | | 22.8 | | | 30.3 | | | 145.1 | | | — | | | 238.6 | |
| Income from Operations | 41.7 | | | 21.2 | | | 44.3 | | | 87.7 | | | — | | | 194.9 | |
| Depreciation and Amortization | 7.4 | | | 3.4 | | | 4.4 | | | 63.2 | | | — | | | 78.4 | |
| Capital Expenditures | 5.2 | | | 2.7 | | | 4.6 | | | 6.7 | | | — | | | 19.2 | |
| | | | | | | | | | | |
| July 3, 2021 | | | | | | | | | | | |
| External Sales | $ | 269.3 | | | $ | 145.2 | | | $ | 257.3 | | | $ | 215.1 | | | $ | — | | | $ | 886.9 | |
| Intersegment Sales | 19.9 | | | 7.3 | | | 5.1 | | | 0.8 | | | (33.1) | | | — | |
| Total Sales | 289.2 | | | 152.5 | | | 262.4 | | | 215.9 | | | (33.1) | | | 886.9 | |
| Gross Profit* | 69.5 | | | 27.4 | | | 75.5 | | | 85.3 | | | — | | | 257.7 | |
| Operating Expenses | 40.3 | | | 23.1 | | | 27.0 | | | 49.8 | | | — | | | 140.2 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Asset Impairments | 1.8 | | | — | | | 0.5 | | | — | | | — | | | 2.3 | |
| Total Operating Expenses | 42.1 | | | 23.1 | | | 27.5 | | | 49.8 | | | — | | | 142.5 | |
| Income from Operations* | 27.4 | | | 4.3 | | | 48.0 | | | 35.5 | | | — | | | 115.2 | |
| Depreciation and Amortization | 7.8 | | | 5.7 | | | 3.6 | | | 13.4 | | | — | | | 30.5 | |
| Capital Expenditures | 4.5 | | | 3.3 | | | 3.0 | | | 2.8 | | | — | | | 13.6 | |
| | | | | | | | | | | | | | Six Months Ended |
| | Commercial and Industrial Systems | | Climate Solutions | | Power Transmission Solutions | | Eliminations | | Total | |
| Three Months Ended September 30, 2017 | | | | | | | | | | |
| June 30, 2022 | | June 30, 2022 | Commercial Systems | | Industrial Systems | | Climate Solutions | | Motion Control Solutions | | Eliminations | | Total |
| External Sales | $ | 408.0 |
| | $ | 256.0 |
| | $ | 192.9 |
| | $ | — |
| | $ | 856.9 |
| External Sales | $ | 595.2 | | | $ | 299.4 | | | $ | 567.4 | | | $ | 1,185.9 | | | $ | — | | | $ | 2,647.9 | |
| Intersegment Sales | 16.4 |
| | 5.0 |
| | 0.5 |
| | (21.9 | ) | | — |
| Intersegment Sales | 54.3 | | | 15.2 | | | 9.2 | | | 4.2 | | | (82.9) | | | — | |
| Total Sales | 424.4 |
| | 261.0 |
| | 193.4 |
| | (21.9 | ) | | 856.9 |
| Total Sales | 649.5 | | | 314.6 | | | 576.6 | | | 1,190.1 | | | (82.9) | | | 2,647.9 | |
| Gross Profit | 98.0 |
| | 65.8 |
| | 63.2 |
| | — |
| | 227.0 |
| Gross Profit | 176.4 | | | 75.3 | | | 157.8 | | | 445.9 | | | — | | | 855.4 | |
| Operating Expenses | 68.4 |
| | 27.0 |
| | 37.6 |
| | — |
| | 133.0 |
| Operating Expenses | 81.8 | | | 46.2 | | | 62.0 | | | 300.6 | | | — | | | 490.6 | |
| | Total Operating Expenses | | Total Operating Expenses | 81.8 | | | 46.2 | | | 62.0 | | | 300.6 | | | — | | | 490.6 | |
| Income from Operations | 29.6 |
| | 38.8 |
| | 25.6 |
| | — |
| | 94.0 |
| Income from Operations | 94.6 | | | 29.1 | | | 95.8 | | | 145.3 | | | — | | | 364.8 | |
| Depreciation and Amortization | 15.2 |
| | 5.5 |
| | 13.6 |
| | — |
| | 34.3 |
| Depreciation and Amortization | 15.1 | | | 7.0 | | | 8.8 | | | 125.4 | | | — | | | 156.3 | |
| Capital Expenditures | 8.6 |
| | 3.1 |
| | 3.6 |
| | — |
| | 15.3 |
| Capital Expenditures | 8.8 | | | 4.2 | | | 8.9 | | | 10.7 | | | — | | | 32.6 | |
| Three Months Ended October 1, 2016 | | | | | | | | | | |
| | July 3, 2021 | | July 3, 2021 | |
| External Sales | $ | 389.4 |
| | $ | 250.5 |
| | $ | 169.7 |
| | $ | — |
| | $ | 809.6 |
| External Sales | $ | 506.3 | | | $ | 281.6 | | | $ | 496.4 | | | $ | 416.7 | | | $ | — | | | $ | 1,701.0 | |
| Intersegment Sales | 10.8 |
| | 5.7 |
| | 1.1 |
| | (17.6 | ) | | — |
| Intersegment Sales | 37.4 | | | 11.0 | | | 9.4 | | | 1.5 | | | (59.3) | | | — | |
| Total Sales | 400.2 |
| | 256.2 |
| | 170.8 |
| | (17.6 | ) | | 809.6 |
| Total Sales | 543.7 | | | 292.6 | | | 505.8 | | | 418.2 | | | (59.3) | | | 1,701.0 | |
| Gross Profit | 105.4 |
| | 71.4 |
| | 54.9 |
| | — |
| | 231.7 |
| |
| Gross Profit* | | Gross Profit* | 136.3 | | | 55.4 | | | 150.9 | | | 164.9 | | | — | | | 507.5 | |
| Operating Expenses | 69.2 |
| | 29.2 |
| | 43.5 |
| | — |
| | 141.9 |
| Operating Expenses | 78.3 | | | 46.2 | | | 57.7 | | | 106.3 | | | — | | | 288.5 | |
| Income from Operations | 36.2 |
| | 42.2 |
| | 11.4 |
| | — |
| | 89.8 |
| |
| | Asset Impairments | | Asset Impairments | 1.8 | | | — | | | 0.5 | | | — | | | — | | | 2.3 | |
| Total Operating Expenses | | Total Operating Expenses | 80.1 | | | 46.2 | | | 58.2 | | | 106.3 | | | — | | | 290.8 | |
| Income from Operations* | | Income from Operations* | 56.2 | | | 9.2 | | | 92.7 | | | 58.6 | | | — | | | 216.7 | |
| Depreciation and Amortization | 17.7 |
| | 4.9 |
| | 15.0 |
| | — |
| | 37.6 |
| Depreciation and Amortization | 15.6 | | | 11.6 | | | 8.1 | | | 27.0 | | | — | | | 62.3 | |
| Capital Expenditures | 9.6 |
| | 2.6 |
| | 2.2 |
| | — |
| | 14.4 |
| Capital Expenditures | 7.8 | | | 5.7 | | | 6.2 | | | 4.6 | | | — | | | 24.3 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Commercial and Industrial Systems | | Climate Solutions | | Power Transmission Solutions | | Eliminations | | Total |
| Nine Months Ended September 30, 2017 | | | | | | | | | |
| External Sales | $ | 1,196.6 |
| | $ | 774.2 |
| | $ | 568.8 |
| | $ | — |
| | $ | 2,539.6 |
|
| Intersegment Sales | 52.2 |
| | 19.2 |
| | 3.4 |
| | (74.8 | ) | | — |
|
| Total Sales | 1,248.8 |
| | 793.4 |
| | 572.2 |
| | (74.8 | ) | | 2,539.6 |
|
| Gross Profit | 285.5 |
| | 194.8 |
| | 185.3 |
| | — |
| | 665.6 |
|
| Operating Expenses | 209.5 |
| | 84.6 |
| | 119.7 |
| | — |
| | 413.8 |
|
| Income from Operations | 76.0 |
| | 110.2 |
| | 65.6 |
| | — |
| | 251.8 |
|
| Depreciation and Amortization | 45.2 |
| | 16.6 |
| | 41.3 |
| | — |
| | 103.1 |
|
| Capital Expenditures | 30.3 |
| | 9.7 |
| | 9.0 |
| | — |
| | 49.0 |
|
| Nine Months Ended October 1, 2016 | | | | | | | | |
|
| External Sales | $ | 1,161.7 |
| | $ | 744.8 |
| | $ | 559.9 |
| | $ | — |
| | $ | 2,466.4 |
|
| Intersegment Sales | 33.5 |
| | 17.9 |
| | 3.1 |
| | (54.5 | ) | | — |
|
| Total Sales | 1,195.2 |
| | 762.7 |
| | 563.0 |
| | (54.5 | ) | | 2,466.4 |
|
| Gross Profit | 295.2 |
| | 192.3 |
| | 184.5 |
| | — |
| | 672.0 |
|
| Operating Expenses | 212.2 |
| | 89.4 |
| | 119.9 |
| | — |
| | 421.5 |
|
| Income from Operations | 83.0 |
| | 102.9 |
| | 64.6 |
| | — |
| | 250.5 |
|
| Depreciation and Amortization | 56.6 |
| | 17.6 |
| | 42.4 |
| | — |
| | 116.6 |
|
| Capital Expenditures | 26.5 |
| | 10.1 |
| | 9.5 |
| | — |
| | 46.1 |
|
The following table presents identifiable assets information attributable to the Company's operating segments as of SeptemberJune 30, 20172022 and December 31, 2016January 1, 2022 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial Systems | | Industrial Systems | | Climate Solutions | | Motion Control Solutions | | Total |
| Identifiable Assets as of June 30, 2022 | $ | 1,314.9 | | | $ | 874.0 | | | $ | 1,028.6 | | | $ | 7,241.0 | | | $ | 10,458.5 | |
| Identifiable Assets as of January 1, 2022* | 1,264.0 | | | 859.9 | | | 982.7 | | | 7,260.8 | | | 10,367.4 | |
*Includes the retrospective effect of changing accounting methods for valuing certain inventories to the FIFO cost method from the LIFO cost method. See Note 2 for additional information.
|
| | | | | | | | | | | | | | | |
| | Commercial and Industrial Systems | | Climate Solutions | | Power Transmission Solutions | | Total |
| Identifiable Assets as of September 30, 2017 | $ | 1,905.7 |
| | $ | 934.8 |
| | $ | 1,623.5 |
| | $ | 4,464.0 |
|
| Identifiable Assets as of December 31, 2016 | $ | 1,872.7 |
| | $ | 881.8 |
| | $ | 1,604.0 |
| | $ | 4,358.5 |
|
7. DEBT AND BANK CREDIT FACILITIES
The following table presents the Company’s indebtedness as of SeptemberJune 30, 20172022 and December 31, 2016 was as followsJanuary 1, 2022 (in millions):
| | | | | | | | | | | |
| June 30, 2022 | | January 1, 2022 |
| Term Facility | $ | 550.0 | | | $ | 620.0 | |
| Senior Notes | 500.0 | | | — | |
| Land Term Facility | 486.8 | | | 486.8 | |
| Multicurrency Revolving Facility | 560.0 | | | 736.7 | |
| | | |
| | | |
| | | |
| Other | 75.2 | | | 78.7 | |
| Less: Debt Issuance Costs | (8.9) | | | (3.7) | |
| Total | 2,163.1 | | | 1,918.5 | |
| Less: Current Maturities | 30.6 | | | 4.9 | |
| Long-Term Debt | $ | 2,132.5 | | | $ | 1,913.6 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Term Facility | $ | 686.1 |
| | $ | 798.1 |
|
| Senior Notes | 500.0 |
| | 600.0 |
|
| Multicurrency Revolving Facility | 29.6 |
| | 18.0 |
|
| Other | 5.1 |
| | 5.1 |
|
| Less: Debt Issuance costs | (6.4 | ) | | (9.7 | ) |
| | 1,214.4 |
| | 1,411.5 |
|
| Less: Current Maturities | 100.6 |
| | 100.6 |
|
| Non-Current Portion | $ | 1,113.8 |
| | $ | 1,310.9 |
|
The Credit Agreement
In connection with the Company's acquisition of the Power Transmission Solutions business of Emerson Electric Co. (the "PTS Acquisition"), on January 30, 2015,On March 28, 2022, the Company entered into a Second Amended and Restated Credit Agreement with the Company's lenders (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders named therein, providingtherein. The Credit Agreement (i) replaces in its entirety the Amended and Restated Credit Agreement, dated as of August 27, 2018, as amended by that First Amendment, dated March 17, 2021, among the Company and other parties thereto and (ii) amends and restates in its entirety the Amended and Restated Credit Agreement, dated as of October 4, 2021, among Land and the other parties thereto (collectively, the “Former Credit Agreements”).
The Credit Agreement provides for, aamong other things, an extension of the maturity date of the revolving credit facility and term loans provided under the Former Credit Agreements. The credit facilities extended under the Credit Agreement consist of (i) 5-yearan unsecured term loan facility in the initial principal amount of $1.25 billionup to $550,000,000, maturing on March 28, 2027 (the “Term Facility”"Term Facility") and; (ii) a 5-yearan unsecured multicurrency revolvingterm loan facility in the initial principal amount of $500.0 million$486,827,669, under which Land remains the sole borrower, maturing on March 28, 2027 (the “Multicurrency"Land Term Facility"); and (iii) an unsecured revolving loan in the initial principal amount of up to $1,000,000,000, maturing on March 28, 2027 (the "Multicurrency Revolving Facility”Facility"), including. Interest for benchmark rate loans is calculated based on a $100.0 million letterSOFR benchmark rate, plus a margin spread to be adjusted quarterly based on the Company’s funded debt to EBITDA ratio. The Credit Agreement is subject to customary and market provisions. The subsidiaries of credit sub facility, available for general corporate purposes. Borrowingsthe Company that provided a guaranty of the Company's and Land's obligations under the Former Credit Agreement also entered into subsidiary guaranty agreements with respect to the obligations under the Credit Agreement bear interest at floating rates based upon indices determined by the currency of the borrowing, plus an applicable margin determined by reference to the Company's consolidated funded debt to consolidated EBITDA ratio or at an alternative base rate.Agreement.
The Term Facility was drawn in full on January 30, 2015 in connection withMarch 28, 2022 to refinance the closingFormer Credit Agreements, pay fees, costs, and other expenses incurred therewith, to fund working capital needs and for general corporate purposes of the PTS Acquisition.Company and its subsidiaries. The loan under the Term Facility requires quarterly amortization at a rate starting at 5.0% per annum, increasing to 7.5% per annum after two years and further increasing to 10.0% per annum for the last two years of the Term Facility, unless previously prepaid. Per the terms of the Credit Agreement, prepayments can be made without penalty and be applied to the next payment due.
The weighted average interest rate on the Term Facility was 2.7% and 2.5% for the three and nine months ended SeptemberJune 30, 20172022 and 2.0%July 3, 2021 was 2.1% and 1.4%, respectively. The weighted average interest rate on the Term Facility for the three and ninesix months ended October 1, 2016.June 30, 2022 and July 3, 2021 was 1.7% and 1.5%, respectively. The Credit Agreement requires that the Company prepay the loans under the Term Facility with 100% of the net cash proceeds received from specified asset sales and borrowed money indebtedness, subject to certain exceptions.
At SeptemberJune 30, 2017,2022, the Company had $560.0 million of borrowings under the Multicurrency Revolving Facility, in the amount of $29.6 million, $29.8$0.1 million of standby letters of credit issued under the facility, and $440.6$439.8 million of available borrowing capacity. TheFor the three months ended June 30, 2022 and July 3, 2021 under the Multicurrency Revolving Facility, the average daily balance in borrowings under the Multicurrency Revolving Facility was $97.8$730.0 million and $105.4$2.4 million, respectively, and the weighted average interest rate onwas 2.1% and 1.4%, respectively. For the six months ended June 30, 2022 and July 3, 2021 under the Multicurrency Revolving Facility, was 2.7% and 2.5% for the three and nine months ended September 30, 2017, respectively. The average daily balance in borrowings under the Multicurrency Revolving Facility was $29.7$765.2 million and $45.1$4.9 million, respectively, and the weighted average interest rate on the Multicurrency Revolving Facility was 1.9% for the three1.7% and nine months ended October 1, 2016.1.4%, respectively. The Company pays a non-use fee on the aggregate unused amount of the Multicurrency Revolving Facility at a rate determined by reference to its consolidated funded debt to consolidated EBITDA ratio.
Senior Notes
At SeptemberAs of June 30, 2017,2022, the Company had $500.0$486.8 million of borrowings under the Land Term Facility. The Land Term Facility has no required amortization. The weighted average interest rate on the Land Term Facility for three months ended June 30, 2022 was 2.1%. The weighted average interest rate on the Land Term Facility for six months ended June 30, 2022 was 1.7%.
In connection with the Rexnord Transaction, on February 15, 2021, the Company entered into a debt commitment letter (the “Bridge Commitment Letter”) and related fee letters with Barclays Bank PLC (“Barclays”), pursuant to which, and subject to the terms and conditions set forth therein, Barclays committed to provide approximately $2.1 billion in an aggregate principal amount of senior bridge loans under a 364-day senior bridge loan credit facility (the “Bridge Facility”). As the Rexnord Transaction was consummated and the payments of amounts in connection therewith occurred without the use of the Bridge Facility, the commitments under the Bridge Commitment Letter were terminated in connection with the closing of the Rexnord Transaction.
Senior Notes
On April 7, 2022, the Company entered into a Note Purchase Agreement with certain institutional accredited investors (the "Note Purchase Agreement") for the issuance and sale of $500,000,000 aggregate principal amount of 3.90% senior notes due April 7, 2032 (the “Notes”"Senior Notes") outstanding. The Notes consist of $500.0 million, in senior notes (the “2011 Notes”) in a private placement which were issued in seven tranches with maturitiesan offering exempt from seven to twelve years and carry fixed interest rates. As of September 30, 2017, $400.0 millionthe registration requirements of the 2011 Notes are included in Long-Term DebtSecurities Act of 1933, as amended. The Company expects to use the net proceeds from the offering for general corporate purposes.
The Note Purchase Agreement is subject to customary and $100.0 millionmarket provisions. The subsidiaries of the 2011 Notes are included in Current MaturitiesCompany that provided a guaranty of Long-Term Debt on the Condensed Consolidated Balance Sheets.Company’s and Land’s obligations under the Credit Agreement also entered into subsidiary guaranty agreements with respect to the obligations under the Note Purchase Agreement. The Company repaidmay, at its option, prepay at any time all, or from time to time any part of, the remaining $100.0 million of its 2007Senior Notes, subject to a make-whole amount and certain other restrictions set forth in August, 2017.the Note Purchase Agreement.
Details on the Notes at September 30, 2017 were (in millions):
|
| | | | | | | | |
| | | Principal | | Interest Rate | | Maturity |
| Fixed Rate Series 2011A | | 100.0 |
| | 4.1% | | July 14, 2018 |
| Fixed Rate Series 2011A | | 230.0 |
| | 4.8 to 5.0% | | July 14, 2021 |
| Fixed Rate Series 2011A | | 170.0 |
| | 4.9 to 5.1% | | July 14, 2023 |
| | | $ | 500.0 |
| | | | |
The Company had an interest rate swap agreement to manage fluctuations in cash flows resulting from interest rate risk (see also Note 13 of Notes to the Condensed Financial Statements). The remaining interest rate swap agreement terminated in August, 2017.
Compliance with Financial Covenants
The Credit Agreement and the Notes requirerequires the Company to meet specified financial ratios and to satisfy certain financial condition tests. The Note Purchase Agreement contains financial covenants consistent with the financial covenants in the Credit Agreement. The Company was in compliance with all financial covenants contained in the NotesCredit Agreement and the CreditNote Purchase Agreement as of SeptemberJune 30, 2017.2022.
Other Notes Payable
At SeptemberJune 30, 2017,2022, other notes payable of approximately $5.1$75.2 million were outstanding with a weighted average interest rate of 5.2%5.1%. At December 31, 2016,January 1, 2022, other notes payable of approximately $5.1$78.7 million were outstanding with a weighted average rate of 5.6%5.2%.
Other Disclosures
Based on rates for instruments with comparable maturities and credit quality, which are classified as Level 2 inputs (see also Note 14 of Notes to the Condensed Consolidated Financial Statements)14), the approximate fair value of the Company's total debt was $1,244.2$2,125.9 million and $1,433.4$1,918.5 million as of SeptemberJune 30, 20172022 and December 31, 2016,January 1, 2022, respectively.
8. RETIREMENT AND POST RETIREMENT HEALTH CARE PLANS
The following table presents the Company’s net periodic benefit cost was comprised of the following(income) components (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | July 3, 2021 | | June 30, 2022 | | July 3, 2021 |
| Service Cost | $ | 0.5 | | | $ | 0.3 | | | $ | 0.8 | | | $ | 0.6 | |
| Interest Cost | 3.5 | | | 1.4 | | | 7.1 | | | 2.9 | |
| Expected Return on Plan Assets | (5.2) | | | (3.1) | | | (10.3) | | | (6.2) | |
| Amortization of Prior Service Cost and Net Actuarial Loss | 0.2 | | | 0.5 | | | 0.4 | | | 0.9 | |
| Net Periodic Benefit Income | $ | (1.0) | | | $ | (0.9) | | | $ | (2.0) | | | $ | (1.8) | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Service Cost | $ | 1.8 |
| | $ | 2.0 |
| | $ | 5.4 |
| | $ | 6.1 |
|
| Interest Cost | 2.5 |
| | 2.6 |
| | 7.3 |
| | 7.7 |
|
| Expected Return on Plan Assets | (2.8 | ) | | (3.0 | ) | | (8.4 | ) | | (8.9 | ) |
| Amortization of Prior Service Cost and Net Actuarial Loss | 0.6 |
| | 0.8 |
| | 1.8 |
| | 2.7 |
|
| Net Periodic Benefit Cost | $ | 2.1 |
| | $ | 2.4 |
| | $ | 6.1 |
| | $ | 7.6 |
|
The estimated net actuarial loss and prior service cost for post retirement plans that will be amortized from AOCI intocomponent is included in Cost of Sales and Operating Expenses. All other components of net periodic benefit cost duringcosts are included in Other Income, Net on the 2017 fiscal year is $2.2 million and $0.2 million, respectively.Company's Condensed Consolidated Statements of Income.
For the three months ended SeptemberJune 30, 20172022 and October 1, 2016,July 3, 2021, the Company contributed $6.0$1.3 million and $6.8$1.6 million, respectively, to post retirement plans. For the ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016,July 3, 2021, the Company contributed $8.2 $3.0
million and $9.0$2.8 million, respectively, to post retirement plans.respectively. The Company expects to make total contributions of $9.4$7.6 million in 2017.2022. The Company contributed a total of $10.4$6.0 million in fiscal 2016. The assumptions used in the valuation of the Company’s post retirement plans and in the target investment allocation have remained the same as those disclosed in the Company’s 2016 Annual Report on Form 10-K filed on March 1, 2017.2021.
9. SHAREHOLDERS’ EQUITY
Repurchase of Common Stock
The Company acquired and retired 300,000 sharesAt a meeting of its common stock in the quarter ended September 30, 2017, at an average cost of $77.84 per share for a total cost of $23.4 million. The Company acquired and retired 576,804 shares of its common stock in the nine months ended September 30, 2017, at an average cost of $78.12 per share for a total cost of $45.1 million. The repurchases were made under the 3.0 million share repurchase program approved by the Company’s Board of Directors in November, 2013. There areon October 26, 2021, the Company's Board of Directors approved the authorization to purchase up to $500.0 million of shares. During the three and six months ended June 30, 2022, the Company purchased 575,042 shares or $69.8 million and 1,306,236 shares or $184.0 million of common stock, respectively. The Company did not repurchase and retire any common stock during the six months ended July 3, 2021.
As of June 30, 2022, there was approximately 1.7$250.3 million shares of the Company'sin common stock available for repurchase under this program.the October 2021 program.
Share-Based Compensation
The majority of the Company’s annual share-based incentive awards are made in the fiscal second quarter.
The Company recognized approximately $3.3$4.9 million and $3.0$4.5 million in share-based compensation expense for the three months ended SeptemberJune 30, 20172022 and October 1, 2016, respectively. Share-based compensation expense was $10.3July 3, 2021, respectively, and approximately $11.2 million and $10.1$7.8 million for the ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016,July 3, 2021, respectively. The total income tax benefit recognized in the Condensed Consolidated Statements of Income for share-based compensation expense was $1.3$1.2 million and $1.1$0.7 million for the three months ended SeptemberJune 30, 20172022 and October 1, 2016, respectively. The total income tax benefit recognized in the Consolidated Statements of Income for share-based compensation expense was $3.9July 3, 2021, respectively, and $2.7 million and $3.8$1.3 million for the ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016,July 3, 2021, respectively. The Company recognizes compensation expense on grants of share-based compensation awards on a straight-line basis over the vesting period of each award. As of September
During the six months ended June 30, 2017, total unrecognized compensation cost related to share-based compensation awards was approximately $27.9 million, net of estimated forfeitures, which2022, the Company expects to recognize over a weighted average period of approximately 2.2 years.
Approximately 1.0 million shares were available for future grant undergranted the 2013 Equity Incentive Plan at September 30, 2017.
Stock Appreciation Rights
The Company uses stock settled stock appreciation rights (“SARs”) as a form offollowing share-based incentive awards. SARs are the right to receive stock in an amount equalawards:
| | | | | | | | | | | | | | |
| Award Type | | Number of Awards | | Weighted Average Grant-Date Fair Value |
| Options and SARs | | 135,816 | | | $ | 42.21 | |
| Restricted Stock Awards | | 10,287 | | | $ | 131.27 | |
| Restricted Stock Units | | 85,017 | | | $ | 149.66 | |
| Performance Share Units | | 40,763 | | | $ | 174.91 | |
See Note 9, Shareholders' Equity, to the appreciation in value of a share of stock over the base price per share that generally vest over 5 years and expire 10 years from the grant date. All grants are made at prices equal to the fair market value of the stock on the grant date. For the nine months ended September 30, 2017 and October 1, 2016, expired and canceled shares were immaterial.
The table below presents share-based compensation activity for the nine months ended September 30, 2017 and October 1, 2016 (in millions):
|
| | | | | | | | |
| | | September 30,
2017 | | October 1,
2016 |
| Total intrinsic value of share-based incentive awards exercised | | $ | 3.7 |
| | $ | 1.1 |
|
| Cash received from stock option exercises | | 0.4 |
| | 0.5 |
|
| Income tax benefit (expense) from the exercise of stock options | | 0.7 |
| | (0.2 | ) |
| Total fair value of share-based incentive awards vested | | 4.3 |
| | 4.9 |
|
The assumptions usedaudited consolidated financial statements in the Company's Black-Scholes valuation related to grants for options and SARs were as follows:
|
| | | | | | | |
| | 2017 | | 2016 |
| Per share weighted average fair value of grants | $ | 23.73 |
| | $ | 15.22 |
|
| Risk-free interest rate | 2.0 | % | | 1.4 | % |
| Expected life (years) | 7.0 |
| | 7.0 |
|
| Expected volatility | 27.9 | % | | 29.6 | % |
| Expected dividend yield | 1.2 | % | | 1.7 | % |
The average risk-free interest rate is basedAnnual Report on US Treasury security rates in effect as of the grant date. The expected dividend yield is based on the projected annual dividend as a percentage of the estimated market value of the Company's common stock as of the grant date. The Company estimated the expected volatility using a weighted average of daily historical volatility of the Company's stock price over the expected term of the award. The Company estimated the expected term using historical data adjustedForm 10-K for the estimated exercise dates of unexercised awards.year ended January 1, 2022, for further information regarding share-based compensation.
Following is a summary of share-based incentive plan grant activity (options and SARs) for the nine months ended September 30, 2017.
|
| | | | | | | | | | | | |
| Number of Shares Under Options and SARs | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value (in millions) |
| Exercisable at December 31, 2016 | 1,610,499 |
| | $ | 63.16 |
| | | | |
| Granted | 195,207 |
| | 80.72 |
| | | | |
| Exercised | (160,771 | ) | | 53.18 |
| | | | |
| Forfeited | (10,239 | ) | | 65.13 |
| | | | |
| Expired | (9,485 | ) | | 64.21 |
| | | | |
| Outstanding at September 30, 2017 | 1,625,211 |
| | $ | 66.24 |
| | 5.9 | | $ | 20.9 |
|
| Exercisable at September 30, 2017 | 964,171 |
| | $ | 64.14 |
| | 4.1 | | $ | 14.3 |
|
Compensation expense recognized related to options and SARs was $3.2 million for the nine months ended September 30, 2017.
As of September 30, 2017, there was $11.0 million of unrecognized compensation cost related to non-vested options and SARs that is expected to be recognized as a charge to earnings over a weighted average period of 3.5 years.
10. INCOME TAXES
The amount of options expected to vest is materially consistent with those outstanding and not yet exercisable.
Restricted Stock Awards and Restricted Stock Units
Restricted stock awards ("RSA") and restricted stock units ("RSU") consist of shares or the rights to shares of the Company's stock. The awards are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, or death, disability or normal retirement of the grantee.
Following is a summary of RSA award activity for the nine months ended September 30, 2017:
|
| | | | | | | | | |
| | | Shares | | Weighted Average Fair Value at Grant Date | | Weighted Average Remaining Contractual Term (years) |
| Unvested RSAs at December 31, 2016 | | 19,593 |
| | $ | 57.43 |
| | 0.4 |
| Granted | | 13,941 |
| | 80.70 |
| | |
| Vested | | (19,593 | ) | | 57.43 |
| | |
| Unvested RSAs at September 30, 2017 | | 13,941 |
| | $ | 80.70 |
| | 0.6 |
RSAs vest on the first anniversary of the grant date, provided the holder of the shares is continuously employed by or in the service of the Company until the vesting date. Compensation expense recognized related to the RSAs was $0.8 million for the nine months ended September 30, 2017.
As of September 30, 2017, there was $0.7 million of unrecognized compensation cost related to non-vested RSAs that is expected to be recognized as a charge to earnings over a weighted average period of 0.6 years.
Following is a summary of RSU award activity for the nine months ended September 30, 2017:
|
| | | | | | | | | | | |
| | | | | Shares | | Weighted Average Fair Value at Grant Date | | Weighted Average Remaining Contractual Term (years) |
| Unvested RSUs at December 31, 2016 | | 277,863 |
| | $ | 69.23 |
| | 1.7 |
| Granted | | 75,905 |
| | 80.48 |
| | |
| Vested | | (81,265 | ) | | 74.98 |
| | |
| Forfeited | | (7,508 | ) | | 67.92 |
| | |
| Unvested RSUs at September 30, 2017 | | 264,995 |
| | $ | 70.72 |
| | 1.9 |
RSUs vest on the third anniversary of the grant date, provided the holder of the RSUs is continuously employed by the Company until the vesting date. Compensation expense recognized related to the RSUs was $4.7 million for the nine months ended September 30, 2017.
As of September 30, 2017, there was $10.0 million of unrecognized compensation cost related to non-vested RSUs that is expected to be recognized as a charge to earnings over a weighted average period of 1.9 years.
Performance Share Units
Performance share unit ("PSU") awards consist of shares or the rights to shares of the Company's stock which are awarded to employees of the Company. These shares are payable upon the determination that the Company achieved certain established performance targets and can range from 0% to 200% of the targeted payout based on the actual results. PSUs have a performance period of 3 years. As set forth in the individual award agreements, acceleration of vesting may occur under a change in control, death or disability. There are no voting rights associated with PSUs until vesting occurs and a share of stock is issued. Some of the PSU awards are valued using a Monte Carlo simulation method as of the grant date while others are valued using the closing market price as of the grant date depending on the performance criteria for the award.
The assumptions used in the Company's Monte Carlo simulation related to grants for performance share units were as follows:
|
| | | | | |
| | September 30,
2017 | | October 1,
2016 |
| Risk-free interest rate | 1.6 | % | | 0.9 | % |
| Expected life (years) | 3.0 |
| | 3.0 |
|
| Expected volatility | 24.0 | % | | 23.0 | % |
| Expected dividend yield | 1.3 | % | | 1.7 | % |
Following is a summary of PSU award activity for the nine months ended September 30, 2017:
|
| | | | | | | | | | | |
| | | | | Shares | | Weighted Average Fair Value at Grant Date | | Weighted Average Remaining Contractual Term (years) |
| Unvested PSUs at December 31, 2016 | | 133,340 |
| | $ | 65.28 |
| | 2.0 |
| Granted | | 48,666 |
| | 90.82 |
| | |
| Vested | | (110 | ) | | 83.74 |
| | |
| Forfeited | | (26,780 | ) | | 81.76 |
| | |
| Unvested PSUs at September 30, 2017 | | 155,116 |
| | $ | 70.43 |
| | 2.1 |
Compensation expense for awards granted is recognized based on the Monte Carlo simulation value or the expected payout ratio depending upon the performance criterion for the award, net of estimated forfeitures. Compensation expense recognized related to PSUs was $1.6 million for the nine months ended September 30, 2017. Total unrecognized compensation expense for all PSUs granted as of September 30, 2017 is estimated to be $6.2 million recognized as a charge to earnings over a weighted average period of 2.1 years.
10. INCOME TAXES
The effective tax rate for the three months endedSeptember 30, 2017 was 21.7% versus 20.2% for the three months endedOctober 1, 2016. The effective tax rate for the nine months ended September 30, 2017 was 21.9% versus 22.7% for the nine months ended October 1, 2016. The change in the effective tax rate for the three months ended SeptemberJune 30, 20172022 was primarily driven by22.1% versus 19.3% for the mix of earnings and the favorable adjustments related to the finalization of the 2015 US federal income tax return.three months ended July 3, 2021. The change in the effective tax rate for the ninesix months ended SeptemberJune 30, 20172022 and July 3, 2021 was 22.1% and 21.1%, respectively. The effective tax rate for the three and six months ended June 30, 2022 was higher than the same period in the prior year primarily driven by the jurisdictional mix of earnings and the favorable adjustments related to the 2016 finalizationimpact of the 2015 US federal income tax return, partially offset by the 2016 gain derived from the sale of the Mastergear business. The lower effective rate as compared to the 35.0% statutory Federal income tax rate is driven by lower foreign tax rates.Rexnord Transaction in fiscal 2021.
As of SeptemberJune 30, 20172022 and December 31, 2016,January 1, 2022, the Company had approximately $10.4$8.6 million and $10.0$8.8 million, respectively, of unrecognized tax benefits, all of which would impact the effective income tax rate if recognized. Potential interest and penalties related to unrecognized tax benefits are recorded in income tax expense. The Company had approximately $1.2 million and $1.3 million of accrued interest as of June 30, 2022 and January 1, 2022, respectively.
With few exceptions, the Company is no longer subject to US Federal and state/local income tax examinations by tax authorities for years prior to 2012,2018, and the Company is no longer subject to non-US income tax examinations by tax authorities for years prior to 2010.2015.
11. EARNINGS PER SHARE
Diluted earnings per share is computedcalculated based upon earnings applicable to common shares divided by the weighted-average number of common shares outstanding during the period adjusted for the effect of other dilutive securities. Options for common shares where the exercise price was above the market price have been excluded from the calculation of effect of dilutive securities shown below; theThe amount of the anti-dilutive shares were 0.50.4 million and 1.40.1 million for the three months ended SeptemberJune 30, 20172022 and October 1, 2016, respectively, and 0.4July 3, 2021, respectively. The amount of the anti-dilutive shares were 0.2 million and 1.30.1 million for the ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016,July 3, 2021, respectively. The following table reconciles the basic and diluted shares used in earnings per share calculations for the three and ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016July 3, 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | July 3, 2021 | | June 30, 2022 | | July 3, 2021 |
| Denominator for Basic Earnings Per Share | 66.8 | | | 40.7 | | | 67.1 | | | 40.6 | |
| Effect of Dilutive Securities | 0.3 | | | 0.3 | | | 0.4 | | | 0.4 | |
| Denominator for Diluted Earnings Per Share | 67.1 | | | 41.0 | | | 67.5 | | | 41.0 | |
|
| | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Denominator for Basic Earnings Per Share | 44.4 |
| | 44.8 |
| | 44.7 |
| | 44.7 |
|
| Effect of Dilutive Securities | 0.4 |
| | 0.2 |
| | 0.3 |
| | 0.3 |
|
| Denominator for Diluted Earnings Per Share | 44.8 |
| | 45.0 |
| | 45.0 |
| | 45.0 |
|
12. CONTINGENCIES
OneNaN of the Company's subsidiaries that it acquired in 2007 is subject to numerous claims filed in various jurisdictions relating to certain sub-fractional motors that were primarily manufactured through 2004 and that were included as components of residential and commercial ventilation units manufactured and sold in high volumes by a third party. These ventilation units are subject to product safety requirements and other potential regulation of their performance by government agencies such as the US Consumer Product Safety Commission (“CPSC”). The claims generally allege that the ventilation units were the cause of fires. The Company has recorded an estimated liability for incurred claims. Based on the current facts, the Company cannot assure that these claims, individually or in the aggregate, will not have a material adverse effect on its subsidiary's financial condition. The Company's subsidiary cannot reasonably predict the outcome of these claims, the nature or extent of any CPSC or other remedial actions, if any, that the Company's subsidiary may need to undertake with respect to motors that remain in the field, or the costs that may be incurred, some of which could be significant.
As a result of the Company's acquisition of the Rexnord PMC business, it is entitled to indemnification from third parties to agreements with the Rexnord PMC business against certain contingent liabilities of the Rexnord PMC business, including certain pre-closing environmental liabilities.
The Company believes that, pursuant to the transaction documents related to the Rexnord PMC business' acquisition of the Stearns business from Invensys plc ("Invensys"), Invensys (now known as Schneider Electric) is obligated to defend and indemnify us with respect to the matters described below relating to the Ellsworth Industrial Park Site and to various asbestos claims. The indemnity obligations relating to the matters described below are subject, together with indemnity obligations relating to other matters, to an overall dollar cap equal to the purchase price, which is an amount in excess of $900 million. In the event that the Company is unable to recover from Invensys with respect to the matters below, it may be entitled to indemnification from Zurn, subject to certain limitations. The following paragraphs summarize the most significant actions and proceedings:
•In 2002, the Company's subsidiary, Rexnord Industries, LLC ("Rexnord Industries") was named as a potentially responsible party ("PRP"), together with at least ten other companies, at the Ellsworth Industrial Park Site, Downers Grove, DuPage County, Illinois (the "Site"), by the United States Environmental Protection Agency ("USEPA"), and the Illinois Environmental Protection Agency ("IEPA"). Rexnord Industries' Downers Grove property is situated within the Ellsworth Industrial Complex. The USEPA and IEPA allege there have been one or more releases or threatened releases of chlorinated solvents and other hazardous substances, pollutants or contaminants at the Site, allegedly including but not limited to a release or threatened release on or from Rexnord Industries' property. The relief sought by the USEPA and IEPA includes further investigation and potential remediation of the Site and reimbursement of USEPA's past costs. In early 2020, Rexnord Industries entered into an administrative order with the USEPA to do remediation work on its Downers Grove property. Rexnord Industries' allocated share of past and future costs related to the Site, including for investigation and/or remediation, could be significant. All previously pending property damage and personal injury lawsuits against Rexnord Industries related to the Site have been settled or dismissed. Pursuant to its indemnity obligation, Invensys continues to defend Rexnord Industries in known matters related to the Site, including the costs of the remediation work pursuant to the 2020 administrative order, and has paid 100% of the costs to date. This indemnification right would not protect Rexnord Industries against liabilities related to
environmental conditions that were unknown to Invensys at the time of the acquisition of the Stearns business from Invensys.
•Multiple lawsuits (with approximately 300 claimants) are pending in state or federal court in numerous jurisdictions relating to alleged personal injuries due to the alleged presence of asbestos in certain brakes and clutches previously manufactured by the Rexnord PMC business' Stearns brand of brakes and clutches and/or its predecessor owners. Invensys and FMC, prior owners of the Stearns business, have paid 100% of the costs to date related to the Stearns lawsuits. Similarly, the Rexnord PMC business' Prager subsidiary is the subject of claims by multiple claimants alleging personal injuries due to the alleged presence of asbestos in a product allegedly manufactured by Prager. However, all these claims are currently on the Texas Multi-district Litigation inactive docket, and the Company does not believe that they will become active in the future. To date, the Rexnord PMC business' insurance providers have paid 100% of the costs related to the Prager asbestos matters. We believe that the combination of the Company's insurance coverage and the Invensys indemnity obligations will cover any future costs of these matters.
In connection with the Company's acquisition of the Rexnord PMC business, transaction documents related to the Rexnord PMC business’ acquisition of The Falk Corporation from Hamilton Sundstrand Corporation were assigned to Rexnord Industries, and provide Rexnord Industries with indemnification against certain products related asbestos exposure liabilities. The Company believes that, pursuant to such indemnity obligations, Hamilton Sundstrand is obligated to defend and indemnify Rexnord Industries with respect to asbestos claims described below, and that, with respect to these claims, such indemnity obligations are not subject to any time or dollar limitations.
The following paragraph summarizes the most significant actions and proceedings for which Hamilton Sundstrand has accepted responsibility:
•Rexnord Industries is a defendant in multiple lawsuits pending in state or federal court in numerous jurisdictions relating to alleged personal injuries due to the alleged presence of asbestos in certain clutches and drives previously manufactured by The Falk Corporation. The ultimate outcome of these lawsuits cannot presently be determined. Hamilton Sundstrand is defending Rexnord Industries in these lawsuits pursuant to its indemnity obligations and has paid 100% of the costs to date.
The Company is, from time to time, party to litigation and other legal or regulatory proceedings that arise in the normal course of its business operations and the outcomes of which are subject to significant uncertainty, including product warranty and liability claims, contract disputes and environmental, asbestos, intellectual property, employment and other litigation matters. The Company's products are used in a variety of industrial, commercial and residential applications that subject the Company to claims that the use of its products is alleged to have resulted in injury or other damage. Many of these matters will only be resolved when one or more future events occur or fail to occur. Management conducts regular reviews, including updates from legal counsel, to assess the need for accounting recognition or disclosure of these contingencies, and such assessment inherently involves an exercise in judgment. The Company accrues for exposures in amounts that it believes are adequate, and the Company does not believe that the outcome of any such lawsuit individually or collectively will have a material effect on the Company's financial position, its results of operations or its cash flows.
The Company recognizes the cost associated with its standard warranty on its products at the time of sale. The amount recognized is based on historical experience. The following istable presents a reconciliation of the changes in accrued warranty costs for the three and ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016July 3, 2021 (in millions):
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 | | June 30, 2022 | | July 3, 2021 | | June 30, 2022 | | July 3, 2021 |
| Beginning Balance | $ | 18.1 |
| | $ | 19.2 |
| | $ | 20.3 |
| | $ | 19.1 |
| Beginning Balance | $ | 23.4 | | | $ | 16.3 | | | $ | 23.0 | | | $ | 15.5 | |
| Less: Payments | (4.7 | ) | | (5.9 | ) | | (17.5 | ) | | (15.6 | ) | Less: Payments | (7.7) | | | (4.2) | | | (13.3) | | | (8.7) | |
| Provisions | 4.0 |
| | 7.2 |
| | 14.5 |
| | 17.0 |
| Provisions | 8.0 | | | 4.6 | | | 14.0 | | | 10.0 | |
| | Translation Adjustments | 0.1 |
| | — |
| | 0.2 |
| | — |
| Translation Adjustments | (0.3) | | | — | | | (0.3) | | | (0.1) | |
| Ending Balance | $ | 17.5 |
| | $ | 20.5 |
| | $ | 17.5 |
| | $ | 20.5 |
| Ending Balance | $ | 23.4 | | | $ | 16.7 | | | $ | 23.4 | | | $ | 16.7 | |
These liabilities are included in Other Accrued Expenses and Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheet.Sheets.
13. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed using derivative instruments are commodity price risk, currency exchange risk, and interest rate risk. Forward contracts on certain commodities are entered into to manage the price risk associated with forecasted purchases of materials used in the Company's manufacturing process. Forward contracts on certain currencies are entered into to manage forecasted cash flows in certain foreign currencies. Interest rate swaps were previouslyare utilized to manage interest rate risk associated with the Company's floating rate borrowings.
The Company is exposed to credit losses in the event of non-performance by the counterparties to various financial agreements, including its commodity hedging transactions, foreign currency exchange contracts and interest rate swap agreements. Exposure to counterparty credit risk is managed by limiting counterparties to major international banks and financial institutions meeting established credit guidelines and continually monitoring their compliance with the credit guidelines. The Company does not obtain collateral or other security to support financial instruments subject to credit risk. The Company does not anticipate non-performance by its counterparties, but cannot provide assurances.
The Company recognizes all derivative instruments as either assets or liabilities at fair value in the statement of financial position.Condensed Consolidated Balance Sheets. The Company designates commodity forward contracts as cash flow hedges of forecasted purchases of commodities, currency forward contracts as cash flow hedges of forecasted foreign currency cash flows and interest rate swaps as cash flow hedges of forecasted LIBOR-basedSOFR-based interest payments. There were no significant collateral deposits on derivative financial instruments as of SeptemberJune 30, 2017.2022 or July 3, 2021.
Cash flow hedgesFlow Hedges
For derivative instruments that are designated and qualify as a cash flow hedge, theThe effective portion of the gain or loss on the derivative is reported as a component of AOCI and reclassified into the same line within the Condensed Consolidated Statement of Income as the earnings effect of the hedged item in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or changes in market value of derivatives not designated as hedges are recognized in current earnings.
At SeptemberJune 30, 2017,2022, the Company had $(0.1)$16.7 million, net of tax, of derivative lossesgains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At December 31, 2016,January 1, 2022, the Company had $(7.5)$5.6 million,, net of tax, of derivative lossesgains on closed hedge instruments in AOCI that was subsequently realized in earnings when the hedged items impacted earnings.
As of SeptemberJune 30, 2017,2022, the Company had the following currency forward contracts outstanding (with maturities extending through October 2019)December 2023) to hedge forecasted foreign currency cash flows (in millions):
| | | | | |
| Notional Amount (in US Dollars) |
| Chinese Renminbi | $ | 249.5 | |
| Mexican Peso | 204.1 | |
| Euro | 208.7 | |
| Indian Rupee | 79.4 | |
| |
| Australian Dollar | 14.1 | |
| |
| British Pound | 1.8 | |
| Thai Baht | 0.5 | |
|
| | | |
| | Notional Amount (in US Dollars) |
| Chinese Renminbi | $ | 218.0 |
|
| Mexican Peso | 164.9 |
|
| Euro | 63.8 |
|
| Indian Rupee | 37.7 |
|
| Canadian Dollar | 51.3 |
|
| Australian Dollar | 13.2 |
|
| Thai Baht | 7.1 |
|
| British Pound | 9.9 |
|
As of SeptemberJune 30, 2017,2022, the Company had the following commodity forward contracts outstanding (with maturities extending through December 2018)November 2023) to hedge forecasted purchases of commodities (notional amounts expressed in terms of the dollar value of the hedged item (in millions)):
| | | | | |
| Notional Amount |
| Copper | $ | 145.3 | |
| Aluminum | 7.1 | |
The Company entered into 2 receive variable/pay-fixed forward starting non-amortizing interest rate swaps in June 2020, with a total notional amount of $250.0 million, which were subsequently terminated in March 2022. The cash proceeds of $16.2 million received to settle the terminated swaps will be recognized as a reduction of interest expense via the effective
|
| | | |
| | Notional Amount |
| Copper | $ | 64.0 |
|
| Aluminum | 4.5 |
|
FairThe following table presents the fair values of derivative instruments as of SeptemberJune 30, 20172022 and December 31, 2016 wereJanuary 1, 2022 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Prepaid Expenses and Other Current Assets | | Other Noncurrent Assets | | Other Accrued Expenses | | Other Noncurrent Liabilities |
| Designated as Hedging Instruments: | | | | | | | |
| Interest Rate Swap Contracts | $ | — | | | $ | — | | | $ | — | | | $ | 1.8 | |
| Currency Contracts | 8.4 | | | 0.8 | | | 2.8 | | | 0.5 | |
| Commodity Contracts | 0.5 | | | — | | | 19.3 | | | 3.4 | |
| Not Designated as Hedging Instruments: | | | | | | | |
| Currency Contracts | 0.6 | | | — | | | 0.7 | | | — | |
| Commodity Contracts | — | | | — | | | 0.3 | | | — | |
| Total Derivatives | $ | 9.5 | | | $ | 0.8 | | | $ | 23.1 | | | $ | 5.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | January 1, 2022 |
| | Prepaid Expenses and Other Current Assets | | Other Noncurrent Assets | | Other Accrued Expenses | | Other Noncurrent Liabilities |
| Designated as Hedging Instruments: | | | | | | | |
| Interest Rate Swap Contracts | $ | — | | | $ | 5.3 | | | $ | — | | | $ | — | |
| Currency Contracts | 8.3 | | | 0.7 | | | 1.3 | | | — | |
| Commodity Contracts | 8.9 | | | 0.1 | | | 1.2 | | | 0.5 | |
| Not Designated as Hedging Instruments: | | | | | | | |
| Currency Contracts | 0.3 | | | — | | | 0.4 | | | — | |
| Commodity Contracts | 0.4 | | | — | | | — | | | 0.1 | |
| Total Derivatives | $ | 17.9 | | | $ | 6.1 | | | $ | 2.9 | | | $ | 0.6 | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Prepaid Expenses and Other Current Assets | | Other Noncurrent Assets | | Current Hedging Obligations
| | Noncurrent Hedging Obligations |
| Designated as hedging instruments: | | | | | | | |
| Currency contracts | $ | 9.5 |
| | $ | 4.9 |
| | $ | 8.2 |
| | $ | 0.6 |
|
| Commodity contracts | 6.5 |
| | 0.2 |
| | 0.3 |
| | — |
|
| Not designated as hedging instruments: | | | | | | | |
| Currency contracts | 3.4 |
| | — |
| | 0.6 |
| | — |
|
| Commodity contracts | 0.1 |
| | — |
| | — |
| | — |
|
| Total Derivatives | $ | 19.5 |
| | $ | 5.1 |
| | $ | 9.1 |
| | $ | 0.6 |
|
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Prepaid Expenses and Other Current Assets | | Other Noncurrent Assets | | Current Hedging
Obligations
| | Noncurrent Hedging
Obligations |
| Designated as hedging instruments: | | | | | | | |
| Interest rate swap contracts | $ | — |
| | $ | — |
| | $ | 3.3 |
| | $ | — |
|
| Currency contracts | 1.3 |
| | 0.4 |
| | 39.7 |
| | 17.6 |
|
| Commodity contracts | 4.7 |
| | — |
| | — |
| | — |
|
| Not designated as hedging instruments: | | | | | | | |
| Currency contracts | 1.5 |
| | — |
| | 6.0 |
| | — |
|
| Commodity contracts | 2.6 |
| | — |
| | — |
| | — |
|
| Total Derivatives | $ | 10.1 |
| | $ | 0.4 |
| | $ | 49.0 |
| | $ | 17.6 |
|
The following table presents the effect of derivative instruments on the Condensed Consolidated Statements of Income and Condensed Consolidated Statement of Comprehensive Income (pre-tax) was as follows (in millions):
Derivatives Designated as Cash Flow Hedging Instruments
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | October 1, 2016 |
| | Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total | | Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total |
| Gain (Loss) recognized in Other Comprehensive Income (Loss) | $ | 6.8 |
| | $ | 7.0 |
| | $ | 0.5 |
| | $ | 14.3 |
| | $ | (0.5 | ) | | $ | (9.9 | ) | | $ | 0.3 |
| | $ | (10.1 | ) |
| Amounts reclassified from Other Comprehensive Income (Loss): | | | | | | | | |
|
| |
|
| |
|
| |
|
|
| Gain recognized in Net Sales | — |
| | 0.3 |
| | — |
| | 0.3 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Gain (Loss) recognized in Cost of Sales | 2.8 |
| | (2.2 | ) | | — |
| | 0.6 |
| | (2.4 | ) | | (8.8 | ) | | — |
| | (11.2 | ) |
| Loss recognized in Interest Expense | — |
| | — |
| | (0.6 | ) | | (0.6 | ) | | — |
| | — |
| | (1.2 | ) | | (1.2 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | October 1, 2016 |
| | Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total | | Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total |
| Gain (Loss) recognized in Other Comprehensive Income (Loss) | $ | 11.3 |
| | $ | 49.9 |
| | $ | 0.5 |
| | $ | 61.7 |
| | $ | 1.6 |
| | $ | (25.5 | ) | | $ | (0.4 | ) | | $ | (24.3 | ) |
| Amounts reclassified from Other Comprehensive Income (Loss): | | | | | | |
|
| |
|
| |
|
| |
|
| | |
| Gain recognized in Net Sales | — |
| | 0.7 |
| | — |
| | 0.7 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Gain (Loss) recognized in Cost of Sales | 7.5 |
| | (21.3 | ) | | — |
| | (13.8 | ) | | (12.1 | ) | | (22.0 | ) | | — |
| | (34.1 | ) |
| Loss recognized in Interest Expense | — |
| | — |
| | (2.8 | ) | | (2.8 | ) | | — |
| | — |
| | (3.7 | ) | | (3.7 | ) |
The ineffective portion of hedging instruments recognized during the three and nine months ended September 30, 2017 and October 1, 2016, respectively, was immaterial. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2022 | | July 3, 2021 |
| Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total | | Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total |
| (Loss) Gain Recognized in Other Comprehensive Income (Loss) | $ | (35.6) | | | $ | (6.0) | | | $ | (1.8) | | | $ | (43.4) | | | $ | 10.9 | | | $ | 7.5 | | | $ | (0.9) | | | $ | 17.5 | |
| Amounts Reclassified from Other Comprehensive Income (Loss): | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Gain Recognized in Cost of Sales | 4.4 | | | 2.4 | | | — | | | 6.8 | | | 8.6 | | | 4.0 | | | — | | | 12.6 | |
| Loss Recognized in Operating Expenses | — | | | — | | | — | | | — | | | — | | | (1.3) | | | — | | | (1.3) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Six Months Ended |
| June 30, 2022 | | July 3, 2021 |
| Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total | | Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total |
| (Loss) Gain Recognized in Other Comprehensive Income (Loss) | $ | (22.2) | | | $ | 4.4 | | | $ | 8.8 | | | $ | (9.0) | | | $ | 25.0 | | | $ | 7.7 | | | $ | 4.0 | | | $ | 36.7 | |
| Amounts Reclassified from Other Comprehensive Income (Loss): | | | | | | | | | | | | | | | |
| Gain Recognized in Net Sales | — | | | 0.1 | | | — | | | 0.1 | | | — | | | 0.1 | | | — | | | 0.1 | |
| Gain Recognized in Cost of Sales | 9.6 | | | 5.4 | | | — | | | 15.0 | | | 13.8 | | | 6.6 | | | — | | | 20.4 | |
| Gain Recognized in Operating Expenses | — | | | — | | | — | | | — | | | — | | | 2.2 | | | — | | | 2.2 | |
| (Loss) Gain Recognized in Interest Expense | — | | | — | | | (0.3) | | | (0.3) | | | — | | | — | | | 0.1 | | | 0.1 | |
Derivatives Not Designated as Cash Flow Hedging Instruments (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2022 | | July 3, 2021 |
| Commodity Forwards | | Currency Forwards | | Commodity Forwards | | Currency Forwards |
| (Loss) Gain recognized in Cost of Sales | $ | (1.2) | | | $ | — | | | $ | 0.2 | | | $ | — | |
| Gain (Loss) recognized in Operating Expenses | — | | | 3.5 | | | — | | | (3.7) | |
| | | | | | | |
| Six Months Ended |
| June 30, 2022 | | July 3, 2021 |
| Commodity Forwards | | Currency Forwards | | Commodity Forwards | | Currency Forwards |
| (Loss) Gain recognized in Cost of Sales | $ | (0.6) | | | $ | — | | | $ | 0.4 | | | $ | — | |
| Gain recognized in Operating Expenses | — | | | 5.0 | | | — | | | 2.1 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | October 1, 2016 |
| | Commodity Forwards | | Currency Forwards | | Commodity Forwards | | Currency Forwards |
| Gain (Loss) recognized in Cost of Sales | $ | (0.8 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
| Gain (Loss) recognized in Operating Expenses | — |
| | 2.9 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | October 1, 2016 |
| | Commodity Forwards | | Currency Forwards | | Commodity Forwards | | Currency Forwards |
| Gain (Loss) recognized in Cost of Sales | $ | (0.6 | ) | | $ | — |
| | $ | 0.2 |
| | $ | — |
|
| Gain (Loss) recognized in Operating Expenses | — |
| | 10.6 |
| | — |
| | (0.7 | ) |
The net AOCI hedging component balance of$7.0 a $2.9 million gain at SeptemberJune 30, 20172022 includes $6.5$(2.1) million of net current deferred gainslosses expected to be realized in the next twelve months.months. The gain/loss reclassified from AOCI into earnings on such derivatives will be recognized in the same period in which the related item affects earnings.
The Company's commodity and currency derivative contracts are subject to master netting agreements with the respective counterparties which allow the Company to net settle transactions with a single net amount payable by one party to another party. The Company has elected to present the derivative assets and derivative liabilities on the Condensed Consolidated Balance Sheets on a gross basis for the periods ended SeptemberJune 30, 20172022 and December 31, 2016.
January 1, 2022.
The following table presents the derivative assets and derivative liabilities presented on a net basis under enforceable master netting agreements (in millions):
| | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Gross Amounts as Presented in the Condensed Consolidated Balance Sheet | | Derivative Contract Amounts Subject to Right of Offset | | Derivative Contracts as Presented on a Net Basis |
| Prepaid Expenses and Other Current Assets: | | | | | |
| Derivative Currency Contracts | $ | 9.0 | | | $ | (2.3) | | | $ | 6.7 | |
| Derivative Commodity Contracts | 0.5 | | | (0.5) | | | — | |
| Other Noncurrent Assets: | | | | | |
| Derivative Currency Contracts | 0.8 | | | — | | | 0.8 | |
| | | | | |
| Other Accrued Expenses: | | | | | |
| | | | | |
| Derivative Currency Contracts | 3.5 | | | (2.3) | | | 1.2 | |
| Derivative Commodity Contracts | 19.6 | | | (0.5) | | | 19.1 | |
| Other Noncurrent Liabilities: | | | | | |
| Derivative Currency Contracts | 0.5 | | | — | | | 0.5 | |
| Derivative Commodity Contracts | 3.4 | | | — | | | 3.4 | |
| | | | | | | | | | | | | | | | | |
| January 1, 2022 |
| Gross Amounts as Presented in the Condensed Consolidated Balance Sheet | | Derivative Contract Amounts Subject to Right of Offset | | Derivative Contracts as Presented on a Net Basis |
| Prepaid Expenses and Other Current Assets: | | | | | |
| Derivative Currency Contracts | $ | 8.6 | | | $ | (1.7) | | | $ | 6.9 | |
| Derivative Commodity Contracts | 9.3 | | | (1.2) | | | 8.1 | |
| Other Noncurrent Assets: | | | | | |
| Derivative Currency Contracts | 0.7 | | | — | | | 0.7 | |
| Derivative Commodity Contracts | 0.1 | | | (0.1) | | | — | |
| Other Accrued Expenses: | | | | | |
| Derivative Currency Contracts | 1.7 | | | (1.7) | | | — | |
| Derivative Commodity Contracts | 1.2 | | | (1.2) | | | — | |
| Other Noncurrent Liabilities: | | | | | |
| | | | | |
| Derivative Commodity Contracts | 0.6 | | | (0.1) | | | 0.5 | |
|
| | | | | | | | | | | |
| | September 30, 2017 |
| | Gross Amounts as Presented in the Condensed Consolidated Balance Sheet | | Derivative Contract Amounts Subject to Right of Offset | | Derivative Contracts as Presented on a Net Basis |
| Prepaid Expenses and Other Current Assets: | | | | | |
| Derivative Currency Contracts | $ | 12.9 |
| | $ | (5.4 | ) | | $ | 7.5 |
|
| Derivative Commodity Contracts | 6.6 |
| | (0.3 | ) | | 6.3 |
|
| Other Noncurrent Assets: | | | | | |
| Derivative Currency Contracts | 4.9 |
| | (0.5 | ) | | 4.4 |
|
| Derivative Commodity Contracts | 0.2 |
| | — |
| | 0.2 |
|
| Current Hedging Obligations: | | | | | |
| Derivative Currency Contracts | 8.8 |
| | (5.4 | ) | | 3.4 |
|
| Derivative Commodity Contracts | 0.3 |
| | (0.3 | ) | | — |
|
| Noncurrent Hedging Obligations: | | | | | |
| Derivative Currency Contracts | 0.6 |
| | (0.5 | ) | | 0.1 |
|
|
| | | | | | | | | | | |
| | December 31, 2016 |
| | Gross Amounts as Presented in the Condensed Consolidated Balance Sheet | | Derivative Contract Amounts Subject to Right of Offset | | Derivative Contracts as Presented on a Net Basis |
| Prepaid Expenses and Other Current Assets: | | | | | |
| Derivative Currency Contracts | $ | 2.8 |
| | $ | (1.7 | ) | | $ | 1.1 |
|
| Derivative Commodity Contracts | 7.3 |
| | — |
| | 7.3 |
|
| Other Noncurrent Assets: | | | | | |
| Derivative Currency Contracts | 0.4 |
| | (0.2 | ) | | 0.2 |
|
| Current Hedging Obligations: | | | | | |
| Derivative Currency Contracts | 45.7 |
| | (1.7 | ) | | 44.0 |
|
| Noncurrent Hedging Obligations: | | | | | |
| Derivative Currency Contracts | 17.6 |
| | (0.2 | ) | | 17.4 |
|
14. FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
|
| | | | |
| Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities |
| Level 2 | Unadjusted quoted prices in active markets for similar assets or liabilities, or |
| Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or |
| Inputs other than quoted prices that are observable for the asset or liability |
| Level 3 | Unobservable inputs for the asset or liability |
The Company uses the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The fair values of cash equivalents and short-term deposits approximate their carrying values as of SeptemberJune 30, 20172022 and December 31, 2016,January 1, 2022, due to the short period of time to maturity and are classified using Level 1 inputs. The fair values of trade receivables and accounts payable approximate the carrying values due to the short period of time to maturity. See Note 7 of Notes to Condensed Consolidated Financial Statements for disclosure of the approximate fair value of the Company's debt at SeptemberJune 30, 20172022 and December 31, 2016.January 1, 2022.
The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of SeptemberJune 30, 20172022 and December 31, 2016January 1, 2022 (in millions):
| | | | September 30,
2017 | | December 31,
2016 | | Classification | | June 30, 2022 | | January 1, 2022 | | Classification |
| Assets: | | | | | Assets: | | | | | |
| Prepaid Expenses and Other Current Assets: | | | | | Prepaid Expenses and Other Current Assets: | |
| Derivative Currency Contracts | $ | 12.9 |
| | $ | 2.8 |
| | Level 2 | Derivative Currency Contracts | $ | 9.0 | | | $ | 8.6 | | | Level 2 |
| Derivative Commodity Contracts | 6.6 |
| | 7.3 |
| | Level 2 | Derivative Commodity Contracts | 0.5 | | | 9.3 | | | Level 2 |
| | Other Noncurrent Assets: | | | | | Other Noncurrent Assets: | |
| Assets Held in Rabbi Trust | 5.6 |
| | 5.4 |
| | Level 1 | Assets Held in Rabbi Trust | 6.4 | | | 6.8 | | | Level 1 |
| Derivative Currency Contracts | 4.9 |
| | 0.4 |
| | Level 2 | Derivative Currency Contracts | 0.8 | | | 0.7 | | | Level 2 |
| Derivative Commodity Contracts | 0.2 |
| | — |
| | Level 2 | Derivative Commodity Contracts | — | | | 0.1 | | | Level 2 |
| Interest Rate Swap | | Interest Rate Swap | — | | | 5.3 | | | Level 2 |
| Liabilities: | | | | | Liabilities: | |
| Current Hedging Obligations: | | | | | |
| | Other Accrued Expenses: | | Other Accrued Expenses: | |
| | Derivative Currency Contracts | | Derivative Currency Contracts | 3.5 | | | 1.7 | | | Level 2 |
| Derivative Commodity Contracts | | Derivative Commodity Contracts | 19.6 | | | 1.2 | | | Level 2 |
| Other Noncurrent Liabilities: | | Other Noncurrent Liabilities: | |
| Interest Rate Swap | — |
| | 3.3 |
| | Level 2 | Interest Rate Swap | 1.8 | | | — | | | Level 2 |
| Derivative Currency Contracts | 8.8 |
| | 45.7 |
| | Level 2 | Derivative Currency Contracts | 0.5 | | | — | | | Level 2 |
| Derivative Commodity Contracts | 0.3 |
| | — |
| | Level 2 | Derivative Commodity Contracts | 3.4 | | | 0.6 | | | Level 2 |
| Noncurrent Hedging Obligations: | | | | | |
| Derivative Currency Contracts | 0.6 |
| | 17.6 |
| | Level 2 | |
|
Level 1 fair value measurements for assets held in a Rabbi Trust are unadjusted quoted prices.
Level 2 fair value measurements for derivative assets and liabilities are measured using quoted prices in active markets for similar assets and liabilities. Interest rate swaps are valued based on the discounted cash flows for the LIBORSOFR forward yield curve for a swap with similar contractual terms. Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. Commodity forwards are valued based on observable market transactions of forward commodity prices.
During the nine months ended September 30, 2017, there were no transfers between classification Levels 1, 2 or 3.
15. RESTRUCTURING AND RELATED COSTSACTIVITIES
The Company incurred restructuring and restructuring relatedrestructuring-related costs on projects beginning in 2014.during fiscal 2022 and 2021. In conjunction with the Rexnord Transaction, the Company initiated a restructuring plan to achieve cost synergies from procurement, distribution efficiencies, footprint rationalization and other general cost savings measures. Restructuring costs include employee termination and plant relocation costs. Restructuring-related costs also include costs directly associated with actions resulting from our Simplificationthe Company's simplification initiatives, such as asset write-downs or accelerated depreciation due to shortened useful lives in connection with site closures, discretionary employment benefit costs and other facility rationalization costs. Restructuring costs for employee termination expenses are generally requiredrecognized when the severance liability is determined to be accrued over the employees remaining service periodprobable of being paid and reasonably estimable while restructuring costs for plant relocation costs and restructuring-relatedrelated costs are generally required to be expensed as incurred.
The following istable presents a reconciliation of provisions and payments for the restructuring projects for the three and ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016July 3, 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2022 | | July 3, 2021 | | June 30, 2022 | | July 3, 2021 |
| Beginning Balance | $ | 14.5 | | | $ | 2.7 | | | $ | 5.0 | | | $ | 2.0 | |
| Provision | (1.0) | | | 1.5 | | | 15.8 | | | 3.2 | |
| Less: Payments/ Other | 7.1 | | | 1.7 | | | 14.4 | | | 2.7 | |
| Ending Balance | $ | 6.4 | | | $ | 2.5 | | | $ | 6.4 | | | $ | 2.5 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Beginning Balance | $ | 1.3 |
| | $ | 1.4 |
| | $ | 0.6 |
| | $ | 1.3 |
|
| Provision | 1.6 |
| | 1.1 |
| | 12.5 |
| | 4.2 |
|
| Less: Payments | (1.7 | ) | | (1.3 | ) | | (11.9 | ) | | (4.3 | ) |
| Ending Balance | $ | 1.2 |
| | $ | 1.2 |
| | $ | 1.2 |
| | $ | 1.2 |
|
The following istable presents a reconciliation of restructuring and restructuring-related costs for the restructuring projects for the three and ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016,July 3, 2021, respectively (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2022 | | July 3, 2021 |
| Restructuring Costs: | Cost of Sales | | Operating Expenses | | Total | | Cost of Sales | | Operating Expenses | | Total |
| Employee Termination Expenses | $ | 1.4 | | | $ | (1.0) | | | $ | 0.4 | | | $ | 0.2 | | | $ | 0.2 | | | $ | 0.4 | |
| Facility Related Costs | (2.0) | | | 0.1 | | | (1.9) | | | 0.8 | | | 0.1 | | | 0.9 | |
| Other Expenses | 0.1 | | | 0.4 | | | 0.5 | | | 0.2 | | | — | | | 0.2 | |
| Total Restructuring Costs | $ | (0.5) | | | $ | (0.5) | | | $ | (1.0) | | | $ | 1.2 | | | $ | 0.3 | | | $ | 1.5 | |
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2022 | | July 3, 2021 |
| Restructuring Costs: | Cost of Sales | | Operating Expenses | | Total | | Cost of Sales | | Operating Expenses | | Total |
| Employee Termination Expenses | $ | 6.2 | | | $ | 2.6 | | | $ | 8.8 | | | $ | 0.4 | | | $ | 0.6 | | | $ | 1.0 | |
| Facility Related Costs | 6.0 | | | 0.5 | | | 6.5 | | | 1.6 | | | 0.3 | | | 1.9 | |
| Other Expenses | 0.1 | | | 0.4 | | | 0.5 | | | 0.3 | | | — | | | 0.3 | |
| Total Restructuring Costs | $ | 12.3 | | | $ | 3.5 | | | $ | 15.8 | | | $ | 2.3 | | | $ | 0.9 | | | $ | 3.2 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | October 1, 2016 |
| Restructuring Costs: | Cost of Sales | Operating Expenses | Total | | Cost of Sales | Operating Expenses | Total |
| Employee Termination Expenses | $ | 0.1 |
| $ | 0.1 |
| $ | 0.2 |
| | $ | — |
| $ | (0.1 | ) | $ | (0.1 | ) |
| Facility Related Costs | 1.1 |
| 0.2 |
| 1.3 |
| | (0.1 | ) | 1.1 |
| 1.0 |
|
| Other Expenses | — |
| 0.1 |
| 0.1 |
| | 0.2 |
| — |
| 0.2 |
|
| Total Restructuring Costs | $ | 1.2 |
| $ | 0.4 |
| $ | 1.6 |
| | $ | 0.1 |
| $ | 1.0 |
| $ | 1.1 |
|
| Restructuring Related Costs: | | | | | | | |
| Other Employment Benefit Expenses | $ | — |
| $ | — |
| $ | — |
| | $ | — |
| $ | — |
| $ | — |
|
| Total Restructuring Related Costs | $ | — |
| $ | — |
| $ | — |
| | $ | — |
| $ | — |
| $ | — |
|
| Total Restructuring and Restructuring Related Costs | $ | 1.2 |
| $ | 0.4 |
| $ | 1.6 |
| | $ | 0.1 |
| $ | 1.0 |
| $ | 1.1 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | October 1, 2016 |
| Restructuring Costs: | Cost of Sales | Operating Expenses | Total | | Cost of Sales | Operating Expenses | Total |
| Employee Termination Expenses | $ | 2.5 |
| $ | 1.4 |
| $ | 3.9 |
| | $ | 0.4 |
| $ | — |
| $ | 0.4 |
|
| Facility Related Costs | 3.4 |
| 0.5 |
| 3.9 |
| | 0.4 |
| 1.5 |
| 1.9 |
|
| Other Expenses | 3.9 |
| 0.1 |
| 4.0 |
| | 0.8 |
| — |
| 0.8 |
|
| Total Restructuring Costs | $ | 9.8 |
| $ | 2.0 |
| $ | 11.8 |
| | $ | 1.6 |
| $ | 1.5 |
| $ | 3.1 |
|
| Restructuring Related Costs: | | | | | | | |
| Other Employment Benefit Expenses | $ | 0.7 |
| $ | — |
| $ | 0.7 |
| | $ | 0.5 |
| $ | 0.6 |
| $ | 1.1 |
|
| Total Restructuring Related Costs | $ | 0.7 |
| $ | — |
| $ | 0.7 |
| | $ | 0.5 |
| $ | 0.6 |
| $ | 1.1 |
|
| Total Restructuring and Restructuring Related Costs | $ | 10.5 |
| $ | 2.0 |
| $ | 12.5 |
| | $ | 2.1 |
| $ | 2.1 |
| $ | 4.2 |
|
The following table showspresents the allocation of Restructuring Costsrestructuring and restructuring-related costs by segment for the three and ninesix months ended SeptemberJune 30, 20172022 and October 1, 2016July 3, 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Restructuring Costs - Three Months Ended | Total | | Commercial Systems | | Industrial Systems | | Climate Solutions | | Motion Control Solutions |
| June 30, 2022 | $ | (1.0) | | | $ | 0.3 | | | $ | 0.3 | | | $ | 0.4 | | | $ | (2.0) | |
| July 3, 2021 | $ | 1.5 | | | $ | 0.1 | | | $ | 0.3 | | | $ | 0.3 | | | $ | 0.8 | |
| | | | | | | | | |
| Restructuring Costs - Six Months Ended | Total | | Commercial Systems | | Industrial Systems | | Climate Solutions | | Motion Control Solutions |
| June 30, 2022 | $ | 15.8 | | | $ | 1.0 | | | $ | 0.3 | | | $ | 0.7 | | | $ | 13.8 | |
| July 3, 2021 | $ | 3.2 | | | $ | 0.3 | | | $ | 0.8 | | | $ | 0.6 | | | $ | 1.5 | |
|
| | | | | | | | | | | | | | | |
| | Total | | Commercial and Industrial Systems | | Climate Solutions | | Power Transmission Solutions |
| Restructuring Costs - Three Months Ended September 30, 2017 | $ | 1.6 |
| | $ | 1.2 |
| | $ | 0.3 |
| | $ | 0.1 |
|
| Restructuring Costs - Three Months Ended October 1, 2016 | $ | 1.1 |
| | $ | 0.2 |
| | $ | 0.2 |
| | $ | 0.7 |
|
|
| | | | | | | | | | | | | | | |
| | Total | | Commercial and Industrial Systems | | Climate Solutions | | Power Transmission Solutions |
| Restructuring Costs - Nine Months Ended September 30, 2017 | $ | 12.5 |
| | $ | 9.8 |
| | $ | 2.0 |
| | $ | 0.7 |
|
| Restructuring Costs - Nine Months Ended October 1, 2016 | $ | 4.2 |
| | $ | 1.0 |
| | $ | 2.0 |
| | $ | 1.2 |
|
The Company's current restructuring activities are expected to continue into 2018.through 2023. The Company expects to record aggregate future charges of approximately $8.3$45.7 million which includes $1.3 million of employee termination expensesin 2022. The Company continues to evaluate operating efficiencies and $7.0 million of facility related and other costs.anticipates incurring additional costs in future periods in connection with these activities.
16. SUBSEQUENT EVENT
The Company has evaluated subsequent events from Septembersince June 30, 2017 through2022, the date of this report. The Companythese financial statements, and is not aware of any subsequent events that would require recognition or disclosure.to disclose.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this Item 2 to “we,” “us,” “our” or the “Company” refer collectively to Regal BeloitRexnord Corporation and its subsidiaries.
Overview
Regal BeloitRexnord Corporation (NYSE: RBC)RRX), based in Beloit, Wisconsin (USA), is a leading manufacturerglobal leader in the engineering and manufacturing of electric motors, electrical motion controls, power generation andindustrial powertrain solutions, power transmission components, electrical motors and electronic controls, air moving products and specialty electrical components and systems, serving markets throughoutcustomers around the world. Through longstanding technology leadership and an intentional focus on producing more energy-efficient products and systems, we help create a better tomorrow – for our customers and for the planet.
Operating Segments
Our company is comprised of threefour operating segments: Commercial andSystems, Industrial Systems, Climate Solutions and Power TransmissionMotion Control Solutions.
A description of the threeour four operating segments is as follows:
•Commercial Systems segment designs and Industrial Systems produces mediumfractional to approximately 5 horsepower AC and largeDC motors, electronic variable speed controls, fans, and blowers for commercial and industrial equipment, generator and custom drives and systems.applications. These products serve markets including commercial Heating, Ventilation,building ventilation and Air Conditioning ("HVAC"),HVAC, pool and spa, standbyirrigation, dewatering, agriculture, and critical powergeneral commercial equipment.
•Industrial Systems segment designs and produces integral motors, automatic transfer switches, alternators and switchgear for industrial applications, along with aftermarket parts and kits to support such products. These products serve markets including agriculture, marine, mining, oil and gas, systems.food and beverage, data centers, healthcare, prime and standby power, and general industrial equipment.
•Climate Solutions segment designs and produces small motors, electronic variable speed controls and air moving solutions serving markets including residential and light commercial HVAC, water heaters and commercial refrigeration.
Power Transmission•Motion Control Solutions manufactures, sellssegment designs, produces and services belt and chain drives, helical and worm gearing, mounted and unmounted bearings, conveyor products, conveying automation solutions, couplings, modular plastic belts, conveying chainsmechanical power transmission drives and components, hydraulic pump drives, large open gearinggearboxes and specialty mechanicalgear motors, aerospace components, special components products and industrial powertrain components and solutions serving a broad range of markets including food and beverage, bulk handling, metals, special machinery,eCommerce/warehouse distribution, energy, aerospace and general industrial.
Components of Profit and Loss
Net Sales. We sell our products to a variety of manufacturers, distributors and end users. Our customers consist of a large cross-section of businesses, ranging from Fortune 100 companies to small businesses. A number of our products are sold to Original Equipment Manufacturers ("OEM's"OEMs"), who incorporate our products, such as electric motors, into products they manufacture, and many of our products are built to the requirements of our customers. The majority of our sales derive from direct sales butto customers by sales personnel employed by the Company, however, a significant portion derivesof our sales are derived from sales made by manufacturer’s representatives, who are paid exclusively on commission. Our product sales are made via purchase order, long-term contract, and, in some instances, one-time purchases. Many of our products have broad customer bases, with the levels of concentration of revenues varying from divisionbusiness unit to division.business unit.
Our level of net sales for any given period is dependent upon a number of factors, including (i) the demand for our products; (ii) the strength of the economy generally and the end markets in which we compete; (iii) our customers’ perceptions of our product quality at any given time; (iv) our ability to timely meet customer demands; (v) the selling price of our products; and (vi) the weather. As a result, our total revenue has tended to experience quarterly variations and our total revenue for any particular quarter may not be indicative of future results.
We use the term “organic sales" to refer to sales from existing operations excluding (i) sales from acquired businesses recorded prior to the first anniversary of the acquisition (“Acquisition Sales”), (ii) less the amount of sales attributable to any divested businesses (“acquisition sales”),divested/to be exited, and (ii)(iii) the impact of foreign currency translation. The impact of foreign currency translation is determined by translating the respective period’s organic sales (excluding acquisition sales) using the same currency exchange rates that were in effect during the prior year periods. We use the term “organic sales growth” to refer to the increase in our sales between periods that is attributable to organic sales. We use the term “acquisition growth” to refer to the increase in our sales between periods that is attributable to acquisition sales.Acquisition Sales.
Gross Profit. Our gross profit is impacted by our levels of net sales and cost of sales. Our cost of sales consists of costs for, among other things (i) raw materials, including copper, steel and aluminum; (ii) components such as castings, bars, tools, bearings and electronics; (iii) wages and related personnel expenses for fabrication, assembly and logistics personnel; (iv) manufacturing facilities, including depreciation on our manufacturing facilities and equipment, taxes, insurance and utilities; and (v) shipping. The majority of our cost of sales consists of raw materials and components. The price we pay for commodities and components can be subject to commodity price fluctuations. We attempt to mitigate this through fixed-price agreements with suppliers and our hedging strategies. We are currently reducing the number of our suppliers we use in order to leverage the better prices and terms that can be obtained with higher volume orders. A large amount of our suppliers are in North America. As we expand production and our geographic footprint, we expect it may be advantageous to increase our use of foreign suppliers. When we experience commodity price increases, we have tended to announce price increasesincrease to our customers who purchase via purchase order, with such increases generally taking effect a period of time after the public announcements. For those sales we make under long-term contracts, we tend to include material price formulas that specify quarterly or semi-annual price adjustments based on a variety of factors, including commodity prices.
Outside of general economic cyclicality, our different business units experience different levels of variation in gross marginprofit from quarter to quarter based on factors specific to each division.business. For example, a portion of our Climate Solutions segment manufactures products that are used in air conditioning applications. As a result, our sales for that business tend to be lower in the first and fourth quarters and higher in the second and third quarters. In contrast, our Commercial andSystems segment, Industrial Systems segment and our Power TransmissionMotion Control Solutions segment have a broad customer base and a variety of applications, thereby helping to mitigate large quarter-to-quarter fluctuations outside of general economic conditions.
Operating Expenses. Our operating expenses consist primarily of (i) general and administrative expenses; (ii) sales and marketing expenses; (iii) general engineering and research and development expenses; and (iv) handling costs incurred in conjunction with distribution activities. Personnel related costs are our largest operating expense.
Our general and administrative expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses related to our executive, finance, human resource, information technology, legal and operations functions; (ii) occupancy expenses;
(iii) technology related costs; (iv) depreciation and amortization; and (v) corporate-related travel. The majority of our general and administrative costs are for salaries and related personnel expenses. These costs can vary by divisionbusiness given the location of our different manufacturing operations.
Our sales and marketing expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses related to our sales and marketing function; (ii) internal and external sales commissions and bonuses; (iii) travel, lodging and other out-of-pocket expenses associated with our selling efforts; and (iv) other related overhead.
Our general engineering and research and development expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses; (ii) the design and development of new energy efficiency products and enhancements; (iii) quality assurance and testing; and (iv) other related overhead. Our research and development efforts tend to be targeted toward developing new products that would allow us to maintain or gain additional market share, whether in new or existing applications. While these costs make up an insignificant portion of our operating expenses in the Power Transmission Solutions segment, they are more substantial in our Commercial and Industrial Systems and Climate Solutions segments. In particular, a large driver of our research and development efforts in these twothose three segments is energy efficiency, which generally means using less electrical power to produce more mechanical power.
Operating Profit. Our operating profit consists of the segment gross profit less the segment operating expenses. In addition, there are shared operating costs that cover corporate engineering and ITinformation technology expenses that are consistently allocated to the operating segments and are included in the segment operating expenses. Operating profit is a key metric used to measure year over year improvement of the segments.
Restructuring and Restructuring Related Costs. Beginning in 2014, we announced the closure of several of our manufacturing and warehouse facilities and consolidation into existing facilities to simplify manufacturing operations in our Commercial and Industrial Systems, Climate Solutions and Power Transmission Solutions segments. As a result of these closures, weWe incurred restructuring and restructuring-related costs. Restructuring costs includeson employee termination and plant relocation costs. Restructuring-relatedcosts including cost synergies related to the Rexnord Transaction. Restructuring related costs includes costs directly associated with actions resulting from our simplification initiatives, such as asset write-downs or accelerated depreciation due to shortened useful lives in connection with site closures, discretionary employment benefit costs and other facility rationalization costs. Restructuring costs for employee termination expenses are generally requiredrecognized when the severance liability is determined to be accrued over the employees remaining service periodprobable of being paid and reasonably estimable while restructuring costs for plant relocation costs and restructuring-relatedrelated costs are generally required to be expensed as incurred.
COVID-19 Pandemic
COVID-19 evolved during 2020 into a global pandemic, resulting in a severe global health crisis that drove a dramatic slowdown in global economic and social activity. As the COVID-19 pandemic continues, health risks remain.
In the face of this global crisis, our first priority has been the health and safety of our associates. In response, we implemented a host of measures to help our associates stay safe, measures that have been enhanced and refined as impacts from COVID-19 evolved, and as our knowledge about how to enhance their effectiveness improved.
Factors deriving from the COVID-19 response that have or may negatively impact sales and operating profit in the future include, but are not limited to: limitations on the ability of our suppliers to manufacture, or procure from manufacturers, components and raw materials used in our products, or to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; inconsistent criteria in certain international jurisdictions for establishing the essentiality of our business; limitations on the ability of carriers to deliver our products to customers; limitations on the ability of our customers to conduct their business and purchase our products and services; reductions in demands of our customers; and limitations on the ability of our customers to pay us on a timely basis.
We continue to monitor the pandemic and make adjustments to the business as necessary to address any limitations or negative impacts.
Rexnord and Arrowhead Transactions
On October 4, 2021, in accordance with the terms and conditions of the Agreement and Plan of Merger, dated February 15, 2021 (the “Merger Agreement”), we completed our combination with the Rexnord PMC business of Zurn Elkay Water Solutions Corporation (formerly known as Rexnord Corporation) (“Zurn”) in a Reverse Morris Trust transaction (the “Rexnord Transaction”). Pursuant to the Rexnord Transaction, (1) Zurn transferred to its then-subsidiary Land Newco, Inc. (“Land”) substantially all of the assets, and Land assumed substantially all of the liabilities, of the Rexnord PMC business (the “Reorganization”), (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 Zurn were distributed in a series of distributions to Zurn’s stockholders (the distributions, and the final distribution of Land common stock from Zurn to Zurn’s stockholders, which was made pro rata
for no consideration, the “Spin-Off”) and (3) immediately after the Spin-Off, one of our subsidiaries (“Merger Sub”) merged with and into Land (the “Merger”) and all shares of Land common stock (other than those held by Zurn, Land, the Company, Merger Sub or their respective subsidiaries) were converted into the right to receive 0.22296103 shares of our common stock, $0.01 par value per share(“Company common stock”), as calculated in the Merger Agreement. When the Merger was completed, Land which held the Rexnord PMC business, became our wholly owned subsidiary.
Pursuant to the Merger, we issued 27,055,945 shares of common stock to holders of Land common stock, which represented approximately 39.9% of the 67,756,732 outstanding shares of Company common stock immediately following the completion of the Merger.
In addition, shareholders of record as of October 1, 2021 received a special dividend of $6.99 per share (or approximately $284.4 million in aggregate) pursuant to a special dividend in connection with the Rexnord Transaction.
In connection with the Rexnord Transaction, we entered into certain financing arrangements, which are described below under “Liquidity and Capital Resources”.
On November 23, 2021, we acquired Arrowhead Systems, LLC, ("Arrowhead") for $315.6 million in cash, net of $1.1 million of cash acquired (the "Arrowhead Transaction"). Arrowhead is a global leader in providing industrial process automation solutions, including conveyors and (de)palletizers to the food & beverage, aluminum can, and consumer staples end markets, among others. Arrowhead is a division of our Motion Control Solutions segment, and its financials have been included in results for that segment from the date of acquisition.
Change in Fiscal Year End
At a meeting of the Board of Directors of Regal Rexnord Corporation on October 26, 2021, the Board approved a change in the fiscal year end from a 52-53 week year ending on the Saturday closest to December 31 to a calendar year ending on December 31, effective beginning with fiscal year 2022. We made the fiscal year change on a prospective basis and will not adjust operating results for prior periods. However, the change will impact the prior year comparability of each of the fiscal quarters and the annual period in 2022 and in future filings. We believe this change will provide numerous benefits, including aligning its reporting periods to be more consistent with peer companies.
Change in Accounting Principle
As of January 2, 2022, we changed our methodology for valuing certain inventories to the first-in, first-out ("FIFO") cost method from the last-in, first-out ("LIFO") cost method. The effects of this change have been retrospectively applied to all periods presented.
Outlook
Our order trends remain positive, and we continue to expect lowWe are forecasting high single digit organic sales growth. We expect to see positive impacts from our transactions, price realization and from our new products and other growth for the full year. initiatives.
Results of Operations
Three Months Ended SeptemberJune 30, 20172022 Compared to October 1, 2016July 3, 2021
Net sales increased $47.3$462.5 million or 5.8%52.1% for the thirdsecond quarter 20172022 compared to the thirdsecond quarter 2016.2021. The increase consisted of anpositive impact from acquisitions of 42.2% and positive organic sales growth increase of 5.2% and a positive11.8% offset by negative foreign currency translation impact of 0.7%1.9%. The increase was primarily driven by sales increases in North American markets and the acquisitions of the Rexnord PMC and Arrowhead businesses. Gross profit decreased $4.7increased $175.8 million or 210 basis points68.2% for the second quarter 2022 as a percentagecompared to the second quarter 2021. The increase in gross profit was driven by increase in volume and the acquisitions of the Rexnord PMC and Arrowhead businesses, partially offset by increased freight and material costs. Total operating expenses for the second quarter 2022 increased $96.1 million or 67.4% as compared to the second quarter 2021. The increase was primarily driven by the acquisitions of the Rexnord PMC and Arrowhead businesses, higher employee related wage and benefit costs and transaction costs.
Commercial Systems segment net sales for the thirdsecond quarter 20172022 were $301.9 million, an increase of $32.6 million or 12.1% as compared to the thirdsecond quarter 20162021. The increase consisted of positive organic sales of 14.6% offset by negative foreign currency translation of 2.4%. The increase was primarily driven by strong growth in general industry in North America as well as solid growth in the pool pump business. Gross profit increased $12.6 million or 18.1% as compared to the second quarter
2021. The increase in gross profit was primarily driven by the increase in price partially offset by higher material costs due to inflation. Total operating expenses for the second quarter 2022 were $40.4 million compared to $42.1 million in the second quarter 2021. The $1.7 million or 4.0% decrease was primarily driven by foreign exchange gains.
Industrial Systems segment net sales for the second quarter 2022 were $154.7 million, an increase of $9.5 million or 6.5% as compared to the second quarter 2021. The increase consisted of positive organic sales of 9.4% offset by negative foreign currency translation of 2.9%. The increase was primarily driven by a higher demand for industrial motors and generators in North America. Gross profit increased $16.6 million or 60.6% as compared to the second quarter 2021. The increase in gross profit was primarily driven by the increase in volume and price realization, partially offset by material inflation. Total operating expenses for the second quarter 2022 and 2021 were $22.8 million and $23.1 million, respectively. The slight decrease in operating expenses was primarily driven by foreign exchange gains.
Climate Solutions segment net sales were $293.5 million, an increase of $36.2 million or 14.1% as compared to the second quarter 2021. The increase consisted of positive organic sales of 14.8% offset by negative foreign currency translation of 0.7%. The increase was primarily due to an increasecontinued strong demand in North American residential HVAC and combustion markets and recovering demand in EMEA. Gross profit decreased $0.9 million or 1.2% compared to the last-in, first-out (“LIFO”) reserve of $2.7 millionsecond quarter 2021. The decrease in gross profit was primarily driven by material and commodityfreight inflation, partially offset by the salesincreased volume, increase. Operatingfavorable mix and 80/20 actions. Total operating expenses for the thirdsecond quarter 2017 decreased $8.92022 were $30.3 million compared to $27.5 million in the second quarter 2021. The slight increase was primarily due to higher expenses related to commissions (higher volume), travel, compensation and benefits.
Motion Control Solutions segment net sales for the second quarter 2022 were $599.3 million, an increase of $384.2 million or 178.6% compared to second quarter 2021 net sales of $215.1 million. The increase consisted of positive impact from acquisitions of 174.1% and positive organic sales of 6.4% offset by negative foreign currency of 1.9%. The increase was primarily driven by the acquisitions of the Rexnord PMC and Arrowhead businesses in addition to strength in alternative energy, the North America general industrial market, the conveying business, and improving demand in Europe in addition to meaningful share gains tied to our industrial powertrain offering. Gross profit for the second quarter 2022 increased $147.5 million or 172.9%. The increase was driven by the acquisitions of the Rexnord PMC and Arrowhead businesses, higher sales volume with favorable mix and lower overhead cost driven by cost reduction initiatives. Total operating expenses for the second quarter 2022 increased $95.3 million as compared to the second quarter 2021, primarily due to the acquisitions of the Rexnord PMC and Arrowhead businesses.
Six Months EndedJune 30, 2022 Compared to July 3, 2021
Net sales increased $946.9 million or 55.7% for the six months ended June 30, 2022 compared to the six months ended July 3, 2021. The increase consisted of positive impact of acquisitions of 43.6% and positive organic sales of 13.4% offset by negative foreign currency translation of 1.4%. The increase was primarily driven by sales increases in North American markets and the acquisitions of the Rexnord PMC and Arrowhead businesses. Gross profit increased $347.9 million or 68.6% for the six months ended June 30, 2022 as compared to the six months ended July 3, 2021. The increase in gross profit was driven by increase in volume, the acquisitions of the Rexnord PMC and Arrowhead businesses and 80/20 actions, partially offset by increased freight and material costs. Total operating expenses for the six months ended June 30, 2022 increased $199.8 million or 68.7% as compared to the six months ended July 3, 2021. The increase was primarily driven by the acquisitions of the Rexnord PMC and Arrowhead businesses, higher employee related wage and benefit costs and transaction costs.
Commercial Systems segment net sales for the six months ended June 30, 2022 were $595.2 million, an increase of $88.9 million or 17.6% as compared to the six months ended July 3, 2021. The increase consisted of positive organic sales of 19.4% and offset by negative foreign currency translation of 1.8%. The increase was primarily driven by strong growth in general industry in North America as well as solid gains in the pool pump business. Gross profit increased $40.1 million or 29.4% as compared to the six months ended July 3, 2021. The increase in gross profit was primarily driven by the increase in price partially offset by higher material costs due to inflation. Total operating expenses for the six months ended June 30, 2022 were $81.8 million compared to $80.1 million in the six months ended July 3, 2021. The $1.7 million or 2.1% increase was primarily driven by higher employee related wage and benefit costs partially offset by foreign exchange gains.
Industrial Systems segment net sales for the six months ended June 30, 2022 were $299.4 million, an increase of $17.8 million or 6.3% as compared to the same period in the prior year due to a $2.8 million gain on sale of assets, lower amortization expense and leveraging of costs on the increased sales volume.
Commercial and Industrial Systems Segment net sales for the third quarter 2017 were $408.0 million, an increase of $18.6 million or 4.8% as compared to the third quarter 2016.six months ended July 3, 2021. The increase consisted of anpositive organic sales growth increase of 4.0% driven by broad strength in the North American commercial8.3% and industrial end markets, growth in Asia and improvement in oil and gas. In addition, foreign currency translation had a positive impact of 0.8%. Gross profit decreased $7.4 million or 310 basis points as a percentage of net sales for the third quarter 2017 as compared to the third quarter 2016 primarily driven by an increase in the LIFO reserve of $1.5 million and commodity inflation, which were partially offset by the sales volume increase. Operating expenses for the third quarter 2017 were $68.4 million which was 1.2% lower as compared to the same period in the prior year mainly due to lower amortization expense and lower discretionary spending.
Climate Solutions Segment net sales were $256.0 million, an increase of 2.2% compared to third quarter 2016. The increase consisted of an organic sales growth increase of 1.9% driven by growth in North American residential HVAC new equipment up modestly and strength in Europe, Middle East and Asia. Foreign currency translation had a positive 0.3% impact on the net sales for the third quarter 2017. Gross profit decreased $5.6 million or 280 basis points as a percentage of net sales as compared to the prior year primarily driven by an increase in the LIFO reserve of $1.2 million and commodity inflation, which were partially offset by the sales volume increase. Operating expenses for the third quarter 2017 were $27.0 million compared to $29.2 million in the third quarter 2016. The $2.2 million or 120 basis point as a percent of net sales decrease was primarily due to the leveraging of costs on the increased sales volume and lower discretionary spending.
Power Transmission Solutions Segment net sales for the third quarter 2017 were $192.9 million or a 13.7% increase compared to third quarter 2016 net sales of $169.7 million. The increase consisted of an organic sales growth increase of 12.8% primarily driven by strength in oil and gas, distribution and renewable energy. Foreign currency translation had a positive impact of 0.9%.
Gross profit for the third quarter 2017 increased $8.3 million or 15.1% primarily due to the increase in sales volume. Operating expenses for the third quarter 2017 decreased $5.9 million as compared to the third quarter 2016 primarily due to a $2.8 million gain on sale of assets, decrease in restructuring charges, and lower discretionary spending.
Nine Months Ended September 30, 2017 Compared to October 1, 2016
Net sales increased $73.2 million or 3.0% for the nine months ended September 30, 2017 compared to the nine months ended October 1, 2016. The increase consisted of an organic sales growth increase of 3.5%, offset by a negative impact from sales of the divested Mastergear Worldwide (“Mastergear”) business of 0.4% and a negative foreign currency translation impact of 0.2%. Gross profit for the nine months ended September 30, 2017 decreased $6.4 million or 1.0% compared to the nine months ended October 1, 2016 primarily due to increased restructuring charges and an increase in the LIFO reserve of $2.7 million, partially offset by the increase in sales volume. Operating expenses for the nine months ended September 30, 2017 decreased $7.7 million or 80 basis point as a percent of net sales as compared to the same period in the prior year due to a $3.5 million gain on sale of assets, decrease in amortization expense, lower discretionary spending and leveraging of costs on the increased sales volume. The prior year included a $11.6 million gain on the sale of the Mastergear business.
Commercial and Industrial Systems Segment net sales increased $34.9 million or 3.0% for the nine months ended September 30, 2017 compared to the nine months ended October 1, 2016. The increase consisted of an organic sales growth increase of 3.3% that was offset by a negative foreign currency translation impact of 0.3%2.0%. The organic sales increase was primarily driven by strength in Asia,the data center market for generators and demand for industrial motors in North American oil and gas and industrial end market demand.America. Gross profit increased $19.9 million or 35.9% for ninethe six months ended 2017 decreased $9.7 million or 3.3% primarily dueJune 30, 2022 as compared to the impact of increased restructuring charges resulting from the exit of a non-core business and ansix months ended July 3, 2021. The increase in gross profit was primarily driven by the LIFO reserve of $1.5 million that wasincrease in volume and price realization, partially offset by the increased sales volume. Operatingmaterial inflation. Total operating expenses for the ninesix months ended SeptemberJune 30, 2017 decreased $2.72022 and July 3, 2021 were $46.2 million and $46.2 million, respectively.
Climate Solutions segment net sales were $567.4 million, an increase of $71.0 million or 1.3%14.3% as compared to the ninesix months ended October 1, 2016 primarily due to a $0.7 million gain on sale of assets, lower amortization expenses and lower discretionary spending.
Climate Solutions Segment net sales increased $29.4 million or 3.9% for the nine months ended September 30, 2017 compared to the nine months ended October 1, 2016.July 3, 2021. The increase consisted of anpositive organic sales growth increase of 4.0% and a14.8% offset by negative foreign currency translation impact of 0.1%0.5%. The increase was primarily due to continued strong demand in North American residential HVAC market and combustion markets and recovering demand in EMEA. Gross profit increased $6.9 million or 4.6% compared to the six months ended July 3, 2021. The increase in gross profit was primarily driven by increased volume, favorable mix and 80/20 actions, partially offset by material and freight inflation. Total operating expenses for the six months ended June 30, 2022 were $62.0 million compared to $58.2 million in the six months ended July 3, 2021. The increase was primarily due to higher expenses related to commissions (higher volume), travel, compensation and benefits.
Motion Control Solutions segment net sales for the six months ended June 30, 2022 were $1,185.9 million, an increase of $769.2 million or 184.6% compared to six months ended July 3, 2021 net sales of $416.7 million. The increase consisted of positive impact from acquisitions of 178.0% and positive organic sales of 8.1% offset by negative foreign currency of 1.4%. The increase was primarily driven by growththe acquisitions of the Rexnord PMC and Arrowhead businesses in addition to strength in alternative energy, the North American residential HVAC,America general industrial market, the conveying business, and improving demand in Europe and Asia.in addition to meaningful share gains tied to our industrial powertrain offering. Gross profit for the six months ended June 30, 2022 increased $2.5$281.0 million or 1.3% primarily due to170.4%. The increase was driven by the acquisitions of the Rexnord PMC and Arrowhead businesses, higher volumes. Operatingsales volume with favorable mix and lower overhead cost driven by cost reduction initiatives. Total operating expenses for the ninesix months ended SeptemberJune 30, 2017 decreased $4.82022 increased $194.3 million or 110 basis point as a percent of net sales as compared to the ninesix months ended October 1, 2016 due to lower amortization expenses, lower discretionary spending and leveraging of costs on the increased sales volume.
Power Transmission Solutions Segment net sales increased $8.9 million or 1.6% for the nine months ended September 30, 2017 compared to the nine months ended October 1, 2016. The increase consisted of an organic sales growth increase of 3.3% that was offset by a negative foreign currency translation impact of 0.1% and a negative impact from sales of the divested Mastergear business of 1.6%. Improved oil and gas and renewable energy end market demand contributed to the organic sales increase. Gross profit for the nine months ended September 30, 2017 increased $0.8 million or 0.4% compared to the nine months ended October 1, 2016July 3, 2021, primarily due to the higher sales volume. Operating expenses for the nine months ended September 30, 2017 decreased $0.2 million or 40 basis point as a percent of net sales due to a $2.8 million gain on the sale of assets, decrease in restructuring charges and leveraging of costs on the increased sales volume. The prior year included a $11.6 million gain on the saleacquisitions of the Mastergear business.
Rexnord PMC and Arrowhead businesses.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| (Dollars in Millions) | | | | | | | |
| Net Sales: | | | | | | | |
| Commercial and Industrial Systems | $ | 408.0 |
| | $ | 389.4 |
| | $ | 1,196.6 |
| | $ | 1,161.7 |
|
| Climate Solutions | 256.0 |
| | 250.5 |
| | 774.2 |
| | 744.8 |
|
| Power Transmission Solutions | 192.9 |
| | 169.7 |
| | 568.8 |
| | 559.9 |
|
| Consolidated | $ | 856.9 |
| | $ | 809.6 |
| | $ | 2,539.6 |
| | $ | 2,466.4 |
|
| | | | | | | | |
| Gross Profit as a Percent of Net Sales: | | | | | | | |
| Commercial and Industrial Systems | 24.0 | % | | 27.1 | % | | 23.9 | % | | 25.4 | % |
| Climate Solutions | 25.7 | % | | 28.5 | % | | 25.2 | % | | 25.8 | % |
| Power Transmission Solutions | 32.8 | % | | 32.4 | % | | 32.6 | % | | 33.0 | % |
| Consolidated | 26.5 | % | | 28.6 | % | | 26.2 | % | | 27.2 | % |
| | | | | | | | |
| Operating Expenses as a Percent of Net Sales: | | | | | | | |
| Commercial and Industrial Systems | 16.8 | % | | 17.8 | % | | 17.5 | % | | 18.3 | % |
| Climate Solutions | 10.5 | % | | 11.7 | % | | 10.9 | % | | 12.0 | % |
| Power Transmission Solutions | 19.5 | % | | 25.6 | % | | 21.0 | % | | 21.4 | % |
| Consolidated | 15.5 | % | | 17.5 | % | | 16.3 | % | | 17.1 | % |
| | | | | | | | |
| Income from Operations as a Percent of Net Sales: | | | | | | | |
| Commercial and Industrial Systems | 7.3 | % | | 9.3 | % | | 6.4 | % | | 7.1 | % |
| Climate Solutions | 15.2 | % | | 16.8 | % | | 14.2 | % | | 13.8 | % |
| Power Transmission Solutions | 13.3 | % | | 6.7 | % | | 11.5 | % | | 11.5 | % |
| Consolidated | 11.0 | % | | 11.1 | % | | 9.9 | % | | 10.2 | % |
| | | | | | | | |
| Income from Operations | $ | 94.0 |
| | $ | 89.8 |
| | $ | 251.8 |
| | $ | 250.5 |
|
| Interest Expense | 13.5 |
| | 14.4 |
| | 42.6 |
| | 44.2 |
|
| Interest Income | 0.7 |
| | 1.1 |
| | 2.7 |
| | 3.4 |
|
| Income before Taxes | 81.2 |
| | 76.5 |
| | 211.9 |
| | 209.7 |
|
| Provision for Income Taxes | 17.6 |
| | 15.4 |
| | 46.4 |
| | 47.5 |
|
| Net Income | 63.6 |
| | 61.1 |
| | 165.5 |
| | 162.2 |
|
| Less: Net Income Attributable to Noncontrolling Interests | 1.4 |
| | 1.5 |
| | 4.0 |
| | 4.4 |
|
| Net Income Attributable to Regal Beloit Corporation | $ | 62.2 |
| | $ | 59.6 |
| | $ | 161.5 |
| | $ | 157.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2022 | | July 3, 2021 | | June 30, 2022 | | July 3, 2021 |
| (Dollars in Millions) | | | | | | | |
| Net Sales: | | | | | | | |
| Commercial Systems | $ | 301.9 | | | $ | 269.3 | | | $ | 595.2 | | | $ | 506.3 | |
| Industrial Systems | 154.7 | | | 145.2 | | | 299.4 | | | 281.6 | |
| Climate Solutions | 293.5 | | | 257.3 | | | 567.4 | | | 496.4 | |
| Motion Control Solutions | 599.3 | | | 215.1 | | | 1,185.9 | | | 416.7 | |
| Consolidated | $ | 1,349.4 | | | $ | 886.9 | | | $ | 2,647.9 | | | $ | 1,701.0 | |
| | | | | | | |
| Gross Profit as a Percent of Net Sales: | | | | | | | |
| Commercial Systems | 27.2 | % | | 25.8 | % | | 29.6 | % | | 26.9 | % |
| Industrial Systems | 28.4 | % | | 18.9 | % | | 25.2 | % | | 19.7 | % |
| Climate Solutions | 25.4 | % | | 29.3 | % | | 27.8 | % | | 30.4 | % |
| Motion Control Solutions | 38.8 | % | | 39.7 | % | | 37.6 | % | | 39.6 | % |
| Consolidated | 32.1 | % | | 29.1 | % | | 32.3 | % | | 29.8 | % |
| | | | | | | |
| Operating Expenses as a Percent of Net Sales: | | | | | | | |
| Commercial Systems | 13.4 | % | | 15.0 | % | | 13.7 | % | | 15.5 | % |
| Industrial Systems | 14.7 | % | | 15.9 | % | | 15.4 | % | | 16.4 | % |
| Climate Solutions | 10.3 | % | | 10.5 | % | | 10.9 | % | | 11.6 | % |
| Motion Control Solutions | 24.2 | % | | 23.2 | % | | 25.3 | % | | 25.5 | % |
| Consolidated | 17.7 | % | | 15.8 | % | | 18.5 | % | | 17.0 | % |
| | | | | | | |
| Income from Operations as a Percent of Net Sales: | | | | | | | |
| Commercial Systems | 13.8 | % | | 10.2 | % | | 15.9 | % | | 11.1 | % |
| Industrial Systems | 13.7 | % | | 3.0 | % | | 9.7 | % | | 3.3 | % |
| Climate Solutions | 15.1 | % | | 18.7 | % | | 16.9 | % | | 18.7 | % |
| Motion Control Solutions | 14.6 | % | | 16.5 | % | | 12.3 | % | | 14.1 | % |
| Consolidated | 14.4 | % | | 13.0 | % | | 13.8 | % | | 12.7 | % |
| | | | | | | |
| Income from Operations | $ | 194.9 | | | $ | 115.2 | | | $ | 364.8 | | | $ | 216.7 | |
| Other Income, Net | (1.5) | | | (1.2) | | | (2.8) | | | (2.4) | |
| Interest Expense | 13.4 | | | 11.5 | | | 22.4 | | | 24.1 | |
| Interest Income | (0.8) | | | (1.7) | | | (1.9) | | | (3.2) | |
| Income before Taxes | 183.8 | | | 106.6 | | | 347.1 | | | 198.2 | |
| Provision for Income Taxes | 40.6 | | | 20.6 | | | 76.8 | | | 41.9 | |
| Net Income | 143.2 | | | 86.0 | | | 270.3 | | | 156.3 | |
| Less: Net Income Attributable to Noncontrolling Interests | 1.2 | | | 1.6 | | | 2.7 | | | 3.0 | |
| Net Income Attributable to Regal Rexnord Corporation | $ | 142.0 | | | $ | 84.4 | | | $ | 267.6 | | | $ | 153.3 | |
The effective tax rate for the three months ended SeptemberJune 30, 20172022 was 21.7%22.1% versus 20.2%19.3% for the three months ended October 1, 2016.July 3, 2021. The effective tax rate for the ninesix months ended SeptemberJune 30, 20172022 was 21.9%22.1% versus 22.7%21.1% for the ninesix months ended October 1, 2016.July 3, 2021. The effective tax rate for the ninethree and six months ended SeptemberJune 30, 20172022 was 21.9% versus 22.7% forhigher than the nine months ended October 1, 2016. The changesame period in the effective tax rate for the three months ended September 30, 2017 wasprior year primarily driven by the jurisdictional mix of earnings and the favorable adjustments related to the 2016 finalizationimpact of the 2015 US federal income tax return. The changeRexnord transaction in the effective tax rate for the nine months ended September 30, 2017 was primarily driven by the mix of earnings and the favorable adjustments related to the finalization of the 2015 US federal income tax return, partially offset by the 2016 gain derived from the sale of the Mastergear business. The lower effective rate as compared to the 35.0% statutory Federal income tax rate is driven by lower foreign tax rates.fiscal 2021.
Liquidity and Capital Resources
General
Our principal source of liquidity is cash flow provided by operating activities. In addition to operating income, other significant factors affecting our cash flow include working capital levels, capital expenditures, dividends, share repurchases, acquisitions and divestitures, availability of debt financing and the ability to attract long-term capital at acceptable terms.
Cash flow provided by operating activities was $235.0$104.9 million for the ninesix months ended SeptemberJune 30, 2017,2022, a $95.4$31.7 million decrease from the ninesix months ended October 1, 2016.July 3, 2021. The decrease was primarily thechange is a result of the higher investmentan increase in net working capital which is partially offset by proceeds received from the early termination of interest rate swaps for the ninesix months ended SeptemberJune 30, 2017 as2022 compared to the ninesix months ended October 1, 2016.July 3, 2021.
Cash flow used in investing activities was $42.0$62.1 million for the ninesix months ended SeptemberJune 30, 2017 versus $29.52022 as compared to cash flow used in investing activities of $26.3 million for the ninesix months ended October 1, 2016.July 3, 2021. The change was driven primarily by higher cash used for capital purchases and business acquisitions in the $25.5current year compared to the prior year.
Cash flow provided by financing activities was $10.2 million received for the sale of our Mastergear business in the ninesix months ended October 1, 2016.
Cash flowJune 30, 2022, compared to $102.1 million used in financing activities was $298.9 million for the ninesix months ended September 30, 2017, compared to $267.8July 3, 2021. We had net debt borrowings of $249.7 million provided by financing activities forduring the ninesix months ended October 1, 2016. Net debt repayments of $200.4 million were made during the nine months ended SeptemberJune 30, 2017,2022, compared to net debt repayments of $214.9$50.2 million made during the ninesix months ended October 1, 2016. We paid $33.1 million in dividends to shareholders in the nine months ended September 30, 2017, compared to $31.3 million for the nine months ended October 1, 2016. Cash used for share repurchases was $45.1 million for the nine months ended September 30, 2017.July 3, 2021. There were no$184.0 million share repurchases for the ninesix months ended October 1, 2016.June 30, 2022, compared to no shares repurchases for the six months ended July 3, 2021. There were $44.3 million of dividends paid for the six months ended June 30, 2022, compared to $24.4 million of dividends in the prior year. There were $6.5 million in financing fees paid for the six months ended June 30, 2022, compared to $17.0 million of fees in the prior year.
Our working capital was $895.3$1,976.7 million at SeptemberJune 30, 2017,2022, compared to $830.4$1,713.3 million at December 31, 2016.January 1, 2022. At SeptemberJune 30, 20172022 and December 31, 2016,January 1, 2022, our current ratio (which is the ratio of our current assets to current liabilities) was 2.2:1.2.8:1 and 2.6:1, respectively. Our working capital increased primarily due to the increase in cash, accounts receivables and inventory offset by an increase in Trade Receivables of $65.1 million and a $74.1 million increase in Inventories which was partially offset by a $83.0 million increase in Accounts Payable. We paid our $100.0 million 2007 private placement debt due in August using existing cash as well as cash generated from operations and $100.0 million of our 2011 private placement debt due in July, 2018 moved from a long-term classification to a current classification at September 30, 2017 compared to December 31, 2016.accounts payable.
The following table presents selected financial information and statistics as of SeptemberJune 30, 20172022 and December 31, 2016January 1, 2022 (in millions):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | January 1, 2022 |
| Cash and Cash Equivalents | | $ | 702.5 | | | $ | 672.8 | |
| Trade Receivables, Net | | 854.8 | | | 785.8 | |
| Inventories | | 1,388.4 | | | 1,192.4 | |
| Working Capital | | 1,976.7 | | | 1,713.3 | |
| Current Ratio | | 2.8:1 | | 2.6:1 |
|
| | | | | | | | | |
| | | | September 30, | | December 31, |
| | | | 2017 | | 2016 |
| Cash and Cash Equivalents | | | $ | 186.6 |
| | $ | 284.5 |
|
| Trade Receivables, Net | | | 527.3 |
| | 462.2 |
|
| Inventories | | | 734.9 |
| | 660.8 |
|
| Working Capital | | | 895.3 |
| | 830.4 |
|
| Current Ratio | | | 2.2:1 |
| | 2.2:1 |
|
At SeptemberAs of June 30, 2017, our cash and cash equivalents totaled $186.6 million. At September 30, 2017, $182.92022, $686.7 million of our cash was held by foreign subsidiaries and could be used in our domestic operations if necessary. TheWe anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. We regularly assess our cash needs and the available sources to fund these needs which includes repatriation of foreign earnings which may be subject to withholding taxes. Under current law, we do not expect restrictions or taxes on repatriation of cash from certain foreign subsidiaries could have adverse net tax consequences on us should we be required to pay and record US income taxes and foreign withholding taxes on such funds. We periodically evaluate our cash held outside of the US and may pursue opportunitiesUnited States to repatriate certain foreign cash amounts tohave a material effect on our overall liquidity, financial condition or the extent that we do not incur unfavorable net tax consequences. During the nine months ended September 30, 2017, we have repatriated $154.3 millionresults of foreign cash.
Substantially all of our expenses are paid in cash, often with payment term provisions that include early payment discounts and time elements. We believe that our ability to generate positive cash flow coupled with our available revolving credit balance will be sufficient to fund our operations for the foreseeable future. We focus on optimizing our investment in working capital through improved and enforced payment terms, maintaining an optimal level of inventory and operational efficiencies. Additionally, we believe that our capital expenditures for maintenance of equipment and facilities will be consistent with prior levels and not present a funding challenge.
We will, from time to time, maintain excess cash balances which may be used to (i) fund operations, (ii) repay outstanding debt, (iii) fund acquisitions, (iv) pay dividends, (v) make investments in new product development programs, (vi) repurchase our common stock, or (vii) fund other corporate objectives.
Credit Agreement
In connection with the PTS Acquisition, on January 30, 2015,On March 28, 2022, we entered into a newSecond Amended and Restated Credit Agreement with our lenders (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders named therein, providingtherein. The Credit Agreement (i) replaces in its entirety the Amended and Restated Credit Agreement, dated as of August 27, 2018, as amended by that First Amendment, dated March 17, 2021, among the Company and other parties thereto and (ii) amends and restates in its entirety the Amended and Restated Credit Agreement, dated as of October 4, 2021, among Land and the other parties thereto (collectively, the “Former Credit Agreements”).
The Credit Agreement provides for, aamong other things, an extension of the maturity date of the revolving credit facility and term loans provided under the Former Credit Agreements. The credit facilities extended under the Credit Agreement consist of (i) 5-yearan unsecured term loan facility in the initial principal amount of $1.25 billionup to $550,000,000, maturing on March 28, 2027 (the “Term Facility”"Term Facility") and; (ii) a 5-yearan unsecured multicurrency revolvingterm loan facility in the initial principal amount of $500.0 million$486,827,669, under which Land remains the sole borrower, maturing on March 28, 2027 (the “Multicurrency"Land Term Facility"); and (iii) an unsecured revolving loan in the initial principal amount of up to $1,000,000,000, maturing on March 28, 2027 (the "Multicurrency Revolving Facility”Facility"), including. Interest for benchmark rate loans is calculated based on a $100 million letterSOFR benchmark rate, plus a margin spread to be adjusted quarterly based on our funded debt to EBITDA ratio. The Credit Agreement is subject to customary and market provisions. Our subsidiaries that provide a guaranty of credit sub facility available for general corporate purposes. Borrowingsour and Land's obligations under the Former Credit Agreements also entered into subsidiary guaranty agreements with respect to the obligations under the Credit Agreement bear interest at floating rates based upon indices determined by the currency of the borrowing, plus an applicable margin determined by reference to our consolidated funded debt to consolidated EBITDA ratio or at an alternative base rate.Agreement.
The Term Facility was drawn in full on January 30, 2015 in connection withMarch 28, 2022 to refinance the closing of the PTS Acquisition.Former Credit Agreements, pay fees, costs, and other expenses incurred therewith, to fund working capital needs and for our general corporate purposes. The loan under the Term Facility requires quarterly amortization at a rate starting at 5.0% per annum, increasing to 7.5% per annum after two years and further increasing to 10.0% per annum for the last two years of the Term Facility, unless previously prepaid. The weighted average interest rate onPer the Term Facility was 2.7%terms of the Credit Agreement, prepayments can be made without penalty and 2.5% forbe applied to the three and nine months ended September 30, 2017, respectively and 2.0% for the three and nine months ended October 1, 2016. next payment due.
The Credit Agreement requires that we prepay the loans under the Term Facility with 100% of the net cash proceeds received from specified asset sales and borrowed money indebtedness, subject to certain exceptions.
At SeptemberJune 30, 2017,2022, we had $560.0 million of borrowings under the Multicurrency Revolving Facility, in the amount of $29.6 million, $29.8$0.1 million of standby letters of credit issued under the facility, and $440.6$439.8 million of available borrowing capacity. TheFor the three months ended June 30, 2022 and July 3, 2021 under the Multicurrency Revolving Facility, the average daily balance in borrowings under the Multicurrency Revolving Facility was $97.8$730.0 million and $105.4$2.4 million, respectively, and the weighted average interest rate onwas 2.1% and 1.4%, respectively. For the six months ended June 30, 2022 and July 3, 2021 under the Multicurrency Revolving Facility, was 2.7% and 2.5% for the three and nine months ended September 30, 2017, respectively. The average daily balance in borrowings under the Multicurrency Revolving Facility was $29.7$765.2 million and $45.1$4.9 million, respectively, and the weighted average interest rate on the Multicurrency Revolving Facility was 1.9% for the three1.7% and nine months ended October 1, 2016,1.4%, respectively. We pay a non-use fee on the aggregate unused amount of the Multicurrency Revolving Facility at a rate determined by reference to its consolidated funded debt to consolidated EBITDA ratio.
As of June 30, 2022, we had $486.8 million of borrowings under the Land Term Facility. The Land Term Facility has no required amortization. The weighted average interest rate on the Land Term Facility for three months ended June 30, 2022 was 2.1%. The weighted average interest rate on the Land Term Facility for six months ended June 30, 2022 was 1.7%.
In connection with the Rexnord Transaction, on February 15, 2021, we entered into a debt commitment letter (the “Bridge Commitment Letter”) and related fee letters with Barclays Bank PLC (“Barclays”), pursuant to which, and subject to the terms and conditions set forth therein, Barclays committed to provide approximately $2.1 billion in an aggregate principal amount of senior bridge loans under a 364-day senior bridge loan credit facility (the “Bridge Facility”). As the Rexnord Transaction was consummated and the payments of amounts in connection therewith occurred without the use of the Bridge Facility, the commitments under the Bridge Commitment Letter were terminated in connection with the closing of the Rexnord Transaction.
Senior Notes
At September 30, 2017,On April 7, 2022, we had $500.0 millionentered into a Note Purchase Agreement with certain institutional accredited investors (the "Note Purchase Agreement") for the issuance and sale of $500,000,000 aggregate principal amount of 3.90% senior notes due April 7, 2032 (the “Notes”"Senior Notes") outstanding. The Notes consist of $500.0 million, in senior notes (the “2011 Notes”) in a private placement which were issued in seven tranches with maturitiesan offering exempt from seven to twelve years and carry fixed interest rates. As of September 30, 2017, $400.0 millionthe registration requirements of the 2011 Notes are included in Long-Term DebtSecurities Act of 1933, as amended. We expect to use the net proceeds from the offering for general corporate purposes.
The Note Purchase Agreement is subject to customary and $100.0 millionmarket provisions. Our subsidiaries that provided a guaranty of the 2011 Notes are included in Current Maturities of Long-Term Debt onobligations under the Condensed Consolidated Balance Sheets.Credit Agreement also entered into subsidiary guaranty agreements with respect to the obligations under the Note Purchase Agreement. We repaid the remaining $100.0 millionmay, at our option, prepay at any time all, or from time to time any part of, the 2007Senior Notes, subject to a make-whole amount and certain other restrictions set forth in August, 2017.the Note Purchase Agreement.
Details on the Notes at September 30, 2017 were (in millions):
|
| | | | | | | | |
| | | Principal | | Interest Rate | | Maturity |
| Fixed Rate Series 2011A | | 100.0 |
| | 4.1% | | July 14, 2018 |
| Fixed Rate Series 2011A | | 230.0 |
| | 4.8 to 5.0% | | July 14, 2021 |
| Fixed Rate Series 2011A | | 170.0 |
| | 4.9 to 5.1% | | July 14, 2023 |
| | | $ | 500.0 |
| | | | |
We had an interest rate swap agreement to manage fluctuations in cash flows resulting from interest rate risk (see also Note 13 of Notes to the Condensed Financial Statements). The remaining interest rate swap agreement terminated in August, 2017.
Compliance with Financial Covenants
The Credit Agreement and the Notes require us to meet specified financial ratios and to satisfy certain financial condition tests. The Note Purchase Agreement contains financial covenants consistent with the financial covenants in the Credit Agreement. We were in compliance with all financial covenants contained in the NotesCredit Agreement and the CreditNote Purchase Agreement as of SeptemberJune 30, 2017.2022.
Other Notes Payable
At SeptemberJune 30, 2017,2022, other notes payable of approximately $5.1$75.2 million were outstanding with a weighted average interest rate of 5.2%5.1%. At December 31, 2016,January 1, 2022, other notes payable of approximately $5.1$78.7 million were outstanding with a weighted average rate of 5.6%5.2%.
Other Disclosures
Based on rates for instruments with comparable maturities and credit quality, which are classified as Level 2 inputs (see also Note 14 of Notes to the Condensed Consolidated Financial Statements), the approximate fair value of our total debt was $1,244.2$2,125.9 million and $1,433.4$1,918.5 million as of SeptemberJune 30, 20172022 and December 31, 2016,January 1, 2022, respectively.
Critical Accounting Policies
Our disclosures of critical accounting policies, which are contained in our Annual Report on Form 10-K for the year ended December 31, 2016,January 1, 2022, have not materially changed since that report was filed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk relating to our operations due to changes in interest rates, foreign currency exchange rates and commodity prices of purchased raw materials. We manage the exposure to these risks through a combination of normal operating and financing activities and derivative financial instruments such as interest rate swaps, commodity cash flow hedges and foreign currency forward exchange contracts. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which strictly prohibit the use of financial instruments for speculative purposes.
All qualifiedGenerally hedges are recorded on the balance sheet at fair value and are accounted for as cash flow hedges, with changes in fair value recorded in accumulated otherAccumulated Other comprehensive income (loss)Income (Loss) (“AOCI”) in each accounting period. An ineffective portion of the hedges change in fair value, if any, is recorded in earnings in the period of change.
Interest Rate Risk
We are exposed to interest rate risk on certain of our short-term and long-termoutstanding debt obligations used to finance our operations and acquisitions. Loans under the Credit Agreement bear interest at variable rates plus a margin, based on our consolidated net leverage ratio. At SeptemberJune 30, 2017,2022, excluding the impact of interest rate swaps,we had $504.8$575.3 million of fixed rate debt and $709.6$1,596.7 million of variable rate debt. We have utilizedutilize interest rate swaps to manage fluctuations in cash flows resulting from exposure to interest rate risk on forecasted variable rate interest payments. The remaining interest rate swap agreement terminated in August, 2017.
We have floating rate borrowings, which expose us to variability in interest payments due to changes in interest rates. A hypothetical 10% change in our weighted average borrowing rate on outstanding variable rate debt at SeptemberJune 30, 20172022 would resultresult in a $1.2$2.0 million change in after-tax annualized earnings.We had entered into atwo forward starting pay fixed/receive floating non-amortizing interest rate swapswaps in June 2020, with a total notional amount of $250.0 million to manage fluctuations in cash flows resulting from interest rate risk related to the floating rate interest. These swaps were terminated in March 2022 upon closing the Credit Agreement. The cash proceeds of $16.2 million received to settle the terminated swaps will be recognized into interest on our 2007 Notes which were paid in August, 2017. Thisexpense via the effective interest rate swap had beenmethod through July 2025 when the terminated swaps were scheduled to expire. We also entered into two forward starting pay fixed/receive floating non-amortizing interest rate swaps in May 2022, with a total notional amount of $250.0 million to manage fluctuations in cash flows from interest rate risk related to floating rate interest. Upon inception, the swaps were designated as a cash flow hedgehedges against forecasted interest payments.payments with gains and losses, net of tax, measured on an ongoing basis, recorded in AOCI.
Details regarding the instruments as of June 30, 2022 are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Instrument | Notional Amount | Maturity | Rate Paid | Rate Received | Fair Value |
| Swap | $250.0 | March 2027 | 3.0% | SOFR (3 month) | $ | (1.8) | |
As of December 31, 2016, anJune 30, 2022, the $1.8 million interest rate swap liability of $(3.3) million was included in Current Hedging Obligations. TheOther Noncurrent Liabilities. At January 1, 2022, a $5.3 million interest rate swap asset was included in Other Noncurrent Assets. There was an unrealized gain of $11.0 million (a $12.3 million gain on the terminated swaps and a $1.3 million loss on the active swaps) and $4.0 million, net of tax, at June 30, 2022 and January 1, 2022, respectively, that was recorded in AOCI for the effective portion of the contract, net of tax, of $(2.1) million as of December 31, 2016, respectively, was recorded in AOCI. The interest rate swap matured on August 23, 2017.hedges.
Foreign Currency Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to minimize our exposure to these risks through a combination of normal operating activities and the utilization of foreign currency exchange contracts to manage our exposure on the forecasted transactions denominated in currencies other than the applicable functional currency. Contracts are executed with credit worthy banks and are denominated in currencies of major industrial countries. We do not hedge our exposure to the translation of reported results of foreign subsidiaries from local currency to United States dollars.
Derivatives
As of SeptemberJune 30, 2017,2022, derivative currency assets (liabilities) of $12.9$9.0 million, $4.9$0.8 million, $(8.8)$(3.5) million and $(0.6)$(0.5) million, are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets, Current Hedging Obligations,Other Accrued Expenses and Other Noncurrent Hedging Obligations,Liabilities, respectively. As of December 31, 2016,January 1, 2022, derivative currency assets (liabilities) of $2.8$8.6 million, $0.4 million, $(45.7)$0.7 million and $(17.6)$(1.7) million, are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets Current Hedging Obligations, and Noncurrent Hedging Obligations,Other Accrued Expenses, respectively. The unrealized gains (losses) on the contractseffective portions of $3.5the hedges of $4.4 million net of tax, and $(34.4)$5.8 million net of tax, as of SeptemberJune 30, 20172022 and December 31, 2016January 1, 2022 respectively, were recorded in AOCI. At SeptemberJune 30, 2017,2022, we had $(2.3)$2.4 million, net of tax, of derivative currency lossesgains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At December 31, 2016,January 1, 2022, we had $(8.0)$1.9 million, net of
derivative tax, currency lossesgains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impactedimpact earnings.
The following table quantifies the outstanding foreign exchange contracts intended to hedge non-US dollar denominated receivables and payables and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their counter currency on SeptemberJune 30, 20172022 (in millions):
| | | | | | | | | Gain (Loss) From | | | | | | | Gain (Loss) From |
| Currency | | Notional Amount | | Fair Value | | 10% Appreciation of Counter Currency | | 10% Depreciation of Counter Currency | Currency | | Notional Amount | | Fair Value | | 10% Appreciation of Counter Currency | | 10% Depreciation of Counter Currency |
| Chinese Renminbi | | $ | 218.0 |
| | $ | 8.9 |
| | $ | 21.8 |
| | $ | (21.8 | ) | Chinese Renminbi | | $ | 249.5 | | | $ | (1.4) | | | $ | 25.0 | | | $ | (25.0) | |
| Mexican Peso | | 164.9 |
| | (1.0 | ) | | 16.5 |
| | (16.5 | ) | Mexican Peso | | 204.1 | | | 8.3 | | | 20.4 | | | (20.4) | |
| Euro | | 63.8 |
| | (0.2 | ) | | 6.4 |
| | (6.4 | ) | Euro | | 208.7 | | | 0.2 | | | 20.9 | | | (20.9) | |
| Indian Rupee | | 37.7 |
| | 2.1 |
| | 3.8 |
| | (3.8 | ) | Indian Rupee | | 79.4 | | | (1.1) | | | 7.9 | | | (7.9) | |
| Canadian Dollar | | 51.3 |
| | (1.0 | ) | | 5.1 |
| | (5.1 | ) | |
| | Australian Dollar | | 13.2 |
| | (0.4 | ) | | 1.3 |
| | (1.3 | ) | Australian Dollar | | 14.1 | | | (0.2) | | | 1.4 | | | (1.4) | |
| | British Pound | | British Pound | | 1.8 | | | — | | | 0.2 | | | (0.2) | |
| Thai Baht | | 7.1 |
| | — |
| | 0.7 |
| | (0.7 | ) | Thai Baht | | 0.5 | | | — | | | 0.1 | | | (0.1) | |
| British Pound | | 9.9 |
| | — |
| | 1.0 |
| | (1.0 | ) | |
Gains and losses indicated in the sensitivity analysis would be offset by gains and losses on the underlying forecasted non-US dollar denominated cash flows.
Commodity Price Risk
We periodically enter into commodity hedging transactions to reduce the impact of changing prices for certain commodities such as copper and aluminum based upon forecasted purchases of such commodities. Qualified hedge transactions are designated as cash flow hedges and theThe contract terms of commodity hedge instruments generally mirror those of the hedged item, providing a high degree of risk reduction and correlation.
Derivatives
Derivative commodity assets (liabilities) of $6.6$0.5 million, $0.2$(19.6) million and $(0.3)$(3.4) million were recorded in Prepaid Expenses and Other Current Assets, Other Accrued Expenses and Other Noncurrent Liabilities at June 30, 2022. Derivative commodity assets of $9.3 million, $0.1 million, $(1.2) million and $(0.6) million were recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets, Other Accrued Expenses and Current Hedging Obligations,Other Noncurrent Liabilities, respectively as of at September 30, 2017. Derivative commodity assets of $7.3 million are recorded in Prepaid Expenses at December 31, 2016.January 1, 2022. The unrealized gainsloss on the effective portion of the contractshedges of $3.6$(16.9) million net of tax and $2.9the unrealized gain on the effective portion of the hedges of $5.6 million net of tax, as of SeptemberJune 30, 20172022 and December 31, 2016,January 1, 2022, respectively, werewas recorded in AOCI. At SeptemberJune 30, 2017,2022, we had $2.2$2.0 million, net of tax, of derivative commodity gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At December 31, 2016,January 1, 2022, there was $0.5an additional $3.7 million, net of tax, of derivative commodity gainsgain on closed hedge instruments in AOCI that were realized into earnings when the hedged items impacted earnings.
The following table quantifies the outstanding commodity contracts intended to hedge raw material commodity prices and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their prices on SeptemberJune 30, 20172022 (in millions):
| | | | | | | | | Gain (Loss) From | | | | | | | Gain (Loss) From |
| Commodity | | Notional Amount | | Fair Value | | 10% Appreciation of Commodity Prices | | 10% Depreciation of Commodity Prices | Commodity | | Notional Amount | | Fair Value | | 10% Appreciation of Commodity Prices | | 10% Depreciation of Commodity Prices |
| Copper | | $ | 64.0 |
| | $ | 6.0 |
| | $ | 6.4 |
| | $ | (6.4 | ) | Copper | | $ | 145.3 | | | $ | (21.4) | | | $ | 14.5 | | | $ | (14.5) | |
| Aluminum | | 4.5 |
| | 0.5 |
| | 0.5 |
| | (0.5 | ) | Aluminum | | 7.1 | | | (1.1) | | | 0.7 | | | (0.7) | |
Gains and losses indicated in the sensitivity analysis would be offset by the actual prices of the commodities.
The net AOCI hedging component balance of $7.0$2.9 million gainof gains at SeptemberJune 30, 20172022 includes $6.5$(2.1) million of net current deferred gainslosses expected to be realized in the next twelve months.
The gain/loss reclassified from AOCI into earnings on such derivatives will be recognized in the same period in which the related item affects earnings.
Counterparty Risk
We are exposed to credit losses in the event of non-performance by the counterparties to various financial agreements, including our interest rate swap agreements, foreign currency exchange contracts and commodity hedging transactions. We manage exposure to counterparty credit risk by limiting our counterparties to major international banks and financial institutions meeting established credit guidelines and continually monitoring their compliance with the credit guidelines. We do not obtain collateral or other security to support financial instruments subject to credit risk. We do not anticipate non-performance by our counterparties, but cannot provide assurances.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’sOur management, with the participation of the Company’sour Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’sour disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’sour Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’sour disclosure controls and procedures were effective to ensure that (a) information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and (b) information required to be disclosed by us in the reports the Company fileswe file or submitssubmit under the Exchange Act is accumulated and communicated to our management, including itsour Chief Executive Officer and itsour Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There were no changes in the Company’sour internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes in the legal matters described in Part I, Item 3 of the Company’sin our Annual Report on Form 10-K for the year ended December 31, 2016,January 1, 2022, which is incorporated hereherein by reference.
ITEM 1A. RISK FACTORS
Our business and financial results are subject to numerous risks and uncertainties. The riskThese risks and uncertainties have not changed materially from those reported in Part I, Item 1A in our 2016 Annual Report on Form 10-K for the year ended December 31, 2016, which is incorporated hereJanuary 1, 2022, as supplemented by reference. For additional information regarding risks and uncertainties facing the Company, please also see the information provided under the header “Cautionary Statement” containedPart II, Item 1A in thisour Quarterly Report on Form 10-Q.10-Q for the quarter ended March 31, 2022, which are incorporated herein by reference.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table contains detail related to the repurchase of our common stock based on the date of trade during the quarter ended SeptemberJune 30, 2017.2022.
|
| | | | | | | | | | | | | |
| 2017 Fiscal Month | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as a Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May be Purchased Under the Plans or Programs |
| July 2 to Aug 5 | | 1,568 |
| | $ | 84.03 |
| | — |
| | 2,043,196 |
|
| Aug 6 to Sep 2 | | 301,416 |
| | 77.82 |
| | 300,000 |
| | 1,743,196 |
|
| Sep 3 to Sep 30 | | 274 |
| | 79.38 |
| | — |
| | 1,743,196 |
|
| | | 303,258 |
| | | | 300,000 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 Fiscal Month | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Value of Shares Purchased as a Part of Publicly Announced Plans or Programs | | Maximum Value of Shares that May be Purchased Under the Plans or Programs |
| Apr 1 to Apr 30 | | — | | | $ | — | | | $ | — | | | $ | 319,982,853 | |
| May 1 to May 31 | | 396,996 | | | 125.97 | | | 50,007,727 | | | 269,975,126 | |
| Jun 1 to Jun 30 | | 178,046 | | | 110.75 | | | 19,717,824 | | | 250,257,302 | |
| | 575,042 | | | | | $ | 69,725,551 | | | |
Under our equity incentive plans, participants may pay the exercise price or satisfy all or a portion of the federal, state and local withholding tax obligations arising in connection with plan awards by electing to (a) have the Company withhold shares of common stock otherwise issuable under the award, (b) tender back shares received in connection with such award or (c) deliver other previously owned shares of common stock, in each case having a value equal to the exercise price or the amount to be withheld. During the quarter ended SeptemberJune 30, 2017,2022, we acquired 3,258purchased 575,042 shares or $69.8 million in connection with transactionsshares pursuant to equity incentive plans.the October 26, 2021 repurchase authorization.
In November, 2013,At a meeting of the Board of Directors on October 26, 2021, the Company's Board of Directors approved the repurchase ofauthorization to purchase up to 3.0$500.0 million of shares of our common stock, whichunder the Company's share repurchase authorityprogram. The new authorization has no expiration date. Management is authorized to effect purchases from time to time in the open market or through privately negotiated transactions. During the quarter ended September 30, 2017, we acquired 300,000 shares pursuant to this authorization. We have entered into a Rule 10b5-1 trading plan for the purpose of repurchasing shares under this authorization, and certain of our purchases under the authorization during the quarter were made pursuant to the Rule 10b5-1 trading plan.
ITEM 6. EXHIBITS
| | | | | | | | |
| Exhibit Number | | Exhibit Description |
| 4.1 | | |
| | |
| | |
Exhibit Number | | Exhibit Description |
1231.1 | | Computation of Ratio of Earnings to Fixed Charges. |
31.1 | | |
| |
| 31.2 | | |
| |
| 32.1 | | |
| |
101101.INS | | XBRL Instance Document - The following materials from Regal Beloit Corporation’s Quarterly Report on Form 10-Q forinstance document does not appear in the quarter ended September 30, 2017, formatted ininteractive data file because its XBRL (Extensible Business Reporting Language): (i)tags are embedded within the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.inline XBRL document. |
| | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| 104 | | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).
|
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| REGAL REXNORD CORPORATION (Registrant) | | | /s/ Robert J. Rehard | | Robert J. Rehard
Vice President
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer) | | | | | | REGAL BELOIT CORPORATION
(Registrant)
| | | | /s/ Charles A. Hinrichs | | Charles A. Hinrichs
Vice President
Chief Financial Officer
(Principal Financial Officer)
| | | | /s/ Robert A. Lazzerini | | Robert A. Lazzerini
Vice President
Corporate Controller
(Principal Accounting Officer)
| | | Date: November 6, 2017 | |
INDEX TO EXHIBITS
| | | | Exhibit NumberDate: August 5, 2022 | | Exhibit Description | 12 | | | 31.1 | | | | | 31.2 | | | | | 32.1 | | | | | 101 | | The following materials from Regal Beloit Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements. | | | |
|