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 September 30, 20172023 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 State111 West Michigan Street, Beloit,Milwaukee, Wisconsin 5351153203
(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: |
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| 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 October 31, 2023 the registrant had outstanding 66,349,406 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” intended to qualifycontains 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 about the acquisition of Altra Industrial Motion Corp. (“Altra”), the benefits and synergies of the acquisition of Altra (the "Altra Transaction"), 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 economic activity, business levels, credit ratings, 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,“would,” “believe,“could,” “should,” “project” or “plan” or the negative thereof orand 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 the Company's 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:
•the Company’s substantial indebtedness as a result of the Altra Transaction and the effects of such indebtedness on the Company’s financial flexibility after the Altra Transaction;
•the Company’s ability to achieve its objectives on reducing its indebtedness on the desired timeline;
•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 benefits, synergies and operating efficiencies in connection with the Altra Transaction and the merger with the Rexnord Process & Motion Control business (the "Rexnord PMC business") within the expected time-frames or at all and to successfully integrate Altra and the Rexnord PMC business;
•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 Altra Transaction or the Company's merger with the Rexnord PMC business;
•the Company's ability to retain key executives and employees;
•the remaining direct and indirect financial and operational impacts and uncertainties relating to the COVID-19 pandemic on customers and suppliers;
•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 merger with the Rexnord PMC business and related transactions;
•requirements to abide by potentially significant restrictions with respect to the tax treatment of the acquisition ofmerger with the Power Transmission SolutionsRexnord PMC business of Emerson Electric Co. ("PTS") or otherwise and ourwhich could limit the Company’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 climate change and uncertainty regarding our ability to deliver on our climate commitments and/or to meet related investor, customer and other third party expectations relating to our sustainability efforts;
•risks associated with global manufacturing, including those 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;
•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, banking crises, 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, including in connection with our proposed sale of the industrial motors and generators businesses which comprise a majority of our Industrial Systems operating segment;
•the Company's ability to identify and execute on future M&A opportunities, including significant M&A transactions;
•the impact of any such M&A transactions on the Company's results, operations and financial condition, including the impact from costs to execute and finance any such transactions;
•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;
•costs and unanticipated liabilities arising from rapidly evolving data privacy laws and regulations;
•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 Securities and Exchange Commission (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 - Risk Factors in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 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 (LOSS)
(Unaudited)
(Amounts in Millions, Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Net Sales | $ | 1,649.8 | | | $ | 1,325.3 | | | $ | 4,642.5 | | | $ | 3,973.2 | |
| Cost of Sales | 1,107.6 | | | 917.6 | | | 3,138.4 | | | 2,710.1 | |
| Gross Profit | 542.2 | | | 407.7 | | | 1,504.1 | | | 1,263.1 | |
| Operating Expenses | 388.9 | | | 233.8 | | | 1,127.9 | | | 724.4 | |
| Goodwill Impairment | 57.3 | | | — | | | 57.3 | | | — | |
| Asset Impairments | 3.7 | | | — | | | 6.1 | | | — | |
| Loss on Assets Held for Sale | 112.7 | | | — | | | 112.7 | | | — | |
| Total Operating Expenses | 562.6 | | | 233.8 | | | 1,304.0 | | | 724.4 | |
| (Loss) Income from Operations | (20.4) | | | 173.9 | | | 200.1 | | | 538.7 | |
| Interest Expense | 111.5 | | | 21.4 | | | 323.3 | | | 43.8 | |
| Interest Income | (3.5) | | | (1.3) | | | (40.5) | | | (3.2) | |
| Other Income, Net | (2.5) | | | (1.3) | | | (6.7) | | | (4.1) | |
| (Loss) Income before Taxes | (125.9) | | | 155.1 | | | (76.0) | | | 502.2 | |
| Provision for Income Taxes | 12.7 | | | 33.2 | | | 34.9 | | | 110.0 | |
| Net (Loss) Income | (138.6) | | | 121.9 | | | (110.9) | | | 392.2 | |
| Less: Net Income Attributable to Noncontrolling Interests | 0.9 | | | 2.1 | | | 2.4 | | | 4.8 | |
| Net (Loss) Income Attributable to Regal Rexnord Corporation | $ | (139.5) | | | $ | 119.8 | | | $ | (113.3) | | | $ | 387.4 | |
| (Loss) Earnings Per Share Attributable to Regal Rexnord Corporation: | | | | | | | |
| Basic | $ | (2.10) | | | $ | 1.81 | | | $ | (1.71) | | | $ | 5.80 | |
| Assuming Dilution | $ | (2.10) | | | $ | 1.80 | | | $ | (1.71) | | | $ | 5.76 | |
| Weighted Average Number of Shares Outstanding: | | | | | | | |
| Basic | 66.3 | | | 66.3 | | | 66.3 | | | 66.8 | |
| Assuming Dilution | 66.3 | | | 66.7 | | | 66.3 | | | 67.2 | |
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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 |
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| 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 |
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| 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 (LOSS)
(Unaudited)
(Dollars in Millions)
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| | Three Months Ended | | Nine Months Ended |
| | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Net (Loss) Income | $ | (138.6) | | | $ | 121.9 | | | $ | (110.9) | | | $ | 392.2 | |
| Other Comprehensive Loss Net of Tax: | | | | | | | |
| Foreign Currency Translation Adjustments | (86.1) | | | (182.5) | | | (82.1) | | | (303.7) | |
| | | | | | | |
| Hedging Activities: | | | | | | | |
| (Decrease) Increase in Fair Value of Hedging Activities, Net of Tax Effects of $(0.6) million and $(1.1) million for the Three Months Ended September 30, 2023 and September 30, 2022 and $5.9 million and $(3.3) million for the Nine Months Ended September 30, 2023 and September 30, 2022, Respectively | (1.8) | | | (3.5) | | | 18.7 | | | (10.3) | |
| Reclassification of Gains included in Net (Loss) Income, Net of Tax Effects of $(0.7) million and $(0.5) million for the Three Months Ended September 30, 2023 and September 30, 2022 and $(0.5) million and $(4.0) million for the Nine Months Ended September 30, 2023 and September 30, 2022, Respectively | (2.4) | | | (1.6) | | | (1.6) | | | (12.9) | |
| Pension and Post Retirement Plans: | | | | | | | |
| | | | | | | |
| Reclassification Adjustments for Pension and Post Retirement Benefits included in Net (Loss) Income, Net of Tax Effects of $(0.1) million and zero for the Three Months Ended September 30, 2023 and September 30, 2022 and $(0.4) million and $0.1 million for the Nine Months Ended September 30, 2023 and September 30, 2022, Respectively | (0.4) | | | 0.2 | | | (1.2) | | | 0.5 | |
| Other Comprehensive Loss | (90.7) | | | (187.4) | | | (66.2) | | | (326.4) | |
| Comprehensive (Loss) Income | (229.3) | | | (65.5) | | | (177.1) | | | 65.8 | |
| Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests | 0.5 | | | (0.9) | | | 1.1 | | | (0.1) | |
| Comprehensive (Loss) Income Attributable to Regal Rexnord Corporation | $ | (229.8) | | | $ | (64.6) | | | $ | (178.2) | | | $ | 65.9 | |
|
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| | 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 | | September 30, 2023 | | December 31, 2022 |
| ASSETS | | | | ASSETS | | | |
| Current Assets: | | | | Current Assets: | |
| Cash and Cash Equivalents | $ | 186.6 |
| | $ | 284.5 |
| Cash and Cash Equivalents | $ | 540.6 | | | $ | 688.5 | |
| 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 $36.9 million and $30.9 million in 2023 and 2022, Respectively | | Trade Receivables, Less Allowances of $36.9 million and $30.9 million in 2023 and 2022, Respectively | 918.7 | | | 797.4 | |
| Inventories | 734.9 |
| | 660.8 |
| Inventories | 1,302.8 | | | 1,336.9 | |
| Prepaid Expenses and Other Current Assets | 181.4 |
| | 124.5 |
| Prepaid Expenses and Other Current Assets | 224.0 | | | 150.9 | |
| Deferred Financing Fees | | Deferred Financing Fees | — | | | 17.0 | |
| Assets Held for Sale | | Assets Held for Sale | 385.9 | | | 9.8 | |
| Total Current Assets | 1,630.2 |
| | 1,532.0 |
| Total Current Assets | 3,372.0 | | | 3,000.5 | |
| Net Property, Plant and Equipment | 633.7 |
| | 627.5 |
| Net Property, Plant and Equipment | 1,055.6 | | | 807.0 | |
| Operating Lease Assets | | Operating Lease Assets | 167.8 | | | 110.9 | |
| Goodwill | 1,475.2 |
| | 1,453.2 |
| Goodwill | 6,473.0 | | | 4,018.8 | |
| Intangible Assets, Net of Amortization | 682.4 |
| | 711.7 |
| Intangible Assets, Net of Amortization | 4,117.3 | | | 2,229.9 | |
| Deferred Income Tax Benefits | 28.7 |
| | 22.4 |
| Deferred Income Tax Benefits | 43.0 | | | 43.9 | |
| Other Noncurrent Assets | 13.8 |
| | 11.7 |
| Other Noncurrent Assets | 61.0 | | | 57.9 | |
| | Noncurrent Assets Held for Sale | | Noncurrent Assets Held for Sale | 75.3 | | | — | |
| Total Assets | $ | 4,464.0 |
| | $ | 4,358.5 |
| Total Assets | $ | 15,365.0 | | | $ | 10,268.9 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
| Current Liabilities: | | | | Current Liabilities: | |
| Accounts Payable | $ | 417.2 |
| | $ | 334.2 |
| Accounts Payable | $ | 588.0 | | | $ | 497.7 | |
| Dividends Payable | 11.5 |
| | 10.7 |
| Dividends Payable | 23.2 | | | 23.2 | |
| Current Hedging Obligations | 9.1 |
| | 49.0 |
| |
| | Accrued Compensation and Employee Benefits | 78.8 |
| | 70.1 |
| Accrued Compensation and Employee Benefits | 185.5 | | | 141.1 | |
| Accrued Interest | | Accrued Interest | 90.7 | | | 5.2 | |
| Other Accrued Expenses | 117.7 |
| | 137.0 |
| Other Accrued Expenses | 273.1 | | | 274.8 | |
| Current Operating Lease Liabilities | | Current Operating Lease Liabilities | 35.7 | | | 26.4 | |
| Current Maturities of Long-Term Debt | 100.6 |
| | 100.6 |
| Current Maturities of Long-Term Debt | 3.7 | | | 33.8 | |
| Liabilities Held for Sale | | Liabilities Held for Sale | 105.5 | | | — | |
| Total Current Liabilities | 734.9 |
| | 701.6 |
| Total Current Liabilities | 1,305.4 | | | 1,002.2 | |
| Long-Term Debt | 1,113.8 |
| | 1,310.9 |
| Long-Term Debt | 6,493.9 | | | 1,989.7 | |
| Deferred Income Taxes | 158.6 |
| | 97.7 |
| Deferred Income Taxes | 1,022.9 | | | 591.9 | |
| Noncurrent Hedging Obligations | 0.6 |
| | 17.6 |
| |
| | Pension and Other Post Retirement Benefits | 102.8 |
| | 106.5 |
| Pension and Other Post Retirement Benefits | 108.7 | | | 97.6 | |
| Noncurrent Operating Lease Liabilities | | Noncurrent Operating Lease Liabilities | 128.9 | | | 88.1 | |
| | Other Noncurrent Liabilities | 50.9 |
| | 46.0 |
| Other Noncurrent Liabilities | 83.9 | | | 76.8 | |
| Commitments and Contingencies (see Note 12) |
| |
| |
| Noncurrent Liabilities Held for Sale | | Noncurrent Liabilities Held for Sale | 25.0 | | | — | |
| Contingencies (see Note 12 - Contingencies) | | Contingencies (see Note 12 - Contingencies) | |
| 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, 66.3 million and 66.2 million Shares Issued and Outstanding for 2023 and 2022, Respectively | | Common Stock, $0.01 par value, 100.0 million Shares Authorized, 66.3 million and 66.2 million Shares Issued and Outstanding for 2023 and 2022, Respectively | 0.7 | | | 0.7 | |
| Additional Paid-In Capital | 874.5 |
| | 904.5 |
| Additional Paid-In Capital | 4,638.4 | | | 4,609.6 | |
| Retained Earnings | 1,571.5 |
| | 1,452.0 |
| Retained Earnings | 1,947.1 | | | 2,130.0 | |
| Accumulated Other Comprehensive Loss | (177.3 | ) | | (318.1 | ) | Accumulated Other Comprehensive Loss | (417.0) | | | (352.1) | |
| Total Regal Beloit Corporation Shareholders' Equity | 2,269.1 |
| | 2,038.8 |
| |
| Total Regal Rexnord Corporation Shareholders' Equity | | Total Regal Rexnord Corporation Shareholders' Equity | 6,169.2 | | | 6,388.2 | |
| Noncontrolling Interests | 33.3 |
| | 39.4 |
| Noncontrolling Interests | 27.1 | | | 34.4 | |
| Total Equity | 2,302.4 |
| | 2,078.2 |
| Total Equity | 6,196.3 | | | 6,422.6 | |
| Total Liabilities and Equity | $ | 4,464.0 |
| | $ | 4,358.5 |
| Total Liabilities and Equity | $ | 15,365.0 | | | $ | 10,268.9 | |
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 |
| June 30, 2023 | $ | 0.7 | | | $ | 4,626.5 | | | $ | 2,109.8 | | | $ | (326.7) | | | $ | 26.6 | | | $ | 6,436.9 | |
| Net (Loss) Income | — | | | — | | | (139.5) | | | — | | | 0.9 | | | (138.6) | |
| Other Comprehensive Loss | — | | | — | | | — | | | (90.3) | | | (0.4) | | | (90.7) | |
| Dividends Declared ($0.35 Per Share) | — | | | — | | | (23.2) | | | — | | | — | | | (23.2) | |
| Stock Options Exercised | — | | | (1.0) | | | — | | | — | | | — | | | (1.0) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Share-Based Compensation | — | | | 12.9 | | | — | | | — | | | — | | | 12.9 | |
| | | | | | | | | | | |
| September 30, 2023 | $ | 0.7 | | | $ | 4,638.4 | | | $ | 1,947.1 | | | $ | (417.0) | | | $ | 27.1 | | | $ | 6,196.3 | |
| | | | | | | | | | | |
| June 30, 2022 | $ | 0.7 | | | $ | 4,611.6 | | | $ | 1,996.6 | | | $ | (332.2) | | | $ | 39.0 | | | $ | 6,315.7 | |
| Net Income | — | | | — | | | 119.8 | | | — | | | 2.1 | | | 121.9 | |
| Other Comprehensive Loss | — | | | — | | | — | | | (184.4) | | | (3.0) | | | (187.4) | |
| Dividends Declared ($0.35 Per Share) | — | | | — | | | (23.2) | | | — | | | — | | | (23.2) | |
| Stock Options Exercised | — | | | 0.4 | | | — | | | — | | | — | | | 0.4 | |
| Stock Repurchase | — | | | (13.7) | | | (41.5) | | | — | | | — | | | (55.2) | |
| Share-Based Compensation | — | | | 5.8 | | | — | | | — | | | — | | | 5.8 | |
| Dividends Declared to Noncontrolling Interests | — | | | — | | | — | | | — | | | (6.2) | | | (6.2) | |
| September 30, 2022 | $ | 0.7 | | | $ | 4,604.1 | | | $ | 2,051.7 | | | $ | (516.6) | | | $ | 31.9 | | | $ | 6,171.8 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| Common Stock $0.01 Par Value | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Equity |
| December 31, 2022 | $ | 0.7 | | | $ | 4,609.6 | | | $ | 2,130.0 | | | $ | (352.1) | | | $ | 34.4 | | | $ | 6,422.6 | |
| Net (Loss) Income | — | | | — | | | (113.3) | | | — | | | 2.4 | | | (110.9) | |
| Other Comprehensive Loss | — | | | — | | | — | | | (64.9) | | | (1.3) | | | (66.2) | |
| Dividends Declared ($1.05 Per Share) | — | | | — | | | (69.6) | | | — | | | — | | | (69.6) | |
| Stock Options Exercised | — | | | (9.2) | | | — | | | — | | | — | | | (9.2) | |
| | | | | | | | | | | |
| Replacement Equity-Based Awards Granted | — | | | 4.6 | | | — | | | — | | | — | | | 4.6 | |
| Share-Based Compensation | — | | | 33.4 | | | — | | | — | | | — | | | 33.4 | |
| Dividends Declared to Noncontrolling Interests | — | | | — | | | — | | | — | | | (8.4) | | | (8.4) | |
| September 30, 2023 | $ | 0.7 | | | $ | 4,638.4 | | | $ | 1,947.1 | | | $ | (417.0) | | | $ | 27.1 | | | $ | 6,196.3 | |
| | | | | | | | | | | |
| January 1, 2022 | $ | 0.7 | | | $ | 4,651.8 | | | $ | 1,912.6 | | | $ | (195.1) | | | $ | 38.2 | | | $ | 6,408.2 | |
| Net Income | — | | | — | | | 387.4 | | | — | | | 4.8 | | | 392.2 | |
| Other Comprehensive Loss | — | | | — | | | — | | | (321.5) | | | (4.9) | | | (326.4) | |
| Dividends Declared ($1.03 Per Share) | — | | | — | | | (68.5) | | | — | | | — | | | (68.5) | |
| Stock Options Exercised | — | | | (5.3) | | | — | | | — | | | — | | | (5.3) | |
| Stock Repurchase | — | | | (59.4) | | | (179.8) | | | — | | | — | | | (239.2) | |
| Share-Based Compensation | — | | | 17.0 | | | — | | | — | | | — | | | 17.0 | |
| Dividends Declared to Noncontrolling Interests | — | | | — | | | — | | | — | | | (6.2) | | | (6.2) | |
| September 30, 2022 | $ | 0.7 | | | $ | 4,604.1 | | | $ | 2,051.7 | | | $ | (516.6) | | | $ | 31.9 | | | $ | 6,171.8 | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
| | | | | | | | | | | |
| | Nine Months Ended |
| September 30, 2023 | | September 30, 2022 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net (Loss) Income | $ | (110.9) | | | $ | 392.2 | |
| Adjustments to Reconcile Net (Loss) Income to Net Cash Provided by Operating Activities (Net of Acquisitions and Divestitures): | | | |
| Depreciation | 131.7 | | | 91.0 | |
| Amortization | 222.7 | | | 139.4 | |
| Goodwill Impairment | 57.3 | | | — | |
| Asset Impairments | 6.1 | | | — | |
| Loss on Assets Held for Sale | 112.7 | | | — | |
| Noncash Lease Expense | 31.6 | | | 24.3 | |
| Share-Based Compensation Expense | 49.1 | | | 17.0 | |
| Financing Fee Expense | 29.8 | | | 1.8 | |
| | | |
| Benefit from Deferred Income Taxes | (89.4) | | | (60.6) | |
| | | |
| Other Non-Cash Changes | 5.6 | | | 0.8 | |
| Change in Operating Assets and Liabilities, Net of Acquisitions and Divestitures | | | |
| Receivables | 29.2 | | | (76.2) | |
| Inventories | 206.7 | | | (222.3) | |
| Accounts Payable | (18.7) | | | (64.8) | |
| Other Assets and Liabilities | (149.5) | | | (4.6) | |
| Net Cash Provided by Operating Activities | 514.0 | | | 238.0 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
| Additions to Property, Plant and Equipment | (88.7) | | | (54.6) | |
| Proceeds Received from Sales of Property, Plant and Equipment | 6.3 | | | 5.5 | |
| | | |
| | | |
| Business Acquisitions, Net of Cash Acquired | (4,870.2) | | | (35.0) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Net Cash Used in Investing Activities | (4,952.6) | | | (84.1) | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| Borrowings Under Revolving Credit Facility | 1,801.3 | | | 1,797.2 | |
| Repayments Under Revolving Credit Facility | (2,213.8) | | | (1,933.9) | |
| Proceeds from Short-Term Borrowings | 34.7 | | | 6.0 | |
| Repayments of Short-Term Borrowings | (38.2) | | | (8.0) | |
| Proceeds from Long-Term Borrowings | 5,532.9 | | | 1,536.8 | |
| Repayments of Long-Term Borrowings | (624.7) | | | (1,115.9) | |
| Dividends Paid to Shareholders | (69.6) | | | (67.9) | |
| Shares Surrendered for Taxes | (11.5) | | | (8.6) | |
| Proceeds from the Exercise of Stock Options | 3.1 | | | 4.8 | |
| | | |
| Repurchase of Common Stock | — | | | (239.2) | |
| Distributions to Noncontrolling Interests | (8.4) | | | (6.2) | |
| | | |
| | | |
| Financing Fees Paid | (51.1) | | | (6.5) | |
| Net Cash Provided By Financing Activities | 4,354.7 | | | (41.4) | |
| EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS | (5.8) | | | (61.7) | |
| Net (Decrease) Increase in Cash and Cash Equivalents | (89.7) | | | 50.8 | |
| Cash and Cash Equivalents at Beginning of Period | 688.5 | | | 672.8 | |
| Cash and Cash Equivalents at End of Period | $ | 598.8 | | | $ | 723.6 | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net Income | $ | 165.5 |
| | $ | 162.2 |
|
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities (Net of Acquisitions and Divestitures): | | | |
| Depreciation and Amortization | 103.1 |
| | 116.6 |
|
| (Gain) Loss on Sale or Disposition of Assets, Net | (2.0 | ) | | 0.9 |
|
| Share-Based Compensation Expense | 10.3 |
| | 10.1 |
|
| 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 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
| Additions to Property, Plant and Equipment | (49.0 | ) | | (46.1 | ) |
| 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 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| Borrowings Under Revolving Credit Facility | 938.4 |
| | 447.0 |
|
| Repayments Under Revolving Credit Facility | (926.9 | ) | | (437.0 | ) |
| Proceeds from Short-Term Borrowings | 18.2 |
| | 20.9 |
|
| Repayments of Short-Term Borrowings | (18.2 | ) | | (27.7 | ) |
| Proceeds from Long-Term Borrowings | 0.3 |
| | — |
|
| Repayments of Long-Term Borrowings | (212.2 | ) | | (218.1 | ) |
| Dividends Paid to Shareholders | (33.1 | ) | | (31.3 | ) |
| Shares Surrendered for Taxes | (3.7 | ) | | (2.2 | ) |
| Proceeds from the Exercise of Stock Options | 0.4 |
| | 0.5 |
|
| Payments of Contingent Consideration | (5.3 | ) | | — |
|
| Repurchase of Common Stock | (45.1 | ) | | — |
|
| Distributions to Noncontrolling Interests | (11.7 | ) | | (0.3 | ) |
| Purchase of Subsidiary Shares from Noncontrolling Interest | — |
| | (19.6 | ) |
| Net Cash Used In Financing Activities | (298.9 | ) | | (267.8 | ) |
| EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS | 8.0 |
| | (4.4 | ) |
| Net Increase (Decrease) in Cash and Cash Equivalents | (97.9 | ) | | 28.7 |
|
| Cash and Cash Equivalents at Beginning of Period | 284.5 |
| | 252.9 |
|
| Cash and Cash Equivalents at End of Period | $ | 186.6 |
| | $ | 281.6 |
|
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
| Cash Paid For: | | | |
| Interest | $ | 46.8 |
| | $ | 46.7 |
|
| Income taxes | $ | 45.0 |
| | $ | 54.6 |
|
| | | | | | | | | | | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
| Cash Paid For: | | | |
| Interest | $ | 209.5 | | | $ | 36.6 | |
| Income taxes | $ | 166.9 | | | $ | 149.0 | |
| Cash and Cash Equivalents Presentation: | | | |
| Cash and Cash Equivalents | $ | 540.6 | | | 723.6 | |
| Assets Held for Sale | 58.2 | | | — | |
| Total Cash and Cash Equivalents | $ | 598.8 | | | $ | 723.6 | |
See accompanyingAccompanying Notes to Condensed Consolidated Financial Statements.
REGAL BELOITREXNORD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20172023
(Unaudited)
(Dollars in Millions Except Per Share Data, Unless Otherwise Noted)
1. BASIS OF PRESENTATION
The accompanying (a) condensed consolidated balance sheetCondensed Consolidated Balance Sheet of Regal BeloitRexnord Corporation (the “Company”), as of December 31, 2016,2022, 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 September 30, 20172023 and for the three and nine months ended September 30, 20172023 and October 1, 2016,September 30, 2022, 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 20162022 Annual Report on Form 10-K filed with the SEC on March 1, 2017.February 24, 2023.
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 nine months ended September 30, 20172023 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 30, 2017.31, 2023.
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, allowanceallowances for doubtful accounts;credit losses; 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.
Effective during the first quarter of 2023, in conjunction with the Altra Transaction (as defined in Note 3 - Held for Sale, Acquisitions and Divestitures), the Company realigned its four operating segments with the change to its management structure and operating model following the Altra Transaction. The Company operates onnew operating and reportable segments are: Industrial Powertrain Solutions (IPS), Power Efficiency Solutions (PES), Automation & Motion Control (AMC) and Industrial Systems. Prior period financial information has been reclassified to reflect these new reportable segments. See Note 6 - Segment Information for further information.
The sale of the industrial motors and generators businesses, as further described in Note 3 – Held for Sale, Acquisitions and Divestitures, does not represent a 52/53 week fiscal year endingstrategic shift that will have a major effect on the Saturday closestCompany's operations and financial results and, therefore, did not qualify for presentation as discontinued operations. The assets and liabilities related to December 31.these businesses have been reclassified to Assets Held for Sale, Noncurrent Assets Held for Sale, Liabilities Held for Sale and Noncurrent Liabilities Held for Sale on the Company's Condensed Consolidated Balance Sheet as of September 30, 2023.
Reclassifications
Certain prior year amounts have been reclassified in the Condensed Consolidated Statements of Cash Flows to conform to the presentation used for the nine months ended September 30, 2023. Depreciation and Amortization were each reclassified from Depreciation and Amortization and presented individually in the Condensed Consolidated Statements of Cash Flows. Benefit from Deferred Income Taxes, Receivables, Inventories, Accounts Payable, and Other Assets and Liabilities were reclassified from Change in Operating Assets and Liabilities and presented individually in the Condensed Consolidated Statements of Cash Flows.
New Accounting Standards Adopted in 2023
In August 2017,September 2022, the Financial Accounting Standards Board (the "FASB"("FASB") issued Accounting Standards Update ("ASU") 2017-12, Derivatives and Hedging (Topic 815)2022-04, Liabilities - Targeted Improvements to Accounting for Hedging Activities. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentationSupplier Finance Programs (Subtopic 405-50) Disclosure of hedge results. 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 evaluating 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. The 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)Supplier Finance Program Obligations. 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 recognizebuyer in a liabilitysupplier finance program disclose sufficient information about the program to make lease payments (the lease liability)allow a user of
financial statements to understand the program’s nature, activity during the period, changes from period to period, and a right-of-use asset representing its right to use the underlying leased asset for the lease term.potential magnitude. 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. ThisCompany adopted this new accounting guidance is effective for fiscal years beginning after December 15, 2018 under a modified retrospective approach and early adoption is permitted. The Company has identified a six step process to successfully implement the new Lease standard: Form a task force to become experts and take 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. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on its consolidated financial statements and has commenced the first step of identifying a task force to take the lead 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 adjustment to retained earnings as of January 1, 2018.
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 byduring 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 or financial position. The Company is 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.2023. See Note 2 - Other Financial Information.
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. |
13
2. OTHER FINANCIAL INFORMATION
Revenue Recognition
The Company adoptedrecognizes revenue from the provisionssale of ASU 2016-09electric motors, electrical motion controls, power generation, automation and power transmission products and components, factory automation sub-systems, industrial powertrain solutions, air moving products and specialty electrical components and systems. 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.
The following tables presents the Company’s revenues disaggregated by geographical region:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| September 30, 2023 | | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Total |
| North America | | $ | 422.6 | | | $ | 367.8 | | | $ | 274.8 | | | $ | 68.3 | | | $ | 1,133.5 | |
| Asia | | 45.7 | | | 44.4 | | | 22.7 | | | 36.4 | | | 149.2 | |
| Europe | | 126.3 | | | 33.8 | | | 100.3 | | | 12.9 | | | 273.3 | |
| Rest-of-World | | 46.1 | | | 15.3 | | | 22.0 | | | 10.4 | | | 93.8 | |
| Total | | $ | 640.7 | | | $ | 461.3 | | | $ | 419.8 | | | $ | 128.0 | | | $ | 1,649.8 | |
| | | | | | | | | | |
| September 30, 2022 | | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Total |
| North America | | $ | 321.9 | | | $ | 451.3 | | | $ | 138.3 | | | $ | 79.9 | | | $ | 991.4 | |
| Asia | | 38.2 | | | 49.5 | | | 4.9 | | | 44.8 | | | 137.4 | |
| Europe | | 54.5 | | | 46.1 | | | 37.6 | | | 11.7 | | | 149.9 | |
| Rest-of-World | | 1.0 | | | 22.2 | | | 11.8 | | | 11.6 | | | 46.6 | |
| Total | | $ | 415.6 | | | $ | 569.1 | | | $ | 192.6 | | | $ | 148.0 | | | $ | 1,325.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended |
| September 30, 2023 | | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Total |
| North America | | $ | 1,206.8 | | | $ | 1,094.4 | | | $ | 726.8 | | | $ | 211.8 | | | $ | 3,239.8 | |
| Asia | | 114.1 | | | 133.1 | | | 50.7 | | | 113.9 | | | 411.8 | |
| Europe | | 299.8 | | | 118.3 | | | 251.2 | | | 44.0 | | | 713.3 | |
| Rest-of-World | | 133.1 | | | 45.1 | | | 67.4 | | | 32.0 | | | 277.6 | |
| Total | | $ | 1,753.8 | | | $ | 1,390.9 | | | $ | 1,096.1 | | | $ | 401.7 | | | $ | 4,642.5 | |
| | | | | | | | | | |
| September 30, 2022 | | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Total |
| North America | | $ | 907.9 | | | $ | 1,360.7 | | | $ | 418.6 | | | $ | 224.0 | | | $ | 2,911.2 | |
| Asia | | 102.5 | | | 154.5 | | | 13.4 | | | 121.8 | | | 392.2 | |
| Europe | | 174.8 | | | 140.4 | | | 118.3 | | | 37.3 | | | 470.8 | |
| Rest-of-World | | 68.8 | | | 76.1 | | | 20.7 | | | 33.4 | | | 199.0 | |
| Total | | $ | 1,254.0 | | | $ | 1,731.7 | | | $ | 571.0 | | | $ | 416.5 | | | $ | 3,973.2 | |
Trade Receivables
The Company's policy for estimating the allowance for credit losses on January 1, 2017. As a result of adoptingtrade receivables considers several factors including historical write-off experience, overall customer credit quality in relation to general economic and market conditions, and specific customer account analyses to estimate expected credit losses. The specific customer account analysis considers such items as credit worthiness, payment history, and historical bad debt experience. Trade receivables are written off after
exhaustive collection efforts occur and the standard,receivable is deemed uncollectible. Adjustments to the Changesallowance for credit losses are recorded in Operating Assets and Liabilities, Net of Acquisitions and Divestitures line in the Cash Flows From Operating Activities section on the Condensed Consolidated Statements of Cash Flows and 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 the Condensed Consolidated Statements of Cash Flows for shares surrendered by employees to meet the minimum statutory withholding requirement and excessExpenses.
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 requirements as of January 1, 2017. The Company made an accounting policy election to continue to estimate forfeitures as it had previously.
2. OTHER FINANCIAL INFORMATION
Inventories
The following table presents approximate percentage distribution between major classes of inventories was(percentages as follows:of September 30, 2023 exclude inventories of the industrial motors and generators businesses which have been reclassified to Assets Held for Sale):
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Raw Material and Work in Process | 65.1% | | 57.0% |
| Finished Goods and Purchased Parts | 34.9% | | 43.0% |
|
| | | |
| | September 30,
2017 | | December 31,
2016 |
| Raw Material and Work in Process | 48% | | 45% |
| Finished Goods and Purchased Parts | 52% | | 55% |
Inventories are stated at the lower of cost whichor net realizable value. All inventory is not in excess of market. Cost for approximately 53% of the Company's inventory at September 30, 2017, and 55% at December 31, 2016 was determinedvalued 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):classification:
| | | | | | | | | | | | | | | | | |
| Useful Life in Years | | September 30, 2023 | | December 31, 2022 |
| Land and Improvements | | | $ | 139.5 | | | $ | 103.4 | |
| Buildings and Improvements | 3 - 50 | | 434.6 | | | 401.7 | |
| Machinery and Equipment | 3 - 15 | | 1,216.9 | | | 1,111.3 | |
| Property, Plant and Equipment | | | 1,791.0 | | | 1,616.4 | |
| Less: Accumulated Depreciation | | | (735.4) | | | (809.4) | |
| Net Property, Plant and Equipment | | | $ | 1,055.6 | | | $ | 807.0 | |
|
| | | | | | | | | |
| | 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., the Company agreed that if certain relocation compensation was received for the relocation of the business, the Company would pay a portion 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 thethree and nine months ended September 30, 2017 and October 1, 2016.
2016 Acquisitions
Elco Purchase
On January 18, 2016,2023, the Company purchasedreclassified $243.8 million of property, plant and equipment and $152.9 million of accumulated depreciation to Noncurrent Assets Held for Sale. See Note 3 – Held for Sale, Acquisitions and Divestitures for additional information.
Supplier Finance Program
The Company's supplier finance program with Bank of America (the "Bank") offers the remaining shares owned byCompany's designated suppliers the joint venture partneroption to receive payments of outstanding invoices in its Elco Group B.V. (“Elco”) joint venture increasingadvance of the Company’s ownership from 55.0%invoice maturity dates at a discount. The Company's payment obligation to 100.0% for $19.6 million.the Bank remains subject to the respective supplier's invoice maturity date. The purchase price of Elco is reflectedBank acts as a component of equity.
2016 Divestitures
Mastergear Worldwide
On June 1, 2016,payment agent, making payments on invoices the Company sold its Mastergear Worldwide ("Mastergear") business to Rotork PLCconfirms are valid. The supplier finance program is offered for a purchase price of $25.7 million. Mastergear was included inopen account transactions only and may be terminated by either the Company's Power Transmission Solutions segment. GainsCompany or the Bank upon 15 days notice. The Company has not pledged any assets under this program. The Company has not incurred any subscription, service or other fees related to the Company's supplier finance program. The Company's outstanding obligations under the supplier finance program, which are classified within Accounts Payable, were $66.8 million and $69.9 million as of September 30, 2023 and December 31, 2022, respectively.
3. HELD FOR SALE, ACQUISITIONS AND DIVESTITURES
Assets and Liabilities Held for Sale - Industrial Systems
On September 23, 2023, the Company signed an agreement to sell its industrial motors and generators businesses which represent the majority of the Industrial Systems segment for total consideration of $400 million plus cash transferred at close, subject to working capital and other customary purchase price adjustments. This transaction is expected to close in the first half of 2024. The assets and liabilities related to these businesses have been reclassified to Assets Held for Sale, Noncurrent Assets Held for Sale, Liabilities Held for Sale and Noncurrent Liabilities Held for Sale on the Company's Condensed Consolidated Balance Sheet as of September 30, 2023 as shown in the table below:
| | | | | | | | | | |
| | | | September 30, 2023 |
| Assets Held for Sale | | | | |
| Cash and Cash Equivalents | | | | $ | 58.2 | |
| Trade Receivables, Less Allowances | | | | 97.6 | |
| Inventories | | | | 209.6 | |
| Prepaid Expenses and Other Current Assets | | | | 15.0 | |
| Total Current Assets Held for Sale | | | | $ | 380.4 | |
| Net Property, Plant and Equipment | | | | 90.9 | |
| Operating Lease Assets | | | | 19.1 | |
| Goodwill | | | | 53.9 | |
| Intangible Assets, Net of Amortization | | | | 2.2 | |
| | | | |
| Other Noncurrent Assets | | | | 21.9 | |
| Loss on Assets Held for Sale | | | | (112.7) | |
| Total Noncurrent Assets Held for Sale | | | | $ | 75.3 | |
| | | | |
| Liabilities Held for Sale | | | | |
| Accounts Payable | | | | $ | 70.2 | |
| Accrued Compensation and Employee Benefits | | | | 12.8 | |
| Other Accrued Expenses | | | | 18.9 | |
| Current Operating Lease Liabilities | | | | 3.6 | |
| Total Current Liabilities Held for Sale | | | | $ | 105.5 | |
| Deferred Income Taxes | | | | 4.6 | |
| Pension and Other Post Retirement Benefits | | | | 0.2 | |
| Noncurrent Operating Lease Liabilities | | | | 16.4 | |
| Other Noncurrent Liabilities | | | | 3.8 | |
| Total Noncurrent Liabilities Held for Sale | | | | $ | 25.0 | |
The sale of $0.1the industrial motors and generators businesses does not represent a strategic shift that will have a major effect on the Company's operations and financial results and, therefore, did not qualify for presentation as discontinued operations. The Company recorded a goodwill impairment of $57.3 million and $11.6a loss on assets held for sale of $112.7 million were recorded as a reduction to Operating Expenses in the Condensed Consolidated Statements of Income (Loss) during fiscal 2017the three and 2016, respectively.nine months ended September 30, 2023. The loss on assets held for sale primarily relates to foreign currency translation losses to be reclassified out of accumulated other comprehensive income into earnings at closing of the transaction.
Venezuelan Subsidiary
In addition to the assets and liabilities of the industrial motors and generators businesses, there are other assets recorded in Assets Held for Sale on the Company's Consolidated Balance Sheet as of September 30, 2023, which are not material.
Altra Transaction
On July 7, 2016,October 26, 2022, the Company soldentered into an Agreement and Plan of Merger (the “Altra Merger Agreement”) by and among the Company, Altra Industrial Motion Corp., a Delaware corporation (“Altra”), and Aspen Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”). On March 27, 2023, in accordance with the terms and conditions of the Altra Merger Agreement, Merger Sub merged with (the "Altra Merger") and into Altra, with Altra surviving the Altra Merger as a wholly owned subsidiary of the Company (the “Altra Transaction”).
Pursuant to the Altra Merger Agreement, at the effective time of the Altra Merger (the “Effective Time”), each of Altra’s issued and outstanding shares of common stock, par value $0.001 per share (“Altra Common Stock”) (other than (i) any shares held by either the Company, Altra or Merger Sub, (ii) shares owned by any direct or indirect wholly owned subsidiary of Altra or the Company, (iii) shares for which appraisal rights had been properly demanded according to Section 262 of the Delaware General Corporation Law and (iv) restricted shares of Altra Common Stock granted under Altra’s 2014 Omnibus Incentive Plan and subject to forfeiture conditions) were converted into $62.00 in cash, without interest (the “Altra Merger Consideration”). The Altra Merger Agreement generally provided that (1) each vested Altra stock option outstanding immediately prior to the Effective Time was canceled and converted into a cash payment equal to the intrinsic value of such option based on the Altra Merger Consideration, (2) each unvested Altra stock option outstanding, immediately prior to the Effective Time, was converted into an award of stock options with respect to the Company's common stock, par value $0.01 per share ("Common Stock") with an intrinsic value equivalent to the intrinsic value of the Altra stock option based on the Altra Merger Consideration, (3) each unvested Altra restricted stock unit outstanding, as of the Effective Time, that was subject solely to time-based vesting conditions was converted into an award of restricted stock units with respect to Common Stock with an equivalent value based on the Altra Merger Consideration on substantially similar terms and conditions, (4) each unvested award of Altra restricted shares was converted into an award of cash of equivalent value based on the Altra Merger Consideration on substantially similar terms and conditions, (5) each unvested Altra restricted stock unit outstanding, as of the Effective Time, that was subject to performance-based vesting conditions was converted into an award of time-based restricted stock with an equivalent value based on the Altra Merger Consideration on substantially similar terms and conditions (with performance goals being deemed satisfied at specified levels) and (6) each vested Altra restricted stock unit outstanding as of Effective Time was converted into the right to receive a cash payment based on the Altra Merger Consideration.
The Company's management determined that the Company is the accounting acquirer in the Altra 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 Altra, which have been measured at estimated fair value as of the date of the business combination.
The preliminary purchase price for the acquisition of Altra was approximately $5.1 billion, subject to the finalization of purchase accounting.
The preliminary purchase price of Altra consisted of the following:
| | | | | | | | | | | | |
| | | | | | As of September 30, 2023 |
Cash paid for outstanding Altra Common Stock(1) | | | | | | $ | 4,051.0 | |
Stock based compensation(2) | | | | | | 23.1 | |
Payment of Altra debt(3) | | | | | | 1,061.0 | |
Pre-existing relationships(4) | | | | | | (0.5) | |
| | | | | | |
| Preliminary purchase price | | | | | | $ | 5,134.6 | |
(1) Cash paid for the common stock component of the preliminary purchase price was based on 65.3 million shares of outstanding Altra Common Stock as of March 27, 2023 at $62.00 per share, in accordance with the Altra Merger Agreement.
(2) Represents fair value of replacement equity-based awards and Company common stock issued in settlement of other Altra share based awards. The portion of the fair value attributable to pre-acquisition service was recorded as part of the consideration transferred in the Altra Transaction of which $17.3 million was paid in cash during the second quarter of 2023.
(3) Cash paid by the Company to settle (a) the term loan facility, (b) the revolving credit facility and (c) 95.28% of the 6.125% senior notes due 2026 of Stevens Holding Company, Inc., a wholly owned subsidiary of Altra (the "Altra Notes"). $18.1 million of the Altra Notes remained outstanding following the closing of the Altra Transaction. See Note 7 - Debt and Bank Credit Facilities for more information.
(4) Represents effective settlement of outstanding payables and receivables between the Company and Altra. No gain or loss was recognized on this settlement.
Purchase Price Allocation
Altra’s assets and liabilities were measured at estimated fair values at March 27, 2023, 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, 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 Altra Transactionand the nature of the net assets acquired, as of September 30, 2023, the valuation process to determine the fair values is not complete and further adjustments are expected in fiscal year 2023. 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 valuation 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 assumed were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | As Reported as of March 31, 2023 | | Measurement period adjustments | | As of September 30, 2023 |
| | | | | | |
| Cash and Cash Equivalents | | $ | 259.1 | | | $ | — | | | $ | 259.1 | |
| Trade Receivables | | 258.1 | | | (0.1) | | | 258.0 | |
| Inventories | | 436.4 | | | (47.4) | | | 389.0 | |
| Prepaid Expenses and Other Current Assets | | 33.0 | | | — | | | 33.0 | |
| Property, Plant and Equipment | | 411.8 | | | (4.3) | | | 407.5 | |
| | | | | | |
| Intangible Assets | | 2,224.0 | | | (82.0) | | | 2,142.0 | |
| Deferred Income Tax Benefits | | 0.7 | | | — | | | 0.7 | |
| Operating Lease Assets | | 42.3 | | | 4.5 | | | 46.8 | |
| Other Noncurrent Assets | | 21.6 | | | 0.2 | | | 21.8 | |
| Accounts Payable | | (183.2) | | | — | | | (183.2) | |
| Accrued Compensation and Benefits | | (66.1) | | | — | | | (66.1) | |
Other Accrued Expenses(1) | | (145.7) | | | 0.6 | | | (145.1) | |
| Current Operating Lease Liabilities | | (12.5) | | | 0.2 | | | (12.3) | |
| Current Maturities of Long-Term Debt | | (0.4) | | | — | | | (0.4) | |
| Long-Term Debt | | (25.3) | | | — | | | (25.3) | |
| Deferred Income Taxes | | (560.7) | | | 25.7 | | | (535.0) | |
| Pension and Other Post Retirement Benefits | | (19.8) | | | — | | | (19.8) | |
| Noncurrent Operating Lease Liabilities | | (29.7) | | | 0.7 | | | (29.0) | |
| Other Noncurrent Liabilities | | (8.3) | | | — | | | (8.3) | |
| | | | | | |
| Total Identifiable Net Assets | | 2,635.3 | | | (101.9) | | | 2,533.4 | |
| Goodwill | | 2,499.3 | | | 101.9 | | | 2,601.2 | |
| Preliminary purchase price | | $ | 5,134.6 | | | $ | — | | | $ | 5,134.6 | |
(1) Includes $60.1 million related to Altra Transaction costs paid by the Company at the closing of its Venezuelan subsidiary, which had beenthe Altra Transaction.
Summary of Significant Fair Value Methods
The methods used to determine the fair value of significant identifiable assets and liabilities included in the allocation of purchase price are discussed below.
Inventories
Acquired inventory was comprised of finished goods, work in process and raw materials. The fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The fair value of raw materials and supplies was determined based on replacement cost which approximates historical carrying value.
Property, Plant and Equipment
The preliminary fair value of Property, Plant, and Equipment was determined using either the cost approach, which relies on an estimate of replacement costs of the new assets and estimated accrued depreciation, or the market approach.
Identifiable Intangible Assets
The preliminary fair value and weighted average useful life of the identifiable intangible assets are as follows:
| | | | | | | | | | | | | | |
| | Fair Value | | Weighted Average Useful Life (Years) |
Customer Relationships(1) | | $ | 1,710.0 | | | 14.0 |
Trademarks(2) | | 330.0 | | | 10.0 |
Technology(3) | | 102.0 | | | 13.0 |
| Total Identifiable Intangible Assets | | $ | 2,142.0 | | | |
(1) The fair value of Customer Relationships was valued using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from Altra's existing customer base.
(2) The Altra Trademarks were valued using the relief from royalty method, which considers both the market approach and the income approach.
(3) The Altra Technology was valued using the relief from royalty method, which considers both the market approach and the income approach.
The intangible assets related to definite-lived customer relationships, trademarks and technology are amortized over their estimated useful lives.
Leases, including right-of-use ("ROU") assets and lease liabilities
Lease liabilities were measured as of the effective date of the acquisition at the present value of future minimum lease payments over the remaining lease term and the incremental borrowing rate of the Company as if the acquired leases were new leases as of the acquisition date. ROU assets recorded within “Operating Lease Assets” are equal to the amount of the lease liability at the acquisition date adjusted for any off-market terms of the lease. The remaining lease term was based on the remaining term at the acquisition date plus any renewal or extension options that the Company is reasonably certain will be exercised.
Deferred Income Tax Assets and Liabilities
The acquisition was structured as a merger, and therefore the Company assumed the historical tax basis of Altra’s assets and liabilities. The deferred income tax assets and liabilities include the expected future federal, state, and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates at the effective date of the acquisition in the jurisdictions in which legal title of the underlying asset or liability resides. See Note 10 - Income Taxes for further information related to income taxes.
Other Assets Acquired and Liabilities Assumed (excluding Goodwill)
The Company utilized the carrying values, net of allowances, to value accounts receivable and accounts payable as well as other current assets and liabilities, as it was determined that carrying values represented the fair value of those items at the acquisition date. Accounts receivable reflect the best estimate at the acquisition date of the contractual cash flows expected to be collected.
Goodwill
The excess of the consideration for the acquisition over the fair value of net assets acquired was recorded as goodwill. The goodwill is attributable to expected synergies and expanded market opportunities from combining the Company’s operations with those of Altra. The goodwill created in the acquisition is not expected to be deductible for tax purposes.
Transaction Costs
The Company incurred transaction-related costs in connection with the Altra Transaction of approximately $7.5 million and $82.5 million during the three and nine months ended September 30, 2023, respectively, which include legal and professional services and certain employee compensation costs, including severance and retention, that were recognized as Operating Expenses in the Company's Commercial and Industrial Systems segment, to a private company for $3.0 million. Of this amount,Condensed Consolidated Statements of Income (Loss). There were $1.0 million was receivedof transaction-related costs in connection with the Altra Transaction recognized during the three and nine months ended September 30, 2022. During the year ended December 31, 2022 the Company incurred $14.7 million of costs related to the Altra Transaction.
The Company also incurred $15.7 million of share-based compensation expense during the first quarter of 2023 related to the accelerated vesting of awards for certain former Altra employees. See Note 9 – Shareholders' Equity for additional information.
In connection with the Altra Transaction, the Company incurred additional costs due to the entry into certain financing arrangements. Such financing arrangements are described in Note 7 – Debt and Bank Credit Facilities.
Unaudited Pro Forma Information
The following unaudited supplemental pro forma financial information presents the Company's financial results for the three and nine months ended September 30, 2023 and September 30, 2022, respectively, as if the Altra Transaction had occurred on January 2, 2022, the first day of the Company's fiscal year ended December 31, 2022. The pro forma financial information includes, where applicable, adjustments for: (i) additional amortization expense that would have been recognized related to the acquired intangible assets, (ii) additional interest expense on transaction related borrowings less interest income earned on the investment of proceeds from borrowings prior to the close of the Altra Transaction, (iii) additional depreciation expense that would have been recognized related to the acquired property, plant, and equipment, (iv) transaction closingcosts and other one-time non-recurring costs, including share-based compensation expense related to the accelerated vesting of awards for certain former Altra employees, which reduced expenses by $7.5 million and $98.2 million for the three and nine months ended September 30, 2023, respectively, and increased expenses by $4.2 million and $111.9 million for the three and nine months ended September 30, 2022, respectively, (v) additional cost of sales related to the inventory valuation adjustment which reduced expenses by $8.8 million and $52.9 million for the three and nine months ended September 30, 2023, respectively, and increased expenses by zero and $52.9 million for the three and nine months ended September 30, 2022, respectively and (vi) the estimated income tax effect on the pro forma adjustments.
The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the Altra Transaction been completed as of the date and $2.0 million is being received in 24 monthly installments. The Companyindicated or the results that may receive additional amountsbe obtained in the future related to certain accounts receivable of this business. The gains will be recognized as the cash is received. The Company wrote down its investment and ceased operations of this subsidiary in 2015.future.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Net Sales | | $ | 1,649.8 | | | $ | 1,791.6 | | | $ | 5,093.6 | | | $ | 5,449.3 | |
| Net (Loss) Income Attributable to Regal Rexnord Corporation | | $ | (126.7) | | | $ | 66.8 | | | $ | (7.2) | | | $ | 80.5 | |
| (Loss) Earnings Per Share Attributable to Regal Rexnord Corporation: | | | | | | | | |
| Basic | | $ | (1.91) | | | $ | 1.01 | | | $ | (0.11) | | | $ | 1.21 | |
| Assuming Dilution | | $ | (1.91) | | | $ | 1.00 | | | $ | (0.11) | | | $ | 1.20 | |
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 nine months ended September 30, 20172023 and October 1, 2016 were as follows (in millions):September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| September 30, 2023 | | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total |
| Beginning Balance | | $ | 38.6 | | | $ | (14.1) | | | $ | (351.2) | | | $ | (326.7) | |
| Other Comprehensive Loss before Reclassifications | | (2.4) | | | — | | | (85.7) | | | (88.1) | |
| Tax Impact | | 0.6 | | | — | | | — | | | 0.6 | |
| Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | (3.1) | | | (0.5) | | | — | | | (3.6) | |
| Tax Impact | | 0.7 | | | 0.1 | | | — | | | 0.8 | |
| Net Current Period Other Comprehensive Loss | | (4.2) | | | (0.4) | | | (85.7) | | | (90.3) | |
| | | | | | | | |
| Ending Balance | | $ | 34.4 | | | $ | (14.5) | | | $ | (436.9) | | | $ | (417.0) | |
| | | | | | | | |
| September 30, 2022 | | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total |
| Beginning Balance | | $ | 2.9 | | | $ | (13.5) | | | $ | (321.6) | | | $ | (332.2) | |
| Other Comprehensive Loss before Reclassifications | | (4.6) | | | — | | | (179.5) | | | (184.1) | |
| Tax Impact | | 1.1 | | | — | | | — | | | 1.1 | |
| Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | (2.1) | | | 0.2 | | | — | | | (1.9) | |
| Tax Impact | | 0.5 | | | — | | | — | | | 0.5 | |
| | | | | | | | |
| Net Current Period Other Comprehensive (Loss) Income | | (5.1) | | | 0.2 | | | (179.5) | | | (184.4) | |
| | | | | | | | |
| Ending Balance | | $ | (2.2) | | | $ | (13.3) | | | $ | (501.1) | | | $ | (516.6) | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | Nine Months Ended |
| | Three Months Ended | |
| | September 30, 2017 | |
| | Hedging Activities | | Pension and Post Retirement Benefit Adjustments | | Foreign Currency Translation Adjustments | | Total | |
| September 30, 2023 | | September 30, 2023 | | 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 | | $ | 17.3 | | | $ | (13.3) | | | $ | (356.1) | | | $ | (352.1) | |
| Other Comprehensive Income (Loss) before Reclassifications | 14.3 |
| | (0.2 | ) | | 24.2 |
| | 38.3 |
| Other Comprehensive Income (Loss) before Reclassifications | | 24.6 | | | — | | | (80.8) | | | (56.2) | |
| Tax Impact | (5.5 | ) | | — |
| | — |
| | (5.5 | ) | Tax Impact | | (5.9) | | | — | | | (5.9) | |
| 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) | | (2.1) | | | (1.6) | | | (3.7) | |
| Tax Impact | 0.2 |
| | (0.2 | ) | | — |
| | — |
| Tax Impact | | 0.5 | | | 0.4 | | | 0.9 | |
| 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) | | 17.1 | | | (1.2) | | | (80.8) | | | (64.9) | |
| | Ending Balance | $ | 7.0 |
| | $ | (35.3 | ) | | $ | (149.0 | ) | | $ | (177.3 | ) | Ending Balance | | $ | 34.4 | | | $ | (14.5) | | | $ | (436.9) | | | $ | (417.0) | |
| | | | | | | | | | | | | | | | |
| September 30, 2022 | | September 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 | | (13.6) | | | 0.5 | | | (299.3) | | | (312.4) | |
| Tax Impact | | Tax Impact | | 3.3 | | | — | | | — | | | 3.3 | |
| Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | (16.9) | | | 0.6 | | | — | | | (16.3) | |
| Tax Impact | | Tax Impact | | 4.0 | | | (0.1) | | | 3.9 | |
| Net Current Period Other Comprehensive (Loss) Income | | Net Current Period Other Comprehensive (Loss) Income | | (23.2) | | | 1.0 | | | (299.3) | | | (321.5) | |
| | | | | | | | | |
| | 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 | ) | Ending Balance | | $ | (2.2) | | | $ | (13.3) | | | $ | (501.1) | | | $ | (516.6) | |
|
| | | | | | | | | | | | | | | |
| | 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 (Loss) 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- Derivative Financial Statements.Instruments.
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)- Retirement Plans).
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 nine months ended September 30,
2017 (in millions):2023: | | | | | | | | | | | | Total | | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems |
| | 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 |
| |
| | Balance as of December 31, 2022 | | Balance as of December 31, 2022 | $ | 4,018.8 | | | $ | 2,290.0 | | | $ | 752.3 | | | $ | 865.0 | | | $ | 111.5 | |
| | Impairment | | Impairment | (57.3) | | | — | | | — | | | — | | | (57.3) | |
| Acquisitions | | Acquisitions | 2,601.2 | | | 1,429.7 | | | — | | | 1,171.5 | | | — | |
| Reclassification to Noncurrent Assets Held for Sale | | Reclassification to Noncurrent Assets Held for Sale | (53.9) | | | — | | | — | | | — | | | (53.9) | |
| Translation Adjustments | 22.0 |
| | 8.9 |
| | 1.1 |
| | 12.0 |
| Translation Adjustments | (35.8) | | | (16.6) | | | (1.9) | | | (17.0) | | | (0.3) | |
| Balance as of September 30, 2017 | $ | 1,475.2 |
| | $ | 549.5 |
| | $ | 342.9 |
| | $ | 582.8 |
| |
| Balance as of September 30, 2023 | | Balance as of September 30, 2023 | $ | 6,473.0 | | | $ | 3,703.1 | | | $ | 750.4 | | | $ | 2,019.5 | | | $ | — | |
| | | | | | | | | | | | | | | | | | |
| Cumulative Goodwill Impairment Charges | $ | 275.7 |
| | $ | 244.8 |
| | $ | 7.7 |
| | $ | 23.2 |
| Cumulative Goodwill Impairment Charges | $ | 386.0 | | | $ | 18.1 | | | $ | 200.4 | | | $ | 5.1 | | | $ | 162.4 | |
Intangible Assets
IntangibleThe following table presents intangible assets consisted ofincluding those acquired in the following (in millions)Altra Transaction (see Note 3 - Held for Sale, Acquisitions and Divestitures for more information):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2023 | | December 31, 2022 |
| | Weighted Average Amortization Period (Years) | | Gross Value | | Accumulated
Amortization | | Net Carrying Amount | | Gross Value | | Accumulated
Amortization | | Net Carrying Amount |
| Customer Relationships | 15 | | $ | 3,981.9 | | | $ | 670.0 | | | $ | 3,311.9 | | | $ | 2,321.4 | | | $ | 532.0 | | | $ | 1,789.4 | |
| Technology | 13 | | 299.1 | | | 86.8 | | | 212.3 | | | 246.2 | | | 125.0 | | | 121.2 | |
| Trademarks | 10 | | 702.7 | | | 109.6 | | | 593.1 | | | 392.7 | | | 73.4 | | | 319.3 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total Intangibles | | | $ | 4,983.7 | | | $ | 866.4 | | | $ | 4,117.3 | | | $ | 2,960.3 | | | $ | 730.4 | | | $ | 2,229.9 | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | 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 nine months ended September 30, 20172023 was $13.9$87.0 million and $41.9$222.7 million, respectively. Amortization expense recorded for the three and nine months ended October 1, 2016September 30, 2022 was $15.6$45.6 million and $47.0$139.4 million, respectively. Amortization expense for 2017fiscal year 2023 is estimated to be $55.9$315.0 million.
Estimated expectedFor the three and nine months ended September 30, 2023, the Company reclassified $59.2 million of intangible assets gross value and $57.0 million of intangible assets accumulated amortization to Noncurrent Assets Held for Sale. See Note 3 - Held for Sale, Acquisitions and Divestitures for additional information.
The following table presents future estimated annual amortization expense for intangible assetsassets:
| | | | | | | | |
| Year | | Estimated Amortization |
| 2024 | | $ | 349.2 | |
| 2025 | | 347.2 | |
| 2026 | | 343.7 | |
| 2027 | | 343.7 | |
| 2028 | | 343.7 | |
| | |
| | |
| | |
6. SEGMENT INFORMATION
Effective during the first quarter of 2023, the Company realigned its four operating segments taking into account the change to its management structure and operating model following completion of the Altra Transaction. All prior periods have been recast to reflect the current segment presentation. The Company is as follows (in millions):
|
| | | | |
| Year | | Estimated Amortization |
| 2018 | | $ | 53.9 |
|
| 2019 | | 53.5 |
|
| 2020 | | 50.4 |
|
| 2021 | | 42.6 |
|
| 2022 | | 41.0 |
|
6. BUSINESS SEGMENTS
Commercialcomprised of four operating segments: Industrial Powertrain Solutions (IPS), Power Efficiency Solutions (PES), Automation & Motion Control (AMC) and Industrial SystemsSystems.
IPS consists of the majority of the Company's previous Motion Control Solutions (MCS) segment, excluding the conveying and aerospace business units, plus Altra's Power Transmission Technologies segment. The IPS segment designs, produces medium and largeservices mounted and unmounted bearings, couplings, mechanical power transmission drives and components, gearboxes and gear motors, commercialclutches, brakes, special components products and industrial equipment, generatorpowertrain components and custom drives and systems. These products servesolutions serving a broad range of markets including commercial Heating, Ventilation,food and Air Conditioning ("HVAC"), poolbeverage, bulk handling, eCommerce/warehouse distribution, energy, agricultural machinery, turf & garden and spa, standby and critical power and oil and gas systems.general industrial.
PES consists of the Company's previous Climate Solutions and Commercial Systems segments. The PES segment designs and produces fractional to approximately 5 horsepower AC and DC motors, electronic variable speed controls, fans, and blowers for commercial applications and small motors, electronic variable speed controls and air moving solutions serving markets including residential and light commercial HVAC, water heaters, commercial refrigeration, commercial building ventilation, pool and spa, irrigation, dewatering, agriculture, and general commercial refrigeration.equipment.
AMC consists of the Company's previous MCS aerospace and conveying business units, Altra's Automation & Specialty segment and the Thomson Power Transmission Solutions manufactures, sellsSystems business that was previously in the Company's Industrial Systems segment. The AMC segment designs, produces and services beltconveyor products, conveying automation subsystems, aerospace components, rotary precision motion solutions, high-efficiency miniature motors and chain drives, helicalmotion control products, automation transfer switches, switchgear for industrial applications and worm gearing, mountedautomation systems that enable and unmounted bearings, couplings, modular plastic belts, conveying chainscontrol the transition of rotary motion to linear motion. These products are used in advanced material handling, aerospace and components, hydraulic pump drives, large open gearingdefense, factory automation, data centers, medical device, packaging, printing, semiconductor, robotic, industrial power tool, mobile off-highway, food & beverage processing and specialty mechanicalother applications.
Industrial Systems consists of the Company's previous Industrial Systems segment excluding the Thomson Power Systems business. The Industrial Systems segment designs and produces integral motors, alternators for industrial applications, along with aftermarket parts and kits to support such products. These products servingserve markets including agriculture, marine, mining, oil and gas, food and beverage, bulk handling, metals, special machinery, energy, aerospacedata centers, prime and standby power, and general industrial.industrial equipment.
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, recast as described above, for the three and nine months ended September 30, 20172023 and October 1, 2016 (in millions):September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2023 | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Eliminations | | Total |
| External Sales | $ | 640.7 | | | $ | 461.3 | | | $ | 419.8 | | | $ | 128.0 | | | $ | — | | | $ | 1,649.8 | |
| Intersegment Sales | 3.6 | | | 3.1 | | | 4.2 | | | 0.6 | | | (11.5) | | | — | |
| Total Sales | 644.3 | | | 464.4 | | | 424.0 | | | 128.6 | | | (11.5) | | | 1,649.8 | |
| Gross Profit | 215.8 | | | 138.0 | | | 161.2 | | | 27.2 | | | — | | | 542.2 | |
| Operating Expenses | 175.1 | | | 71.5 | | | 117.6 | | | 24.7 | | | — | | | 388.9 | |
| Goodwill Impairment | — | | | — | | | — | | | 57.3 | | | — | | | 57.3 | |
| Asset Impairments | 1.3 | | | 1.5 | | | 0.5 | | | 0.4 | | | — | | | 3.7 | |
| Loss on Assets Held for Sale | — | | | — | | | — | | | 112.7 | | | — | | | 112.7 | |
| Total Operating Expenses | 176.4 | | | 73.0 | | | 118.1 | | | 195.1 | | | — | | | 562.6 | |
| Income (Loss) from Operations | 39.4 | | | 65.0 | | | 43.1 | | | (167.9) | | | — | | | (20.4) | |
| Depreciation and Amortization | 75.9 | | | 15.8 | | | 46.1 | | | 3.1 | | | — | | | 140.9 | |
| Capital Expenditures | 5.8 | | | 8.1 | | | 9.8 | | | 1.5 | | | — | | | 25.2 | |
| | | | | | | | | | | |
| September 30, 2022 | | | | | | | | | | | |
| External Sales | $ | 415.6 | | | $ | 569.1 | | | $ | 192.6 | | | $ | 148.0 | | | $ | — | | | $ | 1,325.3 | |
| Intersegment Sales | 1.9 | | | 2.9 | | | 5.6 | | | 0.4 | | | (10.8) | | | — | |
| Total Sales | 417.5 | | | 572.0 | | | 198.2 | | | 148.4 | | | (10.8) | | | 1,325.3 | |
| Gross Profit | 169.7 | | | 139.4 | | | 64.3 | | | 34.3 | | | — | | | 407.7 | |
| Operating Expenses | 97.8 | | | 68.5 | | | 45.0 | | | 22.5 | | | — | | | 233.8 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total Operating Expenses | 97.8 | | | 68.5 | | | 45.0 | | | 22.5 | | | — | | | 233.8 | |
| Income from Operations | 71.9 | | | 70.9 | | | 19.3 | | | 11.8 | | | — | | | 173.9 | |
| Depreciation and Amortization | 41.6 | | | 11.6 | | | 17.8 | | | 3.1 | | | — | | | 74.1 | |
| Capital Expenditures | 4.3 | | | 12.4 | | | 1.3 | | | 4.0 | | | — | | | 22.0 | |
| | | | | | | | | | | | | | Nine Months Ended |
| | Commercial and Industrial Systems | | Climate Solutions | | Power Transmission Solutions | | Eliminations | | Total | |
| Three Months Ended September 30, 2017 | | | | | | | | | | |
| September 30, 2023 | | September 30, 2023 | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Eliminations | | Total |
| External Sales | $ | 408.0 |
| | $ | 256.0 |
| | $ | 192.9 |
| | $ | — |
| | $ | 856.9 |
| External Sales | $ | 1,753.8 | | | $ | 1,390.9 | | | $ | 1,096.1 | | | $ | 401.7 | | | $ | — | | | $ | 4,642.5 | |
| Intersegment Sales | 16.4 |
| | 5.0 |
| | 0.5 |
| | (21.9 | ) | | — |
| Intersegment Sales | 11.5 | | | 10.8 | | | 15.3 | | | 2.0 | | | (39.6) | | | — | |
| Total Sales | 424.4 |
| | 261.0 |
| | 193.4 |
| | (21.9 | ) | | 856.9 |
| Total Sales | 1,765.3 | | | 1,401.7 | | | 1,111.4 | | | 403.7 | | | (39.6) | | | 4,642.5 | |
| Gross Profit | 98.0 |
| | 65.8 |
| | 63.2 |
| | — |
| | 227.0 |
| Gross Profit | 617.6 | | | 389.5 | | | 412.8 | | | 84.2 | | | — | | | 1,504.1 | |
| Operating Expenses | 68.4 |
| | 27.0 |
| | 37.6 |
| | — |
| | 133.0 |
| Operating Expenses | 510.5 | | | 217.8 | | | 323.7 | | | 75.9 | | | — | | | 1,127.9 | |
| Income from Operations | 29.6 |
| | 38.8 |
| | 25.6 |
| | — |
| | 94.0 |
| |
| Goodwill Impairment | | Goodwill Impairment | — | | | — | | | — | | | 57.3 | | | — | | | 57.3 | |
| Asset Impairments | | Asset Impairments | 1.6 | | | 1.5 | | | 2.6 | | | 0.4 | | | — | | | 6.1 | |
| Loss on Assets Held for Sale | | Loss on Assets Held for Sale | — | | | — | | | — | | | 112.7 | | | — | | | 112.7 | |
| Total Operating Expenses | | Total Operating Expenses | 512.1 | | | 219.3 | | | 326.3 | | | 246.3 | | | — | | | 1,304.0 | |
| Income (Loss) from Operations | | Income (Loss) from Operations | 105.5 | | | 170.2 | | | 86.5 | | | (162.1) | | | — | | | 200.1 | |
| Depreciation and Amortization | 15.2 |
| | 5.5 |
| | 13.6 |
| | — |
| | 34.3 |
| Depreciation and Amortization | 191.9 | | | 39.3 | | | 113.4 | | | 9.8 | | | — | | | 354.4 | |
| Capital Expenditures | 8.6 |
| | 3.1 |
| | 3.6 |
| | — |
| | 15.3 |
| Capital Expenditures | 30.9 | | | 25.2 | | | 27.2 | | | 5.4 | | | — | | | 88.7 | |
| Three Months Ended October 1, 2016 | | | | | | | | | | |
| | September 30, 2022 | | September 30, 2022 | |
| External Sales | $ | 389.4 |
| | $ | 250.5 |
| | $ | 169.7 |
| | $ | — |
| | $ | 809.6 |
| External Sales | $ | 1,254.0 | | | $ | 1,731.7 | | | $ | 571.0 | | | $ | 416.5 | | | $ | — | | | $ | 3,973.2 | |
| Intersegment Sales | 10.8 |
| | 5.7 |
| | 1.1 |
| | (17.6 | ) | | — |
| Intersegment Sales | 5.3 | | | 8.0 | | | 12.5 | | | 1.4 | | | (27.2) | | | — | |
| Total Sales | 400.2 |
| | 256.2 |
| | 170.8 |
| | (17.6 | ) | | 809.6 |
| Total Sales | 1,259.3 | | | 1,739.7 | | | 583.5 | | | 417.9 | | | (27.2) | | | 3,973.2 | |
| Gross Profit | 105.4 |
| | 71.4 |
| | 54.9 |
| | — |
| | 231.7 |
| Gross Profit | 491.7 | | | 473.6 | | | 197.9 | | | 99.9 | | | — | | | 1,263.1 | |
| Operating Expenses | 69.2 |
| | 29.2 |
| | 43.5 |
| | — |
| | 141.9 |
| Operating Expenses | 304.7 | | | 212.3 | | | 144.1 | | | 63.3 | | | — | | | 724.4 | |
| | Total Operating Expenses | | Total Operating Expenses | 304.7 | | | 212.3 | | | 144.1 | | | 63.3 | | | — | | | 724.4 | |
| Income from Operations | 36.2 |
| | 42.2 |
| | 11.4 |
| | — |
| | 89.8 |
| Income from Operations | 187.0 | | | 261.3 | | | 53.8 | | | 36.6 | | | — | | | 538.7 | |
| Depreciation and Amortization | 17.7 |
| | 4.9 |
| | 15.0 |
| | — |
| | 37.6 |
| Depreciation and Amortization | 128.3 | | | 35.5 | | | 56.4 | | | 10.2 | | | — | | | 230.4 | |
| Capital Expenditures | 9.6 |
| | 2.6 |
| | 2.2 |
| | — |
| | 14.4 |
| Capital Expenditures | 11.8 | | | 30.1 | | | 4.6 | | | 8.1 | | | — | | | 54.6 | |
|
| | | | | | | | | | | | | | | | | | | |
| | 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, recast as described above, as of September 30, 20172023 and December 31, 2016 (in millions):2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Total |
| Identifiable Assets as of September 30, 2023 | $ | 7,969.8 | | | $ | 2,043.4 | | | $ | 4,888.4 | | | $ | 463.4 | | | $ | 15,365.0 | |
| Identifiable Assets as of December 31, 2022 | 5,028.5 | | | 2,234.1 | | | 2,202.2 | | | 804.1 | | | 10,268.9 | |
|
| | | | | | | | | | | | | | | |
| | 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 September 30, 20172023 and December 31, 2016 was as follows (in millions):2022:
| | | | September 30, 2023 | | December 31, 2022 |
| Senior Notes | | Senior Notes | $ | 4,700.0 | | | $ | — | |
| Term Facility | | Term Facility | 1,254.1 | | | 536.3 | |
| Private Placement Notes | | Private Placement Notes | — | | | 500.0 | |
| Land Term Facility | | Land Term Facility | 486.8 | | | 486.8 | |
| Multicurrency Revolving Facility | | Multicurrency Revolving Facility | 16.5 | | | 429.0 | |
| Altra Notes | | Altra Notes | 18.1 | | | — | |
| | | | 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 |
| Other | 78.3 | | | 76.7 | |
| Less: Debt Issuance costs | (6.4 | ) | | (9.7 | ) | |
| | 1,214.4 |
| | 1,411.5 |
| |
| Less: Debt Issuance Costs | | Less: Debt Issuance Costs | (56.2) | | | (5.3) | |
| Total | | Total | 6,497.6 | | | 2,023.5 | |
| Less: Current Maturities | 100.6 |
| | 100.6 |
| Less: Current Maturities | 3.7 | | | 33.8 | |
| Non-Current Portion | $ | 1,113.8 |
| | $ | 1,310.9 |
| |
| Long-Term Debt | | Long-Term Debt | $ | 6,493.9 | | | $ | 1,989.7 | |
The below discussion of the Company’s indebtedness should be read in conjunction with the Note 7 – Debt and Bank Credit Facilities in the Company’s 2022 Annual Report on Form 10-K filed on February 24, 2023.
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 (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders named therein, providingwhich was subsequently amended on November 17, 2022 (the "First Amendment") and November 30, 2022 (the "Assumption Agreement"), which in combination provide for, a (i) 5-yearamong other things:
i.an unsecured term loan facility in the initial principal amount of $1.25 billionup to $550.0 million, maturing on March 28, 2027, which was upsized by $840.0 million on March 27, 2023 in connection with the Altra Transaction (the “Term Facility”"Term Facility") and (ii) a 5-year;
ii.an unsecured multicurrency revolvingterm loan facility in the initial principal amount of $500.0$486.8 million, under which the Company's subsidiary Land Newco, Inc. 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 $1,000.0 million, maturing on March 28, 2027, which was upsized by $570.0 million on March 27, 2023 in connection with the Altra Transaction (the "Multicurrency Revolving Facility”Facility"), including a $100.0 million letter of credit sub facility, available for general corporate purposes. .
Borrowings under the Credit Agreement bear interest at floating rates based upon indices determined by the currency of the borrowing plus(SOFR or an applicable margin determined by reference to the Company's consolidated funded debt to consolidated EBITDA ratioalternative base rate for US Dollar borrowings) or at an alternative base rate.
The Term Facility was drawnrate, in full on January 30, 2015 in connection with the closing of the PTS Acquisition. 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.each case, plus an applicable margin. The weighted average interest rate on the Term Facility was 2.7% and 2.5% for the three months ended September 30, 2023 and September 30, 2022 was 7.2% and 3.4%, respectively. The weighted average interest rate on the Term Facility for the nine months ended September 30, 20172023 and 2.0%September 30, 2022 was 6.9% and 2.2%, respectively. The weighted average interest rate on the Land Term Facility for the three months ended September 30, 2023 and September 30, 2022 was 7.2% and 3.5%, respectively. The weighted average interest rate on the Land Term Facility for the nine months ended October 1, 2016. September 30, 2023 and September 30, 2022 was 6.7% and 2.3%, respectively.
The Term Facility requires quarterly amortization at 5.0% per annum, unless previously prepaid. Per the terms of the Credit Agreement, requiresprepayments can be made without penalty and be applied to the Company prepay the loans under thenext payment due. The Land Term Facility with 100%has no required amortization.
As of the net cash proceeds received from specified asset sales and borrowed money indebtedness, subject to certain exceptions.
At September 30, 2017,2023, the Company had borrowings under the Multicurrency Revolving Facility in the amount of $29.6 million, $29.8 million ofno standby letters of credit issued under the facility,Multicurrency Revolving Facility, and $440.6$1,553.5 million of available borrowing capacity. TheFor the three months ended September 30, 2023 and September 30, 2022 under the Multicurrency Revolving Facility, the average daily balance in borrowings under the Multicurrency Revolving Facility was $97.8$123.9 million and $105.4$600.5 million, respectively, and the weighted average interest rate onwas 7.2% and 3.5%, respectively. For the Multicurrency Revolving Facility was 2.7% and 2.5% for the three and nine months ended September 30, 2017, respectively. The2023 and September 30, 2022 under the Multicurrency Revolving Facility, the average daily balance in borrowings under the Multicurrency Revolving Facility was $29.7$320.0 million and $45.1$719.0 million, respectively, and the weighted average interest rate on the Multicurrency Revolving Facility was 1.9% for the three6.6% and nine months ended October 1, 2016.2.2%, respectively. The Company payspaid a non-use fee of 0.25% as of September 30, 2023 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
Private Placement Notes
At September 30, 2017,
On April 7, 2022, the Company had $500.0 million of senior notes (the “Notes”) outstanding. The Notes consistentered into a Note Purchase Agreement for the issuance and sale of $500.0 million inaggregate principal amount of 3.90% senior notes due April 7, 2032 (the “2011"Private Placement Notes"). Following the issuance of the Senior Notes discussed below, on January 27, 2023, the Company repaid the Private Placement Notes in full with no make-whole payments.
Bridge Facility
In connection with the Altra Transaction, on October 26, 2022, the Company entered into a commitment letter pursuant to which JPMorgan Chase Bank, N.A. committed to provide the Company approximately $5,500.0 million in aggregate principal amount of senior bridge loans under a 364-day senior unsecured bridge term loan facility (the “Bridge Facility”) to, among other things, fund, in part, the Altra Transaction. The Bridge Facility was terminated upon issuance of the Senior Notes in January 2023. The Company paid $27.5 million in Bridge Facility fees in fiscal 2022, of which $10.5 million were recognized in Interest Expense in the fourth quarter of 2022 and zero and $17.0 million were recognized in Interest Expense during the three and nine months ended September 30, 2023, respectively.
Senior Notes
On January 24, 2023, the Company issued $1,100.0 million aggregate principal amount of its 6.05% senior notes due 2026 (the “2026 Senior Notes”), $1,250.0 million aggregate principal amount of its 6.05% senior notes due 2028 (the “2028 Senior Notes”), $1,100.0 million aggregate principal amount of its 6.30% senior notes due 2030 (the “2030 Senior Notes”) and $1,250.0 million aggregate principal amount of its 6.40% senior notes due 2033 (the “2033 Senior Notes” and, together with the 2026 Senior Notes, 2028 Senior Notes and 2030 Senior Notes, collectively, the “Senior Notes”). The 2026 Senior Notes are scheduled to mature on February 15, 2026, the 2028 Senior Notes are scheduled to mature on April 15, 2028, the 2030 Senior Notes are scheduled to mature on February 15, 2030, and the 2033 Senior Notes are scheduled to mature on April 15, 2033.
The rate of interest on each series of the Senior Notes is subject to an increase of up to 2.00% in the event of certain downgrades in the debt rating of the Senior Notes. Interest on the 2026 Senior Notes and the 2030 Senior Notes will be payable semi-annually on February 15 and August 15 of each year, beginning on August 15, 2023. Interest on the 2028 Senior Notes and the 2033 Senior Notes will be payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2023.
The Senior Notes were issued and sold in a private placement which were issuedoffering to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 and persons outside the United States in seven tranchesaccordance with maturitiesRegulation S under the Securities Act. Pursuant to a registration rights agreement, the Company will exchange the Senior Notes with registered notes with terms substantially identical to the Senior Notes within 540 days from seven to twelve years and carry fixed interest rates. Asthe date of September 30, 2017, $400.0 million of the 2011 Notes are included in Long-Term Debt and $100.0 million of the 2011 Notes are included in Current Maturities of Long-Term Debt on the Condensed Consolidated Balance Sheets. The Company repaid the remaining $100.0 million of its 2007 Notes in August, 2017.issuance.
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 agreementreceived $4,647.0 million in net proceeds from the sale of the Senior Notes, after deducting the initial purchasers’ discounts and estimated offering expenses. The Company used a portion of the net proceeds to manage fluctuations inrepay the Company’s outstanding Private Placement Notes and used the remaining net proceeds, together with the incremental term loan commitments under the Term Facility and cash flows resulting from interest rate risk (see also Note 13on hand, to fund the consideration for the Altra Transaction, repay certain of NotesAltra’s outstanding indebtedness, and pay certain fees and expenses.
Prior to the Condensed Financial Statements)consummation of the Altra Transaction, the Company used a portion of the proceeds to repay the outstanding borrowings under the Multicurrency Revolving Facility in January 2023 and invested the remaining net proceeds of approximately $3.6 billion in interest bearing accounts. The Company recognized zero and $29.4 million in Interest Income during the three and nine months ended September 30, 2023, respectively.
Altra Notes
On March 27, 2023, in connection with the Altra Transaction, the Company assumed $18.1 million aggregate principal amount of 6.125% senior notes due 2026 (the “Altra Notes”). The remaining interest rate swap agreement terminated in August, 2017.Company purchased 95.28% of the outstanding Altra Notes for total consideration of $382.7 million. See Note 3 – Held for Sale, Acquisitions and Divestitures for more information.
The Altra Notes will mature on October 1, 2026. The Altra Notes may be redeemed at the option of the issuer on or after October 1, 2023. The Notes are guaranteed on a senior unsecured basis by certain of the Company's domestic subsidiaries.
Compliance with Financial Covenants
The Credit Agreement, Senior Notes, and theAltra Notes require the Company to meet specified financial ratios and to satisfy certain financial condition tests. The Company was in compliance with all financial covenants contained in the Notes and the Credit Agreement as of September 30, 2017.2023.
Other Notes Payable
At September 30, 2017, other notes payableThese amounts consist of approximately $5.1 million were outstanding with afinance leases as well as certain long-term fixed rate term loans entered into by subsidiaries in Europe that are generally secured by the local property, plant and equipment. The weighted average interest rate of 5.2%. At December 31, 2016,on other notes payable of approximately $5.1 millionfor the three months ended September 30, 2023 and September 30, 2022 were outstanding with a4.9% and 5.1%, respectively. The weighted average interest rate of 5.6%.on other notes payable for the nine months ended September 30, 2023 and September 30, 2022 were 4.9% and 5.1%, respectively.
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)- Fair Value), the approximate fair value of the Company's total debt was $1,244.2Senior Notes is $4,564.4 million and $1,433.4compared to a carrying value of $4,700.0 million as of September 30, 2017 and December 31, 2016, respectively.2023. The Company believes that the fair value of all other debt instruments approximates their carrying value.
Maturities of long-term debt outstanding as of September 30, 2023, excluding debt issuance costs, are as follows: | | | | | | | | | | | | | | | | | | | | |
| Year | | | | | | Amount of Maturity |
| 2023 | | | | | | $ | 0.9 | |
| 2024 | | | | | | 21.1 | |
| 2025 | | | | | | 73.5 | |
| 2026 | | | | | | 1,191.6 | |
| 2027 | | | | | | 1,605.4 | |
| Thereafter | | | | | | 3,661.3 | |
| Total | | | | | | $ | 6,553.8 | |
8. POST RETIREMENT PLANS
The following table presents the Company’s net periodic benefit cost was comprised of the following components (in millions):income components:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Service Cost | $ | 0.6 | | | $ | 0.2 | | | $ | 1.5 | | | $ | 1.0 | |
| Interest Cost | 5.8 | | | 3.5 | | | 17.1 | | | 10.6 | |
| Expected Return on Plan Assets | (6.8) | | | (4.9) | | | (20.2) | | | (15.2) | |
| Amortization of Prior Service Cost and Net Actuarial Loss | (0.5) | | | 0.2 | | | (1.6) | | | 0.6 | |
| Net Periodic Benefit Income | $ | (0.9) | | | $ | (1.0) | | | $ | (3.2) | | | $ | (3.0) | |
|
| | | | | | | | | | | | | | | |
| | 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 (Loss).
For the three months ended September 30, 20172023 and October 1, 2016,September 30, 2022, the Company contributed $6.0$1.9 million and $6.8$1.5 million, respectively, to post retirement plans. For the nine months ended September 30, 20172023 and October 1, 2016,September 30, 2022, the Company contributed $8.2$5.4 million and $9.0$4.5 million, respectively, to post retirement plans.respectively. The Company expects to make total contributions of $9.4$6.5 million in 2017.2023. The Company contributed a total of $10.4$8.3 million in fiscal 2016. The assumptions used in2022.
For 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.
9. SHAREHOLDERS’ EQUITY
Repurchase of Common Stock
The Company acquired and retired 300,000 shares of its common stock in the quarterthree months ended September 30, 2017, at an average cost of $77.84 per share for a total cost of $23.4 million. The2023 and September 30, 2022, the Company acquiredcontributed $10.5 million and retired 576,804 shares of its common stock in$5.9 million, respectively, to defined contribution plans. For the nine months ended September 30, 2017, at an average cost2023 and September 30, 2022, the Company contributed $28.0 million and $18.2 million, respectively.
In connection with the Altra Transaction, $30.5 million of $78.12 per share for a total costplan benefit obligations and $13.8 million of $45.1 million. The repurchasesplan assets included in the Altra business were made undertransferred to the 3.0 million share repurchase program approved by the Company’s Board of Directors in November, 2013. There are approximately 1.7 million shares of the Company's common stock available for repurchase under this program.Company on March 27, 2023.
9. SHAREHOLDERS’ EQUITY
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$12.9 million and $3.0$5.8 million in share-based compensation expense for the three months ended September 30, 20172023 and October 1, 2016, respectively. Share-based compensation expense was $10.3September 30, 2022, respectively, and approximately $49.1 million and $10.1$17.0 million for the nine months ended September 30, 20172023 and October 1, 2016,September 30, 2022, respectively. The $49.1 million includes $15.7 million related to the accelerated vesting of awards for certain former Altra employees. The total income tax benefit recognized in the Condensed Consolidated Statements of Income (Loss) for share-based compensation expense was $1.3$2.6 million and $1.1$1.3 million for the three months ended September 30, 20172023 and October 1, 2016, respectively. The total income tax benefit recognized in the Consolidated Statements of Income for share-based compensation expense was $3.9September 30, 2022, respectively, and $6.3 million and $3.8$4.0 million for the nine months ended September 30, 20172023 and October 1, 2016,September 30, 2022, 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 30, 2017, total unrecognized compensation cost related to share-based compensation awards was approximately $27.9 million, net of estimated forfeitures, which
During 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 under the 2013 Equity Incentive Plan at September 30, 2017.
Stock Appreciation Rights
The Company uses stock settled stock appreciation rights (“SARs”) as a form of share-based incentive awards. SARs are the right to receive stock in an amount equal 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 2023, the Company granted the following share-based incentive awards:
| | | | | | | | | | | | | | |
| Award Type | | Number of Awards | | Weighted Average Grant-Date Fair Value |
Options and SARs1 | | 147,174 | | | $ | 54.96 | |
Restricted Stock Awards1 | | 31,605 | | | $ | 134.57 | |
Restricted Stock Units1 | | 257,560 | | | $ | 141.73 | |
| Performance Share Units | | 59,101 | | | $ | 235.77 | |
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 used in the Company's Black-Scholes valuationCertain outstanding equity-based awards held by employees of Altra that related to grants for options and SARsshares of Altra Common Stock 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 based on US Treasury security rates in effect asreplaced by equity-based awards of the Company Common Stock with substantially similar terms and conditions. These awards include 32,419 options with a weighted-average grant date. The expected dividend yield is based on the projected annual dividend as a percentage of the estimated marketdate fair 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 adjusted for the estimated exercise dates of unexercised awards.
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.
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$57.64, 20,114 restricted stock awards ("RSA")with a weighted-average grant date fair value of $138.11 and 161,414 restricted stock units ("RSU") consistwith a weighted-average grant date fair value of shares or the rights to shares$135.50 issued as replacement awards for Altra unvested awards outstanding at close of the Company's stock. The awards are restricted such that they are subject to substantial risk of forfeiture and to restrictionsAltra Transaction 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.March 27, 2023.
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, 20172023 was 21.7%(10.1)% versus 20.2%21.4% for the three months endedOctober 1, 2016. September 30, 2022. The effective tax rate for the nine months ended September 30, 20172023 and September 30, 2022 was (45.9)% and 21.9% versus 22.7% for the nine months ended October 1, 2016., respectively. The change in the effective tax rate for the three months ended September 30, 20172023 was lower than the same period in the prior year due to the loss before taxes, which was primarily driven by the mix of earningsnon-deductible goodwill impairment and loss on assets held for sale associated with the favorable adjustments related to the finalizationanticipated sale of the 2015 US federal income tax return.industrial motors and generators businesses. The change in the effective tax rate for the nine months ended September 30, 20172023 was lower than the same period in the prior year due to the loss before taxes, which was primarily driven by the mix of earningsnon-deductible goodwill impairment and loss on assets held for sale associated with the favorable adjustments related to the 2016 finalization of the 2015 US federal income tax return, partially offset by the 2016 gain derived from theanticipated sale of the Mastergear business. The lower effective rate as compared toindustrial motors and generators businesses and the 35.0% statutory Federal income tax rate is driven by lower foreign tax rates.non-deductible transaction costs associated with the Altra Transaction.
As of September 30, 20172023 and December 31, 2016,2022, the Company had approximately $10.4$9.2 million and $10.0$5.7 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 $1.2 million of accrued interest as of September 30, 2023 and December 31, 2022.
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, and the Company is no longer subject to non-US income tax examinations by tax authorities for years prior to 2010.
11. EARNINGS (LOSS) PER SHARE
Diluted earningsearnings (loss) per shareshare 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 0.50.3 million and 1.40.3 million for the three months ended September 30, 20172023 and October 1, 2016, respectively, and 0.4September 30, 2022, respectively. The amount of the anti-dilutive shares were 0.3 million and 1.30.2 million for the nine months ended September 30, 20172023 and October 1, 2016,September 30, 2022, respectively. The following table reconciles the basic and diluted shares used in earningsearnings (loss) per share calculationscalculations for the three and nine months ended September 30, 20172023 and October 1, 2016 (in millions):September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Denominator for Basic Earnings Per Share | 66.3 | | | 66.3 | | | 66.3 | | | 66.8 | |
| Effect of Dilutive Securities | — | | | 0.4 | | | — | | | 0.4 | |
| Denominator for Diluted Earnings Per Share | 66.3 | | | 66.7 | | | 66.3 | | | 67.2 | |
|
| | | | | | | | | | | |
| | 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
One 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 $900.0 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 Water Solutions Corporation (formerly known as Rexnord Corporation) ("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. The soil excavation work and transporting and disposing of the excavated material was completed in October 2020. An AS/SVE system construction was completed in February 2022 and is anticipated to operate for three years. 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 372 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 product 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 nine months ended September 30, 20172023 and October 1, 2016 (in millions):September 30, 2022:
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 | | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Beginning Balance | $ | 18.1 |
| | $ | 19.2 |
| | $ | 20.3 |
| | $ | 19.1 |
| Beginning Balance | $ | 39.3 | | | $ | 23.4 | | | $ | 28.8 | | | $ | 23.0 | |
| Less: Payments | (4.7 | ) | | (5.9 | ) | | (17.5 | ) | | (15.6 | ) | Less: Payments | (5.5) | | | (6.3) | | | (15.8) | | | (19.6) | |
| Provisions | 4.0 |
| | 7.2 |
| | 14.5 |
| | 17.0 |
| Provisions | 6.3 | | | 9.1 | | | 16.3 | | | 23.1 | |
| Acquisitions | | Acquisitions | — | | | — | | | 9.8 | | | — | |
| Reclassification to Liabilities Held for Sale | | Reclassification to Liabilities Held for Sale | (3.4) | | | — | | | (3.4) | | | — | |
| Translation Adjustments | 0.1 |
| | — |
| | 0.2 |
| | — |
| Translation Adjustments | (0.3) | | | (0.4) | | | 0.7 | | | (0.7) | |
| Ending Balance | $ | 17.5 |
| | $ | 20.5 |
| | $ | 17.5 |
| | $ | 20.5 |
| Ending Balance | $ | 36.4 | | | $ | 25.8 | | | $ | 36.4 | | | $ | 25.8 | |
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 inon 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 September 30, 2017.2023 or September 30, 2022.
Cash flow 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 (Loss) as theearnings 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 As of September 30, 2017,2023 and December 31, 2022, the Company had $(0.1)$18.4 million and $11.9 million, respectively, 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, the
The Company had $(7.5) million, net of tax, of derivative losses on closed hedge instruments in AOCI that was subsequently realized in earnings when the hedged items impacted earnings.
As of September 30, 2017, the Company had the followinghas currency forward contracts outstanding (withwith maturities extending through October 2019) to hedge forecasted foreignFebruary 2025. The notional amounts expressed in terms of the dollar value of the hedged currency cash flows (in millions):were as follows:
| | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| Chinese Renminbi | $ | 377.9 | | | $ | 173.8 | |
| Mexican Peso | 138.3 | | | 215.2 | |
| Euro | 623.3 | | | 159.6 | |
| Indian Rupee | 41.2 | | | 33.1 | |
| | | |
| Australian Dollar | 0.3 | | | — | |
| Swedish Krona | 1.6 | | | — | |
| British Pound | 6.7 | | | 2.1 | |
| | | |
| | | |
|
| | | |
| | 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 September 30, 2017, theThe Company had the followinghas commodity forward contracts outstanding (with maturities extending through December 2018) to hedge forecasted purchases of commodities (notionalwith maturities extending through February 2025. The notional amounts expressed in terms of the dollar value of the hedged item (in millions):were as follows:
| | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| Copper | $ | 47.5 | | | $ | 89.4 | |
| Aluminum | 3.7 | | | 4.0 | |
The Company entered into two 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 is being recognized as a reduction of interest expense via the effective interest rate method through July 2025 when the terminated swaps were scheduled to expire. The Company entered into two additional receive variable/pay-fixed forward starting non-amortizing interest rate swaps in May 2022, with a total notional amount of $250.0 million. These swaps will expire in March 2027.
|
| | | |
| | Notional Amount |
| Copper | $ | 64.0 |
|
| Aluminum | 4.5 |
|
Fair values of derivative instruments as of September 30, 20172023 and December 31, 2016 were (in millions):2022 were:
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 |
| | Prepaid Expenses and Other Current Assets | | Other Noncurrent Assets | | Other Accrued Expenses | | Other Noncurrent Liabilities |
| Designated as Hedging Instruments: | | | | | | | |
| Interest Rate Swap Contracts | $ | — | | | $ | 12.2 | | | $ | — | | | $ | — | |
| Currency Contracts | 14.1 | | | 0.7 | | | 3.5 | | | 0.6 | |
| Commodity Contracts | 0.6 | | | 0.1 | | | 2.1 | | | 0.3 | |
| Not Designated as Hedging Instruments: | | | | | | | |
| Currency Contracts | 15.9 | | | — | | | 1.4 | | | — | |
| | | | | | | |
| Total Derivatives | $ | 30.6 | | | $ | 13.0 | | | $ | 7.0 | | | $ | 0.9 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Prepaid Expenses and Other Current Assets | | Other Noncurrent Assets | | Other Accrued Expenses | | Other Noncurrent Liabilities |
| Designated as Hedging Instruments: | | | | | | | |
| Interest Rate Swap Contracts | $ | — | | | $ | 7.9 | | | $ | — | | | $ | — | |
| Currency Contracts | 12.3 | | | 0.9 | | | 4.8 | | | — | |
| Commodity Contracts | 0.9 | | | 0.3 | | | 10.2 | | | — | |
| Not Designated as Hedging Instruments: | | | | | | | |
| Currency Contracts | 0.7 | | | — | | | — | | | — | |
| Commodity Contracts | — | | | — | | | 0.4 | | | — | |
| Total Derivatives | $ | 13.9 | | | $ | 9.1 | | | $ | 15.4 | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | 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 effect of derivative instruments on the Condensed Consolidated Statements of Income and Comprehensive Income (pre-tax) was as follows (in millions):
Derivatives Designated as Cash Flow Hedging Instruments
The effect of derivative instruments designated as cash flow hedges on the Condensed Consolidated Statements of Income (Loss) and Condensed Consolidated Statements of Comprehensive Income were:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2023 | | September 30, 2022 |
| Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total | | Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total |
| (Loss) Gain Recognized in Other Comprehensive Income (Loss) | $ | (0.9) | | | $ | (3.7) | | | $ | 2.2 | | | $ | (2.4) | | | $ | (12.3) | | | $ | (2.4) | | | $ | 10.1 | | | $ | (4.6) | |
| Amounts Reclassified from Other Comprehensive Income (Loss): | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| (Loss) Gain Recognized in Cost of Sales | (3.1) | | | 4.6 | | | — | | | 1.5 | | | (0.7) | | | 2.7 | | | — | | | 2.0 | |
| | | | | | | | | | | | | | | |
| Gain Recognized in Interest Expense | — | | | — | | | 1.6 | | | 1.6 | | | — | | | — | | | 0.1 | | | 0.1 | |
| | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2023 | | September 30, 2022 |
| Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total | | Commodity Forwards | | Currency Forwards | | Interest Rate Swaps | | Total |
| (Loss) Gain Recognized in Other Comprehensive Income (Loss) | $ | (0.7) | | | $ | 21.0 | | | $ | 4.3 | | | $ | 24.6 | | | $ | (34.5) | | | $ | 2.0 | | | $ | 18.9 | | | $ | (13.6) | |
| Amounts Reclassified from Other Comprehensive Income (Loss): | | | | | | | | | | | | | | | |
| Gain Recognized in Net Sales | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
| (Loss) Gain Recognized in Cost of Sales | (10.9) | | | 8.6 | | | — | | | (2.3) | | | 8.9 | | | 8.1 | | | — | | | 17.0 | |
| | | | | | | | | | | | | | | |
| Gain (Loss) Recognized in Interest Expense | — | | | — | | | 4.4 | | | 4.4 | | | — | | | — | | | (0.2) | | | (0.2) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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.
Derivatives Not Designated as Cash Flow Hedging Instruments (in millions):Instruments:
|
| | | | | | | | | | | | | | | |
| | 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 |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2023 | | September 30, 2022 |
| Commodity Forwards | | Currency Forwards | | Commodity Forwards | | Currency Forwards |
| Gain (Loss) recognized in Cost of Sales | $ | 0.1 | | | $ | — | | | $ | (0.3) | | | $ | — | |
| Gain (Loss) recognized in Operating Expenses | — | | | 27.4 | | | — | | | (2.9) | |
| Nine Months Ended |
| September 30, 2023 | | September 30, 2022 |
| Commodity Forwards | | Currency Forwards | | Commodity Forwards | | Currency Forwards |
| Gain (Loss) recognized in Cost of Sales | $ | 0.2 | | | $ | — | | | $ | (0.9) | | | $ | — | |
| Gain recognized in Operating Expenses | — | | | 14.9 | | | — | | | 2.1 | |
|
| | | | | | | | | | | | | | | |
| | 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 AOCI balance related to hedging activities consists of a $34.4 million gain net AOCI hedging component balance of$7.0 million gain at tax as of September 30, 20172023 which includes $6.5$21.5 million of net current deferred gains expected to be realizedreclassified to the Consolidated Statement of Comprehensive Income in the next twelve months.months. There were no gains or losses reclassified from AOCI to earnings based on the probability that the forecasted transaction would not occur.
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 as of September 30, 20172023 and December 31, 2016.2022.
The following table presents on a net basis the derivative assets and derivative liabilities presented on a net basisthat are subject to right of offset under enforceable master netting agreements (in millions):agreements:
| | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| Gross Amounts as Presented on 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 | $ | 30.0 | | | $ | (4.2) | | | $ | 25.8 | |
| Derivative Commodity Contracts | 0.6 | | | (0.5) | | | 0.1 | |
| Other Noncurrent Assets: | | | | | |
| | | | | |
| Derivative Currency Contracts | 0.7 | | | (0.2) | | | 0.5 | |
| Derivative Commodity Contracts | 0.1 | | | (0.1) | | | — | |
| Other Accrued Expenses: | | | | | |
| Derivative Currency Contracts | 4.9 | | | (4.2) | | | 0.7 | |
| Derivative Commodity Contracts | 2.1 | | | (0.5) | | | 1.6 | |
| Other Noncurrent Liabilities: | | | | | |
| Derivative Currency Contracts | 0.6 | | | (0.2) | | | 0.4 | |
| Derivative Commodity Contracts | 0.3 | | | (0.1) | | | 0.2 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Gross Amounts as Presented on 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 | $ | 13.0 | | | $ | (2.5) | | | $ | 10.5 | |
| Derivative Commodity Contracts | 0.9 | | | (0.9) | | | — | |
| Other Noncurrent Assets: | | | | | |
| Derivative Currency Contracts | 0.9 | | | — | | | 0.9 | |
| Derivative Commodity Contracts | 0.3 | | | — | | | 0.3 | |
| Other Accrued Expenses: | | | | | |
| Derivative Currency Contracts | 4.8 | | | (2.5) | | | 2.3 | |
| Derivative Commodity Contracts | 10.6 | | | (0.9) | | | 9.7 | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | 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 September 30, 20172023 and December 31, 2016,2022, 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- Debt and Bank Credit Facilities for disclosure of the approximate fair value of the Company's debt atas of September 30, 20172023 and December 31, 2016.2022.
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 September 30, 20172023 and December 31, 2016 (in millions):2022:
| | | | September 30,
2017 | | December 31,
2016 | | Classification | | September 30, 2023 | | December 31, 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 | $ | 30.0 | | | $ | 13.0 | | | Level 2 |
| Derivative Commodity Contracts | 6.6 |
| | 7.3 |
| | Level 2 | Derivative Commodity Contracts | 0.6 | | | 0.9 | | | Level 2 |
| | Other Noncurrent Assets: | | | | | Other Noncurrent Assets: | |
| Assets Held in Rabbi Trust | 5.6 |
| | 5.4 |
| | Level 1 | Assets Held in Rabbi Trust | 12.7 | | | 6.4 | | | Level 1 |
| Derivative Currency Contracts | 4.9 |
| | 0.4 |
| | Level 2 | Derivative Currency Contracts | 0.7 | | | 0.9 | | | Level 2 |
| Derivative Commodity Contracts | 0.2 |
| | — |
| | Level 2 | Derivative Commodity Contracts | 0.1 | | | 0.3 | | | Level 2 |
| Interest Rate Swap | | Interest Rate Swap | 12.2 | | | 7.9 | | | Level 2 |
| Liabilities: | | | | | Liabilities: | |
| Current Hedging Obligations: | | | | | |
| Interest Rate Swap | — |
| | 3.3 |
| | Level 2 | |
| | Other Accrued Expenses: | | Other Accrued Expenses: | |
| | Derivative Currency Contracts | 8.8 |
| | 45.7 |
| | Level 2 | Derivative Currency Contracts | 4.9 | | | 4.8 | | | Level 2 |
| Derivative Commodity Contracts | 0.3 |
| | — |
| | Level 2 | Derivative Commodity Contracts | 2.1 | | | 10.6 | | | Level 2 |
| Noncurrent Hedging Obligations: | | | | | |
| Other Noncurrent Liabilities: | | Other Noncurrent Liabilities: | |
| | Derivative Currency Contracts | 0.6 |
| | 17.6 |
| | Level 2 | Derivative Currency Contracts | 0.6 | | | — | | | Level 2 |
| Derivative Commodity Contracts | | Derivative Commodity Contracts | 0.3 | | | — | | | 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 forusing the LIBORSOFR forward yield curve for a swapan instrument 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. Debt instruments are valued based on quoted prices in active markets for instruments with similar contractual terms.
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 the three and nine months ended September 30, 2023 and September 30, 2022. The Company has initiated restructuring plans 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 nine months ended September 30, 20172023 and October 1, 2016 (in millions):September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Beginning Balance | $ | 18.3 | | | $ | 6.4 | | | $ | 15.1 | | | $ | 5.0 | |
Acquisition(1) | — | | | — | | | 0.2 | | | — | |
Provision(2) | 7.1 | | | 20.9 | | | 26.1 | | | 36.7 | |
| | | | | | | |
| Less: Payments/ Other | 4.6 | | | 13.0 | | | 20.6 | | | 27.4 | |
| Ending Balance | $ | 20.8 | | | $ | 14.3 | | | $ | 20.8 | | | $ | 14.3 | |
|
| | | | | | | | | | | | | | | |
| | 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 |
|
(1) Excludes $12.4 million of severance related to the Altra Transaction, which was paid in the second quarter 2023.
(2) Excludes $7.5 million of accelerated depreciation incurred in the third quarter of 2023.
The following istable presents a reconciliation of restructuring and restructuring-related costs for the restructuring projects for the three and nine months ended September 30, 20172023 and October 1, 2016, respectively (in millions):September 30, 2022, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2023 | | September 30, 2022 |
| Restructuring Costs: | Cost of Sales | | Operating Expenses | | Total | | Cost of Sales | | Operating Expenses | | Total |
| Employee Termination Expenses | $ | 0.4 | | | $ | 2.0 | | | $ | 2.4 | | | $ | 13.4 | | | $ | 1.2 | | | $ | 14.6 | |
| Facility Related Costs | 9.4 | | | 0.1 | | | 9.5 | | | 5.9 | | | 0.1 | | | 6.0 | |
| Other Expenses | 2.8 | | | (0.1) | | | 2.7 | | | 0.3 | | | — | | | 0.3 | |
| Total Restructuring Costs | $ | 12.6 | | | $ | 2.0 | | | $ | 14.6 | | | $ | 19.6 | | | $ | 1.3 | | | $ | 20.9 | |
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2023 | | September 30, 2022 |
| Restructuring Costs: | Cost of Sales | | Operating Expenses | | Total | | Cost of Sales | | Operating Expenses | | Total |
| Employee Termination Expenses | $ | 10.1 | | | $ | 4.9 | | | $ | 15.0 | | | $ | 19.6 | | | $ | 3.8 | | | $ | 23.4 | |
| Facility Related Costs | 12.4 | | | 0.3 | | | 12.7 | | | 11.9 | | | 0.6 | | | 12.5 | |
| Other Expenses | 5.9 | | | — | | | 5.9 | | | 0.4 | | | 0.4 | | | 0.8 | |
| Total Restructuring Costs | $ | 28.4 | | | $ | 5.2 | | | $ | 33.6 | | | $ | 31.9 | | | $ | 4.8 | | | $ | 36.7 | |
|
| | | | | | | | | | | | | | | | | | | |
| | 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 shows the allocation of Restructuring Costspresents restructuring costs by segment for the three and nine months ended September 30, 20172023 and October 1, 2016 (in millions):September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Restructuring Costs - Three Months Ended | Total | | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems |
| September 30, 2023 | $ | 14.6 | | | $ | 5.9 | | | $ | 7.5 | | | $ | 1.2 | | | $ | — | |
| September 30, 2022 | $ | 20.9 | | | $ | 3.7 | | | $ | 8.6 | | | $ | 8.3 | | | $ | 0.3 | |
| | | | | | | | | |
| Restructuring Costs - Nine Months Ended | Total | | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems |
| September 30, 2023 | $ | 33.6 | | | $ | 7.5 | | | $ | 22.7 | | | $ | 2.7 | | | $ | 0.7 | |
| September 30, 2022 | $ | 36.7 | | | $ | 13.1 | | | $ | 10.3 | | | $ | 12.8 | | | $ | 0.5 | |
|
| | | | | | | | | | | | | | | |
| | 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$24 million which includes $1.3 millionduring the fourth quarter of employee termination expenses and $7.0 million of facility related and other costs.
16. SUBSEQUENT EVENT
2023. The Company has evaluated subsequent events from September 30, 2017 through the date of this report. The Company is not aware of any subsequent events that would require recognition or disclosure.continues to evaluate operating efficiencies and anticipates incurring additional costs in future periods in connection with these activities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars In Millions Except Per Share Data, Unless the context requires otherwise, references in this Item 2 to “we,Otherwise Noted)
Overview
Regal Rexnord Corporation (NYSE: RRX) (“we,” “us,” “our” or the “Company” refer collectively to Regal Beloit Corporation and its subsidiaries.
Overview
Regal Beloit Corporation (NYSE: RBC), based in Beloit, Wisconsin (USA),) is a leading manufacturerglobal leader in the engineering and manufacturing of factory automation sub-systems, industrial powertrain solutions, automation and mechanical power transmission components, electric motors and electronic controls, air moving products, and specialty electrical motion controls, power generationcomponents and power transmission productssystems, 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. We are headquartered in Milwaukee, Wisconsin and have manufacturing, sales and service facilities worldwide.
Operating Segments
Our company is comprised of threefour operating segments: CommercialIndustrial Powertrain Solutions (IPS), Power Efficiency Solutions (PES), Automation & Motion Control (AMC) and Industrial Systems, Climate SolutionsSystems. Effective during the first quarter of 2023, in conjunction with the Altra Transaction (as defined in Note 3 - Held for Sale, Acquisitions and Power Transmission Solutions.Divestitures), we realigned our four operating segments with the change to our management structure and operating model. See Note 6 - Segment Information of the Notes to the Condensed Consolidated Financial Statements for further information.
A description of the threeour four operating segments is as follows:
Commercial•IPS consists of the majority of our previous Motion Control Solutions (MCS) segment, excluding the conveying and Industrial Systemsaerospace business units, plus Altra's Power Transmission Technologies segment. The IPS segment designs, produces medium and largeservices mounted and unmounted bearings, couplings, mechanical power transmission drives and components, gearboxes and gear motors, commercialclutches, brakes, special components products and industrial equipment, generatorpowertrain components and custom drives and systems. These products servesolutions serving a broad range of markets including commercial Heating, Ventilation,food and Air Conditioning ("HVAC"), poolbeverage, bulk handling, eCommerce/warehouse distribution, energy, agriculture machinery, turf & garden and spa, standby and critical power and oil and gas systems.general industrial.
•PES consists of our previous Climate Solutions and Commercial Systems segments. The PES segment designs and produces fractional to approximately 5 horsepower AC and DC motors, electronic variable speed controls, fans, and blowers for commercial applications and small motors, electronic variable speed controls and air moving solutions serving markets including residential and light commercial HVAC, water heaters, commercial refrigeration, commercial building ventilation, pool and spa, irrigation, dewatering, agriculture, and general commercial refrigeration.equipment
•AMC consists of our previous MCS aerospace and conveying business units, Altra's Automation & Specialty segment and the Thomson Power Transmission Solutions manufactures, sellsSystems business that was previously in our Industrial Systems segment. The AMC segment designs, produces and services beltconveyor products, conveying automation subsystems, aerospace components, rotary
precision motion solutions, high-efficiency miniature motors and chain drives, helicalmotion control products, automatic transfer switches, switchgear for industrial applications and worm gearing, mountedautomation systems that enable and unmounted bearings, couplings, modular plastic belts, conveying chainscontrol the transition of rotary motion to linear motion. These products are used in advanced material handling, aerospace and components, hydraulic pump drives, large open gearingdefense, factory automation, data centers, medical device, packaging, printing, semiconductor, robotic, industrial power tool, mobile off-highway, food & beverage processing and specialty mechanicalother applications.
•Industrial Systems consists of our previous Industrial Systems segment excluding the Thomson Power Systems business. The Industrial Systems segment designs and produces integral motors, alternators for industrial applications, along with aftermarket parts and kits to support such products. These products servingserve markets including agriculture, marine, mining, oil and gas, food and beverage, bulk handling, metals, special machinery, energy, aerospacedata centers, prime and standby power, and general industrial.industrial equipment.
On September 23, 2023, we signed an agreement to sell our industrial motors and generators businesses which represent the majority the Industrial Systems operating segment for total consideration of $400 million plus cash transferred at close, subject to working capital and other customary purchase price adjustments. This transaction is expected to close in the first half of 2024. The assets and liabilities related to these businesses have been reclassified to Assets Held for Sale, Noncurrent Assets Held for Sale, Liabilities Held for Sale and Noncurrent Liabilities Held for Sale on the Company's Condensed Consolidated Balance Sheet as of September 30, 2023. The sale of the industrial motors and generators businesses does not represent a strategic shift that will have a major effect on our operations and financial results and, therefore, did not qualify for presentation as discontinued operations. See Note 3 - Held for Sale, Acquisitions and Divestitures of the Notes to the Condensed Consolidated Financial Statements for further information.
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 revenue concentration of revenuesby customer varying from division to division.widely across our business units.
Our level of net sales for any given period is dependent upon a number of factors, including (i) the demand for our products;products and for the products in which our products are components; (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;quote, lead and delivery times; (v) the selling price of our products; (vi) inventory levels in the channels through which our products are sold; and (vi)(vii) 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. Organic sales, organic sales growth and acquisition sales.growth are non-GAAP measures. See reconciliation for these measures to GAAP net sales in Non-GAAP Measures below.
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 SolutionsPES 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, a portion of our CommercialPES segment, IPS segment, AMC segment and Industrial Systems segment and our Power Transmission 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 ProfitIncome from Operations. Our operating profitincome from operations consists of the segment gross profit less the segment operating expenses. In addition, there are shared operating costs that cover corporate, engineering and IT expenses that are consistently allocated to the operating segments and are included in the segment operating expenses. Operating profitIncome from operations is a key metric used to measure year over yearyear-over-year improvement of the segments.
RestructuringAltra Transaction
On March 27, 2023, in accordance with the terms and Related Costs. Beginning in 2014, we announcedconditions of the closureAltra Merger Agreement, by and among us, Altra, and Merger Sub, pursuant to the satisfaction of severalspecified conditions, Merger Sub merged with and into Altra, with Altra surviving the Altra Merger as our wholly owned subsidiary. See Note 3 - Held for Sale, Acquisitions and Divestitures of our manufacturing and warehouse facilities and consolidation into existing facilitiesthe Notes to simplify manufacturing operations in our Commercial and Industrial Systems, Climate Solutions and Power Transmission Solutions segments. As a result of these closures, we incurred restructuring and restructuring-related costs. Restructuring costs includes employee termination and plant relocation costs. 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 inthe Condensed Consolidated Financial Statements for further information regarding the Altra Transaction.
In connection with site closures, discretionary employment benefit coststhe Altra Transaction, we entered into certain financing arrangements, which are described below under “Liquidity and other facility rationalization costs. Restructuring costsCapital Resources”.
2023 Outlook
We now expect a mid-single digit percentage decline in organic sales, and a loss per share for employee termination expenses are generally requiredfiscal 2023, driven by the $112.7 million loss on assets held for sale and the $57.3 million goodwill impairment following the announced sale of the industrial motors and generators businesses. We expect benefits from merger and acquisition synergies, improving new product mix, ongoing 80/20 initiatives and various productivity initiatives to be accrued over the employees remaining service period while restructuring costs for plant relocation costsmore than offset by headwinds from lower volumes, material and restructuring-related costs are generally required to be expensed as incurred.non-material inflation, strategic growth investments, a higher tax rate, higher net interest expense and higher depreciation expense.
Outlook
Our order trends remain positive, and we continue to expect low single digit organic sales growth for the full year.
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Net Sales: | | | | | | | |
| Industrial Powertrain Solutions | $ | 640.7 | | | $ | 415.6 | | | $ | 1,753.8 | | | $ | 1,254.0 | |
| Power Efficiency Solutions | 461.3 | | | 569.1 | | | 1,390.9 | | | 1,731.7 | |
| Automation & Motion Control | 419.8 | | | 192.6 | | | 1,096.1 | | | 571.0 | |
| Industrial Systems | 128.0 | | | 148.0 | | | 401.7 | | | 416.5 | |
| Consolidated | $ | 1,649.8 | | | $ | 1,325.3 | | | $ | 4,642.5 | | | $ | 3,973.2 | |
| | | | | | | |
| Gross Profit as a Percent of Net Sales: | | | | | | | |
| Industrial Powertrain Solutions | 33.7 | % | | 40.8 | % | | 35.2 | % | | 39.2 | % |
| Power Efficiency Solutions | 29.9 | % | | 24.5 | % | | 28.0 | % | | 27.3 | % |
| Automation & Motion Control | 38.4 | % | | 33.4 | % | | 37.7 | % | | 34.7 | % |
| Industrial Systems | 21.3 | % | | 23.2 | % | | 21.0 | % | | 24.0 | % |
| Consolidated | 32.9 | % | | 30.8 | % | | 32.4 | % | | 31.8 | % |
| | | | | | | |
| Operating Expenses as a Percent of Net Sales: | | | | | | | |
| Industrial Powertrain Solutions | 27.5 | % | | 23.5 | % | | 29.2 | % | | 24.3 | % |
| Power Efficiency Solutions | 15.8 | % | | 12.0 | % | | 15.8 | % | | 12.3 | % |
| Automation & Motion Control | 28.1 | % | | 23.4 | % | | 29.8 | % | | 25.2 | % |
| Industrial Systems | 152.4 | % | | 15.2 | % | | 61.3 | % | | 15.2 | % |
| Consolidated | 34.1 | % | | 17.6 | % | | 28.1 | % | | 18.2 | % |
| | | | | | | |
| Income (Loss) from Operations as a Percent of Net Sales: | | | | | | | |
| Industrial Powertrain Solutions | 6.1 | % | | 17.3 | % | | 6.0 | % | | 14.9 | % |
| Power Efficiency Solutions | 14.1 | % | | 12.5 | % | | 12.2 | % | | 15.1 | % |
| Automation & Motion Control | 10.3 | % | | 10.0 | % | | 7.9 | % | | 9.4 | % |
| Industrial Systems | (131.2) | % | | 8.0 | % | | (40.4) | % | | 8.8 | % |
| Consolidated | (1.2) | % | | 13.1 | % | | 4.3 | % | | 13.6 | % |
| | | | | | | |
| (Loss) Income from Operations | $ | (20.4) | | | $ | 173.9 | | | $ | 200.1 | | | $ | 538.7 | |
| Interest Expense | 111.5 | | | 21.4 | | | 323.3 | | | 43.8 | |
| Interest Income | (3.5) | | | (1.3) | | | (40.5) | | | (3.2) | |
| Other Income, Net | (2.5) | | | (1.3) | | | (6.7) | | | (4.1) | |
| (Loss) Income before Taxes | (125.9) | | | 155.1 | | | (76.0) | | | 502.2 | |
| Provision for Income Taxes | 12.7 | | | 33.2 | | | 34.9 | | | 110.0 | |
| Net (Loss) Income | (138.6) | | | 121.9 | | | (110.9) | | | 392.2 | |
| Less: Net Income Attributable to Noncontrolling Interests | 0.9 | | | 2.1 | | | 2.4 | | | 4.8 | |
| Net (Loss) Income Attributable to Regal Rexnord Corporation | $ | (139.5) | | | $ | 119.8 | | | $ | (113.3) | | | $ | 387.4 | |
Three Months Ended September 30, 20172023 Compared to October 1, 2016September 30, 2022
Net sales increased $47.3$324.5 million or 5.8%24.5% for the third quarter 20172023 compared to the third quarter 2016.2022. The increase consisted of an organic salesacquisition growth increase of 5.2%34.9% and a positive foreign currency translation impact of 0.7%0.4% offset by negative organic sales of 10.8%. The increase was primarily driven by the acquisition of Altra partially offset by lower net sales within the Power Efficiency Solutions and Industrial Systems segments. Gross profit decreased $4.7increased $134.5 million or 210 basis points33.0% for the third quarter 2023 as a percentagecompared to the third quarter 2022. The increase in gross profit was driven by the acquisition of Altra and lower
restructuring costs partially offset by lower gross profit within the Power Efficiency Solutions and Industrial Systems segments. Total operating expenses for the third quarter 2023 increased $328.8 million or 140.6% as compared to the third quarter 2022 primarily due to the acquisition of Altra including transaction costs and the loss on assets held for sale and goodwill impairment resulting from the announced sale of the industrial motors and generators businesses.
Industrial Powertrain Solutions segment net sales for the third quarter 20172023 were $640.7 million, an increase of $225.1 million or 54.2% as compared to the third quarter 2016 primarily due to an2022. The increase in the last-in, first-out (“LIFO”) reserveconsisted of $2.7 millionacquisition growth of 59.1% and commodity inflation,positive foreign currency translation of 1.3% partially offset by negative organic sales of 6.2%. The increase was primarily driven by the sales volume increase. Operatingacquisition of Altra. Gross profit increased $46.1 million or 27.2% as compared to the third quarter 2022. The increased gross profit was primarily driven by the acquisition of Altra. Total operating expenses for the third quarter 2017 decreased $8.92023 increased $78.6 million or 6.3%80.4% as compared to the same period in the prior yearthird quarter 2022 primarily due to a $2.8 million gain on salethe acquisition of assets, lower amortization expenseAltra, including transaction costs and leveraging of costs on the increased sales volume.higher employee compensation.
Commercial and Industrial Systems SegmentPower Efficiency Solutions segment net sales for the third quarter 20172023 were $408.0$461.3 million, an increasea decrease of $18.6$107.8 million or 4.8%18.9% as compared to the third quarter 2016.2022. The decrease consisted of negative organic sales of 19.1% offset by positive foreign currency translation of 0.1%. The decrease was primarily driven by lower volumes primarily resulting from slowing market demand in the North America pool pump, residential and light commercial HVAC and general industrial market. Gross profit decreased $1.4 million or 1.0% as compared to the third quarter 2022. The decrease in gross profit was primarily driven by lower volumes and labor inflation partially offset by lower freight costs and improved product mix. Total operating expenses for the third quarter 2023 increased by $4.5 million or 6.6% as compared to the third quarter 2022 primarily due to favorable foreign exchange gains in 2022.
Automation & Motion Control segment net sales were $419.8 million, an increase of $227.2 million or 118.0% as compared to the third quarter 2022. The increase consisted of anacquisition growth of 112.5% and positive organic sales growthof 5.5%. The increase was primarily due to the acquisition of 4.0%Altra, price increases and share gains in aerospace. Gross profit increased $96.9 million or 150.7% compared to the third quarter 2022. The increase in gross profit was primarily driven by broad strength in the North American commercialacquisition of Altra 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 $7.4higher price realization. Total operating expenses for the third quarter 2023 increased by $73.1 million or 310 basis points162.4% as a percentagecompared to the third quarter 2022 primarily due to the acquisition of Altra, including transaction costs.
Industrial Systems segment net sales for the third quarter 2017 as compared to the third quarter 2016 primarily driven by an increase in the LIFO reserve2023 were $128.0 million, a decrease of $1.5$20.0 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%or 13.5% compared to third quarter 2016.2022. The increasedecrease consisted of annegative organic sales growth increase of 1.9%13.2% and negative foreign currency translation of 0.3%. The decrease was primarily driven by a decrease in demand in the North American motors market and slowing economic activity in the Chinese motors and generators markets, partially offset 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%.
European motors market. Gross profit for the third quarter 2017 increased $8.32023 decreased $7.1 million or 15.1% primarily due to the increase in sales volume. Operating20.7%. The decrease was driven by volume declines. Total operating expenses for the third quarter 2017 decreased $5.92023 increased $172.6 million as compared to the third quarter 20162022 primarily due to a $2.8the $112.7 million gainloss on assets held for sale and the $57.3 million goodwill impairment following the announced sale of assets, decrease in restructuring charges,the industrial motors and lower discretionary spending.generators businesses.
Nine Months Ended September 30, 20172023 Compared to October 1, 2016September 30, 2022
Net sales increased $73.2$669.3 million or 3.0%16.8% for the nine months ended September 30, 20172023 compared to the nine months ended October 1, 2016.September 30, 2022. The increase consisted of an organic salesacquisition growth increase of 3.5%25.5%, offset by a negative impact fromorganic sales of the divested Mastergear Worldwide (“Mastergear”) business of 0.4%8.0% and a negative foreign currency translation impact of 0.2%0.6%. The increase was primarily driven by the acquisition of Altra and price increases, partially offset by lower net sales within the Power Efficiency Solutions and Industrial Systems segments. Gross profit increased $241.0 million or 19.1% for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The increase in gross profit was driven by the acquisition of Altra, higher price realization and lower freight costs partially offset by lower gross profit within the Power Efficiency Solutions and Industrial Systems segments. Total operating expenses for the nine months ended September 30, 2023 increased $579.6 million or 80.0% as compared to the nine months ended September 30, 2022 primarily due to the acquisition of Altra including transaction costs, higher employee compensation costs and the loss on assets held for sale and goodwill impairment following the announced sale of the industrial motors and generators businesses.
Industrial Powertrain Solutions segment net sales for the nine months ended September 30, 2023 were $1,753.8 million, an increase of $499.8 million or 39.9% as compared to the nine months ended September 30, 2022. The increase consisted of acquisition growth of 42.2%, offset by negative foreign currency translation of 0.3% and negative organic sales of 2.1%. The increase was primarily driven by the acquisition of Altra. Gross profit increased $125.9 million or 25.6% as compared to the nine months ended September 30, 2022. The increased gross profit was primarily driven by the acquisition of Altra and lower restructuring costs. Total operating expenses for the nine months ended September 30, 2023 increased $207.4 million or 68.1% as compared to the nine months ended September 30, 2022 primarily due to the acquisition of Altra including transaction costs and higher employee compensation costs.
Power Efficiency Solutions segment net sales for the nine months ended September 30, 2023 were $1,390.9 million, a decrease of $340.8 million or 19.7% as compared to the nine months ended September 30, 2022. The decrease consisted of negative organic sales of 19.1% and negative foreign currency translation of 0.6%. The decrease was primarily driven by lower volumes resulting from slowing market demand in the North America pool pump, residential and light commercial HVAC and general industrial markets. Gross profit decreased $84.1 million or 17.8% as compared to the nine months ended September 30, 2022. The decrease in gross profit was primarily driven by lower volume, higher restructuring costs and labor inflation partially offset by lower freight costs and improved product mix. Total operating expenses for the nine months ended September 30, 2023 increased $7.0 million or 3.3% as compared to the nine months ended September 30, 2022 primarily due to favorable foreign exchange rates in 2022.
Automation & Motion Control segment net sales were $1,096.1 million, an increase of $525.1 million or 92.0% as compared to the nine months ended September 30, 2022. The increase consisted of acquisition growth of 84.7% and positive organic sales of 8.0%, offset by negative foreign currency translation of 0.7%. The increase was primarily due to the acquisition of Altra, price increases and share gains in aerospace and conveying. Gross profit increased $214.9 million or 108.6% compared to the nine months ended September 30, 2022. The increase in gross profit was primarily driven by the acquisition of Altra, higher price realization and lower restructuring costs. Total operating expenses for the nine months ended September 30, 2023 increased $182.2 million as compared to the nine months ended September 30, 2022 primarily due to the acquisition of Altra including transaction costs and higher employee compensation costs.
Industrial Systems segment net sales for the nine months ended September 30, 2023 were $401.7 million, a decrease of $14.8 million or 3.6% compared to nine months ended September 30, 2022 net sales of $416.5 million. The decrease consisted of negative organic sales of 1.8% and negative foreign currency translation of 1.8%. The decrease was primarily driven by softness in demand in the North American motors market and weakness in the Chinese motors and generators markets, partially offset by strength in demand in the North American generators market and European motors market. Gross profit for the nine months ended September 30, 20172023 decreased $6.4$15.7 million or 1.0% compared to the nine months ended October 1, 2016 primarily due to increased restructuring charges15.7%. The decrease was driven by foreign exchange losses and an increase in the LIFO reserve of $2.7 million,material inflation, partially offset by the increase in sales volume. Operatingprice realization. Total operating expenses for the nine months ended September 30, 2017 decreased $7.72023 increased $183.0 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%. The organic sales increase was primarily driven by strength in Asia, North American oil and gas and industrial end market demand. Gross profit for nine months ended 2017 decreased $9.7 million or 3.3% primarily due to the impact of increased restructuring charges resulting from the exit of a non-core business and an increase in the LIFO reserve of $1.5 million that was offset by the increased sales volume. Operating expenses for the nine months ended September 30, 2017 decreased $2.7 million or 1.3% compared to the nine 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. The increase consisted of an organic sales growth increase of 4.0% and a negative foreign currency translation impact of 0.1%. The organic sales increase was primarily driven by growth in North American residential HVAC, Europe and Asia. Gross profit increased $2.5 million or 1.3% primarily due to higher volumes. Operating expenses for the nine months ended September 30, 2017 decreased $4.8 million or 110 basis point as a percent of net sales as compared to the nine 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, 20162022 primarily due to the higher sales volume. Operating expenses$112.7 million loss on assets held for sale and the nine months ended September 30, 2017 decreased $0.2$57.3 million or 40 basis point as a percent of net sales due to a $2.8 million gain ongoodwill impairment following 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 theannounced sale of the Mastergear business.industrial motors and generators businesses in addition to increased employee compensation costs, commissions and foreign exchange losses.
|
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | 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 |
|
The effective tax rate for the three months ended September 30, 20172023 was 21.7%(10.1)% versus 20.2%21.4% for the three months ended October 1, 2016.September 30, 2022. The effective tax rate for the nine months ended September 30, 20172023 was 21.9%(45.9)% versus 22.7%21.9% for the nine months ended October 1, 2016.September 30, 2022. The effective tax rate for the three months ended September 30, 2023 was lower than the same period in the prior year due to the loss before taxes, which was primarily driven by the non-deductible goodwill impairment and loss on assets held for sale associated with the anticipated sale of the industrial motors and generators businesses. The effective tax rate for the nine months ended September 30, 20172023 was 21.9% versus 22.7% forlower than the nine months ended October 1, 2016. The changesame period in the effective tax rate forprior year due to the three months ended September 30, 2017loss before taxes, which was primarily driven by the mix of earningsnon-deductible goodwill impairment and loss on assets held for sale associated with the favorable adjustments related to the 2016 finalization of the 2015 US federal income tax return. The change 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 theanticipated sale of the Mastergear business.industrial motors and generators businesses and the non-deductible transaction costs associated with the Altra Transaction.
Non-GAAP Measures
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). As noted above, in this Quarterly Report on Form 10-Q, we also disclose organic sales, organic sales growth and acquisition growth, which are considered non-GAAP financial measures. We use the term "organic sales growth" to refer to its increase in sales between periods that is attributable to sales. "Organic sales" refers to GAAP sales from existing operations excluding any sales from acquired businesses recorded prior to the first anniversary of the acquisition and excluding any sales from business divested/to be exited recorded prior to the first anniversary of the exit and excluding the impact of foreign currency translation. The lower effective rate asimpact of foreign currency translation is determined by translating the respective period's organic sales using the currency exchange rates that were in effect during the prior year periods. We reconcile these non-GAAP measures in the table below to GAAP net sales. We believe that these non-GAAP financial measures are useful measures for providing investors with additional information regarding our results of operations and for helping investors understand and compare our operating results across accounting periods and compared to our peers. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for the 35.0% statutory Federal income tax rate is driven by lower foreign tax rates.Company's results of operations prepared and presented in accordance with GAAP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Total |
| Net Sales for Three Months Ended September 30, 2023 | | $ | 640.7 | | | $ | 461.3 | | | $ | 419.8 | | | $ | 128.0 | | | $ | 1,649.8 | |
| Net Sales from Businesses Acquired | | (245.5) | | | — | | | (216.6) | | | — | | | (462.1) | |
| | | | | | | | | | |
| Impact from Foreign Currency Exchange Rates | | (5.5) | | | (0.7) | | | — | | | 0.5 | | | (5.7) | |
| Organic Sales for Three Months Ended September 30, 2023 | | $ | 389.7 | | | $ | 460.6 | | | $ | 203.2 | | | $ | 128.5 | | | $ | 1,182.0 | |
| | | | | | | | | | |
| Organic Sales Growth for Three Months Ended September 30, 2023 | | (6.2) | % | | (19.1) | % | | 5.5 | % | | (13.2) | % | | (10.8) | % |
| Acquisition Growth for Three Months ended September 30, 2023 | | 59.1 | % | | — | % | | 112.5 | % | | — | % | | 34.9 | % |
| Impact from Foreign Currency Exchange Rates | | 1.3 | % | | 0.1 | % | | — | % | | (0.3) | % | | 0.4 | % |
| | | | | | | | | | |
| Net Sales for Three Months Ended September 30, 2022 | | $ | 415.6 | | | $ | 569.1 | | | $ | 192.6 | | | $ | 148.0 | | | $ | 1,325.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Total |
| Net Sales for Nine Months Ended September 30, 2023 | | $ | 1,753.8 | | | $ | 1,390.9 | | | $ | 1,096.1 | | | $ | 401.7 | | | $ | 4,642.5 | |
| Net Sales from Businesses Acquired | | (529.6) | | | — | | | (483.9) | | | — | | | (1,013.5) | |
| | | | | | | | | | |
| Impact from Foreign Currency Exchange Rates | | 3.4 | | | 10.2 | | | 4.2 | | | 7.4 | | | 25.2 | |
| Organic Sales for Nine Months Ended September 30, 2023 | | $ | 1,227.6 | | | $ | 1,401.1 | | | $ | 616.4 | | | $ | 409.1 | | | $ | 3,654.2 | |
| | | | | | | | | | |
| Organic Sales Growth for Nine Months Ended September 30, 2023 | | (2.1) | % | | (19.1) | % | | 8.0 | % | | (1.8) | % | | (8.0) | % |
| Acquisition Growth for Nine Months ended September 30, 2023 | | 42.2 | % | | — | % | | 84.7 | % | | — | % | | 25.5 | % |
| Impact from Foreign Currency Exchange Rates | | (0.3) | % | | (0.6) | % | | (0.7) | % | | (1.8) | % | | (0.6) | % |
| | | | | | | | | | |
| Net Sales for Nine Months Ended September 30, 2022 | | $ | 1,254.0 | | | $ | 1,731.7 | | | $ | 571.0 | | | $ | 416.5 | | | $ | 3,973.2 | |
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$514.0 million for the nine months ended September 30, 2017,2023, a $95.4$276.0 million decreaseincrease from the nine months ended October 1, 2016. The decrease was primarily the result of the higher investment in net working capital for the nine months ended September 30, 2017 as compared2022. This increase was driven primarily by improvements in cash flows related to the nine months ended October 1, 2016.working capital, partially offset by payments for certain acquisition costs.
Cash flow used in investing activities was $42.0$4,952.6 million for the nine months ended September 30, 2017 versus $29.5 million for the nine months ended October 1, 2016. The change was driven by the $25.5 million received for the sale of our Mastergear business in the nine months ended October 1, 2016.
Cash2023 as compared to cash flow used in financinginvesting activities was $298.9of $84.1 million for the nine months ended September 30, 2017, compared2022. The change was driven primarily by $4,870.2 million of cash paid for Altra in the current year and higher capital additions.
In the remainder of fiscal 2023, we anticipate capital spending for property, plant and equipment to $267.8 millionbe approximately $40 million. We believe that our present manufacturing facilities will be sufficient to provide adequate capacity for our operations for the remainder of fiscal 2023. We anticipate funding remaining fiscal 2023 capital spending with operating cash flows.
Cash flow provided by financing activities for the nine months ended October 1, 2016. Net debt repayments of $200.4 million were made during the nine months ended September 30, 2017, compared to net debt repayments of $214.9 million made during the nine 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$4,354.7 million for the nine months ended September 30, 2017.2023, compared to $41.4 million used in financing activities for the nine months ended September 30, 2022. We had net debt borrowings of $4,492.2 million during the nine months ended September 30, 2023, compared to net debt borrowings of $282.2 million during the nine months ended September 30, 2022. The increase was primarily driven by the $4.7 billion of Senior Notes issued in January 2023 and $840.0 million upsize of the unsecured term loan facility in March 2023, partially offset by the repayment of the $500.0 million of Private Placement Notes in January 2023, payments of $122.1 million on the term loan and $412.5 million net repayments made on the revolver during the nine months ended September 30, 2023. There were no share repurchases for the nine months ended October 1, 2016.September 30, 2023, compared to $239.2 million shares repurchases for the nine months ended September 30, 2022. There were $69.6 million of dividends paid for the nine months ended September 30, 2023, compared to $67.9 million of dividends in the prior year. There were $51.1 million in financing fees paid for the nine months ended September 30, 2023, compared to $6.5 million of fees in the prior year. There were $8.4 million of distributions paid to noncontrolling interests for the nine months ended September 30, 2023 compared to $6.2 million for the nine months ended September 30, 2022.
Our working capital was $895.3$2,066.6 million at(inclusive of assets and liabilities assumed from the Altra Transaction and assets and liabilities classified as held for sale) as of September 30, 2017,2023, compared to $830.4$1,998.3 million atas of December 31, 2016. At2022. As of September 30, 20172023 and December 31, 2016,2022, our current ratio (which is the ratio of our current assets to current liabilities) was 2.2:1.2.6:1 and 3.0:1, respectively. Our working capital increased primarily due to an increase in Trade Receivablesas a result of $65.1 millionassets 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 cashliabilities assumed as well as cash generated from operations and $100.0 millionpart 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.the Altra Transaction.
The following table presents selected financial information and statistics as of September 30, 20172023 and December 31, 2016 (in millions):2022:
| | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| Cash and Cash Equivalents | | $ | 540.6 | | | $ | 688.5 | |
| Trade Receivables, Net | | 918.7 | | | 797.4 | |
| Inventories | | 1,302.8 | | | 1,336.9 | |
| Working Capital | | 2,066.6 | | | 1,998.3 | |
| Current Ratio | | 2.6:1 | | 3.0:1 |
|
| | | | | | | | | |
| | | | 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 |
|
AtAs of September 30, 2017, our cash and cash equivalents totaled $186.6 million. At September 30, 2017, $182.92023, $585.8 million of our cash, which includes cash in assets held for sale, was held by foreign subsidiaries and could be used in our domestic operations if necessary. TheWe anticipate being able to support our liquidity and operating needs largely through cash generated from operations and the available capacity under the revolver. 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. As of September 30, 2023, we have repatriated approximately $759.6 million of foreign cash in fiscal 2023 to support the repayment of debt. We focus on optimizing our investmentare continuing to evaluate opportunities to repatriate additional foreign cash in working capital through improved and enforced payment terms, maintaining an optimal levelthe fourth quarter 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.fiscal 2023.
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.
CreditFinancing Agreement
In connection withDuring the PTS Acquisition, on January 30, 2015, we entered into a new Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders named therein, providing for a (i) 5-year unsecured term loan facility in the principal amount of $1.25 billion (the “Term Facility”) and (ii) a 5-year unsecured multicurrency revolving facility in the principal amount of $500.0 million (the “Multicurrency Revolving Facility”), including a $100 million letter of credit sub facility available for general corporate purposes. Borrowings 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.
The Term Facility was drawn in full on January 30, 2015 in connection with the closing of the PTS Acquisition. 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 on the Term Facility was 2.7% and 2.5% for the three and nine months ended September 30, 2017, respectively2023, the Company made the following updates to its financing agreements primarily in connection with the Altra Transaction:
•Issued Senior Notes on January 24, 2023 and 2.0% for the three and nine months ended October 1, 2016. The Credit Agreement requires we prepay thereceived $4,647.0 million in net proceeds
•Incurred additional term loans under the Term Facility with 100% of $840.0 million on March 27, 2023
•Increased the net cash proceeds received from specified asset sales and borrowed money indebtedness, subject to certain exceptions.
At September 30, 2017, we had borrowingscommitments under the Multicurrency Revolving Facility by $570.0 million on March 27, 2023
•Assumed the Altra Notes of $18.1 million
•Repaid in full the amountPrivate Placement Notes of $29.6$500.0 million $29.8 million
The Company will incur significant incremental interest expense as a result of the debt issuances above. The Company plans to use cash generated from operations to fund its interest obligations and reduce the principal balance of its debt over time. The Company also plans to use the net proceeds from the proposed sale of its industrial motors and generators businesses to repay outstanding debt.
As of September 30, 2023, the Company had no standby letters of credit issued under the facility,Multicurrency Revolver Facility, and $440.6$1,553.5 million of available borrowing capacity. TheFor the three months ended September 30, 2023 and September 30, 2022 under the Multicurrency Revolving Facility, the average daily balance in borrowings under the Multicurrency Revolving Facility was $97.8$123.9 million and $105.4$600.5 million, respectively, and the weighted average interest rate onwas 7.2% and 3.5%, respectively. For the Multicurrency Revolving Facility was 2.7% and 2.5% for the three and nine months ended September 30, 2017, respectively. The2023 and September 30, 2022 under the Multicurrency Revolving Facility, the average daily balance in borrowings under the Multicurrency Revolving Facility was $29.7$320.0 million and $45.1$719.0 million, respectively, and the weighted average interest rate on the Multicurrency Revolving Facility was 1.9% for the three6.6% and nine months ended October 1, 2016,2.2%, respectively. We payThe 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 September 30, 2017, we had $500.0 million of senior notes (the “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 maturities from seven to twelve years and carry fixed interest rates. As of September 30, 2017, $400.0 million of the 2011 Notes are included in Long-TermSee Note 7 - Debt and $100.0 million of the 2011 Notes are included in Current Maturities of Long-Term Debt on the Condensed Consolidated Balance Sheets. We repaid the remaining $100.0 million of the 2007 Notes in August, 2017.Bank Credit Facilities and Note 3 – Held for Sale, Acquisitions and Divestitures for more information.
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. We were in compliance with all financial covenants contained in the Notes and the Credit Agreement as of September 30, 2017.
Other Notes Payable
At September 30, 2017, other notes payable of approximately $5.1 million were outstanding with a weighted average interest rate of 5.2%. At December 31, 2016, other notes payable of approximately $5.1 million were outstanding with a weighted average rate of 5.6%.
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 million and $1,433.4 million as of September 30, 2017 and December 31, 2016, respectively.
Critical Accounting Policies
Estimates
Our disclosures of critical accounting policies and estimates, which are containeddiscussed in our Annual Report on Form 10-K for the year ended December 31, 2016,2022, 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. AtLoans under the Credit Agreement bear interest at variable rates plus a margin, based on our consolidated net leverage ratio. As of September 30, 2017,2023, excluding the impact of interest rate swaps,we had $504.8$4,796.4 million of fixed rate debt and $709.6$1,757.4 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 atas of September 30, 20172023 would resultresult in a $1.2$12.7 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 is being 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 September 30, 2023 are as follows:
| | | | | | | | | | | | | | | | | |
| Instrument | Notional Amount | Maturity | Rate Paid | Rate Received | Fair Value |
| Swap | $250.0 | March 2027 | 3.0% | SOFR (3 Month) | $ | 12.2 | |
As of September 30, 2023 and December 31, 2016, an2022, a $12.2 million and $7.9 million interest rate swap liability of $(3.3) millionasset was included in Current Hedging Obligations. TheOther Noncurrent Assets, respectively. There was an unrealized lossgain of $16.8 million (a $7.6 million gain on the terminated swaps and a $9.2 million gain on the active swaps) and $17.0 million, net of tax, as of September 30, 2023 and December 31, 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 September 30, 2017,2023, derivative currency assets (liabilities) of $12.9$30.0 million, $4.9$0.7 million, $(8.8)$(4.9) million and $(0.6) 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, 2016,2022, derivative currency assets (liabilities) of $2.8$13.0 million, $0.4 million, $(45.7)$0.9 million and $(17.6)$(4.8) 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 $8.1 million net of tax, and $(34.4)$6.3 million net of tax, as of September 30, 20172023 and December 31, 20162022 respectively, were recorded in AOCI. At As of September 30, 2017,2023 and December 31, 2022, we had $(2.3)$12.9 million and $5.3 million, respectively, 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, we had $(8.0) million of
derivative currency losses on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impacted 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 September 30, 2017 (in millions)2023:
| | | | | | | | | 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 | | $ | 377.9 | | | $ | 0.5 | | | $ | 37.8 | | | $ | (37.8) | |
| Mexican Peso | | 164.9 |
| | (1.0 | ) | | 16.5 |
| | (16.5 | ) | Mexican Peso | | 138.3 | | | 13.7 | | | 13.8 | | | (13.8) | |
| Euro | | 63.8 |
| | (0.2 | ) | | 6.4 |
| | (6.4 | ) | Euro | | 623.3 | | | 11.1 | | | 62.3 | | | (62.3) | |
| Indian Rupee | | 37.7 |
| | 2.1 |
| | 3.8 |
| | (3.8 | ) | Indian Rupee | | 41.2 | | | (0.1) | | | 4.1 | | | (4.1) | |
| Canadian Dollar | | 51.3 |
| | (1.0 | ) | | 5.1 |
| | (5.1 | ) | |
| | Australian Dollar | | 13.2 |
| | (0.4 | ) | | 1.3 |
| | (1.3 | ) | Australian Dollar | | 0.3 | | | — | | | — | | | — | |
| Thai Baht | | 7.1 |
| | — |
| | 0.7 |
| | (0.7 | ) | |
| Swedish Krona | | Swedish Krona | | 1.6 | | | — | | | 0.2 | | | (0.2) | |
| British Pound | | 9.9 |
| | — |
| | 1.0 |
| | (1.0 | ) | British Pound | | 6.7 | | | — | | | 0.7 | | | (0.7) | |
|
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$0.6 million, $0.2$0.1 million, $(2.1) million and $(0.3) million were recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets, Other Accrued Expenses and Current Hedging Obligations,Other Noncurrent
Liabilities. respectively, at as of September 30, 2017.2023. Derivative commodity assets (liabilities) of $7.3$0.9 million, are$0.3 million and $(10.6) million were recorded in Prepaid Expenses atand Other Current Assets, Other Noncurrent Assets and Other Accrued Expenses, respectively as of December 31, 2016.2022. The unrealized gainsloss on the effective portion of the contractshedges of $3.6$1.3 million net of tax and $2.9the unrealized loss on the effective portion of the hedges of $6.9 million net of tax, as of September 30, 20172023 and December 31, 2016,2022, respectively, werewas recorded in AOCI. At As of September 30, 2017,2023, we had $2.2$2.1 million, net of tax, of derivative commodity gainslosses on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. AtAs of December 31, 2016,2022, there was $0.5an additional $4.4 million, net of tax, of derivative commodity gainsloss on closed hedge instruments in AOCI that were realized intoin 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 September 30, 2017 (in millions)2023:
| | | | | | | | | 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 | | $ | 47.5 | | | $ | (1.5) | | | $ | 4.8 | | | $ | (4.8) | |
| Aluminum | | 4.5 |
| | 0.5 |
| | 0.5 |
| | (0.5 | ) | Aluminum | | 3.7 | | | (0.3) | | | 0.4 | | | (0.4) | |
Gains and losses indicated in the sensitivity analysis would be offset by the actual prices of the commodities.
The net AOCI hedging component balance consists of $7.0$34.4 million gain atof gains as of September 30, 20172023 which includes $6.5$21.5 million of net current deferred gains that are 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.
As discussed above, on March 27, 2023, we completed the Altra Transaction. As part of our ongoing integration of Altra, we continue to incorporate our controls and procedures into Altra operations and to expand our company-wide controls to reflect the risks inherent in an acquisition of this size and complexity.
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, 2016,2022, which is incorporated hereherein by reference. See also Note 12 - Contingencies for more information.
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 - Risk Factors in our 2016 Annual Report on Form 10-K for the year ended December 31, 2016,2022, which is incorporated hereherein by reference. For additional information regarding risks and uncertainties facing the Company, please also see the information provided under the header “Cautionary Statement”"Cautionary Statement" contained in this Quarterly Report on Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The following table contains detail related to the repurchase of our common stock based on the date of trade during the quarter ended September 30, 2017.
|
| | | | | | | | | | | | | |
| 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 |
| | |
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 September 30, 2017,2023, we acquired 3,258did not acquire any shares in connection with transactions pursuant to equity incentive plans.
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 under the Company's share repurchase program. The new authorization has no expiration date. There were no repurchases of common stock during the current quarter. The maximum value of shares of our common stock which repurchase authority has no expiration date. Management is authorizedavailable to effect purchases from time to time in the open market or through privately negotiated transactions. During the quarter ended be purchased as of September 30, 2017, we acquired 300,000 shares pursuant to this authorization. We have entered into2023 is $195.0 million.
ITEM 5. OTHER INFORMATION
During our last fiscal quarter, no director or officer of the Company, as defined in Rule 16a-1(f), adopted or terminated a Rule“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 Rulearrangement” or “non-Rule 10b5-1 trading plan.
arrangement,” each as defined in Item 408 of Regulation S-K.
ITEM 6. EXHIBITS
| | | | | | | | |
| Exhibit Number | | Exhibit Description |
| | |
| | |
Exhibit Number | | Exhibit Description |
12 | | Computation of Ratio of Earnings to Fixed Charges. |
31.1 | | |
| | |
| | |
| | |
| 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).
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SIGNATURES
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
Executive Vice President
Chief Financial Officer
(Principal Financial Officer) | | | | | | | | | | Date: November 3, 2023 | |
| | | | | | | REGAL BELOITREXNORD CORPORATION (Registrant) | | | | /s/ Charles A. HinrichsAlexander P. Scarpelli | | Charles A. Hinrichs
Alexander P. Scarpelli
Vice President
Chief FinancialAccounting 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 Number | | Exhibit Description | 12Date: November 3, 2023 | | | 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. | | | |
|