Zurn Elkay Water Solutions (ZWS) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Rexnord Corporation's unaudited condensed consolidated financial information, including statements, notes, and management's discussion, for the quarter ended March 31, 2021 ITEM 1. Financial Statements This section presents Rexnord Corporation's unaudited condensed consolidated financial statements for the quarter ended March 31, 2021, including balance sheets, statements of operations, comprehensive income, and cash flows, along with detailed notes explaining accounting policies, acquisitions, debt, and segment information. The company transitioned to a December 31 fiscal year-end, impacting comparative reporting periods Condensed Consolidated Balance Sheets This table presents Rexnord's financial position, detailing assets, liabilities, and equity as of March 31, 2021, and December 31, 2020 | Metric | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :-------------------------------- | :-------------------------- | :--------------------------- | | Assets | | | | Cash and cash equivalents | $307.3 | $255.6 | | Total current assets | $1,013.0 | $907.7 | | Total assets | $3,487.3 | $3,401.1 | | Liabilities & Equity | | | | Total current liabilities | $356.3 | $317.5 | | Long-term debt | $1,189.3 | $1,189.2 | | Total liabilities | $1,994.4 | $1,961.8 | | Total stockholders' equity | $1,492.9 | $1,439.3 | - Total assets increased by $86.2 million from December 31, 2020, to March 31, 2021, primarily driven by an increase in cash and cash equivalents and receivables[14] Condensed Consolidated Statements of Operations This statement outlines Rexnord's financial performance, including net sales, gross profit, operating income, and net income for the three months ended March 31, 2021 and 2020 | Metric | Three Months Ended March 31, 2021 (Millions) | Three Months Ended March 31, 2020 (Millions) | YoY Change (Millions) | YoY Change (%) | | :----------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------------- | | Net sales | $526.1 | $547.0 | $(20.9) | (3.8)% | | Gross profit | $207.9 | $216.5 | $(8.6) | (4.0)% | | Income from operations | $78.6 | $88.0 | $(9.4) | (10.7)% | | Net income attributable to Rexnord | $50.0 | $28.5 | $21.5 | 75.4% | | Basic EPS | $0.42 | $0.23 | $0.19 | 82.6% | | Diluted EPS | $0.40 | $0.23 | $0.17 | 73.9% | - Net income attributable to Rexnord significantly increased by 75.4% year-over-year, primarily due to the absence of a $35.8 million actuarial loss on pension and postretirement benefit obligations recognized in the prior year[16][148] Condensed Consolidated Statements of Comprehensive Income This statement details Rexnord's total comprehensive income, including net income and other comprehensive loss components, for the three months ended March 31, 2021 and 2020 | Metric | Three Months Ended March 31, 2021 (Millions) | Three Months Ended March 31, 2020 (Millions) | | :----------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net income attributable to Rexnord | $50.0 | $28.5 | | Other comprehensive loss, net of tax | $(1.8) | $(20.0) | | Total comprehensive income | $48.3 | $8.6 | - Total comprehensive income increased substantially from $8.6 million in Q1 2020 to $48.3 million in Q1 2021, driven by higher net income and a significant reduction in other comprehensive loss, primarily foreign currency translation adjustments[19] Condensed Consolidated Statements of Cash Flows This statement summarizes Rexnord's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2021 and 2020 | Activity | Three Months Ended March 31, 2021 (Millions) | Three Months Ended March 31, 2020 (Millions) | | :-------------------------- | :----------------------------------------- | :----------------------------------------- | | Operating activities | $71.3 | $123.9 | | Investing activities | $(8.1) | $(74.1) | | Financing activities | $(9.4) | $253.4 | | Net increase in cash | $51.7 | $296.4 | - Cash provided by operating activities decreased by $52.6 million year-over-year, mainly due to higher trade working capital and timing of accrued expense payments[22][172][173] - Cash used for investing activities significantly decreased due to lower capital expenditures and no major acquisitions in Q1 2021 compared to the prior year[22][172][173] - Cash used for financing activities in Q1 2021 contrasts sharply with cash provided in Q1 2020, primarily due to significant debt borrowings and common stock repurchases in the prior year period[22][174] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of Rexnord's accounting policies, significant transactions, and financial statement line items for the reported periods 1. Basis of Presentation and Significant Accounting Policies This note describes Rexnord's business, fiscal year transition, and the planned tax-free spin-off of its Process & Motion Control segment - Rexnord Corporation is a growth-oriented, multi-platform industrial company with leading market shares in Process & Motion Control and Water Management segments[27] - The company transitioned its fiscal year-end from March 31 to December 31, with fiscal year 2021 commencing on January 1, 2021[10][26] - Rexnord plans to separate its Process & Motion Control segment via a tax-free spin-off and immediately combine it with Regal Beloit Corporation in a Reverse Morris Trust transaction, expected to close in Q4 2021[30] 2. Acquisitions and Divestiture This note details Rexnord's recent acquisitions, primarily strengthening Water Management, and the divestiture of a gearbox product line - Acquired Hadrian Manufacturing Inc. in December 2020 for $101.3 million, enhancing the Water Management platform with washroom partitions and lockers[35] - Sold the gearbox product line in China (Process & Motion Control) for $5.8 million in October 2020[37] - Acquired Just Manufacturing Company in January 2020 for $59.4 million and StainlessDrains.com in May 2019 for $24.8 million, both strengthening the Water Management platform[40][41] 3. Restructuring and Other Similar Charges This note outlines the restructuring charges incurred, reflecting efforts to optimize operations and manufacturing footprint | Category | Three Months Ended March 31, 2021 (Millions) | Three Months Ended March 31, 2020 (Millions) | | :--------------------------------- | :----------------------------------------- | :----------------------------------------- | | Employee termination benefits | $0.5 | $5.5 | | Contract termination and other costs | $0.1 | $1.1 | | Total restructuring charges | $0.6 | $6.6 | - Restructuring charges significantly decreased to $0.6 million in Q1 2021 from $6.6 million in Q1 2020, reflecting ongoing initiatives to drive efficiencies and optimize manufacturing footprint[46][47] 4. Revenue Recognition This note provides disaggregated revenue by customer type and geography, along with information on the company's total backlog Revenue Disaggregated by Customer Type (Millions) | Customer Type | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Process & Motion Control | | | | Original equipment manufacturers/end users | $180.3 | $216.6 | | Maintenance, repair, and operations | $140.6 | $147.0 | | Total Process & Motion Control | $320.9 | $363.6 | | Water Management | | | | Water safety, quality, flow control and conservation | $189.8 | $170.9 | | Water infrastructure | $15.4 | $12.5 | | Total Water Management | $205.2 | $183.4 | Revenue Disaggregated by Originating Geography (Millions) | Geography | Process & Motion Control (Q1 2021) | Water Management (Q1 2021) | Process & Motion Control (Q1 2020) | Water Management (Q1 2020) | | :-------------------- | :--------------------------------- | :------------------------- | :--------------------------------- | :------------------------- | | United States and Canada | $190.9 | $203.8 | $232.3 | $179.4 | | Europe | $79.6 | — | $82.3 | — | | Rest of world | $50.4 | $1.4 | $49.1 | $4.0 | | Total | $320.9 | $205.2 | $363.6 | $183.4 | - Total backlog as of March 31, 2021, was $373.4 million, with approximately 88% expected to be recognized as revenue in the remaining nine months of 2021[59] 5. Income Taxes This note details the income tax provision, effective tax rate, and liabilities for unrecognized tax benefits | Metric | Three Months Ended March 31, 2021 (Millions) | Three Months Ended March 31, 2020 (Millions) | | :-------------------- | :----------------------------------------- | :----------------------------------------- | | Income tax provision | $17.2 | $6.4 | | Effective income tax rate | 25.6% | 18.2% | - The effective income tax rate increased to 25.6% in Q1 2021 from 18.2% in Q1 2020, primarily due to higher foreign income taxes, accrual of unrecognized income tax benefits, and compensation deduction limitations, partially offset by foreign financing-related benefits and FDII[66] - Total liability for net unrecognized tax benefits was $18.5 million as of March 31, 2021, including $1.6 million of accrued interest and penalties[67] 6. Earnings per Share This note presents the calculation of basic and diluted earnings per share, reflecting net income and weighted-average shares outstanding | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Basic Net Income per Share | $0.42 | $0.23 | | Diluted Net Income per Share | $0.40 | $0.23 | | Weighted-average shares outstanding (Basic, in thousands) | 119,808 | 121,783 | | Weighted-average shares outstanding (Diluted, in thousands) | 123,637 | 124,345 | - Diluted EPS increased from $0.23 in Q1 2020 to $0.40 in Q1 2021, reflecting higher net income attributable to Rexnord[16][152] 7. Stockholders' Equity This note details changes in stockholders' equity, including comprehensive income, stock-based compensation, and share repurchases Changes in Stockholders' Equity (Millions) | Metric | Balance at Dec 31, 2020 | Total Comprehensive Income (Loss) | Stock-based Compensation | Stock Option Proceeds | Stock Repurchase | Dividends Paid | Balance at Mar 31, 2021 | | :-------------------------------- | :---------------------- | :-------------------------------- | :----------------------- | :-------------------- | :--------------- | :------------- | :---------------------- | | Common stock | $1.2 | — | — | — | — | — | $1.2 | | Additional paid-in capital | $1,392.9 | — | $14.2 | $2.8 | — | — | $1,409.9 | | Retained earnings | $116.0 | $50.0 | — | — | $(0.9) | $(10.8) | $154.3 | | Accumulated other comprehensive loss | $(73.8) | $(1.8) | — | — | — | — | $(75.6) | | Non-controlling interest | $3.0 | $0.1 | — | — | — | — | $3.1 | | Total stockholders' equity | $1,439.3 | $48.3 | $14.2 | $2.8 | $(0.9) | $(10.8) | $1,492.9 | - The company repurchased 22,300 shares of common stock for $0.9 million in Q1 2021, with approximately $162.8 million remaining under the repurchase program[71] 8. Accumulated Other Comprehensive Loss This note breaks down the components of accumulated other comprehensive loss, including foreign currency translation and pension adjustments | Category | Balance at Dec 31, 2020 (Millions) | Other Comprehensive Loss before Reclassifications (Millions) | Amounts Reclassified to Net Income (Millions) | Balance at Mar 31, 2021 (Millions) | | :--------------------------------- | :--------------------------------- | :------------------------------------------------------- | :------------------------------------------ | :--------------------------------- | | Foreign Currency Translation | $(46.0) | $(1.7) | — | $(47.7) | | Pension and Postretirement Plans | $(27.8) | — | $(0.1) | $(27.9) | | Total | $(73.8) | $(1.7) | $(0.1) | $(75.6) | 9. Inventories This note provides a breakdown of inventories by class, including finished goods, work in progress, and raw materials | Inventory Class | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :-------------------- | :-------------------------- | :--------------------------- | | Finished goods | $173.7 | $164.6 | | Work in progress | $39.7 | $38.6 | | Purchased components | $73.4 | $70.6 | | Raw materials | $60.6 | $53.4 | | Total Inventories | $348.4 | $330.1 | - Total inventories increased by $18.3 million from December 31, 2020, to March 31, 2021, with increases across all major classes[74] 10. Goodwill and Intangible Assets This note details goodwill by operating segment and the net carrying amounts of various intangible assets, along with amortization expense Goodwill by Operating Segment (Millions) | Segment | Net Carrying Amount as of Dec 31, 2020 | Currency Translation Adjustments | Purchase Accounting Adjustments | Net Carrying Amount as of Mar 31, 2021 | | :-------------------- | :------------------------------------- | :------------------------------- | :------------------------------ | :------------------------------------- | | Process & Motion Control | $1,125.3 | $0.2 | — | $1,125.5 | | Water Management | $244.8 | $0.9 | $0.2 | $245.9 | | Consolidated | $1,370.1 | $1.1 | $0.2 | $1,371.4 | Intangible Assets, Net (Millions) | Intangible Asset Class | March 31, 2021 | December 31, 2020 | | :----------------------------------- | :------------- | :---------------- | | Patents | $9.6 | $9.8 | | Customer relationships | $199.3 | $206.9 | | Tradenames (subject to amortization) | $26.2 | $27.0 | | Tradenames (not subject to amortization) | $280.9 | $280.9 | | Total intangible assets, net | $516.0 | $524.6 | - Intangible asset amortization expense was $9.4 million for Q1 2021, with expected amortization of $36.7 million for the full year 2021[76][77] 11. Other Current Liabilities This note itemizes other current liabilities, including contract liabilities, sales rebates, and income tax payable | Category | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :--------------------------------- | :-------------------------- | :--------------------------- | | Contract liabilities | $3.4 | $4.0 | | Sales rebates | $27.3 | $35.7 | | Restructuring and other similar charges | $4.0 | $6.8 | | Product warranty | $8.5 | $8.9 | | Income tax payable | $20.3 | $14.5 | | Total other current liabilities | $129.8 | $125.6 | - Other current liabilities increased by $4.2 million from December 31, 2020, to March 31, 2021, primarily due to higher income tax payable and interest payable, partially offset by decreases in sales rebates and restructuring accruals[78] 12. Long-Term Debt This note details Rexnord's long-term debt, leverage ratio, new debt commitments for the spin-off, and the termination of a securitization program | Debt Type | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :--------------------------------- | :-------------------------- | :--------------------------- | | Term loan | $621.7 | $621.5 | | 4.875% Senior Notes due 2025 | $496.5 | $496.3 | | Finance leases and other subsidiary debt | $73.6 | $73.8 | | Total long-term debt | $1,189.3 | $1,189.2 | - The company's total net leverage ratio was 2.2 to 1.0 as of March 31, 2021, well within the maximum permitted ratio of 6.75 to 1.0 under its credit agreement[82] - Rexnord entered into debt commitment letters for up to $708.0 million in senior term loans and $200.0 million in revolving loans, and Land Newco, Inc. for up to $486.8 million in bridge loans, in connection with the proposed spin-off and combination with Regal[92][93] - The accounts receivable securitization program, with a borrowing capacity of $100.0 million, was terminated effective May 17, 2021[89][90] 13. Fair Value Measurements This note provides fair value measurements for financial instruments and explains the classification hierarchy used Fair Value of Financial Instruments (Millions) | Instrument | March 31, 2021 | December 31, 2020 | | :-------------------------- | :------------- | :---------------- | | Deferred compensation assets | $13.3 | $11.7 | | Deferred compensation liabilities | $13.7 | $11.9 | | Fair value of long-term debt | $1,209.7 | $1,209.3 | - Fair value measurements are classified into Level 1 (quoted prices in active markets), Level 2 (observable market-based inputs), and Level 3 (significant unobservable inputs)[99] 14. Commitments and Contingencies This note outlines product warranty liabilities, ongoing legal actions, environmental matters, and potential asbestos-related claims Product Warranty Liability (Millions) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Balance at beginning of period | $8.9 | $6.3 | | Charged to operations | $0.6 | $1.2 | | Claims settled | $(1.3) | $(0.8) | | Balance at end of period | $8.5 | $6.7 | - The company is involved in various legal actions, including environmental matters (Ellsworth Industrial Park Site) and asbestos claims, with indemnification from prior owners (Invensys, Hamilton Sundstrand) and insurance coverage[101][102][103][104][105] - Estimated potential liability for asbestos-related claims is $59.0 million, with $42.0 million expected to be covered by insurance in the next ten years[106][107][108] 15. Retirement Benefits This note details the net periodic benefit cost for pension and other postretirement plans, highlighting the impact of actuarial losses Net Periodic Benefit Cost (Millions) | Component | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Pension Benefits | | | | Service cost | $0.1 | $0.1 | | Interest cost | $3.7 | $5.4 | | Expected return on plan assets | $(4.9) | $(5.5) | | Recognition of actuarial losses | — | $35.9 | | Net periodic benefit cost | $(1.1) | $35.9 | | Other Postretirement Benefits | | | | Interest cost | $0.1 | $0.2 | | Amortization of prior service credit | $(0.1) | $(0.1) | | Recognition of actuarial gains | — | $(0.1) | | Net periodic benefit cost | — | — | - Net periodic pension benefit cost significantly decreased to a gain of $1.1 million in Q1 2021 from a cost of $35.9 million in Q1 2020, primarily due to the absence of a $35.8 million non-cash actuarial loss recognized in the prior year[111][148] 16. Stock-Based Compensation This note presents the stock-based compensation expense, reflecting grants of various equity awards Stock-Based Compensation Expense (Millions) | Period | Expense | | :--------------------------------- | :------ | | Three Months Ended March 31, 2021 | $14.8 | | Three Months Ended March 31, 2020 | $8.2 | - Stock-based compensation expense increased by $6.6 million year-over-year, reflecting grants of stock options, restricted stock units, performance stock units, and common stock[113][114] 17. Business Segment Information This note provides financial performance data for Rexnord's Process & Motion Control and Water Management segments Segment Performance (Millions) | Metric | Process & Motion Control (Q1 2021) | Water Management (Q1 2021) | Process & Motion Control (Q1 2020) | Water Management (Q1 2020) | | :-------------------------- | :--------------------------------- | :------------------------- | :--------------------------------- | :------------------------- | | Net sales | $320.9 | $205.2 | $363.6 | $183.4 | | Income from operations | $55.0 | $40.6 | $61.4 | $41.8 | | Depreciation and amortization | $15.2 | $8.3 | $15.1 | $7.0 | | Capital expenditures | $8.2 | $1.0 | $14.6 | $1.3 | - Process & Motion Control net sales decreased by 12% year-over-year, primarily due to a 13% core sales decline driven by lower order backlog and COVID-19 impacts, especially in aerospace markets[115][141] - Water Management net sales increased by 12% year-over-year, with 4% core sales growth driven by increased demand in hygienic and environmental solutions, and an 8% increase from prior-year acquisitions[115][142] 18. Guarantor Subsidiaries This note provides condensed consolidating financial information for Rexnord's guarantor and non-guarantor subsidiaries - This section provides condensed consolidating financial information for Rexnord Corporation (Parent), Issuers of notes, Guarantor Subsidiaries, and Non-Guarantor Subsidiaries[116] - The financial statements of Guarantor Subsidiaries are not presented separately as their guarantees of senior notes are full, unconditional, and joint and several[116] 19. Subsequent Events This note details subsequent events, including the acquisition of ATS GREASEwatch to enhance the Water Management platform - On April 16, 2021, Rexnord acquired ATS GREASEwatch for approximately $4.5 million, which develops remote tank monitoring devices and software, enhancing the Water Management platform's Zurn Environmental Solution[124] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Rexnord's financial condition and operational results for the three months ended March 31, 2021, compared to the prior year. It covers key financial metrics, the impact of the COVID-19 pandemic, recent acquisitions and divestitures, restructuring efforts, and the planned spin-off of the Process & Motion Control segment. It also includes non-GAAP financial measures and liquidity analysis General Overview This section provides a general overview of Rexnord's business model and the recent fiscal year-end transition - Rexnord is a growth-oriented, multi-platform industrial company with leading market shares and trusted brands, operating under the Rexnord Business System (RBS) for continuous improvement[125] - The company transitioned its fiscal year-end to December 31, with the current reporting period covering January 1 to March 31, 2021[127] Expected Spin-Off of Process & Motion Control Segment This section details the planned tax-free spin-off of the Process & Motion Control segment and its combination with Regal Beloit - Rexnord plans a tax-free spin-off of its Process & Motion Control segment, immediately combining it with Regal Beloit Corporation in a Reverse Morris Trust transaction, anticipated to close in Q4 2021[128] COVID-19 Pandemic Impact This section discusses the operational and financial impacts of the COVID-19 pandemic and the company's mitigation strategies - The COVID-19 pandemic caused disruptions in manufacturing, distribution, and supply chains, but as of March 31, 2021, most global facilities were operating with only intermittent interruptions[131] - Workforce reductions and non-essential spending cuts were implemented in 2020 to control cash outflows and mitigate financial risks[132] Acquisitions and Divestiture This section summarizes recent acquisitions strengthening Water Management and the divestiture of a gearbox product line - Recent acquisitions include Hadrian (Dec 2020, $101.3 million) and Just Manufacturing (Jan 2020, $59.4 million), both strengthening the Water Management platform[133][136] - The company divested its gearbox product line in China for $5.8 million in October 2020[135] Restructuring This section highlights the significant decrease in restructuring charges due to ongoing operational optimization efforts - Restructuring charges for Q1 2021 totaled $0.6 million, a significant decrease from $6.6 million in Q1 2020, reflecting ongoing efforts to optimize operating margin and manufacturing footprint[138] Results of Operations This section analyzes Rexnord's consolidated and segment-level operational results, including sales, income, and key drivers of change Consolidated Results of Operations (Millions) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change | % Change | | :-------------------------- | :-------------------------------- | :-------------------------------- | :----- | :--------- | | Net sales | $526.1 | $547.0 | $(20.9) | (3.8)% | | Income from operations | $78.6 | $88.0 | $(9.4) | (10.7)% | | Net income | $50.1 | $28.6 | $21.5 | 75.2% | - Process & Motion Control net sales decreased by 12% due to a 13% core sales decline, while Water Management net sales increased by 12% with 4% core sales growth[141][142] - Consolidated income from operations decreased by 10.7%, but net income increased by 75.2% primarily due to the absence of a $35.8 million actuarial loss on pension and postretirement benefit obligations in Q1 2021[143][148][152] - Interest expense, net, decreased to $11.0 million from $13.4 million, driven by lower outstanding borrowings and average interest rates[147] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures like core sales, EBITDA, and Adjusted EBITDA, and presents the net leverage ratio - Core sales, EBITDA, and Adjusted EBITDA are presented as non-GAAP financial measures to provide additional insights into performance, excluding impacts of acquisitions, divestitures, and foreign currency translation[155][156][157] Adjusted EBITDA Reconciliation (Millions) | Metric | Nine months ended Dec 31, 2020 | Three months ended Mar 31, 2021 | Twelve months ended Mar 31, 2021 | | :----------------------------------- | :----------------------------- | :------------------------------ | :----------------------------- | | Net income attributable to Rexnord | $118.2 | $50.0 | $168.2 | | EBITDA | $255.4 | $102.1 | $357.5 | | Adjustments to EBITDA | $52.1 | $18.1 | $70.2 | | Adjusted EBITDA | $307.5 | $120.2 | $427.7 | | Pro forma adjustment for acquisitions | — | — | $5.1 | | Pro forma Adjusted EBITDA | — | — | $432.8 | - The total net leverage ratio as of March 31, 2021, was 2.2 to 1.0, calculated as consolidated indebtedness ($957.6 million) to Adjusted EBITDA for the trailing four fiscal quarters ($432.8 million)[167] Liquidity and Capital Resources This section discusses Rexnord's liquidity sources, total indebtedness, and changes in cash flow from operating activities - Primary liquidity sources include cash and cash equivalents ($307.3 million at March 31, 2021), cash flow from operations, and borrowing availability under the revolving credit facility ($264.0 million)[168][169] - Total indebtedness outstanding was $1,191.8 million as of March 31, 2021, comprising term loans, senior notes, and finance leases[175] - Cash provided by operating activities decreased to $71.3 million in Q1 2021 from $123.9 million in Q1 2020, mainly due to higher trade working capital[172] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses Rexnord's exposure to market risks, specifically from changes in foreign currency exchange rates and interest rates. The company manages these risks through operational activities and derivative financial instruments - Rexnord is exposed to market risks from foreign currency exchange rates and interest rates, which are managed using foreign currency forward contracts, interest rate swaps, and interest rate caps[176] - There have been no material changes in market risk from the information previously provided in the Transition Report on Form 10-K for the period ended December 31, 2020[176] ITEM 4. Controls and Procedures This section details the effectiveness of Rexnord's disclosure controls and procedures and internal control over financial reporting. Management, including the CEO and CFO, concluded that disclosure controls were effective as of March 31, 2021 - The CEO and CFO concluded that Rexnord's disclosure controls and procedures were adequate and effective as of March 31, 2021, ensuring timely and accurate reporting[179] - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[181] PART II - OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity security sales, and exhibits related to Rexnord's operations ITEM 1. Legal Proceedings This section refers to the detailed information on legal proceedings, commitments, and contingencies provided in Note 14 to the condensed consolidated financial statements - Legal proceedings are incorporated by reference from Note 14, 'Commitments and Contingencies,' in Part I, Item 1 of this report[184] ITEM 1A. Risk Factors This section outlines risks primarily related to the proposed spin-off of the Process & Motion Control segment and its combination with Regal Beloit Corporation. Key risks include the inability to complete the transaction, significant associated costs, potential adverse effects on business operations during the pendency, and tax implications if the transaction does not qualify as tax-free - The consummation of the spin-off and related transactions with Regal Beloit is subject to numerous conditions, including regulatory and stockholder approvals, with no assurance of completion on contemplated terms or timeline[185] - Rexnord expects to incur significant one-time costs related to the transactions, including financing and integration costs, which could adversely affect liquidity, cash flows, and operating results[188] - The transactions could be taxable if the spin-off does not qualify as tax-free under IRS regulations, potentially leading to substantial U.S. federal income taxes for stockholders and indemnification obligations for Land (guaranteed by Regal)[192][193][194][195] - The pendency of the transactions may adversely affect business operations by delaying customer/vendor decisions and imposing restrictions on corporate actions, potentially impacting revenues, earnings, and cash flows[190][191] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchase program, including the number of shares repurchased and the remaining authorization - During Q1 2021, Rexnord repurchased 22,300 shares of common stock for $0.9 million at a weighted average price of $39.27 per share[200][202] - Approximately $162.8 million of the existing share repurchase authority remained under the program as of March 31, 2021[200][202] ITEM 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including agreements related to the Regal Beloit transaction, certifications, and XBRL data - Key exhibits include the Agreement and Plan of Merger, Separation and Distribution Agreement, Tax Matters Agreement, and various commitment letters related to the Regal Beloit transaction[204] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act are also included[204] Signatures This section contains the official signature of Rexnord Corporation, duly authorized, for the Form 10-Q filing - The report was signed on April 27, 2021, by Mark W. Peterson, Senior Vice President and Chief Financial Officer of Rexnord Corporation[208]