ZURN ELKAY WATER SOLUTIONS CORPORATION General
Rexnord is a growth-oriented, multi-platform industrial company with what we
believe are leading market shares and highly-trusted brands that serve a diverse
array of global end markets. Our heritage of innovation and specification have
allowed us to provide highly-engineered, mission-critical solutions to customers
for decades and affords us the privilege of having long-term, valued
relationships with market leaders. We operate our Company in a disciplined way
and the Rexnord Business System ("RBS") is our operating philosophy. Grounded in
the spirit of continuous improvement, RBS creates a scalable, process-based
framework that focuses on driving superior customer satisfaction and financial
results by targeting world-class operating performance throughout all aspects of
our business.
The following information should be read in conjunction with the audited
consolidated financial statements and notes thereto, along with Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2019 .
Fiscal Year
Our fiscal year ends on March 31 . Throughout this MD&A, we refer to the
period from October 1, 2019 through December 31, 2019 as the "third quarter of
fiscal 2020" or the "third quarter ended December 31, 2019 ." Similarly, we refer
to the period from October 1, 2018 through December 31, 2018 as the "third
quarter of fiscal 2019" or the "third quarter ended December 31, 2018 ."
Critical Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
("U.S. GAAP"), which require us to make estimates and assumptions that affect
the reported amounts of assets and liabilities on the date of the financial
statements and revenues and expenses during the periods reported. Actual results
could differ from those estimates. Refer to Item 7, MD&A of our Annual Report on
Form 10-K for the fiscal year ended March 31, 2019 , for information with respect
to our critical accounting policies, which we believe could have the most
significant effect on our reported results and require subjective or complex
judgments by management. Except for the items reported below, management
believes that as of December 31, 2019 and during the period from April 1, 2019
through December 31, 2019 , there has been no material change to this
information.
Recent Accounting Pronouncements
See Item 1, Note 1, Basis of Presentation and Significant Accounting
Policies regarding recent accounting pronouncements.
Acquisitions
On January 28, 2020 , we acquired substantially all of the assets of Just
Manufacturing Company ("Just Manufacturing") for a total preliminary cash
purchase price of approximately $60.0 million , excluding transaction costs and
net of cash acquired. The preliminary purchase price is subject to customary
post-closing adjustments for variances between estimated asset and liability
targets and actual acquisition date net assets acquired. Just Manufacturing,
based in Franklin Park, Illinois , manufactures stainless steel sinks and
plumbing fixtures primarily used in institutional and commercial end markets and
complements our existing Water Management platform.
On May 10, 2019 , we acquired substantially all of the assets of East Creek
Corporation (d/b/a StainlessDrains.com), a manufacturer of stainless steel
drains, grates and accessories for industrial and commercial end markets, for a
cash purchase price of $24.8 million , excluding transaction costs and net of
cash acquired. StainlessDrains.com, headquartered in Greenville, Texas , added
complementary product lines to our existing Water Management platform.
On January 23, 2019 , we acquired an additional 47.5% interest in Centa MP
(Hong Kong ) Co., Limited ("Centa China"), a joint venture in which we previously
maintained a 47.5% non-controlling interest, for $21.4 million , net of cash held
by the former joint venture. The acquisition of the additional interest in Centa
China , a manufacturer and distributor of premium flexible couplings and drive
shafts for industrial, marine, rail and power generation applications within our
existing Process & Motion Control platform, provides us with the opportunity to
expand our product offerings within our Asia Pacific end markets.
Discontinued Operations
During fiscal 2019, we completed the sale of our VAG business, which was
previously included within our Water Management platform. As a result, the
operating results of the VAG business are reported as discontinued operations in
the consolidated statements of operations for all periods presented, as the sale
of VAG represented a strategic shift that had a major impact on our operations
and financial results. The sale price was subject to customary working capital
and cash balance
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adjustments, which were finalized during the first quarter of fiscal 2020. As a
result of these adjustments and other related costs, we recognized an additional
$1.8 million loss on the sale of discontinued operations during the first
quarter of fiscal 2020.
During the nine months ended December 31, 2018 , we recorded non-cash
impairment charges of $126.0 million , to reflect the estimated fair value less
costs to sell the VAG business based on the value of preliminary bids received
at that time. For other elements of the loss from discontinued operations during
the three and nine months ended December 31, 2019 , refer to Item 1, Note 4,
Discontinued Operations for further information. The analysis of our results of
operations below focuses on our results from continuing operations.
Restructuring
During fiscal 2020, we have continued to execute various restructuring
initiatives focused on driving efficiencies, reducing operating costs by
modifying our footprint to reflect changes in the markets we serve and the
impact of acquisitions on our overall manufacturing capacity, and refining our
overall product portfolio. We expect these initiatives to continue, which may
result in further workforce reductions, lease termination costs, and other
facility rationalization costs, including the impairment or accelerated
depreciation of assets. At this time, our full repositioning plan is preliminary
and related expenses are not yet estimable. For the three and nine months ended
December 31, 2019 , restructuring charges totaled $3.6 million and $8.9 million ,
respectively. For the three and nine months ended December 31, 2018 ,
restructuring charges totaled $2.6 million and $9.4 million , respectively. Refer
to Item 1, Note 3, Restructuring and Other Similar Charges for further
information.
Results of Operations
Third Quarter Ended December 31, 2019 compared with the Third Quarter Ended
December 31, 2018 :
Net sales
(Dollars in Millions)
Quarter Ended
December 31, 2019 December 31, 2018 Change % Change
Process & Motion Control $ 327.5 $ 326.7 $ 0.8 0.2 %
Water Management 164.2 158.3 5.9 3.7 %
Consolidated $ 491.7 $ 485.0 $ 6.7 1.4 %
Process & Motion Control
Process & Motion Control net sales were $327.5 million and $326.7 million in
the third quarter of fiscal 2020 and fiscal 2019, respectively. Excluding a 1%
increase in sales associated with the acquisition of Centa China and a 1%
unfavorable impact from foreign currency translation, core sales were flat year
over year as sales growth in our aerospace and consumer-facing end markets was
offset by softer demand across several of our industrial process end markets,
coupled with the impact of our ongoing product line simplification initiatives.
Water Management
Water Management net sales were $164.2 million in the third quarter of
fiscal 2020, an increase of 4% year over year. Excluding a 1% year over year
increase in net sales resulting from our acquisition of Stainlessdrains.com,
core sales increased 3% in the third quarter of fiscal 2020 as a result of
increased demand across our North American building construction end markets,
partially offset by a modest impact of our ongoing product line simplification
initiatives.
Income from operations
(Dollars in Millions)
Quarter Ended
December 31, 2019 December 31, 2018 Change % Change
Process & Motion Control $ 53.6 $ 53.4 $ 0.2 0.4 %
% of net sales 16.4 % 16.3 % 0.1 %
Water Management 37.6 33.1 4.5 13.6 %
% of net sales 22.9 % 20.9 % 2.0 %
Corporate (13.6) (15.6) 2.0 12.8 %
Consolidated $ 77.6 $ 70.9 $ 6.7 9.4 %
% of net sales 15.8 % 14.6 % 1.2 %
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Process & Motion Control
Process & Motion Control income from operations for the third quarter of
fiscal 2020 was $53.6 million , or 16.4% of net sales. Income from operations as
a percentage of net sales increased by 10 basis points year over year as higher
year over year restructuring costs were more than offset by RBS-led productivity
gains and benefits from our completed footprint repositioning actions.
Water Management
Water Management income from operations was $37.6 million for the third
quarter of fiscal 2020, or 22.9% of net sales. Income from operations as a
percentage of net sales increased by 200 basis points year over year primarily
due to the increase in sales and benefits associated with ongoing cost reduction
and productivity initiatives and a reduction in the adjustment to state
inventories at last-in-first-out cost.
Corporate
Corporate expenses were $13.6 million in the third quarter of fiscal 2020
and $15.6 million in the third quarter of fiscal 2019. The decrease in corporate
expenses is primarily associated with the recognition of lease facility
termination costs during the third quarter of fiscal 2019 in connection with our
ongoing footprint optimization actions.
Interest expense, net
Interest expense, net was $14.4 million in the third quarter of fiscal 2020
compared to $16.8 million in the third quarter of fiscal 2019. The decrease in
interest expense as compared to the prior year's period is primarily a result of
the impact of lower outstanding borrowings in the third quarter of fiscal 2020
following $75.0 and $100.0 million voluntary prepayments on our term loan during
the fourth quarter of fiscal 2019 and the third quarter of fiscal 2020,
respectively. In addition, year-over-year interest expense decreased as a result
of the lower average interest rate on our term loan following the refinancing of
our term loan, which was completed during the third quarter of fiscal 2020. See
Item 1, Note 13 Long-Term Debt for more information.
(Loss) gain on extinguishment of debt
During the third quarter of fiscal 2020, we recognized a $2.2 million loss
on the extinguishment of debt in connection with both the refinancing of our
term loan and a $100 million voluntary prepayment on our term loan. During the
third quarter of fiscal 2019, we recognized a $5.0 million gain on the
extinguishment of debt in connection with the forgiveness of the net debt
associated with the New Market Tax Credit program. See Item 1, Note 13 Long-Term
Debt for more information.
Other income, net
Other income, net for the third quarter of fiscal 2020 was $0.8 million ,
compared to $1.6 million for the third quarter of fiscal 2019. Other income, net
consists primarily of foreign currency transaction gains and losses and the
non-service cost components associated with our defined benefit plans.
Provision for income taxes
The income tax provision was $13.4 million in the third quarter of fiscal 2020,
compared to $9.1 million in the third quarter of fiscal 2019. The effective
income tax rate for the third quarter of fiscal 2020 was 21.7% versus 15.0% in
the third quarter of fiscal 2019. The effective income tax rate for the third
quarter of fiscal 2020 was slightly above the U.S. federal statutory rate of 21%
primarily due to the accrual of foreign income taxes, which are generally above
the U.S. federal statutory rate, the accrual of additional income taxes
associated with global intangible low-taxed income ("GILTI") and the accrual of
various state income taxes, substantially offset by the recognition of certain
previously unrecognized tax benefits generally due to the lapse of the
applicable statutes of limitations, the recognition of income tax benefits
associated with share-based payments, net income tax benefits recognized in
association with changes to certain foreign income tax rates and the recognition
of income tax benefits associated with foreign-derived intangible income
("FDII"). The effective income tax rate for the third quarter of fiscal 2019 was
below the U.S. federal statutory rate of 21% primarily due to the recognition of
certain previously unrecognized tax benefits due to the lapse of applicable
statutes of limitations partially offset by the accrual of foreign income taxes,
which are generally above the U.S. federal statutory rate, the accrual of
additional taxes associated with GILTI and the accrual of various state income
taxes.
On a quarterly basis, we review and analyze our valuation allowances associated
with deferred tax assets relating to certain foreign and state net operating
loss carryforwards as well as U.S. federal and state capital loss carryforwards.
In conjunction with this analysis, we weigh both positive and negative evidence
for purposes of determining the proper balances of such valuation allowances.
Future changes to the balances of these valuation allowances, as a result of our
continued review and analysis, could result in a material impact to the
financial statements for such period of change.
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Net income from continuing operations
Net income from continuing operations for the third quarter of fiscal 2020
was $48.4 million , compared to net income from continuing operations of $52.9
million in the third quarter of fiscal 2019, as a result of the factors
described above. Diluted net income per share from continuing operations was
$0.39 in the third quarter of fiscal 2020, as compared to diluted net income per
share from continuing operations of $0.43 in the third quarter of fiscal 2019.
Net income attributable to Rexnord common stockholders
Net income attributable to Rexnord common stockholders for the third quarter
of fiscal 2020 was $45.7 million compared to $19.6 million in the third quarter
of fiscal 2019. Diluted net income per share attributable to Rexnord common
stockholders for the three months ended December 31, 2019 and December 31, 2018
was $0.39 and $0.21 , respectively. The year-over-year change is primarily a
result of the $27.8 million , or $0.23 per diluted share, loss from discontinued
operations, net of tax, in the third quarter of fiscal 2019, and the other
factors described above.
Nine Months Ended December 31, 2019 Compared with the Nine Months Ended
December 31, 2018 :
Net sales
(Dollars in Millions)
Nine Months Ended
December 31, 2019 December 31, 2018 Change % Change
Process & Motion Control $ 994.6 $ 1,007.8 $ (13.2) (1.3) %
Water Management 526.7 505.6 21.1 4.2 %
Consolidated $ 1,521.3 $ 1,513.4 $ 7.9 0.5 %
Process & Motion Control
Process & Motion Control net sales decreased 1% year over year to $994.6
million in the first nine months of fiscal 2020. Excluding a 1% increase in
sales from the acquisition of Centa China and a 2% unfavorable impact from
foreign currency translation, core net sales were flat year over year. Core
sales growth in our aerospace and consumer-facing end-markets was offset by the
impact of our ongoing product line simplification initiatives as well as softer
demand across several of our industrial process end markets.
Water Management
Water Management net sales were $526.7 million in the first nine months of
fiscal 2020, a 4% increase year over year. Excluding a 1% increase in net sales
associated with our acquisition of Stainlessdrains.com, core net sales increased
3% during the first nine months of fiscal 2020. The increase in core net sales
is primarily the result of increased demand across our North American building
construction end markets, partially offset by a modest impact of our ongoing
product line simplification initiatives.
Income (loss) from operations
(Dollars in Millions)
Nine Months Ended
December 31, 2019 December 31, 2018 Change % Change
Process & Motion Control $ 167.0 $ 159.7 $ 7.3 4.6 %
% of net sales 16.8 % 15.8 % 1.0 %
Water Management 121.3 110.9 10.4 9.4 %
% of net sales 23.0 % 21.9 % 1.1 %
Corporate (42.0) (46.2) 4.2 9.1 %
Consolidated $ 246.3 $ 224.4 $ 21.9 9.8 %
% of net sales 16.2 % 14.8 % 1.4 %
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Process & Motion Control
Process & Motion Control income from operations for the first nine months of
fiscal 2020 was $167.0 million or 16.8% of net sales. Income from operations as
a percentage of net sales increased by 100 basis points year over year in the
first nine months of fiscal 2020 primarily due to RBS-led productivity gains,
benefits from our completed footprint repositioning actions and lower
year-over-year acquisition-related fair value adjustments that were partially
offset by higher restructuring-related costs recognized in fiscal 2020 in
connection with our ongoing footprint repositioning initiatives.
Water Management
Water Management income from operations was $121.3 million for the first
nine months of fiscal 2020, or 23.0% of net sales. Income from operations as a
percentage of net sales increased 110 basis points in the first nine months of
fiscal 2020 compared to the first nine months of fiscal 2019 primarily due to
the increase in sales and benefits associated with our ongoing cost reduction
and productivity initiatives and a reduction in the adjustment to state
inventories at last-in-first-out cost.
Corporate
Corporate expenses were $42.0 million in the first nine months of fiscal
2020 compared to $46.2 million in the first nine months of fiscal 2019. The
decrease in corporate expenses is primarily the result of the prior year
recognition of lease facility termination costs incurred in connection with our
ongoing footprint optimization actions.
Interest expense, net
Interest expense, net was $45.2 million in the first nine months of fiscal
2020 compared to $54.1 million in the first nine months of fiscal 2019. The
decrease in interest expense as compared to the prior year's period is primarily
a result of the impact of lower outstanding borrowings in the first nine months
of fiscal 2020 following $75.0 and $100.0 million voluntary prepayments on our
term loan during the fourth quarter of fiscal 2019 and the third quarter of
fiscal 2020, respectively. In addition, year-over-year interest expense
decreased as a result of the lower average interest rate on our term loan
following the refinancing of our term loan, which was completed during the third
quarter of fiscal 2020. In addition, the first nine months of fiscal 2019
included the amortization of unrealized losses associated with the interest rate
derivatives that matured during fiscal 2019. See Item 1, Note 13 Long-Term Debt
for more information.
Gain on extinguishment of debt
During the first nine months of fiscal 2020, we recognized a $1.0 million
gain on the extinguishment of debt, consisting of a $3.2 million gain in
connection with the forgiveness of the remaining net debt associated with the
New Market Tax Credit program, partially offset by a $2.2 million loss in
connection with the fiscal 2020 refinancing of our term loan and a $100.0
million voluntary prepayment made on our term loan. During the first nine months
of fiscal 2019, we recognized a $5.0 million gain in connection with the
forgiveness of the net debt associated with the New Market Tax Credit program.
Other expense (income), net
Other expense, net for the first nine months of fiscal 2020 was $1.0 million
compared to other income, net of $3.3 million for the first nine months of
fiscal 2019. Other (expense) income, net consists primarily of gains and losses
from foreign currency transactions, the non-service cost components of net
periodic benefit costs associated with our defined benefit plans and actuarial
gains and losses incurred in connection with defined benefit plan
remeasurements. The year-over-year change is primarily driven by foreign
currency transaction losses and the recognition of actuarial losses in
connection with the termination of a domestic defined benefit plan during the
first nine months of fiscal 2020.
Provision for income taxes
The income tax provision recorded in the first nine months of fiscal 2020
was $47.7 million , compared to $40.8 million recorded in the first nine months
of fiscal 2019. The effective income tax rate for the first nine months of
fiscal 2020 was 23.7% versus 22.8% in the first nine months of fiscal 2019. The
effective income tax rate for the first nine months of fiscal 2020 was above the
U.S. federal statutory rate of 21% primarily due to the accrual of foreign
income taxes, which are generally above the U.S. federal statutory rate, the
accrual of additional income taxes associated with GILTI and the accrual of
various state income taxes, partially offset by the recognition of certain
previously unrecognized tax benefits generally due to the lapse of the
applicable statutes of limitations, the recognition of income tax benefits
associated with share-based payments, net income tax benefits recognized in
association with changes to certain foreign income tax rates and FDII. The
effective income tax rate for the first nine months of fiscal 2019 was slightly
above the U.S. federal statutory rate of 21% primarily due to the accrual of
foreign income taxes, which are generally above the U.S. federal statutory rate,
the accrual of additional taxes associated with GILTI and the accrual of various
state income taxes substantially offset by the recognition of certain previously
unrecognized tax benefits due to the lapse of applicable statutes of
limitations, the recognition of excess tax benefits associated with share-based
payments and the recognition of a tax benefit associated with a foreign country
enacted rate reduction.
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Net income from continuing operations
Net income from continuing operations for the first nine months of fiscal
2020 was $153.6 million , compared to net income from continuing operations of
$141.3 million in the first nine months of fiscal 2019, as a result of the
factors described above. Diluted net income per share from continuing operations
was $1.24 in the first nine months of fiscal 2020, as compared to diluted net
income per share from continuing operations of $1.15 in the first nine months of
fiscal 2019.
Net income (loss) attributable to Rexnord common stockholders
Our net income attributable to Rexnord common stockholders for the first
nine months of fiscal 2020 was $137.2 million , compared to a net loss
attributable to Rexnord common stockholders of $30.3 million for the first nine
months of fiscal 2019. Diluted net income per share attributable to Rexnord
common stockholders was $1.22 in the first nine months of fiscal 2020, as
compared to a diluted net loss per share attributable to Rexnord common
stockholders of $0.10 per share in the first nine months of fiscal 2019. The
year-over-year change is primarily a result of the $154.3 million , or $1.25 per
diluted share, loss from discontinued operations, net of tax, in the first nine
months of fiscal 2019, and the other factors described above.
Non-GAAP Financial Measures
Non-GAAP financial measures are intended to supplement and not replace financial measures prepared in accordance with GAAP. Core sales
Core sales excludes the impact of acquisitions (such as the Centa China and
StainlessDrains.com acquisitions), divestitures (such as the VAG business) and
foreign currency translation. Management believes that core sales facilitates
easier and more meaningful comparisons of our net sales performance with prior
and future periods and to our peers. We exclude the effect of acquisitions and
divestitures because the nature, size and number of acquisitions and
divestitures can vary dramatically from period to period and between us and our
peers, and can also obscure underlying business trends and make comparisons of
long-term performance difficult. We exclude the effect of foreign currency
translation from this measure because the volatility of currency translation is
not under management's control.
EBITDA
EBITDA represents earnings from continuing operations before interest and
other debt related activities, taxes, depreciation and amortization. EBITDA is
presented because it is an important supplemental measure of performance and it
is frequently used by analysts, investors and other interested parties in the
evaluation of companies in our industry. EBITDA is also presented and compared
by analysts and investors in evaluating our ability to meet debt service
obligations. Other companies in our industry may calculate EBITDA differently.
EBITDA is not a measurement of financial performance under U.S. GAAP and should
not be considered as an alternative to cash flow from operating activities or as
a measure of liquidity or an alternative to net income as indicators of
operating performance or any other measures of performance derived in accordance
with U.S. GAAP. Because EBITDA is calculated before recurring cash charges,
including interest expense and taxes, and is not adjusted for capital
expenditures or other recurring cash requirements of the business, it should not
be considered as a measure of discretionary cash available to invest in the
growth of the business.
Adjusted EBITDA
Adjusted EBITDA (as described below in "Covenant Compliance") is an
important measure because, under our credit agreement, our ability to incur
certain types of acquisition debt and certain types of subordinated debt, make
certain types of acquisitions or asset exchanges, operate our business and make
dividends or other distributions, all of which will impact our financial
performance, is impacted by our Adjusted EBITDA, as our lenders measure our
performance with a net first lien leverage ratio by comparing our senior secured
bank indebtedness to our Adjusted EBITDA (see "Covenant Compliance" for
additional discussion of this ratio, including a reconciliation to our net
income). We reported net income attributable to Rexnord common stockholders in
the nine months ended December 31, 2019 of $137.2 million and Adjusted EBITDA
for the same period of $336.2 million . See "Covenant Compliance" for a
reconciliation of Adjusted EBITDA to net income attributable to Rexnord common
stockholders.
Covenant Compliance
Our credit agreement, which governs our senior secured credit facilities,
contains, among other provisions, restrictive covenants regarding indebtedness,
payments and distributions, mergers and acquisitions, asset sales, affiliate
transactions, capital expenditures and the maintenance of certain financial
ratios. Payment of borrowings under the credit agreement may be accelerated if
there is an event of default. Events of default include the failure to pay
principal and interest when due, a material breach of a representation or
warranty, certain non-payments or defaults under other indebtedness, covenant
defaults, events of bankruptcy and a change of control. Certain covenants
contained in the credit agreement restrict our ability to take certain
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actions, such as incurring additional debt or making acquisitions, if we are
unable to meet a maximum total net leverage ratio of 6.75 to 1.0 as of the end
of each fiscal quarter. At December 31, 2019 , our net leverage ratio was 2.0 to
1.0. Failure to comply with these covenants could limit our long-term growth
prospects by hindering our ability to borrow under the revolver, to obtain
future debt and/or to make acquisitions.
"Adjusted EBITDA" is the term we use to describe EBITDA as defined and
adjusted in our credit agreement, which is net income, adjusted for the items
summarized in the table below. Adjusted EBITDA is intended to show our
unleveraged, pre-tax operating results and therefore reflects our financial
performance based on operational factors, excluding non-operational, non-cash or
non-recurring losses or gains. In view of our debt level, it is also provided to
aid investors in understanding our compliance with our debt covenants. Adjusted
EBITDA is not a presentation made in accordance with GAAP, and our use of the
term Adjusted EBITDA varies from others in our industry. This measure should not
be considered as an alternative to net income, income from operations or any
other performance measures derived in accordance with GAAP. Adjusted EBITDA has
important limitations as an analytical tool, and should not be considered in
isolation, or as a substitute for analysis of our results as reported under
GAAP. For example, Adjusted EBITDA does not reflect: (a) our capital
expenditures, future requirements for capital expenditures or contractual
commitments; (b) changes in, or cash requirements for, our working capital
needs; (c) the significant interest expenses, or the cash requirements necessary
to service interest or principal payments, on our debt; (d) tax payments that
represent a reduction in cash available to us; (e) any cash requirements for the
assets being depreciated and amortized that may have to be replaced in the
future; or (f) the impact of earnings or charges resulting from matters that we
and the lenders under our credit agreement may not consider indicative of our
ongoing operations. In particular, our definition of Adjusted EBITDA allows us
to add back certain non-cash, non-operating or non-recurring charges that are
deducted in calculating net income, even though these are expenses that may
recur, vary greatly and are difficult to predict and can represent the effect of
long-term strategies as opposed to short-term results.
In addition, certain of these expenses can represent the reduction of cash
that could be used for other corporate purposes. Further, although not included
in the calculation of Adjusted EBITDA below, the measure may at times allow us
to add estimated cost savings and operating synergies related to operational
changes ranging from acquisitions or dispositions to restructuring, and/or
exclude one-time transition expenditures that we anticipate we will need to
incur to realize cost savings before such savings have occurred.
The calculation of Adjusted EBITDA under our credit agreement as of
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Set forth below is a reconciliation of net income attributable to Rexnord common stockholders to Adjusted EBITDA for the periods indicated below.
Nine months ended Year ended Nine months ended Twelve months ended
(in millions) December 31, 2018 March 31, 2019 December 31, 2019 December 31, 2019
Net (loss) income attributable to Rexnord
common stockholders $ (30.3) $ 11.1 $ 137.2 $ 178.6
Dividends on preferred stock 17.4 23.2 14.4 20.2
Non-controlling interest (loss) income (0.1) - 0.2 0.3
Loss from discontinued operations, net of
tax 154.3 154.7 1.8 2.2
Equity method investment income (3.5) (3.6) (0.2) (0.3)
Income tax provision 40.8 53.4 47.7 60.3
Other (income) expense, net (1) (3.3) 1.2 1.0 5.5
Gain on the extinguishment of debt (5.0) (4.3) (1.0) (0.3)
Interest expense, net 54.1 69.9 45.2 61.0
Depreciation and amortization 66.0 87.9 64.3 86.2
EBITDA $ 290.4 $ 393.5 $ 310.6 $ 413.7
Adjustments to EBITDA:
Restructuring and other similar charges
(2) 9.4 12.1 8.9 11.6
Stock-based compensation expense 17.3 22.6 18.7 24.0
Last-in first-out inventory adjustments
(3) 0.8 6.7 (2.2) 3.7
Acquisition-related fair value adjustment 3.5 3.6 0.7 0.8
Other, net (4) 1.5 4.3 (0.5) 2.3
Subtotal of adjustments to EBITDA $ 32.5 $ 49.3 $ 25.6 $ 42.4
Adjusted EBITDA $ 322.9 $ 442.8 $ 336.2 $ 456.1
Pro forma adjustment for acquisitions (5) $ 2.2
Pro forma Adjusted EBITDA $ 458.3
Consolidated indebtedness (6) $ 924.0
Total net leverage ratio (7) 2.0
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(1)Other (income) expense, net for the periods indicated, consists primarily of gains and losses from foreign currency transactions, the non-service cost components of net periodic benefit costs associated with our defined benefit plans and other actuarial gains and losses. (2)Restructuring and other similar charges is comprised of costs associated with workforce reductions, impairment of related manufacturing facilities, equipment and intangible assets, lease termination costs, and other facility rationalization costs. See Item 1, Note 3, Restructuring and Other Similar Charges for more information. (3)Last-in first-out (LIFO) inventory adjustments are excluded in calculating Adjusted EBITDA as defined in our credit agreement. (4)Other, net for the periods indicated, consists primarily gains and losses on the disposition of long-lived assets and cash dividends received from our equity method investment. (5)Represents a pro forma adjustment to include Adjusted EBITDA related to the acquisitions ofCenta China and StainlessDrains.com, as permitted by our credit agreement. The pro forma adjustment includes the period fromJanuary 1, 2019 through the dates of the Centa China and StainlessDrains.com acquisitions. See Item 1, Note 2, Acquisitions for more information. (6)Our credit agreement defines our consolidated indebtedness as the sum of all indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of indebtedness for borrowed money and capitalized lease obligations, less unrestricted cash, which was$224.5 million (as defined by the credit agreement) atDecember 31, 2019 . (7)Our credit agreement defines the total net leverage ratio as the ratio of consolidated indebtedness (as described above) to Adjusted EBITDA for the trailing four fiscal quarters. 49 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Our primary sources of liquidity are available cash and cash equivalents, cash flow from operations, borrowing availability of up to$264.0 million under our revolving credit facility and availability of up to$100.0 million under our accounts receivable securitization program. As ofDecember 31, 2019 , we had$277.0 million of cash and cash equivalents and$348.0 million of additional borrowing capacity ($258.9 million of available borrowings under our revolving credit facility and$89.1 million available under our accounts receivable securitization program). As ofDecember 31, 2019 , the available borrowings under our credit facility and accounts receivable securitization were reduced by$12.0 million due to outstanding letters of credit. As ofMarch 31, 2019 , we had$292.5 million of cash and cash equivalents and approximately$351.3 million of additional borrowing capacity ($258.4 million of available borrowings under our revolving credit facility and$92.9 million available under our accounts receivable securitization program). OnJanuary 27, 2020 , our Board of Directors declared an initial quarterly cash dividend on our common stock of$0.08 per-share to be paid onMarch 6, 2020 , to stockholders of record as ofFebruary 21, 2020 . In addition, the Board of Directors approved increasing our existing share repurchase authority to$300.0 million of available capacity under the Repurchase Program. See Note 8, Stockholders' Equity, for additional information about the Repurchase Program. Both our revolving credit facility and accounts receivable securitization program are available to fund our working capital requirements, capital expenditures and for other general corporate purposes. Cash Flows Net cash provided by operating activities was$174.7 million and$145.3 million in the first nine months of fiscal 2020 and 2019, respectively. Incremental profit generated in the first nine months of fiscal 2020 and lower trade working capital were partially offset by the timing of payments on accrued expenses. Cash used for investing activities was$49.0 million in the first nine months of fiscal 2020 compared to$14.7 million in the first nine months of fiscal 2019. Investing activities in the first nine months of fiscal 2020 primarily included$25.5 million of capital expenditures and$25.1 million in connection with acquisitions, partially offset by the receipt of$2.9 million in connection with the sale of certain long-lived assets. Investing activities during the first nine months of fiscal 2019 included$26.5 million of capital expenditures and$2.0 million for an acquisition of assets, partially offset by the receipt of$3.5 million in connection with the sale of certain long-lived assets. Cash used for financing activities was$138.5 million in the first nine months of fiscal 2020 compared to$36.9 million in the first nine months of fiscal 2019. During the first nine months of fiscal 2020, we utilized a net$110.3 million of cash for payments on outstanding debt (including$100.0 million for a voluntary prepayment on our term loan in the third quarter of fiscal 2020),$20.0 million for repurchases of our common stock (see Item 1, Note 8 Stockholders' Equity for additional details) and$17.4 million for the payment of preferred stock dividends. The first nine months of fiscal 2020 also includes$16.8 million of cash proceeds associated with stock option exercises, partially offset by$7.6 million of cash used for the payment of withholding taxes on employees' share-based payment awards. During the first nine months of fiscal 2019, we utilized a net$22.9 million of cash for the payment of outstanding debt and$17.4 million for the payment of preferred stock dividends. The first nine months of fiscal 2019 also includes$6.6 million of cash proceeds associated with stock option exercises, partially offset by$3.2 million of cash used for the payment of withholding taxes on employees' share-based payment awards. Indebtedness
As of
Total Debt at Current Maturities of Long-term
December 31, 2019 Debt Portion
Term loan (1) $ 620.6 $ - $ 620.6
4.875% Senior Notes due 2025 (2) 495.5 - 495.5
Finance leases and other subsidiary
debt 32.5 1.4 31.1
Total $ 1,148.6 $ 1.4 $ 1,147.2 ___________________________________________
(1)Includes unamortized debt issuance costs of
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