UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_________________________________________________

FORM 10-Q

(Mark one)
	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the quarter ended June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the transition period from            to

Commission File Number: 001-35475

_________________________________________________

REXNORD CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		20-5197013
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
511 W. Freshwater Way		53204
Milwaukee,	Wisconsin	(Zip Code)
(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (414) 643-3739

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $.01 par value	RXN	The 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  ☒    No   ☐

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 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.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	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 Exchange Act Rule 12b-2).    Yes  ☐    No   ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 

Class	Outstanding at July 16, 2021
Rexnord Corporation Common Stock, $0.01 par value per share	121,105,357 shares

TABLE OF CONTENTS

 

Part I FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	47
Part II OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 6.	Exhibits	52
Signatures		53

2

Private Securities Litigation Reform Act Safe Harbor Statement

    Our disclosure and analysis in this report concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in developing and expanding our business and the realization of sales from our backlog, include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements. Although these statements are based upon reasonable assumptions, including projections of orders, sales, operating margins, earnings, cash flows, research and development costs, working capital and capital expenditures, they are subject to risks and uncertainties that are described more fully herein and in our Transition Report on Form 10-K for the transition period ended December 31, 2020, in Part I, Item 1A, “Risk Factors” and in Part I under the heading "Cautionary Notice Regarding Forward-Looking Statements", as well as in our other filings with the Securities and Exchange Commission. In addition, our previously announced transaction with Regal Beloit Corporation is subject to various risks, uncertainties and factors including, among others: the inability to complete the transaction; the inability to recognize the anticipated benefits of the proposed transaction, including due to the failure to receive required security holder approvals, or the failure of other closing conditions; and costs related to the proposed transaction; see also Part II, Item 1A, "Risk Factors" herein. Accordingly, we can give no assurance that we will achieve the results anticipated or implied by our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. In addition, the effects of the ongoing COVID-19 pandemic on our employees, customers and supply chain, including those related to governmental actions, all of which are uncertain at this time, may, among other impacts, heighten the effects on our business, results of operations and financial condition of the risk factors identified in our Transition Report on Form 10-K.

General

    Following the end of our fiscal year ended March 31, 2020, we transitioned to a December 31 fiscal year-end date. The nine-month period from April 1, 2020, to December 31, 2020, served as a transition period, and we provided one-time, nine-month transitional financial statements for the transition period in a Transition Report on Form 10-K on February 16, 2021. Prior to the transition period, our fiscal year was the year ending on March 31 of the corresponding calendar year. For example, our fiscal year 2020, or fiscal 2020, was the period from April 1, 2019, to March 31, 2020. Our fiscal year 2021 commenced on January 1, 2021.

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PART I - FINANCIAL INFORMATION

ITEM  1.    FINANCIAL STATEMENTS

Rexnord Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(in Millions, except share amounts)

(Unaudited) 

	June 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	390.7	$	255.6
Receivables, net	330.3		274.8
Inventories	360.9		330.1
Income tax receivable	5.8		9.8
Other current assets	57.2		37.4
Total current assets	1,144.9		907.7
Property, plant and equipment, net	412.7		434.8
Intangible assets, net	509.2		524.6
Goodwill	1,375.0		1,370.1
Other assets	160.5		163.9
Total assets	$	3,602.3	$	3,401.1
Liabilities and stockholders' equity
Current liabilities:
Current maturities of debt	$	2.4	$	2.4
Trade payables	191.4		129.4
Compensation and benefits	54.7		57.0
Current portion of pension and postretirement benefit obligations	3.1		3.1
Other current liabilities	131.1		125.6
Total current liabilities	382.7		317.5
Long-term debt	1,189.5		1,189.2
Pension and postretirement benefit obligations	164.9		171.4
Deferred income taxes	115.2		119.4
Other liabilities	162.5		164.3
Total liabilities	2,014.8		1,961.8
Stockholders' equity:
Common stock, $0.01 par value; 200,000,000 shares authorized; shares issued and outstanding: 121,065,912 at June 30, 2021 and 119,549,735 at December 31, 2020	1.2		1.2
Additional paid-in capital	1,436.7		1,392.9
Retained earnings	216.7		116.0
Accumulated other comprehensive loss	(70.3)		(73.8)
Total Rexnord stockholders' equity	1,584.3		1,436.3
Non-controlling interest	3.2		3.0
Total stockholders' equity	1,587.5		1,439.3
Total liabilities and stockholders' equity	$	3,602.3	$	3,401.1

See notes to the condensed consolidated financial statements.

4

Rexnord Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(in Millions, except share and per share amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Net sales	$	568.3	$	449.1	$	1,094.4	$	996.1
Cost of sales	332.5		272.2		650.7		602.7
Gross profit	235.8		176.9		443.7		393.4
Selling, general and administrative expenses	122.0		100.2		241.3		213.0
Restructuring and other similar charges	1.1		1.7		1.7		8.3
Amortization of intangible assets	9.1		9.0		18.5		18.1
Income from operations	103.6		66.0		182.2		154.0
Non-operating expense:
Interest expense, net	(11.7)		(13.4)		(22.7)		(26.8)
Actuarial loss on pension and postretirement benefit obligations	—		—		—		(35.8)
Other income (expense), net	1.7		0.4		1.3		(3.2)
Income before income taxes	93.6		53.0		160.8		88.2
Provision for income taxes	(20.5)		(17.2)		(37.7)		(23.6)
Equity method investment income (loss)	0.2		—		0.3		(0.2)
Net income	73.3		35.8		123.4		64.4
Non-controlling interest income	0.1		0.2		0.2		0.3
Net income attributable to Rexnord	$	73.2	$	35.6	123.2		64.1
Net income per share attributable to Rexnord:
Basic	$	0.61	$	0.30	$	1.03	$	0.53
Diluted	$	0.59	$	0.29	$	0.99	$	0.52
Weighted-average number of shares outstanding (in thousands):
Basic	120,465		120,246		120,138		121,013
Effect of dilutive equity awards	3,832		1,802		3,953		2,374
Diluted	124,297		122,048		124,091		123,387

See notes to the condensed consolidated financial statements.

5

Rexnord Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in Millions)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Net income attributable to Rexnord	$	73.2	$	35.6	$	123.2	$	64.1
Other comprehensive income (loss):
Foreign currency translation adjustments	5.4		6.4		3.7		(9.9)
Change in pension and postretirement defined benefit plans, net of tax	(0.1)		(0.1)		(0.2)		(3.8)
Other comprehensive income (loss), net of tax	5.3		6.3		3.5		(13.7)
Non-controlling interest income	0.1		0.2		0.2		0.3
Total comprehensive income	$	78.6	$	42.1	$	126.9	$	50.7

See notes to the condensed consolidated financial statements.

6

Rexnord Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in Millions)

(Unaudited)

	Six Months Ended
	June 30, 2021		June 30, 2020
Operating activities
Net income	$	123.4	$	64.4
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	28.1		25.9
Amortization of intangible assets	18.5		18.1
Gains on dispositions of long-lived assets	(9.2)		(0.7)
Deferred income taxes	(4.0)		(5.3)
Other non-cash (income) expenses	(1.3)		2.6
Actuarial loss on pension and postretirement benefit obligations	—		35.8
Stock-based compensation expense	27.0		21.5
Changes in operating assets and liabilities:
Receivables	(61.7)		(1.4)
Inventories	(30.7)		5.0
Other assets	(8.9)		18.6
Accounts payable	62.1		(17.7)
Accruals and other	1.7		4.7
Cash provided by operating activities	145.0		171.5
Investing activities
Expenditures for property, plant and equipment	(14.0)		(24.4)
Acquisitions, net of cash acquired	(3.4)		(59.4)
Proceeds from dispositions of long-lived assets	13.0		2.1
Cash used for investing activities	(4.4)		(81.7)
Financing activities
Proceeds from borrowings of debt	—		325.0
Repayments of debt	(1.1)		(250.6)
Proceeds from exercise of stock options	19.4		25.5
Taxes withheld and paid on employees' share-based payment awards	(1.4)		(9.4)
Repurchase of common stock	(0.9)		(80.7)
Payment of common stock dividends	(21.6)		(19.4)
Cash used for financing activities	(5.6)		(9.6)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	0.1		(3.8)
Increase in cash, cash equivalents and restricted cash	135.1		76.4
Cash, cash equivalents and restricted cash at beginning of period	255.6		277.0
Cash, cash equivalents and restricted cash at end of period	$	390.7	$	353.4

See notes to the condensed consolidated financial statements.

7

Rexnord Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2021

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

    The unaudited condensed consolidated financial statements included herein have been prepared by Rexnord Corporation (“Rexnord” or the “Company”) in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

    In the opinion of management, the condensed consolidated financial statements include all adjustments necessary for a fair presentation of the results of operations for the interim periods. Following the end of the Company's fiscal year ended March 31, 2020, the Company transitioned to a December 31 fiscal year-end date. Results for the interim periods are not necessarily indicative of results that may be expected for the year ending December 31, 2021. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Transition Report on Form 10-K for the nine-month transition period ended December 31, 2020 (the "Transition Period").

The Company

    Rexnord is a growth-oriented, multi-platform industrial company with what it believes to be leading market shares and highly-trusted brands that serve a diverse array of global end markets. The Company's heritage of innovation and specification have allowed it to provide highly-engineered, mission-critical solutions to customers for decades and affords it the privilege of having long-term, valued relationships with market leaders. The Company operates in a disciplined way and the Rexnord Business System (“RBS”) is its 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 its business.

    The Process & Motion Control platform designs, manufactures, markets and services a comprehensive range of specified, highly-engineered mechanical components used within complex systems where the Company's customers' reliability requirements and costs of failure or downtime are high. The Process & Motion Control portfolio includes motion control products, shaft management products, aerospace components, and related value-added services.

    The Water Management platform designs, procures, manufactures, and markets products that provide and enhance water quality, safety, flow control and conservation. The Water Management product portfolio includes professional grade water control and safety, water distribution and drainage, finish plumbing, hygienic and environmental site works products for primarily nonresidential buildings.

Expected Spin-Off of Process & Motion Control Segment

On February 15, 2021, Rexnord and Regal Beloit Corporation (“Regal”) entered into definitive agreements whereby Rexnord will separate its Process & Motion Control segment by way of a tax-free spin-off to Rexnord’s stockholders and then immediately combine it with Regal in a Reverse Morris Trust (“RMT”) transaction. Closing of this transaction is subject to various closing conditions, including the receipt of regulatory approvals, receipt of the approval of Regal and Rexnord stockholders (which each of Regal and Rexnord will solicit at special meetings of their respective stockholders at a later date), and other customary closing conditions. This transaction is expected to close during the second half of 2021.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate that is expected to be discontinued because of reference rate reform. The amendments in this update provide optional expedients and exceptions for applying GAAP to instruments affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this ASU are effective for all entities as of March 12, 2020,

8

through December 31, 2022. The Company did not modify any material contracts due to reference rate reform during the three and six months ended June 30, 2021. The Company will continue to evaluate the impact this guidance will have on its consolidated financial statements for all future transactions affected by reference rate reform during the time period referenced above.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The FASB issued this update as part of its initiative to reduce complexity in accounting standards. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also improve consistent application of other areas by clarifying and amending existing guidance. ASU 2019-12 is effective for public business entities with fiscal years beginning after December 15, 2020, and early adoption is permitted. The Company adopted this ASU on January 1, 2021, using a retrospective, modified retrospective or prospective basis for certain amendments. There was no impact to the condensed consolidated financial statements.     

9

2. Acquisitions and Divestiture

Six Months Ended June 30, 2021

On April 16, 2021, the Company acquired substantially all of the assets of Advance Technology Solutions, LLC (d/b/a ATS GREASEwatch) ("ATS GREASEwatch") for a cash purchase price of $4.5 million, excluding transaction costs and net of cash acquired. The Company paid $3.8 million to the sellers at closing, with the remaining $0.7 million payable to the sellers upon settlement of certain indemnities within two years of closing, ATS GREASEwatch, headquartered in Saginaw, Michigan, develops, manufactures and markets remote tank monitoring devices, alarms, software and services for various applications and provides technology to enhance and expand our current product offerings within the Company's existing Water Management platform.

The acquisition has been accounted for as a business combination and was recorded by allocating the purchase price to the fair value of assets acquired and liabilities assumed at the acquisition date. The excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill. The purchase price allocation associated with the acquisition resulted in goodwill of $2.7 million, other intangibles assets of $1.6 million and $0.2 million of other net assets. This acquisition did not materially affect the Company's condensed consolidated statements of operations or financial position.

Nine Month Transition Period Ended December 31, 2020

On December 11, 2020, the Company acquired substantially all of the assets of Hadrian Manufacturing Inc. and 100% of the stock of Hadrian Inc. (collectively, "Hadrian") for a total cash purchase price of $101.3 million, excluding transaction costs and net of cash acquired. During the six months ended June 30, 2021, the Company received a cash payment of $0.4 million from the sellers in connection with finalizing the acquisition date trade working capital, which is included in the total cash purchase price mentioned above. Hadrian, based in Burlington, Ontario, Canada, manufactures washroom partitions and lockers primarily used in institutional and commercial end markets and complements the Company's existing Water Management platform.

The acquisition has been accounted for as a business combination and was recorded by allocating the preliminary purchase price to the fair value of assets acquired and liabilities assumed at the acquisition date. The excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill. The preliminary purchase price allocations associated with the acquisition resulted in goodwill of $43.0 million ($37.0 million tax deductible), other intangible assets of $32.4 million (including tradenames of $0.8 million and $31.6 million of customer relationships), $17.1 million of fixed assets, $9.7 million of trade working capital and other net liabilities of $0.9 million. The preliminary purchase price allocations for Hadrian were adjusted during the six months ended June 30, 2021, resulting in a $0.2 million increase in goodwill related to aforementioned cash payment received, partially offset by the refinement of the estimated fair value of the liabilities assumed. The Company is continuing to evaluate the preliminary purchase price allocations for Hadrian related to the fair values assigned to fixed assets and net working capital acquired, which will be completed within the one year period following its acquisition date.

On October 1, 2020, the Company completed the sale of its gearbox product line in China within its Process & Motion Control platform for aggregate cash consideration of $5.8 million. The gearbox product line was not material to the Company's consolidated statements of operations or financial position and did not meet the criteria to be presented as discontinued operations. In completing the sale, the Company sold inventory, fixed assets and other intellectual property associated with the business with a carrying value of $5.0 million. In addition, the Company allocated $1.8 million of goodwill from the Process & Motion Control platform that was included in the calculation of the gain on sale of the business. The Company recognized a gain of $0.8 million within other income (expense), net in the condensed consolidated statements of operations during the nine months ended December 31, 2020.

On November 24, 2020, the Company acquired the remaining non-controlling interest in a Process & Motion Control joint venture for a cash purchase price of $0.3 million. The acquisition of the remaining minority interest was not material to the Company's condensed consolidated statements of operations or financial position.

The Company's results of operations include the acquired operations subsequent to the acquisition date. Pro-forma results of operations and certain other U.S. GAAP disclosures related to the acquisition have not been presented because they are not significant to the Company's condensed consolidated statements of operations or financial position.     

10

Fiscal Year Ended March 31, 2020

On January 28, 2020, the Company acquired substantially all of the assets of Just Manufacturing Company ("Just Manufacturing") for a cash purchase price of $59.4 million, excluding transaction costs and net of cash 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 the Company's existing Water Management platform.

On May 10, 2019, the Company acquired substantially all of the assets of 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 the Company's existing Water Management platform.

The Company's results of operations include the acquired operations subsequent to the aforementioned acquisitions dates. Pro-forma results of operations and certain other U.S. GAAP disclosures related to these acquisitions have not been presented because they are not significant to the Company's condensed consolidated statements of operations or financial position.

These acquisitions have been accounted for as business combinations and were recorded by allocating the purchase price to the fair value of assets acquired and liabilities assumed at the acquisition date. The excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill. The purchase price allocations associated with these acquisitions resulted in tax deductible goodwill of $27.3 million, other intangible assets of $40.9 million (including tradenames of $2.2 million and $38.7 million of customer relationships), $8.4 million of fixed assets, $9.1 million of trade working capital and other net liabilities of $1.5 million.

During the fiscal year ended March 31, 2020, the Company acquired the remaining non-controlling interest in a Process and Motion Control joint venture for a cash purchase price of $0.3 million. The acquisition of the remaining minority interest was not material to the Company's condensed consolidated statements of operations or financial position.

3. Restructuring and Other Similar Charges

During the three and six months ended June 30, 2021, the Company continued to execute various restructuring actions. These initiatives were implemented to drive efficiencies and reduce operating costs while also modifying the Company's footprint to reflect changes in the markets it serves, the impact of acquisitions on the Company's overall manufacturing capacity and the refinement of its overall product portfolio. These restructuring actions primarily resulted in workforce reductions, lease termination costs, and other facility rationalization costs. Management expects to continue executing initiatives and select product-line rationalizations to optimize its operating margin and manufacturing footprint. As such, the Company expects further expenses related to workforce reductions, lease termination costs, and other facility rationalization costs. Since the Company’s evaluation of other potential restructuring actions are in process, related restructuring expenses, if any, are not yet estimable.

    The following table summarizes the Company's restructuring and other similar charges during the three and six months ended June 30, 2021 and June 30, 2020, by classification of operating segment (in millions):

	Restructuring and Other Similar Charges Three Months Ended June 30, 2021
	Process & Motion Control		Water Management		Corporate		Consolidated
Employee termination benefits	$	0.3	$	0.3	$	—	$	0.6
Contract termination and other associated costs	0.5		—		—		0.5
Total restructuring and other similar costs	$	0.8	$	0.3	$	—	$	1.1

	Restructuring and Other Similar Charges Six Months Ended June 30, 2021
	Process & Motion Control		Water Management		Corporate		Consolidated
Employee termination benefits	$	0.2	$	0.9	$	—	$	1.1
Contract termination and other associated costs	0.6		—		—		0.6
Total restructuring and other similar costs	$	0.8	$	0.9	$	—	$	1.7

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	Restructuring and Other Similar Charges Three Months Ended June 30, 2020
	Process & Motion Control		Water Management		Corporate		Consolidated
Employee termination benefits	$	0.2	$	0.9	$	0.1	$	1.2
Contract termination and other associated costs	0.5		—		—		0.5
Total restructuring and other similar costs	$	0.7	$	0.9	$	0.1	$	1.7

	Restructuring and Other Similar Charges Six Months Ended June 30, 2020
	Process & Motion Control		Water Management		Corporate		Consolidated
Employee termination benefits	$	5.5	$	1.0	$	0.2	$	6.7
Contract termination and other associated costs	1.4		0.1		0.1		1.6
Total restructuring and other similar costs	$	6.9	$	1.1	$	0.3	$	8.3

The following table summarizes the activity in the Company's restructuring accrual for the six months ended June 30, 2021 (in millions):

	Employee termination benefits		Contract termination and other associated costs		Total
Restructuring accrual, December 31, 2020 (1)	$	6.1	$	0.7	$	6.8
Charges	1.1		0.6		1.7
Cash payments	(4.8)		(1.0)		(5.8)
Restructuring accrual, June 30, 2021 (1)	$	2.4	$	0.3	$	2.7

____________________

(1)The restructuring accrual is included in other current liabilities in the condensed consolidated balance sheets.

    In connection with the ongoing supply chain optimization and footprint repositioning initiatives, the Company has taken several actions to consolidate existing manufacturing facilities and rationalize its product offerings. These actions require the Company to assess whether the carrying amount of impacted long-lived assets will be recoverable as well as whether the remaining useful lives require adjustment. As a result, the Company recognized accelerated depreciation of zero and $0.6 million during the three and six months ended June 30, 2021, and zero and $0.6 million during the three and six months ended June 30, 2020, respectively. Accelerated depreciation is recorded within Cost of sales in the condensed consolidated statements of operations. In addition, the Company disposed of certain long-lived assets in connection with these supply chain optimization and footprint repositioning initiatives. During the three and six months ended June 30, 2021, the Company recognized within its Process and Motion Control segment net gains on the disposal of assets of $9.4 million and $9.2 million, respectively. During the three and six months ended June 30, 2020, the Company recognized net gains on the disposal of assets of $0.5 million and $0.7 million, respectively. The gains recognized during the three months ended June 30, 2020 were recognized within the Process and Motion Control segment. During the six months ended June 30, 2020, the Company recognized gains of $0.3 million and $0.4 million within its Process and Motion Control and Water Management segments, respectively. The aforementioned net gains on the disposal of assets are recorded within Cost of sales in the condensed consolidated statements of operations.

4. Revenue Recognition

    A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606, Revenue from Contracts with Customers ("ASC 606"). A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when obligations under the terms of a contract with the customer are satisfied. For the majority of the Company's product sales, revenue is recognized at a point-in-time when control of the product is transferred to the customer, which generally occurs when the product is shipped from the Company's manufacturing facility to the customer.

    When contracts include multiple products to be delivered to the customer, generally each product is separately priced and is determined to be distinct within the context of the contract. Other than a standard assurance-type warranty that the product will conform to agreed-upon specifications, there are generally no other significant post-shipment obligations. The

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expected costs associated with standard warranties continues to be recognized as an expense when the products are sold. When the contract provides the customer the right to return eligible products or when the customer is part of a sales rebate program, the Company reduces revenue at the point of sale using current facts and historical experience by using an estimate for expected product returns and rebates associated with the transaction. The Company adjusts these estimates at the earlier of when the most likely amount of consideration that is expected to be received changes or when the consideration becomes fixed. Accordingly, an increase or decrease to revenue is recognized at that time.

    Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue. The Company has elected to recognize the cost for freight and shipping when control of products has transferred to the customer as a component of cost of sales in the condensed consolidated statements of operations. The Company classifies shipping and handling fees billed to customers as net sales and the corresponding costs are classified as Cost of sales in the condensed consolidated statements of operations.

Revenue by Category

The Company has two business segments, Process & Motion Control and Water Management. The following tables present our revenue disaggregated by customer type and originating geography (in millions):

	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Original equipment manufacturers/end users	$	177.3	$	158.4	$	357.6	$	359.2
Maintenance, repair, and operations	147.3		116.0		287.9		278.8
Total Process & Motion Control	$	324.6	$	274.4	$	645.5	$	638.0
Water safety, quality, flow control and conservation	$	225.9	$	163.2	$	415.7	$	334.1
Water infrastructure	17.8		11.5		33.2		24.0
Total Water Management	$	243.7	$	174.7	$	448.9	$	358.1

	Three Months Ended June 30, 2021				Six Months Ended June 30, 2021
	Process & Motion Control		Water Management		Process & Motion Control		Water Management
United States and Canada	$	198.7	$	242.8	$	389.5	$	446.6
Europe	74.7		—		154.3		—
Rest of world	51.2		0.9		101.7		2.3
Total	$	324.6	$	243.7	$	645.5	$	448.9

	Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
	Process & Motion Control		Water Management		Process & Motion Control		Water Management
United States and Canada	$	169.1	$	171.9	$	401.4	$	351.3
Europe	65.6		—		147.8		—
Rest of world	39.7		2.8		88.8		6.8
Total	$	274.4	$	174.7	$	638.0	$	358.1

Contract Balances

For substantially all of the Company's Process & Motion Control and Water Management product sales, the customer is billed 100% of the contract value when the product ships and payment is generally due 30 days from shipment. Certain contracts include longer payment periods; however, the Company has elected to utilize the practical expedient in which the Company will only recognize a financing component to the sale if payment is due more than one year from the date of shipment.

    The Company receives payment from customers based on the contractual billing schedule and specific performance requirements established in the contract. Billings are recorded as accounts receivable when an unconditional right to the contractual consideration exists. Contract assets arise when the Company performs by transferring goods or services to a customer before the customer pays consideration, or before the customer’s payment is due. A contract liability exists when the Company has received consideration or the amount is due from the customer in advance of revenue recognition. Contract

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liabilities and contract assets are recognized in Other current liabilities and Receivables, net, respectively, in the Company's condensed consolidated balance sheets.

The following table presents changes in the Company’s contract assets and liabilities during the six months ended June 30, 2021 (in millions):

	Balance Sheet Classification	December 31, 2020		Additions		Deductions		June 30, 2021
Contract assets	Receivables, net	$	0.1	$	—	$	(0.1)	$	—
Contract liabilities (1)	Other current liabilities	$	4.0	$	1.4	$	(0.5)	$	4.9

____________________

(1)Contract liabilities are reduced when revenue is recognized.

Backlog

    The Company has a backlog of $435.2 million as of June 30, 2021, which represents the most likely amount of consideration expected to be received in satisfying the remaining backlog under open contracts. The Company has elected to use the optional exemption provided by ASC 606-10-50-14A for variable consideration, and has not included estimated rebates in the amount of unsatisfied performance obligations. The Company expects to recognize approximately 83% of the unsatisfied performance obligations as revenue in the remaining six months of the year ending December 31, 2021, and the remaining approximately 17% in 2022 and beyond.

Timing of Performance Obligations Satisfied at a Point in Time

The Company determined that the customer is able to control the product when it is delivered to them; thus, depending on the shipping terms, control will transfer at different points between the Company's manufacturing facility or warehouse and the customer’s location. The Company considers control to have transferred upon shipment or delivery because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.

Variable Consideration

The Company provides volume-based rebates and the right to return product to certain customers, which are accrued for based on current facts and historical experience. Rebates are paid either on an annual or quarterly basis. There are no other significant variable consideration elements included in the Company's contracts with customers.

Contract Costs

The Company has elected to expense contract costs as incurred if the amortization period is expected to be one year or less. If the amortization period of these costs is expected to be greater than one year, the costs would be subject to capitalization. As of June 30, 2021, the contract assets capitalized, as well as amortization recognized in the three and six months ended June 30, 2021, are not significant and there have been no impairment losses recognized.

Allowance for Doubtful Accounts

The Company assesses the collectability of customer receivables based on the credit worthiness of a customer as determined by credit checks and analysis, as well as the customer’s payment history. In determining the allowance for doubtful accounts, the Company also considers various factors including the aging of customer accounts and historical write-offs. In addition, the Company monitors other risk factors, including forward-looking information when establishing adequate allowances for doubtful accounts, which reflects the current estimate of credit losses expected to be incurred over the life of the receivables.

5. Income Taxes

The provision for income taxes for all periods presented is based on an estimated effective income tax rate for the respective fiscal years. The estimated annual effective income tax rate is determined excluding the effect of significant discrete items or items that are reported net of their related tax effects. The tax effect of significant discrete items is reflected in the period in which they occur. The Company's income tax expense is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are generally higher than the U.S. federal statutory rate, state tax rates in the jurisdictions where the Company does business and the Company's ability to utilize various tax credits, capital loss and net operating loss (“NOL”) carryforwards.

The Company regularly reviews its deferred tax assets for recoverability and valuation allowances are established based on historical losses, projected future taxable income and the expected timing of the reversals of existing temporary

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differences, as deemed appropriate. In addition, all other available positive and negative evidence is taken into consideration for purposes of determining the proper balances of such valuation allowances. As a result of this review, the Company continues to maintain a full valuation allowance against U.S. federal and state capital loss carryforwards and a partial valuation allowance against certain foreign NOL carryforwards and other related foreign deferred tax assets, as well as certain U.S. state NOL carryforwards. Future changes to the balances of these valuation allowances, as a result of this continued review and analysis by the Company, could result in a material impact to the financial statements for such period of change.

The income tax provision was $20.5 million in the three months ended June 30, 2021, compared to $17.2 million in the three months ended June 30, 2020. The effective income tax rate for the three months ended June 30, 2021, was 21.9% versus 32.5% in the three months ended June 30, 2020. The effective income tax rate for the three months ended June 30, 2021 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”), the accrual of unrecognized income tax benefits in which such realization is not deemed more-likely-than-not, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code and the accrual of various state income taxes, substantially offset by the recognition of certain previously unrecognized tax benefits due to the lapse of the applicable statutes of limitations and the recognition of income tax benefits associated with share-based payments and foreign-derived intangible income (“FDII”). The effective income tax rate for the three months ended June 30, 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 compensation deduction limitations under Section 162(m) of the Internal Revenue Code, the accrual of withholding taxes associated with foreign dividends, and the accrual of various state income taxes, partially offset by the recognition of income tax benefits associated with share-based payments and FDII.

The income tax provision was $37.7 million in the six months ended June 30, 2021, compared to $23.6 million in the six months ended June 30, 2020. The effective income tax rate for the six months ended June 30, 2021 was 23.4% versus 26.8% in the six months ended June 30, 2020. The effective income tax rate for the six months ended June 30, 2021 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, the accrual of unrecognized income tax benefits in which such realization is not deemed more-likely-than-not, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code and the accrual of various state income taxes, partially offset by the recognition of a discrete foreign financing-related income tax benefit, the recognition of certain previously unrecognized tax benefits due to the lapse of the applicable statutes of limitations and the recognition of income tax benefits associated with share-based payments and FDII. The effective income tax rate for the six months ended June 30, 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 compensation deduction limitations under Section 162(m) of the Internal Revenue Code, the accrual of withholding taxes associated with foreign dividends, and the accrual of various state income taxes, partially offset by the recognition of certain previously unrecognized tax benefits due to the lapse of the applicable statutes of limitations as well as the recognition of income tax benefits associated with share-based payments and FDII.

The Company’s total liability for net unrecognized tax benefits as of June 30, 2021 and December 31, 2020, was $18.5 million and $18.6 million, respectively. The Company recognizes accrued interest and penalties related to unrecognized income tax benefits in income tax expense. As of June 30, 2021 and December 31, 2020, the total amount of gross, unrecognized income tax benefits included accrued interest and penalties of $1.4 million and $1.6 million, respectively. The Company recognized $0.2 million and $(0.4) million of net interest and penalties as income tax expense (benefit) during the six months ended June 30, 2021 and June 30, 2020, respectively.

The Company conducts business in multiple locations within and outside the U.S. Consequently, the Company is subject to periodic income tax examinations by domestic and foreign income tax authorities. Currently, the Company is undergoing routine, periodic income tax examinations in both domestic and foreign jurisdictions. During the three months ended June 30, 2020, the Internal Revenue Service (the “IRS”) completed an income tax examination of the Company’s U.S. consolidated federal income tax returns for the tax years ended March 31, 2016 and 2017. The Company paid approximately $1.5 million upon the conclusion of such examination, all of which was previously accrued in the Company’s financial statements. During the three months ended March 31, 2020, the German tax authorities concluded an examination of the corporate income and trade tax returns for the Company’s CENTA German subsidiary for the tax years ended December 31, 2014 through December 31, 2017. The conclusion of the tax examination resulted in additional tax liabilities of approximately $1.7 million, all of which was subject to indemnification under the terms of the applicable purchase agreement or otherwise appropriately accrued in the Company’s financial statements. During the three months ended March 31, 2020, the Italian tax authorities began conducting an income tax examination of the income tax return of one of the Company’s Italian subsidiaries for the tax year ended March 31, 2018. In addition, certain of the Company’s German subsidiaries are currently undergoing a corporate income and trade tax examination by the German tax authorities for the tax years or period ended March 31, 2015

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through March 31, 2018. In addition, in accordance with the terms of the VAG sale agreement, the Company is required to indemnify the purchaser for any future income tax liabilities associated with all open tax years ending prior to, and including, the short period ended on the date of the Company's sale of VAG. The VAG German entities are currently undergoing a corporate income and trade tax examination by the German tax authorities for the tax years ended March 31, 2014 through 2019. It appears reasonably possible that the amounts of unrecognized income tax benefits could change in the next twelve months upon conclusion of the Company’s current ongoing examinations; however, any potential payments of income tax, interest and penalties are not expected to be significant to the Company's consolidated financial statements. With certain exceptions, the Company is no longer subject to U.S. federal income tax examinations for tax years ending prior to March 31, 2018, state and local income tax examinations for years ending prior to March 31, 2017 or significant foreign income tax examinations for years ending prior to March 31, 2016.

6. Earnings per Share

    Basic net income per share is computed by dividing net income attributable to Rexnord by the corresponding weighted average number of common shares outstanding for the period. Diluted net income per share is computed based on the weighted average common shares outstanding increased by the number of incremental shares that would have been outstanding if the potential dilutive shares were issued through the exercise of outstanding stock options or release of outstanding restricted stock units and performance stock units to purchase common shares, except when the effect would be anti-dilutive. The computation of diluted net income per share for each of the three and six months ended June 30, 2021, excludes 0.2 million shares related to equity awards due to their anti-dilutive effects. The computation of diluted net income per share for the three and six months ended June 30, 2020 excludes 1.2 million and 2.0 million related to equity awards due to their anti-dilutive effects, respectively.

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7. Stockholders' Equity

Stockholders' equity consists of the following (in millions):

	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest		Total stockholders’ equity
Balance at December 31, 2019	$	1.2	$	1,320.9	$	147.9	$	(104.4)	$	2.6	$	1,368.2
Total comprehensive income (loss)	—		—		28.5		(20.0)		0.1		8.6
Stock-based compensation expense	—		8.2		—		—		—		8.2
Proceeds from exercise of stock options	—		19.2		—		—		—		19.2
Repurchase of common stock	—		—		(80.7)		—		—		(80.7)
Common stock dividends ($0.08 per share)	—		—		(9.8)		—		—		(9.8)
Balance at March 31, 2020	$	1.2	$	1,348.3	$	85.9	$	(124.4)	$	2.7	$	1,313.7
Total comprehensive income	—		—		35.6		6.3		0.2		42.1
Stock-based compensation expense	—		10.6		—		—		—		10.6
Proceeds from exercise of stock options	—		6.3		—		—		—		6.3
Taxes withheld and paid on employees' share-based payment awards	—		(9.4)		—		—		—		(9.4)
Common stock dividends ($0.08 per share)	—		—		(9.6)		—		—		(9.6)
Balance at June 30, 2020	$	1.2	$	1,355.8	$	111.9	$	(118.1)	$	2.9	$	1,353.7

	Common stock (1)		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest (2)		Total stockholders’ equity
Balance at December 31, 2020	$	1.2	$	1,392.9	$	116.0	$	(73.8)	$	3.0	$	1,439.3
Total comprehensive income (loss)	—		—		50.0		(1.8)		0.1		48.3
Stock-based compensation expense	—		14.2		—		—		—		14.2
Proceeds from exercise of stock options	—		2.8		—		—		—		2.8
Repurchase of common stock	—		—		(0.9)		—		—		(0.9)
Common stock dividends ($0.09 per share)	—		—		(10.8)		—		—		(10.8)
Balance at March 31, 2021	$	1.2	$	1,409.9	$	154.3	$	(75.6)	$	3.1	$	1,492.9
Total comprehensive income	—		—		73.2		5.3		0.1		78.6
Stock-based compensation expense	—		11.6		—		—		—		11.6
Proceeds from exercise of stock options	—		16.6		—		—		—		16.6
Taxes withheld and paid on employees' share-based payment awards	—		(1.4)		—		—		—		(1.4)
Common stock dividends ($0.09 per share)	—		—		(10.8)		—		—		(10.8)
Balance at June 30, 2021	$	1.2	$	1,436.7	$	216.7	$	(70.3)	$	3.2	$	1,587.5

____________________

(1)For the three and six months ended June 30, 2021, the Company issued 1,348,848 and 1,538,477 shares of common stock upon the exercise of stock options, vesting of restricted stock units, and for other common stock awards, respectively.

(2)On November 24, 2020, the Company acquired the remaining 30% non-controlling interest associated with in one Process & Motion Control joint venture for a cash purchase price of $0.3 million. Following this transaction, represents a 5% non-controlling interest in one remaining Process & Motion Control controlled subsidiary.

Share Repurchase Program

    During fiscal 2015, the Company's Board of Directors approved a common stock repurchase program (the "Repurchase Program") authorizing the repurchase of up to $200.0 million of the Company's common stock from time to time on the open market or in privately negotiated transactions. On January 27, 2020, the Company's Board of Directors approved increasing the remaining share repurchase authority under the Repurchase Program to $300.0 million. The Repurchase Program does not require the Company to acquire any particular amount of common stock and does not specify the timing of purchases or the prices to be paid. During the six months ended June 30, 2021, the Company repurchased 22,300 shares of common stock for a total cost of $0.9 million at a weighted average price of $39.27 per share. During the six months ended June 30, 2020, the Company repurchased 3.0 million shares of common stock at a total cost of $80.7 million at a weighted average price of $27.22 per share. The repurchased shares were canceled by the Company upon receipt. A total of approximately $162.8 million of the existing authority remained under the Repurchase Program at June 30, 2021.

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8. Accumulated Other Comprehensive Loss

    The changes in accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2021, are as follows (in millions):

	Foreign Currency Translation		Pension and Postretirement Plans		Total
Balance at December 31, 2020	$	(46.0)	$	(27.8)	$	(73.8)
Other comprehensive income before reclassifications	3.7		—		3.7
Amounts reclassified from accumulated other comprehensive loss	—		(0.2)		(0.2)
Net current period other comprehensive income (loss)	3.7		(0.2)		3.5
Balance at June 30, 2021	$	(42.3)	$	(28.0)	$	(70.3)

    The following table summarizes the amounts reclassified from accumulated other comprehensive loss to net income during the three and six months ended June 30, 2021 and June 30, 2020 (in millions):

	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		Income Statement Line
Pension and other postretirement plans
Amortization of prior service credit	$	(0.1)	$	(0.1)	$	(0.2)	$	(0.2)	Other income (expense), net
Provision for income taxes	—		—		—		—
Total net of tax	$	(0.1)	$	(0.1)	$	(0.2)	$	(0.2)

9. Inventories

The major classes of inventories are summarized as follows (in millions):

	June 30, 2021		December 31, 2020
Finished goods	$	169.4	$	164.6
Work in progress	41.1		38.6
Purchased components	82.5		70.6
Raw materials	69.7		53.4
Inventories at First-in, First-Out ("FIFO") cost	362.7		327.2
Adjustment to state inventories at Last-in, First-Out ("LIFO") cost	(1.8)		2.9
	$	360.9	$	330.1

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10. Goodwill and Intangible Assets

    The changes in the net carrying value of goodwill for the six months ended June 30, 2021, by operating segment are presented below (in millions):

	Process & Motion Control	Water Management	Consolidated
Net carrying amount as of December 31, 2020	$