Regal Rexnord Corporation

11/05/2024 | Press release | Distributed by Public on 11/05/2024 13:12

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

rbc-20240930
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended September 30, 2024 or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-07283
REGAL REXNORD CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-0875718
(State or other jurisdiction of
incorporation) 		(IRS Employer
Identification No.)
111 West Michigan Street, Milwaukee, Wisconsin 53203
(Address of principal executive offices)
(608) 364-8800
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock RRX New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 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 Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On October 31, 2024 the registrant had outstanding 66,228,082 shares of common stock, $0.01 par value per share.
REGAL REXNORD CORPORATION
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 -
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Income (Loss)
5
Condensed Consolidated Statements of Comprehensive Income (Loss)
6
Condensed Consolidated Balance Sheets
7
Condensed Consolidated Statements of Equity
8
Condensed Consolidated Statements of Cash Flows
9
Notes to Condensed Consolidated Financial Statements
12
1. Basis of Presentation
12
2. Other Financial Information
13
3. Acquisitions and Divestitures
14
4. Accumulated Other Comprehensive Income (Loss)
20
5. Goodwill and Intangible Assets
21
6. Segment Information
22
7. Debt and Bank Credit Facilities
26
8. Retirement Plans
28
9. Shareholders' Equity
28
10. Income Taxes
29
11. Earnings Per Share
30
12. Contingencies
30
13. Derivative Financial Instruments
32
14. Fair Value
36
15. Restructuring Activities
37
Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of Operations
38
Item 3 -
Quantitative and Qualitative Disclosures about Market Risk
47
Item 4 -
Controls and Procedures
49
PART II - OTHER INFORMATION
Item 1 -
Legal Proceedings
49
Item 1A -
Risk Factors
49
Item 2 -
Unregistered Sales of Equity Securities and Use of Proceeds
50
Item 5 -
Other Information
50
Item 6 -
Exhibits
51
Signatures
52
2
CAUTIONARY STATEMENT
All statements in this report, other than those relating to historical facts, are "forward-looking statements." Forward-looking statements can generally be identified their use of terms such as "anticipate," "believe," "confident," "estimate," "expect," "intend," "plan," "may," "will," "would," "project," "forecast," "could," "should," and similar expressions including references to assumptions. Forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such statements. Forward-looking statements include, but are not limited to, statements about expected market or macroeconomic trends, future strategic plans and future financial and operating results. Important factors that could cause actual results to differ materially from those presented or implied in the forward-looking statements in this report include, without limitation:
•the possibility that the Company may be unable to achieve expected benefits, synergies and operating efficiencies in connection with the sale of the Industrial Motors and Generators businesses, the acquisition of Altra Industrial Motion Corp. (the "Altra Transaction"), and the merger with the Rexnord Process & Motion Control business (the "Rexnord PMC business") within the expected time-frames or at all and to successfully integrate Altra Industrial Motion Corp. ("Altra") and the Rexnord PMC business;
•the Company's substantial indebtedness as a result of the Altra Transaction and the effects of such indebtedness on the Company's financial flexibility;
•the Company's ability to achieve its objectives on reducing its indebtedness on the desired timeline;
•dependence on key suppliers and the potential effects of supply disruptions;
•fluctuations in commodity prices and raw material costs;
•any unforeseen changes to or the effects on liabilities, future capital expenditures, revenue, expenses, synergies, indebtedness, financial condition, losses and future prospects;
•unanticipated operating costs, customer loss and business disruption;
•the Company's ability to retain key executives and employees;
•uncertainties regarding our ability to execute restructuring plans within expected costs and timing;
•challenges to the tax treatment that was elected with respect to the merger with the Rexnord PMC business and related transactions;
•actions taken by competitors and their ability to effectively compete in the increasingly competitive global electric motor, drives and controls, power generation and power transmission industries;
•our ability to develop new products based on technological innovation, such as the Internet of Things and artificial intelligence, and marketplace acceptance of new and existing products;
•dependence on significant customers and distributors;
•risks associated with climate change and uncertainty regarding our ability to deliver on our sustainability commitments and/or to meet related investor, customer and other third party expectations relating to our sustainability efforts;
•risks associated with global manufacturing, including risks associated with public health crises and political, societal or economic instability, including instability caused by ongoing geopolitical conflicts;
•issues and costs arising from the integration of acquired companies and businesses;
•prolonged declines in one or more markets;
•risks associated with excess or obsolete inventory charges, including related write-offs or write-downs;
•economic changes in global markets, such as reduced demand for products, currency exchange rates, inflation rates, interest rates, recession, government policies, including policy changes affecting taxation, trade, tariffs, immigration, customs, border actions and the like, and other external factors that the Company cannot control;
•product liability, asbestos and other litigation, or claims by end users, government agencies or others that products or customers' applications failed to perform as anticipated;
•unanticipated liabilities of acquired businesses;
•unanticipated adverse effects or liabilities from business exits or divestitures;
•the Company's ability to identify and execute on future mergers and acquisitions ("M&A") opportunities, including significant M&A transactions;
3
•the impact of any such M&A transactions on the Company's results, operations and financial condition, including the impact from costs to execute and finance any such transactions;
•unanticipated costs or expenses that may be incurred related to product warranty issues;
•infringement of intellectual property by third parties, challenges to intellectual property, and claims of infringement on third party technologies;
•effects on earnings of any significant impairment of goodwill;
•losses from failures, breaches, attacks or disclosures involving information technology infrastructure and data;
•costs and unanticipated liabilities arising from rapidly evolving laws and regulations;
and other factors that can be found in our filings with the Securities and Exchange Commission (the "SEC"), including our most recent periodic reports filed on Form 10-K and Form 10-Q, which are available on our Investor Relations website. Forward-looking statements are given only as of the date of this report and we disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
4
PART I-FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
(Amounts in Millions, Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023
Net Sales $ 1,477.4 $ 1,649.8 $ 4,572.7 $ 4,642.5
Cost of Sales 921.1 1,107.6 2,892.3 3,138.4
Gross Profit 556.3 542.2 1,680.4 1,504.1
Operating Expenses 382.2 388.9 1,172.7 1,127.9
Goodwill Impairment - 57.3 - 57.3
Asset Impairments - 3.7 1.5 6.1
Loss on Sale of Businesses - 112.7 4.3 112.7
Total Operating Expenses 382.2 562.6 1,178.5 1,304.0
Income (Loss) from Operations 174.1 (20.4) 501.9 200.1
Interest Expense 98.0 111.5 305.1 323.3
Interest Income (5.1) (3.5) (13.2) (40.5)
Other (Income) Expense, Net (0.2) (2.5) 0.4 (6.7)
Income (Loss) before Taxes 81.4 (125.9) 209.6 (76.0)
Provision for Income Taxes 8.4 12.7 53.2 34.9
Net Income (Loss) 73.0 (138.6) 156.4 (110.9)
Less: Net Income Attributable to Noncontrolling Interests 0.3 0.9 1.4 2.4
Net Income (Loss) Attributable to Regal Rexnord Corporation $ 72.7 $ (139.5) $ 155.0 $ (113.3)
Earnings (Loss) Per Share Attributable to Regal Rexnord Corporation:
Basic $ 1.09 $ (2.10) $ 2.33 $ (1.71)
Assuming Dilution $ 1.09 $ (2.10) $ 2.32 $ (1.71)
Weighted Average Number of Shares Outstanding:
Basic 66.4 66.3 66.4 66.3
Assuming Dilution 66.7 66.3 66.8 66.3
See Accompanying Notes to Condensed Consolidated Financial Statements
5
REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in Millions)
Three Months Ended Nine Months Ended
September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023
Net Income (Loss) $ 73.0 $ (138.6) $ 156.4 $ (110.9)
Other Comprehensive Income (Loss) Net of Tax:
Foreign Currency Translation Adjustments 124.7 (86.1) (18.8) (82.1)
Reclassification of Foreign Currency Translation Losses to Earnings (see Note 3 - Acquisitions and Divestitures) - - 121.3 -
Hedging Activities:
(Decrease) Increase in Fair Value of Hedging Activities, Net of Tax Effects of $(2.6) million and $(0.6) million for the Three Months Ended September 30, 2024 and September 30, 2023 and $(2.8) million and $5.9 million for the Nine Months Ended September 30, 2024 and September 30, 2023, Respectively
(8.3) (1.8) (9.0) 18.7
Reclassification of Gains included in Net Income (Loss), Net of Tax Effects of $(1.7) million and $(0.7) million for the Three Months Ended September 30, 2024 and September 30, 2023 and $(5.5) million and $(0.5) million for the Nine Months Ended September 30, 2024 and September 30, 2023, Respectively
(5.5) (2.4) (17.5) (1.6)
Pension and Post Retirement Plans:
Increase in Prior Service Cost and Unrecognized Loss, Net of Tax Effects of zero and $(0.1) million for the three and nine months ended September 30, 2024, respectively.
- - (0.4) -
Reclassification Adjustments for Pension and Post Retirement Benefits included in Net Income (Loss), Net of Tax Effects of $0.1 and $(0.1) million for the Three Months Ended September 30, 2024 and September 30, 2023 and $0.1 and $(0.4) million for the Nine Months Ended September 30, 2024 and September 30, 2023, Respectively
0.1 (0.4) 0.4 (1.2)
Other Comprehensive Income (Loss) 111.0 (90.7) 76.0 (66.2)
Comprehensive Income (Loss) 184.0 (229.3) 232.4 (177.1)
Less: Comprehensive Income Attributable to Noncontrolling Interests 0.7 0.5 1.1 1.1
Comprehensive Income (Loss) Attributable to Regal Rexnord Corporation $ 183.3 $ (229.8) $ 231.3 $ (178.2)
See Accompanying Notes to Condensed Consolidated Financial Statements
6
REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Millions, Except Per Share Data)
September 30, 2024 December 31, 2023
ASSETS
Current Assets:
Cash and Cash Equivalents $ 458.6 $ 574.0
Trade Receivables, Less Allowances of $32.3 million and $30.3 million in 2024 and 2023, Respectively
855.8 921.6
Inventories 1,324.5 1,274.2
Prepaid Expenses and Other Current Assets 285.4 245.6
Assets Held for Sale 31.2 368.6
Total Current Assets 2,955.5 3,384.0
Net Property, Plant and Equipment 961.9 1,041.2
Operating Lease Assets 153.3 172.8
Goodwill 6,557.3 6,553.1
Intangible Assets, Net of Amortization 3,824.5 4,083.4
Deferred Income Tax Benefits 37.0 33.8
Other Noncurrent Assets 69.5 69.0
Noncurrent Assets Held for Sale - 94.1
Total Assets $ 14,559.0 $ 15,431.4
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable $ 553.2 $ 549.4
Dividends Payable 23.2 23.2
Accrued Compensation and Employee Benefits 177.8 198.7
Accrued Interest 90.8 85.1
Other Accrued Expenses 318.0 325.2
Current Operating Lease Liabilities 37.1 37.2
Current Maturities of Long-Term Debt 4.7 3.9
Liabilities Held for Sale 3.8 103.7
Total Current Liabilities 1,208.6 1,326.4
Long-Term Debt 5,654.6 6,377.0
Deferred Income Taxes 907.3 1,012.7
Pension and Other Post Retirement Benefits 109.2 120.4
Noncurrent Operating Lease Liabilities 122.6 132.2
Other Noncurrent Liabilities 70.9 77.2
Noncurrent Liabilities Held for Sale - 20.4
Equity:
Regal Rexnord Corporation Shareholders' Equity:
Common Stock, $0.01 par value, 150.0 million Shares Authorized, 66.2 million and 66.3 million Shares Issued and Outstanding for 2024 and 2023, Respectively
0.7 0.7
Additional Paid-In Capital 4,652.0 4,646.2
Retained Earnings 2,026.5 1,979.8
Accumulated Other Comprehensive Loss (206.1) (282.4)
Total Regal Rexnord Corporation Shareholders' Equity 6,473.1 6,344.3
Noncontrolling Interests 12.7 20.8
Total Equity 6,485.8 6,365.1
Total Liabilities and Equity $ 14,559.0 $ 15,431.4
See Accompanying Notes to Condensed Consolidated Financial Statements.
7
REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Dollars in Millions, Except Per Share Data)
Three Months Ended
Common Stock $0.01 Par Value
Additional
Paid-In
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss) 		Noncontrolling
Interests 		Total Equity
June 30, 2024 $ 0.7 $ 4,656.4 $ 2,015.5 $ (316.7) $ 12.0 $ 6,367.9
Net Income - - 72.7 - 0.3 73.0
Other Comprehensive Income - - 110.6 0.4 111.0
Dividends Declared ($0.35 Per Share)
- - (23.3) - - (23.3)
Stock Options Exercised - (1.1) - - - (1.1)
Repurchase of Common Stock - (11.6) (38.4) - - (50.0)
Share-Based Compensation - 8.3 - - - 8.3
September 30, 2024 $ 0.7 $ 4,652.0 $ 2,026.5 $ (206.1) $ 12.7 $ 6,485.8
June 30, 2023 $ 0.7 $ 4,626.5 $ 2,109.8 $ (326.7) $ 26.6 $ 6,436.9
Net (Loss) Income - - (139.5) - 0.9 (138.6)
Other Comprehensive Loss - - - (90.3) (0.4) (90.7)
Dividends Declared ($0.35 Per Share)
- - (23.2) - - (23.2)
Stock Options Exercised - (1.0) - - - (1.0)
Share-Based Compensation - 12.9 - - - 12.9
September 30, 2023 $ 0.7 $ 4,638.4 $ 1,947.1 $ (417.0) $ 27.1 $ 6,196.3
See Accompanying Notes to Condensed Consolidated Financial Statements.
8
REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Dollars in Millions, Except Per Share Data)
Nine Months Ended
Common Stock $0.01 Par Value
Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests Total Equity
December 31, 2023 $ 0.7 $ 4,646.2 $ 1,979.8 $ (282.4) $ 20.8 $ 6,365.1
Net Income - - 155.0 - 1.4 156.4
Other Comprehensive Loss - - - (45.0) (0.3) (45.3)
Dividends Declared ($1.05 Per Share)
- - (69.9) - - (69.9)
Stock Options Exercised - (9.5) - - - (9.5)
Repurchase of Common Stock - (11.6) (38.4) - - (50.0)
Businesses Divested - - - 121.3 (9.2) 112.1
Share-Based Compensation - 26.9 - - - 26.9
September 30, 2024 $ 0.7 $ 4,652.0 $ 2,026.5 $ (206.1) $ 12.7 $ 6,485.8
December 31, 2022 $ 0.7 $ 4,609.6 $ 2,130.0 $ (352.1) $ 34.4 $ 6,422.6
Net (Loss) Income - - (113.3) - 2.4 (110.9)
Other Comprehensive Loss - - - (64.9) (1.3) (66.2)
Dividends Declared ($1.05 Per Share)
- - (69.6) - - (69.6)
Stock Options Exercised - (9.2) - - - (9.2)
Replacement Equity-Based Awards Granted - 4.6 - - 4.6
Share-Based Compensation - 33.4 - - - 33.4
Dividends Declared to Noncontrolling Interests - - - - (8.4) (8.4)
September 30, 2023 $ 0.7 $ 4,638.4 $ 1,947.1 $ (417.0) $ 27.1 $ 6,196.3
See Accompanying Notes to the Consolidated Financial Statements.
9
REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
Nine Months Ended
September 30, 2024 September 30, 2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 156.4 $ (110.9)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities (Net of Acquisitions and Divestitures):
Depreciation 122.6 131.7
Amortization 260.0 222.7
Goodwill Impairment - 57.3
Asset Impairments 1.5 6.1
Loss on Assets Held for Sale 4.3 112.7
Noncash Lease Expense 33.0 31.6
Share-Based Compensation Expense 26.9 49.1
Financing Fee Expense 9.4 29.8
Benefit from Deferred Income Taxes (89.0) (89.4)
Other Non-Cash Changes 6.5 5.6
Change in Operating Assets and Liabilities, Net of Acquisitions and Divestitures
Receivables 27.3 29.2
Inventories (54.3) 206.7
Accounts Payable 0.7 (18.7)
Other Assets and Liabilities (109.1) (149.5)
Net Cash Provided by Operating Activities 396.2 514.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant and Equipment (80.2) (88.7)
Business Acquisitions, Net of Cash Acquired - (4,870.2)
Proceeds Received from Sales of Property, Plant and Equipment 1.3 6.3
Proceeds Received from Sale of Businesses, Net of Cash Transferred 374.8 -
Net Cash Provided by (Used in) Investing Activities 295.9 (4,952.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings Under Revolving Credit Facility 1,316.2 1,801.3
Repayments Under Revolving Credit Facility (1,380.5) (2,213.8)
Proceeds from Short-Term Borrowings - 34.7
Repayments of Short-Term Borrowings - (38.2)
Proceeds from Long-Term Borrowings - 5,532.9
Repayments of Long-Term Borrowings (668.4) (624.7)
Dividends Paid to Shareholders (69.9) (69.6)
Shares Surrendered for Taxes (12.4) (11.5)
Proceeds from the Exercise of Stock Options 4.1 3.1
Financing Fees Paid - (51.1)
Repurchase of Common Stock (50.0) -
Distributions to Noncontrolling Interests - (8.4)
Net Cash (Used in) Provided By Financing Activities (860.9) 4,354.7
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (6.1) (5.8)
Net (Decrease) Increase in Cash and Cash Equivalents (174.9) (89.7)
Cash and Cash Equivalents at Beginning of Period 635.3 688.5
Cash and Cash Equivalents at End of Period $ 460.4 $ 598.8
10
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid For:
Interest $ 284.7 $ 209.5
Income taxes $ 128.9 $ 166.9
Cash and Cash Equivalents Presentation:
Cash and Cash Equivalents $ 458.6 540.6
Assets Held for Sale 1.8 58.2
Total Cash and Cash Equivalents $ 460.4 $ 598.8
See Accompanying Notes to Condensed Consolidated Financial Statements.
11
REGAL REXNORD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
(Dollars in Millions Except Per Share Data, Unless Otherwise Noted)
1. BASIS OF PRESENTATION
The accompanying (a) Condensed Consolidated Balance Sheet of Regal Rexnord Corporation (the "Company"), as of December 31, 2023, which has been derived from audited Consolidated Financial Statements, and (b) unaudited interim Condensed Consolidated Financial Statements as of September 30, 2024 and for the three and nine months ended September 30, 2024 and September 30, 2023, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company's 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024.
In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Except as otherwise discussed, such adjustments consist of only those of a normal recurring nature. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2024.
The Condensed Consolidated Financial Statements have been prepared in accordance with GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Condensed Consolidated Financial Statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company uses estimates in accounting for, among other items, allowances for credit losses; excess and obsolete inventory; share-based compensation; acquisitions; product warranty obligations; pension and post-retirement assets and liabilities; derivative fair values; goodwill and other asset impairments; health care reserves; rebates and incentives; litigation claims and contingencies, including environmental matters; and income taxes. The Company accounts for changes to estimates and assumptions when warranted by factually based experience.
The sale of the industrial motors and generators businesses, which closed on April 30, 2024 as further described in Note 3 - Held for Sale, Acquisitions and Divestitures, does not represent a strategic shift that will have a major effect on the Company's operations and financial results and, therefore, did not qualify for presentation as discontinued operations. The assets and liabilities related to these businesses were presented as Assets Held for Sale, Noncurrent Assets Held for Sale, Liabilities Held for Sale and Noncurrent Liabilities Held for Sale on the Company's Condensed Consolidated Balance Sheet as of December 31, 2023. Results for the industrial motors and generators businesses are included in Regal Rexnord's results and related disclosures through the close of sale on April 30, 2024.
Recently Issued Accounting Standards
In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2024-03,Income Statement (Subtopic 220-40): Disaggregation of Income Statement Expenses. The ASU requires additional information about certain expenses in the notes to financial statements. The new guidance will be effective for annual periods beginning after December 15, 2026. The Company is evaluating the effect of adopting this new accounting guidance.
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2. OTHER FINANCIAL INFORMATION
Revenue Recognition
The Company recognizes revenue from the sale of premium-efficiency electric motors and air moving subsystems, highly engineered industrial power transmission components and subsystems, and a portfolio of discrete automation products that include controls, actuators, drives, and high-precision servo motors. The Company recognizes revenue when control of the product passes to the customer or the service is provided. Revenue is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.
The following tables presents the Company's revenues disaggregated by geographical region:
Three Months Ended
September 30, 2024 Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
North America $ 431.5 $ 338.7 $ 269.2 $ - $ 1,039.4
Asia 39.3 41.8 22.7 - 103.8
Europe 120.8 32.6 88.0 - 241.4
Rest-of-World 52.6 18.5 21.7 - 92.8
Total $ 644.2 $ 431.6 $ 401.6 $ - $ 1,477.4
September 30, 2023 Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
North America $ 422.6 $ 367.8 $ 274.8 $ 68.3 $ 1,133.5
Asia 45.7 44.4 22.7 36.4 149.2
Europe 126.3 33.8 100.3 12.9 273.3
Rest-of-World 46.1 15.3 22.0 10.4 93.8
Total $ 640.7 $ 461.3 $ 419.8 $ 128.0 $ 1,649.8
Nine Months Ended
September 30, 2024 Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
North America $ 1,306.7 $ 950.2 $ 816.9 $ 79.4 $ 3,153.2
Asia 133.2 124.6 67.9 44.3 370.0
Europe 367.9 102.4 279.9 17.6 767.8
Rest-of-World 155.3 50.6 59.3 16.5 281.7
Total $ 1,963.1 $ 1,227.8 $ 1,224.0 $ 157.8 $ 4,572.7
September 30, 2023 Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
North America $ 1,206.8 $ 1,094.4 $ 726.8 $ 211.8 $ 3,239.8
Asia 114.1 133.1 50.7 113.9 411.8
Europe 299.8 118.3 251.2 44.0 713.3
Rest-of-World 133.1 45.1 67.4 32.0 277.6
Total $ 1,753.8 $ 1,390.9 $ 1,096.1 $ 401.7 $ 4,642.5
Trade Receivables
The Company's policy for estimating the allowance for credit losses on trade receivables considers several factors including historical write-off experience, overall customer credit quality in relation to general economic and market conditions, and specific customer account analyses. The specific customer account analysis considers such items as credit worthiness, payment
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history, and historical bad debt experience. Trade receivables are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. Adjustments to the allowance for credit losses are recorded in Operating Expenses.
Inventories
The following table presents approximate percentage distribution between major classes of inventories:
September 30, 2024 December 31, 2023
Raw Material and Work in Process 67.4% 66.7%
Finished Goods and Purchased Parts 32.6% 33.3%
Inventories are stated at the lower of cost or net realizable value. All inventory is valued using the FIFO cost method.
Property, Plant, and Equipment
The following table presents property, plant, and equipment by major classification:
Useful Life in Years September 30, 2024 December 31, 2023
Land and Improvements $ 132.8 $ 139.2
Buildings and Improvements
3 - 50
403.7 414.5
Machinery and Equipment
3 - 15
1,200.6 1,219.4
Property, Plant and Equipment 1,737.1 1,773.1
Less: Accumulated Depreciation (775.2) (731.9)
Net Property, Plant and Equipment $ 961.9 $ 1,041.2
As of September 30, 2024 and December 31, 2023, $44.7 million and $44.4 million of right-of-use assets were included in Net Property, Plant and Equipment, respectively.
Supplier Finance Program
The Company's supplier finance program with Bank of America ("the Bank") offers the Company's designated suppliers the option to receive payments of outstanding invoices in advance of the invoice maturity dates at a discount. The Company's payment obligation to the Bank remains subject to the respective supplier's invoice maturity date. The Bank acts as a payment agent, making payments on invoices the Company confirms are valid. The supplier finance program is offered for open account transactions only and may be terminated by either the Company or the Bank upon 15 days' notice. The Company has not pledged any assets under this program. The Company has not incurred any subscription, service or other fees related to the Company's supplier finance program. The Company's outstanding obligations under the supplier finance program, which are classified within Accounts Payable or Liabilities Held for Sale, were $42.8 million and $60.8 million as of September 30, 2024 and December 31, 2023, respectively.
3. ACQUISITIONS AND DIVESTITURES
Industrial Systems Divestiture
On September 23, 2023, the Company signed an agreement to sell its industrial motors and generators businesses which represent the substantial majority of the Industrial Systems operating segment.
The transaction closed on April 30, 2024 for a total purchase price of $446.6 million. The total consideration remains subject to taxes, transaction expenses, working capital adjustments and customary post-closing adjustments. For the three and nine months ended September 30, 2024, the Company recognized a Loss on Sale of Businesses of zero and $4.3 million, respectively. The Company recognized a cumulative loss of $92.0 million on the sale of the industrial motors and generators businesses, which was primarily related to foreign currency translation losses that were reclassified out of accumulated other comprehensive income into earnings at the closing of the transaction.
The following table summarizes the fair value of the sale proceeds received in connection with the divestiture, which are subject to further post-closing adjustment:
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April 30, 2024
Purchase price $ 400.0
Cash transferred to buyer 66.1
Estimated working capital and other adjustments (19.5)
Total purchase price 446.6
Direct costs to sell (7.3)
Fair value of sale consideration, net(1)
$ 439.3
(1) The fair value of sale consideration, net includes an immaterial post-close adjustment to the purchase price for which cash has not yet been received.
The following table summarizes the carrying value of the disposal group and resulting loss on sale:
April 30, 2024
Net assets sold $ 419.4
Noncontrolling Interest (9.2)
Accumulated Other Comprehensive Income 121.3
Payables to seller (0.2)
Carrying value of disposal group $ 531.3
Loss on Sale of Businesses $ (92.0)
The assets and liabilities related to these businesses were included in Assets Held for Sale, Noncurrent Assets Held for Sale, Liabilities Held for Sale and Noncurrent Liabilities Held for Sale as of December 31, 2023, as shown in the table below:
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December 31, 2023
Assets Held for Sale
Cash and Cash Equivalents $ 61.3
Trade Receivables, Less Allowances 88.3
Inventories 199.7
Prepaid Expenses and Other Current Assets 12.2
Total Current Assets Held for Sale $ 361.5
Net Property, Plant and Equipment 96.0
Operating Lease Assets 18.0
Goodwill 54.7
Intangible Assets, Net of Amortization 2.1
Deferred Income Tax Benefits 11.0
Other Noncurrent Assets -
Loss on Assets Held for Sale (87.7)
Total Noncurrent Assets Held for Sale $ 94.1
Liabilities Held for Sale
Accounts Payable $ 67.2
Accrued Compensation and Employee Benefits 11.3
Other Accrued Expenses 21.7
Current Operating Lease Liabilities 3.5
Total Current Liabilities Held for Sale $ 103.7
Pension and Other Post Retirement Benefits 0.9
Noncurrent Operating Lease Liabilities 16.2
Other Noncurrent Liabilities 3.3
Total Noncurrent Liabilities Held for Sale $ 20.4
In addition to the assets and liabilities of the industrial motors and generators businesses, there are other assets recorded in Assets Held for Sale on the Company's Consolidated Balance Sheet as of December 31, 2023, which are not material.
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Altra Transaction
On October 26, 2022, the Company entered into an Agreement and Plan of Merger (the "Altra Merger Agreement") by and among the Company, Altra Industrial Motion Corp., a Delaware corporation ("Altra"), and Aspen Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Merger Sub"). Altra is a leading global manufacturer of highly-engineered products and sub-systems in the factory automation and industrial power transmission markets. Regal Rexnord entered into the Altra Merger Agreement because it believes it can recognize substantial revenue and cost synergies through the combination. In particular, Altra transforms Regal Rexnord's automation portfolio into a global provider with significant sales into markets with secular growth characteristics. Altra also adds significant capabilities to Regal Rexnord's industrial power transmission portfolio, in particular in clutches and brakes, allowing it to provide a broader offering, and more robust industrial powertrain solutions to its customers.
On March 27, 2023, in accordance with the terms and conditions of the Altra Merger Agreement, Merger Sub merged with and into Altra (the "Altra Merger"), with Altra surviving the Altra Merger as a wholly owned subsidiary of the Company (the "Altra Transaction").
Pursuant to the Altra Merger Agreement, following the Altra Merger, each of Altra's issued and outstanding shares of common stock were converted into $62.00 in cash, without interest (the "Altra Merger Consideration"). In addition, all Altra equity awards outstanding immediately prior to the Altra Merger were converted into an award of cash or an award of restricted stock equal to the equivalent value of the original equity award with similar terms and conditions based on the Altra Merger Consideration.
The Company's management determined that the Company is the accounting acquirer in the Altra Transaction based on the facts and circumstances noted within this section and other relevant factors. As such, the Company applied the acquisition method of accounting to the identifiable assets and liabilities of Altra, which have been measured at estimated fair value as of the date of the business combination.
The total purchase price to acquire Altra was $5.1 billion, which consisted of the following:
Cash paid for outstanding Altra Common Stock(1)
$ 4,051.0
Stock based compensation(2)
23.1
Payment of Altra debt(3)
1,061.0
Pre-existing relationships(4)
(0.5)
Purchase price $ 5,134.6
(1) Cash paid for the common stock component of the purchase price was based on 65.3 million shares of outstanding Altra Common Stock as of March 27, 2023 at $62.00 per share, in accordance with the Altra Merger Agreement.
(2) Represents fair value of replacement equity-based awards and Company common stock issued in settlement of other Altra share based awards. The portion of the fair value attributable to pre-acquisition service was recorded as part of the consideration transferred in the Altra Transaction of which $17.3 million was paid in cash during the second quarter of 2023.
(3) Cash paid by the Company to settle (a) the term loan facility, (b) the revolving credit facility and (c) 95.28% of the 6.125% senior notes due 2026 of Stevens Holding Company, Inc., a wholly owned subsidiary of Altra (the "Altra Notes"). $18.1 million of the Altra Notes remained outstanding following the closing of the Altra Transaction. See Note 7 - Debt and Bank Credit Facilities for more information.
(4) Represents effective settlement of outstanding payables and receivables between the Company and Altra. No gain or loss was recognized on this settlement.
Purchase Price Allocation
Altra's assets and liabilities were measured at estimated fair values at March 27, 2023, primarily using Level 3 inputs. Estimates of fair value represent management's best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions, royalty rates and customer attrition rates and others. Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates expected as of the acquisition date.
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The Company estimated the fair value of net assets acquired based on information available during the measurement period and as of March 31, 2024, the valuation process to determine the fair values of the net assets acquired during the measurement period was complete. The fair value of the assets acquired and liabilities assumed were as follows:
As Reported as of December 31, 2023 Measurement period adjustments As of March 31, 2024
Cash and Cash Equivalents $ 259.1 $ - $ 259.1
Trade Receivables 258.1 (1.5) 256.6
Inventories 387.5 (0.5) 387.0
Prepaid Expenses and Other Current Assets 32.4 - 32.4
Property, Plant and Equipment 403.0 (0.5) 402.5
Intangible Assets(2)
2,142.0 - 2,142.0
Deferred Income Tax Benefits 0.7 0.1 0.8
Operating Lease Assets 46.8 - 46.8
Other Noncurrent Assets 12.7 - 12.7
Accounts Payable (183.3) - (183.3)
Accrued Compensation and Benefits (66.0) - (66.0)
Other Accrued Expenses(1)
(144.6) (0.7) (145.3)
Current Operating Lease Liabilities (12.3) - (12.3)
Current Maturities of Long-Term Debt (0.4) - (0.4)
Long-Term Debt (25.3) - (25.3)
Deferred Income Taxes (533.3) 8.2 (525.1)
Pension and Other Post Retirement Benefits (19.8) - (19.8)
Noncurrent Operating Lease Liabilities (29.0) - (29.0)
Other Noncurrent Liabilities (8.3) - (8.3)
Total Identifiable Net Assets 2,520.0 5.1 2,525.1
Goodwill 2,614.6 (5.1) 2,609.5
Purchase price $ 5,134.6 $ - $ 5,134.6
(1) Includes $60.1 million related to Altra Transaction costs paid by the Company at the closing of the Altra Transaction.
(2) Includes $1,710.0 million related to Customer Relationships, $330.0 million related to Trademarks and $102.0 million related to Technology.
Transaction and Integration Costs
The Company incurred transaction and integration-related costs in connection with the Altra Transaction of approximately $3.9 million and $13.8 million during the three and nine months ended September 30, 2024, which includes legal, professional service and integration costs associated with the Altra Transaction. There were $7.5 million and $82.5 million of transaction and integration-related costs in connection with the Altra Transaction recognized during the three and nine months ended September 30, 2023, which includes legal and professional services and certain employee compensation costs, including severance and retention. These costs were recognized as Operating Expenses in the Company's Condensed Consolidated Statements of Income (Loss).
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The Company also incurred $15.7 million of share-based compensation expense during the first quarter of 2023 related to the accelerated vesting of awards for certain former Altra employees. See Note 9 - Shareholders' Equity for additional information.
In connection with the Altra Transaction, the Company incurred additional costs due to the entry into certain financing arrangements. Such financing arrangements are described in Note 7 - Debt and Bank Credit Facilities.
Unaudited Pro Forma Information
The following unaudited supplemental pro forma financial information presents the Company's financial results for the three and nine months ended September 30, 2023. The pro forma financial information below is presented as if the Altra Transaction had occurred on January 2, 2022, the first day of the Company's fiscal year ended December 31, 2022. The pro forma financial information includes, where applicable, adjustments for: (i) additional amortization expense that would have been recognized related to the acquired intangible assets, (ii) additional interest expense on transaction related borrowings less interest income earned on the investment of proceeds from borrowings prior to the close of the Altra Transaction, (iii) additional depreciation expense that would have been recognized related to the acquired property, plant, and equipment, (iv) transaction costs and other one-time non-recurring costs, including share-based compensation expense related to the accelerated vesting of awards for certain former Altra employees, which reduced expenses by $7.5 million and $98.2 million for the three and nine months ended September 30, 2023, (v) additional cost of sales related to the inventory valuation adjustment which reduced expenses by $8.8 million and $52.9 million for the three and nine months ended September 30, 2023, and (vi) the estimated income tax effect on the pro forma adjustments.
The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the Altra Transaction been completed as of the date indicated or the results that may be obtained in the future.
For the Three Months Ended September 30, 2023
For the Nine Months Ended September 30, 2023
Net Sales $ 1,649.8 $ 5,093.6
Net Loss Attributable to Regal Rexnord Corporation $ (126.7) $ (7.2)
Loss Per Share Attributable to Regal Rexnord Corporation:
Basic $ (1.91) $ (0.11)
Assuming Dilution $ (1.91) $ (0.11)
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4. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments, hedging activities and pension and post-retirement benefit adjustments are included in Accumulated Other Comprehensive Income (Loss) ("AOCI"), a component of Total Equity.
The following tables present changes in AOCI by component for the three and nine months ended September 30, 2024 and September 30, 2023:
Three Months Ended
September 30, 2024 Hedging Activities Pension and Post Retirement Benefit Adjustments Foreign Currency Translation Adjustments Total
Beginning Balance $ 16.1 $ (25.1) $ (307.7) $ (316.7)
Other Comprehensive (Loss) Income before Reclassifications (10.9) - 124.3 113.4
Tax Impact 2.6 - - 2.6
Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income (7.2) 0.2 - (7.0)
Tax Impact 1.7 (0.1) - 1.6
Net Current Period Other Comprehensive (Loss) Income (13.8) 0.1 124.3 110.6
Ending Balance $ 2.3 $ (25.0) $ (183.4) $ (206.1)
September 30, 2023 Hedging Activities Pension and Post Retirement Benefit Adjustments Foreign Currency Translation Adjustments Total
Beginning Balance $ 38.6 $ (14.1) $ (351.2) $ (326.7)
Other Comprehensive Loss before Reclassifications (2.4) - (85.7) (88.1)
Tax Impact 0.6 - - 0.6
Amounts Reclassified from Accumulated Other Comprehensive Loss (3.1) (0.5) - (3.6)
Tax Impact 0.7 0.1 - 0.8
Net Current Period Other Comprehensive Loss (4.2) (0.4) (85.7) (90.3)
Ending Balance $ 34.4 $ (14.5) $ (436.9) $ (417.0)
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Nine Months Ended
September 30, 2024 Hedging Activities Pension and Post Retirement Benefit Adjustments Foreign Currency Translation Adjustments Total
Beginning Balance $ 28.8 $ (25.0) $ (286.2) $ (282.4)
Other Comprehensive Loss before Reclassifications (11.8) (0.5) (18.5) (30.8)
Tax Impact 2.8 0.1 - 2.9
Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income (23.0) 0.5 121.3 98.8
Tax Impact 5.5 (0.1) - 5.4
Net Current Period Other Comprehensive (Loss) Income (26.5) - 102.8 76.3
Ending Balance $ 2.3 $ (25.0) $ (183.4) $ (206.1)
September 30, 2023 Hedging Activities Pension and Post Retirement Benefit Adjustments Foreign Currency Translation Adjustments Total
Beginning balance $ 17.3 $ (13.3) $ (356.1) $ (352.1)
Other Comprehensive Income (Loss) before Reclassifications 24.6 - (80.8) (56.2)
Tax Impact (5.9) - - (5.9)
Amounts Reclassified from Accumulated Other Comprehensive Loss (2.1) (1.6) - (3.7)
Tax Impact 0.5 0.4 - 0.9
Net Current Period Other Comprehensive Income (Loss) 17.1 (1.2) (80.8) (64.9)
Ending Balance $ 34.4 $ (14.5) $ (436.9) $ (417.0)
The Condensed Consolidated Statements of Income (Loss) line items affected by the hedging activities reclassified from AOCI in the tables above are disclosed in Note 13 - Derivative Financial Instruments.
The reclassification amounts for pension and post-retirement benefit adjustments in the tables above are part of net periodic benefit costs recorded in Other (Income) Expense, Net (see also Note 8 - Retirement Plans).
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill
As required, the Company performs an annual impairment test of goodwill as of the end of October, or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting units below their carrying value.
21
The following table presents changes to goodwill during the nine months ended September 30, 2024:
Total Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control
Balance as of December 31, 2023 $ 6,553.1 $ 3,747.0 $ 753.9 $ 2,052.2
Acquisitions (5.1) (5.8) - 0.7
Translation Adjustments 9.3 7.9 0.9 0.5
Balance as of September 30, 2024 $ 6,557.3 $ 3,749.1 $ 754.8 $ 2,053.4
Cumulative Goodwill Impairment Charges(1)
$ 223.6 $ 18.1 $ 200.4 $ 5.1
(1) Excludes impairment charges related to Industrial Systems, since it was sold in April 2024. See Note 3 - Held for Sale, Acquisitions and Divestitures for more information.
Intangible Assets
Intangible assets consist of the following:
September 30, 2024 December 31, 2023
Weighted Average Amortization Period (Years) Gross Value Accumulated
Amortization 		Net Carrying Amount Gross Value Accumulated
Amortization 		Net Carrying Amount
Customer Relationships 15 $ 3,963.4 $ 867.6 $ 3,095.8 $ 4,028.5 $ 746.2 $ 3,282.3
Technology 13 297.7 104.9 192.8 302.6 92.9 209.7
Trademarks 10 710.9 175.0 535.9 712.1 120.7 591.4
Total Intangibles $ 4,972.0 $ 1,147.5 $ 3,824.5 $ 5,043.2 $ 959.8 $ 4,083.4
Amortization expense recorded for the three and nine months ended September 30, 2024 was $86.8 million and $260.0 million, respectively. Amortization expense recorded for the three and nine months ended September 30, 2023 was $87.0 and $222.7 million, respectively. Amortization expense for 2024 is estimated to be $350.2 million.
The following table presents future estimated annual amortization expense for intangible assets:
Year Estimated Amortization
2025 $ 348.1
2026 344.7
2027 344.6
2028 344.6
2029 342.6
6. SEGMENT INFORMATION
Effective May 1, 2024, the Company is comprised of three operating segments: Industrial Powertrain Solutions ("IPS"), Power Efficiency Solutions ("PES") and Automation & Motion Control ("AMC").
The IPS segment designs, produces and services a broad portfolio of highly-engineered power transmission products, including mounted and unmounted bearings, couplings, mechanical power transmission drives and components, gearboxes and gear
22
motors, clutches, brakes, and industrial powertrain components and solutions. Increasingly, the segment produces industrial powertrain solutions, which are integrated sub-systems comprised of Regal Rexnord motors plus the critical power transmission components that efficiently transmit motion to power industrial applications. The segment serves a broad range of markets that include general industrial, metals & mining, agricultural and construction, food and beverage, energy, alternative energy and other markets.
The PES segment designs and produces fractional to approximately 5 horsepower AC and DC motors, electronic variable speed controls, electronic drives, fans and blowers, as well as integrated subsystems comprised of two or more of these components. The segment's products are used in residential and light commercial HVAC, water heater, commercial refrigeration, commercial building ventilation, pool and spa, irrigation, dewatering, agriculture and other applications.
The AMC segment designs, produces and services conveyor products, conveying automation subsystems, aerospace components, precision motion control solutions, high-efficiency miniature servo motors, controls, drives and linear actuators, as well as power management products that include automatic transfer switches and paralleling switchgear. The segment sells into markets that include industrial automation, robotics, food and beverage, aerospace, medical, agricultural and construction, general industrial, data center, and other markets.
The Industrial Systems segment designed and produced integral motors, alternators for industrial applications, and sold aftermarket parts and kits to support such products. These products served the general industrial, metals and mining, and food and beverage end markets. As described within Note 3 - Held for Sale, Acquisitions and Divestitures, the sale of the industrial motors and generators business was completed on April 30, 2024 which represented a substantial majority of the Industrial Systems operating segment.
The Company evaluates performance based on the segment's income from operations. Corporate costs have generally been allocated to each segment based on the net sales of each segment.
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The following sets forth certain financial information attributable to the Company's operating segments for the three and nine months ended September 30, 2024 and September 30, 2023:
Segment Information
Three Months Ended
September 30, 2024 Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Eliminations Total
External Sales $ 644.2 $ 431.6 $ 401.6 $ - $ - $ 1,477.4
Intersegment Sales 2.0 0.5 4.6 - (7.1) -
Total Sales 646.2 432.1 406.2 - (7.1) 1,477.4
Gross Profit 268.0 131.8 156.5 - - 556.3
Operating Expenses 183.5 73.2 125.5 - - 382.2
Income from Operations 84.5 58.6 31.0 - - 174.1
Depreciation and Amortization 69.8 11.4 46.2 - - 127.4
Capital Expenditures 13.7 8.0 7.6 - - 29.3
September 30, 2023
External Sales $ 640.7 $ 461.3 $ 419.8 $ 128.0 $ - $ 1,649.8
Intersegment Sales 3.6 3.1 4.2 0.6 (11.5) -
Total Sales 644.3 464.4 424.0 128.6 (11.5) 1,649.8
Gross Profit 215.8 138.0 161.2 27.2 - 542.2
Operating Expenses 175.1 71.5 117.6 24.7 - 388.9
Goodwill Impairment - - - 57.3 - 57.3
Asset Impairments 1.3 1.5 0.5 0.4 - 3.7
Loss on Assets Held for Sale - - - 112.7 - 112.7
Total Operating Expenses 176.4 73.0 118.1 195.1 - 562.6
Income from Operations 39.4 65.0 43.1 (167.9) - (20.4)
Depreciation and Amortization 75.9 15.8 46.1 3.1 - 140.9
Capital Expenditures 5.8 8.1 9.8 1.5 - 25.2
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Segment Information
Nine Months Ended
September 30, 2024 Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control
Industrial Systems(1)
Eliminations Total
External Sales $ 1,963.1 $ 1,227.8 $ 1,224.0 $ 157.8 $ - $ 4,572.7
Intersegment Sales 6.7 6.2 13.5 0.5 (26.9) -
Total Sales 1,969.8 1,234.0 1,237.5 158.3 (26.9) 4,572.7
Gross Profit 803.3 352.3 485.6 39.2 - 1,680.4
Operating Expenses 546.7 219.9 371.5 34.6 - 1,172.7
Asset Impairments 0.2 0.2 1.1 - - 1.5
Loss on Sale of Businesses - - - 4.3 - 4.3
Total Operating Expenses 546.9 220.1 372.6 38.9 - 1,178.5
Income from Operations 256.4 132.2 113.0 0.3 - 501.9
Depreciation and Amortization 210.7 33.6 137.7 0.6 - 382.6
Capital Expenditures 36.8 19.1 20.0 4.3 - 80.2
September 30, 2023
External Sales $ 1,753.8 $ 1,390.9 $ 1,096.1 $ 401.7 $ - $ 4,642.5
Intersegment Sales 11.5 10.8 15.3 2.0 (39.6) -
Total Sales 1,765.3 1,401.7 1,111.4 403.7 (39.6) 4,642.5
Gross Profit 617.6 389.5 412.8 84.2 - 1,504.1
Operating Expenses 510.5 217.8 323.7 75.9 - 1,127.9
Goodwill Impairment - - - 57.3 57.3
Asset Impairments 1.6 1.5 2.6 0.4 6.1
Loss on Assets Held for Sale - - - 112.7 112.7
Total Operating Expenses 512.1 219.3 326.3 246.3 - 1,304.0
Income from Operations 105.5 170.2 86.5 (162.1) - 200.1
Depreciation and Amortization 191.9 39.3 113.4 9.8 - 354.4
Capital Expenditures 30.9 25.2 27.2 5.4 - 88.7
(1) Results for the Industrial Systems segment cover the period through the completed sale on April 30, 2024.
The following table presents identifiable assets information attributable to the Company's operating segments as of September 30, 2024 and December 31, 2023:
Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
Identifiable Assets as of September 30, 2024 $ 7,726.3 $ 1,995.7 $ 4,837.0 $ - $ 14,559.0
Identifiable Assets as of December 31, 2023 8,009.4 2,036.4 4,909.2 476.4 15,431.4
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7. DEBT AND BANK CREDIT FACILITIES
The following table presents the Company's indebtedness as of September 30, 2024 and December 31, 2023:
September 30, 2024 December 31, 2023
Senior Notes $ 4,700.0 $ 4,700.0
Term Facility 780.0 1,053.5
Land Term Facility 95.0 486.8
Multicurrency Revolving Facility 33.8 98.1
Altra Notes 18.1 18.1
Finance Leases 70.6 70.5
Other 7.2 7.5
Less: Debt Issuance Costs (45.4) (53.6)
Total 5,659.3 6,380.9
Less: Current Maturities 4.7 3.9
Long-Term Debt $ 5,654.6 $ 6,377.0
The below discussion of the Company's indebtedness should be read in conjunction with the Note 7 - Debt and Bank Credit Facilities in the Company's 2023 Annual Report on Form 10-K filed on February 26, 2024.
Credit Agreement
On March 28, 2022, the Company entered into a Second Amended and Restated Credit Agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A. as Administrative Agent and the lenders named therein, which was subsequently amended on November 17, 2022 (the "First Amendment") and November 30, 2022 (the "Assumption Agreement"), which in combination provide for, among other things:
i.an unsecured term loan facility in the initial principal amount of up to $550.0 million, maturing on March 28, 2027, which was upsized by $840.0 million on March 27, 2023 in connection with the Altra Transaction (the "Term Facility");
ii.an unsecured term loan facility in the initial principal amount of $486.8 million, under which the Company's subsidiary Land Newco, Inc. remains the sole borrower, maturing on March 28, 2027 (the "Land Term Facility"); and
iii.an unsecured revolving loan in the initial principal amount of up to $1,000.0 million, maturing on March 28, 2027, which was upsized by $570.0 million on March 27, 2023 in connection with the Altra Transaction (the "Multicurrency Revolving Facility").
The Term Facility requires quarterly amortization at 5.0% per annum, unless previously prepaid. Per the terms of the Credit Agreement, prepayments can be made without penalty and are applied to the next payment due. The Land Term Facility has no required amortization. Borrowings under the Credit Agreement bear interest at floating rates based upon indices determined by the currency of the borrowing (SOFR or an alternative base rate for US Dollar borrowings) or at an alternative base rate, in each case, plus an applicable margin.
Weighted average interest rates on the Term Facility and Land Term facility are as follows:
Three Months Ended Nine Months Ended
September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023
Term Facility 7.2 % 7.2 % 7.2 % 6.9 %
Land Term Facility 7.1 % 7.2 % 7.2 % 6.7 %
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As of September 30, 2024, the Company had no standby letters of credit issued under the Multicurrency Revolving Facility, and $1,536.2 million of available borrowing capacity. For the three months ended September 30, 2024 and September 30, 2023 under the Multicurrency Revolving Facility, the average daily balance in borrowings was $70.8 million and $123.9 million, respectively. For the nine months ended September 30, 2024 and September 30, 2023 under the Multicurrency Revolving Facility, the average daily balance in borrowings was $78.9 million and $320.0 million, respectively. The Company paid a non-use fee of 0.25% as of September 30, 2024 on the aggregate unused amount of the Multicurrency Revolving Facility at a rate determined by reference to its consolidated funded debt to consolidated EBITDA ratio.
Weighted average interest rates on the Multicurrency Revolving Facility are as follows:
Three Months Ended Nine Months Ended
September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023
Multicurrency Revolving Facility 7.2 % 7.2 % 7.2 % 6.6 %
Senior Notes
On January 24, 2023, the Company issued $1,100.0 million aggregate principal amount of its 6.05% senior notes due 2026 (the "2026 Senior Notes"), $1,250.0 million aggregate principal amount of its 6.05% senior notes due 2028 (the "2028 Senior Notes"), $1,100.0 million aggregate principal amount of its 6.30% senior notes due 2030 (the "2030 Senior Notes") and $1,250.0 million aggregate principal amount of its 6.40% senior notes due 2033 (the "2033 Senior Notes" and, together with the 2026 Senior Notes, 2028 Senior Notes and 2030 Senior Notes, collectively, the "Senior Notes"). The 2026 Senior Notes are scheduled to mature on February 15, 2026, the 2028 Senior Notes are scheduled to mature on April 15, 2028, the 2030 Senior Notes are scheduled to mature on February 15, 2030, and the 2033 Senior Notes are scheduled to mature on April 15, 2033.
The rate of interest on each series of the Senior Notes is subject to an increase of up to 2.00% in the event of certain downgrades in the debt rating of the Senior Notes. Interest on the 2026 Senior Notes and the 2030 Senior Notes is payable semi-annually on February 15 and August 15 of each year, beginning on August 15, 2023. Interest on the 2028 Senior Notes and the 2033 Senior Notes is payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2023.
The Company received $4,647.0 million in net proceeds from the sale of the Senior Notes, after deducting the initial purchasers' discounts and estimated offering expenses. The Company used a portion of the net proceeds to repay the Company's outstanding Private Placement Notes and used the remaining net proceeds, together with the incremental term loan commitments under the Term Facility and cash on hand, to fund the consideration for the Altra Transaction, repay certain of Altra's outstanding indebtedness, and pay certain fees and expenses.
Prior to the consummation of the Altra Transaction, the Company used a portion of the proceeds to repay the outstanding borrowings under the Multicurrency Revolving Facility in January 2023 and invested the remaining net proceeds of approximately $3.6 billion in interest bearing accounts. The Company recognized $29.4 million in Interest Income from the investment in interest bearing accounts prior to the close of the Altra Transaction.
The Senior Notes were issued and sold in a private offering to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") and persons outside the United States in accordance with Regulation S under the Securities Act. Pursuant to a registration rights agreement, the Company agreed to exchange the Senior Notes with registered notes with terms substantially identical to those of the Senior Notes of the corresponding series (the "New Notes") within 540 days from the date of issuance. The Company and certain subsidiaries that guarantee the Senior Notes filed a registration statement on Form S-4 with the SEC on March 26, 2024, registering an offer to exchange the Senior Notes validly tendered for New Notes of the corresponding series (the "Exchange Offer"). In May 2024, the Company and the guarantor subsidiaries completed the Exchange Offer, exchanging approximately $4,697.1 million in aggregate principal amount of Senior Notes for approximately $4,697.1 million in aggregate principal amount of New Notes of the corresponding series. The aggregate principal amount of Senior Notes not exchanged, approximately $2.9 million, remained outstanding across the four series of Senior Notes. The New Notes consist of approximately $1,099.0 million aggregate principal amount of 6.050% senior notes due 2026, $1,249.4 million aggregate principal amount of 6.050% senior notes due 2028, $1,099.4 million aggregate principal amount of 6.300% senior notes due 2030 and $1,249.3 million aggregate principal amount of 6.400% senior notes due 2033.
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Altra Notes
On March 27, 2023, in connection with the Altra Transaction, the Company assumed $18.1 million aggregate principal amount of 6.125% senior notes due 2026 (the "Altra Notes"). The Company purchased 95.28% of the outstanding Altra Notes for total consideration of $382.7 million. See Note 3 - Held for Sale, Acquisitions and Divestitures for more information.
The Altra Notes will mature on October 1, 2026. The Altra Notes may be redeemed at the option of the issuer on or after October 1, 2023. The Notes are guaranteed on a senior unsecured basis by certain of the Company's domestic subsidiaries.
Compliance with Financial Covenants
The Credit Agreement requires the Company to meet specified financial ratios and to satisfy certain financial condition tests. The Company was in compliance with all financial covenants as of September 30, 2024.
Finance leases
The weighted average discount rate associated with the Company's finance leases was 5.2% as of September 30, 2024 and September 30, 2023.
Other Disclosures
Based on rates for instruments with comparable maturities and credit quality, which are classified as Level 2 inputs (see also Note 14 - Fair Value), the approximate fair value of the Senior Notes was $4,923.0 million and $4,802.4 million as of September 30, 2024 and December 31, 2023, respectively, compared to a carrying value of $4,700.0 million as of September 30, 2024 and December 31, 2023. The Company believes that the fair value of all other debt instruments approximates their carrying value.
8. RETIREMENT PLANS
The following table presents the Company's net periodic benefit cost (income) components:
Three Months Ended Nine Months Ended
September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023
Service Cost 0.6 0.6 1.6 1.5
Interest Cost 5.3 5.8 16.1 17.1
Expected Return on Plan Assets (5.0) (6.8) (15.0) (20.2)
Amortization of Prior Service Cost and Net Actuarial Loss (Gain) 0.2 (0.5) 0.5 (1.6)
Special Termination Benefits - - 0.2 -
Net Periodic Benefit Expense (Income) $ 1.1 $ (0.9) $ 3.4 $ (3.2)
The service cost component is included in Cost of Sales and Operating Expenses. All other components of net periodic benefit costs are included in Other (Income) Expense, Net on the Company's Condensed Consolidated Statements of Income (Loss).
For the three months ended September 30, 2024 and September 30, 2023, the Company contributed $10.5 million and $1.9 million, respectively, to post retirement plans. For the nine months ended September 30, 2024 and September 30, 2023, the Company contributed $14.1 million and $5.4 million, respectively. The Company expects to make total contributions of $17.8 million in 2024. The Company contributed a total of $8.3 million in 2023.
For the three months ended September 30, 2024 and September 30, 2023, the Company contributed $11.0 million and $10.5 million, respectively, to defined contribution plans. For the nine months ended September 30, 2024 and September 30, 2023, the Company contributed $33.4 million and $28.0 million, respectively.
9. SHAREHOLDERS' EQUITY
Repurchase of Common Stock
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At a meeting of the Board of Directors on October 26, 2021, the Company's Board of Directors approved the authorization to purchase up to $500.0 million of shares under the Company's share repurchase program. During the three and nine months ended September 30, 2024, the Company purchased and retired 332,439 shares of its common stock at an average cost of $150.42 per share for a total cost of $50.0 million. There were no repurchases of the Company's shares during the three and nine months ended September 30, 2023.
Based on share repurchase activity since the most recent authorization, as of September 30, 2024, the maximum value of shares of the Company's common stock available to be purchased was approximately $145.0 million.
Share-Based Compensation
The Company recognized approximately $8.3 million and $12.9 million in share-based compensation expense for the three months ended September 30, 2024 and September 30, 2023, respectively, and approximately $26.9 million and $49.1 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. The $49.1 million includes $15.7 million related to the accelerated vesting of awards for certain former Altra employees. The total income tax benefit recognized in the Condensed Consolidated Statements of Income (Loss) for share-based compensation expense was $1.0 million and $2.6 million for the three months ended September 30, 2024 and September 30, 2023, respectively, and $4.6 million and $6.3 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. The Company recognizes compensation expense on grants of share-based compensation awards on a straight-line basis over the vesting period of each award.
During the nine months ended September 30, 2024, the Company granted the following share-based incentive awards:
Award Type Number of Awards Weighted Average Grant-Date Fair Value
Options and SARs 98,998 $ 62.94
Restricted Stock Units 137,169 $ 164.87
Performance Share Units 55,442 $ 254.05
10. INCOME TAXES
The effective tax rate for the three months ended September 30, 2024 was 10.3% versus (10.1)% for the three months ended September 30, 2023. The effective tax rate for the nine months ended September 30, 2024 and September 30, 2023 was 25.4% and (45.9)%, respectively. The effective tax rate for the three months ended September 30, 2024 was higher than the same period in 2023 due to the impacts of the sale of the industrial motors and generators businesses, partially offset by discrete tax benefits associated with a reduction in withholding taxes. The effective tax rate for the nine months ended September 30, 2024 was higher than the same period in 2023 due to the impacts of the sale of the industrial motors and generators businesses, partially offset by lower non-deductible transaction related expenses from the Altra acquisition and discrete tax benefits associated with a reduction in withholding taxes.
As of September 30, 2024 and December 31, 2023, the Company had approximately $5.7 million and $8.5 million, respectively, of unrecognized tax benefits, all of which would impact the effective income tax rate if recognized. Potential interest and penalties related to unrecognized tax benefits are recorded in income tax expense. The Company had $1.3 million and $1.1 million of accrued interest as of September 30, 2024 and December 31, 2023, respectively.
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11. EARNINGS PER SHARE
Diluted earnings per share is calculated based upon earnings applicable to common shares divided by the weighted-average number of common shares outstanding during the period adjusted for the effect of other dilutive securities. The amount of the anti-dilutive shares was 0.3 million and 0.3 million for the three months ended September 30, 2024 and September 30, 2023, respectively. The amount of the anti-dilutive shares was 0.3 million and 0.3 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. The following table reconciles the basic and diluted shares used in earnings per share calculations for the three and nine months ended September 30, 2024 and September 30, 2023:
Three Months Ended Nine Months Ended
September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023
Denominator for Basic Earnings Per Share 66.4 66.3 66.4 66.3
Effect of Dilutive Securities 0.3 - 0.4 -
Denominator for Diluted Earnings Per Share 66.7 66.3 66.8 66.3
12. CONTINGENCIES
One of the Company's subsidiaries that it acquired in 2007 is subject to numerous claims filed in various jurisdictions relating to certain sub-fractional motors that were primarily manufactured through 2004 and that were included as components of residential and commercial ventilation units manufactured and sold in high volumes by a third party. These ventilation units are subject to product safety requirements and other potential regulation of their performance by government agencies such as the US Consumer Product Safety Commission ("CPSC"). The claims generally allege that the ventilation units were the cause of fires. The Company has recorded an estimated liability for incurred claims. Based on the current facts, the Company cannot assure that these claims, individually or in the aggregate, will not have a material adverse effect on its subsidiary's financial condition. The Company's subsidiary cannot reasonably predict the outcome of these claims, the nature or extent of any CPSC or other remedial actions, if any, that the Company's subsidiary may need to undertake with respect to motors that remain in the field, or the costs that may be incurred, some of which could be significant.
As a result of the Company's acquisition of the Rexnord PMC business, it is entitled to indemnification from third parties to agreements with the Rexnord PMC business against certain contingent liabilities of the Rexnord PMC business, including certain pre-closing environmental liabilities.
The Company believes that, pursuant to the transaction documents related to the Rexnord PMC business' acquisition of the Stearns business from Invensys plc ("Invensys"), Invensys (now known as Schneider Electric) is obligated to defend and indemnify us with respect to the matters described below relating to the Ellsworth Industrial Park Site and to various asbestos claims. The indemnity obligations relating to the matters described below are subject, together with indemnity obligations relating to other matters, to an overall dollar cap equal to the purchase price, which is an amount in excess of $900.0 million. In the event that the Company is unable to recover from Invensys with respect to the matters below, it may be entitled to indemnification from Zurn Water Solutions Corporation (formerly known as Rexnord Corporation) ("Zurn"), subject to certain limitations. The following paragraphs summarize the most significant actions and proceedings:
•In 2002, the Company's subsidiary, Rexnord Industries, LLC ("Rexnord Industries") was named as a potentially responsible party ("PRP"), together with at least ten other companies, at the Ellsworth Industrial Park Site, Downers Grove, DuPage County, Illinois (the "Site"), by the United States Environmental Protection Agency ("USEPA"), and the Illinois Environmental Protection Agency ("IEPA"). Rexnord Industries' Downers Grove property is situated within the Ellsworth Industrial Complex. The USEPA and IEPA allege there have been one or more releases or threatened releases of chlorinated solvents and other hazardous substances, pollutants or contaminants at the Site, allegedly including but not limited to a release or threatened release on or from Rexnord Industries' property. The relief sought by the USEPA and IEPA includes further investigation and potential remediation of the Site and reimbursement of USEPA's past costs. In early 2020, Rexnord Industries entered into an administrative order with the USEPA to do remediation work on its Downers Grove property. The soil excavation work and transporting and disposing of the excavated material was completed in October 2020. An AS/SVE system construction was completed in February 2022 and is anticipated to operate for three years. All previously pending property damage and personal injury lawsuits against Rexnord Industries related to the Site have been settled or dismissed. Pursuant to its indemnity obligation, Invensys continues to defend Rexnord Industries in known matters related to the Site, including the costs of the remediation work pursuant to the 2020 administrative order, and has paid 100% of the costs to date. This
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indemnification right would not protect Rexnord Industries against liabilities related to environmental conditions that were unknown to Invensys at the time of the acquisition of the Stearns business from Invensys.
•Multiple lawsuits (with over 350 claimants) are pending in state or federal court in numerous jurisdictions relating to alleged personal injuries due to the alleged presence of asbestos in certain brakes and clutches previously manufactured by the Rexnord PMC business' Stearns brand of brakes and clutches and/or its predecessor owners. Invensys and FMC, prior owners of the Stearns business, have paid 100% of the costs to date related to the Stearns lawsuits. Similarly, the Rexnord PMC business' Prager subsidiary is the subject of claims by multiple claimants alleging personal injuries due to the alleged presence of asbestos in a product allegedly manufactured by Prager. However, all these claims are currently on the Texas Multi-district Litigation inactive docket, and the Company does not believe that they will become active in the future. To date, the Rexnord PMC business' insurance providers have paid 100% of the costs related to the Prager asbestos matters. We believe that the combination of the Company's insurance coverage and the Invensys indemnity obligations will cover any future costs of these matters.
In connection with the Company's acquisition of the Rexnord PMC business, transaction documents related to the Rexnord PMC business' acquisition of The Falk Corporation from Hamilton Sundstrand Corporation were assigned to Rexnord Industries, and provide Rexnord Industries with indemnification against certain product related asbestos exposure liabilities. The Company believes that, pursuant to such indemnity obligations, Hamilton Sundstrand is obligated to defend and indemnify Rexnord Industries with respect to asbestos claims described below, and that, with respect to these claims, such indemnity obligations are not subject to any time or dollar limitations.
The following paragraph summarizes the most significant actions and proceedings for which Hamilton Sundstrand has accepted responsibility:
•Rexnord Industries is a defendant in multiple lawsuits pending in state or federal court in numerous jurisdictions relating to alleged personal injuries due to the alleged presence of asbestos in certain clutches and drives previously manufactured by The Falk Corporation. The ultimate outcome of these lawsuits cannot presently be determined. Hamilton Sundstrand is defending Rexnord Industries in these lawsuits pursuant to its indemnity obligations and has paid 100% of the costs to date.
The Company is, from time to time, party to litigation and other legal or regulatory proceedings that arise in the normal course of its business operations and the outcomes of which are subject to significant uncertainty, including product warranty and liability claims, contract disputes and environmental, asbestos, intellectual property, employment and other litigation matters. The Company's products are used in a variety of industrial, commercial and residential applications that subject the Company to claims that the use of its products is alleged to have resulted in injury or other damage. Many of these matters will only be resolved when one or more future events occur or fail to occur. Management conducts regular reviews, including updates from legal counsel, to assess the need for accounting recognition or disclosure of these contingencies, and such assessment inherently involves an exercise in judgment. The Company accrues for exposures in amounts that it believes are adequate, and the Company does not believe that the outcome of any such lawsuit individually or collectively will have a material effect on the Company's financial position, its results of operations or its cash flows.
The Company recognizes the cost associated with its standard warranty on its products at the time of sale. The amount recognized is based on historical experience. The following table presents a reconciliation of the changes in accrued warranty costs for the three and nine months ended September 30, 2024 and September 30, 2023:
Three Months Ended Nine Months Ended
September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023
Beginning Balance $ 33.4 $ 39.3 $ 34.5 $ 28.8
Less: Payments (6.5) (5.5) (17.8) (15.8)
Provisions 6.6 6.3 17.1 16.3
Acquisitions - - - 9.8
Reclassification to Liabilities Held for Sale - (3.4) - (3.4)
Translation Adjustments 0.3 (0.3) - 0.7
Ending Balance $ 33.8 $ 36.4 $ 33.8 $ 36.4
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These liabilities are included in Other Accrued Expenses and Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets.
13. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed using derivative instruments are commodity price risk, currency exchange risk, and interest rate risk. Forward contracts on certain commodities are entered into to manage the price risk associated with forecasted purchases of materials used in the Company's manufacturing process. Forward contracts on certain currencies are entered into to manage forecasted cash flows in certain foreign currencies. Interest rate swaps are utilized to manage interest rate risk associated with the Company's floating rate borrowings.
The Company is exposed to credit losses in the event of non-performance by the counterparties to various financial agreements, including its commodity hedging transactions, foreign currency exchange contracts and interest rate swap agreements. Exposure to counterparty credit risk is managed by limiting counterparties to major international banks and financial institutions meeting established credit guidelines and continually monitoring their compliance with the credit guidelines. The Company does not obtain collateral or other security to support financial instruments subject to credit risk. The Company does not anticipate non-performance by its counterparties, but cannot provide assurances.
The Company recognizes all derivative instruments as either assets or liabilities at fair value on the Condensed Consolidated Balance Sheets. The Company designates commodity forward contracts as cash flow hedges of forecasted purchases of commodities, currency forward contracts as cash flow hedges of forecasted foreign currency cash flows and interest rate swaps as cash flow hedges of forecasted SOFR-based interest payments. There were no significant collateral deposits on derivative financial instruments as of September 30, 2024 or September 30, 2023.
Cash flow hedges
The effective portion of the gain or loss on the derivative is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or changes in market value of derivatives not designated as hedges are recognized in current earnings.
As of September 30, 2024 and December 31, 2023, the Company had $4.4 million and $15.1 million, respectively, net of tax, of derivative gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings.
The Company has currency forward contracts with maturities extending through March 2027. The notional amounts expressed in terms of the dollar value of the hedged currency were as follows:
September 30, 2024 December 31, 2023
Chinese Renminbi $ 405.2 $ 302.3
Mexican Peso 295.0 101.4
Euro 573.9 465.8
Indian Rupee 36.2 30.1
British Pound 3.5 7.1
The Company has commodity forward contracts to hedge forecasted purchases of commodities with maturities extending through December 2025. The notional amounts expressed in terms of the dollar value of the hedged item were as follows:
September 30, 2024 December 31, 2023
Copper $ 58.1 $ 37.5
Aluminum 0.3 1.4
The Company entered into two receive variable/pay-fixed forward starting non-amortizing interest rate swaps in June 2020, with a total notional amount of $250.0 million, which were subsequently terminated in March 2022. The cash proceeds of $16.2 million received to settle the terminated swaps is being recognized as a reduction of interest expense via the effective interest rate method through July 2025 when the terminated swaps were scheduled to expire. The Company entered into two additional receive variable/pay-fixed forward starting non-amortizing interest rate swaps in May 2022, with a total notional amount of $250.0 million. These swaps will expire in March 2027.
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Fair values of derivative instruments as of September 30, 2024 and December 31, 2023 were:
September 30, 2024
Prepaid Expenses and Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities
Designated as Hedging Instruments:
Interest Rate Swap Contracts $ - $ 1.8 $ - $ -
Currency Contracts 0.5 - 6.0 0.1
Commodity Contracts 2.3 0.4 1.6 -
Not Designated as Hedging Instruments:
Currency Contracts 2.7 - 1.2 -
Total Derivatives $ 5.5 $ 2.2 $ 8.8 $ 0.1
December 31, 2023
Prepaid Expenses and Other Current Assets Other Noncurrent Assets Other Accrued Expenses
Designated as Hedging Instruments:
Interest Rate Swap Contracts $ - $ 5.3 $ -
Currency Contracts 13.1 0.2 1.0
Commodity Contracts 1.0 0.1 0.6
Not Designated as Hedging Instruments:
Currency Contracts 1.3 - 5.9
Total Derivatives $ 15.4 $ 5.6 $ 7.5
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Derivatives Designated as Cash Flow Hedging Instruments:
The effect of derivative instruments designated as cash flow hedges on the Condensed Consolidated Statements of Income (Loss) and Condensed Consolidated Statements of Comprehensive Income (Loss) were:
Three Months Ended
September 30, 2024 September 30, 2023
Commodity Forwards Currency Forwards Interest Rate Swaps Total Commodity Forwards Currency Forwards Interest Rate Swaps Total
Gain (Loss) Recognized in Other Comprehensive Income (Loss) $ 1.2 $ (4.9) $ (7.2) $ (10.9) $ (0.9) $ (3.7) $ 2.2 $ (2.4)
Amounts Reclassified from Other Comprehensive Income (Loss):
Gain (Loss) Recognized in Cost of Sales 0.7 5.1 - 5.8 (3.1) 4.6 - 1.5
Gain Recognized in Interest Expense - - 1.4 1.4 - - 1.6 1.6
Nine Months Ended
September 30, 2024 September 30, 2023
Commodity Forwards Currency Forwards Interest Rate Swaps Total Commodity Forwards Currency Forwards Interest Rate Swaps Total
Gain (Loss) Recognized in Other Comprehensive Income (Loss) $ 1.3 $ (9.6) $ (3.5) $ (11.8) $ (0.7) $ 21.0 $ 4.3 $ 24.6
Amounts Reclassified from Other Comprehensive Income (Loss):
Gain (Loss) Recognized in Cost of Sales (1.1) 19.8 - 18.7 (10.9) 8.6 - (2.3)
Gain Recognized in Interest Expense - - 4.3 4.3 - - 4.4 4.4
Derivatives Not Designated as Cash Flow Hedging Instruments:
The effect of derivative instruments not designated as cash flow hedges on the Condensed Consolidated Statements of Income (Loss) were:
Three Months Ended
September 30, 2024 September 30, 2023
Commodity Forwards Currency Forwards Commodity Forwards Currency Forwards
Gain recognized in Cost of Sales $ - $ - $ 0.1 $ -
(Loss) Gain recognized in Operating Expenses - (1.7) - 27.4
Nine Months Ended
September 30, 2024 September 30, 2023
Commodity Forwards Currency Forwards Commodity Forwards Currency Forwards
Gain recognized in Cost of Sales $ - $ - $ 0.2 $ -
Gain recognized in Operating Expenses - 6.0 - 14.9
The AOCI balance related to hedging activities consists of a $2.3 million gain net of tax as of September 30, 2024 which includes $0.6 million of net current deferred gains expected to be reclassified to the Consolidated Statement of Comprehensive
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Income in the next twelve months. There were no gains or losses reclassified from AOCI to earnings based on the probability that the forecasted transaction would not occur.
The Company's commodity and currency derivative contracts are subject to master netting agreements with the respective counterparties which allow the Company to net settle transactions with a single net amount payable by one party to another party. The Company has elected to present the derivative assets and derivative liabilities on the Condensed Consolidated Balance Sheets on a gross basis as of September 30, 2024 and December 31, 2023.
The following table presents on a net basis the derivative assets and liabilities that are subject to right of offset under enforceable master netting agreements:
September 30, 2024
Gross Amounts as Presented on the Condensed Consolidated Balance Sheet Derivative Contract Amounts Subject to Right of Offset Derivative Contracts as Presented on a Net Basis
Assets $ 7.7 $ (2.0) $ 5.7
Liabilities 8.9 (2.0) 6.9
December 31, 2023
Gross Amounts as Presented on the Condensed Consolidated Balance Sheet Derivative Contract Amounts Subject to Right of Offset Derivative Contracts as Presented on a Net Basis
Assets $ 15.7 $ (2.6) $ 13.1
Liabilities 7.5 (2.6) 4.9
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14. FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
Inputs other than quoted prices that are observable for the asset or liability
Level 3 Unobservable inputs for the asset or liability
The Company uses the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The fair values of cash equivalents and short-term deposits approximate their carrying values as of September 30, 2024 and December 31, 2023, due to the short period of time to maturity and are classified using Level 1 inputs. The fair values of trade receivables and accounts payable approximate the carrying values due to the short period of time to maturity. See Note 7 - Debt and Bank Credit Facilities for disclosure of the approximate fair value of the Company's debt as of September 30, 2024 and December 31, 2023.
The following table sets forth the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:
September 30, 2024 December 31, 2023 Classification
Assets:
Prepaid Expenses and Other Current Assets:
Derivative Currency Contracts $ 3.2 $ 14.4 Level 2
Derivative Commodity Contracts 2.3 1.0 Level 2
Other Noncurrent Assets:
Assets Held in Rabbi Trust 14.9 12.7 Level 1
Derivative Currency Contracts - 0.2 Level 2
Derivative Commodity Contracts 0.4 0.1 Level 2
Interest Rate Swap 1.8 5.3 Level 2
Liabilities:
Other Accrued Expenses:
Derivative Currency Contracts 7.2 6.9 Level 2
Derivative Commodity Contracts 1.6 0.6 Level 2
Other Noncurrent Liabilities:
Derivative Currency Contracts 0.1 - Level 2
Derivative Commodity Contracts - - Level 2
Level 1 fair value measurements for assets held in a Rabbi Trust are unadjusted quoted prices.
Level 2 fair value measurements for derivative assets and liabilities are measured using quoted prices in active markets for similar assets and liabilities. Interest rate swaps are valued based on the discounted cash flows using the SOFR forward yield curve for an instrument with similar contractual terms. Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. Commodity forwards are valued based on observable market transactions of forward commodity prices. Senior Notes are valued based on rates for instruments with comparable maturities and credit quality. See Note 7 - Debt and Bank Credit Facilities for further information.
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15. RESTRUCTURING ACTIVITIES
The Company incurred restructuring and restructuring-related costs on projects during the three and nine months ended September 30, 2024 and September 30, 2023. The Company has initiated restructuring plans to achieve cost synergies from procurement, distribution efficiencies, footprint rationalization and other general cost savings measures. Restructuring costs include employee termination and plant relocation costs. Restructuring-related costs also include costs directly associated with actions resulting from the Company's simplification initiatives, such as asset write-downs or accelerated depreciation due to shortened useful lives in connection with site closures, discretionary employment benefit costs and other facility rationalization costs. Restructuring costs for employee termination expenses are generally recognized when the severance liability is determined to be probable of being paid and reasonably estimable while plant relocation costs and related costs are generally required to be expensed as incurred.
The following table presents a reconciliation of provisions and payments for the restructuring projects for the three and nine months ended September 30, 2024 and September 30, 2023:
Three Months Ended Nine Months Ended
September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023
Beginning Balance $ 16.7 $ 18.3 $ 29.1 $ 15.1
Acquisition(1)
- - - 0.2
Provision(2)
10.9 7.1 29.1 26.1
Less: Payments 10.2 4.6 40.8 20.6
Ending Balance $ 17.4 $ 20.8 $ 17.4 $ 20.8
(1) Excludes $12.4 million of severance related to the Altra Transaction, which was paid in the second quarter 2023.
(2) Excludes equipment related write-offs and restructuring related depreciation adjustments. The three and nine months ended September 30, 2023 excludes $7.5 million of accelerated depreciation.
The following table presents a reconciliation of restructuring costs for restructuring projects for the three and nine months ended September 30, 2024 and September 30, 2023:
Three Months Ended
September 30, 2024 September 30, 2023
Restructuring Costs: Cost of Sales Operating Expenses Total Cost of Sales Operating Expenses Total
Employee Termination Expenses $ 3.1 $ 7.0 $ 10.1 $ 0.4 $ 2.0 $ 2.4
Facility Related Costs 2.0 0.1 2.1 9.4 0.1 9.5
Other Expenses 0.2 0.5 0.7 2.8 (0.1) 2.7
Total Restructuring Costs $ 5.3 $ 7.6 $ 12.9 $ 12.6 $ 2.0 $ 14.6
Nine Months Ended
September 30, 2024 September 30, 2023
Restructuring Costs: Cost of Sales Operating Expenses Total Cost of Sales Operating Expenses Total
Employee Termination Expenses $ 8.9 $ 10.2 $ 19.1 $ 10.1 $ 4.9 $ 15.0
Facility Related Costs 4.9 0.5 5.4 12.4 0.3 12.7
Other Expenses 5.5 1.9 7.4 5.9 - 5.9
Total Restructuring Costs $ 19.3 $ 12.6 $ 31.9 $ 28.4 $ 5.2 $ 33.6
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The following table presents restructuring costs by segment for the three and nine months ended September 30, 2024 and September 30, 2023:
Restructuring Costs - Three Months Ended Total Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems
September 30, 2024 $ 12.9 $ 5.3 $ 1.8 $ 5.8 $ -
September 30, 2023 $ 14.6 $ 5.9 $ 7.5 $ 1.2 $ -
Restructuring Costs - Nine Months Ended Total Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems
September 30, 2024 $ 31.9 $ 10.4 $ 11.4 $ 9.1 $ 1.0
September 30, 2023 $ 33.6 $ 7.5 $ 22.7 $ 2.7 $ 0.7
The Company's current restructuring activities are expected to continue through 2024. The Company expects to record aggregate future charges of approximately $11.2 million in the remainder of 2024. The Company continues to evaluate operating efficiencies and anticipates incurring additional costs in future periods in connection with these activities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars In Millions Except Per Share Data, Unless Otherwise Noted)
Overview
Regal Rexnord Corporation (NYSE: RRX) ("we," "us," "our" or the "Company") and its associates around the world help create a better tomorrow by providing sustainable solutions that power, transmit and control motion. The Company's electric motors and air moving subsystems provide the power to create motion. A portfolio of highly engineered power transmission components and subsystems efficiently transmit motion to power industrial applications. Our automation offering, comprised of controls, actuators, drives, and small, precision motors control motion in applications ranging from factory automation to providing precision control in surgical tools. We are headquartered in Milwaukee, Wisconsin and have manufacturing, sales and service facilities worldwide.
Our company is comprised of three operating segments: Industrial Powertrain Solutions ("IPS"), Power Efficiency Solutions ("PES") and Automation & Motion Control ("AMC").
A description of our three operating segments is as follows:
•The IPS segment designs, produces and services a broad portfolio of highly-engineered transmission products, including mounted and unmounted bearings, couplings, mechanical power transmission drives and components, gearboxes and gear motors, clutches, brakes, and industrial powertrain components and solutions. Increasingly, the segment produces industrial powertrain solutions, which are integrated sub-systems comprised of Regal Rexnord motors plus the critical power transmission components that efficiently transmit motion to power industrial applications. The segment serves a broad range of markets that include general industrial, metals and mining, agricultural and construction, food and beverage, energy, alternative energy, and other markets.
•The PES segment designs and produces fractional to approximately 5 horsepower AC and DC motors, electronic variable speed controls, electronic drives, fans and blowers, as well as integrated subsystems comprised of two or more of these components. The segment's products are used in residential and light commercial HVAC, water heaters, commercial refrigeration, commercial building ventilation, pool and spa, irrigation, dewatering, agricultural and other applications.
•The AMC segment designs, produces and services conveyor products, conveying automation subsystems, aerospace components, precision motion control solutions, high-efficiency miniature servo motors, controls, drives and linear actuators, as well as power management products that include automatic transfer switches and paralleling switchgear.
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The segment sells into markets that include industrial automation, robotics, food and beverage, aerospace, medical, agricultural and construction, general industrial, data center, and other markets.
On September 23, 2023, we signed an agreement to sell our industrial motors and generators businesses which represent the substantial majority the Industrial Systems operating segment. The transaction closed on April 30, 2024. See Note 3 - Held for Sale, Acquisitions and Divestitures of the Notes to the Condensed Consolidated Financial Statements for further information, as well as Note 6 - Segment Information of the Notes to the Condensed Consolidated Finance Statements for a description of the Company's operating segments.
Components of Profit and Loss
Net Sales. We sell our products to a variety of manufacturers, distributors and end users. Our customers consist of a large cross-section of businesses, ranging from Fortune 100 companies to small businesses. A number of our products are sold to Original Equipment Manufacturers ("OEMs"), who incorporate our products, such as electric motors, into products they manufacture, and many of our products are built to the requirements of our customers. The majority of our sales derive from direct sales to customers by sales personnel employed by the Company, however, a significant portion of our sales are derived from sales made by manufacturer's representatives, who are paid exclusively on commission. Our product sales are made via purchase order, long-term contract, and, in some instances, one-time purchases. Many of our products have broad customer bases, with levels of revenue concentration by customer varying widely across our business units.
Our level of net sales for any given period is dependent upon a number of factors, including (i) the demand for our products and for the products in which our products are components; (ii) the strength of the economy generally and the end markets in which we compete; (iii) our customers' perceptions of our product quality at any given time; (iv) our quote, lead and delivery times; (v) the selling price of our products; (vi) inventory levels in the channels through which our products are sold; and (vii) the weather. As a result, our total revenue has tended to experience quarterly variations and our total revenue for any particular quarter may not be indicative of future results.
We use the term "organic sales" to refer to sales from existing operations excluding (i) sales from acquired businesses recorded prior to the first anniversary of the acquisition ("Acquisition Sales"), (ii) less the amount of sales attributable to any businesses divested/to be exited, and (iii) the impact of foreign currency translation. The impact of foreign currency translation is determined by translating the respective period's organic sales using the same currency exchange rates that were in effect during the prior year periods. We use the term "organic sales growth" to refer to the increase in our sales between periods that is attributable to organic sales. We use the term "acquisition growth" to refer to the increase in our sales between periods that is attributable to Acquisition Sales. Organic sales, organic sales growth and acquisition growth are non-GAAP financial measures. See reconciliation for these measures to GAAP net sales in Non-GAAP Measures below.
Gross Profit. Our gross profit is impacted by our levels of net sales and cost of sales. Our cost of sales consists of costs for, among other things (i) raw materials, including copper, steel and aluminum; (ii) components such as castings, bars, tools, bearings and electronics; (iii) wages and related personnel expenses for fabrication, assembly and logistics personnel; (iv) manufacturing facilities, including depreciation on our manufacturing facilities and equipment, insurance and utilities; and (v) shipping. The majority of our cost of sales consists of raw materials and components. The price we pay for commodities and components can be subject to commodity price fluctuations. We attempt to mitigate this through fixed-price agreements with suppliers and our hedging strategies. When we experience commodity price increases, we have tended to announce price increases to our customers who purchase via purchase order, with such increases generally taking effect a period of time after the public announcements. For those sales we make under long-term contracts, we tend to include material price formulas that specify quarterly or semi-annual price adjustments based on a variety of factors, including commodity prices.
Outside of general economic cyclicality, our business units experience different levels of variation in gross profit from quarter to quarter based on factors specific to each business. Generally, our segments each have broad customer base and a variety of applications for their products, thereby helping to mitigate large quarter-to-quarter fluctuations outside of general economic conditions. However, for example, a portion of our PES segment manufactures products that are used in air conditioning applications. As a result, our sales for that business may be lower in the first and fourth quarters and higher in the second and third quarters.
Operating Expenses. Our operating expenses consist primarily of (i) general and administrative expenses; (ii) sales and marketing expenses; (iii) general engineering and research and development expenses; and (iv) handling costs incurred in conjunction with distribution activities. Personnel related costs are our largest operating expense.
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Our general and administrative expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses related to our executive, finance, human resource, information technology, legal and operations functions; (ii) occupancy expenses; (iii) technology related costs; (iv) depreciation and amortization; and (v) corporate-related travel. The majority of our general and administrative costs are for salaries and related personnel expenses. These costs can vary by business given the location of our different manufacturing operations.
Our sales and marketing expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses related to our sales and marketing function; (ii) internal and external sales commissions and bonuses; (iii) travel, lodging and other out-of-pocket expenses associated with our selling efforts; and (iv) other related overhead.
Our general engineering and research and development expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses; (ii) the design and development of new energy efficiency products and enhancements; (iii) quality assurance and testing; and (iv) other related overhead. Our research and development efforts tend to be targeted toward developing new products that would allow us to maintain or gain additional market share, whether in new or existing applications. In particular, a large driver of our research and development efforts is to raise the energy efficiency and lower the environmental impact of our products and sub-systems.
Income from Operations. Our income from operations consists of segment gross profit less segment operating expenses. In addition, there are shared operating costs that cover corporate, engineering and IT expenses that are consistently allocated to the operating segments and are included in segment operating expenses. Income from operations is a key metric used to measure year-over-year performance of the segments.
Altra Transaction
On March 27, 2023, in accordance with the terms and conditions of the Altra Merger Agreement, by and among us, Altra, and Merger Sub, pursuant to the satisfaction of specified conditions, Merger Sub merged with and into Altra, with Altra surviving the Altra Merger as our wholly owned subsidiary. See Note 3 - Held for Sale, Acquisitions and Divestitures of the Notes to the Condensed Consolidated Financial Statements for further information regarding the Altra Transaction.
In connection with the Altra Transaction, we entered into certain financing arrangements, which are described below under "Liquidity and Capital Resources."
2024 Outlook
The Company has updated its annual guidance for diluted earnings per share to a range of $3.27 to $3.57. The change reflects weaker factory automation demand in the Automation & Motion Control segment and weaker general commercial demand in the Power Efficiency Solutions segment.
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Results of Operations
Three Months Ended Nine Months Ended
September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023
Net Sales:
Industrial Powertrain Solutions $ 644.2 $ 640.7 $ 1,963.1 $ 1,753.8
Power Efficiency Solutions 431.6 461.3 1,227.8 1,390.9
Automation & Motion Control 401.6 419.8 1,224.0 1,096.1
Industrial Systems(1)
- 128.0 157.8 401.7
Consolidated $ 1,477.4 $ 1,649.8 $ 4,572.7 $ 4,642.5
Gross Profit as a Percent of Net Sales:
Industrial Powertrain Solutions 41.6 % 33.7 % 40.9 % 35.2 %
Power Efficiency Solutions 30.5 % 29.9 % 28.7 % 28.0 %
Automation & Motion Control 39.0 % 38.4 % 39.7 % 37.7 %
Industrial Systems(1)
- % 21.3 % 24.8 % 21.0 %
Consolidated 37.7 % 32.9 % 36.7 % 32.4 %
Operating Expenses as a Percent of Net Sales:
Industrial Powertrain Solutions 28.5 % 27.5 % 27.9 % 29.2 %
Power Efficiency Solutions 17.0 % 15.8 % 17.9 % 15.8 %
Automation & Motion Control 31.3 % 28.1 % 30.4 % 29.8 %
Industrial Systems(1)
- % 152.4 % 24.7 % 61.3 %
Consolidated 25.9 % 34.1 % 25.8 % 28.1 %
Income (Loss) from Operations as a Percent of Net Sales:
Industrial Powertrain Solutions 13.1 % 6.1 % 13.1 % 6.0 %
Power Efficiency Solutions 13.6 % 14.1 % 10.8 % 12.2 %
Automation & Motion Control 7.7 % 10.3 % 9.2 % 7.9 %
Industrial Systems(1)
- % (131.2) % 0.2 % (40.4) %
Consolidated 11.8 % (1.2) % 11.0 % 4.3 %
Income (Loss) from Operations $ 174.1 $ (20.4) $ 501.9 $ 200.1
Interest Expense 98.0 111.5 305.1 323.3
Interest Income (5.1) (3.5) (13.2) (40.5)
Other (Income) Expense, Net (0.2) (2.5) 0.4 (6.7)
Income (Loss) before Taxes 81.4 (125.9) 209.6 (76.0)
Provision for Income Taxes 8.4 12.7 53.2 34.9
Net Income (Loss) 73.0 (138.6) 156.4 (110.9)
Less: Net Income Attributable to Noncontrolling Interests 0.3 0.9 1.4 2.4
Net Income (Loss) Attributable to Regal Rexnord Corporation $ 72.7 $ (139.5) $ 155.0 $ (113.3)
(1) Results for the Industrial Systems segment covers results through the close of the sale on April 30, 2024.
Three Months Ended September 30, 2024 Compared to September 30, 2023
Net sales decreased $172.4 million or 10.4% for the third quarter of 2024 compared to the third quarter of 2023. The decrease consisted of an organic sales decline of 2.7% and a negative foreign currency translation impact of 0.2%. In addition, the $172.4 million decrease includes an impact of $128.0 million related to the sale of the industrial motors and generators businesses, which closed on April 30, 2024. The organic sales decline was driven by a decrease of $28.6 million within PES
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and a decrease of $17.2 million within AMC, partially offset by an increase of $5.3 million within IPS. Gross profit increased $14.1 million or 2.6% for the third quarter of 2024 as compared to the third quarter of 2023 primarily driven by an increase in gross profit of $52.2 million within IPS, partially offset by a decrease of $27.2 million due to the divestiture of the industrial motors and generators businesses and decreases at AMC and PES. The gross profit increase of $14.1 million includes the absence of $8.8 million of acquisition-related inventory step-up amortization at IPS and AMC in the third quarter of 2024. Total operating expenses for the third quarter of 2024 decreased $180.4 million or 32.1% as compared to the third quarter of 2023 primarily driven by a reduction of $195.1 million from the divestiture of the industrial motors and generators businesses, including the loss on assets held for sale of $112.7 million and goodwill impairment of $57.3 million.
IPS net sales for the third quarter of 2024 were $644.2 million, an increase of $3.5 million or 0.5% as compared to the third quarter of 2023. The increase consisted of an organic sales increase of 0.8%, partially offset by a negative foreign currency translation impact of 0.3%. The increase in organic sales was primarily driven by strength in energy, aerospace & defense and metals & mining, partially offset by weakness in alternative energy and machinery/off-highway markets. Gross profit increased $52.2 million or 24.2% as compared to the third quarter of 2023 primarily driven by benefits from productivity improvements and acquisition-related cost synergies and the absence of $7.1 million of acquisition-related inventory step-up amortization in the third quarter of 2024. Total operating expenses for the third quarter of 2024 are relatively consistent with the third quarter of 2023.
PES net sales for the third quarter of 2024 were $431.6 million, a decrease of $29.7 million or 6.4% as compared to the third quarter of 2023. The decrease consisted of an organic sales decline of 6.2% and a negative foreign currency translation impact of 0.2%. The decrease in organic sales was primarily driven by lower sales volumes due to weakness in the general commercial market and in commercial HVAC outside the U.S., along with a lag in our capacity ramping in response to higher than anticipated residential HVAC demand acceleration. Gross profit decreased $6.2 million or 4.5% as compared to the third quarter of 2023 primarily driven by lower volumes, partially offset by a decrease of $5.9 million in restructuring expenses. Total operating expenses for the third quarter of 2024 are relatively consistent with the third quarter of 2023.
AMC net sales were $401.6 million, a decrease of $18.2 million or 4.3% as compared to the third quarter of 2023. The decrease consisted of an organic sales decline of 4.1% and a negative foreign currency translation impact of 0.2%. The decrease in organic sales was primarily driven by $24.5 million from lower sales volumes due to weakness in discrete automation, partially offset by strength in the food & beverage, aerospace and defense, data center, and medical markets. Gross profit decreased $4.7 million or 2.9% compared to the third quarter of 2023 driven by a decline in sales volume, partially offset by benefits from acquisition-related cost synergies and other cost control actions taken during 2024. Total operating expenses for the third quarter of 2024 are relatively consistent with the third quarter of 2023.
The effective tax rate for the three months ended September 30, 2024 was 10.3% versus (10.1)% for the three months ended September 30, 2023. Refer to Note 10 - Income Taxes for further information.
Nine Months Ended September 30, 2024 Compared to September 30, 2023
Net sales decreased $69.8 million or 1.5% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease consisted of an organic sales decline of 6.2% and a negative foreign currency translation impact of 0.3%, partially offset by acquisition growth of 9.5%. In addition, the $69.8 million decrease reflects a negative impact of $222.9 million related to the sale of the industrial motors and generators businesses, which closed on April 30, 2024. The acquisition growth of $442.5 million was from the acquisition of Altra. The organic sales decline was due to lower organic sales of $158.8 million within PES, $67.6 million within AMC, $28.4 million within IPS, and $19.6 million within Industrial Systems. Gross profit increased $176.3 million or 11.7% for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 primarily driven by $175.2 million from the acquisition of Altra, the absence of $52.9 million of acquisition-related inventory step-up amortization at IPS and AMC in 2024, and acquisition-related cost synergies, partially offset by a $37.2 million decrease within PES and a decrease of $45.0 million due to the divestiture of the industrial motors and generated business. Total operating expenses for the nine months ended September 30, 2024 decreased $125.5 million or 9.6% as compared to the nine months ended September 30, 2023 primarily driven by a reduction of $207.4 million from the divestiture of the industrial motors and generators businesses including the $108.4 million decrease to loss on assets held for sale and $57.3 million goodwill impairment recorded during 2023, and a decrease of $68.2 million of transaction and integration related costs, partially offset by an increase of $122.0 million from the acquisition of Altra.
IPS net sales for the nine months ended September 30, 2024 were $1,963.1 million, an increase of $209.3 million or 11.9% as compared to the nine months ended September 30, 2023. The increase consisted of acquisition growth of 13.9%, partially offset by an organic sales decline of 1.6% and a negative foreign currency translation impact of 0.3%. The acquisition growth of $243.2 million was due to the acquisition of Altra. The $28.4 million decrease in organic sales was driven by lower sales volumes due to weakness in alternative energy and machinery/off-highway markets, partially offset by strength in energy and metals & mining markets. Gross profit increased $185.7 million or 30.1% as compared to the nine months ended September 30,
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2023 primarily driven by $92.4 million from the acquisition of Altra, the absence of $38.7 million of acquisition-related inventory step-up amortization in 2024, and the benefits of productivity and acquisition-related cost synergies. Total operating expenses for the nine months ended September 30, 2024 increased $34.8 million or 6.8% as compared to the nine months ended September 30, 2023 primarily driven by an increase of $60.0 million from the acquisition of Altra and an increase of $5.1 million of restructuring expense, partially offset by a decrease of $40.8 million of transaction and integration costs.
PES net sales for the nine months ended September 30, 2024 were $1,227.8 million, a decrease of $163.1 million or 11.7% as compared to the nine months ended September 30, 2023. The decrease primarily consisted of an organic sales decline of 11.4% and a negative foreign currency translation impact of 0.3%. The decrease in organic sales was primarily due to lower sales volumes due to weakness in North American residential HVAC as well as commercial HVAC markets in Europe and Asia. Gross profit decreased $37.2 million or 9.6% as compared to the nine months ended September 30, 2023 primarily driven by lower sales volumes, partially offset by management's control over discretionary spending and lower freight costs. Total operating expenses for the nine months ended September 30, 2024 are relatively consistent with the nine months ended September 30, 2023.
AMC net sales were $1,224.0 million, an increase of $127.9 million or 11.7% as compared to the nine months ended September 30, 2023. The increase consisted of acquisition growth of 18.2%, partially offset by an organic sales decline of 6.2% and a negative foreign currency translation impact of 0.3%. The acquisition growth of $199.3 million was due to the acquisition of Altra. The $67.6 million decrease in organic sales was primarily driven by lower volumes due to weakness in discrete automation, partially offset by strength in the aerospace, medical, and data center markets. Gross profit increased $72.8 million or 17.6% compared to the nine months ended September 30, 2023 primarily driven by $82.8 million from the acquisition of Altra, the absence of $14.2 million of acquisition-related inventory step-up amortization in 2024 and the benefits of acquisition-related cost synergies, partially offset by the decline in sales. Total operating expenses for the nine months ended September 30, 2024 increased $46.3 million as compared to the nine months ended September 30, 2023 primarily due to $62.0 million from the acquisition of Altra, partially offset by a decrease of $26.9 million of transaction and integration costs.
On April 30, 2024, the Company completed the sale of its industrial motors and generators businesses, which represented the substantial majority of the Industrial Systems segment, and recognized a $4.3 million loss on the sale during the nine months ended September 30, 2024. The changes in Industrial Systems' sales, gross profit and other operating expenses were primarily driven by the timing of the sale.
The effective tax rate for the nine months ended September 30, 2024 was 25.4% versus (45.9)% for the nine months ended September 30, 2023. Refer to Note 10 - Income Taxes for further information.
Non-GAAP Measures
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). As noted above, in this Quarterly Report on Form 10-Q, we also disclose organic sales, organic sales growth and acquisition growth, which are considered non-GAAP financial measures. We use the term "organic sales growth" to refer to its increase in sales between periods that is attributable to sales. "Organic sales" refers to GAAP sales from existing operations excluding any sales from acquired businesses recorded prior to the first anniversary of the acquisition and excluding any sales from business divested/to be exited recorded prior to the first anniversary of the exit and excluding the impact of foreign currency translation. The impact of foreign currency translation is determined by translating the respective period's organic sales using the currency exchange rates that were in effect during the prior year periods. We reconcile these non-GAAP measures in the table below to GAAP net sales. We believe that these non-GAAP financial measures are useful measures for providing investors with additional information regarding our results of operations and for helping investors understand and compare our operating results across accounting periods and compared to our peers. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for the Company's results of operations prepared and presented in accordance with GAAP.
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Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
Net Sales for Three Months Ended September 30, 2024
$ 644.2 $ 431.6 $ 401.6 $ - $ 1,477.4
Impact from Foreign Currency Exchange Rates 1.8 1.1 1.0 - 3.9
Organic Sales for Three Months Ended September 30, 2024
$ 646.0 $ 432.7 $ 402.6 $ - $ 1,481.3
Organic Sales Growth for Three Months Ended September 30, 2024
0.8 % (6.2) % (4.1) % - % (2.7) %
Impact from Foreign Currency Exchange Rates (0.3) % (0.2) % (0.2) % - % (0.2) %
Net Sales for Three Months Ended September 30, 2023
$ 640.7 $ 461.3 $ 419.8 $ 128.0 $ 1,649.8
Net Sales from Businesses Divested - - - (128.0) (128.0)
Adjusted Net Sales for Three Months Ended September 30, 2023
$ 640.7 $ 461.3 $ 419.8 $ - $ 1,521.8
Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
Net Sales for Nine Months Ended September 30, 2024
$ 1,963.1 $ 1,227.8 $ 1,224.0 $ 157.8 $ 4,572.7
Net Sales from Businesses Acquired (243.2) - (199.3) - (442.5)
Impact from Foreign Currency Exchange Rates 5.5 4.3 3.8 1.4 15.0
Organic Sales for Nine Months Ended September 30, 2024
$ 1,725.4 $ 1,232.1 $ 1,028.5 $ 159.2 $ 4,145.2
Organic Sales Growth for Nine Months Ended September 30, 2024
(1.6) % (11.4) % (6.2) % (11.0) % (6.2) %
Acquisition Growth for Nine Months Ended September 30, 2024
13.9 % - % 18.2 % - % 10.0 %
Impact from Foreign Currency Exchange Rates (0.3) % (0.3) % (0.3) % (0.8) % (0.3) %
Net Sales for Nine Months Ended September 30, 2023
$ 1,753.8 $ 1,390.9 $ 1,096.1 $ 401.7 $ 4,642.5
Net Sales from Businesses Divested - - - (222.9) (222.9)
Adjusted Net Sales for Nine Months Ended September 30, 2023
$ 1,753.8 $ 1,390.9 $ 1,096.1 $ 178.8 $ 4,419.6
Liquidity and Capital Resources
General
Our principal source of liquidity is cash flow provided by operating activities. In addition to operating income, other significant factors affecting our cash flow include working capital levels, capital expenditures, dividends, share repurchases, acquisitions and divestitures, availability of debt financing and the ability to attract long-term capital at acceptable terms.
Cash flow provided by operating activities was $396.2 million for the nine months ended September 30, 2024, a $117.8 million decrease from the nine months ended September 30, 2023. This decrease was driven primarily by lower cash generated by working capital, partially offset by improved income generation.
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Cash flow provided by investing activities was $295.9 million for the nine months ended September 30, 2024 as compared to cash flow used in investing activities of $4,952.6 million for the nine months ended September 30, 2023. The change was driven by the use of $4,870.2 of cash to acquire Altra during the prior year period and $374.8 million in proceeds received from the sale of the industrial motors and generators businesses in the current year.
In fiscal 2024, we anticipate capital spending for property, plant and equipment to be approximately $110 million. We believe that our present manufacturing facilities will be sufficient to provide adequate capacity for our operations for the remainder of 2024. We anticipate funding remaining 2024 capital spending with operating cash flows.
Cash flow used in financing activities was $860.9 million for the nine months ended September 30, 2024, compared to $4,354.7 million provided by financing activities for the nine months ended September 30, 2023. We made net debt repayments of $732.7 million during the nine months ended September 30, 2024, compared to net debt borrowings of $4,492.2 million during the nine months ended September 30, 2023. The net debt payments in the current year primarily resulted from payments of $273.5 million on the term loan, $391.8 million on the land term loan and $64.3 million net repayments made on the revolver during the nine months ended September 30, 2024. The net debt borrowings in the prior year were primarily the result of the $4.7 billion of Senior Notes issued in January 2023 and the $840.0 million upsize of the unsecured term loan facility in March 2023, partially offset by the repayment of the $500.0 million of Private Placement Notes in January 2023, $412.5 million net repayments on the revolver and $122.1 million of payments on the term loan. The Company repurchased and retired $50.0 million of common stock during the nine months ended September 30, 2024 to partially offset the dilutive impact of share-based compensation awards. There were no share repurchases for the nine months ended September 30, 2023. There were $69.9 million of dividends paid for the nine months ended September 30, 2024, compared to $69.6 million of dividends paid in the prior year. There were no financing fees paid in the nine months ended September 30, 2024, compared to $51.1 million of fees paid in the prior year.
Our working capital was $1,746.9 million as of September 30, 2024, compared to $2,057.6 million as of December 31, 2023. Our working capital decreased primarily as a result of lower cash on hand, due to the Company prioritizing debt reduction and using excess cash to do so.
The following table presents selected financial information and statistics as of September 30, 2024 and December 31, 2023:
September 30, 2024 December 31, 2023
Cash and Cash Equivalents $ 458.6 $ 574.0
Trade Receivables, Net 855.8 921.6
Inventories 1,324.5 1,274.2
Working Capital 1,746.9 2,057.6
Current Ratio 2.4:1 2.6:1
As of September 30, 2024, $433.8 million of our cash was held by foreign subsidiaries and could be used in our domestic operations if necessary. We anticipate being able to support our liquidity and operating needs largely through cash generated from operations. We regularly assess our cash needs and the available sources to fund these needs which includes repatriation of foreign earnings which may be subject to withholding taxes. Under current law, we do not expect restrictions or taxes on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition or the results of operations for the foreseeable future. As of September 30, 2024, we have repatriated approximately $636.5 million of foreign cash in 2024 to support the repayment of debt. We are continuing to evaluate opportunities to repatriate additional foreign cash in 2024.
We will, from time to time, maintain excess cash balances which may be used to (i) fund operations, (ii) repay outstanding debt, (iii) fund acquisitions, (iv) pay dividends, (v) make investments in new product development programs, (vi) repurchase our common stock, or (vii) fund other corporate objectives.
In May 2024, the Company completed transactions to exchange the unregistered Senior Notes for the registered New Notes, which are described within Note 7 - Debt and Bank Credit Facilities.
The Company plans to use cash generated from operations to fund its interest obligations and reduce the principal balance of its debt over time. The Company also plans to use the net proceeds from the sale of its industrial motors and generators businesses to repay outstanding debt.
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As of September 30, 2024, the Company had no standby letters of credit issued under the Multicurrency Revolver Facility, and $1,536.2 million of available borrowing capacity. For the three months ended September 30, 2024 and September 30, 2023 under the Multicurrency Revolving Facility, the average daily balance in borrowings was $70.8 million and $123.9 million, respectively, and the weighted average interest rate was 7.2% and 7.2%, respectively. For the nine months ended September 30, 2024 and September 30, 2023 under the Multicurrency Revolving Facility, the average daily balance in borrowings was $78.9 million and $320.0 million, respectively, and the weighted average interest rate was 7.2% and 6.6%, respectively. The Company pays a non-use fee on the aggregate unused amount of the Multicurrency Revolving Facility at a rate determined by reference to its consolidated funded debt to consolidated EBITDA ratio.
See Note 7 - Debt and Bank Credit Facilities and Note 3 - Held for Sale, Acquisitions and Divestitures for more information.
Guarantor Information
Regal Rexnord Corporation (the "Parent") is the issuer of the Senior Notes and the New Notes, which are guaranteed by each of its direct and indirect wholly-owned subsidiaries that is a borrower or guarantor under the Credit Agreement (the "Guarantor Subsidiaries" and, each, a "Guarantor Subsidiary"). The Senior Notes and the New Notes are jointly and severally unconditionally guaranteed on a senior unsecured basis by the Guarantor Subsidiaries. The guarantees are subject to release in limited circumstances upon the occurrence of certain customary conditions. For example, a Guarantor Subsidiary may be released from its guarantee of the Senior Notes and the New Notes under certain circumstances, including following the Parent achieving certain corporate or similar credit ratings. In addition, the guarantee of a Guarantor Subsidiary will automatically terminate under certain circumstances, including if such Guarantor Subsidiary is permanently released from its guarantee of, and is not a borrower under, the Credit Agreement.
If any of the Parent's subsidiaries that do not guarantee the Senior Notes and the New Notes (the "Non-Guarantor Subsidiaries") becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of its indebtedness and its trade creditors generally will be entitled to payment on their claims from the assets of such subsidiary before any of those assets would be made available to the Parent or any Guarantor Subsidiary. Consequently, the claims of holders of the Senior Notes and the New Notes are structurally subordinated to all of the existing and future liabilities, including trade payables, of the Non-Guarantor Subsidiaries.
The following tables set forth financial information attributable to the Parent and the Guarantor Subsidiaries (collectively the "Obligor Group"). The financial information of the Obligor Group is presented on a combined basis, excluding intercompany balances and transactions between entities in the Obligor Group which have been eliminated. The financial information of the Obligor Group excludes equity investments in, and equity income or loss from, subsidiaries that are not in the Obligor Group. Material amounts due from, due to, and transactions with Non-Guarantor Subsidiaries which are included in the condensed financial information of the Obligor Group are presented with each table.
The following table sets forth summarized balance sheet information of the Obligor Group as of September 30, 2024 and December 31, 2023. The December 31, 2023 balance sheet information includes balances of the industrial motors and generators businesses which were classified as held for sale in the Condensed Consolidated Balance Sheet at that time:
September 30, 2024
December 31, 2023
Total Current Assets 1,223.6 1,285.0
Goodwill 4,220.9 4,262.6
Intangible Assets, Net of Amortization 2,229.7 2,374.0
Other Noncurrent Assets 1,029.3 1,062.8
Total Assets 7,479.9 7,699.4
Total Current Liabilities 662.7 697.0
Long-Term Debt 5,629.2 6,351.3
Other Noncurrent Liabilities 3,868.2 4,246.1
Total Liabilities 9,497.4 10,597.4
Due from Non-Guarantor Subsidiaries 531.1 526.4
Due to Non-Guarantor Subsidiaries 3,244.1 3,453.1
The following table sets forth summarized income statement information of the Obligor Group for the nine months ended September 30, 2024:
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Nine Months Ended September 30, 2024
Net Sales 2,503.9
Gross Profit 958.8
Income from Operations 214.1
Interest Expense 423.7
Net Loss (213.8)
Net Loss Attributable to Regal Rexnord Corporation (213.8)
Net Sales to Non-Guarantor Subsidiaries 195.5
Interest Expense Due to Non-Guarantors 125.0
Critical Accounting Estimates
Our critical accounting policies and estimates, which are discussed in our Annual Report on Form 10-K for the year ended December 31, 2023, have not materially changed since that report was filed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk relating to our operations due to changes in interest rates, foreign currency exchange rates and commodity prices of purchased raw materials. We manage the exposure to these risks through a combination of normal operating and financing activities and derivative financial instruments such as interest rate swaps, commodity cash flow hedges and foreign currency forward exchange contracts. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which prohibit the use of financial instruments for speculative purposes.
Generally, hedges are recorded on the balance sheet at fair value and are accounted for as cash flow hedges, with changes in fair value recorded in Accumulated Other Comprehensive Income (Loss) ("AOCI") in each accounting period. An ineffective portion of the hedges' change in fair value, if any, is recorded in earnings in the period of change.
Interest Rate Risk
We are exposed to interest rate risk on certain of our outstanding debt obligations used to finance our operations and acquisitions. Loans under the Credit Agreement bear interest at variable rates plus a margin, based on our consolidated net leverage ratio. As of September 30, 2024, excluding the impact of interest rate swaps, we had $4,795.9 million of fixed rate debt and $908.8 million of variable rate debt. We utilize interest rate swaps to manage fluctuations in cash flows resulting from exposure to interest rate risk on forecasted variable rate interest payments.
Our variable rate debt exposes us to fluctuations in required interest payments due to changes in interest rates. A hypothetical 10% change in our weighted average borrowing rate on outstanding variable rate debt as of September 30, 2024 would result in a $5.0 millionchange in after-tax annualized earnings. We entered into two forward starting pay fixed/receive floating non-amortizing interest rate swaps in June 2020, with a total notional amount of $250.0 million to manage fluctuations in cash flows from interest rate risk related to variable rate interest. These swaps were terminated in March 2022 upon closing the Credit Agreement. The cash proceeds of $16.2 million received to settle the terminated swaps is being recognized into interest expense via the effective interest rate method through July 2025 when the terminated swaps were scheduled to expire. We also entered into two forward starting pay fixed/receive floating non-amortizing interest rate swaps in May 2022, with a total notional amount of $250.0 million to manage fluctuations in cash flows from interest rate risk related to variable rate interest. Upon inception, the swaps were designated as a cash flow hedges against forecasted interest payments with gains and losses, net of tax, measured on an ongoing basis, recorded in AOCI.
Details regarding the instruments as of September 30, 2024 are as follows:
Instrument Notional Amount Maturity Rate Paid Rate Received Fair Value
Swap $250.0 March 2027 3.0% SOFR (3 Month) $ 1.8
As of September 30, 2024 and December 31, 2023, an interest rate swap asset of $1.8 million and $5.3 million, respectively, was included in Other Noncurrent Assets. There was an unrealized gain of $4.6 million (a $3.2 million gain on the terminated
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swaps and a $1.4 million gain on the active swaps) and $10.6 million, net of tax, as of September 30, 2024 and December 31, 2023, respectively, that was recorded in AOCI for the effective portion of the hedges.
Foreign Currency Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to minimize our exposure to these risks through a combination of normal operating activities and the utilization of foreign currency exchange contracts to manage our exposure on the forecasted transactions denominated in currencies other than the applicable functional currency. Contracts are executed with credit worthy banks and are denominated in currencies of major industrial countries. We do not hedge our exposure to the translation of reported results of foreign subsidiaries from local currency to United States dollars.
As of September 30, 2024, derivative currency assets (liabilities) of $3.2 million, $(7.2) million and $(0.1) million are recorded in Prepaid Expenses and Other Current Assets, Other Accrued Expenses and Other Noncurrent Liabilities, respectively. As of December 31, 2023, derivative currency assets (liabilities) of $14.4 million, $0.2 million and $(6.9) million, are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets and Other Accrued Expenses, respectively. The unrealized loss on the effective portions of the hedges of $4.2 million net of tax, and unrealized gain on the effective portions of the hedges of $9.3 million net of tax, as of September 30, 2024 and December 31, 2023 respectively, were recorded in AOCI. As of September 30, 2024 and December 31, 2023, we had $1.4 million and $10.2 million, respectively, net of tax, currency gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings.
The following table quantifies the outstanding foreign exchange contracts intended to hedge non-US dollar denominated receivables and payables and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their counter currency on September 30, 2024:
Gain (Loss) From
Currency Notional Amount Fair Value 10% Appreciation of Counter Currency 10% Depreciation of Counter Currency
Chinese Renminbi $ 405.2 $ 0.4 $ 40.5 $ (40.5)
Mexican Peso 295.0 (6.1) 29.5 (29.5)
Euro 573.9 1.7 57.4 (57.4)
Indian Rupee 36.2 0.1 3.6 (3.6)
British Pound 3.5 - 0.4 (0.4)
Gains and losses indicated in the sensitivity analysis would be offset by gains and losses on the underlying forecasted non-US dollar denominated cash flows.
Commodity Price Risk
We periodically enter into commodity hedging transactions to reduce the impact of changing prices for certain commodities such as copper and aluminum based upon forecasted purchases of such commodities. The contract terms of commodity hedge instruments generally mirror those of the hedged item, providing a high degree of risk reduction and correlation.
Derivative commodity assets (liabilities) of $2.3 million, $0.4 million and $(1.6) million were recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets and Other Accrued Expenses, respectively, as of September 30, 2024. Derivative commodity assets (liabilities) of $1.0 million, $0.1 million and $(0.6) million were recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets and Other Accrued Expenses, respectively as of December 31, 2023. The unrealized gain on the effective portion of the hedges of $0.8 million net of tax and the unrealized gain on the effective portion of the hedges of $0.3 million net of tax, as of September 30, 2024 and December 31, 2023, respectively, was recorded in AOCI. As of September 30, 2024, we had $0.3 million derivative commodity losses on closed hedge instruments. As of December 31, 2023, we had $1.6 million, net of tax, derivative commodity losses on closed hedge instruments in AOCI that were realized in earnings when the hedged items impacted earnings.
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The following table quantifies the outstanding commodity contracts intended to hedge raw material commodity prices and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their prices on September 30, 2024:
Gain (Loss) From
Commodity Notional Amount Fair Value 10% Appreciation of Commodity Prices 10% Depreciation of Commodity Prices
Copper $ 58.1 $ 1.1 $ 5.8 $ (5.8)
Aluminum 0.3 - - -
Gains and losses indicated in the sensitivity analysis would be offset by the actual prices of the commodities.
The net AOCI hedging component balance consists of $2.3 million of gains as of September 30, 2024 which includes $0.6 million of net current deferred gains that are expected to be realized in the next twelve months. The gain/loss reclassified from AOCI into earnings on such derivatives will be recognized in the same period in which the related item affects earnings.
Counterparty Risk
We are exposed to credit losses in the event of non-performance by the counterparties to various financial agreements, including our interest rate swap agreements, foreign currency exchange contracts and commodity hedging transactions. We manage exposure to counterparty credit risk by limiting our counterparties to major international banks and financial institutions meeting established credit guidelines and continually monitoring their compliance with the credit guidelines. We do not obtain collateral or other security to support financial instruments subject to credit risk. We do not anticipate non-performance by our counterparties, but cannot provide assurances.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective to ensure that (a) information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and (b) information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes in the legal matters described in Part I, Item 3 in our Annual Report on Form 10-K for the year ended December 31, 2023, which is incorporated herein by reference. See also Note 12 - Contingencies for more information.
ITEM 1A. RISK FACTORS
Our business and financial results are subject to numerous risks and uncertainties. These risks and uncertainties have not changed materially from those reported in Part I, Item 1A - Risk Factors in our Annual Report on Form 10-K for the year ended
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December 31, 2023, which is incorporated herein by reference. For additional information regarding risks and uncertainties facing the Company, please also see the information provided under the header "Cautionary Statement" contained in this Quarterly Report on Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Share Repurchase Program
The following table contains detail related to the repurchase of our common stock based on the date of trade during the quarter ended September 30, 2024.
2024 Fiscal Month
Total Number of Shares Purchased(1)
Average Price Paid per Share
Total Value of Shares Purchased as a Part of Publicly Announced Plans or Programs(2)
Maximum Value of Shares that May be Purchased Under the Plans or Programs
Jul 1 to Jul 31 - $ - $ - $ 194,963,843
Aug 1 to Aug 30 208,252 150.62 31,367,841 163,596,002
Sep 1 to Sep 30 124,187 150.09 18,638,782 144,957,220
332,439 $ 50,006,623
(1) At a meeting of the Board of Directors on October 26, 2021, the Company's Board of Directors approved the authorization to purchase up to $500.0 million of shares under the Company's share repurchase program. The authorization has no expiration date.
(2) During the quarter ended September 30, 2024, the Company purchased 332,439 shares or $50.0 million in shares pursuant to the October 26, 2021 repurchase authorization.
Equity Incentive Plans
Under our equity incentive plans, participants may pay the exercise price or satisfy all or a portion of the federal, state and local withholding tax obligations arising in connection with plan awards by electing to (a) have the Company withhold shares of common stock otherwise issuable under the award, (b) tender back shares received in connection with such award or (c) deliver other previously owned shares of common stock, in each case having a value equal to the exercise price or the amount to be withheld.
ITEM 5. OTHER INFORMATION
During our last quarter, no director or officer of the Company, as defined in Rule 16a-1(f), adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," each as defined in Item 408 of Regulation S-K.
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ITEM 6. EXHIBITS
Exhibit Number Exhibit Description
22
List of Guarantor Subsidiaries of Guaranteed Securities.
3.1
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certifications of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.INS XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
REGAL REXNORD CORPORATION
(Registrant)
/s/ Robert J. Rehard
Robert J. Rehard
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: November 5, 2024
REGAL REXNORD CORPORATION
(Registrant)
/s/ Alexander P. Scarpelli
Alexander P. Scarpelli
Senior Vice President
Chief Accounting Officer
(Principal Accounting Officer)
Date: November 5, 2024
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