REXNORD CORPORATION |
(Exact name of registrant as specified in its charter) |
Delaware | 20-5197013 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
247 Freshwater Way, Suite 300, Milwaukee, Wisconsin | 53204 | |
(Address of Principal Executive Offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operations and Financial Condition. |
Item 9.01. | Exhibits. |
Exhibit No. | Description |
99.1 | Earnings Release dated November 1, 2017 |
REXNORD CORPORATION | ||
By: | /S/ Mark W. Peterson | |
Mark W. Peterson | ||
Senior Vice President and Chief Financial Officer |
Exhibit No. | Description | |
99.1 |
Press Release | |
November 1, 2017 | Contact Information: |
For Immediate Release | Rob McCarthy |
Vice President - Investor Relations | |
414.223.1615 |
• | Net sales were $511 million and up 4% year over year (+4% core sales(1), -1% RHF product line exit, +1% foreign currency translation). |
• | Diluted EPS was $0.23, compared with $0.24 in the year-ago quarter. |
• | Net income(2) was $24 million, compared with $25 million in the year-ago quarter. |
• | Adjusted EPS(1) was $0.32, compared with $0.38 in the year-ago quarter. |
• | Adjusted EBITDA(1) was $98 million (19.2% of net sales), compared with $90 million (18.6% of net sales) in last year's second quarter. |
• | Net debt leverage ratio reduced to 2.9x. |
• | Completed Supply Chain Optimization and Footprint Repositioning initiatives. |
(1) | Refer to "Non-GAAP Measures" for a definition of this non-GAAP metric, as well as the accompanying reconciliations to GAAP. |
(2) | Net Income reflects net income attributable to Rexnord common stockholders. |
(1) | Net Income reflects net income attributable to Rexnord common stockholders. |
(2) | Refer to "Non-GAAP Measures" for a definition of this non-GAAP metric, as well as the accompanying reconciliations to GAAP. |
Second Quarter Ended | Six Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
Net sales | $ | 510.8 | $ | 491.0 | $ | 998.5 | $ | 962.8 | ||||||||
Cost of sales | 322.5 | 317.0 | 634.2 | 623.4 | ||||||||||||
Gross profit | 188.3 | 174.0 | 364.3 | 339.4 | ||||||||||||
Selling, general and administrative expenses | 109.4 | 106.6 | 219.3 | 213.2 | ||||||||||||
Restructuring and other similar charges | 5.1 | 4.4 | 7.8 | 10.0 | ||||||||||||
Amortization of intangible assets | 8.0 | 10.5 | 16.2 | 25.1 | ||||||||||||
Income from operations | 65.8 | 52.5 | 121.0 | 91.1 | ||||||||||||
Non-operating expense: | ||||||||||||||||
Interest expense, net | (20.2 | ) | (22.8 | ) | (40.2 | ) | (46.5 | ) | ||||||||
Other expense, net | (1.0 | ) | (0.7 | ) | (1.5 | ) | (2.6 | ) | ||||||||
Income before income taxes | 44.6 | 29.0 | 79.3 | 42.0 | ||||||||||||
Provision (benefit) for income taxes | 14.8 | 4.4 | 23.0 | (1.5 | ) | |||||||||||
Net income | 29.8 | 24.6 | 56.3 | 43.5 | ||||||||||||
Dividends on preferred stock | (5.8 | ) | — | (11.6 | ) | — | ||||||||||
Net income attributable to Rexnord common stockholders | $ | 24.0 | $ | 24.6 | $ | 44.7 | $ | 43.5 | ||||||||
Net income per share attributable to Rexnord common stockholders: | ||||||||||||||||
Basic | $ | 0.23 | $ | 0.24 | $ | 0.43 | $ | 0.43 | ||||||||
Diluted | $ | 0.23 | $ | 0.24 | $ | 0.42 | $ | 0.42 | ||||||||
Weighted-average number of shares outstanding (in thousands): | ||||||||||||||||
Basic | 103,812 | 102,728 | 103,753 | 102,207 | ||||||||||||
Effect of dilutive equity awards | 1,728 | 1,880 | 1,690 | 2,222 | ||||||||||||
Diluted | 105,540 | 104,608 | 105,443 | 104,429 |
Second Quarter Ended | Six Months Ended | ||||||||||||||
Adjusted EBITDA | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Net income attributable to Rexnord common shareholders | $ | 24.0 | $ | 24.6 | $ | 44.7 | $ | 43.5 | |||||||
Dividends on preferred stock | 5.8 | — | 11.6 | — | |||||||||||
Income tax provision (benefit) | 14.8 | 4.4 | 23.0 | (1.5 | ) | ||||||||||
Other expense, net | 1.0 | 0.7 | 1.5 | 2.6 | |||||||||||
Interest expense, net | 20.2 | 22.8 | 40.2 | 46.5 | |||||||||||
Income from operations | 65.8 | 52.5 | 121.0 | 91.1 | |||||||||||
Adjustments | |||||||||||||||
Depreciation and amortization | 21.1 | 24.3 | 43.6 | 53.3 | |||||||||||
Restructuring and other similar charges | 5.1 | 4.4 | 7.8 | 10.0 | |||||||||||
Acquisition-related fair value adjustment | — | 3.3 | — | 4.3 | |||||||||||
Stock-based compensation expense | 5.4 | 3.7 | 10.8 | 6.0 | |||||||||||
Impact of RHF product line exit (1) | — | 2.1 | — | 4.7 | |||||||||||
Last-in first-out inventory adjustments | 0.2 | — | 0.5 | (0.1 | ) | ||||||||||
Other, net (2) | 0.5 | — | 0.4 | — | |||||||||||
Subtotal of adjustments | 32.3 | 37.8 | 63.1 | 78.2 | |||||||||||
Adjusted EBITDA | $ | 98.1 | $ | 90.3 | $ | 184.1 | $ | 169.3 |
Second Quarter Ended | Six Months Ended | ||||||||||||||
Adjusted Net Income and Earnings Per Share | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Net income attributable to Rexnord common stockholders | $ | 24.0 | $ | 24.6 | $ | 44.7 | $ | 43.5 | |||||||
Supply chain optimization and footprint repositioning initiatives (3) | — | 0.8 | 1.0 | 1.4 | |||||||||||
Impact of RHF product line exit (1) | — | 2.3 | 5.2 | ||||||||||||
Restructuring and other similar charges | 5.1 | 4.4 | 7.8 | 10.0 | |||||||||||
Acquisition-related fair value adjustment | — | 3.3 | — | 4.3 | |||||||||||
Amortization of intangible assets | 8.0 | 10.5 | 16.2 | 25.1 | |||||||||||
Other, net (2) | 1.5 | 0.7 | 1.9 | 2.6 | |||||||||||
Tax effect on above items | (4.9 | ) | (7.0 | ) | (9.4 | ) | (16.4 | ) | |||||||
Adjusted net income | $ | 33.7 | $ | 39.6 | $ | 62.2 | $ | 75.7 | |||||||
GAAP diluted net income per share attributable to Rexnord common shareholders | $ | 0.23 | $ | 0.24 | $ | 0.42 | $ | 0.42 | |||||||
Adjusted earnings per share - diluted | $ | 0.32 | $ | 0.38 | $ | 0.59 | $ | 0.72 | |||||||
GAAP diluted weighted-average shares | 105,540 | 104,608 | 105,443 | 104,429 |
(1) | During fiscal 2016, the Company announced its decision to exit the RHF flow control gate product line within its Water Management platform. The operating loss (excluding restructuring and other similar charges) is not included in Adjusted EBITDA in accordance with our credit agreement. Further, to enhance comparability between historical periods, the pre-tax loss of the RHF product line exit has also been excluded from our fiscal 2017 Adjusted earnings per share. |
(2) | Other, net includes the impact of foreign currency transactions, sale of long-lived assets, and other miscellaneous expenses. See "Management Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-Q for the quarter ended September 30, 2017 for further information. |
(3) | Represents accelerated depreciation and other non-cash expenses associated with our strategic supply chain optimization and footprint repositioning initiatives. |
Second Quarter Ended | |||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||
Adjusted EBITDA by Segment | Process & Motion Control | Water Management | Corporate | Process & Motion Control | Water Management | Corporate | |||||||||||||||||
Income from operations | $ | 44.7 | $ | 32.5 | $ | (11.4 | ) | $ | 37.1 | $ | 26.0 | $ | (10.6 | ) | |||||||||
Operating margin | 14.9 | % | 15.4 | % | 12.9 | % | 12.7 | % | |||||||||||||||
Depreciation and amortization | 13.0 | 8.1 | — | 15.5 | 8.8 | — | |||||||||||||||||
Restructuring and other similar charges | 2.5 | 2.6 | — | 3.6 | 0.8 | — | |||||||||||||||||
Acquisition-related fair value adjustment | — | — | — | 3.3 | — | — | |||||||||||||||||
Stock-based compensation expense | 1.4 | 1.1 | 2.9 | 1.0 | 0.4 | 2.3 | |||||||||||||||||
Impact of RHF product line exit (1) | — | — | — | — | 2.1 | — | |||||||||||||||||
Last-in first-out inventory adjustments | 0.1 | 0.1 | — | 0.2 | (0.2 | ) | — | ||||||||||||||||
Other, net | 0.5 | — | — | — | — | — | |||||||||||||||||
Adjusted EBITDA | $ | 62.2 | $ | 44.4 | $ | (8.5 | ) | $ | 60.7 | $ | 37.9 | $ | (8.3 | ) | |||||||||
Adjusted EBITDA margin (2) | 20.7 | % | 21.1 | % | 21.2 | % | 19.1 | % |
Six Months Ended | |||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||
Adjusted EBITDA by Segment | Process & Motion Control | Water Management | Corporate | Process & Motion Control | Water Management | Corporate | |||||||||||||||||
Income from operations | $ | 84.4 | $ | 60.1 | $ | (23.5 | ) | $ | 62.7 | $ | 48.7 | $ | (20.3 | ) | |||||||||
Operating margin | 14.4 | % | 14.6 | % | 11.4 | % | 11.8 | % | |||||||||||||||
Depreciation and amortization | 27.4 | 16.2 | — | 34.8 | 18.5 | — | |||||||||||||||||
Restructuring and other similar charges | 4.7 | 3.1 | — | 6.0 | 4.0 | — | |||||||||||||||||
Acquisition-related fair value adjustment | — | — | — | 4.3 | — | — | |||||||||||||||||
Stock-based compensation expense | 2.6 | 1.9 | 6.3 | 1.5 | 0.8 | 3.7 | |||||||||||||||||
Impact of RHF product line exit (1) | — | — | — | — | 4.7 | — | |||||||||||||||||
Last-in first-out inventory adjustments | 0.2 | 0.3 | — | 0.4 | (0.5 | ) | — | ||||||||||||||||
Other, net | 0.4 | — | — | — | — | — | |||||||||||||||||
Adjusted EBITDA | $ | 119.7 | $ | 81.6 | $ | (17.2 | ) | $ | 109.7 | $ | 76.2 | $ | (16.6 | ) | |||||||||
Adjusted EBITDA margin (2) | 20.4 | % | 19.9 | % | 19.9 | % | 19.0 | % |
(1) | During fiscal 2016, the Company announced its decision to exit the RHF flow control gate product line within its Water Management platform and its intention to exclude related RHF results from its forward-looking guidance. The operating loss (excluding restructuring and other similar charges) is not included in our fiscal 2017 Adjusted EBITDA in accordance with our credit agreement. |
(2) | Calculation of Adjusted EBITDA margin for our Water Management platform excludes sales associated with the RHF product line. See reconciliation included within the supplemental data for additional details. |
Six Months Ended | ||||||||
September 30, 2017 | September 30, 2016 | |||||||
Cash provided by operating activities | $ | 60.5 | $ | 59.0 | ||||
Expenditures for property, plant and equipment | (15.9 | ) | (28.9 | ) | ||||
Free cash flow | $ | 44.6 | $ | 30.1 |
Fiscal 2018 Earnings Outlook Reconciliation (1) | Earnings Guidance for | |||
the Fiscal Year Ending | ||||
March 31, 2018 | ||||
Net income attributable to Rexnord common shareholders | $95 million to $102 million | |||
Dividends on preferred stock | 23 | |||
Provision for income taxes | 56 | |||
Interest expense, net | 83 | |||
Depreciation and amortization | 88 | |||
Restructuring and other similar charges | 11 | |||
Stock-based compensation expense | 20 | |||
Adjusted EBITDA | $375 million to $385 million |
(1) | Our outlook is based upon the extent of information available as of the date of this filing regarding events and conditions that will impact our future operating results for our fiscal year 2018. Our actual results may be materially impacted by events for which information is not available, such as asset impairments, purchase accounting effects related to future acquisitions, future restructuring actions, gains (losses) recognized on the disposal of tangible and intangible assets, gains (losses) on debt extinguishment, actuarial gains (losses) on our defined benefit plans, and other gains (losses) related to events or conditions not yet known. Consequently, we have not included incremental gains or (losses) for these items in our forward-looking guidance since that information is not reasonably available. |
Second Quarter Ended | Six Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
Net income | $ | 29.8 | $ | 24.6 | $ | 56.3 | $ | 43.5 | ||||||||
Other comprehensive income: | ||||||||||||||||
Foreign currency translation adjustments | 16.2 | 4.9 | 34.1 | 0.1 | ||||||||||||
Change in unrealized losses on interest rate derivatives, net of tax | 1.7 | 2.0 | 2.9 | 2.3 | ||||||||||||
Change in pension and postretirement defined benefit plans, net of tax | (0.3 | ) | (0.3 | ) | (0.6 | ) | (0.6 | ) | ||||||||
Other comprehensive income, net of tax | 17.6 | 6.6 | 36.4 | 1.8 | ||||||||||||
Total comprehensive income | $ | 47.4 | $ | 31.2 | $ | 92.7 | $ | 45.3 |
September 30, 2017 | March 31, 2017 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 531.3 | $ | 490.1 | ||||
Receivables, net | 333.5 | 322.9 | ||||||
Inventories | 349.6 | 314.9 | ||||||
Other current assets | 48.9 | 50.2 | ||||||
Total current assets | 1,263.3 | 1,178.1 | ||||||
Property, plant and equipment, net | 395.3 | 400.9 | ||||||
Intangible assets, net | 546.9 | 558.6 | ||||||
Goodwill | 1,325.9 | 1,318.2 | ||||||
Other assets | 83.8 | 83.5 | ||||||
Total assets | $ | 3,615.2 | $ | 3,539.3 | ||||
Liabilities and stockholders' equity | ||||||||
Current liabilities: | ||||||||
Current maturities of debt | $ | 16.3 | $ | 16.5 | ||||
Trade payables | 202.3 | 197.8 | ||||||
Compensation and benefits | 54.1 | 54.3 | ||||||
Current portion of pension and postretirement benefit obligations | 4.4 | 4.3 | ||||||
Other current liabilities | 133.2 | 127.4 | ||||||
Total current liabilities | 410.3 | 400.3 | ||||||
Long-term debt | 1,599.4 | 1,606.2 | ||||||
Pension and postretirement benefit obligations | 171.6 | 174.4 | ||||||
Deferred income taxes | 199.2 | 208.8 | ||||||
Other liabilities | 69.4 | 79.0 | ||||||
Total liabilities | 2,449.9 | 2,468.7 | ||||||
Stockholders' equity: | ||||||||
Common stock, $0.01 par value; 200,000,000 shares authorized; shares issued and outstanding: 103,870,152 at September 30, 2017 and 103,600,540 at March 31, 2017 | 1.0 | 1.0 | ||||||
Preferred stock, $0.01 par value; 10,000,000 shares authorized; shares of 5.75% Series A Mandatory Convertible Preferred Stock issued and outstanding: 402,500 at September 30, 2017 and March 31, 2017 | 0.0 | 0.0 | ||||||
Additional paid-in capital | 1,264.9 | 1,262.1 | ||||||
Retained deficit | — | (55.5 | ) | |||||
Accumulated other comprehensive loss | (100.6 | ) | (137.0 | ) | ||||
Total stockholders' equity | 1,165.3 | 1,070.6 | ||||||
Total liabilities and stockholders' equity | $ | 3,615.2 | $ | 3,539.3 |
Six Months Ended | ||||||||
September 30, 2017 | September 30, 2016 | |||||||
Operating activities | ||||||||
Net income | $ | 56.3 | $ | 43.5 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation | 27.4 | 28.2 | ||||||
Amortization of intangible assets | 16.2 | 25.1 | ||||||
Amortization of deferred financing costs | 1.0 | 1.2 | ||||||
Deferred income taxes | (11.2 | ) | (13.5 | ) | ||||
Other non-cash charges | 2.7 | 0.4 | ||||||
Stock-based compensation expense | 10.8 | 6.0 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables | (13.0 | ) | 12.4 | |||||
Inventories | (29.3 | ) | (16.3 | ) | ||||
Other assets | 1.6 | (10.4 | ) | |||||
Accounts payable | (0.6 | ) | (16.1 | ) | ||||
Accruals and other | (1.4 | ) | (1.5 | ) | ||||
Cash provided by operating activities | 60.5 | 59.0 | ||||||
Investing activities | ||||||||
Expenditures for property, plant and equipment | (15.9 | ) | (28.9 | ) | ||||
Acquisitions, net of cash acquired | — | (213.7 | ) | |||||
Proceeds from dispositions of long-lived assets | 1.8 | 1.9 | ||||||
Cash used for investing activities | (14.1 | ) | (240.7 | ) | ||||
Financing activities | ||||||||
Repayments of debt | (8.2 | ) | (99.9 | ) | ||||
Proceeds from exercise of stock options | 2.8 | 6.4 | ||||||
Deferred acquisition payment | — | (0.3 | ) | |||||
Payments of dividend on preferred stock | (11.6 | ) | — | |||||
Cash used for financing activities | (17.0 | ) | (93.8 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 11.8 | (0.6 | ) | |||||
Increase (decrease) in cash and cash equivalents | 41.2 | (276.1 | ) | |||||
Cash and cash equivalents at beginning of period | 490.1 | 484.6 | ||||||
Cash and cash equivalents at end of period | $ | 531.3 | $ | 208.5 |
Fiscal 2018 | |||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Fiscal Year-to-Date Total | |||||||||||||||
Net sales | |||||||||||||||||||
Process & Motion Control | $ | 287.7 | $ | 300.4 | $ | 588.1 | |||||||||||||
Water Management | 200.0 | 210.4 | 410.4 | ||||||||||||||||
Total | $ | 487.7 | $ | 510.8 | $ | 998.5 | |||||||||||||
Sales growth | |||||||||||||||||||
Core growth | 3% | 4% | 3% | ||||||||||||||||
Currency translation | (1)% | 1% | 1% | ||||||||||||||||
Acquisition/divestiture | 1% | (1)% | —% | ||||||||||||||||
Reported growth | 3% | 4% | 4% | ||||||||||||||||
Adjusted EBITDA | |||||||||||||||||||
Process & Motion Control | $ | 57.5 | $ | 62.2 | $ | 119.7 | |||||||||||||
Water Management | 37.2 | 44.4 | 81.6 | ||||||||||||||||
Corporate | (8.7 | ) | (8.5 | ) | (17.2 | ) | |||||||||||||
Total | $ | 86.0 | $ | 98.1 | $ | 184.1 | |||||||||||||
Adjusted EBITDA % | |||||||||||||||||||
Process & Motion Control | 20.0 | % | 20.7 | % | 20.4 | % | |||||||||||||
Water Management | 18.6 | % | 21.1 | % | 19.9 | % | |||||||||||||
Total (including Corporate) | 17.6 | % | 19.2 | % | 18.4 | % | |||||||||||||
Fiscal 2017 | |||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Fiscal Year Total | |||||||||||||||
Net sales | |||||||||||||||||||
Process & Motion Control | $ | 263.7 | $ | 286.9 | $ | 270.3 | $ | 313.8 | $ | 1,134.7 | |||||||||
Water Management, as adjusted (1) | 201.6 | 198.6 | 179.1 | 189.5 | 768.8 | ||||||||||||||
Total, as adjusted (1) | $ | 465.3 | $ | 485.5 | $ | 449.4 | $ | 503.3 | $ | 1,903.5 | |||||||||
Sales growth | |||||||||||||||||||
Core growth | (1)% | (2)% | (5)% | —% | (2)% | ||||||||||||||
Currency translation | (1)% | —% | (1)% | —% | (1)% | ||||||||||||||
Acquisition/divestiture | (1)% | 3% | 4% | 2% | 3% | ||||||||||||||
Reported growth | (3)% | 1% | (2)% | 2% | —% | ||||||||||||||
Adjusted EBITDA | |||||||||||||||||||
Process & Motion Control | $ | 49.0 | $ | 60.7 | $ | 55.7 | $ | 70.0 | $ | 235.4 | |||||||||
Water Management | 38.3 | 37.9 | 31.5 | 34.1 | 141.8 | ||||||||||||||
Corporate | (8.3 | ) | (8.3 | ) | (8.0 | ) | (6.1 | ) | (30.7 | ) | |||||||||
Total | $ | 79.0 | $ | 90.3 | $ | 79.2 | $ | 98.0 | $ | 346.5 | |||||||||
Adjusted EBITDA % | |||||||||||||||||||
Process & Motion Control | 18.6 | % | 21.2 | % | 20.6 | % | 22.3 | % | 20.7 | % | |||||||||
Water Management | 19.0 | % | 19.1 | % | 17.6 | % | 18.0 | % | 18.4 | % | |||||||||
Total (including Corporate) | 17.0 | % | 18.6 | % | 17.6 | % | 19.5 | % | 18.2 | % |
(1) | During fiscal 2016, the Company announced its decision to exit the RHF flow control gate product line within its Water Management platform and its intention to exclude related RHF results from its forward-looking guidance. To improve the comparability of historical and prospective financial information, this supplementary schedule presents pro forma Water Management and consolidated financial information that has been adjusted to exclude the RHF product line from our fiscal 2017 results. Refer to the "Reconciliation of GAAP to Non-GAAP Financial Measures" schedules below. |
Fiscal 2017 | |||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Fiscal Year Total | |||||||||||||||
Water Management net sales, as reported | $ | 208.1 | $ | 204.1 | $ | 181.5 | $ | 189.8 | $ | 783.5 | |||||||||
Less RHF net sales (1) | (6.5 | ) | (5.5 | ) | (2.4 | ) | (0.3 | ) | (14.7 | ) | |||||||||
Water Management net sales, as adjusted (1) | $ | 201.6 | $ | 198.6 | $ | 179.1 | $ | 189.5 | $ | 768.8 | |||||||||
(1) | During fiscal 2016, the Company announced its decision to exit the RHF flow control gate product line within its Water Management platform and its intention to exclude related RHF results from its forward-looking guidance. To improve the comparability of historical and prospective financial information, this supplementary schedule presents pro forma Water Management net sales that has been adjusted to exclude the RHF product line from our fiscal 2017 results. |
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