Rexnord Corporation Reports Third Quarter Results for Fiscal 2013 Call scheduled for Monday, February11, 2013 at 5:00 p.m. Eastern Time Business Wire MILWAUKEE -- February 11, 2013 Rexnord Corporation (NYSE:RXN): Consolidated Highlights *Net sales were $472 million in the third quarter, a decline of 3% from the prior year (-2% core sales, -1% impact of foreign currency translation). *Income from operations increased 16% to $60 million year-over-year resulting in a 210 basis point increase in operating margin to 12.6%. *Reported net income from continuing operations increased 107% to $11 million compared to the prior year; Adjusted net income increased 38% over the prior year to $19 million. *Diluted earnings per share from continuing operations was $0.11. Third quarter adjusted earnings per share was $0.19. *Adjusted EBITDA increased 3% to $92 million year-over-year resulting in a 110 basis point increase in adjusted EBITDA margin to 19.5%. *Free cash flow in the quarter was $32 million and total liquidity was $773 million ($453 million of cash plus $320 million of available borrowings). Todd A. Adams, President and Chief Executive Officer, commented, “Despite a challenging macro-economic environment, we delivered strong year-over-year margin expansion and free cash flow while continuing to reinvest in our businesses. Solid execution and productivity gains across both platforms allowed us to expand our adjusted EBITDA margin by 110 basis points to 19.5% from 18.4% in the prior year quarter. In Process & Motion Control, we achieved an adjusted EBITDA margin of 24.7%, an increase of 60 basis points compared to the prior year quarter, despite a 3% contraction in core net sales due to weak short-cycle demand. Looking ahead, we expect short- cycle demand to stabilize and we are encouraged by some of the activity we're seeing in our end-markets all of which we believe will result in an improved market environment in the latter half of the year. In Water Management, we delivered 1% core growth in the quarter, our adjusted EBITDA margins grew 210 basis points over the prior year and we built substantial backlog in the quarter. We are pleased with the momentum and execution of our strategy across the platform and are well positioned to deliver strong growth moving forward while our end markets continue to improve.” Fourth Quarter Outlook Mr. Adams continued, “Looking ahead to our fourth quarter, we anticipate sales to be in the range of $535 million to $555 million (+1% core growth at the mid-point) and adjusted EBITDA to be in the range of $110 million to $120 million resulting in fiscal 2013 sales in the range of $2 billion to $2.020 billion and fiscal 2013 adjusted EBITDA in the range of $400 million to $410 million. Our outlook excludes the impact of any future acquisitions or divestiture transactions, non-cash actuarial pension gains or losses, future restructuring actions or future other non-recurring costs, including any potential costs associated with the Board of Directors review of strategic alternatives that was disclosed on an 8-K today. We will provide additional details regarding our fiscal 2013 outlook during our earnings call.” Third Quarter Fiscal 2013 Segment Highlights Process & Motion Control Process & Motion Control ("PMC") net sales of $303 million in the third quarter of fiscal 2013 contracted 4% from the third quarter of fiscal 2012. Excluding the 1% unfavorable impact of foreign currency translation, core net sales decreased 3% year-over-year as growth in sales to mining (non-U.S.) and energy end-markets were more than offset by softness in the North American short-cycle MRO portion of our business. PMC Adjusted EBITDA in the third quarter was $75 million and Adjusted EBITDA as a percentage of sales increased 60 basis points from the prior year period to 24.7% of sales. Water Management Water Management net sales in the third quarter were flat with the prior year on a reported basis as 1% core growth was offset by a 1% adverse impact related to foreign currency translation. Resulting core net sales driven by market share gains and increased alternative market sales in our non-residential construction end-markets were partially offset by expected lower shipments to our North American municipal water end-markets. Water Management Adjusted EBITDA in the third quarter was $24 million and Adjusted EBITDA as a percentage of sales increased 210 basis points to 14.0%. Non-GAAP Financial Measures The following non-GAAP financial measures are utilized by management in comparing our operating performance on a consistent basis. We believe that these financial measures are appropriate to enhance an overall understanding of our underlying operating performance trends compared to historical and prospective periods and our peers. Management also believes that these measures are useful to investors in their analysis of our results of operations and provide improved comparability between fiscal periods. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of non-GAAP financial measures presented above to our GAAP results has been provided in the financial tables included in this press release. Core Sales Core sales excludes the impact of acquisitions, divestitures and foreign currency translation. Management believes that core sales facilitates easier comparisons of our net sales performance with prior and future periods and to our peers. We exclude the effect of acquisitions because the nature, size and number of acquisitions can vary dramatically from period to period and between us and our peers, and can also obscure underlying business trends and make comparisons of long-term performance difficult. We exclude the effect of foreign currency translation from this measure because the volatility of currency translation is not under management's control. Adjusted Net Income and Adjusted Earnings Per Share Adjusted net income and adjusted earnings per share (calculated on a diluted basis) exclude actuarial gains and losses on pension and postretirement benefit obligations, restructuring and other similar costs, gains or losses on divestitures, gains or losses on extinguishment of debt, the impact of inventory fair value adjustments in connection with purchase accounting, and other non-operational, non-cash or non-recurring losses, net of their income tax impact. The tax rates used to calculate adjusted net income and adjusted earnings per share is based on a transaction specific basis. We believe that adjusted net income and adjusted earnings per share are useful in assessing our financial performance by excluding items that are not indicative of our core operating performance or that may obscure trends useful in evaluating our continuing results of operations. EBITDA EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is presented because it is an important supplemental measure of performance and it is frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA is also presented and compared by analysts and investors in evaluating the performance of issuers of “high yield” securities because it is a common measure of the ability to meet debt service obligations. Other companies in our industry maycalculate EBITDA differently. EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of operating performance or any other measures of performance derived in accordance with GAAP. Because EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business. Adjusted EBITDA “Adjusted EBITDA” is the term we use to describe EBITDA as defined and adjusted in our senior secured credit facilities, which is net income, adjusted for the items summarized in the table below. Adjusted EBITDA is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding non-operational, non-cash or non-recurring losses or gains. Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted EBITDA varies from others in our industry. This measure should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA does not reflect: (a)our capital expenditures, future requirements for capital expenditures or contractual commitments; (b)changes in, or cash requirements for, our working capital needs; (c)the significant interest expenses, or the cash requirements necessary to service interest or principal payments, on our debt; (d)tax payments that represent a reduction in cash available to us; (e)any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; (f)management fees that may be paid to Apollo; or (g)the impact of earnings or charges resulting from matters that we and the lenders under our secured senior credit facilities may not consider indicative of our ongoing operations. In particular, our definition of Adjusted EBITDA allows us to add back certain non-cash, non-operating or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these expenses can represent the reduction of cash that could be used for other corporate purposes. Further, although not included in the calculation of Adjusted EBITDA below, the measure may at times allow us to add estimated cost savings and operating synergies related to operational changes ranging from acquisitions to dispositions to restructurings and/or exclude one-time transition expenditures that we anticipate we will need to incur to realize cost savings before such savings have occurred. Further, management and various investors use the ratio of total debt less cash to Adjusted EBITDA (which includes a full pro-forma last-twelve-month impact of acquisitions), or "net debt leverage", as a measure of our financial strength and ability to incur incremental indebtedness when making key investment decisions and evaluating us against peers. Free Cash Flow We define Free Cash Flow as cash flow from operations less capital expenditures, and we use this metric in analyzing our ability to service and repay our debt and to forecast future periods. However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service our debt. About Rexnord Headquartered in Milwaukee, Wisconsin, Rexnord is comprised of two strategic platforms, Process & Motion Control and Water Management, with approximately 7,300 employees worldwide. The Process & Motion Control platform designs, manufactures, markets and services specified, highly-engineered mechanical components used within complex systems. The Water Management platform designs, procures, manufactures and markets products that provide and enhance water quality, safety, flow control and conservation. Additional information about the Company can be found at www.rexnord.com. Conference Call Details Rexnord will hold a conference call on Monday, February11, 2013 at 5:00 p.m. Eastern Time to discuss its fiscal 2013 third quarter results and provide a general business update. Rexnord President and CEO, Todd Adams, and Senior Vice President and CFO, Mark Peterson, will co-host the call. The conference call can be accessed via telephone as follows: Domestic toll-free #: 888-771-4371 International toll #: 847-585-4405 Access Code: 33978110 A live webcast of the call will also be available on the investor relations section of the Company's website. Please go to the website (www.rexnord.com) at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software. If you are unable to participate during the live teleconference, a replay of the conference call will be available from 6:30 p.m. Eastern Time, February 11, 2013 until 11:30 p.m. Eastern Time, February 26, 2013. To access the replay, please dial 888-843-7419 (domestic) or 630-652-3042 (international) with access code 3397 8110#. Cautionary Statement on Forward-Looking Statements Information in this release may involve outlook, expectations, beliefs, plans, intentions, strategies or other statements regarding the future, which are forward-looking statements. These forward-looking statements involve risks and uncertainties. All forward-looking statements included in this release are based upon information available to Rexnord Corporation as of the date of the release, and Rexnord Corporation assumes no obligation to update any such forward-looking statements. The statements in this release are not guarantees of future performance, and actual results could differ materially from current expectations. Numerous factors could cause or contribute to such differences. Please refer to "Risk Factors" and "Cautionary Notice Regarding Forward-Looking Statements" in the Company's Form 10-K for the fiscal year ended March 31, 2012 as well as the Company's annual, quarterly and current reports filed on Forms 10-K, 10-Q and 8-K from time to time with the Securities and Exchange Commission for a further discussion of the factors and risks associated with the business. Rexnord Corporation and Subsidiaries Condensed Consolidated Statements of Operations (in Millions, except share and per share amounts) (Unaudited) Third Quarter Ended Nine Months Ended December 29, December 31, December 29, December 2012 2011 2012 31, 2011 Net sales $ 471.7 $ 485.9 $ 1,464.8 $ 1,404.1 Cost of sales 303.8 321.4 931.6 914.3 Gross profit 167.9 164.5 533.2 489.8 Selling, general and 93.7 98.0 297.5 274.7 administrative expenses Zurn PEX loss — — 10.1 — contingency Restructuring and other similar 2.3 2.7 6.3 2.7 charges Amortization of 12.4 12.7 38.7 37.6 intangible assets Income from 59.5 51.1 180.6 174.8 operations Non-operating expense: Interest expense, (39.1 ) (45.1 ) (114.6 ) (132.3 ) net Loss on the extinguishment of (2.9 ) — (24.0 ) (0.7 ) debt Loss on — — — (6.9 ) divestiture Other expense, (2.2 ) (3.0 ) (1.5 ) (10.8 ) net Income from continuing 15.3 3.0 40.5 24.1 operations before income taxes Provision (benefit) for 3.9 (2.5 ) 9.5 3.5 income taxes Net income from continuing 11.4 5.5 31.0 20.6 operations (Loss) income from discontinued (2.2 ) 0.1 (4.8 ) 0.7 operations, net of tax Net income $ 9.2 $ 5.6 $ 26.2 $ 21.3 Net income per share from continuing operations: Basic $ 0.12 $ 0.08 $ 0.32 $ 0.31 Diluted $ 0.11 $ 0.08 $ 0.31 $ 0.29 Net (loss) income per share from discontinued operations: Basic $ (0.02 ) $ — $ (0.05 ) $ 0.01 Diluted $ (0.02 ) $ — $ (0.05 ) $ 0.01 Net income per share: Basic $ 0.10 $ 0.08 $ 0.27 $ 0.32 Diluted $ 0.09 $ 0.08 $ 0.26 $ 0.30 Weighted-average number of shares outstanding (in thousands): Basic 96,789 66,724 95,591 66,724 Effect of dilutive stock 3,489 5,491 4,077 5,266 options Diluted 100,278 72,215 99,668 71,990 Rexnord Corporation and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures Third quarter (in Millions, except share and per share amounts) (Unaudited) Third Quarter Ended Nine Months Ended December 29, December December 29, December 31, 2012 31, 2011 2012 2011 Net income $ 9.2 $ 5.6 $ 26.2 $ 21.3 Interest expense, 39.1 45.1 114.6 132.3 net Income tax 3.9 (2.5 ) 9.5 3.5 provision (benefit) Depreciation and 26.9 29.9 83.9 83.5 amortization EBITDA 79.1 78.1 234.2 240.6 Adjustments to EBITDA Actuarial loss on pension and — — 0.2 — postretirement benefit obligation Loss on divestiture — — — 6.9 Loss (income) from discontinued 2.2 (0.1 ) 4.8 (0.7 ) operations, net of tax Restructuring and 2.3 2.7 6.3 2.7 other similar costs Loss on extinguishment of 2.9 — 24.0 0.7 debt Impact of inventory fair value — 3.3 — 4.2 adjustment Stock-based compensation 1.9 0.6 5.4 2.7 expense LIFO expense 1.4 1.8 3.5 4.9 Zurn PEX loss — — 10.1 — contingency Other expense, net 2.2 3.0 1.5 10.8 (1) Subtotal of adjustments to 12.9 11.3 55.8 32.2 EBITDA Adjusted EBITDA $ 92.0 $ 89.4 $ 290.0 $ 272.8 Third Quarter Ended Nine Months Ended Adjusted Net Income and December 29, December December December Earnings Per Share 2012 31, 2011 29, 2012 31, 2011 Net income $ 9.2 $ 5.6 $ 26.2 $ 21.3 Loss on divestiture — — — 6.9 Loss (income) from discontinued 2.2 (0.1 ) 4.8 (0.7 ) operations, net of tax Restructuring and other 2.3 2.7 6.3 2.7 similar costs Loss on extinguishment 2.9 — 24.0 0.7 of debt Impact of inventory — 3.3 — 4.2 fair value adjustment Stock-based 1.9 0.6 5.4 2.7 compensation expense LIFO expense 1.4 1.8 3.5 4.9 Actuarial loss on pension and — — 0.2 — postretirement benefit obligation Zurn PEX loss — — 10.1 — contingency Other expense, net (1) 2.2 3.0 1.5 10.8 Tax effect on above (3.4 ) (3.3 ) (16.5 ) (10.4 ) items Adjusted net income $ 18.7 $ 13.6 $ 65.5 $ 43.1 Weighted-average number of shares outstanding (in thousands) Basic 96,789 66,724 95,591 66,724 Effect of dilutive 3,489 5,491 4,077 5,266 stock options Diluted 100,278 72,215 99,668 71,990 Adjusted earnings per $ 0.19 $ 0.19 $ 0.66 $ 0.60 share - diluted Net income per share - diluted (in accordance $ 0.09 $ 0.08 $ 0.26 $ 0.30 with GAAP) Other expense, net for the quarter ended December 29, 2012, consists of foreign currency transaction losses of $1.7 million, loss on sale of assets of $0.1 million and other miscellaneous losses of $0.4 million. Other expense, net for the quarter ended December 31, 2011, consists of management fee expense of $0.7 million, foreign currency translation losses of $2.7 million, and miscellaneous other income of $0.4 million. Other expense, net for the first nine months of fiscal 2013, consists of (1) management fee expense of $15.0 million to terminate our management agreement with Apollo, foreign currency transaction losses of $6.6 million, a CDSOA recovery of $16.6 million, a $4.0 million gain on the sale of property, plant and equipment and other miscellaneous losses of $0.5 million. Other expense, net for the first nine months of fiscal 2012, consisted of management fee expense of $2.2 million, foreign currency transaction losses of $8.0 million, loss on sale of property, plant and equipment of $0.8, a CDSOA recovery of $0.5 million and other miscellaneous losses of $0.3 million. Rexnord Corporation and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss) (in Millions) (Unaudited) Third Quarter Ended Nine Months Ended December 29, December December December 2012 31, 2011 29, 2012 31, 2011 Net income $ 9.2 $ 5.6 $ 26.2 $ 21.3 Other comprehensive income (loss): Foreign currency translation 0.7 (8.3 ) (5.7 ) (11.6 ) adjustments Unrealized gain on interest rate — 1.1 — 2.8 derivatives, net of tax Change in pension and other postretirement 0.3 0.3 0.9 0.9 defined benefit plans, net of tax Other comprehensive income (loss), net of 1.0 (6.9 ) (4.8 ) (7.9 ) tax Total comprehensive $ 10.2 $ (1.3 ) $ 21.4 $ 13.4 income (loss) Rexnord Corporation and Subsidiaries Condensed Consolidated Balance Sheets (in Millions, except share amounts) (Unaudited) December 29, 2012 March 31, 2012 Assets Current assets: Cash and cash equivalents $ 452.5 $ 298.0 Receivables, net 295.9 337.9 Inventories, net 356.9 320.3 Other current assets 49.8 62.1 Total current assets 1,155.1 1,018.3 Property, plant and equipment, net 412.5 419.2 Intangible assets, net 627.3 647.1 Goodwill 1,121.2 1,114.7 Insurance for asbestos claims 42.0 42.0 Other assets 48.8 49.6 Total assets $ 3,406.9 $ 3,290.9 Liabilities and stockholders' equity (deficit) Current liabilities: Current maturities of debt $ 21.9 $ 10.3 Trade payables 180.3 215.6 Compensation and benefits 52.8 61.8 Current portion of pension and 6.4 6.3 postretirement benefit obligations Interest payable 19.9 49.9 Other current liabilities 132.5 124.7 Total current liabilities 413.8 468.6 Long-term debt 2,115.4 2,413.4 Pension and postretirement benefit 149.7 160.5 obligations Deferred income taxes 226.8 245.7 Reserve for asbestos claims 42.0 42.0 Other liabilities 34.6 41.5 Total liabilities 2,982.3 3,371.7 Stockholders' equity (deficit): Preferred stock, $0.01 par value; — — 10,000,000 shares authorized; none issued Common stock, $0.01 par value; 200,000,000 shares authorized; shares issued: 97,970,674 at December 29, 2012 and 67,741,271 at March 1.0 0.7 31, 2012 Additional paid-in capital 781.4 298.6 Retained deficit (335.4 ) (361.6 ) Accumulated other comprehensive loss (16.1 ) (11.3 ) Treasury stock at cost; 900,904 shares at (6.3 ) (6.3 ) December 29, 2012 and March 31, 2012 Total Rexnord stockholders' equity 424.6 (79.9 ) (deficit) Non-controlling interest — (0.9 ) Total stockholders' equity (deficit) 424.6 (80.8 ) Total liabilities and stockholders' $ 3,406.9 $ 3,290.9 equity (deficit) Rexnord Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (in Millions) (Unaudited) Nine Months Ended December 29, 2012 December 31, 2011 Operating activities Net income $ 26.2 $ 21.3 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 45.2 45.9 Amortization of intangible assets 38.7 37.6 Amortization of deferred financing 3.0 5.8 costs (Gain) loss on dispositions of (4.0 ) 0.8 property, plant and equipment Non-cash loss on divestiture — 4.5 Deferred income taxes (12.9 ) (1.9 ) Other non-cash charges 8.0 20.7 Loss on debt extinguishment 24.0 0.7 Stock-based compensation expense 5.4 2.7 Changes in operating assets and liabilities: Receivables 36.2 9.2 Inventories (41.6 ) (10.6 ) Other assets (0.9 ) (16.5 ) Accounts payable (33.5 ) (16.6 ) Accruals and other (44.7 ) (42.9 ) Cash provided by operating activities 49.1 60.7 Investing activities Expenditures for property, plant and (41.5 ) (39.0 ) equipment Acquisitions, net of cash (21.1 ) (256.8 ) Loan receivable for financing under New Market Tax Credit incentive (9.7 ) (17.9 ) program Proceeds from dispositions of 6.1 5.6 property, plant and equipment Proceeds from divestiture, net of cash 2.3 3.4 Cash used for investing activities (63.9 ) (304.7 ) Financing activities Proceeds from borrowings of long-term 15.4 24.7 debt Repayments of long-term debt (308.1 ) (4.0 ) Proceeds from borrowings of short-term 10.2 165.8 debt Repayments of short-term debt (5.1 ) (102.0 ) Payment of deferred financing fees (2.0 ) (3.5 ) Payment of early redemption premium on (17.6 ) — long-term debt Proceeds from issuance of common stock 458.3 — Proceeds from exercise of stock 2.3 — options Excess tax benefit on exercise of 17.2 — stock options Cash provided by financing activities 170.6 81.0 Effect of exchange rate changes on (1.3 ) (2.4 ) cash and cash equivalents Increase (decrease) in cash and cash 154.5 (165.4 ) equivalents Cash and cash equivalents at beginning 298.0 391.0 of period Cash and cash equivalents at end of $ 452.5 $ 225.6 period Rexnord Corporation and Subsidiaries Supplemental Data (in Millions) (Unaudited) Fiscal 2013 Q1 Q2 Q3 Q4 Total Net sales Process & Motion $ 313.9 $ 309.1 $ 302.9 $ 925.9 Control Water Management 179.7 190.4 168.8 538.9 Corporate — — — — Total $ 493.6 $ 499.5 $ 471.7 $ 1,464.8 Adjusted EBITDA Process & Motion $ 74.2 $ 77.7 $ 74.9 $ 226.8 Control Water Management 29.3 30.5 23.7 83.5 Corporate (6.0 ) (7.7 ) (6.6 ) (20.3 ) Total $ 97.5 $ 100.5 $ 92.0 $ 290.0 Adjusted EBITDA % Process & Motion 23.6 % 25.1 % 24.7 % 24.5 % Control Water Management 16.3 % 16.0 % 14.0 % 15.5 % Total (including 19.8 % 20.1 % 19.5 % 19.8 % Corporate) Fiscal 2012 Q1 Q2 Q3 Q4 Total Net sales Process & Motion $ 324.7 $ 310.3 $ 316.5 $ 359.2 $ 1,310.7 Control Water Management 145.0 138.2 169.4 180.9 633.5 Corporate — — — — — Total $ 469.7 $ 448.5 $ 485.9 $ 540.1 $ 1,944.2 Adjusted EBITDA Process & Motion $ 71.5 $ 73.5 $ 76.3 $ 95.6 $ 316.9 Control Water Management 27.8 22.9 20.2 25.4 96.3 Corporate (6.2 ) (6.1 ) (7.1 ) (7.9 ) (27.3 ) Total $ 93.1 $ 90.3 $ 89.4 $ 113.1 $ 385.9 Adjusted EBITDA % Process & Motion 22.0 % 23.7 % 24.1 % 26.6 % 24.2 % Control Water Management 19.2 % 16.6 % 11.9 % 14.0 % 15.2 % Total (including 19.8 % 20.1 % 18.4 % 20.9 % 19.8 % Corporate) Contact: Rexnord Corporation Mark Peterson Senior Vice President and Chief Financial Officer 414.643.3739
Rexnord Corporation Reports Third Quarter Results for Fiscal 2013
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