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Rexnord Corporation Reports Second Quarter Results For Fiscal 2013

Domestic toll-free #: 888-771-4371

International toll #: 847-585-4405

Access Code: 33368802

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 12:30 p.m. Eastern Time, November 8, 2012 until 12:30 p.m. Eastern Time, November 22, 2012. To access the replay, please dial 888-843-7419 (domestic) or 630-652-3042 (international) with access code 3336 8802#.

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)

   
Second Quarter Ended Six Months Ended
September 29, 2012   October 1, 2011 September 29, 2012   October 1, 2011
Net sales $ 499.5 $ 448.5 $ 993.1 $ 918.2
Cost of sales 312.9   289.1   627.8   592.9  
Gross profit 186.6 159.4 365.3 325.3
Selling, general and administrative expenses 104.8 85.9 203.8 176.7
Zurn PEX loss contingency 10.1
Restructuring and other similar charges 2.4 4.0
Amortization of intangible assets 13.3   12.4   26.3   24.9  
Income from continuing operations 66.1 61.1 121.1 123.7
Non-operating income (expense):
Interest expense, net (37.2 ) (42.8 ) (75.5 ) (87.2 )
Loss on the extinguishment of debt (21.1 ) (0.7 )
Loss on divestiture (6.9

)

(6.9 )
Other income (expense), net 0.2   (7.6 ) 0.7   (7.8 )
Income from continuing operations before income taxes 29.1 3.8 25.2 21.1
Provision (benefit) for income taxes 8.8   (0.4 ) 5.6   6.0  
Net income from continuing operations 20.3 4.2 19.6 15.1
(Loss) income from discontinued operations, net of tax (1.1 ) 0.3   (2.6 ) 0.6  
Net income $ 19.2   $ 4.5   $ 17.0   $ 15.7  
 
Net income per share from continuing operations:
Basic $ 0.21 $ 0.07 $ 0.21 $ 0.23
Diluted $ 0.20 $ 0.06 $ 0.20 $ 0.21
Net (loss) income per share from discontinued operations:
Basic $ (0.01 ) $ $ (0.03 ) $ 0.01
Diluted $ (0.01 ) $ $ (0.03 ) $ 0.01
Net income per share:
Basic $ 0.20 $ 0.07 $ 0.18 $ 0.24
Diluted $ 0.19 $ 0.06 $ 0.17 $ 0.22
 
Weighted-average number of shares outstanding (in thousands):
Basic 95,878 66,724 94,991 66,724
Effect of dilutive stock options 3,868   5,499   4,378   5,195  
Diluted 99,746   72,223   99,369   71,919  

Rexnord Corporation and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures

Second quarter

(in Millions, except share and per share amounts) (Unaudited)

   
Second Quarter Ended Six Months Ended
September 29, 2012   October 1, 2011 September 29, 2012   October 1, 2011
Net income $ 19.2 $ 4.5 $ 17.0 $ 15.7
Interest expense, net 37.2 42.8 75.5 87.2
Income tax provision (benefit) 8.8 (0.4 ) 5.6 6.0
Depreciation and amortization 28.9   26.5   57.0   53.6  
EBITDA 94.1   73.4   155.1   162.5  
 
Adjustments to EBITDA
Actuarial loss on pension and postretirement benefit obligation 0.2
Loss on divestiture 6.9 6.9
Loss (income) from discontinued operations, net of tax 1.1 (0.3 ) 2.6 (0.6 )
Restructuring and other similar costs 2.4 4.0
Loss on extinguishment of debt 21.1 0.7
Impact of inventory fair value adjustment 0.1 0.9
Stock option expense 1.9 0.9 3.5 2.1
LIFO expense 1.2 1.7 2.1 3.1
Zurn PEX loss contingency 10.1
Other (income) expense, net (1) (0.2 ) 7.6   (0.7 ) 7.8  
Subtotal of adjustments to EBITDA 6.4   16.9   42.9   20.9  
Adjusted EBITDA $ 100.5   $ 90.3   $ 198.0   $ 183.4  
  Second Quarter Ended   Six Months Ended
Adjusted Net Income and Earnings Per Share September 29, 2012   October 1, 2011 September 29, 2012   October 1, 2011
Net income $ 19.2 $ 4.5 $ 17.0 $ 15.7
Loss on divestiture 6.9 6.9
Loss (income) from discontinued operations, net of tax 1.1 (0.3 ) 2.6 (0.6 )
Restructuring and other similar costs 2.4 4.0
Loss on extinguishment of debt 21.1 0.7
Impact of inventory fair value adjustment 0.1 0.9
Stock option expense 1.9 0.9 3.5 2.1
LIFO expense 1.2 1.7 2.1 3.1
Actuarial loss on pension and postretirement benefit obligation 0.2
Zurn PEX loss contingency 10.1
Other (income) expense, net (1) (0.2 ) 7.6 (0.7 ) 7.8
Tax effect on above items (1.5 ) (5.3 ) (13.1 ) (7.1 )
Adjusted net income $ 24.1   $ 16.1   $ 46.8   $ 29.5  
 
Weighted-average number of shares outstanding (in thousands)
Basic 95,878 66,724 94,991 66,724
Effect of dilutive stock options 3,868   5,499   4,378   5,195  
Diluted 99,746   72,223   99,369   71,919  
 
Adjusted earnings per share - diluted $ 0.24 $ 0.22 $ 0.47 $ 0.41
Net income per share - diluted (in accordance with GAAP) $ 0.19 $ 0.06 $ 0.17 $ 0.22

(1) Other income, net for the quarter ended September 29, 2012, consists of foreign currency transaction losses of $0.1 million, loss on sale of assets of $0.1 million and other miscellaneous income of $0.4 million. Other expense, net for the quarter ended October 1, 2011, consists of management fee expense of $0.8 million, foreign currency translation losses of $5.9 million, and miscellaneous other losses of $0.9 million. Other income, net for the first six months of fiscal 2013 was $0.7 million and consisted of management fee expense of $15.0 million to terminate our management agreement with Apollo, foreign currency transaction losses of $4.9 million, a CDSOA recovery of $16.6 million, a $4.1 million gain on the sale of property, plant and equipment and other miscellaneous losses of $0.1 million. Other expense, net for the first six months of fiscal 2012 was $7.8 million and consisted of management fee expense of $1.5 million, foreign currency transaction losses of $5.3 million and other miscellaneous losses of $1.0 million.

Rexnord Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income

(in Millions)

(Unaudited)

     
Second Quarter Ended Six Months Ended
September 29, 2012   October 1, 2011 September 29, 2012   October 1, 2011
Net income $ 19.2 $ 4.5 $ 17.0 $ 15.7
Other comprehensive income (loss):
Foreign currency translation adjustments 6.3 (3.8 ) (6.4 ) (3.3 )
Unrealized gain on interest rate derivatives, net of tax 1.2 1.7
Change in pension and other postretirement defined benefit plans, net of tax 0.3   0.3   0.6   0.6  
Other comprehensive income (loss), net of tax 6.6   (2.3 ) (5.8 ) (1.0 )
Total comprehensive income 25.8   2.2   11.2   14.7  

Rexnord Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(in Millions, except share amounts)

(Unaudited)

   
September 29, 2012 March 31, 2012
Assets
Current assets:
Cash and cash equivalents $ 440.2 $ 298.0
Receivables, net 327.9 337.9
Inventories, net 349.3 320.3
Other current assets 54.2   62.1  
Total current assets 1,171.6 1,018.3
Property, plant and equipment, net 413.9 419.2
Intangible assets, net 629.1 647.1
Goodwill 1,108.2 1,114.7
Insurance for asbestos claims 42.0 42.0
Other assets 50.7   49.6  
Total assets $ 3,415.5   $ 3,290.9  
Liabilities and stockholders' equity (deficit)
Current liabilities:
Current maturities of debt $ 23.1 $ 10.3
Trade payables 181.4 215.6
Compensation and benefits 51.9 61.8
Current portion of pension and postretirement benefit obligations 6.4 6.3
Interest payable 38.6 49.9
Other current liabilities 129.1   124.7  
Total current liabilities 430.5 468.6
 
Long-term debt 2,115.6 2,413.4
Pension and postretirement benefit obligations 150.6 160.5
Deferred income taxes 233.5 245.7
Reserve for asbestos claims 42.0 42.0
Other liabilities 34.5   41.5  
Total liabilities 3,006.7 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: 97,506,953 at September 29, 2012 and 67,741,271 at March 31, 2012 1.0 0.7
Additional paid-in capital 776.7 298.6
Retained deficit (344.6 ) (361.6 )
Accumulated other comprehensive loss (17.1 ) (11.3 )
Treasury stock at cost; 900,904 shares at September 29, 2012 and March 31, 2012 (6.3 ) (6.3 )
Total Rexnord stockholders' equity (deficit) 409.7 (79.9 )
Non-controlling interest (0.9 ) (0.9 )
Total stockholders' equity (deficit) 408.8   (80.8 )
Total liabilities and stockholders' equity (deficit) $ 3,415.5   $ 3,290.9  

Rexnord Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in Millions)

(Unaudited)

 
Six Months Ended
September 29, 2012   October 1, 2011
Operating activities
Net income $ 17.0 $ 15.7
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 30.7 28.7
Amortization of intangible assets 26.3 24.9
Amortization of deferred financing costs 2.0 3.8
(Gain) loss on dispositions of property, plant and equipment (4.1 ) 0.8
Non-cash loss on divestiture 4.5
Deferred income taxes (14.9 ) 1.9
Other non-cash charges 5.7 18.1
Loss on debt extinguishment 21.1 0.7
Stock-based compensation expense 3.5 2.1
Changes in operating assets and liabilities:
Receivables 3.4 (0.3 )
Inventories (33.4 ) (12.4 )
Other assets 1.4 (8.7 )
Accounts payable (31.1 ) (11.8 )
Accruals and other (19.1 ) (31.9 )
Cash provided by operating activities 8.5 36.1
 
Investing activities
Expenditures for property, plant and equipment (32.5 ) (21.9 )
Acquisitions, net of cash (18.2 )
Loan receivable for financing under New Market Tax Credit incentive program (9.7 )
Proceeds from dispositions of property, plant and equipment 5.5 5.6
Proceeds from divestiture, net of transaction costs   3.4  
Cash used for investing activities (36.7 ) (31.1 )
 
Financing activities
Proceeds from borrowings of long-term debt 1.4 75.0
Repayments of long-term debt (307.3 ) (1.7 )
Proceeds from borrowings of short-term debt 7.3 0.3
Repayments of short-term debt (0.7 ) (97.3 )
Proceeds from financing under New Market Tax Credit incentive program 14.0
Proceeds from issuance of common stock 458.3
Proceeds from exercise of stock options 2.3
Payment of deferred financing fees (0.4 ) (1.3 )
Payment of early redemption premium on long-term debt (17.6 )
Excess tax benefit on exercise of stock options 14.6    
Cash provided by (used for) financing activities 171.9 (25.0 )
Effect of exchange rate changes on cash and cash equivalents (1.5 ) (9.2 )
Increase (decrease) in cash and cash equivalents 142.2 (29.2 )
Cash and cash equivalents at beginning of period 298.0   391.0  
Cash and cash equivalents at end of period $ 440.2   $ 361.8  

Rexnord Corporation and Subsidiaries

Supplemental Data

(in Millions)

(Unaudited)

 
Fiscal 2013
Q1   Q2   Q3   Q4   Total
Net sales
Process & Motion Control $ 313.9 $ 309.1 $ 623.0
Water Management 179.7 190.4 370.1
Corporate          
Total $ 493.6   $ 499.5       $ 993.1  
 
Adjusted EBITDA
Process & Motion Control $ 74.2 $ 77.7 $ 151.9
Water Management 29.3 30.5 59.8
Corporate (6.0 ) (7.7 )     (13.7 )
Total $ 97.5   $ 100.5       $ 198.0  
 
Adjusted EBITDA %
Process & Motion Control 23.6 % 25.1 % 24.4 %
Water Management 16.3 % 16.0 % 16.2 %
Total (including Corporate) 19.8 % 20.1 % 19.9 %
 
Fiscal 2012
Q1 Q2 Q3 Q4 Total
Net sales
Process & Motion Control $ 324.7 $ 310.3 $ 316.5 $ 359.2 $ 1,310.7
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 Control $ 71.5 $ 73.5 $ 76.3 $ 95.6 $ 316.9
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 Control 22.0 % 23.7 % 24.1 % 26.6 % 24.2 %
Water Management 19.2 % 16.6 % 11.9 % 14.0 % 15.2 %
Total (including Corporate) 19.8 % 20.1 % 18.4 % 20.9 % 19.8 %




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