EDGAR 10-K Filing

Company CIK: 82811
Filing Year: 2025
Filename: 82811_10-K_2025_0000082811-25-000046.json

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ITEM 1. BUSINESS
ITEM 1 - BUSINESS
Our Company
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 transmits motion to power industrial applications. The Company's automation offering, comprised of controllers, drives, precision motors, and actuators, controls motion in applications ranging from factory automation to precision tools used in surgical applications. 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 metals and mining, general industrial, energy, alternative energy, machinery / off-highway, discrete automation 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 commercial HVAC, water heaters, commercial refrigeration, commercial building ventilation, pool and spa, irrigation, dewatering, agricultural, conveying 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.
On September 23, 2023, we signed an agreement to sell our industrial motors and generators businesses which represented the substantial majority of the Industrial Systems operating segment. The transaction closed on April 30, 2024. See Note 3 - Acquisitions and Divestitures of the Notes to the Consolidated Financial Statements for further information.
Strategy
The Company seeks to create value for its key stakeholders - its customers, its shareholders and its associates - by accelerating profitable growth, raising our margins, generating more cash and increasing our return on invested capital. We also plan to create significant value for stakeholders by deploying excess capital towards maintaining a strong balance sheet and, over time, funding highly synergistic M&A transactions. The primary aspects of our strategy to achieve our value creation objectives include:
•Leveraging our 80/20 Initiatives to accelerate profitable growth. Our 80/20 initiatives encompass broadly-applicable, data-driven processes used to identify the select inputs that drive a majority of the related outputs, which we apply
using a highly structured process to end markets, products and customers in order to focus our resources on the most valuable growth opportunities. Our 80/20 initiatives are embedded in the fabric of everything we do as a company, but particularly in aligning our product and service offerings to what our customers need and value - an alignment we measure on several metrics, but especially on gross margins.
•Deploying the Regal Rexnord Business System (‘‘RBS’’). RBS is our framework for continuous improvement, and it includes a set of tools, regularly deployed through thousands of targeted, continuous improvement events, or Kaizens, to systematically remove waste, variation and overburden from all our processes. Our disciplined use of RBS, in combination with our 80/20 initiatives, is critical to our strategy for driving profitable growth.
•Raising our exposure to markets with secular growth tailwinds. We are focused on growing our position in prioritized secular growth markets, including some with strong regulatory tailwinds tied to rising energy efficiency requirements. These include the discrete automation, residential HVAC, food & beverage, aerospace, alternative energy, medical, data center, and pool markets. We plan to direct a significant portion of our growth investments to end markets with secular growth characteristics.
•Maintaining a strong portfolio of highly-engineered products and trusted, long-standing brands. Many of our products are characterized by technology leadership and reflect the Company’s deep application expertise. We regularly invest in our product portfolio to ensure that we are selling products that our customers value - a strategic directive embodied in our Regal Rexnord value of driving Innovation with Purpose. To this end, we plan to double our new product vitality in the medium term with the majority of new product introductions focused on serving secular growth markets, expanding our industrial powertrain offering, supporting rising demand for greater energy efficiency, and/or leveraging digital capabilities to enhance our products' performance and ease-of-use.
•Leveraging Regal Rexnord’s unrivaled scale and scope to enable unique customer value-propositions. We believe that the broad scope of our product portfolio, plus the scale of our go-to-market capabilities, positions the Company to offer customers a unique and compelling value proposition. For example, our portfolio breadth makes Regal Rexnord the logical choice for customers to consolidate their power transmission spending, which can create value by raising convenience, improving accountability, and lowering transaction costs. Similarly, with over two thousand associates engaged in sales or sales support roles, we have broad go-to-market scale and scope, which enhances our ability to serve our customers, globally. Our scaled go-to-market also allows us to monetize our new products in a highly effective manner, which reduces our time-to-market and can help us gain market share.
•Providing a broader offering of increasingly robust solutions. One of our key product-related growth initiatives is integrating multiple products or components into a value-added solution. The significant and distinctive scale and scope of our portfolio of power transmission components, automation solutions, and premium efficiency electric motors uniquely positions us to provide these solutions across a wide range of applications and end markets. One of our principal strategic initiatives in this regard is selling industrial powertrains, which combine our high-efficiency electric motors with the critical power transmission components that connect the motor to whatever it is powering, sold as an integrated solution. By engineering our components into solutions, we are able to provide customers with greater reliability, energy efficiency, ease-of-use, and enhanced data analytics, while often also reducing customers' engineering costs. A dedicated powertrain solutions team leverages relevant product, technology and application expertise from across our segments to provide a single point of contact for our customers to design and procure these sub-systems. Beyond powertrains, each of our segments takes the lead in particular end markets to pursue cross-sell opportunities that leverage the broad Regal Rexnord portfolio.
•Utilizing our flexible global manufacturing presence. Our global manufacturing base consists of manufacturing locations across North America, Europe, Asia Pacific and the rest of the world. Our ability to shift production between locations has helped us navigate geopolitical, supply chain and other disruptions, and provide better service levels to our customers, including higher product availability and shorter lead times. We expect our flexible global manufacturing footprint will provide similar flexibility in the future.
•Improving business durability. Improving the durability of our business is about increasing the consistency of our sales performance. While our portfolio already has many characteristics that bolster durability, such as deriving nearly 40% of our sales through the distributor channel, which largely reflects less cyclical aftermarket transactions, we are also pursuing a number of initiatives aimed at raising durability further. Examples of these initiatives include pursuing original equipment manufacturers ("OEMs") sales that have higher aftermarket potential, and directing more of our
growth investment to serving markets and applications with secular tailwinds. These initiatives are tied to new solutions, services and channel initiatives. For example, we are strategically investing in secular markets across the portfolio. Our largest segment, IPS, is targeting first fit sales that have higher aftermarket potential and our PES business is launching new products specifically for the aftermarket.
•Leveraging our strong free cash flows to enhance our growth profile and raise shareholder returns. We expect to continue to maintain our long track record of strong free cash flow generation, which supports expeditious de-leveraging post acquisitions, as well as opportunities to fund inorganic growth initiatives, such as M&A activity and stock repurchases. The strong cash flow generating capabilities of our portfolio derive, in part, from a large installed base of our products, our reputation for strong product quality, our trusted and well-recognized brands, and high levels of like-for-like replacement activity for many of our products in the markets we serve.
•Realizing synergies from our M&A transactions. Our acquisition of Altra and merger with the Rexnord PMC business are generating significant revenue and cost synergies, which we expect will contribute to our organic top line growth and meaningfully benefit our adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") margins, net income, and free cash flow.
•Conducting ongoing portfolio assessments. We review our business portfolio on an ongoing basis to ensure that it continues to align with our growth strategy. The Industrial Systems Divestiture is discussed in further detail below.
Acquisition and Divestitures
Industrial Systems Divestiture
On September 23, 2023, the Company signed an agreement to sell its industrial motors and generators businesses which represented the substantial majority of the Industrial Systems operating segment. The transaction closed on April 30, 2024 for a total price of $444.0 million. See Note 3 - Acquisitions and Divestitures of the Notes to the Consolidated Financial Statements for further information.
Altra Transaction
On October 26, 2022, we entered into an Agreement and Plan of Merger (the “Altra Merger Agreement”) by and among us, Altra, and Aspen Sub, Inc., a Delaware corporation and our wholly owned subsidiary (“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”). The total purchase price for the acquisition of Altra was $5.1 billion. See Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 3 - Acquisitions and Divestitures of the Notes to the Consolidated Financial Statements for additional information regarding the Altra Transaction.
Sales, Marketing and Distribution
We sell our products directly to OEMs, distributors and end-users. We have multiple divisions that promote our brands across their respective sales organizations. These sales organizations consist of varying combinations of our own internal direct sales people as well as exclusive and non-exclusive manufacturers' representative organizations.
We operate large distribution facilities in Plainfield, Indiana; El Paso and McAllen, Texas; LaVergne, Tennessee; Florence, Kentucky; and Monterrey and Chihuahua, Mexico which serve as hubs for our North American distribution and logistics operations. Products are shipped from these facilities to our customers utilizing common carriers. We also operate or partner with numerous warehouse and distribution facilities in our global markets to service the needs of our customers. In addition, we have select manufacturer representatives' warehouses located in specific geographic areas to serve local customers.
We derive a significant portion of revenue from our OEM customers. Certain portions of our sales are to key OEM customers which makes our relationship with each of these customers important to our business. We have long standing relationships with these customers and we expect these customer relationships will continue for the foreseeable future. Despite this relative concentration, we had no customer that accounted for more than 10% of our consolidated net sales in 2024, 2023 or 2022.
Competition
Industrial Powertrain Solutions and Automation & Motion Control Segments
These markets are fragmented. Many competitors in these markets offer limited product lines or serve specific applications, industries or geographic markets. Other larger competitors offer broader product lines that serve multiple end uses in multiple geographies. Competition in these segments is based on several factors including quality, lead times, custom engineering capability, pricing, reliability, and customer and engineering support.
Power Efficiency Systems
Electric motor and electronic drive manufacturing is a highly competitive global industry in which there is emphasis on quality, reliability, systems integration and technological capabilities such as energy efficiency, delivery performance, price and service. We compete with a large number of domestic and international competitors due in part to the nature of the products we manufacture and the wide variety of applications and customers we serve. Many manufacturers of electric motors and drives operate production facilities globally, producing products for both the US domestic and export markets. Global electric motor manufacturers, particularly those located in Europe, Japan, China, India and elsewhere in Asia, compete with us as they attempt to expand their market penetration around the world, especially in North America.
Engineering, Research and Development
We believe that innovation is critical to our future growth and success and are committed to investing in new products, technologies and processes that deliver real value to our customers. Our research and development expenses consist primarily of costs for (i) salaries and related 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 gain additional market share, whether in new or existing segments.
We believe the key driver of our innovation strategy is the development of products that include energy efficiency, embedded intelligence and variable speed technology solutions. Each of our business units has its own, as well as shared, product development and design teams that continuously work to enhance our existing products and develop new products for our growing base of customers that require custom and standard solutions. We believe we have state-of-the-art product development and testing laboratories. We believe these capabilities provide a significant competitive advantage in the development of high quality motors, electric generators, and mechanical products incorporating leading design characteristics such as low vibration, low noise, improved safety, reliability, sustainability and enhanced energy efficiency. Increasingly, our research and development and other engineering efforts have focused on smart products that communicate and allow for monitoring, diagnostics and predictive maintenance.
Patents, Trademarks and Licenses
With our emphasis on product development and innovation, our businesses maintain the proprietary nature of our technologies and manufacturing processes through a combination of trademark, patent and trade secret protection. We own a number of US patents and foreign patents relating to our businesses. While we believe that our patents provide certain competitive advantages, we do not consider any one patent or group of patents essential to our business as a whole. We also use various registered and unregistered trademarks, and we believe these trademarks are significant in the marketing of most of our products. However, we believe the successful manufacture and sale of our products generally depends more upon our technological, manufacturing and marketing skills.
Manufacturing and Operations
We have developed and acquired global operations in locations such as Mexico, China, India and Europe so that we can sell our products in these markets, follow our multinational customers, take advantage of global talent and complement our flexible, rapid response operations in the US and Canada. Our vertically integrated manufacturing operations, including our own aluminum die casting and steel stamping operations, are an important element of our rapid response capabilities. In addition, we have an extensive internal logistics operation and a network of distribution facilities with the capability to modify stock products to quickly meet specific customer requirements. This gives us the ability to efficiently and promptly deliver a customer's unique product to the desired location.
We manufacture a majority of the products that we sell, but also strategically source components and finished goods from an established global network of suppliers. We strategically leverage a global supply chain to reduce our overall costs and lead-time. We generally maintain a dual sourcing capability to ensure a reliable supply source for our customers, although we do depend on a limited number of single source suppliers for certain materials and components. We regularly invest in machinery and equipment to improve and maintain our facilities. Base materials for our products consist primarily of steel, copper and aluminum. Additionally, significant components of our product costs consist of bearings, plastic, electronic assemblies, electronic components, permanent magnets and ferrous and non-ferrous castings.
The Regal Rexnord Business System is our enterprise-wide framework for continuous improvement. With our corporate values as its foundation, the Regal Rexnord Business System enables effective goal alignment, collaborative problem solving and sharing of best practices, tools, skills and expertise to achieve our objectives. Through relentless commitment to continuous improvement, we strive to elevate safety, quality, delivery, cost and growth performance of the business with the goal of exceeding the expectations of our customers, our associates and our shareholders.
Facilities
We have manufacturing, sales and service facilities in the US, Mexico, China, Europe, India, and Australia, as well as a number of other locations throughout the world. Refer to Item 2 - Properties for further information on our facilities by segment.
Our corporate offices are located in Milwaukee, Wisconsin in an approximately 142,000 square foot rented office building and in Rosemont, Illinois in an approximately 20,000 square foot rented office building. We believe our equipment and facilities are well maintained and adequate for our present needs. However, we continuously evaluate our property portfolio, including properties that have been or will be transferred to us pursuant to acquisitions, to ensure that our facilities are being used efficiently.
Backlog
Our backlog represents the estimated remaining value of work to be performed under firm contracts. As of December 31, 2024, our backlog was $1,707.0 million, as compared to $1,884.4 million on December 31, 2023. We expect to ship the majority of the backlog in 2025 and the remaining balance thereafter.
Human Capital Management
As of December 31, 2024, we employed approximately 30,800 associates worldwide, of whom approximately 30,300 were full-time. Of those associates, approximately 8,900 were located in the US, 8,900 in Mexico, 3,700 in China, 3,800 in India and 5,000 in the rest of the world.
We believe that our associates are our most valuable assets and consider our associate relations to be good. Our objective is to create a high-performing organization by attracting and retaining high-quality, diverse talent and fostering an environment in which our associates have the opportunity to contribute to the Company’s success, while generating personal satisfaction in their roles. The Company offers market competitive compensation, health and well-being programs, retirement and other benefits, based on the markets in which we operate to motivate high performance. The Company also provides robust training and professional development opportunities designed to help employees achieve their career objectives.
A core goal of our performance management process is to develop and maintain a high-performing organization that is well-positioned to meet our business objectives. Creating a high-performing organization requires associates and managers to exhibit transparency in their day-to-day interactions, and use data to drive decision-making and accountability. In 2024, over 95% of full-time professional associates (excluding those governed by a collective bargaining agreement) participated in the
performance management process. Our performance management process focuses on enabling associates and managers to gain alignment through:
•a structured annual goal-setting process where managers and associates work collaboratively to develop specific, measurable, achievable, relevant and time bound ("SMART") goals that align with our overarching business objectives and our Company values;
•clear, organization-wide expectations that managers and associates monitor progress toward completion of their SMART goals with regular coaching sessions and periodic evaluations; and
•an annual performance assessment that provides a direct link between the associate’s pay and performance.
In addition to our focus on performance, we also have a strong commitment to our Company values:
•Integrity
•Responsibility
•Diversity, Engagement and Inclusion
•Customer Success
•Innovation with Purpose
•Continuous Improvement
•Performance
•Passion to Win
...with a sense of urgency.
We strive to promote these values from the top down. In addition to emphasizing our corporate values as a key part of associate life, we promote a commitment to ethics and compliance among our workforce through our Code of Business Conduct and Ethics (our "Code"). In 2024, 97.2% of our global employees completed training on our Code during our annual training period.
Diversity, engagement and inclusion are rooted in our Company values. We believe that we are at our best when we bring to bear the unique perspectives, experiences, backgrounds and ideas of our associates. We seek a workforce that reflects the communities in which we operate, and strive to create diverse, engaged and inclusive workplaces where all of our associates have the opportunity to contribute to the Company’s success and achieve their professional aspirations.
In late 2023, we conducted an employee engagement survey, and in 2024, we executed a robust communication plan to update our associates on the action plans being taken in response to the results of the survey. Action plans have been developed at the local level in locations around the globe as we strive to further engage our employees. Additionally, our talent acquisition, development, succession and diversity, engagement and inclusion strategies are critical components of our people and culture strategy.
As a Company, we believe that our value of responsibility requires community engagement, and we encourage our associates to share in our commitment to the communities where we operate. In addition to the numerous local community service projects in which our associates participate, we have established a charitable foundation for the purpose of coordinating financial donations to local charities. Our annual charitable giving is administered by an advisory board comprised of our associates. In 2024, the Company and the Company's Charitable Foundation allocated $1.1 million to support charitable organizations in the communities where our associates live and work across the US, Mexico and Canada.
Environmental Matters
We believe that positive environmental, social and governance ("ESG")-related business practices strengthen our Company by helping us better serve our customers, delivering higher returns for our shareholders, creating more opportunities for our associates, and making meaningful contributions to the communities in which we operate. In the realm of environmental impact, we have committed to setting both near-term emissions reduction targets, and net-zero targets. In 2022, we announced our commitment to achieving carbon emission neutrality in our operations across scopes 1 and 2 by 2032, and net-zero across scopes 1, 2, and 3 by 2050. Our focus has been on improving our environmental data reporting and accuracy, outlining a strategy to achieve our environmental impact goals, defining the relevant metrics to track our progress, and establishing a robust governance structure to help drive accountability.
Information About Our Executive Officers
The names, ages, and positions of our executive officers as of February 21, 2025 are listed below along with their business experience during the past five years. Officers are elected annually by the Company's Board of Directors (the "Board"). There are no family relationships among these officers, nor any arrangements or understanding between any officer and any other persons pursuant to which the officer was elected.
Executive Officer Age Position Business Experience and Principal Occupation
Louis V. Pinkham 53 Chief Executive Officer Joined the Company in April 2019, as Chief Executive Officer. Prior to joining the Company, Mr. Pinkham was Senior Vice President of Crane Co. from 2016-2019; prior thereto he served in other leadership roles at Crane Co. from 2012-2016. Prior to joining Crane Co., Mr. Pinkham was Senior Vice President at Eaton Corporation. From 2000-2012, he held successive and increasing roles of global responsibility at Eaton. Prior to joining Eaton, Mr. Pinkham held an Engineering and Quality Manager position at ITT Sherotec and a Process Design Engineer position with Molecular Biosystems, Inc. Mr. Pinkham serves as a member of the Board of Trustees for the University of Chicago Medical Center, the Museum of Science and Industry in Chicago, the Manufacturers Alliance for Productivity and Innovation (MAPI), and as a director of Jacobs Solutions Inc.
Robert J. Rehard 56 Executive Vice President, Chief Financial Officer Joined the Company in January 2015, as Vice President, Corporate Controller and Principal Accounting Officer and became Vice President, Chief Financial Officer in April 2018. Prior to joining the Company, Mr. Rehard was a Division Controller for Eaton Corporation and held several other financial leadership positions throughout his career with Baxter, Emerson, Masco and Cooper. Mr. Rehard started his career with Deloitte & Touche in Costa Mesa, California.
Hugo Dubovoy Jr. 45 Executive Vice President, General Counsel and Secretary Joined the Company in March 2024, as Vice President, General Counsel and Secretary. Prior to joining the Company, Mr. Dubovoy was General Counsel of the North American consumer products business of Kimberly-Clark Corporation in his capacity as Vice President, Deputy General Counsel, from 2022-2024. Previously, Mr. Dubovoy held roles of increasing responsibility at W.W. Grainger, Inc. from 2013-2022, including, most recently from 2019-2022, Vice President, Corporate Secretary & Chief Litigation Counsel while also leading the legal support of Grainger’s eCommerce businesses in Europe. Prior to Grainger, Mr. Dubovoy spent nearly a decade at both Baker McKenzie LLP, including as Partner, and Skadden, Arps, Slate, Meagher & Flom LLP, two leading global law firms.
Tim A. Dickson 54 Senior Vice President, Chief Digital & Information Officer Joined the Company in October 2023, as Vice President, Chief Digital Information Officer. Prior to joining the Company, Mr. Dickson was the Chief Information Officer at Generac Power Systems. Prior to that, he held successive and increasing roles of responsibility such as Interim Chief Information Officer and Strategic Technology Consultant for Astreya, as well as Vice President, Digital Business Platform with Laureate International Universities, Vice President, IT Operations - Digital Innovation & Strategy with Motorola Solutions, and Divisional CIO, Emerging Technologies and User Experience with Dell. Mr. Dickson began his career with IBM in the Raleigh-Durham area.
Cheryl A. Lewis 56 Executive Vice President, Chief Human Resources Officer Joined the Company in March 2020, as Vice President, Chief Human Resources Officer. Prior to joining the Company, Ms. Lewis served as Segment Director, Human Resources for Illinois Tool Works Inc. from 2010-2020. Prior to joining Illinois Tool Works Inc., Ms. Lewis was Vice President, Human Resources with Alcan Packaging from 2008-2010. From 1991-2008 she held successive and increasing roles of responsibility, including Vice President, Human Resources at Panduit Corporation.
Brooke E. Lang 53 Executive Vice President & President, Power Efficiency Solutions Segment Joined the Company in July 2022 as Senior Vice President and General Manager of the Conveying and Power Management Division. Prior to joining the Company, Mr. Lang was the Vice President and General Manager of the Power Components Division with Eaton. Prior to this role, Mr. Lang held successive and increasing roles of responsibility with Eaton between 2008 and 2016, including Global Channel Marketing Manager, Director - Product Marketing, and as Vice President and General Manager Critical Power Solutions APAC. Mr. Lang began his career with Booz Allen Hamilton in Mclean, VA.
Jerrald R. Morton 63 Executive Vice President & President, Industrial Powertrain Solutions Joined the Company in February 2015 and became President, Industrial Powertrain Solutions after the Company’s acquisition of Altra Industrial Motion Corporation in March 2023. Prior to his current position, Mr. Morton served as President - Integration, Motion Control Solutions from 2021-2023, President of Power Transmission Solutions Segment from 2019-2021, Vice President, Business Leader of Power Transmission Solutions from 2017-2019, and led the global operations for the Company's power transmission business from 2015-2017. Prior to joining the Company, Mr. Morton spent 28 years with Emerson in a variety of roles in Quality, Technology, and Operations and was Vice President, Global Operations of Emerson’s power transmission business at the time the Company acquired that business.
Kevin J. Zaba 57 Executive Vice President & President, Automation & Motion Control Joined the Company in October 2021 as President, Motion Control Solutions Segment and became President, Automation & Motion Control, after the Company’s acquisition of Altra Industrial Motion Corporation in March 2023. Previously, Mr. Zaba served as Group Executive and President for Rexnord Process & Motion Control from 2014-2021. Prior to this, he held a number of leadership roles with increasing responsibility during his 24 year tenure at Rockwell Automation, Inc., including Vice President of Solutions, Services & Sales and Vice President and General Manager of the Control & Visualization products business. Mr. Zaba's experience as a global business leader includes assignments across a variety of commercial, innovation and operational roles, including a multiyear assignment leading an Asia-Pacific ETO solutions business while residing in Shanghai, China.
Website Disclosure
Our Internet address is www.regalrexnord.com. We make available free of charge (other than an investor's own Internet access charges) through our Internet website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission. In addition, we have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and associates which satisfies the requirements of the New York Stock Exchange regarding a “code of business conduct.” We have also adopted Corporate Governance Guidelines addressing the subjects required by the New York Stock Exchange. In September 2024, we produced our updated Sustainability Report. We make copies of the foregoing, as well as the charters of our Board committees, available free of charge on our website. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, our Code of Business Conduct and Ethics by posting such information on our web site at the address stated above. We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.

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ITEM 1A. RISK FACTORS
ITEM 1A - RISK FACTORS
You should carefully consider each of the risks described below, together with all of the other information contained in this Annual Report on Form 10-K, and our other SEC filings, before making an investment decision with respect to our securities. The risks described below are not the only risks that could adversely affect our business; other risks currently deemed immaterial or additional risks not currently known to us could also materially and adversely affect us. If any of the following or other risks develop into actual events, our business, financial condition, results of operations, or cash flow could be materially and adversely affected and you may lose all or part of your investment.
Risks Relating to Our Operations and Strategy
We depend on certain key suppliers, and any loss of those suppliers or their failure to meet commitments may adversely affect our business and results of operations.
We are dependent on a single or limited number of suppliers for some materials or components required in the manufacture of our products. If any of those suppliers fail to meet their commitments to us in terms of delivery or quality, including by suffering any disruptions at its facilities or in its supply, we may experience cost increases or supply shortages that could result in our inability to meet our customers' requirements, or could otherwise experience an interruption in our operations that could negatively impact our business and results of operations or in certain circumstances, our competitive position could be adversely affected, which may result in depressed sales and profitability.
Our dependence on, and the price of, raw materials may adversely affect our gross margins.
Many of the products we produce contain key materials such as steel, copper, aluminum and electronics. Market prices for those materials can be volatile due to changes in supply and demand, manufacturing and other costs, regulations and tariffs, economic conditions and other circumstances. For example, the US has instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the US, and other government regulations affecting trade between the US and other countries. In particular, the US government imposed or threatened to impose tariffs on imports from China, Canada and Mexico, among other proposed tariffs, and such countries have taken or have threatened to take retaliatory actions. Even if we are able to successfully respond to increased commodity costs through pricing actions, our competitive position could be adversely affected, which may result in depressed sales and profitability.
We may incur costs and charges as a result of restructuring activities and business optimization initiatives and operations consolidations that may be disruptive to our business and may not result in anticipated cost savings.
We expect to continue reviewing our overall manufacturing footprint and margin improvement initiatives in our operations, in an effort to make our business more efficient. We have incurred and expect to continue to incur additional costs and restructuring charges in connection with such consolidations, divestitures, workforce reductions and other cost reduction measures that could, in certain instances, adversely affect our future earnings and cash flows. Furthermore, such actions may be disruptive to our business, and this may result in production inefficiencies, product quality issues, late product deliveries or lost orders as we begin production at consolidated facilities, which could adversely impact our sales levels, operating results and operating margins. In addition, we may not realize the cost savings that we expect to realize as a result of such actions.
In addition, these activities require substantial management time and attention and may divert management from other important work or result in a failure to meet operational targets. Divestitures may also give rise to obligations to buyers or other parties that could have a financial effect after the transaction is completed. Moreover, we could encounter changes to, or delays in executing, any restructuring or divestiture plans, any of which could cause disruption and additional unanticipated expense.
Our ability to establish, grow and maintain customer relationships depends in part on our ability to develop new products, new manufacturing techniques and product enhancements based on technological innovation, such as the Internet of Things ("IoT") and Artificial Intelligence ("AI"), and marketplace acceptance of new and existing products, including products related to technology not yet adopted or utilized in certain geographic locations in which we do business.
The electric motor drives and controls, power generation and power transmission industries in recent years have seen significant evolution and innovation, particularly with respect to increasing energy efficiency and control enhancements. Our ability to effectively compete in these industries depends in part on our ability to continue to develop new technologies and innovative products, new manufacturing techniques and product enhancements, including enhancements based on technological innovation
such as IoT and AI. Further, many large customers in these industries generally desire to purchase from companies that can offer a broad product range, which means we must continue to develop our expertise in order to design, manufacture and sell these products successfully. This requires that we make significant investments in engineering, manufacturing, customer service and support, research and development and intellectual property protection, and there can be no assurance that in the future we will have sufficient resources to continue to make such investments. If we are unable to identify and predict customer needs and preferences or are unable to meet the needs of our customers for innovative and competitive products or product variety, or if our products become technologically obsolete over time due to the development by our competitors of technological breakthroughs or otherwise, our revenues and results of operations may be adversely affected. In addition, we may incur significant costs and devote significant resources to the development of products that ultimately are not accepted in the marketplace, do not provide anticipated enhancements, or do not lead to significant revenue, which may adversely impact our results of operations.
Further, such new products and technologies may create additional exposure or risk. We cannot assure that we can adequately protect any of our own technological developments to produce a sustainable competitive advantage. Furthermore, we could be subject to business continuity risk in the event of an unexpected loss of a material facility or operation. We cannot ensure that we can adequately protect against such a loss.
Certain portions of our revenue depend on several significant customers and distributors, and any loss, cancellation or reduction of, or delay in, purchases by these customers or distributors may have a material adverse effect on our business.
We depend on, and expect to continue to depend on, revenues from several significant OEM customers and distributors, and any loss, cancellation or reduction of, or delay in, purchases by these customers or distributors may have a material adverse effect on our business.
Our success depends on our continued ability to develop and manage these relationships. We have longstanding relationships with these customers and distributors and we expect these relationships will continue for the foreseeable future. Our reliance on these sales makes our relationships important to our business. We cannot assure you that we will be able to retain these key customers and distributor relationships. Some of our customers or distributors may in the future shift some or all of their purchases of products from us to our competitors or to other sources. The loss of one or more of our large customers or distributors, any reduction or delay in sales to these parties, our inability to develop relationships successfully with additional customers or distributors, or future price concessions that we may make could have a material adverse effect on our results of operations and financial condition.
Goodwill and other long-lived assets could become impaired.
We have a material amount of goodwill and other long-lived assets, including intangible assets, property, plant and equipment and lease assets. We assess our goodwill at least annually for impairment. Our estimates of fair value are based on assumptions about future operating cash flows, growth rates, discount rates applied to these cash flows and current market estimates of value. We evaluate the recoverability of the carrying value of long-lived assets to be held and used whenever events or circumstances indicating a potential impairment exist, such as, but not limited to, adverse market conditions or business climate, a change in the extent or manner in which assets are being used, or a negative long-term performance outlook. An impairment would require us to reduce the carrying value of goodwill or other long-lived asset to fair value through a non-cash impairment charge in our results of operations, which could be material. See Note 4 - Goodwill and Intangible Assets of the Notes to the Consolidated Financial Statements for more information.
Portions of our total sales come directly from customers in key markets and industries, some of which may be highly cyclical. A significant or prolonged decline or disruption in one of those markets or industries could result in lower capital expenditures by such customers, which could have a material adverse effect on our results of operations and financial condition.
Portions of our total sales are dependent directly upon the level of capital expenditures by customers in key markets and industries, such as HVAC, refrigeration, power generation, oil and gas, unit material handling, water heating and aerospace. Some of these key markets and industries are inherently cyclical and can be impacted by governmental policy and the general macroeconomic climate. A significant or prolonged decline or disruption in one of those markets or industries may result in some of such customers delaying, canceling or modifying projects, or may result in nonpayment of amounts that are owed to us. These effects could have a material adverse effect on our results of operations and financial condition.
We rely on estimated forecasts to meet customers’ needs, and inaccuracies in such forecasts could materially adversely affect our business.
In some instances, we rely on estimated demand forecasts, based upon input from our customers, to determine how much material to purchase and product to manufacture. We may have limited visibility regarding our customers’ actual product needs. The quantities or timing required by our customers for our products could vary significantly. Also, from time to time, our customers may experience a deterioration of their businesses and may not be able to accurately estimate forecasted demand. Whether in response to changes affecting the industry or a customer’s specific business pressures, any cancellation, delay, inability to fulfill customer obligations, or other modification in our customers’ orders could significantly reduce our revenue, impact our working capital, cause our operating results to fluctuate from period to period and make it more difficult for us to predict our revenue. In the event of a cancellation or reduction of an order, we may not have enough time to reduce operating expenses to minimize the effect of the lost revenue on our business and we may purchase too much inventory and spend more capital than expected, which may have a material adverse effect on our results of operations, cash flows and financial condition.
We sell certain products for high volume applications, and any failure of those products to perform as anticipated could result in significant liability and expenses that may adversely affect our business and results of operations.
We manufacture and sell a number of products for high volume applications, including electric motors used in pools and spas, residential and commercial heating, ventilation and air conditioning and refrigeration equipment. Any failure of those products to perform as anticipated could result in significant product liability, product recall or rework, or other costs. The costs of product recalls and reworks are not generally covered by insurance.
If we were to experience a product recall or rework in connection with products of high volume applications, our financial condition or results of operations could be materially adversely affected.
One of our subsidiaries that we 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 regulation 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. Based on the current facts, we cannot assure you that these claims, individually or in the aggregate, will not have a material adverse effect on our subsidiary's results of operations, financial condition or cash flows. We cannot reasonably predict the outcome of these claims, the nature or extent of any CPSC or other remedial actions, if any, that our subsidiary or we on their behalf 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. See Note 11 - Contingencies of the Notes to the Consolidated Financial Statements for more information.
Our business may not generate cash flow from operations in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs, we could become increasingly vulnerable to general adverse economic and industry conditions and interest rate trends, and our ability to obtain future financing may be limited.
As of December 31, 2024, we had approximately $5.5 billion in aggregate debt outstanding under our various financing arrangements, including a substantial amount of debt incurred in connection with the Altra Transaction. If we are unable to generate sufficient cash flows to service our debt, our business, financial condition or results of operations could be adversely affected. See Note 6 - Debt and Bank Credit Facilities of the Notes to the Consolidated Financial Statements for more information.
Our ability to make required payments of principal and interest on our debt levels will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control. Our substantially increased indebtedness has the effect, among other things, of reducing our flexibility to changing business and economic conditions. We cannot assure you that our business will generate cash flow from operations or that future borrowings will be available under our current credit facilities in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs on a timely basis or at all. Our indebtedness may have important consequences, for example, it could:
•make it more challenging for us to obtain additional financing to fund our business strategy and acquisitions, debt service requirements, capital expenditures and working capital;
•increase our vulnerability to interest rate changes, including with respect to certain of our financing arrangements that bear interest at variable rates, and general adverse economic and industry conditions;
•require us to dedicate a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the availability of our cash flow to finance acquisitions and to fund working capital, capital expenditures,
manufacturing capacity expansion, business integration, research and development efforts and other general corporate activities;
•require us to dispose of significant assets in order to satisfy our debt service and other obligations if we are not able to satisfy these obligations from cash from operations or other sources;
•limit our flexibility in planning for, or reacting to, changes in our business and our markets; and/or
•place us at a competitive disadvantage relative to our competitors that have less debt.
A portion of our indebtedness bears interest at variable rates that are linked to changing market interest rates. As a result, an increase in market interest rates would increase our interest expense and our debt service obligations on the variable rate indebtedness, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. We utilize interest rate swaps that involve the exchange of floating for fixed rate interest payments to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate interest rate risk.
Further, the availability and terms of future financing may depend upon our ability to maintain or achieve certain credit ratings on our senior debt. The credit rating process is contingent upon our credit profile and other factors, many of which are beyond our control, including methodologies established and interpreted by third-party rating agencies. If we are unable to maintain or achieve certain credit ratings in the future, our interest expense could increase or our ability to obtain financing on favorable terms could be adversely affected.
Our credit facilities contain financial and restrictive covenants, which require us to maintain specified financial ratios and satisfy certain financial condition tests. These covenants could limit our ability to, among other things, borrow additional funds or take advantage of business opportunities, and may require that we take action to reduce our debt or to act in a manner contrary to our business strategies. An event of default under our debt agreements, if not cured or waived, could result in the acceleration of our indebtedness or otherwise have a material adverse effect on our business, financial condition, results of operations or debt service capability. See Note 6 - Debt and Bank Credit Facilities of the Notes to the Consolidated Financial Statements for more information.
Sales of products incorporated into HVAC systems and other residential applications are seasonal and affected by the weather; mild or cooler weather could have an adverse effect on our operating performance.
Many of our motors are incorporated into HVAC systems and other residential applications that OEMs sell to end users. The number of installations of new and replacement HVAC systems or components and other residential applications is higher during the spring and summer seasons due to the increased use of air conditioning during warmer months. Mild or cooler weather conditions during the spring and summer season often result in end users deferring the purchase of new or replacement HVAC systems or components. As a result, prolonged periods of mild or cooler weather conditions in the spring or summer season in broad geographical areas could have a negative impact on the demand for our HVAC motors and, therefore, could have an adverse effect on our operating performance. In addition, due to variations in weather conditions from year to year, our operating performance in any single year may not be indicative of our performance in any future year.
Global climate change and related legal and regulatory developments could negatively affect our business.
The effects of climate change could create financial, reputational, or other risks to our business. For example, the effects of climate change could disrupt our operations by impacting the availability and the cost of materials needed for manufacturing, exacerbate existing risks to our supply chain and increase insurance and other operating costs, including energy costs impacted by carbon prices or offsets. These factors may impact our decisions to construct new facilities or maintain existing facilities in areas most prone to physical climate risks. We could also face indirect financial risks passed through the supply chain and disruptions that could result in increased prices for our products and the resources needed to produce them. Additionally, we are subject to environmental laws that could impose significant costs on us. See "We are subject to environmental laws that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses" for more information.
There continues to be a lack of consistent climate regulation, which creates economic and regulatory uncertainty. Increased international, regional, state, and/or federal requirements or other stakeholder expectations have and could further mandate more restrictive or expansive standards, more prescriptive reporting of environmental, social and governance metrics than the voluntary commitments we have adopted, or require related changes on a more accelerated time frame than we anticipate. For example, we are subject to the European Union’s Corporate Sustainability Reporting Directive (“CSRD”) and California’s climate disclosure rules, among others. These regulations are inconsistent, and are rapidly emerging and evolving, and have increased, and are expected to continue to increase, our compliance costs. For example, the CSRD has established extensive
ESG-related disclosure requirements based on the European Sustainability Reporting Standards, including certain assurance obligations. The standards used to identify and collect the information and data required pursuant to the CSRD are still developing and uncertain, and this lack of certainty could result in increased costs related to complying with our reporting obligations under the CSRD. In addition, a number of governmental bodies have finalized, proposed or are contemplating legislative and regulatory changes in response to the potential effect of climate change. These regulations may affect our operations, supply chain, and overall business strategy, potentially leading to increased expenses, operational disruptions or limitations on our ability to compete in certain markets. If our product portfolio does not align with these regulations, we may be required to make increased research and development and other capital expenditures to improve our product portfolio in order to meet new regulations and standards. Further, our customers and the markets we serve may impose emissions or other environmental standards through regulation, market-based emissions policies or consumer preference that we may not be able to meet due to the level of capital investment or technological advancement. While we are committed to continuous improvements to our product portfolio to meet and exceed anticipated regulations and preferences, there can be no assurance that our commitments will be successful, that our products will be accepted by the market, that proposed regulation or deregulation will not have a negative competitive impact, or that economic returns will reflect our investments in new product development.
As of the date of this filing, we have made several public commitments regarding our intended reduction of carbon emissions, including commitments to achieve Scope 1 and Scope 2 carbon emission neutrality by 2032, and net zero across Scope 1, 2 and 3 emissions by 2050. Although we intend to meet these commitments, we have expended resources and we may be required to further expend significant resources to do so, which could increase our operational costs. If we either are unable to meet these commitments, or progress toward our commitments more slowly than expected, or if such commitments are criticized by certain groups, then we could incur adverse publicity and reaction from investors, activist groups and other stakeholders, which could adversely impact the perception of our brands and our products by current and potential customers, as well as investors, which would in turn adversely impact our results of operations.
Our success is highly dependent on qualified and sufficient staffing. Our failure to attract or retain qualified personnel, including our senior management team, could lead to a loss of revenue or profitability.
Our success depends, in part, on the efforts and abilities of our senior management team and key associates and the contributions of talented associates in various operations and functions, such as engineering, finance, sales, marketing, manufacturing, etc. The skills, experience and industry contacts of our senior management team significantly benefit our operations and administration. The failure to attract or retain members of our senior management team and key talent could have a negative effect on our operating results.
Risks Related to Mergers, Acquisitions and Divestitures
Integration costs and unsuccessful integration of our past acquisitions and any future acquisitions into our business within expected timetables could adversely affect our future results and the market price of our common stock.
The Company has incurred, and may continue to incur, significant one-time costs in connection with the integration of past acquisitions and any future acquisitions, including the cost of financing, transaction costs and integration costs. Incurring these costs may have an adverse effect on the Company’s liquidity, cash flows and operating results.
The success of our acquisitions, including the Altra Transaction, depends, in large part, on our ability to realize the anticipated benefits of such acquisition and on our sales and profitability following such acquisition. The integration of our acquisitions is complex and time-consuming, and is subject to a number of uncertainties, and no assurance can be given that any anticipated benefits will be realized or, if realized, the timing of their realization. The failure to successfully integrate and manage the challenges presented by the integration process may result in our failure to achieve some or all of the anticipated benefits of these acquisitions.
Potential difficulties that may be encountered in the integration process of potential acquisitions include, among others:
•the failure to implement our business plan following such acquisitions;
•lost sales and customers as a result of customers deciding not to do business with the Company;
•risks associated with managing our larger and more complex company following an acquisition;
•integrating personnel while maintaining focus on providing consistent, high-quality products and service to customers;
•the loss of key employees;
•unanticipated issues in integrating manufacturing, logistics, information, communications and other systems;
•unexpected liabilities of such acquisitions;
•possible inconsistencies in standards, controls, procedures, policies and compensation structures; and
•the impact on our internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of 2002.
If any of these events were to occur, our ability to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits of any acquisition could be adversely affected, or could reduce our sales or earnings or otherwise adversely affect our business and financial results after such acquisition and, as a result, adversely affect the market price of our common stock.
As part of our growth strategy, we expect to continue to make acquisitions. Our continued growth may depend on our ability to identify and acquire companies that complement or enhance our business on acceptable terms, but we may not be able to identify or complete future acquisitions. We may not be able to integrate successfully our recent acquisitions, or any future acquisitions, operate these acquired companies profitably, or realize the potential benefits from these acquisitions.
Businesses that we have acquired or that we may acquire in the future may have liabilities which are not known to us.
We have assumed liabilities of acquired businesses and may assume liabilities of businesses that we acquire in the future. There may be liabilities or risks that we fail, or are unable, to discover, or that we underestimate, in the course of performing our due diligence investigations of acquired businesses. Additionally, businesses that we have acquired or may acquire in the future may have made previous acquisitions, and we will be subject to certain liabilities and risks relating to these prior acquisitions as well. We cannot assure you that our rights to indemnification, if any, contained in definitive acquisition agreements that we have entered or may enter into will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition or results of operations. As we operate acquired businesses, we may learn additional information about them that adversely affects us, such as unknown or contingent liabilities, issues relating to compliance with applicable laws or issues related to ongoing customer relationships or order demand, or issues related to compliance with prior commercial agreements.
In connection with the Rexnord PMC acquisition, the Reorganization and the Distributions could result in significant tax liability, including as a result of an error in the determination of Overlap Shareholders or subsequent acquisitions of stock of Zurn or us. Under certain circumstances, Land (our wholly owned subsidiary) may be obligated to indemnify Zurn for any such taxes imposed on Zurn.
In connection with our merger with the Rexnord PMC business, Zurn received a tax opinion from its tax counsel (the “Rexnord Tax Opinion”) that includes an opinion to the effect that the Reorganization and the Distributions will qualify as tax-free to Zurn, Land and the Zurn stockholders, as applicable, for US federal income tax purposes except, in the case of Zurn, to the extent Land’s payment to a subsidiary of Zurn under the terms of the Separation Agreement (the “Land Cash Payment”) exceeds RBS Global Inc.’s adjusted tax basis in Land common stock. The Rexnord Tax Opinion is based on, among other things, certain representations and assumptions as to factual matters and certain covenants made by us, Land and Zurn. Although we believe the representations, assumptions and covenants in the Rexnord Tax Opinion to be true, the failure of any such factual representation, assumption or covenant to be true, correct and complete in all material respects could adversely affect the validity of the opinion. The Rexnord Tax Opinion is not binding on the IRS or the courts, and it is possible that the IRS or the courts may not agree with the opinion. In addition, the Rexnord Tax Opinion is based on current law, and the conclusions in the opinion cannot be relied upon if current law changes with retroactive effect.
The Spin-Off will be taxable to Zurn pursuant to Section 355(e) of the US Internal Revenue Code of 1986, as amended if there is a 50% or greater change in ownership of either Zurn or Land, directly or indirectly, as part of a plan or series of related transactions that include the Spin-Off. For this purpose, any acquisitions of Land or Zurn stock or our stock within the period beginning two years before the Spin-Off and ending two years after the Spin-Off are presumed to be a part of such plan, although we and Zurn may be able to rebut that presumption. Zurn received a private letter ruling from the US Internal Revenue Service (the “IRS”) (the “IRS Ruling”) with respect to certain tax aspects of the Rexnord PMC transactions, including matters relating to the nature and extent of shareholders who may be counted for tax purposes as “Overlap Shareholders” (as such term is defined in the Rexnord PMC Merger Agreement) for purposes of determining the exchange ratio for the transaction in the Rexnord PMC Merger Agreement and the overall percentage change in the ownership of Land resulting from the merger of our subsidiary with and into Land. The continuing validity of the IRS Ruling is subject to the accuracy of factual representations and assumptions made in the ruling request. Moreover, the IRS Ruling only describes the time, manner and methodology for measuring Overlap Shareholders and may be subject to varying interpretations.
The actual determination and calculation of Overlap Shareholders was made by us, Zurn and our respective advisors based on the IRS Ruling, but no assurance can be given that the IRS will agree with these determinations or calculations. If the IRS were to determine that the merger of our subsidiary with and into Land, as a result of an error in the determination of Overlap Shareholders, or other acquisitions of Land, Zurn, or our stock, either before or after the Spin-Off, resulted in a 50% or greater change in ownership and were part of a plan or series of related transactions that included the Spin-Off, such determination
could result in significant tax liability to Zurn. In certain circumstances and subject to certain limitations, under the Tax Matters Agreement, Land is required to indemnify Zurn for 100% of the taxes that result if the Distributions become taxable as a result of certain actions by us or Land and for 90% of the taxes that result as a result of a miscalculation of the Overlap Shareholders. If this occurs and Land is required to indemnify Zurn, this indemnification obligation could be substantial and could have a material adverse effect on us and Land, including with respect to our financial condition and results of operations given that we have guaranteed the indemnification obligations of Land.
We face risks associated with the sale of the industrial motors and generators businesses, which comprised a majority of our Industrial Systems operating segment.
We are subject to risks in connection with the sale of the industrial motors and generators businesses (the "Sale"), including the inability to eliminate certain corporate overhead costs that were previously allocated to the Industrial Systems segment. In addition, the Company may face financial and commercial challenges associated with brand transitions and the disposition of certain proprietary assets that were transferred in the Sale. Any or all of these risks could impact the Company's financial results.
Risks Relating to Our Global Footprint
We operate in highly competitive global industries and markets.
We encounter a wide variety of domestic and international competitors due in part to the nature of the products we manufacture and the wide variety of applications and customers we serve. In order to compete effectively, we must retain relationships with major customers and establish relationships with new customers, including those in developing countries. Moreover, in certain applications, customers exercise significant power over business terms. It may be difficult in the short-term for us to obtain new sales to replace any decline in the sale of existing products that may be lost to competitors. Our failure to compete effectively may reduce our revenues, profitability and cash flow, and pricing pressures resulting from competition may adversely impact our profitability.
We have continued to see a trend with certain customers who are attempting to reduce the number of vendors from which they purchase product in order to reduce their costs. As a result, we may lose market share to our competitors in some of the markets in which we compete.
In addition, some of our competitors are larger and have greater financial and other resources than we do. There can be no assurance that our products will be able to compete successfully with the products of these other companies.
There is substantial and continuing pressure on major OEMs and larger distributors to reduce costs, including the cost of products purchased from outside suppliers. As a result of cost pressures from customers, our ability to compete depends in part on their ability to generate production cost savings and, in turn, to find reliable, cost-effective outside suppliers to source components or manufacture their products. If we are unable to generate sufficient cost savings in the future to offset price reductions, then our gross margin could be materially adversely affected.
We manufacture a significant portion of our products outside the US, and political, societal or economic instability or public health crises may present additional risks to our business.
As of December 31, 2024, approximately 21,400 of our approximate 30,300 total full-time associates and 96 of our principal manufacturing and warehouse facilities were located outside the US. International operations generally are subject to various risks, including political, societal and economic instability, local labor market conditions, public health crises, breakdowns in trade relations, the imposition of tariffs and other trade restrictions, lack of reliable legal systems, ownership restrictions, the impact of government regulations, the effects of income and withholding taxes, governmental expropriation or nationalization, and differences in business practices. We may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with international manufacturing and sales that could cause loss of revenue.
Unfavorable changes in the political, regulatory and business climates in countries where we have operations could have a material adverse effect on our financial condition, results of operations and cash flows, including, for example, the uncertainty surrounding trade relations between the US and China, Mexico, Canada and other countries. In particular, the US government imposed or threatened to impose tariffs on imports from China, Canada and Mexico, among other proposed tariffs, and such countries have taken or have threatened to take retaliatory actions.
Moreover, ongoing geopolitical conflicts including those between Russia and Ukraine and those occurring in the Middle East and similar conflicts, have negatively impacted the global economy and in some instances, have led to various economic sanctions being imposed by the US, United Kingdom, European Union, and other countries. While the impacts of the conflict have not been material on our operating results to date, it is not possible to predict the broader or longer-term consequences of these conflicts or new conflicts that may arise in the future. Continued escalation of geopolitical tensions related to the conflict could also result in the loss of property, supply chain disruptions, significant inflationary pressure on raw material prices and cost and supply of other resources (such as energy and natural gas), fluctuations in our customers’ buying patterns, credit and capital market disruption which could impact our ability to obtain financing, increase in interest rates and adverse foreign exchange impacts. These broader consequences could have a material adverse effect on our financial condition, results of operations and cash flows. Such sanctions and other measures, as well as the existing and potential further responses to such sanctions, tensions and military actions, could adversely affect the global economy and financial markets and could adversely affect the operations of our subsidiaries in impacted regions as well as our business, financial condition and results of operations.
In addition, our international operations are governed by various US laws and regulations, including the Foreign Corrupt Practices Act and other similar laws, that prohibit us and our business partners from making improper payments or offers of payment to foreign governments and their officials and political parties for the purpose of obtaining or retaining business. Any alleged or actual violations of these regulations may subject us to government scrutiny, severe criminal or civil sanctions and other liabilities.
Disruptions caused by labor disputes or organized labor activities could adversely affect our business or financial results.
We have a significant number of employees in Europe and other jurisdictions where trade union membership is common. Although we believe that our relations with our employees are strong, if our unionized workers were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations, which could interfere with our ability to deliver products on a timely basis and could have other negative effects, such as decreased productivity and increased labor costs. In addition, if a greater percentage of our workforce becomes unionized as a result of legal or regulatory changes which may make union organizing easier, or otherwise, our costs could increase and our efficiency may be affected in a material adverse manner, negatively impacting our business and financial results. Further, many of our direct and indirect customers and their suppliers, and organizations responsible for shipping our products, have unionized workforces and their businesses may be impacted by strikes, work stoppages or slowdowns, any of which, in turn, could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Economic and Financial Risks
Commodity, currency and interest rate hedging activities may adversely impact our financial performance as a result of changes in global commodity prices, interest rates and currency rates.
We use derivative financial instruments in order to reduce the substantial effects of currency and commodity fluctuations and interest rate exposure on our cash flow and financial condition. These instruments may include foreign currency and commodity forward contracts, currency swap agreements and currency option contracts, as well as interest rate swap agreements. We have entered into, and may continue to enter into, such hedging arrangements. By utilizing hedging instruments, we may forgo benefits that might result from fluctuations in currency exchange, commodity and interest rates. We are also exposed to the risk that counterparties to hedging contracts will default on their obligations. Any default by such counterparties might have an adverse effect on us.
We may suffer losses as a result of foreign currency fluctuations.
The net assets, net earnings and cash flows from our foreign subsidiaries are based on the US Dollar equivalent of such amounts measured in the applicable functional currency.
These foreign operations have the potential to impact our financial position due to fluctuations in the local currency arising from the process of re-measuring the local functional currency in US Dollars. Any increase in the value of the US Dollar in relation to the value of the local currency, whether by means of market conditions or governmental actions such as currency devaluations, will adversely affect our revenues from our foreign operations when translated into US Dollars. Similarly, any decrease in the value of the US Dollar in relation to the value of the local currency will increase our operating costs in foreign operations, to the extent such costs are payable in foreign currency, when translated into US Dollars.
Worldwide economic conditions may adversely affect our industry, business and results of operations.
General economic conditions and conditions in the global financial markets can affect our results of operations. Deterioration in the global economy could lead to higher unemployment, lower consumer spending and reduced investment by businesses, and could lead our customers to slow spending on our products or make it difficult for our customers, our vendors and us to accurately forecast and plan future business activities. Worsening economic conditions could also affect the financial viability of our suppliers, some of which could be considered key suppliers. Additionally, our stock price could decrease if investors have concerns that our business, financial condition and results of operations will be negatively impacted by a worldwide economic downturn.
We are subject to tax laws and regulations in many jurisdictions and the inability to successfully defend claims from taxing authorities related to our current and/or acquired businesses could adversely affect our operating results and financial position.
A significant amount of our revenue is generated from customers located outside of the US, and a substantial portion of our assets and associates are located outside of the US which requires us to interpret the income tax laws and rulings in each of those taxing jurisdictions. Due to the subjectivity of tax laws between those jurisdictions as well as the subjectivity of factual interpretations, our estimates of income tax liabilities may differ from actual payments or assessments. Claims from taxing authorities related to these differences could have an adverse impact on our operating results and financial position.
Our required cash contributions to our pension plans may increase further and we could experience a change in the funded status of our pension plans and the amount recorded in our consolidated balance sheets related to such plans. Additionally, our pension costs could increase in future years.
The funded status of our defined benefit pension plans depends on such factors as asset returns, market interest rates, legislative changes and funding regulations. If the returns on the assets of any of our plans were to decline in future periods, if market interest rates were to decline, if the Pension Benefit Guaranty Corporation were to require additional contributions to any such plans as a result of acquisitions or if other actuarial assumptions were to be modified, our future required cash contributions and pension costs to such plans could increase. Any such increases could impact our business, financial condition, results of operations or cash flows. The need to make contributions to such plans may reduce the cash available to meet our other obligations, including our obligations under our borrowing arrangements or to meet the needs of our business.
Risks Relating to the Legal and Regulatory Environment
We are subject to changes in legislative, regulatory and legal developments involving income and other taxes.
We are subject to US federal, state, and international income, payroll, property, sales and use, fuel, and other types of taxes. Changes in tax rates, enactment of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities, including claims or litigation related to our interpretation and application of tax laws and regulations, could result in substantially higher taxes, could have a negative impact on our ability to compete in the global marketplace, and could have a significant adverse effect on our results or operations, financial conditions and liquidity. The impact of these factors referenced above may be substantially different from period to period. Final laws enacting the Organisation for Economic Co-operation and Development's global minimum tax framework ("Pillar Two Laws") became effective in 2024 in the European Union and other countries where we do business. The Company faces uncertainty related to the potential implementation of Pillar Two Laws in countries where we operate. We are continuing to monitor the legislative process and evaluate the potential impact of implementation of Pillar Two Laws by other countries.
It is difficult to predict the timing and effect that future tax law changes could have on our earnings both in the US and in foreign jurisdictions. Such changes could cause us to experience an effective tax rate significantly different from previous periods or our current estimates. If our effective tax rate were to increase, our financial condition and results of operations could be adversely affected.
Changes to and uncertainty in US trade policy, tariff and import/export regulations and foreign government regulations or other trade restrictions imposed by the US or other governments could adversely affect our business, operating results, foreign operations, sourcing and financial condition.
Changes to tariffs and uncertainty in US and international trade policy have the potential to adversely impact our business, the global economy or certain sectors thereof, including our industry, and could have a material adverse effect on our business,
operating results and financial condition. For example, the United States has instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the United States and other government regulations affecting trade between the United States and other countries where we conduct our business. In particular, the United States government imposed or threatened to impose tariffs on imports from China, Canada and Mexico, among other proposed tariffs, and such countries have taken or have threatened to take retaliatory actions. We cannot predict what changes to trade policy will be made in the future, which may have a material adverse effect on our business, financial condition, and results of operations and could also provide our competitors with an advantage over us or increase our costs. We believe that the issue of U.S. and foreign governmental regulations that would impact our arrangements with our foreign manufacturing sources is of particular concern with regard to countries such as China due to the less mature nature of the Chinese market economy and the historical involvement of the Chinese government in industry.
Our business is also subject to risks associated with US and foreign legislation and regulations relating to imports, including quotas, duties, fees. tariffs or taxes, and other charges or restrictions on imports, which could adversely affect our operations and our ability to import products at current or increased levels, and substantially all of our import operations are subject to customs duties or fees on imported products imposed by the governments where our production facilities are located, including raw materials. We cannot predict whether additional US and foreign customs quotas, duties, tariffs, fees, taxes or other charges or restrictions, requirements as to raw materials, reporting obligations pertaining to “conflict minerals” and polyfluoroalkyl substances (commonly referred to as “PFAS”), or other restrictions will be imposed in the future or adversely modified, or what effect such actions would have on our costs of operations. Future trade agreements, quotas, duties, fees, tariffs or the imposition of import requirements may have a material adverse effect on our business, financial condition, and results of operations.
We are subject to litigation, including product liability, asbestos and warranty claims that may adversely affect our financial condition and results of operations.
We are, from time to time, a party to litigation that arises in the normal course of our business operations, including product warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters. We face an inherent business risk of exposure to product liability, asbestos and warranty claims in the event that the use of our products is alleged to have resulted in injury or other damage. As described above, one of our subsidiaries that we 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. In addition, certain subsidiaries of ours are co-defendants in various lawsuits in a number of US jurisdictions alleging personal injury as a result of exposure to asbestos that was used in certain components of legacy Rexnord PMC business products. The uncertainties of litigation and the uncertainties related to insurance and indemnification coverage make it difficult to accurately predict the ultimate financial effect of these claims. If our insurance or indemnification coverage is not adequate to cover our potential financial exposure, our insurers or indemnitors dispute their obligations to provide coverage, or the actual number or value of claims differs materially from our existing estimates, we could incur material costs that could have a material adverse effect on our business, financial condition, results of operations or cash flows.
While we maintain general liability and product liability insurance coverage in amounts that we believe are reasonable, we cannot assure you that we will be able to maintain this insurance on acceptable terms or that this insurance will provide sufficient coverage against potential liabilities that may arise. Any product liability claim may also include the imposition of punitive damages, the award of which, pursuant to certain state laws, may not be covered by insurance. Any claims brought against us, with or without merit, may have an adverse effect on our business and results of operations as a result of potential adverse outcomes, the expenses associated with defending such claims, the diversion of our management’s resources and time and the potential adverse effect to our business reputation. See Note 11 - Contingencies of the Notes to the Consolidated Financial Statements for more information.
Infringement of our intellectual property by third parties may harm our competitive position, and we may incur significant costs associated with the protection and preservation of our intellectual property.
We own or otherwise have rights in a number of patents and trademarks relating to the products we manufacture, which have been obtained over a period of years, and we expect to actively pursue patents in connection with new product development and to acquire additional patents and trademarks through the acquisitions of other businesses. These patents and trademarks have been of value in the growth of our business and may continue to be of value in the future.
Our inability to protect this intellectual property generally, or the illegal breach of some or a large group of our intellectual property rights, would have an adverse effect on our business. In addition, there can be no assurance that our intellectual property will not be challenged, invalidated, circumvented or designed-around, particularly in countries where intellectual
property rights are not highly developed or protected. We have incurred in the past, and expect to incur in the future, significant costs associated with defending challenges to our intellectual property or enforcing our intellectual property rights, which could adversely impact our cash flow and results of operations.
Third parties may claim that we are infringing their intellectual property rights and we could incur significant costs and expenses or be prevented from selling certain products.
We may be subject to claims from third parties that our products or technologies infringe on their intellectual property rights or that we have misappropriated intellectual property rights. If we are involved in a dispute or litigation relating to infringement of third-party intellectual property rights, we could incur significant costs in defending against those claims. Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. In addition, as a result of such claims of infringement or misappropriation, we could lose our rights to technology that is important to our business, or be required to pay damages or license fees with respect to the infringed rights or be required to redesign our products at substantial cost, any of which could adversely impact our cash flows and results of operations.
We may incur costs or suffer reputational damage due to improper conduct of our associates, agents or business partners.
We are subject to a variety of domestic and foreign laws, rules and regulations relating to improper payments to government officials, bribery, anti-kickback and false claims rules, competition, export and import compliance, money laundering and data privacy. If our associates, agents or business partners engage in activities in violation of these laws, rules or regulations, we may be subject to civil or criminal fines or penalties or other sanctions, may incur costs associated with government investigations, or may suffer damage to our reputation.
Our operations are highly dependent on information technology infrastructure, and failures, attacks or breaches could significantly affect our business.
We depend heavily on our information technology infrastructure in order to achieve our business objectives. If we experience a problem that impairs this infrastructure, such as a computer virus, a problem with the functioning of an important IT application, or an intentional disruption of our IT systems by a third party, the resulting disruptions could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on our business in the ordinary course. Any such events could cause us to lose customers or revenue and could require us to incur significant expense to eliminate these problems and address related security concerns, including costs relating to investigation and remediation actions.
IT security threats via computer malware, social engineering and other “cyber-attacks,” which are increasing in both frequency and sophistication, could also result in unauthorized disclosures of information, such as customer data, personally identifiable information or other confidential or proprietary material, and create financial liability, subject us to legal or regulatory sanctions, or damage our reputation. We attempt to mitigate these risks by implementing measures that aim to help us to continuously improve our cybersecurity posture and protect against evolving threats. For example, we regularly implement new IT systems and make enhancements to our existing Enterprise Resource Planning systems and other business and financial systems (collectively referred to as “IT Systems”), with the aim of enabling management to achieve better control across our business operations. The cost and operational consequences of implementing, maintaining and enhancing our IT Systems and the other measures we employ, could increase significantly to overcome increasingly intense, complex and sophisticated cybersecurity threats, and certain of our IT Systems and other measures may not perform as expected. There can be no assurance that the enhancements to our IT Systems will be successfully implemented and failure to do so could have a material adverse effect on our operations. Notwithstanding these IT Systems enhancements and the other measures we employ, our systems, networks, products and services remain potentially vulnerable to known or unknown cybersecurity attacks and other threats, any of which could have a material adverse effect on our competitive position, results of operations, financial condition and cash flow.
We continuously monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption. However, a cybersecurity attack could persist for an extended period of time before being detected, and, following detection, it could take considerable time for us to obtain full and reliable information about the extent, amount and type of information compromised. During the course of an investigation, we may not know the full impact of the event and how to remediate it, and actions, decisions and mistakes that are taken or made may further increase the negative effects of the event on our business, results of operations and reputation. Moreover, because the techniques used to gain access to or sabotage systems often are not recognized until launched against a target, we may be unable to anticipate the methods necessary to defend against
these types of attacks, and we cannot predict the extent, frequency or impact these attacks may have. Although we maintain insurance coverage that may, subject to policy terms and conditions, provide coverage for certain aspects of cyber and information security risks, dependent upon the nature, location and extent of an event, such insurance coverage may be insufficient to cover all losses. While we maintain robust information security mechanisms and controls in order to mitigate these risks, the impact of a material IT event could have a material adverse effect on our competitive position, results of operations, financial condition and cash flow.
Changes in data privacy laws and our ability to comply with them could have a material adverse effect on us.
We collect and store data that is sensitive to us and our employees, customers, dealers and suppliers. A variety of state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and other processing of personal and other data. Many foreign data privacy regulations, including the General Data Protection Regulation (the “GDPR”) in the European Union, are more stringent than federal regulations in the US. Additionally, many other jurisdictions are considering adopting, or have already adopted privacy regulations. The applicability of these laws to our business has increased due to our focus on expanding e-commerce offerings. These laws and regulations are rapidly evolving and changing, and could have an adverse effect on our operations. Companies’ obligations and requirements under these laws and regulations are subject to uncertainty in how they may be interpreted by courts and governmental authorities. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs. In the case of non-compliance with these laws, including the GDPR, regulators have the authority to levy significant fines. In addition, if there is a material breach of privacy, we may face litigation or regulatory sanctions, or be required to make notifications pursuant to applicable regulations.
Although we have implemented plans to comply with these laws, GDPR and future laws and regulations could impose even greater compliance burdens and risks with respect to privacy and data security than prior laws. The EU (through the GDPR) and a growing number of legislative and regulatory bodies elsewhere in the world have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal information. These breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with these obligations could cause us to incur substantial costs, require significant management time and attention, and increase negative publicity surrounding any incident that compromises personal information and the occurrence of any of these events could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.
Changes in labor or employment laws could increase our costs and may adversely affect our business.
Various federal, state and international labor and employment laws govern our relationship with employees and affect operating costs. These laws include minimum wage requirements, overtime, unemployment tax rates, workers’ compensation rates paid, leaves of absence, mandated health and other benefits, and citizenship requirements. Significant additional government-imposed increases or new requirements in these areas could materially affect our business, financial condition, operating results or cash flow. In the event our employee-related costs rise significantly, we may have to reduce the number of our employees or shut down certain manufacturing facilities. Any such actions would not only be costly but could also materially adversely affect our business.
We are subject to environmental laws that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses.
We are subject to a variety of federal, state, local, foreign and provincial environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances and wastes, requiring permits for such activity and the responsibility to investigate and clean up contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Fines and penalties and revocation of permits may be imposed for non-compliance with applicable environmental laws and regulations and the failure to have or to comply with the terms and conditions of required permits. The operation of manufacturing plants entails risks related to compliance with environmental laws, requirements and permits, and a failure by us to comply with applicable environmental laws, regulations, or permits could result in civil or criminal fines, penalties, enforcement actions, third-party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control equipment or remedial actions. Moreover, if applicable environmental laws and regulations, or the interpretation or enforcement thereof, become more stringent in the future, we could incur capital or operating costs beyond those currently anticipated.
In addition, there are known environmental liabilities, and there may be environmental conditions currently unknown to us relating to our prior, existing or future sites or operations or those of predecessor companies whose liabilities we may have assumed or acquired which could have a material adverse effect on our business.
We are being indemnified, or expect to be indemnified by third parties, subject to certain caps or limitations on the indemnification, for certain environmental costs and liabilities associated with certain owned or operated sites. We cannot assure you that third parties who indemnify or who are expected to indemnify us for certain environmental costs and liabilities associated with certain owned or operated sites will in fact satisfy their indemnification obligations. If those third parties become unable to, or otherwise do not, comply with their respective indemnity obligations, or if certain contamination or other liability for which we are obligated is not subject to these indemnities, we could become subject to significant liabilities. See Note 11 - Contingencies of the Notes to the Consolidated Financial Statements for more information.
General Risks
Our operations can be negatively impacted by natural disasters, terrorism, acts of war, international conflict, pandemic outbreaks and political and governmental actions.
Natural disasters, acts or threats of war or terrorism, pandemic outbreaks such as COVID-19, international conflicts, and the actions taken by the US and other governments in response to such events could cause damage or disrupt our business operations, our suppliers, or our customers, and could create political or economic instability, any of which could have an adverse effect on our business. Although it is not possible to predict such events or their consequences, these events could decrease demand for our products, could make it difficult or impossible for us to deliver products, could disrupt our supply chain or could result in disruption of our manufacturing processes. We may also be negatively impacted by actions by the US or foreign governments which could disrupt manufacturing and commercial operations, including policy changes affecting taxation, trade, immigration, currency devaluation, tariffs, customs, border actions and the like, including, for example, trade relations between the US and China, and ongoing geopolitical tensions and conflicts.
Similarly, unplanned repairs or equipment outages, including those due to natural disasters, could result in the disruption of our manufacturing processes. Any interruption in our manufacturing processes would interrupt our production of products, reduce our income and cash flow and could result in a material adverse effect on our business and financial condition.
Our stock has been and may continue to be subject to significant fluctuations and volatility.
The market price of shares of our common stock has been and may continue to be volatile. Among the factors that could affect our common stock price are those discussed above under “Risk Factors” as well as:
•domestic and international economic and political factors unrelated to our performance;
•quarterly fluctuation in our operating income and earnings per share results;
•decline in demand for our products;
•significant strategic actions by our competitors, including new product introductions or technological advances;
•fluctuations in interest rates;
•cost increases in energy, raw materials, intermediate components or materials, or labor; and
•changes in revenue or earnings estimates or publication of research reports by analysts.
In addition, stock markets have experienced and may continue to experience extreme volatility that may be unrelated to the operating performance of particular companies. These broad market fluctuations have adversely affected and may continue to adversely affect the trading price of our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2 - PROPERTIES
Our corporate offices are located in Milwaukee, Wisconsin in an approximately 142,000 square foot rented office building and in Rosemont, Illinois in an approximately 20,000 square foot rented office building. We have manufacturing, sales and service facilities throughout the US and in Mexico, China, Europe and India as well as a number of other locations throughout the world.
Our IPS segment currently includes 143 facilities, of which 50 are principal manufacturing facilities and 26 are principal warehouse facilities. The Industrial Powertrain Solutions segment's present operating facilities contain a total of approximately 10.4 million square feet of space, of which approximately 31% are leased.
The following represents our principal manufacturing and warehouse facilities in the Industrial Powertrain Solutions segment (square footage in millions):
Square Footage
Location Facilities Total Owned Leased
US 29 3.6 2.3 1.3
Mexico 5 0.7 0.4 0.3
China 4 0.8 - 0.8
India 5 0.2 0.1 0.1
Europe 23 1.4 1.2 0.2
Other 10 0.4 0.3 0.1
Total 76 7.1 4.3 2.8
Our PES segment currently includes 56 facilities, of which 19 are principal manufacturing facilities and 8 are principal warehouse facilities. The Power Efficiency Solutions segment's present operating facilities contain a total of approximately 4.7 million square feet of space, of which approximately 28% are leased.
The following represents our principal manufacturing and warehouse facilities in the Power Efficiency Solutions segment (square footage in millions):
Square Footage
Location Facilities Total Owned Leased
US 7 0.9 0.7 0.2
Mexico 7 1.3 0.9 0.4
China 6 1.0 0.8 0.2
India 3 0.4 0.4 -
Europe 2 0.1 0.1 -
Other 2 0.3 0.2 0.1
Total 27 4.0 3.1 0.9
Our AMC segment currently includes 72 facilities, of which 29 are principal manufacturing facilities and 15 are principal warehouse facilities. The Automation & Motion Control segment's present operating facilities contain a total of approximately 3.2 million square feet of space, of which approximately 58% are leased.
The following represents our principal manufacturing and warehouse facilities in the Automation & Motion Control segment (square footage in millions):
Square Footage
Location Facilities Total Owned Leased
US 15 1.3 0.6 0.7
Mexico 4 0.5 0.1 0.4
China 3 0.1 - 0.1
India 9 0.2 0.1 0.1
Europe 8 0.7 0.5 0.2
Other 5 0.1 - 0.1
Total 44 2.9 1.3 1.6

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3 - LEGAL PROCEEDINGS
From time to time, we are subject to a variety of litigation and other legal and regulatory claims incidental to our business. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. See Note 11 - Contingencies of the Notes to the Consolidated Financial Statements for more information.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
General
Our common stock, $0.01 par value per share, is traded on the New York Stock Exchange under the symbol “RRX.” The number of registered holders of common stock as of February 19, 2025 was 235.
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. During the quarter ended December 31, 2024, we did not acquire any shares in connection with transactions pursuant to equity incentive plans.
Item 12 of this Annual Report on Form 10-K contains certain information relating to our equity compensation plans.
Share Repurchase Program
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. Management is authorized to effect purchases from time to time in the open market or through privately negotiated transactions and may enter into Rule 10b5-1 trading plans to enact purchases on behalf of the Company. During 2024, we purchased 332,439 shares or $50.0 million in shares pursuant to the repurchase authorization. During 2023, we did not repurchase any shares. During 2022, we purchased 1,698,227 shares or $239.2 million in shares pursuant to the repurchase authorization. The maximum value of shares of our common stock available to be purchased as of December 31, 2024 is $145.0 million.
There were no repurchases of our common stock during the quarter ended December 31, 2024.
Stock Performance
The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.
The following graph compares the hypothetical total shareholder return (including reinvestment of dividends) on an investment in (1) our common stock, (2) the Standard & Poor's MidCap 400 Index, and (3) the Standard & Poor's 400 Industrials Index, for the period December 28, 2019 through December 31, 2024. In each case, the graph assumes the investment of $100.00 on December 28, 2019.
INDEXED RETURNS
Years Ended
Company / Index 2020 2021 2022 2023 2024
Regal Rexnord Corporation $ 145.85 $ 213.75 $ 152.30 $ 189.70 $ 200.59
S&P MidCap 400 Index 113.73 141.88 123.35 143.63 163.63
S&P 400 Industrials Index 116.23 149.30 132.13 173.66 197.08
First Quarter 2025 Dividend
On January 27, 2025, the Board of Directors declared a quarterly dividend of $0.35 per share. The dividend is payable on April 14, 2025, to shareholders of record at the close of business on March 31, 2025.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6 - [RESERVED]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars In Millions Except Per Share Data, Unless Otherwise Noted)
Overview
General
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 transmits motion to power industrial applications. The Company's automation offering, comprised of controllers, drives, precision motors, and actuators, controls motion in applications ranging from factory automation to precision tools used in surgical applications. We are headquartered in Milwaukee, Wisconsin and have manufacturing, sales and service facilities worldwide.
As of December 31, 2024, the Company, including its subsidiaries, employed approximately 30,300 full-time people in its global manufacturing, sales, and service facilities and corporate offices. For the year ended December 31, 2024, we reported annual net sales of $6.0 billion compared to $6.3 billion for the year ended December 31, 2023.
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 metals and mining, general industrial, energy, alternative energy, machinery / off-highway, discrete automation 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 commercial HVAC, water heaters, commercial refrigeration, commercial building ventilation, pool and spa, irrigation, dewatering, agricultural, conveying 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.
On September 23, 2023, we signed an agreement to sell our industrial motors and generators businesses which represented the substantial majority of the Industrial Systems operating segment. The transaction closed on April 30, 2024. See Note 3 - Acquisitions and Divestitures and Note 5 - Segment Information of the Notes to the Consolidated Financial Statements for further information and a description of the Company's operating segments, respectively.
We have omitted discussion of trends from 2022 to 2023 as this information has been previously disclosed within Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our 10-K for the year ended December 31, 2023 filed with the SEC on February 26, 2024.
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 OEMs, who incorporate our products into products they manufacture, and many of our products are built to the requirements of our
customers. The majority of our sales are derived 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. 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 the levels of concentration of revenues varying from business unit to business unit.
Our level of net sales for any given period is dependent upon a number of factors, including (i) the demand for our products; (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 ability to meet customer demands in a timely manner; and (v) the selling price of our products. 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 an 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 of these measures to GAAP net sales in the section entitled "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 portions of the commodity price fluctuations 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, with such increases generally taking effect a period of time after the public announcements. For those sales we make under long-term arrangements, 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 sales from quarter to quarter based on factors specific to each business. 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 tend to be lower in the first and fourth quarters and higher in the second and third quarters. In contrast, our IPS and AMC segments each have a broad customer base and a variety of applications, thereby helping to mitigate large quarter-to-quarter fluctuations outside of general economic conditions.
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.
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 products and enhancements to existing products; (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.
Goodwill & Other Asset Impairments.
The following table presents impairments by segment as of December 31, 2024, December 31, 2023 and December 31, 2022:
Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems(1)
Total
December 31, 2024
Goodwill Impairments $ - $ - $ - $ - $ -
Impairment of Other Long-Lived Assets (2)
1.1 1.1 1.8 - 4.0
Loss on Sale of Businesses (3)
1.7 1.4 1.1 4.3 8.5
Total Impairments $ 2.8 $ 2.5 $ 2.9 $ 4.3 $ 12.5
December 31, 2023
Goodwill Impairments $ - $ - $ - $ 57.3 $ 57.3
Impairment of Other Long-Lived Assets (2)
2.5 1.5 3.4 0.4 7.8
Loss on Sale of Businesses (3)
- - - 87.7 87.7
Total Impairments $ 2.5 $ 1.5 $ 3.4 $ 145.4 $ 152.8
December 31, 2022
Goodwill Impairments $ - $ - $ - $ - $ -
Impairment of Other Long-Lived Assets (2)
0.9 - - - 0.9
Total Impairments $ 0.9 $ - $ - $ - $ 0.9
(1) The goodwill impairment in 2023 was in the global industrial motors reporting unit. See Note 4 - Goodwill and Intangible Asserts in the Notes to the Consolidated Financial Statements for additional information.
(2) Related to assets held for sale.
(3) Primarily related to the sale of the industrial motors and generators businesses. See Note 3 - Acquisitions and Divestitures for additional information.
Income (Loss) from Operations. Our income (loss) 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 (loss) 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 - Acquisitions and Divestitures of the Notes to the 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 within Note 6 - Debt and Bank Credit Facilities.
2025 Outlook
In 2025, we expect diluted earnings per share to be $4.42 to $5.22. Our 2025 diluted earnings per share guidance is based on an effective tax rate of 21.5%.
Results of Operations
The following table sets forth selected information for the years indicated:
2024 2023
Net Sales: Amount Percent of Net Sales Amount Percent of Net Sales
Industrial Powertrain Solutions $ 2,598.1 $ 2,403.5
Power Efficiency Solutions 1,644.1 1,808.9
Automation & Motion Control 1,633.8 1,516.8
Industrial Systems(1)
157.8 521.5
Consolidated $ 6,033.8 $ 6,250.7
Gross Profit
Industrial Powertrain Solutions $ 1,051.5 40.5 % $ 844.1 35.1 %
Power Efficiency Solutions 458.7 27.9 % 524.9 29.0 %
Automation & Motion Control 641.6 39.3 % 582.4 38.4 %
Industrial Systems(1)
39.2 24.8 % 115.9 22.2 %
Consolidated $ 2,191.0 36.3 % $ 2,067.3 33.1 %
Operating Expenses
Industrial Powertrain Solutions $ 728.8 28.1 % $ 692.3 28.8 %
Power Efficiency Solutions 296.1 18.0 % 307.5 17.0 %
Automation & Motion Control 497.2 30.4 % 443.4 29.2 %
Industrial Systems(1)
38.9 24.7 % 247.0 47.4 %
Consolidated $ 1,561.0 25.9 % $ 1,690.2 27.0 %
Income (Loss) from Operations
Industrial Powertrain Solutions $ 322.7 12.4 % $ 151.8 6.3 %
Power Efficiency Solutions 162.6 9.9 % 217.4 12.0 %
Automation & Motion Control 144.4 8.8 % 139.0 9.2 %
Industrial Systems(1)
0.3 0.2 % (131.1) (25.1) %
Consolidated $ 630.0 10.4 % $ 377.1 6.0 %
Interest Expense 399.7 431.0
Interest Income (18.8) (43.6)
Other Expense (Income), Net 1.1 (8.7)
Income (Loss) before Taxes 248.0 (1.6)
Provision for Income Taxes 49.6 52.7
Net Income (Loss) 198.4 (54.3)
Net Income Attributable to Noncontrolling Interests 2.2 3.1
Net Income (Loss) Attributable to Regal Rexnord Corporation $ 196.2 $ (57.4)
(1) Results for the Industrial Systems segment covers results through the close of the sale on April 30, 2024.
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Net sales for 2024 were $6,033.8 million, a decrease of $216.9 million, or 3.5% as compared to 2023. The decrease consisted of an organic sales decline of 5.0% and a negative foreign currency translation impact of 0.3%, partially offset by acquisition growth of 7.5%. In addition, the decrease includes a negative impact of $342.7 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 relates to the acquisition of Altra. The $295.9 million organic sales decline was due to lower organic sales of $158.1 million within PES, $77.2 million within AMC, $41.0 million within IPS, and $19.6 million within Industrial Systems. Gross profit increased $123.7 million or 6.0% as compared to the prior year due to $175.2 million from the acquisition of Altra, the absence of $53.6 million of acquisition-related inventory step-up amortization at IPS and AMC in 2024, and the benefits of productivity and acquisition-related cost synergies, partially offset by a decrease of $66.2 million within PES and a decrease of $76.7 million due to the divestiture of the industrial motors and generators businesses. Total operating expenses for 2024 were $1,561.0 million, a decrease of $129.2 million, or 7.6% as compared to 2023. The decrease was primarily due to a reduction of $208.1 million from the divestiture of the industrial motors and generators businesses which included an $83.4 million decrease to loss on the sale of the industrial motors and generators businesses, the impact of a $57.3 million goodwill impairment recorded during 2023 in connection with the sale, and a decrease of $63.0 million in transaction and integration related costs, offset by an increase of $122.0 million from the acquisition of Altra.
IPS net sales for 2024 were $2,598.1 million, an increase of $194.6 million or 8.1% as compared to 2023. The increase consisted of acquisition growth of 10.1%, partially offset by an organic sales decline of 1.7% and a negative foreign currency translation impact of 0.3%. The acquisition growth of $243.2 million relates to the acquisition of Altra. The $41.0 million decrease in organic sales was due to weakness in machinery/off-highway, alternative energy and general industrial markets, partially offset by strength in the energy and aerospace markets, and gains from cross-selling synergies. Gross profit increased $207.4 million or 24.6% due to $92.4 from the acquisition of Altra, the absence of $39.6 million of acquisition-related inventory step-up amortization in 2024, and the benefits of productivity and acquisition-related cost synergies. Total operating expenses for 2024 were $728.8 million, an increase of $36.5 million, or 5.3% as compared to 2023. The increase was due to $60.0 million from the acquisition of Altra, partially offset by a decrease of $37.6 million in transaction and integration costs.
PES net sales for 2024 were $1,644.1 million, a decrease of $164.8 million or 9.1% as compared to 2023. The decrease consisted of an organic sales decline of 8.8% and a negative foreign currency translation impact of 0.2%. The $158.1 million decrease in organic sales was due to declines in residential HVAC, general commercial, and non-U.S. commercial HVAC markets, partially offset by strength in the commercial HVAC market in North America. Gross profit decreased $66.2 million or 12.6% due to lower sales volumes, partially offset by management's control over discretionary spending and lower freight costs. Total operating expenses for 2024 were relatively consistent with 2023.
AMC net sales for 2024 were $1,633.8 million, an increase of $117.0 million or 7.7% as compared to 2023. The increase consisted of acquisition growth of 13.1% offset by an organic sales decline of 5.1% and a negative foreign currency translation impact of 0.3%. The acquisition growth of $199.3 million relates to the acquisition of Altra. The $77.2 million decrease in organic sales was due to weakness in discrete automation and general industrial markets, partially offset by strength in the aerospace, data center, medical, and food and beverage markets. Gross profit increased $59.2 million or 10.2% due to $82.8 million from the acquisition of Altra, the absence of $14.0 million of acquisition-related inventory step-up amortization in 2024, and the benefits of productivity and acquisition-related cost synergies, partially offset by the organic sales decline. Total operating expenses for 2024 increased $53.8 million, or 12.1% as compared to 2023. The increase in operating expenses was due to $62.0 million from the acquisition of Altra, partially offset by a decrease of $25.5 million in 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 2024. The changes in Industrial Systems sales, gross profit and other operating expenses were due to timing of the sale.
The effective tax rate for 2024 was 20.0% compared to (3,293.8)% for 2023. The effective tax rate in 2024 reflects lower US tax on foreign earnings and discrete tax benefits associated with a reduction in withholding taxes, while the effective tax rate in 2023 was largely driven by the impact of the nondeductible goodwill impairment and held for sale loss related to the divestiture of the industrial motors and generators businesses.
Non-GAAP Measures
As noted above, we disclose organic sales, organic sales growth and acquisition growth non-GAAP financial measures, and we reconcile these 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.
Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
Net Sales for Year Ended December 31, 2024 $ 2,598.1 $ 1,644.1 $ 1,633.8 $ 157.8 $ 6,033.8
Acquisition Sales (243.2) - (199.3) - (442.5)
Impact of Foreign Currency Translation 7.6 4.6 5.1 1.4 18.7
Organic Sales for Year Ended December 31, 2024 $ 2,362.5 $ 1,648.7 $ 1,439.6 $ 159.2 $ 5,610.0
Organic Sales Growth for Year Ended December 31, 2024 (1.7) % (8.8) % (5.1) % (11.0) % (5.0) %
Acquisition Growth for Year Ended December 31, 2024 10.1 % - % 13.1 % - % 7.5 %
Impact from Foreign Currency Exchange Rates (0.3) % (0.2) % (0.3) % (0.7) % (0.3) %
Net Sales for Year Ended December 31, 2023 $ 2,403.5 $ 1,808.9 $ 1,516.8 $ 521.5 $ 6,250.7
Net Sales from Businesses Divested - (2.1) - (342.7) (344.8)
Adjusted Net Sales for Year Ended December 31, 2023 $ 2,403.5 $ 1,806.8 $ 1,516.8 $ 178.8 $ 5,905.9
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 flows 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 $609.4 million in 2024, a $105.9 million decrease from 2023. This decrease was driven primarily by working capital changes.
Our working capital was $1,535.6 million and $2,057.6 million as of December 31, 2024 and December 31, 2023, respectively. The prior year included $257.8 million net assets held for sale related primarily to the industrial motors and generators businesses. The remaining decline in working capital was primarily due to the timing of payments and collections on accounts payable and accounts receivable, as well as improvements in managing inventory levels.
Cash flow provided by investing activities was $275.4 million in 2024, compared to cash flow used in investing activities of $4,983.0 million in 2023. The change was driven primarily by the use of $4,870.2 million of cash to acquire Altra in 2023 and $374.8 million in proceeds received from the sale of the industrial motors and generators businesses in 2024. Capital expenditures were $109.5 million in 2024, compared to $119.1 million in 2023.
In 2025, we anticipate capital spending for property, plant and equipment to be approximately $120 million. We believe that our present manufacturing facilities will be sufficient to provide adequate capacity for our operations in 2025. We anticipate funding 2025 capital spending with operating cash flows.
Cash flow used in financing activities was $1,095.8 million in 2024, compared to $4,203.6 million cash flow provided by financing activities in 2023. Net debt repayments totaled $938.3 million in 2024, compared to net debt borrowings of $4,372.5 million in 2023. The net debt repayments in the current year primarily resulted from payments of $388.5 million on the term loan, $486.8 million on the land term loan and $58.1 million net repayments made on the revolver. The net 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 in January 2023 of the $500.0 million 3.90% notes originally issued on April 7, 2022, payments of $322.8 million on the term loan and $330.9 million net repayments made on the revolver. The Company repurchased and retired $50.0 million of common stock during the year ended December 31, 2024 to partially offset the dilutive impact of share-based compensation awards. There were no share repurchases in 2023. We paid $93.0 million in dividends to shareholders in 2024 compared to $92.8 million in 2023. In 2024, we paid distributions of $3.3 million to noncontrolling interests compared to $16.2 million in 2023.
The following table presents selected financial information and statistics as of December 31, 2024 and December 31, 2023:
December 31, 2024 December 31, 2023
Cash and Cash Equivalents $ 393.5 $ 574.0
Trade Receivables, Net 842.8 921.6
Inventories 1,227.5 1,274.2
Accounts Payable 542.8 549.4
Working Capital 1,535.6 2,057.6
Current Ratio 2.3:1 2.6:1
As of December 31, 2024, $383.9 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 short-term 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 that may be subject to withholding taxes. Under current law, we do not expect restrictions or taxes on repatriation of cash held outside of the US to have a material effect on our overall liquidity, financial condition or the results of operations for the foreseeable future. We repatriated approximately $773.4 million of foreign cash in 2024 to support the repayment of debt. We are continuing to evaluate opportunities to repatriate additional foreign cash in 2025.
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 6 - 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 used the net proceeds from the sale of its industrial motors and generators businesses to repay outstanding debt.
As of December 31, 2024, the Company had $665.0 million of borrowings under the Term Facility and no borrowings under Land Term Facility. As of December 31, 2024 we had $40.0 million of borrowings under the Multicurrency Revolving Facility and $1,530.0 million of available borrowing capacity. 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 6 - Debt and Bank Credit Facilities and Note 3 - Acquisitions and Divestitures of the Notes to the Consolidated Financial Statements for more information.
Litigation
See Part 1 - Item 3 - Legal Proceedings and Note 11 - Contingencies of the Notes to the Consolidated Financial Statements for more information.
Guarantor Information
Regal Rexnord Corporation (the “Parent”) is the issuer of the Senior 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 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 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 (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 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 December 31, 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 Consolidated Balance Sheet at that time:
December 31, 2024 December 31, 2023
Total Current Assets 1,132.2 1,285.0
Goodwill 4,220.9 4,262.6
Intangible Assets, Net of Amortization 2,178.3 2,374.0
Other Noncurrent Assets 863.3 1,062.8
Total Noncurrent Assets 7,262.5 7,699.4
Total Current Liabilities 658.0 697.0
Long-Term Debt 5,428.0 6,351.3
Other Noncurrent Liabilities 3,682.5 4,246.1
Total Noncurrent Liabilities 9,110.5 10,597.4
Due from Non-Guarantor Subsidiaries 398.5 526.4
Due to Non-Guarantor Subsidiaries 3,114.0 3,453.1
The following table sets forth summarized income statement information of the Obligor Group for the year ended December 31, 2024:
Year Ended December 31, 2024
Net Sales 3,290.5
Gross Profit 1,219.5
Income from Operations 215.7
Interest Expense 540.6
Net Loss (299.2)
Net Loss Attributable to Regal Rexnord Corporation (299.2)
Net Sales to Non-Guarantor Subsidiaries 255.3
Interest Expense Due to Non-Guarantors 151.0
Legislative Developments
Final laws enacting the Organisation for Economic Co-operation and Development's global minimum tax framework were in force beginning in 2024 in several countries where we do business, and similar laws could be enacted in other countries where we operate. The Company continually monitors legislation updates and administrative guidance. The current impact of the global minimum tax framework is not material to the Company's results of operations.
Cash Requirements for Other Financial Commitments
The following is a summary of our future estimated cash payments by period as of December 31, 2024:
Payments Due by Period (1)
Debt Including Estimated Interest Payments (2)
Operating Leases Finance Leases Pension Obligations Purchase and Other Obligations Total Contractual Obligations
Less than one year $ 342.3 $ 45.4 $ 8.2 $ 15.7 $ 1,199.8 $ 1,611.4
1 - 3 years 2,384.5 69.6 16.5 7.5 - 2,478.1
3 - 5 years 1,649.1 30.2 14.2 6.2 - 1,699.7
More than 5 years 2,751.7 75.3 62.2 12.4 - 2,901.6
Total $ 7,127.6 $ 220.5 $ 101.1 $ 41.8 $ 1,199.8 $ 8,690.8
(1) The timing and future spot prices affect the settlement values of our hedge obligations related to commodities and currency exchange rates. Accordingly, these obligations are not included above in the table of contractual obligations (See also Item 7A and Note 12 of the Notes to the Consolidated Financial Statements). The timing of settlement of our tax contingent liabilities cannot be reasonably determined and they are not included in the table above. Future pension obligation payments include contributions and benefit payments. Future pension contributions after 2024 are subject to revaluation based on changes in the benefit population and/or changes in the value of pension assets based on market conditions that are not determinable as of December 31, 2024.
(2) Variable rate debt interest is based on December 31, 2024 rates. See also Note 6 - Debt and Bank Credit Facilities of the Notes to the Consolidated Financial Statements.
We utilize blanket purchase orders (“Blankets”) to communicate expected annual requirements to many of our suppliers. Requirements under Blankets generally do not become “firm” until a varying number of weeks before our scheduled production. The purchase obligations shown in the above table represent the value we consider “firm”.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the US requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. We believe the following critical accounting policies could have the most significant effect on our reported results.
Purchase Accounting and Business Combinations
Assets acquired and the liabilities assumed as part of a business combination are recognized separately from goodwill at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. We, with the assistance of outside specialists as necessary, use estimates and assumptions to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. We may refine these estimates during the measurement period which may be up to one year from the acquisition date. As a result, during the measurement period, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Income (Loss).
Goodwill
We test goodwill for impairment at least annually and perform our annual impairment test as of the end of October. We monitor for goodwill impairment triggering events at least quarterly, and if a trigger is identified we test goodwill for impairment during the interim period. Factors that could trigger an impairment assessment include significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset or significant negative industry or economic trends. Reporting units with recent impairments or those with goodwill resulting from recent acquisitions generally present the highest risk of impairment.
When testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether a quantitative test is necessary. In performing qualitative assessments, we evaluate, among other things, actual and forecasted operating results, certain market factors, including discount rates and peer company EBITDA multiples, and the passing margin of prior quantitative tests.
If a quantitative test is performed, we determine the fair value of each reporting unit utilizing an income approach (discounted cash flow method) weighted 75% and a market approach (consisting of a comparable public company multiples methodology) weighted 25%. The assumptions that have the most significant effect on the fair value calculations are discount rates, market multiples, forecasted revenue and EBITDA and terminal growth rates. Discount rates are determined using market and industry data and reflect the risks and uncertainties inherent to each reporting unit and our internally developed forecasts.
For the 2024 annual goodwill test, we performed a qualitative assessment to evaluate goodwill for each of our reporting units, except for two reporting units in the AMC segment which were quantitatively tested. For each of the reporting units we qualitatively assessed, we concluded that it was more likely that not that the fair value exceeded the carrying value and thus a quantitative test was not necessary. For the two reporting units we quantitatively tested, the discount rate used in the income approach was 12.5%. Based on the results of quantitative test, the fair value of each reporting unit exceeded its carrying value and thus no goodwill impairments were recorded. The fair value exceeded carrying value by more than 10% for one of the two reporting units. There is inherent uncertainty included in the assumptions used in goodwill impairment testing and a change to any of the assumptions could lead to a future impairment, which could be material. See Note 4 - Goodwill and Intangible Assets of the Notes to the Consolidated Financial Statements for more information.
Long-Lived Assets
We evaluate the recoverability of the carrying amount of long-lived assets whenever events or changes in circumstance indicate that the carrying amount of an asset may not be fully recoverable through future cash flows. When applying the accounting guidance, we use estimates to determine when an impairment is necessary. Factors that could trigger an impairment review include a significant decrease in the market value of an asset or significant negative or economic trends. For long-lived assets, the Company uses an estimate of the related undiscounted cash flows over the remaining life of the primary asset to estimate recoverability.
Other Disclosures
Dividends
Quarterly dividends declared by Regal Rexnord Corporation's Board of Directors during the year ended December 31, 2024 and for the first quarter of 2025 were as follows:
Period Declaration Date Shareholder of Record Date Dividend Payable Date Cash per Share
First Quarter 2024 January 29, 2024 March 28, 2024 April 12, 2024 $ 0.35
Second Quarter 2024 April 22, 2024 June 28, 2024 July 12, 2024 $ 0.35
Third Quarter 2024 July 22, 2024 September 27, 2024 October 11, 2024 $ 0.35
Fourth Quarter 2024 October 24, 2024 December 31, 2024 January 14, 2025 $ 0.35
First Quarter 2025 January 27, 2025 March 31, 2025 April 14, 2025 $ 0.35

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.
All qualified 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 short-term and long-term debt obligations used to finance our operations and acquisitions. As of December 31, 2024, we had $4,794.8 million of fixed rate debt and $705.0 million of variable rate debt. As of December 31, 2023, we had $4,796.1 million of fixed rate debt and $1,638.4 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.
We have floating rate borrowings, which expose us to variability in 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 December 31, 2024 would result in a $3.8 million change 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 floating 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 will be 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 floating 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 December 31, 2024 are as follows (in millions):
Instrument Notional Amount Maturity Rate Paid Rate Received Fair Value
Swap $250.0 March 2027 3.0% SOFR (3 Month) $5.5
As of December 31, 2024, a $5.5 million interest rate swap was included in Other Noncurrent Assets. As of December 31, 2023, a $5.3 million interest rate swap was included in Other Noncurrent Assets. There was an unrealized gain of $6.4 million, net of tax, (a $2.2 million gain on the terminated swaps and a $4.2 million gain on the active swaps) for 2024 and an unrealized gain of $10.6 million, net of tax, (a $6.5 million gain on the terminated swaps and a $4.1 million gain on the active swaps) for 2023 that were 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 US dollars.
As of December 31, 2024, derivative currency assets (liabilities) of $1.0 million and $(13.6) million, are recorded in Prepaid Expenses and Other Current Assets and Other Accrued Expenses, 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 $5.7 million net of tax and unrealized gain of $9.3 million net of tax, as of December 31, 2024 and December 31, 2023,
respectively, are recorded in AOCI. As of December 31, 2024, we had $2.5 million, net of tax, of currency losses on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. As of December 31, 2023, we had $10.2 million, net of tax, of 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 December 31, 2024 (dollars in millions):
Gain (Loss) From:
Notional Fair 10% Appreciation of 10% Depreciation of
Currency Amount Value Counter Currency Counter Currency
Mexican Peso $ 233.2 $ (7.1) $ 23.3 $ (23.3)
Chinese Renminbi 359.5 (0.2) 36.0 (36.0)
Indian Rupee 23.0 (0.4) 2.3 (2.3)
Euro 1,221.5 (4.4) 122.2 (122.2)
Canadian Dollar 52.2 (0.5) 5.2 (5.2)
British Pound 6.1 - 0.6 (0.6)
Gains and losses indicated in the sensitivity analysis would be largely 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. Qualified hedge transactions are designated as cash flow hedges and 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 $0.1 million and $(4.4) million are recorded in Prepaid Expenses and Other Current Assets and Other Accrued Expenses, respectively as of December 31, 2024. Derivative commodity assets (liabilities) of $1.0 million, $0.1 million and $(0.6) million are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets and Other Accrued Expenses, respectively as of December 31, 2023. The unrealized loss on the effective portion of the hedges of $3.2 million net of tax and unrealized gain of $0.3 million net of tax, as of December 31, 2024 and December 31, 2023, respectively, was recorded in AOCI. As of December 31, 2024 and December 31, 2023, we had $0.5 million and $1.6 million, respectively, net of tax derivative commodity losses on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings.
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 December 31, 2024 (dollars in millions):
Gain (Loss) From:
Notional Fair 10% Appreciation of 10% Depreciation of
Commodity Amount Value Commodity Prices Commodity Prices
Copper $ 41.7 $ (4.3) $ 4.2 $ (4.2)
Gains and losses indicated in the sensitivity analysis would be largely offset by the actual prices of the commodities.
The net AOCI balance related to hedging activities of a $(5.5) million loss as of December 31, 2024 includes $(9.8) million of net current deferred losses expected to be realized in the next twelve months.
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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Annual Report on Internal Control Over Financial Reporting
The management of Regal Rexnord Corporation (the “Company”) is responsible for the accuracy and internal consistency of the preparation of the consolidated financial statements and footnotes contained in this annual report.
The Company's management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company operates under a system of internal accounting controls designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles. The internal accounting control system is evaluated for effectiveness by management and is tested, monitored and revised as necessary. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2024. In making its assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on the results of its evaluation, the Company's management concluded that, as of December 31, 2024, the Company's internal control over financial reporting is effective at the reasonable assurance level based on those criteria.
Our internal control over financial reporting as of December 31, 2024 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
February 21, 2025
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Regal Rexnord Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Regal Rexnord Corporation and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income (loss), comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2025, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Valuation - Factory Automation Reporting Unit - Refer to Notes 3 and 5 to the Financial Statements
Critical Audit Matter Description
The Company performed an impairment evaluation of the goodwill for the Factory Automation reporting unit by comparing the estimated fair value of the reporting unit to its carrying value. In order to estimate the fair value of the reporting unit, management is required to make estimates and assumptions related to the discount rate and forecasts of future revenues, which involve significant judgment. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. As of October 31, 2024, the Company’s measurement date, the Company determined that the fair value of the reporting unit exceeded its carrying value and therefore no impairment was recognized.
We identified the impairment evaluation of goodwill for the Factory Automation reporting unit as a critical audit matter because of the inherent subjectivity involved in management’s estimates and assumptions related to the discount rate and forecasts of future revenues. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the
selection of the discount rate and forecast of future revenues required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the selection of the discount rate and forecasts of future revenues for the Factory Automation reporting unit included the following, among others:
•We evaluated the design and effectiveness of the controls over management’s goodwill impairment evaluation, including those over the selection of the discount rate and forecast of future revenues.
•We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in analyst and industry reports for the Company and certain of its peer companies.
•We assessed management’s historical ability to accurately forecast the reporting unit's results of operations.
•We assessed management’s intent and/or ability to take specific actions included in management’s forecasts.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate by:
-Testing the source information underlying management’s determination of the discount rate
-Testing the mathematical accuracy of management’s calculations
-Developing a range of independent estimates and compared those to the discount rate selected by management
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
February 21, 2025
We have served as the Company's auditor since 2002.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Regal Rexnord Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Regal Rexnord Corporation and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2024, of the Company and our report dated February 21, 2025, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
February 21, 2025
REGAL REXNORD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Amounts in Millions, Except Per Share Data)
For the Year Ended
December 31, 2024 December 31, 2023 December 31, 2022
Net Sales $ 6,033.8 $ 6,250.7 $ 5,217.9
Cost of Sales 3,842.8 4,183.4 3,548.2
Gross Profit 2,191.0 2,067.3 1,669.7
Operating Expenses 1,548.5 1,537.4 978.4
Goodwill Impairment - 57.3 -
Asset Impairments 4.0 7.8 0.9
Loss on Sale of Businesses 8.5 87.7 -
Total Operating Expenses 1,561.0 1,690.2 979.3
Income from Operations 630.0 377.1 690.4
Interest Expense 399.7 431.0 87.2
Interest Income (18.8) (43.6) (5.2)
Other Expense (Income), Net 1.1 (8.7) (5.4)
Income (Loss) before Taxes 248.0 (1.6) 613.8
Provision for Income Taxes 49.6 52.7 118.9
Net Income (Loss) 198.4 (54.3) 494.9
Less: Net Income Attributable to Noncontrolling Interests 2.2 3.1 6.0
Net Income (Loss) Attributable to Regal Rexnord Corporation $ 196.2 $ (57.4) $ 488.9
Earnings (Loss) Per Share Attributable to Regal Rexnord Corporation:
Basic $ 2.96 $ (0.87) $ 7.33
Assuming Dilution $ 2.94 $ (0.87) $ 7.29
Weighted Average Number of Shares Outstanding:
Basic 66.4 66.3 66.7
Assuming Dilution 66.7 66.3 67.1
See accompanying Notes to the Consolidated Financial Statements.
REGAL REXNORD CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Millions)
For the Year Ended
December 31, 2024 December 31, 2023 December 31, 2022
Net Income (Loss) $ 198.4 $ (54.3) $ 494.9
Other Comprehensive (Loss) Income Net of Tax:
Translation:
Foreign Currency Translation Adjustments (251.6) 69.4 (157.9)
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 $(4.5) Million in 2024, $6.8 Million in 2023 and $1.5 Million in 2022
$ (14.1) $ 21.4 $ 4.6
Reclassification of Gains Included in Net Income (Loss), Net of Tax Effects of $(6.4) Million in 2024, $(3.1) Million in 2023 and $(2.6) Million in 2022
(20.2) (34.3) (9.9) 11.5 (8.3) (3.7)
Pension and Post Retirement Plans:
Decrease (Increase) in Prior Service Cost and Unrecognized Loss, Net of Tax Effects of $1.2 million in 2024, $(3.3) million in 2023 and zero in 2022
3.7 (10.4) 0.1
Amortization of Prior Service Cost and Unrecognized (Gain) Loss Included in Net Periodic Pension Cost, Net of Tax Effects of $(0.1) Million in 2024, $(0.4) Million in 2023 and $0.2 Million in 2022
(0.2) 3.5 (1.3) (11.7) 0.9 1.0
Other Comprehensive (Loss) Income (161.1) 69.2 (160.6)
Comprehensive Income 37.3 14.9 334.3
Less: Comprehensive Income Attributable to Noncontrolling Interest 1.4 2.6 2.4
Comprehensive Income Attributable to Regal Rexnord Corporation $ 35.9 $ 12.3 $ 331.9
See accompanying Notes to the Consolidated Financial Statements.
REGAL REXNORD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, Except Per Share Data)
December 31, 2024 December 31, 2023
ASSETS
Current Assets:
Cash and Cash Equivalents $ 393.5 $ 574.0
Trade Receivables, Less Allowances of $29.9 Million in 2024 and $30.3 Million in 2023
842.8 921.6
Inventories 1,227.5 1,274.2
Prepaid Expenses and Other Current Assets 267.9 245.6
Assets Held for Sale 19.6 368.6
Total Current Assets 2,751.3 3,384.0
Net Property, Plant and Equipment 921.0 1,041.2
Operating Lease Assets 141.3 172.8
Goodwill 6,458.9 6,553.1
Intangible Assets, Net of Amortization 3,664.5 4,083.4
Deferred Income Tax Benefits 30.0 33.8
Other Noncurrent Assets 66.7 69.0
Noncurrent Assets Held for Sale - 94.1
Total Assets $ 14,033.7 $ 15,431.4
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable $ 542.8 $ 549.4
Dividends Payable 23.2 23.2
Accrued Compensation and Benefits 191.3 198.7
Accrued Interest 84.0 85.1
Other Accrued Expenses 333.8 325.2
Current Operating Lease Liabilities 35.6 37.2
Current Maturities of Long-Term Debt 5.0 3.9
Liabilities Held for Sale - 103.7
Total Current Liabilities 1,215.7 1,326.4
Long-Term Debt 5,452.7 6,377.0
Deferred Income Taxes 815.5 1,012.7
Pension and Other Post Retirement Benefits 109.5 120.4
Noncurrent Operating Lease Liabilities 114.1 132.2
Other Noncurrent Liabilities 59.0 77.2
Noncurrent Liabilities Held for Sale - 20.4
Contingencies (see Note 11 - Contingencies)
Equity:
Regal Rexnord Corporation Shareholders' Equity:
Common Stock, $0.01 Par Value, 150.0 Million Shares Authorized, 66.3 Million Shares Issued and Outstanding at December 31, 2024 and 2023
0.7 0.7
Additional Paid-In Capital 4,658.0 4,646.2
Retained Earnings 2,043.8 1,979.8
Accumulated Other Comprehensive Loss (442.7) (282.4)
Total Regal Rexnord Corporation Shareholders' Equity 6,259.8 6,344.3
Noncontrolling Interests 7.4 20.8
Total Equity 6,267.2 6,365.1
Total Liabilities and Equity $ 14,033.7 $ 15,431.4
See accompanying Notes to the Consolidated Financial Statements.
REGAL REXNORD CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in Millions, Except Per Share Data)
Common Stock $0.01 Par Value
Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling
Interests Total
Equity
Balance as of January 1, 2022 $ 0.7 $ 4,651.8 $ 1,912.6 $ (195.1) $ 38.2 $ 6,408.2
Net Income - - 488.9 - 6.0 494.9
Other Comprehensive Loss - - - (157.0) (3.6) (160.6)
Dividends Declared ($1.38 Per Share)
- - (91.7) - - (91.7)
Stock Options Exercised - (5.3) - - - (5.3)
Share-Based Compensation - 22.5 - - - 22.5
Repurchase of Common Stock - (59.4) (179.8) - - (239.2)
Dividends Declared to Noncontrolling Interests - - - - (6.2) (6.2)
Balance as of December 31, 2022 $ 0.7 $ 4,609.6 $ 2,130.0 $ (352.1) $ 34.4 $ 6,422.6
Net (Loss) Income - - (57.4) - 3.1 (54.3)
Other Comprehensive Income (Loss) - - - 69.7 (0.5) 69.2
Dividends Declared ($1.40 Per Share)
- - (92.8) - - (92.8)
Stock Options Exercised - (9.6) - - - (9.6)
Share-Based Compensation - 41.6 - - - 41.6
Replacement Equity-Based Awards Granted - 4.6 - - - 4.6
Dividends Declared to Noncontrolling Interests - - - - (16.2) (16.2)
Balance as of December 31, 2023 $ 0.7 $ 4,646.2 $ 1,979.8 $ (282.4) $ 20.8 $ 6,365.1
Net Income - - 196.2 - 2.2 198.4
Other Comprehensive Loss - - - (281.6) (0.8) (282.4)
Dividends Declared ($1.40 Per Share)
- - (93.0) - - (93.0)
Stock Options Exercised - (12.2) - - - (12.2)
Repurchase of Common Stock - (10.8) (39.2) - - (50.0)
Businesses Divested - - - 121.3 (11.5) 109.8
Share-Based Compensation - 34.8 - - - 34.8
Dividends Declared to Noncontrolling Interests - - - - (3.3) (3.3)
Balance as of December 31, 2024 $ 0.7 $ 4,658.0 $ 2,043.8 $ (442.7) $ 7.4 $ 6,267.2
See accompanying Notes to the Consolidated Financial Statements.
REGAL REXNORD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
For the Year Ended
December 31,
2024 December 31,
2023 December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 198.4 $ (54.3) $ 494.9
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities (Net of Acquisitions and Divestitures):
Depreciation 165.3 185.0 121.9
Amortization 346.5 307.8 185.5
Goodwill Impairment - 57.3 -
Asset Impairments 4.0 7.8 0.9
Loss on Sale of Businesses 8.5 87.7 -
Noncash Lease Expense 43.5 42.9 31.9
Share-Based Compensation Expense 34.8 58.2 22.5
Financing Fee Expense 13.1 32.8 19.6
Benefit from Deferred Income Taxes (152.3) (115.3) (80.1)
Gain on Sale of Assets (3.1) (0.6) (3.7)
Other Non-Cash Changes 8.9 9.6 6.4
Change in Operating Assets and Liabilities, Net of Acquisitions and Divestitures
Receivables 23.0 51.7 (38.1)
Inventories 23.9 262.6 (174.4)
Accounts Payable (0.4) (70.1) (129.5)
Other Assets and Liabilities (104.7) (147.8) (21.6)
Net Cash Provided by Operating Activities 609.4 715.3 436.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant and Equipment (109.5) (119.1) (83.8)
Business Acquisitions, Net of Cash Acquired - (4,870.2) (35.0)
Proceeds Received from Sales of Property, Plant and Equipment 4.9 6.3 5.5
Proceeds Received from Sale of Businesses, Net of Cash Transferred 380.0 - -
Net Cash Provided by (Used in) Investing Activities 275.4 (4,983.0) (113.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings Under Revolving Credit Facility 1,626.7 2,294.1 2,119.6
Repayments Under Revolving Credit Facility (1,684.8) (2,625.0) (2,427.3)
Proceeds from Short-Term Borrowings - 58.0 10.2
Repayments of Short-Term Borrowings - (61.2) (9.1)
Proceeds from Long-Term Borrowings - 5,532.9 1,536.8
Repayments of Long-Term Borrowings (880.2) (826.3) (1,123.7)
Dividends Paid to Shareholders (93.0) (92.8) (90.9)
Proceeds from the Exercise of Stock Options 4.9 3.3 5.1
Shares Surrendered for Taxes (15.8) (12.1) (8.9)
Financing Fees Paid (0.3) (51.1) (40.6)
Repurchase of Common Stock (50.0) - (239.2)
Distributions to Noncontrolling Interests (3.3) (16.2) (6.2)
Net Cash (Used in) Provided by Financing Activities (1,095.8) 4,203.6 (274.2)
EFFECT OF EXCHANGE RATES ON CASH and CASH EQUIVALENTS (30.8) 10.9 (33.0)
Net (Decrease) Increase in Cash and Cash Equivalents (241.8) (53.2) 15.7
Cash and Cash Equivalents at Beginning of Period 635.3 688.5 672.8
Cash and Cash Equivalents at End of Period $ 393.5 $ 635.3 $ 688.5
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid For:
Interest $ 380.3 $ 319.6 $ 66.7
Income Taxes 177.1 $ 206.9 $ 187.6
Cash and Cash Equivalents Presentation:
Cash and Cash Equivalents $ 393.5 $ 574.0 688.5
Assets Held for Sale - 61.3 -
Total Cash and Cash Equivalents $ 393.5 $ 635.3 $ 688.5
See accompanying Notes to the Consolidated Financial Statements.
Notes to the Consolidated Financial Statements
(Dollars In Millions Except Per Share Data, Unless Otherwise Noted)
(1) Nature of Operations
Regal Rexnord Corporation (the “Company”) is a United States-based multi-national corporation. 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. The Company operates through its three segments: Industrial Powertrain Solutions ("IPS"), Power Efficiency Solutions ("PES") and Automation & Motion Control ("AMC"). See Note 5 - Segment Information.
The sale of the industrial motors and generators businesses, which closed on April 30, 2024 as further described in Note 3 - Acquisitions and Divestitures, did 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.
(2) Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. In addition, the Company has joint ventures that are consolidated in accordance with consolidation accounting guidance. All intercompany accounts and transactions are eliminated.
Use of Estimates
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”), which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the 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, allowance 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.
Acquisitions
The Company recognizes assets acquired, liabilities assumed, contractual contingencies and contingent consideration at their fair value on the acquisition date. The operating results of the acquired companies are included in the Company’s consolidated financial statements from the date of acquisition.
Acquisition-related costs are expensed as incurred, restructuring costs are recognized as post-acquisition expense and changes in deferred tax asset valuation allowances and income tax uncertainties after the measurement period are recorded in Provision for Income Taxes. See Note 3 - Acquisitions and Divestitures for more 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.
For a limited number of contracts, the Company recognizes revenue over time in proportion to costs incurred. The pricing of products sold is generally supported by customer purchase orders, and accounts receivable collection is reasonably assured. Estimated discounts and rebates are recorded as a reduction of gross sales in the same period revenue is recognized. Product returns and credits are estimated and recorded at the time of shipment based upon historical experience. Shipping and handling costs are recorded as revenue when billed to the customers. The costs incurred from shipping are recorded in Cost of Sales and handling costs incurred in connection with selling and distribution activities are recorded in Operating Expenses.
The Company derives a significant portion of its revenues from several original equipment manufacturing ("OEM") customers. Despite this relative concentration, there were no customers that accounted for more than 10% of consolidated net sales in 2024, 2023 or 2022.
Nature of Goods and Services
The Company sells products with multiple applications as well as customized products that have a single application such as those manufactured for its OEM customers. Products include, but are not limited to, automation components and sub-systems, bearings, air-moving systems, clutches and brakes, conveyor technologies, couplings, premium efficiency electric motors, electronic components, gearing, industrial powertrains, linear motion components, power transmission components, switchgear, transfer switches and controls, and miniature servo motors.
Nature of Performance Obligations
The Company’s contracts with customers typically consist of purchase orders, invoices and master supply agreements. At contract inception, across all three segments, the Company assesses the goods and services promised in its sales arrangements with customers and identifies a performance obligation for each promise to transfer to the customer a good or service that is distinct. The Company’s primary performance obligations consist of product sales and customized systems/solutions.
Product:
The nature of products varies from segment to segment but across all segments, individual products are generally not integrated and represent separate performance obligations.
Customized systems/solutions:
The Company provides customized systems/solutions which consist of multiple products engineered and designed to specific customer specification, combined or integrated into one combined solution for a specific customer application. The goods are transferred to the customer and revenue is typically recognized over time as the performance obligations are satisfied.
When Performance Obligations are Satisfied
For performance obligations related to substantially all of the Company's product sales, the Company determines that the customer obtains control upon shipment and recognizes revenue accordingly. Once a product has shipped, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from the asset. The Company considers control to have transferred upon shipment because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.
For a limited number of contracts, the Company transfers control and recognizes revenue over time. The Company satisfies its performance obligations over time and the Company uses a cost-based input method to measure progress. In applying the cost-based method of revenue recognition, the Company uses actual costs incurred to date relative to the total estimated costs for the contract in conjunction with the customer's commitment to perform in determining the amount of revenue to recognize. The Company has determined that the cost-based input method provides a faithful depiction of the transfer of goods to the customer.
Payment Terms
The arrangement with the customer states the final terms of the sale, including the description, quantity, and price of each product or service purchased. Payment terms vary by customer but typically range from due upon delivery to 120 days after delivery. For contracts recognized at a point in time, revenue recognition and billing typically occur simultaneously. The Company generally has payment terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider the time value of money. For contracts recognized using the cost-based input method, revenue recognized in excess of customer billings and billings in excess of revenue recognized are reviewed to determine the contract asset or contract liability position and classified as such on the Consolidated Balance Sheet.
Returns, Refunds and Warranties
The Company’s contracts do not explicitly offer a “general” right of return to its customers (e.g. customers ordered excess products and return unused items). Warranties are classified as either assurance type or service type warranties. A warranty is considered an assurance type warranty if it provides the customer with assurance that the product will function as intended. A warranty that goes above and beyond ensuring basic functionality is considered a service type warranty. The Company generally only offers limited warranties which are considered to be assurance type warranties and are not accounted for as separate performance obligations. Customers generally receive repair or replacement on products that do not function to specification. Estimated product warranties are provided for specific product groups and the Company accrues for estimated future warranty cost in the period in which the sale is recognized. The Company estimates the accrual requirements based on historical warranty loss experience and the cost is included in Cost of Sales. See Note 11 - Contingencies for more information.
Volume Rebates
In some cases, the nature of the Company’s contract may give rise to variable consideration including volume based sales incentives. If the customer achieves specific sales targets, it is entitled to rebates. The Company estimates the projected amount of the rebates that will be achieved and recognizes the estimated costs as a reduction to Net Sales as revenue is recognized.
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by geographical region for the years ended December 31, 2024, December 31, 2023 and December 31, 2022, respectively:
December 31, 2024 Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
North America $ 1,734.9 $ 1,276.5 $ 1,088.8 $ 79.4 $ 4,179.6
Asia 172.7 167.7 91.5 44.3 476.2
Europe 482.0 133.9 372.7 17.6 1,006.2
Rest-of-World 208.5 66.0 80.8 16.5 371.8
Total $ 2,598.1 $ 1,644.1 $ 1,633.8 $ 157.8 $ 6,033.8
December 31, 2023 Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
North America $ 1,636.1 $ 1,419.2 $ 1,006.3 $ 274.6 $ 4,336.2
Asia 168.9 178.7 76.1 146.6 570.3
Europe 420.5 149.7 342.6 55.8 968.6
Rest-of-World 178.0 61.3 91.8 44.5 375.6
Total $ 2,403.5 $ 1,808.9 $ 1,516.8 $ 521.5 $ 6,250.7
December 31, 2022 Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
North America $ 1,232.2 $ 1,766.9 $ 559.0 $ 298.5 $ 3,856.6
Asia 140.6 188.1 17.0 159.1 504.8
Europe 240.0 182.2 154.2 50.7 627.1
Rest-of-World 53.5 90.0 42.1 43.8 229.4
Total $ 1,666.3 $ 2,227.2 $ 772.3 $ 552.1 $ 5,217.9
Practical Expedients and Exemptions
The Company typically expenses incremental direct costs of obtaining a contract, primarily sales commissions, as incurred because the amortization period is expected to be 12 months or less. Contract costs are included in Operating Expenses in the accompanying Consolidated Statements of Income (Loss).
Due to the short nature of the Company’s contracts, the Company has adopted a practical expedient to not disclose revenue allocated to remaining performance obligations as substantially all of its contracts have original terms of 12 months or less.
The Company typically does not include in its transaction price any amounts collected from customers for sales taxes.
Research, Development and Engineering
The Company performs research, development and engineering activities relating to new product development and the improvement of current products. The Company's research, development and engineering expenses consist primarily of costs for: (i) salaries and related personnel expenses; (ii) the design and development of new energy efficient products and enhancements; (iii) quality assurance and testing; and (iv) other related overhead. The Company's research, development and engineering efforts tend to be targeted toward developing new products that would allow it to gain additional market share, whether in new or existing segments.
Research, development and engineering costs are expensed as incurred. The costs are primarily recorded in Operating Expenses and were as follows for the years noted in the table below:
December 31, 2024 December 31, 2023 December 31, 2022
Research, Development and Engineering Costs $ 176.4 $ 171.0 $ 106.6
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments which are readily convertible to cash, present insignificant risk of changes in value due to interest rate fluctuations and have original or purchased maturities of three months or less.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash equivalents. The Company has material deposits with global financial institutions. The Company performs periodic evaluations of the relative credit standing of its financial institutions and monitors the amount of exposure.
Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers and their dispersion across many geographic areas. The Company monitors credit risk associated with its trade receivables.
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 to estimate expected credit losses. The specific customer account analysis considers such items as, credit worthiness, payment 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. Trade receivables acquired in the Altra Transaction (see Note 3 - Acquisitions and Divestitures) were recorded at fair value at the acquisition date in an amount that reflected expected credit losses, and accordingly, an allowance for credit losses was not separately presented and disclosed.
Inventories
The major classes of inventory at year end are as follows:
December 31, 2024 December 31, 2023
Raw Material and Work in Process 67.8% 66.7%
Finished Goods and Purchased Parts 32.2% 33.3%
Inventories are stated at the lower of cost or net realizable value, using the FIFO cost method. Material, labor and factory overhead costs are included in the inventories.
The Company reviews inventories for excess and obsolete products or components. Based on an analysis of historical usage and management's evaluation of estimated future demand, market conditions and alternative uses for possible excess or obsolete parts, the Company records an excess and obsolete reserve.
Property, Plant and Equipment
Property, Plant and Equipment are stated at cost. Depreciation of plant and equipment is provided principally on a straight-line basis over the estimated useful lives (3 to 50 years) of the depreciable assets. Accelerated methods are used for income tax purposes.
Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures which extend the useful lives of existing equipment are capitalized and depreciated.
Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset.
Property, plant and equipment by major classification was as follows:
Useful Life (In Years) December 31, 2024 December 31, 2023
Land and Improvements $ 134.5 $ 139.2
Buildings and Improvements 3-50
387.2 414.5
Machinery, Equipment and Other 3-15
1,189.8 1,219.4
Property, Plant and Equipment 1,711.5 1,773.1
Less: Accumulated Depreciation (790.5) (731.9)
Net Property, Plant and Equipment $ 921.0 $ 1,041.2
As of December 31, 2024 and December 31, 2023, $44.7 million and $44.4 million of ROU assets (as defined in Note 8 - Leases) were included in Net Property, Plant and Equipment, respectively.
Goodwill
The Company evaluates the carrying amount of goodwill annually as of October or more frequently if events or circumstances indicate that the goodwill might be impaired. Factors that could trigger an impairment review include significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset or significant negative industry or economic trends. Reporting units with recent impairments or those with goodwill resulting from recent acquisitions generally present the highest risk of impairment.
When testing goodwill for impairment, companies have the option to first assess qualitative factors to determine whether a quantitative test is necessary. In performing qualitative assessments, the Company evaluates, among other things, actual and forecasted operating results, certain market factors, including discount rates and peer company EBITDA multiples, and the passing margin of prior quantitative tests. In performing quantitative tests, the Company uses a weighting of the market approach and the income approach (discounted cash flow method). In the market approach, the Company applies performance multiples from comparable public companies, adjusted for relative risk, profitability, and growth considerations, to each reporting unit's performance measure to estimate fair value. The key assumptions used in the discounted cash flow method used to estimate fair value include discount rates, revenue and EBITDA margin projections and terminal value rates because such assumptions are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using market and industry data as well as Company-specific risk factors for each reporting unit. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant discount rate and long-term growth rates.
For the 2024 annual goodwill test, the Company performed a qualitative assessment to evaluate goodwill for each of its reporting units, except for two reporting units in the Automation & Motion Control segment which were quantitatively tested. For each of the reporting units qualitatively assessed, the Company concluded that it was more likely that not that the fair value exceeded the carrying value and thus a quantitative test was not necessary. For each of the two reporting units that were quantitatively tested, the fair value exceeded the carrying value and thus no goodwill impairments were recorded. There were no goodwill impairments recorded as a result of the 2023 and 2022 annual tests. In 2023 and 2022, the Company performed a quantitative test for all the reporting units. Some of the key considerations used in the Company's impairment testing included (i) market pricing of guideline publicly traded companies (ii) cost of capital, including the risk-free interest rate, and (iii) recent historical and projected operating results of the subject reporting unit. There is inherent uncertainty included in the assumptions
used in goodwill impairment testing. A change to any of the assumptions could lead to a future impairment that could be material. See Note 4 - Goodwill and Intangible Assets for more information.
During 2023, the prospective sale of the industrial motors and generators businesses triggered an interim goodwill impairment test. As a result, the Company recorded $57.3 million of goodwill impairment charges for its global industrial motors reporting unit. See Note 3 - Acquisitions and Divestitures for further information. In 2023, the transaction price for the proposed sale of the industrial motors and generators businesses was used as a key input into testing each of the reporting units.
Intangible Assets
Intangible assets with finite lives are amortized over their estimated useful lives using the straight line method. The Company evaluates amortizing intangibles whenever events or circumstances have occurred that indicate carrying values may not be recoverable. If an indicator is present, the Company uses an estimate of the related undiscounted cash flows over the remaining life of the primary asset to estimate recoverability of the asset group. If such estimated future cash flows are less than carrying value, an impairment would be recognized. There was no impairment of intangible assets during 2024, 2023 or 2022.
Long-Lived Assets Impairment
The Company evaluates the recoverability of the carrying amount of property, plant and equipment assets (collectively, "long-lived assets") whenever events or changes in circumstance indicate that the carrying amount of an asset may not be fully recoverable through future cash flows. Factors that could trigger an impairment review include a significant decrease in the market value of an asset or significant negative economic trends. For long-lived assets, the Company uses an estimate of the related undiscounted cash flows over the remaining life of the primary asset to estimate recoverability of the asset group. If the asset is not recoverable, the asset is written down to fair value. In 2024, 2023 and 2022, the Company concluded it had asset impairments of $4.0 million, $7.8 million and $0.9 million, respectively, which were related to assets held for sale, and a loss on sale of businesses of $8.5 million, $87.7 million and zero, respectively, which were primarily related to the sale of the industrial motors and generators businesses.
Earnings (Loss) Per Share
Diluted earnings per share is computed 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 dilutive securities. Share based compensation awards for common shares where the exercise price was above the market price have been excluded from the calculation of the effect of dilutive securities shown below; the amount of these shares were 0.3 million in 2024, 0.4 million in 2023 and 0.2 million in 2022. The following table reconciles the basic and diluted shares used in earnings (loss) per share calculations for the years ended:
2024 2023 2022
Denominator for Basic Earnings Per Share 66.4 66.3 66.7
Effect of Dilutive Securities(1)
0.3 - 0.4
Denominator for Diluted Earnings Per Share 66.7 66.3 67.1
(1) 2023 excludes 0.4 million of share based compensation awards as the Company had a net loss during the year.
Defined Benefit Pension Plans
The majority of the defined benefit pension plans covering the Company's domestic associates have been closed to new associates and frozen for existing associates. Most of the Company's foreign associates are covered by government sponsored plans in the countries in which they are employed. The Company's obligations under its defined benefit pension plans are determined with the assistance of actuarial firms. The actuaries, under management's direction, make certain assumptions regarding such factors as withdrawal rates and mortality rates. The actuaries also provide information and recommendations from which management makes further assumptions on such factors as the long-term expected rate of return on plan assets, the discount rate on benefit obligations and where applicable the rate of annual compensation increases.
Based upon the assumptions made, the investments made by the plans, overall conditions and movement in financial markets, life-spans of benefit recipients and other factors, annual expenses and recorded assets or liabilities of these defined benefit pension plans may change significantly from year to year.
The service cost component of the Company's net periodic benefit cost is included in Cost of Sales and Operating Expenses. All other components of net periodic benefit costs are included in Other (Income) Expenses, net on the Company's Consolidated Statements of Income (Loss). See Note 7 - Retirement Plans for more information.
Derivative Financial Instruments
Derivative instruments are recorded on the Consolidated Balance Sheets at fair value. Any fair value changes are recorded in Net Income (Loss) or Accumulated Other Comprehensive Income (Loss) ("AOCI") as determined under accounting guidance that establishes criteria for designation and effectiveness of the hedging relationships. Cash inflows and outflows related to derivative instruments are included as a component of Operating, Investing, or Financing Cash Flows within the Consolidated Statements of Cash Flows.
The Company uses derivative instruments to manage its exposure to fluctuations in certain raw material commodity pricing, fluctuations in the cost of forecasted foreign currency transactions, and variability in interest rate exposure on floating rate borrowings. The majority of derivative instruments have been designated as cash flow hedges. See Note 12 - Derivative Financial Instruments for more information.
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification ("ASC") 740, Accounting for Income Taxes (“ASC 740”). Deferred tax assets and liabilities arise from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and consideration of operating loss and tax credit carryforwards. Deferred income taxes are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Valuation allowances are provided to reduce deferred tax assets to the amount that will more likely than not be realized. This requires management to make judgments and estimates regarding the amount and timing of the reversal of taxable temporary differences, expected future taxable income, and the impact of tax planning strategies.
Uncertainty exists regarding tax positions taken in previously filed tax returns which remain subject to examination, along with positions expected to be taken in future returns. The Company provides for unrecognized tax benefits, based on the technical merits, when it is more likely than not that an uncertain tax position will not be sustained upon examination. Adjustments are made to the uncertain tax positions when facts and circumstances change, such as the closing of a tax audit; changes in applicable tax laws, including tax case rulings and legislative guidance; or expiration of the applicable statute of limitations. See Note 10 - Income Taxes for more information.
Foreign Currency Translation
For those operations using a functional currency other than the US Dollar, assets and liabilities are translated into US Dollars at year-end exchange rates, and revenues and expenses are translated at monthly average rates. The resulting translation adjustments are recorded as a separate component of Shareholders' Equity. Foreign currency remeasurement gains and losses are included in Operating Expenses in the Consolidated Statements of Income (Loss).
Product Warranty Reserves
The Company maintains reserves for product warranty to cover the stated warranty periods for its products. Such reserves are established based on an evaluation of historical warranty experience and specific significant warranty matters when they become known and can reasonably be estimated. See Note 11 - Contingencies for more information.
Accumulated Other Comprehensive Income (Loss)
Foreign currency translation adjustments, unrealized gains and losses on derivative instruments designated as hedges and pension and post retirement liability adjustments are included in Shareholders' Equity under AOCI.
The components of the ending balances of AOCI are as follows:
2024 2023
Foreign Currency Translation Adjustments $ (415.7) $ (286.2)
Hedging Activities, Net of Tax of $(2.1) in 2024 and $8.8 in 2023
(5.5) 28.8
Pension and Post-Retirement Benefits, Net of Tax of $(6.7) in 2024 and $(7.8) in 2023
(21.5) (25.0)
Total $ (442.7) $ (282.4)
Legal Claims and Contingent Liabilities
The Company is subject to various legal proceedings, claims and regulatory matters, the outcomes of which are subject to significant uncertainty and 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. The Company records expenses and liabilities when the Company believes that an obligation of the Company or a subsidiary on a specific matter is probable and there is a basis to reasonably estimate the value of the obligation, and such assessment inherently involves an exercise in judgment. This methodology is used for legal claims that are filed against the Company or a subsidiary from time to time. The uncertainty that is associated with such matters frequently requires adjustments to the liabilities previously recorded. See Note 11 - Contingencies for more information.
Fair Values of Financial Instruments
The fair values of cash equivalents, term deposits, trade receivables and accounts payable approximate their carrying values due to the short period of time to maturity. The fair value of fixed rate debt is estimated using discounted cash flows based on rates for instruments with comparable maturities and credit ratings as further described in Note 6 - Debt and Bank Credit Facilities. The fair value of pension assets and derivative instruments is determined based on the methods disclosed in Note 7 - Retirement Plans and Note 12 - Derivative Financial Instruments.
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 following information presents changes to the Company's outstanding obligations under the supplier finance program, which are classified within Accounts Payable, during the year ended December 31, 2024:
Balance as of December 31, 2023 $ 60.8
Plus: Obligations Added 169.7
Less: Obligations Settled 189.5
Balance as of December 31, 2024 $ 41.0
New Accounting Standards
New Accounting Standards Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires enhanced segment disclosures, such as significant segment expenses, and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company adopted this new accounting guidance in 2024, and has included the required disclosures within Note 5 - Segment Information.
In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The Company adopted this new accounting guidance during the first quarter of 2023, except that the requirement to include roll forward information became effective for fiscal years beginning after December 15, 2023. The Company completed the adoption of this new accounting guidance in 2024, and has included the required roll forward disclosures within this Note.
Recently Issued Accounting Standards
In November 2024, the FASB issued 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.
In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires consistent categories and greater disaggregation of information in the rate reconciliation, income taxes paid disaggregated by jurisdiction and certain other amendments. The new guidance will be effective for annual periods beginning after December 15, 2024. The Company is evaluating the effect of adopting this new accounting guidance.
(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 represented the substantial majority of the Industrial Systems operating segment.
The transaction closed on April 30, 2024 for a total purchase price of $444.0 million. For the years ended December 31, 2024 and December 31, 2023, the Company recognized a Loss on Sale of Businesses related to the sale of the industrial motors and generators businesses of $7.7 million and $87.7 million, respectively, in the Consolidated Statements of Income (Loss). The Company recognized a cumulative loss of $95.4 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:
April 30, 2024
Purchase price $ 400.0
Cash transferred to buyer 64.5
Estimated working capital and other adjustments (20.5)
Total purchase price 444.0
Direct costs to sell (7.3)
Fair value of sale consideration, net(1)
$ 436.7
(1) The fair value of sale consideration, net includes an immaterial post-close adjustment to the purchase price for which cash was received in January 2025.
The following table summarizes the carrying value of the disposal group and resulting loss on sale:
April 30, 2024
Net assets sold $ 420.2
Noncontrolling Interest (9.2)
Accumulated Other Comprehensive Income 121.3
Payables to seller (0.2)
Carrying value of disposal group $ 532.1
Loss on Sale of Businesses $ (95.4)
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:
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
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.
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 6 - 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.
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.
Summary of Significant Fair Value Methods
The methods used to determine the fair value of significant identifiable assets and liabilities included in the allocation of purchase price are discussed below.
Inventories
Acquired inventory was comprised of finished goods, work in process and raw materials. The fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The fair value of raw materials and supplies was determined based on replacement cost which approximates historical carrying value.
Property, Plant and Equipment
The preliminary fair value of Property, Plant, and Equipment was determined using either the cost approach, which relies on an estimate of replacement costs of the new assets and estimated accrued depreciation, or the market approach.
Identifiable Intangible Assets
The fair value and weighted average useful life of the identifiable intangible assets are as follows:
Fair Value Weighted Average Useful Life (Years)
Customer Relationships(1)
$ 1,710.0 14.0
Trademarks(2)
330.0 10.0
Technology(3)
102.0 13.0
Total Identifiable Intangible Assets $ 2,142.0
(1) The fair value of Customer Relationships was valued using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from Altra's existing customer base.
(2) The Altra Trademarks were valued using the relief from royalty method, which considers both the market approach and the income approach.
(3) The Altra Technology was valued using the relief from royalty method, which considers both the market approach and the income approach.
The intangible assets related to definite-lived customer relationships, trademarks and technology are amortized over their estimated useful lives.
Leases, including right-of-use ("ROU") assets and lease liabilities
Lease liabilities were measured as of the effective date of the acquisition at the present value of future minimum lease payments over the remaining lease term and the incremental borrowing rate of the Company as if the acquired leases were new leases as of the acquisition date. ROU assets recorded within “Operating Lease Assets” are equal to the amount of the lease liability at the acquisition date adjusted for any off-market terms of the lease. The remaining lease term was based on the remaining term at the acquisition date plus any renewal or extension options that the Company is reasonably certain will be exercised.
Deferred Income Tax Assets and Liabilities
The acquisition was structured as a merger, and therefore the Company assumed the historical tax basis of Altra’s assets and liabilities. The deferred income tax assets and liabilities include the expected future federal, state, and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates at the effective date of the acquisition in the jurisdictions in which legal title of the underlying asset or liability resides. See Note 10 - Income Taxes for further information related to income taxes.
Other Assets Acquired and Liabilities Assumed (excluding Goodwill)
The Company utilized the carrying values, net of allowances, to value accounts receivable and accounts payable as well as other current assets and liabilities, as it was determined that carrying values represented the fair value of those items at the acquisition date. Accounts receivable reflect the best estimate at the acquisition date of the contractual cash flows expected to be collected.
Goodwill
The excess of the consideration for the acquisition over the fair value of net assets acquired was recorded as goodwill. The goodwill is attributable to expected synergies and expanded market opportunities from combining the Company’s operations with those of Altra. The goodwill created in the acquisition is not expected to be deductible for tax purposes.
Transaction and Integration Costs
The Company incurred transaction and integration-related costs in connection with the Altra Transaction of approximately $23.5 million during the year ended December 31, 2024, which includes legal, professional service and integration costs associated with the Altra Transaction. During the year ended December 31, 2023 the Company incurred $86.9 million of costs related to the Altra Transaction, 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).
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 6 - 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 years ended December 31, 2023 and December 31, 2022, respectively, as if the Altra Transaction had occurred on January 2, 2022, the first day of the Company's 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 $102.6 million and increased expenses by $102.6 million for the years ended December 31, 2023 and December 31, 2022, respectively, (v) additional cost of sales related to the inventory valuation and lease ROU assets valuation adjustments which reduced expenses by $54.5 million and increased expenses by $54.5 million for the years ended December 31, 2023 and December 31, 2022, respectively 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 Year Ended December 31, 2023 For the Year Ended December 31, 2022
Net Sales $ 6,701.8 $ 7,163.4
Net Income Attributable to Regal Rexnord Corporation $ 50.1 $ 131.1
Earnings Per Share Attributable to Regal Rexnord Corporation:
Basic $ 0.76 $ 1.97
Assuming Dilution $ 0.75 $ 1.95
(4) Goodwill and Intangible Assets
Goodwill
The following information presents changes to goodwill during the periods indicated:
Total Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems
Balance as of December 31, 2022 $ 4,018.8 $ 2,290.0 $ 752.3 $ 865.0 $ 111.5
Acquisitions 2,614.6 1,438.3 - 1,176.3 -
Reclassification to Noncurrent Assets Held for Sale (53.9) - - - (53.9)
Impairment Charges (57.3) - - - (57.3)
Translation and Other 30.9 18.7 1.6 10.9 (0.3)
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 and Other (89.1) (44.0) (4.7) (40.4) -
Balance as of December 31, 2024 $ 6,458.9 $ 3,697.2 $ 749.2 $ 2,012.5 $ -
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 - Acquisitions and Divestitures for more information.
Intangible Assets
Intangible assets consist of the following:
December 31, 2024 December 31, 2023
Weighted Average Amortization Period (Years) Gross Amount Accumulated Amortization Net Carrying Amount Gross Amount Accumulated Amortization Net Carrying Amount
Customer Relationships 15 $ 3,892.8 $ 915.1 $ 2,977.7 $ 4,028.5 $ 746.2 $ 3,282.3
Technology 13 293.0 109.0 184.0 302.6 92.9 209.7
Trademarks 10 692.3 189.4 502.9 712.1 120.7 591.4
Total Intangibles $ 4,878.1 $ 1,213.5 $ 3,664.6 $ 5,043.2 $ 959.8 $ 4,083.4
While the Company believes its customer relationships are long-term in nature, the Company's contractual customer relationships are generally short-term. Useful lives are established at acquisition based on historical attrition rates.
Amortization expense was $346.5 million in 2024, $307.8 million in 2023 and $185.5 million in 2022.
The following table presents estimated future amortization expense:
Year Estimated Amortization
2025 $ 341.9
2026 338.6
2027 338.5
2028 338.5
2029 333.5
(5) Segment Information
The Company's operations are organized and managed based on similar product offerings and end markets in the following three reportable 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 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 metals and mining, general industrial, energy, alternative energy, machinery / off-highway, discrete automation 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 commercial HVAC, water heaters, commercial refrigeration, commercial building ventilation, pool and spa, irrigation, dewatering, agricultural, conveying 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 - Acquisitions and Divestitures, the sale of the industrial motors and generators business, which represented a substantial majority of the Industrial Systems operating segment, was completed on April 30, 2024.
The chief operating decision maker ("CODM") of the Company is its chief executive officer. Among other considerations, the CODM evaluates performance and allocates resources based on the segment's income from operations. The Company also regularly provides to the CODM information on adjusted cost of sales and adjusted engineering, selling and administration expenses, which are significant expenses.
The following sets forth certain financial information attributable to the Company's operating segments for the year ended December 31, 2024, December 31, 2023 and December 31, 2022, respectively:
Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Eliminations Total
December 31, 2024
Total Sales $ 2,614.1 $ 1,656.5 $ 1,652.8 $ 158.3 $ (47.9) $ 6,033.8
Intersegment Sales 16.0 12.4 19.0 0.5 (47.9) -
Net Sales(1)
2,598.1 1,644.1 1,633.8 157.8 - 6,033.8
Adjusted Cost of Sales(2)
1,541.5 1,171.4 1,024.5 118.4 3,855.8
Adjusted Engineering, Selling and Administration Expenses(3)
483.1 273.2 342.9 29.0 1,128.2
Other Segment Items(4)
250.8 36.9 122.0 10.1 419.8
Income from Operations 322.7 162.6 144.4 0.3 - 630.0
Interest Expense 399.7
Interest Income (18.8)
Other Expense, Net 1.1
Income before Taxes 248.0
Other Supplemental Disclosures
Amortization 201.5 7.7 137.1 0.2 - 346.5
Depreciation 80.7 37.0 47.2 0.4 165.3
Other significant noncash items:
Asset Impairment 1.1 1.1 1.8 - - 4.0
Loss on Sale of Businesses 1.7 1.4 1.1 4.3 - 8.5
Capital Expenditures 50.3 25.0 29.9 4.3 - 109.5
Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Eliminations Total
December 31, 2023
Total Sales $ 2,418.4 $ 1,826.6 $ 1,537.7 $ 524.1 $ (56.1) $ 6,250.7
Intersegment Sales 14.9 17.7 20.9 2.6 (56.1) -
Net Sales(1)
2,403.5 1,808.9 1,516.8 521.5 - 6,250.7
Adjusted Cost of Sales(2)
1,516.9 1,293.4 950.7 414.1 - 4,175.1
Adjusted Engineering, Selling and Administration Expenses(3)
433.2 279.5 291.1 84.8 - 1,088.6
Other Segment Items(4)
301.6 18.6 136.0 153.7 - 609.9
Income (Loss) from Operations 151.8 217.4 139.0 (131.1) - 377.1
Interest Expense 431.0
Interest Income (43.6)
Other Income, Net (8.7)
Loss before Taxes (1.6)
Other Supplemental Disclosures
Amortization 181.4 8.3 117.2 0.9 - 307.8
Depreciation 91.8 43.0 41.0 9.2 - 185.0
Other significant noncash items:
Goodwill Impairment - - - 57.3 - 57.3
Asset Impairments 2.5 1.5 3.4 0.4 - 7.8
Loss on Sale of Businesses - - - 87.7 - 87.7
Capital Expenditures 41.3 35.0 34.6 8.2 - 119.1
Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Eliminations Total
December 31, 2022
Total Sales $ 1,673.6 $ 2,237.6 $ 788.1 $ 554.0 $ (35.4) $ 5,217.9
Intersegment Sales 7.3 10.4 15.8 1.9 (35.4) -
Net Sales(1)
1,666.3 2,227.2 772.3 552.1 - 5,217.9
Adjusted Cost of Sales(2)
997.7 1,610.0 498.7 422.7 - 3,529.1
Adjusted Engineering, Selling and Administration Expenses(3)
276.4 269.0 131.1 84.2 - 760.7
Other Segment Items(4)
150.0 21.3 64.3 2.1 - 237.7
Income from Operations 242.2 326.9 78.2 43.1 - 690.4
Interest Expense 87.2
Interest Income (5.2)
Other Income, Net (5.4)
Income before Taxes 613.8
Other Supplemental Disclosures
Amortization 119.5 8.4 56.8 0.8 - 185.5
Depreciation 49.5 38.5 21.2 12.7 - 121.9
Other significant noncash items:
Asset Impairment 0.9 - - - - 0.9
Capital Expenditures 18.8 41.9 11.2 11.9 - 83.8
(1) Represents revenues from external customers.
(2) Adjusted Cost of Sales includes costs associated with producing goods for sale, such as materials, labor and overhead costs, and intercompany cost of sales. Adjusted Cost of Sales differs from Cost of Sales reported under US GAAP primarily because it includes intercompany cost of sales and excludes certain costs, primarily restructuring and related expenses. The difference is included in Other Segment Items.
(3) Adjusted Engineering, Selling and Administration Expenses includes operating expenses such as engineering, selling and administration expenses, as well as hedging, foreign currency gains and losses and certain overhead expenses. Adjusted Engineering, Selling and Administration Expenses differs from Operating Expenses reported under US GAAP primarily because it excludes costs such as significant noncash items, restructuring and related costs, and transaction and integration related costs. The difference is included in Other Segment Items.
(4) Other Segment Items includes other significant noncash items, intangible amortization, as well as restructuring and related costs, transaction and integration related costs, certain overhead expenses and the elimination of intercompany cost of sales.
The following table presents total identifiable assets attributable to the Company's operating segments as of December 31, 2024 and December 31, 2023:
Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems Total
Identifiable Assets as of December 31, 2024 $ 7,528.8 $ 1,862.5 $ 4,642.4 $ - $ 14,033.7
Identifiable Assets as of December 31, 2023 8,009.4 2,036.4 4,909.2 476.4 15,431.4
The following sets forth net sales by country in which the Company operates for 2024, 2023 and 2022, respectively:
Net Sales
2024 2023 2022
US $ 3,644.0 $ 3,840.4 $ 3,332.5
Rest of the World 2,389.8 2,410.3 1,885.4
Total $ 6,033.8 $ 6,250.7 $ 5,217.9
US net sales for 2024, 2023 and 2022 represented 60.4%, 61.4% and 63.9% of total net sales, respectively. No individual foreign country represented a material portion of total net sales for any of the years presented.
The following sets forth net property, plant and equipment by country in which the Company operates for 2024 and 2023, respectively:
Net Property, Plant and Equipment
2024 2023
US $ 411.9 $ 441.1
Mexico 154.2 203.8
Germany 92.7 113.0
China 50.9 45.8
Rest of the World 211.3 237.5
Total $ 921.0 $ 1,041.2
No other individual foreign country represented a material portion of net property, plant and equipment for any of the years presented.
(6) Debt and Bank Credit Facilities
The Company's indebtedness as of December 31, 2024 and December 31, 2023 was as follows:
December 31, 2024 December 31, 2023
Senior Notes $ 4,700.0 $ 4,700.0
Term Facility 665.0 1,053.5
Land Term Facility - 486.8
Multicurrency Revolving Facility 40.0 98.1
Altra Notes 18.1 18.1
Finance Leases 70.1 70.5
Other 6.6 7.5
Less: Debt Issuance Costs (42.1) (53.6)
Total 5,457.7 6,380.9
Less: Current Maturities 5.0 3.9
Non-Current Portion $ 5,452.7 $ 6,377.0
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 be applied to the next payment due. 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:
Year Ended
December 31, 2024 December 31, 2023
Term Facility 7.0 % 7.0 %
Land Term Facility 7.1 % 6.8 %
As of December 31, 2024 the Company had no standby letters of credit issued under the Multicurrency Revolving Facility and $1,530.0 million of available borrowing capacity. The average daily balance in borrowings under the Multicurrency Revolving Facility was $72.0 million and $283.1 million for the years ended December 31, 2024 and December 31, 2023, respectively. The Company paid a non-use fee of 0.25% as of December 31, 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:
Year Ended
December 31, 2024 December 31, 2023
Multicurrency Revolving Facility 7.0 % 6.4 %
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 offering expenses. The Company used a portion of the net proceeds to repay the Company’s $500.0 million 3.90% notes originally issued on April 7, 2022 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.
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 repurchased 95.28% of the outstanding Altra Notes for total consideration of $382.7 million. See Note 3 - 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 December 31, 2024.
Finance Leases
See Note 8 - Leases for the weighted average discount rate associated with the Company's finance leases in 2024 and 2023.
Other Disclosures
The fair value of the Senior Notes is based on rates for instruments with comparable maturities and credit quality, which is considered a Level 2 fair value measurement (see also Note 13 - Fair Value). The approximate fair value of the Senior Notes was $4,795.2 million and $4,802.4 million as of December 31, 2024 and December 31, 2023, respectively, compared to a carrying value of $4,700.0 million as of December 31, 2024 and December 31, 2023. The Company believes that the fair value of all other debt instruments approximates their carrying value.
Maturities of long-term debt outstanding as of December 31, 2024, excluding debt issuance costs, are as follows:
Year Amount of Maturity
2025 $ 5.0
2026 1,123.1
2027 710.5
2028 1,260.9
2029 4.3
Thereafter 2,396.0
Total $ 5,499.8
(7) Retirement Plans
Retirement Plans
The Company sponsors pension and other post-retirement benefit plans for certain associates. Most of the Company's associates are accumulating retirement income benefits through defined contribution plans. The majority of the Company's defined benefit pension plans covering the Company's domestic associates have been closed to new associates and frozen for existing associates, however certain employees represented by collective bargaining continue to earn benefits. Certain foreign associates are covered by government sponsored plans in the countries in which they are employed.
Defined Benefit Pension Plans
Benefits provided under defined benefit pension plans are based, depending on the plan, on associates' average earnings and years of credited service, or a benefit multiplier times years of service. Funding of these qualified defined benefit pension plans is in accordance with federal laws and regulations. The actuarial valuation measurement date for pension plans is the calendar year end of each year.
The Company's target allocation, target return and actual weighted-average asset allocation by asset category are as follows:
Target Actual Allocation
Allocation Return 2024 2023
Equity Investments 20.6% 5.2 - 7.5%
15.6% 14.7%
Fixed Income 66.8% 3.7 - 7.0%
70.3% 68.2%
Other 12.6% 0.5% - 7.0%
14.1% 17.1%
Total 100.0% 5.5% 100.0% 100.0%
During 2024, the Company maintained its dynamic de-risking investment strategy designed to allow the plans to attain and/or maintain fully funded status levels while reducing volatility, in order to further increase the overall fixed income portfolio to meet allocation targets in such a manner that its interest rate sensitivity correlates highly with that of the liabilities of the plans while other asset classes are intended to provide additional return with associated higher levels of risk. This strategy is designed to result in improved funding levels and less required contributions over time. Allocation targets have been established to fit this strategy in response to increased funded ratio thresholds along a glidepath. The long-term rate of return assumptions consider historic returns and volatilities adjusted for changes in overall economic conditions that may affect future returns and a weighting of each investment class.
The following table presents a reconciliation of the funded status of the defined benefit pension plans:
2024 2023
Change in Projected Benefit Obligation:
Obligation at Beginning of Period $ 483.1 $ 440.3
Service Cost 2.0 2.1
Interest Cost 21.3 22.8
Actuarial (Gain) Loss (25.8) 20.1
Less: Benefits Paid 34.3 34.4
Settlements (0.7) (3.9)
Foreign Currency Translation (8.3) 6.0
Other Events 13.8 -
(Divestitures) Acquisitions (1.1) 30.1
Obligation at End of Period $ 450.0 $ 483.1
Change in Fair Value of Plan Assets:
Fair Value of Plan Assets at Beginning of Period $ 367.7 $ 346.2
Actual Return on Plan Assets (1.9) 34.2
Employer Contributions 16.6 8.3
Less: Benefits Paid 34.3 34.4
Settlements (0.7) (3.9)
Foreign Currency Translation (3.3) 3.6
Other Events 2.1 -
(Divestitures) Acquisitions (1.1) 13.7
Fair Value of Plan Assets at End of Period $ 345.1 $ 367.7
Funded Status $ (104.9) $ (115.4)
The actuarial gain for 2024 was primarily due to an increase in discount rates. The actuarial loss for 2023 was primarily due to a decrease in discount rates.
The funded status as of December 31, 2024 included domestic plans of $(52.4) million and international plans of $(52.5) million. The funded status as of December 31, 2023 included domestic plans of $(64.5) million and international plans of $(50.9) million.
Funded Status and Expense
The Company recognized the funded status of its defined benefit pension plans on the Consolidated Balance Sheets as follows:
2024 2023
Other Noncurrent Assets $ 5.3 $ 4.1
Accrued Compensation and Benefits (7.6) (6.6)
Pension and Other Post Retirement Benefits (a)
(102.6) (112.9)
Total $ (104.9) $ (115.4)
(a) Excludes post-retirement health care plans included on the Consolidated Balance Sheets
Amounts Recognized in Accumulated Other Comprehensive Loss
Net Actuarial Gain $ 32.0 $ 35.6
Prior Service Cost 0.3 0.3
Total $ 32.3 $ 35.9
The accumulated benefit obligation for all defined benefit pension plans was $438.7 million and $475.6 million as of December 31, 2024 and December 31, 2023, respectively.
Defined pension plans with accumulated benefit obligations in excess of plan assets as of December 31, 2024 and December 31, 2023 were as follows:
2024 2023
Projected Benefit Obligation $ 415.1 $ 445.7
Accumulated Benefit Obligation 408.5 442.1
Fair Value of Plan Assets 304.9 326.4
Defined pension plans with projected benefit obligations in excess of plan assets as of December 31, 2024 and December 31, 2023 were as follows:
2024 2023
Projected Benefit Obligation $ 415.1 $ 447.2
Accumulated Benefit Obligation 408.5 443.3
Fair Value of Plan Assets 304.9 327.7
The following weighted average assumptions were used to determine the projected benefit obligation as of December 31, 2024 and December 31, 2023, respectively:
2024 2023
Discount Rate 5.4% 4.7%
The objective of the discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. In making the determination, the Company takes into account the timing and amount of benefits that would be available under the plans. The methodology for selecting the discount rate was to match the plan's cash flows to that of a theoretical bond portfolio yield curve.
Certain of the Company's defined benefit pension plan obligations are based on years of service rather than on projected compensation percentage increases. For those plans that use compensation increases in the calculation of benefit obligations and net periodic pension cost, the Company used an assumed rate of compensation increase of 3.0% and 2.8% for the years ended December 31, 2024 and December 31, 2023, respectively.
Net periodic pension benefit costs and the net actuarial loss and prior service cost recognized in OCI for the defined benefit pension plans were as follows:
2024 2023 2022
Service Cost $ 2.0 $ 2.1 $ 1.4
Interest Cost 21.3 22.8 14.0
Expected Return on Plan Assets (20.0) (27.1) (20.3)
Amortization of Net Actuarial (Gain) Loss (0.2) (1.8) 1.0
Amortization of Prior Service Cost 0.1 0.1 0.1
Curtailment Expense - 0.2 -
Net Periodic Benefit Cost $ 3.2 $ (3.7) $ (3.8)
Change in Obligations Recognized in OCI, Net of Tax
Prior Service Cost $ 0.1 $ 0.1 $ 0.1
Net Actuarial (Gain) Loss (3.7) (14.4) 0.7
Total Recognized in OCI $ (3.6) $ (14.3) $ 0.8
The amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of associates expected to receive benefits under the plans. The amortization of the net actuarial loss is determined using a straight-line amortization of the loss over the average remaining life expectancy of the associates expected to receive benefits under the plans.
The following weighted average assumptions were used to determine net periodic pension cost for 2024, 2023 and 2022, respectively.
2024 2023 2022
Discount Rate 4.7% 5.2% 2.7%
Expected Long-Term Rate of Return on Assets 5.1% 6.6% 4.6%
Pension Assets
The Company classifies its investments into Level 1, which refers to securities valued using quoted prices from active markets for identical assets, Level 2, which refers to securities not traded on an active market but for which observable market inputs are readily available, and Level 3, which refers to securities valued based on significant unobservable inputs. Mutual funds are valued at the unadjusted quoted market prices for the securities. Common collective trust funds are valued based on the net asset value (“NAV”) provided by the administrator of the fund as a practical expedient to estimate fair value. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. Investments in units of collective trust funds and short-term investment funds, comprised of cash and money market funds, are valued at their respective published market prices as reported by the funds daily. Certain international plans hold insurance contracts. The fair value of these contracts is calculated by projecting expected future cash flows from the contract and discounting them to present value based on current market rates. The contracts are included within Level 3 of the hierarchy as the assumptions used to project expected future cash flows are based on actuarial estimates and are unobservable.
Pension assets by type and level are as follows:
December 31, 2024
Total Level 1 Level 3
Cash and Cash Equivalents $ 4.3 $ 4.3 $ -
Mutual Funds:
International Equity Funds 6.0 6.0 -
Fixed Income Funds 10.2 10.2 -
Other 5.1 1.0 4.1
Insurance Contracts 21.1 - 21.1
$ 46.7 $ 21.5 $ 25.2
Investments Measured at Net Asset Value 298.4
Total $ 345.1
December 31, 2023
Total Level 1 Level 3
Cash and Cash Equivalents $ 4.9 $ 4.9 $ -
Mutual Funds:
US Equity Funds 1.8 1.8 -
International Equity Funds 9.5 9.5 -
Fixed Income Funds 3.8 3.8 -
Other 6.1 1.8 4.3
Insurance Contracts 23.7 - 23.7
$ 49.8 $ 21.8 $ 28.0
Investments Measured at Net Asset Value 317.9
Total $ 367.7
The Company had no assets classified within Level 2 of the hierarchy as of December 31, 2024 and December 31, 2023.
The following table sets forth additional disclosures for the fair value measurement of the fair value of pension plan assets that calculate fair value based on NAV per share practical expedient as of December 31, 2024 and December 31, 2023:
2024 2023
Common Collective Trust Funds $ 298.4 $ 317.9
The 2024 and 2023 common collective trust funds are investments in the following portfolios:
•Mercer US Small/Midcap Equity Portfolio - seeks to provide long term total returns comprised primarily of capital appreciation by investing in equity securities issued by small to medium capitalization US companies;
•Mercer Non-US Core Equity Portfolio - seeks to provide long term total return, which includes capital appreciation and income, by investing in equity securities of non-US companies;
•Mercer Global Low Volatility Equity Portfolio - seeks to provide long term total return, which includes capital appreciation and income, by investing in equity securities of US and foreign issuers;
•Mercer US Large Cap Passive Equity Portfolio - seeks to approximate, as closely as possible, the performance of the S&P 500 Index over the long term by investing in the equity securities comprising the index in approximately the same proportions as they are represented in the index;
•Mercer Emerging Markets Equity Portfolio - seeks to provide long term total return, which includes capital appreciation and income, by investing equity securities of companies that are located in emerging markets, other investments that are tied economically to emerging markets, as well as in American, European and Global Depository Receipts;
•Mercer Active Long Corporate Fixed Income Portfolio - seeks to maximize long term total return by investing on high quality US corporate bonds;
•Mercer Opportunistic Fixed Income Portfolio - seeks to provide long term total return, which includes capital appreciation and income, by investing in high yield bonds and emerging markets debt;
•Mercer Long Strips Fixed Income Portfolio - seeks to extend the duration of plan assets by investing in US Treasury STRIPS with a maturity of greater than 20 years;
•Mercer Core Real Estate Portfolio - seeks to earn attractive risk-adjusted returns on a diversified portfolio of private real estate, by systematically favoring the market segments and opportunities believed to offer the most attractive relative value at a given point in time;
•Mercer Active Intermediate Credit Fixed Income Portfolio - seeks to maximize long-term total return relative to the Bloomberg Barclays US Intermediate Credit Index;
•Mercer Long Duration Passive Fixed Income Portfolio - seeks to match the total return of the Bloomberg US Long Government Bond Index.
The 2024 and 2023 common collective trust funds are available for immediate redemption.
The table below sets forth a summary of changes in the Company's Level 3 assets in its pension plan investments as of December 31, 2024 and December 31, 2023:
2024 2023
Other Insurance Contracts Total Other Insurance Contracts Total
Beginning balance $ 4.3 $ 23.7 $ 28.0 $ - $ 20.9 $ 20.9
Acquisition - - - 4.3 - 4.3
Net Sales - (0.3) (0.3) - (0.8) (0.8)
Net Gains (Losses) 0.1 (0.8) (0.7) - 2.7 2.7
Translation (0.3) (1.5) (1.8) - 0.9 0.9
Ending balance $ 4.1 $ 21.1 $ 25.2 $ 4.3 $ 23.7 $ 28.0
The Company made contributions to its defined benefit plan of $16.6 million and $8.3 million for the years ended December 31, 2024 and December 31, 2023.
The Company estimates that in 2025 it will make contributions in the amount of $14.7 million to fund its defined benefit pension plans.
The following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Year Expected Payments
2025 $ 38.4
2026 37.3
2027 36.5
2028 36.7
2029 36.0
2030-2034 176.1
Post-Retirement Health Care Plans
The Company's other post-retirement health care plans were not significant during 2024 and 2023.
Defined Contribution Plans
Company contributions to domestic defined contribution plans totaled $29.5 million, $24.3 million and $16.2 million in 2024, 2023 and 2022, respectively. Company contributions to non-US defined contribution plans were $14.0 million, $15.7 million and $7.8 million in 2024, 2023 and 2022, respectively.
(8) Leases
The Company leases certain manufacturing facilities, warehouses/distribution centers, office space, machinery, equipment, IT assets, and vehicles. If the contract provides the Company the right to substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset, it is considered to be or contain a lease. Right-of-use ("ROU") assets and lease liabilities are recognized at lease commencement date based on the present value of the future lease payments over the expected lease term.
As most of the Company's leases do not provide an implicit rate, the Company determines its incremental borrowing rate based on its unsecured borrowing rate, adjusted for collateralization and lease term, at the lease commencement date. For leases denominated in a currency other than the US dollar, the incremental borrowing rate is estimated based upon the sovereign treasury rate for the currency in which the lease liability is denominated when the Company takes possession of the leased asset, adjusted for various factors, such as term and internal credit spread. The ROU asset also includes any lease payments made and excludes lease incentive and initial direct costs incurred.
Leases entered into may include one or more options to renew. The renewal terms can extend the lease term from one to twenty-five years. The exercise of lease renewal options is at the Company's sole discretion. Renewal option periods are included in the measurement of the ROU asset and lease liability when the exercise is reasonably certain to occur. Some leases include options to terminate the lease upon breach of contract and are remeasured at that point in time.
The depreciable life of leased assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Some of the Company's lease agreements include rental payments adjusted periodically for inflation or are based on an index rate. These increases are reflected as variable lease payments and are included in the measurement of the ROU asset and lease liability. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating leases are included in the following asset and liability accounts on the Company's Consolidated Balance Sheets: Operating Lease Assets, Current Operating Lease Liabilities, and Noncurrent Operating Lease Liabilities. ROU assets and liabilities arising from finance leases are included in the following asset and liability accounts on the Company's Consolidated Balance Sheets: Net Property, Plant and Equipment (see Note 2 - Accounting Policies), Current Maturities of Long-Term Debt and Long-Term Debt (see Note 6 - Debt and Bank Credit Facilities).
Short-term and variable lease expense was immaterial. The components of lease expense were as follows:
2024 2023 2022
Operating Lease Cost $ 55.1 $ 56.1 $ 40.7
Finance Lease Cost:
Amortization of ROU Assets 3.6 3.2 3.2
Interest on Lease Liabilities 3.6 3.7 3.8
Total Lease Expense $ 62.3 $ 63.0 $ 47.7
Maturity of lease liabilities as of December 31, 2024 were as follows:
Operating Leases Finance Leases Total
2025 $ 45.4 $ 8.2 $ 53.6
2026 39.2 8.2 47.4
2027 30.4 8.3 38.7
2028 19.2 7.4 26.6
2029 11.0 6.8 17.8
Thereafter 75.3 62.2 137.5
Total Lease Payments $ 220.5 $ 101.1 $ 321.6
Less: Interest (70.8) (31.0) (101.8)
Present Value of Lease Liabilities $ 149.7 $ 70.1 $ 219.8
Other information related to leases was as follows:
Supplemental Cash Flow Information: 2024 2023 2022
Cash Paid for Amounts Included in the Measurement of Lease Liabilities:
Operating Cash Flows - Operating Leases $ 51.4 $ 56.2 $ 38.4
Operating Cash Flows - Finance Leases 3.6 3.7 3.8
Financing Cash Flows - Finance Leases 3.9 3.3 2.9
Leased Assets Obtained in Exchange for New Finance Lease Liabilities 3.9 0.6 -
Leased Assets Obtained in Exchange for New Operating Lease Liabilities 22.8 115.7 31.4
Weighted Average Remaining Lease Term (Years)
Operating Leases 7.3 years 7.2 years 5.5 years
Finance Leases 14.8 years 16.1 years 17.0 years
Weighted Average Discount Rate
Operating Leases 8.1 % 8.1 % 8.0 %
Finance Leases 5.2 % 5.2 % 5.2 %
The Company had no material operating or finance leases that have been entered into but not yet commenced as of December 31, 2024.
(9) Shareholders' Equity
Repurchase of Common Stock
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. In 2024, the Company acquired 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. In 2023, the Company did not acquire any shares of its common stock. In 2022, the Company acquired and retired 1,698,227 shares of its common stock at an average cost of $140.89 per share for a total cost of $239.2 million.
Based on share repurchase activity since the most recent authorization, as of December 31, 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 $34.8 million, $58.2 million and $22.5 million in share-based compensation expense in 2024, 2023 and 2022, respectively. In connection with the Altra Transaction, the Company 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. The total income tax benefit recognized in the Consolidated Statements of Income (Loss) for share-based compensation expense was $4.8 million, $10.5 million and $5.4 million in 2024, 2023 and 2022, 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. The total fair value of shares and options vested was $46.2 million, $35.4 million and $25.6 million in 2024, 2023 and 2022, respectively.
Total unrecognized compensation cost related to share-based compensation awards was approximately $39.3 million, net of estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately 1.8 years as of December 31, 2024.
During 2023, the Company's shareholders approved the 2023 Equity Incentive Plan ("2023 Plan"). The 2023 Plan authorized the issuance of 5.6 million shares of common stock for equity-based awards and terminated any further grants under prior equity plans. Approximately 5.0 million shares were available for future grant or payment under the 2023 Plan as of December 31, 2024.
Options and Stock Appreciation Rights
The Company uses several forms of share-based incentive awards including non-qualified stock options and stock settled stock appreciation rights (“SARs”). SARs are the right to receive stock in an amount equal to the appreciation in value of a share of stock over the base price per share. Shares granted generally vest over three years on the anniversary date of the grant date. Generally all grants expire 10 years from the grant date. All grants are made at prices equal to the fair market value of the stock on the grant date. For the years ended December 31, 2024, December 31, 2023 and December 31, 2022, expired and canceled shares were immaterial.
The table below presents share-based compensation activity for 2024, 2023 and 2022:
2024 2023 2022
Total Intrinsic Value of Share-Based Incentive Awards Exercised $22.0 $6.2 $7.8
Cash Received from Stock Option Exercises 4.9 2.5 3.5
Income Tax Benefit from the Exercise of Stock Options 21.2 5.3 6.1
Total Fair Value of Share-Based Incentive Awards Vested 13.4 10.9 8.2
The weighted average assumptions used in the Company's Black-Scholes valuation related to grants for options and SARs were as follows:
2024 2023 2022
Per Share Weighted Average Fair Value of Grants $62.85 $54.20 $42.21
Risk-Free Interest Rate 4.3% 4.1% 1.8%
Expected Life (Years) 5.0 5.0 4.0
Expected Volatility 38.0% 35.8% 35.3%
Expected Dividend Yield 0.8% 0.9% 0.9%
The average risk-free interest rate is based on US Treasury security rates in effect as of the grant date. The expected dividend yield is based on the projected annual dividend as a percentage of the estimated market value of the Company's common stock as of the grant date. The Company estimated the expected volatility using a weighted average of daily historical volatility of the Company's stock price over the expected term of the award. The Company estimated the expected term using historical data.
Following is a summary of share-based incentive plan activity (options and SARs) for 2024:
Number of Shares Under Options and SARs Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2023 829,417 $ 101.44
Granted
98,998 168.43
Exercised (275,347) 85.85
Forfeited (24,574) 151.93
Outstanding as of December 31, 2024 628,494 $ 116.90 6.0 $ 25.2
Exercisable as of December 31, 2024 443,632 $ 99.47 5.0 $ 24.7
Compensation expense recognized related to options and SARs was $5.1 million, $7.4 million and $6.1 million for 2024, 2023 and 2022, respectively.
As of December 31, 2024, there was $5.6 million of unrecognized compensation cost related to non-vested options and SARs that is expected to be recognized as a charge to earnings over a weighted average period of 1.8 years.
The amount of options and SARs expected to vest is materially consistent with those outstanding and not yet exercisable.
Restricted Stock Awards and Restricted Stock Units
Restricted stock awards ("RSAs") and restricted stock units ("RSUs") consist of shares or the rights to shares of the Company's stock. The awards are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, or death, disability or normal retirement of the grantee.
Following is the summary of RSAs activity for 2024:
Shares Weighted Average Fair Value at Grant Date Weighted Average Remaining Contractual Term (years)
Unvested RSAs as of December 31, 2023 21,997 $ 133.41 0.9
Granted
- -
Vested (18,451) 132.49
Forfeited (1,555) 135.50
Unvested RSAs as of December 31, 2024 1,991 $ 136.77 1.9
There was no grant of RSAs in 2024. The weighted average grant date fair value of awards granted was $134.71 and $131.27 in 2023 and 2022, respectively.
Other than RSAs that were issued to replace equity awards held by employees of Altra at the time of the Altra acquisition in the prior year, RSAs vest on the one year anniversary of the grant date, provided the holder of the shares is continuously employed by or in the service of the Company until the vesting date. Compensation expense recognized related to the RSAs was $0.9 million, $2.3 million and $1.4 million for 2024, 2023 and 2022, respectively.
As of December 31, 2024, there was $0.2 million of unrecognized compensation cost related to non-vested RSAs that is expected to be recognized as a charge to earnings over a weighted average period of 1.9 years.
Following is the summary of RSUs activity for 2024:
Shares Weighted Average Fair Value at Grant Date Weighted Average Remaining Contractual Term (years)
Unvested RSUs as of December 31, 2023 263,596 $ 143.43 1.9
Granted
142,551 165.10
Vested (121,447) 143.18
Forfeited (42,527) 153.56
Unvested RSUs as of December 31, 2024 242,173 $ 154.79 1.8
The weighted average grant date fair value of awards granted was $165.10, $141.89 and $147.70 in 2024, 2023 and 2022, respectively.
Other than RSUs that were issued to replace equity awards held by employees of Altra at the time of the Altra acquisition in the prior year, RSUs vest one third each year on the anniversary of the grant date, provided the holder of the shares is continuously employed by the Company until the vesting date. Compensation expense recognized related to the RSUs was $17.3 million, $24.7 million and $10.3 million for 2024, 2023 and 2022, respectively.
As of December 31, 2024, there was $18.3 million of unrecognized compensation cost related to non-vested RSUs that is expected to be recognized as a charge to earnings over a weighted average period of 1.8 years.
Performance Share Units
Performance share unit awards ("PSUs") consist of shares or the rights to shares of the Company's stock which are awarded to associates of the Company. These shares are payable upon the determination that the Company achieved certain established performance targets and can range from 0% to 200% of the targeted payout based on the actual results. PSUs have a performance period of 3 years, vest three years from the grant date and are issued at a performance target of 100%. The PSUs have performance criteria based on a return on invested capital metric or they have performance criteria using returns relative to the Company's peer group. As set forth in the individual grant agreements, acceleration of vesting may occur under a change in control, death or disability. There are no voting rights with these instruments until vesting occurs and a share of stock is issued. PSUs with a performance criteria using returns relative to the Company's peer group are valued using a Monte Carlo simulation method as of the grant date while PSUs with a performance criteria based on a return on invested capital are valued using the closing market price less net present value of dividends as of the grant date.
The assumptions used in the Company's Monte Carlo simulation related to grants for PSUs were as follows:
December 31, 2024 December 31, 2023 December 31, 2022
Risk-free interest rate 4.5% 4.4% 1.8%
Expected life (years) 3.0 3.0 3.0
Expected volatility 36.0% 41.0% 38.0%
Expected dividend yield -% -% -%
Following is the summary of PSUs activity for 2024:
Shares Weighted Average Fair Value at Grant Date Weighted Average Remaining Contractual Term (years)
Unvested PSUs as of December 31, 2023 125,902 $ 197.36 1.9
Granted 68,350 254.05
Vested (43,708) 151.05
Forfeited (8,458) 190.97
Unvested PSUs as of December 31, 2024 142,086 $ 229.60 1.8
The weighted average grant date fair value of awards granted was $254.05, $235.77 and $151.27 in 2024, 2023 and 2022, respectively.
Compensation expense for PSUs is recognized based on the Monte Carlo simulation value or the expected payout ratio depending upon the performance criterion for the award, net of estimated forfeitures. Compensation expense recognized related to PSUs was $11.5 million, $8.1 million and $4.7 million for 2024, 2023 and 2022, respectively. Total unrecognized compensation expense for all PSUs granted as of December 31, 2024 was $15.2 million and it is expected to be recognized as a charge to earnings over a weighted average period of 1.8 years.
(10) Income Taxes
Income (loss) before taxes consisted of the following:
2024 2023 2022
US $ (169.2) $ (389.5) $ 221.2
Foreign 417.2 387.9 392.6
Total $ 248.0 $ (1.6) $ 613.8
The provision for income taxes is summarized as follows:
2024 2023 2022
Current
US Federal $ 45.9 $ 39.6 $ 101.6
US State 10.0 6.4 10.2
Foreign 146.0 122.0 87.2
$ 201.9 $ 168.0 $ 199.0
Deferred
US Federal $ (89.6) $ (84.3) $ (50.7)
US State (15.3) (9.4) (12.1)
Foreign (47.4) (21.6) (17.3)
(152.3) (115.3) (80.1)
Total $ 49.6 $ 52.7 $ 118.9
A reconciliation of the federal statutory expense (benefit) and the income tax expense reflected in the Consolidated Statements of Income (Loss) follows:
2024 2023 2022
Federal Statutory Expense (Benefit) $ 52.1 $ (0.4) $ 128.9
State Income Taxes, Net of Federal Benefit (3.2) (8.6) 3.2
Effect of Impairments and Divestitures 21.2 35.0 -
Foreign Rate Differential (8.3) (10.8) (1.4)
Research and Development Credit (8.7) (8.7) (9.7)
Valuation Allowance (6.6) 4.3 0.2
Tax on Repatriation 5.3 25.8 7.2
Transaction Costs - 6.9 -
US Tax on Foreign Operations (6.6) 14.2 6.7
Deferred Tax Remeasurement (1.1) 3.4 (2.4)
Other 5.5 (8.4) (13.8)
Income Tax Expense $ 49.6 $ 52.7 $ 118.9
Deferred taxes arise primarily from differences in amounts reported for tax and financial statement purposes. The Company's net deferred tax liability was $785.5 million as of December 31, 2024, classified on the Consolidated Balance Sheet as a net non-current deferred income tax benefit of $30.0 million and a net non-current deferred income tax liability of $815.5 million. As of December 31, 2023, the Company's net deferred tax liability was $978.9 million classified on the Consolidated Balance Sheet as a net non-current deferred income tax asset of $33.8 million and a net non-current deferred income tax liability of $1,012.7 million.
The components of this net deferred tax liability are as follows:
December 31, 2024 December 31, 2023
Accrued Benefits $ 53.1 $ 65.4
Bad Debt Allowances 7.4 7.9
Warranty Accruals 7.6 8.4
Derivative Instruments 2.6 -
Inventory 33.7 8.6
Tax Loss Carryforward 14.8 16.1
Operating Lease Liability 56.5 67.4
Deferred Interest 92.6 43.7
Other 35.0 32.3
Deferred Tax Assets before Valuation Allowance 303.3 249.8
Valuation Allowance (8.3) (11.0)
Total Deferred Tax Assets 295.0 238.8
Property Related (83.3) (92.5)
Intangible Items (936.4) (1,026.6)
Accrued Liabilities (11.8) (29.9)
Derivative Instruments - (8.3)
Operating Lease Asset (49.0) (60.4)
Deferred Tax Liabilities (1,080.5) (1,217.7)
Net Deferred Tax Liability $ (785.5) $ (978.9)
Following is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
Unrecognized Tax Benefits, January 1, 2022 $ 8.8
Gross Increases from Current Period Tax Positions 0.6
Settlements with Taxing Authorities (2.0)
Lapse of Statute of Limitations (1.7)
Unrecognized Tax Benefits, December 31, 2022 $ 5.7
Gross Increases from Current Period Tax Positions 0.3
Gross Increases from Acquisitions 3.8
Lapse of Statute of Limitations (1.3)
Unrecognized Tax Benefits, December 31, 2023 $ 8.5
Gross Increases from Current Period Tax Positions 0.8
Acquisition Measurement Period Adjustment (2.8)
Lapse of Statute of Limitations (2.3)
Unrecognized Tax Benefits, December 31, 2024 $ 4.2
Unrecognized tax benefits as of December 31, 2024 amount to $4.2 million, 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. During 2024, 2023 and 2022, the Company recognized approximately $(0.3) million, $(0.1) million and $(0.1) million of net interest income, respectively. The Company had approximately $0.7 million, $1.1 million and $1.2 million of accrued interest as of December 31, 2024, December 31, 2023 and December 31, 2022, respectively.
Due to statute expirations, approximately $1.8 million of the unrecognized tax benefits, including accrued interest, could reasonably change in the coming year.
The Company conducts business globally and, as a result, files income tax returns in the US federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The US Internal Revenue Service is currently conducting an audit of the Company's 2022 income tax return. No material deficiencies have been assessed related to ongoing audits as of December 31, 2024. With few exceptions, the Company is no longer subject to US federal and state/local income tax examinations by tax authorities for years prior to 2021, and the Company is no longer subject to non-US income tax examinations by tax authorities for years prior to 2020.
As of December 31, 2024 and December 31, 2023 the Company had approximately $14.8 million and $16.1 million, respectively, of tax effected net operating losses in various jurisdictions with a portion expiring over a period of up to 15 years and the remaining without expiration.
Valuation allowances totaling $8.3 million and $11.0 million as of December 31, 2024 and December 31, 2023, respectively, have been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be realized. Realization of the net deferred income tax assets is dependent on generating sufficient taxable income prior to their expiration. Although realization is not assured, management believes it is more-likely-than-not that the net deferred income tax assets will be realized. The amount of the net deferred income tax assets considered realizable, however, could change in the near term if future taxable income during the carryforward period fluctuates.
The Company continues to treat approximately $213.0 million of earnings from certain foreign entities as permanently reinvested and has not recorded a deferred tax liability for the local withholding taxes of approximately $16.9 million on those earnings.
(11) 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, 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. The construction of an AS/SVE system was completed and became operational in February 2022. The system continues to operate pending the US EPA's approval of a pilot study work plan for an on site chemical oxidation soil remediation system. Soil remediation is expected to continue for a minimum of 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 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 products 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 is a reconciliation of the changes in accrued warranty costs for 2024 and 2023:
December 31, 2024 December 31, 2023
Beginning Balance $ 34.5 $ 28.8
Less: Payments 21.9 23.4
Provisions 21.5 21.8
Acquisitions - 9.8
Reclassification to Liabilities Held for Sale - (3.4)
Translation Adjustments (0.7) 0.9
Ending Balance $ 33.4 $ 34.5
These liabilities are included in Other Accrued Expenses and Other Noncurrent Liabilities on the Consolidated Balance Sheets.
(12) 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 in the 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 December 31, 2024 or December 31, 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 December 31, 2024 and December 31, 2023, the Company had $(0.8) million and $15.1 million, net of tax, of derivative losses and gains, respectively, on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings.
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:
December 31, 2024 December 31, 2023
Copper $ 41.7 $ 37.5
Aluminum - 1.4
The Company has currency forward contracts with maturities extending through December 2025. The notional amounts expressed in terms of the dollar value of the hedged currency were as follows:
December 31, 2024 December 31, 2023
Mexican Peso $ 233.2 $ 101.4
Chinese Renminbi 359.5 302.3
Indian Rupee 23.0 30.1
Euro 1,221.5 465.8
Canadian Dollar 52.2 -
British Pound 6.1 7.1
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 will be 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 to hedge the floating rate interest of the Term Facility. These swaps will expire in March 2027.
Fair values of derivative instruments as of December 31, 2024 and December 31, 2023 were:
December 31, 2024
Prepaid Expenses and Other Current Assets Other Noncurrent Assets Other Accrued Expenses
Designated as Hedging Instruments:
Interest Rate Swap Contracts $ - $ 5.5 $ -
Currency Contracts 0.1 - 8.0
Commodity Contracts 0.1 - 4.4
Not Designated as Hedging Instruments:
Currency Contracts 0.9 - 5.6
Total Derivatives $ 1.1 $ 5.5 $ 18.0
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
Derivatives Designated as Cash Flow Hedging Instruments
The effect of derivative instruments designated as cash flow hedges on the Consolidated Statements of Income (Loss) and Consolidated Statements of Comprehensive Income for 2024, 2023 and 2022 were:
Interest
Commodity Currency Rate
Forwards Forwards Swaps Total
(Loss) Gain Recognized in Other Comprehensive Loss $ (4.5) $ (14.3) $ 0.2 $ (18.6)
Amounts Reclassified from Other Comprehensive Income (Loss):
(Loss) Gain Recognized in Cost of Sales (1.3) 22.3 - 21.0
Gain Recognized in Interest Expense - - 5.6 5.6
Interest
Commodity Currency Rate
Forwards Forwards Swaps Total
(Loss) Gain recognized in Other Comprehensive Loss $ (0.5) $ 31.2 $ (2.5) $ 28.2
Amounts reclassified from Other Comprehensive Income (Loss):
(Loss) Gain recognized in Cost of Sales (13.6) 20.8 - 7.2
Gain recognized in Interest Expense - - 5.9 5.9
Interest
Commodity Currency Rate
Forwards Forwards Swaps Total
(Loss) Gain recognized in Other Comprehensive Loss $ (23.5) $ 11.4 $ 18.2 $ 6.1
Amounts reclassified from Other Comprehensive Income (Loss):
Gain recognized in Net Sales - 0.1 - 0.1
Gain recognized in Cost of Sales 3.5 6.1 - 9.6
Gain recognized in Interest Expense - - 1.3 1.3
The ineffective portion of hedging instruments recognized was immaterial for all periods presented.
Derivatives Not Designated as Cash Flow Hedging Instruments
The effect of derivative instruments not designated as cash flow hedges on the Consolidated Statements of Income (Loss) for 2024, 2023 and 2022 were:
Commodity Forwards Currency Forwards Total
Gain recognized in Operating Expenses - 4.6 4.6
Commodity Forwards Currency Forwards Total
Gain recognized in Cost of Sales $ 0.3 $ - $ 0.3
Loss recognized in Operating Expenses - (17.8) (17.8)
Commodity Forwards Currency Forwards Total
Loss recognized in Cost of Sales $ (0.6) $ - $ (0.6)
Gain recognized in Operating Expenses - 10.2 10.2
The AOCI balance related to hedging activities of a $(5.5) million loss net of tax as of December 31, 2024 includes $(9.8) million of net current deferred losses expected to be reclassified to the Consolidated Statement of Income (Loss) 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 Consolidated Balance Sheets on a gross basis for the periods ended December 31, 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:
December 31, 2024
Gross Amounts as Presented in the Consolidated Balance Sheet Derivative Contract Amounts Subject to Right of Offset Derivative Contracts as Presented on a Net Basis
Assets $ 6.6 $ (1.1) $ 5.5
Liabilities 18.0 (1.1) 16.9
December 31, 2023
Gross Amounts as Presented in the 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
(13) 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 December 31, 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 6 - Debt and Bank Credit Facilities for disclosure of the approximate fair value of the Company's debt as of December 31, 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 December 31, 2024 and December 31, 2023, respectively:
December 31, 2024 December 31, 2023
Classification
Assets:
Prepaid Expenses and Other Current Assets:
Derivative Currency Contracts $ 1.0 $ 14.4 Level 2
Derivative Commodity Contracts 0.1 1.0 Level 2
Other Noncurrent Assets:
Interest Rate Swap 5.5 5.3 Level 2
Assets Held in Rabbi Trust 14.6 12.7 Level 1
Derivative Currency Contracts - 0.2 Level 2
Derivative Commodity Contracts - 0.1 Level 2
Liabilities:
Other Accrued Expenses:
Derivative Currency Contracts 13.6 6.9 Level 2
Derivative Commodity Contracts 4.4 0.6 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 6 - Debt and Bank Credit Facilities for further information.
(14) Restructuring Activities
The Company incurred restructuring and restructuring-related costs on projects during 2024, 2023 and 2022. 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 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 is a reconciliation of provisions and payments for the restructuring projects for 2024 and 2023:
December 31, 2024 December 31, 2023
Beginning Balance $ 29.1 $ 15.1
Acquisition(1)
- 0.2
Provision(2)
41.3 42.2
Less: Payments 54.1 28.4
Ending Balance $ 16.3 $ 29.1
(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 twelve month period ended December 31, 2023 excludes $19.3 million of accelerated depreciation.
The following is a reconciliation of expenses by type for the restructuring projects in 2024, 2023 and 2022:
2024 2023 2022
Restructuring Costs: Cost of Sales Operating Expenses Total Cost of Sales Operating Expenses Total Cost of Sales Operating Expenses Total
Severance Expense $ 11.2 $ 14.7 $ 25.9 $ 12.1 $ 15.2 $ 27.3 $ 25.1 $ 6.4 $ 31.5
Facility Related Costs 7.8 1.5 9.3 25.5 0.3 25.8 13.5 1.1 14.6
Other Expenses 6.5 2.4 8.9 7.8 0.6 8.4 0.3 0.4 0.7
Total Restructuring Costs $ 25.5 $ 18.6 $ 44.1 $ 45.4 $ 16.1 $ 61.5 $ 38.9 $ 7.9 $ 46.8
The following table shows the allocation of Restructuring Expenses by segment for 2024, 2023 and 2022:
Total Industrial Powertrain Solutions Power Efficiency Solutions Automation & Motion Control Industrial Systems
Restructuring Expenses - 2024 $ 44.1 $ 21.7 $ 11.3 $ 10.1 $ 1.0
Restructuring Expenses - 2023 $ 61.5 $ 27.0 $ 30.4 $ 3.2 $ 0.9
Restructuring Expenses - 2022 $ 46.8 $ 11.8 $ 19.4 $ 14.1 $ 1.5
The Company expects to record aggregate future charges of approximately $29.8 million in 2025. The Company continues to evaluate operating efficiencies and anticipates incurring additional costs in future periods in connection with these activities.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A - CONTROLS AND PROCEDURES
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(d) and 15(e) under the Exchange Act) as of the end of the year ended December 31, 2024. Based upon their evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 31, 2024 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.
Management's Report on Internal Control over Financial Reporting
The report of management required under this Item 9A is contained in Item 8 of Part II of this Annual Report on Form 10-K under the heading “Management's Annual Report on Internal Control over Financial Reporting.”
Report of Independent Registered Public Accounting Firm
The attestation report required under this Item 9A is contained in Item 8 of Part II of this Annual Report on Form 10-K under the heading “Report of Independent Registered Public Accounting Firm.”
Changes in Internal Controls
There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B - OTHER INFORMATION
During our last fiscal 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 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information in the sections titled “Proposal 1: Election of Directors,” “Board of Directors,” "Other Matters-Delinquent Section 16(a) Reports" and “Stock Ownership” in the 2025 Proxy Statement is incorporated by reference herein. Information with respect to our executive officers appears in Part I of this Annual Report on Form 10-K.
We have adopted a Code of Business Conduct and Ethics (our “Code”) that applies to all our directors, officers and associates. Our Code is available on our website, along with our current Corporate Governance Guidelines, at www.regalrexnord.com. Our Code and our Corporate Governance Guidelines are also available in print to any shareholder who requests a copy in writing from the Secretary of Regal Rexnord Corporation. We intend to disclose through our website any amendments to, or waivers from, the provisions of these codes.
The Company has insider trading policies and procedures that govern transactions in its securities by directors, officers, and employees. We believe these policies and procedures are reasonably designed to promote compliance with insider trading laws, rules and regulations and applicable listing standards. A copy of our insider trading policy is filed with this Annual Report on Form 10-K as Exhibit 19.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11 - EXECUTIVE COMPENSATION
The information in the sections titled “Compensation Discussion and Analysis,” “Executive Compensation,” “Report of the Compensation and Human Resources Committee,” “Director Compensation,” and "Compensation Committee Interlocks and Insider Participation" in the 2025 Proxy Statement is incorporated by reference herein.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information in the sections titled “Stock Ownership” in the 2025 Proxy Statement is incorporated by reference herein.
Equity Compensation Plan Information
The following table provides information about our equity compensation plans as of December 31, 2024.
Number of Securities to be Issued upon the Exercise of Outstanding Options, Warrants and Rights (1) Weighted-average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in the column 1)
Equity Compensation Plans Approved by Security Holders 628,494 $ 116.90 5,020,002
Equity Compensation Plans Not Approved by Security Holders - - -
Total 628,494 5,020,002
(1) Represents options to purchase our Common Stock and stock-settled appreciation rights granted under our 2013 Equity Incentive Plan, 2018 Equity Incentive Plan and 2023 Equity Incentive Plan.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information in the section titled “Board of Directors” in the 2025 Proxy Statement is incorporated by reference herein.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information in the section titled “Proposal 4: Ratification of Deloitte & Touche LLP as our Independent Registered Public Accounting Firm for the Year Ending December 31, 2025” in the 2025 Proxy Statement is incorporated by reference herein.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(i) Financial Statements (Item 8):
Report of Deloitte & Touche LLP Independent Registered Public Accounting Firm (PCAOB ID: 34)
Consolidated Statements of Income (Loss) for the years ended December 31, 2024, December 31, 2023 and December 31, 2022
Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, December 31, 2023 and December 31, 2022
Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023
Consolidated Statements of Equity for the years ended December 31, 2024, December 31, 2023 and December 31, 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2024, December 31, 2023 and December 31, 2022
Notes to the Consolidated Financial Statements
(ii) Financial Statement Schedule:
Schedule II -Valuation and Qualifying Accounts for the years ended December 31, 2024, December 31, 2023 and December 31, 2022
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(iii) Exhibits
Exhibit Index
Exhibit Number Exhibit Description
2.1 Agreement and Plan of Merger, dated as of October 26, 2022, by and among Regal Rexnord Corporation, Aspen Sub, Inc. and Altra Industrial Motion Corp. [Incorporated by reference to Exhibit 2.1 to Regal Rexnord Corporation's Current Report on Form 8-K filed on October 27, 2022]
2.2 Agreement and Plan of Merger, dated as of February 15, 2021, by and among Zurn Water Solutions Corporation (formerly known as Rexnord Corporation), Land Newco, Inc., Regal Rexnord Corporation and Phoenix 2021, Inc. [Incorporated by reference to Exhibit 2.1 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on February 19, 2021]
2.3 Stock Purchase Agreement dated as of April 5, 2005, by and among Rexnord Industries, LLC (as successor in interest to Rexnord, LLC), Hamilton Sundstrand Corporation and The Falk Corporation. [Incorporated by reference to Exhibit 2.2 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on March 2, 2022]+
2.4 Stock Purchase Agreement dated as of September 27, 2002, by and among Rexnord Industries, LLC (as successor in interest to RBS Acquisition Corporation), Invensys plc and the other sellers identified therein. [Incorporated by reference to Exhibit 2.3 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on March 2, 2022]+
3.1 Amended and Restated Articles of Incorporation of Regal Rexnord Corporation, effective July 26, 2024 [Incorporated by reference to Exhibit 3.1 to Regal Rexnord Corporation's Form 8-K, filed on July 30, 2024]
3.2 Amended and Restated Bylaws of Regal Rexnord Corporation, effective October 4, 2021 [Incorporated by reference to Exhibit 3.2 to Regal Rexnord Corporation's Quarterly Report on Form 10-Q filed on November 10, 2021]
4.1 Second Amended and Restated Credit Agreement, dated as of March 28, 2022, among Regal Rexnord Corporation, Land Newco, Inc., the other subsidiary borrowers party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on March 31, 2022]
4.2 Note Purchase Agreement, dated April 7, 2022, among Regal Rexnord Corporation and each of the Purchasers signatory thereto [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation's Current Report on Form 8-K filed on April 11, 2022]+
4.3 First Amendment, dated as of November 17, 2022, to the Second Amended and Restated Credit Agreement, dated as of March 28, 2022. [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation's Current Report on Form 8-K filed on November 17, 2022]
4.4 Second Amendment, dated as of December 17, 2024, to the Second Amended and Restated Credit Agreement, dated as of March 28, 2022**
4.5 Assumption Agreement, dated as of November 30, 2022, to the Second Amended and Restated Credit Agreement, dated as of March 28, 2022 [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation's Current Report on Form 8-K filed on December 1, 2022]
4.6 First Amendment to Note Purchase Agreement, dated as of December 21, 2022, by and among Regal Rexnord Corporation and each of the Purchasers signatory thereto [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation's Current Report on Form 8-K filed on December 23, 2022]+
4.7 Indenture, dated January 24, 2023, between Regal Rexnord Corporation, the Guarantors (as defined therein) and U.S. Bank Trust Company, National Association, as trustee, including the Form of Note attached as an exhibit thereto [Incorporated by reference to Exhibits 4.1 and 4.2 to Regal Rexnord Corporation's Current Report on Form 8-K filed on January 24, 2023]
4.8 Supplemental Indenture, dated March 27, 2023, by and among Regal Rexnord Corporation, the Additional Guarantors and U.S. Bank Trust Company, National Association, as trustee [Incorporated by reference to Exhibit 4.1 to Regal Rexnord Corporation's Current Report on Form 8-K filed on March 27, 2023]
4.9 Registration Rights Agreement, dated January 24, 2023, between Regal Rexnord Corporation, the Regal Guarantors (as defined therein) and J.P. Morgan Securities LLC as representative of the several initial purchasers listed in Schedule 1 to the purchase agreement relating to the Notes [Incorporated by reference to Exhibit 4.3 to Regal Rexnord Corporation's Current Report on Form 8-K filed on January 24, 2023]
4.1 Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 [Incorporated by reference to Exhibit 4.5 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on March 2, 2022]
10.1*
Executive Employment Agreement, dated as of March 12, 2019, between Regal Rexnord Corporation and Louis V. Pinkham [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on March 14, 2019.]
10.2* First Amendment, dated November 3, 2023, to the Executive Employment Agreement, dated March 12, 2019, between Louis V. Pinkham and Regal Rexnord Corporation [Incorporated by reference to Exhibit 10.2 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on November 7, 2023.]
10.3* Regal Rexnord Corporation Executive Severance Policy, effective November 3, 2023 [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on November 7, 2023.]
10.4* Regal Rexnord Corporation Amended and Restated Supplemental Retirement Plan, as amended and restated effective October 24, 2024 [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on October 24, 2024.]
10.5* Regal Rexnord Corporation Supplemental Defined Contribution Retirement Plan [Incorporated by reference to Exhibit 10.6 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on February 26, 2020]
10.6* Regal Rexnord Corporation Supplemental Employee Retirement Plan For Salary Level 27 & 30 Employees, (n/k/a Regal Beloit Restoration Supplemental Employee Retirement Plan) [Incorporated by reference to Exhibit 10.7 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on February 26, 2020]
10.7* Target Supplemental Retirement Plan for designated Officers and Key Employees, as amended and restated [Incorporated by reference to Exhibit 10.2 to Regal Rexnord Corporation's Current Report on Form 8-K filed on November 2, 2010]
10.8* Form of Participation Agreement for Target Supplemental Retirement Plan [Incorporated by reference to Exhibit 10.14 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on February 26, 2020]
10.9* Regal Beloit America, Inc. Pension Plan, as amended and restated effective January 1, 2017, and subsequent amendments [Incorporated by reference to Exhibit 10.10 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on March 2, 2022]
10.10* Regal Rexnord Corporation 2013 Equity Incentive Plan [Incorporated by reference to Appendix A to Regal Rexnord Corporation’s definitive proxy statement on Schedule 14A for the Regal Rexnord Corporation 2013 annual meeting of shareholders held April 29, 2013]
10.11* Form of Stock Appreciation Rights Award Agreement under the Regal Rexnord Corporation 2013 Equity Incentive Plan [Incorporated by reference to Exhibit 10.2 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on May 2, 2013]
10.12* Form of Restricted Stock Unit Award Agreement under the Regal Rexnord Corporation 2013 Equity Incentive Plan [Incorporated by reference to Exhibit 10.3 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on May 2, 2013]
10.13* Form of TSR Based Performance Share Unit Award Agreement under the Regal Rexnord Corporation 2013 Equity Incentive Plan [Incorporated by reference to Exhibit 10.4 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on May 2, 2013]
10.14* Form of EBIT Based Performance Share Unit Award Agreement under the Regal Rexnord Corporation 2013 Equity Incentive Plan [Incorporated by reference to Exhibit 10.21 to Regal Rexnord Corporation’s Annual Report on Form 10-K filed on March 2, 2016]
10.15* Form of ROIC Based Performance Share Unit Award Agreement under the Regal Rexnord Corporation 2013 Equity Incentive Plan [Incorporated by reference to Exhibit 10.22 to Regal Rexnord Corporation’s Annual Report on Form 10-K filed on March 1, 2017]
10.16* Regal Rexnord Corporation 2018 Equity Incentive Plan, as amended and restated effective October 4, 2021 [Incorporated by reference to Exhibit 10.20 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on March 2, 2022]
10.17* Form of Stock Appreciation Rights Award Agreement (Stock Settled) under the Regal Rexnord Corporation 2018 Equity Incentive Plan [Incorporated by reference to Exhibit 10.23 to Regal Rexnord Corporation’s Annual Report on Form 10-K filed on February 24, 2023]
10.18* Form of Restricted Stock Unit Award Agreement (Stock Settled) under the Regal Rexnord Corporation 2018 Equity Incentive Plan [Incorporated by reference to Exhibit 10.24 to Regal Rexnord Corporation’s Annual Report on Form 10-K filed on February 24, 2023]
10.19* Form of Restricted Stock Award Agreement (Amended to Include Dividend Equivalent Units) under the Regal Rexnord Corporation 2018 Equity Incentive Plan [Incorporated by reference to Exhibit 10.24 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on March 2, 2022]
10.20* Form of Performance Share Unit Award Agreement (Return on Invested Capital - Amended to Include Dividend Equivalent Units) under the Regal Rexnord Corporation 2018 Equity Incentive Plan [Incorporated by reference to Exhibit 10.25 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on March 2, 2022]
10.21* Form of Performance Share Unit Award Agreement (Total Shareholder Return) under the Regal Rexnord Corporation 2018 Equity Incentive Plan [Incorporated by reference to Exhibit 10.28 to Regal Rexnord Corporation’s Annual Report on Form 10-K filed on February 24, 2023]
10.22* Form of Restricted Stock Unit Award Agreement (Stock Settled - Replacement to Zurn RSU Award) under the Regal Rexnord Corporation 2018 Equity Incentive Plan [Incorporated by reference to Exhibit 10.27 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on March 2, 2022]
10.23* Form of Restricted Stock Unit Award Agreement (Stock Settled - Replacement to Zurn PSU Award) under the Regal Rexnord Corporation 2018 Equity Incentive Plan [Incorporated by reference to Exhibit 10.28 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on March 2, 2022]
10.24* Form of Non-Qualified Stock Option Award Agreement (Replacement to Zurn Option Award - Non-US) under the Regal Rexnord Corporation 2018 Equity Incentive Plan [Incorporated by reference to Exhibit 10.31 to Regal Rexnord Corporation's Annual Report on Form 10-K filed on March 2, 2022]
10.25 Separation and Distribution Agreement, dated as of February 15, 2021, by and among Zurn Water Solutions Corporation (formerly Rexnord Corporation), Land Newco, Inc. and Regal Rexnord Corporation [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on February 19, 2021]
10.26 Tax Matters Agreement, dated as of February 15, 2021, by and among Zurn Water Solutions Corporation (formerly Rexnord Corporation), Land Newco, Inc. and Regal Rexnord Corporation [Incorporated by reference to Exhibit 10.2 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on February 19, 2021]
10.27 Employee Matters Agreement, dated as of February 15, 2021, by and among Zurn Water Solutions Corporation (formerly Rexnord Corporation), Land Newco, Inc. and Regal Rexnord Corporation [Incorporated by reference to Exhibit 10.3 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on February 19, 2021]
10.28 Intellectual Property Matters Agreement, dated as of February 15, 2021, by and among Zurn Water Solutions Corporation (formerly Rexnord Corporation), Land Newco, Inc. and Regal Rexnord Corporation [Incorporated by reference to Exhibit 10.4 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on February 19, 2021]
10.29 Real Estate Matters Agreement, dated as of February 15, 2021, by and among Rexnord Corporation Zurn Water Solutions Corporation (formerly Rexnord Corporation), Land Newco, Inc. and Regal Rexnord Corporation [Incorporated by reference to Exhibit 10.5 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on February 19, 2021]
10.3* Regal Rexnord Corporation 2023 Omnibus Incentive Plan, effective April 25, 2023 [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on April 28, 2023]
10.31* Form of Stock Appreciation Rights Award Agreement under the Regal Rexnord Corporation 2023 Omnibus Incentive Plan [Incorporated by reference to Exhibit 4.4 to Regal Rexnord Corporation’s Registration Statement on Form S-8 filed on May 10, 2023]
10.32* Form of Restricted Stock Unit Award Agreement (Stock Settled) under the Regal Rexnord Corporation 2023 Omnibus Incentive Plan [Incorporated by reference to Exhibit 4.5 to Regal Rexnord Corporation’s Registration Statement on Form S-8 filed on May 10, 2023]
10.33* Form of Performance Share Unit Award Agreement (Return on Invested Capital) under the Regal Rexnord Corporation 2023 Omnibus Incentive Plan [Incorporated by reference to Exhibit 4.7 to Regal Rexnord Corporation’s Registration Statement on Form S-8 filed on May 10, 2023]
10.34* Form of Performance Share Unit Award Agreement (Total Shareholder Return) under the Regal Rexnord Corporation 2023 Omnibus Incentive Plan [Incorporated by Reference to Exhibit 10.40 to the Regal Rexnord Corporation Annual Report on Form 10-K filed on February 26, 2024]
10.35* Form of Restricted Stock Unit Award Agreement for Directors under the Regal Rexnord Corporation 2023 Omnibus Incentive Plan [Incorporated by reference to Exhibit 4.9 to Regal Rexnord Corporation’s Registration Statement on Form S-8 filed on May 10, 2023]
10.36* Regal Rexnord Supplemental Retirement Plan, as Amended and Restated Effective April 22, 2024 [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on April 24, 2024]
10.37* Form of Restricted Share Unit Award for Agreement for Directors under the Regal Rexnord Corporation 2023 Omnibus Incentive Plan [Incorporated by reference to Exhibit 10.2 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on April 24, 2024]
10.38* Form of Performance Share Unit Award Agreement under the Regal Rexnord Corporation 2023 Omnibus Incentive Plan**
10.39* Form of Restricted Share Unit Award Agreement under the Regal Rexnord Corporation 2023 Omnibus Incentive Plan**
10.40* Form of Restricted Share Unit Award for Agreement for Directors under the Regal Rexnord Corporation 2023 Omnibus Incentive Plan**
19.1 Regal Rexnord Corporation Insider Prohibited Policy**
21.1 Significant Subsidiaries of Regal Rexnord Corporation**
22 List of Guarantor Subsidiaries of Guaranteed Securities**
23.1 Consent of Independent Registered Public Accounting Firm.**
31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
31.2 Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
32.1 Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
97 Regal Rexnord Corporation Recovery Policy*
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).
________________________
* A management contract or compensatory plan or arrangement.
** Furnished herewith.
+ Schedules (or similar attachments) to this Exhibit have been omitted in accordance with Items 601(a)(5) and/or 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of all omitted schedules to the Securities Exchange
Commission on a confidential basis upon request.
(b) Exhibits- see (a)3., above.
(c) See (a)2., above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 21st day of February 2025.
REGAL REXNORD CORPORATION
By: /s/ ROBERT J. REHARD
Robert J. Rehard
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
By: /s/ ALEXANDER P. SCARPELLI
Alexander P. Scarpelli
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
/s/ LOUIS V. PINKHAM Director and Chief Executive Officer February 21, 2025
Louis V. Pinkham (Principal Executive Officer)
/s/ JAN A. BERTSCH Director February 21, 2025
Jan A. Bertsch
/s/ STEPHEN M. BURT Director February 21, 2025
Stephen M. Burt
/s/ THEODORE D. CRANDALL Director February 21, 2025
Theodore D. Crandall
/s/ MICHAEL P. DOSS Director February 21, 2025
Michael P. Doss
/s/ MICHAEL F. HILTON Director February 21, 2025
Michael F. Hilton
/s/ RAKESH SACHDEV Director, Chairman February 21, 2025
Rakesh Sachdev
/s/ CURTIS W. STOELTING Director February 21, 2025
Curtis W. Stoelting
/s/ ROBIN A. WALKER-LEE Director February 21, 2025
Robin A. Walker-Lee
SCHEDULE II
REGAL REXNORD CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Balance Beginning of Year Charged to Expenses Deductions (a) Adjustments (b) Balance End of Year
(Dollars in Millions)
Allowance for Credit Losses:
2024 $ 30.3 $ 3.4 $ (3.8) $ - $ 29.9
2023 30.9 (0.4) (4.1) 3.9 30.3
2022 18.7 2.9 (1.7) 11.0 30.9
(a) Deductions consist of write offs charged against the allowance for doubtful accounts.
(b) Adjustments for 2023 and 2022 consist of purchase accounting adjustment and translation. See Note 2 - Accounting Policies for additional information. 2023 adjustments also include $5.8 million reclassified to Assets Held for Sale for the industrial motors and generators businesses within the Industrial Systems segment. See Note 3 - Acquisitions and Divestitures for more information.