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REGAL REXNORD CORP - Quarter Report: 2022 June (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 2022 or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-07283

REGAL REXNORD CORPORATION
(Exact name of registrant as specified in its charter)
 
Wisconsin39-0875718
(State or other jurisdiction of
incorporation)
(IRS Employer
Identification No.)
200 State Street, Beloit, Wisconsin 53511
(Address of principal executive office)
(608) 364-8800
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading SymbolName of each exchange on which registered
Common StockRRXNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer
Accelerated Filer
Non-accelerated filer
Smaller Reporting Company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No  
On August 3, 2022 the registrant had outstanding 66,477,529 shares of common stock, $0.01 par value per share.




REGAL REXNORD CORPORATION
INDEX
 
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Item 2 —
Item 3 —
Item 4 —
Item 1 —
Item 1A —
Item 2 —
Item 6 —
 

2


CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company’s current estimates, expectations and projections about the Company’s future results, performance, prospects and opportunities. Such forward-looking statements may include, among other things, statements relating to the merger with the Rexnord Process & Motion Control business (the "Rexnord PMC business") (the "Rexnord Transaction") or the acquisition of Arrowhead Systems, LLC ("Arrowhead") (the "Arrowhead Transaction" and, together with the Rexnord Transaction, the "Transactions"), and the benefits and synergies of the Transactions, future opportunities for the Company, and any other statements regarding the Company’s future operations, anticipated business levels, future earnings, planned activities, anticipated growth, market opportunities, strategies, competition and other expectations and estimates for future periods. Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as “anticipate,” “believe,” “confident,” “estimate,” “expect,” “intend,” “plan,” “may,” “will,” “project,” “forecast,” "would," "could," "should," and similar expressions. These forward-looking statements are based upon information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could cause actual results, performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause actual results to differ materially from the results referred to in the forward-looking statements the Company makes in this report include:

dependence on key suppliers and the potential effects of supply disruptions;
fluctuations in commodity prices and raw material costs;
any unforeseen changes to or the effects on liabilities, future capital expenditures, revenue, expenses, synergies, indebtedness, financial condition, losses and future prospects;
the possibility that the Company may be unable to achieve expected synergies and operating efficiencies in connection with the Transactions within the expected time-frames or at all and to successfully integrate the Rexnord PMC and Arrowhead businesses;
expected or targeted future financial and operating performance and results;
operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) being greater than expected following the Transactions;
the Company's ability to retain key executives and employees;
the continued financial and operational impacts of and uncertainties relating to the COVID-19 pandemic on customers and suppliers and the geographies in which they operate;
uncertainties regarding the ability to execute restructuring plans within expected costs and timing;
challenges to the tax treatment that was elected with respect to the Rexnord Transaction and related transactions;
requirements to abide by potentially significant restrictions with respect to the tax treatment of the Rexnord Transaction which could limit the Company’s ability to undertake certain corporate actions that otherwise could be advantageous;
actions taken by competitors and their ability to effectively compete in the increasingly competitive global electric motor, drives and controls, power generation and power transmission industries;
the ability to develop new products based on technological innovation, such as the Internet of Things, and marketplace acceptance of new and existing products, including products related to technology not yet adopted or utilized in geographic locations in which the Company does business;
dependence on significant customers;
seasonal impact on sales of products into HVAC systems and other residential applications;
risks associated with global manufacturing, including risks associated with public health crises and political, societal or economic instability, including instability caused by the conflict between Russia and Ukraine;
issues and costs arising from the integration of acquired companies and businesses and the timing and impact of purchase accounting adjustments;
the Company's overall debt levels and its ability to repay principal and interest on its outstanding debt;
3


prolonged declines in one or more markets, such as heating, ventilation, air conditioning, refrigeration, power generation, oil and gas, unit material handling, water heating and aerospace;
economic changes in global markets, such as reduced demand for products, currency exchange rates, inflation rates, interest rates, recession, government policies, including policy changes affecting taxation, trade, tariffs, immigration, customs, border actions and the like, and other external factors that the Company cannot control;
product liability, asbestos and other litigation, or claims by end users, government agencies or others that products or customers' applications failed to perform as anticipated, particularly in high volume applications or where such failures are alleged to be the cause of property or casualty claims;
unanticipated liabilities of acquired businesses;
unanticipated adverse effects or liabilities from business exits or divestitures;
unanticipated costs or expenses that may be incurred related to product warranty issues;
infringement of intellectual property by third parties, challenges to intellectual property and claims of infringement on third party technologies;
effects on earnings of any significant impairment of goodwill;
losses from failures, breaches, attacks or disclosures involving information technology infrastructure and data;
cyclical downturns affecting the global market for capital goods;
and other risks and uncertainties including, but not limited, to those described in the Company's Annual Report on Form 10-K on file with the SEC and from time to time in other filed reports including the Company's Quarterly Reports on Form 10-Q. For a more detailed description of the risk factors associated with the Company, please refer to Part I, Item 1A in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2022 on file with the SEC and subsequent SEC filings.
Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made only as of the date of this report, and the Company undertakes no obligation to update any forward-looking information contained in this report to reflect subsequent events or circumstances. 

4


PART I—FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in Millions, Except Per Share Data)
 
 Three Months EndedSix Months Ended
 June 30, 2022July 3, 2021June 30, 2022July 3, 2021
Net Sales$1,349.4 $886.9 $2,647.9 $1,701.0 
Cost of Sales915.9 629.2 1,792.5 1,193.5 
Gross Profit433.5 257.7 855.4 507.5 
Operating Expenses238.6 140.2 490.6 288.5 
Asset Impairments— 2.3 — 2.3 
       Total Operating Expenses238.6 142.5 490.6 290.8 
Income from Operations194.9 115.2 364.8 216.7 
Other Income, Net(1.5)(1.2)(2.8)(2.4)
Interest Expense13.4 11.5 22.4 24.1 
Interest Income(0.8)(1.7)(1.9)(3.2)
Income before Taxes183.8 106.6 347.1 198.2 
Provision for Income Taxes40.6 20.6 76.8 41.9 
Net Income143.2 86.0 270.3 156.3 
Less: Net Income Attributable to Noncontrolling Interests1.2 1.6 2.7 3.0 
Net Income Attributable to Regal Rexnord Corporation$142.0 $84.4 $267.6 $153.3 
Earnings Per Share Attributable to Regal Rexnord Corporation:
Basic$2.13 $2.07 $3.99 $3.78 
Assuming Dilution$2.12 $2.06 $3.96 $3.74 
Weighted Average Number of Shares Outstanding:
Basic66.8 40.7 67.1 40.6 
Assuming Dilution67.1 41.0 67.5 41.0 

See Accompanying Notes to Condensed Consolidated Financial Statements

5


REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in Millions)
 
 Three Months EndedSix Months Ended
 June 30, 2022July 3, 2021June 30, 2022July 3, 2021
Net Income$143.2 $86.0 $270.3 $156.3 
Other Comprehensive Income (Loss) Net of Tax:
Foreign Currency Translation Adjustments(120.8)10.0 (121.2)(11.7)
Hedging Activities:
Increase (Decrease) in Fair Value of Hedging Activities, Net of Tax Effects of $(10.5) Million and $4.2 Million for the Three Months Ended June 30, 2022 and July 3, 2021 and $(2.2) Million and $8.8 Million for the Six Months Ended June 30, 2022 and July 3, 2021, Respectively
(32.9)13.3 (6.8)27.9 
Reclassification of (Gains) Losses included in Net Income, Net of Tax Effects of $(1.5) Million and $(2.7) Million for the Three Months Ended June 30, 2022 and July 3, 2021 and $(3.5) Million and $(5.5) Million for the Six Months Ended June 30, 2022 and July 3, 2021, Respectively
(5.3)(8.6)(11.3)(17.3)
Pension and Post Retirement Plans:
Reclassification Adjustments for Pension and Post Retirement Benefits included in Net Income, Net of Tax Effects of $0.1 Million and $0.1 Million for the Three Months Ended June 30, 2022 and July 3, 2021 and $0.1 Million and $0.2 Million for the Six Months Ended June 30, 2022 and July 3, 2021, Respectively
0.1 0.4 0.3 0.7 
Other Comprehensive (Loss) Income(158.9)15.1 (139.0)(0.4)
Comprehensive (Loss) Income(15.7)101.1 131.3 155.9 
Less: Comprehensive (Loss) Income Attributable to Noncontrolling Interests(1.1)2.3 0.8 3.4 
Comprehensive (Loss) Income Attributable to Regal Rexnord Corporation$(14.6)$98.8 $130.5 $152.5 
        
See Accompanying Notes to Condensed Consolidated Financial Statements

6


REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Millions, Except Per Share Data)
 
June 30, 2022January 1, 2022
ASSETS
Current Assets:
Cash and Cash Equivalents$702.5 $672.8 
Trade Receivables, Less Allowances of $18.7 Million and $18.7 Million in 2022 and 2021, Respectively
854.8 785.8 
Inventories1,388.4 1,192.4 
Prepaid Expenses and Other Current Assets141.2 145.1 
Assets Held for Sale10.6 12.5 
Total Current Assets3,097.5 2,808.6 
Net Property, Plant and Equipment822.0 908.5 
Operating Lease Assets114.4 112.4 
Goodwill4,026.0 4,039.2 
Intangible Assets, Net of Amortization2,326.6 2,429.2 
Deferred Income Tax Benefits35.7 35.7 
Other Noncurrent Assets36.3 33.8 
Total Assets$10,458.5 $10,367.4 
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable$652.8 $643.8 
Dividends Payable23.3 22.3 
Accrued Compensation and Employee Benefits124.8 143.9 
Other Accrued Expenses261.9 253.2 
Current Operating Lease Liabilities27.4 27.2 
Current Maturities of Long-Term Debt30.6 4.9 
Total Current Liabilities1,120.8 1,095.3 
Long-Term Debt2,132.5 1,913.6 
Deferred Income Taxes620.1 679.7 
Pension and Other Post Retirement Benefits102.9 111.7 
Noncurrent Operating Lease Liabilities90.5 89.5 
Other Noncurrent Liabilities76.0 69.4 
Contingencies (see Note 12)
Equity:
Regal Rexnord Corporation Shareholders' Equity:
Common Stock, $0.01 par value, 100.0 Million Shares Authorized, 66.5 Million and 67.6 Million Shares Issued and Outstanding for 2022 and 2021, Respectively
0.7 0.7 
Additional Paid-In Capital4,611.6 4,651.8 
Retained Earnings1,996.6 1,912.6 
Accumulated Other Comprehensive Loss(332.2)(195.1)
Total Regal Rexnord Corporation Shareholders' Equity6,276.7 6,370.0 
Noncontrolling Interests39.0 38.2 
Total Equity6,315.7 6,408.2 
Total Liabilities and Equity$10,458.5 $10,367.4 
See Accompanying Notes to Condensed Consolidated Financial Statements.
7


REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Dollars in Millions, Except Per Share Data)
 
Three Months Ended
Common Stock $0.01 Par Value
Additional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Noncontrolling InterestsTotal Equity
March 31, 2022$0.7 $4,631.1 $1,927.5 $(175.6)$40.1 $6,423.8 
Net Income— — 142.0 — 1.2 143.2 
Other Comprehensive Loss— — — (156.6)(2.3)(158.9)
Dividends Declared ($0.35 Per Share)
— — (23.2)— — (23.2)
Stock Options Exercised— (4.3)— — — (4.3)
Stock Repurchase— (20.1)(49.7)— — (69.8)
Share-Based Compensation— 4.9 — — — 4.9 
June 30, 2022$0.7 $4,611.6 $1,996.6 $(332.2)$39.0 $6,315.7 
April 3, 2021$0.4 $698.1 $2,105.8 $(178.5)$33.7 $2,659.5 
Net Income— — 84.4 — 1.6 86.0 
Other Comprehensive Income— — — 14.4 0.7 15.1 
Dividends Declared ($0.33 Per Share)
— — (13.4)— — (13.4)
Stock Options Exercised— (4.2)— — — (4.2)
Share-Based Compensation— 4.5 — — — 4.5 
Dividends Declared to Noncontrolling Interests— — — — (4.5)(4.5)
July 3, 2021$0.4 $698.4 $2,176.8 $(164.1)$31.5 $2,743.0 
 
See Accompanying Notes to Condensed Consolidated Financial Statements.

8


REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Dollars in Millions, Except Per Share Data)
 
Six Months Ended
Common Stock $0.01 Par Value
Additional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Noncontrolling InterestsTotal Equity
January 1, 2022$0.7 $4,651.8 $1,912.6 $(195.1)$38.2 $6,408.2 
Net Income— — 267.6 — 2.7 270.3 
Other Comprehensive Loss— — — (137.1)(1.9)(139.0)
Dividends Declared ($0.68 Per Share)
— — (45.3)— — (45.3)
Stock Options Exercised— (5.7)— — — (5.7)
Stock Repurchase— (45.7)(138.3)— — (184.0)
Share-Based Compensation— 11.2 — — — 11.2 
June 30, 2022$0.7 $4,611.6 $1,996.6 $(332.2)$39.0 $6,315.7 
January 2, 20210.4 696.6 2,049.1 (163.3)32.6 2,615.4 
Net Income— — 153.3 — 3.0 156.3 
Other Comprehensive (Loss) Income— — — (0.8)0.4 (0.4)
Dividends Declared ($0.63 Per Share)
— — (25.6)— — (25.6)
Stock Options Exercised— (6.0)— — — (6.0)
Share-Based Compensation— 7.8 — — — 7.8 
Dividends Declared to Noncontrolling Interests— — — — (4.5)(4.5)
July 3, 2021$0.4 $698.4 $2,176.8 $(164.1)$31.5 $2,743.0 
 

See Accompanying Notes to Condensed Consolidated Financial Statements.

9


REGAL REXNORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
 Six Months Ended
June 30, 2022July 3, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income$270.3 $156.3 
Adjustments to Reconcile Net Income to Net Cash (Used in) Provided by Operating Activities (Net of Acquisitions and Divestitures):
Depreciation and Amortization156.3 62.3 
Asset Impairments— 2.3 
Noncash Lease Expense20.6 12.4 
(Gain) Loss on Sale or Disposition of Assets, Net(1.7)0.5 
Share-Based Compensation Expense11.2 7.8 
Financing Fees Amortization1.4 8.6 
Change in Operating Assets and Liabilities(353.2)(113.6)
Net Cash Provided by Operating Activities104.9 136.6 
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant and Equipment(32.6)(24.3)
Proceeds Received from Sales of Property, Plant and Equipment5.5 1.8 
Business Acquisitions, Net of Cash Acquired(35.0)(3.8)
Net Cash Used in Investing Activities(62.1)(26.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings Under Revolving Credit Facility1,521.5 183.7 
Repayments Under Revolving Credit Facility(1,698.2)(183.7)
Proceeds from Short-Term Borrowings6.0 6.2 
Repayments of Short-Term Borrowings(8.0)(6.2)
Proceeds from Long-Term Borrowings1,536.8 — 
Repayments of Long-Term Borrowings(1,108.4)(50.2)
Dividends Paid to Shareholders(44.3)(24.4)
Shares Surrendered for Taxes(8.1)(6.1)
Proceeds from the Exercise of Stock Options3.4 0.1 
Repurchase of Common Stock(184.0)— 
Distributions to Noncontrolling Interests— (4.5)
Financing Fees Paid(6.5)(17.0)
Net Cash Provided by (Used in) Financing Activities10.2 (102.1)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS(23.3)(1.0)
Net Increase in Cash and Cash Equivalents29.7 7.2 
Cash and Cash Equivalents at Beginning of Period672.8 611.3 
Cash and Cash Equivalents at End of Period$702.5 $618.5 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid For:
 Interest$20.0 $15.3 
 Income taxes$96.7 $46.3 

See Accompanying Notes to Condensed Consolidated Financial Statements.
10


REGAL REXNORD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)

1. BASIS OF PRESENTATION
The accompanying (a) Condensed Consolidated Balance Sheet of Regal Rexnord Corporation (the “Company”), as of January 1, 2022, which has been derived from audited Consolidated Financial Statements, and (b) unaudited interim Condensed Consolidated Financial Statements as of June 30, 2022 and for the three and six months ended June 30, 2022 and July 3, 2021, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company’s 2021 Annual Report on Form 10-K filed on March 2, 2022.
In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Except as otherwise discussed, such adjustments consist of only those of a normal recurring nature. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2022.
The Condensed Consolidated Financial Statements have been prepared in accordance with GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Condensed Consolidated Financial Statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company uses estimates in accounting for, among other items, allowance for doubtful accounts; 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; retirement benefits; 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.
Effective for fiscal year 2022, the Company approved a change in the fiscal year end from a 52-53 week year ending on the Saturday closest to December 31 to a calendar year ending on December 31. The Company made the fiscal year change on a prospective basis and did not adjust operating results for prior periods. While this change will impact the comparability of future results with each of the fiscal quarters and the annual fiscal period in 2022, the impact is not expected to be material to our quarterly or annual results.
Change in Accounting Principle
As of January 2, 2022, the Company changed its methodology for valuing certain inventories to the first-in, first-out ("FIFO") cost method from the last-in, first-out ("LIFO") cost method. The effects of this change have been retrospectively applied to all periods presented. See Note 2 for additional information.
Recently Issued Accounting Standards
In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU improves the accounting for acquired revenue contracts with customers in a business combination. This ASU becomes effective for fiscal years beginning after December 31, 2022, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance.


2. OTHER FINANCIAL INFORMATION
Inventories
As of January 2, 2022, the Company changed its method for valuing certain inventories to the FIFO cost method from the LIFO cost method. The Company believes that this change in accounting is preferable as it provides a better matching of costs and revenues, more closely resembles the physical flow of inventory, better reflects acquisition cost of inventory on the balance sheet, conforms the Company's method of inventory valuation to a single method, results in improved comparability with industry peers and reduces the administrative burden of determining the LIFO valuation.
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The effects of this change have been retrospectively applied to all periods presented. This change resulted in an increase to retained earnings of $38.4 million as of January 2, 2021.

In addition, certain financial statement line items in our Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 3, 2021, Condensed Consolidated Statements of Cash Flows for the six months ended July 3, 2021 and our Condensed Consolidated Balance Sheet as of January 1, 2022, were adjusted as follows (dollars in millions):

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As Originally ReportedEffect of ChangeAs Adjusted
Condensed Consolidated Statement of Operations for the three months ended July 3, 2021
Cost of Sales$635.4 $(6.2)$629.2 
Provision for Income Taxes$19.2 $1.4 $20.6 
Net income attributable to Regal Rexnord Corporation$79.6 $4.8 $84.4 
Earnings Per Share Attributable to Regal Rexnord Corporation:
   Basic$1.96 $0.12 $2.07 
   Assuming Dilution$1.94 $0.12 $2.06 
Condensed Consolidated Statement of Operations for the six months ended July 3, 2021
Cost of Sales$1,204.1 $(10.6)$1,193.5 
Provision for Income Taxes$39.4 $2.5 $41.9 
Net income attributable to Regal Rexnord Corporation$145.2 $8.1 $153.3 
Earnings Per Share Attributable to Regal Rexnord Corporation:
Basic$3.57 $0.21 $3.78 
Assuming Dilution$3.54 $0.20 $3.74 
Condensed Consolidated Balance Sheet as of January 1, 2022
Inventories$1,106.6 $85.8 $1,192.4 
Deferred Income Taxes$652.0 $27.7 $679.7 
Retained Earnings$1,854.5 $58.1 $1,912.6 
Condensed Consolidated Statement of Cash Flows for the six months ended July 3, 2021
Net Income$148.2 $8.1 $156.3 
Change in Operating Assets and Liabilities$(105.5)$(8.1)$(113.6)
Condensed Consolidated Statement of Comprehensive Income for the three months ended July 3, 2021
Comprehensive income attributable to Regal Rexnord Corporation$94.0 $4.8 $98.8 
Condensed Consolidated Statement of Comprehensive Income for the six months ended July 3, 2021
Comprehensive income attributable to Regal Rexnord Corporation$144.4 $8.1 $152.5 

The following table presents approximate percentage distribution between major classes of inventories inclusive of the accounting method change discussed above:
13


June 30, 2022January 1, 2022
Raw Material and Work in Process47.6%43.4%
Finished Goods and Purchased Parts52.4%56.6%
Inventories are stated at cost, which is not in excess of market. All inventory is valued using the FIFO cost method.
Property, Plant, and Equipment
The following table presents property, plant, and equipment by major classification (dollars in millions):
Useful Life in YearsJune 30, 2022January 1, 2022
Land and Improvements$104.8 $109.1 
Buildings and Improvements
3 - 50
412.3 449.6 
Machinery and Equipment
3 - 15
1,125.1 1,164.8 
Property, Plant and Equipment1,642.2 1,723.5 
Less: Accumulated Depreciation(820.2)(815.0)
Net Property, Plant and Equipment$822.0 $908.5 

For the three and six months ended June 30, 2022, the Company recognized no material asset impairments. For the three and six months ended July 3, 2021, the Company recognized $2.3 million of asset impairments related to the transfer of assets to held for sale.

Revenue Recognition

The Company recognizes revenue from the sale of electric motors, electrical motion controls, power generation and power transmission products. The Company recognizes revenue when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.
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. The Company reports in four operating segments: Commercial Systems, Industrial Systems, Climate Solutions and Motion Control Solutions. See Note 6 for a description of the different segments.
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 four 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 system/solutions.
Product:
The nature of products varies from segment to segment but across all segments, individual products are not integrated and represent separate performance obligations.
Customized system/solutions:
The Company provides customized system/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
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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 and cost 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 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 net asset or net liability position and classified as such on the Condensed Consolidated Balance Sheets.
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.
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, they are 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.
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Disaggregation of Revenue
The following tables presents the Company’s revenues disaggregated by geographical region (in millions):
Three Months Ended
June 30, 2022Commercial SystemsIndustrial SystemsClimate SolutionsMotion Control SolutionsTotal
North America$210.8 $92.4 $254.3 $427.0 $984.5 
Asia44.6 37.6 10.0 38.4 130.6 
Europe33.9 13.3 14.1 102.9 164.2 
Rest-of-World12.6 11.4 15.1 31.0 70.1 
Total$301.9 $154.7 $293.5 $599.3 $1,349.4 
July 3, 2021Commercial SystemsIndustrial SystemsClimate SolutionsMotion Control SolutionsTotal
North America$176.1 $73.9 $226.7 $173.2 $649.9 
Asia53.5 46.9 7.7 7.4 115.5 
Europe26.7 12.1 10.4 25.1 74.3 
Rest-of-World13.0 12.3 12.5 9.4 47.2 
Total$269.3 $145.2 $257.3 $215.1 $886.9 

Six Months Ended
June 30, 2022Commercial SystemsIndustrial SystemsClimate SolutionsMotion Control SolutionsTotal
North America$416.7 $174.8 $492.8 $835.5 $1,919.8 
Asia86.8 77.0 18.2 72.8 254.8 
Europe66.6 25.6 27.7 201.0 320.9 
Rest-of-World25.1 22.0 28.7 76.6 152.4 
Total$595.2 $299.4 $567.4 $1,185.9 $2,647.9 
July 3, 2021Commercial SystemsIndustrial SystemsClimate SolutionsMotion Control SolutionsTotal
North America$330.2 $145.0 $436.4 $337.0 $1,248.6 
Asia99.5 90.1 17.0 14.3 220.9 
Europe51.4 23.7 19.9 48.6 143.6 
Rest-of-World25.2 22.8 23.1 16.8 87.9 
Total$506.3 $281.6 $496.4 $416.7 $1,701.0 

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3. HELD FOR SALE, DIVESTITURES AND ACQUISITIONS
Assets Held for Sale

The balances that were classified as Assets Held for Sale as of June 30, 2022 and January 1, 2022 were $10.6 million and $12.5 million, respectively.

2021 Acquisitions

Rexnord Transaction
On October 4, 2021, in accordance with the terms and conditions of the Agreement and Plan of Merger, dated as of February 15, 2021 (the “Merger Agreement”), the Company completed its combination with the Rexnord Process & Motion Control business (“Rexnord PMC business”) of Zurn Elkay Water Solutions Corporation (formerly known as Rexnord Corporation) (“Zurn”) in a Reverse Morris Trust transaction (the “Rexnord Transaction”). Pursuant to the Rexnord Transaction, (i) Zurn transferred to its then-subsidiary Land Newco, Inc. (“Land”) substantially all of the assets, and Land assumed substantially all of the liabilities, of the Rexnord PMC business (the “Reorganization”), (ii) after which all of the issued and outstanding shares of common stock, $0.01 par value per share, of Land (“Land common stock”) held by a subsidiary of Zurn were distributed in a series of distributions to Zurn’s stockholders (the “Distributions”, and the final distribution of Land common stock from Zurn to Zurn’s stockholders, which was made pro rata for no consideration, the “Spin-Off”) and (iii) immediately after the Spin-Off, a subsidiary of the Company (“Merger Sub”) merged with and into Land (the “Merger”) and all shares of Land common stock (other than those held by Zurn, Land, the Company, Merger Sub or their respective subsidiaries) were converted as of the effective time of the Merger (the “Effective Time”) into the right to receive 0.22296103 shares of common stock, $0.01 par value per share, of the Company (“Company common stock”), as calculated in the Merger Agreement.

As of the Effective Time, Land, which held the Rexnord PMC business, became a wholly owned subsidiary of the Company.

Pursuant to the Merger, the Company issued approximately 27,055,945 shares of Company common stock to holders of Land common stock, which represents approximately 39.9% of the approximately 67,756,732 outstanding shares of Company common stock immediately following the Effective Time. In addition, holders of record of Company common stock as of October 1, 2021 received $6.99 per share of Company common stock pursuant to a previously announced special dividend in connection with the Transactions (the “Special Dividend”).

In connection with the Rexnord Transaction, two directors designated by Zurn were appointed to the Company's Board of Directors. The current chief executive officer of the Company continued as the chief executive officer of the combined company after the Rexnord Transaction and a majority of the senior management of the Company immediately prior the consummation of the Rexnord Transaction remained executive officers of the Company immediately after the Rexnord Transaction. The Company's management determined that the Company is the accounting acquirer in the Rexnord 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 Rexnord PMC business, which have been measured at estimated fair value as of the date of the business combination.

In connection with the Rexnord Transaction, the Company entered into certain financing arrangements, which are described in Note 7.

The tax matters agreement the Company entered into in connection with the Rexnord Transaction imposes certain restrictions on the Company, Land and Zurn during the two-year period following the Spin-Off, subject to certain exceptions, with respect to actions that could cause the Reorganization and the Distributions to fail to qualify for the intended tax treatment. As a result of these restrictions, the Company's and Land’s ability to engage in certain transactions, such as the issuance or purchase of stock or certain business combinations, may be limited.

The total consideration transferred for the acquisition of Land was approximately $4.0 billion subject to finalization of purchase accounting adjustments. The total assets and liabilities assumed will be adjusted, based on the final balances per the terms included within the Separation and Distribution Agreement.

The preliminary purchase price of the Rexnord PMC business consisted of the following (in millions):

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As Reported as of January 1, 2022Measurement period adjustmentsAs Reported as of June 30, 2022
Fair value of Company common stock issued to Zurn (a)$3,896.3 $— $3,896.3 
Stock based compensation (b)47.1 — 47.1 
Adjustment amount (c)30.9 4.1 35.0 
Land Financing Fees paid by the Company (d)3.9 — 3.9 
Preexisting Relationships (e)(0.8)— (0.8)
Preliminary purchase price$3,977.4 $4.1 $3,981.5 

(a) Represents approximately 27 million new shares of Company common stock issued to Zurn stockholders in the exchange offer, based on the Company's October 4, 2021, closing share price of $151.00, less the Special Dividend amount of $6.99, which the Zurn stockholders were not entitled to receive.

(b) Represents fair value of replacement equity-based awards and Company common stock issued in settlement of other Zurn share based awards. The portion of the fair value attributable to pre-Merger service was recorded as part of the consideration transferred in the Merger - see Note 10.

(c) Represents working capital adjustment pursuant to the terms of the purchase agreement. The entire amount was settled and paid in cash by the Company as of March 31, 2022.

(d) Represents financing fees paid by the Company for the Bridge Facility and Land Term Facility (as defined in Note 7) that were determined to be costs of Zurn.

(e) Represents effective settlement of outstanding payables and receivables between the Company and the Rexnord PMC business. No gain or loss was recognized on this settlement.

Purchase Price Allocation

The Rexnord PMC business’s assets and liabilities were measured at estimated fair values at October 4, 2021, 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 including 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.

Due to the timing of the business combination and the nature of the net assets acquired, at June 30, 2022, the valuation process to determine the fair values is not complete and further adjustments are expected during the measurement period. The Company has estimated the preliminary fair value of net assets acquired based on information currently available and will continue to adjust those estimates as additional information becomes available, including the refinement of market participant assumptions. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price allocation adjustments will be recorded during the measurement period, but no later than one year from the date of the acquisition. The Company will reflect measurement period adjustments in the period in which the adjustments are determined.
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The preliminary fair value and subsequent measurement period adjustments of the assets acquired and liabilities and noncontrolling interests assumed were as follows (in millions):
As Reported as of January 1, 2022Measurement period adjustmentsAs Reported as of June 30, 2022
Cash and Cash Equivalents$192.8 $— $192.8 
Trade Receivables186.9 (4.4)182.5 
Inventories262.5 (8.9)253.6 
Prepaid Expenses and Other Current Assets21.0 — 21.0 
Assets Held for Sale1.4 — 1.4 
Deferred Income Tax Benefits8.8 (7.7)1.1 
Property, Plant and Equipment412.3 (38.4)373.9 
Operating Lease Assets46.4 — 46.4 
Intangible Assets1,831.0 23.0 1,854.0 
Other Noncurrent Assets12.3 3.7 16.0 
Accounts Payable(121.1)— (121.1)
Accrued Compensation and Benefits(44.0)2.6 (41.4)
Other Accrued Expenses(55.7)(4.0)(59.7)
Current Operating Lease Liabilities(8.1)— (8.1)
Current Maturities of Long-Term Debt(2.5)— (2.5)
Long-Term Debt(558.2)— (558.2)
Deferred Income Taxes(508.2)12.1 (496.1)
Pension and Other Post Retirement Benefits(75.1)— (75.1)
Noncurrent Operating Lease Liabilities(38.0)— (38.0)
Other Noncurrent Liabilities(17.0)— (17.0)
Total Identifiable Net Assets1,547.5 (22.0)1,525.5 
Goodwill2,433.2 26.1 2,459.3 
Noncontrolling Interests(3.3)— (3.3)
Preliminary purchase price$3,977.4 $4.1 $3,981.5 

During six months ended June 30, 2022, the Company made a cash payment of $35.0 million to Zurn in connection with finalizing the acquisition date trade working capital. The preliminary purchase price allocations were also adjusted by the refinement of the estimated fair value of the assets received and liabilities assumed. The cumulative impact of the adjustments during the six months ended June 30, 2022 resulted in $26.1 million of additional goodwill.

Results of the Rexnord PMC business Subsequent to the Acquisition

The financial results of the Rexnord PMC business have been included in the Company's Motion Control Solutions segment from the date of acquisition.

Arrowhead Transaction
On November 23, 2021, the Company acquired all of the outstanding equity interests of Arrowhead Systems, LLC ("Arrowhead") (the "Arrowhead Transaction"), for $315.6 million in cash, net of $1.1 million of cash acquired. Arrowhead is a global leader in providing industrial process automation solutions including conveyors and (de)palletizers to the food & beverage, aluminum can, and consumer staples end markets, among others. Arrowhead is now part of the Automation Solutions division of the Company's Motion Control Solutions segment.

The Consolidated Statements of Income include the results of operations of Arrowhead since the date of acquisition, and such results are reflected in the Motion Control Solutions segment.
Purchase Price Allocation

Arrowhead's assets and liabilities were measured at estimated fair values at November 23, 2021. 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 including royalty rates
19


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 preliminary fair value of the assets acquired and liabilities assumed were as follows (in millions):

As Reported as of January 1, 2022Measurement period adjustmentsas of June 30, 2022
Cash and Cash Equivalents$1.1 $— $1.1 
Trade Receivables19.1 (0.3)18.8 
Inventories12.8 — 12.8 
Prepaid Expenses and Other Current Assets7.6 — 7.6 
Property, Plant and Equipment3.7 — 3.7 
Intangible Assets(1)
160.0 — 160.0 
Accounts Payable(4.7)— (4.7)
Accrued Compensation and Benefits(2.6)— (2.6)
Other Accrued Expenses(25.0)— (25.0)
Total Identifiable Net Assets172.0 (0.3)171.7 
Goodwill143.6 0.3 143.9 
Preliminary purchase price$315.6 $— $315.6 
(1) Includes $124.0 million related to Customer Relationships, $18.0 million related to Trademarks and $18.0 million related to Technology.

The allocation of purchase price is subject to finalization during a period not to exceed one year from the acquisition date. Adjustments to the preliminary allocation of purchase price may occur related to finalization of the working capital adjustment, finalization of the valuation of intangibles and other long-lived assets, adjustment to income tax assets and liabilities and other changes related to the valuation of assets acquired and liabilities assumed. The cumulative impact of the adjustments during the six months ended June 30, 2022 resulted in $0.3 million of additional goodwill.
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4. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments, hedging activities and pension and post-retirement benefit adjustments are included in Accumulated Other Comprehensive Income (Loss) ("AOCI") a component of Total Equity.
The following tables present changes in AOCI by component for the three and six months ended June 30, 2022 and July 3, 2021 (in millions):
Three Months Ended
June 30, 2022Hedging ActivitiesPension and Post Retirement Benefit AdjustmentsForeign Currency Translation AdjustmentsTotal
Beginning Balance$41.1 $(13.9)$(202.8)$(175.6)
Other Comprehensive (Loss) Income before Reclassifications(43.4)0.3 (118.8)(161.9)
Tax Impact10.5 — — 10.5 
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)(6.8)0.2 — (6.6)
Tax Impact1.5 (0.1)— 1.4 
Net Current Period Other Comprehensive (Loss) Income(38.2)0.4 (118.8)(156.6)
Ending Balance$2.9 $(13.5)$(321.6)$(332.2)
July 3, 2021Hedging ActivitiesPension and Post Retirement Benefit AdjustmentsForeign Currency Translation AdjustmentsTotal
Beginning Balance$29.4 $(30.8)$(177.1)$(178.5)
Other Comprehensive Income before Reclassifications17.5 — 9.3 26.8 
Tax Impact(4.2)— — (4.2)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)(11.3)0.5 — (10.8)
Tax Impact2.7 (0.1)— 2.6 
Net Current Period Other Comprehensive Income4.7 0.4 9.3 14.4 
Ending Balance$34.1 $(30.4)$(167.8)$(164.1)
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Six Months Ended
June 30, 2022Hedging ActivitiesPension and Post Retirement Benefit AdjustmentsForeign Currency Translation AdjustmentsTotal
Beginning Balance$21.0 $(14.3)$(201.8)$(195.1)
Other Comprehensive (Loss) Income before Reclassifications(9.0)0.5 (119.8)(128.3)
Tax Impact2.2 — — 2.2 
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)(14.8)0.4 — (14.4)
Tax Impact3.5 (0.1)— 3.4 
Net Current Period Other Comprehensive (Loss) Income(18.1)0.8 (119.8)(137.1)
Ending Balance$2.9 $(13.5)$(321.6)$(332.2)
July 3, 2021Hedging ActivitiesPension and Post Retirement Benefit AdjustmentsForeign Currency Translation AdjustmentsTotal
Beginning Balance$23.5 $(31.1)$(155.7)$(163.3)
Other Comprehensive Income (Loss) before Reclassifications36.7 — (12.1)24.6 
Tax Impact(8.8)— — (8.8)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)(22.8)0.9 — (21.9)
Tax Impact5.5 (0.2)— 5.3 
Net Current Period Other Comprehensive Income (Loss)10.6 0.7 (12.1)(0.8)
Ending Balance$34.1 $(30.4)$(167.8)$(164.1)

The Condensed Consolidated Statements of Income line items affected by the hedging activities reclassified from AOCI in the tables above are disclosed in Note 13.

The reclassification amounts for pension and post-retirement benefit adjustments in the tables above are part of net periodic benefit costs recorded in Other Income, Net (see also Note 8).


5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

As required, the Company performs an annual impairment test of goodwill as of the end of the October fiscal month or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting units below their carrying value.

22


The following table presents changes to goodwill during the six months ended June 30, 2022 (in millions):
TotalCommercial SystemsIndustrial SystemsClimate SolutionsMotion Control Solutions
Balance as of January 1, 2022$4,039.2 $428.9 $128.8 $330.5 $3,151.0 
Acquisition and Valuation Adjustments26.4 — — — 26.4 
Translation Adjustments(39.6)(5.0)(1.6)(0.5)(32.5)
Balance as of June 30, 2022$4,026.0 $423.9 $127.2 $330.0 $3,144.9 
Cumulative Goodwill Impairment Charges$328.7 $183.2 $105.1 $17.2 $23.2 
Intangible Assets
The following table presents intangible assets (in millions):
 June 30, 2022January 1, 2022
 Weighted Average Amortization Period (Years)Gross ValueAccumulated AmortizationGross ValueAccumulated Amortization
Amortizable Intangible Assets:
  Customer Relationships16$2,326.1 $465.8 $2,335.4 $405.0 
  Technology13246.9 119.0 250.1 114.1 
  Trademarks10393.4 55.0 400.0 37.2 
  Patent and Engineering Drawings516.6 16.6 16.6 16.6 
$2,983.0 $656.4 $3,002.1 $572.9 
Intangible Assets, Net of Amortization$2,326.6 $2,429.2 

Amortization expense recorded for the three and six months ended June 30, 2022 was $46.5 million and $93.8 million, respectively. Amortization expense recorded for the three and six months ended July 3, 2021 was $11.1 million and $22.3 million, respectively. Amortization expense for fiscal year 2022 is estimated to be $187.0 million. There were no intangible asset impairments during the three and six months ended June 30, 2022 and July 3, 2021, respectively.
The following table presents future estimated annual amortization for intangible assets (in millions):
 YearEstimated Amortization
2023$186.4 
2024185.8 
2025183.7 
2026180.3 
2027145.7 


6. SEGMENT INFORMATION

The Company is comprised of four operating segments: Commercial Systems, Industrial Systems, Climate Solutions and Motion Control Solutions.
Commercial Systems segment designs and produces fractional to approximately 5 horsepower AC and DC motors, electronic variable speed controls, fans, and blowers for commercial applications. These products serve markets including commercial building ventilation and HVAC, pool and spa, irrigation, dewatering, agriculture, and general commercial equipment.
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Industrial Systems segment designs and produces integral motors, automatic transfer switches, alternators and switchgear for industrial applications, along with aftermarket parts and kits to support such products. These products serve markets including agriculture, marine, mining, oil and gas, food and beverage, data centers, healthcare, prime and standby power, and general industrial equipment.
Climate Solutions segment designs and produces small motors, electronic variable speed controls and air moving solutions serving markets including residential and light commercial HVAC, water heaters and commercial refrigeration.
Motion Control Solutions segment designs, produces and services mounted and unmounted bearings, conveyor products, conveying automation solutions, couplings, mechanical power transmission drives and components, gearboxes and gear motors, aerospace components, special components products and industrial powertrain components and solutions serving a broad range of markets including food and beverage, bulk handling, eCommerce/warehouse distribution, energy, aerospace and general industrial.
The Company evaluates performance based on the segment's income from operations. Corporate costs have been allocated to each segment based on the net sales of each segment. The reported external net sales of each segment are from external customers.
The following sets forth certain financial information attributable to the Company's operating segments for the three and six months ended June 30, 2022 and July 3, 2021 (in millions):
Three Months Ended
June 30, 2022Commercial SystemsIndustrial SystemsClimate SolutionsMotion Control SolutionsEliminationsTotal
External Sales$301.9 $154.7 $293.5 $599.3 $— $1,349.4 
Intersegment Sales26.1 7.9 4.4 2.3 (40.7)— 
 Total Sales328.0 162.6 297.9 601.6 (40.7)1,349.4 
Gross Profit82.1 44.0 74.6 232.8 — 433.5 
Operating Expenses40.4 22.8 30.3 145.1 — 238.6 
Total Operating Expenses40.4 22.8 30.3 145.1 — 238.6 
Income from Operations41.7 21.2 44.3 87.7 — 194.9 
Depreciation and Amortization7.4 3.4 4.4 63.2 — 78.4 
Capital Expenditures5.2 2.7 4.6 6.7 — 19.2 
July 3, 2021
External Sales$269.3 $145.2 $257.3 $215.1 $— $886.9 
Intersegment Sales19.9 7.3 5.1 0.8 (33.1)— 
 Total Sales289.2 152.5 262.4 215.9 (33.1)886.9 
Gross Profit*69.5 27.4 75.5 85.3 — 257.7 
Operating Expenses40.3 23.1 27.0 49.8 — 140.2 
Asset Impairments1.8 — 0.5 — — 2.3 
Total Operating Expenses42.1 23.1 27.5 49.8 — 142.5 
Income from Operations*27.4 4.3 48.0 35.5 — 115.2 
Depreciation and Amortization7.8 5.7 3.6 13.4 — 30.5 
Capital Expenditures4.5 3.3 3.0 2.8 — 13.6 
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Six Months Ended
June 30, 2022Commercial SystemsIndustrial SystemsClimate SolutionsMotion Control SolutionsEliminationsTotal
External Sales$595.2 $299.4 $567.4 $1,185.9 $— $2,647.9 
Intersegment Sales54.3 15.2 9.2 4.2 (82.9)— 
 Total Sales649.5 314.6 576.6 1,190.1 (82.9)2,647.9 
Gross Profit176.4 75.3 157.8 445.9 — 855.4 
Operating Expenses81.8 46.2 62.0 300.6 — 490.6 
Total Operating Expenses81.8 46.2 62.0 300.6 — 490.6 
Income from Operations94.6 29.1 95.8 145.3 — 364.8 
Depreciation and Amortization15.1 7.0 8.8 125.4 — 156.3 
Capital Expenditures8.8 4.2 8.9 10.7 — 32.6 
July 3, 2021
External Sales$506.3 $281.6 $496.4 $416.7 $— $1,701.0 
Intersegment Sales37.4 11.0 9.4 1.5 (59.3)— 
 Total Sales543.7 292.6 505.8 418.2 (59.3)1,701.0 
Gross Profit*136.3 55.4 150.9 164.9 — 507.5 
Operating Expenses78.3 46.2 57.7 106.3 — 288.5 
Asset Impairments1.8 — 0.5 — — 2.3 
Total Operating Expenses80.1 46.2 58.2 106.3 — 290.8 
Income from Operations*56.2 9.2 92.7 58.6 — 216.7 
Depreciation and Amortization15.6 11.6 8.1 27.0 — 62.3 
Capital Expenditures7.8 5.7 6.2 4.6 — 24.3 

The following table presents identifiable assets information attributable to the Company's operating segments as of June 30, 2022 and January 1, 2022 (in millions):
Commercial SystemsIndustrial SystemsClimate SolutionsMotion Control SolutionsTotal
Identifiable Assets as of June 30, 2022$1,314.9 $874.0 $1,028.6 $7,241.0 $10,458.5 
Identifiable Assets as of January 1, 2022*1,264.0 859.9 982.7 7,260.8 10,367.4 
*Includes the retrospective effect of changing accounting methods for valuing certain inventories to the FIFO cost method from the LIFO cost method. See Note 2 for additional information.
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7. DEBT AND BANK CREDIT FACILITIES

The following table presents the Company’s indebtedness as of June 30, 2022 and January 1, 2022 (in millions):
June 30, 2022January 1, 2022
Term Facility$550.0 $620.0 
Senior Notes500.0 — 
Land Term Facility486.8 486.8 
Multicurrency Revolving Facility560.0 736.7 
Other75.2 78.7 
Less: Debt Issuance Costs(8.9)(3.7)
Total2,163.1 1,918.5 
Less: Current Maturities30.6 4.9 
Long-Term Debt$2,132.5 $1,913.6 
Credit Agreement
On March 28, 2022, the Company entered into a Second Amended and Restated Credit Agreement with the Company's lenders (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders named therein. The Credit Agreement (i) replaces in its entirety the Amended and Restated Credit Agreement, dated as of August 27, 2018, as amended by that First Amendment, dated March 17, 2021, among the Company and other parties thereto and (ii) amends and restates in its entirety the Amended and Restated Credit Agreement, dated as of October 4, 2021, among Land and the other parties thereto (collectively, the “Former Credit Agreements”).

The Credit Agreement provides for, among other things, an extension of the maturity date of the revolving credit facility and term loans provided under the Former Credit Agreements. The credit facilities extended under the Credit Agreement consist of (i) an unsecured term loan facility in the initial principal amount of up to $550,000,000, maturing on March 28, 2027 (the "Term Facility"); (ii) an unsecured term loan facility in the initial principal amount of $486,827,669, under which Land 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 $1,000,000,000, maturing on March 28, 2027 (the "Multicurrency Revolving Facility"). Interest for benchmark rate loans is calculated based on a SOFR benchmark rate, plus a margin spread to be adjusted quarterly based on the Company’s funded debt to EBITDA ratio. The Credit Agreement is subject to customary and market provisions. The subsidiaries of the Company that provided a guaranty of the Company's and Land's obligations under the Former Credit Agreement also entered into subsidiary guaranty agreements with respect to the obligations under the Credit Agreement.

The Term Facility was drawn in full on March 28, 2022 to refinance the Former Credit Agreements, pay fees, costs, and other expenses incurred therewith, to fund working capital needs and for general corporate purposes of the Company and its subsidiaries. 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.

The weighted average interest rate on the Term Facility for the three months ended June 30, 2022 and July 3, 2021 was 2.1% and 1.4%, respectively. The weighted average interest rate on the Term Facility for the six months ended June 30, 2022 and July 3, 2021 was 1.7% and 1.5%, respectively. The Credit Agreement requires that the Company prepay the loans under the Term Facility with 100% of the net cash proceeds received from specified asset sales and borrowed money indebtedness, subject to certain exceptions.
At June 30, 2022, the Company had $560.0 million of borrowings under the Multicurrency Revolving Facility, $0.1 million of standby letters of credit issued under the facility, and $439.8 million of available borrowing capacity. For the three months ended June 30, 2022 and July 3, 2021 under the Multicurrency Revolving Facility, the average daily balance in borrowings was $730.0 million and $2.4 million, respectively, and the weighted average interest rate was 2.1% and 1.4%, respectively. For the six months ended June 30, 2022 and July 3, 2021 under the Multicurrency Revolving Facility, the average daily balance in borrowings was $765.2 million and $4.9 million, respectively, and the weighted average interest rate was 1.7% and 1.4%, respectively. The Company pays a non-use fee on the aggregate unused amount of the Multicurrency Revolving Facility at a rate determined by reference to its consolidated funded debt to consolidated EBITDA ratio.

As of June 30, 2022, the Company had $486.8 million of borrowings under the Land Term Facility. The Land Term Facility has no required amortization. The weighted average interest rate on the Land Term Facility for three months ended June 30, 2022 was 2.1%. The weighted average interest rate on the Land Term Facility for six months ended June 30, 2022 was 1.7%.

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In connection with the Rexnord Transaction, on February 15, 2021, the Company entered into a debt commitment letter (the “Bridge Commitment Letter”) and related fee letters with Barclays Bank PLC (“Barclays”), pursuant to which, and subject to the terms and conditions set forth therein, Barclays committed to provide approximately $2.1 billion in an aggregate principal amount of senior bridge loans under a 364-day senior bridge loan credit facility (the “Bridge Facility”). As the Rexnord Transaction was consummated and the payments of amounts in connection therewith occurred without the use of the Bridge Facility, the commitments under the Bridge Commitment Letter were terminated in connection with the closing of the Rexnord Transaction.
Senior Notes
On April 7, 2022, the Company entered into a Note Purchase Agreement with certain institutional accredited investors (the "Note Purchase Agreement") for the issuance and sale of $500,000,000 aggregate principal amount of 3.90% senior notes due April 7, 2032 (the "Senior Notes"), in an offering exempt from the registration requirements of the Securities Act of 1933, as amended. The Company expects to use the net proceeds from the offering for general corporate purposes.

The Note Purchase Agreement is subject to customary and market provisions. The subsidiaries of the Company that provided a guaranty of the Company’s and Land’s obligations under the Credit Agreement also entered into subsidiary guaranty agreements with respect to the obligations under the Note Purchase Agreement. The Company may, at its option, prepay at any time all, or from time to time any part of, the Senior Notes, subject to a make-whole amount and certain other restrictions set forth in the Note Purchase Agreement.
Compliance with Financial Covenants
The Credit Agreement requires the Company to meet specified financial ratios and to satisfy certain financial condition tests. The Note Purchase Agreement contains financial covenants consistent with the financial covenants in the Credit Agreement. The Company was in compliance with all financial covenants contained in the Credit Agreement and Note Purchase Agreement as of June 30, 2022.
Other Notes Payable

At June 30, 2022, other notes payable of approximately $75.2 million were outstanding with a weighted average interest rate of 5.1%. At January 1, 2022, other notes payable of approximately $78.7 million were outstanding with a weighted average rate of 5.2%.

Other Disclosures

Based on rates for instruments with comparable maturities and credit quality, which are classified as Level 2 inputs (see also Note 14), the approximate fair value of the Company's total debt was $2,125.9 million and $1,918.5 million as of June 30, 2022 and January 1, 2022, respectively.

8. RETIREMENT AND POST RETIREMENT HEALTH CARE PLANS

The following table presents the Company’s net periodic benefit cost (income) components (in millions):
 Three Months EndedSix Months Ended
 June 30, 2022July 3, 2021June 30, 2022July 3, 2021
Service Cost$0.5 $0.3 $0.8 $0.6 
Interest Cost3.5 1.4 7.1 2.9 
Expected Return on Plan Assets(5.2)(3.1)(10.3)(6.2)
Amortization of Prior Service Cost and Net Actuarial Loss0.2 0.5 0.4 0.9 
Net Periodic Benefit Income$(1.0)$(0.9)$(2.0)$(1.8)

The service cost component is included in Cost of Sales and Operating Expenses. All other components of net periodic benefit costs are included in Other Income, Net on the Company's Condensed Consolidated Statements of Income.
For the three months ended June 30, 2022 and July 3, 2021, the Company contributed $1.3 million and $1.6 million, respectively, to post retirement plans. For the six months ended June 30, 2022 and July 3, 2021, the Company contributed $3.0
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million and $2.8 million, respectively. The Company expects to make total contributions of $7.6 million in 2022. The Company contributed a total of $6.0 million in fiscal 2021.

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. During the three and six months ended June 30, 2022, the Company purchased 575,042 shares or $69.8 million and 1,306,236 shares or $184.0 million of common stock, respectively. The Company did not repurchase and retire any common stock during the six months ended July 3, 2021.

As of June 30, 2022, there was approximately $250.3 million in common stock available for repurchase under the October 2021 program.

Share-Based Compensation

The Company recognized approximately $4.9 million and $4.5 million in share-based compensation expense for the three months ended June 30, 2022 and July 3, 2021, respectively, and approximately $11.2 million and $7.8 million for the six months ended June 30, 2022 and July 3, 2021, respectively. The total income tax benefit recognized in the Condensed Consolidated Statements of Income for share-based compensation expense was $1.2 million and $0.7 million for the three months ended June 30, 2022 and July 3, 2021, respectively, and $2.7 million and $1.3 million for the six months ended June 30, 2022 and July 3, 2021, respectively. The Company recognizes compensation expense on grants of share-based compensation awards on a straight-line basis over the vesting period of each award.

During the six months ended June 30, 2022, the Company granted the following share-based incentive awards:

Award TypeNumber of AwardsWeighted Average Grant-Date Fair Value
Options and SARs135,816 $42.21 
Restricted Stock Awards10,287 $131.27 
Restricted Stock Units85,017 $149.66 
Performance Share Units40,763 $174.91 
See Note 9, Shareholders' Equity, to the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended January 1, 2022, for further information regarding share-based compensation.

10. INCOME TAXES
The effective tax rate for the three months ended June 30, 2022 was 22.1% versus 19.3% for the three months ended July 3, 2021. The effective tax rate for the six months ended June 30, 2022 and July 3, 2021 was 22.1% and 21.1%, respectively. The effective tax rate for the three and six months ended June 30, 2022 was higher than the same period in the prior year primarily driven by the jurisdictional mix of earnings related to the impact of the Rexnord Transaction in fiscal 2021.
As of June 30, 2022 and January 1, 2022, the Company had approximately $8.6 million and $8.8 million of unrecognized tax benefits, all of which would impact the effective income tax rate if recognized. Potential interest and penalties related to unrecognized tax benefits are recorded in income tax expense. The Company had approximately $1.2 million and $1.3 million of accrued interest as of June 30, 2022 and January 1, 2022, respectively.
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 2018, and the Company is no longer subject to non-US income tax examinations by tax authorities for years prior to 2015.

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11. EARNINGS PER SHARE

Diluted earnings per share is calculated based upon earnings applicable to common shares divided by the weighted-average number of common shares outstanding during the period adjusted for the effect of other dilutive securities. The amount of the anti-dilutive shares were 0.4 million and 0.1 million for the three months ended June 30, 2022 and July 3, 2021, respectively. The amount of the anti-dilutive shares were 0.2 million and 0.1 million for the six months ended June 30, 2022 and July 3, 2021, respectively. The following table reconciles the basic and diluted shares used in earnings per share calculations for the three and six months ended June 30, 2022 and July 3, 2021 (in millions):
 Three Months EndedSix Months Ended
 June 30, 2022July 3, 2021June 30, 2022July 3, 2021
Denominator for Basic Earnings Per Share66.8 40.7 67.1 40.6 
Effect of Dilutive Securities0.3 0.3 0.4 0.4 
Denominator for Diluted Earnings Per Share67.1 41.0 67.5 41.0 

12. CONTINGENCIES
One of the Company's subsidiaries that it acquired in 2007 is subject to numerous claims filed in various jurisdictions relating to certain sub-fractional motors that were primarily manufactured through 2004 and that were included as components of residential and commercial ventilation units manufactured and sold in high volumes by a third party. These ventilation units are subject to product safety requirements and other potential regulation of their performance by government agencies such as the US Consumer Product Safety Commission (“CPSC”). The claims generally allege that the ventilation units were the cause of fires. The Company has recorded an estimated liability for incurred claims. Based on the current facts, the Company cannot assure that these claims, individually or in the aggregate, will not have a material adverse effect on its subsidiary's financial condition. The Company's subsidiary cannot reasonably predict the outcome of these claims, the nature or extent of any CPSC or other remedial actions, if any, that the Company's subsidiary may need to undertake with respect to motors that remain in the field, or the costs that may be incurred, some of which could be significant.
As a result of the Company's acquisition of the Rexnord PMC business, it is entitled to indemnification from third parties to agreements with the Rexnord PMC business against certain contingent liabilities of the Rexnord PMC business, including certain pre-closing environmental liabilities.
The Company believes that, pursuant to the transaction documents related to the Rexnord PMC business' acquisition of the Stearns business from Invensys plc ("Invensys"), Invensys (now known as Schneider Electric) is obligated to defend and indemnify us with respect to the matters described below relating to the Ellsworth Industrial Park Site and to various asbestos claims. The indemnity obligations relating to the matters described below are subject, together with indemnity obligations relating to other matters, to an overall dollar cap equal to the purchase price, which is an amount in excess of $900 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. Rexnord Industries' allocated share of past and future costs related to the Site, including for investigation and/or remediation, could be significant. 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
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environmental conditions that were unknown to Invensys at the time of the acquisition of the Stearns business from Invensys.

Multiple lawsuits (with approximately 300 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 table presents a reconciliation of the changes in accrued warranty costs for the three and six months ended June 30, 2022 and July 3, 2021 (in millions):
 Three Months EndedSix Months Ended
 June 30, 2022July 3, 2021June 30, 2022July 3, 2021
Beginning Balance$23.4 $16.3 $23.0 $15.5 
Less: Payments(7.7)(4.2)(13.3)(8.7)
Provisions8.0 4.6 14.0 10.0 
Translation Adjustments(0.3)— (0.3)(0.1)
Ending Balance$23.4 $16.7 $23.4 $16.7 
These liabilities are included in Other Accrued Expenses and Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets.

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13. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed using derivative instruments are commodity price risk, currency exchange risk, and interest rate risk. Forward contracts on certain commodities are entered into to manage the price risk associated with forecasted purchases of materials used in the Company's manufacturing process. Forward contracts on certain currencies are entered into to manage forecasted cash flows in certain foreign currencies. Interest rate swaps are utilized to manage interest rate risk associated with the Company's floating rate borrowings.
The Company is exposed to credit losses in the event of non-performance by the counterparties to various financial agreements, including its commodity hedging transactions, foreign currency exchange contracts and interest rate swap agreements. Exposure to counterparty credit risk is managed by limiting counterparties to major international banks and financial institutions meeting established credit guidelines and continually monitoring their compliance with the credit guidelines. The Company does not obtain collateral or other security to support financial instruments subject to credit risk. The Company does not anticipate non-performance by its counterparties, but cannot provide assurances.
The Company recognizes all derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. The Company designates commodity forward contracts as cash flow hedges of forecasted purchases of commodities, currency forward contracts as cash flow hedges of forecasted foreign currency cash flows and interest rate swaps as cash flow hedges of forecasted SOFR-based interest payments. There were no significant collateral deposits on derivative financial instruments as of June 30, 2022 or July 3, 2021.
Cash Flow Hedges
The effective portion of the gain or loss on the derivative is reported as a component of AOCI and reclassified into the same line within the Condensed Consolidated Statement of Income as the earnings effect of the hedged item 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.
At June 30, 2022, the Company had $16.7 million, net of tax, of derivative gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At January 1, 2022, the Company had $5.6 million, net of tax, of derivative gains on closed hedge instruments in AOCI that was subsequently realized in earnings when the hedged items impacted earnings.
As of June 30, 2022, the Company had the following currency forward contracts outstanding (with maturities extending through December 2023) to hedge forecasted foreign currency cash flows (in millions):
 Notional Amount (in US Dollars)
Chinese Renminbi$249.5 
Mexican Peso204.1 
Euro208.7 
Indian Rupee79.4 
Australian Dollar14.1 
British Pound1.8 
Thai Baht0.5 

As of June 30, 2022, the Company had the following commodity forward contracts outstanding (with maturities extending through November 2023) to hedge forecasted purchases of commodities (notional amounts expressed in terms of the dollar value of the hedged item (in millions)):
 Notional Amount
Copper$145.3 
Aluminum7.1 

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
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interest rate method through July 2025 when the terminated swaps were scheduled to expire. The Company entered into two additional receive variable/pay-fixed forward starting non-amortizing interest rate swaps in May 2022, with a total notional amount of $250.0 million. These swaps will expire in March 2027.
The following table presents the fair values of derivative instruments as of June 30, 2022 and January 1, 2022 (in millions):
 June 30, 2022
 Prepaid Expenses and Other Current AssetsOther Noncurrent AssetsOther Accrued ExpensesOther Noncurrent Liabilities
Designated as Hedging Instruments:
Interest Rate Swap Contracts$— $— $— $1.8 
Currency Contracts8.4 0.8 2.8 0.5 
Commodity Contracts0.5 — 19.3 3.4 
Not Designated as Hedging Instruments:
Currency Contracts0.6 — 0.7 — 
Commodity Contracts— — 0.3 — 
Total Derivatives$9.5 $0.8 $23.1 $5.7 
 January 1, 2022
 Prepaid Expenses and Other Current AssetsOther Noncurrent AssetsOther Accrued ExpensesOther Noncurrent Liabilities
Designated as Hedging Instruments:
Interest Rate Swap Contracts$— $5.3 $— $— 
Currency Contracts8.3 0.7 1.3 — 
Commodity Contracts8.9 0.1 1.2 0.5 
Not Designated as Hedging Instruments:
Currency Contracts0.3 — 0.4 — 
Commodity Contracts0.4 — — 0.1 
Total Derivatives$17.9 $6.1 $2.9 $0.6 

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The following table presents the effect of derivative instruments on the Condensed Consolidated Statements of Income and Condensed Consolidated Statement of Comprehensive Income (pre-tax) (in millions):
Derivatives Designated as Cash Flow Hedging Instruments
Three Months Ended
June 30, 2022July 3, 2021
Commodity ForwardsCurrency ForwardsInterest Rate SwapsTotalCommodity ForwardsCurrency ForwardsInterest Rate SwapsTotal
(Loss) Gain Recognized in Other Comprehensive Income (Loss)$(35.6)$(6.0)$(1.8)$(43.4)$10.9 $7.5 $(0.9)$17.5 
Amounts Reclassified from Other Comprehensive Income (Loss):
Gain Recognized in Cost of Sales4.4 2.4 — 6.8 8.6 4.0 — 12.6 
Loss Recognized in Operating Expenses— — — — — (1.3)— (1.3)
Six Months Ended
June 30, 2022July 3, 2021
Commodity ForwardsCurrency ForwardsInterest Rate SwapsTotalCommodity ForwardsCurrency ForwardsInterest Rate SwapsTotal
(Loss) Gain Recognized in Other Comprehensive Income (Loss)$(22.2)$4.4 $8.8 $(9.0)$25.0 $7.7 $4.0 $36.7 
Amounts Reclassified from Other Comprehensive Income (Loss):
Gain Recognized in Net Sales— 0.1 — 0.1 — 0.1 — 0.1 
Gain Recognized in Cost of Sales9.6 5.4 — 15.0 13.8 6.6 — 20.4 
Gain Recognized in Operating Expenses— — — — — 2.2 — 2.2 
(Loss) Gain Recognized in Interest Expense— — (0.3)(0.3)— — 0.1 0.1 
Derivatives Not Designated as Cash Flow Hedging Instruments (in millions):
Three Months Ended
June 30, 2022July 3, 2021
Commodity ForwardsCurrency ForwardsCommodity ForwardsCurrency Forwards
(Loss) Gain recognized in Cost of Sales$(1.2)$— $0.2 $— 
Gain (Loss) recognized in Operating Expenses— 3.5 — (3.7)
Six Months Ended
June 30, 2022July 3, 2021
Commodity ForwardsCurrency ForwardsCommodity ForwardsCurrency Forwards
(Loss) Gain recognized in Cost of Sales$(0.6)$— $0.4 $— 
Gain recognized in Operating Expenses— 5.0 — 2.1 

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The net AOCI hedging component balance of a $2.9 million gain at June 30, 2022 includes $(2.1) million of net current deferred losses expected to be realized in the next twelve months. The gain/loss reclassified from AOCI into earnings on such derivatives will be recognized in the same period in which the related item affects earnings.
The Company's commodity and currency derivative contracts are subject to master netting agreements with the respective counterparties which allow the Company to net settle transactions with a single net amount payable by one party to another party. The Company has elected to present the derivative assets and derivative liabilities on the Condensed Consolidated Balance Sheets on a gross basis for the periods ended June 30, 2022 and January 1, 2022.
The following table presents the derivative assets and derivative liabilities presented on a net basis under enforceable master netting agreements (in millions):
June 30, 2022
Gross Amounts as Presented in the Condensed Consolidated Balance SheetDerivative Contract Amounts Subject to Right of Offset Derivative Contracts as Presented on a Net Basis
Prepaid Expenses and Other Current Assets:
Derivative Currency Contracts$9.0 $(2.3)$6.7 
Derivative Commodity Contracts0.5 (0.5)— 
Other Noncurrent Assets:
Derivative Currency Contracts0.8 — 0.8 
Other Accrued Expenses:
Derivative Currency Contracts3.5 (2.3)1.2 
Derivative Commodity Contracts19.6 (0.5)19.1 
Other Noncurrent Liabilities:
Derivative Currency Contracts0.5 — 0.5 
Derivative Commodity Contracts3.4 — 3.4 
January 1, 2022
Gross Amounts as Presented in the Condensed Consolidated Balance SheetDerivative Contract Amounts Subject to Right of OffsetDerivative Contracts as Presented on a Net Basis
Prepaid Expenses and Other Current Assets:
Derivative Currency Contracts$8.6 $(1.7)$6.9 
Derivative Commodity Contracts9.3 (1.2)8.1 
Other Noncurrent Assets:
Derivative Currency Contracts0.7 — 0.7 
Derivative Commodity Contracts0.1 (0.1)— 
Other Accrued Expenses:
Derivative Currency Contracts1.7 (1.7)— 
Derivative Commodity Contracts1.2 (1.2)— 
Other Noncurrent Liabilities:
Derivative Commodity Contracts0.6 (0.1)0.5 

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14. FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2Unadjusted 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 3Unobservable 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 June 30, 2022 and January 1, 2022, due to the short period of time to maturity and are classified using Level 1 inputs. The fair values of trade receivables and accounts payable approximate the carrying values due to the short period of time to maturity. See Note 7 for disclosure of the approximate fair value of the Company's debt at June 30, 2022 and January 1, 2022.
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 June 30, 2022 and January 1, 2022 (in millions):
June 30, 2022January 1, 2022Classification
Assets:
Prepaid Expenses and Other Current Assets:
Derivative Currency Contracts$9.0 $8.6 Level 2
Derivative Commodity Contracts0.5 9.3 Level 2
Other Noncurrent Assets:
Assets Held in Rabbi Trust6.4 6.8 Level 1
Derivative Currency Contracts0.8 0.7 Level 2
Derivative Commodity Contracts— 0.1 Level 2
Interest Rate Swap— 5.3 Level 2
Liabilities:
Other Accrued Expenses:
Derivative Currency Contracts3.5 1.7 Level 2
Derivative Commodity Contracts19.6 1.2 Level 2
Other Noncurrent Liabilities:
Interest Rate Swap1.8 — Level 2
Derivative Currency Contracts0.5 — Level 2
Derivative Commodity Contracts3.4 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 for the SOFR forward yield curve for a swap 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.

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15. RESTRUCTURING ACTIVITIES
The Company incurred restructuring and restructuring-related costs on projects during fiscal 2022 and 2021. In conjunction with the Rexnord Transaction, the Company initiated a restructuring plan to achieve cost synergies from procurement, distribution efficiencies, footprint rationalization and other general cost savings measures. Restructuring costs include employee termination and plant relocation costs. Restructuring-related costs also include costs directly associated with actions resulting from the Company's simplification initiatives, such as asset write-downs or accelerated depreciation due to shortened useful lives in connection with site closures, discretionary employment benefit costs and other facility rationalization costs. Restructuring costs for employee termination expenses are generally recognized when the severance liability is determined to be probable of being paid and reasonably estimable while plant relocation costs and related costs are generally required to be expensed as incurred.

The following table presents a reconciliation of provisions and payments for the restructuring projects for the three and six months ended June 30, 2022 and July 3, 2021 (in millions):
Three Months EndedSix Months Ended
June 30, 2022July 3, 2021June 30, 2022July 3, 2021
Beginning Balance$14.5 $2.7 $5.0 $2.0 
Provision(1.0)1.5 15.8 3.2 
Less: Payments/ Other7.1 1.7 14.4 2.7 
Ending Balance$6.4 $2.5 $6.4 $2.5 

The following table presents a reconciliation of restructuring and restructuring-related costs for restructuring projects for the three and six months ended June 30, 2022 and July 3, 2021, respectively (in millions):
Three Months Ended
June 30, 2022July 3, 2021
Restructuring Costs:Cost of SalesOperating ExpensesTotalCost of SalesOperating ExpensesTotal
Employee Termination Expenses$1.4 $(1.0)$0.4 $0.2 $0.2 $0.4 
Facility Related Costs(2.0)0.1 (1.9)0.8 0.1 0.9 
Other Expenses0.1 0.4 0.5 0.2 — 0.2 
  Total Restructuring Costs$(0.5)$(0.5)$(1.0)$1.2 $0.3 $1.5 
Six Months Ended
June 30, 2022July 3, 2021
Restructuring Costs:Cost of SalesOperating ExpensesTotalCost of SalesOperating ExpensesTotal
Employee Termination Expenses$6.2 $2.6 $8.8 $0.4 $0.6 $1.0 
Facility Related Costs6.0 0.5 6.5 1.6 0.3 1.9 
Other Expenses0.1 0.4 0.5 0.3 — 0.3 
  Total Restructuring Costs$12.3 $3.5 $15.8 $2.3 $0.9 $3.2 
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The following table presents the allocation of restructuring and restructuring-related costs by segment for the three and six months ended June 30, 2022 and July 3, 2021 (in millions):
Restructuring Costs - Three Months EndedTotalCommercial SystemsIndustrial SystemsClimate SolutionsMotion Control Solutions
June 30, 2022$(1.0)$0.3 $0.3 $0.4 $(2.0)
July 3, 2021$1.5 $0.1 $0.3 $0.3 $0.8 
Restructuring Costs - Six Months EndedTotalCommercial SystemsIndustrial SystemsClimate SolutionsMotion Control Solutions
June 30, 2022$15.8 $1.0 $0.3 $0.7 $13.8 
July 3, 2021$3.2 $0.3 $0.8 $0.6 $1.5 

The Company's current restructuring activities are expected to continue through 2023. The Company expects to record aggregate future charges of approximately $45.7 million in 2022. The Company continues to evaluate operating efficiencies and anticipates incurring additional costs in future periods in connection with these activities.


16. SUBSEQUENT EVENT
The Company has evaluated subsequent events since June 30, 2022, the date of these financial statements, and is not aware of any events to disclose.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this Item 2 to “we,” “us,” “our” or the “Company” refer collectively to Regal Rexnord Corporation and its subsidiaries.
Overview
Regal Rexnord Corporation (NYSE: RRX), based in Beloit, Wisconsin (USA), is a global leader in the engineering and manufacturing of industrial powertrain solutions, power transmission components, electrical motors and electronic controls, air moving products and specialty electrical components and systems, serving customers around the world. Through longstanding technology leadership and an intentional focus on producing more energy-efficient products and systems, we help create a better tomorrow – for our customers and for the planet.

Operating Segments

Our company is comprised of four operating segments: Commercial Systems, Industrial Systems, Climate Solutions and Motion Control Solutions.

A description of our four operating segments is as follows:

Commercial Systems segment designs and produces fractional to approximately 5 horsepower AC and DC motors, electronic variable speed controls, fans, and blowers for commercial applications. These products serve markets including commercial building ventilation and HVAC, pool and spa, irrigation, dewatering, agriculture, and general commercial equipment.

Industrial Systems segment designs and produces integral motors, automatic transfer switches, alternators and switchgear for industrial applications, along with aftermarket parts and kits to support such products. These products serve markets including agriculture, marine, mining, oil and gas, food and beverage, data centers, healthcare, prime and standby power, and general industrial equipment.
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Climate Solutions segment designs and produces small motors, electronic variable speed controls and air moving solutions serving markets including residential and light commercial HVAC, water heaters and commercial refrigeration.
Motion Control Solutions segment designs, produces and services mounted and unmounted bearings, conveyor products, conveying automation solutions, couplings, mechanical power transmission drives and components, gearboxes and gear motors, aerospace components, special components products and industrial powertrain components and solutions serving a broad range of markets including food and beverage, bulk handling, eCommerce/warehouse distribution, energy, aerospace and general industrial.

Components of Profit and Loss

Net Sales. We sell our products to a variety of manufacturers, distributors and end users. Our customers consist of a large cross-section of businesses, ranging from Fortune 100 companies to small businesses. A number of our products are sold to Original Equipment Manufacturers ("OEMs"), who incorporate our products, such as electric motors, into products they manufacture, and many of our products are built to the requirements of our customers. The majority of our sales derive from direct sales to customers by sales personnel employed by the Company, however, a significant portion of our sales are derived from sales made by manufacturer’s representatives, who are paid exclusively on commission. Our product sales are made via purchase order, long-term contract, and, in some instances, one-time purchases. Many of our products have broad customer bases, with 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 timely meet customer demands; (v) the selling price of our products; and (vi) the weather. As a result, our total revenue has tended to experience quarterly variations and our total revenue for any particular quarter may not be indicative of future results.

We use the term “organic sales" to refer to sales from existing operations excluding (i) sales from acquired businesses recorded prior to the first anniversary of the acquisition (“Acquisition Sales”), (ii) less the amount of sales attributable to any businesses divested/to be exited, and (iii) the impact of foreign currency translation. The impact of foreign currency translation is determined by translating the respective period’s organic sales using the same currency exchange rates that were in effect during the prior year periods. We use the term “organic sales growth” to refer to the increase in our sales between periods that is attributable to organic sales. We use the term “acquisition growth” to refer to the increase in our sales between periods that is attributable to Acquisition Sales.

Gross Profit. Our gross profit is impacted by our levels of net sales and cost of sales. Our cost of sales consists of costs for, among other things (i) raw materials, including copper, steel and aluminum; (ii) components such as castings, bars, tools, bearings and electronics; (iii) wages and related personnel expenses for fabrication, assembly and logistics personnel; (iv) manufacturing facilities, including depreciation on our manufacturing facilities and equipment, insurance and utilities; and (v) shipping. The majority of our cost of sales consists of raw materials and components. The price we pay for commodities and components can be subject to commodity price fluctuations. We attempt to mitigate this through fixed-price agreements with suppliers and our hedging strategies. When we experience commodity price increases, we have tended to announce price increase to our customers who purchase via purchase order, with such increases generally taking effect a period of time after the public announcements. For those sales we make under long-term contracts, we tend to include material price formulas that specify quarterly or semi-annual price adjustments based on a variety of factors, including commodity prices.

Outside of general economic cyclicality, our business units experience different levels of variation in gross profit from quarter to quarter based on factors specific to each business. For example, a portion of our Climate Solutions 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 Commercial Systems segment, Industrial Systems segment and Motion Control Solutions segment 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;
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(iii) technology related costs; (iv) depreciation and amortization; and (v) corporate-related travel. The majority of our general and administrative costs are for salaries and related personnel expenses. These costs can vary by business given the location of our different manufacturing operations.

Our sales and marketing expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses related to our sales and marketing function; (ii) internal and external sales commissions and bonuses; (iii) travel, lodging and other out-of-pocket expenses associated with our selling efforts; and (iv) other related overhead.

Our general engineering and research and development expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses; (ii) the design and development of new energy efficiency products and enhancements; (iii) quality assurance and testing; and (iv) other related overhead. Our research and development efforts tend to be targeted toward developing new products that would allow us to maintain or gain additional market share, whether in new or existing applications. In particular, a large driver of our research and development efforts in those three segments is energy efficiency, which generally means using less electrical power to produce more mechanical power.

Operating Profit. Our operating profit consists of the segment gross profit less the segment operating expenses. In addition, there are shared operating costs that cover corporate and information technology expenses that are consistently allocated to the operating segments and are included in the segment operating expenses. Operating profit is a key metric used to measure year over year improvement of the segments.

Restructuring and Restructuring Related Costs. We incurred restructuring-related costs on employee termination and plant relocation costs including cost synergies related to the Rexnord Transaction. Restructuring related costs includes costs directly associated with actions resulting from our 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.
COVID-19 Pandemic
COVID-19 evolved during 2020 into a global pandemic, resulting in a severe global health crisis that drove a dramatic slowdown in global economic and social activity. As the COVID-19 pandemic continues, health risks remain.

In the face of this global crisis, our first priority has been the health and safety of our associates. In response, we implemented a host of measures to help our associates stay safe, measures that have been enhanced and refined as impacts from COVID-19 evolved, and as our knowledge about how to enhance their effectiveness improved.

Factors deriving from the COVID-19 response that have or may negatively impact sales and operating profit in the future include, but are not limited to: limitations on the ability of our suppliers to manufacture, or procure from manufacturers, components and raw materials used in our products, or to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; inconsistent criteria in certain international jurisdictions for establishing the essentiality of our business; limitations on the ability of carriers to deliver our products to customers; limitations on the ability of our customers to conduct their business and purchase our products and services; reductions in demands of our customers; and limitations on the ability of our customers to pay us on a timely basis.

We continue to monitor the pandemic and make adjustments to the business as necessary to address any limitations or negative impacts.

Rexnord and Arrowhead Transactions

On October 4, 2021, in accordance with the terms and conditions of the Agreement and Plan of Merger, dated February 15, 2021 (the “Merger Agreement”), we completed our combination with the Rexnord PMC business of Zurn Elkay Water Solutions Corporation (formerly known as Rexnord Corporation) (“Zurn”) in a Reverse Morris Trust transaction (the “Rexnord Transaction”). Pursuant to the Rexnord Transaction, (1) Zurn transferred to its then-subsidiary Land Newco, Inc. (“Land”) substantially all of the assets, and Land assumed substantially all of the liabilities, of the Rexnord PMC business (the “Reorganization”), (2) after which, all of the issued and outstanding shares of common stock, $0.01 par value per share, of Land (“Land common stock”) held by a subsidiary of Zurn were distributed in a series of distributions to Zurn’s stockholders (the distributions, and the final distribution of Land common stock from Zurn to Zurn’s stockholders, which was made pro rata
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for no consideration, the “Spin-Off”) and (3) immediately after the Spin-Off, one of our subsidiaries (“Merger Sub”) merged with and into Land (the “Merger”) and all shares of Land common stock (other than those held by Zurn, Land, the Company, Merger Sub or their respective subsidiaries) were converted into the right to receive 0.22296103 shares of our common stock, $0.01 par value per share(“Company common stock”), as calculated in the Merger Agreement. When the Merger was completed, Land which held the Rexnord PMC business, became our wholly owned subsidiary.

Pursuant to the Merger, we issued 27,055,945 shares of common stock to holders of Land common stock, which represented approximately 39.9% of the 67,756,732 outstanding shares of Company common stock immediately following the completion of the Merger.

In addition, shareholders of record as of October 1, 2021 received a special dividend of $6.99 per share (or approximately $284.4 million in aggregate) pursuant to a special dividend in connection with the Rexnord Transaction.

In connection with the Rexnord Transaction, we entered into certain financing arrangements, which are described below under “Liquidity and Capital Resources”.

On November 23, 2021, we acquired Arrowhead Systems, LLC, ("Arrowhead") for $315.6 million in cash, net of $1.1 million of cash acquired (the "Arrowhead Transaction"). Arrowhead is a global leader in providing industrial process automation solutions, including conveyors and (de)palletizers to the food & beverage, aluminum can, and consumer staples end markets, among others. Arrowhead is a division of our Motion Control Solutions segment, and its financials have been included in results for that segment from the date of acquisition.

Change in Fiscal Year End

At a meeting of the Board of Directors of Regal Rexnord Corporation on October 26, 2021, the Board approved a change in the fiscal year end from a 52-53 week year ending on the Saturday closest to December 31 to a calendar year ending on December 31, effective beginning with fiscal year 2022. We made the fiscal year change on a prospective basis and will not adjust operating results for prior periods. However, the change will impact the prior year comparability of each of the fiscal quarters and the annual period in 2022 and in future filings. We believe this change will provide numerous benefits, including aligning its reporting periods to be more consistent with peer companies.

Change in Accounting Principle

As of January 2, 2022, we changed our methodology for valuing certain inventories to the first-in, first-out ("FIFO") cost method from the last-in, first-out ("LIFO") cost method. The effects of this change have been retrospectively applied to all periods presented.
Outlook
We are forecasting high single digit organic sales growth. We expect to see positive impacts from our transactions, price realization and from our new products and other growth initiatives.

Results of Operations
Three Months Ended June 30, 2022 Compared to July 3, 2021
Net sales increased $462.5 million or 52.1% for the second quarter 2022 compared to the second quarter 2021. The increase consisted of positive impact from acquisitions of 42.2% and positive organic sales of 11.8% offset by negative foreign currency translation of 1.9%. The increase was primarily driven by sales increases in North American markets and the acquisitions of the Rexnord PMC and Arrowhead businesses. Gross profit increased $175.8 million or 68.2% for the second quarter 2022 as compared to the second quarter 2021. The increase in gross profit was driven by increase in volume and the acquisitions of the Rexnord PMC and Arrowhead businesses, partially offset by increased freight and material costs. Total operating expenses for the second quarter 2022 increased $96.1 million or 67.4% as compared to the second quarter 2021. The increase was primarily driven by the acquisitions of the Rexnord PMC and Arrowhead businesses, higher employee related wage and benefit costs and transaction costs.
Commercial Systems segment net sales for the second quarter 2022 were $301.9 million, an increase of $32.6 million or 12.1% as compared to the second quarter 2021. The increase consisted of positive organic sales of 14.6% offset by negative foreign currency translation of 2.4%. The increase was primarily driven by strong growth in general industry in North America as well as solid growth in the pool pump business. Gross profit increased $12.6 million or 18.1% as compared to the second quarter
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2021. The increase in gross profit was primarily driven by the increase in price partially offset by higher material costs due to inflation. Total operating expenses for the second quarter 2022 were $40.4 million compared to $42.1 million in the second quarter 2021. The $1.7 million or 4.0% decrease was primarily driven by foreign exchange gains.
Industrial Systems segment net sales for the second quarter 2022 were $154.7 million, an increase of $9.5 million or 6.5% as compared to the second quarter 2021. The increase consisted of positive organic sales of 9.4% offset by negative foreign currency translation of 2.9%. The increase was primarily driven by a higher demand for industrial motors and generators in North America. Gross profit increased $16.6 million or 60.6% as compared to the second quarter 2021. The increase in gross profit was primarily driven by the increase in volume and price realization, partially offset by material inflation. Total operating expenses for the second quarter 2022 and 2021 were $22.8 million and $23.1 million, respectively. The slight decrease in operating expenses was primarily driven by foreign exchange gains.
Climate Solutions segment net sales were $293.5 million, an increase of $36.2 million or 14.1% as compared to the second quarter 2021. The increase consisted of positive organic sales of 14.8% offset by negative foreign currency translation of 0.7%. The increase was primarily due to continued strong demand in North American residential HVAC and combustion markets and recovering demand in EMEA. Gross profit decreased $0.9 million or 1.2% compared to the second quarter 2021. The decrease in gross profit was primarily driven by material and freight inflation, partially offset by increased volume, favorable mix and 80/20 actions. Total operating expenses for the second quarter 2022 were $30.3 million compared to $27.5 million in the second quarter 2021. The slight increase was primarily due to higher expenses related to commissions (higher volume), travel, compensation and benefits.
Motion Control Solutions segment net sales for the second quarter 2022 were $599.3 million, an increase of $384.2 million or 178.6% compared to second quarter 2021 net sales of $215.1 million. The increase consisted of positive impact from acquisitions of 174.1% and positive organic sales of 6.4% offset by negative foreign currency of 1.9%. The increase was primarily driven by the acquisitions of the Rexnord PMC and Arrowhead businesses in addition to strength in alternative energy, the North America general industrial market, the conveying business, and improving demand in Europe in addition to meaningful share gains tied to our industrial powertrain offering. Gross profit for the second quarter 2022 increased $147.5 million or 172.9%. The increase was driven by the acquisitions of the Rexnord PMC and Arrowhead businesses, higher sales volume with favorable mix and lower overhead cost driven by cost reduction initiatives. Total operating expenses for the second quarter 2022 increased $95.3 million as compared to the second quarter 2021, primarily due to the acquisitions of the Rexnord PMC and Arrowhead businesses.
Six Months Ended June 30, 2022 Compared to July 3, 2021
Net sales increased $946.9 million or 55.7% for the six months ended June 30, 2022 compared to the six months ended July 3, 2021. The increase consisted of positive impact of acquisitions of 43.6% and positive organic sales of 13.4% offset by negative foreign currency translation of 1.4%. The increase was primarily driven by sales increases in North American markets and the acquisitions of the Rexnord PMC and Arrowhead businesses. Gross profit increased $347.9 million or 68.6% for the six months ended June 30, 2022 as compared to the six months ended July 3, 2021. The increase in gross profit was driven by increase in volume, the acquisitions of the Rexnord PMC and Arrowhead businesses and 80/20 actions, partially offset by increased freight and material costs. Total operating expenses for the six months ended June 30, 2022 increased $199.8 million or 68.7% as compared to the six months ended July 3, 2021. The increase was primarily driven by the acquisitions of the Rexnord PMC and Arrowhead businesses, higher employee related wage and benefit costs and transaction costs.
Commercial Systems segment net sales for the six months ended June 30, 2022 were $595.2 million, an increase of $88.9 million or 17.6% as compared to the six months ended July 3, 2021. The increase consisted of positive organic sales of 19.4% and offset by negative foreign currency translation of 1.8%. The increase was primarily driven by strong growth in general industry in North America as well as solid gains in the pool pump business. Gross profit increased $40.1 million or 29.4% as compared to the six months ended July 3, 2021. The increase in gross profit was primarily driven by the increase in price partially offset by higher material costs due to inflation. Total operating expenses for the six months ended June 30, 2022 were $81.8 million compared to $80.1 million in the six months ended July 3, 2021. The $1.7 million or 2.1% increase was primarily driven by higher employee related wage and benefit costs partially offset by foreign exchange gains.
Industrial Systems segment net sales for the six months ended June 30, 2022 were $299.4 million, an increase of $17.8 million or 6.3% as compared to the six months ended July 3, 2021. The increase consisted of positive organic sales of 8.3% and offset by negative foreign currency translation of 2.0%. The increase was primarily driven by strength in the data center market for generators and demand for industrial motors in North America. Gross profit increased $19.9 million or 35.9% for the six months ended June 30, 2022 as compared to the six months ended July 3, 2021. The increase in gross profit was primarily driven by the increase in volume and price realization, partially offset by material inflation. Total operating expenses for the six months ended June 30, 2022 and July 3, 2021 were $46.2 million and $46.2 million, respectively.
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Climate Solutions segment net sales were $567.4 million, an increase of $71.0 million or 14.3% as compared to the six months ended July 3, 2021. The increase consisted of positive organic sales of 14.8% offset by negative foreign currency translation of 0.5%. The increase was primarily due to continued strong demand in North American residential HVAC market and combustion markets and recovering demand in EMEA. Gross profit increased $6.9 million or 4.6% compared to the six months ended July 3, 2021. The increase in gross profit was primarily driven by increased volume, favorable mix and 80/20 actions, partially offset by material and freight inflation. Total operating expenses for the six months ended June 30, 2022 were $62.0 million compared to $58.2 million in the six months ended July 3, 2021. The increase was primarily due to higher expenses related to commissions (higher volume), travel, compensation and benefits.
Motion Control Solutions segment net sales for the six months ended June 30, 2022 were $1,185.9 million, an increase of $769.2 million or 184.6% compared to six months ended July 3, 2021 net sales of $416.7 million. The increase consisted of positive impact from acquisitions of 178.0% and positive organic sales of 8.1% offset by negative foreign currency of 1.4%. The increase was primarily driven by the acquisitions of the Rexnord PMC and Arrowhead businesses in addition to strength in alternative energy, the North America general industrial market, the conveying business, and improving demand in Europe in addition to meaningful share gains tied to our industrial powertrain offering. Gross profit for the six months ended June 30, 2022 increased $281.0 million or 170.4%. The increase was driven by the acquisitions of the Rexnord PMC and Arrowhead businesses, higher sales volume with favorable mix and lower overhead cost driven by cost reduction initiatives. Total operating expenses for the six months ended June 30, 2022 increased $194.3 million as compared to the six months ended July 3, 2021, primarily due to the acquisitions of the Rexnord PMC and Arrowhead businesses.
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Three Months EndedSix Months Ended
June 30, 2022July 3, 2021June 30, 2022July 3, 2021
(Dollars in Millions)
Net Sales:
  Commercial Systems$301.9 $269.3 $595.2 $506.3 
  Industrial Systems154.7 145.2 299.4 281.6 
  Climate Solutions293.5 257.3 567.4 496.4 
  Motion Control Solutions599.3 215.1 1,185.9 416.7 
Consolidated$1,349.4 $886.9 $2,647.9 $1,701.0 
Gross Profit as a Percent of Net Sales:
  Commercial Systems27.2 %25.8 %29.6 %26.9 %
  Industrial Systems28.4 %18.9 %25.2 %19.7 %
  Climate Solutions25.4 %29.3 %27.8 %30.4 %
  Motion Control Solutions38.8 %39.7 %37.6 %39.6 %
Consolidated32.1 %29.1 %32.3 %29.8 %
Operating Expenses as a Percent of Net Sales:
  Commercial Systems13.4 %15.0 %13.7 %15.5 %
  Industrial Systems14.7 %15.9 %15.4 %16.4 %
  Climate Solutions10.3 %10.5 %10.9 %11.6 %
  Motion Control Solutions24.2 %23.2 %25.3 %25.5 %
Consolidated17.7 %15.8 %18.5 %17.0 %
Income from Operations as a Percent of Net Sales:
  Commercial Systems13.8 %10.2 %15.9 %11.1 %
  Industrial Systems13.7 %3.0 %9.7 %3.3 %
  Climate Solutions15.1 %18.7 %16.9 %18.7 %
  Motion Control Solutions14.6 %16.5 %12.3 %14.1 %
Consolidated14.4 %13.0 %13.8 %12.7 %
Income from Operations$194.9 $115.2 $364.8 $216.7 
Other Income, Net(1.5)(1.2)(2.8)(2.4)
Interest Expense13.4 11.5 22.4 24.1 
Interest Income(0.8)(1.7)(1.9)(3.2)
  Income before Taxes183.8 106.6 347.1 198.2 
Provision for Income Taxes40.6 20.6 76.8 41.9 
  Net Income143.2 86.0 270.3 156.3 
Less: Net Income Attributable to Noncontrolling Interests1.2 1.6 2.7 3.0 
  Net Income Attributable to Regal Rexnord Corporation$142.0 $84.4 $267.6 $153.3 
    
The effective tax rate for the three months ended June 30, 2022 was 22.1% versus 19.3% for the three months ended July 3, 2021. The effective tax rate for the six months ended June 30, 2022 was 22.1% versus 21.1% for the six months ended July 3, 2021. The effective tax rate for the three and six months ended June 30, 2022 was higher than the same period in the prior year primarily driven by the jurisdictional mix of earnings related to the impact of the Rexnord transaction in fiscal 2021.
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Liquidity and Capital Resources
General
Our principal source of liquidity is cash flow provided by operating activities. In addition to operating income, other significant factors affecting our cash flow include working capital levels, capital expenditures, dividends, share repurchases, acquisitions and divestitures, availability of debt financing and the ability to attract long-term capital at acceptable terms.

Cash flow provided by operating activities was $104.9 million for the six months ended June 30, 2022, a $31.7 million decrease from the six months ended July 3, 2021. The change is a result of an increase in working capital which is partially offset by proceeds received from the early termination of interest rate swaps for the six months ended June 30, 2022 compared to the six months ended July 3, 2021.

Cash flow used in investing activities was $62.1 million for the six months ended June 30, 2022 as compared to cash flow used in investing activities of $26.3 million for the six months ended July 3, 2021. The change was driven primarily by higher cash used for capital purchases and business acquisitions in the current year compared to the prior year.

Cash flow provided by financing activities was $10.2 million for the six months ended June 30, 2022, compared to $102.1 million used in financing activities for the six months ended July 3, 2021. We had net debt borrowings of $249.7 million during the six months ended June 30, 2022, compared to net debt repayments of $50.2 million during the six months ended July 3, 2021. There were $184.0 million share repurchases for the six months ended June 30, 2022, compared to no shares repurchases for the six months ended July 3, 2021. There were $44.3 million of dividends paid for the six months ended June 30, 2022, compared to $24.4 million of dividends in the prior year. There were $6.5 million in financing fees paid for the six months ended June 30, 2022, compared to $17.0 million of fees in the prior year.

Our working capital was $1,976.7 million at June 30, 2022, compared to $1,713.3 million at January 1, 2022. At June 30, 2022 and January 1, 2022, our current ratio (which is the ratio of our current assets to current liabilities) was 2.8:1 and 2.6:1, respectively. Our working capital increased primarily due to the increase in cash, accounts receivables and inventory offset by an increase in accounts payable.

The following table presents selected financial information and statistics as of June 30, 2022 and January 1, 2022 (in millions):
June 30, 2022January 1, 2022
Cash and Cash Equivalents$702.5 $672.8 
Trade Receivables, Net854.8 785.8 
Inventories1,388.4 1,192.4 
Working Capital1,976.7 1,713.3 
Current Ratio2.8:12.6:1

As of June 30, 2022, $686.7 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 which may be subject to withholding taxes. Under current law, we do not expect restrictions or taxes on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition or the results of operations for the foreseeable future.

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.
Credit Agreement
On March 28, 2022, we entered into a Second Amended and Restated Credit Agreement with our lenders (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders named therein. The Credit Agreement (i) replaces in its entirety the Amended and Restated Credit Agreement, dated as of August 27, 2018, as amended by that First Amendment, dated March 17, 2021, among the Company and other parties thereto and (ii) amends and restates in its entirety the Amended and Restated Credit Agreement, dated as of October 4, 2021, among Land and the other parties thereto (collectively, the “Former Credit Agreements”).
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The Credit Agreement provides for, among other things, an extension of the maturity date of the revolving credit facility and term loans provided under the Former Credit Agreements. The credit facilities extended under the Credit Agreement consist of (i) an unsecured term loan facility in the initial principal amount of up to $550,000,000, maturing on March 28, 2027 (the "Term Facility"); (ii) an unsecured term loan facility in the initial principal amount of $486,827,669, under which Land 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 $1,000,000,000, maturing on March 28, 2027 (the "Multicurrency Revolving Facility"). Interest for benchmark rate loans is calculated based on a SOFR benchmark rate, plus a margin spread to be adjusted quarterly based on our funded debt to EBITDA ratio. The Credit Agreement is subject to customary and market provisions. Our subsidiaries that provide a guaranty of our and Land's obligations under the Former Credit Agreements also entered into subsidiary guaranty agreements with respect to the obligations under the Credit Agreement.

The Term Facility was drawn in full on March 28, 2022 to refinance the Former Credit Agreements, pay fees, costs, and other expenses incurred therewith, to fund working capital needs and for our general corporate purposes. 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.
The Credit Agreement requires that we prepay the loans under the Term Facility with 100% of the net cash proceeds received from specified asset sales and borrowed money indebtedness, subject to certain exceptions.
At June 30, 2022, we had $560.0 million of borrowings under the Multicurrency Revolving Facility, $0.1 million of standby letters of credit issued under the facility, and $439.8 million of available borrowing capacity. For the three months ended June 30, 2022 and July 3, 2021 under the Multicurrency Revolving Facility, the average daily balance in borrowings was $730.0 million and $2.4 million, respectively, and the weighted average interest rate was 2.1% and 1.4%, respectively. For the six months ended June 30, 2022 and July 3, 2021 under the Multicurrency Revolving Facility, the average daily balance in borrowings was $765.2 million and $4.9 million, respectively, and the weighted average interest rate was 1.7% and 1.4%, respectively. We pay 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.

As of June 30, 2022, we had $486.8 million of borrowings under the Land Term Facility. The Land Term Facility has no required amortization. The weighted average interest rate on the Land Term Facility for three months ended June 30, 2022 was 2.1%. The weighted average interest rate on the Land Term Facility for six months ended June 30, 2022 was 1.7%.

In connection with the Rexnord Transaction, on February 15, 2021, we entered into a debt commitment letter (the “Bridge Commitment Letter”) and related fee letters with Barclays Bank PLC (“Barclays”), pursuant to which, and subject to the terms and conditions set forth therein, Barclays committed to provide approximately $2.1 billion in an aggregate principal amount of senior bridge loans under a 364-day senior bridge loan credit facility (the “Bridge Facility”). As the Rexnord Transaction was consummated and the payments of amounts in connection therewith occurred without the use of the Bridge Facility, the commitments under the Bridge Commitment Letter were terminated in connection with the closing of the Rexnord Transaction.
Senior Notes
On April 7, 2022, we entered into a Note Purchase Agreement with certain institutional accredited investors (the "Note Purchase Agreement") for the issuance and sale of $500,000,000 aggregate principal amount of 3.90% senior notes due April 7, 2032 (the "Senior Notes"), in an offering exempt from the registration requirements of the Securities Act of 1933, as amended. We expect to use the net proceeds from the offering for general corporate purposes.

The Note Purchase Agreement is subject to customary and market provisions. Our subsidiaries that provided a guaranty of the obligations under the Credit Agreement also entered into subsidiary guaranty agreements with respect to the obligations under the Note Purchase Agreement. We may, at our option, prepay at any time all, or from time to time any part of, the Senior Notes, subject to a make-whole amount and certain other restrictions set forth in the Note Purchase Agreement.

Compliance with Financial Covenants
The Credit Agreement require us to meet specified financial ratios and to satisfy certain financial condition tests. The Note Purchase Agreement contains financial covenants consistent with the financial covenants in the Credit Agreement. We were in compliance with all financial covenants contained in the Credit Agreement and Note Purchase Agreement as of June 30, 2022.

Other Notes Payable

At June 30, 2022, other notes payable of approximately $75.2 million were outstanding with a weighted average interest rate of 5.1%. At January 1, 2022, other notes payable of approximately $78.7 million were outstanding with a weighted average rate of 5.2%.
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Other Disclosures

Based on rates for instruments with comparable maturities and credit quality, which are classified as Level 2 inputs (see also Note 14 of Notes to the Condensed Consolidated Financial Statements), the approximate fair value of our total debt was $2,125.9 million and $1,918.5 million as of June 30, 2022 and January 1, 2022, respectively.

Critical Accounting Policies
Our disclosures of critical accounting policies, which are contained in our Annual Report on Form 10-K for the year ended January 1, 2022, have not materially changed since that report was filed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk relating to our operations due to changes in interest rates, foreign currency exchange rates and commodity prices of purchased raw materials. We manage the exposure to these risks through a combination of normal operating and financing activities and derivative financial instruments such as interest rate swaps, commodity cash flow hedges and foreign currency forward exchange contracts. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which prohibit the use of financial instruments for speculative purposes.
Generally hedges are recorded on the balance sheet at fair value and are accounted for as cash flow hedges, with changes in fair value recorded in Accumulated Other comprehensive Income (Loss) (“AOCI”) in each accounting period. An ineffective portion of the hedges change in fair value, if any, is recorded in earnings in the period of change.
Interest Rate Risk
We are exposed to interest rate risk on certain of our outstanding debt obligations used to finance our operations and acquisitions. Loans under the Credit Agreement bear interest at variable rates plus a margin, based on our consolidated net leverage ratio. At June 30, 2022, excluding the impact of interest rate swaps, we had $575.3 million of fixed rate debt and $1,596.7 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 at June 30, 2022 would result in a $2.0 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 June 30, 2022 are as follows (in millions):
InstrumentNotional AmountMaturityRate PaidRate ReceivedFair Value
Swap$250.0March 20273.0%SOFR (3 month)$(1.8)
As of June 30, 2022, the $1.8 million interest rate swap liability was included in Other Noncurrent Liabilities. At January 1, 2022, a $5.3 million interest rate swap asset was included in Other Noncurrent Assets. There was an unrealized gain of $11.0 million (a $12.3 million gain on the terminated swaps and a $1.3 million loss on the active swaps) and $4.0 million, net of tax, at June 30, 2022 and January 1, 2022, respectively, that was recorded in AOCI for the effective portion of the hedges.
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Foreign Currency Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to minimize our exposure to these risks through a combination of normal operating activities and the utilization of foreign currency exchange contracts to manage our exposure on the forecasted transactions denominated in currencies other than the applicable functional currency. Contracts are executed with credit worthy banks and are denominated in currencies of major industrial countries. We do not hedge our exposure to the translation of reported results of foreign subsidiaries from local currency to United States dollars.
As of June 30, 2022, derivative currency assets (liabilities) of $9.0 million, $0.8 million, $(3.5) million and $(0.5) million, are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets, Other Accrued Expenses and Other Noncurrent Liabilities, respectively. As of January 1, 2022, derivative currency assets (liabilities) of $8.6 million, $0.7 million and $(1.7) million, are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets and Other Accrued Expenses, respectively. The unrealized gains on the effective portions of the hedges of $4.4 million net of tax, and $5.8 million net of tax, as of June 30, 2022 and January 1, 2022 respectively, were recorded in AOCI. At June 30, 2022, we had $2.4 million, net of tax, of derivative currency gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At January 1, 2022, we had $1.9 million, net of tax, currency gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings.
The following table quantifies the outstanding foreign exchange contracts intended to hedge non-US dollar denominated receivables and payables and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their counter currency on June 30, 2022 (in millions):
   Gain (Loss) From
CurrencyNotional AmountFair Value10% Appreciation of Counter Currency10% Depreciation of Counter Currency
Chinese Renminbi$249.5 $(1.4)$25.0 $(25.0)
Mexican Peso204.1 8.3 20.4 (20.4)
Euro208.7 0.2 20.9 (20.9)
Indian Rupee79.4 (1.1)7.9 (7.9)
Australian Dollar14.1 (0.2)1.4 (1.4)
British Pound1.8 — 0.2 (0.2)
Thai Baht0.5 — 0.1 (0.1)
Gains and losses indicated in the sensitivity analysis would be offset by gains and losses on the underlying forecasted non-US dollar denominated cash flows.
Commodity Price Risk
We periodically enter into commodity hedging transactions to reduce the impact of changing prices for certain commodities such as copper and aluminum based upon forecasted purchases of such commodities. The contract terms of commodity hedge instruments generally mirror those of the hedged item, providing a high degree of risk reduction and correlation.
Derivative commodity assets (liabilities) of $0.5 million, $(19.6) million and $(3.4) million were recorded in Prepaid Expenses and Other Current Assets, Other Accrued Expenses and Other Noncurrent Liabilities at June 30, 2022. Derivative commodity assets of $9.3 million, $0.1 million, $(1.2) million and $(0.6) million were recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets, Other Accrued Expenses and Other Noncurrent Liabilities, respectively as of at January 1, 2022. The unrealized loss on the effective portion of the hedges of $(16.9) million net of tax and the unrealized gain on the effective portion of the hedges of $5.6 million net of tax, as of June 30, 2022 and January 1, 2022, respectively, was recorded in AOCI. At June 30, 2022, we had $2.0 million, net of tax, of derivative commodity gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At January 1, 2022, there was an additional $3.7 million, net of tax, of derivative commodity gain on closed hedge instruments in AOCI that were realized into earnings when the hedged items impacted earnings.
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The following table quantifies the outstanding commodity contracts intended to hedge raw material commodity prices and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their prices on June 30, 2022 (in millions):
   Gain (Loss) From
CommodityNotional AmountFair Value10% Appreciation of Commodity Prices10% Depreciation of Commodity Prices
Copper$145.3 $(21.4)$14.5 $(14.5)
Aluminum7.1 (1.1)0.7 (0.7)
Gains and losses indicated in the sensitivity analysis would be offset by the actual prices of the commodities.
The net AOCI hedging component balance of $2.9 million of gains at June 30, 2022 includes $(2.1) million of net current deferred losses expected to be realized in the next twelve months. The gain/loss reclassified from AOCI into earnings on such derivatives will be recognized in the same period in which the related item affects earnings.
Counterparty Risk
We are exposed to credit losses in the event of non-performance by the counterparties to various financial agreements, including our interest rate swap agreements, foreign currency exchange contracts and commodity hedging transactions. We manage exposure to counterparty credit risk by limiting our counterparties to major international banks and financial institutions meeting established credit guidelines and continually monitoring their compliance with the credit guidelines. We do not obtain collateral or other security to support financial instruments subject to credit risk. We do not anticipate non-performance by our counterparties, but cannot provide assurances.

ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective to ensure that (a) information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and (b) information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
There have been no material changes in the legal matters described in Part I, Item 3 in our Annual Report on Form 10-K for the year ended January 1, 2022, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Our business and financial results are subject to numerous risks and uncertainties. These risks and uncertainties have not changed materially from those reported in Part I, Item 1A in our Annual Report on Form 10-K for the year ended January 1, 2022, as supplemented by Part II, Item 1A in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, which are incorporated herein by reference.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table contains detail related to the repurchase of our common stock based on the date of trade during the quarter ended June 30, 2022.

2022 Fiscal MonthTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Value of Shares Purchased as a Part of Publicly Announced Plans or ProgramsMaximum Value of Shares that May be Purchased Under the Plans or Programs
Apr 1 to Apr 30— $— $— $319,982,853 
May 1 to May 31396,996 125.97 50,007,727 269,975,126 
Jun 1 to Jun 30178,046 110.75 19,717,824 250,257,302 
575,042 $69,725,551 


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 June 30, 2022, we purchased 575,042 shares or $69.8 million in shares pursuant to the October 26, 2021 repurchase authorization.
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 new authorization has no expiration date.

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ITEM 6. EXHIBITS
 
Exhibit Number  Exhibit Description
4.1
31.1  
31.2  
32.1  
101.INS  XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).



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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
REGAL REXNORD CORPORATION
(Registrant)
/s/ Robert J. Rehard
Robert J. Rehard
Vice President
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: August 5, 2022



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