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| Cheryl A. Lewis | | 56 | | Executive Vice President, Chief Human Resources Officer | | Joined the Company in March 2020, as Vice President, Chief Human Resources Officer. Prior to joining the Company, Ms. Lewis served as Segment Director, Human Resources for Illinois Tool Works Inc. from 2010-2020. Prior to joining Illinois Tool Works Inc., Ms. Lewis was Vice President, Human Resources with Alcan Packaging from 2008-2010. From 1991-2008 she held successive and increasing roles of responsibility, including Vice President, Human Resources at Panduit Corporation. |
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| Brooke E. Lang | | 53 | | Executive Vice President & President, Power Efficiency Solutions Segment | | Joined the Company in July 2022 as Senior Vice President and General Manager of the Conveying and Power Management Division. Prior to joining the Company, Mr. Lang was the Vice President and General Manager of the Power Components Division with Eaton. Prior to this role, Mr. Lang held successive and increasing roles of responsibility with Eaton between 2008 and 2016, including Global Channel Marketing Manager, Director – Product Marketing, and as Vice President and General Manager Critical Power Solutions APAC. Mr. Lang began his career with Booz Allen Hamilton in Mclean, VA. |
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| Jerrald R. Morton | | 63 | | Executive Vice President & President, Industrial Powertrain Solutions | | Joined the Company in February 2015 and became President, Industrial Powertrain Solutions after the Company’s acquisition of Altra Industrial Motion Corporation in March 2023. Prior to his current position, Mr. Morton served as President – Integration, Motion Control Solutions from 2021-2023, President of Power Transmission Solutions Segment from 2019-2021, Vice President, Business Leader of Power Transmission Solutions from 2017-2019, and led the global operations for the Company's power transmission business from 2015-2017. Prior to joining the Company, Mr. Morton spent 28 years with Emerson in a variety of roles in Quality, Technology, and Operations and was Vice President, Global Operations of Emerson’s power transmission business at the time the Company acquired that business.
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| Kevin J. Zaba | | 57 | | Executive Vice President & President, Automation & Motion Control | | Joined the Company in October 2021 as President, Motion Control Solutions Segment and became President, Automation & Motion Control, after the Company’s acquisition of Altra Industrial Motion Corporation in March 2023. Previously, Mr. Zaba served as Group Executive and President for Rexnord Process & Motion Control from 2014-2021. Prior to this, he held a number of leadership roles with increasing responsibility during his 24 year tenure at Rockwell Automation, Inc., including Vice President of Solutions, Services & Sales and Vice President and General Manager of the Control & Visualization products business. Mr. Zaba's experience as a global business leader includes assignments across a variety of commercial, innovation and operational roles, including a multiyear assignment leading an Asia-Pacific ETO solutions business while residing in Shanghai, China. |
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Website Disclosure
Our Internet address is www.regalrexnord.com. We make available free of charge (other than an investor's own Internet access charges) through our Internet website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission. In addition, we have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and associates which satisfies the requirements of the New York Stock Exchange regarding a “code of business conduct.” We have also adopted Corporate Governance Guidelines addressing the subjects required by the New York Stock Exchange. In September 2024, we produced our updated Sustainability Report. We make copies of the foregoing, as well as the charters of our Board committees, available free of charge on our website. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, our Code of Business Conduct and Ethics by posting such information on our web site at the address stated above. We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.
ITEM 1A - RISK FACTORS
You should carefully consider each of the risks described below, together with all of the other information contained in this Annual Report on Form 10-K, and our other SEC filings, before making an investment decision with respect to our securities. The risks described below are not the only risks that could adversely affect our business; other risks currently deemed immaterial or additional risks not currently known to us could also materially and adversely affect us. If any of the following or other risks develop into actual events, our business, financial condition, results of operations, or cash flow could be materially and adversely affected and you may lose all or part of your investment.
Risks Relating to Our Operations and Strategy
We depend on certain key suppliers, and any loss of those suppliers or their failure to meet commitments may adversely affect our business and results of operations.
We are dependent on a single or limited number of suppliers for some materials or components required in the manufacture of our products. If any of those suppliers fail to meet their commitments to us in terms of delivery or quality, including by suffering any disruptions at its facilities or in its supply, we may experience cost increases or supply shortages that could result in our inability to meet our customers' requirements, or could otherwise experience an interruption in our operations that could negatively impact our business and results of operations or in certain circumstances, our competitive position could be adversely affected, which may result in depressed sales and profitability.
Our dependence on, and the price of, raw materials may adversely affect our gross margins.
Many of the products we produce contain key materials such as steel, copper, aluminum and electronics. Market prices for those materials can be volatile due to changes in supply and demand, manufacturing and other costs, regulations and tariffs, economic conditions and other circumstances. For example, the US has instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the US, and other government regulations affecting trade between the US and other countries. In particular, the US government imposed or threatened to impose tariffs on imports from China, Canada and Mexico, among other proposed tariffs, and such countries have taken or have threatened to take retaliatory actions. Even if we are able to successfully respond to increased commodity costs through pricing actions, our competitive position could be adversely affected, which may result in depressed sales and profitability.
We may incur costs and charges as a result of restructuring activities and business optimization initiatives and operations consolidations that may be disruptive to our business and may not result in anticipated cost savings.
We expect to continue reviewing our overall manufacturing footprint and margin improvement initiatives in our operations, in an effort to make our business more efficient. We have incurred and expect to continue to incur additional costs and restructuring charges in connection with such consolidations, divestitures, workforce reductions and other cost reduction measures that could, in certain instances, adversely affect our future earnings and cash flows. Furthermore, such actions may be disruptive to our business, and this may result in production inefficiencies, product quality issues, late product deliveries or lost orders as we begin production at consolidated facilities, which could adversely impact our sales levels, operating results and operating margins. In addition, we may not realize the cost savings that we expect to realize as a result of such actions.
In addition, these activities require substantial management time and attention and may divert management from other important work or result in a failure to meet operational targets. Divestitures may also give rise to obligations to buyers or other parties that could have a financial effect after the transaction is completed. Moreover, we could encounter changes to, or delays in executing, any restructuring or divestiture plans, any of which could cause disruption and additional unanticipated expense.
Our ability to establish, grow and maintain customer relationships depends in part on our ability to develop new products, new manufacturing techniques and product enhancements based on technological innovation, such as the Internet of Things ("IoT") and Artificial Intelligence ("AI"), and marketplace acceptance of new and existing products, including products related to technology not yet adopted or utilized in certain geographic locations in which we do business.
The electric motor drives and controls, power generation and power transmission industries in recent years have seen significant evolution and innovation, particularly with respect to increasing energy efficiency and control enhancements. Our ability to effectively compete in these industries depends in part on our ability to continue to develop new technologies and innovative products, new manufacturing techniques and product enhancements, including enhancements based on technological innovation
such as IoT and AI. Further, many large customers in these industries generally desire to purchase from companies that can offer a broad product range, which means we must continue to develop our expertise in order to design, manufacture and sell these products successfully. This requires that we make significant investments in engineering, manufacturing, customer service and support, research and development and intellectual property protection, and there can be no assurance that in the future we will have sufficient resources to continue to make such investments. If we are unable to identify and predict customer needs and preferences or are unable to meet the needs of our customers for innovative and competitive products or product variety, or if our products become technologically obsolete over time due to the development by our competitors of technological breakthroughs or otherwise, our revenues and results of operations may be adversely affected. In addition, we may incur significant costs and devote significant resources to the development of products that ultimately are not accepted in the marketplace, do not provide anticipated enhancements, or do not lead to significant revenue, which may adversely impact our results of operations.
Further, such new products and technologies may create additional exposure or risk. We cannot assure that we can adequately protect any of our own technological developments to produce a sustainable competitive advantage. Furthermore, we could be subject to business continuity risk in the event of an unexpected loss of a material facility or operation. We cannot ensure that we can adequately protect against such a loss.
Certain portions of our revenue depend on several significant customers and distributors, and any loss, cancellation or reduction of, or delay in, purchases by these customers or distributors may have a material adverse effect on our business.
We depend on, and expect to continue to depend on, revenues from several significant OEM customers and distributors, and any loss, cancellation or reduction of, or delay in, purchases by these customers or distributors may have a material adverse effect on our business.
Our success depends on our continued ability to develop and manage these relationships. We have longstanding relationships with these customers and distributors and we expect these relationships will continue for the foreseeable future. Our reliance on these sales makes our relationships important to our business. We cannot assure you that we will be able to retain these key customers and distributor relationships. Some of our customers or distributors may in the future shift some or all of their purchases of products from us to our competitors or to other sources. The loss of one or more of our large customers or distributors, any reduction or delay in sales to these parties, our inability to develop relationships successfully with additional customers or distributors, or future price concessions that we may make could have a material adverse effect on our results of operations and financial condition.
Goodwill and other long-lived assets could become impaired.
We have a material amount of goodwill and other long-lived assets, including intangible assets, property, plant and equipment and lease assets. We assess our goodwill at least annually for impairment. Our estimates of fair value are based on assumptions about future operating cash flows, growth rates, discount rates applied to these cash flows and current market estimates of value. We evaluate the recoverability of the carrying value of long-lived assets to be held and used whenever events or circumstances indicating a potential impairment exist, such as, but not limited to, adverse market conditions or business climate, a change in the extent or manner in which assets are being used, or a negative long-term performance outlook. An impairment would require us to reduce the carrying value of goodwill or other long-lived asset to fair value through a non-cash impairment charge in our results of operations, which could be material. See Note 4 – Goodwill and Intangible Assets of the Notes to the Consolidated Financial Statements for more information.
Portions of our total sales come directly from customers in key markets and industries, some of which may be highly cyclical. A significant or prolonged decline or disruption in one of those markets or industries could result in lower capital expenditures by such customers, which could have a material adverse effect on our results of operations and financial condition.
Portions of our total sales are dependent directly upon the level of capital expenditures by customers in key markets and industries, such as HVAC, refrigeration, power generation, oil and gas, unit material handling, water heating and aerospace. Some of these key markets and industries are inherently cyclical and can be impacted by governmental policy and the general macroeconomic climate. A significant or prolonged decline or disruption in one of those markets or industries may result in some of such customers delaying, canceling or modifying projects, or may result in nonpayment of amounts that are owed to us. These effects could have a material adverse effect on our results of operations and financial condition.
We rely on estimated forecasts to meet customers’ needs, and inaccuracies in such forecasts could materially adversely affect our business.
In some instances, we rely on estimated demand forecasts, based upon input from our customers, to determine how much material to purchase and product to manufacture. We may have limited visibility regarding our customers’ actual product needs. The quantities or timing required by our customers for our products could vary significantly. Also, from time to time, our customers may experience a deterioration of their businesses and may not be able to accurately estimate forecasted demand. Whether in response to changes affecting the industry or a customer’s specific business pressures, any cancellation, delay, inability to fulfill customer obligations, or other modification in our customers’ orders could significantly reduce our revenue, impact our working capital, cause our operating results to fluctuate from period to period and make it more difficult for us to predict our revenue. In the event of a cancellation or reduction of an order, we may not have enough time to reduce operating expenses to minimize the effect of the lost revenue on our business and we may purchase too much inventory and spend more capital than expected, which may have a material adverse effect on our results of operations, cash flows and financial condition.
We sell certain products for high volume applications, and any failure of those products to perform as anticipated could result in significant liability and expenses that may adversely affect our business and results of operations.
We manufacture and sell a number of products for high volume applications, including electric motors used in pools and spas, residential and commercial heating, ventilation and air conditioning and refrigeration equipment. Any failure of those products to perform as anticipated could result in significant product liability, product recall or rework, or other costs. The costs of product recalls and reworks are not generally covered by insurance.
If we were to experience a product recall or rework in connection with products of high volume applications, our financial condition or results of operations could be materially adversely affected.
One of our subsidiaries that we acquired in 2007 is subject to numerous claims filed in various jurisdictions relating to certain sub-fractional motors that were primarily manufactured through 2004 and that were included as components of residential and commercial ventilation units manufactured and sold in high volumes by a third party. These ventilation units are subject to regulation by government agencies such as the US Consumer Product Safety Commission (“CPSC”). The claims generally allege that the ventilation units were the cause of fires. Based on the current facts, we cannot assure you that these claims, individually or in the aggregate, will not have a material adverse effect on our subsidiary's results of operations, financial condition or cash flows. We cannot reasonably predict the outcome of these claims, the nature or extent of any CPSC or other remedial actions, if any, that our subsidiary or we on their behalf may need to undertake with respect to motors that remain in the field, or the costs that may be incurred, some of which could be significant. See Note 11 – Contingencies of the Notes to the Consolidated Financial Statements for more information.
Our business may not generate cash flow from operations in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs, we could become increasingly vulnerable to general adverse economic and industry conditions and interest rate trends, and our ability to obtain future financing may be limited.
As of December 31, 2024, we had approximately $5.5 billion in aggregate debt outstanding under our various financing arrangements, including a substantial amount of debt incurred in connection with the Altra Transaction. If we are unable to generate sufficient cash flows to service our debt, our business, financial condition or results of operations could be adversely affected. See Note 6 – Debt and Bank Credit Facilities of the Notes to the Consolidated Financial Statements for more information.
Our ability to make required payments of principal and interest on our debt levels will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control. Our substantially increased indebtedness has the effect, among other things, of reducing our flexibility to changing business and economic conditions. We cannot assure you that our business will generate cash flow from operations or that future borrowings will be available under our current credit facilities in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs on a timely basis or at all. Our indebtedness may have important consequences, for example, it could:
•make it more challenging for us to obtain additional financing to fund our business strategy and acquisitions, debt service requirements, capital expenditures and working capital;
•increase our vulnerability to interest rate changes, including with respect to certain of our financing arrangements that bear interest at variable rates, and general adverse economic and industry conditions;
•require us to dedicate a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the availability of our cash flow to finance acquisitions and to fund working capital, capital expenditures,
manufacturing capacity expansion, business integration, research and development efforts and other general corporate activities;
•require us to dispose of significant assets in order to satisfy our debt service and other obligations if we are not able to satisfy these obligations from cash from operations or other sources;
•limit our flexibility in planning for, or reacting to, changes in our business and our markets; and/or
•place us at a competitive disadvantage relative to our competitors that have less debt.
A portion of our indebtedness bears interest at variable rates that are linked to changing market interest rates. As a result, an increase in market interest rates would increase our interest expense and our debt service obligations on the variable rate indebtedness, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. We utilize interest rate swaps that involve the exchange of floating for fixed rate interest payments to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate interest rate risk.
Further, the availability and terms of future financing may depend upon our ability to maintain or achieve certain credit ratings on our senior debt. The credit rating process is contingent upon our credit profile and other factors, many of which are beyond our control, including methodologies established and interpreted by third-party rating agencies. If we are unable to maintain or achieve certain credit ratings in the future, our interest expense could increase or our ability to obtain financing on favorable terms could be adversely affected.
Our credit facilities contain financial and restrictive covenants, which require us to maintain specified financial ratios and satisfy certain financial condition tests. These covenants could limit our ability to, among other things, borrow additional funds or take advantage of business opportunities, and may require that we take action to reduce our debt or to act in a manner contrary to our business strategies. An event of default under our debt agreements, if not cured or waived, could result in the acceleration of our indebtedness or otherwise have a material adverse effect on our business, financial condition, results of operations or debt service capability. See Note 6 - Debt and Bank Credit Facilities of the Notes to the Consolidated Financial Statements for more information.
Sales of products incorporated into HVAC systems and other residential applications are seasonal and affected by the weather; mild or cooler weather could have an adverse effect on our operating performance.
Many of our motors are incorporated into HVAC systems and other residential applications that OEMs sell to end users. The number of installations of new and replacement HVAC systems or components and other residential applications is higher during the spring and summer seasons due to the increased use of air conditioning during warmer months. Mild or cooler weather conditions during the spring and summer season often result in end users deferring the purchase of new or replacement HVAC systems or components. As a result, prolonged periods of mild or cooler weather conditions in the spring or summer season in broad geographical areas could have a negative impact on the demand for our HVAC motors and, therefore, could have an adverse effect on our operating performance. In addition, due to variations in weather conditions from year to year, our operating performance in any single year may not be indicative of our performance in any future year.
Global climate change and related legal and regulatory developments could negatively affect our business.
The effects of climate change could create financial, reputational, or other risks to our business. For example, the effects of climate change could disrupt our operations by impacting the availability and the cost of materials needed for manufacturing, exacerbate existing risks to our supply chain and increase insurance and other operating costs, including energy costs impacted by carbon prices or offsets. These factors may impact our decisions to construct new facilities or maintain existing facilities in areas most prone to physical climate risks. We could also face indirect financial risks passed through the supply chain and disruptions that could result in increased prices for our products and the resources needed to produce them. Additionally, we are subject to environmental laws that could impose significant costs on us. See "We are subject to environmental laws that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses" for more information.
There continues to be a lack of consistent climate regulation, which creates economic and regulatory uncertainty. Increased international, regional, state, and/or federal requirements or other stakeholder expectations have and could further mandate more restrictive or expansive standards, more prescriptive reporting of environmental, social and governance metrics than the voluntary commitments we have adopted, or require related changes on a more accelerated time frame than we anticipate. For example, we are subject to the European Union’s Corporate Sustainability Reporting Directive (“CSRD”) and California’s climate disclosure rules, among others. These regulations are inconsistent, and are rapidly emerging and evolving, and have increased, and are expected to continue to increase, our compliance costs. For example, the CSRD has established extensive
ESG-related disclosure requirements based on the European Sustainability Reporting Standards, including certain assurance obligations. The standards used to identify and collect the information and data required pursuant to the CSRD are still developing and uncertain, and this lack of certainty could result in increased costs related to complying with our reporting obligations under the CSRD. In addition, a number of governmental bodies have finalized, proposed or are contemplating legislative and regulatory changes in response to the potential effect of climate change. These regulations may affect our operations, supply chain, and overall business strategy, potentially leading to increased expenses, operational disruptions or limitations on our ability to compete in certain markets. If our product portfolio does not align with these regulations, we may be required to make increased research and development and other capital expenditures to improve our product portfolio in order to meet new regulations and standards. Further, our customers and the markets we serve may impose emissions or other environmental standards through regulation, market-based emissions policies or consumer preference that we may not be able to meet due to the level of capital investment or technological advancement. While we are committed to continuous improvements to our product portfolio to meet and exceed anticipated regulations and preferences, there can be no assurance that our commitments will be successful, that our products will be accepted by the market, that proposed regulation or deregulation will not have a negative competitive impact, or that economic returns will reflect our investments in new product development.
As of the date of this filing, we have made several public commitments regarding our intended reduction of carbon emissions, including commitments to achieve Scope 1 and Scope 2 carbon emission neutrality by 2032, and net zero across Scope 1, 2 and 3 emissions by 2050. Although we intend to meet these commitments, we have expended resources and we may be required to further expend significant resources to do so, which could increase our operational costs. If we either are unable to meet these commitments, or progress toward our commitments more slowly than expected, or if such commitments are criticized by certain groups, then we could incur adverse publicity and reaction from investors, activist groups and other stakeholders, which could adversely impact the perception of our brands and our products by current and potential customers, as well as investors, which would in turn adversely impact our results of operations.
Our success is highly dependent on qualified and sufficient staffing. Our failure to attract or retain qualified personnel, including our senior management team, could lead to a loss of revenue or profitability.
Our success depends, in part, on the efforts and abilities of our senior management team and key associates and the contributions of talented associates in various operations and functions, such as engineering, finance, sales, marketing, manufacturing, etc. The skills, experience and industry contacts of our senior management team significantly benefit our operations and administration. The failure to attract or retain members of our senior management team and key talent could have a negative effect on our operating results.
Risks Related to Mergers, Acquisitions and Divestitures
Integration costs and unsuccessful integration of our past acquisitions and any future acquisitions into our business within expected timetables could adversely affect our future results and the market price of our common stock.
The Company has incurred, and may continue to incur, significant one-time costs in connection with the integration of past acquisitions and any future acquisitions, including the cost of financing, transaction costs and integration costs. Incurring these costs may have an adverse effect on the Company’s liquidity, cash flows and operating results.
The success of our acquisitions, including the Altra Transaction, depends, in large part, on our ability to realize the anticipated benefits of such acquisition and on our sales and profitability following such acquisition. The integration of our acquisitions is complex and time-consuming, and is subject to a number of uncertainties, and no assurance can be given that any anticipated benefits will be realized or, if realized, the timing of their realization. The failure to successfully integrate and manage the challenges presented by the integration process may result in our failure to achieve some or all of the anticipated benefits of these acquisitions.
Potential difficulties that may be encountered in the integration process of potential acquisitions include, among others:
•the failure to implement our business plan following such acquisitions;
•lost sales and customers as a result of customers deciding not to do business with the Company;
•risks associated with managing our larger and more complex company following an acquisition;
•integrating personnel while maintaining focus on providing consistent, high-quality products and service to customers;
•the loss of key employees;
•unanticipated issues in integrating manufacturing, logistics, information, communications and other systems;
•unexpected liabilities of such acquisitions;
•possible inconsistencies in standards, controls, procedures, policies and compensation structures; and
•the impact on our internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of 2002.
If any of these events were to occur, our ability to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits of any acquisition could be adversely affected, or could reduce our sales or earnings or otherwise adversely affect our business and financial results after such acquisition and, as a result, adversely affect the market price of our common stock.
As part of our growth strategy, we expect to continue to make acquisitions. Our continued growth may depend on our ability to identify and acquire companies that complement or enhance our business on acceptable terms, but we may not be able to identify or complete future acquisitions. We may not be able to integrate successfully our recent acquisitions, or any future acquisitions, operate these acquired companies profitably, or realize the potential benefits from these acquisitions.
Businesses that we have acquired or that we may acquire in the future may have liabilities which are not known to us.
We have assumed liabilities of acquired businesses and may assume liabilities of businesses that we acquire in the future. There may be liabilities or risks that we fail, or are unable, to discover, or that we underestimate, in the course of performing our due diligence investigations of acquired businesses. Additionally, businesses that we have acquired or may acquire in the future may have made previous acquisitions, and we will be subject to certain liabilities and risks relating to these prior acquisitions as well. We cannot assure you that our rights to indemnification, if any, contained in definitive acquisition agreements that we have entered or may enter into will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition or results of operations. As we operate acquired businesses, we may learn additional information about them that adversely affects us, such as unknown or contingent liabilities, issues relating to compliance with applicable laws or issues related to ongoing customer relationships or order demand, or issues related to compliance with prior commercial agreements.
In connection with the Rexnord PMC acquisition, the Reorganization and the Distributions could result in significant tax liability, including as a result of an error in the determination of Overlap Shareholders or subsequent acquisitions of stock of Zurn or us. Under certain circumstances, Land (our wholly owned subsidiary) may be obligated to indemnify Zurn for any such taxes imposed on Zurn.
In connection with our merger with the Rexnord PMC business, Zurn received a tax opinion from its tax counsel (the “Rexnord Tax Opinion”) that includes an opinion to the effect that the Reorganization and the Distributions will qualify as tax-free to Zurn, Land and the Zurn stockholders, as applicable, for US federal income tax purposes except, in the case of Zurn, to the extent Land’s payment to a subsidiary of Zurn under the terms of the Separation Agreement (the “Land Cash Payment”) exceeds RBS Global Inc.’s adjusted tax basis in Land common stock. The Rexnord Tax Opinion is based on, among other things, certain representations and assumptions as to factual matters and certain covenants made by us, Land and Zurn. Although we believe the representations, assumptions and covenants in the Rexnord Tax Opinion to be true, the failure of any such factual representation, assumption or covenant to be true, correct and complete in all material respects could adversely affect the validity of the opinion. The Rexnord Tax Opinion is not binding on the IRS or the courts, and it is possible that the IRS or the courts may not agree with the opinion. In addition, the Rexnord Tax Opinion is based on current law, and the conclusions in the opinion cannot be relied upon if current law changes with retroactive effect.
The Spin-Off will be taxable to Zurn pursuant to Section 355(e) of the US Internal Revenue Code of 1986, as amended if there is a 50% or greater change in ownership of either Zurn or Land, directly or indirectly, as part of a plan or series of related transactions that include the Spin-Off. For this purpose, any acquisitions of Land or Zurn stock or our stock within the period beginning two years before the Spin-Off and ending two years after the Spin-Off are presumed to be a part of such plan, although we and Zurn may be able to rebut that presumption. Zurn received a private letter ruling from the US Internal Revenue Service (the “IRS”) (the “IRS Ruling”) with respect to certain tax aspects of the Rexnord PMC transactions, including matters relating to the nature and extent of shareholders who may be counted for tax purposes as “Overlap Shareholders” (as such term is defined in the Rexnord PMC Merger Agreement) for purposes of determining the exchange ratio for the transaction in the Rexnord PMC Merger Agreement and the overall percentage change in the ownership of Land resulting from the merger of our subsidiary with and into Land. The continuing validity of the IRS Ruling is subject to the accuracy of factual representations and assumptions made in the ruling request. Moreover, the IRS Ruling only describes the time, manner and methodology for measuring Overlap Shareholders and may be subject to varying interpretations.
The actual determination and calculation of Overlap Shareholders was made by us, Zurn and our respective advisors based on the IRS Ruling, but no assurance can be given that the IRS will agree with these determinations or calculations. If the IRS were to determine that the merger of our subsidiary with and into Land, as a result of an error in the determination of Overlap Shareholders, or other acquisitions of Land, Zurn, or our stock, either before or after the Spin-Off, resulted in a 50% or greater change in ownership and were part of a plan or series of related transactions that included the Spin-Off, such determination
could result in significant tax liability to Zurn. In certain circumstances and subject to certain limitations, under the Tax Matters Agreement, Land is required to indemnify Zurn for 100% of the taxes that result if the Distributions become taxable as a result of certain actions by us or Land and for 90% of the taxes that result as a result of a miscalculation of the Overlap Shareholders. If this occurs and Land is required to indemnify Zurn, this indemnification obligation could be substantial and could have a material adverse effect on us and Land, including with respect to our financial condition and results of operations given that we have guaranteed the indemnification obligations of Land.
We face risks associated with the sale of the industrial motors and generators businesses, which comprised a majority of our Industrial Systems operating segment.
We are subject to risks in connection with the sale of the industrial motors and generators businesses (the "Sale"), including the inability to eliminate certain corporate overhead costs that were previously allocated to the Industrial Systems segment. In addition, the Company may face financial and commercial challenges associated with brand transitions and the disposition of certain proprietary assets that were transferred in the Sale. Any or all of these risks could impact the Company's financial results.
Risks Relating to Our Global Footprint
We operate in highly competitive global industries and markets.
We encounter a wide variety of domestic and international competitors due in part to the nature of the products we manufacture and the wide variety of applications and customers we serve. In order to compete effectively, we must retain relationships with major customers and establish relationships with new customers, including those in developing countries. Moreover, in certain applications, customers exercise significant power over business terms. It may be difficult in the short-term for us to obtain new sales to replace any decline in the sale of existing products that may be lost to competitors. Our failure to compete effectively may reduce our revenues, profitability and cash flow, and pricing pressures resulting from competition may adversely impact our profitability.
We have continued to see a trend with certain customers who are attempting to reduce the number of vendors from which they purchase product in order to reduce their costs. As a result, we may lose market share to our competitors in some of the markets in which we compete.
In addition, some of our competitors are larger and have greater financial and other resources than we do. There can be no assurance that our products will be able to compete successfully with the products of these other companies.
There is substantial and continuing pressure on major OEMs and larger distributors to reduce costs, including the cost of products purchased from outside suppliers. As a result of cost pressures from customers, our ability to compete depends in part on their ability to generate production cost savings and, in turn, to find reliable, cost-effective outside suppliers to source components or manufacture their products. If we are unable to generate sufficient cost savings in the future to offset price reductions, then our gross margin could be materially adversely affected.
We manufacture a significant portion of our products outside the US, and political, societal or economic instability or public health crises may present additional risks to our business.
As of December 31, 2024, approximately 21,400 of our approximate 30,300 total full-time associates and 96 of our principal manufacturing and warehouse facilities were located outside the US. International operations generally are subject to various risks, including political, societal and economic instability, local labor market conditions, public health crises, breakdowns in trade relations, the imposition of tariffs and other trade restrictions, lack of reliable legal systems, ownership restrictions, the impact of government regulations, the effects of income and withholding taxes, governmental expropriation or nationalization, and differences in business practices. We may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with international manufacturing and sales that could cause loss of revenue.
Unfavorable changes in the political, regulatory and business climates in countries where we have operations could have a material adverse effect on our financial condition, results of operations and cash flows, including, for example, the uncertainty surrounding trade relations between the US and China, Mexico, Canada and other countries. In particular, the US government imposed or threatened to impose tariffs on imports from China, Canada and Mexico, among other proposed tariffs, and such countries have taken or have threatened to take retaliatory actions.
Moreover, ongoing geopolitical conflicts including those between Russia and Ukraine and those occurring in the Middle East and similar conflicts, have negatively impacted the global economy and in some instances, have led to various economic sanctions being imposed by the US, United Kingdom, European Union, and other countries. While the impacts of the conflict have not been material on our operating results to date, it is not possible to predict the broader or longer-term consequences of these conflicts or new conflicts that may arise in the future. Continued escalation of geopolitical tensions related to the conflict could also result in the loss of property, supply chain disruptions, significant inflationary pressure on raw material prices and cost and supply of other resources (such as energy and natural gas), fluctuations in our customers’ buying patterns, credit and capital market disruption which could impact our ability to obtain financing, increase in interest rates and adverse foreign exchange impacts. These broader consequences could have a material adverse effect on our financial condition, results of operations and cash flows. Such sanctions and other measures, as well as the existing and potential further responses to such sanctions, tensions and military actions, could adversely affect the global economy and financial markets and could adversely affect the operations of our subsidiaries in impacted regions as well as our business, financial condition and results of operations.
In addition, our international operations are governed by various US laws and regulations, including the Foreign Corrupt Practices Act and other similar laws, that prohibit us and our business partners from making improper payments or offers of payment to foreign governments and their officials and political parties for the purpose of obtaining or retaining business. Any alleged or actual violations of these regulations may subject us to government scrutiny, severe criminal or civil sanctions and other liabilities.
Disruptions caused by labor disputes or organized labor activities could adversely affect our business or financial results.
We have a significant number of employees in Europe and other jurisdictions where trade union membership is common. Although we believe that our relations with our employees are strong, if our unionized workers were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations, which could interfere with our ability to deliver products on a timely basis and could have other negative effects, such as decreased productivity and increased labor costs. In addition, if a greater percentage of our workforce becomes unionized as a result of legal or regulatory changes which may make union organizing easier, or otherwise, our costs could increase and our efficiency may be affected in a material adverse manner, negatively impacting our business and financial results. Further, many of our direct and indirect customers and their suppliers, and organizations responsible for shipping our products, have unionized workforces and their businesses may be impacted by strikes, work stoppages or slowdowns, any of which, in turn, could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Economic and Financial Risks
Commodity, currency and interest rate hedging activities may adversely impact our financial performance as a result of changes in global commodity prices, interest rates and currency rates.
We use derivative financial instruments in order to reduce the substantial effects of currency and commodity fluctuations and interest rate exposure on our cash flow and financial condition. These instruments may include foreign currency and commodity forward contracts, currency swap agreements and currency option contracts, as well as interest rate swap agreements. We have entered into, and may continue to enter into, such hedging arrangements. By utilizing hedging instruments, we may forgo benefits that might result from fluctuations in currency exchange, commodity and interest rates. We are also exposed to the risk that counterparties to hedging contracts will default on their obligations. Any default by such counterparties might have an adverse effect on us.
We may suffer losses as a result of foreign currency fluctuations.
The net assets, net earnings and cash flows from our foreign subsidiaries are based on the US Dollar equivalent of such amounts measured in the applicable functional currency.
These foreign operations have the potential to impact our financial position due to fluctuations in the local currency arising from the process of re-measuring the local functional currency in US Dollars. Any increase in the value of the US Dollar in relation to the value of the local currency, whether by means of market conditions or governmental actions such as currency devaluations, will adversely affect our revenues from our foreign operations when translated into US Dollars. Similarly, any decrease in the value of the US Dollar in relation to the value of the local currency will increase our operating costs in foreign operations, to the extent such costs are payable in foreign currency, when translated into US Dollars.
Worldwide economic conditions may adversely affect our industry, business and results of operations.
General economic conditions and conditions in the global financial markets can affect our results of operations. Deterioration in the global economy could lead to higher unemployment, lower consumer spending and reduced investment by businesses, and could lead our customers to slow spending on our products or make it difficult for our customers, our vendors and us to accurately forecast and plan future business activities. Worsening economic conditions could also affect the financial viability of our suppliers, some of which could be considered key suppliers. Additionally, our stock price could decrease if investors have concerns that our business, financial condition and results of operations will be negatively impacted by a worldwide economic downturn.
We are subject to tax laws and regulations in many jurisdictions and the inability to successfully defend claims from taxing authorities related to our current and/or acquired businesses could adversely affect our operating results and financial position.
A significant amount of our revenue is generated from customers located outside of the US, and a substantial portion of our assets and associates are located outside of the US which requires us to interpret the income tax laws and rulings in each of those taxing jurisdictions. Due to the subjectivity of tax laws between those jurisdictions as well as the subjectivity of factual interpretations, our estimates of income tax liabilities may differ from actual payments or assessments. Claims from taxing authorities related to these differences could have an adverse impact on our operating results and financial position.
Our required cash contributions to our pension plans may increase further and we could experience a change in the funded status of our pension plans and the amount recorded in our consolidated balance sheets related to such plans. Additionally, our pension costs could increase in future years.
The funded status of our defined benefit pension plans depends on such factors as asset returns, market interest rates, legislative changes and funding regulations. If the returns on the assets of any of our plans were to decline in future periods, if market interest rates were to decline, if the Pension Benefit Guaranty Corporation were to require additional contributions to any such plans as a result of acquisitions or if other actuarial assumptions were to be modified, our future required cash contributions and pension costs to such plans could increase. Any such increases could impact our business, financial condition, results of operations or cash flows. The need to make contributions to such plans may reduce the cash available to meet our other obligations, including our obligations under our borrowing arrangements or to meet the needs of our business.
Risks Relating to the Legal and Regulatory Environment
We are subject to changes in legislative, regulatory and legal developments involving income and other taxes.
We are subject to US federal, state, and international income, payroll, property, sales and use, fuel, and other types of taxes. Changes in tax rates, enactment of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities, including claims or litigation related to our interpretation and application of tax laws and regulations, could result in substantially higher taxes, could have a negative impact on our ability to compete in the global marketplace, and could have a significant adverse effect on our results or operations, financial conditions and liquidity. The impact of these factors referenced above may be substantially different from period to period. Final laws enacting the Organisation for Economic Co-operation and Development's global minimum tax framework ("Pillar Two Laws") became effective in 2024 in the European Union and other countries where we do business. The Company faces uncertainty related to the potential implementation of Pillar Two Laws in countries where we operate. We are continuing to monitor the legislative process and evaluate the potential impact of implementation of Pillar Two Laws by other countries.
It is difficult to predict the timing and effect that future tax law changes could have on our earnings both in the US and in foreign jurisdictions. Such changes could cause us to experience an effective tax rate significantly different from previous periods or our current estimates. If our effective tax rate were to increase, our financial condition and results of operations could be adversely affected.
Changes to and uncertainty in US trade policy, tariff and import/export regulations and foreign government regulations or other trade restrictions imposed by the US or other governments could adversely affect our business, operating results, foreign operations, sourcing and financial condition.
Changes to tariffs and uncertainty in US and international trade policy have the potential to adversely impact our business, the global economy or certain sectors thereof, including our industry, and could have a material adverse effect on our business,
operating results and financial condition. For example, the United States has instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the United States and other government regulations affecting trade between the United States and other countries where we conduct our business. In particular, the United States government imposed or threatened to impose tariffs on imports from China, Canada and Mexico, among other proposed tariffs, and such countries have taken or have threatened to take retaliatory actions. We cannot predict what changes to trade policy will be made in the future, which may have a material adverse effect on our business, financial condition, and results of operations and could also provide our competitors with an advantage over us or increase our costs. We believe that the issue of U.S. and foreign governmental regulations that would impact our arrangements with our foreign manufacturing sources is of particular concern with regard to countries such as China due to the less mature nature of the Chinese market economy and the historical involvement of the Chinese government in industry.
Our business is also subject to risks associated with US and foreign legislation and regulations relating to imports, including quotas, duties, fees. tariffs or taxes, and other charges or restrictions on imports, which could adversely affect our operations and our ability to import products at current or increased levels, and substantially all of our import operations are subject to customs duties or fees on imported products imposed by the governments where our production facilities are located, including raw materials. We cannot predict whether additional US and foreign customs quotas, duties, tariffs, fees, taxes or other charges or restrictions, requirements as to raw materials, reporting obligations pertaining to “conflict minerals” and polyfluoroalkyl substances (commonly referred to as “PFAS”), or other restrictions will be imposed in the future or adversely modified, or what effect such actions would have on our costs of operations. Future trade agreements, quotas, duties, fees, tariffs or the imposition of import requirements may have a material adverse effect on our business, financial condition, and results of operations.
We are subject to litigation, including product liability, asbestos and warranty claims that may adversely affect our financial condition and results of operations.
We are, from time to time, a party to litigation that arises in the normal course of our business operations, including product warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters. We face an inherent business risk of exposure to product liability, asbestos and warranty claims in the event that the use of our products is alleged to have resulted in injury or other damage. As described above, one of our subsidiaries that we acquired in 2007 is subject to numerous claims filed in various jurisdictions relating to certain sub-fractional motors that were primarily manufactured through 2004 and that were included as components of residential and commercial ventilation units manufactured and sold in high volumes by a third party. In addition, certain subsidiaries of ours are co-defendants in various lawsuits in a number of US jurisdictions alleging personal injury as a result of exposure to asbestos that was used in certain components of legacy Rexnord PMC business products. The uncertainties of litigation and the uncertainties related to insurance and indemnification coverage make it difficult to accurately predict the ultimate financial effect of these claims. If our insurance or indemnification coverage is not adequate to cover our potential financial exposure, our insurers or indemnitors dispute their obligations to provide coverage, or the actual number or value of claims differs materially from our existing estimates, we could incur material costs that could have a material adverse effect on our business, financial condition, results of operations or cash flows.
While we maintain general liability and product liability insurance coverage in amounts that we believe are reasonable, we cannot assure you that we will be able to maintain this insurance on acceptable terms or that this insurance will provide sufficient coverage against potential liabilities that may arise. Any product liability claim may also include the imposition of punitive damages, the award of which, pursuant to certain state laws, may not be covered by insurance. Any claims brought against us, with or without merit, may have an adverse effect on our business and results of operations as a result of potential adverse outcomes, the expenses associated with defending such claims, the diversion of our management’s resources and time and the potential adverse effect to our business reputation. See Note 11 – Contingencies of the Notes to the Consolidated Financial Statements for more information.
Infringement of our intellectual property by third parties may harm our competitive position, and we may incur significant costs associated with the protection and preservation of our intellectual property.
We own or otherwise have rights in a number of patents and trademarks relating to the products we manufacture, which have been obtained over a period of years, and we expect to actively pursue patents in connection with new product development and to acquire additional patents and trademarks through the acquisitions of other businesses. These patents and trademarks have been of value in the growth of our business and may continue to be of value in the future.
Our inability to protect this intellectual property generally, or the illegal breach of some or a large group of our intellectual property rights, would have an adverse effect on our business. In addition, there can be no assurance that our intellectual property will not be challenged, invalidated, circumvented or designed-around, particularly in countries where intellectual
property rights are not highly developed or protected. We have incurred in the past, and expect to incur in the future, significant costs associated with defending challenges to our intellectual property or enforcing our intellectual property rights, which could adversely impact our cash flow and results of operations.
Third parties may claim that we are infringing their intellectual property rights and we could incur significant costs and expenses or be prevented from selling certain products.
We may be subject to claims from third parties that our products or technologies infringe on their intellectual property rights or that we have misappropriated intellectual property rights. If we are involved in a dispute or litigation relating to infringement of third-party intellectual property rights, we could incur significant costs in defending against those claims. Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. In addition, as a result of such claims of infringement or misappropriation, we could lose our rights to technology that is important to our business, or be required to pay damages or license fees with respect to the infringed rights or be required to redesign our products at substantial cost, any of which could adversely impact our cash flows and results of operations.
We may incur costs or suffer reputational damage due to improper conduct of our associates, agents or business partners.
We are subject to a variety of domestic and foreign laws, rules and regulations relating to improper payments to government officials, bribery, anti-kickback and false claims rules, competition, export and import compliance, money laundering and data privacy. If our associates, agents or business partners engage in activities in violation of these laws, rules or regulations, we may be subject to civil or criminal fines or penalties or other sanctions, may incur costs associated with government investigations, or may suffer damage to our reputation.
Our operations are highly dependent on information technology infrastructure, and failures, attacks or breaches could significantly affect our business.
We depend heavily on our information technology infrastructure in order to achieve our business objectives. If we experience a problem that impairs this infrastructure, such as a computer virus, a problem with the functioning of an important IT application, or an intentional disruption of our IT systems by a third party, the resulting disruptions could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on our business in the ordinary course. Any such events could cause us to lose customers or revenue and could require us to incur significant expense to eliminate these problems and address related security concerns, including costs relating to investigation and remediation actions.
IT security threats via computer malware, social engineering and other “cyber-attacks,” which are increasing in both frequency and sophistication, could also result in unauthorized disclosures of information, such as customer data, personally identifiable information or other confidential or proprietary material, and create financial liability, subject us to legal or regulatory sanctions, or damage our reputation. We attempt to mitigate these risks by implementing measures that aim to help us to continuously improve our cybersecurity posture and protect against evolving threats. For example, we regularly implement new IT systems and make enhancements to our existing Enterprise Resource Planning systems and other business and financial systems (collectively referred to as “IT Systems”), with the aim of enabling management to achieve better control across our business operations. The cost and operational consequences of implementing, maintaining and enhancing our IT Systems and the other measures we employ, could increase significantly to overcome increasingly intense, complex and sophisticated cybersecurity threats, and certain of our IT Systems and other measures may not perform as expected. There can be no assurance that the enhancements to our IT Systems will be successfully implemented and failure to do so could have a material adverse effect on our operations. Notwithstanding these IT Systems enhancements and the other measures we employ, our systems, networks, products and services remain potentially vulnerable to known or unknown cybersecurity attacks and other threats, any of which could have a material adverse effect on our competitive position, results of operations, financial condition and cash flow.
We continuously monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption. However, a cybersecurity attack could persist for an extended period of time before being detected, and, following detection, it could take considerable time for us to obtain full and reliable information about the extent, amount and type of information compromised. During the course of an investigation, we may not know the full impact of the event and how to remediate it, and actions, decisions and mistakes that are taken or made may further increase the negative effects of the event on our business, results of operations and reputation. Moreover, because the techniques used to gain access to or sabotage systems often are not recognized until launched against a target, we may be unable to anticipate the methods necessary to defend against
these types of attacks, and we cannot predict the extent, frequency or impact these attacks may have. Although we maintain insurance coverage that may, subject to policy terms and conditions, provide coverage for certain aspects of cyber and information security risks, dependent upon the nature, location and extent of an event, such insurance coverage may be insufficient to cover all losses. While we maintain robust information security mechanisms and controls in order to mitigate these risks, the impact of a material IT event could have a material adverse effect on our competitive position, results of operations, financial condition and cash flow.
Changes in data privacy laws and our ability to comply with them could have a material adverse effect on us.
We collect and store data that is sensitive to us and our employees, customers, dealers and suppliers. A variety of state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and other processing of personal and other data. Many foreign data privacy regulations, including the General Data Protection Regulation (the “GDPR”) in the European Union, are more stringent than federal regulations in the US. Additionally, many other jurisdictions are considering adopting, or have already adopted privacy regulations. The applicability of these laws to our business has increased due to our focus on expanding e-commerce offerings. These laws and regulations are rapidly evolving and changing, and could have an adverse effect on our operations. Companies’ obligations and requirements under these laws and regulations are subject to uncertainty in how they may be interpreted by courts and governmental authorities. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs. In the case of non-compliance with these laws, including the GDPR, regulators have the authority to levy significant fines. In addition, if there is a material breach of privacy, we may face litigation or regulatory sanctions, or be required to make notifications pursuant to applicable regulations.
Although we have implemented plans to comply with these laws, GDPR and future laws and regulations could impose even greater compliance burdens and risks with respect to privacy and data security than prior laws. The EU (through the GDPR) and a growing number of legislative and regulatory bodies elsewhere in the world have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal information. These breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with these obligations could cause us to incur substantial costs, require significant management time and attention, and increase negative publicity surrounding any incident that compromises personal information and the occurrence of any of these events could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.
Changes in labor or employment laws could increase our costs and may adversely affect our business.
Various federal, state and international labor and employment laws govern our relationship with employees and affect operating costs. These laws include minimum wage requirements, overtime, unemployment tax rates, workers’ compensation rates paid, leaves of absence, mandated health and other benefits, and citizenship requirements. Significant additional government-imposed increases or new requirements in these areas could materially affect our business, financial condition, operating results or cash flow. In the event our employee-related costs rise significantly, we may have to reduce the number of our employees or shut down certain manufacturing facilities. Any such actions would not only be costly but could also materially adversely affect our business.
We are subject to environmental laws that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses.
We are subject to a variety of federal, state, local, foreign and provincial environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances and wastes, requiring permits for such activity and the responsibility to investigate and clean up contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Fines and penalties and revocation of permits may be imposed for non-compliance with applicable environmental laws and regulations and the failure to have or to comply with the terms and conditions of required permits. The operation of manufacturing plants entails risks related to compliance with environmental laws, requirements and permits, and a failure by us to comply with applicable environmental laws, regulations, or permits could result in civil or criminal fines, penalties, enforcement actions, third-party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control equipment or remedial actions. Moreover, if applicable environmental laws and regulations, or the interpretation or enforcement thereof, become more stringent in the future, we could incur capital or operating costs beyond those currently anticipated.
In addition, there are known environmental liabilities, and there may be environmental conditions currently unknown to us relating to our prior, existing or future sites or operations or those of predecessor companies whose liabilities we may have assumed or acquired which could have a material adverse effect on our business.
We are being indemnified, or expect to be indemnified by third parties, subject to certain caps or limitations on the indemnification, for certain environmental costs and liabilities associated with certain owned or operated sites. We cannot assure you that third parties who indemnify or who are expected to indemnify us for certain environmental costs and liabilities associated with certain owned or operated sites will in fact satisfy their indemnification obligations. If those third parties become unable to, or otherwise do not, comply with their respective indemnity obligations, or if certain contamination or other liability for which we are obligated is not subject to these indemnities, we could become subject to significant liabilities. See Note 11 – Contingencies of the Notes to the Consolidated Financial Statements for more information.
General Risks
Our operations can be negatively impacted by natural disasters, terrorism, acts of war, international conflict, pandemic outbreaks and political and governmental actions.
Natural disasters, acts or threats of war or terrorism, pandemic outbreaks such as COVID-19, international conflicts, and the actions taken by the US and other governments in response to such events could cause damage or disrupt our business operations, our suppliers, or our customers, and could create political or economic instability, any of which could have an adverse effect on our business. Although it is not possible to predict such events or their consequences, these events could decrease demand for our products, could make it difficult or impossible for us to deliver products, could disrupt our supply chain or could result in disruption of our manufacturing processes. We may also be negatively impacted by actions by the US or foreign governments which could disrupt manufacturing and commercial operations, including policy changes affecting taxation, trade, immigration, currency devaluation, tariffs, customs, border actions and the like, including, for example, trade relations between the US and China, and ongoing geopolitical tensions and conflicts.
Similarly, unplanned repairs or equipment outages, including those due to natural disasters, could result in the disruption of our manufacturing processes. Any interruption in our manufacturing processes would interrupt our production of products, reduce our income and cash flow and could result in a material adverse effect on our business and financial condition.
Our stock has been and may continue to be subject to significant fluctuations and volatility.
The market price of shares of our common stock has been and may continue to be volatile. Among the factors that could affect our common stock price are those discussed above under “Risk Factors” as well as:
•domestic and international economic and political factors unrelated to our performance;
•quarterly fluctuation in our operating income and earnings per share results;
•decline in demand for our products;
•significant strategic actions by our competitors, including new product introductions or technological advances;
•fluctuations in interest rates;
•cost increases in energy, raw materials, intermediate components or materials, or labor; and
•changes in revenue or earnings estimates or publication of research reports by analysts.
In addition, stock markets have experienced and may continue to experience extreme volatility that may be unrelated to the operating performance of particular companies. These broad market fluctuations have adversely affected and may continue to adversely affect the trading price of our common stock.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 1C - CYBERSECURITY
Our executive leadership team is responsible for the global risk management framework and influences the culture of risk management within the Company. Additionally, our Board is responsible for oversight of the executive leadership team’s approach to risk management and cybersecurity strategy. The Board recognizes the importance of maintaining security and the trust of our customers, clients, business partners and associates. The Company has developed a cybersecurity program founded on a strong management approach, policy driven governance, standards and procedures, and execution of a comprehensive strategy that adapts to changing risks. The Company endeavors to manage cybersecurity risks through a comprehensive and multidisciplinary approach that emphasizes confidentiality, security, and availability of our information by deploying processes to support identification of cybersecurity threats and using tools for prevention and mitigation of cybersecurity incidents. To the extent that cybersecurity incidents may occur, the Company has established cross functional procedures that enable a prompt and effective response to cybersecurity incidents.
Risk Management and Strategy
: The Company maintains a risk-based approach to third party engagement and the cybersecurity risks associated therewith. This approach adheres to Company-policy, which includes regularly evaluating and identifying material risks from cybersecurity threats associated with third parties’ access to our systems, as well as the systems of third parties that could adversely impact our business in the event of a cybersecurity incident affecting those third-party systems.•Education and Awareness: The Company provides annual mandatory global information security training and certification for personnel regarding cybersecurity threats. This training is offered in 20 languages to maximize associate accessibility and comprehension. The Company administers monthly targeted trainings and phishing simulations for our associates. Training sessions and additional phishing simulations are automatically deployed based on success and failure rates. In October 2024, the Company observed Cybersecurity Awareness Month with additional
who specialize in cyber-risk mitigation. The results of these third-party engagements are used to inform enhancements and adjustments to our cybersecurity policies and practices.Governance
Our Board believes that oversight of risk management belongs at the full Board level rather than with any single committee, primarily because of the importance of understanding and mitigating risk to the overall success of our Company. As part of its risk management responsibilities, our full Board provides oversight of the Company’s management and mitigation of cybersecurity risks.
works collaboratively with the Risk Committee. has implemented and monitors a program designed to protect the Company’s information systems and to promptly respond to any cybersecurity incidents in accordance with the documented incident response plans. To facilitate the success of the Company’s cybersecurity risk management program, multidisciplinary teams are engaged to identify, classify, and address cybersecurity threats and incidents. The Company’s cybersecurity programs are supported by experienced and knowledgeable leaders.
The cybersecurity threat environment is increasingly challenging. While we employ various measures to improve our cybersecurity posture and protect against evolving threats, we cannot guarantee that these measures will always be successful. For more information, please refer to Part I - Item 1A - Risk Factors – Risks Relating to the Legal and Regulatory Environment – “Our operations are highly dependent on information technology infrastructure, and failures, attacks or breaches could significantly affect our business” in this Annual Report on Form 10-K.
ITEM 2 - PROPERTIES
Our corporate offices are located in Milwaukee, Wisconsin in an approximately 142,000 square foot rented office building and in Rosemont, Illinois in an approximately 20,000 square foot rented office building. We have manufacturing, sales and service facilities throughout the US and in Mexico, China, Europe and India as well as a number of other locations throughout the world.
Our IPS segment currently includes 143 facilities, of which 50 are principal manufacturing facilities and 26 are principal warehouse facilities. The Industrial Powertrain Solutions segment's present operating facilities contain a total of approximately 10.4 million square feet of space, of which approximately 31% are leased.
The following represents our principal manufacturing and warehouse facilities in the Industrial Powertrain Solutions segment (square footage in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Square Footage |
| Location | | Facilities | | Total | | Owned | | Leased |
| US | | 29 | | 3.6 | | 2.3 | | 1.3 |
| Mexico | | 5 | | 0.7 | | 0.4 | | 0.3 |
| China | | 4 | | 0.8 | | — | | 0.8 |
| India | | 5 | | 0.2 | | 0.1 | | 0.1 |
| Europe | | 23 | | 1.4 | | 1.2 | | 0.2 |
| Other | | 10 | | 0.4 | | 0.3 | | 0.1 |
| Total | | 76 | | 7.1 | | 4.3 | | 2.8 |
Our PES segment currently includes 56 facilities, of which 19 are principal manufacturing facilities and 8 are principal warehouse facilities. The Power Efficiency Solutions segment's present operating facilities contain a total of approximately 4.7 million square feet of space, of which approximately 28% are leased.
The following represents our principal manufacturing and warehouse facilities in the Power Efficiency Solutions segment (square footage in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Square Footage |
| Location | | Facilities | | Total | | Owned | | Leased |
| US | | 7 | | 0.9 | | 0.7 | | 0.2 |
| Mexico | | 7 | | 1.3 | | 0.9 | | 0.4 |
| China | | 6 | | 1.0 | | 0.8 | | 0.2 |
| India | | 3 | | 0.4 | | 0.4 | | — |
| Europe | | 2 | | 0.1 | | 0.1 | | — |
| Other | | 2 | | 0.3 | | 0.2 | | 0.1 |
| Total | | 27 | | 4.0 | | 3.1 | | 0.9 |
Our AMC segment currently includes 72 facilities, of which 29 are principal manufacturing facilities and 15 are principal warehouse facilities. The Automation & Motion Control segment's present operating facilities contain a total of approximately 3.2 million square feet of space, of which approximately 58% are leased.
The following represents our principal manufacturing and warehouse facilities in the Automation & Motion Control segment (square footage in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Square Footage |
| Location | | Facilities | | Total | | Owned | | Leased |
| US | | 15 | | 1.3 | | 0.6 | | 0.7 |
| Mexico | | 4 | | 0.5 | | 0.1 | | 0.4 |
| China | | 3 | | 0.1 | | — | | 0.1 |
| India | | 9 | | 0.2 | | 0.1 | | 0.1 |
| Europe | | 8 | | 0.7 | | 0.5 | | 0.2 |
| Other | | 5 | | 0.1 | | — | | 0.1 |
| Total | | 44 | | 2.9 | | 1.3 | | 1.6 |
ITEM 3 - LEGAL PROCEEDINGS
From time to time, we are subject to a variety of litigation and other legal and regulatory claims incidental to our business. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. See Note 11 - Contingencies of the Notes to the Consolidated Financial Statements for more information.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
General
Our common stock, $0.01 par value per share, is traded on the New York Stock Exchange under the symbol “RRX.” The number of registered holders of common stock as of February 19, 2025 was 235.
Under our equity incentive plans, participants may pay the exercise price or satisfy all or a portion of the federal, state and local withholding tax obligations arising in connection with plan awards by electing to (a) have the Company withhold shares of common stock otherwise issuable under the award, (b) tender back shares received in connection with such award or (c) deliver other previously owned shares of common stock, in each case having a value equal to the exercise price or the amount to be withheld. During the quarter ended December 31, 2024, we did not acquire any shares in connection with transactions pursuant to equity incentive plans.
Item 12 of this Annual Report on Form 10-K contains certain information relating to our equity compensation plans.
Share Repurchase Program
At a meeting of the Board of Directors on October 26, 2021, the Company's Board of Directors approved the authorization to purchase up to $500.0 million of shares under the Company's share repurchase program. The authorization has no expiration date. Management is authorized to effect purchases from time to time in the open market or through privately negotiated transactions and may enter into Rule 10b5-1 trading plans to enact purchases on behalf of the Company. During 2024, we purchased 332,439 shares or $50.0 million in shares pursuant to the repurchase authorization. During 2023, we did not repurchase any shares. During 2022, we purchased 1,698,227 shares or $239.2 million in shares pursuant to the repurchase authorization. The maximum value of shares of our common stock available to be purchased as of December 31, 2024 is $145.0 million.
There were no repurchases of our common stock during the quarter ended December 31, 2024.
Stock Performance
The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.
The following graph compares the hypothetical total shareholder return (including reinvestment of dividends) on an investment in (1) our common stock, (2) the Standard & Poor's MidCap 400 Index, and (3) the Standard & Poor's 400 Industrials Index, for the period December 28, 2019 through December 31, 2024. In each case, the graph assumes the investment of $100.00 on December 28, 2019.
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| INDEXED RETURNS |
| | Years Ended |
| Company / Index | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 |
| Regal Rexnord Corporation | | $ | 145.85 | | | $ | 213.75 | | | $ | 152.30 | | | $ | 189.70 | | | $ | 200.59 | |
| S&P MidCap 400 Index | | 113.73 | | | 141.88 | | | 123.35 | | | 143.63 | | | 163.63 | |
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| S&P 400 Industrials Index | | 116.23 | | | 149.30 | | | 132.13 | | | 173.66 | | | 197.08 | |
First Quarter 2025 Dividend
On January 27, 2025, the Board of Directors declared a quarterly dividend of $0.35 per share. The dividend is payable on April 14, 2025, to shareholders of record at the close of business on March 31, 2025.
ITEM 6 - [RESERVED]
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars In Millions Except Per Share Data, Unless Otherwise Noted)
Overview
General
Regal Rexnord Corporation (NYSE: RRX) (“we,” “us,” “our” or the “Company”) and its associates around the world help create a better tomorrow by providing sustainable solutions that power, transmit and control motion. The Company’s electric motors and air moving subsystems provide the power to create motion. A portfolio of highly engineered power transmission components and subsystems efficiently transmits motion to power industrial applications. The Company's automation offering, comprised of controllers, drives, precision motors, and actuators, controls motion in applications ranging from factory automation to precision tools used in surgical applications. We are headquartered in Milwaukee, Wisconsin and have manufacturing, sales and service facilities worldwide.
As of December 31, 2024, the Company, including its subsidiaries, employed approximately 30,300 full-time people in its global manufacturing, sales, and service facilities and corporate offices. For the year ended December 31, 2024, we reported annual net sales of $6.0 billion compared to $6.3 billion for the year ended December 31, 2023.
Our company is comprised of three operating segments: Industrial Powertrain Solutions ("IPS"), Power Efficiency Solutions ("PES") and Automation & Motion Control ("AMC").
A description of our three operating segments is as follows:
•The IPS segment designs, produces and services a broad portfolio of highly-engineered transmission products, including mounted and unmounted bearings, couplings, mechanical power transmission drives and components, gearboxes and gear motors, clutches, brakes, and industrial powertrain components and solutions. Increasingly, the segment produces industrial powertrain solutions, which are integrated sub-systems comprised of Regal Rexnord motors plus the critical power transmission components that efficiently transmit motion to power industrial applications. The segment serves a broad range of markets that include metals and mining, general industrial, energy, alternative energy, machinery / off-highway, discrete automation and other markets.
•The PES segment designs and produces fractional to approximately 5 horsepower AC and DC motors, electronic variable speed controls, electronic drives, fans and blowers, as well as integrated subsystems comprised of two or more of these components. The segment's products are used in residential and commercial HVAC, water heaters, commercial refrigeration, commercial building ventilation, pool and spa, irrigation, dewatering, agricultural, conveying and other applications.
•The AMC segment designs, produces and services conveyor products, conveying automation subsystems, aerospace components, precision motion control solutions, high-efficiency miniature servo motors, controls, drives and linear actuators, as well as power management products that include automatic transfer switches and paralleling switchgear. The segment sells into markets that include industrial automation, robotics, food and beverage, aerospace, medical, agricultural and construction, general industrial, data center, and other markets.
On September 23, 2023, we signed an agreement to sell our industrial motors and generators businesses which represented the substantial majority of the Industrial Systems operating segment. The transaction closed on April 30, 2024. See Note 3 - Acquisitions and Divestitures and Note 5 - Segment Information of the Notes to the Consolidated Financial Statements for further information and a description of the Company's operating segments, respectively.
We have omitted discussion of trends from 2022 to 2023 as this information has been previously disclosed within Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our 10-K for the year ended December 31, 2023 filed with the SEC on February 26, 2024.
Components of Profit and Loss
Net Sales. We sell our products to a variety of manufacturers, distributors and end users. Our customers consist of a large cross-section of businesses, ranging from Fortune 100 companies to small businesses. A number of our products are sold to OEMs, who incorporate our products into products they manufacture, and many of our products are built to the requirements of our
customers. The majority of our sales are derived from direct sales to customers by sales personnel employed by the Company, however, a significant portion of our sales are derived from sales made by manufacturer’s representatives. Our product sales are made via purchase order, long-term contract, and, in some instances, one-time purchases. Many of our products have broad customer bases, with the levels of concentration of revenues varying from business unit to business unit.
Our level of net sales for any given period is dependent upon a number of factors, including (i) the demand for our products; (ii) the strength of the economy generally and the end markets in which we compete; (iii) our customers’ perceptions of our product quality at any given time; (iv) our ability to meet customer demands in a timely manner; and (v) the selling price of our products. As a result, our total revenue has tended to experience quarterly variations and our total revenue for any particular quarter may not be indicative of future results.
We use the term “organic sales” to refer to sales from existing operations excluding (i) sales from acquired businesses recorded prior to the first anniversary of an acquisition (“Acquisition Sales”), (ii) less the amount of sales attributable to any businesses divested/to be exited, and (iii) the impact of foreign currency translation. The impact of foreign currency translation is determined by translating the respective period’s organic sales using the same currency exchange rates that were in effect during the prior year periods. We use the term “organic sales growth” to refer to the increase in our sales between periods that is attributable to organic sales. We use the term “acquisition growth” to refer to the increase in our sales between periods that is attributable to Acquisition Sales. Organic sales, organic sales growth and acquisition growth are non-GAAP financial measures. See reconciliation of these measures to GAAP net sales in the section entitled "Non-GAAP Measures" below.
Gross Profit. Our gross profit is impacted by our levels of net sales and cost of sales. Our cost of sales consists of costs for, among other things (i) raw materials, including copper, steel and aluminum; (ii) components such as castings, bars, tools, bearings and electronics; (iii) wages and related personnel expenses for fabrication, assembly and logistics personnel; (iv) manufacturing facilities, including depreciation on our manufacturing facilities and equipment, insurance and utilities; and (v) shipping. The majority of our cost of sales consists of raw materials and components. The price we pay for commodities and components can be subject to commodity price fluctuations. We attempt to mitigate portions of the commodity price fluctuations through fixed-price agreements with suppliers and our hedging strategies. When we experience commodity price increases, we have tended to announce price increases to our customers, with such increases generally taking effect a period of time after the public announcements. For those sales we make under long-term arrangements, we tend to include material price formulas that specify quarterly or semi-annual price adjustments based on a variety of factors, including commodity prices.
Outside of general economic cyclicality, our business units experience different levels of variation in sales from quarter to quarter based on factors specific to each business. For example, a portion of our PES segment manufactures products that are used in air conditioning applications. As a result, our sales for that business tend to be lower in the first and fourth quarters and higher in the second and third quarters. In contrast, our IPS and AMC segments each have a broad customer base and a variety of applications, thereby helping to mitigate large quarter-to-quarter fluctuations outside of general economic conditions.
Operating Expenses. Our operating expenses consist primarily of (i) general and administrative expenses; (ii) sales and marketing expenses; (iii) general engineering and research and development expenses; and (iv) handling costs incurred in conjunction with distribution activities. Personnel related costs are our largest operating expense.
Our general and administrative expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses related to our executive, finance, human resource, information technology, legal and operations functions; (ii) occupancy expenses; (iii) technology related costs; (iv) depreciation and amortization; and (v) corporate-related travel. The majority of our general and administrative costs are for salaries and related personnel expenses. These costs can vary by business given the location of our different manufacturing operations.
Our sales and marketing expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses related to our sales and marketing function; (ii) internal and external sales commissions and bonuses; (iii) travel, lodging and other out-of-pocket expenses associated with our selling efforts; and (iv) other related overhead.
Our general engineering and research and development expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses; (ii) the design and development of new products and enhancements to existing products; (iii) quality assurance and testing; and (iv) other related overhead. Our research and development efforts tend to be targeted toward developing new products that would allow us to maintain or gain additional market share, whether in new or existing applications. In particular, a large driver of our research and development efforts is to raise the energy efficiency, and lower the environmental impact of our products and sub-systems.
Goodwill & Other Asset Impairments.
The following table presents impairments by segment as of December 31, 2024, December 31, 2023 and December 31, 2022:
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| Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems(1) | | Total |
| December 31, 2024 | | | | | | | | | |
| Goodwill Impairments | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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Impairment of Other Long-Lived Assets (2) | 1.1 | | | 1.1 | | | 1.8 | | | — | | | 4.0 | |
Loss on Sale of Businesses (3) | 1.7 | | | 1.4 | | | 1.1 | | | 4.3 | | | 8.5 | |
| Total Impairments | $ | 2.8 | | | $ | 2.5 | | | $ | 2.9 | | | $ | 4.3 | | | $ | 12.5 | |
| December 31, 2023 | | | | | | | | | |
| Goodwill Impairments | $ | — | | | $ | — | | | $ | — | | | $ | 57.3 | | | $ | 57.3 | |
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Impairment of Other Long-Lived Assets (2) | 2.5 | | | 1.5 | | | 3.4 | | | 0.4 | | | 7.8 | |
Loss on Sale of Businesses (3) | — | | | — | | | — | | | 87.7 | | | 87.7 | |
| Total Impairments | $ | 2.5 | | | $ | 1.5 | | | $ | 3.4 | | | $ | 145.4 | | | $ | 152.8 | |
| December 31, 2022 | | | | | | | | | |
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| Goodwill Impairments | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Impairment of Other Long-Lived Assets (2) | 0.9 | | | — | | | — | | | — | | | 0.9 | |
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| Total Impairments | $ | 0.9 | | | $ | — | | | $ | — | | | $ | — | | | $ | 0.9 | |
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(1) Results for the Industrial Systems segment covers results through the close of the sale on April 30, 2024.
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Net sales for 2024 were $6,033.8 million, a decrease of $216.9 million, or 3.5% as compared to 2023. The decrease consisted of an organic sales decline of 5.0% and a negative foreign currency translation impact of 0.3%, partially offset by acquisition growth of 7.5%. In addition, the decrease includes a negative impact of $342.7 million related to the sale of the industrial motors and generators businesses, which closed on April 30, 2024. The acquisition growth of $442.5 million relates to the acquisition of Altra. The $295.9 million organic sales decline was due to lower organic sales of $158.1 million within PES, $77.2 million within AMC, $41.0 million within IPS, and $19.6 million within Industrial Systems. Gross profit increased $123.7 million or 6.0% as compared to the prior year due to $175.2 million from the acquisition of Altra, the absence of $53.6 million of acquisition-related inventory step-up amortization at IPS and AMC in 2024, and the benefits of productivity and acquisition-related cost synergies, partially offset by a decrease of $66.2 million within PES and a decrease of $76.7 million due to the divestiture of the industrial motors and generators businesses. Total operating expenses for 2024 were $1,561.0 million, a decrease of $129.2 million, or 7.6% as compared to 2023. The decrease was primarily due to a reduction of $208.1 million from the divestiture of the industrial motors and generators businesses which included an $83.4 million decrease to loss on the sale of the industrial motors and generators businesses, the impact of a $57.3 million goodwill impairment recorded during 2023 in connection with the sale, and a decrease of $63.0 million in transaction and integration related costs, offset by an increase of $122.0 million from the acquisition of Altra.
IPS net sales for 2024 were $2,598.1 million, an increase of $194.6 million or 8.1% as compared to 2023. The increase consisted of acquisition growth of 10.1%, partially offset by an organic sales decline of 1.7% and a negative foreign currency translation impact of 0.3%. The acquisition growth of $243.2 million relates to the acquisition of Altra. The $41.0 million decrease in organic sales was due to weakness in machinery/off-highway, alternative energy and general industrial markets, partially offset by strength in the energy and aerospace markets, and gains from cross-selling synergies. Gross profit increased $207.4 million or 24.6% due to $92.4 from the acquisition of Altra, the absence of $39.6 million of acquisition-related inventory step-up amortization in 2024, and the benefits of productivity and acquisition-related cost synergies. Total operating expenses for 2024 were $728.8 million, an increase of $36.5 million, or 5.3% as compared to 2023. The increase was due to $60.0 million from the acquisition of Altra, partially offset by a decrease of $37.6 million in transaction and integration costs.
PES net sales for 2024 were $1,644.1 million, a decrease of $164.8 million or 9.1% as compared to 2023. The decrease consisted of an organic sales decline of 8.8% and a negative foreign currency translation impact of 0.2%. The $158.1 million decrease in organic sales was due to declines in residential HVAC, general commercial, and non-U.S. commercial HVAC markets, partially offset by strength in the commercial HVAC market in North America. Gross profit decreased $66.2 million or 12.6% due to lower sales volumes, partially offset by management's control over discretionary spending and lower freight costs. Total operating expenses for 2024 were relatively consistent with 2023.
AMC net sales for 2024 were $1,633.8 million, an increase of $117.0 million or 7.7% as compared to 2023. The increase consisted of acquisition growth of 13.1% offset by an organic sales decline of 5.1% and a negative foreign currency translation impact of 0.3%. The acquisition growth of $199.3 million relates to the acquisition of Altra. The $77.2 million decrease in organic sales was due to weakness in discrete automation and general industrial markets, partially offset by strength in the aerospace, data center, medical, and food and beverage markets. Gross profit increased $59.2 million or 10.2% due to $82.8 million from the acquisition of Altra, the absence of $14.0 million of acquisition-related inventory step-up amortization in 2024, and the benefits of productivity and acquisition-related cost synergies, partially offset by the organic sales decline. Total operating expenses for 2024 increased $53.8 million, or 12.1% as compared to 2023. The increase in operating expenses was due to $62.0 million from the acquisition of Altra, partially offset by a decrease of $25.5 million in transaction and integration costs.
On April 30, 2024, the Company completed the sale of its industrial motors and generators businesses, which represented the substantial majority of the Industrial Systems segment, and recognized a $4.3 million loss on the sale during 2024. The changes in Industrial Systems sales, gross profit and other operating expenses were due to timing of the sale.
The effective tax rate for 2024 was 20.0% compared to (3,293.8)% for 2023. The effective tax rate in 2024 reflects lower US tax on foreign earnings and discrete tax benefits associated with a reduction in withholding taxes, while the effective tax rate in 2023 was largely driven by the impact of the nondeductible goodwill impairment and held for sale loss related to the divestiture of the industrial motors and generators businesses.
Non-GAAP Measures
As noted above, we disclose organic sales, organic sales growth and acquisition growth non-GAAP financial measures, and we reconcile these measures in the table below to GAAP net sales. We believe that these non-GAAP financial measures are useful measures for providing investors with additional information regarding our results of operations and for helping investors understand and compare our operating results across accounting periods and compared to our peers. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for the Company's results of operations prepared and presented in accordance with GAAP.
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| | Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Total |
| Net Sales for Year Ended December 31, 2024 | | $ | 2,598.1 | | | $ | 1,644.1 | | | $ | 1,633.8 | | | $ | 157.8 | | | $ | 6,033.8 | |
| Acquisition Sales | | (243.2) | | | — | | | (199.3) | | | — | | | (442.5) | |
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| Impact of Foreign Currency Translation | | 7.6 | | | 4.6 | | | 5.1 | | | 1.4 | | | 18.7 | |
| Organic Sales for Year Ended December 31, 2024 | | $ | 2,362.5 | | | $ | 1,648.7 | | | $ | 1,439.6 | | | $ | 159.2 | | | $ | 5,610.0 | |
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| Organic Sales Growth for Year Ended December 31, 2024 | | (1.7) | % | | (8.8) | % | | (5.1) | % | | (11.0) | % | | (5.0) | % |
| Acquisition Growth for Year Ended December 31, 2024 | | 10.1 | % | | — | % | | 13.1 | % | | — | % | | 7.5 | % |
| Impact from Foreign Currency Exchange Rates | | (0.3) | % | | (0.2) | % | | (0.3) | % | | (0.7) | % | | (0.3) | % |
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| Net Sales for Year Ended December 31, 2023 | | $ | 2,403.5 | | | $ | 1,808.9 | | | $ | 1,516.8 | | | $ | 521.5 | | | $ | 6,250.7 | |
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| Net Sales from Businesses Divested | | — | | | (2.1) | | | — | | | (342.7) | | | (344.8) | |
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| Adjusted Net Sales for Year Ended December 31, 2023 | | $ | 2,403.5 | | | $ | 1,806.8 | | | $ | 1,516.8 | | | $ | 178.8 | | | $ | 5,905.9 | |
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Legislative Developments
Final laws enacting the Organisation for Economic Co-operation and Development's global minimum tax framework were in force beginning in 2024 in several countries where we do business, and similar laws could be enacted in other countries where we operate. The Company continually monitors legislation updates and administrative guidance. The current impact of the global minimum tax framework is not material to the Company's results of operations.
Cash Requirements for Other Financial Commitments
The following is a summary of our future estimated cash payments by period as of December 31, 2024:
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Payments Due by Period (1) | | Debt Including Estimated Interest Payments (2) | | Operating Leases | | Finance Leases | | Pension Obligations | | Purchase and Other Obligations | | Total Contractual Obligations |
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| Less than one year | | $ | 342.3 | | | $ | 45.4 | | | $ | 8.2 | | | $ | 15.7 | | | $ | 1,199.8 | | | $ | 1,611.4 | |
| 1 - 3 years | | 2,384.5 | | | 69.6 | | | 16.5 | | | 7.5 | | | — | | | 2,478.1 | |
| 3 - 5 years | | 1,649.1 | | | 30.2 | | | 14.2 | | | 6.2 | | | — | | | 1,699.7 | |
| More than 5 years | | 2,751.7 | | | 75.3 | | | 62.2 | | | 12.4 | | | — | | | 2,901.6 | |
| Total | | $ | 7,127.6 | | | $ | 220.5 | | | $ | 101.1 | | | $ | 41.8 | | | $ | 1,199.8 | | | $ | 8,690.8 | |
(1) The timing and future spot prices affect the settlement values of our hedge obligations related to commodities and currency exchange rates. Accordingly, these obligations are not included above in the table of contractual obligations (See also Item 7A and Note 12 of the Notes to the Consolidated Financial Statements). The timing of settlement of our tax contingent liabilities cannot be reasonably determined and they are not included in the table above. Future pension obligation payments include contributions and benefit payments. Future pension contributions after 2024 are subject to revaluation based on changes in the benefit population and/or changes in the value of pension assets based on market conditions that are not determinable as of December 31, 2024.
(2) Variable rate debt interest is based on December 31, 2024 rates. See also Note 6 – Debt and Bank Credit Facilities of the Notes to the Consolidated Financial Statements.
We utilize blanket purchase orders (“Blankets”) to communicate expected annual requirements to many of our suppliers. Requirements under Blankets generally do not become “firm” until a varying number of weeks before our scheduled production. The purchase obligations shown in the above table represent the value we consider “firm”.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the US requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. We believe the following critical accounting policies could have the most significant effect on our reported results.
Purchase Accounting and Business Combinations
Assets acquired and the liabilities assumed as part of a business combination are recognized separately from goodwill at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. We, with the assistance of outside specialists as necessary, use estimates and assumptions to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. We may refine these estimates during the measurement period which may be up to one year from the acquisition date. As a result, during the measurement period, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Income (Loss).
Goodwill
We test goodwill for impairment at least annually and perform our annual impairment test as of the end of October. We monitor for goodwill impairment triggering events at least quarterly, and if a trigger is identified we test goodwill for impairment during the interim period. Factors that could trigger an impairment assessment include significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset or significant negative industry or economic trends. Reporting units with recent impairments or those with goodwill resulting from recent acquisitions generally present the highest risk of impairment.
When testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether a quantitative test is necessary. In performing qualitative assessments, we evaluate, among other things, actual and forecasted operating results, certain market factors, including discount rates and peer company EBITDA multiples, and the passing margin of prior quantitative tests.
If a quantitative test is performed, we determine the fair value of each reporting unit utilizing an income approach (discounted cash flow method) weighted 75% and a market approach (consisting of a comparable public company multiples methodology) weighted 25%. The assumptions that have the most significant effect on the fair value calculations are discount rates, market multiples, forecasted revenue and EBITDA and terminal growth rates. Discount rates are determined using market and industry data and reflect the risks and uncertainties inherent to each reporting unit and our internally developed forecasts.
For the 2024 annual goodwill test, we performed a qualitative assessment to evaluate goodwill for each of our reporting units, except for two reporting units in the AMC segment which were quantitatively tested. For each of the reporting units we qualitatively assessed, we concluded that it was more likely that not that the fair value exceeded the carrying value and thus a quantitative test was not necessary. For the two reporting units we quantitatively tested, the discount rate used in the income approach was 12.5%. Based on the results of quantitative test, the fair value of each reporting unit exceeded its carrying value and thus no goodwill impairments were recorded. The fair value exceeded carrying value by more than 10% for one of the two reporting units. There is inherent uncertainty included in the assumptions used in goodwill impairment testing and a change to any of the assumptions could lead to a future impairment, which could be material. See Note 4 – Goodwill and Intangible Assets of the Notes to the Consolidated Financial Statements for more information.
Long-Lived Assets
We evaluate the recoverability of the carrying amount of long-lived assets whenever events or changes in circumstance indicate that the carrying amount of an asset may not be fully recoverable through future cash flows. When applying the accounting guidance, we use estimates to determine when an impairment is necessary. Factors that could trigger an impairment review include a significant decrease in the market value of an asset or significant negative or economic trends. For long-lived assets, the Company uses an estimate of the related undiscounted cash flows over the remaining life of the primary asset to estimate recoverability.
Other Disclosures
Dividends
Quarterly dividends declared by Regal Rexnord Corporation's Board of Directors during the year ended December 31, 2024 and for the first quarter of 2025 were as follows:
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| Period | | Declaration Date | | Shareholder of Record Date | | Dividend Payable Date | | Cash per Share |
| First Quarter 2024 | | January 29, 2024 | | March 28, 2024 | | April 12, 2024 | | $ | 0.35 | |
| Second Quarter 2024 | | April 22, 2024 | | June 28, 2024 | | July 12, 2024 | | $ | 0.35 | |
| Third Quarter 2024 | | July 22, 2024 | | September 27, 2024 | | October 11, 2024 | | $ | 0.35 | |
| Fourth Quarter 2024 | | October 24, 2024 | | December 31, 2024 | | January 14, 2025 | | $ | 0.35 | |
| First Quarter 2025 | | January 27, 2025 | | March 31, 2025 | | April 14, 2025 | | $ | 0.35 | |
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk relating to our operations due to changes in interest rates, foreign currency exchange rates and commodity prices of purchased raw materials. We manage the exposure to these risks through a combination of normal operating and financing activities and derivative financial instruments such as interest rate swaps, commodity cash flow hedges and foreign currency forward exchange contracts. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which prohibit the use of financial instruments for speculative purposes.
All qualified hedges are recorded on the balance sheet at fair value and are accounted for as cash flow hedges, with changes in fair value recorded in Accumulated Other Comprehensive Income (Loss) (“AOCI”) in each accounting period. An ineffective portion of the hedges' change in fair value, if any, is recorded in earnings in the period of change.
Interest Rate Risk
We are exposed to interest rate risk on certain of our short-term and long-term debt obligations used to finance our operations and acquisitions. As of December 31, 2024, we had $4,794.8 million of fixed rate debt and $705.0 million of variable rate debt. As of December 31, 2023, we had $4,796.1 million of fixed rate debt and $1,638.4 million of variable rate debt. We utilize interest rate swaps to manage fluctuations in cash flows resulting from exposure to interest rate risk on forecasted variable rate interest payments.
We have floating rate borrowings, which expose us to variability in interest payments due to changes in interest rates. A hypothetical 10% change in our weighted average borrowing rate on outstanding variable rate debt as of December 31, 2024 would result in a $3.8 million change in after-tax annualized earnings. We entered into two forward starting pay fixed/receive floating non-amortizing interest rate swaps in June 2020, with a total notional amount of $250.0 million to manage fluctuations in cash flows from interest rate risk related to floating rate interest. These swaps were terminated in March 2022 upon closing the Credit Agreement. The cash proceeds of $16.2 million received to settle the terminated swaps will be recognized into interest expense via the effective interest rate method through July 2025 when the terminated swaps were scheduled to expire. We also entered into two forward starting pay fixed/receive floating non-amortizing interest rate swaps in May 2022, with a total notional amount of $250.0 million to manage fluctuations in cash flows from interest rate risk related to floating rate interest. Upon inception, the swaps were designated as a cash flow hedges against forecasted interest payments with gains and losses, net of tax, measured on an ongoing basis, recorded in AOCI.
Details regarding the instruments as of December 31, 2024 are as follows (in millions):
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| Instrument | Notional Amount | Maturity | Rate Paid | Rate Received | Fair Value |
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| Swap | $250.0 | March 2027 | 3.0% | SOFR (3 Month) | $5.5 |
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As of December 31, 2024, a $5.5 million interest rate swap was included in Other Noncurrent Assets. As of December 31, 2023, a $5.3 million interest rate swap was included in Other Noncurrent Assets. There was an unrealized gain of $6.4 million, net of tax, (a $2.2 million gain on the terminated swaps and a $4.2 million gain on the active swaps) for 2024 and an unrealized gain of $10.6 million, net of tax, (a $6.5 million gain on the terminated swaps and a $4.1 million gain on the active swaps) for 2023 that were recorded in AOCI for the effective portion of the hedges.
Foreign Currency Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to minimize our exposure to these risks through a combination of normal operating activities and the utilization of foreign currency exchange contracts to manage our exposure on the forecasted transactions denominated in currencies other than the applicable functional currency. Contracts are executed with credit worthy banks and are denominated in currencies of major industrial countries. We do not hedge our exposure to the translation of reported results of foreign subsidiaries from local currency to US dollars.
As of December 31, 2024, derivative currency assets (liabilities) of $1.0 million and $(13.6) million, are recorded in Prepaid Expenses and Other Current Assets and Other Accrued Expenses, respectively. As of December 31, 2023, derivative currency assets (liabilities) of $14.4 million, $0.2 million and $(6.9) million, are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets and Other Accrued Expenses, respectively. The unrealized loss on the effective portions of the hedges of $5.7 million net of tax and unrealized gain of $9.3 million net of tax, as of December 31, 2024 and December 31, 2023,
respectively, are recorded in AOCI. As of December 31, 2024, we had $2.5 million, net of tax, of currency losses on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. As of December 31, 2023, we had $10.2 million, net of tax, of currency gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings.
The following table quantifies the outstanding foreign exchange contracts intended to hedge non-US Dollar denominated receivables and payables and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their counter currency on December 31, 2024 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Gain (Loss) From: |
| | Notional | | Fair | | 10% Appreciation of | | 10% Depreciation of |
| Currency | | Amount | | Value | | Counter Currency | | Counter Currency |
| Mexican Peso | | $ | 233.2 | | | $ | (7.1) | | | $ | 23.3 | | | $ | (23.3) | |
| Chinese Renminbi | | 359.5 | | | (0.2) | | | 36.0 | | | (36.0) | |
| Indian Rupee | | 23.0 | | | (0.4) | | | 2.3 | | | (2.3) | |
| Euro | | 1,221.5 | | | (4.4) | | | 122.2 | | | (122.2) | |
| Canadian Dollar | | 52.2 | | | (0.5) | | | 5.2 | | | (5.2) | |
| |
| |
| |
| British Pound | | 6.1 | | | — | | | 0.6 | | | (0.6) | |
| |
Gains and losses indicated in the sensitivity analysis would be largely offset by gains and losses on the underlying forecasted non-US Dollar denominated cash flows.
Commodity Price Risk
We periodically enter into commodity hedging transactions to reduce the impact of changing prices for certain commodities such as copper and aluminum based upon forecasted purchases of such commodities. Qualified hedge transactions are designated as cash flow hedges and the contract terms of commodity hedge instruments generally mirror those of the hedged item, providing a high degree of risk reduction and correlation.
Derivative commodity assets (liabilities) of $0.1 million and $(4.4) million are recorded in Prepaid Expenses and Other Current Assets and Other Accrued Expenses, respectively as of December 31, 2024. Derivative commodity assets (liabilities) of $1.0 million, $0.1 million and $(0.6) million are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets and Other Accrued Expenses, respectively as of December 31, 2023. The unrealized loss on the effective portion of the hedges of $3.2 million net of tax and unrealized gain of $0.3 million net of tax, as of December 31, 2024 and December 31, 2023, respectively, was recorded in AOCI. As of December 31, 2024 and December 31, 2023, we had $0.5 million and $1.6 million, respectively, net of tax derivative commodity losses on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings.
The following table quantifies the outstanding commodity contracts intended to hedge raw material commodity prices and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their prices on December 31, 2024 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Gain (Loss) From: |
| | Notional | | Fair | | 10% Appreciation of | | 10% Depreciation of |
| Commodity | | Amount | | Value | | Commodity Prices | | Commodity Prices |
| Copper | | $ | 41.7 | | | $ | (4.3) | | | $ | 4.2 | | | $ | (4.2) | |
| |
Gains and losses indicated in the sensitivity analysis would be largely offset by the actual prices of the commodities.
The net AOCI balance related to hedging activities of a $(5.5) million loss as of December 31, 2024 includes $(9.8) million of net current deferred losses expected to be realized in the next twelve months.
Counterparty Risk
We are exposed to credit losses in the event of non-performance by the counterparties to various financial agreements, including our interest rate swap agreements, foreign currency exchange contracts and commodity hedging transactions. We manage exposure to counterparty credit risk by limiting our counterparties to major international banks and financial institutions meeting established credit guidelines and continually monitoring their compliance with the credit guidelines. We do not obtain collateral or other security to support financial instruments subject to credit risk. We do not anticipate non-performance by our counterparties, but cannot provide assurances.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Annual Report on Internal Control Over Financial Reporting
The management of Regal Rexnord Corporation (the “Company”) is responsible for the accuracy and internal consistency of the preparation of the consolidated financial statements and footnotes contained in this annual report.
The Company's management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company operates under a system of internal accounting controls designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles. The internal accounting control system is evaluated for effectiveness by management and is tested, monitored and revised as necessary. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2024. In making its assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on the results of its evaluation, the Company's management concluded that, as of December 31, 2024, the Company's internal control over financial reporting is effective at the reasonable assurance level based on those criteria.
Our internal control over financial reporting as of December 31, 2024 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
February 21, 2025
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Regal Rexnord Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Regal Rexnord Corporation and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income (loss), comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2025, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Valuation – Factory Automation Reporting Unit – Refer to Notes 3 and 5 to the Financial Statements
Critical Audit Matter Description
The Company performed an impairment evaluation of the goodwill for the Factory Automation reporting unit by comparing the estimated fair value of the reporting unit to its carrying value. In order to estimate the fair value of the reporting unit, management is required to make estimates and assumptions related to the discount rate and forecasts of future revenues, which involve significant judgment. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. As of October 31, 2024, the Company’s measurement date, the Company determined that the fair value of the reporting unit exceeded its carrying value and therefore no impairment was recognized.
We identified the impairment evaluation of goodwill for the Factory Automation reporting unit as a critical audit matter because of the inherent subjectivity involved in management’s estimates and assumptions related to the discount rate and forecasts of future revenues. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the
selection of the discount rate and forecast of future revenues required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the selection of the discount rate and forecasts of future revenues for the Factory Automation reporting unit included the following, among others:
•We evaluated the design and effectiveness of the controls over management’s goodwill impairment evaluation, including those over the selection of the discount rate and forecast of future revenues.
•We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in analyst and industry reports for the Company and certain of its peer companies.
•We assessed management’s historical ability to accurately forecast the reporting unit's results of operations.
•We assessed management’s intent and/or ability to take specific actions included in management’s forecasts.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate by:
–Testing the source information underlying management’s determination of the discount rate
–Testing the mathematical accuracy of management’s calculations
–Developing a range of independent estimates and compared those to the discount rate selected by management
/s/
February 21, 2025
We have served as the Company's auditor since 2002.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Regal Rexnord Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Regal Rexnord Corporation and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2024, of the Company and our report dated February 21, 2025, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
February 21, 2025
REGAL REXNORD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Amounts in Millions, Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended |
| | December 31, 2024 | | December 31, 2023 | | December 31, 2022 |
| Net Sales | | $ | | | | $ | | | | $ | | |
| Cost of Sales | | | | | | | | | |
| Gross Profit | | | | | | | | | |
| Operating Expenses | | | | | | | | | |
| Goodwill Impairment | | | | | | | | | |
| Asset Impairments | | | | | | | | | |
| Loss on Sale of Businesses | | | | | | | | | |
| Total Operating Expenses | | | | | | | | | |
| Income from Operations | | | | | | | | | |
| Interest Expense | | | | | | | | | |
| Interest Income | | () | | | () | | | () | |
| Other Expense (Income), Net | | | | | () | | | () | |
| Income (Loss) before Taxes | | | | | () | | | | |
| Provision for Income Taxes | | | | | | | | | |
| Net Income (Loss) | | | | | () | | | | |
| Less: Net Income Attributable to Noncontrolling Interests | | | | | | | | | |
| Net Income (Loss) Attributable to Regal Rexnord Corporation | | $ | | | | $ | () | | | $ | | |
| Earnings (Loss) Per Share Attributable to Regal Rexnord Corporation: | | | | | | |
| Basic | | $ | | | | $ | () | | | $ | | |
| Assuming Dilution | | $ | | | | $ | () | | | $ | | |
| Weighted Average Number of Shares Outstanding: | | | | | | |
| Basic | | | | | | | | | |
| Assuming Dilution | | | | | | | | | |
|
See accompanying Notes to the Consolidated Financial Statements.
REGAL REXNORD CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended |
| December 31, 2024 | | December 31, 2023 | | December 31, 2022 |
| Net Income (Loss) | | | $ | | | | | | $ | () | | | | | $ | | |
| Other Comprehensive (Loss) Income Net of Tax: | | | | | | | | | | | |
| Translation: | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | | () | | | | | | | | | | () | |
| Reclassification of Foreign Currency Translation Losses to Earnings (see Note 3 - Acquisitions and Divestitures) | | | | | | | | | | | | | | |
| Hedging Activities: | | | | | | | | | | | |
(Decrease) Increase in Fair Value of Hedging Activities, Net of Tax Effects of $() Million in 2024, $ Million in 2023 and $ Million in 2022 | $ | () | | | | | $ | | | | | | $ | | | | |
Reclassification of Gains Included in Net Income (Loss), Net of Tax Effects of $() Million in 2024, $() Million in 2023 and $() Million in 2022 | () | | | () | | | () | | | | | | () | | | () | |
| Pension and Post Retirement Plans: | | | | | | | | | | | |
Decrease (Increase) in Prior Service Cost and Unrecognized Loss, Net of Tax Effects of $ million in 2024, $() million in 2023 and in 2022 | | | | | | () | | | | | | | | |
| | | | |
Amortization of Prior Service Cost and Unrecognized (Gain) Loss Included in Net Periodic Pension Cost, Net of Tax Effects of $() Million in 2024, $() Million in 2023 and $ Million in 2022 | () | | | | | | () | | | () | | | | | | | |
| Other Comprehensive (Loss) Income | | | () | | | | | | | | | | () | |
| Comprehensive Income | | | | | | | | | | | | | | |
| Less: Comprehensive Income Attributable to Noncontrolling Interest | | | | | | | | | | | | | | |
| Comprehensive Income Attributable to Regal Rexnord Corporation | | | $ | | | | | | $ | | | | | | $ | | |
See accompanying Notes to the Consolidated Financial Statements.
REGAL REXNORD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, Except Per Share Data)
| | | | | | | | | | | | | | |
| | December 31, 2024 | | December 31, 2023 |
| ASSETS | | | | |
| Current Assets: | | | | |
| Cash and Cash Equivalents | | $ | | | | $ | | |
Trade Receivables, Less Allowances of $ Million in 2024 and $ Million in 2023 | | | | | | |
| Inventories | | | | | | |
| Prepaid Expenses and Other Current Assets | | | | | | |
|
| Assets Held for Sale | | | | | | |
|
| Total Current Assets | | | | | | |
| Net Property, Plant and Equipment | | | | | | |
| Operating Lease Assets | | | | | | |
| Goodwill | | | | | | |
| Intangible Assets, Net of Amortization | | | | | | |
| Deferred Income Tax Benefits | | | | | | |
| Other Noncurrent Assets | | | | | | |
| Noncurrent Assets Held for Sale | | | | | | |
| Total Assets | | $ | | | | $ | | |
| | | | |
| LIABILITIES AND EQUITY | | | | |
| Current Liabilities: | | | | |
| Accounts Payable | | $ | | | | $ | | |
| Dividends Payable | | | | | | |
|
| Accrued Compensation and Benefits | | | | | | |
| Accrued Interest | | | | | | |
| Other Accrued Expenses | | | | | | |
| Current Operating Lease Liabilities | | | | | | |
| Current Maturities of Long-Term Debt | | | | | | |
| Liabilities Held for Sale | | | | | | |
| Total Current Liabilities | | | | | | |
| Long-Term Debt | | | | | | |
| Deferred Income Taxes | | | | | | |
|
| Pension and Other Post Retirement Benefits | | | | | | |
| Noncurrent Operating Lease Liabilities | | | | | | |
| Other Noncurrent Liabilities | | | | | | |
| Noncurrent Liabilities Held for Sale | | | | | | |
| Contingencies (see Note 11 - Contingencies) | | | | |
| Equity: | | | | |
| Regal Rexnord Corporation Shareholders' Equity: | | | | |
Common Stock, $ Par Value, Million Shares Authorized, Million Shares Issued and Outstanding at December 31, 2024 and 2023 | | | | | | |
| Additional Paid-In Capital | | | | | | |
| Retained Earnings | | | | | | |
| Accumulated Other Comprehensive Loss | | () | | | () | |
| Total Regal Rexnord Corporation Shareholders' Equity | | | | | | |
| Noncontrolling Interests | | | | | | |
| Total Equity | | | | | | |
| Total Liabilities and Equity | | $ | | | | $ | | |
See accompanying Notes to the Consolidated Financial Statements.
REGAL REXNORD CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in Millions, Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock $ Par Value | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling
Interests | | Total
Equity |
| Balance as of January 1, 2022 | $ | | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
| Net Income | — | | | — | | | | | | — | | | | | | | |
| Other Comprehensive Loss | — | | | — | | | — | | | () | | | () | | | () | |
Dividends Declared ($ Per Share) | — | | | — | | | () | | | — | | | — | | | () | |
| Stock Options Exercised | — | | | () | | | — | | | — | | | — | | | () | |
| | | | |
| Share-Based Compensation | — | | | | | | — | | | — | | | — | | | | |
| | | | |
| | | | |
| Repurchase of Common Stock | — | | | () | | | () | | | — | | | — | | | () | |
| | | | |
| | | | |
| Dividends Declared to Noncontrolling Interests | — | | | — | | | — | | | — | | | () | | | () | |
| | | | |
| Balance as of December 31, 2022 | $ | | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
| Net (Loss) Income | — | | | — | | | () | | | — | | | | | | () | |
| Other Comprehensive Income (Loss) | — | | | — | | | — | | | | | | () | | | | |
Dividends Declared ($ Per Share) | — | | | — | | | () | | | — | | | — | | | () | |
| | | | |
| Stock Options Exercised | — | | | () | | | — | | | — | | | — | | | () | |
| Share-Based Compensation | — | | | | | | — | | | — | | | — | | | | |
| | | | |
| Replacement Equity-Based Awards Granted | — | | | | | | — | | | — | | | — | | | | |
| | | | |
| | | | |
| | | | |
| Dividends Declared to Noncontrolling Interests | — | | | — | | | — | | | — | | | () | | | () | |
| | | | |
| Balance as of December 31, 2023 | $ | | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
| Net Income | — | | | — | | | | | | — | | | | | | | |
| Other Comprehensive Loss | — | | | — | | | — | | | () | | | () | | | () | |
Dividends Declared ($ Per Share) | — | | | — | | | () | | | — | | | — | | | () | |
| Stock Options Exercised | — | | | () | | | — | | | — | | | — | | | () | |
| Repurchase of Common Stock | — | | | () | | | () | | | — | | | — | | | () | |
| Businesses Divested | — | | | — | | | — | | | | | | () | | | | |
| Share-Based Compensation | — | | | | | | — | | | — | | | — | | | | |
| Dividends Declared to Noncontrolling Interests | — | | | — | | | — | | | — | | | () | | | () | |
| Balance as of December 31, 2024 | $ | | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
See accompanying Notes to the Consolidated Financial Statements.
REGAL REXNORD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended |
| | December 31,
2024 | | December 31,
2023 | | December 31,
2022 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net Income (Loss) | | $ | | | | $ | () | | | $ | | |
| Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities (Net of Acquisitions and Divestitures): | | | | | | |
| Depreciation | | | | | | | | | |
| Amortization | | | | | | | | | |
| Goodwill Impairment | | | | | | | | | |
| Asset Impairments | | | | | | | | | |
| Loss on Sale of Businesses | | | | | | | | | |
| Noncash Lease Expense | | | | | | | | | |
| Share-Based Compensation Expense | | | | | | | | | |
| Financing Fee Expense | | | | | | | | | |
|
| Benefit from Deferred Income Taxes | | () | | | () | | | () | |
|
|
|
|
| Gain on Sale of Assets | | () | | | () | | | () | |
|
|
| Other Non-Cash Changes | | | | | | | | | |
|
| Change in Operating Assets and Liabilities, Net of Acquisitions and Divestitures | | | | | | |
| Receivables | | | | | | | | () | |
| Inventories | | | | | | | | () | |
| Accounts Payable | | () | | | () | | | () | |
| Other Assets and Liabilities | | () | | | () | | | () | |
| Net Cash Provided by Operating Activities | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
| Additions to Property, Plant and Equipment | | () | | | () | | | () | |
|
|
| Business Acquisitions, Net of Cash Acquired | | | | | () | | | () | |
|
|
|
| Proceeds Received from Sales of Property, Plant and Equipment | | | | | | | | | |
| Proceeds Received from Sale of Businesses, Net of Cash Transferred | | | | | | | | | |
| Net Cash Provided by (Used in) Investing Activities | | | | | () | | | () | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
|
| Borrowings Under Revolving Credit Facility | | | | | | | | | |
| Repayments Under Revolving Credit Facility | | () | | | () | | | () | |
| Proceeds from Short-Term Borrowings | | | | | | | | | |
| Repayments of Short-Term Borrowings | | | | | () | | | () | |
|
| Proceeds from Long-Term Borrowings | | | | | | | | | |
| Repayments of Long-Term Borrowings | | () | | | () | | | () | |
|
| Dividends Paid to Shareholders | | () | | | () | | | () | |
| Proceeds from the Exercise of Stock Options | | | | | | | | | |
| Shares Surrendered for Taxes | | () | | | () | | | () | |
|
|
|
| Financing Fees Paid | | () | | | () | | | () | |
| Repurchase of Common Stock | | () | | | | | | () | |
|
| Distributions to Noncontrolling Interests | | () | | | () | | | () | |
| Net Cash (Used in) Provided by Financing Activities | | () | | | | | | () | |
| EFFECT OF EXCHANGE RATES ON CASH and CASH EQUIVALENTS | | () | | | | | | () | |
| Net (Decrease) Increase in Cash and Cash Equivalents | | () | | | () | | | | |
| Cash and Cash Equivalents at Beginning of Period | | | | | | | | | |
| Cash and Cash Equivalents at End of Period | | $ | | | | $ | | | | $ | | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | | |
| Cash Paid For: | | | | | | |
| Interest | | $ | | | | $ | | | | $ | | |
| Income Taxes | | | | | $ | | | | $ | | |
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(1) Cash paid for the common stock component of the purchase price was based on million shares of outstanding Altra Common Stock as of March 27, 2023 at $ per share, in accordance with the Altra Merger Agreement.
(2) Represents fair value of replacement equity-based awards and Company common stock issued in settlement of other Altra share based awards. The portion of the fair value attributable to pre-acquisition service was recorded as part of the consideration transferred in the Altra Transaction of which $ million was paid in cash during the second quarter of 2023.
(3) Cash paid by the Company to settle (a) the term loan facility, (b) the revolving credit facility and (c) % of the % senior notes due 2026 of Stevens Holding Company, Inc., a wholly owned subsidiary of Altra (the "Altra Notes"). $ million of the Altra Notes remained outstanding following the closing of the Altra Transaction. See Note 6 - Debt and Bank Credit Facilities for more information.
(4) Represents effective settlement of outstanding payables and receivables between the Company and Altra. No gain or loss was recognized on this settlement.
Purchase Price Allocation
Altra’s assets and liabilities were measured at estimated fair values at March 27, 2023, primarily using Level 3 inputs. Estimates of fair value represent management’s best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions, royalty rates and customer attrition rates and others. Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates expected as of the acquisition date.
The Company estimated the fair value of net assets acquired based on information available during the measurement period and, as of March 31, 2024, the valuation process to determine the fair values of the net assets acquired during the measurement period was complete.
| | $ | — | | | $ | | |
| Trade Receivables | | | | | () | | | | |
| Inventories | | | | | () | | | | |
| Prepaid Expenses and Other Current Assets | | | | | — | | | | |
| Property, Plant and Equipment | | | | | () | | | | |
|
Intangible Assets(2) | | | | | — | | | | |
| Deferred Income Tax Benefits | | | | | | | | | |
| Operating Lease Assets | | | | | — | | | | |
| Other Noncurrent Assets | | | | | — | | | | |
| Accounts Payable | | () | | | — | | | () | |
| Accrued Compensation and Benefits | | () | | | — | | | () | |
Other Accrued Expenses(1) | | () | | | () | | | () | |
| Current Operating Lease Liabilities | | () | | | — | | | () | |
| Current Maturities of Long-Term Debt | | () | | | — | | | () | |
| Long-Term Debt | | () | | | — | | | () | |
| Deferred Income Taxes | | () | | | | | | () | |
| Pension and Other Post Retirement Benefits | | () | | | — | | | () | |
| Noncurrent Operating Lease Liabilities | | () | | | — | | | () | |
| Other Noncurrent Liabilities | | () | | | — | | | () | |
|
| Total Identifiable Net Assets | | | | | | | | | |
| Goodwill | | | | | () | | | | |
| Purchase price | | $ | | | | $ | — | | | $ | | |
(1) Includes $ million related to Altra Transaction costs paid by the Company at the closing of the Altra Transaction.
(2) Includes $ million related to Customer Relationships, $ million related to Trademarks and $ million related to Technology.
Summary of Significant Fair Value Methods
The methods used to determine the fair value of significant identifiable assets and liabilities included in the allocation of purchase price are discussed below.
Inventories
Acquired inventory was comprised of finished goods, work in process and raw materials. The fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The fair value of raw materials and supplies was determined based on replacement cost which approximates historical carrying value.
Property, Plant and Equipment
The preliminary fair value of Property, Plant, and Equipment was determined using either the cost approach, which relies on an estimate of replacement costs of the new assets and estimated accrued depreciation, or the market approach.
Identifiable Intangible Assets
| | | Trademarks(2) | | | | | |
Technology(3) | | | | | |
| Total Identifiable Intangible Assets | | $ | | | | |
(1) The fair value of Customer Relationships was valued using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from Altra's existing customer base.
(2) The Altra Trademarks were valued using the relief from royalty method, which considers both the market approach and the income approach.
(3) The Altra Technology was valued using the relief from royalty method, which considers both the market approach and the income approach.
The intangible assets related to definite-lived customer relationships, trademarks and technology are amortized over their estimated useful lives.
Leases, including right-of-use ("ROU") assets and lease liabilities
Lease liabilities were measured as of the effective date of the acquisition at the present value of future minimum lease payments over the remaining lease term and the incremental borrowing rate of the Company as if the acquired leases were new leases as of the acquisition date. ROU assets recorded within “Operating Lease Assets” are equal to the amount of the lease liability at the acquisition date adjusted for any off-market terms of the lease. The remaining lease term was based on the remaining term at the acquisition date plus any renewal or extension options that the Company is reasonably certain will be exercised.
Deferred Income Tax Assets and Liabilities
The acquisition was structured as a merger, and therefore the Company assumed the historical tax basis of Altra’s assets and liabilities. The deferred income tax assets and liabilities include the expected future federal, state, and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates at the effective date of the acquisition in the jurisdictions in which legal title of the underlying asset or liability resides. See Note 10 - Income Taxes for further information related to income taxes.
Other Assets Acquired and Liabilities Assumed (excluding Goodwill)
The Company utilized the carrying values, net of allowances, to value accounts receivable and accounts payable as well as other current assets and liabilities, as it was determined that carrying values represented the fair value of those items at the acquisition date. Accounts receivable reflect the best estimate at the acquisition date of the contractual cash flows expected to be collected.
Goodwill
The excess of the consideration for the acquisition over the fair value of net assets acquired was recorded as goodwill. The goodwill is attributable to expected synergies and expanded market opportunities from combining the Company’s operations with those of Altra. The goodwill created in the acquisition is not expected to be deductible for tax purposes.
Transaction and Integration Costs
million during the year ended December 31, 2024, which includes legal, professional service and integration costs associated with the Altra Transaction. During the year ended December 31, 2023 the Company incurred $ million of costs related to the Altra Transaction, which includes legal and professional services and certain employee compensation costs, including severance and retention. These costs were recognized as Operating Expenses in the Company's Condensed Consolidated Statements of Income (Loss).
The Company also incurred $ million of share-based compensation expense during the first quarter of 2023 related to the accelerated vesting of awards for certain former Altra employees. See Note 9 – Shareholders' Equity for additional information.
In connection with the Altra Transaction, the Company incurred additional costs due to the entry into certain financing arrangements. Such financing arrangements are described in Note 6 – Debt and Bank Credit Facilities.
Unaudited Pro Forma Information
The following unaudited supplemental pro forma financial information presents the Company's financial results for the years ended December 31, 2023 and December 31, 2022, respectively, as if the Altra Transaction had occurred on January 2, 2022, the first day of the Company's year ended December 31, 2022. The pro forma financial information includes, where applicable, adjustments for: (i) additional amortization expense that would have been recognized related to the acquired intangible assets, (ii) additional interest expense on transaction related borrowings less interest income earned on the investment of proceeds from borrowings prior to the close of the Altra Transaction, (iii) additional depreciation expense that would have been recognized related to the acquired property, plant, and equipment, (iv) transaction costs and other one-time non-recurring costs, including share-based compensation expense related to the accelerated vesting of awards for certain former Altra employees, which reduced expenses by $ million and increased expenses by $ million for the years ended December 31, 2023 and December 31, 2022, respectively, (v) additional cost of sales related to the inventory valuation and lease ROU assets valuation adjustments which reduced expenses by $ million and increased expenses by $ million for the years ended December 31, 2023 and December 31, 2022, respectively and (vi) the estimated income tax effect on the pro forma adjustments.
| | $ | | | | Net Income Attributable to Regal Rexnord Corporation | | $ | | | | $ | | |
| Earnings Per Share Attributable to Regal Rexnord Corporation: | | | | |
| Basic | | $ | | | | $ | | |
| Assuming Dilution | | $ | | | | $ | | |
(4)
| | $ | | | | $ | | | | $ | | | | $ | | |
| | |
| Acquisitions | | | | | | | | | | | | | | |
| Reclassification to Noncurrent Assets Held for Sale | () | | | | | | | | | | | | () | |
| Impairment Charges | () | | | | | | | | | | | | () | |
| Translation and Other | | | | | | | | | | | | | () | |
| Balance as of December 31, 2023 | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | |
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| Acquisitions | () | | | () | | | | | | | | | | |
| | |
| | |
| | |
| Translation and Other | () | | | () | | | () | | | () | | | | |
| Balance as of December 31, 2024 | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Cumulative Goodwill Impairment Charges⁽¹⁾ | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Intangible Assets
| $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Technology | | | | | | | | | | | | | | | | | | | |
| Trademarks | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total Intangibles | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
While the Company believes its customer relationships are long-term in nature, the Company's contractual customer relationships are generally short-term. Useful lives are established at acquisition based on historical attrition rates.
Amortization expense was $ million in 2024, $ million in 2023 and $ million in 2022.
| | 2026 | | | |
| 2027 | | | |
| 2028 | | | |
| 2029 | | | |
(5)
reportable segments: Industrial Powertrain Solutions ("IPS"), Power Efficiency Solutions ("PES") and Automation & Motion Control ("AMC").The IPS segment designs, produces and services a broad portfolio of highly-engineered transmission products, including mounted and unmounted bearings, couplings, mechanical power transmission drives and components, gearboxes and gear motors, clutches, brakes, and industrial powertrain components and solutions. Increasingly, the segment produces industrial powertrain solutions, which are integrated sub-systems comprised of Regal Rexnord motors plus the critical power transmission components that efficiently transmit motion to power industrial applications. The segment serves a broad range of markets that include metals and mining, general industrial, energy, alternative energy, machinery / off-highway, discrete automation and other markets.
The PES segment designs and produces fractional to approximately 5 horsepower AC and DC motors, electronic variable speed controls, electronic drives, fans and blowers, as well as integrated subsystems comprised of two or more of these components. The segment's products are used in residential and commercial HVAC, water heaters, commercial refrigeration, commercial building ventilation, pool and spa, irrigation, dewatering, agricultural, conveying and other applications.
The AMC segment designs, produces and services conveyor products, conveying automation subsystems, aerospace components, precision motion control solutions, high-efficiency miniature servo motors, controls, drives and linear actuators, as well as power management products that include automatic transfer switches and paralleling switchgear. The segment sells into markets that include industrial automation, robotics, food and beverage, aerospace, medical, agricultural and construction, general industrial, data center, and other markets.
The Industrial Systems segment designed and produced integral motors, alternators for industrial applications, and sold aftermarket parts and kits to support such products. These products served the general industrial, metals and mining, and food and beverage end markets. As described within Note 3 – Acquisitions and Divestitures, the sale of the industrial motors and generators business, which represented a substantial majority of the Industrial Systems operating segment, was completed on April 30, 2024.
The chief operating decision maker ("CODM") of the Company is its chief executive officer. Among other considerations, the CODM evaluates performance and allocates resources based on the segment's income from operations. The Company also regularly provides to the CODM information on adjusted cost of sales and adjusted engineering, selling and administration expenses, which are significant expenses.
| | $ | | | | $ | | | | $ | | | | $ | () | | | $ | | | | Intersegment Sales | | | | | | | | | | | | | | () | | | — | |
Net Sales(1) | | | | | | | | | | | | | | — | | | | |
Adjusted Cost of Sales(2) | | | | | | | | | | | | | | | | | |
Adjusted Engineering, Selling and Administration Expenses(3) | | | | | | | | | | | | | | | | | |
Other Segment Items(4) | | | | | | | | | | | | | | | | | |
| Income from Operations | | | | | | | | | | | | | | — | | | | |
| Interest Expense | | | | | | | | | | | | | |
| Interest Income | | | | | | | | | | | | () | |
| Other Expense, Net | | | | | | | | | | | | | |
| Income before Taxes | | | | | | | | | | | | | |
| | | | | |
| Other Supplemental Disclosures | | | | | | | | | | | | |
| Amortization | | | | | | | | | | | | | | — | | | | |
| Depreciation | | | | | | | | | | | | | | | | | |
| Other significant noncash items: | | | | | | | | | | | | |
| | | | | |
| Asset Impairment | | | | | | | | | | | | | | — | | | | |
| Loss on Sale of Businesses | | | | | | | | | | | | | | — | | | | |
| Capital Expenditures | | | | | | | | | | | | | | — | | | | |
| | | | | |
| | $ | | | | $ | | | | $ | | | | $ | () | | | $ | | |
| Intersegment Sales | | | | | | | | | | | | | | () | | | — | |
Net Sales(1) | | | | | | | | | | | | | | — | | | | |
Adjusted Cost of Sales(2) | | | | | | | | | | | | | | — | | | | |
Adjusted Engineering, Selling and Administration Expenses(3) | | | | | | | | | | | | | | — | | | | |
Other Segment Items(4) | | | | | | | | | | | | | | — | | | | |
| Income (Loss) from Operations | | | | | | | | () | | | — | | | |
| Interest Expense | | | | | | | | | | | | | |
| Interest Income | | | | | | | | | | | | () | |
| Other Income, Net | | | | | | | | | | | | () | |
| Loss before Taxes | | | | | | | | | | | | () | |
| | | | | |
| Other Supplemental Disclosures | | | | | | | | | | | | |
| Amortization | | | | | | | | | | | | | | — | | | | |
| Depreciation | | | | | | | | | | | | | | — | | | | |
| Other significant noncash items: | | | | | | | | | | | | |
| Goodwill Impairment | | | | | | | | | | | | | | — | | | | |
| Asset Impairments | | | | | | | | | | | | | | — | | | | |
| Loss on Sale of Businesses | | | | | | | | | | | | | | — | | | | |
| Capital Expenditures | | | | | | | | | | | | | | — | | | | |
| | $ | | | | $ | | | | $ | | | | $ | () | | | $ | | | | Intersegment Sales | | | | | | | | | | | | | | () | | | — | |
Net Sales(1) | | | | | | | | | | | | | | — | | | | |
Adjusted Cost of Sales(2) | | | | | | | | | | | | | | — | | | | |
Adjusted Engineering, Selling and Administration Expenses(3) | | | | | | | | | | | | | | — | | | | |
Other Segment Items(4) | | | | | | | | | | | | | | — | | | | |
| Income from Operations | | | | | | | | | | — | | | |
| Interest Expense | | | | | | | | | | | | | |
| Interest Income | | | | | | | | | | | | () | |
| Other Income, Net | | | | | | | | | | | | () | |
| Income before Taxes | | | | | | | | | | | | | |
| | | | | |
| Other Supplemental Disclosures | | | | | | | | | | | | |
| Amortization | | | | | | | | | | | | | | — | | | | |
| Depreciation | | | | | | | | | | | | | | — | | | | |
| Other significant noncash items: | | | | | | | | | | | | |
| | | | | |
| Asset Impairment | | | | | | | | | | | | | | — | | | | |
| | | | | |
| Capital Expenditures | | | | | | | | | | | | | | — | | | | |
(1) Represents revenues from external customers.
(2) Adjusted Cost of Sales includes costs associated with producing goods for sale, such as materials, labor and overhead costs, and intercompany cost of sales. Adjusted Cost of Sales differs from Cost of Sales reported under US GAAP primarily because it includes intercompany cost of sales and excludes certain costs, primarily restructuring and related expenses. The difference is included in Other Segment Items.
(3) Adjusted Engineering, Selling and Administration Expenses includes operating expenses such as engineering, selling and administration expenses, as well as hedging, foreign currency gains and losses and certain overhead expenses. Adjusted Engineering, Selling and Administration Expenses differs from Operating Expenses reported under US GAAP primarily because it excludes costs such as significant noncash items, restructuring and related costs, and transaction and integration related costs. The difference is included in Other Segment Items.
(4) Other Segment Items includes other significant noncash items, intangible amortization, as well as restructuring and related costs, transaction and integration related costs, certain overhead expenses and the elimination of intercompany cost of sales.
The following table presents total identifiable assets attributable to the Company's operating segments as of December 31, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Industrial Powertrain Solutions | | Power Efficiency Solutions | | Automation & Motion Control | | Industrial Systems | | Total |
| Identifiable Assets as of December 31, 2024 | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Identifiable Assets as of December 31, 2023 | | | | | | | | | | | | | | |
| | $ | | | | $ | | | | Rest of the World | | | | | | | | | |
| Total | | | | $ | | | | $ | | | | $ | | |
US net sales for 2024, 2023 and 2022 represented %, % and % of total net sales, respectively. No individual foreign country represented a material portion of total net sales for any of the years presented.
| | $ | | | | Mexico | | | | | |
| Germany | | | | | |
| China | | | | | |
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| Senior Notes | $ | | | | $ | | |
| Term Facility | | | | | |
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| Land Term Facility | | | | | |
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| Multicurrency Revolving Facility | | | | | |
| Altra Notes | | | | | |
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The actuarial gain for 2024 was primarily due to an increase in discount rates. The actuarial loss for 2023 was primarily due to a decrease in discount rates.
The funded status as of December 31, 2024 included domestic plans of $() million and international plans of $() million. The funded status as of December 31, 2023 included domestic plans of $() million and international plans of $() million.
Funded Status and Expense
| | $ | | |
| Accrued Compensation and Benefits | | () | | | () | |
Pension and Other Post Retirement Benefits (a) | | () | | | () | |
| Total | | $ | () | | | $ | () | |
(a) Excludes post-retirement health care plans included on the Consolidated Balance Sheets | | | | |
| | | | |
| Amounts Recognized in Accumulated Other Comprehensive Loss | | | | |
| Net Actuarial Gain | | $ | | | | $ | | |
| Prior Service Cost | | | | | | |
| Total | | $ | | | | $ | | |
The accumulated benefit obligation for all defined benefit pension plans was $ million and $ million as of December 31, 2024 and December 31, 2023, respectively.
| | $ | | | | Accumulated Benefit Obligation | | | | | | |
| Fair Value of Plan Assets | | | | | | |
Defined pension plans with projected benefit obligations in excess of plan assets as of December 31, 2024 and December 31, 2023 were as follows:
| | | | | | | | | | | | | | |
| | 2024 | | 2023 |
| Projected Benefit Obligation | | $ | | | | $ | | |
| Accumulated Benefit Obligation | | | | | | |
| Fair Value of Plan Assets | | | | | | |
% | % | |
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| Year | | Expected Payments |
| 2025 | | $ | | |
| 2026 | | | |
| 2027 | | | |
| 2028 | | | |
| 2029 | | | |
| 2030-2034 | | | |
Post-Retirement Health Care Plans
The Company's other post-retirement health care plans were not significant during 2024 and 2023.
Defined Contribution Plans
Company contributions to domestic defined contribution plans totaled $ million, $ million and $ million in 2024, 2023 and 2022, respectively. Company contributions to non-US defined contribution plans were $ million, $ million and $ million in 2024, 2023 and 2022, respectively.
(8)
or more options to renew. The renewal terms can extend the lease term from one to . The exercise of lease renewal options is at the Company's sole discretion. Renewal option periods are included in the measurement of the ROU asset and lease liability when the exercise is reasonably certain to occur. Some leases include options to terminate the lease upon breach of contract and are remeasured at that point in time.
The depreciable life of leased assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Some of the Company's lease agreements include rental payments adjusted periodically for inflation or are based on an index rate. These increases are reflected as variable lease payments and are included in the measurement of the ROU asset and lease liability. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating leases are included in the following asset and liability accounts on the Company's Consolidated Balance Sheets: Operating Lease Assets, Current Operating Lease Liabilities, and Noncurrent Operating Lease Liabilities. ROU assets and liabilities arising from finance leases are included in the following asset and liability accounts on the Company's Consolidated Balance Sheets: Net Property, Plant and Equipment (see Note 2 - Accounting Policies), Current Maturities of Long-Term Debt and Long-Term Debt (see Note 6 - Debt and Bank Credit Facilities).
| | $ | | | | $ | | | | Finance Lease Cost: | | | | | |
| Amortization of ROU Assets | | | | | | | | |
| Interest on Lease Liabilities | | | | | | | | |
| Total Lease Expense | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | 2026 | | | | | | | | |
| 2027 | | | | | | | | |
| 2028 | | | | | | | | |
| 2029 | | | | | | | | |
| Thereafter | | | | | | | | |
| Total Lease Payments | $ | | | | $ | | | | $ | | |
| Less: Interest | () | | | () | | | () | |
| Present Value of Lease Liabilities | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | Operating Cash Flows - Finance Leases | | | | | | | | |
| Financing Cash Flows - Finance Leases | | | | | | | | |
| Leased Assets Obtained in Exchange for New Finance Lease Liabilities | | | | | | | | |
| Leased Assets Obtained in Exchange for New Operating Lease Liabilities | | | | | | | | |
| Weighted Average Remaining Lease Term (Years) | | | | | |
| Operating Leases | years | | years | | years |
| Finance Leases | years | | years | | years |
| Weighted Average Discount Rate | | | | | |
| Operating Leases | | % | | | % | | | % |
| Finance Leases | | % | | | % | | | % |
The Company had no material operating or finance leases that have been entered into but not yet commenced as of December 31, 2024.
(9)
million of shares under the Company's share repurchase program. The authorization has no expiration date. In 2024, the Company acquired and retired shares of its common stock at an average cost of $ per share for a total cost of $ million. In 2023, the Company did acquire any shares of its common stock. In 2022, the Company acquired and retired shares of its common stock at an average cost of $ per share for a total cost of $ million.
Based on share repurchase activity since the most recent authorization, as of December 31, 2024, the maximum value of shares of the Company’s common stock available to be purchased was approximately $ million.
Share-Based Compensation
The Company recognized approximately $ million, $ million and $ million in share-based compensation expense in 2024, 2023 and 2022, respectively. In connection with the Altra Transaction, the Company incurred $ million of share-based compensation expense during the first quarter of 2023 related to the accelerated vesting of awards for certain former Altra employees. The total income tax benefit recognized in the Consolidated Statements of Income (Loss) for share-based compensation expense was $ million, $ million and $ million in 2024, 2023 and 2022, respectively. The Company recognizes compensation expense on grants of share-based compensation awards on a straight-line basis over the vesting period of each award. The total fair value of shares and options vested was $ million, $ million and $ million in 2024, 2023 and 2022, respectively.
Total unrecognized compensation cost related to share-based compensation awards was approximately $ million, net of estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately years as of December 31, 2024.
During 2023, the Company's shareholders approved the 2023 Equity Incentive Plan ("2023 Plan"). The 2023 Plan authorized the issuance of million shares of common stock for equity-based awards and terminated any further grants under prior equity plans. Approximately million shares were available for future grant or payment under the 2023 Plan as of December 31, 2024.
Options and Stock Appreciation Rights
The Company uses several forms of share-based incentive awards including non-qualified stock options and stock settled stock appreciation rights (“SARs”). SARs are the right to receive stock in an amount equal to the appreciation in value of a share of stock over the base price per share. Shares granted generally vest over on the anniversary date of the grant date. Generally all grants expire years from the grant date. All grants are made at prices equal to the fair market value of the stock on the grant date. For the years ended December 31, 2024, December 31, 2023 and December 31, 2022, expired and canceled shares were immaterial.
| $ | | $ | | Cash Received from Stock Option Exercises | | | | | | |
| Income Tax Benefit from the Exercise of Stock Options | | | | | | |
| Total Fair Value of Share-Based Incentive Awards Vested | | | | | | |
| $ | | $ | | Risk-Free Interest Rate | % | | % | | % |
| Expected Life (Years) | | | | | |
| Expected Volatility | % | | % | | % |
| Expected Dividend Yield | % | | % | | % |
The average risk-free interest rate is based on US Treasury security rates in effect as of the grant date. The expected dividend yield is based on the projected annual dividend as a percentage of the estimated market value of the Company's common stock as of the grant date. The Company estimated the expected volatility using a weighted average of daily historical volatility of the Company's stock price over the expected term of the award. The Company estimated the expected term using historical data.
| $ | | | | | | | Granted | | | | | | | | |
| Exercised | () | | | | | | | |
| Forfeited | () | | | | | | | |
|
| Outstanding as of December 31, 2024 | | | $ | | | | | | $ | | |
| Exercisable as of December 31, 2024 | | | $ | | | | | | $ | | |
Compensation expense recognized related to options and SARs was $ million, $ million and $ million for 2024, 2023 and 2022, respectively.
As of December 31, 2024, there was $ million of unrecognized compensation cost related to non-vested options and SARs that is expected to be recognized as a charge to earnings over a weighted average period of years.
The amount of options and SARs expected to vest is materially consistent with those outstanding and not yet exercisable.
Restricted Stock Awards and Restricted Stock Units
Restricted stock awards ("RSAs") and restricted stock units ("RSUs") consist of shares or the rights to shares of the Company's stock. The awards are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, or death, disability or normal retirement of the grantee.
| $ | | | | | Granted | | | | | | | |
| Vested | | () | | | | | |
| Forfeited | | () | | | | | |
| Unvested RSAs as of December 31, 2024 | | | | $ | | | | |
grant of RSAs in 2024. The weighted average grant date fair value of awards granted was $ and $ in 2023 and 2022, respectively.
Other than RSAs that were issued to replace equity awards held by employees of Altra at the time of the Altra acquisition in the prior year, RSAs vest on the anniversary of the grant date, provided the holder of the shares is continuously employed by or in the service of the Company until the vesting date. Compensation expense recognized related to the RSAs was $ million, $ million and $ million for 2024, 2023 and 2022, respectively.
As of December 31, 2024, there was $ million of unrecognized compensation cost related to non-vested RSAs that is expected to be recognized as a charge to earnings over a weighted average period of years.
| $ | | | | | Granted | | | | | | | |
| Vested | | () | | | | | |
| Forfeited | | () | | | | | |
| Unvested RSUs as of December 31, 2024 | | | | $ | | | | |
The weighted average grant date fair value of awards granted was $, $ and $ in 2024, 2023 and 2022, respectively.
Other than RSUs that were issued to replace equity awards held by employees of Altra at the time of the Altra acquisition in the prior year, RSUs vest one third each year on the anniversary of the grant date, provided the holder of the shares is continuously employed by the Company until the vesting date. Compensation expense recognized related to the RSUs was $ million, $ million and $ million for 2024, 2023 and 2022, respectively.
As of December 31, 2024, there was $ million of unrecognized compensation cost related to non-vested RSUs that is expected to be recognized as a charge to earnings over a weighted average period of years.
Performance Share Units
Performance share unit awards ("PSUs") consist of shares or the rights to shares of the Company's stock which are awarded to associates of the Company. These shares are payable upon the determination that the Company achieved certain established performance targets and can range from % to % of the targeted payout based on the actual results. PSUs have a performance period of years, vest from the grant date and are issued at a performance target of %. The PSUs have performance criteria based on a return on invested capital metric or they have performance criteria using returns relative to the Company's peer group. As set forth in the individual grant agreements, acceleration of vesting may occur under a change in control, death or disability. There are no voting rights with these instruments until vesting occurs and a share of stock is issued. PSUs with a performance criteria using returns relative to the Company's peer group are valued using a Monte Carlo simulation method as of the grant date while PSUs with a performance criteria based on a return on invested capital are valued using the closing market price less net present value of dividends as of the grant date.
% | % | | % | | Expected life (years) | | | | | |
| Expected volatility | % | | % | | % |
| Expected dividend yield | % | | % | | % |
| $ | | | | | | Granted | | | | | | | |
| Vested | | () | | | | | |
| Forfeited | | () | | | | | |
| Unvested PSUs as of December 31, 2024 | | | | $ | | | | |
The weighted average grant date fair value of awards granted was $, $ and $ in 2024, 2023 and 2022, respectively.
million, $ million and $ million for 2024, 2023 and 2022, respectively. Total unrecognized compensation expense for all PSUs granted as of December 31, 2024 was $ million and it is expected to be recognized as a charge to earnings over a weighted average period of years.
(10)
) | | $ | () | | | $ | | | | Foreign | | | | | | | | | |
| Total | | $ | | | | $ | () | | | $ | | |
| | $ | | | | $ | | | | US State | | | | | | | | | |
| Foreign | | | | | | | | | |
| | $ | | | | $ | | | | $ | | |
| Deferred | | | | | | |
| US Federal | | $ | () | | | $ | () | | | $ | () | |
| US State | | () | | | () | | | () | |
| Foreign | | () | | | () | | | () | |
| | () | | | () | | | () | |
| Total | | $ | | | | $ | | | | $ | | |
| | $ | () | | | $ | | | | State Income Taxes, Net of Federal Benefit | | () | | | () | | | | |
| Effect of Impairments and Divestitures | | | | | | | | | |
| Foreign Rate Differential | | () | | | () | | | () | |
| Research and Development Credit | | () | | | () | | | () | |
| Valuation Allowance | | () | | | | | | | |
|
| Tax on Repatriation | | | | | | | | | |
| Transaction Costs | | | | | | | | | |
|
| US Tax on Foreign Operations | | () | | | | | | | |
| Deferred Tax Remeasurement | | () | | | | | | () | |
| Other | | | | | () | | | () | |
| Income Tax Expense | | $ | | | | $ | | | | $ | | |
Deferred taxes arise primarily from differences in amounts reported for tax and financial statement purposes. The Company's net deferred tax liability was $ million as of December 31, 2024, classified on the Consolidated Balance Sheet as a net non-current deferred income tax benefit of $ million and a net non-current deferred income tax liability of $ million. As of December 31, 2023, the Company's net deferred tax liability was $ million classified on the Consolidated Balance Sheet as a net non-current deferred income tax asset of $ million and a net non-current deferred income tax liability of $ million.
| | $ | | | | Bad Debt Allowances | | | | | | |
| Warranty Accruals | | | | | | |
| Derivative Instruments | | | | | | |
| Inventory | | | | | | |
|
| Tax Loss Carryforward | | | | | | |
|
| Operating Lease Liability | | | | | | |
| Deferred Interest | | | | | | |
| Other | | | | | | |
| Deferred Tax Assets before Valuation Allowance | | | | | | |
| Valuation Allowance | | () | | | () | |
| Total Deferred Tax Assets | | | | | | |
| Property Related | | () | | | () | |
| Intangible Items | | () | | | () | |
| Accrued Liabilities | | () | | | () | |
| Derivative Instruments | | | | | () | |
|
|
|
|
|
|
|
|
| Acquisition Measurement Period Adjustment | | () | |
| Lapse of Statute of Limitations | | () | |
| Unrecognized Tax Benefits, December 31, 2024 | | $ | | |
Unrecognized tax benefits as of December 31, 2024 amount to $ million, all of which would impact the effective income tax rate if recognized.
Potential interest and penalties related to unrecognized tax benefits are recorded in income tax expense. During 2024, 2023 and 2022, the Company recognized approximately $() million, $() million and $() million of net interest income, respectively. The Company had approximately $ million, $ million and $ million of accrued interest as of December 31, 2024, December 31, 2023 and December 31, 2022, respectively.
Due to statute expirations, approximately $ million of the unrecognized tax benefits, including accrued interest, could reasonably change in the coming year.
The Company conducts business globally and, as a result, files income tax returns in the US federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The US Internal Revenue Service is currently conducting an audit of the Company's 2022 income tax return. No material deficiencies have been assessed related to ongoing audits as of December 31, 2024. With few exceptions, the Company is no longer subject to US federal and state/local income tax examinations by tax authorities for years prior to 2021, and the Company is no longer subject to non-US income tax examinations by tax authorities for years prior to 2020.
As of December 31, 2024 and December 31, 2023 the Company had approximately $ million and $ million, respectively, of tax effected net operating losses in various jurisdictions with a portion expiring over a period of up to years and the remaining without expiration.
Valuation allowances totaling $ million and $ million as of December 31, 2024 and December 31, 2023, respectively, have been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be realized. Realization of the net deferred income tax assets is dependent on generating sufficient taxable income prior to their expiration. Although realization is not assured, management believes it is more-likely-than-not that the net deferred income tax assets will be realized. The amount of the net deferred income tax assets considered realizable, however, could change in the near term if future taxable income during the carryforward period fluctuates.
million of earnings from certain foreign entities as permanently reinvested and has not recorded a deferred tax liability for the local withholding taxes of approximately $ million on those earnings.
(11)
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 $ 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 other companies, at the Ellsworth Industrial Park Site, Downers Grove, DuPage County, Illinois (the "Site"), by the United States Environmental Protection Agency ("USEPA"), and the Illinois Environmental Protection Agency ("IEPA"). Rexnord Industries' Downers Grove property is situated within the Ellsworth Industrial Complex. The USEPA and IEPA allege there have been one or more releases or threatened releases of chlorinated solvents and other hazardous substances, pollutants or contaminants at the Site, allegedly including but not limited to a release or threatened release on or from Rexnord Industries' property. The relief sought by the USEPA and IEPA includes further investigation and potential remediation of the Site and reimbursement of USEPA's past costs. In early 2020, Rexnord Industries entered into an administrative order with the USEPA to do remediation work on its Downers Grove property. The soil excavation work and transporting and disposing of the excavated material was completed in October 2020. The construction of an AS/SVE system was completed and became operational in February 2022. The system continues to operate pending the US EPA's approval of a pilot study work plan for an on site chemical oxidation soil remediation system. Soil remediation is expected to continue for a minimum of . 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 % of the costs to date. This indemnification right would not protect Rexnord Industries against liabilities related to environmental conditions that were unknown to Invensys at the time of the acquisition of the Stearns business from Invensys.
•Multiple lawsuits (with over 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 % 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 % 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
% 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.
| | $ | | | | Less: Payments | | | | | | |
| Provisions | | | | | | |
| Acquisitions | | | | | | |
| Reclassification to Liabilities Held for Sale | | | | | () | |
| Translation Adjustments | | () | | | | |
| Ending Balance | | $ | | | | $ | | |
These liabilities are included in Other Accrued Expenses and Other Noncurrent Liabilities on the Consolidated Balance Sheets.
(12)
) million and $ million, net of tax, of derivative losses and gains, respectively, on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. | | $ | | | | Aluminum | | | | | | |
|
The Company has currency forward contracts with maturities extending through December 2025. The notional amounts expressed in terms of the dollar value of the hedged currency were as follows:
| | | | | | | | | | | | | | |
| | December 31, 2024 | | December 31, 2023 |
| | |
| Mexican Peso | | $ | | | | $ | | |
| Chinese Renminbi | | | | | | |
| Indian Rupee | | | | | | |
| Euro | | | | | | |
| Canadian Dollar | | | | | | |
|
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|
| British Pound | | | | | | |
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Derivatives Designated as Cash Flow Hedging Instruments
) | | $ | () | | | $ | | | | $ | () | |
| Amounts Reclassified from Other Comprehensive Income (Loss): | | | | | | | | |
| |
| (Loss) Gain Recognized in Cost of Sales | | () | | | | | | | | | | |
| |
| Gain Recognized in Interest Expense | | | | | | | | | | | | |
) | | $ | | | | $ | () | | | $ | | | | Amounts reclassified from Other Comprehensive Income (Loss): | | | | | | | | |
| |
| (Loss) Gain recognized in Cost of Sales | | () | | | | | | | | | | |
| |
| Gain recognized in Interest Expense | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 |
| | | | | | Interest | | |
| | Commodity | | Currency | | Rate | | |
| | Forwards | | Forwards | | Swaps | | Total |
| (Loss) Gain recognized in Other Comprehensive Loss | | $ | () | | | $ | | | | $ | | | | $ | | |
| Amounts reclassified from Other Comprehensive Income (Loss): | | | | | | | | |
| Gain recognized in Net Sales | | | | | | | | | | | | |
| Gain recognized in Cost of Sales | | | | | | | | | | | | |
| |
| Gain recognized in Interest Expense | | | | | | | | | | | | |
The ineffective portion of hedging instruments recognized was immaterial for all periods presented.
Derivatives Not Designated as Cash Flow Hedging Instruments
| | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2022 |
| | | | Commodity Forwards | | Currency Forwards | | Total |
| Loss recognized in Cost of Sales | | | | $ | () | | | $ | | | | $ | () | |
| Gain recognized in Operating Expenses | | | | | | | | | |
The AOCI balance related to hedging activities of a $() million loss net of tax as of December 31, 2024 includes $() million of net current deferred losses expected to be reclassified to the Consolidated Statement of Income (Loss) in the next twelve months. There were no gains or losses reclassified from AOCI to earnings based on the probability that the forecasted transaction would not occur.
| | $ | () | | | $ | | |
| Liabilities | | | | | () | | | | |
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| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | Gross Amounts as Presented in the Consolidated Balance Sheet | | Derivative Contract Amounts Subject to Right of Offset | | Derivative Contracts as Presented on a Net Basis |
| Assets | | $ | | | | $ | () | | | $ | | |
| Liabilities | | | | | () | | | | |
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(13)
| | $ | | | | Level 2 |
| Derivative Commodity Contracts | | | | | | | Level 2 |
| |
| Other Noncurrent Assets: | | | | | |
| Interest Rate Swap | | | | | | | Level 2 |
| Assets Held in Rabbi Trust | | | | | | | Level 1 |
| Derivative Currency Contracts | | | | | | | Level 2 |
| Derivative Commodity Contracts | | | | | | | Level 2 |
| Liabilities: | | | | | |
| |
| |
| Other Accrued Expenses: | | | | | |
| |
| Derivative Currency Contracts | | | | | | | Level 2 |
| Derivative Commodity Contracts | | | | | | | Level 2 |
| |
| |
| |
| |
| |
| |
Level 1 fair value measurements for assets held in a Rabbi Trust are unadjusted quoted prices.
Level 2 fair value measurements for derivative assets and liabilities are measured using quoted prices in active markets for similar assets and liabilities. Interest rate swaps are valued based on the discounted cash flows using the SOFR forward yield curve for an instrument with similar contractual terms. Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. Commodity forwards are valued based on observable market transactions of forward commodity prices. Senior Notes are valued based on rates for instruments with comparable maturities and credit quality. See Note 6 - Debt and Bank Credit Facilities for further information.
(14)
| | $ | | |
Acquisition(1) | | | | | | |
Provision(2) | | | | | | |
| Less: Payments | | | | | | |
| Ending Balance | | $ | | | | $ | | |
(1) Excludes $ million of severance related to the Altra Transaction, which was paid in the second quarter 2023.
(2) Excludes equipment related write-offs and restructuring related depreciation adjustments. The twelve month period ended December 31, 2023 excludes $ million of accelerated depreciation.
| $ | | | $ | | | | $ | | | $ | | | $ | | | | $ | | | $ | | | $ | | | | Facility Related Costs | | | | | | | | | | | | | | | | | | | | |
| Other Expenses | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information in the section titled “Board of Directors” in the 2025 Proxy Statement is incorporated by reference herein.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information in the section titled “Proposal 4: Ratification of Deloitte & Touche LLP as our Independent Registered Public Accounting Firm for the Year Ending December 31, 2025” in the 2025 Proxy Statement is incorporated by reference herein.
PART IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(i) Financial Statements (Item 8):
Report of Deloitte & Touche LLP Independent Registered Public Accounting Firm (PCAOB ID: )
Consolidated Statements of Income (Loss) for the years ended December 31, 2024, December 31, 2023 and December 31, 2022
Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, December 31, 2023 and December 31, 2022
Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023
Consolidated Statements of Equity for the years ended December 31, 2024, December 31, 2023 and December 31, 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2024, December 31, 2023 and December 31, 2022
Notes to the Consolidated Financial Statements
(ii) Financial Statement Schedule:
Schedule II -Valuation and Qualifying Accounts for the years ended December 31, 2024, December 31, 2023 and December 31, 2022
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(iii) Exhibits
Exhibit Index
| | | | | | | | | | | |
| Exhibit Number | | Exhibit Description | |
| 2.1 | | | |
| 2.2 | | | |
| 2.3 | | | |
| 2.4 | | | |
| 3.1 | | | |
| 3.2 | | | |
| 4.1 | | Second Amended and Restated Credit Agreement, dated as of March 28, 2022, among Regal Rexnord Corporation, Land Newco, Inc., the other subsidiary borrowers party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent [Incorporated by reference to Exhibit 10.1 to Regal Rexnord Corporation’s Current Report on Form 8-K filed on March 31, 2022]
| |
| | | | | | | | | | | |
| 4.2 | | | |
| 4.3 | | | |
| 4.4 | | | |
| 4.5 | | | |
| 4.6 | |
| |
| 4.7 | | | |
| 4.8 | | | |
| 4.9 | | | |
| 4.1 | | | |
| | | |
| 10.2* | | | |
| 10.3* | | | |
| 10.4* | |
| |
| 10.5* | |
| |
| 10.6* | | | |
| 10.7* | |
| |
| 10.8* | | | |
| 10.9* | | | |
| 10.10* | | | |
| | | | | | | | | | | |
| 10.11* | | | |
| 10.12* | |
| |
| 10.13* | |
| |
| 10.14* | | | |
| 10.15* | |
| |
| 10.16* | | | |
| 10.17* | | | |
| 10.18* | | | |
| 10.19* | | | |
| 10.20* | | | |
| 10.21* | | | |
| 10.22* | | | |
| 10.23* | | | |
| 10.24* | | | |
| 10.25 | |
| |
| 10.26 | | | |
| 10.27 | | | |
| 10.28 | |
| |
| | | | | | | | | | | |
| 10.29 | | | |
| 10.3* | | | |
| 10.31* | | | |
| 10.32* | | | |
| 10.33* | | | |
| 10.34* | | | |
| 10.35* | | | |
| 10.36* | | | |
| 10.37* | | | |
| 10.38* | | | |
| 10.39* | | | |
| 10.40* | | | |
| 19.1 | | | |
| 21.1 | | | |
| 22 | | | |
| 23.1 | | | |
| 31.1 | | | |
| 31.2 | | | |
| 32.1 | | | |
| 97 | | | |
| 101.INS | | XBRL Instance Document | |
| 101.SCH | | XBRL Taxonomy Extension Schema | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101). | |
________________________
* A management contract or compensatory plan or arrangement.
** Furnished herewith.
+ Schedules (or similar attachments) to this Exhibit have been omitted in accordance with Items 601(a)(5) and/or 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of all omitted schedules to the Securities Exchange
Commission on a confidential basis upon request.
(b) Exhibits- see (a)3., above.
(c) See (a)2., above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 21st day of February 2025.
| | | | | | | | |
| REGAL REXNORD CORPORATION |
| By: | /s/ ROBERT J. REHARD |
| | Robert J. Rehard |
| | Executive Vice President
Chief Financial Officer
(Principal Financial Officer) |
| | |
|
|
|
| By: | /s/ ALEXANDER P. SCARPELLI |
| | Alexander P. Scarpelli |
| | Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer) |
| | |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| | | | | | | | |
| | |
| /s/ LOUIS V. PINKHAM | Director and Chief Executive Officer | February 21, 2025 |
| Louis V. Pinkham | (Principal Executive Officer) | |
| | |
| /s/ JAN A. BERTSCH | Director | February 21, 2025 |
| Jan A. Bertsch | | |
| | |
| /s/ STEPHEN M. BURT | Director | February 21, 2025 |
| Stephen M. Burt | | |
| | |
| /s/ THEODORE D. CRANDALL | Director | February 21, 2025 |
| Theodore D. Crandall | | |
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(a) Deductions consist of write offs charged against the allowance for doubtful accounts.
(b) Adjustments for 2023 and 2022 consist of purchase accounting adjustment and translation. See Note 2 - Accounting Policies for additional information. 2023 adjustments also include $ million reclassified to Assets Held for Sale for the industrial motors and generators businesses within the Industrial Systems segment. See Note 3 - Acquisitions and Divestitures for more information.
ITEM 16 - FORM 10-K SUMMARY
Not Applicable
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