REGAL REXNORD CORP - Quarter Report: 2024 March (Form 10-Q)

Other Noncurrent Liabilities Noncurrent Liabilities Held for Sale Contingencies (see Note 12 - Contingencies) par value, million Shares Authorized, million and million Shares Issued and Outstanding for 2024 and 2023, Respectively 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 Condensed Consolidated Financial Statements.

REGAL REXNORD CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(Dollars in Millions, Except Per Share Data)

Three Months Ended

Common Stock $ Par Value

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Noncontrolling
Interests

Total Equity

December 31, 2023

()

Net Income

—

Other Comprehensive Loss

—

()

Dividends Declared ($ Per Share)

—

()

—

()

Stock Options Exercised

—

()

—

()

Share-Based Compensation

—

March 31, 2024

()

December 31, 2022

()

Net (Loss) Income

—

()

—

()

Other Comprehensive Income

—

Dividends Declared ($ Per Share)

—

()

—

()

Stock Options Exercised

—

()

—

()

Replacement Equity-Based Awards Granted

—

Share-Based Compensation

—

Loss on Assets Held for Sale

Noncash Lease Expense

Share-Based Compensation Expense

Financing Fee Expense

Benefit from Deferred Income Taxes

()

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

Net Cash 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

()

Shares Surrendered for Taxes

()

Proceeds from the Exercise of Stock Options

Financing Fees Paid

()

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

) $ )

(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 7 - 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.

$— $ 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()— ()

$()$()$()Other Comprehensive Income (Loss) before Reclassifications ()()Tax Impact() ()Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)() ()Tax Impact Net Current Period Other Comprehensive (Loss) Income() ()()Ending Balance$ $()$()$()March 31, 2023Hedging ActivitiesPension and Post Retirement Benefit AdjustmentsForeign Currency Translation AdjustmentsTotalBeginning Balance$ $()$()$()Other Comprehensive Income before Reclassifications Tax Impact() ()Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) () Tax Impact() ()Net Current Period Other Comprehensive Income (Loss) ()

(1) Excludes impairment charges related to Industrial Systems.

Intangible Assets

$ $ $ $ $ $ Technology Trademarks

operating segments: Industrial Powertrain Solutions ("IPS"), Power Efficiency Solutions ("PES"), Automation & Motion Control ("AMC"), and Industrial Systems.

The IPS segment designs, produces and services a broad portfolio of highly-engineered power 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

$ $ $ $— $ Intersegment Sales ()— Total Sales () Gross Profit — Operating Expenses — Loss on Assets Held for Sale — Total Operating Expenses — Income (Loss) from Operations ()— Depreciation and Amortization — Capital Expenditures — March 31, 2023External Sales$ $ $ $ $— $ Intersegment Sales ()— Total Sales () Gross Profit — Operating Expenses — Total Operating Expenses — Income (Loss) from Operations () — Depreciation and Amortization — Capital Expenditures —

$ $ $ $ Identifiable Assets as of December 31, 2023

$ Term Facility Land Term Facility Multicurrency Revolving Facility Altra Notes Finance Leases Other Less: Debt Issuance Costs()()Total Less: Current Maturities Long-Term Debt$ $

The below discussion of the Company’s indebtedness should be read in conjunction with the Note 7 – Debt and Bank Credit Facilities in the Company’s 2023 Annual Report on Form 10-K filed on February 26, 2024.

Credit Agreement

On March 28, 2022, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. as Administrative Agent and the lenders named therein, which was subsequently amended on November 17, 2022 (the "First Amendment") and November 30, 2022 (the "Assumption Agreement"), which in combination provide for, among other things:

i.an unsecured term loan facility in the initial principal amount of up to $ million, maturing on March 28, 2027, which was upsized by $ million on March 27, 2023 in connection with the Altra Transaction (the "Term Facility");

ii.an unsecured term loan facility in the initial principal amount of $ million, under which the Company's subsidiary Land Newco, Inc. remains the sole borrower, maturing on March 28, 2027 (the "Land Term Facility"); and

iii.an unsecured revolving loan in the initial principal amount of up to $ million, maturing on March 28, 2027, which was upsized by $ million on March 27, 2023 in connection with the Altra Transaction (the "Multicurrency Revolving Facility").

Borrowings under the Credit Agreement bear interest at floating rates based upon indices determined by the currency of the borrowing (SOFR or an alternative base rate for US Dollar borrowings) or at an alternative base rate, in each case, plus an applicable margin. The weighted average interest rate on the Term Facility for the three months ended March 31, 2024 and March 31, 2023 was % and %, respectively. The weighted average interest rate on the Land Term Facility for the three months ended March 31, 2024 and March 31, 2023 was % and %, respectively.

The Term Facility requires quarterly amortization at % per annum, unless previously prepaid. Per the terms of the Credit Agreement, prepayments can be made without penalty and are applied to the next payment due. The Land Term Facility has no required amortization.

standby letters of credit issued under the Multicurrency Revolving Facility, and $ million of available borrowing capacity. For the three months ended March 31, 2024 and March 31, 2023 under the Multicurrency Revolving Facility, the average daily balance in borrowings was $ million and $ million, respectively, and the weighted average interest rate was % and %, respectively. The Company paid a non-use fee of % as of March 31, 2024 on the aggregate unused amount of the Multicurrency Revolving Facility at a rate determined by reference to its consolidated funded debt to consolidated EBITDA ratio.

Senior Notes

On January 24, 2023, the Company issued $ million aggregate principal amount of its % senior notes due 2026 (the “2026 Senior Notes”), $ million aggregate principal amount of its % senior notes due 2028 (the “2028 Senior Notes”), $ million aggregate principal amount of its % senior notes due 2030 (the “2030 Senior Notes”) and $ million aggregate principal amount of its % senior notes due 2033 (the “2033 Senior Notes” and, together with the 2026 Senior Notes, 2028 Senior Notes and 2030 Senior Notes, collectively, the “Senior Notes”). The 2026 Senior Notes are scheduled to mature on February 15, 2026, the 2028 Senior Notes are scheduled to mature on April 15, 2028, the 2030 Senior Notes are scheduled to mature on February 15, 2030, and the 2033 Senior Notes are scheduled to mature on April 15, 2033.

The rate of interest on each series of the Senior Notes is subject to an increase of up to % in the event of certain downgrades in the debt rating of the Senior Notes. Interest on the 2026 Senior Notes and the 2030 Senior Notes is payable semi-annually on February 15 and August 15 of each year, beginning on August 15, 2023. Interest on the 2028 Senior Notes and the 2033 Senior Notes is payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2023.

The Company received $ million in net proceeds from the sale of the Senior Notes, after deducting the initial purchasers’ discounts and estimated offering expenses. The Company used a portion of the net proceeds to repay the Company’s outstanding Private Placement Notes and used the remaining net proceeds, together with the incremental term loan commitments under the Term Facility and cash on hand, to fund the consideration for the Altra Transaction, repay certain of Altra’s outstanding indebtedness, and pay certain fees and expenses.

Prior to the consummation of the Altra Transaction, the Company used a portion of the proceeds to repay the outstanding borrowings under the Multicurrency Revolving Facility in January 2023 and invested the remaining net proceeds of approximately $ billion in interest bearing accounts. The Company recognized $ million in Interest Income from the investment in interest bearing accounts prior to the close of the Altra Transaction.

The Senior Notes were issued and sold in a private offering to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and persons outside the United States in accordance with Regulation S under the Securities Act. Pursuant to a registration rights agreement, the Company agreed to exchange the Senior Notes with registered notes with terms substantially identical to those of the Senior Notes of the corresponding series (the “New Notes”) within days from the date of issuance. The Company and certain subsidiaries that guarantee the Senior Notes filed a registration statement on Form S-4 with the SEC on March 26, 2024, registering an offer to exchange the Senior Notes validly tendered for New Notes of the corresponding series (the “Exchange Offer”). In May 2024, the Company and the guarantor subsidiaries completed the Exchange Offer, exchanging approximately $ million in aggregate principal amount of Senior Notes for approximately $ million in aggregate principal amount of New Notes of the corresponding series. The aggregate principal amount of Senior Notes not exchanged, approximately $ million, remained outstanding across the four series of Senior Notes. The New Notes consist of approximately $ million aggregate principal amount of % senior notes due 2026, $ million aggregate principal amount of % senior notes due 2028, $ million aggregate principal amount of % senior notes due 2030 and $ million aggregate principal amount of % senior notes due 2033.

Altra Notes

On March 27, 2023, in connection with the Altra Transaction, the Company assumed $ million aggregate principal amount of % senior notes due 2026 (the “Altra Notes”). The Company purchased % of the outstanding Altra Notes for total consideration of $ million. See Note 3 – Held for Sale, Acquisitions and Divestitures for more information.

The Altra Notes will mature on October 1, 2026. The Altra Notes may be redeemed at the option of the issuer on or after October 1, 2023. The Notes are guaranteed on a senior unsecured basis by certain of the Company's domestic subsidiaries.

Compliance with Financial Covenants

The Credit Agreement requires the Company to meet specified financial ratios and to satisfy certain financial condition tests. The Company was in compliance with all financial covenants as of March 31, 2024.

% as of March 31, 2024 and March 31, 2023.

Other Disclosures

Based on rates for instruments with comparable maturities and credit quality, which are classified as Level 2 inputs (see also Note 14 - Fair Value), the approximate fair value of the Senior Notes was $ million and $ million as of March 31, 2024 and December 31, 2023, respectively, compared to a carrying value of $ million as of March 31, 2024 and December 31, 2023. The Company believes that the fair value of all other debt instruments approximates their carrying value.

$ Interest Cost Expected Return on Plan Assets()()Amortization of Prior Service Cost and Net Actuarial Loss (Gain) ()Special Termination Benefits Net Periodic Benefit Expense (Income)$ $()

The service cost component is included in Cost of Sales and Operating Expenses. All other components of net periodic benefit costs are included in Other Expense (Income), Net on the Company's Condensed Consolidated Statements of Income (Loss).

For the three months ended March 31, 2024 and March 31, 2023, the Company contributed $ million and $ million, respectively, to retirement plans. The Company expects to make total contributions of $ million in 2024. The Company contributed a total of $ million in 2023.

For the three months ended March 31, 2024 and March 31, 2023, the Company contributed $ million and $ million, respectively, to defined contribution plans.

million and $ million in share-based compensation expense for the three months ended March 31, 2024 and March 31, 2023, respectively. The expense for the three months ended March 31, 2023 includes $ million related to the accelerated vesting of awards for certain former Altra employees. The total income tax benefit recognized in the Condensed Consolidated Statements of Income (Loss) for share-based compensation expense was $ million and $ million for the three months ended March 31, 2024 and March 31, 2023, 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.

$ Restricted Stock Units $ Performance Share Units $

10.

% versus % for the three months ended March 31, 2023, which was due to the non-deductible transaction costs associated with the Altra Transaction incurred in 2023.

As of March 31, 2024 and December 31, 2023, the Company had approximately $ million and $ million of unrecognized tax benefits, all of which would impact the effective income tax rate if recognized. Potential interest and penalties related to unrecognized tax benefits are recorded in income tax expense. The Company had approximately $ million and $ million of accrued interest as of March 31, 2024 and December 31, 2023, respectively.

11.

million and million for the three months ended March 31, 2024 and March 31, 2023, respectively. Effect of Dilutive Securities Denominator for Diluted Earnings Per Share

12.

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 Water Solutions Corporation (formerly known as Rexnord Corporation) ("Zurn"), subject to certain limitations. The following paragraphs summarize the most significant actions and proceedings:

% 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 Industries, and provide Rexnord Industries with indemnification against certain product related asbestos exposure liabilities. The Company believes that, pursuant to such indemnity obligations, Hamilton Sundstrand is obligated to defend and indemnify Rexnord Industries with respect to asbestos claims described below, and that, with respect to these claims, such indemnity obligations are not subject to any time or dollar limitations.

The following paragraph summarizes the most significant actions and proceedings for which Hamilton Sundstrand has accepted responsibility:

•Rexnord Industries is a defendant in multiple lawsuits pending in state or federal court in numerous jurisdictions relating to alleged personal injuries due to the alleged presence of asbestos in certain clutches and drives previously manufactured by The Falk Corporation. The ultimate outcome of these lawsuits cannot presently be determined. Hamilton Sundstrand is defending Rexnord Industries in these lawsuits pursuant to its indemnity obligations and has paid % 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.

$ Less: Payments()()Provisions Acquisitions Translation Adjustments() Ending Balance$ $

These liabilities are included in Other Accrued Expenses and Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets.

13.

million and $ million, respectively, net of tax, of derivative gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. $ Mexican Peso Euro Indian Rupee British Pound

$ $ $ $ $ $()$ Amounts Reclassified from Other Comprehensive Income (Loss):(Loss) Gain Recognized in Cost of Sales() () ()

The AOCI balance related to hedging activities consists of a $ million gain net of tax as of March 31, 2024 which includes $ million of net current deferred gains expected to be reclassified to the Consolidated Statement of Comprehensive Income (Loss) in the next twelve months. There were no gains or losses reclassified from AOCI to earnings based on the probability that the forecasted transaction would not occur.

The Company's commodity and currency derivative contracts are subject to master netting agreements with the respective counterparties which allow the Company to net settle transactions with a single net amount payable by one party to another party. The Company has elected to present the derivative assets and derivative liabilities on the Condensed Consolidated Balance Sheets on a gross basis as of March 31, 2024 and December 31, 2023.

$()$ Liabilities ()

December 31, 2023

Gross Amounts as Presented on the Condensed Consolidated Balance Sheet

Derivative Contract Amounts Subject to Right of Offset

Derivative Contracts as Presented on a Net Basis

Assets

()

Liabilities

()

14.

$ Level 2Derivative Commodity Contracts Level 2Other Noncurrent Assets:Assets Held in Rabbi Trust Level 1Derivative Currency Contracts Level 2Derivative Commodity Contracts Level 2Interest Rate Swap Level 2Liabilities:Other Accrued Expenses:Derivative Currency Contracts Level 2Derivative 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. Senor Notes are valued based on rates for instruments with comparable maturities and credit quality. See Note 7 - Debt and Bank Credit Facilities for further information.

15.

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.

million of equipment related write-offs incurred in the first quarter of 2024.

$ $ $ $ $ Facility Related Costs Other Expenses Total Restructuring Costs$ $ $ $ $ $

The following table presents restructuring costs by segment for the three months ended March 31, 2024 and March 31, 2023:

Restructuring Costs - Three Months Ended

Total

Industrial Powertrain Solutions

Power Efficiency Solutions

Automation & Motion Control

Industrial Systems

March 31, 2024

March 31, 2023

()

million in the remainder of 2024. The Company continues to evaluate operating efficiencies and anticipates incurring additional costs in future periods in connection with these activities.

16.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars In Millions Except Per Share Data, Unless Otherwise Noted)

Overview

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 transmit motion to power industrial applications. Our automation offering, comprised of controls, actuators, drives, and small, precision motors control motion in applications ranging from factory automation to providing precision control in surgical tools. We are headquartered in Milwaukee, Wisconsin and have manufacturing, sales and service facilities worldwide.

As of March 31, 2024, our company is comprised of four operating segments: Industrial Powertrain Solutions ("IPS"), Power Efficiency Solutions ("PES"), Automation & Motion Control ("AMC") and Industrial Systems.

A description of our four 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 general industrial, metals and mining, agricultural and construction, food and beverage, energy, alternative energy, 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 light commercial HVAC, water heaters, commercial refrigeration, commercial building ventilation, pool and spa, irrigation, dewatering, agricultural 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 designs and produces integral motors and alternators for industrial applications, along with aftermarket parts and kits to support such products. These products primarily serve the general industrial, metals and mining, and food and beverage end markets.

On September 23, 2023, we signed an agreement to sell our industrial motors and generators businesses which represent the substantial majority the Industrial Systems operating segment. The transaction closed on April 30, 2024 for a preliminary purchase price of $400 million, approximately 17% of which is deferred and will be paid upon the completion of the China Business transfer, as defined below. The total consideration remains subject to taxes, transaction expenses, working capital adjustments and customary post-closing adjustments. The Company anticipates that aggregate net proceeds will approximate $355 million. Due to administrative requirements, the transfer of the Chinese subsidiaries of the industrial motors and generators business, (the “China Business”) remains in progress and is expected to occur following completion of customary local filings and transfer documentation. The Company expects the deferred transfer of the China Business will occur in mid second quarter of 2024, at which time it anticipates it will receive the portion of the purchase price allocated to the China Business. The assets and liabilities related to these businesses are classified as Assets Held for Sale, Noncurrent Assets Held for Sale, Liabilities Held for Sale and Noncurrent Liabilities Held for Sale on the Company's Condensed Consolidated Balance Sheet as of March 31, 2024. The sale of the industrial motors and generators businesses does not represent a strategic shift that will have a major effect on our operations and financial results and, therefore, did not qualify for presentation as discontinued operations. See Note 3 - Held for Sale, Acquisitions and Divestitures of the Notes to the Condensed Consolidated Financial Statements for further information.

Components of Profit and Loss

Net Sales. We sell our products to a variety of manufacturers, distributors and end users. Our customers consist of a large cross-section of businesses, ranging from Fortune 100 companies to small businesses. A number of our products are sold to Original Equipment Manufacturers ("OEMs"), who incorporate our products, such as electric motors, into products they manufacture, and many of our products are built to the requirements of our customers. The majority of our sales derive from direct sales to customers by sales personnel employed by the Company, however, a significant portion of our sales are derived from sales made by manufacturer’s representatives, who are paid exclusively on commission. Our product sales are made via purchase order, long-term contract, and, in some instances, one-time purchases. Many of our products have broad customer bases, with levels of revenue concentration by customer varying widely across our business units.

Our level of net sales for any given period is dependent upon a number of factors, including (i) the demand for our products and for the products in which our products are components; (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 quote, lead and delivery times; (v) the selling price of our products; (vi) inventory levels in the channels through which our products are sold; and (vii) the weather. As a result, our total revenue has tended to experience quarterly variations and our total revenue for any particular quarter may not be indicative of future results.

We use the term “organic sales" to refer to sales from existing operations excluding (i) sales from acquired businesses recorded prior to the first anniversary of the acquisition (“Acquisition Sales”), (ii) less the amount of sales attributable to any businesses divested/to be exited, and (iii) the impact of foreign currency translation. The impact of foreign currency translation is determined by translating the respective period’s organic sales using the same currency exchange rates that were in effect during the prior year periods. We use the term “organic sales growth” to refer to the increase in our sales between periods that is attributable to organic sales. We use the term “acquisition growth” to refer to the increase in our sales between periods that is attributable to Acquisition Sales. Organic sales, organic sales growth and acquisition growth are non-GAAP financial measures. See reconciliation for these measures to GAAP net sales in 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 this 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 who purchase via purchase order, with such increases generally taking effect a period of time after the public announcements. For those sales we make under long-term contracts, we tend to include material price formulas that specify quarterly or semi-annual price adjustments based on a variety of factors, including commodity prices.

Outside of general economic cyclicality, our business units experience different levels of variation in gross profit from quarter to quarter based on factors specific to each business. Generally our PES segment, IPS segment, AMC segment and Industrial Systems segment each have broad customer base and a variety of applications for their products, thereby helping to mitigate large quarter-to-quarter fluctuations outside of general economic conditions. However, 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 may be lower in the first and fourth quarters and higher in the second and third quarters.

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 energy efficiency products and enhancements; (iii) quality assurance and testing; and (iv) other related overhead. Our research and development efforts tend to be targeted toward developing new products that would allow us to maintain or gain additional market share, whether in new or existing applications. In particular, a large driver of our research and development efforts is to raise the energy efficiency, and lower the environmental impact of our products and sub-systems.

Income from Operations. Our income from operations consists of segment gross profit less segment operating expenses. In addition, there are shared operating costs that cover corporate, engineering and IT expenses that are consistently allocated to the operating segments and are included in segment operating expenses. Income from operations is a key metric used to measure year-over-year performance of the segments.

Altra Transaction

On March 27, 2023, in accordance with the terms and conditions of the Altra Merger Agreement, by and among us, Altra, and Merger Sub, pursuant to the satisfaction of specified conditions, Merger Sub merged with and into Altra, with Altra surviving the Altra Merger as our wholly owned subsidiary. See Note 3 - Held for Sale, Acquisitions and Divestitures of the Notes to the Condensed Consolidated Financial Statements for further information regarding the Altra Transaction.

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

2024 Outlook

The Company has updated its annual guidance for diluted earnings per share to a range of $3.97 to $4.77. The change reflects impacts tied to closing the sale of the industrial motors and generators businesses.

Results of Operations


	March 31, 2024			March 31, 2023
Net Sales:
Industrial Powertrain Solutions	$	643.4		$	414.4
Power Efficiency Solutions	385.3			469.5
Automation & Motion Control	400.2			203.2
Industrial Systems	118.8			137.0
Consolidated	$	1,547.7		$	1,224.1

Gross Profit as a Percent of Net Sales:
Industrial Powertrain Solutions	41.2		%	42.8		%
Power Efficiency Solutions	25.8		%	25.1		%
Automation & Motion Control	40.0		%	37.1		%
Industrial Systems	24.5		%	20.1		%
Consolidated	35.7		%	32.5		%

Operating Expenses as a Percent of Net Sales:
Industrial Powertrain Solutions	28.4		%	36.6		%
Power Efficiency Solutions	18.4		%	15.4		%
Automation & Motion Control	29.9		%	39.7		%
Industrial Systems	38.7		%	18.1		%
Consolidated	27.1		%	26.9		%

Income (Loss) from Operations as a Percent of Net Sales:
Industrial Powertrain Solutions	12.8		%	6.3		%
Power Efficiency Solutions	7.4		%	9.7		%
Automation & Motion Control	10.0		%	(2.6)		%
Industrial Systems	(14.2)		%	2.0		%
Consolidated	8.7		%	5.6		%

Income from Operations	$	133.9		$	68.9
Interest Expense	105.4			95.4
Interest Income	(3.1)			(31.9)
Other Expense (Income), Net	0.3			(1.4)
Income before Taxes	31.3			6.8
Provision for Income Taxes	10.9			12.3
Net Income (Loss)	20.4			(5.5)
Less: Net Income Attributable to Noncontrolling Interests	0.6			0.4
Net Income (Loss) Attributable to Regal Rexnord Corporation	$	19.8		$	(5.9)

Three Months Ended March 31, 2024 Compared to March 31, 2023

Net sales increased $323.6 million or 26.4% for the first quarter 2024 compared to the first quarter 2023. The increase consisted of acquisition growth of 36.1%, partially offset by an organic sales decline of 9.6% and negative foreign currency translation of 0.1%. The acquisition-related growth was driven by $442.5 million from the acquisition of Altra, and the negative organic sales was driven by lower net sales of $84.2 million within the Power Efficiency Solutions segment and $18.2 million within the Industrial Systems segment. Gross profit increased $155.0 million or 38.9% for the first quarter 2024 as compared to the first

quarter 2023. The increase from the prior year was primarily driven by $175.2 million from the acquisition of Altra, along with acquisition related cost synergies, partially offset by a decrease of $17.3 million within the Power Efficiency Solutions segment. Operating expenses for the first quarter 2024 increased $90.0 million or 27.3% as compared to the first quarter 2023. The increase was primarily driven by a $122.0 million increase related to the acquisition of Altra and a loss on assets held for sale of $21.5 million related to the sale of the industrial motors and generators business, partially offset by a decrease in transaction and integration costs of $60.5 million.

Industrial Powertrain Solutions segment net sales for the first quarter 2024 were $643.4 million, an increase of $229.0 million or 55.3% as compared to the first quarter 2023. The increase consisted of acquisition growth of 58.7%, offset by an organic sales decline of 3.4%. The acquisition-related growth was driven by $243.2 million from the acquisition of Altra. Gross profit increased $87.4 million or 49.3% as compared to the first quarter 2023. The increased gross profit was driven by $92.4 million from the acquisition of Altra, along with acquisition related cost synergies, partially offset by an increase in restructuring expenses. Operating expenses for the first quarter 2024 were $182.7 million compared to $151.5 million in the first quarter 2023. The $31.2 million or 20.6% increase was primarily driven by a $60.0 million increase related to the acquisition of Altra, partially offset by a decrease in transaction and integration costs of $37.6 million.

Power Efficiency Solutions segment net sales for the first quarter 2024 were $385.3 million, a decrease of $84.2 million or 17.9% as compared to the first quarter 2023. The decrease consisted of an organic sales decline of 17.8% and negative foreign currency translation of 0.1%. The decrease was primarily driven by lower volumes stemming from lower end market demand across all regions. Gross profit decreased $18.4 million or 15.6% as compared to the first quarter 2023. The decrease in gross profit was primarily driven by a decrease of $21.6 million related to lower volumes partially offset by management's control over discretionary spending and lower freight costs. Operating expenses for the first quarter 2024 and 2023 were $70.8 million and $72.3 million, respectively. The decrease in operating expenses was primarily driven by various cost reduction measures.

Automation & Motion Control segment net sales were $400.2 million, an increase of $197.0 million or 96.9% as compared to the first quarter 2023. The increase consisted of acquisition growth of 98.1% and positive foreign currency translation of 0.5%, partially offset by an organic sales decline of 1.5%. The acquisition growth was driven by $199.3 million from the acquisition of Altra. Gross profit increased $84.5 million or 112.1% compared to the first quarter 2023. The increase in gross profit was driven by an increase of $82.8 million from the acquisition of Altra, along with acquisition related cost synergies. Operating expenses for the first quarter 2024 were $119.7 million compared to $80.6 million in the first quarter 2023. The increase was primarily driven by a $62.0 million increase related to the acquisition of Altra, offset by a decrease in transaction and integration costs of $23.2 million.

Industrial Systems segment net sales for the first quarter 2024 were $118.8 million, a decrease of $18.2 million or 13.3% compared to first quarter 2023 net sales. The decrease consisted of an organic sales decline of 12.6% and negative foreign currency translation of 0.7%. The organic sales decline was primarily driven by softer North American motors demand, partially offset by strength in generators demand. Gross profit for the first quarter 2024 increased $1.5 million or 5.4%. The increase was driven by improvements in material and manufacturing costs, partially offset by lower volumes. Operating expenses for the first quarter 2024 increased $21.2 million as compared to the first quarter 2023, primarily due to a loss on assets held for sale of $21.5 million related to the sale of the industrial motors and generators business.

The effective tax rate for the three months ended March 31, 2024 was 34.8% versus 180.9% for the three months ended March 31, 2023. The effective tax rate for the three months ended March 31, 2024 was lower than the same period in the prior year primarily driven by non-deductible transaction costs associated with the Altra transaction incurred in the prior year.

Non-GAAP Measures

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). As noted above, in this Quarterly Report on Form 10-Q, we also disclose organic sales, organic sales growth and acquisition growth, which are considered non-GAAP financial measures. We use the term "organic sales growth" to refer to its increase in sales between periods that is attributable to sales. "Organic sales" refers to GAAP sales from existing operations excluding any sales from acquired businesses recorded prior to the first anniversary of the acquisition and excluding any sales from business divested/to be exited recorded prior to the first anniversary of the exit and excluding the impact of foreign currency translation. The impact of foreign currency translation is determined by translating the respective period's organic sales using the currency exchange rates that were in effect during the prior year periods. We reconcile these non-GAAP measures in the table below to GAAP net sales. We believe that these non-GAAP financial measures are useful measures for providing investors with additional information regarding our results of operations and for helping investors understand and compare our operating results across accounting periods and compared to our peers. This additional non-GAAP information is

not meant to be considered in isolation or as a substitute for the Company's results of operations prepared and presented in accordance with GAAP.


	Industrial Powertrain Solutions			Power Efficiency Solutions			Automation & Motion Control			Industrial Systems			Total
Net Sales for Three Months Ended March 31, 2024	$	643.4		$	385.3		$	400.2		$	118.8		$	1,547.7
Net Sales from Businesses Acquired	(243.2)			—			(199.3)			—			(442.5)

Impact from Foreign Currency Exchange Rates	0.1			0.7			(0.8)			0.9			0.9
Organic Sales for Three Months Ended March 31, 2024	$	400.3		$	386.0		$	200.1		$	119.7		$	1,106.1

Organic Sales Growth for Three Months Ended March 31, 2024	(3.4)		%	(17.8)		%	(1.5)		%	(12.6)		%	(9.6)		%
Acquisition Growth for Three Months ended March 31, 2024	58.7		%	—		%	98.1		%	—		%	36.1		%

Net Sales for Three Months Ended March 31, 2023	$	414.4		$	469.5		$	203.2		$	137.0		$	1,224.1

Liquidity and Capital Resources

General

Our principal source of liquidity is cash flow provided by operating activities. In addition to operating income, other significant factors affecting our cash flow include working capital levels, capital expenditures, dividends, share repurchases, acquisitions and divestitures, availability of debt financing and the ability to attract long-term capital at acceptable terms.

Cash flow provided by operating activities was $83.1 million for the three months ended March 31, 2024, a $23.1 million decrease from the three months ended March 31, 2023. This decrease was driven primarily by lower cash generated by working capital.

Cash flow used in investing activities was $17.5 million for the three months ended March 31, 2024 as compared to cash flow used in investing activities of $4,865.5 million for the three months ended March 31, 2023. The decrease was driven by the use of $4,852.9 of cash to acquire Altra during the prior year period.

In the remainder of 2024, we anticipate capital spending for property, plant and equipment to be approximately $132 million. We believe that our present manufacturing facilities will be sufficient to provide adequate capacity for our operations for the remainder of 2024. We anticipate funding remaining 2024 capital spending with operating cash flows.

Cash flow used in financing activities was $168.0 million for the three months ended March 31, 2024, compared to $5,203.6 million provided by financing activities for the three months ended March 31, 2023. We had net debt payments of $137.5 million during the three months ended March 31, 2024, compared to net debt borrowings of $5,284.1 million during the three months ended March 31, 2023. The net debt payments in the current year primarily resulted from payments of $60.0 million on the term loan and $71.7 million net repayments made on the revolver during the three months ended March 31, 2024. The net debt borrowings in the prior year were primarily the result of the $4.7 billion of Senior Notes issued in January 2023 and $840.0 million upsize of the unsecured term loan facility in March 2023, partially offset by the repayment of the $500.0 million of Private Placement Notes in January 2023. There were no share repurchases for the three months ended March 31, 2024 and March 31, 2023. There were $23.3 million of dividends paid for the three months ended March 31, 2024, compared to $23.2 million of dividends paid in the prior year. There were no financing fees paid in the three months ended March 31, 2024, compared to $50.0 million of fees paid in the prior year.

Our working capital was $2,017.1 million (inclusive of assets and liabilities classified as held for sale) as of March 31, 2024, compared to $2,057.6 million as of December 31, 2023. As of March 31, 2024 and December 31, 2023, our current ratio (which

is the ratio of our current assets to current liabilities) was 2.6:1. Our working capital decreased primarily as a result of lower cash on hand, due to the Company prioritizing debt reduction and using excess cash to do so.

The following table presents selected financial information and statistics as of March 31, 2024 and December 31, 2023:


	March 31, 2024		December 31, 2023
Cash and Cash Equivalents	$	465.3	$	574.0
Trade Receivables, Net	828.1		921.6
Inventories	1,319.1		1,274.2
Working Capital	2,017.1		2,057.6
Current Ratio	2.6:1		2.6:1

As of March 31, 2024, $506.8 million of our cash, which includes cash in assets held for sale, was held by foreign subsidiaries and could be used in our domestic operations if necessary. We anticipate being able to support our liquidity and operating needs largely through cash generated from operations. We regularly assess our cash needs and the available sources to fund these needs which includes repatriation of foreign earnings which may be subject to withholding taxes. Under current law, we do not expect restrictions or taxes on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition or the results of operations for the foreseeable future. As of March 31, 2024, we have repatriated approximately $140.8 million of foreign cash in 2024 to support the repayment of debt. We are continuing to evaluate opportunities to repatriate additional foreign cash in 2024.

We will, from time to time, maintain excess cash balances which may be used to (i) fund operations, (ii) repay outstanding debt, (iii) fund acquisitions, (iv) pay dividends, (v) make investments in new product development programs, (vi) repurchase our common stock, or (vii) fund other corporate objectives.

In May, 2024, the Company completed transactions to exchange the unregistered Senior Notes for the registered New Notes, which are described within Note 7 - Debt and Bank Credit Facilities.

The Company plans to use cash generated from operations to fund its interest obligations and reduce the principal balance of its debt over time. The Company also plans to use the net proceeds from the sale of its industrial motors and generators businesses to repay outstanding debt.

As of March 31, 2024, the Company had no standby letters of credit issued under the Multicurrency Revolver Facility, and $1,543.6 million of available borrowing capacity. For the three months ended March 31, 2024 and March 31, 2023 under the Multicurrency Revolving Facility, the average daily balance in borrowings was $98.5 million and $580.6 million, respectively, and the weighted average interest rate was 7.2% and 5.8%, respectively. The Company pays a non-use fee on the aggregate unused amount of the Multicurrency Revolving Facility at a rate determined by reference to its consolidated funded debt to consolidated EBITDA ratio.

See Note 7 - Debt and Bank Credit Facilities and Note 3 – Held for Sale, Acquisitions and Divestitures for more information.

Guarantor Information

Regal Rexnord Corporation (the “Parent”) is the issuer of the Senior Notes and the New Notes, which are guaranteed by each of its direct and indirect wholly-owned subsidiaries that is a borrower or guarantor under the Credit Agreement (the “Guarantor Subsidiaries” and, each, a “Guarantor Subsidiary”). The Senior Notes and the New Notes are jointly and severally unconditionally guaranteed on a senior unsecured basis by the Guarantor Subsidiaries. The guarantees are subject to release in limited circumstances upon the occurrence of certain customary conditions. For example, a Guarantor Subsidiary may be released from its guarantee of the Senior Notes and the New Notes under certain circumstances, including following the Parent achieving certain corporate or similar credit ratings. In addition, the guarantee of a Guarantor Subsidiary will automatically terminate under certain circumstances, including if such Guarantor Subsidiary is permanently released from its guarantee of, and is not a borrower under, the Credit Agreement.

If any of the Parent’s subsidiaries that do not guarantee the Senior Notes and the New Notes (the “Non-Guarantor Subsidiaries”) becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of its indebtedness and its trade creditors generally will be entitled to payment on their claims from the assets of such subsidiary before any of those assets would be made available to the Parent or any Guarantor Subsidiary. Consequently, the claims of holders of the Senior Notes and the New Notes are structurally subordinated to all of the existing and future liabilities, including trade payables, of the Non-Guarantor Subsidiaries.

The following tables set forth financial information attributable to the Parent and the Guarantor Subsidiaries (collectively the “Obligor Group”). The financial information of the Obligor Group is presented on a combined basis, excluding intercompany balances and transactions between entities in the Obligor Group which have been eliminated. The financial information of the Obligor Group excludes equity investments in, and equity income or loss from, subsidiaries that are not in the Obligor Group. Material amounts due from, due to, and transactions with Non-Guarantor Subsidiaries which are included in the condensed financial information of the Obligor Group are presented with each table.

The following table sets forth summarized balance sheet information of the Obligor Group as of March 31, 2024 and December 31, 2023, and includes balances of the industrial motors and generators businesses which are classified as held for sale in the Condensed Consolidated Balance Sheets:


	March 31, 2024	December 31, 2023
Total Current Assets	1,264.2	1,285.0
Goodwill	4,255.9	4,262.6
Intangible Assets, Net of Amortization	2,323.0	2,374.0
Other Noncurrent Assets	1,047.9	1,062.8
Total Assets	7,626.8	7,699.4
Total Current Liabilities	633.3	697.0
Long-Term Debt	6,216.6	6,351.3
Other Noncurrent Liabilities	3,409.5	4,246.1
Total Liabilities	9,626.1	10,597.4
Due from Non-Guarantor Subsidiaries	538.0	526.4
Due to Non-Guarantor Subsidiaries	2,640.9	3,453.1

Critical Accounting Estimates

Our critical accounting policies and estimates, which are discussed in our Annual Report on Form 10-K for the year ended December 31, 2023, have not materially changed since that report was filed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk relating to our operations due to changes in interest rates, foreign currency exchange rates and commodity prices of purchased raw materials. We manage the exposure to these risks through a combination of normal operating and financing activities and derivative financial instruments such as interest rate swaps, commodity cash flow hedges and foreign currency forward exchange contracts. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which prohibit the use of financial instruments for speculative purposes.

Generally, hedges are recorded on the balance sheet at fair value and are accounted for as cash flow hedges, with changes in fair value recorded in Accumulated Other Comprehensive Income (Loss) (“AOCI”) in each accounting period. An ineffective portion of the hedges' change in fair value, if any, is recorded in earnings in the period of change.

Interest Rate Risk

We are exposed to interest rate risk on certain of our outstanding debt obligations used to finance our operations and acquisitions. Loans under the Credit Agreement bear interest at variable rates plus a margin, based on our consolidated net leverage ratio. As of March 31, 2024, excluding the impact of interest rate swaps, we had $4,794.9 million of fixed rate debt and $1,501.9 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.

Our variable rate debt exposes us to fluctuations in required 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 March 31, 2024 would result in a $8.2 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 variable 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 is being 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 variable 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 March 31, 2024 are as follows:

Instrument

Notional Amount

Maturity

Rate Paid

Rate Received

Fair Value

Swap

$250.0

March 2027

3.0%

SOFR (3 Month)

8.6

As of March 31, 2024 and December 31, 2023, an interest rate swap asset of $8.6 million and $5.3 million, respectively, was included in Other Noncurrent Assets. There was an unrealized gain of $11.8 million (a $5.3 million gain on the terminated swaps and a $6.5 million gain on the active swaps) and $10.6 million, net of tax, as of March 31, 2024 and December 31, 2023, respectively, that was 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 United States dollars.

As of March 31, 2024, derivative currency assets (liabilities) of $11.5 million and $(1.7) 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 gains on the effective portions of the hedges of $7.1 million net of tax, and $9.3 million net of tax, as of March 31, 2024 and December 31, 2023 respectively, were recorded in AOCI. As of March 31, 2024 and December 31, 2023, we had $8.8 million and $10.2 million, respectively, 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 March 31, 2024:


					Gain (Loss) From
Currency	Notional Amount		Fair Value		10% Appreciation of Counter Currency		10% Depreciation of Counter Currency
Chinese Renminbi	$	312.0	$	(1.1)	$	31.2	$	(31.2)
Mexican Peso	72.1		10.1		7.2		(7.2)
Euro	617.4		0.5		61.7		(61.7)
Indian Rupee	24.4		0.2		2.4		(2.4)



British Pound	12.8		—		1.3		(1.3)

Gains and losses indicated in the sensitivity analysis would be offset by gains and losses on the underlying forecasted non-US dollar denominated cash flows.

Commodity Price Risk

We periodically enter into commodity hedging transactions to reduce the impact of changing prices for certain commodities such as copper and aluminum based upon forecasted purchases of such commodities. The contract terms of commodity hedge instruments generally mirror those of the hedged item, providing a high degree of risk reduction and correlation.

Derivative commodity assets (liabilities) of $1.1 million and $(0.3) million were recorded in Prepaid Expenses and Other Current Assets and Other Accrued Expenses, respectively, as of March 31, 2024. Derivative commodity assets (liabilities) of $1.0 million, $0.1 million and $(0.6) million were recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets and Other Accrued Expenses, respectively as of December 31, 2023. The unrealized gain on the effective portion of the hedges of $0.7 million net of tax and the unrealized gain on the effective portion of the hedges of $0.3 million net of tax, as of March 31, 2024 and December 31, 2023, respectively, was recorded in AOCI. As of March 31, 2024, we had no derivative commodity gains or losses on closed hedge instruments. As of December 31, 2023, we had $1.6 million, net of tax, derivative commodity loss on closed hedge instruments in AOCI that were realized in earnings when the hedged items impacted 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 March 31, 2024:


					Gain (Loss) From
Commodity	Notional Amount		Fair Value		10% Appreciation of Commodity Prices		10% Depreciation of Commodity Prices
Copper	$	26.9	$	0.9	$	2.7	$	(2.7)
Aluminum	0.9		—		0.1		(0.1)

Gains and losses indicated in the sensitivity analysis would be offset by the actual prices of the commodities.

The net AOCI hedging component balance consists of $28.4 million of gains as of March 31, 2024 which includes $20.6 million of net current deferred gains that are expected to be realized in the next twelve months. The gain/loss reclassified from AOCI into earnings on such derivatives will be recognized in the same period in which the related item affects earnings.

Counterparty Risk

We are exposed to credit losses in the event of non-performance by the counterparties to various financial agreements, including our interest rate swap agreements, foreign currency exchange contracts and commodity hedging transactions. We manage exposure to counterparty credit risk by limiting our counterparties to major international banks and financial institutions meeting established credit guidelines and continually monitoring their compliance with the credit guidelines. We do not obtain collateral or other security to support financial instruments subject to credit risk. We do not anticipate non-performance by our counterparties, but cannot provide assurances.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective to ensure that (a) information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and (b) information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material changes in the legal matters described in Part I, Item 3 in our Annual Report on Form 10-K for the year ended December 31, 2023, which is incorporated herein by reference. See also Note 12 - Contingencies for more information.

ITEM 1A. RISK FACTORS

Our business and financial results are subject to numerous risks and uncertainties. These risks and uncertainties have not changed materially from those reported in Part I, Item 1A - Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023, which is incorporated herein by reference. For additional information regarding risks and uncertainties facing the Company, please also see the information provided under the header "Cautionary Statement" contained in this Quarterly Report on Form 10-Q.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended March 31, 2024, we did not acquire any shares in connection with transactions pursuant to equity incentive plans. 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.

At a meeting of the Board of Directors on October 26, 2021, the Company's Board of Directors approved the authorization to purchase up to $500.0 million of shares under the Company's share repurchase program. The new authorization has no expiration date. There were no repurchases of common stock during the current quarter. The maximum value of shares of our common stock remaining available to be purchased as of March 31, 2024 is $195.0 million.

ITEM 5. OTHER INFORMATION

During our last quarter, no director or officer of the Company, as defined in Rule 16a-1(f), or a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” each as defined in Item 408 of Regulation S-K.

ITEM 6. EXHIBITS


Exhibit Number						Exhibit Description
22						List of Guarantor Subsidiaries of Guaranteed Securities.

31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certifications of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

101.INS						XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			REGAL REXNORD CORPORATION (Registrant)

			/s/ Robert J. Rehard
			Robert J. Rehard Executive Vice President Chief Financial Officer (Principal Financial Officer)

Date: May 7, 2024


			REGAL REXNORD CORPORATION (Registrant)

			/s/ Alexander P. Scarpelli
			Alexander P. Scarpelli Vice President Chief Accounting Officer (Principal Accounting Officer)

Date: May 7, 2024

REGAL REXNORD CORP - Quarter Report: 2024 March (Form 10-Q)

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