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Item 7. Management’s Discussion and Analysis

2022-02-09 compared with 2020-05-12 · 244 added, 323 removed, 251 unchanged (69% of the section changed)

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

The following discussion of results of operations and financial condition includes periods prior to the acquisitions of World Dryer Corporation ("World Dryer"), Centa Power Transmission (Centa Antriebe Kirschey GmbH) ("Centa"), Centa MP (Hong Kong) Co., Limited ("Centa China") and the assets of East Creek Corporation ("StainlessDrains.com") and Just Manufacturing Company ("Just Manufacturing").

Our financial performance includes World Dryer subsequent to October 4, 2017, Centa subsequent to February 9, 2018, Centa China subsequent to January 23, 2019, the Stainlessdrains.com business subsequent to May 10, 2019, and the Just Manufacturing business subsequent to January 28, 2020, the respective dates of their acquisitions.

Accordingly, the discussion and analysis does not reflect the impact of World Dryer, Centa, Centa China, Stainlessdrains.com or Just Manufacturing transactions prior to the respective closing dates.

We completed the sale of our VAG business on November 26, 2018, and, accordingly, the results of operations and financial condition associated with the VAG bushiness have been reclassified to discontinued operations for all periods presented.

As a result, the following discussion of results of operations and financial condition excludes the VAG business from our Water Management platform.

You should read the following discussion of our financial condition and results of operations together with Item 6, Selected Financial Data and Item 8, Financial Statements and Supplementary Data.

The following discussion of results of operations and financial condition includes periods prior to the acquisitions of the assets of East Creek Corporation ("StainlessDrains.com"), Just Manufacturing Company ("Just Manufacturing"), Hadrian Manufacturing Inc., as well as the stock of Hadrian Inc.

(Hadrian Inc.

and Hadrian Manufacturing Inc.

are collectively referred to as "Hadrian"), the assets of Advance Technology Solutions, LLC (d/b/a ATS GREASEwatch) ("ATS GREASEwatch") and Wade Drains ("Wade").

Our financial performance includes the Stainlessdrains.com business subsequent to May 10, 2019, the Just Manufacturing business subsequent to January 28, 2020, and the Hadrian business subsequent to December 11, 2020, the ATS GREASEwatch business subsequent to April 16, 2021 and the Wade Drains business subsequent to November 17, 2021, the respective dates of their acquisitions.

Accordingly, the discussion and analysis does not reflect any impact of Stainlessdrains.com, Just Manufacturing, Hadrian, ATS GREASEwatch or Wade Drains transactions prior to the respective closing dates.

We completed the spin-off of our Process & Motion Control platform ("PMC") on October 4, 2021 in the Spin-Off Transaction, and, accordingly, the results of operations and financial condition associated with PMC have been reclassified to discontinued operations for all periods presented.

As a result, the following discussion of results of operations and financial condition is centered on the Zurn business excluding PMC.

The consolidated statements of cash flows for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2021 and the fiscal year ended March 31, 2020 have not been adjusted to separately disclose cash flows related to the discontinued operations.

See Item 8, Note 4, Discontinued Operations for additional information on cash flows associated with the discontinued operations.

You should read the following discussion of our financial condition and results of operations together with Item 8, Financial Statements and Supplementary Data.

Following the end of our fiscal year ended March 31, 2020, we transitioned to a December 31 fiscal year-end.

The nine-month period from April 1, 2020, to December 31, 2020 is referred to as the Transition Period.

Fiscal years prior to and including fiscal year 2020 ended on March 31 of each calendar year.

For example, our fiscal year 2020, or fiscal 2020, means the period from April 1, 2019 to March 31, 2020.

Following the end of fiscal 2020, we are transitioning to a December 31 fiscal year-end date.

The nine-month period from April 1, 2020, to December 31, 2020, will serve as a transition period, and we will provide one-time, nine-month transitional financial statements in a transition report on Form 10-K to be filed in 2021.

Our fiscal year 2021 will commence on January 1, 2021.

Our fiscal year 2021 commenced on January 1, 2021.

This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" in Item 1A of this report.

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See also "Cautionary Notice Regarding Forward-Looking Statements" found elsewhere in this report.

The information contained in this section is provided as a supplement to the consolidated financial statements and the related notes included elsewhere in this Form 10-K to help provide an understanding of our financial condition, changes in our financial condition and results of our operations.

The information contained in this section is provided as a supplement to the consolidated financial statements and the related notes included elsewhere in this report to help provide an understanding of our financial condition, changes in our financial condition and results of our operations.

This section is organized as follows:

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Critical Accounting Estimates .

This section discusses the accounting policies and estimates that we consider to be important to our financial condition and results of operations and that require significant judgment and estimates on the part of management in their application.

Recent Accounting Pronouncements .

This section cites to the discussion of new or revised accounting pronouncements and standards in Item 8, Note 2, Significant Accounting Policies of the consolidated financial statements.

This section cites to the discussion of new or revised accounting pronouncements and standards in Item 8, Note 2, Significant Accounting Policies of our consolidated financial statements.

Overview of Recent Developments .

This section provides a description of the recent events impacting the our results of operations.

This section provides a description of the recent events impacting our results of operations.

Results of Operations .

This section provides an analysis of our results of operations for our fiscal years ended March 31, 2020 and 2019, in each case as compared to the prior period's performance.

This section provides an analysis of our results of operations.

As noted above, following the end of fiscal 2020, we transitioned to a December 31 fiscal year-end and accordingly we reported the nine-month period from April 1, 2020, to December 31, 2020 as a Transition Period.

In providing analysis of the results of our operations, we have provided a comparison of our year ended December 31, 2021 to the twelve month period ended December 31, 2020, along with a comparison of the nine months ended December 31, 2020 included in the Transition Period to the nine month period ended December 31, 2019.

Non-GAAP Financial Measures .

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Covenant Compliance .

This section provides a description of certain restrictive covenants with which our credit agreement requires us to comply.

This section provides a discussion of certain restrictive covenants in our credit agreement.

Liquidity and Capital Resources .

This section provides an analysis of our cash flows for our fiscal years ended March 31, 2020, 2019 and 2018, as well as a discussion of our indebtedness and its potential effects on our liquidity.

This section provides an analysis of our cash flows for our years ended December 31, 2021 and 2020, and nine months ended December 31, 2020 and 2019, as well as a discussion of our indebtedness and its potential effects on our liquidity.

Tabular Disclosure of Contractual Obligations .

This section provides a discussion of our commitments as of March 31, 2020.

This section provides a discussion of our commitments as of December 31, 2021.

Quantitative and Qualitative Disclosures about Market Risk .

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Company Overview

We are a growth-oriented, multi-platform industrial company with what we believe are leading market shares and highly-trusted brands that serve a diverse array of global end markets.

Currently, our business is comprised of two platforms, Process & Motion Control and Water Management.

Our heritage of innovation and specification have allowed us to provide highly-engineered, mission-critical solutions to customers for decades and affords us the privilege of having long-term, valued relationships with market leaders.

We operate our Company in a disciplined way and the Rexnord Business System ("RBS") is our operating philosophy.

Grounded in the spirit of continuous improvement, RBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of our business.

Our strategy is to build the Company around global strategic platforms that participate in end markets with sustainable growth characteristics where we are, or have the opportunity to become, the industry leader.

We have a track record of acquiring and integrating companies and expect to continue to pursue strategic acquisitions within our existing platforms that will expand our geographic presence, broaden our product lines, and allow us to move into adjacent markets.

Over time, we may add strategic platforms to our Company.

After completion of the Spin-Off Transaction, we are a growth-oriented, pure-play water management business that designs, procures, manufactures, and markets what we believe is the broadest sustainable product portfolio of specification-driven water management solutions to improve health, human safety and the environment.

Our product portfolio includes professional grade water safety and control, flow systems and hygienic and environmental products for public and private spaces that deliver superior value to building owners, positively impact the environment and human hygiene and reduce product installation time.

Zurn's heritage of innovation and specification have allowed us to provide highly-engineered, mission-critical solutions to customers for decades and affords us the privilege of having long-term, valued relationships with market leaders.

We operate in a disciplined way and the Zurn Business System (“ZBS”) is our operating philosophy.

Grounded in the spirit of continuous improvement, ZBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of our business.

Refer to Item 1, Business for additional information.

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Such costs include direct and indirect materials, direct and indirect labor costs, including fringe benefits, supplies, utilities, depreciation, freight and shipping, insurance, pension and postretirement benefits, information technology costs and other manufacturing related costs.

The largest component of our cost of sales is cost of materials, which represented approximately 34% of net sales in fiscal 2020.

The principal materials used in our Process & Motion Control manufacturing processes, which are available from numerous sources, include sheet, plate and bar steel, castings, forgings, high-performance engineered plastics and a wide variety of other components.

Within Water Management, we purchase a broad range of materials and components throughout the world in connection with our manufacturing activities.

Major raw materials and components include bar steel, brass, castings, copper, forgings, high-performance engineered plastic, plate steel, resin, sheet plastic and zinc.

We have a strategic sourcing program to significantly reduce the number of direct and indirect suppliers we use and to lower the cost of purchased materials.

The largest component of our cost of sales is cost of materials, which represented approximately 34% of net sales in the year ended December 31, 2021.

We purchase a broad range of materials and components throughout the world in connection with our manufacturing activities.

Major raw materials and components include brass, castings, copper, zinc, forgings, plate steel, high-performance engineered plastic and resin.

We have a strategic sourcing program that is designed to significantly reduce the number of direct and indirect suppliers we use and to lower the cost of purchased materials.

Selling, General and Administrative Expenses.

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Within the context of these critical accounting policies, we are not currently aware of any reasonably likely event that would result in materially different amounts being reported.

In addition to the accounting policies disclosed in Item 8, Note 2, Significant Accounting Policies to the consolidated financial statements, we believe the following accounting policies are the most critical to us in that they are important to our financial statements and they require difficult, subjective and/or complex judgments in the preparation of our consolidated financial statements.

We believe the following accounting policies are the most critical to us in that they are important to our financial statements and they require difficult, subjective and/or complex judgments in the preparation of our consolidated financial statements.

For additional information, see Item 8, Note 2, Significant Accounting Policies to our consolidated financial statements.

Revenue recognition.

Effective April 1, 2018, the beginning of fiscal 2019, we adopted Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), under the modified retrospective transition approach.

Under ASC 606, a performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account.

Under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), a performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account.

A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when obligations under the terms of a contract with the customer are satisfied.

For the majority of our product sales, revenue is recognized at a point-in-time when control of the product is transferred to the customer, which generally occurs when the product is shipped from our manufacturing facility to the customer.

For our product sales, revenue is recognized at a point-in-time when control of the product is transferred to the customer, which generally occurs when the product is shipped from our manufacturing facility to the customer.

When contracts include multiple products to be delivered to the customer, generally each product is separately priced and is determined to be distinct within the context of the contract.

Other than a standard assurance-type warranty that the product will conform to agreed-upon specifications, there are generally no other significant post-shipment obligations.

The expected costs associated with standard warranties continues to be recognized as an expense when the products are sold.

The expected costs associated with standard warranties continues is recognized as an expense when the products are sold.

When the contract provides the customer the right to return eligible products or when the customer is part of a sales rebate program, we reduce revenue at the point of sale using current facts and historical experience by using an estimate for expected product returns and rebates associated with the transaction.

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We classify shipping and handling fees billed to our customers as net sales and the corresponding costs are classified as cost of sales in the consolidated statements of operations.

During years prior to fiscal 2019, we recognized revenue in accordance with ASC 605, Revenue Recognition ("ASC 605").

The adoption of ASC 606 did not materially change the timing or methods in which we have historically recognized revenue.

Receivables are stated net of allowances for doubtful accounts of $3.4 million at March 31, 2020 and $3.1 million at March 31, 2019.

We evaluate future expected credit losses on our receivables to establish the allowance for doubtful accounts based on a combination of specific customer circumstances and historical write-off experience.

Credit is extended to customers based upon an evaluation of their financial position.

Receivables are stated net of allowances for doubtful accounts of $1.2 million at December 31, 2021 and $0.8 million at December 31, 2020.

We assesses the collectability of customer receivables based on the credit worthiness of a customer as determined by credit checks and analysis, as well as the customer’s payment history.

In determining the allowance for doubtful accounts, we also consider various factors including the aging of customer accounts and historical write-offs.

In addition, we monitor other risk factors, including forward-looking information when establishing adequate allowances for doubtful accounts, which reflects the current estimate of credit losses expected to be incurred over the life of the receivables.

Generally, advance payment is not required.

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Market is determined based on estimated net realizable values.

Approximately 61% and 62% of the Company’s total inventories as of March 31, 2020 and 2019 were valued using the "last-in, first-out" (LIFO) method.

Approximately 84% and 75% of our total inventories as of December 31, 2021 and December 31, 2020, respectively, were valued using the "last-in, first-out" (LIFO) method.

All remaining inventories are valued using the "first-in, first-out" (FIFO) method.

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If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

The total write-down of inventories charged to expense was $4.6 million, $3.1 million and $4.3 million, during fiscal 2020, 2019 and 2018, respectively.

The total write-down of inventories charged to expense was $0.9 million, $1.5 million and $2.2 million, during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively.

Purchase accounting and business combinations.

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If impairment is identified, a loss is recorded equal to the excess of the asset's net book value over its fair value, and the cost basis is adjusted.

Determination of the fair value requires various estimates including internal cash flow estimates generated from the asset, quoted market prices and appraisals as appropriate to determine fair value.

Determination of the fair value requires various estimates including internal cash flow estimates generated from the asset, quoted market prices and appraisals as appropriate to determine fair

Actual results could vary from these estimates.

Our recorded goodwill and indefinite lived intangible assets are not amortized but are tested annually as of October 1 during the third quarter of each fiscal year, and more frequently if events or changes in circumstances indicate that an impairment may exist, using a discounted cash flow methodology based on future business projections and a market value approach (guideline public company comparables).

During the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, no impairment losses were recognized.

Goodwill, trademarks and certain tradenames have indefinite lives and are not amortized.

However, the goodwill and intangible assets are tested annually for impairment, and may be tested more frequently if any triggering events occur that would reduce the recoverability of the asset.

In conducting the annual impairment test for goodwill, we have the option to first assess qualitative factors to determine whether it is more likely than not (> 50% likelihood) the fair value of any reporting unit is less than its carrying amount.

If a qualitative assessment determines an impairment is more likely than not, we are required to perform a quantitative impairment test.

Otherwise, no further analysis is required.

Alternatively, we may elect to proceed directly to the quantitative impairment test.

In conducting a qualitative assessment, we use a discounted cash flow methodology based on future business projections and a market value approach (guideline public company comparables).

We perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

If the carrying amount exceeds the fair value of the reporting unit, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value up to the amount of the recorded goodwill.

Our annual impairment test performed during fiscal 2020 indicated that the fair value of the Company's indefinite-lived intangible assets and reporting units significantly exceeded their carrying value;

therefore, no impairment was present.

In connection with our ongoing supply chain optimization and footprint repositioning initiatives, we have taken several actions to consolidate existing manufacturing facilities and rationalize our product offerings.

These actions require us to assess whether the carrying amount of impacted long-lived assets will be recoverable as well as whether the remaining useful lives of such assets require adjustment.

While we did not recognize any impairment charges associated with fixed assets in fiscal 2020, during fiscal 2019 and 2018 we recognized impairment charges associated with these fixed assets of $0.3 million and $0.8 million, respectively.

We did not recognize any impairment charges associated with intangible assets related to these initiatives during fiscal 2020, 2019 and 2018.

See Item 8, Note 5, Restructuring and Other Similar Charges for more information.

The impairment of fixed assets and intangible assets was determined utilizing Level 3 inputs within the Fair Value hierarchy, and the Company reviewed and considered input from outside specialists, when appropriate.

Refer to Item 8, Note 13, Fair Value Measurements for additional information .

During fiscal 2018, we recognized a non-cash impairment charge of $111.2 million, representing the entire balance of goodwill within the VAG reporting unit, as of March 31, 2018.

The fair value of the VAG reporting unit was estimated using both an income valuation model (discounted cash flow) and a market approach in the then market environment.

During the period leading up to the disposition of VAG in fiscal 2019, we continuously assessed the carrying value of the net assets of the VAG business compared to the value implied by the bids we received in connection with the sale process.

As a result of this assessment, prior to the disposition of the VAG business, we recorded additional non-cash impairment charges of $126.0 million to reduce the carrying value of the VAG business to its estimated fair value less costs to sell.

Refer to Item 8, Note 4, Discontinued Operations for additional information.

During the fourth quarter of the year ended December 31, 2021, we completed our annual goodwill impairment test and elected to perform a qualitative assessment.

No goodwill impairment charges were recorded during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020.

Retirement benefits.

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We recognize the net actuarial gains or losses in excess of unrecognized gain or loss exceeding 10 percent of the greater of the market-related value of plan assets or the plan's projected benefit obligation at re-measurement (the "corridor") in the Corporate segment operating results during the fourth quarter of each fiscal year (or upon any re-measurement date).

During fiscal 2020, 2019 and 2018, we recognized non-cash actuarial (loss) gain of $(36.6) million, $0.4 million and $3.3 million, respectively, in connection with re-measurements of the plans.

During the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, we recognized non-cash actuarial gain (loss) from continuing operations of $1.2 million, $(0.3) million and $(20.9) million, respectively, in connection with re-measurements of the plans.

Net periodic benefit costs recorded on a quarterly basis are primarily comprised of service and interest cost, amortization of unrecognized prior service cost and the expected return on plan assets.

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Significant judgment is required in determining our worldwide provision for income taxes and recording the related deferred tax assets and liabilities.

On December 22, 2017, the U.S.

enacted the Tax Cuts and Jobs Act (“U.S.

Tax Reform”).

Tax Reform incorporated significant changes to U.S.

corporate income tax laws including, among other items, a reduction in the statutory federal corporate income tax rate from 35% to 21%, an exemption for dividends received from certain foreign subsidiaries, a one-time repatriation tax on deemed repatriated earnings from foreign subsidiaries, immediate expensing of certain depreciable tangible assets, limitations on the deduction for net interest expense and certain executive compensation and the repeal of the Domestic Production Activities Deduction (“DPAD”).

In accordance with ASC 740, Accounting for Income Taxes (“ASC 740”) and SEC Staff Accounting Bulletin (“SAB”) 118, we had reflected a provisional net income tax benefit of $66.5 million (including amounts relating to the VAG business) with respect to U.S.

Tax Reform for fiscal 2018 based upon the current facts and circumstances and our interpretation of U.S.

Tax Reform (and related available guidance at that time).

We had continued to

review and analyze various IRS Notices, proposed regulations and other pertinent information that became available during fiscal 2019.

Based upon this review and analysis, as well as updates to certain financial information, we determined that the adjusted net impact of U.S.

Tax Reform for fiscal 2018 was a net income tax benefit of $65.9 million (including amounts relating to the VAG business).

The $0.6 million reduction from the $66.5 million net income tax benefit originally recorded in fiscal 2018 was recorded as a discrete item in the third quarter of fiscal 2019 and such adjusted net income tax benefit recorded was determined to be complete at that time.

We assess our income tax positions and record tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates.

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In addition, we provide for interest and penalties, as applicable, and record such amounts as a component of the overall income tax provision.

As of March 31, 2020 and 2019, our liability for unrecognized tax benefits was $14.8 million and $21.8 million, respectively.

As of December 31, 2021 and 2020, our liability for unrecognized tax benefits was $5.9 million and $4.7 million, respectively.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, net operating losses (“NOL’s”), tax credit and other carryforwards.

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state NOL carryforwards.

As of March 31, 2020 and 2019, valuation allowances of $39.4 and $32.4 million, respectively, were recorded against our deferred tax assets.

As of December 31, 2021 and 2020, valuation allowances of $35.1 million and $36.8 million, respectively, were recorded against our deferred tax assets.

See Item 8 Note 17, Income Taxes for additional information.

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Should future warranty experience differ materially from our historical experience, we may be required to record additional warranty accruals which could have a material adverse effect on our results of operations in the period in which these additional accruals are required.

As noted in Item 8, Note 18, Commitments and Contingencies, certain Water Management subsidiaries are subject to asbestos litigation.

As noted in Item 8, Note 18, Commitments and Contingencies, certain subsidiaries are subject to asbestos litigation.

As a result, we have recorded a liability for pending and potential future asbestos claims, as well as a receivable for insurance coverage of such liability.

The valuation of our potential asbestos liability was based on the number and severity of future asbestos claims, future settlement costs, and the effectiveness of defense strategies and settlement initiatives.

We estimate that our available insurance to cover our potential asbestos liability as of the end of fiscal 2020 is greater than our potential asbestos liability.

We estimate that our available insurance to cover our potential asbestos liability as of December 31, 2021, is greater than our potential asbestos liability.

This conclusion was reached after considering our experience in asbestos litigation, the insurance payments made to date by our insurance carriers, existing insurance policies, the industry ratings of the insurers and the advice of insurance coverage counsel with respect to applicable insurance coverage law relating to the terms and conditions of those policies.

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COVID-19 pandemic

The coronavirus ("COVID-19") pandemic and the actions taken by various governments and third parties to combat the spread of COVID-19 (including, in some cases, mandatory quarantines and other suspensions of non-essential business operations) have led to disruptions in our manufacturing and distribution operations and supply chains, including temporary reductions or suspensions of operations at some of our manufacturing and distribution locations around the world.

In addition, our suppliers, business partners and customers are also experiencing similar negative impacts from the COVID-19 pandemic.

In order to reduce our cash outflows during this period of time, we have implemented furloughs, workforce reductions and reductions of non-essential spending.

Our objective is to control the downside risk to our financial results, while ensuring that we maintain the capacity to fully participate in the eventual recovery.

While it is not possible at this time to estimate the scope and severity of the impact that COVID-19 could have on our operations, the continued spread of COVID-19, the measures taken by the governments of countries affected, actions taken to protect employees, actions taken to shutdown or temporarily discontinue operations in certain locations, and the impact of the pandemic on various business activities in affected countries and the economy generally, it could adversely affect our financial condition, results of operations and cash flows.

We continue to manage through the ongoing and unpredictable Covid-19 pandemic, which continues to impact countries in which we do business and worldwide economic activity.

O ur suppliers, business partners and customers have at times experienced negative impacts from the Covid-19 pandemic.

Global supply chains have been disrupted, causing shortages and at times delays in receipt of product.

This disruption of our employees, distributors, suppliers and customers has historically impacted and may continue to impact our sales and future operating results.

We remain focused on the health and well-being of our employees and have undertaken numerous actions within our offices and manufacturing sites that are intended to minimize the spread of COVID-19.

While the duration of the COVID-19 pandemic is currently unknown and it is not possible at this time to estimate the scope and severity of the impact that the pandemic could have on our operations, the measures taken, and those that may be taken in the future, by the governments of countries affected, actions taken to protect employees, changes in customer buying patterns and the impact of the pandemic on various business activities in affected countries and the economy generally, it could adversely affect our financial condition, results of operations and cash flows.

Discontinued Operations

During fiscal 2019, we completed the sale of the VAG business, which was previously included within the Water Management platform.

The operating results of the VAG business are reported as discontinued operations in the consolidated statements of operations for all periods presented, as the sale of VAG represented a strategic shift that had a major impact on operations and financial results.

The sale price was subject to customary working capital and cash balance adjustments, which were finalized in fiscal 2020.

As a result of these adjustments and other related costs, we recognized an additional $1.8 million loss on the sale of discontinued operations during fiscal 2020.

The major components of the Loss from discontinued operations, net of tax associated with the VAG business presented in the consolidated statements of operations for the fiscal years ended March 31, 2020, 2019 and 2018 are included in the table below (in millions):

Fiscal Years Ended

March 31, 2020 March 31, 2019 (2) March 31, 2018

During the year ended December 31, 2021, we completed the spin-off of our PMC platform.

The operating results of PMC are reported as discontinued operations in our consolidated statements of operations for all periods presented, as the Spin-Off Transaction represented a strategic shift that had a major impact on our operations and financial results.

The terms of the operative agreements governing the Spin-Off Transaction included targeted working capital and cash balances at closing of the transaction, which are subject to adjustment after determining final working capital and cash balances held by PMC on that date.

As of the date of this filing, no such adjustments have been made or asserted.

The major components of the Income from discontinued operations, net of tax presented in the consolidated statements of operations during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 are included in the table below (in millions):

Year Ended (1) Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

Net sales $ 973.0 $ 870.4 $ 1,358.2

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Amortization of intangible assets 9.9 10.1 14.5

Non-cash asset impairments (1) — 126.0 111.2

Loss on sale of discontinued operations 1.8 22.5 —

Other non-operating expenses, net — 3.2 4.7

Loss from discontinued operations before income tax (1.8) (157.7) (130.6)

Income tax benefit — 3.0 —

Loss from discontinued operations, net of tax $ (1.8) $ (154.7) $ (130.6)

Interest expense, net 4.1 3.3 2.0

Gain on extinguishment of debt — — (3.0)

Actuarial loss on pension and postretirement benefit obligations 4.8 1.3 15.7

Other non-operating (income) expenses, net (5.6) (6.4) 4.4

Income from discontinued operations before income tax 99.1 109.2 211.1

Income tax provision (28.0) (25.8) (49.7)

Equity method investment income 0.3 0.2 —

Non-controlling interest income (0.2) (0.4) (0.3)

Income from discontinued operations, net of tax $ 71.2 $ 83.2 $ 161.1

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(1) We recorded non-cash impairments of $126.0 million during the year ended March 31, 2019 to reflect the estimated fair value less costs to sell the VAG business based on the value of the preliminary bids received at that time.

(2) Results from operations in fiscal 2019 reflect the period through November 26, 2018, the date on which the sale of the VAG business was completed.

(1) Results of operations during the year ended December 31, 2021 reflect the period from January 1, 2021 through October 4, 2021, the date on which the Spin-Off Transaction of PMC was completed.

During the year ended March 31, 2019, we completed the sale of the VAG business, which was previously included within the Water Management platform.

The sale price was subject to customary working capital and cash balance adjustments, which were finalized in the year ended March 31, 2020.

As a result of these adjustments and other related costs, we recognized an additional $1.8 million loss on the sale of discontinued operations for the year ended March 31, 2020.

The terms of the sale agreement provided the opportunity to receive contingent consideration, based on, and subject to, the VAG business attainment of Earn-out EBITDA, as defined in the sale agreement.

During the year ended December 31, 2021, we received a $4.2 million cash payment as a result of the VAG businesses performance in its fiscal year ended March 31, 2021, which represented the final period of the Earn-out, and was recorded within income from discontinued operations, net of tax in its consolidated statements of operations.

See Item 8, Note 4, Discontinued Operations for more information.

Restructuring and Other Similar Costs

During fiscal 2020, we continued to execute various restructuring actions.

These initiatives were intended to drive efficiencies and reduce operating costs while also modifying our footprint to reflect changes in the markets we serve, the impact

of acquisitions on our overall manufacturing capacity and the refinement of our overall product portfolio.

These restructuring actions primarily resulted in workforce reductions, impairment of related manufacturing facilities, equipment and intangible assets, lease termination costs, and other facility rationalization costs.

During the year ended December 31, 2021, we continued to execute various restructuring actions.

These initiatives were intended to drive efficiencies and reduce operating costs while also modifying our footprint to reflect changes in the markets we serve, the impact of acquisitions on our overall manufacturing capacity and the refinement of our overall product portfolio.

These restructuring actions primarily resulted in workforce reductions, lease termination costs, and other facility rationalization costs.

We expect to continue executing similar initiatives to optimize our operating margin and manufacturing footprint.

As we continue to evaluate the impact of COVID-19 and the resulting economic slowdown, we may also execute additional restructuring actions.

As such, we expect further expenses related to workforce reductions, potential impairment of assets, lease termination costs, and other facility rationalization costs.

We recorded restructuring charges of $15.5 million, $12.1 million and $14.1 million during the fiscal years ended March 31, 2020, 2019 and 2018, respectively.

We recorded restructuring charges of $3.7 million, $1.7 million and $1.2 million for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively.

See Item 8, Note 5, Restructuring and Other Similar Costs for more information.

Results of Operations

Fiscal Year Ended March 31, 2020 Compared with the Fiscal Year Ended March 31, 2019

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

(Dollars in Millions)

Fiscal Year Ended

2020 March 31,

2021 December 31,

2020 Change % Change

Process & Motion Control $ 1,358.2 $ 1,380.6 $ (22.4) (1.6) %

Water Management 710.1 670.3 39.8 5.9 %

$ 2,068.3 $ 2,050.9 $ 17.4 0.8 %

Process & Motion Control

Process & Motion Control net sales were $1,358.2 million in fiscal 2020, down 1.6% year over year.

Excluding a 1% increase in sales from the acquisition of Centa China and a 2% unfavorable impact from foreign currency translation, core net sales decreased 1% year over year.

Core sales growth in our aerospace and consumer-facing end-markets was offset by the impact of our ongoing product line simplification initiatives as well as softer demand across several of our industrial process end markets.

Water Management

Water Management net sales were $710.1 million in fiscal 2020, a 5.9% increase year over year.

Excluding a 2% increase in net sales associated with our acquisitions of the Stainlessdrains.com and Just Manufacturing businesses, core net sales increased 4% year over year.

The increase in core net sales is primarily the result of increased demand across our North American building construction end markets, partially offset by a modest impact from our ongoing product line simplification initiatives.

Income (loss) from operations

Net sales $ 910.9 $ 746.1 $ 164.8 22.1 %

Net sales were $910.9 million for the year ended December 31, 2021, a 22.1% increase year over year.

Excluding a 1% increase to net sales associated with foreign currency translation and an 8% increase in net sales resulting from our prior-year acquisition of Hadrian and the 2021 acquisition of Wade, core net sales increased 13% year over year.

The increase in core net sales was driven by increased demand across the majority of our product categories.

Income from operations

(Dollars in Millions)

Fiscal Year Ended

2020 March 31,

2021 December 31,

2020 Change % Change

Process & Motion Control $ 228.4 $ 226.1 $ 2.3 1.0 %

% of net sales

16.8 % 16.4 % 0.4 %

Water Management 163.1 139.7 23.4 16.8 %

% of net sales

23.0 % 20.8 % 2.2 %

Corporate (57.2) (60.2) 3.0 (5.0) %

$ 334.3 $ 305.6 $ 28.7 9.4 %

Income from operations $ 107.0 $ 107.7 $ (0.7) (0.6) %

% of net sales

11.7 % 14.4 % (2.7) %

Process & Motion Control

Process & Motion Control income from operations in fiscal 2020 was $228.4 million, or 16.8% of net sales, as compared to $226.1 million, or 16.4% of net sales, in fiscal 2019.

Income from operations as a percentage of net sales increased by 40 basis points year over year primarily due to RBS-led productivity gains, benefits from our completed footprint repositioning actions and lower year-over-year acquisition-related fair value adjustments, partially offset by higher restructuring-related costs recognized in fiscal 2020 in connection with our ongoing footprint repositioning initiatives.

Water Management

Water Management income from operations was $163.1 million in fiscal 2020, or 23.0% of net sales, compared to income from operations of $139.7 million, or 20.8% of net sales, in fiscal 2019.

The 220 basis point year-over-year increase in income from operations as a percentage of net sales is primarily due to the increase in sales and benefits associated with our ongoing cost reduction and productivity initiatives and a reduction in the adjustment to state inventories at last-in-first-out cost as compared to the prior year.

Corporate expenses were $57.2 million in fiscal 2020 and $60.2 million in fiscal 2019.

The decrease in corporate expenses is primarily the result of the prior year recognition of lease facility termination costs incurred in connection with our ongoing footprint optimization actions.

Income from operations was $107.0 million for the year ended December 31, 2021, or 11.7% of net sales, compared to income from operations of $107.7 million, or 14.4% of net sales, for the year ended December 31, 2020.

Income from operations as a percentage of net sales decreased 270 basis points year-over-year as the favorable impact of sales year over year was more than offset by the year-over-year change in the adjustment to state inventories at last-in-first-out cost, higher year-over-year non-cash stock based compensation expense, the mix impact of the Hadrian acquisition and the benefit of temporary cost reduction actions in the prior year in response to the COVID-19 pandemic.

Interest expense, net

Interest expense, net was $58.6 million in fiscal 2020 compared to $69.9 million in fiscal 2019.

The decrease in interest expense as compared to the prior year's period is primarily a result of the impact of lower average outstanding borrowings during fiscal 2020 following $75.0 million and $100.0 million voluntary prepayments on our term loan during the fourth quarter of fiscal 2019 and the third quarter of fiscal 2020, respectively.

In addition, year-over-year interest expense decreased as a result of the lower average interest rate on our term loan following the refinancing of such loan, which was completed during the third quarter of fiscal 2020.

Fiscal 2019 also included the amortization of unrealized losses associated with the interest rate derivatives that matured during fiscal 2019.

Interest expense, net was $34.7 million during the year ended December 31, 2021 compared to $45.9 million during the year ended December 31, 2020, primarily due to lower outstanding borrowings following the Spin-Off Transaction refinancing.

See Item 8, Note 11 Long-Term Debt for more information.

Gain on extinguishment of debt

During fiscal 2020, we recognized a $1.0 million gain on the extinguishment of debt, consisting of a $3.2 million gain in connection with the forgiveness of the remaining net debt associated with the New Market Tax Credit program, partially offset by a $2.2 million loss in connection with the fiscal 2020 refinancing of our term loan and a $100.0 million voluntary prepayment made on our term loan.

During fiscal 2019, we recognized a $5.0 million gain in connection with the forgiveness of the net debt associated with the New Market Tax Credit program, partially offset by the recognition of $0.7 million of accelerated amortization of debt issuance costs following a voluntary prepayment on our term loan.

Actuarial (loss) gain on pension and postretirement benefit obligations

Actuarial (loss) gain on pension and postretirement benefit obligations in fiscal 2020 was $(36.6) million compared to$0.4 million in fiscal 2019.

The non-cash actuarial loss recognized during fiscal 2020 was primarily the results of decreases in discount rates coupled with lower than expected asset return, partially offset by decreases in life expectancy assumptions utilized within the annual remeasurement of our defined benefit plans.

In fiscal 2019, the recognition of $0.4 million of non-cash actuarial gains was primarily due to a foreign defined benefit plan settlement, offset by improved demographic and claims experience associated with our other postretirement benefit plans.

Loss on extinguishment of debt

During the year ended December 31, 2021, we recognized a $20.4 million loss on the extinguishment of debt in connection with the refinancing of our debt in connection with the Spin-Off Transaction.

The loss on extinguishment of debt was comprised of $16.2 million of refinancing related costs, as well as a non-cash write-off of unamortized debt issuance costs associated with the previously outstanding debt of $4.2 million.

See Item 8, Note 11 Long-Term Debt for more information.

There was no loss on the extinguishment of debt recognized during the year ended December 31, 2020.

Actuarial (gain) loss on pension and postretirement benefit obligations

Actuarial gain on pension and postretirement benefit obligations for the year ended December 31, 2021, was $(1.2) million compared to a loss of $21.2 million for the year ended December 31, 2020.

The non-cash actuarial gain recognized for the year ended December 31, 2021, was primarily due to a year over year increase in discount rates assumptions utilized in performing the annual remeasurement of our defined benefit plans.

The non-cash actuarial loss recognized for the year ended December 31, 2020, was primarily due to favorable asset performance and contributions made to the plan partially offset by decreases in the year over year discount rate assumptions utilized within the annual remeasurement of our defined benefit plans.

See Item 8, Note 16 Retirement Benefits for more information.

Other expense (income), net

Other expense, net for fiscal 2020 was $3.8 million compared to other expense, net of $1.6 million in fiscal 2019.

Other expense, net

Other expense, net for the year ended December 31, 2021, was $0.7 million compared to other expense, net of $2.5 million for the year ended December 31, 2020.

Other expense, net consists primarily of gains and losses from foreign currency transactions and the non-service cost components of net periodic benefit costs associated with our defined benefit plans.

The year-over-year change is primarily driven by changes in foreign currency rates and lower interest cost within the non-service cost components of our defined benefit plans.

Provision for income taxes

The income tax provision in fiscal 2020 was $54.1 million, or an effective rate of 22.9%.

The effective income tax rate for fiscal 2020 was above the U.S.

federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above the U.S.

federal statutory rate, the accrual of additional income taxes associated with global intangible low-taxed income (“GILTI”) and the accrual of various state income taxes, partially offset by the recognition of certain previously unrecognized tax benefits generally due to the lapse of the applicable statutes of limitations, the recognition of income tax benefits associated with share-based payments, the recognition of net tax benefits associated with foreign derived intangible income (“FDII”) and the recognition of tax benefits associated with foreign country enacted rate reductions.

The income tax provision in fiscal 2019 was $53.4 million, or an effective tax rate of 22.4%.

The effective income tax rate for fiscal 2019 was slightly above the U.S.

The income tax provision for the year ended December 31, 2021 was $2.7 million, or an effective tax rate of 5.2%.

The effective income tax rate for the year ended December 31, 2021 was below the U.S.

federal statutory rate of 21% primarily due to the recognition of income tax benefits associated with share-based payments partially offset by the accrual of foreign income taxes, which are generally above the U.S.

federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, the increase in the valuation allowance associated with certain state net operating loss carryforwards, the accrual of unrecognized income tax benefits in which such realization is not deemed more-likely-than-not and the accrual of various state income taxes.

The income tax provision for the year ended December 31, 2020 was $9.5 million, or an effective tax rate of 24.9%.

The effective income tax rate for the year ended December 31, 2020 was above the U.S.

federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above the U.S.

federal statutory rate, the accrual of additional taxes associated with GILTI and the accrual of various state income taxes substantially offset by the recognition of certain previously unrecognized tax benefits due to the lapse of applicable statutes of limitations, the recognition of net tax benefits associated with FDII, the recognition of excess tax benefits associated with share-based payments and the recognition of a tax benefits associated with foreign country enacted rate reductions.

federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code and the accrual of various state income taxes, partially offset by the recognition of income tax benefits associated with share-based payments.

Net income from continuing operations

Our net income from continuing operations for fiscal 2020 was $182.2 million, compared to net income from continuing operations of $189.0 million for fiscal 2019, as a result of the factors described above.

Diluted net income per share from continuing operations was $1.46 for fiscal 2020, as compared to $1.53 per share for fiscal 2019.

Net income attributable to Rexnord common stockholders

Our net income attributable to Rexnord common stockholders for fiscal 2020 was $165.7 million compared to $11.1 million in fiscal 2019.

Diluted net income per share attributable to Rexnord common stockholders was $1.45 in fiscal 2020 compared to $0.28 in fiscal 2019.

The loss from discontinued operations, net of tax, was $1.8 million in fiscal 2020 and $154.7 million in fiscal 2019.

The year-over-year change in net income attributable to Rexnord common stockholders is primarily the result of the lower year-over-year loss from discontinued operations, an $8.8 million reduction in the amount of dividends paid on shares of preferred stock, which were paid for all of fiscal 2019 but only part of fiscal 2020, and the other factors described above.

Fiscal Year Ended March 31, 2019 Compared with the Fiscal Year Ended March 31, 2018

Our net income from continuing operations for the year ended December 31, 2021, was $49.7 million, compared to net income from continuing operations of $28.6 million for the year ended December 31, 2020, as a result of the factors described above.

Diluted net income per share from continuing operations was $0.40 for the year ended December 31, 2021, as compared to $0.23 per share for the year ended December 31, 2020.

Net income attributable to Zurn common stockholders

Our net income attributable to Zurn common stockholders for the year ended December 31, 2021, was $120.9 million compared to $146.7 million for the year ended December 31, 2020.

Diluted net income per share attributable to Zurn common stockholders was $0.97 for the year ended December 31, 2021, compared to $1.19 for the year ended December 31, 2020.

The income from discontinued operations, net of tax, was $71.2 million for the year ended December 31, 2021 compared to $118.1 million for the year ended December 31, 2020.

The year-over-year change in net income from discontinued operations, net of tax, is due to the PMC results for the year ended December 31, 2021 only representing activity through the Spin-Off Transaction date and the recognition of approximately $60.0 million in costs associated with completing the Spin-Off Transaction.

The year-over-year change in net income attributable to Zurn common stockholders is primarily the result of the factors described above.

Nine Months Ended December 31, 2020 Compared with the Nine Months Ended December 31, 2019

(Dollars in Millions)

March 31, 2019 March 31, 2018 Change % Change

Process & Motion Control $ 1,380.6 $ 1,241.2 $ 139.4 11.2 %

Water Management 670.3 610.4 59.9 9.8 %

$ 2,050.9 $ 1,851.6 $ 199.3 10.8 %

Process & Motion Control

Process & Motion Control net sales were $1,380.6 million in fiscal 2019, up 11.2% year over year.

Excluding a 2% increase from the acquisition of Centa and a 2% favorable impact from foreign currency translation, core net sales increased 5%.

The increase in core sales was the result of favorable demand trends across the majority of our served end markets.

Water Management

Water Management net sales were $670.3 million in fiscal 2018, a 9.8% increase year over year.

Excluding a 1% increase from the acquisition of World Dryer and a 1% favorable impact from foreign currency translation, Water Management core net sales increased 4% during fiscal 2018.

The year-over-year increase in core sales reflected favorable demand trends in our nonresidential construction end markets.

Nine Months Ended

December 31, 2020 December 31, 2019 Change % Change

Net sales $ 562.7 $ 526.7 $ 36.0 6.8 %

Net sales were $562.7 million for the nine months ended December 31, 2020, a 6.8% increase year over year.

Excluding a 4% increase in net sales associated with our acquisitions of Just Manufacturing and Hadrian, core net sales increased 3% year over year.

The increase in core net sales was primarily the result of increased demand for our touchless and hygienic solutions partially offset by reduced overall market demand resulting from the COVID-19 pandemic.

Income (loss) from operations

(Dollars in Millions)

March 31, 2019 March 31, 2018 Change % Change

Process & Motion Control $ 226.1 $ 191.3 $ 34.8 18.2 %

% of net sales

16.4 % 15.4 % 1.0 %

Water Management 139.7 125.7 14.0 11.1 %

% of net sales

20.8 % 20.6 % 0.2 %

Corporate (60.2) (50.6) (9.6) (19.0) %

$ 305.6 $ 266.4 $ 39.2 14.7 %

Nine Months Ended

December 31, 2020 December 31, 2019 Change % Change

Income from operations $ 81.0 $ 77.4 $ 3.6 4.7 %

% of net sales

14.4 % 14.7 % (0.3) %

Process & Motion Control

Process & Motion Control income from operations for fiscal 2019 was $226.1 million, or 16.4% of net sales, as compared to $191.3 million, or 15.4% of net sales, in fiscal 2018.

Income from operations as a percentage of net sales increased by 100 basis points year over year primarily due to the increase in core sales, RBS-led productivity gains, benefits from our footprint repositioning actions and a reduction in restructuring-related expense, partially offset by investments in innovation and market expansion initiatives.

Water Managemen t

Water Management income from operations was $139.7 million in fiscal 2019, or 20.8% of net sales, compared to income from operations of $125.7 million, or 20.6% of net sales, in fiscal 2018.

The 20 basis point year-over-year increase in income from operations as a percentage of net sales is primarily due to the benefits associated with incremental core sales and ongoing cost reduction and productivity initiatives that more than offset incremental investments in our innovation, market expansion, and cost reduction initiatives.

Corporate expenses were $60.2 million in fiscal 2019 and $50.6 million in fiscal 2018.

The increase in corporate expenses is primarily associated with the recognition of leased facility termination costs incurred in connection with our ongoing footprint optimization actions and higher year-over-year compensation related costs (primarily stock-based compensation) relative to fiscal 2018.

Income from operations was $81.0 million for the nine months ended December 31, 2020, or 14.4% of net sales, compared to income from operations of $77.4 million, or 14.7% of net sales, for the nine months ended December 31, 2019.

Income from operations as a percentage of net sales decreased 30 basis points year-over-year as incremental restructuring costs, purchase accounting fair value adjustments and non-cash stock option expense more than offset the incremental profit generated on higher sales and benefits associated with our ongoing cost reduction and productivity initiatives.

Interest expense, net

Interest expense, net was $69.9 million in fiscal 2019 compared to $75.1 million in fiscal 2018.

The decrease in interest expense was a result of the impact of lower outstanding borrowings in fiscal 2019 following a $75.0 million voluntary prepayment on our term loan during fiscal 2019 and the refinancing of our then-outstanding debt during fiscal 2018.

See Item 8, Note 11, Long-Term Debt for more information.

(Gain) Loss on extinguishment of debt

During fiscal 2019, we recognized a non-cash gain on the extinguishment of debt of $5.0 million in connection with the forgiveness of the net debt associated with the New Market Tax Credit program.

This gain was partially offset by the recognition of $0.7 million of accelerated amortization of debt issuance costs in connection with the $75.0 million voluntary prepayment on our term loan during fiscal 2019.

During fiscal 2018, we recognized an $11.9 million loss on the debt extinguishment associated with the fiscal 2018 debt refinancing, which was comprised of $3.9 million of refinancing related costs, as well as a non-cash write-off of unamortized debt issuance costs associated with previously outstanding debt of $8.0 million.

Interest expense, net was $33.3 million during the nine months ended December 31, 2020 compared to $44.0 million in during the nine months ended December 31, 2019.

The decrease in interest expense as compared to the prior year's period is primarily a result of the impact of lower outstanding borrowings and lower average interest rates following the $100.0 million voluntary prepayment and refinancing of our term loan in 2019.

See Item 8, Note 11 Long-Term Debt for more information.

Actuarial (loss) gain on pension and postretirement benefit obligations

Actuarial gain on pension and postretirement benefit obligations in fiscal 2019 was $0.4 million compared to $3.3 million in fiscal 2018.

In fiscal 2018, the recognition of $3.3 million of non-cash actuarial gains was primarily due a foreign defined benefit plan change, as well as improved demographic and claims experience associated with our other postretirement benefit plans.

Loss on extinguishment of debt

During the nine months ended December 31, 2019, we recognized a $2.0 million loss on the extinguishment of debt in connection with the refinancing of our term loan and a $100.0 million voluntary prepayment made on our term loan during the period.

There were no gains or losses on debt extinguishment recognized during the nine month ended December 31, 2020.

Actuarial loss on pension and postretirement benefit obligations

Actuarial loss on pension and postretirement benefit obligations for the nine months ended December 31, 2020 was $0.3 million.

There were no gains or losses on pension and postretirement benefits during the nine months ended December 31, 2019.

The non-cash actuarial loss recognized for the nine months ended December 31, 2020, was primarily due to favorable asset performance and contributions made to the plan partially offset by decreases in the discount rate assumptions utilized within the annual remeasurement of our defined benefit plans.

See Item 8, Note 16 Retirement Benefits for more information.

Other expense (income), net

Other expense, net for fiscal 2019 was $1.6 million compared to other income, net of $4.4 million in fiscal 2018.

Other expense (income), net consists primarily of foreign currency transaction gains and losses and the non-service cost components of net periodic benefit credits associated with our defined benefit plans.

The year-over-year change is primarily driven by the reclassification of historical foreign currency translation adjustments recognized on our equity method investment in Centa China in connection with our acquisition of a controlling interest in that entity in fiscal 2019 and other foreign currency transaction losses.

Provision (Benefit) for income taxes

The income tax provision in fiscal 2019 was $53.4 million, or an effective tax rate of 22.4%.

The effective income tax rate for fiscal 2019 was slightly above the U.S.

Other expense, net

Other expense, net for the nine months ended December 31, 2020 was $1.9 million compared to other expense, net of $0.6 million for the nine months ended December 31, 2019.

Provision for income taxes

The income tax provision for the nine months ended December 31, 2020 was $10.5 million, or an effective tax rate of 23.1%.

The effective income tax rate for the nine months ended December 31, 2020 was above the U.S.

federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above the U.S.

The income tax benefit in fiscal 2018 was $19.5 million, or an effective tax rate of (10.4)%.

The income tax benefit recorded on income before income taxes was primarily due to the recognition of net income tax benefits associated with the enactment of U.S.

Tax Reform (including a reduction in the effective statutory federal income tax rate to 31.55% for fiscal 2018), the recognition of net tax benefits associated with the reduction in the tax liability originally recorded on the expatriation of certain foreign branch assets and the DPAD.

federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue

Code and the accrual of various state income taxes, partially offset by the recognition of income tax benefits associated with share-based payments and the reduction of the valuation allowance associated with certain state net operating loss carryforwards.

The income tax provision for the nine months ended December 31, 2019 was $5.4 million, or an effective tax rate of 17.5%.

The effective income tax rate for the nine months ended December 31, 2019 was below the U.S.

federal statutory rate of 21% primarily due to the recognition of certain previously unrecognized tax benefits generally due to the lapse of the applicable statutes of limitations and the recognition of income tax benefits associated with share-based payments, partially offset by the accrual of foreign income taxes, which are generally above the U.S.

Net income from continuing operations

Our net income from continuing operations for fiscal 2019 was $189.0 million, compared to net income from continuing operations of $206.6 million for fiscal 2018, as a result of the factors described above.

Diluted net income per share from continuing operations was $1.53 for fiscal 2019, as compared to $1.69 per share for fiscal 2018.

Net income attributable to Rexnord common stockholders

Our net income attributable to Rexnord common stockholders for fiscal 2019 was $11.1 million compared to $52.7 million in fiscal 2018.

Diluted net income per share attributable to Rexnord common stockholders was $0.28 in fiscal 2019 compared to $0.62 in fiscal 2018.

The loss from discontinued operations, net of tax, was $154.7 million in fiscal 2019 and $130.6 million in fiscal 2018.

The year-over-year change in net income attributable to Rexnord common stockholders is primarily the result of the higher year-over-year loss from discontinued operations and the other factors described above.

Our net income from continuing operations for the nine months ended December 31, 2020 was $35.0 million, compared to net income from continuing operations of $25.4 million for the nine months ended December 31, 2019, as a result of the factors described above.

Diluted net income per share from continuing operations was $0.28 for the nine months ended December 31, 2020, as compared to $0.10 per share for the nine months ended December 31, 2019.

Net income attributable to Zurn common stockholders

Our net income attributable to Zurn common stockholders for the nine months ended December 31, 2020, was $118.2 million compared to $137.2 million for the nine months ended December 31, 2019.

Diluted net income per share attributable to Zurn common stockholders was $0.96 for the nine months ended December 31, 2020, compared to $1.24 for the nine months ended December 31, 2019.

The income from discontinued operations, net of tax, was $83.2 million for the nine months ended December 31, 2020 compared to $126.2 million for the nine months ended December 31, 2019.

The year-over-year change in net income attributable to Zurn common stockholders is primarily the result of the factors described above, partially offset by the reduction of dividends paid on shares of preferred stock, which were converted to common stock during the nine months ended December 31, 2019.

Non-GAAP Financial Measures

Non-GAAP financial measures are intended to supplement and not replace financial measures prepared in accordance with GAAP.

Core sales excludes the impact of acquisitions (such as the Just Manufacturing, Stainlessdrains.com, Centa and World Dryer acquisitions), divestitures (such as the VAG business) and foreign currency translation.

Core sales excludes the impact of acquisitions (such as the Hadrian, Just Manufacturing, Stainlessdrains.com, and World Dryer acquisitions), divestitures (such as PMC) and foreign currency translation.

Management believes that core sales facilitates easier and more meaningful comparisons of our net sales performance with prior and future periods and to our peers.

10 unchanged sentences

Adjusted EBITDA (as described below in "Covenant Compliance") is an important measure because, under our credit agreement, our ability to incur certain types of acquisition debt and certain types of subordinated debt, make certain types of acquisitions or asset exchanges, operate our business and make dividends or other distributions, all of which will impact our financial performance, is impacted by our Adjusted EBITDA, as our lenders measure our performance with a net first lien leverage ratio by comparing our senior secured bank indebtedness to our Adjusted EBITDA (see "Covenant Compliance" for additional discussion of this ratio, including a reconciliation to our net income).

We reported net income available to Rexnord common stockholders in the year ended March 31, 2020 of $165.7 million and Adjusted EBITDA for the same period of $460.2 million.

We reported net income available to Zurn common stockholders in the year ended December 31, 2021, of $120.9 million and Adjusted EBITDA for the same period of $195.8 million.

See "Covenant Compliance" for a reconciliation of Adjusted EBITDA to GAAP net income.

3 unchanged sentences

Events of default include the failure to pay principal and interest when due, a material breach of a representation or warranty, certain non-payments or defaults under other indebtedness, covenant defaults, events of bankruptcy and a change of control.

Certain covenants contained in the credit agreement restrict our ability to take certain actions, such as incurring additional debt or making acquisitions, if we are unable to meet a maximum total net leverage ratio of 6.75 to 1.0 as of the end of each fiscal quarter (it was 2.1 to 1.0 at March 31, 2020).

Certain covenants contained in the credit agreement restrict our ability to take certain actions, such as incurring additional debt or making acquisitions, if we are unable to meet a maximum total net leverage ratio of 5.00 to 1.0 as of the end of each fiscal quarter (it was 2.3 to 1.0 at December 31, 2021).

Failure to comply with these covenants could limit our long-term growth prospects by hindering our ability to borrow under the revolver, to obtain future debt and/or to make acquisitions.

15 unchanged sentences

Further, although not included in the calculation of Adjusted EBITDA below, the measure may at times allow us to add estimated cost savings and operating synergies related to operational changes ranging from acquisitions or dispositions to restructuring, and/or exclude one-time transition expenditures that we anticipate we will need to incur to realize cost savings before such savings have occurred.

The calculation of Adjusted EBITDA under our credit agreement as of March 31, 2020 is presented in the table below.

The calculation of Adjusted EBITDA under our credit agreement as of December 31, 2021, is presented in the table below.

However, the results of such calculation could differ in the future based on the different types of adjustments that may be included in such respective calculations at the time.

Set forth below is a reconciliation of net income attributable to Rexnord common stockholders to Adjusted EBITDA for fiscal 2020.

(in millions) Year Ended March 31, 2020

Net income attributable to Rexnord common stockholders $ 165.7

Dividends on preferred stock 14.4

Non-controlling interest income 0.3

Loss from discontinued operations, net of tax (1) 1.8

Income tax provision 54.1

Actuarial loss on pension and postretirement benefit obligations 36.6

Set forth below is a reconciliation of net income attributable to Zurn common stockholders to Adjusted EBITDA for the year ended December 31, 2021.

(in millions) Year Ended December 31, 2021

Net income attributable to Zurn common stockholders $ 120.9

Income from discontinued operations, net of tax (1) (71.2)

Provision for income taxes 2.7

Actuarial gain on pension and postretirement benefit obligations (1.2)

Other expense, net (2) 0.7

Gain on the extinguishment of debt (1.0)

Loss on the extinguishment of debt 20.4

Interest expense, net 34.7

5 unchanged sentences

Acquisition-related fair value adjustment 0.8

Other, net (5) (0.7)

Subtotal of adjustments to EBITDA 56.1

5 unchanged sentences

____________________

(1) Loss from discontinued operations, net of tax is not included in Adjusted EBITDA in accordance with the terms of our credit agreement.

(1) Income from discontinued operations, net of tax is not included in Adjusted EBITDA in accordance with the terms of our credit agreement.

(2) Other expense, net for the periods indicated, consists primarily of gains and losses from foreign currency transactions and the non-service cost components of net periodic benefit costs associated with our defined benefit plans.

2 unchanged sentences

(4) Last-in first-out (LIFO) inventory adjustments are excluded in calculating Adjusted EBITDA as defined in our credit agreement.

(5) Other, net for the periods indicated, consists primarily gains and losses on the disposition of long-lived assets.

(6) Represents a pro forma adjustment to include Adjusted EBITDA related to the acquisitions of Stainlessdrains.com and Just Manufacturing, which was permitted by our credit agreement.

The pro forma adjustment includes the period from April 1, 2019 through the dates of the Stainlessdrains.com and Just Manufacturing acquisitions.

(5) Represents a pro forma adjustment to include Adjusted EBITDA related to the acquisition of Wade Drains, which was permitted by our credit agreement.

The pro forma adjustment includes the period from January 1, 2021, through the date of the Wade Drains acquisition.

See Item 8, Note 3, Acquisitions for more information.

(7) Our credit agreement defines our consolidated indebtedness as the sum of all indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of indebtedness for borrowed money and capitalized lease obligations, less unrestricted cash, which was $489.4 million (as defined by the credit agreement) at March 31, 2020.

(6) Our credit agreement defines our consolidated indebtedness as the sum of all indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of indebtedness for borrowed money and capitalized lease obligations, less unrestricted cash, which was $79.5 million (as defined by the credit agreement) at December 31, 2021.

(7) Our credit agreement defines the total net leverage ratio as the ratio of consolidated indebtedness (as described above) to Adjusted EBITDA for the trailing four fiscal quarters.

Liquidity and Capital Resources

Our primary sources of liquidity are available cash and cash equivalents, cash flow from operations, and borrowing availability under our $264.0 million revolving credit facility and our $100.0 million accounts receivable securitization program.

As of March 31, 2020, we had $573.4 million of cash and cash equivalents and $28.6 million of additional borrowing capacity ($9.3 million of available borrowings under our revolving credit facility and $19.3 million available under our accounts receivable securitization program).

As of March 31, 2020, the available borrowings under our credit facility and accounts receivable securitization were reduced by $325.0 million of borrowings outstanding and $10.4 million due to outstanding letters of credit.

As of March 31, 2019, we had $292.5 million of cash and approximately $351.3 million of additional borrowing capacity ($258.4 million of available borrowings under our revolving credit facility and $92.9 million available under our accounts receivable securitization program).

As of March 31, 2019, the available borrowings under our credit facility and accounts receivable securitization were reduced by $12.7 million due to outstanding letters of credit.

Both our revolving credit facility and accounts receivable securitization program are available to fund our working capital requirements, capital expenditures and other general corporate purposes.

We believe our resources are adequate for expected needs.

Fiscal Year Ended March 31, 2020 Compared with the Fiscal Year Ended March 31, 2019

Net cash provided by operating activities in fiscal 2020 was $298.6 million compared to $258.1 million in fiscal 2019.

Incremental profit generated during fiscal 2020 was partially offset by higher trade working capital and the timing of payments on accrued expenses.

Cash used for investing activities was $123.1 million in fiscal 2020 compared to $53.3 million in fiscal 2019.

Investing activities in fiscal 2020 included $84.5 million of net cash used to fund our acquisitions of Stainlessdrains.com and Just Manufacturing, whereas fiscal 2019 included $23.4 million of net cash used to fund the Centa China acquisition.

We invested $41.4 million in capital expenditures in fiscal 2020 compared to $44.9 million in fiscal 2019.

Cash provided by financing activities was $114.9 million in fiscal 2020 compared to cash used for financing activities of $116.7 million in fiscal 2019.

During fiscal 2020, we utilized $100.7 million of cash for repurchases of our common stock, $17.4 million for the payment of preferred stock dividends and $9.8 million of cash for the payment of dividends on our common stock.

The fiscal 2020 uses of cash were more than offset by $214.4 million of net borrowings on outstanding debt, consisting of $250.0 million of proceeds from our revolving credit facility and $75.0 million of proceeds from our securitization facility, partially offset by a $100.0 million voluntary prepayment on our term loan.

In fiscal 2020, $28.4 million of net cash was also received in connection with stock option exercises.

During fiscal 2019, we utilized a net $98.2 million of cash for the payment of outstanding debt, consisting of a $75.0 million voluntary prepayment on our term loan and $23.2 million primarily for the payment of our securitization facility borrowings.

The Company also used $23.2 million for the payment of preferred stock dividends.

The fiscal 2019 uses of cash were partially offset by the receipt of $4.7 million of net cash proceeds associated with stock option exercises.

Fiscal Year Ended March 31, 2019 Compared with the Fiscal Year Ended March 31, 2018

Net cash provided by operating activities in fiscal 2019 was $258.1 million compared to $228.5 million in fiscal 2018.

The increase in cash flows from operations is primarily driven by higher year-over-year operating profit on higher sales and lower year-over-year restructuring charges and cash interest, partially offset by incremental trade working capital.

Cash used for investing activities was $53.3 million in fiscal 2019 compared to $208.8 million in fiscal 2018.

Investing activities in fiscal 2019 included $23.4 million of net cash used to fund the Centa China acquisition, whereas fiscal 2018 included $173.6 million of net cash used primarily to fund the World Dryer and Centa acquisitions.

We invested $44.9 million in capital expenditures in fiscal 2019 compared to $40.7 million in fiscal 2018.

Cash used by financing activities was $116.7 million in fiscal 2019 compared to cash used for financing activities of $308.8 million in fiscal 2018.

During fiscal 2019, we utilized a net $98.2 million for the payment of outstanding debt, consisting of a $75.0 million voluntary prepayment on our term loan and $23.2 million primarily for the payment of our securitization facility borrowing.

The Company also used $23.2 million in fiscal 2019 for the payment of preferred stock dividends.

These fiscal 2019 uses of cash were partially offset by the receipt of $4.7 million of net cash proceeds associated with stock option exercises.

During fiscal 2018, we utilized $297.4 million of cash and proceeds from our issuance of the 4.875% Senior Notes due 2025, net of financing related costs, in connection with a refinancing, including reduction in the net amount borrowed, of the outstanding debt under our credit agreement (see Item 8, Note 11, Long-Term Debt for additional details and debt payments).

In addition, we utilized $23.2 million for the payment of preferred stock dividends.

These fiscal 2018 uses of cash were partially offset by the receipt of $5.8 million in connection with a sale-leaseback transaction and $6.0 million of cash proceeds associated with stock option exercises.

Our primary sources of liquidity are available cash and cash equivalents, cash flow from operations, and borrowing availability under our $200.0 million revolving credit facility.

As of December 31, 2021, we had $96.6 million of cash and cash equivalents and $193.9 million of additional borrowing capacity under our revolving credit facility.

As of December 31, 2021, the available borrowings under our credit facility were reduced by $6.1 million due to outstanding letters of credit.

As of December 31, 2020, we had $255.6 million of cash and cash equivalents (inclusive of $193.3 million of cash and cash equivalents from the discontinued operation) and $339.2 million of additional borrowing capacity ($261.0 million of available borrowings under our prior revolving credit facility and $78.2 million available under our prior accounts receivable securitization program).

As of December 31, 2020, the available borrowings under our prior credit facility and accounts receivable securitization were reduced by $3.0 million and $7.5 million, respectively, due to outstanding letters of credit.

Our revolving credit facility is available to fund our working capital requirements, capital expenditures and other general corporate purposes.

We believe this resource is adequate for expected needs.

Amounts below include amounts attributable to our discontinued operations, unless otherwise noted.

In addition, cash flows for the year ended December 31, 2020 include our continuing operations and discontinued operations for the entire period, while the year ended December 31, 2021 only includes the cash flows associated with our PMC platform for the period from January 1, 2021 to October 4, 2021, the date the Spin-Off Transaction was completed.

Refer to Item 8, Note 4 Discontinued Operations for further information.

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

Net cash provided by operating activities in the year ended December 31, 2021, was $223.6 million compared to $320.2 million in the year ended December 31, 2020 due to lower net income as a result of the Spin-Off Transaction and investments in working capital.

Cash used for investing activities was $21.9 million in the year ended December 31, 2021 compared to $196.6 million in the year ended December 31, 2020.

Investing activities in the year ended December 31, 2021, included $17.1 million of net cash used to fund the acquisitions of Wade Drains and ATS GREASEwatch, whereas the year ended December 31, 2020, included $161.4 million of net cash used in connection with acquisitions of Hadrian, Just Manufacturing and the remaining non-controlling interest in a PMC joint venture.

We invested $23.3 million in capital expenditures in the year ended December 31, 2021, compared to $44.2 million in the year ended December 31, 2020.

We also received $14.3 million in connection with the disposition of certain long-lived assets in the year ended December 31, 2021, compared to $9.0 million in the year ended December 31, 2020.

Cash used for financing activities was $356.2 million in the year ended December 31, 2021 compared to cash used for financing activities of $156.2 million in the year ended December 31, 2020.

During the year ended December 31, 2021, we utilized a net $311.5 million of cash related to the Spin-Off Transaction of PMC, $0.9 million of cash for repurchases of our common stock and $36.4 million of cash for the payment of dividends on our common stock.

Cash used for financing activities during the year ended December 31, 2021 also includes $24.9 million of cash proceeds associated with stock option exercises, more than offset by $32.3 million of cash used for the payment of withholding taxes on employees' share-based payment awards.

During the year ended December 31, 2020, we utilized a net $5.7 million of cash for payments on outstanding debt, $140.0 million of cash for repurchases of our common stock and $38.6 million of cash for the payment of dividends on our common stock.

Cash used for financing activities during the year ended December 31, 2020 also includes $37.5 million of cash proceeds associated with stock option exercises, partially offset by $9.4 million of cash used for the payment of withholding taxes on employees' share-based payment awards.

Nine Months Ended December 31, 2020 Compared with the Nine Months Ended December 31, 2019

Net cash provided by operating activities in the nine months December 31, 2020, was $196.3 million compared to $174.7 million in the nine months ended December 31, 2019.

The timing of payments on accrued expenses was partially offset by lower net income generated during the nine months ended December 31, 2020.

Cash used for investing activities was $122.5 million in the nine months ended December 31, 2020 compared to $49.0 million in the nine months ended December 31, 2019.

Investing activities in the nine months ended December 31, 2020, included $102.0 million of net cash used to fund the acquisitions of Hadrian and the remaining non-controlling interest in a PMC joint venture, whereas the nine months ended December 31, 2019, included $25.1 million of net cash used in connection with acquisitions of Stainlessdrains.com and the remaining non-controlling interest in a different PMC joint venture.

We invested $28.3 million in capital expenditures in the nine months ended December 31, 2020, compared to $25.5 million in the nine months ended December 31, 2019.

We also received $7.8 million in connection with the disposition of certain long-lived assets in the nine months ended December 31, 2020, compared to $2.9 million in the nine months ended December 31, 2019.

Cash used for financing activities was $409.6 million in the nine months ended December 31, 2020 compared to $138.5 million in the nine months ended December 31, 2019.

During the nine months ended December 31, 2020, we utilized a net $330.4 million of cash for payments on outstanding debt, $59.3 million of cash for repurchases of our common stock and $28.8 million of cash for the payment of dividends on our common stock.

Cash used for financing activities during the nine months ended December 31, 2020 also includes $18.3 million of cash proceeds associated with stock option exercises, partially offset by $9.4 million of cash used for the payment of withholding taxes on employees' share-based payment awards.

During the nine months ended December 31, 2019, we utilized a net $110.3 million of cash for payments on outstanding debt (including $100.0 million for a voluntary prepayment on our term loan), $20.0 million for repurchases of our common stock and $17.4 million for the payment of preferred stock dividends.

Cash used for financing activities during the nine months ended December 31, 2019 also includes $16.8 million of cash proceeds associated with stock option exercises, partially offset by $7.6 million of cash used for the payment of withholding taxes on employees' share-based payment awards.

Tabular Disclosure of Contractual Obligations

The table below lists our contractual obligations at March 31, 2020 by period when due:

The table below lists our contractual obligations at December 31, 2021 by period when due:

Payments Due by Period

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Term loans (1) $ 550.0 $ 5.5 $ 11.0 $ 11.0 $ 522.5

4.875% Senior Notes due 2025 (2) 500.0 — — — 500.0

Revolving credit facility (3) 250.0 — 250.0 — —

Securitization facility borrowings (4) 75.0 75.0 — — —

Other long-term debt 32.8 1.5 2.6 2.8 25.9

Interest on long-term debt obligations (2) 99.0 15.1 29.7 29.1 25.1

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_______________________

(1) Excludes unamortized original issue discount and debt issuance costs of $4.2 million at March 31, 2020.

(2) Excludes unamortized debt issuance costs of $4.3 million at March 31, 2020.

(3) Excludes unamortized debt issuance costs of $0.8 million at March 31, 2020.

(4) Excludes unamortized debt issuance costs of $0.1 million at March 31, 2020.

(1) Excludes unamortized debt issuance costs of $10.8 million at December 31, 2021.

(2) Interest on long-term debt obligations represents the cash interest expense using a LIBOR-based forecast.

(6) Represents expected pension and post-retirement contributions and benefit payments to be paid directly by Rexnord.

(3) Represents expected pension and post-retirement contributions and benefit payments to be paid directly by the Company.

Contributions and benefit payments beyond fiscal 2027 cannot be reasonably estimated.

(7) Includes $241.8 million of payments due on or before the December 31, 2020 conclusion of the nine-month transition period related to the change in our fiscal year approved following the conclusion of fiscal 2020.

We previously considered the earnings in all of our foreign subsidiaries as permanently reinvested;

and as such, had not recorded deferred income taxes with respect to such earnings.

However, in consideration of the current economic environment due to COVID-19 and in light of favorable changes incorporated in U.S.

Tax Reform with respect to repatriation of foreign earnings, we determined effective as of the fourth quarter ending March 31, 2020 that certain unremitted earnings of approximately $44.4 million existing in Germany, Italy, the Netherlands and the United Kingdom are no longer permanently reinvested.

As a result of U.S.

Tax Reform, unremitted earnings can generally be remitted to the U.S.

without incurring additional U.S.

federal income taxation.

In addition, earnings repatriated from the jurisdictions noted above, based upon our current legal structure, can generally be repatriated without incurring any withholding tax liability.

Accordingly, we determined that the deferred tax liability associated with the repatriation of the undistributed earnings from the applicable subsidiaries located in these tax jurisdictions would be minimal, if any.

No provision has been made for United States federal income taxes related to approximately $98.8 million of undistributed earnings of foreign subsidiaries that are considered to be permanently reinvested;

No provision has been made for U.S.

federal income taxes related to approximately $13.9 million of undistributed earnings of foreign subsidiaries considered to be permanently reinvested;

see Item 8, Note 17 Income Taxes for further information.

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However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities.

Accordingly, unrecognized tax benefits, including interest and penalties and federal tax benefits where applicable, of $14.8 million as of March 31, 2020, have been excluded from the contractual obligations table above.

Accordingly, unrecognized tax benefits, including interest and penalties and federal tax benefits where applicable, of $5.9 million as of December 31, 2021, have been excluded from the contractual obligations table above.

See Item 8, Note 17 Income Taxes for more information related to our unrecognized tax benefits.

Additionally, the deferred compensation liability of $7.4 million as of March 31, 2020, has been excluded from the contractual obligations table above, as we are unable to reasonably estimate the timing of the payments or the amount by which the liability will increase over time.

Additionally, the deferred compensation liability of $16.3 million as of December 31, 2021, has been excluded from the contractual obligations table above, as we are unable to reasonably estimate the timing of the payments or the amount by which the liability will increase over time.

See Item 8, Note 16, Retirement Benefits for more information related to our deferred compensation plan.

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See Item 1A, Risk Factors for more information.

As of March 31, 2020 we had $1,473.4 million of total indebtedness outstanding as follows (in millions):

Total Debt at March 31, 2020 Current Maturities of Long-Term Debt Long-term

As of December 31, 2021 we had $539.5 million of total indebtedness outstanding as follows (in millions):

Total Debt at December 31, 2021 Current Maturities of Long-Term Debt Long-term

Term loans (1) $ 539.2 $ 5.5 $ 533.7

4.875% Senior Notes due 2025 (2) 495.7 — 495.7

Revolving credit facility (3) 249.2 — 249.2

Securitization facility borrowings (4) 74.9 74.9 —

Other subsidiary debt (2) 0.3 0.1 0.2

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____________________

(1) Includes unamortized original issue discount and debt issuance costs of $4.2 million at March 31, 2020.

(2) Includes unamortized debt issuance costs of $4.3 million at March 31, 2020.

(3) Includes unamortized debt issuance costs of $0.8 million at March 31, 2020.

(4) Includes unamortized debt issuance costs of $0.1 million at March 31, 2020.

(1) Includes unamortized original issue discount and debt issuance costs of $10.8 million at December 31, 2021.

(2) Consists of finance lease obligations.

See more information related to finance leases within Item 8, Note 14, Leases.

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We are exposed to market risk during the normal course of business from changes in foreign currency exchange rates and interest rates.

The exposure to these risks is managed through a combination of normal operating and financing activities and derivative financial instruments in the form of foreign currency forward contracts to cover certain known foreign currency transactional risks.

The exposure to these risks is managed through a combination of normal operating and financing activities and at times derivative financial instruments in the form of foreign currency forward contracts to cover certain known foreign currency transactional risks.

We also have historically entered into interest rate derivatives to manage interest rate fluctuations.

Foreign Currency Exchange Rate Risk

Our exposure to foreign currency exchange rates relates primarily to our foreign operations.

For our foreign operations, exchange rates impact the U.S.

Our exposure to foreign currency exchange rates relates primarily to our operations in Canada.

For our operations in Canada, exchange rates impact the U.S.

Dollar ("USD") value of our reported earnings, our investments in the subsidiaries and the intercompany transactions with the subsidiaries.

See Item 1A, Risk Factors for more information.

Approximately 29% of our sales originated outside of the United States in fiscal 2020.

Approximately 13% of our sales originated outside of the United States in the year ended December 31, 2021.

Revenues and expenses denominated in foreign currencies are translated into USD at the end of the fiscal period using the average exchange rates in effect during the period.

Consequently, as the value of the USD changes relative to the currencies of our major markets, particularly those that are Euro-based, our reported results may vary significantly.

Fluctuations in currency exchange rates also impact the USD amount of our stockholders' equity.

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subsidiaries are translated into USD at the exchange rates in effect at the end of the fiscal periods.

As of March 31, 2020, stockholders' equity decreased by $24.5 million from March 31, 2019 as a result of foreign currency translation adjustments.

If the USD strengthened by 10% as of March 31, 2020, the result would have decreased stockholders' equity by approximately $39.9 million.

As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations.

However, any of these factors could adversely affect our international operations and, consequently, our operating results.

As of March 31, 2020, we had not entered into foreign currency forward contracts.

As of December 31, 2021, stockholders' equity decreased by $4.2 million from December 31, 2020 as a result of foreign currency translation adjustments.

If the USD strengthened by 10% as of December 31, 2021, the result would have decreased stockholders' equity by approximately $11.2 million.

As of December 31, 2021, we had not entered into foreign currency forward contracts.

Interest Rate Risk

We utilize a combination of short-term and long-term debt to finance our operations and are exposed to interest rate risk on a portion of these debt obligations.

A portion of our indebtedness (approximately 59%) including indebtedness under the senior secured credit facilities, bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates.

As of March 31, 2020, our outstanding borrowings under the term loan facility were $620.8 million (net of $4.2 million unamortized debt issuance costs) and bore an effective interest rate of 2.74%, determined as London Interbank Offered Rate ("LIBOR") (subject to a 0% floor) plus an applicable margin of 1.75%.

The weighted-average interest rate for fiscal year 2020 was 3.96% determined as LIBOR (subject to a 0% floor) plus an applicable margin of 1.75%.

Our indebtedness under the senior secured credit facilities bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates.

As of December 31, 2021, our outstanding borrowings under the term loan facility were $539.2 million (net of $10.8 million unamortized debt issuance costs) and bore an effective interest rate of 2.75%, determined as London Interbank Offered Rate ("LIBOR") (subject to a 0.5% floor) plus an applicable margin of 2.25%.

During the twelve months ended December 31, 2021 the weighted-average interest rate was 2.07%.

Our net income is affected by changes in market interest rates on our variable-rate obligations.

As discussed above, our term loan facilities are subject to a 0% LIBOR floor.

Therefore, for every 100 basis point increase in the March 31, 2020 market interest rate would increase the annual interest expense under our term loan facility by approximately $8.8 million.

As discussed above, our term loan facilities bear interest at LIBOR (subject to a 0.5% floor) plus an applicable margin.

Therefore, a 100 basis point increase in LIBOR above where it closed as of December 31, 2021 would increase the annual interest expense under our term loan facility by approximately $3.3 million.

Further, every 100 basis point increase in LIBOR above our 0.5% LIBOR floor would increase the annual interest expense under our term loan facility by approximately $5.5 million.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis