Unless the context requires otherwise, references in this Item 2 to "we," "us,"
"our" or the "Company" refer collectively to Regal Beloit Corporation and its
subsidiaries.
Overview
Regal Beloit Corporation (NYSE: RBC), based in Beloit, Wisconsin (USA), is a
leading manufacturer of electric motors, electrical motion controls, power
generation and power transmission products serving markets throughout the world.

Operating Segments

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

A description of the four operating segments is as follows:

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



•Industrial Systems segment produces integral motors, generators, alternators
and switchgear for industrial applications, along with aftermarket parts and
kits to support such products. These products serve markets including
agriculture, marine, mining, oil and gas, food and beverage, data centers,
healthcare, prime and standby power, and general industrial equipment.

•Climate Solutions segment produces small motors, electronic variable speed controls and air moving solutions serving markets including residential and light commercial HVAC, water heaters and commercial refrigeration.


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•Power Transmission Solutions segment produces, sells and services belt and
chain drives, helical and worm gearing, mounted and unmounted bearings,
couplings, modular plastic belts, conveying chains and components, hydraulic
pump drives, large open gearing and specialty mechanical products serving
markets including e-commerce, alternative energy, beverage, bulk handling,
metals, special machinery, energy, aerospace and general industrial.

Components of Profit and Loss

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

Our level of net sales for any given period is dependent upon a number of
factors, including (i) the demand for our products; (ii) the strength of the
economy generally and the end markets in which we compete; (iii) our customers'
perceptions of our product quality at any given time; (iv) our ability to timely
meet customer demands; (v) the selling price of our products; and (vi) the
weather. As a result, our total revenue has tended to experience quarterly
variations and our total revenue for any particular quarter may not be
indicative of future results.

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

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

Outside of general economic cyclicality, our business units experience different
levels of variation in gross profit from quarter to quarter based on factors
specific to each business. For example, a portion of our Climate Solutions
segment manufactures products that are used in air conditioning applications. As
a result, our sales for that business tend to be lower in the first and fourth
quarters and higher in the second and third quarters. In contrast, our
Commercial Systems segment, Industrial Systems segment and Power Transmission
Solutions segment have a broad customer base and a variety of applications,
thereby helping to mitigate large quarter-to-quarter fluctuations outside of
general economic conditions.

Operating Expenses. Our operating expenses consist primarily of (i) general and
administrative expenses; (ii) sales and marketing expenses; (iii) general
engineering and research and development expenses; and (iv) handling costs
incurred in conjunction with distribution activities. Personnel related costs
are our largest operating expense.

Our general and administrative expenses consist primarily of costs for (i)
salaries, benefits and other personnel expenses related to our executive,
finance, human resource, information technology, legal and operations functions;
(ii) occupancy expenses; (iii) technology related costs; (iv) depreciation and
amortization; and (v) corporate-related travel. The majority of our general and
administrative costs are for salaries and related personnel expenses. These
costs can vary by business given the location of our different manufacturing
operations.

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

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

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

Restructuring and Restructuring Related Costs. We incurred restructuring-related
costs on employee termination and plant relocation costs. Restructuring related
costs includes costs directly associated with actions resulting from our
simplification initiatives, such as asset write-downs or accelerated
depreciation due to shortened useful lives in connection with site closures,
discretionary employment benefit costs and other facility rationalization costs.
Restructuring costs for employee termination expenses are generally required to
be accrued over the employees remaining service period while restructuring costs
for plant relocation costs and restructuring-related costs are generally
required to be expensed as incurred.
COVID-19 Pandemic
COVID-19 evolved during the first quarter of 2020 into a global pandemic,
resulting in a severe global health crisis that drove a dramatic slowdown in
global economic and social activity.

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

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

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

Rexnord Transaction



On February 15, 2021, we entered into definitive agreements with Rexnord
Corporation ("Rexnord"), Land Newco, Inc., a wholly owned indirect subsidiary of
Rexnord ("Land"), and Phoenix 2021, Inc., our wholly owned subsidiary ("Merger
Sub"), with respect to a Reverse Morris Trust transaction (the "Rexnord
Transaction") pursuant to which, and subject to the terms and conditions of
those definitive agreements discussed below, (1) Rexnord will transfer (or cause
to be transferred) to Land substantially all of the assets, and Land will assume
substantially all of the liabilities, of Rexnord's Process & Motion Control
business ("PMC Business") (the "Reorganization"), (2) after which, all of the
issued and outstanding shares of common stock, $0.01 par value per share, of
Land ("Land common stock") held by a subsidiary of Rexnord will be distributed
in a series of distributions to Rexnord's stockholders (the "Distributions", and
the final distribution of Land common stock from Rexnord to Rexnord's
stockholders, which is to be made pro rata for no consideration, the "Spin-Off")
and (3) immediately after the Spin-Off, Merger Sub will merge with and into Land
(the "Merger") and all shares of Land common stock (other than those held by
Rexnord, Land, the Company, Merger Sub or their respective subsidiaries) will be
converted into the right to receive shares of our common stock, $0.01 par value
per share ("Company common stock"), as calculated and subject to adjustment as
set forth
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in the Merger Agreement (as defined below). When the Merger is completed, Land (which at that time will hold the PMC Business) will be our wholly owned subsidiary.



The definitive agreements we entered into in connection with the Rexnord
Transaction include an Agreement and Plan of Merger, by and among Rexnord, Land,
Merger Sub and the Company (the "Merger Agreement"), a Separation and
Distribution Agreement, by and among Rexnord, Land and the Company as well as
and certain ancillary agreements.

In connection with the Rexnord Transaction, the Merger Agreement provides that
we shall, to the extent required by the Merger Agreement, in certain
circumstances in which additional shares of Company common stock are issued at
the closing of the Rexnord Transaction to holders of Land common stock, declare
a special dividend to our shareholders immediately prior to the consummation of
the Merger (the "Company Special Dividend"). The existence and magnitude of the
Company Special Dividend will depend on whether and to what extent we are able
to count certain overlapping shareholders of us and Rexnord in satisfying the
tax requirements applicable to a Reverse Morris Trust transaction. In the event
that the Company Special Dividend is required to be paid, it could range in
amount between zero and approximately $2.0 billion.

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



Closing of the Rexnord Transaction is subject to various closing conditions,
including the consummation of the Reorganization and the Distributions, receipt
of the approval of our shareholders and Rexnord's stockholders and other
customary closing conditions.

Outlook


The Company is projecting increased sales growth for the remainder of the year
which assumes no material decline in production capacity or its ability to
conduct commercial operations, either from COVID-related disruptions, or other
factors, including supply chain disruptions, versus levels as of the date of
this report. The guidance does not take into account any costs, expenses or
other effects with respect to the Rexnord Transaction.

Results of Operations
Three Months Ended July 3, 2021 Compared to June 27, 2020
Net sales increased $252.8 million or 39.9% for the second quarter 2021 compared
to the second quarter 2020. The increase consisted of positive organic sales of
37.2% and positive foreign currency translation of 2.7%. The increase was
primarily driven by sales increases in North American markets and a resurgence
in China. Gross profit increased $81.2 million or 47.7% for the second quarter
2021 as compared to the second quarter 2020. The increase in gross profit was
driven by increase in volume and partially offset by increased freight and
material costs. Total operating expenses for the second quarter 2021 increased
$18.1 million or 14.5% as compared to the second quarter 2020. The increase was
primarily driven by due diligence fees associated with the Rexnord Transaction,
and employee related wage and benefit costs which were partially offset by
foreign exchange gains.
Commercial Systems Segment net sales for the second quarter 2021 were $269.3
million, an increase of $93.4 million or 53.1% as compared to the second quarter
2020. The increase consisted of positive organic sales of 49.6% and positive
foreign currency translation of 3.5%. The increase was primarily driven by
strong growth in general industry and pool pump business as well as solid gains
in the Asia Pacific market. Gross profit increased $25.1 million or 59.2% as
compared to the second quarter 2020. The increase in gross profit was primarily
driven by the increase in volume and favorable product mix, partially offset by
increased freight cost. Total operating expenses for the second quarter 2021
were $42.1 million compared to $36.2 million in the second quarter 2020. The
$5.9 million or 16.3% increase was primarily driven by higher employee related
wage and benefit costs as well as increased engineering expenses.
Industrial Systems Segment net sales for the second quarter 2021 were $145.2
million, an increase of $24.6 million or 20.4% as compared to the second quarter
2020. The increase consisted of positive organic sales of 15.2% and positive
foreign currency translation of 5.2%. The increase was primarily driven by
strength in the data center market, demand for industrial motors in North
America and resurgent economic growth in the China market. Gross profit
increased $1.3 million or 5.2% as compared to the second quarter 2020. The
increase in gross profit was primarily driven by strong volumes, favorable mix
and positive price realization, offset by material inflation and the impact of
supply chain disruptions. Total operating expenses for the second quarter 2021
and 2020 were $23.1 million and $21.7 million, respectively. The increase in
operating expenses was due to higher employee related wage and benefit costs,
higher variable selling costs on stronger sales volume, and increased
administrative costs partially offset by general cost savings initiatives and
foreign exchange gains.
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Climate Solutions Segment net sales were $257.3 million, an increase of $79.1
million or 44.4% as compared to the second quarter 2020. The increase consisted
of positive organic sales of 43.4% and positive foreign currency translation of
1.0%. The increase was primarily due to continued strong demand in North
American residential HVAC and recovering demand in EMEA. Gross profit increased
$26.6 million or 56.1% compared to the second quarter 2020. The increase in
gross profit was primarily driven by increased volume, favorable product mix and
80/20 actions. Total operating expenses for the second quarter 2021 were $27.5
million compared to $27.4 million in the second quarter 2020. The slight
increase was primarily due to 2020 cost savings as a result of non-recurring
furloughs, which was offset by gains in foreign exchange.
Power Transmission Solutions Segment net sales for the second quarter 2021 were
$215.1 million, an increase of $55.7 million or 34.9% compared to second quarter
2020 net sales of $159.4 million. The increase consisted of positive organic
sales of 33.1% and positive foreign currency of 1.8%. The increase was primarily
driven by strength in alternative energy and in the conveying business and
recovering shorter cycle North American general industrial end markets. Gross
profit for the second quarter 2021 increased $28.2 million or 50.7%. The
increase was driven by higher sales volume with favorable mix and lower overhead
cost driven by cost reduction initiatives. Total operating expenses for the
second quarter 2021 increased $10.7 million as compared to the second quarter
2020, primarily due to due diligence fees related to the Rexnord Transaction.
Six Months Ended July 3, 2021 Compared to June 27, 2020
Net sales increased $332.7 million or 24.3% for the six months ended July 3,
2021 compared to the six months ended June 27, 2020. The increase consisted of
positive organic sales of 22.1% and positive foreign currency translation of
2.2%. The increase was primarily driven by sales increases in North America,
China and recovering demand in EMEA and Asia Pacific. Gross profit increased
$123.3 million or 33.0% for the six months ended July 3, 2021 as compared to the
six months ended June 27, 2020. The increase in gross profit was driven by
increase in volume, partially offset by increased freight and material costs.
Total operating expenses for the six months ended July 3, 2021 increased $33.1
million or 12.8% as compared to the six months ended June 27, 2020. The increase
was primarily driven by due diligence fees associated with the Rexnord
Transaction, higher employee related wage and benefit costs, partially offset by
foreign exchange gains.
Commercial Systems Segment net sales for the six months ended July 3, 2021 were
$506.3 million, an increase of $131.0 million or 34.9% as compared to the six
months ended June 27, 2020. The increase consisted of positive organic sales of
31.7% and positive foreign currency translation of 3.2%. The increase was
primarily driven by strong growth in general industry, pool pump, and Asia
Pacific markets. Gross profit increased $40.3 million or 43.5% as compared to
the six months ended June 27, 2020. The increase in gross profit was primarily
driven by the increase in volume, partially offset by increased freight and
material costs. Total operating expenses for the six months ended July 3, 2021
were $80.1 million compared to $74.4 million in the six months ended June 27,
2020. The $5.7 million or 7.7% increase was primarily due to foreign exchange
losses, higher employee related wage and benefit costs, and increased
engineering expenses.
Industrial Systems Segment net sales for the six months ended July 3, 2021 were
$281.6 million, an increase of $31.4 million or 12.5% as compared to the six
months ended June 27, 2020. The increase consisted of positive organic sales of
8.1% and positive foreign currency translation of 4.4%. The increase was
primarily driven by strength in the generator business, strong growth in China
and in India markets, and improving demand in the North America industrial
motors business. Gross profit increased $5.1 million or 10.6% for the six months
ended July 3, 2021 as compared to the six months ended June 27, 2020. The
increase in gross profit was primarily driven by strong volumes, favorable mix
and positive price realization, partially offset by material inflation. Total
operating expenses for the six months ended July 3, 2021 and June 27, 2020 were
$46.2 million and $44.8 million, respectively. The increase of 3.1% in operating
expenses stems from higher variable selling costs on higher sales volumes and
increased administrative costs quarter over quarter. The increase was partially
offset by general cost savings initiatives and foreign exchange gains.
Climate Solutions Segment net sales were $496.4 million, an increase of $108.1
million or 27.8% as compared to the six months ended June 27, 2020. The increase
consisted of positive organic sales of 27.5% and positive foreign currency
translation of 0.3%. The increase was primarily due to continued strong demand
in North American residential HVAC market and recovering demand in EMEA and Asia
Pacific. Gross profit increased $41.2 million or 38.6% compared to the six
months ended June 27, 2020. The increase in gross profit was primarily driven by
volume, favorable product mix and 80/20 actions, partially offset by material
inflation. Total operating expenses for the six months ended July 3, 2021 were
$58.2 million compared to $57.3 million in the six months ended June 27, 2020.
The increase was primarily due to 2020 cost savings as a result of non-recurring
furloughs and increases in travel and other expenses, offset by gains in foreign
currency.
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Power Transmission Solutions Segment net sales for the six months ended July 3,
2021 were $416.7 million, an increase of $62.2 million or 17.5% compared to six
months ended June 27, 2020 net sales of $159.4 million. The increase consisted
of positive organic sales of 15.9% and positive foreign currency of 1.6%. The
increase was primarily driven by strength in the North American general
industrial and alternative-energy end markets, prior year project wins in the
aerospace end market, strength in the conveying business and recovering demand
in EMEA. Gross profit for the six months ended July 3, 2021 increased $36.7
million or 29.1%. The increase was driven by higher sales volume, favorable
product mix and lower overhead cost driven by cost reduction initiatives. Total
operating expenses for the six months ended July 3, 2021 increased $25.1 million
as compared to the six months ended June 27, 2020, primarily due to due
diligence fees related to the Rexnord Transaction.
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                                                     Three Months Ended                            Six Months Ended
                                             July 3, 2021          June 27, 2020         July 3, 2021          June 27, 2020
(Dollars in Millions)
Net Sales:
 Commercial Systems                         $      269.3          $      175.9          $      506.3          $       375.3
 Industrial Systems                                145.2                 120.6                 281.6                  250.2
 Climate Solutions                                 257.3                 178.2                 496.4                  388.3
 Power Transmission Solutions                      215.1                 159.4                 416.7                  354.5
Consolidated                                $      886.9          $      634.1          $    1,701.0          $     1,368.3

Gross Profit as a Percent of Net Sales:


 Commercial Systems                                 25.1  %               24.1  %               26.3  %                24.7  %
 Industrial Systems                                 18.0  %               20.6  %               18.8  %                19.1  %
 Climate Solutions                                  28.8  %               26.6  %               29.8  %                27.5  %
 Power Transmission Solutions                       39.0  %               34.9  %               39.1  %                35.6  %
Consolidated                                        28.4  %               26.9  %               29.2  %                27.3  %

Operating Expenses as a Percent of Net
Sales:
 Commercial Systems                                 15.0  %               19.4  %               15.5  %                19.1  %
 Industrial Systems                                 15.9  %               18.0  %               16.4  %                17.8  %
 Climate Solutions                                  10.5  %               14.9  %               11.6  %                14.4  %
 Power Transmission Solutions                       23.2  %               24.5  %               25.5  %                22.9  %
Consolidated                                        15.8  %               19.2  %               17.0  %                18.5  %

Income from Operations as a Percent of Net
Sales:
 Commercial Systems                                  9.4  %                3.5  %               10.4  %                 4.9  %
 Industrial Systems                                  2.1  %                2.7  %                2.4  %                 1.2  %
 Climate Solutions                                  18.1  %               11.2  %               18.1  %                12.7  %
 Power Transmission Solutions                       15.8  %               10.4  %               13.6  %                12.7  %
Consolidated                                        12.3  %                7.2  %               12.1  %                 8.5  %

Income from Operations                      $      109.0          $       45.9          $      206.1          $       115.9
Other Income, Net                                   (1.2)                 (1.1)                 (2.4)                  (2.2)
Interest Expense                                    11.5                  10.6                  24.1                   22.2
Interest Income                                     (1.7)                 (1.4)                 (3.2)                  (2.5)
 Income before Taxes                               100.4                  37.8                 187.6                   98.4
Provision for Income Taxes                          19.2                   8.5                  39.4                   22.4
 Net Income                                         81.2                  29.3                 148.2                   76.0
Less: Net Income Attributable to
Noncontrolling Interests                             1.6                   1.2                   3.0                    2.1
 Net Income Attributable to Regal Beloit
Corporation                                 $       79.6          $       28.1          $      145.2          $        73.9



The effective tax rate for the three months ended July 3, 2021 was 19.1% versus
22.5% for the three months ended June 27, 2020. The effective tax rate for the
six months ended July 3, 2021 and June 27, 2020 was 21.0% and 22.8%,
respectively. The change in the effective tax rate for the three and six months
ended July 3, 2021 was primarily driven by the mix of earnings.

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

Cash flow provided by operating activities was $136.6 million for the six months
ended July 3, 2021, a $53.0 million decrease from the six months ended June 27,
2020. The decrease is a result of increased accounts receivable, inventory and
prepaid expenses and other current assets partially offset by higher accounts
payable and net income in the current year for the six months ended July 3, 2021
compared to the six months ended June 27, 2020.

Cash flow used in investing activities was $26.3 million for the six months
ended July 3, 2021 as compared to cash flow used in investing activities of
$14.8 million for the six months ended June 27, 2020. The change was driven
primarily by lower proceeds received from sales of property, plant and equipment
and cash used for capital purchases and business acquisitions in the current
year compared to the prior year.

Cash flow used in financing activities was $102.1 million for the six months
ended July 3, 2021, compared to $66.8 million used in financing activities for
the six months ended June 27, 2020. We had net debt repayments of $50.2 million
during the six months ended July 3, 2021, compared to net debt repayments of
$12.5 million during the six months ended June 27, 2020. There were no share
repurchases for the six months ended July 3, 2021, compared to $25.0 million for
the six months ended June 27, 2020. There were $17.0 million in financing fees
paid for the six months ended July 3, 2021, compared to no fees in the prior
year.

Our working capital was $1,145.4 million at July 3, 2021, compared to $1,029.3
million at January 2, 2021. At July 3, 2021 and January 2, 2021, our current
ratio (which is the ratio of our current assets to current liabilities) was
2.2:1 and 2.3:1, respectively. Our working capital increased primarily due to
the increase in trade receivables, inventory and prepaid expenses offset by an
increase in accounts payable.

The following table presents selected financial information and statistics as of July 3, 2021 and January 2, 2021 (in millions):


                                              July 3, 2021       January 2, 2021
            Cash and Cash Equivalents        $       618.5      $          611.3
            Trade Receivables, Net                   558.0                 432.0
            Inventories                              759.2                 690.3
            Working Capital                        1,145.4               1,029.3
            Current Ratio                              2.2:1                 2.3:1



As of July 3, 2021, $543.7 million of our cash was held by foreign subsidiaries
and could be used in our domestic operations if necessary. We anticipate being
able to support our short-term liquidity and operating needs largely through
cash generated from operations. We regularly assess our cash needs and the
available sources to fund these needs which includes repatriation of foreign
earnings which may be subject to withholding taxes. Under current law, we do not
expect restrictions or taxes on repatriation of cash held outside of the United
States to have a material effect on our overall liquidity, financial condition
or the results of operations for the foreseeable future.

We will, from time to time, maintain excess cash balances which may be used to
(i) fund operations, (ii) repay outstanding debt, (iii) fund acquisitions, (iv)
pay dividends, (v) make investments in new product development programs, (vi)
repurchase our common stock, or (vii) fund other corporate objectives.
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Credit Agreement
On March 17, 2021, we entered into an amendment (the "First Amendment") with our
lenders to the Amended and Restated Credit Agreement, dated August 27, 2018 (the
"Credit Agreement") with JPMorgan Chase Bank, N.A., as Administrative Agent and
the lenders named therein. The First Amendment amended the Credit Agreement to,
among other things, (i) permit the consummation of the proposed transaction
pursuant to the definitive agreements we entered into on February 15, 2021,
among Rexnord, Land and the Merger Sub with respect to a Reverse Morris Trust
transaction (the "Rexnord Transaction") and the incurrence of indebtedness and
liens in an aggregate principal amount not to exceed $2.1 billion (plus an
additional $487.0 million of capacity for the DDTL Facility described below) in
connection with the Rexnord Transaction; (ii) provide an increase in the
aggregate principal amount of the revolving commitments under the Credit
Agreement from $500.0 million to $750.0 million, (iii) provide an increase in
the maximum leverage ratio (defined as, with certain adjustments, the ratio of
our consolidated funded debt to EBITDA) permitted as of the last day of any
fiscal quarter to 4.50 to 1.00, to the extent the funded debt to EBITDA ratio
exceeds 3.00 to 1.00 upon the consummation of the Rexnord Transaction. The
amendment is subject to customary and market provisions.
Prior to the First Amendment, the Credit Agreement provided for a (i) 5-year
unsecured term loan facility in an original aggregate principal amount of $900.0
million (the "Term Facility") and (ii) a 5-year unsecured multicurrency
revolving facility in an aggregate principal amount of $500.0 million (increased
as of the effectiveness of the First Amendment to $750.0 million) (the
"Multicurrency Revolving Facility"), including a $50.0 million letter of credit
sub facility, available for general corporate purposes. Borrowings under the
Credit Agreement bear interest at floating rates based upon indices determined
by the currency of the borrowing, plus an applicable margin determined by
reference to our consolidated funded debt to consolidated EBITDA ratio or at an
alternative base rate.
The Term Facility under the Credit Agreement was drawn in full on August 27,
2018 with the proceeds settling the amounts owed under prior borrowings. The
Term Facility requires quarterly amortization at a rate starting at 5.0% per
annum, increasing to 7.5% per annum after three years and further increasing to
10.0% per annum for the last year of the Term Facility, unless previously
prepaid. The weighted average interest rate on the Term Facility for the three
months ended July 3, 2021 and June 27, 2020 was 1.4% and 1.6%, respectively. The
weighted average interest rate on the Term Facility for the six months ended
July 3, 2021 and June 27, 2020 was 1.5% and 2.9%, respectively. The Credit
Agreement requires that we prepay the loans under the Term Facility with 100% of
the net cash proceeds received from specified asset sales and borrowed money
indebtedness, subject to certain exceptions.
At July 3, 2021, we had no borrowings under the Multicurrency Revolving
Facility, $0.2 million of standby letters of credit issued under the facility
and $749.8 million of available borrowing capacity. For the three months ended
July 3, 2021 and June 27, 2020 under the Multicurrency Revolving Facility, the
average daily balance in borrowings was $2.4 million and $408.7 million,
respectively and the weighted average interest rate was 1.4% and 1.9%,
respectively. For the six months ended July 3, 2021 and June 27, 2020 under the
Multicurrency Revolving Facility, the average daily balance in borrowings was
$4.9 million and $258.8 million, respectively, and the weighted average interest
rate was 1.4% and 2.4%, respectively. We pay a non-use fee on the aggregate
unused amount of the Multicurrency Revolving Facility at a rate determined by
reference to its consolidated funded debt to consolidated EBITDA ratio.
Senior Notes
At July 3, 2021, we had $400.0 million of senior notes (the "Notes")
outstanding. The Notes consist of $400.0 million in senior notes in a private
placement which were issued in five tranches with maturities from ten to twelve
years and carry fixed interest rates. As of July 3, 2021, $230.0 million and
$170.0 million of the Notes are included in Current Maturities of Long-Term Debt
and Long-Term Debt, respectively on the Condensed Consolidated Balance Sheets.
The senior note that matured after quarter end on July 14, 2021, was paid via
cash from operations and a draw on the Multicurrency Revolving Facility.
The following table presents details on the Notes at July 3, 2021 (in millions):
                                        Principal        Interest Rate

Maturity

Fixed Rate Series 2011A $ 230.0 4.8 to 5.0%

July 14, 2021


         Fixed Rate Series 2011A            170.0         4.9 to 5.1%        July 14, 2023
                                       $    400.0



We have an interest rate swap agreement to manage fluctuations in cash flows
resulting from interest rate risk (see also Note 14 of Notes to the Condensed
Consolidated Financial Statements).

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Compliance with Financial Covenants



The Credit Agreement and the Notes require us to meet specified financial ratios
and to satisfy certain financial condition tests. We were in compliance with all
financial covenants contained in the Notes and the Credit Agreement as of
July 3, 2021.

Other Notes Payable

At July 3, 2021, other notes payable of approximately $4.3 million were outstanding with a weighted average interest rate of 4.9%. At January 2, 2021, other notes payable of approximately $4.6 million were outstanding with a weighted average rate of 4.9%.

Financing Arrangements Related to Rexnord Transaction



In connection with the Rexnord Transaction, on February 15, 2021, we entered
into a debt commitment letter (the "Bridge Commitment Letter") and related fee
letters with Barclays Bank PLC ("Barclays"), pursuant to which, and subject to
the terms and conditions set forth therein, Barclays committed to provide
approximately $2.1 billion in an aggregate principal amount of senior bridge
loans under a 364-day senior bridge loan credit facility (the "Bridge
Facility"). The proceeds of the loans under the Bridge Facility may be used by
us to (i) pay the Company Special Dividend, (ii) redeem the Notes due in 2023
and (iii) to pay fees and expenses in connection with the Rexnord Transaction.

Further, we entered into an additional debt commitment letter (the "Backstop
Commitment Letter") and related fee letters with Barclays, pursuant to which,
and subject to the terms and conditions set forth therein, Barclays committed to
provide 364-day senior bridge loan credit facility in an aggregate principal
amount of up to approximately $1.1 billion to prepay in full the aggregate
principal amount of loans outstanding under the Credit Agreement in the event
that certain required consents from the lenders under the Credit Agreement could
not be obtained. On March 17, 2021, as further described above, we entered into
the First Amendment to, among other things (i) permit the consummation of the
Rexnord Transaction, as applicable, (ii) permit the incurrence of indebtedness
to finance the Company Special Dividend and to finance the cash payment of Land
to a subsidiary of Rexnord (the "Land Cash Payment") as contemplated by the
Rexnord Transaction; and (iii) provide an increase of $250.0 million in the
aggregate principal amount of the revolving commitments under the Existing
Credit Agreement, as described in detail above under "Credit Agreement". Upon
the effectiveness of the First Amendment, the Backstop Commitment Letter and the
commitments thereunder were terminated.

In connection with the Rexnord Transaction, Land also entered into a debt
commitment letter (the "Land Commitment Letter") and related fee letters with
Barclays, pursuant to which, and subject to the terms and conditions set forth
therein, Barclays committed to provide approximately $487.0 million of bridge
loans under a 364-day senior bridge loan facility to be used to pay the Land
Cash Payment. Pursuant to the terms of the Merger Agreement Land has entered
into a permitted alternative financing to replace the commitments under the Land
Commitment Letter. In particular, on May 14, 20201 Land entered into a Credit
Agreement with JPMorgan Chase Bank, N.A., as Administrative Agent and the
lenders named therein, providing for a delayed draw term loan facility with
commitments thereunder in an aggregate principal amount of $487.0 million,
maturing in August 2023 (the "DDTL Facility"). Subject to satisfaction of the
conditions therein, the DDTL Facility may be drawn in connection with the
consummation of the Rexnord Transaction in order to fund the Land Cash Payment.
The loans under the DDTL Facility will bear interest at floating rates, plus an
applicable margin determined by reference to a consolidated funded debt to
consolidated EBITDA ratio or at an alternative base rate. Upon the effectiveness
of the DDTL Facility, the Land Commitment Letter and the commitments thereunder
were terminated. If the Rexnord Transaction is consummated, the indebtedness
contemplated by the Land Commitment Letter and DDTL Facility will become
indebtedness of a wholly-owned subsidiary of the Company.

We anticipate incurring significant fees and expenses in connection with the
Rexnord Transaction, the amount of which is uncertain. In addition, the amount
of the Company Special Dividend depends on the number of additional shares of
our common stock that must be issued in connection with the Rexnord Transaction
in order to satisfy tax requirements applicable to a Reverse Morris Trust
transaction. The size of the dividend that will ultimately be declared is
uncertain and will remain so until the closing of the Rexnord Transaction.

Other Disclosures



Based on rates for instruments with comparable maturities and credit quality,
which are classified as Level 2 inputs (see also Note 15 of Notes to the
Condensed Consolidated Financial Statements), the approximate fair value of our
total debt was $1,031.1 million and $1,085.8 million as of July 3, 2021 and
January 2, 2021, respectively.

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Critical Accounting Policies Our disclosures of critical accounting policies, which are contained in our Annual Report on Form 10-K for the year ended January 2, 2021, have not materially changed since that report was filed.

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