ZURN ELKAY WATER SOLUTIONS CORPORATION General
Rexnord is 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. 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.
The following information should be read in conjunction with the audited
consolidated financial statements and notes thereto, along with Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A"), in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2020 .
Fiscal Year
Following the end of our fiscal 2020, we transitioned to a December 31 fiscal
year-end date. The nine-month period from April 1, 2020 , to December 31, 2020 ,
is serving as a transition period, and we will provide one-time, nine-month
transitional financial statements for the transition period in a transition
report on Form 10-K to be filed in calendar year 2021. Prior to the transition
period, our fiscal year was the year ending March 31 of the corresponding
calendar year. Throughout this MD&A, we refer to the period from July 1, 2020
through September 30, 2020 , as the "three months ended September 30, 2020 " or
the "quarter ended September 30, 2020 ." We refer to the period from July 1, 2019
through September 30, 2019 , as the "three months ended September 30, 2019 " or
the "quarter ended September 30, 2019 ."
Critical Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
("U.S. GAAP"), which require us to make estimates and assumptions that affect
the reported amounts of assets and liabilities on the date of the financial
statements and revenues and expenses during the periods reported. Actual results
could differ from those estimates. Refer to Item 7, MD&A of our Annual Report on
Form 10-K for the fiscal year ended March 31, 2020 , for information with respect
to our critical accounting policies, which we believe could have the most
significant effect on our reported results and require subjective or complex
judgments by management. Except for the items reported below, management
believes that as of September 30, 2020 , and during the period from April 1, 2020
through September 30, 2020 , there has been no material change to this
information.
Recent Accounting Pronouncements
See Item 1, Note 1, Basis of Presentation and Significant Accounting Policies
regarding recent accounting pronouncements.
COVID-19 Pandemic
The ongoing 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 have also experienced similar negative impacts from the COVID-19
pandemic. As of September 30, 2020 , essentially all of our global facilities are
operating with only intermittent interruptions and we are not currently
experiencing any significant issues with respect to our distribution operations
and supply chains. We remain focused on the health and well-being of our
associates and have undertaken numerous actions within our offices and
manufacturing sites that are intended to minimize the spread of COVID-19,
including implementing work from home policies, establishing social distancing
protocols for associates while at work and providing associates with access to
numerous collaboration and productivity tools to facilitate communication in
lieu of travel and face-to-face meetings.
During the three and six months ended September 30, 2020 , we experienced a
reduction in market demand in our Process & Motion Control platform and several
businesses within our Water Management platform as customers reacted to the
COVID-19 pandemic. However, we did experience increased demand for our touchless
and hygienic solutions products in our Water Management platform.
In order to reduce our cash outflows during this period of uncertainty and economic volatility, we have implemented and actioned furloughs of certain personnel, workforce reductions and reductions of non-essential spending. Our objective with
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respect to these actions is to attempt to control the downside risk to our
financial results, while ensuring that we maintain the capacity and flexibility
to fully participate in the expected 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, and those that may be taken in the future, by the governments of
countries affected, actions taken to protect employees, actions taken to
shutdown or temporarily discontinue operations in certain locations, changes in
customer buying patterns and the impact of the pandemic on various business
activities in affected countries and the economy generally, it could continue to
adversely affect our financial condition, results of operations and cash flows.
Acquisitions
On January 28, 2020 , we acquired substantially all of the assets of Just
Manufacturing Company ("Just Manufacturing") for a cash purchase price of
$59.4 million , excluding transaction costs and net of cash acquired. Just
Manufacturing, based in Franklin Park, Illinois , manufactures stainless steel
sinks and plumbing fixtures primarily used in institutional and commercial end
markets and complements our existing Water Management platform.
On May 10, 2019 , we acquired substantially all of the assets of East Creek
Corporation (d/b/a StainlessDrains.com), a manufacturer of stainless steel
drains, grates and accessories for industrial and commercial end markets, for a
cash purchase price of $24.8 million , excluding transaction costs and net of
cash acquired. StainlessDrains.com, headquartered in Greenville, Texas , added
complementary product lines to our existing Water Management platform.
Discontinued Operations
During the fiscal year ended March 31, 2019 , we completed the sale of our VAG
business, which was previously included within our Water Management platform. As
a result, the operating results of the VAG business are reported as discontinued
operations in the consolidated statements of operations, as the sale of VAG
represented a strategic shift that had a major impact on our operations and
financial results. The sale price was subject to customary working capital and
cash balance adjustments, which were finalized during the three months ended
June 30, 2019 . 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 the six months ended September 30, 2019 .
Restructuring
During the three and six months ended September 30, 2020 , we continued to
execute various restructuring initiatives focused on driving efficiencies,
reducing operating costs by modifying our footprint to reflect changes in the
markets we serve and 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. We expect to
continue executing similar initiatives to optimize our operating margin and
manufacturing footprint. As we continue to evaluate the impact of the ongoing
COVID-19 pandemic and the resulting effects on the global economy, we may also
execute additional restructuring actions. As such, we expect further expenses
related to workforce reductions, lease termination costs, and other facility
rationalization costs on our overall manufacturing capacity, and refining our
overall product portfolio. For the three and six months ended September 30,
2020 , restructuring charges totaled $6.6 million and $8.3 million , respectively.
For the three and six months ended September 30, 2019 , restructuring charges
totaled $2.1 million and $5.3 million , respectively. Refer to Item 1, Note 3,
Restructuring and Other Similar Charges for further information.
Results of Operations
Three Months Ended September 30, 2020 compared with the Three Months Ended
September 30, 2019 :
Net sales
(Dollars in Millions)
Three Months Ended
September 30, 2020 September 30, 2019 Change % Change
Process & Motion Control $ 293.9 $ 337.0 $ (43.1) (12.8) %
Water Management 199.7 184.3 15.4 8.4 %
Consolidated $ 493.6 $ 521.3 $ (27.7) (5.3) %
Process & Motion Control
Process & Motion Control net sales were$293.9 million and$337.0 million during the three months endedSeptember 30, 2020 and 2019, respectively. Net sales and core sales decreased 13% year over year as a result of a reduction in market 39
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Table of Contents demand across the majority of our end markets and geographies as customers reacted to and changed buying patterns given the current COVID-19 pandemic. Water Management
Water Management net sales were$199.7 million during the three months endedSeptember 30, 2020 , an increase of 8% year over year. Excluding a 3% year-over-year increase in net sales resulting from our acquisition of Just Manufacturing, core sales increased 5% during the three months endedSeptember 30, 2020 primarily driven by increased demand for our touchless and hygienic solutions in response to the COVID-19 pandemic. Income from operations (Dollars in Millions) Three Months Ended September 30, 2020 September 30, 2019 Change % Change Process & Motion Control $ 35.8 $ 58.3$ (22.5) (38.6) % % of net sales 12.2 % 17.3 % (5.1) % Water Management 48.7 43.7 5.0 11.4 % % of net sales 24.4 % 23.7 % 0.7 % Corporate (12.1) (13.5) 1.4 10.4 % Consolidated $ 72.4 $ 88.5$ (16.1) (18.2) % % of net sales 14.7 % 17.0 % (2.3) % Process & Motion Control Process & Motion Control income from operations during the three months endedSeptember 30, 2020 was$35.8 million , or 12.2% of net sales. Income from operations as a percentage of net sales decreased by 510 basis points year over year primarily as a result of the lower sales volume, higher restructuring and non-cash stock compensation expense, partially offset by benefits obtained from cost reduction and productivity initiatives. Water Management Water Management income from operations was$48.7 million during the three months endedSeptember 30, 2020 , or 24.4% of net sales. Income from operations as a percentage of net sales increased by 70 basis points year over year as a result of the incremental profit generated on higher sales year over year and the benefits obtained from our cost reduction and productivity initiatives. Corporate Corporate expenses were$12.1 million and$13.5 million during the three months endedSeptember 30, 2020 and 2019, respectively. The decrease in corporate expenses during the three months endedSeptember 30, 2020 , is primarily the result of savings from cost reduction initiatives, including those related to COVID-19, as discussed above. Interest expense, net Interest expense, net was$11.5 million during the three months endedSeptember 30, 2020 , compared to$15.3 million during the three months endedSeptember 30, 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 during the three months endedDecember 31, 2019 . See Item 1, Note 13 Long-Term Debt for more information. Other income (expense), net Other income (expense), net during the three months endedSeptember 30, 2020 and 2019 was$0.6 million and$(0.3) million , respectively. Other income (expense), net consists primarily of foreign currency transaction gains and losses and the non-service cost components associated with our defined benefit plans. The year-over-year change is primarily driven by changes in foreign currency rates. Provision for income taxes The income tax provision was$16.1 million during the three months endedSeptember 30, 2020 , compared to$19.5 million in the three months endedSeptember 30, 2019 . The effective income tax rate for the three months endedSeptember 30, 2020 was 26.2% versus 25.6% in the three months endedSeptember 30, 2019 . The effective income tax rate for the three months endedSeptember 30, 2020 was above theU.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above theU.S. federal statutory rate, the accrual of additional income taxes associated with global intangible low-taxed income ("GILTI") and compensation deduction limitations under Section 162(m) of the Internal 40 -------------------------------------------------------------------------------- Table of Contents Revenue Code, and the accrual of various state income taxes, partially offset by the recognition of income tax benefits associated with foreign-derived intangible income ("FDII"). The effective income tax rate for the three months endedSeptember 30, 2019 was above theU.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above theU.S. federal statutory rate, the accrual of additional income taxes associated with GILTI and the accrual of various state income taxes, partially offset by the recognition of certain previously unrecognized tax benefits due to the lapse of the applicable statutes of limitations and the recognition of income tax benefits associated with FDII. On a quarterly basis, we review and analyze our valuation allowances associated with deferred tax assets relating to certain foreign and state net operating loss carryforwards as well asU.S. federal and state capital loss carryforwards. In conjunction with this analysis, we weigh both positive and negative evidence for purposes of determining the proper balances of such valuation allowances. Future changes to the balances of these valuation allowances, as a result of our continued review and analysis, could result in a material impact to the financial statements for such period of change.
Net income from continuing operations
Net income from continuing operations during the three months endedSeptember 30, 2020 and 2019, was$45.4 million and$56.7 million , respectively, as a result of the factors described above. Diluted net income per share from continuing operations was$0.37 during the three months endedSeptember 30, 2020 , as compared to diluted net income per share from continuing operations of$0.46 during the three months endedSeptember 30, 2019 . Net income attributable to Rexnord common stockholders Net income attributable to Rexnord common stockholders during the three months endedSeptember 30, 2020 , was$45.4 million compared to$50.8 million during the three months endedSeptember 30, 2019 . Diluted net income per share attributable to Rexnord common stockholders for the three months endedSeptember 30, 2020 andSeptember 30, 2019 , was$0.37 and$0.46 , respectively, as a result of the factors described above. Net income attributable to Rexnord common stockholders for the three months endedSeptember 30, 2019 , reflects the effects of the payment of$5.8 million of dividends on shares of cumulative preferred stock (the preferred stock was converted into common stock onNovember 15, 2019 , and is no longer outstanding). Six Months EndedSeptember 30, 2020 compared with the Six Months EndedSeptember 30, 2019 : Net sales (Dollars in Millions) Six Months Ended September 30, 2020 September 30, 2019 Change % Change Process & Motion Control $ 568.3 $ 667.1$ (98.8) (14.8) % Water Management 374.4 362.5 11.9 3.3 % Consolidated $ 942.7 $ 1,029.6$ (86.9) (8.4) % Process & Motion Control Process & Motion Control net sales were$568.3 million and$667.1 million during the six months endedSeptember 30, 2020 and 2019, respectively. Excluding a 1% unfavorable impact from foreign currency translation, core sales decreased 14% year over year as a result of a reduction in market demand across the majority of our end markets and geographies as customers reacted to and changed buying patterns given the current COVID-19 pandemic. Water Management Water Management net sales were$374.4 million during the six months endedSeptember 30, 2020 , an increase of 3% year over year. Excluding a 3% year-over-year increase in net sales resulting from our acquisitions of Stainlessdrains.com and Just Manufacturing, core sales were flat during the six months endedSeptember 30, 2020 compared to the six months endedSeptember 30, 2019 as increased demand for our touchless and hygienic solutions was offset by reduced overall market demand resulting from the current COVID-19 pandemic. 41 --------------------------------------------------------------------------------
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Income from operations
(Dollars in Millions)
Six Months Ended
September 30, 2020 September 30, 2019 Change % Change
Process & Motion Control $ 75.4 $ 113.4 $ (38.0) (33.5) %
% of net sales 13.3 % 17.0 % (3.7) %
Water Management 88.8 83.7 5.1 6.1 %
% of net sales 23.7 % 23.1 % 0.6 %
Corporate (25.8) (28.4) 2.6 9.2 %
Consolidated $ 138.4 $ 168.7 $ (30.3) (18.0) %
% of net sales 14.7 % 16.4 % (1.7) %
Process & Motion Control
Process & Motion Control income from operations during the six months ended
September 30, 2020 was $75.4 million , or 13.3% of net sales. Income from
operations as a percentage of net sales decreased by 370 basis points year over
year primarily as a result of the lower sales volume and higher year-over-year
restructuring and non-cash stock option expense, partially offset by our cost
reduction and productivity initiatives, including those related to COVID-19 as
discussed above.
Water Management
Water Management income from operations was $88.8 million during the six
months ended September 30, 2020 , or 23.7% of net sales. Income from operations
as a percentage of net sales increased by 60 basis points year over year as a
result of the incremental profit generated on higher sales year over year and
benefits obtained from our cost reduction and productivity initiatives,
partially offset by higher year-over-year depreciation, amortization,
restructuring expenses and stock option expense.
Corporate
Corporate expenses were $25.8 million and $28.4 million during the six months
ended September 30, 2020 and 2019, respectively. The decrease in corporate
expenses during the six months ended September 30, 2020 , is primarily the result
of savings from cost reduction initiatives, including those related to COVID-19,
as discussed above.
Interest expense, net
Interest expense, net was $24.9 million during the six months ended
September 30, 2020 , compared to $30.8 million during the six months ended
September 30, 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 during the three months
ended December 31, 2019 . See Item 1, Note 13 Long-Term Debt for more
information.
Other income (expense), net
Other income (expense), net during the six months ended September 30, 2020 and
2019 was $1.0 million and $(1.8) million , respectively. Other income (expense),
net consists primarily of foreign currency transaction gains and losses and the
non-service cost components associated with our defined benefit plans. The
year-over-year change is primarily driven by the recognition of actuarial losses
in connection with the termination of a domestic defined benefit plan during the
six months ended September 30, 2019 and changes in foreign currency exchange
rates.
Provision for income taxes
The income tax provision was $33.3 million during the six months ended
September 30, 2020 , compared to $34.3 million in the six months ended
September 30, 2019 . The effective income tax rate for the six months ended
September 30, 2020 was 29.1% versus 24.6% in the six months ended September 30,
2019 . The effective income tax rate for the six months ended September 30, 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 GILTI and compensation
deduction limitations under Section 162(m) of the Internal Revenue Code, the
accrual of withholding taxes associated with foreign dividends, and the accrual
of various state income taxes, partially offset by the recognition of certain
previously unrecognized tax benefits due to the lapse of the applicable statutes
of limitations and the recognition of income tax benefits associated with
share-based payments and FDII. The effective income tax rate for the six months
ended September 30, 2019 was above the U.S. federal statutory rate of 21%
primarily due to the accrual of foreign income taxes, which are generally
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above the U.S. federal statutory rate, the accrual of additional income taxes
associated with GILTI and the accrual of various state income taxes partially
offset by the recognition of certain previously unrecognized tax benefits due to
the lapse of the applicable statutes of limitations and the recognition of
income tax benefits associated with share-based payments and FDII.
Net income from continuing operations
Net income from continuing operations during the six months endedSeptember 30, 2020 and 2019, was$81.2 million and$105.2 million , respectively, as a result of the factors described above. Diluted net income per share from continuing operations was$0.66 during the six months endedSeptember 30, 2020 , as compared to diluted net income per share from continuing operations of$0.85 during the six months endedSeptember 30, 2019 . Net income attributable to Rexnord common stockholders Net income attributable to Rexnord common stockholders during the six months endedSeptember 30, 2020 , was$81.0 million compared to$91.5 million during the six months endedSeptember 30, 2019 . Diluted net income per share attributable to Rexnord common stockholders for the six months endedSeptember 30, 2020 andSeptember 30, 2019 , was$0.66 and$0.83 , respectively, as a result of the factors described above. Net income attributable to Rexnord common stockholders for the six months endedSeptember 30, 2019 , reflects the effects of the payment of$11.6 million of dividends on shares of cumulative preferred stock (the preferred stock was converted into common stock onNovember 15, 2019 , and is no longer outstanding). 43 -------------------------------------------------------------------------------- Table of Contents Non-GAAP Financial Measures
Non-GAAP financial measures are intended to supplement and not replace financial measures prepared in accordance with GAAP. Core sales
Core sales excludes the impact of acquisitions (such as the StainlessDrains.com and Just Manufacturing acquisitions), divestitures 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. We exclude the effect of acquisitions and divestitures because the nature, size and number of acquisitions and divestitures can vary dramatically from period to period and between us and our peers, and can also obscure underlying business trends and make comparisons of long-term performance difficult. We exclude the effect of foreign currency translation from this measure because the volatility of currency translation is not under management's control. EBITDA EBITDA represents earnings from continuing operations before interest and other debt related activities, taxes, depreciation and amortization. EBITDA is presented because it is an important supplemental measure of performance and it is frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA is also presented and compared by analysts and investors in evaluating our ability to meet debt service obligations. Other companies in our industry may calculate EBITDA differently. EBITDA is not a measurement of financial performance underU.S. GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of operating performance or any other measures of performance derived in accordance withU.S. GAAP. Because EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business. Adjusted EBITDA 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 attributable to Rexnord common stockholders in the six months endedSeptember 30, 2020 , of$81.0 million and Adjusted EBITDA for the same period of$211.6 million . See "Covenant Compliance" for a reconciliation of Adjusted EBITDA to net income attributable to Rexnord common stockholders. Covenant Compliance Our credit agreement, which governs our senior secured credit facilities, contains, among other provisions, restrictive covenants regarding indebtedness, payments and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and the maintenance of certain financial ratios. Payment of borrowings under the credit agreement may be accelerated if there is an event of default. 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. AtSeptember 30, 2020 , our net leverage ratio was 2.2 to 1.0. 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. 44
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"Adjusted EBITDA" is the term we use to describe EBITDA as defined and adjusted in our credit agreement, which is net income, adjusted for the items summarized in the table below. Adjusted EBITDA is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding non-operational, non-cash or non-recurring losses or gains. In view of our debt level, it is also provided to aid investors in understanding our compliance with our debt covenants. Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted EBITDA varies from others in our industry. This measure should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA does not reflect: (a) our capital expenditures, future requirements for capital expenditures or contractual commitments; (b) changes in, or cash requirements for, our working capital needs; (c) the significant interest expenses, or the cash requirements necessary to service interest or principal payments, on our debt; (d) tax payments that represent a reduction in cash available to us; (e) any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; or (f) the impact of earnings or charges resulting from matters that we and the lenders under our credit agreement may not consider indicative of our ongoing operations. In particular, our definition of Adjusted EBITDA allows us to add back certain non-cash, non-operating or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these expenses can represent the reduction of cash that could be used for other corporate purposes. 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
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Set forth below is a reconciliation of net income attributable to Rexnord common stockholders to Adjusted EBITDA for the periods indicated below.
Six months ended Fiscal year ended Six months ended Twelve months ended (in millions)
September 30, 2019 March 31, 2020 September 30, 2020 September 30, 2020
Net income attributable to Rexnord
common stockholders $ 91.5 $ 165.7 $ 81.0 $ 155.2 Dividends on preferred stock
11.6 14.4 - 2.8
Non-controlling interest income 0.3 0.3 0.2 0.2
Loss from discontinued operations, net
of tax (1) 1.8 1.8 - -
Equity method investment income (0.2) - - 0.2
Income tax provision 34.3 54.1 33.3 53.1
Actuarial loss on pension and
postretirement benefit obligations 0.8 36.6 - 35.8
Other expense (income), net (2) 1.0 3.8 (1.0) 1.8
Gain on the extinguishment of debt (3.2) (1.0) - 2.2
Interest expense, net 30.8 58.6 24.9 52.7
Depreciation and amortization 42.7 86.6 44.0 87.9
EBITDA $ 211.4 $ 420.9 $ 182.4 $ 391.9
Adjustments to EBITDA:
Restructuring and other similar charges
(3) 5.3 15.5 8.3 18.5
Stock-based compensation expense 12.8 26.9 20.7 34.8
Last-in first-out inventory adjustments
(4) (0.7) (4.1) (0.5) (3.9)
Acquisition-related fair value
adjustment 0.7 1.7 0.9 1.9
Other, net (5) (0.3) (0.7) (0.2) (0.6)
Subtotal of adjustments to EBITDA $ 17.8 $
39.3 $ 29.2 $ 50.7
Adjusted EBITDA $ 229.2 $ 460.2 $ 211.6 $ 442.6
Pro forma adjustment for acquisitions
(6) $ 1.5
Pro forma Adjusted EBITDA $ 444.1
Consolidated indebtedness (7) $ 956.9
Total net leverage ratio (8) 2.2
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(1)Loss from discontinued operations, net of tax is not included in Adjusted EBITDA in accordance with the terms of our credit agreement. (2)Other expense (income), 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. (3)Restructuring and other similar charges is comprised of costs associated with workforce reductions, lease termination costs and other facility rationalization costs. See Item 1, Note 3, Restructuring and Other Similar Charges for more information. (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 of gains and losses on the disposition of long-lived assets. (6)Represents a pro forma adjustment to include Adjusted EBITDA related to the acquisition of Just Manufacturing, which was permitted by our credit agreement. The pro forma adjustment includes the period fromOctober 1, 2019 , through the date of the Just Manufacturing acquisition. See Item 1, Note 2, Acquisitions and Divestiture 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$238.8 million (as defined by the credit agreement) atSeptember 30, 2020 . (8)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. 46 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Our primary sources of liquidity are available cash and cash equivalents, cash flow from operations, borrowing availability of up to$264.0 million under our revolving credit facility and availability of up to$100.0 million under our accounts receivable securitization program. As ofSeptember 30, 2020 , we had$326.6 million of cash and cash equivalents and$355.1 million of additional borrowing capacity ($261.2 million of available borrowings under our revolving credit facility and$93.9 million available under our accounts receivable securitization program). As ofSeptember 30, 2020 , the available borrowings under our credit facility and accounts receivable securitization were reduced by$8.9 million due to outstanding letters of credit. As ofMarch 31, 2020 , we had$573.4 million of cash and cash equivalents and approximately$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). Both our revolving credit facility and accounts receivable securitization program are available to fund our working capital requirements, capital expenditures and for other general corporate purposes. Cash Flows Cash provided by operating activities was$113.8 million and$86.3 million during the six months endedSeptember 30, 2020 and 2019, respectively. Lower trade working capital and the timing of payments on accrued expenses were partially offset by lower net income generated during the six months endedSeptember 30, 2020 . Cash used for investing activities was$7.5 million during the six months endedSeptember 30, 2020 compared to$37.6 million during the six months endedSeptember 30, 2019 . Investing activities during the six months endedSeptember 30, 2020 , primarily included$15.3 million of capital expenditures, partially offset by the receipt of$7.8 million in connection with the sale of certain long-lived assets. Investing activities during the six months endedSeptember 30, 2019 , included$13.2 million of capital expenditures and$25.1 million for the acquisition of substantially all the assets of StainlessDrains.com, partially offset by the receipt of$2.0 million in connection with the sale of certain long-lived assets. Cash used for financing activities was$362.2 million during the six months endedSeptember 30, 2020 , compared to$15.8 million during the six months endedSeptember 30, 2019 . During the six months endedSeptember 30, 2020 , we utilized a net$325.8 million of cash for payments on outstanding debt,$19.2 million for the payment of common stock dividends and$15.0 million to repurchase shares of common stock. The six months endedSeptember 30, 2020 , also includes$7.2 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 awards. During the six months endedSeptember 30, 2019 , we utilized a net$5.4 million of cash for the payment of outstanding debt and$11.6 million for the payment of preferred stock dividends. The six months endedSeptember 30, 2019 , also includes$6.9 million of cash proceeds associated with stock option exercises, partially offset by$5.7 million of cash used for the payment of withholding taxes on employees' share-based awards. Indebtedness
As of
Total Debt at Current Maturities of Long-term
September 30, 2020 Debt Portion
Term loan (1) $ 621.3 $ - $ 621.3
4.875% Senior Notes due 2025 (2) 496.1 - 496.1
Finance leases and other subsidiary
debt 78.4 3.2 75.2
Total $ 1,195.8 $ 3.2 $ 1,192.6 ___________________________________________
(1)Includes unamortized debt issuance costs of$3.7 million atSeptember 30, 2020 . (2)Includes unamortized debt issuance costs of$3.9 million atSeptember 30, 2020 . 47
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