ZWS US Equity☆

ITEM 7. 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. 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.

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. Actual results may differ materially from those contained in any forward-looking statements. 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. This section is organized as follows:

Company Overview. This section provides a general description of our business.

Financial Statement Presentation. This section provides a brief description of certain items and accounting policies that appear in our financial statements and general factors that impact these items.

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.

Overview of Recent Developments. This section provides a description of the recent events impacting the 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.

Non-GAAP Financial Measures. This section provides an explanation of certain financial measures we use that are not in accordance with U.S. generally accepted accounting principles ("GAAP").

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

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.

Tabular Disclosure of Contractual Obligations. This section provides a discussion of our commitments as of March 31, 2020.

Quantitative and Qualitative Disclosures about Market Risk. This section discusses our exposure to potential losses arising from adverse changes in interest rates and foreign exchange rates.

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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.

Refer to Item 1, Business for additional information.

Financial Statement Presentation

The following paragraphs provide a brief description of certain items and accounting policies that appear in our financial statements and general factors that impact these items.

Net Sales. Net sales represent gross sales less deductions taken for sales returns and allowances and incentive rebate programs.

Cost of Sales. Cost of sales includes all costs of manufacturing required to bring a product to a ready for sale condition. 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.

Selling, General and Administrative Expenses. Selling, General and Administrative expenses primarily includes sales and marketing, finance and administration, engineering and technical services and warehousing. Our major cost elements include salary and wages, fringe benefits, insurance, depreciation, advertising, travel and information technology costs.

Critical Accounting Estimates

The methods, estimates and judgments we use in applying our critical accounting policies have a significant impact on the results we report in our consolidated financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. 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.

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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. 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. 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.

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. These estimates are adjusted at the earlier of when the most likely amount of consideration that is expected to be received changes or when the consideration becomes fixed. Accordingly, an increase or decrease to revenue is recognized at that time.

Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost for freight and shipping when control of products has transferred to the customer as a component of cost of sales in the consolidated statements of operations. 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. 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. Generally, advance payment is not required. Allowances for doubtful accounts established are recorded within Selling, General and Administrative expenses within the consolidated statements of operations.

Inventory. Inventories are stated at the lower of cost or market. 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. All remaining inventories are valued using the "first-in, first-out" (FIFO) method.

In some cases we have determined a certain portion of our inventories are excess or obsolete. In those cases we write down the value of those inventories to their net realizable value based upon assumptions about future demand and market conditions. 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.

Purchase accounting and business combinations. Assets acquired and the liabilities assumed as part of a business combination are recognized separately from goodwill at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. We review and consider input from outside specialists, if and when appropriate to develop discount rates, and use estimates and assumptions about the future performance of the business to accurately value assets acquired and liabilities assumed at the acquisition date. We may refine these estimates during the measurement period which may be up to one year from the acquisition date. As a result, during the measurement period, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset recorded to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in our consolidated statements of operations.

Impairment of intangible assets and tangible fixed assets. The carrying value of long-lived assets, including amortizable intangible assets and tangible fixed assets, are evaluated for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment of amortizable intangible assets and tangible fixed assets is generally determined by comparing projected undiscounted cash flows to be generated by the asset, or group of assets, to its carrying value. 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. Actual results could vary from these estimates.

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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). 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.

Retirement benefits. We have significant pension and post-retirement benefit income and expense and assets/liabilities that are developed from actuarial valuations. These valuations include key assumptions regarding discount rates, expected return on plan assets, mortality rates and the current health care cost trend rate. We consider current market conditions in selecting these assumptions. Changes in the related pension and post-retirement benefit income/costs or assets/liabilities may occur in the future due to changes in the assumptions and changes in asset values.

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

The obligation for postretirement benefits other than pension also is actuarially determined and is affected by assumptions including the discount rate and expected future increase in per capita costs of covered postretirement health care benefits. Changes in the discount rate and differences between actual and assumed per capita health care costs may affect the recorded amount of the expense in future periods.

Income taxes. We are subject to income taxes in the United States and numerous foreign jurisdictions. 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”). U.S. 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

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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. For those income tax positions where it is more-likely-than-not, based on technical merits, that a tax benefit will be sustained upon the conclusion of an examination, we have recorded the largest amount of tax benefit having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority, assuming that it has full knowledge of all relevant information. For those tax positions which do not meet the more-likely-than-not threshold regarding the ultimate realization of the related tax benefit, no tax benefit has been recorded in the financial statements. 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.

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. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. As a result of this review, we established a full valuation allowance against U.S. federal and state capital loss carryforwards, as well as certain state tax credit carryforwards, and continue to maintain a partial valuation allowance against certain foreign NOL carryforwards and other related deferred tax assets, as well as certain U.S. 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. See Item 8 Note 17, Income Taxes for additional information.

Commitments and Contingencies. We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. We determine the amount of accruals needed, if any, for each individual issue based on our professional knowledge and experience and discussions with legal counsel. The required accruals may change in the future due to new developments in each matter, the ultimate resolution of each matter or changes in approach, such as change in strategy.

Accruals are recorded on our consolidated balance sheets to reflect our contractual liabilities relating to warranty commitments to our customers. We provide warranty coverage at various lengths and terms to our customers depending on standard offerings and negotiated contractual agreements. We accrue an estimate for warranty expense at the time of sale based on historical warranty return rates and repair costs. 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 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. 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. We used these same considerations when evaluating the recoverability of our receivable for insurance coverage of potential asbestos claims.

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Recent Accounting Pronouncements

See Item 8, Note 2, Significant Accounting Policies regarding recent accounting pronouncements.

Overview of Recent Developments

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.

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

Selling, general and administrative expenses — 35.1 56.5

Restructuring and other similar charges — — 4.7

Amortization of intangible assets — 0.3 1.4

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)

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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.

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

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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 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. 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

Net sales

(Dollars in Millions)

Fiscal Year Ended

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

(Dollars in Millions)

Fiscal Year Ended

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.

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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

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.

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. 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. 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 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.

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. 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.

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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.

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

Net sales

(Dollars in Millions)

Year Ended

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.

Income (loss) from operations

(Dollars in Millions)

Year Ended

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 Management

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

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.

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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. 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 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. 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. 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. 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. 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.

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.

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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 Just Manufacturing, Stainlessdrains.com, Centa and World Dryer acquisitions), divestitures (such as the VAG business) 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 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 under U.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 with U.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 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. See "Covenant Compliance" for a reconciliation of Adjusted EBITDA to GAAP net income.

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 (it was 2.1 to 1.0 at March 31, 2020). 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.

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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 March 31, 2020 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

Other expense, net (2) 3.8

Gain on the extinguishment of debt (1.0)

Interest expense, net 58.6

Depreciation and amortization 86.6

Adjustments to EBITDA:

Restructuring and other similar charges (3) 15.5

Stock-based compensation expense 26.9

LIFO adjustments (4) (4.1)

Acquisition-related fair value adjustment 1.7

Other, net (5) (0.7)

Subtotal of adjustments to EBITDA 39.3

Adjusted EBITDA 460.2

Pro forma adjustment for acquisitions (6) 5.0

Pro forma Adjusted EBITDA 465.2

Consolidated indebtedness (7) $ 984.0

Total net leverage ratio (8) 2.1

____________________

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

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(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.

(3)Restructuring and other similar charges is comprised of costs associated with workforce reductions, lease termination costs, and other facility rationalization costs. See Item 8, Note 5, 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 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. 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.

(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.

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.

Cash Flows

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.

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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.

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Tabular Disclosure of Contractual Obligations

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

Payments Due by Period

(in millions) Total Less than1 Year (7) 1-3 Years 3-5 Years More than5 Years

Revolving credit facility (3) 250.0 — 250.0 — —

Securitization facility borrowings (4) 75.0 75.0 — — —

Pension and post-retirement plans (6) 96.3 9.2 41.6 45.5 See note (6)

_______________________

(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.

(5)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. Contributions and benefit payments beyond fiscal 2025 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; see Item 8, Note 17, Income Taxes for further information.

We may be required to make significant cash outlays related to our unrecognized tax benefits, including interest and penalties. 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. 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. See Item 8, Note 16, Retirement Benefits for more information related to our deferred compensation plan.

Our pension and post-retirement benefit plans are discussed in detail in Item 8, Note 16, Retirement Benefits. The pension plans provide for monthly pension payments to eligible employees upon retirement. Other post-retirement benefits consist of retiree medical plans that cover a portion of employees in the United States that meet certain age and service requirements and other post-retirement benefits for employees at certain foreign locations. See Item 1A, Risk Factors for more information.

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Indebtedness

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

Securitization facility borrowings (4) 74.9 74.9 —

____________________

(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.

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

See Item 8, Note 11, Long-Term Debt for a description of our outstanding indebtedness.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet or non-consolidated special-purpose entities.

Quantitative and Qualitative Disclosures about Market Risk

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. 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. 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. 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. The assets and liabilities of our non-U.S. 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.

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.

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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 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information with respect to the Company's market risk is contained under the caption "Quantitative and Qualitative Disclosures About Market Risk" in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements included in this Form 10-K include the accounts of Rexnord Corporation and subsidiaries (collectively, the "Company").

Index to Financial Statements

Rexnord Corporation and Subsidiaries

Consolidated Financial Statements

As of March 31, 2020 and 2019 and

for the years ended March 31, 2020, 2019, and 2018

Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm 52

Consolidated Balance Sheets 56

Consolidated Statements of Operations 57

Consolidated Statements of Comprehensive Income 58

Consolidated Statements of Stockholders' Equity 59

Consolidated Statements of Cash Flows 60

Notes to Consolidated Financial Statements 61

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Rexnord Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Rexnord Corporation and subsidiaries (the Company) as of March 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 12, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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Valuation of acquired intangible assets

53

Valuation allowances and uncertain tax positions

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2002.

Milwaukee, Wisconsin

May 12, 2020

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Rexnord Corporation

Opinion on Internal Control over Financial Reporting

We have audited Rexnord Corporation and subsidiaries’ internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Rexnord Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated May 12, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Milwaukee, Wisconsin

May 12, 2020

55

Rexnord Corporation and Subsidiaries

Consolidated Balance Sheets

(in Millions, except share amounts)

Assets

Current assets:

Cash and cash equivalents $ 573.4 $ 292.5

Property, plant and equipment, net 378.8 383.0

Liabilities and stockholders' equity

Current liabilities:

Current maturities of debt $ 76.4 $ 1.2

Compensation and benefits 61.8 63.7

Current portion of pension and postretirement benefit obligations 3.2 3.3

Pension and postretirement benefit obligations 189.6 158.0

Stockholders' equity:

Accumulated other comprehensive loss (124.4) (96.6)

Non-controlling interest 2.7 2.4

Total liabilities and stockholders' equity $ 3,627.1 $ 3,259.7

See notes to consolidated financial statements.

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Rexnord Corporation and Subsidiaries

Consolidated Statements of Operations

(in Millions, except share and per share amounts)

Year Ended

Selling, general and administrative expenses 432.8 433.1 393.8

Restructuring and other similar charges 15.5 12.1 14.1

Amortization of intangible assets 35.4 34.0 32.2

Non-operating (expense) income:

Gain (loss) on the extinguishment of debt 1.0 4.3 (11.9)

Other (expense) income, net (3.8) (1.6) 4.4

Income from continuing operations before income taxes 236.3 238.8 187.1

(Provision) benefit for income taxes (54.1) (53.4) 19.5

Equity method investment income — 3.6 —

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

Non-controlling interest income 0.3 — 0.1

Dividends on preferred stock (14.4) (23.2) (23.2)

Net income attributable to Rexnord common stockholders $ 165.7 $ 11.1 $ 52.7

Basic net income (loss) per share attributable to Rexnord common stockholders:

Discontinued operations $ (0.02) $ (1.48) $ (1.26)

Diluted net income (loss) per share attributable to Rexnord common stockholders:

Discontinued operations $ (0.01) $ (1.25) $ (1.07)

Weighted-average number of common shares outstanding (in thousands):

See notes to consolidated financial statements.

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Rexnord Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(in Millions)

Year Ended

Net income attributable to Rexnord $ 180.1 $ 34.3 $ 75.9

Other comprehensive (loss) income:

Foreign currency translation adjustments (24.5) (17.9) 57.1

Other comprehensive (loss) income, net of tax (27.8) (22.5) 62.9

Non-controlling interest income 0.3 — 0.1

See notes to consolidated financial statements.

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Rexnord Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(in Millions)

Net income $ — $ — $ — $ 75.9 $ — $ 0.1 $ 76.0

Foreign currency translation adjustments — — — — 57.1 — 57.1

Stock-based compensation expense — — 20.5 — — — 20.5

Proceeds from exercise of stock options — — 7.2 — — — 7.2

Preferred stock dividends ($57.50 per share) — — (10.8) (12.4) — — (23.2)

Net income $ — $ — $ — $ 34.3 $ — $ — $ 34.3

Foreign currency translation adjustments — — — — (17.9) — (17.9)

Total comprehensive income (loss) — — — 34.3 (22.5) — 11.8

Acquisition of non-controlling interest — — — — — 2.3 2.3

Stock-based compensation expense — — 22.6 — — — 22.6

Proceeds from exercise of stock options — — 7.9 — — — 7.9

Preferred stock dividends ($57.50 per share) — — (11.6) (11.6) — — (23.2)

Foreign currency translation adjustments — — — — (24.5) — (24.5)

Acquisition of non-controlling interest — — (0.3) — — (0.3)

Stock-based compensation expense — — 26.9 — — — 26.9

Proceeds from exercise of stock options — — 36.0 — — — 36.0

Mandatory conversion of preferred stock to common stock (3) 0.2 — (0.2) — — — —

Repurchase of common stock (4) — — — (100.7) — — (100.7)

Common stock dividends ($0.08 per share) — — — (9.8) — — (9.8)

Preferred stock dividends ($35.78 per share) — — — (14.4) — — (14.4)

____________________

(1) On December 7, 2016, the Company issued 8.1 million depository shares, each of which represented a 1/20th interest in a share of 5.75% Series A Mandatory Convertible Preferred Stock (the "Series A Preferred Stock"), for an offering price of $50 per depository share. Shares of Series A Preferred Stock had a par value of $0.01 per share.

(2) During fiscal 2018, represents a 30% non-controlling interest in two Process & Motion Control controlled subsidiaries. During fiscal 2019, represents a 30% non-controlling interest in two Process & Motion Control controlled subsidiaries and a 5% non-controlling interest in another Process & Motion Control joint venture relationship. During the second quarter of fiscal 2020, the Company acquired the remaining 30% non-controlling interest associated with one of the aforementioned Process & Motion Control joint ventures for a cash purchase price of $0.3 million. As a result of this transaction, fiscal 2020 represents a 30% non-controlling interest in the remaining Process & Motion Control controlled subsidiary and a 5% non-controlling interest in another Process & Motion Control joint venture relationship. Refer to Note 3, Acquisitions for further detail.

(3) During the third quarter of fiscal 2020, the Company issued 16.0 million shares of common stock upon the mandatory conversion of the Series A Preferred Stock; see Note 19 Common Stock Purchases and Public Offerings for additional information.

(4) During fiscal 2020, the Company repurchased and canceled 3.6 million shares of common stock at a total cost of $100.7 million at a weighted average price of $27.94 per share. See Note 19 Common Stock Purchases and Public Offerings for additional information.

See notes to consolidated financial statements.

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Rexnord Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in Millions)

Year Ended

Operating activities

Adjustments to reconcile net income to cash provided by operating activities:

Amortization of intangible assets 35.4 34.3 33.6

Amortization of deferred financing costs 2.1 1.5 1.9

Non-cash discontinued operations asset impairment — 126.0 111.2

Non-cash loss on sale of discontinued operations — 22.5 —

Non-cash asset impairment — 0.3 0.8

(Gain) loss on dispositions of property, plant and equipment (0.7) 0.5 0.9

Deferred income taxes (2.8) (27.5) (77.5)

Other non-cash charges 1.6 6.1 2.3

(Gain) loss on extinguishment of debt (1.0) (4.3) 11.9

Stock-based compensation expense 26.9 22.6 20.5

Changes in operating assets and liabilities:

Investing activities

Expenditures for property, plant and equipment (41.4) (44.9) (40.7)

Acquisitions, net of cash acquired (84.5) (23.4) (173.6)

Proceeds from dispositions of long-lived assets 4.1 4.7 5.5

Cash dividend from equity method investment — 1.3 —

Net (payment) proceeds from divestiture of discontinued operations (1.3) 9.0 —

Cash used for investing activities (123.1) (53.3) (208.8)

Financing activities

Payment of debt issuance costs — — (11.0)

Repurchase of common stock (100.7) — —

Payment of common stock dividends (9.8) — —

Payment of preferred stock dividends (17.4) (23.2) (23.2)

Proceeds from exercise of stock options 36.0 7.9 7.2

Proceeds from financing lease obligations — — 5.8

Cash provided by (used for) financing activities 114.9 (116.7) (308.8)

See notes to consolidated financial statements.

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Rexnord Corporation and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2020

1. Basis of Presentation and Description of Business

The consolidated financial statements included herein have been prepared by Rexnord Corporation ("Rexnord" or the "Company"), in accordance with accounting principles generally accepted in the United States ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the consolidated financial statements include all adjustments necessary for a fair presentation of the financial position and the results of operations for the periods presented.

The Company

Rexnord is a growth-oriented, multi-platform industrial company with what it believes to be leading market shares and highly-trusted brands that serve a diverse array of global end markets. The Company's heritage of innovation and specification have allowed it to provide highly-engineered, mission-critical solutions to customers for decades and affords the privilege of having long-term, valued relationships with market leaders. The Company operates in a disciplined way and its Rexnord Business System ("RBS") is the 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 its business. The Company currently operates its business in two platforms — Process & Motion Control and Water Management.

The Process & Motion Control platform designs, manufactures, markets and services a comprehensive range of specified, highly-engineered mechanical components used within complex systems where our customers' reliability requirements and costs of failure or downtime are high. The Process & Motion Control portfolio includes motion control products, shaft management products, aerospace components and related value-added services.

The Water Management platform designs, procures, manufactures and markets products that provide and enhance water quality, safety, flow control and conservation. The Water Management product portfolio includes professional grade water control and safety, water distribution and drainage, finish plumbing and site works products for primarily nonresidential buildings and flow control products for water and wastewater treatment infrastructure markets. During fiscal 2019, the Company sold the net assets of the VAG business included within the Water Management platform. As a result, in accordance with the authoritative guidance, the operating results of the VAG business are reported as discontinued operations in the consolidated statements of operations for all periods presented. See Note 4, Discontinued Operations for additional information.

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the fiscal 2020 presentation.

Revenue Recognition

See Note 6, Revenue Recognition for the Company's policy for recognizing revenue under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606") as well as the various other disclosures required by ASC 606.

Prior to fiscal year 2019, net sales were recorded upon transfer of title and risk of product loss to the customer. Net sales relating to any particular shipment are based upon the amount invoiced for the delivered goods less estimated future rebate payments and sales returns which are based upon historical experience. Revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Other than a standard product warranty, there are no other significant post-shipment obligations.

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Leases

The Company determines if an arrangement is a lease, or contains a lease, at the inception of the arrangement and determines whether it is an operating or financing lease. Operating and financing leases result in the Company recording a right-of-use ("ROU") asset, current lease liability, and long term lease liability on its balance sheet. Lease expense for operating leases and amortization expense for finance leases is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and are instead recognized on a straight-line basis over the lease term.

Stock-Based Compensation

The Company accounts for stock based compensation in accordance with ASC 718, Accounting for Stock Compensation ("ASC 718"). ASC 718 requires compensation costs related to stock-based payment transactions to be recognized in the financial statements. Generally, compensation cost is measured based on the grant-date fair value of the equity instruments issued. Compensation cost is recognized over the requisite service period, generally as the awards vest. See further discussion of the Company’s equity plans in Note 15, Stock-Based Compensation.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.

Receivables

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. Generally, advance payment is not required. Allowances for doubtful accounts established are recorded within Selling, general and administrative expenses within the consolidated statements of operations.

Significant Customers

The Company’s largest customer accounted for less than 10% of consolidated net sales for the years ended March 31, 2020, 2019 and 2018, respectively.

Inventories

Inventories are comprised of material, direct labor and manufacturing overhead, and are stated at the lower of cost or market. Market is determined based on estimated net realizable values. The Company’s total inventories valued using the "last-in, first-out" (LIFO) method was 61% and 62% at March 31, 2020 and 2019, respectively. All remaining inventories are valued using the "first-in, first-out" (FIFO) method.

In some cases, the Company has determined a certain portion of inventories are excess or obsolete. In those cases, the Company writes down the value of those inventories to their net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, adjustments to established inventory reserves 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.

Property, Plant and Equipment

Property, plant and equipment are initially stated at cost. Depreciation is provided using the straight-line method over 10 to 30 years for buildings and improvements, 5 to 10 years for machinery and equipment and 3 to 5 years for computer hardware and software. Where appropriate, the depreciable lives of certain assets may be adjusted to reflect a change in the use of those assets, or depreciation may be accelerated in the case of an eventual asset disposal. The Company recognized accelerated depreciation of $2.5 million, $3.9 million, and $2.3 million during fiscal 2020, 2019, and 2018, respectively. Accelerated depreciation is recorded within Cost of sales in the consolidated statements of operations. Maintenance and repair costs are expensed as incurred.

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Goodwill and Intangible Assets

Intangible assets consist of acquired trademarks and tradenames, customer relationships (including distribution network) and patents. The customer relationships, patents, and certain tradenames are being amortized using the straight-line method over their estimated useful lives of 7 to 20 years, 3 to 15 years and 3 to 15 years, respectively. Where appropriate, the lives of certain intangible assets may be adjusted to reflect a change in the use of those assets, or amortization may be accelerated in the case of a known intangible asset discontinuation. 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. The Company performs its impairment test by comparing the fair value of a reporting unit, utilizing both an income valuation model (discounted cash flow) and market approach (guideline public company comparables), 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.

Impairment of Long-Lived Assets

The carrying value of long-lived assets, including amortizable intangible assets and tangible fixed assets, are evaluated for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment of amortizable intangible assets and tangible fixed assets is generally determined by comparing projected undiscounted cash flows to be generated by the asset, or group of assets, to its carrying value. 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 accordingly. The Company did not recognize any impairment charges during fiscal 2020. During fiscal years 2019 and 2018, the Company recognized impairment charges in the amount of $0.3 million and $0.8 million, respectively. The impairment was determined utilizing Level 3 inputs within the Fair Value hierarchy, and the Company reviewed and considered input from outside specialists, when appropriate. Actual results could vary from these estimates. Refer to Note 13, Fair Value Measurements for additional information.

Product Warranty

The Company offers warranties on the sales of certain of its products and records an accrual for estimated future claims. Such accruals are based upon historical experience and management’s estimate of the level of future claims.The following table presents changes in the Company’s product warranty liability during each of the periods presented (in millions):

Balance at beginning of period $ 7.2 $ 7.7 $ 6.2

Acquired obligations — — 1.4

Charged to operations 1.7 1.9 4.1

Claims settled (2.2) (2.4) (4.0)

Balance at end of period $ 6.7 $ 7.2 $ 7.7

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes (“ASC 740”). Deferred income taxes are provided for future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating losses, tax credits and other applicable carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be actually paid or recovered. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of continuing operations in the period that includes the date of enactment.

The Company regularly reviews its deferred tax assets for recoverability and provides a valuation allowance against its deferred tax assets if, based upon consideration of all positive and negative evidence, the Company determines that it is more-likely-than-not that a portion or all of the deferred tax assets will ultimately not be realized in future tax periods. Such positive and negative evidence would include review of historical earnings and losses, anticipated future earnings, the time period over which the temporary differences and carryforwards are anticipated to reverse and implementation of feasible, prudent tax planning strategies.

The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining the Company’s worldwide provision for income taxes and recording the related deferred tax assets and liabilities. In the ordinary course of the Company’s business, there is inherent uncertainty in quantifying the ultimate tax outcome of all of the numerous transactions and required calculations relating to the Company’s tax positions. Accruals for unrecognized tax benefits are provided for in accordance with the requirements of ASC 740. An unrecognized tax benefit

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represents the difference between the recognition of benefits related to uncertain tax positions for income tax reporting purposes and financial reporting purposes. The Company has established a reserve for interest and penalties, as applicable, for uncertain tax positions and it is recorded as a component of the overall income tax provision.

The Company is subject to periodic income tax examinations by domestic and foreign income tax authorities. Although the outcome of income tax examinations is always uncertain, the Company believes that it has appropriate support for the positions taken on its income tax returns and has adequately provided for potential income tax assessments. Nonetheless, the amounts ultimately settled relating to issues raised by the taxing authorities may differ materially from the amounts accrued for each year.

See Note 17, Income Taxes for additional information.

Per Share Data

Basic net income per share from continuing and discontinued operations attributable to Rexnord common stockholders is computed by dividing net income from continuing operations and loss from discontinued operations attributable to Rexnord common stockholders, respectively, by the corresponding weighted average number of common shares outstanding for the period. Diluted net income (loss) per share from continuing and discontinued operations attributable to Rexnord common stockholders is computed based on the weighted average number of common shares outstanding, increased by the number of incremental shares that would have been outstanding if the potential dilutive shares were issued through the exercise of outstanding stock options to purchase common shares, except when the effect would be anti-dilutive.

Additionally, following the issuance of the Series A Preferred Stock in fiscal 2017, the Company’s diluted net income per share is computed using the "if-converted" method. During the third quarter of fiscal 2020, the Company issued 16.0 million shares of common stock upon the mandatory conversion of the Series A Preferred Stock. The "if-converted" method is utilized only when such calculation is dilutive to earnings per share using the treasury stock method. Under the "if-converted" method, diluted net income per share is calculated under the assumption that the shares of Series A Preferred Stock were converted into shares of the Company’s common stock as of the beginning of the respective period, and therefore no dividends were provided to holders of the Series A Preferred Stock.

The computation for diluted net income per share for the fiscal years ended March 31, 2020, 2019 and 2018 excludes 0.9 million, 1.0 million and 2.6 million shares due to their anti-dilutive effects, respectively.

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The following table presents the basis for income per share computations (in millions, except share amounts, which are in thousands):

Years Ended

Basic net income per share attributable to Rexnord common stockholders

Numerator:

Net income from continuing operations $ 182.2 $ 189.0 $ 206.6

Less: Non-controlling interest income 0.3 — 0.1

Less: Dividends on preferred stock 14.4 23.2 23.2

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

Net income attributable to Rexnord common stockholders $ 165.7 $ 11.1 $ 52.7

Denominator:

Diluted net income per share attributable to Rexnord common stockholders

Numerator:

Net income from continuing operations $ 182.2 $ 189.0 $ 206.6

Less: Non-controlling interest income 0.3 — 0.1

Less: Dividends on preferred stock (1) — — —

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

Net income attributable to Rexnord common stockholders 165.7 11.1 52.7

Plus: Dividends on preferred stock (1) 14.4 23.2 23.2

Net income attributable to Rexnord common stockholders $ 180.1 $ 34.3 $ 75.9

Denominator:

____________________

(1) The "if-converted" method was dilutive for the fiscal years ended March 31, 2020, 2019 and 2018.

(2) During the third quarter of fiscal 2020, the Company issued 16.0 million shares of common stock upon the mandatory conversion of Series A Preferred Stock; see Note 19, Common Stock Purchases and Public Offerings for additional information.

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Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of tax, for the fiscal years ending March 31, 2020, 2019 and 2018 are as follows (in millions):

Other comprehensive income before reclassifications — 57.1 1.4 58.5

Net current period other comprehensive income 5.8 57.1 — 62.9

Other comprehensive loss before reclassifications — (39.4) (8.5) (47.9)

Net current period other comprehensive income (loss) 4.5 (17.9) (9.1) (22.5)

Other comprehensive loss before reclassifications $ — $ (24.5) $ (3.6) (28.1)

Net current period other comprehensive loss — (24.5) (3.3) (27.8)

The following table summarizes the amounts reclassified from accumulated other comprehensive loss to net income during the fiscal years ending March 31, 2020, 2019 and 2018 (in millions):

Provision for income taxes (0.2) 0.3 0.8

Total, net of income taxes $ 0.3 $ (0.6) $ (1.4)

Interest rate derivatives

Benefit for income taxes — (1.2) (3.9)

Total, net of income taxes $ — $ 4.5 $ 5.8

Foreign Currency Translation

Total $ — $ 21.5 $ —

Derivative Financial Instruments

The Company is exposed to certain financial risks relating to fluctuations in foreign currency exchange rates and interest rates. In the past, the Company selectively utilized foreign currency forward contracts and interest rate derivatives to manage its foreign currency and interest rate risks. All hedging transactions are authorized and executed pursuant to defined policies and procedures which prohibit the use of financial instruments for speculative purposes.

For the derivative instruments designated and qualifying as effective hedging instruments under ASC 815, Accounting for Derivative Instruments and Hedging Activities ("ASC 815"), the changes in the fair value of the effective portion of the instrument are recognized in accumulated other comprehensive loss whereas any changes in the fair value of a derivative instrument that is not designated or does not qualify as an effective hedge are recorded in other non-operating expense. See

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Note 12, Derivative Financial Instruments for further information regarding the classification and accounting of such instruments.

Financial Instrument Counterparties

The Company is exposed to credit losses in the event of non-performance by counterparties to its financial instruments. The Company anticipates, however, that counterparties will be able to fully satisfy their obligations under these instruments. The Company places cash and temporary investments and foreign currency and interest rate swap and cap contracts with various high-quality financial institutions. Although the Company does not obtain collateral or other security to support these financial instruments, it does periodically evaluate the credit-worthiness of each of its counterparties.

Foreign Currency Translation

Assets and liabilities of subsidiaries operating outside of the United States with a functional currency other than the U.S. dollar are translated into U.S. dollars using

exchange rates at the end of the respective period. Revenues and expenses of such entities are translated at average exchange rates in effect during the respective period. Foreign currency translation adjustments are included as a component of accumulated other comprehensive loss. The Company periodically enters into foreign currency forward contracts to mitigate foreign currency volatility on certain intercompany and external cash flows expected to occur. See Note 12, Derivative Financial Instruments for additional information. Currency transaction losses are included in other expense (income), net in the consolidated statements of operations and totaled $3.9 million, $1.9 million and $0.2 million for the years ended March 31, 2020, 2019 and 2018, respectively.

Advertising Costs

Advertising costs are charged to selling, general and administrative expenses on the consolidated statements of operations as incurred and amounted to $13.3 million, $11.9 million and $10.7 million for the years ended March 31, 2020, 2019 and 2018, respectively.

Research, Development and Engineering Costs

Research, development and engineering costs are charged to selling, general and administrative expenses on the consolidated statements of operations as incurred and for the years ended March 31, 2020, 2019 and 2018 amounted to the following (in millions):

Research and development costs $ 16.2 $ 16.3 $ 13.3

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and temporary investments, forward currency contracts and trade accounts receivable.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate that is expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The Company did not modify any material contracts due to reference rate reform during fiscal 2020. The Company will continue to evaluate the impact this guidance will have on its consolidated financial statements for all future transactions affected by reference rate reform during the time permitted.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The FASB issued this update as part of its initiative to reduce complexity in accounting standards. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also improve consistent application of other areas by clarifying and amending existing guidance.

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ASU 2019-12 is effective for the Company in fiscal 2022 and early adoption is permitted. Certain amendments of this ASU may be adopted on a retrospective basis, modified retrospective basis or prospective basis. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments - Credit Losses. The ASU revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. The ASU affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In May 2019, the FASB issued ASU No. 2019-05, Targeted Transition Relief, which amends ASC 326. This ASU provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. The Company adopted this ASU on April 1, 2020 using a modified-retrospective approach. There was no significant impact to the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans ("ASU 2018-14"), which updates the standard to remove disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. ASU 2018-14 is effective for the Company in fiscal 2021 on a retroactive basis. This guidance will have no impact on the Company's consolidated financial statements upon adoption other than with respect to the updated disclosure requirements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which modifies the disclosure requirements in ASC 820, Fair Value Measurement ("ASC 820"). The Company adopted this ASU on April 1, 2019. There was no impact to the Company's consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU was issued following the enactment of the U.S. Tax Cuts and Jobs Act of 2017 ("Tax Act") and permits entities to elect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The Company adopted the standard effective April 1, 2019, and did not reclassify tax effects stranded in accumulated other comprehensive loss. As such, there was no impact to the Company’s consolidated financial statements as a result of the adoption of the ASU.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"), which expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The Company adopted this ASU on April 1, 2019. There was no impact to the Company's consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU 2018-11, Leases (Topic 842): Targeted Improvements, which addressed implementation issues related to the new lease standard. These and certain other lease-related ASUs have generally been codified in ASC 842, Leases (“ASC 842”). ASC 842 supersedes the lease accounting requirements in ASC 840, Leases (“ASC 840”). ASC 842 establishes a right-of-use model that requires a lessee to record a right-of-use (“ROU”) asset and a lease liability on the balance sheet for all leases. Under ASC 842, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The standard also requires disclosures around the amount, timing and uncertainty of cash flows arising from leases. The Company adopted ASC 842 effective April 1, 2019, using a modified retrospective approach. Prior period financial statements continue to be presented under ASC 840 based on the accounting standards originally in effect for such periods.

The Company elected certain practical expedients permitted under the transition guidance within ASC 842 to leases that commenced before April 1, 2019, including the package of practical expedients that resulted in the Company not reassessing its prior conclusions under ASC 840 related to lease identification, lease terms, lease classification and initial direct costs for expired and existing leases prior to April 1, 2019, and therefore there was no adjustment to the opening balance of retained earnings. The Company also elected the practical expedient to combine lease and non-lease components for all asset classes, and has made a policy election not to capitalize leases with an initial term of 12 months or less.

Upon adoption, the Company recognized ROU assets and lease liabilities of approximately $70.8 million and $73.0 million, respectively, as of April 1, 2019. Adoption of the new standard did not have a significant impact on the Company’s consolidated results of operations or cash flows. See Note 14, Leases for additional information.

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3. Acquisitions

Fiscal Year 2020

On January 28, 2020, the Company acquired substantially all of the assets of Just Manufacturing Company ("Just Manufacturing") for a total preliminary cash purchase price of $59.4 million, excluding transaction costs and net of cash acquired. The preliminary purchase price is subject to customary post-closing adjustments for variances between estimated asset and liability targets and actual acquisition date net assets 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 the Company's existing Water Management platform.

On May 10, 2019, the Company acquired substantially all of the assets of 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 the Company's existing Water Management platform.

The Company's results of operations include the acquired operations subsequent to the aforementioned acquisitions dates. Pro-forma results of operations and certain other U.S. GAAP disclosures related to these acquisitions have not been presented because they are not significant to the Company's consolidated statements of operations or financial position.

The fiscal 2020 acquisitions have been accounted for as business combinations and were recorded by allocating the purchase price to the fair value of assets acquired and liabilities assumed at the acquisition date. The excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill. The purchase price allocations associated with these acquisitions resulted in tax deductible goodwill of $26.5 million, other intangible assets of $40.9 million (including tradenames of $2.2 million and $38.7 million of customer relationships), $8.4 million of fixed assets, $9.1 million of trade working capital and other net liabilities of $0.7 million.

The purchase price allocations for StainlessDrains.com, which were finalized during the third quarter of fiscal 2020, were adjusted during fiscal 2020, resulting in a reduction of goodwill of $1.2 million, related to the refinement of the estimated fair value of intangible assets acquired. The Company is continuing to evaluate the preliminary purchase price allocations for Just Manufacturing related to the fair values assigned to intangible assets and net working capital acquired, which will be completed within the one year period following its acquisition date.

During fiscal 2020, the Company acquired the remaining non-controlling interest in a Process and Motion Control joint venture for a cash purchase price of $0.3 million. The acquisition of the remaining minority interest was not material to the Company's consolidated statements of operations or financial position.

Fiscal Year 2019

On January 23, 2019, the Company acquired an additional 47.5% interest in Centa China a joint venture in which the Company previously maintained a 47.5% non-controlling interest, for $21.4 million, net of cash held by the former joint venture. The acquisition of the additional interest in Centa China, a manufacturer and distributor of premium flexible couplings and drive shafts for industrial, marine, rail and power generation applications within the Company's Process & Motion Control platform, provides the Company with the opportunity to expand its product offerings within its Asia Pacific end markets. Prior to this transaction, the Company accounted for its non-controlling interest in Centa China as an equity method investment. The acquisition of the additional 47.5% interest was considered to be an acquisition achieved in stages, whereby the Company remeasured the previously held equity method investment to fair value. The Company considered multiple factors in determining the fair value of the previously held equity method investment, including (i) the price negotiated with the selling shareholder for the 47.5% equity interest in Centa China, (ii) an income valuation model (discounted cash flow), and (iii) current trading multiples for comparable companies. Based on this analysis, the Company recognized a $0.2 million gain on the remeasurement of the previously held equity method investment. In addition, in accordance with the authoritative guidance, the Company reclassified the historical foreign currency translation adjustments associated with the equity method investment into the statement of operations, which resulted in the recognition of a $1.8 million loss within other (expense) income, net, on the consolidated statements of operations for fiscal 2019. The final purchase price for this business combination is as follows (in millions):

Fair value of consideration transferred:

Cash paid, net of cash acquired $ 21.4

Book value of investment in Centa China at the acquisition date 21.8

Gain recognized from step acquisition 0.2

Fair value of remaining non-controlling interest 2.3

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The Company allocated the purchase price to the fair value of assets acquired and liabilities assumed at the acquisition date. The excess of the acquisition purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill. The purchase price allocation associated with this acquisition resulted in non-tax deductible goodwill of $20.5 million, other intangible assets of $20.1 million (including tradenames of $1.3 million and $18.8 million of customer relationships), $7.1 million of trade working capital and other net liabilities of $2.0 million. The preliminary purchase price allocations, which were finalized during the fourth quarter of fiscal 2020, were adjusted during fiscal 2020 primarily related to the refinement of the estimated fair value of intangible assets and other working capital acquired.

The Company's results of operations include the acquired operations subsequent to the respective acquisition dates. Pro-forma results of operations and certain other U.S. GAAP disclosures related to the acquisitions during the fiscal year ended March 31, 2019 have not been presented because they are not significant to the Company's consolidated statements of operations or financial position.

On September 24, 2018, the Company acquired certain assets associated with the design and distribution of various roof drains, spouts and flow sensors for institutional, commercial and industrial buildings for $2.0 million. The acquisition of these assets added complementary product lines to the Company's existing Water Management platform and was accounted for as a business combination. This acquisition did not materially affect the Company's consolidated statements of operations or financial position.

Fiscal Year 2018

On February 9, 2018, the Company acquired Centa Power Transmission (Centa Antriebe Kirschey GmbH) ("Centa"), a leading manufacturer of premium flexible couplings and drive shafts for industrial, marine, rail and power generation applications. The purchase price was $129.7 million plus assumed debt. Centa, headquartered in Haan, Germany, added complementary product lines to the Company's existing Process & Motion Control platform.

On October 4, 2017, the Company acquired World Dryer Corporation ("World Dryer") for a cash purchase price of $50.0 million, excluding transaction costs and net of cash acquired. World Dryer is a leading global manufacturer of commercial electric hand dryers. This acquisition added complementary product lines to the Company's existing Water Management platform.

The Company's results of operations include the acquired operations subsequent to the respective acquisition dates. Pro-forma results of operations and certain other U.S. GAAP disclosures related to the acquisitions during the fiscal year ended March 31, 2018, have not been presented because they are not significant to the Company's consolidated statements of operations or financial position.

The fiscal 2018 acquisitions were accounted for as business combinations and recorded by allocating the purchase price to the fair value of assets acquired and liabilities assumed at the acquisition date. The excess of the acquisition purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill. The purchase price allocations, which were finalized during the fourth quarter of fiscal 2019, were adjusted during fiscal 2019 primarily in connection with determining the fair value of fixed assets acquired and acquisition date trade working capital. The purchase price allocation associated with the fiscal 2018 acquisitions resulted in non-tax deductible goodwill of $63.5 million, other intangible assets of $44.9 million (includes tradenames of $9.9 million, $29.4 million of customer relationships and $5.6 million of patents), $37.5 million of trade working capital, $52.7 million of fixed assets, $16.6 million of long-term debt and other net liabilities of $2.3 million.

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4. Discontinued Operations

During fiscal 2019, the Company 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, the Company recognized an additional $1.8 million loss on the sale of discontinued operations for the year ended March 31, 2020.

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

Fiscal Years Ended

Selling, general and administrative expenses — 35.1 56.5

Restructuring and other similar charges — — 4.7

Amortization of intangible assets — 0.3 1.4

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)

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