General
Rexnord is a growth-oriented, multi-platform industrial company with what we believe are leading market shares and highly-trusted brands that serve a diverse array of global end markets. Our heritage of innovation and specification have allowed us to provide highly-engineered, mission-critical solutions to customers for decades and affords us the privilege of having long-term, valued relationships with market leaders. We operate our Company in a disciplined way and the Rexnord Business System ("RBS") is our operating philosophy. Grounded in the spirit of continuous improvement, RBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of our business. The following information should be read in conjunction with the audited consolidated financial statements and notes thereto, along with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2019 . Fiscal Year Our fiscal year ends onMarch 31 . Throughout this MD&A, we refer to the period fromOctober 1, 2019 throughDecember 31, 2019 as the "third quarter of fiscal 2020" or the "third quarter endedDecember 31, 2019 ." Similarly, we refer to the period fromOctober 1, 2018 throughDecember 31, 2018 as the "third quarter of fiscal 2019" or the "third quarter endedDecember 31, 2018 ." Critical Accounting Policies and Estimates The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States ("U.S. GAAP"), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Refer to Item 7, MD&A of our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2019 , for information with respect to our critical accounting policies, which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management. Except for the items reported below, management believes that as ofDecember 31, 2019 and during the period fromApril 1, 2019 throughDecember 31, 2019 , there has been no material change to this information. Recent Accounting Pronouncements See Item 1, Note 1, Basis of Presentation and Significant Accounting Policies regarding recent accounting pronouncements. Acquisitions OnJanuary 28, 2020 , we acquired substantially all of the assets ofJust Manufacturing Company ("Just Manufacturing") for a total preliminary cash purchase price of approximately$60.0 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 inFranklin Park, Illinois , manufactures stainless steel sinks and plumbing fixtures primarily used in institutional and commercial end markets and complements our existing Water Management platform. OnMay 10, 2019 , we acquired substantially all of the assets ofEast Creek Corporation (d/b/a StainlessDrains.com), a manufacturer of stainless steel drains, grates and accessories for industrial and commercial end markets, for a cash purchase price of$24.8 million , excluding transaction costs and net of cash acquired. StainlessDrains.com, headquartered inGreenville, Texas , added complementary product lines to our existing Water Management platform. OnJanuary 23, 2019 , we acquired an additional 47.5% interest in Centa MP (Hong Kong ) Co., Limited ("Centa China"), a joint venture in which we 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 inCenta China , a manufacturer and distributor of premium flexible couplings and drive shafts for industrial, marine, rail and power generation applications within our existing Process & Motion Control platform, provides us with the opportunity to expand our product offerings within ourAsia Pacific end markets. Discontinued Operations During fiscal 2019, we completed the sale of our VAG business, which was previously included within our Water Management platform. As a result, the operating results of the VAG business are reported as discontinued operations in the consolidated statements of operations for all periods presented, as the sale of VAG represented a strategic shift that had a major impact on our operations and financial results. The sale price was subject to customary working capital and cash balance 42 -------------------------------------------------------------------------------- Table of Contents adjustments, which were finalized during the first quarter of 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 the first quarter of fiscal 2020. During the nine months endedDecember 31, 2018 , we recorded non-cash impairment charges of$126.0 million , to reflect the estimated fair value less costs to sell the VAG business based on the value of preliminary bids received at that time. For other elements of the loss from discontinued operations during the three and nine months endedDecember 31, 2019 , refer to Item 1, Note 4, Discontinued Operations for further information. The analysis of our results of operations below focuses on our results from continuing operations. Restructuring During fiscal 2020, we have continued to execute various restructuring initiatives focused on driving efficiencies, reducing operating costs by modifying our footprint to reflect changes in the markets we serve and the impact of acquisitions on our overall manufacturing capacity, and refining our overall product portfolio. We expect these initiatives to continue, which may result in further workforce reductions, lease termination costs, and other facility rationalization costs, including the impairment or accelerated depreciation of assets. At this time, our full repositioning plan is preliminary and related expenses are not yet estimable. For the three and nine months endedDecember 31, 2019 , restructuring charges totaled$3.6 million and$8.9 million , respectively. For the three and nine months endedDecember 31, 2018 , restructuring charges totaled$2.6 million and$9.4 million , respectively. Refer to Item 1, Note 3, Restructuring and Other Similar Charges for further information. Results of Operations Third Quarter EndedDecember 31, 2019 compared with the Third Quarter EndedDecember 31, 2018 : Net sales (Dollars in Millions) Quarter Ended December 31, 2019 December 31, 2018 Change % Change Process & Motion Control $ 327.5 $ 326.7$ 0.8 0.2 % Water Management 164.2 158.3 5.9 3.7 % Consolidated $ 491.7 $ 485.0$ 6.7 1.4 % Process & Motion Control Process & Motion Control net sales were$327.5 million and$326.7 million in the third quarter of fiscal 2020 and fiscal 2019, respectively. Excluding a 1% increase in sales associated with the acquisition ofCenta China and a 1% unfavorable impact from foreign currency translation, core sales were flat year over year as sales growth in our aerospace and consumer-facing end markets was offset by softer demand across several of our industrial process end markets, coupled with the impact of our ongoing product line simplification initiatives. Water Management Water Management net sales were$164.2 million in the third quarter of fiscal 2020, an increase of 4% year over year. Excluding a 1% year over year increase in net sales resulting from our acquisition of Stainlessdrains.com, core sales increased 3% in the third quarter of fiscal 2020 as a result of increased demand across our North American building construction end markets, partially offset by a modest impact of our ongoing product line simplification initiatives. Income from operations (Dollars in Millions) Quarter Ended December 31, 2019 December 31, 2018 Change % Change Process & Motion Control $ 53.6 $ 53.4$ 0.2 0.4 % % of net sales 16.4 % 16.3 % 0.1 % Water Management 37.6 33.1 4.5 13.6 % % of net sales 22.9 % 20.9 % 2.0 % Corporate (13.6) (15.6) 2.0 12.8 % Consolidated $ 77.6 $ 70.9$ 6.7 9.4 % % of net sales 15.8 % 14.6 % 1.2 % 43
-------------------------------------------------------------------------------- Table of Contents Process & Motion Control Process & Motion Control income from operations for the third quarter of fiscal 2020 was$53.6 million , or 16.4% of net sales. Income from operations as a percentage of net sales increased by 10 basis points year over year as higher year over year restructuring costs were more than offset by RBS-led productivity gains and benefits from our completed footprint repositioning actions. Water Management Water Management income from operations was$37.6 million for the third quarter of fiscal 2020, or 22.9% of net sales. Income from operations as a percentage of net sales increased by 200 basis points year over year primarily due to the increase in sales and benefits associated with ongoing cost reduction and productivity initiatives and a reduction in the adjustment to state inventories at last-in-first-out cost. Corporate Corporate expenses were$13.6 million in the third quarter of fiscal 2020 and$15.6 million in the third quarter of fiscal 2019. The decrease in corporate expenses is primarily associated with the recognition of lease facility termination costs during the third quarter of fiscal 2019 in connection with our ongoing footprint optimization actions. Interest expense, net Interest expense, net was$14.4 million in the third quarter of fiscal 2020 compared to$16.8 million in the third quarter of fiscal 2019. The decrease in interest expense as compared to the prior year's period is primarily a result of the impact of lower outstanding borrowings in the third quarter of fiscal 2020 following$75.0 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 our term loan, which was completed during the third quarter of fiscal 2020. See Item 1, Note 13 Long-Term Debt for more information. (Loss) gain on extinguishment of debt During the third quarter of fiscal 2020, we recognized a$2.2 million loss on the extinguishment of debt in connection with both the refinancing of our term loan and a$100 million voluntary prepayment on our term loan. During the third quarter of fiscal 2019, we recognized a$5.0 million gain on the extinguishment of debt in connection with the forgiveness of the net debt associated with the New Market Tax Credit program. See Item 1, Note 13 Long-Term Debt for more information. Other income, net Other income, net for the third quarter of fiscal 2020 was$0.8 million , compared to$1.6 million for the third quarter of fiscal 2019. Other income, net consists primarily of foreign currency transaction gains and losses and the non-service cost components associated with our defined benefit plans. Provision for income taxes The income tax provision was$13.4 million in the third quarter of fiscal 2020, compared to$9.1 million in the third quarter of fiscal 2019. The effective income tax rate for the third quarter of fiscal 2020 was 21.7% versus 15.0% in the third quarter of fiscal 2019. The effective income tax rate for the third quarter of fiscal 2020 was slightly above theU.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above theU.S. federal statutory rate, the accrual of additional income taxes associated with global intangible low-taxed income ("GILTI") and the accrual of various state income taxes, substantially 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, net income tax benefits recognized in association with changes to certain foreign income tax rates and the recognition of income tax benefits associated with foreign-derived intangible income ("FDII"). The effective income tax rate for the third quarter of fiscal 2019 was below theU.S. federal statutory rate of 21% primarily due to the recognition of certain previously unrecognized tax benefits due to the lapse of applicable statutes of limitations partially offset by the accrual of foreign income taxes, which are generally above theU.S. federal statutory rate, the accrual of additional taxes associated with GILTI and the accrual of various state income taxes. On a quarterly basis, we review and analyze our valuation allowances associated with deferred tax assets relating to certain foreign and state net operating loss carryforwards as well asU.S. federal and state capital loss carryforwards. In conjunction with this analysis, we weigh both positive and negative evidence for purposes of determining the proper balances of such valuation allowances. Future changes to the balances of these valuation allowances, as a result of our continued review and analysis, could result in a material impact to the financial statements for such period of change. 44 -------------------------------------------------------------------------------- Table of Contents Net income from continuing operations Net income from continuing operations for the third quarter of fiscal 2020 was$48.4 million , compared to net income from continuing operations of$52.9 million in the third quarter of fiscal 2019, as a result of the factors described above. Diluted net income per share from continuing operations was$0.39 in the third quarter of fiscal 2020, as compared to diluted net income per share from continuing operations of$0.43 in the third quarter of fiscal 2019. Net income attributable to Rexnord common stockholders Net income attributable to Rexnord common stockholders for the third quarter of fiscal 2020 was$45.7 million compared to$19.6 million in the third quarter of fiscal 2019. Diluted net income per share attributable to Rexnord common stockholders for the three months endedDecember 31, 2019 andDecember 31, 2018 was$0.39 and$0.21 , respectively. The year-over-year change is primarily a result of the$27.8 million , or$0.23 per diluted share, loss from discontinued operations, net of tax, in the third quarter of fiscal 2019, and the other factors described above. Nine Months EndedDecember 31, 2019 Compared with the Nine Months EndedDecember 31, 2018 : Net sales (Dollars in Millions) Nine Months Ended December 31, 2019 December 31, 2018 Change % Change Process & Motion Control $ 994.6$ 1,007.8 $ (13.2) (1.3) % Water Management 526.7 505.6 21.1 4.2 % Consolidated$ 1,521.3 $ 1,513.4 $ 7.9 0.5 % Process & Motion Control Process & Motion Control net sales decreased 1% year over year to$994.6 million in the first nine months of fiscal 2020. Excluding a 1% increase in sales from the acquisition ofCenta China and a 2% unfavorable impact from foreign currency translation, core net sales were flat 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$526.7 million in the first nine months of fiscal 2020, a 4% increase year over year. Excluding a 1% increase in net sales associated with our acquisition of Stainlessdrains.com, core net sales increased 3% during the first nine months of fiscal 2020. 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 of our ongoing product line simplification initiatives. Income (loss) from operations (Dollars in Millions) Nine Months Ended December 31, 2019 December 31, 2018 Change % Change Process & Motion Control $ 167.0 $ 159.7$ 7.3 4.6 % % of net sales 16.8 % 15.8 % 1.0 % Water Management 121.3 110.9 10.4 9.4 % % of net sales 23.0 % 21.9 % 1.1 % Corporate (42.0) (46.2) 4.2 9.1 % Consolidated $ 246.3 $ 224.4$ 21.9 9.8 % % of net sales 16.2 % 14.8 % 1.4 % 45
-------------------------------------------------------------------------------- Table of Contents Process & Motion Control Process & Motion Control income from operations for the first nine months of fiscal 2020 was$167.0 million or 16.8% of net sales. Income from operations as a percentage of net sales increased by 100 basis points year over year in the first nine months of fiscal 2020 primarily due to RBS-led productivity gains, benefits from our completed footprint repositioning actions and lower year-over-year acquisition-related fair value adjustments that were partially offset by higher restructuring-related costs recognized in fiscal 2020 in connection with our ongoing footprint repositioning initiatives. Water Management Water Management income from operations was$121.3 million for the first nine months of fiscal 2020, or 23.0% of net sales. Income from operations as a percentage of net sales increased 110 basis points in the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019 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. Corporate Corporate expenses were$42.0 million in the first nine months of fiscal 2020 compared to$46.2 million in the first nine months of 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$45.2 million in the first nine months of fiscal 2020 compared to$54.1 million in the first nine months of fiscal 2019. The decrease in interest expense as compared to the prior year's period is primarily a result of the impact of lower outstanding borrowings in the first nine months of fiscal 2020 following$75.0 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 our term loan, which was completed during the third quarter of fiscal 2020. In addition, the first nine months of fiscal 2019 included the amortization of unrealized losses associated with the interest rate derivatives that matured during fiscal 2019. See Item 1, Note 13 Long-Term Debt for more information. Gain on extinguishment of debt During the first nine months of 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 the first nine months of 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. Other expense (income), net Other expense, net for the first nine months of fiscal 2020 was$1.0 million compared to other income, net of$3.3 million for the first nine months of fiscal 2019. Other (expense) income, net consists primarily of gains and losses from foreign currency transactions, the non-service cost components of net periodic benefit costs associated with our defined benefit plans and actuarial gains and losses incurred in connection with defined benefit plan remeasurements. The year-over-year change is primarily driven by foreign currency transaction losses and the recognition of actuarial losses in connection with the termination of a domestic defined benefit plan during the first nine months of fiscal 2020. Provision for income taxes The income tax provision recorded in the first nine months of fiscal 2020 was$47.7 million , compared to$40.8 million recorded in the first nine months of fiscal 2019. The effective income tax rate for the first nine months of fiscal 2020 was 23.7% versus 22.8% in the first nine months of fiscal 2019. The effective income tax rate for the first nine months of fiscal 2020 was above theU.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above theU.S. federal statutory rate, the accrual of additional income taxes associated with 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, net income tax benefits recognized in association with changes to certain foreign income tax rates and FDII. The effective income tax rate for the first nine months of fiscal 2019 was slightly above theU.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above theU.S. federal statutory rate, the accrual of additional 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 excess tax benefits associated with share-based payments and the recognition of a tax benefit associated with a foreign country enacted rate reduction. 46 -------------------------------------------------------------------------------- Table of Contents Net income from continuing operations Net income from continuing operations for the first nine months of fiscal 2020 was$153.6 million , compared to net income from continuing operations of$141.3 million in the first nine months of fiscal 2019, as a result of the factors described above. Diluted net income per share from continuing operations was$1.24 in the first nine months of fiscal 2020, as compared to diluted net income per share from continuing operations of$1.15 in the first nine months of fiscal 2019. Net income (loss) attributable to Rexnord common stockholders Our net income attributable to Rexnord common stockholders for the first nine months of fiscal 2020 was$137.2 million , compared to a net loss attributable to Rexnord common stockholders of$30.3 million for the first nine months of fiscal 2019. Diluted net income per share attributable to Rexnord common stockholders was$1.22 in the first nine months of fiscal 2020, as compared to a diluted net loss per share attributable to Rexnord common stockholders of$0.10 per share in the first nine months of fiscal 2019. The year-over-year change is primarily a result of the$154.3 million , or$1.25 per diluted share, loss from discontinued operations, net of tax, in the first nine months of fiscal 2019, and the other factors described above.
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 Centa China and StainlessDrains.com 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 from continuing operations before interest and other debt related activities, taxes, depreciation and amortization. EBITDA is presented because it is an important supplemental measure of performance and it is frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA is also presented and compared by analysts and investors in evaluating our ability to meet debt service obligations. Other companies in our industry may calculate EBITDA differently. EBITDA is not a measurement of financial performance underU.S. GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of operating performance or any other measures of performance derived in accordance withU.S. GAAP. Because EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business. Adjusted EBITDA Adjusted EBITDA (as described below in "Covenant Compliance") is an important measure because, under our credit agreement, our ability to incur certain types of acquisition debt and certain types of subordinated debt, make certain types of acquisitions or asset exchanges, operate our business and make dividends or other distributions, all of which will impact our financial performance, is impacted by our Adjusted EBITDA, as our lenders measure our performance with a net first lien leverage ratio by comparing our senior secured bank indebtedness to our Adjusted EBITDA (see "Covenant Compliance" for additional discussion of this ratio, including a reconciliation to our net income). We reported net income attributable to Rexnord common stockholders in the nine months endedDecember 31, 2019 of$137.2 million and Adjusted EBITDA for the same period of$336.2 million . See "Covenant Compliance" for a reconciliation of Adjusted EBITDA to net income attributable to Rexnord common stockholders. Covenant Compliance Our credit agreement, which governs our senior secured credit facilities, contains, among other provisions, restrictive covenants regarding indebtedness, payments and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and the maintenance of certain financial ratios. Payment of borrowings under the credit agreement may be accelerated if there is an event of default. Events of default include the failure to pay principal and interest when due, a material breach of a representation or warranty, certain non-payments or defaults under other indebtedness, covenant defaults, events of bankruptcy and a change of control. Certain covenants contained in the credit agreement restrict our ability to take certain 47 -------------------------------------------------------------------------------- Table of Contents 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. AtDecember 31, 2019 , our net leverage ratio was 2.0 to 1.0. Failure to comply with these covenants could limit our long-term growth prospects by hindering our ability to borrow under the revolver, to obtain future debt and/or to make acquisitions. "Adjusted EBITDA" is the term we use to describe EBITDA as defined and adjusted in our credit agreement, which is net income, adjusted for the items summarized in the table below. Adjusted EBITDA is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding non-operational, non-cash or non-recurring losses or gains. In view of our debt level, it is also provided to aid investors in understanding our compliance with our debt covenants. Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted EBITDA varies from others in our industry. This measure should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA does not reflect: (a) our capital expenditures, future requirements for capital expenditures or contractual commitments; (b) changes in, or cash requirements for, our working capital needs; (c) the significant interest expenses, or the cash requirements necessary to service interest or principal payments, on our debt; (d) tax payments that represent a reduction in cash available to us; (e) any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; or (f) the impact of earnings or charges resulting from matters that we and the lenders under our credit agreement may not consider indicative of our ongoing operations. In particular, our definition of Adjusted EBITDA allows us to add back certain non-cash, non-operating or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these expenses can represent the reduction of cash that could be used for other corporate purposes. Further, although not included in the calculation of Adjusted EBITDA below, the measure may at times allow us to add estimated cost savings and operating synergies related to operational changes ranging from acquisitions or dispositions to restructuring, and/or exclude one-time transition expenditures that we anticipate we will need to incur to realize cost savings before such savings have occurred.
The calculation of Adjusted EBITDA under our credit agreement as of
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Set forth below is a reconciliation of net income attributable to Rexnord common stockholders to Adjusted EBITDA for the periods indicated below.
Nine months ended Year ended Nine months ended Twelve months ended (in millions) December 31, 2018 March 31, 2019 December 31, 2019 December 31, 2019 Net (loss) income attributable to Rexnord common stockholders$ (30.3) $ 11.1 $ 137.2 $ 178.6 Dividends on preferred stock 17.4 23.2 14.4 20.2 Non-controlling interest (loss) income (0.1) - 0.2 0.3 Loss from discontinued operations, net of tax 154.3 154.7 1.8 2.2 Equity method investment income (3.5) (3.6) (0.2) (0.3) Income tax provision 40.8 53.4 47.7 60.3 Other (income) expense, net (1) (3.3) 1.2 1.0 5.5 Gain on the extinguishment of debt (5.0) (4.3) (1.0) (0.3) Interest expense, net 54.1 69.9 45.2 61.0 Depreciation and amortization 66.0 87.9 64.3 86.2 EBITDA$ 290.4 $ 393.5 $ 310.6 $ 413.7 Adjustments to EBITDA: Restructuring and other similar charges (2) 9.4 12.1 8.9 11.6 Stock-based compensation expense 17.3 22.6 18.7 24.0 Last-in first-out inventory adjustments (3) 0.8 6.7 (2.2) 3.7 Acquisition-related fair value adjustment 3.5 3.6 0.7 0.8 Other, net (4) 1.5 4.3 (0.5) 2.3 Subtotal of adjustments to EBITDA $ 32.5$ 49.3 $ 25.6 $ 42.4 Adjusted EBITDA$ 322.9 $ 442.8 $ 336.2 $ 456.1 Pro forma adjustment for acquisitions (5) $ 2.2 Pro forma Adjusted EBITDA$ 458.3 Consolidated indebtedness (6)$ 924.0 Total net leverage ratio (7) 2.0
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(1)Other (income) expense, net for the periods indicated, consists primarily of gains and losses from foreign currency transactions, the non-service cost components of net periodic benefit costs associated with our defined benefit plans and other actuarial gains and losses. (2)Restructuring and other similar charges is comprised of costs associated with workforce reductions, impairment of related manufacturing facilities, equipment and intangible assets, lease termination costs, and other facility rationalization costs. See Item 1, Note 3, Restructuring and Other Similar Charges for more information. (3)Last-in first-out (LIFO) inventory adjustments are excluded in calculating Adjusted EBITDA as defined in our credit agreement. (4)Other, net for the periods indicated, consists primarily gains and losses on the disposition of long-lived assets and cash dividends received from our equity method investment. (5)Represents a pro forma adjustment to include Adjusted EBITDA related to the acquisitions ofCenta China and StainlessDrains.com, as permitted by our credit agreement. The pro forma adjustment includes the period fromJanuary 1, 2019 through the dates of the Centa China and StainlessDrains.com acquisitions. See Item 1, Note 2, Acquisitions for more information. (6)Our credit agreement defines our consolidated indebtedness as the sum of all indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of indebtedness for borrowed money and capitalized lease obligations, less unrestricted cash, which was$224.5 million (as defined by the credit agreement) atDecember 31, 2019 . (7)Our credit agreement defines the total net leverage ratio as the ratio of consolidated indebtedness (as described above) to Adjusted EBITDA for the trailing four fiscal quarters. 49 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Our primary sources of liquidity are available cash and cash equivalents, cash flow from operations, borrowing availability of up to$264.0 million under our revolving credit facility and availability of up to$100.0 million under our accounts receivable securitization program. As ofDecember 31, 2019 , we had$277.0 million of cash and cash equivalents and$348.0 million of additional borrowing capacity ($258.9 million of available borrowings under our revolving credit facility and$89.1 million available under our accounts receivable securitization program). As ofDecember 31, 2019 , the available borrowings under our credit facility and accounts receivable securitization were reduced by$12.0 million due to outstanding letters of credit. As ofMarch 31, 2019 , we had$292.5 million of cash and cash equivalents 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). OnJanuary 27, 2020 , our Board of Directors declared an initial quarterly cash dividend on our common stock of$0.08 per-share to be paid onMarch 6, 2020 , to stockholders of record as ofFebruary 21, 2020 . In addition, the Board of Directors approved increasing our existing share repurchase authority to$300.0 million of available capacity under the Repurchase Program. See Note 8, Stockholders' Equity, for additional information about the Repurchase Program. Both our revolving credit facility and accounts receivable securitization program are available to fund our working capital requirements, capital expenditures and for other general corporate purposes. Cash Flows Net cash provided by operating activities was$174.7 million and$145.3 million in the first nine months of fiscal 2020 and 2019, respectively. Incremental profit generated in the first nine months of fiscal 2020 and lower trade working capital were partially offset by the timing of payments on accrued expenses. Cash used for investing activities was$49.0 million in the first nine months of fiscal 2020 compared to$14.7 million in the first nine months of fiscal 2019. Investing activities in the first nine months of fiscal 2020 primarily included$25.5 million of capital expenditures and$25.1 million in connection with acquisitions, partially offset by the receipt of$2.9 million in connection with the sale of certain long-lived assets. Investing activities during the first nine months of fiscal 2019 included$26.5 million of capital expenditures and$2.0 million for an acquisition of assets, partially offset by the receipt of$3.5 million in connection with the sale of certain long-lived assets. Cash used for financing activities was$138.5 million in the first nine months of fiscal 2020 compared to$36.9 million in the first nine months of fiscal 2019. During the first nine months of fiscal 2020, we utilized a net$110.3 million of cash for payments on outstanding debt (including$100.0 million for a voluntary prepayment on our term loan in the third quarter of fiscal 2020),$20.0 million for repurchases of our common stock (see Item 1, Note 8 Stockholders' Equity for additional details) and$17.4 million for the payment of preferred stock dividends. The first nine months of fiscal 2020 also includes$16.8 million of cash proceeds associated with stock option exercises, partially offset by$7.6 million of cash used for the payment of withholding taxes on employees' share-based payment awards. During the first nine months of fiscal 2019, we utilized a net$22.9 million of cash for the payment of outstanding debt and$17.4 million for the payment of preferred stock dividends. The first nine months of fiscal 2019 also includes$6.6 million of cash proceeds associated with stock option exercises, partially offset by$3.2 million of cash used for the payment of withholding taxes on employees' share-based payment awards. Indebtedness
As of
Total Debt at Current Maturities of Long-term December 31, 2019 Debt Portion Term loan (1) $ 620.6 $ -$ 620.6 4.875% Senior Notes due 2025 (2) 495.5 - 495.5 Finance leases and other subsidiary debt 32.5 1.4 31.1 Total$ 1,148.6 $ 1.4$ 1,147.2
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(1)Includes unamortized debt issuance costs of
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