Rexnord LLC Reports Second Quarter Results for Fiscal 2010

http://www.businesswire.com/news/home/20091106005147/en

Call scheduled for Friday, November 6, 2009 at 10:00 a.m. Eastern Time
MILWAUKEE--(Business Wire)--
Rexnord LLC today announced second quarter fiscal 2010 results.

Second Quarter Highlights

* Second quarter sales were $370 million, a decline of $141 million, or 28%,
compared with the prior year second quarter; second quarter consolidated core
sales contracted by 25% compared to the 2009 second quarter.
* Second quarter income from operations was $38 million, or 10.3% of sales, and
included $0.8 million of restructuring expenses and $5.9 million of pension
expense.
* Second quarter Adjusted EBITDA was $69 million (which included $5.9 million of
pension expense), or 18.6% of sales. This compares to Adjusted EBITDA of $102
million (which included $2.4 million of pension income), or 19.9% of sales, in
the second quarter of fiscal 2009.
* Second quarter free cash flow was $26 million, bringing fiscal year-to-date
free cash flow to $71 million.
* Net debt leverage ratio at September 26, 2009 was 6.4x. Senior secured
leverage ratio was 1.85 to 1.0 at September 26, 2009.
* Total liquidity (cash plus available borrowings) at September 26, 2009 was
$431 million.

Todd Adams, Rexnord`s President and Chief Executive Officer, said, "We are
pleased with our operating performance in the second quarter. Our Adjusted
EBITDA grew by $12.7 million dollars sequentially from our first quarter on
similar sales resulting in an Adjusted EBITDA margin of 18.6%, a 340 basis
improvement from the first quarter. In comparison to last year, excluding the
impact of pensions, our second quarter Adjusted EBITDA margins were 20.2%, an 80
basis point improvement over the prior year, and our free cash flow generation
continues to be very strong as we have generated $71 million dollars of free
cash flow in the first half of fiscal 2010 compared to $23 million dollars in
the first half of last year. While the overall economy remains difficult, the
pieces of our business that we expected to stabilize for the most part have done
so, and we are well positioned to deliver solid results in the second half of
fiscal 2010 and beyond."

Second Quarter Segment Highlights

Power Transmission

Power Transmission sales in the second quarter of fiscal 2010 were $238.4
million, a decrease of $115.2 million, or 32.6%, from the prior year second
quarter. Power Transmission core sales contracted 29.1% and foreign currency
translation reduced sales 3.5% from the prior year second quarter. Sales
declined on a year-over-year basis in all of our Power Transmission end-markets
in the second quarter of fiscal 2010 as our customers reduced their inventory
levels during the quarter.

Power Transmission Adjusted EBITDA in the second quarter was $47.0 million, or
19.7% of sales, and included $3.0 million of pension expense compared to $69.7
million, or 19.7% of sales, which included $0.9 million of pension expense, in
the prior year second quarter. Adjusted EBITDA margins were flat year-over-year
despite the $2.1 million increase in pension expense as cost reduction actions,
lower material prices and productivity gains more than offset the unfavorable
impact of lower sales.

Water Management

Water Management sales in the second quarter of fiscal 2010 were $131.3 million,
a decrease of $25.7 million, or 16.4%, from the prior year second quarter. Water
Management core sales contracted 14.4% in the second quarter and foreign
currency translation reduced sales 2.0% from the prior year quarter. The decline
in second quarter Water Management sales was driven by the expected contraction
in the commercial and residential construction end-markets as well as certain
segments of the infrastructure end-market, which was partially offset by an
increase in year-over-year sales in our water and wastewater end-markets.

Water Management Adjusted EBITDA in the second quarter was $29.2 million, or
22.2% of sales, compared to $31.8 million, or 20.3% of sales, in the fiscal 2009
second quarter. Despite the 16.4% decline in sales, Adjusted EBITDA margins
expanded 190 basis points as cost reduction actions, lower material prices and
productivity gains more than offset the unfavorable impact of lower sales.

EBITDA, Adjusted EBITDA and Free Cash Flow

Rexnord considers EBITDA and Adjusted EBITDA as indicators of operating
performance.

EBITDA represents earnings before interest, 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 the
performance of issuers of "high yield" securities because it is a common measure
of the ability to meet debt service obligations. Other companies in our industry
may calculate EBITDA differently. EBITDA is not a measurement of financial
performance under generally accepted accounting principles ("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 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. See the Condensed Consolidated Statements of Cash Flows included in
the attached financial statements.

Adjusted EBITDA corresponds to "EBITDA" in the Company`s credit agreement.
Adjusted EBITDA is defined in the credit agreement governing our senior secured
credit facilities as net income, adjusted for the items summarized in the table
below entitled "Reconciliation of EBITDA and Adjusted EBITDA." Our credit
agreement requires us to maintain a maximum senior secured bank leverage ratio
(defined in our credit agreement as the ratio of net senior secured bank debt to
Adjusted EBITDA) of no more than 4.25 to 1.0, calculated on a pro forma basis
for the trailing four quarters (as determined under our senior secured credit
facilities). 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 you should
not consider it 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; (f) management fees that may be paid to Apollo; or (g)
the impact of earnings or charges resulting from matters that we and the lenders
under our secured senior credit facilities 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 to dispositions to restructurings and/or exclude one-time
transition expenditures that we anticipate we will need to incur to realize cost
savings before such savings have occurred. For more information regarding the
limitations of using measures such as EBITDA and Adjusted EBITDA as indicators
of our operating performance, please see the risk factor entitled "The
calculation of Adjusted EBITDA pursuant to our senior secured credit facilities
represents our actual historical covenant compliance calculations and permits
certain estimates and assumptions that may differ materially from actual
results" in Exhibit 99.1 to our current report on Form 8-K furnished on October
10, 2008.

We define Free Cash Flow as cash flow from operations less capital expenditures.

About Rexnord

Headquartered in Milwaukee, Wisconsin, we believe we are a leading, global
multi-platform industrial company comprised of two strategic platforms: Power
Transmission and Water Management, with approximately 5,700 employees worldwide.
Our Power Transmission products include gears, couplings, industrial bearings,
flattop chain and modular conveyer belts, special components, industrial chain
and conveying equipment and aerospace bearings and seals. Our Water Management
products include professional grade specification drainage, water control, PEX
piping and commercial brass products. Additional information about the Company
can be found at www.rexnord.com and www.zurn.com.

Conference Call Details

Rexnord will hold a conference call and web presentation on Friday, November 6,
2009 at 10:00 a.m. Eastern Time to discuss its fiscal 2010 second quarter
results and provide a general business update. Rexnord President and CEO Todd
Adams and Executive Vice President and CFO George Moore will co-host the call
and web presentation.

The conference call can be accessed via telephone as follows:

Domestic toll-free #: 877-591-4959
International toll #: 719-325-4746
Access Code: 1249307

The web presentation can be accessed via the following web link:

Meeting URL: https://www119.livemeeting.com/cc/vcc/join
Meeting ID: w1249307
Entry Code: A124930

If you are unable to participate during the live teleconference, a replay of the
conference call will be available from 1:00 p.m. Eastern Time, November 7, 2009
until 1:00 p.m. Eastern Time, November 21, 2009. To access the replay, please
dial 888-203-1112 (domestic) or 719-457-0820 (international) with access code
1249307.

Cautionary Statement on Forward-Looking Statements

Information in this release may involve guidance, expectations, beliefs, plans,
intentions or strategies regarding the future. These forward-looking statements
involve risks and uncertainties. All forward-looking statements included in this
release are based upon information available to Rexnord LLC as of the date of
the release, and Rexnord LLC assumes no obligation to update any such
forward-looking statements. The statements in this release are not guarantees of
future performance and actual results could differ materially from current
expectations. Numerous factors could cause or contribute to such differences.
Please refer to the Company`s annual, quarterly and current reports filed on
Forms 10-K, 10-Q and 8-K from time to time with the Securities and Exchange
Commission for a further discussion of the factors and risks associated with the
business.

RBS Global, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in millions)
(Unaudited)

Second Quarter Ended Six Months Ended
September 26, 2009 September 27, 2008 September 26, 2009 September 27, 2008
Net sales $ 369.7 $ 510.6 $ 737.6 $ 1,006.7
Cost of sales 245.0 347.4 498.3 681.6

Gross profit 124.7 163.2 239.3 325.1
Selling, general and administrative expenses 73.8 81.5 149.8 167.6
Restructuring and other similar charges 0.8 - 3.2 -
Amortization of intangible assets 12.0 12.4 24.1 24.9

Income from operations 38.1 69.3 62.2 132.6
Non-operating expense:
Interest expense, net (46.8 ) (44.7 ) (91.1 ) (89.2 )
Other income (expense), net 8.1 1.0 7.1 (1.2 )

Income (loss) before income taxes (0.6 ) 25.6 (21.8 ) 42.2
(Benefit) provision for income taxes (5.1 ) 11.3 (2.3 ) 18.8

Net income (loss) $ 4.5 $ 14.3 $ (19.5 ) $ 23.4

RBS Global, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions, except share amounts)
(Unaudited)

September 26, 2009 March 31, 2009
Assets
Current assets:
Cash and cash equivalents $ 234.1 $ 277.5
Receivables, net 231.1 258.8
Inventories, net 281.3 327.1
Other current assets 27.6 29.0

Total current assets 774.1 892.4

Property, plant and equipment, net 399.7 413.5
Intangible assets, net 713.0 736.4
Goodwill 1,011.8 1,010.9
Insurance for asbestos claims 90.0 90.0
Other assets 61.8 61.6

Total assets $ 3,050.4 $ 3,204.8

Liabilities and stockholders` equity
Current liabilities:
Current portion of long-term debt $ 7.4 $ 8.1
Trade payables 102.2 134.6
Income taxes payable 5.2 3.7
Deferred income taxes 4.1 10.8
Compensation and benefits 59.4 62.1
Current portion of pension obligations 2.6 2.6
Current portion of postretirement benefit obligations 2.2 2.2
Interest payable 30.3 24.3
Other current liabilities 90.4 95.2

Total current liabilities 303.8 343.6

Long-term debt 2,124.6 2,132.4
Pension obligations 138.4 134.5
Postretirement benefit obligations 23.5 24.8
Deferred income taxes 266.3 263.6
Reserve for asbestos claims 90.0 90.0
Other liabilities 65.5 58.5

Total liabilities 3,012.1 3,047.4
Stockholders` equity:
Common stock, $0.01 par value; 3,000 shares authorized and 1,000 shares issued and outstanding 0.1 0.1
Additional paid in capital 561.1 662.6
Retained deficit (393.7 ) (374.2 )
Accumulated other comprehensive loss (129.2 ) (131.1 )

Total stockholders` equity 38.3 157.4

Total liabilities and stockholders` equity $ 3,050.4 $ 3,204.8

RBS Global, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions)
(Unaudited)

Six Months Ended
September 26, 2009 September 27, 2008
Operating activities
Net income (loss) $ (19.5 ) $ 23.4
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation 29.2 30.7
Amortization of intangible assets 24.1 24.9
Amortization of original bond discount 1.0 -
Accretion of original bond premium (0.6 ) (0.5 )
Amortization of deferred financing costs 5.5 5.1
Loss on dispositions of property, plant and equipment 0.2 0.2
Equity in earnings of unconsolidated affiliates (0.3 ) 0.1
Other non-cash charges (credits) (18.1 ) 0.5
Stock-based compensation expense 3.0 3.2
Changes in operating assets and liabilities:
Receivables 35.0 (14.9 )
Inventories 51.9 (3.1 )
Other assets 2.8 (8.5 )
Accounts payable (35.2 ) (5.6 )
Accruals and other 1.1 (9.8 )

Cash provided by operating activities 80.1 45.7

Investing activities
Expenditures for property, plant and equipment (9.3 ) (22.6 )
Proceeds from surrender of life insurance policies - 0.9

Cash used for investing activities (9.3 ) (21.7 )

Financing activities
Repayments of long-term debt (114.6 ) (0.8 )
Payment of financing fees (4.9 ) -

Cash used for financing activities (119.5 ) (0.8 )
Effect of exchange rate changes on cash and cash equivalents 5.3 (0.5 )

(Decrease) increase in cash and cash equivalents (43.4 ) 22.7
Cash and cash equivalents at beginning of period 277.5 141.9

Cash and cash equivalents at end of period $ 234.1 $ 164.6

RBS Global, Inc. and Subsidiaries
Reconciliation of EBITDA and Adjusted EBITDA
Second Quarter
(in millions)
(Unaudited)

Second Quarter Ended
September 26, 2009 September 27, 2008
Net income (loss) $ 4.5 $ 14.3
Interest expense, net 46.8 44.7
Provision (benefit) for income taxes (5.1 ) 11.3
Depreciation and amortization 26.7 28.5

EBITDA 72.9 98.8

Adjustments to EBITDA (1)
Restructuring and other similar costs 0.8 -
Stock-based compensation expense 1.7 1.4
Impact of inventory fair value adjustment - 0.5
LIFO expense 1.3 1.9
Other expense (income), net (8.1 ) (1.0 )

Subtotal of adjustment to EBITDA (4.3 ) 2.8

Adjusted EBITDA $ 68.6 $ 101.6

Notes to Reconciliation of EBITDA and Adjusted EBITDA

(1)Adjustments to EBITDA

We define Adjusted EBITDA as net income (loss) plus interest, income taxes,
depreciation and amortization, adjustments for restructuring, stock-based
compensation expense, other expense (income), LIFO expense and nonrecurring
items, in each case as permitted under our credit agreement. Other expense
(income), net for the quarter ended September 26, 2009, consists of management
fee expense of $0.7 million, loss on the sale of fixed assets of $0.2 million,
foreign currency transaction gains of $9.1 million, income in unconsolidated
affiliates of $0.3 million and other miscellaneous losses of $0.4 million. Other
expense (income), net for the quarter ended September 27, 2008, consists of
management fee expense of $0.7 million, gain on the sale of fixed assets of $0.1
million, foreign currency transaction gains of $1.7 million, income in
unconsolidated affiliates of $0.1 million and other miscellaneous losses of $0.2
million.

RBS Global, Inc. and Subsidiaries
Reconciliation of EBITDA and Adjusted EBITDA
Six Months Ended
(in millions)
(Unaudited)

Six Months Ended
September 26, 2009 September 27, 2008
Net income (loss) $ (19.5 ) $ 23.4
Interest expense, net 91.1 89.2
Provision (benefit) for income taxes (2.3 ) 18.8
Depreciation and amortization 53.3 55.6

EBITDA 122.6 187.0

Adjustments to EBITDA (1)
Restructuring and other similar costs 3.2 -
Stock-based compensation expense 3.0 3.2
Impact of inventory fair value adjustment 0.3 2.1
LIFO expense 2.5 3.8
Other expense (income), net (7.1 ) 1.2

Subtotal of adjustment to EBITDA 1.9 10.3

Adjusted EBITDA $ 124.5 $ 197.3

Notes to Reconciliation of EBITDA and Adjusted EBITDA

(1)Adjustments to EBITDA

We define Adjusted EBITDA as net income (loss) plus interest, income taxes,
depreciation and amortization, adjustments for restructuring, stock-based
compensation expense, other expense (income), LIFO expense and nonrecurring
items, in each case as permitted under our credit agreement. Other expense
(income), net for the six months ended September 26, 2009, consists of
management fee expense of $1.5 million, transaction costs associated with the
debt exchange offer of $6.0 million, foreign currency transaction gains of $14.8
million, loss on the sale of fixed assets of $0.2 million, income in
unconsolidated affiliates of $0.3 million and other miscellaneous losses of $0.3
million. Other expense (income), net for the six months ended September 27,
2008, consists of management fee expense of $1.5 million, loss on disposition of
fixed assets of $0.2 million, foreign currency transaction gains of $0.6 million
and loss in unconsolidated affiliates of $0.1 million.

RBS Global, Inc. and Subsidiaries
Supplemental Data
(in millions)
(Unaudited)

Fiscal 2009
Q1 Q2 Q3 Q4 Total
Net sales
Power Transmission $ 340.6 $ 353.6 $ 315.6 $ 311.9 $ 1,321.7
Water Management 155.5 157.0 127.5 120.3 560.3
Corporate - - - - -

Total $ 496.1 $ 510.6 $ 443.1 $ 432.2 $ 1,882.0

Adjusted EBITDA
Power Transmission $ 67.3 $ 69.7 $ 61.7 $ 68.7 $ 267.4
Water Management 32.8 31.8 20.6 17.0 102.2
Corporate (4.4 ) 0.1 (1.3 ) 1.5 (4.1 )

Total $ 95.7 $ 101.6 $ 81.0 $ 87.2 $ 365.5

Adjusted EBITDA %
Power Transmission 19.8 % 19.7 % 19.6 % 22.0 % 20.2 %
Water Management 21.1 % 20.3 % 16.2 % 14.1 % 18.2 %
Total (including Corporate) 19.3 % 19.9 % 18.3 % 20.2 % 19.4 %

Fiscal 2010
Q1 Q2 Q3 Q4 Total
Net sales
Power Transmission $ 234.4 $ 238.4 $ 472.8
Water Management 133.5 131.3 264.8
Corporate - - -

Total $ 367.9 $ 369.7 $ 737.6

Adjusted EBITDA
Power Transmission $ 37.4 $ 47.0 $ 84.4
Water Management 27.1 29.2 56.3
Corporate (8.6 ) (7.6 ) (16.2 )

Total $ 55.9 $ 68.6 $ 124.5

Adjusted EBITDA %
Power Transmission 16.0 % 19.7 % 17.9 %
Water Management 20.3 % 22.2 % 21.3 %
Total (including Corporate) 15.2 % 18.6 % 16.9 %

Rexnord LLC
George C. Moore
Executive Vice President and
Chief Financial Officer
414.643.3000

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