| Significant Accounting Policies | 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. 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. 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): Year Ended March 31, 2020 Year Ended March 31, 2019 Year Ended March 31, 2018 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 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. The following table presents the basis for income per share computations (in millions, except share amounts, which are in thousands): Years Ended March 31, 2020 March 31, 2019 March 31, 2018 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 Net income from continuing operations attributable to Rexnord common stockholders $ 167.5 $ 165.8 $ 183.3 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: Weighted-average common shares outstanding, basic 111,689 104,640 103,889 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) — — — Net income from continuing operations attributable to Rexnord common stockholders $ 181.9 $ 189.0 $ 206.5 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: Weighted-average common shares outstanding, basic 111,689 104,640 103,889 Effect of dilutive equity awards 2,576 2,710 2,110 Preferred stock under the "if-converted" method (2) 9,998 15,979 15,985 Weighted-average common shares outstanding, diluted 124,263 123,329 121,984 ____________________ (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. 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): Interest Rate Derivatives Foreign Currency Translation Pension and Postretirement Plans Total Balance at March 31, 2017 $ (9.5) $ (99.3) $ (28.2) $ (137.0) Other comprehensive income before reclassifications — 57.1 1.4 58.5 Amounts reclassified from accumulated other comprehensive income (loss) 5.8 — (1.4) 4.4 Net current period other comprehensive income 5.8 57.1 — 62.9 Balance at March 31, 2018 $ (3.7) $ (42.2) $ (28.2) $ (74.1) Other comprehensive loss before reclassifications — (39.4) (8.5) (47.9) Amounts reclassified from accumulated other comprehensive income (loss) 4.5 21.5 (0.6) 25.4 Net current period other comprehensive income (loss) 4.5 (17.9) (9.1) (22.5) Balance at March 31, 2019 $ 0.8 $ (60.1) $ (37.3) $ (96.6) Other comprehensive loss before reclassifications $ — $ (24.5) $ (3.6) (28.1) Amounts reclassified from accumulated other comprehensive income (loss) — — 0.3 0.3 Net current period other comprehensive loss — (24.5) (3.3) (27.8) Balance at March 31, 2020 $ 0.8 $ (84.6) $ (40.6) $ (124.4) 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): Pension and postretirement plans Year Ending March 31, 2020 Year Ending March 31, 2019 Year Ending March 31, 2018 Income Statement Line Item Amortization of prior service credit $ (0.3) $ (1.5) $ (1.9) Other (expense) income, net Lump sum settlement 0.8 0.6 — Actuarial (loss) gain on pension and postretirement benefit obligations Curtailment — — (0.3) Actuarial (loss) gain on pension and postretirement benefit obligations Provision for income taxes (0.2) 0.3 0.8 Total, net of income taxes $ 0.3 $ (0.6) $ (1.4) Interest rate derivatives Net realized losses on interest rate derivatives $ — $ 5.7 $ 9.7 Interest expense, net Benefit for income taxes — (1.2) (3.9) Total, net of income taxes $ — $ 4.5 $ 5.8 Foreign Currency Translation Reclassification on sale of business $ — $ 19.7 $ — Loss from discontinued operations, net of tax Reclassification on acquisition of equity method investment — 1.8 — Other (expense) income, net 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 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): Year Ended March 31, 2020 Year Ended March 31, 2019 Year Ended March 31, 2018 Research and development costs $ 16.2 $ 16.3 $ 13.3 Engineering costs 24.3 25.4 22.5 Total $ 40.5 $ 41.7 $ 35.8 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. 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. |
