FOURTH QUARTER FISCAL YEAR 2018 FINANCIAL RESULTS May 15, 2018 - - PowerPoint PPT Presentation

FOURTH QUARTER FISCAL YEAR 2018 FINANCIAL RESULTS

May 15, 2018

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CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT

This presentation and discussion contains certain forward-looking statements that are subject to the Safe Harbor and Cautionary language contained in the press release we issued on May 14, 2018, as well as other factors that could cause actual results to differ materially from those discussed and that are disclosed in our filings with the Securities and Exchange Commission. Some comparisons will refer to certain non-GAAP measures. Our earnings release and SEC filings contain additional information about these non-GAAP measures, why we use them and why we believe they are helpful to investors, and contain reconciliations to GAAP data.

STRATEGIC UPDATE

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Consolidated Rexnord

• 4Q net sales growth increases to +14% year over year, core sales(1) growth to +7%
• FY18 Adjusted EBITDA(1) increases 13% year over year to $390 million
• Next stage of Supply Chain Optimization & Footprint Repositioning under way

Process & Motion Control

• 4Q core sales growth sustained at +6%
• Centa Power Transmission integration on track, contributes 5% to PMC sales growth

Water Management

• 4Q core sales growth increases to +8%
• Plan to divest non-strategic VAG operations from Water Management platform

Cash Flow & Balance Sheet

• Net debt leverage ratio(1) declines to 2.7x
• FY18 free cash flow(1) increases to $188 million

Note: All FY18 and 4QFY18 figures include VAG results. (1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, 2018.

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FOCUS WATER PLATFORM AROUND ZURN

Zurn is a leader in the North American specification-grade plumbing products market

• Significant presence in later-cycle institutional nonresidential building construction

 Education, health care, transportation, public sectors

• FY18 core revenue growth of 4% exceeded estimated market growth
• FY18 Adjusted EBITDA margin expanded by more than 100 bps to 25%
• Product innovator with established new product pipeline

Anticipate reporting VAG as Discontinued Operations in 1QFY19

• Acquired pre-IPO in FY12 under former private-equity ownership
• Engineered valves for water & wastewater infrastructure, industry, hydropower
• Potential proceeds can further reduce financial leverage

400ST n-Pattern Backflow Series EZ1 Floor Drain System F1960 PEX Expansion System Sundara Handwashing System

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SCOFR 2.0

Second phase of Supply Chain Optimization & Footprint Repositioning initiatives

• Investing to reduce fixed costs, enhance productivity, and improve free cash flow

 $20-million total investment includes $11 of capital expenditures  $15-million estimated total annual structural cost reductions

• SCOFR 2.0 projects to be completed in late FY19/early FY20

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AEROSPACE CENTER OF EXCELLENCE

Customer Value Creation

• Foster joint collaboration & innovation
• Eliminate inefficiencies in value chain
• Increase customer operating productivity

Industry 4.0 Operating Model

• Closed-loop digital processes from quotation

and order entry to engineering and manufacturing, inspection, and shipment

• Advanced manufacturing technologies

Shareholder Value Creation

• Optimize new facility on existing site
• Increase asset utilization
• Reduce lead-times, working capital
• Deliver BIC customer satisfaction

Downer’s Grove Site April 2018 Assembly Cell Development Advanced Machine Tools

Rexnord is a leading developer & manufacturer of aerospace bearing & seal products

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ACQUISITION UPDATE

PMC: Centa Power Transmission (February 2018)

• Flexible couplings leader, ~$100 million annual sales
• Expands addressable applications, served markets
• Majority of sales from MRO applications
• Commercial integration process well under way
• RBS identifying opportunities in internal processes
• Margins present substantial value-creation potential

WM: World Dryer (October 2017)

• Largest installed base in North American hand dryer market
• Approximately $20 million of annual sales
• Additive to addressable nonresidential building washroom content
• Commercial integration complete
• Significant reduction in product line complexity
• Margins enable re-investment in new product development

Share

• f Sales

~ 40% ~ 40% 15-20% <5%

source: Company estimates

End Market Marine Power Generation Industrial Transportation Key Applications Passenger Ships, Yachts, Workboats Gensets, Wind Turbines Rail Compressor/Pump Packages, Mobile Equipment

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FINANCIAL UPDATE

Fourth Quarter Fiscal Year 2018(1)

• Adjusted EBITDA(2) of $111 million increased 13% year over year
• Net sales increased 14% year over year
• World Dryer, Centa acquisitions increased sales by 4%
• Foreign currency translation increased sales by 3%
• Core sales(2) increased 7% year over year
• Loss Per Share of ($0.65), including $111-million goodwill impairment charge (VAG)
• Adjusted EPS(2) of $0.42

Fiscal Year 2018(1)

• Adjusted EBITDAof $390 million increased 13% year over year
• Net sales increased 8% year over year
• Core sales increased 5% year over year
• Earnings Per Share of $0.50, including the impairment charge
• Adjusted EPSof $1.39

(1) All results include VAG operations. (2) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, 2018.

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INITIATING FISCAL YEAR 2019 OUTLOOK

Fiscal Year 2019 Outlook

• Outlook excludes VAG
• Core sales growth(1) in mid-single-digit percentage range(2)
• Adjusted EBITDA(1) in $420 - $440 million range(2)
• Free cash flow(1) to exceed net income(2)
• Anticipate reporting VAG results as Discontinued Operations beginning in 1QFY19

 VAG generated revenue of $215 million in FY18

(1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, 2018. (2) Forward-looking information and a non-GAAP measure. Although Rexnord can quantify certain elements, it is not able to quantify all variances from GAAP without unreasonable efforts because certain factors are unknown at this time and out of Rexnord’s control.

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FY19 OUTLOOK(1) ADJUSTED EBITDA(2) BRIDGE

(1) Anticipating VAG results to be reported as Discontinued Operations beginning in the 1Q FY19. (2) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, 2018. (3) The adoption of FASB ASU No. 2017-17 (in fiscal year 2019) requires changes to be applied retrospectively, reducing fiscal year 2018 Adjusted EBITDA by $3 million. (4) Forward-looking information and a non-GAAP measure. Although Rexnord can quantify certain elements, it is not able to quantify all variances from GAAP without unreasonable efforts because certain factors are unknown at this time and out of Rexnord’s control.

• +11-12% growth in
• Adjusted EBITDA at midpoint
• Assumes +MSD% core growth
• Assumes no acquisitions
• Excludes VAG(1)

390 386 430 31

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360 370 380 390 400 410 420 430 440

FY18 Adjusted EBITDA (2) Pension Accounting Change (3) VAG FY18 Base Adj EBITDA (2) Growth & RBS M&A FY19E Adj EBITDA (4) Midpoint

Bridge to midpoint of $420 - $440 million range

(6) (3) (1)

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4Q FY18 SUMMARY

(1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, 2018. (2) Net Sales in 4Q FY17 is adjusted for the RHF product line exit in FY17. All periods include VAG.

4Q FY18 4Q FY17 Change Adjusted Net Sales (1,2) $575 $503 14% Growth from: Core 7% Acquisitions 4% Translation 3% Adjusted EBITDA (1) $111 $98 13% % of Sales 19.3% 19.5% (20 bps)

PROCESS & MOTION CONTROL

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• Net sales growth was 15% year over year
• Core growth was 6% year over year
• Adjusted EBITDA margin increased by 150 bps

(1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, 2018.

4Q FY18 4Q FY17 Change Net Sales $361 $314 15% Growth from: Core 6% Acquisitions 5% Translation 4% Adjusted EBITDA (1) $86 $70 22% % of Sales 23.8% 22.3% 150 bps

End-Market Outlook Assumed in Guidance Industrial Distribution US & Canada Europe Rest of World Food & Beverage: Global Commercial Aerospace: Global Process Industries: Global

WATER MANAGEMENT

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• Net sales growth was 13% year over year
• Core growth was 8% year over year
• Adjusted EBITDA margin reflects mix,

higher investment spending, MIC

(1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, 2018. (2) Net Sales in 4Q FY17 is adjusted for the RHF product line exit in FY17. All periods include VAG results.

End-Market Outlook Assumed in Guidance Nonresidential Construction: US & Canada Commercial & Industrial Institutional Residential Construction: US & Canada

4Q FY18 4Q FY17 Change Adjusted Net Sales (1,2) $215 $190 13% Growth from: Core 8% Acquisitions 2% Translation 3% Adjusted EBITDA (1) $35 $34 2% % of Sales 16.3% 18.0% (170 bps)

Z899 Elevator/Threshold Drain System

CASH FLOW & BALANCE SHEET

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(1) Net Debt Leverage is defined as the ratio of total debt less cash to pro forma LTM Adjusted EBITDA. (2) Free Cash Flow is defined as Cash from Operations less Capital Expenditures, and is a Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, 2018. All periods include VAG results. (3) Total Debt includes a New Market Tax Credit Receivable ($28), which is more than offset by an associated payable ($37) that is also included in Total Debt in all periods presented. (4) Liquidity is defined as cash and cash equivalents plus available borrowing capacity.

3.7x 3.7x 3.8x 3.1x 2.8x 2.7x 2.5x 3.0x 3.5x 4.0x Mar-14 Mar-15 Mar-16 Mar-17 31-Dec-17 31-Mar-18

Net Debt Leverage Ratio (1)

139 197 167 141 188

(50) 50 100 150 200 250 FY14 FY15 FY16 FY17 FY18

Free Cash Flow ($ millions) (2)

1,944 1,912 1,893 1,595 1,295 1,328 500 1,000 1,500 2,000 2,500 Mar-14 Mar-15 Mar-16 Mar-17 31-Dec-17 31-Mar-18

Total Debt ($ millions) (3)

339 370 485 490 235 218 336 341 344 346 348 329

200 400 600 800 1,000 Mar-14 Mar-15 Mar-16 Mar-17 31-Dec-17 31-Mar-18

Total Liquidity ($ millions) (4)

Cash & Equivalents Available Borrowing Capacity

APPENDIX

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FISCAL YEAR 2019 OUTLOOK

Core sales % growth(1) + Mid Single Digit Adjusted EBITDA(1) $420 - $440 million Free Cash Flow(1) > Net Income Depreciation & Amortization(2) ~ $ 86 million Interest Expense (LIBOR ≤ 2%) ~ $ 73 million Effective Tax Rate(3) ~ 29% Capital Expenditures ~ 2.2% of sales

(1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, 2018. (2) Excludes an estimated $4 million of accelerated depreciation related to supply chain optimization and footprint repositioning actions which is excluded from Adjusted Net Income. (3) As applied to calculation of Adjusted Net Income.

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FY18 PRO FORMA SALES BY END MARKET

Note: PMC data are pro forma for acquisition of Centa Power Transmission. Note: WM data are pro forma for acquisition of World Dryer, anticipated divestiture of VAG.

PROCESS & MOTION CONTROL WATER MANAGEMENT

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IF-CONVERTED INCREMENTAL SHARES

Mandatory Convertible Preferred Details Offering Size ($millions) $ 402.5 Dividend Rate 5.75% Annual Dividend ($millions) $ 23.1 Mandatory Conversion Date 11/15/2019 Use If-Converted Method to calculate diluted EPS, Only If Dilutive 1) Do not deduct preferred dividend from net income 2) Add indicated incremental shares to diluted share count

Incremental Shares Average Common from Conversion Stock Price (millions) < $ 20.99 19.18 $ 20.99 19.18 21 19.17 22 18.30 23 17.50 24 16.77 25 16.10 25.19 15.98 > $ 25.19 15.98

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CALCULATING 4Q & FY18 DILUTED ADJUSTED EPS

Fourth Fiscal Quarter Year Ended Ended

($ millions, except per-share amounts)

March 31, 2018 March 31, 2018 Base Methodology Adjusted Net Income 45.9 $ 147.2 $ Weighted-Average Number of Shares: Diluted (thousands) 106,697 105,999 Earnings Per Share: Diluted (Base Method) 0.43 $ 1.39 $ If-Converted Methodology Adjusted Net Income 45.9 $ 147.2 $ Add Back Dividends 5.8 23.2 Adjusted Net Income Attributable to Rexnord Common Stockholders 51.7 $ 170.4 $ Weighted-Average Number of Shares: Diluted (thousands) 106,697 105,999 Add Adjustment for Conversion of Preferred Stock into Common Stock (thousands) 15,979 15,986 Adjusted Weighted-Average Shares: Diluted (thousands) 122,676 121,985 Earnings Per Share: Diluted (If-Converted Method) 0.42 $ 1.40 $

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4Q FY18 NON-GAAP ADJUSTMENTS AFTER TAX

(1) Other, net includes the impact of foreign currency transactions and other miscellaneous expenses. (2) The tax rates used to calculate adjusted net income are based on a transaction-specific basis at the applicable jurisdictional rate. (3) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, 2018.

Adjustment Type ($ millions) Restructuring & Other Similar Charges 7.2 $ (2.4) $ 4.8 $ Non-controlling interest 0.1

• 0.1

Amortization of Intangible Assets 8.8 (3.0) 5.8 Accelerated Depreciation 1.3 (0.5) 0.8 Purchase Accounting FV Adjustment 0.9 (0.3) 0.6 Actuarial gain on pension obligations (3.3) 1.1 (2.2) Other, net (1) 1.1 (0.7) 0.4 Nonrecurring US Tax Reform Adjustment

• (7.8)

(7.8) Goodwill impairment 111.2

• 111.2

Dividends on Preferred Stock 5.8

• 5.8

Total Adjustments 133.1 $ (13.6) $ 119.5 $ Impact on Adjusted Net Income (3) Pretax Adjustment Income Tax Provision (2)

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RECONCILIATION OF ADJUSTED EBITDA

(1) Includes the impact of foreign currency transactions, sale of long-lived assets, and other miscellaneous expenses. See "Management Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-K for the year ended March 31, 2018 for further information. (2) During fiscal 2016, the Company announced its decision to exit the RHF flow control gate product line within its Water Management platform. The fiscal 2017 operating losses (excluding restructuring and other similar charges) is not included in Adjusted EBITDA in accordance with our credit agreement.

(S millions)

Adjusted EBITDA March 31, 2018 March 31, 2017 March 31, 2018 March 31, 2017 Net (loss) income attributable to Rexnord common stockholders $ (67.8) $ 21.6 $ 52.7 $ 66.8 Dividends on preferred stock 5.8 5.8 23.2 7.3 Non-controlling interest income 0.1

• 0.1
• Income tax provision (benefit)

7.5 11.2 (19.5) 7.9 Loss on debt extinguishment

• 11.9

7.8 Other expense, net (1) 0.6 1.9 3.1 5.2 Interest expense, net 16.7 19.3 75.6 88.7 (Loss) Income from operations $ (37.1) $ 59.8 $ 147.1 $ 183.7 Adjustments Depreciation and amortization $ 24.4 $ 26.3 $ 89.7 $ 105.4 Actuarial gain on pension obligations (3.3) (2.6) (3.3) (2.6) Restructuring and other similar charges 7.2 9.9 18.8 31.6 Goodwill impairment 111.2

• 111.2
• Acquisition-related fair value adjustment

0.9

• 1.8

4.3 Stock-based compensation expense 4.6 3.6 20.5 13.4 Impact of RHF product line exit (2)

• 2.7
• 12.2

Last-in first-out inventory adjustments 2.6 (2.1) 3.3 (2.3) Other, net (1) 0.5 0.4 0.9 0.8 Subtotal of adjustments 148.1 38.2 242.9 162.8 Adjusted EBITDA $ 111.0 $ 98.0 $ 390.0 $ 346.5 Fourth Quarter Ended Fiscal Year Ended

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RECONCILIATION OF ADJUSTED NET INCOME

(1) Represents accelerated depreciation and other non-cash expenses associated with our strategic supply chain optimization and footprint repositioning initiatives. (2) During fiscal 2016, the Company announced its decision to exit the RHF flow control gate product line within its Water Management platform. To enhance comparability between historical periods, the pre-tax loss of the RHF product line exit has been excluded from our fiscal 2017 Adjusted earnings per share. (3) Other, net includes the impact of foreign currency transactions, sale of long-lived assets, and other miscellaneous expenses. See "Management Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-K for the year ended March 31, 2018 for further information.

(S millions)

Adjusted Net Income and Earnings Per Share March 31, 2018 March 31, 2017 March 31, 2018 March 31, 2017 Net (loss) income attributable to Rexnord common stockholders $ (67.8) $ 21.6 $ 52.7 $ 66.8 Supply chain optimization and footprint repositioning initiatives (1) 1.3 4.4 2.3 9.6 Non-controlling interest income 0.1

• 0.1
• Actuarial gain on pension obligations

(3.3) (2.6) (3.3) (2.6) Impact of RHF product line exit (2)

• 2.7
• 12.7

Restructuring and other similar charges 7.2 9.9 18.8 31.6 Acquisition-related fair value adjustment 0.9

• 1.8

4.3 Amortization of intangible assets 8.8 8.4 33.6 42.1 Loss on Debt Extinguishment

• 11.9

7.8 Other, net (3) 1.1 2.3 4.0 6.0 Dividends on Preferred Stock 5.8 5.8

• 7.3

Goodwill impairment 111.2

• 111.2
• Nonrecurring U.S. Tax Reform adjustment

(7.8)

• (62.6)
• Tax effect on above items

(5.8) (9.3) (23.3) (39.3) Adjusted net income $ 51.7 $ 43.2 $ 147.2 $ 146.3 GAAP diluted net (loss) income per share attributable to Rexnord common stockholders $ (0.65) $ 0.21 $ 0.50 $ 0.64 Adjusted earnings per share - diluted $ 0.42 $ 0.35 $ 1.39 $ 1.32 GAAP diluted weighted-average shares 104,094 104,968 105,999 104,784 Diluted weighted-average shares for Adjusted EPS calculation 122,676 122,977 105,999 110,617 Fourth Quarter Ended Fiscal Year Ended