Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________________________________________
FORM 10-Q
(Mark one)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended September 29, 2012
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission File Number: 001-35475
_________________________________________________
REXNORD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
20-5197013
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
 
4701 West Greenfield Avenue, Milwaukee, Wisconsin
 
53214
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (414) 643-3739  


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   o

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
o
Accelerated filer
o
 
 
 
 
Non-accelerated filer
x
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes   o     No   x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 
Class
 
Outstanding at November 1, 2012
Rexnord Corporation Common Stock, $0.01 par value per share
 
96,618,325 shares


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 


2
Table of Contents

Private Securities Litigation Reform Act Safe Harbor Statement

Our disclosure and analysis in this report concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in developing and expanding our business and the realization of sales from our backlog, include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements. Although these statements are based upon reasonable assumptions, including projections of orders, sales, operating margins, earnings, cash flows, research and development costs, working capital and capital expenditures, they are subject to risks and uncertainties that are described more fully in our Annual Report on Form
10-K for the year ended March 31, 2012 in Part I, Item 1A, “Risk Factors” and in Part I under the heading "Cautionary Notice Regarding Forward-Looking Statements." Accordingly, we can give no assurance that we will achieve the results anticipated or implied by our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

General

 Unless otherwise indicated, the information contained in this report reflects that each share of common stock outstanding immediately prior to the Company's March 19, 2012 4.1627 -for-one stock split has been split into 4.1627 shares of common stock. In addition, 27,236,842 shares of common stock were issued in connection with our initial public offering, which closed on April 3, 2012.

Our fiscal year is the year ending March 31 of the corresponding calendar year. For example, our fiscal year 2013, or fiscal 2013, means the period from April 1, 2012 to March 31, 2013 and the second quarters of fiscal 2013 and 2012 mean the fiscal quarters ended September 29, 2012 and October 1, 2011, respectively.


3
Table of Contents

PART I - FINANCIAL INFORMATION

ITEM  1.
FINANCIAL STATEMENTS
Rexnord Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(in Millions, except share amounts)
(Unaudited)  
 
 
September 29, 2012
 
March 31, 2012
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
440.2

 
$
298.0

Receivables, net
 
327.9

 
337.9

Inventories, net
 
349.3

 
320.3

Other current assets
 
54.2

 
62.1

Total current assets
 
1,171.6

 
1,018.3

Property, plant and equipment, net
 
413.9

 
419.2

Intangible assets, net
 
629.1

 
647.1

Goodwill
 
1,108.2

 
1,114.7

Insurance for asbestos claims
 
42.0

 
42.0

Other assets
 
50.7

 
49.6

Total assets
 
$
3,415.5

 
$
3,290.9

Liabilities and stockholders' equity (deficit)
 
 
 
 
Current liabilities:
 
 
 
 
Current maturities of debt
 
$
23.1

 
$
10.3

Trade payables
 
181.4

 
215.6

Compensation and benefits
 
51.9

 
61.8

Current portion of pension and postretirement benefit obligations
 
6.4

 
6.3

Interest payable
 
38.6

 
49.9

Other current liabilities
 
129.1

 
124.7

Total current liabilities
 
430.5

 
468.6


 
 
 
 
Long-term debt
 
2,115.6

 
2,413.4

Pension and postretirement benefit obligations
 
150.6

 
160.5

Deferred income taxes
 
233.5

 
245.7

Reserve for asbestos claims
 
42.0

 
42.0

Other liabilities
 
34.5

 
41.5

Total liabilities
 
3,006.7

 
3,371.7


 
 
 
 
Stockholders' equity (deficit):
 
 
 
 
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued
 
—

 
—

Common stock, $0.01 par value; 200,000,000 shares authorized; shares issued: 97,506,953 at September 29, 2012 and 67,741,271 at March 31, 2012
 
1.0

 
0.7

Additional paid-in capital
 
776.7

 
298.6

Retained deficit
 
(344.6
)
 
(361.6
)
Accumulated other comprehensive loss
 
(17.1
)
 
(11.3
)
Treasury stock at cost; 900,904 shares at September 29, 2012 and March 31, 2012
 
(6.3
)
 
(6.3
)
Total Rexnord stockholders' equity (deficit)
 
409.7

 
(79.9
)
Non-controlling interest
 
(0.9
)
 
(0.9
)
Total stockholders' equity (deficit)
 
408.8

 
(80.8
)
Total liabilities and stockholders' equity (deficit)
 
$
3,415.5

 
$
3,290.9

See notes to the condensed consolidated financial statements.

4
Table of Contents

Rexnord Corporation and Subsidiaries
Condensed Consolidated Statements of Operation s
(in Millions, except share and per share amounts)
(Unaudited)
 
 
Second Quarter Ended
 
Six Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Net sales
 
$
499.5

 
$
448.5

 
$
993.1

 
$
918.2

Cost of sales
 
312.9

 
289.1

 
627.8

 
592.9

Gross profit
 
186.6

 
159.4

 
365.3

 
325.3

Selling, general and administrative expenses
 
104.8

 
85.9

 
203.8

 
176.7

Zurn PEX loss contingency
 
—

 
—

 
10.1

 
—

Restructuring and other similar charges
 
2.4

 
—

 
4.0

 
—

Amortization of intangible assets
 
13.3

 
12.4

 
26.3

 
24.9

Income from continuing operations
 
66.1

 
61.1

 
121.1

 
123.7

Non-operating income (expense):
 
 
 
 
 
 
 
 
Interest expense, net
 
(37.2
)
 
(42.8
)
 
(75.5
)
 
(87.2
)
Loss on the extinguishment of debt
 
—

 
—

 
(21.1
)
 
(0.7
)
Loss on divestiture
 
—

 
(6.9
)
 
—

 
(6.9
)
Other income (expense), net
 
0.2

 
(7.6
)
 
0.7

 
(7.8
)
Income from continuing operations before income taxes
 
29.1

 
3.8

 
25.2

 
21.1

Provision (benefit) for income taxes
 
8.8

 
(0.4
)
 
5.6

 
6.0

Net income from continuing operations
 
20.3

 
4.2

 
19.6

 
15.1

(Loss) income from discontinued operations, net of tax
 
(1.1
)
 
0.3

 
(2.6
)
 
0.6

Net income
 
$
19.2

 
$
4.5

 
$
17.0

 
$
15.7

 
 
 
 
 
 
 
 
 
Net income per share from continuing operations:
 
 
 
 
 
 
 
 
Basic
 
$
0.21

 
$
0.07

 
$
0.21

 
$
0.23

Diluted
 
$
0.20


$
0.06

 
$
0.20

 
$
0.21

Net (loss) income per share from discontinued operations:
 
 
 
 
 
 
 
 
Basic
 
$
(0.01
)
 
$
—

 
$
(0.03
)
 
$
0.01

Diluted
 
$
(0.01
)
 
$
—

 
$
(0.03
)
 
$
0.01

Net income per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.20

 
$
0.07

 
$
0.18

 
$
0.24

Diluted
 
$
0.19

 
$
0.06

 
$
0.17

 
$
0.22

Weighted-average number of shares outstanding (in thousands)
 
 
 
 
 
 
Basic
 
95,878

 
66,724

 
94,991

 
66,724

Effect of dilutive stock options
 
3,868

 
5,499

 
4,378

 
5,195

Diluted
 
99,746


72,223

 
99,369

 
71,919



Rexnord Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive (Loss) Income
(in Millions)
(Unaudited)
 
 
Second Quarter Ended
 
Six Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Net income
 
$
19.2

 
$
4.5

 
$
17.0

 
$
15.7

Other comprehensive income (loss):
 


 


 
 
 
 
Foreign currency translation adjustments
 
6.3

 
(3.8
)
 
(6.4
)
 
(3.3
)
Unrealized gain on interest rate derivatives, net of tax
 
—

 
1.2

 
—

 
1.7

Change in pension and other postretirement defined benefit plans, net of tax
 
0.3

 
0.3

 
0.6

 
0.6

Other comprehensive income (loss), net of tax
 
6.6

 
(2.3
)
 
(5.8
)
 
(1.0
)
Total comprehensive income
 
$
25.8

 
$
2.2

 
$
11.2

 
$
14.7


See notes to the condensed consolidated financial statements.

5
Table of Contents

Rexnord Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in Millions)
(Unaudited)
 
 
Six Months Ended
 
 
September 29, 2012
 
October 1, 2011
Operating activities
 
 
 
 
Net income
 
$
17.0

 
$
15.7

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
Depreciation
 
30.7

 
28.7

Amortization of intangible assets
 
26.3

 
24.9

Amortization of deferred financing costs
 
2.0

 
3.8

(Gain) loss on dispositions of property, plant and equipment
 
(4.1
)
 
0.8

Non-cash loss on divestiture
 
—

 
4.5

Deferred income taxes
 
(14.9
)
 
1.9

Other non-cash charges
 
5.7

 
18.1

Loss on debt extinguishment
 
21.1

 
0.7

Stock-based compensation expense
 
3.5

 
2.1

Changes in operating assets and liabilities:
 

 

Receivables
 
3.4

 
(0.3
)
Inventories
 
(33.4
)
 
(12.4
)
Other assets
 
1.4

 
(8.7
)
Accounts payable
 
(31.1
)
 
(11.8
)
Accruals and other
 
(19.1
)
 
(31.9
)
Cash provided by operating activities
 
8.5

 
36.1

 
 
 
 
 
Investing activities
 
 
 
 
Expenditures for property, plant and equipment
 
(32.5
)
 
(21.9
)
Acquisitions, net of cash
 
—

 
(18.2
)
Loan receivable for financing under New Market Tax Credit incentive program
 
(9.7
)
 
—

Proceeds from dispositions of property, plant and equipment
 
5.5

 
5.6

Proceeds from divestiture, net of transaction costs
 
—

 
3.4

Cash used for investing activities
 
(36.7
)
 
(31.1
)
 
 
 
 
 
Financing activities
 
 
 
 
Proceeds from borrowings of long-term debt
 
1.4

 
75.0

Repayments of long-term debt
 
(307.3
)
 
(1.7
)
Proceeds from borrowings of short-term debt
 
7.3

 
0.3

Repayments of short-term debt
 
(0.7
)
 
(97.3
)
Proceeds from financing under New Market Tax Credit incentive program
 
14.0

 
—

Proceeds from issuance of common stock
 
458.3

 
—

Proceeds from exercise of stock options
 
2.3

 
—

Payment of deferred financing fees
 
(0.4
)
 
(1.3
)
Payment of early redemption premium on long-term debt
 
(17.6
)
 
—

Excess tax benefit on exercise of stock options
 
14.6

 
—

Cash provided by (used for) financing activities
 
171.9

 
(25.0
)
Effect of exchange rate changes on cash and cash equivalents
 
(1.5
)
 
(9.2
)
Increase (decrease) in cash and cash equivalents
 
142.2

 
(29.2
)
Cash and cash equivalents at beginning of period
 
298.0

 
391.0

Cash and cash equivalents at end of period
 
$
440.2

 
$
361.8


See notes to the condensed consolidated financial statements.

6
Table of Contents

Rexnord Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 29, 2012
(Unaudited)

1. Basis of Presentation and Significant Accounting Policies
The unaudited condensed consolidated financial statements included herein have been prepared by Rexnord Corporation (“Rexnord” or the "Company"), in accordance with accounting principles generally accepted in the United States pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
In the opinion of management, the condensed consolidated financial statements include all adjustments necessary for a fair presentation of the results of operations for the interim periods. Results for the interim periods are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2013 . It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's most recent Annual Report on Form 10-K.
The Company
Rexnord is a growth-oriented, multi-platform industrial company with what it believes are leading market shares and highly trusted brands that serve a diverse array of global end-markets. The Company's heritage of innovation and specification have allowed it to provide highly engineered, mission critical solutions to customers for decades and affords it the privilege of having long-term, valued relationships with market leaders. The Process & Motion Control platform designs, manufactures, markets and services specified, highly-engineered mechanical components used within complex systems where our customers' reliability requirements and cost of failure or downtime is extremely high. The Process & Motion Control product portfolio includes gears, couplings, industrial bearings, aerospace bearings and seals, FlatTop ™ chain, engineered chain and conveying equipment. The Water Management platform designs, procures, manufactures and markets products that provide and enhance water quality, safety, flow control and conservation. The Water Management product portfolio includes professional grade specification drainage products, flush valves and faucet products, backflow prevention pressure release valves, and PEX piping used primarily in non-residential construction end-markets and engineered valves and gates for the water and wastewater treatment market.
Reclassifications
Certain prior year amounts have been reclassified to conform to the fiscal 2013 presentation.
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board ("FASB") issued an update to Accounting Standards Codification ("ASC") No. 350, Intangibles - Goodwill and Other , which now permits entities to initially perform a qualitative assessment on indefinite-lived intangible asset impairment to assess whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, as a result of the qualitative assessment, it is determined that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. In addition, in September 2011, the FASB issued a similar update which also permits entities to initially perform a qualitative assessment on goodwill impairment to assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. An entity also has the option to forgo the qualitative assessment for any indefinite-lived intangible asset or goodwill in any period and proceed directly to performing the quantitative test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The Company will adopt the guidance for our annual impairment tests performed in fiscal 2013. The application of this guidance to our annual impairment test is not expected to have a significant impact on the Company's results of operations, financial position, or cash flows.
In June 2011, the FASB issued an update to ASC No. 220, Presentation of Comprehensive Income , which no longer permits presentation of other comprehensive income and its components in the statement of stockholders’ equity. Rather, the Company must elect to present the items of net income (loss) and other comprehensive income (loss) in a single continuous statement of comprehensive income (loss) or in two separate, but consecutive, statements. Under either method the statement must be presented with equal prominence as the other primary financial statements. The Company adopted this guidance effective April 1, 2012 using two separate, but consecutive, statements. As the new guidance relates to presentation only, the adoption did not have a significant impact on the Company's results of operations, financial position or cash flows.

7

Evaluation of Subsequent Events
The Company evaluated subsequent events from the balance sheet date of September 29, 2012 through the date of this filing. Subsequent to the balance sheet date the Company entered into an Incremental Assumption Agreement relating to the Second Amended and Restated Credit Agreement, which reduced the effective interest rate applicable to the borrowings under its term loan facility by fifty ( 50 ) basis points. See Note 21 Subsequent Events for further information.

2. Acquisitions and Divestiture
On October 10, 2011 , the Company acquired VAG Holding GmbH (“VAG”) for a total cash purchase price of $238.6 million , net of cash acquired and excluding transaction costs. VAG is a global leader in engineered valve solutions across a broad range of applications, including water distribution, wastewater treatment, dams and hydropower generation, as well as various other industrial applications. This acquisition further expanded the Company's Water Management platform. As a result of this transaction, the Company acquired $139.2 million of intangible assets consisting of $83.5 million of goodwill (which is not deductible for tax purposes) and $55.7 million of all other intangible assets based on the Company's purchase price allocation. Subsequent to the end of the second quarter of fiscal 2013 the Company finalized its purchase price allocations for VAG; the final allocations did not have a material impact on the financial statements. The Company's financial position and results of operations include VAG subsequent to October 10, 2011.

On July 19, 2011 , the Company sold substantially all of the net assets of a non-material, underperforming business within the Process & Motion Control segment based in Germany for a total sale price of $4.5 million . The Company recorded a pre-tax loss on divestiture of approximately $6.4 million during fiscal 2012. The Company's financial position and results of operations exclude the divested entity subsequent to July 19, 2011.

On April 2, 2011 , the Company acquired Autogard Holdings Limited and affiliates (“Autogard”) for a total cash purchase price of $18.2 million , net of cash acquired. Autogard is a European-based manufacturer of torque limiters and couplings. The acquisition further expanded the Company’s global Process & Motion Control platform. As a result of this transaction, the Company acquired $17.0 million of intangible assets consisting of $9.1 million of goodwill (which is not deductible for tax purposes) and $7.9 million of all other intangible assets. The Company's financial position and results of operations include Autogard subsequent to April 2, 2011.


3. Discontinued Operations
During the second quarter of fiscal 2013, the Company’s Board of Director's approved a plan to divest a non-core engineered chain business located in Shanghai, China within the Process & Motion Control platform. The Company is currently engaged in an active sale process and expects the transaction to be completed within the next 12 months. The Company evaluated the fair value less estimated cost to sell the net assets and determined that the fair value of the discontinued operation exceeded the carrying value. The Company classified the assets of $6.8 million and liabilities of $4.3 million as held for sale as of September 29, 2012. The net assets held for sale consist mainly of working capital balances and are recorded in the condensed consolidated balance sheet within the other current assets and other current liabilities line items. The results of operations of the discontinued operation are presented on the condensed consolidated Statement of Operations as (loss) income from discontinued operations, net of tax. Prior year financial statements have been reclassified in accordance with ASC 205-20, Discontinued Operations . The Company will not have continuing involvement in the business after a sale is completed. Management does not believe that the divestiture of this non-core business will have a material impact on the Company's results of operations, financial position, or cash flows.

4. Restructuring and Other Similar Costs

During the second quarter and six months ended September 29, 2012, the Company continued to execute various restructuring actions initiated in the prior fiscal year. These initiatives were implemented to reduce operating costs while also modifying the Company's footprint to reflect changes in the markets it serves and the impact of acquisitions on the Company's overall manufacturing capacity. These restructuring actions primarily resulted in workforce reductions and lease termination costs.

8

The following table summarizes the Company's restructuring costs during the three and six months ended September 29, 2012 by classification of operating segment (in millions):
 
 
Restructuring Costs
Three Months Ended September 29, 2012
 
 
Process & Motion Control
 
Water Management
 
Corporate
 
Consolidated
Severance costs
 
$
2.0

 
$
—

 
$
—

 
$
2.0

Lease termination and other costs
 
0.2

 
0.2

 
—

 
0.4

Total restructuring and other similar costs
 
$
2.2

 
$
0.2

 
$
—

 
$
2.4

 
 
 
 
 
 
 
 
 
 
 
Restructuring Costs
Six Months Ended September 29, 2012
 
 
Process & Motion Control
 
Water Management
 
Corporate
 
Consolidated
Severance costs
 
$
2.9

 
$
0.2

 
$
—

 
$
3.1

Lease termination and other costs
 
0.2

 
0.7

 
—

 
0.9

Total restructuring and other similar costs
 
$
3.1

 
$
0.9

 
$
—

 
$
4.0


The following table summarizes the activity in the Company's restructuring reserve for the period from April 1, 2012 through September 29, 2012 (in millions):
 
 
 Severance Costs
 
Lease Termination and Other Costs
 
Total
Restructuring reserve, March 31, 2012
 
$
1.9

 
$
0.6

 
$
2.5

    Charges
 
3.1

 
0.9

 
4.0

    Cash payments
 
(1.7
)
 
(1.5
)
 
(3.2
)
Restructuring reserve, September 29, 2012 (1)
 
$
3.3

 
$
—

 
$
3.3


(1)
The restructuring reserve is included in other current liabilities in the condensed consolidated balance sheets.
5. Recovery Under Continued Dumping and Subsidy Offset Act (“CDSOA”)

The Company, as a producer of ball bearing products in the United States, participated in the distribution of monies collected by Customs and Border Protection (“CBP”) from anti-dumping cases under the CDSOA. Through its participation the Company provided relevant information to CBP regarding historical manufacturing, personnel and development costs for previous calendar years. In February 2006, U.S. legislation was enacted that ended CDSOA distributions to U.S. manufacturers for imports covered by anti-dumping duty orders entering the U.S. after September 30, 2007. Because monies were collected by CBP until September 30, 2007 and for prior year entries, the Company has received periodic recoveries in prior fiscal years.
In connection with this program, beginning in 2006, CBP began to withhold amounts that would have otherwise been distributed as a result of pending litigation challenging past and future distributions and the administrative operation of the law. During the first quarter of fiscal 2013, CBP began to distribute these withheld funds to domestic producers. In connection with the distribution of these withheld funds, the Company recorded $16.6 million of income during the first quarter of fiscal 2013 representing its pro rata share of amounts withheld since 2006. The Company did not receive any recoveries in the second quarter of fiscal 2013 or any recoveries in the six month period ended October 1, 2011. As a result of still pending litigation, the Company cannot reasonably estimate the amount of CDSOA payments, if any, that it may receive in future years and/or whether it will be required to repay any previously received distributions. These recoveries are included in "Other (expense) income, net" on the condensed consolidated statement of operations for the six months ended September 29, 2012.


9

6. Income Taxes

The provision (benefit) for income taxes for all periods presented is based on an estimated effective income tax rate for the respective full fiscal years. The estimated annual effective income tax rate is determined excluding the effect of significant discrete items or items that are reported net of their related tax effects. The tax effect of significant, discrete items is reflected in the period in which they occur. The Company's income tax expense is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are higher or lower than the U.S. federal statutory rate, state tax rates in the jurisdictions where the Company does business and the Company's ability to utilize various tax credits and net operating loss (“NOL”) carryforwards.
The effective income tax rate for the second quarter of fiscal 2013 was 30.2% versus (10.5)% in the second quarter of fiscal 2012 . The effective income tax rate for the second quarter of fiscal 2013 is below the U.S. federal statutory rate of 35% due to the accrual of foreign income taxes at rates which are generally below the U.S. federal statutory rate, as well as the recognition of certain foreign related branch losses for U.S. income tax purposes. The income tax benefit, associated with the income before income taxes, for the second quarter of fiscal 2012 is attributable to the recognition of certain, previously unrecognized tax benefits due to the lapse of the applicable statute of limitations.
The effective income tax rate for the first six months of fiscal 2013 was 22.2% versus 28.4% in the first six months of fiscal 2012. The effective income tax rate for the first six months of fiscal 2013 is below the U.S. federal statutory rate of 35% due to the accrual of foreign income taxes at rates which are generally below the U.S. federal statutory rate, the recognition of certain foreign related branch losses for U.S. income tax purposes, as well as the higher tax benefit associated with significant, discrete items compared to the overall forecasted rate in conjunction with the relatively low amount of income before income taxes. The effective income tax rate for the first six months of fiscal 2012 is below the U.S. federal statutory rate of 35% due to the recognition of certain, previously unrecognized tax benefits as a result of the lapse of the applicable statute of limitations.
At September 29, 2012 , the Company had a $27.8 million liability for unrecognized net income tax benefits. At March 31, 2012 , the Company's total liability for unrecognized net income tax benefits was $34.1 million . The decrease in unrecognized net income tax benefits is mainly the result of the VAG German income and trade tax examination, covering the 2006 through 2010 calendar tax years, being effectively settled during the second quarter ended September 29, 2012. The Company paid approximately $0.4 million to conclude this examination; however, this amount will be recoverable from the prior owner(s). In addition, as the Company was still within the one year window from the acquisition date, the additional $4.6 million decrease in unrecognized net income tax benefits resulted in a reduction to goodwill versus a reduction to income tax expense. The Company recognizes accrued interest and penalties related to unrecognized income tax benefits in income tax expense. As of September 29, 2012 and March 31, 2012 , the total amount of gross, unrecognized income tax benefits includes $10.0 million and $10.0 million of accrued interest and penalties, respectively. The Company recognized $0.3 million of net interest and penalties as income tax expense during the six months ended September 29, 2012 . The Company recognized $0.2 million of net interest and penalties as income tax benefit during the six months ended October 1, 2011 .
The Company conducts business in multiple locations within and outside the U.S. Consequently, the Company is subject to periodic income tax examinations by domestic and foreign income tax authorities. Currently, the Company is undergoing routine, periodic income tax examinations in both domestic and foreign jurisdictions. In addition, a number of the Company's German subsidiaries are currently under examination for their German corporate and trade tax returns covering multiple periods. Similarly, a number of the Company's Italian subsidiaries are under examination with respect to their corporate income tax returns, also covering multiple periods. It appears reasonably possible that the amounts of unrecognized income tax benefits could change in the next twelve months as a result of such examinations; however, any potential payments of income tax, interest and penalties are not expected to be significant to the Company's consolidated financial statements. With certain exceptions, the Company is no longer subject to U.S. federal income tax examinations for tax years ending prior to March 31, 2009, state and local income tax examinations for years ending prior to fiscal 2008 or significant foreign income tax examinations for years ending prior to fiscal 2007. With respect to the Company's U.S. federal NOL carryforward, the short tax period from July 21, 2006 to March 31, 2007 (due to the change in control when Apollo Management, L.P. acquired the Company) and the tax year ended March 31, 2008 are open under statutes of limitations; whereby, the Internal Revenue Service may not adjust the income tax liability for this year, but may reduce the NOL carryforward and any other tax attribute carryforwards to future, open tax years.

10

7. Earnings per Share
Basic net earnings per share from continuing and discontinued operations is computed by dividing net income from continuing operations and income from discontinued operations, respectively, by the corresponding weighted average number of common shares outstanding for the period. Diluted net earnings per share from continuing and discontinued operations 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. The computation for diluted net earnings per share for the second quarter and six months ended September 29, 2012 both exclude 2,964,959 shares due to their anti-dilutive effects. The computation for diluted net earnings per share for the second quarter and six months ended October 1, 2011 both exclude 52,033 shares due to their anti-dilutive effects.

8. Stockholders' (Deficit) Equity
Stockholders' (deficit) equity consists of the following (in millions):
 
Preferred Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Treasury Stock
 
Non-controlling Interest (1)
 
Total
Stockholders’
(Deficit) Equity
Balance at March 31, 2012
$
—

 
$
0.7

 
$
298.6

 
$
(361.6
)
 
$
(11.3
)
 
$
(6.3
)
 
$
(0.9
)
 
$
(80.8
)
Total comprehensive income (loss)
—

 
—

 
—

 
17.0

 
(5.8
)
 
—

 
—

 
11.2

Stock-based compensation expense
—

 
—

 
3.5

 
—

 
—

 
—

 
—

 
3.5

Issuance of common stock, net of direct offering costs
—

 
0.3

 
458.0

 
—

 
—

 
—

 
—

 
458.3

Exercise of stock options, net of shares surrendered
—

 
—

 
2.0

 
—

 
—

 
—

 
—

 
2.0

Tax benefit on stock option exercises
—

 
—

 
14.6

 
—

 
—

 
—

 
—

 
14.6

Balance at September 29, 2012
$
—

 
$
1.0

 
$
776.7

 
$
(344.6
)
 
$
(17.1
)
 
$
(6.3
)
 
$
(0.9
)
 
$
408.8

____________________
(1)     Represents a 20% non-controlling interest held by a local director of VAG-Valves India Private Limited.

9. Inventories
The major classes of inventories are summarized as follows (in millions):
 
 
September 29,
2012
 
March 31,
2012
Finished goods
$
212.6

 
$
201.7

Work in progress
80.6

 
64.7

Raw materials
45.8

 
41.5

Inventories at First-in, First-Out ("FIFO") cost
339.0

 
307.9

Adjustment to state inventories at Last-in, First-Out ("LIFO") cost
10.3

 
12.4

 
$
349.3

 
$
320.3


11

10. Goodwill and Intangible Assets
The changes in the net carrying value of goodwill and identifiable intangible assets for the six months ended September 29, 2012 by operating segment, are presented below (in millions):
 
 
 
 
 
 
Amortizable Intangible Assets
 
 
 
 
Goodwill
 
Indefinite Lived Intangible Assets (Trade Names)
 
Customer Relationships
 
Patents
 
Non-Compete
 
Total Identifiable Intangible Assets Excluding Goodwill
Process & Motion Control
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount as of March 31, 2012
 
$
865.3

 
$
192.3

 
$
125.6

 
$
6.0

 
$
—

 
$
323.9

Amortization
 
—

 
—

 
(14.0
)
 
(0.5
)
 
—

 
(14.5
)
Currency translation adjustment
 
0.1

 
0.1

 
—

 
—

 
—

 
0.1

Net carrying amount as of September 29, 2012
 
$
865.4

 
$
192.4

 
$
111.6

 
$
5.5

 
$
—

 
$
309.5

Water Management
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount as of March 31, 2012
 
$
249.4

 
$
135.0

 
$
177.6

 
$
10.5

 
$
0.1

 
$
323.2

Purchase price allocation adjustments
 
(4.6
)
 
3.9

 
5.8

 
0.2

 
—

 
9.9

Amortization
 
—

 
—

 
(10.9
)
 
(0.9
)
 
—

 
(11.8
)
Currency translation adjustment
 
(2.0
)
 
(0.7
)
 
(1.0
)
 
—

 
—

 
(1.7
)
Net carrying amount as of September 29, 2012
 
$
242.8

 
$
138.2

 
$
171.5

 
$
9.8

 
$
0.1

 
$
319.6

Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount as of March 31, 2012
 
$
1,114.7

 
$
327.3

 
$
303.2

 
$
16.5

 
$
0.1

 
$
647.1

Purchase price allocation adjustments
 
(4.6
)
 
3.9

 
5.8

 
0.2

 
—

 
9.9

Amortization
 
—

 
—

 
(24.9
)
 
(1.4
)
 
—

 
(26.3
)
Currency translation adjustment
 
(1.9
)
 
(0.6
)
 
(1.0
)
 
—

 
—

 
(1.6
)
Net carrying amount as of September 29, 2012
 
$
1,108.2

 
$
330.6

 
$
283.1

 
$
15.3

 
$
0.1

 
$
629.1


The gross carrying amount and accumulated amortization for each major class of identifiable intangible assets as of September 29, 2012 and March 31, 2012 are as follows (in millions):  
 
 
 
September 29, 2012
 
Weighted Average Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible assets subject to amortization:
 
 
 
 
 
 
 
Patents
10 years
 
$
38.7

 
$
(23.4
)
 
$
15.3

Customer relationships (including distribution network)
12 years
 
555.0

 
(271.9
)
 
283.1

Non-compete
5 years
 
0.2

 
(0.1
)
 
0.1

Intangible assets not subject to amortization - trademarks and tradenames
 
 
330.6

 
—

 
330.6

 
 
 
$
924.5

 
$
(295.4
)
 
$
629.1

 
 
 
 
 
 
 
 
 
 
 
March 31, 2012
 
Weighted Average Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible assets subject to amortization:
 
 
 
 
 
 
 
Patents
10 years
 
$
38.5

 
$
(22.0
)
 
$
16.5

Customer relationships (including distribution network)
12 years
 
550.2

 
(247.0
)
 
303.2

Non-compete
5 years
 
0.2

 
(0.1
)
 
0.1

Intangible assets not subject to amortization - trademarks and tradenames
 
 
327.3

 
—

 
327.3

 
 
 
$
916.2

 
$
(269.1
)
 
$
647.1

Intangible asset amortization expense totaled $13.3 million and $26.3 million for the second quarter and six months ended September 29, 2012 , respectively. Intangible asset amortization expense totaled $12.4 million and $24.9 million for the second quarter and six months ended October 1, 2011 , respectively.

The Company expects to recognize amortization expense on the intangible assets subject to amortization of $51.1 million in fiscal year 2013 (inclusive of $26.3 million of amortization expense recognized in the six months ended September 29, 2012 ), $49.2 million in fiscal year 2014, $49.2 million in fiscal year 2015, $49.2 million in fiscal year 2016, and $30.2 million in fiscal year 2017.


12

11. Other Current Liabilities
Other current liabilities are summarized as follows (in millions):
 
September 29, 2012
 
March 31, 2012
Taxes, other than income taxes
$
9.5

 
$
8.2

Sales rebates
17.1

 
16.3

Restructuring and other similar charges (1)
3.3

 
2.5

Customer advances
22.8

 
16.2

Product warranty (2)
8.6

 
8.7

Commissions
7.6

 
7.5

Risk management reserves (3)
9.9

 
13.5

Legal and environmental reserves
18.5

 
9.6

Liabilities held-for-sale
4.3

 
7.5

Deferred income taxes
4.3

 
7.6

Other
23.2

 
27.1

 
$
129.1

 
$
124.7

____________________
(1)
See more information related to the restructuring obligations balance within Note 4.
(2)
See more information related to the product warranty obligations balance within Note 15.
(3)
Includes projected liabilities related to the Company's deductible portion of insured losses arising from automobile, general and product liability claims.

12. Long-Term Debt
Long-term debt is summarized as follows (in millions):
 
 
September 29, 2012
 
March 31, 2012
8.50% Senior notes due 2018
 
$
1,145.0

 
$
1,145.0

Term loans (1)
 
938.5

 
945.3

11.75% Senior subordinated notes due 2016
 
—

 
300.0

8.875% Senior notes due 2016
 
2.0

 
2.0

10.125% Senior subordinated notes due 2012
 
0.3

 
0.3

Other (2)
 
52.9

 
31.1

Total
 
2,138.7

 
2,423.7

Less current maturities
 
23.1

 
10.3

Long-term debt
 
$
2,115.6

 
$
2,413.4

____________________
(1)
Includes an unamortized original issue discount of $4.3 million and $4.7 million at September 29, 2012 and March 31, 2012, respectively.
(2)
Includes financing related to the Company's participation in the New Market Tax Credit incentive program of $37.4 million and $23.4 million as of September 29, 2012 and March 31, 2012, respectively.

Senior Secured Credit Facility
During the fourth quarter of fiscal 2012, the Company entered into the Second Amended and Restated Credit Agreement (as amended by a subsequent Incremental Assumption Agreement dated April 18, 2012, the "Second Restated Credit Agreement"). The senior secured credit facilities under the Second Restated Credit Agreement are funded by a syndicate of banks and other financial institutions and provide for loans of up to $1,215.0 million , consisting of (i) a $950.0 million term loan facility with a maturity date of April 1, 2018; and (ii) a $265.0 million revolving credit facility with a maturity date of March 15, 2017 and borrowing capacity available for letters of credit and for borrowings on a same-day notice, referred to as swingline loans.
As of September 29, 2012 , the Company's outstanding borrowings under the term loan facility were $938.5 million (net of $4.3 million unamortized original issue discount). For the second quarter of fiscal 2013, borrowings under the Second Restated Credit Agreement had an effective and weighted average interest rate of 5.00% , determined as the LIBO rate (subject

13

to a 1% floor) plus 4.00% . As of September 29, 2012, interest rates under the Second Restated Credit Agreement were at the Company's option of either "(a)" or "(b)" as further described here: (a) in the case of Above Base Rate ("ABR") Borrowings, 3.00% plus a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50% , (2) the prime rate determined from time to time by Credit Suisse AG, the administrative agent under the Second Restated Credit Agreement and (3) the LIBO rate in effect for a one-month period plus 1.00% ; or (b) in the case of Eurocurrency Borrowings, 4.00% plus a Eurocurrency rate determined by reference to an annual interest rate equal to (x) the LIBO rate in effect for a given interest period divided by (y) one minus a statutory reserve applicable to such borrowing (subject to a 1% LIBOR floor).
On October 4, 2012, the Company entered into an Incremental Assumption Agreement relating to the Second Restated Credit Agreement, which reduces the effective interest rate applicable to the borrowings under the term loan facility by fifty ( 50 ) basis points. See Note 21 Subsequent Events for further information.
Additionally, for revolving commitments subject to a first lien senior secured leverage test, the rates are subject to a potential step-down to 2.75% and 3.75% for ABR Borrowings and Eurocurrency Borrowings, respectively (in the event our senior secured leverage ratio is less than 1.5 to 1.0 ).
As of September 29, 2012 , in addition to paying interest on outstanding principal under the senior secured credit facilities, the Company is required to pay a commitment fee to the lenders under the revolving credit facility in respect to the unutilized commitments thereunder at a rate equal to 0.375% per annum.
As of September 29, 2012 , the remaining mandatory principal payments prior to maturity on the term loan facilities was $52.3 million . Principal payments of $2.375 million are scheduled to be made at the end of each calendar quarter until March 31, 2018.
All amounts outstanding under the revolving credit facility will be due and payable in full, and the commitments thereunder will terminate, on March 15, 2017. No amounts were borrowed under the revolving credit facility at September 29, 2012 or March 31, 2012; however, $46.0 million and $45.5 million of the revolving credit facility was considered utilized in connection with outstanding letters of credit at September 29, 2012 and March 31, 2012 , respectively.
The Second Restated Credit Agreement, among other things: (i) allows for one or more future issuances of secured notes, which may include, in each case, indebtedness secured on a pari passu basis with the obligations under the senior secured credit facilities, so long as, in each case, among other things, an agreed amount of the net cash proceeds from any such issuance are used to prepay term loans under the senior secured credit facilities at par; (ii) subject to the requirement to make such offers on a pro rata basis to all lenders and certain other restrictions, allows the Company to agree with individual lenders to extend the maturity date of any of the loans and/or commitments provided by such lenders and to otherwise modify the terms of the loans and/or commitments provided by such lenders (including, without limitation, increasing the interest rate or fees payable in respect of such loans and/or commitments and/or modifying the amortization schedule in respect of such loans); and (iii) allows for one or more future issuances of additional secured notes, which may include, in each case, indebtedness secured on a pari passu basis with the obligations under the senior secured credit facilities, in an amount not to exceed the amount of incremental facility availability under the senior secured credit facilities.
The Second Restated Credit Agreement also contains a number of typical covenants that, among other things, constrain, subject to certain fully-negotiated exceptions, the Company's ability, and the ability of the Company's subsidiaries, to: sell assets; incur additional indebtedness; repay other indebtedness; pay dividends and distributions, repurchase its capital stock, or make payments, redemptions or repurchases in respect to certain indebtedness (including the senior notes); create liens on assets; make investments, loans, guarantees or advances; make certain acquisitions; engage in certain mergers or consolidations; enter into sale-and-leaseback transactions; engage in certain transactions with affiliates; amend certain material agreements governing its indebtedness; make capital expenditures; enter into hedging agreements; amend its organizational documents; change the business conducted by it and its subsidiaries; and enter into agreements that restrict dividends from subsidiaries. In addition, payment of borrowings under the Second Restated Credit Agreement may be accelerated upon an event of default. Events of default include, among others, the failure to pay principal and interest when due, a material breach of a representation or warranty, covenant defaults, certain non-payments or defaults under other material indebtedness, events of bankruptcy and a change of control. As of September 29, 2012, the Company was in compliance with all applicable covenants under its senior secured credit facilities, including compliance with a maximum permitted senior secured bank leverage ratio (the Company's sole financial maintenance covenant) of 5.00 x to 1.00 . The Company's actual senior secured bank leverage ratio was 1.32 x to 1.00 as of September 29, 2012 .
Senior Notes and Senior Subordinated Notes
Outstanding Tranches of Notes
At September 29, 2012 , the Company had outstanding $1,145.0 million in aggregate principal 8.50% senior notes due 2018 (the " 8.50% Notes"). The 8.50% Notes bear interest at a rate of 8.50%  per annum, payable on each May 1 and

14

November 1, and will mature on May 1, 2018. The Company also had outstanding $2.3 million in aggregate principal of other notes, consisting of the 8.875% senior notes due 2016 and 10.125% senior subordinated notes due 2012.
The indenture governing the 8.50% Notes permits optional redemption of the notes, generally on or after May 1, 2014, on specified terms and at specified prices. In addition, the indenture provides that, prior to May 1, 2014, the outstanding 8.50% Notes may be redeemed at the Company's option in whole at any time or in part from time to time at a redemption price equal to the sum of (i)  100% of the principal amount of the notes redeemed plus (ii) a “make whole” premium specified in the indenture, and (iii) accrued and unpaid interest and additional interest, if any, to the redemption date. The Company must provide specified prior notice for redemption of the notes in accordance with the indentures.
In addition, at any time (which may be more than once) on or prior to May 1, 2013, the Company has the right to redeem up to 35% of the principal amount of the 8.50% Notes at a redemption price equal to 108.50% of the face amount thereof, plus accrued and unpaid interest and additional interest, if any, with the net proceeds of one or more equity offerings so long as at least 65% of the aggregate principal amount of the 8.50% Notes issued remains outstanding after each redemption and such redemption occurs within a specified period after the equity offering.  
Notwithstanding the above, the Company's ability to make payments on, redeem, repurchase or otherwise retire for value, prior to the scheduled repayment or maturity, the notes may be constrained or prohibited under the above-referenced senior secured credit facilities.
The notes are unsecured obligations of the Company. The indenture governing the 8.50% Notes permits the Company to incur all permitted indebtedness (as defined in the applicable indenture) without restriction, which includes amounts borrowed under the senior secured credit facilities.
The indenture governing the 8.50% Notes contains customary covenants, among others, limiting dividends, the incurrence of additional indebtedness, the issuance of certain forms of equity, investments, purchases or redemptions of stock, restricted payments, transactions with affiliates and mergers and sales of assets, and requiring the Company to make an offer to purchase notes upon the occurrence of a change in control, as defined in those indentures. In addition, payment on the 8.50% Notes may or shall be accelerated upon certain events of default or a change of control. Events of default include, among others, the failure to pay principal and interest when due, a breach of the Company's agreements under the indenture, certain non-payments or defaults under other indebtedness, and events of bankruptcy. As of September 29, 2012, the Company was in compliance with all applicable covenants under the indenture governing its 8.50% Notes.
The above covenants are also subject to a number of important qualifications. For example, the indenture does not impose any limitation on the incurrence by the Company of liabilities that are not considered “indebtedness” under the indenture, such as certain sale/leaseback transactions; nor does the indenture impose any limitation on the amount of liabilities incurred by the Company's subsidiaries, if any, that might be designated as “unrestricted subsidiaries” (as defined in the applicable indenture). In addition, despite the above restrictions, the Company may incur additional indebtedness and issue certain forms of equity if immediately prior to the consummation of such events, the fixed charge coverage ratio for the most recently ended four full fiscal quarters for which internal financial statements are available, as defined in the indentures, would have been at least 2.00 to 1.00 , including the pro forma application of the additional indebtedness or equity issuance.
The indentures governing the other tranches of notes do not contain material restrictive covenants. The indentures governing the other outstanding notes permit optional redemption of the notes on certain terms at certain prices.
Former Senior Subordinated Notes
On April 17, 2012, the Company completed a full redemption of all $300.0 million principal amount of outstanding 11.75% senior subordinated notes due 2016 (the " 11.75% Notes") for $325.0 million in cash, which included $7.4 million of accrued interest and $17.6 million of early redemption premiums. In the first quarter ended June 30, 2012, the Company recognized related pre-tax expense of $21.1 million , which was comprised of the $17.6 million early redemption premium and a $3.5 million non-cash write-off of unamortized deferred financing costs. Upon the redemption, the indenture governing the 11.75% Notes was discharged in accordance with its terms.
Other Subsidiary Debt
During the second quarter of fiscal 2013 and third quarter of fiscal 2012, the Company received $4.3 million and $5.5 million , respectively, in net proceeds from financing agreements related to facility modernization projects at two North American manufacturing facilities. These financing agreements were structured with unrelated third party financial institutions (the "Investor") and their wholly-owned community development entities in connection with the Company's participation in transactions qualified under the federal New Market Tax Credit program, pursuant to Section 45D of the Internal Revenue Code of 1986, as amended. Through its participation in this program, the Company has secured low interest financing and the potential for future debt forgiveness related to eligible capital projects. Upon closing of these transactions, the Company provided an aggregate of $27.6 million , to the Investor in the form of loans receivable, with a term of thirty years, bearing an

15

interest rate of approximately 2.0% per annum. Additionally, the Company received aggregate loan proceeds of $37.4 million ( $27.6 million of which was derived from the aforementioned loans receivable) payable to the community development entities sponsoring each project. Similar to the loans receivable, these loans have a term of thirty years and bear an interest rate of approximately 2.0% per annum. As collateral for these loans, the Company has granted a security interest in the assets acquired with the loan proceeds. No earlier than December 2018 and upon meeting certain conditions, both the Investor and the Company have the ability to trigger forgiveness of the net debt which could result in a net non-operating gain of up to $9.8 million , excluding applicable transaction costs. To the extent the loans payable are not forgiven, the Company would be required to repay the full amount of the outstanding $37.4 million principal balance and would concurrently receive a loan repayment of $27.6 million on the aforementioned loans receivable, resulting in a net $9.8 million use of liquidity.
The aggregate loans of $37.4 million are recorded in Long-Term Debt on the condensed consolidated balance sheet and the aggregate loans receivable of $27.6 million are recorded in Other Assets on the condensed consolidated balance sheet. The Company incurred $0.7 million of debt issuance costs related to the above transactions, which are being amortized over the life of the agreements.
At September 29, 2012 and March 31, 2012 , various wholly-owned subsidiaries had additional debt of $52.9 million and $31.1 million , respectively, comprised primarily of the $37.4 million loans payable as a result of the New Market Tax Credit financing agreements referenced above as well as borrowings at various foreign subsidiaries and capital lease obligations.
PIK Toggle Senior Indebtedness
During the first quarter of fiscal 2012, the Company fully retired $93.2 million of outstanding face value PIK toggle senior indebtedness due 2013 for $95.1 million in cash (including $1.5 million of accrued interest). As a result, the Company recognized a pre-tax loss of $0.7 million in the first quarter of fiscal 2012, which was comprised of a non-cash write-off of $0.4 million of unamortized original issue discount and $0.3 million of unamortized deferred financing costs.
Accounts Receivable Securitization Program
During the first quarter of fiscal 2012, the Company entered into a five -year Amended and Restated Receivables Funding and Administration Agreement (the “RFAA”) by and among Rexnord Funding LLC (“Funding,” a wholly-owned bankruptcy-remote special purpose subsidiary), the financial institutions from time to time party thereto, and General Electric Capital Corporation, as a lender, a swing line lender and administrative agent (“GECC”). The RFAA is the principal operative agreement under which certain subsidiaries continuously sell substantially all of their domestic trade accounts receivable to Funding for cash and subordinated notes (the “Program”). Funding in turn may obtain revolving loans and letters of credit from GECC under the RFAA. The maximum borrowing amount under the RFAA is $100.0 million , subject to certain eligibility requirements related to the amount and type of receivables owned by Funding; the RFAA also contains an “accordion” provision pursuant to which Funding can request that the facility be increased by $75.0 million . All of the receivables purchased by Funding are pledged as collateral for revolving loans and letters of credit obtained from GECC under the RFAA.
The Program does not qualify for sale accounting under ASC 860, Transfers and Servicing (“ASC 860”), and as such, any borrowings are accounted for as secured borrowings on the condensed consolidated balance sheet. Financing costs associated with the Program are recorded within “Interest expense, net” in the condensed consolidated statement of operations if revolving loans or letters of credit are obtained under the RFAA.
Borrowings under the RFAA bear interest at a rate equal to LIBOR plus 2.25% . Outstanding borrowings mature on May 20, 2016. In addition, a non-use fee of 0.50% is applied to the unutilized portion of the $100.0 million commitment. These rates are per annum and the fees are paid to GECC on a monthly basis.
At September 29, 2012 , the Company's available borrowing capacity under the Program was $100.0 million . Additionally, the Program requires compliance with certain covenants and performance ratios contained in the RFAA. As of September 29, 2012 , Funding was in compliance with all applicable covenants and performance ratios.

16

13. Derivative Financial Instruments
The Company is exposed to certain financial risks relating to fluctuations in foreign currency exchange rates. The Company currently selectively uses foreign currency forward exchange contracts to manage its foreign currency risk. All hedging transactions are authorized and executed pursuant to defined policies and procedures that prohibit the use of financial instruments for speculative purposes.
Foreign Exchange Contracts
The Company periodically enters into foreign currency forward contracts to mitigate the foreign currency volatility relative to certain intercompany and external cash flows expected to occur during the fiscal year. The Company currently has entered into foreign currency forward contracts that exchange Canadian dollars (“CAD”) for United States dollars (“USD”), USD for Euro ("EUR") and EUR for Czech Koruna ("CZK"). The forward contracts in place as of September 29, 2012 expire between October 2012 and March 2013 and have total notional amounts in connection with CAD for USD contracts of $8.9 million CAD ( $8.9 million USD) with a contract rate of approximately $1CAD:$1USD , USD for EUR contracts of $1.8 million USD ( €1.4 million EUR) with rates ranging between $1.23USD:€1EUR to $1.28USD:€1EUR and EUR for CZK of €2.9 million EUR ( 72.5 million CZK) with rates approximating €0.04EUR:1CZK .
These foreign currency forward contracts were not accounted for as effective cash flow hedges in accordance with ASC 815, Derivatives and Hedging (“ASC 815”) and as such were marked to market through earnings. See the amounts recorded on the condensed consolidated balance sheets and recognized within the condensed consolidated statements of operations related to the Company's foreign currency forward contracts within the tables below.
Interest Rate Swaps
Effective March 5, 2012, in connection with the Company's refinancing of the senior secured credit facility, the Company terminated the three interest rate swaps previously aligned to the prior term loans. See Note 12 Long-Term Debt for additional information on the refinancing of senior secured credit facilities. As a result of the termination of the interest rate swaps, there were no related balances reflected in the condensed consolidated balance sheet as of September 29, 2012. See amounts recognized within the condensed consolidated statements of operations for the six months and second quarter ended October 1, 2011 related to the Company’s interest rate swaps within the tables below.
The Company's derivatives are measured at fair value in accordance with ASC 820, Fair Value Measurements and Disclosure (“ASC 820”). See Note 14 Fair Value Measurements for more information as it relates to the fair value measurement of the Company's derivative financial instruments.
The following table indicates the location and the fair value of the Company's derivative instruments within the condensed consolidated balance sheet.
Fair value of derivatives not designated as hedging instruments under ASC 815-20 (in millions):
 
 
Liability Derivatives
 
 
September 29, 2012
 
March 31, 2012
 
Balance Sheet Classification
Foreign currency forward contracts
 
$
0.1

 
$
—

 
 Other current liabilities
The following table indicates the location and the amount of gains and losses associated with the Company's derivative instruments, net of tax, recognized within the condensed consolidated statement of operations. The information is segregated between designated, qualifying ASC 815-20 hedging instruments and non-qualifying, non-designated hedging instruments (in millions):  

Derivative instruments designated as cash flow hedging relationships under ASC 815-20
Location of loss reclassified from accumulated OCI into income
 
Amount of loss reclassified from accumulated OCI into income
 
Amount of loss reclassified from accumulated OCI into income
 
Second Quarter Ended
 
Six Months Ended
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Interest rate swaps
Interest expense, net
 
$
—

 
$
(1.8
)
 
$
—

 
$
(3.7
)


17

 
 
 
 
Amount recognized in other income (loss), net
 
Amount recognized in other income (loss), net
Derivative instruments not designated as hedging instruments under ASC 815-20
 
Location of gain or (loss) recognized in income on derivatives
 
Second Quarter Ended
 
Six Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Foreign currency forward contracts
 
Other income (expense), net
 
$
(0.5
)
 
$
1.0

 
$
(0.2
)
 
$
1.0


14. Fair Value Measurements
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820 also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed assumptions about the assumptions a market participant would use.
In accordance with ASC 820, fair value measurements are classified under the following hierarchy:
•
Level 1- Quoted prices for identical instruments in active markets.
•
Level 2- Quoted prices for similar instruments; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable.
•
Level 3- Model-derived valuations in which one or more inputs or value-drivers are both significant to the fair value measurement and unobservable.

If applicable, the Company uses quoted market prices in active markets to determine fair value, and therefore classifies such measurements within Level 1. In some cases where market prices are not available, the Company makes use of observable market based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters. These measurements are classified within Level 3 if they use significant unobservable inputs.
The Company's fair value measurements which were impacted by ASC 820 as of September 29, 2012 include:
Foreign Currency Forward Contracts
The fair value of foreign currency forward contracts is based on a pricing model that utilizes the differential between the contract price and the market-based forward rate as applied to fixed future deliveries of currency at pre-designated settlement dates.
The Company endeavors to utilize the best available information in measuring fair value. As required by the standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company has determined that its financial instruments reside within Level 2 of the fair value hierarchy. There were no transfers of assets between levels during the six months ended September 29, 2012 . The fair value of financial instrument assets and liabilities as of March 31, 2012 was immaterial. The following table provides a summary of the Company's liabilities that were recognized at fair value on a recurring basis as of September 29, 2012 (in millions):
 
 
Fair Value as of September 29, 2012
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Liabilities:
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
$
—

 
$
0.1

 
$
—

 
$
0.1

Total liabilities at fair value
 
$
—

 
$
0.1

 
$
—

 
$
0.1

Fair Value of Non-Derivative Financial Instruments
The carrying amounts of cash, receivables, payables and accrued liabilities approximated fair value at September 29, 2012 and March 31, 2012 due to the short-term nature of those instruments. The carrying value of long-term debt recognized within the condensed consolidated balance sheets as of September 29, 2012 and March 31, 2012 was approximately $2,138.7 million and $2,423.7 million , respectively, whereas the fair value of long-term debt as of September 29, 2012 and March 31, 2012 was approximately $2,284.2 million and $2,524.9 million , respectively. The fair value is based on quoted market prices for the same issues.

18

Long-lived Assets and Intangible Assets
        Long-lived assets (which includes property, plant and equipment and real estate) may be measured at fair value if such assets are held for sale or when there is a determination that the asset is impaired. Intangible assets (which include patents, tradenames, customer relationships, and non-compete agreements) also may be measured at fair value when there is a determination that the asset is impaired. The determination of fair value for these assets is based on the best information available, including internal cash flow estimates discounted at an appropriate interest rate, quoted market prices when available, market prices for similar assets and independent appraisals, as appropriate. For real estate, cash flow estimates are based on current market estimates that reflect current and projected lease profiles and available industry information about expected trends in rental, occupancy and capitalization rates.

15. Commitments and Contingencies
Warranties:
The Company offers warranties on the sales of certain 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 (in millions):

 
 
Period from April 1, 2012 through September 29, 2012
 
Period from April 1, 2011 through October 1, 2011
Balance at beginning of period
 
$
8.7

 
$
8.6

Charged to operations
 
1.7

 
1.2

Claims settled
 
(1.8
)
 
(2.1
)
Balance at end of period
 
$
8.6

 
$
7.7


Contingencies:
The Company's subsidiaries are involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of business involving, among other things, product liability, commercial, employment, workers' compensation, intellectual property claims and environmental matters. The Company establishes reserves in a manner that is consistent with accounting principles generally accepted in the United States for costs associated with such matters when liability is probable and those costs are capable of being reasonably estimated. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss or recovery, based upon current information, management believes the eventual outcome of these unresolved legal actions, either individually or in the aggregate, will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
  
In connection with the Carlyle acquisition in November 2002, Invensys plc has provided the Company with indemnification against certain contingent liabilities, including certain pre-closing environmental liabilities. The Company believes that, pursuant to such indemnity obligations, Invensys is obligated to defend and indemnify the Company with respect to the matters described below relating to the Ellsworth Industrial Park Site and to various asbestos claims. The indemnity notice period for certain pre-closing environmental liabilities, other than those set forth below relating to the Ellsworth Industrial Park Site, expired in November 2009, and the indemnity notice period for certain pre-closing environmental liabilities relating to the Ellsworth Industrial Park Site expires in November 2012. The indemnity obligations relating to the matters described below are subject, together with indemnity obligations relating to other matters, to an overall dollar cap equal to the purchase price, which is an amount in excess of $900 million . The following paragraphs summarize the most significant actions and proceedings:

•
In 2002, Rexnord Industries, LLC (“Rexnord Industries”) was named as a potentially responsible party (“PRP”), together with at least ten other companies, at the Ellsworth Industrial Park Site, Downers Grove, DuPage County, Illinois (the “Site”), by the United States Environmental Protection Agency (“USEPA”), and the Illinois Environmental Protection Agency (“IEPA”). Rexnord Industries' Downers Grove property is situated within the Ellsworth Industrial Complex. The USEPA and IEPA allege there have been one or more releases or threatened releases of chlorinated solvents and other hazardous substances, pollutants or contaminants, allegedly including but not limited to a release or threatened release on or from the Company's property, at the Site. The relief sought by the USEPA and IEPA includes further investigation and potential remediation of the Site and reimbursement of USEPA's past costs. Rexnord Industries' allocated share of past and future costs related to the Site, including for investigation and/or remediation, could be significant. All previously pending property damage and personal injury lawsuits against the Company related to the Site have been settled or dismissed. Pursuant to its indemnity obligation, Invensys

19

continues to defend the Company in matters related to the Site and has paid 100% of the costs to date.
•
Multiple lawsuits (with approximately 1,000 claimants) are pending in state or federal court in numerous jurisdictions relating to alleged personal injuries due to the alleged presence of asbestos in certain brakes and clutches previously manufactured by the Company's Stearns division and/or its predecessor owners. Invensys and FMC, prior owners of the Stearns business, have paid 100% of the costs to date related to the Stearns lawsuits. Similarly, the Company's Prager subsidiary is a defendant in two pending multi-defendant lawsuits relating to alleged personal injuries due to the alleged presence of asbestos in a product allegedly manufactured by Prager. Additionally, there are approximately 4,000 individuals who have filed asbestos related claims against Prager; however, these claims are currently on the Texas Multi-district Litigation inactive docket. The ultimate outcome of these asbestos matters cannot presently be determined. To date, the Company's insurance providers have paid 100% of the costs related to the Prager asbestos matters. The Company believes that the combination of its insurance coverage and the Invensys indemnity obligations will cover any future costs of these matters.
In connection with the Falk Corporation (“Falk”) acquisition, Hamilton Sundstrand has provided the Company with indemnification against certain products-related asbestos exposure liabilities. The Company believes that, pursuant to such indemnity obligations, Hamilton Sundstrand is obligated to defend and indemnify the Company with respect to the asbestos claims described below, and that, with respect to these claims, such indemnity obligations are not subject to any time or dollar limitations.
The following paragraph summarizes the most significant actions and proceedings for which Hamilton
Sundstrand has accepted responsibility:
•
Falk, through its successor entity, is a defendant in approximately 200 lawsuits pending in state or federal court in numerous jurisdictions relating to alleged personal injuries due to the alleged presence of asbestos in certain clutches and drives previously manufactured by Falk. There are approximately 600 claimants in these suits. The ultimate outcome of these lawsuits cannot presently be determined. Hamilton Sundstrand is defending the Company in these lawsuits pursuant to its indemnity obligations and has paid 100% of the costs to date.
Certain Water Management subsidiaries are also subject to asbestos and class action related litigation. As of September 29, 2012 , Zurn and an average of approximately 80 other unrelated companies were defendants in approximately 7,000 asbestos related lawsuits representing approximately 27,000 claims. Plaintiffs' claims allege personal injuries caused by exposure to asbestos used primarily in industrial boilers formerly manufactured by a segment of Zurn. Zurn did not manufacture asbestos or asbestos components. Instead, Zurn purchased them from suppliers. These claims are being handled pursuant to a defense strategy funded by insurers. As of September 29, 2012 , the Company estimates the potential liability for asbestos-related claims pending against Zurn as well as the claims expected to be filed in the next ten years to be approximately $42.0 million of which Zurn expects to pay approximately $33.0 million in the next ten years on such claims, with the balance of the estimated liability being paid in subsequent years. The $42.0 million was developed based on an actuarial study and represents the projected indemnity payout through the next 10 years. However, there are inherent uncertainties involved in estimating the number of future asbestos claims, future settlement costs, and the effectiveness of defense strategies and settlement initiatives. As a result, Zurn's actual liability could differ from the estimate described herein. Further, while this current asbestos liability is based on an estimate of claims through the next ten years, such liability may continue beyond that time frame, and such liability could be substantial.
Management estimates that its available insurance to cover its potential asbestos liability as of September 29, 2012 , is approximately $256.0 million , and believes that all current claims are covered by this insurance. However, principally as a result of the past insolvency of certain of the Company's insurance carriers, certain coverage gaps will exist if and after the Company's other carriers have paid the first $180.0 million of aggregate liabilities. In order for the next $51.0 million of insurance coverage from solvent carriers to apply, management estimates that it would need to satisfy $14.0 million of asbestos claims. Layered within the final $25.0 million of the total $256.0 million of coverage, management estimates that it would need to satisfy an additional $80.0 million of asbestos claims. If required to pay any such amounts, the Company could pursue recovery against the insolvent carriers, but it is not currently possible to determine the likelihood or amount of such recoveries, if any.
As of September 29, 2012 , the Company has a recorded receivable from its insurance carriers of $42.0 million , which corresponds to the amount of its potential asbestos liability that is covered by available insurance and is currently determined to be probable of recovery. However, there is no assurance that $256.0 million of insurance coverage will ultimately be available or that Zurn's asbestos liabilities will not ultimately exceed $256.0 million . Factors that could cause a decrease in the amount of available coverage include: changes in law governing the policies, potential disputes with the carriers regarding the scope of coverage, and insolvencies of one or more of the Company's carriers.
The Company's subsidiaries, Zurn PEX, Inc. and Zurn Industries, LLC have been named as defendants in a number of individual and class action lawsuits in various United States courts. The plaintiffs in these suits claim damages due to the

20

alleged failure or anticipated failure of Zurn brass fittings on the PEX plumbing systems in homes and other structures. The complaints assert various causes of action, including but not limited to negligence, breach of warranty, fraud, and violations of the Magnuson Moss Act and certain state consumer protection laws, and seek declaratory and injunctive relief, and damages (including punitive damages).
In July 2012, the Company reached an agreement in principle to settle the liability underlying this litigation; this agreement was reflected in a settlement agreement filed with the court in October 2012.  The settlement is designed to resolve, on a national basis, the Company's overall exposure for both known and unknown claims related to the alleged failure or anticipated failure of Zurn brass fittings on PEX plumbing systems; subject to the right of eligible class members to opt-out of the settlement and pursue their claims independently. The settlement remains subject to final court approval, including the right of objection by interested parties, and utilizes a seven year claims fund, which is capped at $20 million , and is funded in installments over the seven year period based on claim activity and minimum funding criteria.  The settlement also covers class action plaintiffs' attorneys' fees and expenses in an amount not to exceed $8.5 million and related administrative costs.
The Company has recorded a reserve related to the brass fittings liability, which takes into account, in pertinent part, the agreed contributions by insurance carriers, as well as exposure from the claims fund, potential opt-outs and the waiver of future insurance coverage. While the Company believes its reserve reflects the most likely estimate of the loss contingency associated with bringing all aspects of the Zurn PEX brass fittings matter to resolution, additional reserve adjustments should be expected.  Management, however, does not expect such adjustments will be material to its financial position, assuming there are no significant changes in current facts and assumptions, although there can be no assurances.
The Company's insurance carriers have funded the Company's defense in these proceedings; however, they filed suit for a declaratory judgment challenging their coverage obligations with respect to certain classes of claims. The suit, which is pending, is expected to be resolved in conjunction with the approval of the settlement of the underlying claims.
The Company can provide no assurance that the liability and related litigation will be resolved on the anticipated terms, or at all, or that final court approval will be granted.  If final court approval is not granted the Company will continue to vigorously defend these claims.  Even if final court approval is achieved the Company expects to continue to vigorously defend against any opt-out claims.  In addition, the Company cannot provide assurance that the insurance carriers' action will be resolved, or on the final terms of such resolution.  Due to the uncertainties of litigation (including approval of the potential settlement referenced above), and the related insurance coverage and collection actions and issues, as well as the actual number or value of claims (including opt-outs), the Company may be subject to substantial liability beyond the reserve that has been taken that could have a material adverse effect on the Company and its results of operations.

16. Retirement Benefits
The components of net periodic benefit cost are as follows (in millions):
 
Second Quarter Ended
 
Six Months Ended
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Pension Benefits:
 
 
 
 
 
 
 
Service cost
$
0.5

 
$
0.5

 
$
1.0

 
$
1.0

Interest cost
7.9

 
8.4

 
15.8

 
16.8

Expected return on plan assets
(8.0
)
 
(8.3
)
 
(16.0
)
 
(16.5
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
0.1

 
0.1

 
0.4

 
0.1

Net periodic benefit cost
$
0.5

 
$
0.7

 
$
1.2

 
$
1.4

Other Postretirement Benefits:
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
0.1

 
$
0.1

Interest cost
0.4

 
0.5

 
0.8

 
0.9

Amortization:
 
 
 
 
 
 
 
Prior service cost
(0.5
)
 
(0.5
)
 
(1.0
)
 
(1.0
)
Net periodic benefit cost
$
(0.1
)
 
$
—

 
$
(0.1
)
 
$
—


During the first six months of fiscal 2013 and 2012 , the Company made contributions of $7.1 million and $4.9 million , respectively, to its U.S. qualified pension plan trusts.
During the first three months of fiscal 2013 the Company froze the benefits for a U.S. pension plan, as a result a curtailment loss of $0.2 million was recognized.
In accordance with the Company's accounting policy for defined benefit pension and other postretirement benefit plans,

21

actuarial gains and losses above a specified threshold are immediately recognized in the Company's operating results during the fourth quarter.  This adjustment is measured annually in connection with the Company's required year-end re-measurement of plan assets and benefit obligations, or upon any re-measurement event. As a result, a mark-to-market adjustment may be recorded in the fourth quarter of fiscal 2013 in accordance with the Company's pension accounting policy. See Note 15 to the audited consolidated financial statements of the Company's fiscal 2012 Annual Report on Form 10-K for further information regarding retirement benefits.

17. Stock Options
ASC 718, Compensation-Stock Compensation (“ASC 718”), requires compensation costs related to share-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. The Company recognizes the compensation cost for options granted over the requisite service period, generally as the awards vest. The fair value of each option is estimated on the date of grant using the Black-Scholes valuation model. See Note 14 to the audited consolidated financial statements of the Company's fiscal 2012 Annual Report on Form 10-K for further information regarding stock-based compensation and related plans.
The fair value of each option granted under the Rexnord Corporation 2012 Performance Incentive Plan (the "Plan") during the six months ended September 29, 2012 was estimated on the date of grant using the Black-Scholes valuation model that utilized the following assumptions: expected volatility of 34% based on the expected volatility of publicly-traded companies within the Company's industry; expected term of 7.5 years based on the midpoint between when the options vest and when they expire; weighted average risk free interest rate of 1.71%  based on the U.S. Treasury yield curve in effect at the date of grant; and expected dividends of zero . The weighted average grant date fair value of the 2,592,000 options granted under the Plan between April 1, 2012 and September 29, 2012 was $8.22 .
For the second quarter and six months ended September 29, 2012 , the Company recorded $1.9 million and $3.5 million of stock-based compensation expense, respectively. For the second quarter and six months ended October 1, 2011 , the Company recorded $0.9 million and $2.1 million of stock-based compensation expense, respectively. As of September 29, 2012 , there was $23.4 million of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted average period of 4.3 years.
The following table presents the Company's stock option activity during the first six months of fiscal 2013 and 2012 , respectively:
 
Period from April 1, 2012 through September 29, 2012
 
Period from April 1, 2011 through October 1, 2011
 
Shares
 
Weighted Avg. Exercise Price
 
Shares
 
Weighted Avg. Exercise Price
Number of shares under option:
 
 
 
 
 
 
 
Outstanding at beginning of period
10,874,371

 
$
5.27

 
10,700,275

 
$
4.74

Granted
2,592,000

 
20.56

 
52,034

 
18.74

Exercised
(2,963,790
)
 
3.55

 
(5,465
)
 
4.80

Canceled/Forfeited
(206,962
)
 
11.42

 
(62,578
)
 
7.53

Outstanding at end of period (1)
10,295,619

 
$
9.49

 
10,684,266

 
$
4.79

Exercisable at end of period (2)
6,201,699

 
$
5.00

 
7,894,262

 
$
4.31

______________________
(1)
The weighted average remaining contractual life of options outstanding at September 29, 2012 is 6.4 years.
(2)
The weighted average remaining contractual life of options exercisable at September 29, 2012 is 4.8 years.  

22

18. Initial public offering, debt redemption, and related party transaction
Initial Public Offering
On April 3, 2012, the Company closed the initial public offering ("IPO") of its common stock. In connection with the IPO, the Company registered its common stock with the SEC and subsequently offered and sold 27,236,842 shares of common stock, at a public offering price of $18.00 per share for an aggregate offering proceeds of $458.3 million , net of $28.2 million of underwriting discounts and commissions and other direct costs of the offering.
Redemption of 11.75% Notes
On April 17, 2012, the Company used a portion of the proceeds from the IPO to complete a full redemption of all of the 11.75% Notes that were then outstanding. As a result of the extinguishment the Company recognized a loss of $21.1 million , which was comprised of a $17.6 million early redemption premium and a $3.5 million of a non-cash write-off of unamortized deferred financing costs associated with the 11.75% Notes. See Note 12 Long-term debt for additional information on the early redemption of the 11.75% Notes.
Related party transaction
In connection with the IPO, on April 3, 2012, the Company also recognized an additional charge of $15.0 million to terminate the Company's management agreement with Apollo Management, L.P ("Apollo"). Such payment was negotiated as a reduced amount in lieu of a one-time termination fee of $20.1 million that Apollo otherwise would have been entitled to receive under the management consulting agreement, corresponding to the present value of the aggregate annual fees that would have been payable during the remainder of the term of the agreement (assuming a twelve -year term from the date of the amended agreement).

23

19. Business Segment Information
The results of operations are reported in two business segments, consisting of the Process & Motion Control platform and the Water Management platform. The Process & Motion Control platform designs, manufactures, markets and services specified, highly engineered mechanical components used within complex systems where our customers' reliability requirements and cost of failure or downtime is extremely high. The Process & Motion Control product portfolio includes gears, couplings, industrial bearings, aerospace bearings and seals, FlatTop™ chain, engineered chain and conveying equipment. This segment serves a diverse group of end markets, including mining, general industrial applications, cement and aggregates, agriculture, forest and wood products, petrochemical, energy, food & beverage, aerospace and wind energy. The Water Management platform designs, procures, manufactures and markets products that provide and enhance water quality, safety, flow control and conservation. The Water Management product portfolio includes professional grade specification drainage products, flush valves and faucet products, backflow prevention pressure release valves and PEX piping used in non-residential construction end-markets and engineered valves and gates for the water and wastewater treatment market. The financial information of the Company's segments is regularly evaluated by the chief operating decision maker in determining resource allocation and assessing performance and is periodically reviewed by the Company's Board of Directors. Management evaluates the performance of each business segment based on its operating results. The same accounting policies are used throughout the organization (see Note 1).

24


Business Segment Information:
(in Millions)
 
 
Second Quarter Ended
 
Six Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012

 
October 1, 2011

Net sales
 
 
 
 
 
 
 
 
Process & Motion Control
 
$
309.1

 
$
310.3

 
$
623.0

 
$
635.0

Water Management
 
190.4

 
138.2

 
370.1

 
283.2

  Consolidated
 
$
499.5

 
$
448.5

 
$
993.1

 
$
918.2

Income (loss) from continuing operations
 
 
 
 
 
 
 
 
Process & Motion Control
 
$
56.5

 
$
53.2

 
$
112.0

 
$
103.1

Water Management
 
18.4

 
14.6

 
34.9

 
34.4

Corporate
 
(8.8
)
 
(6.7
)
 
(25.8
)
 
(13.8
)
  Consolidated
 
$
66.1

 
$
61.1

 
$
121.1

 
$
123.7

Non-operating income (expense):
 
 
 
 
 
 
 
 
Interest expense, net
 
$
(37.2
)
 
$
(42.8
)
 
$
(75.5
)
 
$
(87.2
)
Loss on the extinguishment of debt
 
—

 
—

 
(21.1
)
 
(0.7
)
Loss on divestiture
 
—

 
(6.9
)
 
—

 
(6.9
)
Other income (expense), net
 
0.2

 
(7.6
)
 
0.7

 
(7.8
)
Income from continuing operations before income taxes
 
29.1

 
3.8

 
25.2

 
21.1

Provision (benefit) for income taxes
 
8.8

 
(0.4
)
 
5.6

 
6.0

Net income from continuing operations
 
$
20.3

 
$
4.2

 
$
19.6

 
$
15.1

(Loss) income from discontinued operations
 
(1.1
)
 
0.3

 
(2.6
)
 
0.6

Net income
 
$
19.2

 
$
4.5

 
$
17.0

 
$
15.7

Restructuring and other similar costs (included in income from operations)
 
 
 
 
Process & Motion Control
 
$
2.2

 
$
—

 
$
3.1

 
$
—

Water Management
 
0.2

 
—

 
0.9

 
—

  Consolidated
 
$
2.4

 
$
—

 
$
4.0

 
$
—

Depreciation and Amortization
 
 
 
 
 
 
 
 
Process & Motion Control
 
$
18.1

 
$
19.9

 
$
34.9

 
$
40.3

Water Management
 
10.8

 
6.6

 
22.1

 
13.3

  Consolidated
 
$
28.9

 
$
26.5

 
$
57.0

 
$
53.6

Capital Expenditures
 
 
 
 
 
 
 
 
Process & Motion Control
 
$
9.3

 
$
11.1

 
$
17.5

 
$
17.2

Water Management
 
8.8

 
2.7

 
15.0

 
4.7

  Consolidated
 
$
18.1

 
$
13.8

 
$
32.5

 
$
21.9

 
 
 
 
 
 
 
 
 
 
 
September 29, 2012
 
March 31, 2012
 
 
 
 
Total Assets
 
 
 
 
 
 
 
 
Process & Motion Control
 
$
2,348.7

 
$
2,203.8

 
 
 
 
Water Management
 
1,032.1

 
1,044.2

 
 
 
 
Corporate
 
34.7

 
42.9

 
 
 
 
  Consolidated
 
$
3,415.5

 
$
3,290.9

 
 
 
 

25

20. Issuers of Notes and Guarantor Subsidiaries
The following schedules present condensed consolidating financial information of the Company at September 29, 2012 and March 31, 2012 and for the six and three months ended September 29, 2012 and October 1, 2011 for: (a) Rexnord Corporation, the parent company (the "Parent"); (b) RBS Global, Inc. and its wholly-owned subsidiary Rexnord LLC, which together are co-issuers (the “Issuers”) of the outstanding senior notes; (c) on a combined basis, the domestic subsidiaries of the Company, all of which are wholly-owned by the Issuers (collectively, the “Guarantor Subsidiaries”) and are guarantors of the notes; and (d) on a combined basis, the foreign subsidiaries of the Company (collectively, the “Non-Guarantor Subsidiaries”). Separate financial statements of the Issuers are not presented because the Issuers are wholly owned by the Parent, which has fully and unconditionally guaranteed the notes. Separate financial statements of the Guarantor Subsidiaries are not presented because their guarantees of the senior notes are full, unconditional and joint and several. The Company believes separate financial statements and other disclosures regarding the Issuers and the Guarantor Subsidiaries are not material to investors.



26

Condensed Consolidating Balance Sheet
September 29, 2012
(in Millions)
 
 
Parent
 
Issuers
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
13.3

 
$
—

 
$
332.6

 
$
94.3

 
$
—

 
$
440.2

Receivables, net
 
—

 
—

 
191.1

 
136.8

 
—

 
327.9

Inventories, net
 
—

 
—

 
242.1

 
107.2

 
—

 
349.3

Other current assets
 
—

 
—

 
13.8

 
40.4

 
—

 
54.2

Total current assets
 
13.3

 
—

 
779.6

 
378.7

 
—

 
1,171.6

Receivable from (payable to) affiliates, net
 
—

 
3.2

 
(0.4
)
 
(2.8
)
 
—

 
—

Property, plant and equipment, net
 
—

 
—

 
266.4

 
147.5

 
—

 
413.9

Intangible assets, net
 
—

 
—

 
544.8

 
84.3

 
—

 
629.1

Goodwill
 
—

 
—

 
828.8

 
279.4

 
—

 
1,108.2

Investment in:
 
 
 
 
 
 
 
 
 
 
 
 
Issuer subsidiaries
 
442.3

 
—

 
—

 
—

 
(442.3
)
 
—

Guarantor subsidiaries
 
—

 
2,241.4

 
—

 
—

 
(2,241.4
)
 
—

Non-guarantor subsidiaries
 
—

 
—

 
808.1

 
—

 
(808.1
)
 
—

Insurance for asbestos claims
 
—

 
—

 
42.0

 
—

 
—

 
42.0

Other assets
 
—

 
20.5

 
29.8

 
0.4

 
—

 
50.7

Total assets
 
$
455.6

 
$
2,265.1

 
$
3,299.1

 
$
887.5

 
$
(3,491.8
)
 
$
3,415.5

Liabilities and stockholders' equity
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
 
$
—

 
$
9.8

 
$
—

 
$
13.3

 
$
—

 
$
23.1

Trade payables
 
—

 
—

 
118.3

 
63.1

 
—

 
181.4

Compensation and benefits
 
—

 
—

 
34.3

 
17.6

 
—

 
51.9

Current portion of pension and postretirement benefit obligations
 
—

 
—

 
3.6

 
2.8

 
—

 
6.4

Interest payable
 
—

 
38.6

 
—

 
—

 
—

 
38.6

Other current liabilities
 
2.9

 
6.4

 
80.5

 
39.3

 
—

 
129.1

Total current liabilities
 
2.9

 
54.8

 
236.7

 
136.1

 
—

 
430.5

Long-term debt
 
—

 
2,076.1

 
38.4

 
1.1

 
—

 
2,115.6

Note payable to (receivable from) affiliates, net
 
0.5

 
(409.8
)
 
559.5

 
(150.2
)
 
—

 
—

Pension and postretirement benefit obligations
 
—

 
—

 
105.3

 
45.3

 
—

 
150.6

Deferred income taxes
 
42.2

 
86.0

 
68.8

 
36.5

 
—

 
233.5

Reserve for asbestos claims
 
—

 
—

 
42.0

 
—

 
—

 
42.0

Other liabilities
 
0.3

 
15.7

 
7.0

 
11.5

 
—

 
34.5

Total liabilities
 
45.9

 
1,822.8

 
1,057.7

 
80.3

 
—

 
3,006.7

Total Rexnord stockholders' equity
 
409.7

 
442.3

 
2,241.4

 
808.1

 
(3,491.8
)
 
409.7

Non-controlling interest
 
—

 
—

 
—

 
(0.9
)
 
—

 
(0.9
)
Total stockholders' equity
 
409.7

 
442.3

 
2,241.4

 
807.2

 
(3,491.8
)
 
408.8

Total liabilities and stockholders' equity
 
$
455.6

 
$
2,265.1

 
$
3,299.1

 
$
887.5

 
$
(3,491.8
)
 
$
3,415.5


27

Condensed Consolidating Balance Sheet
March 31, 2012
(in Millions)
 
Parent
 
Issuers
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
7.8

 
$
—

 
$
198.0

 
$
92.2

 
$
—

 
$
298.0

Receivables, net
—

 
—

 
198.4

 
139.5

 
—

 
337.9

Inventories, net
—

 
—

 
225.4

 
94.9

 
—

 
320.3

Other current assets
0.6

 
—

 
15.5

 
46.0

 
—

 
62.1

Total current assets
8.4

 
—

 
637.3

 
372.6

 
—

 
1,018.3

Receivable from (payable to) affiliates, net
—

 
118.4

 
(93.7
)
 
(24.7
)
 
—

 
—

Property, plant and equipment, net
—

 
—

 
266.8

 
152.4

 
—

 
419.2

Intangible assets, net
—

 
—

 
568.1

 
79.0

 
—

 
647.1

Goodwill
—

 
—

 
828.8

 
285.9

 
—

 
1,114.7

Investment in:
 
 
 
 
 
 
 
 
 
 
 
Issuer subsidiaries
(41.8
)
 
—

 
—

 
—

 
41.8

 
—

Guarantor subsidiaries
—

 
1,547.8

 
—

 
—

 
(1,547.8
)
 
—

Non-guarantor subsidiaries
—

 
—

 
714.5

 
—

 
(714.5
)
 
—

Insurance for asbestos claims
—

 
—

 
42.0

 
—

 
—

 
42.0

Other assets
—

 
25.6

 
20.0

 
4.0

 
—

 
49.6

Total assets
$
(33.4
)
 
$
1,691.8

 
$
2,983.8

 
$
869.2

 
$
(2,220.5
)
 
$
3,290.9

Liabilities and stockholders' (deficit) equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
—

 
$
9.8

 
$
—

 
$
0.5

 
$
—

 
$
10.3

Trade payables
—

 
—

 
144.2

 
71.4

 
—

 
215.6

Compensation and benefits
—

 
—

 
43.2

 
18.6

 
—

 
61.8

Current portion of pension and postretirement benefit obligations
—

 
—

 
3.6

 
2.7

 
—

 
6.3

Interest payable
—

 
49.9

 
—

 
—

 
—

 
49.9

Other current liabilities
2.9

 
8.2

 
69.5

 
44.1

 
—

 
124.7

Total current liabilities
2.9

 
67.9

 
260.5

 
137.3

 
—

 
468.6

Long-term debt
—

 
2,382.8

 
23.9

 
6.7

 
—

 
2,413.4

Note (receivable from) payable to affiliates, net
—

 
(816.8
)
 
908.6

 
(91.8
)
 
—

 
—

Pension and postretirement benefit obligations
—

 
—

 
114.0

 
46.5

 
—

 
160.5

Deferred income taxes
43.6

 
85.5

 
77.6

 
39.0

 
—

 
245.7

Reserve for asbestos claims
—

 
—

 
42.0

 
—

 
—

 
42.0

Other liabilities
—

 
14.2

 
9.4

 
17.9

 
—

 
41.5

Total liabilities
46.5

 
1,733.6

 
1,436.0

 
155.6

 
—

 
3,371.7

Total Rexnord stockholders' (deficit) equity
(79.9
)
 
(41.8
)
 
1,547.8

 
714.5

 
(2,220.5
)
 
(79.9
)
Non-controlling interest
—

 
—

 
—

 
(0.9
)
 
—

 
(0.9
)
Total stockholders' (deficit) equity
(79.9
)
 
(41.8
)
 
1,547.8

 
713.6

 
(2,220.5
)
 
(80.8
)
Total liabilities and stockholders' (deficit) equity
$
(33.4
)
 
$
1,691.8

 
$
2,983.8

 
$
869.2

 
$
(2,220.5
)
 
$
3,290.9


28

Condensed Consolidating Statement of Operations
Three Months Ended September 29, 2012
(in Millions)
 
 
Parent
 
Issuers
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
 
$
—

 
$
—

 
$
362.8

 
$
163.6

 
$
(26.9
)
 
$
499.5

Cost of sales
 
—

 
—

 
231.4

 
108.4

 
(26.9
)
 
312.9

Gross profit
 
—

 
—

 
131.4

 
55.2

 
—

 
186.6

Selling, general and administrative expenses
 
—

 
—

 
71.9

 
32.9

 
—

 
104.8

Zurn PEX loss contingency
 
—

 
—

 
—

 
—

 
—

 
—

Restructuring and other similar charges
 
—

 
—

 
0.7

 
1.7

 
—

 
2.4

Amortization of intangible assets
 
—

 
—

 
11.7

 
1.6

 
—

 
13.3

Income from continuing operations
 
—

 
—

 
47.1

 
19.0

 
—

 
66.1

Non-operating (expense) income:
 
 
 
 
 
 
 
 
 
 
 
 
     Interest expense, net:
 
 
 
 
 
 
 
 
 
 
 
 
          To third parties
 
—

 
(36.6
)
 
(0.4
)
 
(0.2
)
 
—

 
(37.2
)
          To affiliates
 
—

 
28.0

 
(23.3
)
 
(4.7
)
 
—

 
—

Loss on extinguishment of debt
 
—

 
—

 
—

 
—

 
—

 
—

Other (expense) income, net
 
—

 
(0.5
)
 
2.9

 
(2.2
)
 
—

 
0.2

(Loss) income before income taxes from continuing operations
 
—

 
(9.1
)
 
26.3

 
11.9

 
—

 
29.1

(Benefit) provision for income taxes
 
—

 
(2.8
)
 
8.0

 
3.6

 
—

 
8.8

(Loss) income before equity in loss of subsidiaries
 
—

 
(6.3
)
 
18.3

 
8.3

 
—

 
20.3

Equity in income (loss) of subsidiaries
 
20.3

 
26.6

 
8.3

 
—

 
(55.2
)
 
—

Net income from continuing operations
 
$
20.3

 
$
20.3

 
$
26.6

 
$
8.3

 
$
(55.2
)
 
$
20.3

Loss from discontinued operations
 
$
—

 
$
—

 
$
—

 
$
(1.1
)
 
$
—

 
$
(1.1
)
Net income
 
$
20.3

 
$
20.3

 
$
26.6

 
$
7.2

 
$
(55.2
)
 
$
19.2

Comprehensive income (loss)
 
$
21.8

 
$
21.8

 
$
28.4

 
$
12.2

 
$
(58.4
)
 
$
25.8





29

Condensed Consolidating Statement of Operations
Three Months Ended October 1, 2011
(in Millions)
 
 
Parent
 
Issuers
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
 
$
—

 
$
—

 
$
348.9

 
$
122.9

 
$
(23.3
)
 
$
448.5

Cost of sales
 
—

 
—

 
228.1

 
84.3

 
(23.3
)
 
289.1

Gross profit
 
—

 
—

 
120.8

 
38.6

 
—

 
159.4

Selling, general and administrative expenses
 
—

 
—

 
64.4

 
21.5

 
—

 
85.9

Amortization of intangible assets
 
—

 
—

 
11.9

 
0.5

 
—

 
12.4

Income from continuing operations
 
—

 
—

 
44.5

 
16.6

 
—

 
61.1

Non-operating (expense) income:
 
 
 
 
 
 
 
 
 
 
 
 
     Interest expense, net:
 
 
 
 
 
 
 
 
 
 
 
 
          To third parties
 
—

 
(42.3
)
 
(0.3
)
 
(0.2
)
 
—

 
(42.8
)
          To affiliates
 
—

 
28.9

 
(25.1
)
 
(3.8
)
 
—

 
—

Loss on divestiture
 
—

 
—

 
(0.6
)
 
(6.3
)
 
 
 
(6.9
)
     Other (expense) income, net
 
—

 
(0.7
)
 
2.3

 
(9.2
)
 
—

 
(7.6
)
(Loss) income before income taxes from continuing operations
 
—

 
(14.1
)
 
20.8

 
(2.9
)
 
—

 
3.8

Provision (benefit) for income taxes
 
—

 
(4.8
)
 
5.8

 
(1.4
)
 
—

 
(0.4
)
(Loss) income before equity in earnings (loss) of subsidiaries
 
—

 
(9.3
)
 
15.0

 
(1.5
)
 
—

 
4.2

Equity in income of subsidiaries
 
4.5

 
13.8

 
(1.2
)
 
—

 
(17.1
)
 
—

Net income (loss) from continuing operations
 
4.5

 
4.5

 
13.8

 
(1.5
)
 
(17.1
)
 
4.2

Income from discontinued operations
 
—

 
—

 
—

 
0.3

 
—

 
0.3

Net income (loss)
 
$
4.5

 
$
4.5

 
$
13.8

 
$
(1.2
)
 
$
(17.1
)
 
$
4.5

Comprehensive (loss) income
 
$
4.5

 
$
5.7

 
$
14.1

 
$
(5.0
)
 
$
(17.1
)
 
$
2.2




30


Condensed Consolidating Statement of Operations
Six Months Ended September 29, 2012
(in Millions)
 
 
Parent
 
Issuers
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
 
$
—

 
$
—

 
$
720.1

 
$
323.2

 
$
(50.2
)
 
$
993.1

Cost of sales
 
—

 
—

 
461.5

 
216.5

 
(50.2
)
 
627.8

Gross profit
 
—

 
—

 
258.6

 
106.7

 
—

 
365.3

Selling, general and administrative expenses
 
—

 
—

 
136.7

 
67.1

 
—

 
203.8

Zurn PEX loss contingency
 
—

 
—

 
10.1

 
—

 
—

 
10.1

Restructuring and other similar charges
 
—

 
—

 
1.4

 
2.6

 
—

 
4.0

Amortization of intangible assets
 
—

 
—

 
23.5

 
2.8

 
—

 
26.3

Income from continuing operations
 
—

 
—

 
86.9

 
34.2

 
—

 
121.1

Non-operating (expense) income:
 
 
 
 
 
 
 
 
 
 
 
 
     Interest expense, net:
 
 
 
 
 
 
 
 
 
 
 
 
          To third parties
 
—

 
(74.5
)
 
(0.6
)
 
(0.4
)
 
—

 
(75.5
)
          To affiliates
 
—

 
56.5

 
(46.0
)
 
(10.5
)
 
—

 
—

Loss on extinguishment of debt
 
—

 
(21.1
)
 
—

 
—

 
—

 
(21.1
)
Other (expense) income, net
 
—

 
(15.5
)
 
27.0

 
(10.8
)
 
—

 
0.7

(Loss) income before income taxes from continuing operations
 
—

 
(54.6
)
 
67.3

 
12.5

 
—

 
25.2

(Benefit) provision for income taxes
 
—

 
(18.7
)
 
20.9

 
3.4

 
—

 
5.6

(Loss) income before equity in loss of subsidiaries
 
—

 
(35.9
)
 
46.4

 
9.1

 
—

 
19.6

Equity in earnings of subsidiaries
 
19.6

 
55.5

 
9.1

 
—

 
(84.2
)
 
—

Net income from continuing operations
 
19.6

 
19.6

 
55.5

 
9.1

 
(84.2
)
 
19.6

Loss from discontinued operations
 
—

 
—

 
—

 
(2.6
)
 
—

 
(2.6
)
Net income
 
$
19.6

 
$
19.6

 
$
55.5

 
$
6.5

 
$
(84.2
)
 
$
17.0

Comprehensive income
 
$
19.6

 
$
19.6

 
$
56.1

 
$
(1.2
)
 
$
(82.9
)
 
$
11.2























31

Condensed Consolidating Statement of Operations
Six Months Ended October 1, 2011
(in Millions)
 
 
Parent
 
Issuers
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
 
$
—

 
$
—

 
$
703.2

 
$
263.5

 
$
(48.5
)
 
$
918.2

Cost of sales
 
—

 
—

 
459.7

 
181.7

 
(48.5
)
 
592.9

Gross profit
 
—

 
—

 
243.5

 
81.8

 
—

 
325.3

Selling, general and administrative expenses
 
—

 
—

 
131.9

 
44.8

 
—

 
176.7

Amortization of intangible assets
 
—

 
—

 
23.9

 
1.0

 
—

 
24.9

Income from continuing operations
 
—

 
—

 
87.7

 
36.0

 
—

 
123.7

Non-operating (expense) income:
 
 
 
 
 
 
 
 
 
 
 
 
     Interest expense, net:
 
 
 
 
 
 
 
 
 
 
 
 
          To third parties
 
(1.1
)
 
(85.3
)
 
(0.5
)
 
(0.3
)
 
—

 
(87.2
)
          To affiliates
 
—

 
58.5

 
(51.1
)
 
(7.4
)
 
—

 
—

Loss on debt extinguishment
 
(0.7
)
 
—

 
—

 
—

 
—

 
(0.7
)
Loss on divestiture
 
—

 
—

 
(0.6
)
 
(6.3
)
 
 
 
(6.9
)
     Other (expense) income, net
 
—

 
(1.5
)
 
5.9

 
(12.2
)
 
—

 
(7.8
)
(Loss) income before income taxes from continuing operations
 
(1.8
)
 
(28.3
)
 
41.4

 
9.8

 
—

 
21.1

Provision (benefit) for income taxes
 
11.2

 
(9.8
)
 
1.3

 
3.3

 
—

 
6.0

(Loss) income before equity in earnings of subsidiaries
 
(13.0
)
 
(18.5
)
 
40.1

 
6.5

 
—

 
15.1

Equity in income of subsidiaries
 
28.7

 
47.2

 
7.1

 
—

 
(83.0
)
 
—

Net income from continuing operations
 
15.7

 
28.7

 
47.2

 
6.5

 
(83.0
)
 
15.1

Income from discontinued operations
 
—

 
—

 
—

 
0.6

 
—

 
0.6

Net income
 
$
15.7

 
$
28.7

 
$
47.2

 
$
7.1

 
$
(83.0
)
 
$
15.7

Comprehensive income
 
$
15.7

 
$
30.4

 
$
47.8

 
$
3.8

 
$
(83.0
)
 
$
14.7



32

Condensed Consolidating Statement of Cash Flows
Six Months Ended September 29, 2012
(in Millions)

 
 
Parent
 
Issuers
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Operating activities
 

 

 

 

 

 

Net (loss) income
 
$
19.6

 
$
19.6

 
$
55.5

 
$
6.5

 
$
(84.2
)
 
$
17.0

Non-cash adjustments
 
18.2

 
79.3

 
40.3

 
16.7

 
(84.2
)
 
70.3

Changes in operating assets and liabilities, including intercompany activity
 
(32.3
)
 
(234.3
)
 
32.6

 
(13.2
)
 
168.4

 
(78.8
)
Cash provided by (used for) operating activities
 
5.5

 
(135.4
)
 
128.4

 
10.0

 
—

 
8.5

Investing activities
 

 

 

 

 

 

Expenditures for property, plant and equipment
 
—

 
—

 
(18.7
)
 
(13.8
)
 
—

 
(32.5
)
Proceeds from dispositions of property, plant and equipment
 
—

 
—

 
5.5

 
—

 
—

 
5.5

Loan receivable for financing under New Market Tax Credit incentive program
 
—

 
—

 
(9.7
)
 
—

 
—

 
(9.7
)
Cash used for investing activities
 
—

 
—

 
(22.9
)
 
(13.8
)
 
—

 
(36.7
)
Financing activities
 

 

 

 

 

 

Proceeds from borrowings of long-term debt
 
—

 
—

 
0.5

 
0.9

 
—

 
1.4

Repayments of long-term debt
 
—

 
(307.2
)
 
—

 
(0.1
)
 
—

 
(307.3
)
Proceeds from borrowings of short-term debt
 
—

 
—

 
—

 
7.3

 
—

 
7.3

Repayments of short-term debt
 
—

 
—

 
—

 
(0.7
)
 
—

 
(0.7
)
Proceeds from financing under New Market Tax Credit incentive program
 
—

 
—

 
14.0

 
—

 
—

 
14.0

Proceeds from issuance of common stock
 
—

 
458.3

 
—

 
—

 
—

 
458.3

Proceeds from exercise of stock options
 
—

 
2.3

 
—

 
—

 
—

 
2.3

Payment of deferred financing fees
 
—

 
(0.4
)
 
—

 
—

 
—

 
(0.4
)
Payment of early redemption premium on long-term debt
 
—

 
(17.6
)
 
—

 
—

 
—

 
(17.6
)
Excess tax benefit on exercise of stock options
 
—

 
—

 
14.6

 
—

 
—

 
14.6

Cash provided by financing activities
 
—

 
135.4

 
29.1

 
7.4

 
—

 
171.9

Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
—

 
(1.5
)
 
—

 
(1.5
)
Increase (decrease) in cash and cash equivalents
 
5.5

 
—

 
134.6

 
2.1

 
—

 
142.2

Cash and cash equivalents at beginning of period
 
7.8

 
—

 
198.0

 
92.2

 
—

 
298.0

Cash and cash equivalents at end of period
 
$
13.3

 
$
—

 
$
332.6

 
$
94.3

 
$
—

 
$
440.2






33

Condensed Consolidating Statement of Cash Flows
Six Months Ended October 1, 2011
(in Millions)

 
 
Parent
 
Issuers
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Operating activities
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
15.7

 
$
28.7

 
$
47.2

 
$
7.1

 
$
(83.0
)
 
$
15.7

Non-cash adjustments
 
(16.8
)
 
(41.0
)
 
49.2

 
11.1

 
83.0

 
85.5

Changes in operating assets and liabilities, including intercompany activity
 
(0.6
)
 
114.6

 
(301.1
)
 
122.0

 
—

 
(65.1
)
Cash provided by (used for) operating activities
 
(1.7
)
 
102.3

 
(204.7
)
 
140.2

 
—

 
36.1

Investing activities
 
 
 
 
 
 
 
 
 
 
 
 
Expenditures for property, plant and equipment
 
—

 
—

 
(19.3
)
 
(2.6
)
 
—

 
(21.9
)
Proceeds from dispositions of property, plant and equipment
 
—

 
—

 
5.6

 
—

 
—

 
5.6

Proceeds from divestiture, net of transaction costs
 
—

 
—

 
—

 
3.4

 
—

 
3.4

Acquisitions, net of cash
 
—

 
—

 
(18.2
)
 
—

 
—

 
(18.2
)
Cash used for investing activities
 
—

 
—

 
(31.9
)
 
0.8

 
—

 
(31.1
)
Financing activities
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings of long-term debt
 
—

 
—

 
75.0

 
—

 
—

 
75.0

Repayments of long-term debt
 
—

 
(1.0
)
 
—

 
(0.7
)
 
—

 
(1.7
)
Proceeds from borrowings of short-term debt
 
—

 
—

 
—

 
0.3

 
—

 
0.3

Repayment of short-term debt
 
(93.5
)
 
—

 
—

 
(3.8
)
 
—

 
(97.3
)
Payment of deferred financing fees
 
—

 
(1.3
)
 
—

 
—

 
—

 
(1.3
)
Dividend payment to parent company
 
100.0

 
(100.0
)
 
—

 
—

 
—

 
—

Cash (used for) provided by financing activities
 
6.5

 
(102.3
)
 
75.0

 
(4.2
)
 
—

 
(25.0
)
Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
—

 
(9.2
)
 
—

 
(9.2
)
Increase (decrease) in cash and cash equivalents
 
4.8

 
—

 
(161.6
)
 
127.6

 
—

 
(29.2
)
Cash and cash equivalents at beginning of period
 
0.7

 
—

 
304.3

 
86.0

 
—

 
391.0

Cash and cash equivalents at end of period
 
$
5.5

 
$
—

 
$
142.7

 
$
213.6

 
$
—

 
$
361.8





34

21. Subsequent Events
The Company evaluated subsequent events from the balance sheet date of September 29, 2012 through November 9, 2012 and has concluded that the following subsequent event occurred during such period:
Incremental Assumption Agreement
On October 4, 2012, the Company entered into an Incremental Assumption Agreement (the “Incremental Assumption Agreement”) with Credit Suisse AG, as administrative agent and refinancing term lender, relating to the Second Amended and Restated Credit Agreement dated as of March 15, 2012.
The Incremental Assumption Agreement modifies certain terms of the term loan facility under the Second Restated Credit Agreement. It reduces the interest rates applicable to borrowings under such facility by fifty ( 50 ) basis points per annum, effectively resulting in a current interest rate on the Eurocurrency borrowings of 4.50% , determined as the LIBO rate (subject to a 1.00% floor) plus 3.50% . It also provides for a 1.00% penalty on certain prepayments occurring on or prior to April 4, 2013. Other material terms of the Second Restated Credit Agreement remain unchanged. The Company expects to recognize a related expense of approximately $3.0 million in the third quarter of fiscal 2013, which is primarily comprised of a non-cash write-off of deferred financing costs.

35

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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, Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), of our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 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 of September 29, 2012 and during the period from April 1, 2012 through September 29, 2012 , there has been no material change to this information.
Evaluation of Subsequent Events
We evaluated subsequent events from the balance sheet date of September 29, 2012 through the date of this filing. Subsequent to the balance sheet date, on October 4, 2012, the Company entered into an Incremental Assumption Agreement relating to the Second Restated Credit Agreement, which reduces the effective interest rate applicable to the borrowings under the term loan facility by fifty basis points. See Part I, Note 21 Subsequent Events for further information.
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board ("FASB") issued an update to Accounting Standards Codification ("ASC") No. 350, Intangibles - Goodwill and Other , which now permits entities to initially perform a qualitative assessment on indefinite-lived intangible asset impairment to assess whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, as a result of the qualitative assessment, it is determined that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. In addition, in September 2011, the FASB issued a similar update which also permits entities to initially perform a qualitative assessment on goodwill impairment to assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. An entity also has the option to forgo the qualitative assessment for any indefinite-lived intangible asset or goodwill in any period and proceed directly to performing the quantitative test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The Company will adopt the guidance for our annual impairment tests performed in fiscal 2013. The application of this guidance to our annual impairment test is not expected to have a significant impact on the Company's results of operations, financial position, or cash flows.
In June 2011, the FASB issued an update to ASC No. 220, Presentation of Comprehensive Income , which no longer permits presentation of other comprehensive income and its components in the statement of stockholders’ equity. Rather, the Company must elect to present the items of net (loss) income and other comprehensive (loss) income in a single continuous statement of comprehensive (loss) income or in two separate, but consecutive, statements. Under either method the statement must be presented with equal prominence as the other primary financial statements. The Company adopted this guidance effective April 1, 2012 using two separate, but consecutive, statements. As the new guidance relates to presentation only, the adoption did not have a significant impact on the Company's results of operations, financial position or cash flows.
Fiscal Year
Our fiscal year ends on March 31 . Throughout this MD&A, we refer to the period from July 1, 2012 through September 29, 2012 as the “ second quarter of fiscal 2013 ” or the “ second quarter ended September 29, 2012 .” Similarly, we refer to the period from July 3, 2011 through October 1, 2011 as the “ second quarter of fiscal 2012 ” or the “ second quarter ended October 1, 2011 .”

36
Table of Contents

Results of Operations
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 consolidated financial statements and notes thereto, along with Item 7 “MD&A” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 .
Consolidated Overview
Net sales for the second quarter of fiscal 2013 increased 11% from the prior year to $500 million, primarily due to the acquisition of VAG in the third quarter of fiscal 2012. Net sales excluding the impact of foreign currency fluctuations and the effect of acquisitions and divestitures (“core sales”), increased 2% year-over-year in the second quarter. Income from operations for the second quarter of fiscal 2013 , which included $2.4 million of restructuring costs, was $66.1 million compared to $61.1 million in the second quarter of fiscal 2012. Income from operations for the second quarter excluding restructuring costs increased 12.1% to $68.5 million, or 13.7% of sales.
Net sales for the first six months of fiscal 2013 increased 8% from the comparable period in the prior year to $993 million. Income from operations for the first six months of fiscal 2013 was $121.1 million and included $4.0 million of restructuring costs and a $10.1 million charge related to a pending legal settlement reached in connection with the Zurn brass fittings litigation (recorded in the first quarter of fiscal 2013). Income from operations for the first six months of fiscal 2013 excluding these items increased 9.3% to $135.2 million, or 13.6% of sales.
Second Quarter Ended September 29, 2012 Compared with the Second Quarter Ended October 1, 2011 :
Net sales
(Dollars in Millions)
 
Quarter Ended
 
 
 
 
 
September 29,
2012
 
October 1,
2011
 
Change
 
% Change
Process & Motion Control
$
309.1

 
$
310.3

 
$
(1.2
)
 
—
 %
Water Management
190.4

 
138.2

 
52.2

 
38
 %
  Consolidated
$
499.5

 
$
448.5

 
$
51.0

 
11
 %

Process & Motion Control
Process & Motion Control net sales in the second quarter of fiscal 2013 were $309.1 million compared to $310.3 in the second quarter fiscal 2012. Core net sales increased 3% from the prior year second quarter driven primarily by growth in aerospace, energy and food and beverage end-markets. The increase in core net sales was offset by the unfavorable impact of foreign currency fluctuations and a fiscal 2012 second quarter divestiture.
Water Management
Water Management net sales in the second quarter of fiscal 2013 increased 38% from the prior year to $190.4 million , driven by the acquisition of VAG. Core sales, which excludes the impact of the VAG acquisition, were flat year-over-year in the fiscal 2013 second quarter as market share gains and increased alternative market sales in our non-residential construction end-markets were offset by expected lower shipments to our North American municipal water end-markets.

37
Table of Contents

  Income (loss) from operations
(Dollars in Millions)
 
Quarter Ended
 
 
 
 
 
September 29,
2012
 
October 1,
2011
 
Change
 
% Change
Process & Motion Control
$
56.5

 
$
53.2

 
$
3.3

 
6
 %
    % of net sales
18.3
%
 
17.1
%
 
1.2
 %
 

Water Management
18.4

 
14.6

 
3.8

 
26
 %
    % of net sales
9.7
%
 
10.6
%
 
(0.9
)%
 

Corporate
(8.8
)
 
(6.7
)
 
(2.1
)
 
(31
)%
    Consolidated
$
66.1

 
$
61.1

 
$
5.0

 
8
 %
        % of net sales
13.2
%
 
13.6
%
 
(0.4
)%
 
 

Process & Motion Control
Process & Motion Control income from operations for the second quarter of fiscal 2013 was $56.5 million , which includes $2.2 million of restructuring charges, compared to $53.2 million for the second quarter of fiscal 2012 . Excluding the impact of the restructuring charges, fiscal 2013 second quarter income from operations increased 10.3% from the prior year comparable period and as a percentage of net sales increased 190 basis points to 19.0%, compared to the second quarter of fiscal 2012, as a result of productivity gains and efficiencies as well as increased operating leverage on higher year-over-year core sales.

Water Management
Water Management income from operations for the second quarter of fiscal 2013 increased 26.0% to $18.4 million , compared to $14.6 million for the second quarter of fiscal 2012, primarily due to the acquisition of VAG. Income from operations as a percent of net sales was 9.7% for the second quarter of fiscal 2013 as core operating margin expansion year-over-year was offset by the mix impact of the VAG acquisition.
Corporate
Corporate expenses were $8.8 million and $6.7 million in the second quarter of fiscal 2013 and fiscal 2012, respectively. The increase in corporate expenses primarily relate to the timing of professional services incurred in the second quarter of fiscal 2013, as well as an increase in stock based compensation expense resulting from additional fiscal 2013 stock option grants associated with our initial public offering.

Interest expense, net

Interest expense, net was $37.2 million in the second quarter of fiscal 2013 compared to $42.8 million in the second quarter of fiscal 2012 . The year-over-year decrease in interest expense is primarily the result of a reduction in the total outstanding debt, partially offset by higher weighted average borrowing rates.

Other income (expense), net

Other income, net for the quarter ended September 29, 2012 , consists of foreign currency transaction losses of $0.1 million , a $0.1 million loss on the sale of property, plant and equipment and other miscellaneous income of $0.4 million . Other expense, net for the quarter ended October 1, 2011, consists of management fee expense of $0.8 million, foreign currency transaction losses of $5.9 million and other miscellaneous losses of $0.9 million.
 
Provision (benefit) for income taxes

The income tax provision was $8.8 million in the second quarter of fiscal 2013 compared to an income tax benefit of $0.4 million in the second quarter of fiscal 2012. The effective income tax rate for the second quarter of fiscal 2013 was 30.2% versus (10.5)% in the second quarter of fiscal 2012. The effective income tax rate for the second quarter of fiscal 2013 is below the U.S. federal statutory rate of 35% due to the accrual of foreign income taxes at rates which are generally below the U.S. federal statutory rate, as well as the recognition of certain foreign related branch losses for U.S. income tax purposes. The income tax benefit, associated with the income before income taxes, for the second quarter of fiscal 2012 is attributable to the recognition of certain, previously unrecognized tax benefits due to the lapse of the applicable statute of limitations.


38
Table of Contents

Net income from continuing operations

Our net income from continuing operations for the second quarter of fiscal 2013 was $20.3 million compared to net income of $4.2 million in the second quarter of fiscal 2012 as a result of the factors described above. Diluted income per share from continuing operations increased $0.14 or 250% to $0.20 . Diluted net income per share is impacted by the dilutive effect of the current year increase in average outstanding shares from our initial public offering.

(Loss) income from discontinued operations

Our net loss from discontinued operations was $1.1 million in the second quarter of fiscal 2013 as compared to income from discontinued operations of $0.3 million in the second quarter of fiscal 2012. The loss on discontinued operations relates to the planned divestiture by sale of a non-core engineered chain business located in Shanghai, China within the Process & Motion Control platform. The Company is currently engaged in an active sale process and expects the transaction to be completed within the next 12 months.

Six Months Ended September 29, 2012 Compared with the Six Months Ended October 1, 2011 :
Net sales
(Dollars in Millions)
 
Six Months Ended
 
 
 
 
 
September 29,
2012
 
October 1,
2011
 
Change
 
% Change
Process & Motion Control
$
623.0

 
$
635.0

 
$
(12.0
)
 
(2
)%
Water Management
370.1

 
283.2

 
86.9

 
31
 %
  Consolidated
$
993.1

 
$
918.2

 
$
74.9

 
8
 %

Process & Motion Control

Process & Motion Control net sales in the first six months of fiscal 2013 were $623.0 million compared to $635.0 million in the first six months of fiscal 2012. Core net sales, which excludes 3% of unfavorable currency fluctuations and a 1% unfavorable impact from our second quarter fiscal 2012 divestiture, increased by 2% year-over-year, driven primarily by growth in non-U.S. mining, aerospace, and energy end-markets.

Water Management

Water Management net sales in the first six months of fiscal 2013 increased 31% to $370.1 million compared to $283.2 million of net sales reported in the first six months of fiscal 2012 as a 36% increase in sales due to the VAG acquisition was partially offset by a 5% decrease in core net sales, due to expected lower shipments to our North American municipal water end-markets partially offset by market share gains and growth in alternative markets within our non-residential construction end-markets.


39
Table of Contents

Income (loss) from operations
(Dollars in Millions)
 
Six Months Ended
 
 
 
 
 
September 29,
2012
 
October 1,
2011
 
Change
 
% Change
Process & Motion Control
$
112.0

 
$
103.1

 
$
8.9

 
9
 %
    % of net sales
18.0
%
 
16.2
%
 
1.8
 %
 
 
Water Management
34.9

 
34.4

 
0.5

 
1
 %
    % of net sales
9.4
%
 
12.1
%
 
(2.7
)%
 
 
Corporate
(25.8
)
 
(13.8
)
 
(12.0
)
 
(87
)%
    Consolidated
$
121.1

 
$
123.7

 
$
(2.6
)
 
11
 %
        % of net sales
12.2
%
 
13.5
%
 
(1.2
)%
 
 
Process & Motion Control
Process & Motion Control income from operations for the first six months of fiscal 2013 was $112.0 million , which included $3.1 million of restructuring charges, compared to $103.1 million in the first six months of fiscal 2012. Income from operations excluding restructuring charges increased 12% from the prior year and as a percent of net sales increased 230 basis points from the prior year to 18.5% of sales. The improvement in fiscal 2013 operating margin resulted from productivity gains and efficiencies as well as increased operating leverage on higher year-over-year core sales.
Water Management
Water Management income from operations for the first six months of fiscal 2013 was $34.9 million , which includes $0.9 million of restructuring charges, compared to $34.4 million in the first six months of fiscal 2012. Income from operations excluding the restructuring charges as a percent of net sales decreased 240 basis points from the first six months of the prior year to 9.7%. The decline in fiscal 2013 operating margin is primarily due to reduced operating leverage on lower year-over-year net sales within our North American water markets as well as the mix impact of the VAG acquisition.
Corporate
Corporate expenses increased by $12.0 million from $13.8 million in the first six months of fiscal 2012 to $25.8 million in the first six months of fiscal 2013 primarily due to a $10.1 million incremental charge related to a pending legal settlement reached in connection with ongoing litigation associated with alleged failure or anticipated failure of Zurn brass fittings. See Part I Item I, Note 15 Commitments and Contingencies for additional information. The first six months of fiscal 2013 also included an increase in stock based compensation expense resulting from stock option grants associated with our initial public offering.
Interest expense, net
Interest expense, net was $75.5 million in the first six months of fiscal 2013 compared to $87.2 million in the first six months of fiscal 2012. The year-over-year reduction in interest expense is primarily the result of the reduction in outstanding debt, partially offset by higher weighted average borrowing rates.
Loss on extinguishment of debt

During the first six months of fiscal 2013, we recorded a $21.1 million loss on extinguishment of debt as a result of our early redemption of all of the then outstanding 11.75% Notes, which primarily consisted of a $17.6 million premium related to redemption and $3.5 million of a non-cash write-off of the deferred financing costs. During the first six months of fiscal 2012, we recorded a $0.7 million loss on debt extinguishment as a result of the extinguishment of all of our then-remaining PIK toggle senior indebtedness.
Other income (expense), net
Other income, net for the first six months of fiscal 2013 was $0.7 million and consisted of management fee expense of $15.0 million to terminate our management agreement with Apollo, foreign currency transaction losses of $4.9 million, a CDSOA recovery of $16.6 million, a $4.1 million gain on the sale of property, plant and equipment and other miscellaneous losses of $0.1 million. Other expense, net for the first six months of fiscal 2012 was $7.8 million and consisted of management fee expense of $1.5 million, foreign currency transaction losses of $5.3 million and other miscellaneous losses of $1.0 million.

40
Table of Contents

Provision for income taxes
The income tax provision recorded in the first six months of fiscal 2013 was $5.6 million compared to an income tax provision of $6.0 million in the first six months of fiscal 2012. Our effective income tax rate for the first six months of fiscal 2013 was 22.2% versus 28.4% in the first six months of fiscal 2012. The effective income tax rate for the first six months of fiscal 2013 is below the U.S. federal statutory rate of 35% due to the accrual of foreign income taxes at rates which are generally below the U.S. federal statutory rate, the recognition of certain foreign related branch losses for U.S. income tax purposes, as well as the higher tax benefit associated with significant, discrete items compared to the overall forecasted rate in conjunction with the relatively low amount of income before income taxes. The effective income tax rate for the first six months of fiscal 2012 is below the U.S. federal statutory rate of 35% due to the recognition of certain, previously unrecognized tax benefits as a result of the lapse of the applicable statute of limitations.
Net income from continuing operations
Our net income from continuing operations for the first six months of fiscal 2013 increased 29.8% to $19.6 million compared to a net income from continuing operations of $15.1 million in the first six months of fiscal 2012 due to the factors described above. Diluted income per share from continuing operations in the first six months of fiscal 2013 was $0.20 , compared to diluted net income from continuing operations per share of $0.21 in the first six months of second quarter of fiscal 2012. Comparability is impacted by the dilutive effect of the current year increase in average outstanding shares from our initial public offering.

(Loss) income from discontinued operations

Our net loss from discontinued operations was $2.6 million for the first six months of fiscal 2013 as compared to income from discontinued operations of $0.6 million in the first six months fiscal 2012. The loss on discontinued operations relates to the planned divestiture by sale of a non-core engineered chain business located in Shanghai, China within the Process & Motion Control platform. The Company is currently engaged in an active sale process and expects the transaction to be completed within the next 12 months.

41
Table of Contents

Non-GAAP Financial Measures
Core sales excludes the impact of acquisitions, divestitures and foreign currency translation. Management believes that core sales facilitates easier comparisons of our net sales performance with prior and future periods and to our peers. We exclude the effect of acquisitions because the nature, size and number of acquisitions 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.
In addition to net income, we believe Adjusted EBITDA (as described below in “Covenant Compliance”) is an important measure because, under our senior secured credit facilities, 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 by comparing the ratio of our senior secured bank debt to our Adjusted EBITDA (see “Covenant Compliance” for additional discussion of this ratio, including a reconciliation to our net income). We reported Adjusted EBITDA in the second quarter and six months ended September 29, 2012, of $100.5 million and $198.0 million , respectively, and net income for the same periods of $19.2 million and $17.0 million , respectively.
Covenant Compliance
The credit agreement and indenture that governs our notes contain, 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 senior secured credit facilities and indenture that governs our notes 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 that governs our senior secured credit facilities restrict our ability to take certain actions, such as incurring additional debt or making acquisitions, if we are unable to meet certain maximum senior secured bank debt to Adjusted EBITDA ratios and, with respect to our revolving facility, also require us to remain at or below a certain maximum senior secured bank debt to Adjusted EBITDA ratio of 5.0 to 1.0 as of the end of each fiscal quarter. Certain covenants contained in the indenture that governs our notes restrict our ability to take certain actions, such as incurring additional debt or making acquisitions, if we are unable to achieve a minimum Adjusted EBITDA to Fixed Charges ratio. Under such indenture, our ability to incur additional indebtedness and our ability to make future acquisitions under certain circumstances requires us to have an Adjusted EBITDA to Fixed Charges ratio (measured on a last twelve months, or LTM, basis) of at least 2.0 to 1.0. Failure to comply with this covenant could limit our long-term growth prospects by hindering our ability to obtain future debt or make acquisitions.
“Fixed Charges” is defined in our indentures as net interest expense, excluding the amortization or write-off of deferred financing costs.
“Adjusted EBITDA” is the term we use to describe EBITDA as defined and adjusted in our senior secured credit facilities, 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. 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 or 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.

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As of September 29, 2012 , the calculation of Adjusted EBITDA under our senior secured credit facilities results in a substantially identical calculation. However, the results of such calculations could differ in the future based on the different types of adjustments that may be included in such respective calculations at the time.
Set forth below is a reconciliation of net income to Adjusted EBITDA for the periods indicated below.
(in millions)
Six months ended
October 1, 2011
 
Year ended
March 31, 2012
 
Six months ended
September 29, 2012
 
Twelve months ended
September 29, 2012
Net income
$
15.7

 
$
29.9

 
$
17.0

 
$
31.2

Interest expense, net
87.2

 
176.2

 
75.5

 
164.5

Income tax provision (benefit)
6.0

 
9.4

 
5.6

 
9.0

Depreciation and amortization
53.6

 
114.0

 
57.0

 
117.4

EBITDA
$
162.5

 
$
329.5

 
$
155.1

 
$
322.1

Adjustments to EBITDA:

 
 
 

 
 
Actuarial loss on pension and postretirement benefit obligation
—

 
9.1

 
—

 
9.3

Loss (income) on divestiture (1)
6.9

 
6.4

 
0.2

 
(0.5
)
Loss (income) from discontinued operations, net of tax (2)
(0.6
)
 
5.6

 
2.6

 
8.8

Restructuring and other similar charges (3)
—

 
6.8

 
4.0

 
10.8

Loss on extinguishment of debt (4)
0.7

 
10.7

 
21.1

 
31.1

Impact of inventory fair value adjustment
0.9

 
4.2

 
—

 
3.3

Stock option expense
2.1

 
3.7

 
3.5

 
5.1

LIFO expense (5)
3.1

 
2.8

 
2.1

 
1.8

Zurn PEX loss contingency
—

 
—

 
10.1

 
10.1

Other expense (income), net (6)
7.8

 
7.1

 
(0.7
)
 
(1.4
)
Subtotal of adjustments to EBITDA
$
20.9

 
$
56.4

 
$
42.9

 
$
78.4

Adjusted EBITDA
$
183.4

 
$
385.9

 
$
198.0

 
$
400.5

Fixed charges (7)
 
 
 
 
 
 
$
158.4

Ratio of Adjusted EBITDA to Fixed Charges
 
 
 
 
 
 
2.53x

Senior secured bank indebtedness (8)
 
 
 
 
 
 
$
527.2

Senior secured bank leverage ratio (9)
 
 
 
 
 
 
1.32x

__________________________________
(1)
The loss (income) on divestiture is the result of our sale of assets of a German subsidiary to a third party during the second quarter ended October 1, 2011. See Part I Item 1, Note 2 - Acquisitions and Divestitures of the condensed consolidated financial statements for more information.
(2)
Represents the income (loss) on discontinued operations related to a non-core engineered chain business located in Shanghai, China. The Company is currently engaged in an active sale process of this non-core business. See Part I Item 1, Note 3 - Discontinued Operations of the condensed consolidated financial statements for more information.
(3)
Represents restructuring costs comprised of work force reduction, lease termination, and other facility rationalization costs. See Part I Item 1, Note 4 - Restructuring and Other Similar Costs of the condensed consolidated financial statements for more information.
(4)
The loss on extinguishment of debt is the result of our early redemption of the 11.75% Notes in the first quarter of fiscal 2013, as well as the retirement of the PIK toggle senior indebtedness in the first quarter of fiscal 2012. See Part I Item 1, Note 12 - Long-Term Debt of the condensed consolidated financial statements for more information.    
(5)
Last-in first-out (LIFO) inventory adjustments are excluded in calculating Adjusted EBITDA as defined in our senior secured credit facilities.
(6)
Other expense (income), net for the periods indicated, consists of:
(in millions)
Six months ended
October 1, 2011
 
Year ended
March 31, 2012
 
Six months ended
September 29, 2012
 
Twelve months ended
September 29, 2012
Management fee expense
$
1.5

 
$
3.0

 
$
15.0

 
$
16.5

CDSOA recovery
—

 
(2.4
)
 
(16.6
)
 
(19.0
)
Loss (gain) on sale of property, plant and equipment
0.8

 
1.3

 
(4.1
)
 
(3.6
)
Loss on foreign currency transactions
5.3

 
5.2

 
4.9

 
4.8

Other expense (income)
0.2

 
—

 
0.1

 
(0.1
)
Total
$
7.8

 
$
7.1

 
$
(0.7
)
 
$
(1.4
)
(7)
The indenture governing our senior notes defines fixed charges as interest expense excluding the amortization or

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write-off of deferred financing costs for the trailing four quarters.
(8)
The senior secured credit facilities define senior secured bank debt as consolidated secured indebtedness for borrowed money, less unrestricted cash, which was $411.3 million (as defined by the senior secured credit facilities) at September 29, 2012 . Senior secured bank debt reflected in the table consists of borrowings under our senior secured credit facilities.
(9)
The senior secured credit facilities define the senior secured bank leverage ratio as the ratio of senior secured bank debt to Adjusted EBITDA for the trailing four fiscal quarters.

Liquidity and Capital Resources     
Our primary sources of liquidity are available cash and cash equivalents, cash flow from operations and borrowing availability under our $265.0 million revolving credit facility and our $100.0 million accounts receivable securitization program.
As of September 29, 2012 , we had $440.2 million of cash and cash equivalents and $319.0 million of additional borrowing capacity ( $219.0 million of available borrowings under our revolving credit facility and $100.0 million available under our accounts receivable securitization program). As of September 29, 2012, the available borrowings under our credit facility have been reduced by $ 46.0 million due to outstanding letters of credit. As of March 31, 2012, we had $298.0 million of cash and approximately $234.5 million of additional borrowing capacity ($134.5 million of available borrowings under our revolving credit facility and $100.0 million available under our accounts receivable securitization 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.
On April 3, 2012, we closed the initial public offering of our common stock with total proceeds of $458.3 million, net of underwriter discounts and commissions and other direct costs of the offering. The primary uses of the proceeds were for the redemption of the 11.75% Notes for a total of $325.0 million, which includes early redemption premiums and accrued interest, and the payment to Apollo (our majority stockholder) or its affiliates of a fee of $15.0 million to terminate our management agreement with Apollo. We invested the remaining proceeds in accordance with our cash investment policies.
Cash Flows
Net cash provided by operating activities in the first six months of fiscal 2013 was $8.5 million compared to $36.1 million in the first six months of fiscal 2012 . The reduction of operating cash flow was primarily driven by an incremental usage of cash of $36.6 million year-over-year from trade working capital (accounts receivable, inventories, and accounts payable), cash restructuring of $3.2 million and a $14.6 million reduction to cash to reflect an excess tax benefit on stock option exercises that occurred in the first six months of fiscal 2013. The above items were partially offset by the incremental cash flow generated on higher year-over-year sales.
Cash used for investing activities was $36.7 million in the first six months of fiscal 2013 compared to a use of $31.1 million in the first six months of fiscal 2012 . During the first six months of fiscal 2013 we increased capital expenditures over the prior year comparable period by $10.6 million and used $9.7 million of cash in providing a loan receivable under the New Market Tax Credit incentive program. In addition, in the first six months of fiscal 2013 we received $5.5 million from the sale of certain property, plant and equipment. The use of cash for the first six months of fiscal 2012 included $18.2 million of net cash paid for the acquisition of Autogard.
Cash provided by financing activities was $171.9 million in the first six months of fiscal 2013 compared to a use of $25.0 million in the first six months of fiscal 2012 . The cash provided by financing activities in the first six months of fiscal 2013 consisted of $458.3 million of proceeds from the closing of our initial public offering on April 3, 2012, net of underwriters fees and other direct costs of the offering. During the first six months of fiscal 2013 we also received proceeds of $14.0 million under the New Market Tax Credit incentive program and $8.7 million from other borrowings. These sources of cash were partially offset by the full redemption on April 17, 2012 of $300.0 million principal amount of then-outstanding 11.75% Notes, a $17.6 million early redemption premium, and other net repayments of debt of $8.0 million (including $7.2 million from our term loan). Additionally, $14.6 million was recognized in the first six months of fiscal 2013 as an excess tax benefit on option exercises that occurred throughout the first two quarters of fiscal 2013. The cash used for financing activities in the first six months of fiscal 2012 consisted mainly of a $93.5 million repayment to retire the then-outstanding PIK toggle senior indebtedness due 2013, net of the $75.0 million source of cash borrowed on the Accounts Receivable Securitization Program to partially fund the purchase of VAG.

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Indebtedness
As of September 29, 2012 we had $2,138.7 million of total indebtedness outstanding as follows (in millions):
 
 
Total Debt at September 29, 2012
 
Short-term Debt and Current Maturities of Long-Term Debt
 
Long-term
Portion
8.50% Senior notes due 2018
 
$
1,145.0

 
$
—

 
$
1,145.0

Term loans (1)
 
938.5

 
9.5

 
929.0

8.875% Senior notes due 2016
 
2.0

 
—

 
2.0

10.125% Senior subordinated notes due 2012
 
0.3

 
0.3

 
—

Other (2)
 
52.9

 
13.3

 
39.6

Total
 
$
2,138.7

 
$
23.1

 
$
2,115.6

(1) Includes an unamortized original issue discount of $4.3 million at September 29, 2012.
(2) Includes $37.4 million of financing related to the Company's participation in the New Market Tax Credit incentive program.
See Part I Item I, Note 12 Long-Term Debt of the condensed consolidated financial statements for a description of our outstanding indebtedness.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk during the normal course of business from changes in foreign currency exchange rates and interest rates. The exposure to these risks is managed through a combination of normal operating and financing activities and derivative financial instruments in the form of foreign currency forward contracts and interest rate swaps to cover known foreign currency transactions and interest rate fluctuations.
Foreign Currency Exchange Rate Risk
Our exposure to foreign currency exchange rates relates primarily to our foreign operations. For our foreign operations, exchange rates impact the U.S. Dollar ("USD") value of our reported earnings, our investments in the subsidiaries and the intercompany transactions with the subsidiaries. See “Risk Factors-Our international operations are subject to uncertainties, which could adversely affect our operating results”, in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 .
Approximately 32% of our sales originated outside of the United States in the first six months of fiscal 2013. As a result, fluctuations in the value of foreign currencies against the USD, particularly the Euro, may have a material impact on our reported results. Revenues and expenses denominated in foreign currencies are translated into USD at the end of the fiscal period using the average exchange rates in effect during the period. Consequently, as the value of the USD changes relative to the currencies of our major markets, our reported results vary.
Fluctuations in currency exchange rates also impact the USD amount of our stockholders' equity. The assets and liabilities of our non-U.S. subsidiaries are translated into USD at the exchange rates in effect at the end of the fiscal periods. As of September 29, 2012 , stockholders' equity decreased by $6.4 million from March 31, 2012 as a result of foreign currency translation adjustments. If the USD had strengthened by 10% as of September 29, 2012 , the result would have decreased stockholders' equity by approximately $40.4 million , which includes the impact of $13.0 million related to Euro denominated entities.
As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. However, any of these factors could adversely affect our international operations and, consequently, our operating results.
At September 29, 2012 , the Company had entered into foreign currency forward contracts that exchange Canadian dollars (“CAD”) for USD, USD for Euro ("EUR") and EUR for Czech Koruna ("CZK"). The forward contracts in place as of September 29, 2012 were set to expire between October 2012 and March 2013 and have total notional amounts in connection with CAD for USD contracts of $8.9 million CAD ( $8.9 million USD) with a contract rate of approximately $1CAD:$1USD , USD for EUR contracts of $1.8 million USD ( €1.4 million EUR) with rates ranging between $1.23USD:€1EUR to $1.28USD:€1EUR and EUR for CZK of €2.9 million EUR ( 72.5 million CZK) with rates approximating €0.04EUR:1CZK . These foreign currency forward contracts were not accounted for as effective cash flow hedges in accordance with ASC 815, Derivatives and Hedging (“ASC 815”) and as such were marked to market through earnings. We believe that a hypothetical 10% adverse change in the foreign currency exchange rates would have resulted in a $1.2 million decrease in the fair value of foreign exchange forward contacts as of September 29, 2012 .

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Interest Rate Risk
We utilize a combination of short-term and long-term debt to finance our operations and are exposed to interest rate risk on these debt obligations.
A substantial portion of our indebtedness, including indebtedness under the senior secured credit facilities bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates. As of September 29, 2012 , our outstanding borrowings under the term loan facility were $938.5 million (net of $4.3 million unamortized original issue discount). During the second quarter of fiscal 2013 borrowings under the term loan facility bore interest, in the case of Eurocurrency Borrowings, at 4.00% plus a Eurocurrency rate determined by reference to an annual interest rate equal to (x) the LIBO rate in effect for a given interest period divided by (y) one minus a statutory reserve applicable to such borrowing (subject to a 1% LIBOR floor). For the first six months of fiscal 2013, current borrowings under the Company's credit agreement had an effective and weighted average interest rate of 5.00% , determined as the LIBO rate (subject to a 1% floor) plus 4.00%. As discussed in Part I, Note 21, Subsequent Events, on October 4, 2012, the Company entered into an Incremental Assumption Agreement, which going forward reduces the effective interest rate applicable to the borrowings under the term loan facility by fifty (50) basis points.
During the fourth quarter of fiscal 2012, we terminated the interest rate swap agreements aligned to the term loans under our prior credit facilities. See Part I Item I Note 12 for more information on the refinancing of our senior secured credit facility and the termination of our interest rate swaps. We will continue to assess the appropriateness of hedging interest rate risk with our outstanding variable debt under our current senior secured credit facilities.
Our net income would likely be affected by changes in market interest rates on our variable-rate obligations. As discussed above, our term loan facilities are subject to a 1% LIBOR floor. Therefore, a 100 basis point increase in the September 29, 2012 market interest rate would increase interest expense under the senior secured credit facilities by approximately $2.1 million on an annual basis.
ITEM  4.
CONTROLS AND PROCEDURES
We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based on that evaluation as of September 29, 2012 , the Chief Executive Officer and Chief Financial Officer concluded that, as of such date, the Company's disclosure controls and procedures are adequate and effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, in a manner allowing timely decisions regarding required disclosure. As such, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the period covered by this report.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
There have been no changes in our internal control over financial reporting identified in connection with the evaluation discussed above that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II - OTHER INFORMATION

ITEM  1.
LEGAL PROCEEDINGS

See the information under the heading “Commitments and Contingencies” in Note 15 to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report, which is incorporated in this Part II, Item 1 by reference.
As discussed in Note 15, the Company's subsidiaries, Zurn PEX, Inc. and Zurn Industries, LLC have been named as defendants in a number of individual and class action lawsuits in various United States courts. The plaintiffs in these suits claim damages due to the alleged failure or anticipated failure of Zurn brass fittings on the PEX plumbing systems in homes and other structures. The complaints assert various causes of action, including but not limited to negligence, breach of warranty, fraud, and violations of the Magnuson Moss Act and certain state consumer protection laws, and seek declaratory and injunctive relief, and damages (including punitive damages).
In July 2012, the Company reached an agreement in principle to settle the liability underlying this litigation; this agreement was reflected in a settlement agreement filed with the court in October 2012.  The settlement is designed to resolve, on a national basis, the Company's overall exposure for both known and unknown claims related to the alleged failure or anticipated failure of Zurn brass fittings on PEX plumbing systems; subject to the right of eligible class members to opt-out of the settlement and pursue their claims independently. The settlement remains subject to final court approval, including the right of objection by interested parties, and utilizes a seven year claims fund, which is capped at $20 million, and is funded in installments over the seven year period based on claim activity and minimum funding criteria.  The settlement also covers class action plaintiffs' attorneys' fees and expenses in an amount not to exceed $8.5 million and related administrative costs.
The Company has recorded a reserve related to the brass fittings liability, which takes into account, in pertinent part, the agreed contributions by insurance carriers, as well as exposure from the claims fund, potential opt-outs and the waiver of future insurance coverage. While the Company believes its reserve reflects the most likely estimate of the loss contingency associated with bringing all aspects of the Zurn PEX brass fittings matter to resolution, additional reserve adjustments should be expected.  Management, however, does not expect such adjustments will be material to its financial position, assuming there are no significant changes in current facts and assumptions, although there can be no assurances.
The Company's insurance carriers have funded the Company's defense in these proceedings; however, they filed suit for a declaratory judgment challenging their coverage obligations with respect to certain classes of claims. The suit, which is pending, is expected to be resolved in conjunction with the approval of the settlement of the underlying claims.
The Company can provide no assurance that the liability and related litigation will be resolved on the anticipated terms, or at all, or that final court approval will be granted.  If final court approval is not granted the Company will continue to vigorously defend these claims.  Even if final court approval is achieved the Company expects to continue to vigorously defend against any opt-out claims.  In addition, the Company cannot provide assurance that the insurance carriers' action will be resolved, or on the final terms of such resolution.  Due to the uncertainties of litigation (including approval of the potential settlement referenced above), and the related insurance coverage and collection actions and issues, as well as the actual number or value of claims (including opt-outs), the Company may be subject to substantial liability beyond the reserve that has been taken that could have a material adverse effect on the Company and its results of operations.
See further information regarding the Zurn brass fittings litigation in Note 15 to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report, which is incorporated in this Part II, Item 1 by reference.

ITEM  1A.
RISK FACTORS
Information with respect to certain risk factors affecting the Company is contained in Item1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 under the heading "Risk Factors". Management believes that as of the date of this filing, there have been no material changes to this information.


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ITEM 5. OTHER INFORMATION.

On November 9, 2012, Rexnord entered into employment agreements with Todd A. Adams, Mark W. Peterson and Praveen R. Jeyarajah, the Company's executive officers (the "NEOs"). The initial term of the agreements is for three years and is automatically extended each year after the initial term for another one-year term, unless notice is given. The agreements also provide that if there is a change in control, then the terms will continue for two years.

Pursuant to the agreements, in the event the NEO is terminated without “cause,” as defined in the agreements, the NEO generally will be entitled to receive:
 
•
severance payments equal to the sum of the officer's current base salary plus his annual target bonus (multiplied by 1.5 in the case of Mr. Adams), payable in installments over a 12-month period (18 months in the case of Mr. Adams);
•
any unpaid bonus earned with respect to any fiscal year ending on or prior to the date of termination and a pro-rated annual bonus for the fiscal year in which the termination occurs;
•
continued participation in Rexnord's medical and dental plans for 12 months (18 months in the case of Mr. Adams);
•
all of the NEO's unvested options and long-term incentive awards shall vest or be forfeited, and any such vested awards granted as stock options shall be exercisable.

Each employment agreement also provides that if, within 90 days prior to or two years following a “change in control,” as defined in the agreements, the NEO is terminated without cause or resigns for “good reason,” as defined in the agreements, the NEO generally will be entitled to receive:
 
•
severance payments equal to the sum of the officer's current base salary plus his annual target bonus multiplied by 1.5 (two in the case of Mr. Adams), payable in installments over an 18-month period (24-month period in the case of Mr. Adams) (or, in a lump sum if the change in control is not does not meet certain requirements under IRC Section 409A);
•
any unpaid bonus earned with respect to any fiscal year ending on or prior to the date of termination and a pro-rated annual bonus for the fiscal year in which the termination occurs;
•
vesting of unvested options, other equity awards and long-term incentive awards, with limits under the 2012 Incentive Plan intended to reduce or eliminate the effects of IRC Sections 280G and/or 4999 applied only to the extent that such limits increase the after-tax amount the NEO receives; and
•
continued participation in Rexnord's medical and dental plans for 18 months (two years in the case of Mr. Adams).

Under the agreements, Rexnord is also protected from competition by the NEOs after their employment with Rexnord would cease, for periods that vary under circumstances specified in the agreements.   Further, the NEOs have agreed to related confidentiality requirements after the termination of their employment and have agreed to provide a release of claims to the Company.

The foregoing description does not purport to be complete and is qualified in its entirety by reference to the full text of the agreements, which are filed as exhibits to this report and are incorporated herein by reference.

ITEM  6.
EXHIBITS
See Exhibit Index following the Signature page, which is incorporated in this Item by reference.
 


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
 
 
 
REXNORD CORPORATION
 
 
 
 
 
Date:
November 9, 2012
 
By:
/ S /     MARK W. PETERSON
 
 
 
Name:
Mark W. Peterson
 
 
 
Title:
Senior Vice President and Chief Financial Officer


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EXHIBIT INDEX
 
Exhibit
No.
Description
 
Included
Herewith
 
 
 
 
10.1
Employment Agreement, dated November 9, 2012, between Rexnord Corporation and Todd A. Adams
 
X
 
 
 
 
10.2
Employment Agreement, dated November 9, 2012, between Rexnord Corporation and Mark W. Peterson
 
X
 
 
 
 
10.3
Employment Agreement, dated November 9, 2012, between Rexnord Corporation and Praveen R. Jeyarajah
 
X
 
 
 
 
31.1     
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
 
X
 
 
 
 
31.2     
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
 
X
 
 
 
 
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
 
X
 
 
 
 
101.INS
XBRL Instance Document
 
X
 
 
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
X
 
 
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
X
 
 
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
X
 
 
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
X
 
 
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
X




50

Exhibit 10.1
EMPLOYMENT AGREEMENT
     This EMPLOYMENT AGREEMENT (the “Agreement” ) is dated and entered into this November 9, 2012 (the “ Effective Date ”), between Rexnord Corporation, a Delaware corporation (the “Company” ), and Todd A. Adams ( “Executive” ).
W I T N E S S E T H:
      WHEREAS , the Company and Executive entered into an offer letter dated April 2, 2008 ( “Prior Agreement” ); and
      WHEREAS , the Company and Executive desire to amend and fully restate the Prior Agreement, and to continue Executive’s employment with the Company as its President and Chief Executive Officer, in accordance with the terms hereof.
      NOW THEREFORE , in consideration of the foregoing, of the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
     1.  POSITION/DUTIES .
          (a) Executive shall serve as the President and Chief Executive Officer of the Company. As President and Chief Executive Officer of the Company, Executive shall have active and general supervision and management over the business and affairs of the Company and shall have full power and authority to act for all purposes for and in the name of the Company in all matters except where action of the Board of Directors of the Company (the “Board” ) is required by law, the by-laws of the Company, or resolutions of the Board, and shall have such other duties and responsibilities as the Board shall designate that are consistent with Executive’s position. Executive shall report exclusively to the Board.
          (b) Executive shall use Executive’s best efforts to perform faithfully and efficiently the duties and responsibilities assigned to Executive hereunder and devote substantially all of Executive’s business time to the performance of Executive’s duties with the Company; provided, the foregoing shall not prevent Executive from (i) participating in charitable, civic, educational, professional, community or industry affairs or, with prior approval of the Board, serving on the board of directors or advisory boards of other companies and (ii) managing Executive’s and Executive’s family’s personal investments, in all events so long as such activities do not materially interfere with the performance of Executive’s duties hereunder or create a potential business conflict or the appearance thereof. If at any time service on any board of directors or advisory board would, in the good faith judgment of the Board, conflict with Executive’s fiduciary duty to the Company or create any appearance thereof, Executive shall, as soon as reasonably practicable considering any fiduciary duty to the other such   company, resign from such other board of directors or advisory board after written notice of the conflict is received from the Board.
          (c) During the Term, the Board shall nominate Executive for re-election as a member of the Board at the expiration of Executive’s then-current term.
          (d) Executive further agrees to serve without additional compensation as an officer and director of any of the Company’s subsidiaries and agrees that any amounts received from any such corporation may be offset against the amounts due hereunder.
     2.  TERM OF AGREEMENT . The Agreement is effective on the Effective Date and the initial term shall end on the third anniversary of the Effective Date ( “Initial Term” ). The term of this Agreement shall be automatically extended thereafter for successive one (1) year periods unless, at least ninety (90) days prior to the end of the Initial Term or the then current succeeding one (1)-year extended term of this Agreement, the Company or Executive has notified the other that the term hereunder shall terminate upon its expiration date. The Initial Term, as it may be extended from year to year thereafter, is herein referred to as the “Term . ” The foregoing to the contrary notwithstanding, upon the occurrence of a Change in Control (defined below), the Term shall be for a period ending on the later of the last day of the Initial Term and the second anniversary of the date of the occurrence of such Change in Control and shall be subject to expiration upon notice by Executive or the Company to the other party or to automatic successive additional one-year periods thereafter, as the case may be, in the manner provided above. If Executive remains employed by the Company beyond the expiration of the Term, he shall be an employee at-will; except that any provisions identified as surviving shall continue. In all events hereunder, Executive’s employment is subject to earlier termination pursuant to Section 7 hereof, and upon such earlier termination the Term shall be deemed to have ended.
     3.  BASE SALARY . During the Term, the Company shall pay Executive a base salary (the “Base Salary” ) at an annual rate of $750,000, payable in accordance with the regular payroll practices of the Company. Executive’s Base Salary shall be subject to annual review by the Board (or a committee thereof) and may be increased from time to time by the Board. The base salary as determined herein from time to time shall constitute “Base Salary” for purposes of this Agreement.
     


4.  ANNUAL BONUS . During the Term, the Executive shall be eligible to participate in the Company’s Management Incentive Plan and any successor annual bonus plan. Executive shall have the opportunity to earn an annual target bonus, measured against performance criteria to be determined by the Board (or a committee thereof), of 125% of Base Salary and a maximum bonus opportunity of 250% of Base Salary.
     5.  Intentionally Omitted
     6.  EMPLOYEE BENEFITS . Commencing on the Effective Date:
          (a) BENEFIT PLANS AND ARRANGEMENTS. Executive shall be entitled to participate in all employee benefit plans of the Company including, but not limited to, equity, profit sharing, medical coverage, education, or other retirement or welfare benefits that the Company has adopted or may adopt, maintain or contribute to for the benefit of its senior executives in accordance with the terms of such plans and programs. Executive shall continue to be entitled to executive benefits and arrangements in an amount and type no less than as in effect on the Effective Date.
          (b) VACATION. Executive shall be entitled to annual paid vacation in accordance with the Company’s policy applicable to senior executives, but in no event less than four (4) weeks per year (as prorated for partial years of employment).
          (c) BUSINESS AND ENTERTAINMENT EXPENSES. Upon presentation of appropriate documentation, Executive shall be reimbursed in accordance with the Company’s expense reimbursement policy as approved by the Board for all reasonable and necessary business expenses incurred in connection with the performance of Executive’s duties hereunder.
          (d) CERTAIN AMENDMENTS. Nothing herein shall be construed to prevent the Company from amending, altering, terminating or reducing any plans, benefits or programs so long as Executive continues to receive compensation and benefits consistent with Sections 4, 6(a) and 6(b).
     7.  TERMINATION . Executive’s employment and the Term shall terminate on the first of the following to occur:
          (a) DISABILITY. Upon written notice by the Company to Executive of termination due to Disability, while Executive remains Disabled. For purposes of this Agreement, “Disability” shall have the meaning defined under the Company’s then-current long-term disability insurance plan in which Executive participates. 
          (b) DEATH. Automatically on the date of death of Executive.
          (c) CAUSE. Immediately upon written notice by the Company to Executive of a termination of Executive’s employment for Cause. “Cause” shall mean:
          (i) Executive’s willful and continued failure to perform substantially his duties owed to the Company or its affiliates after a written demand for substantial performance is delivered to him specifically identifying the nature of such unacceptable performance and is not cured by Executive within a reasonable period, not to exceed thirty (30) days;
          (ii) Executive is convicted of (or pleads guilty or no contest to) a felony or any crime involving moral turpitude;
          (iii) Executive has engaged in conduct that constitutes gross misconduct in the performance of his employment duties; or
          (iv) Executive breaches any representation, warranty or covenant under Section 22.
An act or omission by Executive shall not be “willful” if conducted in good faith and with Executive’s reasonable belief that such conduct is in the best interests of the Company.
          (d) WITHOUT CAUSE. Upon written notice by the Company to Executive of an involuntary termination of Executive’s employment other than for Cause (and other than due to his Disability).
          (e) GOOD REASON. Upon written notice by Executive to the Company of a voluntary termination of Executive’s employment, at any time during a Protection Period (defined below), for Good Reason. “Good Reason” shall mean, without the express written consent of Executive, the occurrence of any of the following events:
          (i) Executive’s Base Salary or annual target bonus opportunity is materially reduced;
          (ii) Executive’s duties or responsibilities are negatively and materially changed in a manner inconsistent with Executive’s position (including status, offices, titles, and reporting responsibilities) or authority;
          (iii) The Company requires Executive’s principal office to be relocated more than 50 miles from its location as of the date immediately preceding the Change in Control; or
          (iv) Failure by the Company to elect or reelect Executive as a member of the Board of Directors.  
          


Prior to any termination by Executive for “Good Reason” he shall provide the Board not less than thirty (30) nor more than ninety (90) days’ notice, with specificity, of the grounds constituting Good Reason and an opportunity within such notice period for the Company to cure such grounds. Such notice shall be given within ninety (90) days following the initial existence of such grounds constituting Good Reason for such notice and subsequent termination, if not so cured above, to be effective.
          (f) VOLUNTARY TERMINATION FOR ANY REASON (WITHOUT GOOD REASON DURING A PROTECTION PERIOD). Upon at least thirty (30) days’ prior written notice by Executive to the Company of Executive’s voluntary termination of employment (i) for any reason prior to or after a Protection Period or (ii) without Good Reason during a Protection Period, in either case which the Company may, in its sole discretion, make effective earlier than any termination date set forth in such notice.
     8.  CONSEQUENCES OF TERMINATION . Any termination payments made and benefits provided under this Agreement to Executive shall be in lieu of any termination or severance payments or benefits for which Executive may be eligible under any of the plans, policies or programs of the Company or its affiliates. Except to the extent otherwise provided in this Agreement, all benefits, including, without limitation, stock option grants, restricted stock units grants and other awards under the Company’s long-term incentive programs, shall be subject to the terms and conditions of the plan or arrangement under which such benefits accrue, are granted or are awarded. Upon termination of Executive’s employment, the following amounts and benefits shall be due to Executive:
          (a) DEATH; DISABILITY. If Executive’s employment terminates due to Executive’s death or Disability, then the Company shall pay or provide Executive (or the legal representative of his estate in the case of his death) with:
          (i) (A) any accrued and unpaid Base Salary through the date of termination and any accrued and unused vacation in accordance with Company policy; and (B) reimbursement for any unreimbursed expenses, incurred and documented in accordance with applicable Company policy, through the date of termination (collectively, “Accrued Obligations” ). Accrued Obligations payable under clause (A) shall be payable within fifteen (15) days following the date of termination, and under clause (B) shall be paid within fifteen (15) days after Executive shall have provided the Company all required documentation therefor;
          (ii) Any unpaid bonus earned with respect to any fiscal year ending on or preceding the date of termination, payable when bonuses are paid generally to senior executives for such year;
          (iii) A pro-rated annual bonus for the fiscal year in which such termination occurs, the amount of which shall be based on actual performance under the applicable bonus plan (for this purpose determined at fiscal year end, by treating Company financial performance goals for such fiscal year as the only performance goals applicable to Executive and without any exercise of negative discretion by the Committee) and the fraction the numerator of which is the number of days elapsed during the performance year through the date of termination and the denominator of which is 365, which pro-rated bonus shall be paid when bonuses are paid generally to senior executives for such year ( “Pro-Rated Bonus” );
          (iv) Any disability insurance benefits, or life insurance proceeds, as the case may be, as may be provided under the Company plans in which Executive participates immediately prior to such termination; and
          (vii) All of Executive’s other unvested long-term incentive awards granted to Executive through the date of termination, shall vest or be forfeited, and any such vested awards granted as stock options shall be exercisable, in accordance with the terms and conditions set forth in such awards.
          (b) VOLUNTARY TERMINATION (INCLUDING VOLUNTARY TERMINATION WITHOUT GOOD REASON DURING A PROTECTION PERIOD); INVOLUNTARY TERMINATION WITHOUT CAUSE AT OR AFTER AGE 65; INVOLUNTARY TERMINATION FOR CAUSE.
          (i) If Executive’s employment should be terminated (i) by Executive for any reason at any time other than during a Protection Period, or (ii) by Executive without Good Reason during a Protection Period, then: (A) the Company shall pay to Executive any Accrued Obligations in accordance with Section 8(a)(i); (B) all unvested stock options, restricted stock units and other unvested long-term incentive grants) shall be immediately forfeited and cancelled; and (C) all vested stock options shall be exercisable as set forth in the stock option award.  
          (ii) If Executive’s employment is terminated by the Company other than for Cause and other than for Disability at or after Executives’ attainment of age 65, (x) the Company shall pay to Executive any Accrued Obligations and (y) Executive’s long-term incentive grants shall vest or be forfeited, and any stock options shall be exercisable, as set forth in the applicable grant agreement, but not less than ninety (90) days.
          (iii) If Executive’s employment is terminated by the Company for Cause, the Company shall pay to Executive any Accrued Obligations, and all vested and unvested stock options, restricted stock units and other vested and unvested long-term incentive shall be immediately forfeited and cancelled.
          (c) TERMINATION WITHOUT CAUSE. If at any time (A) prior to Executive’s attainment of age 65 and (B) other than during a Protection Period, Executive’s employment by the Company is terminated by the Company other than for Cause (and other than a termination for Disability), then the Company shall pay or provide Executive with:
          (i) Executive’s Accrued Obligations, payable in accordance with Section 8(a)(i);


          (ii) Any unpaid bonus earned with respect to any fiscal year ending on or preceding the date of termination, payable when bonuses are paid generally to senior executives for such year;
          (iii) A Pro-Rated Bonus;
          (iv) Severance payments in the aggregate amount equal to the product of (A) the sum of (1) Executive’s then Base Salary plus (2) his annual target bonus multiplied by (B) one and one-half (1.5), which amount shall be payable to Executive in equal semi-monthly payroll installments over a period of eighteen (18) months;
          For purposes of this subparagraph (iv) each installment severance payment to Executive under this subparagraph (iv) shall be treated as a separate payment (within the meaning of Section 409A ( “Section 409A” ) of the Internal Revenue Code of 1986, as amended (the “Code” )).
          Provided, anything herein to the contrary notwithstanding, if on the date of termination Executive is a “specified employee” of the Company (as defined in Treasury Regulation Section 1.409A-1(i)), to the extent that such severance payments (and any other payments and benefits provided in Section 8) constitute a “deferral of compensation” under a “nonqualified deferred compensation plan” under Section 409A and Treasury Regulation Section 1.409A-1, the following provisions shall apply ( “Safe Harbor and Postponement” ):
          (1) If such payments and benefits are payable on account of Executive’s “involuntary separation from service” (as defined in Treasury Regulation Section 1.409A-1(n)), Executive shall receive such amount of his severance payments during the six (6)-month period immediately following the date of termination as equals the lesser of: (x) such severance payment amount due Executive under Section 8 during such six (6)-month period or (y) two (2) multiplied by the compensation limit in effect under Section 401(a)(17) of the Code, for the calendar year in which the date of termination occurs and as otherwise provided under Treasury Regulation Section 1.409A-1(b)(9)(iii) and shall be entitled to such of his benefits as satisfy the exception under Treasury Regulation Section 1.409A-1(b)(9)(v) ( “Limitation Amount” ).
          (2) To the extent that, upon such “involuntary separation from service,” the amount of payments and benefits that would have been payable to Executive under Section 8 during the six (6)-month period following the last day of his employment exceeds the Limitation Amount, such excess shall be paid on the first regular semi-monthly payroll date following the expiration of such six (6)-month period.
          (3) If the Company reasonably determines that such employment termination is not such an “involuntary separation from service,” all such payments and benefits that would have been payable to the Executive under Section 8 during the six (6)-month period immediately following the date of termination, but for such determination, shall be paid on the first regular semi-monthly payroll date immediately following the expiration of such six (6)-month period following the date of termination.
          (4) Any payments under this Section 8(c) that are postponed pursuant to the Safe Harbor and Postponement shall accrue interest at an annual rate (compounded monthly) equal to the short-term applicable federal rate (as in effect under Section 1274(d) of the Code on the last day of the Executive’s employment) plus 100 basis points, which interest shall be paid on the first regular semi-monthly payroll date immediately following the expiration of the six (6)-month period following the date of termination.
          (v) Subject to Executive’s continued co-payment of premiums, continued participation for eighteen (18) months in the Company’s medical benefits plan which covers Executive (and his eligible dependents) upon the same terms and conditions (except for the requirement of Executive’s continued employment) in effect for active employees of the Company. In the event Executive obtains other employment that offers substantially similar or more favorable medical benefits, such continuation of coverage by the Company under this subsection shall immediately cease. The continuation of health benefits under this subsection shall reduce the period of coverage and count against Executive’s right to healthcare continuation benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ( “COBRA”) ; and
          (vi) All of Executive’s unvested options and long-term incentive awards granted to Executive through the date of termination shall vest or be forfeited, and any such vested awards granted as stock options shall be exercisable, in accordance with the terms and conditions set forth in such awards, provided that Executive’s vested options shall continue to be exercisable until the earlier of (x) one year after the date of termination and (y) the expiration of the original scheduled term of such options.
     9.  CONDITIONS . Any payments or benefits made or provided to Executive pursuant to any subsection of Section 8 (provided, in the case of Section 8(d), only if Executive’s employment then terminates), or Section 10(c) and Section 10(d), other than Accrued Obligations, are subject to Executive’s:
          (a) compliance with the provisions of Section 11 hereof;
          (b) delivery to the Company of an executed Agreement and General Release (the “General Release” ), which shall be substantially in the form attached hereto as Exhibit A within twenty-one (21) days after presentation thereof by the Company to Executive; and


          (c) delivery to the Company of a resignation from all offices, directorships and fiduciary positions with the Company, its affiliates and employee benefit plans.
Notwithstanding the due date of any post-employment payments, any amounts due following a termination under this Agreement (other than Accrued Obligations) shall not be payable until after the expiration of any statutory revocation period applicable to the General Release without Executive having revoked such General Release which must occur by the 53 rd day after the Executive’s termination of employment (the “ Release Condition ”), and, subject to the provisions of Section 20 hereof, any such amounts shall commence on the later of the applicable due date or five (5) business days after the Release Condition is satisfied, provided that, if the 60-day period following termination of employment spans two calendar years, then any payments and benefits subject to Section 409A shall commence on the later of the applicable due date or on a date during that portion of such 60-day period occurring in the calendar year following the year of termination of employment (subject to further delay if required under Section 20), provided that the Release Condition is satisfied. Notwithstanding, Executive shall be entitled to any Accrued Obligations, payable without regard for the conditions of this Section 9.
     10. CHANGE IN CONTROL
          (a) CHANGE IN CONTROL. A “Change in Control” of the Company shall be deemed to have occurred if any of the events set forth in any one of the following subparagraphs shall occur:
          (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act” )) (a “Person” ) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock” ) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities” ); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (1) and (2) of subsection (c) of this definition; or
          (ii) individuals who, as of the date hereof, constitute the Board (the “Incumbent Board” ) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
          (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination” ), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (2) at least a majority
of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
          (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
          (b)   Intentionally Omitted.
          (c) QUALIFYING TERMINATION . If, prior to Executive’s attainment of age 65, Executive’s employment is involuntarily terminated by the Company without Cause (and other than due to his Disability) or is voluntarily terminated by Executive for Good Reason, in either case only during the period commencing 90 days prior to the occurrence of a Change in Control of the Company and ending on the second anniversary of date of the Change in Control ( “Protection Period” ), then the Company shall pay or provide Executive with:
          (i) Executive’s Accrued Obligations, payable in accordance with Section 8(a)(i);


          (ii) Any unpaid bonus earned with respect to any fiscal year ending on or preceding the date of termination, payable when bonuses are paid generally to senior executives for such year;
          (iii) A Pro-Rated Bonus;
          (iv) A lump sum severance payment in the aggregate amount equal to the product of (A) the sum of (1) Executive’s then Base Salary plus (2) his annual target bonus multiplied by (B) two (2), to be paid within ten (10) business days after Executive’s termination from employment; provided, unless the Change of Control occurring on or preceding such termination also meets the requirements of Section 409A(a)(2)(A)(v) and Treasury Regulation Section 1.409A-3(i)(5) (or any successor provision) thereunder (a “409A Change in Control”) , the amount payable to Executive under this subparagraph (iv) shall be paid to Executive in equal semi-monthly payroll installments over a period of twenty-four (24) months, not in a lump sum, to the extent necessary to avoid the application of Section 409A(a)(1)(A) and (B);
          (v) Subject to Executive’s continued co-payment of premiums, continued participation for two (2) years in the Company’s medical benefits plan which covers Executive (and his eligible dependents) upon the same terms and conditions (except for the requirements of Executive’s continued employment) in effect for active employees of the Company. In the event Executive obtains other employment that offers substantially similar or more favorable medical benefits, such continuation of coverage by the Company under this subsection shall immediately cease. The continuation of health benefits under this subsection shall reduce the period of coverage and count against Executive’s right to healthcare continuation benefits under COBRA; and
          (vi) All of Executive’s unvested options and long-term incentive awards granted to Executive through the date of termination shall vest and all Executive's options shall continue to be exercisable until the earlier of (x) one year after the date of termination and (y) the expiration of the original scheduled term of such options. In addition, if this Section 10(c) applies, any limitation on the acceleration of the vesting of options (that would otherwise be applicable pursuant to Section 7.4 of Rexnord Corporation 2012 Performance Incentive Plan or otherwise) to reduce or eliminate the effects of Section 280G and/or Section 4999 of the Code, shall not be implemented unless the after-tax amount Executive receives would be increased (as compared to the after-tax amount Executive would receive in the absence of such limitation on acceleration of vesting), and in such event such limitation on acceleration of vesting shall be implemented to the minimum extent necessary to maximize the Executive's after-tax amount, provided that Executive shall determine the order in which such limitation on acceleration of vesting is applied or, solely if required to comply with Section 409A of the Code, the option acceleration limitation shall be applied in the reverse order of scheduled vesting dates (i.e., the option tranche that would have vested first in the absence of a Change in Control will be the last tranche to have its acceleration limited).
          Provided, to the extent applicable under Section 409A as a “deferral of compensation,” and not as a “short-term deferral” under Treasury Regulation Section 1.409A-1(b)(4), the payments and benefits payable to Executive under this Section 10(c) shall be subject to the Safe Harbor and Postponement provided at Section 8(c)(iv).
For the avoidance of doubt, the provisions of this Section 10(c) shall not apply unless a Change in Control actually occurs. In the event of a termination of employment during the 90 days prior to the occurrence of a Change in Control, (x) the payment under Section 10(c)(iv) shall be payable (or commence to be payable, as applicable) within ten days following the Change in Control (not termination of employment), and (y) the acceleration of vesting of Executive’s unvested options and long-term incentive awards shall not occur until the occurrence of the Change in Control (and if such options and awards would otherwise be forfeited during such 90 day period in the absence of a Change in Control, such awards shall remain outstanding for up to 90 days solely for the purpose of determining whether Executive becomes entitled to vest in such awards pursuant to Section 10(c)(vi) but otherwise shall not be payable or exercisable following the date on which they would have otherwise been forfeited (unless the Change in Control subsequently occurs during such 90-day period)).    
     11.  EXECUTIVE COVENANTS .
          (a) CONFIDENTIALITY. Executive agrees that Executive shall not, commencing on the date hereof and at all times thereafter, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of Executive’s employment and for the benefit of the Company, any nonpublic, proprietary or confidential information, knowledge or data relating to the Company, any of its subsidiaries, affiliated companies or businesses, which shall have been obtained by Executive during Executive’s employment by the Company. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to Executive; (ii) becomes known to the public subsequent to disclosure to Executive through no wrongful act of Executive or any representative of Executive; or (iii) Executive is required to disclose by applicable law, regulation or legal process (provided that Executive provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information). Notwithstanding clauses (i) and (ii) of the preceding sentence, Executive’s obligation to maintain such disclosed information in confidence shall not terminate where only portions of the information are in the public domain.
          (b) NONSOLICITATION. Commencing on the date hereof, and continuing during Executive’s employment with the Company and for the eighteen (18) month period following termination of Executive’s employment for any reason (a twenty-four (24) month post-employment period in the event of a termination of Executive’s employment for any reason at any time during a Protection


Period) ( “Restricted Period” ), Executive agrees that Executive shall not, without the prior written consent of the Company, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity: (i) solicit, recruit or employ (whether as an employee, officer, director, agent, consultant or independent contractor) any person who was or is at any time during the six (6) months preceding Executive’s termination of employment an employee, representative, officer or director of the Company; (ii) take any action to encourage or induce any employee, representative, officer or director of the Company to cease their relationship with the Company for any reason; or (iii) knowingly solicit, aid or induce any customer of the Company or any of its subsidiaries or affiliates to purchase goods or services then sold by the Company or any of its subsidiaries or affiliates from another person, firm, corporation or other entity or assist or aid any other persons or entity in identifying or soliciting any such customer.
          (c) NONCOMPETITION. Executive acknowledges that Executive performs services of a unique nature for the Company that are irreplaceable, and that Executive’s performance of such services to a competing business will result in irreparable harm to the Company. Accordingly, during the Restricted Period, Executive agrees that Executive shall not, directly or indirectly, own, manage, operate, control, be employed by (whether as an employee, consultant, independent contractor or otherwise, and whether or not for compensation) or render services to any person, firm, corporation or other entity, in whatever form, engaged in any business of the same type as any business in which the Company or any of its subsidiaries or affiliates is engaged on the date of termination or in which they have proposed, on or prior to such date, to be engaged in on or after such date at any time during the twelve (12)-month period ending with the date of termination, in any locale of any country in which the Company conducts business. This Section 11(c) shall not prevent Executive from owning not more than two percent (2%) of the total shares of all classes of stock outstanding of any publicly held entity engaged in such business.
          (d) NONDISPARAGEMENT. Each of Executive and the Company (for purposes hereof, “the Company” shall mean only (i) the Company by press release or other formally released announcement and (ii) the executive officers and directors thereof and not any other employees) agrees not to make any public statements that disparage the other party, or in the case of the Company, its respective affiliates, employees, officers, directors, products or services. Notwithstanding the foregoing, statements made in the course of sworn testimony in administrative, judicial or arbitral proceedings (including, without limitation, depositions in connection with such proceedings) shall not be subject to this Section 11(d). Executive’s provision shall also not cover normal competitive statements which do not cite Executive’s employment by the Company.  
          (e) RETURN OF COMPANY PROPERTY AND RECORDS. Executive agrees that upon termination of Executive’s employment, for any cause whatsoever, Executive will surrender to the Company in good condition (reasonable wear and tear excepted) all property and equipment belonging to the Company and all records kept by Executive containing the names, addresses or any other information with regard to customers or customer contacts of the Company, or concerning any proprietary or confidential information of the Company or any operational, financial or other documents given to Executive during Executive’s employment with the Company.
          (f) COOPERATION. Executive agrees that, following termination of Executive’s employment for any reason, Executive shall upon reasonable advance notice, and to the extent it does not interfere with previously scheduled travel plans and does not unreasonably interfere with other business activities or employment obligations, assist and cooperate with the Company with regard to any matter or project in which Executive was involved during Executive’s employment, including any litigation. The Company shall compensate Executive for reasonable expenses incurred in connection with such cooperation and assistance.
          (g) ASSIGNMENT OF INVENTIONS. Executive will promptly communicate and disclose in writing to the Company all inventions and developments including software, whether patentable or not, as well as patents and patent applications (hereinafter collectively called “Inventions” ), made, conceived, developed, or purchased by Executive, or under which Executive acquires the right to grant licenses or to become licensed, alone or jointly with others, which have arisen or jointly with others, which have arisen or may arise out of Executive’s employment, or relate to any matters pertaining to, or useful in connection therewith, the business or affairs of the Company or any of its subsidiaries. Included herein as if developed during the employment period is any specialized equipment and software developed for use in the business of the Company. All of Executive’s right, title and interest in, to, and under all such Inventions, licenses, and right to grant licenses shall be the sole property of the Company. Any such Inventions disclosed to anyone by Executive within one (1) year after the termination of employment for any cause whatsoever shall be deemed to have been made or conceived by Executive during the Term. As to all such Inventions, Executive will, upon request of the Company execute all documents which the Company deems necessary or proper to enable it to establish title to such Inventions or other rights, and to enable it to file and prosecute applications for letters patent of the United States and any foreign country; and do all things (including the giving of evidence in suits and other proceedings) which the Company deems necessary or proper to obtain, maintain, or assert patents for any and all such Inventions or to assert its rights in any Inventions not patented.
          (h) EQUITABLE RELIEF AND OTHER REMEDIES. The parties acknowledge and agree that the other party’s remedies at law for a breach or threatened breach of any of the provisions of this Section 11 would be inadequate and, in recognition of this fact, the parties agree that, in the event of such a breach or threatened breach, in addition to any remedies at law, the other party, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available.  


          (i) REFORMATION. If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 11 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state.
          (j) SURVIVAL OF PROVISIONS. The obligations of Executive set forth in this Section 11 shall survive the termination of Executive’s employment by the Company and the termination or expiration of this Agreement and shall be fully enforceable thereafter.
     12.  NO ASSIGNMENTS .
          (a) This Agreement is personal to each of the parties hereto. Except as provided in Section 12(b) below, no party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto.
          (b) The Company shall assign this Agreement to any successor to all or substantially all of the business or assets of the Company provided that the Company shall require such successor to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place and shall deliver a copy of such assignment to Executive.
     13.  NOTICE . For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of delivery if delivered by hand, (b) on the first business day following the date of deposit if delivered by guaranteed overnight delivery service, or (d) on the fourth business day following the date delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive:
At the address shown on the records of the Company
If to the Company:
Rexnord Corporation
4701 West Greenfield Avenue
Milwaukee, WI 53214
Attn: General Counsel
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
     14.  SECTION HEADINGS; INCONSISTENCY . The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. In the event of any inconsistency between this Agreement and any other agreement (including but not limited to any option, long-term incentive or other equity award agreement), plan, program, policy or practice of the Company, the terms of this Agreement shall control.
     15.  SEVERABILITY . The provisions of this Agreement shall be deemed severable and the invalidity of unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
     16.  ARBITRATION . Any dispute or controversy arising under or in connection with this Agreement, other than injunctive relief under Section 11(h) hereof or damages for breach of Section 11, shall be settled exclusively by arbitration, conducted before a single arbitrator in Wilmington, Delaware, administered by the American Arbitration Association ( “AAA” ) in accordance with its Commercial Arbitration Rules then in effect. The single arbitrator shall be selected by the mutual agreement of the Company and Executive, unless the parties are unable to agree to an arbitrator, in which case, the arbitrator will be selected under the procedures of the AAA. The arbitrator will have the authority to permit discovery and to follow the procedures that Executive or she determines to be appropriate. The arbitrator will have no power to award consequential (including lost profits), punitive or exemplary damages. The decision of the arbitrator will be final and binding upon the parties hereto. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. Each party shall bear its own legal fees and costs and equally divide the forum fees and cost of the arbitrator.
     17.  INDEMNIFICATION; LIABILITY INSURANCE . The Company and Executive shall enter into the Company’s standard form of indemnification agreement governing his conduct as an officer and director of the Company.
     18.  AMENDMENTS; WAIVER . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer or director as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
     19.  ENTIRE AGREEMENT; MISCELLANEOUS . This Agreement together with the exhibit hereto, except as otherwise expressly provided in this Agreement, sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein, and supersedes in its entirety the Prior Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The


validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without regard to its conflicts of law principles. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word “including” in this Agreement shall be by way of example rather than by limitation and of the word “or” shall be inclusive and not exclusive.  
     20.  CODE SECTION 409A .
          (a) It is intended that any amounts payable under this Agreement and the Company’s and Executive’s exercise of authority or discretion hereunder shall comply with the provisions of Section 409A and the Treasury Regulations relating thereto so as not to subject Executive to the payment of interest and tax penalty which may be imposed under Section 409A. In furtherance of this interest, anything to the contrary herein notwithstanding, no amounts shall be payable to Executive before such time as such payment fully complies with the provisions of Section 409A and, to the extent that any regulations or other guidance issued under Section 409A after the date of this Agreement would result in Executive being subject to payment of interest and tax penalty under Section 409A, the parties agree to amend this Agreement in order to bring this Agreement into compliance with Section 409A.
          (b)  With regard to any provision herein that provides for the reimbursement of expenses or the provision of in-kind benefits, except as permitted by Section 409A, (i) all such reimbursements shall be made within a commercially reasonable time after presentation of appropriate documentation but in no event later than the end of the year immediately following the year in which Executive incurs such reimbursable expenses, (ii) no such reimbursements or in-kind benefits will affect any other costs or expenses eligible for reimbursement, or any other in-kind benefits to be provided, in any other year and (iii) no such reimbursements or in-kind benefits are subject to liquidation or exchange for another payment or benefit..
          (c) Without limiting the discretion of either the Company or the Executive to terminate the Executive’s employment hereunder for any reason (or no reason), solely for purposes of compliance with 409A a termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a separation from service (within the meaning of Treasury Regulation Section 1.409A-1(h) (applying the 20% default post-separation limit thereunder)) as an employee and, for purposes of any such provision of this Agreement, references to a “termination” or “termination of employment” shall mean separation from service as an employee and such payments shall thereupon be made at or following such separation from service as an employee as provided hereunder.
     21.  FULL SETTLEMENT . Except as set forth in this Agreement, the Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others, except to the extent any amounts are due the Company or its subsidiaries or affiliates pursuant to a judgment against Executive. In no event shall Executive be obliged to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned by Executive as a result of employment by another employer, except as set forth in this Agreement.
     22.  REPRESENTATION . Executive represents and warrants that to that Executive is not bound by any agreement or obligation or understanding, written or oral, that would prevent Executive from entering into this Agreement or performing all of Executive’s obligations hereunder.
     23.  WITHHOLDING . The Company may withhold from any and all amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
     24.  AGREEMENT OF THE PARTIES . The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. Neither Executive nor the Company shall be entitled to any presumption in connection with any determination made hereunder in connection with any arbitration, judicial or administrative proceeding relating to or arising under this Agreement.
     25.  COUNTERPARTS . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instruments.



      IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the date and year first written above.
 
 
REXNORD CORPORATION
 
 
 
By:
/ S /    Patricia M. Whaley
Name:
Patricia M. Whaley
 
Title:
Vice President, General Counsel and Secretary
 
 
 
 
/ S /    Todd A. Adams
Todd A. Adams
 



  EXHIBIT A
GENERAL RELEASE OF ALL CLAIMS
     1. For and in consideration of the promises made in Executive Employment Agreement (defined below), the adequacy of which is hereby acknowledged, the undersigned ( “Executive” ), for himself, his heirs, administrators, legal representatives, executors, successors, assigns, and all other persons claiming through Executive, if any (collectively, “Releasers” ), does hereby release, waive, and forever discharge Rexnord Corporation ( “Company” ), the Company’s subsidiaries, parents, affiliates, related organizations, employees, officers, directors, attorneys, successors, and assigns (collectively, the “Releasees” ) from, and does fully waive any obligations of Releasees to Releasers for, any and all liability, actions, charges, causes of action, demands, damages, or claims for relief, remuneration, sums of money, accounts or expenses (including attorneys’ fees and costs) of any kind whatsoever, whether known or unknown or contingent or absolute, which heretofore has been or which hereafter may be suffered or sustained, directly or indirectly, by Releasers in consequence of, arising out of, or in any way relating to Executive’s employment with the Company or any of its affiliates or the termination of Executive’s employment. The foregoing release and discharge, waiver and covenant not to sue includes, but is not limited to, all claims and any obligations or causes of action arising from such claims, under common law including wrongful or retaliatory discharge, breach of contract (including but not limited to any claims under the Employment Agreement between the Company and Executive, dated November 9, 2012 (the “Employment Agreement” ), and any claims under any stock option and restricted stock units agreements between Executive and the Company) and any action arising in tort including libel, slander, defamation or intentional infliction of emotional distress, and claims under any federal, state or local statute including Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866 and 1871 (42 U.S.C. § 1981), the National Labor Relations Act, the Age Discrimination in Employment Act (ADEA), the Fair Labor Standards Act, the Americans with Disabilities Act of 1990, the Rehabilitation Act of 1973,), or the discrimination or employment laws of any state or municipality, or any claims under any express or implied contract which Releasers may claim existed with Releasees. This release and waiver does not apply to any claims or rights that may arise after the date Executive signs this General Release. The foregoing release does not apply to any claims of indemnification under the Employment Agreement or a separate indemnification agreement with the Company or rights of coverage under directors and officers liability insurance.
     2. Excluded from this release and waiver are any claims which cannot be waived by law, including but not limited to the right to participate in an investigation conducted by certain government agencies. Executive does, however, waive Executive’s right to any monetary recovery should any agency (such as the Equal Employment Opportunity Commission) pursue any claims on Executive’s behalf. Executive represents and warrants that Executive has not filed any complaint, charge, or lawsuit against the Releasees with any government agency or any court.
     3. Executive agrees never to sue Releasees in any forum for any claim covered by the above waiver and release language, except that Executive may bring a claim under the ADEA to challenge this General Release or as otherwise provided in this General Release. If   Executive violates this General Release by suing Releasees, other than under the ADEA or as otherwise set forth in Section 1 hereof, Executive shall be liable to the Company for its reasonable attorneys’ fees and other litigation costs incurred in defending against such a suit. Nothing in this General Release is intended to reflect any party’s belief that Executive’s waiver of claims under ADEA is invalid or unenforceable, it being the interest of the parties that such claims are waived.
     4. Executive acknowledges, agrees and affirms that he is subject to certain post-employment covenants pursuant to Section 11 of the Employment Agreement, which covenants survive the termination of his employment and the execution of this General Release.
     5. Executive acknowledges and recites that:
          (a) Executive has executed this General Release knowingly and voluntarily;
          (b) Executive has read and understands this General Release in its entirety;
          (c) Executive has been advised and directed orally and in writing (and this subparagraph (c) constitutes such written direction) to seek legal counsel and any other advice he wishes with respect to the terms of this General Release before executing it;
          (d) Executive’s execution of this General Release has not been coerced by any employee or agent of the Company; and
          (e) Executive has been offered twenty-one (21) calendar days after receipt of this General Release to consider its terms before executing it.
     6. This General Release shall be governed by the internal laws (and not the choice of laws) of the State of Delaware, except for the application of pre-emptive Federal law.
     7. Executive shall have seven (7) days from the date hereof to revoke this General Release by providing written notice of the revocation to the Company, as provided in Section 13 of the Employment Agreement, upon which revocation this General Release shall be unenforceable and null and void and in the absence of such revocation this General Release shall be binding and irrevocable by Executive.


     PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.


 
 
 
 
Date: ____________ , 20____
 
EXECUTIVE:
 
 
 
 
 
 
 

 
 
Todd A. Adams
 



Exhibit 10.2
EMPLOYMENT AGREEMENT
     This EMPLOYMENT AGREEMENT (the “Agreement” ) is dated and entered into this November 9, 2012 (the “ Effective Date ”), between Rexnord Corporation, a Delaware corporation (the “Company” ), and Mark W. Peterson ( “Executive” ).
W I T N E S S E T H:
      WHEREAS , the Company and Executive entered into an offer letter dated November 4, 2011 ( “Prior Agreement” ); and
      WHEREAS , the Company and Executive desire to amend and fully restate the Prior Agreement, and to continue Executive’s employment with the Company as its Senior Vice President and Chief Financial Officer, in accordance with the terms hereof.
      NOW THEREFORE , in consideration of the foregoing, of the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
     1.  POSITION/DUTIES .
          (a) Executive shall serve as the Senior Vice President and Chief Financial Officer of the Company. As Senior Vice President and Chief Financial Officer of the Company, Executive shall have the general responsibilities as principal financial officer of the Company as well as other duties provided in the Company’s by-laws, and shall have such other duties and responsibilities as the Board and/or the Chief Executive Officer shall designate that are consistent with Executive’s position.
          (b) Executive shall use Executive’s best efforts to perform faithfully and efficiently the duties and responsibilities assigned to Executive hereunder and devote substantially all of Executive’s business time to the performance of Executive’s duties with the Company; provided, the foregoing shall not prevent Executive from (i) participating in charitable, civic, educational, professional, community or industry affairs or, with prior approval of the Board, serving on the board of directors or advisory boards of other companies and (ii) managing Executive’s and Executive’s family’s personal investments, in all events so long as such activities do not materially interfere with the performance of Executive’s duties hereunder or create a potential business conflict or the appearance thereof. If at any time service on any board of directors or advisory board would, in the good faith judgment of the Board, conflict with Executive’s fiduciary duty to the Company or create any appearance thereof, Executive shall, as soon as reasonably practicable considering any fiduciary duty to the other such company, resign from such other board of directors or advisory board after written notice of the conflict is received from the Board.
          (c) Executive further agrees to serve without additional compensation as an officer and director of any of the Company’s subsidiaries and agrees that any amounts received from any such corporation may be offset against the amounts due hereunder.
     2.  TERM OF AGREEMENT . The Agreement is effective on the Effective Date and the initial term shall end on the third anniversary of the Effective Date ( “Initial Term” ). The term of this Agreement shall be automatically extended thereafter for successive one (1) year periods unless, at least ninety (90) days prior to the end of the Initial Term or the then current succeeding one (1)-year extended term of this Agreement, the Company or Executive has notified the other that the term hereunder shall terminate upon its expiration date. The Initial Term, as it may be extended from year to year thereafter, is herein referred to as the “Term . ” The foregoing to the contrary notwithstanding, upon the occurrence of a Change in Control (defined below), the Term shall be for a period ending on the later of the last day of the Initial Term and the second anniversary of the date of the occurrence of such Change in Control and shall be subject to expiration upon notice by Executive or the Company to the other party or to automatic successive additional one-year periods thereafter, as the case may be, in the manner provided above. If Executive remains employed by the Company beyond the expiration of the Term, he shall be an employee at-will; except that any provisions identified as surviving shall continue. In all events hereunder, Executive’s employment is subject to earlier termination pursuant to Section 7 hereof, and upon such earlier termination the Term shall be deemed to have ended.
     3.  BASE SALARY . During the Term, the Company shall pay Executive a base salary (the “Base Salary” ) at an annual rate of $335,000, payable in accordance with the regular payroll practices of the Company. Executive’s Base Salary shall be subject to annual review by the Board (or a committee thereof) and may be increased from time to time by the Board. The base salary as determined herein from time to time shall constitute “Base Salary” for purposes of this Agreement.
     4.  ANNUAL BONUS . During the Term, the Executive shall be eligible to participate in the Company’s Management Incentive Plan and any successor annual bonus plan. Executive shall have the opportunity to earn an annual target bonus, measured against performance criteria to be determined by the Board (or a committee thereof), of 50% of Base Salary and a maximum bonus opportunity as defined in the Company’s Management Incentive Plan.
     5.  Intentionally Omitted
     6.  EMPLOYEE BENEFITS . Commencing on the Effective Date:


          (a) BENEFIT PLANS AND ARRANGEMENTS. Executive shall be entitled to participate in all employee benefit plans of the Company including, but not limited to, equity, profit sharing, medical coverage, education, or other retirement or welfare benefits that the Company has adopted or may adopt, maintain or contribute to for the benefit of its senior executives in accordance with the terms of such plans and programs. Executive shall continue to be entitled to executive benefits and arrangements in an amount and type no less than as in effect on the Effective Date.
          (b) VACATION. Executive shall be entitled to annual paid vacation in accordance with the Company’s policy applicable to senior executives, but in no event less than four (4) weeks per year (as prorated for partial years of employment).
          (c) BUSINESS AND ENTERTAINMENT EXPENSES. Upon presentation of appropriate documentation, Executive shall be reimbursed in accordance with the Company’s expense reimbursement policy as approved by the Board for all reasonable and necessary business expenses incurred in connection with the performance of Executive’s duties hereunder.
          (d) CERTAIN AMENDMENTS. Nothing herein shall be construed to prevent the Company from amending, altering, terminating or reducing any plans, benefits or programs so long as Executive continues to receive compensation and benefits consistent with Sections 4, 6(a) and 6(b).
     7.  TERMINATION . Executive’s employment and the Term shall terminate on the first of the following to occur:
          (a) DISABILITY. Upon written notice by the Company to Executive of termination due to Disability, while Executive remains Disabled. For purposes of this Agreement, “Disability” shall have the meaning defined under the Company’s then-current long-term disability insurance plan in which Executive participates.  
          (b) DEATH. Automatically on the date of death of Executive.
          (c) CAUSE. Immediately upon written notice by the Company to Executive of a termination of Executive’s employment for Cause. “Cause” shall mean:
          (i) Executive’s willful and continued failure to perform substantially his duties owed to the Company or its affiliates after a written demand for substantial performance is delivered to him specifically identifying the nature of such unacceptable performance and is not cured by Executive within a reasonable period, not to exceed thirty (30) days;
          (ii) Executive is convicted of (or pleads guilty or no contest to) a felony or any crime involving moral turpitude;
          (iii) Executive has engaged in conduct that constitutes gross misconduct in the performance of his employment duties; or
          (iv) Executive breaches any representation, warranty or covenant under Section 22.
An act or omission by Executive shall not be “willful” if conducted in good faith and with Executive’s reasonable belief that such conduct is in the best interests of the Company.
          (d) WITHOUT CAUSE. Upon written notice by the Company to Executive of an involuntary termination of Executive’s employment other than for Cause (and other than due to his Disability).
          (e) GOOD REASON. Upon written notice by Executive to the Company of a voluntary termination of Executive’s employment, at any time during a Protection Period (defined below), for Good Reason. “Good Reason” shall mean, without the express written consent of Executive, the occurrence of any of the following events:
          (i) Executive’s Base Salary or annual target bonus opportunity is materially reduced;
          (ii) Executive’s duties or responsibilities are negatively and materially changed in a manner inconsistent with Executive’s position (including status, offices, titles, and reporting responsibilities) or authority; or
          (iii) The Company requires Executive’s principal office to be relocated more than 50 miles from its location as of the date immediately preceding the Change in Control
          Prior to any termination by Executive for “Good Reason” he shall provide the Board not less than thirty (30) nor more than ninety (90) days’ notice, with specificity, of the grounds constituting Good Reason and an opportunity within such notice period for the Company to cure such grounds. Such notice shall be given within ninety (90) days following the initial existence of such grounds constituting Good Reason for such notice and subsequent termination, if not so cured above, to be effective.
(f) VOLUNTARY TERMINATION FOR ANY REASON (WITHOUT GOOD REASON DURING A PROTECTION PERIOD). Upon at least thirty (30) days’ prior written notice by Executive to the Company of Executive’s voluntary termination of employment (i) for any reason prior to or after a Protection Period or (ii) without Good Reason during a Protection Period, in either case which the Company may, in its sole discretion, make effective earlier than any termination date set forth in such notice.
     8.  CONSEQUENCES OF TERMINATION . Any termination payments made and benefits provided under this Agreement to Executive shall be in lieu of any termination or severance payments or benefits for which Executive may be eligible under any of the plans, policies or programs of the Company or its affiliates. Except to the extent otherwise provided in this Agreement, all benefits, including, without limitation, stock option grants, restricted stock units grants and other awards under the Company’s long-term


incentive programs, shall be subject to the terms and conditions of the plan or arrangement under which such benefits accrue, are granted or are awarded. Upon termination of Executive’s employment, the following amounts and benefits shall be due to Executive:
          (a) DEATH; DISABILITY. If Executive’s employment terminates due to Executive’s death or Disability, then the Company shall pay or provide Executive (or the legal representative of his estate in the case of his death) with:
          (i) (A) any accrued and unpaid Base Salary through the date of termination and any accrued and unused vacation in accordance with Company policy; and (B) reimbursement for any unreimbursed expenses, incurred and documented in accordance with applicable Company policy, through the date of termination (collectively, “Accrued Obligations” ). Accrued Obligations payable under clause (A) shall be payable within fifteen (15) days following the date of termination, and under clause (B) shall be paid within fifteen (15) days after Executive shall have provided the Company all required documentation therefor;
          (ii) Any unpaid bonus earned with respect to any fiscal year ending on or preceding the date of termination, payable when bonuses are paid generally to senior executives for such year;
          (iii) A pro-rated annual bonus for the fiscal year in which such termination occurs, the amount of which shall be based on actual performance under the applicable bonus plan (for this purpose determined at fiscal year end, by treating Company financial performance goals for such fiscal year as the only performance goals applicable to Executive and without any exercise of negative discretion by the Committee) and the fraction the numerator of which is the number of days elapsed during the performance year through the date of termination and the denominator of which is 365, which pro-rated bonus shall be paid when bonuses are paid generally to senior executives for such year ( “Pro-Rated Bonus” );
          (iv) Any disability insurance benefits, or life insurance proceeds, as the case may be, as may be provided under the Company plans in which Executive participates immediately prior to such termination; and
          (vii) All of Executive’s other unvested long-term incentive awards granted to Executive through the date of termination, shall vest or be forfeited, and any such vested awards granted as stock options shall be exercisable, in accordance with the terms and conditions set forth in such awards.
          (b) VOLUNTARY TERMINATION (INCLUDING VOLUNTARY TERMINATION WITHOUT GOOD REASON DURING A PROTECTION PERIOD); INVOLUNTARY TERMINATION WITHOUT CAUSE AT OR AFTER AGE 65; INVOLUNTARY TERMINATION FOR CAUSE.
          (i) If Executive’s employment should be terminated (i) by Executive for any reason at any time other than during a Protection Period, or (ii) by Executive without Good Reason during a Protection Period, then: (A) the Company shall pay to Executive any Accrued Obligations in accordance with Section 8(a)(i); (B) all unvested stock options, restricted stock units and other unvested long-term incentive grants) shall be immediately forfeited and cancelled; and (C) all vested stock options shall be exercisable as set forth in the stock option award.  
          (ii) If Executive’s employment is terminated by the Company other than for Cause and other than for Disability at or after Executives’ attainment of age 65, (x) the Company shall pay to Executive any Accrued Obligations and (y) Executive’s long-term incentive grants shall vest or be forfeited, and any stock options shall be exercisable, as set forth in the applicable grant agreement, but not less than ninety (90) days.
          (iii) If Executive’s employment is terminated by the Company for Cause, the Company shall pay to Executive any Accrued Obligations, and all vested and unvested stock options, restricted stock units and other vested and unvested long-term incentive shall be immediately forfeited and cancelled.
          (c) TERMINATION WITHOUT CAUSE. If at any time (A) prior to Executive’s attainment of age 65 and (B) other than during a Protection Period, Executive’s employment by the Company is terminated by the Company other than for Cause (and other than a termination for Disability), then the Company shall pay or provide Executive with:
          (i) Executive’s Accrued Obligations, payable in accordance with Section 8(a)(i);
          (ii) Any unpaid bonus earned with respect to any fiscal year ending on or preceding the date of termination, payable when bonuses are paid generally to senior executives for such year;
          (iii) A Pro-Rated Bonus;
          (iv) Severance payments in the aggregate amount equal to the sum of (1) Executive’s then Base Salary plus (2) his annual target bonus, which amount shall be payable to Executive in equal semi-monthly payroll installments over a period of twelve (12) months;
          For purposes of this subparagraph (iv) each installment severance payment to Executive under this subparagraph (iv) shall be treated as a separate payment (within the meaning of Section 409A ( “Section 409A” ) of the Internal Revenue Code of 1986, as amended (the “Code” )).


          Provided, anything herein to the contrary notwithstanding, if on the date of termination Executive is a “specified employee” of the Company (as defined in Treasury Regulation Section 1.409A-1(i)), to the extent that such severance payments (and any other payments and benefits provided in Section 8) constitute a “deferral of compensation” under a “nonqualified deferred compensation plan” under Section 409A and Treasury Regulation Section 1.409A-1, the following provisions shall apply ( “Safe Harbor and Postponement” ):
          (1) If such payments and benefits are payable on account of Executive’s “involuntary separation from service” (as defined in Treasury Regulation Section 1.409A-1(n)), Executive shall receive such amount of his severance payments during the six (6)-month period immediately following the date of termination as equals the lesser of: (x) such severance payment amount due Executive under Section 8 during such six (6)-month period or (y) two (2) multiplied by the compensation limit in effect under Section 401(a)(17) of the Code, for the calendar year in which the date of termination occurs and as otherwise provided under Treasury Regulation Section 1.409A-1(b)(9)(iii) and shall be entitled to such of his benefits as satisfy the exception under Treasury Regulation Section 1.409A-1(b)(9)(v) ( “Limitation Amount” ).
          (2) To the extent that, upon such “involuntary separation from service,” the amount of payments and benefits that would have been payable to Executive under Section 8 during the six (6)-month period following the last day of his employment exceeds the Limitation Amount, such excess shall be paid on the first regular semi-monthly payroll date following the expiration of such six (6)-month period.
          (3) If the Company reasonably determines that such employment termination is not such an “involuntary separation from service,” all such payments and benefits that would have been payable to the Executive under Section 8 during the six (6)-month period immediately following the date of termination, but for such determination, shall be paid on the first regular semi-monthly payroll date immediately following the expiration of such six (6)-month period following the date of termination.
          (4) Any payments under this Section 8(c) that are postponed pursuant to the Safe Harbor and Postponement shall accrue interest at an annual rate (compounded monthly) equal to the short-term applicable federal rate (as in effect under Section 1274(d) of the Code on the last day of the Executive’s employment) plus 100 basis points, which interest shall be paid on the first regular semi-monthly payroll date immediately following the expiration of the six (6)-month period following the date of termination.
          (v) Subject to Executive’s continued co-payment of premiums, continued participation for twelve (12) months in the Company’s medical benefits plan which covers Executive (and his eligible dependents) upon the same terms and conditions (except for the requirement of Executive’s continued employment) in effect for active employees of the Company. In the event Executive obtains other employment that offers substantially similar or more favorable medical benefits, such continuation of coverage by the Company under this subsection shall immediately cease. The continuation of health benefits under this subsection shall reduce the period of coverage and count against Executive’s right to healthcare continuation benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ( “COBRA”) ; and
          (vi) All of Executive’s unvested options and long-term incentive awards granted to Executive through the date of termination shall vest or be forfeited, and any such vested awards granted as stock options shall be exercisable, in accordance with the terms and conditions set forth in such awards, provided that Executive’s vested options shall continue to be exercisable until the earlier of (x) one year after the date of termination and (y) the expiration of the original scheduled term of such options.
     9.  CONDITIONS . Any payments or benefits made or provided to Executive pursuant to any subsection of Section 8 (provided, in the case of Section 8(d), only if Executive’s employment then terminates), or Section 10(c) and Section 10(d), other than Accrued Obligations, are subject to Executive’s:
          (a) compliance with the provisions of Section 11 hereof;
          (b) delivery to the Company of an executed Agreement and General Release (the “General Release” ), which shall be substantially in the form attached hereto as Exhibit A within twenty-one (21) days after presentation thereof by the Company to Executive; and
          (c) delivery to the Company of a resignation from all offices, directorships and fiduciary positions with the Company, its affiliates and employee benefit plans.
Notwithstanding the due date of any post-employment payments, any amounts due following a termination under this Agreement (other than Accrued Obligations) shall not be payable until after the expiration of any statutory revocation period applicable to the General Release without Executive having revoked such General Release which must occur by the 53 rd day after the Executive’s termination of employment (the “ Release Condition ”), and, subject to the provisions of Section 20 hereof, any such amounts shall commence on the later of the applicable due date or five (5) business days after the Release Condition is satisfied, provided that, if the 60-day period following termination of employment spans two calendar years, then any payments and benefits subject to Section 409A shall commence on the later of the applicable due date or on a date during that portion of such 60-day period occurring in the calendar year following the year of termination of employment (subject to further delay if required under Section 20), provided that


the Release Condition is satisfied. Notwithstanding, Executive shall be entitled to any Accrued Obligations, payable without regard for the conditions of this Section 9.
     10. CHANGE IN CONTROL
          (a) CHANGE IN CONTROL. A “Change in Control” of the Company shall be deemed to have occurred if any of the events set forth in any one of the following subparagraphs shall occur:
          (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act” )) (a “Person” ) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock” ) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities” ); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (1) and (2) of subsection (c) of this definition; or
          (ii) individuals who, as of the date hereof, constitute the Board (the “Incumbent Board” ) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
          (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination” ), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (2) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
          (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
          (b)   Intentionally Omitted.
          (c) QUALIFYING TERMINATION . If, prior to Executive’s attainment of age 65, Executive’s employment is involuntarily terminated by the Company without Cause (and other than due to his Disability) or is voluntarily terminated by Executive for Good Reason, in either case only during the period commencing 90 days prior to the occurrence of a Change in Control of the Company and ending on the second anniversary of date of the Change in Control ( “Protection Period” ), then the Company shall pay or provide Executive with:
          (i) Executive’s Accrued Obligations, payable in accordance with Section 8(a)(i);
          (ii) Any unpaid bonus earned with respect to any fiscal year ending on or preceding the date of termination, payable when bonuses are paid generally to senior executives for such year;
          (iii) A Pro-Rated Bonus;
          (iv) A lump sum severance payment in the aggregate amount equal to the product of (A) the sum of (1) Executive’s then Base Salary plus (2) his annual target bonus multiplied by (B) one and one half (1.5), to be paid within ten (10) business days after Executive’s termination from employment; provided, unless the Change of Control occurring on or preceding such termination also meets the requirements of Section 409A(a)(2)(A)(v) and Treasury Regulation Section 1.409A-3(i)(5) (or any successor provision) thereunder (a “409A Change in Control”) , the amount payable to Executive under this subparagraph (iv) shall be paid to Executive in equal semi-monthly payroll installments over a period of eighteen (18) months, not in a lump sum, to the extent necessary to avoid the application of Section 409A(a)(1)(A) and (B);


          (v) Subject to Executive’s continued co-payment of premiums, continued participation for eighteen (18) months in the Company’s medical benefits plan which covers Executive (and his eligible dependents) upon the same terms and conditions (except for the requirements of Executive’s continued employment) in effect for active employees of the Company. In the event Executive obtains other employment that offers substantially similar or more favorable medical benefits, such continuation of coverage by the Company under this subsection shall immediately cease. The continuation of health benefits under this subsection shall reduce the period of coverage and count against Executive’s right to healthcare continuation benefits under COBRA; and
          (vi) All of Executive’s unvested options and long-term incentive awards granted to Executive through the date of termination shall vest and all Executive's options shall continue to be exercisable until the earlier of (x) one year after the date of termination and (y) the expiration of the original scheduled term of such options. In addition, if this Section 10(c) applies, any limitation on the acceleration of the vesting of options (that would otherwise be applicable pursuant to Section 7.4 of Rexnord Corporation 2012 Performance Incentive Plan or otherwise) to reduce or eliminate the effects of Section 280G and/or Section 4999 of the Code, shall not be implemented unless the after-tax amount Executive receives would be increased (as compared to the after-tax amount Executive would receive in the absence of such limitation on acceleration of vesting), and in such event such limitation on acceleration of vesting shall be implemented to the minimum extent necessary to maximize the Executive's after-tax amount, provided that Executive shall determine the order in which such limitation on acceleration of vesting is applied or, solely if required to comply with Section 409A of the Code, the option acceleration limitation shall be applied in the reverse order of scheduled vesting dates (i.e., the option tranche that would have vested first in the absence of a Change in Control will be the last tranche to have its acceleration limited).
          Provided, to the extent applicable under Section 409A as a “deferral of compensation,” and not as a “short-term deferral” under Treasury Regulation Section 1.409A-1(b)(4), the payments and benefits payable to Executive under this Section 10(c) shall be subject to the Safe Harbor and Postponement provided at Section 8(c)(iv).
For the avoidance of doubt, the provisions of this Section 10(c) shall not apply unless a Change in Control actually occurs. In the event of a termination of employment during the 90 days prior to the occurrence of a Change in Control, (x) the payment under Section 10(c)(iv) shall be payable (or commence to be payable, as applicable) within ten days following the Change in Control (not termination of employment), and (y) the acceleration of vesting of Executive’s unvested options and long-term incentive awards shall not occur until the occurrence of the Change in Control (and if such options and awards would otherwise be forfeited during such 90 day period in the absence of a Change in Control, such awards shall remain outstanding for up to 90 days solely for the purpose of determining whether Executive becomes entitled to vest in such awards pursuant to Section 10(c)(vi) but otherwise shall not be payable or exercisable following the date on which they would have otherwise been forfeited (unless the Change in Control subsequently occurs during such 90-day period)).              
     11.  EXECUTIVE COVENANTS .
          (a) CONFIDENTIALITY. Executive agrees that Executive shall not, commencing on the date hereof and at all times thereafter, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of Executive’s employment and for the benefit of the Company, any nonpublic, proprietary or confidential information, knowledge or data relating to the Company, any of its subsidiaries, affiliated companies or businesses, which shall have been obtained by Executive during Executive’s employment by the Company. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to Executive; (ii) becomes known to the public subsequent to disclosure to Executive through no wrongful act of Executive or any representative of Executive; or (iii) Executive is required to disclose by applicable law, regulation or legal process (provided that Executive provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information). Notwithstanding clauses (i) and (ii) of the preceding sentence, Executive’s obligation to maintain such disclosed information in confidence shall not terminate where only portions of the information are in the public domain.
          (b) NONSOLICITATION. Commencing on the date hereof, and continuing during Executive’s employment with the Company and for the twelve (12) month period following termination of Executive’s employment for any reason (an eighteen (18) month post-employment period in the event of a termination of Executive’s employment for any reason at any time during a Protection Period) ( “Restricted Period” ), Executive agrees that Executive shall not, without the prior written consent of the Company, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity: (i) solicit, recruit or employ (whether as an employee, officer, director, agent, consultant or independent contractor) any person who was or is at any time during the six (6) months preceding Executive’s termination of employment an employee, representative, officer or director of the Company; (ii) take any action to encourage or induce any employee, representative, officer or director of the Company to cease their relationship with the Company for any reason; or (iii) knowingly solicit, aid or induce any customer of the Company or any of its subsidiaries or affiliates to purchase goods or services then sold by the Company or any of its subsidiaries or affiliates from another person, firm, corporation or other entity or assist or aid any other persons or entity in identifying or soliciting any such customer.
          (c) NONCOMPETITION. Executive acknowledges that Executive performs services of a unique nature for the Company that are irreplaceable, and that Executive’s performance of such services to a competing business will result in irreparable harm to the Company. Accordingly, during the Restricted Period, Executive agrees that Executive shall not, directly or indirectly, own, manage,


operate, control, be employed by (whether as an employee, consultant, independent contractor or otherwise, and whether or not for compensation) or render services to any person, firm, corporation or other entity, in whatever form, engaged in any business of the same type as any business in which the Company or any of its subsidiaries or affiliates is engaged on the date of termination or in which they have proposed, on or prior to such date, to be engaged in on or after such date at any time during the twelve (12)-month period ending with the date of termination, in any locale of any country in which the Company conducts business. This Section 11(c) shall not prevent Executive from owning not more than two percent (2%) of the total shares of all classes of stock outstanding of any publicly held entity engaged in such business.
          (d) NONDISPARAGEMENT. Each of Executive and the Company (for purposes hereof, “the Company” shall mean only (i) the Company by press release or other formally released announcement and (ii) the executive officers and directors thereof and not any other employees) agrees not to make any public statements that disparage the other party, or in the case of the Company, its respective affiliates, employees, officers, directors, products or services. Notwithstanding the foregoing, statements made in the course of sworn testimony in administrative, judicial or arbitral proceedings (including, without limitation, depositions in connection with such proceedings) shall not be subject to this Section 11(d). Executive’s provision shall also not cover normal competitive statements which do not cite Executive’s employment by the Company.  
          (e) RETURN OF COMPANY PROPERTY AND RECORDS. Executive agrees that upon termination of Executive’s employment, for any cause whatsoever, Executive will surrender to the Company in good condition (reasonable wear and tear excepted) all property and equipment belonging to the Company and all records kept by Executive containing the names, addresses or any other information with regard to customers or customer contacts of the Company, or concerning any proprietary or confidential information of the Company or any operational, financial or other documents given to Executive during Executive’s employment with the Company.
          (f) COOPERATION. Executive agrees that, following termination of Executive’s employment for any reason, Executive shall upon reasonable advance notice, and to the extent it does not interfere with previously scheduled travel plans and does not unreasonably interfere with other business activities or employment obligations, assist and cooperate with the Company with regard to any matter or project in which Executive was involved during Executive’s employment, including any litigation. The Company shall compensate Executive for reasonable expenses incurred in connection with such cooperation and assistance.
          (g) ASSIGNMENT OF INVENTIONS. Executive will promptly communicate and disclose in writing to the Company all inventions and developments including software, whether patentable or not, as well as patents and patent applications (hereinafter collectively called “Inventions” ), made, conceived, developed, or purchased by Executive, or under which Executive acquires the right to grant licenses or to become licensed, alone or jointly with others, which have arisen or jointly with others, which have arisen or may arise out of Executive’s employment, or relate to any matters pertaining to, or useful in connection therewith, the business or affairs of the Company or any of its subsidiaries. Included herein as if developed during the employment period is any specialized equipment and software developed for use in the business of the Company. All of Executive’s right, title and interest in, to, and under all such Inventions, licenses, and right to grant licenses shall be the sole property of the Company. Any such Inventions disclosed to anyone by Executive within one (1) year after the termination of employment for any cause whatsoever shall be deemed to have been made or conceived by Executive during the Term. As to all such Inventions, Executive will, upon request of the Company execute all documents which the Company deems necessary or proper to enable it to establish title to such Inventions or other rights, and to enable it to file and prosecute applications for letters patent of the United States and any foreign country; and do all things (including the giving of evidence in suits and other proceedings) which the Company deems necessary or proper to obtain, maintain, or assert patents for any and all such Inventions or to assert its rights in any Inventions not patented.
          (h) EQUITABLE RELIEF AND OTHER REMEDIES. The parties acknowledge and agree that the other party’s remedies at law for a breach or threatened breach of any of the provisions of this Section 11 would be inadequate and, in recognition of this fact, the parties agree that, in the event of such a breach or threatened breach, in addition to any remedies at law, the other party, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available.  
          (i) REFORMATION. If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 11 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state.
          (j) SURVIVAL OF PROVISIONS. The obligations of Executive set forth in this Section 11 shall survive the termination of Executive’s employment by the Company and the termination or expiration of this Agreement and shall be fully enforceable thereafter.
     12.  NO ASSIGNMENTS .
          (a) This Agreement is personal to each of the parties hereto. Except as provided in Section 12(b) below, no party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto.


          (b) The Company shall assign this Agreement to any successor to all or substantially all of the business or assets of the Company provided that the Company shall require such successor to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place and shall deliver a copy of such assignment to Executive.
     13.  NOTICE . For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of delivery if delivered by hand, (b) on the first business day following the date of deposit if delivered by guaranteed overnight delivery service, or (d) on the fourth business day following the date delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive:
At the address shown on the records of the Company
If to the Company:
Rexnord Corporation
4701 West Greenfield Avenue
Milwaukee, WI 53214
Attn: General Counsel
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
     14.  SECTION HEADINGS; INCONSISTENCY . The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. In the event of any inconsistency between this Agreement and any other agreement (including but not limited to any option, long-term incentive or other equity award agreement), plan, program, policy or practice of the Company, the terms of this Agreement shall control.
     15.  SEVERABILITY . The provisions of this Agreement shall be deemed severable and the invalidity of unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
     16.  ARBITRATION . Any dispute or controversy arising under or in connection with this Agreement, other than injunctive relief under Section 11(h) hereof or damages for breach of Section 11, shall be settled exclusively by arbitration, conducted before a single arbitrator in Wilmington, Delaware, administered by the American Arbitration Association ( “AAA” ) in accordance with its Commercial Arbitration Rules then in effect. The single arbitrator shall be selected by the mutual agreement of the Company and Executive, unless the parties are unable to agree to an arbitrator, in which case, the arbitrator will be selected under the procedures of the AAA. The arbitrator will have the authority to permit discovery and to follow the procedures that Executive or she determines to be appropriate. The arbitrator will have no power to award consequential (including lost profits), punitive or exemplary damages. The decision of the arbitrator will be final and binding upon the parties hereto. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. Each party shall bear its own legal fees and costs and equally divide the forum fees and cost of the arbitrator.
     17.  INDEMNIFICATION; LIABILITY INSURANCE . The Company and Executive shall enter into the Company’s standard form of indemnification agreement governing his conduct as an officer of the Company.
     18.  AMENDMENTS; WAIVER . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer or director as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
     19.  ENTIRE AGREEMENT; MISCELLANEOUS . This Agreement together with the exhibit hereto, except as otherwise expressly provided in this Agreement, sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein, and supersedes in its entirety the Prior Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without regard to its conflicts of law principles. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word “including” in this Agreement shall be by way of example rather than by limitation and of the word “or” shall be inclusive and not exclusive.  
     20.  CODE SECTION 409A .
          (a) It is intended that any amounts payable under this Agreement and the Company’s and Executive’s exercise of authority or discretion hereunder shall comply with the provisions of Section 409A and the Treasury Regulations relating thereto so as not to subject Executive to the payment of interest and tax penalty which may be imposed under Section 409A. In furtherance of this interest, anything to the contrary herein notwithstanding, no amounts shall be payable to Executive before such time as such payment fully complies with the provisions of Section 409A and, to the extent that any regulations or other guidance issued under Section 409A


after the date of this Agreement would result in Executive being subject to payment of interest and tax penalty under Section 409A, the parties agree to amend this Agreement in order to bring this Agreement into compliance with Section 409A.
          (b)  With regard to any provision herein that provides for the reimbursement of expenses or the provision of in-kind benefits, except as permitted by Section 409A, (i) all such reimbursements shall be made within a commercially reasonable time after presentation of appropriate documentation but in no event later than the end of the year immediately following the year in which Executive incurs such reimbursable expenses, (ii) no such reimbursements or in-kind benefits will affect any other costs or expenses eligible for reimbursement, or any other in-kind benefits to be provided, in any other year and (iii) no such reimbursements or in-kind benefits are subject to liquidation or exchange for another payment or benefit..
          (c) Without limiting the discretion of either the Company or the Executive to terminate the Executive’s employment hereunder for any reason (or no reason), solely for purposes of compliance with 409A a termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a separation from service (within the meaning of Treasury Regulation Section 1.409A-1(h) (applying the 20% default post-separation limit thereunder)) as an employee and, for purposes of any such provision of this Agreement, references to a “termination” or “termination of employment” shall mean separation from service as an employee and such payments shall thereupon be made at or following such separation from service as an employee as provided hereunder.
     21.  FULL SETTLEMENT . Except as set forth in this Agreement, the Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others, except to the extent any amounts are due the Company or its subsidiaries or affiliates pursuant to a judgment against Executive. In no event shall Executive be obliged to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned by Executive as a result of employment by another employer, except as set forth in this Agreement.
     22.  REPRESENTATION . Executive represents and warrants that to that Executive is not bound by any agreement or obligation or understanding, written or oral, that would prevent Executive from entering into this Agreement or performing all of Executive’s obligations hereunder.
     23.  WITHHOLDING . The Company may withhold from any and all amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
     24.  AGREEMENT OF THE PARTIES . The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. Neither Executive nor the Company shall be entitled to any presumption in connection with any determination made hereunder in connection with any arbitration, judicial or administrative proceeding relating to or arising under this Agreement.
     25.  COUNTERPARTS . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instruments.


 
      IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the date and year first written above.
 
 
REXNORD CORPORATION
 
 
 
By:
/ S /    Todd A. Adams
Name:
Todd A. Adams
 
Title:
Chief Executive Officer
 
 
 
 
/ S /    Mark W. Peterson
Mark W. Peterson
 



  EXHIBIT A
GENERAL RELEASE OF ALL CLAIMS
     1. For and in consideration of the promises made in Executive Employment Agreement (defined below), the adequacy of which is hereby acknowledged, the undersigned ( “Executive” ), for himself, his heirs, administrators, legal representatives, executors, successors, assigns, and all other persons claiming through Executive, if any (collectively, “Releasers” ), does hereby release, waive, and forever discharge Rexnord Corporation ( “Company” ), the Company’s subsidiaries, parents, affiliates, related organizations, employees, officers, directors, attorneys, successors, and assigns (collectively, the “Releasees” ) from, and does fully waive any obligations of Releasees to Releasers for, any and all liability, actions, charges, causes of action, demands, damages, or claims for relief, remuneration, sums of money, accounts or expenses (including attorneys’ fees and costs) of any kind whatsoever, whether known or unknown or contingent or absolute, which heretofore has been or which hereafter may be suffered or sustained, directly or indirectly, by Releasers in consequence of, arising out of, or in any way relating to Executive’s employment with the Company or any of its affiliates or the termination of Executive’s employment. The foregoing release and discharge, waiver and covenant not to sue includes, but is not limited to, all claims and any obligations or causes of action arising from such claims, under common law including wrongful or retaliatory discharge, breach of contract (including but not limited to any claims under the Employment Agreement between the Company and Executive, dated November 9, 2012 (the “Employment Agreement” ), and any claims under any stock option and restricted stock units agreements between Executive and the Company) and any action arising in tort including libel, slander, defamation or intentional infliction of emotional distress, and claims under any federal, state or local statute including Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866 and 1871 (42 U.S.C. § 1981), the National Labor Relations Act, the Age Discrimination in Employment Act (ADEA), the Fair Labor Standards Act, the Americans with Disabilities Act of 1990, the Rehabilitation Act of 1973,), or the discrimination or employment laws of any state or municipality, or any claims under any express or implied contract which Releasers may claim existed with Releasees. This release and waiver does not apply to any claims or rights that may arise after the date Executive signs this General Release. The foregoing release does not apply to any claims of indemnification under the Employment Agreement or a separate indemnification agreement with the Company or rights of coverage under directors and officers liability insurance.
     2. Excluded from this release and waiver are any claims which cannot be waived by law, including but not limited to the right to participate in an investigation conducted by certain government agencies. Executive does, however, waive Executive’s right to any monetary recovery should any agency (such as the Equal Employment Opportunity Commission) pursue any claims on Executive’s behalf. Executive represents and warrants that Executive has not filed any complaint, charge, or lawsuit against the Releasees with any government agency or any court.
     3. Executive agrees never to sue Releasees in any forum for any claim covered by the above waiver and release language, except that Executive may bring a claim under the ADEA to challenge this General Release or as otherwise provided in this General Release. If   Executive violates this General Release by suing Releasees, other than under the ADEA or as otherwise set forth in Section 1 hereof, Executive shall be liable to the Company for its reasonable attorneys’ fees and other litigation costs incurred in defending against such a suit. Nothing in this General Release is intended to reflect any party’s belief that Executive’s waiver of claims under ADEA is invalid or unenforceable, it being the interest of the parties that such claims are waived.
     4. Executive acknowledges, agrees and affirms that he is subject to certain post-employment covenants pursuant to Section 11 of the Employment Agreement, which covenants survive the termination of his employment and the execution of this General Release.
     5. Executive acknowledges and recites that:
          (a) Executive has executed this General Release knowingly and voluntarily;
          (b) Executive has read and understands this General Release in its entirety;
          (c) Executive has been advised and directed orally and in writing (and this subparagraph (c) constitutes such written direction) to seek legal counsel and any other advice he wishes with respect to the terms of this General Release before executing it;
          (d) Executive’s execution of this General Release has not been coerced by any employee or agent of the Company; and
          (e) Executive has been offered twenty-one (21) calendar days after receipt of this General Release to consider its terms before executing it.
     6. This General Release shall be governed by the internal laws (and not the choice of laws) of the State of Delaware, except for the application of pre-emptive Federal law.
     7. Executive shall have seven (7) days from the date hereof to revoke this General Release by providing written notice of the revocation to the Company, as provided in Section 13 of the Employment Agreement, upon which revocation this General Release shall be unenforceable and null and void and in the absence of such revocation this General Release shall be binding and irrevocable by Executive.


     PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
 
 
 
 
Date: ____________ , 20____
 
EXECUTIVE:
 
 
 
 
 
 
 

 
 
Mark W. Peterson
 






Exhibit 10.3
EMPLOYMENT AGREEMENT
     This EMPLOYMENT AGREEMENT (the “Agreement” ) is dated and entered into this November 9, 2012 (the “ Effective Date ”), between Rexnord Corporation, a Delaware corporation (the “Company” ), and Praveen R. Jeyarajah ( “Executive” ).
W I T N E S S E T H:
      WHEREAS , the Company and Executive entered into an offer letter dated April 19, 2010 ( “Prior Agreement” ); and
      WHEREAS , the Company and Executive desire to amend and fully restate the Prior Agreement, and to continue Executive’s employment with the Company as its Executive Vice President -- Corporate & Business Development, in accordance with the terms hereof.
      NOW THEREFORE , in consideration of the foregoing, of the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
     1.  POSITION/DUTIES .
          (a) Executive shall serve as the Executive Vice President -- Corporate & Business Development of the Company. As Executive Vice President -- Corporate & Business Development of the Company, Executive shall have the general responsibilities as principal business development officer of the Company as well as other duties provided in the Company’s by-laws, and shall have such other duties and responsibilities as the Board and/or the Chief Executive Officer shall designate that are consistent with Executive’s position.
          (b) Executive shall use Executive’s best efforts to perform faithfully and efficiently the duties and responsibilities assigned to Executive hereunder and devote substantially all of Executive’s business time to the performance of Executive’s duties with the Company; provided, the foregoing shall not prevent Executive from (i) participating in charitable, civic, educational, professional, community or industry affairs or, with prior approval of the Board, serving on the board of directors or advisory boards of other companies and (ii) managing Executive’s and Executive’s family’s personal investments, in all events so long as such activities do not materially interfere with the performance of Executive’s duties hereunder or create a potential business conflict or the appearance thereof. If at any time service on any board of directors or advisory board would, in the good faith judgment of the Board, conflict with Executive’s fiduciary duty to the Company or create any appearance thereof, Executive shall, as soon as reasonably practicable considering any fiduciary duty to the other such company, resign from such other board of directors or advisory board after written notice of the conflict is received from the Board.
          (c) Executive further agrees to serve without additional compensation as an officer and director of any of the Company’s subsidiaries and agrees that any amounts received from any such corporation may be offset against the amounts due hereunder.
     2.  TERM OF AGREEMENT . The Agreement is effective on the Effective Date and the initial term shall end on the third anniversary of the Effective Date ( “Initial Term” ). The term of this Agreement shall be automatically extended thereafter for successive one (1) year periods unless, at least ninety (90) days prior to the end of the Initial Term or the then current succeeding one (1)-year extended term of this Agreement, the Company or Executive has notified the other that the term hereunder shall terminate upon its expiration date. The Initial Term, as it may be extended from year to year thereafter, is herein referred to as the “Term . ” The foregoing to the contrary notwithstanding, upon the occurrence of a Change in Control (defined below), the Term shall be for a period ending on the later of the last day of the Initial Term and the second anniversary of the date of the occurrence of such Change in Control and shall be subject to expiration upon notice by Executive or the Company to the other party or to automatic successive additional one-year periods thereafter, as the case may be, in the manner provided above. If Executive remains employed by the Company beyond the expiration of the Term, he shall be an employee at-will; except that any provisions identified as surviving shall continue. In all events hereunder, Executive’s employment is subject to earlier termination pursuant to Section 7 hereof, and upon such earlier termination the Term shall be deemed to have ended.
     3.  BASE SALARY . During the Term, the Company shall pay Executive a base salary (the “Base Salary” ) at an annual rate of $424,000, payable in accordance with the regular payroll practices of the Company. Executive’s Base Salary shall be subject to annual review by the Board (or a committee thereof) and may be increased from time to time by the Board. The base salary as determined herein from time to time shall constitute “Base Salary” for purposes of this Agreement.
     4.  ANNUAL BONUS . During the Term, the Executive shall be eligible to participate in the Company’s Management Incentive Plan and any successor annual bonus plan. Executive shall have the opportunity to earn an annual target bonus, measured against performance criteria to be determined by the Board (or a committee thereof), of 50% of Base Salary and a maximum bonus opportunity as defined in the Company’s Management Incentive Plan.
     5.  Intentionally Omitted


     6.  EMPLOYEE BENEFITS . Commencing on the Effective Date:
          (a) BENEFIT PLANS AND ARRANGEMENTS. Executive shall be entitled to participate in all employee benefit plans of the Company including, but not limited to, equity, profit sharing, medical coverage, education, or other retirement or welfare benefits that the Company has adopted or may adopt, maintain or contribute to for the benefit of its senior executives in accordance with the terms of such plans and programs. Executive shall continue to be entitled to executive benefits and arrangements in an amount and type no less than as in effect on the Effective Date.
          (b) VACATION. Executive shall be entitled to annual paid vacation in accordance with the Company’s policy applicable to senior executives, but in no event less than four (4) weeks per year (as prorated for partial years of employment).
          (c) BUSINESS AND ENTERTAINMENT EXPENSES. Upon presentation of appropriate documentation, Executive shall be reimbursed in accordance with the Company’s expense reimbursement policy as approved by the Board for all reasonable and necessary business expenses incurred in connection with the performance of Executive’s duties hereunder.
          (d) CERTAIN AMENDMENTS. Nothing herein shall be construed to prevent the Company from amending, altering, terminating or reducing any plans, benefits or programs so long as Executive continues to receive compensation and benefits consistent with Sections 4, 6(a) and 6(b).
     7.  TERMINATION . Executive’s employment and the Term shall terminate on the first of the following to occur:
          (a) DISABILITY. Upon written notice by the Company to Executive of termination due to Disability, while Executive remains Disabled. For purposes of this Agreement, “Disability” shall have the meaning defined under the Company’s then-current long-term disability insurance plan in which Executive participates.  
          (b) DEATH. Automatically on the date of death of Executive.
          (c) CAUSE. Immediately upon written notice by the Company to Executive of a termination of Executive’s employment for Cause. “Cause” shall mean:
          (i) Executive’s willful and continued failure to perform substantially his duties owed to the Company or its affiliates after a written demand for substantial performance is delivered to him specifically identifying the nature of such unacceptable performance and is not cured by Executive within a reasonable period, not to exceed thirty (30) days;
          (ii) Executive is convicted of (or pleads guilty or no contest to) a felony or any crime involving moral turpitude;
          (iii) Executive has engaged in conduct that constitutes gross misconduct in the performance of his employment duties; or
          (iv) Executive breaches any representation, warranty or covenant under Section 22.
An act or omission by Executive shall not be “willful” if conducted in good faith and with Executive’s reasonable belief that such conduct is in the best interests of the Company.
          (d) WITHOUT CAUSE. Upon written notice by the Company to Executive of an involuntary termination of Executive’s employment other than for Cause (and other than due to his Disability).
          (e) GOOD REASON. Upon written notice by Executive to the Company of a voluntary termination of Executive’s employment, at any time during a Protection Period (defined below), for Good Reason. “Good Reason” shall mean, without the express written consent of Executive, the occurrence of any of the following events:
          (i) Executive’s Base Salary or annual target bonus opportunity is materially reduced;
          (ii) Executive’s duties or responsibilities are negatively and materially changed in a manner inconsistent with Executive’s position (including status, offices, titles, and reporting responsibilities) or authority; or
          (iii) The Company requires Executive’s principal office to be relocated more than 50 miles from its location as of the date immediately preceding the Change in Control.  
          Prior to any termination by Executive for “Good Reason” he shall provide the Board not less than thirty (30) nor more than ninety (90) days’ notice, with specificity, of the grounds constituting Good Reason and an opportunity within such notice period for the Company to cure such grounds. Such notice shall be given within ninety (90) days following the initial existence of such grounds constituting Good Reason for such notice and subsequent termination, if not so cured above, to be effective.
(f) VOLUNTARY TERMINATION FOR ANY REASON (WITHOUT GOOD REASON DURING A PROTECTION PERIOD). Upon at least thirty (30) days’ prior written notice by Executive to the Company of Executive’s voluntary termination of employment (i) for any reason prior to or after a Protection Period or (ii) without Good Reason during a Protection Period, in either case which the Company may, in its sole discretion, make effective earlier than any termination date set forth in such notice.
     8.  CONSEQUENCES OF TERMINATION . Any termination payments made and benefits provided under this Agreement to Executive shall be in lieu of any termination or severance payments or benefits for which Executive may be eligible under any of the


plans, policies or programs of the Company or its affiliates. Except to the extent otherwise provided in this Agreement, all benefits, including, without limitation, stock option grants, restricted stock units grants and other awards under the Company’s long-term incentive programs, shall be subject to the terms and conditions of the plan or arrangement under which such benefits accrue, are granted or are awarded. Upon termination of Executive’s employment, the following amounts and benefits shall be due to Executive:
          (a) DEATH; DISABILITY. If Executive’s employment terminates due to Executive’s death or Disability, then the Company shall pay or provide Executive (or the legal representative of his estate in the case of his death) with:
          (i) (A) any accrued and unpaid Base Salary through the date of termination and any accrued and unused vacation in accordance with Company policy; and (B) reimbursement for any unreimbursed expenses, incurred and documented in accordance with applicable Company policy, through the date of termination (collectively, “Accrued Obligations” ). Accrued Obligations payable under clause (A) shall be payable within fifteen (15) days following the date of termination, and under clause (B) shall be paid within fifteen (15) days after Executive shall have provided the Company all required documentation therefor;
          (ii) Any unpaid bonus earned with respect to any fiscal year ending on or preceding the date of termination, payable when bonuses are paid generally to senior executives for such year;
          (iii) A pro-rated annual bonus for the fiscal year in which such termination occurs, the amount of which shall be based on actual performance under the applicable bonus plan (for this purpose determined at fiscal year end, by treating Company financial performance goals for such fiscal year as the only performance goals applicable to Executive and without any exercise of negative discretion by the Committee) and the fraction the numerator of which is the number of days elapsed during the performance year through the date of termination and the denominator of which is 365, which pro-rated bonus shall be paid when bonuses are paid generally to senior executives for such year ( “Pro-Rated Bonus” );
          (iv) Any disability insurance benefits, or life insurance proceeds, as the case may be, as may be provided under the Company plans in which Executive participates immediately prior to such termination; and
          (vii) All of Executive’s other unvested long-term incentive awards granted to Executive through the date of termination, shall vest or be forfeited, and any such vested awards granted as stock options shall be exercisable, in accordance with the terms and conditions set forth in such awards.
          (b) VOLUNTARY TERMINATION (INCLUDING VOLUNTARY TERMINATION WITHOUT GOOD REASON DURING A PROTECTION PERIOD); INVOLUNTARY TERMINATION WITHOUT CAUSE AT OR AFTER AGE 65; INVOLUNTARY TERMINATION FOR CAUSE.
          (i) If Executive’s employment should be terminated (i) by Executive for any reason at any time other than during a Protection Period, or (ii) by Executive without Good Reason during a Protection Period, then: (A) the Company shall pay to Executive any Accrued Obligations in accordance with Section 8(a)(i); (B) all unvested stock options, restricted stock units and other unvested long-term incentive grants) shall be immediately forfeited and cancelled; and (C) all vested stock options shall be exercisable as set forth in the stock option award.  
          (ii) If Executive’s employment is terminated by the Company other than for Cause and other than for Disability at or after Executives’ attainment of age 65, (x) the Company shall pay to Executive any Accrued Obligations and (y) Executive’s long-term incentive grants shall vest or be forfeited, and any stock options shall be exercisable, as set forth in the applicable grant agreement, but not less than ninety (90) days.
          (iii) If Executive’s employment is terminated by the Company for Cause, the Company shall pay to Executive any Accrued Obligations, and all vested and unvested stock options, restricted stock units and other vested and unvested long-term incentive shall be immediately forfeited and cancelled.
          (c) TERMINATION WITHOUT CAUSE. If at any time (A) prior to Executive’s attainment of age 65 and (B) other than during a Protection Period, Executive’s employment by the Company is terminated by the Company other than for Cause (and other than a termination for Disability), then the Company shall pay or provide Executive with:
          (i) Executive’s Accrued Obligations, payable in accordance with Section 8(a)(i);
          (ii) Any unpaid bonus earned with respect to any fiscal year ending on or preceding the date of termination, payable when bonuses are paid generally to senior executives for such year;
          (iii) A Pro-Rated Bonus;
          (iv) Severance payments in the aggregate amount equal to the sum of (1) Executive’s then Base Salary plus (2) his annual target bonus, which amount shall be payable to Executive in equal semi-monthly payroll installments over a period of twelve (12) months;
          For purposes of this subparagraph (iv) each installment severance payment to Executive under this subparagraph (iv) shall be treated as a separate payment (within the meaning of Section 409A ( “Section 409A” ) of the Internal Revenue Code of 1986, as amended (the “Code” )).


          Provided, anything herein to the contrary notwithstanding, if on the date of termination Executive is a “specified employee” of the Company (as defined in Treasury Regulation Section 1.409A-1(i)), to the extent that such severance payments (and any other payments and benefits provided in Section 8) constitute a “deferral of compensation” under a “nonqualified deferred compensation plan” under Section 409A and Treasury Regulation Section 1.409A-1, the following provisions shall apply ( “Safe Harbor and Postponement” ):
          (1) If such payments and benefits are payable on account of Executive’s “involuntary separation from service” (as defined in Treasury Regulation Section 1.409A-1(n)), Executive shall receive such amount of his severance payments during the six (6)-month period immediately following the date of termination as equals the lesser of: (x) such severance payment amount due Executive under Section 8 during such six (6)-month period or (y) two (2) multiplied by the compensation limit in effect under Section 401(a)(17) of the Code, for the calendar year in which the date of termination occurs and as otherwise provided under Treasury Regulation Section 1.409A-1(b)(9)(iii) and shall be entitled to such of his benefits as satisfy the exception under Treasury Regulation Section 1.409A-1(b)(9)(v) ( “Limitation Amount” ).
          (2) To the extent that, upon such “involuntary separation from service,” the amount of payments and benefits that would have been payable to Executive under Section 8 during the six (6)-month period following the last day of his employment exceeds the Limitation Amount, such excess shall be paid on the first regular semi-monthly payroll date following the expiration of such six (6)-month period.
          (3) If the Company reasonably determines that such employment termination is not such an “involuntary separation from service,” all such payments and benefits that would have been payable to the Executive under Section 8 during the six (6)-month period immediately following the date of termination, but for such determination, shall be paid on the first regular semi-monthly payroll date immediately following the expiration of such six (6)-month period following the date of termination.
          (4) Any payments under this Section 8(c) that are postponed pursuant to the Safe Harbor and Postponement shall accrue interest at an annual rate (compounded monthly) equal to the short-term applicable federal rate (as in effect under Section 1274(d) of the Code on the last day of the Executive’s employment) plus 100 basis points, which interest shall be paid on the first regular semi-monthly payroll date immediately following the expiration of the six (6)-month period following the date of termination.
          (v) Subject to Executive’s continued co-payment of premiums, continued participation for twelve (12) months in the Company’s medical benefits plan which covers Executive (and his eligible dependents) upon the same terms and conditions (except for the requirement of Executive’s continued employment) in effect for active employees of the Company. In the event Executive obtains other employment that offers substantially similar or more favorable medical benefits, such continuation of coverage by the Company under this subsection shall immediately cease. The continuation of health benefits under this subsection shall reduce the period of coverage and count against Executive’s right to healthcare continuation benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ( “COBRA”) ; and
          (vi) All of Executive’s unvested options and long-term incentive awards granted to Executive through the date of termination shall vest or be forfeited, and any such vested awards granted as stock options shall be exercisable, in accordance with the terms and conditions set forth in such awards, provided that Executive’s vested options shall continue to be exercisable until the earlier of (x) one year after the date of termination and (y) the expiration of the original scheduled term of such options.
     9.  CONDITIONS . Any payments or benefits made or provided to Executive pursuant to any subsection of Section 8 (provided, in the case of Section 8(d), only if Executive’s employment then terminates), or Section 10(c) and Section 10(d), other than Accrued Obligations, are subject to Executive’s:
          (a) compliance with the provisions of Section 11 hereof;
          (b) delivery to the Company of an executed Agreement and General Release (the “General Release” ), which shall be substantially in the form attached hereto as Exhibit A within twenty-one (21) days after presentation thereof by the Company to Executive; and
          (c) delivery to the Company of a resignation from all offices, directorships and fiduciary positions with the Company, its affiliates and employee benefit plans.
Notwithstanding the due date of any post-employment payments, any amounts due following a termination under this Agreement (other than Accrued Obligations) shall not be payable until after the expiration of any statutory revocation period applicable to the General Release without Executive having revoked such General Release which must occur by the 53 rd day after the Executive’s termination of employment (the “ Release Condition ”), and, subject to the provisions of Section 20 hereof, any such amounts shall commence on the later of the applicable due date or five (5) business days after the Release Condition is satisfied, provided that, if the 60-day period following termination of employment spans two calendar years, then any payments and benefits subject to Section 409A shall commence on the later of the applicable due date or on a date during that portion of such 60-day period occurring in the calendar year following the year of termination of employment (subject to further delay if required under Section 20), provided that


the Release Condition is satisfied. Notwithstanding, Executive shall be entitled to any Accrued Obligations, payable without regard for the conditions of this Section 9.
     10. CHANGE IN CONTROL
          (a) CHANGE IN CONTROL. A “Change in Control” of the Company shall be deemed to have occurred if any of the events set forth in any one of the following subparagraphs shall occur:
          (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act” )) (a “Person” ) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock” ) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities” ); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (1) and (2) of subsection (c) of this definition; or
          (ii) individuals who, as of the date hereof, constitute the Board (the “Incumbent Board” ) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
          (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination” ), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (2) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
          (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
          (b)   Intentionally Omitted.
          (c) QUALIFYING TERMINATION . If, prior to Executive’s attainment of age 65, Executive’s employment is involuntarily terminated by the Company without Cause (and other than due to his Disability) or is voluntarily terminated by Executive for Good Reason, in either case only during the period commencing 90 days prior to the occurrence of a Change in Control of the Company and ending on the second anniversary of date of the Change in Control ( “Protection Period” ), then the Company shall pay or provide Executive with:
          (i) Executive’s Accrued Obligations, payable in accordance with Section 8(a)(i);
          (ii) Any unpaid bonus earned with respect to any fiscal year ending on or preceding the date of termination, payable when bonuses are paid generally to senior executives for such year;
          (iii) A Pro-Rated Bonus;
          (iv) A lump sum severance payment in the aggregate amount equal to the product of (A) the sum of (1) Executive’s then Base Salary plus (2) his annual target bonus multiplied by (B) one and one half (1.5), to be paid within ten (10) business days after Executive’s termination from employment; provided, unless the Change of Control occurring on or preceding such termination also meets the requirements of Section 409A(a)(2)(A)(v) and Treasury Regulation Section 1.409A-3(i)(5) (or any successor provision) thereunder (a “409A Change in Control”) , the amount payable to Executive under this subparagraph (iv) shall be paid to Executive in equal semi-monthly payroll installments over a period of eighteen (18) months, not in a lump sum, to the extent necessary to avoid the application of Section 409A(a)(1)(A) and (B);


          (v) Subject to Executive’s continued co-payment of premiums, continued participation for eighteen (18) months in the Company’s medical benefits plan which covers Executive (and his eligible dependents) upon the same terms and conditions (except for the requirements of Executive’s continued employment) in effect for active employees of the Company. In the event Executive obtains other employment that offers substantially similar or more favorable medical benefits, such continuation of coverage by the Company under this subsection shall immediately cease. The continuation of health benefits under this subsection shall reduce the period of coverage and count against Executive’s right to healthcare continuation benefits under COBRA; and
          (vi) All of Executive’s unvested options and long-term incentive awards granted to Executive through the date of termination shall vest and all Executive's options shall continue to be exercisable until the earlier of (x) one year after the date of termination and (y) the expiration of the original scheduled term of such options. In addition, if this Section 10(c) applies, any limitation on the acceleration of the vesting of options (that would otherwise be applicable pursuant to Section 7.4 of Rexnord Corporation 2012 Performance Incentive Plan or otherwise) to reduce or eliminate the effects of Section 280G and/or Section 4999 of the Code, shall not be implemented unless the after-tax amount Executive receives would be increased (as compared to the after-tax amount Executive would receive in the absence of such limitation on acceleration of vesting), and in such event such limitation on acceleration of vesting shall be implemented to the minimum extent necessary to maximize the Executive's after-tax amount, provided that Executive shall determine the order in which such limitation on acceleration of vesting is applied or, solely if required to comply with Section 409A of the Code, the option acceleration limitation shall be applied in the reverse order of scheduled vesting dates (i.e., the option tranche that would have vested first in the absence of a Change in Control will be the last tranche to have its acceleration limited).
          Provided, to the extent applicable under Section 409A as a “deferral of compensation,” and not as a “short-term deferral” under Treasury Regulation Section 1.409A-1(b)(4), the payments and benefits payable to Executive under this Section 10(c) shall be subject to the Safe Harbor and Postponement provided at Section 8(c)(iv).
For the avoidance of doubt, the provisions of this Section 10(c) shall not apply unless a Change in Control actually occurs. In the event of a termination of employment during the 90 days prior to the occurrence of a Change in Control, (x) the payment under Section 10(c)(iv) shall be payable (or commence to be payable, as applicable) within ten days following the Change in Control (not termination of employment), and (y) the acceleration of vesting of Executive’s unvested options and long-term incentive awards shall not occur until the occurrence of the Change in Control (and if such options and awards would otherwise be forfeited during such 90 day period in the absence of a Change in Control, such awards shall remain outstanding for up to 90 days solely for the purpose of determining whether Executive becomes entitled to vest in such awards pursuant to Section 10(c)(vi) but otherwise shall not be payable or exercisable following the date on which they would have otherwise been forfeited (unless the Change in Control subsequently occurs during such 90-day period)).          
     11.  EXECUTIVE COVENANTS .
          (a) CONFIDENTIALITY. Executive agrees that Executive shall not, commencing on the date hereof and at all times thereafter, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of Executive’s employment and for the benefit of the Company, any nonpublic, proprietary or confidential information, knowledge or data relating to the Company, any of its subsidiaries, affiliated companies or businesses, which shall have been obtained by Executive during Executive’s employment by the Company. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to Executive; (ii) becomes known to the public subsequent to disclosure to Executive through no wrongful act of Executive or any representative of Executive; or (iii) Executive is required to disclose by applicable law, regulation or legal process (provided that Executive provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information). Notwithstanding clauses (i) and (ii) of the preceding sentence, Executive’s obligation to maintain such disclosed information in confidence shall not terminate where only portions of the information are in the public domain.
          (b) NONSOLICITATION. Commencing on the date hereof, and continuing during Executive’s employment with the Company and for the twelve (12) month period following termination of Executive’s employment for any reason (an eighteen (18) month post-employment period in the event of a termination of Executive’s employment for any reason at any time during a Protection Period) ( “Restricted Period” ), Executive agrees that Executive shall not, without the prior written consent of the Company, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity: (i) solicit, recruit or employ (whether as an employee, officer, director, agent, consultant or independent contractor) any person who was or is at any time during the six (6) months preceding Executive’s termination of employment an employee, representative, officer or director of the Company; (ii) take any action to encourage or induce any employee, representative, officer or director of the Company to cease their relationship with the Company for any reason; or (iii) knowingly solicit, aid or induce any customer of the Company or any of its subsidiaries or affiliates to purchase goods or services then sold by the Company or any of its subsidiaries or affiliates from another person, firm, corporation or other entity or assist or aid any other persons or entity in identifying or soliciting any such customer.
          (c) NONCOMPETITION. Executive acknowledges that Executive performs services of a unique nature for the Company that are irreplaceable, and that Executive’s performance of such services to a competing business will result in irreparable harm to the Company. Accordingly, during the Restricted Period, Executive agrees that Executive shall not, directly or indirectly, own, manage,


operate, control, be employed by (whether as an employee, consultant, independent contractor or otherwise, and whether or not for compensation) or render services to any person, firm, corporation or other entity, in whatever form, engaged in any business of the same type as any business in which the Company or any of its subsidiaries or affiliates is engaged on the date of termination or in which they have proposed, on or prior to such date, to be engaged in on or after such date at any time during the twelve (12)-month period ending with the date of termination, in any locale of any country in which the Company conducts business. This Section 11(c) shall not prevent Executive from owning not more than two percent (2%) of the total shares of all classes of stock outstanding of any publicly held entity engaged in such business.
          (d) NONDISPARAGEMENT. Each of Executive and the Company (for purposes hereof, “the Company” shall mean only (i) the Company by press release or other formally released announcement and (ii) the executive officers and directors thereof and not any other employees) agrees not to make any public statements that disparage the other party, or in the case of the Company, its respective affiliates, employees, officers, directors, products or services. Notwithstanding the foregoing, statements made in the course of sworn testimony in administrative, judicial or arbitral proceedings (including, without limitation, depositions in connection with such proceedings) shall not be subject to this Section 11(d). Executive’s provision shall also not cover normal competitive statements which do not cite Executive’s employment by the Company.  
          (e) RETURN OF COMPANY PROPERTY AND RECORDS. Executive agrees that upon termination of Executive’s employment, for any cause whatsoever, Executive will surrender to the Company in good condition (reasonable wear and tear excepted) all property and equipment belonging to the Company and all records kept by Executive containing the names, addresses or any other information with regard to customers or customer contacts of the Company, or concerning any proprietary or confidential information of the Company or any operational, financial or other documents given to Executive during Executive’s employment with the Company.
          (f) COOPERATION. Executive agrees that, following termination of Executive’s employment for any reason, Executive shall upon reasonable advance notice, and to the extent it does not interfere with previously scheduled travel plans and does not unreasonably interfere with other business activities or employment obligations, assist and cooperate with the Company with regard to any matter or project in which Executive was involved during Executive’s employment, including any litigation. The Company shall compensate Executive for reasonable expenses incurred in connection with such cooperation and assistance.
          (g) ASSIGNMENT OF INVENTIONS. Executive will promptly communicate and disclose in writing to the Company all inventions and developments including software, whether patentable or not, as well as patents and patent applications (hereinafter collectively called “Inventions” ), made, conceived, developed, or purchased by Executive, or under which Executive acquires the right to grant licenses or to become licensed, alone or jointly with others, which have arisen or jointly with others, which have arisen or may arise out of Executive’s employment, or relate to any matters pertaining to, or useful in connection therewith, the business or affairs of the Company or any of its subsidiaries. Included herein as if developed during the employment period is any specialized equipment and software developed for use in the business of the Company. All of Executive’s right, title and interest in, to, and under all such Inventions, licenses, and right to grant licenses shall be the sole property of the Company. Any such Inventions disclosed to anyone by Executive within one (1) year after the termination of employment for any cause whatsoever shall be deemed to have been made or conceived by Executive during the Term. As to all such Inventions, Executive will, upon request of the Company execute all documents which the Company deems necessary or proper to enable it to establish title to such Inventions or other rights, and to enable it to file and prosecute applications for letters patent of the United States and any foreign country; and do all things (including the giving of evidence in suits and other proceedings) which the Company deems necessary or proper to obtain, maintain, or assert patents for any and all such Inventions or to assert its rights in any Inventions not patented.
          (h) EQUITABLE RELIEF AND OTHER REMEDIES. The parties acknowledge and agree that the other party’s remedies at law for a breach or threatened breach of any of the provisions of this Section 11 would be inadequate and, in recognition of this fact, the parties agree that, in the event of such a breach or threatened breach, in addition to any remedies at law, the other party, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available.  
          (i) REFORMATION. If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 11 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state.
          (j) SURVIVAL OF PROVISIONS. The obligations of Executive set forth in this Section 11 shall survive the termination of Executive’s employment by the Company and the termination or expiration of this Agreement and shall be fully enforceable thereafter.
     12.  NO ASSIGNMENTS .
          (a) This Agreement is personal to each of the parties hereto. Except as provided in Section 12(b) below, no party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto.


          (b) The Company shall assign this Agreement to any successor to all or substantially all of the business or assets of the Company provided that the Company shall require such successor to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place and shall deliver a copy of such assignment to Executive.
     13.  NOTICE . For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of delivery if delivered by hand, (b) on the first business day following the date of deposit if delivered by guaranteed overnight delivery service, or (d) on the fourth business day following the date delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive:
At the address shown on the records of the Company
If to the Company:
Rexnord Corporation
4701 West Greenfield Avenue
Milwaukee, WI 53214
Attn: General Counsel
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
     14.  SECTION HEADINGS; INCONSISTENCY . The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. In the event of any inconsistency between this Agreement and any other agreement (including but not limited to any option, long-term incentive or other equity award agreement), plan, program, policy or practice of the Company, the terms of this Agreement shall control.
     15.  SEVERABILITY . The provisions of this Agreement shall be deemed severable and the invalidity of unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
     16.  ARBITRATION . Any dispute or controversy arising under or in connection with this Agreement, other than injunctive relief under Section 11(h) hereof or damages for breach of Section 11, shall be settled exclusively by arbitration, conducted before a single arbitrator in Wilmington, Delaware, administered by the American Arbitration Association ( “AAA” ) in accordance with its Commercial Arbitration Rules then in effect. The single arbitrator shall be selected by the mutual agreement of the Company and Executive, unless the parties are unable to agree to an arbitrator, in which case, the arbitrator will be selected under the procedures of the AAA. The arbitrator will have the authority to permit discovery and to follow the procedures that Executive or she determines to be appropriate. The arbitrator will have no power to award consequential (including lost profits), punitive or exemplary damages. The decision of the arbitrator will be final and binding upon the parties hereto. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. Each party shall bear its own legal fees and costs and equally divide the forum fees and cost of the arbitrator.
     17.  INDEMNIFICATION; LIABILITY INSURANCE . The Company and Executive shall enter into the Company’s standard form of indemnification agreement governing his conduct as an officer of the Company.
     18.  AMENDMENTS; WAIVER . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer or director as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
     19.  ENTIRE AGREEMENT; MISCELLANEOUS . This Agreement together with the exhibit hereto, except as otherwise expressly provided in this Agreement, sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein, and supersedes in its entirety the Prior Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without regard to its conflicts of law principles. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word “including” in this Agreement shall be by way of example rather than by limitation and of the word “or” shall be inclusive and not exclusive.  
     


20.  CODE SECTION 409A .
          (a) It is intended that any amounts payable under this Agreement and the Company’s and Executive’s exercise of authority or discretion hereunder shall comply with the provisions of Section 409A and the Treasury Regulations relating thereto so as not to subject Executive to the payment of interest and tax penalty which may be imposed under Section 409A. In furtherance of this interest, anything to the contrary herein notwithstanding, no amounts shall be payable to Executive before such time as such payment fully complies with the provisions of Section 409A and, to the extent that any regulations or other guidance issued under Section 409A after the date of this Agreement would result in Executive being subject to payment of interest and tax penalty under Section 409A, the parties agree to amend this Agreement in order to bring this Agreement into compliance with Section 409A.
          (b)  With regard to any provision herein that provides for the reimbursement of expenses or the provision of in-kind benefits, except as permitted by Section 409A, (i) all such reimbursements shall be made within a commercially reasonable time after presentation of appropriate documentation but in no event later than the end of the year immediately following the year in which Executive incurs such reimbursable expenses, (ii) no such reimbursements or in-kind benefits will affect any other costs or expenses eligible for reimbursement, or any other in-kind benefits to be provided, in any other year and (iii) no such reimbursements or in-kind benefits are subject to liquidation or exchange for another payment or benefit..
          (c) Without limiting the discretion of either the Company or the Executive to terminate the Executive’s employment hereunder for any reason (or no reason), solely for purposes of compliance with 409A a termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a separation from service (within the meaning of Treasury Regulation Section 1.409A-1(h) (applying the 20% default post-separation limit thereunder)) as an employee and, for purposes of any such provision of this Agreement, references to a “termination” or “termination of employment” shall mean separation from service as an employee and such payments shall thereupon be made at or following such separation from service as an employee as provided hereunder.
     21.  FULL SETTLEMENT . Except as set forth in this Agreement, the Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others, except to the extent any amounts are due the Company or its subsidiaries or affiliates pursuant to a judgment against Executive. In no event shall Executive be obliged to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned by Executive as a result of employment by another employer, except as set forth in this Agreement.
     22.  REPRESENTATION . Executive represents and warrants that to that Executive is not bound by any agreement or obligation or understanding, written or oral, that would prevent Executive from entering into this Agreement or performing all of Executive’s obligations hereunder.
     23.  WITHHOLDING . The Company may withhold from any and all amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
     24.  AGREEMENT OF THE PARTIES . The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. Neither Executive nor the Company shall be entitled to any presumption in connection with any determination made hereunder in connection with any arbitration, judicial or administrative proceeding relating to or arising under this Agreement.
     25.  COUNTERPARTS . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instruments.


 
      IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the date and year first written above.
 
 
REXNORD CORPORATION
 
 
 
By:
/ S /    Todd A. Adams
Name:
Todd A. Adams
 
Title:
Chief Executive Officer
 
 
 
 
/ S /    Praveen R. Jeyarajah
Praveen R. Jeyarajah
 



  EXHIBIT A
GENERAL RELEASE OF ALL CLAIMS
     1. For and in consideration of the promises made in Executive Employment Agreement (defined below), the adequacy of which is hereby acknowledged, the undersigned ( “Executive” ), for himself, his heirs, administrators, legal representatives, executors, successors, assigns, and all other persons claiming through Executive, if any (collectively, “Releasers” ), does hereby release, waive, and forever discharge Rexnord Corporation ( “Company” ), the Company’s subsidiaries, parents, affiliates, related organizations, employees, officers, directors, attorneys, successors, and assigns (collectively, the “Releasees” ) from, and does fully waive any obligations of Releasees to Releasers for, any and all liability, actions, charges, causes of action, demands, damages, or claims for relief, remuneration, sums of money, accounts or expenses (including attorneys’ fees and costs) of any kind whatsoever, whether known or unknown or contingent or absolute, which heretofore has been or which hereafter may be suffered or sustained, directly or indirectly, by Releasers in consequence of, arising out of, or in any way relating to Executive’s employment with the Company or any of its affiliates or the termination of Executive’s employment. The foregoing release and discharge, waiver and covenant not to sue includes, but is not limited to, all claims and any obligations or causes of action arising from such claims, under common law including wrongful or retaliatory discharge, breach of contract (including but not limited to any claims under the Employment Agreement between the Company and Executive, dated November 9, 2012 (the “Employment Agreement” ), and any claims under any stock option and restricted stock units agreements between Executive and the Company) and any action arising in tort including libel, slander, defamation or intentional infliction of emotional distress, and claims under any federal, state or local statute including Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866 and 1871 (42 U.S.C. § 1981), the National Labor Relations Act, the Age Discrimination in Employment Act (ADEA), the Fair Labor Standards Act, the Americans with Disabilities Act of 1990, the Rehabilitation Act of 1973,), or the discrimination or employment laws of any state or municipality, or any claims under any express or implied contract which Releasers may claim existed with Releasees. This release and waiver does not apply to any claims or rights that may arise after the date Executive signs this General Release. The foregoing release does not apply to any claims of indemnification under the Employment Agreement or a separate indemnification agreement with the Company or rights of coverage under directors and officers liability insurance.
     2. Excluded from this release and waiver are any claims which cannot be waived by law, including but not limited to the right to participate in an investigation conducted by certain government agencies. Executive does, however, waive Executive’s right to any monetary recovery should any agency (such as the Equal Employment Opportunity Commission) pursue any claims on Executive’s behalf. Executive represents and warrants that Executive has not filed any complaint, charge, or lawsuit against the Releasees with any government agency or any court.
     3. Executive agrees never to sue Releasees in any forum for any claim covered by the above waiver and release language, except that Executive may bring a claim under the ADEA to challenge this General Release or as otherwise provided in this General Release. If   Executive violates this General Release by suing Releasees, other than under the ADEA or as otherwise set forth in Section 1 hereof, Executive shall be liable to the Company for its reasonable attorneys’ fees and other litigation costs incurred in defending against such a suit. Nothing in this General Release is intended to reflect any party’s belief that Executive’s waiver of claims under ADEA is invalid or unenforceable, it being the interest of the parties that such claims are waived.
     4. Executive acknowledges, agrees and affirms that he is subject to certain post-employment covenants pursuant to Section 11 of the Employment Agreement, which covenants survive the termination of his employment and the execution of this General Release.
     5. Executive acknowledges and recites that:
          (a) Executive has executed this General Release knowingly and voluntarily;
          (b) Executive has read and understands this General Release in its entirety;
          (c) Executive has been advised and directed orally and in writing (and this subparagraph (c) constitutes such written direction) to seek legal counsel and any other advice he wishes with respect to the terms of this General Release before executing it;
          (d) Executive’s execution of this General Release has not been coerced by any employee or agent of the Company; and
          (e) Executive has been offered twenty-one (21) calendar days after receipt of this General Release to consider its terms before executing it.
     6. This General Release shall be governed by the internal laws (and not the choice of laws) of the State of Delaware, except for the application of pre-emptive Federal law.
     7. Executive shall have seven (7) days from the date hereof to revoke this General Release by providing written notice of the revocation to the Company, as provided in Section 13 of the Employment Agreement, upon which revocation this General Release shall be unenforceable and null and void and in the absence of such revocation this General Release shall be binding and irrevocable by Executive.


     PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

 
 
 
 
Date: ____________ , 20____
 
EXECUTIVE:
 
 
 
 
 
 
 

 
 
Praveen R. Jeyarajah
 




Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Todd A. Adams, President and Chief Executive Officer of Rexnord Corporation , certifies that:
1.
I have reviewed this quarterly report on Form 10-Q of Rexnord Corporation;
2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.
The registrants' other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrants and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants' internal control over financial reporting that occurred during the registrants' most recent fiscal quarter (the registrants' fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and
5.
The registrants' other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants' auditors and the audit committee of registrants' board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants' ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting.
Date: November 9, 2012
 
 
 
By:
/s/ TODD A. ADAMS
 
Name:
Todd A. Adams
Title:
President and Chief Executive Officer





Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Mark W. Peterson, Senior Vice President and Chief Financial Officer of Rexnord Corporation , certifies that:
1.
I have reviewed this quarterly report on Form 10-Q of Rexnord Corporation;
2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.
The registrants' other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrants and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants' internal control over financial reporting that occurred during the registrants' most recent fiscal quarter (the registrants' fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and
5.
The registrants' other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants' auditors and the audit committee of registrants' board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants' ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting.
Date: November 9, 2012
 
 
 
By:
/s/ MARK W. PETERSON
Name:
Mark W. Peterson
Title:
Senior Vice President and Chief Financial Officer





EXHIBIT 32.1
CERTIFICATION
Pursuant to 18 United States Code § 1350
Each of the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,2012 of Rexnord Corporation filed with the Securities and Exchange Commission on or about the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:  November 9, 2012
 
 
 
By:
/s/ TODD A. ADAMS
 
Name:
Todd A. Adams
Title:
President and Chief Executive Officer
Date:  November 9, 2012
 
 
 
By:
/s/ MARK W. PETERSON
Name:
Mark W. Peterson
Title:
Senior Vice President and Chief Financial Officer

This certification accompanies the Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.