We will receive net proceeds from this offering of approximately $399.0
million, after deducting underwriting discounts and commissions and other
estimated expenses of $27.3 million payable by us.
We intend to use the net proceeds that we receive (i) to redeem up to $300.0
million in aggregate principal amount of our 11.75% senior subordinated notes
due 2016 plus pay early redemption premiums of $17.6 million and approximately
$7.4 million of accrued interest, (ii) to pay Apollo or its affiliates a fee
of $15.0 million (plus any unreimbursed expenses) upon the consummation of
this offering in connection with the termination of our management services
agreement, as described under “Certain Relationships and Related Party
Transactions—Management Services Fee,” and (iii) for general corporate
purposes. As of December 31, 2011, we had $300.0 million in aggregate
principal amount of our 11.75% senior subordinated notes outstanding, which
bear interest at a rate of 11.75% per annum and mature on August 1, 2016.
Any net proceeds used to redeem all $300.0 million of outstanding aggregate
principal amount of our 11.75% senior subordinated notes would be first
contributed by the Company to RBS Global so that RBS Global may effect such
redemption. Pending the application of the net proceeds of this offering, as
described above, all or a portion of the net proceeds of this offering may
be invested by us in short-term interest bearing investments.
Our affiliates, including Mr. Sherman (our Non-Executive Chairman) and Messrs.
Adams and Jeyarajah (both of whom are executive officers), who are holders of
our 11.75% senior subordinated notes will receive net proceeds from this
offering in connection with the repayment of such indebtedness. As of the date
of this prospectus these affiliates held $3.8 million of our 11.75% senior
subordinated notes, all of which will be repaid with the net proceeds of this
offering. In addition, pursuant to the terms of the indebtedness being repaid,
our affiliates that hold such indebtedness would be entitled to receive accrued
interest and prepayment premiums in respect of such indebtedness. As such,
assuming that our affiliates neither increase nor decrease their holdings of the
indebtedness to be repaid, we estimate that they would receive $4.0 million in
the aggregate upon completion of this offering and repayment of such
indebtedness, excluding any accrued interest that will be paid at the date of
redemption. Additionally, affiliates of certain of the underwriters are or may
become holders of the 11.75% senior subordinated notes outstanding and, as a
result, will receive a portion of the proceeds from this offering when such
senior subordinated notes are repaid.
We operate in highly fragmented markets within the Process & Motion Control
platform. As a result, we compete against numerous companies. Some of our
competitors have achieved substantially more market penetration in certain
of the markets in which we operate, and some of our competitors have greater
financial and other resources than we do. Competition in our business lines
is based on a number of considerations, including product performance, cost
of transportation in the distribution of our Process & Motion Control
products, brand reputation, quality of client service and support, product
availability and price. Additionally, some of our larger, more sophisticated
customers are attempting to reduce the number of vendors from which they
purchase in order to increase their efficiency. If we are not selected to
become one of these preferred providers, we may lose access to certain
sections of the markets in which we compete. Our customers increasingly
demand a broad product range and we must continue to develop our expertise
in order to manufacture and market these products successfully. To remain
competitive, we will need to invest continuously in manufacturing, customer
service and support, marketing and our distribution networks. We may also
have to adjust the prices of some of our Process & Motion Control products
to stay competitive. We cannot assure you that we will have sufficient
resources to continue to make these investments or that we will maintain our
competitive position within each of the markets we serve.
Within the Water Management platform, we compete against both large
international and national rivals, as well as many regional competitors. Some
of our competitors have greater resources than we do. Significant competition
in any of the markets in which the Water Management platform operates could
result in substantial downward pressure on product pricing and our profit
margins, thereby adversely affecting the Water Management financial results.
Furthermore, we cannot provide assurance that we will be able to maintain or
increase the current market share of our products successfully in the future.
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.
Our strategy is to build the Company around multiple, global strategic
platforms that participate in end-markets with sustainable growth
characteristics where we are, or have the opportunity to become, the industry
leader. We have a track record of acquiring and integrating companies and
expect to continue to pursue strategic acquisitions within our existing
platforms that will expand our geographic presence, broaden our product
lines and allow us to move into adjacent markets. Over time, we anticipate
adding additional strategic platforms to our company. Currently, our business
is comprised of two platforms, Process & Motion Control and Water Management.
We believe that we have one of the broadest portfolios of highly engineered,
mission and project critical Process & Motion Control products in the
industrial and aerospace end-markets. Our Process & Motion Control product
portfolio includes gears, couplings, industrial bearings, aerospace bearings
and seals, FlatTopTM chain, engineered chain and conveying equipment, and
are marketed and sold globally under several brands, including Rexnord®,
Rex®, Falk® and Link-Belt®. Our Water Management platform is a leader
in the multi-billion dollar, specification-driven, commercial construction
market for water management products and, through recent acquisitions, has
entered the municipal water and wastewater treatment markets. Our Water
Management product portfolio includes professional grade specification
drainage products, flush valves and faucet products, backflow prevention
pressure release valves, PEX piping and engineered valves and gates for the
water and wastewater treatment markets. These products are marketed and sold
through widely recognized brand names, including Zurn®, Wilkins®, VAG®,
GA®, Rodney-Hunt® and Fontaine®.
We believe our portfolio includes premier and widely known brands in the
Process & Motion Control and Water Management markets in which we participate,
as well as one of the broadest and most extensive product offerings. We
estimate that over 85% of our total net sales come from products in which we
have leading market share positions. Our products are generally “specified”
or requested by end-users across both of our strategic platforms as a result
of their reliable performance in demanding environments, our custom
application engineering capabilities and our ability to provide global
customer support.
Typically, products in our Process & Motion Control platform are initially
incorporated into products sold by original equipment manufacturers (“OEMs”)
or sold to end-users as critical components in large, complex systems where
the cost of failure or down-time is high and thereafter replaced through
industrial distributors as they are consumed or require replacement. We have
established long-term relationships with OEMs and end-users serving a wide
variety of industries. As a result of these relationships, we have created
a significant installed base for our Process & Motion Control products, which
are consumed or worn in use and have a relatively predictable replacement
cycle. We believe this replacement dynamic drives recurring aftermarket
demand for our products. We estimate that approximately 50% of our Process &
Motion Control net sales are to distributors, who primarily serve the
end-user/OEM aftermarket demand for our products. We believe our reputation
for superior quality, application expertise and ability to meet lead time
expectations are highly valued by our customers, as demonstrated by their
preference to replace their worn Rexnord products with new Rexnord products,
or “like-for-like” product replacements. We believe the majority of our
Process & Motion Control products are purchased by customers as part of their
regular maintenance budget, and in many cases do not represent significant
capital expenditures.
Our Water Management products are principally specification-driven and
project-critical and typically represent a low percentage of the overall
project cost. We believe these characteristics, coupled with our extensive
distribution network and approximately 240 direct sales and marketing
associates in 18 countries, create a high level of end-user loyalty for our
products and allow us to maintain leading market shares in the majority of
our product lines. Demand is primarily driven by new infrastructure, the
retro-fit of existing structures to make them more energy and water efficient,
commercial construction and, to a lesser extent, residential construction.
We believe we have become a market leader in the industry by meeting the
stringent third party regulatory, building and plumbing code requirements
and subsequently achieving specification of our products into projects and
applications.
We operate a global footprint encompassing 36 principal Process & Motion
Control manufacturing, warehouse and repair facilities located around the
world and 27 principal Water Management manufacturing and warehouse
facilities, which allows us to meet the needs of our increasingly global
customer base as well as our distribution channel partners. We also have
extensive distribution networks in both of our platforms—in Process & Motion
Control, we have over 2,600 distributor locations serving our customers
globally and, in Water Management, we have more than 1,100 independent sales
representatives across approximately 210 sales agencies, as well as
approximately 240 direct sales and marketing associates in 18 countries that
work directly with our in-house technical team to drive specification of our
products.
We employ approximately 7,400 employees across 63 locations around the world.
For the fiscal year ended March 31, 2011, we generated net sales of $1.7
billion, income from operations of $219.1 million and a net loss of $51.3
million. Fiscal 2011 results reflect the effect of a $100.8 million loss on
debt extinguishment recorded during the year as a result of the early
repayment of debt pursuant to cash tender offers. For the nine months ended
December 31, 2011 we generated net sales of $1,423.8 million, income from
operations of $175.9 million and net income of $21.3 million.
In addition to net income (loss), we believe Adjusted EBITDA is an important
measure under our senior secured credit facilities, as our ability to incur
certain types of acquisition debt or 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.
Adjusted EBITDA for the fiscal year ended March 31, 2011 was $335.7 million
and adjusted EBITDA for the twelve months ended December 31, 2011 was $382.6
million, which includes the pro forma impact of VAG.
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Rexnord Corporation is a Delaware corporation. Our principal executive offices
are located at 4701 West Greenfield Avenue, Milwaukee, Wisconsin 53214. Our
telephone number is (414) 643-3000. Our website is located at www.rexnord.com.