Regal Rexnord (RRX) Risk Analysis

We are subject to US federal, state, and international income, payroll, property, sales and use, fuel, and other types of taxes. Changes in tax rates, enactment of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities, including claims or litigation related to our interpretation and application of tax laws and regulations, could result in substantially higher taxes, could have a negative impact on our ability to compete in the global marketplace, and could have a significant adverse effect on our results or operations, financial conditions and liquidity. The impact of these factors referenced above may be substantially different from period to period. Final laws enacting the Organisation for Economic Co-operation and Development's global minimum tax framework ("Pillar Two Laws") became effective in 2024 in the European Union and other countries where we do business. However, guidance related to how Pillar Two Laws apply to US multinational groups remains under discussion. The Company faces uncertainty related to the potential implementation of Pillar Two Laws in countries where we operate. We are continuing to monitor the legislative process and evaluate the potential impact of implementation of Pillar Two Laws by other countries. It is difficult to predict the timing and effect that future tax law changes could have on our earnings both in the US and in foreign jurisdictions. Such changes could cause us to experience an effective tax rate significantly different from previous periods or our current estimates. If our effective tax rate were to increase, our business, results of operations and financial condition could be adversely affected.

The effects of climate change could create financial, reputational or other risks to our business. For example, the effects of climate change could disrupt our operations by impacting the availability and the cost of materials needed for manufacturing, exacerbate existing risks to our supply chain and increase insurance and other operating costs, including energy costs impacted by carbon prices or offsets. These factors may impact our decisions to construct new facilities or maintain existing facilities in areas most prone to physical climate risks. We could also face indirect financial risks passed through the supply chain and disruptions that could result in increased prices for our products and the resources needed to produce them. Additionally, we are subject to environmental laws that could impose significant costs on us. See "We are subject to environmental laws that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses" in these Risk Factors for more information. There continues to be a lack of consistent climate regulation, which creates economic and regulatory uncertainty. Increased international, regional, state, and/or federal requirements or other stakeholder expectations have and could further mandate more restrictive or expansive standards, more prescriptive reporting of environmental, social and governance metrics than the voluntary commitments we have adopted, or require related changes on a more accelerated time frame than we anticipate. For example, we continue to be subject to the European Union's Corporate Sustainability Reporting Directive ("CSRD") and California's climate disclosure rules, should the current scope and compliance deadline remain in effect for each. These regulations are inconsistent, and are rapidly emerging and evolving, and have increased, and are expected to continue to increase, our compliance costs. For example, the CSRD has established extensive ESG-related disclosure requirements based on the European Sustainability Reporting Standards, including certain assurance obligations. These mandatory disclosure requirements will require us to assess and report on key quantitative and qualitative metrics related to a range of topics, including governance, strategy, and our process for identifying and assessing material sustainability issues. In addition, a number of governmental bodies have finalized, proposed or are contemplating legislative and regulatory changes in response to the potential effect of climate change. These regulations may affect our operations, supply chain, and overall business strategy, potentially leading to increased expenses, operational disruptions or limitations on our ability to compete in certain markets. If our product portfolio does not align with these regulations, we may be required to make increased research and development and other capital expenditures to improve our product portfolio in order to meet new regulations and standards. Further, our customers and the markets we serve may impose emissions or other environmental standards through regulation, market-based emissions policies or consumer preference that we may not be able to meet due to the level of capital investment or technological advancement. While we are committed to continuous improvements to our product portfolio to meet and exceed anticipated regulations and preferences, there can be no assurance that our commitments will be successful, that our products will be accepted by the market, that proposed regulation or deregulation will not have a negative competitive impact, or that economic returns will reflect our investments in new product development. As of the date of this filing, we have made several public commitments regarding our intended reduction of carbon emissions, including commitments to achieve absolute Scope 1 and Scope 2 carbon emission neutrality by 2032, and net zero across Scope 1, 2 and 3 emissions longer term. Although we intend to meet these commitments, we have expended resources and we may be required to further expend significant resources to do so, which could increase our operational costs. If we either are unable to meet these commitments, or progress toward our commitments more slowly than expected, or if such commitments are criticized by certain groups, then we could incur adverse publicity and reaction from investors, activist groups and other stakeholders, which could adversely impact the perception of our brands and our products by current and potential customers, as well as investors, which would in turn adversely impact our results of operations. Moreover, we may determine that it is in the best interest of the Company and our shareholders to prioritize other business investments over the achievement of our current sustainability commitments based on economic or technological developments, regulatory and social factors, business strategy or pressure from investors, activists, or other stakeholders.

We have a material amount of goodwill and other long-lived assets, including intangible assets, property, plant and equipment and lease assets. We assess our goodwill at least annually for impairment. Our estimates of fair value are based on assumptions about future operating cash flows, growth rates, discount rates applied to these cash flows and current market estimates of value. We evaluate the recoverability of the carrying value of long-lived assets to be held and used whenever events or circumstances indicating a potential impairment exist, such as, but not limited to, adverse market conditions or business climate, a change in the extent or manner in which assets are being used, or a negative long-term performance outlook. An impairment would require us to reduce the carrying value of goodwill or other long-lived asset to fair value through a non-cash impairment charge in our results of operations, which could be material. See Note 4 – Goodwill and Intangible Assets of the Notes to the Consolidated Financial Statements for more information.

We have incurred, and may continue to incur, significant one-time costs in connection with acquisitions, including the cost of financing, transaction costs and integration costs. Incurring these costs may have an adverse effect on our liquidity, cash flows and results of operations. The success of our acquisitions, including the Altra Transaction, depends, in large part, on our ability to realize the anticipated benefits of such acquisition and on our sales and profitability following such acquisition. The integration of our acquisitions is complex and time-consuming, and is subject to a number of uncertainties, and no assurance can be given that any anticipated benefits will be realized or, if realized, the timing of their realization. The failure to successfully integrate and manage the challenges presented by the integration process may result in our failure to achieve some or all of the anticipated benefits of these acquisitions. Potential difficulties that may be encountered in the integration process of potential acquisitions include, among others: - the failure to implement our business plan following such acquisitions;- lost sales and customers as a result of customers deciding not to do business with the Company;- risks associated with managing our larger and more complex company following an acquisition;- integrating personnel while maintaining focus on providing consistent, high-quality products and service to customers;- the loss of key employees;- unanticipated issues in integrating manufacturing, logistics, information, communications and other systems;- unexpected liabilities of such acquisitions;- possible inconsistencies in standards, controls, procedures, policies and compensation structures; and - the impact on our internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of 2002. If any of these events were to occur, our ability to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits of any acquisition could be adversely affected, or could reduce our sales or earnings or otherwise adversely affect our business and financial results after such acquisition and, as a result, adversely affect the market price of our common stock. As part of our growth strategy, we expect to continue to make acquisitions. Our continued growth may depend on our ability to identify and acquire companies that complement or enhance our business on acceptable terms, but we may not be able to identify or complete future acquisitions. We may not be able to integrate successfully our recent acquisitions, or any future acquisitions, operate these acquired companies profitably, or realize the potential benefits from these acquisitions.

The electric motor drives and controls, power generation and power transmission industries have seen significant evolution and innovation in recent years, particularly with respect to increasing energy efficiency and control enhancements. Our ability to effectively compete in these industries depends in part on our ability to continue to develop new technologies, innovative products, new manufacturing techniques, and product enhancements, including enhancements based on technological innovation such as Internet of Things ("IoT") and Artificial Intelligence ("AI"). Further, many large customers in these industries generally desire to purchase from companies that can offer a broad product range, which means we must continue to develop our expertise in order to design, manufacture and sell these products successfully. This requires that we make significant investments in engineering, manufacturing, customer service and support, research and development and intellectual property protection, and there can be no assurance that in the future we will have sufficient resources to continue to make such investments. If we are unable to identify and predict customer needs and preferences or are unable to meet the needs of our customers for innovative and competitive products, or if our products become technologically obsolete over time due to the development by our competitors of technological breakthroughs or otherwise, our revenues and results of operations may be adversely affected. In addition, we may incur significant costs and devote significant resources to the development of products that ultimately are not accepted in the marketplace, do not provide anticipated enhancements, or do not lead to significant revenue, which may adversely impact our business, results of operations and financial condition.

We may be subject to claims from third parties that our products or technologies infringe on their intellectual property rights or that we have misappropriated intellectual property rights. If we are involved in a dispute or litigation relating to infringement of third-party intellectual property rights, we could incur significant costs in defending against those claims. Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. In addition, as a result of such claims of infringement or misappropriation, we could lose our rights to technology that is important to our business, or be required to pay damages or license fees with respect to the infringed rights or be required to redesign our products at substantial cost, any of which could adversely impact our business, results of operations and financial condition.

Portions of our total sales are dependent directly upon the level of capital expenditures by customers in key markets and industries, such as HVAC, refrigeration, power generation, oil and gas, unit material handling, water heating, data center, and aerospace. Some of these key markets and industries are inherently cyclical and can be impacted by governmental policy and the general macroeconomic climate. A significant or prolonged decline or disruption in one of those markets or industries may result in some of such customers delaying, canceling or modifying projects, or may result in nonpayment of amounts that are owed to us. These effects could have a material adverse effect on our business, results of operations and financial condition. Additionally, many of our motors are incorporated into HVAC systems and other residential applications that OEMs sell to end users. The number of installations of new and replacement HVAC systems or components and other residential applications is higher during the spring and summer seasons due to the increased use of air conditioning during warmer months. Mild or cooler weather conditions during the spring and summer season often result in end users deferring the purchase of new or replacement HVAC systems or components. As a result, prolonged periods of mild or cooler weather conditions in the spring or summer season in broad geographical areas could have a negative impact on the demand for our HVAC motors and, therefore, could have an adverse effect on our results of operations. In addition, due to variations in weather conditions from year to year, our operating performance in any single year may not be indicative of our performance in any future year.

Changes to tariffs and uncertainty in US and international trade policy have adversely impacted and will continue to adversely impact our business and the US and global economy or certain sectors thereof, including our industry, and could have a material adverse affect on our business, operating results, and financial condition. For example, the US has instituted changes in trade policies that include the imposition of higher tariffs on imports into the US, restrictions on imports of certain products in the US, the renegotiation or termination of trade agreements, and may impact other regulations affecting trade between the US and countries where we conduct our business. In particular, the US government imposed tariffs on imports from China, Canada, Mexico, India and other countries, and such countries have taken, or have threatened to take, retaliatory actions, including imposing retaliatory tariffs. To date, we have successfully navigated the changing trade policy environment and mitigated these tariffs, so as to avoid a material impact on our business and financial condition. However, the current volatility in global trade policy could ultimately affect our business and, while we have plans in place intended to mitigate the impacts of these tariffs on our business, there is no guarantee that such plans will fully mitigate the effects of such tariffs. In particular, the US imposition of reciprocal and penalty tariffs on imports from India in August 2025 has impacted the cost of materials and goods originating from India and we believe without a reduction in the US effective tariff rate on India, our business may be impacted. Additionally, to date, our internal estimates reflect that the vast majority of goods the Company imports from Canada and Mexico are compliant with the United States-Mexico-Canada Agreement (the "USMCA") and are therefore exempt from tariffs. While the current tariff regime contemplates that this exemption for USMCA-compliant imports will remain in effect, if this exemption is altered or removed, as a result of the expected USMCA re-negotiation or otherwise, there could be a material adverse effect on our business, operations and financial results to the extent we are unable to mitigate any resulting impacts. We cannot predict what additional changes to trade policy will be made that may have a material adverse effect on our business, results of operations and financial condition or could provide our competitors with an advantage over us. Our business is also subject to other risks associated with US and foreign legislation and regulations relating to imports, including quotas, duties, fees, or taxes, and other charges or restrictions on imports and exports, which affect our operations and our ability to import products at current or increased levels, and substantially all of our import operations are subject to customs duties or fees on imported products imposed by the governments where our production facilities are located, including raw materials. For example, following the reciprocal tariffs imposed by the US on Chinese goods, China placed export controls on certain rare earth magnets. These restrictions create risk in our supply chain and may increase our costs or limit our ability to produce certain of our products that use rare earth magnets, to the extent we are unable to mitigate the related impacts of these restrictions. We cannot predict whether additional US and foreign customs quotas, duties, fees, taxes or other charges or restrictions, requirements as to raw materials, reporting obligations pertaining to "conflict minerals" and polyfluoroalkyl substances (commonly referred to as "PFAS"), or other restrictions will be imposed in the future or adversely modified, or what effect such actions would have on our operations. Future trade agreements, quotas, duties, fees, or the imposition of import or export requirements may have a material adverse effect on our business, results of operations and financial condition.

We depend on, and expect to continue to depend on, revenues from several significant OEM customers and distributors and any loss, cancellation or reduction of, or delay in, purchases by these customers or distributors may have a material adverse effect on our business. Our success depends on our continued ability to develop and manage these relationships. We cannot assure you that we will be able to retain these key customers and distributor relationships. Some of our customers or distributors may in the future shift some or all of their purchases of products from us to our competitors or to other sources. The loss of one or more of our large customers or distributors, any reduction or delay in sales to these parties, our inability to develop relationships successfully with additional customers or distributors, or future price concessions that we may make to maintain relationships with these customers or distributors could have a material adverse effect on our business, results of operations and financial condition.