FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1998
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Commission File Number 1-7283
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REGAL-BELOIT CORPORATION
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0875718
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
200 State Street, Beloit, Wisconsin 53511-6254
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(Address of principal executive offices)
(608) 364-8800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
Indicate the number of shares outstanding of each of the issuers' classes of
common stock as of the latest practicable date.
20,896,290 Shares, Common Stock, $.01 Par Value
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<PAGE>1
REGAL-BELOIT CORPORATION
FORM 10-Q
For Quarter Ended March 31, 1998
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Balance Sheets. . . . . . . . . . . . . . . 3
Statements of Income. . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows. . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 7-8
PART II - OTHER INFORMATION
Item 6 - Reports on Form 8-K. . . . . . . . . . . . . . . . . . 9
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE>2
PART I
FINANCIAL INFORMATION
1. Financial Statements
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<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
(From Audited
ASSETS (Unaudited) Statements)
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March 31, 1998 Dec. 31, 1997
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<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 5,118 $ 3,351
Receivables, less reserves of $2,743 in 1998
and $2,620 in 1997 . . . . . . . . . . . . . . . . . 73,379 69,660
Inventories. . . . . . . . . . . . . . . . . . . . . . . 87,577 85,527
Other current assets . . . . . . . . . . . . . . . . . . 15,541 14,021
---------- ---------
Total Current Assets. . . . . . . . . . . . . . . . . 181,615 172,559
---------- ---------
Property, Plant and Equipment at Cost. . . . . . . . . . . 236,957 233,614
Less - accumulated depreciation. . . . . . . . . . . . . (86,772) (82,355)
---------- ---------
Net Property, Plant and Equipment. . . . . . . . . . 150,185 151,259
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . 150,046 151,358
Other Noncurrent Assets. . . . . . . . . . . . . . . . . . 10,163 10,449
---------- ---------
Total Assets. . . . . . . . . . . . . . . . . . . . . $492,009 $485,625
---------- ---------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 19,770 $ 23,590
Federal and state income taxes . . . . . . . . . . . . . 6,173 5,696
Other current liabilities. . . . . . . . . . . . . . . . 38,360 42,646
--------- ---------
Total Current Liabilities. . . . . . . . . . . . . 64,303 71,932
--------- ---------
Long-term Debt . . . . . . . . . . . . . . . . . . . . . . 196,251 192,261
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . 32,138 31,726
Other Noncurrent Liabilities . . . . . . . . . . . . . . . 279 279
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,889,290 issued in 1998 and
20,830,226 issued in 1997. . . . . . . . . . . . . 209 208
Additional paid-in capital . . . . . . . . . . . . . . . 40,500 38,904
Retained earnings. . . . . . . . . . . . . . . . . . . . 158,264 150,357
Cumulative Translation Adjustments . . . . . . . . . . . 65 (42)
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Total Shareholders Investment. . . . . . . . . . . . 199,038 189,427
--------- ---------
Total Liabilities and Shareholders Investment. . . . $492,009 $485,625
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
STATEMENTS OF INCOME
(In Thousands of Dollars, Except Per Share Data)
(Unaudited)
-----------------------------
Three Months Ended
-----------------------------
March 31,
-----------------------------
1998 1997
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<S> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . . $137,818 $ 70,570
Cost of Sales . . . . . . . . . . . . . . . . . . . 98,080 50,199
---------- ----------
Gross Profit . . . . . . . . . . . . . . . . . . 39,738 20,371
Operating Expenses . . . . . . . . . . . . . . . . . 19,870 8,309
---------- ----------
Income from Operations . . . . . . . . . . . . . 19,868 12,062
Interest Expense . . . . . . . . . . . . . . . . . . 2,988 53
Interest Income . . . . . . . . . . . . . . . . . . 130 363
---------- ----------
Income Before Taxes . . . . . . . . . . . . . . . 17,010 12,372
Provision for Income Taxes . . . . . . . . . . . . . 6,596 4,666
---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . $ 10,414 $ 7,706
========== ==========
Per Share of Common Stock:
Earnings Per Share . . . . . . . . . . . . . . . $.50 $.37
========== ==========
Earnings Per Share - Assuming Dilution. . . . . . $.49 $.36
========== ==========
Cash Dividends Declared . . . . . . . . . . . . . $.12 $.12
========== ==========
Average Number of Shares Outstanding . . . . . . . . 20,861,291 20,773,553
========== ==========
Average Number of Shares - Assuming Dilution . . . . 21,331,969 21,248,189
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>4
<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
----------------------------
Three Months Ended March 31,
----------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,414 $ 7,706
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation, amortization and deferred income taxes. . . . . . . . 6,023 2,714
Change in assets and liabilities: . . . . . . . . . . . . . . . . .
Current assets, other than cash . . . . . . . . . . . . . . . . . (7,252) (308)
Current liabilities, other than notes payable . . . . . . . . . . (6,155) 1,886
--------- ----------
Net cash provided from operating activities . . . . . . . . . 3,030 11,998
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net of retirements . . . . (3,487) (1,971)
Business acquisition . . . . . . . . . . . . . . . . . . . . . . . . . ----- (277,433)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 (50)
--------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . (3,381) (279,454)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt. . . . . . . . . . . . . . . . . . . . . . 4,000 242,000
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . (9) (129)
Dividends to shareholders. . . . . . . . . . . . . . . . . . . . . . . (2,500) (2,477)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632 984
--------- ----------
Net cash provided from financing activities . . . . . . . . . . . . 2,123 240,378
EFFECT OF EXCHANGE RATE ON CASH. . . . . . . . . . . . . . . . . . . . . (5) (80)
--------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . 1,767 (27,158)
Cash and cash equivalents at beginning of period . . . . . . . . . . . 3,351 38,402
--------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 5,118 $ 11,244
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,038 $ 67
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,547 $ 19
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>5
REGAL-BELOIT CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. BASIS OF PRESENTATION
The condensed financial statements include the accounts of Regal-Beloit
Corporation and its wholly owned subsidiaries and have been prepared by the
Company, without audit, 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 generally accepted accounting principles 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. It
is suggested these statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest Annual
Report on Form 10-K.
2. INVENTORIES
Cost for approximately 82% of the Company's inventory is determined using the
last-in, first-out (LIFO) inventory valuation method. The approximate
percentage distribution between major classes of inventories is as follows:
3-31 12-31
1998 1997
---- -----
Raw Material 13% 13%
Work-in Process 24% 23%
Finished Goods 63% 64%
3. ACQUISITION
The Statement of Income incorporates, after March 26, 1997, the results of
operations of Marathon Electric Manufacturing Corporation, which was acquired
by the Company on March 26, 1997. Marathon Electric operations did not have
a material impact on the Statement of Income in the first quarter of 1997.
4. IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
Financial Accounting Standard No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," establishes standards for the reporting and display of comprehensive
income and its components. Adoption of SFAS 130 is required by the Company
as of the December 31, 1998 statements. The impact for the first quarter of
1998 was $107,000 of additional comprehensive income relating to the
cumulative translation adjustment recorded, resulting in net comprehensive
income of $10,521,000 for the quarter.
<PAGE>6
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS
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Net sales for the first quarter of 1998 were $137,818,000, a 95% increase
from net sales of $70,570,000 in 1997's first quarter. Mechanical Group net
sales of $72,751,000 were 3.1% above 1997 first quarter sales of $70,570,000.
Electrical Group net sales were $65,067,000 in the first quarter of 1998.
The Electrical Group was formed upon the acquisition of Marathon Electric on
March 26, 1997.
Electrical Group net sales increased 3.6% over the pre-acquisition sales of
Marathon Electric in the first quarter of 1997. This increase occurred
despite a reduction in sales of the generator product line to the Asian
market. The Company's Asian exposure is limited and generator sales continued
to grow well domestically and elsewhere in the world. Mechanical Group total
net sales growth was in line with general economic growth.
Company gross profit in the first quarter of 1998 nearly doubled from
comparable 1997. Gross profit margin was virtually unchanged from the prior
year. Operating expenses were $19,870,000 in the quarter compared to
$8,309,000 a year ago. As a percent of net sales, operating expenses in 1998
were 14.4% versus 11.8% in 1997's first quarter. The increase in the percent
was due to Electrical Group operating expenses being a greater percent of
net sales than those of the Mechanical Group.
Income from operations of $19,868,000 in the first quarter of 1998 was 64.7%
higher than the $12,062,000 a year ago. As a percent of net sales, income
from operations decreased from 17.1% in the first quarter of 1997 to 14.4%
in 1998 due to the higher operating expenses to net sales percent of the
Electrical Group as compared to the Mechanical Group.
Interest expense was $2,988,000 in 1998's first quarter while only $53,000 a
year earlier. The higher interest cost is due entirely to the debt incurred
to purchase Marathon Electric a year ago.
The Company's effective tax rate in the first quarter of 1998 was 38.8%
versus 37.7% in comparable 1997. The increase was due primarily to the
non-deductibility for tax purposes of amortized goodwill associated with the
Marathon Electric acquisition.
Net income of $10,414,000 in the quarter was 35.1% greater than the $7,706,000
earned in comparable 1997. Earnings per share were $.50 in 1998 versus $.37
a year ago and assuming dilution, $.49 versus $.36.
During the first quarter of 1998, the Company made final purchase accounting
adjustments to the value of the assets and liabilities acquired in the
acquisition of Marathon Electric in March 1997. These adjustments were not
material.
The Company is currently in the process of implementing the required changes
to its computer software programs and operating systems to be Year 2000
compliant and expects to complete these changes in 1998. The Company is also
<PAGE>7
communicating with its suppliers and customers concerning Year 2000
compliance. Management believes the costs to become Year 2000 compliant will
not be material to the Company's financial condition or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital at March 31, 1998 was $117,312,000, 16.5% higher than
$100,627,000 at December 31, 1997. The increase was due primarily to seasonal
rises in accounts receivable and inventories coupled with reductions in
accounts payable and other current liabilities. The Company's current ratio
increased to 2.8:1 at March 31, 1998 from 2.4:1 at year-end 1997.
At March 31, 1998, the Company's outstanding long-term debt was $196,251,000,
an increase of $3,990,000 from December 31, 1997. Virtually all the
outstanding debt was borrowed under the Company's $225,000,000 unsecured
revolving credit facility (the "Facility"). At March 31, 1998, the Company
had $29,000,000 of available borrowing capacity under the Facility and an
additional $10,000,000 under a supplemental $10,000,000 line of credit with
its lead bank. The Company's funded debt to EBITDA ratio at March 31, 1998
was 1.88:1, up slightly from 1.86:1 at year-end 1997, and its capitalization
ratio was 49.6%, down from 50.4% at year-end 1997 and from 59.5% one year ago.
The Company paid an annual interest rate of approximately 6.1% on its
outstanding debt at March 31, 1998.
The Company's cash flow from operations in the first quarter of 1998 was
$3,030,000. Cash provided by net income, depreciation and amortization was
for the most part offset by seasonal increases in accounts receivable and
inventories and reductions in current liabilities. Free cash flow was a
negative $2,957,000 after reducing cash flow from operations by $3,487,000 of
net capital expenditures and by $2,500,000 of dividends paid to shareholders.
Outstanding commitments for capital items at March 31, 1998 totaled
approximately $2,200,000. The Company believes that the combination of cash
generated by operations and available borrowing capacity is adequate to
finance the Company's operations for the foreseeable future.
CAUTIONARY STATEMENT
- --------------------
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995:
With the exception of historical facts, the statements contained in Item 2.
of this form 10-Q are forward looking statements. Actual results may differ
materially from those contemplated by the forward looking statements. These
forward looking statements involve risks and uncertainties, including but not
limited to, the following risks: 1) cyclical downturns affecting the markets
for capital goods, 2) substantial increases in interest rates, 3) availability
of or material increases in the costs of select raw materials, and 4) actions
taken by competitors with regard to such matters as product offering, pricing,
and delivery. Investors are directed to the Company's documents, such
as its Annual Report on Form 10-K, Form 10-Q's, and Annual Report, filed
with the Securities and Exchange Commission.
<PAGE>8
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
There were no exhibits or reports on Form 8-K filed during the quarter ended
March 31, 1998.
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.
REGAL-BELOIT CORPORATION
(Registrant)
KENNETH F. KAPLAN
-------------------------------
Kenneth F. Kaplan
Vice President - Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)
DATE: May 5, 1998
-------------------
<PAGE>9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,118,000
<SECURITIES> 0
<RECEIVABLES> 73,379,000
<ALLOWANCES> 2,743,000
<INVENTORY> 87,577,000
<CURRENT-ASSETS> 181,615,000
<PP&E> 236,957,000
<DEPRECIATION> 86,772,000
<TOTAL-ASSETS> 492,009,000
<CURRENT-LIABILITIES> 64,303,000
<BONDS> 196,251,000
0
0
<COMMON> 209,000
<OTHER-SE> 198,829,000
<TOTAL-LIABILITY-AND-EQUITY> 492,009,000
<SALES> 137,818,000
<TOTAL-REVENUES> 137,818,000
<CGS> 98,080,000
<TOTAL-COSTS> 98,080,000
<OTHER-EXPENSES> 19,870,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,988,000
<INCOME-PRETAX> 17,010,000
<INCOME-TAX> 6,596,000
<INCOME-CONTINUING> 10,414,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,414,000
<EPS-PRIMARY> .50
<EPS-DILUTED> .49
</TABLE>
