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 September 30, 1999
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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.
20,973,405 Shares, Common Stock, $.01 Par Value
- -----------------------------------------------------------------------------
<PAGE>1
REGAL-BELOIT CORPORATION
FORM 10-Q
For Quarter Ended September 30, 1999
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 - 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . 7 - 10
PART II - OTHER INFORMATION
Item 6 - Reports on Form 8-K . . . . . . . . . . . . . . 10
Signature . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE> 2
PART I
FINANCIAL INFORMATION
1. Financial Statements
--------------------
<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
<S> <C> <C>
(From Audited
ASSETS (Unaudited) Statements)
-------------- -------------
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
Current Assets:
Cash and Cash Equivalents . . . . . . . . . . . . . $ 5,044 $ 3,548
Receivables, less reserves of $2,286 in 1999
and $1,851 in 1998 . . . . . . . . . . . . . . . 80,339 69,400
Inventories. . . . . . . . . . . . . . . . . . . . . 103,709 91,461
Other Current Assets . . . . . . . . . . . . . . . . 11,841 11,502
---------- --------
Total Current Assets. . . . . . . . . . . . . . . 200,933 175,911
Property, Plant and Equipment at Cost. . . . . . . . . 265,574 246,963
Less - Accumulated Depreciation. . . . . . . . . . . (111,246) (99,034)
---------- ---------
Net Property, Plant and Equipment . . . . . . . . 154,328 147,929
Goodwill . . . . . . . . . . . . . . . . . . . . . . . 144,275 147,161
Other Noncurrent Assets. . . . . . . . . . . . . . . . 11,459 11,021
---------- ---------
Total Assets. . . . . . . . . . . . . . . . . . . $510,995 $482,022
========== =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts Payable . . . . . . . . . . . . . . . . . . $ 27,238 $ 23,791
Federal and State Income Taxes . . . . . . . . . . . 1,181 509
Other Current Liabilities. . . . . . . . . . . . . . 43,948 34,306
---------- ---------
Total Current Liabilities. . . . . . . . . . . 72,367 58,606
Long-Term Debt . . . . . . . . . . . . . . . . . . . . 160,182 166,218
Deferred Income Taxes. . . . . . . . . . . . . . . . . 32,504 32,507
Other Noncurrent Liabilities . . . . . . . . . . . . . 356 194
Shareholders' Investment:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 20,973,405 issued in 1999 and
20,911,540 issued in 1998. . . . . . . . . . . 210 209
Additional Paid-In Capital . . . . . . . . . . . . . 41,458 40,860
Retained Earnings. . . . . . . . . . . . . . . . . . 204,048 183,285
Accumulated Other Comprehensive Income . . . . . . . (130) 143
---------- ---------
Total Shareholders' Investment. . . . . . . . . . 245,586 224,497
---------- ---------
Total Liabilities and Shareholders' Investment. . $510,995 $482,022
========== =========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>3
<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
STATEMENTS OF INCOME
(In Thousands of Dollars, Except Per Share Data)
(Unaudited)
-------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net Sales . . . . . . . . . . . . . . $ 142,292 $ 137,973 $ 406,615 $ 414,772
Cost of Sales . . . . . . . . . . . . 103,564 99,066 293,693 294,837
---------- ---------- ---------- ----------
Gross Profit . . . . . . . . . . . 38,728 38,907 112,922 119,935
Operating Expenses. . . . . . . . . . 20,536 19,059 58,805 58,249
---------- ---------- ---------- ----------
Income from Operations . . . . . . 18,192 19,848 54,117 61,686
Interest Expense. . . . . . . . . . . 2,439 2,897 7,024 8,896
Interest Income . . . . . . . . . . . 55 51 148 247
---------- ---------- ---------- ----------
Income Before Taxes. . . . . . . . 15,808 17,002 47,241 53,037
Provision for Income Taxes. . . . . . 6,341 6,612 18,931 20,554
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . $ 9,467 $ 10,390 $ 28,310 $ 32,483
========== ========== ========== ==========
Per Share of Common Stock:
Earnings Per Share . . . . . . . . $.45 $.50 $1.35 $1.56
========== ========== ========== ==========
Earnings Per
Share - Assuming Dilution . . $.45 $.49 $1.34 $1.53
========== ========== ========== ==========
Cash Dividends Declared . . . . . $.12 $.12 $.36 $.36
========== ========== ========== ==========
Average Number of
Shares Outstanding . . . . . . . . 20,972,769 20,904,773 20,952,972 20,888,299
========== ========== ========== ==========
Average Number of
Shares - Assuming Dilution . . . . 21,204,239 21,223,066 21,171,907 21,300,327
========== ========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>4
<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
---------------------------
Nine Months Ended Sept. 30,
----------- -----------
1999 1998
----------- -----------
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,310 $ 32,483
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation, amortization and deferred income taxes. . . . . . 17,277 17,657
Change in assets and liabilities:
Current assets, other than cash . . . . . . . . . . . . . . . 5,313 (5,770)
Current liabilities, other than notes payable . . . . . . . . 4,535 (13,655)
---------- ----------
Net cash provided from operating activities . . . . . . . $ 55,435 $ 30,715
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net of retirements . . (6,606) (11,049)
Business acquisition . . . . . . . . . . . . . . . . . . . . . . . (33,901) ---
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (445) 366
---------- ----------
Net cash used in investing activities . . . . . . . . . . . . . (40,952) (10,683)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . (6,032) (14,028)
Dividends to shareholders. . . . . . . . . . . . . . . . . . . . . (7,540) (7,515)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599 883
---------- ----------
Net cash used in financing activities . . . . . . . . . . . . . (12,973) (20,660)
EFFECT OF EXCHANGE RATE ON CASH. . . . . . . . . . . . . . . . . . . (14) 33
---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . 1,496 (595)
Cash and cash equivalents at beginning of period . . . . . . . . . 3,548 3,351
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . . $ 5,044 $ 2,756
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,210 $ 9,000
========== ==========
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,881 $ 22,958
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>5
REGAL-BELOIT CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
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 87% 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:
Sept. 30, 1999 December 31, 1998
-------------- -----------------
Raw Material 14% 14%
Work-in Process 26% 23%
Finished Goods 60% 63%
3. ACQUISITION
The financial statements on pages 3-5 incorporate the results of operations and
the assets and liabilities of Lincoln Motors, after May 28, 1999, the date the
business was acquired by the Company at a purchase price of $33,900,000. The
Lincoln Motors operating results and assets purchased are not material to the
operating results or financial position of the Company.
4. COMPREHENSIVE INCOME
The Company's comprehensive income is impacted by the amount of the cumulative
translation adjustment recorded to shareholders' equity. For the quarter
ended September 30, 1999, the impact was $516,000 of income resulting in net
comprehensive income of $9,983,000 for the quarter. The impact in the third
quarter of 1998 was $377,000 of income resulting in net comprehensive income
of $10,767,000. In the first nine months of 1999, the impact is an expense
of $273,000 resulting in net comprehensive income of $28,037,000. The impact
in the first nine months of 1998 was $494,000 of income resulting in net
comprehensive income of $32,977,000.
<PAGE>6
5. BUSINESS SEGMENTS
The Company operates two strategic businesses that are reportable segments:
the Mechanical Group and the Electrical Group.
<TABLE>
<CAPTION>
(In Thousands of Dollars)
------------------------------------------------------------------------
Mechanical Group Electrical Group
---------------------------------- -----------------------------------
Third Quarter Nine Months Third Quarter Nine Months
--------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1999 1998 1999 1998 1999 1998
------- ------ ------- ------- ------ ------ ------- --------
Net Sales $61,439 69,071 190,443 213,401 80,853 68,902 216,172 $201,371
Income from Operations $ 8,452 10,632 26,711 33,917 9,740 9,216 27,406 $ 27,769
Income from Operations
as a % of Net Sales 13.7% 15.3% 14.0% 15.8% 12.0% 13.3% 12.6% 13.7%
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
The Company's third quarter 1999 net sales of $142,292,000 were 3.1% higher
than net sales of $137,973,000 in the third quarter of 1998. For the nine
months ended September 30, 1999, net sales were $406,615,000, 2.0% below net
sales of $414,772,000 in comparable 1998. The third quarter of 1999 benefited
from three months of Lincoln Motor sales, which business the Company acquired
on May 28, 1999. Excluding Lincoln Motors, sales in the third quarter would
have been 6.7% below the third quarter of 1998. The continued broad-based
weakness in the markets for the Company's mechanical products and, to a lesser
extent, the Company's electrical products accounted for the decreased sales
from 1998.
Income from operations for the Company was $18,192,000 in the third quarter of
1999, an 8.3% decrease from $19,848,000 in comparable 1998. For the nine
months ended September 30, 1999, income from operations totaled $54,117,000,
12.3% below the $61,686,000 of income from operations in the same period of
1998. Lower net sales and reduced production levels to maintain inventories
at appropriate levels were the primary reasons for the reduced income from
operations, as well as for the lower gross profit. These factors, combined
with competitive pricing pressures and the anticipated unfavorable impact of
the Lincoln Motors operations on the Company's margins during the period of
integration with the Company, accounted for the decrease in both gross profit
margins and operating income margins in both the third quarter and nine months
of 1999 as compared to 1998.
Operating expenses in the third quarter of 1999 increased 7.7% to $20,536,000
from $19,059,000 a year earlier, but are up only 1.0% for the nine months of
1999. As expected, the acquisition of Lincoln Motors is the primary reason
for the increases. The integration of the Lincoln Motors business with that
of the Company's Electrical Group is progressing on schedule and had a small
positive impact on the earnings of the Company during the third quarter of
1999.
<PAGE>7
The Company's results of operations by business segment are shown in Note 5 to
the accompanying financial statements. Mechanical Group sales in third
quarter 1999 were 11.0% below comparable 1998 and were 10.8% down from 1998
for the nine months of 1999. The reasons for the lower sales, income from
operations, and margins were discussed above. Electrical Group sales in
1999's third quarter increased 17.3% from 1998 due entirely to the impact of
Lincoln Motors sales. Nine months year-to-date Electrical Group sales were
7.4% higher than comparable 1998 for the same reason. Electrical Group income
from operations in the third quarter of 1999 was improved 5.7% from a year
ago, again due to the effect of Lincoln Motors.
Interest expense in 1999's third quarter for the Company was $2,439,000, 15.8%
less than $2,897,000 in comparable 1998, despite the increased debt of
$33,900,000 to finance the May 1999 purchase of Lincoln Motors. For the nine
months of 1999, interest expense has declined 21.0% to $7,024,000 from
$8,896,000 a year earlier. The Company's effective tax rate of 40.0% for both
the third quarter and nine months of 1999 was above the 38.8% in the
comparable periods of 1998 due to the combination of non-tax deductible
goodwill amortization and a slightly higher effective overall state tax rate.
Net income earned in the third quarter of 1999 was $9,467,000, or $.45 per
share (diluted), 8.9% lower than the $10,390,000, or $.49 per share, earned
in 1998's third quarter. Nine months year-to-date earnings in 1999 were
$28,310,000, or $1.34 per share, a 12.8% reduction from $32,483,000, or $1.53
per share, in comparable 1998. Lower interest expense was not able to offset
the impact of lower sales and operating margins.
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
Management believes that the Company is Year 2000 (Y2K) ready, in all material
respects, in relation to the following:
1. All critical operating systems, reports, and hardware.
2. All peripheral systems and PC's.
3. Third-party provided systems, software, and programs.
4. All products sold by the Company.
5. The Company's facilities and machinery and equipment.
Recognizing the Company's dependence on its suppliers, the Company continues
to evaluate the Y2K readiness of its critical suppliers of materials and
services. The Company has received assurances from most of such suppliers
that they are currently Y2K ready or are taking the necessary actions to be
Y2K ready. The Company is continuing its efforts in this area and expects to
do so for the balance of 1999. Where key suppliers are not able to verify
their Y2K readiness to the Company's satisfaction, Management plans to
consider alternate or contingent suppliers.
Management believes that the Company has devoted the necessary resources to
identify and resolve significant Y2K issues and to minimize the risk of not
being Y2K ready. Management further believes the costs it has expended, and
<PAGE>8
plans to expend, to become Y2K ready are not material, and have not had, and
will not have, an adverse effect on the Company's financial position, cash
flow or results of operations. However, to the extent that the Company's
suppliers or third parties on which it relies do not achieve Y2K readiness
in a timely manner, the Company's financial position, cash flow or results of
operations may be adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital at September 30, 1999 was $128,566,000, $11,261,000 (9.6%)
higher than $117,305,000 at December 31, 1998. The increase was due to the
Lincoln Motors acquisition. Current ratio of 2.8:1 at September 30, 1999
compared to 3.0:1 at December 31, 1998.
Third quarter 1999 cash flow from operations was $25,416,000 compared to
$20,236,000 a year previously. Cash flow continued strong in the third
quarter due to the combination of earnings, depreciation and amortization,
and reductions in working capital, primarily receivables and inventories.
Nine months 1999 cash flow from operations was $55,435,000, an 80.5% increase
from $30,715,000 in comparable 1998. Free cash flow year-to-date in 1999
was $41,289,000 as compared to $12,151,000 in the same period of 1998, after
reducing operating cash flow for capital expenditures and dividends.
Outstanding commitments for future capital expenditures at September 30, 1999
totaled approximately $5,760,000.
Outstanding long-term debt at September 30, 1999 was $160,182,000, a decrease
of $19,013,000 from June 30, 1999 and $6,036,000 from year-end 1998. The
year-to-date decrease is after borrowing $33,900,000 to acquire Lincoln
Motors. In effect, the Company has fully paid for Lincoln Motors out of 1999
cash flow.
The Company maintains a $190,000,000 unsecured long-term revolving credit
facility (the "Facility") under which all its outstanding borrowings have
been made. At September 30, 1999, the Company had approximately $50,000,000
of available borrowing capacity under the combination of the Facility, a
supplemental $10,000,000 demand line of credit, and a second $10,000,000 line
of credit which expires May 27, 2000. All outstanding debt at September 30,
1999 was under the Facility. The Company believes that the combination of
cash generated by operations, available borrowing capacity and the Company's
ability to obtain additional long-term indebtedness is adequate to finance
the Company's operations for the foreseeable future.
The Company's funded debt to EBITDA ratio at September 30, 1999 was 1.67:1, a
small increase from 1.61:1 at year-end 1998. The Company's capitalization
ratio was 39.5% at September 30, 1999 versus 42.5% at year-end 1998 and 45.1%
a year ago. The Company paid an annualized interest rate of approximately
5.75% on its outstanding debt at September 30, 1999.
<PAGE>9
CAUTIONARY STATEMENT
- --------------------
The following is a cautionary statement made 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 may be forward looking
statements. Actual results may differ materially from those contemplated.
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 that impact the
cost of the Company's outstanding debt, 3) the success of Management in
increasing sales and maintaining or improving the operating margins of its
businesses, 4) the availability of or material increases in the costs of
select raw materials or parts, and 5) actions taken by competitors. 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.
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
September 30, 1999.
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)
/S/ Kenneth F. Kaplan
-----------------------
Kenneth F. Kaplan
Vice President - Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)
DATE: November 5, 1999
----------------
<PAGE>10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,044,000
<SECURITIES> 0
<RECEIVABLES> 80,339,000
<ALLOWANCES> 2,286,000
<INVENTORY> 103,709,000
<CURRENT-ASSETS> 200,933,000
<PP&E> 265,574,000
<DEPRECIATION> 111,246,000
<TOTAL-ASSETS> 510,995,000
<CURRENT-LIABILITIES> 72,367,000
<BONDS> 160,182,000
0
0
<COMMON> 210,000
<OTHER-SE> 245,376,000
<TOTAL-LIABILITY-AND-EQUITY> 510,995,000
<SALES> 406,615,000
<TOTAL-REVENUES> 406,615,000
<CGS> 293,693,000
<TOTAL-COSTS> 293,693,000
<OTHER-EXPENSES> 58,805,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,024,000
<INCOME-PRETAX> 47,241,000
<INCOME-TAX> 18,931,000
<INCOME-CONTINUING> 28,310,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,310,000
<EPS-BASIC> 1.35
<EPS-DILUTED> 1.34
</TABLE>
