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, 1999
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Commission File Number 1-7283
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REGAL-BELOIT CORPORATION
(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.
20,951,355 Shares, Common Stock, $.01 Par Value
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<PAGE>1
REGAL-BELOIT CORPORATION
FORM 10-Q
For Quarter Ended March 31, 1999
INDEX
Page No.
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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 . . . . . . 6-8
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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REGAL-BELOIT CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
(From Audited
ASSETS (Unaudited) Statements)
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March 31, 1999 Dec. 31, 1998
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<S> <C> <C>
Current Assets:
Cash and Cash Equivalents . . . . . . . . . . . . . $ 3,515 $ 3,548
Receivables, less reserves of $1,962 in 1999
and $1,851 in 1998 . . . . . . . . . . . . . . . 73,968 69,400
Inventories. . . . . . . . . . . . . . . . . . . . . 91,721 91,461
Other Current Assets . . . . . . . . . . . . . . . . 11,396 11,502
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . 180,600 175,911
Property, Plant and Equipment at Cost. . . . . . . . . 248,704 246,963
Less - Accumulated Depreciation. . . . . . . . . . . (103,426) (99,034)
---------- ----------
Net Property, Plant and Equipment . . . . . . . . 145,278 147,929
Goodwill . . . . . . . . . . . . . . . . . . . . . . . 146,199 147,161
Other Noncurrent Assets. . . . . . . . . . . . . . . . 11,388 11,021
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . $ 483,465 $ 482,022
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<S> <C> <C>
Current Liabilities:
Accounts Payable . . . . . . . . . . . . . . . . . . $ 18,851 $ 23,791
Federal and State Income Taxes . . . . . . . . . . . 6,108 509
Other Current Liabilities. . . . . . . . . . . . . . 33,830 34,306
---------- ----------
Total Current Liabilities. . . . . . . . . . . 58,789 58,606
Long-Term Debt . . . . . . . . . . . . . . . . . . . . 161,206 166,218
Deferred Income Taxes. . . . . . . . . . . . . . . . . 32,497 32,507
Other Noncurrent Liabilities . . . . . . . . . . . . . 200 194
Shareholders' Investment:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 20,948,805 issued in 1999 and
20,911,540 issued in 1998. . . . . . . . . . . 209 209
Additional Paid-In Capital . . . . . . . . . . . . . 41,054 40,860
Retained Earnings. . . . . . . . . . . . . . . . . . 189,850 183,285
Accumulated Other Comprehensive Income . . . . . . . (340) 143
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Total Shareholders' Investment. . . . . . . . . . 230,773 224,497
---------- ----------
Total Liabilities and Shareholders' Investment. . $ 483,465 $ 482,022
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<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
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March 31,
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1999 1998
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<S> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . $ 127,260 $ 137,818
Cost of Sales . . . . . . . . . . . . . . . . . 90,695 98,080
------------ ------------
Gross Profit . . . . . . . . . . . . . . . . 36,565 39,738
Operating Expenses. . . . . . . . . . . . . . . 19,159 19,870
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Income from Operations . . . . . . . . . . . 17,406 19,868
Interest Expense. . . . . . . . . . . . . . . . 2,286 2,988
Interest Income . . . . . . . . . . . . . . . . 42 130
------------ ------------
Income Before Taxes. . . . . . . . . . . . . 15,162 17,010
Provision for Income Taxes. . . . . . . . . . . 6,084 6,596
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Net Income . . . . . . . . . . . . . . . . . . $ 9,078 $ 10,414
============ ============
Per Share of Common Stock:
Earnings Per Share . . . . . . . . . . . . . . $.43 $.50
============ ============
Earnings Per Share - Assuming Dilution . . . . $.43 $.49
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Cash Dividends Declared. . . . . . . . . . . . $.12 $.12
============ ============
Average Number of Shares Outstanding. . . . . . . 20,933,011 20,861,291
============ ============
Average Number of Shares - Assuming Dilution. . . 21,121,506 21,331,969
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
-----------------------------
Three Months Ended March 31,
-----------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,078 $ 10,414
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation, amortization and deferred income taxes. . . . . . 5,770 6,023
Change in assets and liabilities:
Current assets, other than cash . . . . . . . . . . . . . . . (5,202) (7,252)
Current liabilities, other than notes payable . . . . . . . . 386 (6,155)
---------- -----------
Net cash provided from operating activities . . . . . . . $ 10,032 $ 3,030
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net of retirements . . $ (2,323) (3,487)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (396) 106
---------- -----------
Net cash used in investing activities . . . . . . . . . . . . . (2,719) (3,381)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt. . . . . . . . . . . . . . . . . . . . ----- 4,000
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . (5,011) (9)
Dividends to shareholders. . . . . . . . . . . . . . . . . . . . . (2,509) (2,500)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 632
---------- -----------
Net cash (used in) provided from financing activities . . . . . (7,326) 2,123
EFFECT OF EXCHANGE RATE ON CASH. . . . . . . . . . . . . . . . . . . (20) (5)
---------- -----------
Net (decrease) increase in cash and cash equivalents . . . . . . . (33) 1,767
Cash and cash equivalents at beginning of period . . . . . . . . . 3,548 3,351
---------- -----------
Cash and cash equivalents at end of period . . . . . . . . . . . . $ 3,515 $ 5,118
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,410 $ 3,038
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . $ 375 $ 5,547
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>5
REGAL-BELOIT CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 83% 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
1999 1998
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Raw Material 12% 14%
Work-in Process 22% 23%
Finished Goods 66% 63%
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 1999 were $127,260,000, $10,558,000 (7.7%)
below net sales of $137,818,000 in 1998's first quarter. Mechanical Group
net sales of $63,495,000 were $9,256,000 (12.7%) lower than sales of
$72,751,000 in comparable 1998. The lower sales were due primarily to a
slowing of demand in the fourth quarter of 1998 which continued into the
first quarter of 1999. Electrical Group net sales were $63,765,000, a
$1,302,000 (2.0%) decrease from sales of $65,067,000 in the first quarter of
1998. The slowing of demand discussed above also impacted the Electrical
Group, although to a lesser degree.
Total Company gross profit decreased 8.0% to $36,565,000 in 1999 due to the
lower sales volume. However, gross profit margin of 28.7% was virtually
unchanged from 1998's first quarter of 28.8%. Company first quarter
operating expenses of $19,159,000 were 3.6% lower than in comparable 1998.
As a percent of net sales, however, 1999 operating expenses increased to 15.1%
from 14.4% a year ago, due to the impact of the lower sales.
<PAGE>6
Income from operations for the Company was $17,406,000 in the first quarter of
1999, or 13.7% as a percent of sales, and $2,462,000 (12.4%) lower than first
quarter 1998 income from operations of $19,868,000, which was 14.4% of sales.
Mechanical Group income from operations was $9,072,000, 14.3% of sales, versus
$11,409,000 a year ago, which was 15.7% of sales. The reduction in operating
income margin was a function of operating expenses increasing as a percent of
sales due to the lower sales volume. Electrical Group operating income was
$8,334,000 in 1999 as compared to $8,459,000 in 1998's first quarter. As a
percent of sales, operating income in the Electrical Group increased from
13.0% to 13.1% in 1999's first quarter.
Interest expense for the Company was $2,286,000 in the first quarter of 1999,
$702,000 (23.5%) lower than $2,988,000 of interest expense in comparable 1998.
Reductions in outstanding debt account for the decrease. The Company's
effective tax rate of 40.1% in 1999's first quarter was higher than the 38.7%
a year earlier due to the combination of non-tax deductible goodwill
amortization and a slightly higher effective state tax rate.
Net income earned in the first quarter of 1999 was $9,078,000, or $.43 per
share (diluted), $1,336,000 (12.8%) lower than the $10,414,000, or $.49 per
share, a year ago. The decrease in earnings was due primarily to lower net
sales in the first quarter of 1999.
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
The Company has for several years been addressing the Year 2000 issue.
Management has been aware of the critical requirement that the Company's
computer hardware and systems handle all transactions properly relating
to 2000 and beyond. Management further understands the importance of
computer-operated machinery and facilities equipment such as tele-
communications, security, and HVAC also being Year 2000 ready. The Company's
products have been evaluated and determined to be Year 2000 ready.
Accordingly, the Company has assessed its computer hardware and systems and
any necessary changes have, for the most part, been made and implemented.
Testing of the Company's systems to assure Year 2000 readiness is in progress.
Also in progress is the evaluation and testing of computer-operated machinery
and facilities equipment. The Company plans to complete its testing during
the second quarter of 1999.
Additionally, recognizing the Company's dependence on its suppliers, surveys
have been sent to key suppliers to evaluate their Year 2000 readiness efforts
and status. Where key suppliers are not able to verify their readiness to
the Company's satisfaction, the Company plans to consider alternative or
contingent suppliers.
Management believes that the Company is devoting the necessary resources to
identify and resolve significant Year 2000 issues and to minimize the risk of
not being Year 2000 ready. Management further believes the costs it has
expended, and plans to expend, to become Year 2000 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 or third parties on which it relies do not achieve
Year 2000 readiness in a timely manner, the Company's financial position,
cash flow or results of operations may be adversely affected.
<PAGE>7
LIQUIDITY AND CAPITAL RESOURCES
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Working capital at March 31, 1999 was $121,811,000, 3.8% above $117,305,000 at
December 31, 1998. The increase was due primarily to increased accounts
receivable. Current ratio increased slightly to 3.1:1 at March 31, 1999 from
3.0:1 at year-end 1998.
Outstanding long-term debt was reduced by $5,000,000 in the first quarter to
$161,206,000 at March 31, 1999. Virtually all the debt was under the Company's
$190,000,000 unsecured revolving credit facility (the "Facility"). At
March 31, 1999, including $2,000,000 of outstanding standby letters of credit,
the Company had approximately $27,000,000 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, 1999 was 1.59:1 versus 1.61:1 at 1998 year-end, and
its capitalization ratio was 41.1%, down from 42.5% at year-end 1998 and from
49.6% one year ago. The Company paid an annual interest rate of approximately
5.3% on its outstanding debt at March 31, 1999.
The Company's cash flow from operations in the first quarter of 1999 was
$10,032,000, a $7,000,000 increase from comparable 1998. Free cash flow was
$5,200,000 after reducing cash flow from operations by $2,323,000 of net
capital expenditures and by $2,509,000 of dividends paid to shareholders.
Outstanding commitments for capital items at March 31, 1999 totaled
approximately $1,350,000. 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.
CAUTIONARY STATEMENT
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The following is a cautionary statement made under the Private Securities
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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.
<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, 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: May 4, 1999
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<PAGE>9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,515,000
<SECURITIES> 0
<RECEIVABLES> 73,968,000
<ALLOWANCES> 1,962,000
<INVENTORY> 91,721,000
<CURRENT-ASSETS> 180,600,000
<PP&E> 248,704,000
<DEPRECIATION> 103,426,000
<TOTAL-ASSETS> 483,465,000
<CURRENT-LIABILITIES> 58,789,000
<BONDS> 161,206,000
0
0
<COMMON> 209,000
<OTHER-SE> 230,564,000
<TOTAL-LIABILITY-AND-EQUITY> 483,465,000
<SALES> 127,260,000
<TOTAL-REVENUES> 127,260,000
<CGS> 90,695,000
<TOTAL-COSTS> 90,695,000
<OTHER-EXPENSES> 19,159,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,286,000
<INCOME-PRETAX> 15,162,000
<INCOME-TAX> 6,084,000
<INCOME-CONTINUING> 9,078,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,078,000
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
