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 June 30, 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.
20,972,405 Shares, Common Stock, $.01 Par Value
- -----------------------------------------------------------------------------
<PAGE>1
REGAL-BELOIT CORPORATION
FORM 10-Q
For Quarter Ended June 30, 1999
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<CAPTION>
INDEX
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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. . . . . . . . . . . 7-9
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders. . . 9-10
Item 6 - Reports on Form 8-K . . . . . . . . . . . . . . . . . . 10
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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<PAGE>2
PART I
FINANCIAL INFORMATION
1. Financial Statements
--------------------
<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
(From Audited
ASSETS (Unaudited) Statements)
------------- -------------
<S> <C> <C>
June 30, 1999 Dec. 31, 1998
------------- -------------
Current Assets:
Cash and Cash Equivalents . . . . . . . . . . . . . . . $ 3,469 $ 3,548
Receivables, less reserves of $2,391 in 1999
and $1,851 in 1998 . . . . . . . . . . . . . . . . . 82,532 69,400
Inventories. . . . . . . . . . . . . . . . . . . . . . . 106,664 91,461
Other Current Assets . . . . . . . . . . . . . . . . . . 12,061 11,502
-------- ---------
Total Current Assets. . . . . . . . . . . . . . . . . 204,726 175,911
Property, Plant and Equipment at Cost. . . . . . . . . . . 264,216 246,963
Less - Accumulated Depreciation. . . . . . . . . . . . . (107,752) (99,034)
--------- ---------
Net Property, Plant and Equipment . . . . . . . . . . 156,464 147,929
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . 145,237 147,161
Other Noncurrent Assets. . . . . . . . . . . . . . . . . . 11,302 11,021
--------- ---------
Total Assets. . . . . . . . . . . . . . . . . . . . . $517,729 $482,022
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts Payable . . . . . . . . . . . . . . . . . . . . $ 22,464 $ 23,791
Federal and State Income Taxes . . . . . . . . . . . . . 982 509
Other Current Liabilities. . . . . . . . . . . . . . . . 44,371 34,306
--------- ---------
Total Current Liabilities. . . . . . . . . . . . . 67,817 58,606
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . 179,195 166,218
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . 32,491 32,507
Other Noncurrent Liabilities . . . . . . . . . . . . . . . 205 194
Shareholders' Investment:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 20,972,405 issued in 1999 and
20,911,540 issued in 1998. . . . . . . . . . . . . 209 209
Additional Paid-In Capital . . . . . . . . . . . . . . . 41,360 40,860
Retained Earnings. . . . . . . . . . . . . . . . . . . . 197,098 183,285
Accumulated Other Comprehensive Income . . . . . . . . . (646) 143
--------- ---------
Total Shareholders' Investment. . . . . . . . . . . . 238,021 224,497
--------- ---------
Total Liabilities and Shareholders' Investment. . . . $517,729 $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 Six Months Ended
June 30, June 30,
----------------------- -----------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net Sales . . . . . . . . . . . . . . . $ 137,063 $ 138,981 $ 264,323 $ 276,799
Cost of Sales . . . . . . . . . . . . . 99,434 97,691 190,129 195,771
---------- ---------- ---------- ----------
Gross Profit . . . . . . . . . . . . 37,629 41,290 74,194 81,028
Operating Expenses . . . . . . . . . . 19,110 19,320 38,269 39,190
---------- ---------- ---------- ----------
Income from Operations . . . . . . . 18,519 21,970 35,925 41,838
Interest Expense . . . . . . . . . . . 2,299 3,011 4,585 5,999
Interest Income . . . . . . . . . . . . 51 66 93 196
---------- ---------- ---------- ----------
Income Before Taxes . . . . . . . . 16,271 19,025 31,433 36,035
Provision for Income Taxes . . . . . . 6,506 7,346 12,590 13,942
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . $ 9,765 $ 11,679 $ 18,843 $ 22,093
========== ========== ========== ==========
Per Share of Common Stock:
Earnings Per Share . . . . . . . . . $.47 $.56 $.90 $1.06
========== ========== ========== ==========
Earnings Per
Share - Assuming Dilution . . . . $.46 $.55 $.89 $1.04
========== ========== ========== ==========
Cash Dividends Declared. . . . . . . $.12 $.12 $.24 $.24
========== ========== ========== ==========
Average Number of
Shares Outstanding . . . . . . . . . 20,952,700 20,898,356 20,942,910 20,879,926
========== ========== ========== ==========
Average Number of
Shares - Assuming Dilution . . . . . 21,189,977 21,348,761 21,155,741 21,338,957
========== ========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>4
<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
--------------------------
Six Months Ended June 30,
--------------------------
<S> <C> <C>
1999 1998
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,843 $ 22,093
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation, amortization and deferred income taxes. . . . . . . 11,533 11,886
Change in assets and liabilities:
Current assets, other than cash . . . . . . . . . . . . . . . . (480) (8,056)
Current liabilities, other than notes payable . . . . . . . . . 123 (15,444)
---------- ----------
Net cash provided from operating activities . . . . . . . . $ 30,019 $ 10,479
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net of retirements . . . (4,281) (7,217)
Business acquisition . . . . . . . . . . . . . . . . . . . . . . . . (33,901) ---
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (340) 367
---------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . (38,522) (6,850)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to (repayment of) long-term debt, net. . . . . . . . . . . 12,979 (18)
Dividends to shareholders. . . . . . . . . . . . . . . . . . . . . . (5,023) (5,006)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 823
---------- ----------
Net cash provided from (used in) financing activities . . . . . . 8,456 (4,201)
EFFECT OF EXCHANGE RATE ON CASH. . . . . . . . . . . . . . . . . . . . (32) 2
---------- ----------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . . (79) (570)
Cash and cash equivalents at beginning of period . . . . . . . . . . 3,548 3,351
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 3,469 $ 2,781
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,920 $ 6,067
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,916 $ 17,090
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>5
REGAL-BELOIT CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 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:
June 30 December 31
1999 1998
------- -----------
Raw Material 14% 14%
Work-in Process 25% 23%
Finished Goods 61% 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. The Lincoln Motors operating
results and assets purchased are not material to the operating results or
financial position of the Company.
4. 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)
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Mechanical Group Electrical Group
---------------------------------- -----------------------------------
Second Quarter Six Months Second Quarter Six Months
--------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1999 1998 1999 1998 1999 1998
------- ------ ------- ------- ------ ------ ------- --------
Net Sales $65,509 71,579 129,004 144,330 71,554 67,402 135,319 $132,469
Income from Operations $ 9,187 11,876 18,259 23,285 9,332 10,094 17,666 $ 18,553
Income from Operations
as a % of Net Sales 14.0% 16.6% 14.2% 16.1% 13.0% 15.0% 13.1% 14.0%
</TABLE>
<PAGE>6
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
Net sales of the Company in the second quarter of 1999 were $137,063,000, 1.4%
lower than net sales of $138,981,000 in 1998's second quarter. For the six
months ended June 30, 1999, net sales were $264,323,000, a 4.5% reduction from
$276,799,000 in comparable 1998. The broad-based sluggishness in the markets
for both the Company's mechanical and electrical products, which began in the
Fall of 1998, continued through the second quarter of 1999, accounting for the
decline in net sales from 1998 to 1999.
Mechanical Group net sales in 1999's second quarter decreased 8.5% to
$65,509,000 from $71,579,000 in the second quarter of 1998. Net sales of the
Mechanical Group in the first six months of 1999 were $129,004,000, 10.6%
below $144,330,000 in comparable 1998. Electrical Group net sales of
$71,554,000 in the second quarter of 1999 benefited from $4,975,000 of sales
of Lincoln Motors, which business the Company acquired on May 28, 1999. This
resulted in a 6.2% increase in sales from $67,402,000 in the second quarter
of 1998 rather than a 1.2% decrease excluding the acquisition. For the first
half of 1999, Electrical Group sales were $135,319,000, a 2.2% increase from
$132,469,000 in 1998.
Income from operations for the Company was $18,519,000 in the second quarter
of 1999, a 15.7% decrease from $21,970,000 in comparable 1998. For the first
half of 1999 income from operations was $35,925,000, 14.1% lower than
$41,838,000 in the first six months of 1998. Lower net sales and reduced
production levels to maintain inventories at appropriate levels were the
primary reasons for the lower income from operations, as well as for the
lower gross profit. These factors, coupled with competitive pricing pressures
and a less favorable mix of products sold, accounted for the decrease in both
gross profit margins and operating income margins in 1999 as compared to 1998.
Operating expenses during the second quarter of 1999 decreased 1.1% to
$19,110,000 from $19,320,000 a year previously. Excluding the operating
expenses of the acquired Lincoln Motors, the decrease in expenses would have
been 5.5%. For the first six months of 1999, operating expenses were 2.4%
below the first half of 1998.
Interest expense for the Company was $2,299,000 in the second quarter of 1999,
$712,000 (23.6%) lower than $3,011,000 a year ago. For the first half of 1999,
interest expense was $4,585,000, $1,414,000 (23.6%) below comparable 1998.
Reduced debt outstanding accounted for the decrease. The Company's effective
tax rate of 40.0% for both the second quarter and first half of 1999 was above
the 38.7% in comparable 1998 due to the combination of non-tax deductible
goodwill amortization and a slightly higher effective state tax rate.
Net income earned in the second quarter of 1999 was $9,765,000, or $.46 per
share (diluted), 16.4% below the $11,679,000, or $.55 per share, in 1998's
second quarter. Earnings were $18,843,000, or $.89 per share, in the first
half of 1999, a 14.7% reduction from $22,093,000, or $1.04 per share, in
comparable 1998. Lower operating and interest expenses were not able to
offset the impact of lower sales and reduced gross profit margins.
<PAGE>7
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
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 June 30, 1999 was $136,909,000, $19,604,000 (16.7%) higher
than $117,305,000 at December 31, 1998. The increase was due primarily to the
Lincoln Motors acquisition. Current ratio of 3.0:1 was unchanged from
year-end 1998.
The Company's cash flow from operations in the second quarter of 1999 was
$19,987,000 compared to $7,449,000 in comparable 1998. The strong cash flow
was due primarily to earnings, depreciation and a reduction in inventories.
Six months 1999 cash flow from operations was $30,019,000 versus $10,479,000
in the first half of 1998. Free cash flow in the first half of 1999 was
$20,715,000 after reducing cash flow from operations by $5,023,000 for
dividends paid and $4,281,000 for net capital expenditures. Outstanding
commitments for capital items at June 30, 1999 totaled approximately
$2,300,000.
Outstanding long-term debt at June 30, 1999 was $179,195,000, an increase of
$17,989,000 from March 31, 1999 and $12,977,000 from year-end 1998. The
increase in borrowings was due to the $33.9 million cash acquisition
of Lincoln Motors in May 1999, net of repayments of long-term debt from 1999
cash flow. In effect, the Company has paid, from 1999 first half cash flow,
for nearly $21,000,000, or about 60%, of the acquisition purchase price.
The Company maintains a $190,000,000 unsecured revolving credit facility (the
"Facility") under which all its outstanding borrowings have been made.
At June 30, 1999 the Company had approximately $29,000,000 of available
borrowing capacity under the combination of the Facility, a supplemental
$10,000,000 line of credit, and an additional $10,000,000 credit agreement
with the Company's two lead banks which expires May 27, 2000. The latter
<PAGE>8
agreement was entered into on May 27, 1999, in conjunction with the Lincoln
Motors acquisition on the following day. 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 June 30, 1999 was 1.83:1, an
increase from 1.61:1 at December 31, 1998. The Company's capitalization ratio
was 43.0% at June 30, 1999 versus 42.5% at year-end 1998 and 49.6% a year ago.
The Company paid an annual interest rate of approximately 5.4% on its
outstanding debt at June 30, 1999.
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 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Annual Meeting of shareholders of Regal-Beloit Corporation was held
on April 21, 1999.
(b) The terms of Directors James L. Packard, Henry W. Knueppel,
William W. Keefer, John M. Eldred, John A. McKay and
G. Frederick Kasten, Jr. were continued.
(c) Matters voted on at the Annual Meeting and the results of each vote were
as follows:
(1) Elect three Class C Directors for a term of three years.
For Against Withheld
---------- ------- --------
J. Reed Coleman 19,148,411 2,206 57,761
Frank E. Bauchiero 19,148,451 1,866 58,061
Stephen N. Graff 19,146,726 1,850 59,802
<PAGE>9
(2) Ratify the appointment of Arthur Andersen LLP as independent public
accountants for the Company for the year ending December 31, 1999.
For Against Abstain
---------- ------- -------
19,168,896 26,401 13,081
(3) Approve an Amendment to Section 6 of the Company's 1998 Stock Option
Plan.
For Against Abstain
---------- ------- -------
18,142,330 817,863 248,185
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
There were no exhibits or reports on Form 8-K filed during the quarter ended
June 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: August 5, 1999
--------------
<PAGE>10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,469,000
<SECURITIES> 0
<RECEIVABLES> 82,532,000
<ALLOWANCES> 2,391,000
<INVENTORY> 106,664,000
<CURRENT-ASSETS> 204,726,000
<PP&E> 264,216,000
<DEPRECIATION> 107,752,000
<TOTAL-ASSETS> 517,729,000
<CURRENT-LIABILITIES> 67,817,000
<BONDS> 179,195,000
0
0
<COMMON> 209,000
<OTHER-SE> 237,812,000
<TOTAL-LIABILITY-AND-EQUITY> 517,729,000
<SALES> 264,323,000
<TOTAL-REVENUES> 264,323,000
<CGS> 190,129,000
<TOTAL-COSTS> 190,129,000
<OTHER-EXPENSES> 38,269,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,585,000
<INCOME-PRETAX> 31,433,000
<INCOME-TAX> 12,590,000
<INCOME-CONTINUING> 18,843,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,843,000
<EPS-BASIC> .90
<EPS-DILUTED> .89
</TABLE>
