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, 2000
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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.
20,987,905 Shares, Common Stock, $.01 Par Value
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<PAGE>1
REGAL-BELOIT CORPORATION
FORM 10-Q
For Quarter Ended March 31, 2000
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 - 8
PART II - OTHER INFORMATION
Item 6 - Reports on Form 8-K . . . . . . . . . . . . 9
Signature . . . . . . . . . . . . . . . . . . . . . . 9
<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>
March 31, 2000 Dec. 31, 1999
-------------- --------------
Current Assets:
Cash and Cash Equivalents . . . . . . . . . . . . . . . $ 4,144 $ 1,729
Receivables, less reserves of $1,888 in 2000
and $1,758 in 1999 . . . . . . . . . . . . . . . . . 83,412 76,374
Inventories. . . . . . . . . . . . . . . . . . . . . . . 106,194 103,966
Other Current Assets . . . . . . . . . . . . . . . . . . 17,064 16,179
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . . 210,814 198,248
Property, Plant and Equipment at Cost. . . . . . . . . . . 267,175 267,122
Less - Accumulated Depreciation. . . . . . . . . . . . . (119,416) (115,749)
---------- ---------
Net Property, Plant and Equipment . . . . . . . . . . 147,759 151,373
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . 142,352 143,314
Other Noncurrent Assets. . . . . . . . . . . . . . . . . . 12,466 12,165
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . . $ 513,391 $ 505,100
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts Payable . . . . . . . . . . . . . . . . . . . . $ 26,376 $ 28,382
Federal and State Income Taxes . . . . . . . . . . . . . 5,930 352
Other Current Liabilities. . . . . . . . . . . . . . . . 42,302 38,144
---------- ----------
Total Current Liabilities. . . . . . . . . . . . . 74,608 66,878
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . 142,089 148,166
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . 37,086 37,090
Other Noncurrent Liabilities . . . . . . . . . . . . . . . 324 340
Shareholders' Investment:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 20,987,905 issued in 2000 and
20,985,905 issued in 1999. . . . . . . . . . . . . 210 210
Additional Paid-In Capital . . . . . . . . . . . . . . . 41,595 41,585
Retained Earnings. . . . . . . . . . . . . . . . . . . . 218,182 211,287
Accumulated Other Comprehensive Income . . . . . . . . . (703) (456)
---------- ----------
Total Shareholders' Investment. . . . . . . . . . . . 259,284 252,626
---------- ----------
Total Liabilities and Shareholders' Investment. . . . $ 513,391 $ 505,100
========== ==========
<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
--------------------------
March 31,
--------------------------
<S> <C> <C>
2000 1999
---------- ----------
Net Sales . . . . . . . . . . . . . . . . . . . . . . . $ 142,629 $ 127,260
Cost of Sales . . . . . . . . . . . . . . . . . . . . . 101,857 90,695
---------- ----------
Gross Profit . . . . . . . . . . . . . . . . . . . . 40,772 36,565
Operating Expenses . . . . . . . . . . . . . . . . . . . 22,685 19,159
---------- ----------
Income from Operations . . . . . . . . . . . . . . . 18,087 17,406
Interest Expense . . . . . . . . . . . . . . . . . . . . 2,356 2,286
Interest Income . . . . . . . . . . . . . . . . . . . . 17 42
---------- ----------
Income Before Taxes . . . . . . . . . . . . . . . . . 15,748 15,162
Provision for Income Taxes . . . . . . . . . . . . . . . 6,334 6,084
---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . $ 9,414 $ 9,078
========== ==========
Per Share of Common Stock:
Earnings Per Share . . . . . . . . . . . . . . . . . $.45 $.43
========== ==========
Earnings Per Share - Assuming Dilution. . . . . . . . $.45 $.43
========== ==========
Cash Dividends Declared . . . . . . . . . . . . . . . $.12 $.12
========== ==========
Average Number of Shares Outstanding . . . . . . . . . . 20,986,301 20,933,011
========== ==========
Average Number of Shares - Assuming Dilution . . . . . . 21,033,305 21,121,506
========== ==========
<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,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,414 $ 9,078
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation, amortization and deferred income taxes. . . . . 5,831 5,770
Change in assets and liabilities:
Current assets, other than cash . . . . . . . . . . . . . . (10,389) (5,202)
Current liabilities, other than notes payable . . . . . . . 7,766 386
---------- ----------
Net cash provided from operating activities . . . . . . $ 12,622 $ 10,032
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment . . . . . . . . . . . (3,908) (2,323)
Sale of property, plant and equipment. . . . . . . . . . . . . . 2,581 ---
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (340) (396)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . . (1,667) (2,719)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . (6,024) (5,011)
Dividends to shareholders. . . . . . . . . . . . . . . . . . . . (2,518) (2,509)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 194
---------- ----------
Net cash (used in) provided from financing activities . . . . (8,531) (7,326)
EFFECT OF EXCHANGE RATE ON CASH. . . . . . . . . . . . . . . . . . (9) (20)
---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . 2,415 (33)
Cash and cash equivalents at beginning of period . . . . . . . . 1,729 3,548
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 4,144 $ 3,515
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,404 $ 2,410
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . $ 424 $ 375
<FN>
See accompanying notes.
<FN/>
</TABLE>
<PAGE>5
REGAL-BELOIT CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
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 86% 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:
March 31, 2000 December 31, 1999
-------------- -----------------
Raw Material 13% 14%
Work-in Process 24% 26%
Finished Goods 63% 60%
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 approximately
$32,100,000. 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 March 31, 2000, the impact was $247,000 of expense resulting in net
comprehensive income of $9,167,000 for the quarter. The impact in the first
quarter of 1999 was $483,000 of expense resulting in net comprehensive income
of $8,595,000.
<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
---------------- ----------------
First Quarter First Quarter
---------------- ----------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------- ------ ------- ------
Net Sales $63,390 $63,495 $79,239 $63,765
Income from Operations $ 8,812 $ 9,072 $ 9,275 $ 8,334
Income from Operations as a % of Net Sales 13.9% 14.3% 11.7% 13.1%
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
Net sales for the first quarter of 2000 were $142,629,000, 12.1% higher than
net sales of $127,260,000 in the first quarter of 1999. The increased sales
were due to the combination of additional sales from the May 1999 Lincoln
Motors acquisition and 2.3% sales growth in the Company's other operations.
Both of the Company's business segments' net sales improved from the fourth
quarter of 1999, the Mechanical Group by 3.0% and the Electrical Group by 3.6%.
Increased orders following broad-based weakness in the markets for the
Company's products during 1999 were the primary reason for the higher sales.
(See Note 5 to the accompanying financial statements for business segment
data.)
Gross profit for the Company increased in the first quarter to $40,772,000,
11.5% higher than $36,565,000 in comparable 1999. Gross profit margin in the
first quarter decreased slightly to 28.6% from 28.7% the previous year.
Operating expenses rose 18.4% to $22,685,000 in the first three months of 2000
from $19,159,000 a year earlier. As a percent of net sales, first quarter
2000 operating expenses rose to 15.9% from 15.1% a year ago. The principal
factors in the dollar and percent increases were the Lincoln Motors
acquisition and higher distribution expense resulting from increased fuel
costs.
Income from operations for the Company in the first quarter 2000 was
$18,087,000, 3.9% above $17,406,000 in comparable 1999 due primarily to
increased sales. As a percent of net sales, income from operations was 12.7%
in 2000 as compared to 13.7% a year previously. The decrease in operating
margin was due primarily to the impact on the Company of the Lincoln Motors
operations, which as expected have been only modestly profitable during the
period of integration with the Company and to the aforementioned increase in
distribution expenses.
Interest expense in the first quarter of 2000 was $2,356,000, 3.1% above
$2,286,000 in comparable 1999 due to the effects of increased interest rates
partially offset by lower outstanding long-term debt. The Company's effective
tax rate was 40.2% in 2000's first quarter versus 40.1% a year earlier.
Net income earned in the first quarter of 2000 rose 3.7% to $9,414,000 from
$9,078,000 in the first three months of 1999. Earnings per share (diluted)
were $.45 in 2000 compared to $.43 a year ago.
<PAGE>7
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital at March 31, 2000 was $136,206,000, a 3.7% increase from
$131,370,000 at December 31, 1999. The increase was due primarily to higher
accounts receivable. The current ratio decreased from 3.0:1 at year-end 1999
to 2.8:1 at March 31, 2000.
Cash flow from operations was $12,622,000 in the first quarter of 2000
compared to $10,032,000 a year previously. Free cash flow in the quarter was
$8,777,000 versus $5,200,000 in comparable 1999. This permitted long-term
debt to be reduced $6,077,000 from year-end 1999 and $19,117,000 from
March 31, 1999 to $142,089,000 at March 31, 2000. The Company's funded debt
to EBITDA ratio at the end of the quarter was 1.47:1 while the capitalization
ratio was 35.4%. The Company paid an annualized interest rate of approximately
6.4% on its outstanding debt at March 31, 2000. Outstanding commitments for
future capital expenditures at the end of the first quarter were approximately
$1,957,000.
The Company maintains a $190,000,000 unsecured long-term revolving credit
facility (the "Facility") under which $141,000,000 of debt was outstanding at
March 31, 2000. Including approximately $2,000,000 of standby letters of
credit, the Company had $47,000,000 of available borrowing capacity under the
Facility at March 31, 1999. Additionally, the Company maintains two short-term
credit lines of $10,000,000 each, one of which expires at May 27, 2000. No
borrowings were outstanding against these two credit lines. Management
believes that the credit facilities it has in place provide sufficient
borrowing capacity for the Company to finance its operations for the
foreseeable future. Management further believes that future external growth
from acquisitions can be adequately funded from a combination of free cash
flow, current credit facilities and the Company's ability to further leverage
its equity with additional long-term indebtedness.
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 and Form 10-Q's filed with the Securities and Exchange Commission.
<PAGE>8
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
On January 31, 2000, the registrant filed a current report on Form 8-K
pertaining to a Shareholder Rights Agreement between the registrant and
BankBoston dated January 28, 2000.
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 3, 2000
-----------------
<PAGE>9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,144,000
<SECURITIES> 0
<RECEIVABLES> 83,412,000
<ALLOWANCES> 1,888,000
<INVENTORY> 106,194,000
<CURRENT-ASSETS> 210,814,000
<PP&E> 267,175,000
<DEPRECIATION> 119,416,000
<TOTAL-ASSETS> 513,391,000
<CURRENT-LIABILITIES> 74,608,000
<BONDS> 142,089,000
0
0
<COMMON> 210,000
<OTHER-SE> 259,074,000
<TOTAL-LIABILITY-AND-EQUITY> 513,391,000
<SALES> 142,629,000
<TOTAL-REVENUES> 142,629,000
<CGS> 101,857,000
<TOTAL-COSTS> 101,857,000
<OTHER-EXPENSES> 22,685,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,356,000
<INCOME-PRETAX> 15,748,000
<INCOME-TAX> 6,334,000
<INCOME-CONTINUING> 9,414,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,414,000
<EPS-BASIC> .45
<EPS-DILUTED> .45
</TABLE>
