SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): September 29, 2000
------------------------------------------------------------------------------
REGAL-BELOIT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 1-7283 39-0875718
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
200 State Street, Beloit, Wisconsin 53511-6254
(Address of Principal Executive Offices) (ZIP Code)
(608) 364-8800
(Registrant's Telephone Number, Including Area Code)
<PAGE>1
Item 7. FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION
AND EXHIBITS
Since it was impracticable to provide the financial information required by
Item 7 at the time the Current Report on Form 8-K was filed for this
acquisition, such information is hereby being filed.
A. Financial Statements of Business Acquired
The following Financial Statements of LEESON Electric Corporation
are attached hereto and such Financial Statements are incorporated
herein by reference.
Consolidated Financial Statements as of September 29, 2000
(Unaudited):
1. Consolidated Balance Sheets as of September 29, 2000 and
December 31, 1999 (Unaudited).
2. Consolidated Statements of Operations For the Nine Months Ended
September 29, 2000 and October 2, 1999 (Unaudited).
3. Consolidated Statements of Cash Flows for the Nine Months Ended
September 29, 2000 and October 2, 1999 (Unaudited).
4. Notes to Consolidated Financial Statements For the Nine Months
Ended September 29, 2000 and October 2, 1999 (Unaudited).
Consolidated Financial Statements as of December 31, 1999, 1998 and
1997 Together with Report of Independent Public Accountants:
5. Report of Independent Public Accountants.
6. Consolidated Balance Sheets December 31, 1999 and 1998.
7. Consolidated Statements of Operations For the Years Ended
December 31, 1999, 1998 and 1997.
8. Consolidated Statements of Cash Flows For the Years Ended
December 31, 1999, 1998 and 1997.
9. Consolidated Statements of Changes in Stockholders Equity For
the Years Ended December 31, 1999, 1998 and 1997.
10. Notes to Consolidated Financial Statements December 31, 1999,
1998 and 1997.
11. Consent of Independent Public Accountants.
<PAGE>2
A. Proforma Financial Information
The following Pro-Forma Financial Information is provided on the
Schedules attached hereto:
Schedule I REGAL-BELOIT Corporation and LEESON Electric
Corporation Pro-Forma Combined Condensed Balance Sheets
(Unaudited) as of September 30, 2000, with related
Notes.
Schedule II REGAL-BELOIT Corporation and LEESON Electric
Corporation Pro-Forma Combined Statements of Income
(Unaudited) for the year ended December 31, 1999, with
related Notes.
Schedule III REGAL-BELOIT Corporation and LEESON Electric
Corporation Pro-Forma Combined Statements of Income
(Unaudited) for the nine months ended September 30,
2000, with related Notes.
B. Exhibits -- None
All required exhibits were filed with Form 8-K dated October 13,
2000.
<PAGE>3
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 this
document 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
REGAL-BELOIT CORPORATION
By: /S/ Kenneth F. Kenneth
------------------------
Kenneth F. Kaplan
Vice President
Chief Financial Officer
and Secretary
Date: December 12, 2000
---------------------
<PAGE>4
LEESON Electric Corporation
Consolidated Financial Statements
As of September 29, 2000
(Unaudited)
<PAGE>5
<TABLE>
<CAPTION>
LEESON Electric Corporation
Consolidated Balance Sheets
As of September 29, 2000 and December 31, 1999
(Unaudited)
<S> <C> <C>
Assets September 29, December 31,
------ 2000 1999
------------- ------------
Current Assets:
Cash $ 804,083 $ 2,642,579
Trade Receivables, Less Allowance for Doubtful
Accounts of $406,585 and $366,544, Respectively 27,850,381 23,702,459
Inventories, net 31,642,911 31,745,540
Other Current Assets 1,272,462 829,640
------------- ------------
Total Current Assets 61,569,837 58,920,218
Other Assets:
Notes Receivable 4,520,342 3,725,384
Cash Surrender Value of Officers' Life Insurance 621,041 1,851,518
Other 1,636,641 1,221,982
------------- ------------
6,778,024 6,798,884
Plant and Equipment:
Land and Improvements 1,597,055 1,644,726
Buildings 13,709,035 13,942,334
Machinery and Equipment 56,543,270 54,517,794
------------- ------------
71,849,360 70,104,854
Allowance for Depreciation (38,252,254) (36,059,200)
------------- ------------
33,597,106 34,045,654
------------- ------------
$101,944,967 $99,764,756
============ ============
</TABLE>
[FN]
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</FN>
<PAGE>6
<TABLE>
<CAPTION>
LEESON Electric Corporation
Consolidated Balance Sheets
As of September 29, 2000 and December 31, 1999
(Unaudited)
(Continued)
<S> <C> <C>
Liabilities and Stockholders' Equity September 29, December 31,
------------------------------------ 2000 1999
------------- ------------
Current Liabilities:
Notes Payable to Bank $ - $ 276,960
Notes Payable to Directors and Stockholders - 645,889
Accounts Payable 7,162,310 7,142,577
Employee Compensation 776,442 2,963,919
Accrued Incentive Compensation 385,542 -
Accrued Vacation 1,558,907 1,495,988
Sales Commissions Payable 1,939,528 1,629,372
Accrued Warranty 1,200,000 1,400,000
Accrued Expenses 9,228,206 3,565,832
Current Maturities of Long-Term Obligations 2,702,314 2,525,037
------------ -----------
Total Current Liabilities 24,953,249 21,645,574
Long-Term Obligations 42,085,899 34,183,722
Minority Interest 1,297,762 1,129,663
Stockholders' Equity:
Common Stock, $1 Par Value; 1,500,000 Shares
Authorized; 21,407 Issued and Outstanding
September 29, 2000 and December 31, 1999 21,407 21,407
Additional Paid-In Capital 628,400 628,400
Retained Earnings 32,958,250 42,155,990
------------ -----------
33,608,057 42,805,797
------------ -----------
$101,944,967 $99,764,756
============ ===========
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</FN>
</TABLE>
<PAGE>7
<TABLE>
<CAPTION>
LEESON Electric Corporation
Consolidated Statements of Operations
For the Nine Months Ended September 29, 2000 and October 2, 1999
(Unaudited)
Nine Months Ended
-----------------------------
<S> <C> <C>
September 29, October 2,
2000 1999
------------- -------------
Gross Sales $139,664,178 $134,189,448
Less Allowances (4,486,148) (4,355,327)
------------- -------------
Net Sales 135,178,030 129,834,121
Costs and Expenses:
Cost of Goods Sold 91,654,195 89,458,971
Selling and Administrative Expenses 38,503,904 28,606,653
------------- -------------
130,158,099 118,065,624
------------- -------------
Income from Operations 5,019,931 11,768,497
Other Income (Expense):
Interest Expense (2,475,567) (2,534,392)
Gain (Loss) on Foreign Currency Transactions (114,109) 78,031
Minority Interest (168,099) (214,159)
Other (75,597) (123,991)
------------ ------------
(2,833,372) (2,794,511)
------------ ------------
Income Before Income Taxes 2,186,559 8,973,986
Provision for Income Taxes 634,195 806,798
----------- -----------
Net Income $ 1,552,364 $ 8,167,188
=========== ===========
Net Income Per Share Basic and Diluted $72.52 $381.52
Average Number of Common Shares Outstanding 21,407 21,407
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE>8
<TABLE>
<CAPTION>
LEESON Electric Corporation
Consolidated Statements of Cash Flows
For the Nine Months Ended September 29, 2000 and October 2, 1999
(Unaudited)
Nine Months Ended
----------------------------
<S> <C> <C>
September 29, October 2,
2000 1999
------------- ------------
Cash Flows from Operating Activities:
Net Income $ 1,552,364 $ 8,167,188
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities-
Minority Share of Canadian Income 168,099 214,159
Depreciation and Amortization 4,439,172 4,554,974
Loss on Sale of Equipment 64,198 66,982
Cash (Used for) Provided by Working Capital (593,035) 1,862,593
------------ ------------
Net Cash Provided by Operating Activities 5,630,798 14,865,896
----------- ------------
Cash Flows from Investing Activities:
Capital Expenditures, Net of Sale Proceeds (4,830,957) (5,341,514)
Increase in Notes Receivable (794,958) (1,724,349)
Decrease (Increase) in Other Assets 980,477 (82,183)
------------ ------------
Net Cash Used for Investing Activities (4,645,438) (7,148,046)
------------ ------------
Cash Flows from Financing Activities:
Notes Payable to Directors and Stockholders (645,889) 58,901
Proceeds from Long-Term Financing 13,000,000 4,050,000
Payment of Long-Term Obligations (5,274,568) (7,931,331)
Distributions to Stockholders (9,903,399) (3,010,899)
------------ ------------
Net Cash Used for Financing Activities (2,823,856) (6,833,329)
------------ ------------
Net Increase (Decrease) in Cash (1,838,496) 884,521
Cash, Beginning of Year 2,642,579 1,671,105
------------ ------------
Cash, End of Year $ 804,083 $ 2,555,626
============ ============
Cash Flows from Working Capital Items:
Increase in Trade Receivables $(4,147,922) $(4,651,914)
Decrease in Inventories 102,629 4,273,693
Increase in Other Current Assets (442,822) (212,803)
Increase in Accounts Payable 19,733 1,203,822
Increase in Accrued Expenses 3,875,347 1,249,795
------------ -----------
Net Cash (Used for) Provided by Working Capital $ (593,035) $1,862,593
============ ===========
Supplemental Cash Flow Information:
Cash Paid During the Year for-
Interest $2,269,356 $2,263,381
Income taxes 804,876 778,487
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements..
</FN>
</TABLE>
<PAGE>9
LEESON Electric Corporation
Notes to Consolidated Financial Statements
For the Nine Months Ended September 29, 2000 and October 2, 1999
(Unaudited)
(1) Basis of Presentation-
---------------------
The condensed consolidated financial statements include the accounts of
LEESON Electric Corporation and its wholly owned subsidiary, LEESON
Canada, Inc. All significant intercompany transactions have been
eliminated in consolidation.
In the opinion of management, the accompanying unaudited financial
statements of LEESON Electric Corporation and consolidated subsidiary
contains all adjustments which are of a normal recurring nature necessary
to present fairly the financial position as of September 29, 2000 and the
results of its operations, changes in stockholders equity, and cash
flows for the periods indicated. It is suggested these statements be
read in conjunction with the Company s latest annual audited financial
statements and the notes thereto as of December 31, 1999. Interim
results are not necessarily indicative of operating results for an entire
year.
(2) Income Taxes-
------------
The Company and its stockholders have elected, for Federal and state
income tax purposes, to be treated as an S Corporation under the
provisions of the Internal Revenue Code. Accordingly, the Company's
domestic taxable income is included in the individual tax returns of its
stockholders for Federal and, where allowed, state income tax purposes.
Therefore, no provision for Federal income taxes is included in the
financial statements. However, a provision for foreign income taxes
and for income taxes in states which do not recognize S Corporation
status is provided. In the event the S Corporation election is
terminated, any liability or benefit for deferred income taxes would be
reflected in the Company's financial statements.
(3) Inventories-
-----------
The approximate percentage distribution between major classes of
inventory is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
September 29, December 31,
2000 1999
------------- ------------
Raw Material and Purchased Parts $ 8,142,002 $ 7,829,587
Work in Process 2,873,102 2,706,346
Finished Goods 24,145,508 24,957,493
</TABLE>
Inventory costs include material, labor and factory overhead. Inventories
are stated at the lower of cost or market, with cost being determined on the
last-in, first-out (LIFO) method. If inventory were valued on the first-in,
first-out method, they would have increased by $3,517,701 and $3,747,886 as
of September 29, 2000 and December 31, 1999, respectively.
<PAGE>10
(4) Recent Accounting Pronouncements-
--------------------------------
In June 1998, the Financial Accounting Standards Board ( FASB ) issued
Statements of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ( SFAS 133 ). SFAS 133,
as amended, establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires an entity to recognize
all derivatives as either assets or liabilities on the balance sheet and
measure those instruments at fair value. The Company is required to
adopt SFAS 133 in the first quarter of fiscal 2001. Management does not
expect the initial adoption of SFAS 133 to have a material effect on the
company's operations or financial position.
In December 1999, the Securities and Exchange Commission ( SEC ) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements ( SAB 101 ). SAB 101, as amended, summarizes certain of the
SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. At this time, management
does not expect the adoption of SAB 101 to have a material effect on the
Company's operations or financial position.
(5) Acquisition-
-----------
Effective September 29, 2000 LEESON Electric Corporation was purchased by
Regal-Beloit Corporation for approximately $260,000,000 in cash.
<PAGE>11
LEESON Electric Corporation
Consolidated Financial Statements
As of December 31, 1999, 1998 and 1997
Together with Report of Independent Public Accountants
<PAGE>12
Report of Independent Public Accountants
To the Board of Directors
of LEESON Electric Corporation:
We have audited the accompanying consolidated balance sheets of LEESON
Electric Corporation (a Wisconsin Corporation) and subsidiary as of December
31, 1999 and 1998, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LEESON Electric Corporation
and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/S/ARTHUR ANDERSEN LLP
--------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 23, 2000
<PAGE 13>
<TABLE>
<CAPTION>
LEESON Electric Corporation
Consolidated Balance Sheets
December 31, 1999 and 1998
<S> <C> <C>
Assets 1999 1998
------ ------------- -------------
Current Assets:
Cash $ 2,642,579 $ 1,671,105
Trade Receivables, Less Allowance for Doubtful
Accounts of $366,544 and $392,478, Respectively 23,702,459 21,287,140
Inventories, Net 31,745,540 35,559,302
Other Current Assets 829,640 523,607
------------- -------------
Total Current Assets 58,920,218 59,041,154
------------- -------------
Other Assets:
Notes Receivable 3,725,384 2,511,608
Cash Surrender Value of Officers' Life Insurance 1,851,518 1,691,984
Other 1,221,982 1,107,906
------------- -------------
6,798,884 5,311,498
Plant and Equipment:
Land and Improvements 1,644,726 1,580,069
Buildings 13,942,334 13,070,786
Machinery and Equipment 54,517,794 50,504,502
------------- -------------
70,104,854 65,155,357
Allowance for Depreciation (36,059,200) (31,202,226)
------------- -------------
34,045,654 33,953,131
------------- -------------
$ 99,764,756 $ 98,305,783
============= =============
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</FN>
</TABLE>
<PAGE>14
<TABLE>
<CAPTION>
LEESON Electric Corporation
Consolidated Balance Sheets
December 31, 1999 and 1998
(Continued)
Liabilities and Stockholders' Equity 1999 1998
------------------------------------ ----------- ----------
<S> <C> <C>
Current Liabilities:
Notes Payable to Bank $ 276,960 $1,844,036
Notes Payable to Directors and Stockholders 645,889 570,765
Accounts Payable 7,142,577 6,969,094
Employee Compensation 2,963,919 2,163,738
Accrued Incentive Compensation - 1,795,293
Accrued Vacation 1,495,988 1,604,906
Sales Commissions Payable 1,629,372 1,294,578
Accrued Warranty 1,400,000 1,710,000
Accrued Expenses 3,565,832 966,182
Current Maturities of Long-Term Obligations 2,525,037 3,803,414
----------- -----------
Total Current Liabilities 21,645,574 22,722,006
Long-Term Obligations 34,183,722 39,249,336
Minority Interest 1,129,663 843,493
Stockholders' Equity:
Common Stock, $1 Par Value; 1,500,000 Shares
Authorized; 21,407 Issued and Outstanding
December 31, 1999 and 1998 21,407 21,407
Additional Paid-In Capital 628,400 628,400
Retained Earnings 42,155,990 34,841,141
----------- -----------
42,805,797 35,490,948
----------- -----------
$99,764,756 $98,305,783
=========== ===========
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</FN>
<PAGE>15
</TABLE>
<TABLE>
<CAPTION>
LEESON Electric Corporation
Consolidated Statements of Operations
For the Years Ended December 31, 1999, 1998 and 1997
<S> <C> <C> <C>
1999 1998 1997
------------ ------------ ------------
Gross Sales $176,102,185 $169,486,638 $159,413,307
Less Allowances (5,764,347) (5,945,282) (5,116,311)
------------- ------------- -------------
Net Sales 170,337,838 163,541,356 154,296,996
Costs and Expenses:
Cost of Goods Sold 117,335,440 113,953,029 104,639,971
Selling and Administrative Expenses 38,232,567 37,069,033 33,776,419
------------- ------------- -------------
155,568,007 151,022,062 138,416,390
------------- ------------- -------------
Income from Operations 14,769,831 12,519,294 15,880,606
Other Income (Expense):
Interest Expense (3,259,340) (3,150,077) (2,364,697)
Gain (Loss) on Foreign Currency Transactions 195,210 (186,085) (97,282)
Minority Interest (286,170) (115,271) (161,213)
Other (73,652) (168,537) 104,314
------------- ------------- -------------
(3,423,952) (3,619,970) (2,518,878)
------------- ------------- -------------
Income Before Income Taxes 11,345,879 8,899,324 13,361,728
Provision for Income Taxes:
State 96,000 92,000 123,000
Foreign 910,574 741,433 680,012
------------- ------------- -------------
1,006,574 833,433 803,012
------------- ------------- -------------
Net Income $10,339,305 $8,065,891 $12,558,716
============= ============= =============
Net Income Per Share - Basic and Diluted $482.99 $375.82 $506.99
Average Number of Common Shares Outstanding 21,407 21,462 21,771
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE>16
<TABLE>
<CAPTION>
LEESON Electric Corporation
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
<S> <C> <C> <C>
1999 1998 1997
------------ ------------ ------------
Cash Flows from Operating Activities:
Net Income $10,339,305 $ 8,065,891 $12,558,716
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities-
Minority Share of Canadian Income 286,170 115,271 161,213
Depreciation and Amortization 5,957,659 5,074,887 4,197,484
Loss on Sale of Equipment 56,123 20,150 (2,083)
Cash Provided by (Used for) Working Capital 2,866,004 (2,483,424) (9,243,192)
------------ ------------ ------------
Net Cash Provided by Operating Activities 19,505,261 10,792,775 7,672,138
------------ ------------ ------------
Cash Flows from Investing Activities:
Capital Expenditures, Net of Sale Proceeds (6,022,724) (10,352,177) (6,774,393)
(Increase) Decrease in Notes Receivable (1,213,776) 199,566 (1,233,500)
(Increase) in Other Assets (159,534) (177,076) (3,565,217)
------------ ------------ ------------
Net Cash Used for Investing Activities (7,396,034) (10,329,687) (11,573,110)
------------ ------------ ------------
Cash Flows from Financing Activities:
Stock Purchase - (3,442,741) -
Notes Payable to Directors and Stockholders 75,124 (314,072) 215,257
Proceeds from Long-Term Financing 4,050,000 13,486,156 9,265,000
Payment of Long-Term Obligations (12,238,422) (3,552,110) (2,341,403)
Distributions to Stockholders (3,024,455) (7,102,144) (6,236,381)
------------ ------------ ------------
Net Cash Used for Financing Activities (11,137,753) (924,911) 902,473
------------ ------------ ------------
Net Increase (Decrease) in Cash 971,474 (461,823) (2,998,499)
Cash, Beginning of Year 1,671,105 2,132,928 5,131,427
------------ ------------ ------------
Cash, End of Year $ 2,642,579 $ 1,671,105 $ 2,132,928
============ ============ ============
Cash Flows from Working Capital Items:
(Increase) Decrease in Trade Receivables $(2,415,319) $ 1,415,162 $(4,162,892)
Decrease (Increase) in Inventories 3,813,762 (2,915,792) (7,051,886)
(Increase) Decrease in Other Current Assets (306,033) 157,633 258,927
Increase (Decrease) in Accounts Payable 173,483 (260,406) 1,214,533
Increase (Decrease) in Accrued Expenses 1,600,111 (880,021) 498,126
------------ ------------ ------------
Net Cash Provided by (Used for) Working
Capital $ 2,866,004 $(2,483,424) $(9,243,192)
=========== ============ ============
Supplemental Cash Flow Information:
Cash Paid During the Year for-
Interest $ 3,255,231 $ 3,191,082 $ 2,346,218
Income taxes 1,006,070 895,510 687,503
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE>17
<TABLE>
<CAPTION>
LEESON Electric Corporation
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997
<S> <C> <C> <C>
Additional
Common Paid-in Retained
Stock Capital Earnings
--------- ----------- ------------
Balance, December 31, 1996 $24,771 $3,980,407 $27,555,059
Net Income - - 12,558,716
Distributions to Stockholders-
For Payment of Income Taxes - - (5,713,357)
For Principal and Interest Payments on Debt Used to
Purchase Shares of a Former Stockholder - - (451,550)
Other - - (71,474)
--------- ----------- ------------
Balance, December 31, 1997 24,771 3,980,407 33,877,394
Net Income - - 8,065,891
Distributions to Stockholders-
For Payment of Income Taxes - - (4,800,009)
For Principal and Interest Payments on Debt Used to
Purchase Shares of a Former Stockholder - - (424,436)
Other - - (1,877,699)
Repurchase and Retirement of Stock (3,364) (3,352,007) -
--------- ----------- ------------
Balance, December 31, 1998 21,407 628,400 34,841,141
Net Income - - 10,339,305
Distributions to Stockholders-
For Payment of Income Taxes - - (2,627,134)
For Principal and Interest Payments on Debt Used to - - (397,322)
Purchase Shares of a Former Stockholder
--------- ------------ ------------
Balance, December 31, 1999 $21,407 $628,400 $42,155,990
========= ============ ============
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
<PAGE>18
LEESON Electric Corporation
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Description of the Business-
---------------------------
LEESON Electric Corporation (the "Company") manufactures electric motors
which are marketed to numerous customers primarily throughout the United
States and Canada.
(2) Summary of Significant Accounting Policies-
------------------------------------------
(a) Basis of Consolidation-
----------------------
The consolidated financial statements include the accounts of LEESON
Electric Corporation and its majority owned subsidiary, LEESON
Canada, Inc. All significant intercompany transactions and accounts
have been eliminated in consolidation.
(b) Revenue Recognition-
-------------------
Sales and related costs of sales for all products are recognized
upon shipment of the products.
(c) Use of Estimates-
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities and
the reported amounts of revenues and expenses. Actual results could
differ from those estimates.
(d) Foreign Currency Translation-
----------------------------
All translation gains and losses from remeasurement of monetary
assets and liabilities are recognized currently in the consolidated
statements of operations since the functional currency of the
Canadian subsidiary is the United States dollar.
(e) Inventory Valuation-
-------------------
The approximate percentage distribution between major classes of
inventory is as follows:
December 31,
-----------------------
1999 1998
---------- ----------
Raw Material and Purchased Parts $7,829,587 $8,313,141
Work in Process 2,706,346 2,153,673
Finished Goods 24,957,493 29,071,961
Inventory costs include material, labor and factory overhead.
Inventories are stated at the lower of cost or market, with cost
being determined on the last-in, first-out (LIFO) method. If
inventory were valued on the first-in, first-out method, they would
have increased by $3,747,886 and $3,979,473 as of December 31,
1999 and 1998, respectively.
(f) Properties and Depreciation-
---------------------------
Plant and equipment are stated at cost and, for financial statement
purposes, are depreciated over their estimated useful lives using
the straight-line method of depreciation. For income tax purposes,
the Company uses accelerated depreciation methods except for assets
<PAGE>19
placed in service between 1975 and 1980, for which the straight-
line method is used. The estimated useful lives are:
Description Life
----------- ----
Buildings and Improvements 40 Years
Machinery and Equipment 10 Years
Maintenance and repair costs are charged to expense as incurred.
Renewals and improvements which extend the useful lives of the
assets are added to the plant and equipment accounts.
(g) Research and Development-
------------------------
Research and Development costs are charged to expense as incurred.
Research and Development expenses in 1999, 1998, and 1997 were
$426,000, $637,000, and $493,467, respectively.
(h) Advertising-
-----------
Advertising costs are charged to expense as incurred. Advertising
expenses in 1999, 1998 and 1997 were $635,900, $633,105, and
$714,100, respectively.
(i) Goodwill-
--------
Goodwill resulting from an acquired business consists of the excess
of the acquisition cost over the fair value of the net assets of the
business acquired. The Company continually evaluates whether events
and circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision, or that the
remaining balance of goodwill may not be recoverable. Goodwill is
included in Other Assets on the consolidated balance sheet and is
amortized on a straight-line basis over 15 years. At December 31,
1999 and 1998, goodwill totaled $968,495 and $968,495, respectively,
while accumulated amortization of goodwill was $156,530 and $91,964
at those respective dates. Amortization of goodwill in 1999, 1998
and 1997 was $64,566, $67,534 and $24,430, respectively.
(j) Income Taxes-
------------
The Company and its stockholders have elected, for Federal and state
income tax purposes, to be treated as an S Corporation under the
provisions of the Internal Revenue Code. Accordingly, the Company's
domestic taxable income is included in the individual tax returns of
its stockholders for Federal and, where allowed, state income tax
purposes. Therefore, no provision for Federal income taxes is
included in the financial statements. However, a provision for
foreign income taxes and for income taxes in states which do not
recognize S Corporation status is provided. In the event the S
Corporation election is terminated, any liability or benefit for
deferred income taxes would be reflected in the Company's financial
statements.
(k) Recent Accounting Pronouncements-
--------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). SFAS 133, as amended, establishes accounting and
reporting standards for derivative instruments and hedging
activities. It requires an entity to recognize all derivatives as
either assets or liabilities on the balance sheet and measure those
instruments at fair value. The Company is required to adopt SFAS 133
in the first quarter of fiscal 2001. Management does not expect
the initial adoption of SFAS 133 to have a material effect on the
Company's operations or financial position.
<PAGE>20
In December 1999, the Securities and Exchange Commission "SEC")
issued Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements ("SAB 101"). SAB 101, as amended, summarizes
certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. At this
time, management does not expect the adoption of SAB 101 to have a
material effect on the Company's operations or financial position.
(3) Notes Receivable-
----------------
Included in notes receivable, the Company has unsecured notes due
from several officers in the amount of $3,621,013 and $2,343,378 in
1999 and 1998, respectively. The notes bear interest at a defined
Federal rate (5.59% at December 31, 1999 and 4.24% at December 31,
1998).
(4) Employee Benefit Plan-
---------------------
The Company offers a 401(k) profit sharing plan whereby
substantially all employees may elect to defer a percentage of their
compensation. The plan provides for employer matching contributions
equal to 50% of participant salary deferrals up to 4% of participant
compensation. The plan also allows for additional discretionary
employer matching contributions. Participants are 100% vested in
participant and employer contributions, and the earnings on those
contributions, at all times. The Company contributed $470,853,
$455,905 and $598,000 to the plan in 1999, 1998 and 1997,
respectively.
(5) Notes Payable-
-------------
The Company's subsidiary has a line of credit agreement with a
Canadian bank which provides for borrowings up to 5,000,000 Canadian
dollars or its equivalent in United States dollars. Canadian dollar
denominated borrowings bear interest at the bank s prime rate. U.S.
dollar denominated borrowings can bear interest either at LIBOR plus
0.5% or at the Bank's cost of funds plus .75%. Borrowings are
secured by accounts receivable. Borrowings consisted of 400,000
Canadian dollars ($276,960 U.S.) at interest rates of 5.96% at
December 31, 1999, and 1,293,000 Canadian dollars ($844,036 U.S.)
and $1,000,000 United States dollars bearing interest at 6.75% and
5.29%, respectively at December 31, 1998.
Notes payable to directors and stockholders consist of unsecured
demand notes bearing interest at the prime rate.
(6) Long-Term Obligations-
---------------------
The Company maintains a $22,000,000 unsecured revolving credit and
term loan agreement. The current expiration date of the agreement
is July 1, 2001, which will be automatically and indefinitely
extended on each July 1 unless the lender notifies the Company that
it has elected not to extend the agreement. A commitment fee is
payable in the amount of 3/8 of 1% per annum of the average daily
unused portion of the total revolving credit commitments. In
addition to the revolving credit line, the Company also maintains a
$3,500,000 line which may be used for letters of credit and bankers
acceptances. At December 31, 1999, there were $1,684,000 letters of
credit outstanding.
Under the Company's debt agreements, the Company must meet certain
financial covenants relating to tangible net worth, current ratio
and ratio of unsubordinated liabilities to tangible net worth. The
agreements further limit the Company in the amounts of its
indebtedness, liens outstanding, restrictive payments and allowed
investments. The Company is in compliance with all covenants at
December 31, 1999.
<PAGE>21
Long-term obligations consisted of the following:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, December 31,
1999 1998
------------ ------------
9.82% senior notes with interest payable semiannually
and principal of $1,642,000 due annually. Final principal payment of
$1,648,000 due on January 15, 2000 $ 1,648,000 $ 3,290,000
7.99% senior note with interest payable semiannually until
November 15, 1999. Then semiannual installments of principal
and interest of $1,382,239, with final payment of $1,383,840 due
on May 15, 2006 14,157,011 15,000,000
Note payable to bank under revolving credit agreement 1,500,000 19,600,000
7.50% note payable due with monthly payments of interest and
a final principal payment of $1,966,585 due May 27, 2002;
secured by an aircraft 1,966,585 2,050,872
Note payable due in quarterly installments of fixed principal,
$101,550 plus interest calculated at the prime rate (8.5% at
December 31, 1999), with a final payment due August 11, 2002;
secured by a letter of credit 1,117,050 1,523,250
6.86% note payable due in monthly installments of principal and
interest of $2,000, with a final payment due on July 1, 2001;
secured by building and equipment 161,860 173,984
Note payable to bank under term note agreement; with interest
payable monthly at a rate of 1.125% over 30 day LIBOR (7.6%
at December 31, 1999), and principal due on May 31, 2002 15,000,000 -
4% note payable due in monthly installments of principal
and interest of $4,100 with a final payment of $5,662 due
on January 1, 2004; secured by selected manufacturing equipment 186,394 227,249
7.50% note payable due in monthly installments of principal and
interest of $21,379, with a final payment of $21,300 due on
January 1, 2001 361,999 582,507
Deferred compensation 559,860 282,506
Other 50,000 322,382
------------ ------------
36,708,759 43,052,750
Less- Current maturities (2,525,037) (3,803,414)
------------ ------------
$34,183,722 $39,249,336
============ ============
</TABLE>
<PAGE>22
Maturities of long-term obligations, excluding revolving credit\
notes, for the next five years are as follows:
2000 $ 2,525,037
2001 6,258,570
2002 17,408,482
2003 2,255,590
2004 2,374,157
Thereafter 4,386,923
(7) Lease Commitments-
-----------------
The future minimum rental payments required under operating leases
that have initial or remaining noncancellable lease terms in excess
of one year as of December 31, 1999 are as follows:
Operating
Leases
---------
2000 $1,930,124
2001 1,659,050
2002 630,414
2003 419,510
2004 and thereafter 1,364,752
----------
$6,003,850
==========
Total rental expense for all operating leases amounted to $1,946,930,
$1,788,757 and $1,504,990 in 1999, 1998 and 1997, respectively.
(8) Canadian Operations-
-------------------
Summarized financial information, after translation into United
States dollars, of the Canadian subsidiary is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Current Assets $ 9,422,214 $ 8,376,706 $ 8,408,903
Total Assets 10,426,405 9,028,049 8,991,587
Total Liabilities 3,128,918 3,275,336 3,861,110
Stockholders' Equity 7,297,487 5,752,713 5,130,477
Net Sales 27,387,018 24,517,907 23,530,772
Pretax Income 2,455,348 1,363,669 1,444,015
Net Income 1,544,774 622,236 764,003
</TABLE>
Total current liabilities include amounts due to parent of
$671,203, $181,365 and $243,115 in 1999, 1998 and 1997,
respectively. All intercompany accounts are eliminated in
consolidation.
(9) Fair Values of Financial Instruments-
------------------------------------
Financial instruments with estimated fair market values that
approximate carrying values are cash, accounts receivable,
accounts payable and long-term debt.
(10) Risk Management-
---------------
The Company periodically uses forward contract agreements to
manage its exposure to market pricing for certain commodity
purchases. Payments or receipts for fluctuations in market
<PAGE>23
pricing under these agreements are recorded as adjustments to
cost of sales and were not material in any period. The company
neither holds nor issues financial instruments for trading
purposes.
(11) Stock Appreciation Rights-
-------------------------
On January 1, 1993, the Company enacted a Change in Control
Stock Appreciation Rights Plan to allow selected employees to
share in the appreciation of the Company's value in the event
of either a change in control of the business or disability or
death of a participant resulting in their termination.
As of December 31, 1999 and 1998, 1,350 stock appreciation
rights have been issued having a value of $1,731,623 and
$1,333,039, respectively.
(12) Stock Retirement-
----------------
On January 6, 1998, the Company acquired and exercised an
option to purchase 3,364 common shares of LEESON Electric
Corporation stock and 654 common shares of LEESON Canada, Inc.
stock from the two largest shareholders of the Company. The
acquisition cost of the option was $500,000. The exercise
price for the LEESON Electric Corporation stock and the LEESON
Canada, Inc. stock was $2,855,371 and $87,370, respectively,
the funding for which was obtained through additional
borrowings on the Company s revolving line of credit.
(13) Deferred Compensation Plan-
--------------------------
In 1998, the Company established a deferred compensation plan
for selected employees to participate in. Employees may
contribute to the plan through the deferral of up to 100% of
salary, commissions, bonuses and long-term management
incentive bonuses paid by the Company to the employee. In
addition, the Company may make discretionary contributions
under the plan. Contributions and investment earnings are held
in a Rabbi Trust on behalf of those employees. Amounts may be
paid to the employees upon the termination of their employment
with the Company. The Company made no discretionary
contributions in 1999 or 1998. The value of this Trust is
$401,693 at December 31, 1999, and is included on the balance
sheet as an addition to both Other Assets and Long-Term
Obligations.
(14) Subsequent Event-
----------------
In February, 2000 the Company declared and paid a special
dividend of approximately $5.2 million. These dividends were
funded through additional borrowings under the revolving credit
agreement and available cash.
<PAGE>24
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
dated February 23, 2000 included in this Form 8-K filing.
/S/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
December 6, 2000
<PAGE>25
Schedule I
REGAL-BELOIT CORPORATION AND
LEESON ELECTRIC CORPORATION
Pro-Forma Combined Condensed Balance Sheets as of September 30, 2000
Unaudited ($000)
The following unaudited pro-forma combined balance sheets give effect to the
purchase by REGAL-BELOIT Corporation of all of the stock of LEESON Electric
Corporation. The statement combines the unaudited REGAL-BELOIT September 30,
2000 balance sheet and the unaudited LEESON September 29, 2000 balance sheet
and reflects that the business combination was accounted for as a purchase.
These balance sheets should be read in conjunction with the pro-forma combined
statements of income and notes thereto included elsewhere herein. Pro-forma
data is presented for comparative purposes only and is not necessarily
indicative of what the combined financial condition will be in the future,
or as of the dates for which this pro-forma is presented.
<TABLE>
<CAPTION>
Historical Pro-Forma
------------------------------ -----------------------------
REGAL-BELOIT LEESON Electric Adjustments
Corporation Corporation Add (Deduct Combined
------------ --------------- --------------- ----------
Assets
------
<S> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 13,106 $ 804 --- $ 13,910
Net Accounts Receivable 77,631 27,850 $ (100) (1) 105,381
Inventories 105,286 31,643 8,664 (2) 145,593
Other Current Assets 15,175 1,273 --- 16,448
----------- ----------- ------------ ----------
Total Current Assets 211,198 61,570 8,564 281,332
Net Property, Plant and Equipment 152,128 33,597 4,402 (3) 190,127
Goodwill 148,769 764 166,664 (4) 316,197
Other Noncurrent Assets 12,100 6,014 (1,026) (5) 17,088
----------- ----------- ------------ ----------
Total Assets $ 524,195 $ 101,945 $ 178,604 $ 804,744
=========== =========== ============ ==========
Liabilities and Shareholders' Investment
----------------------------------------
Current Liabilities:
Current Maturities of Long-Term Debt $ 0 $ 2,702 $ (2,702) (6) $ 0
Accounts Payable 22,177 7,162 --- 29,339
Income Taxes 2,176 38 --- 2,214
Other Current Liabilities 54,850 15,051 (2,977) (7) 66,924
----------- ----------- ----------- ----------
Total Current Liabilities 79,203 24,953 (5,679) 98,477
Long-Term Debt 136,400 41,449 219,189 (8) 397,038
Deferred Income Taxes 37,064 0 --- 37,064
Other Noncurrent Liabilities 217 637 --- 854
Shareholders' Investment 271,311 34,906 (34,906) (9) 271,311
----------- ---------- ------------ ----------
Total Liabilities and
Shareholders' Investment $ 524,195 $ 101,945 $ 178,604 $ 804,744
=========== ========== =========== ==========
<FN>
Notes to Pro-Forma Combined Condensed Balance Sheets
(1) To provide for additional accounts receivable reserves.
(2) To increase inventories to estimated fair market value and eliminate
LEESON's LIFO reserve.
(3) To increase property, plant and equipment to estimated fair market
value.
(4) Goodwill represents the difference in the purchase price of LEESON and
the net asset value acquired, after purchase accounting adjustments.
(5) To record debt financing fees and eliminate notes receivable from
LEESON officers paid at closing.
(6) To reflect repayment of LEESON debt.
(7) To eliminate liability for stock appreciation rights paid by LEESON
owners to LEESON officers at closing, to provide for appropriate
reserves for warranty and insurance, and to provide for various other
assumed liabilities.
(8) To reflect repayment of LEESON debt and additional REGAL-BELOIT debt
obtained to effect the LEESON acquisition.
(9) To eliminate the shareholders' investment of LEESON.
</FN>
</TABLE>
<PAGE>26
Schedule II
REGAL-BELOIT CORPORATION AND
LEESON ELECTRIC CORPORATION
Pro-Forma Combined Statements of Income
Unaudited ($000)
The following pro-forma combined Statements of Income for the year ended
December 31, 1999 were prepared as if the acquisition of LEESON Electric
Corporation was effective as of January 1, 1999. The pro-forma statements of
income include the historical results of LEESON giving effect to such
acquisition under the purchase method of accounting. The pro-forma Statements
of Income are not necessarily indicative of the results that actually would
have occurred if the acquisition had been effective on the date indicated or
of the results that may be obtained in the future. (See notes below) These
pro-forma statements should be read in conjunction with the historical
statements of REGAL-BELOIT and LEESON.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
---------------------------------------------------------------
Historical Pro-Forma
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
REGAL-BELOIT LEESON Electric Adjustments
Corporation Corporation Add (Deduct) Combined
------------- --------------- --------------- -------------
Net Sales $ 544,632 $ 170,338 $ (1,748) (1) $ 713,222
Cost of Sales 393,172 117,335 (3,248) (2) 507,259
------------- ---------- ----------- -------------
Gross Profit 151,460 53,003 1,500 205,963
Operating Expenses 79,020 38,233 (1,639) (3) 115,614
------------- ---------- ----------- -------------
Income from Operations 72,440 14,770 3,139 90,349
Net Interest Expense 9,186 3,259 18,441 (4) 30,886
Other Expense 0 165 --- 165
------------- ---------- ----------- -------------
Income Before Taxes 63,254 11,346 (15,302) 59,298
Provision for Income Taxes 25,187 1,007 (2,510) (5) 23,684
------------- ---------- ----------- -------------
Net Income $ 38,067 $ 10,339 $ (12,792) $ 35,614
============= ========== =========== =============
Net Income Per Share $ 1.80 $ 1.68
============= =============
Average Shares Outstanding-Diluted 21,169,580 21,169,580
============= =============
<FN>
Notes to Pro-Forma Combined Condensed Balance Sheets
The above pro-forma statements do not reflect the following: Synergies
(examples: cost reduction or improvement opportunities, additional sales
opportunities) projected by management in the future as a result of the LEESON
acquisition; the cash flow benefits of the acquisition being made with a
338(h)(10) election under the Internal Revenue Code, which makes goodwill tax
deductible over 15 years and should result in reduced debt and interest
expenses in each future year. (These two items are forward looking statements.
Please see CAUTIONARY STATEMENT on page 3 herein).
(1) To eliminate intercompany sales between REGAL-BELOIT and LEESON.
(2) To eliminate intercompany sales between REGAL-BELOIT and LEESON and to
reflect reduced depreciation expense under purchase accounting rules.
(3) To eliminate costs for non-continuing employees and assets not
acquired, such as owner salaries and other compensation, aircraft-
related expenses, special compensation in contemplation of the future
sale of LEESON, and the like, ($5,960). To reflect reduced
depreciation expense under purchase accounting, ($500). To reflect
the amortization of goodwill (40 year amortization), $4,186 and loan
financing fees and expenses (5.25 year amortization), $635.
(4) To reflect: interest expense on the loans made to finance the
acquisition, $20,450; the impact of a higher overall interest rate on
existing debt, $1,250; and the elimination of LEESON interest expense,
($3,259). An interest rate of 7.87% was utilized. An interest rate
change of .125% would change interest expense by $495 annually.
(5) To reflect a full 38% effective tax rate on LEESON pre-tax income as
LEESON was a Subchapter S corporation and recorded no federal income
tax and the tax impact of all pro-forma adjustments, including on
goodwill which is tax deductible over 15 years under the aforementioned
338(h)(10) election under the Internal Revenue Code.
</FN>
</TABLE>
<PAGE>27
Schedule III
REGAL-BELOIT CORPORATION AND
LEESON ELECTRIC CORPORATION
Pro-Forma Combined Statements of Income
Unaudited ($000)
The following pro-forma combined Statements of Income for the nine months
ended September 30, 2000 were prepared as if the acquisition of LEESON
Electric Corporation was effective as of January 1, 1999. The pro-forma
statements of income include the historical results of LEESON giving effect
to such acquisition under the purchase method of accounting. The pro-forma
Statements of Income are not necessarily indicative of the results that
actually would have occurred if the acquisition had been effective on the date
indicated or of the results that may be obtained in the future. (See notes
below) These pro-forma statements should be read in conjunction with the
historical statements of REGAL-BELOIT and LEESON.
<TABLE>
<CAPTION>
9 Months Ended September 30, 2000
---------------------------------------------------------------
Historical Pro-Forma
----------------------------- -------------------------------
<S> <C> <C> <C> <C>
REGAL-BELOIT LEESON Electric Adjustments
Corporation Corporation Add (Deduct) Combined
------------ --------------- ----------- ------------
Net Sales $ 422,563 $ 135,178 $ (852) (1) $ 556,889
Cost of Sales 302,795 91,654 (2,031) (2) 392,418
----------- ---------- ---------- ------------
Gross Profit 119,768 43,524 1,179 164,471
Operating Expenses 66,798 38,504 (8,447) (3) 96,855
----------- ---------- ---------- ------------
Income from Operations 52,970 5,020 9,626 67,616
Net Interest Expense 7,114 2,476 13,824 (4) 23,414
Other Expense 0 358 --- 358
----------- ---------- ---------- ------------
Income Before Taxes 45,856 2,186 (4,198) 43,844
Provision for Income Taxes 18,533 634 (1,399) (5) 17,768
----------- ---------- ---------- ------------
Net Income $ 27,323 $ 1,552 $ (2,799) $ 26,076
=========== ========== ==========
Net Income Per Share $ 1.30 $ 1.24
Average Shares Outstanding-Diluted 21,005,023 21,005,023
=========== ===========
Notes to Pro-Forma Combined Condensed Balance Sheets
The above pro-forma statements do not reflect the following: Synergies
(examples: cost reduction or improvement opportunities, additional sales
opportunities) projected by management in the future as a result of the LEESON
acquisition; the cash flow benefits of the acquisition being made with a
338(h)(10) election under the Internal Revenue Code, which makes goodwill tax
deductible over 15 years and should result in reduced debt and interest
expenses in each future year. (These two items are forward looking
statements. Please see CAUTIONARY STATEMENT on page 3 herein).
(1) To eliminate intercompany sales between REGAL-BELOIT and LEESON.
(2) To eliminate the cost of intercompany sales between REGAL-BELOIT and
LEESON and to reflect reduced depreciation expense under purchase
accounting rules.
(3) To eliminate costs for non-continuing employees and assets not
acquired, such as owner salaries and other compensation,
aircraft-related expenses, special compensation in contemplation
of the future sale of LEESON, stock appreciation rights paid at
the closing, and the like, ($11,670). To reflect reduced
depreciation expense under purchase accounting, ($393). To reflect
the amortization of goodwill (40 year amortization), $3,140 and loan
financing fees and expenses (5.25 year amortization), $476.
(4) To reflect: interest expense on the loans made to finance the
acquisition, $15,350; the impact of a higher overall interest rate
on existing debt, $950; and the elimination of LEESON interest
expense, ($2,476). An interest rate of 7.87% was utilized. An
interest rate change of .125% would change interest expense by $495
annually.
(5) To reflect a full 38% effective tax rate on LEESON pre-tax income as
LEESON was a Subchapter S corporation and recorded no federal income
tax and the tax impact of all pro-forma adjustments, including on
goodwill which is tax deductible over 15 years under the
aforementioned 338(h)(10) election under the Internal Revenue Code.
<PAGE>28
</TABLE>
