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, 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.
20,988,905 Shares, Common Stock, $.01 Par Value
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<PAGE> 1
REGAL-BELOIT CORPORATION
FORM 10-Q
For Quarter Ended June 30, 2000
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Balance Sheets. . . . . . . . . . 3
Statements of Income. . . . . . . . . . . . 4
Condensed Statements of Cash Flows. . . . . 5
Notes to Financial Statements . . . . . . . 6 - 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . 7 - 8
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 6 - Reports on Form 8-K . . . . . . . . . . . . 9
Signature . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE> 2
PART I
FINANCIAL INFORMATION
1. Financial Statements
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REGAL-BELOIT CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
(From Audited
ASSETS (Unaudited) Statements)
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June 30, 2000 Dec. 31, 1999
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<S> <C> <C>
Current Assets:
Cash and Cash Equivalents . . . . . . . . . $ 3,365 $ 1,729
Receivables, less reserves of $1,981 in 2000
and $1,758 in 1999 . . . . . . . . . . . 83,683 76,374
Inventories. . . . . . . . . . . . . . . . . 104,363 103,966
Other Current Assets . . . . . . . . . . . . 16,935 16,179
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Total Current Assets. . . . . . . . . . . 208,346 198,248
Property, Plant and Equipment at Cost. . . . . 275,076 267,122
Less - Accumulated Depreciation. . . . . . . (122,919) (115,749)
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Net Property, Plant and Equipment . . . . 152,157 151,373
Goodwill . . . . . . . . . . . . . . . . . . . 149,500 143,314
Other Noncurrent Assets. . . . . . . . . . . . 12,458 12,165
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Total Assets. . . . . . . . . . . . . . . $522,461 $505,100
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts Payable . . . . . . . . . . . . . . $ 27,989 $ 28,382
Federal and State Income Taxes . . . . . . . 2,151 352
Other Current Liabilities. . . . . . . . . . 46,106 38,144
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Total Current Liabilities. . . . . . . 76,246 66,878
Long-Term Debt . . . . . . . . . . . . . . . . 143,063 148,166
Deferred Income Taxes. . . . . . . . . . . . . 37,072 37,090
Other Noncurrent Liabilities . . . . . . . . . 307 340
Shareholders' Investment:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 20,988,905 issued in 2000 and
20,985,905 issued in 1999. . . . . . . 210 210
Additional Paid-In Capital . . . . . . . . . 41,606 41,585
Retained Earnings. . . . . . . . . . . . . . 225,128 211,287
Accumulated Other Comprehensive Income (Loss) (1,171) (456)
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Total Shareholders' Investment. . . . . . 265,773 252,626
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Total Liabilities and Shareholders' Investment. . . $522,461 $505,100
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<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>3
REGAL-BELOIT CORPORATION
STATEMENTS OF INCOME
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
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Three Months Ended Six Months Ended
June 30, June 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net Sales . . . . . . . . $ 143,439 $ 137,063 $ 286,068 $ 264,323
Cost of Sales . . . . . . 102,558 99,434 204,415 190,129
----------- ---------- ---------- ----------
Gross Profit . . . . . 40,881 37,629 81,653 74,194
Operating Expenses . . . . 22,668 19,110 45,353 38,269
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Income from Operations 18,213 18,519 36,300 35,925
Interest Expense . . . . . 2,362 2,299 4,718 4,585
Interest Income . . . . . 59 51 76 93
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Income Before Taxes . . 15,910 16,271 31,658 31,433
Provision for Income Taxes . 6,445 6,506 12,779 12,590
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Net Income . . . . . . $ 9,465 $ 9,765 $ 18,879 $ 18,843
=========== ========== ========== ==========
Per Share of Common Stock:
Earnings Per Share $.45 $.47 $.90 $.90
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Earnings Per
Share - Assuming Dilution $.45 $.46 $.90 $.89
=========== ========== ========== ==========
Cash Dividends Declared $.12 $.12 $.24 $.24
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Average Number of
Shares Outstanding 20,988,169 20,952,700 20,987,235 20,942,910
========== ========== ========== ==========
Average Number of
Shares - Assuming Dilution 20,988,169 21,189,977 21,010,737 21,155,741
========== ========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>4
REGAL-BELOIT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
(Unaudited)
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Six Months Ended June 30,
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 18,879 $ 18,843
Adjustments to reconcile net income to net cash provided
from operating activities, net of acquisitions:
Depreciation, amortization and deferred income taxes. 11,705 11,533
Change in assets and liabilities:
Current assets, other than cash . . . . . . . . . . (7,446) (480)
Current liabilities, other than notes payable . . . 4,137 123
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Net cash provided from operating activities . . $ 27,275 $ 30,019
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net of retirements (7,745) (4,281)
Sale of property, plant and equipment. . . . . . 2,653 ----
Business acquisitions. . . . . . . . . . . . . . (10,030) (33,901)
Other, net . . . . . . . . . . . . . . . . . . . (435) (340)
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Net cash used in investing activities . . . . (15,557) (38,522)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of (additions to) long-term debt, net. (5,048) 12,979
Dividends to shareholders. . . . . . . . . . . . (5,037) (5,023)
Other, net . . . . . . . . . . . . . . . . . . . 21 500
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Net cash (used in) provided from financing activities . (10,064) 8,456
EFFECT OF EXCHANGE RATE ON CASH (18) (32)
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Net increase (decrease) in cash and cash equivalents 1,636 (79)
Cash and cash equivalents at beginning of period 1,729 3,548
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Cash and cash equivalents at end of period . . . $ 3,365 $ 3,469
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest. . . . . . . . . . . . . . . . . . . $ 4,740 $ 4,920
Income Taxes. . . . . . . . . . . . . . . . . $ 10,691 $ 11,916
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE> 5
REGAL-BELOIT CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 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 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, 2000 December 31, 1999
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Raw Material 13% 14%
Work-in Process 22% 26%
Finished Goods 65% 60%
3. ACQUISITIONS
The financial statements on pages 3-5 incorporate the results of operations
and the assets and liabilities of Thomson Technology Inc. ("TTI") after
June 29, 2000, the date TTI was acquired by the Company at a purchase price of
approximately $10,000,000. TTI is a Vancouver, BC, Canada based manufacturer
of power systems controls for the worldwide power generation market. The
referenced financial statements also include 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. Neither TTI's nor Lincoln Motors'
operating results and assets and liabilities, either singularly or in
combination, are material to the operating results or financial position of
the Company.
4. COMPREHENSIVE INCOME
The Company's comprehensive income is solely impacted by the amount of the
cumulative translation adjustment recorded to shareholders' equity. For the
quarter ended June 30, 2000, the impact was $468,000 of expense resulting in
net comprehensive income of $8,997,000 for the quarter. The impact in the
second quarter of 1999 was $306,000 of expense resulting in net comprehensive
income of $9,459,000. In the first six months of 2000, the impact is an
expense of $715,000 resulting in net comprehensive income of $18,164,000.
The impact in the first six months of 1999 was $789,000 of expense resulting
in net comprehensive income of $18,054,000.
<PAGE> 6
5. BUSINESS SEGMENTS
The Company operates two strategic businesses that are reportable segments:
the Mechanical Group and the Electrical Group.
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (continued)
(In Thousands of Dollars)
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Mechanical Group Electrical Group
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Second Quarter Six Months Second Quarter Six Months
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2000 1999 2000 1999 2000 1999 2000 1999
------- ------ ------- ------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $62,889 65,509 126,279 129,004 80,550 71,554 159,789 $135,319
Income from Operations $ 8,085 9,187 16,897 18,259 10,128 9,332 19,403 $ 17,666
Income from Operations
as a % of Net Sales 12.9% 14.0% 13.4% 14.2% 12.6% 13.0% 12.1% 13.1%
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
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Condition and Results of Operations
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RESULTS OF OPERATIONS
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The Company's second quarter 2000 net sales of $143,439,000 were 4.7% higher
than net sales of $137,063,000 in the second quarter of 1999. For the six
months ended June 30, 2000, net sales were $286,068,000, 8.2% higher than
$264,323,000 in the first six months of 1999. The increased sales in both
the second quarter and first half of 2000 were due primarily to the additional
sales from the May 1999 acquisition of Lincoln Motors. Sales of the Company's
Mechanical Group decreased 4.0% and 2.1% in the second quarter and first half
of 2000 from the comparable periods of 1999, respectively. Continued softness
in the markets served by the Mechanical Group accounted for the lower sales.
Electrical Group sales, excluding Lincoln Motors, increased nearly 5% from
comparable 1999 in both the second quarter and first half of 2000. Growth in
the Marathon Electric motors product lines was the primary reason for the
higher sales. (See Note 5 for business segment data.)
Gross profit for the Company was $40,881,000 in the second quarter, an 8.6%
increase from second quarter 1999, and was $81,653,000 for the first half of
2000, 10.1% higher than comparable 1999. Gross profit margin improved to
28.5% in the second quarter from 27.5% a year previously, while the gross
profit margin in the first half of 2000 of 28.5% increased from 28.1% in
comparable 1999. Improvement in Electrical Group gross profit margin, due
primarily to higher sales volumes, accounted for the increased margin in both
time periods.
Operating expenses increased 18.6% to $22,668,000 in the second quarter of
2000 from $19,110,000 a year earlier, and 18.5% to $45,353,000 in the first
half of 2000 from $38,269,000 in the first six months of 1999. As a percent
of net sales, second quarter and first half 2000 operating expenses were 15.8%
and 15.9%, respectively, as compared to 13.9% and 14.5% in the comparable
periods of 1999. The impact of the Lincoln Motors acquisition in May 1999
and higher freight costs in 2000 due to increased fuel prices were the primary
reasons for the higher operating expenses in dollars and as a percent of sales.
Income from operations for the Company was $18,213,000 (12.7% of sales) in the
second quarter of 2000, a 1.7% decrease from $18,519,000 (13.5% of sales) last
year. Comparable figures for the first six months were $36,300,000 (12.7% of
sales) and $35,925,000 (13.6% of sales), a 1.0% increase from 1999. Increased
operating expenses as a percent of sales more than offset improved gross
profit margins, resulting in the reduced operating income margins.
<PAGE> 7
Interest expense was $2,362,000 in the second quarter and $4,718,000 in the
first half of 2000, increases of 2.7% and 2.9%, respectively, from $2,299,000
and $4,585,000 in the comparable periods of 1999. The increases were the
result of increased interest rates in the U.S. partially offset by lower
average long-term debt outstanding. The Company's effective tax rates in
2000 are up slightly from the rates in the comparable periods of 1999 due
primarily to a slightly higher effective overall state tax rate.
Net income earned in 2000 was $9,465,000 for the second quarter and
$18,879,000 for the first half, down 3.1% for the second quarter and virtually
unchanged in the first half, respectively, from $9,765,000 and $18,843,000
earned in the comparable periods last year. Net income margin was 6.6% in
both the second quarter and first half of 2000 versus 7.1% in the same periods
of 1999, for the reasons discussed above. Earnings per share (diluted) were
$.45 versus $.46 for the second quarters of 2000 and 1999, respectively, and
$.90 versus $.89 for the first halves of 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital at June 30, 2000 was $132,100,000 a .6% increase from
$131,370,000 at December 31, 1999. The slight increase was due to higher
accounts receivable for the most part offset by increased accrued income taxes
and other current liabilities.
The Company's cash flow from operations in the second quarter of 2000 was
$14,653,000 compared to $19,987,000 in 1999. Lower accounts receivable and
inventory reductions in the second quarter this year versus last year explain
the reduced operating cash flow. Six months 2000 cash flow from operations
of $27,275,000 compares to $30,019,000 in the same period of 1999. Free cash
flow in the first half of 2000, which is after subtracting $7,745,000 of
capital expenditures and $5,037,000 of dividends, was $14,493,000, below the
$20,715,000 of comparable 1999. The 2000 year-to-date free cash flow was used
for debt retirement and to fund the approximately $10,000,000 purchase price
of Thomson Technology Inc. on June 29, 2000. (See Note 3.) Outstanding
commitments for future capital expenditures at June 30, 2000 was approximately
$3,330,000.
Outstanding long-term debt at June 30, 2000 was $143,063,000, an increase of
$974,000 from March 31, 2000 but $5,103,000 lower than at December 31, 1999.
Approximately $9,000,000 of debt reduction in April and May 2000 was offset by
the borrowing of the TTI acquisition purchase price discussed above. The
Company's funded debt to EBITDA ratio at the end of the quarter was 1.49:1
while the capitalization ratio was 35.0%. The Company maintains a
$190,000,000 unsecured long-term revolving credit facility (the "Facility")
under which $142,000,000 of debt was outstanding at June 30, 2000. Including
approximately $2,000,000 of standby letters of credit, the Company had
$46,000,000 of available borrowing capacity under the Facility at June 30,
2000. Additionally, the Company maintains a short-term demand credit line of
$10,000,000 against which there were no borrowings at June 30, 2000.
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
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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
<PAGE> 8
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.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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(a) The Annual Meeting of shareholders of Regal-Beloit Corporation was held
on April 19, 2000.
(b) The terms of Directors John M. Eldred, John A. McKay, and G. Frederick
Kasten, Jr., J. Reed Coleman, Frank E. Bauchiero and Stephen N. Graff were
continued.
(c) Matters voted on at the Annual Meeting and the results of each vote were
as follows:
(1) Elect three Class A Directors for a term of three years.
For Withheld
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James L. Packard 17,589,110 160,965
Henry W. Knueppel 17,588,881 161,194
Paul W. Jones 17,585,195 164,880
(2) Ratify the appointment of Arthur Andersen LLP as independent public
accountants for the Company for the year ending December 31, 2000.
For Against Abstain
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17,703,554 36,882 9,639
Item 6. Exhibits and Reports on Form 8-K
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There were no exhibits or reports on Form 8-K filed during the quarter ended
June 30, 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
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Kenneth F. Kaplan
Vice President - Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)
DATE: July 28, 2000
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<PAGE> 9
