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 September 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 (IRS Employer Identification Number)
incorporation or organization)
200 State Street, Beloit, Wisconsin 53511-6254
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(608) 364-8800
(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
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Indicate the number of shares outstanding of each of the issuers' classes of
common stock as of the latest practicable date.
20,994,963 Shares, Common Stock, $.01 Par Value
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<PAGE>1
REGAL-BELOIT CORPORATION
FORM 10-Q
For Quarter Ended September 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 - 9
PART II - OTHER INFORMATION
Item 6 - Reports on Form 8-K . . . . . . . . . . . . 9
Signature . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE>2
PART I
FINANCIAL INFORMATION
1. Financial Statements
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<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
(From Audited
ASSETS (Unaudited) Statements)
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Sept. 30, 2000 Dec. 31, 1999
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<S> <C> <C>
Current Assets:
Cash and Cash Equivalents . . . . . . . . . . . . . . $ 13,328 $ 1,729
Receivables, less reserves of $2,657 in 2000
and $1,758 in 1999 . . . . . . . . . . . . . . . . 104,250 76,374
Inventories. . . . . . . . . . . . . . . . . . . . . . . 147,486 103,966
Other Current Assets . . . . . . . . . . . . . . . . . . 15,942 16,179
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Total Current Assets. . . . . . . . . . . . . . . . 281,006 198,248
Property, Plant and Equipment at Cost. . . . . . . . . . 313,913 267,122
Less - Accumulated Depreciation. . . . . . . . . . . . (127,175) (115,749)
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Net Property, Plant and Equipment . . . . . . . . . 186,738 151,373
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . 317,299 143,314
Other Noncurrent Assets. . . . . . . . . . . . . . . . . 16,733 12,165
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Total Assets. . . . . . . . . . . . . . . . . . . . $ 801,776 $ 505,100
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts Payable . . . . . . . . . . . . . . . . . . . $ 29,677 $ 28,382
Federal and State Income Taxes . . . . . . . . . . . . 2,326 352
Other Current Liabilities. . . . . . . . . . . . . . . 64,143 38,144
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Total Current Liabilities. . . . . . . . . . . . 96,146 66,878
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . 397,038 148,166
Deferred Income Taxes. . . . . . . . . . . . . . . . . . 37,064 37,090
Other Noncurrent Liabilities . . . . . . . . . . . . . . 217 340
Shareholders' Investment:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 20,994,963 issued in 2000 and
20,985,905 issued in 1999. . . . . . . . . . . . 210 210
Additional Paid-In Capital . . . . . . . . . . . . . . 41,666 41,585
Retained Earnings. . . . . . . . . . . . . . . . . . . 231,053 211,287
Accumulated Other Comprehensive Income (Loss). . . . . (1,618) (456)
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Total Shareholders' Investment. . . . . . . . . . . 271,311 252,626
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Total Liabilities and Shareholders' Investment. . . $ 801,776 $ 505,100
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<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>3
<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
STATEMENTS OF INCOME
(In Thousands of Dollars, Except Per Share Data)
(Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . . $ 136,495 $ 142,292 $ 422,563 $ 406,615
Cost of Sales . . . . . . . . . . . 98,380 103,564 302,795 293,693
---------- ---------- ---------- ----------
Gross Profit . . . . . . . . . . 38,115 38,728 119,768 112,922
Operating Expenses . . . . . . . . . 21,445 20,536 66,798 58,805
---------- ---------- ---------- ----------
Income from Operations . . . . . 16,670 18,192 52,970 54,117
Interest Expense . . . . . . . . . . 2,514 2,439 7,232 7,024
Interest Income . . . . . . . . . . 42 55 118 148
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Income Before Taxes . . . . . . . 14,198 15,808 45,856 47,241
Provision for Income Taxes . . . . . 5,754 6,341 18,533 18,931
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Net Income . . . . . . . . . . . $ 8,444 $ 9,467 $ 27,323 $ 28,310
========== ========== ========== ==========
Per Share of Common Stock:
Earnings Per Share . . . . . . . $.40 $.45 $1.30 $1.35
========== ========== ========== ==========
Earnings Per . . . . . . . . . .
Share - Assuming Dilution. . $.40 $.45 $1.30 $1.34
========== ========== ========== ==========
Cash Dividends Declared . . . . . $.12 $.12 $.36 $.36
========== ========== ========== ==========
Average Number of
Shares Outstanding . . . . . . . 20,993,595 20,972,769 20,989,370 20,952,972
========== ========== ========== ==========
Average Number of
Shares - Assuming Dilution . . . 20,993,595 21,204,239 21,005,023 21,171,907
========== ========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>4
<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
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Nine Months Ended Sept. 30,
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,323 $ 28,310
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation, amortization and deferred income taxes. . . . 17,518 17,277
Change in assets and liabilities:
Current assets, other than cash . . . . . . . . . . . . . (1,755) 5,313
Current liabilities, other than notes payable . . . . . . (5,460) 4,535
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Net cash provided from operating activities . . . . . 37,626 55,435
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net of retirements (12,325) (6,606)
Business acquisitions. . . . . . . . . . . . . . . . . . . . . (270,605) (33,901)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 2,196 (445)
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Net cash used in investing activities . . . . . . . . . . . (280,734) (40,952)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to (repayment of) long-term debt . . . . . . . . . . 248,928 (6,032)
Additions to short-term debt . . . . . . . . . . . . . . . . . 13,284 ----
Dividends to shareholders. . . . . . . . . . . . . . . . . . . (7,556) (7,540)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 82 599
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Net cash provided from (used in) financing activities . . . 254,738 (12,973)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (31) (14)
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Net increase in cash and cash equivalents . . . . . . . . . . 11,599 1,496
Cash and cash equivalents at beginning of period . . . . . . . 1,729 3,548
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Cash and cash equivalents at end of period . . . . . . . . . . $ 13,328 $ 5,044
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,516 $ 7,210
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . $ 15,505 $ 17,881
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>5
REGAL-BELOIT CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
1. BASIS OF PRESENTATION
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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. All adjustments which management believes
are necessary to a fair statement of the results for the interim periods
presented have been reflected and are of a normal recurring nature. 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
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Cost for approximately 90% 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:
<TABLE>
<CAPTION>
<S> <C> <C>
Sept. 30, 2000 December 31, 1999
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Raw Material 15% 14%
Work-in Process 19% 26%
Finished Goods 66% 60%
</TABLE>
3. ACQUISITIONS
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On September 29, 2000, the Company acquired 100% of the stock of Leeson
Electric Corporation, a private company, for approximately $260,000,000 in
cash. The acquisition of Leeson had no impact on the third quarter 2000
Statement of Income. Leeson is a full line North American manufacturer and
marketer of electric motors and related products. Its sales for the 12 months
ended June 30, 2000 were $175,000,000. The Leeson acquisition was financed
with loans obtained from a new $450,000,000, 5.25-year, multi-bank credit
facility the Company entered into on September 28, 2000. (See Liquidity and
Capital Resources under Item 2.)
Leeson's assets and liabilities have been included in the September 30, 2000
Consolidated Balance Sheet on a preliminary valuation basis. Under the
purchase accounting rules of generally accepted accounting principles, all
assets and liabilities will be valued at fair market value. The valuation of
assets and liabilities has not yet been completed. Accordingly, the value
ascribed to goodwill is an interim value that will likely change as valuation
work is completed in the coming months.
The following are the preliminary values of the significant Leeson assets and
liabilities included in the Condensed Balance Sheet at September 30, 2000:
<TABLE>
<CAPTION>
<S> <C>
Receivables $ 26,619,000
Inventories $ 42,200,000
Net Property, Plant and Equipment $ 34,610,000
Goodwill $ 168,530,000
Current Liabilities $ 16,335,000
</TABLE>
The financial statements on pages 3-5 also 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
<PAGE>6
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.
4. COMPREHENSIVE INCOME
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The Company's comprehensive income is solely impacted by the amount of the
cumulative translation adjustments recorded to shareholders' equity. For the
quarter ended September 30, 2000, the impact was $447,000 of expense resulting
in net comprehensive income of $7,997,000 for the quarter. The impact in the
third quarter of 1999 was $515,000 of income resulting in net comprehensive
income of $9,982,000. In the first nine months of 2000, the impact is an
expense of $1,163,000 resulting in net comprehensive income of $26,160,000.
The impact in the first nine months of 1999 was $273,000 of expense resulting
in net comprehensive income of $28,037,000.
5. BUSINESS SEGMENTS
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The Company operates two strategic businesses that are reportable segments:
the Mechanical Group and the Electrical Group.
<TABLE>
<CAPTION>
(In Thousands of Dollars)
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Mechanical Group Electrical Group
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Third Quarter Nine Months Third Quarter Nine Months
---------------- ----------------- --------------- ------------------
2000 1999 2000 1999 2000 1999 2000 1999
------- ------ ------- ------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $58,013 61,439 184,292 190,443 78,482 80,853 238,271 $216,172
Income from Operations $ 6,586 8,452 23,483 26,711 10,084 9,740 29,487 $ 27,406
Income from Operations
as a % of Net Sales 11.4% 13.8% 12.7% 14.0% 12.8% 12.0% 12.4% 12.7%
</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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Net sales of the Company in third quarter 2000 were $136,495,000, a 4.1%
decrease from $142,292,000 in third quarter 1999. Mechanical Group third
quarter 2000 sales were down 5.6% from comparable 1999 due to broad-based
weakness in the agricultural equipment, transportation, marine, construction
equipment and industrial machinery markets. The diversity of markets served
by the Mechanical Group is considered by Management to be a key asset of the
Company; however, this unusual broad-based slowdown could not be overcome by
new products introduced and the market penetration that the Company achieved.
Electrical Group sales in third quarter 2000 were 2.9% below comparable 1999
sales, primarily as a result of the same factors as for the Mechanical Group
and to reduced sales to the heating, ventilating and air conditioning (HVAC)
market due to mild spring and summer months. Much of the general market
reduction was offset through better market penetration by the Electrical
Group's distributor network. (See Note 5. to Financial Statements for
business segment data.)
The Company's net sales for nine months 2000 were $422,563,000, a 3.9%
increase from $406,615,000 in the previous year's nine months. While
Mechanical Group nine months 2000 sales were 3.2% below comparable 1999
sales, Electrical Group sales for the same period increased 10.2% from the
prior year. Sales of the Electrical Group's electric motors, other than
its Lincoln motors product line, benefited substantially from several growth
initiatives that resulted in approximately 5% internal growth from comparable
<PAGE>7
1999. This growth plus a full year of sales of the Electrical Group's Lincoln
motors products yielded the overall 10.2% sales increase over nine months 1999.
Gross profit for the Company was $38,115,000 in the third quarter and
represented 27.9% of net sales, as compared to $38,728,000 and 27.2% a year
previously. This increase in gross profit margin resulted primarily from
increased Electrical Group gross profit margin during the quarter due to
favorable product mix of sales and manufacturing variances. For nine months
2000, Company gross profit of $119,768,000 increased 6.1% from comparable
1999's $112,922,000 due primarily to increased sales. Gross profit margin for
nine months 2000 was 28.3% as compared to 27.8% in comparable 1999, again due
to increased Electrical Group gross profit margin, for the same reasons as for
third quarter 2000 discussed above.
Operating expenses as a percent of net sales increased to 15.7% in third
quarter 2000 from 14.4% a year earlier. For nine months year-to-date, the
same percentages for 2000 and 1999 were 15.8% and 14.5%, respectively. The
increases in both time periods were due primarily to higher freight, fuel and
other distribution costs this year versus last year. Both the Mechanical and
Electrical Groups experienced higher operating expenses as a percent of net
sales for both time periods.
Income from operations for the Company was $16,670,000 (12.2% of sales) in
third quarter 2000, an 8.4% decrease from $18,192,000 (12.8% of sales) a year
ago. For nine months year-to-date, the comparable numbers were $52,970,000
(12.5% of sales) in 2000, a 2.1% decrease from $54,117,000 (13.3% of sales)
in 1999. The increased operating expenses as a percent of net sales more than
offset the improvement in gross profit margins in both time periods.
Interest expense was $2,514,000 in the third quarter and $7,232,000 for nine
months 2000, increases of 3.1% and 3.0% from comparable 1999 interest expense.
Higher interest rates in the U.S. led to increased interest expense which was
partly offset by lower average outstanding long-term debt. The Company's
effective tax rate in 2000 is slightly higher than in 1999 due primarily to a
slight increase in the effective overall state tax rate.
Net income earned in 2000's third quarter of $8,444,000 was 10.8% lower than
net income of $9,467,000 in comparable 1999. Nine months 2000 net income of
$27,323,000 reflects a 3.5% decrease from year-to-date 1999 net income of
$28,310,000. Earnings per share (diluted) were $.40 versus $.45 for the third
quarters of 2000 and 1999, respectively, and $1.30 versus $1.34 for nine
months 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital at September 30, 2000 was $184,860,000, a 41% increase from
$131,370,000 at December 31, 2000, due primarily to the assets and liabilities
acquired in the Leeson Electric acquisition. (See Note 3. to Financial
Statements.)
The Company's cash flow from operations in the third quarter 2000 was
$10,351,000. Coupled with $264,802,000 in cash flow from financing activities
in the quarter, these two positive cash amounts were used to fund the Leeson
Electric acquisition and capital expenditures during the third quarter, which
were reflected in cash flows from investing activities. Outstanding
commitments at September 30, 2000 for future capital expenditures were
approximately $825,000.
Outstanding long-term debt at September 30, 2000 was $397,038,000, an
increase of $253,975,000 from June 30, 2000 and $248,872,000 from
December 31, 1999. The increase was due entirely to borrowings needed
to fund the Leeson Electric acquisition. On September 28, 2000, the Company
entered into a new $450,000,000, unsecured, 5.25 year, revolving credit
facility with 20 banks (the "Facility") under which $396,000,000 of debt was
outstanding at September 30, 2000. Including approximately $2,000,000 of
standby letters of credit, the Company had $52,000,000 of available borrowing
capacity under the Facility at September 30, 2000. The Facility provides
for interest to be paid at an interest rate which varies based upon LIBOR
(London Interbank Offered Rate) plus a variable margin based upon the
Company's leverage ratio at the end of a calendar quarter. The Company's
initial interest rate under the Facility at September 30, 2000 was
approximately 7.9%. The Facility also has several financial covenants with
<PAGE>8
which the Company is in compliance. 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, to make selected
acquisitions and to accomplish the stock repurchase program approved by the
Board of Directors in 2000.
CAUTIONARY STATEMENT
The following is a cautionary statement made under the Private Securities
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Litigation Reform Act of 1995:
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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.
PART II
OTHER INFORMATION
Item 6. Reports on Form 8-K
-------------------
On August 10, 2000, the Company filed a current report on Form 8-K pertaining
to the August 8, 2000, announcement of its Board of Directors' authorization
of a Share Repurchase Program.
SIGNATURE
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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: November 3, 2000
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<PAGE>9
