-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FK08KFMAqElE630HC6TyicDwS1C8na93oHd90oHoSYiuxe3xBuHCPye/PXGLNLVX Yjx0F4lFnJEMnovYLcjrww== 0000082811-00-000013.txt : 20000316 0000082811-00-000013.hdr.sgml : 20000316 ACCESSION NUMBER: 0000082811-00-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGAL BELOIT CORP CENTRAL INDEX KEY: 0000082811 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 390875718 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07283 FILM NUMBER: 569839 BUSINESS ADDRESS: STREET 1: 200 STATE ST CITY: BELOIT STATE: WI ZIP: 53511 BUSINESS PHONE: 6083648800 MAIL ADDRESS: STREET 1: 200 STATE STREET CITY: BELOIT STATE: WI ZIP: 53511-6254 FORMER COMPANY: FORMER CONFORMED NAME: BELOIT TOOL CORP DATE OF NAME CHANGE: 19730522 FORMER COMPANY: FORMER CONFORMED NAME: RECORD A PUNCH CORP DATE OF NAME CHANGE: 19690320 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 Commission file number 1-7283 -------------------------------------- REGAL-BELOIT CORPORATION (Exact Name of Registrant as Specified in Its Charter) Wisconsin 39-0875718 (State of Incorporation) (I.R.S. Employer Identification No.) 200 State Street Beloit, Wisconsin 53511-6254 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (608) 364-8800 =============================================================================== Securities registered pursuant to Section 12 (b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - ----------------------------- -------------------------------- Common Stock ($.01 Par Value) American Stock Exchange Securities registered pursuant to Section 12 (g) of the Act . . None (Title of Class) ============================================================================== 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 10, 2000 was approximately $351,841,000. On March 10, 2000 the registrant had outstanding 20,985,905 shares of common stock, $.01 par value, which is registrant's only class of common stock. Documents Incorporated by Reference ----------------------------------- Form 10-K Documents Reference - --------- --------- Annual Report to Shareholders for Year Ended December 31, 1999 . . . I, II, IV Proxy Statement for Annual Shareholders Meeting to be Held on April 19, 2000 . . . III 1 REGAL-BELOIT CORPORATION ------------------------
Index to Annual Report on Form 10-K For the Year Ended December 31, 1999 Page ---- PART I - ------ Item 1. Business 3 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters To A Vote of Security Holders 6 PART II - ------- Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters 6 Item 6. Selected Financial Data 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 8. Financial Statements and Supplementary Data 7 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 7 PART III - -------- Item 10. Directors and Executive Officers of the Registrant 7 Item 11. Executive Compensation 8 Item 12. Security Ownership of Certain Beneficial Owners and Management 8 Item 13. Certain Relationships and Related Transactions 8 PART IV - ------- Item 14. Financial Statements, Financial Statement Schedule, Exhibits and Reports on Form 8-K 9 Signatures 10
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 Annual Report on Form 10-K or incorporated by reference 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 filed with the Securities and Exchange Commission. 2 PART I ITEM 1. Business - ------- -------- General Development of Business - ------------------------------- Regal-Beloit Corporation is a Wisconsin corporation founded in 1955. The Company's initial business was the production of special metalworking taps. Through 34 acquisitions and internal growth, the Company has become a prominent manufacturer of a diversified line of mechanical and electrical motion control products. The Company's mechanical products are manufactured by its Mechanical Group and include standard and custom worm gear, bevel gear, helical gear and concentric shaft gearboxes; marine and high-performance after-market automotive transmissions; custom gearing; gear motors; manual valve actuators; and perishable, high speed steel, rotary cutting tools. Mechanical Group products are sold to distributors, original equipment manufacturers and end users across many industry segments. Typical applications for the Company's mechanical products include material handling systems such as conveyors, palletizers and packaging equipment; off-highway vehicular equipment such as street pavers, graders, airport/fire/crash/rescue equipment; farm implements; gas and liquid pipeline transmission systems; civic water and waste treatment facilities; open-pit mining; paper making machinery; high-performance, after-market automotive transmissions and ring/pinion sets; and marine transmissions for luxury inboard powered craft. In March 1997, the Company acquired Marathon Electric Manufacturing Corporation. Marathon Electric became the Company's Electrical Group. On May 28, 1999, the Company purchased from another public company selected assets which now comprise the Lincoln Motors product line within the Electrical Group. The Electrical Group produces and markets AC electric motors ranging in size from 1/12 horsepower to 1000 horsepower, electric generators ranging in size from 5 kilowatts through 4000 kilowatts and electrical connecting devices such as terminal blocks, fuse holders and power blocks. The Group's products are also sold to distributors, original equipment manufacturers and end users across many industry segments. Typical applications for the Company's electrical products include: 1) for electric motors: air movement such as heating, ventilating, air conditioning and compressors; fluid movement such as pumping; woodworking; commercial laundry; process industries; variable frequency drives; and floor care; and 2) for electric generators: prime and standby power applications including buildings such as telecommunication, commercial, industrial, hospital and school; marine; agriculture; windpower; military; and transport refrigeration. Regal-Beloit believes its consistent ability to provide products on a shorter delivery schedule than other manufacturers gives it a competitive selling advantage and that its extensive use of modern, up-to-date equipment which is best suited for the job, along with its continued product redesign and effective plant layout, often gives it a competitive cost advantage in its product offering. Marketing and Sales - ------------------- The Company's products are sold to distributors, original equipment manufacturers and end users. Both the Mechanical Group and the Electrical Group have their own organization of field sales employees and manufacturers' representatives. 3 Export sales accounted for approximately 7% of the Company's sales in 1999, 6% in 1998 and 7% in 1997. Additionally, 3%, 3%, and 4% of Company sales were manufactured and sold outside the United States in 1999, 1998, and 1997, respectively. No material part of the Company's business is dependent upon a single customer. In fiscal 1999, 1998, and 1997, no single customer accounted for as much as 3% of Company sales. Although the Company's sales are predominantly not seasonal, they tend to vary with general economic conditions and with the rate of industrial production, and are affected by business conditions in the many markets in which the Company sells. However, because the Company's products are sold to many different markets, the effects of weaker markets are frequently offset by strengths in other markets. Working capital requirements to properly serve the Company's customers are generally typical of capital goods manufacturers. Accounts receivable and inventory are generally not seasonal or at unusual levels by industry standards. Competition - ----------- Major domestic competitors in the mechanical motion control equipment industry include Emerson Electric, Reliance Electric, Winsmith, Falk, and Boston Gear. Major foreign competitors would include SEW Eurodrive, Flender, Sumitomo and Zahnrad Fabrik. Major domestic competitors for the Electrical Group include Baldor Electric, Emerson, Reliance, Leeson, General Electric, Cummins, and A.O. Smith. Major foreign competitors include Siemens, Toshiba, Weg, Leroy Somer, and ABB. Over the past several years, niche product market opportunities have become more prevalent due to changing market conditions. The Mechanical Group's markets have also been impacted by decisions by larger manufacturers not to compete in lower volume or specialized markets. Many captive producers have chosen, for economic reasons, to outsource their requirements to specialized manufacturers like Regal-Beloit's Mechanical Group, who can produce more cost effectively. The Company has capitalized on this competitive climate by making acquisitions and increasing its manufacturing efficiencies. Some of these acquisitions have created new opportunities for the Company because the Company is now in new markets in which it was not previously involved. The Company has also continued to upgrade its manufacturing equipment and processes, including increasing its use of computer aided manufacturing systems and redesigning products to take full advantage of the more productive equipment along with redoing plant layout to improve product flow. Most of the operating units of the Company, recognizing the increasing importance of the internet, have established websites that provide information on the separate operating units of the Company and the products and services they each provide to the marketplace. In practice, the Company's operating units have sought out specific niche markets concentrating on a wide diversity of customers and applications. Because of this approach, the Company is often not the largest supplier in any specific market. The Company believes it competes primarily on the basis of the promptness of delivery, price and quality. For further segment information required by Item 101 of Regulation S-K, reference is made to Note 10 of Notes to Consolidated Financial Statements on page 14 of the Annual Report to Shareholders for the year ended December 31, 1999, and such information is incorporated herein by reference. Manufacturing - ------------- Each of the Company's operating units conducts its manufacturing operations independently in one or more facilities. The Company regularly invests in high quality machinery and equipment and other improvements to and maintenance of its facilities. These capital expenditures typically meet or exceed the 4 Company's depreciation levels, as the Company believes that such investments are essential to its long-term success, although in 1999 expenditures were held below depreciation as the capital goods economy slowed. The manufacturing operations of both the Mechanical Group and Electrical Group are highly integrated. Although raw materials and selected parts such as bearings and seals are purchased, this vertical integration permits the Company to produce most of its products' component parts when needed. The Company believes this results in lower production costs, greater manufacturing flexibility and higher product quality, as well as reducing the Company's reliance on outside suppliers. Base materials for the Company's products consist primarily of: 1) steel in various types and sizes, including bearings and weldments, 2) copper magnet wire and 3) castings made of grey iron or aluminum. The Company purchases its raw materials from many suppliers and is not dependent on any single supplier for any of its base materials. Backlog - ------- As of December 31, 1999, the amount of the Company's Mechanical Group backlog was approximately $39,700,000 compared to approximately $40,300,000 on December 31, 1998. The Electrical Group backlog as of December 31, 1999 was $36,300,000 versus $25,300,000 on December 31, 1998. Average delivery time for orders of the Company's mechanical products (except for large, specially designed products) varies from three days to two months. The Company believes that virtually all of its backlog is shippable in 2000. The Company's business units have historically shipped the majority of its products in the month the order is received. Accordingly, since total backlog is less than 15% of the Company's annual sales, the Company believes that backlog is not a reliable indicator of the Company's future sales. Patents, Trademarks and Licenses - -------------------------------- The Company owns a number of United States patents and foreign patents relating to its businesses. While the Company believes that its patents provide certain competitive advantages, the Company does not consider any one patent or group thereof essential to the business of either of its Groups or the Company as a whole. Regal-Beloit utilizes various registered and unregistered trademarks and the Company believes these trademarks are significant in the marketing of most of its products. However, the Company believes the successful manufacture and sale of its products generally depends more upon its technological, manufacturing and marketing skills. In addition, the Company believes its engineering, test and development capabilities are significant factors in the success of its business. Employees - --------- As of December 31, 1999, the Company employed approximately 4,630 persons, of which approximately 27% were covered by collective bargaining agreements. The Company considers its employee relations to be very good. Environmental Matters - --------------------- The Company is subject to Federal, State and local environmental regulations. The Company is currently involved with environmental proceedings related to certain of its facilities. Based on available information, it is believed that the outcome of these proceedings and future known environmental compliance costs will not have a material adverse effect on the Company's financial position or results of operations. 5 ITEM 2. Properties - ------ ---------- The Company's Mechanical Group currently operates 21 manufacturing and service/distribution facilities. Four are located in Illinois; two each are located in Indiana, South Carolina, South Dakota and Wisconsin; and one each are located in California, Massachusetts, New York, North Carolina, Pennsylvania, Texas, Newbury (England), Neu Anspach (Germany) and Legnano (Italy). The Mechanical Group's present operating facilities contain a total of approximately 1,590,000 square feet of space of which approximately 46,700 square feet are leased. The Electrical Group currently operates 13 manufacturing and warehousing facilities. Three are located in each of Missouri and Ohio, two in Texas and one each in Indiana, Pennsylvania, Wisconsin, Singapore, and Market Overton (England). The Electrical Group's present operating facilities contain a total of approximately 1,360,000 square feet of space of which approximately 480,000 square feet are leased. The Company has its principal offices in Beloit, Wisconsin in an owned 24,000 square foot office building. The Company believes its equipment and facilities are well maintained and adequate for its present needs. ITEM 3. Legal Proceedings - ------ ----------------- The Company is not involved in any material legal proceedings. ITEM 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- There were no matters submitted to a vote of security holders during the quarter ended December 31, 1999. PART II ITEM 5. Market for the Registrant's Common Equity and Related - ------ ----------------------------------------------------- Shareholder Matters ------------------- Certain information required by Item 201 of Regulation S-K is set forth on page 4 and the inside back cover of the Annual Report to Shareholders for the year ended December 31, 1999, and such information is incorporated herein by reference. ITEM 6. Selected Financial Data - ------ ----------------------- Information required by Item 301 of Regulation S-K is set forth on page 4 of the Annual Report to Shareholders for the year ended December 31, 1999, and such information is incorporated herein by reference. 6 ITEM 7. Management's Discussion and Analysis of Financial Condition and - ------ --------------------------------------------------------------- and Results of Operations ------------------------- Information required by Item 303 of Regulation S-K is set forth on pages 5 and 6 of the Annual Report to Shareholders for the year ended December 31, 1999, and such information is incorporated herein by reference. ITEM 8. Financial Statements and Supplementary Data - ------ ------------------------------------------- In the Annual Report to Shareholders for the year ended December 31, 1999, there are set forth on pages 7 through 15, financial statements meeting the requirements of Regulation S-X and information specified by Item 302 of Regulation S-K and such financial statements are incorporated herein by reference. ITEM 9. Changes in and Disagreements with Accountants on Accounting - ------ ------------------------------------------------------------- and Financial Disclosure ------------------------ The Company has had no disagreements with its accountants subject to disclosure by Item 304 of Regulation S-K nor has it had a change of accountants within the last two fiscal years. PART III ITEM 10. Directors and Executive Officers of the Registrant - ------- -------------------------------------------------- Information required by Item 401 of Regulation S-K is set forth on pages 3 through 9 of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 19, 2000, a copy of which has been filed within 120 days following the close of the fiscal year, and such information is incorporated herein by reference. The names, ages, and positions of the executive officers of the Company as of March 15, 2000, are listed below along with their business experience during the past five years. Officers are elected annually by the Board of Directors at the Meeting of Directors immediately following the Annual Meeting of Shareholders in April. There are no family relationships among these officers, nor any arrangements of understanding between any officer and any other persons pursuant to which the officer was selected. 7 Name, Age and Position Business Experience During the Past 5 Years - ---------------------- ------------------------------------------- James L. Packard, 57 - Elected Chairman in 1986; Chief Executive Chairman, President and Officer since 1984; President since 1980. Chief Executive Officer Henry W. Knueppel, 51 - Elected Executive Vice President in 1987. From Executive Vice President September, 1997 until December, 1999, he also served as President of the Company's Marathon Electric Manufacturing Corporation subsidiary. Kenneth F. Kaplan, 54 - Joined Company in September, 1996. Elected Vice President, Chief Vice President, Chief Financial Officer in Financial Officer and October, 1996 and Secretary in April, 1997. Secretary Previously, he was employed by Gehl Company, West Bend, Wisconsin, as Vice President-Finance and Treasurer from 1987. ITEM 11. Executive Compensation - ------- ---------------------- Information required by Item 402 of Regulation S-K is set forth on pages 8 through 14 of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 19, 2000, a copy of which has been filed within 120 days following the close of the fiscal year, and such information is incorporated herein by reference. ITEM 12. Security Ownership of Certain Beneficial Owners and Management - ------- -------------------------------------------------------------- Information required pursuant to Item 403 of Regulation S-K is set forth on pages 3 through 5 and 7 of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 19, 2000, a copy of which has been filed within 120 days following the close of the fiscal year, and such information is incorporated herein by reference. ITEM 13. Certain Relationships and Related Transactions - ------- ---------------------------------------------- Information required pursuant to Item 404 of Regulation S-K is set forth on pages 6 and 9 of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 19, 2000, a copy of which has been filed within 120 days following the close of the fiscal year, and such information is incorporated herein by reference. 8 PART IV ITEM 14. Financial Statements, Financial Statement Schedule, Exhibits - ------- ------------------------------------------------------------ and Reports on Form 8-K ----------------------- (a) 1. and 2. Financial Statements and Financial Statement Schedule ----------------------------------------------------------------- Reference is made to the separate index to the Company's Consolidated Financial Statements and Schedule contained on page 11 hereof. 3. Exhibits ------------ Reference is made to the separate exhibit index contained on page 14-16 hereof. (b) Reports on Form 8-K ------------------- There were no reports filed on Form 8-K by the Company during the quarter ended December 31,1999. 9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By: /S/ Kenneth F. Kaplan ------------------------ Kenneth F. Kaplan Vice President, Chief Financial Officer and Secretary March 15, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /S/ James L. Packard Chairman, President, Chief March 15, 2000 - -------------------- Executive Officer and Director James L. Packard /S/ Kenneth F. Kaplan Vice President, Chief Financial March 15, 2000 - --------------------- Officer and Secretary Kenneth F. Kaplan (Principal Accounting & Financial Officer) /S/ Henry W. Knueppel Executive Vice President March 15, 2000 - --------------------- and Director Henry W. Knueppel /S/ John A. McKay Director March 15, 2000 - --------------------- John A. McKay /S/ John M. Eldred Director March 15, 2000 - --------------------- John M. Eldred /S/ J. Reed Coleman Director March 15, 2000 - --------------------- J. Reed Coleman /S/ Frank Bauchiero Director March 15, 2000 - --------------------- Frank Bauchiero 10 REGAL-BELOIT CORPORATION Index to Financial Statements and Financial Statement Schedule Page(s) In Annual Report * ---------------- The following documents are incorporated by reference as part of this report: (1) Financial Statements: Consolidated Balance Sheets at December 31, 1999 and 1998 7 Consolidated Statements of Income for the three years ended December 31, 1999 8 Consolidated Statements of Shareholders' Investment for the three years ended December 31, 1999 8 Consolidated Statements of Cash Flows for the three years ended December 31, 1999 9 Notes to Consolidated Financial Statements 10 - 14 Report of Independent Public Accountants 15 * Incorporated by reference from the indicated pages of the Regal-Beloit Corporation 1999 Annual Report to Shareholders Page(s) In Form 10-K ---------- (2) Financial Statement Schedule: Report of Independent Public Accountants on Financial Statement Schedule 12 Consent of Independent Public Accountants 12 For the three years ended December 31, 1999, Schedule II - Valuation and Qualifying Accounts 13 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 11 Report of Independent Public Accountants ---------------------------------------- To Regal-Beloit Corporation: We have audited, in accordance with generally accepted auditing standards, the financial statements included in Regal-Beloit Corporation's Annual Report to Shareholders, incorporated by reference in this Form 10-K, and have issued our report thereon dated January 28, 2000. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index to financial statements is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /S/ ARTHUR ANDERSEN LLP ----------------------- ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, January 28, 2000 Exhibit 23 Consent of Independent Public Accountants ----------------------------------------- To Regal-Beloit Corporation: As independent public accountants, we hereby consent to the incorporation of our reports, included and incorporated by reference in this Form 10-K, into Regal-Beloit Corporation's previously filed Registration Statements, File Nos. 33-25480, 33-25233, 33-82076 and 33-8934. /S/ ARTHUR ANDERSEN LLP ----------------------- ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, March 15, 2000 12 SCHEDULE II REGAL-BELOIT CORPORATION ------------------------- VALUATION AND QUALIFYING ACCOUNTS ------------------------------------
Allowance for Doubtful Accounts: - ------------------------------- (In Thousands Of Dollars) ----------------------------------------------------------- Balance Provision Write-offs, Additions, Balance Beginning (Credits) Net of Related to End of Year for Losses Recoveries Acquisition of Year Year Ended December 31, 1999 $ 1,851 $ (9) $ (84) $ -0- $ 1,758 ======= ======== ======== ======= ======= Year Ended December 31, 1998 $ 2,620 $ (213) $ (556) $ -0- $ 1,851 ======= ======== ======== ======= ======= Year Ended December 31, 1997 $ 1,190 $ 592 $ (622) $ 1,460 $ 2,620 ======= ======== ======== ======= =======
13 Exhibits Index - -------------- The following exhibits are required to be filed by Item 601 of Regulation S-K.
Exhibit Number Description Incorporated by Reference Herein - ------- ----------- -------------------------------- 2 Agreement and Plan of Merger by Filed as Exhibit A to Annual Meeting and between the Registrant and Proxy Statement of Regal-Beloit Corporation, dated as Regal-Beloit Corporation of April 18, 1994 dated March 11, 1994 2.1 Agreement and Plan of Merger Filed as Exhibit 2.1 on Regal-Beloit among the Registrant, Regal- Corporation's Form 8-K dated Beloit Acquisition Corp., and April 10, 1997 Marathon Electric Manufacturing Corporation dated as of February 26, 1997, as amended and restated March 17, 1997 and March 26, 1997 2.2 Credit Agreement among Regis- Filed as Exhibit 2.2 on Regal-Beloit trant, Bank of America Illinois, M&I Corporation's Form 8-K dated Marshall & Illsley Bank and the April 10, 1997 Other Financial Institutions Party hereto dated as of March 26, 1997; Schedule 2.01; Guaranty Agree- ments dated March 26, 1997; and Promissory Notes dated March 26, 1997. 2.3 Amended and Restated Credit Filed as Exhibit 2.3 to Regal-Beloit Agreement Dated as of May 30, Corporation's Quarterly Report 1997 among Registrant, Bank of on Form 10-Q dated August 8, America Illinois, as Documentation 1997 Agent, M&I Marshall & Illsley Bank, as Administrative Agent and Letter of Credit Issuing Bank, Firstar Bank Milwaukee, N.A., Harris Trust and Savings Bank and The Northern Trust Company, as Co-Agents, and The Other Financial Institutions Party Hereto Arranged by Bancamerica Securities, Inc. as Syndication Agent; Disclosure Schedules and Attached Exhibits; and Promissory Note 3.1 Articles of Incorporation of the Filed as Exhibit B to the 1994 Proxy Registrant Statement 3.2 Bylaws of the Registrant Filed as Exhibit C to the 1994 Proxy Statement
14
Exhibit Number Description Incorporated by Reference Herein - ------- ----------- -------------------------------- 4 Articles of Incorporation and Bylaws Filed as Exhibits 3.1 and 3.2 hereto of the Registrant 4.1 Rights Agreement, dated as of Filed as Exhibit 4.1 incorporated on January 28, 2000, between Regal-Beloit Regal- Beloit Corporation's Corporation and BankBoston, N.A. Registration Statement on Form 8-A (file no.1-7283) and on Regal-Beloit Corporation's current report on Form 8-K dated January 31, 2000. 10.1 Short-Term Incentive Compensation Filed as Exhibit 10.1 to Regal-Beloit Plan, as amended Corporation's Annual Report on Form 10-K dated March 29, 1993 10.2 1982 Incentive Stock Option Plan Filed as Exhibit 10.4 to 1986 S-1 10.3 1987 Stock Option Plan Filed as Exhibit 10.3 to 1988 S-1 10.4 1991 Flexible Stock Incentive Plan Filed as Exhibit 10.4 to Regal-Beloit Corporation's Annual Report on Form 10-K dated March 29, 1993 (1994 S-8 Registration No. 33-82076) 10.5 Change of Control Agreement Filed as Exhibit 10.5 to Regal-Beloit Corporation's Annual Report on Form 10-K dated March 6, 1998 10.5(a) Addendum to Change of Control Filed as Regal-Beloit Corporation's Agreement effective as of Annual Report on Form 10-K April 21, 1998 dated March 5, 1999. 10.6 Disability Insurance Agreement Filed as Exhibit 10.6 to Regal-Beloit between Regal-Beloit Corporation Corporation's Annual Report and Continental Casualty Company on Form 10-K dated March 29, 1993 10.7 1998 Stock Option Plan, as Amended Filed as Regal-Beloit Corporation 1998 Stock Option Plan, as amended on Regal-Beloit Corporation's Registration Statement on Form S-8 (File No. 333-84779) 13 Annual Report to Shareholders Regal-Beloit Corporation's Annual Report for the year ended December 31, on Form 10-K dated March 15, 2000. 1999 (Filed herewith)
15
Exhibit Number Description Incorporated by Reference Herein - ------- ----------- -------------------------------- 21 Subsidiaries of Regal-Beloit Regal-Beloit Corporation's Annual Report Corporation on Form 10-K dated March 15, 2000. (Filed herewith) 23 Consent of Independent Public Regal-Beloit Corporation's Annual Report Accountants on Form 10-K dated March 15, 2000. (Filed herewith) 99 Annual Meeting Proxy Statement of Filed as Regal-Beloit Corporation's Proxy Regal-Beloit Corporation dated Statement on Schedule 14A March 15, 2000 dated March 15, 2000.
16 EX-1 2 ANNUAL REPORT Exhibit 13 SELECTED FINANCIAL INFORMATION REGAL-BELOIT CORPORATION - ------------------------------------------------------------------------------ FIVE YEAR HISTORICAL DATA
(In Thousands, Except Per Share Data) ------------------------------------------------ Year Ended December 31, ------------------------------------------------ 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Net Sales $544,632 $543,513 $487,019 $281,508 $295,891 Income from Operations 72,440 81,113 74,381 51,120 53,607 Net Income 38,067 42,961 38,897 32,276 32,818 Total Assets 505,100 482,022 485,625 196,996 175,480 Long-term Debt 148,166 166,218 192,261 2,168 2,884 Shareholders Investment 252,626 224,497 189,427 160,023 135,873 Per Share of Common Stock: Earnings Per Share 1.82 2.06 1.87 1.57 1.60 Earnings Per Share - Assuming Dilution 1.80 2.02 1.83 1.53 1.57 Cash Dividends Declared .48 .48 .48 .48 .39 Shareholders' Investment 12.04 10.74 9.09 7.75 6.61 Average Number of Shares Outstanding 20,959 20,893 20,806 20,617 20,509 Average Number of Shares - Assuming Dilution 21,170 21,278 21,275 21,075 20,966
COMMON STOCK - ------------ 1999 1998 ----------------------------------- ----------------------------------- Price Range Price Range ----------------------- Dividends --------------------- Dividends High Low Paid High Low Paid ---------- --------- --------- --------- ---------- --------- 1st Quarter $ 23 15/16 $ 15 9/16 $ .12 $ 33 1/4 $ 26 7/8 $ .12 2nd Quarter 25 5/8 17 3/8 $ .12 33 1/4 27 13/16 .12 3rd Quarter 24 1/2 20 $ .12 28 9/16 19 3/8 .12 4th Quarter 23 1/4 20 $ .12 26 7/8 17 1/2 .12
Regal-Beloit has paid 158 consecutive quarterly dividends through January, 2000. The approximate number of registered holders of common stock as of December 31, 1999 is 1,082.
QUARTERLY FINANCIAL INFORMATION - ------------------------------- (In Thousands, Except Per Share Data) ------------------------------------------------------------------------------------- 1st Qtr 2nd Qtr. 3rd Qtr. 4th Qtr. ------------------- ------------------- ------------------- ------------------- 1999 1998 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- Net Sales $127,260 $137,818 $137,063 $138,981 $142,292 $137,973 $138,017 $128,741 Gross Profit 36,565 39,738 37,629 41,290 38,728 38,907 38,538 37,879 Income from Operations 17,406 19,868 18,519 21,970 18,192 19,848 18,323 19,427 Net Income 9,078 10,414 9,765 11,679 9,467 10,390 9,757 10,478 Earnings Per Share .43 .50 .47 .56 .45 .50 .47 .49 Earnings Per Share - Assuming Dilution .43 .49 .46 .55 .45 .49 .46 .49 Average Number of Shares Outstanding 20,933 20,861 20,953 20,898 20,973 20,905 20,978 20,908 Average Number of Shares - Assuming Dilution 21,122 21,332 21,190 21,349 21,204 21,223 21,163 21,209
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS - ------------------------------------------------------------ REGAL-BELOIT CORPORATION - ------------------------------------------------------------------------------- OVERVIEW - -------- Company net sales of $544,632,000 in 1999 were slightly higher than in 1998. Added sales from the May 1999 acquisition of the Company's Lincoln Motors business (See "Note 4 to Consolidated Financial Statements") were sufficient to offset lower sales which resulted from nearly a year and one-half of weakened demand in the industrial market segments the Company serves. In the fourth quarter of 1999, the Company began to see a modest improvement in customer orders. Net income in 1999 decreased 11.4% from 1998 to $38,067,000, or $1.80 per share (assuming dilution). The lower 1999 earnings were due primarily to the reduced demand and resulting lower production levels and to competitive pricing pressures. Cash flow from operations of $70,257,000 was again strong in 1999, enabling long-term debt to be reduced 11% to $148,166,000 at year-end 1999, despite the $32,100,000 borrowed to acquire Lincoln Motors. The Company's capitalization ratio decreased during 1999 to 37.0% at year-end from 42.5% a year ago. RESULTS OF OPERATIONS - --------------------- 1999 versus 1998 - ---------------- Total Company net sales in 1999 of $544,632,000 were slightly above 1998 net sales of $543,513,000. Mechanical Group net sales were $251,963,000, a 10.1% decrease from $280,153,000 in 1998. Electrical Group net sales in 1999 increased 11.1% to $292,669,000 from $263,360,000 in 1998, but would have decreased slightly if not for the sales added by the Lincoln Motors acquisition. Broad weakness has characterized the markets for many industrial manufacturers for over a year and Regal-Beloit has not been an exception. Company gross profit declined 4.0% in 1999 to $151,460,000 from $157,814,000 in 1998. Gross profit as a percentage of sales decreased to 27.8% in 1999 as compared to 29.0% in 1998, as both the Mechanical and Electrical Groups experienced reduced gross margins. Lower production levels and competitive pricing pressures were the primary reasons for the decreased margins. Income from operations in 1999 was $72,440,000, or 13.3% of net sales, 10.7% below $81,113,000, or 14.9% of net sales, in 1998. The reduced gross profit margins were primarily responsible for the lower operating income margins in both the Mechanical Group and Electrical Group. Interest expense was reduced 18.1% from $11,479,000 in 1998 to $9,406,000 in 1999, due primarily to a reduction in average outstanding debt from $185,626,000 in 1998 to $164,271,000 in 1999 and a decrease in the average rate of interest the Company paid to 5.6% in 1999 versus 6.1% in 1998. The Company's effective tax rate increased to 39.8% of income before taxes in 1999 from 38.6% in 1998. The increase resulted primarily from higher effective state income tax rates in 1999. Net income in 1999 totaled $38,067,000, an 11.4% decrease from 1998's record net income of $42,961,000. Net income as a percent of net sales declined to 7.0% in 1999 from 7.9% in 1998. Earnings per share in 1999 were $1.82 (basic) and $1.80 (assuming dilution), 11.7% and 10.9% below, respectively, 1998's per share earnings of $2.06 (basic) and $2.02 (assuming dilution). 1998 versus 1997 - ---------------- Total Company net sales in 1998 were $543,513,000, an 11.6% increase from $487,019,000 in 1997. Mechanical Group net sales were $280,153,000, 1.8% below 1997 net sales of $285,174,000. The decrease from 1997 occurred almost entirely in the fourth quarter of 1998, with many of the Mechanical Group's customers adjusting their inventories to lower levels as the industrial economy continued to slow. Electrical Group net sales in 1998 of $263,360,000 were 30.5% higher than the $201,845,000 of net sales for the nine months of 1997 following the acquisition of Marathon Electric. (See "Note 4 to Consolidated Financial Statements") On a pro-forma basis assuming the acquisition had occurred January 1, 1997, Electrical Group sales in 1998 were .5% below net sales of $264,681,000 in 1997. Income from operations for the Company increased 9.1% to $81,113,000 in 1998 from $74,381,000 in 1997. As a percent of net sales, income from operations decreased to 14.9% in 1998 from 15.3% the prior year. Mechanical Group operating income margin decreased to 16.3% in 1998 from 17.0% in 1997, primarily due to lower sales volume and the related impact on cost of sales. However, Electrical Group operating income margin increased to 13.4% in 1998 from 12.9% a year previously, due mainly to reductions in operating expenses. Interest expense increased to $11,479,000 in 1998 from $10,804,000 in 1997, due to a full year of the acquisition related debt in 1998 versus only nine months in 1997. For the last nine months of 1998, interest expense of $8,491,000 was $2,260,000, or 21%, lower than the comparable nine months of 1997. The average rate of interest the Company paid in 1998 was 6.1% as compared to 6.2% in 1997. Interest income decreased to $306,000 in 1998 from $810,000 in 1997, due to reduced cash balances. The Company's effective tax rate decreased to 38.6% of income before taxes in 1998 from 39.6% in 1997. The decrease was due primarily to reductions in effective Company state income tax rates in 1998. Net income of the Company in 1998 was $42,961,000, a 10.4% increase from $38,897,000 in 1997. On a per share basis, 1998 net income was $2.06 per share (basic) and $2.02 per share (assuming dilution), 10% higher in each case than 1997 net income of $1.87 per share (basic) and $1.83 per share (assuming dilution). YEAR 2000 READINESS DISCLOSURE - ------------------------------ For several years, and particularly throughout 1999, the Company assessed, changed as required, and tested its computer hardware and software systems, machinery and equipment, and facilities equipment, and evaluated its suppliers' readiness as it related to the Year 2000 date issue. During and after the year 2000 changeover, the Company has experienced no material Y2K problems and has not experienced any material Y2K problems from its suppliers of goods or services. The Company believes the Y2K issue to be behind it. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company's working capital increased to $131,370,000 at December 31, 1999, from $117,305,000 a year previously. The increase was due primarily to the acquisition of Lincoln Motors. The Company's current ratio at year-end 1999 was 3.0:1, unchanged from December 31, 1998. The Company maintains a $190,000,000 unsecured revolving credit facility which expires March 26, 2002 (the "Facility"). The Facility permits the Company to borrow up to the limit of the Facility at interest rates based upon a margin above LIBOR. At December 31, 1999, $147,000,000 was outstanding under the Facility, a $19,000,000 reduction from the end of 1998, and, after adjusting for $1,986,000 of standby letters of credit, the Company had $41,014,000 of available borrowing capacity. During 1999 the Company paid an average interest rate of 5.6% for its outstanding debt. The Company was in compliance with the covenants of the Facility throughout 1999. The Company's capitalization ratio at December 31, 1999 was 37.0%, down from 42.5% a year earlier, and its funded debt to EBITDA ratio was 1.55:1 as compared to 1.61:1 at year-end 1998. Additionally, the Company maintains two short-term credit lines of $10,000,000 each. At December 31, 1999, there were no borrowings against the short-term credit lines. Management believes 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 operating cash flow, current credit facilities and the Company's ability to further leverage its equity with additional long-term indebtedness. Cash flow from operations was $70,257,000 in 1999, a 39.4% increase from $50,393,000 in 1998. A reduction in inventories in 1999 versus an inventory increase in 1998 and paydown of liabilities in 1998 not repeated in 1999 were the primary factors in the increased cash flow. Expenditures for property, plant and equipment in 1999 were $11,422,000. Commitments for capital items outstanding at December 31, 1999 were $3,538,000. Management believes its present facilities, augmented by planned capital expenditures, are sufficient to provide adequate capacity for its operations in 2000. In the ordinary course of business, the Company is exposed to market risk, primarily interest rate risk. The great majority of the Company's debt is borrowed through credit facilities with floating-rate debt at a rate based on a margin above LIBOR. As a result, interest rate changes generally do not affect fair market value but do impact future earnings and cash flows assuming other factors are constant. A hypothetical 10% change in the Company's weighted average borrowing rate on the outstanding debt at December 31, 1999, would result in a change in after-tax annual earnings of approximately $510,000. The Company has no material foreign currency rate risk.
CONSOLIDATED BALANCE SHEETS REGAL-BELOIT CORPORATION In Thousands of Dollars - ------------------------------------------------------------------------------- ASSETS - ------ December 31, --------------------------- 1999 1998 ---------- ---------- Current Assets: Cash and cash equivalents $ 1,729 $ 3,548 Receivables, less allowance for doubtful accounts of $1,758 in 1999 and $1,851 in 1998 76,374 69,400 Future income tax benefits 13,180 10,249 Inventories 103,966 91,461 Prepaid expenses 2,999 1,253 ---------- ---------- Total Current Assets 198,248 175,911 Property, Plant and Equipment: Land and land improvements 11,103 11,066 Buildings and improvements 66,835 66,123 Machinery and equipment 189,184 169,774 ---------- ---------- Property, Plant and Equipment, at cost 267,122 246,963 Less-Accumulated depreciation (115,749) (99,034) ---------- ---------- Net Property, Plant and Equipment 151,373 147,929 Goodwill 143,314 147,161 Other Noncurrent Assets 12,165 11,021 ---------- ---------- Total Assets $ 505,100 $ 482,022 ========== ========== LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Accounts payable $ 28,382 $ 23,791 Dividends payable 2,518 2,509 Accrued compensation and employee benefits 19,223 19,395 Other accrued expenses 16,355 12,359 Federal and state income taxes 352 509 Current maturities of long-term debt 48 43 ---------- ---------- Total Current Liabilities 66,878 58,606 Long-term Debt 148,166 166,218 Deferred Income Taxes 37,090 32,507 Other Noncurrent Liabilities 340 194 Shareholders' Investment: Common stock, $.01 par value, 50,000,000 shares authorized, 20,985,905 issued and outstanding in 1999 and 20,911,540 issued and outstanding in 1998 210 209 Additional paid-in capital 41,585 40,860 Retained earnings 211,287 183,285 Accumulated other comprehensive income (456) 143 ---------- ---------- Total Shareholders' Investment 252,626 224,497 ---------- ---------- Total Liabilities and Shareholders' Investment $ 505,100 $ 482,022 ========== ========== See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME REGAL-BELOIT CORPORATION In Thousands of Dollars, Except Shares Outstanding - -------------------------------------------------------------------------------------- For The Year Ended December 31, ---------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Net Sales $ 544,632 $ 543,513 $ 487,019 Cost of Sales 393,172 385,699 346,011 ---------- ---------- ----------- Gross Profit 151,460 157,814 141,008 Operating Expenses 79,020 76,701 66,627 ----------- ----------- ----------- Income From Operations 72,440 81,113 74,381 Interest Expense 9,406 11,479 10,804 Interest Income 220 306 810 ----------- ----------- ----------- Income Before Income Taxes 63,254 69,940 64,387 Provision For Income Taxes 25,187 26,979 25,490 ----------- ----------- ----------- Net Income $ 38,067 $ 42,961 $ 38,897 =========== =========== =========== Earnings Per Share $ 1.82 $ 2.06 $ 1.87 =========== =========== =========== Earnings Per Share - Assuming Dilution $ 1.80 $ 2.02 $ 1.83 ========== =========== =========== Average Number of Shares Outstanding 20,959,182 20,893,182 20,805,844 =========== =========== =========== Average Number of Shares-Assuming Dilution 21,169,580 21,278,497 21,275,061 =========== =========== =========== See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT In Thousands of Dollars, Except Per Share Data - ------------------------------------------------------------------------------------------------------------------------ Common Accumulated Stock Additional Other Comprehensive $.01 Paid-In Retained Comprehensive Income Par Value Capital Earnings Income Total ------------- --------- ---------- ---------- ------------- ---------- Balance, December 31, 1996 $ 206 $ 37,695 $ 121,453 $ 669 $ 160,023 Net Income $ 38,897 -- -- 38,897 -- 38,897 Dividends Declared ($.48 per share) -- -- (9,993) (9,993) Translation Adjustment (711) -- -- -- (711) (711) --------- Comprehensive Income $ 38,186 ========= Stock Options Exercised 2 1,209 -- -- 1,211 -------- --------- ---------- ---------- ---------- Balance, December 31, 1997 208 38,904 150,357 (42) 189,427 Net Income $ 42,961 -- -- 42,961 -- 42,961 Dividends Declared ($.48 per share) -- -- (10,033) -- (10,033) Translation Adjustment 185 -- -- 185 185 --------- Comprehensive Income $ 43,146 ========= Stock Options Exercised 1 1,956 -- -- 1,957 --------- -------- --------- ---------- ---------- ---------- Balance, December 31, 1998 209 40,860 183,285 143 224,497 Net Income $ 38,067 -- -- 38,067 -- 38,067 Dividends Declared ($.48 per share) -- -- (10,065) -- (10,065) Translation Adjustment (599) -- -- -- (599) (599) --------- Comprehensive Income $ 37,468 ========= Stock Options Exercised 1 725 -- -- 726 -------- --------- ----------- ---------- ---------- Balance, December 31, 1999 $ 210 $ 41,585 $ 211,287 $ (456) $ 252,626 ======== ========= =========== ========== ========== See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS REGAL-BELOIT CORPORATION In Thousands of Dollars - ---------------------------------------------------------------------------------------------- For The Year Ended December 31, ---------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998 1997 ---------- ---------- ---------- Net income $ 38,067 $ 42,961 $ 38,897 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 23,052 22,039 18,874 Provision for deferred income taxes 1,652 3,673 13,770 Change in assets and liabilities, net of acquisitions: Receivables 1,093 338 (200) Inventories 7,066 (5,816) 473 Current liabilities and other, net (673) (12,802) 6,975 ---------- ---------- ---------- Net cash provided from operating activities 70,257 50,393 78,789 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (11,422) (14,836) (16,076) Business acquisition (32,083) -- (279,260) Sale of property, plant and equipment 49 118 515 Other, net (1,216) (1,400) 356 ---------- ---------- ---------- Net cash used in investing activities (44,672) (16,118) (294,465) CASH FLOWS FROM FINANCING ACTIVITIES: Additions to long-term debt 1,000 -- 242,000 Repayment of long-term debt (19,047) (26,038) (52,532) Stock issued under option plans 726 1,957 1,211 Dividends to shareholders (10,057) (10,023) (9,970) ---------- ---------- ---------- Net cash (used in) provided from financing activities (27,378) (34,104) 180,709 EFFECT OF EXCHANGE RATE ON CASH: (26) 26 (84) ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents (1,819) 197 (35,051) Cash and cash equivalents at beginning of year 3,548 3,351 38,402 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 1,729 $ 3,548 $ 3,351 ========== ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 9,520 $ 12,081 $ 10,053 Income Taxes $ 24,886 $ 28,011 $ 9,509 See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS REGAL-BELOIT CORPORATION - ------------------------------------------------------------------------------- For The Three Years Ended December 31, 1999 (1) NATURE OF OPERATIONS -------------------- Regal-Beloit Corporation (the Company) is a United States-based multinational corporation. The Company is organized into two operating groups, the Mechanical Group with its principal line of business in mechanical products which control motion and torque, and the Electrical Group with its principal line of business in electric motors and generators. The principal markets for the Company's products and technologies are within the United States. (2) ACCOUNTING POLICIES ------------------- Principles of Consolidation - --------------------------- The financial statements include the accounts of the Company and its wholly owned subsidiaries. Revenue Recognition - ------------------- Sales and related cost of sales for all products are recognized upon shipment of the products. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions, in certain circumstances, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation - ---------------------------- Net assets of non-U.S. subsidiaries, whose functional currencies are other than the U.S. Dollar, are translated at the rates of exchange in effect as of year end. Income and expense items are translated at the average exchange rates in effect during the year. The translation adjustments relating to net assets are recorded directly into a separate component of shareholders' investment. Certain other translation adjustments continue to be reported in net income and were not significant in any of the three years ended December 31, 1999. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents consist primarily of highly liquid investments with insignificant interest rate risk and original maturities of three months or less at date of acquisition. The carrying value of cash equivalents closely approximates their fair market value. Inventories - ----------- The approximate percentage distribution between major classes of inventory is as follows:
December 31 ------------- 1999 1998 ---- ---- Raw Material 14% 14% Work In Process 26% 23% Finished Goods and Purchased Parts 60% 63%
Inventories are stated at cost, which is not in excess of market. Cost for approximately 87% of the Company's inventory at December 31, 1999 and 82% in 1998, was determined using the last-in, first-out (LIFO) method. If all inventories were valued on the first-in, first-out (FIFO) method, they would have increased by $6,384,000 and $7,030,000 as of December 31, 1999 and 1998, respectively. Material, labor and factory overhead costs are included in the inventories. Property, Plant and Equipment - ----------------------------- Property, plant and equipment is stated at cost. Maintenance and repairs are charged to expense as incurred and major renewals and improvements are capitalized. The cost of property retired or otherwise disposed of is removed from the property accounts, the accumulated depreciation is removed from related reserves, and the net gain or loss is reflected in income. The provisions for depreciation are based on the estimated useful lives of plant and equipment from the dates of acquisition and are calculated primarily using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated useful lives are: Description Life --------------------------- -------------- Buildings and Improvements 10 to 45 years Machinery and Equipment 3 to 15 years (3) LEASES AND RENTAL COMMITMENTS ----------------------------- Rental expenses charged to operations amounted to $4,189,000 in 1999, $3,616,000 in 1998 and $3,535,000 in 1997. Future minimum rental commitments for noncancelable operating leases having a remaining term in excess of one year as of December 31, 1999 are not material. (4) ACQUISITIONS ------------ On May 28, 1999, the Company purchased the Lincoln Motors business of Lincoln Electric Holdings, Inc., for a cash purchase price of approximately $32,100,000. Lincoln Motors manufactures and markets a line of AC electric motors from 1 horsepower to 1000 horsepower. In March 1997, the Company acquired 100% of the stock of Marathon Electric Manufacturing Corporation for approximately $279,000,000. Marathon Electric is a leading manufacturer of electric motors and generators. This acquisition was accounted for as a purchase. Unaudited pro-forma results of operations for Regal-Beloit Corporation for the year ended December 31, 1997 as though Marathon Electric had been acquired as of January 1, 1997 are net sales of $549,855,000, net income of $39,602,000 and basic earnings per share of $1.90. (5) LONG-TERM DEBT AND BANK CREDIT FACILITIES -----------------------------------------
(In Thousands of Dollars) Long-term debt consists of the following: December 31, ------------------------- 1999 1998 --------- --------- Revolving Credit Facility $ 147,000 $ 166,000 Other 1,214 261 --------- --------- 148,214 166,261 Less-Current maturities 48 43 --------- --------- Noncurrent portion $ 148,166 $ 166,218 ========= =========
The Company maintains a $190,000,000 unsecured revolving credit facility which expires March 26, 2002 (the "Facility"). The Facility permits the Company to borrow at rates based upon a margin above LIBOR. The Facility also includes financial covenants regarding minimum net worth, maximum permitted debt and minimum interest coverage. The average balance outstanding under the Facility in 1999 was $163,523,000. The average interest rate paid under the Facility in 1999 was 5.6%. The Company had $41,014,000 of available borrowing capacity, after deducting $1,986,000 for standby letters of credit, under the Facility at December 31, 1999. The Company also maintained two short-term credit lines of $10,000,000 at December 31, 1999 and one $10,000,000 short-term credit line at December 31, 1998. There were no outstanding balances on the short-term credit lines at either December 31, 1999 or December 31, 1998. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of long-term debt is not materially different than the carrying value. Maturities of long-term debt are as follows:
Year (In Thousands of Dollars) ------ ------------------------- 2000 $ 48 2001 106 2002 147,115 2003 98 2004 and thereafter 847 ----------- Total $ 148,214 ===========
(6) CONTINGENCIES ------------- The Company is, from time to time, party to lawsuits arising from its normal business operations. It is believed that the outcome of these lawsuits will have no material effect on the Company's financial position or its results of operations. (7) RETIREMENT PLANS ---------------- The Company has a number of retirement plans that cover most of its employees. The primary plan of the Mechanical Group is a qualified discretionary profit-sharing plan covering substantially all domestic employees except those covered by collective bargaining agreements. Total expense for all profit-sharing and retirement plans of the Mechanical Group was $3,494,000, $4,044,000, and $4,247,000 in 1999, 1998 and 1997, respectively. The Electrical Group has defined contribution plans for all salaried and hourly employees. The plans provide for company contributions based, depending on the plan, upon one or more of participant contributions, service, and Electrical Group profits. Electrical Group contributions to the plans totaled $1,326,000, $1,289,000 and $1,073,000 in 1999, 1998 and 1997, respectively. The Electrical Group also has defined benefit pension plans which cover substantially all employees. Benefits provided under qualified defined benefit plans are based on employees' average earnings in years immediately preceding retirement and years of credited service. Funding of the plans is in accordance with federal laws and regulations. Net periodic pension benefit costs for the Company sponsored plans were as follows:
(In Thousands of Dollars) 1999 1998 1997 -------- -------- -------- Service cost $ 1,375 $ 1,201 $ 822 Interest cost 2,809 2,635 1,880 Expected return on plan assets (4,158) (3,752) (2,570) Amortization of prior service cost 58 9 - --------- --------- --------- Net periodic benefit cost $ 84 $ 93 $ 132 ======== ========= =========
The following table presents a reconciliation of the funded status of the plans using an assumed discount rate of 7.5% in 1999 and 7.0% in 1998, annual compensation increases of 4.5% in 1999 and 1998, and an assumed long-term rate of return on plan assets of 9.0% in 1999 and 1998.
(In Thousands of Dollars) 1999 1998 ---------- ---------- Change in projected benefit obligation: Obligation at beginning of period $ 40,132 $ 35,316 Service cost 1,375 1,202 Interest cost 2,809 2,635 Change in assumptions (2,846) 1,910 Plan amendments 230 589 Benefits paid (1,791) (1,520) ---------- ---------- Obligation at end of period 39,909 40,132 ---------- ---------- Change in fair value of plan assets: Fair value of plan assets at beginning of period 48,457 44,937 Actual return on plan assets 13,604 4,713 Employer contributions 331 327 Benefits paid (1,791) (1,520) ---------- ---------- Fair value of plan assets at end of period 60,601 48,457 ---------- ---------- Funded status 20,692 8,325 Unrecognized net actuarial gain (15,229) (2,934) Unrecognized prior service costs 859 684 ---------- ---------- Prepaid asset recognized in balance sheet $ 6,322 $ 6,075 ========== ==========
(8) SHAREHOLDERS' INVESTMENT The Company has two stock option plans available for new grants to officers, directors and key employees, the 1991 Flexible Stock Incentive Plan and the 1998 Stock Option Plan. Additionally, the Company's 1982 and 1987 Stock Option Plans, which have expired as to new grants, have shares previously granted remaining outstanding. Options under all the Plans were granted at prices that equaled the market value on the date of the grant and with a maximum term of 10 years from the date of grant. A summary of the Company's four stock option plans follows:
At December 31, 1999 --------------------------------------------- 1982 Plan 1987 Plan 1991 Plan 1998 Plan --------- --------- --------- --------- Total Plan shares 614,946 450,000 1,000,000 1,000,000 Options granted 609,760 449,850 712,778 665,600 Options outstanding 1,200 81,950 681,932 665,600 Options available for grant - - 287,222 334,400
A summary of the status of the Company's four stock option plans as of December 31, 1999, 1998 and 1997, and changes during the years then ended is presented below:
1999 1998 1997 -------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price -------------------------- -------------------------- -------------------------- Outstanding at beginning of year 839,018 $ 14.18 907,682 $ 13.42 866,418 $ 8.88 Granted 705,700 22.65 88,400 28.31 243,850 24.10 Exercised (78,336) 9.33 (81,564) 11.31 (200,336) 7.54 Forfeited (35,700) 23.43 (75,500) 23.65 (2,250) 18.81 ---------- -------- -------- -------- --------- -------- Outstanding at end of year 1,430,682 $ 18.47 839,018 $ 14.18 907,682 $ 13.42 Options exercisable at year-end 656,265 522,981 467,582
The following table provides information on the four Plans at various exercise price ranges:
Range of Exercise Prices ---------------------------------------------------------------------------------------- $5.56-8.36 $8.37-12.56 $12.57-18.86 $18.87-28.31 $28.32-32.44 Total ---------- ----------- ------------ ------------ ------------ --------- Options outstanding at 12/31/99 375,494 34,462 62,076 888,500 70,150 1,430,682 Options exercisable at 12/31/99 311,494 34,462 44,826 214,883 50,600 656,265
The Company accounts for its stock option plans under APB Opinion No. 25. Accordingly, no compensation cost has been recognized in the statements of income. Had compensation cost for these plans been determined consistent with FASB Statement No. 123 "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have been reduced to the following pro forma amounts: (In Thousands, Except Per Share Data) 1999 1998 1997 ----------- ----------- ----------- Net Income: As Reported $ 38,067 $ 42,961 $ 38,897 Pro Forma $ 36,532 $ 42,234 $ 38,403 Earnings Per Share As Reported $ 1.82 $ 2.06 $ 1.87 Pro Forma $ 1.74 $ 2.02 $ 1.85 Earnings Per Share - Assuming Dilution As Reported $ 1.80 $ 2.02 $ 1.83 Pro Forma $ 1.73 $ 1.98 $ 1.81 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free interest rates of 5.4%, 5.6% and 6.7%; expected dividend yield of 2.5% for all years; expected option lives of 7.0 for all years; expected volatility of 32% in all three years. On January 28, 2000, the Board of Directors approved a Shareholder Rights Plan (the "Plan"). Pursuant to this Plan, one common share purchase right is included with each outstanding share of common stock. In the event the rights become exercisable, each right will initially entitle its holder to buy one-half of one share of the Company's common stock at a price of $60 per share (equivalent to $30 per one-half share), subject to adjustment. The rights will become exercisable if a person or group acquires, or announces an offer for, 15% or more of the Company's common stock. In this event, each right will thereafter entitle the holder to purchase, at the right's then- current exercise price, common stock of the Company or, depending on the circumstances, common stock of the acquiring corporation having a market value of twice the full share exercise price. The rights may be redeemed by the Company at a price of one-tenth of one cent per right at any time prior to the time a person or group acquires 15% or more of the Company's common stock. The rights expire on January 28, 2010, unless otherwise extended. (9) INCOME TAXES The provision for income taxes is summarized as follows:
(In Thousands of Dollars) ---------------------------------- 1999 1998 1997 --------- ---------- --------- Current Federal $ 20,594 $ 19,960 $ 9,748 State 2,321 2,493 861 Foreign 620 853 1,111 -------- --------- --------- 23,535 23,306 11,720 Deferred 1,652 3,673 13,770 -------- --------- --------- $ 25,187 $ 26,979 $ 25,490 ======== ========= =========
A reconciliation of the statutory Federal income tax rate and the effective rate reflected in the statements of income follows: 1999 1998 1997 ------ ------ ------ Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 3.0 2.6 3.0 Nondeductible goodwill amortization 2.3 2.1 1.6 Other, net (.5) (1.1) - ------ ------ ------ Effective tax rate 39.8% 38.6% 39.6% ====== ====== ====== Deferred taxes arise primarily from differences in amounts reported for tax and financial statement purposes. The Company's net deferred tax liability as of December 31, 1999 of $23,910,000 is classified on the consolidated balance sheet as a current income tax benefit of $13,180,000 and a long-term deferred income tax liability of $37,090,000. The December 31, 1998 net deferred tax liability was $22,258,000, consisting of a current income tax benefit of $10,249,000 and a long-term deferred income tax liability of $32,507,000. The components of this net deferred tax liability are as follows:
(In Thousands of Dollars) December 31 ------------------------- 1999 1998 ---------- ----------- Operating loss carry forward $ 525 $ 649 Inventory 1,160 1,378 Accrued employee benefits 1,644 3,519 Bad debt reserve 510 423 Warranty reserve 1,500 1,467 Other 2,943 724 ---------- ----------- Deferred tax assets 8,282 8,160 Property related (28,850) (25,534) Inventory valuation reserve (3,192) (4,734) Other (150) (150) ---------- ----------- Deferred tax liabilities (32,192) (30,418) ---------- ----------- Net deferred tax liability $(23,910) $(22,258) ========== ===========
(10) INDUSTRY SEGMENT INFORMATION Regal-Beloit's reportable segments are strategic businesses that offer different products and services. The Company has two such reportable segments: Mechanical Group and Electrical Group. The Mechanical Group produces mechanical speed reducers and related products for sale to original equipment manufacturers and distributors. The Electrical Group produces AC electric motors, electric generators and related products for sale to original equipment manufacturers and distributors. The Company evaluates performance based on the segments' income from operations. All corporate costs have been allocated to each group based on the net sales of each group. The reported net sales of each segment are solely from external customers. No single customer accounts for 10% or more of the Company's net sales. The Company's products manufactured and sold outside the United States were 3%, 3% and 4% of net sales in 1999, 1998 and 1997, respectively. Export sales from U.S. operations were approximately 7% of net sales in 1999, 6% in 1998 and 7% in 1997. Pertinent data for each industry segment in which the Company operated for the three years ended December 31, 1999 is as follows:
(In Thousands of Dollars) ------------------------------------------------------------------------- Net Income From Identifiable Capital Depreciation and Sales Operations Assets Expenditures Amortization --------- ----------- ------------- ------------ ---------------- 1999 Mechanical Group $ 251,963 $ 35,732 $ 145,391 $ 4,257 $ 10,910 Electrical Group 292,669 36,708 359,709(A) 7,165 12,142 --------- --------- ------------ -------- ---------- Total Regal-Beloit Corporation $ 544,632 $ 72,440 $ 505,100 $ 11,422 $ 23,052 ========= ========= ============ ======== ========== 1998 Mechanical Group $ 280,153 $ 45,758 $ 163,740 $ 7,643 $ 10,767 Electrical Group 263,360 35,355 318,282(A) 7,193 11,272 --------- --------- ------------ -------- ---------- Total Regal-Beloit Corporation $ 543,513 $ 81,113 $ 482,022 $ 14,836 $ 22,039 ========= ========= ============ ======== ========== 1997 Mechanical Group $ 285,174 $ 48,545 $ 158,639 $ 9,482 $ 10,767 Electrical Group (9 months results) 201,845 25,836 326,986(A) 6,594 8,107 --------- --------- ------------ -------- --------- Total Regal-Beloit Corporation $ 487,019 $ 74,381 $ 485,625 $ 16,076 $ 18,874 ========= ========= ============ ======== ========= (A) Includes $143,314 in 1999, $147,161 in 1998 and $151,358 in 1997 of goodwill relating to the Marathon Electric acquisition.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Regal-Beloit Corporation: We have audited the accompanying consolidated balance sheets of REGAL- BELOIT CORPORATION (a Wisconsin Corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' investment 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Regal-Beloit Corporation and subsidiaries 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 Milwaukee, Wisconsin, ------------------------------ January 28, 2000 Arthur Andersen LLP RESPONSIBILITY FOR FINANCIAL STATEMENTS The preceding financial statements of Regal-Beloit Corporation and related footnotes were prepared by management, which is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles, which have been applied on a consistent basis. The system of internal controls of Regal-Beloit Corporation is designed to assure that the books and records reflect the transactions of the Company and that its established policies and procedures are carefully followed. The internal control system is augmented by careful selection and training of qualified employees, proper division of responsibilities, and the development and dissemination of written policies and procedures. Arthur Andersen LLP, whose audit report is shown on this page, is engaged by the Board of Directors to audit the financial statements of Regal-Beloit Corporation and issue reports thereon. Their audit is conducted in accordance with generally accepted auditing standards which require obtaining an understanding of the Company's systems and procedures and performing tests and other procedures sufficient to provide reasonable assurance that the financial statements are neither materially misleading nor contain material errors. The Audit Committee of the Board of Directors, which committee consists entirely of outside directors, meets regularly with the independent public accountants and management to review the scope and results of audits. In addition, the Audit Committee meets with Arthur Andersen LLP, without management representatives present, to discuss the results of their audit including a discussion of internal accounting controls, financial reporting and other audit matters. /S/ James L. Packard /S/ Kenneth F. Kaplan ------------------------------- --------------------------------------- James L. Packard Kenneth F. Kaplan Chairman, President, Vice President, Chief Financial Officer, Chief Executive Officer and Secretary Exhibit 21
REGAL-BELOIT CORPORATION DIVISIONS & SUBSIDIARIES Domestic International - ----------------------------------------------------------------------------------------------------- - -Durst -Lincoln Motors -Ohio Gear/ -Costruzioni Meccaniche Shopiere, WI Euclid, OH Richmond Gear Legnanesi S.r.L. Liberty, SC Legnano. Italy - -Electra-Gear -Marathon Electric Anaheim, CA Manufacturing -Regal Cutting Tools -Marathon Electric Ltd. Corporation National Twist Drill Singapore - -Foote-Jones/ Illinois Gear Wausau, WI New York Twist Drill Chicago, IL South Beloit, IL -Marathon Electric - U.K. -Marathon Special Leicestershire, England - -Grove Gear Products -Velvet Drive Union Grove, WI Bowling Green, OH Transmissions -Mastergear (GmbH) New Bedford, MA Neu-Anspach, Germany - -Hub City -Mastergear U.S.A. Aberdeen, SD South Beloit, IL -Opperman Mastergear, Ltd. Newbury, England
SHAREHOLDER INFORMATION - ------------------------------------------------------------------------------- Corporate Headquarters - ---------------------- Regal-Beloit Corporation 200 State Street, Beloit, WI 53511-6254 Phone: (608) 364-8800 Fax: (608) 364-8818 Website: www.regal-beloit.com Transfer Agent, Registrar and Dividend Disbursing Agent - ------------------------------------------------------- First Class, Registered & Certified Mail Overnight Courier - ------------------------ ----------------- BankBoston, NA EquiServe EquiServe Blue Hills Office Park P.O. Box 8040 150 Royall Street Boston, MA 02266-8040 Canton, MA 02021 Phone: (781) 575-3400 Fax: (781) 828-8813 (DCB Unit) Have you received your cash dividends? - -------------------------------------- During 1999, four quarterly cash dividends were declared on Regal-Beloit Corporation common stock. If you have not received all dividends to which you are entitled, please write or call BankBoston at the address above. Cash Dividends and Stock Splits - ------------------------------- Regal-Beloit Corporation paid its first cash dividend in January, 1961 Since that date, Regal-Beloit has paid 158 consecutive quarterly dividends through January, 2000. The Company has raised cash dividends 33 times in the 39 years these dividends have been paid. The dividend has never been reduced The Company has also declared and issued 15 stock splits/dividends since inception. Notice of Annual Meeting - ------------------------ The Annual Meeting of shareholders will be held at 10:30 a.m., C.D.T., on Wednesday, April 19, 2000, at the Corporate Offices, 200 State Street, Beloit, Wisconsin. Public Information and Reports - ------------------------------ With the advent of the internet and facsimiles, shareholders can view Company reports and news releases in a variety of ways: over the internet through general stock information websites or the U.S. Government's Edgar website at www.sec.gov.; or shareholders may also request from the Company copies of news releases or Forms 10-K and 10-Q as filed by the Company with the Securities and Exchange Commission. Therefore, the Company will no longer publish interim quarterly reports to shareholders. Please direct information requests to: Regal-Beloit Corporation Attn: Investor Relations 200 State Street, Beloit, WI 53511-6254 Phone: 608-364-8800, Fax: 608-364-8818 Website: www.regal-beloit.com Auditors - -------- Arthur Andersen LLP, Milwaukee, Wisconsin. Regal-Beloit Corporation is a Wisconsin Corporation listed since 1976 on the American Stock Exchange under the symbol RBC. -----END PRIVACY-ENHANCED MESSAGE-----