10-Q 1 q10901.htm FORM 10-Q
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, 2001
Commission File Number: 1-7283
REGAL-BELOIT CORPORATION
(Exact name of registrant as specified in its charter)

                    Wisconsin                                                  39-0875718
              (State or other jurisdiction of                      (IRS Employer Identification Number)
                incorporation or organization)
200 State Street, Beloit, Wisconsin 53511-6254
(Address of principal executive offices)
(608) 364-8800
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO ___

Indicate the number of shares outstanding of each of the issuers' classes of common stock as of the latest practicable date.

20,874,649 Shares, Common Stock, $.01 Par Value


1


REGAL-BELOIT CORPORATION

FORM 10-Q

For Quarter Ended September 30, 2001



 
 
 
 
 
 
 
INDEX
 
Page No.
PART I - FINANCIAL INFORMATION  
        Item 1 - Financial Statements   
                        Condensed Balance Sheets
3
                        Statements of Income
4
                        Condensed Statements of Cash Flows
5
                        Notes to Financial Statements 
6 - 7
        Item 2 - Management's Discussion and Analysis of Financial 
7 - 9
                        Condition and Results of Operations  
PART II - OTHER INFORMATION  
        Item 6 - Reports on Form 8-K 
10
        Signature
10

 
 
 
 
 
 
 

2



PART I
FINANCIAL INFORMATION
REGAL-BELOIT CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
1. Financial Statements
(From Audited
ASSETS
(Unaudited)
 
Statements)
 
 
Sept. 30, 2001
 
Dec. 31, 2000
 
Current Assets:        
     Cash and Cash Equivalents 
$     6,038
 
$    2,612
 
     Receivables, less reserves of $2,038 in 2001        
          and $2,031 in 2000
98,914
 
97,032
 
     Inventories
128,527
 
148,741
 
     Other Current Assets
    16,308
 
    17,253
 
Total Current Assets
249,787
 
265,638
 
         
Property, Plant and Equipment at Cost
334,977
 
321,686
 
     Less - Accumulated Depreciation
(147,740
)
(132,608
)
          Net Property, Plant and Equipment
187,237
 
189,078
 
Goodwill
313,948
 
316,295
 
Other Noncurrent Assets
    14,711
 
    18,105
 
          Total Assets
$765,683
 
$789,116
 
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:        
     Accounts Payable
$  32,955
 
$  32,298
 
     Federal and State Income Taxes
9,729
 
154
 
     Other Current Liabilities
    43,135
 
    47,405
 
          Total Current Liabilities
85,819
 
79,857
 
Long-Term Debt
354,701
 
393,510
 
Deferred Income Taxes
41,066
 
41,063
 
Other Noncurrent Liabilities
3,444
 
797
Shareholders' Investment:        
     Common Stock, $.01 par value, 50,000,000 shares        
          authorized, 20,874,649 issued in 2001 and        
          20,912,192 issued in 2000
209
 
210
 
     Additional Paid-In Capital
41,945
 
41,779
 
     Less - Treasury Stock, at cost, 159,900 Shares in         
          2001 and 99,200 Shares in 2000
(2,727
)
(1,685
)
     Retained Earnings
243,308
 
234,992
 
     Accumulated Other Comprehensive Loss
    (2,082
)
    (1,407
)
          Total Shareholders' Investment
  280,653
 
  273,889
 
          Total Liabilities and Shareholders' Investment
$765,683
 
$789,116
 

See accompanying notes.

3


REGAL-BELOIT CORPORATION

STATEMENTS OF INCOME

(In Thousands of Dollars, Except Per Share Data)

 
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2001
 
2000
 
2001
 
2000
               
Net Sales $ 166,719   $ 138,180   $ 515,787   $ 427,392
               
Cost of Sales   126,013      102,258      387,101      315,086
               
     Gross Profit 40,706   35,922   128,686   112,306
               
Operating Expenses     27,362       19,252       83,448       59,336
               
     Income From Operations 13,344   16,670   45,238   52,970
               
Interest Expense 5,190   2,514   18,006   7,232
               
Interest Income            70              42            149            118
             
     Income Before Taxes 8,224   14,198   27,381   45,856
               
Provision For Income Taxes       3,521         5,754       11,552       18,533
               
     Net Income $   4,703   $   8,444   $  15,829   $  27,323
               
Per Share of Common Stock:              
               
     Earnings Per Share $       .23   $       .40   $       .76   $     1.30 
               
     Earnings Per Share - Assuming 
     Dilution

$       .22
 
$       .40
 
$       .75
 
$      1.30
               
     Cash Dividends Declared $       .12   $       .12   $       .36   $        .36
               
Average Number of Shares Outstanding 20,871,485   20,993,595   20,866,879   20,989,370
Average Number of Shares-Assuming Dilution 21,129,290   20,993,595   21,122,298   21,005,023
               

See accompanying notes.

4


REGAL-BELOIT CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(In Thousands of Dollars)



 
 
 
 
 
 
(Unaudited)
 
 
Nine Months Ended Sept. 30, 
 
 
2001
 
2000
 
CASH FLOWS FROM OPERATING ACTIVITIES:        
  Net income 
$ 15,829
 
$ 27,323
 
  Adjustments to reconcile net income to net cash provided        
            from operating activities:        
            Depreciation, amortization and deferred income taxes
23,558
 
17,518
 
            Change in assets and liabilities:      
                Current assets, other than cash
22,695
 
(1,755
)
                Current liabilities, other than notes payable
     2,199
 
   (5,460
)
                    Net cash provided from operating activities 
64,281
 
37,626
 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
    Additions to property, plant and equipment
(13,109 
)
(12,325
)
    Business acquisitions
(2,979
)
(270,605
    Sale of property, plant and equipment
633
 
2,657
 
    Other, net
     2,591
 
       (461
)
            Net cash used in investing activities
(12,864
)
(280,734
)
       
CASH FLOWS FROM FINANCING ACTIVITIES:        
    (Repayment of) proceeds from long-term debt
(39,574
)
248,928
    Repurchase of common stock
(1,042
)
-0-
 
    Dividends paid to shareholders
(7,517
)
(7,556
)
    Other, net
       164
 
   13,366
 
       Net cash used in financing activities 
(47,969
)
254,738
         
EFFECT OF EXCHANGE RATE ON CASH
       (22
)
        (31
)
         
    Net increase in cash and cash equivalents
3,426
 
11,599
 
    Cash and cash equivalents at beginning of period
    2,612
 
1,729
 
    Cash and cash equivalents at end of period
$  6,038
 
$ 13,328
 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:      
    Cash paid during year for:        
    Interest
$ 18,265
 
$ 7,516
 
         
    Income taxes
$ 1,883 
 
$ 15,505
 

See accompanying notes.

5


REGAL-BELOIT CORPORATION

NOTES TO FINANCIAL STATEMENTS

September 30, 2001

1. BASIS OF PRESENTATION

The condensed financial statements include the accounts of Regal-Beloit Corporation and its wholly owned subsidiaries and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. All adjustments which management believes are necessary for 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 accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested these statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K.

2. INVENTORIES

Cost for approximately 87% of the Company's inventory is determined using the last-in, first-out (LIFO) inventory valuation method. The approximate percentage distribution between major classes of inventories is as follows:
 
 
September 30, 2001
December 31, 2000
      Raw Material
11%
11%
      Work-in Process
20%
21%
      Finished Goods
69%
68%

3. ACQUISITIONS

On January 16, 2001, the Company acquired, for cash, selected assets of Philadelphia Gear Company, which now comprises the Company's spiral bevel gear product line. The purchased assets included inventory and selected machinery, equipment and tooling. The operating results and assets purchased are not material to the performance or financial position of the Company.  On September 29, 2000, the Company acquired 100% of the stock of Leeson Electric Corporation ("Leeson"), a private company, for approximately $260,000,000 in cash. During the third quarter of 2001, the purchase price allocation was finalized and the value of the net assets acquired was reduced approximately $4,000,000 to $86,000,000, and goodwill was increased commensurately to $174,000,000. The results of operations and the assets and liabilities of Leeson are included in the performance and financial position of the Company on and after September 29, 2000. The consolidated financial statements 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.

6


4. COMPREHENSIVE INCOME

The Company's comprehensive income is solely impacted by the amount of the cumulative translation adjustment recorded to shareholders' equity. For the quarter ended September 30, 2001, the impact was $4,000 of income resulting in net comprehensive income of $4,707,000 for the quarter. The impact in the third quarter of 2000 was $447,000 of expense resulting in net comprehensive income of $7,997,000. In the nine months of 2001 the impact is an expense of $675,000 resulting in net comprehensive income of $15,154,000. The impact in the nine months of 2000 was $1,163,000 of expense resulting in net comprehensive income of $26,160,000.

5. BUSINESS SEGMENTS

The Company operates two strategic businesses that are reportable segments: the Mechanical Group and the Electrical Group.
 
(In Thousands of Dollars)
Mechanical Group
Electrical Group
Third Quarter
Nine Months
Third Quarter
Nine Months
2001
2000
2001
2000
2001
2000
2001
2000
Net Sales
$51,471
 
$58,799
 
$158,859
 
$186,559
 
$115,248
 
$79,381
 
$356,928
 
$240,833
Income from Operations
$ 3,083
 
$ 6,586
 
$12,245 
 
$ 23,483
 
$10,261 
 
$10,084
 
$ 32,993
 
$ 29,487 
Income from Operations as a % of Net Sales
6.0%
 
11.2%
 
7.7%
 
 
12.6%
 
 
8.9%
 
 
12.7%
 
 
9.2%
 
12.2%

6. NEW ACCOUNTING PRONOUNCEMENTS

On June 30, 2001, the Financial Accounting Standards Board finalized Statements of Financial Accounting Standards No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets".  Statement No. 141 requires all business combinations initiated after June 30, 2001 to use the purchase method of accounting. Under the requirements of Statement No. 142, intangible assets meeting specific criteria will be separately identified from goodwill acquired in future purchase method acquisitions and amortized over their individual useful lives. Also, the Company's existing goodwill at June 30, 2001 will no longer be amortized, effective January 1, 2002. This will eliminate approximately $8,400,000 of annual goodwill amortization and have a favorable annual impact on earnings per share of approximately $.32. An assessment of fair value will be used to test for impairment of goodwill on an annual basis or when circumstances indicate a possible impairment. The Company does not anticipate any other significant impacts from adoption of Statement Nos. 141 and 142.  Additionally, Statement No. 143, "Asset Retirement Obligations", and Statement No. 144, "Impairment or Disposal of Long-Lived Assets", have been issued by the FASB.  The Company does not anticipate any significant impact from their adoption, which is planned for January 1, 2002.
 
 

7



Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations

RESULTS OF OPERATIONS

Net sales for the third quarter of 2001 were $166,719,000, 20.7% higher than net sales of $138,180,000 in the third quarter of 2000. Excluding sales from the Leeson Electric acquisition made in 2000, third quarter 2001 sales were 8.9% below comparable 2000. For the nine months ended September 30, 2001, net sales were $515,787,000, 20.7% greater than $427,392,000 in nine months of 2000. Excluding acquisitions, sales were 10.9% lower this year-to-date versus last. Electrical Group sales in the third quarter and nine months of 2001 were up 45.2% and 48.2%, respectively, from the comparable periods of 2000, but excluding acquisitions were 6.3% and 7.9% lower, respectively. Mechanical Group sales were 12.5% and 14.8% below third quarter and nine months 2000, respectively. The lower sales in both operating Groups were primarily the result of the continuing weakness in industrial manufacturing markets in the United States. (See Note 5 for business segment data.)

Gross profit for the Company was $40,706,000 in the third quarter of 2001, 13.3% higher than third quarter 2000, and was $128,686,000 in nine months of 2001, a 14.6% increase from comparable 2000. Gross profit margin decreased to 24.4% in the third quarter from 26.0% in comparable 2000, and to 24.9% in this year's nine months versus 26.3% last year. The decreases in margin were due primarily to lower sales, lower production levels and increased price competition.

Operating expenses of $27,362,000 in the third quarter and $83,448,000 in 2001 year-to-date were 42.1% and 40.6% higher than the comparable periods of 2000. Excluding acquisitions, however, operating expenses decreased 1.4% and 5.1% from last year, respectively, in the third quarter and nine months of 2001. As a percent of sales, however, operating expenses rose to 16.2% in the nine months of 2001 from 13.9% in comparable 2000. This increase was due primarily to reduced 2001 sales volume resulting from weak demand in industrial markets.

Income from operations of the Company decreased 20.0% to $13,344,000 in the third quarter of 2001 from $16,670,000 in comparable 2000. For nine months of 2001, the decrease was 14.6% from a year previously. As a percent of sales, operating income margin decreased to 8.0% and 8.8% in the third quarter and nine months of 2001, respectively, from 12.1% and 12.4% in the same periods of 2000. These decreases resulted from the combination of the Company's lower gross profit margin and higher operating expenses as a percentage of net sales, both of which have been heavily impacted by the economic slowdown in the industrial economy.

Company interest expense in the third quarter was $5,190,000, compared to $2,514,000 a year previously. For nine months of 2001, interest expense was $18,006,000 versus $7,232,000 in 2000. The increase was due to the increased debt to acquire Leeson Electric in September 2000. Reduced interest rates due to Federal Reserve actions and repayment of $17,000,000 of long-term debt in the third quarter resulted in a $502,000 reduction in interest expense from the second quarter of 2001. The Company's effective tax rate for the third quarter and nine months of 2001 was 42.8% and 42.2%, respectively, as compared to 40.5% and 40.4% for the same periods of 2000, due primarily to the impact on effective tax rates of non-deductible goodwill expense.

8


Net income earned in 2001 was $4,703,000 in the third quarter and $15,829,000 in the nine months, decreases of 44.3% and 42.1%, respectively, from $8,444,000 and $27,323,000 of earnings in the comparable periods last year. Net income as a percent of sales was 2.8% and 3.1% in the third quarter and nine months of 2001, respectively, as compared to 6.1% and 6.4% in those same periods of 2000, for the reasons discussed above. Earnings per share (diluted) were $.22 in the third quarter and $.75 in the nine months of 2001, down from $.40 and $1.30 in the respective periods a year ago.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at September 30, 2001 was $163,968,000, 11.7% below $185,781,000 at December 31, 2000. The decrease was due primarily to lower inventory levels. Current ratio of 2.9:1 at September 30, 2001 compared to 3.3:1 at year-end 2000.

The Company's cash flow from operations was $28,404,000 in the third quarter of 2001 compared to $10,351,000 in 2000. Inventory reductions of approximately $7,600,000 in the third quarter along with cash generated by other assets and liabilities versus cash use last year accounted for the increased operating cash flow. Nine months 2001 operating cash flow of $64,281,000 was 71% higher than $37,626,000 last year. After deducting cash used in investing activities and dividends from the operating cash flow, the Company had sufficient cash to repay nearly $39,000,000 of long-term debt in the first nine months of 2001 and make a small product line acquisition in January 2001. (See Note 3.) Outstanding commitments for future capital expenditures at September 30, 2001 were approximately $3,499,000.

Outstanding long-term debt at September 30, 2001 was $354,701,000, a decrease of $17,023,000 from June 30, 2001 and $38,809,000 from December 31, 2000. The Company maintains a $400,000,000 long-term revolving credit facility (the "Facility"). On July 20, 2001, the Company reduced the Facility by $50,000,000 to its current level.  On August 13, 2001, the Company and the participating banks amended the Facility. The amendment revised, effective June 29, 2001, certain financial and other covenants and increased the Company's interest rate by raising the margin over LIBOR the Company pays the banks. The Company was in compliance with the amended covenants as of September 30, 2001. At September 30, 2001, the Company had, after approximately $2,600,000 of standby letters of credit, $46,400,000 of available borrowing capacity. The Company paid an annualized interest rate of approximately 5.3% on its outstanding debt at the end of the third quarter of 2001. Management believes the Facility provides sufficient borrowing capacity for the Company to finance its existing operations for the foreseeable future.
 
 



9


CAUTIONARY STATEMENT

The following is a cautionary statement made under the Private Securities Litigation Reform Act of 1995: With the exception of historical facts, the statements contained in Item 2. of this Form 10-Q may be forward looking statements. Actual results may differ materially from those contemplated. Forward looking statements involve risks and uncertainties, including but not limited to, the following risks: 1) cyclical downturns affecting the markets for capital goods, 2) substantial increases in interest rates that impact the cost of the Company's outstanding debt, 3) the success of Management in increasing sales and maintaining or improving the operating margins of its businesses, 4) the availability of or material increases in the costs of select raw materials or parts, and 5) actions taken by competitors. Investors are directed to the Company's documents, such as its Annual Report on Form 10-K and Form 10-Q's filed with the Securities and Exchange Commission.
 
 

PART II

OTHER INFORMATION








Item 6. Exhibits and Reports on Form 8-K

There were no exhibits or reports on Form 8-K filed during the quarter ended September 30, 2001.
 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
REGAL-BELOIT CORPORATION
(Registrant)
 
 
/S/ Kenneth F. Kaplan
Kenneth F. Kaplan
Vice President - Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)

DATE: November 14, 2001
 
 

10