Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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| incorporation or organization) | |
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(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
| YES | X | NO |
Indicate the number of shares outstanding of each of the issuers' classes of common stock as of the latest practicable date.
25,001,185 Shares, Common Stock, $.01 Par Value
1
FORM 10-Q
For Quarter Ended March 31, 2002
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| PART I - FINANCIAL INFORMATION | |
| Item 1 - Financial Statements | |
| Condensed Balance Sheets |
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| Statements of Income |
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| Condensed Statements of Cash Flows |
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| Notes to Financial Statements |
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| Item 2 - Management's Discussion and Analysis of Financial |
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| Condition and Results of Operations | |
| PART II - OTHER INFORMATION | |
| Item 6 - Exhibits and Reports on Form 8-K |
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| Signature |
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2
PART I
FINANCIAL INFORMATION
REGAL-BELOIT CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
| Item I.
Financial
Statements
ASSETS
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March 31, 2002 |
Statements) Dec. 31, 2001 |
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| Current Assets: | ||||
| Cash and Cash Equivalents |
$5,675
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$6,629
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| Receivables, less reserves of $1,883 in 2002 and $2,233 in 2001 |
87,588
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80,595
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| Inventories |
124,477
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132,272
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| Other Current Assets |
13,201
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12,003
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| Total Current Assets |
230,941
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231,499
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| Property, Plant and Equipment at Cost |
338,975
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337,481
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| Less - Accumulated Depreciation |
(157,620
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) |
(152,608
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| Net Property, Plant and Equipment |
181,355
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184,873
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| Goodwill |
312,735
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312,735
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| Other Noncurrent Assets |
18,730
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17,492
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| Total Assets |
$743,761
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$746,599
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| Current Liabilities: | ||||
| Accounts Payable |
$ 28,722
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$ 28,429
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| Federal and State Income Taxes |
3,549
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1,848
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| Other Current Liabilities |
38,202
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40,178
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| Total Current Liabilities |
70,473
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70,455
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| Long-Term Debt |
249,637
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345,667
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| Deferred Income Taxes |
43,016
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43,022
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| Other Noncurrent Liabilities |
5,354
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5,304
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| Minority Interest in Consolidated Subsidiary |
2,058
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2,001
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| Shareholders' Investment: | ||||
| Common Stock, $.01 par value, 50,000,000 shares authorized, | ||||
| 25,001,185 issued in 2002 and 20,877,249 issued in 2001 |
250
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210
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| Additional Paid-In Capital |
131,994
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41,967
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| Less-Treasury Stock, at cost, 159,900 Shares in 2002 and in 2001 |
(2,727
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(2,727
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| Retained Earnings |
247,845
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244,564
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| Accumulated Other Comprehensive Loss |
(4,139
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(3,864
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| Total Shareholders' Investment |
373,223
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280,150
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| Total Liabilities and Shareholders' Investment |
$743,761
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$746,599
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Three Months Ended March 31, |
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| Net Sales |
$ 150,380
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$ 177,122
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| Cost of Sales |
114,054
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131,971
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| Gross Profit |
36,326
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45,151
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| Operating Expenses |
23,765
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27,991
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| Income From Operations |
12,561
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17,160
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| Interest Expense |
3,469
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7,124
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| Interest Income |
20
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51
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| Income Before Taxes |
9,112
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10,087
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| Provision For Income Taxes |
3,324
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4,245
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| Net Income |
$ 5,788
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$ 5,842
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| Per Share of Common Stock: | |||||
| Earnings Per Share |
$ .27
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$ .28
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| Earnings Per Share - Assuming Dilution |
$ .27
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$ .28
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| Cash Dividends Declared |
$ .12
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$ .12
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| Average Number of Shares Outstanding |
21,663,170
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20,862,631
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| Average Number of Shares-Assuming Dilution |
21,758,905
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21,110,000
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See accompanying notes.
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Three Months Ended March 31, |
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2002
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2001
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| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||
| Net income |
$ 5,788
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$ 5,842
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| Adjustments to reconcile net income to net cash provided | |||||
| from operating activities: | |||||
| Depreciation, amortization and deferred income taxes |
5,706
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8,035
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| Change in assets and liabilities: | |||||
| Current assets, other than cash |
(1,550
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) |
111
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| Current liabilities, other than notes payable |
78
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467
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| Net cash provided from operating activities |
$ 10,022
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$ 14,455
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| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||
| Additions to property, plant and equipment |
(2,081
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(3,781
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| Business acquisitions |
-0-
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(2,979
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| Sale of property, plant and equipment |
139
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55
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| Other, net |
(549
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3,486
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| Net cash used in investing activities |
(2,491
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(3,219
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| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||
| Proceeds from stock offering |
89,943
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-0-
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| Repayment of long-term debt |
(96,029
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(7,522
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| Repurchase of common stock |
-0-
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(1,042
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| Dividends paid to shareholders |
(2,505
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(2,509
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| Other, net |
124
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98
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| Net cash used in financing activities |
(8,467
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(10,975
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| EFFECT OF EXCHANGE RATE ON CASH |
(18
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(45
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| Net increase in cash and cash equivalents |
(954
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216
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| Cash and cash equivalents at beginning of period |
6,629
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2,612
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| Cash and cash equivalents at end of period |
$ 5,675
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$ 2,828
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| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||
| Cash paid during year for: | |||||
| Interest |
$ 3,620
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$ 7,356
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| Income taxes |
$ 913
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$ 505
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See accompanying notes.
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 86% 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:
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| Raw Material |
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| Work-in Process |
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| Finished Goods |
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3. COMPREHENSIVE INCOME
The Company's comprehensive income is impacted by the amount of the cumulative translation adjustment recorded to shareholders' equity. For the quarter ended March 31, 2002, the impact was $277,000 of expense resulting in net comprehensive income of $5,511,000 for the quarter. The impact in the first quarter of 2001 was $1,069,000 of expense resulting in net comprehensive income of $4,773,000.
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4. BUSINESS SEGMENTS
The Company operates two strategic businesses that are reportable segments: the Mechanical Group and the Electrical Group.
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First Quarter |
First Quarter |
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| Net Sales |
$46,274
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$55,130
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$104,106
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$121,992
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| Income from Operations |
$ 3,806
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$ 6,009
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$ 8,755
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$ 11,151
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| Income from Operations as a % of Net Sales |
8.2%
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10.9%
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8.4%
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9.1%
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Unless the context requires otherwise, references in this Item 2 to "we", "us" or "our" refer collectively to REGAL-BELOIT Corporation and its subsidiaries.
RESULTS OF OPERATIONS
Our net sales were $150,380,000 in the first quarter of 2002, 15.1% below net sales of $177,122,000 in the first quarter of 2001. Net sales of our Electrical Group and Mechanical Group were 14.7% below and 16.1% below, respectively, net sales in the first quarter of 2001. Our decrease in sales was due primarily to the impact of the U.S. economic recession, which led to weak product demand across most of our markets. (See Note 4 to the accompanying financial statements for our business segment data.)
Gross profit decreased 19.5% in the first quarter of 2002 to $36,326,000 from $45,151,000 in the first quarter of 2001. The decrease was due primarily to our lower net sales in 2002. Our gross profit margin decreased to 24.2% of net sales in the first quarter of 2002 from 25.5% in comparable 2001. We lowered our production levels in both the Electrical Group and Mechanical Group to reduce inventories as 2001 progressed. The lower production levels in the first quarter of 2002 were the primary reason for the decrease in gross profit margin from the 2001 first quarter.
Operating expenses in the first quarter of 2002 decreased $4,226,000 (15.1%) from last year's first quarter. Approximately one half of this reduction was due to our January 1, 2002, adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which eliminated amortization of goodwill, all of such goodwill amortization having been in the Electrical Group. The other half of the reduction was due to lower spending in the areas of selling, general and administrative expenses in both the Electrical and Mechanical Groups.
Income from operations in 2002's first quarter of $12,561,000 was 26.8% lower than $17,160,000 in the first quarter of 2001. As a percent of net sales income from operations declined from 9.7% in the first quarter of 2001 to 8.4% this year, due to our lower gross profit margin.
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Our interest expense declined 51.3% to $3,469,000 in 2002 from $7,124,000 in last year's first quarter. Lower interest rates in the United States and reductions we made in our outstanding debt accounted for the large decrease in interest. Our effective tax rate is also much lower this year versus last, at 36.5% in the first quarter this year as compared to 42.1% in 2001's first quarter. The elimination of goodwill amortization, nearly half of which was not tax deductible, accounted for the majority of the lower tax rate this year.
Our net income earned in the first quarter of 2002 was $5,788,000, or $.27 per diluted share, as compared to $5,842,000, or $.28 per diluted share, in the first quarter of 2001. Our first quarter 2002 earnings per share benefited by approximately $.08 due to the elimination of goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital of $160,468,000 at March 31, 2002, was approximately the same as at year-end 2001. Current ratio, however, improved from 3.1:1 at December 31, 2001 to 3.3:1 at the end of the first quarter of 2002.
We generated $10,022,000 of cash flow from operations during 2002's first quarter, as compared to $14,455,000 in comparable 2001. We reduced inventories $7,795,000 during the first quarter this year, which was the largest factor in the positive operating cash flow. However, a $6,993,000 increase in accounts receivable in the first quarter 2002, due to increasing sales from the fourth quarter of 2001, offset much of the cash from the inventory reduction. The result was that the first quarter's net income and depreciation accounted for the operating cash flow. Our capital expenditures in the first quarter this year were $2,081,000, though we still expect capital spending for all of 2002 to approach the upper teens to $20,000,000. Outstanding commitments for future capital expenditures at March 31, 2002 were approximately $1,100,000.
On March 12, 2002, we completed a secondary public offering of 4,109,985 shares of our common stock including the sale of 536,085 shares from the exercise of the underwriters' over-allotment option. The net proceeds of the shares were approximately $90,000,000, which was used to repay a like amount of our outstanding debt. During the first quarter of 2002, we also repaid an additional $6,030,000 of outstanding debt. As of March 31, 2002, our outstanding debt was $249,637,000, a decrease of $96,030,000 from $345,667,000 at year-end 2001. Our shareholders' investment rose from $280,150,000 at December 31, 2001 to $373,223,000 at March 31, 2002, after paying $2,505,000 in dividends to our shareholders during the quarter.
Our primary financing source is our $350,000,000 long-term revolving credit facility that expires on December 31, 2005. Our credit facility requires us to maintain specified financial ratios and to satisfy certain financial condition tests, with which we were in compliance as of March 31, 2002. At March 31, 2002, we had $246,000,000 outstanding under this credit facility. After deductions for outstanding letters of credit and financial covenant limits, we had approximately $76,000,000 of available borrowing capacity at March 31, 2002. We believe we will be able to satisfy the financial ratios and tests specified in our credit facility for the foreseeable future. We also believe that the combination of borrowing availability under our credit facility and operating cash flow will provide sufficient cash availability to finance our existing operations for the foreseeable future.
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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 our 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 our documents, such as our 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
| a) Exhibits | |||
| Exhibit Number | Exhibit Description | ||
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Amendment to Bylaws of Registrant: Section 3.02 of Bylaws was amended on January 25, 2002, to read as follows: "The term of office of any person serving as a Director shall terminate on the day and hour of the Annual Shareholders Meeting next following the attainment of age 70, except for those Directors elected prior to April 23, 1993. The term of office for Directors elected prior to 1993 shall terminate on the day and hour of the Annual Shareholders Meeting next following the attainment of age 72. The vacancy created as a result of a sitting Director being disqualified by age shall be filled in accordance with Article V (c) of the Articles of Incorporation." | ||
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Bylaws of the Registrant, as amended. | ||
| b) Reports on Form 8-K | |||
| On January 29, 2002, the Company filed a current report on Form 8-K, attaching as an exhibit a Company press release disclosing, among other things, the Company's fourth quarter and year-end financial results for the reporting periods ended December 31, 2001. | |||
| On February 1, 2002, the Company filed a current report on Form 8-K, attaching as exhibits Management's Discussion and Analysis of Financial Statements, Selected Financial Information and the audited Consolidated Financial Statements of the Company relating to the year ended December 31, 2001. Also filed was the form of Second Amendment and Waiver, dated as of January 31, 2002, among the Company, the financial institutions listed on the signature pages thereof, Bank of America, N.A., as Documentation and Syndication Agent, and M&I Marshall & Ilsley Bank, as Administrative Agent. | |||
| On February 11, 2002, the Company filed a current report on Form 8-K pertaining to the action filed against the Company and its Ohio Gear division in the United States District Court for the Central District of Illinois. The plaintiffs in the litigation allege that in 1998 and 1999 Ohio Gear supplied defective differential assemblies that were used in transaxles manufactured by the plaintiffs. |
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: May 1, 2002
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