Wisconsin
|
1-7283
|
39-0875718
|
(State or other jurisdiction of incorporation)
|
(Commission File Number)
|
(IRS Employer Identification No.)
|
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
(a)
|
Financial statements of business acquired
|
(b)
|
Pro forma financial information
|
1)
|
Unaudited Pro Forma Combined Condensed Statement of Earnings for the Year Ended January 1, 2011 and Six Months Ended July 2, 2011.
|
2)
|
Unaudited Pro Forma Combined Condensed Balance Sheet as of July 2, 2011
|
3)
|
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
|
(c)
|
Not Applicable
|
(d)
|
Exhibits. The following exhibits are being filed herewith:
|
|
10.1
|
Shareholders Agreement, dated as of August 22, 2011, by and between Regal Beloit Corporation and A.O. Smith Corporation.*
|
|
99.2
|
Audited financial statements of EPC as of December 31, 2010 and for the year ended December 31, 2010 and the unaudited financial statements of EPC as of June 30, 2011 and for the six months ended June 30, 2011.
|
Exhibit Number
|
Exhibit Description
|
|
10.1
|
Shareholders Agreement, dated as of August 22, 2011, by and between Regal Beloit Corporation and A.O. Smith Corporation.*
|
|
23.1
|
Consent of Ernst & Young, LLP, independent auditors, of A.O. Smith Electrical Products Company.
|
|
99.1
|
News Release of Regal Beloit Corporation, dated August 22, 2011.*
|
|
99.2
|
Audited financial statements of EPC as of December 31, 2010 and for the year ended December 31, 2010 and the unaudited financial statements of EPC as of June 30, 2011 and for the six months ended June 30, 2011.
|
|
99.3
|
Unaudited Pro Forma Combined Condensed Financial Statements.
|
Combined Financial Statements
A.O. Smith Electrical Products Company
(Carved-Out Operation of A.O. Smith Corporation)
Year Ended December 31, 2010
With Report of Independent Auditors
|
REPORT OF INDEPENDENT AUDITORS.........................................................................................................................................................................................................................................................................................................................1
|
COMBINED FINANCIAL STATEMENTS
|
|
Combined Balance Sheet………………………………………………………………………........................................................................................................................................................................................…………..2
|
|
Combined Statement of Income…………………………………………………………………………...........................................................................................................................................................................................3
|
|
Combined Statement of Divisional Equity………………………………………………………….................................................................................................................................................................................................3
|
|
Combined Statement of Cash Flows……………………………………………………………………...........................................................................................................................................................................................4
|
|
Notes to Combined Financial Statements……………………………………………………………..............................................................................................................................................................................................5
|
A.O. Smith Electrical Products Company
|
A.O. Smith Electrical Products Company
|
|||
(Carved-Out Operation of A.O. Smith Corporation)
|
|||
Combined Balance Sheet
|
|||
(Dollars in Millions)
|
|||
December 31, 2010
|
|||
Assets
|
|||
Current assets:
|
|||
Cash and cash equivalents
|
$ | 24.3 | |
Trade receivables
|
110.8 | ||
Inventories
|
135.9 | ||
Deferred taxes
|
2.1 | ||
Derivative contracts assets
|
17.4 | ||
Other current assets
|
6.0 | ||
Total current assets
|
296.5 | ||
Net property, plant, and equipment
|
148.1 | ||
Goodwill
|
248.4 | ||
Other intangibles
|
2.9 | ||
Total assets
|
$ | 695.9 | |
Liabilities and divisional equity
|
|||
Current liabilities:
|
|||
Trade payables
|
$ | 89.5 | |
Accrued payroll and benefits
|
15.2 | ||
Accrued liabilities
|
11.4 | ||
Product warranties
|
4.3 | ||
Income taxes
|
2.5 | ||
Total current liabilities
|
122.9 | ||
Deferred taxes
|
77.2 | ||
Other liabilities
|
1.4 | ||
Total liabilities
|
201.5 | ||
Divisional equity:
|
|||
Retained earnings
|
476.0 | ||
Accumulated other comprehensive income
|
18.4 | ||
Total divisional equity
|
494.4 | ||
Total liabilities and divisional equity
|
$ | 695.9 | |
See accompanying notes.
|
(Carved-Out Operation of A.O. Smith Corporation)
|
||||
Combined Statement of Income
|
||||
(Dollars in Millions)
|
||||
Year Ended December 31, 2010
|
||||
Net sales
|
$ | 705.8 | ||
Cost of products sold
|
548.3 | |||
Gross profit
|
157.5 | |||
Selling, general, and administrative expenses
|
(87.4 | ) | ||
Restructuring and other
|
(0.1 | ) | ||
Interest income
|
0.1 | |||
Other income, net
|
0.7 | |||
70.8 | ||||
Provision for income taxes
|
16.2 | |||
Net earnings from operations
|
$ | 54.6 | ||
See accompanying notes.
|
(Carved-Out Operation of A.O. Smith Corporation)
|
||||||||||||||||
Combined Statement of Divisional Equity
|
||||||||||||||||
(Dollars in Millions)
|
||||||||||||||||
Year Ended December 31, 2010
|
||||||||||||||||
Accumulated
|
||||||||||||||||
other
|
Total
|
|||||||||||||||
Retained
|
comprehensive
|
divisional
|
Comprehensive
|
|||||||||||||
Earnings
|
income
|
equity
|
income
|
|||||||||||||
Balance at the beginning of the year – combined basis
|
$ | 464.8 | $ | 19.5 | $ | 484.3 | $ | – | ||||||||
Net earnings
|
54.6 | – | 54.6 | 54.6 | ||||||||||||
Other comprehensive income:
|
||||||||||||||||
Foreign currency transition adjustments
|
– | 0.3 | 0.3 | 0.3 | ||||||||||||
Unrealized net gain on cash flow derivative
|
||||||||||||||||
instruments, net of tax of $0.9 million
|
– | (1.4 | ) | (1.4 | ) | (1.4 | ) | |||||||||
Net distributions to A.O. Smith Corporation
|
(43.4 | ) | – | (43.4 | ) | – | ||||||||||
Balance at the end of the year
|
$ | 476.0 | $ | 18.4 | $ | 494.4 | $ | 53.5 | ||||||||
See accompanying notes.
|
(Carved-Out Operation of A.O. Smith Corporation)
|
||||
Combined Statement of Cash Flows
|
||||
(Dollars in Millions)
|
||||
Year Ended December 31, 2010
|
||||
Operating activities
|
||||
Net earnings from operations
|
$ | 54.6 | ||
Adjustments to reconcile net earnings from operations to net cash
|
||||
provided by operating activities:
|
||||
Depreciation and amortization
|
26.1 | |||
Gain on sale of assets
|
(0.2 | ) | ||
Deferred income taxes
|
5.8 | |||
Net changes in operating assets and liabilities:
|
||||
Receivables
|
(12.8 | ) | ||
Inventories
|
(31.4 | ) | ||
Other current assets
|
(0.7 | ) | ||
Trade payables
|
13.4 | |||
Accrued liabilities, including payroll and benefits
|
7.6 | |||
Income taxes payable
|
1.6 | |||
Noncurrent assets and liabilities
|
0.6 | |||
Cash provided by operating activities
|
64.6 | |||
Investing activities
|
||||
Capital expenditures
|
(14.3 | ) | ||
Proceeds on sale of assets
|
5.5 | |||
Cash used in investing activities
|
(8.8 | ) | ||
Financing activities
|
||||
Net distributions to A.O. Smith Corporation
|
(46.9 | ) | ||
Cash used in financing activities
|
(46.9 | ) | ||
Net increase in cash and cash equivalents
|
8.9 | |||
Cash and cash equivalents at beginning of year
|
15.4 | |||
Cash and cash equivalents at end of year
|
$ | 24.3 | ||
See accompanying notes.
|
|
1. Organization and Significant Accounting Policies
|
|
Organization
|
|
Methods of Allocation
|
|
1. Organization and Significant Accounting Policies (continued)
|
|
1. Organization and Significant Accounting Policies (continued)
|
|
Allocated Charges
|
Year Ended December 31, 2010
|
|||
|
(In Millions)
|
||
|
|||
Executive compensation
|
$ | 0.8 | |
Corporate services
|
2.0 | ||
Technology center
|
0.3 | ||
Total allocated charges
|
$ | 3.1 |
|
Use of Estimates
|
|
Fair Value of Financial Instruments
|
|
Foreign Currency Translation
|
|
Cash and Cash Equivalents
|
|
Inventory Valuation
|
|
Goodwill and Other Intangibles
|
|
Impairment of Long-Lived and Amortizable Intangible Assets
|
|
Derivative Instruments
|
|
1. Organization and Significant Accounting Policies (continued)
|
|
Commodity Futures Contracts
|
|
1. Organization and Significant Accounting Policies (continued)
|
|
Foreign Currency Forward Contracts
|
|
1. Organization and Significant Accounting Policies (continued)
|
December 31, 2010
|
|||||||
Buy
|
Sell
|
||||||
(In Millions)
|
|||||||
|
|||||||
Chinese renminbi
|
$ | 76.8 | $ | – | |||
Mexican peso
|
74.8 | – | |||||
Total
|
$ | 151.6 | $ | – |
Fair Value of Derivative Instruments
|
||||
December 31, 2010
|
Balance Sheet Location
|
Fair Value
|
||
(In Millions)
|
||||
Commodities contracts
|
Derivatives contracts assets
|
$ | 9.4 | |
Foreign currency contracts
|
Derivatives contracts assets
|
8.0 | ||
Total
|
$ | 17.4 |
|
1. Organization and Significant Accounting Policies (continued)
|
Derivatives in ASC 815 Cash Flow Hedging Relationships
|
Amount of
Gain
Recognized in
OCI on Derivative (Effective Portion)
|
Location of Gain Reclassified From Accumulated
OCI Into Earnings (Effective Portion)
|
Amount of Gain Reclassified From Accumulated
OCI Into
Earnings
(Effective Portion)
|
Location of Gain Recognized in Earnings on Derivative (Ineffective Portion)
|
Amount of Gain Recognized in Earnings on a Derivative (Ineffective Portion)
|
|||||||||||
(In Millions)
|
||||||||||||||||
Commodities contracts
|
$ | 9.4 |
Cost of products sold
|
$ | 12.4 |
Cost of products sold
|
$ | – | ||||||||
Foreign currency contracts
|
10.8 |
Cost of products sold
|
9.0 | N/A | – | |||||||||||
$ | 20.2 | $ | 21.4 | $ | – |
|
Fair Value Measurements
|
|
1. Organization and Significant Accounting Policies (continued)
|
Fair Value Measurement Using
|
|||
(In Millions)
|
|||
Quoted prices in active markets for identical contracts (Level 1)
|
$ | 8.0 | |
Significant other observable inputs (Level 2)
|
9.4 | ||
Total net derivative contracts
|
$ | 17.4 |
|
Revenue Recognition
|
|
Advertising
|
|
Research and Development
|
|
Product Warranties
|
Year Ended December 31, 2010
|
||||
(In Millions)
|
||||
|
||||
Balance at beginning of year
|
$ | 4.2 | ||
Expense
|
4.6 | |||
Claims settled
|
(4.5 | ) | ||
Balance at end of year
|
$ | 4.3 |
|
1. Organization and Significant Accounting Policies (continued)
|
|
Environmental Costs
|
|
Stock-Based Compensation
|
|
Subsequent Events
|
|
2. Inventories
|
December 31, 2010
|
|||
(In Millions)
|
|||
|
|||
Finished products
|
$ | 99.5 | |
Work in process
|
34.3 | ||
Raw materials
|
51.5 | ||
Inventories, at FIFO cost
|
185.3 | ||
LIFO reserve
|
49.4 | ||
$ | 135.9 |
|
3. Property, Plant, and Equipment
|
December 31, 2010
|
|||
(In Millions)
|
|||
|
|||
Land
|
$ | 4.7 | |
Buildings
|
71.0 | ||
Equipment
|
372.3 | ||
Software
|
27.2 | ||
475.2 | |||
Less accumulated depreciation and amortization
|
327.1 | ||
$ | 148.1 |
|
4. Goodwill
|
Year Ended December 31, 2010
|
|||
(In Millions)
|
|||
|
|||
Balance at December 31, 2009
|
$ | 247.9 | |
Currency translation adjustment
|
0.5 | ||
Balance at December 31, 2010
|
$ | 248.4 |
|
5. Debt and Lease Commitments
|
Year ended December 31
|
|||
2011
|
$ | 6.8 | |
2012
|
4.5 | ||
2013
|
3.9 | ||
2014
|
3.5 | ||
2015
|
2.9 | ||
Thereafter
|
2.9 | ||
$ | 24.5 |
|
6. Divisional Equity
|
December 31, 2010
|
|||
|
(In Millions)
|
||
Cumulative foreign currency translation adjustments
|
$ | 8.5 | |
Unrealized net gain on cash flow derivative instruments, net of tax of $6.4 million
|
9.9 | ||
$ | 18.4 |
|
7. Stock-Based Compensation
|
|
7. Stock-Based Compensation (continued)
|
Weighted-Average
Per Share
Exercise Price
|
Year Ended
December 31,
2010
|
|
|
||
Outstanding at beginning of year
|
$ 19.70
|
170,250
|
Granted, 2010 – $27.93 per share
|
–
|
32,100
|
Exercised, 2010 – $19.00 to $23.76 per share
|
21.00
|
(1,900)
|
Outstanding at end of year (2010 – $15.99 to $27.93 per share)
|
$ 21.00
|
200,450
|
Exercisable at end of year
|
$ 19.60
|
117,500
|
Range of
Exercise Prices
|
Options
Outstanding at
December 31,
2010
|
Weighted-
Average
Exercise
Price
|
Options
Exercisable at
December 31,
2010
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Life
|
||||||||||||||
|
|||||||||||||||||||
$ | 15.99 to $19.47 | 123,699 | $ | 17.93 | 82,133 | $ | 17.39 |
7 years
|
|||||||||||
$ | 23.76 to $27.93 | 76,751 | 25.96 | 35,367 | 24.75 |
8 years
|
|||||||||||||
200,450 | 117,500 |
|
7. Stock-Based Compensation (continued)
|
2010
|
|
Expected life (years)
|
6.4
|
Risk-free interest rate
|
3.6%
|
Dividend yield
|
1.9%
|
Expected volatility
|
38.7%
|
|
Restricted Stock and Share Units
|
|
7. Stock-Based Compensation (continued)
|
Number of Units
|
Weighted-Average
Grant Date Value
|
||||||
|
|||||||
Outstanding at January 1, 2010
|
56,501 | $ | 22.21 | ||||
Granted
|
12,259 | 27.93 | |||||
Vested
|
(11,438 | ) | 25.84 | ||||
Outstanding at December 31, 2010
|
57,322 | $ | 22.71 |
|
8. Pension and Other Post-Retirement Benefits
|
|
9. Income Taxes
|
Year Ended December 31, 2010
|
||||
(In Millions)
|
||||
Current:
|
||||
Federal
|
$ | 2.9 | ||
State
|
0.9 | |||
International
|
6.6 | |||
Deferred:
|
||||
Federal
|
5.6 | |||
State
|
1.0 | |||
International
|
(0.8 | ) | ||
$ | 16.2 |
|
9. Income Taxes (continued)
|
Year Ended December 31, 2010
|
||||
|
||||
Provision at U.S. federal statutory rate
|
35.0 | % | ||
State income and franchise taxes, net of federal benefit
|
1.8 | |||
International income tax rate differential
|
(13.6 | ) | ||
Research tax credits
|
(0.5 | ) | ||
Other
|
0.2 | |||
22.9 | % |
Year Ended December 31, 2010
|
|||
|
(In Millions)
|
||
United States
|
$ | 26.2 | |
International
|
44.6 | ||
$ | 70.8 |
|
9. Income Taxes (continued)
|
December 31, 2010
|
|||||||
Assets
|
Liabilities
|
||||||
|
(In Millions)
|
||||||
Employee benefits
|
$ | 0.7 | $ | – | |||
Product liability and warranties
|
2.2 | – | |||||
Inventories
|
3.2 | – | |||||
Property, plant, and equipment
|
– | 5.3 | |||||
Intangibles
|
– | 72.3 | |||||
Derivative instruments
|
– | 6.8 | |||||
All other
|
3.2 | – | |||||
$ | 9.3 | $ | 84.4 | ||||
Net liability
|
$ | – | $ | 75.1 |
Year Ended December 31, 2010
|
||||
|
(In Millions)
|
|||
Current deferred income tax assets
|
$ | (2.1 | ) | |
Long-term deferred income tax liabilities
|
77.2 | |||
Net liability
|
$ | 75.1 |
|
9. Income Taxes (continued)
|
2010
|
||||
|
(In Millions)
|
|||
Balance at January 1
|
$ | 1.5 | ||
Reductions for tax positions of prior years
|
(0.1 | ) | ||
Balance at December 31
|
$ | 1.4 |
|
10. Commitments and Contingencies
|
|
11. Geographic and Other Information
|
2010
|
|||||||
Long-Lived Assets
|
Net Sales
|
||||||
(In Millions)
|
|||||||
|
|||||||
United States
|
$ | 45.7 | $ | 541.1 | |||
Mexico
|
72.7 | 17.7 | |||||
China
|
32.3 | 42.4 | |||||
Other foreign
|
0.3 | 104.6 | |||||
Total
|
$ | 151.0 | $ | 705.8 |
Condensed Combined Financial Statements
A.O. Smith Electrical Products Company
(Carved-out operation of A.O. Smith Corporation)
Six Months Ended June 30, 2011
(unaudited)
|
|
Condensed Combined Financial Statements
|
|
Combined Balance Sheets, as of June 30, 2011 (unaudited) and December 31, 20102.............................................................................................................................................................................................2
|
|
Combined Statements of Income for the six months ended June 30, 2011 and 2010 (unaudited)..........................................................................................................................................................................3
|
|
Combined Statements of Divisional Equity for the six months ended June 30, 2011 and 2010 (unaudited)........................................................................................................................................................4
|
|
|
|
Combined Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited).................................................................................................................................................................5
|
|
Notes to Condensed Combined Financial Statements (unaudited)..........................................................................................................................................................................................................................6
|
Combined Balance Sheets
|
|||||||
(Dollars in Millions)
|
|||||||
June 30, 2011
(unaudited)
|
December 31, 2010
|
||||||
Assets
|
|||||||
Current assets
|
|||||||
Cash and cash equivalents
|
$ | 10.1 | $ | 24.3 | |||
Trade receivables
|
145.4 | 110.8 | |||||
Inventories
|
132.1 | 135.9 | |||||
Deferred taxes
|
4.3 | 2.1 | |||||
Derivative contracts asset
|
12.1 | 17.4 | |||||
Other current assets
|
7.2 | 6.0 | |||||
Total current assets
|
$ | 311.2 | $ | 296.5 | |||
Net property, plant and equipment
|
$ | 142.4 | $ | 148.1 | |||
Goodwill
|
248.7 | 248.4 | |||||
Other Intangibles
|
2.3 | 2.9 | |||||
Total Assets
|
$ | 704.6 | $ | 695.9 | |||
Liabilities and divisional equity
|
|||||||
Current liabilities
|
|||||||
Trade payables
|
$ | 99.7 | $ | 89.5 | |||
Accrued payroll and benefits
|
11.8 | 15.2 | |||||
Accrued liabilities
|
11.1 | 11.4 | |||||
Product warranties
|
3.9 | 4.3 | |||||
Income taxes
|
2.5 | 2.5 | |||||
Total current liabilities
|
129.0 | 122.9 | |||||
Deferred taxes
|
$ | 76.0 | $ | 77.2 | |||
Other Liabilities
|
1.4 | 1.4 | |||||
Total Liabilities
|
$ | 206.4 | $ | 201.5 | |||
Divisional equity
|
|||||||
Retained earnings
|
$ | 483.2 | $ | 476.0 | |||
Accumulated other comprehensive income
|
15.0 | 18.4 | |||||
Total divisional equity
|
$ | 498.2 | $ | 494.4 | |||
Total liabilities and divisional equity
|
$ | 704.6 | $ | 695.9 | |||
See accompanying notes.
|
Combined Statements of Income
|
||||||||
(Dollars in Millions)
|
||||||||
Six Months ended June 30 (unaudited)
|
||||||||
2011
|
2010
|
|||||||
Net sales
|
$ | 424.2 | $ | 356.1 | ||||
Cost of products sold
|
330.0 | 275.7 | ||||||
Gross profit
|
$ | 94.2 | $ | 80.4 | ||||
Selling, general, and administrative expenses
|
(45.6 | ) | (42.3 | ) | ||||
Restructuring and other
|
- | (0.5 | ) | |||||
Interest income
|
0.1 | - | ||||||
Other income, net
|
5.3 | 0.9 | ||||||
$ | 54.0 | $ | 38.5 | |||||
Provision for income taxes
|
14.9 | 11.3 | ||||||
Net earnings from operations
|
39.1 | $ | 27.2 | |||||
See accompanying notes.
|
Combined Statements of Divisional Equity
|
||||||||||||
(Dollars in Millions)
|
||||||||||||
Year ended December 31, 2010
|
||||||||||||
(unaudited)
|
||||||||||||
Retained Earnings
|
Accumulated other comprehensive income
|
Total divisional equity
|
||||||||||
Retained Earnings
|
||||||||||||
Balance at the beginning of the year - combined basis
|
$ | 464.8 | $ | 19.5 | $ | 484.3 | ||||||
Net Earnings
|
54.6 | - | 54.6 | |||||||||
Other comprehensive income:
|
||||||||||||
Foreign currency translation adjustments
|
- | 0.3 | 0.3 | |||||||||
Unrealized net gain on cash flow derivative
instruments net of tax of $0.9
|
- | (1.4 | ) | (1.4 | ) | |||||||
Net distributions to A.O. Smith Corporation
|
(43.4 | ) | - | (43.4 | ) | |||||||
Balance at December 31, 2010
|
$ | 476.0 | $ | 18.4 | $ | 494.4 | ||||||
See accompanying notes.
|
||||||||||||
Retained Earnings
|
Accumulated other comprehensive income
|
Total divisional equity
|
||||||||||
Retained Earnings
|
||||||||||||
Balance at the beginning of the year - combined basis
|
$ | 476.0 | $ | 18.4 | $ | 494.4 | ||||||
Net Earnings
|
39.1 | - | 39.1 | |||||||||
Other comprehensive income:
|
||||||||||||
Foreign currency translation adjustments
|
- | 1.5 | 1.5 | |||||||||
Unrealized net gain on cash flow derivative
instruments, net of tax of $3.2
|
- | (4.9 | ) | (4.9 | ) | |||||||
Net distribution to A.O. Smith Corporation
|
(31.9 | ) | - | (31.9 | ) | |||||||
Balance at June 30, 2011
|
$ | 483.2 | $ | 15.0 | $ | 498.2 | ||||||
See accompanying notes.
|
Combined Statements of Cash Flows
|
||||||||
(Dollars in Millions)
|
||||||||
Six Months ended June 30
|
||||||||
(unaudited)
|
||||||||
Operating activities
|
||||||||
Net earnings from operations
|
2011
|
2010
|
||||||
Adjustments to reconcile net earnings from operations to
net cash provided by operating activities:
|
$ | 39.1 | $ | 27.2 | ||||
Depreciation and amortization
|
13.4 | 13.2 | ||||||
Gain on sale of assets
|
(4.8 | ) | (0.3 | ) | ||||
Deferred income taxes
|
(3.4 | ) | (1.0 | ) | ||||
Net changes in operating assets and liabilities:
|
||||||||
Receivables
|
(34.6 | ) | (31.9 | ) | ||||
Inventories
|
3.8 | (27.3 | ) | |||||
Other current assets
|
4.1 | 8.8 | ||||||
Trade payables
|
10.2 | 23.6 | ||||||
Accrued liabilities, including payroll and benefits
|
(4.1 | ) | 3.0 | |||||
Income taxes payable
|
- | 0.8 | ||||||
Noncurent assets and liabilities
|
0.3 | - | ||||||
Cash provided by operating activities
|
24.0 | 16.1 | ||||||
Investing activities
|
||||||||
Capital expenditures
|
(7.8 | ) | (5.8 | ) | ||||
Proceeds on sale of assets
|
6.1 | - | ||||||
Cash used in investing activities
|
(1.7 | ) | (5.8 | ) | ||||
Financing activities
|
||||||||
Net (distributions to)/receipts from A.O. Smith Corporation
|
(36.5 | ) | (5.5 | ) | ||||
Cash used in financing activities
|
(36.5 | ) | (5.5 | ) | ||||
Net (decrease) increase in cash and cash equivalents
|
(14.2 | ) | 4.8 | |||||
Cash and cash equivalents at beginning of year
|
24.3 | 15.4 | ||||||
Cash and cash equivalents at June 30
|
$ | 10.1 | $ | 20.2 | ||||
See accompanying notes.
|
|
Methods of Allocation
|
|
1. Organization and Significant Accounting Policies (continued)
|
|
1. Organization and Significant Accounting Policies (continued)
|
Six Months Ended June 30, 2011
|
Six Months Ended June 30, 2010
|
||||||
|
(In Millions)
|
(In Millions)
|
|||||
|
|||||||
Executive compensation
|
$ | 0.4 | $ | 0.4 | |||
Corporate services
|
1.0 | 1.0 | |||||
Technology center
|
0.2 | 0.2 | |||||
Total allocated charges
|
$ | 1.6 | $ | 1.6 |
June 30
|
2011
|
2010
|
|||||
Buy
|
Buy
|
||||||
(In Millions)
|
|||||||
|
|||||||
Chinese renminbi
|
$ | 45.8 | $ | 70.6 | |||
Mexican peso
|
46.6 | 91.2 | |||||
Total
|
$ | 92.4 | $ | 161.8 |
Fair Value
|
Fair Value
|
||||||||
Balance Sheet Location
|
June 30, 2011
|
December 31, 2010
|
|||||||
(In Millions)
|
|||||||||
Commodities contracts
|
Other current assets
|
$ | 3.5 | $ | 9.4 | ||||
Foreign currency contracts
|
Other current assets
|
8.6 | 8.0 | ||||||
Total
|
$ | 12.1 | $ | 17.4 |
Derivatives in ASC 815 cash flow hedging relationships
|
Amount of gain/(loss) recognized in OCI on derivative (effective portion)
|
Location of gain/(loss) reclassified from Accumulated OCI into earnings (effective portion)
|
Amount of gain/(loss) reclassified from Accumulated OCI into earnings (effective portion)
|
Location of gain/(loss) recognized in earnings on derivative (ineffective portion)
|
Amount of gain/(loss) recognized in earnings on a derivative (ineffective portion)
|
2011 2010
|
2011 2010
|
2011 2010
|
|||
Commodities contracts
|
$ - ($2.1)
|
Cost of products sold
|
$5.6 $6.6
|
Cost of products sold
|
$0.1 $ -
|
Foreign currency contracts
|
2.4 3.4
|
Cost of products sold
|
5.0 3.8
|
N/A
|
- -
|
$2.4 $1.3
|
$10.6 $10.4
|
$0.1 $0.0
|
Fair Value Measurement Using
|
June 30, 2011
|
December 31, 2010
|
|||||
Quoted Prices In Active Markets for Identical Contracts (Level 1)
|
$ | 8.6 | $ | 8.0 | |||
Significant Other Observable Inputs (Level 2)
|
$ | 3.5 | $ | 9.4 | |||
Total Net derivative contracts
|
$ | 12.1 | $ | 17.4 |
Six Months Ended (dollars in millions)
|
2011
|
2010
|
||||||
(In Millions)
|
(In Millions)
|
|||||||
Balance at beginning of year
|
$ | 4.3 | $ | 4.2 | ||||
Expense
|
0.8 | 1.7 | ||||||
Claims settled
|
(1.2 | ) | (1.9 | ) | ||||
Balance at end of year
|
$ | 3.9 | $ | 4.0 |
2.
|
Inventories
|
June 30, 2010
|
December 31, 2010
|
|||||||
(In Millions)
|
(In Millions)
|
|||||||
|
||||||||
Finished products
|
$ | 108.2 | $ | 99.5 | ||||
Work in process
|
34.3 | 34.3 | ||||||
Raw materials
|
45.0 | 51.5 | ||||||
Inventories, at FIFO cost
|
187.5 | 185.3 | ||||||
LIFO reserve
|
(55.4 | ) | (49.4 | ) | ||||
$ | 132.1 | $ | 135.9 |
June 30, 2011
(in millions)
|
June 30, 2010
(in millions)
|
|||||||
Net earnings
|
$ | 39.1 | $ | 27.2 | ||||
Other comprehensive earnings (loss):
|
||||||||
Foreign currency translation adjustments
|
1.5 | (1.9 | ) | |||||
Unrealized net gains on cash flow derivative instruments less related
|
||||||||
income tax provision: 2011 - $3.2 and 2010 - $4.0
|
(4.9 | ) | (6.2 | ) | ||||
Comprehensive earnings
|
$ | 35.7 | $ | 19.1 |
|
Stock Options
|
Weighted-Average
Per Share
Exercise Price
|
Six Months Ended June 30,
2011
|
|
|
||
Outstanding at January 1, 2011
|
$ 19.60
|
200,450
|
Granted, 2011 – $44.12 per share
|
–
|
12,000
|
Exercised, 2011 – $15.99 to $23.76 per share
|
16.84
|
(56,751)
|
Outstanding at June 30 (2011 – $15.99 to $27.93 per share)
|
$ 24.24
|
155,699
|
Exercisable at June 30, 2011
|
$ 22.18
|
104,549
|
2011
|
2010
|
|
Expected life (years)
|
6.4
|
6.4
|
Risk-free interest rate
|
3.6%
|
3.6%
|
Dividend yield
|
1.3%
|
1.9%
|
Expected volatility
|
38.4%
|
38.7%
|
Number of Units
|
Weighted-Average
Grant Date Value
|
||||||
Outstanding at January 1, 2011
|
57,322 | $ | 22.71 | ||||
Granted
|
4,600 | 43.12 | |||||
Vested
|
(26,024 | ) | 22.35 | ||||
Cancelled
|
(2,445 | ) | 20.82 | ||||
Outstanding at June 30, 2011
|
33,453 | $ | 26.00 |
6.
|
Significant Event
|
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
|
Year Ended January 1, 2011
|
Historical
Regal Beloit
|
Historical
EPC
|
Pro Forma Adjustments (1)
|
Pro Forma Combined
|
||||||||||
Net Sales
|
$ | 2,238.0 | $ | 705.8 | - | $ | 2,943.8 | ||||||
Cost of Sales
|
1,688.6 | 548.3 | - | 2,236.9 | |||||||||
Gross Profit
|
549.4 | 157.5 | 706.9 | ||||||||||
Operating Expenses
|
311.7 | 86.8 | (2) | $ | 10.2 | (3) | 408.7 | ||||||
Income From Operations
|
237.7 | 70.7 | (10.2 | ) | 298.2 | ||||||||
Interest Expense
|
19.6 | - | 23.8 | (4) | 43.4 | ||||||||
Interest Income
|
2.6 | 0.1 | (1.5 | )(5) | 1.2 | ||||||||
Income Before Taxes
|
220.7 | 70.8 | (35.5 | ) | 256.0 | ||||||||
Provision For Income Taxes
|
66.0 | 16.2 | (10.7 | )(6) | 71.5 | ||||||||
Net Income
|
154.7 | 54.6 | (24.8 | ) | 184.5 | ||||||||
Net Income Attributable to Non-controlling Interests
|
5.3 | - | - | 5.3 | |||||||||
Net Income Attributable to Regal Beloit Corporation
|
$ | 149.4 | $ | 54.6 | $ | (24.8 | ) | $ | 179.2 | ||||
Earnings Per Share of Common Stock:
|
|||||||||||||
Basic
|
$ | 3.91 | $ | 4.36 | |||||||||
Assuming Dilution
|
$ | 3.84 | $ | 4.29 | |||||||||
Weighted Average Number of Shares Outstanding:
|
|||||||||||||
Basic
|
38,236,168 | 2,834,026 | (7) | 41,070,194 | |||||||||
Assuming Dilution
|
38,921,699 | 2,834,026 | (7) | 41,755,725 |
1.
|
Inventories have been adjusted to their estimated fair market value. As this adjustment is directly attributed to the Acquisition and will not have a continuing impact, it is not reflected in the Pro Forma Statement of Earnings. However, this inventory adjustment will result in an expense to cost of sales in the periods subsequent to the consummation of the Acquisition during which the related inventories are sold. The estimated expense is approximately $25.9 million (approximately $17.7 million net of tax).
|
2.
|
EPC Operating Expenses include the reclassification of EPC’s historical Other income – net and Restructuring and other (total $0.6 million) to conform with the Company’s statement of earnings classification.
|
3.
|
Reflects the following (in millions):
|
Adjustment for non-recurring, direct, and incremental transaction costs incurred by the Company.
|
$ (1.5)
|
Adjustment to EPC’s historical depreciation expense based on the assigned fair value and estimated useful lives of Net Property, Plant and Equipment.
|
0.3
|
Adjustment to EPC’s historical amortization of Intangible Assets based on the assigned fair value and estimated lives of such assets.
|
11.4
|
$ 10.2
|
4.
|
Reflects the following (in millions):
|
Interest on the new $500 million senior notes at a weighted average interest rate of approximately 4.7%.
|
$ 23.7
|
A 0.125% change in the interest rate payable on the outstanding amount of the new $500 million senior notes would change annual interest expense by approximately $0.6 million before the effect of income taxes.
|
Amortization of the capitalized borrowing costs incurred by the Company in connection with the new $500 million senior notes and amended credit facilities over the term of the facilities.
|
0.1
|
$ 23.8
|
5.
|
Reflects the following (in millions):
|
Adjustments to historical interest income based on the lower amount of available funds to be invested due to the EPC acquisition.
|
$ (1.5)
|
6.
|
Reflects the following (in millions):
|
Pro Forma income taxes have been provided for at local statutory rates by tax jurisdiction. The pro forma combined provision for income taxes may not represent the amounts that would have resulted had the Company and EPC filed consolidated income tax returns during the period presented.
|
$ (10.7)
|
7.
|
Reflects the issuance of shares of common stock for the purchase of EPC.
|
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
|
Six Months Ended July 2, 2011
|
Historical
Regal Beloit
|
Historical
EPC
|
Pro Forma Adjustments (1)
|
Pro Forma Combined
|
||||||||||||
Net Sales
|
$ | 1,344.4 | $ | 424.2 | - | $ | 1,768.6 | ||||||||
Cost of Sales
|
1,029.0 | 330.0 | - | 1,359.0 | |||||||||||
Gross Profit
|
315.4 | 94.2 | - | 409.6 | |||||||||||
Operating Expenses
|
196.5 | 40.3 | (2) | $ | (3.7 | )(3) | 233.1 | ||||||||
Income From Operations
|
118.9 | 53.9 | 3.7 | 176.5 | |||||||||||
Interest Expense
|
9.9 | - | 11.9 | (4) | 21.8 | ||||||||||
Interest Income
|
0.8 | 0.1 | (0.1 | )(5) | 0.8 | ||||||||||
Income Before Taxes
|
109.8 | 54.0 | (8.3 | ) | 155.5 | ||||||||||
Provision For Income Taxes
|
33.0 | 14.9 | (2.5 | )(6) | 45.4 | ||||||||||
Net Income
|
76.8 | 39.1 | (5.8 | ) | 110.1 | ||||||||||
Net Income Attributable to Non-controlling Interests
|
3.6 | - | - | 3.6 | |||||||||||
Net Income Attributable to Regal Beloit Corporation
|
$ | 73.2 | $ | 39.1 | $ | (5.8 | ) | $ | 106.5 | ||||||
Earnings Per Share of Common Stock:
|
|||||||||||||||
Basic
|
$ | 1.89 | $ | 2.57 | |||||||||||
Assuming Dilution
|
$ | 1.87 | $ | 2.53 | |||||||||||
Weighted Average Number of Shares Outstanding:
|
|||||||||||||||
Basic
|
38,646,873 | 2,834,026 | (7) | 41,480,899 | |||||||||||
Assuming Dilution
|
39,182,215 | 2,834,026 | (7) | 42,016,241 |
1.
|
Inventories have been adjusted to their estimated fair market value. As this adjustment is directly attributed to the Acquisition and will not have a continuing impact, it is not reflected in the Pro Forma Statement of Earnings. However, this inventory adjustment will result in an expense to cost of sales in the periods subsequent to the consummation of the Acquisition during which the related inventories are sold. The estimated expense is approximately $25.9 million (approximately $17.7 million net of tax).
|
2.
|
EPC Operating Expenses include the reclassification of EPC’s historical Other income – net ($5.3 million) to conform with the Company’s statement of earnings classification.
|
3.
|
Reflects the following (in millions):
|
Adjustment for non-recurring, direct, and incremental transaction costs incurred by the Company.
|
$ (9.6)
|
Adjustment to EPC’s historical depreciation expense based on the assigned fair value and estimated useful lives of Net Property, Plant and Equipment.
|
0.1
|
Adjustment to EPC’s historical amortization of Intangible Assets based on the assigned fair value and estimated lives of such assets.
|
5.8
|
$ (3.7)
|
4.
|
Reflects the following (in millions):
|
Interest on the new $500 million senior notes at a weighted average interest rate of approximately 4.7%
|
$ 11.8
|
A 0.125% change in the interest rate payable on the outstanding amount of the new $500 million senior notes would change annual interest expense by approximately $0.6 million before the effect of income taxes.
|
Amortization of the capitalized borrowing costs incurred by the Company in connection with the new $500 million senior notes over the term of the notes.
|
0.1
|
$ 11.9
|
5.
|
Reflects the following (in millions):
|
Adjustment to historical interest income based on the lower amount of available funds to be invested due to the EPC acquisition.
|
$ (0.1)
|
6.
|
Reflects the following (in millions):
|
Pro forma income taxes have been provided for at local statutory rates by tax jurisdiction. The pro forma combined provision for income taxes may not represent the amounts that would have resulted had the Company and EPC filed consolidated income tax returns during the period presented.
|
$ (2.5)
|
7.
|
Reflects the issuance of shares of common stock for the purchase of EPC.
|
Historical
|
|||||||||||||||
ASSETS
|
Regal Beloit
|
EPC
|
Pro Forma Adjustments(1)(2)
|
Pro Forma Combined
|
|||||||||||
Current Assets:
|
|||||||||||||||
Cash and Cash Equivalents
|
$ | 275.3 | $ | 10.1 | $ | (255.4 | )(3) | $ | 30.0 | ||||||
Trade Receivables, less Allowances
|
410.6 | 145.4 | - | 556.0 | |||||||||||
Inventories
|
436.4 | 132.1 | 70.8 | (4) | 639.3 | ||||||||||
Prepaid Expenses and Other Current Assets
|
87.8 | 19.3 | - | 107.1 | |||||||||||
Deferred Income Tax Benefits
|
29.6 | 4.3 | (3.6 | )(6) | 30.3 | ||||||||||
Total Current Assets
|
1,239.7 | 311.2 | (188.2 | ) | 1,362.7 | ||||||||||
Net Property, Plant and Equipment
|
412.1 | 142.4 | 15.2 | (4) | 569.7 | ||||||||||
Goodwill
|
793.7 | 248.7 | 121.4 | 1,163.8 | |||||||||||
Intangible Assets, Net of Amortization
|
185.8 | 2.3 | 120.2 | (4) | 308.3 | ||||||||||
Other Noncurrent Assets
|
15.2 | - | 0.9 | (5) | 16.1 | ||||||||||
Total Assets
|
$ | 2,646.5 | $ | 704.6 | $ | 69.5 | $ | 3,420.6 | |||||||
LIABILITIES AND EQUITY
|
|||||||||||||||
Current Liabilities:
|
|||||||||||||||
Accounts Payable
|
$ | 279.3 | $ | 99.7 | - | $ | 379.0 | ||||||||
Dividends Payable
|
7.0 | - | - | 7.0 | |||||||||||
Accrued Compensation and Employee Benefits
|
69.0 | 11.8 | - | 80.8 | |||||||||||
Other Accrued Expenses
|
120.9 | 17.5 | - | 138.4 | |||||||||||
Current Maturities of Debt
|
14.3 | - | - | 14.3 | |||||||||||
Total Current Liabilities
|
490.5 | 129.0 | - | 619.5 | |||||||||||
Long-Term Debt
|
428.0 | - | $ | 500.0 | (8) | 928.0 | |||||||||
Deferred Income Taxes
|
98.7 | 76.0 | (69.6 | )(7) | 105.1 | ||||||||||
Hedging Obligations
|
38.5 | - | - | 38.5 | |||||||||||
Pension and other Post Retirement Benefits
|
55.4 | - | - | 55.4 | |||||||||||
Other Noncurrent Liabilities
|
54.9 | 1.4 | - | 56.3 | |||||||||||
Equity:
|
|||||||||||||||
Regal Beloit Corporation Shareholders' Equity:
|
|||||||||||||||
Common Stock, $.01 par value, 100,000,000 shares
authorized, 41,518,739 shares issued (including
2,834,026 shares issued for acquisition)
|
0.4 | - | - | 0.4 | |||||||||||
Additional Paid-In Capital
|
543.2 | - | 140.9 | (9) | 684.1 | ||||||||||
Retained Earnings
|
887.1 | 483.2 | (486.8 | )(10) | 883.5 | ||||||||||
Accumulated Other Comprehensive Income
|
11.3 | 15.0 | (15.0 | )(11) | 11.3 | ||||||||||
Total Regal Beloit Corporation Shareholders’ Equity
|
1,442.0 | 498.2 | (360.9 | ) | 1,579.3 | ||||||||||
Noncontrolling Interests
|
38.5 | - | - | 38.5 | |||||||||||
Total Equity
|
1,480.5 | 498.2 | (360.9 | ) | 1,617.8 | ||||||||||
Total Liabilities and Equity
|
$ | 2,646.5 | $ | 704.6 | $ | 69.5 | $ | 3,420.6 | |||||||
1.
|
A summary of sources and uses of proceeds for the Acquisition is as follows (in millions):
|
Sources of Funds:
Proceeds from new $500 million senior notes
Cash and cash equivalents
Share based consideration (See also note 2 below)
Total sources of funds
|
$ 500.0
266.5
140.9
$ 907.4
|
Uses of Funds:
Acquisition of EPC including cash acquired
Debt issuance costs
Transaction costs
Total uses of funds
|
$ 889.6
0.9
16.9
$ 907.4
|
2.
|
The allocation of the consideration transferred to acquire EPC is preliminary. The Company is in the process of evaluating the net asset value (as defined in the asset and share purchase agreement) of EPC as of the closing date of the Acquisition in connection with a potential adjustment to the purchase price. The Company is also in the process of reviewing EPC’s financial statement classifications for conformity with the Company’s classifications. As a result of this review, it may be necessary to make additional reclassifications to the consolidated information of EPC on a prospective basis. The acquisition consideration is as follows (in millions):
|
Cash consideration
|
$ | 748.7 | ||
Share-based consideration in Company common shares, based on the August 22, 2011 per share closing price of $49.71
|
140.9 | |||
Total consideration
|
$ | 889.6 |
Cash
|
$ | 10.1 | ||
Receivables
|
145.4 | |||
Inventories
|
202.9 | |||
Other current assets
|
19.3 | |||
Goodwill
|
370.1 | |||
Intangible assets
|
122.5 | |||
Property, plant and equipment
|
157.6 | |||
Liabilities assumed
|
(130.4 | ) | ||
Deferred tax liability associated with purchase accounting adjustments
|
(7.9 | ) | ||
$ | 889.6 |
3.
|
Reflects the following in millions:
|
Cash and cash equivalents for acquisition
|
$ (248.7)
|
Adjustment for cash payment of non-recurring, direct, and incremental transaction costs subsequent to July 2, 2011
|
(5.8)
|
Adjustment for cash payment of debt issuance costs subsequent to July 2, 2011
|
(0.9)
|
$ (255.4)
|
4.
|
Reflects the following preliminary write-up of the assets to fair market value (in millions):
|
Inventories have been adjusted to their estimated fair market value. As this adjustment is directly attributed to the Acquisition and will not have a continuing impact, it is not reflected in the Pro Forma Statements of Earnings. However, this inventory adjustment will result in an expense to cost of sales in the periods subsequent to the consummation of the Acquisition during which the related inventories are sold. The estimated expense is approximately $25.9 million (approximately $17.7 million net of tax).
|
$ 25.9
|
Reversal of EPC’s historical LIFO inventory reserve
|
44.9
|
$ 70.8
|
|
Property, Plant and Equipment will be depreciated over the estimated useful lives of the respective assets using the straight-line method for financial reporting purposes. The depreciation is based on estimated useful lives of 40 years for buildings and five to nine years for machinery and equipment.
|
$ 15.2
|
Intangible assets primarily consist of customer relationship and technology. These intangible assets have finite lives and are expected to be amortized over a period of eight years to fifteen years.
|
$ 120.2
|
5.
|
Capitalization of borrowing costs incurred by the Company in connection with the new $500 million senior notes (in millions).
|
$ 0.9
|
6.
|
Reflects the following (in millions):
|
Elimination of EPC’s historical Deferred Income Tax Benefits.
|
$ (4.3)
|
Income tax effect on payment of acquisition costs directly related to the Acquisition.
|
2.2 |
Current deferred tax liability associated with purchase accounting adjustments using local statutory rates by tax jurisdiction.
|
(1.5)
|
$ (3.6)
|
7.
|
Reflects the following (in millions):
|
Elimination of EPC’s historical Deferred Income Taxes.
|
$ (76.0)
|
Deferred tax asset associated with capitalized acquisition fees for tax purposes.
|
(4.1)
|
Deferred tax liability associated with purchase accounting adjustments using local statutory rates by tax jurisdiction.
|
10.5
|
$ (69.6)
|
8.
|
Proceeds from the $500 million senior notes (in millions).
|
$ 500.0
|
9.
|
Issuance of 2,834,026 shares of common stock for the purchase of EPC based on the Company’s August 22, 2011 per share price of $49.71 (in millions).
|
$ 140.9
|
10.
|
Reflects the following (in millions)
|
|
Costs directly related to the Acquisiton, net of tax, which will be expensed as incurred and are assumed to be incurred on the date of the Acquisition | ||
Pre-tax | $ (5.8) | |
tax | 2.2 | |
Net of tax in accumulated earnings | 3.6 | |
Elimination of EPC's historical retained earnings | $ (483.2) | |
$ (486.8) |
11.
|
Elimination of EPC’s historical accumulated comprehensive income (in millions).
|
$ 15.0
|