-----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, G7ng87bAqimTAaTG7HWLf+PsBdE8AUV1tV8RlWsfQRJjZ+lOaDw60hXH2YKhWdII Cj47QrXeSJYrVSAcAfJ+9w== 0000897069-02-000064.txt : 20020414 0000897069-02-000064.hdr.sgml : 20020414 ACCESSION NUMBER: 0000897069-02-000064 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020201 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGAL BELOIT CORP CENTRAL INDEX KEY: 0000082811 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 390875718 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07283 FILM NUMBER: 02525293 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 8-K 1 slp206.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ----------------------- Date of Report (Date of earliest event reported): February 1, 2002 Regal-Beloit Corporation ----------------------------------------------------- (Exact name of registrant as specified in its charter) Wisconsin 1-7283 39-0875718 - --------------- -------- ---------- (State or other (Commission File (IRS Employer jurisdiction of Number) Identification No.) incorporation) 200 State Street, Beloit, Wisconsin 53511-6254 ------------------------------------------------------ (Address of principal executive offices, including zip code) (608) 364-8800 --------------------- (Registrant's telephone number) Item 5. Other Events. Attached to this Form 8-K as exhibits 99.1, 99.2 and 99.3, respectively, are Management's Discussion and Analysis of Financial Statements, Selected Financial Information and audited Consolidated Financial Statements of Regal-Beloit Corporation (the "Company") relating to the year ended December 31, 2001. Also attached to this Form 8-K as exhibit 99.4 is the form of Second Amendment and Waiver, dated as of January 31, 2001, among Regal-Beloit Corporation, 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. Certain matters disclosed in this Current Report (including the exhibits hereto) are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors, some of which are beyond the Company's control, that could cause actual results to differ materially from those anticipated as of February 1, 2002. Factors that could cause such a variance include, but are not limited to, cyclical downturns affecting the markets for capital goods, substantial increases in interest rates that impact the cost of the Company's outstanding debt, the success of the Company's management in increasing sales and maintaining or improving the operating margins of its business, the availability of or material increases in the costs of select raw materials or parts, the Company's ability to complete its previously announced proposed public offering of common stock, and actions taken by competitors. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this Current Report (including the exhibits hereto) are made only as of February 1, 2002, and the Company undertakes no obligation to update publicly such forward-looking statements to reflect subsequent events or circumstances. Item 7. Financial Statements and Exhibits. (a) Not applicable. (b) Not applicable. (c) Exhibits. The following exhibits are being filed herewith: (23) Consent of Arthur Andersen LLP. (99.1) Management's Discussion and Analysis of Financial Statements of Regal-Beloit Corporation. (99.2) Selected Financial Information of Regal-Beloit Corporation. (99.3) Consolidated Financial Statements of Regal-Beloit Corporation. -2- (99.4) 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. -3- SIGNATURES 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 hereunto duly authorized. REGAL-BELOIT CORPORATION Date: February 1, 2002 By: /s/ Kenneth F. Kaplan ------------------------------- Kenneth F. Kaplan Vice President, Chief Financial Officer and Secretary -4- REGAL-BELOIT CORPORATION Exhibit Index to Current Report on Form 8-K Dated February 1, 2002 Exhibit Number (23) Consent of Arthur Andersen LLP. (99.1) Management's Discussion and Analysis of Financial Statements of Regal-Beloit Corporation. (99.2) Selected Financial Information of Regal-Beloit Corporation. (99.3) Consolidated Financial Statements of Regal-Beloit Corporation. (99.4) 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. -5- EX-23 3 slp206e.txt CONSENT Exhibit (23) Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our report, included in this Form 8-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 February 1, 2002 EX-99.1 4 slp206a.txt MANAGEMENT'S DISCUSSION & ANALYSIS Exhibit (99.1) Unless the context requires otherwise, references below to "we," "us" or "our" refer collectively to Regal-Beloit Corporation and its subsidiaries and references to "EBITDA" refer to our income from operations plus depreciation and amortization. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS The following discussion and analysis should be read together with our consolidated financial statements, including the related notes, filed as Exhibit 99.3 hereto. Overview We are a leading manufacturer and marketer of industrial electric motors, electric power generation components and controls, mechanical motion control products, and cutting tools, serving markets predominantly in the United States as well as throughout the world. Our business is organized in two segments. Our electrical group manufactures and markets a full line of alternating current (AC) and direct current (DC) industrial electric motors, electric power generation components and controls, and electrical connecting devices. Our mechanical group manufactures and markets a broad array of mechanical products, including gears and gearboxes, marine transmissions, high-performance automotive transmissions and ring and pinions, manual valve actuators and cutting tools. We have grown our business in part during the past several years through a series of acquisitions, including the acquisitions of the spiral bevel gear product line of Philadelphia Gear Company in January 2001, Leeson Electric Corporation in September 2000, Thomson Technology, Inc. in June 2000 and the Lincoln Motors business of Lincoln Electric Holdings, Inc. in May 1999. See Note 4 of Notes to Consolidated Financial Statements. Our business is cyclical and dependent on industrial and consumer spending and is therefore impacted by the strength of the economy generally, interest rates and other factors. The economic slowdown that began in mid-2000 and became an economic recession in 2001 was the most significant factor in our reduced performance in 2001. Our net sales, while reaching a record $663,571,000 in 2001, 10.9% greater than in 2000, were down 11.4% when the impact of the two acquisitions we made in 2000 is excluded. Net income in 2001 was $19,590,000, a 42.0% reduction from the previous year. We improved our operating cash flow by more than $29,600,000 in 2001, primarily as a result of reductions in receivables and inventories. Combined with cash flow from net income, depreciation, and amortization, we generated nearly $82,000,000 of operating cash flow in 2001. This enabled us, after funding capital expenditures and paying shareholder dividends, to reduce our outstanding total debt by nearly $48,000,000 during 2001. Results of Operations 2001 versus 2000 Net sales in 2001 were $663,571,000, a 10.9% increase from 2000 net sales of $598,203,000. Excluding those net sales from the 2000 acquisitions of Leeson Electric and Thomson Technology necessary for comparability purposes, our 2001 net sales were 11.4% below 2000 net sales. This decrease was primarily due to reduced sales volumes as a result of the economic recession that impacted both of our operating groups. Electrical group net sales increased 29.1% to $456,956,000 in 2001 from $353,954,000 in 2000. Excluding the two acquisitions we made in 2000, electrical group net sales in 2001 were 8.6% below comparable 2000. Mechanical group net sales decreased 15.4% to $206,615,000 in 2001 from $244,249,000 in 2000. Our gross profit increased 5.4% to $165,877,000 in 2001 from $157,429,000 in 2000. Gross profit as a percentage of net sales (gross profit margin) declined to 25.0% in 2001 from 26.3% in 2000 due primarily to lower production volumes resulting from decreasing sales and planned inventory reductions and to increased price competition. Income from operations declined 21.7% to $56,060,000 in 2001, or 8.4% of net sales, from $71,608,000, or 12.0% of net sales, in 2000. The decrease in income from operations as a percentage of net sales (operating income margin) was due to a combination of the decrease in gross profit margin and an increase in operating expenses as a percentage of net sales to 16.5% in 2001 from 14.3% in 2000. The increase in operating expenses as a percentage of net sales was due primarily to the fact that Leeson Electric selling expenses, as a percentage of net sales, were greater than those we have historically incurred. In addition, a large part of our operating expenses are relatively fixed and our goodwill amortization increased by $3.4 million in 2001. Electrical group operating income margin decreased to 8.8% in 2001 from 11.5% in 2000 and mechanical group operating income margin declined to 7.7% in 2001 from 12.6% in 2000. The decrease in electrical group operating income margin was due primarily to the increase in operating expenses as a percentage of net sales described above. The decrease in mechanical group operating income margin resulted from a combination of higher operating expenses as a percentage of net sales and to a lower 2001 gross profit margin. See Note 10 of Notes to Consolidated Financial Statements. Interest expense increased to $22,239,000 in 2001 from $15,332,000 in 2000, primarily as a result of debt incurred to finance our acquisition of Leeson Electric at the end of September 2000. Interest expense decreased steadily by quarter in 2001, due to declining interest rates and as a result of our reducing total debt by nearly $48,000,000 during 2001. The average rate of interest we paid on outstanding debt in 2001 was 5.9% as compared to 7.4% in 2000. Because our income before income taxes decreased in 2001 from 2000, the impact of non-deductible goodwill amortization resulted in an increase in our effective tax rate in 2001 to 42.5% of income before income taxes from 40.3% in 2000. Net income decreased 42.0% to $19,590,000 in 2001 from $33,771,000 in 2000. As a percentage of net sales, net income decreased to 3.0% in 2001 from 5.6% in 2000. Basic earnings per share were $.94 and diluted earnings per share were $.93 in 2001, as compared to $1.61 (both basic and diluted) in 2000, representing a 41.6% and 42.2% decrease, respectively. 2000 versus 1999 Our net sales increased 8.6% to $598,203,000 in 2000 from $550,661,000 in 1999. Electrical group net sales increased 19.7% to $353,954,000 in 2000 from $295,694,000 in 1999. This increase reflects a full year of sales from Lincoln Motors, which we acquired in 1999. Excluding the Leeson Electric and Thomson Technology acquisitions, the increase in 2000 from 1999 was 3.8%. Mechanical group net sales decreased 4.2% to $244,249,000 in 2000 from $254,967,000 in 1999. This decrease was due primarily to broad-based weakness in the agriculture, transportation, marine, construction equipment and industrial machinery markets, particularly in the second half of 2000. We consider the diversity of markets served by our two operating groups as a key asset; however, new product introductions and increased market penetration achieved in 2000 did not offset the broad-based market slowdown. All net sales, cost of sales and operating expenses have been restated to reflect the required accounting change, adopted October 1, 2000, for shipping and handling billings and costs. As a result of this accounting change, 2000 net sales increased $7,919,000, cost of sales increased $17,930,000, and operating expenses decreased $10,011,000. Similarly, 1999 net sales increased $6,029,000, cost of sales increased $13,321,000 and operating expenses decreased $7,292,000. This change had no impact on net income or income from operations in any period. All prior periods have been restated to reflect this accounting change. Gross profit increased 9.2% to $157,429,000 in 2000 from $144,168,000 in 1999. As a percentage of net sales, gross profit margin of 26.3% in 2000 was slightly higher than 26.2% in 1999. Income from operations decreased 1.1% to $71,608,000 in 2000, or 12.0% of net sales, from $72,440,000, or 13.2% of net sales, in 1999. The decrease in operating income margin was due to an increase in operating expenses as a percentage of net sales to 14.3% in 2000 from 13.0% in 1999. The increased percentage resulted primarily from higher selling expenses during 2000 and to Leeson Electric's selling expenses as a percentage of net sales being greater than those we have historically incurred. Electrical group operating income margin decreased to 11.5% in 2000 from 12.4% in 1999, while the mechanical group operating income margin declined to 12.6% in 2000 from 14.0% in 1999. The operating income margin decrease in the electrical group resulted primarily from increased selling expenses as a percentage of net sales, which were partly offset by improvement in gross profit margin from 1999. Favorable product mix of sales and improved manufacturing productivity enabled the electrical group to more than offset the impact of higher manufacturing costs in 2000. The mechanical group decrease was primarily due to a combination of lower sales volume, higher raw material, fuel and labor costs, reduced production levels and higher selling expenses as a percentage of net sales. Interest expense increased 63.0% to $15,332,000 in 2000 from $9,406,000 in 1999, virtually all as a result of the Leeson Electric acquisition. The higher interest expense was due to a combination of borrowing approximately $260,000,000 to finance the Leeson Electric acquisition, an increase in the interest rate paid on virtually all our debt from 6.9% to 7.9% effective September 29, 2000 and increases during the first half of 2000 in the London Interbank Offered Rate, or LIBOR, the rate upon which the interest rate we pay is based. The average rate of interest we paid on outstanding debt in 2000 was 7.4% 2 as compared to 5.6% in 1999. Our effective tax rate in 2000 increased to 40.3% of income before taxes from 39.8% in 1999. The increase was due primarily to miscellaneous foreign tax-related items in 2000. Net income decreased 11.3% to $33,771,000 in 2000 from $38,067,000 in 1999. Net income as a percentage of net sales decreased to 5.6% in 2000 from 6.9% in 1999. The reduced percentage was due in part to the impact on the fourth quarter of the Leeson Electric acquisition, which added net sales but was approximately neutral to net income as we had expected, and in part to lower earnings in 2000 from our other operations. Basic and diluted earnings per share in 2000 were $1.61, 11.5% and 10.6% below, respectively, 1999's basic earnings per share of $1.82 and diluted earnings per share of $1.80. Liquidity and Capital Resources Our working capital decreased 13.3% to $161,044,000 at December 31, 2001 from $185,781,000 at December 31, 2000. The decrease resulted primarily from an aggregate reduction of more than $33,000,000 in our receivables and inventories in 2001. The reduction in our receivables was due primarily to the impact of the U.S. economic recession on our sales volume and operations and occurred primarily in the fourth quarter of 2001. The decrease in inventories was due in part to planned reductions in production levels and was made primarily in the first nine months of 2001. Despite the reduction in our working capital, our current ratio at December 31, 2001 remained substantially the same as it was at December 31, 2000. Cash flow from operations increased 57.0% to $81,769,000 in 2001 from $52,089,000 in 2000. The major factors contributing to the increased operating cash flow were $16,673,000 from reduced receivables and $17,014,000 from reduced inventories. Cash flow used in investing activities was $18,246,000 in 2001 and $285,020,000 in 2000. The 2000 investing activities included the acquisition of Leeson Electric. In 2001, capital expenditures were $15,426,000 compared to $16,994,000 in 2000. The capital expenditure figures in any year do not include the amounts of property, plant and equipment obtained in connection with our acquisitions. Such capital additions are included as part of acquisition costs under the heading "Business acquisitions" in the Consolidated Statements of Cash Flows. We currently expect capital expenditures for 2002 to be approximately $20,000,000, although our commitments for property, plant and equipment as of December 31, 2001 were $431,000. We believe that our present facilities, augmented by planned capital expenditures, are sufficient to provide adequate capacity for our operations in 2002. Cash flow used in financing activities in 2001 totaled $59,474,000, of which $48,598,000 on a net basis was used to repay debt, $10,022,000 was used to pay shareholder dividends and $1,042,000 was used in January 2001 to repurchase 60,700 shares of our common stock at a weighted average purchase price of $17.17 per share. We have not repurchased any shares of our common stock since January 2001. Our primary financing source is our $375,000,000 long-term revolving credit facility that expires on December 31, 2005. Based on our anticipated borrowing needs, we reduced in 2001 the availability under the credit facility from its initial level of $450,000,000. Our credit facility requires us to maintain specified financial ratios and to satisfy certain financial condition tests. During August 2001, we also amended our credit facility to revise certain financial and other covenants, which resulted in an increase to the interest rate we currently pay under the credit facility. We were in compliance with all of the financial ratios and financial condition tests specified by our amended credit agreement as of December 31, 2001. In January 2002, in anticipation that we would not, as of March 31, 2002, satisfy the required funded debt to EBITDA ratio specified by our credit agreement, we further amended our credit facility to provide what we believe to be sufficient relief from the funded debt covenant through May 30, 2002. If, after May 30, 2002, we fail for any reason to meet the required ratios and tests, then we will need to seek additional covenant waivers from our lenders or be in default under our credit agreement. Although we believe that we would be able to obtain additional covenant relief, if necessary, we cannot assure you that our lenders would waive any future failure to meet those ratios and tests. If an event of default under our credit facility occurs, then the lenders could elect to declare all amounts outstanding under the credit facility, together with accrued interest, to be immediately due and payable. On January 29, 2002, we announced our intent to effect a public offering of 3,000,000 shares of common stock. We would use the net proceeds from the offering to repay debt under our credit facility. If we complete the public offering as contemplated, we believe we will be able to satisfy the financial ratios and tests specified in our credit facility for the foreseeable future without the need for additional waivers from our lenders, absent unexpected changes in general business and economic conditions. The maximum amount that we could borrow under our credit facility would be reduced to $350,000,000 in the event we successfully complete the proposed public offering. At December 31, 2001, we had, after deducting approximately $2,800,000 of standby letters of credit, $30,200,000 of available borrowing capacity. We believe that the combination of borrowing availability under our credit facility, operating 3 cash flow and our ability to access other financial markets and to obtain any additional covenant waivers under the credit facility if needed will provide sufficient cash availability to finance our existing operations for the foreseeable future. Our outstanding total debt of $345,787,000 at December 31, 2001 reflected a reduction of $47,829,000 from $393,616,000 at December 31, 2000. The debt reduction was due primarily to the application of cash generated from operations by the above-mentioned receivables and inventory reductions. See Note 5 of Notes to Consolidated Financial Statements. As a result of our capital structure, we are exposed to interest rate risk. Virtually all of our debt is under a credit facility with a variable interest rate based on a margin above LIBOR. As a result, interest rate changes impact our future earnings and cash flows assuming other factors are constant. A hypothetical 10% change in our weighted average borrowing rate on the outstanding debt at December 31, 2001, would result in a change in after-tax annual earnings of approximately $900,000. We have no material foreign currency rate risk. In addition, we do not have any material derivative instruments. Recent 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 acquisitions and amortized over their individual useful lives. Also, our 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 net income of approximately $6,700,000. As of December 31, 2001, we had goodwill on our balance sheet of $312,735,000, relating to our acquisitions of Leeson Electric, Marathon Electric and, to a lesser extent, Thomson Technology. The amount of goodwill constituted approximately 42.0% of our total assets. 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. We have not yet determined what the effect of these tests will be on our earnings and financial position, however we do not expect the impact to be material. Additionally, Statement No. 143, "Asset Retirement Obligations", and Statement No. 144, "Impairment or Disposal of Long-Lived Assets", have been issued by the FASB. Adoption of these Statements on January 1, 2002 will not have a material adverse effect on our consolidated financial statements. * * * Certain matters discussed above are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors, some of which are beyond our control, that could cause actual results to differ materially from those anticipated as of January 31, 2002. Factors that could cause such a variance include, but are not limited to, cyclical downturns affecting the markets for capital goods, substantial increases in interest rates that impact the cost of our outstanding debt, the success of our management in increasing sales and maintaining or improving the operating margins of our business, the availability of or material increases in the costs of select raw materials or parts, our ability to complete our previously announced proposed public offering of common stock, and actions taken by our competitors. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are made only as of January 31, 2002, and we undertake no obligation to update publicly such forward-looking statements to reflect subsequent events or circumstances. 4 EX-99.2 5 slp206b.txt SELECTED FINANCIAL INFORMATION Exhibit (99.2) REGAL-BELOIT Selected Financial Information - --------------------------------------------------------------------------------
Five Year Historical Data (In Thousands, Except Per Share Data) Year Ended December 31, ------------------------------------------------------------------------------ 2001 2000 1999 1998 1997 ------------ ------------- ------------ ------------- ------------ Net Sales........................... $663,571 $598,203 $550,661 $550,277 $493,174 Income from Operations.............. 56,060 71,608 72,440 81,113 74,381 Net Income.......................... 19,590 33,771 38,067 42,961 38,897 Total Assets........................ 746,599 792,407 508,165 485,070 488,699 Long-term Debt...................... 345,667 393,510 148,166 166,218 192,261 Shareholders' Investment............ 280,150 273,889 252,626 224,497 189,427 Per Share of Common Stock: Earnings Per Share............. .94 1.61 1.82 2.06 1.87 Earnings Per Share - Assuming Dilution.................... .93 1.61 1.80 2.02 1.83 Cash Dividends Declared........ .48 .48 .48 .48 .48 Shareholders' Investment....... 13.42 13.10 12.04 10.74 9.09 Average Number of Shares Outstanding...................... 20,869 20,984 20,959 20,893 20,806 Average Number of Shares - Assuming Dilution................ 21,124 20,996 21,170 21,278 21,275 Common Stock 2001 2000 ------------------------------------------ -------------------------------------- Price Range Price Range --------------------------- Dividends ----------------------- Dividends High Low Paid High Low Paid ------------- ---------- ----------- -------- --------- ------------ 1st Quarter.................... $22.30 $16.40 $.12 $21.63 $16.50 $.12 2nd Quarter.................... 21.35 16.10 .12 19.00 15.63 .12 3rd Quarter.................... 22.50 16.90 .12 17.78 15.25 .12 4th Quarter.................... 22.90 17.05 .12 19.35 14.60 .12
REGAL-BELOIT has paid 166 consecutive quarterly dividends through January 2002. The number of registered holders of common stock as of December 31, 2001 is 923.
Quarterly Financial Information (In Thousands, Except Per Share Data) --------------------------------------------------------------------------------------------------------- 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. ----------------------- ------------------------ ---------------------- ------------------------ 2001 2000 2001 2000 2001 2000 2001 2000 --------- ----------- ---------- ---------- --------- ---------- --------- ---------- Net Sales......... $177,122 $144,185 $171,946 $145,027 $166,719 $138,180 $147,784 $170,811 Gross Profit...... 45,151 38,322 42,829 38,062 40,706 35,922 37,191 45,123 Income from Operations...... 17,160 18,087 14,734 18,213 13,344 16,670 10,822 18,638 Net Income........ 5,842 9,414 5,284 9,465 4,703 8,444 3,761 6,448 Earnings Per Share .28 .45 .25 .45 .23 .40 .18 .31 Earnings Per Share - Assuming Dilution........ .28 .45 .25 .45 .22 .40 .18 .31 Average Number of Shares Outstanding..... 20,863 20,986 20,866 20,988 20,871 20,944 20,875 20,970 Average Number of Shares - Assuming Dilution........ 21,110 21,033 21,128 20,988 21,129 20,944 21,130 20,970
EX-99.3 6 slp206c.txt CONSOLIDATED FINANCIAL STATEMENTS Exhibit (99.3) 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, 2001 and 2000, and the related consolidated statements of income, shareholders' investment and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 29, 2002 1 REGAL-BELOIT CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Except Share Information) ASSETS
December 31, Current Assets: 2001 2000 ---- ---- Cash and cash equivalents .............................. $ 6,629 $ 2,612 Receivables, less allowance for doubtful accounts of $2,233 in 2001 and $2,031 in 2000 .............. 80,595 97,032 Income tax receivable .................................. 182 4,069 Future income tax benefits ............................. 8,420 9,475 Inventories ............................................ 132,272 148,741 Prepaid expenses ....................................... 3,401 3,709 --------- --------- Total Current Assets .............................. 231,499 265,638 Property, Plant and Equipment: Land and improvements .................................. 11,867 11,898 Buildings and improvements ............................. 85,170 84,171 Machinery and equipment ................................ 240,444 225,617 --------- --------- Property, Plant and Equipment, at cost ............ 337,481 321,686 Less-accumulated depreciation .......................... (152,608) (132,608) --------- --------- Net Property, Plant and Equipment ................. 184,873 189,078 Goodwill ..................................................... 312,735 316,295 Other noncurrent assets ...................................... 17,492 21,396 --------- --------- Total Assets ...................................... $ 746,599 $ 792,407 ========= ========= LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Accounts payable ....................................... $ 28,429 $ 32,298 Dividends payable ...................................... 2,505 2,509 Accrued compensation and employee benefits ............. 20,250 21,941 Other accrued expenses ................................. 17,303 22,849 Federal and state income taxes ......................... 1,848 154 Current maturities of long-term debt ................... 120 106 --------- --------- Total Current Liabilities ......................... 70,455 79,857 Long-term debt ............................................... 345,667 393,510 Deferred income taxes ........................................ 43,022 41,063 Other noncurrent liabilities ................................. 5,304 4,088 Minority interest in consolidated subsidiary ................. 2,001 -- Shareholders' Investment: Commonstock, $.01 par value, 50,000,000 shares authorized, 20,877,249 issued and outstanding in 2001 and 20,912,192 issued and outstanding in 2000 ........................ 210 210 Additional paid-in capital ............................. 41,967 41,779 Less-treasury stock, at cost, 159,900 shares in 2001 and 99,200 shares in 2000 ...................... (2,727) (1,685) Retained Earnings ...................................... 244,564 234,992 Accumulated other comprehensive loss ................... (3,864) (1,407) --------- --------- Total Shareholders' Investment .................... 280,150 273,889 --------- --------- Total Liabilities and Shareholders' Investment .... $ 746,599 $ 792,407 ========= =========
See accompanying Notes to Consolidated Financial Statements. 2 REGAL-BELOIT CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars, Except Shares Outstanding and Per Share Data)
For the Year Ended December 31, ------------------------------- 2001 2000 1999 ---- ---- ---- Net Sales ........................................ $ 663,571 $ 598,203 $ 550,661 Cost of Sales .................................... 497,694 440,774 406,493 ----------- ----------- ----------- Gross Profit ............................... 165,877 157,429 144,168 Operating Expenses ............................... 109,817 85,821 71,728 ----------- ----------- ----------- Income From Operations ..................... 56,060 71,608 72,440 Interest Expense ................................. 22,239 15,332 9,406 Interest Income .................................. 221 274 220 ----------- ----------- ----------- Income Before Income Taxes ................. 34,042 56,550 63,254 Provision for Income Taxes ....................... 14,452 22,779 25,187 ----------- ----------- ----------- Net Income ................................. $ 19,590 $ 33,771 $ 38,067 =========== =========== =========== Earnings Per Share ............................... $ .94 $ 1.61 $ 1.82 =========== =========== =========== Earnings Per Share - Assuming Dilution ........... $ .93 $ 1.61 $ 1.80 =========== =========== =========== Average Number of Shares Outstanding ............. 20,868,896 20,984,423 20,959,182 =========== =========== =========== Average Number of Shares - Assuming Dilution ..... 21,124,204 20,996,189 21,169,580 =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements. 3 REGAL-BELOIT CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT (In Thousands of Dollars, Except Per Share Data)
Accumulated Common Additional Other Comprehensive Stock $.01 Paid-In Treasury Retained Comprehensive Income Par Value Capital Stock Earnings Income (Loss) Total ------ --------- ------- ----- -------- ------------- ----- 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 Adjustments........... (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 Net Income........................ $33,771 -- -- -- 33,771 -- 33,771 Dividends Declared ($.48 per share) -- -- -- (10,066) -- (10,066) Translation Adjustments........... (951) -- -- -- -- (951) (951) ------- Comprehensive Income.............. $32,820 ======= Common Stock Repurchased ......... -- -- (1,685) -- -- (1,685) Stock Options Exercised........... -- 194 -- -- -- 194 ----- ------ ------ -------- ------- -------- Balance, December 31, 2000........ 210 41,779 (1,685) 234,992 (1,407) 273,889 Net Income........................ $19,590 -- -- -- 19,590 -- 19,590 Dividends Declared ($.48 per share) -- -- -- (10,018) -- (10,018) Translation Adjustments........... (928) -- -- -- -- (928) (928) Additional Pension Liability...... (1,529) -- -- -- -- (1,529) (1,529) ------- Comprehensive Income.............. $17,133 -- -- -- -- -- -- ======= Common Stock Repurchased ......... -- -- (1,042) -- -- (1,042) Stock Options Exercised........... -- 188 -- -- -- 188 ----- ------- ------- -------- ------- -------- Balance, December 31, 2001........ $210 $41,967 $(2,727) $244,564 $(3,864) $280,150 ===== ======= ======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. 4 REGAL-BELOIT CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars Except Share Information) For the Year Ended December 31, ------------------------------- 2001 2000 1999 ---- ---- ----
Cash Flows From Operating Activities: Net Income ................................................... $ 19,590 $ 33,771 $ 38,067 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization .......................... 31,798 25,549 23,052 Provision for deferred income taxes .................... 3,014 7,678 1,652 Change in assets and liabilities, net of acquisitions: Receivables ....................................... 16,673 8,321 1,093 Inventories ....................................... 17,014 (5,686) 7,066 Income tax receivable ............................. 3,887 (4,069) -- Current liabilities and other, net ................ (10,207) (13,475) (673) --------- --------- --------- Net cash provided from operating activities ....... 81,769 52,089 70,257 Cash Flows From Investing Activities: Additions to property, plant and equipment ............. (15,426) (16,994) (11,422) Business acquisitions .................................. (3,629) (269,232) (32,083) Sale of property, plant and equipment .................. 650 2,725 49 Other, net ............................................. 159 (1,519) (1,216) --------- --------- --------- Net cash (used in) investing activities ................ (18,246) (285,020) (44,672) Cash Flows From Financing Activities: Additions to long-term debt ............................ 2,000 270,000 1,000 Repayment of long-term debt ............................ (50,598) (24,598) (19,047) Repurchase of common stock ............................. (1,042) (1,685) -- Stock issued under option plans ........................ 188 194 726 Dividends paid to shareholders ......................... (10,022) (10,075) (10,057) --------- --------- --------- Net cash (used in) provided from financing activities... (59,474) 233,836 (27,378) EFFECT OF EXCHANGE RATE ON CASH .............................. (32) (22) (26) --------- --------- --------- Net increase (decrease) in cash and cash equivalents ............................................ 4,017 883 (1,819) Cash and cash equivalents at beginning of year ......... 2,612 1,729 3,548 --------- --------- --------- Cash and cash equivalents at end of year ............... $ 6,629 $ 2,612 $ 1,729 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest .......................................... $ 22,607 $ 14,924 $ 9,520 Income Taxes ...................................... $ 7,265 $ 18,348 $ 24,886
See accompanying Notes to Consolidated Financial Statements. 5 REGAL-BELOIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For The Three Years Ended December 31, 2001 (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 power generation products. The principal markets for the Company's products and technologies are within the United States. - -------------------------------------------------------------------------------- (2) Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. The minority interest in the earnings of the majority owned consolidated subsidiary is not material. Revenue Recognition Sales and related cost of sales for all products are recognized upon shipment of the products, as shipments are FOB shipping point. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") 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, 2001. 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. Life Insurance Policies The Company maintains life insurance policies on certain officers and management which name the Company as beneficiary. The total face value of these policies was $7,963,000 at both December 31, 2001 and 2000. The cash surrender value, net of policy loans, is $251,000 and $3,209,000 at December 31, 2001 and 2000, respectively, and is included as a component of Other Noncurrent Assets. Intangible Assets The cost of goodwill and other intangible assets is amortized on a straight-line basis over the estimated periods benefited ranging from 5 to 40 years. Goodwill amortization was $8,401,000, $4,994,000 and $3,845,000 in 2001, 2000 and 1999, respectively. Accumulated goodwill amortization was $23,965,000 at December 31, 2001 and $15,564,000 at December 31, 2000. 6 Effective January 1, 2002, goodwill will no longer be amortized, in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets". Intangible assets with definitive lives will continue to be amortized. Goodwill and intangible assets will be evaluated in 2002 for impairment of their carrying values and at least annually thereafter. Earnings will be charged if the carrying value of goodwill or an intangible asset exceeds its fair market value. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. The Company assesses these assets for impairment based on estimated future cash flows from these assets. Inventories The approximate percentage distribution between major classes of inventory is as follows: December 31, ---------------------- 2001 2000 --------- --------- Raw Material.................... 11% 11% Work In Process................. 19% 21% Finished Goods and Purchased Parts.............. 70% 68% Inventories are stated at cost, which is not in excess of market. Cost for approximately 87% of the Company's inventory at December 31, 2001 and 89% in 2000, 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 $4,417,000 and $3,233,000 as of December 31, 2001 and 2000, 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, plant and equipment retired or otherwise disposed of is removed from the 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 Shipping and Handling Revenues and Costs Shipping and handling costs are recorded as costs of sales and the related billings are recorded as sales. Reclassifications Certain reclassifications were made to the 2000 and 1999 financial statements to conform to the 2001 presentation. Earnings per Share The difference between basic and diluted earnings per share is attributable to the incremental shares to be issued under the Company's stock option plans which totaled 255,308, 11,766 and 210,398 at December 31, 2001, 2000 and 1999, respectively. 7 - -------------------------------------------------------------------------------- (3) Leases and Rental Commitments Rental expenses charged to operations amounted to $7,314,000 in 2001, $4,934,000 in 2000 and $4,189,000 in 1999. The Company has future minimum rental commitments under operating leases as shown in the following table: Year (In Thousands of Dollars) ------------------ ----------------------------------- 2002 $4,164 2003 3,081 2004 2,926 2005 2,227 2006 1,847 Thereafter 2,037 - -------------------------------------------------------------------------------- (4) 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, a private company, for approximately $260,000,000 in cash. During 2001, the purchase price allocation was finalized and resulted in an increase to goodwill of approximately $4,000,000. This resulted in approximately $86,000,000 of the purchase price being allocated to the net assets acquired, and the remaining $174,000,000 being recorded as goodwill. Leeson is a leading North American manufacturer and marketer of electric motors and related products. On June 29, 2000, the Company acquired the assets and liabilities of Thomson Technology, Inc. ("TTI") for approximately $10,000,000. TTI is a Vancouver, BC, Canada based manufacturer of power systems controls for the worldwide power generation market. 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 800 horsepower. - -------------------------------------------------------------------------------- (5) Long-Term Debt and Bank Credit Facilities
(In Thousands of Dollars) December 31, ------------------------------------------ Long-term debt consists of the following: 2001 2000 -------------------- ------------------ Revolving Credit Facility............................... $342,000 $392,500 Other................................................... 3,787 1,116 -------------------- ------------------ 345,787 393,616 Less-Current maturities................................. 120 106 -------------------- ------------------ Noncurrent portion...................................... $345,667 $393,510 ==================== ==================
The Company maintains a $375,000,000 revolving credit facility which expires December 31, 2005 (the "Facility"). The Facility permits the Company to borrow at interest rates based upon a margin above LIBOR, which margin varies with the ratio of debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). These interest rates also vary with LIBOR. The Facility, as amended during 2001, restricts the payment of dividends to the current $.12 per quarter and also limits acquisitions for cash to $15 million for an individual acquisition and to $30 million in the aggregate. The Company has pledged in the amended facility the stock of its major subsidiaries as security for this agreement. The stock pledge and the dividend and acquisition restrictions are subject to release if the Company's ratio of funded debt to EBITDA meets certain requirements. The Facility also includes various financial covenants regarding minimum net worth, permitted debt levels and minimum interest coverage. The most restrictive financial covenant included in the Facility is the ratio of funded debt to EBITDA. This covenant ratio was 4.15 at December 31, 2001, but declines in future quarters throughout 2002 to 3.25 at December 31, 2002. The Company was in compliance with all financial covenants as of December 31, 2001. 8 The average balance outstanding under the Facility in 2001 was $372,512,000. The average interest rate paid under the Facility in 2001 was 5.9% and was 4.2% at December 31, 2001. The Company had $30,200,000 of available borrowing capacity, after deducting approximately $2,800,000 for standby letters of credit, under the Facility at December 31, 2001. (See Management's Discussion and Analysis of Financial Statements, "Liquidity and Capital Resources"). The Company also has other loans with a total balance outstanding of $3,787,000 at December 31, 2001. The largest is a $2,000,000 industrial development bond issue completed on September 6, 2001. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair market value of long-term debt is not materially different from the carrying value. Maturities of long-term debt are as follows: Year (In Thousands of Dollars) -------------------- --------------------------------- 2002 $120 2003 107 2004 232 2005 342,222 2006 678 Thereafter 2,428 -------- Total $345,787 ======== - -------------------------------------------------------------------------------- (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 plans include defined contribution plans and defined benefit plans. The defined contribution plans provide for company contributions based, depending on the plan, upon one or more of participant contributions, service and profits. Company contributions to defined contribution plans totaled $3,329,000, $4,628,000 and $4,820,000 in 2001, 2000 and 1999, respectively. Benefits provided under defined benefit plans are based, depending on the plan, on employees' average earnings and years of credited service, or a benefit multiplier times years of service. Funding of these qualified defined benefit plans is in accordance with federal laws and regulations. Net periodic pension benefit costs for the defined benefit plans were as follows: (In Thousands of Dollars) -------------------------------------- 2001 2000 1999 ----------- --------- ---------- Service cost...... $1,330 $1,253 $1,375 Interest cost..... 3,078 2,993 2,809 Expected return on plan assets. (5,410) (4,858) (4,158) Net amortization and deferral... (355) (125) 58 ----------- --------- ---------- Net periodic (income) expense........ $(1,357) $(737) $84 =========== ========= ========== 9 The following table presents a reconciliation of the funded status of the defined benefit plans using an assumed discount rate of 7.5% in 2001 and 2000, annual compensation increases of 3.75% in 2001 and 4.5% in 2000, and an assumed long-term rate of return on plan assets of 9.0% in 2001 and 2000. (In Thousands of Dollars) ----------------------------- 2001 2000 ------------- ------------ Change in projected benefit obligation: Obligation at beginning of period......... $41,042 $39,909 Service cost.............................. 1,330 1,253 Interest cost............................. 3,078 2,993 Change in assumptions..................... (882) (1,293) Plan amendments........................... 403 131 Benefits paid............................. (1,863) (1,951) ------------- ------------ Obligation at end of period............... 43,108 41,042 ------------- ------------ Change in fair value of plan assets: Fair value of plan assets at beginning of period.............................. 60,844 60,601 Actual (loss) return on plan assets....... (11,582) 1,827 Employer contributions.................... 282 367 Benefits paid............................. (1,863) (1,951) ------------- ------------ Fair value of plan assets at end of 47,681 60,844 period................................. ------------- ------------ Funded status............................. 4,573 19,802 Unrecognized net actuarial loss (gain).................................. 3,251 (13,289) Unrecognized prior service costs........... 1,252 924 ------------- ------------ Net amount recognized...................... $9,076 $7,437 ============= ============ Amounts recognized in balance sheets: Prepaid benefit cost.................. $11,077 $10,728 Accrued benefit liability............. (3,906) (3,291) Intangible asset...................... 376 -- Accumulated other comprehensive loss............................... 1,529 -- ------------- ------------ Net amount recognized................. $9,076 $7,437 ============= ============ The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the defined benefit plans with accumulated benefit obligations in excess of plan assets were $7,740,000, $7,699,000 and $4,094,000, respectively, as of December 31, 2001, and $3,105,000, $3,054,000 and $0, respectively, as of December 31, 2000. - -------------------------------------------------------------------------------- (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 1987 Stock Option Plan, which has expired as to new grants, has shares previously granted remaining outstanding. Options under all the plans were granted at prices that equalled the market value on the date of the grant and with a maximum term of 10 years from the date of grant. Options vest over various periods up to 10 years. A summary of the Company's three stock option plans follows: 10
At December 31, 2001 ----------------------------------------------------------------- 1987 Plan 1991 Plan 1998 Plan ------------------- -------------------- ------------------ Total Plan shares........................ 450,000 1,000,000 1,000,000 Options granted.......................... 449,850 776,682 691,600 Options outstanding...................... 38,700 745,124 676,300 Options available for grant.............. -- 223,318 308,400
A summary of the status of the Company's three stock option plans as of December 31, 2001, 2000 and 1999, and changes during the years then ended is presented below:
2001 2000 1999 --------------------------- -------------------------- -------------------------- Shares Weighted Shares Weighted Shares Weighted Average Average Average Exercise Exercise Exercise Price Price Price ----------- ----------- ----------- ----------- ----------- ----------- Outstanding at beginning of year................. 1,477,718 $18.01 1,430,682 $18.47 839,018 $14.18 Granted.................... 41,850 18.71 134,750 18.14 705,700 22.65 Exercised.................. (26,194) 7.52 (26,018) 6.97 (78,336) 9.33 Forfeited.................. (33,250) 21.28 (61,696) 22.61 (35,700) 23.43 ----------- ----------- ----------- ----------- ----------- ----------- Outstanding at end of year. 1,460,124 $18.49 1,477,718 $18.01 1,430,682 $18.47 Options exercisable at year-end................ 889,824 865,968 656,265
The following table provides information on the three Plans at various exercise price ranges:
Range of Exercise Prices ----------------------------------------------------------------------------------- $7.18-$10.78 $10.79-$16.18 $16.19-$24.27 $24.28-$32.44 Total -------------- ------------- ------------- ------------ ------------- Options outstanding at 12/31/01 355,510 34,464 963,300 106,850 1,460,124 Options exercisable at 12/31/01 355,510 29,464 401,000 103,850 889,824
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 ("EPS") would have been reduced to the following pro-forma amounts:
(In Thousands, Except Per Share Data) -------------------------------------------------------------- 2001 2000 1999 --------------------- ------------------ --------------- Net income: As Reported................................ $19,590 $33,771 $38,067 Pro Forma.................................. $18,886 $33,018 $36,532 Earnings Per Share As Reported................................ $.94 $1.61 $1.82 Pro Forma.................................. $.91 $1.57 $1.74 Earnings Per Share - Assuming Dilution As Reported................................ $.93 $1.61 $1.80 Pro Forma.................................. $.89 $1.57 $1.73
11 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 2001, 2000 and 1999, respectively: risk-free interest rates of 5.1%, 6.3% and 5.4%; expected dividend yield of 2.5% for all years; expected option lives of 7.0 for all years; expected volatility of 33% in both 2001 and 2000, and 32% in 1999. 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. The Board of Directors approved in 2000 a repurchase program of up to 2,000,000 common shares of Company stock. Management was authorized to effect purchases from time to time in the open market or through privately negotiated transactions. Through December 31, 2001, the Company repurchased 159,900 shares at an average purchase price of $17.06 per share. Management ceased repurchases in January 2001. 12 - -------------------------------------------------------------------------------- (9) Income Taxes Earnings before income taxes consisted of the following: (In Thousands of Dollars) ------------------------------------ 2001 2000 1999 ---------- --------- --------- United States . . . . . . . . . . . . $30,213 $55,879 $62,143 Foreign . . . . . . . . . . . . . . . 3,829 671 1,111 ---------- --------- --------- Total . . . . . . . . . . . . . . . . $34,042 $56,550 $63,254 ========== ========= ========= The provision for income taxes is summarized as follows: (In Thousands of Dollars) ------------------------------------ 2001 2000 1999 ---------- --------- --------- Current Federal . . . . . . . . . . . . . $9,155 $12,858 $20,594 State . . . . . . . . . . . . . . 1,186 1,995 2,321 Foreign . . . . . . . . . . . . . 1,097 248 620 ---------- --------- --------- 11,438 15,101 23,535 Deferred . . . . . . . . . . . . . . . 3,014 7,678 1,652 ---------- --------- --------- $14,452 $22,779 $25,187 ========== ========= ========= A reconciliation of the statutory Federal income tax rate and the effective tax rate reflected in the statements of income follows: 2001 2000 1999 ---------- --------- --------- Federal statutory tax rate . . . . . . 35.0% 35.0% 35.0% State income taxes, net of federal benefit . . . . . . . . . . . . . . . 2.3 2.5 3.0 Nondeductible goodwill amortization 4.0 2.4 2.3 Other, net . . . . . . . . . . . . . . 1.2 .4 (.5) ---------- --------- --------- Effective tax rate . . . . . . . . . . 42.5% 40.3% 39.8% ========== ========= ========= 13 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, 2001 of $34,602,000 is classified on the consolidated balance sheet as a current income tax benefit of $8,420,000 and a long-term deferred income tax liability of $43,022,000. The December 31, 2000 net deferred tax liability was $31,588,000, consisting of a current income tax benefit of $9,475,000 and a long-term deferred income tax liability of $41,063,000. The components of this net deferred tax liability are as follows: (In Thousands of Dollars) December 31 ----------------------------- 2001 2000 ------------ ------------- Federal operating loss carry forward . . . . . . . . $277 $401 Accrued employee benefits . . . . . . . . . . . . . 1,349 1,495 Bad debt reserve . . . . . . . . . . 768 443 Warranty reserve . . . . . . . . . . 682 1,067 Other . . . . . . . . . . . . . . . . 215 2,542 ------------ ------------- Deferred tax assets . . . . . . . 3,291 5,948 Property related . . . . . . . . . . (29,121) (29,643) Inventory . . . . . . . . . . . . . . (4,935) (3,608) Other . . . . . . . . . . . . . . . . (3,837) (4,285) ------------ ------------- Deferred tax liabilities . . . . . (37,893) (37,536) ------------ ------------- Net deferred tax liability. . . . . . $(34,602) $(31,588) ============ ============= - -------------------------------------------------------------------------------- (10) Industry Segment Information The Company'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 electric motors, power generation equipment and related products for sale to original equipment manufacturers and distributors. The Company evaluates performance based on the segments' income from operations. Corporate costs have been allocated to each group based primarily 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 approximately 8%, 4% and 3% of net sales in 2001, 2000 and 1999, respectively. Export sales from U.S. operations were approximately 6% of net sales in 2001, 6% in 2000 and 7% in 1999. 14 Pertinent data for each industry segment in which the Company operated for the three years ended December 31, 2001 is as follows:
(In Thousands of Dollars) ---------------------------------------------------------------------------------------- Depreciation Income From Identifiable Capital and Net Sales Operations Assets Expenditures Amortization ------------- --------------- -------------- -------------- -------------- 2001 Mechanical Group . . . . . $206,615 $15,872 $125,201 $5,110 $8,824 Electrical Group . . . . . 456,956 40,188 621,398(A) 10,316 22,974 ------------- --------------- -------------- -------------- -------------- Total REGAL-BELOIT . . . . $663,571 $56,060 $746,599 $15,426 $31,798 ============= =============== ============== ============== ============== 2000 Mechanical Group . . . . . $244,249 $30,794 $142,145 $6,515 $9,663 Electrical Group . . . . . 353,954 40,814 650,262(A) 10,479 15,886 ------------- --------------- -------------- -------------- -------------- Total REGAL-BELOIT . . . . $598,203 $71,608 $792,407 $16,994 $25,549 ============= =============== ============== ============== ============== 1999 Mechanical Group . . . . . $254,967 $35,732 $145,391 $4,257 $10,910 Electrical Group . . . . . 295,694 36,708 362,774(A) 7,165 12,142 ------------- --------------- -------------- -------------- -------------- Total REGAL-BELOIT . . . . $550,661 $72,440 $508,165 $11,422 $23,052 ============= =============== ============== ============== ============== (A) Includes $312,735 in 2001, $316,295 in 2000 and $143,314 in 1999 of goodwill relating to Electrical Group acquisitions.
15 EX-99.4 7 slp206d.txt SECOND AMENDMENT AND WAIVER Exhibit (99.4) SECOND AMENDMENT AND WAIVER THIS SECOND AMENDMENT AND WAIVER (this "Amendment") dated as of January 31, 2002, is entered into among REGAL-BELOIT CORPORATION (the "Company"), the financial institutions listed on the signature pages hereof (collectively, the "Banks"), BANK OF AMERICA, N.A., as Documentation and Syndication Agent, and M&I MARSHALL & ILSLEY BANK, as Administrative Agent. W I T N E S S E T H : WHEREAS, the Company, the Banks, the Documentation and Syndication Agent and the Administrative Agent are parties to a Credit Agreement, dated as of September 28, 2000 (as previously amended, the "Credit Agreement"; capitalized terms used but not defined herein have the respective meanings ascribed thereto in the Credit Agreement); and WHEREAS, the parties hereto desire to amend, and the Required Banks are willing to waive, certain provisions of the Credit Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1 AMENDMENTS TO CREDIT AGREEMENT. Effective on the Amendment Effective Date (as defined below), the Credit Agreement shall be amended as set forth below. 1.1. Addition of Definition. The following definition is added to Section 1.1 in proper alphabetical sequence: Equity Issuance means any issuance (or series of related issuances) of equity securities by the Company after January 31, 2002 which results in Net Cash Proceeds of $5,000,000 or more. 1.2. Additional Mandatory Reduction of the Commitments. Section 6.1.2 is amended by (a) designating the existing text thereof as clause "(a)"; and (b) adding the following clause (b) thereto: (b) Concurrently with the receipt by the Company of the proceeds of any Equity Issuance, the Commitment Amounts shall be reduced by the amount of the Net Cash Proceeds of such Equity Issuance; provided that the aggregate amount of all reductions of the Commitment Amount made pursuant to this clause (b) shall not exceed $25,000,000. SECTION 2 WAIVERS. The Required Banks hereby waive through May 30, 2002 any failure by the Company to comply with Section 10.6.2 of the Credit Agreement (maximum Funded Debt to EBITDA Ratio) for the Computation Period ending March 31, 2002 so long as the Funded Debt to EBITDA Ratio does not exceed 4.5 to 1.0 as of the end of such Computation Period. The foregoing waiver shall expire on May 30, 2002 and, upon such expiration, an immediate Event of Default shall exist under the Credit Agreement unless (a) the Company is in compliance with Section 10.6.2 of the Credit Agreement as of March 31, 2002; or (b) on May 30, 2002, the pro forma Funded Debt to EBITDA Ratio as of March 31, 2002, calculated after giving effect to any Equity Issuance (as defined in the Amended Credit Agreement (as defined below)) completed after March 31, 2002 and the use of the proceeds thereof, is less than 4.00 to 1.0 (in which event the waivers set forth above of Section 10.6.2 of the Credit Agreement for the period ending March 31, 2002 shall become permanent); or (c) the Required Banks, in their sole and complete discretion, agree to a further waiver of, or an amendment to, Section 10.6.2 of the Credit Agreement for the period ending March 31, 2002. SECTION 3 REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Banks and the Administrative Agent that: 3.1. Authorization; No Conflict. The execution and delivery by the Company of this Amendment and the performance by the Company of its obligations under the Credit Agreement, as amended hereby (as so amended, the "Amended Credit Agreement") have been duly authorized by all necessary corporate action (including any necessary shareholder action), have received all necessary governmental approval (if any shall be required), and do not and will not (a) violate any provision of law or any order, decree or judgment of any court or other government agency which is binding on the Company or any Guarantor, (b) contravene or conflict with, or result in a breach of, any provision of the certificate of incorporation, partnership agreement, by-laws or other organizational documents of the Company or any Guarantor or of any agreement, indenture, instrument or other document which is binding on the Company, any Guarantor or any other Subsidiary, or (c) result in, or require, the creation or imposition of any Lien on any property of the Company, any Guarantor or any other Subsidiary (other than Liens under the Pledge Agreement). 3.2. Validity and Binding Nature. This Amendment has been duly executed and delivered by the Company, and this Amendment and the Amended Credit Agreement are legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors' rights generally and to general principles of equity. 3.3. Reaffirmation of Warranties. The warranties contained in Section 9 of the Amended Credit Agreement (excluding Sections 9.8 and 9.17) are true and correct on the date of this Amendment, except to the extent that such warranties (a) solely relate to an earlier date or (b) are changed by circumstances or events that do not constitute a breach of any covenant set forth in Section 10 of the Amended Credit Agreement. SECTION 4 CONDITIONS PRECEDENT. This Amendment shall become effective as of January 31, 2002 on the date (the "Amendment Effective Date") on which all of the following conditions precedent have been satisfied: 4.1. Receipt of Counterparts. The Administrative Agent shall have received counterpart originals of this Amendment, duly executed by the Company, the Required Banks -2- and the Administrative Agent. For purposes hereof, a facsimile executed copy shall be treated as an original. 4.2. Payment of Fees. The Company shall have paid to the Administrative Agent, for the account of each Bank which has delivered (by facsimile or otherwise) an executed counterpart hereof to the Administrative Agent prior to 5:00 p.m., Chicago time, on January 31, 2002, an amendment fee equal to 0.025% of the amount of such Bank's Commitment after giving effect hereto. 4.3. Confirmation. A confirmation, substantially in the form of Attachment A hereto, signed by each Guarantor. 4.4. No Default. No Event of Default or Unmatured Event of Default shall have occurred and be continuing. 4.5. Certificate. The Administrative Agent shall have received a certificate, dated such date as shall be acceptable to the Administrative Agent and signed by an Executive Officer, as to the matters set forth in Sections 3.3 and 4.4. SECTION 5 MISCELLANEOUS. 5.1. Expenses. The Company agrees to pay on demand all reasonable costs and expenses of the Administrative Agent and the Documentation and Syndication Agent (including fees, charges and expenses of counsel for the Administrative Agent and the Documentation and Syndication Agent) in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and all other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith. All obligations provided in this Section 5.1 shall survive any termination of this Amendment and the Amended Credit Agreement. 5.2. Captions. Section captions used in this Amendment are for convenience only and shall not affect the construction of this Amendment. 5.3. Governing Law. THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. Wherever possible each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable laws, but if any provision of this Amendment shall be prohibited by or invalid under such laws, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment. 5.4. Counterparts. This Amendment may be executed in any number of counterparts, and by the parties hereto on the same or separate counterparts, and each such counterpart, when executed and delivered (including by facsimile), shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment. -3- 5.5. References to Credit Agreement. Except as herein amended or waived, the Credit Agreement shall remain in full force and effect and is hereby ratified in all respects. On and after the effectiveness of the amendments to, and waivers under, the Credit Agreement accomplished hereby, each reference in the Amended Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference to the Credit Agreement in any Note in any other agreement, document or other instrument executed and delivered pursuant to the Amended Credit Agreement, shall mean and be a reference to the Amended Credit Agreement. 5.6. Successors and Assigns. This Amendment shall be binding upon the parties hereto and their respective successors and assigns, and shall inure to the sole benefit of the parties hereto and the successors and assigns of the Administrative Agent and the Banks. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the day and year first above written. REGAL-BELOIT CORPORATION By: ---------------------------------- Title: Vice President, Chief Financial Officer and Secretary M&I MARSHALL & ILSLEY BANK, as Administrative Agent, Issuing Bank, Swing Line Bank and as a Bank By: ---------------------------------- Title: ------------------------- By: ---------------------------------- Title: ------------------------- -4- BANK OF AMERICA, N.A., as Documentation and Syndication Agent and as a Bank By: ---------------------------------- Title: ------------------------- BANK ONE, N.A. (Main Office Chicago) By: ---------------------------------- Title: ------------------------- FIRSTAR BANK, N.A. By: ---------------------------------- Title: ------------------------- THE FUJI BANK, LIMITED By: ---------------------------------- Title: ------------------------- FLEET NATIONAL BANK By: ---------------------------------- Title: ------------------------- -5- HARRIS TRUST AND SAVINGS BANK By: ---------------------------------- Title: ------------------------- THE BANK OF TOKYO-MITSUBISHI, LTD. By: ---------------------------------- Title: ------------------------- LASALLE BANK NATIONAL ASSOCIATION By: ---------------------------------- Title: ------------------------- NORTHERN TRUST COMPANY By: ---------------------------------- Title: ------------------------- WACHOVIA BANK, N.A. By: ---------------------------------- Title: ------------------------- -6- THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND By: ---------------------------------- Title: ------------------------- BANCA NAZIONALE DEL LAVORO, S.P.A.,- New York Branch By: ---------------------------------- Title: ------------------------- THE INDUSTRIAL BANK OF JAPAN, LIMITED By: ---------------------------------- Title: ------------------------- SUMITOMO MITSUI BANKING CORPORATION By: ---------------------------------- Title: ------------------------- By: ---------------------------------- Title: ------------------------- -7- NATIONAL CITY BANK OF MICHIGAN/ ILLINOIS By: ---------------------------------- Title: ------------------------- ST. FRANCIS BANK, F.S.B. By: ---------------------------------- Title: ------------------------- BANCO ESPIRITO SANTO, N.A., New York Branch By: ---------------------------------- Title: ------------------------- By: ---------------------------------- Title: ------------------------- -8- ATTACHMENT A CONFIRMATION BY GUARANTORS To the Agents and the Banks under and as defined in the Credit Agreement referred to below Re: Regal-Beloit Corporation Ladies and Gentlemen: Please refer to the Second Amendment and Waiver dated as of January 31, 2002 (the "Amendment") to the Credit Agreement dated as of September 28, 2000 (the "Credit Agreement") among Regal-Beloit Corporation, various financial institutions, Bank of America, N.A., as Documentation and Syndication Agent, and M&I Marshall & Ilsley Bank, as Administrative Agent. Capitalized terms not defined herein are used as defined in the Credit Agreement. Each of the undersigned hereby confirms to the Agents and the Banks that, after giving effect to the Amendment, the Guaranty continues in full force and effect and is the legal, valid and binding obligation of such undersigned, enforceable against such undersigned in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors' rights generally and to general principles of equity. IN WITNESS WHEREOF, each of the undersigned has caused this Confirmation to be executed and delivered by its duly authorized representative as of January 31, 2002. LEESON ELECTRIC CORPORATION By: ---------------------------------- Name: ------------------------- Title: ------------------------- HUB CITY, INC. By: ---------------------------------- Name: ------------------------- Title: ------------------------- MARATHON ELECTRIC MANUFACTURING CORPORATION By: ---------------------------------- Name: ------------------------- Title: ------------------------- A-2 -----END PRIVACY-ENHANCED MESSAGE-----