Exhibit 13
SELECTED FINANCIAL INFORMATION REGAL-BELOIT CORPORATION
- ------------------------------------------------------------------------------
FIVE YEAR HISTORICAL DATA
(In Thousands, Except Per Share Data)
------------------------------------------------
Year Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Net Sales $544,632 $543,513 $487,019 $281,508 $295,891
Income from Operations 72,440 81,113 74,381 51,120 53,607
Net Income 38,067 42,961 38,897 32,276 32,818
Total Assets 505,100 482,022 485,625 196,996 175,480
Long-term Debt 148,166 166,218 192,261 2,168 2,884
Shareholders Investment 252,626 224,497 189,427 160,023 135,873
Per Share of Common Stock:
Earnings Per Share 1.82 2.06 1.87 1.57 1.60
Earnings Per Share - Assuming Dilution 1.80 2.02 1.83 1.53 1.57
Cash Dividends Declared .48 .48 .48 .48 .39
Shareholders' Investment 12.04 10.74 9.09 7.75 6.61
Average Number of Shares Outstanding 20,959 20,893 20,806 20,617 20,509
Average Number of Shares -
Assuming Dilution 21,170 21,278 21,275 21,075 20,966
COMMON STOCK
- ------------
1999 1998
----------------------------------- -----------------------------------
Price Range Price Range
----------------------- Dividends --------------------- Dividends
High Low Paid High Low Paid
---------- --------- --------- --------- ---------- ---------
1st Quarter $ 23 15/16 $ 15 9/16 $ .12 $ 33 1/4 $ 26 7/8 $ .12
2nd Quarter 25 5/8 17 3/8 $ .12 33 1/4 27 13/16 .12
3rd Quarter 24 1/2 20 $ .12 28 9/16 19 3/8 .12
4th Quarter 23 1/4 20 $ .12 26 7/8 17 1/2 .12
Regal-Beloit has paid 158 consecutive quarterly dividends through January,
2000. The approximate number of registered holders of common stock as of
December 31, 1999 is 1,082.
QUARTERLY FINANCIAL INFORMATION
- -------------------------------
(In Thousands, Except Per Share Data)
-------------------------------------------------------------------------------------
1st Qtr 2nd Qtr. 3rd Qtr. 4th Qtr.
------------------- ------------------- ------------------- -------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
Net Sales $127,260 $137,818 $137,063 $138,981 $142,292 $137,973 $138,017 $128,741
Gross Profit 36,565 39,738 37,629 41,290 38,728 38,907 38,538 37,879
Income from Operations 17,406 19,868 18,519 21,970 18,192 19,848 18,323 19,427
Net Income 9,078 10,414 9,765 11,679 9,467 10,390 9,757 10,478
Earnings Per Share .43 .50 .47 .56 .45 .50 .47 .49
Earnings Per Share -
Assuming Dilution .43 .49 .46 .55 .45 .49 .46 .49
Average Number of
Shares Outstanding 20,933 20,861 20,953 20,898 20,973 20,905 20,978 20,908
Average Number of Shares -
Assuming Dilution 21,122 21,332 21,190 21,349 21,204 21,223 21,163 21,209
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
- ------------------------------------------------------------
REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
OVERVIEW
- --------
Company net sales of $544,632,000 in 1999 were slightly higher than in
1998. Added sales from the May 1999 acquisition of the Company's Lincoln
Motors business (See "Note 4 to Consolidated Financial Statements") were
sufficient to offset lower sales which resulted from nearly a year and
one-half of weakened demand in the industrial market segments the Company
serves. In the fourth quarter of 1999, the Company began to see a modest
improvement in customer orders. Net income in 1999 decreased 11.4% from 1998
to $38,067,000, or $1.80 per share (assuming dilution). The lower 1999
earnings were due primarily to the reduced demand and resulting lower
production levels and to competitive pricing pressures.
Cash flow from operations of $70,257,000 was again strong in 1999, enabling
long-term debt to be reduced 11% to $148,166,000 at year-end 1999, despite the
$32,100,000 borrowed to acquire Lincoln Motors. The Company's capitalization
ratio decreased during 1999 to 37.0% at year-end from 42.5% a year ago.
RESULTS OF OPERATIONS
- ---------------------
1999 versus 1998
- ----------------
Total Company net sales in 1999 of $544,632,000 were slightly above 1998
net sales of $543,513,000. Mechanical Group net sales were $251,963,000, a
10.1% decrease from $280,153,000 in 1998. Electrical Group net sales in 1999
increased 11.1% to $292,669,000 from $263,360,000 in 1998, but would have
decreased slightly if not for the sales added by the Lincoln Motors
acquisition. Broad weakness has characterized the markets for many industrial
manufacturers for over a year and Regal-Beloit has not been an exception.
Company gross profit declined 4.0% in 1999 to $151,460,000 from $157,814,000
in 1998. Gross profit as a percentage of sales decreased to 27.8% in 1999 as
compared to 29.0% in 1998, as both the Mechanical and Electrical Groups
experienced reduced gross margins. Lower production levels and competitive
pricing pressures were the primary reasons for the decreased margins. Income
from operations in 1999 was $72,440,000, or 13.3% of net sales, 10.7% below
$81,113,000, or 14.9% of net sales, in 1998. The reduced gross profit margins
were primarily responsible for the lower operating income margins in both the
Mechanical Group and Electrical Group.
Interest expense was reduced 18.1% from $11,479,000 in 1998 to $9,406,000
in 1999, due primarily to a reduction in average outstanding debt from
$185,626,000 in 1998 to $164,271,000 in 1999 and a decrease in the average
rate of interest the Company paid to 5.6% in 1999 versus 6.1% in 1998.
The Company's effective tax rate increased to 39.8% of income before taxes
in 1999 from 38.6% in 1998. The increase resulted primarily from higher
effective state income tax rates in 1999.
Net income in 1999 totaled $38,067,000, an 11.4% decrease from 1998's record
net income of $42,961,000. Net income as a percent of net sales declined to
7.0% in 1999 from 7.9% in 1998. Earnings per share in 1999 were $1.82 (basic)
and $1.80 (assuming dilution), 11.7% and 10.9% below, respectively, 1998's per
share earnings of $2.06 (basic) and $2.02 (assuming dilution).
1998 versus 1997
- ----------------
Total Company net sales in 1998 were $543,513,000, an 11.6% increase from
$487,019,000 in 1997. Mechanical Group net sales were $280,153,000, 1.8%
below 1997 net sales of $285,174,000. The decrease from 1997 occurred almost
entirely in the fourth quarter of 1998, with many of the Mechanical Group's
customers adjusting their inventories to lower levels as the industrial economy
continued to slow. Electrical Group net sales in 1998 of $263,360,000 were
30.5% higher than the $201,845,000 of net sales for the nine months of 1997
following the acquisition of Marathon Electric. (See "Note 4 to Consolidated
Financial Statements") On a pro-forma basis assuming the acquisition had
occurred January 1, 1997, Electrical Group sales in 1998 were .5% below net
sales of $264,681,000 in 1997.
Income from operations for the Company increased 9.1% to $81,113,000 in
1998 from $74,381,000 in 1997. As a percent of net sales, income from
operations decreased to 14.9% in 1998 from 15.3% the prior year. Mechanical
Group operating income margin decreased to 16.3% in 1998 from 17.0% in 1997,
primarily due to lower sales volume and the related impact on cost of sales.
However, Electrical Group operating income margin increased to 13.4% in 1998
from 12.9% a year previously, due mainly to reductions in operating expenses.
Interest expense increased to $11,479,000 in 1998 from $10,804,000 in 1997,
due to a full year of the acquisition related debt in 1998 versus only nine
months in 1997. For the last nine months of 1998, interest expense of
$8,491,000 was $2,260,000, or 21%, lower than the comparable nine months of
1997. The average rate of interest the Company paid in 1998 was 6.1% as
compared to 6.2% in 1997. Interest income decreased to $306,000 in 1998 from
$810,000 in 1997, due to reduced cash balances.
The Company's effective tax rate decreased to 38.6% of income before taxes
in 1998 from 39.6% in 1997. The decrease was due primarily to reductions in
effective Company state income tax rates in 1998.
Net income of the Company in 1998 was $42,961,000, a 10.4% increase from
$38,897,000 in 1997. On a per share basis, 1998 net income was $2.06 per share
(basic) and $2.02 per share (assuming dilution), 10% higher in each case than
1997 net income of $1.87 per share (basic) and $1.83 per share (assuming
dilution).
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
For several years, and particularly throughout 1999, the Company assessed,
changed as required, and tested its computer hardware and software systems,
machinery and equipment, and facilities equipment, and evaluated its suppliers'
readiness as it related to the Year 2000 date issue. During and after the
year 2000 changeover, the Company has experienced no material Y2K problems and
has not experienced any material Y2K problems from its suppliers of goods or
services. The Company believes the Y2K issue to be behind it.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital increased to $131,370,000 at December 31,
1999, from $117,305,000 a year previously. The increase was due primarily to
the acquisition of Lincoln Motors. The Company's current ratio at year-end
1999 was 3.0:1, unchanged from December 31, 1998.
The Company maintains a $190,000,000 unsecured revolving credit facility
which expires March 26, 2002 (the "Facility"). The Facility permits the
Company to borrow up to the limit of the Facility at interest rates based
upon a margin above LIBOR. At December 31, 1999, $147,000,000 was outstanding
under the Facility, a $19,000,000 reduction from the end of 1998, and, after
adjusting for $1,986,000 of standby letters of credit, the Company had
$41,014,000 of available borrowing capacity. During 1999 the Company paid an
average interest rate of 5.6% for its outstanding debt. The Company was in
compliance with the covenants of the Facility throughout 1999. The Company's
capitalization ratio at December 31, 1999 was 37.0%, down from 42.5% a year
earlier, and its funded debt to EBITDA ratio was 1.55:1 as compared to 1.61:1
at year-end 1998.
Additionally, the Company maintains two short-term credit lines of
$10,000,000 each. At December 31, 1999, there were no borrowings against the
short-term credit lines. Management believes the credit facilities it has
in place provide sufficient borrowing capacity for the Company to finance its
operations for the foreseeable future. Management further believes that future
external growth from acquisitions can be adequately funded from a combination
of operating cash flow, current credit facilities and the Company's ability to
further leverage its equity with additional long-term indebtedness.
Cash flow from operations was $70,257,000 in 1999, a 39.4% increase from
$50,393,000 in 1998. A reduction in inventories in 1999 versus an inventory
increase in 1998 and paydown of liabilities in 1998 not repeated in 1999 were
the primary factors in the increased cash flow. Expenditures for property,
plant and equipment in 1999 were $11,422,000. Commitments for capital items
outstanding at December 31, 1999 were $3,538,000. Management believes its
present facilities, augmented by planned capital expenditures, are sufficient
to provide adequate capacity for its operations in 2000.
In the ordinary course of business, the Company is exposed to market risk,
primarily interest rate risk. The great majority of the Company's debt is
borrowed through credit facilities with floating-rate debt at a rate based
on a margin above LIBOR. As a result, interest rate changes generally do not
affect fair market value but do impact future earnings and cash flows assuming
other factors are constant. A hypothetical 10% change in the Company's
weighted average borrowing rate on the outstanding debt at December 31, 1999,
would result in a change in after-tax annual earnings of approximately
$510,000. The Company has no material foreign currency rate risk.
CONSOLIDATED BALANCE SHEETS REGAL-BELOIT CORPORATION
In Thousands of Dollars
- -------------------------------------------------------------------------------
ASSETS
- ------
December 31,
---------------------------
1999 1998
---------- ----------
Current Assets:
Cash and cash equivalents $ 1,729 $ 3,548
Receivables, less allowance for doubtful
accounts of $1,758 in 1999 and $1,851 in 1998 76,374 69,400
Future income tax benefits 13,180 10,249
Inventories 103,966 91,461
Prepaid expenses 2,999 1,253
---------- ----------
Total Current Assets 198,248 175,911
Property, Plant and Equipment:
Land and land improvements 11,103 11,066
Buildings and improvements 66,835 66,123
Machinery and equipment 189,184 169,774
---------- ----------
Property, Plant and Equipment, at cost 267,122 246,963
Less-Accumulated depreciation (115,749) (99,034)
---------- ----------
Net Property, Plant and Equipment 151,373 147,929
Goodwill 143,314 147,161
Other Noncurrent Assets 12,165 11,021
---------- ----------
Total Assets $ 505,100 $ 482,022
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 28,382 $ 23,791
Dividends payable 2,518 2,509
Accrued compensation and employee benefits 19,223 19,395
Other accrued expenses 16,355 12,359
Federal and state income taxes 352 509
Current maturities of long-term debt 48 43
---------- ----------
Total Current Liabilities 66,878 58,606
Long-term Debt 148,166 166,218
Deferred Income Taxes 37,090 32,507
Other Noncurrent Liabilities 340 194
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,985,905 issued and outstanding
in 1999 and 20,911,540 issued and outstanding
in 1998 210 209
Additional paid-in capital 41,585 40,860
Retained earnings 211,287 183,285
Accumulated other comprehensive income (456) 143
---------- ----------
Total Shareholders' Investment 252,626 224,497
---------- ----------
Total Liabilities and Shareholders' Investment $ 505,100 $ 482,022
========== ==========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
CONSOLIDATED STATEMENTS OF INCOME REGAL-BELOIT CORPORATION
In Thousands of Dollars, Except Shares Outstanding
- --------------------------------------------------------------------------------------
For The Year Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
Net Sales $ 544,632 $ 543,513 $ 487,019
Cost of Sales 393,172 385,699 346,011
---------- ---------- -----------
Gross Profit 151,460 157,814 141,008
Operating Expenses 79,020 76,701 66,627
----------- ----------- -----------
Income From Operations 72,440 81,113 74,381
Interest Expense 9,406 11,479 10,804
Interest Income 220 306 810
----------- ----------- -----------
Income Before Income Taxes 63,254 69,940 64,387
Provision For Income Taxes 25,187 26,979 25,490
----------- ----------- -----------
Net Income $ 38,067 $ 42,961 $ 38,897
=========== =========== ===========
Earnings Per Share $ 1.82 $ 2.06 $ 1.87
=========== =========== ===========
Earnings Per Share - Assuming Dilution $ 1.80 $ 2.02 $ 1.83
========== =========== ===========
Average Number of Shares Outstanding 20,959,182 20,893,182 20,805,844
=========== =========== ===========
Average Number of Shares-Assuming Dilution 21,169,580 21,278,497 21,275,061
=========== =========== ===========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
In Thousands of Dollars, Except Per Share Data
- ------------------------------------------------------------------------------------------------------------------------
Common Accumulated
Stock Additional Other
Comprehensive $.01 Paid-In Retained Comprehensive
Income Par Value Capital Earnings Income Total
------------- --------- ---------- ---------- ------------- ----------
Balance, December 31, 1996 $ 206 $ 37,695 $ 121,453 $ 669 $ 160,023
Net Income $ 38,897 -- -- 38,897 -- 38,897
Dividends Declared ($.48 per share) -- -- (9,993) (9,993)
Translation Adjustment (711) -- -- -- (711) (711)
---------
Comprehensive Income $ 38,186
=========
Stock Options Exercised 2 1,209 -- -- 1,211
-------- --------- ---------- ---------- ----------
Balance, December 31, 1997 208 38,904 150,357 (42) 189,427
Net Income $ 42,961 -- -- 42,961 -- 42,961
Dividends Declared ($.48 per share) -- -- (10,033) -- (10,033)
Translation Adjustment 185 -- -- 185 185
---------
Comprehensive Income $ 43,146
=========
Stock Options Exercised 1 1,956 -- -- 1,957
--------- -------- --------- ---------- ---------- ----------
Balance, December 31, 1998 209 40,860 183,285 143 224,497
Net Income $ 38,067 -- -- 38,067 -- 38,067
Dividends Declared ($.48 per share) -- -- (10,065) -- (10,065)
Translation Adjustment (599) -- -- -- (599) (599)
---------
Comprehensive Income $ 37,468
=========
Stock Options Exercised 1 725 -- -- 726
-------- --------- ----------- ---------- ----------
Balance, December 31, 1999 $ 210 $ 41,585 $ 211,287 $ (456) $ 252,626
======== ========= =========== ========== ==========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS REGAL-BELOIT CORPORATION
In Thousands of Dollars
- ----------------------------------------------------------------------------------------------
For The Year Ended December 31,
----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998 1997
---------- ---------- ----------
Net income $ 38,067 $ 42,961 $ 38,897
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization 23,052 22,039 18,874
Provision for deferred income taxes 1,652 3,673 13,770
Change in assets and liabilities, net of acquisitions:
Receivables 1,093 338 (200)
Inventories 7,066 (5,816) 473
Current liabilities and other, net (673) (12,802) 6,975
---------- ---------- ----------
Net cash provided from operating activities 70,257 50,393 78,789
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (11,422) (14,836) (16,076)
Business acquisition (32,083) -- (279,260)
Sale of property, plant and equipment 49 118 515
Other, net (1,216) (1,400) 356
---------- ---------- ----------
Net cash used in investing activities (44,672) (16,118) (294,465)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt 1,000 -- 242,000
Repayment of long-term debt (19,047) (26,038) (52,532)
Stock issued under option plans 726 1,957 1,211
Dividends to shareholders (10,057) (10,023) (9,970)
---------- ---------- ----------
Net cash (used in) provided from financing activities (27,378) (34,104) 180,709
EFFECT OF EXCHANGE RATE ON CASH: (26) 26 (84)
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (1,819) 197 (35,051)
Cash and cash equivalents at beginning of year 3,548 3,351 38,402
---------- ---------- ----------
Cash and cash equivalents at end of year $ 1,729 $ 3,548 $ 3,351
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 9,520 $ 12,081 $ 10,053
Income Taxes $ 24,886 $ 28,011 $ 9,509
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
For The Three Years Ended December 31, 1999
(1) NATURE OF OPERATIONS
--------------------
Regal-Beloit Corporation (the Company) is a United States-based
multinational corporation. The Company is organized into two operating groups,
the Mechanical Group with its principal line of business in mechanical
products which control motion and torque, and the Electrical Group with its
principal line of business in electric motors and generators. The principal
markets for the Company's products and technologies are within the United
States.
(2) ACCOUNTING POLICIES
-------------------
Principles of Consolidation
- ---------------------------
The financial statements include the accounts of the Company and its wholly
owned subsidiaries.
Revenue Recognition
- -------------------
Sales and related cost of sales for all products are recognized upon
shipment of the products.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, in certain circumstances, that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expense during the reporting period. Actual results could differ from
those estimates.
Foreign Currency Translation
- ----------------------------
Net assets of non-U.S. subsidiaries, whose functional currencies are other
than the U.S. Dollar, are translated at the rates of exchange in effect as of
year end. Income and expense items are translated at the average exchange
rates in effect during the year. The translation adjustments relating to net
assets are recorded directly into a separate component of shareholders'
investment. Certain other translation adjustments continue to be reported in
net income and were not significant in any of the three years ended
December 31, 1999.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist primarily of highly liquid investments
with insignificant interest rate risk and original maturities of three months
or less at date of acquisition. The carrying value of cash equivalents closely
approximates their fair market value.
Inventories
- -----------
The approximate percentage distribution between major classes of inventory
is as follows:
December 31
-------------
1999 1998
---- ----
Raw Material 14% 14%
Work In Process 26% 23%
Finished Goods and Purchased Parts 60% 63%
Inventories are stated at cost, which is not in excess of market. Cost for
approximately 87% of the Company's inventory at December 31, 1999 and 82% in
1998, was determined using the last-in, first-out (LIFO) method. If all
inventories were valued on the first-in, first-out (FIFO) method, they would
have increased by $6,384,000 and $7,030,000 as of December 31, 1999 and 1998,
respectively. Material, labor and factory overhead costs are included in the
inventories.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment is stated at cost. Maintenance and repairs
are charged to expense as incurred and major renewals and improvements are
capitalized.
The cost of property retired or otherwise disposed of is removed from the
property accounts, the accumulated depreciation is removed from related
reserves, and the net gain or loss is reflected in income.
The provisions for depreciation are based on the estimated useful lives of
plant and equipment from the dates of acquisition and are calculated primarily
using the straight-line method for financial reporting purposes and accelerated
methods for income tax purposes. The estimated useful lives are:
Description Life
--------------------------- --------------
Buildings and Improvements 10 to 45 years
Machinery and Equipment 3 to 15 years
(3) LEASES AND RENTAL COMMITMENTS
-----------------------------
Rental expenses charged to operations amounted to $4,189,000 in 1999,
$3,616,000 in 1998 and $3,535,000 in 1997. Future minimum rental commitments
for noncancelable operating leases having a remaining term in excess of one
year as of December 31, 1999 are not material.
(4) ACQUISITIONS
------------
On May 28, 1999, the Company purchased the Lincoln Motors business of
Lincoln Electric Holdings, Inc., for a cash purchase price of approximately
$32,100,000. Lincoln Motors manufactures and markets a line of AC electric
motors from 1 horsepower to 1000 horsepower.
In March 1997, the Company acquired 100% of the stock of Marathon Electric
Manufacturing Corporation for approximately $279,000,000. Marathon Electric
is a leading manufacturer of electric motors and generators. This acquisition
was accounted for as a purchase. Unaudited pro-forma results of operations for
Regal-Beloit Corporation for the year ended December 31, 1997 as though
Marathon Electric had been acquired as of January 1, 1997 are net sales of
$549,855,000, net income of $39,602,000 and basic earnings per share of $1.90.
(5) LONG-TERM DEBT AND BANK CREDIT FACILITIES
-----------------------------------------
(In Thousands of Dollars)
Long-term debt consists of the following: December 31,
-------------------------
1999 1998
--------- ---------
Revolving Credit Facility $ 147,000 $ 166,000
Other 1,214 261
--------- ---------
148,214 166,261
Less-Current maturities 48 43
--------- ---------
Noncurrent portion $ 148,166 $ 166,218
========= =========
The Company maintains a $190,000,000 unsecured revolving credit facility
which expires March 26, 2002 (the "Facility"). The Facility permits the
Company to borrow at rates based upon a margin above LIBOR. The Facility also
includes financial covenants regarding minimum net worth, maximum permitted
debt and minimum interest coverage. The average balance outstanding under the
Facility in 1999 was $163,523,000. The average interest rate paid under the
Facility in 1999 was 5.6%. The Company had $41,014,000 of available borrowing
capacity, after deducting $1,986,000 for standby letters of credit, under the
Facility at December 31, 1999.
The Company also maintained two short-term credit lines of $10,000,000 at
December 31, 1999 and one $10,000,000 short-term credit line at December 31,
1998. There were no outstanding balances on the short-term credit lines at
either December 31, 1999 or December 31, 1998.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt is not materially different than the carrying value.
Maturities of long-term debt are as follows:
Year (In Thousands of Dollars)
------ -------------------------
2000 $ 48
2001 106
2002 147,115
2003 98
2004 and thereafter 847
-----------
Total $ 148,214
===========
(6) CONTINGENCIES
-------------
The Company is, from time to time, party to lawsuits arising from its
normal business operations. It is believed that the outcome of these lawsuits
will have no material effect on the Company's financial position or its results
of operations.
(7) RETIREMENT PLANS
----------------
The Company has a number of retirement plans that cover most of its
employees. The primary plan of the Mechanical Group is a qualified
discretionary profit-sharing plan covering substantially all domestic employees
except those covered by collective bargaining agreements. Total expense for
all profit-sharing and retirement plans of the Mechanical Group was $3,494,000,
$4,044,000, and $4,247,000 in 1999, 1998 and 1997, respectively.
The Electrical Group has defined contribution plans for all salaried and
hourly employees. The plans provide for company contributions based,
depending on the plan, upon one or more of participant contributions,
service, and Electrical Group profits. Electrical Group contributions to the
plans totaled $1,326,000, $1,289,000 and $1,073,000 in 1999, 1998 and 1997,
respectively.
The Electrical Group also has defined benefit pension plans which cover
substantially all employees. Benefits provided under qualified defined
benefit plans are based on employees' average earnings in years immediately
preceding retirement and years of credited service. Funding of the plans is
in accordance with federal laws and regulations.
Net periodic pension benefit costs for the Company sponsored plans were as
follows:
(In Thousands of Dollars)
1999 1998 1997
-------- -------- --------
Service cost $ 1,375 $ 1,201 $ 822
Interest cost 2,809 2,635 1,880
Expected return on
plan assets (4,158) (3,752) (2,570)
Amortization of prior
service cost 58 9 -
--------- --------- ---------
Net periodic benefit cost $ 84 $ 93 $ 132
======== ========= =========
The following table presents a reconciliation of the funded status of the
plans using an assumed discount rate of 7.5% in 1999 and 7.0% in 1998, annual
compensation increases of 4.5% in 1999 and 1998, and an assumed long-term rate
of return on plan assets of 9.0% in 1999 and 1998.
(In Thousands of Dollars)
1999 1998
---------- ----------
Change in projected benefit obligation:
Obligation at beginning
of period $ 40,132 $ 35,316
Service cost 1,375 1,202
Interest cost 2,809 2,635
Change in assumptions (2,846) 1,910
Plan amendments 230 589
Benefits paid (1,791) (1,520)
---------- ----------
Obligation at end of period 39,909 40,132
---------- ----------
Change in fair value of plan assets:
Fair value of plan assets at
beginning of period 48,457 44,937
Actual return on plan
assets 13,604 4,713
Employer contributions 331 327
Benefits paid (1,791) (1,520)
---------- ----------
Fair value of plan assets
at end of period 60,601 48,457
---------- ----------
Funded status 20,692 8,325
Unrecognized net actuarial gain (15,229) (2,934)
Unrecognized prior
service costs 859 684
---------- ----------
Prepaid asset recognized
in balance sheet $ 6,322 $ 6,075
========== ==========
(8) SHAREHOLDERS' INVESTMENT
The Company has two stock option plans available for new grants to officers,
directors and key employees, the 1991 Flexible Stock Incentive Plan and the
1998 Stock Option Plan. Additionally, the Company's 1982 and 1987 Stock Option
Plans, which have expired as to new grants, have shares previously granted
remaining outstanding. Options under all the Plans were granted at prices that
equaled the market value on the date of the grant and with a maximum term of
10 years from the date of grant. A summary of the Company's four stock option
plans follows:
At December 31, 1999
---------------------------------------------
1982 Plan 1987 Plan 1991 Plan 1998 Plan
--------- --------- --------- ---------
Total Plan shares 614,946 450,000 1,000,000 1,000,000
Options granted 609,760 449,850 712,778 665,600
Options outstanding 1,200 81,950 681,932 665,600
Options available for grant - - 287,222 334,400
A summary of the status of the Company's four stock option plans as of
December 31, 1999, 1998 and 1997, and changes during the years then ended is
presented below:
1999 1998 1997
--------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------------------------- -------------------------- --------------------------
Outstanding at beginning of year 839,018 $ 14.18 907,682 $ 13.42 866,418 $ 8.88
Granted 705,700 22.65 88,400 28.31 243,850 24.10
Exercised (78,336) 9.33 (81,564) 11.31 (200,336) 7.54
Forfeited (35,700) 23.43 (75,500) 23.65 (2,250) 18.81
---------- -------- -------- -------- --------- --------
Outstanding at end of year 1,430,682 $ 18.47 839,018 $ 14.18 907,682 $ 13.42
Options exercisable at year-end 656,265 522,981 467,582
The following table provides information on the four Plans at various
exercise price ranges:
Range of Exercise Prices
----------------------------------------------------------------------------------------
$5.56-8.36 $8.37-12.56 $12.57-18.86 $18.87-28.31 $28.32-32.44 Total
---------- ----------- ------------ ------------ ------------ ---------
Options outstanding at 12/31/99 375,494 34,462 62,076 888,500 70,150 1,430,682
Options exercisable at 12/31/99 311,494 34,462 44,826 214,883 50,600 656,265
The Company accounts for its stock option plans under APB Opinion No. 25.
Accordingly, no compensation cost has been recognized in the statements of
income. Had compensation cost for these plans been determined consistent with
FASB Statement No. 123 "Accounting for Stock-Based Compensation", the Company's
net income and earnings per share would have been reduced to the following pro
forma amounts:
(In Thousands, Except Per Share Data)
1999 1998 1997
----------- ----------- -----------
Net Income:
As Reported $ 38,067 $ 42,961 $ 38,897
Pro Forma $ 36,532 $ 42,234 $ 38,403
Earnings Per Share
As Reported $ 1.82 $ 2.06 $ 1.87
Pro Forma $ 1.74 $ 2.02 $ 1.85
Earnings Per Share - Assuming Dilution
As Reported $ 1.80 $ 2.02 $ 1.83
Pro Forma $ 1.73 $ 1.98 $ 1.81
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.4%, 5.6% and 6.7%; expected dividend yield of 2.5% for all
years; expected option lives of 7.0 for all years; expected volatility of 32%
in all three years.
On January 28, 2000, the Board of Directors approved a Shareholder Rights
Plan (the "Plan"). Pursuant to this Plan, one common share purchase right is
included with each outstanding share of common stock. In the event the rights
become exercisable, each right will initially entitle its holder to buy
one-half of one share of the Company's common stock at a price of $60 per
share (equivalent to $30 per one-half share), subject to adjustment. The
rights will become exercisable if a person or group acquires, or announces an
offer for, 15% or more of the Company's common stock. In this event, each
right will thereafter entitle the holder to purchase, at the right's then-
current exercise price, common stock of the Company or, depending on the
circumstances, common stock of the acquiring corporation having a market value
of twice the full share exercise price. The rights may be redeemed by the
Company at a price of one-tenth of one cent per right at any time prior to the
time a person or group acquires 15% or more of the Company's common stock.
The rights expire on January 28, 2010, unless otherwise extended.
(9) INCOME TAXES
The provision for income taxes is summarized as follows:
(In Thousands of Dollars)
----------------------------------
1999 1998 1997
--------- ---------- ---------
Current
Federal $ 20,594 $ 19,960 $ 9,748
State 2,321 2,493 861
Foreign 620 853 1,111
-------- --------- ---------
23,535 23,306 11,720
Deferred 1,652 3,673 13,770
-------- --------- ---------
$ 25,187 $ 26,979 $ 25,490
======== ========= =========
A reconciliation of the statutory Federal income tax rate and the effective
rate reflected in the statements of income follows:
1999 1998 1997
------ ------ ------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 3.0 2.6 3.0
Nondeductible goodwill
amortization 2.3 2.1 1.6
Other, net (.5) (1.1) -
------ ------ ------
Effective tax rate 39.8% 38.6% 39.6%
====== ====== ======
Deferred taxes arise primarily from differences in amounts reported for tax
and financial statement purposes. The Company's net deferred tax liability as
of December 31, 1999 of $23,910,000 is classified on the consolidated balance
sheet as a current income tax benefit of $13,180,000 and a long-term deferred
income tax liability of $37,090,000. The December 31, 1998 net deferred tax
liability was $22,258,000, consisting of a current income tax benefit of
$10,249,000 and a long-term deferred income tax liability of $32,507,000.
The components of this net deferred tax liability are as follows:
(In Thousands of Dollars)
December 31
-------------------------
1999 1998
---------- -----------
Operating loss carry forward $ 525 $ 649
Inventory 1,160 1,378
Accrued employee benefits 1,644 3,519
Bad debt reserve 510 423
Warranty reserve 1,500 1,467
Other 2,943 724
---------- -----------
Deferred tax assets 8,282 8,160
Property related (28,850) (25,534)
Inventory valuation reserve (3,192) (4,734)
Other (150) (150)
---------- -----------
Deferred tax liabilities (32,192) (30,418)
---------- -----------
Net deferred tax liability $(23,910) $(22,258)
========== ===========
(10) INDUSTRY SEGMENT INFORMATION
Regal-Beloit's reportable segments are strategic businesses that offer
different products and services. The Company has two such reportable
segments: Mechanical Group and Electrical Group. The Mechanical Group
produces mechanical speed reducers and related products for sale to original
equipment manufacturers and distributors. The Electrical Group produces AC
electric motors, electric generators and related products for sale to original
equipment manufacturers and distributors.
The Company evaluates performance based on the segments' income from
operations. All corporate costs have been allocated to each group based on
the net sales of each group. The reported net sales of each segment are
solely from external customers. No single customer accounts for 10% or more
of the Company's net sales.
The Company's products manufactured and sold outside the United States were
3%, 3% and 4% of net sales in 1999, 1998 and 1997, respectively. Export sales
from U.S. operations were approximately 7% of net sales in 1999, 6% in 1998
and 7% in 1997.
Pertinent data for each industry segment in which the Company operated for
the three years ended December 31, 1999 is as follows:
(In Thousands of Dollars)
-------------------------------------------------------------------------
Net Income From Identifiable Capital Depreciation and
Sales Operations Assets Expenditures Amortization
--------- ----------- ------------- ------------ ----------------
1999
Mechanical Group $ 251,963 $ 35,732 $ 145,391 $ 4,257 $ 10,910
Electrical Group 292,669 36,708 359,709(A) 7,165 12,142
--------- --------- ------------ -------- ----------
Total Regal-Beloit Corporation $ 544,632 $ 72,440 $ 505,100 $ 11,422 $ 23,052
========= ========= ============ ======== ==========
1998
Mechanical Group $ 280,153 $ 45,758 $ 163,740 $ 7,643 $ 10,767
Electrical Group 263,360 35,355 318,282(A) 7,193 11,272
--------- --------- ------------ -------- ----------
Total Regal-Beloit Corporation $ 543,513 $ 81,113 $ 482,022 $ 14,836 $ 22,039
========= ========= ============ ======== ==========
1997
Mechanical Group $ 285,174 $ 48,545 $ 158,639 $ 9,482 $ 10,767
Electrical Group (9 months results) 201,845 25,836 326,986(A) 6,594 8,107
--------- --------- ------------ -------- ---------
Total Regal-Beloit Corporation $ 487,019 $ 74,381 $ 485,625 $ 16,076 $ 18,874
========= ========= ============ ======== =========
<FN>
(A) Includes $143,314 in 1999, $147,161 in 1998 and $151,358 in 1997 of goodwill relating to the Marathon
Electric acquisition.
</FN>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Regal-Beloit Corporation:
We have audited the accompanying consolidated balance sheets of REGAL-
BELOIT CORPORATION (a Wisconsin Corporation) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Regal-Beloit Corporation and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/S/ Arthur Andersen LLP
Milwaukee, Wisconsin, ------------------------------
January 28, 2000 Arthur Andersen LLP
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The preceding financial statements of Regal-Beloit Corporation and related
footnotes were prepared by management, which is responsible for their
integrity and objectivity. The statements have been prepared in conformity
with generally accepted accounting principles, which have been applied on a
consistent basis.
The system of internal controls of Regal-Beloit Corporation is designed to
assure that the books and records reflect the transactions of the Company and
that its established policies and procedures are carefully followed. The
internal control system is augmented by careful selection and training of
qualified employees, proper division of responsibilities, and the development
and dissemination of written policies and procedures.
Arthur Andersen LLP, whose audit report is shown on this page, is engaged
by the Board of Directors to audit the financial statements of Regal-Beloit
Corporation and issue reports thereon. Their audit is conducted in accordance
with generally accepted auditing standards which require obtaining an
understanding of the Company's systems and procedures and performing tests and
other procedures sufficient to provide reasonable assurance that the financial
statements are neither materially misleading nor contain material errors.
The Audit Committee of the Board of Directors, which committee consists
entirely of outside directors, meets regularly with the independent public
accountants and management to review the scope and results of audits. In
addition, the Audit Committee meets with Arthur Andersen LLP, without
management representatives present, to discuss the results of their audit
including a discussion of internal accounting controls, financial reporting
and other audit matters.
/S/ James L. Packard /S/ Kenneth F. Kaplan
------------------------------- ---------------------------------------
James L. Packard Kenneth F. Kaplan
Chairman, President, Vice President, Chief Financial Officer,
Chief Executive Officer and Secretary
Exhibit 21
REGAL-BELOIT CORPORATION
DIVISIONS & SUBSIDIARIES
Domestic International
- -----------------------------------------------------------------------------------------------------
- -Durst -Lincoln Motors -Ohio Gear/ -Costruzioni Meccaniche
Shopiere, WI Euclid, OH Richmond Gear Legnanesi S.r.L.
Liberty, SC Legnano. Italy
- -Electra-Gear -Marathon Electric
Anaheim, CA Manufacturing -Regal Cutting Tools -Marathon Electric Ltd.
Corporation National Twist Drill Singapore
- -Foote-Jones/ Illinois Gear Wausau, WI New York Twist Drill
Chicago, IL South Beloit, IL -Marathon Electric - U.K.
-Marathon Special Leicestershire, England
- -Grove Gear Products -Velvet Drive
Union Grove, WI Bowling Green, OH Transmissions -Mastergear (GmbH)
New Bedford, MA Neu-Anspach, Germany
- -Hub City -Mastergear U.S.A.
Aberdeen, SD South Beloit, IL -Opperman Mastergear, Ltd.
Newbury, England
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
Corporate Headquarters
- ----------------------
Regal-Beloit Corporation
200 State Street, Beloit, WI 53511-6254
Phone: (608) 364-8800 Fax: (608) 364-8818
Website: www.regal-beloit.com
Transfer Agent, Registrar and Dividend Disbursing Agent
- -------------------------------------------------------
First Class, Registered
& Certified Mail Overnight Courier
- ------------------------ -----------------
BankBoston, NA EquiServe
EquiServe Blue Hills Office Park
P.O. Box 8040 150 Royall Street
Boston, MA 02266-8040 Canton, MA 02021
Phone: (781) 575-3400 Fax: (781) 828-8813 (DCB Unit)
Have you received your cash dividends?
- --------------------------------------
During 1999, four quarterly cash dividends were declared on Regal-Beloit
Corporation common stock.
If you have not received all dividends to which you are entitled, please
write or call BankBoston at the address above.
Cash Dividends and Stock Splits
- -------------------------------
Regal-Beloit Corporation paid its first cash dividend in January, 1961
Since that date, Regal-Beloit has paid 158 consecutive quarterly dividends
through January, 2000. The Company has raised cash dividends 33 times in the
39 years these dividends have been paid. The dividend has never been reduced
The Company has also declared and issued 15 stock splits/dividends since
inception.
Notice of Annual Meeting
- ------------------------
The Annual Meeting of shareholders will be held at 10:30 a.m., C.D.T., on
Wednesday, April 19, 2000, at the Corporate Offices, 200 State Street, Beloit,
Wisconsin.
Public Information and Reports
- ------------------------------
With the advent of the internet and facsimiles, shareholders can view
Company reports and news releases in a variety of ways: over the internet
through general stock information websites or the U.S. Government's Edgar
website at www.sec.gov.; or shareholders may also request from the Company
copies of news releases or Forms 10-K and 10-Q as filed by the Company with
the Securities and Exchange Commission. Therefore, the Company will no
longer publish interim quarterly reports to shareholders. Please direct
information requests to:
Regal-Beloit Corporation
Attn: Investor Relations
200 State Street, Beloit, WI 53511-6254
Phone: 608-364-8800, Fax: 608-364-8818
Website: www.regal-beloit.com
Auditors
- --------
Arthur Andersen LLP, Milwaukee, Wisconsin.
Regal-Beloit Corporation is a Wisconsin Corporation listed since 1976 on the
American Stock Exchange under the symbol RBC.