Quarterly Report Under Section 13 or 15(d)of the Securities Exchange Act of 1934
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate the number of shares outstanding of each of the issuers' classes of common stock as of the latest practicable date.
25,001,185 Shares, Common Stock, $.01 Par Value
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FORM 10-Q
For Quarter Ended March 31, 2002
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PART IFINANCIAL INFORMATIONREGAL-BELOIT CORPORATIONCONDENSED BALANCE SHEETS(In Thousands of Dollars)
See accompanying notes.
1. BASIS OF PRESENTATION
The condensed financial statements include the accounts of REGAL-BELOIT Corporation and its wholly owned subsidiaries and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. All adjustments which management believes are necessary for a fair statement of the results for the interim periods presented have been reflected and are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested these statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K.
2. INVENTORIES
Cost for approximately 86% of the Company's inventory is determined using the last-in, first-out (LIFO) inventory valuation method. The approximate percentage distribution between major classes of inventories is as follows:
3. COMPREHENSIVE INCOME
The Company's comprehensive income is impacted by the amount of the cumulative translation adjustment recorded to shareholders' equity. For the quarter ended March 31, 2002, the impact was $277,000 of expense resulting in net comprehensive income of $5,511,000 for the quarter. The impact in the first quarter of 2001 was $1,069,000 of expense resulting in net comprehensive income of $4,773,000.
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4. BUSINESS SEGMENTS
The Company operates two strategic businesses that are reportable segments: the Mechanical Group and the Electrical Group.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Unless the context requires otherwise, references in this Item 2 to "we", "us" or "our" refer collectively to REGAL-BELOIT Corporation and its subsidiaries.
RESULTS OF OPERATIONS
Our net sales were $150,380,000 in the first quarter of 2002, 15.1% below net sales of $177,122,000 in the first quarter of 2001. Net sales of our Electrical Group and Mechanical Group were 14.7% below and 16.1% below, respectively, net sales in the first quarter of 2001. Our decrease in sales was due primarily to the impact of the U.S. economic recession, which led to weak product demand across most of our markets. (See Note 4 to the accompanying financial statements for our business segment data.)
Gross profit decreased 19.5% in the first quarter of 2002 to $36,326,000 from $45,151,000 in the first quarter of 2001. The decrease was due primarily to our lower net sales in 2002. Our gross profit margin decreased to 24.2% of net sales in the first quarter of 2002 from 25.5% in comparable 2001. We lowered our production levels in both the Electrical Group and Mechanical Group to reduce inventories as 2001 progressed. The lower production levels in the first quarter of 2002 were the primary reason for the decrease in gross profit margin from the 2001 first quarter.
Operating expenses in the first quarter of 2002 decreased $4,226,000 (15.1%) from last year's first quarter. Approximately one half of this reduction was due to our January 1, 2002, adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which eliminated amortization of goodwill, all of such goodwill amortization having been in the Electrical Group. The other half of the reduction was due to lower spending in the areas of selling, general and administrative expenses in both the Electrical and Mechanical Groups.
Income from operations in 2002's first quarter of $12,561,000 was 26.8% lower than $17,160,000 in the first quarter of 2001. As a percent of net sales income from operations declined from 9.7% in the first quarter of 2001 to 8.4% this year, due to our lower gross profit margin.
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Our interest expense declined 51.3% to $3,469,000 in 2002 from $7,124,000 in last year's first quarter. Lower interest rates in the United States and reductions we made in our outstanding debt accounted for the large decrease in interest. Our effective tax rate is also much lower this year versus last, at 36.5% in the first quarter this year as compared to 42.1% in 2001's first quarter. The elimination of goodwill amortization, nearly half of which was not tax deductible, accounted for the majority of the lower tax rate this year.
Our net income earned in the first quarter of 2002 was $5,788,000, or $.27 per diluted share, as compared to $5,842,000, or $.28 per diluted share, in the first quarter of 2001. Our first quarter 2002 earnings per share benefited by approximately $.08 due to the elimination of goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital of $160,468,000 at March 31, 2002, was approximately the same as at year-end 2001. Current ratio, however, improved from 3.1:1 at December 31, 2001 to 3.3:1 at the end of the first quarter of 2002.
We generated $10,022,000 of cash flow from operations during 2002's first quarter, as compared to $14,455,000 in comparable 2001. We reduced inventories $7,795,000 during the first quarter this year, which was the largest factor in the positive operating cash flow. However, a $6,993,000 increase in accounts receivable in the first quarter 2002, due to increasing sales from the fourth quarter of 2001, offset much of the cash from the inventory reduction. The result was that the first quarter's net income and depreciation accounted for the operating cash flow. Our capital expenditures in the first quarter this year were $2,081,000, though we still expect capital spending for all of 2002 to approach the upper teens to $20,000,000. Outstanding commitments for future capital expenditures at March 31, 2002 were approximately $1,100,000.
On March 12, 2002, we completed a secondary public offering of 4,109,985 shares of our common stock including the sale of 536,085 shares from the exercise of the underwriters' over-allotment option. The net proceeds of the shares were approximately $90,000,000, which was used to repay a like amount of our outstanding debt. During the first quarter of 2002, we also repaid an additional $6,030,000 of outstanding debt. As of March 31, 2002, our outstanding debt was $249,637,000, a decrease of $96,030,000 from $345,667,000 at year-end 2001. Our shareholders' investment rose from $280,150,000 at December 31, 2001 to $373,223,000 at March 31, 2002, after paying $2,505,000 in dividends to our shareholders during the quarter.
Our primary financing source is our $350,000,000 long-term revolving credit facility that expires on December 31, 2005. Our credit facility requires us to maintain specified financial ratios and to satisfy certain financial condition tests, with which we were in compliance as of March 31, 2002. At March 31, 2002, we had $246,000,000 outstanding under this credit facility. After deductions for outstanding letters of credit and financial covenant limits, we had approximately $76,000,000 of available borrowing capacity at March 31, 2002. We believe we will be able to satisfy the financial ratios and tests specified in our credit facility for the foreseeable future. We also believe that the combination of borrowing availability under our credit facility and operating cash flow will provide sufficient cash availability to finance our existing operations for the foreseeable future.
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CAUTIONARY STATEMENT
The following is a cautionary statement made under the Private Securities Litigation Reform Act of 1995: With the exception of historical facts, the statements contained in Item 2. of this Form 10-Q may be forward looking statements. Actual results may differ materially from those contemplated. Forward looking statements involve risks and uncertainties, including but not limited to, the following risks: 1) cyclical downturns affecting the markets for capital goods, 2) substantial increases in interest rates that impact the cost of our outstanding debt, 3) the success of Management in increasing sales and maintaining or improving the operating margins of its businesses, 4) the availability of or material increases in the costs of select raw materials or parts, and 5) actions taken by competitors. Investors are directed to our documents, such as our Annual Report on Form 10-K and Form 10-Q's filed with the Securities and Exchange Commission.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: May 1, 2002
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