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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the quarterly period ended September 28, 2019 or |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-07283
REGAL BELOIT CORPORATION
(Exact name of registrant as specified in its charter)
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Wisconsin | | 39-0875718 |
(State of other jurisdiction of incorporation) | | (IRS Employer Identification No.) |
200 State Street, Beloit, Wisconsin 53511
(Address of principal executive office)
(608) 364-8800
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock | RBC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
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Large Accelerated Filer | | ý
| | Accelerated Filer | | ☐ |
Non-accelerated filer | ☐ | | Smaller Reporting Company | ☐ |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ý
On November 1, 2019 the registrant had outstanding 40,942,185 shares of common stock, $0.01 par value per share.
REGAL BELOIT CORPORATION
INDEX
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Item 6 — | | |
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CAUTIONARY STATEMENT
Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s expectations, beliefs, current assumptions, and projections. When used in this Quarterly Report on Form 10-Q, words such as “may,” “will,” “expect,” “intend,” “estimate,” “forecast,” “anticipate,” “believe,” “should,” “project” or “plan” or the negative thereof or similar words are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Those factors include, but are not limited to:
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• | uncertainties regarding our ability to execute our restructuring plans within expected costs and timing; |
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• | actions taken by our competitors and our ability to effectively compete in the increasingly competitive global electric motor, drives and controls, power generation and power transmission industries; |
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• | our ability to develop new products based on technological innovation, such as the Internet of Things, and marketplace acceptance of new and existing products, including products related to technology not yet adopted or utilized in certain geographic locations in which we do business; |
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• | fluctuations in commodity prices and raw material costs; |
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• | our dependence on significant customers; |
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• | risks associated with global manufacturing; |
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• | issues and costs arising from the integration of acquired companies and businesses and the timing and impact of purchase accounting adjustments; |
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• | our overall debt levels and our ability to repay principal and interest on our outstanding debt; |
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• | prolonged declines or disruption in one or more markets we serve, such as heating, ventilation, air conditioning ("HVAC"), refrigeration, power generation, oil and gas, unit material handling or water heating; |
| |
• | economic changes in global markets where we do business, such as reduced demand for the products we sell, currency exchange rates, inflation rates, interest rates, recession, government policies, including policy changes affecting taxation, trade, tariffs, immigration, customs, border actions and the like, and other external factors that we cannot control; |
| |
• | product liability and other litigation, or claims by end users, government agencies or others that our products or our customers’ applications failed to perform as anticipated, particularly in high volume applications or where such failures are alleged to be the cause of property or casualty claims; |
| |
• | unanticipated liabilities of acquired businesses; |
| |
• | unanticipated adverse effects or liabilities from business exits or divestitures; |
| |
• | unanticipated costs or expenses we may incur related to product warranty issues; |
| |
• | our dependence on key suppliers and the potential effects of supply disruptions; |
| |
• | infringement of our intellectual property by third parties, challenges to our intellectual property and claims of infringement by us of third party technologies; |
| |
• | effects on earnings of any significant impairment of goodwill or intangible assets; |
| |
• | losses from failures, breaches, attacks or disclosures involving our information technology infrastructure and data; |
| |
• | cyclical downturns affecting the global market for capital goods; and |
| |
• | other risks and uncertainties including but not limited to those described in “Risk Factors” in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on February 26, 2019 and from time to time in other filed reports. |
Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report, and we undertake no obligation to update these statements to reflect subsequent events or circumstances. Additional information regarding these and other risks and uncertainties is included in Part I - Item 1A - Risk Factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2019.
PART I—FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
REGAL BELOIT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in Millions, Except Per Share Data)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
Net Sales | $ | 772.3 |
| | $ | 925.4 |
| | $ | 2,499.8 |
| | $ | 2,763.9 |
|
Cost of Sales | 570.4 |
| | 682.8 |
| | 1,829.3 |
| | 2,039.0 |
|
Gross Profit | 201.9 |
| | 242.6 |
| | 670.5 |
| | 724.9 |
|
Operating Expenses | 128.9 |
| | 155.0 |
| | 416.3 |
| | 449.5 |
|
Loss (Gain) on Divestiture of Businesses | 0.2 |
| | — |
| | (45.2 | ) | | — |
|
Goodwill Impairment | — |
|
| 9.5 |
| | — |
| | 9.5 |
|
Asset Impairments | — |
| | 8.7 |
| | 10.0 |
| | 8.7 |
|
Total Operating Expenses | 129.1 |
| | 173.2 |
| | 381.1 |
| | 467.7 |
|
Income from Operations | 72.8 |
| | 69.4 |
| | 289.4 |
| | 257.2 |
|
Other Expenses, net | 0.1 |
| | 0.4 |
| | 0.4 |
| | 1.2 |
|
Interest Expense | 13.5 |
| | 13.7 |
| | 40.5 |
| | 40.9 |
|
Interest Income | 1.5 |
| | 1.0 |
| | 4.0 |
| | 1.8 |
|
Income before Taxes | 60.7 |
| | 56.3 |
| | 252.5 |
| | 216.9 |
|
Provision for Income Taxes | 9.9 |
| | 3.6 |
| | 47.5 |
| | 37.6 |
|
Net Income | 50.8 |
| | 52.7 |
| | 205.0 |
| | 179.3 |
|
Less: Net Income Attributable to Noncontrolling Interests | 1.1 |
| | 1.4 |
| | 2.8 |
| | 3.7 |
|
Net Income Attributable to Regal Beloit Corporation | $ | 49.7 |
| | $ | 51.3 |
| | $ | 202.2 |
| | $ | 175.6 |
|
Earnings Per Share Attributable to Regal Beloit Corporation: | | | | | | | |
Basic | $ | 1.20 |
| | $ | 1.18 |
| | $ | 4.78 |
| | $ | 4.01 |
|
Assuming Dilution | $ | 1.19 |
| | $ | 1.17 |
| | $ | 4.75 |
| | $ | 3.98 |
|
Weighted Average Number of Shares Outstanding: | | | | | | | |
Basic | 41.5 |
| | 43.4 |
| | 42.3 |
| | 43.8 |
|
Assuming Dilution | 41.7 |
| | 43.8 |
| | 42.6 |
| | 44.1 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
REGAL BELOIT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in Millions)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
Net Income | $ | 50.8 |
| | $ | 52.7 |
| | $ | 205.0 |
| | $ | 179.3 |
|
Other Comprehensive Income (Loss) Net of Tax: | | | | | | | |
Foreign Currency Translation Adjustments, Net of $0.0 Million Tax Effects for the Three and Nine Months Ended September 28, 2019 and $1.8 Million for the Three and Nine Months Ended September 29, 2018 | (38.5 | ) | | (18.8 | ) | | (31.7 | ) | | (57.0 | ) |
Reclassification of Foreign Currency Translation Adjustments included in Net Income, Net of $0.0 Million Tax Effects for the Three and Nine Months Ended September 28, 2019 | — |
| | — |
| | 1.6 |
| | — |
|
Hedging Activities: | | | | | | | |
Increase (Decrease) in Fair Value of Hedging Activities, Net of Tax Effects of $(1.6) Million and $0.9 Million for the Three Months Ended September 28, 2019 and September 29, 2018 and $1.4 Million and $0.7 Million for the Nine Months Ended September 28, 2019 and September 29, 2018, Respectively | (4.9 | ) | | 3.1 |
| | 4.4 |
| | 2.3 |
|
Reclassification of Gains included in Net Income, Net of Tax Effects of $(1.0) Million and $(0.3) Million for the Three Months Ended September 28, 2019 and September 29, 2018 and $(1.0) Million and $(3.7) Million for the Nine Months Ended September 28, 2019 and September 29, 2018, Respectively | (3.2 | ) | | (1.0 | ) | | (3.2 | ) | | (11.3 | ) |
Pension and Post Retirement Plans: | | | | | | | |
Reclassification Adjustments for Pension and Post Retirement Benefits included in Net Income, Net of Tax Effects of $0.1 Million and $0.3 Million for the Three Months Ended September 28, 2019 and September 29, 2018 and $0.3 Million and $0.7 Million for the Nine Months Ended September 28, 2019 and September 29, 2018, Respectively | 0.4 |
| | 0.7 |
| | 1.3 |
| | 2.2 |
|
Other Comprehensive Income (Loss) | (46.2 | ) | | (16.0 | ) | | (27.6 | ) | | (63.8 | ) |
Comprehensive Income (Loss) | 4.6 |
| | 36.7 |
| | 177.4 |
| | 115.5 |
|
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests | (0.1 | ) | | 0.3 |
| | 1.6 |
| | 1.8 |
|
Comprehensive Income (Loss) Attributable to Regal Beloit Corporation | $ | 4.7 |
| | $ | 36.4 |
| | $ | 175.8 |
| | $ | 113.7 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
REGAL BELOIT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Millions, Except Per Share Data)
|
| | | | | | | |
| September 28, 2019 | | December 29, 2018 |
ASSETS | | | |
Current Assets: | | | |
Cash and Cash Equivalents | $ | 293.0 |
| | $ | 248.6 |
|
Trade Receivables, Less Allowances of $9.4 Million in 2019 and $13.3 Million in 2018 | 491.7 |
| | 551.9 |
|
Inventories | 725.7 |
| | 767.2 |
|
Prepaid Expenses and Other Current Assets | 154.7 |
| | 157.9 |
|
Assets Held for Sale | 2.8 |
| | 92.1 |
|
Total Current Assets | 1,667.9 |
| | 1,817.7 |
|
Net Property, Plant, and Equipment | 609.0 |
| | 615.5 |
|
Operating Lease Assets | 76.1 |
| | — |
|
Goodwill | 1,496.4 |
| | 1,509.2 |
|
Intangible Assets, Net of Amortization | 577.5 |
| | 625.5 |
|
Deferred Income Tax Benefits | 31.5 |
| | 34.2 |
|
Other Noncurrent Assets | 19.9 |
| | 21.7 |
|
Total Assets | $ | 4,478.3 |
| | $ | 4,623.8 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities: | | | |
Accounts Payable | $ | 362.3 |
| | $ | 424.8 |
|
Dividends Payable | 12.3 |
| | 12.0 |
|
Current Hedging Obligations | 10.9 |
| | 11.3 |
|
Accrued Compensation and Employee Benefits | 73.6 |
| | 81.9 |
|
Other Accrued Expenses | 106.8 |
| | 136.0 |
|
Liabilities Held for Sale | — |
| | 17.0 |
|
Current Operating Lease Liabilities | 22.7 |
| | — |
|
Current Maturities of Long-Term Debt | 0.6 |
| | 0.5 |
|
Total Current Liabilities | 589.2 |
| | 683.5 |
|
Long-Term Debt | 1,200.3 |
| | 1,306.6 |
|
Deferred Income Taxes | 163.0 |
| | 148.3 |
|
Noncurrent Hedging Obligations | 2.2 |
| | 1.2 |
|
Pension and Other Post Retirement Benefits | 89.8 |
| | 96.2 |
|
Noncurrent Operating Lease Liabilities | 55.3 |
| | — |
|
Other Noncurrent Liabilities | 49.4 |
| | 49.5 |
|
Contingencies (see Note 13) |
| |
|
Equity: | | | |
Regal Beloit Corporation Shareholders' Equity: | | | |
Common Stock, $0.01 par value, 100.0 Million Shares Authorized, 40.9 Million and 42.8 Million Shares Issued and Outstanding for 2019 and 2018, Respectively | 0.4 |
| | 0.4 |
|
Additional Paid-In Capital | 707.8 |
| | 783.6 |
|
Retained Earnings | 1,870.9 |
| | 1,777.9 |
|
Accumulated Other Comprehensive Loss | (277.8 | ) | | (251.4 | ) |
Total Regal Beloit Corporation Shareholders' Equity | 2,301.3 |
| | 2,310.5 |
|
Noncontrolling Interests | 27.8 |
| | 28.0 |
|
Total Equity | 2,329.1 |
| | 2,338.5 |
|
Total Liabilities and Equity | $ | 4,478.3 |
| | $ | 4,623.8 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
REGAL BELOIT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Dollars in Millions, Except Per Share Data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| Common Stock $0.01 Par Value | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total Equity |
June 29, 2019 | $ | 0.4 |
| | $ | 750.7 |
| | $ | 1,882.7 |
| | $ | (232.8 | ) | | $ | 29.4 |
| | $ | 2,430.4 |
|
Net Income | — |
| | — |
| | 49.7 |
| | — |
| | 1.1 |
| | 50.8 |
|
Other Comprehensive Loss | — |
| | — |
| | — |
| | (45.0 | ) | | (1.2 | ) | | (46.2 | ) |
Dividends Declared ($0.30 Per Share) | — |
| | — |
| | (12.3 | ) | | — |
| | — |
| | (12.3 | ) |
Stock Options Exercised | — |
| | (0.5 | ) | | — |
| | — |
| | — |
| | (0.5 | ) |
Stock Repurchase | — |
| | (45.0 | ) | | (49.2 | ) | | — |
| | — |
| | (94.2 | ) |
Share-Based Compensation | — |
| | 2.6 |
| | — |
| | — |
| | — |
| | 2.6 |
|
Dividends Declared to Noncontrolling Interests | — |
| | — |
| | — |
| | — |
| | (1.5 | ) | | (1.5 | ) |
September 28, 2019 | $ | 0.4 |
| | $ | 707.8 |
| | $ | 1,870.9 |
| | $ | (277.8 | ) | | $ | 27.8 |
| | $ | 2,329.1 |
|
| | | | | | | | | | | |
June 30, 2018 | $ | 0.4 |
| | $ | 820.8 |
| | $ | 1,704.4 |
| | $ | (215.6 | ) | | $ | 30.7 |
| | $ | 2,340.7 |
|
Net Income | — |
| | — |
| | 51.3 |
| | — |
| | 1.4 |
| | 52.7 |
|
Other Comprehensive Loss | — |
| | — |
| | — |
| | (14.9 | ) | | (1.1 | ) | | (16.0 | ) |
Dividends Declared ($0.28 Per Share) | — |
| | — |
| | (12.2 | ) | | — |
| | — |
| | (12.2 | ) |
Stock Options Exercised | — |
| | (0.4 | ) | | — |
| | — |
| | — |
| | (0.4 | ) |
Stock Repurchase | — |
| | (5.0 | ) | | (1.2 | ) | | — |
| | — |
| | (6.2 | ) |
Share-Based Compensation | — |
| | 3.3 |
| | — |
| | — |
| | — |
| | 3.3 |
|
Dividends Declared to Noncontrolling Interests | — |
| | — |
| | — |
| | — |
| | (1.6 | ) | | (1.6 | ) |
Purchase of Subsidiary Shares from Noncontrolling Interest | — |
| | — |
| | — |
| | 1.6 |
| | (2.4 | ) | | (0.8 | ) |
September 29, 2018 | $ | 0.4 |
| | $ | 818.7 |
| | $ | 1,742.3 |
| | $ | (228.9 | ) | | $ | 27.0 |
| | $ | 2,359.5 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| Common Stock $0.01 Par Value | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total Equity |
December 29, 2018 | $ | 0.4 |
| | $ | 783.6 |
| | $ | 1,777.9 |
| | $ | (251.4 | ) | | $ | 28.0 |
| | $ | 2,338.5 |
|
Net Income | — |
| | — |
| | 202.2 |
| | — |
| | 2.8 |
| | 205.0 |
|
Other Comprehensive Loss | — |
| | — |
| | — |
| | (26.4 | ) | | (1.2 | ) | | (27.6 | ) |
Dividends Declared ($0.88 Per Share) | — |
| | — |
| | (36.9 | ) | | — |
| | — |
| | (36.9 | ) |
Stock Options Exercised | — |
| | (8.0 | ) | | — |
| | — |
| | — |
| | (8.0 | ) |
Stock Repurchase | — |
| | (77.8 | ) | | (72.3 | ) | | — |
| | — |
| | (150.1 | ) |
Share-Based Compensation | — |
| | 10.0 |
| | — |
| | — |
| | — |
| | 10.0 |
|
Dividends Declared to Noncontrolling Interests | — |
| | — |
| | — |
| | — |
| | (1.8 | ) | | (1.8 | ) |
September 28, 2019 | $ | 0.4 |
| | $ | 707.8 |
| | $ | 1,870.9 |
| | $ | (277.8 | ) | | $ | 27.8 |
| | $ | 2,329.1 |
|
| | | | | | | | | | | |
December 30, 2017 | $ | 0.4 |
| | $ | 877.5 |
| | $ | 1,611.6 |
| | $ | (164.0 | ) | | $ | 29.2 |
| | $ | 2,354.7 |
|
Net Income | — |
| | — |
| | 175.6 |
| | — |
| | 3.7 |
| | 179.3 |
|
Other Comprehensive Loss | — |
| | — |
| | — |
| | (61.9 | ) | | (1.9 | ) | | (63.8 | ) |
Dividends Declared ($0.82 Per Share) | — |
| | — |
| | (35.8 | ) | | — |
| | — |
| | (35.8 | ) |
Stock Options Exercised | — |
| | (4.7 | ) | | — |
| | — |
| | — |
| | (4.7 | ) |
Stock Repurchase | — |
| | (64.6 | ) | | (13.7 | ) | | — |
| | — |
| | (78.3 | ) |
Share-Based Compensation | — |
| | 10.5 |
| | — |
| | — |
| | — |
| | 10.5 |
|
Dividends Declared to Noncontrolling Interests | — |
| | — |
| | — |
| | — |
| | (1.6 | ) | | (1.6 | ) |
Adoption of Accounting Pronouncement ASU 2018-02 | — |
| | — |
| | 4.6 |
| | (4.6 | ) | | — |
| | — |
|
Purchase of Subsidiary Shares from Noncontrolling Interest | — |
| | — |
| | — |
| | 1.6 |
| | (2.4 | ) | | (0.8 | ) |
September 29, 2018 | $ | 0.4 |
| | $ | 818.7 |
| | $ | 1,742.3 |
| | $ | (228.9 | ) | | $ | 27.0 |
| | $ | 2,359.5 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
REGAL BELOIT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions) |
| | | | | | | |
| Nine Months Ended |
| September 28, 2019 | | September 29, 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net Income | $ | 205.0 |
| | $ | 179.3 |
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities (Net of Acquisitions and Divestitures): | | | |
Depreciation and Amortization | 100.4 |
| | 106.3 |
|
Goodwill Impairment | — |
| | 9.5 |
|
Asset Impairments | 10.0 |
| | 8.7 |
|
Noncash Lease Expense | 20.5 |
| | — |
|
Loss on Sale or Disposition of Assets, Net | 1.7 |
| | 3.5 |
|
Share-Based Compensation Expense | 10.0 |
| | 10.5 |
|
Exit Related Costs | — |
| | 16.7 |
|
Gain on Divestiture of Businesses | (45.2 | ) | | — |
|
Change in Operating Assets and Liabilities | (31.2 | ) | | (84.2 | ) |
Net Cash Provided by Operating Activities | 271.2 |
| | 250.3 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Additions to Property, Plant and Equipment | (77.3 | ) | | (59.2 | ) |
Sales of Investment Securities | — |
| | 0.5 |
|
Business Acquisitions, Net of Cash Acquired | — |
| | (161.5 | ) |
Proceeds from Divestiture of Businesses | 159.6 |
| | — |
|
Proceeds from Sale of Assets | 1.7 |
| | 4.4 |
|
Net Cash Provided by (Used In) Investing Activities | 84.0 |
| | (215.8 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Borrowings Under Revolving Credit Facility | 894.3 |
| | 1,018.7 |
|
Repayments Under Revolving Credit Facility | (977.4 | ) | | (993.1 | ) |
Proceeds from Short-Term Borrowings | 27.5 |
| | 10.7 |
|
Repayments of Short-Term Borrowings | (27.5 | ) | | (11.3 | ) |
Proceeds from Long-Term Borrowings | — |
| | 900.2 |
|
Repayments of Long-Term Borrowings | (24.2 | ) | | (786.3 | ) |
Dividends Paid to Shareholders | (36.6 | ) | | (35.1 | ) |
Shares Surrendered for Taxes | (8.0 | ) | | (3.4 | ) |
Repurchase of Common Stock | (150.1 | ) | | (78.3 | ) |
Distributions to Noncontrolling Interests | (1.8 | ) | | (1.6 | ) |
Purchase of Subsidiary Shares from Noncontrolling Interest | — |
| | (0.8 | ) |
Financing fees paid | — |
| | (3.5 | ) |
Net Cash (Used In) Provided by Financing Activities | (303.8 | ) | | 16.2 |
|
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS | (7.0 | ) | | (5.9 | ) |
Net Increase in Cash and Cash Equivalents | 44.4 |
| | 44.8 |
|
Cash and Cash Equivalents at Beginning of Period | 248.6 |
| | 139.6 |
|
Cash and Cash Equivalents at End of Period | $ | 293.0 |
| | $ | 184.4 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
Cash Paid For: | | | |
Interest | $ | 44.4 |
| | $ | 45.6 |
|
Income taxes | $ | 31.9 |
| | $ | 66.2 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
REGAL BELOIT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 28, 2019
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying (a) Condensed Consolidated Balance Sheet of Regal Beloit Corporation (the “Company”) as of December 29, 2018, which has been derived from audited Consolidated Financial Statements, and (b) unaudited interim Condensed Consolidated Financial Statements as of September 28, 2019 and for the three and nine months ended September 28, 2019 and September 29, 2018, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company’s 2018 Annual Report on Form 10-K filed on February 26, 2019.
In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Except as otherwise discussed, such adjustments consist of only those of a normal recurring nature. Operating results for the three and nine months ended September 28, 2019 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 28, 2019.
The Condensed Consolidated Financial Statements have been prepared in accordance with GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Condensed Consolidated Financial Statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company uses estimates in accounting for, among other items, allowance for doubtful accounts; excess and obsolete inventory; share-based compensation; acquisitions; product warranty obligations; pension and post retirement assets and liabilities; derivative fair values; goodwill and other asset impairments; health care reserves; retirement benefits; rebates and incentives; litigation claims and contingencies, including environmental matters; and income taxes. The Company accounts for changes to estimates and assumptions when warranted by factually based experience.
The Company operates on a 52/53 week fiscal year ending on the Saturday closest to December 31.
New Accounting Standards
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20). The ASU addresses modifications to the disclosure requirements for Defined Benefit Plans. Under ASU 2018-14 the disclosure requirements that can be removed are amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, amount and timing of plan assets expected to be returned to the employer, and the effects of a one-percentage-point change in assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic benefit costs and benefit obligations for postretirement health care benefits. Additional disclosures are required for the weighted -average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation for significant gains and losses related to the changes in the benefit obligation for the period. If a defined benefit pension plan has a projected benefit obligation greater than plan assets the projected benefit obligation and fair value of plan assets should be disclosed. This additional disclosure is also required when comparing the accumulated benefit obligation to plan assets. This ASU becomes effective for fiscal years ending after December 15, 2020 on a retrospective basis for all years presented. Early adoption is permitted. The Company is evaluating the effect of adopting this new accounting guidance, but does not anticipate a material impact on the financial statement disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU focuses on updates around disclosures of Level 3 fair value measurements and it presents modifications to current disclosure requirements. The additional requirements under this ASU include disclosure for the changes in unrealized gains and losses included in other comprehensive income ("OCI") held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs. The ASU is also eliminating the disclosure requirement for the amount and reason for transfers between Level 1 and Level 2 fair value measurement, valuation processes for Level 3 measurements, and policy for timing of transfers between levels of the fair value hierarchy. In addition, the ASU modifies the disclosure requirements for investments that are valued based on net asset value. The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption
is permitted for any eliminated or modified disclosures upon issuance of this ASU. The ASU requires prospective application for only the most recent interim or annual period presented in the year of adoption for changes in unrealized gains and losses included in OCI, the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements, and the narrative description of measurement uncertainty. All other amendments described in this ASU must be applied retrospectively to all periods presented. The Company is evaluating the effect of adopting this new accounting guidance, but does not anticipate a material impact on the financial statement disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326). The focus of this ASU is to require businesses to adjust their allowance for lifetime expected credit losses rather than incurred losses. It is believed that the change will result in more timely recognition of such losses. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Adoption of the standard will be by a modified retrospective approach allowing a cumulative effect adjustment to the opening balance of Retained Earnings. The Company is evaluating the effect of adopting this new accounting guidance, but does not anticipate a material impact on the Company's Condensed Consolidated Financial Statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The Company adopted this ASU as of December 30, 2018, the beginning of fiscal 2019, with no material impact on the Company's Condensed Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, Leases. The core principle of ASU 2016-02 is that an entity should recognize assets and liabilities arising from an operating lease on its Balance Sheet. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liability to make lease payments, the lease liability, and a right-of-use asset representing its right to use the underlying leased asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on the lease classification as a finance or operating lease. In July 2018, the FASB amended its guidance by issuing ASU 2018-11 to provide an additional transition method, allowing a cumulative effect adjustment to the opening balance of Retained Earnings during the period of adoption. The Company adopted the standard as of December 30, 2018, the beginning of fiscal 2019, under the modified retrospective method. Comparative periods prior to the adoption of the standard have not been adjusted given the effect to the standard.
The Company elected the package of practical expedients permitted under the relief package within the new standard which allows the Company to carryforward the historical lease accounting of expired or existing leases with respect to lease identification, lease classification and accounting treatment for initial direct costs as of the adoption date. The Company also elected the practical expedient related to lease versus non-lease components, allowing the Company to recognize lease and non-lease components as a single lease.
Adoption of the new standard resulted in the recording of right-of-use assets and lease liabilities of $93.0 million as of December 30, 2018. No cumulative effect adjustment to Retained Earnings was recognized upon adoption of the new standard. The standard did not materially impact the Company's Consolidated Net Income and had no impact on Cash Flows. See Note 9 for additional disclosures.
2. OTHER FINANCIAL INFORMATION
Inventories
The following table presents approximate percentage distribution between major classes of inventories:
|
| | | |
| September 28, 2019 | | December 29, 2018 |
Raw Material and Work in Process | 47% | | 45% |
Finished Goods and Purchased Parts | 53% | | 55% |
Inventories are stated at cost, which is not in excess of market. Cost for approximately 56% of the Company's inventory at September 28, 2019, and 54% at December 29, 2018 was determined using the last-in, first-out ("LIFO") method.
Property, Plant, and Equipment
The following table presents property, plant, and equipment by major classification (dollars in millions):
|
| | | | | | | | | |
| Useful Life in Years | | September 28, 2019 | | December 29, 2018 |
Land and Improvements | | | $ | 81.2 |
| | $ | 82.1 |
|
Buildings and Improvements | 3 - 50 | | 302.6 |
| | 302.8 |
|
Machinery and Equipment | 3 - 15 | | 983.4 |
| | 971.9 |
|
Property, Plant and Equipment | | | 1,367.2 |
| | 1,356.8 |
|
Less: Accumulated Depreciation | | | (758.2 | ) | | (741.3 | ) |
Net Property, Plant and Equipment | | |