SEC Filing Summary: Regal Beloit Corporation (10-Q)
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Regal Beloit Corporation, a manufacturer of motors, generators, and mechanical power transmission products. The report covers the quarterly period ended June 28, 2008, and the six-month period ended on the same date. The company operates two reportable segments: Mechanical and Electrical.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 28, 2008 |
Three Months Ended June 30, 2007 |
Six Months Ended June 28, 2008 |
Six Months Ended June 30, 2007 |
|---|---|---|---|---|
| Net Sales | $606,316 | $459,795 | $1,142,659 | $878,441 |
| Gross Profit | $131,177 | $103,876 | $253,276 | $201,103 |
| Gross Margin % | 21.6% | 22.6% | 22.2% | 22.9% |
| Income From Operations | $67,494 | $60,055 | $125,106 | $107,386 |
| Net Income | $38,076 | $36,253 | $70,243 | $63,066 |
| Diluted EPS | $1.14 | $1.06 | $2.11 | $1.86 |
| Operating Cash Flow (6mo) | $116,285 (2008) vs $100,110 (2007) | |||
| Total Debt (Long-Term + Current) | $568,193 (June 28, 2008) | |||
| Cash and Equivalents | $87,710 (June 28, 2008) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 31.9% for the quarter and 30.1% for the six months. This growth was primarily driven by acquisitions, including $108.5 million from four businesses acquired in 2007 and $23.3 million from the Hwada acquisition in April 2008.
- Margin Compression: Gross profit margins declined slightly (21.6% vs 22.6% for the quarter). Management attributed this to lower margins from acquired businesses and increased raw material costs, specifically copper and steel.
- Operating Expenses: Operating expenses rose to $63.7 million (10.5% of sales) from $43.8 million (9.5% of sales) in the prior year quarter, reflecting the scale of new acquisitions.
- Debt Structure: On June 16, 2008, the company entered a $165 million Term Loan to pay off its revolving credit facility. Total debt remains elevated due to acquisition financing.
Guidance, Outlook, and Risks
- Outlook: Management notes that operating results for the first six months are not necessarily indicative of full-year results. The company expects to contribute an additional $0.5 million to pension plans in 2008.
- Acquisition Integration: The company is integrating four businesses acquired in 2007 and the Hwada acquisition in China. Purchase price allocations remain preliminary.
- Risk Factors: Key risks include economic changes in global markets, currency exchange rate fluctuations, unanticipated commodity price increases, and cyclical downturns in the capital goods market.
- Legal Contingencies: The company is defending against a U.S. EPA action regarding remediation costs at a former Illinois site. Management believes it is not a responsible party and that recorded amounts are not material.
- Accounting Changes: The company will adopt APB 14-1 regarding convertible debt in fiscal 2009, which will materially impact reported debt, equity, and EPS.
Investor Verification Checklist
- Acquisition Impact: Verify the sustainability of sales growth once the one-time impact of the 2007 and 2008 acquisitions is excluded.
- Raw Material Costs: Monitor copper and steel price trends and the company's ability to pass these costs to customers via pricing actions.
- Debt Covenants: Confirm continued compliance with financial ratios required by the Term Loan, Senior Notes, and Revolving Credit Facility.
- Goodwill Valuation: Review the final purchase price allocations for recent acquisitions, as preliminary goodwill figures may be adjusted.
- Environmental Liability: Track the status of the U.S. EPA litigation to ensure no material costs are incurred.