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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000897069-02-000244.txt : 20020415
<SEC-HEADER>0000897069-02-000244.hdr.sgml : 20020415
ACCESSION NUMBER: 0000897069-02-000244
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020327
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: REGAL BELOIT CORP
CENTRAL INDEX KEY: 0000082811
STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621]
IRS NUMBER: 390875718
STATE OF INCORPORATION: WI
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-07283
FILM NUMBER: 02589351
BUSINESS ADDRESS:
STREET 1: 200 STATE ST
CITY: BELOIT
STATE: WI
ZIP: 53511
BUSINESS PHONE: 6083648800
MAIL ADDRESS:
STREET 1: 200 STATE STREET
CITY: BELOIT
STATE: WI
ZIP: 53511-6254
FORMER COMPANY:
FORMER CONFORMED NAME: BELOIT TOOL CORP
DATE OF NAME CHANGE: 19730522
FORMER COMPANY:
FORMER CONFORMED NAME: RECORD A PUNCH CORP
DATE OF NAME CHANGE: 19690320
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>slp254.txt
<DESCRIPTION>FORM 10-K
<TEXT>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------------------------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________
Commission file number 1-7283
--------------------------------------------------------------------
REGAL-BELOIT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Wisconsin 39-0875718
(State of Incorporation) (I.R.S. Employer
Identification No.)
200 State Street
Beloit, Wisconsin 53511-6254
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (608) 364-8800
--------------------------------------------------------------------
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
----------------
Common Stock ($.01 Par Value) American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act ...........None
(Title of Class)
- --------------------------------------------------------------------------------
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 20, 2002 was approximately $609,000,000.
On March 20, 2002 the registrant had outstanding 25,000,135 shares of common
stock, $.01 par value, which is registrant's only class of common stock.
================================================================================
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for 2002 Annual Meeting of Shareholders (to be
filed with the Commission under Regulation 14A within 120 days after the end of
the registrant's fiscal year and, upon such filing, to be incorporated by
reference into Part III)
<PAGE>
REGAL-BELOIT CORPORATION
Index to
Annual Report on Form 10-K
For the Year Ended December 31, 2001
Page
PART I
Item 1. Business...................................................... 2
Item 2. Properties.................................................... 10
Item 3. Legal Proceedings............................................. 10
Item 4. Submission of Matters To A Vote of Security Holders........... 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters.......................................... 11
Item 6. Selected Financial Data....................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 12
Item 8. Financial Statements and Supplementary Data................... 16
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 30
PART III
Item 10. Directors and Executive Officers of the Registrant............ 30
Item 11. Executive Compensation........................................ 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 31
Item 13. Certain Relationships and Related Transactions................ 31
PART IV
Item 14. Financial Statements, Financial Statement Schedule,
Exhibits and Reports on Form 8-K............................. 31
Signatures 32
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 this Annual Report on Form 10-K or incorporated by
reference 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) our ability to achieve
anticipated synergies in our acquired businesses, 3) substantial increases in
interest rates that impact the cost of the Company's outstanding debt, 4) our
ability to satisfy various covenant requirements under our existing credit
facility, 5) the success of Management in increasing sales and maintaining or
improving the operating margins of its businesses, 6) the availability of or
material increases in the costs of select raw materials or parts, and 7) actions
taken by competitors. Investors are directed to the Company's documents filed
with the Securities and Exchange Commission.
<PAGE>
PART I
Unless the context requires otherwise, references in this Annual Report
to "we," "us" or "our" refer collectively to REGAL-BELOIT CORPORATION and its
subsidiaries.
ITEM 1. Business
Our Company
We are a leading manufacturer and marketer of industrial electric motors,
electric power generation components and controls, mechanical motion control
products, and cutting tools, serving markets predominantly in the United States
as well as throughout the world. Our products are used in a variety of essential
industrial applications, and we believe we have one of the most comprehensive
product lines in the markets we serve. We sell our products using more than 20
recognized brand names through a multi-channel distribution model, which we
believe provides us with a competitive selling advantage and allows us to more
fully penetrate our target markets.
Our business is organized in two segments: our electrical group, which
represented 69% of our 2001 net sales, and our mechanical group, which
represented 31% of our 2001 net sales. Our electrical group manufactures and
markets a full line of alternating current (AC) and direct current (DC)
industrial electric motors, electric power generation components and controls,
and electrical connecting devices. Our mechanical group manufactures and markets
a broad array of mechanical products, including gears and gearboxes, marine
transmissions, high-performance automotive transmissions and ring and pinions,
manual valve actuators, and cutting tools. Original equipment manufacturers and
end users in a variety of motion control and other industrial applications
increasingly combine the types of electrical and mechanical products we offer.
We seek to take advantage of this trend and to enhance our market penetration by
leveraging cross-marketing and product line bundling opportunities between
products in our electrical and mechanical groups.
We sell our products directly to original equipment manufacturers and
distributors across many markets. Our two business segments are divided into
multiple business units, with each unit typically having its own branded product
offering and sales organization. These sales organizations consist of varying
combinations of our own internal direct sales people as well as exclusive and
non-exclusive manufacturers' representative organizations. We manufacture the
vast majority of the products that we sell and have manufacturing, sales and
distribution facilities throughout the United States and Canada as well as in
Europe and the Far East.
We believe our competitive strengths include our:
o leadership in our major market segments
o comprehensive product offering and leading brands
o multi-channel and multi-brand distribution model
o rapid response capabilities o product development focus
o broad and diverse customer base
o experienced management team
Our business strategy includes growing revenues organically in excess of
market rates, continuously lowering our manufacturing costs and pursuing
strategic acquisitions. Our specific revenue growth initiatives include:
o leveraging cross-marketing and product line bundling opportunities
o introducing new products
2
<PAGE>
o capturing custom product sales
o growing our power generation business
Major initiatives in process to lower our manufacturing costs include completing
the integration of Leeson Electric Corporation and capitalizing on operating
synergies from the acquisition; further improving our operational efficiencies;
and focusing on sourcing and logistics opportunities. We will also seek to
broaden our market coverage by acquiring businesses and product lines that
provide a strategic fit with our existing businesses.
Electrical Group
Our electrical group manufactures and markets a full line of AC and DC
industrial electric motors, electric power generation components and controls,
and electrical connecting devices. We entered the industrial electric motor and
electric power generation markets in March 1997 with our acquisition of Marathon
Electric Manufacturing Corporation. Subsequent acquisitions of the Lincoln
Motors business of Lincoln Electric Holdings, Inc. in 1999, Thomson Technology,
Inc. in 2000 and Leeson Electric Corporation in 2000 have been integrated to
form our current electrical group. Our expansion into the electric motor and
electric power generation markets in 1997 was part of our strategy to leverage
our core competencies in industrial manufacturing and to complement our existing
mechanical businesses. We estimate that a substantial portion of the mechanical
motion control products that we manufacture are powered by an electric motor.
Our electrical group manufactures and markets AC and DC industrial electric
motors ranging in size from sub-fractional to large integral horsepowers through
800 horsepower in AC and from sub-fractional through small integral horsepowers
in DC. We offer approximately 5,500 stock models of electric motors in addition
to the motors we produce to specific customer specifications. We also produce
and market precision servo motors, electric generators ranging in size from five
kilowatts through four megawatts, automatic transfer switches and paralleling
switchgear to interconnect and control electric power generation equipment and
electrical connecting devices such as terminal blocks, fuse holders and power
blocks. Additionally, our electrical group markets a line of AC and DC
adjustable speed drives. We sell our electrical group products to distributors,
original equipment manufacturers and end users across many markets.
In 2001, we created, within the electrical group, our motor technologies group
to fully leverage potential efficiencies across our electric motor operations.
This motor technologies group will centralize and manage the manufacturing,
purchasing, engineering, accounting, information technology and quality control
activities of our Marathon, Lincoln and Leeson electric motor businesses.
Furthermore, the motor technologies group is specifically fostering the sharing
of best practices across each of the three motor businesses and creating focused
centers of excellence in each of our motor manufacturing functions.
Our power generation business, which includes electric generators and power
generation components and controls, represents a significant and growing portion
of our electrical group net sales. The market for electric power generation
components and controls is growing as a result of a desire on the part of end
users to reduce losses due to power disturbances. We intend to continue to seek
ways to take advantage of the growing market for prime and standby power
generation in the United States and overseas by expanding our line of generators
to meet higher and more sophisticated power generation requirements. With our
June 2000 acquisition of Thomson Technology, we specifically targeted the
emerging power generation controls market and now offer automatic transfer
switches, paralleling switchgear and controls, and systems controls. When these
control products are bundled with our Marathon generators, we are able to
provide critical components of a system solution to power generation markets
throughout the world.
3
<PAGE>
The following is a description of our major electrical group businesses
and the primary products that they manufacture and market:
Leeson Electric. Manufactures AC motors up to 800 horsepower and DC
motors up to five horsepower, gear reducers, gearmotors and drives primarily for
the power transmission, pump, food processing, fitness equipment and industrial
machinery markets.
Lincoln Motors. Manufactures AC motors from 1/4 horsepower to 800
horsepower primarily for industrial and commercial pumps, compressors, elevator
and machine tools, and specialty products.
Marathon Electric. Manufactures AC motors up to 800 horsepower primarily
for HVAC, pumps, power transmissions, fans and blowers, compressors, agriculture
products, processing and industrial manufacturing equipment.
Marathon Generators. Manufactures AC generators from five kilowatts to
four megawatts that primarily serve the standby power, prime power,
refrigeration, irrigation and wind power markets.
Marathon Special Products. Manufactures fuse holders, terminal blocks,
and power blocks primarily for the HVAC, telecommunications, electric control
panel, utilities and transportation markets.
Thomson Technology. Manufactures automatic transfer switches, paralleling
switchgear and controls, and systems controls primarily for the electric power
generation market.
Mechanical Group
Our mechanical group manufactures and markets a broad array of mechanical motion
control products and cutting tools. Our products include: standard and custom
worm gear, bevel gear, helical gear and concentric shaft gearboxes; marine
transmissions; high-performance after-market automotive transmissions and ring
and pinions; custom gearing; gearmotors; manual valve actuators and cutting
tools. Our gear and transmission related products primarily control motion by
transmitting power from a source, such as a motor or engine, to an end use, such
as a conveyor belt, usually reducing speed and increasing torque in the process.
Our valve actuators are used primarily in oil and gas, water distribution and
treatment and chemical processing applications. Our high-speed steel and carbide
rotary perishable cutting tools are used in metalworking applications.
Mechanical group products are sold to original equipment manufacturers,
distributors and end users across many industry segments.
The following is a description of our major mechanical group businesses and the
primary products they manufacture and market:
CML (Costruzioni Meccaniche Legnanesi S.r.L.). Manufactures bevel gear
valve actuators primarily for the oil, gas, wastewater and water distribution
markets.
Durst. Manufactures standard and specialized industrial transmissions and
hydraulic pump drives primarily for the construction, agriculture, energy,
material handling, forestry, lawn and garden and railroad maintenance markets.
Electra-Gear. Manufactures specialized aluminum gear reducers and
gearmotors primarily for the food processing, medical equipment, material
handling and packaging markets.
Foote-Jones/Illinois Gear. Manufactures large-scale parallel shaft and
right-angle gear drives and custom gears up to 100 inches in diameter primarily
for the mining, oil, pulp and paper, forestry, aggregate, construction and steel
markets.
Grove Gear. Manufactures standard and custom industrial gear reducers
primarily for the material handling, food processing, robotics, healthcare and
power transmission markets.
4
<PAGE>
Hub City. Manufactures gear drives, sub-fractional horsepower gearmotors,
mounted bearings and accessories primarily for the packaging, construction,
material handling, healthcare and food processing markets.
Mastergear. Manufactures manual valve actuators for liquid and gas flow
control primarily for the petrochemical processing, fire protection and
wastewater markets.
New York Twist Drill. Manufactures a full line of industrial quality
cutting tools in high speed steel and carbide primarily for the aerospace,
automotive, railroad and general manufacturing markets.
Ohio Gear. Manufactures gear reducers and gearmotors primarily for the
material handling, lawn and garden vehicle and food processing markets.
Opperman Mastergear, Ltd. Manufactures valve actuators and industrial
gear drives primarily for the material handling, agriculture, mining and liquid
and gas flow control markets.
Regal Cutting Tools. Manufactures high-speed steel and carbide rotary
cutting tools primarily for the aerospace, agriculture, automotive and general
industrial markets.
Richmond Gear. Manufactures ring and pinions and transmissions primarily
for the high-performance automotive aftermarket.
Velvet Drive Transmissions. Manufactures marine and industrial
transmissions primarily for the pleasure boat, off-road vehicle and forestry
markets.
The Building of Our Business
Our growth from our founding as a producer of high-speed cutting tools in 1955
to our current size and status has largely been the result of the acquisition
and integration of 37 businesses to build a strong multi-product offering. Our
senior management has substantial experience in the acquisition and integration
of businesses, aggressive cost management, and efficient manufacturing
techniques, all of which represent activities that are critical to our long-term
growth strategy. Since 1979, our current management team has completed and
successfully integrated 22 acquisitions. We have a proven track record of
acquiring complementary businesses and product lines, integrating their
activities into our organization and aggressively managing their cost structures
to reduce waste and unnecessary expenditures. The history of our major
electrical and mechanical group acquisitions since 1990 is outlined below.
5
<PAGE>
<TABLE>
<CAPTION>
Annual Revenues
Year at Acquisition
Business/Product Line Acquired (in millions) Product Listing at Acquisition
--------------------- -------- ------------- ------------------------------
Electrical Group
<S> <C> <C> <C>
Leeson Electric Corporation 2000 $175 AC motors (to 350 horsepower) and DC motors
(to 3 horsepower) gear reducers, gearmotors
and drives
Thomson Technology, Inc. 2000 $14 Automatic transfer switches, paralleling
switchgear and controls, and systems controls
Lincoln Motors 1999 $50 AC motors (1/4 to 800 horsepower)
Marathon Electric Manufacturing 1997 $245 AC motors (to 500 horsepower), AC generators
Corporation (5 kilowatt to 2.5 megawatt), fuse holders,
terminal blocks and power blocks
Mechanical Group
Spiral bevel gear product 2001 $4 Spiral bevel gears
line of Philadelphia Gear
Velvet Drive Transmissions 1995 $27 Marine and industrial transmissions
Hub City, Inc. 1992 $44 Gear drives, sub-fractional horsepower
gearmotors, mounted bearings and accessories
Opperman Mastergear, Ltd. 1991 $20 Manual valve actuators for liquid and gas
(U.K., U.S. and Germany) flow control and industrial gear drives
</TABLE>
Sales, Marketing and Distribution
We sell our products directly to original equipment manufacturers and
distributors across many markets. Our two business segments are divided into
multiple business units, with each unit typically having its own branded product
offering and sales organization. These sales organizations consist of varying
combinations of our own internal direct sales people as well as exclusive and
non-exclusive manufacturers' representative organizations. On a combined basis,
our individual business units' sales organizations consist of more than 120
direct sales employees and 430 exclusive and non-exclusive manufacturers'
representatives from 170 organizations as of January 2002. In 2001, across all
of our business units, we sold products to more than 6,500 original equipment
manufacturers and 11,000 distributors.
We believe that our effective use of information technology significantly
enhances our ability to provide customer focused quality and further
differentiates us from many of our competitors. Our website allows customers
easy access to business and product information, and contains the latest product
introductions, distributor information, installation manuals, technical
bulletins and customer service. For example, through our electrical group
websites, we have an e-commerce portal that provides our independent
manufacturers' representatives, distributors and employees with constant access
to real-time information such as account status, order status, engineering and
competitive information, stock product availability, pricing and order entry. In
addition, customers are able to search our stock catalogs for motor, gearmotor,
drive, part or catalog number.
Markets and Competitors
The overall market for our electrical products is estimated at $8 billion
annually, although we believe that we compete primarily in the industrial sector
of the domestic electric motor market, a $2.5 billion segment of the overall
market. We believe approximately 60% of all electricity generated in the U.S.
runs through electric motors. With the acquisitions of Marathon Electric in
1997, Lincoln Motors in 1999 and Leeson Electric in 2000, we believe we have
become one of the largest producers of industrial electric motors in the United
States and hold a market position in this segment close to Baldor Electric
Company, the current market leader. In addition, we believe that we are the
largest electric generator manufacturer in the United States that is not
affiliated with a diesel engine manufacturer. Major domestic competitors for the
electrical group other than Baldor Electric include U.S. Electrical Motors (a
division of Emerson
6
<PAGE>
Electric Co.), Reliance Electric Company (a division of Rockwell International),
General Electric Company and Newage (a division of Cummins, Inc). Major foreign
competitors include Siemens AG, Toshiba Corporation, Weg S.A., Leroy-Somer, Inc.
and ABB Ltd.
Our mechanical group serves various markets and competes with a number of
different companies depending on the particular product offering. We believe
that we are the leading manufacturer of several products offered by our
mechanical group and that we are the leading manufacturer in the United States
of worm gear drives and bevel gear drives. Our competitors in these markets
include Boston Gear (a division of Colfax Corporation), Reliance Electric
Company (a division of Rockwell International), Emerson Electric Co. and
Winsmith (a division of Peerless-Winsmith, Inc.). Major foreign competitors
include SEW Eurodrive GmbH & Co., Flender GmbH, Sumitomo Corporation and Zahnrad
Fabrik GmbH & Co.
During the past several years, niche product market opportunities have become
more prevalent due to changing market conditions. Our markets have also been
impacted by decisions by larger manufacturers not to compete in lower volume or
specialized markets. Other manufacturers, which historically may have made
component products for inclusion in their finished goods, have chosen to
outsource their requirements to specialized manufacturers like us because we can
make these products more cost effectively. In addition, we have capitalized on
this competitive climate by making acquisitions and increasing our manufacturing
efficiencies. Some of these acquisitions have created new opportunities by
allowing us to enter new markets in which we had not been involved. In practice,
our operating units have sought out specific niche markets concentrating on a
wide diversity of customers and applications. We believe that we compete
primarily on the basis of quality, price, service and our promptness of
delivery.
Product Development and Engineering
Each of our business units has its own product development and design teams that
continuously enhance our existing products and develop new products for our
growing base of customers that require custom solutions. We have one of the
electric motor industry's most sophisticated product development and testing
laboratories. We believe these capabilities provide a significant competitive
advantage in the development of high quality motors and electric generators
incorporating leading design characteristics such as low vibration, low noise,
improved safety, reliability and enhanced energy efficiency. An example of the
success of our research and development efforts is our recently introduced line
of microMAXTM AC inverter duty motors, which won the 2001 "Product of the Year"
award in its category from Plant Engineering magazine.
We are continuing to expand our business by developing new, differentiated
products in each of our business segments. We work closely with our customers to
develop new products or enhancements to existing products that improve
performance and meet their needs. For example, we have redesigned more than 50%
of our electric motor line to meet the new NEMA Premium Compliant Electric Motor
standards. These redesigned motors offer increased efficiency that results in
significant cost savings for customers over previous models. In addition, we
have recently introduced many new product lines, including a line of AC inverter
duty motors, a line of high efficiency, low vibration severe duty electric
motors and large frame 1 1/2 to 4 megawatt electric generators. Furthermore, in
2002, we plan to introduce various new products, including a line of high
efficiency helical worm, helical bevel and parallel shaft drives. This new line
of drives will complement our existing high efficiency helical in-line drives
and will allow us to compete more effectively in this growing segment of the
gear drive market.
Manufacturing and Operations
Our vertically integrated manufacturing operations, including our own cast iron
foundry and aluminum die casting and steel stamping operations, are an important
element of our rapid response capabilities. In addition, we have an extensive
internal logistics operation that consists of 56 semi-tractors and 90
semi-
7
<PAGE>
trailers and a network of distribution facilities with the capability to modify
stock products to quickly meet specific custom requirements in many instances.
We manufacture a majority of the products that we sell but also strategically
outsource components and finished goods to an established global network of
suppliers. Although we have aggressively pursued global sourcing to reduce our
overall costs, we still maintain a dual sourcing capability in our existing
domestic facilities to ensure a reliable supply source for our customers. Most
of our operating units conduct their manufacturing operations independently in
one or more facilities. Our electrical group businesses, other than Marathon
Special Products and Thomson Technology, are operated as part of our motor
technologies group, which also has responsibility for all power generation
operations, including sales and marketing. We regularly invest in machinery and
equipment and other improvements to, and maintenance of, our facilities.
Additionally, we have typically obtained significant amounts of quality capital
equipment as part of our acquisitions, often increasing overall capacity and
capability.
The manufacturing operations of both our electrical group and mechanical group
are highly integrated. Although raw materials and selected parts such as
bearings and seals are purchased, this vertical integration permits us to
produce most of our required component parts when needed. We believe this
results in lower production costs, greater manufacturing flexibility and higher
product quality, as well as reducing our reliance on outside suppliers. Base
materials for our products consist primarily of: steel in various types and
sizes, including bearings and weldments; copper magnet wire; and ferrous and
non-ferrous castings. We purchase our raw materials from many suppliers and,
with few exceptions, do not rely on any single supplier for any of our base
materials.
We have also continued to upgrade our manufacturing equipment and processes,
including increasing our use of computer aided manufacturing systems, developing
our own testing systems, redesigning plant layout and redesigning products to
take full advantage of our more productive equipment and to improve product
flow. We believe that our continued product redesign and efficient plant layout
often provide us with a competitive cost advantage in our manufacturing
operation. Our goal is to be a low cost producer in our core product areas.
Backlog
Our business units have historically shipped the majority of their products in
the month the order is received. Since total backlog is less than 15% of our
annual sales, we believe that backlog is not a reliable indicator of our future
sales. As of December 31, 2001, our backlog was $68,152,000 as compared to
$96,000,000 on December 31, 2000. We believe that virtually all of our backlog
is shippable in 2002.
Patents, Trademarks and Licenses
We own a number of United States patents and foreign patents relating to our
businesses. While we believe that our patents provide certain competitive
advantages, we do not consider any one patent or group of patents essential to
our business. We also use various registered and unregistered trademarks, and we
believe these trademarks are significant in the marketing of most of our
products. However, we believe the successful manufacture and sale of our
products generally depends more upon our technological, manufacturing and
marketing skills.
Employees
As of December 31, 2001, the Company employed approximately 5,300 persons, of
which approximately 20% were covered by collective bargaining agreements. We
consider our employee relations to be very good.
8
<PAGE>
Environmental Matters
We are subject to Federal, State and local environmental regulations. We are
currently involved with environmental proceedings related to certain of our
facilities. Based on available information, we believe that the outcome of these
proceedings and future known environmental compliance costs will not have a
material adverse effect on our financial position or results of operations.
Executive Officers
The names, ages, and positions of the executive officers of the Company as of
December 31, 2001, are listed below along with their business experience during
the past five years. Officers are elected annually by the Board of Directors at
the Meeting of Directors immediately following the Annual Meeting of
Shareholders in April. There are no family relationships among these officers,
nor any arrangements of understanding between any officer and any other persons
pursuant to which the officer was selected.
<TABLE>
<CAPTION>
Name Age Position Business Experience and Principal Occupation
- ---- --- -------- --------------------------------------------
<S> <C> <C> <C>
James L. Packard........ 59 Chairman, President Elected Chairman in 1986; Chief Executive Officer
and Chief Executive since 1984; President since 1980.
Officer
Henry W. Knueppel....... 53 Executive Vice Elected Executive Vice President in 1987; from
President September, 1997 until December, 1999, he also served
as President of Marathon Electric.
Kenneth F. Kaplan....... 56 Vice President, Joined Company in September 1996; elected Vice
Chief Financial President, Chief Financial Officer in October, 1996
Officer and Secretary and Secretary in April, 1997; previously employed by
Gehl Company, West Bend, Wisconsin, as Vice
President - Finance and Treasurer.
David L. Eisenreich..... 58 Vice President and Elected Vice President and named President of Motor
President, Motor Technologies Group in 2001; Senior Vice President of
Technologies Group Operations at Marathon Electric from 1997 until 2001;
former Senior Vice President of Administration, Vice
President of Administration and Vice President of
Corporate Industrial Relations at Marathon Electric.
Gary M. Schuster........ 46 Vice President and Elected Vice President and named President of
President, Mechanical Components Group in 2001; Vice President
Mechanical of Manufacturing at Marathon Electric from 1999 until
Components Group 2001; Vice President and General Manager and Manager
at Lincoln Electric from 1978 until 1999.
Fritz Hollenbach........ 47 Vice President, Named Vice President, Administration and Human
Administration and Resources in 2001; Vice President Human Resources in
Human Resources Mechanical Group from 1994 until 2001; Human Resource
Manager at Foote-Jones/Illinois Gear from 1991 until 1994;
Human Resource Manager at Cutting Tools from 1987 until
1991.
</TABLE>
9
<PAGE>
ITEM 2. Properties
We have manufacturing, sales and service facilities throughout the United States
and Canada and in Europe and the Far East. Our electrical group currently
operates 38 manufacturing and service and distribution facilities. The
electrical group's present operating facilities contain a total of approximately
2,091,000 square feet of space of which approximately 622,000 square feet are
leased. Our mechanical group currently operates 19 manufacturing and service and
distribution facilities. The mechanical group's present operating facilities
contain a total of approximately 1,530,000 square feet of space of which
approximately 57,000 square feet are leased. Our principal executive offices are
located in Beloit, Wisconsin in an owned approximately 24,000 square foot office
building. We believe our equipment and facilities are well maintained and
adequate for our present needs.
ITEM 3. Legal Proceedings
On or about February 1, 2002, an action was filed in the United States District
Court for the Central District of Illinois against the Company and its Ohio Gear
division ("Ohio Gear"). The plaintiffs in the litigation allege that in 1998 and
1999 Ohio Gear supplied defective differential assemblies that were used in
transaxles manufactured by the plaintiffs. The alleged defect relates to a
component part that Ohio Gear had sourced from a third party supplier. The
plaintiffs allege that they have incurred damages in excess of $3.2 million,
including repair and replacement costs, lost profits, and loss of goodwill. The
plaintiffs seek recovery of $3.2 million plus fees and expenses.
The Company believes it has both the right to recover costs that it incurs in
the litigation from the third party supplier of the defective component part and
defenses to the bulk of the plaintiffs' claims. The Company intends to defend
its position vigorously in the litigation and to pursue recovery from the third
party supplier to the extent that the Company incurs costs in connection with
this matter. Given the preliminary stage of the process, the Company cannot
currently predict the ultimate outcome of the litigation.
From time to time, the Company, in the normal course of business, is also
involved in various other claims and legal actions arising out of its
operations. The Company does not believe that the ultimate disposition of any
currently pending claims or actions would have a material adverse effect on the
Company or its financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter
ended December 31, 2001.
10
<PAGE>
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
The Company's Common Stock, $.01 par value ("Common Stock"), is traded on the
American Stock Exchange under the symbol "RBC." The following table sets forth
the range of high and low closing sales prices for the Common Stock for the
period from January 1, 2000 through December 31, 2001:
<TABLE>
<CAPTION>
2001 2000
------------------------------------------- -----------------------------------------
Price Range Price Range
------------------------- Dividends ------------------------- Dividends
High Low Paid High Low Paid
----------- ---------- -------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter......... $22.30 $16.40 $.12 $21.63 $16.50 $.12
2nd Quarter......... 21.35 16.10 .12 19.00 15.63 .12
3rd Quarter......... 22.50 16.90 .12 17.78 15.25 .12
4th Quarter......... 22.90 17.05 .12 19.35 14.60 .12
</TABLE>
The Company has paid 166 consecutive quarterly dividends through January 2002.
The number of registered holders of Common Stock as of December 31, 2001 was
923.
ITEM 6. Selected Financial Data
The selected statement of income data for the years ended December 31, 2001,
2000 and 1999 and the balance sheet data at December 31, 2001 and 2000 are
derived from, and are qualified by reference to, the audited financial
statements of the Company included elsewhere in this Annual Report on Form 10-K.
The selected statement of income data for the years ended December 31, 1998 and
1997 and the balance sheet data at December 31, 1999, 1998 and 1997 are derived
from audited financial statements not included herein.
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
---------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net Sales....................... $663,571 $598,203 $550,661 $550,277 $493,174
Income from Operations.......... 56,060 71,608 72,440 81,113 74,381
Net Income...................... 19,590 33,771 38,067 42,961 38,897
Total Assets.................... 746,599 792,407 508,165 485,070 488,699
Long-term Debt.................. 345,667 393,510 148,166 166,218 192,261
Shareholders' Investment........ 280,150 273,889 252,626 224,497 189,427
Per Share of Common Stock:
Earnings Per Share........... .94 1.61 1.82 2.06 1.87
Earnings Per Share -
Assuming Dilution.......... .93 1.61 1.80 2.02 1.83
Cash Dividends Declared...... .48 .48 .48 .48 .48
Shareholders' Investment..... 13.42 13.10 12.04 10.74 9.09
Average Number of Shares
Outstanding..................... 20,869 20,984 20,959 20,893 20,806
Average Number of Shares -
Assuming Dilution............... 21,124 20,996 21,170 21,278 21,275
</TABLE>
11
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read together with "Selected
Financial Data" and our consolidated financial statements, including the related
notes, included elsewhere in this report.
Overview
We are a leading manufacturer and marketer of industrial electric motors,
electric power generation components and controls, mechanical motion control
products, and cutting tools, serving markets predominantly in the United States
as well as throughout the world. Our business is organized in two segments. Our
electrical group manufactures and markets a full line of alternating current
(AC) and direct current (DC) industrial electric motors, electric power
generation components and controls, and electrical connecting devices. Our
mechanical group manufactures and markets a broad array of mechanical products,
including gears and gearboxes, marine transmissions, high-performance automotive
transmissions and ring and pinions, manual valve actuators and cutting tools. We
have grown our business during the past several years, in part, through a series
of acquisitions, including the acquisitions of the spiral bevel gear product
line of Philadelphia Gear Company in January 2001, Leeson Electric Corporation
in September 2000, Thomson Technology, Inc. in June 2000 and the Lincoln Motors
business of Lincoln Electric Holdings, Inc. in May 1999. See Note 4 of Notes to
Consolidated Financial Statements.
Our business is cyclical and dependent on industrial and consumer spending and
is therefore impacted by the strength of the economy generally, interest rates
and other factors. The economic slowdown that began in mid-2000 and became an
economic recession in 2001 was the most significant factor in our reduced
performance in 2001. Our net sales, while reaching a record $663,571,000 in
2001, 10.9% greater than in 2000, were down 11.4% when the impact of the two
acquisitions we made in 2000 is excluded. Net income in 2001 was $19,590,000, a
42.0% reduction from the previous year.
We improved our operating cash flow by more than $29,600,000 in 2001, primarily
as a result of reductions in receivables and inventories. Combined with cash
flow from net income, depreciation, and amortization, we generated nearly
$82,000,000 of operating cash flow in 2001. This enabled us, after funding
capital expenditures and paying shareholder dividends, to reduce our outstanding
total debt by nearly $48,000,000 during 2001.
Results of Operations
2001 versus 2000
Net sales in 2001 were $663,571,000, a 10.9% increase from 2000 net sales of
$598,203,000. Excluding those net sales from the 2000 acquisitions of Leeson
Electric and Thomson Technology necessary for comparability purposes, our 2001
net sales were 11.4% below 2000 net sales. This decrease was primarily due to
reduced sales volumes as a result of the economic recession that impacted both
of our operating groups. Electrical group net sales increased 29.1% to
$456,956,000 in 2001 from $353,954,000 in 2000. Excluding the two acquisitions
we made in 2000, electrical group net sales in 2001 were 8.6% below comparable
2000. Mechanical group net sales decreased 15.4% to $206,615,000 in 2001 from
$244,249,000 in 2000.
Our gross profit increased 5.4% to $165,877,000 in 2001 from $157,429,000 in
2000. Gross profit as a percentage of net sales (gross profit margin) declined
to 25.0% in 2001 from 26.3% in 2000 due primarily to lower production volumes
resulting from decreasing sales and planned inventory reductions and to
increased price competition. Income from operations declined 21.7% to
$56,060,000 in 2001, or 8.4% of net sales, from $71,608,000, or 12.0% of net
sales, in 2000. The decrease in income from operations as a percentage of net
sales (operating income margin) was due to a combination of the decrease in
gross profit margin and an increase in operating expenses as a percentage of net
sales to 16.5% in 2001 from
12
<PAGE>
14.3% in 2000. The increase in operating expenses as a percentage of net sales
was due primarily to the fact that Leeson Electric selling expenses, as a
percentage of net sales, were greater than those we have historically incurred.
In addition, a large part of our operating expenses are relatively fixed and our
goodwill amortization increased by $3.4 million in 2001. Electrical group
operating income margin decreased to 8.8% in 2001 from 11.5% in 2000 and
mechanical group operating income margin declined to 7.7% in 2001 from 12.6% in
2000. The decrease in electrical group operating income margin was due primarily
to the increase in operating expenses as a percentage of net sales described
above. The decrease in mechanical group operating income margin resulted from a
combination of higher operating expenses as a percentage of net sales and to a
lower 2001 gross profit margin. See Note 10 of Notes to Consolidated Financial
Statements.
Interest expense increased to $22,239,000 in 2001 from $15,332,000 in 2000,
primarily as a result of debt incurred to finance our acquisition of Leeson
Electric at the end of September 2000. Interest expense decreased steadily by
quarter in 2001, due to declining interest rates and as a result of our reducing
total debt by nearly $48,000,000 during 2001. The average rate of interest we
paid on outstanding debt in 2001 was 5.9% as compared to 7.4% in 2000. Because
our income before income taxes decreased in 2001 from 2000, the impact of
non-deductible goodwill amortization resulted in an increase in our effective
tax rate in 2001 to 42.5% of income before income taxes from 40.3% in 2000.
Net income decreased 42.0% to $19,590,000 in 2001 from $33,771,000 in 2000. As a
percentage of net sales, net income decreased to 3.0% in 2001 from 5.6% in 2000.
Basic earnings per share were $.94 and diluted earnings per share were $.93 in
2001, as compared to $1.61 (both basic and diluted) in 2000, representing a
41.6% and 42.2% decrease, respectively.
2000 versus 1999
Our net sales increased 8.6% to $598,203,000 in 2000 from $550,661,000 in 1999.
Electrical group net sales increased 19.7% to $353,954,000 in 2000 from
$295,694,000 in 1999. This increase reflects a full year of sales from Lincoln
Motors, which we acquired in 1999. Excluding the Leeson Electric and Thomson
Technology acquisitions, the increase in 2000 from 1999 was 3.8%. Mechanical
group net sales decreased 4.2% to $244,249,000 in 2000 from $254,967,000 in
1999. This decrease was due primarily to broad-based weakness in the
agriculture, transportation, marine, construction equipment and industrial
machinery markets, particularly in the second half of 2000. We consider the
diversity of markets served by our two operating groups as a key asset; however,
new product introductions and increased market penetration achieved in 2000 did
not offset the broad-based market slowdown.
All net sales, cost of sales and operating expenses have been restated to
reflect the required accounting change, adopted October 1, 2000, for shipping
and handling billings and costs. As a result of this accounting change, 2000 net
sales increased $7,919,000, cost of sales increased $17,930,000, and operating
expenses decreased $10,011,000. Similarly, 1999 net sales increased $6,029,000,
cost of sales increased $13,321,000 and operating expenses decreased $7,292,000.
This change had no impact on net income or income from operations in any period.
All prior periods have been restated to reflect this accounting change.
Gross profit increased 9.2% to $157,429,000 in 2000 from $144,168,000 in 1999.
As a percentage of net sales, gross profit margin of 26.3% in 2000 was slightly
higher than 26.2% in 1999. Income from operations decreased 1.1% to $71,608,000
in 2000, or 12.0% of net sales, from $72,440,000, or 13.2% of net sales, in
1999. The decrease in operating income margin was due to an increase in
operating expenses as a percentage of net sales to 14.3% in 2000 from 13.0% in
1999. The increased percentage resulted primarily from higher selling expenses
during 2000 and to Leeson Electric's selling expenses as a percentage of net
sales being greater than those we have historically incurred. Electrical group
operating income margin decreased to 11.5% in 2000 from 12.4% in 1999, while the
mechanical group operating income margin declined to 12.6% in 2000 from 14.0% in
1999. The operating income margin decrease in the electrical group resulted
primarily from increased selling expenses as a percentage of net sales, which
were partly offset by improvement in gross profit margin from 1999. Favorable
product mix of sales and
13
<PAGE>
improved manufacturing productivity enabled the electrical group to more than
offset the impact of higher manufacturing costs in 2000. The mechanical group
decrease was primarily due to a combination of lower sales volume, higher raw
material, fuel and labor costs, reduced production levels and higher selling
expenses as a percentage of net sales.
Interest expense increased 63.0% to $15,332,000 in 2000 from $9,406,000 in 1999,
virtually all as a result of the Leeson Electric acquisition. The higher
interest expense was due to a combination of borrowing approximately
$260,000,000 to finance the Leeson Electric acquisition, an increase in the
interest rate paid on virtually all our debt from 6.9% to 7.9% effective
September 29, 2000 and increases during the first half of 2000 in the London
Interbank Offered Rate, or LIBOR, the rate upon which the interest rate we pay
is based. The average rate of interest we paid on outstanding debt in 2000 was
7.4% as compared to 5.6% in 1999. Our effective tax rate in 2000 increased to
40.3% of income before taxes from 39.8% in 1999. The increase was due primarily
to miscellaneous foreign tax-related items in 2000.
Net income decreased 11.3% to $33,771,000 in 2000 from $38,067,000 in 1999. Net
income as a percentage of net sales decreased to 5.6% in 2000 from 6.9% in 1999.
The reduced percentage was due in part to the impact on the fourth quarter of
the Leeson Electric acquisition, which added net sales but was approximately
neutral to net income as we had expected, and in part to lower earnings in 2000
from our other operations. Basic and diluted earnings per share in 2000 were
$1.61, 11.5% and 10.6% below, respectively, 1999's basic earnings per share of
$1.82 and diluted earnings per share of $1.80.
Liquidity and Capital Resources
Our working capital decreased 13.3% to $161,044,000 at December 31, 2001 from
$185,781,000 at December 31, 2000. The decrease resulted primarily from an
aggregate reduction of more than $33,000,000 in our receivables and inventories
in 2001. The reduction in our receivables was due primarily to the impact of the
U.S. economic recession on our sales volume and operations and occurred
primarily in the fourth quarter of 2001. The decrease in inventories was due in
part to planned reductions in production levels and was made primarily in the
first nine months of 2001. Despite the reduction in our working capital, our
current ratio at December 31, 2001 remained substantially the same as it was at
December 31, 2000.
Cash flow from operations increased 57.0% to $81,769,000 in 2001 from
$52,089,000 in 2000. The major factors contributing to the increased operating
cash flow were $16,673,000 from reduced receivables and $17,014,000 from reduced
inventories. Cash flow used in investing activities was $18,246,000 in 2001 and
$285,020,000 in 2000. The 2000 investing activities included the acquisition of
Leeson Electric. In 2001, capital expenditures were $15,426,000 compared to
$16,994,000 in 2000. The capital expenditure figures in any year do not include
the amounts of property, plant and equipment obtained in connection with our
acquisitions. Such capital additions are included as part of acquisition costs
under the heading "Business acquisitions" in the Consolidated Statements of Cash
Flows. We currently expect capital expenditures for 2002 to be approximately
$20,000,000, although our commitments for property, plant and equipment as of
December 31, 2001 were $431,000. We believe that our present facilities,
augmented by planned capital expenditures, are sufficient to provide adequate
capacity for our operations in 2002. Cash flow used in financing activities in
2001 totaled $59,474,000, of which $48,598,000 on a net basis was used to repay
debt, $10,022,000 was used to pay shareholder dividends and $1,042,000 was used
in January 2001 to repurchase 60,700 shares of our common stock at a weighted
average purchase price of $17.17 per share. We have not repurchased any shares
of our common stock since January 2001.
Our primary financing source is our $350,000,000 long-term revolving credit
facility that expires on December 31, 2005, which we reduced from $375,000,000
when we completed the stock offering described in this paragraph. Our credit
facility requires us to maintain specified financial ratios and to satisfy
certain financial condition tests. We were in compliance with all of the
financial ratios and financial condition tests specified by our amended credit
agreement as of December 31, 2001. In March 2002, we completed a public offering
of 4,109,985 shares of our common stock, including the sale of
14
<PAGE>
536,085 shares pursuant to the exercise of the underwriters' over-allotment
option. The net proceeds of the 4,109,985 shares issued were approximately
$90,200,000, which was used to repay our outstanding debt. With the application
of the net proceeds from this offering, we believe we will be able to satisfy
the financial ratios and tests specified in our credit facility for the
foreseeable future, absent unexpected changes in general business and economic
conditions.
At December 31, 2001, we had, after deducting approximately $2,800,000 of
standby letters of credit, $30,200,000 of available borrowing capacity. On a pro
forma basis giving effect to the public offering of our common stock, we would
have had $95,400,000 of available borrowing capacity at December 31, 2001. We
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. Our outstanding total debt of
$345,787,000 at December 31, 2001 reflected a reduction of $47,829,000 from
$393,616,000 at December 31, 2000. The debt reduction was due primarily to the
application of cash generated from operations by the above-mentioned receivables
and inventory reductions. See Note 5 of Notes to Consolidated Financial
Statements.
As a result of our capital structure, we are exposed to interest rate risk.
Virtually all of our debt is under a credit facility with a variable interest
rate based on a margin above LIBOR. As a result, interest rate changes impact
our future earnings and cash flows assuming other factors are constant. A
hypothetical 10% change in our weighted average borrowing rate on the
outstanding debt at December 31, 2001, would result in a change in after-tax
annual earnings of approximately $900,000. We have no material foreign currency
rate risk. In addition, we do not have any material derivative instruments.
Recent Accounting Pronouncements
On June 30, 2001, the Financial Accounting Standards Board finalized Statements
of Financial Accounting Standards No. 141, "Business Combinations", and No. 142,
"Goodwill and Other Intangible Assets". Statement No. 141 requires all business
combinations initiated after June 30, 2001 to use the purchase method of
accounting. Under the requirements of Statement No. 142, intangible assets
meeting specific criteria will be separately identified from goodwill acquired
in future acquisitions and amortized over their individual useful lives. Also,
our existing goodwill at June 30, 2001 will no longer be amortized, effective
January 1, 2002. This will eliminate approximately $8,400,000 of annual goodwill
amortization and have a favorable annual impact on net income of approximately
$6,700,000. As of December 31, 2001, we had goodwill on our balance sheet of
$312,735,000, relating to our acquisitions of Leeson Electric, Marathon Electric
and, to a lesser extent, Thomson Technology. The amount of goodwill constituted
approximately 42.0% of our total assets. An assessment of fair value will be
used to test for impairment of goodwill on an annual basis or when circumstances
indicate a possible impairment. We have completed our 2002 annual impairment
test and there has been no impairment of goodwill.
Additionally, Statement No. 143, "Asset Retirement Obligations", and Statement
No. 144, "Impairment or Disposal of Long-Lived Assets", have been issued by the
FASB. Adoption of these Statements on January 1, 2002 will not have a material
adverse effect on our consolidated financial statements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Information required by Item 305 of Regulation S-K is contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 14-15 of this report.
15
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial information for the fiscal years
ended December 31, 2001 and 2000 is as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
----------------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------------------- ----------------------- ---------------------- -----------------------
2001 2000 2001 2000 2001 2000 2001 2000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales.............. $177,122 $144,185 $171,946 $145,027 $166,719 $138,180 $147,784 $170,811
Gross Profit........... 45,151 38,322 42,829 38,062 40,706 35,922 37,191 45,123
Income from Operations. 17,160 18,087 14,734 18,213 13,344 16,670 10,822 18,638
Net Income............. 5,842 9,414 5,284 9,465 4,703 8,444 3,761 6,448
Earnings Per share..... .28 .45 .25 .45 .23 .40 .18 .31
Earnings Per Share -
Assuming Dilution .28 .45 .25 .45 .22 .40 .18 .31
Average Number of
Shares Outstanding. 20,863 20,986 20,866 20,988 20,871 20,994 20,875 20,970
Average Number of
Shares - Assuming
Dilution........... 21,110 21,033 21,128 20,988 21,129 20,994 21,130 20,970
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of REGAL-BELOIT CORPORATION:
We have audited the accompanying consolidated balance sheets of
REGAL-BELOIT CORPORATION (a Wisconsin Corporation) and subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of REGAL-BELOIT
CORPORATION and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 29, 2002
16
<PAGE>
<TABLE>
REGAL-BELOIT CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, Except Shares Outstanding and Per Share Data)
<CAPTION>
For the Year Ended December 31,
-------------------------------
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Net Sales ............................................ $ 663,571 $ 598,203 $ 550,661
Cost of Sales.......................................... 497,694 440,774 406,493
----------- ----------- -----------
Gross Profit..................................... 165,877 157,429 144,168
Operating Expenses..................................... 109,817 85,821 71,728
----------- ----------- -----------
Income From Operations........................... 56,060 71,608 72,440
Interest Expense....................................... 22,239 15,332 9,406
Interest Income........................................ 221 274 220
------------- ------------ -------------
Income Before Income Taxes....................... 34,042 56,550 63,254
Provision for Income Taxes............................. 14,452 22,779 25,187
----------- ----------- -----------
Net Income....................................... $ 19,590 $ 33,771 $ 38,067
=========== =========== ===========
Earnings Per Share .................................... $ .94 $ 1.61 $ 1.82
============ ============ ============
Earnings Per Share - Assuming Dilution................. $ .93 $ 1.61 $ 1.80
============ ============ ============
Average Number of Shares Outstanding................... 20,868,896 20,984,423 20,959,182
========== ========== ==========
Average Number of Shares - Assuming Dilution........... 21,124,204 20,996,189 21,169,580
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
17
<PAGE>
<TABLE>
REGAL-BELOIT CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share Information)
ASSETS
<CAPTION>
December 31,
Current Assets: 2001 2000
---- ----
<S> <C> <C>
Cash and cash equivalents..................................... $6,629 $2,612
Receivables, less allowance for doubtful accounts
of $2,233 in 2001 and $2,031 in 2000..................... 80,595 97,032
Income tax receivable......................................... 182 4,069
Future income tax benefits.................................... 8,420 9,475
Inventories................................................... 132,272 148,741
Prepaid expenses.............................................. 3,401 3,709
---------------- ----------------
Total Current Assets..................................... 231,499 265,638
Property, Plant and Equipment:
Land and improvements......................................... 11,867 11,898
Buildings and improvements.................................... 85,170 84,171
Machinery and equipment....................................... 240,444 225,617
---------------- ----------------
Property, Plant and Equipment, at cost................... 337,481 321,686
Less: Accumulated Depreciation............................... (152,608) (132,608)
----------------- -----------------
Net Property, Plant and Equipment........................ 184,873 189,078
Goodwill ........................................................... 312,735 316,295
Other noncurrent assets............................................. 17,492 21,396
---------------- ----------------
Total Assets............................................. $746,599 $792,407
================ ================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable.............................................. $28,429 $32,298
Dividends payable............................................. 2,505 2,509
Accrued compensation and employee benefits.................... 20,250 21,941
Other accrued expenses........................................ 17,303 22,849
Federal and state income taxes................................ 1,848 154
Current maturities of long-term debt.......................... 120 106
---------------- ----------------
Total Current Liabilities................................ 70,455 79,857
Long-term debt...................................................... 345,667 393,510
Deferred income taxes............................................... 43,022 41,063
Other noncurrent liabilities........................................ 5,304 4,088
Minority interest in consolidated subsidiary........................ 2,001 -
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,877,249 issued and outstanding in 2001
and 20,912,192 issued and outstanding in 2000............ 210 210
Additional paid-in capital.................................... 41,967 41,779
Less: Treasury Stock, at cost, 159,900 shares in
2001 and 99,200 shares in 2000........................... (2,727) (1,685)
Retained earnings............................................. 244,564 234,992
Accumulated other comprehensive loss.......................... (3,864) (1,407)
----------------- -----------------
Total Shareholders' Investment........................... 280,150 273,889
---------------- ----------------
Total Liabilities and Shareholders' Investment........... $746,599 $792,407
================ ================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
18
<PAGE>
<TABLE>
REGAL-BELOIT CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<CAPTION>
For the Year Ended December 31,
-------------------------------
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 19,590 $ 33,771 $ 38,067
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization.................... 31,798 25,549 23,052
Provision for deferred income taxes.............. 3,014 7,678 1,652
Change in assets and liabilities, net of
acquisitions:
Receivables................................. 16,673 8,321 1,093
Inventories................................. 17,014 (5,686) 7,066
Income tax receivable....................... 3,887 (4,069) --
Current liabilities and other, net.......... (10,207) (13,475) (673)
-------- -------- --------
Net cash provided from operating activities...... 81,769 52,089 70,257
Cash Flows From Investing Activities:
Additions to property, plant and equipment....... (15,426) (16,994) (11,422)
Business acquisitions............................ (3,629) (269,232) (32,083)
Sale of property, plant and equipment............ 650 2,725 49
Other, net....................................... 159 (1,519) (1,216)
---------- ----------- -----------
Net cash (used in) investing activities.......... (18,246) (285,020) (44,672)
Cash Flows From Financing Activities:
Additions to long-term debt...................... 2,000 270,000 1,000
Repayment of long-term debt...................... (50,598) (24,598) (19,047)
Repurchase of common stock....................... (1,042) (1,685) --
Stock issued under option plans.................. 188 194 726
Dividends paid to shareholders................... (10,022) (10,075) (10,057)
------------ ---------- ------------
Net cash (used in) provided from financing
activities.................................... (59,474) 233,836 (27,378)
EFFECT OF EXCHANGE RATE ON CASH........................ (32) (22) (26)
------------ ---------- ------------
Net increase (decrease) in cash and cash
equivalents................................... 4,017 883 (1,819)
Cash and cash equivalents at beginning of year... 2,612 1,729 3,548
----------- ----------- -----------
Cash and cash equivalents at end of year......... $ 6,629 $ 2,612 $ 1,729
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................... $ 22,607 $ 14,924 $ 9,520
Income Taxes................................ $ 7,265 $ 18,348 $ 24,886
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
<TABLE>
REGAL-BELOIT CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
(In Thousands of Dollars, Except Per Share Data)
<CAPTION>
Common Accumulated
Stock Additional Other
Comprehensive $.01 Par Paid-In Treasury Retained Comprehensive
Income Value Capital Stock Earnings Income (Loss) Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998........ $209 $40,860 -- $183,285 $143 $224,497
Net Income........................ $38,067 -- -- -- 38,067 -- 38,067
Dividends Declared ($.48 per share) -- -- -- (10,065) -- (10,065)
Translation Adjustments........... (599) -- -- -- -- (599) (599)
-----
Comprehensive Income.............. $37,468
=======
Stock Options Exercised........... 1 725 -- -- -- 726
- --- -- -- -- ---
Balance, December 31, 1999........ 210 41,585 -- 211,287 (456) 252,626
-
Net Income........................ $33,771 -- -- -- 33,771 -- 33,771
Dividends Declared ($.48 per share) -- -- -- (10,066) -- (10,066)
Translation Adjustments........... (951) -- -- -- -- (951) (951)
-----
Comprehensive Income.............. $32,820
=======
Common Stock Repurchased ......... -- -- (1,685) -- -- (1,685)
Stock Options Exercised........... -- 194 -- -- -- 194
-- --- -- -- -- ---
Balance, December 31, 2000........ 210 41,779 (1,685) 234,992 (1,407) 273,889
Net Income........................ $19,590 -- -- -- 19,590 -- 19,590
Dividends Declared ($.48 per share) -- -- -- (10,018) -- (10,018)
Translation Adjustments........... (928) -- -- -- -- (928) (928)
Additional Pension Liability...... (1,529) -- -- -- -- (1,529) (1,529)
-------
Comprehensive Income.............. $17,133
=======
Common Stock Repurchased ......... -- -- (1,042) -- -- (1,042)
Stock Options Exercised........... -- 188 -- -- -- 188
-- --- -- -- -- ---
Balance, December 31, 2001........ $210 $41,967 $(2,727) $244,564 $(3,864) $280,150
==== ======= ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
20
<PAGE>
REGAL-BELOIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Three Years Ended December 31, 2001
(1) Nature of Operations
REGAL-BELOIT CORPORATION (the Company) is a United States-based
multinational corporation. The Company is organized into two operating groups,
the Mechanical Group with its principal line of business in mechanical products
which control motion and torque, and the Electrical Group, with its principal
line of business in electric motors and power generation products. The principal
markets for the Company's products and technologies are within the United
States.
- --------------------------------------------------------------------------------
(2) Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. The minority interest in
the earnings of the majority-owned consolidated subsidiary is not material.
Revenue Recognition
Sales and related cost of sales for all products are recognized upon
shipment of the products, as shipments are FOB shipping point.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. ("GAAP") requires management to make
estimates and assumptions, in certain circumstances, that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expense during the reporting period. Actual results could differ
from those estimates.
Foreign Currency Translation
Net assets of non-U.S. subsidiaries, whose functional currencies are
other than the U.S. Dollar, are translated at the rates of exchange in effect as
of year-end. Income and expense items are translated at the average exchange
rates in effect during the year. The translation adjustments relating to net
assets are recorded directly into a separate component of shareholders'
investment. Certain other translation adjustments continue to be reported in net
income and were not significant in any of the three years ended December 31,
2001.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments
with insignificant interest rate risk and original maturities of three months or
less at date of acquisition. The carrying value of cash equivalents closely
approximates their fair market value.
Life Insurance Policies
The Company maintains life insurance policies on certain officers and
management which name the Company as beneficiary. The total face value of these
policies was $7,963,000 at both December 31, 2001 and 2000. The cash surrender
value, net of policy loans, is $251,000 and $3,209,000 at December 31, 2001 and
2000, respectively, and is included as a component of Other Noncurrent Assets.
Intangible Assets
The cost of goodwill and other intangible assets is amortized on a
straight-line basis over the estimated periods benefited ranging from 5 to 40
years. Goodwill amortization was $8,401,000,
21
<PAGE>
$4,994,000 and $3,845,000 in 2001, 2000 and 1999, respectively. Accumulated
goodwill amortization was $23,965,000 at December 31, 2001 and $15,564,000 at
December 31, 2000.
Effective January 1, 2002, goodwill will no longer be amortized, in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." Intangible
assets with definitive lives will continue to be amortized. Goodwill and
intangible assets will be evaluated in 2002 for impairment of their carrying
values and at least annually thereafter. Earnings will be charged if the
carrying value of goodwill or an intangible asset exceeds its fair market value.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of these assets may
not be recoverable. The Company assesses these assets for impairment based on
estimated future cash flows from these assets.
Inventories
The approximate percentage distribution between major classes of
inventory is as follows:
December 31,
----------------------
2001 2000
--------- ---------
Raw Material.................... 11% 11%
Work In Process................. 19% 21%
Finished Goods and
Purchased Parts.............. 70% 68%
Inventories are stated at cost, which is not in excess of market. Cost for
approximately 87% of the Company's inventory at December 31, 2001 and 89% in
2000, was determined using the last-in, first-out (LIFO) method. If all
inventories were valued on the first-in, first-out (FIFO) method, they would
have increased by $4,417,000 and $3,233,000 as of December 31, 2001 and 2000,
respectively. Material, labor and factory overhead costs are included in the
inventories.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Maintenance and repairs
are charged to expense as incurred and major renewals and improvements are
capitalized.
The cost of property, plant and equipment retired or otherwise disposed
of is removed from the accounts, the accumulated depreciation is removed from
related reserves, and the net gain or loss is reflected in income.
The provisions for depreciation are based on the estimated useful lives
of plant and equipment from the dates of acquisition and are calculated
primarily using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes. The estimated useful lives are:
Description Life
---------------------------------------- ----------------
Buildings and Improvements.......... 10 to 45 years
Machinery and Equipment............. 3 to 15 years
Shipping and Handling Revenues and Costs
Shipping and handling costs are recorded as costs of sales and the
related billings are recorded as sales.
Reclassifications
Certain reclassifications were made to the 2000 and 1999 financial
statements to conform to the 2001 presentation.
22
<PAGE>
Earnings per Share
The difference between basic and diluted earnings per share is
attributable to the incremental shares to be issued under the Company's stock
option plans, which totaled 255,308, 11,766 and 210,398 at December 31, 2001,
2000 and 1999, respectively.
(3) Leases and Rental Commitments
Rental expenses charged to operations amounted to $7,314,000 in 2001,
$4,934,000 in 2000 and $4,189,000 in 1999. The Company has future minimum rental
commitments under operating leases as shown in the following table:
Year (In Thousands of Dollars)
------------------ -----------------------------------
2002 $4,164
2003 3,081
2004 2,926
2005 2,227
2006 1,847
Thereafter 2,037
- --------------------------------------------------------------------------------
(4) Acquisitions
On January 16, 2001, the Company acquired, for cash, selected assets of
Philadelphia Gear Company, which now comprise the Company's spiral bevel gear
product line. The purchased assets included inventory and selected machinery,
equipment and tooling. The operating results and assets purchased are not
material to the performance or financial position of the Company.
On September 29, 2000, the Company acquired 100% of the stock of Leeson
Electric Corporation, a private company, for approximately $260,000,000 in cash.
During 2001, the purchase price allocation was finalized and resulted in an
increase to goodwill of approximately $4,000,000. This resulted in approximately
$86,000,000 of the purchase price being allocated to the net assets acquired,
and the remaining $174,000,000 being recorded as goodwill. Leeson is a leading
North American manufacturer and marketer of electric motors and related
products. On June 29, 2000, the Company acquired the assets and liabilities of
Thomson Technology, Inc. ("TTI") for approximately $10,000,000. TTI is a
Vancouver, BC, Canada based manufacturer of power systems controls for the
worldwide power generation market.
On May 28, 1999, the Company purchased the Lincoln Motors business of
Lincoln Electric Holdings, Inc., for a cash purchase price of approximately
$32,100,000. Lincoln Motors manufactures and markets a line of AC electric
motors from 1 horsepower to 800 horsepower.
- --------------------------------------------------------------------------------
23
<PAGE>
(5) Long-Term Debt and Bank Credit Facilities
<TABLE>
<CAPTION>
(In Thousands of Dollars)
December 31,
------------------------------------------
Long-term debt consists of the following: 2001 2000
-------------------- ------------------
<S> <C> <C>
Revolving Credit Facility.......................... $342,000 $392,500
Other.............................................. 3,787 1,116
-------------------- ------------------
345,787 393,616
Less-Current maturities............................ 120 106
-------------------- ------------------
Noncurrent portion................................. $345,667 $393,510
==================== ==================
</TABLE>
The Company maintained at December 31, 2001, a $375,000,000 revolving
credit facility which expires December 31, 2005 (the "Facility"). The Facility
permits the Company to borrow at interest rates based upon a margin above LIBOR,
which margin varies with the ratio of debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA"). These interest rates also vary with
LIBOR. The Facility, as amended during 2001, restricts the payment of dividends
to the current $.12 per quarter and also limits acquisitions for cash to $15
million for an individual acquisition and to $30 million in the aggregate. The
Company has pledged in the amended Facility the stock of its major subsidiaries
as security for this agreement. The stock pledge and the dividend and
acquisition restrictions are subject to release if the Company's ratio of funded
debt to EBITDA meets certain requirements. The Facility also includes various
financial covenants regarding minimum net worth, permitted debt levels and
minimum interest coverage. The most restrictive financial covenant included in
the Facility is the ratio of funded debt to EBITDA. This covenant ratio was 4.15
at December 31, 2001, but declines in future quarters throughout 2002 to 3.25 at
December 31, 2002. The Company was in compliance with all financial covenants as
of December 31, 2001.
The average balance outstanding under the Facility in 2001 was
$372,512,000. The average interest rate paid under the Facility in 2001 was 5.9%
and was 4.2% at December 31, 2001. The Company had $30,200,000 of available
borrowing capacity, after deducting approximately $2,800,000 for standby letters
of credit, under the Facility at December 31, 2001. (See Management's Discussion
and Analysis of Financial Statements, "Liquidity and Capital Resources").
The Company also has other loans with a total balance outstanding of
$3,787,000 at December 31, 2001. The largest is a $2,000,000 industrial
development bond issue completed on September 6, 2001.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair market value of
long-term debt is not materially different from the carrying value.
Maturities of long-term debt are as follows:
Year (In Thousands of Dollars)
------------------- ---------------------------------
2002 $120
2003 107
2004 232
2005 342,222
2006 678
Thereafter 2,428
----------
Total $345,787
========
- --------------------------------------------------------------------------------
24
<PAGE>
(6) Contingencies
The Company is, from time to time, party to lawsuits arising from its
normal business operations. It is believed that the outcome of these lawsuits
will have no material effect on the Company's financial position or its results
of operations.
- --------------------------------------------------------------------------------
(7) Retirement Plans
The Company has a number of retirement plans that cover most of its
employees. The plans include defined contribution plans and defined benefit
plans. The defined contribution plans provide for Company contributions based,
depending on the plan, upon one or more of participant contributions, service
and profits. Company contributions to defined contribution plans totaled
$3,329,000, $4,628,000 and $4,820,000 in 2001, 2000 and 1999, respectively.
Benefits provided under defined benefit plans are based, depending on the plan,
on employees' average earnings and years of credited service, or a benefit
multiplier times years of service. Funding of these qualified defined benefit
plans is in accordance with federal laws and regulations.
Net periodic pension benefit costs for the defined benefit plans were as
follows:
(In Thousands of Dollars)
----------------------------------------
2001 2000 1999
----------- --------- ------------
Service cost...................... $1,330 $1,253 $1,375
Interest cost..................... 3,078 2,993 2,809
Expected return on plan assets.... (5,410) (4,858) (4,158)
Net amortization and deferral..... (355) (125) 58
----------- --------- ------------
Net periodic (income) expense..... $(1,357) $(737) $84
=========== ========= ============
25
<PAGE>
The following table presents a reconciliation of the funded status of the
defined benefit plans using an assumed discount rate of 7.5% in 2001 and 2000,
annual compensation increases of 3.75% in 2001 and 4.5% in 2000, and an assumed
long-term rate of return on plan assets of 9.0% in 2001 and 2000.
(In Thousands of Dollars)
-----------------------------
2001 2000
------------- ------------
Change in projected benefit obligation:
Obligation at beginning of period......... $41,042 $39,909
Service cost.............................. 1,330 1,253
Interest cost............................. 3,078 2,993
Change in assumptions..................... (882) (1,293)
Plan amendments........................... 403 131
Benefits paid............................. (1,863) (1,951)
------------- ------------
Obligation at end of period............... 43,108 41,042
------------- ------------
Change in fair value of plan assets:
Fair value of plan assets at beginning
of period.............................. 60,844 60,601
Actual (loss) return on plan assets....... (11,582) 1,827
Employer contributions.................... 282 367
Benefits paid............................. (1,863) (1,951)
------------- ------------
Fair value of plan assets at end of
period................................. 47,681 60,844
------------- ------------
Funded status............................. 4,573 19,802
Unrecognized net actuarial loss
(gain).................................. 3,251 (13,289)
Unrecognized prior service costs........... 1,252 924
------------- ------------
Net amount recognized...................... $9,076 $7,437
============= ============
Amounts recognized in balance sheets:
Prepaid benefit cost.................. $11,077 $10,728
Accrued benefit liability............. (3,906) (3,291)
Intangible asset...................... 376 --
Accumulated other
comprehensive loss................. 1,529 --
------------- ------------
Net amount recognized................. $9,076 $7,437
============= ============
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the defined benefit plans with accumulated benefit
obligations in excess of plan assets were $7,740,000, $7,699,000 and $4,094,000,
respectively, as of December 31, 2001, and $3,105,000, $3,054,000 and $0,
respectively, as of December 31, 2000.
- --------------------------------------------------------------------------------
(8) Shareholders' Investment
The Company has one stock option plan available for new grants to
officers, directors and key employees, the 1998 Stock Option Plan, as amended.
Additionally, the Company's 1991 Flexible Stock Incentive Plan and 1987 Stock
Option Plan, which have expired as to new grants, have shares previously
26
<PAGE>
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. Options vest over various periods up to
10 years. A summary of the Company's three stock option plans follows:
<TABLE>
<CAPTION>
At December 31, 2001
--------------------------------------------------------
1987 Plan 1991 Plan 1998 Plan
--------------- ----------------- ----------------
<S> <C> <C> <C>
Total Plan shares..................... 450,000 1,000,000 1,000,000
Options granted....................... 449,850 762,882 705,400
Options outstanding................... 38,700 731,324 690,100
Options available for grant........... -- -- 294,600
</TABLE>
A summary of the status of the Company's three stock option plans as of
December 31, 2001, 2000 and 1999, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
2001 2000 1999
--------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. 1,477,718 $18.01 1,430,682 $18.47 839,018 $14.18
Granted.................... 41,850 18.71 134,750 18.14 705,700 22.65
Exercised.................. (26,194) 7.52 (26,018) 6.97 (78,336) 9.33
Forfeited.................. (33,250) 21.28 (61,696) 22.61 (35,700) 23.43
----------- ----------- ----------- ----------- ----------- -----------
Outstanding at end of year. 1,460,124 $18.49 1,477,718 $18.01 1,430,682 $18.47
Options exercisable at
year-end................ 889,824 865,968 656,265
</TABLE>
The following table provides information on the three Plans at various
exercise price ranges:
<TABLE>
<CAPTION>
Range of Exercise Prices
-------------------------------------------------------------------------------
$7.18-$10.78 $10.79-$16.18 $16.19-$24.27 $24.28-$32.44 Total
------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Options outstanding at 12/31/01 355,510 34,464 963,300 106,850 1,460,124
Options exercisable at 12/31/01 355,510 29,464 401,000 103,850 889,824
</TABLE>
The Company accounts for its stock option plans under APB Opinion No. 25.
Accordingly, no compensation cost has been recognized in the statements of
income. Had compensation cost for these plans been determined consistent with
FASB Statement No. 123 "Accounting for Stock-Based Compensation", the Company's
net income and earnings per share ("EPS") would have been reduced to the
following pro-forma amounts:
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
-----------------------------------------------------------------
2001 2000 1999
--------------------- ------------------ ------------------
<S> <C> <C> <C>
Net income:
As Reported................................ $19,590 $33,771 $38,067
Pro Forma.................................. $18,886 $33,018 $36,532
Earnings Per Share
As Reported................................ $.94 $1.61 $1.82
Pro Forma.................................. $.91 $1.57 $1.74
Earnings Per Share - Assuming Dilution
As Reported................................ $.93 $1.61 $1.80
Pro Forma.................................. $.89 $1.57 $1.73
</TABLE>
27
<PAGE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999, respectively: risk-free
interest rates of 5.1%, 6.3% and 5.4%; expected dividend yield of 2.5% for all
years; expected option lives of 7.0 for all years; expected volatility of 33% in
both 2001 and 2000, and 32% in 1999.
On January 28, 2000, the Board of Directors approved a Shareholder Rights
Plan (the "Plan"). Pursuant to this Plan, one common share purchase right is
included with each outstanding share of common stock. In the event the rights
become exercisable, each right will initially entitle its holder to buy one-half
of one share of the Company's common stock at a price of $60 per share
(equivalent to $30 per one-half share), subject to adjustment. The rights will
become exercisable if a person or group acquires, or announces an offer for, 15%
or more of the Company's common stock. In this event, each right will thereafter
entitle the holder to purchase, at the right's then-current exercise price,
common stock of the Company or, depending on the circumstances, common stock of
the acquiring corporation having a market value of twice the full share exercise
price. The rights may be redeemed by the Company at a price of one-tenth of one
cent per right at any time prior to the time a person or group acquires 15% or
more of the Company's common stock. The rights expire on January 28, 2010,
unless otherwise extended.
The Board of Directors approved in 2000 a repurchase program of up to
2,000,000 common shares of Company stock. Management was authorized to effect
purchases from time to time in the open market or through privately negotiated
transactions. Through December 31, 2001, the Company repurchased 159,900 shares
at an average purchase price of $17.06 per share. Management ceased repurchases
in January 2001.
- --------------------------------------------------------------------------------
(9) Income Taxes
Earnings before income taxes consisted of the following:
(In Thousands of Dollars)
---------------------------------------------
2001 2000 1999
------------- ----------- -------------
United States................ $30,213 $55,879 $62,143
Foreign...................... 3,829 671 1,111
------------- ----------- -------------
Total........................ $34,042 $56,550 $63,254
============= =========== =============
The provision for income taxes is summarized as follows:
(In Thousands of Dollars)
--------------------------------------------
2001 2000 1999
-------------- ----------- -----------
Current
Federal................. $9,155 $12,858 $20,594
State................... 1,186 1,995 2,321
Foreign................. 1,097 248 620
-------------- ----------- -----------
11,438 15,101 23,535
Deferred..................... 3,014 7,678 1,652
-------------- ----------- -----------
$14,452 $22,779 $25,187
============== =========== ===========
28
<PAGE>
A reconciliation of the statutory Federal income tax rate and the
effective tax rate reflected in the statements of income follows:
2001 2000 1999
-------------- ----------- -----------
Federal statutory tax rate........ 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit................ 2.3 2.5 3.0
Nondeductible goodwill
amortization................... 4.0 2.4 2.3
Other, net........................ 1.2 .4 (.5)
-------------- ----------- -----------
Effective tax rate................ 42.5% 40.3% 39.8%
============== =========== ===========
Deferred taxes arise primarily from differences in amounts reported for
tax and financial statement purposes. The Company's net deferred tax liability
as of December 31, 2001 of $34,602,000 is classified on the consolidated balance
sheet as a current income tax benefit of $8,420,000 and a long-term deferred
income tax liability of $43,022,000. The December 31, 2000 net deferred tax
liability was $31,588,000, consisting of a current income tax benefit of
$9,475,000 and a long-term deferred income tax liability of $41,063,000. The
components of this net deferred tax liability are as follows:
(In Thousands of Dollars)
December 31
-----------------------------
2001 2000
------------ ------------
Federal operating loss carry forward... $ 277 $ 401
Accrued employee benefits.............. 1,349 1,495
Bad debt reserve....................... 768 443
Warranty reserve....................... 682 1,067
Other.................................. 215 2,542
------------ ------------
Deferred tax assets............... 3,291 5,948
Property related....................... (29,121) (29,643)
Inventory.............................. (4,935) (3,608)
Other.................................. (3,837) (4,285)
------------ ------------
Deferred tax liabilities.......... (37,893) (37,536)
------------ ------------
Net deferred tax liability............. $(34,602) $(31,588)
============ ============
- --------------------------------------------------------------------------------
(10) Industry Segment Information
The Company's reportable segments are strategic businesses that offer
different products and services. The Company has two such reportable segments:
Mechanical Group and Electrical Group. The Mechanical Group produces mechanical
speed reducers and related products for sale to original equipment manufacturers
and distributors. The Electrical Group produces electric motors, power
generation equipment and related products for sale to original equipment
manufacturers and distributors.
The Company evaluates performance based on the segments' income from
operations. Corporate costs have been allocated to each Group based primarily on
the net sales of each Group. The reported net sales of each segment are solely
from external customers. No single customer accounts for 10% or more of the
Company's net sales.
29
<PAGE>
The Company's products manufactured and sold outside the United States
were approximately 8%, 4% and 3% of net sales in 2001, 2000 and 1999,
respectively. Export sales from U.S. operations were approximately 6% of net
sales in 2001, 6% in 2000 and 7% in 1999.
Pertinent data for each industry segment in which the Company operated
for the three years ended December 31, 2001 is as follows:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
----------------------------------------------------------------------------------------
Depreciation
Income From Identifiable Capital and
Net Sales Operations Assets Expenditures Amortization
------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
2001
Mechanical Group........... $206,615 $15,872 $125,201 $5,110 $8,824
Electrical Group........... 456,956 40,188 621,398(A) 10,316 22,974
------------- --------------- -------------- -------------- --------------
Total REGAL-BELOIT......... $663,571 $56,060 $746,599 $15,426 $31,798
============= =============== ============== ============== ==============
2000
Mechanical Group........... $244,249 $30,794 $142,145 $6,515 $9,663
Electrical Group........... 353,954 40,814 650,262(A) 10,479 15,886
------------- --------------- -------------- -------------- --------------
Total REGAL-BELOIT......... $598,203 $71,608 $792,407 $16,994 $25,549
============= =============== ============== ============== ==============
1999
Mechanical Group........... $254,967 $35,732 $145,391 $4,257 $10,910
Electrical Group........... 295,694 36,708 362,774(A) 7,165 12,142
------------- --------------- -------------- -------------- --------------
Total REGAL-BELOIT......... $550,661 $72,440 $508,165 $11,422 $23,052
============= =============== ============== ============== ==============
(A) Includes $312,735 in 2001, $316,295 in 2000 and $143,314 in 1999 of
goodwill relating to Electrical Group acquisitions.
</TABLE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company has had no disagreements with its accountants subject to disclosure
by Item 304 of Regulation S-K nor has it had a change of accountants within the
last two fiscal years.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information required by Item 401 of Regulation S-K is included under the
captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance", of the Company's definitive proxy statement for the
Annual Meeting of Shareholders to be held on April 19, 2002, a copy of which has
been filed within 120 days following the close of the fiscal year, and such
information is incorporated herein by reference. Information with respect to the
executive officers of the Company appears in Part I, page 9 of this Annual
Report on Form 10-K.
ITEM 11. Executive Compensation
Information required by Item 402 of Regulation S-K is included under the
captions "Other Information about the Board" and "Compensation" of the Company's
definitive proxy statement for the Annual Meeting of Shareholders to be held on
April 19, 2002, a copy of which has been filed within 120 days following the
close of the fiscal year, and such information is incorporated herein by
reference; provided, however, that the subsection entitled "Report of
Compensation Committee on Annual Compensation" shall not be deemed to be
incorporated herein by reference.
30
<PAGE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information required pursuant to Item 403 of Regulation S-K is included under
the caption "Security Ownership of Certain Beneficial Owners and Management" of
the Company's definitive proxy statement for the Annual Meeting of Shareholders
to be held on April 19, 2002, a copy of which has been filed within 120 days
following the close of the fiscal year, and such information is incorporated
herein by reference.
ITEM 13. Certain Relationships and Related Transactions
Information required pursuant to Item 404 of Regulation S-K is included under
the caption "Certain Relationships and Related Transactions" of the Company's
definitive proxy statement for the Annual Meeting of Shareholders to be held on
April 19, 2002, a copy of which has been filed within 120 days following the
close of the fiscal year, and such information is incorporated herein by
reference.
PART IV
ITEM 14. Financial Statements, Financial Statement Schedule, Exhibits and
Reports on Form 8-K
(a) 1. Financial statements - The financial statements listed in the
accompanying index to financial statements and financial statement
schedule are filed as part of this Annual Report on Form 10-K.
2. Financial statement schedules - The financial statement schedules
listed in the accompanying index to financial statements and financial
statement schedule are filed as part of this Annual Report on Form 10-K.
3. Exhibits - The exhibits listed in the accompanying index to exhibits are
filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
On February 11, 2002, the Company filed a current report on Form 8-K
pertaining to the action filed against the Company and its Ohio Gear
division in the United States District Court for the Central District of
Illinois. The plaintiffs in the litigation allege that in 1998 and 1999
Ohio Gear supplied defective differential assemblies that were used in
transaxles manufactured by the plaintiffs.
On February 1, 2002, the Company filed a current report on Form 8-K,
attaching as exhibits Management's Discussion and Analysis of Financial
Statements, Selected Financial Information and the audited Consolidated
Financial Statements of the Company relating to the year ended December
31, 2001. Also filed was the form of Second Amendment and Waiver, dated
as of January 31, 2001, among the Company, the financial institutions
listed on the signature pages thereof, Bank of America, N.A., as
Documentation and Syndication Agent, and M&I Marshall & Ilsley Bank, as
Administrative Agent.
On January 29, 2002, the Company filed a current report on 8-K, attaching
as an exhibit a Company press release disclosing, among other things, the
Company's fourth quarter and year-end financial results for the reporting
periods ended December 31, 2001.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
REGAL-BELOIT CORPORATION
By: /s/ Kenneth F. Kaplan
-----------------------------------
Kenneth F. Kaplan
Vice President, Chief Financial
Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ James L. Packard Chairman, President, Chief March 27, 2002
- --------------------------- Executive Officer and
James L. Packard Director
/s/ Kenneth F. Kaplan Vice President, Chief March 27, 2002
- --------------------------- Financial Officer and
Kenneth F. Kaplan Secretary (Principal
Accounting & Financial
Officer)
/s/ Henry W. Knueppel Executive Vice President March 27, 2002
- --------------------------- and Director
Henry W. Knueppel
/s/ John A. McKay Director March 27, 2002
- ---------------------------
John A. McKay
/s/ John M. Eldred Director March 27, 2002
- ---------------------------
John M. Eldred
/s/ J. Reed Coleman Director March 27, 2002
- ---------------------------
J. Reed Coleman
/s/ Frank Bauchiero Director March 27, 2002
- ---------------------------
Frank Bauchiero
32
<PAGE>
REGAL-BELOIT CORPORATION
Index to Financial Statements
and Financial Statement Schedule
The following documents are incorporated by reference as part of this report:
Page(s) In
Form 10-K
(1) Financial Statements:
Report of Independent Public Accountants....................... 16
Consolidated Statements of Income for the three years
ended December 31, 2001, 2000 and 1999....................... 17
Consolidated Balance Sheets at December 31, 2001 and 2000...... 18
Consolidated Statements of Cash Flows for the three years
ended December 31, 2001, 2000 and 1999....................... 19
Consolidated Statements of Shareholders' Investment for
the three years ended December 31, 2001, 2000 and 1999....... 20
Notes to Consolidated Financial Statements..................... 21-30
Page(s) In
Form 10-K
(2) Financial Statement Schedule:
Report of Independent Public Accountants on Financial
Statement Schedule........................................... 34
For the three years ended December 31, 2001, Schedule II -
Valuation and Qualifying Accounts............................ 35
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
33
<PAGE>
Report of Independent Public Accountants
We have audited, in accordance with auditing standards generally accepted in the
United States, the financial statements of Regal-Beloit Corporation in this Form
10-K, and have issued our report thereon dated January 29, 2002. Our audit was
made for the purpose of forming an opinion on those statements taken as a whole.
The schedule listed in the index to financial statements is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 29, 2002
34
<PAGE>
SCHEDULE II
REGAL-BELOIT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
---------------------------------------------------------------------------
Balance Provision Write-offs Additions, Balance
Beginning (Credits) Net of Related to End
of Year For Losses Recoveries Acquisition of Year
------- ---------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 2001 $ 2,031 $ 912 $ (710) $ -0- $ 2,233
Year Ended December 31, 2000 $ 1,758 $ 554 $ (809) $ 528 $ 2,031
Year Ended December 31, 1999 $ 1,851 $ (9) $ (84) $ -0- $ 1,758
</TABLE>
35
<PAGE>
Exhibits Index
Exhibit Number Exhibit Description
2.1 Agreement and Plan of Merger among the Registrant, Regal-Beloit
Acquisition Corp., and Marathon Electric Manufacturing Corporation
dated as of February 26, 1997, as amended and restated March 17,
1997 and March 26, 1997. [Incorporated by reference to Exhibit 2.1
to Regal-Beloit Corporation's Current Report on Form 8-K dated
April 10, 1997]
2.2 Stock Purchase Agreement, dated as of August 7, 2000, as amended
by First Amendment to Stock Purchase Agreement, dated as of
September 29, 2000, among Regal-Beloit Corporation, LEC
Acquisition Corp., Leeson Electric Corporation ("Leeson") and
Leeson's Shareholders. [Incorporated by reference to Exhibit 2 to
Regal-Beloit Corporation's Current Report on Form 8-K dated
October 13, 2000]
3.1 Articles of Incorporation of the Registrant [Incorporated by
reference to Exhibit B to Regal-Beloit Corporation's Definitive
Proxy Statement on Schedule 14A for the 1994 Annual Meeting of
Shareholders]
3.2 Bylaws of the Registrant [Incorporated by reference to Exhibit C
to Regal-Beloit Corporation's Definitive Proxy Statement on
Schedule 14A for the 1994 Annual Meeting of Shareholders]
4.1 Articles of Incorporation and Bylaws of the Registrant
[Incorporated by reference to Exhibits 3.1 and 3.2 hereto]
4.2 Rights Agreement, dated as of January 28, 2000, between
Regal-Beloit Corporation and BankBoston, N.A. [Incorporated by
reference to Exhibit 4.1 to Regal-Beloit Corporation's
Registration Statement on Form 8-A (Registration No. 1-7283) filed
January 31, 2000]
4.3 Credit Agreement, dated as of September 29, 2000, among
Regal-Beloit Corporation, M&I Marshall & Ilsley Bank, as
Administrative Agent, and Swing Line Bank, Bank of America, N.A.,
as Documentation and Syndication Agent, Banc of America Securities
LLC, Lead Arranger and Book Manager and each of the Banks Party to
the Credit Agreement [Incorporated by reference to Exhibit 4 to
Regal-Beloit Corporation's Current Report on Form 8-K dated
October 13, 2000]
4.4 First Amendment, dated as of June 29, 2001, among the Company, the
financial institutions listed on the signature pages thereof, Bank
of America, N.A., as Documentation and Syndication Agent, and M&I
Marshall & Ilsley Bank, as Administrative Agent [Incorporated by
reference to Exhibit 1 to Regal-Beloit Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001]
36
<PAGE>
Exhibit Number Exhibit Description
4.5 Second Amendment and Waiver, dated as of January 31, 2002, among
the Company, the financial institutions listed on the signature
pages thereof, Bank of America, N.A., as Documentation and
Syndication Agent, and M&I Marshall & Ilsley Bank, as
Administrative Agent [Incorporated by reference to Exhibit 99.4 to
Regal-Beloit Corporation's Current Report on Form 8-K dated
February 1, 2002]
10.1* Short-Term Incentive Compensation Plan, as amended [Incorporated
by reference to Exhibit 10.1 to Regal-Beloit Corporation's Annual
Report on Form 10-K for the year ended December 31, 1992]
10.3* 1987 Stock Option Plan [Incorporated by reference to Exhibit 10.3
to Regal-Beloit Corporation's Registration Statement on Form S-1
(Registration No. 33-25363) dated November 4, 1988]
10.4* 1991 Flexible Stock Incentive Plan [Incorporated by reference to
Exhibit 10.4 to Regal-Beloit Corporation's Annual Report on Form
10-K for the year ended December 31, 1992]
10.5* Form of Change of Control Agreement between Regal-Beloit
Corporation and each of Henry W. Knueppel and Kenneth F. Kaplan
[Incorporated by reference to Exhibit 10.5 to Regal-Beloit
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997]
10.6* Addendum to Change of Control Agreement effective as of April 21,
1998 [Incorporated by reference to Exhibit 10.5(a) to Regal-Beloit
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998]
10.7* Disability Insurance Agreement between Regal-Beloit Corporation
and Continental Casualty Company [Incorporated by reference to
Exhibit 10.6 to Regal-Beloit Corporation's Annual Report on Form
10-K for the year ended December 31, 1992]
10.8* 1998 Stock Option Plan, as amended [Incorporated by reference to
Regal-Beloit Corporation's Registration Statement on Form S-8
(File No. 333-84779)]
10.9* Key Executive Employment and Severance Agreement, dated as of
June 18, 2001, between James L. Packard and Regal-Beloit
Corporation
21 Subsidiaries of Regal-Beloit Corporation
23 Consent of Independent Public Accountants
99.1 Regal-Beloit Corporation Letter to the Securities and Exchange
Commission regarding representations from Arthur Andersen LLP
37
<PAGE>
99.2 Proxy Statement of Regal-Beloit Corporation for the 2002 Annual
Meeting of Shareholders
[The Proxy Statement for the 2002 Annual Meeting of Shareholders
will be filed with the Securities and Exchange Commission under
Regulation 14A within 120 days after the end of the Company's
fiscal year. Except to the extent specifically incorporated by
reference, the Proxy Statement for the 2002 Annual Meeting of
Shareholders shall not be deemed to be filed with the Securities
and Exchange Commission as part of this Annual Report on Form
10-K.]
------------------------
* A management contract or compensatory plan or arrangement.
38
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>3
<FILENAME>slp254c.txt
<DESCRIPTION>KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
<TEXT>
KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT, made and entered into as of the 18th day of June, 2001,
by and between Regal-Beloit Corporation, a Wisconsin corporation (hereinafter
referred to as the "Company"), and James L. Packard (hereinafter referred to as
the "Executive").
W I T N E S S E T H
WHEREAS, the Executive is employed by the Company and/or a subsidiary of
the Company (hereinafter referred to collectively as the "Employer") in a key
executive capacity and the Executive's services are valuable to the conduct of
the business of the Company;
WHEREAS, the Company desires to continue to attract and retain dedicated
and skilled management employees in a period of industry consolidation,
consistent with achieving the best possible value for its shareholders in any
change in control of the Company;
WHEREAS, the Company recognizes that circumstances may arise in which a
change in control of the Company occurs, through acquisition or otherwise,
thereby causing a potential conflict of interest between the Company's needs for
the Executive to remain focused on the Company's business and for the necessary
continuity in management prior to and following a change in control, and the
Executive's reasonable personal concerns regarding future employment with the
Employer and economic protection in the event of loss of employment as a
consequence of a change in control;
WHEREAS, the Company and the Executive are desirous that any proposal for
a change in control or acquisition of the Company will be considered by the
Executive objectively and with reference only to the best interests of the
Company and its shareholders;
WHEREAS, the Executive will be in a better position to consider the
Company's best interests if the Executive is afforded reasonable economic
security, as provided in this Agreement, against altered conditions of
employment which could result from any such change in control or acquisition;
WHEREAS, the Executive possesses intimate knowledge of the business and
affairs of the Company and has acquired certain confidential information and
data with respect to the Company; and
WHEREAS, the Company desires to insure, insofar as possible, that it will
continue to have the benefit of the Executive's services and to protect its
confidential information and goodwill.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto mutually
covenant and agree as follows:
<PAGE>
1. Definitions.
(a) Accrued Benefits. The term "Accrued Benefits" shall include the
following amounts, payable as described herein: (i) all base salary for the time
period ending with the Termination Date; (ii) reimbursement for any and all
monies advanced in connection with the Executive's employment for reasonable and
necessary expenses incurred by the Executive on behalf of the Employer for the
time period ending with the Termination Date; (iii) any and all other cash
earned through the Termination Date and deferred at the election of the
Executive or pursuant to any deferred compensation plan then in effect; (iv)
notwithstanding any provision of any bonus or incentive compensation plan
applicable to the Executive, a lump sum amount, in cash, equal to the sum of (A)
any bonus or incentive compensation that has been allocated or awarded to the
Executive for a fiscal year or other measuring period under the plan that ends
prior to the Termination Date but has not yet been paid (pursuant to Section
5(f) or otherwise) and (B) a pro rata portion to the Termination Date of the
aggregate value of all contingent bonus or incentive compensation awards to the
Executive for all uncompleted periods under the plan calculated as to each such
award as if the Goals with respect to such bonus or incentive compensation award
had been attained; and (v) all other payments and benefits to which the
Executive (or in the event of the Executive's death, the Executive's surviving
spouse or other beneficiary) may be entitled on the Termination Date as
compensatory fringe benefits or under the terms of any benefit plan of the
Employer, excluding severance payments under any Employer severance policy,
practice or agreement in effect on the Termination Date. Payment of Accrued
Benefits shall be made promptly in accordance with the Company's prevailing
practice with respect to clauses (i) and (ii) or, with respect to clauses (iii),
(iv) and (v), pursuant to the terms of the benefit plan or practice establishing
such benefits.
(b) Act. The term "Act" means the Securities Exchange Act of 1934, as
amended.
(c) Affiliate and Associate. The terms "Affiliate" and "Associate" shall
have the respective meanings ascribed to such terms in Rule l2b-2 of the General
Rules and Regulations under the Act.
(d) Annual Cash Compensation. The term "Annual Cash Compensation" shall
mean the sum of (i) the Executive's Annual Base Salary (determined as of the
time of the Change in Control of the Company or, if higher, immediately prior to
the date the Notice of Termination is given) plus (ii) an amount equal to the
greater of the Executive's annual incentive target bonus for the fiscal year in
which the Termination Date occurs or the annual incentive bonus the Executive
received for the fiscal year prior to the Change in Control of the Company plus
(iii) an amount equal to the greater of the Executive's Fringe Benefits for the
fiscal year in which the Termination Date occurs or the annual amount of Fringe
Benefits the Executive received for the fiscal year prior to the Change in
Control of the Company (the aggregate amount set forth in clause (i), clause
(ii) and clause iii shall hereafter be referred to as the "Annual Cash
Compensation").
(e) Beneficial Owner. A Person shall be deemed to be the "Beneficial
Owner" of any securities:
-2-
<PAGE>
(i) which such Person or any of such Person's Affiliates or
Associates has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, (A) securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase, or (B) securities issuable upon exercise of Rights
issued pursuant to the terms of the Company's Rights Agreement, dated as
of January 28, 2000, between the Company and Firstar Bank, N.A., as
amended from time to time (or any successor to such Rights Agreement), at
any time before the issuance of such securities;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of
or has "beneficial ownership" of (as determined pursuant to Rule l3d-3 of
the General Rules and Regulations under the Act), including pursuant to
any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security under this clause (ii) as a result of an agreement,
arrangement or understanding to vote such security if the agreement,
arrangement or understanding: (A) arises solely from a revocable proxy or
consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations under the Act and (B) is not also then reportable
on a Schedule l3D under the Act (or any comparable or successor report);
or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (except pursuant to a revocable
proxy as described in clause (ii) above) or disposing of any voting
securities of the Company.
(f) Cause. "Cause" for termination by the Employer of the Executive's
employment in connection with a Change in Control of the Company shall be
limited to (i) the engaging by the Executive in intentional conduct not taken in
good faith that the Company establishes, by clear and convincing evidence, has
caused demonstrable and serious financial injury to the Employer, as evidenced
by a determination in a binding and final judgment, order or decree of a court
or administrative agency of competent jurisdiction, in effect after exhaustion
or lapse of all rights of appeal, in an action, suit or proceeding, whether
civil, criminal, administrative or investigative; (ii) conviction of a felony
(as evidenced by binding and final judgment, order or decree of a court of
competent jurisdiction, in effect after exhaustion of all rights of appeal),
which substantially impairs the Executive's ability to perform his duties or
responsibilities; or (iii) continuing willful and unreasonable refusal by the
Executive to perform the Executive's duties or responsibilities (unless
significantly changed without the Executive's consent).
-3-
<PAGE>
(g) Change in Control of the Company. A "Change in Control of the
Company" shall be deemed to have occurred if an event set forth in any one of
the following paragraphs shall have occurred:
(i) any Person (other than (A) the Company or any of its
subsidiaries, (B) a trustee or other fiduciary holding securities under
any employee benefit plan of the Company or any of its subsidiaries, (C)
an underwriter temporarily holding securities pursuant to an offering of
such securities or (D) a corporation owned, directly or indirectly, by
the shareholders of the Company in substantially the same proportions as
their ownership of stock in the Company ("Excluded Persons")) is or
becomes the Beneficial Owner, directly or indirectly, of securities of
the Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or its
Affiliates after June 13, 2001, pursuant to express authorization by
the Board that refers to this exception) representing 20% or more of
either the then outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding voting
securities; or
(ii) the following individuals cease for any reason to constitute
a majority of the number of directors of the Company then serving: (A)
individuals who, on June 13, 2001 constituted the Board and (B) any
new director (other than a director whose initial assumption of office is
in connection with an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office
who either were directors on June 13, 2001, or whose appointment,
election or nomination for election was previously so approved
(collectively the "Continuing Directors"); provided, however, that
individuals who are appointed to the Board pursuant to or in accordance
with the terms of an agreement relating to a merger, consolidation, or
share exchange involving the Company (or any direct or indirect
subsidiary of the Company) shall not be Continuing Directors for purposes
of this Agreement until after such individuals are first nominated for
election by a vote of at least two-thirds (2/3) of the then Continuing
Directors and are thereafter elected as directors by the shareholders of
the Company at a meeting of shareholders held following consummation of
such merger, consolidation, or share exchange; and, provided further,
that in the event the failure of any such persons appointed to the Board
to be Continuing Directors results in a Change in Control of the Company,
the subsequent qualification of such persons as Continuing Directors
shall not alter the fact that a Change in Control of the Company
occurred; or
(iii) the shareholders of the Company approve a merger,
consolidation or share exchange of the Company with any other corporation
or approve the issuance of voting securities of the Company in connection
with a merger, consolidation or share exchange of the Company (or any
direct or indirect subsidiary of the Company) pursuant to applicable
stock exchange requirements,
-4-
<PAGE>
other than (A) a merger, consolidation or share exchange which would
result in the voting securities of the Company outstanding immediately
prior to such merger, consolidation or share exchange continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof) at least
50% of the combined voting power of the voting securities of the Company
or such surviving entity or any parent thereof outstanding immediately
after such merger, consolidation or share exchange, or (B) a merger,
consolidation or share exchange effected to implement a recapitalization
of the Company (or similar transaction) in which no Person (other than an
Excluded Person) is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from
the Company or its Affiliates after June 13, 2001, pursuant to
express authorization by the Board that refers to this exception)
representing 20% or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the Company's then
outstanding voting securities; or
(iv) the shareholders of the Company approve of a plan of complete
liquidation or dissolution of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets (in one transaction or a series of related transactions within any
period of 24 consecutive months), other than a sale or disposition by the
Company of all or substantially all of the Company's assets to an entity
at least 75% of the combined voting power of the voting securities of
which are owned by Persons in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control of the Company" shall be
deemed to have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to own, directly or indirectly, in the same proportions as
their ownership in the Company, an entity that owns all or substantially all of
the assets or voting securities of the Company immediately following such
transaction or series of transactions.
(h) Code. The term "Code" means the Internal Revenue Code of 1986,
including any amendments thereto or successor tax codes thereof.
(i) Covered Termination. Subject to Section 2(b), the term "Covered
Termination" means any termination of the Executive's employment during the
Employment Period where the Termination Date, or the date Notice of Termination
is delivered, is any date prior to the end of the Employment Period.
(j) Employment Period. Subject to Section 2(b), the term "Employment
Period" means a period commencing on the date of a Change in Control of the
Company, and ending at 11:59 p.m. Central Time on the earlier of the third
anniversary of such date or the Executive's Normal Retirement Date.
-5-
<PAGE>
(k) Fringe Benefits. The term "Fringe Benefits" means the fair market
value of the fringe benefits payable to Executive by the Company (determined as
of the time of the Change in Control of the Company or, if higher, immediately
prior to the date the Notice of Termination is given). For these purposes,
Fringe Benefits include, but are not limited to club dues or automobile
reimbursement and do not include welfare benefits, such as medical coverage
(including prescription drug coverage), dental coverage, life insurance,
disability insurance and accidental death and dismemberment benefits.
(l) Good Reason. The Executive shall have "Good Reason" for termination
of employment in connection with a Change in Control of the Company in the event
of:
(i) any breach of this Agreement by the Employer, including
specifically any breach by the Employer of the agreements contained in
Section 3(b), Section 4, Section 5, or Section 6, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith that the
Employer remedies promptly after receipt of notice thereof given by the
Executive;
(ii) any reduction in the Executive's base salary, percentage of
base salary available as incentive compensation or bonus opportunity or
benefits, in each case relative to those most favorable to the Executive
in effect at any time during the 180-day period prior to the Change in
Control of the Company or, to the extent more favorable to the Executive,
those in effect at any time during the Employment Period;
(iii) the removal of the Executive from, or any failure to reelect
or reappoint the Executive to, any of the positions held with the
Employer on the date of the Change in Control of the Company or any other
positions with the Employer to which the Executive shall thereafter be
elected, appointed or assigned, except in the event that such removal or
failure to reelect or reappoint relates to the termination by the
Employer of the Executive's employment for Cause or by reason of
disability pursuant to Section 12;
(iv) a good faith determination by the Executive that there has
been a material adverse change, without the Executive's written consent,
in the Executive's working conditions or status with the Employer
relative to the most favorable working conditions or status in effect
during the 180-day period prior to the Change in Control of the Company,
or, to the extent more favorable to the Executive, those in effect at any
time during the Employment Period, including but not limited to (A) a
significant change in the nature or scope of the Executive's authority,
powers, functions, duties or responsibilities, or (B) a significant
reduction in the level of support services, staff, secretarial and other
assistance, office space and accoutrements, but in each case excluding
for this purpose an isolated, insubstantial and inadvertent event not
occurring in bad faith that the Employer remedies within ten (10) days
after receipt of notice thereof given by the Executive;
-6-
<PAGE>
(v) the relocation of the Executive's principal place of
employment to a location more than 50 miles from the Executive's
principal place of employment on the date 180 days prior to the Change in
Control of the Company;
(vi) the Employer requires the Executive to travel on Employer
business 20% in excess of the average number of days per month the
Executive was required to travel during the 180-day period prior to the
Change in Control of the Company;
(vii) failure by the Company to obtain the Agreement referred to
in Section 17(a) as provided therein; or
(viii) any voluntary termination of employment by the Executive
where the Notice of Termination is delivered during the 30 days following
the first anniversary of the Change in Control of the Company.
(m) Normal Retirement Date. The term "Normal Retirement Date" means
"Normal Retirement Date" as defined in the primary qualified defined benefit
pension plan applicable to the Executive, or any successor plan, as in effect on
the date of the Change in Control of the Company.
(n) Person. The term "Person" shall mean any individual, firm,
partnership, corporation or other entity, including any successor (by merger or
otherwise) of such entity, or a group of any of the foregoing acting in concert.
(o) Termination Date. Except as otherwise provided in Section 2(b),
Section 10(b), and Section 17(a), the term "Termination Date" means (i) if the
Executive's employment is terminated by the Executive's death, the date of
death; (ii) if the Executive's employment is terminated by reason of voluntary
early retirement, as agreed in writing by the Employer and the Executive, the
date of such early retirement which is set forth in such written agreement;
(iii) if the Executive's employment is terminated for purposes of this Agreement
by reason of disability pursuant to Section 12, the earlier of thirty days after
the Notice of Termination is given or one day prior to the end of the Employment
Period; (iv) if the Executive's employment is terminated by the Executive
voluntarily (other than for Good Reason), the date the Notice of Termination is
given; and (v) if the Executive's employment is terminated by the Employer
(other than by reason of disability pursuant to Section 12) or by the Executive
for Good Reason, the earlier of thirty days after the Notice of Termination is
given or one day prior to the end of the Employment Period. Notwithstanding the
foregoing,
(A) If termination is for Cause pursuant to Section 1(f)(iii) and
if the Executive has cured the conduct constituting such Cause as
described by the Employer in its Notice of Termination within such
thirty-day or shorter period, then the Executive's employment hereunder
shall continue as if the Employer had not delivered its Notice of
Termination.
-7-
<PAGE>
(B) If the Executive shall in good faith give a Notice of
Termination for Good Reason and the Employer notifies the Executive that
a dispute exists concerning the termination within the fifteen-day period
following receipt thereof, then the Executive may elect to continue his
or her employment during such dispute and the Termination Date shall be
determined under this paragraph. If the Executive so elects and it is
thereafter determined that Good Reason did exist, the Termination Date
shall be the earliest of (1) the date on which the dispute is finally
determined, either (x) by mutual written agreement of the parties or (y)
in accordance with Section 22, (2) the date of the Executive's death or
(3) one day prior to the end of the Employment Period. If the Executive
so elects and it is thereafter determined that Good Reason did not exist,
then the employment of the Executive hereunder shall continue after such
determination as if the Executive had not delivered the Notice of
Termination asserting Good Reason and there shall be no Termination Date
arising out of such Notice. In either case, this Agreement continues,
until the Termination Date, if any, as if the Executive had not delivered
the Notice of Termination except that, if it is finally determined that
Good Reason did exist, the Executive shall in no case be denied the
benefits described in Section 9 (including a Termination Payment) based
on events occurring after the Executive delivered his Notice of
Termination.
(C) Except as provided in Section 1(n)(B), if the party receiving
the Notice of Termination notifies the other party that a dispute exists
concerning the termination within the appropriate period following
receipt thereof and it is finally determined that the reason asserted in
such Notice of Termination did not exist, then (1) if such Notice was
delivered by the Executive, the Executive will be deemed to have
voluntarily terminated his employment and the Termination Date shall be
the earlier of the date fifteen days after the Notice of Termination is
given or one day prior to the end of the Employment Period and (2) if
delivered by the Company, the Company will be deemed to have terminated
the Executive other than by reason of death, disability or Cause.
2. Termination or Cancellation Prior to Change in Control.
(a) Subject to Section 2(b), the Employer and the Executive shall each
retain the right to terminate the employment of the Executive at any time prior
to a Change in Control of the Company. Subject to Section 2(b), in the event the
Executive's employment is terminated prior to a Change in Control of the
Company, this Agreement shall be terminated and cancelled and of no further
force and effect, and any and all rights and obligations of the parties
hereunder shall cease.
(b) Anything in this Agreement to the contrary notwithstanding, if a
Change in Control of the Company occurs and if the Executive's employment with
the Employer is terminated (other than a termination due to the Executive's
death or as a result of the Executive's disability) during the period of 180
days prior to the date on which the Change in Control of the Company occurs, and
if it is reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change in Control of the Company or (ii)
otherwise arose in connection with or in
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anticipation of a Change in Control of the Company, then for all purposes of
this Agreement such termination of employment shall be deemed a "Covered
Termination," "Notice of Termination" shall be deemed to have been given, and
the "Employment Period" shall be deemed to have begun on the date of such
termination which shall be deemed to be the "Termination Date" and the date of
the Change of Control of the Company for purposes of this Agreement.
3. Employment Period; Vesting of Certain Benefits.
(a) If a Change in Control of the Company occurs when the Executive is
employed by the Employer, the Employer will continue thereafter to employ the
Executive during the Employment Period, and the Executive will remain in the
employ of the Employer in accordance with and subject to the terms and
provisions of this Agreement. Any termination of the Executive's employment
during the Employment Period, whether by the Company or the Employer, shall be
deemed a termination by the Company for purposes of this Agreement.
(b) If a Change in Control of the Company occurs when the Executive is
employed by the Employer, (i) the Company shall cause all restrictions on
restricted stock awards made to the Executive prior to the Change in Control of
the Company to lapse such that the Executive is fully and immediately vested in
the Executive's restricted stock upon such a Change in Control of the Company;
and (ii) the Company shall cause all stock options granted to the Executive
prior to the Change in Control of the Company pursuant to the Company's stock
option plan(s) to be fully and immediately vested upon such a Change in Control
of the Company.
4. Duties. During the Employment Period, the Executive shall, in the same
capacities and positions held by the Executive at the time of the Change in
Control of the Company or in such other capacities and positions as may be
agreed to by the Employer and the Executive in writing, devote the Executive's
best efforts and all of the Executive's business time, attention and skill to
the business and affairs of the Employer, as such business and affairs now exist
and as they may hereafter be conducted.
5. Compensation. During the Employment Period, the Executive shall be
compensated as follows:
(a) The Executive shall receive, at reasonable intervals (but not less
often than monthly) and in accordance with such standard policies as may be in
effect immediately prior to the Change in Control of the Company, an annual base
salary in cash equivalent of not less than twelve times the Executive's highest
monthly base salary for the twelve-month period immediately preceding the month
in which the Change in Control of the Company occurs or, if higher, an annual
base salary at the rate in effect immediately prior to the Change in Control of
the Company (which base salary shall, unless otherwise agreed in writing by the
Executive, include the current receipt by the Executive of any amounts which,
prior to the Change in Control of the Company, the Executive had elected to
defer, whether such compensation is deferred under Section 401(k) of the Code or
otherwise), subject to adjustment as hereinafter provided in Section 6 (such
salary amount as adjusted upward from time to time is hereafter referred to as
the "Annual Base Salary").
(b) The Executive shall receive Fringe Benefits at least equal in value
to the highest value of such benefits provided for the Executive at any time
during the 180-day period
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immediately prior to the Change in Control of the Company or, if more favorable
to the Executive, those provided generally at any time during the Employment
Period to any executives of the Employer of comparable status and position to
the Executive; and shall be reimbursed, at such intervals and in accordance with
such standard policies that are most favorable to the Executive that were in
effect at any time during the 180-day period immediately prior to the Change in
Control of the Company, for any and all monies advanced in connection with the
Executive's employment for reasonable and necessary expenses incurred by the
Executive on behalf of the Employer, including travel expenses.
(c) The Executive and/or the Executive's family, as the case may be,
shall be included, to the extent eligible thereunder (which eligibility shall
not be conditioned on the Executive's salary grade or on any other requirement
which excludes persons of comparable status to the Executive unless such
exclusion was in effect for such plan or an equivalent plan at any time during
the 180-day period immediately prior to the Change in Control of the Company),
in any and all plans providing benefits for the Employer's salaried employees in
general, including but not limited to group life insurance, hospitalization,
medical (including prescription drug coverage), dental, profit sharing and stock
bonus plans; provided, that, (i) in no event shall the aggregate level of
benefits under such plans in which the Executive is included be less than the
aggregate level of benefits under plans of the Employer of the type referred to
in this Section 5(c) in which the Executive was participating at any time during
the 180-day period immediately prior to the Change in Control of the Company and
(ii) in no event shall the aggregate level of benefits under such plans be less
than the aggregate level of benefits under plans of the type referred to in this
Section 5(c) provided at any time after the Change in Control of the Company to
any executive of the Employer of comparable status and position to the
Executive.
(d) The Executive shall annually be entitled to not less than the amount
of paid vacation and not fewer than the highest number of paid holidays to which
the Executive was entitled annually at any time during the 180-day period
immediately prior to the Change in Control of the Company or such greater amount
of paid vacation and number of paid holidays as may be made available annually
to other executives of the Employer of comparable status and position to the
Executive at any time during the Employment Period.
(e) The Executive shall be included in all plans providing additional
benefits to executives of the Employer of comparable status and position to the
Executive, including but not limited to deferred compensation, split-dollar life
insurance, supplemental retirement, stock option, stock appreciation, stock
bonus and similar or comparable plans; provided, that, (i) in no event shall the
aggregate level of benefits under such plans be less than the highest aggregate
level of benefits under plans of the Employer of the type referred to in this
Section 5(e) in which the Executive was participating at any time during the
180-day period immediately prior to the Change in Control of the Company; (ii)
in no event shall the aggregate level of benefits under such plans be less than
the aggregate levels of benefits under plans of the type referred to in this
Section 5(e) provided at any time after the Change in Control of the Company to
any executive of the Employer comparable in status and position to the
Executive; and (iii) the Employer's obligation to include the Executive in bonus
or incentive compensation plans shall be determined by Section 5(f).
(f) To assure that the Executive will have an opportunity to earn
incentive compensation after a Change in Control of the Company, the Executive
shall be included in a
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bonus plan of the Employer which shall satisfy the standards described below
(such plan, the "Bonus Plan"). Bonuses under the Bonus Plan shall be payable
with respect to achieving such financial or other goals reasonably related to
the business of the Employer as the Employer shall establish (the "Goals"), all
of which Goals shall be attainable, prior to the end of the Employment Period,
with approximately the same degree of probability as the most attainable goals
under the Employer's bonus plan or plans as in effect at any time during the
180-day period immediately prior to the Change in Control of the Company
(whether one or more, the "Company Bonus Plan") and in view of the Employer's
existing and projected financial and business circumstances applicable at the
time. The amount of the bonus (the "Bonus Amount") that the Executive is
eligible to earn under the Bonus Plan shall be no less than the amount of the
Executive's maximum award provided in such Company Bonus Plan (such bonus amount
herein referred to as the "Targeted Bonus"), and in the event the Goals are not
achieved such that the entire Targeted Bonus is not payable, the Bonus Plan
shall provide for a payment of a Bonus Amount equal to a portion of the Targeted
Bonus reasonably related to that portion of the Goals which were achieved.
Payment of the Bonus Amount shall not be affected by any circumstance occurring
subsequent to the end of the Employment Period, including termination of the
Executive's employment.
6. Annual Compensation Adjustments. During the Employment Period, the
Board of Directors of the Company (or an appropriate committee thereof) will
consider and appraise, at least annually, the contributions of the Executive to
the Company, and in accordance with the Company's practice prior to the Change
in Control of the Company, due consideration shall be given to the upward
adjustment of the Executive's Annual Base Salary, at least annually, (a)
commensurate with increases generally given to other executives of the Company
of comparable status and position to the Executive, and (b) as the scope of the
Company's operations or the Executive's duties expand.
7. Termination For Cause or Without Good Reason. If there is a Covered
Termination for Cause or due to the Executive's voluntarily terminating his or
her employment other than for Good Reason (any such terminations to be subject
to the procedures set forth in Section 13), then the Executive shall be entitled
to receive only Accrued Benefits.
8. Termination Giving Rise to a Termination Payment. If there is a
Covered Termination by the Executive for Good Reason, or by the Company other
than by reason of (i) death, (ii) disability pursuant to Section 12, or (iii)
Cause (any such terminations to be subject to the procedures set forth in
Section 13), then the Executive shall be entitled to receive, and the Company
shall promptly pay, Accrued Benefits and, in lieu of further base salary for
periods following the Termination Date, as liquidated damages and additional
severance pay and in consideration of the covenant of the Executive set forth in
Section 14(a), the Termination Payment pursuant to Section 9(a).
9. Payments Upon Termination.
(a) Termination Payment. The "Termination Payment" shall be an amount
equal to the Annual Cash Compensation times three (3). The Termination Payment
shall be paid to the Executive in cash equivalent ten (10) business days after
the Termination Date. Such lump sum payment shall not be reduced by any present
value or similar factor, and the Executive shall not be required to mitigate the
amount of the Termination Payment by securing other employment or
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otherwise, nor will such Termination Payment be reduced by reason of the
Executive securing other employment or for any other reason. The Termination
Payment shall be in lieu of, and acceptance by the Executive of the Termination
Payment shall constitute the Executive's release of any rights of the Executive
to, any other cash severance payments under any Company severance policy,
practice or agreement.
(b) Certain Additional Payments by the Company.
(i) Notwithstanding any other provision of this Agreement, if any
portion of the Termination Payment or any other payment under this
Agreement, or under any other agreement with or plan of the Employer (in
the aggregate, "Total Payments"), would constitute an "excess parachute
payment," then the Company shall pay the Executive an additional amount
(the "Gross-Up Payment") such that the net amount retained by the
Executive after deduction of any excise tax imposed under Section 4999 of
the Code (or any successor provision) and any interest charges or
penalties in respect of the imposition of such excise tax (but not any
federal, state or local income tax, or employment tax) on the Total
Payments, and any federal, state and local income tax, employment tax,
and excise tax upon the payment provided for by this Section 9(b)(i),
shall be equal to the Total Payments. For purposes of determining the
amount of the Gross-Up Payment, the Executive shall be deemed to pay
federal income tax and employment taxes at the highest marginal rate of
federal income and employment taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the
Executive's domicile for income tax purposes on the date the Gross-Up
Payment is made, net of the maximum reduction in federal income taxes
that may be obtained from the deduction of such state and local taxes.
(ii) For purposes of this Agreement, the terms "excess parachute
payment" and "parachute payments" shall have the meanings assigned to
them in Section 280G of the Code (or any successor provision) and such
"parachute payments" shall be valued as provided therein. Present value
for purposes of this Agreement shall be calculated in accordance with
Section 1274(b)(2) of the Code (or any successor provision). Promptly
following a Covered Termination or notice by the Company to the Executive
of its belief that there is a payment or benefit due the Executive which
will result in an "excess parachute payment" as defined in Section 280G
of the Code (or any successor provision), the Executive and the Company,
at the Company's expense, shall obtain the opinion (which need not be
unqualified) of nationally recognized tax counsel ("National Tax
Counsel") selected by the Company's independent auditors and reasonably
acceptable to the Executive (which may be regular outside counsel to the
Company), which opinion sets forth (A) the amount of the Base Period
Income, (B) the amount and present value of Total Payments, (C) the
amount and present value of any excess parachute payments, and (D) the
amount of any Gross-Up Payment. As used in this Agreement, the term "Base
Period Income" means an amount equal to the Executive's "annualized
includable compensation for the base period" as defined in
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Section 280G(d)(1) of the Code. For purposes of such opinion, the value
of any noncash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code (or any successor
provisions), which determination shall be evidenced in a certificate of
such auditors addressed to the Company and the Executive. The opinion of
National Tax Counsel shall be addressed to the Company and the Executive
and shall be binding upon the Company and the Executive. If such National
Tax Counsel so requests in connection with the opinion required by this
Section 9(b), the Executive and the Company shall obtain, at the
Company's expense, and the National Tax Counsel may rely on, the advice
of a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the
Executive solely with respect to its status under Section 280G of the
Code and the regulations thereunder. Within five (5) days after the
National Tax Counsel's opinion is received by the Company and the
Executive, the Company shall pay (or cause to be paid) or distribute (or
cause to be distributed) to or for the benefit of the Executive such
amounts as are then due to the Executive under this Agreement.
(iii) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of the Total Payments
or Gross-Up Payment, a change is finally determined to be required in the
amount of taxes paid by the Executive, appropriate adjustments shall be
made under this Agreement such that the net amount which is payable to
the Executive after taking into account the provisions of Section 4999 of
the Code (or any successor provision) shall reflect the intent of the
parties as expressed in this Section 9, in the manner determined by the
National Tax Counsel.
(iv) The Company agrees to bear all costs associated with, and to
indemnify and hold harmless, the National Tax Counsel of and from any and
all claims, damages, and expenses resulting from or relating to its
determinations pursuant to this Section 9(b), except for claims, damages
or expenses resulting from the gross negligence or willful misconduct of
such firm.
(c) Additional Benefits. If there is a Covered Termination and the
Executive is entitled to Accrued Benefits and the Termination Payment, then the
Company shall provide to the Executive the following additional benefits:
(i) The Executive shall receive, at the expense of the Company,
outplacement services, on an individualized basis at a level of service
commensurate with the Executive's status with the Company immediately
prior to the date of the Change in Control of the Company (or, if higher,
immediately prior to the termination of the Executive's employment),
provided by a nationally recognized executive placement firm selected by
the Company; provided that the cost to the Company of such services shall
not exceed 10% of the Executive's Annual Base Salary.
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(ii) Until the earlier of the end of the Employment Period or such
time as the Executive has obtained new employment and is covered by
benefits which in the aggregate are at least equal in value to the
following benefits, the Executive shall continue to be covered, at the
expense of the Company, by the same or equivalent life insurance,
hospitalization, medical and dental coverage as was required hereunder
with respect to the Executive immediately prior to the date the Notice of
Termination is given.
(iii) The Company shall bear up to $15,000 in the aggregate of
fees and expenses of consultants and/or legal or accounting advisors
engaged by the Executive to advise the Executive as to matters relating
to the computation of benefits due and payable under this Section 9.
(iv) The Company shall cause the Executive to be fully and
immediately vested in his accrued benefit under any supplemental
executive retirement plan of the Employer providing benefits for the
Executive (the "SERP") and in any defined contribution retirement plan of
the Employer. In addition, the Company shall cause the Executive to be
deemed to have satisfied any minimum years of service requirement under
the SERP for subsidized early retirement benefits regardless of the
Executive's age and service at the Termination Date; provided, however,
that SERP benefits will be based on service to date with no additional
credit for service or age beyond such Termination Date.
(v) On the Termination Date, for purposes of determining
Executive's eligibility for post-retirement benefits under any welfare
benefit plan (as defined in Section 3(1) of the Employee Retirement
Security Act of 1974, as amended) maintained by the Company immediately
prior to the Change in Control of the Company and in which Executive
participated, immediately prior to the Change in Control of the Company,
Executive shall be credited with the excess of three (3) years of
participation in the applicable medical plan and three (3) years of age
over the actual years and fractional years of participation and age
credited to Executive as of the Change in Control of the Company. If the
Executive is less than 60 years of age, he shall be credited with a
minimum age of 60 years. If after taking into account such participation
and age, Executive would have been eligible to receive such
post-retirement benefits had Executive retired immediately prior to the
Change in Control of the Company, Executive shall receive, commencing on
the Termination Date, post-retirement benefits based on the terms and
conditions of the applicable plans in effect immediately prior to the
Change in Control of the Company.
(vi) For purposes of determining the Executive's retirement
benefits under the various retirement benefits plans of the Company,
Executive shall be deemed to be an active employee receiving his Annual
Base Salary and shall accordingly continue to earn service and accrue
benefits under such plans to a minimum age of sixty (60) years, but not
less than for an additional period of three (3) years following the
Termination Date.
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(vii) The Company shall cause all performance plan awards granted
to the Executive pursuant to any long-term incentive plan maintained by
the Company to be paid out at target, as if all performance requirements
had been satisfied, on a pro rata basis based on the completed portion of
each award cycle.
(viii) The Executive shall, after the Termination Date, retain all
rights to indemnification under applicable law or under the Company's
Certificate of Incorporation or By-Laws, as they may be amended or
restated from time to time, to the extent any such amendment or
restatement expands the Executive's rights to indemnification. In
addition, the Company shall maintain Director's and Officer's liability
insurance on behalf of the Executive, provided the Executive is eligible
to be covered and has in fact been covered by such insurance, at the
highest level in effect immediately prior to the date of the Change in
Control of the Company (or, if higher, immediately prior to the
termination of the Executive's employment) including any such insurance
that was reduced prior to a Change in Control of the Company at the
request of the person or entity acquiring control of the Company or
reasonably shown to be related to the Change in Control of the Company,
for the seven (7) year period following the Termination Date.
10. Death.
(a) Except as provided in Section 10(b), in the event of a Covered
Termination due to the Executive's death, the Executive's estate, heirs and
beneficiaries shall receive all the Executive's Accrued Benefits through the
Termination Date.
(b) In the event the Executive dies after a Notice of Termination is
given (i) by the Company or (ii) by the Executive for Good Reason, the
Executive's estate, heirs and beneficiaries shall be entitled to the benefits
described in Section 10(a) and, subject to the provisions of this Agreement, to
such Termination Payment as the Executive would have been entitled to had the
Executive lived. For purposes of this Section 10(b), the Termination Date shall
be the earlier of thirty days following the giving of the Notice of Termination,
subject to extension pursuant to Section 1(n), or one day prior to the end of
the Employment Period.
11. Retirement. If, during the Employment Period, the Executive and the
Employer shall execute an agreement providing for the early retirement of the
Executive from the Employer, or the Executive shall otherwise give notice that
he is voluntarily choosing to retire early from the Employer, the Executive
shall receive Accrued Benefits through the Termination Date; provided, that if
the Executive's employment is terminated by the Executive for Good Reason or by
the Company other than by reason of death, disability or Cause and the Executive
also, in connection with such termination, elects voluntary early retirement,
the Executive shall also be entitled to receive a Termination Payment pursuant
to Section 8.
12. Termination for Disability. If, during the Employment Period, as a
result of the Executive's disability due to physical or mental illness or injury
(regardless of whether such illness or injury is job-related), the Executive
shall have been absent from the Executive's
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duties hereunder on a full-time basis for a period of six consecutive months
and, within thirty days after the Company notifies the Executive in writing that
it intends to terminate the Executive's employment (which notice shall not
constitute the Notice of Termination contemplated below), the Executive shall
not have returned to the performance of the Executive's duties hereunder on a
full-time basis, the Company may terminate the Executive's employment for
purposes of this Agreement pursuant to a Notice of Termination given in
accordance with Section 13. If the Executive's employment is terminated on
account of the Executive's disability in accordance with this Section, the
Executive shall receive Accrued Benefits through the Termination Date and shall
remain eligible for all benefits provided by any long term disability programs
of the Company in effect at the time of such termination.
13. Termination Notice and Procedure. Any Covered Termination by the
Company or the Executive (other than a termination of the Executive's employment
that is a Covered Termination by virtue of Section 2(b)) shall be communicated
by a written notice of termination ("Notice of Termination") to the Executive,
if such Notice is given by the Company, and to the Company, if such Notice is
given by the Executive, all in accordance with the following procedures and
those set forth in Section 23:
(a) If such termination is for disability, Cause or Good Reason, the
Notice of Termination shall indicate in reasonable detail the facts and
circumstances alleged to provide a basis for such termination.
(b) Any Notice of Termination by the Company shall have been approved,
prior to the giving thereof to the Executive, by a resolution duly adopted by a
majority of the directors of the Company (or any successor corporation) then in
office.
(c) If the Notice is given by the Executive for Good Reason, the
Executive may cease performing his duties hereunder on or after the date fifteen
days after the delivery of Notice of Termination and shall in any event cease
employment on the Termination Date. If the Notice is given by the Company, then
the Executive may cease performing his duties hereunder on the date of receipt
of the Notice of Termination, subject to the Executive's rights hereunder.
(d) The Executive shall have thirty days, or such longer period as the
Company may determine to be appropriate, to cure any conduct or act, if curable,
alleged to provide grounds for termination of the Executive's employment for
Cause under this Agreement pursuant to Section 1(f)(iii).
(e) The recipient of any Notice of Termination shall personally deliver
or mail in accordance with Section 23 written notice of any dispute relating to
such Notice of Termination to the party giving such Notice within fifteen days
after receipt thereof; provided, however, that if the Executive's conduct or act
alleged to provide grounds for termination by the Company for Cause is curable,
then such period shall be thirty days. After the expiration of such period, the
contents of the Notice of Termination shall become final and not subject to
dispute.
14. Further Obligations of the Executive.
(a) Competition. The Executive agrees that, in the event of any Covered
Termination where the Executive is entitled to Accrued Benefits and the
Termination Payment, the Executive shall not, for a period expiring one year
after the Termination Date, without the prior
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written approval of the Company's Board of Directors, participate in the
management of, be employed by or own any business enterprise at a location
within the United States that engages in substantial competition with the
Company or its subsidiaries, where such enterprise's revenues from any
competitive activities amount to 10% or more of such enterprise's net revenues
and sales for its most recently completed fiscal year; provided, however, that
nothing in this Section 14(a) shall prohibit the Executive from owning stock or
other securities of a competitor amounting to less than five percent of the
outstanding capital stock of such competitor.
(b) Confidentiality. During and following the Executive's employment by
the Company, the Executive shall hold in confidence and not directly or
indirectly disclose or use or copy or make lists of any confidential information
or proprietary data of the Company (including that of the Employer), except to
the extent authorized in writing by the Board of Directors of the Company or
required by any court or administrative agency, other than to an employee of the
Company or a person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by the Executive of duties as an executive of
the Company. Confidential information shall not include any information known
generally to the public or any information of a type not otherwise considered
confidential by persons engaged in the same business or a business similar to
that of the Company. All records, files, documents and materials, or copies
thereof, relating to the business of the Company which the Executive shall
prepare, or use, or come into contact with, shall be and remain the sole
property of the Company and shall be promptly returned to the Company upon
termination of employment with the Company.
15. Expenses and Interest. If, after a Change in Control of the Company,
(a) a dispute arises with respect to the enforcement of the Executive's rights
under this Agreement or (b) any legal or arbitration proceeding shall be brought
to enforce or interpret any provision contained herein or to recover damages for
breach hereof, in either case so long as the Executive is not acting in bad
faith, then the Company shall reimburse the Executive for any reasonable
attorneys' fees and necessary costs and disbursements incurred as a result of
the dispute, legal or arbitration proceeding ("Expenses"), and prejudgment
interest on any money judgment or arbitration award obtained by the Executive
calculated at the rate of interest announced by M&I Marshall & Isley Bank,
from time to time at its prime or base lending rate from the date that payments
to him or her should have been made under this Agreement. Within ten days after
the Executive's written request therefor, the Company shall pay to the
Executive, or such other person or entity as the Executive may designate in
writing to the Company, the Executive's reasonable Expenses in advance of the
final disposition or conclusion of any such dispute, legal or arbitration
proceeding.
16. Payment Obligations Absolute. The Company's obligation during and
after the Employment Period to pay the Executive the amounts and to make the
benefit and other arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against him or anyone else, except as provided in Section
20. Executive shall not be required to mitigate damages or the amount of any
payment provided for under this Agreement by seeking other employment or
otherwise, and compensation earned from such employment or otherwise shall not
reduce the amounts otherwise payable under this Agreement. Except as provided in
Section 15, all amounts payable by the Company hereunder
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shall be paid without notice or demand. Each and every payment made hereunder by
the Company shall be final, and the Company will not seek to recover all or any
part of such payment from the Executive, or from whomsoever may be entitled
thereto, for any reason whatsoever.
17. Successors.
(a) If the Company sells, assigns or transfers all or substantially all
of its business and assets to any Person or if the Company merges into or
consolidates or otherwise combines (where the Company does not survive such
combination) with any Person (any such event, a "Sale of Business"), then the
Company shall assign all of its right, title and interest in this Agreement as
of the date of such event to such Person, and the Company shall cause such
Person, by written agreement in form and substance reasonably satisfactory to
the Executive, to expressly assume and agree to perform from and after the date
of such assignment all of the terms, conditions and provisions imposed by this
Agreement upon the Company. Failure of the Company to obtain such agreement
prior to the effective date of such Sale of Business shall be a breach of this
Agreement constituting "Good Reason" hereunder, except that for purposes of
implementing the foregoing the date upon which such Sale of Business becomes
effective shall be deemed the Termination Date. In case of such assignment by
the Company and of assumption and agreement by such Person, as used in this
Agreement, "Company" shall thereafter mean such Person which executes and
delivers the agreement provided for in this Section 17 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law, and this Agreement shall inure to the benefit of, and be enforceable by,
such Person. The Executive shall, in his or her discretion, be entitled to
proceed against any or all of such Persons, any Person which theretofore was
such a successor to the Company and the Company (as so defined) in any action to
enforce any rights of the Executive hereunder. Except as provided in this
Section 17(a), this Agreement shall not be assignable by the Company. This
Agreement shall not be terminated by the voluntary or involuntary dissolution of
the Company.
(b) This Agreement and all rights of the Executive shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, heirs and beneficiaries. All amounts
payable to the Executive under Sections 7, 8, 9, 10, 11, 12 and 15 if the
Executive had lived shall be paid, in the event of the Executive's death, to the
Executive's estate, heirs and representatives; provided, however, that the
foregoing shall not be construed to modify any terms of any benefit plan of the
Employer, as such terms are in effect on the date of the Change in Control of
the Company, that expressly govern benefits under such plan in the event of the
Executive's death.
18. Severability. The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part hereof are declared invalid
or unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
19. Contents of Agreement; Waiver of Rights; Amendment. This Agreement
sets forth the entire understanding between the parties hereto with respect to
the subject matter hereof and supercedes, and the Executive hereby waives all
rights under, any prior or other agreement or understanding between the parties
with respect to such subject matter, including without limitation, the Change of
Control Agreement dated January 1997, as amended, between the
-18-
<PAGE>
Company and the Executive. This Agreement may not be amended or modified at any
time except by written instrument executed by the Company and the Executive.
20. Withholding. The Company shall be entitled to withhold from amounts
to be paid to the Executive hereunder any federal, state or local withholding or
other taxes or charges which it is from time to time required to withhold;
provided, that the amount so withheld shall not exceed the minimum amount
required to be withheld by law. The Company shall be entitled to rely on an
opinion of the National Tax Counsel if any question as to the amount or
requirement of any such withholding shall arise.
21. Certain Rules of Construction. No party shall be considered as being
responsible for the drafting of this Agreement for the purpose of applying any
rule construing ambiguities against the drafter or otherwise. No draft of this
Agreement shall be taken into account in construing this Agreement. Any
provision of this Agreement which requires an agreement in writing shall be
deemed to require that the writing in question be signed by the Executive and an
authorized representative of the Company.
22. Governing Law; Resolution of Disputes. This Agreement and the rights
and obligations hereunder shall be governed by and construed in accordance with
the laws of the State of Wisconsin. Any dispute arising out of this Agreement
shall, at the Executive's election, be determined by arbitration under the rules
of the American Arbitration Association then in effect (in which case both
parties shall be bound by the arbitration award) or by litigation. Whether the
dispute is to be settled by arbitration or litigation, the venue for the
arbitration or litigation shall be Milwaukee, Wisconsin or, at the Executive's
election, if the Executive is not then residing or working in the Milwaukee,
Wisconsin metropolitan area, in the judicial district encompassing the city in
which the Executive resides; provided, that, if the Executive is not then
residing in the United States, the election of the Executive with respect to
such venue shall be either Milwaukee, Wisconsin or in the judicial district
encompassing that city in the United States among the thirty cities having the
largest population (as determined by the most recent United States Census data
available at the Termination Date) which is closest to the Executive's
residence. The parties consent to personal jurisdiction in each trial court in
the selected venue having subject matter jurisdiction notwithstanding their
residence or situs, and each party irrevocably consents to service of process in
the manner provided hereunder for the giving of notices.
23. Notice. Notices given pursuant to this Agreement shall be in writing
and, except as otherwise provided by Section 13(d), shall be deemed given when
actually received by the Executive or actually received by the Company's
Secretary or any officer of the Company other than the Executive. If mailed,
such notices shall be mailed by United States registered or certified mail,
return receipt requested, addressee only, postage prepaid, if to the Company, to
Regal-Beloit Corporation, Attention: Secretary (or President, if the Executive
is then Secretary), 200 State Street, Beloit, Wisconsin 53511-6254, or if to the
Executive, at the address set forth below the Executive's signature to this
Agreement, or to such other address as the party to be notified shall have
theretofore given to the other party in writing.
24. No Waiver. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this Agreement
to be performed
-19-
<PAGE>
by the other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same time or any prior or subsequent time.
25. Headings. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
-20-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
REGAL-BELOIT CORPORATION
By: /s/ Henry W. Knueppel
-------------------------------------
Name: Henry W. Knueppel
Title: Executive Vice President
Attest: /s/ Kenneth F. Kaplan
----------------------------------
Name: Kenneth F. Kaplan
Title: Vice President, Chief
Financial Officer, Secretary
EXECUTIVE:
/s/ James L. Packard (SEAL)
-----------------------------------------
James L. Packard
Address: 7613 McCurry Road
Roscoe, Illinois 61073
-21-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>slp254d.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
SUBSIDIARIES OF REGAL-BELOIT CORPORATION
Jurisdiction of
Subsidiary Organization Equity Owners (Including %)
- ---------- ------------ ---------------------------
Marathon Electric
Manufacturing Corporation Wisconsin Regal-Beloit Corporation (100%)
Leeson Electric Corporation Wisconsin Regal-Beloit Corporation (100%)
Hub City, Inc. Delaware Regal-Beloit Corporation (100%)
Marathon Special Products
Corporation Ohio Marathon Electric Manufacturing
Corporation (100%)
Thomson Technology, Inc. British Columbia Regal-Beloit Holdings, Inc.
(Canada) (100%)
Leeson Canada, Inc. Ontario (Canada) Leeson Electric Corporation
(100%)
Mastergear GmbH Germany Regal-Beloit Corporation (100%)
Opperman Mastergear Limited United Kingdom Regal-Beloit Corporation (100%)
Costruzioni Meccaniche
Legnanesi Italy Regal-Beloit Corporation (100%)
New York Twist Drill, Inc. Delaware Regal-Beloit Corporation (100%)
Regal-Beloit Foreign Sales
Corporation Barbados Regal-Beloit Corporation (100%)
Regal-Beloit Flight
Services, Inc. Wisconsin Marathon Electric Manufacturing
Corporation (60%)
Regal-Beloit Corporation (40%)
Regal-Beloit Holdings Ltd. Yukon Territory Regal-Beloit Corporation (100%)
(Canada)
Marathon Redevelopment
Corporation Missouri Marathon Electric Manufacturing
Corporation (100%)
Marathon Electric Far
East Pte Ltd. Singapore Marathon Electric Manufacturing
Corporation (100%)
Thomson Finance, Ltd. British Columbia Regal-Beloit Holdings, Inc,
(Canada) (100%)
Patent Holdings Ltd. British Columbia Regal-Beloit Holdings, Ltd.
(Canada) (100%)
Leeson Electric
International, Inc. Wisconsin Leeson Electric Corporation
(100%)
Shanghai Marathon GeXin
Electric Company Ltd. China Marathon Electric Manufacturing
Corporation (55%)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<FILENAME>slp254a.txt
<DESCRIPTION>CONSENT
<TEXT>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports, included in this Form 10-K, into Regal-Beloit Corporation's previously
filed Registration Statements, File Nos. 33-25480, 33-25233, 33-82076, 33-8934,
333-00237, 333-48789, 333-48795, 333-48815 and 333-84779.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 27, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>6
<FILENAME>slp254b.txt
<DESCRIPTION>LETTER REGARDING ARTHUR ANDERSEN
<TEXT>
[REGAL-BELOIT CORPORATION LETTERHEAD]
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Ladies and Gentlemen:
In a letter dated March 27, 2002, our independent public accountants,
Arthur Andersen LLP ("Andersen"), represented to us that their audit of the
consolidated financial statements of Regal-Beloit Corporation and subsidiaries
as of December 31, 2001 and for the year then ended was subject to Andersen's
quality control system for the U.S. accounting and auditing practice to provide
reasonable assurance that their engagement was conducted in compliance with
professional standards and that there was appropriate continuity of Andersen
personnel working on the audit and availability of national office consultation.
Availability of personnel at foreign affiliates of Andersen was not relevant to
this audit.
REGAL-BELOIT CORPORATION
/s/ Kenneth F. Kaplan
- --------------------------------------------
Kenneth F. Kaplan
Vice President, Chief Financial Officer and
Secretary
March 27, 2002
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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