2012 AnnuAl RepoRt
One
Regal
2012
was a
RecORd
yeaR
We set new records in sales and net income, integrated
the largest acquisition in our history, launched a new
corporate identity and introduced 60 new products.
60 new PROdUcTs laUncHed In 2012
Product innovation is the lifeblood of our business and our
used in tandem with one another and are always part of a
products are at the heart of much of the equipment that keeps
system solution.
our world in motion. Our products, which include electric motors,
electronic drives, generators and power transmission products,
are electro-mechanical solutions for motion control, air/
climate/flow control and power generation. They are often
Last year we introduced 60 new products to our global
markets. We strive to produce a constant stream of innovative,
value-added products that provide benefits like improved
60 new PROdUcTs laUncHed In 2012
efficiency, variable speed control, embedded intelligence and
fans, food processing equipment, furnaces, gates, generators,
lower system costs.
Regal’s components are used in a wide variety of commercial,
industrial and residential applications including air conditioners,
appliances, boats, blowers, compressors, conveyors, electrical
panels, elevators, escalators, exercise equipment, exhausts,
high intensity lighting, hoists, irrigators, manufacturing
machinery, material handling and packaging equipment,
medical devices, oil wells, pipelines, pumps, refrigerators,
solar power panels, specialty vehicles, swimming pools and
spas, trains and vending machines.
Financial results
in Millions, except Per share Data
2008
2009
2010
2011
2012
net sales
net sales Growth
net income
24.6%
$ 125.5
$
$ 2,246.2
$ 1,826.3
$ 2,238.0
$ 2,808.3
$ 3,166.9
earnings Per share: assuming Dilution
3.78
NET SALES
(in billions)
Sales have increased
at a five-year
compounded annual
growth rate of 12%.
2
.
3
8 $
.
2
$
2
.
2
$
2
.
2
8 $
.
1
$
’08
’09
’10
’11
’12
2
4
6
6 $
2
5
0 $
0
4
$
ENERGY EFFICIENT
PRODUCT SALES
(in millions)
9
8
2
$
4
1
3
$
Increasing demand
for energy efficient
products is a driver
for growth.
(18.7)%
95.0
2.63
22.5%
25.5%
12.8%
$ 149.4
$ 152.3
$ 195.6
3.84
3.79
4.64
6
.
5
9
1
3 $
.
2
5
1
$
.
4
9
4
1
$
3.5
3.0
NET INCOME
2.5
(in millions)
2.0
5
.
5
2
1
$
0
.
5
9
$
1.5
2012 was a record
year with net
income exceeding
$195 million.
1.0
0.5
’08
’09
’10
’11
’12
4
6
0
$
.
6
6
0
$
.
.
2
6
0
$
4
7
.
0
$
0
7
.
0
$
0.0
800
700
600
500
DIVIDENDS
PER SHARE
(cents per share)
400
300
200
Shareholders have
received 209
consecutive quarterly
dividend payments.
100
0
1
200
150
100
50
0
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
’08
’09
’10
’11
’12
’08
’09
’10
’11
’12
12%
Despite tough economic times, regal
reported a five-year compound annual
growth rate (caGr) of 12% for net
revenues from 2007–2012.
tO Our sHareHOlDers,
2
2012 was another excellent year for regal Beloit corporation. We set new records in sales and net income, integrated the
largest acquisition in our history, launched a new corporate identity and introduced 60 new products primarily focused on
delivering energy-efficient solutions to our customers. additionally, we opened two new factories in china and broke ground
on a third facility there, positioning us for the recovery of the growing chinese economy. along with these
achievements, we grew our sales to $3.2 billion, a 13% increase over last year; we delivered another year of free cash
flow greater than net income; we increased our dividend for the seventh time over the last eight years; and we achieved a
total shareholder return of 36%, well above our peer average. as we look to 2013, regal is well positioned to continue to
deliver value for our customers, shareholders and employees.
We managed these achievements in 2012 despite a volatile global economy. the international regions we sell into generally
experienced a difficult economic year, with china and india seeing a significant slow-down and europe in a recession.
Meanwhile in north america, our residential HVac business struggled in the first half of 2012 as the u.s. housing market
continued to lag. By the second half of the year, however, HVac sales began to recover. Our businesses selling to commercial
and industrial, power generation and power transmission customers experienced the opposite dynamic. revenues in these
businesses grew steadily in the first half of the year, but we started to see a softening environment in the second half.
across regal, we generated growth from the sales of new, energy-efficient products, which grew by 22% and now
represent 20% of our total sales.
consistent with our strategy to be a successful acquirer of profitable businesses, we also delivered further revenue growth
from acquisitions. First, we benefited from the acquisition of a.O. smith’s electrical Products company (ePc) which closed
in august 2011 and positively impacted 2012; second, we acquired Milwaukee Gear which sells into the oil and gas industry;
and finally, we added three smaller acquisitions, one each in Mexico, australia and europe.
Operating profit for the year was $313 million, an increase of 22%. We achieved the increase in operating profit despite
$10 million of expenses that we incurred in restructuring our manufacturing
operations in order to improve our future profitability. cash flow from
operations was $352 million and looking back at the past five years, we
have delivered an average cash flow from operations-to-net income ratio
of 185%. We remain focused on generating cash so that we can continue
to invest in internal growth programs, fund acquisitions, reduce debt and
deliver cash dividends to our shareholders. For seven of the last eight
years, we have increased our dividend. Over the past 52 years, we
have paid a dividend every quarter.
cOrPOrate initiatiVes
the five corporate initiatives we set forth in 2010–customer care,
Globalization, innovation, sustainability and simplification–continue
to drive our behaviors and direct our resource allocations. Our
36%
Well above our peer group, regal
achieved a 36% total shareholder
return in 2012.
Regal’s family of product brands are being
unified using one corporate identity.
3
continued success gives us confidence that our initiatives are providing the right long-term direction for
our company. in 2012, we made tremendous progress on each of these initiatives and we will see more
progress in 2013.
custOMer care
in 2012, our performance for our customers improved substantially. For the second year in a row, we
saw improvements in our customer survey scores in almost every one of our business units. Further,
our customers recognized our improvements in two key areas of focus: responsiveness and innovation.
Our employees are responding to our customers with a sense of urgency and our customers are
experiencing benefits from the stream of new products we launch each year. across the company, we
again improved the quality of our products. By the end of 2012, we reduced the number of defects in our
products by 61% over the past three years. at our factories and in our offices around the world, we
continue to implement standard work, process capability improvements and mistake proofing poka-yokes. these practices
are all part of our compass™ Operating system that drives consistent employee behaviors all over the world and we
are confident that we will continue to see further improvements in quality, delivery, cost, responsiveness, and innovation.
We are clearly making significant advances in our performance and our customers are beginning to see and feel
the improvements.
GlOBalizatiOn
Being a global player is no longer an option for us, it is a necessity. Our large customers are global and they want a partner
that has integrity and delivers world class quality products, on time, at a competitive price. employing our compass
Operating system across a large, global network of manufacturing facilities provides us the discipline and rigor to become
the preferred global supplier of these sophisticated customers.
in 2012, regal constructed two new world class facilities in china. the first was our suzhou facility which manufactures
hermetic motors. this new facility, which serves some of our largest global customers, was built with a lean, single piece
flow layout and operates on a daily basis with visual communication tools prominently displayed on our manufacturing floor.
the second facility built was our Marathon generator plant located in Baoshan, which produces alternators for back-up
power gen-sets. this facility was designed and constructed with a similar lean headset making it significantly more efficient
than our previous facility. Many of our key generator customers attended the grand opening and were excited to see the
lean principals in practice as well as our new 860 frame generator that we launched simultaneously with the grand opening.
in 2012, our sales outside of the united states made up 33% of our total sales and we expect that number to continue to
grow in the years to come. in 2012, we also made three small acquisitions outside of the us. in Mexico, we welcomed
technojar to the regal family to provide added reach and scale to our unico oil and gas sales team. in australia, the
Marlin coast rewinders team joined regal to help us gain access to the mining markets there. remco Products of the
uK joined regal to sell fractional horsepower motors primarily in the HVac aftermarket.
SALES
33% SALES OUTSIDE OF U.S.
Asia......12%
Canada...4%
Europe....5%
RoW......12%
U.S..........67%
“Across the Company, we generated growth
from the sales of new, energy-efficient
products, which increased by 22% and now
represent 20% of our total sales.”
—Mark Gliebe, Chairman and CEO
4
NEW PRODUCT INTRODUCTIONS
0
6
0
5
2
3
2
2
3
2
’08
’09
’10
’11
’12
as we integrated the ePc acquisition, part of the synergies we identified was
to optimize our footprint in Mexico. in 2012, we consolidated three factories into
existing facilities. We have one more major factory move to complete our ePc
synergy plan in 2013. at the end of this process, our factories in Mexico will be
organized by similar products and will provide us the foundation to continue to
improve our efficiencies.
innOVatiOn
Our customers are beginning to recognize us for our innovative solutions that
help them win in the marketplace. in 2012, we launched over 60 new products,
the most ever in our history. Many of these new products are designed for
improved energy efficiency.
60
50
40
30
20
10
0
electronically-commutated motor (ecM) for lower horsepower residential pool applications. together with the high horse-
power motor we launched last year, our century™ brand now offers a broad line of motors and controls that allow commercial
and residential pool owners to pump and circulate water in the most energy efficient way.
Our Pump team launched a second V-Green™ motor, which is a variable-speed
Our commercial and industrial (c&i) team launched a line of new marine generators developed specifically for ships
utilizing Diesel electric Propulsion (DeP). these hybrid ships are propelled by electric motors which are powered by diesel-
driven generators. the hybrid systems are not only a more efficient way to power the ship, they also maximize the avail-
able space and allow for easy serviceability.
Our c&i business also teamed up with our Mechanical group to introduce a high performance, energy efficient gearmotor
solution. this is a combination of our new High efficiency right angle (Hera) gearbox and our energy efficient MaX series
motors. the combination, called Hera-MaX™, gives the customer a drop-in replacement for standard worm gearmotors
and can reduce energy costs by up to 35%. the new design also offers weight and size reduction, increased reliability and
the flexibility to adapt to more applications.
Our unico business had an excellent year with the success of their lrP® (linear rod Pump) systems for oil and gas
applications. in 2012, the team launched a lrP® product line extension that now reaches down to 8,000 feet. additionally,
the team launched a gas powered lift that uses natural gas off the well head to power a generator that drives the lrP®
systems. in 2012, unico sales grew 40% and in 2013, we will complete an expansion and upgrade to unico’s existing u.s.
facility. We expect our investment in unico to fuel continued growth for years to come.
We recognize that our competitive edge depends, in large part, on the new and innovative products we deliver to our
customers. regardless of the economic environment, we intend to continue to invest in innovations that will offer our
customers solutions and fuel our long-term growth.
sustainaBility
the long term sustainability of our company requires not only continuous growth and profitability, but also that we take
personal responsibility for the impact we have on our planet, and for the fair and just treatment of the people we employ.
We use the concept of the “three P’s”—profitability, plant and people to help us remember the essence of sustainability.
in 2012, we continued to make progress on most of our sustainability measures* with an 11% reduction in fresh water usage,
a 17% reduction in non-hazardous disposed in landfills and a 39% reduction in hazardous wastes generated. the idea
of operating a sustainable enterprise is consistent with the values of our company as well as with our lean six sigma
continuous improvement culture.
siMPliFicatiOn
We made enormous progress on our simplification initiative in 2012 and our momentum is strong. We are simplifying
nearly every aspect of our company to increase our speed, improve our responsiveness, reduce our costs, and make it
*Sustainability results are measured using intensity that takes into consideration the size of the Company as measured per million of dollars of revenues.
5
easier for our customers to work with us. We kicked off 2012 by rebranding the corporation with a simple, yet bold logo
featuring “regal.” From there, we consolidated four factories and six warehouses; converted three more enterprise
resource planning (erP) systems to our global standard; reduced 120 suppliers; consolidated two more design platforms;
and finally, we eliminated over 20 legal entities and simplified our entity naming conventions. Our simplification journey
will take years to reach our ultimate vision, but along the way, we are continuously improving our efficiency and delivering
an improved customer experience.
lOOKinG aHeaD
at the end of 2012, we successfully completed a follow-on offering of regal shares which provided $203 million of capital
for future growth. Our plan is to continue to grow our company through both organic growth and acquisitions that meet our
strategic and financial goals. We appreciated the support and confidence of both our new and existing shareholders during
this offering.
While we recognize that we will face volatile and uncertain global economic conditions, we believe that we are well
positioned for this type of environment. We are cautiously optimistic about 2013, and we expect to perform well and have
another prosperous year.
We expect residential HVac conditions to improve in 2013. While there have been increased competitive pressures for
our customers and for us, we expect to be a significant player in the residential HVac space for years to come. We
also anticipate that beyond 2013, efficiency requirements and other regulatory changes will help improve the demand for
energy-efficient systems. in the meantime, we are providing value-oriented and innovative new products for our customers
that provide them alternatives and new solutions to address their changing requirements.
the commercial and industrial markets are expected to be weaker in the front half of 2013, with a recovery beginning in the
back half of the year. We believe we will see growth in our unico business in both oil and gas markets and in our commercial
HVac segment. additional growth will come from the 110 new products we launched over the last two years. We expect to
benefit from the synergies from our recent acquisitions as well as from the implementation of our simplification initiative
and through continuous improvement driven by our compass Operating system.
Finally, one more word about our new corporate identity. We describe our new logo as simple, dynamic and bold. We
redesigned our logo in this way in order to strengthen our corporate identity and become one face to our customers.
Further, we began to simplify our overall brand structure by eliminating underutilized brands and by establishing a few
global product brands. Going forward, we will work together as “One regal.” When we speak to our customers, we will
offer them our products using a variety of brands, but they will know that their solutions come from regal and that we are
working together to provide them the best we can offer. this change will both simplify and unify the company, and it will
make it easier for our customers to understand us and do business with us.
regal’s achievements in 2012 are a direct result of the hard work and dedication of our employees and they deserve our
sincere thanks and gratitude. the global environment in which we compete is complicated and ever changing. year after
year, our employees find ways to navigate around the challenges and deliver the desired results for our customers and our
shareholders, and we truly appreciate all their contributions.
sincerely,
Mark J. Gliebe
Chairman and Chief Executive Officer
6
employees congregate in our new Grafton, Wisconsin facility
to show their support for “One regal.” the newly built “green”
facility provides a refreshing environment for collaboration with our
customers as well as between the functional teams that reside there.
Grafton, WI
7
In 2012, we launched the new Regal identity
at the Power Transmission and Control
(PTC Asia) trade show in Shanghai.
Employees from our West Plains, Missouri
facility united to form a human ribbon with
pink and blue balloons to show their support
for breast and prostate cancer research.
In the first quarter of 2013, Regal
introduced a clean and simplified
website that communicates the
Company’s culture of innovation
and inclusion.
uniFy
One reGal
in 2012, we redefined our corporate brand strategy to promote the idea
that we are “One regal” team. We are becoming more focused on our
customers, more innovative and more globally integrated.
tHe POWer OF One
regal has long promoted the power of our brands.
Over the 55 years we have been in business, we
have acquired over 69 companies. twenty-nine of
these acquisitions occurred in the last nine years.
and as we grew, our brand portfolio grew.
in 2012, we launched a brand strategy that
strengthened our corporate identity and unified the
Regal is presenting one
face to the customer.
company under one simple and bold corporate brand. We also
identified the three global brands and several regional brands that we
will continue to invest in and support for years to come. Our strong
Marathon, Genteq, Fasco, unico and century global and regional
brands will maintain their powerful identities. they will share a common
corporate identity, united under their strong corporate parent.
the power of “One regal” has helped our employees connect with
our culture of integrity, high energy and performance. it has helped
communicate a unified message of the company we are and the
company we intend to be for our customers. it has prepared us to
work together as one dynamic global enterprise and it has positioned
our company for continued growth, innovation and leadership.
We are re-branding our north
american fleet of trucks with our new
regal identity. this trailer promotes
customer care, one of our five
corporate initiatives, and speaks to
the personal responsibility that each
of our employees has in making
sure we are responsive to our
customers.
siMPliFy
8
We are in the midst of simplification throughout our company. We are consolidating our
brands and product lines, standardizing our computer systems, reducing the number
of legal entities and vendors, and streamlining our operations—all with the idea of
making it easier for our customers to conduct business with us and to improve the
overall efficiency of the company.
Our customers are beginning to recognize us for the operational improvements
that come along with our customer care and simplification initiatives. in our
2012 annual customer survey, more customers reported that they would
recommend our company to others for the second year in a row.
For our shareholders, improved customer satisfaction leads to improved
financial performance, making simplification a “win-win” solution.
5116
number of regal employees that
participated in Kaizens in 2012. Kaizens
are team events focused on simplifying
and improving processes.
9
PrOGress On siMPliFicatiOn
in 2012, we consolidated, replaced or eliminated:
➜ 2 engineering design platforms
➜ 3 legacy enterprise resource planning (erP) systems
➜ 10 redundant factories/warehouses
➜ 20 legal entities
➜ 120 redundant suppliers
innOVate
10
We are becoming a more dynamic enterprise—continuously innovating
and growing to reach more people in more markets around the world.
and we are doing so with the confidence that comes with our decades
of industry experience.
tHe Dna OF innOVatiOn
innovation does not just happen; it is the output of the culture we have
created and the people we employ. Our people are driving innovations
that are fueling economic growth—innovations that are inspired by
our customers and the world’s need for greater energy efficiency.
in a world where rapid change is the norm, we hire people who embrace
change and demonstrate the initiative to work hard, learn, grow and
create. the regal culture encourages creativity, risk taking and
continuous improvement while rewarding employees for achievement.
When talented, creative people are empowered by effective processes,
great things happen. regal’s many compass™ Operating system tools
including “Voice of the customer” and lean six sigma methodologies
enable our employees to quickly explore, test and generate new
innovations.
a WOrlD OF OPPOrtunities
Our business purpose is to “convert power into motion to help the world
operate more efficiently.” regal serves markets throughout the world
from heavy industry to high technology, inventing solutions to move
and improve equipment performance.
HERA-MAX™ is our latest
high efficiency gear drive plus
motor for powering conveyors,
packaging and processing
equipment. This solution cuts
energy consumption by up to 35%.
Our Mariner™ generators
are designed for Diesel
Electric Propulsion (DEP)
hybrid service ships that
use diesel generators to
power electric motors for
propelling them to sea.
“We recognize that our competitive edge depends, in large part, on the new and
innovative products we deliver to our customers. Regardless of the economic
environment, we intend to continue to invest in innovations that will offer our
customers solutions and fuel our long-term growth.”
—Mark Gliebe, Chairman and CEO
11
Homeowners are switching to our new
V-Green™ variable speed swimming
pool pump motors and saving as much
as 80% on their pool energy costs.
GrOW
12
Regal is expanding its operations in
China and now employs 5,100 people
there. Pictured below is the grand
opening of our new 200,000 square-
foot hermetic motor facility in Suzhou.
Our Future is GlOBal
as we continue to bring life to the new regal, we will pursue our mission to become a more unified, customer
focused and global company. underlying our business purpose is our desire to care about our people—including
our customers, our employees and our shareholders—while doing whatever we can to care for our global
communities and our planet.
sustainaBility in Practice
in 2012, our combined operations reduced consumption of fresh water by 11%, non hazardous waste
disposed by 17% and hazardous waste generated by 39% compared to 2011 levels.* Our goal is to
continuously improve on all aspects of environmental, social and economic sustainability.
*Sustainability results are measured using intensity that takes into consideration the size of the Company as measured per million of dollars of revenues.
Regal Beloit Corporation
200 State Street
Beloit, WI 53511
(608) 364-8800
2012 Annual Report
on Form 10-K
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2012
Commission File number 1-7283
Regal Beloit Corporation
(Exact Name of Registrant as Specified in Its Charter)
Wisconsin
(State of Incorporation)
39-0875718
(IRS Employer Identification No.)
200 State Street, Beloit, Wisconsin 53511
(Address of principal executive offices)
(608) 364-8800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class
Common Stock ($.01 Par Value)
Name of Each Exchange on
Which Registered
New York Stock Exchange
Securities registered pursuant to
Section 12 (g) of the Act
None
(Title of Class)
Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes 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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
(Do not check if a smaller reporting company)
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2012 was approximately $2.6 billion.
On February 20, 2013, the registrant had outstanding 44,975,804 shares of common stock, $.01 par value, which is registrant's only class of
common stock.
Certain information contained in the Proxy Statement for the Annual Meeting of Shareholders to be held on April 29, 2013 is incorporated by
reference into Part III hereof.
DOCUMENTS INCORPORATED BY REFERENCE
3
REGAL BELOIT CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 29, 2012
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operation
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Director, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedule
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
SIGNATURES
Page
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11
17
18
20
21
22
24
25
33
35
64
64
64
65
66
67
68
69
70
71
4
CAUTIONARY STATEMENT
This Annual Report on Form 10-K contains “forward-looking statements” as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements represent our management's judgment regarding future events. In many cases,
you can identify forward-looking statements by terminology such as “may,” “will,” “plan,” “expect,” “anticipate,” “estimate,”
“believe,” or “continue” or the negative of these terms or other similar words. Actual results and events could differ materially
and adversely from those contained in the forward-looking statements due to a number of factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
actions taken by our competitors and our ability to effectively compete in the increasingly competitive global electric
motor, drives and controls, power generation and mechanical motion control industries;
our ability to develop new products based on technological innovation and marketplace acceptance of new and existing
products;
fluctuations in commodity prices and raw material costs;
our dependence on significant customers;
issues and costs arising from the integration of acquired companies and businesses, including the timing and impact of
purchase accounting adjustments;
our dependence on key suppliers and the potential effects of supply disruptions;
infringement of our intellectual property by third parties, challenges to our intellectual property and claims of
infringement by us of third party technologies;
product liability and other litigation, or the failure of our products to perform as anticipated, particularly in high volume
applications;
increases in our overall debt levels as a result of acquisitions or otherwise and our ability to repay principal and interest
on our outstanding debt;
economic changes in global markets where we do business, such as reduced demand for the products we sell, currency
exchange rates, inflation rates, interest rates, recession, foreign government policies and other external factors that we
cannot control;
unanticipated liabilities of acquired businesses;
cyclical downturns affecting the global market for capital goods;
difficulties associated with managing foreign operations; and
other risks and uncertainties including but not limited to those described in “Risk Factors” in this Annual Report on
Form 10-K and from time to time in our reports filed with U.S. Securities and Exchange Commission.
All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly
qualified in their entirety by the applicable cautionary statements. The forward-looking statements included in this Annual
Report on Form 10-K are made only as of their respective dates, and we undertake no obligation to update these statements to
reflect subsequent events or circumstances. See also “Risk Factors.”
5
PART I
Unless the context requires otherwise, references in this Annual Report on Form 10-K to “we,” “us,” “our” or the “Company”
refer collectively to Regal Beloit Corporation and its subsidiaries.
References in an Item of this Annual Report on Form 10-K to information contained in our Proxy Statement for the Annual
Meeting of Shareholders to be held on April 29, 2013 (the “2013 Proxy Statement”) or to information contained in specific
sections of the Proxy Statement, incorporate the information into that Item by reference.
We operate on a 52/53 week fiscal year ending on the Saturday closest to December 31. We refer to the fiscal year ended
December 29, 2012 as “fiscal 2012,” the fiscal year ended December 31, 2011 as “fiscal 2011,” and the fiscal year ended
January 1, 2011 as “fiscal 2010.”
ITEM 1 -
BUSINESS
Our Company
We are a global manufacturer of electric motors and controls, electric generators and controls, and mechanical motion control
products. We have two reporting segments: Electrical and Mechanical. Financial information on our reporting segments for
fiscal 2012, fiscal 2011 and fiscal 2010 is contained in Note 6 of Notes to the Consolidated Financial Statements.
Electrical Segment
General
Our Electrical segment designs, manufactures and sells primarily:
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•
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•
•
•
•
•
•
integral horsepower AC and DC motors for commercial and industrial applications;
fractional, integral and large horsepower motors used in a variety of pump, fans, compressor and electrical machinery
applications;
fractional and integral horsepower motors, electronic variable speed controls and blowers used in commercial and
residential heating, ventilation, air conditioning (“HVAC”) and commercial refrigeration products including furnaces,
air conditioners and refrigeration equipment;
fractional motors and blowers used in gas fired water heaters and hydronic heating systems;
hermetic motors used in residential air conditioning and commercial air conditioning and refrigeration systems;
custom electronic drives used in paper processing, steel processing, automotive test stands, oil and gas applications, and
a variety of other industrial applications;
oil and gas artificial lift system pumping equipment typically used in well applications;
capacitors for use in HVAC systems, high intensity lighting and other applications;
electric generators and controls ranging in size from approximately five kilowatts through four megawatts used in
systems to generate backup or primary power;
• AC and DC variable speed drives and controllers and other accessories for a variety of commercial and industrial
applications; and
automatic transfer switches and paralleling switchgear to interconnect and control electric power generation equipment.
•
We provide a comprehensive offering of stock models of electric motors in addition to the motors we produce to specific
customer specifications. These products range in size from sub-fractional and fractional to small integral horsepower motors to
larger commercial and industrial motors up to approximately 6,500 horsepower.
Our HVAC electric motors and blowers are vital components of an HVAC system and are used to move air into and away from
furnaces, heat pumps, air conditioners, ventilators, fan filter boxes, water heaters and humidifiers. A majority of our HVAC
motors replace existing motors, are installed as part of a new HVAC system that replaces an existing HVAC system, or are used
in an HVAC system for new home construction. The business enjoys a large installed base of equipment and long-term
relationships with its major customers.
Our power generation business includes electric generators and power generation components and controls. The market for
electric power generation components and controls is driven by demand for backup power on the part of end users who want to
reduce operating losses due to power disturbances and the increased need for both prime power and emergency power in certain
applications. Our generators are used in commercial, industrial, agricultural, marine, military, transportation, construction, data
centers and other applications.
In our Electrical segment, we are focused on the design, manufacture and marketing of products that feature energy efficiency
technology. Our energy efficient products help the systems they operate consume less energy, providing a significant benefit to
our original equipment manufacturer (“OEM”) customers and lowering the system operating costs to end users. In fiscal 2012, we
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launched 61 new products, 45 in the Electrical segment and 16 in the Mechanical segment. Many of the new products are energy
efficient.
2012 Acquisitions
During 2012, we completed three acquisitions in the Electrical segment;
• On November 30, 2012, we acquired Remco Products Limited ("Remco") for $3.7 million. Remco is a UK supplier of a
broad range of AC fractional horsepower electric motors and fans for replacement use in heating, ventilation,
refrigeration and air conditioning industries located in West Sussex, England. The acquisition added greater access to the
European replacement motor business and is expected to provide growth opportunities for our overall European
business.
• On October 2, 2012, we acquired Marlin Coast Motor Rewinding ("MCMR") for $3.4 million. MCMR, based in Cairns,
North Queensland, Australia, is a regional leader in the supply, service and overhaul of electric machines.
• On April 30, 2012, we acquired Tecnojar, a Mexico based electrical products company for $1.6 million.
2011 Acquisitions
EPC Acquisition
On August 22, 2011, we completed our acquisition of the Electrical Products Company (“EPC”) of A.O. Smith Corporation. The
purchase price included $756.1 million in cash and 2,834,026 shares of our common stock, making it the largest acquisition in our
history. EPC manufactures and sells hermetic motors, fractional horsepower AC and DC motors, and integral horsepower
motors, ranging in size from sub-fractional C - frame ventilation motors up to 1,320 horsepower hermetic and 400 horsepower
integral motors. EPC's products are used primarily in hermetic, pump, HVAC and general industrial applications. EPC has
operations in the United States, Mexico, China and the United Kingdom. The acquisition added technology and global capacity
that will bring more value to our customers with energy-saving products, broader product offerings and better operating
efficiencies.
Other Acquisitions
During 2011, we also completed two additional acquisitions in the Electrical segment:
• On April 5, 2011, we acquired Ramu, Inc. (“Ramu”) located in Blacksburg, Virginia. Ramu is a motor and control
technology company with a research and development team dedicated to the development of switched reluctance motor
technology.
• On June 1, 2011, we acquired Australian Fan and Motor Company (“AFMC”) located in Melbourne, Australia. AFMC
manufactures and distributes a wide range of direct drive blowers, fan decks, axial fans and sub-fractional motors for
sale primarily in Australia and New Zealand.
Mechanical Segment
Our Mechanical segment manufactures and markets a broad array of mechanical motion control products including:
standard and custom worm gearboxes, bevel gearboxes, helical gearboxes and concentric shaft gearboxes;
open gearing;
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• marine transmissions;
•
custom gearing;
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gear motors;
• manual valve actuators; and
•
electrical connecting devices.
Our gear and transmission related products primarily control motion by transmitting power from a source, such as an electric
motor, 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. Mechanical products are sold
to OEM's, distributors and end users across many industries.
During 2012, we completed one acquisition in the Mechanical segment:
• On February 3, 2012, we acquired Milwaukee Gear Company (“MGC”), a Wisconsin-based leading manufacturer of
highly engineered gearing components for oil and gas applications as well as a wide variety of other commercial and
industrial applications. The purchase price of MGC was $80.3 million paid in cash, net of cash acquired.
We also completed one acquisition in 2011:
• On March 7, 2011, we acquired Hargil Dynamics Pty. Ltd. (“Hargil”) located in Sydney, Australia. Hargil is a
distributor of mechanical power transmission components and solutions.
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The Building of Our Business
Our growth from our founding in 1955 to our current size has largely been the result of the acquisition and integration of
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. Our organic growth and acquisitions have rapidly moved us into other regions
of the world where market and growth fundamentals are more favorable and aligned with our business strategy. We consider the
identification of acquisition candidates and the purchase and integration of businesses to be one of our core competencies. The
following table summarizes acquisitions for the past two years:
Annual
Year
Revenues at
Acquired Acquisition
Company
Primary Products at Acquisition
Remco
2012
$
Marlin Coast
Motor Rewinding
Tecnojar
2012
2012
4.5 Distributes a broad range of AC fractional horsepower electric motors and
fans for replacement use in heating, ventilation, refrigeration and air
conditioning industries in the U.K.
3.5 Rewinds and distributes electric motors and generators in Australia
3.0
Integrates, engineers, and packages small systems consisting of PLC's, drives
and enclosures and also provides service support and parts for this customer
base in Mexico
MGC
2012
54.0 Manufacturers highly engineered gearing components for oil and gas
EPC
AFMC
Ramu
Hargil
2011
2011
2011
2011
Sales, Marketing and Distribution
applications as well as a wide variety of other commercial and industrial
applications
706.0 Manufactures hermetic motors, fractional horsepower AC and DC motors
and integral horsepower motors
13.0 Manufactures blowers, fan decks, axial fans and sub-fractional motors in
Australia
— Research related to switched reluctance motor technology
2.0 Distributes mechanical power transmission components and solutions in
Australia
We sell our products directly to OEMs, distributors and end-users. We have multiple business units, and each unit typically has
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 operate large distribution facilities in Indianapolis, Indiana and LaVergne, Tennessee which serve as hubs for our North
American distribution and logistics operations. Products are shipped from these facilities to our customers utilizing our fleet of
trucks and trailers as well as common carriers. We also operate numerous warehouse and distribution facilities in our global
markets to service the needs of our customers. In addition, we have many manufacturer representatives' warehouses located in
specific geographic areas to serve local customers.
We derive a significant portion of the revenues of our HVAC motor business from key OEM customers. Our reliance on sales
from this relatively small number of customers makes our relationship with each of these customers important to our business,
and we expect this customer concentration will continue for the foreseeable future in this portion of our business. Despite this
relative concentration, we had no customer that accounted for more than 10% of our consolidated net sales in fiscal 2012, fiscal
2011 or fiscal 2010.
Many of our motors are incorporated into residential applications that OEMs sell to end users. The number of installations of
new and replacement HVAC systems; pool pumps or components is higher during the spring and summer seasons due to the
increased use of air conditioning during warmer months.
Competition
Electrical Segment
Electric motor manufacturing is a highly competitive global industry in which there is emphasis on reducing costs, boosting
efficiency and promoting energy savings. We compete with a growing number of domestic and international competitors due in
part to the nature of the products we manufacture and the wide variety of applications and customers we serve. Many
manufacturers of electric motors operate production facilities in many different countries, producing products for both the
domestic and export markets. Electric motor manufacturers from abroad, particularly those located in Brazil, China, India and
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elsewhere in Asia, provide increased competition as they expand their market penetration around the world, especially in North
America. Additionally, there is a recent trend toward global industry consolidation.
Our major foreign competitors for electrical products include Broad-Ocean Motor Co., Welling Holding Limited, Kirloskar
Brothers Limited, ebm-papst Mulfingen GmbH & Co. KG, Crompton Greaves Limited, Lafert, ABB Ltd., Johnson Electric
Holdings Limited, Siemens AG, Toshiba Corporation, Panasonic Corporation, Leroy-Somer (a subsidiary of Emerson Electric
Company), Tech-top, Weg S.A., Hyundai, and TECO Electric & Machinery Co., Ltd. Our major domestic competitors for
electrical products include Baldor Electric (a subsidiary of ABB Ltd.,), U.S. Motors (a division of Nidec Corporation), SNTech,
Inc., General Electric Company, Bluffton Motor Works, McMillan Electric Company and Newage (a division of Cummins, Inc).
On balance, the demarcation between domestic U.S. and foreign manufacturers is blurring as competition becomes more and
more global.
We believe that we compete in the electric motor industry primarily on the basis of quality, technological capabilities such as
energy efficiency, price, service, promptness of delivery, and the overall value of our products.
Mechanical Segment
We provide various mechanical product applications and compete with a number of different companies depending on the
particular product offering. We believe that we are a leading manufacturer of several mechanical products and that we are the
leading manufacturer in the United States of worm gear drives. Our major domestic competitors include Boston Gear (a division
of Altra Industrial Motion, Inc.), Dodge (a subsidiary of ABB Ltd.), Emerson Electric Company and Winsmith (a division of
Peerless-Winsmith, Inc.). Our major foreign competitors include SEW Eurodrive GmbH & Co., Flender GmbH, Nord, Sumitomo
Corporation and ZF Friedrichshafen AG.
Engineering, Research and Development
We believe that innovation is critical to our future growth and success. We are committed to investing in new products,
technologies and processes that deliver real value to our customers. We believe the key driver of our innovation strategy is the
development of products that include energy efficiency, embedded intelligence and variable speed technology solutions. With
our emphasis on product development and innovation, our businesses filed 83 non-provisional and five provisional patent
applications in fiscal 2012.
Each of our business units has its own product development and design team that continuously works to enhance our existing
products and develop new products for our growing base of customers that require custom and standard solutions. We believe we
have state of the art product development and testing laboratories. We believe these capabilities provide a significant competitive
advantage in the development of high quality motors, electric generators, controls and mechanical products incorporating leading
design characteristics such as low vibration, low noise, improved safety, reliability and enhanced energy efficiency.
We are continuing to expand our business by developing new, differentiated products in each of our business units. We work
closely with our customers to develop new products or enhancements to existing products that improve performance and meet
their needs.
For fiscal 2012, 2011 and 2010, we incurred research and development expenditures of $28.5 million, $21.8 million and $10.4
million, respectively.
Manufacturing and Operations
We have developed and acquired global operations in locations such as Mexico, India, Thailand and China so that we can sell our
products in these faster growing markets, follow our multinational customers, take advantage of global talent and complement our
flexible, rapid response operations in the United States, Canada and Europe. Our vertically integrated manufacturing operations,
including our own 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 and a network of distribution facilities with the
capability to modify stock products to quickly meet specific customer requirements in many instances. This gives us the ability to
efficiently and promptly deliver a customer's unique product to the desired location.
We manufacture a majority of the products that we sell, but also strategically outsource components and finished goods from an
established global network of suppliers. We aggressively pursue global sourcing to reduce our overall costs. We generally
maintain a dual sourcing capability in our existing domestic facilities to ensure a reliable supply source for our customers,
although we do depend on a limited number of key suppliers for certain materials and components. We regularly invest in
machinery and equipment to improve and maintain our facilities. Additionally, we have typically obtained significant amounts of
quality capital equipment as part of our acquisitions, often increasing overall capacity and capability. Base materials for our
products consist primarily of steel, copper and aluminum. Additionally, significant components of our product costs consist of
bearings, electronics, permanent magnets and ferrous and non-ferrous castings.
We continually upgrade our manufacturing equipment and processes, including increasing our use of computer aided
manufacturing systems and developing our own testing systems. To drive the continuous improvement process, we have
deployed Lean Six Sigma techniques across our facilities worldwide in order to develop our people and deploy our processes. The
initiative has generated significant benefits by eliminating waste, improving safety, quality and delivery, and reducing cycle
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times. We have trained approximately 2,300 people since the program began in 2005. Our goal is to be a world wide leader of
high quality and low cost manufacturer of electric motors, power generation, electronic controls and motion control products.
Facilities
We have manufacturing, sales and service facilities in the United States, Mexico, China, India and Australia, as well as a number
of other locations throughout the world. Our Electrical segment currently includes 132 manufacturing, service and distribution
facilities, of which 56 are principal manufacturing facilities. The Electrical segment's present operating facilities contain a total
of approximately 11.6 million square feet of space of which approximately 46% are leased. Our Mechanical segment currently
includes 12 manufacturing, service and distribution facilities, of which 5 are principal manufacturing facilities. The Mechanical
segment's present operating facilities contain a total of approximately 1.1 million square feet of space of which approximately
24% are leased. Our principal executive offices are located in Beloit, Wisconsin in an approximately 54,000 square foot owned
office building. We believe our equipment and facilities are well maintained and adequate for our present needs.
Backlog
Our business units have historically shipped the majority of their products in the month the order is received. As of December 29,
2012, our backlog was $407.5 million, as compared to $372.4 million on December 31, 2011. We believe that virtually all of our
backlog will be shipped in 2013.
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 other than
our ECM patents which relate to a significant portion of our sales. 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 the close of business on December 29, 2012, we employed approximately 23,800 employees worldwide. Of those
employees, approximately 9,500 were located in Mexico; approximately 5,100 in China; approximately 4,900 in the United
States; approximately 2,200 in India; and approximately 2,100 in the rest of the world. We consider our employee relations to be
very good.
Executive Officers
The names, ages, and positions of our executive officers as February 15, 2013 are listed below along with their business
experience during the past five years. Officers are elected annually by the Board of Directors. 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.
Executive Officer
Mark J. Gliebe
Age
Position
52 Chairman and
Chief Executive
Officer
Jonathan J. Schlemmer
47 Chief Operating
Officer
Charles A. Hinrichs
59 Vice President and
Chief Financial
Officer
Business Experience and Principal Occupation
Elected Chairman of the Board on December 31, 2011. Elected President and
Chief Executive Officer in May 2011. Previously elected President and Chief
Operating Officer in December 2005. Joined the Company in January 2005
as Vice President and President - Electric Motors Group, following the
acquisition of the HVAC motors and capacitors businesses from GE.
Previously employed by GE as the General Manager of GE Motors &
Controls in the GE Consumer & Industrial business unit from June 2000 to
December 2004.
Elected Chief Operating Officer in May 2011. Prior thereto served as the
Company's Senior Vice President - Asia Pacific from January 2010 to May
2011. Prior thereto, served as the Company's Vice President - Technology
from 2005 to January 2010. Before joining the company, worked for GE in
its electric motors business in a a variety of roles including quality, Six
Sigma and engineering.
Joined the Company and was elected Vice President, Chief Financial Officer
in September 2010. Prior to joining the Company, Mr. Hinrichs was Senior
Vice President and Chief Financial Officer at Smurfit-Stone Container
Corporation, where he worked from 1995 to 2009. On January 26, 2009,
Smurfit Stone Container Corporation and its primary operating subsidiaries
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court in Wilmington,
Delaware, and emerged from bankruptcy in July 2010.
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Executive Officer
Peter C. Underwood
Age
Position
43 Vice President,
General Counsel
and Secretary
Terry R. Colvin
John M. Avampato
57 Vice President
Corporate Human
Resources
51 Vice President and
Chief Information
Officer
Business Experience and Principal Occupation
Joined the Company and was elected Vice President, General Counsel and
Secretary in September 2010. Prior to joining the Company, Mr. Underwood
was a partner with the law firm of Foley & Lardner LLP from 2005 to 2010
and an associate from 1996 to 2005.
Joined the Company in September 2006 and was elected Vice President
Coporate Human Resources in January 2007. Prior to joining the Company,
Mr. Colvin was Vice President of Human Resources for Stereotaxis
Corporation from 2005 to 2006.
Joined the Company in April 2006 as Vice President Information
Technology. Appointed Vice President and Chief Information Officer in
January 2008. In April 2010, Mr. Avampato was elected an Officer of the
Company. Prior to joining the Company, Mr. Avampato was with Newell
Rubbermaid from 1984 to 2006 where he was Vice President, Chief
Information Officer from 1999 to 2006.
Website Disclosure
Our Internet address is www.regalbeloit.com. We make available free of charge (other than an investor's own Internet access
charges) through our Internet website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or
furnish such material to, the Securities and Exchange Commission. In addition, we have adopted a Code of Business Conduct and
Ethics that applies to our officers, directors and employees which satisfies the requirements of the New York Stock Exchange
regarding a “code of business conduct.” We have also adopted Corporate Governance Guidelines addressing the subjects
required by the New York Stock Exchange. We make copies of the foregoing, as well as the charters of our Board
committees, available free of charge on our website. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-
K regarding amendments to, or waivers from, our Code of Business Conduct and Ethics by posting such information on our web
site at the address stated above. We are not including the information contained on or available through our website as a part of,
or incorporating such information by reference into, this Annual Report on Form 10-K.
ITEM 1A -
RISK FACTORS
You should carefully consider each of the risks described below, together with all of the other information contained in this
Annual Report on Form 10-K, before making an investment decision with respect to our securities. If any of the following risks
develop into actual events, our business, financial condition or results of operations could be materially and adversely affected
and you may lose all or part of your investment.
We operate in the highly competitive global electric motor, drives and controls, power generation and mechanical motion
control industries.
The global electric motor, drives and controls, power generation and mechanical motion control industries are highly competitive.
We encounter a wide variety of domestic and international competitors due in part to the nature of the products we manufacture
and the wide variety of applications and customers we serve. In order to compete effectively, we must retain relationships with
major customers and establish relationships with new customers, including those in developing countries. Moreover, in certain
applications, customers exercise significant power over business terms. It may be difficult in the short-term for us to obtain new
sales to replace any decline in the sale of existing products that may be lost to competitors. Our failure to compete effectively
may reduce our revenues, profitability and cash flow, and pricing pressures resulting from competition may adversely impact our
profitability.
In addition, some of our competitors are larger and have greater financial and other resources than we do. There can be no
assurance that our products will be able to compete successfully with the products of these other companies.
Our ability to establish, grow and maintain customer relationships depends in part on our ability to develop new products
and product enhancements based on technological innovation.
The electric motor industry in recent years has seen significant evolution and innovation, particularly with respect to increasing
energy efficiency and control enhancements related to motor products. Our ability to effectively compete in the electric motor
industry depends in part on our ability to continue to develop new technologies and innovative products and product
enhancements. If we are unable to meet the needs of our customers for innovative products, or if our products become
technologically obsolete over time due to the development by our competitors of technological breakthroughs or otherwise, our
revenues and results of operations may be adversely affected. In addition, we may incur significant costs and devote significant
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resources to the development of products that ultimately are not accepted in the marketplace, do not provide anticipated
enhancements, or do not lead to significant revenue, which may adversely impact our results of operations.
Our dependence on, and the price of, raw materials may adversely affect our gross margins.
Many of the products we produce contain key materials such as steel, copper, aluminum and rare earth metals. Market prices for
those materials can be volatile due to changes in supply and demand, manufacturing and other costs, regulations and tariffs,
economic conditions and other circumstances. We may not be able to offset any increase in commodity costs through pricing
actions, productivity enhancements or other means, and increasing commodity costs may have an adverse impact on our gross
margins, which could adversely affect our results of operations and financial condition.
In our Electrical segment, we depend on revenues from several significant customers, and any loss, cancellation or
reduction of, or delay in, purchases by these customers may have a material adverse effect on our business.
We derive a significant portion of the revenues of our HVAC motor business from several key OEM customers. Our success will
depend on our continued ability to develop and manage relationships with these customers. We expect this customer
concentration will continue for the foreseeable future. Our reliance on sales from customers makes our relationship with each of
these customers important to our business. We cannot assure you that we will be able to retain these key customers. Some of our
customers may in the future shift some or all of their purchases of products from us to our competitors or to other sources. The
loss of one or more of our large customers, any reduction or delay in sales to these customers, our inability to develop
relationships successfully with additional customers, or future price concessions that we may make could have a material adverse
effect on our results of operations and financial condition.
We may encounter difficulties in integrating the operations of acquired businesses that may have a material adverse
impact on our future growth and operating performance.
Over the past several years, as part of our strategic growth plans, we have typically acquired multiple businesses in any given
year. Some of those acquisitions have been significant to our overall growth, including the acquisition of EPC in fiscal 2011. Full
realization of the expected benefits and synergies of acquisitions, such as the EPC acquisition, will require integration over time
of certain aspects of the manufacturing, engineering, administrative, sales and marketing and distribution functions of the
acquired businesses, as well as some integration of information systems platforms and processes. Complete and successful
integration of acquired businesses, and realization of expected synergies, can be a long and difficult process and may require
substantial attention from our management team and involve substantial expenditures and include additional operational
expenses. Even if we are able to successfully integrate the operations of acquired businesses, we may not be able to realize the
expected benefits and synergies of the acquisition, either in the amount of time or within the expected time frame, or at all, and
the costs of achieving these benefits may be higher than, and the timing may differ from, what we initially expect. Our ability to
realize anticipated benefits and synergies from the acquisitions may be affected by a number of factors, including:
• The use of more cash or other financial resources, and additional management time, attention and distraction, on
integration and implementation activities than we expect, including restructuring and other exit costs;
• increases in other expenses related to an acquisition, which may offset any potential cost savings and other synergies from
the acquisition;
• our ability to realize anticipated levels of sales in emerging markets like China and India;
• our ability to avoid labor disruptions or disputes in connection with any integration;
• the timing and impact of purchase accounting adjustments;
• difficulties in employee or management integration; and
• unanticipated liabilities associated with acquired businesses.
Any potential cost-saving opportunities may take at least several quarters following an acquisition to implement, and any results
of these actions may not be realized for at least several quarters following implementation. We cannot assure you that we will be
able to successfully integrate the operations of our acquired businesses, that we will be able to realize any anticipated benefits and
synergies from acquisitions or that we will be able to operate acquired businesses as profitably as anticipated.
We depend on certain key suppliers, and any loss of those suppliers or their failure to meet commitments may adversely
affect our business and results of operations.
We are dependent on a single or limited number of suppliers for some materials or components required in the manufacture of our
products. If any of those suppliers fail to meet their commitments to us in terms of delivery or quality, we may experience supply
shortages that could result in our inability to meet our customers' requirements, or could otherwise experience an interruption in
our operations that could negatively impact our business and results of operations.
Infringement of our intellectual property by third parties may harm our competitive position, and we may incur
significant costs associated with the protection and preservation of our intellectual property.
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We own or otherwise have rights in a number of patents and trademarks relating to the products we manufacture, which have
been obtained over a period of years, and we continue to actively pursue patents in connection with new product development and
to acquire additional patents and trademarks through the acquisitions of other businesses. These patents and trademarks have been
of value in the growth of our business and may continue to be of value in the future. With the exception of the ECM patents, we
do not regard any of our patents essential to our businesses. However, an inability to protect this intellectual property generally, or
the illegal breach of some or a large group of our intellectual property rights, would have an adverse effect on our business. In
addition, there can be no assurance that our intellectual property will not be challenged, invalidated, circumvented or designed-
around, particularly in countries where intellectual property rights are not highly developed or protected. We have incurred in the
past and may incur in the future significant costs associated with defending challenges to our intellectual property or enforcing
our intellectual property rights, which could adversely impact our cash flow and results of operations.
Third parties may claim that we are infringing their intellectual property rights and we could incur significant costs and
expenses or be prevented from selling certain products.
We may be subject to claims from third parties that our products or technologies infringe on their intellectual property rights or
that we have misappropriated intellectual property rights. If we are involved in a dispute or litigation relating to infringement of
third party intellectual property rights, we could incur significant costs in defending against those claims. Our intellectual
property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or
misappropriation. In addition, as a result of such claims of infringement or misappropriation, we could lose our rights to
technology that are important to our business, or be required to pay damages or license fees with respect to the infringed rights or
be required to redesign our products at substantial cost, any of which could adversely impact our cash flows and results of
operations.
We sell certain products for high volume applications, and any failure of those products to perform as anticipated could
result in significant liability that may adversely affect our business and results of operations.
We manufacture and sell a number of products for high volume applications, including motors used in pools and spas, residential
and commercial heating, ventilation, air conditioning and refrigeration equipment. Any failure of those products to perform as
anticipated could result in significant product liability, product recall or rework, or other costs. The costs of product recalls and
reworks are not generally covered by insurance. If we were to experience a product recall or rework in connection with products
of high volume applications, our financial condition or results of operations could be materially adversely affected.
Businesses that we have acquired or may acquire may have liabilities which are not known to us.
We have assumed liabilities of other acquired businesses, and may assume liabilities of businesses that we acquire in the future.
There may be liabilities or risks that we fail, or are unable, to discover, or that we underestimate, in the course of performing our
due diligence investigations of acquired businesses. Additionally, businesses that we have acquired or may acquire in the future
may have made previous acquisitions, and we will be subject to certain liabilities and risks relating to these prior acquisitions as
well. We cannot assure you that our rights to indemnification contained in definitive acquisition agreements that we have entered
or may enter into will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business
or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business,
financial condition or results of operations. As we begin to operate acquired businesses, we may learn additional information
about them that adversely affects us, such as unknown or contingent liabilities, issues relating to compliance with applicable laws
or issues related to ongoing customer relationships or order demand.
As a result of the increase in our debt levels and debt service obligations in connection with our 2011 acquisition of EPC,
we may have less cash flow available for our business operations, we could become increasingly vulnerable to general
adverse economic and industry conditions and interest rate trends, and our ability to obtain future financing may be
limited.
In fiscal 2011, we significantly increased our overall debt levels in connection with financing the acquisition of EPC. As of
December 29, 2012, we had $818.5 million in aggregate debt outstanding under our various financing arrangements, $375.3
million in cash and investments and $472.0 million in available borrowings under our current revolving credit facility. Our
ability to make required payments of principal and interest on our increased debt levels will depend on our future performance,
which, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control. We
cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available
under our current credit facilities in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity
needs. In addition, our credit facilities contain financial and restrictive covenants that could limit our ability to, among other
things, borrow additional funds or take advantage of business opportunities. Our failure to comply with such covenants could
result in an event of default that, if not cured or waived, could result in the acceleration of all our indebtedness or otherwise have
a material adverse effect on our business, financial condition, results of operations and debt service capability. See
“Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.” Our
increased indebtedness may have important consequences. For example, it could:
• make it more challenging for us to obtain additional financing to fund our business strategy and acquisitions, debt service
requirements, capital expenditures and working capital;
13
• increase our vulnerability to interest rate changes and general adverse economic and industry conditions;
• require us to dedicate a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing
the availability of our cash flow to finance acquisitions and to fund working capital, capital expenditures, manufacturing
capacity expansion, business integration, research and development efforts and other general corporate activities;
• limit our flexibility in planning for, or reacting to, changes in our business and our markets; and
• place us at a competitive disadvantage relative to our competitors that have less debt.
In addition, our credit facility and senior notes require us to maintain specified financial ratios and satisfy certain financial
condition tests, which may require that we take action to reduce our debt or to act in a manner contrary to our business strategies.
If an event of default under our credit facility or senior notes, the lenders could elect to declare all amounts outstanding under the
applicable agreement, together with accrued interest, to be immediately due and payable.
We are subject to litigation, including product liability and warranty claims that may adversely affect our financial
condition and results of operations.
We are, from time to time, a party to litigation that arises in the normal course of our business operations, including product
warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters. We face an
inherent business risk of exposure to product liability and warranty claims in the event that the use of our products is alleged to
have resulted in injury or other damage. While we currently maintain general liability and product liability insurance coverage in
amounts that we believe are adequate, we cannot assure you that we will be able to maintain this insurance on acceptable terms or
that this insurance will provide sufficient coverage against potential liabilities that may arise. Any claims brought against us, with
or without merit, may have an adverse effect on our business and results of operations as a result of potential adverse outcomes,
the expenses associated with defending such claims, the diversion of our management's resources and time and the potential
adverse effect to our business reputation.
We expect to incur costs and charges as a result of restructuring activities such as facilities and operations consolidations
and workforce reductions that we expect will reduce on-going costs, and those restructuring activities also may be
disruptive to our business and may not result in anticipated cost savings.
We have been consolidating facilities and operations in an effort to make our business more efficient and expect to continue to
review our overall manufacturing footprint. We have incurred, and expect in the future to incur, additional costs and restructuring
charges in connection with such consolidations, workforce reductions and other cost reduction measures that have adversely
affected and, to the extent incurred in the future would adversely affect, our future earnings and cash flows. Furthermore, such
actions may be disruptive to our business. This may result in production inefficiencies, product quality issues, late product
deliveries or lost orders as we begin production at consolidated facilities, which would adversely impact our sales levels,
operating results and operating margins. In addition, we may not realize the cost savings that we expect to realize as a result of
such actions.
Commodity, currency and interest rate hedging activities may adversely impact our financial performance as a result of
changes in global commodity prices, interest rates and currency rates.
We use derivative financial instruments in order to reduce the substantial effects of currency and commodity fluctuations and
interest rate exposure on our cash flow and financial condition. These instruments may include foreign currency and commodity
forward contracts, currency swap agreements and currency option contracts, as well as interest rate swap agreements. We have
entered into, and expect to continue to enter into, such hedging arrangements. While limiting to some degree our risk fluctuations
in currency exchange, commodity price and interest rates by utilizing such hedging instruments, we potentially forgo benefits that
might result from other fluctuations in currency exchange, commodity and interest rates. We also are exposed to the risk that
counterparties to hedging contracts will default on their obligations. We manage exposure to counterparty credit risk by limiting
our counterparties to major international banks and financial institutions meeting established credit guidelines. However, any
default by such counterparties might have an adverse effect on us.
Worldwide economic conditions may adversely affect our industry, business and results of operations.
General economic conditions and conditions in the global financial markets can affect our results of operations. Deterioration in
the global economy could lead to higher unemployment, lower consumer spending and reduced investment by businesses, and
could lead our customers to slow spending on our products or make it difficult for our customers, our vendors and us to accurately
forecast and plan future business activities. Worsening economic conditions could also affect the financial viability of our
suppliers, some of which we may consider key suppliers. If the commercial and industrial, residential HVAC, power generation
and mechanical power transmission markets significantly deteriorate, our business, financial condition and results of operations
will likely be materially and adversely affected. Additionally, our stock price could decrease if investors have concerns that our
business, financial condition and results of operations will be negatively impacted by a worldwide economic downturn.
Goodwill comprises a significant portion of our total assets, and if we determine that goodwill has become impaired in the
future, our results of operations and financial condition in such years may be materially and adversely affected.
14
Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. We review
goodwill at least annually for impairment and any excess in carrying value over the estimated fair value is charged to the results
of operations. Our estimates of fair value are based on assumptions about the future operating cash flows, growth rates, discount
rates applied to these cash flows and current market estimates of value. A reduction in net income resulting from the write down
or impairment of goodwill would affect financial results and could have a material and adverse impact upon the market price of
our common stock. If we are required to record a significant charge to earnings in our consolidated financial statements because
an impairment of goodwill is determined, our results of operations and financial condition could be materially and adversely
affected.
We may incur costs or suffer reputational damage due to improper conduct of our employees, agents or business partners.
We are subject to a variety of domestic and foreign laws, rules and regulations relating to improper payments to government
officials, bribery, anti-kickback and false claims rules, competition, export and import compliance, money laundering and data
privacy. If our employees, agents or business partners engage in activities in violation of these laws, rules or regulations, we may
be subject to civil or criminal fines or penalties or other sanctions, may incur costs associated with government investigations, or
may suffer damage to our reputation.
Sales of products incorporated into HVAC systems and other residential applications are seasonal and affected by the
weather; mild or cooler weather could have an adverse effect on our operating performance.
Many of our motors are incorporated into HVAC systems and other residential applications that OEMs sell to end users. The
number of installations of new and replacement HVAC systems or components and other residential applications is higher during
the spring and summer seasons due to the increased use of air conditioning during warmer months. Mild or cooler weather
conditions during the spring and summer season often result in end users deferring the purchase of new or replacement HVAC
systems or components. As a result, prolonged periods of mild or cooler weather conditions in the spring or summer season in
broad geographical areas could have a negative impact on the demand for our HVAC motors and, therefore, could have an
adverse effect on our operating performance. In addition, due to variations in weather conditions from year to year, our operating
performance in any single year may not be indicative of our performance in any future year.
We increasingly manufacture our products outside the United States, which may present additional risks to our business.
As a result of our recent acquisitions, a significant portion of our net sales are attributable to products manufactured outside of the
United States, principally in Mexico, India, Thailand and China. Approximately 18,900 of our approximate 23,800 total
employees and 40 of our 61 principal manufacturing facilities are located outside the United States. International operations
generally are subject to various risks, including political, societal and economic instability, local labor market conditions, the
imposition of foreign tariffs and other trade restrictions, the impact of foreign government regulations, and the effects of income
and withholding taxes, governmental expropriation and differences in business practices. We may incur increased costs and
experience delays or disruptions in product deliveries and payments in connection with international manufacturing and sales that
could cause loss of revenue. Unfavorable changes in the political, regulatory and business climates in countries where we have
operations could have a material adverse effect on our financial condition, results of operations and cash flows.
We may be adversely impacted by an inability to identify and complete acquisitions.
A substantial portion of our growth has come through acquisitions, and an important part of our growth strategy is based upon our
ability to execute future acquisitions. We may not be able to identify and successfully negotiate suitable acquisitions, obtain
financing for future acquisitions on satisfactory terms or otherwise complete acquisitions in the future. If we are unable to
successfully complete acquisitions, our ability to grow our company may be limited.
Our success is highly dependent on qualified and sufficient staffing. Our failure to attract or retain qualified personnel
could lead to a loss of revenue or profitability.
Our success depends, in part, on the efforts and abilities of our senior management team and key employees. Their skills,
experience and industry contacts significantly benefit our operations and administration. The failure to attract or retain members
of our senior management team and key employees could have a negative effect on our operating results.
Our operations are highly dependent on information technology infrastructure and failures could significantly affect our
business.
We depend heavily on our information technology infrastructure in order to achieve our business objectives. If we experience a
problem that impairs this infrastructure, such as a computer virus, a problem with the functioning of an important IT application,
or an intentional disruption of our IT systems by a third party, the resulting disruptions could impede our ability to record or
process orders, manufacture and ship in a timely manner, or otherwise carry on our business in the ordinary course. Any such
events could cause us to lose customers or revenue and could require us to incur significant expense to eliminate these problems
and address related security concerns.
We are in the process of implementing a global Enterprise Resource Planning (“ERP”) system that will redesign and deploy a
common information system over a period of several years. The process of implementation can be costly and can divert the
15
attention of management from the day-to-day operations of the business. As we implement the ERP system, the new system may
not perform as expected. This could have an adverse effect on our business.
We may be adversely affected by environmental, health and safety laws and regulations.
We are subject to various laws and regulations relating to the protection of the environment and human health and safety and have
incurred and will continue to incur capital and other expenditures to comply with these regulations. Failure to comply with any
environmental regulations, including more stringent environmental laws that may be imposed in the future, could subject us to
future liabilities, fines or penalties or the suspension of production.
We may suffer losses as a result of foreign currency fluctuations.
The net assets, net earnings and cash flows from our foreign subsidiaries are based on the U.S. dollar equivalent of such amounts
measured in the applicable functional currency. These foreign operations have the potential to impact our financial position due
to fluctuations in the local currency arising from the process of re-measuring the local functional currency in the U.S. dollar. Any
increase in the value of the U.S. dollar in relation to the value of the local currency will adversely affect our revenues from our
foreign operations when translated into U.S. dollars. Similarly, any decrease in the value of the U.S. dollar in relation to the value
of the local currency will increase our operating costs in foreign operations, to the extent such costs are payable in foreign
currency, when translated into U.S. dollars.
Our operations can be negatively impacted by natural disasters, terrorism, acts of war, international conflict, political and
governmental actions which could harm our business.
Natural disasters, acts or threats of war or terrorism, international conflicts, and the actions taken by the United States and other
governments in response to such events could cause damage or disrupt our business operations, our suppliers, or our customers,
and could create political or economic instability, any of which could have an adverse effect on our business. Although it is not
possible to predict such events or their consequences, these events could decrease demand for our products, could make it
difficult or impossible for us to deliver products, or could disrupt our supply chain. We may also be negatively impacted by
actions by foreign governments, including currency devaluation, tariffs and nationalization, where our facilities are located which
could disrupt manufacturing and commercial operations.
We are subject to changes in legislative, regulatory and legal developments involving income taxes.
We are subject to U.S. Federal, state, and international income, payroll, property, sales and use, fuel, and other types of taxes.
Changes in tax rates, enactment of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities could
result in substantially higher taxes and, therefore, could have a significant adverse effect on our results or operations, financial
conditions and liquidity. Currently, a significant amount of our revenue is generated from customers located outside of the
United States, and an increasingly greater portion of our assets and employees are located outside of the United States. U.S.
income tax and foreign withholding taxes have not been provided on undistributed earnings for certain non-U.S. subsidiaries,
because such earnings are intended to be indefinitely reinvested in the operations of those subsidiaries.
Future legislation may substantially reduce (or have the effect of substantially reducing) our ability to defer U.S. taxes on profit
permanently reinvested outside the United States. Additionally, they could have a negative impact on our ability to compete in
the global marketplace.
We are subject to tax laws and regulations in many jurisdictions and the inability to successfully defend claims from
taxing authorities related to our current and/or acquired businesses could adversely affect our operating results and
financial position.
We conduct business in many countries, which requires us to interpret the income tax laws and rulings in each of those taxing
jurisdictions. Due to the subjectivity of tax laws between those jurisdictions as well as the subjectivity of factual interpretations,
our estimates of income tax liabilities may differ from actual payments or assessments. Claims from taxing authorities related to
these differences could have an adverse impact on our operating results and financial position.
Our stock may be subject to significant fluctuations and volatility.
The market price of shares of our common stock may be volatile. Among the factors that could affect our common stock price
are those discussed above under “Risk Factors” as well as:
• domestic and international economic and political factors unrelated to our performance;
• quarterly fluctuation in our operating income and earnings per share results;
• decline in demand for our products;
• significant strategic actions by our competitors, including new product introductions or technological advances;
• fluctuations in interest rates;
• cost increases in energy, raw materials, intermediate components or materials, or labor; and
• changes in revenue or earnings estimates or publication of research reports by analysts.
16
In addition, stock markets may experience extreme volatility that may be unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the trading price of our common stock.
ITEM 1B -
UNRESOLVED STAFF COMMENTS
None.
17
ITEM 2 -
PROPERTIES
Our principal executive offices are located in Beloit, Wisconsin in an owned office building with approximately 54,000 square
feet. We have manufacturing, sales and service facilities throughout the United States and in Canada, Mexico, India, China,
Australia, Thailand and Europe.
Our Electrical segment currently includes 132 manufacturing, service and distribution facilities, of which 56 are principal
manufacturing facilities. The Electrical segment's present operating facilities contain a total of approximately 11.6 million square
feet of space of which approximately 46% are leased. Our Electrical segment facilities include the following:
Location
Juarez, MX
Wuxi, China
Wausau, WI
Kolkata, India
Monterrey, MX
Indianapolis, IN
Tipp City, OH
Changzhou, China
Reynosa, MX
Springfield, MO
Piedras Negras, MX
Hengli, China
Yueyang, China
Bangkok, Thailand
Faridabad, India
Taicang, China
Milan, Italy
Mt. Sterling, KY
Cassville, MO
Pudong Shanghai, China
Acuna, MX
El Paso, TX
Lavergne, TN
Lebanon, MO
Boashan, China
Einbergen, Netherlands
Erwin, TN
Rowville, Australia
Pharr, TX
Lincoln, MO
McAllen, TX
Grafton, WI (2)
Blytheville, AR
West Plains, MO
Black River Falls, WI
Shanghai, China
Other (1)
Facilities
14
1
1
1
5
1
1
2
1
1
3
1
1
2
1
1
1
1
1
1
2
1
1
1
1
1
4
2
1
1
1
2
1
1
1
3
60
Total Square
Footage
Status
1,336,387 Owned and Leased
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Leased
Owned
623,268
498,329
472,708 Owned and Leased
421,447 Owned and Leased
376,000
355,680
350,219
320,000
320,000
308,075
292,757
290,712
273,594 Owned and Leased
255,016
252,322
244,091
241,000
238,838 Owned and Leased
226,000
213,408
192,000
187,930
186,900
169,000
154,874 Owned and Leased
150,630
148,639
125,000
120,000
116,288
110,250
107,000
106,000
103,000
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Leased
Leased
Owned
Owned
98,656 Owned and Leased
1,647,605
11,633,623
Use
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Warehouse
Office
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing and Warehouse
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Warehouse
Manufacturing and Warehouse
Warehouse
Manufacturing
Warehouse
Manufacturing
Office, Sales, Manufacturing and Warehouse
Warehouse
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Sales and Manufacturing
(1) Less significant manufacturing, service and distribution and engineering facilities located in North America, Europe, Asia,
Australia, South America and Africa. Total Electrical segment leased square footage is 1.1 million.
18
Our Mechanical segment currently includes 12 manufacturing, service and distribution facilities, of which 5 are principal
manufacturing facilities. The Mechanical segment's present operating facilities contain a total of approximately 1.1 million
square feet of space of which approximately 24% are leased. Our Mechanical segment facilities include the following:
Location
Facilities
Total Square Footage
Milwaukee, WI
Liberty, SC
Aberdeen, SD
Shopiere, WI
Union Grove, WI
Other (1)
1
1
1
1
1
7
198,600
173,516
164,960
132,000
122,000
259,802
1,050,878
(1) Total Mechanical segment leased square footage is 248,902.
Status
Leased
Owned
Owned
Owned
Owned
Use
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
19
ITEM 3 -
LEGAL PROCEEDINGS
One of our subsidiaries that we acquired in 2007 is subject to numerous claims filed in various jurisdictions relating to certain
sub-fractional motors that were primarily manufactured through 2004 and that were included as components of residential and
commercial ventilation units marketed by a third party. These claims generally allege that the ventilation units were the cause of
fires. Based on the current facts, we do not believe these claims, individually or in the aggregate, will have a material adverse
effect on our results of operations or financial condition. However, we cannot predict with certainty the outcome of these claims,
the nature or extent of remedial actions, if any, we may need to undertake with respect to motors that remain in the field, or the
costs we may incur, some of which could be significant.
We are, from time to time, party to other litigation that arises in the normal course of our business operations, including product
warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters. Our
products are used in a variety of industrial, commercial and residential applications that subject us to claims that the use of our
products is alleged to have resulted in injury or other damage. We accrue for exposures in amounts that we believe are adequate,
and we do not believe that the outcome of any such lawsuit will have a material effect on our results of operations or financial
position.
20
ITEM 4 -
MINE SAFETY DISCLOSURES
Not applicable.
21
PART II
ITEM 5 -
General
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock, $.01 par value per share, is traded on the New York Stock Exchange under the symbol “RBC.” The following
table sets forth the range of high and low closing sales prices for our common stock for the period from January 1, 2011 through
December 29, 2012.
2012 Price Range
2011 Price Range
Quarter
1st
2nd
3rd
4th
$
High
Low
70.99 $
69.22
75.60
71.34
51.07
56.20
61.00
63.68
Dividends Declared
$
0.18
0.19
0.19
0.19
$
High
Low
$
75.18
76.04
69.88
56.42
65.79
63.57
45.38
42.97
Dividends Declared
$
0.17
0.18
0.18
0.18
We have paid 210 consecutive quarterly dividends through January 2013. The number of registered holders of common stock as
of February 15, 2013 was 477.
The following table contains detail related to the repurchase of our common stock based on the date of trade during the quarter
ended December 29, 2012.
2012 Fiscal Month
September 30 to November 3
November 4 to December 1
December 2 to December 29
Total
Total Number of
Shares
Purchased
$
2
5,868
—
5,870
Average
Price Paid
per Share
Maximum Number of Shares
that May be Purchased
Under the Plans or Programs
2,115,900
2,115,900
2,115,900
67.48
66.86
—
There were no shares purchased as a part of a publicly announced plan or program.
Under our equity incentive plans, participants may pay the exercise price or satisfy all or a portion of the federal, state and local
withholding tax obligations arising in connection with plan awards by electing to a) have us withhold shares of common stock
otherwise issuable under the award, b) tender back shares received in connection with such award, or c) deliver previously owned
shares of common stock, in each case having a value equal to the exercise price or the amount to be withheld. The shares listed
under “Total Number of Shares Purchased” relate to our repurchases under these equity incentive plans.
Our Board of Directors has approved repurchase programs of up to 3,000,000 shares of common stock. Management is authorized
to effect purchases from time to time in the open market or through privately negotiated transactions. There is no expiration date
to this authority.
Item 12 of this Annual Report on Form 10-K contains certain information relating to our equity compensation plans.
Stock Performance
The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be
“filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (the “Exchange Act”) or to
the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Exchange Act.
The following graph compares the hypothetical total shareholder return (including reinvestment of dividends) on an investment in
(1) our common stock, (2) the Standard & Poor's Mid Cap 400 Index, and (3) the Standard & Poor's 400 Electrical Components
and Equipment Index, for the period December 29, 2007 through December 29, 2012. In each case, the graph assumes the
investment of $100.00 on December 29, 2007.
22
INDEXED RETURNS
Company / Index
Regal Beloit Corporation
S&P MidCap 400 Index
S&P 400 Electrical Components & Equipment
$
$
2008
76.78
61.00
60.99
2009
119.24
87.60
83.97
$
Years Ending
2010
154.99
110.94
121.44
2011
$ 119.81
109.02
121.29
$
2012
163.36
126.48
161.06
ITEM 6 -
SELECTED FINANCIAL DATA
The selected statements of income data for fiscal 2012, 2011 and 2010, and the selected balance sheet data at December 29, 2012
and December 31, 2011 are derived from, and are qualified by reference to, the audited financial statements included elsewhere in
this Annual Report on Form 10-K. The selected statement of income data for fiscal 2009 and 2008 and the selected balance sheet
data at January 1, 2011, January 2, 2010 and December 27, 2008 are derived from audited financial statements not included
herein.
Fiscal 2012
3,166.9 $
312.8
200.3
195.6
3,569.1
754.7
1,953.4
4.68 $
4.64
0.75
46.73
Net Sales
Income from Operations
Net Income
Net Income Attributable to Regal Beloit
Corporation
Total Assets
Long-term Debt
Regal Beloit Shareholders' Equity
Per Share Data:
Earnings - Basic
Earnings - Assuming Dilution
$
$
Cash Dividends Declared
Shareholders' Equity
Weighted Average Shares Outstanding (in
millions):
Basic
Assuming Dilution
Fiscal 2009
Fiscal 2011
Fiscal 2010
(In Millions, Except Per Share Data)
2,808.3 $
255.7
158.0
2,238.0 $
237.7
154.7
152.3
3,266.5
909.2
1,535.9
149.4
2,449.1
428.3
1,362.0
3.84 $
3.79
0.71
38.70
3.91 $
3.84
0.67
35.62
$
$
Fiscal 2008
2,246.2
230.4
128.9
125.5
2,023.5
560.1
826.0
4.00
3.78
0.63
26.35
31.3
33.3
1,826.3
159.5
98.7
95.0
2,112.2
468.1
1,167.8
2.76
2.63
0.64
33.85
34.5
36.1
41.8
42.1
39.7
40.1
38.2
38.9
We have completed various acquisitions that affect the comparability of the selected financial data shown above. The results of
operations for acquisitions are included in our consolidated financial results for the period subsequent to their acquisition date.
Significant acquisitions included EPC (August 2011). See Note 4 of Notes to the Consolidated Financial Statements for pro forma
financial information related to the EPC acquisition.
24
ITEM 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We operate on a 52/53 week fiscal year ending on the Saturday closest to December 31. We refer to the fiscal year ended
December 29, 2012 as “fiscal 2012,” the fiscal year ended December 31, 2011 as “fiscal 2011,” the fiscal year ended January
1, 2011 as “fiscal 2010.” Fiscal 2012, fiscal 2011 and fiscal 2010 all had 52 weeks.
Overview
We are a global manufacturer of electric motors and controls, electric generators and controls, and mechanical motion control
products.
We have two reporting segments: Electrical and Mechanical. Our electrical products primarily include motors used in commercial
and residential HVAC applications, a full line of AC and DC commercial and industrial electric motors, electric generators and
controls, high-performance drives and controls, and capacitors. Our mechanical products primarily include gears and gearboxes,
marine transmissions, manual valve actuators, and electrical connectivity devices.
Over the past several years, as part of our strategic growth plans, we have typically acquired multiple businesses in any given
fiscal year. When we refer to the financial impact of the “recently acquired businesses,” we are referring to the results of
operations of acquired businesses prior to the first anniversary of their acquisition.
On an ongoing basis, we focus on a variety of key indicators to monitor business performance. These indicators include organic
and total sales growth (including volume and price components), gross profit margin, operating profit, net income and earnings
per share, and measures to optimize the management of working capital, capital expenditures, cash flow and Return On Invested
Capital (“ROIC”). We monitor these indicators, as well as our corporate governance practices (including our Code of Business
Conduct and Ethics), to ensure that we maintain business health and strong internal controls.
To achieve our financial objectives, we are focused on initiatives to drive and fund growth. We seek to capture significant
opportunities for growth by identifying and meeting customer product needs within our core product categories, developing new
products, and identifying category expansion opportunities. We meet these customer product needs through focused product
research and development efforts as well as through a disciplined acquisition strategy. Our acquisition strategy emphasizes
acquiring companies that offer market growth potential as a result of geographic base, technology or synergy opportunities. The
cash flow needed to fund our growth is developed through continuous, corporate-wide initiatives to lower costs and increase
effective asset utilization.
We also prioritize investments that generate higher return on capital businesses. Our management team is compensated based on
a shareholder value-added program which reinforces capital allocation disciplines that drive increases in shareholder value. The
key metrics in our program include total sales growth, organic sales growth, operating margin percent, operating cash flow as a
percent of net income and ROIC.
In 2012, we saw declines in sales of our products used in many of our end market applications. We believe these sales declines
were due to slower economic growth, recession or uncertainty about future economic conditions in the markets in which we
compete. Given the recent global economic uncertainty, we anticipate that the near-term operating environment will remain
challenging. Slower economic growth or recessions in the U.S. and international markets may reduce the demand for our
products.
Results of Operations
Net Sales
Net Sales
Sales growth rate
Net Sales by Segment:
Electrical segment
Sales growth rate
Mechanical segment
Sales growth rate
Fiscal 2012
Fiscal 2011
(Dollars in Millions)
Fiscal 2010
$
3,166.9
$
2,808.3
12.8%
25.5%
$
$
2,870.2
13.3%
296.7
7.9%
$
$
2,533.3
26.5%
275.0
16.5%
$
$
$
2,238.0
22.5%
2,002.0
22.3%
236.0
25.1%
Fiscal 2012 Compared to Fiscal 2011
Net sales for fiscal 2012 were $3.2 billion, a 12.8% increase over fiscal 2011 net sales of $2.8 billion. Net sales for fiscal 2012
included $579.7 million of incremental net sales related to the recently acquired businesses. (See also Note 4 of Notes to the
Consolidated Financial Statements.) In addition to incremental net sales from acquisitions, net sales for fiscal 2012 reflected (i)
price increases of approximately 0.6% to offset increased material costs, (ii) an approximately 7.9% decrease related to volume
and mix changes, and (iii) a decrease from foreign currency translation of approximately 1.2%.
25
In the Electrical segment, net sales for fiscal 2012 were $2.9 billion, a 13.3% increase over fiscal 2011 net sales of $2.5
billion. Fiscal 2012 net sales for the Electrical segment included $537.2 million of incremental net sales related to the recently
acquired businesses. Excluding the acquired businesses, fiscal 2012 Electrical segment net sales declined 7.9% driven primarily
by softer HVAC demand in the first half of 2012 and slowing commercial and industrial demand in the second half of 2012.
In the Mechanical segment, net sales for fiscal 2012 were $296.7 million, a 7.9% increase over fiscal 2011 net sales of $275.0
million. Fiscal 2012 Mechanical segment net sales included $42.5 million from the acquired business.
Net sales of high efficiency products increased 22.1% in fiscal 2012 compared to fiscal 2011 and represented 20.3% of total net
sales in fiscal 2012 compared to 16.1% of total net sales in fiscal 2011.
In fiscal 2012, sales outside of the United States increased 3.0% compared to fiscal 2011 and represented 32.8% of total net sales
for fiscal 2012 compared to 36.0% of total net sales for fiscal 2011.
Fiscal 2011 Compared to Fiscal 2010
Net sales for fiscal 2011 were $2.8 billion, a 25.5% increase over fiscal 2010 net sales of $2.2 billion. Net sales for fiscal 2011
included $494.3 million of incremental net sales related to the recently acquired businesses. See also Note 4 of Notes to the
Consolidated Financial Statements. In addition to incremental net sales from acquisition, net sales for fiscal 2011 reflected (i)
price increases of approximately 6.3% to offset increased material costs, (ii) an approximately 4.0% decrease related to volume
and mix changes, and (iii) a favorable impact of foreign currency translation of approximately 1.2%.
In the Electrical segment, net sales for fiscal 2011 were $2.5 billion, a 26.5% increase over fiscal 2010 net sales of $2.0
billion. Fiscal 2011 net sales for the Electrical segment included $484.4 million of incremental net sales related to the recently
acquired businesses. Net sales in the Electrical segment were negatively impacted by weak housing markets, the effects of
reduced federal tax incentives for high energy efficiency products and increased industry sales of R22 systems, resulting in a
7.3% decrease in net sales of our U.S. residential HVAC motor business during fiscal 2011.
Fiscal 2011 commercial and industrial motor net sales in North America increased 12.2% over sales for fiscal 2010. Global
generator sales increased 26.4% for fiscal 2011 compared to fiscal 2010, primarily resulting from increased demand for back-up
and primary power following several global natural disasters experienced in 2011.
In the Mechanical segment, net sales for fiscal 2011 were $275.0 million, a 16.5% increase over fiscal 2010 net sales of $236.0
million. Fiscal 2011 net sales for the Mechanical segment included $9.9 million of incremental net sales related to the recently
acquired businesses. Strengthening end market demand for most Mechanical segment businesses was experienced in fiscal 2011.
Net sales of high energy efficient products increased 13.0% in fiscal 2011 compared to fiscal 2010. High energy efficiency
product sales represented 16.1% of net sales for fiscal 2011 compared to 17.9% for fiscal 2010.
In fiscal 2011, sales outside of the United States exceeded $1.0 billion and represented 36.0% of total net sales for fiscal 2011
compared to 31.6% of total net sales for fiscal 2010.
Gross Profit
Gross Profit
Gross profit percentage
Gross Profit by Segment:
Electrical segment
Gross profit percentage
Mechanical segment
Gross profit percentage
Fiscal 2012
Fiscal 2011
(Dollars in Millions)
Fiscal 2010
$
$
$
771.0
24.3%
691.7
24.1%
79.3
26.7%
$
$
$
666.0
23.7%
590.9
23.3%
75.1
27.3%
$
$
$
549.3
24.5%
486.1
24.3%
63.2
26.8%
Fiscal 2012 Compared to Fiscal 2011
The gross profit margin for fiscal 2012 was 24.3% compared to 23.7% for fiscal 2011.
The gross profit margin for the Electrical segment was 24.1% for fiscal 2012 compared to 23.3% for fiscal 2011. For fiscal 2012,
the Electrical segment gross profit included $6.9 million of restructuring charges. Fiscal 2011 Electrical segment gross profit
included $25.8 million of inventory purchase accounting adjustments and $12.6 million incremental warranty expense resulting
from a production flaw in 2011.
The gross profit margin for the Mechanical segment was 26.7% for fiscal 2012 compared to 27.3% for fiscal 2011. For the
Mechanical segment, fiscal 2012 included $0.7 million of purchase accounting adjustments from the acquired business.
Fiscal 2011 Compared to Fiscal 2010
The gross profit margin for fiscal 2011 was 23.7% compared to 24.5% for fiscal 2010.
26
The gross profit margin for the Electrical segment was 23.3% for fiscal 2011 compared to 24.3% for fiscal 2010. The decrease in
Electrical segment gross margins was primarily due to (i) $25.8 million of inventory purchase accounting adjustment expenses
from the EPC acquisition in 2011, (ii) $12.6 million incremental warranty expense resulting from a production flaw in 2011, and
(iii) mix change toward lower efficiency HVAC motor products.
Operating Expenses
Operating Expenses
As a percentage of net sales
Operating Expenses by Segment:
Electrical segment
As a percentage of net sales
Mechanical segment
As a percentage of net sales
Fiscal 2012 Compared to Fiscal 2011
Fiscal 2012
Fiscal 2011
Fiscal 2010
(Dollars in Millions)
458.2
14.5%
418.0
14.6%
40.2
13.5%
$
$
$
$
$
$
410.3
14.6%
368.4
14.5%
41.9
15.2%
311.6
13.9%
275.9
13.8%
35.7
15.1%
$
$
$
Operating expenses were $458.2 million, or 14.5% of net sales, for fiscal 2012 compared to $410.3 million, or 14.6% of net sales,
for fiscal 2011. Operating expenses for the Electrical segment were $418.0 million, or 14.6% of Electrical segment net sales, for
fiscal 2012 compared to $368.4 million, or 14.5% of Electrical segment net sales, for fiscal 2011. Operating expenses for the
Mechanical segment were $40.2 million, or 13.5% of Mechanical segment net sales, for fiscal 2012 compared to $41.9 million, or
15.2% of Mechanical segment net sales, for fiscal 2011.
Fiscal 2012 Electrical segment operating expenses included $2.7 million of restructuring expenses and $62.1 million of
incremental operating expenses from the acquired businesses. Fiscal 2011 Electrical segment operating expenses included $15.5
million of acquisition related expenses, $3.6 million of restructuring charges and a $6.5 million gain on the divested pool and spa
business.
For the Mechanical segment, fiscal 2012 included $4.4 million of incremental operating expenses from the acquired business and
a $1.3 million gain from the sale of surplus real estate.
Fiscal 2011 Compared to Fiscal 2010
Operating expenses were $410.3 million, or 14.6% of net sales, for fiscal 2011 compared to $311.6 million, or 13.9% of net sales,
for fiscal 2010. Operating expenses for the Electrical segment were $368.4 million, or 14.5% of Electrical segment net sales, for
fiscal 2011 compared to $275.9 million, or 13.8% of Electrical segment net sales, for fiscal 2010. Operating expenses for the
Mechanical segment were $41.9 million, or 15.2% of Mechanical segment net sales, for fiscal 2011 compared to $35.7 million, or
15.1% of Mechanical segment net sales, for fiscal 2010.
The increase in operating expenses for fiscal 2011 in the Electrical segment was primarily due to (i) an incremental $73.5 million
expense related to the recently acquired businesses, (ii) $15.5 million of acquisition and diligence related expenses compared to
$6.6 million for fiscal 2010, and (iii) $3.6 million of restructuring costs incurred primarily in Europe and Australia, partially
offset by a $6.5 million gain from our divested pool and spa business.
Mechanical segment operating expenses for fiscal 2011 increased by $6.2 million, primarily due to (i) an incremental $1.7 million
related to the recently acquired businesses, and (ii) $2.2 million of restructuring costs incurred primarily in Europe and Australia.
Income from Operations
Income from Operations
As a percentage of net sales
Income from Operations by Segment
Electrical segment
As a percentage of net sales
Mechanical segment
As a percentage of net sales
Fiscal 2012 Compared to Fiscal 2011
Fiscal 2012
Fiscal 2011
(Dollars in Millions)
Fiscal 2010
$
$
$
312.8
9.9%
273.7
9.5%
39.1
13.2%
$
$
$
255.7
9.1%
222.6
8.8%
33.1
12.1%
$
$
$
237.7
10.6%
210.2
10.5%
27.5
11.7%
Income from operations was $312.8 million, or 9.9% of net sales, for fiscal 2012 compared to $255.7 million, or 9.1% of net
sales, for fiscal 2011. Income from operations for the Electrical segment was $273.7 million, or 9.5% of Electrical segment net
sales, for fiscal 2012 compared to $222.6 million, or 8.8% of Electrical segment net sales, for fiscal 2011. Income from
27
operations for the Mechanical segment was $39.1 million, or 13.2% of Mechanical segment net sales, for fiscal 2012 compared to
$33.1 million, or 12.1% of Mechanical segment net sales, for fiscal 2011.
The increase in income from operations as a percentage of net sales for fiscal 2012 was primarily due to the items discussed
above under “Gross Profit” and “Operating Expenses.”
Fiscal 2011 Compared to Fiscal 2010
Income from operations was $255.7 million, or 9.1% of net sales, for fiscal 2011 compared to $237.7 million, or 10.6% of net
sales, for fiscal 2010. Income from operations for the Electrical segment was $222.6 million, or 8.8% of Electrical segment net
sales, for fiscal 2011 compared to $210.2 million, or 10.5% of Electrical segment net sales, for fiscal 2010. Income from
operations for the Mechanical segment was $33.1 million, or 12.1% of Mechanical segment net sales, for fiscal 2011 compared to
$27.5 million, or 11.7% of Mechanical segment net sales, for fiscal 2010.
The decrease in income from operations as a percentage of net sales for fiscal 2011was primarily due to the items discussed above
under “Gross Profit” and “Operating Expenses.”
Interest Expense, Net
Interest Expense, Net
Weighted average interest rate
Fiscal 2012 Compared to Fiscal 2011
Fiscal 2012
Fiscal 2011
(Dollars in Millions)
Fiscal 2010
$
42.9
4.9%
$
$
29.4
4.5%
17.0
4.1%
Net interest expense for fiscal 2012 was $42.9 million compared to $29.4 million for fiscal 2011. Fiscal 2012 interest expense
was $13.5 million greater than 2011 as a result of the full year effect of the additional borrowings to fund the 2011 EPC
acquisition(see also Note 4 of Notes to the Consolidated Financial Statements).
Fiscal 2011 Compared to Fiscal 2010
Net interest expense for fiscal 2011 was $29.4 million compared to $17.0 million for fiscal 2010. During fiscal 2011, interest
expense increased due to borrowings incurred to fund the EPC acquisition (see also Note 4 of Notes to the Consolidated Financial
Statements).
Provision for Income Taxes
Income Taxes
Effective Tax Rate
Fiscal 2012 Compared to Fiscal 2011
Fiscal 2012
$
69.6
25.8%
Fiscal 2011
(Dollars in Millions)
$
$
68.3
30.2%
Fiscal 2010
66.0
29.9%
For fiscal 2012 the effective tax rate was 25.8%. The lower effective tax rate, as compared to the 35.0% statutory Federal income
tax rate, primarily resulted from the completion of the tax integration of the EPC acquisition (see also Note 10 of Notes to the
Consolidated Financial Statements).
Fiscal 2011 Compared to Fiscal 2010
The effective tax rate for fiscal 2011 was 30.2%. The lower effective tax rate, as compared to the 35.0% statutory Federal income
tax rate, primarily resulted from lower foreign tax rates (see also Note 10 of Notes to the Consolidated Financial Statements).
Net Income Attributable to Regal Beloit Corporation and Earnings Per Share
Fiscal 2012
Fiscal 2011
Fiscal 2010
Net Income Attributable to Regal Beloit Corporation (in millions)
Fully Diluted Earnings Per Share
Average Number of Diluted Shares (in millions)
$
$
195.6
4.64
42.1
$
$
$
$
152.3
3.79
40.1
149.4
3.84
38.9
Fiscal 2012 Compared to Fiscal 2011
Net Income Attributable to Regal Beloit Corporation for fiscal 2012 was $195.6 million, an increase of 28.4% compared to
$152.3 million for fiscal 2011. Fully diluted earnings per share were $4.64 for fiscal 2012 compared to $3.79 for fiscal 2011. The
average number of diluted shares was 42.1 million during fiscal 2012 compared to 40.1 million during fiscal 2011.
Fiscal 2011 Compared to Fiscal 2010
Net Income Attributable to Regal Beloit Corporation for fiscal 2011 was $152.3 million, an increase of 1.9% compared to $149.4
million for fiscal 2010. Fully diluted earnings per share were $3.79 for fiscal 2011 compared to $3.84 for fiscal 2010. The
average number of diluted shares was 40.1 million during fiscal 2011 compared to 38.9 million during fiscal 2010.
28
Liquidity and Capital Resources
General
Our principal source of liquidity is operating cash flow. In addition to operating income, other significant factors affecting our
operating cash flow include working capital levels, capital expenditures, dividends, acquisitions, availability of debt financing and
the ability to attract long-term capital at acceptable terms.
Cash flow provided by operating activities (“operating cash flow”) was $351.7 million for fiscal 2012, an $86.4 million increase
from fiscal 2011. The increase resulted from higher sales volume in fiscal 2012 driven by the full year effect of the 2011 EPC
acquisition on 2012 fiscal operating results. Net income was $42.3 million higher for fiscal 2012 compared to fiscal 2011. In
addition, depreciation and amortization were $27.8 million higher in fiscal 2012 as compared to fiscal 2011.
Cash flow used in investing activities was $197.6 million for fiscal 2012, compared to $752.1 million used in fiscal 2011. The
$554.5 million decrease was primarily due to the prior year acquisition of EPC. Business acquisitions were $110.4 million in
fiscal 2012, driven by the acquisition of Milwaukee Gear Company, compared to $765.9 million in fiscal 2011 which included
the EPC acquisition. Capital expenditures were $91.0 million in fiscal 2012 compared to $57.6 million in fiscal 2011 driven by
the construction and relocation of several of our China facilities.
Our commitments for property, plant and equipment as of December 29, 2012 were approximately $17.8 million. In fiscal 2013,
we anticipate capital spending will be approximately $100.0 million. We believe that our present manufacturing facilities will be
sufficient to provide adequate capacity for our operations in 2013. We anticipate funding 2013 capital spending with a
combination of operating cash and borrowings under our revolving credit facility.
Cash flow provided from financing activities was $77.1 million for fiscal 2012, compared to cash flow provided of $455.7 million
for fiscal 2011. The 2012 financing cash flows was driven by $202.9 million of proceeds from the sale of common stock and
repayments of long-term debt of $90.3 million. The fiscal 2011 cash flow was driven by $500.0 million in long-term borrowings
used to finance a portion of the 2011 EPC acquisition. We paid $30.8 million in dividends to shareholders in 2012.
Our working capital was $1.0 billion at December 29, 2012, an increase of 31.2% from $766.6 million at December 31, 2011. At
December 29, 2012, our current ratio (which is the ratio of our current assets to current liabilities) was 2.9:1 compared to 2.5:1 at
December 31, 2011.
The following table presents selected financial information and statistics as of December 29, 2012 and December 31, 2011 (in
millions):
Cash and Cash Equivalents
Trade Receivables, Net
Inventories, Net
Working Capital
Current Ratio
December 29, 2012
December 31, 2011
$
$
375.3
446.0
557.0
1,006.0
142.6
424.2
575.8
766.6
2.9:1
2.5:1
Our Cash and Cash Equivalents totaled $375.3 million at December 29, 2012. A portion of our cash is held by foreign
subsidiaries and could be used in our domestic operations if necessary, but would be subject to repatriation taxes. There are no
current trends, demands or uncertainties that we believe are reasonably likely to require repatriation or to have a material impact
on our ability to fund U.S. operations.
At December 29, 2012, the increase in Cash and Cash Equivalents was driven by the proceeds of our December 2012 sale of
common stock.
At December 29, 2012, we had $750.0 million of senior notes (the “Notes”) outstanding. During 2011, we issued $500.0 million
in senior notes (the “2011 Notes”) in a private placement. The 2011 Notes were issued in seven tranches with maturities from
seven to twelve years and carry fixed interest rates. We also have $250.0 million in senior notes (the “2007 Notes”) issued in two
tranches with floating interest rates based on a margin over the London Inter-Bank Offered Rate (“LIBOR”). Details on the
Notes at December 29, 2012 were (in millions):
Floating Rate Series 2007A
Floating Rate Series 2007A
Fixed Rate Series 2011A
Fixed Rate Series 2011A
Fixed Rate Series 2011A
Principal
150.0
100.0
100.0
230.0
170.0
750.0
$
$
Interest Rate
Floating (1)
Floating (1)
4.1%
4.8 to 5.0%
4.9 to 5.1%
Maturity
August 2014
August 2017
July 2018
July 2021
July 2023
(1) Interest rates vary as LIBOR varies. At December 29, 2012, the interest rate was between 0.9% and 1.0%.
29
We have interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk (see also Note 13 to
the Notes to the Consolidated Financial Statements.
In 2008, we entered into a Term Loan Agreement (“Term Loan”) with certain financial institutions, pursuant to which we
borrowed an aggregate principal amount of $165.0 million. During 2011, we repaid $20.0 million of the outstanding Term Loan.
During 2012, the Company repaid an additional $90.0 million of the Term Loan. The Term Loan matures in June 2013 and
borrowings generally bear interest at a variable rate equal to a margin over LIBOR. This margin varies with the ratio of our total
funded debt to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined in the Term
Loan. These interest rates also vary as LIBOR varies. At December 29, 2012, the interest rate of 1.3% was based on a margin
over LIBOR.
In 2011, we replaced an existing $500.0 million revolving credit facility with a maturity of April 2012 with a new $500.0 million
revolving credit facility (the “Facility”). The Facility permits us to borrow at interest rates based upon a margin above LIBOR,
which margin varies with the ratio of total funded debt, net of specified cash, to EBITDA as defined in the Facility. These
interest rates also vary as LIBOR varies. At December 29, 2012 there was no outstanding balance on the Facility. The average
balance outstanding under all revolving credit facilities in fiscal 2012 was $30.6 million. The average interest rate paid under the
Facility was 1.7% in 2012. We pay a commitment fee on the unused amount of the Facility, which also varies with the ratio of our
total funded debt to our EBITDA, net of specified cash. As of December 29, 2012, we had approximately $28.0 million in
standby letters of credit issued under the Facility and $472.0 million in available borrowings under the Facility. The Facility
matures in June 2016.
Based on rates for instruments with comparable maturities and terms, which are classified as Level 2 inputs, the approximate fair
value of our debt was $859.6 million and $951.0 million as of December 29, 2012 and December 31, 2011, respectively.
The Notes, the Term Loan and the Facility require us to meet specified financial ratios and to satisfy certain financial condition
tests. We were in compliance with all financial covenants as of December 29, 2012. We believe that we will continue to be in
compliance with these covenants for the foreseeable future.
The primary financial covenants on our Notes, Term Loan, and the Facility include ratios of debt to EBITDA (as defined in each
agreement) and minimum interest coverage ratios of EBITDA to interest expense. The debt to EBITDA covenant ratio requires
us to be less than 3.75:1, and our ratio at December 29, 2012 was approximately 1.8:1. The minimum interest coverage ratio
requires us to be greater than 3.0:1, and our ratio at December 29, 2012 was approximately 10.5:1.
As of January 1, 2011, we have no convertible notes outstanding. During fiscal 2010, the final $39.2 million face value bonds
were converted. We paid the par value in cash and issued approximately 0.9 million shares for the conversion premium.
As part of the acquisitions made during fiscal 2010, (see also Note 4 of Notes to the Consolidated Financial Statements), we
assumed $11.1 million of short-term and long-term debt. At December 29, 2012, $0.2 million of short-term acquired debt remains
outstanding and $1.9 million of long-term debt remains outstanding.
At December 29, 2012, additional notes payable of approximately $13.5 million were outstanding with a weighted average
interest rate of 2.4%. At December 31, 2011, additional notes payable of approximately $15.2 million were outstanding with a
weighted average interest rate of 2.2%.
We are exposed to interest rate risk on certain of our short-term and long-term debt obligations used to finance our operations and
acquisitions. At December 29, 2012, excluding the related interest rate swaps, we had $502.2 million of fixed rate debt and
$316.3 million of variable rate debt. The variable rate debt is primarily under our 2007 Notes and Term Loan with interest rates
based on a margin above LIBOR. As a result, interest rate changes impact future earnings and cash flow assuming other factors
are constant. A hypothetical 10% change in our weighted average borrowing rate on outstanding variable rate debt at December
29, 2012, would result in a change in net income of approximately $0.1 million.
Predominately all of our expenses are paid in cash, often with payment term provisions that include early payment discounts and
time elements. We believe that our ability to generate positive cash flow, coupled with our available revolving credit balance will
be sufficient to fund our operations for the foreseeable future. We focus on optimizing our investment in working capital through
improved and enforced payment terms and operational efficiencies. Additionally, we believe that our capital expenditures for
maintenance of equipment and facilities will be consistent with prior levels and not present a funding challenge.
We will, from time to time, maintain excess cash balances which may be used to (i) fund operations, (ii) repay outstanding debt,
(iii) acquire additional businesses or product lines, (iv) pay dividends, (v) make investments in new product development
programs, (vi) repurchase our common stock, or (vii) fund other corporate objectives.
Our projections are based on all information known to us, which may change based on global economic events, our financial
performance, actions by our customers and competitors and other factors discussed in “Risk Factors.”
Litigation
One of our subsidiaries that we acquired in 2007 is subject to numerous claims filed in various jurisdictions relating to certain
sub-fractional motors that were primarily manufactured through 2004 and that were included as components of residential and
30
commercial ventilation units marketed by a third party. These claims generally allege that the ventilation units were the cause of
fires. Based on the current facts, we do not believe these claims, individually or in the aggregate, will have a material adverse
effect on our results of operations or financial condition. However, we cannot predict the outcome of these claims, the nature or
extent of remedial actions, if any, we may need to undertake with respect to motors that remain in the field, or the costs we many
incur, some of which could be significant.
We are, from time to time, party to other litigation that arises in the normal course of our business operations, including product
warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters. Our
products are used in a variety of industrial, commercial and residential applications that subject us to claims that the use of our
products is alleged to have resulted in injury or other damage. We accrue for anticipated costs in defending against such lawsuits
in amounts that we believe are adequate, and we do not believe that the outcome of any such lawsuit will have a material effect on
our results of operations or financial position.
Off-Balance Sheet Arrangements, Contractual Obligations and Commercial Commitments
The following is a summary of our contractual obligations and payments due by period as of December 29, 2012 (in millions):
Payments Due
by Period (1)
Less than one year
1 - 3 years
3 - 5 years
More than 5 years
Total
Debt Including
Estimated Interest
Payments (2)
Operating
Leases
Pension
Obligations
Purchase
and Other
Obligations
Total
Contractual
Obligations
$
$
89.5
200.0
151.9
568.9
1,010.3
$
$
28.1 $
39.3
25.3
22.1
114.8 $
7.9 $
17.1
19.1
58.0
102.1 $
63.1
1.1
—
—
64.2
$
$
188.6
257.5
196.3
649.0
1,291.4
(1) The timing and future spot prices affect the settlement values of our hedge obligations related to commodities, currency and
interest rate swap agreements. Accordingly, these obligations are not included above in the table of contractual obligations. The
timing of settlement of our tax contingent liabilities cannot be reasonably determined and they are not included above in the table
of contractual obligations. Future pension obligation payments after 2012 are subject to revaluation based on changes in the
benefit population and/or changes in the value of pension assets based on market conditions that are not determinable as of
December 29, 2012.
(2) Variable rate debt based on December 29, 2012 rates.
We utilize blanket purchase orders (“blankets”) to communicate expected annual requirements to many of our suppliers.
Requirements under blankets generally do not become “firm” until a varying number of weeks before our scheduled production.
The purchase obligations shown in the above table represent the value we consider “firm.”
At December 29, 2012, we had outstanding standby letters of credit totaling approximately $28.0 million. We had no other
material commercial commitments.
We did not have any material variable interest entities as of December 29, 2012 and December 31, 2011. Other than disclosed in
the table above and the previous paragraph, we had no other material off-balance sheet arrangements.
Critical Accounting Policies
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the
United States requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of
the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from
those estimates. We believe the following critical accounting policies could have the most significant effect on our reported
results.
Goodwill
We evaluate the carrying amount of goodwill annually or more frequently if events or circumstances indicate that an asset might
be impaired. When applying the accounting guidance, we use estimates to determine when it might be necessary to take an
impairment charge. Factors that could trigger an impairment review include significant underperformance relative to historical or
forecasted operating results, a significant decrease in the market value of an asset or significant negative industry or economic
trends. We perform our required annual goodwill impairment test as of the end of the October fiscal month each year.
We use a weighting of the market approach guideline public company method, and the income approach discounted cash flow
method in testing goodwill for impairment. In the market approach, we apply performance multiples from comparable guideline
public companies, adjusted for relative risk, profitability, and growth considerations, to our reporting units to estimate fair value.
The key assumptions used in the discounted cash flow method used to estimate fair value include discount rates, growth rates,
cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and
31
susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted
average cost of capital (“WACC”). The WACC considers market and industry data as well as company-specific risk factors for
each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is
indicative of the return an investor would expect to receive for investing in such a business. Terminal value rate determination
follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period
assuming a constant WACC and long-term growth rates.
The calculated fair values for our 2012 impairment testing exceed the carrying values of the reporting units. The two reporting
units that comprise approximately 75% of total consolidated goodwill had a combined excess of approximately 36% estimated
fair value over carrying value at December 29, 2012. We had three reporting units with a total of $94.8 million of goodwill at
December 29, 2012 that had an estimated fair value that was less than 10% over carrying value.
We aggregate our business units by segment for reporting purposes and the majority of our goodwill is within our Electrical
segment (see also Note 5 of Notes to the Consolidated Financial Statements).
Intangible Assets
We evaluate the recoverability of the carrying amount of intangible assets whenever events or changes in circumstance indicate
that the carrying amount of an asset may not be fully recoverable through future cash flows. When applying the accounting
guidance we use estimates to determine when an impairment is necessary. Factors that could trigger an impairment review
include a significant decrease in the market value of an asset or significant negative or economic trends (see also Note 6 of Notes
to the Consolidated Financial Statements).
We also have non-amortizable in-process research and development ("IPRD") included in intangible assets. IPRD is not currently
being amortized however amortization will commence when the related technology revenues are realized.
Derivatives
We periodically enter into commodity hedging transactions to reduce the impact of changing prices for certain commodities such
as copper and aluminum based upon forecasted purchases of such commodities. We also use a cash flow hedging strategy to
protect against an increase in the cost of forecasted foreign currency denominated transactions. Finally, we also have certain
LIBOR-based floating rate borrowings that expose us to variability in interest rates that have been hedged by entering into a pay
fixed/receive LIBOR-based interest rate swap agreement.
The fair value of derivatives is recorded on the consolidated balance sheet and the value is determined based on Level 2 inputs
(see also Note also 14 of Notes to the Consolidated Financial Statements).
Retirement Plans
Most of our domestic employees are participants in defined benefit pension plans and/or defined contribution plans. The defined
benefit pension plans were closed to new employees as of January 1, 2006, and benefits under those plans were frozen for
existing employees as of December 31, 2008. Most of our foreign employees are covered by government sponsored plans in the
countries in which they are employed. Our obligations under our defined benefit pension plans are determined with the assistance
of actuarial firms. The actuaries make certain assumptions regarding such factors as withdrawal rates and mortality rates. The
actuaries also provide information and recommendations from which management makes further assumptions on such factors as
the long-term expected rate of return on plan assets, the discount rate on benefit obligations and where applicable, the rate of
annual compensation increases.
Based upon the assumptions made, the investments made by the plans, overall conditions and movement in financial markets,
particularly the stock market and how actual withdrawal rates, life-spans of benefit recipients and other factors differ from
assumptions, annual expenses and recorded assets or liabilities of these defined benefit pension plans may change significantly
from year to year.
Income Taxes
We operate in numerous taxing jurisdictions and are subject to regular examinations by various U.S. Federal, state and foreign
jurisdictions for various tax periods. Our income tax positions are based on research and interpretations of the income tax laws
and rulings in each of the jurisdictions in which we do business. Due to the subjectivity of interpretations of laws and rulings in
each jurisdiction, the differences and interplay in tax laws between those jurisdictions as well as the inherent uncertainty in
estimating the final resolution of complex tax audit matters, our estimates of income tax liabilities may differ from actual
payments or assessments.
Additional information regarding income taxes is contained in Note 10 of Notes to the Consolidated Financial Statements.
Further discussion of our accounting policies is contained in Note 3 of Notes to the Consolidated Financial Statements.
32
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk relating to our operations due to changes in interest rates, foreign currency exchange rates and
commodity prices of purchased raw materials. We manage the exposure to these risks through a combination of normal operating
and financing activities and derivative financial instruments such as interest rate swaps, commodity cash flow hedges and foreign
currency forward exchange contracts. All hedging transactions are authorized and executed pursuant to clearly defined policies
and procedures, which strictly prohibit the use of financial instruments for speculative purposes.
All hedges are recorded on the balance sheet at fair value and are accounted for as cash flow hedges, with changes in fair value
recorded in accumulated other comprehensive income (loss) (“AOCI”) in each accounting period. An ineffective portion of the
hedges change in fair value, if any, is recorded in earnings in the period of change.
Interest Rate Risk
We are exposed to interest rate risk on certain of our short-term and long-term debt obligations used to finance our operations and
acquisitions. At December 29, 2012, excluding the impact of interest rate swaps, we had $502.2 million of fixed rate debt and
$316.3 million of variable rate debt. At December 31, 2011, excluding the impact of interest rate swaps, we had $503.7 million
of fixed rate debt and $415.5 million of variable rate debt. We utilize interest rate swaps to manage fluctuations in cash flows
resulting from exposure to interest rate risk on forecasted variable rate interest payments.
We have LIBOR-based floating rate borrowings, which expose us to variability in interest payments due to changes in interest
rates. A hypothetical 10% change in our weighted average borrowing rate on outstanding variable rate debt at December 29,
2012, would result in a change in after-tax annualized earnings of approximately $0.1 million. We have entered into pay
fixed/receive LIBOR-based floating interest rate swaps to manage fluctuations in cash flows resulting from interest rate risk.
These interest rate swaps have been designated as cash flow hedges against forecasted LIBOR-based interest payments. Details
regarding the instruments, as of December 29, 2012, are as follows:
Instrument
Swap
Swap
Notional Amount
$150.0
100.0
Maturity
August 23, 2014
August 23, 2017
Rate Paid
5.3%
5.4%
Rate Received
LIBOR (3 month)
LIBOR (3 month)
Fair Value (Loss)
$
(13.1)
(22.3)
As of December 29, 2012 and December 31, 2011, the interest rate swap liability of $(35.4) million and $(42.0) million,
respectively, was included in Hedging Obligations. The unrealized loss on the effective portion of the contracts of $(21.9)
million and $(26.0) million, net of tax as of December 29, 2012 and December 31, 2011, respectively, was recorded in AOCI.
Foreign Currency Risk
We are also exposed to foreign currency risks that arise from normal business operations. These risks include the translation of
local currency balances of foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in
foreign currencies. Our objective is to minimize our exposure to these risks through a combination of normal operating activities
and the utilization of foreign currency exchange contracts to manage our exposure on the forecasted transactions denominated in
currencies other than the applicable functional currency. Contracts are executed with creditworthy banks and are denominated in
currencies of major industrial countries. We do not hedge our exposure to the translation of reported results of foreign
subsidiaries from local currency to United States dollars.
As of December 29, 2012, derivative currency assets (liabilities) of $6.8 million, $2.3 million, $(4.6) million and $(0.3) million
are recorded in Prepaid Expenses, Other Noncurrent Assets, Hedging Obligations (current) and Hedging Obligations,
respectively. As of December 31, 2011, derivative currency assets (liabilities) of $0.5 million, $0.1 million, $(13.6) million, and
$(11.7) million are recorded in Prepaid Expenses, Other Noncurrent Assets, Hedging Obligations (current) and Hedging
Obligations, respectively. The unrealized gain (loss) on the effective portion of the contracts of $2.7 million net of tax, and
$(15.4) million net of tax, as of December 29, 2012 and December 31, 2011, respectively, was recorded in AOCI. At December
29, 2012, we had an additional amount of $0.1 million, net of tax, of currency gains on closed hedge instruments in AOCI that
will be realized in earnings when the hedged items impact earnings.
The following table quantifies the outstanding currency forward and the corresponding impact on the value of these instruments
assuming a hypothetical 10% appreciation/depreciation of their counter currency on December 29, 2012 (dollars in millions):
Currency
Mexican Peso
Chinese Renminbi
Indian Rupee
Thai Baht
Australian Dollar
Notional
Amount
Fair
Value
10% Appreciation of
Counter Currency
10% Depreciation of
Counter Currency
Foreign Exchange Gain (Loss) From:
$
174.8
108.6
37.4
17.3
7.1
$
6.1
0.9
(2.9)
0.2
(0.1)
17.5 $
10.9
3.7
1.7
0.7
(17.5)
(10.9)
(3.7)
(1.7)
(0.7)
33
It is important to note that gains and losses indicated in the sensitivity analysis would be offset by gains and losses on the
underlying receivables and payables.
Commodity Price Risk
We periodically enter into commodity hedging transactions to reduce the impact of changing prices for certain commodities such
as copper and aluminum based upon forecasted purchases of such commodities. These transactions are designated as cash flow
hedges and the contract terms of commodity hedge instruments generally mirror those of the hedged item, providing a high
degree of risk reduction and correlation.
Derivative commodity assets (liabilities) of $4.2 million, $0.2 million, and $(1.7) are recorded in Prepaid Expenses, Other
Noncurrent Assets and Hedging Obligations (current), respectively, at December 29, 2012. Derivative commodity assets
(liabilities) of $2.6 million, $1.0 million, $(12.5) million and $(1.4) million are recorded in Prepaid Expenses, Other Noncurrent
Assets, Hedging Obligations (current) and Hedging Obligations, respectively, at December 31, 2011. The unrealized (loss) gain
on the effective portion of the contracts of $1.5 million net of tax and $(6.4) million net of tax, as of December 29, 2012 and
December 31, 2011, respectively, was recorded in AOCI. At December 29, 2012, we had an additional $0.2 million, net of tax, of
derivative commodity gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact
earnings.
The following table quantifies the outstanding commodity contracts intended to hedge raw material commodity prices and the
corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their prices on
December 29, 2012 (dollars in millions):
Commodity
Copper
Aluminum
Notional
Amount
132.8
8.5
$
Fair
Value
10% Appreciation of
Commodity Prices
10% Depreciation of
Commodity Prices
2.5
0.2
$
13.3 $
0.9
(13.3)
(0.9)
It is important to note that gains and losses indicated in the sensitivity analysis would be offset by the actual prices of the
commodities.
The net AOCI balance related to hedging activities of $(17.4) million loss at December 29, 2012 includes $(5.0) million of net
current deferred losses expected to be realized in the next twelve months.
Gain (Loss) From:
Counterparty Risk
We are exposed to credit losses in the event of non-performance by the counterparties to various financial agreements, including
our interest rate swap agreements, foreign currency exchange contracts and commodity hedging transactions. We manage
exposure to counterparty credit risk by limiting our counterparties to major international banks and financial institutions meeting
established credit guidelines and continually monitoring their compliance with the credit guidelines. We do not obtain collateral
or other security to support financial instruments subject to credit risk. We do not anticipate non-performance by our
counterparties, but cannot provide assurances.
34
ITEM 8 -
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly Financial Information
(Unaudited)
(Amounts in Millions, Except per Share Data)
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Net Sales
Gross Profit
Income from Operations
Net Income
Net Income Attributable to
Regal Beloit Corporation
Earnings Per Share
Attributable to Regal Beloit
Corporation (1):
Basic
Assuming Dilution
Weighted Average Number
of Shares Outstanding:
Basic
Assuming Dilution
Net Sales
Electrical
Mechanical
Income from Operations
Electrical
Mechanical
2012
$ 807.9
197.6
79.1
49.9
2012
2012
2011
2011
2011
$ 662.7 $ 863.9 $ 681.8 $ 779.5 $ 736.9
179.6
78.1
47.5
150.7
54.8
36.0
164.8
64.1
40.8
220.1
103.3
64.3
192.6
83.3
55.2
2012
2011
$ 715.6 $ 727.0
170.9
58.6
33.7
160.7
47.1
30.9
48.7
38.8
62.7
34.3
54.3
45.7
29.9
33.5
1.17
1.16
1.01
0.99
1.5
1.49
0.89
0.88
1.3
1.29
1.14
1.13
0.71
0.70
0.81
0.80
41.6
42.0
38.6
39.1
41.7
42.0
38.7
39.2
41.7
42.0
39.9
40.4
42.2
42.5
41.5
41.9
$ 731.4
76.5
$ 594.3 $ 783.6 $ 611.3 $ 708.3 $ 667.5
69.4
70.5
68.4
80.3
71.2
$ 646.9 $ 660.3
66.7
68.7
69.4
9.7
55.5
8.6
91.5
11.8
44.9
9.9
73.2
10.1
69.4
8.8
39.6
7.5
52.8
5.8
(1) Due to the weighting of both earnings and the weighted average number of shares outstanding, the sum of the quarterly
earnings per share may not equal the annual earnings per share.
35
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Regal Beloit Corporation (the “Company”) is responsible for the accuracy and internal consistency of the
preparation of the consolidated financial statements and footnotes contained in this annual report.
The Company's management is also responsible for establishing and maintaining adequate internal control over financial
reporting. The Company operates under a system of internal accounting controls designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally
accepted accounting principles. The internal accounting control system is evaluated for effectiveness by management and is
tested, monitored and revised as necessary. All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December
29, 2012. In making its assessment, the Company's management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on the results of its
evaluation, the Company's management concluded that, as of December 29, 2012, the Company's internal control over financial
reporting is effective at the reasonable assurance level based on those criteria.
Our internal control over financial reporting as of December 29, 2012 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report which is included herein.
February 27, 2013
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Regal Beloit Corporation
Beloit, Wisconsin
We have audited the accompanying consolidated balance sheets of Regal Beloit Corporation and subsidiaries (the “Company”) as
of December 29, 2012 and December 31, 2011, and the related consolidated statements of income, comprehensive income, equity
and cash flows for each of the three years in the period ended December 29, 2012. Our audits also included the financial
statement schedule listed in the Index at Item 15. We also have audited the Company's internal control over financial reporting as
of December 29, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial
statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements
and financial statement schedule and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board
of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only
in accordance with authorization of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material
effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
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 29, 2012 and December 31, 2011, and the results of their operations
and their cash flows for each of the three years in the period ended December 29, 2012, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set
forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 29, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
February 27, 2013
37
REGAL BELOIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Millions, Except Per Share Data)
Net Sales
Cost of Sales
Gross Profit
Operating Expenses
Income from Operations
Interest Expense
Interest Income
Income before Taxes
Provision for Income Taxes
Net Income
Less: Net Income Attributable to Noncontrolling Interests
Net Income Attributable to Regal Beloit Corporation
Earnings Per Share Attributable to Regal Beloit Corporation:
Basic
Assuming Dilution
Weighted Average Number of Shares Outstanding:
Basic
Assuming Dilution
December 29,
2012
For the Year Ended
December 31,
2011
January 1,
2011
$
$
$
$
$
$
$
$
3,166.9
2,395.9
771.0
458.2
312.8
44.5
1.6
269.9
69.6
200.3
4.7
195.6
4.68
4.64
41.8
42.1
$
$
$
$
2,808.3
2,142.3
666.0
410.3
255.7
31.1
1.7
226.3
68.3
158.0
5.7
152.3
3.84
3.79
39.7
40.1
2,238.0
1,688.6
549.4
311.6
237.8
19.6
2.5
220.7
66.0
154.7
5.3
149.4
3.91
3.84
38.2
38.9
See accompanying Notes to the Consolidated Financial Statements
38
REGAL BELOIT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Millions)
For the Year Ended
December 29, 2012
200.3
$
December 31, 2011
158.0
$
January 1, 2011
$
154.7
Net Income
Other Comprehensive Income (Loss), net
of tax:
Foreign Currency Translation
Adjustments (1)
16.6
16.8
Hedging Activities:
Change in Fair Value of Hedging
Activities, net of tax effects of $10.1
million in 2012, $(27.4) million in 2011
and $11.0 million in 2010
Reclassification Adjustment for (Gains)
and Losses Included in Net Income, net
of tax effects of $10.3 million in 2012,
$(5.3) million in 2011 and $2.1 million
in 2010
Defined Benefit Pension Plans:
Prior Service Cost and Unrecognized
Loss, net of tax effects of $(6.1) million
in 2012, $(4.7) million in 2011 and
$(2.6) million in 2010
Realized Curtailment Gain in 2011, net
of tax effect of $(0.6) million
Less: Amortization of Prior Service
Costs and Unrecognized Loss Included
in Net Periodic Pension Cost, net of tax
effects of $1.4 million in 2012, $1.3
million in 2011 and $1.1 million in 2010
Other Comprehensive Income (Loss)
Comprehensive Income
Less: Comprehensive Income
Attributable to Noncontrolling Interests
Comprehensive Income Attributable to
Regal Beloit Corporation
(1) No reclassification adjustments for any period presented.
(9.9)
2.4
—
$
14.7
(43.6)
29.4
(44.7)
18.0
33.4
(8.9)
(53.6)
3.2
21.2
(7.7)
(1.1)
2.1
(4.3)
—
1.7
(2.6)
48.0
202.7
6.4
(6.7)
(103.9)
54.1
5.3
$
48.8
$
196.3
(7.5)
40.6
240.9
5.4
235.5
See accompanying Notes to the Consolidated Financial Statements
39
REGAL BELOIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
December 29,
2012
December 31,
2011
ASSETS
Current Assets:
Cash and Cash Equivalents
Trade Receivables, less Allowances of $10.2 million in 2012 and
$13.6 million in 2011
Inventories
Prepaid Expenses and Other Current Assets
Deferred Income Tax Benefits
Total Current Assets
Net Property, Plant and Equipment
Goodwill
Intangible Assets, Net of Amortization
Other Noncurrent Assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable
Dividends Payable
Hedging Obligations
Accrued Compensation and Employee Benefits
Other Accrued Expenses
Current Maturities of Debt
Total Current Liabilities
Long-term Debt
Deferred Income Taxes
Hedging Obligations
Pension and Other Post Retirement Benefits
Other Noncurrent Liabilities
Commitments and Contingencies (see Note 11)
Equity:
Regal Beloit Corporation Shareholders' Equity:
Common Stock, $.01 par value, 100.0 million shares authorized,
44.9 million and 41.6 million shares issued and outstanding at 2012
and 2011, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Total Regal Beloit Corporation Shareholders' Equity
Noncontrolling Interests
Total Equity
Total Liabilities and Equity
$
$
$
$
375.3
$
$
$
446.0
557.0
112.9
48.7
1,539.9
573.1
1,151.0
293.2
11.9
3,569.1
251.8
8.5
6.3
80.0
123.5
63.8
533.9
754.7
132.0
35.7
69.2
47.1
0.4
903.3
1,115.0
(65.3)
1,953.4
43.1
1,996.5
3,569.1
$
142.6
424.2
575.8
99.9
48.6
1,291.1
534.0
1,117.6
316.3
7.5
3,266.5
249.4
7.5
26.1
81.7
149.8
10.0
524.5
909.2
100.1
55.1
60.6
40.6
0.4
689.4
951.3
(105.2)
1,535.9
40.5
1,576.4
3,266.5
See accompanying Notes to the Consolidated Financial Statements
40
REGAL BELOIT CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in Millions, Except Per Share Data)
Common Stock
$.01 Par Value
Additional
Paid-In Capital
Retained
Earnings
Accumulated Other
Comprehensive Income
(Loss)
Noncontrolling
Interests
Total
Equity
Balance as of January 2, 2010
$
Net Income
Other Comprehensive Income (Loss)
0.4 $
—
Dividends Declared ($.67 per share)
—
Issuance of 0.1 million Shares of
Common Stock for Acquisition
Stock Options Exercised, including
Income Tax Benefit and Share
Cancellations
Share-based Compensation
Reversal of Tax Benefits Related to
Convertible Debt
Additions to Noncontrolling Interests
from Acquisitions
Balance as of January 1, 2011
$
Net Income
Other Comprehensive Income (Loss)
Dividends Declared ($0.71 per
share)
Issuance of 2.8 million Shares of
Common Stock for Acquisition
Stock Options Exercised, including
Income Tax Benefit and Share
Cancellations
Share-based Compensation
—
—
—
—
0.4 $
—
—
—
—
—
—
512.3
$
703.8
$
(48.6)
$
12.2
$1,180.1
—
—
6.1
4.1
6.7
6.6
—
149.4
(25.7)
—
—
—
—
—
46.9
—
—
—
—
—
535.8
$
827.5
$
(1.7)
$
—
—
—
140.8
(1.5)
14.3
152.3
—
(28.5)
—
—
—
—
(103.5)
—
—
—
—
5.3
1.1
—
—
—
154.7
48.0
(25.7)
6.1
4.1
6.7
6.6
16.6
35.2
5.7
16.6
$1,397.2
158.0
(0.4)
(103.9)
—
—
—
—
(28.5)
140.8
(1.5)
14.3
Balance as of December 31, 2011
$
0.4 $
689.4
$
951.3
$
(105.2)
$
40.5
$1,576.4
Net Income
Other Comprehensive Income (Loss)
Dividends Declared ($0.75 per
share)
Sale of 3.2 million Shares of
Common Stock
Stock Options Exercised, including
Income Tax Benefit and Share
Cancellations
Share-based Compensation
Dividends Declared to Non-
controlling Interests
Balance as of December 29, 2012
$
—
—
—
—
—
—
—
0.4 $
—
—
—
202.9
2.0
9.0
—
195.6
—
(31.9)
—
—
—
—
—
39.9
—
—
—
—
—
4.7
0.7
—
—
—
—
200.3
40.6
(31.9)
202.9
2.0
9.0
(2.8)
(2.8)
903.3
$
1,115.0
$
(65.3)
$
43.1
$1,996.5
See accompanying Notes to the Consolidated Financial Statements
41
REGAL BELOIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities (net of
A
)
i i i
Depreciation
Amortization
Share-based Compensation Expense
Provision for Deferred Income Taxes
Excess Tax Benefits from Share-based Compensation
(Gain) Loss on Disposition of Assets
Change in Operating Assets and Liabilities, net of Acquisitions
Receivables
Inventories
Accounts Payable
Current Liabilities and Other
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant and Equipment
Purchases of Investment Securities
Sales of Investment Securities
Business Acquisitions, net of Cash Acquired
Grants Received for Capital Expenditures
Proceeds from Sale of Assets
Net Cash Used in Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from the Sale of Common Stock
Proceeds from Long-term Debt
Borrowings under Revolving Credit Facility
Repayments under Revolving Credit Facility
Net Repayments under Revolving Credit Facility
Proceeds from Short-term Borrowings
Repayments of Short-term Borrowings
Net Repayments of Short-term Borrowings
Repayments of Long-term Debt
Repayments of Convertible Debt
Dividends Paid to Shareholders
Proceeds from the Exercise of Stock Options
Excess Tax Benefits from Share-based Compensation
Financing Fees Paid
Distribution to Noncontrolling Interests
Net Cash Provided by (Used In) Financing Activities
EFFECT OF EXCHANGE RATES ON CASH
Net increase (decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at beginning of period
Cash and Cash Equivalents at end of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for :
Interest
Income Taxes
Non-cash Investing: Issuance of Common Stock in Connection with Acquisition
For the Year Ended
December 29,
2012
December 31,
2011
January 1,
2011
$
200.3
$
158.0
$
154.7
82.0
44.0
9.0
6.5
(2.2)
(2.4)
(14.9)
40.9
(5.3)
(6.2)
351.7
(91.0)
(13.0)
4.7
(110.4)
8.7
3.4
(197.6)
202.9
—
292.5
(301.5)
—
41.2
(40.9)
—
(90.3)
—
(30.8)
4.2
2.2
—
(2.4)
77.1
1.5
232.7
142.6
375.3
$
65.0
33.2
14.3
2.3
(1.4)
(5.9)
32.6
21.0
(41.3)
(12.5)
265.3
(57.6)
—
56.0
(765.9)
—
15.4
(752.1)
—
500.0
254.0
(245.0)
—
24.0
(22.1)
—
(28.1)
—
(27.6)
1.9
1.4
(2.8)
—
455.7
(0.8)
(31.9)
174.5
142.6
$
43.8
63.9
—
19.6
61.0
140.8
52.9
20.0
6.7
0.7
(1.7)
4.7
(30.4)
(56.4)
24.4
(0.2)
175.4
(45.0)
(416.8)
477.5
(211.9)
—
1.5
(194.7)
—
—
—
—
(3.0)
—
—
(8.5)
—
(39.2)
(25.1)
3.8
1.7
—
—
(70.3)
1.7
(87.9)
262.4
174.5
20.1
74.5
—
$
$
$
$
See accompanying Notes to the Consolidated Financial Statements
42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Operations
Regal Beloit Corporation (the “Company”) is a United States-based multinational corporation. The Company reports in two
segments; the Electrical segment, with its principal line of business in electric motors and power generation products, and the
Mechanical segment, with its principal line of business in mechanical products which control motion and torque. The principal
markets for the Company's products and technologies are within the United States.
(2) Basis of Presentation
The Company operates on a 52/53 week fiscal year ending on the Saturday closest to December 31. The fiscal years ended
December 29, 2012, December 31, 2011 and January 1, 2011 were all 52 weeks.
(3) Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned and majority owned
subsidiaries. In addition, the Company has joint ventures that are consolidated in accordance with consolidation rules. All
intercompany accounts and transactions are eliminated.
Use of Estimates
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”), which require the Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported.
Actual results could differ from those estimates. The Company uses estimates in accounting for, among other items, allowance
for doubtful accounts; excess and obsolete inventory; share-based compensation; acquisitions; product warranty obligations,
pension assets and liabilities, derivative fair values, goodwill impairment, health care, retirement benefits, rebates and incentives,
litigation claims and contingencies, including environmental matters, and income taxes. The Company accounts for changes to
estimates and assumptions when warranted by factually based experience.
Acquisitions
The Company accounts for acquisitions under the acquisition method, in which assets acquired and liabilities assumed are
recorded at fair value as of the date of acquisition. The operating results of the acquired companies are included in the Company’s
consolidated financial statements from the date of acquisition.
The Company recognizes assets acquired, liabilities assumed, contractual contingencies and contingent consideration at their fair
value on the acquisition date. Acquisition-related costs are expensed as incurred, restructuring costs are recognized as post-
acquisition expense and changes in deferred tax asset valuation allowances and income tax uncertainties after the measurement
period are recorded in income tax expense.
Revenue Recognition
The Company recognizes revenue upon transfer of title, which generally occurs upon shipment of the product to the customer.
The pricing of products sold is generally supported by customer purchase orders, and accounts receivable collection is reasonably
assured at the time of shipment. Estimated discounts and rebates are recorded as a reduction of gross sales in the same period
revenue is recognized. Product returns and credits are estimated and recorded at the time of shipment based upon historical
experience. Shipping and handling costs are recorded as revenue when billed to the customers. The costs incurred from shipping
and handling are recorded in Cost of Sales.
The Company derives a significant portion of its revenues from several original equipment manufacturing customers. Despite
this relative concentration, there were no customers that accounted for more than 10% of consolidated net sales in fiscal 2012,
fiscal 2011 or fiscal 2010.
Research and Development
The Company performs research and development activities relating to new product development and the improvement of current
products. Research and development costs are expensed as incurred. Research and development costs were $28.5 million, $21.8
million and $10.4 million for fiscal 2012, 2011 and 2010, respectively. Research and development costs are recorded in operating
expenses.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments which are readily convertible to cash, present insignificant risk of changes
in value due to interest rate fluctuations and have original or purchased maturities of three months or less.
43
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash
equivalents and trade accounts receivable.
Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers and their
dispersion across many geographic areas. The Company maintains cash and cash equivalents, and other financial instruments,
with various major financial institutions.
The Company has material deposits with a global financial institution. It performs periodic evaluations of the relative credit
standing of its financial institutions and monitors the amount of exposure.
The Company continues to monitor credit risk associated with its trade receivables, especially during this period of continued
global economic uncertainty.
Investments
Investments include trading securities and fixed deposits which have original maturities of greater than three months and
remaining maturities of less than one year. Investments with maturities greater than one year may be classified as short-term
based on their highly liquid nature and their availability to fund future investing activities. The fair value of term deposits
approximates their carrying value. These investments are included in Prepaid Expenses and Other Current Assets on the
Company's Condensed Consolidated Balance Sheets.
Trade Receivables
Trade receivables are stated at estimated net realizable value. Trade receivables are comprised of balances due from customers,
net of estimated allowances. In estimating losses inherent in trade receivables the Company uses historical loss experience and
applies them to a related aging analysis. Determination of the proper level of allowances requires management to exercise
significant judgment about the timing, frequency and severity of losses. The allowances for doubtful accounts takes into
consideration numerous quantitative and qualitative factors, including historical loss experience, collection experience,
delinquency trends and economic conditions.
In circumstances where the Company is aware of a specific customer's inability to meet its obligation, a specific reserve is
recorded against amounts receivable to reduce the net recognized receivable to the amount reasonably expected to be collected.
Additions to the allowances for doubtful accounts are maintained through adjustments to the provision for doubtful accounts,
which are charged to current period earnings; amounts determined to be uncollectable are charged directly against the allowances,
while amounts recovered on previously charged-off accounts benefit current period earnings.
Inventories
The approximate percentage distribution between major classes of inventory at year end is as follows:
December 29, 2012
Raw Material and Work In Process
Finished Goods and Purchased Parts
December 31, 2011
38%
62%
43 %
57 %
Inventories are stated at cost, which is not in excess of market. Cost for approximately 31% of the Company's inventory at
December 29, 2012 and 45% at December 31, 2011 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 $60.0 million and $57.0 million as of
December 29, 2012 and December 31, 2011, respectively. Material, labor and factory overhead costs are included in the
inventories.
The Company reviews inventories for excess and obsolete products or components. Based on an analysis of historical usage and
management's evaluation of estimated future demand, market conditions and alternative uses for possible excess or obsolete parts,
the Company records inventories at net realizable value.
Property, Plant and Equipment
Property, Plant and Equipment are stated at cost. Depreciation of plant and equipment is provided principally on a straight-line
basis over the estimated useful lives (3 to 50 years) of the depreciable assets. Accelerated methods are used for income tax
purposes.
Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures which extend the useful lives of
existing equipment are capitalized and depreciated.
Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized. Leasehold improvements are capitalized and amortized over the lesser of
the life of the lease or the estimated useful life of the asset.
Commitments for property, plant and equipment purchases were $17.8 million at December 29, 2012.
44
Property, plant and equipment by major classification was as follows (in millions):
Land and Improvements
Buildings and Improvements
Machinery and Equipment
Property, Plant and Equipment
Less: Accumulated Depreciation
Net Property, Plant and Equipment
Goodwill
$
$
December 29, 2012
76.2
212.7
747.5
1,036.4
(463.3)
573.1
December 31, 2011
74.1
$
189.3
667.2
930.6
(396.6)
534.0
$
The Company evaluates the carrying amount of goodwill annually or more frequently if events or circumstances indicate that an
asset might be impaired. Factors that could trigger an impairment review include significant underperformance relative to
historical or forecasted operating results, a significant decrease in the market value of an asset or significant negative industry or
economic trends. The Company performs the required annual goodwill impairment test as of the end of the October fiscal month
each year.
The Company uses a weighting of the market approach method and the income approach discounted cash flow method in testing
goodwill for impairment. In the market approach, the Company applies performance multiples from comparable guideline public
companies, adjusted for relative risk, profitability, and growth considerations, to the reporting units to estimate fair value. The key
assumptions used in the discounted cash flow method used to estimate fair value include discount rates, revenue growth rates,
terminal growth rates and cash flow projections. Discount rates, growth rates and cash flow projections are the most sensitive and
susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted
average cost of capital (“WACC”). The WACC considers market and industry data as well as Company-specific risk factors for
each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is
indicative of the return an investor would expect to receive for investing in such a business. Terminal growth rate determination
follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period
assuming a constant WACC and long-term growth rates.
Intangible Assets
The Company evaluates the recoverability of the carrying amount of intangible assets whenever events or changes in
circumstance indicate that the carrying amount of an asset may not be fully recoverable through future cash flows. Factors that
could trigger an impairment review include a significant decrease in the market value of an asset or significant negative or
economic trends (see Note 5 of Notes to the Consolidated Financial Statements).
The Company also in-process research and development ("IPRD") included in intangible assets. IPRD is not currently being
amortized however amortization will commence when the related technology revenues are realized.
Impairment of Long-Lived Assets
Property, Plant and Equipment are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the Company determines that an asset is impaired, it measures the impairment using
the discounted expected future cash flows derived from the asset as compared to its carrying value. Such analyses necessarily
involve significant estimates.
Earnings per Share (“EPS”)
Diluted earnings per share is computed based upon earnings applicable to common shares divided by the weighted-average
number of common shares outstanding during the period adjusted for the effect of other dilutive securities. Options for common
shares where the exercise price was above the market price have been excluded from the calculation of effect of dilutive securities
shown below; the amount of these shares were 0.3 million in 2012, 0.7 million in 2011 and 0.3 million in 2010. The following
table reconciles the basic and diluted shares used in EPS calculations for the years ended (in millions):
Denominator for Basic EPS
Effect of Dilutive Securities
Denominator for Diluted EPS
2012
2011
2010
41.8
0.3
42.1
39.7
0.4
40.1
38.2
0.7
38.9
The “Effect of Dilutive Securities” represents the dilution impact of equity awards and the convertible notes (fully converted in
fiscal 2010). The dilutive effect of conversion of the Company's convertible notes into shares of common stock was
approximately 0.3 million shares for the fiscal 2010.
Retirement Plans
Approximately half of the Company's domestic employees are covered by defined benefit pension plans with the remaining
employees covered by defined contribution plans. The defined benefit pension plans covering a majority of the Company's
domestic employees have been closed to new employees and frozen for existing employees. Most of the Company's foreign
45
employees are covered by government sponsored plans in the countries in which they are employed. The Company's obligations
under its defined benefit pension plans are determined with the assistance of actuarial firms. The actuaries, under management's
direction, make certain assumptions regarding such factors as withdrawal rates and mortality rates. The actuaries also provide
information and recommendations from which management makes further assumptions on such factors as the long-term expected
rate of return on plan assets, the discount rate on benefit obligations and where applicable, the rate of annual compensation
increases.
Based upon the assumptions made, the investments made by the plans, overall conditions and movement in financial markets,
life-spans of benefit recipients and other factors differ from assumptions, annual expenses and recorded assets or liabilities of
these defined benefit pension plans may change significantly from year to year.
Derivative Financial Instruments
Derivative instruments are recorded on the consolidated balance sheet at fair value. Any fair value changes are recorded in net
earnings or Accumulated Other Comprehensive Loss as determined under accounting guidance that establishes criteria for
designation and effectiveness of the hedging relationships.
The Company uses derivative instruments to manage its exposure to fluctuations in certain raw material commodity pricing,
fluctuations in the cost of forecasted foreign currency transactions, and variability in interest rate exposure on floating rate
borrowings. The majority of derivative instruments have been designated as cash flow hedges (see Note 13 to the Consolidated
Financial Statements).
Income Taxes
The Company operates in numerous taxing jurisdictions and is subject to regular examinations by various U.S. Federal, state and
foreign jurisdictions for various tax periods. Its income tax positions are based on research and interpretations of the income tax
laws and rulings in each of the jurisdictions in which it does business. Due to the subjectivity of interpretations of laws and
rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions as well as the inherent
uncertainty in estimating the final resolution of complex tax audit matters, estimates of income tax liabilities may differ from
actual payments or assessments.
Foreign Currency Translation
For those operations using a functional currency other than the U.S. dollar, assets and liabilities are translated into U.S. dollars at
year-end exchange rates, and revenues and expenses are translated at weighted-average exchange rates. The resulting translation
adjustments are recorded as a separate component of shareholders' equity.
Product Warranty Reserves
The Company maintains reserves for product warranty to cover the stated warranty periods for its products. Such reserves are
established based on an evaluation of historical warranty experience and specific significant warranty matters when they become
known and can reasonably be estimated.
Accumulated Other Comprehensive Loss
Foreign currency translation adjustments, unrealized gains and losses on derivative instruments designated as hedges and pension
liability adjustments are included in shareholders' equity under accumulated other comprehensive loss.
The components of the ending balances of Accumulated Other Comprehensive Loss are as follows (in millions):
Translation Adjustments
Hedging Activities, net of tax of $(10.7) million in 2012 and $(31.1) million in 2011
Pension and Post Retirement Benefits, net of tax of $(25.7) million in 2012 and $(21.1) million in 2011
Total
$
$
(6.0) $
(17.4)
(41.9)
(65.3) $
(20.0)
(50.8)
(34.4)
(105.2)
2012
2011
Legal Claims
The Company records expenses and liabilities when the Company believes that an obligation of the Company on a specific matter
is probable and there is a basis to reasonably estimate the value of the obligation. This methodology is used for legal claims that
are filed against the Company from time to time. The uncertainty that is associated with such matters frequently requires
adjustments to the liabilities previously recorded.
Fair Values
The fair values of cash equivalents, investments, trade receivables and accounts payable approximate the carrying values due to
the short period of time to maturity. The fair value of long-term debt is estimated using discounted cash flows based on rates for
instruments with comparable maturities and credit ratings. The fair value of investments, pension assets, derivative instruments
and contingent purchase price obligations is determined based on inputs as defined in Note 14 to the Consolidated Financial
Statements.
46
Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) amended the guidance regarding fair value measurement and
disclosure. The amended guidance clarifies the application of existing fair value measurement and disclosure requirements and
requires more detailed disclosure about the activity within Level 3 fair value measurements.The amendment became effective for
the Company in fiscal 2012 with no significant impact to the Company's consolidated financial statements.
In June 2011, the FASB amended ASC Topic 220, Comprehensive income guidance to require all non-owner changes in
shareholders’ equity to be presented in either a single continuous statement of comprehensive income or in two separate but
consecutive statements. Under this amendment, an entity is required to present each component of net income along with total net
income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount
for comprehensive income. An entity is required to present on the face of the financial statements reclassification adjustments for
items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net
income and the components of other comprehensive income are presented. An entity will no longer be permitted to present the
components of other comprehensive income as part of the statement of equity. The amendment was effective for the Company at
the beginning of fiscal 2012 and changed the presentation of the Company's consolidated financial statements.
In December 2011, the FASB issued guidance enhancing disclosure requirements about the nature of an entity's right to offset and
related arrangements associated with its financial instruments and derivative instruments. The new guidance requires the
disclosure of the gross amounts subject to rights of set-off, amounts offset in accordance with the accounting standards followed,
and the related net exposure. The new guidance is effective for fiscal years, and interim periods within those years, beginning on
or after January 1, 2013. The Company does not anticipate material impacts on its consolidated financial statements upon
adoption.
In September 2011, the FASB issued guidance to simplify the rules related to testing goodwill for impairment. The revised
guidance allows an entity to make an initial qualitative evaluation, based on the entity's events and circumstances, to determine
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The results of this
qualitative assessment determine whether it is necessary to perform the currently required two-step impairment test. The new
guidance was effective in fiscal 2012. The adoption of this guidance had no impact on the Company's consolidated financial
statements.
(4) Acquisitions
The results of operations for acquired businesses are included in the Consolidated Financial Statements from the dates of
acquisition. Acquisition related expenses were $0.4 million during 2012, $16.1 million during 2011 and $6.6 million during
2010.
2012 Acquisitions
On November 30, 2012, the Company acquired Remco Products Limited for $3.7 million. Remco is a UK supplier of a broad
range of AC fractional horsepower electric motors and fans for replacement use in heating, ventilation, refrigeration and air
conditioning industries located in West Sussex, England. The acquisition added greater access to the European replacement motor
business and is expected to generate growth to the Company's overall European business. Remco is reported as a part of the
Company's Electrical segment.
On October 2, 2012, the Company acquired Marlin Coast Motor Rewinding ("MCMR") for $3.4 million. MCMR, based in
Cairns, North Queensland, Australia, is a leader in the supply, service and overhaul of electric machines. MCMR is reported as a
part of the Company’s Electrical segment.
On April 30, 2012, the Company acquired Tecnojar, a Mexico based electrical products company, for $1.6 million. Tecnojar is
reported as a part of the Company's Electrical segment.
On February 3, 2012, the Company acquired Milwaukee Gear Company (“MGC”), a Wisconsin-based leading manufacturer of
highly engineered gearing components for oil and gas applications as well as a wide variety of other commercial and industrial
applications. The purchase price of MGC was $80.3 million paid in cash, net of cash acquired. MGC is reported as a part of the
Company's Mechanical segment.
EPC Acquisition
On August 22, 2011, the Company completed its acquisition of the Electrical Products Company (“EPC”) of A.O. Smith
Corporation (NYSE: AOS). EPC manufactures and sells a full line of motors for hermetic, pump, distribution, heating,
ventilation and air conditioning (“HVAC”) and general industrial applications. EPC is based in Tipp City, Ohio and has
operations in the United States, Mexico, China and the United Kingdom. The acquisition added technology and global capacity
that will bring value to the Company's customers with energy saving products, broader product offerings and better operating
efficiencies. The purchase price included $756.1 million in cash and 2,834,026 shares of Company common stock. EPC is
reported as part of the Company's Electrical segment.
47
The following summarizes the allocation of the fair value of the assets acquired and liabilities assumed at the date of acquisition.
Current assets
Property, plant and equipment
Intangible assets subject to amortization
Goodwill
Other assets
Total assets acquired
Current liabilities assumed
Long-term liabilities assumed
Net assets acquired
As of August 22, 2011
367.8
$
145.8
155.1
340.9
0.3
1,009.9
(96.9)
(16.0)
897.0
$
The acquired intangible assets of $155.1 million are comprised of customer relationships of $87.7 million and technology of
$67.4 million, with useful lives ranging from eight to fifteen years. The majority of the goodwill is estimated to be deductible for
tax purposes.
Pro Forma Financial Information
The following pro forma financial information shows the results of continuing operations for the years ended December 31, 2011,
and January 1, 2011, respectively, as though the acquisition of EPC occurred at the beginning of fiscal 2010. The pro forma
financial information has been adjusted, where applicable, for: (i) the amortization of acquired intangible assets, (ii) additional
interest expense on acquisition related borrowings, and (iii) the income tax effect on the pro forma adjustments. The pro forma
financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that
would have been achieved had the acquisition been completed as of the date indicated above, or the results that may be obtained
in the future, (in millions, except per share amounts):
Pro forma net sales
Pro forma net income
Basic earnings per share as reported
Pro forma basic earnings per share
Diluted earnings per share as reported
Pro forma diluted earnings per share
Other 2011 Acquisitions
$
$
$
Fiscal 2011
Fiscal 2010
3,342.7 $
213.0
3.84 $
5.13
3.79 $
5.08
2,943.8
147.6
3.91
3.59
3.84
3.54
On June 1, 2011, the Company acquired Australian Fan and Motor Company (“AFMC”) located in Melbourne, Australia. AFMC
manufactures and distributes a wide range of direct drive blowers, fan decks, axial fans and sub-fractional motors for sales in
Australia and New Zealand. The purchase price of $5.7 million was paid in cash, net of acquired debt and cash. AFMC is
reported as part of the Company's Electrical segment.
On April 5, 2011, the Company acquired Ramu, Inc. (“Ramu”) located in Blacksburg, Virginia. Ramu is a motor and control
technology company with a research and development team dedicated to the development of switched reluctance motor
technology. The purchase price included $5.3 million paid in cash, net of acquired debt and cash, and an additional amount
should certain future performance expectations be met. At December 29, 2012, the Company had recorded a liability of $13.7
million for this deferred contingent purchase price. Ramu is reported as part of the Company's Electrical segment.
On March 7, 2011, the Company acquired Hargil Dynamics Pty. Ltd. (“Hargil”) located in Sydney, Australia. Hargil is a
distributor of mechanical power transmission components and solutions. Hargil is reported as part of the Company's Mechanical
segment.
2010 Acquisitions
On December 23, 2010, the Company acquired Unico, Inc. (“Unico”), located in Franksville, Wisconsin. Unico manufactures a
full range of AC and DC drives, motor controllers and other accessories for most commercial and industrial applications. Unico
has developed proprietary technology in the fields of oil and gas recovery technology, commercial HVAC technology, test stand
automation and other applications. The preliminary purchase price of $105.1 million was paid in cash, net of acquired debt and
cash. In addition to the cash paid, the Company agreed to pay an additional amount should certain performance thresholds be met.
At December 31, 2011, the Company had recorded a liability of $9.8 million for this consideration. Unico is reported as part of
the Company’s Electrical segment.
On December 1, 2010, the Company acquired South Pacific Rewinders (“SPR”), located in Auckland, New Zealand. SPR
operates as a motor rewinder and distributor in the Pacific region.
48
On November 1, 2010, the Company acquired 55.0% of Elco Group B.V. (“Elco”), located in Milan, Italy. Elco manufactures and
sells motors, fans and blowers and has manufacturing facilities in Italy, China and Brazil. The purchase price was $26.9 million,
net of acquired debt and cash. The purchase price includes $4.6 million in cash, net of acquired debt and cash, paid at closing and
$22.3 million to be paid in four semi-annual payments. See Note 15 - Related Party Transactions for detail of payments made
through fiscal 2012.
On September 1, 2010, the Company acquired Rotor B.V. (“Rotor”), located in Eibergen, the Netherlands. Rotor sells standard
and special electric motors to a variety of industries including the marine industry, ship building and offshore oil and gas. In
addition to the Netherlands, Rotor also sells throughout Europe, the United Kingdom and Japan. The purchase price of $36.4
million was paid in cash, net of acquired debt and cash. Rotor is reported as part of the Company’s Electrical segment.
On May 4, 2010, the Company acquired Air-Con Technology (“Air-Con”), located in Mississauga, Ontario, Canada. Air-Con is a
distributor of HVAC electric motors.
On April 6, 2010, the Company acquired CMG Engineering Group Pty, Ltd. (“CMG”), located in Melbourne, Australia. CMG
manufactures and sells fractional horsepower industrial motors, blower systems, and industrial metal products with operations in
Australia, New Zealand, South Africa, Malaysia, Singapore, the United Kingdom and the Middle East. The business also
distributes integral horsepower industrial motors, mechanical power transmission products, material handling equipment,
electrical insulation materials, magnet wire and specialty conductors in Australia and New Zealand. The purchase price was $82.6
million, net of acquired debt and cash. The purchase price was paid $76.5 million in cash and $6.1 million in shares of Company
common stock. CMG is reported as part of the Company’s Electrical and Mechanical segments.
(5) Goodwill and Intangible Assets
Goodwill
As described in Note 4 to the Consolidated Financial Statements, the Company acquired four businesses in both 2012 and in
2011. The excess of purchase price over estimated fair value was assigned to goodwill.
The following table presents changes to goodwill during the periods indicated (in millions):
Balance as of January 1, 2011
Acquisitions and valuation adjustments
Translation adjustments
Balance as of December 31, 2011
Acquisitions and valuation adjustments
Translation adjustments
Balance as of December 29, 2012
$
$
$
Total
775.7
350.5
(8.6)
1,117.6
25.9
7.5
1,151.0
$
$
$
Intangible Assets
Gross intangible assets consist of the following (in millions):
Electrical Segment
763.5
350.4
Mechanical Segment
12.2
$
0.1
0.3
12.6
$
$
23.2
3.5
39.3
(8.9)
1,105.0
2.7
4.0
1,111.7
Customer Relationships
Technology
Trademarks
IPRD
Patent and Engineering Drawings
Non-compete Agreements
Total Gross Intangibles
Useful Life
(years)
3 - 14
3 - 9
3 - 20
N/A
10
3 - 5
December 31,
2011
$
$
227.5
128.2
30.9
17.2
16.6
8.1
428.5
Acquisitions
16.2
$
1.7
1.6
—
—
0.1
19.6
$
Translation
Adjustments
1.2
0.4
0.2
—
—
—
1.8
$
$
December 29,
2012
$
$
244.9
130.3
32.7
17.2
16.6
8.2
449.9
Accumulated amortization on intangible assets consist of the following:
December 31,
2011
Amortization
Translation
Adjustments
December 29,
2012
$
Customer Relationships
Technology
Trademarks
Patent and Engineering Drawings
Non-compete Agreements
Total Accumulated Amortization
$
Intangible Assets, Net of Amortization $
(56.4) $
(24.7)
(12.8)
(11.6)
(6.7)
(112.2) $
316.3
(22.0) $
(17.0)
(2.8)
(1.7)
(0.5)
(44.0) $
(0.3) $
(0.1 )
(0.1 )
—
—
(0.5) $
$
(78.7)
(41.8)
(15.7)
(13.3)
(7.2)
(156.7)
293.2
49
In-process research and development projects are estimated to be completed within three years. Amortization will begin upon
project completion.
The Company's customer relationships are generally long-term in nature with useful lives established at acquisition based on
historical attrition rates.
Amortization expense was $44.0 million in fiscal 2012, $33.2 million in fiscal 2011 and $20.0 million in fiscal 2010.
$
Year
2013
2014
2015
2016
2017
Estimated Amortization
44.1
42.8
35.0
30.8
24.4
(6) Industry Segment Information
The following sets forth certain financial information attributable to the Company's reporting segments for fiscal 2012, fiscal
2011 and fiscal 2010, respectively (in millions):
Electrical
Mechanical
Eliminations
Total
$
$
$
Fiscal 2012
External sales
Intersegment sales
Total sales
Segment income from operations
Identifiable assets
Depreciation and amortization
Capital expenditures
Fiscal 2011
External Sales
Intersegment sales
Total sales
Segment income from operations
Identifiable assets
Depreciation and amortization
Capital expenditures
Fiscal 2010
External sales
Intersegment sales
Total sales
Segment income from operations
Identifiable assets
Depreciation and amortization
Capital expenditures
$
$
$
2,870.2
3.5
2,873.7
273.7
3,323.6
114.0
82.2
2,533.3
8.8
2,542.1
222.6
3,139.3
92.0
53.8
2,002.0
12.5
2,014.5
210.2
2,323.1
66.8
41.1
$
$
$
296.7
3.9
300.6
39.1
245.5
12.0
8.8
275.0
2.5
277.5
33.1
127.2
6.2
3.8
236.0
2.0
238.0
27.6
126.0
6.1
3.9
$
—
(7.4)
(7.4)
—
—
—
—
$
—
(11.3)
(11.3)
—
—
—
—
$
—
(14.5)
(14.5)
—
—
—
—
3,166.9
—
3,166.9
312.8
3,569.1
126.0
91.0
2,808.3
—
2,808.3
255.7
3,266.5
98.2
57.6
2,238.0
—
2,238.0
237.8
2,449.1
72.9
45.0
The Electrical segment manufactures and markets AC and DC commercial, industrial, commercial refrigeration, and HVAC
electric motors and blowers. These products range in size from sub-fractional and fractional to small integral horsepower motors
to larger commercial and industrial motors up to approximately 6,500 horsepower. The Company provides a comprehensive
offering of stock models of electric motors in addition to the motors it produces to specific customer specifications. The Company
also produces and markets precision servo motors, electric generators and controls ranging in size from five kilowatts through
four megawatts, automatic transfer switches and paralleling switchgear to interconnect and control electric power generation
equipment. Additionally, the Electrical segment manufactures and markets a full line of AC and DC variable speed drives and
controllers and other accessories for a variety of commercial and industrial applications. The Company manufactures capacitors
for use in HVAC systems, high intensity lighting and other applications. It sells its Electrical segment's products to original
equipment manufacturers, distributors and end users across many markets.
The Mechanical segment manufactures and markets a broad array of mechanical motion control products including standard and
custom worm gears, bevel gears, helical gears and concentric shaft gearboxes; marine transmissions; custom gearing; gearmotors;
manual valve actuators; and electrical connecting devices. Gear and transmission related products primarily control motion by
transmitting power from a source, such as an electric motor, to an end use, such as a conveyor belt, usually reducing speed and
increasing torque in the process. Valve actuators are used primarily in oil and gas, water distribution and treatment and chemical
processing applications. Mechanical products are sold to original equipment manufacturers, distributors and end users across
many industry segments.
50
The Company evaluates performance based on the segment's income from operations. Corporate costs have been allocated to
each segment based primarily on the net sales of each segment. The reported net sales of each segment are from external
customers.
The following sets forth net sales by country in which the Company operates for fiscal 2012, fiscal 2011 and fiscal 2010,
respectively (in millions):
Geographic Information:
United States
Rest of the World
2012
Net Sales
2011
2010
$
$
2,127.2
1,039.7
3,166.9
$
$
1,798.2
1,010.1
2,808.3
$
$
1,530.9
707.1
2,238.0
U.S. net sales for 2012, 2011 and 2010 represented 67.2%, 64.0% and 68.4% of total net sales, respectively. No individual
foreign country represented a material portion of total net sales for any of the years presented.
The following sets forth long-lived assets in which the Company operates for fiscal 2012 and fiscal 2011, respectively (in
millions):
Geographic Information:
United States
Mexico
China
Rest of the World
Long-lived Assets
2012
2011
$
$
232.7
117.2
107.5
115.7
573.1
$
$
211.4
115.1
87.6
119.9
534.0
No other individual foreign country represented a material portion of long-lived assets for any of the years presented.
Subsequent to the issuance of the Company's consolidated financial statements for the year ended December 31, 2011, the
Company determined that it had erroneously not separately disclosed two countries (Mexico and China) within the disclosure.
Accordingly, the fiscal 2011 disclosure of long-lived assets has been corrected, in that information that had previously been
excluded from the financial statements is now included. Also, long-lived assets attributable to certain geographic regions are no
longer disclosed as they did not meet disclosure thresholds.
(7) Debt and Bank Credit Facilities
The Company's indebtedness as of December 29, 2012 and December 31, 2011 was as follows (in millions):
Senior Notes
Term Loan
Revolving Credit Facility
Other
Less: Current Maturities
Non-current Portion
$
$
December 29, 2012
750.0
55.0
—
13.5
818.5
(63.8)
754.7
December 31, 2011
750.0
$
145.0
9.0
15.2
919.2
(10.0)
909.2
$
At December 29, 2012, the Company had $750.0 million of senior notes (the “Notes”) outstanding. During 2011, the Company
issued $500.0 million in senior notes (the “2011 Notes”) in a private placement. The 2011 Notes were issued in seven tranches
with maturities from seven to twelve years and carry fixed interest rates. The Company also has $250.0 million in senior notes
(the “2007 Notes”) issued in two tranches with floating interest rates based on a margin over the London Inter-Bank Offered Rate
(“LIBOR”). Details on the Notes at December 29, 2012 were (in millions):
Floating Rate Series 2007A
Floating Rate Series 2007A
Fixed Rate Series 2011A
Fixed Rate Series 2011A
Fixed Rate Series 2011A
Principal
150.0
100.0
100.0
230.0
170.0
750.0
$
$
Interest Rate
Floating (1)
Floating (1)
4.1%
4.8 to 5.0%
4.9 to 5.1%
Maturity
August 1, 2014
August 1, 2017
July 1, 2018
July 1, 2021
July 1, 2023
(1) Interest rates vary as LIBOR varies. At December 29, 2012, the interest rate was between 0.9% and 1.0%.
The Company has interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk (see Note
13 to the Consolidated Financial Statements).
51
In 2008, the Company entered into a Term Loan Agreement (“Term Loan”) with certain financial institutions, whereby the
Company borrowed an aggregate principal amount of $165.0 million. During 2011, the Company repaid $20.0 million of the
outstanding Term Loan. During 2012, the Company repaid an additional $90.0 million of the Term Loan. The Term Loan
matures in June 2013 and borrowings generally bear interest at a variable rate equal to a margin over LIBOR. This margin varies
with the ratio of the Company's total funded debt to consolidated earnings before interest, taxes, depreciation and amortization
(“EBITDA”) as defined in the Term Loan. These interest rates also vary as LIBOR varies. At December 29, 2012, the interest
rate of 1.3% was based on a margin over LIBOR.
The Company also has a $500.0 million revolving credit facility that matures in 2016. The Facility permits borrowing at interest
rates based upon a margin above LIBOR. The margin varies with the ratio of total funded debt to EBITDA as defined in the
Facility. These interest rates also vary as LIBOR varies. At December 29, 2012 there were no borrowings on the Facility. At
December 31, 2011, there was $9.0 million outstanding on the Facility. The average balance in direct borrowings under the
Facility was $30.6 million and $10.7 million in 2012 and 2011, respectively. The average interest rate paid under the Facility was
1.6% in 2012 and 1.6% in 2011. At December 29, 2012, the Company had approximately $28.0 million in standby letters of
credit issued under the Facility and $472.0 million in available borrowings under the Facility.
Based on rates for instruments with comparable maturities and credit quality, which are classified as Level 2 inputs (See Note 14
to the Consolidated Financial Statements), the approximate fair value of the Company's total debt was $859.6 million and $951.0
million as of December 29, 2012 and December 31, 2011, respectively.
The Notes, the Term Loan and the Facility require the Company to meet specified financial ratios and to satisfy certain financial
condition tests. The Company was in compliance with all financial covenants as of December 29, 2012.
At December 29, 2012, other notes payable of approximately $13.5 million were outstanding with a weighted average interest
rate of 2.4%. At December 31, 2011, other notes payable of approximately $15.2 million were outstanding with a weighted
average rate of 2.2%.
Maturities of long-term debt are as follows (in millions):
Year
2013
2014
2015
2016
2017
Thereafter
Total
Amount of Maturity
63.8
150.2
0.2
3.0
100.3
501.0
818.5
$
$
(8) Retirement Plans
Most of the Company's domestic employees are participants in defined benefit pension plans and/or defined contribution plans.
The defined benefit pension plans were closed to new employees as of January 1, 2006, and benefits under those plans were
frozen for existing employees as of December 31, 2008. Most foreign employees are covered by government sponsored plans in
the countries in which they are employed. The domestic employee plans include defined contribution plans and defined benefit
pension 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 domestic defined contribution plans totaled $9.8
million, $5.8 million, and $4.3 million in 2012, 2011 and 2010, respectively. The Company also contributes to foreign defined
contribution plans.
Benefits provided under defined benefit pension 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 pension plans is
in accordance with federal laws and regulations. The actuarial valuation measurement date for pension plans is as of fiscal year
end for all periods.
The Company's target allocation, target return and actual weighted-average asset allocation by asset category are as follows:
Equity investments
Fixed income
Other
Total
Target
Actual Allocation
Allocation
Return
2012
2011
73%
17%
10%
100%
8 - 11 %
3.5 - 4.5%
6 - 8%
8.0%
69%
23%
8%
100%
70%
22%
8%
100%
The Company's investment strategy for its defined benefit pension plans is to achieve moderately aggressive growth, earning a
long-term rate of return sufficient to allow the plans to reach fully funded status. Accordingly, allocation targets have been
established to fit this strategy, with a heavier long-term weighting of investments in equity securities. The long-term rate of return
assumptions consider historic returns and volatilities adjusted for changes in overall economic conditions that may affect future
returns and a weighting of each investment class.
52
The following table presents a reconciliation of the funded status of the defined benefit pension plans (in millions):
2012
2011
Change in projected benefit obligation:
Obligation at beginning of period
Service cost
Interest cost
Actuarial loss
Plan amendments
Benefits paid
Curtailment gain
Foreign currency translation
Acquisitions/other
Obligation at end of period:
Change in fair value of plan assets:
Fair value of plan assets at beginning of period
Actual return on plan assets
Employer contributions
Benefits paid
Foreign currency translation
Fair value of plan assets at end of period
Funded status
Pension Assets
$
$
$
$
$
158.6
2.5
7.9
19.1
0.1
(7.3)
—
0.3
—
181.2
$
94.4
10.5
11.7
(7.3)
0.2
$
109.5
(71.7 ) $
147.2
2.5
7.9
7.3
0.1
(5.6)
(1.7)
(0.6)
1.5
158.6
94.5
(0.6)
6.5
(5.6)
(0.4)
94.4
(64.2)
The valuation methodologies used for the Company's pension plans' investments measured at fair value are as follows:
Common stock and traded mutual funds - valued at the closing price reported on the active market on which the individual
securities are traded.
Common collective trusts and other mutual funds - valued at the net asset value (“NAV”) as determined by the custodian of the
fund. The NAV is based on the fair value of the underlying assets owned by the fund, minus its liabilities, divided by the number
of units outstanding.
The Company did not change its valuation techniques during fiscal 2012. The fair value of plan assets is as follows (in millions):
Cash and cash equivalents
Common stocks
Domestic equities
International equities
Common collective trust funds
Fixed income funds
U.S. equity funds
International equity funds
Mutual funds
U.S. equity funds
Balanced funds
International equity funds
Other
Total
Total
Level 1
Level 2
Level 3
$
2.1
$
2.1
$
—
$
December 29, 2012
16.5
6.8
18.4
23.1
6.9
11.9
9.6
5.0
9.2
109.5
$
$
16.5
—
—
—
—
11.9
9.6
5.0
—
45.1
$
—
6.8
18.4
23.1
6.9
—
—
—
—
55.2
$
—
—
—
—
—
—
—
—
—
9.2
9.2
53
Cash and cash equivalents
Common stocks
Domestic equities
International equities
Common collective trust funds
Fixed income funds
U.S. equity funds
International equity funds
Mutual funds
U.S. equity funds
Balanced funds
International equity funds
Other
Total
Total
Level 1
Level 2
Level 3
December 31, 2011
$
1.7
$
1.7
$
—
$
14.3
5.3
18.8
19.4
6.5
9.6
4.2
7.2
7.4
94.4
$
14.3
—
—
—
6.5
9.6
4.2
7.2
—
43.5
$
—
5.3
18.8
19.4
—
—
—
—
—
43.5
$
—
—
—
—
—
—
—
7.4
7.4
The Level 3 assets noted below represent investments in a real estate fund managed by a major U.S. insurance company and a
global emerging markets fund limited partnership. Estimated values provided by fund management approximate cost of the
investments. Management regularly reviews fund performance for Level 3 plan assets and performs qualitative analysis to
corroborate the reasonableness of the reported fair market values.
The table below sets forth a summary of changes in the Company's Level 3 assets in its plan investments as of December 29,
2012 and December 31, 2011 (in millions).
Beginning balance
Net purchases and sales
Net gains and losses
Ending balance
December 29,
2012
December 31,
2011
$
$
7.4
0.9
0.9
9.2
$
$
—
7.5
(0.1)
7.4
The Company recognized the funded status of its defined benefit pension plans on the balance sheet as follows (in millions):
Accrued compensation and employee benefits
Pension and other post retirement benefits
Amounts recognized in Accumulated Other Comprehensive Loss
Net actuarial loss
Prior service cost
2012
2011
(2.5) $
(69.2)
(71.7) $
64.9
1.8
66.7
$
(3.6)
(60.6)
(64.2)
51.1
1.9
53.0
$
$
$
$
The accumulated benefit obligation for all defined benefit pension plans was $169.1 million and $150.0 million at December 29,
2012 and December 31, 2011, respectively.
The accumulated benefit obligation exceeds assets for all plans.
The following assumptions were used to determine the projected benefit obligation at December 29, 2012 and December 31,
2011, respectively.
Discount rate
Expected long-term rate of return on assets
2012
3.5% to 4.5%
8.0%
2011
4.4% to 5.3%
8.25%
The objective of the discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. In
making the determination, the Company takes into account the timing and amount of benefits that would be available under the
plans. The methodology for selecting the discount rate was to match the plan's cash flows to that of a theoretical bond portfolio
yield curve.
Certain of the Company's defined benefit pension plan obligations are based on years of service rather than on projected
compensation percentage increases. For those plans that use compensation increases in the calculation of benefit obligations and
net periodic pension cost, the Company used an assumed rate of compensation increase of 3.0% for the years ended December 29,
2012 and December 31, 2011.
54
Net periodic pension benefit costs and the net actuarial loss and prior service cost recognized in other comprehensive income
(“OCI”) for the defined benefit pension plans were as follows (in millions):
2012
2011
2010
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Amortization of prior service cost
Curtailment gain
Net periodic benefit cost
Change in benefit obligations recognized in OCI, net of tax
Prior service credit
Net gain
Total recognized in OCI
$
$
$
$
2.5 $
7.9
(8.0)
3.6
0.2
—
6.2 $
(0.3) $
3.6
3.3 $
2.5
7.9
(7.3)
3.2
0.2
(1.7)
4.8
0.2
3.7
3.9
$
$
$
$
2.1
6.9
(6.4)
2.4
0.4
—
5.4
0.1
2.2
2.3
The estimated prior service cost and net actuarial loss for the defined benefit pension plans that will be amortized from AOCI into
net periodic benefit cost during the 2013 fiscal year are $4.0 million and $0.2 million, respectively.
As permitted under relevant accounting guidance, the amortization of any prior service cost is determined using a straight-line
amortization of the cost over the average remaining service period of employees expected to receive benefits under the plans.
The following assumptions were used to determine net periodic pension cost for fiscal years 2012, 2011 and 2010, respectively.
Discount rate
Expected long-term rate of return on assets
2012
4.4% to 5.3%
2011
5.2% to 5.9%
2010
5.7% to 6.3%
8.25%
8.25%
8.25%
For those plans that use compensation increases in the calculation of net periodic pension cost, the Company used an assumed
rate of compensation increase of 3.0% for fiscal years 2012, 2011 and 2010.
The Company made contributions to its defined benefit plan of $11.7 million and $6.5 million for the fiscal years ended
December 29, 2012 and December 31, 2011, respectively.
The Company estimates that in 2013 it will make contributions in the amount of $3.0 million to fund its defined benefit pension
plans.
The following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in
millions):
$
Year
2013
2014
2015
2016
2017
2018 - 2022
Expected Payments
7.9
8.2
8.9
9.3
9.8
58.0
(9) Shareholders' Equity
The Company recognized approximately $9.0 million, $14.3 million and $6.7 million in share-based compensation expense in
2012, 2011 and 2010, respectively. The Company recognizes compensation expense on grants of share-based compensation
awards on a straight-line basis over the vesting period of each award. As of December 29, 2012, total unrecognized
compensation cost related to share-based compensation awards was approximately $22.2 million, net of estimated forfeitures,
which the Company expects to recognize over a weighted average period of approximately 2.7 years.
Under the Company's stock plans, the Company was authorized as of December 29, 2012 to deliver up to 5.0 million shares of
common stock upon exercise of non-qualified stock options or incentive stock options, or upon grant or in payment of stock
appreciation rights, and restricted stock. Approximately 1.0 million shares were available for future grant or payment under the
various plans at December 29, 2012.
During 2012, the Company sold 3.2 million shares of common stock for general corporate purposes, working capital and the
potential funding of acquisitions.
55
During 2011, the Company issued 2.8 million shares of common stock in connection with the acquisition of EPC.
During 2010, the Company issued 0.1 million shares of common stock in connection with the acquisition of CMG.
During 2010, the Company issued approximately 0.9 million shares to former Convertible Note holders in settlement of the
conversion premium of their redemption.
Share-based Incentive Awards
The Company uses several forms of share-based incentive awards, including non-qualified stock options, incentive stock options,
and stock appreciation rights (“SARs”). Options and SARs generally vest over 5 years and expire 10 years from the grant date.
All grants are made at prices equal to the fair market value of the stock on the grant dates, and expire ten years from the grant
date. The Company values restricted stock awards at the closing market value of its common stock on the date of grant and
restrictions generally lapse two to three years after the date of grant. The majority of the Company’s annual share-based incentive
awards are made in the fiscal second quarter. For both years ended December 29, 2012 and December 31, 2011, expired and
canceled shares were immaterial.
The assumptions used in the Company's Black-Scholes valuation related to grants for options and SARs were as follows:
Per share weighted average fair value of grants $
Risk-free interest rate
Expected life (years)
Expected volatility
Expected dividend yield
2012
2011
2010
22.45
$
25.80
$
1.3%
7.0
37.6%
1.2%
2.3%
7.0
35.6%
1.0%
22.62
2.8%
7.0
34.8%
1.1%
The average risk-free interest rate is based on U.S. Treasury security rates in effect as of the grant date. The expected dividend
yield is based on the projected annual dividend as a percentage of the estimated market value of the Company's common stock as
of the grant date. The Company estimated the expected volatility using a weighted average of daily historical volatility of the
Company's stock price over the expected term of the award. The Company estimated the expected term using historical data
adjusted for the estimated exercise dates of unexercised awards.
Following is a summary of share-based incentive plan grant activity (options and SARs) for fiscal 2012.
Weighted Average
Remaining Contractual
Term (years)
Number of Shares Under Option
Aggregate
Intrinsic Value (in
millions)
Outstanding at December 31, 2011
Granted
Exercised
Forfeited
Outstanding at December 29, 2012
Exercisable at December 29, 2012
Shares
1,747,255
255,225
(403,765)
(30,290)
1,568,425
654,810
$
Weighted Average
Exercise Price
49.94
63.56
41.14
56.79
54.02
42.00
6.6
4.5
$
23.9
17.5
The amount of options expected to vest is materially consistent with those outstanding and not yet exercisable.
The table below presents share-based compensation activity for the three fiscal years ended 2012, 2011 and 2010 (in millions):
Total intrinsic value of share-based incentive awards exercised
Cash received from stock option exercises
Income tax benefit from the exercise of stock options
Total fair value of share-based incentive awards vested
$
$
11.1
4.2
2.2
6.6
$
2.9
1.9
1.4
13.3
7.4
3.8
1.7
7.0
2012
2011
2010
Restricted Stock
The Company also granted restricted stock awards to certain employees. The restrictions generally lapse in three years after the
date of the grant. The Company values restricted stock awards at the closing market value of its common stock on the date of
grant.
A summary of restricted stock activity for fiscal 2012:
Restricted stock balance at December 31, 2011
Granted
Vested
Forfeited
Restricted stock balance at December 29, 2012
Shares
$
Weighted Average Fair
Value at Grant Date
60.67
63.72
43.73
58.04
64.92
138,330
95,916
(32,720)
(1,585)
199,941
$
There have been no significant modifications to terms of any of the Company's share-based incentive award programs.
56
Treasury Stock
The Board of Directors has approved repurchase programs of up to 3.0 million common shares of Company stock. Management
is authorized to effect purchases from time to time in the open market or through privately negotiated transactions.
(10) Income Taxes
Income before taxes consisted of the following (in millions):
United States
Foreign
Total
2012
2011
2010
$
$
121.3
148.6
269.9
$
$
137.0
89.3
226.3
$
$
The provision for income taxes is summarized as follows (in millions):
2012
2011
2010
Current
Federal
State
Foreign
Deferred
Total
$
$
24.5
7.2
31.4
63.1
6.5
69.6
$
$
41.6
5.7
18.7
66.0
2.3
68.3
$
$
170.5
50.2
220.7
44.7
6.3
14.3
65.3
0.7
66.0
A reconciliation of the statutory Federal income tax rate and the effective tax rate reflected in the consolidated statements of
income follows:
2012
2011
2010
Federal statutory rate
State income taxes, net of federal benefit
Domestic production activities deduction
Foreign rate differential
Adjustments to tax accruals and reserves
Other, net
Effective tax rate
35.0%
2.0%
(1.0)%
(11.4)%
0.5%
0.7%
25.8%
35.0%
1.7%
(1.7)%
(5.6)%
0.7%
0.1%
30.2%
35.0%
2.2%
(1.0)%
(3.9)%
(0.9)%
(1.5)%
29.9%
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 29, 2012 of $(83.3) million is classified on the consolidated balance sheet as a net current
deferred income tax benefit of $48.7 million and a net non-current deferred income tax liability of $132.0 million. The
components of this net deferred tax liability are as follows (in millions):
Accrued employee benefits
Bad debt allowances
Warranty accruals
Inventory
Accrued liabilities
Derivative instruments
Other
Deferred tax assets
Property related
Intangible items
Deferred tax liabilities
Net deferred tax liability
December 29, 2012
43.1
1.0
5.7
9.3
11.7
10.7
8.5
90.0
(39.6)
(133.7)
(173.3)
(83.3 ) $
December 31, 2011
31.5
$
2.9
6.7
6.9
12.6
30.9
8.0
99.5
(37.4)
(113.6)
(151.0)
(51.5)
$
$
57
Following is a reconciliation of the beginning and ending amount of unrecognized tax benefits (in millions):
Unrecognized tax benefits, January 2, 2010
Gross increases from prior period tax positions
Gross increases from current period tax positions
Settlements with taxing authorities
Lapse of statute of limitations
Unrecognized tax benefits, January 1, 2011
Gross increases from prior period tax positions
Gross increases from current period tax positions
Settlements with taxing authorities
Lapse of statute of limitations
Unrecognized tax benefits, December 31, 2011
Gross increases from prior period tax positions
Gross increases from current period tax positions
Settlements with taxing authorities
Lapse of statute of limitations
Unrecognized tax benefits, December 29, 2012
$
$
$
$
6.6
0.8
0.1
—
(2.0)
5.5
1.6
0.2
(0.2)
—
7.1
0.7
—
(1.6)
(0.5)
5.7
Unrecognized tax benefits as of December 29, 2012 amount to $5.7 million, all of which would impact the effective income tax
rate if recognized.
Potential interest and penalties related to unrecognized tax benefits are recorded in income tax expense. During fiscal 2012 and
2010 the Company recognized approximately $0.1 million and $0.1 million in net interest expense, respectively. The Company
did not recognize any net interest expense in fiscal 2011. The Company had approximately $1.1 million, $1.1 million and $1.0
million of accrued interest as of December 29, 2012, December 31, 2011 and January 1, 2011, respectively.
Due to statute expirations, approximately $1.2 million of the unrecognized tax benefits, including accrued interest, could
reasonably change in the coming year.
With few exceptions, the Company is no longer subject to U.S. Federal and state/local income tax examinations by tax authorities
for years prior to 2009, and the Company is no longer subject to non-U.S. income tax examinations by tax authorities for years
prior to 2007.
At December 29, 2012 the Company had approximately $8.3 million of net operating losses in various jurisdictions which expire
over a period of up to 15 years.
At December 29, 2012 the estimated amount of total unremitted non-U.S. subsidiary earnings was $335.5 million. No U.S.
deferred taxes have been provided on the undistributed non-U.S. subsidiary earnings because they are considered to be
permanently invested given the Company's acquisition and growth initiatives. Determination of the amount of unrecognized
deferred income tax liability related to these earnings is not practicable.
(11) Contingencies and Commitments
One of the Company's subsidiaries that it acquired in 2007 is subject to numerous claims filed in various jurisdictions relating to
certain sub-fractional motors that were primarily manufactured through 2004 and that were included as components of residential
and commercial ventilation units marketed by a third party. These claims generally allege that the ventilation units were the
cause of fires. Based on the current facts, the Company does not believe these claims, individually or in the aggregate, will have
a material effect on its results of operations, financial condition or cash flows.
The Company is, from time to time, party to litigation that arises in the normal course of its business operations, including
product warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters.
The Company's products are used in a variety of industrial, commercial and residential applications that subject the Company to
claims that the use of its products is alleged to have resulted in injury or other damage. The Company accrues for exposures in
amounts that it believes are adequate, and the Company does not believe that the outcome of any such lawsuit individually or
collectively will have a material effect on the Company's financial position, its results of operations or its cash flows.
58
The Company recognizes the cost associated with its standard warranty on its products at the time of sale. The amount
recognized is based on historical experience. The following is a reconciliation of the changes in accrued warranty costs for 2012
and 2011 (in millions):
Beginning balance
Payments
Provisions
Acquisitions
Translation adjustments
Ending balance
(12) Leases and Rental Commitments
$
$
December 29, 2012
24.2
(33.4)
30.0
0.1
—
20.9
December 31, 2011
12.8
$
(18.1)
25.8
3.9
(0.2)
24.2
$
Rental expenses charged to operations amounted to $36.7 million in 2012, $32.2 million in 2011 and $24.6 million in 2010. The
Company has future minimum rental commitments under operating leases as shown in the following table (in millions):
Year
2013 $
2014
2015
2016
2017
Thereafter
Expected Payments
28.1
21.7
17.6
13.7
11.6
22.1
(13) Derivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed using derivative
instruments are commodity price risk, currency exchange risk, and interest rate risk. Forward contracts on certain commodities
are entered into to manage the price risk associated with forecasted purchases of materials used in the Company's manufacturing
process. Forward contracts on certain currencies are entered into to manage forecasted cash flows in certain foreign currencies.
Interest rate swaps are entered into to manage interest rate risk associated with the Company's floating rate borrowings.
The Company is exposed to credit losses in the event of non-performance by the counterparties to various financial agreements,
including its commodity hedging transactions, foreign currency exchange contracts and interest rate swap agreements. Exposure
to counterparty credit risk is managed by limiting counterparties to major international banks and financial institutions meeting
established credit guidelines and continually monitoring their compliance with the credit guidelines. The Company does not
obtain collateral or other security to support financial instruments subject to credit risk. The Company does not anticipate non-
performance by its counterparties, but cannot provide assurances.
The Company recognizes all derivative instruments as either assets or liabilities at fair value in the statement of financial position.
The Company designates commodity forward contracts as cash flow hedges of forecasted purchases of commodities, currency
forward contracts as cash flow hedges of forecasted foreign currency cash flows and interest rate swaps as cash flow hedges of
forecasted LIBOR-based interest payments. There were no significant collateral deposits on derivative financial instruments as of
December 29, 2012.
For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the
derivative is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the
same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing
either hedge ineffectiveness or changes in market value of derivatives not designated as hedges are recognized in current
earnings. At December 29, 2012 and December 31, 2011 the Company had $0.3 million and $(2.5) million, net of tax, of
derivative (losses) gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact
earnings.
The Company had outstanding the following notional amounts to hedge forecasted purchases of commodities (in millions):
Copper
Aluminum
Natural Gas
December 29, 2012
132.8
$
8.5
—
December 31, 2011
221.7
$
13.2
0.2
As of December 29, 2012, the maturities of commodity forward contracts extended through March, 2014.
59
The Company had outstanding the following notional amounts of currency forward contracts (in millions):
Mexican Peso
Chinese Renminbi
Indian Rupee
Thai Baht
Australian Dollar
December 29, 2012
174.8
108.6
37.4
17.3
7.1
December 31, 2011
237.5
34.3
37.0
6.3
—
As of December 29, 2012, the maturities of currency forward contracts extended through June 2015.
As of December 29, 2012 and December 31, 2011, the total notional amount of the Company's receive-variable/pay-fixed interest
rate swaps was $250.0 million (with maturities extending to August 2017).
Fair values of derivative instruments were (in millions):
Prepaid
Expenses
Other Noncurrent
Assets
Hedging Obligations
(Current)
Hedging Obligations
December 29, 2012
Designated as hedging
instruments:
Interest rate swap contracts
Foreign exchange contracts
Commodity contracts
Not designated as hedging
instruments:
Commodity contracts
Total Derivatives
Designated as hedging
instruments:
Interest rate swap contracts
Foreign exchange contracts
Commodity contracts
Not designated as hedging
instruments:
Foreign exchange contracts
Commodity contracts
Total Derivatives
$
$
$
$
$
—
6.8
3.6
0.6
11.0
$
$
—
2.3
0.2
—
2.5
$
$
—
4.6
1.2
0.5
6.3
$
35.4
0.3
—
—
35.7
Prepaid
Expenses
Other Noncurrent
Assets
Hedging Obligations
(Current)
Hedging Obligations
December 31, 2011
—
0.4
2.1
0.1
0.2
2.8
$
$
—
0.1
1.0
—
—
1.1
$
$
$
—
13.6
12.2
—
0.3
26.1
$
42.0
11.7
1.4
—
—
55.1
Derivatives Designated as Cash Flow Hedging Instruments
The effect of derivative instruments on the consolidated statements of equity and income for the three fiscal years in the period
ended December 29, 2012 were (in millions):
Gain (Loss) recognized in Other
Comprehensive Income (Loss)
Amounts reclassified from Other
Comprehensive Income (Loss):
Gain recognized in Net Sales
Loss recognized in Cost of Sales
Loss recognized in Interest
Expense
Commodity
Forwards
Currency
Forwards
Interest Rate
Swaps
Total
Fiscal 2012
$
8.5
$
23.9
$
(5.7) $
26.7
—
(9.7)
—
(1.6)
(3.4)
—
—
—
(12.4)
(1.6)
(13.1)
(12.4)
60
Commodity
Forwards
Currency
Forwards
Interest Rate
Swaps
Total
Fiscal 2011
$
(29.4)
$
(26.7) $
(16.0) $
(72.1)
—
21.4
—
0.2
5.7
—
—
—
(13.1 )
0.2
27.1
(13.1)
Commodity
Forwards
Currency
Forwards
Interest Rate
Swaps
Total
Fiscal 2010
$
38.5
$
11.1
$
(20.5) $
29.1
Loss recognized in Other
Comprehensive Income (Loss)
Amounts reclassified from Other
Comprehensive Income (Loss):
Gain recognized in Net Sales
Gain recognized in Cost of Sales
Loss recognized in Interest Expense
Gain (Loss) recognized in Other
Comprehensive Income (Loss)
Amounts reclassified from Other
Comprehensive Income (Loss):
Gain (Loss) recognized in Cost of
Loss recognized in Interest Expense
The ineffective portion of hedging instruments recognized was immaterial for all periods presented.
10.1
—
(2.7)
—
—
(12.7)
Derivatives Not Designated as Cash Flow Hedging Instruments
Gain recognized in Cost of Sales
Loss recognized in Cost of Sales
Commodity Forwards
0.1
Fiscal 2012
Currency Forwards
—
$
$
Total
Commodity Forwards
Currency Forwards
Total
— $
(0.1) $
Fiscal 2011
$
$
Gain (Loss) recognized in Cost of Sales
$
(0.6) $
Commodity Forwards
Fiscal 2010
Currency Forwards
0.2
$
Total
7.4
(12.7)
0.1
(0.1)
(0.4)
The net AOCI balance related to hedging activities of $(17.4) million losses at December 29, 2012 includes $(5.0) million of net
current deferred losses expected to be reclassified to the statement of income in the next twelve months. There were no gains or
losses reclassified from AOCI to earnings based on the probability that the forecasted transaction would not occur.
(14) Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the
following hierarchy:
Level 1
Level 2
Unadjusted quoted prices in active markets for identical assets or liabilities
Unadjusted quoted prices in active markets for similar assets or liabilities, or
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
Inputs other than quoted prices that are observable for the asset or liability
Level 3
Unobservable inputs for the asset or liability
61
The Company uses the best available information in measuring fair value. Financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth the
Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 29, 2012 and
December 31, 2011, respectively (in millions):
December 29, 2012
December 31, 2011 Classification
Assets:
Prepaid expenses and other current assets:
Derivative currency contracts
Derivative commodity contracts
Other noncurrent assets:
$
Assets Held in Rabbi Trust
Derivative currency contracts
Derivative commodity contracts
Liabilities:
Other accrued expenses:
Deferred contingent purchase price
Hedging obligations current:
Derivative currency contracts
Derivative commodity contracts
Hedging obligations:
Interest rate swap
Derivative currency contracts
Derivative commodity contracts
Other noncurrent liabilities:
Deferred contingent purchase price
$
6.8
4.2
2.6
2.3
0.2
—
4.6
1.7
35.4
0.3
—
21.1
0.5
2.6
—
0.1
1.0
Level 2
Level 2
Level 1
Level 2
Level 2
2.0
Level 3
13.6
12.5
42.0
11.7
1.4
21.5
Level 2
Level 2
Level 2
Level 2
Level 2
Level 3
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between participants at the measurement date.
Level 1 fair value measurements are carried at market value. As of December 29, 2012, market value for Level 1 assets
approximates cost.
Level 2 fair value measurements for derivative assets and liabilities are measured using quoted prices in active markets for similar
assets and liabilities. Interest rate swaps are valued based on the six-month LIBOR swap rate for similar instruments. Foreign
currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. Fair value
of debt was estimated using Level 2 fair value measurements based on quoted market values. The carrying value of debt includes
adjustments related to fair value hedges (see Note 7 of Notes to the Consolidated Financial Statements for the fair value estimate
of debt).
Level 3 liabilities are comprised entirely of the deferred contingent purchase price of the Company's acquisitions and are
measured using Level 3 inputs. The fair value was determined using valuation techniques based on risk and probability adjusted
discounted cash flows.
The fair value of all other financial instruments including cash equivalents, trade and other accounts receivable, accounts payable
and other financial instruments approximates such instruments' carrying value due to their short-term nature.
The Company did not change its valuation techniques during fiscal 2012.
The table below sets forth a summary of changes in fair market value of the Company's Level 3 liabilities as of December 29,
2012 and December 31, 2011, respectively (in millions):
Year Ended
December 29,
2012
December 31,
2011
Beginning balance
Expense
Acquisitions
Payments
Ending balance
$
$
$
23.5
1.2
0.4
(4.0 )
21.1
$
11.0
—
12.5
—
23.5
The liabilities described above are comprised entirely of the deferred contingent purchase price of the Company's acquisitions and
are measured using Level 3 inputs. The fair value was determined using valuation techniques based on risk and probability
adjusted discounted cash flows.
62
(15) Related Party Transactions
As part of the consideration paid for the acquisition of Elco on November 1, 2010, the Company assumed $22.3 million payable
to an entity that is affiliated with its Elco Group B.V. joint venture partner resulting from a bankruptcy proceeding involving
Elco. A total of $10.5 million was paid during 2012 representing the final payments to the affiliate.
(16) Subsequent Event
On February 8, 2013 (during fiscal 2013) the Company announced it had completed the acquisition of the RAM motor business
previously owned by Schneider Electric. This business manufactures hermetic motors from 250 hp to 2,500 hp for commercial
HVAC applications. RAM will be reported in the Company's Electrical segment.
63
ITEM 9 -
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A -
CONTROLS AND PROCEDURES
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), our management evaluated,
with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(d) and 15(e) under the Exchange Act) as of the
end of the year ended December 29, 2012. Based upon their evaluation of these disclosure controls and procedures, our Chief
Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of
December 29, 2012 to ensure that (a) information required to be disclosed in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and
Exchange Commission, and (b) information required to be disclosed by us in the reports we file or submit under the Exchange
Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting.
The report of management required under this Item 9A is contained in Item 8 of Part II of this Annual Report on Form 10-K
under the heading “Management's Annual Report on Internal Control over Financial Reporting.”
Report of Independent Registered Public Accounting Firm.
The attestation report required under this Item 9A is contained in Item 8 of Part II of this Annual Report on Form 10-K under the
heading “Report of Independent Registered Public Accounting Firm.”
Changes in Internal Controls.
There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended
December 29, 2012 that have materially affected, or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
ITEM 9B -
OTHER INFORMATION
None.
64
PART III
ITEM 10 -
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
See the information in the sections titled “Proposal 1: Election of Directors,” “The Board of Directors” and “Section 16(a)
Beneficial Ownership Reporting Compliance” in our proxy statement for the 2013 annual meeting of shareholders (the “2013
Proxy Statement”). Information with respect to our executive officers appears in Part I of this Annual Report on Form 10-K.
We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all our directors, officers and employees.
The Code is available on our website, along with our current Corporate Governance Guidelines, at www.regalbeloit.com. The
Code and our Corporate Governance Guidelines are also available in print to any shareholder who requests a copy in writing from
the Secretary of Regal Beloit Corporation. We intend to disclose through our website any amendments to, or waivers from, the
provisions of these codes.
65
ITEM 11 -
EXECUTIVE COMPENSATION
See the information in the sections titled “Compensation Discussion and Analysis,” “Executive Compensation,” “Report of the
Compensation and Human Resources Committee,” and “Director Compensation” in the 2013 Proxy Statement.
66
ITEM 12 -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information in the sections titled “Stock Ownership” and "Approval of the Regal Beloit Corporation 2013 Equity
Incentive Plan" in the 2013 Proxy Statement.
Equity Compensation Plan Information
The following table provides information about our equity compensation plans as of December 29, 2012.
Number of Securities to
be Issued upon the
Exercise of Outstanding
Options, Warrants and
Rights (1)
Weighted-average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation Plans
(excluding securities reflected in
the column 1) (2)
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
1,568,425
—
1,568,425
54.02
—
990,971
—
990,971
(1) Represents options to purchase our Common Stock and stock-settled appreciation rights granted under our 1998 Stock Option
Plan, 2003 Equity Incentive Stock Option Plan and 2007 Equity Incentive Plan.
(2) Excludes 199,941 shares of restricted Common Stock previously issued under our 2003 Equity Incentive Plan for which the
restrictions have not lapsed.
67
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
See the information in the section titled “The Board of Directors” in the 2013 Proxy Statement.
68
ITEM 14 -
PRINCIPAL ACCOUNTANT FEES AND SERVICES
See the information in the section titled “Proposal 4: Ratification of Deloitte & Touche LLP as the Company's Independent
Auditors for 2013” in the 2013 Proxy Statement.
69
PART IV
ITEM 15 -
EXHIBITS, FINANCIAL STATEMENT SCHEDULE
(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 schedule - The financial statement schedule 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)
Exhibits- see Exhibit Index.
(c) See (a)(2) above.
70
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, on this 27th day of February, 2013.
REGAL BELOIT CORPORATION
By:
/s/ CHARLES A. HINRICHS
Charles A. Hinrichs
Vice President and Chief Financial Officer
(Principal Financial Officer)
By:
/s/ PETER J. ROWLEY
Peter J. Rowley
Vice President and Corporate Controller
(Principal Accounting Officer)
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/ MARK J. GLIEBE
Mark J. Gliebe
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ STEPHEN M. BURT
Stephen M. Burt
Director
/s/ CHRISTOPHER L. DOERR Director
Christopher L. Doerr
/s/ THOMAS J. FISCHER
Thomas J. Fischer
Director
/s/ DEAN A. FOATE
Dean A. Foate
Director
/s/ HENRY W. KNUEPPEL
Henry W. Knueppel
Director
/s/ RAKESH SACHDEV
Rakesh Sachdev
Director
/s/ CAROL N. SKORNICKA
Carol N. Skornicka
Director
/s/ CURTIS W. STOELTING
Curtis W. Stoelting
Director
February 27, 2013
February 27, 2013
February 27, 2013
February 27, 2013
February 27, 2013
February 27, 2013
February 27, 2013
February 27, 2013
February 27, 2013
71
REGAL BELOIT CORPORATION
Index to Financial Statements
And Financial Statement Schedule
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the fiscal years ended
December 29, 2012, December 31, 2011 and January 1, 2011
Consolidated Statements of Comprehensive Income for the fiscal years ended
December 29, 2012, December 31, 2011 and January 1, 2011
Consolidated Balance Sheets at December 29, 2012 and December 31, 2011
Consolidated Statements of Equity for the fiscal years ended December 29, 2012,
December 31, 2011 and January 1, 2011
Consolidated Statements of Cash Flows for the fiscal years ended December 29, 2012,
December 31, 2011 and January 1, 2011
Notes to the Consolidated Financial Statements
Page(s) In
Form 10-K
37
38
39
40
41
42
43
Page(s) In
Form 10-K
(2) Financial Statement Schedule:
For the fiscal years ended December 29, 2012, December 31, 2011 and January 1, 2011
Schedule II -Valuation and Qualifying Accounts
73
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or
notes thereto.
72
SCHEDULE II
REGAL BELOIT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Balance
Beginning of
Year
Charged to
Expenses
Deductions (a) Adjustments (b)
(Dollars in Millions)
Balance
End of Year
Allowance for receivables:
Fiscal 2012
Fiscal 2011
Fiscal 2010
Allowance for warranty reserves:
Fiscal 2012
Fiscal 2011
Fiscal 2010
$
$
13.6
10.6
12.7
24.2
12.8
13.3
(1.3)
3.8
1.1
30.0
25.8
13.8
(2.5)
(1.4)
(3.6)
(33.4)
(18.1)
(14.4)
$
$
0.4
0.6
0.4
0.1
3.7
0.1
10.2
13.6
10.6
20.9
24.2
12.8
(a) Deductions consist of write offs charged against the allowance for doubtful accounts and warranty claim costs.
(b) Adjustments related to acquisitions and translation.
73
Exhibit
Number
EXHIBIT INDEX
Exhibit Description
2.1 Asset and Stock Purchase Agreement, dated as of December 12, 2010, by and between Regal Beloit Corporation and
A.O. Smith Corporation. [Incorporated by reference to Exhibit 2.1 to Regal Beloit Corporation's Current Report on
Form 8-K filed on December 15, 2010]
3.1 Articles of Incorporation of Regal Beloit Corporation, as amended through April 20, 2007. [Incorporated by reference
to Exhibit 3.1 to Regal Beloit Corporation's Current Report on Form 8-K filed on April 25, 2007 (File No. 001-07283)]
3.2 Amended and Restated Bylaws of Regal Beloit Corporation. [Incorporated by reference to Exhibit 3.2 to Regal Beloit
Corporation's Current Report on Form 8-K filed on April 25, 2007 (File No. 001-07283)]
4.1 Articles of Incorporation, as amended, and Amended and Restated Bylaws of Regal Beloit Corporation [Incorporated
by reference to Exhibits 3.1 and 3.2 hereto]
4.2 Credit Agreement, dated as of June 30, 2011, among Regal Beloit Corporation, the financial institutions party thereto,
4.3
Bank of America, N.A., as syndication agent, Wells Fargo Bank, N.A., U.S. Bank National Association and Fifth Third
Bank, as co-documentation agents, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities
LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint book managers.
[Incorporated by reference to Exhibit 4.1 to Regal Beloit Corporation's Current Report on Form 8-K filed on July 7,
2011 (File No. 001-07283)]
First Amendment, dated as of June 30, 2011, among Regal Beloit Corporation, the financial institutions party thereto,
U.S. Bank National Association and Wells Fargo Bank, N.A., as co-documentation agents, Bank of America, N.A., as
administrative agent, and JPMorgan Chase Bank, N.A., as syndication agent, to Term Loan Agreement, dated as of
June 16, 2008, among Regal Beloit Corporation, the financial institutions party thereto, U.S. Bank National Association
and Wells Fargo Bank, N.A., as co-documentation agents, Bank of America, N.A., as administrative agent, and
JPMorgan Chase Bank, N.A., as syndication agent. [Incorporated by reference to Exhibit 4.2 to Regal Beloit
Corporation's Current Report on Form 8-K filed on July 7, 2011 (File No. 001-07283)]
4.4 Note Purchase Agreement, dated as of August 23, 2007, by and among Regal Beloit Corporation and Purchasers listed
in Schedule A attached thereto. [Incorporated by reference to Exhibit 4.1 to Regal Beloit Corporation's Current Report
on Form 8-K filed on August 24, 2007 (File No. 001-07283)]
Subsidiary Guaranty Agreement, dated as of August 23, 2007, from certain subsidiaries of Regal Beloit Corporation.
[Incorporated by reference to Exhibit 4.2 to Regal Beloit Corporation's Current Report on Form 8-K filed on August 24,
2007 (File No. 001-07283)]
4.5
4.6 Note Purchase Agreement, dated as of July 14, 2011, by and among Regal-Beloit Corporation and Purchasers listed in
Schedule A attached thereto. [Incorporated by reference to Exhibit 4.1 to Regal Beloit Corporation's Current Report on
Form 8-K filed on July 20, 2011 (File No. 001-07283)]
4.7
4.8
Subsidiary Guaranty Agreement, dated as of July 14, 2011, from certain subsidiaries of Regal-Beloit Corporation
[Incorporated by reference to Exhibit 4.2 to Regal Beloit Corporation's Current Report on Form 8-K filed on July 20,
2011 (File No. 001-07283)]
Term Loan Agreement, dated as of June 16, 2008, between Regal Beloit Corporation, various Financial Institutions, US
Bank, National Association, Wells Fargo Bank, N.A., Bank of America, N.A., JP Morgan Chase Bank, N.A., JP
Morgan Securities Inc. and Banc of America Securities LLC. [Incorporated by referenced to Exhibit 4.1 to Regal
Beloit's Corporation's Current Report on Form 8-K filed on June 16, 2008 (File No. 001-2783)]
10.1 Shareholder Agreement, dated as of August 22, 2011, by and between Regal Beloit Corporation and A. O. Smith
Corporation [Incorporated by reference to Exhibit 10.12 to Regal Beloit Corporation's Current Report on Form 8-K
filed on August 25, 2011 (File No. 001-07283)]
10.2* 1998 Stock Option Plan, as amended [Incorporated by reference to Exhibit 99 to Regal Beloit Corporation's
Registration Statement on Form S-8 (Reg. No. 333-84779)]
10.3* 2003 Equity Incentive Plan [Incorporated by reference to Exhibit B to Regal Beloit Corporation's Definitive Proxy
Statement on Schedule 14A for the 2003 Annual Meeting of Shareholders (File No. 001-07283)]
10.4* Regal Beloit Corporation 2007 Equity Incentive Plan (incorporated by reference to Appendix B to Regal Beloit
Corporation's definitive proxy statement on Schedule 14A for the Regal Beloit Corporation 2007 annual meeting of
shareholders held April 20, 2007 (File No. 1-07283))
10.5* Form of Key Executive Employment and Severance Agreement between Regal Beloit Corporation and Mark J. Gliebe.
[Incorporated by reference to Exhibit 10.6 to Regal Beloit Corporation's Annual Report on Form 10-K for the year
ended December 29, 2007 (File No. 001-07283)]
74
Exhibit
Number
Exhibit Description
10.6* Form of Key Executive Employment and Severance Agreement between Regal Beloit Corporation and Terry R.
Colvin. [Incorporated by reference to Exhibit 10.7 to Regal Beloit Corporation's Annual Report on Form 10-K for the
year ended December 29, 2007 (File No. 001-07283)]
10.7* Form of Key Executive Employment and Severance Agreement between Regal Beloit Corporation and each of Jonathan
J. Schlemmer, Charles A Hinrichs, Peter C. Underwood and John M. Avampato. [Incorporated by reference to Exhibit
10.1 to Regal Beloit Corporation's Current Report on Form 8-K filed on November 2, 2010 (File No. 001-07283)]
10.8* Form of Agreement for Stock Option Grant. [Incorporated by reference to Exhibit 10.9 to Regal Beloit Corporation's
Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-07283)]
10.9* Form of Restricted Stock Agreement. [Incorporated by reference to Exhibit 10.10 to Regal Beloit Corporation's
Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-07283)]
10.10* Form of Restricted Stock Unit Award Agreement under the Regal Beloit Corporation 2003 Equity Incentive Plan.
[Incorporated by reference to Exhibit 10.10 to Regal Beloit Corporation's Annual Report on Form 10-K for the year
ended December 29, 2007 (File No. 001-07283)]
10.11* Form of Stock Option Award Agreement under the Regal Beloit Corporation 2007 Equity Incentive Plan. [Incorporated
by reference to Exhibit 10.2 to Regal Beloit Corporation's Current Report on Form 8-K filed on April 25, 2007 (File No.
001-07283)]
10.12* Form of Restricted Stock Award Agreement under the Regal Beloit Corporation 2007 Equity Incentive Plan.
[Incorporated by reference to Exhibit 10.3 to Regal Beloit Corporation's Current Report on Form 8-K filed on April 25,
2007 (File No. 001-07283)]
10.13* Form of Restricted Stock Unit Award Agreement under the Regal Beloit Corporation 2007 Equity Incentive Plan.
[Incorporated by reference to Exhibit 10.4 to Regal Beloit Corporation's Current Report on Form 8-K filed on April 25,
2007 (File No. 001-07283)]
10.14* Form of Stock Appreciation Right Award Agreement under the Regal Beloit Corporation 2007 Equity Incentive Plan.
[Incorporated by reference to Exhibit 10.5 to Regal Beloit Corporation's Current Report on Form 8-K filed on April 25,
2007 (File No. 001-07283)]
10.15* Target Supplemental Retirement Plan for designated Officers and Key Employees, as amended and restated.
[Incorporated by reference to Exhibit 10.2 to Regal Beloit Corporation's Current Report on Form 8-K dated November
2, 2010 (File No. 001-07283)]
10.16* Form of Participation Agreement for Target Supplemental Retirement Plan. [Incorporated by reference to Exhibit 10.12
to Regal Beloit Corporation's Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-
07283)]
10.17* Regal Beloit Corporation Shareholder Value Added (SVA) Executive Officers Incentive Compensation Plan.
[Incorporated by reference to Exhibit 10.17 to Regal Beloit Corporation's Annual Report on Form 10-K for the year
ended January 1, 2011 (File No. 001-07283)]
Computation of Ratio of Earnings to Fixed Charges.
Subsidiaries of Regal Beloit Corporation.
Consent of Independent Registered Public Accounting Firm.
12
21
23
31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.1 Proxy Statement of Regal Beloit Corporation for the 2013 Annual Meeting of Shareholders. [The Proxy Statement for
the 2013 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 2013 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.]
101 The following material from Regal Beloit Corporation's Annual Report on Form 10-K for the year ended December 29,
2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii)
the Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of
Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, furnished
herewith.
________________________
* A management contract or compensatory plan or arrangement.
75
SHAREHOLDER INFORMATION
Transfer Agent, Registrar and Dividend Disbursing Agent
First Class, Registered & Certified Mail:
Computershare Investor Services
PO Box 43023
Providence, RI 02940-3023
OVERNIGHT COURIER
Computershare Investor Services
250 Royall Street
Canton, MA 02021
Investor Relations Number: 781-575-2879
Internet Address: www.computershare.com
CASH DIVIDENDS AND STOCK SPLITS
During 2012, four quarterly cash dividends were declared
on Regal-Beloit Corporation common stock. If you have
not received all dividends to which you are entitled, please
write or call Computershare at the address above.
Regal Beloit paid its first cash dividend in January 1961.
Since that date, Regal Beloit has paid 210 consecutive
quarterly dividends through January 2013. The Company
has raided cash dividends 40 times in the 51 years these
dividends have been paid. The dividend has never been
reduced. The Company has also declared and issued 15
stock splits/dividends since inception.
PUBLIC INFORMATION AND REPORTS
Shareholders can view Company documents on the internet
on the Company’s website at www.regalbeloit.com that also
includes a link to the Security and Exchange Commission’s
EDGAR website. From the website, shareholders may also
request copies of news releases of Forms 10-K and 10-Q as
filed by the Company with the Securities and Exchange
Commission.
Please direct information request to:
Regal-Beloit Corporation
Attn: Investor Relations
200 State Street
Beloit, WI 53511-6254
Email: investor@regalbeloit.com
www.regalbeloit.com
AUDITORS
Deloitte & Touche LLP, Milwaukee, Wisconsin
NOTICE OF ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 9:00am
CDT, on Monday, April 29, 2013 at Regal-Beloit
Corporation Headquarters, Packard Learning Center, 200
State Street, Beloit, WI 53511-6254.
Regal-Beloit Corporation is a Wisconsin Corporation listed
on the NYSE under the symbol RBC.
BUSINESS LEADERS
TOM BECK
President, Unico
STEVE DONITHAN
President, Regal China
DAN DREXLER
Vice President, Hermetic
PAUL GOLDMAN
Vice President, HVAC
JOHN KUNZE
Vice President, Air Moving and
Commercial Refrigeration
FUNCTIONAL LEADERS
VIVEK BHARGAVA
Vice President, Quality
SCOTT BROWN
Sr. Vice President, Manufacturing
MIKE LOGSDON
Vice President of Technology
DENNIS MIKULECKY
Vice President, Human Resources
ERIC MCGINNIS
Vice President, Business Development and
Europe & Latin America
STEVE O’BRIEN
Vice President, Pump & General Purpose
DUKE SIMS
Vice President, Mechanical Products
JOHN THOMAS
Vice President, Asia Pacific
MIKE WICKISER
Sr. Vice President, Commercial and Industrial,
Motors and Generators
PETE ROWLEY
Vice President, Corporate Controller
CURT SELBY
Vice President, International Human Resources
LINDA SHAW
Vice President, Customer Care and Logistics
SARAH SUTTON
Vice President, Financial Planning and Analysis
RICK ZAJCHOWSKI
Vice President, Global Sourcing
76
cOrPOrate inFOrMatiOn
cOMPany OFFicers
Standing left to right
John avampato
VP Chief Information Officer
Peter underwood
VP General Counsel & Secretary
terry colvin
VP Corporate Human Resources
Seated left to right
Jon schlemmer
Chief Operating Officer
Mark Gliebe
Chairman and Chief Executive
Officer
chuck Hinrichs
Chief Financial Officer
BOarD OF DirectOrs
Stephen M. Burt (1)(3)
Managing Director
Duff & Phelps
Director since 2010
Christopher L. Doerr (4)
Co-Chief Executive Officer
Passage Partners LLC
Co-Chief Executive Officer
Sterling Aviation Holdings, Inc.
Former President—Co-Chief Executive
Officer
LEESON Electric Corporation
Director since 2003
Thomas J. Fischer (1)(2)
Former Managing Partner, Milwaukee Office
Arthur Andersen LLP
Director since 2004
Dean A. Foate (2)*
President and Chief Executive Officer
Plexus Corporation
Director since 2005
Mark J. Gliebe
Chairman and Chief Executive Officer
Regal Beloit Corporation
Director since 2007
Henry W. Knueppel
Former Chairman and Chief Executive
Officer
Regal Beloit Corporation
Director since 1987
Rakesh Sachdev (3)*
President and Chief Executive Officer
Sigma—Aldrich Corporation
Director since 2007
Carol N. Skornicka (2)(3)
Former Sr. Vice President—Corporate Affairs,
Former Secretary and General Counsel
Midwest Air Group
Director since 2006
Curtis W. Stoelting (1)*
Chief Executive Officer
TOMY International
Director since 2005
Committee assignments as of July 2011
(1) Member of Audit Committee
(2) Member of Compensation and Human
Resources Committee
(3) Member of Corporate Governance and
Director Affairs Committee
(4) Presiding Director
* Committee Chairman
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Regal Beloit Corporation
corporate Office
200 state street
Beloit, Wisconsin 53511-6254
Phone: (608) 364-8800