R
E
G
A
L
B
E
L
O
I
T
C
O
R
P
O
R
A
T
I
O
N
|
2
0
2
0
A
N
N
U
A
L
R
E
P
O
R
T
2 0 2 0 A n n u a l R e p o r t
W E C R E A T E A B E T T E R T O M O R R O W B Y
E N E R G Y- E F F I C I E N T LY C O N V E R T I N G P O W E R I N T O M O T I O N ™
WHAT TO EXPECT FROM US
INTEGRITY | RESPONSIBILITY | DIVERSITY & INCLUSION | CUSTOMER SUCCESS
Dear Shareholders,
It is with sincere optimism that I reflect on Regal and its
performance in 2020. Regal was not alone as it confronted
the steep challenges related to Covid-19. The pandemic,
and the global recession it induced weighed heavily on
our financial performance, while also presenting a host of
significant personal and professional challenges for our
Regal associates. And yet, the year was also one of profound
positive transformation, of re-invention, and of significant,
measurable progress towards building a more profitable,
a more cash-generative, and a faster-growing Regal.
OUR TRANSFORMATION IS WELL UNDERWAY
Regal weathered the Covid storm, while also making
great operational progress in 2020 guided by our Regal
Values. Perhaps most notable in 2020 are our values of
Responsibility, which includes always putting safety first,
and of Customer Success, which this year meant acting
with urgency to minimize Covid-related disruptions to
serving our customers.
Our global manufacturing footprint also served us well.
Taking advantage of this unique asset, at a time when
global supply chains were being tested under Covid,
we were able to deliver for our customers with minimal
disruptions, and, in some cases, we gained market share.
Regal was also in a unique position operationally heading
into the pandemic, having recently defined an expansive
multi-year restructuring plan. We did, however, take some
additional, temporary cost actions in the second quarter,
when visibility was lowest around the pandemic’s ultimate
impact on demand. Fortunately, Regal had also recently
decentralized its operations, dramatically raised P&L
transparency and accountability (extending it from the level
of Regal’s four segments all the way down to the product
line level), infused new talent into our organization, and
further embraced 80/20 principles to identify and focus on
our highest-return growth opportunities.
But what truly underpinned our ability to navigate Covid and
deliver such strong earnings growth and free cash flow in
2020 was our 23,000 Regal associates around the world
who, guided by our Regal Values, executed with urgency
and resourcefulness to serve our customers.
And so as I look ahead to 2021 and beyond, I am excited
about the growth opportunities that lay before us, and am
confident in Regal’s ability to capitalize on them.
CAPITALIZING ON AMPLE GROWTH OPPORTUNITIES
As I think about growth opportunities for Regal, my North
Star remains our mission—we create a better tomorrow
by energy-efficiently converting power into motion™.
At Regal, that efficiency is about lowering the level of
resources our products consume, especially energy,
but also water, and other materials. Our customers are
asking for more efficient products for a range of reasons;
sometimes in response to regulatory requirements, but
increasingly because their own end users demand it—for
the cost savings, but more often because it’s simply the
right thing to do for their communities, and for our planet.
Regal, through its technology leadership, has for decades
been at the forefront of creating more energy-efficient
electric motors for a range of applications. Historically,
that has meant improving a motor’s energy efficiency.
Increasingly, it’s also about maximizing the efficiency of a
broader motorized solution, which raises energy savings,
while opening up a larger opportunity set for Regal. We
often have deep domain expertise in the components
that are adjacent to our motors, such as blowers and fans,
and the electronic drives that control them, as well as the
gearing, bearings, and couplings that connect our motors
to the applications where the work is done. This broader
capability allows Regal to engineer solutions that maximize
a system’s efficiency beyond the limits of any single
component.
Efficiency in our products and solutions goes beyond
energy and natural resource savings. It encompasses
offering our customers good value by leveraging our scale
and global footprint. And it means providing products that
are safe and reliable, that our customers can count on.
Increasingly, it includes improving efficiency by embedding
2
| INNOVATION WITH PURPOSE | CONTINUOUS IMPROVEMENT | PERFORMANCE | PASSION TO WIN
ALL WITH A SENSE OF URGENCY
technology into our products—such as sensors and smart
controllers—which we’re doing under our Perceptiv™ brand.
Products and solutions under the Perceptiv umbrella are
supporting diagnostics, prognostics, predictive analytics
and performance monitoring and analysis. These offerings
provide lots of value for our customers, and we believe the
growth prospects for Regal tied to our digital offerings are
highly attractive.
Another area we’re very excited about is indoor air quality
(IAQ)—using technology in our air handling products to
improve the cleanliness and healthfulness of indoor air, in
residential and commercial applications. These products
are particularly welcome during Covid, but we think their
value will continue to resonate. Work Regal is doing on IAQ
is also a great example of how we’re leveraging voice of
the customer, plus our unique engineering capabilities and
domain knowledge, to create growth opportunities in
highly competitive HVAC equipment markets.
BUILDING A GROWTH CULTURE
Beyond the specific opportunities I’m sharing, our
broader strategic focus is on enabling future growth by
creating a growth culture at Regal. We’re investing in
talent. We’ve committed to spending an additional $30
million on research & development by 2022. We’re using
80/20 principles to prioritize our current and prospective
customers based on how well our capabilities match their
needs. We are developing specific product roadmaps,
based on voice of the customer. And we are re-defining
our Lean efforts, directed by 80/20, to reduce waste,
overburden, and variance in all processes, both operational
and commercial, to drive efficiency.
All of this activity is happening against a backdrop of
heightened transparency and accountability, created by our
2019 actions to decentralize our organization and give more
responsibility to our business and product leaders who are
closest to their respective customers.
TRANSFORMATIONAL INORGANIC GROWTH
I am also extremely excited to report that as 2020
was drawing to a close, Regal was also closing in on
consummating a transformational merger with the
Process & Motion Control (or “PMC”) segment of
Rexnord Corporation. We announced the transaction
on February 16, 2021 and expect it to close in the fourth
quarter of 2021. The transaction is expected to generate
a host of benefits for Regal and Rexnord stakeholders.
Strategically, I expect the transaction will expand our
geographic exposure outside of North America and raise
our mix of aftermarket sales. Substantial cross-marketing
synergies will likely allow us to better serve our customers
with more value-added products and solutions, across
a wider range of end markets, which should result in
stronger, and higher-quality growth for Regal.
The transaction is also expected to enhance our ESG
objectives around driving growth for Regal by helping
our customers meet their energy efficiency, material
conservation, and other environmental safety goals. We
estimate that leveraging PMC will help Regal’s portfolio
of ESG-enabling products and solutions rise from roughly
45% of total sales in 2020 to nearly 60% by 2022.
I hope you can appreciate that Regal remains a story
of transformation, of improving our cost structure and
building our growth muscles. Considering the opportunities
visible before us—tied to energy efficiency, air quality, and
digital—plus a focus on voice of the customer to create
a pipeline of opportunities that solve relevant customer
problems, I believe the future of Regal is extremely bright!
Sincerely,
Louis V. Pinkham,
Chief Executive Officer
WE CREATE A BETTER TOMORROW BY energy-efficiently converting power into motion™.
3
COMMERCIAL SYST EMS
IN DUSTRIA L SYSTEMS
The Commercial Systems segment produces
fractional to approximately 5 horsepower AC and
DC motors, electronic variable speed controls,
fans, and blowers for commercial applications.
These products serve markets including commercial
building ventilation and HVAC, pool and spa,
irrigation, dewatering, agriculture, and general
commercial equipment.
The Industrial Systems segment produces integral
motors, generators, alternators, and switchgear for
industrial applications, along with aftermarket parts
and kits to support such products. These products
serve markets including agriculture, marine, mining,
oil and gas, food and beverage, data centers,
healthcare, prime and standby power, and
general industrial equipment.
SALES BY REGION
SALES BY REGION
EUROPE 11%
ROW 5%
ROW 8%
EUROPE 8%
ASIA PACIFIC
15%
ASIA PACIFIC
29%
NORTH
AMERICA
69%
NORTH
AMERICA
55%
The Regal® Integrated
Motor Fan System combines
high-efficiency permanent
magnet electromagnetics with
integrated, variable-speed
motor controls and high-
efficiency fan designs. The
solution delivers total system
efficiency up to 2% greater
than the most efficient fan
systems in the industry.
The VGreen® Evo™ Motor
is a cost-effective, variable-
speed pool pump solution that
maximizes savings over single-
speed motors. Compliant with
new Department of Energy
regulations, settings can be
optimized for energy savings.
Direct drop-in features simplify
installation, and an easy-to-
program interface simplifies
the user experience.
The Thomson Power
Systems™ Hybrid PDU
integrates a power transformer,
main breaker, meters, and
distribution breakers in a
compact unit to simplify
installation and reduce
construction costs. Power
Distribution Units (PDUs)
distribute power to critical loads
in facilities such as hospitals,
water treatment plants, data
centers, and factories.
The TerraMAX® Motor
Platform now includes definite
purpose applications such
as inverter-driven systems
and specialty applications.
Leveraging our simplified
platform, TerraMAX® Blue
Max® motors utilize our
patented insulation system,
low-temperature windings
and internal bearing-current
mitigation solutions to optimize
performance for inverter use
and extend motor life.
4
CLIMATE SOLUTIONS
POWER TRANSMISSION SOLUTIONS
The Climate Solutions segment produces
small motors, electronic variable speed controls,
and air moving solutions serving markets including
residential and light commercial HVAC, water
heaters, and commercial refrigeration.
The Power Transmission Solutions segment
produces, sells, and services belt and chain drives,
helical and worm gearing, mounted and unmounted
bearings, couplings, modular plastic belts, conveying
chains and components, hydraulic pump drives,
large open gearing and specialty mechanical
products serving markets including beverage,
bulk handling, metals, special machinery, energy,
aerospace, and general industrial.
SALES BY REGION
SALES BY REGION
ASIA PACIFIC 3%
ROW 4%
EUROPE 4%
ASIA PACIFIC 4%
ROW 4%
EUROPE
12%
NORTH
AMERICA
89%
NORTH
AMERICA
80%
The Fasco® GPM 10H
Premix Blower delivers
industry-leading efficiency
in a compact package. Its
patented, high-efficiency
motor and control provide
a 55% weight reduction
over competing products to
accelerate retrofits.
The Genteq® Hybrid
Compressor Drive helps
HVAC manufacturers
comply with SEER 2023
regulations with minimal
design changes. Software
regulates compressor
operation to achieve a 2+
SEER improvement over
standard systems.
System Plast® ModSort®
divert & transfer module
is a low-noise, low voltage
modular transfer/diverter
station that can move
everything from small
polybags to boxes. The new
ModSort Trident™ is a mobile
three way sortation system
with four-zone infeed that
gaps & scans packages to
divert left, right or straight to
one of three sorting locations.
Perceptiv™ intelligence
is an interconnected matrix
that gives us the power to
see the future and change it.
Perceptiv intelligence uses
cloud-based technology to
make maintenance predictive
and creates a continuum
for optimization and greater
efficiency for customers.
It’s hardware, software and
“humanware”.
5
2 0 2 0 A n n u a l R e p o r t
o n Fo r m 10 - K
Regal Beloit Corporation
200 State Street
Beloit, Wisconsin 53511
608-364-8800
6
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 January 2, 2021
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 ($0.01 Par Value)
Securities registered pursuant to
Section 12 (g) of the Act
Name of Each Exchange on
Which Registered
New York Stock Exchange
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
"emerging growth company" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer
Non-accelerated filer
☒
☐
Accelerated Filer
Smaller Reporting Company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. Yes ☒ No ☐
1
Indicate 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 27, 2020 was approximately $3.4 billion.
On February 22, 2021, the registrant had outstanding 40,618,931 shares of common stock, $0.01 par value, which is registrant's only class of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2021 (the “2021 Proxy
Statement”) is incorporated by reference into Part III hereof.
2
REGAL BELOIT CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED JANUARY 2, 2021
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 Operations
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
Directors, Executive Officers and Corporate Governance
Executives 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
Form 10-K Summary
Page
6
16
28
29
31
31
32
34
36
49
53
104
104
105
106
106
106
106
106
107
115
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
Item 16
3
CAUTIONARY STATEMENT
This report contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, which reflect the Company’s current estimates, expectations and projections about the Company’s future results,
performance, prospects and opportunities. Such forward-looking statements may include, among other things, statements about
the Company’s future operations, anticipated business levels, future earnings, planned activities, anticipated growth, market
opportunities, strategies, competition and other expectations and estimates for future periods. Forward-looking statements may
also include statements relating to the proposed acquisition of Rexnord Corporation (“Rexnord”)’s Process & Motion Control
business (the “PMC Business”) (the “Rexnord Transaction”), the benefits and synergies of the Rexnord Transaction, future
opportunities for the Company, the PMC Business and the combined company, and any other statements regarding the Rexnord
Transaction or the combined company. Forward-looking statements include statements that are not historical facts and can be
identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” “may,”
“should,” “will,” “would,” “project,” “forecast,” and similar expressions. These forward-looking statements are based upon
information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could
cause the performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-
looking statements. Important factors that could cause actual results to differ materially from the results referred to in the forward-
looking statements the Company makes in this report include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the continued financial and operational impacts of and uncertainties relating to the COVID-19 pandemic on customers
and suppliers and the geographies in which they operate;
uncertainties regarding the ability to execute restructuring plans within expected costs and timing;
our ability to develop new products based on technological innovation, such as the Internet of Things ("IoT"), and
marketplace acceptance of new and existing products, including products related to technology not yet adopted or
utilized in certain geographic locations in which we do business;
fluctuations in commodity prices and raw material costs;
our dependence on significant customers;
effects on earnings of any significant impairment of goodwill or intangible assets;
prolonged declines or disruption in one or more markets we serve, such as heating, ventilation, air conditioning
("HVAC"), refrigeration, power generation, oil and gas, unit material handling or water heating;
product liability and other litigation, or claims by end users, government agencies or others that our products or our
customers’ applications failed to perform as anticipated, particularly in high volume applications or where such failures
are alleged to be the cause of property or casualty claims;
our overall debt levels and our ability to repay principal and interest on our outstanding debt, including debt assumed or
incurred in connection with the Rexnord Transaction;
our dependence on key suppliers and the potential effects of supply disruptions;
seasonal impact on sales of our products into HVAC systems and other residential applications;
actions taken by our competitors and our ability to effectively compete in the increasingly competitive global electric
motor and controls, power generation and power transmission industries;
risks associated with global manufacturing, including risks associated with public health crises;
economic changes in global markets where we do business, such as reduced demand for the products we sell, currency
exchange rates, inflation rates, interest rates, recession, government policies, including policy changes affecting taxation,
trade, tariffs, immigration, customs, border actions and the like, and other external factors that we cannot control;
unanticipated costs or expenses we may incur related to litigation, including product warranty issues;
infringement of our intellectual property by third parties, challenges to our intellectual property and claims of
infringement by us of third party technologies;
4
•
•
•
•
•
•
•
•
losses from failures, breaches, attacks or disclosures involving our information technology infrastructure and data;
the possibility that the conditions will not be satisfied or the approvals will not be obtained required to complete the
Rexnord Transaction, including shareholder or regulatory approvals, and the IRS ruling to be sought in connection with
the Rexnord Transaction;
changes in the extent and characteristics of the common shareholders of Rexnord and the Company and its effect
pursuant to the merger agreement for the Rexnord Transaction on the number of shares of Company common stock
issuable pursuant to the transaction, magnitude of the dividend payable to Company shareholders pursuant to the
transaction and the extent of indebtedness to be incurred by the Company in connection with the transaction;
failure to successfully integrate the PMC Business and any other future acquisitions into our business or achieve expected
synergies and operating efficiencies, due to factors such as the future financial and operating performance of the acquired
business, loss of key executives and employees, and operating costs, customer loss and business disruption being greater
than expected;
costs related to the Rexnord Transaction;
unanticipated liabilities of acquired businesses, including the PMC Business;
unanticipated adverse effects or liabilities from business exits or divestitures;
changes in the method of determining London Interbank Offered Rate ("LIBOR"), or the replacement of LIBOR with
an alternative reference rate;
•
cyclical downturns affecting the global market for capital goods;
and other risks and uncertainties including, but not limited, to those described in this Annual Report on Form 10-K and from time
to time in other filed reports including the Company’s Quarterly Reports on Form 10-Q. For a more detailed description of the
risk factors associated with the Company, please refer to Part I - Item 1A - Risk Factors in this Annual Report on Form 10-K
and subsequent SEC filings. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating
the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-
looking statements included in this report are made only as of the date of this report, and the Company undertakes no obligation
to update any forward-looking information contained in this report or with respect to the announcements described herein to
reflect subsequent events or circumstances.
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 the 2021 Proxy Statement, or to information
contained in specific sections of the 2021 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
January 2, 2021 as “fiscal 2020", the fiscal year ended December 28, 2019 as “fiscal 2019" and the fiscal year ended
December 29, 2018 as “fiscal 2018".
ITEM 1 - BUSINESS
Our Company
Regal Beloit Corporation (NYSE: RBC), based in Beloit, Wisconsin (USA), is a leading manufacturer of electric motors, electrical
motion controls, power generation and power transmission products serving markets throughout the world. Our four operating
segments are: Commercial Systems, Industrial Systems, Climate Solutions and Power Transmission Solutions.
General
Commercial Systems Segment
Our Commercial Systems segment designs, manufactures and sells primarily:
• AC and DC motors from fractional to approximately 5 horsepower, electronic variable speed controls, fans and blowers
for commercial applications. These products are sold directly to original equipment manufacturers ("OEMs") and end-
user customers through our distribution network and our network of direct and independent sales representatives. Typical
applications include commercial building ventilation and HVAC, fan, blower and compressor motors, fans, blowers,
water pumps for pools, spas, irrigation, and dewatering, and general commercial equipment. Our customers tend to be
large and small OEMs and distributors, and their desire for high-quality services and, in many cases, more efficient
motor-based solutions is providing us an increasing opportunity to add more value to their applications with energy
efficient motor and integrated electronic control solutions.
•
Precision stator and rotor kits from 5 to 2,900 horsepower for air conditioning, heat pump and refrigeration compressor
applications, which are sold directly to OEM customers.
Industrial Systems Segment
Our Industrial Systems segment designs, manufactures and sells primarily:
•
Integral and large AC motors from approximately 1 to 12,000 horsepower (up to 10,000 volts) for industrial applications,
along with aftermarket parts and kits to support such products. These products are sold directly to OEMs and end-user
customers through our distribution network and our network of direct and independent sales representatives. Our
manufacturing and selling capabilities extend across the globe, serving four strategic verticals: distribution, pump and
compressors, HVAC and air moving, and general industries and large motors. Within these verticals are several end-
market applications, including agriculture, marine, mining, oil and gas, petrol chem, pulp and paper, and food and
beverage, as well as other process applications.
• Electric alternators for prime and standby power applications from 5 kilowatts through 4 megawatts (in 50 and 60Hz)
sold directly to OEMs or through our network of sales representatives. These products can be standard, custom, or
engineered solutions that are used in a variety of markets, including data centers, distributed energy, microgrid, rental
marine, agriculture, healthcare, mobile, and defense.
6
• Low and medium voltage paralleling switchgear, switchboards and control systems for power generation systems. These
products are primarily custom engineered designs developed in close collaboration with the customer to develop critical
solutions for data centers, healthcare, government and waste water applications.
• A complete lineup of transfer switches, with standard designs in stock for quick shipment and customized engineered
options for specialized requirements. We offer these transfer switch power solutions for residential, commercial,
industrial and critical applications from 100 amperes to 4,000 amperes. Aftermarket services are provided for
preventative system maintenance and upgrades.
Climate Solutions Segment
Our Climate Solutions segment designs, manufactures and sells primarily:
•
Fractional horsepower motors, electronic variable speed controls and blowers used in a variety of residential and light
commercial air moving applications including HVAC systems and commercial refrigeration. These 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 and water heaters. A majority of our HVAC motors and blowers, 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. We also manufacture and supply replacement motors and blowers for these systems once installed. Customers
include major HVAC distributors.
•
Fractional horsepower motors and blowers are also used across a wide range of other applications including white goods,
water heating equipment, small pumps, compressors, and fans, and other small appliances. Demand for these products
is driven primarily by consumer and light commercial market segments.
Power Transmission Solutions Segment
Our Power Transmission Solutions segment designs, manufactures and sells primarily:
• Mounted and unmounted bearings. Unmounted bearings are offered in a variety of types and styles. These include cam
followers, radial bearings, and thrust bearings. Mounted bearings include industry specific designs that aim to solve
customer problems. They are all available with a variety of options and sizes and include aerospace and specialty
bearings, mounted bearings, unmounted bearings, and corrosion resistant bearings.
• High-quality conveyor products including chains, belts, sprockets, components, guide rails and wear strips. Conveying
components enhance the efficiency, noise reduction, wash-down maintenance, lubrication reduction and energy
conservation of conveying systems. Our products are highly engineered with input from industry experts.
• High-performance disc, diaphragm and gear couplings for applications including turbines, compressors, generators and
pumps in many industries including petrochemical, refinery, power generation, gas pipeline and liquid natural gas. We
also produce flexible couplings and transmission elements. Products include universal joints and gear, grid, jaw,
elastomer, and disc couplings.
• Mechanical power transmission drives and components including: belt drives, bushings, chain and sprockets, drive
tighteners and idlers, mechanical clutches, and torque overload devices. Our products serve a wide range of industries
and applications, such as the following: aggregate, forestry and wood products, grain and biofuels, power generation,
food and beverage, commercial HVAC, and refrigeration.
7
• Gearboxes for motion control within complex equipment and systems used for a variety of applications. We provide a
wide array of gear types, shaft configurations, ratios, housing materials and mounting methods. Right angle worm gear
and bevel units can be specified for less than 100 inch lbs. of torque to over 132,000 inch lbs. of torque. Helical gear
units are offered from 100 inch lbs. to over 500,000 inch lbs. of torque. Our products include worm gearing, helical
offset, concentric, and right angle, bevel and miter gearing, and spur gearing. This gearing reduces the speed and
increases the torque from an electric motor or other prime mover to meet the requirements of equipment.
Many of our products are originally sold and installed into OEM equipment within various industries. Our reputation and long
history of providing highly reliable products creates an end user specification for replacement through the distribution channel.
We also provide application and design assistance based on our deep knowledge of our products and their applications.
OEMs and end users of a variety of motion control and other industrial applications typically combine the types of motors,
controls and power transmission products we offer. We seek to take advantage of this practice and to enhance our product
penetration by leveraging cross-marketing and product line combination opportunities between our Commercial Systems,
Industrial Systems, Climate Solutions and Power Transmission Solutions products. Our growth strategy also includes (i) driving
organic sales growth through the introduction of innovative new products, (ii) establishing and maintaining new customers, as
well as developing new opportunities with existing customers, (iii) participating in higher growth geographic markets, and
(iv) identifying and consummating strategic, value creating acquisitions.
Pending Transaction
On February 15, 2021, we entered into definitive agreements with Rexnord, Land Newco, Inc., a wholly owned indirect subsidiary
of Rexnord (“Land”), and Phoenix 2021, Inc., our wholly owned subsidiary (“Merger Sub”), with respect to a Reverse Morris
Trust transaction pursuant to which, immediately after Rexnord undergoes an internal reorganization and spin-off of its PMC
Business to Land, Merger Sub will merge with and into Land and all shares of Land common stock (other than those held by
Rexnord, Land, the Company, Merger Sub or their respective subsidiaries) will be converted into the right to receive shares of
our common stock, $0.01 par value per share, as calculated and subject to adjustment as set forth in the merger agreement for the
Rexnord Transaction. When the merger is completed, Land (which at that time will hold the PMC business) will be our wholly
owned subsidiary.
Closing of the Rexnord Transaction is subject to various closing conditions, including the receipt of the approval of our and
Rexnord's shareholders, the receipt of regulatory approvals and other customary closing conditions.
The Rexnord Transaction is described more fully below under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Overview” and our Current Report on Form 8-K filed with the SEC on February 19, 2021 (the
"Rexnord 8-K"). This description is qualified in its entirety by the description set forth in the Rexnord 8-K.
Acquisitions
In fiscal 2018, we completed one acquisition in the Commercial Systems segment.
• On April 10, 2018, we acquired Nicotra Gebhardt S.p.A. ("NG") for $161.5 million in cash, net of $8.5 million of cash
acquired. NG is a leader in critical, energy-efficient systems for ventilation and air quality. NG manufactures, sells and
services fans and blowers under the industry leading brands of Nicotra and Gebhardt. The financial results of NG have
been included in our Commercial Systems segment from the date of acquisition.
Divestitures
In fiscal 2019, we completed two divestitures in the Commercial Systems segment.
8
• On January 7, 2019, we sold our Regal Drive Technologies business and received proceeds of $119.9 million. We
recognized a gain on sale of $41.0 million in the Consolidated Statements of Income.
• On July 1, 2019, we sold our Vapor Recovery business and received proceeds of $19.2 million. We recognized a loss on
sale of $1.9 million in the Consolidated Statements of Income.
In fiscal 2019, we completed one divestiture in the Climate Solutions segment.
• On April 1, 2019, we sold our CapCom business and received proceeds of $9.9 million. We recognized a gain on sale of
$6.0 million in the Consolidated Statements of Income.
In fiscal 2019, we completed one divestiture in the Power Transmission Solutions segment.
• On April 1, 2019, we sold our Velvet Drive business and received proceeds of $8.9 million. We recognized a loss on sale
of $0.5 million in the Consolidated Statements of Income.
Sales, Marketing and Distribution
We sell our products directly to OEMs, distributors and end-users. We have multiple business units that promote our brands across
their respective sales organizations. 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 Plainfield, Indiana; El Paso and McAllen, Texas; LaVergne, Tennessee; Florence,
Kentucky; and Monterrey, Mexico which serve as hubs for our North American distribution and logistics operations. Products
are shipped from these facilities to our customers utilizing 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 revenue from our OEM customers. In our HVAC business, a large portion of our sales are to
key OEM customers which makes our relationship with each of these customers important to our business. We have long standing
relationships with these customers and we expect these customer relationships will continue for the foreseeable future. Despite
this relative concentration, we had no customer that accounted for more than 10% of our consolidated net sales in fiscal 2020,
fiscal 2019 or fiscal 2018.
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 and related components is higher during the spring and summer seasons due to the
increased use of air conditioning and swimming pools during warmer months. As a result, our revenues tend to be higher in the
second and third quarters.
Competition
Commercial Systems Segment
Electric motor manufacturing is a highly competitive global industry in which there is emphasis on quality, reliability, and
technological capabilities such as energy efficiency, delivery performance, price and service. We compete with a large 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. Global electric motor manufacturers, particularly those
located in Europe, Brazil, China, India and elsewhere in Asia, compete with us as they attempt to expand their market penetration
around the world, especially in North America.
9
Our major competitors in the Commercial Systems segment include Broad-Ocean Motor Co., Lafert, ABB Ltd., Siemens AG,
Nidec Corporation, Ziehl-Abegg, Weg S.A., and ebm-papst Mulfingen GmbH & Co.KG.
Industrial Systems Segment
Our major competitors in the Industrial Systems segment include Wolong Electric Group Ltd., Kirloskar Brothers Limited,
Crompton Greaves Limited, Lafert, ABB Ltd., Siemens AG, Toshiba Corporation, Cummins, Inc., Nidec Corporation, TECHTOP
Electric Motors, Weg S.A., Hyundai, and Teco-Westinghouse Motor Company.
Climate Solutions Segment
Our major competitors in the Climate Solutions segment include Nidec Corporation, Broad-Ocean Motor Co., ebm-papst
Mulfingen GmbH & Co.KG, Welling Holding Ltd., McMillan Motors, and Panasonic Corporation.
Power Transmission Solutions Segment
The power transmission products market is fragmented. Many competitors in the market offer limited product lines or serve
specific applications, industries or geographic markets. Other larger competitors offer broader product lines that serve multiple
end uses in multiple geographies. Competition in the Power Transmission Solutions segment is based on several factors including
quality, lead times, custom engineering capability, pricing, reliability, and customer and engineering support.
Our major competitors in the Power Transmission Solutions segment include Altra Industrial Motion, Inc., ABB Ltd., Rexnord
Corporation, SKF and Timken Company.
Engineering, Research and Development
We believe that innovation is critical to our future growth and success and are committed to investing in new products,
technologies and processes that deliver real value to our customers. Our research and development expenses consist primarily of
costs for (i) salaries and related personnel expenses; (ii) the design and development of new energy efficiency products and
enhancements; (iii) quality assurance and testing; and (iv) other related overhead. Our research and development efforts tend to
be targeted toward developing new products that would allow us to gain additional market share, whether in new or existing
segments.
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 21 Non-Provisional United States ("US") patents, 6 Provisional US patents and an additional 30 Non-Provisional foreign
patents in fiscal 2020.
Each of our business units has its own, as well as shared, product development and design teams that continuously work 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, and mechanical products
incorporating leading design characteristics such as low vibration, low noise, improved safety, reliability, sustainability and
enhanced energy efficiency. Increasingly, our research and development and other engineering efforts have focused on smart
products that communicate and allow for monitoring, diagnostics and predictive maintenance.
10
Manufacturing and Operations
We have developed and acquired global operations in locations such as China, Europe, India, Mexico and Thailand so that we
can sell our products in these markets, follow our multinational customers, take advantage of global talent and complement our
flexible, rapid response operations in the US, 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. 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 source components and finished goods from an
established global network of suppliers. We aggressively pursue global sourcing to reduce our overall costs and lead-time. We
generally maintain a dual sourcing capability to ensure a reliable supply source for our customers, although we do depend on a
limited number of single source 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, electronic assemblies,
permanent magnets and ferrous and non-ferrous castings.
The Regal Business System is our enterprise-wide framework for continuous improvement. With our corporate values as its
foundation, the Regal Business System enables effective goal alignment, collaborative problem solving and sharing of best
practices, tools, skills and expertise to achieve our objectives. Through the relentless commitment to continuous improvement,
we strive to elevate safety, quality, delivery, cost and growth performance of the business with the goal of exceeding the
expectations of our customers, our associates and our shareholders.
Facilities
We have manufacturing, sales and service facilities in the US, Mexico, China, Europe, India, Thailand, and Australia, as well as
a number of other locations throughout the world. Our Commercial Systems segment currently includes 46 manufacturing,
service, office and distribution facilities of which 14 are principal manufacturing facilities and 3 are principal warehouse facilities.
The Commercial Systems segment's present operating facilities contain a total of approximately 4 million square feet of space,
of which approximately 31% are leased. Our Industrial Systems segment currently includes 25 manufacturing, service, office and
distribution facilities of which 11 are principal manufacturing facilities and 1 is a principal warehouse facility. The Industrial
Systems segment's present operating facilities contain a total of approximately 2.8 million square feet of space, of which
approximately 26% are leased. Our Climate Solutions segment includes 29 manufacturing, service, office and distribution
facilities, of which 9 are principal manufacturing facilities and 3 are principal warehouse facilities. The Climate Solutions
segment's present operating facilities contain a total of approximately 2.5 million square feet of space, of which approximately
54% are leased. Our Power Transmission Solutions segment currently includes 25 manufacturing, service, office and distribution
facilities of which 13 are principal manufacturing facilities and 1 is a principal warehouse facility. The Power Transmission
Solutions segment's present operating facilities contain a total of approximately 2.5 million square feet of space, of which
approximately 24% are leased. Our corporate offices are located in Beloit, Wisconsin in an approximately 50,000 square foot
owned office building and in Rosemont, Illinois in an approximately 12,100 square foot rented 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 within a month from when the order was received. As
of January 2, 2021, our backlog was $444.8 million, as compared to $415.9 million on December 28, 2019. We believe that
virtually all of our backlog will be shipped in fiscal 2021.
11
Patents, Trademarks and Licenses
We own a number of US 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 as a whole. 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.
Human Capital Management
At the end of fiscal 2020, we employed approximately 23,000 full-time associates worldwide. Of those associates, approximately
11,000 were located in Mexico; approximately 3,700 in the US; approximately 3,000 in China; approximately 2,200 in India; and
approximately 3,100 in the rest of the world.
We feel that our associates are our most valuable assets, and consider our associate relations to be very good. Our objective is to
create a high-performing organization by attracting and retaining high-quality, diverse talent and creating an environment in
which all associates have the opportunity to reach their full potential.
The core goal of our performance management process is to develop and maintain a high-performing organization that is
positioned to meet our business objectives. Creating a high-performing organization requires associates and managers to exhibit
transparency in their day-to-day interactions, and use data to drive decision-making and accountability. Our performance
management process focuses on enabling associates and managers to gain alignment through:
•
•
a structured annual goal-setting process where managers and associates work collaboratively to develop specific,
measurable, achievable, relevant and time bound (SMART) goals that align with our overarching business objectives
and our company values;
clear, organization-wide expectations that managers and associates monitor progress toward completion of their SMART
goals with regular coaching sessions and periodic evaluations; and
•
an annual performance assessment that provides a direct link between the associate’s pay and performance.
In addition to our focus on performance, we also have a strong commitment to our company values of integrity, responsibility,
diversity and inclusion, customer success, innovation with purpose, continuous improvement, performance, and a passion to win,
all with a sense of urgency. We regularly promote these values from the top down. In 2020, both our executive leadership team
and some of our associates participated in a series of videos that communicated the importance our values to our global workforce.
In addition to instilling our corporate values as a key part of associate life, we promote a commitment to ethics and compliance
among our workforce through our Code of Business Conduct and Ethics. In 2020, 98.6% of our global workforce completed
training on the Code of Business Conduct and Ethics.
As mentioned above, diversity and inclusion are rooted in our company values. We believe that we are at our best when we bring
to bear the unique perspectives, experiences, backgrounds and ideas of our associates. We seek a workforce that reflects the
communities in which we operate, and strive to create diverse, equal and inclusive workplaces where all of our associates have
the opportunity to achieve their full potential.
We are also committed to improving the health and well-being of our associates. Regal’s US wellness program was established
in 2008 and is continuously evolving to better educate, motivate and reward our associates for maintaining and achieving healthy
measures. During our wellness plan year running from October 1, 2019 through September 30, 2020, 35% of our US associates
participated in on-site biometric screening that provides them with key metrics such as BMI, blood pressure, and triglyceride,
cholesterol and blood glucose levels.
12
As a company, we believe that our value of responsibility requires community engagement, and we encourage our associates to
share in our commitment to the communities where we operate. We have an established charitable foundation, which is governed
by an advisory board comprised of our associates. The Regal Charitable Foundation focuses on supporting the United Way and
other 501(c)(3) nonprofit organizations in the areas of health and human services, education and the arts, and civic and disaster
relief, and prioritizes requests that are submitted by our associates. In fiscal 2020, the Regal Charitable Foundation provided
$570,481 of support to organizations in the communities where our associates live and work.
Information About Our Executive Officers
The names, ages, and positions of our executive officers as of March 2, 2021 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 or understanding between any officer and any other persons pursuant to which the officer was
elected.
Executive Officer
Age
Position
Business Experience and Principal Occupation
Louis V. Pinkham
49
Chief Executive
Officer
Robert J. Rehard
52
Vice President,
Chief Financial
Officer
Thomas E. Valentyn
61
Vice President,
General Counsel
and Secretary
Joined the Company in April 2019, as Chief Executive Officer.
Prior to joining the Company, Mr. Pinkham was Senior Vice
President of Crane Co. from 2016-2019; prior thereto he served in
other leadership roles at Crane Co. from 2012-2016. Prior to joining
Crane Co., Mr. Pinkham was Senior Vice President at Eaton
Corporation. From 2000-2012, he held successive and increasing
roles of global responsibility at Eaton. Prior to joining Eaton, Mr.
Pinkham held an Engineering and Quality Manager position at ITT
Sherotec and a Process Design Engineer position with Molecular
Biosystems, Inc.
Joined the Company in January 2015, as Vice President, Corporate
Controller and Principal Accounting Officer and became Vice
President, Chief Financial Officer in April 2018. Prior to joining the
Company, Mr. Rehard was a Division Controller for Eaton
Corporation and held several other financial leadership positions
throughout his career with Baxter, Emerson, Masco and Cooper.
Mr. Rehard started his career with Deloitte & Touche in Costa
Mesa, California.
Joined the Company in December 2013, as Associate General
Counsel and became Vice President, General Counsel and Secretary
in May 2016. Prior to joining the Company, Mr. Valentyn was
General Counsel with Twin Disc, Inc. from 2007-2013. From 2000-
2007, he served as Vice President and General Counsel with
Norlight Telecommunications; prior thereto he served as in-house
counsel with Johnson Controls, Inc. from 1991-2000. He began his
legal career with Borgelt, Powell, Peterson and Frauen in
Milwaukee, Wisconsin.
13
John M. Avampato
60
Vice President,
Chief Information
Officer
Joined the Company in April 2006 and became Vice President,
Chief Information Officer in April 2010. Prior to joining the
Company, Mr. Avampato was Vice President, Chief Information
Officer for Newell Rubbermaid from 1999-2006. Mr. Avampato
served in several positions for Newell Rubbermaid from 1984-
1999.
Cheryl A. Lewis
52
Vice President,
Chief Human
Resources Officer
Scott D. Brown
61
President,
Commercial
Systems Segment
Joined the Company in March 2020, as Vice President, Chief
Human Resources Officer. Prior to joining the Company, Ms. Lewis
served as Segment Director, Human Resources for Illinois Tool
Works Inc. from 2010-2020. Prior to joining Illinois Tool Works
Inc., Ms. Lewis was Vice President, Human Resources with Alcan
Packaging from 2008-2010. From 1991-2008 she held successive
and increasing roles of responsibility, including Vice President,
Human Resources at Panduit Corporation.
Joined the Company in August 2005 and became President,
Commercial Systems Segment in June 2019. Prior to being
promoted to his current position, Mr. Brown, in successive roles,
served as Vice President, Business Leader of Commercial Motors,
Vice President, Business Leader of Control Solutions, and Vice
President, Manufacturing. Prior to joining the Company, Mr. Brown
spent 17 years with General Electric in operations and various
business leadership roles.
Eric S. McGinnis
50
President,
Industrial Systems
Segment
Joined the Company in August 2005 and became President,
Industrial Systems Segment in June 2019. Prior to being promoted
to his current position, Mr. McGinnis served as Vice President,
Business Development and Vice President, Industrial Motors. Prior
to joining the Company, Mr. McGinnis spent 12 years with General
Electric in various business leadership roles.
John C. Kunze
58
President, Climate
Solutions Segment
Jerrald R. Morton
59
President, Power
Transmission
Solutions Segment
Joined the Company in September 2007 and became President,
Climate Solutions Segment in June 2019. Prior to being promoted
to his current position, Mr. Kunze served as Vice President,
Business Leader of Climate Solutions, and, before that, Vice
President, Business Leader of Air Moving. From 2000-2007, Mr.
Kunze served as Chief Operating Officer of Jakel, Inc. He began his
career with Invensys and Emerson.
Joined the Company in February 2015 and became President,
Power Transmission Solutions Segment in June 2019. Prior to being
promoted to his current position, Mr. Morton served as Vice
President, Business Leader of Power Transmission Solutions from
2017-2019, and led the global operations for Regal’s power
transmission business from 2015-2017. Prior to joining the
Company, Mr. Morton spent 28 years with Emerson in a variety of
roles in Quality, Technology, and Operations and was Vice
President, Global Operations of Emerson’s power transmission
business at the time Regal Beloit Corporation acquired that
business.
14
As previously reported, Mr. Jonathan J. Schlemmer retired as Chief Operating Officer effective January 31, 2020, consistent with
a reorganization of the Company’s leadership that resulted in the elimination of the Chief Operating Officer position.
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 associates 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. In September 2020, we produced our updated Sustainability Report. 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.
15
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, results of operations, or cash flow could be materially and adversely affected
and you may lose all or part of your investment.
Risks Relating to Our Operations and Strategy
The COVID-19 pandemic has adversely impacted our business and could continue to have a material adverse impact on
our business, results of operation, financial condition, liquidity, customers, suppliers, and the geographies in which we
operate.
The COVID-19 pandemic has significantly increased economic, demand and operational uncertainty. We have global operations,
customers and suppliers, including in countries most impacted by COVID-19. Authorities around the world have taken a variety
of measures to slow the spread of COVID-19, including travel bans or restrictions, increased border controls or closures,
quarantines, shelter-in-place orders and business shutdowns and such authorities may impose additional restrictions. We have
also taken actions to protect our employees and to mitigate the spread of COVID-19, including embracing guidelines set by the
World Health Organization and the U.S. Centers for Disease Control and Prevention on social distancing, good hygiene,
restrictions on employee travel and in-person meetings, and changes to employee work arrangements including remote work
arrangements where feasible. The actions taken around the world to slow the spread of COVID-19 have also impacted our
customers and suppliers, and future developments could cause further disruptions to us due to the interconnected nature of our
business relationships.
The impact of COVID-19 on the global economy and our customers, as well as recent volatility in commodity markets, has
negatively impacted demand for our products and could continue to do so in the future. Its effects could also result in further
disruptions to our manufacturing operations, including higher rates of employee absenteeism, and supply chain, which could
continue to negatively impact our ability to meet customer demand. Additionally, the potential deterioration and volatility of
credit and financial markets could limit our ability to obtain external financing. The extent to which COVID-19 will impact our
business, results of operations, financial condition or liquidity is highly uncertain and will depend on future developments,
including the spread and duration of the virus, potential actions taken by governmental authorities, and how quickly economic
conditions stabilize and recover.
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.
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, such as IoT, and marketplace acceptance of new and
existing products, including products related to technology not yet adopted or utilized in certain geographic locations in
which we do business.
The electric motor and power transmission industries in recent years have seen significant evolution and innovation, particularly
with respect to increasing energy efficiency and control enhancements. Our ability to effectively compete in these industries
16
depends in part on our ability to continue to develop new technologies and innovative products and product enhancements,
including enhancements based on technological innovation such as IoT. Further, many large customers in these industries
generally desire to purchase from companies that can offer a broad product range, which means we must continue to develop our
expertise in order to design, manufacture and sell these products successfully. This requires that we make significant investments
in engineering, manufacturing, customer service and support, research and development and intellectual property protection, and
there can be no assurance that in the future we will have sufficient resources to continue to make such investments. If we are
unable to meet the needs of our customers for innovative products or product variety, 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 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 electronics. 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 each of our Climate Solutions and Commercial Systems segments, 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 motor businesses from several key OEM customers. Our success will
depend on our continued ability to develop and manage relationships with these customers. We have long standing relationships
with these customers and we expect these customer relationships 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.
Goodwill and an indefinite-lived trade name intangible comprise a significant portion of our total assets, and if we
determine that goodwill and the indefinite-lived trade name intangible have become impaired in the future, our results of
operations and financial condition in such years may be materially and adversely affected.
As of January 2, 2021, we had goodwill of $1,518.2 million and an indefinite-lived trade name of $122.8 million. Goodwill
represents the excess of cost over the fair market value of net assets acquired in business combinations. The indefinite-lived trade
name intangible represents a long-standing brand acquired in a business combination and is assumed to have indefinite life. We
review goodwill and the indefinite-lived trade name intangible 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 or the indefinite-lived trade name intangible
would affect financial results. If we are required to record a significant charge to earnings in our consolidated financial statements
because an impairment of goodwill or the indefinite-lived trade name intangible is determined, our results of operations and
financial condition could be materially and adversely affected.
Portions of our total sales come directly from customers in key markets and industries. A significant or prolonged decline
or disruption in one of those markets or industries could result in lower capital expenditures by such customers, which
could have a material adverse effect on our results of operations and financial condition.
17
Portions of our total sales are dependent directly upon the level of capital expenditures by customers in key markets and industries,
such as HVAC, refrigeration, power generation, oil and gas, and unit material handling or water heating. A significant or prolonged
decline or disruption in one of those markets or industries may result in some of such customers delaying, canceling or modifying
projects, or may result in nonpayment of amounts that are owed to us. These effects could have a material adverse effect on our
results of operations and financial condition.
We sell certain products for high volume applications, and any failure of those products to perform as anticipated could
result in significant liability and expenses that may adversely affect our business and results of operations.
We manufacture and sell a number of products for high volume applications, including electric motors used in pools and spas,
residential and commercial heating, ventilation and 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.
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 manufactured and sold in high volumes by a third party. These ventilation units are subject to
regulation by government agencies such as the US Consumer Product Safety Commission (“CPSC”). The claims generally allege
that the ventilation units were the cause of fires. Based on the current facts, we cannot assure you that these claims, individually
or in the aggregate, will not have a material adverse effect on our subsidiary's results of operations, financial condition or cash
flows. We cannot reasonably predict the outcome of these claims, the nature or extent of any CPSC or other remedial actions, if
any, that our subsidiary or we on their behalf may need to undertake with respect to motors that remain in the field, or the costs
that may be incurred, some of which could be significant.
Our business may not generate cash flow from operations in an amount sufficient to enable us to service our indebtedness
or to fund our other liquidity needs, 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.
As of January 2, 2021, we had $1.1 billion in aggregate debt outstanding under our various financing arrangements, $611.3
million in cash and cash equivalents and $499.8 million in available borrowings under our current revolving credit facility. Our
ability to make required payments of principal and interest on our 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 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 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;
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/or
place us at a competitive disadvantage relative to our competitors that have less debt.
•
•
•
•
18
In addition, our credit facilities 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 were to occur, the lenders could elect to declare all amounts outstanding under the
applicable agreement, together with accrued interest, to be immediately due and payable.
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.
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.
Our success is highly dependent on qualified and sufficient staffing. Our failure to attract or retain qualified personnel,
including our senior management team, 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 associates and the contributions
of talented associates in various operations and functions, such as engineering, finance, sales, marketing, manufacturing, etc. The
skills, experience and industry contacts of our senior management team significantly benefit our operations and administration.
The failure to attract or retain members of our senior management team and key talent could have a negative effect on our
operating results.
Risks Relating to Our Global Footprint
We operate in the highly competitive global electric motors and controls, power generation and power transmission
industries.
The global electric motors and controls, power generation and power transmission 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.
We have continued to see a trend with certain customers who are attempting to reduce the number of vendors from which they
purchase product in order to reduce their costs and diversify their risk. As a result, we may lose market share to our competitors
in some of the markets in which we compete.
19
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.
We may also choose to exit certain businesses, markets, or channels based on a variety of factors including our 80/20 initiatives.
We manufacture a significant portion of our products outside the US, and political, societal or economic instability or
public health crises may present additional risks to our business.
Approximately 19,300 of our approximate 23,000 total associates and 35 of our principal manufacturing and warehouse facilities
are located outside the US. International operations generally are subject to various risks, including political, societal and
economic instability, local labor market conditions, public health crises, breakdowns in trade relations, the imposition of tariffs
and other trade restrictions, lack of reliable legal systems, ownership restrictions, the impact of government regulations, the effects
of income and withholding taxes, governmental expropriation or nationalization, 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, including, for example, the uncertainty
surrounding the effect of the United Kingdom’s exit from the European Union, commonly referred to as “Brexit,” trade relations
between the US and China, the implementation of the United States-Mexico-Canada Agreement (the "USMCA"), or the change
in labor rates in Mexico.
In addition, as described in more detail above, the continued global spread of COVID-19 could have a material adverse effect on
our financial condition, results of operations and cash flows.
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 US 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 US dollar. Any
increase in the value of the US dollar in relation to the value of the local currency, whether by means of market conditions or
governmental actions such as currency devaluations, will adversely affect our revenues from our foreign operations when
translated into US dollars. Similarly, any decrease in the value of the US 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
US dollars.
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. By utilizing hedging instruments, we may forgo
benefits that might result from 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. Any default by such counterparties might have an adverse
effect on us.
20
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, industrial, residential HVAC, power generation and
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.
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.
A significant amount of our revenue is generated from customers located outside of the US, and an increasingly greater portion
of our assets and associates are located outside of the US 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.
Risks Relating to the Legal and Regulatory Environment
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 product liability claim may
also include the imposition of punitive damages, the award of which, pursuant to certain state laws, may not be covered by
insurance. 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.
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.
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. Our 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.
21
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 may incur costs or suffer reputational damage due to improper conduct of our associates, 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 associates, 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.
Our operations are highly dependent on information technology infrastructure, and failures, attacks or breaches 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, including costs relating to investigation and remediation actions.
IT security threats via computer malware and other “cyber-attacks,” which are increasing in both frequency and sophistication,
could also result in unauthorized disclosures of information, such as customer data, personally identifiable information or other
confidential or proprietary material, and create financial liability, subject us to legal or regulatory sanctions, or damage our
reputation. Moreover, because the techniques used to gain access to or sabotage systems often are not recognized until launched
against a target, we may be unable to anticipate the methods necessary to defend against these types of attacks, and we cannot
predict the extent, frequency or impact these attacks may have on us. While we continuously seek to maintain robust information
security mechanisms and controls, the impact of a material IT event could have a material adverse effect on our competitive
position, results of operations, financial condition and cash flow.
We have substantially completed the implementation of a global Enterprise Resource Planning (the “ERP”) system that
redesigned and deployed a common information system. We will continue to implement the ERP system throughout the business.
The process of implementation can be costly and can divert the attention of management from the day-to-day operations of the
business. As we implement the ERP system, some elements 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
22
to future liabilities, fines or penalties or the suspension of production. In addition, if environmental and human health and safety
laws and regulations are repealed, made less burdensome or implemented at a later date, demand for our products designed to
comply with such regulations may be unfavorably impacted.
We are subject to changes in legislative, regulatory and legal developments involving income and other taxes.
We are subject to US 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,
including claims or litigation related to our interpretation and application of tax laws and regulations, could result in substantially
higher taxes, could have a negative impact on our ability to compete in the global marketplace, and could have a significant
adverse effect on our results or operations, financial conditions and liquidity.
Risks Relating to Our Merger, Acquisition and Divestiture Activity
We and Rexnord may be unable to satisfy the conditions or obtain the approvals required to complete the Rexnord
Transaction.
The consummation of the Rexnord Transaction is subject to numerous conditions, including consummation of certain transactions
contemplated by the Agreement and Plan of Merger, by and among Rexnord, Land, Merger Sub and us (the “Merger Agreement”)
and the Separation and Distribution Agreement by and among Rexnord, Land and us, the receipt of the approval of Rexnord's
and our shareholders, the receipt of regulatory approvals, and other closing conditions. Neither Rexnord nor we can make any
assurances that the Rexnord Transaction will be consummated on the terms or timeline currently contemplated, or at all. Both
Rexnord and we have and will continue to expend time and resources and incur expenses related to the proposed Rexnord
Transaction.
Governmental agencies may not approve the Rexnord Transaction or may impose conditions to the approval of the Rexnord
Transaction or require changes to the terms of the Rexnord Transaction. Any such conditions or changes could have the effect of
delaying completion of the Rexnord Transaction, imposing costs on or limiting the revenues of the combined company following
the completion of the Rexnord Transaction or otherwise reducing the anticipated benefits of the Rexnord Transaction. Any
condition or change which results in a “Burdensome Condition,” as such term is defined in the Merger Agreement might cause
Rexnord and/or us to restructure or terminate the Rexnord Transaction.
Both we and Land will need to obtain debt financing to complete the Rexnord Transaction. Although commitment letters have
been obtained from various lenders, the obligations of the lenders under the commitment letters are subject to the satisfaction or
waiver of customary conditions, including, among others, the absence of any material adverse effect. Accordingly, there can be
no assurance that these conditions will be satisfied or, if not satisfied, waived by the lenders. If we are not able to obtain alternative
financing on commercially reasonable terms, it could prevent the consummation of the Rexnord Transaction or materially and
adversely affect our business, liquidity, financial condition and results of operations if the Rexnord Transaction is ultimately
consummated.
The extent of the dividend, if any, that we may pay, and the number of shares of our common stock that we may issue, in
the Rexnord Transaction are uncertain.
The Merger Agreement provides that, in order to preserve the tax-free nature of the Rexnord Transaction, the number of shares
of our common stock that may be issued in the Rexnord Transaction is subject to increase at closing such that former shareholders
of Land (together with certain “overlapping shareholders” of ours and former shareholders of Land), own at least 50.8% of our
outstanding common stock immediately following consummation of the transaction for tax purposes (or, in certain other
circumstances in which overlapping shareholders are not being counted for this purpose, 50.1% of such shares).
23
In addition, in connection with the Rexnord Transaction, the parties have agreed that Rexnord will seek a U.S. Internal Revenue
Service (“IRS”) private letter ruling with respect to certain tax aspects of the Rexnord Transaction, including matters relating to
the nature and extent of shareholders who may be counted as overlapping shareholders for purposes of determining the exchange
ratio in the merger of Merger Sub with and into Land (the “Merger”). The extent of the overlapping shareholders that may be
counted in determining the exchange ratio for the Merger will depend on whether an IRS ruling is received and the contents of
such IRS ruling.
In the event that the number of shares that we issue at the closing of the Rexnord Transaction is increased in the manner described
above, including as a result of our failure to be able to count our and Rexnord's overlapping shareholders, the Merger Agreement
also provides that we will declare a special dividend to our shareholders in an amount that will depend on the number of shares
being issued, but which may range in amount between zero and approximately $2.0 billion.
The extent of our and Rexnord's overlapping shareholders of is outside of our and Rexnord's control of and will not be known
until the closing occurs. In addition, the grant of the IRS ruling is within the discretion of the IRS. We can offer no assurance
concerning the extent of our and Rexnord's overlapping shareholdings at any closing of the Rexnord Transaction or assurance
that the IRS ruling will be received.
The amount of debt that we may incur in connection with the Rexnord Transaction is uncertain and may be substantial.
In connection with the Rexnord Transaction, we have agreed that the entity we would acquire in the transaction, which we refer
to as Land, will prior to its spin-off by Rexnord incur approximately $487.0 million of indebtedness in order to fund a cash
payment to a subsidiary of Rexnord. Following the closing, this indebtedness would be indebtedness of our wholly owned
subsidiary. In addition, as part of the Rexnord Transaction, we have agreed to assume approximately $92.0 million of unfunded
pension liabilities of the PMC business. Further, as part of the Rexnord Transaction, we may be required pay a cash dividend to
our shareholders in an amount between zero and approximately $2.0 billion, depending on the number of additional shares of
Company common stock that may be issued in connection with the Rexnord Transaction in order to satisfy tax requirements
applicable to a Reverse Morris Trust transaction. If a special dividend is paid, we expect to fund it with new indebtedness, and
we have entered into a debt commitment letter to fund that amount, which is described in more detail under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”. The size of the
dividend that will ultimately be declared is uncertain and will remain so until the closing. We have also entered into other financing
arrangements in connection with the Rexnord Transaction and expect to pay substantial fees and expenses in connection with
them.
In the event that our debt levels and debt service obligations increase substantially in connection with the Rexnord Transaction,
we will 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.
Our ability to make required payments of principal and interest on our increased debt levels, and our ability to comply with
financial and restrictive covenants with our lenders will be subject to the risks described above under “Risk Factors - Risks
Relating to Our Operations and Strategy - Our business may not generate cash flow from operations in an amount sufficient to
enable us to service our indebtedness or to fund our other liquidity needs, 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”.
Our failure to successfully integrate the PMC Business and any future acquisitions into its business within its expected
timetable could adversely affect the combined company’s future results and the market price of our common stock
following the completion of the Rexnord Transaction.
The success of the Rexnord Transaction will depend, in large part, on our ability, as a combined company following the completion
of the Rexnord Transaction, to realize the anticipated benefits of the Rexnord Transaction and on the sales and profitability of the
combined company. To realize these anticipated benefits, the combined company must successfully integrate its businesses. This
24
integration will be complex and time-consuming. The failure to successfully integrate and manage the challenges presented by
the integration process may result in our failure to achieve some or all of the anticipated benefits of the Rexnord Transaction.
Potential difficulties that may be encountered in the integration process include, among others:
•
•
•
•
•
•
•
•
•
•
the failure to implement our business plan for the combined company;
lost sales and customers as a result of our customers or customers of the PMC Business deciding not to do business with
the combined company;
risks associated with managing the larger and more complex combined company;
integrating our personnel and the personnel of the PMC Business while maintaining focus on providing consistent, high-
quality products and service to customers;
the loss of key employees;
unanticipated issues in integrating manufacturing, logistics, information, communications and other systems;
unexpected liabilities of the PMC Business;
possible inconsistencies in standards, controls, procedures, policies and compensation structures; and
the impact on our internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of
2002;
and potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Rexnord
Transaction.
If any of these events were to occur, our ability to maintain relationships with customers, suppliers and employees or our ability
to achieve the anticipated benefits of the Rexnord Transaction could be adversely affected, or could reduce our sales or earnings
or otherwise adversely affect our business and financial results after the Rexnord Transaction and, as a result, adversely affect the
market price of our common stock.
Apart from the Rexnord Transaction, as part of our growth strategy, we have made and expect to continue to make, acquisitions.
Our company’s continued growth may depend on our ability to identify and acquire companies that complement or enhance our
business on acceptable terms, but we may not be able to identify or complete future acquisitions. We may not be able to integrate
successfully its recent acquisitions, or any future acquisitions, operate these acquired companies profitably, or realize the potential
benefits from these acquisitions.
The Company will incur significant costs related to the Rexnord Transaction that could have an adverse effect on its
liquidity, cash flows and operating results.
The Company expects to incur significant one-time costs in connection with the Rexnord Transaction, including the cost of
financing and other transaction costs, integration costs, and other costs that Company management believes are necessary to
realize the anticipated synergies from the Rexnord Transaction. The incurrence of these costs may have a material adverse effect
on the Company’s liquidity, cash flows and operating results in the periods in which they are incurred.
Businesses that we have acquired or that we may acquire in the future, including the PMC Business, may have liabilities
which are not known to us.
We have assumed liabilities of acquired businesses and may assume liabilities of businesses that we acquire in the future,
including the PMC Business. 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,
25
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.
Divestitures of some of our businesses or product lines may have a material adverse effect on our results of operations,
financial position and cash flows.
We continually evaluate the strategic fit of our businesses and products, which may result in divestitures. Any divestiture may
result in write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on
our financial position. In addition, divestitures may result in asset impairment charges, including those related to goodwill and
other intangible assets, which could have a material adverse effect on our financial condition and results of operations.
Divestitures could involve additional risks, including difficulties in the separation of operations, products and personnel, the
diversion of management’s attention, the disruption of our business and the potential loss of key associates. There can be no
assurance that we will be successful in addressing these or any other significant risks associated with divestitures.
General Risks
Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may
adversely affect interest expense related to our outstanding debt.
Amounts drawn under our credit facility may bear interest rates in relation to LIBOR, depending on our selection of repayment
options. On July 27, 2017, the Financial Conduct Authority in the United Kingdom announced that it would phase out LIBOR as
a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues
to exist after 2021. The overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR.
Disruption in the financing market could have a material adverse effect on our business, financial position, operating results, and
interest expense related to our outstanding debt.
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 US 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 the
US or foreign governments which could disrupt manufacturing and commercial operations, including policy changes affecting
taxation, trade, immigration, currency devaluation, tariffs, customs, border actions and the like, including, for example, the effect
of the United Kingdom’s exit from the European Union, commonly referred to as “Brexit,” trade relations between the US and
China, the implementation of the USMCA, or the change in labor rates in Mexico.
26
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.
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.
27
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
28
ITEM 2 - PROPERTIES
Our corporate offices are located in Beloit, Wisconsin in an approximately 50,000 square foot owned office building and in
Rosemont, Illinois in an approximately 12,100 square foot rented office building. We have manufacturing, sales and service
facilities throughout the US and in Mexico, China, Europe, India and Thailand.
Our Commercial Systems segment currently includes 46 facilities, of which 14 are principal manufacturing facilities and 3 are
principal warehouse facilities. The Commercial Systems segment's present operating facilities contain a total of approximately
4.0 million square feet of space, of which approximately 31% are leased.
The following represents our principal manufacturing and warehouse facilities in the Commercial Systems segment (square
footage in millions):
Location
US
Mexico
China
Europe
Other
Total
Facilities
5
4
4
1
3
17
Total
1.1
0.8
0.9
0.1
0.4
3.3
Square Footage
Owned
0.6
0.6
0.8
0.1
0.2
2.3
Leased
0.5
0.2
0.1
—
0.2
1.0
Our Industrial Systems segment currently includes 25 facilities, of which 11 are principal manufacturing facilities and 1 are
principal warehouse facilities. The Industrial Systems segment's present operating facilities contain a total of approximately 2.8
million square feet of space, of which approximately 26% are leased.
The following represents our principal manufacturing and warehouse facilities in the Industrial Systems segment (square footage
in millions):
Location
US
Mexico
China
India
Europe
Other
Total
Facilities
2
2
2
2
1
3
12
Square Footage
Owned
0.7
—
0.6
0.2
0.2
0.1
1.8
Leased
—
0.3
—
0.1
—
0.2
0.6
Total
0.7
0.3
0.6
0.3
0.2
0.3
2.4
29
Our Climate Solutions segment currently includes 29 facilities, of which 9 are principal manufacturing facilities and 3 are
principal warehouse facilities. The Climate Solutions segment's present operating facilities contain a total of approximately 2.5
million square feet of space, of which approximately 54% are leased.
The following represents our principal manufacturing and warehouse facilities in the Climate Solutions segment (square footage
in millions):
Location
US
Mexico
China
India
Other
Total
Facilities
4
4
2
1
1
12
Total
0.8
0.7
0.3
0.4
0.1
2.3
Square Footage
Owned
0.4
0.3
—
0.4
—
1.1
Leased
0.4
0.4
0.3
—
0.1
1.2
Our Power Transmission Solutions segment currently includes 25 facilities, of which 13 are principal manufacturing facilities
and 1 is a principal warehouse facility. The Power Transmission Solutions segment's present operating facilities contain a total of
approximately 2.5 million square feet of space, of which approximately 24% are leased.
The following represents our principal manufacturing and warehouse facilities in the Power Transmission Solutions segment
(square footage in millions):
Location
US
Mexico
China
Europe
Total
Facilities
9
2
1
2
14
Total
1.0
0.3
0.2
0.3
1.8
Square Footage
Owned
0.7
0.3
—
0.3
1.3
Leased
0.3
—
0.2
—
0.5
30
ITEM 3 - LEGAL PROCEEDINGS
A subsidiary 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 manufactured and sold in high volumes by a third party. These ventilation units are subject to product safety
requirements and other potential regulation of their performance by government agencies such as the US Consumer Product
Safety Commission (“CPSC”). The claims generally allege that the ventilation units were the cause of fires. We have recorded an
estimated liability for incurred claims. Based on the current facts, we cannot assure that these claims, individually or in the
aggregate, will not have a material adverse effect on our subsidiary's financial condition. Our subsidiary cannot reasonably predict
the outcome of these claims, the nature or extent of any CPSC or other remedial actions, if any, that our subsidiary may need to
undertake with respect to motors that remain in the field, or the costs that may be incurred, some of which could be significant.
We are from time to time, party to litigation and other legal or regulatory proceedings that arise in the normal course of our
business operations and the outcomes of which are subject to significant uncertainty, including product warranty and liability
claims, contract disputes and environmental, asbestos, intellectual property, 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. Many of these matters will only be resolved when one or more
future events occur or fail to occur. Our management conducts regular reviews, including updates from legal counsel, to assess
the need for accounting recognition or disclosure of these contingencies, and such assessment inherently involves an exercise in
judgment. We accrue for exposures in amounts that we believe are adequate, and we do not believe that the outcome of any such
lawsuit individually or collectively will have a material effect on our financial position, results of operations or cash flows.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
31
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
PART II
General
Our common stock, $0.01 par value per share, is traded on the New York Stock Exchange under the symbol “RBC.” The number
of registered holders of common stock as of January 22, 2021 was 309.
There were no repurchases of our common stock during the current quarter.
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 the Company withhold shares of
common stock otherwise issuable under the award, (b) tender back shares received in connection with such award or (c) deliver
other previously owned shares of common stock, in each case having a value equal to the exercise price or the amount to be
withheld. During the quarter ended January 2, 2021, we did not acquire any shares in connection with transactions pursuant to
equity incentive plans.
At a meeting of the Board of Directors on July 24, 2018, the Company's Board of Directors approved the extinguishment of the
existing $3.0 million share repurchase program that was approved in November 2013 and replaced it with an authorization to
repurchase up to $250.0 million of shares. At a meeting of the Board of Directors on October 25, 2019, the July 2018 repurchase
authorization was extinguished and replaced with an authorization to purchase up to $250.0 million of shares. The new
authorization has no expiration date. Management is authorized to effect purchases from time to time in the open market or
through privately negotiated transactions. From time to time, we enter into a Rule 10b5-1 trading plan for the purpose of
repurchasing shares. For fiscal 2020, we purchased 315,072 shares or $25.0 million in shares pursuant to the October 25, 2019
repurchase authorization. For fiscal 2019, we purchased 180,763 shares or $15.0 million in shares pursuant to the October 25,
2019 repurchase authorization and 2,013,782 shares or $150.1 million in shares pursuant to the July 2018 repurchase
authorization. The maximum value of shares of our common stock available to be purchased as of January 2, 2021 is $210.0
million.
Item 12 of this Annual Report on Form 10-K contains certain information relating to our equity compensation plans.
32
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 January 3, 2016 through January 2, 2021. In each case, the graph assumes the investment of
$100.00 on January 2, 2016.
Company / Index
Regal Beloit Corporation
S&P MidCap 400 Index
INDEXED RETURNS
$
2016
120.22 $
120.74
2017
134.74 $
140.35
Years Ended
2018
125.01 $
123.53
2019
154.74 $
157.40
2020
225.68
179.00
S&P 400 Electrical Components & Equipment
116.94
128.12
111.28
142.28
187.71
33
ITEM 6 - SELECTED FINANCIAL DATA
The selected statements of income data for fiscal years 2020, 2019 and 2018, and the selected balance sheet data as of January 2,
2021 and December 28, 2019 is derived from, and are qualified by reference to, the audited consolidated financial statements
included elsewhere in this Annual Report on Form 10-K. The selected statement of income data for fiscal years 2017 and 2016
and the selected balance sheet data as of December 29, 2018, December 30, 2017 and December 31, 2016 is derived from audited
consolidated financial statements not included herein.
Net Sales
Cost of Sales
Gross Profit
Operating Expenses
Goodwill Impairment
Asset Impairments
Gain on Sale of Businesses
Total Operating Expenses
Income from Operations
Net Income
Net Income Attributable to Regal Beloit
Corporation
Total Assets
Total Debt
Long-Term Debt
Regal Beloit Shareholders' Equity
Per Share Data:
Earnings - Basic
Earnings - Assuming Dilution
Cash Dividends Declared
Shareholders' Equity
Weighted Average Shares Outstanding:
Basic
Assuming Dilution
Fiscal
2020
Fiscal
2019
Fiscal
2018
Fiscal
2017
Fiscal
2016
$
(In Millions, Except per Share Data)
2,907.0 $
2,098.3
808.7
512.9
10.5
5.3
(0.1)
528.6
280.1
193.8
3,238.0 $
2,377.3
860.7
544.3
—
10.0
(44.7)
509.6
351.1
242.6
3,645.6 $
2,681.0
964.6
599.4
9.5
8.7
—
617.6
347.0
235.8
3,360.3 $
2,476.7
883.6
552.6
—
—
(0.1)
552.5
331.1
218.1
189.3
4,589.0
1,071.4
840.4
2,544.4
238.9
4,430.7
1,137.5
1,136.9
2,351.1
231.2
4,623.8
1,307.1
1,306.6
2,310.5
213.0
4,388.2
1,141.1
1,039.9
2,325.5
$
4.66 $
4.64
1.20
62.67
5.69 $
5.66
1.18
54.59
5.30 $
5.26
1.10
53.62
4.78 $
4.74
1.02
52.83
40.6
40.8
42.0
42.2
43.6
43.9
44.6
44.9
3,224.5
2,359.5
865.0
542.5
—
—
—
542.5
322.5
209.3
203.4
4,358.5
1,411.5
1,310.9
2,038.8
4.55
4.52
0.95
46.46
44.7
45.0
We have completed various acquisitions and divestitures 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. The results of operations for divestitures are included in our consolidated financial results for the period prior to
their divestiture date.
During fiscal 2019, we divested several businesses which resulted in a gain on sale for the fiscal year of $44.7 million. See Note
4 of Notes to the Consolidated Financial Statements for the details of each business that was divested.
On April 10, 2018, we acquired NG for $161.5 million in cash, net of $8.5 million of cash acquired. NG is a leader in critical,
energy-efficient systems for ventilation and air quality. NG manufactures, sells and services fans and blowers under the industry
leading brands of Nicotra and Gebhardt. The financial results of NG have been included in our Commercial Systems segment
from the date of acquisition.
34
In addition to those acquisitions and divestitures, on July 31, 2018, we received notification from a customer of our hermetic
climate business that it would wind down operations. As a result of this notification, we accelerated our plans to exit this business.
We recognized exit and exit related charges of $34.9 million during the 2018 fiscal year. The charges included goodwill
impairment of $9.5 million, customer relationship intangible asset impairment of $5.5 million, technology intangible asset
impairment of $2.1 million and fixed asset impairment of $1.1 million. In addition to the impairments, we took charges on
accounts receivable and inventory along with recognizing other expenses related to exiting the business.
35
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
January 2, 2021 as “fiscal 2020", the fiscal year ended December 28, 2019 as “fiscal 2019" and the fiscal year ended
December 29, 2018 as “fiscal 2018".
Overview
General
Regal Beloit Corporation (NYSE: RBC) (“we,” “us,” “our” or the “Company”), based in Beloit, Wisconsin (USA), is a leading
manufacturer of electric motors, electrical motion controls, power generation and power transmission products serving markets
throughout the world. As of the end of fiscal 2020, the Company, including its subsidiaries, employed approximately 23,000
people in its manufacturing, sales, and service facilities and corporate offices throughout the US, Canada, Mexico, Europe and
Asia. In fiscal 2020, we reported annual net sales of $2.9 billion compared to $3.2 billion in fiscal 2019.
Our company is comprised of four operating segments: Commercial Systems, Industrial Systems, Climate Solutions and Power
Transmission Solutions.
A description of the four operating segments is as follows:
• Commercial Systems segment produces fractional to approximately 5 horsepower AC and DC motors, electronic
variable speed controls, fans, and blowers for commercial applications. These products serve markets including
commercial building ventilation and HVAC, pool and spa, irrigation, dewatering, agriculture, and general commercial
equipment.
•
Industrial Systems segment produces integral motors, generators, alternators and switchgear for industrial applications,
along with aftermarket parts and kits to support such products. These products serve markets including agriculture,
marine, mining, oil and gas, food and beverage, data centers, healthcare, prime and standby power, and general industrial
equipment.
• Climate Solutions segment produces small motors, electronic variable speed controls and air moving solutions serving
markets including residential and light commercial HVAC, water heaters and commercial refrigeration.
•
Power Transmission Solutions segment produces, sells and services belt and chain drives, helical and worm gearing,
mounted and unmounted bearings, couplings, modular plastic belts, conveying chains and components, hydraulic pump
drives, large open gearing and specialty mechanical products serving markets including e-commerce, alternative energy,
beverage, bulk handling, metals, special machinery, energy, aerospace and general industrial.
Components of Profit and Loss
Net Sales. We sell our products to a variety of manufacturers, distributors and end users. Our customers consist of a large cross-
section of businesses, ranging from Fortune 100 companies to small businesses. A number of our products are sold to OEMs, who
incorporate our products, such as electric motors, into products they manufacture, and many of our products are built to the
requirements of our customers. The majority of our sales are derived from direct sales to customers by sales personnel employed
by the Company, however, a significant portion of our sales are derived from sales made by manufacturer’s representatives, who
are paid exclusively on commission. Our product sales are made via purchase order, long-term contract, and, in some instances,
one-time purchases. Many of our products have broad customer bases, with the levels of concentration of revenues varying from
business unit to business unit.
36
Our level of net sales for any given period is dependent upon a number of factors, including (i) the demand for our products; (ii)
the strength of the economy generally and the end markets in which we compete; (iii) our customers’ perceptions of our product
quality at any given time; (iv) our ability to timely meet customer demands; (v) the selling price of our products; and (vi) the
weather. As a result, our total revenue has tended to experience quarterly variations and our total revenue for any particular quarter
may not be indicative of future results.
We use the term “organic sales" to refer to sales from existing operations excluding (i) sales from acquired businesses recorded
prior to the first anniversary of the acquisition (“Acquisition Sales”), (ii) less the amount of sales attributable to any businesses
divested/to be exited ("Business To Be Exited"), and (iii) the impact of foreign currency translation. The impact of foreign
currency translation is determined by translating the respective period’s organic sales using the same currency exchange rates that
were in effect during the prior year periods. We use the term “organic sales growth” to refer to the increase in our sales between
periods that is attributable to organic sales. We use the term “acquisition growth” to refer to the increase in our sales between
periods that is attributable to Acquisition Sales.
Gross Profit. Our gross profit is impacted by our levels of net sales and cost of sales. Our cost of sales consists of costs for, among
other things (i) raw materials, including copper, steel and aluminum; (ii) components such as castings, bars, tools, bearings and
electronics; (iii) wages and related personnel expenses for fabrication, assembly and logistics personnel; (iv) manufacturing
facilities, including depreciation on our manufacturing facilities and equipment, insurance and utilities; and (v) shipping. The
majority of our cost of sales consists of raw materials and components. The price we pay for commodities and components can
be subject to commodity price fluctuations. We attempt to mitigate portions of the commodity price fluctuations through fixed-
price agreements with suppliers and our hedging strategies. When we experience commodity price increases, we have tended to
announce price increases to our customers who purchase via purchase order, with such increases generally taking effect a period
of time after the public announcements. For those sales we make under long-term arrangements, we tend to include material price
formulas that specify quarterly or semi-annual price adjustments based on a variety of factors, including commodity prices.
Outside of general economic cyclicality, our business units experience different levels of variation in sales from quarter to quarter
based on factors specific to each business. For example, a portion of our Climate Solutions segment manufactures products that
are used in air conditioning applications. As a result, our sales for that business tend to be lower in the first and fourth quarters
and higher in the second and third quarters. In contrast, our Commercial Systems segment, Industrial Systems segment and Power
Transmission Solutions segment have a broad customer base and a variety of applications, thereby helping to mitigate large
quarter-to-quarter fluctuations outside of general economic conditions.
Operating Expenses. Our operating expenses consist primarily of (i) general and administrative expenses; (ii) sales and marketing
expenses; (iii) general engineering and research and development expenses; and (iv) handling costs incurred in conjunction with
distribution activities. Personnel related costs are our largest operating expense.
Our general and administrative expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses related
to our executive, finance, human resource, information technology, legal and operations functions; (ii) occupancy expenses; (iii)
technology related costs; (iv) depreciation and amortization; and (v) corporate-related travel. The majority of our general and
administrative costs are for salaries and related personnel expenses. These costs can vary by business given the location of our
different manufacturing operations.
Our sales and marketing expenses consist primarily of costs for (i) salaries, benefits and other personnel expenses related to our
sales and marketing function; (ii) internal and external sales commissions and bonuses; (iii) travel, lodging and other out-of-
pocket expenses associated with our selling efforts; and (iv) other related overhead.
Our general engineering and research and development expenses consist primarily of costs for (i) salaries, benefits and other
personnel expenses; (ii) the design and development of new energy efficiency products and enhancements; (iii) quality assurance
and testing; and (iv) other related overhead. Our research and development efforts tend to be targeted toward developing new
products that would allow us to maintain or gain additional market share, whether in new or existing applications. While these
costs make up an insignificant portion of our operating expenses in the Power Transmission Solutions segment, they are more
37
substantial in our Commercial Systems, Industrial Systems and Climate Solutions segments. In particular, a large driver of our
research and development efforts in those three segments is energy efficiency, which generally means using less electrical power
to produce more mechanical power.
Goodwill & Other Asset Impairments. In the fourth quarter of 2020, we recorded goodwill impairment of $10.5 million in our
global industrial motors reporting unit. During fiscal 2020, we recognized $5.3 million of asset impairments related to the transfer
of assets to held for sale.
In the first quarter of 2019, we transferred assets to held for sale which resulted in the recognition of $5.1 million of fixed asset
impairments and $4.9 million of customer relationships intangible asset impairments.
On July 31, 2018, we received notification from a customer of our hermetic climate business that it would wind down operations.
As a result of this notification, we accelerated our plans to exit the hermetic climate business. We recognized exit and exit related
charges of $34.9 million during fiscal 2019. The charges included goodwill impairment of $9.5 million, customer relationship
intangible asset impairment of $5.5 million, technology intangible asset impairment of $2.1 million and fixed asset impairment
of $1.1 million. In addition to the asset impairments, the Company took charges on accounts receivable and inventory along with
recognizing other expenses related to exiting the business.
The following table presents impairments by segment as of January 2, 2021, December 28, 2019 and December 29, 2018 (in
millions):
Commercial
Systems
Industrial
Systems
Climate
Solutions
Power
Transmission
Solutions
Total
Fiscal 2020
Goodwill Impairments
Impairment of Other Long-Lived Assets
Total Impairments
Fiscal 2019
Impairment of Intangible Assets
Impairment of Other Long-Lived Assets
Total Impairments
Fiscal 2018
Goodwill Impairments
Impairment of Intangible Assets
Impairment of Other Long-Lived Assets
Total Impairments
$
$
$
$
$
$
— $
2.8
2.8 $
4.9 $
1.8
6.7 $
— $
—
—
— $
10.5 $
0.2
10.7 $
— $
0.9
0.9 $
— $
—
—
— $
— $
1.3
1.3 $
— $
1.3
1.3 $
9.5 $
7.6
1.1
18.2 $
— $
1.0 $
1.0 $
— $
1.1
1.1 $
— $
—
—
— $
10.5
5.3
15.8
4.9
5.1
10.0
9.5
7.6
1.1
18.2
Operating Profit. Our operating profit consists of the segment gross profit less the segment operating expenses. In addition, there
are shared operating costs that cover corporate, engineering and IT expenses that are consistently allocated to the operating
segments and are included in the segment operating expenses. Operating profit is a key metric used to measure year over year
improvement of the segments.
COVID-19 Pandemic
COVID-19 evolved during the first quarter of 2020 into a global pandemic, resulting in a severe global health crisis that drove a
dramatic slowdown in global economic and social activity. Impacts from COVID-19 on our business became more severe during
the first half of the second quarter in terms of weakening demand in many of our end markets, which are weighted to North
America, and its impact on our manufacturing operations, particularly in Mexico and India. As the second quarter progressed,
pressure on our order rates started to abate, and previously disrupted manufacturing operations improved. Our order rates started
38
to push back into positive territory in the third quarter. This trend continued throughout the fourth quarter of the year. Currently,
our manufacturing operations are, on average, running closer to full capacity.
We believe that we are an essential business, and as such have worked to ensure that our global facilities have remained
operational. Our products are essential components in a range of applications used in the food & beverage, pharmaceutical,
medical, transportation, and data communications industries, among many others. Certain global manufacturing operations have
been impacted with plant closures or plants running at reduced rates at various points during the fiscal year.
In the face of this global crisis, our first priority has been the health and safety of our associates. In response, we implemented a
host of measures to help our associates stay safe, measures that have been enhanced and refined as impacts from COVID-19 grew,
and as our knowledge about how to enhance their effectiveness improved.
Factors deriving from the COVID-19 response that have or may negatively impact sales and operating profit in the future include,
but are not limited to: limitations on the ability of our suppliers to manufacture, or procure from manufacturers, components and
raw materials used in our products, or to meet delivery requirements and commitments; limitations on the ability of our employees
to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at
home; inconsistent criteria in certain international jurisdictions for establishing the essentiality of our business; limitations on the
ability of carriers to deliver our products to customers; limitations on the ability of our customers to conduct their business and
purchase our products and services; reductions in demands of our customers; and limitations on the ability of our customers to
pay us on a timely basis.
We have taken actions to manage costs including an organization wide reduction in force and voluntary early retirement program.
We will continue to assess the actual and expected impacts of COVID-19 and consider making further changes to our cost
structure as the implications of COVID-19 continue to evolve.
Rexnord Transaction
On February 15, 2021, we entered into definitive agreements with Rexnord Corporation (“Rexnord”), Land Newco, Inc., a wholly
owned indirect subsidiary of Rexnord (“Land”), and Phoenix 2021, Inc., our wholly owned subsidiary (“Merger Sub”), with
respect to a Reverse Morris Trust transaction (the “Rexnord Transaction”) pursuant to which, and subject to the terms and
conditions of those definitive agreements discussed below, (1) Rexnord will transfer (or cause to be transferred) to Land
substantially all of the assets, and Land will assume substantially all of the liabilities, of Rexnord’s Process & Motion Control
business (“PMC Business”) (the “Reorganization”), (2) after which, all of the issued and outstanding shares of common stock,
$0.01 par value per share, of Land (“Land common stock”) held by a subsidiary of Rexnord will be distributed in a series of
distributions to Rexnord’s stockholders (the “Distributions”, and the final distribution of Land common stock from Rexnord to
Rexnord’s stockholders, which is to be made pro rata for no consideration, the “Spin-Off”) and (3) immediately after the Spin-
Off, Merger Sub will merge with and into Land (the “Merger”) and all shares of Land common stock (other than those held by
Rexnord, Land, the Company, Merger Sub or their respective subsidiaries) will be converted into the right to receive shares of
our common stock, $0.01 par value per share (“Company common stock”), as calculated and subject to adjustment as set forth in
the Merger Agreement (as defined below). When the Merger is completed, Land (which at that time will hold the PMC business)
will be our wholly owned subsidiary.
The definitive agreements we entered into in connection with the Rexnord Transaction include an Agreement and Plan of Merger,
by and among Rexnord, Land, Merger Sub and us (the “Merger Agreement”), a Separation and Distribution Agreement, by and
among Rexnord, Land and us and certain ancillary agreements.
In connection with the Rexnord Transaction, the Merger Agreement provides that we shall, to the extent required by the Merger
Agreement, in certain circumstances in which additional shares of Company common stock are issued at closing to holders of
Land common stock, declare a special dividend to our stockholders immediately prior to the consummation of the Merger (the
“Company Special Dividend”). The existence and magnitude of the dividend will depend on whether and to what extent we are
39
able to count certain overlapping shareholders of us and Rexnord in satisfying the tax requirements applicable to a Reverse Morris
Trust transaction. In the event that the Company Special Dividend is required to be paid, it could range in amount between zero
and approximately $2.0 billion.
In connection with the Rexnord Transaction, we have entered into certain financing arrangements, which are described below
under “Liquidity and Capital Resources”.
Closing of the Rexnord Transaction is subject to various closing conditions, including the receipt of the approval of our and
Rexnord's shareholders, the receipt of regulatory approvals and other customary closing conditions.
The Rexnord Transaction is described more fully in our Current Report on Form 8-K filed with the SEC on February 19, 2021
and this description is qualified in its entirety by the description set forth therein.
Outlook. In the first quarter of fiscal 2021, we are forecasting a mid-single digit sales growth. We expect to see positive impact
from our new products. In the first quarter of 2021, we expect diluted earnings per share to be $1.32 to $1.52. Our fiscal 2021
diluted earnings per share guidance is based on an effective tax rate of 21%.
40
Results of Operations
The following table sets forth selected information for the years indicated:
(Dollars in Millions)
Net Sales:
Commercial Systems
Industrial Systems
Climate Solutions
Power Transmission Solutions
Consolidated
Gross Profit as a Percent of Net Sales:
Commercial Systems
Industrial Systems
Climate Solutions
Power Transmission Solutions
Consolidated
Operating Expenses as a Percent of Net Sales:
Commercial Systems
Industrial Systems
Climate Solutions
Power Transmission Solutions
Consolidated
Income (Loss) from Operations as a Percent of Net Sales:
Commercial Systems
Industrial Systems
Climate Solutions
Power Transmission Solutions
Consolidated
Income from Operations
Other (Income) Expenses, net
Interest Expense
Interest Income
Income before Taxes
Provision for Income Taxes
Net Income
Net Income Attributable to Noncontrolling Interests
Net Income Attributable to Regal Beloit Corporation
2020
2019
2018
$
$
820.2
528.8
846.8
711.2
2,907.0
$
$
905.3
575.4
968.5
788.8
3,238.0
$
$
1,110.9
671.1
1,024.8
838.8
3,645.6
26.1 %
18.3 %
29.1 %
35.3 %
27.8 %
17.7 %
17.3 %
13.6 %
22.6 %
17.6 %
8.1 %
(1.1)%
15.4 %
12.6 %
9.6 %
26.1 %
16.6 %
27.9 %
32.8 %
26.6 %
17.9 %
18.7 %
11.4 %
20.8 %
16.8 %
11.8 %
(2.3)%
16.9 %
11.8 %
10.8 %
$
$
280.1
(4.4)
39.8
5.9
250.6
56.8
193.8
4.5
189.3
$
$
351.1
(0.1)
53.0
5.6
303.8
61.2
242.6
3.7
238.9
$
$
25.8 %
20.3 %
25.6 %
33.2 %
26.5 %
16.6 %
16.6 %
12.6 %
20.8 %
16.4 %
9.2 %
3.7 %
11.3 %
12.4 %
9.5 %
347.0
1.5
55.2
1.9
292.2
56.4
235.8
4.6
231.2
41
Fiscal Year 2020 Compared to Fiscal Year 2019
Net sales for fiscal 2020 were $2.9 billion, a 10.2% decrease as compared to fiscal 2019 net sales of $3.2 billion. The decrease
consisted of negative organic sales of 8.4%, negative foreign currency translation of 0.4% and a negative 1.4% impact from the
businesses divested/to be exited. Gross profit decreased $52.0 million or 6.0% as compared to the prior year. The decrease from
the prior year was driven primarily due to lower sales volumes, partially offset by productivity improvements and simplification
programs. Operating expenses were $512.9 million which was a $31.4 million decrease from fiscal 2019. The decrease was
primarily driven by lower variable selling costs and lower employee related wage and benefit costs. The Company recognized
goodwill and other asset impairments of $15.8 million, a $5.8 million increase from the prior year.
Net sales for the Commercial Systems segment for fiscal 2020 were $820.2 million, a 9.4% decrease compared to fiscal 2019 net
sales of $905.3 million. The decrease consisted of negative organic sales of 6.9% and a negative 2.6% impact from the businesses
divested/to be exited partially offset by a positive 0.1% foreign currency translation. The organic sales decrease was primarily
driven by decline in market demand as well as COVID related pressures on production along with ongoing intentional account
pruning actions. Gross profit decreased $22.8 million or 9.6% primarily due to lower sales volumes partially offset by
simplification programs and selective pricing on lower margin accounts. Operating expenses for fiscal 2020 decreased $17.5
million as compared to fiscal 2019. The decrease was primarily due to lower variable selling costs on lower sales, lower employee
related wage and benefit costs and lower facility costs.
Net sales for the Industrial Systems segment for fiscal 2020 were $528.8 million, a 8.1% decrease compared to fiscal 2019 net
sales of $575.4 million. The decrease consisted of negative organic sales of 7.1% and negative foreign currency translation of
1.0%. The organic sales decrease was driven by COVID related pressures on production, the oil & gas downturn and the impact
of 80/20 account pruning. Gross profit increased $1.1 million or 1.2% primarily due to sales mix with higher sales volumes related
to power generation projects, simplification programs and selective pricing on lower margin accounts. Operating expenses for
fiscal 2020 decreased $16.0 million as compared to fiscal 2019. The decrease was primarily due to lower employee related wage
and benefit costs and lower variable selling costs on lower sales.
Net sales for the Climate Solutions segment for fiscal 2020 were $846.8 million, a 12.6% decrease compared to fiscal 2019 net
sales of $968.5 million. The decrease consisted of negative organic sales of 9.9%, negative foreign currency translation of 0.6%
and a negative 2.1% impact from the businesses divested/to be exited. The organic sales decrease was driven by COVID related
pressure in North America and Europe and 80/20 account pruning efforts. Gross profit decreased $23.0 million or 8.5% primarily
due to sales mix and productivity gains. Operating expenses for fiscal 2020 increased $4.9 million as compared to the prior year
primarily due to professional fees.
Net sales for the Power Transmission Solutions segment for fiscal 2020 were $711.2 million, a 9.8% decrease compared to fiscal
2019 net sales of $788.8 million. The decrease consisted of negative organic sales of 9.1%, negative foreign currency translation
of 0.1% and a negative 0.6% impact from the businesses divested/to be exited. The organic sales decrease was driven by COVID
related pressures on general industrial, upstream oil & gas end markets and 80/20 account pruning efforts. Gross profit for fiscal
2020 decreased $7.3 million or 2.8% primarily due to lower sales volumes partially offset by the change in sales mix and
productivity gains. Operating expenses for fiscal 2020 decreased $2.8 million due to lower employee related wage and benefit
costs and lower variable selling costs on the lower sales.
The effective tax rate for fiscal 2020 was 22.7% compared to 20.1% for fiscal 2019. The increase in the effective rate was due to
the mix of earnings during the year.
Fiscal Year 2019 Compared to Fiscal Year 2018
Net sales for fiscal 2019 were $3.2 billion, a decrease of 11.2% compared to fiscal 2018 net sales of $3.6 billion. The decrease
consisted of negative organic sales of 5.7%, negative foreign currency translation of 1.1% and a negative 5.3% impact from the
businesses divested/to be exited partially offset by a positive 0.9% sales growth related to the acquisition of Nicotra Gebhardt
S.p.A ("NG"). Gross profit decreased $103.9 million or 10.8% as compared to the prior year. The decrease from the prior year
42
was driven primarily due to lower sales volumes, partially offset by productivity improvements and simplification programs.
Operating expenses were $544.3 million which was a $55.1 million decrease from fiscal 2018 due primarily to businesses
divested/to be exited.
Net sales for the Commercial Systems segment for fiscal 2019 were $905.3 million, a 18.5% decrease compared to fiscal 2018
net sales of $1.1 billion. The decrease consisted of negative organic sales of 8.1%, negative foreign currency translation of 1.2%
and a negative 12.6% impact from businesses divested/to be exited partially offset by a positive 3.4% sales growth related to the
acquisition of NG. The organic sales decrease was primarily driven by the continued inventory destocking in the North American
pool pump market, weakness in North American general industry and the impact of 80/20 account pruning. Gross profit decreased
$50.4 million or 17.6% primarily due to lower sales volumes partially offset by simplification programs and selective pricing on
lower margin accounts. Operating expenses for fiscal 2019 decreased $22.4 million as compared to fiscal 2018. The decrease was
primarily due to lower variable selling costs on lower sales and the removal of costs related to businesses divested/to be exited.
Net sales for the Industrial Systems segment for fiscal 2019 were $575.4 million, a 14.3% decrease compared to fiscal 2018 net
sales of $671.1 million. The decrease consisted of negative organic sales of 11.4%, negative foreign currency translation of 2.1%
and a negative 0.8% impact from the businesses divested/to be exited. The organic sales decrease was driven by delays in power
generation projects due to end market overcapacity and the oil & gas downturn, weak North American and China industrial
demand due to trade uncertainty and the impact of 80/20 account pruning. Gross profit decreased $40.8 million or 29.9% primarily
due to lower sales volumes related to power generation projects, partially offset by simplification programs and selective pricing
on lower margin accounts. Operating expenses for fiscal 2019 decreased $4.0 million as compared to fiscal 2018. The decrease
was primarily due to lower variable selling costs on lower sales.
Net sales for the Climate Solutions segment for fiscal 2019 were $968.5 million, a 5.5% decrease compared to fiscal 2018 net
sales of $1,024.8 million. The decrease consisted of negative organic sales of 1.2%, negative foreign currency translation of 0.6%
and a negative 3.7% impact from the businesses divested/to be exited. The organic sales decrease was driven by inventory
destocking by HVAC OEM customers and 80/20 account pruning efforts. Gross profit increased $7.1 million or 2.7% primarily
due to sales mix and productivity gains. Operating expenses for fiscal 2019 decreased $18.3 million as compared to the prior year
primarily due to the removal of costs related to businesses divested/to be exited.
Net sales for the Power Transmission Solutions segment for fiscal 2019 were $788.8 million, a 6.0% decrease compared to fiscal
2018 net sales of $838.8 million. The decrease consisted of negative organic sales of 3.5%, negative foreign currency translation
of 0.9% and a negative 1.6% impact from the businesses divested/to be exited. The organic sales decrease was driven by continued
weakness in the industrial distribution channel and 80/20 account pruning efforts. Gross profit for fiscal 2019 decreased $19.8
million or 7.1% primarily due to the change in sales mix and productivity gains partially offset by the lower sales volume.
Operating expenses for fiscal 2019 decreased $10.4 million due to lower variable selling costs on the lower sales and the removal
of costs related to the businesses divested/to be exited.
The effective tax rate for fiscal 2019 was 20.1% compared to 19.3% for fiscal 2018. The increase in the effective rate was due to
the mix of earnings during the year. The lower effective tax rate in fiscal 2019 as compared to the 21% statutory US federal
income tax rate is driven by the mix of earnings and lower foreign tax rates.
Liquidity and Capital Resources
General
Our principal source of liquidity is cash flow provided by operating activities. In addition to operating income, other significant
factors affecting our cash flows include working capital levels, capital expenditures, dividends, share repurchases, acquisitions,
and divestitures, availability of debt financing, and the ability to attract long-term capital at acceptable terms.
Cash flow provided by operating activities was $435.4 million for fiscal 2020, a $26.9 million increase from fiscal 2019. The
increase was primarily the result of a reduction in working capital.
43
Cash flow provided by operating activities was $408.5 million for fiscal 2019, a $45.8 million increase from fiscal 2018. The
increase was primarily the result of a reduction in working capital and the higher net income year over year.
Our working capital was $1,029.3 million and $1,047.2 million as of January 2, 2021 and December 28, 2019, respectively. As
of January 2, 2021 and December 28, 2019, our current ratio (which is the ratio of our current assets to current liabilities) was
2.3:1 and 2.9:1, respectively. We intend to use operating cash flow to meet our current debt repayment obligations.
Cash flow used in investing activities was $37.0 million for fiscal 2020, compared to cash flows provided by $74.3 million in
fiscal 2019. The change was driven primarily by the divestiture proceeds received in fiscal 2019 partially offset by lower capital
expenditures. Capital expenditures were $47.5 million in fiscal 2020, compared to $92.4 million in fiscal 2019.
Cash flow provided by investing activities was $74.3 million for fiscal 2019, compared to $227.9 million used in fiscal 2018. The
change was driven primarily by the divestiture proceeds received in fiscal 2019 versus the acquisition of NG in fiscal 2018.
Capital expenditures were $92.4 million in fiscal 2019, compared to $77.6 million in fiscal 2018.
In fiscal 2021, we anticipate capital spending for property, plant and equipment to be approximately $57.0 million. We believe
that our present manufacturing facilities will be sufficient to provide adequate capacity for our operations in fiscal 2021. We
anticipate funding fiscal 2021 capital spending with operating cash flows.
Cash flow used in financing activities was $147.6 million for fiscal 2020, compared to $397.4 million in fiscal 2019. Net debt
repayments totaled $67.7 million in fiscal 2020, compared to net debt repayments of $171.0 million in fiscal 2019. We also
repurchased $25.0 million of our common stock during fiscal 2020 compared to $165.1 million in fiscal 2019. We paid $48.7
million in dividends to shareholders in fiscal 2020 compared to $48.9 million in fiscal 2019. In fiscal 2020, we paid distributions
of $2.8 million to noncontrolling interests compared to $1.8 million in fiscal 2019.
Cash flow used in financing activities was $397.4 million for fiscal 2019, compared to $17.7 million for fiscal 2018. Net debt
repayments totaled $171.0 million in fiscal 2019, compared to net debt borrowings of $166.7 million in fiscal 2018. We also
repurchased $165.1 million of our common stock during fiscal 2019 compared to $127.8 million in fiscal 2018. We paid $48.9
million in dividends to shareholders in fiscal 2019 compared to $47.2 million in fiscal 2018. In fiscal 2019, we paid distributions
of $1.8 million to noncontrolling interests compared to $1.6 million in fiscal 2018.
The following table presents selected financial information and statistics as of January 2, 2021 and December 28, 2019 (in
millions):
Cash and Cash Equivalents
Trade Receivables, Net
Inventories
Working Capital
Current Ratio
January 2, 2021
$
611.3
432.0
690.3
1,029.3
2.3:1
December 28,
2019
$
331.4
461.4
678.4
1,047.2
2.9:1
As of January 2, 2021, $603.5 million of our cash was held by foreign subsidiaries and could be used in our domestic operations
if necessary. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from
operations. We regularly assess our cash needs and the available sources to fund these needs which includes repatriation of foreign
earnings which may be subject to withholding taxes. Under current law, we do not expect restrictions or taxes on repatriation of
cash held outside of the United States to have a material effect on our overall liquidity, financial condition or the results of
operations for the foreseeable future.
44
We will, from time to time, maintain excess cash balances which may be used to (i) fund operations, (ii) repay outstanding debt,
(iii) fund acquisitions, (iv) pay dividends, (v) make investments in new product development programs, (vi) repurchase our
common stock, or (vii) fund other corporate objectives.
Pension Liabilities and Other Post Retirement Benefits
Accrued pension and other post retirement benefits of $74.1 million and $85.3 million as of January 2, 2021 and December 28,
2019, respectively.
Credit Agreement
On August 27, 2018, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan
Chase Bank, N.A., as Administrative Agent and the lenders named therein, providing for a (i) 5-year unsecured term loan facility
in the principal amount of $900.0 million (the “Term Facility”) and (ii) a 5-year unsecured multicurrency revolving facility in the
principal amount of $500.0 million (the “Multicurrency Revolving Facility”), including a $50.0 million letter of credit sub facility,
available for general corporate purposes. Borrowings under the Credit Agreement bear interest at floating rates based upon indices
determined by the currency of the borrowing, plus an applicable margin determined by reference to our consolidated funded debt
to consolidated EBITDA ratio or at an alternative base rate.
The Term Facility was drawn in full on August 27, 2018 with the proceeds settling the amounts owed under the Prior Term Facility
and Prior Multicurrency Revolving Facility. The Term Facility requires quarterly amortization at a rate starting at 5.0% per
annum, increasing to 7.5% per annum after three years and further increasing to 10.0% per annum for the last years of the Term
Facility, unless previously prepaid. The weighted average interest rate on the Term Facility was 2.0% and 3.6% for the fiscal
years ended January 2, 2021 and December 28, 2019, respectively. The Credit Agreement requires us to prepay the loans under
the Term Facility with 100% of the net cash proceeds received from specified asset sales and borrowed money indebtedness,
subject to certain exceptions. We repaid $50.0 million and $90.0 million under the Term Facility in fiscal 2020 and 2019,
respectively. The amount outstanding for fiscal years ended January 2, 2021 and December 28, 2019 was $670.0 million and
$720.0 million, respectively.
As of January 2, 2021 we had no borrowings under the Multicurrency Revolving Facility, $0.2 million of standby letters of credit
and $499.8 million of available borrowing capacity. The average daily balance in borrowings under the Multicurrency Revolving
Facility was $150.4 million and $91.7 million, and the weighted average interest rate on the Multicurrency Revolving Facility
was 1.9% and 3.6% for the fiscal years ended January 2, 2021 and December 28, 2019, respectively. We pay a non-use fee on the
aggregate unused amount of the Multicurrency Revolving Facility at a rate determined by reference to its consolidated funded
debt to consolidated EBITDA ratio.
Senior Notes
As of January 2, 2021, we had $400.0 million of unsecured senior notes (the “Notes”) outstanding. The Notes consist of $400.0
million in senior notes in a private placement which were issued in five tranches with maturities from ten to twelve years and
carry fixed interest rates. As of January 2, 2021, $230.0 million and $170.0 million of the Notes are included in Current Maturities
of Long-Term Debt and Long-Term Debt, respectively, on the Consolidated Balance Sheets. The Notes maturing in 2021 will be
paid using capacity on our Multicurrency Revolving Facility and/or cash from operations.
Details on the Notes as of January 2, 2021 were (in millions):
Fixed Rate Series 2011A
Fixed Rate Series 2011A
Total
Principal
230.0
170.0
400.0
$
$
Interest Rate
4.8 to 5.0%
4.9 to 5.1%
Maturity
July 14, 2021
July 14, 2023
45
Compliance with Financial Covenants
The Credit Agreement and the Notes contain covenants under which we agree to maintain a minimum EBITDA-to-interest
coverage ratio and maximum Debt-to-EBITDA ratio. We were in compliance with all financial covenants contained in the Notes
and the Credit Agreement as of January 2, 2021.
Other Notes Payable
As of January 2, 2021, other notes payable of $4.6 million were outstanding with a weighted average interest rate of 4.9%. As of
December 28, 2019, other notes payable of $4.5 million were outstanding with a weighted average rate of 5.0%.
Financing Arrangements Related to Rexnord Transaction
In connection with the Rexnord Transaction, on February 15, 2021, we entered into a debt commitment letter (the “Bridge
Commitment Letter”) and related fee letters with Barclays Bank PLC (“Barclays”), pursuant to which, and subject to the terms
and conditions set forth therein, Barclays committed to provide approximately $2.1 billion in an aggregate principal amount of
senior bridge loans under a 364-day senior bridge loan credit facility (“Bridge Facility”). The proceeds of the loans under the
Bridge Facility may be used by us to (i) pay the Company Special Dividend, (ii) redeem the Notes due in 2023 and (iii) to pay
fees and expenses in connection with the Rexnord Transaction.
Further, we entered into an additional debt commitment letter (the “Backstop Commitment Letter”) and related fee letters with
Barclays, pursuant to which, and subject to the terms and conditions set forth therein. In the event, we do not obtain certain
required consents from the lenders under the Credit Agreement, we may enter into a 364-day senior bridge loan credit facility in
an aggregate principal amount of up to approximately $1.1 billion to prepay in full the aggregate principal amount of loans
outstanding under the Credit Agreement and accrued and unpaid interest thereon.
In connection with the Rexnord Transaction, Land also entered into a debt commitment letter (the “Land Commitment Letter”)
and related fee letters with Barclays, pursuant to which, and subject to the terms and conditions set forth therein, Barclays
committed to provide approximately $487.0 million of bridge loans under a 364-day senior bridge loan facility to be used to pay
a dividend to a subsidiary of Rexnord required prior to the Reorganization. If the Rexnord Transaction is consummated, the
indebtedness contemplated by the Land Commitment Letter will become indebtedness of a wholly-owned subsidiary of the
Company.
We anticipate incurring significant fees and expenses in connection with the Rexnord Transaction, the amount of which is
uncertain. In addition, the amount of the Company Special Dividend depends on the number of additional shares of our common
stock that must be issued in connection with the Rexnord Transaction in order to satisfy tax requirements applicable to a Reverse
Morris Trust transaction. The size of the dividend that will ultimately be declared is uncertain and will remain so until the closing.
Other Disclosures
Based on rates for instruments with comparable maturities and credit quality, the approximate fair value of our total debt was
$1,085.8 million and $1,162.1 million as of January 2, 2021 and December 28, 2019, respectively.
Litigation
See Part 1 - Item 3 - Legal Proceedings for additional details.
46
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 January 2, 2021 (in millions):
Payments Due by
Period (1)
Debt Including
Estimated
Interest
Payments (2)
Operating
Leases
Pension
Obligations
Purchase and
Other
Obligations
Total Contractual
Obligations
Less than one year $
1 - 3 years
3 - 5 years
More than 5 years
Total
$
244.5 $
862.5
1.2
1.3
1,109.5 $
26.7 $
32.9
16.0
18.4
94.0 $
4.5 $
7.5
7.4
14.6
34.0 $
309.9 $
—
—
—
309.9 $
585.6
902.9
24.6
34.3
1,547.4
(1) The timing and future spot prices affect the settlement values of our hedge obligations related to commodities and currency exchange rates.
Accordingly, these obligations are not included above in the table of contractual obligations (See also Item 7A and Note 9 of Notes to the
Consolidated Financial Statements). 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 fiscal 2020 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
January 2, 2021.
(2) Variable rate debt based on January 2, 2021 rates. See also Note 7 of Notes to the Consolidated Financial Statements.
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.”
As of January 2, 2021, we had outstanding standby letters of credit totaling approximately $0.2 million. We had no other material
commercial commitments.
We did not have any material variable interest entities as of January 2, 2021 or December 28, 2019. 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 ("US") 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.
Purchase Accounting and Business Combinations
Assets acquired and the liabilities assumed as part of a business combination are recognized separately from goodwill at their
acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the
net of the acquisition date fair values of the assets acquired and the liabilities assumed. We, with the assistance of outside
specialists as necessary, use estimates and assumptions to value assets acquired and liabilities assumed at the acquisition date as
well as contingent consideration, where applicable. We may refine these estimates during the measurement period which may be
up to one year from the acquisition date. As a result, during the measurement period, we record adjustments to the assets acquired
and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final
47
determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to our Consolidated Statements of Income.
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. For goodwill, we may perform a qualitative test to determine whether it is more-likely-than-not that the fair value of a
reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative
goodwill impairment test. We perform our required annual goodwill impairment test as of the end of the October fiscal month.
We use a weighting of the market approach and the income approach (discounted cash flow method) in testing goodwill for
impairment. In the market approach, we apply performance multiples from comparable 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 and EBITDA margin projections and
terminal value rates because such assumptions are the most sensitive and susceptible to change as they require significant
management judgment. Discount rates are determined by using market and industry data as well as Company-specific risk factors
for each reporting unit. 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 discount rate and long-term growth
rates.
In the fourth quarter of fiscal 2020, we recorded goodwill impairment of $10.5 million in our global industrial motors reporting
unit. The global industrial motors reporting unit had goodwill of $114.9 million as of January 2, 2021 and is included in our
Industrial Systems segment. The calculated excess fair value over carrying value for our commercial air moving reporting unit
was less than 10% of its carrying value. The commercial air moving reporting unit had goodwill of $43.8 million as of January 2,
2021 and is included in our Commercial Systems segment. Some of the key considerations used in our impairment testing
included (i) market pricing of guideline publicly traded companies (ii) cost of capital, including the risk-free interest rate, and
(iii) recent historical and projected operating results of the subject reporting units. There is inherent uncertainty included in the
assumptions used in goodwill impairment testing. A change to any of the assumptions could lead to a future impairment that could
be material.
We aggregate our business units by segment for reporting purposes (see also Note 6 of Notes to the Consolidated Financial
Statements).
Long-Lived Assets
We evaluate the recoverability of the carrying amount of long-lived 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 5 of Notes to the
Consolidated Financial Statements). For long-lived assets, the Company uses an estimate of the related undiscounted cash flows
over the remaining life of the primary asset to estimate recoverability.
48
Indefinite-Lived Assets
Indefinite-lived intangible assets consist of a trade name associated with the PTS Acquisition. It was evaluated for impairment in
October 2020. We determined the fair value of this asset using a royalty relief methodology similar to the methodology used
when the associated asset was acquired, but using updated assumptions and estimates of future sales and profitability. For fiscal
2020 and fiscal 2019, the fair value of the indefinite lived intangible asset exceeded its respective carrying value, however, in
fiscal 2019 the fair value of the indefinite lived intangible asset exceeded its respective carrying value by less than 10%. Some of
the key considerations used in our impairment testing included (i) cost of capital, including the risk-free interest rate, (ii) royalty
rate, and (iii) recent historical and projected operating performance. There is inherent uncertainty included in the assumptions
used in indefinite-lived intangible asset testing. A change to any of the assumptions could lead to a future impairment that could
be material.
Retirement and Post Retirement Plans
Most of our domestic associates are participants in defined contribution plans and/or defined benefit pension plans. The majority
of the defined benefit pension plans covering our domestic associates have been closed to new associates and frozen for existing
associates. Certain associates are covered by a post retirement health care plan. Most of our foreign associates 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.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 prohibit the use of financial instruments for speculative purposes.
All qualified 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 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. As of January 2, 2021, we had $404.1 million of fixed rate debt and $670.5 million of variable rate debt. As of
December 28, 2019, we had $404.3 million of fixed rate debt and $737.9 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 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 as of January 2, 2021 would
result in a $0.7 million change in after-tax annualized earnings. In April 2018, we entered into a spot, non-amortizing interest rate
49
swap to pay fixed/receive floating with a notional amount of $88.4 million to manage fluctuations in cash flows from interest rate
risk related to floating rate interest. The swap expires in April 2021. We also entered into two forward starting pay fixed/receive
floating non-amortizing interest rate swaps in June 2020, with a total notional amount of $250.0 million to manage fluctuations
in cash flows from interest rate risk related to floating rate interest. These swaps become effective July 2021 and will expire in
July 2025. Upon inception, the swaps were designated as a cash flow hedges against forecasted interest payments under ASU
2017-12, with gains and losses, net of tax, measured on an ongoing basis, recorded in AOCI.
Details regarding the instruments as of January 2, 2021 are as follows (in millions):
Instrument
Swap
Swap
Notional Amount
$88.4
$250.0
Maturity
April 2021
July 2025
Rate Paid
2.5%
0.6%
Rate Received
LIBOR (1 month)
LIBOR (1 month)
Fair Value
$(0.7)
$(1.4)
As of January 2, 2021, a $(0.7) million interest rate swap liability was included in Other Accrued Expenses and $(1.4) million in
Other Noncurrent Liabilities. As of December 28, 2019, a $(1.0) million interest rate swap was included in Other Noncurrent
Liabilities. There was an unrealized loss of $(1.6) million, net of tax, for fiscal 2020 and $(0.8) million for 2019 that was recorded
in AOCI for the effective portion of the hedge.
In July 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop
persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. We have material exposure to LIBOR
through our revolving credit facility, certain lines of credit and interest rate swaps that are indexed to USD-LIBOR. It is expected
that LIBOR will be discontinued and, while we believe an acceptable replacement to LIBOR will be available, if LIBOR is
discontinued, we cannot reasonably estimate the impact, if any, on such discontinuation.
Foreign Currency Risk
We are 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 credit worthy 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 January 2, 2021, derivative currency assets (liabilities) of $16.6 million, $1.6 million, $(1.0) million and $(0.1) million, are
recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets, Other Accrued Expenses and Other Noncurrent
Liabilities, respectively. As of December 28, 2019, derivative currency assets (liabilities) of $8.9 million, $10.3 million, $(3.1)
million and $(0.2) million, are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets, Other Accrued
Expenses and Other Noncurrent Liabilities, respectively. The unrealized gains on the effective portions of the hedges of $12.7
million net of tax and $5.7 million net of tax, as of January 2, 2021 and December 28, 2019, respectively, was recorded in AOCI.
As of January 2, 2021, we had $1.1 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. As of December 28, 2019, we had $2.1 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 foreign exchange contracts intended to hedge non-US dollar denominated
receivables and payables and the corresponding impact on the value of these instruments assuming a hypothetical 10%
appreciation/depreciation of their counter currency on January 2, 2021 (dollars in millions):
50
Currency
Mexican Peso
Chinese Renminbi
Indian Rupee
Euro
Canadian Dollar
Australian Dollar
Thai Baht
British Pound
Notional
Amount
Fair
Value
10% Appreciation of
Counter Currency
10% Depreciation of
Counter Currency
Gain (Loss) From:
$
$
174.6
188.5
37.8
231.7
2.0
21.2
15.3
11.7
$
12.2
3.6
0.7
1.2
0.1
(0.3)
(0.5)
0.1
$
17.5
18.9
3.8
23.2
0.2
2.1
1.5
1.2
(17.5)
(18.9)
(3.8)
(23.2)
(0.2)
(2.1)
(1.5)
(1.2)
Gains and losses indicated in the sensitivity analysis would be largely offset by gains and losses on the underlying forecasted
non-US dollar denominated cash flows.
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. Qualified hedge 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 of $11.4 million and $0.1 million are recorded in Prepaid Expenses and Other Current Assets and
Other Noncurrent Assets, respectively as of January 2, 2021. Derivative commodity assets (liabilities) of $2.6 million. $0.1
million and $(0.3) million are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets and Other
Accrued Expenses, respectively as of December 28, 2019. The unrealized gain on the effective portion of the hedges of $8.7
million net of tax and $1.8 million net of tax, as of January 2, 2021 and December 28, 2019, respectively, was recorded in AOCI.
As of January 2, 2021, we had an additional $2.6 million, net of tax, of derivative commodity gain on closed hedge instruments
in AOCI that will be realized in earnings when the hedged items impact earnings. As of December 28, 2019, we had an additional
$(0.8) million, net of tax, of derivative commodity losses 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
January 2, 2021 (dollars in millions):
Commodity
Copper
Aluminum
Notional
Amount
Fair
Value
$
$
47.0
3.6
$
11.1
0.4
Gain (Loss) From:
10% Appreciation of
Commodity Prices
10% Depreciation of
Commodity Prices
$
4.7
0.4
(4.7)
(0.4)
Gains and losses indicated in the sensitivity analysis would be largely offset by the actual prices of the commodities.
The net AOCI balance related to hedging activities of $23.5 million loss as of January 2, 2021 includes $20.2 million of net
current deferred gains expected to be realized in the next twelve months.
51
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.
52
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 (1)
Net Income
Net Income Attributable to Regal
Beloit Corporation
Earnings Per Share Attributable to
Regal Beloit Corporation (2)
Basic
Assuming Dilution
Weighted Average Number of
Shares Outstanding
Basic
Assuming Dilution
Net Sales
Commercial Systems
Industrial Systems
Climate Solutions
Power Transmission Solutions
Income (Loss) from Operations
Commercial Systems (3)
Industrial Systems (3)
Climate Solutions
Power Transmission Solutions
2019
2020
2019
2020
$ 734.2 $ 853.8 $ 634.1 $ 873.7 $ 758.2 $ 772.3 $ 780.5 $ 738.2
203.3
190.2
70.0
61.7
46.7
37.6
221.6
90.0
66.3
234.6
120.6
86.8
234.0
96.0
67.4
170.3
45.9
29.3
201.9
72.8
50.8
213.5
74.2
51.5
2020
2019
2020
2019
45.8
85.9
28.1
66.6
65.0
49.7
50.4
36.7
1.13
1.12
2.01
1.99
0.69
0.69
1.56
1.55
1.60
1.60
1.20
1.19
1.24
1.23
0.90
0.89
40.6
40.8
42.8
43.1
40.5
40.7
42.6
43.0
40.6
40.8
41.5
41.7
40.6
40.9
40.9
41.1
$ 199.4 $ 242.2 $ 175.9 $ 246.3 $ 218.5 $ 214.8 $ 226.4 $ 202.0
129.6
138.0
210.1
206.4
195.1
191.8
138.8
234.0
166.9
155.5
267.9
204.0
120.6
178.2
159.4
138.1
263.3
210.2
143.8
230.9
182.8
139.8
224.5
189.8
12.1
(0.1)
29.5
28.5
59.4
(5.9)
38.9
28.2
6.2
3.2
20.0
16.5
19.6
(0.1)
51.7
24.8
24.6
7.3
39.2
18.9
16.9
(2.6)
37.6
20.9
22.2
(14.9)
41.3
25.6
10.9
(4.4)
35.7
19.5
(1) The first quarter 2019 results included a gain on divestiture of $41.2 million included in the Commercial Systems segment.
(2) 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.
(3) Retrospectively adjusted due to change in accounting principle related to LIFO inventories as discussed in Note 3.
53
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 January 2,
2021. 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 (2013). Based on the results of
its evaluation, the Company's management concluded that, as of January 2, 2021, 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 January 2, 2021 has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report which is included herein.
March 2, 2021
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Regal Beloit Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Regal Beloit Corporation and subsidiaries (the "Company")
as of January 2, 2021 and December 28, 2019, the related consolidated statements of income, comprehensive income,
shareholders' equity, and cash flows, for each of the three years in the period ended January 2, 2021, and the related notes and the
schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of January 2, 2021 and December 28,
2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of January 2, 2021, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated January 2, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Adoption of a New Accounting Standard
As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for leases in the
year ended December 28, 2019, due to the adoption of Accounting Standard Update No. 2016-02, Leases (Topic ASC 842), under
the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the
accounts or disclosures to which it relates.
55
Goodwill Valuation – Global Industrial Motors & Commercial Air Moving Reporting Units – Refer to Notes 3 and 5 to
the Financial Statements
Critical Audit Matter Description
The Company performed an impairment evaluation of the goodwill for the Global Industrial Motors and Commercial Air Moving
reporting units by comparing the estimated fair value of each of these reporting units to its carrying value. In order to estimate
the fair value of these reporting units, management is required to make significant estimates and assumptions related to discount
rates and forecasts of future revenues and Earnings Before Interest Taxes Depreciation & Amortization (“EBITDA”) margins.
Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment
charge, or both. The goodwill balance was $1,518 million as of January 2, 2021, of which $114.9 million and $43.8 million related
to the Global Industrial Motors and Commercial Air Moving reporting units, respectively. As of October 31, 2020, the Company’s
measurement date, the Company determined that the carrying value for the Global Industrial Motors reporting unit was in excess
of fair value and recorded a $10.5 million goodwill impairment. The fair value of the Commercial Air Moving reporting unit
exceeded its carrying value and therefore no impairment was recognized.
We identified the impairment evaluation of goodwill for the Global Industrial Motors and Commercial Air Moving reporting units
as a critical audit matter because of the inherent subjectivity involved in management’s estimates and assumptions related to
discount rates and forecasts of future revenues and EBITDA margins. The audit procedures to evaluate the reasonableness of
management’s estimates and assumptions related to the selection of the discount rates and forecast of future revenues and
EBITDA margins required a high degree of auditor judgement and an increased extent of effort, including the need to involve our
fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the selection of discount rates and forecasts of future revenues and EBITDA margins for the
Global Industrial Motors and Commercial Air Moving reporting units included the following, among others:
• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the
selection of the discount rates and management’s development of forecasts of future revenues and EBITDA margins.
• We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2)
internal communications to management and the Board of Directors, and (3) forecasted information included in analyst
and industry reports for the Company and certain of its peer companies.
• We evaluated the impact of changes in management’s forecasts from the October 31, 2020, annual measurement date to
January 2, 2021.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates by:
◦ Tested the source information underlying management’s determination of the discount rates.
◦ Tested the mathematical accuracy of management’s calculations.
◦ Developed a range of independent estimates and compared those to the discount rates selected by management.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
March 2, 2021
We have served as the Company's auditor since 2002.
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Regal Beloit Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Regal Beloit Corporation and subsidiaries (the “Company”) as of
January 2, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control
— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended January 2, 2021, of the Company and our report
dated March 2, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible 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 the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit 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, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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 authorizations 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
March 2, 2021
57
REGAL BELOIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Millions, Except Per Share Data)
Net Sales
Cost of Sales
Gross Profit
Operating Expenses
Goodwill Impairment
Asset Impairments
Gain on Sale of Businesses
Total Operating Expenses
Income from Operations
Other (Income) Expenses, net
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
$
$
$
$
January 2,
2021
For the Year Ended
December 28,
2019
December 29,
2018
2,907.0 $
2,098.3
808.7
512.9
10.5
5.3
(0.1)
528.6
280.1
(4.4)
39.8
5.9
250.6
56.8
193.8
4.5
189.3 $
3,238.0 $
2,377.3
860.7
544.3
—
10.0
(44.7)
509.6
351.1
(0.1)
53.0
5.6
303.8
61.2
242.6
3.7
238.9 $
4.66 $
4.64 $
5.69 $
5.66 $
40.6
40.8
42.0
42.2
3,645.6
2,681.0
964.6
599.4
9.5
8.7
—
617.6
347.0
1.5
55.2
1.9
292.2
56.4
235.8
4.6
231.2
5.30
5.26
43.6
43.9
See accompanying Notes to the Consolidated Financial Statements.
58
REGAL BELOIT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Millions)
Net Income
Other Comprehensive Income (Loss) Net of Tax:
Translation:
Foreign Currency Translation Adjustments
Reclassification of Foreign Currency Translation
Adjustments Included in Net Income, Net of $—
Million Tax Effects in 2020, 2019 and 2018
Hedging Activities:
Increase (Decrease) in Fair Value of Hedging
Activities, Net of Tax Effects of $2.8 Million in
2020, $4.6 Million in 2019 and $(1.2) Million in
2018
Reclassification of Losses (Gains) Included in Net
Income, Net of Tax Effects of $2.2 Million in 2020,
$(0.4) Million in 2019 and $(3.8) Million in 2018
Pension and Post Retirement Plans:
(Increase) Decrease in Prior Service Cost and
Unrecognized Gain (Loss), Net of Tax Effects of
$(0.1) Million in 2020, $1.8 Million in 2019 and
$(0.6) Million in 2018
Amortization of Prior Service Cost and Unrecognized
Loss Included in Net Periodic Pension Cost, Net of
Tax Effects of $0.2 Million in 2020, $0.5 Million in
2019 and $0.8 Million in 2018
Other Comprehensive Income (Loss)
Comprehensive Income
Less: Comprehensive Income Attributable to
Noncontrolling Interest
Comprehensive Income Attributable to Regal Beloit
Corporation
For the Year Ended
January 2, 2021
December 28, 2019 December 29, 2018
$ 193.8
$ 242.6
$ 235.8
60.7
—
(9.2)
1.6
(71.2)
—
$
8.6
$
14.7
$
(4.0)
6.9
15.5
(1.3)
13.4
(12.0)
(16.0)
(0.6)
5.7
(1.9)
0.5
(0.1)
76.1
269.9
6.1
1.5
7.2
13.0
255.6
3.1
2.9
1.0
(86.2)
149.6
2.8
$ 263.8
$ 252.5
$ 146.8
See accompanying Notes to the Consolidated Financial Statements.
59
REGAL BELOIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, Except Per Share Data)
January 2, 2021
December 28, 2019
ASSETS
Current Assets:
Cash and Cash Equivalents
Trade Receivables, Less Allowances of $18.3 Million in 2020 and $9.7 Million in
2019
Inventories
Prepaid Expenses and Other Current Assets
Assets Held for Sale
Total Current Assets
Net Property, Plant and Equipment
Operating Lease Assets
Goodwill
Intangible Assets, Net of Amortization
Deferred Income Tax Benefits
Other Noncurrent Assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable
Dividends Payable
Accrued Compensation and Benefits
Other Accrued Expenses
Current Operating Lease Liabilities
Current Maturities of Long-Term Debt
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Pension and Other Post Retirement Benefits
Noncurrent Operating Lease Liabilities
Other Noncurrent Liabilities
Contingencies (see Note 12)
Equity:
Regal Beloit Corporation Shareholders' Equity:
Common Stock, $0.01 Par Value, 100.0 Million Shares Authorized, 40.6 Million
and 40.8 Million Shares Issued and Outstanding at 2020 and 2019, 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
$
$
$
$
611.3 $
432.0
690.3
108.6
9.1
1,851.3
555.5
73.4
1,518.2
530.3
43.9
16.4
4,589.0 $
360.1 $
12.2
76.6
120.5
21.6
231.0
822.0
840.4
172.0
69.5
55.1
53.0
0.4
696.6
2,010.7
(163.3)
2,544.4
32.6
2,577.0
4,589.0 $
331.4
461.4
678.4
133.7
2.8
1,607.7
605.0
71.0
1,501.3
567.2
58.4
20.1
4,430.7
337.0
12.2
67.3
121.8
21.6
0.6
560.5
1,136.9
171.9
80.8
51.0
49.2
0.4
701.8
1,886.7
(237.8)
2,351.1
29.3
2,380.4
4,430.7
See accompanying Notes to the Consolidated Financial Statements.
60
Balance as of December
30, 2017
Net Income
Other Comprehensive
Loss
Dividends Declared
($1.10 Per Share)
Stock Options
Exercised, Including
Income Tax Benefit and
Share Cancellations
Share-Based
Compensation
Stock Repurchase
Adoption of Accounting
Pronouncement ASU
2018-02
Purchase of Subsidiary
Shares from
Noncontrolling Interest
Dividends Declared to
Noncontrolling Interests
Balance as of December
29, 2018
Net Income
Other Comprehensive
Income (Loss)
Dividends Declared
($1.18 Per Share)
Stock Options Exercised
Share-Based
Compensation
Stock Repurchase
Dividends Declared to
Noncontrolling Interests
Balance as of December
28, 2019
Net Income
Other Comprehensive
Income
Dividends Declared
($1.20 Per Share)
Stock Options Exercised
Share-Based
Compensation
Stock Repurchase
Adoption of ASU 2016-
13
Dividends Declared to
Noncontrolling Interests
Balance as of January 2,
2021
$
$
$
$
REGAL BELOIT CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in Millions, Except Per Share Data)
Common Stock
$0.01 Par Value
Additional Paid-In
Capital
Retained Earnings
Accumulated Other
Comprehensive Loss
Noncontrolling
Interests
Total
Equity
0.4 $
—
—
—
—
—
—
—
—
—
0.4 $
—
—
—
—
—
—
—
0.4 $
—
—
—
—
—
—
—
877.5 $
—
—
—
(4.8)
16.9
(106.0)
—
—
—
783.6 $
—
—
—
(10.7)
13.0
(84.1)
—
701.8 $
—
—
—
(3.3)
9.2
(11.1)
—
1,611.6 $
231.2
—
(164.0) $
—
(84.4)
(47.7)
—
—
(21.8)
4.6
—
—
1,777.9 $
238.9
—
(49.1)
—
—
(81.0)
—
1,886.7 $
189.3
—
(48.7)
—
—
(13.9)
(2.7)
—
—
—
—
(4.6)
1.6
—
(251.4) $
—
13.6
—
—
—
—
—
(237.8) $
—
74.5
—
—
—
—
—
29.2 $
4.6
(1.8)
—
—
—
—
—
(2.4)
(1.6)
28.0 $
3.7
(0.6)
—
—
—
—
(1.8)
29.3 $
4.5
1.6
—
—
—
—
—
—
0.4 $
—
696.6 $
—
2,010.7 $
—
(163.3) $
(2.8)
32.6 $
See accompanying Notes to the Consolidated Financial Statements.
61
2,354.7
235.8
(86.2)
(47.7)
(4.8)
16.9
(127.8)
—
(0.8)
(1.6)
2,338.5
242.6
13.0
(49.1)
(10.7)
13.0
(165.1)
(1.8)
2,380.4
193.8
76.1
(48.7)
(3.3)
9.2
(25.0)
(2.7)
(2.8)
2,577.0
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 Acquisitions and Divestitures):
Depreciation
Amortization
Goodwill Impairment
Asset Impairments
Noncash Lease Expense
Share-Based Compensation Expense
Expense (Benefit) from Deferred Income Taxes
Exit Related Costs
Loss (Gain) on Disposition of Assets
Other Non-Cash Changes
Gain on Sale of Businesses
Change in Operating Assets and Liabilities, Net of Acquisitions and Divestitures
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
Sales of Investment Securities
Business Acquisitions, Net of Cash Acquired
Proceeds from Sale of Businesses
Proceeds from Sale of Assets
Net Cash Provided by (Used in) Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings Under Revolving Credit Facility
Repayments Under Revolving Credit Facility
Proceeds from Short-Term Borrowings
Repayments of Short-Term Borrowings
Proceeds from Long-Term Borrowings
Repayments of Long-Term Borrowings
Dividends Paid to Shareholders
Proceeds from the Exercise of Stock Options
Shares Surrendered for Taxes
Purchase of Subsidiary Shares from Noncontrolling Interest
Financing Fees Paid
Repurchase of Common Stock
Distributions to Noncontrolling Interests
Net Cash Used in Financing Activities
EFFECT OF EXCHANGE RATES ON CASH and CASH EQUIVALENTS
Net Increase 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
January 2,
2021
For the Year Ended
December 28,
2019
December 29,
2018
$
193.8
$
242.6
$
235.8
84.1
47.3
10.5
5.3
24.5
9.2
(16.5)
—
3.0
5.8
(0.1)
29.6
(3.7)
15.2
27.4
435.4
(47.5)
—
—
0.3
10.2
(37.0)
1,088.5
(1,106.2)
2.6
(2.3)
0.1
(50.4)
(48.7)
0.2
(3.6)
—
—
(25.0)
(2.8)
(147.6)
29.1
279.9
331.4
611.3
38.6
44.3
$
$
84.2
50.3
—
10.0
30.6
13.0
22.4
—
(0.7)
4.0
(44.7)
70.3
68.6
(80.3)
(61.8)
408.5
(92.4)
—
—
157.9
8.8
74.3
1,150.1
(1,230.8)
27.5
(27.5)
—
(90.3)
(48.9)
0.3
(10.9)
—
—
(165.1)
(1.8)
(397.4)
(2.6)
82.8
248.6
331.4
51.7
42.3
$
$
87.5
54.9
9.5
8.7
—
16.9
13.2
16.7
1.1
3.0
—
(56.5)
(42.7)
41.1
(26.5)
362.7
(77.6)
0.5
(161.5)
0.7
10.0
(227.9)
1,350.3
(1,271.7)
19.0
(19.7)
900.2
(811.4)
(47.2)
—
(3.5)
(0.8)
(3.5)
(127.8)
(1.6)
(17.7)
(8.1)
109.0
139.6
248.6
54.2
81.2
$
$
See accompanying Notes to the Consolidated Financial Statements.
62
Notes to the Consolidated Financial Statements
(1) Nature of Operations
Regal Beloit Corporation (the “Company”) is a United States based multi-national corporation. The Company is comprised of
four operating segments: the Commercial Systems segment produces fractional to approximately 5 horsepower AC and DC
motors, electronic variable speed controls, fans, and blowers for commercial applications; the Industrial Systems segment
produces integral motors, generators, alternators and switchgear for industrial applications, along with aftermarket parts and kits
to support such products; the Climate Solutions segment produces small motors, electronic variable speed controls and air moving
solutions; and the Power Transmission Solutions segment produces, sells and services belt and chain drives, helical and worm
gearing, mounted and unmounted bearings, couplings, modular plastic belts, conveying chains and components, hydraulic pump
drives, large open gearing and specialty mechanical products.
(2) Basis of Presentation
The Company operates on a 52/53 week fiscal year ending on the Saturday closest to December 31. The fiscal year ended
January 2, 2021 was 53 weeks and the fiscal years ended December 28, 2019 and December 29, 2018 were 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 accounting
guidance. 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 (“US 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 credit losses; excess and obsolete inventory; share-based compensation; acquisitions; product warranty obligations; pension
and post-retirement assets and liabilities; derivative fair values; goodwill and other asset impairments; health care reserves;
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 recognizes assets acquired, liabilities assumed, contractual contingencies and contingent consideration at their fair
value on the acquisition date. The operating results of the acquired companies are included in the Company’s consolidated
financial statements from the date of acquisition.
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 Provision for
Income Taxes.
Revenue Recognition
The Company recognizes revenue from the sale of electric motors, electrical motion controls, power generation and power
transmission products. The Company recognizes revenue when control of the product passes to the customer or the service is
provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or
services.
63
For a limited number of contracts, the Company recognizes revenue over time in proportion to costs incurred. The pricing of
products sold is generally supported by customer purchase orders, and accounts receivable collection is reasonably assured.
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 are recorded in Cost of Sales and
handling costs incurred in connection with selling and distribution activities are recorded in Operating Expenses.
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 2020,
fiscal 2019 or fiscal 2018.
Nature of Goods and Services
The Company sells products with multiple applications as well as customized products that have a single application such as
those manufactured for its OEM customers. The Company reports in four operating segments: Commercial Systems, Industrial
Systems, Climate Solutions and Power Transmission Solutions. See Note 6 for a description of the different segments.
Nature of Performance Obligations
The Company’s contracts with customers typically consist of purchase orders, invoices and master supply agreements. At contract
inception, across all four segments, the Company assesses the goods and services promised in its sales arrangements with
customers and identifies a performance obligation for each promise to transfer to the customer a good or service that is distinct.
The Company’s primary performance obligations consist of product sales and customized systems/solutions.
Product:
The nature of products varies from segment to segment but across all segments, individual products are generally not integrated
and represent separate performance obligations.
Customized systems/solutions:
The Company provides customized systems/solutions which consist of multiple products engineered and designed to specific
customer specification, combined or integrated into one combined solution for a specific customer application. The goods are
transferred to the customer and revenue is typically recognized over time as the performance obligations are satisfied.
When Performance Obligations are Satisfied
For performance obligations related to substantially all of the Company's product sales, the Company determines that the customer
obtains control upon shipment and recognizes revenue accordingly. Once a product has shipped, the customer is able to direct the
use of, and obtain substantially all of the remaining benefits from the asset. The Company considers control to have transferred
upon shipment because the Company has a present right to payment at that time, the customer has legal title to the asset, the
Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the
asset.
For a limited number of contracts, the Company transfers control and recognizes revenue over time. The Company satisfies its
performance obligations over time and the Company uses a cost-based input method to measure progress. In applying the cost-
based method of revenue recognition, the Company uses actual costs incurred to date relative to the total estimated costs for the
contract in conjunction with the customer's commitment to perform in determining the amount of revenue and cost to recognize.
The Company has determined that the cost-based input method provides a faithful depiction of the transfer of goods to the
customer.
64
Payment Terms
The arrangement with the customer states the final terms of the sale, including the description, quantity, and price of each product
or service purchased. Payment terms vary by customer but typically range from due upon delivery to 120 days after delivery. For
contracts recognized at a point in time, revenue and billing typically occur simultaneously. The Company generally has payment
terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider
the time value of money. For contracts recognized using the cost-based input method, revenue recognized in excess of customer
billings and billings in excess of revenue recognized are reviewed to determine the net asset or net liability position and classified
as such on the Consolidated Balance Sheet.
Returns, Refunds and Warranties
The Company’s contracts do not explicitly offer a “general” right of return to its customers (e.g. customers ordered excess
products and return unused items). Warranties are classified as either assurance type or service type warranties. A warranty is
considered an assurance type warranty if it provides the customer with assurance that the product will function as intended. A
warranty that goes above and beyond ensuring basic functionality is considered a service type warranty. The Company generally
only offers limited warranties which are considered to be assurance type warranties and are not accounted for as separate
performance obligations. Customers generally receive repair or replacement on products that do not function to specification.
Estimated product warranties are provided for specific product groups and the Company accrues for estimated future warranty
cost in the period in which the sale is recognized. The Company estimates the accrual requirements based on historical warranty
loss experience and the cost is included in Cost of Sales.
Volume Rebates
In some cases, the nature of the Company’s contract may give rise to variable consideration including volume based sales
incentives. If the customer achieves specific sales targets, it is entitled to rebates. The Company estimates the projected amount
of the rebates that will be achieved and recognizes the estimated costs as a reduction to Net Sales as revenue is recognized.
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by geographical region for the fiscal years ended January 2,
2021, December 28, 2019 and December 29, 2018, respectively, (in millions):
January 2, 2021
Commercial
Systems
Industrial
Systems
Climate
Solutions
Power
Transmission
Solutions
North America
Asia
Europe
Rest-of-World
Total
December 28, 2019
North America
Asia
Europe
Rest-of-World
Total
$
$
$
$
566.9 $
124.9
86.1
42.3
820.2 $
291.4 $
150.9
44.8
41.7
528.8 $
752.7 $
27.7
30.3
36.1
846.8 $
572.4 $
27.5
86.4
24.9
711.2 $
Commercial
Systems
Industrial
Systems
Climate
Solutions
Power
Transmission
Solutions
643.0 $
107.2
135.5
19.6
905.3 $
313.5 $
167.0
49.2
45.7
575.4 $
848.6 $
37.7
40.5
41.7
968.5 $
639.9 $
30.4
91.5
27.0
788.8 $
Total
2,183.4
331.0
247.6
145.0
2,907.0
Total
2,445.0
342.3
316.7
134.0
3,238.0
65
December 29, 2018
North America
Asia
Europe
Rest-of-World
Total
$
$
Commercial
Systems
Industrial
Systems
Climate
Solutions
Power
Transmission
Solutions
813.6 $
142.7
122.1
32.5
1,110.9 $
360.0 $
194.8
55.1
61.2
671.1 $
891.9 $
39.5
50.5
42.9
1,024.8 $
686.4 $
24.1
96.9
31.4
838.8 $
Total
2,751.9
401.1
324.6
168.0
3,645.6
Practical Expedients and Exemptions
The Company typically expenses incremental direct costs of obtaining a contract, primarily sales commissions, as incurred
because the amortization period is expected to be 12 months or less. Contract costs are included in Operating Expenses in the
accompanying Consolidated Statements of Income.
Due to the short nature of the Company’s contracts, the Company has adopted a practical expedient to not disclose revenue
allocated to remaining performance obligations as substantially all of its contracts have original terms of 12 months or less.
The Company typically does not include in its transaction price any amounts collected from customers for sales taxes.
The Company has elected to account for shipping and handling costs as fulfillment activities and expense the costs as incurred as
part of Cost of Sales.
Research and Development
The Company performs research and development activities relating to new product development and the improvement of current
products. The Company's research and development expenses consist primarily of costs for: (i) salaries and related personnel
expenses; (ii) the design and development of new energy efficient products and enhancements; (iii) quality assurance and testing;
and (iv) other related overhead. The Company's research and development efforts tend to be targeted toward developing new
products that would allow it to gain additional market share, whether in new or existing segments. While these costs make up an
insignificant portion of operating expenses in the Power Transmission Solutions segment, they are more substantial in the Climate
Solutions, Commercial Systems and Industrial Systems segments. In particular, a large driver of research and development efforts
in the Climate Solutions, Commercial Systems and Industrial Systems segments is energy efficiency.
Research and development costs are expensed as incurred. The costs are recorded in Operating Expenses in the fiscal year as
follows as noted in the table below:
Research and Development Costs
Cash and Cash Equivalents
January 2, 2021
December 28, 2019
$
34.7 $
22.5 $
December 29, 2018
29.3
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.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash
equivalents. The Company has material deposits with global financial institutions. The Company performs periodic evaluations
of the relative credit standing of its financial institutions and monitors the amount of exposure.
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 monitors credit risk associated with its trade receivables.
66
Trade Receivables
The Company's policy for estimating the allowance for credit losses on trade receivables considers several factors including
historical write-off experience, overall customer credit quality in relation to general economic and market conditions, and specific
customer account analyses to estimate expected credit losses. The specific customer account analysis consider such items as,
credit worthiness, payment history, and historical bad debt experience. Trade receivables are written off after exhaustive collection
efforts occur and the receivable is deemed uncollectible. Adjustments to the allowance for credit losses are recorded in Operating
Expenses.
Inventories
The Company changed its method of calculating last-in, first-out ("LIFO") inventories, which represented approximately 50.0%
of the Company’s inventory as of January 2, 2021. The Company increased the number of LIFO inventory pools to four to align
with the Company’s operating and reporting segments. Previously, the Company had three LIFO inventory pools, which aligned
with the Company's operating and reporting segments prior to the fiscal year 2020. The Company believes this change in
accounting principle is preferable under the circumstances because it combines inventory items with similarities within a segment
and better aligns revenue with expenses based on the four segment structure as well as how management manages and assesses
the performance of the businesses. The Company determined that it had the data needed to apply this change in accounting
principle as of the beginning of its fiscal year 2019, but it was impracticable to apply the change in periods prior to then. The
change in accounting principle has been reflected in fiscal years 2019 and 2020. The change did not have a material impact on
the consolidated financial statements for the years ended January 2, 2021 and December 28, 2019. See Note 6 for details.
The major classes of inventory at year end are as follows:
Raw Material and Work in Process
Finished Goods and Purchased Parts
January 2, 2021
48.7%
51.3%
December 28, 2019
48.0%
52.0%
Inventories are stated at cost, which is not in excess of market. Cost for approximately 50.0% of the Company's inventory as of
January 2, 2021 and 53.0% as of December 28, 2019 was determined using the last-in, first-out method. If all inventories were
valued on the first-in, first-out method, they would have increased by $60.0 million and $62.0 million as of January 2, 2021 and
December 28, 2019, 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 an excess and obsolete reserve.
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.
67
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
Useful Life
(In Years) January 2, 2021
$
December 28,
2019
3-50
3-15
$
76.1 $
290.7
978.2
1,345.0
(789.5)
555.5 $
80.3
305.2
988.2
1,373.7
(768.7)
605.0
During fiscal 2020, the Company recognized $5.3 million of asset impairments related to the transfer of assets to held for sale.
For fiscal 2019, the Company recognized $5.1 million of asset impairments related to the transfer of assets to held for sale in the
first quarter of 2019.
Goodwill
The Company evaluates the carrying amount of goodwill annually or more frequently if events or circumstances indicate that the
goodwill 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. For goodwill, the Company may perform a qualitative test to determine whether it is more-likely-than-not that
the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the
quantitative goodwill impairment test. The Company performed quantitative impairment testing for all reporting units in fiscal
2020. The Company performs the required annual goodwill impairment testing as of the end of the October fiscal month.
The Company uses a weighting of the market approach and the income approach (discounted cash flow method) in testing
goodwill for impairment. In the market approach, the Company applies performance multiples from comparable 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 and EBITDA
margin projections and terminal value rates because such assumptions are the most sensitive and susceptible to change as they
require significant management judgment. Discount rates are determined by using market and industry data as well as Company-
specific risk factors for each reporting unit. 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 discount rate
and long-term growth rates.
In the fourth quarter of 2020, the Company recorded goodwill impairment of $10.5 million in its global industrial motors reporting
unit. The global industrial motors reporting unit had goodwill of $114.9 million as of January 2, 2021 and is included in the
Company's Industrial Systems segment. The calculated excess fair value over carrying value for our commercial air moving
reporting unit was less than 10%of its carrying value. The commercial air moving reporting unit had goodwill of $43.8 million
as of January 2, 2021 and is included in the Company's Commercial Systems segment. Some of the key considerations used in
the Company's impairment testing included (i) market pricing of guideline publicly traded companies (ii) cost of capital, including
the risk-free interest rate, and (iii) recent historical and projected operating results of the subject reporting unit. There is inherent
uncertainty included in the assumptions used in goodwill impairment testing. A change to any of the assumptions could lead to a
future impairment that could be material.
68
Intangible Assets
Intangible assets with finite lives are amortized over their estimated useful lives using the straight line method. The Company
evaluates amortizing intangibles whenever events or circumstances have occurred that indicate carrying values may not be
recoverable. If an indicator is present, the Company uses an estimate of the related undiscounted cash flows over the remaining
life of the primary asset to estimate recoverability of the asset group. If such estimated future cash flows are less than carrying
value, an impairment would be recognized. There was no impairment of intangible assets during fiscal 2020. The Company
recorded impairments for its customer relationship intangible asset of $4.9 million in fiscal 2019 as the result of transferring to
assets held for sale.
Indefinite-lived intangible assets are not amortized. The Company evaluates the carrying amount of indefinite-lived intangible
assets annually or more frequently if events or circumstances indicate that the assets might be impaired. The Company performs
the required annual impairment testing as of the end of the October fiscal month.
The indefinite-lived intangible asset consists of a trade name associated with the acquisition of the Power Transmission Solutions
business from Emerson Electric Co. It was evaluated for impairment in October 2020. The Company determined the fair value
of this asset using a royalty relief methodology similar to the methodology used when the associated asset was acquired, but using
updated assumptions and estimates of future sales and profitability. For fiscal 2020 and fiscal 2019, the fair value of the indefinite
lived intangible asset exceeded its respective carrying value. Some of the key considerations used in the Company's impairment
testing included (i) cost of capital, including the risk-free interest rate, (ii) royalty rate and (iii) recent historical and projected
operating performance. There is inherent uncertainty included in the assumptions used in indefinite-lived intangible asset testing.
A change to any of the assumptions could lead to a future impairment that could be material.
Long-Lived Assets
The Company evaluates the recoverability of the carrying amount of property, plant and equipment assets (collectively, "long-
lived 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 economic trends. For long-lived assets, the Company uses an estimate of the related
undiscounted cash flows over the remaining life of the primary asset to estimate recoverability of the asset group. If the asset is
not recoverable, the asset is written down to fair value. In fiscal 2020, the Company concluded it had asset impairments related
to the transfer of assets to held for sale of $5.3 million. The Company concluded it had an impairment of $5.1 million in long-
lived assets in fiscal 2019 due to the transfer of assets to held for sale.
Earnings Per Share
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 dilutive securities. Share based compensation
awards for common shares where the exercise price was above the market price have been excluded from the calculation of the
effect of dilutive securities shown below; the amount of these shares were 0.4 million in fiscal 2020, 0.4 million in fiscal 2019
and 0.6 million in fiscal 2018. The following table reconciles the basic and diluted shares used in earnings per share calculations
for the fiscal years ended (in millions):
Denominator for Basic Earnings Per Share
Effect of Dilutive Securities
Denominator for Diluted Earnings Per Share
2020
2019
2018
40.6
0.2
40.8
42.0
0.2
42.2
43.6
0.3
43.9
69
Retirement and Post-Retirement Plans
The Company's domestic associates are covered by defined contribution plans and approximately half of the Company's domestic
associates are covered by defined benefit pension plans. The majority of the defined benefit pension plans covering the Company's
domestic associates have been closed to new associates and frozen for existing associates. Certain associates are covered by a
post retirement health care plan. Most of the Company's foreign associates are covered by government sponsored plans in the
countries in which they are employed. The Company's obligations under its defined benefit pension and other post-retirement
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 and health
care cost trend rates.
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, annual expenses and recorded assets or liabilities of these defined benefit plans
may change significantly from year to year.
The service cost component of the Company's net periodic benefit cost is included in Cost of Sales and Operating Expenses. All
other components of net periodic benefit costs are included in Other (Income) Expenses, net on the Company's Consolidated
Statements of Income.
Derivative Financial Instruments
Derivative instruments are recorded on the Consolidated Balance Sheets at fair value. Any fair value changes are recorded in Net
Income or Accumulated Other Comprehensive Loss ("AOCI") 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 also Note 13).
Income Taxes
The Company operates in numerous taxing jurisdictions and is subject to regular examinations by various US federal, state and
foreign jurisdictions for various tax periods. The Company's 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 US dollar, assets and liabilities are translated into US 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
and post retirement liability adjustments are included in Shareholders' Equity under AOCI.
70
The components of the ending balances of AOCI are as follows (in millions):
Foreign Currency Translation Adjustments
Hedging Activities, Net of Tax of $7.5 in 2020 and $2.5 in 2019
Pension and Post-Retirement Benefits, Net of Tax of $(9.4) in 2020 and $(9.5) in 2019
Total
Legal Claims and Contingent Liabilities
2020
2019
$ (155.7) $ (214.8)
8.0
(31.0)
$ (163.3) $ (237.8)
23.5
(31.1)
The Company is subject to various legal proceedings, claims and regulatory matters, the outcomes of which are subject to
significant uncertainty and will only be resolved when one or more future events occur or fail to occur. Management conducts
regular reviews, including updates from legal counsel, to assess the need for accounting recognition or disclosure of these
contingencies. The Company records expenses and liabilities when the Company believes that an obligation of the Company or
a subsidiary on a specific matter is probable and there is a basis to reasonably estimate the value of the obligation, and such
assessment inherently involves an exercise in judgment. This methodology is used for legal claims that are filed against the
Company or a subsidiary from time to time. The uncertainty that is associated with such matters frequently requires adjustments
to the liabilities previously recorded.
Fair Values of Financial Instruments
The fair values of cash equivalents, term deposits, trade receivables and accounts payable approximate their carrying values due
to the short period of time to maturity. The fair value of debt is estimated using discounted cash flows based on rates for
instruments with comparable maturities and credit ratings as further described in Note 7. The fair value of pension assets and
derivative instruments is determined based on the methods disclosed in Notes 8 and 13.
Recent Accounting Pronouncements
Recently Issued Accounting Standards
In December 2019, the FASB issued Accounting Standards Update ("ASU") ASU 2019-12, Income Taxes (Topic 740) Simplifying
the Accounting for Income Taxes. The ASU simplifies the accounting for income taxes by removing certain exceptions to the
general principles of Topic 740, and clarifies and amends existing guidance to improve consistent application. This ASU becomes
effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the effect
of adopting this new accounting guidance.
Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments Credit Losses
(Topic 326). The focus of this ASU is to require businesses to adjust their allowance for lifetime expected credit losses rather than
incurred losses. It is believed that the change will result in more timely recognition of such losses. This ASU is effective for fiscal
years beginning after December 15, 2019, including interim periods therein. The Company adopted the standard as of December
29, 2019, the beginning of fiscal 2020, under the modified retrospective approach. The Company recorded a $3.4 million increase
in the allowance for credit losses and a $2.7 million net decrease to retained earnings as of December 29, 2019 for the cumulative
effect of adopting ASU 2016-13.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The core principle of ASU 216-02 is that an entity should
recognize right of use ("ROU") assets and lease liabilities arising from an operating lease on its Balance Sheet. In accordance
with that principle, ASU 2016-02 requires that a lessee recognize a liability to make lease payments, the lease liability, and a
ROU asset representing its right to use the underlying leased asset for the lease term. The recognition, measurement, and
presentation of expenses and cash flows arising from a lease by a lessee will depend on the lease classification as a finance or
operating lease. In July 2018, the FASB amended its guidance by issuing ASU 2018-11 to provide an additional transition method,
allowing a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. The Company
71
adopted the standard as of December 30, 2018, the beginning of fiscal 2019, under the modified retrospective method.
Comparative periods prior to the adoption of the standard have not been adjusted given the effect to the standard.
The Company elected the package of practical expedients permitted under the relief package within the new standard, which
allows the Company to carryforward the historical lease accounting of expired or existing leases with respect to lease
identification, lease classification and accounting treatment for initial direct costs as of the adoption date. The Company also
elected the practical expedient related to lease versus nonlease components, allowing the Company to recognize lease and
nonlease components as a single lease.
Adoption of the new standard resulted in the recording of the right-of-use assets and lease liabilities of $93.0 million as of
December 30, 2018. No cumulative effect adjustment to retained earnings was recognized upon adoption of the new standard.
The standard did not materially impact the Company's Consolidated Net Income and had no impact on Cash Flows. See Note 9
for additional disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value Measurement. The ASU focuses on updates around disclosures of Level 3 fair value
measurements and it presents modifications to current disclosure requirements. The additional requirements under this ASU
include disclosure for the changes in unrealized gains and losses included in other comprehensive income ("OCI") held at the end
of the reporting period and the range and weighted average used to develop significant unobservable inputs. The ASU is also
eliminating the disclosure requirement for the amount and reason for transfers between Level 1 and Level 2 fair value
measurement, valuation processes for Level 3 measurements, and policy for timing of transfers between levels of the fair value
hierarchy. In addition, the ASU modifies the disclosure requirements for investments that are valued based on net asset value.
The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in
measurement as of the reporting date. This ASU is effective for fiscal years beginning after December 15, 2019, including interim
periods therein. The ASU requires prospective application for only the most recent interim or annual period presented in the year
of adoption for changes in unrealized gains and losses included in OCI, the range and weighted average used to develop significant
unobservable inputs for Level 3 fair value measurements, and the narrative description of measurement uncertainty. The Company
adopted the standard as of December 29, 2019, the beginning of fiscal 2020, with no material impact on the Company's
Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic
715-20). The ASU addresses modifications to the disclosure requirements for Defined Benefit Plans. Under ASU 2018-14 the
disclosure requirements that can be removed are amounts in accumulated other comprehensive income expected to be recognized
as components of net periodic benefit cost over the next fiscal year, amount and timing of plan assets expected to be returned to
the employer, and the effects of a one-percentage-point change in assumed health care cost trend rates on the aggregate of the
service and interest cost components of net periodic benefit costs and benefit obligations for postretirement health care benefits.
Additional disclosures are required for the weighted-average interest crediting rates for cash balance plans and other plans with
promised interest crediting rates and an explanation for significant gains and losses related to the changes in the benefit obligation
for the period. If a defined benefit pension plan has a projected benefit obligation greater than plan assets the projected benefit
obligation and fair value of plan assets should be disclosed. The Company adopted the standard in the fourth quarter of fiscal
2020 on a retrospective basis for all years presented with no material impact to the Company's Consolidated Financial Statement.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate
Reform on Financial Reporting. The ASU provides optional transition guidance, for a limited time, to companies that have
contracts, hedging relationships or other transactions that reference the London Inter-bank Offered Rate (“LIBOR”) or another
reference rate which is expected to be discontinued because of reference rate reform. The amendments provide optional expedients
and exceptions for applying GAAP to contracts, hedging relationships, and other transactions if certain criteria are met. The
amendments in this update are effective as of March 12, 2020 through December 31, 2022. In the second quarter of fiscal year
2020, the Company adopted this standard prospectively and is applying those expedients that allow the Company to continue to
assert that LIBOR-based interest remains probable, despite the sunset of LIBOR at the end of 2021 with no impact on the
Company's Consolidated Financial Statements.
72
(4) Held For Sale, Divestitures and Acquisitions
Assets Held for Sale
As of January 2, 2021 and December 28, 2019, the Company presented $9.1 million and $2.8 million, respectively, of certain
assets held for sale as the Company had both the intent and ability to sell these assets.
2019 Divestitures
Regal Drive Technologies
On January 7, 2019, the Company sold its Regal Drive Technologies business and received proceeds of $0.3 million in the first
quarter of 2020 and $119.9 million in 2019. Regal Drive Technologies was included in the Company's Commercial Systems
segment. The Company recognized a gain on sale of $0.1 million in the first quarter of 2020 and $41.0 million in 2019 in the
Consolidated Statements of Income.
Velvet Drive
On April 1, 2019, the Company sold its Velvet Drive business and received proceeds of $8.9 million. This business was included
in the Company's Power Transmissions Solutions segment. The Company recognized a loss on sale of $0.5 million in the
Consolidated Statements of Income.
CapCom
On April 1, 2019, the Company sold its CapCom business and received proceeds of $9.9 million. This business was included in
the Company's Climate Solutions segment. The Company recognized a gain on sale of $6.0 million in the Consolidated Statements
of Income.
Vapor Recovery
On July 1, 2019, the Company sold its Vapor Recovery business and received proceeds of $19.2 million. The business was
included in the Company's Commercial Systems segment. The Company recognized a loss on sale of $1.9 million in the
Consolidated Statements of Income.
2018 Acquisition
Nicotra Gebhardt
On April 10, 2018, the Company acquired Nicotra Gebhardt S.p.A. ("NG") for $161.5 million in cash, net of $8.5 million of cash
acquired. NG is a leader in critical, energy-efficient systems for ventilation and air quality. NG manufactures, sells and services
fans and blowers under the industry leading brands of Nicotra and Gebhardt. The financial results of NG have been included in
the Company's Commercial Systems segment from the date of acquisition.
73
(5) Goodwill and Intangible Assets
Goodwill
The excess of purchase price over estimated fair value of net assets acquired is assigned to goodwill.
The following information presents changes to goodwill during the periods indicated (in millions):
Balance as of December 29, 2018
Divestiture
Translation and Other
Balance as of December 28, 2019
Impairment Charge
Translation and Other
Balance as of January 2, 2021
Cumulative Goodwill Impairment Charges
Total
Commercial
Systems
Industrial
Systems
Climate
Solutions
Power
Transmission
Solutions
$ 1,509.2 $
(2.8)
(5.1)
$ 1,501.3 $
(10.5)
27.4
$ 1,518.2 $
295.7 $
$
427.4 $
—
(0.8)
426.6 $
—
6.7
433.3 $
183.2 $
171.5 $
—
(0.7)
170.8 $
(10.5)
3.4
163.7 $
72.1 $
330.6 $
—
0.6
331.2 $
—
(0.4)
330.8 $
17.2 $
579.7
(2.8)
(4.2)
572.7
—
17.7
590.4
23.2
Intangible Assets
Intangible assets consist of the following (in millions):
Customer Relationships
Technology
Trademarks
Patent and Engineering Drawings
Non-Amortizable Trade Name
Total Gross Intangibles
Weighted
Average
Amortization
Period (Years)
17
14
14
5
$
December
28, 2019
Translation
Adjustments
January 2,
2021
692.1 $
144.0
35.9
16.6
888.6
121.6
1,010.2 $
16.5 $
2.3
1.8
—
20.6
1.2
21.8 $
708.6
146.3
37.7
16.6
909.2
122.8
1,032.0
$
Accumulated amortization of intangible assets consists of the following:
Customer Relationships
Technology
Trademarks
Patent and Engineering Drawings
Total Accumulated Amortization
Intangible Assets, Net of Amortization
December 28,
2019
Amortization
Translation
Adjustments
January 2,
2021
$
$
$
302.4 $
99.0
25.0
16.6
443.0 $
567.2
38.6 $
7.1
1.6
—
47.3 $
8.4 $
1.9
1.1
—
11.4 $
$
349.4
108.0
27.7
16.6
501.7
530.3
While the Company believes its customer relationships are long-term in nature, the Company's contractual customer relationships
are generally short-term. Useful lives are established at acquisition based on historical attrition rates.
74
Amortization expense was $47.3 million in fiscal 2020, $50.3 million in fiscal 2019 and $54.9 million in fiscal 2018. Amortization
expense does not include any impairment recognized during the respective periods. The Company recognized $4.9 million of
customer relationships intangible asset impairment related to the transfer of assets to held for sale during the first quarter of 2019.
The following table presents estimated future amortization expense (in millions):
Year
2021
2022
2023
2024
2025
$
Estimated
Amortization
43.6
41.8
41.7
41.1
39.0
(6) Segment Information
The Company's four operating segments are: Commercial Systems, Industrial Systems, Climate Solutions and Power
Transmission Solutions.
Commercial Systems segment produces fractional to approximately 5 horsepower AC and DC motors, electronic variable speed
controls, fans, and blowers for commercial applications. These products serve markets including commercial building ventilation
and HVAC, pool and spa, irrigation, dewatering, agriculture, and general commercial equipment.
Industrial Systems segment produces integral motors, generators, alternators and switchgear for industrial applications, along
with aftermarket parts and kits to support such products. These products serve markets including agriculture, marine, mining, oil
and gas, food and beverage, data centers, healthcare, prime and standby power, and general industrial equipment.
Climate Solutions segment produces small motors, electronic variable speed controls and air moving solutions serving markets
including residential and light commercial HVAC, water heaters and commercial refrigeration.
Power Transmission Solutions segment produces, sells and services belt and chain drives, helical and worm gearing, mounted
and unmounted bearings, couplings, modular plastic belts, conveying chains and components, hydraulic pump drives, large open
gearing and specialty mechanical products serving markets including e-commerce, alternative energy, beverage, bulk handling,
metals, special machinery, energy, aerospace and general industrial.
The effect of the change in accounting policy related to LIFO as discussed in Note 3 for fiscal 2020 and 2019 on a per quarter
basis is as follows (in millions):
75
Commercial Systems
2019 Fiscal Quarter
1st
2nd
3rd
4th
2019
Total
2020 Fiscal Quarter
2nd
1st
3rd
Gross Profit As Reported
Adjustment for Change in Accounting
Principle
Gross Profit Adjusted for Change in
Accounting Principle
Income from Operations as Adjusted for
Change in Accounting Principle
$ 65.5 $ 65.2 $ 53.6 $ 48.6 $ 232.9 $ 50.7 $ 42.3 $ 61.4
1.6
(1.2)
0.3
3.0
3.7
(0.4)
—
(0.7)
$ 67.1 $ 64.0 $ 53.9 $ 51.6 $ 236.6 $ 50.4 $ 42.3 $ 60.7
$ 59.4 $ 19.6 $ 16.9 $ 10.9 $ 106.8 $ 12.1 $
6.2 $ 24.6
Gross Profit As Reported
Adjustment for Change in Accounting
Principle
Gross Profit Adjusted for Change in
Accounting Principle
2019 Fiscal Quarter
1st
2nd
3rd
Industrial Systems
2019
Total
4th
2020 Fiscal Quarter
1st
2nd
3rd
$ 23.9 $ 27.8 $ 23.7 $ 24.0 $ 99.3 $ 22.6 $ 24.9 $ 31.2
(1.6)
1.2
(0.3)
(3.0)
(3.7)
0.4
—
0.7
$ 22.3 $ 29.0 $ 23.4 $ 21.0 $ 95.6 $ 23.0 $ 24.8 $ 31.9
Income (Loss) from Operations as Adjusted
for Change in Accounting Principle
$
(5.9) $
(0.1) $
(2.6) $
(4.4) $ (13.0) $
(0.1) $
3.2 $
7.3
The Company evaluates performance based on the segment's income from operations. Corporate costs have been allocated to
each segment based on the net sales of each segment. The reported external net sales of each segment are from external customers.
76
The following sets forth certain financial information attributable to the Company's operating segments for fiscal 2020, fiscal
2019 and fiscal 2018, respectively (in millions):
Commercial
Systems
Industrial
Systems
Climate
Solutions
Power
Transmission
Solutions
Eliminations
Total
820.2 $
62.5
882.7
213.8
144.9
—
(0.1)
2.8
66.2
32.6
15.3
905.3 $
46.9
952.2
236.6
162.4
6.7
528.8 $
27.7
556.5
96.7
91.6
10.5
—
0.2
(5.6)
23.9
8.1
846.8 $
18.8
865.6
246.8
115.5
—
—
1.3
130.0
19.6
12.1
575.4 $
35.9
611.3
95.6
107.6
0.9
968.5 $
17.4
985.9
269.8
110.6
1.3
711.2 $
2.5
713.7
251.4
160.9
—
—
1.0
89.5
55.3
12.0
788.8 $
4.3
793.1
258.7
163.7
1.1
— $ 2,907.0
—
2,907.0
808.7
512.9
10.5
(0.1)
5.3
(111.5)
(111.5)
—
—
—
—
—
—
—
—
280.1
131.4
47.5
— $ 3,238.0
—
3,238.0
860.7
544.3
10.0
(104.5)
(104.5)
—
—
—
(39.3)
0.1
(6.0)
0.5
—
(44.7)
$
Fiscal 2020
External Sales
Intersegment Sales
Total Sales
Gross Profit
Operating Expenses
Goodwill Impairment
Gain on Sale of Businesses
Asset Impairments
Income (Loss) from
Operations
Depreciation and Amortization
Capital Expenditures
Fiscal 2019
$
External Sales
Intersegment Sales
Total Sales
Gross Profit
Operating Expenses
Asset Impairments
(Gain) Loss on Sale of
Businesses
Income (Loss) from
Operations
Depreciation and Amortization
Capital Expenditures
Fiscal 2018
106.8
(13.0)
163.9
34.6
29.9
24.4
21.0
19.8
23.3
External Sales
Intersegment Sales
Total Sales
Gross Profit
Operating Expenses
Goodwill Impairment
Asset Impairments
Income from Operations
$
1,110.9 $
47.3
1,158.2
287.0
184.8
—
—
102.2
671.1 $ 1,024.8 $
31.9
703.0
136.4
111.6
—
—
24.8
22.1
1,046.9
262.7
128.9
9.5
8.7
115.6
Depreciation and Amortization
Capital Expenditures
40.3
24.6
26.7
17.2
21.0
17.7
77
93.4
55.7
18.2
838.8 $
24.1
862.9
278.5
174.1
—
—
104.4
54.4
18.1
—
—
—
351.1
134.5
92.4
— $ 3,645.6
—
3,645.6
964.6
599.4
9.5
8.7
347.0
(125.4)
(125.4)
—
—
—
—
—
—
—
142.4
77.6
The following table presents identifiable assets information attributable to the Company's operating segments. The identifiable
assets as of the December 28, 2019 have been retrospectively adjusted to reflect the change in accounting principle related to
LIFO inventories as discussed in Note 3. The changes reflected in assets as of December 28, 2019 are an increase of $5.4 million
for Commercial Systems and a decrease of $5.4 million for Industrial Systems. The table presents identifiable assets information
as of January 2, 2021 and December 28, 2019 (in millions):
Commercial
Systems
Industrial
Systems
Climate
Solutions
Power
Transmission
Solutions
Identifiable Assets as of January 2, 2021
Identifiable Assets as of December 28, 2019
$
1,319.6 $
1,203.9
837.5 $
797.4
890.4 $
878.3
1,541.5 $
1,551.1
Total
4,589.0
4,430.7
The following sets forth net sales by country in which the Company operates for fiscal 2020, fiscal 2019 and fiscal 2018,
respectively (in millions):
United States
Rest of the World
Total
2020
1,885.1 $
1,021.9
2,907.0 $
$
$
Net Sales
2019
2,071.9 $
1,166.1
3,238.0 $
2018
2,402.9
1,242.7
3,645.6
U.S. net sales for fiscal 2020, fiscal 2019 and fiscal 2018 represented 64.8%, 64.0% and 65.9% 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 (net property, plant and equipment) by country in which the Company operates for
fiscal 2020 and fiscal 2019, respectively (in millions):
United States
Mexico
China
Rest of the World
Total
Long-lived Assets
2020
2019
$
$
200.5 $
141.2
85.7
128.1
555.5 $
237.6
149.0
84.9
133.5
605.0
No other individual foreign country represented a material portion of long-lived assets for any of the years presented.
78
(7) Debt and Bank Credit Facilities
The Company's indebtedness as of January 2, 2021 and December 28, 2019 was as follows (in millions):
Term Facility
Senior Notes
Multicurrency Revolving Facility
Other
Less: Debt Issuance Costs
Total
Less: Current Maturities
Non-Current Portion
Credit Agreement
January 2,
2021
December 28,
2019
$
$
670.0 $
400.0
—
4.6
(3.2)
1,071.4
231.0
840.4 $
720.0
400.0
17.7
4.5
(4.7)
1,137.5
0.6
1,136.9
On August 27, 2018, the Company replaced the Prior Credit Agreement by entering into an Amended and Restated Credit
Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders named therein,
providing for a (i) 5-year unsecured term loan facility in the principal amount of $900.0 million (the “Term Facility”) and (ii) a
5-year unsecured multicurrency revolving facility in the principal amount of $500.0 million (the “Multicurrency Revolving
Facility”), including a $50.0 million letter of credit sub facility, available for general corporate purposes. Borrowings under the
Credit Agreement bear interest at floating rates based upon indices determined by the currency of the borrowing, plus an
applicable margin determined by reference to the Company's consolidated funded debt to consolidated EBITDA ratio or at an
alternative base rate.
The Term Facility was drawn in full on August 27, 2018 with the proceeds settling the amounts owed under the Prior Term Facility
and Prior Multicurrency Revolving Facility. The Term Facility requires quarterly amortization at a rate starting at 5.0% per
annum, increasing to 7.5% per annum after three years and further increasing to 10.0% per annum for the last years of the Term
Facility, unless previously prepaid. The weighted average interest rate on the Term Facility was 2.0% and 3.6% for the fiscal
years ended January 2, 2021 and December 28, 2019, respectively. The Credit Agreement requires the Company to prepay the
loans under the Term Facility with 100% of the net cash proceeds received from specified asset sales and borrowed money
indebtedness, subject to certain exceptions. The Company repaid $50.0 million and $90.0 million under the Term Facility in fiscal
2020 and 2019, respectively.
As of January 2, 2021 the Company had no borrowings under the Multicurrency Revolving Facility, $0.2 million of standby
letters of credit and $499.8 million of available borrowing capacity. The average daily balance in borrowings under the
Multicurrency Revolving Facility was $150.4 million and $91.7 million, and the weighted average interest rate on the
Multicurrency Revolving Facility was 1.9% and 3.6% for the fiscal years ended January 2, 2021 and December 28, 2019,
respectively. The Company pays a non-use fee on the aggregate unused amount of the Multicurrency Revolving Facility at a rate
determined by reference to its consolidated funded debt to consolidated EBITDA ratio.
Senior Notes
As of January 2, 2021, the Company had $400.0 million of unsecured senior notes (the “Notes”) outstanding. The Notes consist
of $400.0 million in senior notes in a private placement which were issued in five tranches with maturities from ten to twelve
years and carry fixed interest rates. As of January 2, 2021, $230.0 million and $170.0 million of the Notes are included in Current
Maturities of Long-Term Debt and Long-Term Debt, respectively, on the Consolidated Balance Sheets.
79
Details on the Notes as of January 2, 2021 were (in millions):
Fixed Rate Series 2011A
Fixed Rate Series 2011A
Total
Compliance with Financial Covenants
Principal
230.0
170.0
400.0
$
$
Interest Rate
4.8 to 5.0%
4.9 to 5.1%
Maturity
July 14, 2021
July 14, 2023
The Credit Agreement and the Notes contain covenants under which the Company agrees to maintain a minimum EBITDA-to-
interest coverage ratio and maximum Debt-to-EBITDA ratio. The Company was in compliance with all financial covenants
contained in the Notes and the Credit Agreement as of January 2, 2021.
Other Notes Payable
As of January 2, 2021, other notes payable of $4.6 million were outstanding with a weighted average interest rate of 4.9%. As of
December 28, 2019, other notes payable of $4.5 million were outstanding with a weighted average interest rate of 5.0%.
Other Disclosures
Based on rates for instruments with comparable maturities and credit quality, which are classified as Level 2 inputs (see also Note
14), the approximate fair value of the Company's total debt was $1,085.8 million and $1,162.1 million as of January 2, 2021 and
December 28, 2019, respectively.
Maturities of long-term debt, excluding debt issuance costs, are as follows (in millions):
Year
2021
2022
2023
2024
2025
Thereafter
Total
Amount of
Maturity
231.0
18.0
823.0
0.6
0.6
1.4
1,074.6
$
$
(8) Retirement and Post-Retirement Health Care Plans
Retirement Plans
The Company's domestic associates are participants in defined benefit pension plans and/or defined contribution plans. The
majority of the Company's defined benefit pension plans covering the Company's domestic associates have been closed to new
associates and frozen for existing associates. Most foreign associates are covered by government sponsored plans in the countries
in which they are employed. 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 $7.6 million, $8.9 million and $10.1 million in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. Company
contributions to non-US defined contribution plans were $5.5 million, $10.6 million and $11.8 million in fiscal 2020, fiscal 2019
and fiscal 2018, respectively.
Benefits provided under defined benefit pension plans are based, depending on the plan, on associates' 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
80
accordance with federal laws and regulations. The actuarial valuation measurement date for pension plans is the calendar year
end of each year.
The Company's target allocation, target return and actual weighted-average asset allocation by asset category are as follows:
Target
Actual Allocation
Equity Investments
Fixed Income
Other
Total
Allocation
70.4%
24.8%
4.8%
100.0%
Return
6.2 - 7.8%
1.5 - 4.8%
5.6%
6.2%
2020
72.4%
26.8%
0.8%
100.0%
2019
70.0%
25.0%
5.0%
100.0%
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.
The following table presents a reconciliation of the funded status of the defined benefit pension plans (in millions):
Change in Projected Benefit Obligation:
Obligation at Beginning of Period
Service Cost
Interest Cost
Actuarial Loss
Curtailment Gain (1)
Less: Benefits Paid
Foreign Currency Translation
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
Less: Benefits Paid
Foreign Currency Translation
Fair Value of Plan Assets at End of Period
Funded Status
2020
2019
$
$
$
$
$
282.8 $
2.0
8.0
21.2
—
15.9
0.3
298.4 $
203.4 $
33.7
8.5
15.9
0.5
230.2 $
(68.2) $
265.1
6.2
10.6
34.9
(19.4)
14.8
0.2
282.8
174.0
33.1
10.8
14.8
0.3
203.4
(79.4)
(1) The curtailment gain is the result of a plan freeze announced to associates during the fourth quarter of fiscal 2019.
81
The net actuarial losses for fiscal 2020 are attributable to a decrease in discount rates and census experience resulting in a loss of
$24.1 million offset by $2.9 million of gains to the mortality assumption update. The net actuarial losses for fiscal 2019 are
attributable to a decrease in discount rates and census experience resulting in a loss of $37.0 million offset by $2.1 million of
gains to the mortality assumption update.
The funded status as of January 2, 2021 included domestic plans of $(62.6) million and international plans of $(5.6) million. The
funded status as of December 28, 2019 included domestic plans of $(71.2) million and international plans of $(8.2) million.
Pension Assets
The Company classifies the pension plan investments into Level 1, which refers to securities valued using quoted prices from
active markets for identical assets, Level 2, which refers to securities not traded on an active market but for which observable
market inputs are readily available, and Level 3, which refers to securities valued based on significant unobservable inputs.
Common stocks and mutual funds are valued at the unadjusted quoted market prices for the securities. Real estate fund values
are determined using model-based techniques that include relative value analysis and discounted cash flow techniques. Certain
common collective trust funds and limited partnership interests are valued based on the net asset value ("NAV") as provided by
the administrator of the fund as a practical expedient to estimate fair value. The NAV is based on the value of the underlying
assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. Investments in units of
short-term investment funds, comprised of cash and money market funds, are valued at their respective NAVs as reported by the
funds daily.
Pension assets by type and level are as follows (in millions):
Total
Level 1
Level 2
Level 3
January 2, 2021
Cash and Cash Equivalents
Mutual Funds:
US Equity Funds
International Equity Funds
Fixed Income Funds
Other
Real Estate Fund
Investments Measured at Net Asset Value
Total
$
1.3 $
1.3 $
1.6
3.5
3.0
1.8
10.0
21.2 $
209.0
230.2
$
$
1.6
3.5
3.0
1.8
—
11.2 $
— $
—
—
—
—
—
— $
—
—
—
—
—
10.0
10.0
82
Cash and Cash Equivalents
Common Stocks:
Domestic Equities
International Equities
Mutual Funds:
US Equity Funds
International Equity Funds
Balanced Funds
Fixed Income Funds
Other
Limited Liability Company
Real Estate Fund
Investments Measured at Net Asset Value
Total
$
$
December 28, 2019
Total
Level 1
Level 2
Level 3
$
5.1 $
5.1 $
— $
26.4
19.2
30.1
3.1
9.5
18.0
1.7
—
—
113.1 $
—
—
—
—
—
—
—
8.3
—
8.3 $
26.4
19.2
30.1
3.1
9.5
18.0
1.7
8.3
9.9
131.3 $
72.1
203.4
—
—
—
—
—
—
—
—
—
9.9
9.9
The following table sets forth additional disclosures for the fair value measurement of the fair value of pension plan assets that
calculate fair value based on NAV per share practical expedient as of January 2, 2021 and December 28, 2019 (in millions):
Common Collective Trust Funds
2020
2019
$
209.0 $
72.1
The 2020 common collective trust funds are investments in the Mercer US Small/Midcap Equity Portfolio, the Mercer US Core
Fixed Income Portfolio, the Mercer Non-US Core Equity Portfolio, the Mercer Global Low Volatility Equity Portfolio, the Mercer
US Large Cap Passive Equity Portfolio, the Mercer Long Duration Passive Fixed Income Portfolio, the Mercer Emerging Markets
Equity Portfolio, the Mercer Active Long Corporate Fixed Income Portfolio, and the Mercer Opportunistic Fixed Income
Portfolio. The Mercer US Small/Midcap Equity Portfolio seeks to provide long term total returns comprised primarily of capital
appreciation by investing in equity securities issued by small to medium capitalization US companies. The Mercer US Core Fixed
Income Portfolio seeks to provide total return, consisting of both current income and capital appreciation, by investing in fixed
income securities. The Mercer Non-US Core Equity Portfolio seeks to provide long term total return, which includes capital
appreciation and income, by investing in equity securities of non-US companies. The Mercer Global Low Volatility Equity
Portfolio seeks to provide long term total return, which includes capital appreciation and income, by investing in equity securities
of US and foreign issuers. The Mercer US Large Cap Passive Equity Portfolio seeks to approximate, as closely as possible, the
performance of the S&P 500 Index over the long term by investing in the equity securities comprising the index in approximately
the same proportions as they are represented in the index. The Mercer Long Duration Passive Fixed Income Portfolio seeks to
approximate as closely as practicable, before expenses, the performance of the Bloomberg Barclays Capital US Long Government
Bond Index over the long term by investing in securities that comprise the index in the same proportions as they are represented
in the index. The Mercer Emerging Markets Equity Portfolio seeks to provide long term total return, which includes capital
appreciation and income, by investing equity securities of companies that are located in emerging markets, other investments that
are tied economically to emerging markets, as well as in American, European and Global Depository Receipts. The Mercer Active
Long Corporate Fixed Income Portfolio seeks to maximize long term total return by investing on high quality US corporate bonds.
The Mercer Opportunistic Fixed Income Portfolio seeks to provide long term total return, which includes capital appreciation and
income, by investing in high yield bonds and emerging markets debt. The 2020 common collective trust funds are available for
immediate redemption.
83
The 2019 common collective trust funds were investments in the Northern Trust Collective S&P 500 Index Fund, the Northern
Trust Collective Aggregate Bond Index Fund and the American Century Non-US Growth Fund. The Northern Trust Collective
S&P 500 Index Fund seeks to provide investment results that approximate the overall performance of the common stocks in
that index. The Northern Trust Collective Aggregate Bond Index Fund seeks to provide investment results that approximate the
overall performance of the Barclays Capital US Aggregate Index by investing primarily, but not exclusively, in securities that
comprise that index. The American Century Non-US Growth Fund is broadly invested in a diversified portfolio of non-US
stocks. The 2019 common collective trust funds were available for immediate redemption.
The Level 3 asset noted below represents an investment in a real estate fund. Estimated values provided by fund management
approximate the cost of the investments. In determining the reasonableness of the methodology used to value the Level 3
investments, the Company evaluates a variety of factors including reviews of economic conditions, industry and market
developments, and overall credit ratings. The real estate fund can be redeemed on a quarterly basis and paid within two weeks of
the request for redemption.
The table below sets forth a summary of changes in the Company's Level 3 assets in its pension plan investments as of January 2,
2021 and December 28, 2019 (in millions):
Beginning Balance
Net Purchases (Sales)
Net Gains
Ending Balance
2020
2019
9.9 $
—
0.1
10.0 $
10.3
(1.6)
1.2
9.9
$
$
The following table sets forth a summary of quantitative information about the significant unobservable inputs used in the fair
value measurement of the Level 3 real estate fund as of January 2, 2021 (in millions):
Fair Value
$10.0
Inputs
Exit Capitalization Rate
Discount Rate
Significant Unobservable Inputs
Range
4.5% to 7.0%
5.8% to 8.5%
Weighted Average
5.1%
6.3%
The following table sets forth a summary of quantitative information about the significant unobservable inputs used in the fair
value measurement of the Level 3 real estate fund as of December 28, 2019 (in millions):
Fair Value
$9.9
Significant Unobservable Inputs
Exit Capitalization Rate
Discount Rate
5.0% to 7.0%
6.5% to 8.0%
Funded Status and Expense
The Company recognized the funded status of its defined benefit pension plans on the Consolidated Balance Sheets as follows
(in millions):
Accrued Compensation and Benefits
Pension and Other Post Retirement Benefits
Total
Amounts Recognized in Accumulated Other Comprehensive Loss
Net Actuarial Gain
Prior Service Cost
Total
84
2020
2019
$
$
$
$
4.1 $
64.1
68.2 $
43.7 $
0.9
44.6 $
4.0
75.4
79.4
45.2
1.1
46.3
The accumulated benefit obligation for all defined benefit pension plans was $292.8 million and $276.3 million as of January 2,
2021 and December 28, 2019, respectively.
The accumulated benefit obligation exceeded plan assets for all pension plans as of January 2, 2021 and December 28, 2019.
The following weighted average assumptions were used to determine the projected benefit obligation as of January 2, 2021 and
December 28, 2019, respectively:
Discount Rate
2020
2.6%
2019
3.3%
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 fiscal years ended
January 2, 2021 and December 28, 2019.
Net periodic pension benefit costs and the net actuarial loss and prior service cost recognized in OCI for the defined benefit
pension plans were as follows (in millions):
Service Cost
Interest Cost
Expected Return on Plan Assets
Amortization of Net Actuarial Loss
Amortization of Prior Service Cost
Net Periodic Benefit Cost
Change in Obligations Recognized in OCI, Net of Tax
Prior Service Cost
Net Actuarial Loss
Total Recognized in OCI
2020
2019
2018
2.0 $
8.0
(13.3)
1.9
0.3
(1.1) $
6.2 $
10.6
(12.5)
2.2
0.3
6.8 $
7.3
9.3
(11.9)
3.5
0.2
8.4
0.2 $
1.5
1.7 $
0.2 $
1.7
1.9 $
0.2
2.7
2.9
$
$
$
$
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 associates expected to receive benefits under the plans.
The following weighted average assumptions were used to determine net periodic pension cost for fiscal years 2020, 2019 and
2018, respectively.
Discount Rate
Expected Long-Term Rate of Return on Assets
2020
3.3%
7.0%
2019
4.4%
7.0%
2018
3.8%
6.9%
The Company made contributions to its defined benefit plan of $8.5 million and $10.8 million for the fiscal years ended January 2,
2021 and December 28, 2019, respectively.
85
The Company estimates that in fiscal 2021 it will make contributions in the amount of $5.3 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
2021
2022
2023
2024
2025
2026-2029
Post-Retirement Health Care Plan
$
Expected Payments
17.3
16.0
16.4
16.6
17.0
81.5
In connection with the acquisition of the Power Transmission Solutions business from Emerson Electric Co. in 2015, the Company
established an unfunded post-retirement health care plan for certain domestic retirees and their dependents.
The following table presents a reconciliation of the accumulated benefit obligation of the post-retirement health care plan (in
millions):
Change in Accumulated Post Retirement Benefit Obligation
Obligation at Beginning of Period
Interest Cost
Actuarial (Gain) Loss
Amendments
Curtailment Gain
Participant Contributions
Less: Benefits Paid
Obligation at End of Period
2020
2019
5.9 $
0.2
0.1
—
—
0.2
0.5
5.9 $
9.2
0.3
(0.7)
(1.9)
(0.5)
0.2
0.7
5.9
$
$
The Company recognized the funded status of its post-retirement health care plan on the balance sheet as follows (in millions):
Accrued Compensation and Benefits
Pension and Other Post Retirement Benefits
Total
Amounts Recognized in Accumulated Other Comprehensive Loss
Net Actuarial Gain
Prior Service Cost
Total
2020
2019
$
$
$
$
0.5 $
5.4
5.9 $
(3.2) $
(0.9)
(4.1) $
0.5
5.4
5.9
(4.1)
(1.7)
(5.8)
The following assumptions were used to determine the accumulated post-retirement benefit obligation as of January 2, 2021 and
December 28, 2019, respectively.
Discount Rate
2020
2.5%
2019
3.2%
86
Net periodic post retirement health care benefit costs for the post-retirement health care plan were as follows (in millions):
Service Cost
Interest Cost
Amortization of Net Actuarial Gain
Amortization of Prior Service Cost
Curtailment Gain
Net Periodic Post Retirement Health Care Benefit Cost
Change in Obligations Recognized in OCI, Net of Tax
Prior Service Gain
Net Actuarial Gain
Total Recognized in OCI
2020
2019
2018
$
$
$
$
— $
0.2
(0.6)
(0.9)
—
(1.3) $
— $
0.3
(0.4)
(0.1)
(0.5)
(0.7) $
(0.7) $
(0.5)
(1.2) $
(0.1) $
(0.3)
(0.4) $
0.1
0.4
—
—
—
0.5
—
—
—
The following assumptions were used to determine net periodic post-retirement health care benefit cost for fiscal years 2020,
2019 and 2018, respectively.
Discount Rate
2020
3.2%
2019
4.2%
2018
3.5%
The health care cost trend rate for fiscal 2020, 2019 and 2018, respectively, is 5.8%, 6.8% and 7.6% for pre-65 participants and
5.6%, 5.1% and 5.3% for post-65 participants, decreasing to 4.5% for all years in fiscal 2031, the year that the health care cost
trend rate reaches the assumed ultimate rate.
The Company contributed $0.3 million and $0.4 million to the post-retirement health care plan in fiscal 2020 and fiscal 2019,
respectively. The Company estimates that in fiscal 2021 it will make contributions of $0.5 million to the post retirement health
care plan.
The following post-retirement benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in
millions):
Year
2021
2022
2023
2024
2025
2026-2029
(9) Leases
$
Expected Payments
0.5
0.4
0.4
0.4
0.4
1.6
The Company leases certain manufacturing facilities, warehouses/distribution centers, office space, machinery, equipment, IT
assets, and vehicles. If the contract provides the Company the right to substantially all of the economic benefits from the use of
the identified asset and the right to direct the use of the identified asset, it is considered to be or contain a lease. Right-of-use
("ROU") assets and lease liabilities are recognized at lease commencement date based on the present value of the future lease
payments over the expected lease term.
As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the
information available at commencement date in determining the present value of future payments. The incremental borrowing
87
rate is estimated based upon the sovereign treasury rate for the currency in which the lease liability is denominated when the
Company takes possession of the leased asset, adjusted for various factors, such as term and internal credit spread. The ROU
asset also includes any lease payments made and excludes lease incentive and initial direct costs incurred.
Leases entered into may include one or more options to renew. The renewal terms can extend the lease term from one to twenty-
five years. The exercise of lease renewal options is at the Company's sole discretion. Renewal option periods are included in the
measurement of the ROU asset and lease liability when the exercise is reasonably certain to occur. Some leases include options
to terminate the lease upon breach of contract and are remeasured at that point in time.
The depreciable life of leased assets and leasehold improvements are limited by the expected lease term, unless there is a transfer
of title or purchase option reasonably certain of exercise.
Some of the Company's lease agreements include rental payments adjusted periodically for inflation or are based on an index
rate. These increases are reflected as variable lease payments and are included in the measurement of the ROU asset and lease
liability. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating leases are included in the following asset and liability accounts on the Company's Consolidated Balance Sheet:
Operating Lease Assets, Current Operating Lease Liabilities and Noncurrent Operating Lease Liabilities. ROU assets and
liabilities arising from finance leases are included in the following asset and liability accounts on the Company's Consolidated
Balance Sheet: Net Property, Plant and Equipment, Current Maturities of Long-Term Debt and Long-Term Debt.
Short-term and variable lease expense was immaterial. The components of lease expense were as follows (in millions):
January 2, 2021
December 28, 2019
Operating Lease Cost
Finance Lease Cost:
Amortization of ROU Assets
Interest on Lease Liabilities
Total Lease Expense
$
$
30.9 $
0.3
0.2
31.4 $
Maturity of lease liabilities as of January 2, 2021 were as follows (in millions):
2021
2022
2023
2024
2025
Thereafter
Total Lease Payments
Less: Interest
Present Value of Lease Liabilities
Operating Leases
Finance Leases
Total
$
$
$
26.7 $
19.6
13.3
9.0
7.0
18.4
94.0 $
(17.3)
76.7 $
0.5 $
0.5
0.6
0.6
0.6
1.3
4.1 $
(0.8)
3.3 $
31.1
0.3
0.2
31.6
27.2
20.1
13.9
9.6
7.6
19.7
98.1
(18.1)
80
88
Other information related to leases was as follows (in millions):
$
Supplemental Cash Flows Information
Cash Paid for Amounts Included in the Measurement of Lease Liabilities:
Operating Cash Flows from Operating Leases
Operating Cash Flows from Finance Leases
Financing Cash Flows from Finance Leases
Leased Assets Obtained in Exchange for New Operating Lease Liabilities
Weighted Average Remaining Lease Term
Operating Leases
Finance Leases
Weighted Average Discount Rate
Operating Leases
Finance Leases
January 2, 2021
December 28, 2019
$
29.7
0.3
0.2
24.3
5.2 years
7.3 years
8.2 %
5.9 %
30.6
0.3
0.2
13.6
4.7 years
8.3 years
8.8 %
5.9 %
As of January 2, 2021, the Company has additional operating leases with future lease payments of $1.7 million that have not yet
commenced. These operating leases will commence during fiscal year 2021 with lease terms of one to 5 years. The Company had
no finance leases that had not yet commenced nor entered into as of January 2, 2021.
(10) Shareholders' Equity
Common Stock
At a meeting of the Board of Directors on July 24, 2018, the Company's Board of Directors approved the extinguishment of the
existing $3.0 million share repurchase program that was approved in November 2013 and replaced it with an authorization to
repurchase up to $250.0 million of shares. At a meeting of the Board of Directors on October 25, 2019, the July 2018 repurchase
authorization was extinguished and replaced with an authorization to purchase up to $250.0 million of shares. In fiscal 2020, the
Company acquired and retired 315,072 shares of its common stock at an average cost of $79.38 per share for a total cost of $25.0
million under the October 25, 2019 repurchase authorization. In fiscal 2019, the Company acquired and retired under the July
2018 repurchase authorization 2,013,782 shares of its common stock at an average cost of $74.52 per share for a total cost of
$150.1 million. Also in fiscal 2019, the Company acquired and retired 180,763 shares of its common stock at an average cost of
$83.01 per share for a total cost of $15.0 million under the October 25, 2019 repurchase authorization.
The Company announced it had suspended the share repurchase program starting in the first quarter of 2020. The Company has
re-instated the share purchase program starting in the fourth quarter of 2020. The existing share repurchase program remains
authorized by the Company's Board of Directors. There is approximately $210.0 million in common stock available for repurchase
under the October 25, 2019 repurchase authorization as of January 2, 2021.
Share-Based Compensation
The Company recognized approximately $9.2 million, $13.0 million and $16.9 million in share-based compensation expense in
fiscal years 2020, 2019 and 2018, respectively. The total income tax benefit recognized in the Consolidated Statements of Income
for share-based compensation expense was $2.2 million, $3.1 million and $4.1 million in fiscal years 2020, 2019 and 2018,
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. The total fair value of shares and options vested was $7.7 million, $23.0 million and
$12.8 million in fiscal years 2020, 2019 and 2018, respectively. On October 10, 2018, the Company entered into a retirement
agreement with the prior CEO resulting in the modification of the prior CEO's unvested awards. The Company expensed the
modified awards over the modified service term. The modification increased the amount of unrecognized compensation cost and
reduced the weighted average period in which the Company recognized compensation cost. On December 27, 2019, the Company
entered into a retirement agreement with the COO resulting in the modification of certain of the COO's unvested awards. The
89
Company recognized the modified award values over the modified service term. The modification increased the amount of
unrecognized compensation cost and reduced the weighted average period in which the Company recognized the unrecognized
compensation cost.
Total unrecognized compensation cost related to share-based compensation awards was approximately $17.9 million, net of
estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately 1.8 years as of
January 2, 2021.
During 2018, the Company's shareholders approved the 2018 Equity Incentive Plan ("2018 Plan"). The 2018 Plan authorizes the
issuance of 2.1 million shares of common stock, plus the number of shares reserved under the prior 2013 Equity Incentive Plan
that are not the subject of outstanding awards for equity-based awards and terminates any further grants under prior equity plans.
Approximately 3.4 million shares were available for future grant or payment under the 2018 Plans as of January 2, 2021.
Stock Appreciation Rights
The Company uses stock settled stock appreciation rights (“SARs”) as a form of share-based incentive awards. SARs are the
right to receive stock in an amount equal to the appreciation in value of a share of stock over the base price per share. Shares
granted prior to fiscal 2020 generally vest over five years on the anniversary date while shares granted in fiscal 2020 generally
vest over three years on the anniversary date of the grant date. Generally all grants 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 date. For fiscal years ended January 2, 2021,
December 28, 2019 and December 29, 2018, expired and canceled shares were immaterial.
The table below presents SARs share-based compensation activity for the fiscal years ended 2020, 2019 and 2018 (in millions):
Total Intrinsic Value of Share-Based Incentive Awards Exercised
Cash Received from Stock Option Exercises
Total Fair Value of Share-Based Incentive Awards Vested
2020
$6.7
0.2
2.1
2019
$11.7
0.1
5.4
2018
$5.2
—
3.9
The weighted average assumptions used in the Company's Black-Scholes valuation related to grants for SARs were as follows:
Per Share Weighted Average Fair Value of Grants
Risk-Free Interest Rate
Expected Life (Years)
Expected Volatility
Expected Dividend Yield
2020
$21.23
1.5%
7.0
25.2%
1.4%
2019
$20.84
2.4%
7.0
25.0%
1.5%
2018
$22.73
2.9%
7.0
27.8%
1.4%
The average risk-free interest rate is based on US 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.
90
Following is a summary of share-based incentive plan activity (options and SARs) for fiscal 2020:
Number of Shares Under SARs
Outstanding as of December 28, 2019
Granted
Exercised
Forfeited
Expired
Outstanding as of January 2, 2021
Exercisable as of January 2, 2021
Shares
817,790
181,177
(322,820)
(95,330)
(3,308)
577,509
180,146
Weighted
Average Exercise
Price
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
(in millions)
$
$
$
73.34
88.25
69.86
77.26
67.38
79.35
71.22
7.0
4.2
$
$
25.1
9.3
Compensation expense recognized related to SARs was $2.8 million, $2.7 million and $4.7 million for fiscal years 2020, 2019
and 2018, respectively.
As of January 2, 2021, there was $5.6 million of unrecognized compensation cost related to non-vested SARs that is expected to
be recognized as a charge to earnings over a weighted average period of 2.5 years.
The amount of SARs expected to vest is materially consistent with those outstanding and not yet exercisable.
Restricted Stock Awards and Restricted Stock Units
Restricted stock awards ("RSAs") and restricted stock units ("RSUs") consist of shares or the rights to shares of the Company's
stock. The awards are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other
transfer. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, or death,
disability or normal retirement of the grantee.
Following is the summary of RSAs activity for fiscal 2020:
Unvested RSAs as of December 28, 2019
Granted
Vested
Unvested RSAs as of January 2, 2021
Shares
15,571
16,280
(15,571)
16,280
Weighted Average
Fair Value at Grant
Date
$
$
80.41
70.05
80.41
70.05
Weighted Average
Remaining Contractual
Term (years)
0.4
0.3
The weighted average grant date fair value of awards granted was $70.05, $80.41 and $74.68 in fiscal years 2020, 2019 and 2018,
respectively.
RSAs vest on the one year anniversary of the grant date, provided the holder of the shares is continuously employed by or in the
service of the Company until the vesting date. Compensation expense recognized related to the RSAs was $1.2 million for fiscal
2020, 2019 and 2018, respectively.
As of January 2, 2021, there was $0.4 million of unrecognized compensation cost related to non-vested RSAs that is expected to
be recognized as a charge to earnings over a weighted average period of 0.3 years.
91
Following is the summary of RSUs activity for fiscal 2020:
Unvested RSUs as of December 28, 2019
Granted
Vested
Forfeited
Unvested RSUs as of January 2, 2021
Shares
175,025
69,331
(50,565)
(29,393)
164,398
Weighted Average
Fair Value at Grant
Date
$
$
78.19
86.70
80.20
78.23
81.16
Weighted Average
Remaining Contractual
Term (years)
1.9
1.7
The weighted average grant date fair value of awards granted was $86.70, $78.98 and $74.51 in fiscal years 2020, 2019 and 2018,
respectively.
RSUs granted prior to fiscal 2020 vest on the third anniversary of the grant date while RSUs granted in fiscal 2020 vest one third
each year on the anniversary of the grant date, provided the holder of the shares is continuously employed by the Company until
the vesting date. Compensation expense recognized related to the RSUs was $3.8 million, $6.2 million and $7.8 million for fiscal
2020, 2019 and 2018, respectively.
As of January 2, 2021, there was $7.2 million of unrecognized compensation cost related to non-vested RSUs that is expected to
be recognized as a charge to earnings over a weighted average period of 1.7 years.
Performance Share Units
Performance share unit awards ("PSUs") consist of shares or the rights to shares of the Company's stock which are awarded to
associates of the Company. These shares are payable upon the determination that the Company achieved certain established
performance targets and can range from 0% to 200% of the targeted payout based on the actual results. PSUs have a performance
period of 3 years, vest three years from the grant date and are issued at a performance target of 100%. The PSUs have performance
criteria based on a return on invested capital metric or they have performance criteria using returns relative to the Company's peer
group. As set forth in the individual grant agreements, acceleration of vesting may occur under a change in control, death or
disability. There are no voting rights with these instruments until vesting occurs and a share of stock is issued. Some of the PSU
awards are valued using a Monte Carlo simulation method as of the grant date while others are valued using the closing market
price less net present value of dividends as of the grant date depending on the performance criteria for the award.
The assumptions used in the Company's Monte Carlo simulation related to grants for performance share units were as follows:
Risk-free interest rate
Expected life (years)
Expected volatility
Expected dividend yield
January 2,
2021
1.4%
3.0
24.0%
1.4%
December 28,
2019
2.3%
3.0
25.0%
1.5%
December 29,
2018
2.7%
3.0
25.0%
1.4%
92
Following is the summary of PSUs activity for fiscal 2020:
Unvested PSUs as of December 28, 2019
Granted
Vested
Forfeited
Unvested PSUs as of January 2, 2021
Shares
90,565
36,556
(7,545)
(32,054)
87,522
Weighted Average
Fair Value at
Grant Date
$
$
86.35
117.63
95.33
86.54
97.59
Weighted Average
Remaining Contractual
Term (years)
1.9
1.8
The weighted average grant date fair value of awards granted was $117.63, $85.54 and $83.80 in fiscal years 2020, 2019 and
2018, respectively.
Compensation expense for awards granted are recognized based on the Monte Carlo simulation value or the expected payout ratio
depending upon the performance criterion for the award, net of estimated forfeitures. Compensation expense recognized related
to PSUs was $1.4 million, $2.9 million and $3.2 million for fiscal 2020, 2019 and 2018, respectively. Total unrecognized
compensation expense for all PSUs granted as of January 2, 2021 was $4.7 million and it is expected to be recognized as a charge
to earnings over a weighted average period of 1.8 years.
(11) Income Taxes
Income before taxes consisted of the following (in millions):
United States
Foreign
Total
2020
2019
2018
$
$
80.2 $
170.4
250.6 $
126.7 $
177.1
303.8 $
The provision for income taxes is summarized as follows (in millions):
2020
2019
2018
Current
Federal
State
Foreign
Deferred
Federal
State
Foreign
Total
$
$
$
$
7.1 $
2.7
63.5
73.3 $
(2.0) $
(0.3)
(14.2)
(16.5)
56.8 $
1.8 $
1.1
35.9
38.8 $
20.4 $
2.6
(0.6)
22.4
61.2 $
93
121.5
170.7
292.2
4.5
0.8
37.9
43.2
16.6
2.1
(5.5)
13.2
56.4
A reconciliation of the statutory federal income tax rate and the effective tax rate reflected in the consolidated statements of
income follows:
Federal Statutory Rate
State Income Taxes, Net of Federal Benefit
Foreign Rate Differential - China
Foreign Rate Differential - All Other
Research and Development Credit
Valuation Allowance
Tax Cuts and Jobs Act of 2017
Tax on Repatriation
Adjustments to Tax Accruals and Reserves
Tax Impact of Divestitures
Other
Effective Tax Rate
2020
21.0%
0.8%
1.2%
(0.4)%
(3.0)%
(0.1)%
—%
1.2%
0.1%
—%
1.9%
22.7%
2019
21.0%
1.3%
0.9%
(2.8)%
(2.5)%
0.8%
—%
3.4%
0.3%
(1.7)%
(0.6)%
20.1%
2018
21.0%
1.1%
0.9%
(1.4)%
(2.5)%
(0.3)%
(1.3)%
1.3%
—%
—%
0.5%
19.3%
Deferred taxes arise primarily from differences in amounts reported for tax and financial statement purposes. The Company's net
deferred tax liability was $(128.1) million as of January 2, 2021, classified on the consolidated Balance Sheet as a net non-current
deferred tax asset of $43.9 million and a net non-current deferred income tax liability of $(172.0) million. As of December 28,
2019, the Company's net deferred tax liability was $(113.5) million classified on the consolidated Balance Sheet as a net non-
current deferred income tax asset of $58.4 million and a net non-current deferred income tax liability of $(171.9) million.
The components of this net deferred tax liability are as follows (in millions):
Accrued Benefits
Bad Debt Allowances
Warranty Accruals
Inventory
Accrued Liabilities
Derivative Instruments
Tax Loss Carryforward
Valuation Allowance
Operating Lease Liability
Other
Deferred Tax Assets
Property Related
Intangible Items
Operating Lease Asset
Deferred Tax Liabilities
Net Deferred Tax Liability
January 2, 2021
December 28, 2019
$
$
36.8 $
4.9
3.4
10.4
(8.8)
(7.5)
9.2
(7.4)
18.8
34.6
94.4
(33.7)
(170.9)
(17.9)
(222.5)
(128.1) $
54.3
2.0
2.5
7.3
(2.6)
1.4
35.4
(12.9)
17.2
18.0
122.6
(36.1)
(182.8)
(17.2)
(236.1)
(113.5)
94
Following is a reconciliation of the beginning and ending amount of unrecognized tax benefits (in millions):
Unrecognized Tax Benefits, December 30, 2017
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, 2018
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 28, 2019
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 2, 2021
$
$
$
$
6.7
—
0.3
(0.1)
(0.4)
6.5
—
0.7
—
(0.3)
6.9
—
0.2
—
(0.3)
6.8
Unrecognized tax benefits as of January 2, 2021 amount to $6.8 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 years 2020,
2019 and 2018, the Company recognized approximately $0.4 million, $0.5 million and $0.2 million in net interest (income)
expense, respectively. The Company had approximately $2.7 million, $2.3 million and $1.9 million of accrued interest as of
January 2, 2021, December 28, 2019 and December 29, 2018, respectively.
Due to statute expirations, approximately $1.3 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 US federal and state/local income tax examinations by tax authorities
for years prior to 2014, and the Company is no longer subject to non-US income tax examinations by tax authorities for years
prior to 2012.
As of January 2, 2021, the Company had approximately $9.2 million of tax effected net operating losses in various jurisdictions
with a portion expiring over a period of up to 15 years and the remaining without expiration. As of December 28, 2019, the
Company had approximately $35.4 million of tax effected net operating losses in various jurisdictions with a portion expiring
over a period up to 15 years and the remaining without expiration.
Valuation allowances totaling $7.4 million and $12.9 million as of January 2, 2021 and December 28, 2019, respectively, have
been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be realized.
Realization of the net deferred income tax assets is dependent on generating sufficient taxable income prior to their expiration.
Although realization is not assured, management believes it is more-likely-than-not that the net deferred income tax assets will
be realized. The amount of the net deferred income tax assets considered realizable, however, could change in the near term if
future taxable income during the carryforward period fluctuates.
The Company has been granted tax holidays for some of its Chinese subsidiaries. The majority of these tax holidays expired at
the end of 2020. All tax holidays will be renewed subject to certain conditions with which the Company expects to comply. In
2020, these holidays decreased the Provision for Income Taxes by $4.1 million.
95
The Company continues to treat approximately $149.6 million of earnings from certain foreign entities as permanently reinvested
and has not recorded a deferred tax liability for the local withholding taxes of approximately $15.2 million on those earnings.
(12) Contingencies
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 manufactured and sold in high volumes by a third party. These ventilation units are subject to
product safety requirements and other potential regulation of their performance by government agencies such as the US Consumer
Product Safety Commission (“CPSC”). The claims generally allege that the ventilation units were the cause of fires. The Company
has recorded an estimated liability for incurred claims. Based on the current facts, the Company cannot assure that these claims,
individually or in the aggregate, will not have a material adverse effect on its subsidiary's financial condition. The Company's
subsidiary cannot reasonably predict the outcome of these claims, the nature or extent of any CPSC or other remedial actions, if
any, that the Company's subsidiary may need to undertake with respect to motors that remain in the field, or the costs that may
be incurred, some of which could be significant.
The Company is, from time to time, party to litigation and other legal or regulatory proceedings that arise in the normal course
of its business operations and the outcomes of which are subject to significant uncertainty, including product warranty and liability
claims, contract disputes and environmental, asbestos, intellectual property, 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. Many of these matters will only be resolved
when one or more future events occur or fail to occur. Management conducts regular reviews, including updates from legal
counsel, to assess the need for accounting recognition or disclosure of these contingencies, and such assessment inherently
involves an exercise in judgment. 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, results of operations or cash flows.
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 fiscal 2020 and
fiscal 2019 (in millions):
Beginning Balance
Less: Payments
Provisions
Held for Sale
Translation Adjustments
Ending Balance
January 2, 2021
December 28, 2019
$
$
15.1 $
16.7
16.9
—
0.2
15.5 $
14.8
14.5
15.2
(0.4)
—
15.1
These liabilities are included in Other Accrued Expenses and Other Noncurrent Liabilities on the Consolidated Balance Sheets.
(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 utilized 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
96
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 Consolidated Balance Sheets.
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 January 2, 2021 or December 28, 2019.
Cash flow hedges
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 AOCI 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.
As of January 2, 2021 and December 28, 2019, the Company had $3.7 million and $1.3 million, net of tax, of derivative gains on
closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings.
The Company had the following commodity forward contracts outstanding (with maturities extending through March 2022) to
hedge forecasted purchases of commodities (notional amounts expressed in terms of the dollar value of the hedged item (in
millions):
Copper
Aluminum
January 2, 2021
December 28, 2019
$
47.0 $
3.6
49.3
3.4
The Company had the following currency forward contracts outstanding (with maturities extending through December 2022) to
hedge forecasted foreign currency cash flows (in millions):
$
Mexican Peso
Chinese Renminbi
Indian Rupee
Euro
Canadian Dollar
Australian Dollar
Thai Baht
Swedish Krona
British Pound
January 2, 2021
December 28, 2019
160.2
104.6
36.7
127.0
9.4
11.4
5.7
2.4
15.4
174.6 $
188.5
37.8
231.7
2.0
21.2
15.3
—
11.7
As of January 2, 2021, the total notional amount of the Company's receive-variable/pay-fixed interest rate swap was $88.4 million
with a maturity of April 12, 2021.
The Company entered into two receive variable/pay-fixed forward starting non-amortizing interest rate swaps in June 2020, with
a total notional amount of $250.0 million. These swaps become effective July 2021 and will expire in July 2025.
97
Fair values of derivative instruments as of January 2, 2021 and December 28, 2019 were (in millions):
January 2, 2021
Prepaid Expenses
and Other
Current Assets
Other
Noncurrent
Assets
Other Accrued
Expenses
Other Noncurrent
Liabilities
Designated as Hedging Instruments:
Interest Rate Swap Contracts
Currency Contracts
Commodity Contracts
Not Designated as Hedging
Instruments:
Currency Contracts
Commodity Contracts
Total Derivatives
$
$
— $
16.4
11.3
0.2
0.1
28.0 $
— $
1.6
0.1
—
—
1.7 $
0.7 $
1.0
—
—
—
1.7 $
1.4
0.1
—
—
—
1.5
December 28, 2019
Prepaid Expenses
and Other
Current Assets
Other
Noncurrent
Assets
Other Accrued
Expenses
Other Noncurrent
Liabilities
$
Designated as Hedging Instruments:
Interest Rate Swap Contracts
Currency Contracts
Commodity Contracts
Not Designated as Hedging
Instruments:
Currency Contracts
Commodity Contracts
Total Derivatives
$
— $
8.8
2.6
0.1
—
11.5 $
— $
10.3
0.1
—
—
10.4 $
— $
3.0
0.2
0.1
0.1
3.4 $
1.0
0.2
—
—
—
1.2
Derivatives Designated as Cash Flow Hedging Instruments
The effect of derivative instruments designated as cash flow hedges on the Consolidated Statements of Income and Consolidated
Statements of Comprehensive Income for fiscal years 2020, 2019 and 2018 were (in millions):
98
Commodity
Forwards
Currency
Forwards
Fiscal 2020
Interest
Rate
Swaps
Total
$
14.8 $
(3.2) $
(0.2) $
11.4
1.2
—
—
(2.9)
(8.3)
—
—
—
0.9
Commodity
Forwards
Currency
Forwards
Fiscal 2019
Interest
Rate
Swaps
$
1.5 $
16.5 $
1.3 $
—
(7.7)
—
—
0.3
4.2
2.5
—
—
—
—
2.4
Commodity
Forwards
Currency
Forwards
Fiscal 2018
Interest
Rate
Swaps
(1.7)
(8.3)
0.9
19.3
0.3
(3.5)
2.5
2.4
Total
Total
$
(17.9) $
11.0 $
1.7 $
(5.2)
—
5.0
—
—
0.2
2.9
6.1
—
—
—
—
1.6
0.2
7.9
6.1
1.6
Gain (Loss) Recognized in Other
Comprehensive Income
Amounts Reclassified from Other
Comprehensive Income (Loss):
Gain (Loss) Recognized in Cost
of Sales
Loss Recognized in Operating
Expense
Gain Recognized in Interest
Expense
Gain Recognized in Other
Comprehensive Loss
Amounts Reclassified from Other
Comprehensive Income (Loss):
Gain Recognized in Net Sales
Gain (Loss) Recognized in Cost
of Sales
Gain Recognized in Operating
Expense
Gain Recognized in Interest
Expense
Gain (Loss) Recognized in Other
Comprehensive Loss
Amounts Reclassified from Other
Comprehensive Income (Loss):
Gain Recognized in Net Sales
Gain Recognized in Cost of
Sales
Gain Recognized in Operating
Expense
Gain Recognized in Interest
Expense
The ineffective portion of hedging instruments recognized was immaterial for all periods presented.
99
Derivatives Not Designated as Cash Flow Hedging Instruments
The effect of derivative instruments not designated as cash flow hedges on the Consolidated Statements of Income for fiscal years
2020, 2019 and 2018 were (in millions):
Gain Recognized in Cost of Sales
Loss Recognized in Operating Expenses
Gain Recognized in Cost of Sales
Loss Recognized in Operating Expenses
Loss Recognized in Cost of Sales
Loss Recognized in Operating Expenses
Commodity
Forwards
Fiscal 2020
Currency
Forwards
0.2 $
—
— $
(8.6)
Commodity
Forwards
Fiscal 2019
Currency
Forwards
0.2 $
—
— $
(1.1)
Commodity
Forwards
Fiscal 2018
Currency
Forwards
(0.5) $
—
— $
(6.8)
$
$
$
Total
Total
Total
0.2
(8.6)
0.2
(1.1)
(0.5)
(6.8)
The net AOCI balance related to hedging activities of a $23.5 million gain as of January 2, 2021 includes $20.2 million of net
deferred gains expected to be reclassified to the Consolidated Statement of Comprehensive 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.
The Company's commodity and currency derivative contracts are subject to master netting agreements with the respective
counterparties which allow the Company to net settle transactions with a single net amount payable by one party to another party.
The Company has elected to present the derivative assets and derivative liabilities on the Consolidated Balance Sheets on a gross
basis for the periods ended January 2, 2021 and December 28, 2019.
The following table presents the derivative assets and derivative liabilities presented on a net basis under enforceable master
netting agreements (in millions):
January 2, 2021
Gross Amounts as
Presented in the
Consolidated
Balance Sheet
Derivative Contract
Amounts Subject to
Right of Offset
Derivative Contracts
as Presented on a Net
Basis
Prepaid Expenses and Other Current Assets:
Derivative Currency Contracts
Derivative Commodity Contracts
$
16.6 $
11.4
(1.0) $
—
Other Noncurrent Assets:
Derivative Currency Contracts
Derivative Commodity Contracts
Other Accrued Expenses:
Derivative Currency Contracts
Other Noncurrent Liabilities:
Derivative Currency Contracts
1.6
0.1
1.0
0.1
100
—
—
(1.0)
—
15.6
11.4
1.6
0.1
—
0.1
December 28, 2019
Gross Amounts as
Presented in the
Consolidated
Balance Sheet
Derivative Contract
Amounts Subject to
Right of Offset
Derivative Contracts
as Presented on a Net
Basis
$
8.9 $
2.6
(2.5) $
(0.3)
10.3
0.1
3.1
0.3
0.2
(0.1)
—
(2.5)
(0.3)
(0.1)
6.4
2.3
10.2
0.1
0.6
—
0.1
Prepaid Expenses and Other Current Assets:
Derivative Currency Contracts
Derivative Commodity Contracts
Other Noncurrent Assets:
Derivative Currency Contracts
Derivative Commodity Contracts
Other Accrued Expenses:
Derivative Currency Contracts
Derivative Commodity Contracts
Other Noncurrent Liabilities:
Derivative Currency Contracts
(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
Level 3
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
Unobservable inputs for the asset or liability
101
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 January 2, 2021 and
December 28, 2019, respectively (in millions):
January 2, 2021
December 28,
2019
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:
Interest Rate Swap
Derivative Currency Contracts
Derivative Commodity Contracts
Other Noncurrent Liabilities:
Interest Rate Swap
Derivative Currency Contracts
$
16.6 $
11.4
6.5
1.6
0.1
0.7
1.0
—
1.4
0.1
8.9
2.6
6.1
10.3
0.1
—
3.1
0.3
1.0
0.2
Level 2
Level 2
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 1 fair value measurements for assets held in a Rabbi Trust are unadjusted quoted prices.
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 discounted cash flows using the LIBOR forward yield curve for
an instrument with similar contractual terms. Foreign currency forwards are valued based on exchange rates quoted by domestic
and foreign banks for similar instruments. Commodity forwards are valued based on observable market transactions of forward
commodity prices.
The Company did not change its valuation techniques during fiscal 2020.
(15) Restructuring Activities
The Company incurred restructuring and restructuring-related costs on projects during fiscal 2020, 2019 and 2018. Restructuring
costs include associate termination and plant relocation costs. Restructuring-related costs include costs directly associated with
actions resulting from the Company's simplification initiatives, such as asset write-downs or accelerated depreciation due to
shortened useful lives in connection with site closures, discretionary employment benefit costs and other facility rationalization
costs. Restructuring costs for associate termination expenses are generally required to be accrued over the associate's remaining
service period while restructuring costs for plant relocation costs and restructuring-related costs are generally required to be
expensed as incurred.
102
Total Restructuring Costs
Restructuring-Related Costs:
Other Employment Benefit
Expenses
The following is a reconciliation of provisions and payments for the restructuring projects for fiscal 2020 and fiscal 2019 (in
millions):
Beginning Balance
Provision
Less: Payments
Ending Balance
January 2, 2021
December 28, 2019
$
$
0.9 $
26.6
25.5
2.0 $
0.2
21.6
20.9
0.9
The following is a reconciliation of expenses by type for the restructuring projects in fiscal years 2020, 2019 and 2018 (in
millions):
2020
2019
2018
Restructuring Costs:
Cost
of
Sales
Operating
Expenses Total
Cost
of
Sales
Operating
Expenses Total
Cost
of
Sales
Operating
Expenses Total
Associate Termination Expenses $ 6.2 $
Facility Related Costs
Other Expenses
11.7
0.3
$ 18.2 $
5.6 $ 11.8 $ 5.7 $
14.8
3.1
5.0
(0.3) — —
8.4 $ 26.6 $ 10.7 $
6.5 $ 12.2 $ — $
4.4
9.4
— —
2.3
0.8
10.9 $ 21.6 $ 3.1 $
0.3 $ 0.3
3.4
5.7
0.8
1.6
4.5 $ 7.6
$ — $
— $ — $ — $
— $ — $ 0.1 $
— $ 0.1
Total Restructuring-Related Costs $ — $
Total Restructuring and
Restructuring-Related Costs
$ 18.2 $
— $ — $ — $
— $ — $ 0.1 $
— $ 0.1
8.4 $ 26.6 $ 10.7 $
10.9 $ 21.6 $ 3.2 $
4.5 $ 7.7
The following table shows the allocation of Restructuring Expenses by segment for fiscal years 2020, 2019 and 2018 (in
millions):
Total
Commercial
Systems
Industrial
Systems
Climate
Solutions
Power
Transmission
Solutions
Restructuring Expenses - 2020
Restructuring Expenses - 2019
Restructuring Expenses - 2018
$
$
$
26.6 $
21.6 $
7.7 $
6.3 $
9.5 $
2.9 $
8.7 $
7.2 $
2.7 $
3.7 $
2.2 $
1.8 $
7.9
2.7
0.3
The Company's current restructuring activities are expected to continue into fiscal 2021. The Company expects to record
aggregate future charges of approximately $1.6 million related to announced projects as of year-end fiscal 2020, which includes
$0.9 million of associate termination expenses and $0.7 million of facility related and other costs.
103
(16) Subsequent Events
The Company has evaluated subsequent events since January 2, 2021, the date of these financial statements.
On February 16, 2021, the Company entered into definitive agreements with Rexnord, Land Newco, Inc., a wholly owned indirect
subsidiary of Rexnord (“Land”), and Phoenix 2021, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), with respect
to a Reverse Morris Trust transaction pursuant to which, immediately after Rexnord undergoes an internal reorganization and
spin-off of its PMC Business to Land, Merger Sub will merge with and into Land and all shares of Land common stock (other
than those held by Rexnord, Land, the Company, Merger Sub or their respective subsidiaries) will be converted into the right to
receive shares of the common stock, $0.01 par value per share, of the Company, as calculated and subject to adjustment as set
forth in the merger agreement for the Rexnord Transaction. When the merger is completed, Land (which at that time will hold
the PMC business) will be a wholly owned subsidiary of the Company.
Closing of the Rexnord Transaction is subject to various closing conditions, including the receipt of the approval of the
shareholders of Rexnord and the Company, the receipt of regulatory approvals and other customary closing conditions.
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 January 2, 2021. 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 January 2, 2021 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
January 2, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over
financial reporting.
104
ITEM 9B - OTHER INFORMATION
None.
105
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information in the sections titled “Proposal 1: Election of Directors,” “Board of Directors,” "Other Matters-Delinquent
Section 16(a) Reports" and “Stock Ownership” in the 2021 Proxy Statement is incorporated by reference herein. 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 associates.
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.
ITEM 11 - EXECUTIVE COMPENSATION
The information in the sections titled “Compensation Discussion and Analysis,” “Executive Compensation,” “Report of the
Compensation and Human Resources Committee,” “Director Compensation,” and "Compensation Committee Interlocks and
Insider Participation" in the 2021 Proxy Statement is incorporated by reference herein.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the sections titled “Stock Ownership” in the 2021 Proxy Statement is incorporated by reference herein.
Equity Compensation Plan Information
The following table provides information about our equity compensation plans as of January 2, 2021.
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)
577,509
$
79.35
—
577,509
—
3,428,715
—
3,428,715
Equity Compensation Plans
Approved by Security
Holders
Equity Compensation Plans
Not Approved by Security
Holders
Total
(1) Represents options to purchase our Common Stock and stock-settled appreciation rights granted under our 2013 Equity
Incentive Plan and 2018 Equity Incentive Plan.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information in the section titled “Board of Directors” in the 2021 Proxy Statement is incorporated by reference herein.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information in the section titled “Proposal 3: Ratification of Deloitte & Touche LLP as our Independent Registered Public
Accounting Firm for 2021” in the 2021 Proxy Statement is incorporated by reference herein.
106
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE
PART IV
(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 required by Item 601 of Regulation S-K:
Exhibit
Number
2.1
Exhibit Index
Exhibit Description
Agreement and Plan of Merger, dated as of February 15, 2021, by and among Rexnord Corporation, Land
Newco, Inc., Regal Beloit Corporation and Phoenix 2021, Inc. [Incorporated by reference to Exhibit 2.1 to
Regal Beloit Corporation’s Current Report on Form 8-K filed on February 19, 2021]
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
10.1*
10.2*
10.3*
10.4*
Amended and Restated Articles of Incorporation of Regal Beloit Corporation. [Incorporated by reference to
Exhibit 3 to Regal Beloit Corporation's Current Report on Form 8-K filed on May 1, 2015]
Amended and Restated Bylaws of Regal Beloit Corporation, as amended through February 14, 2021. **
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws of Regal Beloit Corporation
[Incorporated by reference to Exhibits 3.1 and 3.2 hereto]
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]
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]
First Amendment, dated as of August 16, 2011, to Note Purchase Agreement dated as of July 14, 2011, by and
among Regal-Beloit Corporation, certain subsidiaries of Regal-Beloit Corporation and the Purchasers listed on
the signature pages thereto. [Incorporated by reference to Exhibit 4.2 to Regal Beloit Corporation's Current
Report on Form 8-K filed on August 22, 2011]
Amended and Restated Credit Agreement, dated as of August 27, 2018, by and among Regal Beloit Corporation,
various subsidiaries of Regal Beloit Corporation from time to time a party thereto, the financial institutions from
time to time a party thereto as lenders and JPMorgan Chase Bank, N.A., as administrative agent. [Incorporated
by reference to Exhibit 10.1 to Regal Beloit Corporation’s Current Report on Form 8-K filed on August 28, 2018]
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of
1934. [Incorporated by reference to Exhibit 4.6 to Regal Beloit Corporation's Annual Report on Form 10-K on
February 26, 2020]
Form of Executive Employment Agreement, dated as of March 12, 2019, between Regal Beloit Corporation and
Louis V. Pinkham. [Incorporated by reference to Exhibit 10.1 to Regal Beloit Corporation’s Current Report on
Form 8-K filed on March 14, 2019.]
Form of Key Executive Employment and Severance Agreement, effective as of April 1, 2019, between Regal
Beloit Corporation and Louis V. Pinkham. [Incorporated by reference to Exhibit 10.2 to Regal Beloit
Corporation’s Current Report on Form 8-K filed on March 14, 2019.]
Form of Retirement Agreement, dated as of December 27, 2019, between Regal Beloit Corporation and
Jonathan J. Schlemmer. [Incorporated by reference to Exhibit 10.3 to Regal Beloit Corporation's Annual Report
on Form 10-K on February 26, 2020]
Form of Retirement Agreement, dated as of October 10, 2018, between Regal Beloit Corporation and Mark J.
Gliebe. [Incorporated by reference to Exhibit 10.25 to Regal Beloit Corporation’s Annual Report on Form 10-K
filed on February 26, 2019]
107
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
Form of Key Executive Employment and Severance Agreement between Regal Beloit Corporation and each of
Jonathan J. Schlemmer 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]
Regal Beloit Corporation Supplemental Defined Contribution Retirement Plan. [Incorporated by reference to
Exhibit 10.6 to Regal Beloit Corporation's Annual Report on Form 10-K on February 26, 2020]
Regal Beloit Corporation Supplemental Employee Retirement Plan For Salary Level 27 & 30 Employees.
[Incorporated by reference to Exhibit 10.7 to Regal Beloit Corporation's Annual Report on Form 10-K on
February 26, 2020]
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]
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]
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]
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]
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]
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]
Form of Participation Agreement for Target Supplemental Retirement Plan. [Incorporated by reference to Exhibit
10.14 to Regal Beloit Corporation's Annual Report on Form 10-K on February 26, 2020]
Regal Beloit Corporation 2016 Incentive Compensation Plan. [Incorporated by reference to Appendix A to Regal
Beloit Corporation's definitive proxy statement on Schedule 14A for the 2016 annual meeting of shareholders
held April 25, 2016]
Regal Beloit Corporation 2013 Equity Incentive Plan. [Incorporated by reference to Appendix A to Regal Beloit
Corporation’s definitive proxy statement on Schedule 14A for the Regal Beloit Corporation 2013 annual meeting
of shareholders held April 29, 2013]
Form of Stock Appreciation Rights Award Agreement under the Regal Beloit Corporation 2013 Equity Incentive
Plan. [Incorporated by reference to Exhibit 10.2 to Regal Beloit Corporation’s Current Report on Form 8-K filed
on May 2, 2013]
Form of Restricted Stock Unit Award Agreement under the Regal Beloit Corporation 2013 Equity Incentive Plan.
[Incorporated by reference to Exhibit 10.3 to Regal Beloit Corporation’s Current Report on Form 8-K filed on
May 2, 2013]
Form of TSR Based Performance Share Unit Award Agreement under the Regal Beloit Corporation 2013 Equity
Incentive Plan. [Incorporated by reference to Exhibit 10.4 to Regal Beloit Corporation’s Current Report on Form
8-K filed on May 2, 2013]
Form of EBIT Based Performance Share Unit Award Agreement under the Regal Beloit Corporation 2013 Equity
Incentive Plan. [Incorporated by reference to Exhibit 10.21 to Regal Beloit Corporation’s Annual Report on Form
10-K filed on March 2, 2016]
Form of ROIC Based Performance Share Unit Award Agreement under the Regal Beloit Corporation 2013 Equity
Incentive Plan [Incorporated by reference to Exhibit 10.22 to Regal Beloit Corporation’s Annual Report on Form
10-K filed on March 1, 2017]
Key Executive Employment and Severance Agreement, dated as of October 26, 2016, between Regal Beloit
Corporation and Thomas E. Valentyn [Incorporated by reference to Exhibit 10.23 to Regal Beloit Corporation’s
Annual Report on Form 10-K filed on March 1, 2017]
108
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32
10.33
10.34
10.35
10.36
10.37
18.1
21.1
23.1
31.1
31.2
32.1
Form of Key Executive Employment and Severance Agreement between Regal Beloit Corporation and Robert J.
Rehard. [Incorporated by reference to Exhibit 10.1 to Regal Beloit Corporation’s Current Report on Form 8-K
filed on April 5, 2018]
Form of Key Executive Employment and Severance Agreement, dated as of January 19, 2019, between Regal
Beloit Corporation and Timothy J. Oswald. [Incorporated by reference to Exhibit 10.24 to Regal Beloit
Corporation’s Annual Report on Form 10-K filed on February 26, 2019]
Regal Beloit Corporation 2018 Equity Incentive Plan. [Incorporated by reference to Appendix A to Regal Beloit
Corporation’s definitive proxy statement on Schedule 14A filed on March 21, 2018 for the 2018 annual meeting
of shareholders held April 30, 2018]
Form of Stock Appreciation Rights Award Agreement (Stock Settled) under the Regal Beloit Corporation 2018
Equity Incentive Plan. [Incorporated by reference to Exhibit 10.26 to Regal Beloit Corporation's Annual Report
on Form 10-K on February 26, 2020]
Form of Restricted Stock Unit Award Agreement (Stock Settled) under the Regal Beloit Corporation 2018 Equity
Incentive Plan. [Incorporated by reference to Exhibit 10.27 to Regal Beloit Corporation's Annual Report on Form
10-K on February 26, 2020]
Form of Restricted Stock Unit Award Agreement (Cash Settled) under the Regal Beloit Corporation 2018 Equity
Incentive Plan. [Incorporated by reference to Exhibit 10.28 to Regal Beloit Corporation's Annual Report on Form
10-K on February 26, 2020]
Form of Restricted Stock Award Agreement under the Regal Beloit Corporation 2018 Equity Incentive Plan.
[Incorporated by reference to Exhibit 10.29 to Regal Beloit Corporation's Annual Report on Form 10-K on
February 26, 2020]
Form of Performance Share Unit Award Agreement (Return on Invested Capital) under the Regal Beloit
Corporation 2018 Equity Incentive Plan. [Incorporated by reference to Exhibit 10.30 to Regal Beloit
Corporation's Annual Report on Form 10-K on February 26, 2020]
Form of Performance Share Unit Award Agreement (Total Shareholder Return) under the Regal Beloit
Corporation 2018 Equity Incentive Plan. [Incorporated by reference to Exhibit 10.31 to Regal Beloit
Corporation's Annual Report on Form 10-K on February 26, 2020]
Separation and Distribution Agreement, dated as of February 15, 2021, by and among Rexnord Corporation, Land
Newco, Inc. and Regal Beloit Corporation [Incorporated by reference to Exhibit 10.1 to Regal Beloit
Corporation’s Current Report on Form 8-K filed on February 19, 2021]
Tax Matters Agreement, dated as of February 15, 2021, by and among Rexnord Corporation, Land Newco, Inc.
and Regal Beloit Corporation [Incorporated by reference to Exhibit 10.2 to Regal Beloit Corporation’s Current
Report on Form 8-K filed on February 19, 2021]
Employee Matters Agreement, dated as of February 15, 2021, by and among Rexnord Corporation, Land
Newco, Inc. and Regal Beloit Corporation [Incorporated by reference to Exhibit 10.3 to Regal Beloit
Corporation’s Current Report on Form 8-K filed on February 19, 2021]
Intellectual Property Matters Agreement, dated as of February 15, 2021, by and among Rexnord Corporation,
Land Newco, Inc. and Regal Beloit Corporation [Incorporated by reference to Exhibit 10.4 to Regal Beloit
Corporation’s Current Report on Form 8-K filed on February 19, 2021]
Real Estate Matters Agreement, dated as of February 15, 2021, by and among Rexnord Corporation, Land Newco,
Inc. and Regal Beloit Corporation [Incorporated by reference to Exhibit 10.5 to Regal Beloit Corporation’s
Current Report on Form 8-K filed on February 19, 2021]
Bridge Facility Commitment Letter, dated as of February 15, 2021, by and between Regal Beloit Corporation
and Barclays Bank PLC [Incorporated by reference to Exhibit 10.6 to Regal Beloit Corporation’s Current
Report on Form 8-K filed on February 19, 2021]
Preferability Letter for Change in Accounting Principle **
Significant Subsidiaries of Regal Beloit Corporation.
Consent of Independent Registered Public Accounting Firm.
Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.**
109
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
104
Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).
________________________
* A management contract or compensatory plan or arrangement.
** Furnished herewith.
(b) Exhibits- see (a)3., above.
(c) See (a)2., above.
110
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 2nd day of March 2021.
SIGNATURES
REGAL BELOIT CORPORATION
By:
/s/ ROBERT J. REHARD
Robert J. Rehard
Vice President and Chief Financial Officer
(Principal Financial Officer)
By:
/s/ JASON R. LONGLEY
Jason R. Longley
Vice President and Corporate Controller
(Principal Accounting Officer)
111
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:
March 2, 2021
March 2, 2021
March 2, 2021
March 2, 2021
March 2, 2021
March 2, 2021
March 2, 2021
/s/ LOUIS V. PINKHAM
Louis V. Pinkham
Director and Chief Executive Officer
(Principal Executive Officer)
/s/ JAN A. BERTSCH
Jan A. Bertsch
/s/ STEPHEN M. BURT
Stephen M. Burt
/s/ ANESA T. CHAIBI
Anesa T. Chaibi
Director
Director
Director
/s/ CHRISTOPHER L. DOERR
Christopher L. Doerr
Director
Director
Director
/s/ DEAN A. FOATE
Dean A. Foate
/s/ MICHAEL F. HILTON
Michael F. Hilton
/s/ RAKESH SACHDEV
Rakesh Sachdev
Director, Chairman
March 2, 2021
/s/ CURTIS W. STOELTING
Curtis W. Stoelting
Director
March 2, 2021
112
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
January 2, 2021, December 28, 2019 and December 29, 2018
Consolidated Statements of Comprehensive Income for the fiscal years ended January 2, 2021,
December 28, 2019 and December 29, 2018
Consolidated Balance Sheets as of January 2, 2021 and December 28, 2019
Consolidated Statements of Equity for the fiscal years ended January 2, 2021, December 28, 2019 and
December 29, 2018
Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2021, December 28, 2019 and
December 29, 2018
Notes to the Consolidated Financial Statements
(2) Financial Statement Schedule:
For the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018
Schedule II -Valuation and Qualifying Accounts
Page(s) In
Form 10-K
55
58
59
60
61
62
63
114
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements
or notes thereto.
113
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 2020
Fiscal 2019
Fiscal 2018
$
9.7 $
13.3
11.3
5.8 $
4.0
6.9
(2.0) $
(7.5)
(2.1)
4.8 $
(0.1)
(2.8)
18.3
9.7
13.3
(a) Deductions consist of write offs charged against the allowance for doubtful accounts.
(b) Adjustments consist of balances moved to held for sale, translation and adoption of ASC 2016-13 Financial Instruments for Credit Losses.
114
ITEM 16 - FORM 10-K SUMMARY
Not Applicable
115
CASH DIVIDENDS AND STOCK SPLITS
During 2020, we declared four quarterly cash
dividends on Regal Beloit Corporation common
stock. If you have not received all dividends to
which you are entitled, please write or call the
Company’s Transfer Agent.
Regal has paid a cash dividend every quarter since
January 1961. We have increased the amount of our
cash dividend 47 times in the 60 years these
dividends were paid. We have never reduced the
dividend. We have also declared and issued 15 stock
splits/dividends since inception.
NOTICE OF ANNUAL MEETING
The Annual Meeting of Shareholders will be held at
9:00 a.m. CDT, on Tuesday, April 27, 2021, at Regal
Beloit Corporation Headquarters, Packard Learning
Center, 200 State Street, Beloit, WI 53511-6254.
As alternatives to in-person attendance, a live audio
feed and a webcast of the meeting will be offered.
AUDITORS
Deloitte & Touche LLP, Milwaukee, Wisconsin
PUBLIC INFORMATION AND REPORTS
Shareholders can view Company documents 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 and Forms 10-K and 10-Q as filed by the
Company with
the Securities and Exchange
Commission.
Please direct information requests to:
Regal Beloit Corporation
Attn: Investor Relations
200 State Street
Beloit, WI 53511-6254
Email: investor@regalbeloit.com
www.regalbeloit.com
TRANSFER AGENT
Computershare Investor Services
PO Box 30170
College Station, TX 77842-3170
Regal Beloit Corporation is a Wisconsin corporation
listed on the NYSE under the symbol RBC.
116
Corpo rat e In f o rm at io n
BOARD OF DIRECTORS
COM PANY OFFI CER S
Rakesh Sachdev (2)
Chairman of the Board
Regal Beloit Corporation
Former Chief Executive Officer
Platform Specialty Products
Corporation
Director since 2007
Jan A. Bertsch (1,2)
Former Senior VP and
Chief Financial Officer
Owens-Illinois, Inc.
Director since 2019
Stephen M. Burt (1)*
Managing Director
Duff & Phelps
Director since 2010
Anesa T. Chaibi (2)*
Former Chief Executive Officer
Optimas OE Solutions LLC
Director since 2014
Christopher L. Doerr (3)
Chief Executive Officer
Passage Partners LLC
Former President and
Co-Chief Executive Officer
Leeson Electric Corporation
Director since 2003
Dean A. Foate (3)
Director and
Chairman of the Board
Plexus Corporation
Director since 2005
Michael F. Hilton (1)
Former President and
Chief Executive Officer
Nordson Corporation
Director since 2019
Louis V. Pinkham
Director and Chief Executive Officer
Regal Beloit Corporation
Director since 2019
Curtis W. Stoelting (3)*
Former Chief Executive Officer
Roadrunner Transportation
Systems, Inc.
Director since 2005
Louis V. Pinkham
Chief Executive Officer
Robert J. Rehard
VP, Chief Financial Officer
John M. Avampato
VP, Chief Information Officer
Scott D. Brown
President, Commercial
Systems Segment
John C. Kunze
President, Climate
Solutions Segment
Cheryl A. Lewis
VP, Chief Human Resources Officer
Jason R. Longley**
VP, Corporate Controller
Eric S. McGinnis
President, Industrial
Systems Segment
Jerrald R. Morton
President, Power Transmission
Solutions Segment
Thomas E. Valentyn
VP, General Counsel
and Secretary
Committee Assignments as of February 2021
(1) Member of Audit Committee
(2) Member of Compensation and Human Resources Committee
(3) Member of Corporate Governance and Director Affairs Committee
* Committee Chairperson
** Principal Accounting Officer under
Section 16 of the Securities
Exchange Act of 1934, as amended
Regal Beloit Corporation
200 State Street
Beloit, Wisconsin 53511
608-364-8800
regalbeloit.com