Company Quick10K Filing
Regal Beloit
Price72.72 EPS5
Shares43 P/E15
MCap3,098 P/FCF11
Net Debt908 EBIT293
TEV4,006 TEV/EBIT14
TTM 2019-09-28, in MM, except price, ratios
10-Q 2020-03-28 Filed 2020-05-07
10-K 2019-12-28 Filed 2020-02-26
10-Q 2019-09-28 Filed 2019-11-06
10-Q 2019-06-29 Filed 2019-08-08
10-Q 2019-03-30 Filed 2019-05-09
10-K 2018-12-29 Filed 2019-02-26
10-Q 2018-09-29 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-30 Filed 2018-02-27
10-Q 2017-09-30 Filed 2017-11-06
10-Q 2017-07-01 Filed 2017-08-08
10-Q 2017-04-01 Filed 2017-05-11
10-K 2017-01-07 Filed 2017-03-01
10-Q 2016-10-01 Filed 2016-11-10
10-Q 2016-07-02 Filed 2016-08-11
10-Q 2016-04-02 Filed 2016-05-12
10-K 2016-01-02 Filed 2016-03-02
10-Q 2015-10-03 Filed 2015-11-12
10-Q 2015-07-04 Filed 2015-08-13
10-Q 2015-04-04 Filed 2015-05-14
10-K 2015-01-03 Filed 2015-03-04
10-Q 2014-09-27 Filed 2014-11-06
10-Q 2014-06-28 Filed 2014-08-07
10-Q 2014-03-29 Filed 2014-05-08
10-K 2013-12-28 Filed 2014-02-26
10-Q 2013-09-28 Filed 2013-11-05
10-Q 2013-06-29 Filed 2013-08-07
10-Q 2013-03-30 Filed 2013-05-09
10-K 2012-12-29 Filed 2013-02-27
10-Q 2012-09-29 Filed 2012-11-07
10-Q 2012-06-30 Filed 2012-08-07
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-02-29
10-Q 2011-10-01 Filed 2011-11-10
10-Q 2011-07-02 Filed 2011-08-11
10-Q 2011-04-02 Filed 2011-05-11
10-K 2011-01-01 Filed 2011-03-02
10-Q 2010-10-02 Filed 2010-11-10
10-Q 2010-08-06 Filed 2010-08-06
10-Q 2010-05-11 Filed 2010-05-12
10-K 2010-03-01 Filed 2010-03-02
8-K 2020-07-24 Suspend Trading, Exhibits
8-K 2020-05-04
8-K 2020-04-28
8-K 2020-04-01
8-K 2020-03-03
8-K 2020-02-03
8-K 2019-12-27
8-K 2019-12-06
8-K 2019-11-04
8-K 2019-08-05
8-K 2019-06-14
8-K 2019-05-06
8-K 2019-04-30
8-K 2019-03-11
8-K 2019-02-04
8-K 2018-11-05
8-K 2018-10-15
8-K 2018-10-10
8-K 2018-09-23
8-K 2018-08-27
8-K 2018-08-06
8-K 2018-06-14
8-K 2018-05-24
8-K 2018-05-07
8-K 2018-04-30
8-K 2018-03-31
8-K 2018-03-26
8-K 2018-02-05

RBC 10Q Quarterly Report

Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 rbc-2020328xex311.htm
EX-31.2 rbc-2020328xex312.htm
EX-32.1 rbc-2020328xex321.htm

Regal Beloit Earnings 2020-03-28

Balance SheetIncome StatementCash Flow
5.04.03.02.01.00.02012201420172020
Assets, Equity
1.00.80.50.30.0-0.22012201420172020
Rev, G Profit, Net Income
1.30.70.2-0.4-0.9-1.52012201420172020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 28, 2020 or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-07283
 
 
REGAL BELOIT CORPORATION
(Exact name of registrant as specified in its charter)
 
 
Wisconsin
 
39-0875718
(State of other jurisdiction of
incorporation)
 
(IRS Employer
Identification No.)
200 State Street, Beloit, Wisconsin 53511
(Address of principal executive office)
(608) 364-8800
Registrant’s telephone number, including area code
 
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock
RBC
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes      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
 

 
Accelerated Filer
 
Non-accelerated filer
 
Smaller Reporting Company
 
 
 
 
Emerging growth company
 




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     
Yes   No  
On April 27, 2020 the registrant had outstanding 40,519,715 shares of common stock, $0.01 par value per share.





REGAL BELOIT CORPORATION
INDEX
 
 
Page
 
Item 1 —
 
 
 
 
 
 
 
Item 2 —
Item 3 —
Item 4 —
 
 
 
 
Item 1 —
Item 1A —
Item 2 —
Item 6 —
 
 
 


3



CAUTIONARY STATEMENT

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s expectations, beliefs, current assumptions, and projections. When used in this Quarterly Report on Form 10-Q, words such as “may,” “will,” “expect,” “intend,” “estimate,” “forecast,” “anticipate,” “believe,” “should,” “project” or “plan” or the negative thereof or similar words are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Those factors include, but are not limited to:

the continued financial and operational impacts of and uncertainties relating to the COVID-19 pandemic on us and our customers and supplier and the geographies in which we operate;
uncertainties regarding our ability to execute our restructuring plans within expected costs and timing;
actions taken by our competitors and our ability to effectively compete in the increasingly competitive global electric motor, drives and controls, power generation and power transmission industries;
our ability to develop new products based on technological innovation, such as the Internet of Things, and marketplace acceptance of new and existing products, including products related to technology not yet adopted or utilized in certain geographic locations in which we do business;
fluctuations in commodity prices and raw material costs;
our dependence on significant customers;
risks associated with global manufacturing, including risks associated with public health crises;
issues and costs arising from the integration of acquired companies and businesses and the timing and impact of purchase accounting adjustments;
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;
economic changes in global markets where we do business, such as reduced demand for the products we sell, currency exchange rates, inflation rates, interest rates, recession, government policies, including policy changes affecting taxation, trade, tariffs, immigration, customs, border actions and the like, and other external factors that we cannot control;
product liability and other litigation, or claims by end users, government agencies or others that our products or our customers’ applications failed to perform as anticipated, particularly in high volume applications or where such failures are alleged to be the cause of property or casualty claims;
our overall debt levels and our ability to repay principal and interest on our outstanding debt;
changes in the method of determining London Interbank Offered Rate ("LIBOR"), or the replacement of LIBOR with an alternative reference rate;
unanticipated liabilities of acquired businesses;
unanticipated adverse effects or liabilities from business exits or divestitures;
unanticipated costs or expenses we may incur related to product warranty issues;
our dependence on key suppliers and the potential effects of supply disruptions;
infringement of our intellectual property by third parties, challenges to our intellectual property and claims of infringement by us of third party technologies;
losses from failures, breaches, attacks or disclosures involving our information technology infrastructure and data;
cyclical downturns affecting the global market for capital goods; and
other risks and uncertainties including but not limited to those described in “Part I - Item 1A - Risk Factors” in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on February 26, 2020 and from time to time in other filed reports.

Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report, and we undertake no obligation to update these statements to reflect subsequent events or circumstances. Additional information regarding these and other risks and uncertainties is included in "Part I - Item 1A - Risk Factors" in our Annual Report on Form 10-K filed with the SEC on February 26, 2020 and within this Quarterly Report on Form 10-Q.


4



PART I—FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

REGAL BELOIT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in Millions, Except Per Share Data)
 
 
Three Months Ended
 
March 28, 2020
 
March 30, 2019
Net Sales
$
734.2

 
$
853.8

Cost of Sales
530.9

 
619.2

Gross Profit
203.3

 
234.6

Operating Expenses
131.9

 
145.2

Gain on Divestiture of Businesses
(0.1
)
 
(41.2
)
Asset Impairments
1.5

 
10.0

       Total Operating Expenses
133.3

 
114.0

Income from Operations
70.0

 
120.6

Other (Income) Expenses, net
(1.1
)
 
0.1

Interest Expense
11.6

 
13.6

Interest Income
1.1

 
1.1

Income before Taxes
60.6

 
108.0

Provision for Income Taxes
13.9

 
21.2

Net Income
46.7

 
86.8

Less: Net Income Attributable to Noncontrolling Interests
0.9

 
0.9

Net Income Attributable to Regal Beloit Corporation
$
45.8

 
$
85.9

Earnings Per Share Attributable to Regal Beloit Corporation:
 
 
 
Basic
$
1.13

 
$
2.01

Assuming Dilution
$
1.12

 
$
1.99

Weighted Average Number of Shares Outstanding:
 
 
 
Basic
40.6

 
42.8

Assuming Dilution
40.8

 
43.1


See accompanying Notes to Condensed Consolidated Financial Statements


5



REGAL BELOIT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in Millions)
 
 
Three Months Ended
 
March 28, 2020
 
March 30, 2019
Net Income
$
46.7

 
$
86.8

Other Comprehensive Income (Loss) Net of Tax:
 
 
 
Foreign Currency Translation Adjustments
(57.5
)
 
11.2

Reclassification of Foreign Currency Translation Adjustments included in Net Income, Net of $0.0 Million Tax Effects for the Three Months Ended March 28, 2020 and March 30, 2019, Respectively

 
2.2

Hedging Activities:
 
 
 
Increase (Decrease) in Fair Value of Hedging Activities, Net of Tax Effects of $(9.4) Million and $4.4 Million for the Three Months Ended March 28, 2020 and March 30, 2019, Respectively
(29.6
)
 
14.1

Reclassification of Losses (Gains) included in Net Income, Net of Tax Effects of $(0.6) Million and $0.1 Million for the Three Months Ended March 28, 2020 and March 30, 2019, Respectively
(2.0
)
 
0.3

Pension and Post Retirement Plans:
 
 
 
Reclassification Adjustments for Pension and Post Retirement Benefits included in Net Income, Net of Tax Effects of $0.0 Million and $0.1 Million for the Three Months Ended March 28, 2020 and March 30, 2019, Respectively
0.1

 
0.4

Other Comprehensive Income (Loss)
(89.0
)
 
28.2

Comprehensive Income (Loss)
(42.3
)
 
115.0

Less: Comprehensive Income Attributable to Noncontrolling Interests
0.2

 
1.4

Comprehensive Income (Loss) Attributable to Regal Beloit Corporation
$
(42.5
)
 
$
113.6

See accompanying Notes to Condensed Consolidated Financial Statements


6



REGAL BELOIT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Millions, Except Per Share Data)
 
 
March 28, 2020
 
December 28, 2019
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
604.5

 
$
331.4

Trade Receivables, Less Allowances of $12.1 Million in 2020 and $9.7 Million in 2019
464.0

 
461.4

Inventories
655.3

 
678.4

Prepaid Expenses and Other Current Assets
104.0

 
133.7

Assets Held for Sale
6.6

 
2.8

Total Current Assets
1,834.4

 
1,607.7

Net Property, Plant, and Equipment
570.3

 
605.0

Operating Lease Assets
71.4

 
71.0

Goodwill
1,494.0

 
1,501.3

Intangible Assets, Net of Amortization
552.8

 
567.2

Deferred Income Tax Benefits
41.8

 
58.4

Other Noncurrent Assets
21.2

 
20.1

Total Assets
$
4,585.9

 
$
4,430.7

LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts Payable
$
340.3

 
$
337.0

Dividends Payable
12.1

 
12.2

Current Hedging Obligations
29.5

 
3.4

Accrued Compensation and Employee Benefits
63.2

 
67.3

Other Accrued Expenses
112.8

 
118.4

Current Operating Lease Liabilities
21.8

 
21.6

Current Maturities of Long-Term Debt
0.6

 
0.6

Total Current Liabilities
580.3

 
560.5

Long-Term Debt
1,364.3

 
1,136.9

Deferred Income Taxes
161.3

 
171.9

Noncurrent Hedging Obligations
7.0

 
1.2

Pension and Other Post Retirement Benefits
78.4

 
80.8

Noncurrent Operating Lease Liabilities
51.4

 
51.0

Other Noncurrent Liabilities
43.1

 
48.0

Contingencies (see Note 13)

 

Equity:
 
 
 
Regal Beloit Corporation Shareholders' Equity:
 
 
 
Common Stock, $0.01 par value, 100.0 Million Shares Authorized, 40.5 Million and 40.8 Million Shares Issued and Outstanding for 2020 and 2019, Respectively
0.4

 
0.4

Additional Paid-In Capital
692.5

 
701.8

Retained Earnings
1,903.8

 
1,886.7

Accumulated Other Comprehensive Loss
(326.1
)
 
(237.8
)
Total Regal Beloit Corporation Shareholders' Equity
2,270.6

 
2,351.1

Noncontrolling Interests
29.5

 
29.3

Total Equity
2,300.1

 
2,380.4

Total Liabilities and Equity
$
4,585.9

 
$
4,430.7

See accompanying Notes to Condensed Consolidated Financial Statements.

7



REGAL BELOIT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Dollars in Millions, Except Per Share Data)
 
 
Three Months Ended
 
Common Stock $0.01 Par Value
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Noncontrolling Interests
 
Total Equity
December 28, 2019
$
0.4

 
$
701.8

 
$
1,886.7

 
$
(237.8
)
 
$
29.3

 
$
2,380.4

Net Income

 

 
45.8

 

 
0.9

 
46.7

Other Comprehensive Loss

 

 

 
(88.3
)
 
(0.7
)
 
(89.0
)
Dividends Declared ($0.30 Per Share)

 

 
(12.1
)
 

 

 
(12.1
)
Stock Options Exercised

 
(0.9
)
 

 

 

 
(0.9
)
Stock Repurchase

 
(11.1
)
 
(13.9
)
 

 

 
(25.0
)
Share-Based Compensation

 
2.7

 

 

 

 
2.7

Adoption of ASU 2016-13

 

 
(2.7
)
 

 

 
(2.7
)
March 28, 2020
$
0.4

 
$
692.5

 
$
1,903.8

 
$
(326.1
)
 
$
29.5

 
$
2,300.1

 
 
 
 
 
 
 
 
 
 
 
 
December 29, 2018
$
0.4

 
$
783.6

 
$
1,777.9

 
$
(251.4
)
 
$
28.0

 
$
2,338.5

Net Income

 

 
85.9

 

 
0.9

 
86.8

Other Comprehensive Income

 

 

 
27.7

 
0.5

 
28.2

Dividends Declared ($0.28 Per Share)

 

 
(12.0
)
 

 

 
(12.0
)
Stock Options Exercised

 
(1.5
)
 

 

 

 
(1.5
)
Share-Based Compensation

 
4.3

 

 

 

 
4.3

Dividends Declared to Noncontrolling Interests

 

 

 

 
(0.3
)
 
(0.3
)
March 30, 2019
$
0.4

 
$
786.4

 
$
1,851.8

 
$
(223.7
)
 
$
29.1

 
$
2,444.0

 
See accompanying Notes to Condensed Consolidated Financial Statements.

8



REGAL BELOIT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
 
Three Months Ended
 
March 28, 2020
 
March 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
46.7

 
$
86.8

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities (Net of Acquisitions and Divestitures):
 
 
 
Depreciation and Amortization
32.6

 
34.3

Asset Impairments
1.5

 
10.0

Noncash Lease Expense
7.6

 
3.9

Loss on Sale or Disposition of Assets, Net
0.7

 
0.1

Share-Based Compensation Expense
2.7

 
4.3

Gain on Divestiture of Businesses
(0.1
)
 
(41.2
)
Change in Operating Assets and Liabilities
11.0

 
(79.9
)
Net Cash Provided by Operating Activities
102.7

 
18.3

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Additions to Property, Plant and Equipment
(10.9
)
 
(20.2
)
Proceeds Received from Sales of Property, Plant and Equipment
2.7

 

Proceeds from Divestiture of Businesses
0.3

 
119.4

Net Cash (Used In) Provided by Investing Activities
(7.9
)
 
99.2

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Borrowings Under Revolving Credit Facility
409.7

 
302.7

Repayments Under Revolving Credit Facility
(182.6
)
 
(372.3
)
Proceeds from Short-Term Borrowings
1.5

 
13.2

Repayments of Short-Term Borrowings
(1.5
)
 
(11.6
)
Repayments of Long-Term Borrowings
(0.1
)
 
(24.1
)
Dividends Paid to Shareholders
(12.2
)
 
(12.0
)
Shares Surrendered for Taxes
(1.1
)
 
(1.6
)
Repurchase of Common Stock
(25.0
)
 

Distributions to Noncontrolling Interests

 
(0.3
)
Net Cash Provided by (Used In) Financing Activities
188.7

 
(106.0
)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
(10.4
)
 
4.2

Net Increase in Cash and Cash Equivalents
273.1

 
15.7

Cash and Cash Equivalents at Beginning of Period
331.4

 
248.6

Cash and Cash Equivalents at End of Period
$
604.5

 
$
264.3

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash Paid For:
 
 
 
 Interest
$
16.1

 
$
18.1

 Income taxes
$
7.3

 
$
7.0


See accompanying Notes to Condensed Consolidated Financial Statements.

9



REGAL BELOIT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 28, 2020
(Unaudited)

1. BASIS OF PRESENTATION
The accompanying (a) Condensed Consolidated Balance Sheet of Regal Beloit Corporation (the “Company”) as of December 28, 2019, which has been derived from audited Consolidated Financial Statements, and (b) unaudited interim Condensed Consolidated Financial Statements as of March 28, 2020 and for the three months ended March 28, 2020 and March 30, 2019, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company’s 2019 Annual Report on Form 10-K filed on February 26, 2020.
In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Except as otherwise discussed, such adjustments consist of only those of a normal recurring nature. Operating results for the three months ended March 28, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year ending January 2, 2021.
The Condensed Consolidated Financial Statements have been prepared in accordance with GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Condensed Consolidated Financial Statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company uses estimates in accounting for, among other items, allowance for doubtful accounts; excess and obsolete inventory; share-based compensation; acquisitions; product warranty obligations; pension and post retirement assets and liabilities; derivative fair values; goodwill and other asset impairments; health care reserves; retirement benefits; rebates and incentives; litigation claims and contingencies, including environmental matters; and income taxes. The Company accounts for changes to estimates and assumptions when warranted by factually based experience.
The Company operates on a 52/53 week fiscal year ending on the Saturday closest to December 31.
Recently Issued Accounting Standards
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20). The ASU addresses modifications to the disclosure requirements for Defined Benefit Plans. Under ASU 2018-14 the disclosure requirements that can be removed are amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, amount and timing of plan assets expected to be returned to the employer, and the effects of a one-percentage-point change in assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic benefit costs and benefit obligations for postretirement health care benefits. Additional disclosures are required for the weighted -average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation for significant gains and losses related to the changes in the benefit obligation for the period. If a defined benefit pension plan has a projected benefit obligation greater than plan assets the projected benefit obligation and fair value of plan assets should be disclosed. This additional disclosure is also required when comparing the accumulated benefit obligation to plan assets. This ASU becomes effective for fiscal years ending after December 15, 2020 on a retrospective basis for all years presented. Early adoption is permitted. The Company is evaluating the effect of adopting this new accounting guidance, but does not anticipate a material impact on the financial statement disclosures.

Adopted Accounting Standards

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

10



the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The ASU requires prospective application for only the most recent interim or annual period presented in the year of adoption for changes in unrealized gains and losses included in OCI, the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements, and the narrative description of measurement uncertainty. The Company adopted the standard as of December 29, 2019, the beginning of fiscal 2020, with no material impact on the Company's Condensed Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326). The focus of this ASU is to require businesses to adjust their allowance for lifetime expected credit losses rather than incurred losses. It is believed that the change will result in more timely recognition of such losses. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein. 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.

2. OTHER FINANCIAL INFORMATION
Inventories
The following table presents approximate percentage distribution between major classes of inventories:
 
March 28, 2020
 
December 28, 2019
Raw Material and Work in Process
49%
 
48%
Finished Goods and Purchased Parts
51%
 
52%


Inventories are stated at cost, which is not in excess of market. Cost for approximately 52% of the Company's inventory at March 28, 2020, and 53% at December 28, 2019 was determined using the last-in, first-out ("LIFO") method.
Property, Plant, and Equipment
The following table presents property, plant, and equipment by major classification (dollars in millions):
 
Useful Life in Years
 
March 28, 2020
 
December 28, 2019
Land and Improvements
 
 
$
75.1

 
$
80.3

Buildings and Improvements
3 - 50
 
285.2

 
305.2

Machinery and Equipment
3 - 15
 
973.5

 
988.2

Property, Plant and Equipment
 
 
1,333.8

 
1,373.7

Less: Accumulated Depreciation
 
 
(763.5
)
 
(768.7
)
Net Property, Plant and Equipment
 
 
$
570.3

 
$
605.0



For the three months ended March 28, 2020, the Company recognized $1.5 million of asset impairments related to the transfer of assets to held for sale.

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.
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’s 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.

11



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 system/solutions.
Product:
The nature of products varies from segment to segment but across all segments, individual products are not integrated and represent separate performance obligations.
Customized system/solutions:
The Company provides customized system/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.
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 Condensed 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, they are 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.

12



Disaggregation of Revenue
The following tables presents the Company’s revenues disaggregated by geographical region (in millions):
 
 
Three Months Ended
March 28, 2020
 
Commercial Systems
 
Industrial Systems
 
Climate Solutions
 
Power Transmission Solutions
 
Total
North America
 
$
143.4

 
$
72.9

 
$
184.6


$
160.9

 
$
561.8

Asia
 
23.4

 
36.8

 
8.6

 
4.9

 
73.7

Europe
 
28.5

 
13.2

 
7.6

 
23.9

 
73.2

Rest-of-World
 
4.1

 
6.7

 
9.3

 
5.4

 
25.5

Total
 
$
199.4

 
$
129.6

 
$
210.1

 
$
195.1

 
$
734.2

 
 
 
 
 
 
 
 
 
 
 
March 30, 2019
 
Commercial Systems
 
Industrial Systems
 
Climate Solutions
 
Power Transmission Solutions
 
Total
North America
 
$
175.6

 
$
72.0

 
$
231.4

 
$
172.7

 
$
651.7

Asia
 
26.2

 
41.5

 
10.4

 
7.4

 
85.5

Europe
 
34.2

 
13.3

 
11.5

 
24.7

 
83.7

Rest-of-World
 
6.2

 
11.3

 
10.0

 
5.4

 
32.9

Total
 
$
242.2

 
$
138.1

 
$
263.3

 
$
210.2

 
$
853.8


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 on the accompanying Condensed Consolidated Statements of Income.
Due to the short term 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.

3. HELD FOR SALE, DIVESTITURES AND ACQUISITIONS
Assets Held for Sale

The balances that were classified as Assets Held for Sale as of March 28, 2020 and December 28, 2019 were $6.6 million and $2.8 million, respectively, as the Company has 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 current quarter and $119.9 million in the prior year. 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 current quarter and $41.0 million in the prior year in the Condensed Consolidated Statements of Income.


13



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 Condensed 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 and considered a non-core business. The Company recognized a gain on sale of $6.0 million in the Condensed 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 Condensed Consolidated Statements of Income.

4. ACCUMULATED OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustments, hedging activities and pension and post retirement benefit adjustments are included in AOCI, a component of Total Equity.
The following tables present changes in AOCI by component for the three months ended March 28, 2020 and March 30, 2019 (in millions):
 
Three Months Ended
March 28, 2020
Hedging Activities
 
Pension and Post Retirement Benefit Adjustments
 
Foreign Currency Translation Adjustments
 
Total
Beginning Balance
$
8.0

 
$
(31.0
)
 
$
(214.8
)
 
$
(237.8
)
Other Comprehensive Loss before Reclassifications
(39.0
)
 
0.4

 
(57.2
)
 
(95.8
)
Tax Impact
9.4

 

 

 
9.4

Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
(2.6
)
 
0.1

 

 
(2.5
)
Tax Impact
0.6

 

 

 
0.6

Net Current Period Other Comprehensive Income (Loss)
(31.6
)
 
0.5

 
(57.2
)
 
(88.3
)
Ending Balance
$
(23.6
)
 
$
(30.5
)
 
$
(272.0
)
 
$
(326.1
)
 
 
 
 
 
 
 
 
March 30, 2019
Hedging Activities
 
Pension and Post Retirement Benefit Adjustments
 
Foreign Currency Translation Adjustments
 
Total
Beginning Balance
$
(5.4
)
 
$
(38.2
)
 
$
(207.8
)
 
$
(251.4
)
Other Comprehensive Income (Loss) before Reclassifications
18.5

 
(0.2
)
 
10.9

 
29.2

Tax Impact
(4.4
)
 

 

 
(4.4
)
Amounts Reclassified from Accumulated Other Comprehensive Income
0.4

 
0.5

 
2.2

 
3.1

Tax Impact
(0.1
)
 
(0.1
)
 

 
(0.2
)
Net Current Period Other Comprehensive Income
14.4

 
0.2

 
13.1

 
27.7

Ending Balance
$
9.0

 
$
(38.0
)
 
$
(194.7
)
 
$
(223.7
)
 
 
 
 
 
 
 
 

14



The Condensed Consolidated Statements of Income line items affected by the hedging activities reclassified from AOCI in the tables above are disclosed in Note 14.
The reclassification amounts for pension and post retirement benefit adjustments in the tables above are part of net periodic benefit costs recorded in Other (Income) Expenses, net (see also Note 8).


5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

As required, the Company performs an annual impairment test of goodwill as of the end of the October fiscal month or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting units below their carrying value.

In the fourth quarter 2019, in conjunction with the Company's annual goodwill impairment test, the Company concluded that the excess fair value over carrying value for the global industrial motors, commercial air moving and power switch reporting units, along with the trade name associated with the PTS acquisition, were less than 10 percent. In the first quarter 2020, the Company reviewed triggering events primarily driven by the economic uncertainty caused by COVID-19 for the global industrial motors, commercial air moving and commercial hermetic motors reporting units. The excess fair value over carrying value continues to be less than 10 percent for the global industrial motors reporting unit and the reporting unit continues to be at risk for impairment.

The Company developed assumptions for the potential impact of COVID-19 given the uncertainty related to supply and demand disruptions on operating results for the global industrial motors, commercial air moving and commercial hermetic motors reporting units.

While the Company is committed to the strategic actions necessary to realize the long-term forecasted revenues and EBITDA margins of these reporting units, a worsening economic outlook for these reporting units could result in future impairment charges.

A lack of recovery or further deterioration in market conditions, a sustained trend of weaker than expected financial performance or a lack of recovery or further decline in the Company's market capitalization, among other factors, as a result of the COVID-19 pandemic could result in an impairment charge in future periods which could have a material adverse effect on the Company's financial statements.

The global industrial motors reporting unit had goodwill of $121.9 million, the commercial air moving reporting unit had goodwill of $37.8 million and the commercial hermetic motors reporting unit had goodwill of $49.3 million as of March 28, 2020.


15



The following table presents changes to goodwill during the three months ended March 28, 2020 (in millions):
 
Total
 
Commercial Systems
 
Industrial Systems
 
Climate Solutions
 
Power Transmission Solutions
Balance as of December 28, 2019
$
1,501.3

 
$
426.6

 
$
170.8

 
$
331.2

 
$
572.7

Translation Adjustments
(7.3
)
 
(6.0
)
 
(0.9
)
 
(1.5
)
 
1.1

Balance as of March 28, 2020
$
1,494.0

 
$
420.6

 
$