200 State Street
Regal-Beloit Corporation is a leading producer of power transmission systems and perishable high speed steel rotary cutting tools. The Company prides itself on consistent, fast delivery of quality products which meet the customers' specific needs.
Regal-Beloit Corporation is the fifth-largest firm in the U.S. engine electrical equipment industry and a major manufacturer of power transmission systems and commercial cutting tools. Its products are used in the manufacture of everything from X-ray machine parts and amusement park rides to Boeing 747s and Daytona 500 racing cars. In 1995, it ranked as the 47th largest public company in the state of Wisconsin and the 55th largest company by market value on the American Stock Exchange (according to Equities magazine).
Regal-Beloit's largest segment, the Power Transmission Group, manufactures gear boxes, transmissions, forklift axles, ring and pinion gears, mini-gear motors, and manual valve actuators used in such products as conveyor belts, packaging equipment, street pavers, graders, irrigation systems, grocery checkout equipment, paper-making machinery, ice cream vending machines, rescue equipment, farm equipment, gas flow control systems, and precision medical equipment. Through its nine divisions, Regal-Beloit sells its power transmission products to distributors, original equipment manufacturers, and end users in the dairy, farming, and construction industries, among many other sectors. As one stock market analyst put it, Regal-Beloit "manufacture[s] gears and mechanical parts that aren't very exciting, but you can't run the world without them."
Although Regal-Beloit's Cutting Tools Group accounted for only 13 percent of the company's sales in 1995 it was the second-largest full-line manufacturer (in dollar value) of drills, end mills, gages, taps (a tool for forming a screw thread), and reamers (a tool for enlarging holes). Its Beloit-based Regal Cutting Tools operation alone ranked as the 36th largest company in the U.S. metal cutting machine tools industry in 1995. The thousands of steel and carbide rotary cutting tools Regal-Beloit produces are used as essential product-making tools across a wide swathe of metalworking applications in the U.S. economy, including the aerospace, automaking, and petroleum industries among others. Seventy percent of the company's cutting tool sales are sold on a nonexclusive, "open line" basis through independent industrial distributors, and the remainder are sold to select customers through Regal-Beloit's National Twist Drill and New York Twist Drill divisions. Because cutting tools are expendable, or "perishable," Regal-Beloit derives significant revenue from the sale of replacement drills and cutting tools to its customers.
In 1996, Regal-Beloit serviced the $1.5 billion market for power transmission equipment and commercial cutting tools through several divisions (each offering complete product lines for their individual markets) and operated 17 domestic and three overseas plants/service/distribution centers.
Beloit Tool Company: 1955-72
Regal-Beloit Corporation was founded in 1955 by entrepreneur Kenyon Y. Taylor as the Beloit Tool Company in the southeastern Wisconsin community of Beloit. Working from his home with three friends, three desks, and three telephones, Taylor manufactured specially designed metric and decimal-dimensioned cutting tools from a "plant" in his garage. Emphasizing superior customer service from the start, Taylor offered 24-hour delivery of his special taps to his mostly local customers. Within six months of the company's inception, orders were multiplying, and Taylor hired more workers to expand his production capacity. Quickly running short of space, he moved Beloit Tool to an old abandoned roller-skating rink east of downtown Beloit. By the end of its first full year in business, Beloit Tool had posted losses of $40,000, the first and only time it registered an unprofitable year.
In 1957 Taylor acquired Crest Tool Industries, a cutting tool company that specialized in providing tools to U.S. government purchasing agencies, and two years later Beloit Tool had passed the $100 million sales level. The same year, it demonstrated its early commitment to employee-sensitive management by establishing a profit-sharing plan, a byproduct of Taylor's reaction to the treatment of workers as "commodities and clock numbers" that he had experienced firsthand during the Depression. With sales soaring, in 1963 Taylor moved his corporate headquarters to a new location in an old farmhouse in nearby South Beloit, Illinois, and in 1965 acquired the historic Durst Foundry and Machine Works of nearby Shopiere, Wisconsin. That company's founder, Walter Durst, had founded Durst in 1932 and built a significant niche manufacturing equipment for the farming industry, mostly in the form of pump drives, large specially designed transmissions, forklift axles, and a variety of standard and custom gear boxes. Taylor kept Durst on as a consultant and renamed the new operation Durst Power Transmission Division.
Regal-Beloit Corporation: 1973-90
In 1973 Taylor officially changed Beloit Tool's name to Regal-Beloit (after, some said, a type of flower) and continued his strategy of expanding its market share and diversifying its business niche by acquiring promising companies in its basic power transmission and cutting tools lines. The U.S. power transmission market had traditionally been fragmented among dozens of smaller manufacturers, and the pickings for an acquisition-minded, cash-heavy firm like Regal-Beloit seemed ripe. In its cutting tool segment alone, Regal-Beloit had already absorbed such small players as Empire Gage, Walter T. Cole, Waukegan Quality Tool Works, Q.T. Tool, Stanworth Tool, M.E.C. Corporation, Caledec Gage, Premium Cutting Tools, and Glenbard Manufacturers. Turning to the power transmission segment, in mid-1978, Taylor purchased Orbmark Company, the developer of a high-torque, low-speed hydraulic motor, and a year later he brought James Packard, a seasoned corporate manager from PepsiCo's Frito-Lay division, on board Regal-Beloit's management team. In expectation of the huge sales potential of foreign markets, in 1979 Taylor also unveiled Regal-Beloit International Sales Corporation, which he headquartered in the firm's Beloit offices.
Early in the 1980s Regal-Beloit began a program of plowing $7 to $8 million annually into new equipment to ensure that its manufacturing processes were as efficient and modern as possible. At the same time, it was also earning a reputation as the only firm in the industry that purchased used equipment from machinery dealers and auctioneers--at a 30 percent savings&mdashø keep operating costs down. Buying only bug-free products from reliable dealers, Regal-Beloit by 1996 was saving $3 million annually on equipment purchases. It also began adopting the low-inventory technique later known as "just-in-time delivery" several years before it became de rigueur among America's corporations.
Taylor's ambitious acquisition program continued in the 1980s. Twelve firms were purchased and absorbed during the decade, substantially expanding the firm's market share, manufacturing capability, and profitability. As James Packard later commented, "by quickly instituting effective cost controls, more efficient manufacturing methods and our strong customer service philosophy, these new divisions became strong contributors to the company's overall performance." Moreover, by holding out for a reasonable selling price, paying only cash (rather than stock), and considering only firms that could generate earnings in the first year following acquisition, Regal-Beloit recuperated its acquisitions costs quickly and kept its debt low. Finally, by preserving the identity of the acquired company's product line and assiduously applying "lean" manufacturing techniques (such as "just-in-time"), its new acquisitions could grow rapidly once in the corporate fold.
Regal-Beloit's 1980s buying spree commenced in 1981 with the acquisition of Grove Gear of Union Grove, Wisconsin, a manufacturer of standard and special worm gear speed-reducing gear boxes, adaptors, and accessories, founded in 1947. In 1984, however, Taylor stepped down as CEO while remaining chairman of the board, and turned Regal-Beloit's reins over to Packard, who continued the company's grand acquisition strategy as sales broke the $57 million mark, a company record. In mid-decade, Regal-Beloit's Durst Power Transmission Division began expanding to cater to large manufacturers of off-highway vehicles, and construction and industrial equipment. Packard returned to the acquisition waters again in 1985 with the purchase of Noster Industries Inc. of Michigan and National Twist Drill of Columbia, South Carolina, a producer of large-volume drills, taps, end mills, gages, and reamers.
By its 30th anniversary year, Regal-Beloit was employing 1,250 people working out of 18 manufacturing and customer service facilities nationwide. Packard led its large facilities through a major improvement program, incorporated new products and related manufacturing equipment into the company's plants, and began a systematic workforce flexibility program in which nearly a third of Regal-Beloit's employees were training for new positions at any given time. After three decades at Regal-Beloit's helm, Taylor finally relinquished the chairmanship to Packard in 1986. As sales reached $78 million, Packard installed the first U.S. computer-controlled manufacturing process for grinding threaded tools in 1986, and the Power Transmission Group won several major contracts, including a $5.5 million agreement with the federal government to design and test transmissions for refueling vehicles.
Beginning in the early 1980s, the power transmission equipment industry had become mature--growth was slow, sales were declining, and the profusion of industry firms led to excess manufacturing capacity. The industry, which had long been dominated by old line and "captive" manufacturers (companies manufacturing equipment exclusively for their parent firm), began to undergo a radical transformation in which foreign and domestic competition intensified and new specialized product niches began to emerge. In this new competitive environment, some smaller companies failed because they were unable to afford new equipment, and some larger firms began to outsource their work to cut costs. Regal-Beloit exploited both opportunities: the failing smaller firms made attractive acquisition targets, and Regal-Beloit's experience with diverse product lines enabled it to claim the outsourced work of the larger firms. Packard led it into a wider and wider series of product markets in which, though it often was not the largest firm, its flexibility, customer service performance, and streamlined manufacturing processes could find a very profitable niche. The power transmission equipment industry was inexorably contracting, but Regal-Beloit seemed to face only opportunity.
As the company adjusted to its 1985 acquisition of National Twist and Noster's product lines, in 1986 it began a string of five plant expansions in five years and a year later acquired four more firms: Paterson Gear Motor of Roscoe, Illinois; Illinois Gear of Chicago, a manufacturer of fractional horsepower gearmotors; Ohio Gear of South Carolina, a manufacturer of standard and special worm gear and concentric shaft speed reducers; and Richmond Gear of South Carolina, a producer of high-performance ring and pinion gear sets and transmissions. The additions broadened Regal-Beloit's product line, pumped up its financials, and enabled it to minimize its dependence on any single one of its markets.
Surveying his firm's new profile, Packard commented to the Beloit Daily News, "all things considered, we think we're going to be an exciting company." As if to drive home the point, he had added three more companies by decade's end: New York Twist Drill (1988), Foote-Jones Gear (1989), and Electra-Gear (1989). Founded in 1949, New York Twist Drill (Ronkonkoma, New York) manufactured drills, taps, end mills, reamers, and gages for high-volume applications and filled out Regal-Beloit's Cutting Tool Group. Electra-Gear, of Anaheim, California, and Foote-Jones Gear, of Chicago, Illinois, expanded the Power Transmission Group product lines. By 1991, Regal-Beloit's growth-through-acquisition strategy had amounted to 20 individual acquisitions, and in August 1989 it was named to Financial World magazine's "Growth 500," finishing 261st on the strength of its 23 percent five-year annual earnings-per-share growth rate.
Powering to the Top: 1990-97
In May 1990, Regal-Beloit broke ground on a new $2.4 million world headquarters building in downtown Beloit, signaling its aim to return to its original Wisconsin roots after 27 years on the other side of the Illinois border. When it opened in March 1991, the 24,000-square-foot building housed Regal-Beloit's corporate offices, data processing center, and advertising, accounting, and personnel departments in a light-flooded design intended to avoid a "factory" feel. The much-ballyhooed move, however, was clouded by uncertainty. Regal-Beloit's capital expenditures for 1990 were expected to hit $8 to $10 million, a ten-year high, and amid rumors of a potential takeover bid, management could only confirm that 30 percent of company stock was in "friendly" hands. Moreover, a contract to build replacement transmissions for the U.S. Army had been poorly bid, and Regal-Beloit was forced to swallow the loss. Finally, because of its broad product diversification, the recession of the early 1990s dragged at Regal-Beloit's profits, and corporate sales were off by as much as 20 percent according to some projections.
Nevertheless, the company's fundamental financial conditions remained positive. It had achieved an average annual return on investment of 17.2 percent (despite little use of debt) between 1955 and the move to the new building, had raised cash dividends 26 times in those 31 years, and had declared 123 consecutive quarterly payments without a dividend reduction. Although Packard was forced to admit that because of the recession Regal-Beloit's sales volumes were "significantly reduced," it had done better than many of its smaller competitors, which now presented themselves as attractive acquisition targets. Moreover, with healthy operations in Illinois, New Jersey, Texas, California, South Carolina, North Carolina, and New York, its long-pursued acquisition strategy seemed as viable as ever. "We are still looking at companies to purchase," Packard told an interviewer in 1991. "Our ability to grow will come through acquisitions. Right now we have a strong cash position, virtually no debt, and we are pretty well poised to be aggressively seeking out acquisitions at this point."
Consequently, in July 1991 Packard completed Regal-Beloit's first European acquisition with the purchase of Opperman Mastergear Ltd. of Newbury, England. The acquisition added 220 employees (most in England, the rest at Opperman's German operation) to the company's ranks. With sales arcing past $152 million, two more acquisitions--hydraulic pump drive manufacturers Hub City, Inc. of Aberdeen, South Dakota, in April 1992 and Terrell Gear Drives, Inc. of Charlotte, North Carolina, in November--boosted Regal-Beloit's sales to $199.8 million by year-end. In 1993 price increases in the used metal-cutting machine tools industry were offset by increased sales figures for the Power Transmission Group, all of whose units posted improved numbers. With exports accounting for roughly 3 percent of company sales and rising, Packard began casting about for another likely acquisition target in Europe, where the power transmission market was scattered among several small firms. By the end of 1993 Regal-Beloit's total sales had edged up to $220 million.
Packard strengthened Regal-Beloit's profit margins throughout the 1990s by continuing to install computer-aided manufacturing systems, dropping nonperforming products and unveiling new ones, and restructuring facilities. He also began implementing "cell" manufacturing techniques in which a wider variety of products could be manufactured by abandoning the traditional practice of committing entire plants to the production of a single product in favor of divvying up each facility into flexible manufacturing cells to produce multiple products as needed. As Regal-Beloit's sales jumped to $242.6 million in 1994, Packard found another market share-broadening target in the marine and industrial transmission operations of Borg-Warner Automotive and Engine Components Corporation, which unit Regal-Beloit acquired in January 1995. Christened the Velvet Drive Transmission Division, the operation contributed mightily to Regal-Beloit's 21.9 percent increase in sales for 1995, which was further boosted by the progress of Regal-Beloit's new Italian operation, Costruzioni Meccaniche Legnanesi, acquired in late 1994.
Aborted merger talks with Brad Foote Gear Works of Illinois, material and labor shortages, power outages and extreme heat, and slowing sales of Regal-Beloit's agricultural power transmission products all seemed to doom management's optimistic sales forecasts for 1995. Nevertheless, by the close of the year strong demand from virtually all industrial customers and the increasing progress of Regal-Beloit's foreign subsidiaries (which were closing in on 10 percent of all power transmission sales) had produced new records for sales, net income, and earnings per share.
If anthropologist Margaret Mead was correct in describing the city of Beloit as a "microcosm" of American society, Regal-Beloit had served as a kind of microcosmic barometer of the U.S. industrial economy throughout its history. Its markets were so diverse and its products so essential and varied that its quarter-by-quarter performance could reliably be used as an index of the condition of American industry. By the 1990s, it had become a Wall Street darling (since 1992 its stock had been significantly outstripping the Dow Jones factory equipment index), and in 1996 Forbes magazine named it among the "200 Best Small Companies in America." Moreover, more than one industry analyst shared the opinion that Regal-Beloit was an "extremely well-run company ... a low-cost, efficient manufacturer" managed by "capable" executives with an eye toward the "long haul." In a 1996 interview, chief financial officer Kenneth Kaplan described Regal-Beloit's prospects in more cautious terms: "Obviously there are markets we haven't gotten into, customers we haven't reached. You are always looking for ways to improve designs, cut costs, to get more price-competitive." Packard echoed the bottom-line focus of Regal-Beloit's corporate culture: "We watch all of our costs, all of our expenses very, very closely, and we make our capital expenditures go a long, long way."
Principal Subsidiaries: New York Twist Drill Inc.; Opperman Mastergear Limited (United Kingdom); Mastergear GmbH (Germany); Hub City, Inc.; Costruzioni Meccaniche Legnanesi S.r.L.; RegalBeloit International Sales Corporation; Regal-Beloit Corporation FSC.