FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1996
Commission File Number 1-7283
REGAL-BELOIT CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-0875718
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
200 State Street, Beloit, Wisconsin 53511-6254
(Address of principal executive offices)
(608) 364-8800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuers' classes of
common stock as of the latest practicable date.
20,630,993 Shares, Common Stock, $.01 Par Value
<PAGE>
REGAL-BELOIT CORPORATION
FORM 10-Q
For Quarter Ended June 30, 1996
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Balance Sheet
Statement of Income
Condensed Statement of Cash Flows
Notes to Financial Statements
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4 - Submission of Matters To A Vote of Security Holders
Item 6 - Reports on Form 8-K
Signatures
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
REGAL-BELOIT CORPORATION
CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
(From Audited
(Unaudited) Statements)
June 30, 1996 Dec. 31, 1995
------------- -------------
Current Assets:
Cash and cash equivalents.......................... $ 23,157,000 $ 7,458,000
Receivables, less reserves of $1,139,000 in 1996
and $1,140,000 in 1995........................... 36,287,000 41,172,000
Inventories........................................ 48,537,000 49,263,000
Other current assets............................... 4,687,000 4,508,000
------------- -------------
Total Current Assets............................ 112,668,000 102,401,000
------------- -------------
Plant and Equipment at Cost........................... 135,522,000 130,893,000
Less - accumulated depreciation.................. (63,053,000) (58,201,000)
------------- -------------
72,469,000 72,692,000
Other Noncurrent Assets............................... 392,000 387,000
------------- -------------
$185,529,000 $175,480,000
============= =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable................................. $ 10,176,000 $ 10,874,000
Federal and state income taxes................... 896,000 1,333,000
Other current liabilities........................ 18,335,000 19,817,000
------------- -------------
Total Current Liabilities.................... 29,407,000 32,024,000
------------- -------------
Long-term Debt........................................ 2,700,000 2,884,000
Deferred Income Taxes................................. 4,611,000 4,699,000
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,629,493 issued in 1996 and
20,553,968 issued in 1995..................... 206,000 206,000
Additional paid-in capital....................... 37,567,000 37,133,000
Retained earnings................................ 111,604,000 99,079,000
Cumulative Translation Adjustment................ (566,000) (545,000)
------------- -------------
148,811,000 135,873,000
------------- -------------
$185,529,000 $175,480,000
============= =============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
REGAL-BELOIT CORPORATION
STATEMENT OF INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(Unaudited)
-------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
Net Sales.......................... $ 71,817,000 $ 76,265,000 $146,936,000 $150,605,000
Cost of Sales...................... 49,964,000 54,048,000 102,744,000 107,228,000
------------ ------------ ------------ ------------
Gross Profit..................... 21,853,000 22,217,000 44,192,000 43,377,000
Operating Expenses................. 8,082,000 8,337,000 16,285,000 17,140,000
------------ ------------ ------------ ------------
Income from Operations........... 13,771,000 13,880,000 27,907,000 26,237,000
Interest Expense................... 91,000 217,000 191,000 539,000
Interest Income.................... 212,000 43,000 312,000 79,000
------------ ------------ ------------ -----------
Income Before Taxes.............. 13,892,000 13,706,000 28,028,000 25,777,000
Provision for Income Taxes......... 5,223,000 5,331,000 10,554,000 10,021,000
------------ ------------ ------------ ------------
Net Income..................... $ 8,669,000 $ 8,375,000 $ 17,474,000 $ 15,756,000
============ ============ ============ ============
Per Share of Common Stock:
Net Income....................... $.42 $.41 $.85 $.77
============ ============ ============ ============
Cash Dividends Declared.......... $.12 $.10 $.24 $.19
============ ============ ============ ============
Weighted Average Number of
Shares Outstanding............... 20,614,059 20,504,543 20,600,649 20,487,783
============ ============ ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
REGAL-BELOIT CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
(Unaudited)
----------------------------
Six Months Ended June 30,
----------------------------
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.............................................. $ 17,474,000 $ 15,756,000
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation, amortization and deferred income taxes.. 5,373,000 5,359,000
Change in assets and liabilities:
Current assets, other than cash...................... 5,526,000 (9,188,000)
Current liabilities, other than notes payable........ ( 1,638,000) 9,348,000
------------- -------------
Net cash provided from operating activities....... 26,735,000 21,275,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment, net of retirements.... ( 5,450,000) (5,116,000)
Other, net.............................................. ( 294,000) 215,000
------------- ------------
Net cash used in investing activities................ ( 5,744,000) (4,901,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of short-term debt............................ --- (10,042,000)
Reduction of long-term debt............................. ( 1,190,000) (11,602,000)
Dividends to shareholders............................... ( 4,528,000) ( 3,481,000)
Other, net.............................................. 434,000 357,000
------------- -------------
Net cash used for financing activities............... ( 5,284,000) (24,768,000)
EFFECT OF EXCHANGE RATE ON CASH............................ ( 8,000) 18,000
------------- -------------
Net increase (decrease) in cash and cash equivalents.... 15,699,000 ( 8,376,000)
Cash and cash equivalents at beginning of period........ 7,458,000 13,378,000
------------- ------------
Cash and cash equivalents at end of period.............. $ 23,157,000 $ 5,002,000
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest............................................. $ 176,000 $ 548,000
============= ============
Income Taxes......................................... $ 10,940,000 $ 9,764,000
============= ============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
REGAL-BELOIT CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF PRESENTATION
The condensed financial statements include the accounts of Regal-Beloit
Corporation and its wholly owned subsidiaries and have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested these
statements be read in conjunction with the financial statements and the
notes thereto included in the Company's latest Annual Report on Form 10-K.
2. INVENTORIES
Cost for approximately 70% of the Company's inventory is determined using the
last-in, first-out (LIFO) inventory valuation method. The approximate
percentage distribution between major classes of inventories is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
6-30 12-31
1996 1995
---- -----
Raw Material 16% 17%
Work-in-Process 23% 21%
Finished Goods 61% 62%
</TABLE>
3. ACQUISITION
Effective January 1, 1995, the Company acquired selected net assets of the
Marine and Industrial Transmission Division of Borg-Warner Automotive
Transmission and Engine Components Corporation for approximately $9,192,000.
This acquisition has been renamed the Velvet Drive Transmission Division of
Regal-Beloit Corporation. This Division produces both marine and industrial
transmissions. The acquisition was accounted for as a purchase and the cash
consideration paid approximated the fair market value of the net identifiable
assets acquired. Results of operations of the Velvet Drive Transmission
Division have been consolidated in the Company's statements from the
acquisition date.
<PAGE>
4. DISCLOSURES
In the opinion of Management, all adjustments which were necessary for a fair
statement of the results of the interim periods have been included in the
preceding financial statements. These adjustments were considered to be
recurring in nature and there were no adjustments other than normal recurring
adjustments made to these statements for the periods reported. However, the
results of operations for the quarter are not necessarily indicative of results
to be expected for the year. Certain items, such as income taxes, LIFO
charges, profit sharing expenses and various other accruals, are included in
these statements based on estimates for the entire year.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Results of Operations
- ---------------------
Net sales for the quarter ended June 30, 1996 were $71,817,000, or 5.8% lower
than sales of $76,265,000 in the comparable second quarter of 1995 and 4.4%
below sales in the recent first quarter of 1996. Net sales for the first six
months of 1996 were $146,936,000, or 2.4% less than sales of $150,605,000 for
the same period in 1995.
The Company experienced the impact of the slow down in the general industrial
markets and the "inventory adjustment" which rippled its way throughout most
sectors of the U.S. economy during the second quarter. The sales decline
occurred mainly in the Power Transmission Group, although the Cutting Tool
Group also recorded a modest decline. Incoming orders at most of our
facilities fluctuated at different periods and for different durations
throughout the quarter. Most of these dips lasted four to six weeks before
adjusting somewhat upward to more stable levels.
Gross profit margins increased to a record 30.4% of sales compared to 29.1% in
the comparable second quarter of 1995 and 29.7% in the recent first quarter of
1996. For the first six months of 1996, gross profit margins were 30.1% of
sales as compared to 28.8% for the same period last year. Ongoing productivity
improvement projects, along with good cost controls, accounted for this
performance. Most supplier surcharging experienced last year has either
subsided or gone away entirely. Lead times on both raw materials and services
have also returned to more normal conditions, all of which have aided in the
Company's ability to adapt quickly to the changes in order levels.
As a percentage of sales, operating expenses were 11.3% in the second quarter
compared to 10.9% in both the second quarter of 1995 and the recent first
quarter of 1996. On an absolute basis, these basically fixed expenses were
$8,082,000 for the second quarter of 1996 and lower than both those of the
second quarter of last year and the first quarter of 1996.
Income from operations improved in the second quarter to 19.2% of sales
compared to 18.2% in the second quarter of 1995 and 18.8% in the first
quarter of 1996. For the first half of 1996, income from operations increased
to 19.0% of sales compared to 17.4% for the same period in 1995.
<PAGE>
Interest expense has declined for the fifth consecutive quarter to $91,000 as
long-term debt continues to be reduced while interest rates have remained
stable.
Net income for the second quarter of 1996 of $8,669,000 was up 3.5% from the
second quarter of 1995 when net income was $8,375,000. Net income was down
1.5% from the recent first quarter of 1996. Net income for the first half of
1996 of $17,474,000 was 10.9% greater than the first half of 1995 when net
income was $15,756,000.
Liquidity and Capital Resources
- -------------------------------
Working capital increased to $83,261,000 as of June 30, 1996 compared to
$70,377,000 as of December 31, 1995. The current ratio has increased to 3.8:1
at June 30, 1996 compared to 3.2:1 at December 31, 1995. Cash and cash
equivalents at June 30, 1996 was $23,157,000, up $7,336,000 from March 31,
1996. This was aided by sound control over inventories and accounts
receivable, both of which were lower than at March 31, 1996 and year end,
December 31, 1995.
The overall financial position of the Company has never been stronger in its 41
year history as evidenced by substantial cash and cash equivalents of
$23,157,000, long-term debt of only $2,700,000, and a 3.8:1 current ratio as
evidenced above. In addition, the Company has continued to spend wisely and
selectively on both upgrading and adding to its capital equipment, which for
the six months ending June 30, 1996, amounted to $5.5 million.
The Company feels that additional internally generated growth can be financed
adequately by cash generated from operations and from its short-term credit
facilities.
Long-term debt as a percentage of total capital has been reduced to 1.8% as of
June 30, 1996 which allows the Company significant capacity in the approximate
range of $95,000,000 in total borrowing, if needed, for financing acquisitions
before reaching its self-imposed limit of 40%.
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to A Vote of Security Holders
---------------------------------------------------
(a) The Annual Meeting of stockholders of Regal-Beloit Corporation was held
on April 24, 1996.
(b) The terms of Directors William W. Keefer, James L. Packard, Henry W.
Knueppel, John M. Eldred, John A. McKay and G. Frederick Kasten, Jr.
were continued.
(c) Matters voted on at the Annual Meeting and the results of each vote were
as follows:
(1) Elect three Class C Directors for a term of three years.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For Withheld Broker Non-Votes
---------- -------- ----------------
J. Reed Coleman 18,071,936 50,067 4,400
Frank E. Bauchiero 18,071,986 50,017 4,400
Stephen N. Graff 18,064,072 57,931 4,400
</TABLE>
(2) Increase the Company's authorized shares of Common Stock to 50
million shares. 96.76% of shares voted were favorable; votes were
calculated upon the total shares issued and outstanding as of the
record date.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For Against Abstain Broker Non-Votes
---------- ------- ------- ----------------
17,540,009 556,546 27,048 2,800
</TABLE>
(3) Amend Section 4 of the Regal-Beloit Corporation 1991 Flexible Stock
Incentive Plan. 95.67% of the shares voted were favorable; votes
were calculated upon the total shares issued and outstanding as of
the record date.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For Against Abstain Broker Non-Votes
---------- ------- ------- ----------------
17,342,707 657,421 123,475 2,800
</TABLE>
(4) Ratify the appointment of Arthur Andersen LLP as independent public
accountants for the Company for the year ending December 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For Against Abstain Broker Non-Votes
---------- ------- ------- ----------------
18,084,465 22,383 15,155 4,400
</TABLE>
<PAGE>
Item 6. Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed since the Company's last report on Form
10-Q dated May 7, 1996.
SIGNATURES
Pursuant to the requirements 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.
<TABLE>
<CAPTION>
<S> <C>
REGAL-BELOIT CORPORATION
(Registrant)
Robert C. Burress
--------------------------------------------
Robert C. Burress
Vice President, CFO & Secretary
(Principal Accounting and Financial Officer)
</TABLE>
DATE: August 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 23,157,000
<SECURITIES> 0
<RECEIVABLES> 36,287,000
<ALLOWANCES> 1,139,000
<INVENTORY> 48,537,000
<CURRENT-ASSETS> 112,668,000
<PP&E> 135,522,000
<DEPRECIATION> 63,053,000
<TOTAL-ASSETS> 185,529,000
<CURRENT-LIABILITIES> 29,407,000
<BONDS> 0
0
0
<COMMON> 206,000
<OTHER-SE> 148,605,000
<TOTAL-LIABILITY-AND-EQUITY> 185,529,000
<SALES> 146,936,000
<TOTAL-REVENUES> 146,936,000
<CGS> 102,744,000
<TOTAL-COSTS> 102,744,000
<OTHER-EXPENSES> 16,285,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,000
<INCOME-PRETAX> 28,028,000
<INCOME-TAX> 10,554,000
<INCOME-CONTINUING> 17,474,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,474,000
<EPS-PRIMARY> .85
<EPS-DILUTED> 0
</TABLE>
