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 March 31, 1997
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Commission File Number 1-7283
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REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0875718
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
200 State Street, Beloit, Wisconsin 53511-6254
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(Address of principal executive offices)
(608) 364-8800
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(Registrant's telephone number, including area code)
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(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.
20,805,626 Shares, Common Stock, $.01 Par Value
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<PAGE>1
REGAL-BELOIT CORPORATION
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1997
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Balance Sheet . . . . . . . . . . . . . 3
Statement of Income . . . . . . . . . . . . . . . 4
Condensed Statement of Cash Flows . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . 6 - 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 7 - 8
PART II - OTHER INFORMATION
Item 6 - Reports on Form 8-K. . . . . . . . . . . . . . . . . 9
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE>2
PART I
FINANCIAL INFORMATION
1. Financial Statements
--------------------
REGAL-BELOIT CORPORATION
CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
(In Thousands of Dollars)
(From Audited
(Unaudited) Statements)
-------------- --------------
March 31, 1997 Dec. 31, 1996
-------------- --------------
Current Assets:
Cash and cash equivalents . . . . . . . . . $ 11,244 $ 38,402
Receivables, less reserves of $1,070 in 1997
and $1,190 in 1996 . . . . . . . . . . . 73,295 32,796
Inventories. . . . . . . . . . . . . . . . . 84,594 45,908
Other current assets . . . . . . . . . . . . 12,234 4,925
--------- ---------
Total Current Assets. . . . . . . . . . . 181,367 122,031
--------- ---------
Property, Plant and Equipment at Cost . . . . . 180,220 142,740
Less - accumulated depreciation . . . . . . . (70,654) (68,124)
--------- ---------
Net Property, Plant and Equipment . . . . 109,566 74,616
Goodwill. . . . . . . . . . . . . . . . . . . . 166,580 -----
Other Noncurrent Assets . . . . . . . . . . . . 8,562 349
--------- ---------
Total Assets. . . . . . . . . . . . . . . $466,075 $196,996
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . $ 21,460 $ 9,481
Federal and state income taxes . . . . . . . (2,426) 886
Other current liabilities. . . . . . . . . . 31,871 19,051
--------- ---------
Total Current Liabilities. . . . . . . 50,905 29,418
--------- ---------
Long-term Debt . . . . . . . . . . . . . . . . 244,025 2,168
Deferred Income Taxes. . . . . . . . . . . . . 5,308 5,387
Other Noncurrent Liabilities . . . . . . . . . 346 -----
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,803,126 issued in 1997 and
20,644,843 issued in 1996. . . . . . . . . 208 206
Additional paid-in capital . . . . . . . . . 38,678 37,695
Retained earnings. . . . . . . . . . . . . . 126,662 121,453
Cumulative Translation Adjustments . . . . . (57) 669
--------- ---------
Total Shareholders' Investment . . . . . . 165,491 160,023
--------- ---------
Total Liabilities and Shareholders' Investment $466,075 $196,996
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>3
REGAL-BELOIT CORPORATION
STATEMENT OF INCOME
<TABLE>
<CAPTION>
<S> <C> <C>
(In Thousands of Dollars)
(Unaudited)
---------------------------
Three Months Ended
---------------------------
March 31,
---------------------------
1997 1996
---------- ----------
Net Sales. . . . . . . . . . . . . . . . . . $ 70,570 $ 75,119
Cost of Sales. . . . . . . . . . . . . . . . 50,199 52,780
---------- ----------
Gross Profit. . . . . . . . . . . . . . . 20,371 22,339
Operating Expenses . . . . . . . . . . . . . 8,309 8,203
---------- ----------
Income from Operations. . . . . . . . . . 12,062 14,136
Interest Expense . . . . . . . . . . . . . . 53 100
Interest Income. . . . . . . . . . . . . . . 363 100
---------- ----------
Income Before Taxes . . . . . . . . . . . 12,372 14,136
Provision for Income Taxes . . . . . . . . . 4,666 5,331
---------- ----------
Net Income. . . . . . . . . . . . . . . . $ 7,706 $ 8,805
========== ==========
Per Share of Common Stock:
Net Income . . . . . . . . . . . . . . . $.37 $.43
========== ==========
Cash Dividends Declared . . . . . . . . . $.12 $.12
========== ==========
Weighted Average Number of
Shares Outstanding. . . . . . . . . . . . 20,773,553 20,587,238
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>4
REGAL-BELOIT CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
(In Thousands of Dollars)
(Unaudited)
----------------------------
Three Months Ended March 31,
____________________________
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,706 $ 8,805
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation, amortization and deferred income taxes. . . . 2,714 2,599
Change in assets and liabilities:
Current assets, other than cash . . . . . . . . . . . . . (308) (1,197)
Current liabilities, other than notes payable . . . . . . 1,886 3,079
---------- ----------
Net cash provided from operating activities . . . . . . 11,998 13,286
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net of retirements (1,971) (2,072)
Business Acquisition . . . . . . . . . . . . . . . . . . . . . (277,433) -----
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (50) (527)
----------- ----------
Net cash used in investing activities . . . . . . . . . . . (279,454) (2,599)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt. . . . . . . . . . . . . . . . . . 242,000 -----
Repayment of long-term debt. . . . . . . . . . . . . . . . . . (129) (530)
Dividends to shareholders. . . . . . . . . . . . . . . . . . . (2,477) (2,055)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 984 291
----------- ----------
Net cash provided from (used in) financing activities . . . 240,378 (2,294)
EFFECT OF EXCHANGE RATE ON CASH. . . . . . . . . . . . . . . . . (80) (30)
----------- ----------
Net (decrease) increase in cash and cash equivalents . . . . . (27,158) 8,363
Cash and cash equivalents at beginning of period . . . . . . . 38,402 7,458
----------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . $ 11,244 $ 15,821
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . $ 67 $ 135
=========== ===========
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . $ 19 $ 735
=========== ===========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>5
REGAL-BELOIT CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
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 82% of the Company's inventory is determined using the
last-in, first-out (LIFO) inventory valuation method at March 31, 1997 and 67%
at December 31, 1996. The approximate percentage distribution between major
classes of inventories is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
3-31 12-31
1997 1996
Raw Material 13% 17%
Work-in-Process 23% 19%
Finished Goods 64% 64%
</TABLE>
3. ACQUISITION
The Condensed Balance Sheet incorporates the assets and liabilities of Marathon
Electric Manufacturing Corporation, which was acquired by the Company on
March 26, 1997. As a full purchase price allocation has not yet been
performed, other than the write-up of Marathon Electric inventories, the
Company has allocated all of the purchase price above the adjusted net asset
value acquired to goodwill. Accordingly, the value ascribed to goodwill is an
interim value that will likely decrease as valuation adjustments are determined
during the second quarter of 1997. Marathon Electric operations did not have a
material impact on the Statement of Income in the first quarter of 1997.
4. IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share, which established
new standards for computing and presenting net income per common share and
replaced the standards previously found in Accounting Principles Board Opinion
No. 15, Earnings Per Share. Regal-Beloit Corporation will begin reporting net
income per common share and net income per common share assuming dilution
according to this new standard in the fourth quarter of 1997. For the first
quarter of 1997 and 1996,
<PAGE>6
net income per common share amounts computed under the new standard are not
materially different from the net income per common share amounts reported
under the previous standard.
5. 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 OPERATIONS
RESULTS OF OPERATIONS
The March 26, 1997 acquisition of Marathon Electric Manufacturing Corporation
did not have a material impact on operations in the first quarter of 1997.
(See "Acquisition" following.)
Net sales for the quarter ended March 31, 1997 were $70,570,000 or 6.1% lower
than net sales of $75,119,000 reported in the comparable first quarter of 1996,
but 6.2% greater than net sales in the fourth quarter of 1996. Last year's
first quarter was before the Company's customers began to reduce their
inventory levels over the balance of 1996 as their markets slowed. In general,
during the first quarter of 1997, the Company's traditional markets were
improving.
Gross profit margins increased modestly from 28.6% in the fourth quarter of
1996 to 28.9% in the first quarter of 1997 driven by higher sales volumes. The
comparable percentage a year ago was 29.7%.
Operating expenses of $8,309,000, or 11.8% of net sales, were up slightly from
the first quarter of 1996 when operating expenses were $8,203,000, or 10.9% of
net sales. Operating expenses in the recent fourth quarter of 1996 were 11.3%
of net sales.
The resulting income from operations of 17.1% in the first quarter of 1997 was
down from 18.8% in the same quarter in 1996 and 17.3% recorded in the fourth
quarter of 1996.
Interest expense of $53,000 in the first quarter of 1997 was minimal based upon
the Company's very low debt prior to the acquisition of Marathon Electric.
Interest income of $363,000 in 1997's first quarter was due to the increased
cash balances generated in 1996 and the first quarter of 1997.
Net income for the first quarter of 1997 was $7,706,000 or 12.4% lower than the
net income of $8,805,000 reported in the first quarter of 1996. Compared to
the recent fourth quarter of 1996, net income was up 4.3%.
<PAGE>7
ACQUISITION
On March 26, 1997, the Company acquired 100% of the stock of Marathon Electric
Manufacturing Corporation, a private company, in a cash merger transaction for
approximately $278,000,000. The acquisition of Marathon Electric had no
material impact on the Company's first quarter 1997 Statement of Income.
Marathon Electric is a leading manufacturer of electric motors, generators, and
related products. In 1996 its sales were $245,000,000 and its net income was
$17,800,000.
The acquisition was financed with a combination of approximately $37,000,000 of
existing cash and $242,000,000 of debt. The debt was provided by Bank of
America and M&I Marshall & Ilsley Bank under a $280,000,000, 5-year, unsecured,
revolving credit facility. The facility is in the process of syndication,
with 6 to 9 other banks expected to participate. The interest rate the Company
pays is based on LIBOR (London Interbank Offered Rate), plus a variable margin
based on the Company's ratio of funded debt to EBITDA. As of March 31, 1997,
the Company paid an annual interest rate of 6.2% under the facility.
Marathon Electric's assets and liabilities have been included in the March 31,
1997 Consolidated Balance Sheet. The difference between the value of the
purchased net assets of Marathon Electric and the purchase price paid by the
Company is reflected as goodwill on the balance sheet. With the exception of
the write-up of Marathon Electric inventories to fair market value, no other
purchase accounting adjustments have been reflected. Accordingly, the value
ascribed to goodwill is an interim value that will likely decrease as valuation
adjustments are determined during the second quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of March 31, 1997 increased to $130,462,000 from $92,613,000
at December 31, 1996, due to the acquisition of Marathon Electric partly offset
by the use of Company cash in the acquisition. (See "Acquisition" preceding.)
The current ratio of the Company decreased to 3.6:1 from 4.1:1 for the same
reasons.
At March 31, 1997, the Company had $244,025,000, of long-term debt, of which
$242,000,000 was borrowed on March 26, 1997, to effect the Marathon Electric
acquisition. The debt was borrowed under a $280,000,000, 5-year, unsecured,
revolving credit facility. The Company had, at March 31, 1997, $38,000,000 of
available borrowing capacity. The Company's funded debt to EBITDA ratio at the
end of the first quarter was 2.45:1, and its capitalization ratio was 59.7%.
The Company paid an annual interest rate of approximately 6.2% on its
outstanding debt at March 31, 1997.
During the first three months of 1997, the Company generated $11,998,000 of
cash flow from operations, and $7,550,000 of free cash flow (cash flow from
operations less net additions to property, plant and equipment less dividends).
The Company believes that the combination of cash generated by operations and
available borrowing capacity is adequate to finance the Company for the
foreseeable future.
<PAGE>8
PART II
OTHER INFORMATION
Item 6. Reports on Form 8-K
-------------------
On April 10, 1997, the company filed a current report on Form 8-K pertaining to
its March 26, 1997, acquisition of Marathon Electric Manufacturing Corporation.
Related financial information will be filed as required no later than 60 days
after April 10, 1997.
SIGNATURE
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.
REGAL-BELOIT CORPORATION
(Registrant)
KENNETH F. KAPLAN
_________________________
Kenneth F. Kaplan
Vice President - Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)
DATE: May 14, 1997
<PAGE>9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,244,000
<SECURITIES> 0
<RECEIVABLES> 73,295,000
<ALLOWANCES> 1,070,000
<INVENTORY> 84,594,000
<CURRENT-ASSETS> 181,367,000
<PP&E> 180,220,000
<DEPRECIATION> 70,654,000
<TOTAL-ASSETS> 466,075,000
<CURRENT-LIABILITIES> 50,905,000
<BONDS> 0
0
0
<COMMON> 208,000
<OTHER-SE> 165,283,000
<TOTAL-LIABILITY-AND-EQUITY> 466,075,000
<SALES> 70,570,000
<TOTAL-REVENUES> 70,570,000
<CGS> 50,199,000
<TOTAL-COSTS> 50,199,000
<OTHER-EXPENSES> 8,309,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,000
<INCOME-PRETAX> 12,372,000
<INCOME-TAX> 4,666,000
<INCOME-CONTINUING> 7,706,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,706,000
<EPS-PRIMARY> .37
<EPS-DILUTED> 0
</TABLE>
