SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): March 26, 1997
- -------------------------------------------------------------------------------
REGAL-BELOIT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 1-7283 39-0875718
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
200 STATE STREET, BELOIT, WISCONSIN 53511-6254
(Address of Principal Executive Offices) (Zip Code)
(608) 364-8800
(Registrant's Telephone Number, Including Area Code)
<PAGE>1
ITEM 7. FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION AND
EXHIBITS.
Since it was impracticable to provide the financial information required by
Item 7 at the time the Current Report on Form 8-K was filed for this
acquisition, such information is hereby being filed.
A. Financial Statements of Business Acquired
The following audited Financial Statements of Marathon Electric
Manufacturing Corporation are attached hereto and such Financial Statements
are incorporated herein by reference:
1. Consolidated Statements of Earnings and Retained Earnings for the years
ended December 31, 1996 and 1995, and for the years ended December 31,
1995 and 1994.
2. Consolidated Balance Sheets at December 31, 1996 and 1995, and at
December 31, 1995 and 1994.
3. Consolidated Statements of Cash Flows for the years ended December 31,
1996 and 1995, and for the years ended December 31, 1995 and 1994.
4. Notes to Consolidated Financial Statements for the years ended December
31, 1996 and 1995, and for the years ended December 31, 1995 and 1994.
5. Independent Auditor's Report for the years ended December 31, 1996 and
1995, and for the years ended December 31, 1995 and 1994.
6. Consent of Independent Public Accountants
B. Pro-Forma Financial Information
The following Pro-Forma Financial Information is provided on the Schedules
attached hereto:
Schedule I Regal-Beloit Corporation and Marathon Electric Manufacturing
Corporation Pro-Forma Combined Condensed Balance Sheets (Unaudited) as of
March 31, 1997, with related Notes.
Schedule II Regal-Beloit Corporation and Marathon Electric Manufacturing
Corporation Pro-Forma Combined Statements of Income (Unaudited) for the year
ended December 31, 1996, with related Notes.
C. Exhibits None
All required exhibits were filed with Form 8-K dated April 10, 1997.
<PAGE>2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
REGAL-BELOIT CORPORATION
By: Kenneth F. Kaplan
---------------------------
Kenneth F. Kaplan
Vice President,
Chief Financial Officer
Date: June 9, 1997 and Secretary
---------------------
<PAGE>3
MARATHON ELECTRIC MANUFACTURING CORPORATION
AND SUBSIDIARIES
1996
ANNUAL REPORT
<PAGE>4
<TABLE>
<CAPTION>
Marathon Electric Manufacturing Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Dollars in thousands)
Year Ended December 31
<S> <C> <C>
1996 1995
NET SALES. . . . . . . . . . . . . . . . $ 245,244 $ 233,369
OPERATING EXPENSES
Cost of sales . . . . . . . . . . . . 177,238 176,512
Administrative. . . . . . . . . . . . 14,024 13,324
Selling . . . . . . . . . . . . . . . 20,803 19,653
Engineering - research and development. 5,932 5,187
---------- ----------
Total Operating Expenses. . . . . 217,997 214,676
---------- ----------
EARNINGS FROM OPERATIONS . . . . . . . . 27,247 18,693
Interest income - net . . . . . . . . 1,382 1,169
---------- ----------
EARNINGS BEFORE PROVISION FOR INCOME TAXES 28,629 19,862
PROVISION FOR INCOME TAXES . . . . . . . 10,850 7,600
---------- ----------
NET EARNINGS $ 17,779 $ 12,262
========== ==========
RETAINED EARNINGS
Beginning of the year . . . . . . . . $ 102,320 $ 91,112
Net earnings. . . . . . . . . . . . . 17,779 12,262
Dividends paid. . . . . . . . . . . . (5,268) (1,054)
---------- ----------
End of the year . . . . . . . . . . . $ 114,831 $ 102,320
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>5
<TABLE>
<CAPTION>
Marathon Electric Manufacturing Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amount)
December 31
<S> <C> <C>
1996 1995
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . $ 29,697 $ 27,006
Accounts receivable less allowance
for doubtful accounts of $300 in
1996 and in 1995 32,911 29,204
Inventories . . . . . . . . . . . . . . 29,157 29,937
Deferred income taxes . . . . . . . . . 3,020 3,742
Prepaid expenses and other current assets 1,969 1,101
---------- ----------
96,754 90,990
PROPERTY, PLANT AND EQUIPMENT
Land and buildings. . . . . . . . . . . 22,144 21,480
Machinery and equipment . . . . . . . . 94,676 89,282
Furniture and fixtures. . . . . . . . . 15,210 10,588
---------- ----------
132,030 121,350
Accumulated depreciation. . . . . . . . 95,865 90,680
---------- ----------
36,165 30,670
OTHER ASSETS AND DEFERRED EXPENSES
Cash value of life insurance. . . . . . 2,083 1,922
Deferred income taxes . . . . . . . . . 476 724
Other assets. . . . . . . . . . . . . . 5,598 3,848
---------- ----------
8,157 6,494
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . $141,076 $128,154
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . $ 3,975 $ 5,378
Accrued payroll and employee benefits . 14,436 11,912
Accrued income taxes. . . . . . . . . . 354 517
Other accrued liabilities . . . . . . . 4,844 6,077
----------- ------------
23,609 23,884
LONG-TERM EMPLOYEE BENEFITS LIABILITY . . 2,488 1,802
SHAREHOLDERS' EQUITY
Common stock, $10 par value, 320,000 shares
authorized and issued . . . . . . . 3,200 3,200
Retained earnings . . . . . . . . . . . 114,831 102,320
Less cost of 56,612 share in treasury . (3,052) (3,052)
----------- ------------
$114,979 $102,468
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $141,076 $128,154
=========== ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>6
<TABLE>
<CAPTION>
Marathon Electric Manufacturing Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended
December 31
<S> <C> <C>
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings. . . . . . . . . . . . . . . . $ 17,779 $ 12,262
Add (deduct) items to convert net earnings
to cash basis:
Depreciation and amortization . . . . . 7,120 7,866
Loss on disposal of property,
plant and equipment . . . . . . . . . --- 8
Deferred tax provision. . . . . . . . . 970 (254)
(Increase) decrease in
accounts receivable . . . . . . . . . (3,707) 3,292
Decrease (increase) in inventories. . . 780 (4,474)
Increase in other assets. . . . . . . . (2,848) (3,111)
(Decrease) increase in accounts payable (1,403) 871
Increase in other liabilities . . . . . 1,814 2,743
---------- ----------
$ 20,505 $ 19,203
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures. . . . . . . . . . . . (12,548) (7,573)
(Increase) decrease in notes receivable . . (9) 8
Proceeds from disposal of property,
plant and equipment . . . . . . . . . . . 11 9
---------- ----------
(12,546) (7,556)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid. . . . . . . . . . . . . . . (5,268) (1,054)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS. . . . . 2,691 10,593
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 27,006 16,413
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . $ 29,697 $ 27,006
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>7
Marathon Electric Manufacturing Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and all subsidiaries. Intercompany
balances and transactions have been eliminated.
CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
INVENTORIES - Inventories are predominately valued using the last-in,
first-out (LIFO) method of accounting.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost. For assets placed in service prior to 1995, depreciation is
computed principally using accelerated methods over estimated useful
lives. Effective in 1995, the Company began depreciating newly acquired
assets using the straight-line method, which conforms to prevailing
industry practice. The effect of the change was not material to the
financial results. The estimated useful lives of the various asset
categories are:
Buildings 10 to 40 years
Machinery and Equipment 3 to 10 years
Furniture and Fixtures 3 to 10 years
INCOME TAXES - The Company establishes deferred tax assets or
liabilities for temporary differences between the financial and tax
bases of its assets and liabilities using enacted income tax rates.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS - The
preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make
certain estimates and assumptions that directly affect reported
assets, liabilities, revenue, and expenses. Actual results may
differ from these estimates.
(2) PRINCIPAL BUSINESS ACTIVITY
Principal businesses of the Company are the manufacture and sale of
electric motors, generators and electrical connecting and terminating
devices.
<PAGE>8
(3) INVENTORIES
Inventories are classified as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1996 1995
At current costs:
Finished product. . . . . . . . . . . $26,584 $26,279
Raw and in-process. . . . . . . . . . 15,526 16,827
------- -------
42,110 43,106
Excess of current cost over LIFO inventory value 12,953 13,169
------- -------
$29,157 $29,937
======= =======
</TABLE>
(4) INTEREST
Interest expense was $210 thousand and $162 thousand in 1996 and 1995
respectively. Interest payments were $203 thousand and $155 thousand in
1996 and 1995 respectively. Interest income has been netted against
interest expense on the Consolidated Statements of Earnings.
(5) INCOME TAXES
The following is a summary of components of the provision for income
taxes (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31
<S> <C> <C>
1996 1995
Current:
Federal . . . . . . . . . . . . . . . . $ 8,395 $ 6,669
State and local . . . . . . . . . . . . 1,485 1,185
Deferred. . . . . . . . . . . . . . . . 970 (254)
-------- ---------
$ 10,850 $ 7,600
======== =========
</TABLE>
A reconciliation of the statutory Federal income tax rate and the
effective rate reflected in the statements of earnings follows:
<TABLE>
<CAPTION>
Year Ended
December 31
<S> <C> <C>
1996 1995
Federal statutory rate . . . . . . . . . . . 35.0% 35.0%
State income taxes, net of federal benefit . 3.2 3.7
Other, net . . . . . . . . . . . . . . . . . (.3) (.4)
----- -----
Effective tax rate . . . . . . . . . . . . . 37.9% 38.3%
===== =====
</TABLE>
Deferred taxes arise primarily from differences in amounts reported for
tax and financial statement purposes. The Company's deferred tax asset
as of December 31, 1996 of $3,496 thousand is classified on the
consolidated balance sheet as a current deferred income tax asset of
$3,020 thousand and a long-term deferred income tax asset of $476
thousand. The December 31, 1995 deferred tax asset was $4,466 thousand,
consisting of a current deferred income tax asset of $3,742 thousand and
<PAGE>9
a long-term deferred income tax asset of $724 thousand. Components of
the net deferred tax asset are as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1996 1995
Accrued employee benefits. . . . . . . . $ 6,155 $ 4,981
Warranty reserve . . . . . . . . . . . . 494 309
Inventory. . . . . . . . . . . . . . . . 470 517
Bad debt reserve . . . . . . . . . . . . 196 117
Other. . . . . . . . . . . . . . . . . . 345 1,228
-------- --------
Deferred tax assets . . . . . . . . $ 7,660 $ 7,152
Accrued employee benefits. . . . . . . . (2,560) (2,089)
Property related . . . . . . . . . . . . (1,604) (597)
-------- --------
Deferred tax liabilities. . . . . . (4,164) (2,686)
-------- --------
Net deferred tax asset . . . . . . . . . $ 3,496 $ 4,466
======== ========
Income tax payments were $10,510 thousand and $8,283 thousand in 1996
and 1995 respectively.
</TABLE>
(6) OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Other accrued liabilities consist of the following (dollars in
thousands):
December 31
<S> <C> <C>
1996 1995
Warranty accrual . . . . . . . . . . . . $ 1,267 $ 792
Volume incentive accrual . . . . . . . . 1,253 1,061
Other . . . . . . . . . . . . . . . . . 2,324 4,224
------- -------
$ 4,844 $ 6,077
======= =======
</TABLE>
(7) STOCK REPURCHASE AGREEMENTS
In accordance with provisions of stock repurchase agreements with certain
present and former corporate officers, the Company, at December 31, 1996,
is committed to repurchase, at the option of the Company or shareholders,
outstanding stock for approximately $2,550 thousand. Retained earnings
are restricted for this amount.
(8) OPERATING LEASES
The Company supplements its owned real estate by leasing warehouses and
sales offices. Transportation equipment and data processing equipment are
also leased.
<PAGE>10
Rental payments generally are fixed for the terms of the leases. Truck
leases require the payment of contingent rentals based on miles driven.
Rental expense for operating leases is summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Year Ended
December 31
<S> <C> <C>
1996 1995
Base rentals . . . . . . . . . . . . . . $ 2,693 $ 2,615
Additional rentals related to usage. . . 245 240
------- -------
$ 2,938 $ 2,855
======= =======
</TABLE>
Management of the Company expects that in the normal course of business
operating leases will be renewed or replaced by other leases. At December
31, 1996, future minimum rental payments required under operating leases
that have noncancellable lease terms in excess of one year are summarized
as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Amount
1997 . . . $1,208
1998 . . . 907
1999 . . . 550
2000 . . . 368
2001 . . . 279
------
$3,312
======
</TABLE>
(9) EMPLOYEE BENEFIT PLANS
The Company has defined benefit pension plans which cover substantially
all employees.
Benefits provided under qualified defined benefit plans are based on
employees average earnings in years immediately preceding retirement and
years of credited service. Funding of the plans is in accordance with
federal laws and regulations. In addition to the qualified plans, the
Company has an unfunded defined benefit plan covering certain key
employees.
Pension cost for the defined benefit plans includes the following
components (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31
<S> <C> <C>
1996 1995
Service cost . . . . . . . . . . . . . . $ 1,318 $ 1,062
Interest cost. . . . . . . . . . . . . . 2,254 1,989
Actual return on assets. . . . . . . . . (5,183) (6,833)
Net amortization and deferral. . . . . . 2,400 4,480
--------- ---------
$ 789 $ 698
========= =========
</TABLE>
<PAGE>11
The following sets forth the funded status of the Company's defined benefit
plans and the amounts reflected in the accompanying consolidated balance
sheets.
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1996 1995
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Vested benefit obligation . . . . . . . . . . . . $ 24,867 $ 23,035
========= =========
Accumulated benefit obligation. . . . . . . . . . $ 26,487 $ 24,587
========= =========
Projected benefit obligation. . . . . . . . . . . $ 31,076 $ 29,056
Plan assets at fair value . . . . . . . . . . . . 39,206 34,019
--------- ---------
Excess of plan assets over projected
benefit obligation . . . . . . . . . . . . . . . 8,130 4,963
Unrecognized net gain . . . . . . . . . . . . . . (6,048) (3,389)
Unrecognized prior service cost . . . . . . . . . 3,319 3,657
Unrecognized initial net assets . . . . . . . . . (1,651) (1,929)
--------- ---------
Pension asset recognized in the consolidated
balance sheets . . . . . . . . . . . . . . . . . . $ 3,750 $ 3,302
========= =========
</TABLE>
The present values of benefit obligations were based on discount rates of
7.75% in 1996 and 1995 and annual compensation increases of 4.5% in 1996
and 1995. The assumed long-term rate of return on plan assets was 9.0% in
1996 and 1995. Plan assets are invested in fixed income and equity
securities.
The Company has defined contribution plans for substantially all salaried
employees and certain hourly employees. The plans provide for Company
matching based on participant contributions and Company profits. Company
contributions to the plans totaled $957 thousand and $664 thousand in 1996
and 1995 respectively.
The Company maintains the Marathon Electric Manufacturing Corporation
Phantom Stock Plan which entitles certain management employees the right
to receive cash equal to the sum of the appreciation in book value of the
stock and the value of reinvested hypothetical cash dividends which would
have been paid on the stock covered by the grant. Phantom stock rights
are exercisable at any time after the first anniversary of the date of
grant, in whole or in part. Compensation expense is recorded with respect
to the rights, based upon the book value of the shares and the exercise
provisions.
(10) COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with certain key executives which
call for salary continuation for a specified period of time in the event
of termination of the covered executive following a change of control
of the Company.
<PAGE>12
In the ordinary course of conducting business, the Company becomes
involved in investigations, administrative proceedings and litigation
relating to contracts, environmental issues and other matters. While any
proceeding or litigation has an element of uncertainty, the Company
believes that the outcome of any pending or threatened claim or lawsuit
will not have a material adverse effect on its consolidated financial
position.
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Marathon Electric Manufacturing Corporation
We have audited the accompanying consolidated balance sheets of MARATHON
ELECTRIC MANUFACTURING CORPORATION and Subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings and retained earnings
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MARATHON ELECTRIC
MANUFACTURING CORPORATION and Subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
Wipfli Ullrich Bertelson LLP
Wausau, Wisconsin
January 31, 1997
<PAGE>13
MARATHON ELECTRIC MANUFACTURING CORPORATION
1995
ANNUAL REPORT
<PAGE>14
<TABLE>
<CAPTION>
Marathon Electric Manufacturing Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
Year Ended December 31
1995 1994
<S> <C> <C>
NET SALES. . . . . . . . . . . . . . . . . . $233,369,168 $226,333,620
OPERATING EXPENSES
Cost of sales . . . . . . . . . . . . . . 176,511,980 170,513,027
Administrative. . . . . . . . . . . . . . 13,324,557 12,852,532
Selling . . . . . . . . . . . . . . . . . 19,653,413 20,380,536
Engineering - research and development. . 5,186,804 5,234,700
------------- -------------
Total Operating Expenses . . . . . . . 214,676,754 208,980,795
------------- -------------
EARNINGS FROM OPERATIONS . . . . . . . . . . 18,692,414 17,352,825
Interest income - net . . . . . . . . . . 1,169,296 515,395
------------ -------------
EARNINGS BEFORE PROVISION FOR INCOME TAXES . 19,861,710 17,868,220
PROVISION FOR INCOME TAXES . . . . . . . . . 7,600,000 6,660,000
------------ -------------
NET EARNINGS . . . . . . . . . . . . . . . . $ 12,261,710 $ 11,208,220
============= =============
RETAINED EARNINGS
Beginning of the year . . . . . . . . . . $ 91,111,924 $ 80,957,256
Net earnings. . . . . . . . . . . . . . . 12,261,710 11,208,220
Dividend paid . . . . . . . . . . . . . . (1,053,552) (1,053,552)
------------- -------------
End of the year . . . . . . . . . . . . . $102,320,082 $ 91,111,924
============= =============
<FN>
See accompanying notes to consolidated financial statements.
<FN/>
</TABLE>
<PAGE>15
<TABLE>
<CAPTION>
Marathon Electric Manufacturing Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31
<S> <C> <C>
1995 1994
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . $ 27,005,779 $ 16,412,404
Accounts receivable less allowance for
doubtful accounts of $300,000 in
1995 and in 1994. . . . . . . . . . . 29,203,654 32,495,524
Inventories . . . . . . . . . . . . . . . 29,936,616 25,463,010
Deferred income taxes . . . . . . . . . . 3,742,000 2,782,000
Prepaid expenses and other current assets 1,101,452 769,198
-------------- --------------
90,989,501 77,922,136
PROPERTY, PLANT AND EQUIPMENT
Land and buildings. . . . . . . . . . . . 21,480,236 20,901,255
Machinery and equipment . . . . . . . . . 89,281,704 84,098,932
Furniture and fixtures. . . . . . . . . . 10,588,274 9,533,703
-------------- --------------
121,350,214 114,533,890
Accumulated depreciation. . . . . . . . . 90,680,575 83,634,401
-------------- --------------
30,669,639 30,899,489
OTHER ASSETS AND DEFERRED EXPENSES
Cash value of life insurance. . . . . . . 1,922,132 1,763,809
Deferred income taxes . . . . . . . . . . 724,000 1,430,000
Other assets. . . . . . . . . . . . . . . 3,848,329 1,315,593
-------------- --------------
6,494,461 4,509,402
-------------- --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 128,153,601 $ 113,331,027
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . $ 5,378,512 $ 4,507,184
Accrued payroll and employee benefits . . 11,911,813 10,281,919
Accrued income taxes. . . . . . . . . . . 517,027 949,162
Other accrued liabilities . . . . . . . . 6,076,722 4,864,833
------------- -------------
23,884,074 20,603,098
LONG-TERM EMPLOYEE BENEFITS LIABILITY. . . . 1,801,794 1,468,354
SHAREHOLDERS' EQUITY
Common stock, $10 par value, 320,000 shares
authorized and issued . . . . . . . . 3,200,000 3,200,000
Retained earnings . . . . . . . . . . . . 102,320,082 91,111,924
Less cost of 56,612 shares in treasury. . (3,052,349) (3,052,349)
-------------- -------------
102,467,733 91,259,575
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 128,153,601 $113,331,027
============== =============
<FN>
See accompanying notes to consolidated financial statements.
<FN/>
</TABLE>
<PAGE>16
<TABLE>
<CAPTION>
Marathon Electric Manufacturing Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
December 31
<S> <C> <C>
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings . . . . . . . . . . . . . . . $12,261,710 $11,208,220
Add (deduct) items to convert net earnings
to cash basis:
Depreciation and amortization . . . . . 7,865,613 8,055,263
Loss on disposal of property, plant
and equipment. . . . . . . . . . . . . 7,781 121,514
Loss on security sales . . . . . . . . . ----- 2,306
Deferred tax provision. . . . . . . . . . (254,000) (432,000)
Decrease (increase) in accounts receivable 3,291,870 (6,011,603)
Increase in inventories . . . . . . . . . (4,473,606) (2,560,910)
Increase in other assets. . . . . . . . . (3,110,855) (1,020,133)
Increase (decrease) in accounts payable . 871,328 (7,957,649)
Increase in other liabilities . . . . . . 2,743,088 1,683,167
------------ -------------
19,202,929 3,088,175
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures. . . . . . . . . . . . (7,573,135) (10,613,048)
Decrease (increase) in notes receivable . . 8,233 (15,000)
Proceeds from disposal of property,
plant and equipment. . . . . . . . . . . 8,900 57,005
------------ -------------
(7,556,002) (10,571,043)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term liabilities ------ (268,286)
Dividend paid . . . . . . . . . . . . . . . (1,053,552) (1,053,552)
------------ -------------
(1,053,552) (1,321,838)
------------ -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,593,375 (8,804,706)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 16,412,404 25,217,110
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . $27,005,779 $16,412,404
============ ============
<FN>
See accompanying notes to consolidated financial statements.
<FN/>
</TABLE>
<PAGE>17
Marathon Electric Manufacturing Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and all subsidiaries. Intercompany
balances and transactions have been eliminated.
CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
INVENTORIES - Inventories are predominately valued using the last-in,
first-out (LIFO) method of accounting.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost. For assets placed in service prior to 1995, depreciation is
computed principally using accelerated methods over estimated useful
lives. Effective in 1995, the Company began depreciating newly acquired
assets using the straight-line method, which conforms to prevailing
industry practice. The effect of the change was not material to the
financial results.
The estimated useful lives of the various asset categories are:
Buildings . . . . . . . . . . . . . 7 to 40 years
Machinery and Equipment . . . . . . 3 to 10 years
Furniture and Fixtures. . . . . . . 3 to 10 years
INCOME TAXES - The Company establishes deferred tax assets or liabilities
for temporary differences between the financial and tax bases of its
assets and liabilities using enacted income tax rates.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS - The preparation
of the accompanying financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates and
assumptions that directly affect reported assets, liabilities, revenue,
and expenses. Actual results may differ from these estimates.
(2) PRINCIPAL BUSINESS ACTIVITY
Principal businesses of the Company are the manufacture and sale of
electric motors, generators and electrical connecting and terminating
devices.
<PAGE>18
(3) INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1995 1994
At current costs:
Finished product . . . . . . . . . $26,279,358 $21,393,310
Raw and in-process . . . . . . . . 16,826,627 15,288,128
----------- -----------
43,105,985 36,681,438
Excess of current cost over
LIFO inventory value . . . . . . 13,169,369 11,218,428
----------- -----------
$29,936,616 $25,463,010
=========== ===========
</TABLE>
(4) INTEREST
Interest expense was $162,000 and $180,000 in 1995 and 1994 respectively.
Interest payments were $155,000 and $194,000 in 1995 and 1994
respectively. Interest income has been netted against interest expense on
the Consolidated Statements of Earnings.
(5) INCOME TAXES
The following is a summary of components of the provision for income taxes:
<TABLE>
<CAPTION>
Year Ended
December 31
<S> <C> <C>
1995 1994
Current:
Federal. . . . . . . . . . . . . . . $6,669,000 $5,892,000
State and local. . . . . . . . . . . 1,185,000 1,200,000
Deferred . . . . . . . . . . . . . . . (254,000) (432,000)
----------- -----------
$7,600,000 $6,660,000
=========== ===========
</TABLE>
A reconciliation of the statutory Federal income tax rate and the effective
rate reflected in the statements of earnings follows:
<TABLE>
<CAPTION>
Year Ended
December 31
<S> <C> <C>
1995 1994
Federal statutory rate. . . . . . . . 35.0% 35.0%
State income taxes, net
of federal benefit . . . . . . . . 3.5 4.2
Other, net. . . . . . . . . . . . . . (.2) (1.9)
----- ------
Effective tax rate . . . . . . . . . 38.3% 37.3%
===== ======
</TABLE>
Deferred taxes arise primarily from differences in amounts reported for tax
and financial statement purposes. The Company's deferred tax asset as of
December 31, 1995 of $4,466,000 is classified on the consolidated balance
<PAGE>19
sheet as a current deferred income tax asset of $3,742,000 and a long-term
deferred income tax asset of $724,000. The December 31, 1994 deferred tax
asset was $4,212,000, consisting of a current deferred income tax asset of
$2,782,000 and a long-term deferred income tax asset of $1,430,000.
Components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1995 1994
Accrued employee benefits . . . . . . $4,988,000 $4,067,000
Warranty reserve. . . . . . . . . . . 309,000 291,000
Inventory . . . . . . . . . . . . . . 517,000 427,000
Bad debt reserve. . . . . . . . . . . 117,000 114,000
Other . . . . . . . . . . . . . . . . 1,221,000 429,000
---------- ----------
Deferred tax assets . . . . . . . . $7,152,000 $5,328,000
Accrued employee benefits . . . . . . (2,089,000) (832,000)
Property related. . . . . . . . . . . (597,000) (284,000)
----------- -----------
Deferred tax liabilities . . . . . (2,686,000) (1,116,000)
----------- -----------
Net deferred tax asset. . . . . . . . $4,466,000 $4,212,000
=========== ===========
Income tax payments were $8,283,000 and $7,846,000 in 1995 and 1994
respectively.
(6) OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
</TABLE>
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1995 1994
Volume incentive accrual. . . . . . $1,060,904 $1,546,057
Warranty accrual. . . . . . . . . . 791,716 766,987
Other . . . . . . . . . . . . . . . 4,224,102 2,551,789
---------- ----------
$6,076,722 $4,864,833
========== ==========
</TABLE>
(7) STOCK REPURCHASE AGREEMENTS
In accordance with provisions of stock repurchase agreements with certain
present and former corporate officers, the Company, at December 31, 1995,
is committed to repurchase, at the option of the Company or shareholders,
outstanding stock for approximately $2,302,000. Retained earnings are
restricted for this amount.
(8) OPERATING LEASES
The Company supplements its owned real estate by leasing warehouses and
sales offices.
<PAGE>20
Transportation equipment and data processing equipment are also leased.
Rental payments generally are fixed for the terms of the leases. Truck
leases require the payment of contingent rentals based on miles driven.
Rental expense for operating leases is summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31
<S> <C> <C>
1995 1994
Base rentals. . . . . . . . . . . . . $2,615,000 $2,657,000
Additional rentals related to usage 240,000 229,000
---------- ----------
$2,855,000 $2,886,000
========== ==========
</TABLE>
Management of the Company expects that in the normal course of business
operating leases will be renewed or replaced by other leases. At December
31, 1995, future minimum rental payments required under operating leases
that have noncancellable lease terms in excess of one year are summarized as
follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1996 $1,058,000
1997 516,000
1998 264,000
1999 57,000
2000 12,000
----------
$1,907,000
==========
(9) EMPLOYEE BENEFIT PLANS
The Company has defined benefit pension plans which cover substantially all
employees.
Benefits provided under qualified defined benefit plans are based on
employees average earnings in years immediately preceding retirement and
years of credited service. Funding of the plans is in accordance with
federal laws and regulations. In addition to the qualified plans, the
Company has an unfunded defined benefit plan covering certain key
employees.
Pension cost (credit) for the defined benefit plans includes the following
components:
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31
<S> <C> <C>
1995 1994
Service cost. . . . . . . . . . . . . $1,062,000 $1,212,000
Interest cost . . . . . . . . . . . . 1,989,000 1,817,000
Actual return on assets . . . . . . . (6,833,000) 687,000
Net amortization and deferral . . . . 4,480,000 (2,955,000)
----------- -----------
$ 698,000 $ 761,000
=========== ===========
</TABLE>
<PAGE>21
The following sets forth the funded status of the Company s defined benefit
plans and the amounts reflected in the accompanying consolidated balance
sheets.
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1995 1994
ACTUARIAL PRESENT VALUE
OF BENEFIT OBLIGATIONS:
Vested benefit obligation . . . . . $23,035,000 $18,670,000
============ ============
Accumulated benefit obligation. . . $24,587,000 $20,125,000
============ ============
Projected benefit obligation. . . . $29,056,000 $23,183,000
Plan assets at fair value . . . . . 34,019,000 24,993,000
------------ ------------
Excess of plan assets over
projected benefit obligation. . . 4,963,000 1,810,000
Unrecognized net gain . . . . . . . (3,389,000) (2,325,000)
Unrecognized prior service cost . . 3,657,000 3,396,000
Unrecognized initial net assets . . (1,929,000) (2,207,000)
------------ ------------
Pension asset recognized in the
consolidated balance sheets . . . $ 3,302,000 $ 674,000
============ ============
</TABLE>
The present values of benefit obligations were based on discount rates of
7.75% and 8.5% in 1995 and 1994 respectively and annual compensation
increases of 4.5% in 1995 and 1994. The assumed long-term rate of return on
plan assets was 9.0% and 8.5% in 1995 and 1994 respectively. Plan assets
are invested in fixed income and equity securities.
The Company has defined contribution plans for substantially all salaried
employees and certain hourly employees. The plans provide for Company
matching based on participant contributions and Company profits. Company
contributions to the plans totaled $664,000 and $551,000 in 1995 and 1994
respectively.
The Company maintains the Marathon Electric Manufacturing Corporation
Phantom Stock Plan which entitles certain management employees the right to
receive cash equal to the sum of the appreciation in book value of the stock
and the value of reinvested hypothetical cash dividends which would have
been paid on the stock covered by the grant. Phantom stock rights are
exercisable at any time after the first anniversary of the date of grant,
in whole or in part. Compensation expense is recorded with respect to the
rights, based upon the book value of the shares and the exercise provisions.
<PAGE>22
(10) COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with certain key executives which call
for salary continuation for a specified period of time in the event of
termination of the covered executive following a change of control of the
Company.
In the ordinary course of conducting business, the Company becomes involved
in investigations, administrative proceedings and litigation relating to
contracts, environmental issues and other matters. While any proceeding or
litigation has an element of uncertainty, the Company believes that the
outcome of any pending or threatened claim or lawsuit will not have a
material adverse effect on its consolidated financial position.
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Marathon Electric Manufacturing Corporation
We have audited the accompanying consolidated balance sheets of MARATHON
ELECTRIC MANUFACTURING CORPORATION and Subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of earnings and retained
earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company s management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MARATHON
ELECTIC MANUFACTURING CORPORATION and Subsidiaries at December 31, 1995 and
1994, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Wipfli Ullrich Bertelson
Wausau, Wisconsin
February 3, 1996
<PAGE>23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this Form 8-K.
Wipfli Ullrich Bertelson LLP
---------------------------------------------
Wipfli Ullrich Bertelson LLP
June 2, 1997
Wausau, Wisconsin
<PAGE>24
Schedule I
REGAL-BELOIT CORPORATION AND
MARATHON ELECTRIC MANUFACTURING CORPORATION
PRO-FORMA COMBINED CONDENSED BALANCE SHEETS AS OF MARCH 31, 1997
UNAUDITED ($000)
The following unaudited pro-forma combined balance sheets give effect to the
purchase by Regal-Beloit Corporation of all of the common stock of Marathon
Electric Manufacturing Corporation (Marathon Electric). The statement combines
unaudited March 31, 1997 balance sheets of Regal-Beloit Corporation and
Marathon Electric and assumes the business combination was accounted for as a
purchase. These balance sheets should be read in conjunction with the
pro-forma combined statements of income and notes thereto included elsewhere
herein. Pro-forma data is presented for comparative purposes only and is not
necessarily indicative of what the combined financial condition will be in the
future, or of the dates for which this pro-forma is presented.
<TABLE>
<CAPTION>
Historical Pro-Forma
------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
Marathon
Electric
Regal-Beloit Manufacturing Adjustments
Corporation Corporation Add (Deduct) Combined
------------ ------------- ------------ --------
Assets
------
Current Assets:
Cash and Cash Equivalents $ 46,676 $ 3,259 $ (40,446) (1) $ 9,489
Net Accounts Receivable . 35,252 38,043 (1,099) (2) 72,196
Inventories . . . . . . . 42,954 30,096 10,352 (3) 83,402
Other Current Assets. . . 5,154 20,052 (90) (4) 25,116
---------- ---------- ----------- ----------
Total Current Assets . 130,036 91,450 (31,283) 190,203
Net Property, Plant, and Equipment . 73,382 36,185 41,109 (5) 150,676
Goodwill . . . . . . . . . . . . . . ----- 198 153,765 (6) 153,963
Other Noncurrent Assets. . 477 7,412 3,406 (7) 11,295
---------- ---------- ----------- ----------
Total Assets . . . . . $ 203,895 $ 135,245 $ 166,997 $ 506,137
========== ========== =========== ==========
Liabilities and Shareholders' Investment
- ----------------------------------------
Current Liabilities:
Accounts Payable. . . . . $ 8,810 $ 12,651 $ ----- $ 21,461
Federal and State Income Taxes. . . 5,545 1,590 ----- 7,135
Other Current Liabilities 16,717 15,164 10,256 (8) 42,137
---------- ---------- ----------- ---------
Total Current Liabilities. . . . 31,072 29,405 10,256 70,733
Long-Term Debt . . . . . . . . . . . 2,025 ----- 242,000 (9) 244,025
Deferred Income Taxes. . . . . . . . 5,307 3,731 16,504 (4) 25,542
Other Noncurrent Liabilities . . . . ----- 346 ----- 346
Shareholders' Investment . . . . . . 165,491 101,763 (101,763) (10) 165,491
---------- ---------- ----------- ---------
Total Liabilities and
Shareholders' Investment. . . $ 203,895 $ 135,245 $ 166,997 $ 506,137
========== ========== =========== =========
<FN>
Notes To Pro-Forma Combined Condensed Balance Sheets
(1) To reflect Regal-Beloit cash used to purchase Marathon Electric.
(2) To provide for appropriate accounts receivable reserves.
(3) To increase inventories to estimated fair market value and eliminate
Marathon Electric's LIFO reserve.
(4) To reflect deferred tax impact of purchase accounting adjustments other
than goodwill.
(5) To increase property, plant and equipment to estimated fair market value
and eliminate historical accumulated depreciation.
(6) Goodwill represents the difference in the purchase price of Marathon
Electric and the net asset value acquired, after purchase accounting
adjustments.
(7) Primarily to increase pension assets to fair market value.
(8) Primarily to provide for obligations associated with change of control
agreements, workers compensation, fringe benefits, and various other
liabilities.
(9) Long-term debt borrowed under credit agreement to finance purchase of
Marathon Electric.
(10) To eliminate the shareholders' investment of Marathon Electric in
accordance with purchase accounting.
<FN/>
</TABLE>
<PAGE>25
<TABLE>
Schedule II
REGAL-BELOIT CORPORATION
AND MARATHON ELECTRIC MANUFACTURING CORPORATION
PRO-FORMA COMBINED STATEMENTS OF INCOME
(UNAUDITED)
The following pro-forma combined Statements of Income for the year ended
December 31, 1996 were prepared as if the acquisition of Marathon Electric
Manufacturing Corporation (Marathon Electric) was effective as of January
1, 1996. The pro-forma statements of income include the historical results of
Marathon Electric, giving effect to such acquisition under the purchase method
of accounting. The pro-forma statements of income are not necessarily
indicative of the results that actually would have occurred if the acquisition
had been in effect on the date indicated or of the results that may be obtained
in the future. These pro-forma statements should be read in conjunction with
the historical statements of Regal-Beloit Corporation and Marathon Electric.
<CAPTION>
Year Ended December 31, 1996 ($000)
-----------------------------------------------------------
Historical Pro-Forma
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Marathon
Electric
Regal-Beloit Manufacturing Adjustments
Corporation Corporation Add (Deduct) Combined
------------ ------------- ------------ ----------
Net Sales. . . . . . $ 281,508 $ 245,244 $ ----- $ 526,752
Cost of Sales. . . . 198,582 177,238 (310) (1) 375,510
---------- ---------- ----------- ----------
Gross Profit . . . 82,926 68,006 310 151,242
---------- ---------- ----------- ----------
Operating Expenses . 31,806 40,759 3,855 (2) 76,420
---------- ---------- ----------- ----------
Income from Operations . . 51,120 27,247 (3,545) 74,822
Interest Expense . . 357 210 15,730 (3) 16,297
Interest Income. . . 1,052 1,592 (2,193) (4) 451
---------- ---------- ----------- ----------
Income Before Taxes. . . . 51,815 28,629 (21,468) 58,976
Provision for Income Taxes . 19,539 10,850 (6,695) (5) 23,694
---------- ---------- ----------- ----------
Net Income . . . . $ 32,276 $ 17,779 $ (14,773) $ 35,282
========== ========== =========== ==========
Net Income Per Share . . . $ 1.57 $ 1.71
========== ==========
Average Shares Outstanding . 20,616,825 20,616,825
========== ==========
<FN>
Notes to Pro-Forma Combined Statements of Income
(1) Historical book depreciation for Marathon Electric was recorded primarily
using accelerated depreciation methods. The change to straight-line
method in conjunction with purchase accounting adjustments yields lower
expense despite increased valuation of property, plant and equipment.
(2) To reflect the amortization of goodwill (40 year amortization) and loan
financing fees and expenses (5 year amortization).
(3) To reflect interest expense on the loans made to finance the acquisition;
the initial loan was $242 million; an interest rate of 6.50% was utilized.
(4) To eliminate the interest income: a) on cash utilized by Regal-Beloit to
make the acquisition and b) on cash contractually removed from Marathon
Electric by its owners immediately prior to the acquisition.
(5) Primarily, to reflect the tax impact of pro-forma adjustments, excluding
goodwill which is not tax deductible.
<FN/>
</TABLE>
<PAGE>26
<TABLE>
Schedule III
REGAL-BELOIT CORPORATION
AND MARATHON ELECTRIC MANUFACTURING CORPORATION
PRO-FORMA COMBINED STATEMENTS OF INCOME
(UNAUDITED)
The following pro-forma combined Statements of Income for the 3 months ended
March 31, 1997 were prepared as if the acquisition of Marathon Electric
Manufacturing Corporation (Marathon Electric) was effective as of January 1,
1996. The pro-forma statements of income include the historical results of
Marathon Electric, giving effect to such acquisition under the purchase method
of accounting. The pro-forma statements of income are not necessarily
indicative of the results that actually would have occurred if the acquisition
had been in effect on the date indicated or of the results that may be obtained
in the future. These pro-forma statements should be read in conjunction with
the historical statements of Regal-Beloit Corporation and Marathon Electric.
<CAPTION>
3 Months Ended March 31, 1997 ($000)
-------------------------------------------------------------
Historical Pro-Forma
---------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
Marathon
Electric
Regal-Beloit Manufacturing Adjustments
Corporation Corporation Add (Deduct) Combined
------------ ------------- ------------ ----------
Net Sales. . . . . . . . . . $ 70,570 $ 62,836 $ ----- $ 133,406
Cost of Sales. . . . . . . . 50,199 45,625 (78) (1) 95,746
---------- ----------- ---------- ----------
Gross Profit . . . . . . . 20,371 17,211 78 37,660
---------- ----------- ---------- ----------
Operating Expenses . . . . . 8,309 37,499 (25,678) (2) 20,130
---------- ----------- ---------- ----------
Income from Operations . . 12,062 (20,288) 25,756 17,530
Interest Expense . . . . . . 53 62 3,933 (3) 4,048
Interest Income. . . . . . . 363 392 (640) (4) 115
---------- ----------- ---------- ----------
Income Before Taxes. . . . 12,372 (19,958) 21,183 13,597
Provision for Income Taxes . 4,666 (6,785) 7,305 (5) 5,186
---------- ----------- ---------- ----------
Net Income . . . . . . . . $ 7,706 $ (13,173) $ 13,878 $ 8,411
========== =========== ========== ==========
Net Income Per Share . . . $ 0.37 $ 0.40
========== =========
Average Shares Outstanding . 20,773,553 20,773,553
========== ==========
<FN>
Notes to Pro-Forma Combined Statements of Income
(1) Historical book depreciation for Marathon Electric was recorded primarily
using accelerated depreciation methods. The change to straight-line method
in conjunction with purchase accounting adjustments yields lower expense
despite increased valuation of property, plant and equipment.
(2) To reflect the amortization of goodwill (40 year amortization) and loan
financing fees and expenses (5 year amortization), $964; to eliminate
phantom stock payments arising from the difference between the book value
and purchase price of Marathon Electric, $(23,721); to eliminate seller
expenses associated with the sale of Marathon Electric, $(2,921).
(3) To reflect interest expense on the loans made to finance the acquisition;
the initial loan was $242 million; an interest rate of 6.50% was utilized.
(4) To eliminate the interest income: a) on cash utilized by Regal-Beloit to
make the acquisition and b) on cash contractually removed from Marathon
Electric by its owners immediately prior to the acquisition.
(5) Primarily, to reflect the tax impact of pro-forma adjustments, excluding
goodwill which is not tax deductible.
<FN/>
</TABLE>
<TEXT/>
<PAGE>27
