SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission file number 1-7283
--------------------------------------
REGAL-BELOIT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
WISCONSIN 39-0875718
(State of Incorporation) (I.R.S. Employer Identification No.)
200 STATE STREET
BELOIT, WISCONSIN 53511-6254
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (608) 364-8800
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
----------------------------- ------------------------------
COMMON STOCK ($.01 PAR VALUE) AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT. . NONE
(Title of Class)
===============================================================================
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 6, 1998 was approximately $638,944,000.
On March 6, 1998 the registrant had outstanding 20,882,290 shares of common
stock, $.01 par value, which is registrant's only class of common stock.
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<TABLE>
<CAPTION>
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-K REFERENCE
<S> <C>
Annual Report to Shareholders for Year Ended
December 31, 1997. . . . . . . . . . . . . . . . . . I, II, IV
Proxy Statement for Annual Shareholder Meeting to be
Held on April 21, 1998 . . . . . . . . . . . . . . . III
</TABLE>
<PAGE>1
<TABLE>
REGAL-BELOIT CORPORATION
------------------------
Index to
Annual Report on Form 10-K
For The Year Ended December 31, 1997
<S> <C> <C>
PART I Page
----
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters To A Vote of Security Holders . . . . . . 6
PART II
Item 5. Market for the Registrant's Common Equity and
Related Shareholder Matters . . . . . . . . . . . . . . . . . . 6
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 7
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . 7
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . 7
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . 7
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 8
Item 12 Security Ownership of Certain Beneficial Owners and Management . 8
Item 13. Certain Relationships and Related Transactions . . . . . . . . . 8
PART IV
Item 14. Financial Statements, Financial Statement Schedule,
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 9
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE>2
PART I
ITEM 1. BUSINESS
General Development of Business
- -------------------------------
Regal-Beloit Corporation is a Wisconsin corporation founded in 1955. The
Company's initial business was the production of special metalworking
taps. Through 34 acquisitions and internal growth, the Company has become
a prominent manufacturer of a diversified line of mechanical products to
control motion and torque and electrical products such as motors and
generators.
The Company's mechanical products are manufactured by its Mechanical Group
and include standard and custom worm gear, bevel gear, helical gear, and
concentric shaft gearboxes; marine and high-performance after-market
automotive transmissions; custom gearing; gear motors; and manual valve
actuators. The Group also manufactures perishable, high speed steel, rotary
cutting tools, which products are less than 10% of the Company's net sales.
Mechanical Group products are sold to distributors, original equipment
manufacturers and end users across many industry segments.
Typical applications for the Company's mechanical products include material
handling systems such as conveyors, palletizers and packaging equipment;
off-highway vehicular equipment such as street pavers, graders,
airport/fire/crash/rescue equipment; farm implements; center pivot
irrigation systems; gas and liquid pipeline transmission systems; civic
water and waste treatment facilities; open-pit mining; paper making
machinery; high-performance, after-market automotive transmissions and
ring/pinion sets; and transmissions for luxury inboard powered craft.
Effective March 26, 1997, the Company acquired 100% of the stock of Marathon
Electric Manufacturing Corporation for approximately $279,000,000. Marathon
Electric now comprises the Company's Electrical Group, which manufactures its
electrical products including electric motors and generators. The Electrical
Group produces and markets AC electric motors ranging in size from 1/12
horsepower to over 500 horsepower and electric generators ranging in size
from 5 kilowatts through 2300 kilowatts. These products are also sold to
distributors, original equipment manufacturers and end users across many
industry segments.
Typical applications for the Company's electrical products include:
1) for electric motors: air movement such as heating, ventilating, air
conditioning and compressors; fluid movement such as pumping; woodworking;
commercial laundry; process industries; variable frequency drives; and
floor care; and 2) for electric generators: prime and standby power
applications including buildings such as telecommunication, commercial,
industrial, hospital and school; marine; agriculture; windpower;
military; and transport refrigeration.
Regal-Beloit believes its consistent ability to provide products on a
shorter delivery schedule than other manufacturers gives it a competitive
selling advantage and that its extensive use of modern, up-to-date
equipment which is best suited for the job, along with its continued
product redesign and effective plant layout, often gives it a
competitive cost advantage in its product offering.
Marketing and Sales
- -------------------
The Company's products are sold to distributors, original equipment
manufacturers and end users. Both the Mechanical Group and the Electrical
Group have their own organization of field sales employees and manufacturers'
representatives.
<PAGE>3
Export sales accounted for approximately 7% of the Company's sales in 1997
and 3% in each of 1996 and 1995. Additionally, 4%, 7%, and 6% of Company
sales were manufactured and sold outside the United States in 1997, 1996,
and 1995, respectively. No material part of the Company's business is
dependent upon a single customer. In fiscal 1997, 1996, and 1995, no
single customer accounted for as much as 3% of Company sales. Although
the Company's sales are predominantly not seasonal, they tend to vary
with general economic conditions and with the rate of industrial production,
and are affected by business climates in the many markets in which the
Company sells. However, because the Company's products are sold to many
different markets, the effects of weaker markets are frequently offset by
strengths in other markets.
Working capital requirements to properly serve the Company's customers are
generally typical of capital goods manufacturers. Accounts receivable and
inventory are generally not seasonal or at unusual levels by industry
standards.
Competition
- -----------
Major domestic competitors in the mechanical motion control equipment industry
include Emerson Electric, Reliance Electric, Winsmith, Falk, and Boston Gear.
Major foreign competitors would include SEW Eurodrive, Flender, Sumitomo and
Zahnrad Fabrik. Major domestic competitors for the Electrical Group include
Baldor Electric, Emerson Electric, Reliance, Leeson, General Electric,
Cummins, and Magnetek. Major foreign competitors include Siemens, Toshiba,
Weg, Leroy Somer, and ABB.
Over the past several years, niche product market opportunities have become
more prevalent due to changing market conditions. The Mechanical Group's
markets have also been impacted by decisions of larger manufacturers not
to compete in lower volume or specialized markets. Many captive producers
have chosen, for economic reasons, to outsource their requirements to
specialized manufacturers like Regal-Beloit's Mechanical Group, who can
produce more cost effectively.
The Company has capitalized on this competitive climate by making acquisitions
and increasing its manufacturing efficiencies. Some of these acquisitions
have created new opportunities for the Company because the Company is now
in new markets in which it was not previously involved. The Company has
also continued to upgrade its manufacturing equipment and processes,
including increasing its use of computer-aided manufacturing systems and
redesigning products to take full advantage of the more productive
equipment along with redoing plant layout to improve product flow. In
practice, the Company's operating units have sought out specific niche
markets concentrating on a wide diversity of customers and applications.
Because of this approach, the Company is often not the largest supplier
in any specific market. The Company believes it competes primarily on
the basis of the promptness of delivery, price and quality.
For further segment information required by Item 101 of Regulation S-K,
reference is made to Note 11 of Notes to Consolidated Financial Statements
on page 14 of the Annual Report to Shareholders for the year ended
December 31, 1997, and such information is incorporated herein by reference.
<PAGE>4
Manufacturing
- -------------
Each of the Company's operating units conducts its manufacturing operations
independently in one or more facilities. The Company regularly invests in
high quality machinery and equipment and other improvements to and
maintenance of its facilities. These capital expenditures typically meet
or exceed the Company's depreciation levels, as the Company believes that
such investments are essential to its long-term success.
The manufacturing operations of both the Mechanical Group and Electrical
Group are highly integrated. Although raw materials and selected parts
such as bearings and seals are purchased, this vertical integration
permits the Company to produce most of its products' component parts when
needed. The Company believes this results in lower production costs,
greater manufacturing flexibility and higher product quality, as well as
reducing the Company's reliance on outside suppliers.
Base materials for the Company's products consist primarily of: 1) steel in
various types and sizes, bearings and weldments, 2) copper magnet wire and
3) castings made of grey iron or aluminum. The Company purchases its raw
materials from many suppliers and is not dependent on any single supplier
for any of its base materials.
Backlog
- -------
As of December 31, 1997, the amount of the Company's Mechanical Group
backlog was approximately $51,310,000 compared to approximately $44,460,000
on December 31, 1996. The Electrical Group backlog as of December 31, 1997 was
$31,700,000. Average delivery time for orders of the Company's mechanical
products (except for large, specially designed products) varies from three
days to two months. The Company believes that virtually all of its
backlog is shippable in 1998. The Company's business units have
historically shipped the majority of its products in the month the order is
received. Accordingly, since total backlog is less than 15% of the Company's
annual sales, the Company believes that backlog is not a reliable indicator
of the Company's future sales.
Patents, Trademarks and Licenses
- --------------------------------
The Company owns a number of United States patents and foreign patents
relating to its businesses. While the Company believes that its patents
provide certain competitive advantages, the Company does not consider any
one patent or group thereof essential to the business of either of its
Groups or the Company as a whole. Regal-Beloit utilizes various registered
and unregistered trademarks and the Company believes these trademarks are
significant in the marketing of most of its products. However, the Company
believes the successful manufacture and sale of its products generally
depends more upon its technological, manufacturing and marketing skills.
In addition, the Company believes its engineering, test and development
capabilities are significant factors in the success of its business.
Employees
- ---------
As of December 31, 1997, the Company employed approximately 4,810 persons,
of which approximately 27% are covered by collective bargaining agreements.
The Company considers its employee relations to be very good.
Environmental Matters
- ---------------------
The Company is subject to Federal, State and local environmental regulations.
The Company is currently involved with environmental proceedings related
to certain of its facilities. Based on available information, it
is believed that the outcome of these proceedings and future known
<PAGE>5
environmental compliance costs will not have a material adverse effect on
the Company's financial position or results of operations.
ITEM 2. PROPERTIES
The Company's Mechanical Group currently operates 21 manufacturing and
service/distribution facilities. Four are located in Illinois; two each
are located in Indiana, South Carolina, South Dakota and Wisconsin; and
one each located in California, Massachusetts, New York, North Carolina,
Pennsylvania, Texas, Newbury (England), Neu Anspach (Germany) and Legnano
(Italy). The Mechanical Group's present operating facilities contain a
total of approximately 1,590,000 square feet of space of which approximately
46,700 square feet are leased.
The Electrical Group currently operates 10 manufacturing and warehousing
facilities. Two each are located in Missouri and Ohio; and one each in
Indiana, Pennsylvania, Texas, Wisconsin, Singapore, and Market Overton
(England). The Electrical Group's present operating facilities contain
a total of approximately 1,010,000 square feet of space of which
approximately 130,000 square feet are leased.
The Company has its principal offices in Beloit, Wisconsin in an owned
24,000 square foot office building. The Company believes its equipment
and facilities are well maintained and adequate for its present needs.
The Company currently owns one additional vacant manufacturing facility
with a total of 53,000 square feet that it intends to sell.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Certain information required by Item 201 of Regulation S-K is set forth on
page 4 and the inside back cover of the Annual Report to Shareholders for
the year ended December 31, 1997, and such information is incorporated
herein by reference.
<PAGE>6
ITEM 6. SELECTED FINANCIAL DATA
Information required by Item 301 of Regulation S-K is set forth on page 4 of
the Annual Report to Shareholders for the year ended December 31, 1997,
and such information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Information required by Item 303 of Regulation S-K is set forth on pages 5
and 6 of the Annual Report to Shareholders for the year ended December 31,
1997, and such information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
In the Annual Report to Shareholders for the year ended December 31, 1997,
there are set forth on pages 7 through 15, financial statements meeting
the requirements of Regulation S-X and information specified by Item 302
of Regulation S-K and such financial statements are incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its accountants subject to
disclosure by Item 304 of Regulation S-K nor has it had a change of
accountants within the last two fiscal years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 401 of Regulation S-K is set forth on pages 3
through 5 and 8 of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on April 21, 1998, a copy of which has been filed
within 120 days following the close of the fiscal year, and such information
is incorporated herein by reference.
The names, ages, and positions of all of the executive officers of the
Company as of March 6, 1998, are listed below along with their business
experience during the past five years. Officers are elected annually by
the Board of Directors at the Meeting of Directors immediately following
the Annual Meeting of Shareholders in April. There are no family
relationships among these officers, nor any arrangements of understanding
between any officer and any other persons pursuant to which the officer
was selected.
<PAGE>7
<TABLE>
<CAPTION>
<S> <C>
NAME, AGE AND POSITION BUSINESS EXPERIENCE DURING THE PAST 5 YEARS
- ---------------------- -------------------------------------------
James L. Packard, 55 - Elected Chairman in 1986; Chief Executive
Chairman, President and Officer since 1984; President since 1980.
Chief Executive Officer
Henry W. Knueppel, 49 - Elected Executive Vice President in 1987,
Executive Vice President prior to which he was Vice President-
Operations since 1985. Appointed to the
additional position of President, Marathon
Electric Manufacturing Corporation in
September, 1997.
Kenneth F. Kaplan, 52 - Joined Company in September, 1996. Elected
Vice President, Chief Vice President, Chief Financial Officer in
Financial Officer and October, 1996 and Secretary in April, 1997.
Secretary Previously he was employed by Gehl Company,
West Bend, Wisconsin, as Vice President
-Finance and Treasurer from 1987.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 402 of Regulation S-K is set forth on pages 9
through 15 of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on April 21, 1998, a copy of which has been filed
within 120 days following the close of the fiscal year, and such information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAEMENT
Information required pursuant to Item 403 of Regulation S-K is set forth on
pages 3, 4, 5, and 8 of the definitive proxy statement for the Annual
Meeting of Shareholders to be held on April 21, 1998, a copy of which has
been filed within 120 days following the close of the fiscal year, and
such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required pursuant to Item 404 of Regulation S-K is set forth on
page 7 of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on April 21, 1998, a copy of which has been filed
within 120 days following the close of the fiscal year, and such information
is incorporated herein by reference.
<PAGE>8
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE, EXHIBITS
AND REPORTS ON FORM 8-K
(a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Reference is made to the separate index to the Company's Consolidated
Financial Statements and Schedule contained on Page 11 hereof.
3. EXHIBITS
Reference is made to the separate exhibit index contained on
Pages 14-15 hereof.
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K by the Company during the
quarter ended December 31, 1997.
<PAGE>9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Kenneth F. Kaplan
--------------------------------
Kenneth F. Kaplan
Vice President, Chief Financial Officer
and Secretary
March 6, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ James L. Packard March 6, 1998
- ------------------------ Chairman, President, Chief -------------
James L. Packard Executive Officer and Director
/s/ Kenneth F. Kaplan March 6, 1998
- ------------------------ Vice President, Chief Financial -------------
Kenneth F. Kaplan Officer and Secretary
(Principal Accounting
& Financial Officer)
/s/ Henry W. Knueppel March 6, 1998
- ------------------------ Executive Vice President -------------
Henry W. Knueppel and Director
/s/ John A. McKay
- ------------------------ Director March 6, 1998
John A. McKay -------------
/s/ John M. Eldred
- ------------------------ Director March 6, 1998
John M. Eldred -------------
/s/ J. Reed Coleman
- ------------------------ Director March 6, 1998
J. Reed Coleman -------------
/s/ Frank Bauchiero
- ------------------------ Director March 6, 1998
Frank Bauchiero -------------
</TABLE>
<PAGE>10
<TABLE>
<CAPTION>
REGAL-BELOIT CORPORATION
Index to Financial Statements
and Financial Statement Schedule
Page(s) In
Annual Report *
-------------
The following documents are filed as part of this report:
<S> <C> <C>
(1) Financial Statements:
Consolidated Balance Sheets at December 31, 1997 and 1996 7
Consolidated Statements of Income for the three years ended
December 31, 1997 8
Consolidated Statements of Shareholders' Investment for
the three years ended December 31, 1997 8
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997 9
Notes to Consolidated Financial Statements 10 - 14
Report of Independent Public Accountants 15
<FN>
* Incorporated by reference from the indicated pages of the
Regal-Beloit Corporation 1997 Annual Report to Shareholders
</FN>
</TABLE>
<TABLE>
<CAPTION>
Page In
Form 10-K
---------
<S> <C> <C>
(2) Financial Statement Schedule:
Report of Independent Public Accountants on Financial
Statement Schedule 12
Consent of Independent Public Accountants 12
For the three years ended December 31, 1997,
Schedule II - Valuation and Qualifying Accounts 13
<FN>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
</FN>
</TABLE>
<PAGE>11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Regal-Beloit Corporation:
We have audited, in accordance with generally accepted auditing standards,
the financial statements included in Regal-Beloit Corporation's Annual Report
to Shareholders, incorporated by reference in this Form 10-K, and have issued
our report thereon dated January 28, 1998. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index to financial statements is the responsibility
of the Company's management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 28, 1998
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Regal-Beloit Corporation:
As independent public accountants, we hereby consent to the incorporation of
our reports, included and incorporated by reference in this Form 10-K, into
Regal-Beloit Corporation's previously filed Registration Statements, File
Nos. 33-25480, 33-25233, 33-82076 and 33-8934.
ARTHUR ANDERSEN LLP
-------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 11, 1998
<PAGE>12
SCHEDULE II
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REGAL-BELOIT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts:
(In Thousands Of Dollars)
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Additions Write-offs Additions, Balance
Beginning Charged to Net of Related to End
of Year Net Income Recoveries Acquisition of Year
--------- ---------- ---------- ----------- --------
Year Ended December 31, 1997 $ 1,190 $ 592 $ (622) $ 1,460 $ 2,620
========= ========== ========== =========== ========
Year Ended December 31, 1996 $ 1,140 $ 125 $ (75) $ -0- $ 1,190
========= ========== ========== =========== =========
Year Ended December 31, 1995 $ 1,161 $ 62 $ (83) $ -0- $ 1,140
========= ========== ========== =========== =========
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<PAGE>13
EXHIBITS INDEX
The following exhibits are required to be filed by Item 601 of Regulation S-K.
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<S> <C> <C>
Exhibit
Number Description Incorporated by Reference Herein
- ------- ----------- --------------------------------
2 Agreement and Plan of Merger by Filed as Exhibit A to Annual Meeting
and between the Registrant and Proxy Statement of
Regal-Beloit Corporation, dated as Regal-Beloit Corporation
of April 18, 1994 dated March 11, 1994
2.1 Agreement and Plan of Merger Filed as Exhibit 2.1 on Regal-Beloit
among the Registrant, Regal- Corporation's Form 8-K dated
Beloit Acquisition Corp., and April 10, 1997
Marathon Electric Manufacturing
Corporation dated as of February
26, 1997, as amended and
restated March 17, 1997 and
March 26, 1997
2.2 Credit Agreement among Regis- Filed as Exhibit 2.2 on Regal-Beloit
trant, Bank of America Illinois, M&I Corporation's Form 8-K dated
Marshall & Illsley Bank and the April 10, 1997
Other Financial Institutions Party
hereto dated as of March 26, 1997;
Schedule 2.01; Guaranty Agree-
ments dated March 26, 1997; and
Promissory Notes dated March 26,
1997.
2.3 Amended and Restated Credit Filed as Exhibit 2.3 to Regal-Beloit
Agreement Dated as of May 30, Corporation's Quarterly Report
1997 among Registrant, Bank of on Form 10-Q dated August 8, 1997
America Illinois, as Documentation
Agent, M&I Marshall & Illsley Bank,
as Administrative Agent and Letter
of Credit Issuing Bank, Firstar Bank
Milwaukee, N.A., Harris Trust and
Savings Bank and The Northern
Trust Company, as Co-Agents, and
The Other Financial Institutions
Party Hereto Arranged by
Bancamerica Securities, Inc. as
Syndication Agent; Disclosure
Schedules and Attached Exhibits;
and Promissory Note
3.1 Articles of Incorporation of the Filed as Exhibit B to the 1994 Proxy
Registrant Statement
3.2 Bylaws of the Registrant Filed as Exhibit C to the 1994 Proxy
Statement
</TABLE>
<PAGE>14
<TABLE>
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Exhibit
Number Description Incorporated by Reference Herein
- ------- ----------- --------------------------------
4 Articles of Incorporation and Bylaws Filed as Exhibits 3.1 and 3.2 hereto
of the Registrant
10.1 Short-Term Incentive Compensation Filed as Exhibit 10.1 to Regal-Beloit
Plan, as amended Corporation's Annual Report
on Form 10-K dated
March 29, 1993
10.2 1982 Incentive Stock Option Plan Filed as Exhibit 10.4 to 1986 S-1
10.3 1987 Stock Option Plan Filed as Exhibit 10.3 to 1988 S-1
10.4 1991 Flexible Stock Incentive Plan Filed as Exhibit 10.4 to Regal-Beloit
Corporation's Annual Report
on Form 10-K dated
March 29, 1993 (1994 S-8
Registration No. 33-82076)
10.5 Change of Control Agreement Filed as Exhibit 10.5 to Regal-Beloit's
dated January 1, 1997 Annual Report on Form 10-K dated
March 6, 1998
(Filed herewith)
10.6 Disability Insurance Agreement Filed as Exhibit 10.6 to Regal-Beloit
between Regal-Beloit Corporation Corporation's Annual Report
and Continental Casualty Company on Form 10-K dated
March 29, 1993
13 Annual Report to Shareholders Regal-Beloit Corporation's Annual Report
for the year ended December 31, on Form 10-K dated March 6, 1998.
1997 (Filed herewith)
21 Subsidiaries of Regal-Beloit Regal-Beloit Corporation's Annual Report
Corporation on Form 10-K dated March 6, 1998.
(Filed herewith)
23 Consent of Independent Public Regal-Beloit Corporation's Annual Report
Accountants on Form 10-K dated March 6, 1998.
(Filed herewith)
99 Annual Meeting Proxy Statement of Regal-Beloit Corporation's Proxy
Regal-Beloit Corporation dated Statement on Schedule 14A dated
March 13, 1998 March 13, 1998, and filed on
March 13, 1998.
</TABLE>
<PAGE>15
SELECTED FINANCIAL INFORMATION REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIVE YEAR HISTORICAL DATA
(In Thousands, Except Per Share Data)
-------------------------------------------------
Year Ended December 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
Net Sales . . . . . . . . . . . . . . . . $ 487,019 $ 281,508 $ 295,891 $ 242,650 $ 219,883
Income from Operations . . . . . . . . . 74,381 51,120 53,607 38,982 25,081
Net Income . . . . . . . . . . . . . . . 38,897 32,276 32,818 23,129 14,246
Total Assets . . . . . . . . . . . . . . 485,625 196,996 175,480 167,665 139,317
Long-term Debt . . . . . . . . . . . . . 192,261 2,168 2,884 16,022 19,612
Shareholders' Investment . . . . . . . . 189,427 160,023 135,873 110,545 92,746
Per Share of Common Stock:
Earnings Per Share . . . . . . . . . . . 1.87 1.57 1.60 1.13 .70
Earnings Per Share - Assuming Dilution . 1.83 1.53 1.57 1.11 .69
Cash Dividends Declared . . . . . . . . .48 .48 .39 .31 .27
Shareholders' Investment . . . . . . . . 9.09 7.75 6.61 5.40 4.55
Average Number of Shares Outstanding 20,806 20,617 20,509 20,438 20,374
<FN>
NOTE: All per share amounts are stated giving retroactive effect of a 2 for 1 stock split in 1994. Net income
per share is based on the weighted average number of shares outstanding (as adjusted) during the respective
periods.
</FN>
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
1997 1996
--------------------------------- --------------------------------
Price Range Price Range
---------------------- Dividends -------------------- Dividends
High Low Paid High Low Paid
--------- ---------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter . . . . $ 24 1/2 $ 18 $ .12 $ 21 7/8 $ 18 $ .10
2nd Quarter 28 1/2 22 1/2 .12 22 3/8 18 1/4 .12
3rd Quarter 32 1/4 26 1/16 .12 19 3/4 15 1/2 .12
4th Quarter 32 3/4 25 1/16 .12 20 1/4 16 3/8 .12
<FN>
Regal-Beloit has paid 150 consecutive quarterly dividends through January,
1998. The approximate number of holders of common stock as of December 31, 1997
is 1,229.
</FN>
</TABLE>
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
------------------------------------------------------------------------------------
1st Qtr 2nd Qtr. 3rd Qtr. 4th Qtr.
------------------ ------------------ ------------------- ------------------
1997 1996 1997 1996 1997 1996 1997 1996
-------- -------- --------- ------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales . . . . . . . . $70,570 $75,119 $143,610 $71,817 $138,403 $68,149 $134,436 $66,423
Gross Profit . . . . . . . . 20,371 22,339 41,408 21,853 39,068 19,758 40,161 18,976
Income from Operations . . . 12,062 14,136 21,863 13,771 19,934 11,748 20,522 11,465
Net Income . . . . . . . . . 7,706 8,805 10,807 8,669 9,914 7,412 10,470 7,390
Earnings Per Share . . . . . .37 .43 .52 .42 .48 .36 .50 .36
Earnings Per Share -
Assuming Dilution . . . . . .36 .42 .51 .41 .47 .35 .49 .35
Average Number of
Shares Outstanding . . . 20,774 20,587 20,807 20,614 20,816 20,631 20,826 20,634
</TABLE>
<PAGE>4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
OVERVIEW
The Company achieved record highs in net sales, net income, and earnings per
share in 1997. On March 26, 1997, the Company acquired Marathon Electric
Manufacturing Corporation, nearly doubling the size of the Company in
terms of both sales and employees. (See "Acquisition" following.) The
results of Marathon Electric, which comprises the Company's new Electrical
Group, are included in the Company's financial statements after March 26,
1997.
Net sales in 1997 increased 73.0% to $487,019,000. Of this sales increase,
$201,845,000 was attributable to the Marathon Electric acquisition. Net
income was $38,897,000, or $1.87 per share, 20.5% higher than net income
in 1996 of $32,276,000, or $1.57 per share.
Cash flow from operations increased 46.8% to a record $78,789,000 from
$53,667,000 in 1996. Return on average shareholders' investment was 22.3%,
the fourth consecutive year in excess of 20%. The Company reduced its
outstanding long-term revolving debt to $192,000,000 at year-end 1997,
a $52,000,000 reduction from the peak debt at March 31, 1997, immediately
after the Marathon Electric acquisition.
RESULTS OF OPERATIONS
1997 versus 1996
- ----------------
Net sales of the Company were $487,019,000 in 1997, a 73.0% increase from
$281,508,000 in 1996. Mechanical Group net sales grew to $285,174,000 in
1997, a 1.3% increase from $281,508,000 in 1996. Several of the Mechanical
Group's operating divisions, primarily those serving general industrial
activity, and the agriculture and construction markets, achieved sales
growth in excess of general economic growth in 1997. However, these
gains were partially offset by weakness in the marine, cutting tool, and
heavy equipment markets, which adversely impacted the sales of divisions
serving these markets. Electrical Group 1997 net sales for the nine months
as part of the Company were $201,845,000, 9% higher than for the same nine
months of 1996 under Marathon Electric s former ownership. The Electrical
Group achieved broad-based sales increases in motors, generators, and
other electrical products. New products were introduced, new and emerging
domestic markets were entered and new customers were attracted. Foreign
sales rose by 13.7%, paced by generators.
Gross profit as a percentage of sales for the Company was 29.0% in 1997 as
compared to 29.5% in 1996. The decrease from 1996 was due primarily to a
decline in the overall gross margin in the Mechanical Group resulting
from a more competitive pricing environment in 1997 than experienced in
1996. The impact of the new Electrical Group on gross margin was minimal
as its gross profit as a percentage of sales was comparable to that of
the Mechanical Group.
Company operating expenses increased to $66,627,000 in 1997 from $31,806,000
in 1996 due predominantly to the acquisition of Marathon Electric. As a
percentage of net sales, operating expenses in 1997 were 13.7% as
compared to 11.3% in 1996.
Income from operations of the Company increased to $74,381,000 in 1997 from
$51,120,000 in 1996. The increase was due to the $25,836,000 of income
from operations contributed by the new Electrical Group from April through
December 1997. Income from operations of the Mechanical Group decreased
to $48,545,000 in 1997 from $51,120,000 in 1996, due primarily to the
impact of the previously mentioned weakness in 1997 in several of the
Group's markets.
Interest expense in 1997 was $10,804,000 as compared to $357,000 in 1996.
On March 26, 1997, the Company borrowed $242,000,000 under its Revolving
Credit Facility to finance the purchase of Marathon Electric (See
"Acquisition" following). The average rate of interest paid by the
Company in 1997 was 6.2%. Interest income in 1997 was $810,000, reduced
from $1,052,000 in 1996. The Company's interest income decreased
substantially after the Marathon Electric acquisition, as the Company
utilized $37,000,000 of cash for the acquisition.
The Company's effective tax rate increased to 39.6% of income before taxes
in 1997 from 37.7% in 1996. The rate increase was due primarily to the
nondeductibility of the amortized goodwill associated with the Marathon
Electric acquisition.
The Company is currently in the process of implementing the required changes
to its computer software programs and operating systems to be Year 2000
compliant and expects to complete these changes in 1998. The Company is
also communicating with its suppliers and customers concerning Year 2000
compliance. Management believes the costs to become Year 2000 compliant
will not be material to the Company's financial condition or results of
operations.
1996 versus 1995
- ----------------
Net sales of the Company decreased 4.9% to $281,508,000 in 1996 from
$295,891,000 in 1995. The Company experienced a broad-based slowdown in
most of its markets commencing in the second quarter of 1996 and continuing
for the balance of the year. Sales were impacted by customers working
inventories to lower levels and the end of two long-term contracts at one
of the Company's divisions.
Gross profit as a percentage of sales increased to 29.5% in 1996 from 29.2%
in 1995. Continued improvement in manufacturing efficiencies enabled the
Company to improve margins in 1996 despite the sales decline. Operating
expenses were reduced 3.2% to $31,806,000 in 1996 from $32,854,000 in 1995.
This was accomplished by the continued emphasis on close control of costs
at all levels of the Company's operations.
<PAGE>5
Interest expense in 1996 of $357,000 was below the $776,000 in 1995.
Continued paydown of outstanding debt accounted for the decline. Interest
income, generated by short-term investments of the Company's cash balances,
increased to $1,052,000 in 1996 from $309,000 in 1995. The Company's
effective tax rate decreased one-half point in 1996 to 37.7% of income
before taxes from 38.2% in 1995. The 1996 effective rate decrease was
due primarily to lower effective state income tax rates, net of federal
benefits.
The Company's net income in 1996 of $32,276,000 was 1.7% less than 1995 net
income of $32,818,000. Despite the decline in 1996 sales, net income as a
percentage of net sales increased to 11.5% from 11.1% in 1995. On a per
share basis, 1996 net income was $1.57 per share as compared to $1.60 in 1995.
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 $279,000,000. Marathon Electric, which now
comprises the Company's Electrical Group, is a leading manufacturer of
electric motors and generators.
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 under a
$280,000,000, 5-year, unsecured, revolving credit facility. (See also
"Liquidity and Capital Resources" following).
In connection with the acquisition, the assets and liabilities of Marathon
Electric were revalued in accordance with the purchase accounting
requirements of generally accepted accounting principles. The net asset
value of Marathon Electric increased approximately $27,000,000, the value
of goodwill being $153,963,000. While the purchase allocations included
in these statements are believed to approximate the fair market value of the
net assets acquired, the purchase accounting is currently preliminary and
will be finalized during the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $100,627,000 at December 31,
1997, from $92,613,000 a year earlier. The increase reflects the net
additions to the assets and liabilities of the Company associated with the
Marathon Electric acquisition. Working capital increased only modestly
in 1997 because the use of $37,000,000 of Company cash to fund the
acquisition reduced working capital and offset much of the impact of the net
current assets acquired. The Company's current ratio decreased, also as
a result of the acquisition, from 4.1:1 at December 31, 1996 to 2.4:1 at
year-end 1997.
The Company maintains a $225,000,000 unsecured revolving credit facility
which expires March 26, 2002 (the "Facility"). The Facility was originally
for $280,000,000 but was reduced by the Company to the current limit
effective October 1, 1997. The Facility permits the Company to borrow up
to the credit limit at interest rates based upon a margin above LIBOR.
The Company initially borrowed $242,000,000 under the Facility on March 26,
1997, to finance the Marathon Electric acquisition. During the balance of
1997, the Company generated sufficient cash flow to repay $50,000,000 of
the initial debt borrowed, reducing the debt outstanding at December 31,
1997, to $192,000,000. During 1997 the Company paid an average interest
rate of 6.2% for its borrowings. The Company was in compliance with the
covenants of the Facility throughout 1997. At December 31, 1997, the
Company had $33,000,000 of available borrowing capacity under the Facility.
Additionally, the Company maintains a short-term credit line of $10,000,000.
At December 31, 1997, there were no borrowings against the short-term line.
Management believes the credit facilities it has in place provide sufficient
borrowing capacity for the Company to finance its operations for the
foreseeable future. Management also believes that future external growth
from acquisitions can be adequately funded from a combination of the
current credit facilities and the Company s ability to further leverage
its equity with additional long-term indebtedness.
Cash flow from operations continued to grow in 1997, reaching $78,789,000
after $53,667,000 in 1996 and $35,680,000 in 1995. After expending
$16,076,000 for property, plant and equipment in 1997 and paying $9,970,000
in dividends, the Company had sufficient cash available to repay
$52,532,000 of its outstanding debt by the end of 1997. The Company plans
to spend in excess of $20,000,000 for capital items in 1998. The Company
believes its present facilities are sufficient to provide adequate capacity
for its operations in 1998.
CAUTIONARY STATEMENT
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995:
With the exception of historical facts, the statements contained in the
preceding are forward looking statements. Actual results may differ
materially from those contemplated by the forward looking statements.
These forward looking statements involve risks and uncertainties,
including but not limited to, the following risks: 1) cyclical downturns
affecting the markets for capital goods, 2) substantial increases in
interest rates, 3) availability of material increases in the costs of
select raw materials, and 4) actions taken by competitors with regard to
such matters as product offering, pricing, and delivery. Investors are
directed to other Company documents, such as its Annual Report on Form
10-K and Form 10-Q's, filed with the Securities and Exchange Commission.
<PAGE>6
CONSOLIDATED BALANCE SHEETS REGAL-BELOIT CORPORATION
In Thousands of Dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
December 31,
-----------------------------
1997 1996
---------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,351 $ 38,402
Receivables, less allowance for doubtful accounts of
$2,620 in 1997 and $1,190 in 1996. . . . . . . . . . . . . . . . . . . . . . . . 69,660 32,796
Future income tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,141 4,532
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,527 45,908
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 880 393
------------- ------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,559 122,031
Property, Plant and Equipment:
Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,979 6,783
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,167 27,174
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,468 108,783
------------- ------------
Property, Plant and Equipment, at cost . . . . . . . . . . . . . . . . . . . . 233,614 142,740
Less-Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (82,355) (68,124)
------------- ------------
Net Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . 151,259 74,616
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,358 --
Other Noncurrent Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,449 349
------------- ------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 485,625 $ 196,996
============= ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,590 $ 9,481
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 2,477
Accrued compensation and employee benefits . . . . . . . . . . . . . . . . . . . . 28,674 12,082
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,434 3,816
Federal and state income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 5,696 886
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . 38 676
------------- -------------
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 71,932 29,418
Long-term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,261 2,168
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,726 5,387
Other Noncurrent Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 --
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares authorized, 20,830,226 issued
and outstanding in 1997 and 20,644,843 issued and outstanding in 1996 . . . . . 208 206
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,904 37,695
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,357 121,453
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . (42) 669
------------- -------------
Total Shareholders' Investment . . . . . . . . . . . . . . . . . . . . . . . . 189,427 160,023
------------- -------------
Total Liabilities and Shareholders' Investment . . . . . . . . . . . . . . . . $ 485,625 $ 196,996
============= =============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME REGAL-BELOIT CORPORATION
In Thousands of Dollars, Except Shares Outstanding
- --------------------------------------------------------------------------------------
For The Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . $ 487,019 $ 281,508 $ 295,891
Cost of Sales. . . . . . . . . . . . . . . 346,011 198,582 209,430
------------ ------------- ------------
Gross Profit . . . . . . . . . . . . . . . 141,008 82,926 86,461
Operating Expenses . . . . . . . . . . . . 66,627 31,806 32,854
------------ ------------- ------------
Income From Operations . . . . . . . . . 74,381 51,120 53,607
Interest Expense . . . . . . . . . . . . . 10,804 357 776
Interest Income. . . . . . . . . . . . . . 810 1,052 309
------------ ------------- ------------
Income Before Income Taxes . . . . . . . 64,387 51,815 53,140
Provision For Income Taxes . . . . . . . . 25,490 19,539 20,322
------------ ------------- ------------
Net Income . . . . . . . . . . . . . . . $ 38,897 $ 32,276 $ 32,818
============ ============= ============
Earnings Per Share . . . . . . . . . . . . $ 1.87 $ 1.57 $ 1.60
============ ============= ============
Earnings Per Share - Assuming Dilution . . $ 1.83 $ 1.53 $ 1.57
============ ============= ============
Average Number of Shares Outstanding . . . 20,805,844 20,616,825 20,508,890
============ ============= ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
In Thousands of Dollars, Except Per Share Data
- ----------------------------------------------------------------------------------------
Common
Stock Additional Cumulative
$.01 Paid-In Retained Translation
Par Value Capital Earnings Adjustment Total
------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 (20,454,952 shares). . $ 205 $ 36,595 $ 74,265 $ (520) $ 110,545
Net Income . . . . . . . . . . . . . . . . . . . -- -- 32,818 -- 32,818
Dividends Declared ($.39 per share). . . . . . . -- -- (8,004) -- (8,004)
Translation Adjustment . . . . . . . . . . . . . -- -- -- (25) (25)
Stock Options Exercised (99,016 shares). . . . . 1 538 -- -- 539
Balance, December 31, 1995 (20,553,968 shares) . . 206 37,133 99,079 (545) 135,873
Net Income -- -- 32,276 -- 32,276
Dividends Declared ($.48 per share) -- -- (9,902) -- (9,902)
Translation Adjustment -- -- -- 1,214 1,214
Stock Options Exercised (90,875 shares) -- 562 -- -- 562
Balance, December 31, 1996 (20,644,843 shares) . . 206 37,695 121,453 669 160,023
Net Income -- -- 38,897 -- 38,897
Dividends Declared ($.48 per share) -- -- (9,993) -- (9,993)
Translation Adjustment -- -- -- (711) (711)
Stock Options Exercised (185,383 shares) 2 1,209 -- -- 1,211
----------- ------------ ------------ ------------ ------------
Balance, December 31, 1997 (20,830,226 shares) . . $ 208 $ 38,904 $ 150,357 $ (42) $ 189,427
=========== ============ ============ ============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>8
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS REGAL-BELOIT CORPORATION
In Thousands of Dollars
- -----------------------------------------------------------------------------------------------
For The Year Ended December 31,
---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,897 $ 32,276 $ 32,818
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 18,874 10,578 10,176
Provision for deferred income taxes . . . . . . . . . . . 13,770 (54) (767)
Change in assets and liabilities, net of acquisitions:
Receivables . . . . . . . . . . . . . . . . . . . . . . . (200) 8,799 (10,559)
Inventories . . . . . . . . . . . . . . . . . . . . . . . 473 3,708 (936)
Current liabilities and other, net . . . . . . . . . . . 6,975 (1,640) 4,948
-------------- -------------- --------------
Net cash provided from operating activities . . . . . . . 78,789 53,667 35,680
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment . . . . . . . . (16,076) (11,112) (13,784)
Business acquisition . . . . . . . . . . . . . . . . . . . (279,260) -- --
Sale of property, plant and equipment . . . . . . . . . . 515 391 3,260
Other, net . . . . . . . . . . . . . . . . . . . . . . . . 356 (525) (281)
-------------- -------------- --------------
Net cash used in investing activities . . . . . . . . . . (294,465) (11,246) (10,805)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt . . . . . . . . . . . . . . . 242,000 -- --
Repayment of long-term debt . . . . . . . . . . . . . . . (52,532) (2,721) (13,242)
Repayment of short-term debt . . . . . . . . . . . . . . . -- -- (10,511)
Stock issued under option and compensation plans . . . . . 1,211 562 539
Dividends to shareholders . . . . . . . . . . . . . . . . (9,970) (9,480) (7,585)
-------------- -------------- --------------
Net cash provided from (used in) financing activities . . 180,709 (11,639) (30,799)
EFFECT OF EXCHANGE RATE ON CASH: . . . . . . . . . . . . . . (84) 162 4
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents . . . (35,051) 30,944 (5,920)
Cash and cash equivalents at beginning of year . . . . . . 38,402 7,458 13,378
-------------- -------------- --------------
Cash and cash equivalents at end of year . . . . . . . . . $ 3,351 $ 38,402 $ 7,458
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,053 $ 413 $ 821
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . $ 9,509 $ 19,728 $ 20,254
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS REGAL-BELOIT CORPORATION
- -----------------------------------------------------------------------------
For The Three Years Ended December 31, 1997
(1) NATURE OF OPERATIONS
Regal-Beloit Corporation (the Company) is a United States-based multinational
corporation. The Company is organized into two operating groups, the
Mechanical Group with its principal line of business in mechanical products
which control motion and torque, and the Electrical Group with its principal
line of business in electric motors and generators. The principal markets
for the Company's products and technologies are within the United States.
Sales in foreign countries represent a relatively minor but increasing
proportion of total Company sales.
(2) ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The financial statements include the accounts of the Company and its wholly
owned subsidiaries.
Revenue Recognition
- -------------------
Sales and related cost of sales for all products are recognized upon shipment
of the products.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, in certain circumstances, that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expense during the reporting period. Actual results could differ from
those estimates.
Foreign Currency Translation
- ----------------------------
Net assets of non-U.S. subsidiaries, whose functional currencies are other
than the U.S. Dollar, are translated at the rates of exchange in effect as
of year end. Income and expense items are translated at the average
exchange rates in effect during the year. The translation adjustments
relating to net assets are recorded directly into a separate component of
shareholders' investment. Certain other translation adjustments continue to
be reported in net income and were not significant in any of the three
years ended December 31, 1997.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist primarily of highly liquid investments
with insignificant interest rate risk and original maturities of three
months or less at date of acquisition. The carrying value of cash
equivalents closely approximates their fair market value.
Inventories
- -----------
The approximate percentage distribution between major classes of inventory
is as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1996
-------- -------
<S> <C> <C>
Raw Material . . . . . . . . . . . . . 13% 17%
Work In Process . . . . . . . . . . . 23% 19%
Finished Goods and Purchased Parts . . 64% 64%
</TABLE>
Inventories are stated at cost, which is not in excess of market. Cost for
approximately 82% of the Company's inventory at December 31, 1997 and 67%
at December 31, 1996, was determined using the last-in, first-out (LIFO)
method. If all inventories were valued on the first-in, first-out (FIFO)
method, they would have increased by $8,364,000 and $8,875,000 as of
December 31, 1997 and 1996, respectively. Material, labor and factory
overhead costs are included in the inventories.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment is stated at cost. Maintenance and repairs
are charged to expense as incurred and major renewals and improvements
are capitalized.
The cost of property retired or otherwise disposed of is removed from the
property accounts, the accumulated depreciation is removed from related
reserves, and the net gain or loss is reflected in income.
The provisions for depreciation are based on the estimated useful lives of
plant and equipment from the dates of acquisition and are calculated
primarily using the straight-line method for financial reporting purposes
and accelerated methods for income tax purposes. The estimated useful lives
are:
<TABLE>
<CAPTION>
Description Life
- -------------------------- --------------
<S> <C>
Buildings and Improvements 10 to 45 years
Machinery and Equipment 3 to 15 years
</TABLE>
(3) LEASES AND RENTAL COMMITMENTS
Rental expenses charged to operations amounted to $3,535,000 in 1997,
$1,158,000 in 1996 and $1,218,000 in 1995. Future minimum rental commitments
for noncancelable operating leases having a remaining term in excess of
one year as of December 31, 1997 are not material.
<PAGE>10
(4) ACQUISITION
On March 26, 1997, the Company acquired 100% of the stock of Marathon
Electric Manufacturing Corporation of Wausau, Wisconsin for approximately
$279,000,000. The acquisition was financed with a combination of
approximately $37,000,000 of existing cash and $242,000,000 of debt.
(See also Note 5 "Long-Term Debt and Bank Credit Facilities".) Marathon
Electric is a leading manufacturer of electric motors and generators.
Marathon Electric sells its products worldwide to a broad range of industries
and customers.
Results of operations for Marathon Electric have been consolidated in the
Company's statements effective March 27, 1997. Unaudited pro-forma results
of operations for Regal-Beloit Corporation for the years ended December 31,
1997 and 1996, as though Marathon Electric had been acquired as of January 1,
1996, are as follows:
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
-------------------------------------
1997 1996
----------------- ------------------
<S> <C> <C>
Pro-forma:
Net Sales $ 549,855 $ 526,752
Net Income $ 39,602 $ 35,282
Earnings Per Share $ 1.90 $ 1.71
</TABLE>
This acquisition was accounted for as a purchase, and the audited results
shown in these statements relating to the acquisition have been prepared in
accordance with generally accepted accounting principles. While the purchase
allocations included in these statements are believed to approximate the fair
market value of the net assets acquired, the purchase accounting is currently
preliminary and will be finalized during the first quarter of 1998.
(5) LONG-TERM DEBT AND BANK CREDIT FACILITIES
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Long-term debt consists of the following: December 31,
1997 1996
--------- ---------
<S> <C> <C>
Revolving Credit Facility . . . . . . . . . . . $ 192,000 $ --
7-3/4% Industrial Revenue Bonds . . . . . . . . -- 1,027
Industrial Development Bonds . . . . . . . . . -- 1,350
Other . . . . . . . . . . . . . . . . . . . . . 299 467
192,299 2,844
Less-Current maturities . . . . . . . . . . . . 38 676
Noncurrent portion . . . . . . . . . . . . . . $ 192,261 $ 2,168
</TABLE>
The Company maintains a $225,000,000 unsecured revolving credit facility
which expires March 26, 2002 (the "Facility"). The Facility permits the
Company to borrow at rates based upon a margin above LIBOR. The Facility
also includes financial covenants regarding minimum net worth, maximum
permitted debt and minimum interest coverage. The average interest rate
paid under the Facility in 1997 was 6.2%. The Company had $33,000,000
of available borrowing capacity under the Facility at December 31, 1997.
The Company also maintains a short-term credit line of $10,000,000 at
December 31, 1997. There was no outstanding balance on the short-term credit
line at December 31, 1997.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt is not materially different than the carrying value.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year (In Thousands of Dollars)
- ------ --------------------------
<S> <C>
1998 $ 38
1999 43
2000 48
2001 54
2002 and thereafter 192,116
---------
Total $ 192,299
=========
</TABLE>
6) CONTINGENCIES
The Company is, from time to time, party to lawsuits arising from its normal
business operations. In addition, the Company is party to certain
environmental cleanup proceedings. It is believed that the outcome of these
lawsuits and cleanup proceedings will have no material effect on the
Company's financial position or its results of operations.
<PAGE)11
(7) RETIREMENT PLANS
The Company has a number of retirement plans that cover most of its
employees. The primary plan of the Mechanical Group is a qualified
discretionary profit-sharing plan covering substantially all domestic
employees except those covered by collective bargaining agreements. Total
expense for all profit-sharing and retirement plans of the Mechanical
Group was $4,247,000, $4,041,000 and $4,477,000 in 1997, 1996 and 1995,
respectively.
The Electrical Group 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.
Pension cost for all the defined benefit plans includes the following
components:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Nine Months Ended
December 31, 1997
-----------------
<S> <C>
Service cost $ 822
Interest cost 1,880
Actual return on assets (7,740)
Net amortization and deferral 5,170
------------
Net Pension Expense $ 132
============
</TABLE>
The following sets forth the funded status of the Electrical Group's defined
benefit plans and the amounts reflected in the accompanying consolidated
balance sheets.
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Actuarial present value December 31, 1997
-----------------
of benefit obligations:
<S> <C>
Vested benefit obligation . . . . . . . . $ 28,148
Accumulated benefit obligation . . . . . $ 29,891
Projected benefit obligation . . . . . . $ 35,316
Plan assets at fair value . . . . . . . . 44,937
Excess of plan assets over projected
benefit obligation . . . . . . . . . . . 9,621
Unrecognized net gain . . . . . . . . . . (3,884)
Unrecognized prior service cost . . . . . 104
Pension asset recognized in the
consolidated balance sheets . . . . . . $5,841
</TABLE>
The actuarial valuation assumes that the present values of benefit
obligations are based on a discount rate of 7.5% and annual compensation
increases of 4.5%. The assumed long-term rate of return on plan assets
is 9.0%.
The Electrical Group also has defined contribution plans for substantially
all salaried employees and certain hourly employees. The plans provide for
matching based on participant contributions and Electrical Group profits.
Matching contributions to the plans totaled $1,073,000 for the nine months
ended December 31, 1997.
(8) NET INCOME PER SHARE
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share". The standard had no effect on the
basic presentation of Earnings Per Share. Earnings Per Share - Assuming
Dilution is presented for all periods.
The reconciliation of the denominator of the Earnings Per Share and Earnings
Per Share - Assuming Dilution computations per SFAS No. 128 is as follows:
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
-------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Net Income for Earnings Per Share . . . . . . . $ 38,897 $ 32,276 $ 32,818
========= ========= =========
Shares for Earnings Per Share . . . . . . . . . 20,806 20,617 20,509
Dilutive Effect of Stock Options . . . . . . . . 469 458 457
--------- -------- ---------
Shares for Earnings Per Share - Assuming Dilution 21,275 21,075 20,966
Earnings Per Share . . . . . . . . . . . . . . . $ 1.87 $ 1.57 $ 1.60
Earnings Per Share - Assuming Dilution . . . . . $ 1.83 $ 1.53 $ 1.57
</TABLE>
<PAGE>12
(9) STOCK OPTION PLANS
The Company has four stock option plans available for officers, directors,
and key employees. Under the Company's 1982 and 1987 Stock Option Plans,
qualified incentive stock options for 614,946 and 450,000 shares,
respectively, have been made available for grant and 609,760 and 435,500
shares, respectively, have been granted. Options under these plans were
granted at a price that equaled the market value on the date of grant and an
option's maximum term is 10 years.
In 1991, the shareholders approved a Flexible Stock Incentive Plan. This
plan permits the Company to award options from a single pool of 1,000,000
shares. Non-qualified options for 566,856 shares and qualified incentive
stock options for 124,500 shares have been granted under this plan. These
options were granted at prices that equaled the market value on the date
of grant and an option's maximum term is 10 years.
In 1992, the Outside Directors of the Company were awarded a one time grant
of non-qualified options for an aggregate 140,000 shares. These options
were granted at market value on the date of grant and expired five years
from date of grant.
A summary of the status of the Company's four stock option plans as of
December 31, 1997, 1996 and 1995, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year . . 866,418 $ 8.88 873,086 $ 7.84 955,420 $ 7.25
Granted . . . . . . . . . . . . . . 243,850 24.10 107,700 18.85 33,364 14.75
Exercised . . . . . . . . . . . . . (200,336) 7.54 (96,368) 5.84 (108,448) 4.98
Forfeited . . . . . . . . . . . . . (2,250) 18.81 (18,000) 19.00 (7,250) 13.94
--------- -------- -------- -------- --------- --------
Outstanding at end of year . . . . . 907,682 $ 13.42 866,418 $ 8.88 873,086 $ 7.84
Options exercisable at year-end . . 467,582 616,068 653,736
<FN>
The following table summarizes information about the Company's four stock option plans outstanding at
December 31, 1997:
</FN>
</TABLE>
<TABLE>
<CAPTION>
Range of Number Number
Exercise Outstanding at Exercisable at
Prices 12/31/97 12/31/97
- ------------------------------------------------------
<S> <C> <C>
$ 5.56 - 8.36 422,994 294,994
8.37 - 12.56 116,612 116,612
12.57 - 18.86 80,776 37,776
18.87 - 27.81 287,300 18,200
------- -------
907,682 467,582
</TABLE>
The Company accounts for its stock option plans under APB Opinion No. 25.
Accordingly, no compensation cost has been recognized in the statements of
income. Had compensation cost for these plans been determined consistent
with FASB Statement No. 123 "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Income:
As Reported . . . . . . . . . . . . $ 38,897 $ 32,276 $ 32,818
Pro Forma . . . . . . . . . . . . . $ 38,100 $ 32,066 $ 32,711
Earnings Per Share
As Reported . . . . . . . . . . . . $ 1.87 $ 1.57 $ 1.60
Pro Forma . . . . . . . . . . . . . $ 1.83 $ 1.56 $ 1.60
Earnings Per Share - Assuming Dilution
As Reported . . . . . . . . . . . . $ 1.83 $ 1.53 $ 1.57
Pro Forma . . . . . . . . . . . . . $ 1.79 $ 1.52 $ 1.57
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995, 1996 and 1997, respectively: risk-free
interest rates of 7.1%, 5.9% and 6.7% for the 1991 Plan options and 6.9%
and 5.5% in 1995 and 1996 for the 1987 Plan options; expected dividend
yield of 2.5% for all years; expected option lives of 7.0 for all years;
expected volatility of 31% in all three years.
<PAGE>13
(10) INCOME TAXES
<TABLE>
<CAPTION>
The provision for income taxes is summarized as follows:
(In Thousands of Dollars)
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal . . $ 9,748 $ 16,232 $ 17,499
State . . . 861 2,712 3,089
Foreign . . 1,111 649 501
-------- --------- ---------
11,720 19,593 21,089
Deferred . . 13,770 (54) (767)
-------- --------- ---------
$ 25,490 $ 19,539 $ 20,322
======== ======== =========
</TABLE>
A reconciliation of the statutory Federal income tax rate and the effective
rate reflected in the statements of income follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ ------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 1.9 3.4 3.8
Nondeductible goodwill
amortization 1.6 -- --
Other, net 1.1 (.7) (.6)
------ ----- -----
Effective tax rate 39.6% 37.7% 38.2%
====== ===== =====
</TABLE>
Deferred taxes arise primarily from differences in amounts reported for tax
and financial statement purposes. The Company's net deferred tax liability as
of December 31, 1997 of $18,585,000 is classified on the consolidated balance
sheet as a current income tax benefit of $13,141,000 and a long-term deferred
income tax liability of $31,726,000. The December 31, 1996 net deferred tax
liability was $855,000, consisting of a current income tax benefit of
$4,532,000 and a long-term deferred income tax liability of $5,387,000. The
components of this net deferred tax liability are as follows:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
December 31
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Operating loss carry forward . . . $ 774 $ 1,022
Inventory. . . . . . . . . . . . . 1,999 1,510
Accrued employee benefits. . . . . 4,428 1,724
Bad debt reserve . . . . . . . . . 959 334
Other . . . . . . . . . . . . . . 2,552 1,096
Deferred tax assets . . . . . . 10,712 5,686
Property related . . . . . . . . . (24,277) (6,012)
Inventory valuation reserve . . . (4,734)
Other . . . . . . . . . . . . . . (286) (529)
Deferred tax liabilities . . . (29,297) (6,541)
Net deferred tax liability . . . . $ (18,585) $ (855)
</TABLE>
(11) INDUSTRY SEGMENT INFORMATION
Pertinent data for each industry segment in which the Company operated for
the three years ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
--------------------------------------------------------------------------
Net Income From Identifiable Capital
Sales Operations Assets Expenditures Depreciation
--------- ----------- ------------ ------------ -------------
1997
<S> <C> <C> <C> <C> <C>
Mechanical Group . . . . . . . . . $ 285,174 $ 48,545 $ 158,639 $ 9,482 $ 10,670
Electrical Group (9 months results) 201,845 25,836 326,986(A) 6,594 4,983
--------- --------- ------------ -------- ---------
Total Regal-Beloit Corporation . . $ 487,019 $ 74,381 $ 485,625 $ 16,076 $ 15,653
========= ========= ============ ======== =========
1996 (B)
Total Regal-Beloit Corporation . . $ 281,508 $ 51,120 $ 196,996 $ 11,112 $ 10,553
========= ========= ============ ======== =========
1995 (B)
Total Regal-Beloit Corporation . . $ 295,891 $ 53,607 $ 175,480 $ 13,784 $ 10,149
========= ========= ============ ======== =========
<FN>
(A) Includes $151,358,000 of goodwill relating to the Marathon Electric acquisition.
(B) Prior to 1997, the Company's operations were all part of the Mechanical Group.
</FN>
</TABLE>
The Company's products manufactured and sold outside the United States were
4%, 7% and 6% of net sales in 1997, 1996 and 1995, respectively. Export
sales from U.S. operations were approximately 7% of net sales in 1997, 3%
in 1996 and 3% in 1995.
<PAGE>14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Regal-Beloit Corporation:
We have audited the accompanying consolidated balance sheets of
REGAL-BELOIT CORPORATION (a Wisconsin Corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
income, shareholders' investment and cash flows for each of the three years
in the period ended December 31, 1997. 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
Regal-Beloit Corporation and subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
-------------------
Milwaukee, Wisconsin, Arthur Andersen LLP
January 28, 1998
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The preceding financial statements of Regal-Beloit Corporation and related
footnotes were prepared by management which is responsible for their
integrity and objectivity. The statements have been prepared in conformity
with generally accepted accounting principles, which have been applied on
a consistent basis.
The system of internal controls of Regal-Beloit Corporation is designed
to assure that the books and records reflect the transactions of the Company
and that its established policies and procedures are carefully followed.
The internal control system is augmented by careful selection and training
of qualified employees, proper division of responsibilities, and the
development and dissemination of written policies and procedures.
Arthur Andersen LLP, whose audit report is shown on this page, is engaged
by the Board of Directors to audit the financial statements of Regal-Beloit
Corporation and issue reports thereon. Their audit is conducted in
accordance with generally accepted auditing standards which require obtaining
an understanding of the Company's systems and procedures and performing
tests and other procedures sufficient to provide reasonable assurance that
the financial statements are neither materially misleading nor contain
material errors.
The Audit Committee of the Board of Directors, which committee consists
entirely of outside directors, meets regularly with the independent public
accountants and management to review the scope and results of audits.
In addition, the Audit Committee meets with Arthur Andersen LLP, without
management representatives present, to discuss the results of their audit
including a discussion of internal accounting controls, financial reporting
and other audit matters.
James L. Packard Kenneth F. Kaplan
---------------- -----------------
James L. Packard Kenneth F. Kaplan
Chairman, President, Vice President, Chief Financial Officer
Chief Executive Officer and Secretary
<PAGE>15
DIVISIONS & SUBSIDIARIES REGAL-BELOIT CORPORATION
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
ELECTRICAL GROUP MECHANICAL GROUP------------------------------------------
Domestic Domestic International
- ------- -------- -------------
<S> <C> <C> <C>
- -Marathon Electric -Durst -Mastergear U.S.A. -Costruzioni
Wausau, WI Shopiere, WI South Beloit, IL Meccaniche
Legnanesi S.r.L.
- -Marathon Special -Electra-Gear -Ohio Gear/ Legnano, Italy
Products Anaheim, CA Richmond Gear
Bowling Green, OH Liberty, SC -Mastergear (GmbH)
Neu-Anspach,
-Foote-Jones/ -Regal Cutting Tools Germany
International Illinois Gear National Twist Drill
- -Marathon Electric Ltd. Chicago, IL New York Twist Drill -Opperman Mastergear,
Singapore, Republic of South Beloit, IL Ltd.
Singapore -Grove Gear Newbury, England
Union Grove, WI -Velvet Drive
- -Marathon Electric - Transmissions
U.K. -Hub City New Bedford, MA
Leicestershire, England Aberdeen, SD
</TABLE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
Corporate Headquarters
- ----------------------
Regal-Beloit Corporation
200 State Street, Beloit, WI 53511-6254
Phone: (608) 364-8800 Fax: (608) 364-8818
<TABLE>
<CAPTION>
Transfer Agent, Registrar and Dividend Disbursing Agent
- ------------------------------------------------------
First Class, Registered
& Certified Mail Overnight Courier
- ----------------------- ----------------
<S> <C>
BankBoston, NA Boston EquiServe
Boston EquiServe Blue Hills Office Park
P.O. Box 8040 150 Royall Street
Boston, MA 02266-8040 Canton, MA 02021
Phone: (781) 575-3400
Fax: (781) 575-2665
</TABLE>
Have you received your cash dividends?
- --------------------------------------
During 1997, four quarterly cash dividends were declared on Regal-Beloit
Corporation common stock. If you have not received all dividends to which
you are entitled, please write or call BankBoston at the address above.
Stock Listing
- -------------
Regal-Beloit stock was first traded publicly in 1969. The Corporation began
trading on the American Stock Exchange in 1976 under the symbol RBC.
Cash Dividends and Stock Splits
- -------------------------------
Regal-Beloit Corporation paid its first cash dividend in January, 1961.
Since that date, Regal-Beloit has paid 150 consecutive quarterly dividends
through January, 1998. The Company has raised cash dividends 33 times in the
37 years these dividends have been paid. The dividend has never been reduced.
The company has also declared and issued 15 stock splits/dividends since
inception.
Stock Purchases
- ---------------
A shareholder should make sure that newly purchased shares are registered
the same way each time they add to their holdings in order to prevent the
creation of duplicate accounts. Such accounts are not only an inconvenience
to the shareholder, but also increase your Company's administrative costs.
Notice of Annual Meeting
- ------------------------
The Annual Meeting of shareholders will be held at 10:30 a.m.,
C.D.T., on Tuesday, April 21, 1998, at the Corporate Offices,
200 State Street, Beloit, Wisconsin.
Form 10-K
- ---------
A copy of the report filed by the Company with the Securities and Exchange
Commission is available to shareholders upon request.
Please direct requests to:
Regal-Beloit Corporation
Attn: Investor Relations
200 State Street, Beloit, WI 53511-6254
Auditors
- --------
Arthur Andersen LLP, Milwaukee, Wisconsin.
Regal-Beloit Corporation is a Wisconsin Corporation listed on the American
Stock Exchange under the symbol RBC.
CHANGE OF CONTROL AGREEMENT
---------------------------
This Agreement is made this first day of January, 1997, by and between
Regal-Beloit Corporation, a Wisconsin corporation ("Regal-Beloit") and
("Executive").
RECITALS:
--------
Executive is a skilled and dedicated employee who has important management
responsibilities and talents. Regal-Beloit believes its best interests will
be served if Executive is encouraged to remain with Regal-Beloit.
Regal-Beloit has determined that Executive's ability to perform his
responsibilities and utilize his talents for the benefit of Regal-Beloit, as
well as Regal-Beloit s ability to retain Executive as an employee, will be
significantly enhanced if Executive is provided with fair and reasonable
protection from the risks of a change in ownership or control of Regal-Beloit.
Accordingly, Regal-Beloit and Executive agree as follows:
1 . Definitions.
-----------
When the following terms appear in this Agreement they shall have
the respective meanings set forth below, unless the context clearly
indicates to the contrary:
(a) "Base Salary" means the highest annual rate of Executive's
-----------
Base Salary in effect on either the date of the Change of Control or the
Termination Date, including any amounts by which the Base Salary was
reduced prior to the Change of Control at the request of the person or
entity acquiring control of Regal-Beloit or reasonably shown to be
related to the Change of Control.
(b) "Bonus" means the highest amount payable to Executive under
-----
Regal-Beloit s annual bonus plan in effect on either the date of the
Change of Control or the Termination Date, assuming the highest
performance targets are met for such bonus plan, including any amounts
by which the Executive's annual Bonus was reduced prior to the Change
of Control at the request of the person or entity acquiring control
of Regal-Beloit or reasonably shown to be related to the Change of
Control.
(c) "Cause" means either of the following:
-----
(i) Executive's willful malfeasance having a material adverse
effect on Regal-Beloit; or
(ii) Executive's conviction of a felony;
provided, that any action or refusal by Executive shall not
--------
constitute "Cause" if, in good faith, Executive believed such
action or refusal to be in, or not opposed to, the best interests
of Regal-Beloit, or if Executive shall be entitled, under
applicable law or under an applicable Certificate of Incorporation
<PAGE>1
or By-Laws, as they may be amended or restated from time to time,
to be indemnified with respect to such action or refusal.
(d) "Change of Control" means the first to occur of any of the
-----------------
following dates:
(i) the date the Regal-Beloit Board of Directors votes
to approve:
(A) any consolidation or merger of Regal-Beloit;
(B) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of Regal-Beloit other than
any sale, lease, exchange or other transfer to any corporation
where Regal-Beloit owns, directly or indirectly, at least
seventy percent (70%) of the outstanding voting securities of
such corporation after any such transfer; or
(C) any plan or proposal for the liquidation or
dissolution of Regal-Beloit;
(ii) the date any person (as such term is used in Section 13(d)
of the Securities Exchange Act of 1934, hereinafter the "1934 Act"),
other than one or more trusts established by Regal-Beloit for the
benefit of employees of Regal-Beloit or its subsidiaries, shall
become the beneficial owner (within the meaning of Rule 13d-3
under the 1934 Act) of thirty percent (30%) or more of outstanding
Common Stock;
(iii) the date the Board of Directors of Regal-Beloit authorizes
and approves any transaction which has either a reasonable
likelihood or a purpose of causing, whether directly or indirectly:
(A) Common Stock to be held of record by less than 300
persons; or
(B) Common Stock to be neither listed on any national
securities exchange nor authorized to be quoted on an
inter-dealer quotation system of any registered national
securities association;
(iv) the date, during any period of twenty-four (24)
consecutive months, on which individuals who at the beginning of
such period constitute the entire Board of Directors of
Regal-Beloit shall cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by Regal-
Beloit stockholders, of each new Director comprising the majority
was approved by a vote of at least a majority of the Continuing
Directors as hereinafter defined, in office on the date of such
election or nomination for election of the new Director. For
purposes hereof, a "Continuing Director" shall mean:
<PAGE>2
(A) any member of the Board of Directors of Regal-Beloit
at the close of business on December 31, 1996;
(B) any member of the Board of Directors of Regal-Beloit
who succeeds any Continuing Director described in subparagraph
(A) above if such successor was elected, or nominated for
election by Regal-Beloit stockholders, by a majority of the
Continuing Directors then still in office; or
(C) any Director elected, or nominated for election by
Regal-Beloit stockholders, to fill any vacancy or newly
created directorship on the Board of Directors of Regal-Beloit
by a majority of the Continuing Directors then still in
office; or
(v) the date of commencement by any entity, person, or group
(including any affiliate thereof, other than Regal-Beloit) of a
tender offer or exchange offer for more than twenty percent (20%)
of the outstanding Common Stock.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
----
(f) "Common Stock" means the $0.01 par value Common Stock of Regal-
------------
Beloit.
(g) "Confidential Information" means non-public information
------------------------
relating to the business plans, marketing plans, customers or employees
of Regal-Beloit other than information the disclosure of which cannot
reasonably be expected to adversely affect the business of Regal-Beloit.
(h) "Regal-Beloit" means Regal-Beloit Corporation, a Wisconsin
------------
corporation, and any successor or successors thereto.
(i) "Fringe Benefits" means the fair market value of the highest
---------------
level of Fringe Benefits payable to Executive by Regal-Beloit on either
the date of the Change of Control or the Termination Date, including any
amounts by which the Executive's Fringe Benefits were reduced prior to
the Change of Control at the request of the person or entity acquiring
control of Regal-Beloit or reasonably shown to be related to the Change
of Control. For these purposes, "Fringe Benefits" include, but are not
limited to club dues or automobile reimbursement and do not include
welfare benefits, such as medical coverage (including prescription drug
coverage), dental coverage, life insurance, disability insurance and
accidental death and dismemberment benefits.
(j) "Good Reason" means any of the following actions, without
-----------
Executive's express prior written approval, other than due to
Executive's Permanent Disability or death:
(i) any diminution in Executive's titles, duties,
responsibilities, status or reporting relationship from the positions,
duties, responsibilities, status or reporting relationship existing
immediately prior to a Change of Control;
<PAGE>3
(ii) the removal of Executive from, or any failure to re-elect
Executive to, any of the positions Executive holds immediately prior
to a Change of Control;
(iii) the failure of Regal-Beloit to pay Executive's Base
Salary or Bonus when due;
(iv) any reduction of Executive's Base Salary, or Bonus, or
any reduction in the aggregate amount of Fringe Benefits provided to
Executive;
(v) the change of Executive's principal place of employment
to a location more than fifty (50) miles from Executive's principal
place of employment immediately prior to the Change of Control; or
(vi) any breach by Regal-Beloit of any provision of this
Agreement;
(vii) the failure of Regal-Beloit to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated by Section 12 hereof; or
(viii) any purported termination of Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 2(i) hereof (and, if applicable, the
requirements of Section 13 hereof); for purposes of this Agreement,
no such purported termination shall be effective, provided, however,
--------
that if any of the actions described in subparagraphs (i) through
(viii) above occur prior to a Change of Control at the request of
any individual or entity acquiring ownership or control of
Regal-Beloit, or is reasonably shown to be related to a prospective
Change of Control, and if such actions occur without Executive's
express prior written approval, other than due to Executive's
Permanent Disability or death, then the existence of such actions
shall also constitute "Good Reason."
(k) "Permanent Disability" means Executive's inability, by reason
--------------------
of any physical or mental impairment, to substantially perform the
significant aspects of his regular duties which inability is reasonably
contemplated to continue for at least one (1) year from its inception.
2. Change of Control Benefits.
--------------------------
If Executive's employment with Regal-Beloit is terminated at any
time within the three (3) years following a Change of Control of Regal-
Beloit without Cause, or by Executive for Good Reason (the Effective
Date of either such termination hereafter referred to as the "Termination
Date"), Executive shall be entitled to the benefits provided hereafter
in this Section 2 and as set forth in this Agreement. If Executive's
employment with Regal-Beloit is terminated by Regal-Beloit without
Cause prior to a Change of Control at the request of any individual
or entity acquiring ownership or control of Regal-Beloit, or is
reasonably shown to be related to a prospective Change of Control, or
by Executive for Good Reason, or if the person or entity acquiring
control fails to assume Regal-Beloit's liabilities to Executive under
<PAGE>4
this Agreement, the Executive's Termination Date shall be deemed to have
occurred immediately upon the Executive's effective date of termination
(in the case of a termination of employment at the request of the
acquirer), or immediately following the Change of Control (in the case
of the acquirer's failure to assume Regal-Beloit s liabilities under this
Agreement), and therefore Executive shall be entitled to the benefits
provided hereafter in this Section 2 and as set forth in this Agreement.
(a) Severance Benefits. Within fifteen (15) business days after the
------------------
Termination Date, Regal-Beloit shall pay Executive a lump sum amount,
in cash, equal to two (2) times the sum of:
(i) Executive's Base Salary, as defined in Section 1(a);
(ii) Executive's Annual Bonus, as defined in Section 1(b); and
(iii) Executive's Fringe Benefits, as defined in Section 1(i).
(b) Welfare Benefits.
----------------
(i) Regal-Beloit shall, until the third anniversary of the
Termination Date, and at its expense, provide Executive with medical
(including prescription drug coverage), dental, life insurance,
disability insurance, accidental death and dismemberment benefits at the
highest level provided to Executive, his dependents and beneficiaries,
either on the date of a Change of Control or the Termination Date,
including any coverage or benefits that were reduced prior to the
Change of Control at the request of the person or entity acquiring
control of Regal-Beloit or reasonably shown to be related to the
Change of Control ("Welfare Benefits"). During the period that Regal-
Beloit is providing Executive, his dependents and beneficiaries, with
these Welfare Benefits, Executive shall be entitled to elect such
changes and take such actions the same as a similarly situated active
employee.
(ii) If the Executive becomes re-employed with another employer
which provides Welfare Benefits described herein, at least equal to those
provided under Regal-Beloit s plans or programs, such Welfare Benefits
provided by Regal-Beloit shall terminate. To the extent that such
Welfare Benefits are not equal to such Welfare Benefits provided by
Regal-Beloit, Regal-Beloit shall reimburse the Executive for the
difference in a cash payment within 30 days of written notification and
documentation by the Executive or provide that such Welfare Benefits
described herein shall be secondary to those provided under such other
employer's plan during the applicable period of eligibility.
(c) Payment of Accrued but Unpaid Amounts. Within fifteen (15)
-------------------------------------
business days after the Termination Date, Regal-Beloit shall pay
Executive (i) any unpaid portion of Executive's Bonus accrued with
respect to the full fiscal year ended prior to the Termination Date;
and (ii) all compensation previously deferred by Executive but not
yet paid.
(d) Post-Retirement Welfare Benefits. On the Termination Date, for
--------------------------------
purposes of determining Executive's eligibility for post-retirement
benefits under any welfare benefit plan (as defined in Section 3(l) of
<PAGE>5
the Employee Retirement Income Security Act of 1974, as amended)
maintained by Regal-Beloit immediately prior to the Change of Control
and in which Executive participated, immediately prior to the Change of
Control (or, with respect to an Executive who is terminated prior to a
Change of Control, the Termination Date), Executive shall be credited
with the excess of three (3) years of participation in the applicable
medical plan and three (3) years of age over the actual years and
fractional years of participation and age credited to Executive as of
the Change of Control (or Termination Date, as the case may be). If,
after taking into account such participation and age, Executive would
have been eligible to receive such post-retirement benefits had
Executive retired immediately prior to the Change of Control (or
Termination Date, as the case may be), Executive shall receive,
commencing on the Termination Date, post-retirement benefits based on
the terms and conditions of the applicable plans in effect immediately
prior to the Change of Control (or Termination Date, as the case may be).
(e) Retirement Benefits. For purposes of determining the
-------------------
Executive's retirement benefits under the various Regal-Beloit
retirement benefit plans, Executive shall be deemed to be an active
employee receiving his Base Salary and shall accordingly continue to
earn service and accrue benefits under such plans for an additional
period of three (3) years following the Termination Date.
(f) Stock Options. Upon a Change of Control (or Termination Date,
-------------
as the case may be), all stock options under any and all grants are to
become immediately available to Executive, whether or not vested.
Executive shall be given a period of four (4) months after ceasing to be
an employee and prior to the final expiration of such Grants in which to
exercise options, or an additional period of time as determined at the
discretion of the Regal-Beloit Board of Directors.
In the alternative, the Board of Directors may elect to pay
Executive the difference between the option price per share of the grant
and the closing price on the date of exercise as reported by the
American Stock Exchange in a lump sum of cash within five (5) business
days after the Termination date.
(g) Effect on Existing Plans. All Change of Control provisions
------------------------
applicable to Executive and contained in any plan, program, agreement or
arrangement maintained on the Effective Date (or thereafter) by Regal-
Beloit (including, but not limited to, any stock option, restricted
stock or pension plan) shall remain in effect through the date of a
Change of Control, and for such period thereafter as is necessary to
carry out such provisions and provide the benefits payable thereunder,
and may not be altered in a manner which adversely affects Executive
without Executive's prior written approval.
(h) Cessation of Benefits. Notwithstanding the foregoing, no
---------------------
service of the Executive for Regal-Beloit after age sixty-five (65) shall
be taken into account for purposes of determining the Executive's
benefits under this Agreement.
(i) Notice of Termination. Any purported termination of Executive's
---------------------
employment by Regal-Beloit or by Executive shall be communicated by
<PAGE>6
written Notice of Termination to the other party hereto in accordance
with Section 13 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated.
3. Gross-Up Payment.
----------------
(a) In the event it shall be determined that any Payment, benefit or
distribution (or combination thereof) by Regal-Beloit or one or more
trusts established by Regal-Beloit for the benefit of its employees, to
or for the benefit of Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement, or otherwise)
(a "Payment") would be subject to the Excise Tax imposed by Section 4999
of the Code, or any interest or penalties are incurred by Executive with
respect to such Excise Tax (such Excise Tax, together with any such
interest and penalties, hereinafter collectively referred to as the
"Excise Tax"), Executive shall be entitled to receive an additional
Payment (a "Gross-Up Payment") in an amount such that, after Payment by
Executive of all taxes (including any interest or penalties imposed
with respect to such taxes), including, without limitation, any income
taxes and Excise Taxes (and any interest and penalties imposed with
respect thereto) imposed upon the Gross-Up Payment itself, Executive
retains an amount of such additional Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 3(c), all determinations
required to be made under this Section 3, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall
be made by Arthur Andersen LLP or such other nationally recognized
certified public Accounting Firm as may be designated by Executive (the
"Accounting Firm") which shall provide detailed supporting calculations
both to Regal-Beloit and Executive within fifteen (15) business days of
the receipt of notice from Executive that there has been a Payment, or
such earlier time as requested by Regal-Beloit. In the event that the
Accounting Firm is serving as accountant or auditor for an individual,
entity or group effecting the change in ownership or effective control
(within the meaning of Section 280G of the Code), Executive shall appoint
another nationally recognized Accounting Firm to make the determinations
required hereunder (which Accounting Firm shall then be referred to as
the "Accounting Firm" hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by Regal-Beloit. Any Gross-Up
Payment, as determined pursuant to this Section 3, shall be paid by
Regal-Beloit to Executive within five (5) days after the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by Executive, it shall so indicate to Executive
in writing. Any determination by the Accounting Firm shall be binding
upon Regal-Beloit and Executive.
(c) For purposes of determining whether any of the Payments will
be subject to the Excise Tax and the amount of such Excise Tax: (i) any
Payments or benefits received or to be received by Executive pursuant to
the terms of this Agreement shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) shall be
<PAGE>7
treated as subject to the Excise Tax, unless in the opinion of tax counsel
selected by Regal-Beloit's independent auditors and acceptable to
Executive such other Payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of
the base amount within the meaning of Section 280G(b)(3) of the Code, or
are otherwise not subject to the Excise Tax; (ii) the amount of the
Payments which shall be treated as subject to the Excise Tax shall be
equal to the lesser of: (1) the total amount of the Payments; or (2) the
amount of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (i), above); and (iii) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by Regal-Beloit's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed
to pay Federal income taxes at the highest marginal rate of Federal income
taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation
in the state and locality of Executive's residence on the Termination
Date, net of the maximum reduction in Federal income taxes which could
be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination
of Executive's employment, Executive shall repay to Regal-Beloit at the
time that the amount of such reduction in Excise Tax is finally determined
the portion of the Gross-Up Payment attributable to such reduction (plus
the portion of the Gross-Up Payment attributable to the Excise Tax and
Federal and state and local income tax imposed on the Gross-Up Payment
being repaid by Executive if such repayment results in a reduction in
Excise Tax and/or a Federal and state and local income tax deduction)
plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the
time of the termination of Executive's employment (including by reason
of any Payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), Regal-Beloit shall make an additional
Gross-Up Payment in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such excess
is finally determined.
(d) Executive shall notify Regal-Beloit in writing of any claim by
the Internal Revenue Service that, if successful, would require the
Payment by Regal-Beloit of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten (10) business
days after Executive is informed in writing of such claim and shall
apprise Regal-Beloit of the nature of such claim and the date on which
such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the thirty (30) day period following the date
on which it gives such notice to Regal-Beloit (or such shorter period
ending on the date that any Payment of taxes with respect to such claim
is due). If Regal-Beloit notifies Executive in writing prior to the
expiration of such period that it desires to contest such claim,
Executive shall:
<PAGE>8
(i) give Regal-Beloit any information reasonably requested by
Regal-Beloit relating to such claim;
(ii) take such action in connection with contesting such claim
as Regal-Beloit shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
Regal-Beloit;
(iii) cooperate with Regal-Beloit in good faith in order to
effectively contest such claim; and
(iv) permit Regal-Beloit to participate in any proceedings
relating to such claim; provided, however, that Regal-Beloit shall
bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest
and shall indemnify and hold Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 3(d),
Regal-Beloit shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forego any and
all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and
Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as Regal-Beloit
shall determine; provided, however, that if Regal-Beloit directs
--------
Executive to pay such claim and sue for a refund, Regal-Beloit shall
advance the amount of such Payment to Executive, on an interest-free
basis, and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to
such advance; and provided further, that if Executive is required
--------
to extend the statute of limitations to enable Regal-Beloit to
contest such claim, Executive may limit this extension solely to
such contested amount. Regal-Beloit s control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(e) If, after the receipt by Executive of an amount advanced by
Regal-Beloit pursuant to Section 3(d), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall (subject
to Regal-Beloit complying with the requirements of Section 3(d)) promptly
pay to Regal-Beloit the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the
receipt by Executive of an amount advanced by Regal-Beloit pursuant to
Section 3(d), a determination is made that Executive shall not be entitled
to any refund with respect to such claim and Regal-Beloit does not notify
Executive in writing of its intent to contest such denial of refund
<PAGE>9
prior to the expiration of thirty (30) days after such determination,
then such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
4. Indemnification: Director's and Officer's Liability Insurance.
--------------------------------------------------------------
Executive shall, after the Termination Date, retain all rights to
indemnification under applicable law or under Regal-Beloit's Certificate
of Incorporation or By-Laws, as they may be amended or restated from time
to time, to the extent any such amendment or restatement expands the
Executive's rights to indemnification. In addition, Regal-Beloit shall
maintain Director's and Officer's liability insurance on behalf of
Executive, provided Executive is eligible to be covered and has in fact
been covered by such insurance, at the highest level in effect
immediately prior to either the Date of a Change of Control or the
Termination Date, including any such insurance that was reduced prior
to a Change of Control at the request of the person or entity acquiring
control of Regal-Beloit or reasonably shown to be related to the Change of
Control, for the seven (7) year period following the Termination Date.
5. Termination for Cause.
---------------------
Nothing in this Agreement shall be construed to prevent Regal-Beloit
from terminating Executive's employment for Cause. If Executive is
terminated for Cause, Regal-Beloit shall have no obligation to make any
Payments under this Agreement, except for Payments that may otherwise be
payable under then existing employee benefit plans, programs and
arrangements of Regal-Beloit.
6. Mitigation.
----------
Executive shall not be required to mitigate damages or the amount of
any Payment provided for under this Agreement by seeking other employment
or otherwise, and compensation earned from such employment or otherwise
shall not reduce the amounts otherwise payable under this Agreement.
Except as provided in Section 10, no amounts payable under this Agreement
shall be subject to reduction or offset in respect of any claims which
Regal-Beloit (or any other person or entity) may have against Executive.
7. Restrictive Covenants.
---------------------
(a) Confidential Information. During the two (2) year period
------------------------
following the Termination Date, Executive shall not disclose to any
person, or use to the significant disadvantage of Regal-Beloit any
Confidential Information; provided that nothing contained in this
--------
Section 7 shall prevent Executive from being employed by a competitor of
Regal-Beloit or utilizing Executive's general skills, experience, and
knowledge, including those developed while employed by Regal-Beloit.
(b) Release. In consideration for the protection and benefits
-------
provided for under this Agreement, Executive hereby agrees to execute a
Release substantially in the form of Schedule A.
<PAGE>10
8. Disputes.
--------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Chicago,
Illinois, or, at the option of Executive, in the county where Executive
then resides, in accordance with the Rules of the American Arbitration
Association then in effect, except that if Executive institutes an action
relating to this Agreement, Executive may, at Executive's option, bring
that action in a court of competent jurisdiction. Judgment may be entered
on an arbitrator's award relating to this Agreement in any court having
jurisdiction. Notwithstanding the pendency of any dispute in connection
with this Agreement, Regal-Beloit will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was
given and continue Executive as a participant in all compensation,
benefit and insurance plans in which Executive was participating when
the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 8. Amounts paid under
this Section 8 are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts
due under this Agreement.
9. Costs of Proceedings.
--------------------
Regal-Beloit shall pay all costs and expenses, including attorneys'
fees and disbursements, at least monthly, of Executive in connection with
any legal proceeding (including arbitration), whether or not instituted
by Regal-Beloit or Executive, relating to the interpretation or
enforcement of any provision of this Agreement, except that if Executive
instituted the proceeding and the judge, arbitrator or other individual
presiding over the proceeding affirmatively finds the Executive
instituted the proceeding in bad faith, Executive shall pay all costs
and expenses, including attorney's fees and disbursements, of Regal-
Beloit. Regal-Beloit shall pay pre-judgment interest on any money
judgment obtained by Executive as a result of such a proceeding,
calculated at the rate which Bank of America announces from time to time
as its prime lending rate as in effect from time to time, from the date
that Payment should have been made to Executive under this Agreement.
10. Withholding.
-----------
Notwithstanding the provisions of Sections 3 and 6 hereof, Regal-
Beloit may, to the extent required by law, withhold applicable Federal,
state and local income and other taxes from any payments due to Executive
hereunder.
11. Beneficiary Designation.
-----------------------
In the event of the Executive's death prior to his receipt of all
payments and benefits due to him under this Agreement, all such amounts
shall be paid to his designated beneficiary, as set forth on the form
attached hereto as Schedule B.
<PAGE>11
12. Assignment; Successors.
----------------------
Except as otherwise provided herein, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by Regal-Beloit and
Executive and their respective heirs, personal or legal representatives,
executors, administrators, successors, assigns, distributees, devisees
and legatees. If Executive should die while any amount would still be
payable to Executive hereunder had Executive continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee or other
designee or, if there is no such designee, to Executive's estate. If
Regal-Beloit shall be merged into or consolidated with another entity,
the provisions of this Agreement shall be binding upon and inure to the
benefit of the entity surviving such merger or resulting from such
consolidation. Regal-Beloit will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of Regal-Beloit by agreement
in form and substance satisfactory to Executive, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that Regal-Beloit would be required to perform it if no such succession
had taken place. The provisions of this Section 12 shall continue to
apply to each subsequent employer of Executive hereunder in the event of
any subsequent merger, consolidation or transfer of assets of such
subsequent employer.
13. Notices.
-------
Any notice to be provided under the terms of this Agreement shall
be in writing and shall be sufficient if delivered in person or sent by
registered or certified mail, return receipt requested, addressed as
follows:
If to the Executive:
If to the Company: Regal-Beloit Corporation
200 State Street
Beloit, WI 53511-6254
Attn: Secretary
or to such other place as either party may specify in writing, delivered
in accordance with the provisions of this Section.
14. Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance
with the laws of the State of Wisconsin applicable to contracts made and
to be performed therein.
<PAGE>12
15. Effective Date; Term.
--------------------
(a) This Agreement shall be effective as of January 1, 1997,
(the "Effective Date") and shall remain in effect thereafter
until January 1, 2000 (the "Change of Control Period").
(b) Provided, however, that commencing on the date one year after
the Effective Date hereof, and on each annual anniversary of such date
(such date and each annual anniversary thereof hereinafter to be referred
to as the "Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal
Date, unless at least 60 days prior to the Renewal Date, the Company
shall give notice to the Executive that the Change of Control Period
shall not be so extended, or unless previously terminated.
Notwithstanding the foregoing, this Agreement shall, if in effect on the
date of a Change of Control, remain in effect for at least three (3) years
following such Change of Control, and such additional time as may be
necessary to give effect to the terms of the Agreement.
16. Amendment.
---------
This Agreement may be changed only by a written agreement executed
by Regal-Beloit and Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
REGAL-BELOIT CORPORATION
By: ______________________________________
Its: Director
_____________________________________
<PAGE>13
Schedule A
----------
CHANGE OF CONTROL AGREEMENT
---------------------------
RELEASE
-------
For and in consideration of the Payment of such amounts and benefits as
are set forth in the Change of Control Agreement dated January 1, 1997, by
and between _________________and Regal-Beloit Corporation ("Regal-Beloit"),
Executive, together with his heirs, beneficiaries, personal or legal
representatives, executors, administrators, successors, assigns, distributees,
devisees and legatees, hereby waives, releases, and discharges Regal-Beloit
and the present, future, or former employees, agents, Officers, Directors,
successors, assigns and affiliated entities of Regal-Beloit, (herein referred
to collectively as the "Released Parties"), with respect to any and all causes
of action, potential causes of action, suits, disputes, liabilities, claims in
law and equity, rights, damages, demands, personal injuries, and attorney's
fees and costs by reason of any matter, cost, or thing whatsoever against and
as to Regal-Beloit, which in any way results from, arises out of or pertains to
Executive's employment, termination of employment, benefits, awards, insurance
coverage, hiring, wages, or any other terms and conditions of employment at
Regal-Beloit, or any other events which are unknown, fixed or contingent, and
by reason of any matter, cause, thing, charge, claim, right or action
whatsoever, against and as to Regal-Beloit and/or any of the other Released
Parties, and which are in any way related to any violation of any provision of
Federal and state statutory or common law or regulation, including claims
arising under any Federal, state, or local laws prohibiting employment
discrimination on any basis or claims arising out of any legal restrictions
on Regal-Beloit's rights to terminate its employees, any contract claim for
the alleged breach of any implied, express, or other type of employment
contract, wrongful abusive or retaliatory discharge, and any tort claim,
including, but not limited to, fraud, misrepresentation, deceit, defamation,
slander, libel, interference with employment relations, intentional or
negligent infliction of emotional distress, breach of any fiduciary duties,
or any other tort-type causes of action.
This Release applies to any relief or benefit sought by the Executive,
no matter how denominated, including, but not limited to, claims for
compensation for any physical or mental injury, pain and suffering,
reinstatement, back pay, front pay, pre-judgment interest, compensatory
damages, punitive damages, insurance coverage, benefits, premiums, medical
expenses, or attorneys' fees and costs.
In addition, Executive together with his heirs, beneficiaries, personal
or legal representatives, executors, administrators, successors, distributees,
devisees and legatees, agrees and covenants not to file a lawsuit or
administrative complaint to assert any claim with respect to his employment
with Regal-Beloit, the Payment of wages to him by Regal-Beloit, or the
cessation of his employment with Regal-Beloit which occurred prior to the
execution of this Release. Any such lawsuit or administrative complaint
filed in violation of this Release shall automatically constitute a breach of
this Release. If any government agency or court assumes jurisdiction of any
charge, complaint, cause of action or claim covered by this Release against
Regal-Beloit or any of the Released Parties, on behalf of or related to
Executive, Executive agrees and covenants he will withdraw from and/or
<PAGE>14
dismiss the matter with prejudice. Executive agrees he will not participate
or cooperate in such matter(s) except as required by law.
Executive understands and acknowledges that he has expressly waived all
his rights under this Release. Executive further acknowledges that he
understands the legal effect of this Release, and that, to the extent he has
deemed necessary, he has consulted with his attorney or other counsel
regarding the legal effect of this Release.
Executive represents and warrants to Regal-Beloit that he has the full
power, capacity, and authority to enter into this Release, and that no portion
of any claim, right, demand, action, or cause of action that Executive has,
or might have had arising out of the acts, events, transactions, and
occurrences referred to herein has been assigned, transferred, or conveyed
to any person not a party to this Release, by way of subrogation, operation
of law, or otherwise, and that no releases or settlement agreements are
necessary or need to be obtained from any other person or entity to release
and discharge completely any of the claims of Executive released in this
Release.
IN WITNESS WHEREOF, Executive has signed this instrument this 1st day of
January, 1997.
________________________________________
<PAGE>15
Schedule B
----------
CHANGE OF CONTROL AGREEMENT
---------------------------
BENEFICIARY DESIGNATION FORM
----------------------------
TO: Regal-Beloit Corporation
FROM:
DATE: January 1, 1997
In the event of my death prior to my receipt of all payments and benefits
due me under the Change of Control Agreement dated January 1, 1997, 1 hereby
designate the person or persons named below who are living at the time of my
death to receive all amounts and benefits due me under the terms of such
Agreement as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Social
Security Percentage
Name Address Number Relationship of Total
1. ---------- --------------- ------------ ------------ ----------
2. ---------- --------------- ------------ ------------ ----------
3. ---------- --------------- ------------ ------------ ----------
4. ---------- --------------- ------------ ------------ ----------
Total: 100%
</TABLE>
<PAGE>16
I hereby revoke all prior Beneficiary Designations made previously and
expressly reserve the right to change or revoke this Beneficiary Designation,
but understand that no such change or revocation shall be effective unless
it is signed by me and filed with Regal-Beloit Corporation.
Signature: _______________________________
Accepted by Regal-Beloit Corporation
By: __________________________________________ __________________________
Date
<PAGE>17
