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