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 September 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. 20,631,993 Shares, Common Stock, $.01 Par Value
REGAL-BELOIT CORPORATION FORM 10-Q For Quarter Ended September 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 6 - Reports on Form 8-K Signatures
PART I FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> <CAPTION> REGAL-BELOIT CORPORATION CONDENSED BALANCE SHEET ASSETS <C> <C> <C> (From Audited (Unaudited) Statements) Sep. 30, 1996 Dec. 31, 1995 ------------- ------------- Current Assets: Cash and cash equivalents.......................... $ 28,180,000 $ 7,458,000 Receivables, less reserves of $1,151,000 in 1996 and $1,140,000 in 1995........................... 37,212,000 41,172,000 Inventories........................................ 47,060,000 49,263,000 Other current assets............................... 4,654,000 4,508,000 Total Current Assets............................ 117,106,000 102,401,000 Plant and Equipment at Cost........................... 138,239,000 130,893,000 Less - accumulated depreciation.................. (65,781,000) (58,201,000) 72,458,000 72,692,000 Other Noncurrent Assets............................... 359,000 387,000 $189,923,000 $175,480,000 LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Accounts payable................................. $ 9,437,000 $ 10,874,000 Federal and state income taxes................... 772,000 1,333,000 Other current liabilities........................ 18,561,000 19,817,000 Total Current Liabilities.................... 28,770,000 32,024,000 Long-term Debt........................................ 2,669,000 2,884,000 Deferred Income Taxes................................. 4,614,000 4,699,000 Shareholders' Investment: Common stock, $.01 par value, 50,000,000 shares authorized, 20,631,993 issued in 1996 and 20,553,968 issued in 1995..................... 206,000 206,000 Additional paid-in capital....................... 37,591,000 37,133,000 Retained earnings................................ 116,541,000 99,079,000 Cumulative Translation Adjustment................ (468,000) (545,000) 153,870,000 135,873,000 $189,923,000 $175,480,000 <FN> See accompanying notes. </FN> </TABLE>
<TABLE> <CAPTION> REGAL-BELOIT CORPORATION STATEMENT OF INCOME (Unaudited) ------------------------------------------------------ Three Months Ended Nine Months Ended September 30, September 30, -------------------------- -------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net Sales.......................... $ 68,149,000 $ 71,551,000 $215,085,000 $222,156,000 Cost of Sales...................... 48,391,000 49,859,000 151,135,000 157,087,000 Gross Profit..................... 19,758,000 21,692,000 63,950,000 65,069,000 Operating Expenses................. 8,010,000 7,853,000 24,295,000 24,993,000 Income from Operations........... 11,748,000 13,839,000 39,655,000 40,076,000 Interest Expense................... 109,000 133,000 300,000 672,000 Interest Income.................... 316,000 93,000 628,000 172,000 Income Before Taxes.............. 11,955,000 13,799,000 39,983,000 39,576,000 Provision for Income Taxes......... 4,543,000 5,366,000 15,097,000 15,387,000 Net Income..................... $ 7,412,000 $ 8,433,000 $ 24,886,000 $ 24,189,000 Per Share of Common Stock: Net Income....................... $.36 $.41 $1.21 $1.18 Cash Dividends Declared.......... $.12 $.10 $.36 $.29 Weighted Average Number of Shares Outstanding............... 20,631,363 20,522,194 20,610,961 20,499,380 <FN> See accompanying notes. </FN>
</TABLE> <TABLE> <CAPTION> REGAL-BELOIT CORPORATION CONDENSED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended Sept. 30, --------------------------- 1996 1995 ------------ ------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net Income.............................................. $ 24,886,000 $ 24,189,000 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation, amortization and deferred income taxes.. 8,188,000 8,268,000 Change in assets and liabilities: Current assets, other than cash...................... 6,188,000 (9,333,000) Current liabilities, other than notes payable........ ( 1,802,000) 7,508,000 Net cash provided from operating activities....... 37,460,000 30,632,000 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to plant and equipment, net of retirements.... ( 8,044,000) (6,100,000) Other, net.............................................. ( 434,000) 244,000 Net cash used in investing activities................ ( 8,478,000) (5,856,000) CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of short-term debt............................ 0 (10,209,000) Reduction of long-term debt............................. ( 1,720,000) (12,136,000) Dividends to shareholders............................... ( 7,004,000) ( 5,532,000) Other, net.............................................. 458,000 395,000 Net cash used in financing activities................ ( 8,266,000) (27,482,000) EFFECT OF EXCHANGE RATE ON CASH............................ 6,000 12,000 Net increase (decrease) in cash and cash equivalents.... 20,722,000 ( 2,694,000) Cash and cash equivalents at beginning of period........ 7,458,000 13,378,000 Cash and cash equivalents at end of period.............. $ 28,180,000 $10,684,000 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during year for: Interest............................................. $ 236,000 $ 662,000 Income Taxes......................................... $ 15,428,000 $14,940,000 <FN> See accompanying notes. </FN> </TABLE>
REGAL-BELOIT CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTMEBER 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: 9-30 12-31 1996 1995 ---- ----- Raw Material 15% 17% Work-in-Process 22% 21% Finished Goods 63% 62% 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 September 30, 1996 were $68,149,000, or 4.8% lower than sales of $71,551,000 reported in the comparable third quarter of 1995 and 5.1% lower than in the recent second quarter of 1996. Net sales for the nine months of 1996 were $215,085,000, or 3.2% lower than sales of $222,156,000 for the same period in 1995. The Company continued to experience a broad based slowdown in most of its industrial markets throughout the third quarter of 1996. This follows the general decline in these markets which began in the second quarter of this year. Distributors have continued to work down their inventories and are very cautious about ordering only what is needed to meet their customer needs. Sales to original equipment manufacturers are also down as these customers have shortened their lead time requirements based upon receipt of only firm quantities from their customers. In addition, our traditional industrial distributor customers created some modest slowness for the Company as these customers frequently close for vacation in the third quarter. Gross profit margins declined very modestly from 30.4% in the second quarter of 1996 to 29.0% in the third quarter of 1996, driven by the lower sales volumes. The comparable percentage a year ago was 30.3%. Ongoing productivity projects along with good control over costs have minimized this decline. Operating expenses, on an absolute basis, were $8,010,000 for the quarter, or 11.8% of sales. This compares to $7,853,000, or 11.0% of sales for the same period a year ago. Operating expenses have continued to decline in 1996 despite the basically fixed nature of these expenses, reflecting good control exercised over these costs. The resulting income from operations of 17.2% in the third quarter of 1996 was correspondingly down from the 19.3% in the same quarter in 1995 and 19.2% recorded in the second quarter of 1996. Interest expense of $109,000 in the third quarter of 1996 was minimal based upon the continued scheduled retirement of the Company's very low debt. Interest income of $316,000 in the third quarter of 1996 continued to increase as cash balances increased, driven by very strong cash flows from operations.
Net income for the third quarter of 1996 was $7,412,000, or 12.1% lower than the net income of $8,433,000 reported in the third quarter of 1995. It is important to point out, however, that net income as a percentage of net sales was 10.9% for the third quarter of 1996. Net income for the first nine months of 1996 was $24,886,000, up 2.9% over 1995 net income of $24,189,000, and was 11.6% of net sales in 1996 versus 10.9% in the first nine months of 1995. Liquidity and Capital Resources - ------------------------------- Working capital continued to increase to $88,336,000 as of September 30, 1996 compared to $70,377,000 as of December 31, 1995. The current ratio has increased to 4.1:1 at September 30, 1996 compared to 3.2:1 at December 31, 1995. Cash and cash equivalents were $28,180,000 at September 30, 1996, up $5,023,000 from the June 30, 1996 balance of $23,157,000. The overall financial position of the Company is excellent as evidenced by the sizable cash and cash equivalents, the strong current ratio, and low long-term debt of $2,669,000 at the end of the third quarter. Through September 30, 1996, expenditures of $8,044,000 were made on needed capital equipment upgrades and replacements. The Company feels that additional internally generated growth can be adequately financed by cash generated from operations and from its short-term credit facilities.
PART II OTHER INFORMATION 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 August 12, 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. REGAL-BELOIT CORPORATION (Registrant) Kenneth F. Kaplan -------------------------------------- Kenneth F. Kaplan Vice President, Chief Financial Officer DATE: November 1, 1996