-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DGTcnw1j2J0FQjzzBOja919EUzbZU6escUeVKZQqGGlcyObUIAoxMETUWwszci5i 8mGTDV5a9vkzskULq+clrA== 0000082811-97-000010.txt : 19970610 0000082811-97-000010.hdr.sgml : 19970610 ACCESSION NUMBER: 0000082811-97-000010 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970326 ITEM INFORMATION: Acquisition or disposition of assets FILED AS OF DATE: 19970609 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGAL BELOIT CORP CENTRAL INDEX KEY: 0000082811 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 390875718 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-07283 FILM NUMBER: 97620766 BUSINESS ADDRESS: STREET 1: 200 STATE ST CITY: BELOIT STATE: WI ZIP: 53511 BUSINESS PHONE: 6083648800 MAIL ADDRESS: STREET 1: 200 STATE STREET CITY: BELOIT STATE: WI ZIP: 53511-6254 FORMER COMPANY: FORMER CONFORMED NAME: BELOIT TOOL CORP DATE OF NAME CHANGE: 19730522 FORMER COMPANY: FORMER CONFORMED NAME: RECORD A PUNCH CORP DATE OF NAME CHANGE: 19690320 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A (AMENDMENT NO. 1) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): March 26, 1997 - ------------------------------------------------------------------------------- REGAL-BELOIT CORPORATION (Exact Name of Registrant as Specified in its Charter) WISCONSIN 1-7283 39-0875718 (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification No.) 200 STATE STREET, BELOIT, WISCONSIN 53511-6254 (Address of Principal Executive Offices) (Zip Code) (608) 364-8800 (Registrant's Telephone Number, Including Area Code) 1 ITEM 7. FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION AND EXHIBITS. Since it was impracticable to provide the financial information required by Item 7 at the time the Current Report on Form 8-K was filed for this acquisition, such information is hereby being filed. A. Financial Statements of Business Acquired The following audited Financial Statements of Marathon Electric Manufacturing Corporation are attached hereto and such Financial Statements are incorporated herein by reference: 1. Consolidated Statements of Earnings and Retained Earnings for the years ended December 31, 1996 and 1995, and for the years ended December 31, 1995 and 1994. 2. Consolidated Balance Sheets at December 31, 1996 and 1995, and at December 31, 1995 and 1994. 3. Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995, and for the years ended December 31, 1995 and 1994. 4. Notes to Consolidated Financial Statements for the years ended December 31, 1996 and 1995, and for the years ended December 31, 1995 and 1994. 5. Independent Auditor's Report for the years ended December 31, 1996 and 1995, and for the years ended December 31, 1995 and 1994. 6. Consent of Independent Public Accountants B. Pro-Forma Financial Information The following Pro-Forma Financial Information is provided on the Schedules attached hereto: Schedule I Regal-Beloit Corporation and Marathon Electric Manufacturing Corporation Pro-Forma Combined Condensed Balance Sheets (Unaudited) as of March 31, 1997, with related Notes. Schedule II Regal-Beloit Corporation and Marathon Electric Manufacturing Corporation Pro-Forma Combined Statements of Income (Unaudited) for the year ended December 31, 1996, with related Notes. C. Exhibits None All required exhibits were filed with Form 8-K dated April 10, 1997. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. REGAL-BELOIT CORPORATION By: Kenneth F. Kaplan --------------------------- Kenneth F. Kaplan Vice President, Chief Financial Officer Date: June 9, 1997 and Secretary --------------------- 3 MARATHON ELECTRIC MANUFACTURING CORPORATION AND SUBSIDIARIES 1996 ANNUAL REPORT 4
Marathon Electric Manufacturing Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (Dollars in thousands) Year Ended December 31 1996 1995 NET SALES. . . . . . . . . . . . . . . . $ 245,244 $ 233,369 OPERATING EXPENSES Cost of sales . . . . . . . . . . . . 177,238 176,512 Administrative. . . . . . . . . . . . 14,024 13,324 Selling . . . . . . . . . . . . . . . 20,803 19,653 Engineering - research and development. 5,932 5,187 ---------- ---------- Total Operating Expenses. . . . . 217,997 214,676 ---------- ---------- EARNINGS FROM OPERATIONS . . . . . . . . 27,247 18,693 Interest income - net . . . . . . . . 1,382 1,169 ---------- ---------- EARNINGS BEFORE PROVISION FOR INCOME TAXES 28,629 19,862 PROVISION FOR INCOME TAXES . . . . . . . 10,850 7,600 ---------- ---------- NET EARNINGS $ 17,779 $ 12,262 ========== ========== RETAINED EARNINGS Beginning of the year . . . . . . . . $ 102,320 $ 91,112 Net earnings. . . . . . . . . . . . . 17,779 12,262 Dividends paid. . . . . . . . . . . . (5,268) (1,054) ---------- ---------- End of the year . . . . . . . . . . . $ 114,831 $ 102,320 ========== ========== See accompanying notes to consolidated financial statements.
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Marathon Electric Manufacturing Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (Dollars in thousands except per share amount) December 31 1996 1995 ASSETS - ------ CURRENT ASSETS Cash and cash equivalents . . . . . . . $ 29,697 $ 27,006 Accounts receivable less allowance for doubtful accounts of $300 in 1996 and in 1995 32,911 29,204 Inventories . . . . . . . . . . . . . . 29,157 29,937 Deferred income taxes . . . . . . . . . 3,020 3,742 Prepaid expenses and other current assets 1,969 1,101 ---------- ---------- 96,754 90,990 PROPERTY, PLANT AND EQUIPMENT Land and buildings. . . . . . . . . . . 22,144 21,480 Machinery and equipment . . . . . . . . 94,676 89,282 Furniture and fixtures. . . . . . . . . 15,210 10,588 ---------- ---------- 132,030 121,350 Accumulated depreciation. . . . . . . . 95,865 90,680 ---------- ---------- 36,165 30,670 OTHER ASSETS AND DEFERRED EXPENSES Cash value of life insurance. . . . . . 2,083 1,922 Deferred income taxes . . . . . . . . . 476 724 Other assets. . . . . . . . . . . . . . 5,598 3,848 ---------- ---------- 8,157 6,494 ---------- ---------- TOTAL ASSETS . . . . . . . . . . . . . . . $141,076 $128,154 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Accounts payable. . . . . . . . . . . . $ 3,975 $ 5,378 Accrued payroll and employee benefits . 14,436 11,912 Accrued income taxes. . . . . . . . . . 354 517 Other accrued liabilities . . . . . . . 4,844 6,077 ----------- ------------ 23,609 23,884 LONG-TERM EMPLOYEE BENEFITS LIABILITY . . 2,488 1,802 SHAREHOLDERS' EQUITY Common stock, $10 par value, 320,000 shares authorized and issued . . . . . . . 3,200 3,200 Retained earnings . . . . . . . . . . . 114,831 102,320 Less cost of 56,612 share in treasury . (3,052) (3,052) ----------- ------------ $114,979 $102,468 ----------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $141,076 $128,154 =========== ============ See accompanying notes to consolidated financial statements.
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Marathon Electric Manufacturing Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Year Ended December 31 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings. . . . . . . . . . . . . . . . $ 17,779 $ 12,262 Add (deduct) items to convert net earnings to cash basis: Depreciation and amortization . . . . . 7,120 7,866 Loss on disposal of property, plant and equipment . . . . . . . . . --- 8 Deferred tax provision. . . . . . . . . 970 (254) (Increase) decrease in accounts receivable . . . . . . . . . (3,707) 3,292 Decrease (increase) in inventories. . . 780 (4,474) Increase in other assets. . . . . . . . (2,848) (3,111) (Decrease) increase in accounts payable (1,403) 871 Increase in other liabilities . . . . . 1,814 2,743 ---------- ---------- $ 20,505 $ 19,203 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures. . . . . . . . . . . . (12,548) (7,573) (Increase) decrease in notes receivable . . (9) 8 Proceeds from disposal of property, plant and equipment . . . . . . . . . . . 11 9 ---------- ---------- (12,546) (7,556) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid. . . . . . . . . . . . . . . (5,268) (1,054) ---------- ---------- INCREASE IN CASH AND CASH EQUIVALENTS. . . . . 2,691 10,593 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 27,006 16,413 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF YEAR . . . $ 29,697 $ 27,006 ========== ========== See accompanying notes to consolidated financial statements.
7 Marathon Electric Manufacturing Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and all subsidiaries. Intercompany balances and transactions have been eliminated. CASH EQUIVALENTS - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES - Inventories are predominately valued using the last-in, first-out (LIFO) method of accounting. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost. For assets placed in service prior to 1995, depreciation is computed principally using accelerated methods over estimated useful lives. Effective in 1995, the Company began depreciating newly acquired assets using the straight-line method, which conforms to prevailing industry practice. The effect of the change was not material to the financial results. The estimated useful lives of the various asset categories are: Buildings 10 to 40 years Machinery and Equipment 3 to 10 years Furniture and Fixtures 3 to 10 years INCOME TAXES - The Company establishes deferred tax assets or liabilities for temporary differences between the financial and tax bases of its assets and liabilities using enacted income tax rates. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS - The preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that directly affect reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates. (2) PRINCIPAL BUSINESS ACTIVITY Principal businesses of the Company are the manufacture and sale of electric motors, generators and electrical connecting and terminating devices. 8 (3) INVENTORIES Inventories are classified as follows (dollars in thousands):
December 31 1996 1995 At current costs: Finished product. . . . . . . . . . . $26,584 $26,279 Raw and in-process. . . . . . . . . . 15,526 16,827 ------- ------- 42,110 43,106 Excess of current cost over LIFO inventory value 12,953 13,169 ------- ------- $29,157 $29,937 ======= =======
(4) INTEREST Interest expense was $210 thousand and $162 thousand in 1996 and 1995 respectively. Interest payments were $203 thousand and $155 thousand in 1996 and 1995 respectively. Interest income has been netted against interest expense on the Consolidated Statements of Earnings. (5) INCOME TAXES The following is a summary of components of the provision for income taxes (dollars in thousands):
Year Ended December 31 1996 1995 Current: Federal . . . . . . . . . . . . . . . . $ 8,395 $ 6,669 State and local . . . . . . . . . . . . 1,485 1,185 Deferred. . . . . . . . . . . . . . . . 970 (254) -------- --------- $ 10,850 $ 7,600 ======== =========
A reconciliation of the statutory Federal income tax rate and the effective rate reflected in the statements of earnings follows:
Year Ended December 31 1996 1995 Federal statutory rate . . . . . . . . . . . 35.0% 35.0% State income taxes, net of federal benefit . 3.2 3.7 Other, net . . . . . . . . . . . . . . . . . (.3) (.4) ----- ----- Effective tax rate . . . . . . . . . . . . . 37.9% 38.3% ===== =====
Deferred taxes arise primarily from differences in amounts reported for tax and financial statement purposes. The Company's deferred tax asset as of December 31, 1996 of $3,496 thousand is classified on the consolidated balance sheet as a current deferred income tax asset of $3,020 thousand and a long-term deferred income tax asset of $476 thousand. The December 31, 1995 deferred tax asset was $4,466 thousand, consisting of a current deferred income tax asset of $3,742 thousand and 9 a long-term deferred income tax asset of $724 thousand. Components of the net deferred tax asset are as follows (dollars in thousands):
December 31 1996 1995 Accrued employee benefits. . . . . . . . $ 6,155 $ 4,981 Warranty reserve . . . . . . . . . . . . 494 309 Inventory. . . . . . . . . . . . . . . . 470 517 Bad debt reserve . . . . . . . . . . . . 196 117 Other. . . . . . . . . . . . . . . . . . 345 1,228 -------- -------- Deferred tax assets . . . . . . . . $ 7,660 $ 7,152 Accrued employee benefits. . . . . . . . (2,560) (2,089) Property related . . . . . . . . . . . . (1,604) (597) -------- -------- Deferred tax liabilities. . . . . . (4,164) (2,686) -------- -------- Net deferred tax asset . . . . . . . . . $ 3,496 $ 4,466 ======== ======== Income tax payments were $10,510 thousand and $8,283 thousand in 1996 and 1995 respectively.
(6) OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following (dollars in thousands): December 31 1996 1995 Warranty accrual . . . . . . . . . . . . $ 1,267 $ 792 Volume incentive accrual . . . . . . . . 1,253 1,061 Other . . . . . . . . . . . . . . . . . 2,324 4,224 ------- ------- $ 4,844 $ 6,077 ======= =======
(7) STOCK REPURCHASE AGREEMENTS In accordance with provisions of stock repurchase agreements with certain present and former corporate officers, the Company, at December 31, 1996, is committed to repurchase, at the option of the Company or shareholders, outstanding stock for approximately $2,550 thousand. Retained earnings are restricted for this amount. (8) OPERATING LEASES The Company supplements its owned real estate by leasing warehouses and sales offices. Transportation equipment and data processing equipment are also leased. 10 Rental payments generally are fixed for the terms of the leases. Truck leases require the payment of contingent rentals based on miles driven. Rental expense for operating leases is summarized as follows (dollars in thousands):
Year Ended December 31 1996 1995 Base rentals . . . . . . . . . . . . . . $ 2,693 $ 2,615 Additional rentals related to usage. . . 245 240 ------- ------- $ 2,938 $ 2,855 ======= =======
Management of the Company expects that in the normal course of business operating leases will be renewed or replaced by other leases. At December 31, 1996, future minimum rental payments required under operating leases that have noncancellable lease terms in excess of one year are summarized as follows (dollars in thousands):
Year Amount 1997 . . . $1,208 1998 . . . 907 1999 . . . 550 2000 . . . 368 2001 . . . 279 ------ $3,312 ======
(9) EMPLOYEE BENEFIT PLANS The Company has defined benefit pension plans which cover substantially all employees. Benefits provided under qualified defined benefit plans are based on employees average earnings in years immediately preceding retirement and years of credited service. Funding of the plans is in accordance with federal laws and regulations. In addition to the qualified plans, the Company has an unfunded defined benefit plan covering certain key employees. Pension cost for the defined benefit plans includes the following components (dollars in thousands):
Year Ended December 31 1996 1995 Service cost . . . . . . . . . . . . . . $ 1,318 $ 1,062 Interest cost. . . . . . . . . . . . . . 2,254 1,989 Actual return on assets. . . . . . . . . (5,183) (6,833) Net amortization and deferral. . . . . . 2,400 4,480 --------- --------- $ 789 $ 698 ========= =========
11 The following sets forth the funded status of the Company's defined benefit plans and the amounts reflected in the accompanying consolidated balance sheets.
December 31 1996 1995 ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: Vested benefit obligation . . . . . . . . . . . . $ 24,867 $ 23,035 ========= ========= Accumulated benefit obligation. . . . . . . . . . $ 26,487 $ 24,587 ========= ========= Projected benefit obligation. . . . . . . . . . . $ 31,076 $ 29,056 Plan assets at fair value . . . . . . . . . . . . 39,206 34,019 --------- --------- Excess of plan assets over projected benefit obligation . . . . . . . . . . . . . . . 8,130 4,963 Unrecognized net gain . . . . . . . . . . . . . . (6,048) (3,389) Unrecognized prior service cost . . . . . . . . . 3,319 3,657 Unrecognized initial net assets . . . . . . . . . (1,651) (1,929) --------- --------- Pension asset recognized in the consolidated balance sheets . . . . . . . . . . . . . . . . . . $ 3,750 $ 3,302 ========= =========
The present values of benefit obligations were based on discount rates of 7.75% in 1996 and 1995 and annual compensation increases of 4.5% in 1996 and 1995. The assumed long-term rate of return on plan assets was 9.0% in 1996 and 1995. Plan assets are invested in fixed income and equity securities. The Company has defined contribution plans for substantially all salaried employees and certain hourly employees. The plans provide for Company matching based on participant contributions and Company profits. Company contributions to the plans totaled $957 thousand and $664 thousand in 1996 and 1995 respectively. The Company maintains the Marathon Electric Manufacturing Corporation Phantom Stock Plan which entitles certain management employees the right to receive cash equal to the sum of the appreciation in book value of the stock and the value of reinvested hypothetical cash dividends which would have been paid on the stock covered by the grant. Phantom stock rights are exercisable at any time after the first anniversary of the date of grant, in whole or in part. Compensation expense is recorded with respect to the rights, based upon the book value of the shares and the exercise provisions. (10) COMMITMENTS AND CONTINGENCIES The Company has employment agreements with certain key executives which call for salary continuation for a specified period of time in the event of termination of the covered executive following a change of control of the Company. 12 In the ordinary course of conducting business, the Company becomes involved in investigations, administrative proceedings and litigation relating to contracts, environmental issues and other matters. While any proceeding or litigation has an element of uncertainty, the Company believes that the outcome of any pending or threatened claim or lawsuit will not have a material adverse effect on its consolidated financial position. INDEPENDENT AUDITOR'S REPORT The Board of Directors and Shareholders Marathon Electric Manufacturing Corporation We have audited the accompanying consolidated balance sheets of MARATHON ELECTRIC MANUFACTURING CORPORATION and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MARATHON ELECTRIC MANUFACTURING CORPORATION and Subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Wipfli Ullrich Bertelson LLP Wausau, Wisconsin January 31, 1997 13 MARATHON ELECTRIC MANUFACTURING CORPORATION 1995 ANNUAL REPORT 14
Marathon Electric Manufacturing Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS Year Ended December 31 1995 1994 NET SALES. . . . . . . . . . . . . . . . . . $233,369,168 $226,333,620 OPERATING EXPENSES Cost of sales . . . . . . . . . . . . . . 176,511,980 170,513,027 Administrative. . . . . . . . . . . . . . 13,324,557 12,852,532 Selling . . . . . . . . . . . . . . . . . 19,653,413 20,380,536 Engineering - research and development. . 5,186,804 5,234,700 ------------- ------------- Total Operating Expenses . . . . . . . 214,676,754 208,980,795 ------------- ------------- EARNINGS FROM OPERATIONS . . . . . . . . . . 18,692,414 17,352,825 Interest income - net . . . . . . . . . . 1,169,296 515,395 ------------ ------------- EARNINGS BEFORE PROVISION FOR INCOME TAXES . 19,861,710 17,868,220 PROVISION FOR INCOME TAXES . . . . . . . . . 7,600,000 6,660,000 ------------ ------------- NET EARNINGS . . . . . . . . . . . . . . . . $ 12,261,710 $ 11,208,220 ============= ============= RETAINED EARNINGS Beginning of the year . . . . . . . . . . $ 91,111,924 $ 80,957,256 Net earnings. . . . . . . . . . . . . . . 12,261,710 11,208,220 Dividend paid . . . . . . . . . . . . . . (1,053,552) (1,053,552) ------------- ------------- End of the year . . . . . . . . . . . . . $102,320,082 $ 91,111,924 ============= ============= See accompanying notes to consolidated financial statements.
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Marathon Electric Manufacturing Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31 1995 1994 ASSETS - ------ CURRENT ASSETS Cash and cash equivalents . . . . . . . . $ 27,005,779 $ 16,412,404 Accounts receivable less allowance for doubtful accounts of $300,000 in 1995 and in 1994. . . . . . . . . . . 29,203,654 32,495,524 Inventories . . . . . . . . . . . . . . . 29,936,616 25,463,010 Deferred income taxes . . . . . . . . . . 3,742,000 2,782,000 Prepaid expenses and other current assets 1,101,452 769,198 -------------- -------------- 90,989,501 77,922,136 PROPERTY, PLANT AND EQUIPMENT Land and buildings. . . . . . . . . . . . 21,480,236 20,901,255 Machinery and equipment . . . . . . . . . 89,281,704 84,098,932 Furniture and fixtures. . . . . . . . . . 10,588,274 9,533,703 -------------- -------------- 121,350,214 114,533,890 Accumulated depreciation. . . . . . . . . 90,680,575 83,634,401 -------------- -------------- 30,669,639 30,899,489 OTHER ASSETS AND DEFERRED EXPENSES Cash value of life insurance. . . . . . . 1,922,132 1,763,809 Deferred income taxes . . . . . . . . . . 724,000 1,430,000 Other assets. . . . . . . . . . . . . . . 3,848,329 1,315,593 -------------- -------------- 6,494,461 4,509,402 -------------- -------------- TOTAL ASSETS . . . . . . . . . . . . . . . . $ 128,153,601 $ 113,331,027 ============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Accounts payable. . . . . . . . . . . . . $ 5,378,512 $ 4,507,184 Accrued payroll and employee benefits . . 11,911,813 10,281,919 Accrued income taxes. . . . . . . . . . . 517,027 949,162 Other accrued liabilities . . . . . . . . 6,076,722 4,864,833 ------------- ------------- 23,884,074 20,603,098 LONG-TERM EMPLOYEE BENEFITS LIABILITY. . . . 1,801,794 1,468,354 SHAREHOLDERS' EQUITY Common stock, $10 par value, 320,000 shares authorized and issued . . . . . . . . 3,200,000 3,200,000 Retained earnings . . . . . . . . . . . . 102,320,082 91,111,924 Less cost of 56,612 shares in treasury. . (3,052,349) (3,052,349) -------------- ------------- 102,467,733 91,259,575 -------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 128,153,601 $113,331,027 ============== ============= See accompanying notes to consolidated financial statements.
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Marathon Electric Manufacturing Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings . . . . . . . . . . . . . . . $12,261,710 $11,208,220 Add (deduct) items to convert net earnings to cash basis: Depreciation and amortization . . . . . 7,865,613 8,055,263 Loss on disposal of property, plant and equipment. . . . . . . . . . . . . 7,781 121,514 Loss on security sales . . . . . . . . . ----- 2,306 Deferred tax provision. . . . . . . . . . (254,000) (432,000) Decrease (increase) in accounts receivable 3,291,870 (6,011,603) Increase in inventories . . . . . . . . . (4,473,606) (2,560,910) Increase in other assets. . . . . . . . . (3,110,855) (1,020,133) Increase (decrease) in accounts payable . 871,328 (7,957,649) Increase in other liabilities . . . . . . 2,743,088 1,683,167 ------------ ------------- 19,202,929 3,088,175 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures. . . . . . . . . . . . (7,573,135) (10,613,048) Decrease (increase) in notes receivable . . 8,233 (15,000) Proceeds from disposal of property, plant and equipment. . . . . . . . . . . 8,900 57,005 ------------ ------------- (7,556,002) (10,571,043) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term liabilities ------ (268,286) Dividend paid . . . . . . . . . . . . . . . (1,053,552) (1,053,552) ------------ ------------- (1,053,552) (1,321,838) ------------ ------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,593,375 (8,804,706) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 16,412,404 25,217,110 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR . . . $27,005,779 $16,412,404 ============ ============ See accompanying notes to consolidated financial statements.
17 Marathon Electric Manufacturing Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and all subsidiaries. Intercompany balances and transactions have been eliminated. CASH EQUIVALENTS - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES - Inventories are predominately valued using the last-in, first-out (LIFO) method of accounting. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost. For assets placed in service prior to 1995, depreciation is computed principally using accelerated methods over estimated useful lives. Effective in 1995, the Company began depreciating newly acquired assets using the straight-line method, which conforms to prevailing industry practice. The effect of the change was not material to the financial results. The estimated useful lives of the various asset categories are: Buildings . . . . . . . . . . . . . 7 to 40 years Machinery and Equipment . . . . . . 3 to 10 years Furniture and Fixtures. . . . . . . 3 to 10 years INCOME TAXES - The Company establishes deferred tax assets or liabilities for temporary differences between the financial and tax bases of its assets and liabilities using enacted income tax rates. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS - The preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires the use of certain estimates and assumptions that directly affect reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates. (2) PRINCIPAL BUSINESS ACTIVITY Principal businesses of the Company are the manufacture and sale of electric motors, generators and electrical connecting and terminating devices. 18 (3) INVENTORIES Inventories are classified as follows:
December 31 1995 1994 At current costs: Finished product . . . . . . . . . $26,279,358 $21,393,310 Raw and in-process . . . . . . . . 16,826,627 15,288,128 ----------- ----------- 43,105,985 36,681,438 Excess of current cost over LIFO inventory value . . . . . . 13,169,369 11,218,428 ----------- ----------- $29,936,616 $25,463,010 =========== ===========
(4) INTEREST Interest expense was $162,000 and $180,000 in 1995 and 1994 respectively. Interest payments were $155,000 and $194,000 in 1995 and 1994 respectively. Interest income has been netted against interest expense on the Consolidated Statements of Earnings. (5) INCOME TAXES The following is a summary of components of the provision for income taxes:
Year Ended December 31 1995 1994 Current: Federal. . . . . . . . . . . . . . . $6,669,000 $5,892,000 State and local. . . . . . . . . . . 1,185,000 1,200,000 Deferred . . . . . . . . . . . . . . . (254,000) (432,000) ----------- ----------- $7,600,000 $6,660,000 =========== ===========
A reconciliation of the statutory Federal income tax rate and the effective rate reflected in the statements of earnings follows:
Year Ended December 31 1995 1994 Federal statutory rate. . . . . . . . 35.0% 35.0% State income taxes, net of federal benefit . . . . . . . . 3.5 4.2 Other, net. . . . . . . . . . . . . . (.2) (1.9) ----- ------ Effective tax rate . . . . . . . . . 38.3% 37.3% ===== ======
Deferred taxes arise primarily from differences in amounts reported for tax and financial statement purposes. The Company's deferred tax asset as of December 31, 1995 of $4,466,000 is classified on the consolidated balance 19 sheet as a current deferred income tax asset of $3,742,000 and a long-term deferred income tax asset of $724,000. The December 31, 1994 deferred tax asset was $4,212,000, consisting of a current deferred income tax asset of $2,782,000 and a long-term deferred income tax asset of $1,430,000. Components of the net deferred tax asset are as follows:
December 31 1995 1994 Accrued employee benefits . . . . . . $4,988,000 $4,067,000 Warranty reserve. . . . . . . . . . . 309,000 291,000 Inventory . . . . . . . . . . . . . . 517,000 427,000 Bad debt reserve. . . . . . . . . . . 117,000 114,000 Other . . . . . . . . . . . . . . . . 1,221,000 429,000 ---------- ---------- Deferred tax assets . . . . . . . . $7,152,000 $5,328,000 Accrued employee benefits . . . . . . (2,089,000) (832,000) Property related. . . . . . . . . . . (597,000) (284,000) ----------- ----------- Deferred tax liabilities . . . . . (2,686,000) (1,116,000) ----------- ----------- Net deferred tax asset. . . . . . . . $4,466,000 $4,212,000 =========== =========== Income tax payments were $8,283,000 and $7,846,000 in 1995 and 1994 respectively. (6) OTHER ACCRUED LIABILITIES Other accrued liabilities consist of the following:
December 31 1995 1994 Volume incentive accrual. . . . . . $1,060,904 $1,546,057 Warranty accrual. . . . . . . . . . 791,716 766,987 Other . . . . . . . . . . . . . . . 4,224,102 2,551,789 ---------- ---------- $6,076,722 $4,864,833 ========== ==========
(7) STOCK REPURCHASE AGREEMENTS In accordance with provisions of stock repurchase agreements with certain present and former corporate officers, the Company, at December 31, 1995, is committed to repurchase, at the option of the Company or shareholders, outstanding stock for approximately $2,302,000. Retained earnings are restricted for this amount. (8) OPERATING LEASES The Company supplements its owned real estate by leasing warehouses and sales offices. 20 Transportation equipment and data processing equipment are also leased. Rental payments generally are fixed for the terms of the leases. Truck leases require the payment of contingent rentals based on miles driven. Rental expense for operating leases is summarized as follows:
Year Ended December 31 1995 1994 Base rentals. . . . . . . . . . . . . $2,615,000 $2,657,000 Additional rentals related to usage 240,000 229,000 ---------- ---------- $2,855,000 $2,886,000 ========== ==========
Management of the Company expects that in the normal course of business operating leases will be renewed or replaced by other leases. At December 31, 1995, future minimum rental payments required under operating leases that have noncancellable lease terms in excess of one year are summarized as follows:
Year Amount 1996 $1,058,000 1997 516,000 1998 264,000 1999 57,000 2000 12,000 ---------- $1,907,000 ========== (9) EMPLOYEE BENEFIT PLANS The Company has defined benefit pension plans which cover substantially all employees. Benefits provided under qualified defined benefit plans are based on employees average earnings in years immediately preceding retirement and years of credited service. Funding of the plans is in accordance with federal laws and regulations. In addition to the qualified plans, the Company has an unfunded defined benefit plan covering certain key employees. Pension cost (credit) for the defined benefit plans includes the following components:
Year Ended December 31 1995 1994 Service cost. . . . . . . . . . . . . $1,062,000 $1,212,000 Interest cost . . . . . . . . . . . . 1,989,000 1,817,000 Actual return on assets . . . . . . . (6,833,000) 687,000 Net amortization and deferral . . . . 4,480,000 (2,955,000) ----------- ----------- $ 698,000 $ 761,000 =========== ===========
21 The following sets forth the funded status of the Company s defined benefit plans and the amounts reflected in the accompanying consolidated balance sheets.
December 31 1995 1994 ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: Vested benefit obligation . . . . . $23,035,000 $18,670,000 ============ ============ Accumulated benefit obligation. . . $24,587,000 $20,125,000 ============ ============ Projected benefit obligation. . . . $29,056,000 $23,183,000 Plan assets at fair value . . . . . 34,019,000 24,993,000 ------------ ------------ Excess of plan assets over projected benefit obligation. . . 4,963,000 1,810,000 Unrecognized net gain . . . . . . . (3,389,000) (2,325,000) Unrecognized prior service cost . . 3,657,000 3,396,000 Unrecognized initial net assets . . (1,929,000) (2,207,000) ------------ ------------ Pension asset recognized in the consolidated balance sheets . . . $ 3,302,000 $ 674,000 ============ ============
The present values of benefit obligations were based on discount rates of 7.75% and 8.5% in 1995 and 1994 respectively and annual compensation increases of 4.5% in 1995 and 1994. The assumed long-term rate of return on plan assets was 9.0% and 8.5% in 1995 and 1994 respectively. Plan assets are invested in fixed income and equity securities. The Company has defined contribution plans for substantially all salaried employees and certain hourly employees. The plans provide for Company matching based on participant contributions and Company profits. Company contributions to the plans totaled $664,000 and $551,000 in 1995 and 1994 respectively. The Company maintains the Marathon Electric Manufacturing Corporation Phantom Stock Plan which entitles certain management employees the right to receive cash equal to the sum of the appreciation in book value of the stock and the value of reinvested hypothetical cash dividends which would have been paid on the stock covered by the grant. Phantom stock rights are exercisable at any time after the first anniversary of the date of grant, in whole or in part. Compensation expense is recorded with respect to the rights, based upon the book value of the shares and the exercise provisions. 22 (10) COMMITMENTS AND CONTINGENCIES The Company has employment agreements with certain key executives which call for salary continuation for a specified period of time in the event of termination of the covered executive following a change of control of the Company. In the ordinary course of conducting business, the Company becomes involved in investigations, administrative proceedings and litigation relating to contracts, environmental issues and other matters. While any proceeding or litigation has an element of uncertainty, the Company believes that the outcome of any pending or threatened claim or lawsuit will not have a material adverse effect on its consolidated financial position. INDEPENDENT AUDITOR'S REPORT The Board of Directors and Shareholders Marathon Electric Manufacturing Corporation We have audited the accompanying consolidated balance sheets of MARATHON ELECTRIC MANUFACTURING CORPORATION and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of earnings and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MARATHON ELECTIC MANUFACTURING CORPORATION and Subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Wipfli Ullrich Bertelson Wausau, Wisconsin February 3, 1996 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our firm) included in or made a part of this Form 8-K. Wipfli Ullrich Bertelson LLP --------------------------------------------- Wipfli Ullrich Bertelson LLP June 2, 1997 Wausau, Wisconsin 24 Schedule I REGAL-BELOIT CORPORATION AND MARATHON ELECTRIC MANUFACTURING CORPORATION PRO-FORMA COMBINED CONDENSED BALANCE SHEETS AS OF MARCH 31, 1997 UNAUDITED ($000) The following unaudited pro-forma combined balance sheets give effect to the purchase by Regal-Beloit Corporation of all of the common stock of Marathon Electric Manufacturing Corporation (Marathon Electric). The statement combines unaudited March 31, 1997 balance sheets of Regal-Beloit Corporation and Marathon Electric and assumes the business combination was accounted for as a purchase. These balance sheets should be read in conjunction with the pro-forma combined statements of income and notes thereto included elsewhere herein. Pro-forma data is presented for comparative purposes only and is not necessarily indicative of what the combined financial condition will be in the future, or of the dates for which this pro-forma is presented.
Historical Pro-Forma ------------------------------ ------------------------------- Marathon Electric Regal-Beloit Manufacturing Adjustments Corporation Corporation Add (Deduct) Combined ------------ ------------- ------------ -------- Assets ------ Current Assets: Cash and Cash Equivalents $ 46,676 $ 3,259 $ (40,446) (1) $ 9,489 Net Accounts Receivable . 35,252 38,043 (1,099) (2) 72,196 Inventories . . . . . . . 42,954 30,096 10,352 (3) 83,402 Other Current Assets. . . 5,154 20,052 (90) (4) 25,116 ---------- ---------- ----------- ---------- Total Current Assets . 130,036 91,450 (31,283) 190,203 Net Property, Plant, and Equipment . 73,382 36,185 41,109 (5) 150,676 Goodwill . . . . . . . . . . . . . . ----- 198 153,765 (6) 153,963 Other Noncurrent Assets. . 477 7,412 3,406 (7) 11,295 ---------- ---------- ----------- ---------- Total Assets . . . . . $ 203,895 $ 135,245 $ 166,997 $ 506,137 ========== ========== =========== ========== Liabilities and Shareholders' Investment - ---------------------------------------- Current Liabilities: Accounts Payable. . . . . $ 8,810 $ 12,651 $ ----- $ 21,461 Federal and State Income Taxes. . . 5,545 1,590 ----- 7,135 Other Current Liabilities 16,717 15,164 10,256 (8) 42,137 ---------- ---------- ----------- --------- Total Current Liabilities. . . . 31,072 29,405 10,256 70,733 Long-Term Debt . . . . . . . . . . . 2,025 ----- 242,000 (9) 244,025 Deferred Income Taxes. . . . . . . . 5,307 3,731 16,504 (4) 25,542 Other Noncurrent Liabilities . . . . ----- 346 ----- 346 Shareholders' Investment . . . . . . 165,491 101,763 (101,763) (10) 165,491 ---------- ---------- ----------- --------- Total Liabilities and Shareholders' Investment. . . $ 203,895 $ 135,245 $ 166,997 $ 506,137 ========== ========== =========== ========= Notes To Pro-Forma Combined Condensed Balance Sheets (1) To reflect Regal-Beloit cash used to purchase Marathon Electric. (2) To provide for appropriate accounts receivable reserves. (3) To increase inventories to estimated fair market value and eliminate Marathon Electric's LIFO reserve. (4) To reflect deferred tax impact of purchase accounting adjustments other than goodwill. (5) To increase property, plant and equipment to estimated fair market value and eliminate historical accumulated depreciation. (6) Goodwill represents the difference in the purchase price of Marathon Electric and the net asset value acquired, after purchase accounting adjustments. (7) Primarily to increase pension assets to fair market value. (8) Primarily to provide for obligations associated with change of control agreements, workers compensation, fringe benefits, and various other liabilities. (9) Long-term debt borrowed under credit agreement to finance purchase of Marathon Electric. (10) To eliminate the shareholders' investment of Marathon Electric in accordance with purchase accounting.
25 Schedule II REGAL-BELOIT CORPORATION AND MARATHON ELECTRIC MANUFACTURING CORPORATION PRO-FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED) The following pro-forma combined Statements of Income for the year ended December 31, 1996 were prepared as if the acquisition of Marathon Electric Manufacturing Corporation (Marathon Electric) was effective as of January 1, 1996. The pro-forma statements of income include the historical results of Marathon Electric, giving effect to such acquisition under the purchase method of accounting. The pro-forma statements of income are not necessarily indicative of the results that actually would have occurred if the acquisition had been in effect on the date indicated or of the results that may be obtained in the future. These pro-forma statements should be read in conjunction with the historical statements of Regal-Beloit Corporation and Marathon Electric.
Year Ended December 31, 1996 ($000) ----------------------------------------------------------- Historical Pro-Forma ---------------------------- ---------------------------- Marathon Electric Regal-Beloit Manufacturing Adjustments Corporation Corporation Add (Deduct) Combined ------------ ------------- ------------ ---------- Net Sales. . . . . . $ 281,508 $ 245,244 $ ----- $ 526,752 Cost of Sales. . . . 198,582 177,238 (310) (1) 375,510 ---------- ---------- ----------- ---------- Gross Profit . . . 82,926 68,006 310 151,242 ---------- ---------- ----------- ---------- Operating Expenses . 31,806 40,759 3,855 (2) 76,420 ---------- ---------- ----------- ---------- Income from Operations . . 51,120 27,247 (3,545) 74,822 Interest Expense . . 357 210 15,730 (3) 16,297 Interest Income. . . 1,052 1,592 (2,193) (4) 451 ---------- ---------- ----------- ---------- Income Before Taxes. . . . 51,815 28,629 (21,468) 58,976 Provision for Income Taxes . 19,539 10,850 (6,695) (5) 23,694 ---------- ---------- ----------- ---------- Net Income . . . . $ 32,276 $ 17,779 $ (14,773) $ 35,282 ========== ========== =========== ========== Net Income Per Share . . . $ 1.57 $ 1.71 ========== ========== Average Shares Outstanding . 20,616,825 20,616,825 ========== ========== Notes to Pro-Forma Combined Statements of Income (1) Historical book depreciation for Marathon Electric was recorded primarily using accelerated depreciation methods. The change to straight-line method in conjunction with purchase accounting adjustments yields lower expense despite increased valuation of property, plant and equipment. (2) To reflect the amortization of goodwill (40 year amortization) and loan financing fees and expenses (5 year amortization). (3) To reflect interest expense on the loans made to finance the acquisition; the initial loan was $242 million; an interest rate of 6.50% was utilized. (4) To eliminate the interest income: a) on cash utilized by Regal-Beloit to make the acquisition and b) on cash contractually removed from Marathon Electric by its owners immediately prior to the acquisition. (5) Primarily, to reflect the tax impact of pro-forma adjustments, excluding goodwill which is not tax deductible.
26 Schedule III REGAL-BELOIT CORPORATION AND MARATHON ELECTRIC MANUFACTURING CORPORATION PRO-FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED) The following pro-forma combined Statements of Income for the 3 months ended March 31, 1997 were prepared as if the acquisition of Marathon Electric Manufacturing Corporation (Marathon Electric) was effective as of January 1, 1996. The pro-forma statements of income include the historical results of Marathon Electric, giving effect to such acquisition under the purchase method of accounting. The pro-forma statements of income are not necessarily indicative of the results that actually would have occurred if the acquisition had been in effect on the date indicated or of the results that may be obtained in the future. These pro-forma statements should be read in conjunction with the historical statements of Regal-Beloit Corporation and Marathon Electric.
3 Months Ended March 31, 1997 ($000) ------------------------------------------------------------- Historical Pro-Forma ---------------------------- ----------------------------- Marathon Electric Regal-Beloit Manufacturing Adjustments Corporation Corporation Add (Deduct) Combined ------------ ------------- ------------ ---------- Net Sales. . . . . . . . . . $ 70,570 $ 62,836 $ ----- $ 133,406 Cost of Sales. . . . . . . . 50,199 45,625 (78) (1) 95,746 ---------- ----------- ---------- ---------- Gross Profit . . . . . . . 20,371 17,211 78 37,660 ---------- ----------- ---------- ---------- Operating Expenses . . . . . 8,309 37,499 (25,678) (2) 20,130 ---------- ----------- ---------- ---------- Income from Operations . . 12,062 (20,288) 25,756 17,530 Interest Expense . . . . . . 53 62 3,933 (3) 4,048 Interest Income. . . . . . . 363 392 (640) (4) 115 ---------- ----------- ---------- ---------- Income Before Taxes. . . . 12,372 (19,958) 21,183 13,597 Provision for Income Taxes . 4,666 (6,785) 7,305 (5) 5,186 ---------- ----------- ---------- ---------- Net Income . . . . . . . . $ 7,706 $ (13,173) $ 13,878 $ 8,411 ========== =========== ========== ========== Net Income Per Share . . . $ 0.37 $ 0.40 ========== ========= Average Shares Outstanding . 20,773,553 20,773,553 ========== ========== Notes to Pro-Forma Combined Statements of Income (1) Historical book depreciation for Marathon Electric was recorded primarily using accelerated depreciation methods. The change to straight-line method in conjunction with purchase accounting adjustments yields lower expense despite increased valuation of property, plant and equipment. (2) To reflect the amortization of goodwill (40 year amortization) and loan financing fees and expenses (5 year amortization), $964; to eliminate phantom stock payments arising from the difference between the book value and purchase price of Marathon Electric, $(23,721); to eliminate seller expenses associated with the sale of Marathon Electric, $(2,921). (3) To reflect interest expense on the loans made to finance the acquisition; the initial loan was $242 million; an interest rate of 6.50% was utilized. (4) To eliminate the interest income: a) on cash utilized by Regal-Beloit to make the acquisition and b) on cash contractually removed from Marathon Electric by its owners immediately prior to the acquisition. (5) Primarily, to reflect the tax impact of pro-forma adjustments, excluding goodwill which is not tax deductible.
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