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 33 acquisitions and internal growth, the Company has become a prominent manufacturer of a diversified line of power transmission products and perishable, high-speed steel, rotary cutting tools.
The Company's power transmission products, manufactured by its Power Transmission Group, include standard and custom gearboxes, transmissions, rigid forklift axles, custom gearing, gear motors and manual valve actuators. These products are sold to distributors, original equipment manufacturers and end users across many industry segments.
Typical applications for the Company's power transmission 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 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 Company's perishable, high-speed steel, rotary cutting tool products are manufactured by its Cutting Tool Group. Principal cutting tool products include taps, drills, end mills, reamers and gages in thousands of standard and popular non-standard styles and sizes, as well as a wide range of specially designed products. Cutting tool products are sold to distributors on both open line and select bases and to select end users throughout the United States. Standard and most special items are shipped promptly, generally within 24 hours to a few days of receipt of orders. These products are mostly used in industrial metalworking applications where it is necessary to remove metal to shape product into finished form or to prepare a metal workpiece to receive a fastening device.
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 both power transmission products and cutting tools.
MARKETING AND SALES ___________________ Power transmission products are sold to select distributors, original equipment manufacturers and end users through field sales personnel and manufacturers' representatives.
The Company's cutting tool products are sold through three distribution channels. The Regal Cutting Tools Division's products are sold on a non-exclusive, open line basis through independent industrial distributors nationwide. The Company is the only significant producer of cutting tools to employ the open line method of distribution. The balance of the cutting tools are sold to select distributors and end users through the National Twist Drill and New York Twist Drill Divisions, respectively.
Export sales accounted for approximately 3% of the Company sales in 1996, 1995 and 1994. No material part of the Company's business is dependent upon a single customer or a group of customers. In fiscal 1996, 1995 and 1994, no single customer accounted for as much as 5% 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 ___________ Competition in the power transmission equipment industry has historically been from old line and captive manufacturers. In recent years, competition, in general (including from foreign manufacturers), has intensified. Over the past several years, niche product market opportunities have become more prevalent due to changing market conditions described above and decisions by larger manufacturers not to compete in lower volume or specialized markets. Additionally, smaller companies have been sold due to lack of capital to invest in more modern productive equipment. Many captive producers have chosen, for economic reasons, to outsource their requirements to specialized manufacturers like Regal-Beloit 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 has 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. Dominant domestic competitors in the power transmission equipment industry include Sundstrand Corporation (Falk), Emerson Electric, Reliance Electric, Winsmith, and IMO. Dominant foreign competitors would include SEW Eurodrive, Flender, Sumitomo and Zahnrad Fabrik.
The markets for most of the Company's cutting tool products are highly competitive. The domestic cutting tool industry is a mature industry which has been characterized for the past 10 to 15 years by excess capacity and declining sales. Selling price increases have been minimal and the Company believes that some additional but less severe contraction of the industry is likely in the years ahead. Despite a mature market, the Company has been able to minimize the effect this contraction has had on the Company, primarily by eliminating the production of unprofitable products, developing new products, adding new channels of distribution, improving manufacturing capability and efficiency and providing fast product delivery.
Cutting tools produced abroad and imported, according to recent government statistics, are estimated to represent less than 15% of the domestic industrial market; however, that share is growing slightly. Most imported tools are non-industrial quality and most are not sold in the commercial markets in which the Company sells.
Competition in the cutting tool industry is primarily on the basis of price, product quality and promptness of delivery. The Company competes primarily on the basis of promptness of delivery and quality including its expertise in assisting customers to solve specific cutting tool problems. The Company believes it is unique among the larger cutting tool manufacturers in its ability to ship orders promptly, generally within 24 hours to a few days of receipt of orders for standard and most special products. The Company is number two of the two leading domestic full line manufacturers in terms of dollar value of shipments of taps, end mills, reamers, gages and drills in total. The other competitor in the category is Greenfield Industries, which is larger than Regal-Beloit Corporation. The Company also has competition from other manufacturers; however, these companies are typically regional in sales and usually produce one or two types of products as opposed to a full line.
For further segment information required by Item 101 of Regulation S-K, reference is made to Note 10 of the Notes to Consolidated Financial Statements on page 14 of the Annual Report to Shareholders for the year ended December 31, 1996, and such information is incorporated herein by reference.
BACKLOG ________ As of December 31, 1996, the amount of the Company's power transmission backlog believed to be firm was approximately $41,100,000 compared to approximately $48,400,000 on December 31, 1995. Average delivery time for orders of the Company's power transmission equipment (except for large, specially designed products) varies from three days to two months. The Company believes that virtually all of the backlog is shippable in 1997.
Because the Company ships cutting tool orders promptly, generally within a few days of receiving the order, there are no material backlogs for cutting tools.
TRADEMARKS AND LICENSES _______________________ 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, 1996, the Company employed approximately 2,450 persons, of which approximately 23% are covered by collective bargaining agreements. The Company considers its employee relations to be very good.
RAW MATERIALS _____________ Base materials for the Company's products consist primarily of steel in various types and sizes, castings, bearings and weldments. The Company purchases its raw materials from many suppliers and is not dependent on any single supplier for any of its base materials.
ENVIRONMENTAL MATTERS ______________________ The Company is subject to Federal, State and local environmental regulations. The Company is currently involved with environmental cleanup proceedings related to certain of its facilities. Based on available information, it is believed that the outcome of these proceedings and future known environmental compliance costs will not have a material adverse effect on the Company's financial position or results of operations.
ITEM 2.
ITEM 2. PROPERTIES
The Company currently operates a corporate office and 20 manufacturing and service/distribution facilities. Three each are located in Illinois and Wisconsin; two each are located in Indiana, South Carolina and South Dakota; and one each located in California, Massachusetts, New York, North Carolina, Pennsylvania, Texas, Newbury (England), Neu Anspach (Germany) and Legnano (Italy). The Company's present operating facilities contain a total of approximately 1,510,000 square feet of space of which approximately 147,000 square feet are leased. The Company believes its equipment and facilities are well maintained and adequate for its present needs. The Company currently owns one manufacturing facility with a total of 53,000 square feet that it intends to sell.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4.
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, 1996.
PART II
ITEM 5.
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, 1996, and such information is incorporated herein by reference.
ITEM 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, 1996, and such information is incorporated herein by reference.
ITEM 7.
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, 1996, and such information is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
In the Annual Report to Shareholders for the year ended December 31, 1996, 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.
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.
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 of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 24, 1997, 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 7, 1997, 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.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 402 of Regulation S-K is set forth on pages 6 through 9 of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 24, 1997, 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required pursuant to Item 403 of Regulation S-K is set forth on pages 2, 3, 4, 5, 9 and 10 of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 24, 1997, 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required pursuant to Item 404 of Regulation S-K is set forth on pages 5 and 7 of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 24, 1997, 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.
PART IV
ITEM 14.
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 10 hereof.
3. EXHIBITS Reference is made to the separate exhibit index contained on Page 13 hereof.
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K by the Company during the quarter ended December 31,1996.
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: Robert C. Burress _________________ Robert C. Burress Secretary
March 7, 1997
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:
James L. Packard __________________Chairman, President, Chief March 7, 1997 James L. Packard Executive Officer and Director
Kenneth F. Kaplan _________________ Vice President - CFO March 7, 1997 Kenneth F. Kaplan (Principal Accounting & Financial Officer)
Henry W. Knueppel ________________ Executive Vice President March 7, 1997 Henry W. Knueppel and Director
John A. McKay _______________ Director March 7, 1997 John A. McKay
John M. Eldred _______________ Director March 7, 1997 John M. Eldred
J. Reed Coleman ______________ Director March 7, 1997 J. Reed Coleman
Frank Bauchiero _______________ Director March 7, 1997 Frank Bauchiero
REGAL-BELOIT CORPORATION
AND FINANCIAL STATEMENT SCHEDULE Page(s) In Annual Report * __________ The following documents are filed as part of this report:
(1) Financial Statements: Consolidated Statements of Income for the three years ended December 31, 1996 7 Consolidated Balance Sheets at December 31, 1996 and 1995 8 Consolidated Statements of Shareholders' Investment for the three years ended December 31, 1996 9 Consolidated Statements of Cash Flows for the three years ended December 31, 1996 10 Notes to Consolidated Financial Statements 11 - 14 Report of Independent Public Accountants 15
* Incorporated by reference from the indicated pages of the Regal-Beloit Corporation 1996 Annual Report to Shareholders
Page In Form 10-K ___________
(2) Financial Statement Schedule: Report of Independent Public Accountants on Financial Statement Schedule 11 Consent of Independent Public Accountants 11 For the three years ended December 31, 1996, Schedule II - Valuation and Qualifying Accounts 12
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
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 29, 1997. 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.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin, January 29, 1997
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
Milwaukee, Wisconsin, March 13, 1997
SCHEDULE II
REGAL-BELOIT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
EXHIBITS INDEX
The following exhibits are required to be filed by Item 601 of Regulation S-K.
EXHIBIT 21 SUBSIDIARIES OF REGAL-BELOIT CORPORATION
Regal-Beloit International Sales Corporation, a Delaware Corporation 200 State Street Beloit, Wisconsin Acquired - May, 1979
Regal-Beloit Corporation FSC, a Virgin Islands Corporation 200 State Street Beloit, Wisconsin Acquired - December, 1984
New York Twist Drill, Inc., a Delaware Corporation 30 Montauk Boulevard, Suite B Oakdale, NY 11769 Acquired - March, 1988
Opperman Mastergear Limited Hambridge Road Newbury, Berkshire, United Kingdom (England) Acquired - July, 1991
Mastergear GmbH SiemensstraBe 16 Neu Anspach, Germany Acquired - July, 1991
Hub City, Inc. 2914 Industrial Drive Aberdeen, South Dakota Acquired - April, 1992
Costruzioni Meccaniche Legnanesi S.r.L. Via San Bernardino 129 Legnano, Italy Acquired - December, 1994