NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2012 AND 2011
The following description of the Regal Beloit Corporation Retirement Savings Plan (the “Plan”) is provided for general information purposes only. More complete information regarding the Plan's provisions may be found in the Plan document. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Effective December 31, 2012 the Milwaukee Gear Company Retirement and Savings Plan merged into the Plan; as a result of this merger $19,273,640 was transferred into the Plan on January 2, 2013. Effective March 1, 2011 the Unico, Inc Employee Stock Ownership Plan merged into the Plan; as a result of this merger $17,365,434 was transferred into the Plan. Effective April 1, 2011 the Unico, Inc. Employees' Profit Sharing Plan merged into the Plan; as a result of this merger $31,929,719 was transferred into the Plan. Effective November 1, 2011 account balances of former A.O. Smith employees who became employees of Regal Beloit Corporation subsequent to the acquisition of A.O. Smith Corporation's Electrical Products Company (“EPC”) were transferred to the Plan. As a result participant balances of $564,702 and $50,781,602 were transferred from the A.O. Smith Savings Plan and the A.O. Smith Retirement Security Plan, respectively.
General -
The Plan is a defined contribution plan which allows eligible employees to defer compensation as permitted under Section 401(k) of the Internal Revenue Code (the “IRC”). The Plan covers substantially all US based employees of Regal Beloit Corporation (the “Company”).
Plan Administration -
Wells Fargo Institutional Retirement and Trust (the “Trustee”) is the trustee, custodian, and recordkeeper for the Plan. Overall responsibility for administering the Plan rests with the Retirement Plan Committee.
Contributions -
Eligible employees can contribute an amount of up to 100% of eligible compensation as defined by the Plan subject to certain limitations under the IRC. Union employees may be subject to limitations under their collective bargaining agreements. The Plan also allows “catch-up” contributions for those participants age 50 or over, in addition to the actual deferral amount.
Participating non-union Regal Beloit Corporation employees and as of January 1, 2012 Bowling Green employees represented by Local 1076 I.B.E.W. receive an employer match contribution equal to 100% of the first 1% contributed by the employee and a 50% match on the next 5% percent of the employee's deferral.
Employees who were previously participating in the Regal Beloit Corporation Value Added Plan and Deferred Compensation Plan receive an additional 2% contribution of their qualifying annual salary each year.
Employees who were participants of the Unico Inc. Employee Stock Ownership Plan are eligible to receive contributions based on the final purchase price and earn-out as agreed between Unico, Inc. and Regal Beloit Corporation.
Employees who participated in the RBC Manufacturing Corporation Salaried Employees' Pension Plan and had 10 or more years of vesting service but fewer than 20 years of vesting service receive an additional contribution of 1% of their qualifying annual salaries. Employees with 20 or more years of vesting service but fewer than 25 years of vesting service receive an additional contribution of 2% of their qualifying annual salaries.
For Wausau employees represented by Local 1791 I.B.E.W., the Company makes a matching contribution of 50% of a participant's deferral up to 5% of pretax eligible income, if hired before September 1, 2007 and if hired on or after September 1, 2007, the Company makes a 50% matching contribution of the participant's deferral up to 6% of pretax annual eligible income. For employees represented by Teamsters 662, the Company makes a 50% matching contribution of the participant's deferral up to 5% of pretax annual eligible income. For Bowling Green employees represented by Local 1076 I.B.E.W., the Company makes a matching contribution of 50% of a participant's deferral up to 5% of pretax annual eligible income through May 31, 2010 and 50% of a participant's deferral up to 6% of pretax annual income effective June 1, 2010 through December 31, 2011. Production employees of Hub City receive a Company match of 50% up to 5% of a participant's deferral through November 13, 2011 and a Company match of 50% up to 6% of a participants deferral effective November 14, 2011. Union employees at the Mt. Sterling location receive a Company match of 25% up to 6% of a participant's deferral. Union employees at the Tipp City location receive a Company match of 50% up to 3% of a participant's deferral.
The Plan has implemented the Automatic Enrollment feature as allowed pursuant to the Pension Protection Act of 2006. This auto enrollment is applicable to all employees newly eligible to participate in the Plan. These participants are auto enrolled for a 3% payroll deferral. The deferral rates for participants who were auto enrolled increases by 1% each year until it reaches a maximum contribution of 6%, unless otherwise directed by the participant. These contributions are defaulted in the Vanguard Lifestyle fund based on the employee's age absent an investment fund election.
Vesting -
Participants at all times have a fully vested interest in individual contribution accounts. Company matching and discretionary contributions are subject to a two year cliff vesting. For Wausau employees represented by Local 1791 I.B.E.W., Bowling Green employees represented by Local 1076 I.B.E.W., and production employees at Hub City Company contributions are subject to a three year cliff vesting. Union employees at the Mt. Sterling location are subject to a vesting schedule of 40% after two years, 60% after three years, 80% after four years, and 100% after five years on Company contributions. Corporate and Mechanical Group Profit Sharing balances and Added Value Nonelective Contribution balances have a six year step vesting. EPC employees who are eligible for employer nonelective contributions were credited with years of vesting service with A.O. Smith Corporation. All participant accounts become fully vested at the time of death or disability.
Forfeited Accounts -
At December 31, 2012 and 2011 forfeited nonvested accounts totaled $44,836 and $162,565, respectively. In the event of a forfeited account, the forfeitures are used to reduce employer contributions in the Plan year following the Plan year in which the forfeitures occur. Forfeitures used during 2012 were $217,436. There were no forfeitures used during 2011.
Benefit Payments -
Participants may withdraw their account balance upon retirement, death, disability, termination of employment, or attainment of age 59-1/2. Participants having any immediate and heavy financial hardship without any other source of funds may request a hardship withdrawal of their 401(k) contributions. Participant's vested and nonforfeitable balances will be distributable to the participant upon termination of employment if the balance is less than $1,000. If the vested balance exceeds $1,000, but it is less than $5,000, the Plan must transfer to an Individual Retirement Account unless the participant elects to receive a distribution. If the vested balance exceeds $5,000, distribution will be made only if the participant consents.
Participant Accounts -
Individual accounts are maintained for each Plan participant. Each participant's account is credited with the participant's contribution, any Company matching contribution, allocations of Company discretionary contributions and Plan earnings, and charged with withdrawals and an allocation of Plan losses and administrative expenses. Allocations are based on participant earnings or account balances, as defined in the Plan document. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.
Investment Options -
Participants are able to change their investment options in 1% increments, 12 times per quarter. A complete listing of investment options is available in the attached supplemental schedule: Schedule of Assets (Held at End of Year).
Notes Receivable -
The Plan permits a participant to borrow from his or her individual account an amount limited to 50% of the vested account balance, up to $50,000. The minimum loan amount is $1,000. Interest at prevailing market rates (ranging from 3.25% to 9.50% as of December 31, 2012 and December 31, 2011) is charged on the loan. Only one loan is allowed at any time, and the maximum term is five years, unless the loan is used for the acquisition of the participant's primary residence, for which the term of the loan may be extended beyond the five year period.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting -
The accompanying financial statements have been prepared on the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America.
Use of Accounting Estimates -
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Plan's management to make estimates and assumptions that affect the reported amounts of Plan assets and liabilities at the date of the financial statements and reported amounts of income and expenses during the reporting periods. Actual results could differ from these estimates.
Risks and Uncertainties -
The Plan invests in various investment instruments, including mutual funds, a collective trust, a pooled fund, and Company common stock. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of certain investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.
Investment Valuation and Income Recognition -
The Plan's investments are stated at fair value. Shares of stock and mutual funds are valued at quoted market prices, which represent the net asset value of shares held by the Plan at year end. The collective trust fund and pooled fund are stated at fair value as determined by the issuer of the collective trust or pooled funds based on the fair market value of the underlying investments. The collective trust fund with underlying investments in benefit-responsive investment contracts is valued at the fair value of the underlying investments and then adjusted by the issuer to contract value.
The Wells Fargo Stable Return Fund is a stable value fund. The Wells Fargo Stable Return Fund is primarily invested in traditional and synthetic guaranteed investment contracts. Traditional contracts are typically issued by insurance companies or banks and are essentially nonmarketable deposits with the issuing entity. The issuer is contractually obligated to repay the principal and stated interest. The repayment of a traditional contract is the sole responsibility of the issuing entity. In the case of a synthetic guaranteed investment contract, the fund purchases high-quality debt obligations and enters into contractual arrangements with third parties to provide a guarantee of book (contract) value and specified interest. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. Contract value represents contributions made to the fund, plus earnings, less participant withdrawals.
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946 ,
Financial
Statements - Investment Companies
and FASB ASC 962,
Plan Accounting - Defined Contribution Pension Plans
, investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The Plan invests in fully benefit-responsive guaranteed investment contracts (“GICs”) and synthetic investment contracts (“synthetic GICs”). As required by generally accepted accounting principles, the statements of net assets available for benefits present the fair value of the interest in collective trust fund relating to fully benefit-responsive investment contracts and the adjustment from fair value to contract value for interest in collective trust fund relating to fully benefit-responsive investment contracts.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Benefit Payments -
Benefit payments to participants are recorded when paid. There were no amounts payable to participants who elected to withdraw from the Plan but had not been paid at December 31, 2012 or December 31, 2011.
Administrative Expenses -
The Plan pays all administrative expenses.
Plan Termination -
The Company may terminate the Plan at any time. Distribution upon termination or complete discontinuance of contributions will be made in a manner selected by the Trustee. Presently, the Company has no intention to terminate the Plan. In the event that the Plan is terminated, participants would become 100% vested in their accounts.
Notes Receivable from Participants -
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are recorded as distributions based on the terms of the plan document.
The following presents investments that represent five percent or more of the Plan's net assets as of December 31, 2012 and 2011. All investments are participant directed.
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Wells Fargo Stable Return Fund*
|
$
|
69,286,744
|
|
|
$
|
65,087,719
|
|
Regal Beloit Corporation Common Stock*
|
24,141,401
|
|
|
20,640,862
|
|
Vanguard Wellington Fund
|
23,397,866
|
|
|
—
|
|
Pimco Total Return Fund #35
|
22,327,686
|
|
|
—
|
|
Vanguard Target Retirement 2015
|
20,583,894
|
|
|
17,259,073
|
|
Fidelity Contrafund #22
|
19,393,393
|
|
|
17,683,239
|
|
Vanguard Institutional Index Fund
|
19,050,335
|
|
|
17,125,978
|
|
Dodge & Cox Balanced Fund
|
—
|
|
|
22,034,082
|
|
Pimco Total Return Fund*
|
—
|
|
|
18,775,882
|
|
*Represents a party-in-interest
|
|
|
|
During the years ended December 31, 2012 and 2011, the Plan's investments (including gains and losses in investments bought and sold, as well as held during the year) appreciated (depreciated) in value as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Regal Beloit Corporation Common Stock*
|
$
|
7,681,372
|
|
|
$
|
(6,089,789
|
)
|
Collective Trust and Pooled Funds*
|
2,707,702
|
|
|
1,564,684
|
|
Mutual Funds
|
22,548,975
|
|
|
(6,542,690
|
)
|
|
$
|
32,938,049
|
|
|
$
|
(11,067,795
|
)
|
*Represents a party-in-interest
|
|
|
|
|
|
4.
|
PLAN INVESTMENT CLASSIFICATIONS
|
In accordance with the Financial Accounting Standards Board's statement on Fair Value Measurements, the Plan classifies its investments into Level 1, which refers to securities valued using quoted prices from active markets for identical assets, Level 2, which refers to securities not traded on an active market but for which observable market inputs are readily available, and Level 3, which refers to securities valued based on significant unobservable inputs. As required by the statement on Fair Value Measurements, at December 31, 2012 and December 31, 2011, the Plan's portfolio investments were classified as follows based on fair values:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Held Inside the Plan
|
|
Fair Value Measurement Reporting
|
|
December 31, 2012
|
|
Balance
|
Level 1
|
Level 2
|
Level 3
|
Registered investment companies:
|
|
|
|
|
U.S. equity funds
|
$
|
153,668,819
|
|
$
|
153,668,819
|
|
$
|
—
|
|
$
|
—
|
|
International equity funds
|
14,506,375
|
|
14,506,375
|
|
—
|
|
—
|
|
Fixed income funds
|
29,523,130
|
|
29,523,130
|
|
|
—
|
|
Balanced Funds
|
23,397,866
|
|
23,397,866
|
|
|
|
Collective trust fund:
|
|
|
|
|
Fixed income fund
|
69,286,744
|
|
—
|
|
69,286,744
|
|
—
|
|
Regal Beloit Corporation Common Stock
|
24,141,401
|
|
24,141,401
|
|
—
|
|
—
|
|
Money market funds
|
373,867
|
|
—
|
|
373,867
|
|
—
|
|
Total
|
$
|
314,898,202
|
|
$
|
245,237,591
|
|
$
|
69,660,611
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Held Inside the Plan
|
|
Fair Value Measurement Reporting
|
|
December 31, 2011
|
|
Balance
|
Level 1
|
Level 2
|
Level 3
|
Registered investment companies:
|
|
|
|
|
U.S. equity funds
|
$
|
133,608,500
|
|
$
|
131,382,922
|
|
$
|
2,225,578
|
|
$
|
—
|
|
International equity funds
|
11,794,434
|
|
11,794,434
|
|
—
|
|
—
|
|
Fixed income funds
|
4,668,240
|
|
4,668,240
|
|
|
—
|
|
Balanced Funds
|
22,034,082
|
|
22,034,082
|
|
|
|
Collective trust and pooled funds:
|
|
|
|
|
Fixed income funds
|
83,863,602
|
|
—
|
|
83,863,602
|
|
—
|
|
Regal Beloit Corporation Common Stock
|
20,640,862
|
|
20,640,862
|
|
—
|
|
—
|
|
Money market funds
|
572,622
|
|
—
|
|
572,622
|
|
—
|
|
Total
|
$
|
277,182,342
|
|
$
|
190,520,540
|
|
$
|
86,661,802
|
|
$
|
—
|
|
The following table summarizes the fair value measurements of investments held in the Plan that were calculated using a net asset value per share:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Estimated Using Net asset Value per Share
|
|
December 31, 2012
|
|
|
|
|
Redemption
|
|
|
Unfunded
|
Redemption
|
Notice
|
Investment
|
Fair Value
|
Commitment
|
Frequency
|
Period
|
Collective trust fund (a)
|
$
|
69,286,744
|
|
$
|
—
|
|
Immediate
|
None
|
|
$
|
69,286,744
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Estimated Using Net asset Value per Share
|
|
December 31, 2011
|
|
|
|
|
Redemption
|
|
|
Unfunded
|
Redemption
|
Notice
|
Investment
|
Fair Value
|
Commitment
|
Frequency
|
Period
|
Collective trust and pooled funds (a)
|
$
|
83,863,602
|
|
$
|
—
|
|
Immediate
|
None
|
|
$
|
83,863,602
|
|
$
|
—
|
|
|
|
|
|
(a)
|
This category includes investments in the Wells Fargo Stable Return Fund and in 2011 the Pimco Total Return Fund. The Wells Fargo Stable Return Fund invests in securities and intermediate-term dollar bonds to obtain a high level of current income to the extent consistent with the preservation of capital and maintenance of liquidity. The Pimco Total Return Fund invests in a diversified portfolio of fixed income instruments to seek maximum total return with preservation of capital and prudent investment management.
|
5.
PARTICIPANT ACCOUNTING
Participant recordkeeping is performed by Wells Fargo Institutional Retirement and Trust (“Wells Fargo”). For all investment programs other than the Regal Beloit Corporation Unitized Stock Fund (the “Fund”), Wells Fargo maintains participant balances on a share method. Participant investments in the Fund are accounted for on a unit value method. The unit value for the Fund is computed based on the share price, dividend information, and the value of the Fund's short term investments. At December 31, 2012 and 2011, the Plan held 272,242 units and 326,976 units, respectively, of the Fund. The Fund invests in shares of Regal Beloit Corporation common stock and held 342,577 shares and 404,961 shares at December 31, 2012 and
2011, respectively. In addition to Regal Beloit Corporation common stock, the Fund also invests in the Wells Fargo Short Term Investment Fund. Dividend income recorded by the fund for the years ended December 31, 2012 and 2011 was $276,533 and $278,575, respectively.
The Plan received a favorable IRS determination letter from the IRS on June 3, 2010. The Plan has been amended since receiving the determination letter. The Company and Plan's management believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC and the Plan and related trust continue to be tax-exempt. Therefore, no provision for income taxes has been included in the Plan's financial statements.
Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the United States Internal Revenue Service. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2012, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2009.
|
|
7.
|
EXEMPT PARTY-IN-INTEREST TRANSACTIONS
|
Certain Plan investments are shares of mutual funds, a pooled fund and a common collective trust fund that are managed by Wells Fargo Institutional Retirement and Trust. Wells Fargo is the trustee of the Plan and, therefore, these transactions qualify as exempt party-in-interest transactions. Fees paid by the Plan for investment management and recordkeeping service are included as a reduction of the return earned by each fund. In addition, the Plan invests in securities of the Company. These transactions are not considered prohibited transactions by statutory exemption under ERISA regulations.
8.
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following table reconciles the Statements of Net Assets Available for Benefits and the Statements of Changes in Net Assets available for Benefits to the Form 5500.
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
2012
|
|
2011
|
Total Net Assets Per Form 5500
|
$
|
343,435,091
|
|
|
$
|
286,427,951
|
|
Adjustments from fair value to contract value to contract value for interest in collective trust fund relating to fully benefit-responsive investment contracts
|
(1,953,169
|
)
|
|
(1,649,869
|
)
|
Defaulted Loans
|
72,658
|
|
|
59,063
|
|
Accrued Administrative Fees
|
(3,100
|
)
|
|
(3,100
|
)
|
Net Assets Per Statement of Net Assets Available for Benefits
|
$
|
341,551,480
|
|
|
$
|
284,834,045
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
2012
|
|
2011
|
Net Increase (Decrease) Per Form 5500
|
$
|
37,726,591
|
|
|
$
|
(3,121,458
|
)
|
Defaulted Loans
|
13,595
|
|
|
50,000
|
|
Adjustments from fair value to contract value to contract value for interest in collective trust fund relating to fully benefit-responsive investment contracts
|
(303,300
|
)
|
|
(783,022
|
)
|
Net Increase (Decrease) Per Statements of Changes in Net Assets Available for Benefits
|
$
|
37,436,886
|
|
|
$
|
(3,854,480
|
)
|
SUPPLEMENTAL SCHEDULE
FURNISHED PURSUANT TO
DEPARTMENT OF LABOR'S RULES AND REGULATIONS