UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File number 1-7283

Regal Beloit Corporation

(Exact Name of Registrant as Specified in Its Charter)

Wisconsin		39-0875718
(State of Incorporation)		(IRS Employer Identification No.)

200 State Street, Beloit, Wisconsin 53511
(Address of principal executive offices)

(608) 364-8800

		Name of Each Exchange on
Title of Each Class		Which Registered
Common Stock ($.01 Par Value)		New York Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act

None

Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 3, 2010 was approximately $2.1 billion.

On February 22, 2011, the registrant had outstanding 38,627,709 shares of common stock, $.01 par value, which is registrant’s only class of common stock.

Certain information contained in the Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 2011 is incorporated by reference into Part III, hereof.

 

 

REGAL BELOIT CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED JANUARY 1, 2011

TABLE OF CONTENTS

		Page
PART I
Item 1 Business			4
Item 1A Risk Factors			13
Item 1B Unresolved Staff Comments			19
Item 2 Properties			20
Item 3 Legal Proceedings			21
Item 4 Removed and Reserved			21
PART II
Item 5 Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities			22
Item 6 Selected Financial Data			24
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation			25
Item 7A Quantitative and Qualitative Disclosures About Market Risk			34
Item 8 Financial Statements and Supplementary Data			36
Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure			65
Item 9A Controls and Procedures			65
Item 9B Other Information			65
PART III
Item 10 Director, Executive Officers and Corporate Governance			66
Item 11 Executive Compensation			66
Item 12 Security Ownership of Certain Beneficial Owners and Management			66
Item 13 Certain Relationships and Related Transactions and Director Independence			66
Item 14 Principal Accountant Fees and Services			66
PART IV
Item 15 Exhibits, Financial Statement Schedule			67
SIGNATURES			68
Exhibit 10.17
Exhibit 12
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

CAUTIONARY STATEMENT

This Annual Report on Form 10-K contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent our management’s judgment regarding future events. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “plan,” “expect,” “anticipate,” “estimate,” “believe,” or “continue” or the negative of these terms or other similar words. Actual results and events could differ materially and adversely from those contained in the forward-looking statements due to a number of factors, including:

•

actions taken by our competitors and our ability to effectively compete in the increasingly competitive global electric motor, power generation and mechanical motion control industries;

•

our ability to develop new products based on technological innovation and the marketplace acceptance of new and existing products;

•

fluctuations in commodity prices and raw material costs;

•

our dependence on significant customers;

•

issues and costs arising from the integration of acquired companies and businesses, including the timing and impact of purchase accounting adjustments;

•

our dependence on key suppliers and the potential effects of supply disruptions;

•

infringement of our intellectual property by third parties, challenges to our intellectual property, and claims of infringement by us of third party technologies;

•

increases in our overall debt levels as a result of acquisitions or otherwise and our ability to repay principal and interest on our outstanding debt;

•

product liability and other litigation, or the failure of our products to perform as anticipated, particularly in high volume applications;

•

difficulties consummating the pending acquisition of the Electrical Products Company of A.O. Smith Corporation that may have a negative impact on our results of operations;

•

economic changes in global markets where we do business, such as reduced demand for the products we sell, currency exchange rates, inflation rates, interest rates, recession, foreign government policies and other external factors that we cannot control;

•

unanticipated liabilities of acquired businesses;

•

cyclical downturns affecting the global market for capital goods;

•

difficulties associated with managing foreign operations; and

•

other risks and uncertainties including but not limited to those described in “Risk Factors” in this Annual Report on Form 10-K and from time to time in our reports filed with U.S. Securities and Exchange Commission.

All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. The forward-looking statements included in this Annual Report on Form 10-K are made only as of their respective dates, and we undertake no obligation to update these statements to reflect subsequent events or circumstances. See also “Risk Factors.”

PART I

Unless the context requires otherwise, references in this Annual Report to “we,” “us,” “our” or the “Company” refer collectively to Regal Beloit Corporation and its subsidiaries.

References in an Item of this Annual Report on Form 10-K to information contained in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 2011 (the “2011 Proxy Statement”) or to information contained in specific sections of the Proxy Statement, incorporate the information into that Item by reference.

We operate on a 52/53 week fiscal year ending on the Saturday closest to December 31. We refer to the fiscal year ended January 1, 2011 as “fiscal 2010,” the fiscal year ended January 2, 2010 as “fiscal 2009,” and the fiscal year ended December 27, 2008 as “fiscal 2008.”

ITEM 1 —		BUSINESS

Our Company

We are a global manufacturer of electric motors and controls, electric generators and controls, and mechanical motion control products. Many of our products feature energy efficiency technology, and electronics. Our energy efficiency product portfolio offers lower operating costs to our customers and a significant marketing benefit to our original equipment manufacturer (“OEM”) customers. Our electrical products primarily include AC and DC commercial and industrial electric motors and controls, motors used in heating, ventilation, and air conditioning (“HVAC”) and commercial refrigeration applications, electric generators and controls, and capacitors. Our mechanical products include primarily gears and gearboxes, marine transmissions, high-performance automotive transmissions, manual valve actuators, and electrical connectivity devices.

We believe we have one of the most comprehensive product lines in the industries we serve. We market our products using over 30 recognized brand names, with most brands having their own product offerings and sales organizations. These sales organizations consist of varying combinations of our own internal direct sales people as well as exclusive and non-exclusive manufacturers’ representative organizations. Through this multi-channel distribution model, we sell our products to a diverse global customer base consisting primarily of leading OEMs, distributors and end users. We believe this strategy, coupled with a high level of customer service, provides us with a competitive selling advantage and allows us to more fully serve our customers.

We manufacture the vast majority of the products that we sell, and we have manufacturing, sales, engineering, and distribution facilities primarily in the United States, Mexico, China, India and Australia, as well as a number of other locations throughout the world.

OEMs and end users in a variety of motion control and other industrial applications typically combine the types of electrical and mechanical products we offer. We seek to take advantage of this practice and to enhance our product penetration by leveraging cross-marketing and product line combination opportunities between our electrical and mechanical products. Our growth strategy also includes (i) driving organic growth through the introduction of innovative new products, (ii) establishing and maintaining new customers, as well as developing new opportunities with existing customers, (iii) participating in higher growth geographic markets, and (iv) identifying and consummating strategic, value creating acquisitions. We consider our acquisition process, including identification, due diligence, and integration, to be one of our core competencies.

Our business initiatives include:

•

Customer Care: Our future depends on the success of our customers. We will maintain close relationships with our customers, actively listen to their feedback and respond with a sense of urgency.

•

Globalization: We want to be global for three reasons. First, we want to participate in high growth markets around the world. Second, many of our customers are global and we want to serve customers where they do business. Finally, we want to utilize our global capabilities to seek out the best talent and to remain globally competitive.

•

Innovation: We will build our future on products that are new and needed. While we accept that with an innovation focus comes a certain degree of risk, we are committed to investing in new products, technologies and processes that deliver value to our customers.

•

Sustainability: The long term sustainability of our Company requires not only continuous growth and profitability, but also that we take personal responsibility for the impact we have on our planet, and for the fair and just treatment of the people we employ.

•

Simplification: Complexity is a serious disadvantage in business. We aim to simplify every aspect of our operations to eliminate complexities in order to increase our speed, improve our flexibility and reduce our costs.

Reporting Segments

We have two reporting segments: Electrical and Mechanical. Financial information on our reporting segments for fiscal 2010, fiscal 2009, and fiscal 2008 is contained in Note 16 of the Notes to Consolidated Financial Statements.

Electrical Segment

Our Electrical segment includes AC and DC commercial and industrial electric motors and controls, HVAC and commercial refrigeration motors, electric generators and controls, and capacitors. We believe our motor products are uniquely positioned to help our customers and end consumers achieve greater energy efficiency, resulting in significant cost savings for the consumer and preservation of natural resources and our environment. We estimate that approximately 40-50% of all electricity generated in the U.S. is consumed by electric motors.

Our Electrical segment has continued to grow over time, primarily due to strategic acquisitions. For example, during 2010, we completed six acquisitions. These acquisitions (each of which is reported as part of the Electrical segment, except for CMG Engineering Group Pty, Ltd. (“CMG”), which is reported as part of both the Electrical and Mechanical segments) included:

•

On December 23, 2010, we acquired Unico, Inc. (“Unico”), located in Franksville, Wisconsin. Unico manufactures a full range of AC and DC drives, motor controllers and other accessories for most industrial and commercial applications. Unico has developed proprietary technology in the fields of oil and gas recovery technology, commercial HVAC technology, test stand automation and other applications.

•

On December 1, 2010, we acquired South Pacific Rewinders (“SPR”), located in Auckland, New Zealand. SPR operates as a motor rewinder and distributor in the Pacific region.

•

On November 1, 2010, we acquired 55% of Elco Group B.V. (“Elco”), located in Milan, Italy. Elco manufactures and sells motors, fans and blowers and has manufacturing facilities in Italy, China and Brazil.

•

On September 1, 2010, we acquired Rotor B.V. (“Rotor”), located in Eibergen, the Netherlands. Rotor sells standard and special electric motors to a variety of industries including the marine industry, ship building and offshore oil and gas. In addition to the Netherlands, Rotor also sells throughout Europe, the United Kingdom and Japan.

•

On May 4, 2010, we acquired Air-Con Technology (“Air-Con”), located in Mississauga, Ontario, Canada. Air-Con is a distributor of HVACR electric motors.

•

On April 6, 2010, we acquired CMG, located in Melbourne, Australia. CMG manufactures and sells fractional horsepower industrial motors, blower systems, and industrial metal products with operations in Australia, New Zealand, South Africa, Malaysia, Singapore, the United Kingdom and the Middle East. CMG also distributes integral horsepower industrial motors, mechanical power transmission products, material handling equipment, electrical insulation materials, magnet wire and specialty conductors in Australia and New Zealand.

Our Electrical segment manufactures and markets AC and DC commercial, industrial, commercial refrigeration, and HVAC electric motors and blowers. These products range in size from sub-fractional to small integral horsepower motors to larger commercial and industrial motors from 50 through 6500 horsepower. We offer thousands of stock models of electric motors in addition to the motors we produce to specific customer specifications. We also produce and market precision servo motors, electric generators ranging in size from five kilowatts through four megawatts, automatic transfer switches and paralleling switchgear to interconnect and control electric power generation equipment. Additionally, our Electrical segment manufactures and markets a line of AC and DC variable speed drives and controllers and other accessories for most industrial and commercial applications. We manufacture capacitors for use in HVAC systems, high intensity lighting and other applications. We sell our Electrical segment’s products to original equipment manufacturers, distributors and end users across many markets.

Our HVAC electric motors and blowers are vital components of an HVAC system and are used to move air into and away from furnaces, heat pumps, air conditioners, ventilators, fan filter boxes, water heaters, and humidifiers. We believe that a majority of our HVAC motors replace existing motors or are part of a new HVAC system that replaces an existing HVAC system. The remainder of sales are used in a HVAC system for new home construction. The business enjoys a large installed base of equipment and long-term relationships with its major customers.

Our power generation business, which includes electric generators and power generation components and controls, represents a portion of our Electrical segment’s net sales. The market for electric power generation components and controls has grown in recent years as a result of a desire on the part of end users to reduce losses due to power disturbances and the increased need for prime power in certain applications. Our generators are used in industrial, commercial, agricultural, marine, military, transportation, construction, and other applications.

We leverage material and manufacturing efficiencies across our motor and power generation operations. We centralize the manufacturing, purchasing, engineering, accounting, information technology and quality control activities of our Electrical segment. Furthermore, we specifically foster the sharing of best practices across each of the Electrical segment businesses and create focused centers of excellence in each of our manufacturing functions. We focus on cost reduction and value added engineering opportunities for our customers.

The following is a description of our major Electrical product brands and the primary products that they manufacture and market:

•

CMG. Manufactures fractional horsepower industrial motors and blower systems and distributes integral horsepower motors, mechanical power transmission products, material handling equipment, electrical insulation materials, magnet wire, and specialty conductors under the brands CMG, OBA, Transmission Australia, and Torin.

•

Dutchi Motors. Distributor of International Electrotechnical Commission (“IEC”) and National Electric Manufacturers Association (“NEMA”) electric motors for industrial applications in Western and Eastern Europe, Russia and the Middle East.

•

Elco. Manufactures fractional horsepower motors and blower systems for the commercial refrigeration markets.

•

Fasco Motors. Manufactures motors and blower systems for air moving applications including alternative fuel systems, water heaters, appliances, pumps, and HVAC systems.

•

Genteq. Manufactures fractional AC, high efficiency brushless DC and ECM motors for application in the HVAC market, mainly to OEMs.

•

Hwada Motors. Manufactures Integrated IEC and NEMA motors for various industrial applications such as compressor, pump, paper and steel processing and power plants.

•

LEESON Electric. Manufactures and distributes AC motors up to 800 horsepower and DC motors up to five horsepower, gear reducers, gearmotors and drives primarily for the power transmission, pump, food processing, fitness equipment and industrial machinery markets.

•

Lincoln Motors. Manufactures AC motors from 1/4 horsepower to 800 horsepower primarily for industrial and commercial pumps, compressors, elevators, machine tools, and specialty products.

•

Marathon Electric. Manufactures AC motors up to 800 horsepower primarily for pumps, power transmissions, fans and blowers, compressors, HVAC, agriculture products, processing and industrial manufacturing equipment.

•

Marathon Electric Motors (India) Ltd. Manufactures a full range (from 1 to 3500 horsepower) of low and medium voltage industrial motors and fans for the industrial and process markets in India.

•

Marathon Generators. Manufactures AC generators from five kilowatts to four megawatts that primarily serve the standby power, prime power, refrigeration, industrial and irrigation markets.

•

Morrill Motors. Manufactures fractional horsepower motors, blowers and components for the commercial refrigeration and freezer markets.

•

Rotor. Distributes standard and special electric motors to a variety of industries including marine, ship building and offshore oil and gas.

•

Thomson Technology. Manufactures automatic transfer switches, paralleling switchgear and controls, and systems controls primarily for the electric power generation market.

•

Unico. Manufactures a full range of AC and DC drives, motor controllers and other accessories for most industrial and commercial applications. Unico has developed proprietary technology in the field of oil and gas recovery, commercial HVAC and test stand automation.

Mechanical Segment

Our Mechanical segment manufactures and markets a broad array of mechanical motion control products including standard and custom worm gears, bevel gears, helical gears and concentric shaft gearboxes; marine transmissions; high-performance after-market automotive transmissions and ring and pinions; custom gearing; gearmotors; manual valve actuators; and electrical connecting devices. Our gear and transmission related products primarily control motion by transmitting power from a source, such as an electric motor, to an end use, such as a conveyor belt, usually reducing speed and increasing torque in the process. Our valve actuators are used primarily in oil and gas, water distribution and treatment and chemical processing applications. Mechanical products are sold to original equipment manufacturers, distributors and end users across many industry segments.

The following is a description of our major Mechanical segment brands and the primary products they manufacture and market:

•

Durst. Manufactures standard and specialized industrial transmissions, hydraulic pump drives and gears for turbines used in power generation primarily for the construction, agriculture, energy, material handling, forestry, lawn and garden and railroad maintenance markets.

•

Grove Gear/Electra-Gear. Manufactures standard and custom industrial gear reducers and specialized aluminum gear reducers and gearmotors primarily for the material handling, food processing, robotics, power transmission, medical equipment and packaging markets.

•

Hub City/Foote-Jones. Manufactures gear drives, sub-fractional horsepower gearmotors, mounted bearings, large-scale parallel shaft and right-angle gear drives and accessories primarily for the packaging, construction, material handling, food processing mining, oil, pulp and paper, forestry, aggregate, construction and steel markets.

•

Marathon Special Products. Manufactures fuse holders, terminal blocks, and power blocks primarily for the HVAC, telecommunications, electric control panel, utilities and transportation markets.

•

Mastergear. Manufactures manual valve actuators for liquid and gas flow control primarily for the petrochemical processing, fire protection and wastewater markets. Mastergear has locations in the United States and Europe.

•

Richmond Gear. Manufactures ring and pinions and transmissions primarily for the high-performance automotive aftermarket.

•

Sankey. Manufactures electrical steel components, general metal product stampings, products for building including expanded metal mesh products, and aluminum and zinc die-cast products.

•

Velvet Drive Transmissions. Manufactures marine transmissions primarily for the pleasure boat and yacht markets.

The Building of Our Business

Our growth from our founding in 1955 to our current size has largely been the result of the acquisition and integration of businesses to build a strong multi-product offering. Our senior management has substantial experience in the acquisition and integration of businesses, aggressive cost management, and efficient manufacturing techniques, all of which represent activities that are critical to our long-term growth strategy. Our organic and acquisition growth has rapidly moved the Company into other regions of the world where market and growth fundamentals are more favorable and aligned with our business strategy. We consider the identification of acquisition candidates and the purchase and integration of businesses to be one of our core competencies. The following table summarizes acquisitions from 2008 to 2010:

				Annual Revenues
		Year		at Acquisition
		Acquired		(in millions)				Primary Products at Acquisition
Unico		2010		$	62			Manufactures AC and DC drives, motor controllers used in oil and gas recovery, commercial HVAC technology, and test stand automation and development
South Pacific Rewinders		2010			1			Rewinder and distributor of electric motors
Elco		2010			80			Manufactures motors, fans and blowers used in HVAC and commercial refrigeration applications for markets in Europe, South America and Asia
Rotor		2010			32			Distributes standard and special electric motors used in general industrial and marine applications in the Netherlands, Europe, United Kingdom and Japan
Air-Con		2010			1			Distributor of HVAC electric motors in Canada
CMG		2010			120			Manufactures and distributes fractional horsepower industrial motors and blower systems in Australia, New Zealand, South Africa, Malaysia, Singapore, United Kingdom and the Middle East.
Custom Power Technology		2009			2			Manufactures customer power electronics in the U.S.
Dutchi Motors		2008			56			Distributor of IEC and NEMA electric motors for industrial applications in Western and Eastern Europe, Russia and the Middle East
Hwada Motors		2008			105			Integral IEC and NEMA electric motors for industrial applications

Sales, Marketing and Distribution

We sell our products directly to OEMs, distributors and end-users. We have multiple business units, and each unit typically has its own branded product offering and sales organization. These sales organizations consist of varying combinations of our own internal direct sales people as well as exclusive and non-exclusive manufacturers’ representative organizations.

We maintain a large distribution facility in Indianapolis, Indiana which serves as a hub for our North American distribution and logistics operations. Products are shipped from this facility to our customers utilizing our fleet of trucks and trailers as well as common carriers. We maintain numerous warehouse and distribution facilities in our global markets to service the needs of our customers. In addition, we have many manufacturer representatives’ warehouses located in specific geographic areas to serve local customers.

We had no customers that accounted for more than 10% of our consolidated net sales in fiscal 2010, fiscal 2009 or fiscal 2008.

Competition

General

During the past several years, certain product opportunities have become more prevalent due to changing customer requirements. Our customers, which historically may have made component products for inclusion in their finished goods, are increasingly choosing to outsource their requirements to specialized manufacturers like us because we can make these products more cost effectively. In order to better position us for growth in this competitive climate, we have focused on making strategic acquisitions and improving our manufacturing efficiencies. Some of these acquisitions have created new opportunities by allowing us to provide new and broader product offerings and serve customers in a wider variety of applications.

We believe that we compete primarily on the basis of quality, price, service, technology, promptness of delivery, and the overall value of our products.

Electrical Segment

Electric motor manufacturing is a highly competitive global industry in which there is greater emphasis on reducing costs, boosting efficiency and promoting energy savings. We compete with a growing number of domestic and international competitors due in part to the nature of the products we manufacture and the wide variety of applications and customers we serve. Many manufacturers of electric motors operate production facilities in many different countries, producing products for both the domestic and export markets. Electric motor manufacturers from abroad, particularly those located in China, India and elsewhere in Asia, provide increased competition as they expand their market penetration around the world, especially in North America. Additionally, there is a recent trend toward global industry consolidation. In 2010, Nidec Corporation (Kyoto, Japan) (“Nidec’) acquired a portion of the motors and controls business of Emerson Electric Company, a leading manufacturer of electric motors and process controls based in St. Louis, Missouri. In 2011, ABB Ltd. (Zurich, Switzerland) (“ABB”) acquired Baldor Electric Company, a leading manufacturer of electric motors and drives based in Fort Smith, Arkansas.

Our major foreign competitors for electrical products include Broad-Ocean Motor Co., Welling Holding Limited, Kirloskar Brothers Limited, ebm-papst, Crompton Greaves, Johnson Electric, Siemens AG, Toshiba Corporation, Panasonic Corporation, Leroy-Somer (a subsidiary of Emerson Electric Company), Weg S.A., Nidec, TECO and ABB. Our major domestic competitors for electrical products include Baldor Electric (a subsidiary of ABB), U.S. Electric (a subsidiary of Nidec), Emerson Electric Company, A. O. Smith Corporation, General Electric Company, Bluffton Motor Works, McMillan Electric Company and Newage (a division of Cummins, Inc). On balance, the demarcation between domestic U.S. and foreign manufacturers is blurring as competition becomes more and more global.

Mechanical Segment

We provide various mechanical product applications and compete with a number of different companies depending on the particular product offering. We believe that we are a leading manufacturer of several mechanical products and that we are the leading manufacturer in the United States of worm gear drives and bevel gear drives. Our major domestic competitors include Boston Gear (a division of Altra Industrial Motion, Inc.), Dodge (a subsidiary of ABB), Emerson Electric Company and Winsmith (a division of Peerless-Winsmith, Inc.). Our major foreign competitors include SEW Eurodrive GmbH & Co., Flender GmbH, Nord, Sumitomo Corporation and Zahnrad Fabrik GmbH Co.

Product Development and Engineering

We believe that innovation is critical to our future growth and success. We are committed to investing in new products, technologies and processes that deliver real value to our customers. We believe the key driver of our innovation strategy is the development of products that include energy efficiency, embedded intelligence, and variable speed technology solutions.

Each of our business units has its own product development and design team that continuously work to enhance our existing products and develop new products for our growing base of customers that require custom and standard solutions. We believe we have state of the art product development and testing laboratories. We believe these capabilities provide a significant competitive advantage in the development of high quality motors and electric generators incorporating leading design characteristics such as low vibration, low noise, improved safety, reliability and enhanced energy efficiency.

We are continuing to expand our business by developing new, differentiated products in each of our business units. We work closely with our customers to develop new products or enhancements to existing products that improve performance and meet their needs.

Manufacturing and Operations

We have developed and acquired global operations in lower cost locations such as Mexico, India, Thailand, and China to participate in regions with higher economic growth, to follow our multinational customers, and to complement our flexible, rapid response operations in the United States, Canada and Europe. Our vertically integrated manufacturing operations, including our own aluminum die casting and steel stamping operations, are an important element of our rapid response capabilities. In addition, we have an extensive internal logistics operation and a network of distribution facilities with the capability to modify stock products to quickly meet specific customer requirements in many instances. This gives us a competitive advantage as we are able to efficiently and promptly deliver a customer’s unique product to the desired location.

We manufacture a majority of the products that we sell, but also strategically outsource components and finished goods from an established global network of suppliers. We aggressively pursue global sourcing to reduce our overall costs. We generally maintain a dual sourcing capability in our existing domestic facilities to ensure a reliable supply source for our customers, although we do depend on a limited number of key suppliers for certain materials and components. We regularly invest in machinery and equipment and other improvements to, and maintenance of, our facilities. Additionally, we have typically obtained significant amounts of quality capital equipment as part of our acquisitions, often increasing overall capacity and capability. Base materials for our products consist primarily of steel, copper and aluminum. Additionally, significant components consist of bearings, electronics, ferrous and non-ferrous castings, and weldments.

We continually upgrade our manufacturing equipment and processes, including increasing our use of computer aided manufacturing systems and developing our own testing systems. To drive the continuous improvement process, we have deployed Lean Six Sigma across our facilities worldwide in order to develop our people and deploy our processes. The initiative has generated significant cost saving by eliminating waste, improving safety, quality, delivery, and reducing cycle times. We have trained over 1,700 people since the program began in 2005. Our goal is to be a low cost and high quality producer in our core product areas.

Facilities

We have manufacturing, sales and service facilities primarily in the United States, Mexico, China, India and Australia, as well as a number of other locations throughout the world. Our Electrical segment currently includes 108 manufacturing, service and distribution facilities, of which 45 are principal manufacturing facilities. The Electrical segment’s present operating facilities contain a total of approximately 8.1 million square feet of space of which approximately 44.0% are leased. Our Mechanical segment currently includes 11 manufacturing, service and distribution facilities, of which 6 are principal manufacturing facilities. The Mechanical segment’s present operating facilities contain a total of approximately 0.8 million square feet of space of which approximately 5.0% are leased. Our principal executive offices are located in Beloit, Wisconsin in an owned approximately 54,000 square foot office building. We believe our equipment and facilities are well maintained and adequate for our present needs.

Backlog

Our business units have historically shipped the majority of their products in the month the order is received. As of January 1, 2011, our backlog was $340.2 million, as compared to $264.7 million on January 2, 2010. We believe that virtually all of our backlog will be shipped in 2011.

Patents, Trademarks and Licenses

We own a number of United States patents and foreign patents relating to our businesses. While we believe that our patents provide certain competitive advantages, we do not consider any one patent or group of patents essential to our business other than our ECM patents which relate to a material portion of our sales. We also use various registered and unregistered trademarks, and we believe these trademarks are significant in the marketing of most of our products. However, we believe the successful manufacture and sale of our products generally depends more upon our technological, manufacturing and marketing skills.

Employees

As of the close of business on January 1, 2011, we employed approximately 18,500 employees worldwide. We consider our employee relations to be very good.

Executive Officers

The names, ages, and positions of our executive officers as February 15, 2011, 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. 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.

Name		Age				Position		Business Experience and Principal Occupation
Henry W. Knueppel			62			Chairman and Chief Executive Officer		Elected Chairman in April 2006; elected Chief Executive Officer April 2005; served as President from April 2002 to December 2005 and Chief Operating Officer from April 2002 to April 2005; joined the Company in 1979. In December 2010, Mr. Knueppel announced his plan to retire as CEO, effective in May 2011. Mr. Knueppel will remain as Chairman of the Board through the end of 2011.
Mark J. Gliebe			50			President and Chief Operating Officer		Elected President and Chief Operating Officer in December 2005. Joined the Company in January 2005 as Vice President and President — Electric Motors Group, following our acquisition of the HVAC motors and capacitors businesses from GE; previously employed by GE as the General Manager of GE Motors & Controls in the GE Consumer & Industrial business unit from June 2000 to December 2004. In December 2010, the Board of Directors named Mr. Gliebe as CEO, effective upon Mr. Knueppel’s retirement in May 2011.
Charles A. Hinrichs			57			Vice President and Chief Financial Officer		Joined the Company and was elected Vice President, Chief Financial Officer in September 2010. Prior to joining the Company, Mr. Hinrichs was Senior Vice President and Chief Financial Officer at Smurfit-Stone Container Corporation, where he worked from 1995 to 2009. On January 26, 2009, Smurfit-Stone Container Corporation and its primary operating subsidiaries filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in Wilmington, Delaware, and emerged from bankruptcy in July 2010.
Peter C. Underwood			41			Vice President, General Counsel and Secretary		Joined the Company and was elected Vice President, General Counsel and Secretary in September 2010. Prior to joining the Company, Mr. Underwood was a partner with the law firm of Foley & Lardner LLP from 2005 to 2010 and an associate from 1996 to 2005.
Terry R. Colvin			55			Vice President Corporate Human Resources		Joined the Company in September 2006 and was elected Vice President Corporate Human Resources in January 2007. Prior to joining the Company, Mr. Colvin was Vice President of Human Resources for Stereotaxis Corporation from 2005 to 2006.
John M. Avampato			49			Vice President Information Technology		Joined the Company in April 2006 and was elected Vice President Information Technology in April 2010. Prior to joining the Company, Mr. Avampato was with Newell Rubbermaid from 1984 to 2006 where he was Vice President, Chief Information Officer from 1999 to 2006.

Pending Acquisition of Electrical Products Company of A.O. Smith Corporation

On December 12, 2010, we entered into an agreement with A.O. Smith Corporation (the “EPC Purchase Agreement”) pursuant to which we will acquire 100% of the stock and assets of the Electrical Products Company (“EPC”) of A.O. Smith Corporation (the “EPC Acquisition”). The total consideration for the transaction is $875 million, including $700 million of cash and $175 million in shares of our common stock.

EPC is based in Tipp City, Ohio and has operations in the United States, Mexico, China and the United Kingdom. The transaction will expand our global manufacturing capabilities and allow us to offer a more complete array of products and technologies to our customers. Targeted synergies from the transaction are $30 to $40 million achieved over three to four years.

The closing of the transaction is subject to all customary regulatory approvals, which are still pending as of the date of this filing. On February 4, 2011, we received a request for additional information and documentary material, commonly referred to as a “second request,” from the United States Department of Justice regarding the EPC Acquisition. The request is part of the regulatory process under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and will extend the waiting period under the HSR Act until 30 days after both companies have substantially complied with the requests. We are in the process of gathering information to respond to the request and are working cooperatively with the United States Department of Justice as it reviews the proposed transaction. See “Risk Factors.”

Website Disclosure

Our Internet address is www.regalbeloit.com. We make available free of charge (other than an investor’s own Internet access charges) through our Internet website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission. We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.

ITEM 1A —		RISK FACTORS

You should carefully consider each of the risks described below, together with all of the other information contained in this Annual Report on Form 10-K, before making an investment decision with respect to our securities. If any of the following risks develop into actual events, our business, financial condition or results of operations could be materially and adversely affected and you may lose all or part of your investment.

We operate in the highly competitive global electric motor, power generation and mechanical motion control industries.

The global electric motor, power generation and mechanical motion control industries are highly competitive. We encounter a wide variety of domestic and international competitors due in part to the nature of the products we manufacture and the wide variety of applications and customers we serve. In order to compete effectively, we must retain relationships with major customers and establish relationships with new customers, including those in developing countries. Moreover, in certain applications, customers exercise significant power over business terms. It may be difficult in the short-term for us to obtain new sales to replace any decline in the sale of existing products that may be lost to competitors. Our failure to compete effectively may reduce our revenues, profitability and cash flow, and pricing pressures resulting from competition may adversely impact our profitability.

In addition, some of our competitors are larger and have greater financial and other resources than we do. For example, ABB and Nidec recently established or increased their presence in the electric motor, power generation and mechanical motion control industries in North America through acquisitions, and certain other global competitors have recently established facilities in the United States. There can be no assurance that our products will be able to compete successfully with the products of these other companies.

Our ability to establish, grow and maintain customer relationships depends in part on our ability to develop new products and product enhancements based on technological innovation.

The electric motor industry in recent years has seen significant evolution and innovation, particularly with respect to increasing energy efficiency and control enhancements related to motor products. Our ability to effectively compete in the electric motor industry depends in part on our ability to continue to develop new technologies and innovative products and product enhancements. If we are unable to meet the needs of our customers for innovative products, or if our products become technologically obsolete over time due to the development by our competitors of technological breakthroughs or otherwise, our revenues and results of operations may be adversely affected. In addition, we may incur significant costs and devote significant resources to the development of products that ultimately are not accepted in the marketplace, do not provide anticipated enhancements, or do not lead to significant revenue, which may adversely impact our results of operations.

Our dependence on, and the price of, raw materials may adversely affect our gross margins.

Many of the products we produce contain key materials such as steel, copper, aluminum and rare earth metals. Market prices for those materials can be volatile due to changes in supply and demand, manufacturing and other costs, regulations and tariffs, economic conditions and other circumstances, and those prices generally increased significantly in 2010. We may not be able to offset the increase in commodity costs through pricing actions, productivity enhancements or other means, and increasing commodity costs may have an adverse impact on our gross margins, which could adversely affect our results of operations and financial condition.

In our HVAC motor business, we depend on revenues from several significant customers, and any loss, cancellation or reduction of, or delay in, purchases by these customers may have a material adverse effect on our business.

We derive a significant portion of the revenues of our HVAC motor business from several key OEM customers. Our success will depend on our continued ability to develop and manage relationships with these customers. We expect this significant customer concentration will continue for the foreseeable future in our HVAC motor business. Our reliance in the HVAC motor business on sales from a relatively small number of customers makes our relationship with each of these customers important to our business. We cannot assure you that we will be able to retain these key customers. Some of our customers may in the future shift some or all of their purchases of products from us to our competitors or to other sources. The loss of one or more of our largest customers, any reduction or delay in sales to these customers, our inability to develop relationships successfully with additional customers, or future price concessions that we may make could have a material adverse effect on our results of operations and financial condition.

We may encounter difficulties in integrating the operations of acquired businesses that may have a material adverse impact on our future growth and operating performance.

Full realization of the expected benefits and synergies of acquisitions, such as the pending EPC Acquisition, will require integration over time of certain aspects of the manufacturing, engineering, administrative, sales and marketing and distribution functions of the acquired businesses, as well as some integration of information systems platforms and processes. Complete and successful integration of acquired businesses, and realization of expected synergies, can be a long and difficult process and may require substantial attention from our management team and involve substantial expenditures and include additional operational expenses. Even if we are able to successfully integrate the operations of acquired businesses, we may not be able to realize the expected benefits and synergies of the acquisition, either in the amount of time or within the expected time frame, or at all, and the costs of achieving these benefits may be higher than, and the timing may differ from, what we initially expect. Our ability to realize anticipated benefits and synergies from the acquisitions may be affected by a number of factors, including:

•

The use of more cash or other financial resources, and additional management time, attention and distraction, on integration and implementation activities than we expect, including restructuring and other exit costs;

•

increases in other expenses related to an acquisition, which may offset any potential cost savings and other synergies from the acquisition;

•

our ability to realize anticipated levels of sales in emerging markets like China and India;

•

our ability to avoid labor disruptions or disputes in connection with any integration; and

•

the timing and impact of purchase accounting adjustments.

Any potential cost-saving opportunities may take at least several quarters following an acquisition to implement, and any results of these actions may not be realized for at least several quarters following implementation. We cannot assure you that we will be able to successfully integrate the operations of our acquired businesses, that we will be able to realize any anticipated benefits and synergies from acquisitions or that we will be able to operate acquired businesses as profitably as anticipated.

We may encounter delays or difficulties consummating the pending EPC Acquisition.

On December 12, 2010, we entered into the EPC Purchase Agreement. The closing of the EPC Acquisition is subject to various conditions, including customary regulatory approvals, which are still pending.

On February 4, 2011, we received a request for additional information and documentary material, commonly referred to as a “second request,” from the United States Department of Justice regarding the EPC Acquisition. The request is part of the regulatory process under the HSR Act. We are in the process of gathering information to respond to the request and are working cooperatively with the United States Department of Justice as it reviews the proposed transaction

There can be no assurance that we will consummate the EPC Acquisition in a timely manner, or at all. Various events, regulatory factors or other circumstances related to the EPC Acquisition could delay or prevent the acquisition, or have a negative impact on our results of operations, including:

•

The inability to close the acquisition in a timely manner;

•

the inability or the failure to satisfy conditions to complete the acquisition, including required regulatory approvals such as that required under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended;

•

disruption of our current business plans and operations;

•

diversion of management’s attention from ongoing business concerns;

•

the effect of the announcement of the acquisition on our business relationships, operating results and business generally;

•

actions taken or conditions imposed by governmental or regulatory authorities pursuant to a required regulatory approval or otherwise, including any requirement to divest of any operations or assets of EPC;

•

the possibility that the acquisition may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

•

the occurrence of any event, change or other circumstance that could give rise to the termination of the purchase agreement; or

•

the failure of the acquisition to close for any other reason.

We depend on certain key suppliers, and any loss of those suppliers or their failure to meet commitments may adversely affect our business and results of operations.

We are dependent on a single or limited number of suppliers for some materials or components required in the manufacture of our products. If any of those suppliers fail to meet their commitments to us in terms of delivery or quality, we may experience supply shortages that could result in our inability to meet our customers’ requirements, or could otherwise experience an interruption in our operations that could negatively impact our business and results of operations.

Infringement of our intellectual property by third parties may harm our competitive position, and we may incur significant costs associated with the protection and preservation of our intellectual property.

We own or otherwise have rights in a number of patents and trademarks relating to the products we manufacture, which have been obtained over a period of years, and we continue to actively pursue patents in connection with new product development and to acquire additional patents and trademarks through the acquisitions of other businesses. These patents and trademarks have been of value in the growth of our business and may continue to be of value in the future. With the exception of the ECM patents, we do not regard any of our patents essential to our businesses. However, an inability to protect this intellectual property generally, or the illegal breach of some or a large group of our intellectual property rights, would have an adverse effect on our business. In addition, there can be no assurance that our intellectual property will not be challenged, invalidated, circumvented or designed-around, particularly in countries where intellectual property rights are not highly developed or protected. We have incurred in the past and may incur in the future significant costs associated with defending challenges to our intellectual property or enforcing our intellectual property rights, which could adversely impact our cash flow and results of operations.

Third parties may claim that we are infringing their intellectual property rights and we could incur significant costs and expenses or be prevented from selling certain products.

We may be subject to claims from third parties that our products or technologies infringe on their intellectual property rights or that we have misappropriated intellectual property rights. If we are involved in a dispute or litigation relating to infringement of third party intellectual property rights, we could incur significant costs in defending against those claims. Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. In addition, as a result of such claims of infringement or misappropriation, we could lose our rights to technology that are important to our business, or be required to pay damages or license fees with respect to the infringed rights or be required to redesign our products at substantial cost, any of which could adversely impact our cash flows and results of operations.

As a result of the anticipated increase in our debt levels and debt service obligations in connection with the pending EPC Acquisition, we may have less cash flow available for our business operations, we could become increasingly vulnerable to general adverse economic and industry conditions and interest rate trends, and our ability to obtain future financing may be limited.

As of January 1, 2011, we had $230.9 million in cash and investments and approximately $454.2 million in available borrowings under our current revolving credit facility. We will incur substantially higher debt levels in order to fund a portion of the purchase price for the EPC Acquisition. Our ability to make required payments of principal and interest on our increased debt levels will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available under our current credit facilities in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. In addition, our credit facilities contain financial and restrictive covenants that could limit our ability to, among other things, borrow additional funds or take advantage of business opportunities. Our failure to comply with such covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all our indebtedness or otherwise have a material adverse effect on our business, financial condition, results of operations and debt service capability. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Our anticipated increased indebtedness may have important consequences. For example, it could:

•

Make it more challenging for us to obtain additional financing to fund our business strategy and acquisitions, debt service requirements, capital expenditures and working capital;

•

increase our vulnerability to interest rate changes and general adverse economic and industry conditions;

•

require us to dedicate a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the availability of our cash flow to finance acquisitions and to fund working capital, capital expenditures, manufacturing capacity expansion, business integration, research and development efforts and other general corporate activities;

•

limit our flexibility in planning for, or reacting to, changes in our business and our markets; and

•

place us at a competitive disadvantage relative to our competitors that have less debt.

In addition, our credit facility and senior notes require us to maintain specified financial ratios and satisfy certain financial condition tests, which may require that we take action to reduce our debt or to act in a manner contrary to our business strategies. If an event of default under our credit facility or senior notes, the lenders could elect to declare all amounts outstanding under the applicable agreement, together with accrued interest, to be immediately due and payable.

We are subject to litigation, including product liability and warranty claims that may adversely affect our financial condition and results of operations.

We are, from time to time, a party to litigation that arises in the normal course of our business operations, including product warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters. We face an inherent business risk of exposure to product liability and warranty claims in the event that the use of our products is alleged to have resulted in injury or other damage. While we currently maintain general liability and product liability insurance coverage in amounts that we believe are adequate, we cannot assure you that we will be able to maintain this insurance on acceptable terms or that this insurance will provide sufficient coverage against potential liabilities that may arise. Any claims brought against us, with or without merit, may have an adverse effect on our business and results of operations as a result of potential adverse outcomes, the expenses associated with defending such claims, the diversion of our management’s resources and time and the potential adverse effect to our business reputation.

We sell certain products for high volume applications, and any failure of those products to perform as anticipated could result in significant liability that may adversely affect our business and results of operations.

We manufacture and sell a number of products for high volume applications, including motors used in pools and spas, residential and commercial heating, ventilation, air conditioning and refrigeration equipment. Any failure of those products to perform as anticipated could result in significant product liability, product recall or rework, or other costs. The costs of product recalls and reworks are not generally covered by insurance. If we were to experience a product recall or rework in connection with products of high volume applications, our financial condition or results of operations could be materially adversely affected.

Commodity, currency and interest rate hedging activities may adversely impact our financial performance as a result of changes in global commodity prices, interest rates and currency rates.

We use derivative financial instruments in order to reduce the substantial effects of currency and commodity fluctuations and interest rate exposure on our cash flow and financial condition. These instruments may include foreign currency and commodity forward contracts, currency swap agreements and currency option contracts, as well as interest rate swap agreements. We have entered into, and expect to continue to enter into, such hedging arrangements. While limiting to some degree our risk fluctuations in currency exchange, commodity price and interest rates by utilizing such hedging instruments, we potentially forgo benefits that might result from other fluctuations in currency exchange, commodity and interest rates. We also are exposed to the risk that counterparties to hedging contracts will default on their obligations. We manage exposure to counterparty credit risk by limiting the counterparties to major international banks and financial institutions meeting established credit guidelines. However, any default by such counterparties might have an adverse effect on us.

Worldwide economic conditions may adversely affect our industry, business and results of operations.

General economic conditions and conditions in the global financial markets can affect our results of operations. Deterioration in the global economy could lead to higher unemployment, lower consumer spending and reduced investment by businesses, and could lead our customers to slow spending on our products or make it difficult for our customers, our vendors and us to accurately forecast and plan future business activities. Worsening economic conditions could also affect the financial viability of our suppliers, some of which we may consider key suppliers. If the commercial and industrial, residential HVAC, power generation and mechanical power transmission markets significantly deteriorate, our business, financial condition and results of operations will likely be materially and adversely affected. Additionally, our stock price could decrease if investors have concerns that our business, financial condition and results of operations will be negatively impacted by a worldwide economic downturn.

Goodwill comprises a significant portion of our total assets, and if we determine that goodwill has become impaired in the future, our results of operations and financial condition in such years may be materially and adversely affected.

Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. We review goodwill and other intangibles at least annually for impairment and any excess in carrying value over the estimated fair value is charged to the results of operations. The Company’s estimates of fair value are based on assumptions about the future operating cash flows, growth rates, discount rates applied to these cash flows and current market estimates of value. A reduction in net income resulting from the write down or impairment of goodwill would affect financial results and could have a material and adverse impact upon the market price of our common stock. If we are required to record a significant charge to earnings in our consolidated financial statements because an impairment of goodwill is determined, our results of operations and financial condition could be materially and adversely affected.

Businesses that we have acquired or may acquire may have liabilities which are not known to us.

If we consummate the EPC Acquisition, pursuant to the terms of the EPC Purchase Agreement we will assume the majority of EPC’s liabilities and risks after the closing, subject to certain representations and warranties of, and indemnification rights against A.O. Smith Corporation. Similarly, we have assumed liabilities of other acquired businesses, and may assume liabilities of businesses that we acquire in the future. There may be liabilities or risks that we fail, or are unable, to discover, or that we underestimate, in the course of performing our due diligence investigations of EPC and other acquired businesses. Additionally, businesses that we have acquired or may acquire in the future may have made previous acquisitions, and we will be subject to certain liabilities and risks relating to these prior acquisitions as well. We cannot assure you that our rights to indemnification contained in definitive acquisition agreements that we have entered or may enter into will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition or results of operations. As we begin to operate acquired businesses, we may learn additional information about them that adversely affects us, such as unknown or contingent liabilities, issues relating to compliance with applicable laws or issues related to ongoing customer relationships or order demand.

We may incur costs or suffer reputational damage due to improper conduct of our employees, agents or business partners.

We are subject to a variety of domestic and foreign laws, rules and regulations relating to improper payments to government officials, bribery, anti-kickback and false claims rules, competition, export and import compliance, money laundering and data privacy. If our employees, agents or business partners engage in activities in violation of these laws, rules or regulations, we may be subject to civil or criminal fines or penalties or other sanctions, may incur costs associated with government investigations, or may suffer damage to our reputation.

Sales of products incorporated into HVAC systems are seasonal and affected by the weather; mild or cooler weather could have an adverse effect on our operating performance.

Many of our motors are incorporated into HVAC systems that OEMs sell to end users. The number of installations of new and replacement HVAC systems or components is higher during the spring and summer seasons due to the increased use of air conditioning during warmer months. Mild or cooler weather conditions during the spring and summer season often result in end users deferring the purchase of new or replacement HVAC systems or components. As a result, prolonged periods of mild or cooler weather conditions in the spring or summer season in broad geographical areas could have a negative impact on the demand for our HVAC motors and, therefore, could have an adverse effect on our operating performance. In addition, due to variations in weather conditions from year to year, our operating performance in any single year may not be indicative of our performance in any future year.

We increasingly manufacture our products outside the United States, which may present additional risks to our business.

As a result of our recent acquisitions, a significant portion of our net sales are attributable to products manufactured outside of the United States, principally in Mexico, India, Thailand and China. Approximately 13,900 of our approximate 18,500 total employees and 30 of our 51 principal manufacturing facilities are located outside the United States. In addition, if we consummate the EPC Acquisition, the number of facilities located in foreign jurisdictions will increase, particularly in China and Mexico, which will increase our exposure to risks specific to those jurisdictions. International operations generally are subject to various risks, including political, societal and economic instability, local labor market conditions, the imposition of foreign tariffs and other trade restrictions, the impact of foreign government regulations, and the effects of income and withholding taxes, governmental expropriation and differences in business practices. We may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with international manufacturing and sales that could cause loss of revenue. Unfavorable changes in the political, regulatory, and business climates in countries where we have operations could have a material adverse effect on our financial condition, results of operations and cash flows.

We may be adversely impacted by an inability to identify and complete acquisitions.

A substantial portion of our growth has come through acquisitions, and an important part of our growth strategy is based upon our ability to execute future acquisitions. We may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms or otherwise complete acquisitions in the future. If we are unable to successfully complete acquisitions, our ability to grow our company may be limited.

Our success is highly dependent on qualified and sufficient staffing. Our failure to attract or retain qualified personnel could lead to a loss of revenue or profitability.

Our success depends, in part, on the efforts and abilities of our senior management team and key employees. Their skills, experience and industry contacts significantly benefit our operations and administration. The failure to attract or retain members of our senior management team and key employees could have a negative effect on our operating results.

Our operations are highly dependent on information technology infrastructure and failures could significantly affect our business.

We depend heavily on our information technology infrastructure in order to achieve our business objectives. If we experience a problem that impairs this infrastructure, such as a computer virus, a problem with the functioning of an important IT application, or an intentional disruption of our IT systems by a third party, the resulting disruptions could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on our business in the ordinary course. Any such events could cause us to lose customers or revenue and could require us to incur significant expense to eliminate these problems and address related security concerns.

We are in the process of implementing a global Enterprise Resource Planning (ERP) system that will redesign and deploy a common information system over a period of several years. The process of implementation can be costly and can divert the attention of management from the day-to-day operations of the business. As we implement the ERP system, the new system may not perform as expected. This could have an adverse effect on our business.

We may be adversely affected by environmental, health and safety laws and regulations.

We are subject to various laws and regulations relating to the protection of the environment and human health and safety and have incurred and will continue to incur capital and other expenditures to comply with these regulations. Failure to comply with any environmental regulations, including more stringent environmental laws that may be imposed in the future, could subject us to future liabilities, fines or penalties or the suspension of production.

We may suffer losses as a result of foreign currency fluctuations.

The net assets, net earnings and cash flows from our foreign subsidiaries are based on the U.S. dollar equivalent of such amounts measured in the applicable functional currency. These foreign operations have the potential to impact our financial position due to fluctuations in the local currency arising from the process of re-measuring the local functional currency in the U.S. dollar. Any increase in the value of the U.S. dollar in relation to the value of the local currency will adversely affect our revenues from our foreign operations when translated into U.S. dollars. Similarly, any decrease in the value of the U.S. dollar in relation to the value of the local currency will increase our operating costs in foreign operations, to the extent such costs are payable in foreign currency, when translated into U.S. dollars.

Our operations can be negatively impacted by natural disasters, terrorism, acts of war, international conflict, political and governmental actions which could harm our business.

Natural disasters, acts or threats of war or terrorism, international conflicts, and the actions taken by the United States and other governments in response to such events could cause damage or disrupt our business operations, our suppliers, or our customers, and could create political or economic instability, any of which could have an adverse effect on our business. Although it is not possible to predict such events or their consequences, these events could decrease demand for our products, could make it difficult or impossible for us to deliver products, or could disrupt our supply chain. We may also be negatively impacted by actions by foreign governments, including currency devaluation, tariffs and nationalization, where our facilities are located which could disrupt manufacturing and commercial operations.

We are subject to changes in legislative, regulatory and legal developments involving income taxes.

We are subject to U.S. federal, state, and international income, payroll, property, sales and use, fuel, and other types of taxes. Changes in tax rates, enactment of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities could result in substantially higher taxes and, therefore, could have a significant adverse effect on our results or operations, financial conditions and liquidity. Currently, a significant amount of our revenue is generated from customers located outside of the United States, and an increasingly greater portion of our assets and employees are located outside of the United States. U.S. income tax and foreign withholding taxes have not been provided on undistributed earnings for certain non-U.S. subsidiaries, because such earnings are intended to be indefinitely reinvested in the operations of those subsidiaries.

Future legislation may substantially reduce (or have the effect of substantially reducing) our ability to defer U.S. taxes on profit permanently reinvested outside the United States. Additionally, they could have a negative impact on our ability to compete in the global marketplace.

We are subject to tax laws and regulations in many jurisdictions and the inability to successfully defend claims from taxing authorities related to our current and/or acquired businesses could adversely affect our operating results and financial position.

We conduct business in many countries, which requires us to interpret the income tax laws and rulings in each of those taxing jurisdictions. Due to the subjectivity of tax laws between those jurisdictions as well as the subjectivity of factual interpretations, our estimates of income tax liabilities may differ from actual payments or assessments. Claims from taxing authorities related to these differences could have an adverse impact on our operating results and financial position.

Our stock may be subject to significant fluctuations and volatility.

The market price of shares of our common stock may be volatile. Among the factors that could affect our common stock price are those discussed above under “Risks Factors” as well as:

•

domestic and international economic and political factors unrelated to our performance;

•

quarterly fluctuation in our operating income and earnings per share results;

•

decline in demand for our products;

•

significant strategic actions by our competitors, including new product introductions or technological advances;

•

fluctuations in interest rates;

•

cost increases in energy, raw materials, intermediate components or materials, or labor; and

•

changes in revenue or earnings estimates or publication of research reports by analysts.

In addition, stock markets may experience extreme volatility that may be unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.

ITEM 1B —		UNRESOLVED STAFF COMMENTS

None.

ITEM 2 —		PROPERTIES

We have manufacturing, sales and service facilities throughout the United States and in Canada, Mexico, India, China, Australia, Thailand and Europe.

Our Electrical segment currently includes 108 manufacturing, service and distribution facilities, of which 45 are principal manufacturing facilities. The Electrical segment’s present operating facilities contain a total of approximately 8.1 million square feet of space of which approximately 44% are leased.

Our Mechanical segment currently includes 11 manufacturing, service and distribution facilities, of which six are principal manufacturing facilities. The Mechanical segment’s present operating facilities contain a total of approximately 0.8 million square feet of space of which approximately 5% are leased.

At January 1, 2011, the Mechanical segment had one building and the Electrical segment had four buildings totaling approximately 0.5 million square feet that were available for sale due to consolidation of manufacturing in other locations.

Our principal executive offices are located in Beloit, Wisconsin in an owned approximately 54,000 square foot office building. We believe our equipment and facilities are well maintained and adequate for our present needs.

Electrical Segment

Location		Sq Footage				Status		Use
Wuxi, China			623,268			Owned		Manufacturing
Wausau, WI			498,329			Owned		Manufacturing
Kolkata, India			472,708			Owned		Manufacturing
Juarez, Mexico — 2			412,000			Owned & Leased		Manufacturing
Shanghai, China — 3			321,472			Owned & Leased		Manufacturing
Reynosa, Mexico			320,000			Owned		Manufacturing
Hengli, China			292,757			Leased		Manufacturing
Springfield, MO			290,000			Owned		Manufacturing
Eldon, MO — 2			276,000			Owned		Warehouse
Milan, Italy			244,091			Leased		Manufacturing
Cassville, MO			238,838			Owned & Leased		Manufacturing
Changzhou, China			235,755			Owned		Manufacturing
Monterrey, Mexico — 2			235,624			Leased		Manufacturing
Indianapolis, IN			220,832			Leased		Warehouse
Faridabad, India			220,000			Leased		Manufacturing
Piedras, Mexico — 2			210,155			Leased		Manufacturing
Lebanon, MO			186,900			Owned		Manufacturing
Bangkok, Thailand — 2			169,660			Owned		Manufacturing & Warehouse
Rowville, Australia — 3			168,552			Leased		Manufacturing & Warehouse
Dandenong, South Australia — 4			162,693			Leased		Manufacturing & Warehouse
Eibergen, Netherlands			146,874			Owned		Warehouse
Erwin, TN — 4			130,630			Owned		Manufacturing
Auckland, New Zealand — 3			120,857			Leased		Warehouse
Pharr, TX			120,000			Leased		Warehouse
Lincoln, MO			120,000			Owned		Manufacturing
McAllen, TX			116,288			Owned		Manufacturing
Tomago, Australia			114,937			Leased		Warehouse
Blytheville, AR			107,000			Leased		Manufacturing
West Plains, MO			106,000			Owned		Manufacturing
Black River Falls, WI			103,000			Owned		Manufacturing
All Other — 61			1,116,314			(1)		(1)

Mechanical Segment

Location		Sq Footage				Status		Use
Liberty, SC			173,516			Owned		Manufacturing
Aberdeen, SD			164,960			Owned		Manufacturing
Shopiere, WI			132,000			Owned		Manufacturing
Union Grove, WI			122,000			Owned		Manufacturing
All Other — 7			255,180			(2)		(2)

(1)		Less significant manufacturing, service and distribution and engineering facilities located in North America, Europe, Asia, Australia, South America, and Africa: Electrical leased square footage 3,534,491.
(2)		Mechanical leased square footage 45,680.

ITEM 3 —		LEGAL PROCEEDINGS

In July 2009, we filed a response and counterclaims in an action initiated by Nordyne, Inc. (“Nordyne”) on February 4, 2009, in the U.S. District Court for the Eastern District of Missouri. In the action, Nordyne is seeking a judgment declaring that neither Nordyne’s G7 furnace systems nor its iQ Drive 23-seer air conditioning systems infringe on our ECM (electronically commutated motor) systems patent U.S. Patent No. 5,592,058 (“the ‘058 Patent”) and/or that the ‘058 Patent is invalid. In our response and counterclaims against Nordyne, we deny that Nordyne is entitled to relief and we seek a judgment that Nordyne has, in fact, infringed and continues to infringe the ‘058 Patent by making, using, offering for sale and selling it G7 furnace systems and iQ Drive 23-seer air conditioning systems. We also have requested the U.S. District Court to enjoin Nordyne and all persons working in concert with Nordyne from further infringement of the ‘058 Patent and to award us compensatory and other damages caused by such infringement. On February 2, 2011, the Court issued a claim construction order in which it held that some of the claims in the ‘058 Patent contain limitations that are indefinite and thus invalid. However, other claims of the ‘058 Patent were not affected by this ruling and remain to be litigated in the action. We intend to defend our intellectual property vigorously against the claims asserted by Nordyne and against any infringement by Nordyne or any other person. We do not currently believe that the litigation will have a material effect on the Company’s financial position or its results of operations.

One of our subsidiaries that we acquired in 2007 is subject to numerous claims filed in various jurisdictions relating to certain sub-fractional motors that were primarily manufactured through 2004 and that were included as components of residential and commercial ventilation units marketed by a third party. These claims generally allege that the ventilation units were the cause of fires. Based on the current facts, we do not believe these claims, individually or in the aggregate, will have a material adverse effect on our results of operations or financial condition. However, we cannot predict the outcome of these claims, the nature or extent of remedial actions, if any, we may need to undertake with respect to motors that remain in the field, or the costs we may incur, some of which could be significant.

We are, from time to time, party to other litigation that arises in the normal course of our business operations, including product warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters. Our products are used in a variety of industrial, commercial and residential applications that subject us to claims that the use of our products is alleged to have resulted in injury or other damage. We accrue for anticipated costs in defending against such lawsuits in amounts that we believe are adequate, and we do not believe that the outcome of any such lawsuit will have a material effect on our results of operations or financial position.

ITEM 4 —		REMOVED AND RESERVED

PART II

ITEM 5 —		MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

General

Our common stock, $.01 par value per share, is traded on the New York Stock Exchange under the symbol “RBC.” The following table sets forth the range of high and low closing sales prices for our common stock for the period from December 28, 2008 through January 1, 2011.

		2010												2009
		Price Range												Price Range
										Dividends												Dividends
		High				Low				Declared				High				Low				Declared
1st Quarter		$	60.78			$	47.40			$	0.16			$	38.83			$	25.81			$	0.16
2nd Quarter			65.63				55.48				0.17				42.65				29.99				0.16
3rd Quarter			65.07				55.09				0.17				49.26				38.76				0.16
4th Quarter			69.54				55.27				0.17				53.76				43.43				0.16

We have paid 202 consecutive quarterly dividends through January 2011. The number of record holders of common stock as of February 22, 2011 was 547.

The following table contains detail related to the repurchase of our common stock based on the date of trade during the quarter ended January 1, 2011.

		Total								Total Number of Shares				Maximum Number of
		Number of				Average				Purchased as Part of				Shares that May be
2010 Fiscal		Shares				Price Paid				Publicly Announced Plans				Purchased Under the
Month		Purchased				per Share				or Programs				Plan or Programs
October 3 to November 6			1,728			$	55.27				—				2,115,900
November 7 to December 4						$	—				—				2,115,900
December 5 to January 1, 2011						$	—				—				2,115,900
Total			1,728								—

Under our equity incentive plans, participants may pay the exercise price or satisfy all or a portion of the federal, state and local withholding tax obligations arising in connection with plan awards by electing to a) have us withhold shares of common stock otherwise issuable under the award, b) tender back shares received in connection with such award or c) deliver previously owned shares of common stock, in each case having a value equal to the exercise price or the amount to be withheld. The shares listed under “Total Number of Shares Purchased” relate to our repurchases under these equity incentive plans.

Our Board of Directors has approved repurchase programs of up to 3,000,000 shares of common stock. Management is authorized to effect purchases from time to time in the open market or through privately negotiated transactions. Through January 1, 2011, we repurchased 884,100 shares at an average purchase price of $21.96 per share under this program. (See Note 10 of Notes to the Consolidated Financial Statements.)

Item 12 of this Annual Report on Form 10-K contains certain information relating to our equity compensation plans.

Stock Performance

The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.

The following graph compares the hypothetical total shareholder return (including reinvestment of dividends) on an investment in (1) our common stock, (2) the Standard & Poor’s Mid Cap 400 Index, and (3) the Standard & Poor’s 400 Electrical Components and Equipment Index, for the period December 31, 2005 through January 1, 2011. In each case, the graph assumes the investment of $100.00 on December 31, 2005.

		2006				2007				2008				2009				2010
Regal Beloit Corporation			150.14				130.17				99.95				155.21				201.74
S&P MidCap 400 Index			110.32				119.12				72.66				104.35				132.15
S&P 400 Electrical Components & Equipment			112.38				141.06				86.03				118.45				171.31

ITEM 6 —		SELECTED FINANCIAL DATA

The selected statement of income data for fiscal 2010, 2009, and 2008, and the selected balance sheet data at January 1, 2011 and January 2, 2010 are derived from, and are qualified by reference to, the audited financial statements included elsewhere in this Annual Report on Form 10-K. The selected statement of income data for fiscal 2007 and 2006 and the selected balance sheet data at December 27, 2008, December 29, 2007 and December 30, 2006 are derived from audited financial statements not included herein.

		(In Thousands, Except Per Share Data)
		Fiscal Year				Fiscal Year				Fiscal Year				Fiscal Year				Fiscal Year
		2010				2009				2008				2007				2006
Net Sales		$	2,237,978			$	1,826,277			$	2,246,249			$	1,802,497			$	1,619,545
Income from Operations			237,735				159,520				230,431				206,060				194,017
Net Income Attributable to Regal Beloit			149,379				95,048				125,525				115,499				107,156
Total Assets			2,449,136				2,112,237				2,023,496				1,862,247				1,437,559
Long-Term Debt			428,256				468,065				560,127				552,917				313,351
Regal Beloit Shareholders’ Equity			1,361,960				1,167,824				825,987				861,750				755,984
Per Share Data:
Earnings — Basic			3.91				2.76				4.00				3.70				3.47
Earnings — Assuming Dilution			3.84				2.63				3.78				3.40				3.20
Cash Dividends Declared			0.67				0.64				0.63				0.59				0.55
Shareholders’ Equity			35.27				33.85				26.35				27.57				24.51
Weighted Average Shares Outstanding (in 000’s):
Basic			38,236				34,499				31,343				31,252				30,847
Assuming Dilution			38,922				36,132				33,251				33,921				33,504

ITEM 7 —		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

We operate on a 52/53 week fiscal year ending on the Saturday closest to December 31. We refer to the fiscal year ended January 1, 2011 as “fiscal 2010,” the fiscal year ended January 2, 2010 as “fiscal 2009,” and the fiscal year ended December 27, 2008 as “fiscal 2008.” Fiscal 2010 had 52 weeks, fiscal 2009 had 53 weeks, and fiscal 2008 had 52 weeks.

Overview

We are a global manufacturer of electric motors and controls, electric generators and controls, and mechanical motion control products. Many of our products feature energy efficient technology, and electronics. Our energy efficiency products can offer lower operating costs to our customers and promote sustainability. Our products are used in a variety of essential commercial, industrial, commercial refrigeration and heating, ventilation, and air conditioning (“HVAC”), applications, and we believe we have one of the most comprehensive product lines in the industries we serve. We sell our products to a diverse global customer base using more than 30 recognized brand names through a multi-channel distribution model to leading original equipment manufacturers (“OEMs”), distributors and end users for a wide variety of applications. We believe this strategy, coupled with a high level of customer service, provides us with a competitive selling advantage and allows us to more fully serve our customers.

We have two reporting segments: Electrical and Mechanical. Our electrical products primarily include HVAC motors, a full line of AC and DC commercial and industrial electric motors, electric generators and controls, high-performance drives and controls, and capacitors. Our mechanical products primarily include gears and gearboxes, marine transmissions, high-performance automotive transmissions and ring and pinions, manual valve actuators, and electrical connectivity devices.

On an ongoing basis, we focus on a variety of key indicators to monitor business performance. These indicators include organic and total sales growth (including volume and price components), gross profit margin, operating profit, net income and earnings per share, and measures to optimize the management of working capital, capital expenditures, cash flow and Return On Invested Capital (ROIC). We monitor these indicators, as well as our corporate governance practices (including the Company’s Code of Business Conduct and Ethics), to ensure that we maintain business health and strong internal controls.

To achieve our financial objectives, we are focused on initiatives to drive and fund growth. We seek to capture significant opportunities for growth by identifying and meeting customer product needs within our core product categories, developing new products, and identifying category expansion opportunities. We meet these customer product needs through focused product research and development efforts as well as through a disciplined acquisition strategy. Our acquisition strategy emphasizes acquiring companies that offer market growth potential as a result of geographic base, technology or industry expansion. The cash flow needed to fund our growth is developed through continuous, corporate-wide initiatives to lower costs and increase effective asset utilization.

We also prioritize investments that generate higher return on capital businesses. Our management team is compensated based on a modified Economic Value Added (EVA) program which reinforces capital allocation disciplines that drive increases in shareholder value. The key metrics in our program include total sales growth, organic sales growth, operating margin percent, operating cash flow as a percent of net income and ROIC.

Given the global economic uncertainty, we anticipate that the near-term operating environment will remain challenging. Specifically, we are experiencing continued increases in the costs for commodity inputs, including copper, steel and aluminum, which are the primary materials used in manufacturing our products. We are unable to predict the future costs of these commodities, and continued increases in these costs may adversely affect our operating margins if we are unable to offset cost increases through price, productivity or other means.

Results of Operations

Net Sales

		(In millions)
		Fiscal 2010				Fiscal 2009				Fiscal 2008
Net Sales		$	2,238.0			$	1,826.3			$	2,246.2
Sales growth rate			22.5	%			(18.7	%)			24.6	%
Net Sales by Segment:
Electrical segment		$	2,002.0			$	1,637.7			$	1,998.6
Sales growth rate			22.3	%			(18.1	%)			28.2	%
Mechanical segment		$	236.0			$	188.6			$	247.6
Sales growth rate			25.1	%			(23.8	%)			1.7	%

Fiscal 2010 Compared to Fiscal 2009

Net sales for fiscal 2010 were $2.2 billion, a 22.5% increase over fiscal 2009 net sales of $1.8 billion. Net sales for fiscal 2010 included $119.5 million of incremental net sales related to the acquisitions of CMG Engineering Group Pty, Ltd., Air-Con Technology, Rotor B.V., Elco Group B.V., South Pacific Rewinders and Unico, Inc. that occurred in fiscal 2010 (we refer to these businesses as the “2010 acquired businesses”; see Note 5 of Notes to the Consolidated Financial Statements).

In the Electrical segment, net sales for fiscal 2010 were $2.0 billion, a 22.3% increase over fiscal 2009 net sales of $1.6 billion. Fiscal 2010 net sales for the Electrical segment included $92.6 million of incremental net sales related to the 2010 acquired businesses. The increase in net sales in the Electrical segment was primarily due to volume increases, the effects of product price increases we implemented in an effort to offset increasing raw material costs, and new product introductions, resulting in (i) an 11.8% increase from fiscal 2009 in U.S. sales of residential HVAC products for the replacement market benefitting from the effects of the economic stimulus providing a tax credit to consumers for the purchase of certain energy-efficient products, (ii) a 16.8% increase from fiscal 2009 in sales of commercial and industrial motors driven by improving industrial demand in the U.S., and (iii) 14.1% increase from fiscal 2009 in generator sales due primarily to generally improving economic conditions.

In the Mechanical segment, net sales for fiscal 2010 were $236.0 million, a 25.1% increase over fiscal 2009 net sales of $188.6 million. The increase in net sales in the Mechanical segment was primarily due to improved business conditions in the industrial markets. Fiscal 2010 net sales for the Mechanical segment included $26.9 million of incremental net sales related to the 2010 acquired businesses.

High efficiency product sales across our business represented 17.9% of net sales for fiscal 2010, a $73.5 million increase from fiscal 2009. High efficiency product sales also represented 17.9% of net sales for fiscal 2009.

From a geographic perspective, Asia-based net sales increased 55.3% for fiscal 2010 compared to fiscal 2009. In total, net sales to regions outside of the United States were 31.6% of total net sales for fiscal 2010 compared to 26.9% of total net sales for fiscal 2009. The positive impact of foreign currency exchange rates increased total net sales by 0.4% for fiscal 2010 compared to fiscal 2009.

Fiscal 2009 Compared to Fiscal 2008

Net sales for fiscal 2009 were $1.8 billion, an 18.7% decrease over fiscal 2008 net sales of $2.2 billion. Net sales for fiscal 2009 included $57.8 million of incremental net sales related to the 2008 acquired businesses and the CPT acquisition completed on January 2, 2009.

In the Electrical segment, sales decreased 18.1% including the impact of the acquisitions noted above. Exclusive of the acquired businesses, Electrical segment sales decreased 21.0%. Sales for the residential HVAC motor business were negatively impacted by weak housing markets; however, economic stimulus related spending, higher efficiency product mix, and low prior year comparables resulted in a 6.8% decrease during fiscal 2009 for the HVAC residential market.

Driven by weak end markets, commercial and industrial motor sales in North America for fiscal 2009 decreased 25.5% over sales for fiscal 2008. Global generator sales decreased 42.6% for fiscal 2009 compared to fiscal 2008.

Sales in the Mechanical segment decreased 23.8% from fiscal 2008. Weakness in end markets for all Mechanical segment businesses was experienced in fiscal 2009 as a result of weak industrial markets.

High efficiency product sales represented 17.9% of net sales for fiscal 2009 compared to 12.8% for fiscal 2008.

From a geographic perspective, Asia-based net sales decreased 23.5% for fiscal 2009 compared to fiscal 2008. In total, net sales to regions outside of the United States were 26.9% of total net sales for fiscal 2009 compared to 27.3% of total net sales for fiscal 2008. The negative impact of foreign currency exchange rates decreased total net sales by 0.3% for fiscal 2009 compared to fiscal 2008.

Gross Profit

		(In thousands)
		Fiscal 2010				Fiscal 2009				Fiscal 2008
Gross Profit		$	549,350			$	424,224			$	500,680
Gross profit percentage			24.5	%			23.2	%			22.3	%
Gross Profit by Segment:
Electrical segment		$	486,117			$	379,017			$	428,778
Gross profit percentage			24.3	%			23.1	%			21.5	%
Mechanical segment		$	63,233			$	45,207			$	71,902
Gross profit percentage			26.8	%			24.0	%			29.0	%

Fiscal 2010 Compared to Fiscal 2009

The gross profit margin for fiscal 2010 was 24.5% compared to 23.2% for fiscal 2009.

The gross profit margin for the Electrical segment was 24.3% for fiscal 2010 compared to 23.1% for fiscal 2009. The increase in Electrical segment gross margins was primarily due to (i) volume increases, (ii) the effects of product price increases implemented in an effort to offset increasing raw material costs, (iii) cost reduction efforts, including the benefit from plant consolidations, and (iv) a mix change toward higher efficiency products. The increase in Electrical segment gross margins was partially offset by (i) higher costs for raw materials such as copper, aluminum, energy, and other material inputs (in particular, the accelerating prices for copper in 2010, which is a key commodity input in the production of electrical motors and generators), (ii) incremental costs incurred in an effort to mitigate the impact to customers of supply chain disruptions experienced in the second and third quarters, including incremental costs associated with expedited transportation expenses, plant labor inefficiencies and costs to qualify new vendors, and (iii) the impact of purchase accounting adjustments related to the 2010 acquired businesses.

The gross profit margin for the Mechanical segment was 26.8% for fiscal 2010 compared to 24.0% for fiscal 2009. The increase in Mechanical segment gross margins was primarily due to positive fixed cost absorption impacts of higher production volumes.

Fiscal 2009 Compared to Fiscal 2008

The gross profit margin for fiscal 2009 was 23.2% compared to 22.3% for fiscal 2008.

The gross profit margin for the Electrical segment was 23.1% for fiscal 2009 compared to 21.5% for fiscal 2008. The increase in Electrical segment gross margins was primarily due to (i) cost reduction efforts, including the benefit from plant consolidations, (ii) a mix change toward higher efficiency products, and (iii) short term net material cost savings. The increase in Electrical segment gross margins was partially offset by negative fixed cost absorption due to lower sales and production levels.

The gross profit margin for the Mechanical segment was 24.0% for fiscal 2009 compared to 29.0% for fiscal 2008. The decrease in Mechanical segment gross margins was primarily due to negative fixed cost absorption impacts of lower production volumes.

Operating Expenses

		(In thousands)
		Fiscal 2010				Fiscal 2009				Fiscal 2008
Operating Expenses		$	311,615			$	264,704			$	270,249
As a percentage of net sales			13.9	%			14.5	%			12.0	%
Operating Expenses by Segment:
Electrical segment		$	275,886			$	234,117			$	237,246
As a percentage of Electrical segment net sales			13.8	%			14.3	%			11.9	%
Mechanical segment		$	35,729			$	30,587			$	33,003
As a percentage of Mechanical segment net sales			15.1	%			16.2	%			13.3	%

Fiscal 2010 Compared to Fiscal 2009

Operating expenses were $311.6 million, or 13.9% of net sales, for fiscal 2010 compared to $264.7 million, or 14.5% of net sales, for fiscal 2009. Operating expenses for the Electrical segment were $275.9 million, or 13.8% of Electrical segment net sales, for fiscal 2010 compared to $234.1 million, or 14.3% of Electrical segment net sales, for fiscal 2009. Operating expenses for the Mechanical segment were $35.7 million, or 15.1% of Mechanical segment net sales, for fiscal 2010 compared to $30.6 million, or 16.2% of Mechanical segment net sales, for fiscal 2009.

The increases in operating expenses for fiscal 2010 in both the Electrical segment and the Mechanical segment were primarily due to higher variable compensation and other expenses related to higher sales volume. Operating expenses for fiscal 2010 also included (i) an incremental $28.4 million related to the 2010 acquired businesses, and (ii) $6.6 million of acquisition and diligence related expenses compared to $0.3 million for fiscal 2009.

Fiscal 2009 Compared to Fiscal 2008

Operating expenses were $264.7 million, or 14.5% of net sales, for fiscal 2009 compared to $270.2 million, or 12.0% of net sales, for fiscal 2008. Operating expenses for the Electrical segment were $234.1 million, or 14.3% of Electrical segment net sales, for fiscal 2009 compared to $237.2 million, or 11.9% of Electrical segment net sales, for fiscal 2008. Operating expenses for the Mechanical segment were $30.6 million, or 16.2% of Mechanical segment net sales, for fiscal 2009 compared to $33.0 million, or 13.3% of Mechanical segment net sales, for fiscal 2008.

The decreases in operating expenses for fiscal 2009 in both the Electrical segment and the Mechanical segment were primarily due to significant operating cost reductions as sales volumes decreased due to the economic slowdown.

Income from Operations

		(In thousands)
		2010				2009				2008
Income from Operations		$	237,735			$	159,520			$	230,431
As a percentage of net sales			10.6	%			8.7	%			10.3	%
Income from Operations by Segment:
Electrical segment		$	210,231			$	144,901			$	191,532
As a percentage of net sales			10.5	%			8.8	%			9.6	%
Mechanical segment		$	27,504			$	14,619			$	38,899
As a percentage of net sales			11.7	%			7.8	%			15.7	%

Fiscal 2010 Compared to Fiscal 2009

Income from operations was $237.7 million, or 10.6% of net sales, for fiscal 2010 compared to $159.5 million, or 8.7% of net sales, for fiscal 2009. Income from operations for the Electrical segment was $210.2 million, or 10.5% of Electrical segment net sales, for fiscal 2010 compared to $144.9 million, or 8.8% of Electrical segment net sales, for fiscal 2009. Income from operations for the Mechanical segment was $27.5 million, or 11.7% of Mechanical segment net sales, for fiscal 2010 compared to $14.6 million, or 7.8% of Mechanical segment net sales for fiscal 2009.

The increases in income from operations for fiscal 2010 in both the Electrical segment and the Mechanical segment were primarily due to volume and price increases, partially offset by higher commodity input costs and higher operating expenses from the 2010 acquired businesses.

Fiscal 2009 Compared to Fiscal 2008

Income from operations was $159.5 million, or 8.7% of net sales, for fiscal 2009 compared to $230.4 million, or 10.3% of net sales, for fiscal 2008. Income from operations for the Electrical segment was $144.9 million, or 8.8% of Electrical segment net sales, for fiscal 2009 compared to $191.5 million, or 9.6% of Electrical segment net sales, for fiscal 2009. Income from operations for the Mechanical segment was $14.6 million, or 7.8% of Mechanical segment net sales, for fiscal 2009 compared to $38.9 million, or 15.7% of Mechanical segment net sales, for fiscal 2008.

Income from operations declined, but was partially offset by cost reduction efforts, including the benefit from plant consolidations, a mix toward higher efficiency products in fiscal 2009, and short term net material cost savings. Offsetting these factors were negative impacts from lower fixed cost absorption.

Interest Expense, Net

		(In thousands)
		Fiscal 2010				Fiscal 2009				Fiscal 2008
Interest Expense, Net		$	17,006			$	21,565			$	31,168
Year End Weighted Average Interest Rate			4.1	%			3.6	%			4.1	%

Fiscal 2010 Compared to Fiscal 2009

Net interest expense for fiscal 2010 was $17.0 million compared to $21.6 million for fiscal 2009 due to lower debt levels in fiscal 2010. Interest income increased for fiscal 2010 due to higher cash balances as a result of our operating cash flow (see “- Liquidity and Capital Resources”).

Fiscal 2009 Compared to Fiscal 2008

Net interest expense for fiscal 2009 was $21.6 million compared to $31.2 million for fiscal 2008. During fiscal 2009, interest expense decreased driven by the redemption of $75.8 million of convertible notes (see Note 8 of Notes to the Consolidated Financial Statements). Interest income increased in fiscal 2009 due to higher cash balances as a result of operating cash flow and the proceeds from the public offering of common stock in May 2009 (see “- Liquidity and Capital Resources”).

Effective Tax Rate

		(In thousands)
		Fiscal 2010				Fiscal 2009				Fiscal 2008
Income Taxes		$	66,045			$	39,276			$	70,349
Effective Tax Rate			29.9	%			28.5	%			35.3	%

Fiscal 2010 Compared to Fiscal 2009

The effective tax rate for fiscal 2010 was 29.9% compared to 28.5% for fiscal 2009. The increase in the effective tax rate was primarily due to changes in the global distribution of income (see Note 11 of Notes to the Consolidated Financial Statements).

Fiscal 2009 Compared to Fiscal 2008

The effective tax rate for fiscal 2009 was 28.5% compared to 35.3% for fiscal 2008. The decrease in the effective tax rate was primarily due to changes in the global distribution of income, as well as adjustments to tax reserves due to a statutory expiration (see Note 11 of Notes to the Consolidated Financial Statements).

Net Income Attributable to Regal Beloit Corporation

		(In millions, except per share data)
		Fiscal 2010				Fiscal 2009				Fiscal 2008
Net Income Attributable to Regal Beloit Corporation		$	149.4			$	95.0			$	125.5
Fully Diluted Earnings per Share		$	3.84			$	2.63			$	3.78
Average Number of Diluted Shares			38.9				36.1				33.3

Fiscal 2010 Compared to Fiscal 2009

Net Income Attributable to Regal Beloit Corporation for fiscal 2010 was $149.4 million, an increase of 57.2% compared to $95.0 million for fiscal 2009. Fully diluted earnings per share were $3.84 for fiscal 2010 compared to $2.63 for fiscal 2009. The average number of diluted shares was 38,921,699 during fiscal 2010 compared to 36,131,607 during fiscal 2009.

Fiscal 2009 Compared to Fiscal 2008

Net Income Attributable to Regal Beloit Corporation for fiscal 2009 was $95.0 million, a decrease of 24.3% compared to $125.5 million for fiscal 2008. Fully diluted earnings per share were $2.63 for fiscal 2009 compared to $3.78 for fiscal 2008. The average number of diluted shares was 36,131,607 during fiscal 2009 compared to 33,250,689 during fiscal 2008.

Liquidity and Capital Resources

General

Our principal source of liquidity is operating cash flow which we target to equal or exceed our net income. In addition to operating income, other significant factors affecting our liquidity management include working capital levels, capital expenditures, dividends, acquisitions, availability of debt financing and the ability to attract long term capital at acceptable terms.

Our working capital was $688.7 million at January 1, 2011, an increase of 2.7% from $670.3 million at year-end 2009. At January 1, 2011, our current ratio (which is the ratio of our current assets to current liabilities) was 2.7:1 compared to 3.2:1 at January 2, 2010.

Cash flow provided by operating activities (“operating cash flow”) was $175.4 million for fiscal 2010, a $139.5 million decrease from fiscal 2009. The decrease was driven by a combined $158.5 increase in the level of accounts receivable, inventory and accounts payable as a result of the increased level of sales. These working capital components used $62.3 million of operating cash in fiscal 2010 compared to providing $96.2 million in fiscal 2009.

Cash flow used in investing activities was $194.7 million for fiscal 2010, $43.1 million more than in fiscal 2009, driven by $211.9 of acquisition costs and partially offset by the net sales of investment securities of $60.7 million. In addition, capital spending increased to $45.0 million for fiscal 2010 from $33.6 million for fiscal 2009. Our commitments for property, plant and equipment as of January 1, 2011 were approximately $5.5 million. In fiscal 2011, we anticipate capital spending will increase to approximately $90.0 million, as we fund (i) the purchase of our factory in Faridabad, India, which is currently leased, and (ii) the construction and relocation of two of our factories in China as required by the Chinese government. We believe that our present manufacturing facilities, augmented by these planned capital expenditures in fiscal 2011, will be sufficient to provide adequate capacity for our operations in 2011.

Cash flow used in financing activities was $70.3 million for fiscal 2010, compared to cash flow provided of $32.9 million for fiscal 2009. On May 22, 2009, we completed a public offering of 4,312,500 shares of our common stock at a price of $36.25 per share, resulting in $150.4 million of net proceeds. We paid $25.1 million in dividends to shareholders in fiscal 2010.

At January 1, 2011, we have $250.0 million of senior notes (the “Notes”) outstanding. The Notes were sold pursuant to a Note Purchase Agreement (the “Agreement”) by and among us and the purchasers of the Notes. The Notes were issued and sold in two series: $150.0 million in Floating Rate Series 2007A Senior Notes, Tranche A, due August 23, 2014, and $100.0 million in Floating Rate Series 2007A Senior Notes, Tranche B, due August 23, 2017. The Notes bear interest at a margin over the London Inter-Bank Offered Rate (“LIBOR”). These interest rates vary as LIBOR varies. The Agreement permits us to issue and sell additional note series, subject to certain terms and conditions described in the Agreement, up to a total of $600.0 million in combined Notes. At January 1, 2011 the interest rate of 0.9% was based on a margin over LIBOR.

Our $500.0 million revolving credit facility (the “Facility”) permits us to borrow at interest rates based upon a margin above LIBOR, which margin varies with the ratio of senior funded debt to EBITDA as defined in the Facility. These interest rates also vary as LIBOR varies. We pay a commitment fee on the unused amount of the Facility, which also varies with the ratio of our senior funded debt to our EBITDA. As of January 1, 2011, we had approximately $45.8 million in standby letters of credit issued under the Facility and $454.2 million in available borrowings under the Facility. The average balance outstanding in direct borrowings under the Facility in fiscal 2010 was $1.4 million. The Facility matures in April 2012.

On June 16, 2008, we entered into a Term Loan Agreement (“Term Loan”) with certain financial institutions, pursuant to which we borrowed an aggregate principal amount of $165.0 million. The Term Loan matures in June 2013, and borrowings generally bear interest at a variable rate equal to a margin over LIBOR which varies with the ratio of our consolidated debt to consolidated earnings before interest, taxes, depreciation, and amortization (“EBITDA”) as defined in the Agreement. These interest rates also vary as LIBOR varies. At January 1, 2011, the interest rate of 1.0% was based on a margin over LIBOR. The Notes, the Term Loan and the Facility require us to meet specified financial ratios and to satisfy certain financial condition tests. We were in compliance with all debt covenants as of January 1, 2011.

We have interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk. (See also Note 14 to Notes to the Consolidated Financial Statements).

As of January 1, 2011, we have no convertible notes that remain outstanding. During fiscal 2010, the final $39.2 million face value bonds were converted. We paid the par value in cash and issued approximately 0.9 million shares for the conversion premium. During fiscal 2009, several bondholders exercised their conversion right for a total of $75.8 million of convertible notes. The par value of the convertible notes was paid in cash and the conversion premium was paid through issuance of approximately 1.4 million shares of stock.

As part of the acquisitions made during fiscal 2010 (see note 5 of Notes to the Consolidated Financial Statements), we assumed $11.1 million of short-term and long-term debt. At January 1, 2011, $1.5 million of the short-term acquired debt remains outstanding and $2.4 million of the long-term acquired debt remains outstanding.

At January 1, 2011, one of our foreign subsidiaries had outstanding short-term borrowings of $7.0 million denominated in local currency with a fixed interest rate of 5.6%. At January 2, 2010 one of our foreign subsidiaries had outstanding short-term borrowings of $8.2 million, denominated in local currency with a weighted average interest rate of 1.9%.

At January 1, 2011, additional notes payable of approximately $14.9 million were outstanding with a weighted average interest rate of 4.7%.

We are exposed to interest rate risk on certain of our short-term and long-term debt obligations used to finance our operations and acquisitions. At January 1, 2011, net of interest rate swaps, we had $266.4 million of fixed rate debt and $170.5 million of variable rate debt. The variable rate debt is primarily under our Term Loan with an interest rate based on a margin above LIBOR. As a result, interest rate changes impact future earnings and cash flow assuming other factors are constant. A hypothetical 10% change in our weighted average borrowing rate on outstanding variable rate debt at January 1, 2011 would result in a change in net income of approximately $0.1 million.

Predominately, all of our expenses are paid in cash, often with payment term provisions that include early payment discounts and time elements. We believe that our ability to generate positive cash flow, coupled with our available revolver balance will be sufficient to fund our operations for the foreseeable future. We focus on optimizing our investment in working capital through improved and enforced payment terms and operational efficiencies. Additionally, we believe that our capital expenditures for maintenance of equipment and facilities will be consistent with prior levels and not present a funding challenge.

We were in compliance with all of our financial covenants at the end of fiscal 2010. We believe that we will continue to be in compliance with these covenants for the foreseeable future.

The primary financial covenants on our Notes, Term Loan, and the Facility include ratios of debt to EBITDA (as defined in each agreement) and minimum interest coverage ratios of EBITDA to interest expense. The debt to EBITDA covenant ratio requires us to be less than 3.75:1, and our ratio at January 1, 2011 was approximately 1.4:1. The minimum interest coverage ratio requires us to be greater than 3.0:1, and our ratio at January 1, 2011 was approximately 16.3:1.

We will, from time to time, maintain excess cash balances which may be used to fund operations, repay outstanding debt and will be available for other investments which may include acquisitions of businesses or product lines, dividends, investments in new product development programs and the repurchase of our commons stock.

Our projections are based on all information known to us, which may change based on global economic events, our financial performance, actions by our customers and competitors and other factors discussed in “Risk Factors.”

EPC Acquisition

We plan to fund the $700 million cash consideration in the EPC Acquisition with a combination of existing cash, borrowings under the Facility, and additional debt.

Litigation

In July 2009, we filed a response and counterclaims in an action initiated by Nordyne, Inc. (“Nordyne”) on February 4, 2009, in the U.S. District Court for the Eastern District of Missouri. In the action, Nordyne is seeking a judgment declaring that neither Nordyne’s G7 furnace systems nor its iQ Drive 23-seer air conditioning systems infringe on our ECM (electronically commutated motor) systems patent U.S. Patent No. 5,592,058 (“the ‘058 Patent”) and/or that the ‘058 Patent is invalid. In our response and counterclaims against Nordyne, we deny that Nordyne is entitled to relief and we seek a judgment that Nordyne has, in fact, infringed and continues to infringe the ‘058 Patent by making, using, offering for sale and selling it G7 furnace systems and iQ Drive 23-seer air conditioning systems. We also have requested the U.S. District Court to enjoin Nordyne and all persons working in concert with Nordyne from further infringement of the ‘058 Patent and to award us compensatory and other damages caused by such infringement. On February 2, 2011, the Court issued a claim construction order in which it held that some of the claims in the ‘058 Patent contain limitations that are indefinite and thus invalid. However, other claims of the ‘058 Patent were not affected by this ruling and remain to be litigated in the action. We intend to defend our intellectual property vigorously against the claims asserted by Nordyne and against any infringement by Nordyne or any other person. We do not currently believe that the litigation will have a material effect on the Company’s financial position or its results of operations.

One of our subsidiaries that we acquired in 2007 is subject to numerous claims filed in various jurisdictions relating to certain sub-fractional motors that were primarily manufactured through 2004 and that were included as components of residential and commercial ventilation units marketed by a third party. These claims generally allege that the ventilation units were the cause of fires. Based on the current facts, we do not believe these claims, individually or in the aggregate, will have a material adverse effect on our results of operations or financial condition. However, we cannot predict the outcome of these claims, the nature or extent of remedial actions, if any, we may need to undertake with respect to motors that remain in the field, or the costs we many incur, some of which could be significant.

We are, from time to time, party to other litigation that arises in the normal course of our business operations, including product warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters. Our products are used in a variety of industrial, commercial and residential applications that subject us to claims that the use of our products is alleged to have resulted in injury or other damage. We accrue for anticipated costs in defending against such lawsuits in amounts that we believe are adequate, and we do not believe that the outcome of any such lawsuit will have a material effect on our results of operations or financial position.

Off-Balance Sheet Arrangements, Contractual Obligations and Commercial Commitments

		Debt
		Including												Purchase				Total
Payments due by Period		Estimated				Operating				Pension				and Other				Contractual
(1)		Interest Payments (2)				Leases				Obligations				Obligations				Obligations
Less than 1 Year		$	24.7			$	22.4			$	2.2			$	273.0			$	322.3
1 - 3 Years			197.0				30.9				—				—				227.9
3 - 5 Years			168.6				13.4				—				—				182.0
More than 5 Years			116.5				9.4				—				—				125.9
Total		$	506.8			$	76.1			$	2.2			$	273.0			$	858.1

The following is a summary of our contractual obligations and payments due by period as of January 1, 2011 (in millions):

(1)		The timing and future spot prices affect the settlement values of our hedge obligations related to commodities, currency and interest rate swap agreements. Accordingly, these obligations are not included above in the table of contractual obligations. The timing of settlement of our tax contingent liabilities cannot be reasonably determined and they are not included above in the table of contractual obligations. Future pension obligation payments after 2010 are subject to revaluation based on changes in the benefit population and/or changes in the value of pension assets based on market conditions that are not determinable as of January 1, 2011.
(2)		Variable rate debt based on January 1, 2011 rates.

We utilize blanket purchase orders (“blankets”) to communicate expected annual requirements to many of our suppliers. Requirements under blankets generally do not become “firm” until a varying number of weeks before our scheduled production. The purchase obligations shown in the above table represent the value we consider “firm.”

At January 1, 2011, we had outstanding standby letters of credit totaling approximately $45.8 million. We had no other material commercial commitments.

We did not have any material variable interest entities as of January 1, 2011 and January 2, 2010. Other than disclosed in the table above and the previous paragraph, we had no other material off-balance sheet arrangements.

Critical Accounting Policies

The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. We believe the following critical accounting policies could have the most significant effect on our reported results.

Goodwill

We evaluate the carrying amount of goodwill annually or more frequently if events or circumstances indicate that an asset might be impaired. When applying the accounting guidance, we use estimates to determine when it might be necessary to take an impairment charge. Factors that could trigger an impairment review include significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset or significant negative industry or economic trends. We perform our required annual goodwill impairment test as of the end of the October fiscal month each year.

The key assumptions used in the discounted cash flow valuation model used to estimate fair value include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”). The WACC considers market and industry data as well as company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and long term growth rates. The calculated fair values for our 2010 impairment testing exceed the carrying values of the reporting units. The two reporting units that compromise approximately 82% of the total consolidated carrying value at January 1, 2011 had a combined excess of approximately 90% estimated fair value over carrying value. We had two reporting units with a total of $27.3 million of goodwill at January 1, 2011 that had an estimated fair value that was less than 15% over carrying value.

Intangible Assets

We evaluate the recoverability of the carrying amount of intangible assets whenever events or changes in circumstance indicate that the carrying amount of an asset may not be fully recoverable through future cash flows. When applying the accounting guidance we use estimates to determine when an impairment is necessary. Factors that could trigger an impairment review include a significant decrease in the market value of an asset or significant negative or economic trends. (See also Note 7 of Notes to the Consolidated Financial Statements).

Derivatives

We periodically enter into commodity hedging transactions to reduce the impact of changing prices for certain commodities such as copper and aluminum based upon forecasted purchases of such commodities. We also use a cash hedging strategy to protect against an increase in the cost of forecasted foreign currency denominated transactions. Finally, we also have certain LIBOR-based floating rate borrowings that expose us to variability in interest rates that have been swapped into a pay fixed/receive LIBOR based interest rate swap agreement.

The fair value of derivatives is recorded on the consolidated balance sheet and the value is determined based on level 2 inputs. (See Note 14 of Notes to the Consolidated Financial Statements.)

Retirement Plans

Approximately half of our domestic employees are covered by defined benefit pension plans with the remaining employees covered by defined contribution plans. The defined benefit pension plans covering a majority of our domestic employees were frozen to new employees as of January 1, 2009. Most of our foreign employees are covered by government sponsored plans in the countries in which they are employed. Our obligations under our defined benefit pension plans are determined with the assistance of actuarial firms. The actuaries make certain assumptions regarding such factors as withdrawal rates and mortality rates. The actuaries also provide information and recommendations from which management makes further assumptions on such factors as the long-term expected rate of return on plan assets, the discount rate on benefit obligations and where applicable, the rate of annual compensation increases.

Based upon the assumptions made, the investments made by the plans, overall conditions and movement in financial markets, particularly the stock market and how actual withdrawal rates, life-spans of benefit recipients and other factors differ from assumptions, annual expenses and recorded assets or liabilities of these defined benefit pension plans may change significantly from year to year. Based on the annual review of actuarial assumptions as well as historical rates of return on plan assets and existing long-term bond rates, we set the long-term rate of return on plan assets at 8.25% and used a discount rate ranging from 5.2% to 5.9% for its defined benefit pension plans as of January 1, 2011. (See also Note 9 of the Consolidated Financial Statements).

Income Taxes

We operate in numerous taxing jurisdictions and are subject to regular examinations by various U.S. Federal, state and foreign jurisdictions for various tax periods. Our income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which we do business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, our estimates of income tax liabilities may differ from actual payments or assessments.

Additional information regarding income taxes is contained in Note 11 of Notes to the Consolidated Financial Statements.

Further discussion of our accounting policies is contained in Note 3 of Notes to the Consolidated Financial Statements.

ITEM 7A —		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk relating to our operations due to changes in interest rates, foreign currency exchange rates and commodity prices of purchased raw materials. We manage the exposure to these risks through a combination of normal operating and financing activities and derivative financial instruments such as interest rate swaps, commodity cash flow hedges and foreign currency forward exchange contracts. All hedging transactions are authorized and executed pursuant to clearly defined polices and procedures, which strictly prohibit the use of financial instruments for speculative purposes.

All hedges are recorded on the balance sheet at fair value and are accounted for as cash flow hedges, with changes in fair value recorded in accumulated other comprehensive income (loss) (“AOCI”) in each accounting period. An ineffective portion of the hedges change in fair value, if any, is recorded in earnings in the period of change.

Interest Rate Risk

We are exposed to interest rate risk on certain of our short-term and long-term debt obligations used to finance our operations and acquisitions. At January 1, 2011, net of interest rate swaps, we had $266.4 million of fixed rate debt and $170.5 million of variable rate debt. As a result, interest rate changes impact future earnings and cash flow assuming other factors are constant. We utilize interest rate swaps to manage fluctuations in cash flows resulting from exposure to interest rate risk on forecasted variable rate interest payments. We have LIBOR-based floating rate borrowings, which expose us to variability in interest payments due to changes in interest rates. A hypothetical 10% change in our weighted average borrowing rate on outstanding variable rate debt at January 1, 2011, would result in a change in after-tax annualized earnings of approximately $0.1 million. We have entered into pay fixed/receive LIBOR-based floating interest rate swaps to manage fluctuations in cash flows resulting from interest rate risk. These interest rate swaps have been designated as cash flow hedges against forecasted LIBOR-based interest payments. Details regarding the instruments, as of January 1, 2011, are as follows:

Notional

Rate

Fair Value

Instrument

Amount

Maturity

Paid

Rate Received

(Loss)

Swap

$150.0 million

August 23, 2014

5.3

%

LIBOR (3 month)

($21.1) million

Swap

$100.0 million

August 23, 2017

5.4

%

LIBOR (3 month)

($18.0) million

As of January 1, 2011 and January 2, 2010, the interest rate swap liability of ($39.1) million and ($31.2) million was included in Hedging Obligations, respectively. The unrealized loss on the effective portion of the contracts of ($24.2) million and ($19.3) million, net of tax as of January 1, 2011 and January 2, 2010, respectively, was recorded in AOCI.

Foreign Currency Risk

We are also exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to minimize our exposure to these risks through a combination of normal operating activities and the utilization of foreign currency exchange contracts to manage our exposure on the transactions denominated in currencies other than the applicable functional currency. Contracts are executed with creditworthy banks and are denominated in currencies of major industrial countries. We do not hedge our exposure to the translation of reported results of foreign subsidiaries from local currency to United States dollars.

As of January 1, 2011, derivative currency assets (liabilities) of $7.3 million, $1.4 million, ($0.1) million, and ($0.1) million are recorded in Prepaid Expenses, Other Noncurrent Assets, Accrued Expenses, and Hedging Obligations, respectively. As of January 2, 2010, derivative currency assets (liabilities) of $0.2 million, $1.1 million, and ($5.5) million are recorded in Prepaid Expenses, Other Noncurrent Assets, and Hedging Obligations, respectively. The unrealized gain (loss) on the effective portion of the contracts of $5.1 million net of tax, and ($2.7) million net of tax, as of January 1, 2011 and January 2, 2010, was recorded in AOCI. At January 1, 2011, we had an additional immaterial amount of currency gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At January 2, 2010, we had an additional ($0.6) million, net of tax, of derivative currency losses on closed hedge instruments in AOCI that were realized in earnings when the hedged items impacted earnings.

The following table quantifies the outstanding foreign exchange contracts intended to hedge non-U.S. dollar denominated receivables and payables and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their counter currency on January 1, 2011 (dollars in millions):

										Foreign Exchange
										Gain/(Loss) From:
		Notional				Fair				10% Appreciation of				10% Depreciation of
Currency		Amount				Value				Counter Currency				Counter Currency
Mexican Peso		$	86.3			$	7.9			$	8.6			$	(8.6	)
Australian Dollar			2.4				(0.1	)			0.2				(0.2	)
Indian Rupee			36.4				0.5				3.6				(3.6	)
Chinese Renminbi			8.9				0.2				0.9				(0.9	)

It is important to note that gains and losses indicated in the sensitivity analysis would be offset by gains and losses on the underlying receivables and payables.

Commodity Price Risk

We periodically enter into commodity hedging transactions to reduce the impact of changing prices for certain commodities such as copper and aluminum based upon forecasted purchases of such commodities. These transactions are designated as cash flow hedges and the contract terms of commodity hedge instruments generally mirror those of the hedged item, providing a high degree of risk reduction and correlation.

Derivative commodity assets (liabilities) of $24.9 million, $4.2 million, and ($0.1) are recorded in Prepaid Expenses, Other Noncurrent Assets, and Accrued Expenses, respectively, at January 1, 2011. Derivative commodity assets of $4.4 million are recorded in Prepaid Expenses at January 2, 2010. The unrealized gain on the effective portion of the contracts of $17.8 million net of tax and $2.2 million net of tax, as of January 1, 2011 and January 2, 2010, respectively, was recorded in AOCI. At January 1, 2011, we had an additional $4.1 million, net of tax, of derivative commodity gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At January 2, 2010, we had an additional $2.1 million, net of tax, of derivative commodity gains on closed hedge instruments in AOCI that were realized in earnings when the hedged items impacted earnings.

The following table quantifies the outstanding commodity contracts intended to hedge raw material commodity prices and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their prices on January 1, 2011 (dollars in millions):

										Commodity Purchase Price
										Gain/(Loss) From:
		Notional								10% Increase of				10% Decrease of
Commodity		Amount				Fair Value				Commodity Prices				Commodity Prices
Copper		$	106.3			$	28.5			$	10.6			$	(10.6	)
Aluminum			4.2				0.6				0.4				(0.4	)
Zinc			0.2				—				—				—
Natural Gas			0.7				(0.1	)			—				—

It is important to note that gains and losses indicated in the sensitivity analysis would be offset by the actual prices of the commodities.

The net AOCI balance of $2.8 million gain at January 1, 2011 includes $13.0 million of net current deferred gains expected to be realized in the next twelve months.

ITEM 8 —		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Quarterly Financial Information
(Unaudited)

		(In Thousands, Except Per Share Data)
		1st Quarter								2nd Quarter								3rd Quarter								4th Quarter
		2010				2009				2010				2009				2010				2009				2010				2009
Net Sales		$	507,318			$	443,274			$	584,181			$	454,550			$	590,801			$	465,192			$	555,678			$	463,261
Gross Profit			130,915				90,570				143,504				94,622				144,664				113,869				130,267				125,163
Income from Operations			62,765				28,192				66,799				29,467				69,883				48,318				38,288				53,543
Net Income			39,868				13,976				42,775				17,521				45,880				31,672				26,161				35,510
Net Income Attributable to Regal Beloit Corporation			37,762				12,787				41,720				16,452				44,654				31,150				25,243				34,659
Earnings Per Share (1) :
Basic			1.10				0.41				1.09				0.49				1.16				0.86				0.65				0.94
Assuming Dilution			0.98				0.39				1.07				0.47				1.14				0.82				0.65				0.90
Weighted Average Number of Shares Outstanding
Basic			37,446				31,457				38,310				33,256				38,581				36,056				38,607				37,031
Assuming Dilution			38,622				32,595				38,954				35,105				39,023				38,183				39,052				38,410
Net Sales
Electrical		$	457,245			$	391,362			$	522,790			$	407,244			$	527,789			$	422,006			$	494,165			$	417,056
Mechanical			50,073				51,912				61,391				47,306				63,012				43,186				61,513				46,205
Income from Operations
Electrical			56,340				21,906				58,835				25,339				62,038				45,796				33,016				51,860
Mechanical			6,425				6,286				7,964				4,128				7,845				2,522				5,272				1,683

(1)		Due to the weighting of both earnings and the weighted average number of shares outstanding, the sum of the quarterly earnings per share may not equal the annual earnings per share.

Management’s Annual Report on Internal Control Over Financial Reporting

The management of Regal Beloit Corporation (the “Company”) is responsible for the accuracy and internal consistency of the preparation of the consolidated financial statements and footnotes contained in this annual report.

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company operates under a system of internal accounting controls designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles. The internal accounting control system is evaluated for effectiveness by management and is tested, monitored and revised as necessary. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of January 1, 2011. In making its assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on the results of its evaluation, the Company’s management concluded that, as of January 1, 2011, the Company’s internal control over financial reporting is effective at the reasonable assurance level based on those criteria.

Our internal control over financial reporting as of January 1, 2011 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.

March 2, 2011

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Regal Beloit Corporation
Beloit, Wisconsin

We have audited the accompanying consolidated balance sheets of Regal Beloit Corporation and subsidiaries (the “Company”) as of January 1, 2011 and January 2, 2010, and the related consolidated statements of income, equity, comprehensive income (loss), and cash flows for each of the three years in the period ended January 1, 2011. Our audits also included the consolidated financial statement schedule listed in the Index as Item 15. We also have audited the Company’s internal control over financial reporting as of January 1, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 1, 2011 and January 2, 2010, and the results of their operations and their cash flows for each of the three years in the period ended January 1, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 1, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/S/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
March 2, 2011

REGAL BELOIT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)

		For the Year Ended
		January 1,				January 2,				December 27,
		2011				2010				2008
Net Sales		$	2,237,978			$	1,826,277			$	2,246,249
Cost of Sales			1,688,628				1,402,053				1,745,569
Gross Profit			549,350				424,224				500,680
Operating Expenses			311,615				264,704				270,249
Income From Operations			237,735				159,520				230,431
Interest Expense			19,576				23,284				32,647
Interest Income			2,570				1,719				1,479
Income Before Taxes & Noncontrolling Interests			220,729				137,955				199,263
Provision For Income Taxes			66,045				39,276				70,349
Net Income			154,684				98,679				128,914
Less: Net Income Attributable to Noncontrolling Interests, net of tax			5,305				3,631				3,389
Net Income Attributable to Regal Beloit Corporation		$	149,379			$	95,048			$	125,525
Earnings Per Share of Common Stock:
Basic		$	3.91			$	2.76			$	4.00
Assuming Dilution		$	3.84			$	2.63			$	3.78
Weighted Average Number of Shares Outstanding:
Basic			38,236,168				34,498,674				31,343,330
Assuming Dilution			38,921,699				36,131,607				33,250,689

See accompanying Notes to the Consolidated Financial Statements.

REGAL BELOIT CORPORATION

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)

		January 1,				January 2,
		2011				2010
ASSETS
Current Assets:
Cash and Cash Equivalents		$	174,531			$	262,422
Investments — Trading Securities			56,327				117,553
Trade Receivables, less Allowances of $10,637 in 2010 and of $12,666 in 2009			331,017				240,721
Inventories			390,587				268,839
Prepaid Expenses and Other Current Assets			110,665				59,168
Deferred Income Tax Benefits			24,924				30,673
Total Current Assets			1,088,051				979,376
Net Property, Plant and Equipment:
Land and Improvements			45,909				42,034
Buildings and Improvements			141,128				127,468
Machinery and Equipment			550,816				484,274
Property, Plant and Equipment, at Cost			737,853				653,776
Less — Accumulated Depreciation			(341,477	)			(310,705	)
Net Property, Plant and Equipment			396,376				343,071
Goodwill			775,371				663,920
Intangible Assets, Net of Amortization			175,490				116,426
Other Noncurrent Assets			13,848				9,444
Total Assets		$	2,449,136			$	2,112,237
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable		$	231,705			$	161,902
Dividends Payable			6,562				5,981
Accrued Compensation and Employee Benefits			63,842				50,722
Other Accrued Expenses			88,596				82,076
Current Maturities of Debt			8,637				8,385
Total Current Liabilities			399,342				309,066
Long-Term Debt			428,256				468,065
Deferred Income Taxes			92,858				72,418
Hedging Obligations			39,174				31,232
Pension and other Post Retirement Benefits			51,127				39,306
Other Noncurrent Liabilities			41,217				12,082
Commitments and Contingencies (see Note 12)
Equity:
Regal Beloit Corporation Shareholders’ Equity:
Common Stock, $.01 par value, 100,000,000 shares authorized, 38,615,547 issued in 2010, and 37,399,353 shares issued in 2009			386				374
Additional Paid-In Capital			535,807				512,282
Retained Earnings			827,467				703,765
Accumulated Other Comprehensive Loss			(1,700	)			(48,597	)
Total Regal Beloit Corporation Shareholders’ Equity			1,361,960				1,167,824
Noncontrolling Interests			35,202				12,244
Total Equity			1,397,162				1,180,068
Total Liabilities and Equity		$	2,449,136			$	2,112,237

See accompanying Notes to the Consolidated Financial Statements.

REGAL BELOIT CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in Thousands, Except Per Share Data)

		Regal Beloit Corporation Shareholders’ Equity
																		Accumulated
		Common				Additional												Other
		Stock $ .01				Paid-In				Treasury				Retained				Comprehensive				Noncontrolling				Total
		Par Value				Capital				Stock				Earnings				Income (Loss)				Interests				Equity
Balance as of December 29, 2007		$	321			$	348,971			$	(15,228	)		$	525,506			$	2,180			$	10,542			$	872,292
Net Income		$	—			$	—			$	—			$	125,525			$	—			$	3,389			$	128,914
Dividends Declared ($.63 per share)			—				—				—				(19,750	)			—				—			$	(19,750	)
Purchase of 110,000 shares of Treasury Stock			—				—				(4,191	)			—				—				—			$	(4,191	)
Stock Options Exercised including income tax benefit and share cancellations			2				2,680				—				—				—				—			$	2,682
Stock-based Compensation			—				4,580				—				—				—				—			$	4,580
Distribution of Noncontrolling Interests			—				—				—				—				—				(3,044	)		$	(3,044	)
Other Comprehensive Income (Loss) (see detail Comprehensive Income Statement)			—				—				—				—				(144,609	)			767			$	(143,842	)
Balance as of December 27, 2008		$	323			$	356,231			$	(19,419	)		$	631,281			$	(142,429	)		$	11,654			$	837,641
Net Income		$	—			$	—			$	—			$	95,048			$	—			$	3,631			$	98,679
Dividends Declared ($.64 per share)			—				—				—				(22,564	)			—				—			$	(22,564	)
Issuance of 4,312,500 shares of Common Stock			43				150,327								—				—				—			$	150,370
Stock Options Exercised including income tax benefit and share cancellations			3				5,817				—				—				—				—			$	5,820
Stock-based Compensation			—				4,752				—				—				—				—			$	4,752
Issuance of Treasury and Common Stock for conversion premium on Convertible Debt redemption			5				(19,424	)			19,419				—				—				—			$	—
Reversal of unrecognized tax benefits			—				3,600				—				—				—				—			$	3,600
Reversal of tax benefits related to Convertible Debt			—				10,979				—				—				—				—			$	10,979
Distribution to Noncontrolling Interests			—				—				—				—				—				(4,468	)		$	(4,468	)
Other Comprehensive Income (Loss) (see detail Comprehensive Income Statement)			—				—				—				—				93,832				1,427			$	95,259
Balance as of January 2, 2010		$	374			$	512,282			$	—			$	703,765			$	(48,597	)		$	12,244			$	1,180,068
Net Income		$	—			$	—			$	—			$	149,379			$	—			$	5,305			$	154,684
Dividends Declared ($.67 per share)			—				—				—				(25,677	)			—				—			$	(25,677	)
Issuance of 100,000 shares of Common Stock for acquistion			1				6,106								—				—				—			$	6,107
Stock Options Exercised including income tax benefit and share cancellations			2				4,127				—				—				—				—			$	4,129
Stock-based Compensation			—				6,747				—				—				—				—			$	6,747
Issuance of Common Stock for conversion premium on Convertible Debt redemption			9				(9	)			—				—				—				—			$	—
Reversal of tax benefits related to Convertible Debt			—				6,554				—				—				—				—			$	6,554
Additions to Noncontrolling Interests from acquisitions			—				—				—				—				—				16,560			$	16,560
Other Comprehensive Income (Loss) (see detail Comprehensive Income Statement)			—				—				—				—				46,897				1,093			$	47,990
Balance as of January 1, 2011		$	386			$	535,807			$	—			$	827,467			$	(1,700	)		$	35,202			$	1,397,162