REGAL BELOIT CORP, 10-K405, 1996-03-20

REGAL BELOIT CORP
10-K405, 1996-03-20
GENERAL INDUSTRIAL MACHINERY & EQUIPMENT

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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

For the fiscal year ended December 31, 1995 Commission file number 1-7283
-------------------------------------
REGAL-BELOIT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Wisconsin 39-0875718
(State of Incorporation) (I.R.S. Employer Identification No.)

200 State Street
Beloit, Wisconsin 53511-6254
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (608) 364-8800
===============================================================================
Securities registered pursuant to Section 12 (b) of the Act:

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

Securities registered pursuant to Section 12 (g) of the Act................None
(Title of Class)
===============================================================================
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No

Indicate 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. X

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 20, 1996 was approximately $407,000,000.

On March 20, 1996 the registrant had outstanding 20,600,707 shares common
stock, $.01 par value, which is registrant's only class of common stock.
===============================================================================
Documents Incorporated by Reference

Documents Form 10-K Reference
Annual Report to Shareholders for Year Ended
December 31, 1995.................................... I, II, IV

Proxy Statement for Annual Shareholder Meeting to be
Held on April 24, 1996............................... III
<PAGE>
ITEM 1. Business

General Development of Business

Regal-Beloit Corporation is a Wisconsin corporation founded in 1955. The
Company's initial business was the production of special metalworking taps.
Through 33 acquisitions and internal growth, the Company has become a prominent
manufacturer of a diversified line of power transmission products and
perishable, high-speed steel, rotary cutting tools.

The Company's power transmission products, manufactured by its Power
Transmission Group, include standard and custom gearboxes, transmissions,
rigid forklift axles, custom gearing, mini-gear motors and
manual valve actuators. These products are sold to distributors, original
equipment manufacturers and end users across many industry segments.

Typical applications for the Company's power transmission products include
material handling systems such as conveyors, palletizers and packaging
equipment; off-highway vehicular equipment such as street pavers, graders,
airport/fire/crash/rescue equipment; farm implements; center pivot irrigation
systems; gas and liquid pipeline transmission systems; civic water and waste
treatment facilities; open-pit mining; paper making machinery; high-
performance, after-market automotive transmissions and ring/pinion sets; and
transmissions for luxury inboard powered craft.

Effective January 1, 1995, the Company acquired selected net assets of the
Marine and Industrial Transmission Division of Borg-Warner Automotive
Transmission and Engine Components Corporation for approximately $9,192,000.
This acquisition has been renamed the Velvet Drive Transmission Division of
Regal-Beloit Corporation. This Division produces both marine and industrial
transmissions.

The Company's perishable, high-speed steel, rotary cutting tool products are
manufactured by its Cutting Tool Group. Principal cutting tool products
include taps, drills, end mills, reamers and gages in thousands of standard
and popular non-standard styles and sizes, as well as a wide range of specially
designed products. Cutting tool products are sold to distributors on both
open line and select bases and to select end-users throughout the United
States. Standard and most special items are shipped promptly, generally
within 24 hours to a few days of receipt of orders. These products are mostly
used in industrial metalworking applications where it is necessary to remove
metal to shape product into finished form or to prepare a metal workpiece to
receive a fastening device.

Regal-Beloit believes its consistent ability to provide products on a shorter
delivery schedule than other manufacturers gives it a competitive selling
advantage and that its extensive use of modern, up-to-date equipment which is
best suited for the job, along with its continued product redesign and
effective plant layout, often gives it a competitive cost advantage in both
power transmission products and cutting tools.

<PAGE>
Marketing and Sales

Power transmission products are sold to select distributors, original equipment
manufacturers and end users through field sales personnel and manufacturers'
representatives.

Approximately 70% of the Company's cutting tool sales by dollar volume
represents products sold on a non-exclusive, open line basis through
independent industrial distributors nationwide. The Company is the only
significant producer of cutting tools to employ the open line method of
distribution. The balance of the cutting tools are sold to select distributors
and end users through the National Twist Drill and New York Twist Drill
Divisions, respectively.

Export sales accounted for approximately 3% of the Company sales in 1995, 1994
and 1993. No material part of the Company's business is dependent upon a
single customer or a group of customers. In fiscal 1995, no single customer
accounted for as much as 5% of Company sales. Although the Company's sales
are predominantly not seasonal, they tend to vary with general economic
conditions and with the rate of industrial production, and are affected by
business climates in the many markets in which the Company sells. However,
because the Company's products are sold to many different markets, the effects
of weaker markets are frequently offset by strengths in other markets.

Competition

Competition in the power transmission equipment industry has historically been
from old line and captive manufacturers. In recent years, competition, in
general, (including foreign manufacturers) has intensified. Over the past
several years, niche product market opportunities have become more prevalent
due to changing market conditions described above and decisions by larger
manufacturers not to compete in lower volume or specialized markets.
Additionally, smaller companies have been sold due to lack of capital to
invest in more modern productive equipment. Many captive producers have
chosen, for economic reasons, to outsource their requirements to specialized
manufacturers like Regal-Beloit who can produce more cost effectively. The
Company has capitalized on this competitive climate by making acquisitions
and increasing its manufacturing efficiencies. Some of these acquisitions
have created new opportunities for the Company because the Company is now in
new markets it was not previously involved in. The Company has also continued
to upgrade its manufacturing equipment and processes, including increasing its
use of computer aided manufacturing systems and redesigning products to take
full advantage of the more productive equipment along with redoing plant layout
to improve product flow. In practice, the Company has sought out specific
niche markets concentrating on a wide diversity of customers and applications.
Because of this approach, the Company is often not the largest supplier in any
specific market. The Company believes it competes primarily on the basis of
the promptness of delivery, price and quality. Dominant domestic competitors
in the power transmission equipment industry include Sundstrand Corporation
(Falk), Emerson Electric, Reliance Electric, Philadelphia Gear, and IMO.
Dominant foreign competitors would include SEW Eurodrive, Flender, Sumitomo
and Leroy Somer.
<PAGE>
The markets for most of the Company's cutting tool products are highly
competitive. The domestic cutting tool industry is a mature industry which
has been characterized for the past 10 to 15 years by excess capacity and
declining sales. Selling price increases have been minimal and the Company
believes that some additional but less severe contraction of the industry is
likely in the years ahead. Despite a mature market, the Company has been
able to minimize the effect this contraction has had on the Company, primarily
by eliminating the production of unprofitable products, developing new
products, improving manufacturing capability and efficiency and providing
fast product delivery.

Cutting tools produced abroad and imported, according to recent government
statistics, are estimated to represent less than 15% of the domestic industrial
market; however, that share is growing slightly. Most imported tools are non-
industrial quality and most are not sold in the commercial markets in which the
Company sells.

Competition in the cutting tool industry is primarily on the basis of price,
product quality and promptness of delivery. The Company competes primarily
on the basis of promptness of delivery and quality including its expertise in
assisting customers to solve specific cutting tool problems. The Company
believes it is unique among the larger cutting tool manufacturers in its
ability to ship orders promptly, generally within 24 hours to a few days of
receipt of orders for standard and most special products. The Company is
number two of the two leading domestic full line manufacturers in terms of
dollar value of shipments of taps, end mills, reamers, gages and drills in
total. The other competitor in the category is Greenfield Industries, which
is larger than Regal-Beloit Corporation. The Company also has competition
from other manufacturers; however, these companies are typically regional in
sales and usually produce one or two types of products as opposed to a full
line.

For further segment information required by Item 101 of Regulation S-K,
reference is made to Note 10 of the Financial Statements on page 14 of the
Annual Report to shareholders for the year ended December 31, 1995, a copy of
which is attached hereto, and such information is incorporated herein by
reference.

Backlog

As of December 31, 1995, the amount of the Company's power transmission backlog
believed to be firm was approximately $48,400,000 compared to approximately
$45,300,000 on December 31, 1994. Year end 1995 includes backlog from the
Velvet Drive Transmission acquisition which was not included in year end 1994.
Average delivery time for orders of the Company's power transmission equipment
(except for large, specially designed products) varies from three days to two
months.

Because the Company ships cutting tool orders promptly, generally within a few
days of receiving the order, there are no material backlogs for cutting tools.
<PAGE>
Trademarks and Licenses

Regal-Beloit utilizes various registered and unregistered trademarks and the
Company believes these trademarks are significant in the marketing of most of
its products. However, the Company believes the successful manufacture and
sale of its products generally depends more upon its technological,
manufacturing and marketing skills. In addition, the Company believes its
engineering, test and development capabilities are significant factors in the
success of its business.

Employees

As of December 31, 1995, the Company employed approximately 2,600 persons, of
which approximately 28% are covered by collective bargaining agreements. The
Company considers its employee relations to be very good.

Raw Materials

Base materials for the Company's products consist primarily of steels in
various sizes, castings, bearings and weldments. The Company purchases its
raw materials from many suppliers and is not dependent on any single supplier
for any of its base materials.

Environmental Matters

The Company is subject to Federal, State and local environmental regulations.
The Company is currently involved with environmental cleanup proceedings
related to certain of its facilities. It is believed that the outcome of
these proceedings and future known environmental compliance costs will not
have a material adverse effect on the Company's financial position or results
of operations.

ITEM 2. Properties

The Company currently operates a corporate office and 20 manufacturing and
service/distribution facilities. Three each are located in Illinois and
Wisconsin; two each are located in Indiana, South Carolina and South Dakota;
and one each located in California, Massachusetts, New York, North Carolina,
Pennsylvania, Texas, Newbury (England), Neu Anspach (Germany) and Legnano
(Italy). The Company's present operating facilities contain a total of
approximately 1,510,000 square feet of space of which approximately 147,000
square feet are leased. The Company believes its equipment and facilities
are well maintained and adequate for its present needs. The Company currently
owns one manufacturing facility with a total of 53,000 square feet that it
intends to sell.

ITEM 3. Legal Proceedings

The Company is not involved in any material legal proceedings.

ITEM 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the
fourth quarter of 1995.
<PAGE>
PART II

ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

Certain information required by Item 201 of Regulation S-K is set forth on
page 4 and the inside back cover of the Annual Report to shareholders for the
year ended December 31, 1995, a copy of which is attached hereto, and such
information is incorporated herein by reference. The loan covenants relating
to the long-term debt agreements of the Company contain, among other things,
restrictions on the payment of dividends and redemption or retirement of shares
of common stock. Under the terms of these covenants, $19,400,000 of retained
earnings was available for distribution as of December 31, 1995.

ITEM 6. Selected Financial Data

Information required by Item 301 of Regulation S-K is set forth on page 4 of
the Annual Report to shareholders for the year ended December 31, 1995, a copy
of which is attached hereto, and such information is incorporated herein by
reference.

ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation

Information required by Item 303 of Regulation S-K is set forth on pages 5 and
6 of the Annual Report to shareholders for the year ended December 31, 1995, a
copy of which is attached hereto, and such information is incorporated herein
by reference.

ITEM 8. Financial Statements and Supplementary Data

In the Annual Report to shareholders for the year ended December 31, 1995, a
copy of which is attached hereto, there are set forth on pages 7 through 15,
financial statements meeting the requirements of Regulation S-X and information
specified by Item 302 of Regulation S-K and such financial statements are
incorporated herein by reference.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

The Company has had no disagreements with its accountants subject to disclosure
by Item 304 of Regulation S-K nor has it had a change of accountants within
the last two fiscal years.
<PAGE>
PART III

ITEM 10. Directors and Executive Officers of the Registrant

Information required by Item 401 of Regulation S-K is set forth on pages 3
through 5 of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on April 24, 1996, a copy of which has been filed
within 120 days following the close of the fiscal year, and such information
is incorporated herein by reference.

The names, ages, and positions of all of the executive officers of the Company
as of March 20, 1996, are listed below along with their business experience
during the past five years. Officers are appointed annually by the Board of
Directors at the Meeting of Directors immediately following the Annual Meeting
of Shareholders in April. There are no family relationships among these
officers, nor any arrangements of understanding between any officer and any
other persons pursuant to which the officer was selected.
<TABLE>
<CAPTION>
<S> <C>
Name, Age and Position Business Experience During the Past 5 Years
- ------------------------- -------------------------------------------------

James L. Packard, 53 Elected Chairman in 1986; Chief Executive Officer
Chairman, President and since 1984; President since 1980.
Chief Executive Officer

Henry W. Knueppel, 47 Elected Executive Vice President-Operations in
Executive Vice President 1987, prior to which he was Vice President-
Operations Operations since 1985.

Robert C. Burress, 57 Elected Secretary in 1996; Vice President - Chief
Vice President - Chief Financial Officer since 1994; Vice President -
Financial Officer, Secretary Treasurer since 1980.
Financial Officer, Secretary
</TABLE>

ITEM 11. Executive Compensation

Information required by Item 402 of Regulation S-K is set forth on pages 7
through 9 of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on April 24, 1996, a copy of which has been filed
within 120 days following the close of the fiscal year and such information
is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

Information required pursuant to Item 403 of Regulation S-K is set forth on
pages 2, 4, 5 and 10 of the definitive proxy statement for the Annual Meeting
of Shareholders to be held on April 24, 1996, a copy of which has been filed
within 120 days following the close of the fiscal year and such information is
incorporated herein by reference.

<PAGE>
ITEM 13. Certain Relationships and Related Transactions

The Company had no relationships or transactions that are subject to disclosure
by Item 404 of Regulation S-K.

PART IV

ITEM 14. Financial Statements, Financial Statement Schedule, Exhibits and
Reports on Form 8-K

1. Financial Statements

The following Financial Statements of the Company are included on pages 7
through 15 of the Annual Report to shareholders for the year ended December 31,
1995, a copy of which is attached hereto, and such Financial Statements are
incorporated herein by reference.

- Consolidated Statement of Income for the years ended December 31, 1995,
1994, and 1993.

- Consolidated Balance Sheet as of December 31, 1995, and 1994.

- Consolidated Statement of Shareholders' Investment for the years ended
December 31, 1995, 1994, and 1993.

- Consolidated Statement of Cash Flows for the years ended December 31,
1995, 1994, and 1993.

- Notes to Consolidated Financial Statements for the three years ended
December 31, 1995.

- Report of Independent Public Accountants.

2. Financial Statement Schedule and Auditors' Report

The following Financial Statement Schedule and Report of Independent Public
Accountants should be read in conjunction with the Financial Statements
included in the 1995 Annual Report to shareholders.

Page

- Report of Independent Public Accountants 11

- Schedule II - Valuation and Qualifying Accounts 12
</TABLE>

All other schedules have been omitted because they are not applicable or not
required or because the required information is shown in the Financial
Statements or Notes thereto.

<PAGE>
3. Reports on Form 8-K

There were no reports filed on Form 8-K by the Company during the fourth
quarter of 1995.
<PAGE>
4. Exhibits

The following exhibits are required to be filed by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
<S> <C>
Exhibit Incorporated by Filed Seq. No.
Number Description Reference to: Herewith Page
- ------- --------------------------------------- ------------------------------------------ -------- --------
2 Agreement and Plan of Merger by and Exhibit A to Annual Meeting Proxy
between the Registrant and Regal-Beloit Statement of Regal-Beloit Corporation
Corporation, dated as of April 18, 1994 dated March 11, 1994

3.1 Articles of Incorporation of the Exhibit B to the 1994 Proxy Statement
Registrant

3.2 Bylaws of the Registrant Exhibit C to the 1994 Proxy Statement

4.1 Articles of Incorporation and Bylaws Exhibits 3.1 and 3.2 hereto
of the Registrant

4.2 Loan Agreement between the Registrant Exhibit 4.2 to Regal-Beloit Corporation's
and M&I Marshall & Ilsley Bank, dated as Annual Report on Form 10-K dated
of April 22, 1992 ("M&I Loan Agreement") March 29, 1993

10.1 Short-Term Incentive Compensation Plan, Exhibit 10.1 to Regal-Beloit Corporation's
as amended Annual Report on Form 10-K dated
March 29, 1993

10.2 1982 Incentive Stock Option Plan Exhibit 10.4 to 1986 S-1

10.3 1987 Stock Option Plan Exhibit 10.3 to 1988 S-1

10.4 1991 Flexible Stock Incentive Plan Exhibit 10.4 to Regal-Beloit Corporation's
Annual Report on Form 10-K dated
March 29, 1993 (1994 S-8 Registration
No. 33-82076)

10.5 Change In Control Agreement Exhibit 10.5 to Regal-Beloit Corporation's
Annual Report on Form 10-K dated
March 29, 1993

10.6 Disability Insurance Agreement between Exhibit 10.6 to Regal-Beloit Corporation's
Regal-Beloit Corporation and Continental Annual Report on Form 10-K dated
Casualty Company March 29, 1993

13.1 Annual Report to Security Holders for the Exhibit 13.1 to Regal-Beloit Corporation's X 13
year ended December 31, 1995 Annual Report on Form 10-K dated
March 20, 1996

21.1 Subsidiaries of the Regal-Beloit Exhibit 21.1 to Regal-Beloit Corporation's X 33
Corporation Annual Report on Form 10-K dated
March 20, 1996

23.1 Consent of Independent Public Accountants Exhibit 23.1 to Regal-Beloit Corporation's X 11
Annual Report on Form 10-K dated
March 20, 1996
<PAGE>
Exhibit Incorporated by Filed Seq. No.
Number Description Reference to: Herewith Page
- ------- ----------------------------------------- ------------------------------------------- -------- --------
28.1 Form 11-K Annual Report of Regal-Beloit
Corporation Personal Savings Plan for the
year ended December 31, 1995 (to be
filed within 180 days after the end of the
Plan's fiscal year)

99.1 Annual Meeting Proxy Statement of
Regal-Beloit Corporation dated
March 14, 1996

99.2 Agreement and Plan of Merger by and Exhibit A to the 1994 Proxy Statement
between the Registrant and Regal-Beloit
Corporation, dated as of April 18, 1994
</TABLE>
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

REGAL-BELOIT CORPORATION

By: Robert C. Burress
-------------------------------
Robert C. Burress
Secretary
March 20, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>

James L. Packard
- ------------------------------ Chairman, President, Chief March 20, 1996
James L. Packard Executive Officer and Director --------------

Robert C. Burress
- ------------------------------ Vice President - CFO March 20, 1996
Robert C. Burress (Principal Accounting & Financial Officer) --------------

Henry W. Knueppel
- ------------------------------ Executive Vice President March 20, 1996
Henry W. Knueppel and Director --------------

John A. McKay
- ------------------------------ Director March 20, 1996
John A. McKay --------------

John M. Eldred
- ------------------------------ Director March 20, 1996
John M. Eldred --------------

J. Reed Coleman
- ------------------------------ Director March 20, 1996
J. Reed Coleman --------------

Frank Bauchiero
- ------------------------------ Director March 20, 1996
Frank Bauchiero --------------
<PAGE>
Report of Independent Public Accountants

To Regal-Beloit Corporation:

We have audited, in accordance with generally accepted auditing standards, the
financial statements included in Regal-Beloit Corporation's Annual Report to
Shareholders, incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 31, 1996. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed
in the index to financial statements is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP
-------------------------------------
ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
January 31, 1996
<PAGE>
EXHIBITS AND SCHEDULES

Exhibit 23.1 Consent of Independent Public Accountants
Schedule II Valuation and Qaulifying Accounts
Exhibit 21.1 Subsidiaries of Regal-Beloit Corporation
Exhibit 13.1 Annual Report to Shareholders
<PAGE>
Exhibit 23.1

Consent of Independent Public Accountants

To Regal-Beloit Corporation:

As independent public accountants, we hereby consent to the incorporation of
our reports, included and incorporated by reference in this Form 10-K, into
Regal-Beloit Corporation's previously filed Registration Statements, File Nos.
33-25480, 33-25233, 33-82076 and 33-8934.

ARTHUR ANDERSEN LLP
-----------------------------------
ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
March 20, 1996.
<PAGE>
SCHEDULE II

REGAL-BELOIT CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

Allowance for Doubtful Accounts:

</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(In Thousands Of Dollars)
---------------------------------------------
Balance Additions Write-offs, Balance
Beginning Charged To Net Of End
Of Year Net Income Recoveries Of Year
--------- ---------- ---------- -------
Year Ended December 31, 1995 $ 1,161 $ 62 $ (83) $ 1,140

Year Ended December 31, 1994 $ 1,077 $ 191 $ (107) $ 1,161

Year Ended December 31, 1993 $ 905 $ 387 $ (215) $ 1,077
</TABLE>
<PAGE>
EXHIBIT 21.1

SUBSIDIARIES OF REGAL-BELOIT CORPORATION

Regal-Beloit International Sales Corporation, a Delaware Corporation
200 State Street
Beloit, Wisconsin
Acquired - May, 1979

Regal-Beloit Corporation FSC, a Virgin Island Corporation
200 State Street
Beloit, Wisconsin
Acquired - December, 1984

New York Twist Drill, Inc., a Delaware Corporation
25 Howard Place
Ronkonkoma, New York
Acquired - March, 1988

Opperman Mastergear Limited
Hambridge Road
Newbury, Berkshire, England, United Kingdom
Acquired - July, 1991

Mastergear GmbH
SiemensstraBe 16
Neu Anspach, Germany
Acquired - July, 1991

Hub City, Inc.
2914 Industrial Drive
Aberdeen, South Dakota
Acquired - April, 1992

Costruzioni Meccaniche Legnanesi S.r.L.
Via San Bernardino 129
Legnano, Italy
Acquired - December, 1994
<PAGE>

Exhibit 13.1

Annual Report to Shareholders

Table of Contents

Financial Highlights

Letter to shareholders

Financial Review

Directors and Officers

About the Company

Shareholder Information
<PAGE>
Financial Highlights REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Increase/(Decrease)
--------------------
1995 1994 Amount %
- ---------------------------------------------------------------------------------------------
OPERATIONS (dollars in thousands)

Net Sales......................................... $ 295,891 $ 242,650 $ 53,241 21.9%

Net Income........................................ 32,818 23,129 9,689 41.9%

Net Income as a Percentage of Net Sales........... 11.1% 9.5% 1.6% 16.8%

Return on Average Shareholders' Investment........ 26.6% 22.8% 3.8% 16.7%

BALANCE SHEET (dollars in thousands)

Working Capital................................... $ 70,377 $ 55,115 $ 15,262 27.7%

Net Plant and Equipment........................... 72,692 65,785 6,907 10.5%

Total Assets...................................... 175,480 167,665 7,815 4.7%

Long-term Debt.................................... 2,884 16,022 (13,138) (82.0%)

Shareholders' Investment.......................... 135,873 110,545 25,328 22.9%

PER SHARE DATA

Net Income........................................ $ 1.60 $ 1.13 $ .47 41.6%

Dividends Declared................................ .39 .31 .08 25.8%

Shareholders' Investment.......................... 6.61 5.40 1.21 22.4%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
On Average
Shareholders Earnings
Net Sales Net Income Investment Per Share
--------- ---------- ------------ ---------
1995 $ 295,891 $ 32,818 26.6% $ 1.60
1994 $ 242,650 $ 23,129 22.8% $ 1.13
1993 $ 219,883 $ 14,246 16.1% $ .70
1992 $ 199,769 $ 9,451 11.4% $ .47
1991 $ 152,213 $ 5,533 6.8% $ .27
</TABLE>
<PAGE>
Letter to Our Shareholders, Employees and Associates:
- ----------------------------------------------------
As you will see by our results, 1995 was a great year! The Company achieved
new record highs for sales, net income and earnings per share. It may, at
first glance, seem somewhat easy to have done. Customer demand was high most
of the year, and nearly every industrial market experienced strong growth.
It wasn't, however, easy for the people on the factory floor. Material
shortages, labor shortages, as well as power outages and extreme heat, all
contributed to a significant challenge for our Divisions. It is here where
I believe we distinguished ourselves, and it is here that the results of our
efforts made it a truly great year. Our people at every level were outstand-
ing. Their work ethic, attitude and flexibility are rare, and they are,
unquestionably, our most valuable asset. We thank you all for a job very
well done.

The strength of our markets in 1995 provided our Divisions the opportunity to
maximize their performance and take full advantage of the many productivity
improvements of the past several years. All Divisions responded exceptionally
well, meeting the challenges of our customers increased demands.

The new Velvet Drive Transmissions Division performed well throughout the year
as we were able to meet the needs of our customers while assimilating them into
our way of doing business. We are confident that this Division will continue
to be a solid contributor and another strong niche market for our Power
Transmission Group.

Our foreign subsidiaries, while still less than 10% of our Power Transmission
Group sales, more than doubled their net income performance over already
improved 1994 levels. The addition of our operation in Italy allowed us to
add several new products to existing markets and to expand the distribution
of our core products. As noted in previous reports, our investment in
equipment, facilities and new product design are producing good results. We
plan to continue with our strategy to grow and expand our foreign operations.
<PAGE>
Cutting Tools, on the first increased sales level in years, improved its income
from operations 46% over that of 1994. Sales were solid in all markets with
new markets being particularly strong. The cutting tool industry continues to
undergo further manufacturing consolidations and substantial changes in its
distribution channels. The dynamics of these new directions clearly place
Regal-Beloit Corporation's Cutting Tool Group in the spotlight making it the
"most viable option" for our customers in meeting the challenges of the future.

We are particularly pleased with our 1995 results in the area of capital
spending. We entered the year with a challenging task; to intelligently
justify and enact our capital plan. We are pleased to advise you that we
achieved our objective having spent almost $14,000,000, which was 134% in
excess of our depreciation. Capital spending remains a major objective for
1996, as we expect to exceed 1995 levels. Much of this spending will be
directed toward product redesign and new products. However, the majority will
be spent on productivity improvements, as has been the case in recent years.

FINANCIAL STRENGTH

Our financial position remains exceptionally strong. Our very solid cash flow
permitted us to pay off nearly $10,000,000 of acquisition debt in less than
five months. Our debt to total capitalization ratio at year end 1995 was a
very modest 2.1%.

OUTLOOK

As we look forward to 1996 we have some concerns. No one expects 1996 to grow
like 1995. There is, however, a strong belief that 1996 will be a good year,
and some growth is possible in most of our markets. Incoming orders, while
down from the strong pace of early 1995, are not down compared to the last
quarter of 1995. Regardless, we feel very confident that we can deal with
the economic conditions, whatever they may be.

If there is one area that was a disappointment in 1995, it would have been our
inability to consummate an acquisition. There is no question that this remains
a very high priority and considerable effort is being put forth in this regard.
Our strategy is to continue to grow, both internally and through acquisitions.

Last year I closed this letter with the following: "The Company has never been
more financially sound, more capable and more focused than we are at the
present time. While we realize that the windows of opportunity are often
brief and frequently difficult to see, few companies are better prepared than
Regal-Beloit Corporation to take advantage of these situations." I am pleased
to say that this statement is even more valid today.

Sincerely,

James L. Packard
----------------------------------
James L. Packard
Chairman, President,
Chief Executive Officer
<PAGE>
Selected Financial Information REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
FIVE YEAR HISTORICAL DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(In Thousands of Dollars Except Per Share Data)
----------------------------------------------------------
Year Ended December 31,
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
Net Sales........................... $ 295,891 $ 242,650 $ 219,883 $ 199,769 $ 152,213
Net Income.......................... 32,818 23,129 14,246 9,451 5,533
Total Assets........................ 175,480 167,665 139,317 145,132 117,844
Long-term Debt...................... 2,884 16,022 19,612 34,442 13,824
Per Share of Common Stock:
Net Income........................ 1.60 1.13 .70 .47 .27
Cash Dividends Declared........... .39 .31 .27 .26 .26
Average Number of Shares Outstanding 20,508,890 20,437,655 20,374,454 20,306,148 20,245,134
</TABLE>
COMMON STOCK
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1995 1994
----------------------------- -----------------------------
Price Range Dividends Price Range Dividends
High Low Paid High Low Paid
-------- -------- - ------- -------- -------- ---------
1st Quarter....................... $ 15 7/8 $ 12 1/8 $ .08 $ 14 1/4 $ 12 1/2 $ .070
2nd Quarter....................... 16 1/4 14 .09 14 12 3/8 .070
3rd Quarter....................... 20 1/2 14 3/4 .10 15 1/2 12 3/4 .075
4th Quarter....................... 23 1/8 17 1/2 .10 15 3/8 11 1/4 .080
</TABLE>
Regal-Beloit has paid 142 consecutive quarterly dividends through January,
1996. The approximate number of holders of common stock as of December 31,
1995 is 1,287.

QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In Thousands Except for Net Income Per Share)
----------------------------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
---------------- ---------------- ---------------- ----------------
1995 1994 1995 1994 1995 1994 1995 1994
------- ------- ------- ------- ------- ------- ------- -------
Net Sales............. $74,340 $58,851 $76,265 $60,044 $71,551 $61,185 $73,735 $62,570
Gross Profit.......... 21,160 16,437 22,217 17,371 21,692 17,972 21,392 19,811
Net Income............ 7,381 4,631 8,375 5,521 8,433 6,132 8,629 6,845
Net Income Per Share.. .36 .23 .41 .27 .41 .30 .42 .33
Average Number of
Shares Outstanding.. 20,471 20,427 20,505 20,436 20,522 20,439 20,537 20,449
</TABLE>
NOTE: All per share amounts are stated giving retroactive effect of a 2 for 1
stock split in 1994. Net income per share is based on the weighted average
number of shares outstanding (as adjusted) during the respective periods.
<PAGE>
Management's Discussion and Analysis of Financial Statements
- -------------------------------------------------------------------------------
REGAL-BELOIT CORPORATION

RESULTS OF OPERATIONS

Overview

Net sales in 1995 were a record at $295,891,000, or 21.9% greater than 1994 net
sales of $242,650,000 and 34.6% greater than 1993 net sales of $219,883,000.
Net income in 1995 was also a record at $32,818,000, or 41.9% greater than
1994 net income of $23,129,000, and 130.4% greater than 1993 net income of
$14,246,000. On a per share basis, 1995 net income of $1.60 per share was
41.6% greater than 1994 net income of $1.13 per share and 128.6% greater than
1993 net income of $.70 per share. All earnings per share data have been
restated to reflect the 2:1 stock split in August, 1994.

Sales

Business levels continued to improve again in 1995. In 1995, approximately
56.5% of the net sales increase over 1994 levels resulted from acquisitions.
The remaining increases in 1995 were attributable to volume gains and
selective selling price increases which approximated 7.0% and 3.0%,
respectively. The Company's sales growth from 1993 to 1994 of 10.4% was
likewise generated from approximately 7.0% volume increases and 3.0% to
increases in selling prices but there were no acquisitions which had any
material effect on 1993 or 1994 results.

Through acquisitions and internal growth, the Power Transmission Group now
represents 87.3% of the Company's sales volume as compared to 86.2% and 84.6%
in 1994 and 1993, respectively. Net sales for this group in 1995 of
$258,325,000, represents a 23.6% increase over 1994 net sales of $209,048,000
and a 38.8% increase over 1993 net sales of $186,120,000. Exclusive of
acquisitions in 1995 and 1994, net sales in this group still increased 9.2%
in 1995 over the previous years levels. The net sales increase of 12.3% in
1994 over 1993 levels was generated without any material effect from
acquisitions.

The Cutting Tool Group net sales in 1995 of $37,566,000 represents an 11.8%
increase over 1994 net sales of $33,602,000 reversing a declining trend since
1989. Net sales in 1995 were also 11.3% over 1993 net sales of $33,763,000.
Over the past several years during which sales declines have been taking place,
the Cutting Tool Group has been undergoing consolidation and the streamlining
of processes and systems. Consistent with general industry trends, the
pattern of reducing selling prices or holding selling prices level due to
lower customer demand and excess manufacturing capacity in the industry
bottomed out in 1994. In particular, in 1995, net sales were aided by
selective selling price increases as well as being successful in penetrating
new distribution markets.

<PAGE>
COSTS AND EXPENSES

Over the past several years, the Company has continued to invest in state-of-
the-art equipment and automated manufacturing processes which have
significantly improved manufacturing efficiency. Products have been
continually redesigned to eliminate costs and utilize upgraded manufacturing
equipment capabilities. In addition, in 1993, facility consolidations were
completed to reduce costs and improve efficiencies of operations. The positive
impact of many of these changes continued to be even more evident in 1993
through 1995 when the current economic recovery began having a positive effect
on the Company's unit sales volumes. These changes significantly improved
gross profits margins as a percentage of sales to levels of 29.2%, 29.5% and
26.0% in 1995, 1994 and 1993, respectively.

Operating expenses declined to 11.1% of net sales in 1995 from 13.4% in 1994
and 14.6% in 1993. These expenses, which are primarily fixed or semi-fixed
in nature, generally do not increase at the same rate as sales increase,
which was the case in each of these last three years.

As a result of increased sales, continued control over operating expenses and
improved manufacturing efficiencies, income from operations as a percentage of
sales increased significantly over the past three years to 18.1% in 1995 as
compared to 16.1% in 1994 and 11.4% in 1993.

The Power Transmission Group continued to increase profitability in each of the
last three years through higher sales volume, reduced costs and improved
manufacturing processes. Income from operations in this Group increased 31.1%
in 1995 to 20.1% of net sales. This increase followed a 39.5% improvement in
income from operations in 1994 of 18.9% of net sales as compared to 15.2% in
1993.

Throughout the past three years, the Cutting Tool Group has directed its
efforts towards more focused distribution and specialized products. The
Group also consolidated manufacturing and distribution facilities with a
concentration on making products which are more profitable. These factors
have had a positive impact on improving income from operations which, in
1995, increased to 17.0% of net sales compared to 13.0% in 1994 and 2.8% in
1993.

Interest expense in 1995 of $776,000 was 19.3% less than 1994 and 49.2% less
than 1993 based upon lower levels of debt outstanding despite interest rates
which increased from approximately 3.4% in 1993 to 6.3% in 1995. Excess cash
generated from operations was used to reduce acquisition debt as rapidly as
possible. All debt relating to the January 1, 1995 acquisition of the Velvet
Drive Transmissions Division was retired in May, 1995.

In 1995, the Company's effective tax rate decreased to 38.2% of income before
taxes from 39.4% in 1994 and 39.3% in 1993. The rate decrease in 1995 is
primarily attributed to favorable permanent differences in tax and book items
and a decline in the overall state tax rate. In 1993, the Company adopted FASB
Statement No. 109 "Accounting for Income Taxes" with the cumulative effect of
this accounting change being a one-time charge of $131,000 in that year.
<PAGE>
The Company is party to environmental cleanup proceedings related to certain
of its facilities. It is believed that the outcome of these proceedings will
not have a material adverse affect on the Company's financial position or
results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Over the last three years, the Company's cash flow from operating activities
has increased significantly through higher sales and improved income from
operations. Cash flows have adequately met the needs of the Company, other
than for business acquisitions which have been funded, when necessary, by long-
term debt. Long-term debt as a percentage of total capitalization was reduced
to 2.1% at the end of 1995 which allows the Company significant capacity for
additional indebtedness before reaching its self-imposed limit of 40.0%.

Working capital increased to $70,377,000 as of December 31, 1995 as compared to
$55,115,000 at the end of 1994. The increase was primarily attributable to
higher levels of inventory and accounts receivable most of which relates to
our January, 1995 acquisition. The current ratio, which increased to 3.2:1
at December 31, 1995 from 2.5:1 at the end of 1994 was due predominantly to
the repayment of short-term debt.

As of December 31, 1995, the Company had $5,000,000 and $2,500,000 available
credit on its Bank Credit Agreement and short-term credit lines, respectively.

The Company feels that additional internally generated growth can be financed
adequately by cash generated from operations and from its short-term credit
facilities. Future external growth from acquisitions could be adequately
funded from the capacity to further leverage its equity with additional long-
term indebtedness.
<PAGE>
Consolidated Statement of Income REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C> <C> <C>
For The Year Ended December 31,
----------------------------------------
1995 1994 1993
----------- ------------ ------------
Net Sales.............................................. $295,891,000 $242,650,000 $219,883,000
Cost of Sales.......................................... 209,430,000 171,059,000 162,649,000
Gross Profit......................................... 86,461,000 71,591,000 57,234,000
Operating Expenses..................................... 32,854,000 32,609,000 32,153,000
Income From Operations............................... 53,607,000 38,982,000 25,081,000
Interest Expense....................................... 776,000 962,000 1,529,000
Interest Income........................................ 309,000 144,000 137,000
Income Before Taxes and Cumulative Effect of
Accounting Change................................... 53,140,000 38,164,000 23,689,000
Provision For Income Taxes............................. 20,322,000 15,035,000 9,312,000
Net Income Before Cumulative Effect of Accounting
Change.............................................. 32,818,000 23,129,000 14,377,000
Cumulative Effect of Accounting Change............... 0 0 131,000
Net Income............................................. $ 32,818,000 $ 23,129,000 $ 14,246,000

Per Share of Common Stock:
Net Income Before Cumulative Effect of Accounting
Change................................................ $ 1.60 $ 1.13 $ .71
Cumulative Effect of Accounting Change................. 0 0 .01

Net Income............................................. $ 1.60 $ 1.13 $ .70

Average Number of Shares Outstanding................... 20,508,890 20,437,655 20,374,454
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Balance Sheet REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
December 31,
-----------------------------
1995 1994
------------- -------------
Current Assets:
Cash and cash equivalents..................................... $ 7,458,000 $ 13,378,000
Receivables, less allowance for doubtful accounts of
$1,140,000 in 1995 and $1,161,000 in 1994................... 41,172,000 30,623,000
Future income tax benefits.................................... 4,109,000 3,769,000
Inventories................................................... 49,263,000 43,621,000
Prepaid expenses.............................................. 399,000 305,000
Total Current Assets....................................... 102,401,000 91,696,000
Plant and Equipment:
Land and land improvements.................................. 6,538,000 6,979,000
Buildings and improvements.................................. 26,511,000 27,238,000
Machinery and equipment..................................... 97,844,000 82,253,000
130,893,000 116,470,000
Less - Accumulated depreciation............................. (58,201,000) (50,685,000)
72,692,000 65,785,000
Advance Payment for Acquisition............................... 0 9,853,000
Other Noncurrent Assets....................................... 387,000 331,000
-------------- --------------
$ 175,480,000 $ 167,665,000
============== ==============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable.............................................. $ 10,874,000 $ 8,773,000
Dividend payable.............................................. 2,055,000 1,637,000
Accrued compensation and employee benefits.................... 11,366,000 8,612,000
Other accrued expenses........................................ 3,723,000 3,102,000
Federal and state income taxes................................ 1,333,000 1,164,000
Current maturities of long-term debt.......................... 2,673,000 2,782,000
Short-term debt............................................... 0 10,511,000
Total Current Liabilities.................................. 32,024,000 36,581,000

Long-term Debt.................................................. 2,884,000 16,022,000

Deferred Income Taxes........................................... 4,699,000 4,517,000

Shareholders' Investment:
Common stock, $.01 par value, 25,000,000 shares authorized,
20,553,968 issued and outstanding in 1995 and 20,454,952
issued and outstanding in 1994.............................. 206,000 205,000
Additional paid-in capital.................................... 37,133,000 36,595,000
Retained earnings............................................. 99,079,000 74,265,000
Cumulative translation adjustment............................. (545,000) (520,000)
135,873,000 110,545,000
-------------- --------------
$ 175,480,000 $ 167,665,000
============== ==============
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statement of Shareholders' Investment REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>

Common
Common Stock Additional Cumulative
Stock $.01 Par Paid-In Retained Translation
No Par Value Value Capital Earnings Adjustment Total
------------ -------- ----------- ------------- ----------- -------------
Balance, December 31, 1992
(10,173,137 shares)................ $ 36,308,000 $ 0 $ 0 $ 48,527,000 $ (911,000) $ 83,924,000
Net Income.......................... 0 0 0 14,246,000 0 14,246,000
Dividends Declared ($.265 per share) 0 0 0 (5,402,000) 0 (5,402,000)
Translation Adjustment.............. 0 0 0 0 (257,000) (257,000)
Stock Options Exercised
(29,919 shares).................... 235,000 0 0 0 0 235,000
Balance, December 31, 1993
(10,203,056 shares)................ 36,543,000 0 0 57,371,000 (1,168,000) 92,746,000
Net Income.......................... 0 0 0 23,129,000 0 23,129,000
Stock Options Exercised prior to
Conversion (15,945 shares)......... 138,000 0 0 0 0 138,000
Conversion of Common Stock to
$.01 Par Value..................... (36,681,000) 102,000 36,579,000 0 0 0
Stock Options Exercised prior to
stock split (200 shares)........... 0 0 2,000 0 0 2,000
2 for 1 stock split in form of 100%
stock dividend (10,219,201 shares). 0 102,000 (102,000) 0 0 0
Dividends Declared ($.31 per share). 0 0 0 (6,235,000) 0 (6,235,000)
Translation Adjustment.............. 0 0 0 0 648,000 648,000
Stock Options Exercised after
stock split (16,550 shares)........ 0 1,000 116,000 0 0 117,000
Balance, December 31, 1994
(20,454,952 shares)................ 0 205,000 36,595,000 74,265,000 (520,000) 110,545,000
Net income.......................... 0 0 0 32,818,000 0 32,818,000
Dividends Declared ($.39 per share). 0 0 0 (8,004,000) 0 (8,004,000)
Translation Adjustment.............. 0 0 0 0 (25,000) (25,000)
Stock Options Exercised
(99,016 shares).................... 0 1,000 538,000 0 0 539,000

Balance, December 31, 1995
(20,553,968 shares)................. 0 $206,000 $37,133,000 $ 99,079,000 $ (545,000) $135,873,000
</TABLE>

See accompanying notes.
<PAGE>
Consolidated Statement of Cash Flows REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

For The Year Ended December 31,
------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994 1993
------------ ------------ ------------
Net income....................................... $ 32,818,000 $ 23,129,000 $ 14,246,000
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization................... 10,176,000 8,991,000 8,745,000
Provision for deferred income taxes............. (767,000) (530,000) (234,000)
Change in assets and liabilities, net of
acquisitions:
Receivables................................... (10,559,000) (3,228,000) (32,000)
Inventories................................... (936,000) (3,558,000) 2,247,000
Current liabilities and other, net............ 4,948,000 2,787,000 (531,000)

Net cash provided from operating activities... 35,680,000 27,591,000 24,441,000

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment................ (13,784,000) (7,535,000) (8,460,000)
Advance payment for acquisition................. 0 (9,853,000) 0
Sale of plant and equipment..................... 3,260,000 853,000 898,000
Other, net...................................... (281,000) (200,000) 66,000

Net cash used in investing activities........... (10,805,000) (16,735,000) (7,496,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to short-term debt.................... 0 10,000,000 0
Repayment of short-term debt.................... (10,511,000) 0 0
Additions to long-term debt..................... 0 9,853,000 0
Repayment of long-term debt..................... (13,242,000) (13,780,000) (14,830,000)
Stock issued under option and compensation plans 539,000 257,000 235,000
Dividends to shareholders....................... (7,585,000) (6,027,000) (5,296,000)

Net cash (used in) provided from financing
activities..................................... (30,799,000) 303,000 (19,891,000)

EFFECT OF EXCHANGE RATE ON CASH.................... 4,000 26,000 (32,000)

Net (decrease) increase in cash and cash
equivalents.................................... (5,920,000) 11,185,000 (2,978,000)
Cash and cash equivalents at beginning of year.. 13,378,000 2,193,000 5,171,000
Cash and cash equivalents at end of year........ $ 7,458,000 $ 13,378,000 $ 2,193,000

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................ $ 821,000 $ 981,000 $ 1,572,000
Income Taxes.................................... $ 20,254,000 $ 14,554,000 $ 9,875,000
</TABLE>
See accompanying notes.
<PAGE>
Notes to Consolidated Financial Statements REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------

For The Three Years Ended December 31, 1995

(1) NATURE OF OPERATIONS

Regal-Beloit Corporation (the Company) is a United States-based multinational
corporation. The Company's principal lines of business are power transmission
systems and perishable high speed steel rotary cutting tools. The principal
market for the Company's products and technologies are U.S. manufacturers.
The operations of the Company in any one foreign country are not significant
in relation to the Company's overall operations.

(2) ACCOUNTING POLICIES

Principles of Consolidation
The financial statements include the accounts of the Company and its wholly
owned subsidiaries.

Revenue Recognition
Sale and related cost of sales for all products are recognized upon shipment
of the units.

Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.

Foreign Currency Translation
Net assets of non-U.S. subsidiaries whose functional currencies are other
than the U.S. Dollar, are translated at the rates of exchange in effect as of
year end. Income and expense items are translated at the average exchange
rates in effect during the year. The translation adjustments relating to net
assets are recorded directly into a separate component of shareholders'
investment. Certain other translation adjustments continue to be reported
in net income and were not significant in any of the three years ended
December 31, 1995.

Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments
with insignificant interest rate risk and original maturities of three months
or less at date of acquisition. The carrying value of cash equivalents closely
approximates their fair market value.

Inventories
The approximate percentage distribution between major classes of inventory
is as follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
------------
1995 1994
---- ----
Raw Material......................................... 17% 18%
Work In Process...................................... 21% 26%
Finished Goods and Purchased Parts................... 62% 56%
</TABLE>

Inventories are stated at cost, which is not in excess of market. Cost for
approximately 70% of the Company's inventory at December 31, 1995 and 1994 is
determined using the last-in, first-out (LIFO) method. If all inventories were
valued on the first-in first-out (FIFO) method, they would have increased by
$8,045,000 and $6,548,000 as of December 31, 1995 and 1994, respectively.
Material, labor and factory overhead costs are included in the inventories.

Plant and Equipment
Plant and equipment is stated at cost. Maintenance and repairs are charged to
expense as incurred and major renewals and improvements are capitalized.
The cost of property retired or otherwise disposed of is removed from the
property accounts, the accumulated depreciation is removed from related
reserves, and the net gain or loss is reflected in income.
The provisions for depreciation are based on the estimated useful lives of
plant and equipment from the dates of acquisition and are calculated primarily
using the straight-line method. The estimated useful lives are:

<TABLE>
<CAPTION>
<S> <C>
Description Life
--------------------------------------------------------- --------------
Buildings and Improvements............................... 10 to 45 years
Machinery and Equipment.................................. 3 to 10 years
</TABLE>

In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". The Company intends to adopt this statement during
the first quarter of 1996. The adoption of this standard is not expected to
have a material effect on the Company's financial position or results of
operations.

Common Stock and Net Income Per Share
Pursuant to a shareholder approved agreement and plan of merger, effective
June 30, 1994, the Company changed its state of incorporation from Delaware to
Wisconsin. To accomplish this, each share of existing no par value, Regal-
Beloit stock was automatically converted into one share of $.01 par value
stock in the new company incorporated in Wisconsin. This change resulted in
the transfer of $36,579,000 from common Stock to Additional Paid-In Capital.
Net income per share is based on the weighted average number of shares
outstanding during each period. Shares issuable upon the exercise of stock
options have not been included in the per share computation because the effect
of the inclusion would not be material.
<PAGE>
Common stock per share and average share information for years 1994 and prior
have been retroactively restated for the 2 for 1 stock split effected in the
form of a 100% stock dividend which was distributed to shareholders in
August 1994.

(3) ACQUISITIONS
Effective January 1, 1995, the Company acquired selected net assets of the
Marine and Industrial Transmission Division of Borg-Warner Automotive
Transmission and Engine Components Corporation for approximately $9,192,000.
This acquisition has been renamed the Velvet Drive Transmission Division of
Regal-Beloit Corporation. This Division produces both marine and industrial
transmissions. The acquisition was accounted for as a purchase and the cash
consideration paid approximated the fair market value of the net identifiable
assets acquired. Results of operations of the Velvet Drive Transmissions
Division have been consolidated in the Company's statements from the
acquisition date.
On December 20, 1994, for approximately $36,000, the Company purchased the
capital stock and assumed liabilities of Costruzioni Meccaniche Legnanesi,
S.r.L. of Legnano, Italy which manufactures manual bevel gear valve actuators.
This acquisition was also accounted for as a purchase.

(3) LONG-TERM DEBT AND BANK CREDIT FACILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
(In Thousands
of Dollars)
-----------------
Long-term debt consists of the following: December 31,
-----------------
1995 1994
------- -------
Note related to Bank Credit Agreement......................................... $ 0 $ 9,853
9% Note with quarterly installments of $500,000 through November, 1996........ 2,000 4,000
7-3/4% Industrial Revenue Bonds with annual payments of $342,353 to
September 30, 1999........................................................... 1,370 1,712
Industrial Development Bonds with semi-annual payments of $150,000 through
May, 2001, with an interest rate of 5.5% as of December 31, 1995............. 1,650 1,950
Capitalized Lease Obligation ................................................. 0 660
Other......................................................................... 537 629
5,557 18,804
Less-Current maturities....................................................... 2,673 2,782
Noncurrent portion............................................................ $ 2,884 $16,022
</TABLE>
During 1995, the Company revised its Bank Credit Agreement by reducing its
credit line from the $25,000,000 facility that existed at December 31, 1994 to
the current level of $5,000,000. In 1995, this facility was used for 145 days
with an average balance of $6,483,000 and an average interest rate of 6.3%.
In 1994, the Bank Credit Agreement was used for 227 days with an average
balance of $6,279,000 and an average interest rate of 3.9%. The portion of
the Bank Credit Agreement remaining unused was $5,000,000 and $5,147,000 at
December 31, 1995 and 1994, respectively.
In addition to the Bank Credit Agreement, the Company also maintains a
short- term line of credit of $2,500,000 and $3,192,000 at December 31, 1995
and 1994, respectively. This line of credit, which charges interest at the
prime rate, was not activated in either 1995 or 1994.
<PAGE>
During 1995, the Company sold real estate associated with the Capitalized
Lease Obligation which was in existence on December 31, 1994. As a result of
this sale, the remaining lease obligation of $660,000 was paid off in 1995.
The loan covenants covering the Industrial Revenue Bonds contain
restrictions on the payment of dividends, redemption or retirement of shares
of common stock and the issuance of additional funded indebtedness. Under the
terms of these covenants, $19,400,0000 of retained earnings were available for
distribution as of December 31, 1995. The Bank Credit Agreement contains loan
covenants that are less restrictive than those covering the Industrial Revenue
Bonds.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt is not materially different than the carrying value. All long-term debt
is unsecured as of December 31, 1995.

Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
(In Thousands of Dollars)
-------------------------
1996 $2,673
1997 642
1998 642
1999 642
2000 and thereafter 958
Total $5,557
</TABLE>

(5) LEASES AND RENTAL COMMITMENTS

Rental expenses charged to operations amounted to $1,218,000 in 1995,
$1,094,000 in 1994, and $1,473,000 in 1993. Future minimum rental commitments
for noncancelable operating leases having a remaining term in excess of one
year as of December 31, 1995 are not material.

(6) RETIREMENT PLANS

The Company has a number of retirement plans that cover most of its
employees. The primary plan of the Company is a qualified discretionary
profit-sharing plan covering substantially all domestic employees except
those covered by collective bargaining agreements. Total expense for all
profit-sharing and retirement plans was $4,477,000, $3,798,000 and $2,885,000
in 1995, 1994 and 1993, respectively.

<PAGE>
(7) STOCK OPTION PLANS

Under the Company's 1982 and 1987 Stock Option Plans for officers and key
employees, qualified incentive stock options for 614,946 and 450,000 shares,
respectively, have been made available for grant and 609,760 and 434,000
shares, respectively, have been granted. The 1982 Plan expired in 1992.
Options under these plans are granted at a price that equals the market value
on the date of grant and expire ten years after the date of grant. As of
December 31, 1995 and 1994, options for 61,062 and 94,268 shares, respectively,
are outstanding and exercisable under the 1982 Plan. Options for 312,092 and
369,284 shares are outstanding under the 1987 Plan as of December 31, 1995 and
1994, respectively. Options for 284,742 and 327,784 shares are exercisable
under the 1987 Plan as of December 31, 1995 and 1994, respectively.
In 1991, the Shareholders approved a Flexible Stock Incentive Plan that
permits the Company to award several kinds of incentives from a single pool
of 1,000,000 shares. Non-qualified options for 374,094 shares have been
granted under this plan. These options were granted at prices that equal
the market value on the date of grant and expire ten years after the date of
grant. 320,000 of these options are exercisable in equal installments over
the ten years following the date of grant. The remaining options under this
plan are exercisable immediately. As of December 31, 1995, options for 359,932
shares are outstanding of which 167,932 are exercisable.
Also during 1992, the Outside Directors of the Company were awarded a one
time grant of non-qualified options for an aggregate 140,000 shares. These
options were granted at market value on the date of grant and are exercisable
in four equal annual installments and expire five years from date of grant.
As of December 31, 1995, all 140,000 options were outstanding and exercisable.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation". The Company intends to
adopt this statement in 1996 by making the required footnote disclosures only.
Therefore, the adoption of this standard is not expected to have an effect on
the Corporation's financial position or results of operations.
Data relating to these plans is shown in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Options Outstanding
-------------------------------
Shares Price Per Share
---------- -----------------
Balance, December 31, 1992.................................... 1,029,014 2.72 to 9.37
Granted..................................................... 30,412 10.25 to 11.00
Exercised................................................... (63,332) 2.72 to 7.87
Cancelled................................................... (19,124) 6.87 to 9.37
Balance, December 31, 1993.................................... 976,970 2.80 to 11.00
Granted..................................................... 29,562 13.13 to 13.87
Exercised................................................... (50,112) 2.80 to 9.21
Cancelled................................................... (1,000) 8.12
Balance, December 31, 1994.................................... 955,420 3.56 to 13.87
Granted..................................................... 33,364 12.50 to 18.75
Exercised................................................... (108,448) 3.56 to 11.00
Cancelled................................................... (7,250) 7.87 to 18.75
Balance, December 31, 1995.................................... 873,086 3.56 to 18.75
</TABLE>

<PAGE>
(8) CONTINGENCIES

The Company is, from time to time, party to lawsuits arising from its normal
business operations. In addition, the Company is party to certain
environmental cleanup proceedings. It is believed that the outcome of these
lawsuits and cleanup proceedings will have no material effect on the Company's
financial position or its results of operations.

(9) INCOME TAXES

The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(In Thousands of Dollars)
------------------------------
1995 1994 1993
Current -------- -------- --------
Federal.......... $17,499 $12,968 $ 8,057
State............ 3,089 2,365 1,488
Foreign.......... 501 232 1
21,089 15,565 9,546
Deferred........... (767) (530) (234)
$20,322 $15,035 $ 9,312
</TABLE>

A reconciliation of the statutory Federal income tax rate and the effective
rate reflected in the statement of income follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
------ ------ ------
Statutory tax rate................................... 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit........... 3.8 4.0 4.1
Other................................................ (.6) .4 .2
Effective tax rate................................... 38.2% 39.4% 39.3%
</TABLE>

The Company adopted FASB Statement No. 109, "Accounting for Income Taxes" in
1993. The cumulative effect of this change was a $131,000 one time charge.
Deferred taxes arise primarily from differences in amounts reported for tax and
financial statement purposes.
The Company's net deferred tax liability as of December 31, 1995 of $590,000
is classified on the consolidated balance sheet as a current income tax benefit
of $4,109,000 and a long-term deferred income tax liability of $4,699,000. The
December 31, 1994 net deferred tax liability was $748,000, consisting of a
current income tax benefit of $3,769,000 and a long-term deferred income tax
liability of $4,517,000. The components of this net deferred tax liability
are as follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(In Thousands of Dollars)
-------------------------
December 31,
-------------------------
1995 1994
--------- ---------
Operating loss carry forward..................... $ 1,022 $ 1,147
Inventory........................................ 1,271 1,157
Accrued employee benefits........................ 1,676 1,665
Bad debt reserve................................. 336 363
Other............................................ 1,000 702
Deferred tax assets............................ 5,305 5,034
Property related................................. (5,425) (5,567)
Other............................................ (470) (215)
Deferred tax liabilities....................... (5,895) (5,782)
Net deferred tax liability....................... $ (590) $ (748)
</TABLE>

(10) INDUSTRY SEGMENT INFORMATION

Pertinent data for each industry segment in which the Company operated for the
three years ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(In Thousands of Dollars)
----------------------------------------------------------------
Net Income From Identifiable Capital
Sales Operations Assets Expenditures Depreciation
--------- ----------- ------------ ------------ ------------
1995
Power Transmission Group....... $ 258,325 $ 51,815 $ 145,730 $ 17,557 $ 8,908
Cutting Tool Group............. 37,566 6,390 16,193 648 954
Corporate/Unallocated.......... 0 (4,598) 13,557 1,694 287
$ 295,891 $ 53,607 $ 175,480 19,899 10,149

1994
Power Transmission Group....... $ 209,048 $ 39,529 $ 128,144 $ 7,258 $ 7,277
Cutting Tool Group............. 33,602 4,383 20,519 197 1,074
Corporate/Unallocated.......... 0 (4,930) 19,002 80 350
$ 242,650 $ 38,982 $ 167,665 7,535 $ 8,701

1993
Power Transmission Group....... $ 186,120 $ 28,340 $ 110,220 $ 7,393 $ 6,516
Cutting Tool Group............. 33,763 951 21,254 1,048 1,212
Corporate/Unallocated.......... 0 (4,210) 7,843 19 386
--------- ---------- ---------- ---------- -----------
$ 219,883 $ 25,081 $ 139,317 $ 8,460 $ 8,114
========= ========== ========== ========== ===========
</TABLE>
<PAGE>
The Company's European operations contributed net sales of $18,639,000,
$14,108,000 and $12,600,000 and income from operations of $1,948,000,
$1,081,000 and $240,000 in 1995, 1994 and 1993, respectively. Total assets
of these operations as of December 31, 1995, 1994 and 1993 were $18,288,000,
$16,000,000 and $12,300,000, respectively. Export sales from U. S. operations
were approximately 3% of sales in 1995, 1994 and 1993.
Corporate assets of cash and cash equivalents, notes receivable, prepaid
expenses and certain plant and equipment have not been associated with
industry segments. Capital expenditures include significant amounts applicable
to acquired businesses in the respective periods. Segment income from
operations includes segment revenues and applicable other income items less
operating expenses directly associated with each segment. Corporate expenses
which benefit more than one segment have not been allocated.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Regal-Beloit Corporation:
We have audited the accompanying consolidated balance sheets of Regal-Beloit
Corporation (a Wisconsin Corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, shareholders'
investment and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Regal-
Beloit Corporation and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
----------------------------------
Arthur Andersen LLP
Milwaukee, Wisconsin,
January 31, 1996.

RESPONSIBILITIES FOR FINANCIAL STATEMENTS
The preceding financial statements of Regal-Beloit Corporation and related
footnotes were prepared by the management which is responsible for their
integrity and objectivity. The statements have been prepared in conformity
with generally accepted accounting principles, which have been applied on a
consistent basis.
The system of internal controls of Regal-Beloit Corporation is designed to
assure that the books and records reflect the transactions of the company and
that its established policies and procedures are carefully followed.
Arthur Andersen LLP, whose audit report is shown on this page, is engaged by
the Board of Directors to audit the financial statements of Regal-Beloit
Corporation and issue reports thereon. Their audit is conducted in accordance
with generally accepted auditing standards which require obtaining an
understanding of the Company's systems and procedures and performing tests
and other procedures sufficient to provide reasonable assurance that the
financial statements are neither materially misleading nor contain material
errors.
The Audit Committee of the Board of Directors meets regularly with the
independent public accountants and reviews the scope of audits. In addition,
this committee meets with Arthur Andersen LLP, without management
representatives present, to discuss the results of their audit including a
discussion of internal accounting controls, financial reporting and other
audit matters.

James L. Packard Robert C. Burress
- ------------------------------------ ---------------------------------------
James L. Packard Robert C. Burress
Chairman, President, Vice President, Chief Financial Officer
Chief Executive Officer and Secretary
<PAGE>
Board of Directors REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
JAMES L. PACKARD JOHN A. McKAY (2)
Chairman, President and Chief Executive Officer Past President, Chief Operating Officer
REGAL-BELOIT CORPORATION HARNISCHFEGER INDUSTRIES, INC.
Director since 1980 Director since 1992

JOHN M. ELDRED (2)(3) ELBERT H. NEESE (2)(3)
President Director
FIRST NATIONAL BANK & TRUST CO. OF BELOIT NEESE FAMILY FOUNDATION
Director since 1965 Director since 1980

FRANK E. BAUCHIERO (1) WILLIAM W. KEEFER (1)
President Past Chairman, Board of Trustees
INDUSTRIAL, DANA NORTH AMERICA BELOIT COLLEGE
Director since 1993 Director since 1985

J. REED COLEMAN (1) HENRY W. KNUEPPEL
Chairman Executive Vice President-Operations
MADISON-KIPP CORPORATION REGAL-BELOIT CORPORATION
Director since 1981 Director since 1987

G. FREDERICK KASTEN, JR. (3) Directors Emeriti:
President, Chief Executive Officer HENRY R ODELL 40 years of service
ROBERT W. BAIRD & CO., INC. HARRY C. MOORE 34 years of service
Director since 1995 CECIL H. CRAWFORD 25 years of service
</TABLE>
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Nominating Committee

Officers
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
JAMES L. PACKARD ROBERT C. BURRESS
CHAIRMAN, PRESIDENT and CHIEF EXECUTIVE OFFICER VICE PRESIDENT, CHIEF FINANCIAL OFFICER
Employed since 1979, President since 1980, C.E.O. and SECRETARY
since 1984, Chairman since 1986 Employed since 1976

HENRY W. KNUEPPEL
EXECUTIVE VICE PRESIDENT - OPERATIONS
Employed since 1979

</TABLE>
<PAGE>
About the Company REGAL-BELOIT CORPORATION
- -------------------------------------------------------------------------------
Regal-Beloit Corporation is a leading producer of power transmission systems
and perishable high speed steel rotary cutting tools. The Company prides
itself on consistent, fast delivery of quality products which meet the
customers' specific needs.

The Power Transmission Group accounted for 87% of Regal-Beloit Corporation's
net sales in 1995. Typical products and applications include gear drives for
material handling (conveyor) systems; transmissions and differential gearing
for the high performance automotive aftermarket; manual valve actuators for
liquid and gas flow control systems; power dividers and multiple stage pump
drives used on off-highway vehicular equipment; and marine transmissions for
luxury inboard engined craft.

The Cutting Tool Group represented approximately 13% of Regal-Beloit
Corporation's 1995 net sales. The group produces thousands of sizes and
styles of predominantly special high speed steel and carbide rotary cutting
tools. These tools are to production machinery and equipment what razor
blades are to razors. Automotive, aerospace, rail, petroleum, and virtually
all general machining industries depend on cutting tools in their daily
manufacturing activities.

Much of Regal-Beloit's growth and success can be attributed to an effective and
aggressive acquisition program, which over time, has become a significant
ingredient in achieving the Company's solid financial performance.
<PAGE>
Shareholder Information
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------
Corporate Headquarters Stock Purchases
Regal-Beloit Corporation A shareholder should make sure that newly
200 State Street, Beloit, WI 53511-6254 purchased shares are registered the same way
608/364-8800 Fax: 608/364-8818 each time they add to their holdings in order
to prevent the creation of duplicate accounts.
Transfer Agent, Registrar and Dividend Such accounts are not only an inconvenience
Disbursing Agent to the shareholder but also increase your
Boston Equiserve, L.P. Company's administrative costs.
Bank of Boston Shareholder Services
P. O. Box 644 Mail Stop: 45-02-64
Boston, MA 02102-0644 Notice of Annual Meeting
617/575-3400 The Annual Meeting of stockholders will be
held at 10:30 a.m., C.D.T., on Wednesday,
Have you received your cash dividends? April 24, 1996 at the Corporate Offices,
During 1995, four quarterly cash dividends 200 State Street, Beloit, Wisconsin.
were declared on Regal-Beloit Corporation
common stock. If you have not received all Form 10-K
dividends to which you are entitled, please A copy of the report filed by the Company
write or call the Bank of Boston at the with the Securities and Exchange Commission
address above. is available to shareholders upon request.
Please direct requests to:
Stock Listing Regal-Beloit Corporation
Regal-Beloit stock was first traded publicly Attn: Investor Relations
in 1969. The Corporation began trading on 200 State Street, Beloit, WI 53511-6254
the American Stock Exchange in 1976 under
the symbol RBC. Auditors
Arthur Andersen LLP, Milwaukee, Wisconsin.
Cash Dividends and Stock Splits
Regal-Beloit Corporation paid its first cash
dividend in January 1961. Since that date,
Regal-Beloit has paid 142 consecutive Regal-Beloit Corporation is a Wisconsin
quarterly dividends through January, 1996. Corporation.
The Company has raised cash dividends 32
times in the 35 years these dividends have
been paid. The dividend has never been Regal-Beloit Corporation is listed on the
reduced. The Company has also declared and American Stock Exchange under the symbol RBC.
issued 15 stock splits/dividends since
inception.
</TABLE>