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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 the number of shares outstanding of each of the issuers' classes of common stock as of the latest practicable date.
 
 

INDEX
	Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets	3
Consolidated Statements of Income	4
Condensed Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6 - 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations	7 - 9
Item 3 - Quantitative and Qualitative Disclosures about Market Risk	9
PART II - - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders	10
Item 6 - Exhibits and Reports on Form 8-K	10
Signature	11

 

Item 1.    Financial Statements				(From Audited
ASSETS	(Unaudited)			Statements)
	June 30, 2002			Dec. 31, 2001
Current Assets:
Cash and Cash Equivalents	$ 4,210			$ 6,629
Receivables, less reserves of $1,589 in 2002
and $2,233 in 2001	88,802			80,595
Inventories	122,119			132,272
Other Current Assets	13,214			12,003
Total Current Assets	228,345			231,499
Property, Plant and Equipment at Cost	341,415			337,481
Less - Accumulated Depreciation	(163,194	)		(152,608	)
Net Property, Plant and Equipment	178,221			184,873
Goodwill	312,735			312,735
Other Noncurrent Assets	19,554			17,492
Total Assets	$738,855			$746,599
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts Payable	$ 33,467		$ 28,429
Federal and State Income Taxes	6,290		1,848
Other Current Liabilities	38,468		40,178
Total Current Liabilities	78,225		70,455
Long-Term Debt	231,310		345,667
Deferred Income Taxes	43,037		43,022
Other Noncurrent Liabilities	7,512		7,305
Shareholders' Investment:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 25,012,351 issued in 2002 and
20,877,249 issued in 2001	250		209
Additional Paid-In Capital	131,979		41,968
Less - Treasury Stock, at cost, 159,900 Shares in
2002 and in 2001	(2,727	)	(2,727			)
Retained Earnings	251,827		244,564
Accumulated Other Comprehensive Loss	(2,558	)	(3,864			)
Total Shareholders' Investment	378,771		280,150
Total Liabilities and Shareholders' Investment	$738,855		$746,599

See accompanying notes.

	(Unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2002		2001		2002		2001
Net Sales	$ 154,907		$ 171,946		$ 305,287		$ 349,068
Cost of Sales	116,923		129,117		230,977		261,088
Gross Profit	37,984		42,829		74,310		87,980
Operating Expenses	24,777		28,095		48,542		56,086
Income From Operations	13,207		14,734		25,768		31,894
Interest Expense	2,393		5,692		5,862		12,816
Interest Income	6		28		26		79
Income Before Taxes	10,820		9,070		19,932		19,157
Provision For Income Taxes	3,783		3,786		7,107		8,031
Net Income	$     7,037		$     5,284		$   12,825		$   11,126
Per Share of Common Stock:
Earnings Per Share	$ .28		$ .25		$ .55		$ .53
Earnings Per Share -  Assuming Dilution	$ .28		$ .25		$ .55		$ .53
Cash Dividends Declared	$ .12		$ .12		$ .24		$ .24
Average Number of Shares Outstanding	25,009,369		20,866,423		23,336,270		20,864,538
Average Number of Shares-Assuming Dilution	25,244,830		21,127,604		23,501,868		21,118,802

See accompanying notes.

See accompanying notes.

1.    BASIS OF PRESENTATION

The condensed financial statements include the accounts of REGAL-BELOIT Corporation and its wholly owned subsidiaries and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. All adjustments which management believes are necessary for a fair statement of the results for the interim periods presented have been reflected and are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested these statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K.

2.    INVENTORIES

Cost for approximately 86% of the Company's inventory is determined using the last-in, first-out (LIFO) inventory valuation method. The approximate percentage distribution between major classes of inventories is as follows:
 

3. COMPREHENSIVE INCOME

The Company's comprehensive income is impacted by the amount of the cumulative translation adjustment recorded to shareholders' equity. This translation adjustment relates to valuing assets and liabilities of non-U.S. operations, accounted for in their country's local currencies, in U.S. dollars. As exchange rates fluctuate, comprehensive income or expense occurs. For the quarter ended June 30, 2002, the impact was $1,581,000 of income resulting in net comprehensive income of $8,618,000 for the quarter. The impact in the second quarter of 2001 was $390,000 of income resulting in net comprehensive income of $5,674,000. In the first six months of 2002 the impact is income of $1,306,000 resulting in net comprehensive income of $14,130,000. The impact in the first six months of 2001 was $679,000 of expense resulting in net comprehensive income of $10,447,000.
 
 

4. GOODWILL AND OTHER INTANGIBLE ASSETS

The Company adopted SFAS 142, "Goodwill and Other Intangible Assets" effective January 1, 2002. In connection with the adoption of SFAS 142, the Company performed the first step of the transitional goodwill impairment test. The Company concluded that there was no impairment of goodwill due to the initial application of SFAS 142. The following reconciles the net income and earnings per share impact that would have resulted for the three and six month periods ended June 30, 2001 if SFAS 142 would have been adopted effective January 1, 2001.
 

	Three Months Ended				Six Months Ended
	June 30, 2001				June 30, 2001
	Net Income ($000)	Basic Earnings per Share	Diluted Earnings per Share		Net Income ($000)	Basic Earnings per Share	Diluted Earnings per Share
As reported	$5,284	$.25	$.25		$11,126	$.53	$.53
Goodwill amortization	1,675	.08	.08		3,350	.16	.16
Pro-forma giving effect for SFAS 142	$6,959	$.33	$.33		$11,476	$.69	$.69

5. BUSINESS SEGMENTS

The Company operates two strategic businesses that are reportable segments: the Mechanical Group and the Electrical Group.
 

	(In Thousands of Dollars)
	Mechanical Group								Electrical Group
	Second Quarter				Six Months				Second Quarter				Six Months
	2002		2001		2002		2001		2002		2001		2002		2001
Net Sales	$48,567		$52,258		$94,841		$107,388		$106,340		$119,688		$210,446		$241,680
Income  from Operations	$  3,993		$ 3,153		$  7,799		$    9,162		$    9,214		$  11,581		$  17,969		$  22,732
Income from Operations as a % of Net Sales	8.2%		6.0%		8.2%		8.5%		8.7%		9.7%		8.5%		9.4%

Item 2.  Management's Discussion and Analysis of Financial Conditions and Results of Operations

Unless the context requires otherwise,references in this Item 2 to "we" or "our" refer collectively to REGAL-BELOIT Corporation and its subsidiaries.

Despite reporting increased sequential and year over year earnings improvements and very strong cash flow, we were not pleased with our second quarter results. While earnings were within our projected range of $.28 to $.32 per share on our expanded share base (see Liquidity and Capital Resources), sales and therefore earnings did not develop as expected. While both our mechanical and electrical segments experienced less than expected sales, the Electrical Group was impacted significantly by a slowdown in large generator and control sales.

We expect this to be a temporary situation in view of the overall dynamics in this business. In total our markets continue to be sluggish and overserved, leading to increased pricing pressure. Fortunately, our continued cost reduction efforts, including plant consolidations, productivity improvements, warehousing and logistics and material cost improvements more than offset these market issues.

RESULTS OF OPERATIONS

Our net sales in the second quarter of 2002 were $154,907,000, 9.9% below net sales of $171,946,000 in the second quarter of 2001. For the six months ended June 30, 2002, our net sales were $305,287,000, a 12.5% decrease from net sales of $349,068,000 in the first half of 2001. Our lower sales were due primarily to the impact of the U.S. economic recession, which led to weak product demand across most of our markets. Net sales in the second quarter of 2002 were 3.0% higher than the first quarter of 2002, though below our expectations, as the expected recovery in our markets did not occur in any material way. (See Note 5 to the accompanying financial statements for our business segment data.)

Gross profit was $37,984,000 in the second quarter of 2002, 11.3% lower than the second quarter of 2001, and was $74,310,000 in the first half of 2002, a 15.5% decrease from comparable 2001. The decreases were due primarily to our lower net sales in 2002. Our gross profit margin decreased to 24.5% of net sales in the second quarter and 24.3% of net sales in the first half of 2002, as compared to 24.9% and 25.2% in the comparable periods of 2001, respectively. The lower gross profit margins were due primarily to decreasing our production levels to reduce our inventories during this extended period of weak market demand.

Operating expenses of $24,777,000 in the second quarter and $48,542,000 in the first six months of 2002 were 11.8% and 13.5% lower than in the comparable periods of 2001. Approximately one-half of these reductions were due to our January 1, 2002, adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which eliminated amortization of goodwill, all of which was in our Electrical Group. The other half of the reduction was due to lower spending in the areas of selling, general and administrative expenses in both our Electrical and Mechanical Groups.

Our income from operations in the second quarter of 2002 was $13,207,000, a 10.4% decrease from the second quarter of 2001, and for the first half of 2002 was $25,768,000, a 19.2% reduction from comparable 2001. As a percent of sales, income from operations was 8.5% in the second quarter of 2002 as compared to 8.6% in 2001, and declined to 8.4% in the first half of 2002 from 9.1% last year. The dollar decreases were due to lower net sales this year and the percentage declines to lower gross profit margins in 2002 than in the comparable periods of 2001.

We reduced our interest expense in the second quarter of 2002 to $2,393,000, a 58.0% decrease from 2001's second quarter and 31.0% from the first quarter of 2002. For the first half of 2002 interest expense was $5,862,000, a 54.3% reduction from comparable 2001. The combination of lower interest rates in the United States, debt reduction from the proceeds of our March 13, 2002 secondary public offering of common stock and additional debt reduction resulting from our continued strong cash flow (See Liquidity and Capital Resources) accounted for our significant decrease in interest expense. Our effective tax rate was also much lower this year versus last, at 35.7% for the first six months of 2002 as compared to 41.9% in the first half of 2001. The elimination of goodwill amortization, a major portion of which was not tax deductible, was the primary factor in the lower tax rate this year.

Our net income was $7,037,000 in the second quarter of 2002, a 33.2% increase from $5,284,000 in the second quarter of 2001, and was $12,825,000 for the first six months of 2002, a 15.3% increase from $11,126,000 in comparable 2001. Net income as a percent of sales rose to 4.5% in the second quarter and 4.2% in the first half of 2002 from 3.1% and 3.2%, respectively, in the comparable periods last year. Earnings per share rose 12.0% to $.28 in the second quarter this year versus $.25 last year. Our earnings per share for the first half of 2002 was $.55, a 3.8% increase from $.53 in the first half of 2001. The lower percentage increases of earnings per share than of net income were due to our March 13, 2002 secondary public offering of common stock, which resulted in per share earnings being reduced by $.02 in each of the second quarter and first six months of 2002.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital of $150,120,000 at June 30, 2002, was approximately $10,000,000 lower than at March 31, 2002. The reduction was primarily due to increases in accounts payable and accrued taxes. Current ratio decreased to 2.9:1 at June 30, 2002 from 3.3:1 at the end of the first quarter of 2002.

We generated a strong $22,525,000 of cash flow from operations during 2002's second quarter, a 5.1% increase from $21,422,000 in 2001's second quarter. The combination of higher net income, increased accounts payable and accrued taxes, and reduced inventories were major factors in the strong cash flow. We continued to reduce inventories during the first six months of 2002, $3,000,000 in the second quarter and $10,700,000 year-to-date, as we further strengthened our balance sheet. Capital spending in the first half of 2002 totaled $4,213,000, with about $2,100,000 spent in each quarter. Outstanding commitments for future capital expenditures at June 30, 2002 were approximately $875,000. While we expect the rate of capital spending to increase during the second half of 2002, we have reduced our full year capital spending estimate to the low-to-mid teens from the mid-to-upper teens.

On March 13, 2002, we completed a secondary public offering of 4,109,985 shares of our common stock. The offering yielded net proceeds of approximately $90,000,000, which was used to repay a like amount of our outstanding debt. As of June 30, 2002, our outstanding debt was $231,310,000, a decrease of $18,327,000 from March 31, 2002 and $114,357,000 from year-end 2001. Our shareholders investment has risen to $378,771,000 at June 30, 2002 from $280,150,000 at December 31, 2001.

Our primary financing source is our $350,000,000 long-term revolving credit facility that expires on December 31, 2005. Our credit facility requires us to maintain specified financial ratios and to satisfy certain financial condition tests, with which we were in compliance as of June 30, 2002. At June 30, 2002, we had $227,700,000 of debt outstanding under this credit facility. After deductions for outstanding letters of credit and financial covenant limits, we had approximately $57,000,000 of available borrowing capacity at June 30, 2002. We believe we will be able to satisfy the financial ratios and tests specified in our credit facility for the foreseeable future. We also believe that the combination of borrowing availability under our credit facility and operating cash flow will provide sufficient cash availability to finance our existing operations for the foreseeable future.
 
 

CAUTIONARY STATEMENT

The following is a cautionary statement made under the Private Securities Litigation Reform Act of 1995: With the exception of historical facts, the statements contained in Item 2. of this Form 10-Q may be forward looking statements. Actual results may differ materially from those contemplated. Forward looking statements involve risks and uncertainties, including but not limited to, the following risks: 1) cyclical downturns affecting the markets for capital goods, 2) substantial increases in interest rates that impact the cost of our outstanding debt, 3) the success of Management in increasing sales and maintaining or improving the operating margins of its businesses, 4) the availability of or material increases in the costs of select raw materials or parts, and 5) actions taken by competitors. Investors are directed to our documents, such as our Annual Report on Form 10-K and Form 10-Q's filed with the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information with respect to the Company's exposure to interest rate risk and foreign currency risk is contained on Page 15 in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Management believes that at June 30, 2002, there has been no material change to this information.
 
 

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

(a)      The Annual Meeting of Shareholders of Regal-Beloit Corporation was held on April 19, 2002.

(b)      The terms of Directors James L. Packard, Henry W. Knueppel, Paul W. Jones, John M. Eldred,

John A. McKay, and G. Frederick Kasten, Jr. were continued.

(c)      Matters voted on at the Annual Meeting and the results of each vote were as follows:

Item 6.   Exhibits and Reports on Form 8-K

(a) Exhibits
 

(b)      Reports on Form 8-K

Pursuant to the requirements 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. 

DATE: August 14, 2002
 
 

Exhibit 4.6
 
 

1.      General Background. In accordance with Section 27 of the Rights Agreement between BankBoston,N.A.
          (the "Rights Agent") and Regal-Beloit Corporation ("Regal-Beloit") dated 1/28/00 (the "Agreement"), the
          Rights Agent and Regal-Beloit desire to amend the Agreement to appoint EquiServe Trust Company, N.A.

2.      Effectiveness. This Amendment shall be effective as of June 11, 2002 (the "Amendment")and all defined
          terms and definitions in the Agreement shall be the same in the Amendmentexcept as specifically revised
          by the Amendment.

3.      Revision. The section in the Agreement entitled "Change of Rights Agent" is hereby deleted in its entirety and
         replaced with the following:

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed in their names and on their behalf by and through their duly authorized officers, as of this 11^th day of June, 2002.
 

Exhibit 99.1
 
 

Solely for the purposes of complying with 18 U.S.C. Sec. 1350, I, the undersigned Chairman and Chief Executive Officer of REGAL-BELOIT Corporation (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 

/S/ James L. Packard
James L. Packard
August 9, 2002
 
 

Exhibit 99.2
 
 

Solely for the purposes of complying with 18 U.S.C. Sec. 1350, I, the undersigned Vice President, Chief Financial Officer and Secretary of REGAL-BELOIT Corporation (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 

/S/ Kenneth F. Kaplan
Kenneth F. Kaplan
August 9, 2002