UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

for the quarterly period ended ~~October 3, 2015~~April 2, 2016



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

Commission file number 001-07283

REGAL BELOIT CORPORATION

(Exact name of registrant as specified in its charter)



Wisconsin		39-0875718
(State of other jurisdiction of incorporation)		(IRS Employer Identification No.)

200 State Street, Beloit, Wisconsin 53511

(Address of principal executive office)

(608) 364-8800

Registrant’s telephone number, including area code

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 ý NO ¨

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO ý

As of ~~November 10, 2015~~May 9, 2016 there were ~~44,661,403~~44,729,447 shares of the registrant’s common stock, $.01 par value per share, outstanding.

REGAL BELOIT CORPORATION

INDEX



		Page
PART I — FINANCIAL INFORMATION
Item 1 —	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3627
Item 3 —	Quantitative and Qualitative Disclosures about Market Risk	4433
Item 4 —	Controls and Procedures	4635

PART II — OTHER INFORMATION
Item 1 —	Legal Proceedings	4635
Item 1A —	Risk Factors	4735
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds	4736
Item 6 —	Exhibits	4837
Signature		4938

CAUTIONARY STATEMENT

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s expectations, beliefs, current assumptions, and projections. When used in this Quarterly Report on Form 10-Q, words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or “plan” or the negative thereof or similar words are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Those factors include, but are not limited to:

uncertainties regarding our ability to execute our restructuring plans within expected costs and timing;

increases in our overall debt levels as a result of the acquisition of the Power Transmission Solutions business of Emerson Electric Co. ("PTS"), or otherwise and our ability to repay principal and interest on our outstanding debt;

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

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

fluctuations in commodity prices and raw material costs;

our dependence on significant customers;

~~prolonged declines in oil and gas up stream capital spending;~~

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

~~challenges~~prolonged declines in ~~our Venezuelan operations, including potential currency devaluations, non-payment of receivables, governmental restrictions such as labor, price~~oil and ~~margin controls, as well as other difficult operating conditions;~~gas up stream capital spending;

unanticipated costs or expenses we may incur related to product warranty issues;

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

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

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

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

unanticipated liabilities of acquired businesses, including PTS;

effects on earnings of any significant impairment of goodwill or intangible assets;

cyclical downturns affecting the global market for capital goods;

~~difficulties associated with managing foreign operations;~~ and

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

Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report, and we undertake no obligation to update these statements to reflect subsequent events or circumstances. Additional information regarding these and other risks and factors is included in Part I - Item 1A - Risk Factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~4, 2015.~~2, 2016.

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

REGAL BELOIT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Amounts in Millions, Except Per Share Data)


	Three Months Ended				Nine Months Ended				Three Months Ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014		April 2, 2016		April 4, 2015
Net Sales	$	882.3	$	829.8	$	2,736.2	$	2,481.4	$	818.2	$	911.7
Cost of Sales	641.2		626.0		2,022.8		1,872.2		600.8		690.8
Gross Profit	241.1		203.8		713.4		609.2		217.4		220.9
Operating Expenses	141.0		129.1		446.5		376.1		148.1		157.3
Goodwill Impairment	—		—		—		1.0
Total Operating Expenses	141.0		129.1		446.5		377.1
Income From Operations	100.1		74.7		266.9		232.1		69.3		63.6
Interest Expense	15.1		9.8		45.1		30.5		15.0		13.6
Interest Income	1.0		2.0		3.1		5.4		1.1		1.2
Income Before Taxes	86.0		66.9		224.9		207.0		55.4		51.2
Provision For Income Taxes	21.7		18.1		57.8		55.1		12.7		13.3
Net Income	64.3		48.8		167.1		151.9		42.7		37.9
Less: Net Income Attributable to Noncontrolling Interests	0.9		1.3		4.5		4.4		1.1		1.5
Net Income Attributable to Regal Beloit Corporation	$	63.4	$	47.5	$	162.6	$	147.5	$	41.6	$	36.4
Earnings Per Share Attributable to Regal Beloit Corporation:
Basic	$	1.42	$	1.06	$	3.63	$	3.27	$	0.93	$	0.81
Assuming Dilution	$	1.41	$	1.05	$	3.61	$	3.25	$	0.93	$	0.81
Cash Dividends Declared Per Share	$	0.23	$	0.22	$	0.68	$	0.64	$	0.23	$	0.22
Weighted Average Number of Shares Outstanding:
Basic	44.8		44.9		44.8		45.1		44.7		44.7
Assuming Dilution	45.1		45.2		45.1		45.4		45.0		45.1

See accompanying Notes to Condensed Consolidated Financial Statements

REGAL BELOIT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in Millions)


	Three Months Ended						Nine Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014			April 2, 2016		April 4, 2015
Net Income	$	64.3		$	48.8		$	167.1		$	151.9		$	42.7	$	37.9
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustments	(36.8		)	(17.2		)	(67.3		)	(19.0		)	25.7		(22.7		)
Reclassification of foreign currency translation adjustments included in net income, net of immaterial tax effects for the three and nine months ended October 3, 2015 and September 27, 2014	—			(1.0		)	—			(1.0		)
Hedging Activities:
(Decrease) in fair value of hedging activities, net of tax effects of $(14.5) million and $(2.2) million for the three months ended October 3, 2015 and September 27, 2014 and $(21.9) million and $(3.5) million for the nine months ended October 3, 2015 and September 27, 2014, respectively	(23.6		)	(3.7		)	(35.7		)	(5.7		)
Reclassification of losses included in net income, net of tax effects of $4.1 million and $0.4 million for the three months ended October 3, 2015 and September 27, 2014, respectively and $10.6 million and $3.6 million for the nine months ended October 3, 2015 and September 27, 2014, respectively	6.9			0.8			17.4			5.9
Defined benefit pension plans:
Increase in prior service cost and unrecognized loss, net of immaterial tax effects for the three and nine months ended October 3, 2015 and September 27, 2014	—			—			—			(0.5		)
Reclassification adjustments for pension benefits included in net income, net of tax effects of $0.3 million and $0.3 million for the three months ended October 3, 2015 and September 27, 2014 and $1.8 million and $0.7 million for the nine months ended October 3, 2015 and September 27, 2014, respectively	0.7			0.5			1.2			1.2
Increase (decrease) in fair value of hedging activities, net of tax effects of $1.3 million and $(2.4) million for the three months ended April 2, 2016 and April 4, 2015, respectively													2.3		(3.9		)
Reclassification of losses included in net income, net of tax effects of $5.0 million and $2.3 million for the three months ended April 2, 2016 and April 4, 2015, respectively													8.1		3.7
Pension and Post Retirement Plans:
Reclassification adjustments for pension and post retirement benefits included in net income, net of tax effects of $0.2 million and $0.4 million for the three months ended April 2, 2016 and April 4, 2015, respectively													0.7		0.8
Other comprehensive income (loss)	(52.8		)	(20.6		)	(84.4		)	(19.1		)	36.8		(22.1		)
Comprehensive income	11.5			28.2			82.7			132.8			79.5		15.8
Less: Comprehensive income (loss) attributable to noncontrolling interests	(0.1		)	0.6			2.3			2.8
Less: Comprehensive income attributable to noncontrolling interests													1.5		0.5
Comprehensive income attributable to Regal Beloit Corporation	$	11.6		$	27.6		$	80.4		$	130.0		$	78.0	$	15.3

See accompanying Notes to Condensed Consolidated Financial Statements

REGAL BELOIT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in Millions, Except Per Share Data)


	October 3, 2015			January 3, 2015			April 2, 2016			January 2, 2016
ASSETS
Current Assets:
Cash and Cash Equivalents	$	254.6		$	334.1		$	249.1		$	252.9
Trade Receivables, less allowances of $11.8 million in 2015 and $11.6 million in fiscal 2014	551.0			447.5
Trade Receivables, less allowances of $11.9 million in 2016 and $11.3 million in fiscal 2015							498.1			462.0
Inventories	745.8			691.7			756.8			775.0
Prepaid Expenses and Other Current Assets	135.6			111.7			145.5			145.3
Deferred Income Tax Benefits	98.3			67.0
Total Current Assets	1,785.3			1,652.0			1,649.5			1,635.2
Net Property, Plant and Equipment	694.8			531.5			673.4			678.5
Goodwill	1,564.0			1,004.0			1,472.4			1,465.6
Intangible Assets, net of Amortization	804.9			202.3			768.0			777.8
Deferred Income Tax Benefits							21.5			18.6
Other Noncurrent Assets	29.4			17.8			15.4			16.0
Total Assets	$	4,878.4		$	3,407.6		$	4,600.2		$	4,591.7
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable	$	353.3		$	312.2		$	338.5		$	336.2
Dividends Payable	10.3			9.8			10.3			10.3
Hedging Obligations	47.6			29.7			34.1			44.7
Accrued Compensation and Employee Benefits	88.4			75.7			72.4			80.6
Other Accrued Expenses	131.8			125.5			120.5			134.7
Current Maturities of Long-Term Debt	49.0			8.4			6.1			6.3
Total Current Liabilities	680.4			561.3			581.9			612.8
Long-Term Debt	1,764.7			625.4			1,699.3			1,715.6
Deferred Income Taxes	223.6			116.0			106.4			100.9
Hedging Obligations	31.5			22.5			22.0			27.6
Pension and Other Postretirement Benefits	109.2			65.0
Pension and Other Post Retirement Benefits							106.1			105.9
Other Noncurrent Liabilities	38.5			38.1			48.3			46.1
Commitments and Contingencies (see Note 12)
Equity:
Regal Beloit Corporation Shareholders' Equity:
Common Stock, $.01 par value, 100.0 million shares authorized, 44.8 million and 44.7 million shares issued and outstanding in 2015 and fiscal 2014, respectively	0.4			0.4
Common Stock, $.01 par value, 100.0 million shares authorized, 44.7 million and 44.7 million shares issued and outstanding in 2016 and fiscal 2015, respectively							0.4			0.4
Additional Paid-In Capital	897.1			896.1			897.3			900.8
Retained Earnings	1,320.7			1,188.9			1,322.5			1,291.1
Accumulated Other Comprehensive Loss	(233.2		)	(151.0		)	(221.3		)	(255.0		)
Total Regal Beloit Corporation Shareholders' Equity	1,985.0			1,934.4			1,998.9			1,937.3
Noncontrolling Interests	45.5			44.9			37.3			45.5
Total Equity	2,030.5			1,979.3			2,036.2			1,982.8
Total Liabilities and Equity	$	4,878.4		$	3,407.6		$	4,600.2		$	4,591.7

See accompanying Notes to Condensed Consolidated Financial Statements.

REGAL BELOIT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(Dollars in Millions, Except Per Share Data)


	Common Stock $.01 Par Value			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Non- controlling Interests			Total Equity			Common Stock $.01 Par Value		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Non- controlling Interests			Total Equity
Balance as of December 28, 2013	$	0.5		$	916.1		$	1,199.4		$	(59.8	)	$	46.2		$	2,102.4
Balance as of January 3, 2015																			$	0.4	$	896.1	$	1,188.9		$	(151.0	)	$	44.9		$	1,979.3
Net Income	—			—			147.5			—			4.4			151.9			—		—		36.4			—			1.5			37.9
Other Comprehensive Loss	—			—			—			(17.5		)	(1.6		)	(19.1		)	—		—		—			(21.1		)	(1.0		)	(22.1		)
Dividends Declared ($0.64 per share)	—			—			(28.8		)	—			—			(28.8		)
Dividends Declared ($0.22 per share)																			—		—		(9.8		)	—			—			(9.8		)
Stock Options Exercised, including income tax benefit and share cancellations	—			0.2			—			—			—			0.2			—		2.6		—			—			—			2.6
Stock Repurchase	(0.1		)	(34.9		)	—									(35.0		)
Sale of Joint Venture	—			—			—			—			(3.1		)	(3.1		)
Dividends Declared to Non-controlling Interests	—			—			—			—			(0.3		)	(0.3		)	—		—		—			—			(0.3		)	(0.3		)
Share-based Compensation	—			8.5			—			—			—			8.5			—		3.0		—			—			—			3.0
Balance as of September 27, 2014	$	0.4		$	889.9		$	1,318.1		$	(77.3	)	$	45.6		$	2,176.7
Purchase of Subsidiary Shares from Noncontrolling Interest																			—		—		—			—			(0.8		)	$	(0.8	)
Balance as of April 4, 2015																			$	0.4	$	901.7	$	1,215.5		$	(172.1	)	$	44.3		$	1,989.8

Common
Stock
$.01 Par
Value

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Non-
controlling
Interests

Total
Equity
Balance as of January 3, 2015 $ 0.4
$ 896.1
$ 1,188.9
$ (151.0 ) $ 44.9
$ 1,979.3
Net Income —
—
162.6
—
4.5
167.1
Other Comprehensive Loss —
—
—
(82.2 ) (2.2 ) (84.4 )
Dividends Declared ($0.68 per share) —
—
(30.4 ) —
—
(30.4 )
Stock Options Exercised, including income tax benefit and share cancellations —
2.0
—
—
—
2.0
Stock Repurchase —
(11.6 ) (0.4 ) —
—
(12.0 )
Dividends Declared to Non-controlling Interests —
—
—
—
(0.3 ) (0.3 )
Share-based Compensation —
10.6
—
—
—
10.6
Purchase of Subsidiary Shares from Noncontrolling Interest —
—
—
—
(1.4 ) (1.4 )
Balance as of October 3, 2015 $ 0.4
$ 897.1
$ 1,320.7
$ (233.2 ) $ 45.5
$ 2,030.5



	Common Stock $.01 Par Value		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Non- controlling Interests			Total Equity
Balance as of January 2, 2016	$	0.4	$	900.8		$	1,291.1		$	(255.0	)	$	45.5		$	1,982.8
Net Income	—		—			41.6			—			1.1			42.7
Other Comprehensive Income	—		—			—			36.4			0.4			36.8
Dividends Declared ($0.23 per share)	—		—			(10.2		)	—			—			(10.2		)
Stock Options Exercised, including income tax benefit and share cancellations	—		0.4			—			—			—			0.4
Share-based Compensation	—		3.3			—			—			—			3.3
Purchase of Subsidiary Shares from Noncontrolling Interest	—		(7.2		)	—			(2.7		)	(9.7		)	(19.6		)
Balance as of April 2, 2016	$	0.4	$	897.3		$	1,322.5		$	(221.3	)	$	37.3		$	2,036.2

See accompanying Notes to Condensed Consolidated Financial Statements.

REGAL BELOIT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in Millions)


	Nine Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			April 2, 2016			April 4, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	167.1		$	151.9		$	42.7		$	37.9
Adjustments to reconcile net income to net cash provided by operating activities (net of acquisitions):
Depreciation and amortization	120.1			103.6			40.1			35.9
Goodwill impairment	—			1.0
Excess tax benefits from share-based compensation	(1.3		)	(1.2		)	—			(0.7		)
Loss on sale or disposition of assets, net	1.8			0.4			0.6			0.1
Share-based compensation expense	10.6			8.5			3.3			3.0
Loss on Venezuela currency devaluation	1.5			—			—			1.5
Loss on sale of consolidated joint venture	—			1.9
Change in operating assets and liabilities	(32.6		)	(39.0		)	(28.5		)	(60.2		)
Net cash provided by operating activities	267.2			227.1			58.2			17.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment	(65.4		)	(60.5		)	(14.9		)	(21.2		)
Sales of investment securities	30.3			28.1			19.3			9.3
Purchases of investment securities	(36.0		)	(38.0		)	(21.0		)	(5.0		)
Business acquisitions, net of cash acquired	(1,400.7		)	(128.2		)	—			(1,392.5		)
Additions of equipment on operating leases	—			(4.5		)
Proceeds from sale of consolidated joint venture	—			0.7
Proceeds from sale of assets	7.8			0.1			—			1.3
Net cash used in investing activities	(1,464.0		)	(202.3		)	(16.6		)	(1,408.1		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility	400.0			128.0			221.0			223.5
Repayments of the revolving credit facility	(401.0		)	(68.0		)	(188.0		)	(147.0		)
Proceeds from short-term borrowings	112.1			18.8			12.7			37.5
Repayments of short-term borrowings	(108.6		)	(19.1		)	(12.9		)	(35.2		)
Proceeds from long-term borrowings	1,250.0			—			—			1,250.0
Repayments of long-term borrowings	(72.2		)	(150.1		)	(50.1		)	(15.7		)
Dividends paid to shareholders	(29.9		)	(28.0		)	(10.2		)	(9.8		)
Payments of contingent consideration	—			(8.6		)
Proceeds from the exercise of stock options	3.8			0.8			0.5			3.0
Excess tax benefits from share-based compensation	1.3			1.2			—			0.7
Repurchase of common stock	(12.0		)	(35.0		)
Distributions to noncontrolling interests	(0.3		)	(0.3		)	—			(0.3		)
Purchase of subsidiary shares from noncontrolling interest	(1.4		)	—			(19.6		)	(0.8		)
Financing fees paid	(17.8		)	—			—			(17.8		)
Net cash provided by or (used in) financing activities	1,124.0			(160.3		)
Net cash (used in) provided by financing activities							(46.6		)	1,288.1
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	(6.7		)	(3.2		)	1.2			(1.9		)
Net decrease in cash and cash equivalents	(79.5		)	(138.7		)	(3.8		)	(104.4		)
Cash and cash equivalents at beginning of period	334.1			466.0			252.9			334.1
Cash and cash equivalents at end of period	$	254.6		$	327.3		$	249.1		$	229.7
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest	$	47.2		$	37.3		$	19.7		$	18.6
Income taxes	$	57.5		$	34.3		$	13.0		$	24.6

See accompanying Notes to Condensed Consolidated Financial Statements.

REGAL BELOIT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~October 3, 2015~~April 2, 2016

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying (a) condensed consolidated balance sheet of Regal Beloit Corporation (the “Company”) as of January ~~3, 2015,~~2, 2016, which has been derived from audited consolidated financial statements, and (b) unaudited interim condensed consolidated financial statements as of ~~October 3, 2015~~April 2, 2016 and for the three ~~and nine~~ months ended ~~October 3, 2015~~April 2, 2016 and ~~September 27, 2014~~April 4, 2015, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s ~~2014~~2015 Annual Report on Form 10-K filed on March ~~4, 2015.~~2, 2016.

In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Except as otherwise discussed, such adjustments consist of only those of a normal recurring nature. Operating results for the three ~~and nine~~ months ended ~~October 3, 2015~~April 2, 2016 are not necessarily indicative of the results that may be expected for the entire fiscal year ending ~~January 2,~~December 31, 2016.

The condensed consolidated financial statements have been prepared in accordance with GAAP, which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company uses estimates in accounting for, among other items, allowance for doubtful accounts; excess and obsolete inventory; share-based compensation; acquisitions; product warranty obligations; pension and post retirement assets and liabilities; derivative fair values; goodwill and other asset impairments; health care reserves; retirement benefits; rebates and incentives; litigation claims and contingencies, including environmental matters; and income taxes. The Company accounts for changes to estimates and assumptions when warranted by factually based experience.

The Company operates on a 52/53 week fiscal year ending on the Saturday closest to December 31.

Change in Accounting Principle

As of the beginning of its fiscal year 2016, the Company changed its inventory valuation method for ~~Highly Inflationary Economies~~

the U.S. inventory of the recently acquired Power Transmission Solutions (“PTS”) business to the last-in, first-out ("LIFO") method from the first-in, first-out ("FIFO") method. This change affects approximately 9% of the Company’s inventory. The Company believes this change in accounting principle is preferable under the circumstances because LIFO will better match current costs with current revenues since the cost of raw materials has ~~a subsidiary~~been volatile in ~~Venezuela using accounting~~recent years, results in greater consistency in inventory costing across the organization since LIFO is the method used for ~~highly inflationary economies. Currency restrictions enacted by~~ the ~~Venezuelan government have the potential to impact the ability~~majority of the Company's ~~subsidiary to obtain~~other U.S. ~~dollars~~inventory, and better aligns with how management assesses the performance of the business. Because this change in exchange for Venezuelan bolivares fuertes ("Bolivars") at the official foreign exchange rate. In 2014, the Venezuelan government announced the expansion of its auction-based foreign exchange system (SICAD1). The Venezuelan government also introduced an additional auction-based foreign exchange system (SICAD2) which permitsaccounting principle was immaterial in all ~~companies incorporated~~annual or ~~domiciled in Venezuela to bid for U.S. dollars. Effective January 3, 2015, the Company concluded that~~interim prior periods, it was appropriate to apply the SICAD2 exchange rate of 51.0 Bolivars per U.S. Dollar as management concluded that this rate best represented the economics of the Company's business activity in Venezuela at that time.

On February 12, 2015, the Venezuelan government replaced SICAD 2 with a new foreign exchange market mechanism (“SIMADI”). The Company expects to be able to access U.S. dollars through the SIMADI market. SIMADI has significantly higher foreign exchange rates than those available through the other foreign exchange mechanisms. The Company adopted the SIMADI rate after its introduction. The SIMADI exchange rate was approximately 193 Venezuelan Bolivars to the U.S. dollar as of April 4, 2015. The adoption of the SIMADI resulted in a $1.5 million pretax devaluation charge during the first quarter 2015. As of October 3, 2015 the SIMADI rate was approximately 199 Venezuelan Bolivars to the U.S. dollar.not applied retrospectively. The change ~~in rates resulted in an insignificant translation difference, and accordingly, no corresponding devaluation was recorded in the results for the third quarter ended October 3, 2015.~~

Controls imposed by the Venezuelan government include import authorization controls, currency exchange and payment controls, price controls and recently enacted labor rate controls. While government restrictions and exchange rate mechanisms place some limitsdid not have a material impact on ~~our business decisions,~~ the consolidated financial statements ~~reflect our Venezuela operations~~ as ~~a controlled subsidiary.~~of and for the quarter ended April 2, 2016.

Also, as of the beginning of its fiscal year 2016, the Company changed its method of calculating LIFO inventories, which represents approximately 51% of the Company’s inventory. The Company reduced the number of LIFO inventory pools to three to align with the Company’s reportable segments. Previously, the Company had 10 LIFO inventory pools, some of which crossed reportable segments. The Company believes this change in accounting principle is preferable under the circumstances because fewer pools will ~~continue~~simplify the LIFO calculations, combine inventory items with similarities within a reportable segment, and better align with how management assesses the performance of the businesses. The Company determined that it has the data needed to ~~monitor developments~~apply this change in ~~Venezuela~~accounting principle prospectively as of the beginning of its fiscal year 2014, but that full retrospective application is impracticable because the data is not available to ~~assess if government restrictions and exchange rate controls evolve such that we no longer have effective control~~determine the cumulative effect of ~~business operations.~~

the change. Because the effect of applying the change prospectively as of the beginning of fiscal 2014 is immaterial in any annual or interim period in fiscal years 2014 or 2015, the Company has applied this change in accounting principle prospectively from the first day of fiscal year 2016.

New Accounting Standards

In ~~September, 2015,~~March, 2016 the Financial Accounting Standards Board ("FASB") ~~released~~issued Accounting Standards Update ~~(“ASU”~~("ASU") ~~2015-16,~~No. 2016-09, ~~Simplifying the~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ~~for Measurement-Period Adjustments~~ . The

ASU includes multiple provisions intended to simplify various aspects of the accounting for measurement-period adjustments. This ASU was issued in response to stakeholder feedback that restatements of prior periods to reflect adjustments made to provisional amounts recognized in a business combination increase the costshare-based payments. Implementation and complexity of financial reporting but do not significantly improve the usefulness of the information. Under the ASU, in a business combination, an acquirer must recognize adjustments to provisional amounts thatadministration may present challenges for companies with significant share-based payment activities and there are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The ASU also requires acquirers to present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.various transition methods. The Company is required to ~~apply these~~adopt the new requirements ~~prospectively for~~in the first quarter of fiscal ~~years beginning after December 15, 2015, including interim periods therein.~~2017. The Company is currently evaluating the impact of the ~~application of this update will have on~~new requirements to its consolidated financial statements.

In ~~August, 2015,~~March 2016, the FASB issued ASU ~~2015-15,~~ ~~Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line-of-Credit Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting~~ to clarify the SEC staff's position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements given the absence of authoritative guidance on this topic in ASU 2015-03. The SEC staff has announced that it would "not object to any entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement". The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements

~~In July, 2015, the FASB released ASU 2015-11,~~ ~~Simplifying the Measurement of Inventory.~~ Under this ASU, companies are required to measure inventory using the lower of cost and net realizable value, which is defined as the estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU impacts companies who use the first-in, first-out method (FIFO), the average costing method, or methods of inventory measurement other than the last-in, first-out (LIFO) and retail inventory methods, which have been excluded from the scope of this ASU due to the substantial cost and burden of transitioning these methods. The Company is required to apply these new requirements prospectively for fiscal years beginning after December 15, 2016, including the interim periods therein. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.

~~In April, 2015, the FASB issued ASU 2015-07,~~ ~~Disclosures for Investment in Certain Entities That Calculate Net Asset Value per Share ("NAV") (or its Equivalent).~~ This ASU removes from the fair value hierarchy, investments for which the practical expedient is used to measure fair value at NAV. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. Further, entities must provide the disclosure only for investments for which they elect to use the NAV practical expedient to determine fair value. For public companies, this ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted. The ASU should be applied retrospectively to all periods presented. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.

~~In April, 2015, the FASB issued ASU 2015-04,~~ ~~Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets~~, which permits a reporting entity with a fiscal year-end that does not coincide with a month-end to measure defined benefit plan assets and obligations using the month-end that is closest to the entity's fiscal year-end and apply that practical expedient consistently from year to year. The standard is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. The new guidance should be applied on a prospective basis. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.

~~In April, 2015, the FASB issued ASU 2015-03,~~ ~~Simplifying the Presentation of Debt Issuance Costs~~, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The standard is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.

~~In May, 2014, the FASB issuedASU 2014-09,~~No. 2016-08, Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting Revenue Gross versusNet), which amends the principal-versus-agent implementation guidance in ASU No. 2014-09 (Topic 606), Revenue from Contracts with Customers, issued by the FASB in May 2014. ASU No. 2016-08 clarifies the principal-versus-agent guidance in Topic 606 and requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. ASU 2014-09 is a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. This update requires the Company to recognize revenue at amounts that reflect the consideration to which the Company expects to be entitled in exchange for those

goods or services at the time of transfer. In doing so, the Company will need to use more judgment and make more estimates than under today’s guidance. Such estimates include identifying performance obligations in the contracts, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Company can either apply a full retrospective adoption or a modified retrospective adoption. The Company is required to adopt the new requirements in the first quarter of fiscal 2018. The Company is currently evaluating the impact of the new requirements to its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. The core principle of ASU 2016-02 is that an entity should recognize on its balance sheet assets and liabilities arising from a lease. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying leased asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on the lease classification as a finance or operating lease. This new accounting guidance is effective for public companies for fiscal years beginning after December 15, 2018 under a modified retrospective approach and early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on its consolidated financial statements.

2. OTHER FINANCIAL INFORMATION

Inventories

The approximate percentage distribution between major classes of inventories was as follows:


	October 3, 2015	January 3, 2015	April 2, 2016	January 2, 2016
Raw Material and Work in Process	47%	45%	45%	45%
Finished Goods and Purchased Parts	53%	55%	55%	55%

Inventories are stated at cost, which is not in excess of market. Cost for approximately ~~45%~~52% of the Company's inventory at ~~October 3, 2015,~~April 2, 2016, and ~~52%~~42% at January ~~3, 2015~~2, 2016 was determined using the LIFO method.

Property, Plant and Equipment

Property, plant, and equipment by major classification was as follows (dollars in millions):


	Useful Life in Years	October 3, 2015			January 3, 2015			Useful Life in Years	April 2, 2016			January 2, 2016
Land and Improvements		$	84.5		$	68.8			$	81.6		$	80.7
Buildings and Improvements	3 - 50	286.4			235.4			3 - 50	277.0			276.9
Machinery and Equipment	3 - 15	939.8			812.1			3 - 15	943.0			926.7
Property, Plant and Equipment		1,310.7			1,116.3				1,301.6			1,284.3
Less: Accumulated Depreciation		(615.9		)	(584.8		)		(628.2		)	(605.8		)
Net Property, Plant and Equipment		$	694.8		$	531.5			$	673.4		$	678.5

3. ACQUISITIONS

~~Acquisitions~~

The results of operations for acquired businesses are included in the Condensed Consolidated Financial Statements from the dates of acquisition. There were no acquisition related expenses for the three months ended ~~October 3, 2015 and acquisition~~April 2, 2016. Acquisition related expenses were ~~$0.2~~$9.2 million for the three months ended ~~September 27, 2014. Acquisition related expenses were $9.2 million and $1.3 million for the nine months ended October 3, 2015 and September 27, 2014, respectively.~~April 4, 2015. Acquisition related expenses are recorded in operating expenses as incurred.

2016 Acquisitions

Elco Purchase

On January 18, 2016, the Company purchased the remaining shares owned by the joint venture partner in its Elco Group B.V. (“Elco”) joint venture increasing the Company’s ownership from 55.0% to 100.0%. for $19.6 million. The Company consolidated the results of Elco into the Company's consolidated financial statements in the Climate Solutions segment.

2015 Acquisitions

PTS

On January 30, 2015, the Company acquired ~~the Power Transmission Solutions business of Emerson Electric Co. ("PTS")~~PTS for ~~$1,408.2~~$1,408.9 million in cash through a combination of stock and asset purchases. PTS is a global leader in highly engineered power transmission products and solutions. The business manufactures, sells and services bearings, couplings, gearing, drive components and conveyor systems. PTS is included in the Power Transmission Solutions segment. The Company acquired PTS because management believes it diversifies the Company's end market exposure, provides complementary products, expands and balances the Company's product portfolio, and enhances its margin profile.

On January 30, 2015, the Company entered into a Credit Agreement for a 5-year unsecured term loan facility in the principal amount of $1.25 billion, which was drawn in full by the Company on January 30, 2015, in connection with the closing of the acquisition of PTS (see Note 7 of Notes to the Condensed Consolidated Financial Statements).

The acquisition of PTS was accounted for as a purchase in accordance with FASB Accounting Standards Codification ("ASC") Topic 805, Business Combinations. Assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The fair values of identifiable intangible assets, which were primarily customer relationships, trade names, and technology, were based on valuations using the income approach. The excess of the purchase price over the estimated fair values of tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The goodwill is attributable to expected synergies and expected growth opportunities. ~~The Company estimates a majority~~Approximately 65% of goodwill will be deductible for United States income tax purposes. The allocation of purchase price is preliminary as the Company has not completed its analysis estimating the fair value of property, plant, and equipment, intangible assets, income tax liabilities and certain contingent liabilities.

The ~~preliminary~~ purchase price allocation for PTS was as follows (in millions):


	As of January 30, 2015		As of January 30, 2015
Current assets	$	10.4	$	22.5
Trade receivables	69.4		67.2
Inventories	108.8		108.8
Property, plant and equipment	191.4		184.4
Intangible assets	653.4		648.2
Goodwill	573.9		564.3
Total assets acquired	$	1,607.3	1,595.4
Accounts payable	50.6		57.2
Current liabilities assumed	21.5		32.3
Long-term liabilities assumed	127.0		97.0
Net assets acquired	$	1,408.2	$	1,408.9

The valuation of the net assets acquired of ~~$1,408.2~~$1,408.9 million was classified as Level 3 in the valuation hierarchy ~~(See Note~~(Note 14 of the Notes to the Condensed Consolidated Financial Statements for the definition of Level 3 inputs). The Company valued property, plant and equipment using both a market approach and a cost approach depending on the asset. Intangible assets were valued using the present value of projected future cash flows and significant assumptions included royalty rates, discount rates, customer attrition and obsolescence factors.

The components of Intangible Assets included as part of the PTS acquisition was as follows (in millions):


	Weighted Average Amortization Period (Years)	Gross Value		Weighted Average Amortization Period (Years)	Gross Value
Amortizable intangible assets
Customer Relationships	17.0	$	467.9	17.0	$	462.8
Technology	14.5	63.6		14.5	63.5
	16.7	531.5
Intangible assets subject to amortization				16.7	526.3
Non-amortizable intangible assets
��Trademarks	-	121.9
Trade Names				-	121.9
Intangible assets		$	653.4		$	648.2

Net sales from PTS were ~~$128.9~~$132.6 million and ~~$384.7~~$106.8 million for the three and nine months ended October 3, 2015, respectively. Operating income from PTS was $10.7 million and $7.7 million for the three and nine months ended October 3, 2015, respectively. There were no purchase accounting adjustments and transaction costs for the three months ended ~~October 3, 2015.~~April 2, 2016 and April 4, 2015, respectively. Operating income (loss) from PTS was $12.3 million and ($11.9) million for the three months ended April 2, 2016 and April 4, 2015, respectively. Purchase accounting inventory adjustments and transaction costs of ~~$29.8~~$22.7 million were included in the PTS operating income for the ~~nine~~three months ended ~~October 3,~~April 4, 2015.

Pro Forma Consolidated Results for PTS Acquisition

The following supplemental pro forma financial information presents the financial results for the three ~~and nine~~ months ended ~~October 3,~~April 4, 2015, ~~and September 27, 2014,~~ as if the acquisition of PTS had occurred at the beginning of fiscal year 2014. As a practical expedient, the Company has used the audited stand-alone financial statements of PTS for the period ending September 30, 2014 to estimate pro-forma results for the three and nine months ended October 3, 2015 and September 27, 2014.2015. The pro forma financial information includes, where applicable, adjustments for: (i) the estimated amortization of acquired intangible assets, (ii) estimated additional interest expense on acquisition related borrowings, and (iii) the income tax effect on the pro forma adjustments using an estimated effective tax rate. The pro forma financial information excludes, where applicable, adjustments for: (i) the estimated impact of inventory purchase accounting adjustments and (ii) the estimated closing costs on the acquisition and (iii) any estimated cost synergies or other effects of the integration of the acquisition. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the acquisition been completed as of the date indicated or the results that may be obtained in the future (in millions, except per share amounts):

Three Months Ended Nine Months Ended
October 3,
2015 September 27,
2014 October 3,
2015 September 27,
2014
Pro forma net sales $ 882.3
$ 981.7
$ 2,784.8
$ 2,937.0
Pro forma net income attributable to the Company 63.4
56.5
164.3
174.5

Basic earnings per share as reported $ 1.42
$ 1.06
$ 3.63
$ 3.27
Pro forma basic earnings per share 1.42
1.26
3.67
3.87

Diluted earnings per share as reported $ 1.41
$ 1.05
$ 3.61
$ 3.25
Pro forma diluted earnings per share 1.41
1.25
3.65
3.84

~~2014 Acquisitions~~

~~Benshaw~~

On June 30, 2014, the Company acquired all of the stock of Benshaw. Inc. ("Benshaw") for $51.0 million in cash. The Company financed the transaction with existing cash. Benshaw is a manufacturer of custom low and medium voltage variable frequency drives and soft starters. It is reported in the Commercial and Industrial Systems segment. The Company acquired Benshaw because management determined it was a strategic fit for the Commercial and Industrial Systems segment.

~~The acquisition of Benshaw was accounted for as a purchase in accordance with FASB ASC Topic 805,~~ ~~Business Combinations.~~ Assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The fair values of identifiable intangible assets, which were primarily customer relationships and technology, were based on valuations using the income approach. The excess of the purchase price over the estimated fair values of tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The goodwill is attributable to expected synergies and expected growth opportunities. The Company expects goodwill will be deductible for U.S. income tax purposes.

~~The purchase price allocation for Benshaw was as follows (in millions):~~

As of June 30, 2014
Current assets $ 0.5
Trade receivables 10.4
Inventories 22.4
Property, plant and equipment 4.5
Intangible assets, subject to amortization 14.6
Goodwill 4.7
Total assets acquired 57.1
Accounts payable 3.7
Current liabilities assumed 2.2
Long-term liabilities assumed 0.2
Net assets acquired $ 51.0

~~Hy-Bon~~

On February 7, 2014, the Company acquired Hy-Bon Engineering Company, Inc. ("Hy-Bon") for $78.0 million in cash. The Company financed the transaction with existing cash. Hy-Bon is a leader in vapor recovery solutions for oil and gas applications. It is reported in the Commercial and Industrial Systems segment. The Company acquired Hy-Bon because management determined it was a strategic fit for the Commercial and Industrial Systems segment.

~~The acquisition of Hy-Bon was accounted for as a purchase in accordance with the FASB ASC Topic 805,~~ ~~Business Combinations.~~ Assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The fair values of identifiable intangible assets, which were primarily customer relationships, were based on valuations using the income approach. The excess of the purchase price over the estimated fair values of tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The goodwill is attributable to expected synergies and other growth opportunities. The Company does not expect goodwill will be deductible for U.S. income tax purposes.

~~The purchase price allocation for Hy-Bon was as follows (in millions):~~

As of February 7, 2014
Current assets $ 1.7
Trade receivables 11.5
Inventories 14.3
Property, plant and equipment 8.1
Intangible assets, subject to amortization 13.4
Goodwill 40.6
Other assets 0.1
Total assets acquired 89.7
Accounts payable 5.5
Current liabilities assumed 5.1
Long-term liabilities assumed 1.1
Net assets acquired $ 78.0

~~Pro Forma Consolidated Results for 2014 Acquisitions~~



	Three Months Ended
		April 4, 2015
Pro forma net sales		$	960.3
Pro forma net income attributable to the Company		38.1

Basic earnings per share as reported		$	0.81
Pro forma basic earnings per share		0.85

Diluted earnings per share as reported		$	0.81
Pro forma diluted earnings per share		0.85

The following supplemental pro forma information presents the financial results for the nine months ended September 27, 2014, as if the acquisitions of Benshaw and Hy-Bon had occurred at the beginning of fiscal year 2014. Based upon the timing of the Company's fiscal 2014 acquisitions, financial results for the three months ended September 27, 2014 and the three and nine months ended October 3, 2015 included the financial results of the acquisitions of Benshaw and Hy-Bon.

The pro forma amounts do not include any estimated cost synergies or other effects of the integration of the acquisitions. Accordingly, the pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the dates indicated. Pro forma amounts are also not necessarily indicative of any future consolidated operating results of the Company (see Note 5 of Notes to the Condensed Consolidated Financial Statements for amortization expense related to intangible assets acquired) (in millions, except per share amounts).

Nine Months Ended
September 27,
2014
Pro forma net sales $ 2,515.4
Pro forma net income attributable to the Company 145.2

Basic earnings per share as reported $ 3.27
Pro forma basic earnings per share 3.23

Diluted earnings per share as reported $ 3.25
Pro forma diluted earnings per share 3.20

~~2014 Divestitures~~

The Company sold its shares of a joint venture located in Shanghai, China ("Jinling") on September 11, 2014 which was previously accounted for as a consolidated joint venture and was reported in the Electrical segment. The disposal of Jinling was determined to not qualify for presentation as discontinued operations in the Company's Condensed Consolidated Financial Statements, in accordance with ASU 2014-08. A loss of approximately $1.9 million was recorded in Operating Expenses in the Condensed Consolidated Statements of Income for the three and nine months ended September 27, 2014.

4. ACCUMULATED OTHER COMPREHENSIVE LOSS

Foreign currency translation adjustments, hedging activities and pension and post retirement benefit adjustments are included in Equity in Accumulated Other Comprehensive ~~Loss.~~Loss ("AOCI").

The changes in ~~accumulated other comprehensive loss~~AOCI by component for the three ~~and nine~~ months ended ~~October 3, 2015~~April 2, 2016 and ~~September 27, 2014 was~~April 4, 2015 were as follows (in millions):

Three Months Ended
October 3, 2015
Hedging Activities Pension Benefit Adjustments Foreign Currency Translation Adjustments Total
Beginning balance $ (32.6 ) $ (39.0 ) $ (109.8 ) $ (181.4 )
Other comprehensive income (loss) before reclassifications (38.1 ) —
(35.8 ) (73.9 )
Tax (expense) benefit 14.5
—
—
14.5
Amounts reclassified from accumulated other comprehensive income (loss) 11.0
1.0
—
12.0
Tax (expense) benefit (4.1 ) (0.3 ) —
(4.4 )
Net current period other comprehensive income (loss) (16.7 ) 0.7
(35.8 ) (51.8 )
Ending balance $ (49.3 ) $ (38.3 ) $ (145.6 ) $ (233.2 )

Three Months Ended
September 27, 2014
Hedging Activities Pension Benefit Adjustments Foreign Currency Translation Adjustments Total
Beginning balance $ (6.4 ) $ (23.1 ) $ (27.9 ) $ (57.4 )
Other comprehensive income (loss) before reclassifications (5.9 ) —
(16.5 ) (22.4 )
Tax (expense) benefit 2.2
—
—
2.2
Amounts reclassified from accumulated other comprehensive income (loss) 1.2
0.8
(1.0 ) 1.0
Tax (expense) benefit (0.4 ) (0.3 ) —
(0.7 )
Net current period other comprehensive income (loss) (2.9 ) 0.5
(17.5 ) (19.9 )
Ending balance $ (9.3 ) $ (22.6 ) $ (45.4 ) $ (77.3 )


	Nine Months Ended												Three Months Ended
	October 3, 2015												April 2, 2016
	Hedging Activities			Pension Benefit Adjustments			Foreign Currency Translation Adjustments			Total			Hedging Activities			Pension and Post Retirement Benefit Adjustments			Foreign Currency Translation Adjustments			Total
Beginning balance	$	(31.0	)	$	(39.5	)	$	(80.5	)	$	(151.0	)	$	(47.5	)	$	(35.4	)	$	(172.1	)	$	(255.0	)
Other comprehensive income (loss) before reclassifications	(57.6		)	—			(65.1		)	(122.7		)	3.6			—			25.3			28.9
Tax (expense) benefit	21.9			—			—			21.9
Amounts reclassified from accumulated other comprehensive income (loss)	28.0			3.0			—			31.0
Tax (expense) benefit	(10.6		)	(1.8		)	—			(12.4		)
Tax impact													(1.3		)	—			—			(1.3		)
Amounts reclassified from accumulated other comprehensive loss													13.1			0.9			—			14.0
Tax impact													(5.0		)	(0.2		)	—			(5.2		)
Net current period other comprehensive income (loss)	(18.3		)	1.2			(65.1		)	(82.2		)	10.4			0.7			25.3			36.4
Purchase of subsidiary shares from noncontrolling interest													—			—			(2.7		)	(2.7		)
Ending balance	$	(49.3	)	$	(38.3	)	$	(145.6	)	$	(233.2	)	$	(37.1	)	$	(34.7	)	$	(149.5	)	$	(221.3	)


	Nine Months Ended												Three Months Ended
	September 27, 2014												April 4, 2015
	Hedging Activities			Pension Benefit Adjustments			Foreign Currency Translation Adjustments			Total			Hedging Activities			Pension Benefit Adjustments			Foreign Currency Translation Adjustments			Total
Beginning balance	$	(9.5	)	$	(23.3	)	$	(27.0	)	$	(59.8	)	$	(31.0	)	$	(39.5	)	$	(80.5	)	$	(151.0	)
Other comprehensive income (loss) before reclassifications	(9.2		)	(0.5		)	(17.4		)	(27.1		)	(6.3		)	—			(21.7		)	(28.0		)
Tax (expense) benefit	3.5			—			—			3.5
Tax impact													2.4			—			—			2.4
Amounts reclassified from accumulated other comprehensive income (loss)	9.5			1.9			(1.0		)	10.4			6.0			1.2			—			7.2
Tax (expense) benefit	(3.6		)	(0.7		)	—			(4.3		)
Tax impact													(2.3		)	(0.4		)	—			(2.7		)
Net current period other comprehensive income (loss)	0.2			0.7			(18.4		)	$	(17.5	)	(0.2		)	0.8			(21.7		)	(21.1		)
Ending balance	$	(9.3	)	$	(22.6	)	$	(45.4	)	$	(77.3	)	$	(31.2	)	$	(38.7	)	$	(102.2	)	$	(172.1	)

The Condensed Consolidated Statements of Income line items affected by the hedging activities reclassified from accumulated other comprehensive loss in the tables above are disclosed in Note 13 of Notes to Condensed Consolidated Financial Statements.

The reclassification amounts for pension and post retirement benefit adjustments in the tables above are part of net periodic ~~pension~~benefit costs recorded in Operating Expenses (see Note 8 of Notes to Condensed Consolidated Financial Statements).

5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

As required, the Company performs an annual impairment test of goodwill as of the end of the October fiscal month or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting units below their carrying value.

The following information presents changes to goodwill during the ~~nine~~three months ended ~~October 3, 2015~~April 2, 2016 (in millions):


	Total			Commercial and Industrial Systems			Climate Solutions			Power Transmission Solutions		Total			Commercial and Industrial Systems		Climate Solutions		Power Transmission Solutions
Balance as of January 3, 2015	$	1,004.0		$	645.4		$	344.6		$	14.0
Balance as of January 2, 2016												$	1,465.6		$	547.7	$	342.8	$	575.1
Acquisition and valuation adjustments	568.7			(5.2		)	—			573.9		(0.3		)	—		—		(0.3		)
Translation adjustments	(8.7		)	(9.5		)	(1.0		)	1.8		7.1			2.5		0.3		4.3
Balance as of October 3, 2015	$	1,564.0		$	630.7		$	343.6		$	589.7
Balance as of April 2, 2016												$	1,472.4		$	550.2	$	343.1	$	579.1

Cumulative goodwill impairment charges	$	195.8		$	164.9		$	7.7		$	23.2	$	275.7		$	244.8	$	7.7	$	23.2

Intangible Assets

Intangible assets consisted of the following (in millions):

October 3, 2015 January 3, 2015
Weighted Average Amortization Period (Years) Gross Value
Accumulated
Amortization
Gross Value
Accumulated
Amortization
Amortizable intangible assets:
  Customer relationships 15 $ 719.8
$ 151.5
$ 256.8
$ 122.6
  Technology 11 191.8
88.5
129.4
74.9
  Trademarks 12 32.2
21.2
33.1
20.1
  Patent and engineering drawings 5 16.6
16.6
16.6
16.6
  Non-compete agreements 5 8.5
8.1
8.6
8.0
968.9
285.9
444.5
242.2
Non-amortizable trademarks 121.9
—
—
—
$ 1,090.8
$ 285.9
$ 444.5
$ 242.2

~~The estimated expected future annual amortization for intangible assets is as follows (in millions):~~

Year
Estimated
Amortization
2016 $ 62.1
2017 55.4
2018 53.6
2019 53.1
2020 50.4



		April 2, 2016				January 2, 2016
	Weighted Average Amortization Period (Years)	Gross Value		Accumulated Amortization		Gross Value		Accumulated Amortization
Amortizable intangible assets:
Customer relationships	15	$	715.2	$	173.6	$	709.0	$	161.4
Technology	11	191.8		97.5		191.1		92.9
Trademarks	12	32.5		22.6		32.1		21.8
Patent and engineering drawings	5	16.6		16.6		16.6		16.6
Non-compete agreements	5	8.5		8.2		8.5		8.1
		964.6		318.5		957.3		300.8
Non-amortizable Trade Names		121.9		—		121.3		—
		$	1,086.5	$	318.5	$	1,078.6	$	300.8

Amortization expense recorded for the three ~~and nine~~ months ended ~~October 3, 2015~~April 2, 2016 and April 4, 2015 was ~~$16.7~~$15.6 million and ~~$47.7 million, respectively. Amortization expense recorded for the three and nine months ended September 27, 2014 was $11.8 million and $34.7~~$14.3 million, respectively. Amortization expense for ~~2015~~2016 is estimated to be ~~$64.2~~$62.1 million.

6. BUSINESS SEGMENTS

The following sets forth certain financial information attributable to the Company's reporting segments as of and for the three ~~and nine~~ months ended ~~October 3,~~April 2, 2016 and April 4, 2015 ~~and September 27, 2014~~ (in millions):


	Commercial and Industrial Systems		Climate Solutions		Power Transmission Solutions		Eliminations			Total		Commercial and Industrial Systems		Climate Solutions		Power Transmission Solutions			Eliminations			Total
As of and for Three Months Ended October 3, 2015
As of and for Three Months Ended April 2, 2016
External sales	$	426.8	$	264.4	$	191.1	$	—		$	882.3	$	377.6	$	239.8	$	200.8		$	—		$	818.2
Intersegment sales	14.4		6.0		0.8		(21.2		)	—		11.3		5.2		0.9			(17.4		)	—
Total sales	441.2		270.4		191.9		(21.2		)	882.3		388.9		245.0		201.7			(17.4		)	818.2
Gross profit	110.3		70.8		60.0		—			241.1		93.6		56.2		67.6			—			217.4
Total operating expenses	71.6		30.1		39.3		—			141.0
Operating expenses												71.9		31.6		44.6			—			148.1
Income from operations	38.8		40.7		20.6		—			100.1		21.7		24.6		23.0			—			69.3
Depreciation and amortization	19.6		7.1		15.3		—			42.0		19.7		6.2		14.2			—			40.1
Capital expenditures	10.4		4.6		5.7		—			20.7		7.3		3.9		3.7			—			14.9
Identifiable assets	2,380.2		888.2		1,610.0		—			4,878.4		1,949.7		948.1		1,702.4			—			4,600.2
As of and for Three Months Ended September 27, 2014
As of and for Three Months Ended April 4, 2015
External sales	$	472.3	$	290.0	67.5		$	—		$	829.8	$	456.4	$	280.4	174.9			$	—		$	911.7
Intersegment sales	21.5		4.4		1.5		(27.4		)	—		23.9		7.1		1.1			(32.1		)	—
Total sales	493.8		294.4		69.0		(27.4		)	829.8		480.3		287.5		176.0			(32.1		)	911.7
Gross profit	117.6		67.9		18.3		—			203.8		112.9		63.7		44.3			—			220.9
Total operating expenses	83.9		34.9		10.3		—			129.1
Operating expenses												79.6		30.3		47.4			—			157.3
Income from operations	33.6		33.1		8.0		—			74.7		33.3		33.4		(3.1		)	—			63.6
Depreciation and amortization	21.4		11.0		3.2		—			35.6		19.5		7.0		9.4			—			35.9
Capital expenditures	13.7		2.4		1.5		—			17.6		15.7		4.6		0.9			—			21.2
Identifiable assets	2,598.8		886.7		185.9		—			3,671.4		2,440.6		880.8		1,646.1			—			4,967.5

Commercial and Industrial Systems Climate Solutions Power Transmission Solutions Eliminations Total
As of and for Nine Months Ended October 3, 2015
External sales $ 1,324.2
$ 830.9
$ 581.1
$ —
$ 2,736.2
Intersegment sales 60.7
18.9
3.1
(82.7 ) —
Total sales 1,384.9
849.8
584.2
(82.7 ) 2,736.2
Gross profit 336.8
207.5
169.1
—
713.4
Total operating expenses 223.2
89.7
133.6
—
446.5
Income from operations 113.6
117.8
35.5
—
266.9
Depreciation and amortization 58.4
21.7
40.0
—
120.1
Capital expenditures 38.5
13.3
13.6
—
65.4
Identifiable assets 2,380.2
888.2
1,610.0
—
4,878.4
As of and for Nine Months Ended September 27, 2014
External sales $ 1,404.8
$ 878.6
198.0
$ —
$ 2,481.4
Intersegment sales 38.0
8.5
2.5
(49.0 ) —
Total sales 1,442.8
887.1
200.5
(49.0 ) 2,481.4
Gross profit 357.9
199.2
52.1
—
609.2
Total operating expenses 240.2
106.6
30.3
—
377.1
Income from operations 117.8
92.5
21.8
—
232.1
Depreciation and amortization 60.2
34.3
9.1
—
103.6
Capital expenditures 42.0
12.9
5.6
—
60.5
Identifiable assets 2,598.8
886.7
185.9
—
3,671.4

In the fourth quarter of 2014, the Company reorganized its reportable segments to align with its new management reporting structure and business activities. Prior to this reorganization, the Company was comprised of two reportable segments for financial reporting purposes: Electrical and Mechanical. As a result of this change, the Company is now comprised of three reportable segments: Commercial & Industrial Systems, Climate Solutions and Power Transmission Solutions. Historical financial information has been revised on a basis consistent with these segments.

The Commercial and Industrial Systems segment produces medium and large electric motors, ~~generators~~power generation products, high-performance drives and ~~customer drives,~~ controls, and ~~systems.~~starters. Applications include general commercial and industrial equipment, commercial HVAC, ~~pool and spa, standby and critical~~ power generation, and oil and ~~gas systems.~~gas.

The Climate Solutions segment produces small motors, controls and air moving solutions. Applications include residential and light commercial HVAC, commercial refrigeration and water heaters.

The Power Transmission Solutions segment produces power transmission gearing, hydraulic pump drives, large open gearing and specialty mechanical products. Applications include material handling, industrial equipment, energy and off-road equipment.

The Company evaluates performance based on the segment's income from operations. Corporate costs have been allocated to each segment based on the net sales of each segment. The reported external net sales of each segment are from external customers.

7. DEBT AND BANK CREDIT FACILITIES

The Company’s indebtedness as of ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015~~2, 2016 was as follows (in millions):


	October 3, 2015		January 3, 2015		April 2, 2016			January 2, 2016
Term facility	$	1,178.1	$	—	$	1,068.1		$	1,118.1
Senior notes	600.0		600.0		600.0			600.0
Multicurrency revolving facility	16.0		—		36.0			3.0
Revolving facility	—		17.0
Other	19.6		16.8		15.1			15.5
Less: Debt issuance costs					(13.8		)	(14.7		)
	1,813.7		633.8		1,705.4			1,721.9
Less: Current maturities	49.0		8.4		6.1			6.3
Non-current portion	$	1,764.7	$	625.4	$	1,699.3		$	1,715.6

The ~~New~~ Credit Agreement

In connection with the PTS Acquisition, on January 30, 2015, the Company entered into a new Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders named therein, providing for a (i) 5-year unsecured term loan facility in the principal amount of $1.25 billion (the “Term Facility”) and (ii) a 5-year unsecured multicurrency revolving facility in the principal amount of $500.0 million (the “Multicurrency Revolving Facility”) available for general corporate purposes. ~~The Credit Agreement replaced the Prior Credit Agreement, and the Multicurrency Revolving Facility replaced the Prior Revolving Facility (further discussed below).~~

The Term Facility was drawn in full on January 30, 2015 in connection with the closing of the PTS Acquisition. The loans under the Term Facility require quarterly amortization at a rate starting at 5.0% per annum, increasing to 7.5% per annum after two years and further increasing to 10.0% per annum for the last two years of the Term Facility. At ~~October 3, 2015~~April 2, 2016 the Company had borrowings under the Multicurrency Revolving Facility in the amount of ~~$16.0~~$36.0 million, ~~$32.9~~$34.6 million of standby letters of credit issued under the facility, and ~~$451.1~~$429.4 million of available borrowing capacity.

Borrowings under the Credit Agreement bear interest at floating rates based upon indices determined by the currency of the borrowing, plus an applicable margin determined by reference to the Company's consolidated funded debt to consolidated EBITDA ratio or at an alternative base rate. The weighted average interest rate on the ~~Credit Agreement~~Multicurrency Revolving Facility was 1.9% ~~during~~for the ~~nine~~three months ended ~~October 3,~~April 2, 2016 and April 4, 2015. The weighted average interest rate on the Term Facility was 1.9% for the three months ended April 2, 2016 and April 4, 2015. The Company pays a non-use fee on the aggregate unused amount of the Multicurrency Revolving Facility at a rate determined by reference to its consolidated funded debt to consolidated EBITDA ratio.

The Credit Agreement requires the Company prepay the loans under the Term Facility with 100% of the net cash proceeds received from specified asset sales and ~~in currencies of~~ borrowed money indebtedness, subject to certain exceptions.

Senior Notes

At ~~October 3, 2015,~~April 2, 2016, the Company had $600.0 million of senior notes (the “Notes”) outstanding. The Notes consist of (i) $500.0 million in senior notes (the “2011 Notes”) in a private placement which were issued in seven tranches with maturities from seven to twelve years and carry fixed interest rates and (ii) $100.0 million in senior notes (the “2007 Notes”) issued in 2007 with a floating interest rate based on a margin over the London Inter-Bank Offered Rate (“LIBOR”).

Details on the Notes at ~~October 3, 2015~~April 2, 2016 were (in millions):

Principal

Interest Rate

Maturity

Principal

Interest Rate

Maturity

Floating Rate Series 2007A

100.0

Floating ⁽¹⁾

August 23, 2017

100.0

Floating (1)

August 1, 2017

Fixed Rate Series 2011A

100.0

4.1%

July 14, 2018

100.0

4.1%

July 1, 2018

Fixed Rate Series 2011A

230.0

4.8 to 5.0%

July 14, 2021

230.0

4.8 to 5.0%

July 1, 2021

Fixed Rate Series 2011A

170.0

4.9 to 5.1%

July 14, 2023

170.0

4.9 to 5.1%

July 1, 2023

600.0



(1)						Interest rates vary as LIBOR varies. At ~~October 3, 2015~~,April 2, 2016, the interest rate was ~~1.0%, and at~~1.3%. At January ~~3, 2015~~2, 2016, the interest rate was ~~0.9%.~~ 1.1%

The Company has interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk (see also Note 13 of Notes to the Condensed Consolidated Financial Statements).

Financial Covenants

The ~~Prior~~ Credit Agreement and ~~Prior Revolving Facility~~

~~On June 30, 2011,~~the Notes require the Company entered into a revolving credit agreement (the “Prior Credit Agreement”) that provided for an aggregate amount of availability under a revolving credit facility of $500.0 million, including a $100.0 million letter of credit subfacility (the “Prior Revolving Facility”). The Prior Credit Agreementto meet specified financial ratios and ~~Prior Revolving Facility were replaced with the new Credit Agreement (discussed above).~~to satisfy certain financial condition tests.

The Prior Revolving Facility permitted borrowing at interest rates based upon a margin above LIBOR. At January 3, 2015, the Company had $17.0 million outstanding on the Prior Revolving Facility. The balance on the Prior Revolving Facility was fully paid on January 27, 2015.

Other Notes Payable

At ~~October 3, 2015, other notes payable of~~ ~~$19.6 million~~ ~~were outstanding with aweighted average interest rate of~~ ~~2.6%. At January 3, 2015,~~April 2, 2016, other notes payable of approximately ~~$16.8~~$15.1 million were outstanding with a weighted average interest rate of 2.7%. At January 2, 2016, other notes payable of approximately $15.5 million were outstanding with a weighted average rate of 2.5%.

~~Fair Value~~

Based on rates for instruments with comparable maturities and credit quality, which are classified as Level 2 inputs (see also Note 14 of Notes to the Condensed Consolidated Financial Statements), the approximate fair value of the Company's total debt was ~~$1,849.9~~$1,743.1 million and ~~$666.8~~$1,758.2 million as of ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015~~,2, 2016, respectively.

~~Compliance with Financial Covenants~~

The Credit Agreement contains customary affirmative and negative covenants and events of default for an unsecured financing arrangement, including, among other things, limitations on consolidations, mergers and sales of assets. The Credit Agreement and the Notes require the Company to meet specified financial ratios and to satisfy certain financial condition tests. The Company was in compliance with all financial covenants contained in the Credit Agreement and the Notes as of October 3, 2015.

8. ~~PENSION~~POST RETIREMENT PLANS

The Company’s net periodic benefit ~~pension~~ cost was comprised of the following components (in millions):


	Three Months Ended						Nine Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014			April 2, 2016			April 4, 2015
Service cost	$	2.7		$	0.6		$	7.4		$	1.8		$	2.1		$	0.7
Interest cost	2.9			1.9			8.3			5.9			2.4			4.3
Expected return on plan assets	(2.8		)	(2.2		)	(8.0		)	(6.7		)	(3.0		)	(2.2		)
Amortization of prior service cost and net actuarial loss	1.0			0.6			3.0			1.7			0.9			1.2
Net periodic benefit cost	$	3.8		$	0.9		$	10.7		$	2.7		$	2.4		$	4.0

The estimated net actuarial loss and prior service cost for ~~defined benefit pension~~post retirement plans that will be amortized from ~~Accumulated Other Comprehensive Loss~~AOCI into net periodic benefit cost during the ~~2015~~2016 fiscal year is ~~$4.6~~$3.1 million and $0.2 million, respectively.

For the three months ended ~~October 3,~~April 2, 2016 and April 4, 2015, ~~and September 27, 2014,~~ the Company contributed ~~$0.8~~$1.1 million and ~~$0.9~~$0.8 million, respectively, to ~~defined benefit pension plans. For the nine months ended October 3, 2015 and September 27, 2014, the Company contributed $2.3 million and $2.0 million, respectively, to defined benefit pension~~post retirement plans. The Company expects to make total contributions of ~~$3.3~~$4.6 million in ~~2015.~~2016. The Company contributed a total of ~~$3.1~~$4.7 million in fiscal ~~2014.~~2015. The assumptions used in the valuation of the Company’s ~~pension~~post retirement plans and in the target investment allocation have remained the same as those disclosed in the Company’s ~~2014~~2015 Annual Report on Form 10-K filed on March ~~4, 2015.~~2, 2016.

Beginning in 2016, the Company changed the method used to estimate the service and interest cost components of the net periodic pension and other post retirement benefit costs. The new method uses the spot yield curve approach to estimate the service and interest costs by applying the specific spot rates along the yield curve used to determine the benefit obligations to relevant projected cash outflows. The change will not affect the measurement of the total benefit obligations as the change in service and interest costs is offset in the actuarial gains and losses recorded in other comprehensive income. The methodology of selecting a discount rate that matches each plan's cash flows to that of a theoretical bond portfolio yield curve will continue be used to value the benefit obligation at the end of each year. The Company changed to the new method to provide a more precise measure of interest and service costs by improving the correlation between the projected benefit cash flows and the discrete spot yield curve rates. The Company has accounted for this change as a change in estimate prospectively and is expected to result in a $2.9 million reduction in expense for fiscal 2016 as compared to the previous method.

9. SHAREHOLDERS’ EQUITY

~~Repurchase~~Common Stock

The Board of ~~Common Stock~~Directors has approved a repurchase program of up to 3.0 million common shares of Company stock. Management is authorized to effect purchases from time to time in the open market or through privately negotiated transactions. There were no

~~The Company acquired and retired 180,000 shares of its common stock in~~purchases under this program during the ~~quarter~~three months ended October 3, 2015 at an average cost of $66.56 per share for a total use of cash of $12.0 million. The repurchases were under the 3.0 million share repurchase program approved by the Company's Board of Directors.ending April 2, 2016. There are approximately 2.3 million shares of our common stock available for repurchase under this program.

Share-Based Compensation

The majority of the Company’s annual share-based incentive awards are made in the fiscal second quarter.

The Company recognized approximately ~~$3.5~~$3.3 million and ~~$2.2~~$3.0 million in share-based compensation expense for the three months ended ~~October 3,~~April 2, 2016 and April 4, 2015, ~~and September 27, 2014, respectively. Share-based compensation expense for the nine months ended October 3, 2015 and September 27, 2014, was $10.6 million and $8.5 million,~~ respectively. The Company recognizes compensation expense on grants of share-based compensation awards on a straight-line basis over the vesting period of each award. The total excess income tax benefit recognized relating to share-based compensation was immaterial for the ~~nine~~three months ended ~~October 3, 2015~~April 2, 2016 and ~~September 27, 2014~~ was approximately ~~$1.3~~$0.7 million ~~and $1.2 million, respectively.~~for the three months ended April 4, 2015. As of ~~October 3, 2015,~~April 2, 2016, total unrecognized compensation cost related to share-based compensation awards was approximately ~~$27.5~~$21.3 million, net of estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately ~~2.3~~1.9 years.

Approximately 2.0 million shares were available for future grant under the 2013 Equity Incentive Plan at ~~October 3, 2015.~~April 2, 2016.

Options and Stock Appreciation Rights

The Company uses several forms of share-based incentive awards, including non-qualified stock options, incentive stock options, and stock settled stock appreciation rights (“~~SAR's”~~SARs”). Options and ~~SAR's~~SARs generally vest over 5 years and expire 10 years from the grant date. All grants are made at prices equal to the fair market value of the stock on the grant date. ~~The majority of the Company’s annual share-based incentive awards are made in the fiscal second quarter.~~ For the ~~nine~~three months ended ~~October 3,~~April 2, 2016 and April 4, 2015, ~~and September 27, 2014,~~ expired and canceled shares were immaterial.

The table below presents share-based compensation activity for the ~~nine~~three months ended ~~October 3,~~April 2, 2016 and April 4, 2015 ~~and September 27, 2014~~ (in millions):


	2015		2014		April 2, 2016		April 4, 2015
Total intrinsic value of share-based incentive awards exercised	$	4.0	$	5.0	$	0.1	$	2.8
Cash received from stock option exercises	2.5		1.8		0.5		3.0
Income tax benefit from the exercise of stock options	1.5		1.9		0.1		1.1
Total fair value of share-based incentive awards vested	4.8		5.3

~~The assumptions used in the Company's Black-Scholes valuation related to grants for options and SAR's were as follows:~~

2015 2014 2013
Per share weighted average fair value of grants $ 27.16
$ 28.01
$ 23.01
Risk-free interest rate 1.9 % 2.0 % 1.1 %
Expected life (years) 7.0
7.0
7.0
Expected volatility 35.6 % 37.7 % 38.5 %
Expected dividend yield 1.2 % 1.2 % 1.2 %

The average risk-free interest rate is based on U.S. Treasury security rates in effect as of the grant date. The expected dividend yield is based on the projected annual dividend as a percentage of the estimated market value of the Company's common stock as of the grant date. The Company estimated the expected volatility using a weighted average of daily historical volatility of the Company's stock price over the expected term of the award. The Company estimated the expected term using historical data adjusted for the estimated exercise dates of unexercised awards.

Following is a summary of share-based incentive plan grant activity (options and ~~SAR's)~~SARs) for the ~~nine~~three months ended ~~October 3, 2015.~~April 2, 2016.

Number of Shares Under Options and SAR's Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in millions)
Outstanding at January 3, 2015 1,488,832
$ 59.34

Granted 206,500
78.15

Exercised (121,208 ) 43.82

Forfeited (17,500 ) 66.53

Outstanding at October 3, 2015 1,556,624
$ 62.95
5.9 $ 5.4
Exercisable at October 3, 2015 958,541
$ 57.05
4.5 $ 5.4



Number of Shares Under Options and SARs	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in millions)
Exercisable at January 2, 2016	1,548,266		$	63.09
Granted	—		—
Exercised	(14,506	)	46.67
Forfeited	(1,933	)	75.75
Expired	(700	)	71.51
Outstanding at April 2, 2016	1,531,127		$	63.23	5.5	$	7.7
Exercisable at April 2, 2016	938,291		$	57.38	4.1	$	7.6

Compensation expense recognized related to Options and ~~SAR's~~SARs was ~~$3.9~~$1.2 million for the ~~nine~~three months ended ~~October 3, 2015.~~April 2, 2016.

As of ~~October 3, 2015,~~April 2, 2016, there was ~~$12.0~~$9.8 million of unrecognized compensation cost related to non-vested options and ~~SAR's~~SARs that is expected to be recognized as a change to earnings over a weighted average period of ~~3.3~~3.0 years.

The amount of options expected to vest is materially consistent with those outstanding and not yet exercisable.

Restricted Stock Awards and Restricted Stock Units

Restricted stock awards ("RSA") and restricted stock units ("RSU") consist of shares or the rights to shares of the Company's stock. The awards are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other

transfer. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, or death, disability or normal retirement of the grantee.

Following is a summary of RSA award activity for the ~~nine~~three months ended ~~October 3, 2015:~~April 2, 2016:


	Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)	Shares	Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested RSAs at January 3, 2015	24,814		$	69.53	0.3
Unvested RSAs at January 2, 2016						14,400	$	78.15	0.4
Granted	14,400		78.15			—	—
Vested	(24,814	)	69.53			—	—
Forfeited	—		—			—	—
Unvested RSAs October 3, 2015	14,400		$	78.15	0.6
Unvested RSAs April 2, 2016						14,400	$	78.15	0.1

RSAs vest on either the first (for RSAs granted in 2013 and later) or the third (for RSAs granted prior to 2013) anniversary of the grant date, provided the holder of the shares is continuously employed by or in the service of the Company until the vesting date. Compensation expense recognized related to the RSAs was ~~$0.8~~$0.3 million for the ~~nine~~three months ended ~~October 3, 2015.~~April 2, 2016.

As of ~~October 3, 2015,~~April 2, 2016, there was ~~$0.7~~$0.1 million of unrecognized compensation cost related to non-vested RSAs that is expected to be recognized as a charge to earnings over a weighted average period of ~~0.6~~0.1 years.

Following is a summary of RSU award activity for the ~~nine~~three months ended ~~October 3, 2015:~~April 2, 2016:


		Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)		Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested RSUs at January 3, 2015		237,946		$	68.28	1.8
Unvested RSUs at January 2, 2016							Unvested RSUs at January 2, 2016	268,655		$	72.91	1.8
Granted	Granted	106,600		77.38			Granted	—		—
Vested	Vested	(67,701	)	63.86			Vested	(420	)	72.65
Forfeited	Forfeited	(7,830	)	71.00			Forfeited	(4,215	)	71.52
Unvested RSUs at October 3, 2015		269,015		$	72.91	2.0
Unvested RSUs at April 2, 2016							Unvested RSUs at April 2, 2016	264,020		$	72.94	1.6

RSU shares vest on the third anniversary of the grant date, provided the holder of the shares is continuously employed by the Company until the vesting date. Compensation expense recognized related to the RSUs was ~~$4.6~~$1.3 million for the ~~nine~~three months ended ~~October 3, 2015.~~April 2, 2016.

As of ~~October 3, 2015,~~April 2, 2016, there was ~~$11.1~~$8.6 million of unrecognized compensation cost related to non-vested RSUs that is expected to be recognized as a charge to earnings over a weighted average period of ~~2.0~~1.6 years.

Performance Share Units

Performance share unit ("PSU") awards consist of shares or the rights to shares of the Company's stock which are awarded to employees of the Company. These shares are payable upon the determination that the Company achieved certain established performance targets and can range from 0% to 200% of the targeted payout based on the actual results. ~~PSUs~~PSU's have a performance period of 3 years. As set forth in the individual grant agreements, acceleration of vesting may occur under a change in control, death or disability. There are no voting rights with these instruments until vesting occurs and a share of stock is issued. ~~The~~Some of the PSU awards are valued using a Monte Carlo simulation method as of the grant ~~date.~~

~~The assumptions used in~~date while others are valued using the ~~Company's Monte Carlo simulation related to grants~~closing market price as of the grant date depending on the performance criteria for ~~performance share units were as follows:~~the award.

October 3, 2015 September 27, 2014
Risk-free interest rate 1.0 % 0.9 %
Expected life (years) 3.0
3.0
Expected volatility 25.0 % 32.0 %
Expected dividend yield 1.2 % 1.1 %

Following is a summary of PSU award activity for the ~~nine~~three months ended ~~October 3, 2015:~~April 2, 2016:


		Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)		Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested PSUs at January 3, 2015		59,115		$	68.25	2.0
Unvested PSUs at January 2, 2016							Unvested PSUs at January 2, 2016	87,895		$	75.81	1.9
Granted	Granted	30,845		89.98			Granted	—		—
Vested	Vested	—		—			Vested	—		—
Forfeited	Forfeited	(2,065	)	70.97			Forfeited	(235	)	87.85
Unvested PSUs October 3, 2015		87,895		$	75.81	2.1
Unvested PSUs April 2, 2016							Unvested PSUs April 2, 2016	87,660		$	75.78	1.7

Compensation expense for awards granted are recognized based on the targeted payout of 100.0%, net of estimated forfeitures. Compensation expense recognized related to PSUs was ~~$1.3~~$0.5 million for the ~~nine~~three months ended ~~October 3, 2015.~~April 2, 2016. Total unrecognized compensation expense for all PSUs granted as of ~~October 3, 2015~~April 2, 2016 is estimated to be ~~$3.7~~$2.8 million recognized as a charge to earnings over a weighted average period of ~~2.1~~1.7 years.

10. INCOME TAXES

The effective tax rate for the three months ended ~~October 3, 2015~~April 2, 2016 was ~~25.2%~~23.0% versus ~~27.1%~~26.0% for the three months ended ~~September 27, 2014~~April 4, 2015. ~~The effective tax rate for the nine months ended October 3, 2015 was 25.7% versus 26.6% for the nine months ended September 27, 2014.~~ The change in the effective tax rate for the three months ended ~~October 3, 2015~~April 2, 2016 was primarily driven by the mix of earnings. ~~For the nine months ended October 3, 2015, the change in the effective tax rate was driven by the mix of earnings and partially offset by the non-deductible acquisition costs of the PTS acquisition.~~ The lower effective rate as compared to the 35.0% statutory Federal income tax rate is driven by lower foreign tax rates.

As of ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015~~2, 2016, the Company had approximately ~~$4.7~~$8.8 million and $~~5.8~~8.3 million, respectively, of unrecognized tax benefits, all of which would impact the effective income tax rate if recognized. Potential interest and penalties related to unrecognized tax benefits are recorded in income tax expense.

With few exceptions, the Company is no longer subject to U.S. Federal and state/local income tax examinations by tax authorities for years prior to ~~2010,~~2011, and the Company is no longer subject to non-U.S. income tax examinations by tax authorities for years prior to ~~2008.~~2009.

11. EARNINGS PER SHARE ("EPS")

Diluted earnings per share is computed based upon earnings applicable to common shares divided by the weighted-average number of common shares outstanding during the period adjusted for the effect of other dilutive securities. Options for common shares where the exercise price was above the market price have been excluded from the calculation of effect of dilutive securities shown below; the amount of the anti-dilutive shares were ~~0.8~~1.2 million and ~~0.6~~0.2 million for the three months ended ~~October 3,~~April 2, 2016 and April 4, 2015, ~~and September 27, 2014 and 0.3 million and 0.3 million for the nine months ended October 3, 2015 and September 27, 2014~~ respectively. The following table reconciles the basic and diluted shares used in EPS calculations for the three ~~and nine~~ months ended ~~October 3,~~April 2, 2016 and April 4, 2015 ~~and September 27, 2014~~ (in millions):


	Three Months Ended		Nine Months Ended		Three Months Ended
	October 3, 2015	September 27, 2014	October 3, 2015	September 27, 2014	April 2, 2016	April 4, 2015
Denominator for basic EPS	44.8	44.9	44.8	45.1	44.7	44.7
Effect of dilutive securities	0.3	0.3	0.3	0.3	0.3	0.4
Denominator for diluted EPS	45.1	45.2	45.1	45.4	45.0	45.1

12. CONTINGENCIES

One of the Company’s subsidiaries that it acquired in ~~2007~~2008 is subject to numerous claims filed in various jurisdictions relating to certain sub-fractional motors that were primarily manufactured through ~~2004~~2005 and that were included as components of residential and commercial ventilation units marketed by a third party. These claims generally allege that the ventilation units were the cause of fires. Based on the current facts, the Company does not believe these claims, individually or in the aggregate, will have a material effect on its interim condensed consolidated financial statements as a whole.

The Company is, from time to time, party to litigation that arises in the normal course of its business operations, including product warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters. The Company’s products are used in a variety of industrial, commercial and residential applications that subject the Company to claims

that the use of its products is alleged to have resulted in injury or other damage. The Company accrues for exposures in amounts that it believes are adequate, and the Company does not believe that the outcome of any such lawsuit individually or collectively will have a material effect on the Company's financial position, its results of operations or its cash flows.

The Company recognizes the cost associated with its standard warranty on its products at the time of sale. The amount recognized is based on historical experience. The following is a reconciliation of the changes in accrued warranty costs for the three ~~and nine~~ months ended ~~October 3, 2015~~April 2, 2016 and ~~September 27, 2014~~April 4, 2015 (in millions):


	Three Months Ended						Nine Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014			April 2, 2016			April 4, 2015
Beginning balance	$	20.6		$	17.6		$	19.3		$	19.3		$	19.1		$	19.3
Less: Payments	(4.5		)	(4.1		)	(13.6		)	(14.9		)	(5.1		)	(4.7		)
Provisions	5.1			4.9			14.7			13.9			3.5			5.5
Acquisition	—			0.6			0.8			0.7			—			0.8
Ending balance	$	21.2		$	19.0		$	21.2		$	19.0		$	17.5		$	20.9

13. DERIVATIVE INSTRUMENTS

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are commodity price, currency exchange and interest rate risk. Forward contracts on certain commodities are entered into to manage the price risk associated with forecasted purchases of materials used in the Company’s manufacturing process. Forward contracts on certain currencies are entered into to manage forecasted cash flows in certain foreign currencies. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s floating rate borrowings.

The Company must recognize all derivative instruments as either assets or liabilities at fair value in the ~~condensed consolidated balance sheets.~~Condensed Consolidated Balance Sheets. The Company designates commodity forward contracts as cash flow hedges of forecasted purchases of commodities, currency forward contracts as cash flow hedges of forecasted foreign currency cash flows and interest rate swaps as cash flow hedges of forecasted LIBOR-based interest payments. There were no significant collateral deposits on derivative financial instruments as of ~~October 3, 2015~~April 2, 2016.

Cash flow hedges

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or changes in market value of derivatives not designated as hedges are recognized in current earnings. All derivative instruments used by the Company impact operating cash flows.

At ~~October 3, 2015~~April 2, 2016, the Company had $~~7.4~~(7.2) million, net of tax, of derivative losses on closed hedge instruments in ~~Accumulated Other Comprehensive Income (“AOCI”)~~AOCI that will be realized in earnings when the hedged items impact earnings. At January ~~3, 2015~~2, 2016, the Company had $~~2.2~~(7.4) million, net of tax, of derivative losses on closed hedge instruments in AOCI that was realized in earnings when the hedged items impacted earnings.

As of ~~October 3, 2015~~April 2, 2016, the Company had ~~outstanding~~ the following currency forward contracts outstanding (with maturities extending through December 2018) to hedge forecasted foreign currency cash flows (in millions):


	Notional Amount (in U.S. Dollars)		Notional Amount (in U.S. Dollars)
Chinese Renminbi	$	381.5	$	210.0
Mexican Peso	349.9		251.4
Euro	58.5		37.8
Indian Rupee	48.1		48.8
Canadian Dollar	4.0		20.3
Australian Dollar	2.3		8.5
Japanese Yen	2.7		2.7
Thai Baht	1.3		4.3

As of ~~October 3, 2015~~April 2, 2016, the Company had ~~outstanding~~ the following commodity forward contracts outstanding (with maturities extending through ~~December 2016)~~September 2017) to hedge forecasted purchases of commodities (notional amounts expressed in terms of the dollar value of the hedged item (in millions):


	Notional Amount		Notional Amount
Copper	$	76.2	$	57.4
Aluminum	4.1		3.3

As of ~~October 3, 2015~~April 2, 2016, the total notional amount of the Company’s receive-variable/pay-fixed interest rate swap was $100.0 million (with maturity in August ~~2017~~)2017).

Fair values of derivative instruments as of ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015~~2, 2016 were (in millions):


	October 3, 2015								April 2, 2016
	Prepaid Expenses and Other Current Assets		Other Noncurrent Assets		Hedging Obligations (current)		Hedging Obligations (non-current)		Prepaid Expenses and Other Current Assets		Other Noncurrent Assets		Hedging Obligations (current)		Hedging Obligations (non-current)
Designated as hedging instruments:
Interest rate swap contracts	$	—	$	—	$	—	$	9.6	$	—	$	—	$	—	$	7.0
Currency contracts	1.2		0.7		28.0		21.4		1.0		0.9		24.9		14.9
Commodity contracts	—		—		10.3		0.2		0.8		0.3		4.3		0.1
Not designated as hedging instruments:
Currency contracts	0.9		—		4.5		—		0.7		—		1.9		—
Commodity contracts	4.6		0.3		4.8		0.3		2.9		—		3.0		—
Total Derivatives	$	6.7	$	1.0	$	47.6	$	31.5	$	5.4	$	1.2	$	34.1	$	22.0


	January 3, 2015								January 2, 2016
	Prepaid Expenses and Other Current Assets		Other Noncurrent Assets		Hedging Obligations (current)		Hedging Obligations (non-current)		Prepaid Expenses and Other Current Assets		Other Noncurrent Assets		Hedging Obligations (current)		Hedging Obligations (non-current)
Designated as hedging instruments:
Interest rate swap contracts	$	—	$	—	$	—	$	11.9	$	—	$	—	$	—	$	7.8
Currency contracts	1.6		—		15.9		10.3		0.7		0.4		29.9		19.5
Commodity contracts	—		—		9.8		0.1		0.1		—		8.7		—
Not designated as hedging instruments:
Currency contracts	—		—		1.6		0.2		0.5		0.6		0.9		0.3
Commodity contracts	2.3		—		2.4		—		5.1		—		5.2		—
Total Derivatives	$	3.9	$	—	$	29.7	$	22.5	$	6.4	$	1.0	$	44.7	$	27.6

The effect of derivative instruments on the Condensed Consolidated Statements of Income and Comprehensive Income (pre-tax) was as follows (in millions):

Derivatives Designated as Cash Flow Hedging Instruments

Three Months Ended
October 3, 2015 September 27, 2014

Commodity
Forwards

Currency
Forwards

Interest
Rate
Swaps
Total
Commodity
Forwards

Currency
Forwards

Interest
Rate
Swaps
Total
Loss recognized in Other Comprehensive Income (Loss) $ (10.1 ) $ (27.3 ) $ (0.7 ) $ (38.1 ) $ (3.2 ) $ (3.9 ) $ 1.2
$ (5.9 )
Amounts reclassified from Other Comprehensive Income (Loss):

Gain recognized in Net Sales —
0.1
—
0.1
—
—
—
—
Gain (Loss) recognized in Cost of Sales (3.9 ) (5.9 ) —
(9.8 ) (1.6 ) 2.8
—
1.2
Loss recognized in Interest Expense —
—
(1.3 ) (1.3 ) —
—
(2.4 ) (2.4 )

Nine Months Ended
October 3, 2015 September 27, 2014
Commodity
Forwards Currency
Forwards Interest
Rate
Swaps Total Commodity
Forwards Currency
Forwards Interest
Rate
Swaps Total
Loss recognized in Other Comprehensive Income (Loss) $ (17.6 ) $ (38.4 ) $ (1.6 ) $ (57.6 ) $ (10.0 ) $ 0.6
$ 0.2
$ (9.2 )
Amounts reclassified from Other Comprehensive Income (Loss):
Gain recognized in Net Sales —
0.2
—
0.2
—
—
—
—
Gain (Loss) recognized in Cost of Sales (13.6 ) (10.7 ) —
(24.3 ) (7.1 ) 6.5
—
(0.6 )
Loss recognized in Interest Expense —
—
(3.9 ) (3.9 ) —
—
(8.9 ) (8.9 )



	Three Months Ended
	April 2, 2016												April 4, 2015
	Commodity Forwards			Currency Forwards			Interest Rate Swaps			Total			Commodity Forwards			Currency Forwards			Interest Rate Swaps			Total
Gain (Loss) recognized in Other Comprehensive Income (Loss)	$	1.4		$	2.6		$	(0.4	)	$	3.6		$	(4.6	)	$	(0.7	)	$	(1.0	)	$	(6.3	)
Amounts reclassified from Other Comprehensive Income (Loss):
Loss recognized in Cost of Sales	(5.4		)	(6.5		)	—			(11.9		)	(3.1		)	(1.6		)	—			(4.7		)
Loss recognized in Interest Expense	—			—			(1.2		)	(1.2		)	—			—			(1.3		)	(1.3		)

The ineffective portion of hedging instruments recognized during the three ~~and nine~~ months ended ~~October 3, 2015~~April 2, 2016 and ~~September 27, 2014~~April 4, 2015, respectively, was immaterial.

Derivatives Not Designated as Cash Flow Hedging Instruments (in millions):

Three Months Ended
October 3, 2015 September 27, 2014
Commodity Forwards Currency Forwards Commodity Forwards Currency Forwards
(Loss) recognized in Cost of Sales $ (0.1 ) $ —
$ —
$ (0.3 )
(Loss) recognized in Operating Expenses $ —
$ (4.0 ) $ —
$ —


	Nine Months Ended											Three Months Ended
	October 3, 2015						September 27, 2014					April 2, 2016				April 4, 2015
	Commodity Forwards			Currency Forwards			Commodity Forwards		Currency Forwards			Commodity Forwards		Currency Forwards		Commodity Forwards		Currency Forwards
Gain (Loss) recognized in Cost of Sales	$	(0.1	)	$	—		$	0.1	$	(0.2	)	$	—	$	0.9	$	—	$	(2.2	)
(Loss) recognized in Operating Expenses	$	—		$	(4.5	)	$	—	$	—
Gain recognized in Operating Expenses												0.1		—		—		—

The net AOCI hedging component balance of $~~(49.3)~~(37.1) million loss at ~~October 3, 2015~~April 2, 2016 includes $~~(28.5)~~(20.8) million of net current deferred losses expected to be realized in the next twelve months.

The Company's commodity and currency derivative contracts are subject to master netting agreements with the respective counterparties which allow the Company to net settle transactions with a single net amount payable by one party to another party.

The Company has elected to present the derivative assets and derivative liabilities on the Condensed Consolidated Balance Sheets on a gross basis for the periods ended ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015~~2, 2016.

The following table presents the derivative assets and derivative liabilities presented on a net basis under enforceable master netting agreements (in millions):


	October 3, 2015							April 2, 2016
	Gross Amounts as Presented in the Condensed Consolidated Balance Sheet		Derivative Contract Amounts Subject to Right of Offset			Derivative Contracts as Presented on a Net Basis		Gross Amounts as Presented in the Condensed Consolidated Balance Sheet		Derivative Contract Amounts Subject to Right of Offset			Derivative Contracts as Presented on a Net Basis
Prepaid Expenses and Other Current Assets:
Derivative Currency Contracts	$	2.1	$	(2.0	)	$	0.1	$	1.7	$	(1.3	)	$	0.4
Derivative Commodity Contracts	4.6		(4.6		)	—		3.7		(3.7		)	—
Other Noncurrent Assets:
Derivative Currency Contracts	0.7		(0.7		)	—		0.9		(0.5		)	0.4
Derivative Commodity Contracts	0.3		(0.3		)	—		0.3		—			0.3
Hedging Obligations Current:
Hedging Obligations (Current):
Derivative Currency Contracts	32.5		(2.0		)	30.5		26.8		(1.3		)	25.5
Derivative Commodity Contracts	15.1		(4.6		)	10.5		7.3		(3.7		)	3.6
Hedging Obligations:
Derivative Currency Contracts	21.4		(0.7		)	20.7		14.9		(0.5		)	14.4
Derivative Commodity Contracts	0.5		(0.3		)	0.2		0.1		—			0.1


	January 3, 2015							January 2, 2016
	Gross Amounts as Presented in the Condensed Consolidated Balance Sheet		Derivative Contract Amounts Subject to Right of Offset			Derivative Contracts as Presented on a Net Basis		Gross Amounts as Presented in the Condensed Consolidated Balance Sheet		Derivative Contract Amounts Subject to Right of Offset			Derivative Contracts as Presented on a Net Basis
Prepaid Expenses and Other Current Assets:
Derivative Currency Contracts	$	1.6	$	(1.3	)	$	0.3	$	1.2	$	(1.2	)	$	—
Derivative Commodity Contracts	2.3		(2.3		)	—		5.2		(5.2		)	—
Hedging Obligations Current:
Other Noncurrent Assets:
Derivative Currency Contracts								1.0		(1.0		)	—
Hedging Obligations (Current):
Derivative Currency Contracts	17.5		(1.3		)	16.2		30.8		(1.2		)	29.6
Derivative Commodity Contracts	12.2		(2.3		)	9.9		13.9		(5.2		)	8.7
Hedging Obligations:
Derivative Currency Contracts	10.5		—			10.5		19.8		(1.0		)	18.8
Derivative Commodity Contracts	0.1		—			0.1

14. FAIR VALUE

The Company uses a three-tier hierarchy to assess the inputs used to measure the fair value of financial assets and liabilities.



Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2	Unadjusted quoted prices in active markets for similar assets or liabilities, or
	Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
	Inputs other than quoted prices that are observable for the asset or liability
Level 3	Unobservable inputs for the asset or liability

The Company uses the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The fair ~~value~~values of ~~the Company's~~ cash equivalents and term deposits ~~accounts receivable~~approximate their carrying values as of April 2, 2016 and January 2, 2016, due to the short period of time to maturity and are classified using Level 1 inputs. The fair values of trade receivables and accounts payable ~~approximated book value as of~~ ~~October 3, 2015~~ ~~and~~ ~~January 3, 2015, respectively,~~approximate the carrying values due to ~~their short-term nature.~~the short period of time to maturity. See Note 7 of Notes to Condensed Consolidated Financial Statements for disclosure of the approximate fair value of the Company's debt at ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015~~2, 2016.

The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015~~2, 2016 (in millions):


	October 3, 2015		January 3, 2015		Classification	April 2, 2016		January 2, 2016		Classification
Assets:
Prepaid Expenses and Other Current Assets:
Derivative Currency Contracts	$	2.1	$	1.6	Level 2	$	1.7	$	1.2	Level 2
Derivative Commodity Contracts	4.6		2.3		Level 2	3.7		5.2		Level 2
Other Noncurrent Assets:
Assets Held in Rabbi Trust	5.2		5.2		Level 1	5.2		5.2		Level 1
Derivative Currency Contracts	0.7		—		Level 2	0.9		1.0		Level 2
Derivative Commodity Contracts	0.3		—		Level 2	0.3		—		Level 2
Liabilities:
Hedging Obligations (current):
Derivative Currency Contracts	32.5		17.5		Level 2	26.8		30.8		Level 2
Derivative Commodity Contracts	15.1		12.2		Level 2	7.3		13.9		Level 2
Hedging Obligations:
Interest Rate Swap	9.6		11.9		Level 2	7.0		7.8		Level 2
Derivative Currency Contracts	21.4		10.5		Level 2	14.9		19.8		Level 2
Derivative Commodity Contracts	0.5		0.1		Level 2	0.1		—		Level 2

The Company’s derivative contracts are valued at fair value using the market or income approaches. The Company measures the fair value of foreign currency exchange contracts using Level 2 inputs based on observable spot and forward rates in active markets. The Company measures the fair value of commodity contracts using Level 2 inputs through observable market transactions in active markets provided by financial institutions. The Company measures the fair value of investments using Level 1 inputs based on quoted market prices for identical instruments in active markets. The Company measures the fair value of interest rate swaps using Level 2 inputs in an income approach for valuation based on expected interest rate yield curves over the remaining duration of the interest rate swaps. During the ~~nine~~three months ended ~~October 3, 2015~~April 2, 2016, there were no transfers between classification Levels 1, 2 or 3.

~~The table below sets forth a summary of changes in fair market value of the Company’s Level 3 liabilities (in millions):~~

Three Months Ended Nine Months Ended
October 3,
2015 September 27,
2014 October 3,
2015 September 27,
2014
Beginning Balance $ —
$ —
$ —
$ 9.7
Valuation adjustments —
—
—
(1.1 )
Payments —
—
—
(8.6 )
Ending Balance $ —
$ —
$ —
$ —

The liabilities described above are comprised entirely of the deferred contingent purchase price of the Company's acquisitions and are measured using Level 3 inputs. The fair value was determined using valuation techniques based on risk and probability adjusted discounted cash flows. There were no fair market value Level 3 liabilities for the three or nine months ended October 3, 2015.

15. RESTRUCTURING ~~ACTIVITIES~~AND RELATED COSTS

Beginning in ~~2013,~~2014, the Company announced the closure of several of its manufacturing and warehouse facilities and consolidation into existing facilities to simplify manufacturing operations in its Commercial and Industrial Systems, Climate Solutions and Power Transmission Solutions segments. As a result of these closures, the Company incurred ~~expenses including~~restructuring and restructuring-related costs. Restructuring costs includes employee termination and plant relocation costs. ~~The~~Restructuring-related costs includes costs directly associated with actions resulting from our simplification initiatives, such as asset write-downs or accelerated depreciation due to shortened useful lives in connection with site closures, discretionary employment benefit costs and other facility rationalization costs. Restructuring costs for employee termination expenses are generally required to be accrued over the employees remaining service period while ~~the~~restructuring costs for plant relocation costs and restructuring-related costs are generally required to be expensed as incurred.

The following is a reconciliation of provisions and payments for the restructuring projects for the three ~~and nine~~ months ended ~~October 3,~~April 2, 2016 and April 4, 2015, ~~and September 27, 2014,~~ respectively (in millions):


	Three Months Ended						Nine Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014			April 2, 2016		April 4, 2015
Beginning balance	$	3.2		$	7.3		$	6.1		$	3.9		$	1.3	$	6.1
Provision	1.2			3.0			4.6			10.8			1.4		1.2
Less: Payments	(2.3		)	(1.8		)	(8.6		)	(6.2		)	1.7		3.3
Ending Balance	$	2.1		$	8.5		$	2.1		$	8.5		$	1.0	$	4.0

The following is a reconciliation of ~~expenses by type~~restructuring and restructuring-related costs for the restructuring projects for the three ~~and nine~~ months ended ~~October 3,~~April 2, 2016 and April 4, 2015, ~~and September 27, 2014,~~ respectively (in millions):

Three Months Ended Nine Months Ended
October 3,
2015 September 27,
2014 October 3,
2015 September 27,
2014
Employee termination expenses $ —
$ 1.8
$ 0.1
$ 5.2
Facility related costs 0.2
0.8
0.7
3.7
Other expenses 1.0
0.4
3.8
1.9
Total restructuring expenses $ 1.2
$ 3.0
$ 4.6
$ 10.8

For the three months ended October 3, 2015 and September 27, 2014, restructuring charges recorded in Cost of Sales were $1.2 million and $3.0 million, respectively. For the nine months ended October 3, 2015 and September 27, 2014, restructuring charges recorded in Cost of Sales were $3.5 million and $10.5 million respectively. There were no restructuring charges recorded in Operating Expenses for the three months ended October 3, 2015 or September 27, 2014. For the nine months ended October 3, 2015 and September 27, 2014, restructuring charges recorded in Operating Expenses were $1.1 million and $0.3 million, respectively.



	Three Months Ended
	April 2, 2016						April 4, 2015
Restructuring Costs:	Cost of Sales		Operating Expenses		Total		Cost of Sales		Operating Expenses		Total
Employee termination expenses	$	0.2	$	—	$	0.2	$	0.2	$	—	$	0.2
Facility related costs	0.1		—		0.1		0.1		0.1		0.2
Other expenses	—		—		—		—		0.8		0.8
Total restructuring costs	$	0.3	$	—	$	0.3	$	0.3	$	0.9	$	1.2
Restructuring-related costs:
Other employment benefit expenses	$	0.5	$	0.6	$	1.1	$	—	$	—	$	—
Total restructuring-related costs	$	0.5	$	0.6	$	1.1	$	—	$	—	$	—
Total restructuring and restructuring-related costs	$	0.8	$	0.6	$	1.4	$	0.3	$	0.9	$	1.2

The Company's current restructuring activities are expected to conclude by the end of ~~2016.~~the first quarter of fiscal 2017. The Company expects to record aggregate future charges relating to previously announced restructuring activities of approximately ~~$12.2~~$14.3 million which includes ~~$6.4~~$5.2 million of employee termination expenses and ~~$5.8~~$9.1 million of facility related and other costs.

16. SUBSEQUENT EVENT

On April 28, 2016 the Company entered into an agreement to sell its Mastergear Worldwide ("Mastergear") business to Rotork PLC for $25.0 million. The sale is expected to close in the second quarter of 2016. Mastergear is included in the Company's Power Transmission Solutions segment.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context requires otherwise, references in this Item 2 to “we,” “us,” “our” or the “Company” refer collectively to Regal Beloit Corporation and its subsidiaries.

Overview

Regal Beloit Corporation (NYSE: RBC), based in Beloit, Wisconsin (USA), is a leading manufacturer of electric motors, electrical motion controls, power generation and power transmission products serving markets throughout the world.

Reportable Segments

Our company is comprised of three reportable segments: Commercial and Industrial Systems, Climate Solutions and Power Transmission Solutions. A description of ~~our~~the three reportable segments is as follows:

Commercial and Industrial Systems produces medium and large motors, commercial and industrial equipment, ~~generators~~generator and custom drives and systems. These products serve markets including commercial ~~HVAC,~~Heating, Ventilation, and Air Conditioning ("HVAC"), pool and spa, standby and critical power and oil and gas systems.

Climate Solutions produces small motors, controls and air moving solutions serving markets including residential and light commercial HVAC, water heaters and commercial refrigeration.

Power Transmission Solutions ~~produces power transmission products including~~manufactures, sells and services belt and chain drives, helical and worm gearing, mounted and unmounted bearings, couplings, modular plastic belts, conveying chains and components, hydraulic pump drives, large open gearing and specialty mechanical products serving markets including ~~material~~beverage, bulk handling, ~~industrial equipment,~~metals, special machinery, energy, aerospace and ~~off-road equipment.~~general industrial.

Components of Profit and Loss

Net Sales. We sell our products to a variety of manufacturers, distributors and end users. Our customers consist of a large cross-section of businesses, ranging from Fortune 100 companies to small businesses. A number of our products are sold to original equipment manufacturers (“OEMs”) who incorporate our products, such as electric motors, into products they manufacture, and many of our products are built to the requirements of our customers. The majority of our sales derive from direct sales, but a significant portion derives from sales made by manufacturer’s representatives, who are paid exclusively on commission. Our product sales are made via purchase order, long-term contract, and, in some instances, one-time purchases. Many of our products have broad customer bases, with the levels of concentration of revenues varying from ~~division~~segment to ~~division.~~segment.

Our level of net sales for any given period is dependent upon a number of factors, including (i) the demand for our products; (ii) the strength of the economy generally and the end markets in which we compete; (iii) our customers’ perceptions of our product quality at any given time; (iv) our ability to timely meet customer demands; (v) the selling price of our products; and (vi) the weather. As a result, our total revenue has tended to experience quarterly variations and our total revenue for any particular quarter may not be indicative of future results.

We use the term “organic sales" to refer to sales from existing operations excluding (i) sales from acquired businesses recorded prior to the first anniversary of the acquisition less the amount of sales attributable to any divested businesses (“acquisition sales”), and (ii) the impact of foreign currency translation. The impact of foreign currency translation is determined by translating the respective period’s sales (excluding acquisition sales) using the same currency exchange rates that were in effect during the prior year periods. We use the term “organic sales growth” to refer to the increase in our sales between periods that is attributable to organic sales. ~~We use the term “acquisition growth” to refer to the increase in our sales between periods that is attributable to acquisition sales.~~

Gross Profit. Our gross profit is impacted by our levels of net sales and cost of sales. Our cost of sales consists of costs for, among other things (i) raw materials, including copper, steel and aluminum; (ii) components such as castings, bars, tools, bearings and electronics; (iii) wages and related personnel expenses for fabrication, assembly and logistics personnel; (iv) manufacturing

facilities, including depreciation on our manufacturing facilities and equipment, taxes, insurance and utilities; and (v) shipping and handling.

Operating Expenses. Our operating expenses consist primarily of (i) general and administrative expenses; (ii) sales and marketing expenses; and (iii) general engineering and research and development expenses. Personnel related costs are our largest operating expense.

Operating Profit. Our operating profit consists of the segment gross profit less the segment operating expenses. In addition, there are shared operating expenses that cover corporate, engineering and IT expenses that are consistently allocated to the operating

segments and are included in the segment operating expenses. Operating profit is a key metric used to measure year over year improvement of the segments.

Restructuring ~~Activities.~~and Related Costs. Beginning in ~~2013,~~2014, we announced the closure of several of our manufacturing and warehouse facilities and consolidation into existing facilities to simplify manufacturing operations in ~~the~~our Commercial and Industrial Systems, Climate Solutions and ~~Climate~~Power Transmission Solutions segments. As a result of these closures, we incurred ~~expenses including~~restructuring and restructuring-related costs. Restructuring costs includes employee termination and plant relocation costs. ~~The~~Restructuring-related costs includes costs directly associated with actions resulting from our simplification initiatives, such as asset write-downs or accelerated depreciation due to shortened useful lives in connection with site closures, discretionary employment benefit costs and other facility rationalization costs. Restructuring costs for employee termination expenses are generally required to be accrued over the employees remaining service period while ~~the~~restructuring costs for plant relocation costs and restructuring-related costs are generally required to be expensed as incurred. ~~We expect to announce additional restructuring activities as part~~

Outlook

Our outlook for 2016 assumes that the weak demand from many of our ~~simplification initiative to improve our competitiveness in the global market and to align our manufacturing footprint to better serve our~~end markets ~~and customers.~~

~~PTS Acquisition~~

On January 30, 2015, we closed the acquisition of the Power Transmission Solutions business from Emerson Electric Co. ("PTS" and the “PTS Acquisition”). PTS has over 3,200 employees around the world, and effective on the closing date became part of the Power Transmission Solutions segment. PTS manufactures, sells and services belt and chain drives, helical and worm gearing, mounted and unmounted bearings, couplings, modular plastic belts and conveying chains and components. These products are used to transmit power mechanically, provide anti-friction support or to enable automated materials handling in a wide variety of industrial and commercial applications including beverage, bulk handling, metals, special machinery, oil and gas, aerospace and general industrial. They are marketed under industry leading brands including Browning®, Jaure®, Kop-Flex®, McGill®, Morse®, Rollway®, Sealmaster® and System Plast™.

~~Venezuela~~

Although the functional currency of our operations in Venezuela is the U.S. dollar, a portion of the transactions are denominated in local currency. Effective January 3, 2015, we began applying the SICAD II exchange rate of 51 Bolivars per U.S. dollar to re-measure local currency and balances into U.S. dollars. During the first quarter of 2015, the Venezuelan government announced changes to its exchange rate system that included the launch of a new, market -based system known as the SIMADI. We adopted the SIMADI rate after its introduction. The SIMADI exchange rate was approximately 193 Venezuelan Bolivars to the U.S. dollar as of April 4, 2015. The adoption of the SIMADI resulted in a $1.5 million pretax devaluation chargeexperienced during the ~~first quarter 2015. As~~second half of ~~October 3,~~fiscal 2015 the SIMADI rate was approximately 199 Venezuelan Bolivars to the U.S. dollar. The change in rates resulted in an insignificant translation difference, and accordingly, no corresponding devaluation was recorded in the results for the third quarter ended October 3, 2015.

Wewill continue ~~to experience delays in collecting payment~~through fiscal 2016, putting pressure on our receivables from certain customers in Venezuela. As of October 3, 2015, our net trade receivables in Venezuela were $9.0 million, or less than 2.0% of our total gross trade receivables. None of these receivables are in dispute. We cannot predict whether we will receive payment in full on these receivables, or the timing of such payments. Failure to receive such payments could result in reserving or writing down these outstanding amounts, which would have a further adverse impact on our results of operations or financial condition.

Controls imposed by the Venezuelan government include import authorization controls, currency exchange and payment controls, price controls and recently enacted labor rate controls. While government restrictions and exchange rate mechanisms place some limits on our business decisions, the consolidated financial statements reflect our Venezuela operations as a controlled subsidiary. We will continue to monitor developments in Venezuela to assess if government restrictions and exchange rate controls evolve such that we no longer have effective control of business operations.

~~Outlook~~

~~We expect our 2015~~ net sales ~~to increase over the prior year driven primarily by net acquisition growth. In 2015, we also expect organic growth to be challenged by the declining sales trends for products used in oil~~ and gas applications and declining sales trends in Asia. Additionally, we expect to see an adverse impact on net sales from the fluctuation in currency translation. Finally, we expect our 2015 earnings per share to increase over the prior year due to the PTS Acquisition and benefits from our simplification initiative.earnings.

Results of Operations

Three Months Ended ~~October 3, 2015~~April 2, 2016 Compared to ~~September 27, 2014~~April 4, 2015

Net sales ~~increased $52.6~~decreased $93.5 million or ~~6.3%~~10.3% for the ~~third~~first quarter ~~2015~~2016 compared to the ~~third~~first quarter ~~2014~~2015 and included ~~$126.1~~$35.9 million from the recently acquired businesses, net of dispositions. The ~~components~~decrease consisted of ~~the increase included a favorable impact from acquisitions of 15.2%, partially offset by~~ an organic ~~decrease~~sales decline of ~~5.9%~~12.9% and a negative foreign currency translation impact of ~~3.0%~~1.3%, partially offset by a favorable impact from acquisitions of 3.9%. Gross profit ~~increased $37.4~~for the first quarter 2016 decreased $3.5 million or ~~18.4% primarily due~~1.6% compared to the ~~recently acquired PTS business as well as benefits from our simplification programs. In addition, gross profit benefited from $4.9 million in tariff refunds~~first quarter 2015. The first quarter 2015 included non-recurring expenses related to the Generalized System of Preferences ("GSP"), which expired in July 2013 and was retroactively renewed in July 2015. The $4.9 million GSP refund was comprised of $3.8 million attributable to the 2013 and 2014 fiscal years, and $1.1 million attributable to the first and second quartersrecognition of the inventory step up in cost of goods sold of $13.5 million due to purchase accounting adjustments associated with the acquisition of the Power Transmission Solutions ("PTS") business from Emerson Electric Company on January 30, 2015 ~~fiscal year.~~(the "PTS Acquisition"). Operating expenses for the ~~third~~first quarter ~~2015 increased 9.3% primarily due~~2016 decreased $9.2 million or 5.8% compared to the ~~recently acquired~~same period in the prior year which included $9.2 million of non-recurring acquisition related transaction costs. In addition, the first quarter 2016 included incremental operating expenses associated with the PTS ~~business.~~Acquisition, partially offset by the impact of simplification programs and other cost savings.

Commercial and Industrial Systems segment net sales decreased ~~$45.5~~$78.8 million or ~~9.6%~~17.3% for the ~~third~~first quarter ~~2015~~2016 compared to the ~~third~~first quarter ~~2014.~~2015. The ~~components~~decrease consisted of ~~the decrease included~~ an organic ~~decrease~~sales decline of ~~5.0%, a negative impact from divestitures of 0.6%,~~15.3% and a negative foreign currency translation impact of ~~4.0%~~1.9%. Organic sales declines were primarily driven by decreased volume in the oil and gas end markets, weaker demand in ~~Asia and~~Asian industrial markets, slowness in a number of the North ~~America~~American industrial end markets including power generation and ~~distribution.~~distribution, and the effect of contractual two-way material price formulas. Gross profit decreased ~~$7.3~~$19.3 million or ~~6.1%~~17.1% primarily due to the impact of lower demand in the oil and gas end markets, and the associated impact of lower production on the absorption of costs, partially offset by benefits from simplification programs and lower commodity ~~costs and a benefit of $0.9 million in duty refunds related to the GSP tariff rebate, described above.~~costs. Operating expenses for the ~~third~~first quarter ~~2015~~2016 declined ~~14.7%~~9.8% driven primarily by ~~lower compensation expense and amortization expense compared to third quarter 2014.~~

Climate Solutions segment net sales decreased $25.6 million or 8.8% for the third quarter 2015 compared to the third quarter 2014. The components of the decrease included an organic decrease of 7.0% and a negative foreign currency translation impact of 1.7%. Organic sales declines were primarily driven by the pre-build of SEER 13 products in the third and fourth quarters of 2014, weaker demand in Middle East and Asia and softness in commercial refrigeration applications. Gross profit increased $2.9 million or 4.2% primarily due to benefits from the simplification programs and a benefit of $3.8 million in duty refunds related to the GSP tariff rebate. Operating expenses for the third quarter 2015 declined 13.7% driven primarily by lower compensation expense and amortization expense compared to third quarter 2014.

Power Transmission Solutions segment net sales increased $123.6 million or 183.3% for the third quarter 2015 compared to the third quarter 2014. The components of the increase included a favorable impact from acquisitions of $128.9 million, partially offset by an organic decrease of 7.1% and a negative foreign currency translation impact of 0.7%. Organic sales declines were primarily driven by decreased volume in the oil and gas end markets, agricultural applications and slower demand in power transmission distribution. Gross profit increased $41.7 million or 228.4% primarily due to the PTS acquisition along with a benefit of $0.2 million in duty refunds related to the GSP tariff rebate. Operating expenses for the third quarter 2015 increased $29.0 million or 283.3%, compared to the third quarter 2014, driven primarily by incremental operating expenses and amortization associated with the PTS acquisition.

~~Nine Months Ended October 3, 2015 Compared to September 27, 2014~~

Net sales increased $254.8 million or 10.3% for the nine months ended October 3, 2015 compared to the nine months ended September 27, 2014, and included $413.8 million from the recently acquired businesses, net of dispositions. The components of the increase included a favorable impact from acquisitions of 16.7%, partially offset by an organic decrease of 3.5% and a negative foreign currency translation impact of 2.9%. Gross profit increased $104.2 million or 17.1% primarily due to the recently acquired PTS business as well as the execution of a number of our simplification programs. In addition, the gross profit benefited from $4.9 million in tariff refunds related to the GSP, of which $3.8 million is attributable to the 2013 and 2014 fiscal years, and $1.1 million is attributable to first and second quarters of the 2015 fiscal year. Operating expenses increased 18.4% primarily due to incremental operating expenses associated with the recently acquired PTS business, partially offset by benefits of the simplification initiative and tighter cost controls compared to the same period in the prior year.

Commercial and Industrial Systems segment net sales for the nine months ended October 3, 2015 decreased $80.6 million or 5.7% compared to the nine months ended September 27, 2014 and included $29.1 million from businesses acquired in the previous twelve months. The components of the decrease included a favorable impact from acquisitions of 2.1%, offset by an organic decrease of 3.9% and a negative foreign currency translation impact of 3.9%. Organic sales declines were primarily driven by decreased volume in the oil and gas end markets and weaker demand in Asia. Gross profit decreased $21.1 million or 5.9% primarily due to lower sales, product mix and the impact of lower production on the absorption of costs, largely offset by simplification programs and a benefit of $0.9 million in duty refunds related to the GSP tariff rebate. Operating expenses decreased 7.1% primarily due to benefits of the simplification initiative, tighter cost controls, lower compensation expense and amortization expense compared to the same period in the prior year.

Climate Solutions segment net sales decreased $40.6 million or 14.5% for the ~~nine months ended October 3, 2015 decreased $47.7 million or 5.4%~~first quarter 2016 compared to the ~~nine months ended September 27, 2014.~~first quarter 2015. The ~~components~~decrease consisted of ~~the decrease included~~ an organic ~~decrease~~sales decline of ~~3.8%~~13.5% and a negative foreign currency translation impact of ~~1.6%~~1.0%. Organic sales declines were primarily driven by a downturn in the ~~impact~~Middle East HVAC market, lower demand in the residential North American HVAC and water heating market, and the effect of ~~the SEER 13 pre-build~~

contractual two-way material price formulas. Gross profit decreased $7.5 million or 11.7% primarily due to lower sales, product mix and the impact of lower production on the absorption of costs, partially offset by benefits from simplification programs and lower commodity ~~costs on our two-way material price contracts. Gross profit~~costs. Operating expenses for the first quarter 2016 increased ~~$8.3~~$1.3 million or 4.2% primarily due to benefits from the simplification initiative, a benefit of $3.8 million in duty refunds related to the GSP tariff rebate and higher production costs and operating inefficiencies experienced in 2014. Operating expenses decreased 15.9% primarily due to benefits of the simplification initiative, tighter cost controls, lower compensation expense and amortization expense compared to the same period in the prior year.4.4%.

Power Transmission Solutions segment net sales increased $25.9 million or 14.8% for the ~~nine months ended October 3, 2015 increased $383.1 million or 193.5%~~first quarter 2016 compared to the ~~nine months ended September 27, 2014, and included $384.7 million from the recently acquired businesses.~~first quarter 2015. The ~~components~~increase consisted of ~~the increase included~~ a favorable impact from ~~acquisitions~~the PTS Acquisition of ~~194.3%,~~$36.0 million, partially offset by an organic ~~increase~~

sales decline of ~~0.3%~~5.5% and a negative foreign currency translation impact of ~~1.1%~~0.2%. Organic sales declines were primarily driven by weak oil & gas, metals, and agricultural end markets, partially offset by strength in renewable energy, food and beverage, and unit material handling end markets. Gross profit for the first quarter 2016 increased ~~$117.0~~$23.4 million or ~~224.4%~~52.8% primarily due to the incremental gross profit associated with the PTS ~~acquisition~~Acquisition, partially offset by the ~~recognition~~impact of the inventory step up in cost of goods sold of ~~$20.7~~$13.5 million ~~due to purchase accounting adjustments~~ related to the PTS ~~acquisition.~~Acquisition included in the same period in the prior year. Operating expenses ~~increased $103.3~~for the first quarter 2016 decreased $2.7 million or ~~340.8% driven primarily by~~5.7%. The first quarter 2016 included incremental operating expenses associated with the PTS ~~acquisition, as well as $9.1~~Acquisition, partially offset by the impact of simplification programs and other cost savings, while the first quarter 2015 included $9.2 million of non-recurring acquisition related transaction costs.

Three Months Ended Nine Months Ended
Oct 3, 2015 Sep 27, 2014 Oct 3, 2015 Sep 27, 2014
(Dollars in Millions)
Net Sales:
  Commercial and Industrial Systems $ 426.8
$ 472.3
$ 1,324.2
$ 1,404.8
  Climate Solutions 264.4
290.0
830.9
878.6
  Power Transmission Solutions 191.1
67.5
581.1
198.0
Consolidated $ 882.3
$ 829.8
$ 2,736.2
$ 2,481.4

Gross Profit as a Percent of Net Sales:
  Commercial and Industrial Systems 25.8 % 24.9 % 25.4 % 25.5 %
  Climate Solutions 26.8 % 23.4 % 25.0 % 22.7 %
  Power Transmission Solutions 31.4 % 27.1 % 29.1 % 26.3 %
Consolidated 27.3 % 24.6 % 26.1 % 24.6 %

Operating Expenses as a Percent of Net Sales:
  Commercial and Industrial Systems 16.8 % 17.8 % 16.9 % 17.1 %
  Climate Solutions 11.4 % 12.0 % 10.8 % 12.1 %
  Power Transmission Solutions 20.6 % 15.3 % 23.0 % 15.3 %
Consolidated 16.0 % 15.6 % 16.3 % 15.2 %

Income from Operations as a Percent of Net Sales:
  Commercial and Industrial Systems 9.1 % 7.1 % 8.6 % 8.4 %
  Climate Solutions 15.4 % 11.4 % 14.2 % 10.5 %
  Power Transmission Solutions 10.8 % 11.8 % 6.1 % 11.0 %
Consolidated 11.4 % 9.0 % 9.8 % 9.4 %

Income from Operations $ 100.1
$ 74.7
$ 266.9
$ 232.1
Interest Expense 15.1
9.8
45.1
30.5
Interest Income 1.0
2.0
3.1
5.4
  Income before Taxes 86.0
66.9
224.9
207.0
Provision for Income Taxes 21.7
18.1
57.8
55.1
  Net Income 64.3
48.8
167.1
151.9
Less: Net Income Attributable to Noncontrolling Interests 0.9
1.3
4.5
4.4
  Net Income Attributable to Regal Beloit Corporation $ 63.4
$ 47.5
$ 162.6
$ 147.5

~~The increase in interest expense was due to our new term loan agreement associated with the PTS Acquisition. The reduction in interest income was due primarily to lower cash balances.~~




	Three Months Ended
	April 2, 2016			April 4, 2015
(Dollars in Millions)
Net Sales:
Commercial and Industrial Systems	$	377.6		$	456.4
Climate Solutions	239.8			280.4
Power Transmission Solutions	200.8			174.9
Consolidated	$	818.2		$	911.7

Gross Profit as a Percent of Net Sales:
Commercial and Industrial Systems	24.8		%	24.7		%
Climate Solutions	23.4		%	22.7		%
Power Transmission Solutions	33.7		%	25.3		%
Consolidated	26.6		%	24.2		%

Operating Expenses as a Percent of Net Sales:
Commercial and Industrial Systems	19.0		%	17.4		%
Climate Solutions	13.2		%	10.8		%
Power Transmission Solutions	22.2		%	27.1		%
Consolidated	18.1		%	17.3		%

Income (Loss) from Operations as a Percent of Net Sales:
Commercial and Industrial Systems	5.7		%	7.3		%
Climate Solutions	10.3		%	11.9		%
Power Transmission Solutions	11.5		%	(1.8		)%
Consolidated	8.5		%	7.0		%

Income from Operations	$	69.3		$	63.6
Interest Expense	15.0			13.6
Interest Income	1.1			1.2
Income before Taxes	55.4			51.2
Provision for Income Taxes	12.7			13.3
Net Income	42.7			37.9
Less: Net Income Attributable to Noncontrolling Interests	1.1			1.5
Net Income Attributable to Regal Beloit Corporation	$	41.6		$	36.4

The effective tax rate for the three months ended ~~October 3, 2015~~April 2, 2016 was ~~25.2%~~23.0% versus ~~27.1%~~26.0% for the three months ended ~~September 27, 2014. The effective tax rate for the nine months ended October 3, 2015 was 25.7% versus 26.6% for the nine months ended September 27, 2014.~~April 4, 2015. The change in the effective tax rate for the three months ended ~~October 3, 2015~~April 2, 2016 was primarily driven by the mix of earnings. ~~For the nine months ended October 3, 2015, the change in the effective tax rate was driven by the mix of earnings and partially offset by the non-deductible acquisition costs of the PTS Acquisition.~~ The lower effective rate as compared to the 35.0% statutory Federal income tax rate is driven by lower foreign tax rates.

Liquidity and Capital Resources

General

Our principal source of liquidity is cash flow provided by operating activities. In addition to operating income, other significant factors affecting our ~~operating~~ cash flow include working capital levels, capital expenditures, dividends, share repurchases, acquisitions, availability of debt financing, and the ability to attract long-term capital at acceptable terms.

Cash flow provided by operating activities was ~~$267.2~~$58.2 million for the ~~nine~~three months ended ~~October 3, 2015,~~April 2, 2016, a ~~$40.1~~$40.7 million increase from the ~~nine~~three months ended ~~September 27, 2014 due to higher~~April 4, 2015. The increase was primarily the result of the lower investment in net working capital and increased net income ~~increase in depreciation and amortization, partially offset by an increase in working capital assets~~from PTS for the three months ended April 2, 2016 as compared to ~~support~~ the ~~seasonal increases in sales as well as the PTS Acquisition.~~three months ended April 4, 2015.

Cash flow used in investing activities was ~~$1,464.0~~$16.6 million for the ~~nine~~three months ended ~~October 3, 2015, an increase of $1,261.7~~April 2, 2016, a $1,391.5 million decrease from the ~~nine~~three months ended ~~September 27, 2014~~April 4, 2015. The decrease was primarily due to the ~~PTS Acquisition.~~2015 acquisition of PTS. There were no business acquisitions for the three months ended April 2, 2016 compared to $1,392.5 million for the three months ended April 4, 2015. Capital expenditures were ~~$65.4~~$14.9 million for the ~~nine~~three months ended ~~October 3, 2015~~April 2, 2016 compared to ~~$60.5~~$21.2 million for the ~~nine~~three months ended ~~September 27, 2014. Business acquisitions were $1,400.7~~April 4, 2015.

Cash flow used in financing activities was $46.6 million for the ~~nine~~three months ended ~~October 3, 2015,~~April 2, 2016, compared to ~~$128.2~~$1,288.1 million ~~for the nine months ended September 27, 2014, driven by the PTS Acquisition.~~

~~Cash flow~~ provided by financing activities for the ~~nine~~three months ended ~~October 3, 2015 was $1,124.0~~April 4, 2015. Net debt repayments were $17.3 million for the three months ended April 2, 2016 compared to ~~$160.3~~$15.7 million ~~of cash flow used in financing activities~~ for the ~~nine~~three months ended ~~September 27, 2014. The principal financing activity~~April 4, 2015. We paid $10.2 million in dividends to shareholders in the three months ended April 2, 2016, compared to $9.8 million for the three months ended April 4, 2015. Cash used to purchase additional interest in joint ventures was $19.6 million for the ~~$1,250.0~~three months ended April 2, 2016 compared to $0.8 million ~~borrowing under~~for the ~~Term Facility (see "The New Credit Agreement" below for description).~~three months ended April 4, 2015.

Our working capital was ~~$1,104.9~~$1,067.6 million at ~~October 3, 2015~~April 2, 2016, compared to ~~$1,090.7~~$1,022.4 million at January ~~3, 2015.~~2, 2016. At ~~October 3, 2015,~~April 2, 2016, our current ratio (which is the ratio of our current assets to current liabilities) was ~~2.6:~~2.8:1 compared to ~~2.9:~~2.7:1 at January ~~3, 2015.~~2, 2016. Our current ratio increased primarily due to an increase in Trade Receivables of $36.1 million at April 2, 2016 as compared to January 2, 2016.

The following table presents selected financial information and statistics as of ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015~~2, 2016 (in millions):


	October 3		January 3		April 2,		January 2,
	2015		2015		2016		2016
Cash and Cash Equivalents	$	254.6	$	334.1	$	249.1	$	252.9
Trade Receivables, Net	551.0		447.5		498.1		462.0
Inventories, Net	745.8		691.7		756.8		775.0
Working Capital	1,104.9		1,090.7		1,067.6		1,022.4
Current Ratio	2.6:1		2.9:1		2.8:1		2.7:1

At ~~October 3, 2015,~~April 2, 2016, our cash and cash equivalents totaled ~~$254.6~~$249.1 million. At ~~October 3, 2015, $249.8~~April 2, 2016, $239.6 million ofof our cash was held by foreign subsidiaries, and although we do not intend to, this cash could be used in our domestic operations if necessary, but would be subject to repatriation taxes. There are no current trends, demands or uncertainties that we believe are reasonably likely to require repatriation or to have a material impact on our ability to fund ~~our~~ U.S. operations.

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

We will, from time to time, maintain excess cash balances which may be used to (i) fund operations, (ii) repay outstanding debt, (iii) fund acquisitions, (iv) pay dividends, (v) make investments in new product development programs, (vi) repurchase our common stock, or (vii) fund other corporate objectives.

~~Senior Notes~~

~~At October 3, 2015, we had $600.0 million of senior notes (the “Notes”) outstanding.~~ The Notes consist of (i) $500.0 million in senior notes (the “2011 Notes”) issued in a private placement in seven tranches with maturities from seven to twelve years and carrying fixed interest rates and (ii) $100.0 million in senior notes (the “2007 Notes”) issued in 2007 with a floating interest rate based on a margin over the London Inter-Bank Offered Rate (“LIBOR”).

~~Details on the Notes at October 3, 2015 were (in millions):~~

Principal Interest Rate Maturity
Floating Rate Series 2007A $ 100.0
Floating (1) August 23, 2017
Fixed Rate Series 2011A 100.0
4.1% July 14, 2018
Fixed Rate Series 2011A 230.0
4.8 to 5.0% July 14, 2021
Fixed Rate Series 2011A 170.0
4.9 to 5.1% July 14, 2023
$ 600.0


~~(1)~~	~~Interest rates vary as LIBOR varies. At October 3, 2015, the interest rate was 1.0%.~~

~~We have interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk (see also Note 13 of Notes to the Condensed Consolidated Financial Statements).~~

~~The New~~ Credit Agreement

In connection with the PTS Acquisition, on January 30, 2015, we entered into a new Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders named therein, providing for a (i) 5-year unsecured term loan facility in the principal amount of $1.25 billion (the “Term Facility”) and (ii) a 5-year unsecured multicurrency revolving facility in the principal amount of $500.0 million (the “Multicurrency Revolving Facility”) available for general corporate purposes. The Credit Agreement replaced the Prior Credit Agreement (as that term is defined below), and the Multicurrency Revolving Facility replaced the Prior Revolving Facility (as that term is defined below).

and further increasing to 10.0% per annum for the last two years of the Term Facility. At April 2, 2016 we had borrowings under the Multicurrency Revolving Facility in the amount of $36.0 million, $34.6 million of standby letters of credit issued under the facility, and $429.4 million of available borrowing capacity.

Borrowings under the Credit Agreement bear interest at floating rates based upon indices determined by the currency of the borrowing, plus an applicable margin determined by reference to our consolidated funded debt to consolidated EBITDA ratio or at an alternative base rate. The weighted average interest rate on the ~~Credit Agreement~~Multicurrency Revolving Facility was 1.9 % for the three months ended April 2, 2016 and April 4, 2015. The weighted average interest rate on the Term Facility was 1.9% ~~during~~for the ~~nine~~three months ended ~~October 3,~~April 2, 2016 and April 4, 2015. We pay a non-use fee on the aggregate unused amount of the Multicurrency Revolving Facility at a rate determined by reference to its consolidated funded debt to consolidated EBITDA ratio.

The Credit Agreement requires ~~us to~~that we prepay the loans under the Term Facility with 100% of the net cash proceeds received from specified asset sales and ~~in currencies of~~ borrowed money indebtedness, subject to certain exceptions.

Senior Notes

At April 2, 2016, we had $600.0 million of senior notes (the “Notes”) outstanding. The ~~Prior~~Notes consist of (i) $500.0 million in senior notes (the “2011 Notes”) in a private placement which were issued in seven tranches with maturities from seven to twelve years and carry fixed interest rates and (ii) $100.0 million in senior notes (the “2007 Notes”) issued in 2007 with a floating interest rate based on a margin over the London Inter-Bank Offered Rate (“LIBOR”).

Details on the Notes at April 2, 2016 were (in millions):



	Principal		Interest Rate	Maturity
Floating Rate Series 2007A	100.0		Floating (1)	August 1, 2017
Fixed Rate Series 2011A	100.0		4.1%	July 1, 2018
Fixed Rate Series 2011A	230.0		4.8 to 5.0%	July 1, 2021
Fixed Rate Series 2011A	170.0		4.9 to 5.1%	July 1, 2023
	$	600.0



(1) Interest rates vary as LIBOR varies. At April 2, 2016, the interest rate was 1.3%. At January 2, 2016, the interest rate was 1.1%

We have interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk (see also Note 13 of Notes to the Condensed Consolidated Financial Statements).

Compliance with Financial Covenants

The Credit Agreement and ~~Prior Revolving Facility~~

On June 30, 2011, we entered into a revolving credit agreement (the “Prior Credit Agreement”) that provided for an aggregate amount of availability under a revolving credit facility of $500.0 million, including a $100.0 million letter of credit subfacility (the “Prior Revolving Facility”). The Priorthe Notes require us to meet specified financial ratios and to satisfy certain financial condition tests. We were in compliance with all financial covenants contained in the Notes and the Credit Agreement ~~and Prior Revolving Facility were replaced with the new Credit Agreement (discussed above).~~as of April 2, 2016.

The Prior Revolving Facility permitted borrowing at interest rates based upon a margin above LIBOR. At January 3, 2015, we had $17.0 million outstanding on the Prior Revolving Facility. The balance on the Prior Revolving Facility was fully paid on January 27, 2015.

Other Notes Payable

At ~~October 3, 2015, other notes payable of~~ ~~$19.6 million~~ ~~were outstanding with a~~ ~~weighted average interest rate of 2.6%. At January 3, 2015,~~April 2, 2016, other notes payable of approximately ~~$16.8~~$15.1 million were outstanding with a weighted average interest rate of 2.7%. At January 2, 2016, other notes payable of approximately $15.5 million were outstanding with a weighted average rate of 2.5%.

~~Fair Value~~

Based on rates for instruments with comparable maturities and credit quality, which are classified as Level 2 inputs (see also Note 14 of Notes to the Condensed Consolidated Financial Statements), the approximate fair value of our total debt was ~~$1,849.9~~$1,743.1 million and ~~$666.8~~$1,758.2 million as of ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015,~~2, 2016, respectively.

~~Compliance with Financial Covenants~~

The Credit Agreement contains customary affirmative and negative covenants and events of default for an unsecured financing arrangement, including, among other things, limitations on consolidations, mergers and sales of assets. The Credit Agreement and the Notes require us to meet specified financial ratios and to satisfy certain financial condition tests. We were in compliance with all financial covenants contained in the Credit Agreement and the Notes as of October 3, 2015.

Critical Accounting Policies

Our disclosures of critical accounting policies, which are contained in our Annual Report on Form 10-K for the year ended January ~~3, 2015,~~2, 2016, have not materially changed since that report was filed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

All qualified hedges are recorded on the balance sheet at fair value and are accounted for as cash flow hedges, with changes in fair value recorded in Accumulated Other Comprehensive ~~Income~~Loss (“AOCI”) in each accounting period. The ineffective portion of the change in fair value, if any, is recorded in earnings in the period of change.

Interest Rate Risk

We are exposed to interest rate risk on certain of our short-term and long-term debt obligations used to finance our operations and acquisitions. At ~~October 3, 2015,~~April 2, 2016, excluding the impact of the interest rate swap, we had ~~$505.7~~$505.5 million of fixed rate debt and ~~$1,308.0~~$1,213.7 million of variable rate debt. As a result, interest rate changes in variable rate debt impact future earnings and cash flow assuming other factors are constant. We utilize our interest rate swap to manage fluctuations in cash flows resulting from exposure to interest rate risk on forecasted variable rate interest payments. We have LIBOR-based floating rate borrowings, which expose us to variability in interest payments due to changes in interest rates. A hypothetical 10% change in the weighted average borrowing rate on outstanding variable rate debt at ~~October 3, 2015~~April 2, 2016 would result in a $1.3 million change in after-tax annualized earnings.

We entered into a pay fixed/receive LIBOR-based floating interest rate swap to manage fluctuations in cash flows resulting from interest rate risk. This interest rate swap has been designated as a cash flow hedge against forecasted LIBOR-based interest payments. Details regarding this instrument, as of ~~October 3, 2015,~~April 2, 2016, are as follows (in millions):


Instrument	Notional Amount		Maturity	Rate Paid		Rate Received	Fair Value (Loss)			Notional Amount		Maturity	Rate Paid		Rate Received	Fair Value (Loss)
Swap	$	100.0	August 23, 2017	5.4	%	LIBOR (3 month)	$	(9.6	)	$	100.0	August 23, 2017	5.4	%	LIBOR (3 month)	$	(7.0	)

As of ~~October 3, 2015,~~April 2, 2016, an interest rate swap liability of ~~$(9.6)~~$(7.0) million was included in Hedging Obligations (noncurrent). As of January ~~3, 2015,~~2, 2016, an interest rate swap liability of ~~$(11.9)~~$(7.8) million was included in Hedging Obligations (noncurrent). The unrealized loss on the effective portion of the ~~contracts,~~contract, net of tax, of ~~$(6.0)~~$(4.3) million and ~~$(13.5)~~$(4.9) million as of ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015,~~2, 2016, respectively, was recorded in AOCI.

Foreign Currency Risk

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

~~Venezuela~~

We expect the uncertain economic business conditions in Venezuela to adversely impact our sales and operating margins in future quarters. For the nine months ended October 3, 2015, net sales in Venezuela were less than one percent of our total net sales.

We have a subsidiary in Venezuela using accounting for highly inflationary economies. Currency restrictions enacted by the Venezuelan government have the potential to impact the ability of the Company's subsidiary to obtain U.S. dollars in exchange for Venezuelan bolivares fuertes ("Bolivars") at the official foreign exchange rate. In 2014, the Venezuelan government announced the expansion of its auction-based foreign exchange system (SICAD1). The Venezuelan government also introduced an additional auction-based foreign exchange system (SICAD2) which permits all companies incorporated or domiciled in Venezuela to bid for U.S. dollars. Effective January 3, 2015, we concluded that it was appropriate to apply the SICAD2 exchange rate of 51.0 Bolivars per U.S. Dollar as we believe that this rate best represented the economics of our business activity in Venezuela at that time.

During the first quarter of 2015, the Venezuelan government announced changes to its exchange rate system that included the launch of a new, market -based system known as the SIMADI. We adopted the SIMADI rate after its introduction. The SIMADI exchange rate was approximately 193 Venezuelan Bolivars to the U.S. dollar as of April 4, 2015. The adoption of the SIMADI resulted in a $1.5 million pretax devaluation charge during the first quarter 2015. As of October 3, 2015 the SIMADI rate was

approximately 199 Venezuelan Bolivars to the U.S. dollar. The change in rates resulted in an insignificant translation difference, and accordingly, no corresponding devaluation was recorded in the results for the third quarter ended October 3, 2015.

Controls imposed by the Venezuelan government include import authorization controls, currency exchange and payment controls, price controls and recently enacted labor rate controls. While government restrictions and exchange rate mechanisms place some limits on our business decisions, the consolidated financial statements reflect our Venezuela operations as a controlled subsidiary. We will continue to monitor developments in Venezuela to assess if government restrictions and exchange rate controls evolve such that we no longer have effective control of business operations.

Derivatives

As of ~~October 3, 2015,~~April 2, 2016, derivative currency assets (liabilities) of ~~$2.1~~$1.7 million, ~~$0.7~~$0.9 million, ~~$(32.5)~~$(26.8) million and ~~$(21.4)~~$(14.9) million, are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets, Hedging Obligations (current), and Hedging Obligations (noncurrent), respectively. As of January ~~3, 2015,~~2, 2016, derivative currency assets (liabilities) of ~~$1.6~~$1.2 million, ~~$(17.5)~~$1.0 million, $(30.8) million and ~~$(10.5)~~$(19.8) million, are recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets, Hedging Obligations (current), and Hedging Obligations (noncurrent), respectively. The unrealized losses on the contracts of ~~$(29.4)~~$(23.5) million net of tax, and ~~$(15.2)~~$(29.8) million net of tax, as of ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015~~2, 2016 respectively, ~~was~~were recorded in AOCI. At ~~October 3, 2015,~~April 2, 2016, we had ~~$(4.0)~~$(4.5) million, net of tax, of derivative currency losses on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At January ~~3, 2015,~~2, 2016, we had ~~$(0.9)~~$(3.8) million of derivative currency losses on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impacted earnings.

The following table quantifies the outstanding foreign exchange contracts intended to hedge non-U.S. dollar denominated receivables and payables and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their counter currency on ~~October 3, 2015~~April 2, 2016 (in millions):


						Gain (Loss) From										Gain (Loss) From
Currency	Notional Amount		Fair Value			10% Appreciation of Counter Currency		10% Depreciation of Counter Currency			Notional Amount		Fair Value			10% Appreciation of Counter Currency		10% Depreciation of Counter Currency
Chinese Renminbi	$	381.5	$	(6.4	)	$	38.2	$	(38.2	)	$	210.0	$	(1.5	)	$	21.0	$	(21.0	)
Mexican Peso	349.9		(43.8		)	35.0		(35.0		)	251.4		(35.9		)	25.1		(25.1		)
Euro	58.5		(0.4		)	5.9		(5.9		)	37.8		(1.3		)	3.8		(3.8		)
Indian Rupee	48.1		(0.1		)	4.8		(4.8		)	48.8		0.6			4.9		(4.9		)
Canadian Dollar	4.0		(0.2		)	0.4		(0.4		)	20.3		(0.2		)	2.0		(2.0		)
Australian Dollar	2.3		(0.3		)	0.2		(0.2		)	8.5		(0.5		)	0.9		(0.9		)
Japanese Yen	2.7		—			0.3		(0.3		)	2.7		(0.1		)	0.3		(0.3		)
Thai Baht	1.3		0.1			0.1		(0.1		)	4.3		(0.2		)	0.4		(0.4		)

Gains and losses indicated in the sensitivity analysis would be offset by gains and losses on the underlying forecasted non-U.S. dollar denominated cash flows.

Commodity Price Risk

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

Derivatives

Derivative commodity assets (liabilities) of ~~$4.6~~$3.7 million, $0.3 million, ~~$(15.1)~~$(7.3) million and ~~$(0.5)~~$(0.1) million were recorded in Prepaid Expenses and Other Current Assets, Other Noncurrent Assets, Hedging Obligations (current),and Hedging Obligations (noncurrent) respectively, at ~~October 3, 2015.~~April 2, 2016. Derivative commodity assets (liabilities) of ~~$2.3~~$5.2 million, ~~$(12.2) million, and $(0.1)~~$(13.9) million are recorded in Prepaid Expenses and Other Current Assets ~~Hedging Obligations (current),~~ and Hedging Obligations ~~(noncurrent),~~(current) respectively, at January ~~3, 2015.~~2, 2016. The unrealized ~~(loss)~~(losses) on the effective portion of the contracts of ~~$(6.5)~~$(2.1) million net of tax and ~~$(6.2)~~$(5.4) million net of tax, as of ~~October 3, 2015~~April 2, 2016 and January ~~3, 2015,~~2, 2016, respectively, ~~was~~were recorded in AOCI. At ~~October 3, 2015,~~April 2, 2016, we

had ~~$(3.4)~~$(2.7) million, net of tax, of derivative commodity losses on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At January ~~3, 2015,~~2, 2016, there was ~~$(1.3)~~$(3.6) million, net of tax, of derivative commodity losses on closed hedge instruments in AOCI that were realized into earnings when the hedged items impacted earnings.

The following table quantifies the outstanding commodity contracts intended to hedge raw material commodity prices and the corresponding impact on the value of these instruments assuming a hypothetical 10% appreciation/depreciation of their prices on ~~October 3, 2015~~April 2, 2016 (in millions):


						Gain (Loss) From										Gain (Loss) From
Commodity	Notional Amount		Fair Value			10% Appreciation of Commodity Prices		10% Depreciation of Commodity Prices			Notional Amount		Fair Value			10% Appreciation of Commodity Prices		10% Depreciation of Commodity Prices
Copper	$	76.2	$	(10.2	)	$	7.6	$	(7.6	)	$	57.4	$	(3.2	)	$	5.7	$	(5.7	)
Aluminum	4.1		(0.5		)	0.4		(0.4		)	3.3		(0.2		)	0.3		(0.3		)

Gains and losses indicated in the sensitivity analysis would be offset by the actual prices of the commodities.

The net AOCI balance of ~~$(49.3)~~$(37.1) million loss at ~~October 3, 2015~~April 2, 2016 includes ~~$(28.5)~~$(20.8) million of net current deferred losses expected to be realized in the next twelve months.

Counterparty Risk

We are exposed to credit losses in the event of non-performance by the counterparties to various financial agreements, including our interest rate swap agreement, foreign currency exchange contracts and commodity hedging transactions. We manage exposure to counterparty credit risk by limiting our counterparties to major international banks and financial institutions meeting established credit guidelines and continually monitoring their compliance with the credit guidelines. We do not obtain collateral or other security to support financial instruments subject to credit risk. We do not anticipate non-performance by our counterparties, but cannot provide assurances.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to ensure that (a) information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and (b) information required to be disclosed by us in the reports the Company files or submits under the Exchange Act is accumulated and communicated to our management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

On January 30, 2015, we acquired the Power Transmissions Solutions business of Emerson Electric Co. ("PTS"). As part of the post-closing integration, we are engaged in refining and harmonizing the internal controls and processes of the acquired business with those of the Company.

~~Except for the change above, there~~There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material changes in the legal matters described in Part I, Item 3 of the Company’s Annual Report on Form 10-K for the year ended January ~~3, 2015,~~2, 2016, which is incorporated here by reference.

ITEM 1A. RISK FACTORS

Our business and financial results are subject to numerous risks and uncertainties. The risk and uncertainties have not changed materially from those reported in Item 1A in our ~~2014~~2015 Annual Report on Form 10-K for the year ended January ~~3, 2015,~~2, 2016, which is incorporated here by reference.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table contains detail related to the repurchase of our common stock based on the date of trade during the quarter ended ~~October 3, 2015~~April 2, 2016.

2015 Fiscal Month
Total
Number of
Shares
Purchased

Average
Price Paid
per Share

Total
Number of Shares
Purchased as a Part
of Publicly Announced
Plans or Programs

Maximum Number
of
Shares that May be
Purchased Under the
Plans or Programs
July 5 to Aug 8 —
—
—
2,500,000
Aug 9 to Sep 5 180,000
$ 66.56
180,000
2,320,000
Sep 6 to Oct 3 330
$ 63.70
—
2,320,000
180,330
180,000



2016 Fiscal Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as a Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May be Purchased Under the Plans or Programs
January 3 to February 6	—	$	—	—	2,320,000
February 7 to March 5	—	—		—	2,320,000
March 6 to April 2	—	—		—	2,320,000
	—			—

Under our equity incentive plans, participants may pay the exercise price or satisfy all or a portion of the federal, state and local withholding tax obligations arising in connection with plan awards by electing to (a) have the Company withhold shares of common stock otherwise issuable under the award, (b) tender back shares received in connection with such award or (c) deliver other previously owned shares of common stock, in each case having a value equal to the exercise price or the amount to be withheld. During the quarter ended ~~October~~April ~~3, 2015,~~2, 2016, there were ~~330~~zero shares acquired in connection with transactions pursuant to equity incentive plans.

The Board of Directors has approved a repurchase program for up to 3.0 million shares of our common stock, which repurchase authority has no expiration date. Management is authorized to effect purchases from time to time in the open market or through privately negotiated transactions. From time to time, we may enter into a Rule10b5-1 trading plan for the purpose of repurchasing shares under this authorization. There are approximately 2.3 million shares of our common stock available for repurchase under this program.

ITEM 6. EXHIBITS



Exhibit Number		Exhibit Description
12		Computation of Ratio of Earnings to Fixed Charges.
18		Preferability Letter
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

101		The following materials from Regal Beloit Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~October 3, 2015,~~April 2, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.

SIGNATURE

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.



	REGAL BELOIT CORPORATION (Registrant)

	/s/ Charles A. Hinrichs
	Charles A. Hinrichs Vice President Chief Financial Officer (Principal Financial Officer)

	/s/ Robert J. Rehard
	Robert J. Rehard Vice President Corporate Controller (Principal Accounting Officer)

Date: ~~November~~May 12, ~~2015~~2016

INDEX TO EXHIBITS



Exhibit Number		Exhibit Description
12		Computation of Ratio of Earnings to Fixed Charges.
18		Preferability Letter
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

101		The following materials from Regal Beloit Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~October 3, 2015,~~April 2, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.

4938



	As of June 30, 2014
Current assets	$	0.5
Trade receivables	10.4
Inventories	22.4
Property, plant and equipment	4.5
Intangible assets, subject to amortization	14.6
Goodwill	4.7
Total assets acquired	57.1
Accounts payable	3.7
Current liabilities assumed	2.2
Long-term liabilities assumed	0.2
Net assets acquired	$	51.0



	As of February 7, 2014
Current assets	$	1.7
Trade receivables	11.5
Inventories	14.3
Property, plant and equipment	8.1
Intangible assets, subject to amortization	13.4
Goodwill	40.6
Other assets	0.1
Total assets acquired	89.7
Accounts payable	5.5
Current liabilities assumed	5.1
Long-term liabilities assumed	1.1
Net assets acquired	$	78.0



Year	Estimated Amortization
2016	$	62.1
2017	55.4
2018	53.6
2019	53.1
2020	50.4



	2015			2014			2013
Per share weighted average fair value of grants	$	27.16		$	28.01		$	23.01
Risk-free interest rate	1.9		%	2.0		%	1.1		%
Expected life (years)	7.0			7.0			7.0
Expected volatility	35.6		%	37.7		%	38.5		%
Expected dividend yield	1.2		%	1.2		%	1.2		%




	Three Months Ended						Nine Months Ended
	Oct 3, 2015			Sep 27, 2014			Oct 3, 2015			Sep 27, 2014
(Dollars in Millions)
Net Sales:
Commercial and Industrial Systems	$	426.8		$	472.3		$	1,324.2		$	1,404.8
Climate Solutions	264.4			290.0			830.9			878.6
Power Transmission Solutions	191.1			67.5			581.1			198.0
Consolidated	$	882.3		$	829.8		$	2,736.2		$	2,481.4

Gross Profit as a Percent of Net Sales:
Commercial and Industrial Systems	25.8		%	24.9		%	25.4		%	25.5		%
Climate Solutions	26.8		%	23.4		%	25.0		%	22.7		%
Power Transmission Solutions	31.4		%	27.1		%	29.1		%	26.3		%
Consolidated	27.3		%	24.6		%	26.1		%	24.6		%

Operating Expenses as a Percent of Net Sales:
Commercial and Industrial Systems	16.8		%	17.8		%	16.9		%	17.1		%
Climate Solutions	11.4		%	12.0		%	10.8		%	12.1		%
Power Transmission Solutions	20.6		%	15.3		%	23.0		%	15.3		%
Consolidated	16.0		%	15.6		%	16.3		%	15.2		%

Income from Operations as a Percent of Net Sales:
Commercial and Industrial Systems	9.1		%	7.1		%	8.6		%	8.4		%
Climate Solutions	15.4		%	11.4		%	14.2		%	10.5		%
Power Transmission Solutions	10.8		%	11.8		%	6.1		%	11.0		%
Consolidated	11.4		%	9.0		%	9.8		%	9.4		%

Income from Operations	$	100.1		$	74.7		$	266.9		$	232.1
Interest Expense	15.1			9.8			45.1			30.5
Interest Income	1.0			2.0			3.1			5.4
Income before Taxes	86.0			66.9			224.9			207.0
Provision for Income Taxes	21.7			18.1			57.8			55.1
Net Income	64.3			48.8			167.1			151.9
Less: Net Income Attributable to Noncontrolling Interests	0.9			1.3			4.5			4.4
Net Income Attributable to Regal Beloit Corporation	$	63.4		$	47.5		$	162.6		$	147.5



2015 Fiscal Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as a Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May be Purchased Under the Plans or Programs
July 5 to Aug 8	—	—		—	2,500,000
Aug 9 to Sep 5	180,000	$	66.56	180,000	2,320,000
Sep 6 to Oct 3	330	$	63.70	—	2,320,000
	180,330			180,000

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