Regal Beloit Reports Record Sales and Earnings for the Second Quarter of 2008

BELOIT, Wis., July 29 /PRNewswire-FirstCall/ — Regal Beloit Corporation (NYSE:RBC) today reported financial results for the second quarter ended June 28, 2008. Record quarterly performance was driven by strong market demand for generators, industrial motors and high efficiency motors coupled with strong operational execution and productivity improvements. Performance was achieved in spite of continued weakness in the residential HVAC market and unprecedented inflation in raw material costs.

Net sales increased 31.9% to $606.3 million from $459.8 million in the second quarter of 2007. Included in reported sales are $131.8 million of sales from the four acquisitions completed late in 2007 and the Hwada acquisition completed during the second quarter of 2008. Electrical segment sales increased 36.3%, including the impact of the acquisitions. Exclusive of the recently acquired businesses, global generator sales increased 40.2% and commercial and industrial motors sales in North America increased 4.6%, offsetting a 3.6% decline in residential HVAC motor sales. Mechanical segment sales increased 0.6% from the prior year period. Sales of high efficiency-energy saving products increased 9.2% to 12.9% of sales. Sales outside of the United States were 27.0% of total sales for the quarter, up from 22.8% in the year ago period.

The gross profit margin for the second quarter of 2008 was 21.6% as compared to the 22.6% reported in the second quarter of 2007. The decline in gross margin was primarily attributed to the acquired businesses which currently have a lower average gross margin of 17.7%. In addition, the legacy businesses were negatively impacted by raw material and other inflation. Net of the impact of product price increases, these cost increases totaled $8.5 million, which is within the Company’s previously announced guidance of $7.0 to $9.0 million. This difference was largely offset by the impact of productivity and Lean Six Sigma project results. Income from operations was $67.5 million or 11.1% of sales as compared to $60.1 million or 13.1% of sales reported for the second quarter of 2007. Income from operations for the second quarter of 2008 for the four businesses acquired in 2007 was 9.7% of net sales. Hwada results for the two months included in the quarterly results were essentially neutral to earnings as a result of inventory related and other purchase accounting impacts. Net income in the second quarter of 2008 was $38.1 million as compared to $36.3 million reported in the second quarter of 2007. Diluted earnings per share increased 7.5% to $1.14 as compared to $1.06 for the second quarter of 2007.

Cash flow from operations was strong at $81.4 million, reflecting, in part, the continued emphasis on working capital management. Productivity and new product oriented capital spending was $14.5 million for the quarter as compared to $5.7 million for the comparative period in 2007. During the quarter, the Company closed a $165.0 million five-year term loan with a syndicate of banks. The proceeds from the term loan were used to pay off outstanding loans under the Company’s revolving credit facility. At June 28, 2008, the Company had unused capacity of approximately $500.0 million under its revolving credit facility.

“We are quite pleased to once again report record results for the second quarter. We attribute our strong performance to our focus on innovation, diversifying our end markets, adding value-enhancing businesses and expanding our footprint in high growth regions around the world. Significant market opportunities are developing as the cost of energy continues to reach new heights, environmental consciousness gains widespread adoption and new energy efficiency legislation comes into effect. Our ability to supply substantial solutions to address these market opportunities will be a significant catalyst for our Company’s growth for years to come,” commented Henry W. Knueppel, Chairman and CEO.

Knueppel added, “The headwinds and tailwinds in the third quarter are expected to be similar to those faced so far this year. With this in mind, we remain confident in our ability to execute our operational and productivity programs, manage these temporary challenges and deliver record results. As such, we believe earnings per share to be in the range of $1.06 to $1.13 for the third quarter, including a one-time estimated tax benefit of $.07 per share.”

Regal Beloit will be holding a conference call to discuss second quarter financial results at 1:30 PM CDT today. Interested parties should call 866-394-7807 (domestic) or 706-634-1728 (international), conference ID 57222578. A replay of the call will be available through August 8 at 800-642-1687 (domestic) or 706-645-9291 (international), access code 57222578.


Regal Beloit Corporation is a leading manufacturer and marketer of branded mechanical and electrical motion control and power generation products serving markets throughout the world. Regal Beloit is headquartered in Beloit, Wisconsin, and has manufacturing, sales, and service facilities throughout the United States, Canada, Mexico, Europe and Asia.


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

— economic changes in global markets where we do business, such as
currency exchange rates, inflation rates, interest rates, recession,
foreign government policies and other external factors that we cannot
— unanticipated fluctuations in commodity prices and raw material costs;
— cyclical downturns affecting the global market for capital goods;
— unexpected issues and costs arising from the integration of acquired
companies and businesses;
— marketplace acceptance of new and existing products including the loss
of, or a decline in business from, any significant customers;
— the impact of capital market transactions that we may effect;
— the availability and effectiveness of our information technology
— unanticipated costs associated with litigation matters;
— actions taken by our competitors;
— difficulties in staffing and managing foreign operations; and
— other risks and uncertainties including but not limited to those
described in Item 1A-Risk Factors of the Company’s Annual Report on
Form 10-K filed on February 27, 2008 and from time to time in our
reports filed with U.S. Securities and Exchange Commission.

All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. The forward-looking statements included in this news release are made only as of their respective dates, and we undertake no obligation to update these statements to reflect subsequent events or circumstances. See also Item 1A – Risk Factors in the Company’s Annual Report on Form 10-K filed on February 27, 2008.

In Thousands of Dollars

Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
2008 2007 2008 2007

Net Sales $606,316 $459,795 $1,142,659 $878,441

Cost of Sales 475,139 355,919 889,383 677,338

Gross Profit 131,177 103,876 253,276 201,103

Operating Expenses 63,683 43,821 128,170 93,717

Income From Operations 67,494 60,055 125,106 107,386

Interest Expense 7,127 4,425 14,346 9,491

Interest Income 531 241 915 330

Income Before Taxes &
Minority Interest 60,898 55,871 111,675 98,225

Provision For Income Taxes 21,553 18,973 39,565 33,663

Income Before Minority
Interest 39,345 36,898 72,110 64,562

Minority Interest in
Income, Net of Tax 1,269 645 1,867 1,496

Net Income $38,076 $36,253 $70,243 $63,066

Earnings Per Share of
Common Stock:

Basic $1.21 $1.15 $2.24 $2.02

Assuming Dilution $1.14 $1.06 $2.11 $1.86

Cash Dividends Declared $0.16 $0.15 $0.31 $0.29

Weighted Average Number of
Shares Outstanding:

Basic 31,305,715 31,546,970 31,311,296 31,180,641

Assuming Dilution 33,525,725 34,177,529 33,321,379 33,862,524

In Thousands of Dollars

June 28, December 29,
ASSETS 2008 2007
Current Assets:
Cash and Cash Equivalents $87,710 $42,574
Receivables and Other Current Assets 470,014 367,717
Inventories 308,462 318,200
Total Current Assets 866,186 728,491

Net Property, Plant and Equipment 376,145 339,343

Other Noncurrent Assets 775,986 794,413
Total Assets $2,018,317 $1,862,247

Accounts Payable $242,339 $183,215
Other Current Liabilities 152,201 128,705
Long-Term Debt 541,131 558,918
Deferred Income Taxes 80,643 75,055
Other Noncurrent Liabilities 63,894 47,783
Minority Interest in Consolidated Subsidiaries 13,151 10,542
Shareholders’ Investment 924,958 858,029
Total Liabilities and Shareholders’
Investment $2,018,317 $1,862,247

In Thousands of Dollars

Mechanical Segment
Three Months Ending Six Months Ending
June 28, June 30, June 28, June 30,
2008 2007 2008 2007

Net Sales $57,420 $57,064 $112,534 $111,658
Income from Operations $7,980 $9,793 $16,046 $16,674

Electrical Segment
Three Months Ending Six Months Ending
June 28, June 30, June 28, June 30,
2008 2007 2008 2007

Net Sales $548,896 $402,731 $1,030,125 $766,783
Income from Operations $59,514 $50,262 $109,060 $90,712

In Thousands of Dollars

Six Months Ended
June 28, 2008 June 30, 2007
Net income $70,243 $63,066
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 30,211 20,367
Minority interest 1,867 1,496
Excess tax benefit from stock-based
compensation (1,333) (6,590)
Loss on sale of assets, net 70 51
Stock-based compensation expense 1,961 1,871
Change in assets and liabilities, net 13,266 19,849
Net cash provided by operating activities 116,285 100,110

Additions to property, plant and equipment (28,134) (17,863)
Business acquisitions, net of cash acquired (15,805) (2,425)
Sale of property, plant and equipment 1,149 –
Net cash used in investing activities (42,790) (20,288)

Net (repayments) proceeds from short-term
borrowing (92) 8,200
Payments of long-term debt (233) (278)
Net repayments under revolving credit facility (182,700) (31,600)
Net repayments of commercial paper borrowings – (39,350)
Net proceeds from long-term borrowings 165,000 –
Dividends paid to shareholders (9,392) (8,709)
Purchases of treasury stock (4,191) –
Proceeds from the exercise of stock options 1,739 1,403
Excess tax benefits from stock-based compensation 1,333 6,590
Distributions to minority partners – (106)
Financing feeds paid (418) (551)
Net cash used in financing activities (28,954) (64,401)


Net increase in cash and cash equivalents 45,136 16,616
Cash and cash equivalents at beginning of period 42,574 36,520
Cash and cash equivalents at end of period $87,710 $53,136

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Source: Regal Beloit Corporation