"The second quarter proved to be better than our expectations. We were particularly pleased with the results of our inventory reduction efforts, which exceeded our stated goal. We also benefited from the impact of the continued move to more energy efficient motor products. From a cost perspective, our cost reduction efforts are on plan and we expect to see even greater benefits from these activities as we move into the second half of the year. We are continuing to execute our business strategy and concentrate on business fundamentals and we are in a terrific position to execute on business growth opportunities as those situations arise in the future," commented Henry Knueppel, Chairman and Chief Executive Officer.

Sales for the second quarter of 2009 were $454.6 million, a 25.0% decrease from the $606.3 million reported for the second quarter of 2008. Second quarter 2009 sales included $16.3 million of incremental sales related to the Hwada and Dutchi businesses acquired in 2008 and the Custom Power Technology acquisition completed on January 2, 2009.

In the Electrical segment, sales decreased 24.7%, including the impact of the acquisitions noted above. Exclusive of the acquired businesses, Electrical segment sales decreased 27.7%, largely due to global generator sales decreasing 49.1%, commercial and industrial motors sales in North America decreasing 33.1% and residential HVAC motor sales decreasing 4.4%. Sales in the Mechanical segment decreased 27.5% from the prior year period.

From a geographic perspective, Asia-based sales were down 33.9% as compared to the second quarter of 2008. In total, sales to regions outside of the United States were 26.6% of total sales for the second quarter of 2009 in comparison to 27.0% for the comparable period of 2008. The negative impact of foreign currency exchange rate changes decreased total sales by 1.7%. From an energy efficiency standpoint, sales of high efficiency products represented 19.7% of total sales for the quarter as compared to 13.0% for the same period of 2008.

The gross profit margin for the second quarter was 20.8% as compared to the 21.6% reported for the comparable period of 2008. The decrease was driven primarily by the fixed cost absorption impact of lower unit volume production, which was magnified by the inventory reduction efforts.

In addition, costs related to the ongoing plant rationalizations increased cost of sales by approximately $1.8 million.

Operating expenses were $65.2 million (14.3% of sales) in the second quarter of 2009 versus $63.7 million (10.5% of sales) in 2008. Operating expenses included an incremental $3.8 million for the Dutchi and Hwada businesses which were acquired in 2008 and the CPT business acquired in 2009. Operating expense also includes approximately $4.0 million of bad debt, legal and restructuring expenses.

Income from operations was $29.5 million versus $67.5 million in the comparable period of 2008. As a percent of sales, income from operations was 6.5% for the second quarter versus 11.1% in the comparable period of 2008.

Net interest expense was $5.1 million versus $7.8 million in the comparable period of 2008. The decrease was driven by lower effective interest rates in 2009 versus the comparable period of 2008.

The effective tax rate for the three months ended June 27, 2009 was 28.0% versus 35.3% for the second quarter of 2008. The decrease in the effective tax rate results primarily from the global distribution of taxable income.

Net income attributable to Regal Beloit Corporation for the three months ended June 27, 2009 was $16.5 million, a decrease of 55.9% versus the $37.3 million reported in the second quarter of 2008. Fully diluted earnings per share was $0.47 as compared to $1.11 per share reported in the second quarter of 2008. The secondary equity offering of the Company's common stock completed in May 2009 added approximately 1.75 million shares to the weighted average number of shares outstanding for the quarter. (Note: prior year financial results have been adjusted to reflect the impact of the change in accounting for the Company's convertible senior subordinated notes as prescribed in FASB Staff Position APB 14-1: Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which reduced second quarter 2008 diluted earnings per share by $0.03).

Cash flow from operations was $106.8 million in the second quarter of 2009 comprised of net income of $17.5 million, non-cash expenses of $19.6 million and a reduction of net assets of $69.7 million. This compares to the second quarter 2008 cash flow from operations of $81.4 million, which was comprised of the net income of $38.6 million, non-cash expenses of $17.5 million and a reduction in net assets of $25.8 million.

The Company ended the second quarter with total gross debt of $553.1 million as compared to $587.3 million at the end of the first quarter of 2009. Cash and cash equivalents increased $208.5 million during the second quarter to $290.5 million. Approximately, $150.5 million of the increase was attributable to the net proceeds of the secondary stock offering completed in May 2009. Therefore, net of cash, debt decreased from $510.2 million at the end of 2008 to $262.6 million at the end of the second quarter of 2009.

Subsequent to June 27, 2009, several holders of the Company's currently convertible senior subordinated notes submitted notices to convert their notes into cash and common stock in accordance with the terms of the indenture. The face value of the notes converted, approximately $27.6 million, will be paid in cash with the premium paid in shares of the Company's common stock.