Good morning, and welcome to the Regal Beloit Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Perino. Please, go ahead.

Good morning. Thank you, Sue. Welcome to the Regal Beloit Second Quarter 2011 Earnings Conference Call. Joining me today are Mark Gliebe, President and CEO; Jon Schlemmer, COO; and Chuck Hinrichs, Vice President and CFO. Before turning the call over to Mark, I'd like to remind you that the statements made in this conference call that are not historical in nature are forward-looking statements. Forward-looking statements are not guarantees since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in forward-looking statements. For a list of those factors that could cause actual results to differ materially from projected results, please refer to today's earnings release and our filings with the SEC. Now I'll turn the call over to Mark.

Good morning, everyone, and thank you for joining the call and for your interest in Regal Beloit. We'll follow our typical agenda. I'll make a few opening comments. Chuck will give the financial update. Jon Schlemmer will provide color on products, markets and operations, and then I'll return and summarize our prepared comments, and we'll move to Q&A. Overall, we felt good about our operating performance for the second quarter. Excluding the $28 million incremental warranty expense, we would have exceeded the high end of our guidance. Given the magnitude of the incremental warranty expense, I'd like to cover that topic first. We have communicated to certain HVAC customers that we have detected a production flaw in certain standard sleeve-bearing motors produced in our Reynosa, Mexico facility. These Genteq-branded motors are used in outdoor condensing units for air conditioners and heat pumps. We estimate that there are 50,000 motors that may contain the flaw. The abnormality was caused by inadequate lubrication of the bearing and shaft, which may result in an early failure of the motor. The failure of the motor presents no safety concern. We are working with customers to contain the issue and identify, repair and replace the flawed motors. This event is not characteristic of the company or of this facility. In fact, the last time that our Reynosa facility had a quality excursion such as this was more than 10 years ago. Further, prior to this episode, the defect rated our Reynosa facility measured in parts per million pieces received by our customer was excellent and continuously improving. We do understand the root cause of the problem, and we have fixed it. Most importantly, we sincerely regret the inconvenience to our customers, and we are determined to learn from this experience and be better and stronger…

Thank you, Mark, and good morning, everyone. We are very pleased with our results for the second quarter 2001 -- 2011, as we posted record quarterly sales and strong cash flow from operations. Sales for the first quarter of 2011 were $682 million, an increase of $98 million or 16.7% over the second quarter of 2010. Sales growth in the first quarter was due -- sales growth in the second quarter was due to the addition of $60 million of sales from the 2010 acquired companies, volume growth and realizations from price increases. Our gross profit percentage for the second quarter of 2011 was 22.1%. Cost of goods sold in the second quarter included the $28 million increase in warranty expense. Excluding the $28 million expense, our gross margin for the second quarter was 26.2%, an improvement from the 24.6% in the second quarter of 2010 and the 24.9% margin in the first quarter of 2011. In the second quarter of 2011, we recovered the commodity cost inflation we experienced with a combination of our price increase actions and operating productivity. However, commodity inflation is still a challenge in 2011. Let me give you some data on the cost inflation on 2 key commodities, copper and steel. As this chart on Slide 6 shows, spot prices for copper are stabilizing at a high level. The second quarter 2011 average spot price of $4.15 was down slightly from the first quarter of 2011. The July spot price jumped up to $4.40 per pound. Now let's review the Steel Market. Here, I am quoting the index prices for cold-rolled steel. As seen on the chart, steel prices have spiked in the last 3 quarters. The average price in the second quarter was $915 per ton, an increase of $123 per ton or…

Thanks, Chuck, and good morning, everyone. During the second quarter of 2011, we experienced strong double-digit sales growth over the prior-year period in our Mechanical businesses, our North American Commercial and Industrial business and also on our Asia businesses. Our Mechanical businesses, which compete in later-cycle segments continued their strong rebound in the quarter with 15% sales growth. The strength that we have seen in the prior 5 quarters in our North America Commercial and Industrial businesses continued through the second quarter with sales up 20%. As expected, demand for the more energy-efficient NEMA Premium products increased and now represents the majority of our interval horsepower motor sales. Sales in our global generator business grew 34%, driven by growing demand in emerging markets, the recovery in Japan and primary power plants adding standby power for risk mitigation. Driven by strong growth in the emerging markets and our acquisition strategy, sales outside the U.S. grew by 35% and represented 37% of our total sales for the quarter. Sales in Asia were up 14%, driven by robust economies and new products. In HVAC, the strong start to the year in the first quarter slowed in the second quarter. There are several factors at play here. First, the U.S. housing market and consumer confidence continue to struggle; second, we did experience a cool spring weather season throughout much of the U.S.; and finally, the combination of the reduction of the federal stimulus, plus the shift back to outdoor condensers utilizing R-22 refrigerant, impacted both demand and also the mix of energy-efficient products sold in the quarter. As you may recall, we announced 2 price increases in the last 9 months. With those 2 increases and our continued drive for productivity, we were able to offset current quarter commodity inflation. We have not yet…

Thanks, John. Now I'll just summarize -- again, we want sincerely communicate that we regret the -- any inconvenience we caused our customers or that our customers are experiencing due to the flaw in our motors. We will learn from the event and be stronger and better for it in the future. Excluding the incremental warranty expense, we felt great about the quarter and our performance in the quarter, especially given the weakness of our residential HVAC business. Between our pricing actions and productivity actions, we were able to cover the second quarter inflation. And our string of new products continue to roll out with exciting technology for the Commercial and Industrial motor margin business, as well as for Unico's oil and gas business. Our third quarter guidance reflects continued softness in HVAC and continued strength in most of our other businesses. Further, the A.O. Smith EPC transaction is not reflected in our estimate, even though the interest expense for the acquisition financing is included. And finally, we have our new financing arrangements in place, and we are more optimistic than ever about the pending closing of the EPC transactions. We believe will close the transaction within the month. With that, we will take your questions.

[Operator Instructions] Our first question comes from Steve Sanders of Stephens Inc.

Maybe just first, Chuck, I think you indicated the third quarter sales would be below 2Q. And you've given some color on that. So should we think about that as HVAC down sequentially, moderating growth in C&I and the emerging markets staying fairly robust, but also maybe moderating? Can you just put a little more color on that?

Yes, I think that's a good summary, Steve.

Okay. And then what have you seen in July overall in some of your primary businesses and specifically in HVAC? And then is there any way for you to quantify the dry ship impact for either the second quarter or kind of your thinking for the year?

The HVAC in the third quarter is normally below our second quarter. It was an anomaly last year because we had an especially strong season last year, and we went into Q3 last year with a rather substantial backlog. So as we go into July right now, the HVAC business is not seeing the kind of demand it would have typically seen. It's somewhat softer than we had expected, and that shouldn't be a surprise given the communication from -- the public communication from many of our customers. And a lot of that is driven by the 3 or 4 things that John mentioned earlier. In terms of the specific impact of R-22, it's -- there's so many things and so many variables. It's difficult for us to pinpoint exactly what contribution the R-22 is having on the business.

Okay. And then 2 quick ones, and I'll get out of the way. With the probabilities of a double-dip going up, can you just talk generally about opportunities you might have to accelerate some of the margin enhancement initiatives if we do end up there? And then the final question is just on the China facility relocation, should we think about that as a working capital and margin headwind in the near term? And then we start to get the payback in '12? Or how should we think about that?

Certainly, there are no shortages of opportunities to mine synergies given the acquisitions that we've done. And so we'll be aggressively pursuing those, I would say, somewhat regardless of what happens with the economy. So there will be opportunities there to pursue those synergies. I'm sorry. Can you repeat the second half of that question?

Yes, just China. You're doing a facility relocation. So do you need to build some inventory? And are there some inefficiencies on the margins side that we'll have to absorb until we start to get some benefits next year?

I think -- well, certainly, any time you do a plant relocation, there are some inefficiencies that you'll experience. So we have 2 of them to do. And then obviously, we'll be spending the CapEx ahead of the transition. And I do believe when we come out of the other end, the plants will be running more efficiently.

The next question comes from Jeff Hammond of KeyBanc Capital Markets.

So you guys gave a lot of detail on EPC, and it seems like it's a done deal. I mean, is there any risk that it does push beyond August?

Well, any time you're dealing with a situation like this, where -- you're never 100% sure, but obviously, for us to have come out and say we're going to close within the quarter, we are feeling more optimistic than ever that we've made tremendous progress.

Okay. And then you said no material change to the original deal. Are there any changes to the original deal?

Well, I'm not going to comment on anything in specific just because we're still going through the process. But I think the right way to say it is the way we have said it, which will be that there will be no material change to the transaction that we signed with A.O. Smith.

Okay, great. And then just back on HVAC, I mean, any indication that weather in July helped? And what are your customers telling you about inventory and their production plans relative to normal into 3Q?

This is Jon. I'll take that question. Obviously, we are seeing some heat right now. We've seen that across much of the U.S., and it's been going on now for a couple of weeks. We're not yet seeing a change in order patterns from our customers due to that heat. We think there is probably a couple of factors at play there. One is the heat came rather late in the season, and it could be that distributors are using that as an opportunity to work down inventory levels. And there could also be an impact of just how much capacity there is with the contractor base to deal with the heat and replacement and repair of units. But as of right now, we're not seeing a change in order patterns. But obviously, in general, heat is usually good for this business.

The next question comes from Mike Halloran of Robert W. Baird. Michael Halloran - Robert W. Baird & Co. Incorporated: So back to the first question, just on the sequential trends that you guys are talking about, obviously down 2Q to 3Q. When you think about that relative to, say, normal sequential patterns, are you guys really seeing much difference from that normal sequential pattern?

Well, I would say, just -- the HVAC business is certainly less robust than we would have expected. So that's point one. Relative to our Commercial and Industrial businesses, it doesn't have the seasonality that our HVAC business has. So there's nothing to take note of there. Michael Halloran - Robert W. Baird & Co. Incorporated: No, no, no. I certainly agree on the second point. I guess what I'm trying to drive to on the first point though is you saw weak trends in 2Q. It sounds like -- or I'm curious, if 2Q is the right base to build off of it if I think about kind of a normal HVAC sequential trend. So I mean, are you seeing weakening on the HVAC side, 2Q to 3Q relative to normal? It sounds like you're saying continued weakness at a comparable level.

Yes, I would think that, that's the right way to characterize it. It's -- relative to Q2, it's kind of a normal seasonality. Now the other thing to take note of is that we do have tough comps in Q3 on a year-over-year basis simply because we carried a backlog in the Q3 that we're not carrying this year. Michael Halloran - Robert W. Baird & Co. Incorporated: Absolutely. No, that makes a lot of sense. And then on the margin side, could you talk about the price cost curve and whether you've got steel moving a little bit more against you in 3Q, but you've also got probably more full realization of the pricing side in 3Q? Could you talk about the price cost curve and whether it's comparable to 2Q or a little bit better than 2Q when you hit 3Q?

Mike, we think we're balanced going into the quarter. As you said, the realization of the last price increase for the full third quarter and our productivity initiatives that will continue to build momentum in the year. So we're feeling okay going into the third quarter on that balance. Michael Halloran - Robert W. Baird & Co. Incorporated: And then last one for me. On the acquisition side, from a cost perspective, you had $3 million and change of acquisition expenses in this quarter. What are your expectations at this point for 3Q? And obviously, that would be excluding a lot of the one-time oriented costs that would be associated with the actual close of the EPC acquisition itself.

Yes, I guess, we're seeing some reductions in third quarter versus the 2Q expense level. But until we get it over the finish line, it's kind of hard to estimate that.

The next question comes from Mark Douglass of Longbow Research.

Just talking again about HVAC and your ability to get cost. This quarter was -- the second quarter was good. But is there a mix shift also working against you in HVAC on the resi side is -- on the dry ship side of things, is there less content of higher efficiency motors? How is that playing into your margins right now?

This is Jon. We did -- we have seen a shift in mix towards more standard efficiency products for the reasons that I explained. There is a combination of factors at play here. One is the reversion back to the R-22 outdoor condensers when there is a failure with the consumer and the product is replaced. And then you combine that with the lack of consumer confidence and also the reduction in the federal stimulus. All 3 of those factors combined are creating a dynamic we believe that's causing a mix shift back to more standard efficiency products. Clearly, there is still demand for high-efficiency products in the business. But from a year-to-year comparison, that is a change that we're seeing in the business. Saw that as we went through the second quarter, and we expect to see that in the third quarter as well.

So right now, would you say that C&I for high-efficiency motors is kind of carrying the water at this point for high-efficiency motors?

We have definitely seen an increase in high-efficiency product on a year-over-year basis in our other businesses. And C&I is a notable segment of our business where we're seeing that kind of increase in demand for high-efficiency products, absolutely.

Sure. And then some of that's certainly due to the -- having to go up to NEMA Premium. Can it be quantified how much of the 20% growth in C&I was due to the shift in NEMA Premium?

We don't have the breakout of that right now, but we'll ask Chuck and Jon to take a look that and provide it after the fact.

Okay, great. And one last question for Chuck. And so what are your CapEx expectations for the year?

Mark, it's kind of tough to forecast when that spending will be on the plants. But if you'll recall, we started with an initial estimate for 2011 of $90 million. And that would probably be some 25 -- excuse me, $50 million above our normal run rate. So those 2 factories are probably going to be in the $20 million to $30 million range in total.

Okay, but it’s still TBD if it’s being spent in '11 or 12?

Sure.

The next question comes from Christopher Glynn of Oppenheimer. Christopher Glynn - Oppenheimer & Co. Inc.: Mark, I had a question about the Reynosa snafu there. Just -- are you concerned about any risk of mix shift and how the customers allocate the share?

Sure. Well, obviously, customers are going to be disappointed in the fact that we have this issue. So no surprise, and we're making it very clear that we regret any inconvenience. But I would say this: We have absolutely had a sense of urgency around this issue that I think our customers have recognized. We've stepped up and stood behind the obligations to our customers, and it's evident by the announcement that we made on Wednesday. So my hope is that our customers recognize that and also recognize the fact that not every motor manufacturer in the world could stand behind their obligations the way that we are. So time will tell. But we certainly are doing right by the customer. Christopher Glynn - Oppenheimer & Co. Inc.: Okay. And then from a bigger-picture perspective, what are your longer-term thoughts about potential for OEM risk of diversification to international suppliers?

I think there’s always risk that you'll have competition from international suppliers. We've had it in every one of our businesses. But I think we're well-positioned, given our own international footprint. And also, when you add EPC to the mix, we'll have an even stronger international footprint that will be able to compete with anybody anywhere. Christopher Glynn - Oppenheimer & Co. Inc.: Okay. And then just on the 20% C&I growth, could you break out the organic piece of that?

Well, Chris, it would be a combination of volume growth and price growth. And then we'd also, of course, see the shift from the standard to the NEMA Premium. And that has a higher average selling price. So it would be those 3 factors [indiscernible] a volume number. Christopher Glynn - Oppenheimer & Co. Inc.: That didn't include acquisitions?

It did not include acquisitions.

The next question comes from Josh Pokrzywinski of MKM Partners.

Just wanted to follow up on an earlier question about the acquisition costs in the quarter, that $3.3 million. How does that compare to that original expectation of $7 million that you guys called out last quarter? Was -- is there another $3.7 million somewhere else buried in the numbers not related to A.O. Smith? Or was that just lower than anticipated?

That second quarter did -- I'm sorry, the first quarter did have some other projects included in that number. And then the number I quoted for second quarter was a pure EPC number. And so we would expect to see some decline on that going into the third quarter.

Okay. But just to be clear, your guidance into -- your original 2Q guidance had $7 million in it, give or take, and you guys came in a little bit wider than that?

Yes.

Okay. Just looking out into the third quarter, maybe back half of the year, any changes on that -- the recent spike in steel from your guys' perspective? Any changes that happens on the LIFO line?

LIFO was not a material change for the quarter, Josh. And steel, as I mentioned, is starting to trend down a little bit, but we'll still see an increase in the third quarter. But we've got that built it into our guidance.

Okay. And then any quantification or feedback you're getting from the channel about what this bonus depreciation is doing? Is it kind of a blip or a non-event, or is that something that you feel like is picking up demand a little bit this year?

We have not heard anything from our sales and marketing teams that would suggest that it's any kind of a benefit to the business.

Got you. And then one final one, just on inventory. With the ISA standard and pretty strong demand on the C&I side near term, any fits in the channel on inventory levels? Is premium inventory too low, standard inventory too high? Any dynamics there that we should be aware of?

I would just say in general, we're well-positioned. Things are rolling out pretty much the way they thought they were, and that is that over time, we would burn down any remaining EPACT inventory -- that is the less efficient product that we had in the interval horsepower business. That's moving away over time and being replaced by the NEMA Premium product. And that's what we see happening with our other competitors as well.

The next question comes from Scott Graham of Jefferies. R. Scott Graham - Jefferies & Company, Inc.: I was wondering if you could unbundle for us some of the strengths, the markets in particular, in C&I and Electrical and Mechanical overall.

I would say overall -- generally speaking, in both the Commercial and Industrial and Mechanical and generator businesses, those tend to be later-cycle businesses. And so we've seen overall general strength across all segments that we saw in Q2. And going forward, we're assuming that we'll see that same behavior in Q3.

And I would add to that, Scott, that we've seen particular strength in Ag with industrial equipment and also the oil and gas. R. Scott Graham - Jefferies & Company, Inc.: That's helpful. Would you call those 3 markets really the leaders in each of those business? Or is it maybe a little bit of a different set for one versus the other?

No, I wouldn't call those necessarily leaders for us. We do participate with several of our businesses in each of those segments. But that -- they're not necessarily the largest segment. Now industrial equipment is a pretty important sector for our Commercial and Industrial businesses. R. Scott Graham - Jefferies & Company, Inc.: Okay. Now you guys have obviously a big leadership position in HVAC in the high-efficiency area. And I know that you're trying to move this leadership position, leverage it more to C&I. I was just wondering if you could kind of us a bit of an update there on -- I see some of the new products, of course, but where do you see traction? I mean, motors are pretty much as ubiquitous as it gets in industrial. And so it would seem to be a nicely leveraged position. So I was just wondering, are you seeing good successes there? Is it just new products? Is it distribution? Just maybe give us a good idea of how that strategy is rolling out.

Scott, you're right. It's a great question. I think that we're excited about what we're seeing so far in our Commercial and Industrial businesses with our strategy to take the ECM technology, if you will, and the dynamics behind that product development and how to fit it into the Commercial and Industrial business. We've been on that path for a long time. And that the -- one of the products that I mentioned today, the permanent magnet AC industrial motors is a great example of that. Essentially, if you look at the motor, it's very similar to an ECM motor. It uses permanent magnet technology, offers higher-efficiency levels and standard products, as well as other features and benefits. In that particular case, we've done a lot of work to make sure that product's compatible with drives that are available on the market today so customers can take advantage of those benefits. Last quarter, I mentioned a smaller frame, Permanent Magnet Motor, which has very similar technology, but that gives us the ability to take the high-efficiency technology into a wide variety of Commercial and Industrial applications. And we're on just a constant path to do that, to keep taking this type of technology, making it suitable for Commercial and Industrial applications and just expanding it. So I -- there's a lot of excitement in the team right now, and we feel very good about the path we're on. R. Scott Graham - Jefferies & Company, Inc.: So we're really seeing both customer content and new customers gains off of the strategy?

When we have a technology like this, one, there's interest from our existing customers. And two, it absolutely opens the doors up for new customers. No question about that.

The next question comes from Wendy Caplan of SunTrust.

Can we talk about working capital, Chuck? Looks like it was up -- on a year-over-year basis, it was up 35% double kind of what your sales increase was. Inventory seemed to be the biggest challenge. And is that generally related to China? Are there other factor -- in terms of redundancies, or are there other factors that would be helpful for us to know?

Wendy, probably the biggest driver would just be the seasonal change. As we build up inventories, that would be at the end of the second quarter.

I'll just add, Wendy. If you recall last year, in the quarter, our HVAC business saw an enormous demand surge. And we brought our HVAC inventories down significantly in the second quarter of last year. This year, we have a more normal inventory position.

Okay. So are we in the "right" inventory position at this point?

I think it's generally balanced. I think, clearly, a lot of it will be determined by future sales trends. But we're comfortable with our working capital levels at the end of the quarter.

Okay. And can you comment on hiring? What are you -- are you hiring? Where are you hiring? Who are you hiring? Can you give us some of that information, please?

Sure. It's going to depend very much on the specific manufacturing facilities, which is where the majority of our hiring would be, obviously, at the production facilities. And so when we start talking about our generator business being up 35% -- I think [ph] that was the exact number or our C&I business being up or our Mechanical business being up, now those facilities would obviously have been increasing on our level of staffing in order to support that demand. And in our HVAC business, to the extent that there is weakness, we would be removing production workers.

So on a net basis, are we kind of flat? Or what would you say, Mark?

Yes, I would say probably through the second quarter, we would have been up on a year-over-year basis. Going forward, it's probably moderating.

Okay. And Mark, your degree of confidence that $28 million is the right number to cover these warranty issues and the fact that it's -- can be -- it will be corrected this quarter and we won't hear -- we'll be looking back on it next quarter. Can you tell us about that, please?

Sure. We've done a tremendous amount of work -- analysis to get that this. We’ve worked closely with our customers and looking at every point in the distribution channel to make sure that we understood it. This is after a lot of analysis. This is the correct number right now, and we feel as good that we have captured it all.

Okay. And one last question on the price cost equation. You -- last quarter, you talked about price increases lagging the cost inflation. And in this quarter, it's covered both on -- you said on pricing and productivity. If -- should we worry that if 3Q revenue growth is slowing and volumes decline a bit sequentially that productivity gains are going to be harder to get? Or do you have a strong -- you didn’t mention the kind of nature of the price increases, but should they, given what you know today, should they be covering costs going forward into the third quarter?

Our guidance right now includes us having a similar performance in the third quarter that we had in the second quarter, which is that our -- the combination of both price and productivity will allow us to offset third quarter inflation.

Our next question comes from Bill Dezellem of Tieton Capital Management.

We have a couple of questions. The first one, generically speaking, with EPC, if that transaction were to close in the month, would you anticipate that it would be beneficial or a drain to Q3 earnings on an operating basis, including the -- any restructuring charges and then secondarily, excluding restructuring charges?

Bill, we look forward to providing that information immediately after the closing on EPC. And we'll schedule a conference call for that purpose.

Okay. And even just generically, directionally, whether it will be favorable or unfavorable in the quarter is not something that you're prepared to talk about now?

Yes, it won't be very far off. So we'll just provide that information at that time.

All right. And then the second question is relative to the economy, there are a number of questions out there, I suppose especially after yesterday. But what is your sense with the North American economy, whether it's shifting backwards or not? And then would you please also address the Asian and European regions? But I'm actually -- not only do we have the question about the economy but are also interested in the implications of your answer about the economy in those 3 regions for acquisitions.

Yes. Well, obviously, the best indication for us is going to be order patterns. And we reflected our thinking in our third quarter guidance. And the comments that we've made is that, obviously, we see a weakening in HVAC, and it's kind carrying over from the second quarter. In our Commercial and Industrial, in our Mechanical businesses, which tend to be later-cycle businesses, we still see strength in those markets, and they tend to cover many, many different industries. But -- so far, through the third quarter, we still feel strength in those businesses. From an Asia perspective, our -- both our Asia-Pacific business, which for us includes Australia, Thailand and Singapore, still going strong. Our India business, similar, still going strong. However, we have seen a deceleration in our China orders.

And the European market?

From a Europe standpoint, it's -- we don't have a tremendously big footprint in Europe. So we may not be the best indicator. But what we're seeing is a little bit stronger in the northern part of Europe and somewhat weaker in the southern part of Europe.

And when you put all this together, what implications, if any, do you believe this has for future acquisitions for you?

Well, the M&A markets, as you know very well, are still very strong, at least going -- coming out of the second quarter. I would say that it's a little bit frothy relative to the valuations. In terms of our own pipeline, we continue to feel good about the pipeline that we have, and we're still looking at a number of opportunities, and we will continue to do so.

The next question comes from Jamie Sullivan of RBC Capital Markets.

Most of my questions have been answered. Just figured I'd ask one on HVAC. With some of the moving parts, you had some pricing helping, mix hurting. So I'm wondering if you could talk about just kind of unit volumes and whether there was any additional impact in that business compared to last year due to maybe some changing competitive dynamics as you go down into the lower efficiency end of the market.

Well, 2 comments. Number one, from a year-over-year basis, as I mentioned earlier, it was difficult comps because we had a very strong second and third quarter, particularly third quarter. But second quarter as well last year, we had surging demand. The second point I'll make is that as you go into the lower-efficiency products, it tends to be more competitive.

Okay. All right. And then are your customers -- are they saying anything about their expectations around this mix trend towards R-22? Are you hearing anything about closing the loopholes? Just wondering what you're hearing about...

Number one, there is -- one, there's a few of the customers who don't like the situation, what's going on and, in fact, I believe are pursuing -- are trying to pursue the closing of that loophole. I don't know the specifics. I don't know their chances of being successful. But some people don't like what's happening. In terms of the impact on mix, they are seeing it as well. They are seeing the impact on mix as well. And therefore, we are seeing it.

Okay. And maybe for Chuck. Just wondering if you have a breakout after the price increases over the last 9 months. How much did price contribute to the sales growth in the quarter overall?

Jamie, we typically don't release that information, just for competitive reasons.

The next question comes from Walt Liptak of Barrington Research.

I realize that we'll be talking in a month, hopefully, after A.O. Smith gets closed. But I wondered if -- I think you may have mentioned that there's likely $0.05 in the analyst estimates, and I put A.O. Smith in there. And I wonder how you came up with that number. Is that based on what the other analysts came up with? Or is it based on your own accretion model?

It's purely based on our estimate of it and looking at the different models, Walt. So there’s no science to it. We could be off by $0.05 either way on that number.

Okay. A.O. Smith, their revenue and profits have been running ahead of, I think, what most people thought they would be doing 6 months ago. Have you adjusted your accretion models? I know we've got the pro forma on that at $702 million. They’re already running at $424 million in revenue. I mean, can you talk at all about where your accretion models are?

We'll be updating that on our call after the closing, Walt.

Okay. And then integration plan, you've had more time now, I guess, to maybe not dig in to A.O. Smith, but at least to consider what you're going to do. Can you give us an idea of how quickly you'll be able to get in there and start taking costs out? And basically, can you get costs out once the deal closes like within the first month or 2?

We’re going to stand behind the numbers we've given before in terms of our synergy targets still in the $30 million range. We have spent a tremendous amount of time with the team in terms of integration planning, but only on the functional side. We've not been able to discuss the commercial aspects of the integration, and we're looking forward to doing that as soon as the transaction closes. But as Jon mentioned, we feel great about the talent, and we feel great about the cultural aspect of the transaction.

The next question comes from Holden Lewis of BB&T. Holden Lewis - BB&T Capital Markets: Just to, I guess, close to the loop [ph] on a couple of things. First, with regards to the price cost curve, I guess you indicated that you felt like in Q2, you had sort of recaptured the dollars net that you had lost earlier. Are we to sort of assume then that by Q4, if materials stay where they are, by then you're sort of recapturing the actual margins? So price costs, going forward, could actually begin to be a margin boon at that current level as we sort of work through the direction?

Well, just to be clear, Holden, we said that we were balanced in the second quarter between price and productivity offsetting the inflation and that we would expect to continue that balance into the third quarter. But again, we're only speaking about the year-to-date cost inflation. And we are still behind on recovering the 2010 cost inflation. So of course, there'll be other factors impacting the margin for the full year. The volume would have a big driver to that as well. But purely on the balance between price, productivity and cost inflation, we feel we're balanced on a year-to-date basis. Holden Lewis - BB&T Capital Markets: Okay. And that's really just assuming the 2011 changes when you say year-to-date?

That's correct. Holden Lewis - BB&T Capital Markets: Okay. So just taking Q2 as a base line, going forward, if raw materials stay where they are, are you getting more price to still bleed in, whether it be from more contract accounts or what have you, that means that if we've captured -- recapture the dollars through the first half, by the end of the second half, you start recapturing the margin and the productivity begins to actually contribute to margin rather than just being -- playing defense with that?

Yes, it's difficult to answer that question with those assumptions because we know that are -- we're still experiencing some cost inflation into the third quarter. Now our prices, that will receive full realization for the entire third quarter, so that will benefit us. Holden Lewis - BB&T Capital Markets: Okay, okay. And I guess, just hitting back on sort of the HVAC trend as we go through the rest of the year, I guess the way that we've seen this play out so far is you feel like Q1 is relatively strong. Customers built up inventories and then they sort of worked down those inventories in Q2 because of a relatively cool season. And I guess, you think that at least to begin Q3, they are continuing to work down those inventories because despite the heat, you're weren't seeing any pop up. I think you noticed maybe some capacity issues around contractors who all seem to be saying that their demand is up pretty significantly. I mean, does this feel like as you get it later into Q3, those inventories should be just -- rationalized enough that they start to build? And maybe there's a capacity issue? Maybe then you have a better Q4 than is seasonally normal? I mean, does that feel like it -- that's how it plays out, or do we feel like whatever revenues we kind of lost in Q2 due to the weak seasonal -- or weak weather are just lost?

This is Jon, Holden. We certainly would hope that, that dynamic would hold true, that the heat that we experiencing right now, even if we're not seeing the impact on orders today, that we would see the benefit of that as we go through the third year and into the fourth quarter. As I mentioned earlier, heat is generally good. It's going to drive more demand for the air conditioning equipment. It's going to drive increased demand due to replacement products. So that's certainly what we would hope to see. As I mentioned also at this point, we haven't seen the -- an uptick in orders though. Holden Lewis - BB&T Capital Markets: Okay. And then lastly, I guess, could you give us sort of an update on SG&A? It seems like -- I mean revenues were up nicely in Q2, but it seems like the overall SG&A dollars are actually down versus Q1. So volumes went up, SG&A dollars went down. Is that productivity? Is it something else? If it's productivity, what major initiatives do you have in place right now that it is driving some of that?

Holden, I guess the only number that we've called out would have been the lower legal expenses related to EPC in the second quarter over the first quarter. Holden Lewis - BB&T Capital Markets: And how much are those, I'm sorry?

They were $3 million in the second quarter. And with respect to the EPC part of it, they were over $6 million in the first quarter. Holden Lewis - BB&T Capital Markets: Okay. So, even accounting for those, that can explain the $3 million. But it still kind of went down in a rising volume environment. Is that just productivity you're doing? I guess I'm also just trying to get a sense of what big productivity initiatives do you have in place right now that could not only drive that result but continue to drive results going forward?

Yes. Maybe we can go over some of the specifics later, Holden. But there were no other big-dollar changes quarter-to-quarter for -- we continue to, of course, focus on controlling all of our costs.

Okay, well I think that's the end of the questions.

Yes, it's the end of the questions.

Thank you very much. Before we close, one special note. Please mark your calendars for our second annual Analyst Day event, which will be December 6, 2011, in New York City. Thank you for joining the call, and thank you for your interest in Regal Beloit.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.