Good morning everyone and welcome to the Regal-Beloit Second Quarter 2012 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) At this time I would like to turn your conference call over to Mr. John Perino, Vice President of Investor Relations. Sir, please go ahead.

Thank you, James, and good morning. Welcome to the Regal-Beloit Second Quarter 2012 Earnings Conference Call. Joining me today are Mark Gliebe, Chairman 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 filings with the SEC. On slide two, we mention that we’re presenting certain non-GAAP financial measures related to adjusted diluted earnings per share, adjusted gross profit, adjusted gross profit as a percentage of net sales and free cash flow. We believe these measures are useful financial measures for providing you with additional insight into our operating performance. Please read this slide for information regarding non-GAAP financial measures, and please see the appendix where you can find reconciliation of these measures to the most recent comparable measures in accordance with GAAP. Now, I’ll turn the call over to Mark.

Good morning, everyone and thank you for joining the call. Today, I’ll make a few opening comments. Chuck will provide a financial update. Jon Schlemmer will give color on products, markets and operations and then I’ll summarize and we’ll move to Q&A. Regal posted another quarter of record sales and record earnings in the second quarter. Most of our businesses performed at the high end of our expectations and our HVAC business slightly outperformed our expectations, driven mostly by the warm weather. The combination of these results allowed us to exceed our guidance for the quarter. A key highlight for the quarter was our free cash flow at 177% of net income, which represents the fifth consecutive quarter where free cash flow exceeded net income. Other noteworthy topics for the quarter include first, the announcement of our Juarez plant consolidation. Second, we now believe we will exceed our $35 million EPC synergy target and deliver it one year earlier. Third, completing 85% of our transition into our new hermetic motor facility in Taicang, China. Fourth also in China, we began our move into our new generator facility. And finally, we closed on a small Mexican-based acquisition, buying out our existing Unico JV partner with the idea of growing our Unico presence in the oil-rich Mexican Gulf area. As we look forward, we see uncertainty in the macroeconomic environment, which could result in softer demand in our commercial and industrial and mechanical businesses. Additionally, we expect to see a negative impact on our sales and operating profit from foreign currency translation in the third quarter. Our HVAC business has substantially anniversaried the R22 conversion, and should benefit from better year-over-year comparisons as well and as well from the warmer weather. With that, I will turn it over to Chuck Hinrichs.

Thank you, Mark. Good morning, everyone. As Mark stated, our second quarter results exceeded expectations. Net sales increased 26.7% over the prior year, reflecting the inclusion of sales from the acquired businesses. Sales in the quarter reflected continued growth in our North American commercial and industrial motor and mechanical businesses and Unico. This growth helped offset weaker sales in our HVAC, Asia, and European businesses. Also, sales were negatively impacted by foreign exchange rates, which reduced sales by 2.1% in the second quarter. Our second quarter results included $0.5 million or $0.01 per share in restructuring charges related to plant closures to generate the EPC synergy savings. We will talk more about these activities later. In comparing our second quarter results against the prior year results, please recall that in the second quarter of 2011, we took a $28 million charge for a warranty expense item. In summary, our second quarter 2012 earnings per share of $1.49, or adjusted earnings per share of $1.50 per share, were above our guidance for the quarter driven by a stronger than anticipated performance from our HVAC and C&I businesses. This chart shows the growth of second quarter 2012 net sales, adjusted operating profit and adjusted diluted earnings per share as compared to the prior year. The takeaway here is that we generated growth in all key operating metrics as we benefited from the acquired businesses and grew our mid and late cycle businesses, offsetting the weak market demand in our HVAC, Asian and European operations. Let me provide additional color on our financial performance. In the upper left quadrant, we summarized our capital expenditures for the second quarter of 2012 and our guidance for the full-year 2012, which includes $25 million for the relocation of three of our factories in China. Jon will…

Thanks, Chuck, and good morning, everyone. As we progressed through the quarter, we continued to experience sales and order strength in our commercial and industrial businesses including EPC, our mechanical businesses in North America and Unico. Their stronger performances helped to offset the weakness in residential HVAC and our Asia and European businesses. For the quarter, sales in our commercial and industrial businesses were up 1.3% with the growth resulting from a variety of markets including distribution and industrial equipment. The Unico business continued to perform very well with 54% sales growth. We’ve been taking steps to increase production to help meet the growing demand for Unico’s products including oil and gas applications. During the second half of this year, we will take additional actions to further expand the capacity at Unico. In May, we also closed on a small acquisition in Mexico, Technojar System Integrators. Technojar brings a talented technical team to help us grow Unico’s oil and gas platform in Mexico and through Central America. During the quarter, our mechanical businesses continued to perform well with sales in North America up 9.1%, helping the offset declines in our European mechanical operations. Our residential HVAC business experienced an 11.9% decline in sales compared to the prior year. This decline was far less than we experienced in the first quarter and better than we had expected. We believe the warm weather is helping overall demand and as expected, we did substantially anniversary the R22 conversion as we exited the second quarter. Despite the continued slowness in Asia and Europe and the impact of foreign currency translation, sales outside the U.S. grew by 9.5% compared to the previous year and represented approximately 32% of our total sales. Our acquisitions continued to drive this increase. In Asia, we continued to see sequential…

Thanks, Jon. So to summarize, it was another record quarter of sales and earnings. We finished the quarter above our expectations and we are consistently generating solid free cash flow results. The timing of our Juarez and distribution footprint consolidation could not be any better. We will begin to see the benefits of this heavy lifting late this year. These programs are key elements of the $35 million EPC synergy target and as Jon showed, our current plan is to exceed the target and deliver earlier than we had planned. With our third quarter guidance, we expect modest growth in our HVAC business and softer conditions in our North American commercial and industrial and mechanical businesses. We expect Asia revenues to sequentially improve but to remain weak overall. Finally, we expect the business to continue to generate strong free cash flows which we plan to use to de-lever the balance sheet and to continue to seek out strategic acquisition opportunities. Our acquisition pipeline is strong and we continue to actively seek candidates that meet both our strategic objectives and our financial criteria. We will now take your questions.

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Mike Halloran from Robert W Baird. Please go ahead with your question. Mike Halloran – Robert W Baird: Good morning, guys.

Good morning, Mike. Mike Halloran – Robert W Baird: So first on the guidance side, just thinking about short trends sequentially. The HVAC side, I think I understand. I’ll leave that for others to talk about. But on the C&I side and the mechanical side, you talked about softer conditions in North America. Are you guys seeing the softer conditions as just an anticipation of softer conditions? And how much of a magnitude of slowing, if you’ve in fact seen some slowing, did you see in the second quarter on that side?

Well, I’ll start off reminding you that at this time last year, we – our third quarter for our Commercial and Industrial businesses and our Mechanical businesses were up 15% year-over-year. So to some extent, the comparisons are just getting a little tougher. This is our 10th consecutive quarter of growth in these businesses. So, that’s the starting point. I would say the order rates have moderated somewhat late in the second quarter as we go into the third quarter. And it’s a bit up and down week to week. So that’s be I would characterize it. Mike Halloran – Robert W Baird: And are you still anticipating year-over-year growth in the business in the third quarter, though?

It’s a mixed bag depending on the channel. But overall, I would just say it’s going to be softer than it had been.

And Mike, I would add that the third quarter will – or the second quarter that we completed fully anniversaried the last price increase that would have benefited the C&I business. So we’re now looking at a comparable period on a price side. But really the uncertainty in the economy that we see and the impact on final demand makes it a tough call on whether the sales will be up or flat in that business. Mike Halloran – Robert W Baird: And then on the R22 side, anniversaried that on a year-over-year basis, some of the OEs have talked about seeing a beginning of a change on the repair versus the replacement side. Is that something you guys have noticed in your throughput at this point or is that still yet to come?

I’ll let Jon comment on that here in a second but generally speaking, it’s been a mixed feedback from our OEMs on a number fronts, but on this particular question, Jon, Jon should jump in.

Yeah, thanks, Mark. So, like Mark said, Mike, the feedback has been a bit mixed on overall repair versus replace dynamic. And some customers are saying that they’re seeing more of a demand on repairs, driving up parts business. Others are continuing to see some strength on the equipment side of the business. But hard to tell how much of that is impacted by weather versus product mix. Mike Halloran – Robert W Baird: Makes sense. And then lastly on the aluminum motor you guys are putting out on the HVAC side, can you give a sense for the comparative profitability qualitatively not quantitatively with the current, with what would be a comparative motor in your current offering. And then a sense from the customers on, frankly, how receptive they would be to this product. It certainly seems like a great cost advantage, but aluminum products in the past have had some hesitancy with folks. So, just curious on what the customer discussions have been like.

Yeah, I’ll address the profitability and then Jon can address the customer feedback on this particular product. But any time we’re going to launch a new product, we always make sure that there is a substantial benefit in the product for the customer and then obviously a benefit to Regal. So, that’s our headset going in to any product. I’m not get in to specific margins on any particular launch. But that’s our head set as we get in to any new product launch. Jon, can you comment on the customer feedback?

Yeah, I would say in general, Mike, the feedback has been very positive. We’ve been going at this aggressively in terms of trying to offer the most value again to our customers and we’ve done a lot of work on qualifying the changes to overcome some of the hesitancy from an approval standpoint and reliability of the product. We feel terrific about this product. There’s been no compromise on efficiency, no compromise on reliability, and being aggressive in terms of bringing value to the customer, we’re seeing strong interest right now from many of our customers. Mike Halloran – Robert W Baird: Good stuff. I appreciate the time, all.

Thanks, Mike.

Thank you.

Our next question comes from Christopher Glynn from Oppenheimer. Please go ahead with your question. Christopher Glynn – Oppenheimer: Thanks. Good morning.

Good morning, Chris. Christopher Glynn – Oppenheimer: I had a question, also hearing some of the OEMs talk about R22 starting to shift over to 410A now. So not wondering so much if you’re seeing it right now, but how we think about that impact on your mix and just market participation, is that favorable?

It would be favorable, any mix towards 410A away from R22, because as we’ve talked about in the past, with an equipment change going to R410A, there’s more a likelihood that there’s work done on the inside of the home which could then ultimately lead to more of a system replacement and a system upgrade which would have more Regal content than just the standard outdoor product where we’ve mentioned before we have more competition on the standard products. So that would be – that trend, that change would be favorable. Christopher Glynn – Oppenheimer: Yeah, even at a comparables SEER, low SEER, right?

Even at a comparable SEER. Christopher Glynn – Oppenheimer: Okay. And then to take another try at Europe, sounded like it weakened a little sequentially. No surprise, but do you feel things kind of stabilizing at run rates or is it still pretty dynamic?

Well, Chris, I’ll remind you that only 5% of our total revenues are in Europe. And we don’t view ourselves as a good proxy for Europe because we just don’t have that strong of a position there but I would say just our position over there has actually improved somewhat from quarter to quarter. But again, I don’t think we’re a good proxy to what’s happening overall in Europe. Christopher Glynn – Oppenheimer: Okay, Mark.

Thank you.

Thanks, Chris.

Our next question comes from Mark Douglass from Longbow Research. Mark Douglass – Longbow Research: Good morning, gentlemen. Thanks for taking my questions.

Good morning, Mark. Mark Douglass – Longbow Research: Chuck, what was the – if you can quantify at all, the price cost benefit in the second quarter and then, are you expecting to realize – I know you said the pricing is going to anniversary at least for C&I motors in 3Q but your cost inputs are going down, I would assume, do you still realize some more benefits here in the near future?

Yes, Mark. We were favorable in the second quarter and on a year-to-date basis on price versus cost. So we would expect to continue to benefit modestly from that in the third quarter. The commodity inputs are slightly deflationary and we’ll realize that benefit in the second half of 2012. So, it continues to be somewhat supportive of us, and then you will recall that many of our contracts with customers will adjust price based on those changes in commodity inputs. Mark Douglass – Longbow Research: Right. And then, you had record sales of the high efficiency products, not only in dollars but percentage of sales it looks like. Is that coming more in the C&I or HVAC? And then how does your definition of high efficiency change over time or has it with increasingly stringent standards and mandates? How do you define that relative to where you’ve been?

Mark this is Jon. I’ll try to answer that. So, I would say overall that the improvement came across multiple segments of the business, not just in C&I or in any one particular area. I mentioned the industrial motor as an example. We saw a step up in high efficiency sales in multiple regions that the U.S. and Europe, Canada with a new legislation coming in. Our definition really hasn’t changed on high efficiency. We’ve tried to keep the definition constant quarter-to-quarter, so we can see real changes in demand for those products. As we go forward, some of those high efficiency products become the mandated level, if you will, in a particular region as legislation or regulation catches up with what was a premium product at one time. So, that does change of course. The other aspect of course is acquisitions. So, we acquire a company like Unico. Unico was all about variable speeds. It’s all about enabling energy efficiency in the application. That is, of course, part of our acquisition strategy but that, in itself, will bring up the percentage of high efficiency sales when we acquire a company like Unico or even Milwaukee Gear which makes predominantly high efficiency gearing for a variety of applications.

I’ll just add that on the last call that we had we spent some time on this topic outlining the puts and takes that we had over the last year. The acquisition of EPC actually dragged the number down a little bit. The acquisition of Unico and Milwaukee Gear actually pulled the number up a little bit. The R22 conversion actually pulled the number down a little bit. So, there were a lot of puts and takes and we outlined that on our last call just to try to help, make sure everybody understood how we were looking at it. Mark Douglass – Longbow Research: Okay, well thank you.

Thanks, Mark.

Our next question comes from Josh Pokrzywinski from MKM Partners. Josh Pokrzywinski – MKM Partners: Good morning guys.

Good morning, Josh. Josh Pokrzywinski – MKM Partners: Just thinking about third quarter guidance for a moment. I want to understand some of the sequential moving pieces there, if I could. Just maybe the downtick from the second quarter, how much of that is mix versus any incremental softening in the macro landscape versus just pure seasonality? It seems like commodities maybe become a little bit more favorable versus 2Q synergies, I would imagine, only go up. And maybe mix in the HVAC business with R410A being a little bit more prominent as the OEMs reorder, maybe going your way as well. I’m just trying to understand what the – where the leads are?

Yeah, Josh, you’ve done a good job in summarizing some of those factors and I’ll try to provide a little bit more color. From the seasonality perspective, the second quarter has historically, now with the inclusion of EPC, been slightly stronger than the third. So, we will see a slight decrease in sales on a seasonal basis. You did not mention foreign currency. We would expect that to continue to be a negative in the second quarter to third quarter, and certainly on a year-over-year basis. And then I think we talked about how the C&I and mechanical business on a comparison basis will have a much tougher comparison in the third quarter. So, I think that would influence the comparisons against prior year. And then as you mentioned price has kind of normalized and that the deflationary costs will benefit us slightly in the third quarter as well. So, I think those would be somewhat of tailwinds for the third quarter. I think those are all the comparisons and the factors and the variables that we took into account in looking at our guidance. Josh Pokrzywinski – MKM Partners: Okay. And I mean, maybe I’m looking at the comparisons wrong, but it seems like the comparison actually gets easier overall in HVAC and C&I moving from 2Q to 3Q, I guess that means margins must be down which seasonally, that makes sense anyway but it looks like...

Right. Josh Pokrzywinski – MKM Partners: The decremental margins were very well-managed in the first half, roughly 8% or 15% in 1Q and 2Q and it looks like that slides a little bit more. And I’m just trying to understand, is – with commodities maybe going your way a little bit more, should we take that to mean something about the relative mix between C&I and HVAC or is there something going on there with the loss of productivity with some of these restructuring plans even on a temporary basis? I’m just trying to understand why decrementals would get worse in the third quarter?

Well, yeah Josh. And you’re right on commenting on the strong performance we’ve had in the first half of this year. But the operating leverage that we enjoyed particularly in the second quarter from that higher volume will be a little bit less in the third quarter. So, that does have an impact on margins in this third quarter. And then the other factor as I’ve talked about would have somewhat of a dampening effect. So the FX conversion, the translation and – but as Mark and Jon mentioned, we would expect to see the year-over-year improvement in the HVAC business and the others would just be the puts and takes in the businesses as they operate in this third quarter. Josh Pokrzywinski – MKM Partners: Okay, that’s helpful and if I can sneak one more in here. Just on the $12 million of restructuring spend targeted for the second half, how much of that is showing up or I guess what is the specific amount associated with that in the new growth synergy run rate? I would imagine there’s some other year-to-date or EPC-to-date outperformance that’s baked in there as well. What’s the timing on the payback on that $12 million?

Well, just to try to separate those. EPC continues to perform very well against our pro forma estimates. So, the first half was quite good. And in the first half we had roughly a penny of restructuring charges related to EPC. So, you’re estimating roughly $12 million or higher in the second half that we had talked about. But the realization on the synergy savings we’ve kind of done on a run-rate basis, and Jon laid that out, so that we would finish the second year of EPC with the run-rate synergies that we have.

I think Josh – this is Jon, just to add a little bit to what Chuck said. When you look at the restructuring expenses and some of the heavy lifting that I mentioned for the manufacturing restructuring in the four plants in Juarez, Mexico as well as the warehouse restructuring. The warehousing we’re expecting to get completed by the end of this year. So, we’ll see the full benefits in 2013, less so in the second half. The Juarez restructuring I mentioned 20% of that is now complete. So, we will see some benefits in the second half, but all that won’t be completed until the middle of 2013. So, we’ll see some pickup as we enter into 2013. We’d start to see more of the full benefits of that in the second half of 2013 and, of course, completely realized in 2014. When you look at the synergies billed over the four years that we showed getting to the full synergies by year three with the starting point being August of last year on that timeframe, clearly there is a good chunk of the savings that we got out of the gate with the sourcing synergies, the logistics work that we did, some SG&A savings, so other ways that we were getting at savings besides manufacturing and warehouse restructuring. Josh Pokrzywinski – MKM Partners: That’s helpful. Thank you very much.

Thanks, Josh.

Our next question comes from Jeff Hammond from KeyBanc. Please go ahead with your question. Jeff Hammond – KeyBanc: Hey, guys. Just a few clarifications on HVAC fall. Can you give us – this North America plus 9%, is that a core number or total and then the international number, I think that sounds like an all-in, can you give us that on a core basis?

I’m not sure I understand the North America plus 9%. Are you familiar? Jeff Hammond – KeyBanc: Does that include Milwaukee Gear or exclude?

It excludes it. Excludes acquisitions, Jeff. Jeff Hammond – KeyBanc: Okay. And then, the international sales up 9.5%, I think you mentioned that as being acquisition-driven. Can you give a core and maybe articulate Europe versus Asia, at least, directionally?

The 9.5% does include acquisitions.

That’s right. I don’t have the without acquisitions number on me. Chuck, I don’t know if you have it or not. But, generally speaking, as I mentioned before, we have small exposure in Europe and we’re actually doing better in Europe overall than perhaps the rest of the market. So, China would be more of a struggle for us. Jeff Hammond – KeyBanc: Can you give us some sense of how much your Asian business was down?

As we talked about in the past, our total Asia business would be 15% to 20% of sales, and then China would be the largest share of that, but it’s less than 10% of our total sales, Jeff. So we’ve not given specific country numbers on a quarterly basis in the past. Jeff Hammond – KeyBanc: Okay. And then, can you give us a – back to the high efficiency, can you give us a sense of – I mean, is that number higher because of acquisitions or lower because it sounded like there were some puts and takes or maybe the answer is in the middle.

Yeah, Jeff, the up 29% on a year-over-year basis that clearly is impacted by acquisitions, so that’s an all-in number. However, if you looked at our high efficiency sales excluding acquisitions, we still had growth on a year-over-year basis. So there was core growth in the high efficiency product sales across all of our product range. Jeff Hammond – KeyBanc: Okay, great. And then just final one on the HVAC side, I understand your timing was a little bit different on R22 transition and maybe you can carve that out. But I’m just trying to understand better over the last couple quarters, your growth rates or your level of decline versus what the OEMs and the distributors are calling out, there just seems to be something more than this R22 and just maybe help me understand the dynamics there.

Well, we had – we declined 30% in Q1 and like 11% here in Q2. And our view had been was that as we anniversaried R22, that that – it would decline and that’s exactly what’s happened. And we believe that it’s substantially behind us at this point in time. And as we had mentioned, there’s a mix shift down, and so we go from an area where there’s less competition to where there’s more competition. And so we’re impacted by that as well. And I think the combination of that factor plus customer mix in terms of how they’re performing, all impacts our performance. Jeff Hammond – KeyBanc: Okay. Thanks, guys. I appreciate it.

Thanks, Jeff.

Our next question comes from Holden Lewis from BB&T. Please go ahead with your question. Holden Lewis – BB&T: Thanks, good morning.

Good morning, Holden. Holden Lewis – BB&T: Just want to get a little bit of clarity, I guess, on the various sort of restructurings and things like that. So when you’re talking about the capital and expense, this $5.6 million in year one, $7 million in year two, are there additional expenses being incurred for some of these other items that you’re mentioning, some of the Mexican plant closures, things like that? I’m just having a hard time figuring out which of your initiatives are related to EPC, which of your initiatives are related sort of the simplification sort of your standard operating model and then what cost you’re talking about are associated with all of that?

Holden, this is Jon. So I’ll try to answer that question. The projects that are primarily related to EPC and getting the EPC synergies would include the Juarez restructuring, so those four plants in Mexico that I mentioned, as well as the warehouse restructuring because it has heavy interaction would be EPC warehousing along with the legacy Regal warehousing. So both of those restructuring efforts are in the synergies and in the capital and expense forecast that we showed on the chart now. As you mentioned, there are other efforts that we’re undertaking related to simplification across the entire company that will continue to drive benefits and will require some expense to implement those as well. We’ll be putting a little bit more color on that as we go forward. What Chuck mentioned for the restructuring cost in the third quarter and the restructuring – what we’re forecasting or expecting for the fourth quarter is probably, I think, 75% or 80% driven by the EPC synergies. So it’s vast majority of that for this year is EPC. There are some other expenses for some smaller simplification programs but that’s what you would expect to see for 2012, the second half. Holden Lewis – BB&T: Okay, and are you able to, so the $38 million in savings that you expect to realize, again, is that just from sort of the Juarez, the warehouse, those sorts of things or are there additional savings that you would talk about sort of annually from the simplification that’s going to come from some of these, maybe the 25% of costs that are not related to EPC.

Yeah, the $38 million is only from the EPC synergy projects. So the warehouse restructuring, the Juarez Mexico consolidation of the manufacturing facility is there, as well as the things that we started on August of last year around logistics and sourcing and SG&A benefits. So all of that together builds up, but it does not include these other simplification projects that I’m referring to. Holden Lewis – BB&T: Okay. So there’s some annual sort of benefit from simplification presumably that is not being included in sort of the $38 million or anything like that?

That’s correct, Holden. Holden Lewis – BB&T: Okay. And how are we going to treat these sort of charges, well obviously (inaudible) to look at the results without them. Is this going to be something, which as we go forward, every quarter, we’re going to have more of these things broken out so that we’re effectively taking out the stuff that hits the P&L or is this – what you’re calling out is going to be very specific to the EPC and then once the EPC is done in Q4 – I guess, Q4 for the most part, (inaudible) Q1, we’re not going to be having anymore of these charges to talk about, we’re going to take cost as we go.

Well, Holden, we certainly follow the accounting rules and so we would have the EPC. We’ll always break out the EPC restructuring charges separately and those activities. And then the new simplification initiatives, we’ll call those out and talk about those activities as well so that we don’t mix those two processes and activities together for you. Holden Lewis – BB&T: Okay, got you. And then on the ForEx conversation, obviously it had a negative impact on you, but as you said, you don’t have a big exposure to Europe. Can you talk about where your ForEx exposure is and mostly Mexican peso? And then if that’s right, aren’t you also getting some benefits from having costs so heavily in Mexico? How should would we be thinking about maybe the net effect of ForEx, not just the translation effect?

Okay, so it certainly is – it’s an issue in Europe, it’s an issue in our India business, our Southeast Asia business and our Canadian business. But you’re right, as it relates to the peso in some respects that can benefit our manufacturing costs. Holden Lewis – BB&T: Okay, is that something that you have been or are seeing any significant degree? Is that a contributor to sort of the margin benefits that you’re seeing?

Probably it does contribute a little bit on the margin, Holden. That’s a very good point. And as we try to forecast that for the third quarter, it’s very difficult because those are real life, real-time translation changes. So, trying to put that into our guidance on a line-item basis becomes difficult as you can imagine. Holden Lewis – BB&T: Okay, there is no major sort of boost to margin that is a function of sort of where your costs are in pesos and that sort of thing. It’s just not a big number?

Yeah, I guess I wouldn’t call it a big number but on the margin it does benefit us. Holden Lewis – BB&T: Okay, all right great. Thanks.

Thank you.

Our next question comes from Jamie Sullivan from RBC Capital Markets. Jamie Sullivan – RBC Capital Markets: Hi, good morning.

Good morning, Jamie. Jamie Sullivan – RBC Capital Markets: I guess just a follow-up to the question earlier on Asia, maybe you can just help us with your thinking in the guidance. Are you assuming Asia gets worse going forward or stabilizes at the current levels that you’re seeing?

Well, we have been seeing a sequential quarter-to-quarter improvement in our order rates in fourth to first, first to second or third. But it’s still on a year-over-year basis soft. So, that’s the way we’re thinking about it. So, that gives us some optimism about the future and obviously as you know, the Chinese government is trying to do a lot to stimulate that economy. Jamie Sullivan – RBC Capital Markets: Okay. And then in the Electrical segment, how much of that business does North American C&I contribute?

On the Commercial & Industrial business in total it is about 28% of our total revenue, something like that. I think that’s the total, 28% – Commercial & Industrial is in total about 28% of our total revenues. Jamie Sullivan – RBC Capital Markets: Okay. Is North America the vast majority of that or do you know how much is international?

Jamie, the North America piece would be the largest piece of that. We’re selling in Canada, we’re selling in Europe and China and India and Southeast Asia for that matter as well. But the North America would be the largest single market share. Jamie Sullivan – RBC Capital Markets: Okay. And then maybe on the HVAC side, do you have sense of what your percentage, your volume is that sells into SEER 13, kind of the low-end on a percentage basis?

We would very much follow what the overall HVAC segment is doing. So, we wouldn’t be any greater or any less than the overall market except for the fact that we offer a premium product in the high efficiency space, so we obviously have a larger position in the high efficiency space. Jamie Sullivan – RBC Capital Markets: Okay. And then lastly on Unico, the strength there, can you just talk about what’s driving that and with some of the dynamics in the energy market, whether you think that can continue?

So, Unico sells both an electronic drive as well as a mechanical linear rod pump. So that’s actually the device that actually pumps the oil. And that business has a very strong backlog. Order rate has moderated only slightly. We have been successful in getting our production rates up quarter-to-quarter from fourth to first to second and we expect even more in the third, we’ll be adding capacity in that facility to further improve our ability to meet the order rates that we’ve been seeing.

Jamie, this is Jon, I would just add to Mark’s comments, the Unico’s product range in oil and gas is very diverse. So we have products – the team has developed products that worked through a wide variety of applications, gas as well as oil, onshore as well as offshore, so there’s a very broad product offering. So when one segment does see a decline, it’s somewhat offset by the diversity in the other products. And also the other – some other segments that are performing well for Unico such as automotive, with some of the strengths we’ve seen in automotive in North America in particular, helped us. The other diversity in oil and gas is geography, so it’s not only a North America product but sold in many other regions of the world. And then, third point I would add is that the team continues to look at new spaces, new applications where their technology can add value and we’re pretty excited about some of the things that we see coming up in the future there, so we feel good about the outlook for Unico. Jamie Sullivan – RBC Capital Markets: Okay. Thanks very much.

Thank you, Jamie.

Our next question comes from Bill Dezellem from Tieton Capital. Please go ahead with your question. Bill Dezellem – Tieton Capital: Thank you. Relative to the four Juarez facilities that you’re going to be closing, what is the split between legacy RBC facilities and legacy EPC facilities? And what is going to be happening with the production coming out of those four plants? Where is it going?

Well, the – all four facilities that we’ll be closing are legacy EPC facilities, and the production will be moved to either existing EPC facilities or to RBC, legacy RBC facilities. So, a little bit of history on this. The history for the EPC business was that they had a number of factories in the Juarez area as a result of the acquisitions that that business did over the last, say, 7 to 10 years. And so, there was a – the opportunity was right to consolidate many facilities into other larger facilities that could provide more efficiencies and more leverage. Bill Dezellem – Tieton Capital: And the production, is it going to be staying in Mexico or will it be moving to other parts of the world?

I would say 95% of it will stay right there in Mexico. I think we have one incident where we’re moving some product back to the U.S., but for the most case, it’ll stay right here. Bill Dezellem – Tieton Capital: Great. Thank you.

Thanks, Bill.

Our next question comes from Bhupender Bohra from Jefferies. Please go ahead with your question. Bhupender Bohra – Jefferies: Hey, good morning, guys. I’m sitting in for Scott Graham here.

Good morning. Bhupender Bohra – Jefferies: Hi. First question, if you guys can discuss C&I trend especially in North America, that grew like 1%. I believe that’s a core growth. Can you expand like what you’re seeing right now in that business?

Well, just to comment. These businesses we’re seeing on a year-over-year basis, 15% kind of growth rates on a year-over-year basis. So it is starting to see tougher comps. And the businesses still grew in the second quarter and we did see the orders begin to moderate late in the quarter. Bhupender Bohra – Jefferies: Okay. On FX, could you guys give that by segment? I believe totally it declined – I think FX had an impact of 2%. What was the impact in Electrical and Mechanical?

The majority of it would be on the Electrical segment, but we do have some international mechanical businesses. So it would be a small portion of that, probably less than 10% of the total FX translation impact with vendor. Bhupender Bohra – Jefferies: Okay. And last one, you guys have been talking about this additional simplification program. If you can just give us some color where – what particular segments or what businesses do you think you are going to take a look at and have this – apply the program? Thanks.

Yes. So we have been communicating it for about the last year and it’s going to touch every aspect of the company and touch starting with our corporate brand and going down to our factories, our engineering design platforms, the number of legal entities in the company, the number of SKUs in the company, the number of suppliers in the company. And we laid out targets for ourselves that we would substantially simplify all of those and gave ourselves pretty tough targets. I would say the progress is good and there’s a tremendous amount of momentum around the company to rally around this. I think everyone in the company sees the benefit for both our customer as well as for the bottom line. So we started those discussions in our Investor Day in December of last year and we’ll give an update this year in December on how we’re performing. Bhupender Bohra – Jefferies: Okay. Thanks a lot.

Thank you.

Our next question comes from Zach Larkin from Stephens. Please go ahead with your question. Zach Larkin – Stephens: Hey, good morning, gentlemen.

Good morning, Zach. Zach Larkin – Stephens: First off, could you guys talk maybe about inventory levels that you’re seeing in the different channels that you play into with the slowdown? Have they crept up a bit or do you think still fairly rational as you look at that landscape?

Yes. The feedback has been somewhat mixed on the HVAC side. The distributor channel would – I think the overall feedback would be that the inventory is up on higher sales, but consistent with those higher sales and somewhat normal. From a specific customer perspective on the HVAC side, we are hearing mixed responses. Some people say the channels are lean. Others are saying that the channels are normal.

On the commercial and industrial side, Zach, I would say that the feeling overall is that inventory levels are probably down a bit which would be positive. That coming from what we believe was some of the early reports of the industrial, and North America industrial businesses slowing a bit as we progress to the second quarter. Dealing with that, some the distributors took inventory levels down in anticipation of lighter order rates and we’ve seen, Mark mentioned earlier some of the volatility in the orders being kind of week-to-week basis. We’ve seen some of that rebounding, if you will, and that could be a reaction to lower inventory levels bringing them back up to more normal levels. Zach Larkin – Stephens: Okay. Thanks very much. And then, Mark you also talked about the acquisition pipeline being currently full. Could you maybe give a little color on the types of acquisitions kind of size-wise and the types of products and things like that that you guys might be considering?

Sure. In terms of the range of businesses, anything from a $30 million bolt-on to $800 million large acquisitions. In terms of the types of businesses, we have been very consistent in saying we’re looking for businesses that contribute technology on the energy efficiency side, that expand our global footprint or that add some incremental value or margin improvement to our overall profile. And in terms of the product categories, we’ve been focused on motors, electric generators and as well as mechanical gear drives. And our last three acquisitions have touched each of those categories, one in motors was will be EPC, one in mechanical drives which was Milwaukee Gear, and then recently we acquired a business with Unico that touches more on the electronic drives space. Zach Larkin – Stephens: Okay. Thanks very much.

Thanks, Zach.

Our next question comes from Walter Liptak from Barrington Research. Please go ahead with your question. Walt Liptak – Barrington Research: Hi, thanks. Good morning, guys.

Good morning, Walter. Walt Liptak – Barrington Research: Most of my questions have been asked already, but your cash flow looked good during the quarter especially inventories coming down even though you had sales up sequentially. Wonder if you could provide us with some guidance on second half cash flow?

Well, we were able to make rather significant improvement as we got in to the second quarter or third quarter of our ownership of EPC. So, we had, I think, real improvements overall as we were able to integrate that business. And so we expect the third quarter to be similar performance to what we have had. Now our overall goal is to have free cash flow exceed net income. That is our goal and as we had mentioned this is the fifth quarter in a row that we’ve been able to achieve that goal. Walt Liptak – Barrington Research: Okay, yeah, it doesn’t seem like it will be hard with where you were this quarter. With the consolidation of Juarez and the warehouses, do you need to build the inventory in advance of it or your inventory is in good shape now to meet demand even with that restructuring going on?

There are some, inventory – not for the warehousing but for the manufacturing, restructuring in Juarez. While there is some increase in inventory levels required to make sure that we cover the transition times and make sure that we provide good service metrics to our customers throughout the transition, I would say much of that is – the impact of that – much of that is already in our inventory levels today. There will be a little bit as we go forward, but not a significant amount. Walt Liptak – Barrington Research: Okay, okay. And if I can just switch topics to China. And you’ve got the two new manufacturing plants that are ramping and just understanding the comments that you made about sequential demand improving out of China. What kind of an impact should we be thinking about in the next couple of quarters as these operations continue to ramp? Does it show up in a meaningful way in revenue or absorption of overhead costs?

So, in both cases these are moves that were driven mostly by requirements from the Chinese government, so they needed the land for one reason or the other. In both cases, we made the facility more efficient in terms of its layout and consistent with Lean practices, so we feel that we’ll get some efficiency gains out of it. And we size the plant to be consistent with the growth that we had forecasted back, say, a year or so ago, taking into consideration what we were seeing at that point in time which was a moderating situation in China which showed up for us in the third quarter of last year. So we don’t expect a substantial – it’s not like we’re adding substantial capacity. We don’t expect a significant quarter-to-quarter jump in our production levels. But the plants will be a great showcase for our products and our capabilities and very efficient. Walt Liptak – Barrington Research: Okay, got it. Thanks.

Thanks, Walt.

Our next question comes from Josh Pokrzywinski from MKM Partners. Josh Pokrzywinski – MKM Partners: Hi, guys. Thanks for taking the follow up. Just one quick question. It kind of came up in bits and pieces on the call but I just want to understand kind of once and for all the mix of the migration from, call it, 16 SEER down to 13 SEER or middle efficiency down to low-end efficiency versus maybe this upside surprise on R410A. Is that a net positive or a net negative? So the market mixing down on efficiency but maybe up on refrigerant?

Josh, I don’t think we know exactly yet, I think it’s a little bit too soon to tell. I mean this R410A comment that you’re making, we’ve heard it but it’s not I wouldn’t say a real strong consistent message. So I think it’s a bit soon – too soon to tell and exactly what designs the OEMs use to meet is not exactly clear. But as Jon mentioned earlier, typically a shift to R410A requires different plumbing in the whole system and has been in the past a positive contributor for us and so that’s the way see it. In terms of mix shift down overall, most of it has already occurred as that we – as a result of the R22 conversion back and we’ve anniversaried most of that. So, that’s our thinking on that.

I would add Josh that we did see a little bit better mix in HVAC products in terms of premium products in the quarter than what we saw in the first quarter and then some of that would be just seasonality of the business but it could also be related to the shift towards R410A units as well. So hard for us to correlate the two, exactly as Mark mentioned but we did see that dynamic and that’s positive for the business, of course. Josh Pokrzywinski – MKM Partners: Okay, that’s helpful. Thanks, guys.

Thanks, Josh.

Our next question comes from Holden Lewis from BB&T. Holden Lewis – BB&T: Thanks. So the last, I guess, call it year or so, you’ve been in an environment where HVAC has been weak and C&I has been strong as a result in relatively stable end markets and the results that you’ve put up. And now it looks like you’re maybe shifting to an environment where C&I is weak and HVAC is strong. Assuming that that kind of lends itself again to kind of stable revenues, how should we be thinking about the mix? Is there – are there any sort of mix-related benefits from having weak C&I and strong HVAC or are there mix negatives? How should we be thinking about the mix as you shift your leadership within your mix?

I think the way to think about it is that they both performed, relatively speaking, at the fleet average of the company, so not a substantial change. Holden Lewis – BB&T: Okay. But HVAC is performing at the corporate average even though it has the headwind of heavier repair versus replace and heavier R22 versus R410. So if those gets better, does that sort of improve the mix profile or not really?

Well, it can certainly improve. If the mix gets better, that’s going to be an improvement for – that will be a help to us. Holden Lewis – BB&T: Okay, but the point, I guess, is HVAC and C&I are currently operating at similar margins, but normally HVAC would do better under a more normalized environment?

I’m not sure what’s normal anymore given all the changes in HVAC, so that’s kind of tough to say. But I would say in the past few quarters, they’ve been similar in their overall performance. Holden Lewis – BB&T: Okay. And then I guess the last thing is, in recent quarters, you’ve been cutting production, I guess, particularly in HVAC just to deal with inventories. Where are you in that process? Are we going to be normalizing production in HVAC and, therefore, getting a – has that been a drag from an absorption standpoint and that’s going to flip to become normal or a benefit from an absorption standpoint or is that a past issue or how should I be thinking about production cuts and normalizing it?

I would say, Holden, that was the dynamic we were working through in the latter half of 2011 and as we entered 2012, the first quarter, of course, we were – I would say by the – as we got into the first quarter and as we exited the first quarter, we had inventory levels right where we wanted them. Holden Lewis – BB&T: Okay.

And then with the seasonal pickup in the second quarter and some help from the warm weather, I think we’re in, overall, very good shape right now. Holden Lewis – BB&T: Got it. Okay. Great. Thanks, guys.

Thank you.

Thank you, Holden.

And with that, we’ll conclude today’s question-and-answer session. At this time, I’d like to turn the conference call back over for any closing remarks.

Thank you. I’ll just make a few closing remarks. Overall, the first half of 2012 was very exciting for our company. We mentioned that for the first half, we achieved record sales and record earnings and we successfully integrated the largest acquisition in our history. We launched our corporate brand which we laid out for you and we began the journey to simplify every aspect of our company. From a new product standpoint, we talk about it all the time. We’re on track to achieve another record year of new product launches and most of it focused on energy efficiency. We made major investments in our Chinese factory and with an effort to improve our overall performance. And we’ve made pretty big stride on improving our quality and our delivery which we’ll talk about. We think that will show up in our annual customer survey. Really proud of the performance of the company. We have some uncertainties out there and in spite of that we’re very excited about the future. We recognize that none of this would be possible without all the contributions from our Regal employees globally and we sincerely thank them. Thank you again for your interest in our company. And have a great day.

Thank you for joining today’s conference call. It has not concluded. You may now disconnect your telephone lines.