Slide 1: Fourth Quarter 2013 Earnings Conference Call
Regal Beloit Corporation Fourth Quarter 2013 Earnings Conference Call February 11, 2014 Mark Gliebe Jon Schlemmer Chairman and Chief Operating Officer Chief Executive Officer Chuck Hinrichs John Perino Vice President Vice President Chief Financial Officer Investor Relations
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. > Forward-looking statements represent our management’s judgment regarding future events. In many cases, you can identify forward-looking statements by te
Slide 3: Non-GAAP Financial Measures
Non-GAAP Financial Measures We prepare financial statements in accordance with accounting principles generally accepted in the United States (GAAP). We also disclose adjusted diluted earnings per share (EPS), adjusted gross profit, adjusted gross profit as a percentage of net sales, adjusted income
Slide 4: Agenda
Agenda Opening Comments Mark Gliebe Financial Update Chuck Hinrichs Operations Update Jon Schlemmer Summary Mark Gliebe Q&A All p4
Slide 5: Opening Comments – 4th Quarter 2013
Opening Comments – 4th Quarter 2013 > Revenues Up Slightly Over Prior Year − N.A. HVAC Up Approximately 5% Despite Headwinds − Strong Sales Into China − India & Australia Remain Challenged − N.A. C&I Motors Down Slightly, Offset with Strong Power Gen Sales − N.A. Mechanical Down Approximately 7% Due
Slide 6: Opening Comments – 4th Quarter 2013
Opening Comments – 4th Quarter 2013 > Simplification Plans are on Schedule > Launched 20 New Products in the Quarter and Total of 71 New Products in 2013 > Cemp Integration Process on Track > Announced Acquisition of Hy-Bon > Substantially Completed Plant Expansion for Unico > Began Plant Relocation
Slide 7: Opening Comments – 1st Quarter Outlook
Opening Comments – 1st Quarter Outlook > Typical Residential HVAC Seasonality – Customer Dynamics Continue > North American C&I Motors Up Modestly with Continued Strength in Power Generation > International Market Environment Mixed > Gross Margin Headwind of Approximately 1% – Acquisitions Recording
Slide 8: 4th Quarter and Fiscal 2013 Financial Results
4th Quarter and Fiscal 2013 Financial Results ADJUSTED DILUTED EARNINGS PER SHARE* Three Months Ended Twelve Months Ended Dec 28, Dec 29, Dec 28, Dec 29, 2013 2012 2013 2012 GAAP Diluted Earnings Per Share $ (0.74) $ 0.70 $ 2.64 $ 4.64 Asset Impairments and Other, Net of Tax 1.65 − 1.65 − Purchase A
Slide 9: 4th Quarter 2013 Financial Results
4th Quarter 2013 Financial Results > Sales of $727 Million, Up 1.6% from Prior Year – Foreign Currency Translation Reduced Total Net Sales by 0.9% – Sales from Acquired Business were 1.3% > Gross Margin of 24.5% vs. 22.5% in Prior Year – Includes $3.4 Million Higher LIFO Expense – Includes $0.8 Mill
Slide 10: 4th Quarter 2013 Financial Results
4th Quarter 2013 Financial Results Goodwill & Intangible Asset Non-Cash Impairment Expenses > Completed Annual Goodwill Valuation Test > $75 Million Non-Cash Impairment Expense for Goodwill, Intangible and Other Items, Net of $6.4 Million Tax Benefit > Goodwill Impairment Primarily in the Businesses
Slide 11: 4th Quarter 2013 Financial Results
4th Quarter 2013 Financial Results $3.7 Million Tax Benefit Resulting From Unanticipated Tax Benefits in Excess of 18% Guidance > Benefit from Intangibles and Related Assets Impairment Expense – Included in $1.65 EPS Adjustment > Benefit from Dec. 2013 Change in Mexican Corporate Income Tax Law and
Slide 12: Key Financial Metrics
Key Financial Metrics Capital Expenditures Effective Tax Rate (ETR) $17.3 Million (10.1%) ETR in 4Q 2013 was $81.1 Million for FY 2013 Better than Guidance $80-$85 Million Est. for FY 2014 ~ 27% ETR Est. for 2014 Free Cash Flow* Balance Sheet at Dec. 28, 2013 4Q 2013 Total Debt of $767
Slide 13: Capital Allocation
Capital Allocation Priorities for Capital Allocation > Capital Expenditures – $81 Million in 2013 – $80-$85 Million Estimated in 2014 > Acquisitions – Active Pipeline > Dividends – Increased Dividends 8 of the Last 9 Years > Share Repurchases – 3 Million Share Repurchase Reauthorization Capital Allo
Slide 14: 1st Quarter 2014 Guidance
1st Quarter 2014 Guidance > GAAP EPS Guidance of $0.90 to $0.98 > Adjusted EPS Guidance of $0.99 to $1.07 - Adds Back $0.07 of Restructuring Charges - Adds Back $0.02 of Purchase Accounting > Includes Impact Of Cemp and Hy-Bon Acquisitions - EPS Neutral After Purchase Accounting > Gross Margin Headw
Slide 15: End Market Update
End Market Update > N.A. Residential HVAC Sales Up Approximately 5% – Sales Strength in Both OEM and Aftermarket – Impact of Cold Weather – Impacted by Customer Dynamics, as Expected > N.A. Commercial & Industrial Motor Sales Down Approximately 2% – Performed as Expected – Stable Orders Throughout t
Slide 16: End Market Update
End Market Update > N.A. Mechanical Sales Down – Driven by Reduced Demand for Gas Fracturing Equipment – Excluding Milwaukee Gear, Sales Slightly Up > Unico Sales Up Approximately 20% – Driven by Oil and Gas – Manufacturing Expansion Substantially Completed > International Sales Increased 1% Overcom
Slide 17: Accelerating New Products
Accelerating New Products New Product Launches 71 > 20 New Products 60 Launched in 4Q 2013 50 21% > Energy Efficient Sales Increased 7% in 4Q 2013 Representing 22% of Total Sales 2011 2012 2013 p 17
Slide 18: Latest HVACR New Products
Latest HVACR New Products > High Efficiency Air Mover > Dual Efficiency Configuration - Axial Permanent Magnet Motor and Control - High Efficiency Blower > Improved Efficiency, Lighter, More Compact, Quiet Operation > Larger 56 Frame ECM Design SyMAX-I™ > Designed for Commercial HVAC, Refrigeration
Slide 19: Cemp Acquisition Update
Cemp Acquisition Update > Specializes in Flameproof Motors for Hazardous Areas Sales by End-Market > $35M Annual Revenue Chemicals 5% Mining > Applications Include Oil & 10% Gas, Marine, Mining and Chemical Marine 20% > Integration Process Oil & Gas 65% Underway > $10M Sales Growth Plan over Three Y
Slide 20: Hy-Bon Overview
Hy-Bon Overview > Manufacturer of Vapor Recovery Units > Capture Gas Emissions from Oil Field (VRUs) Storage Tanks > Sales 2013: $57 Million - Replaces Venting / Flaring > Based in Midland, Texas - Attractive Payback > Primarily Oil & Gas - Favorable EPA Regulation > Synergistic with Unico Business
Slide 21: Hy-Bon Overview
Hy-Bon Overview VRU Field of Use Accretive Earnings Per Share Pump $0.12 Storage Tank Battery $0.06 $0.08 $0.03 2014 2015 p 21
Slide 22: Simplification Update
Simplification Update > Springfield Missouri Update – On Plan, Completion by End of 2014 – Experiencing Manufacturing Inefficiencies Estimated Restructuring in the First Half of 2014 Expense – Total Annualized Savings $15M $4.4 > Announced Consolidation of $2.7 $3.1 $3.0 Residential Hermetic Motor O
Slide 23: Design Platform Simplification
Design Platform Simplification Platform Description 48 Frame Fractional HVAC Motors Fractional HVACR Motors 3.3” and Blowers Worm Gear Mechanical Industrial Motors for Asia IEC IE3 Mark 3 and Europe 48/56 Frame Fractional C&I Motors p 23
Slide 24: Mark 3 Platform Development
Mark 3 Platform Development Platform Details >One Platform for the Cast Iron IEC Motor Market >High Efficiency Design >Harmonized Features >Initially Produced in New Wuxi China Facility Full Product Range from 80 to 355 Frame p 24
Slide 25: New Regal Wuxi Facility
New Regal Wuxi Facility > Third New Regal China Facility Constructed in Past Three Years > Industrial Motor Facility to Serve China and Export > Relocation of Existing Wuxi Facility has Started this Quarter > Transition Completed by Year End 2014 Investing to Improve and Expand Regal’s Global Indust
Slide 26: Closing Comments
Closing Comments > 4Q 2013 Results Delivered Top Line Growth and Improved Adjusted EPS > With Tax Benefit, Results Well Above Our Guidance > Gross Margin Increased 2% > Full Year Strong Free Cash Flow at 117% of Adj. Net Income* > Simplification Remains on Track > Contribution from New Products > We
Slide 27: Closing Comments – Outlook for 1Q 2014
Closing Comments > Outlook for 1Q 2014 − Growth in C&I and China, HVAC Flat to Up, Market Conditions Challenging for India, Australia and Milwaukee Gear − 1% Gross Margin Challenges Moderating by End of 2Q 2014 − SG&A Expenses as a Percentage of Sales Expected to Improve > Regal is Better Positioned
Slide 28: Questions and Answers
Questions and Answers p 28
Slide 29: Appendix Non-GAAP Reconciliations
Appendix Non-GAAP Reconciliations ADJUSTED DILUTED EARNINGS PER SHARE* Three Months Ended Twelve Months Ended Dec 28, Dec 29, Dec 28, Dec 29, 2013 2012 2013 2012 GAAP Diluted Earnings Per Share $ (0.74) $ 0.70 $ 2.64 $ 4.64 Asset Impairments and Other, Net 1.65 — 1.65 — Purchase Accounting and Acqui
Slide 30: Appendix Non-GAAP Reconciliations
Appendix Non-GAAP Reconciliations Adjusted Net Income* Three Months Ended Twelve Months Ended Dec 28, Dec 29, Dec 28, Dec 29, 2013 2012 2013 2012 GAAP Net Income (Loss) Attributable to Regal Beloit Corporation $ (33.2) $ 29.9 $ 120.0 $ 195.6 Asset Impairments and Other, Net 81.0 $ - 81.0 $ - Tax Eff
Slide 31: Appendix Non-GAAP Reconciliations
Appendix Non-GAAP Reconciliations EBITDA Reconciliation Dollars in Millions 1Q 2013 2Q 2013 3Q 2013 4Q 2013 LTM Net Income $49.5 $51.1 $52.6 ($33.2) $120.0 Asset Impairment and Other, Net $81.0 $81.0 Plus: Minority Interest 1.2 2.5 1.9 0.4 6.0 Plus: Taxes 15.3 17.9 15.0 -3.7 44.5 Plus: Interest Expe