UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly
period ended September 26, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to .
Commission File Number:
333-124824
RBC
Bearings Incorporated
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
95-4372080
(I.R.S. Employer Identification No.) |
|
|
One Tribology Center
Oxford, CT
(Address of principal executive offices) |
06478
(Zip Code) |
(203) 267-7001
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated
filer o
Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of October 22, 2015, RBC Bearings Incorporated
had 23,421,370 shares of Common Stock outstanding.
TABLE OF CONTENTS
Part I. FINANCIAL
INFORMATION
Item
1. Financial Statements
RBC Bearings Incorporated
Consolidated Balance Sheets
(dollars in thousands, except share
and per share data)
| |
September 26, 2015 | | |
March 28, 2015 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 44,077 | | |
$ | 125,455 | |
Accounts receivable, net of allowance for doubtful
accounts of $1,643 at September 26, 2015 and $860 at March 28, 2015 | |
| 97,132 | | |
| 76,651 | |
Inventory | |
| 262,883 | | |
| 206,158 | |
Deferred income taxes | |
| 11,336 | | |
| 12,492 | |
Prepaid expenses and other current
assets | |
| 9,306 | | |
| 4,628 | |
Total current assets | |
| 424,734 | | |
| 425,384 | |
Property, plant and equipment, net | |
| 184,102 | | |
| 141,649 | |
Goodwill | |
| 269,901 | | |
| 43,439 | |
Intangible assets, net of accumulated amortization
of $17,355 at September 26, 2015 and $13,185 at March 28, 2015 | |
| 208,553 | | |
| 12,028 | |
Other assets | |
| 9,169 | | |
| 9,573 | |
Total assets | |
$ | 1,096,459 | | |
$ | 632,073 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 37,092 | | |
$ | 23,459 | |
Accrued expenses and other current liabilities | |
| 30,311 | | |
| 17,326 | |
Current portion of long-term debt | |
| 8,725 | | |
| 1,233 | |
Total current liabilities | |
| 76,128 | | |
| 42,018 | |
Deferred income taxes | |
| 22,355 | | |
| 10,126 | |
Long-term debt, less current portion | |
| 393,573 | | |
| 7,965 | |
Other non-current liabilities | |
| 28,728 | | |
| 22,531 | |
Total liabilities | |
| 520,784 | | |
| 82,640 | |
| |
| | | |
| | |
Stockholders' equity: | |
| | | |
| | |
Preferred stock, $.01 par value; authorized shares:
10,000,000 at September 26, 2015 and March 28, 2015; none issued and outstanding | |
| — | | |
| — | |
Common stock, $.01 par value; authorized shares:
60,000,000 at September 26, 2015 and March 28, 2015; issued and outstanding shares: 23,989,656 at September 26, 2015 and 23,833,185
at March 28, 2015 | |
| 240 | | |
| 238 | |
Additional paid-in capital | |
| 270,236 | | |
| 262,091 | |
Accumulated other comprehensive loss | |
| (9,900 | ) | |
| (7,770 | ) |
Retained earnings | |
| 342,099 | | |
| 314,176 | |
Treasury stock, at cost, 559,856
shares at September 26, 2015 and 439,864 shares at March 28, 2015 | |
| (27,000 | ) | |
| (19,302 | ) |
Total stockholders' equity | |
| 575,675 | | |
| 549,433 | |
Total liabilities and stockholders'
equity | |
$ | 1,096,459 | | |
$ | 632,073 | |
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Operations
(dollars in thousands, except share
and per share data)
(Unaudited)
| |
Three Months Ended | | |
Six Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
September 26, 2015 | | |
September 27, 2014 | |
Net sales | |
$ | 148,696 | | |
$ | 112,555 | | |
$ | 291,004 | | |
$ | 225,539 | |
Cost of sales | |
| 96,578 | | |
| 72,804 | | |
| 186,122 | | |
| 141,967 | |
Gross margin | |
| 52,118 | | |
| 39,751 | | |
| 104,882 | | |
| 83,572 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 24,944 | | |
| 18,517 | | |
| 48,669 | | |
| 37,513 | |
Other, net | |
| 3,575 | | |
| 2,937 | | |
| 10,253 | | |
| 3,551 | |
Total operating expenses | |
| 28,519 | | |
| 21,454 | | |
| 58,922 | | |
| 41,064 | |
Operating income | |
| 23,599 | | |
| 18,297 | | |
| 45,960 | | |
| 42,508 | |
Interest expense, net | |
| 2,273 | | |
| 308 | | |
| 3,984 | | |
| 532 | |
Other non-operating (income) expense | |
| (596 | ) | |
| (235 | ) | |
| 10 | | |
| (502 | ) |
Income before income taxes | |
| 21,922 | | |
| 18,224 | | |
| 41,966 | | |
| 42,478 | |
Provision for income taxes | |
| 7,403 | | |
| 4,976 | | |
| 14,043 | | |
| 13,210 | |
Net income | |
$ | 14,519 | | |
$ | 13,248 | | |
$ | 27,923 | | |
$ | 29,268 | |
Net income per common share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.63 | | |
$ | 0.57 | | |
$ | 1.20 | | |
$ | 1.27 | |
Diluted | |
$ | 0.62 | | |
$ | 0.57 | | |
$ | 1.19 | | |
$ | 1.25 | |
Weighted average common shares: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 23,210,640 | | |
| 23,134,902 | | |
| 23,186,600 | | |
| 23,070,170 | |
Diluted | |
| 23,495,285 | | |
| 23,424,421 | | |
| 23,516,537 | | |
| 23,394,439 | |
Dividends per share | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 2.00 | |
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Comprehensive
Income
(dollars in thousands)
(Unaudited)
| |
Three Months Ended | | |
Six Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
September 26, 2015 | | |
September 27, 2014 | |
Net income | |
$ | 14,519 | | |
$ | 13,248 | | |
$ | 27,923 | | |
$ | 29,268 | |
Pension and postretirement liability adjustments,
net of taxes | |
| (228 | ) | |
| 199 | | |
| (455 | ) | |
| 398 | |
Unrealized gain on investments, net of taxes | |
| — | | |
| (345 | ) | |
| — | | |
| (273 | ) |
Foreign currency translation
adjustments | |
| (3,380 | ) | |
| (5,152 | ) | |
| (1,675 | ) | |
| (5,971 | ) |
Total comprehensive income | |
$ | 10,911 | | |
$ | 7,950 | | |
$ | 25,793 | | |
$ | 23,422 | |
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
| |
Six Months Ended | |
| |
September
26, 2015 | | |
September
27, 2014 | |
Cash flows from operating activities: | |
| | | |
| | |
Net income | |
$ | 27,923 | | |
$ | 29,268 | |
Adjustments to reconcile net income to net cash provided
by operating activities: | |
| | | |
| | |
Depreciation | |
| 8,302 | | |
| 7,103 | |
Excess tax benefits from stock-based compensation | |
| (1,682 | ) | |
| (2,778 | ) |
Deferred income taxes | |
| 791 | | |
| 218 | |
Amortization of intangible assets | |
| 4,170 | | |
| 964 | |
Amortization of deferred financing costs | |
| 621 | | |
| 163 | |
Consolidation and restructuring charges | |
| — | | |
| 5,026 | |
Stock-based compensation | |
| 4,628 | | |
| 4,035 | |
Other non-cash charges | |
| 232 | | |
| 500 | |
Changes in operating assets and liabilities, net of
acquisitions: | |
| | | |
| | |
Accounts receivable | |
| 4,068 | | |
| 2,848 | |
Inventory | |
| (9,481 | ) | |
| (6,291 | ) |
Prepaid expenses and other current assets | |
| (3,946 | ) | |
| (2,669 | ) |
Other non-current assets | |
| (20 | ) | |
| (670 | ) |
Accounts payable | |
| (1,206 | ) | |
| (560 | ) |
Accrued expenses and other current liabilities | |
| 769 | | |
| 7,451 | |
Other non-current liabilities | |
| 5,091 | | |
| 120 | |
Net cash provided by operating activities | |
| 40,260 | | |
| 44,728 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property, plant and equipment | |
| (9,799 | ) | |
| (11,458 | ) |
Proceeds from sale of short-term investments | |
| — | | |
| 2,380 | |
Proceeds from sale of assets | |
| 40 | | |
| 593 | |
Business acquisition | |
| (500,000 | ) | |
| — | |
Net cash used in investing activities | |
| (509,759 | ) | |
| (8,485 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from revolving credit facility | |
| 225,000 | | |
| — | |
Repayments of revolving credit facility | |
| (20,000 | ) | |
| — | |
Proceeds from term loans | |
| 200,000 | | |
| — | |
Repayments of term loans | |
| (5,245 | ) | |
| (259 | ) |
Finance fees paid in connection with credit facility | |
| (7,122 | ) | |
| — | |
Exercise of stock options | |
| 1,837 | | |
| 2,992 | |
Excess tax benefits from stock-based compensation | |
| 1,682 | | |
| 2,778 | |
Repurchase of common stock | |
| (7,698 | ) | |
| (4,721 | ) |
Dividends paid to shareholders | |
| — | | |
| (46,014 | ) |
Other, net | |
| — | | |
| (101 | ) |
Net cash provided by (used in)
financing activities | |
| 388,454 | | |
| (45,325 | ) |
| |
| | | |
| | |
Effect of exchange rate changes
on cash | |
| (333 | ) | |
| (2,678 | ) |
| |
| | | |
| | |
Cash and cash equivalents: | |
| | | |
| | |
Decrease during the period | |
| (81,378 | ) | |
| (11,760 | ) |
Cash, at beginning of period | |
| 125,455 | | |
| 121,207 | |
Cash, at end of period | |
$ | 44,077 | | |
$ | 109,447 | |
See accompanying notes.
RBC Bearings Incorporated
Notes to Unaudited Interim Consolidated
Financial Statements
(dollars in thousands, except share
and per share data)
The consolidated financial
statements included herein have been prepared by RBC Bearings Incorporated, a Delaware corporation (collectively with its subsidiaries,
the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The
March 28, 2015 fiscal year end balance sheet data have been derived from the Company’s audited financial statements, but
do not include all disclosures required by generally accepted accounting principles in the United States. The interim financial
statements included with this report have been prepared on a consistent basis with the Company’s audited financial statements
and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2015.
These statements reflect
all adjustments, accruals and estimates consisting only of items of a normal recurring nature, which are, in the opinion of management,
necessary for the fair presentation of the consolidated financial condition and consolidated results of operations for the interim
periods presented. These financial statements should be read in conjunction with the Company’s audited financial statements
and notes thereto included in the Annual Report on Form 10-K.
The results of operations
for the six month period ended September 26, 2015 are not necessarily indicative of the operating results for the entire fiscal
year ending April 2, 2016. The three month periods ended September 26, 2015 and September 27, 2014 each include 13 weeks. The
amounts shown are in thousands, unless otherwise indicated.
Adoption of Recent Accounting Pronouncements
In September 2015,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-16,
“Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments.” This ASU allows
an acquirer in a business combination to account for measurement-period adjustments during the period in which it determines the
amount of the adjustment. An acquirer would also need to capture in the current period any effect on earnings it would have recorded
in previous periods if the accounting had been completed at the acquisition date. This pronouncement is effective for fiscal and
interim periods beginning after December 15, 2015. Early adoption is permitted. The Company has adopted this update effective
with their interim period beginning March 29, 2015.
In April 2015, the
FASB issued ASU No. 2015-04, “Compensation - Retirement Benefits: Practical Expedient for the Measurement Date of an Employer’s
Defined Benefit Obligation and Plan Assets.” This ASU permits an entity with a fiscal year-end that does not coincide with
a month-end, to measure defined benefit plan assets and obligations using the month end that is closest to the entity’s
fiscal year-end and apply that consistently from year to year. The practical expedient requires if a contribution or significant
event occurs between the month-end date used to measure the defined benefit plan assets and an entity’s fiscal year end,
the entity should adjust the measurement of the defined benefit plan assets and obligations to reflect the effects of those contributions
and other significant events. This pronouncement is effective for fiscal and interim periods beginning after December 15, 2015.
The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.
In April 2015, the
FASB issued ASU No. 2015-03, “Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.”
This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability. This pronouncement is effective for fiscal and interim periods beginning
after December 15, 2015. Early adoption is allowed. Given the requirement for retrospective treatment, the Company adopted this
pronouncement in the first quarter of fiscal 2016. Other than a different presentation within the balance sheet, the adoption
of this ASU did not have a material impact on the Company’s financial statements.
In January 2015, the
FASB issued ASU No. 2015-01, “Income Statement-Extraordinary and Unusual Items.” This update eliminates the concept
of extraordinary items and removes the requirements to separately present extraordinary events. This ASU also requires additional
disclosures for items that are both unusual in nature and infrequent in occurrence. This pronouncement is effective for fiscal
years and interim periods beginning after December 15, 2015. The adoption of this ASU is not expected to have a material impact
on the Company’s consolidated financial statements.
In August 2014, the
FASB issued ASU No. 2014-15, “Presentation of Financial Statements-Going Concern.” This update requires management
to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as
a going concern, and requires related footnote disclosures. This pronouncement is effective for fiscal years and interim periods
beginning after December 15, 2016. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated
financial statements.
In May 2014, the FASB
issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” to clarify existing guidance on revenue
recognition. This guidance includes the required steps to achieve the core principle that a company should recognize revenue when
it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects
to be entitled in exchange for those goods or services. This pronouncement is effective for fiscal years and interim periods beginning
after December 15, 2016 with no early adoption permitted. The Company has not determined the effect that the adoption of the pronouncement
may have on its financial position and/or results of operations.
In April 2014, the
FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.”
This update requires additional disclosures about discontinued operations and amends the requirements for reporting discontinued
operations. Under this ASU only disposals constituting a major financial or operational impact or that represent a strategic shift
should be reported as discontinued operations. This update also requires new disclosures for individually material disposals that
do not qualify as discontinued operations. This guidance was adopted by the Company at the beginning of the second quarter of
fiscal 2015. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
1. Accumulated Other Comprehensive
Income (Loss)
The components of
comprehensive income (loss) that relate to the Company are net income, foreign currency translation adjustments and pension plan
and postretirement benefits, all of which are presented in the consolidated statements of stockholders' equity and comprehensive
income (loss).
The following summarizes
the activity within each component of accumulated other comprehensive income (loss):
| |
Currency Translation | | |
Pension
and Postretirement
Liability | | |
Total | |
Balance at March 28, 2015 | |
$ | (93 | ) | |
$ | (7,677 | ) | |
$ | (7,770 | ) |
Other comprehensive income (loss) before reclassifications
(net of taxes) | |
| (1,675 | ) | |
| (373 | ) | |
| (2,048 | ) |
Amounts reclassified from accumulated
other comprehensive income (loss) | |
| — | | |
| (82 | ) | |
| (82 | ) |
Net current period other comprehensive
income (loss) | |
| (1,675 | ) | |
| (455 | ) | |
| (2,130 | ) |
Balance at September 26, 2015 | |
$ | (1,768 | ) | |
$ | (8,132 | ) | |
$ | (9,900 | ) |
2. Net Income Per Common Share
Basic net income per common share is computed
by dividing net income available to common stockholders by the weighted-average number of common shares outstanding.
Diluted net income
per common share is computed by dividing net income by the sum of the weighted-average number of common shares and dilutive common
share equivalents then outstanding using the treasury stock method. Common share equivalents consist of the incremental common
shares issuable upon the exercise of stock options.
The table below reflects
the calculation of weighted-average shares outstanding for each period presented as well as the computation of basic and diluted
net income per common share:
| |
Three Months Ended | | |
Six Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
September 26, 2015 | | |
September 27, 2014 | |
| |
| | |
| | |
| | |
| |
Net income | |
$ | 14,519 | | |
$ | 13,248 | | |
$ | 27,923 | | |
$ | 29,268 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator for basic net income per common share—weighted-average shares outstanding | |
| 23,210,640 | | |
| 23,134,902 | | |
| 23,186,600 | | |
| 23,070,170 | |
Effect of dilution due to employee stock awards | |
| 284,645 | | |
| 289,519 | | |
| 329,937 | | |
| 324,269 | |
Denominator for diluted net income per common share — weighted-average shares outstanding | |
| 23,495,285 | | |
| 23,424,421 | | |
| 23,516,537 | | |
| 23,394,439 | |
| |
| | | |
| | | |
| | | |
| | |
Basic net income per common share | |
$ | 0.63 | | |
$ | 0.57 | | |
$ | 1.20 | | |
$ | 1.27 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted net income per common share | |
$ | 0.62 | | |
$ | 0.57 | | |
$ | 1.19 | | |
$ | 1.25 | |
At September 26, 2015,
408,000 employee stock options and 73,850 restricted shares have been excluded from the calculation of diluted earnings per share.
At September 27, 2014, 419,650 employee stock options and 800 restricted shares have been excluded from the calculation of diluted
earnings per share. The inclusion of these employee stock options would be anti-dilutive.
3. Cash and Cash Equivalents
The Company considers
all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Short-term investments,
if any, are comprised of equity securities and are measured at fair value by using quoted prices in active markets and are classified
as Level 1 of the valuation hierarchy.
4. Inventory
Inventories
are stated at the lower of cost or market, using the first-in, first-out method, and are summarized below:
| |
September 26, 2015 | | |
March 28, 2015 | |
Raw materials | |
$ | 29,361 | | |
$ | 18,424 | |
Work in process | |
| 76,514 | | |
| 50,243 | |
Finished goods | |
| 157,008 | | |
| 137,491 | |
| |
$ | 262,883 | | |
$ | 206,158 | |
5. Goodwill and Intangible Assets
Goodwill
| |
Roller | | |
Plain | | |
Ball | | |
Engineered Products | | |
Total | |
| |
| | |
| | |
| | |
| | |
| |
March 28, 2015 | |
$ | 16,007 | | |
$ | 20,641 | | |
$ | 5,623 | | |
$ | 1,168 | | |
$ | 43,439 | |
Acquisitions | |
| — | | |
| 57,479 | | |
| — | | |
| 169,002 | | |
| 226,481 | |
Other | |
| — | | |
| — | | |
| — | | |
| (19 | ) | |
| (19 | ) |
September 26, 2015 | |
$ | 16,007 | | |
$ | 78,120 | | |
$ | 5,623 | | |
$ | 170,151 | | |
$ | 269,901 | |
Intangible Assets
| |
| |
September 26, 2015 | | |
March 28, 2015 | |
| |
Weighted Average Useful Lives | |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Gross Carrying Amount | | |
Accumulated Amortization | |
Product approvals | |
24 | |
$ | 54,285 | | |
$ | 3,349 | | |
$ | 4,068 | | |
$ | 2,372 | |
Customer relationships and lists | |
24 | |
| 110,696 | | |
| 6,348 | | |
| 9,017 | | |
| 4,349 | |
Trade names | |
10 | |
| 19,990 | | |
| 2,219 | | |
| 2,102 | | |
| 1,372 | |
Distributor agreements | |
5 | |
| 722 | | |
| 722 | | |
| 722 | | |
| 722 | |
Patents and trademarks | |
15 | |
| 7,881 | | |
| 3,345 | | |
| 7,670 | | |
| 3,039 | |
Domain names | |
10 | |
| 437 | | |
| 320 | | |
| 437 | | |
| 299 | |
Other | |
5 | |
| 1,197 | | |
| 1,052 | | |
| 1,197 | | |
| 1,032 | |
| |
| |
| 195,208 | | |
| 17,355 | | |
| 25,213 | | |
| 13,185 | |
Non-amortizable repair station certifications | |
n/a | |
| 30,700 | | |
| — | | |
| — | | |
| — | |
Total | |
| |
$ | 225,908 | | |
$ | 17,355 | | |
$ | 25,213 | | |
$ | 13,185 | |
Amortization expense
for definite-lived intangible assets for the three and six month periods ended September 26, 2015 was $2,402 and $4,170, respectively.
Amortization expense for definite-lived intangible assets for the three and six month periods ended September 27, 2014 was $467
and $964, respectively. Estimated amortization expense for the remaining six months of fiscal 2016, the five succeeding fiscal
years and thereafter is as follows:
2016 | |
$ | 4,814 | |
2017 | |
| 9,562 | |
2018 | |
| 9,439 | |
2019 | |
| 9,216 | |
2020 | |
| 9,108 | |
2021 | |
| 9,058 | |
2022 and thereafter | |
| 126,656 | |
6. Debt
The balances payable
under all borrowing facilities are as follows:
| |
September 26, 2015 | | |
March 28, 2015 | |
Revolver and term loan facilities | |
$ | 400,000 | | |
$ | — | |
Debt issuance costs | |
| (6,529 | ) | |
| — | |
Other | |
| 8,827 | | |
| 9,198 | |
Total debt | |
| 402,298 | | |
| 9,198 | |
Less: current portion | |
| 8,725 | | |
| 1,233 | |
Long-term debt | |
$ | 393,573 | | |
$ | 7,965 | |
New Credit Facility
In connection with
the Sargent Aerospace & Defense (“Sargent”) acquisition on April 24, 2015, the Company entered into a new credit
agreement (the “New Credit Agreement”) and related Guarantee, Pledge Agreement and Security Agreement with Wells Fargo
Bank, National Association, as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer and the other
lenders party thereto and terminated the JP Morgan Credit Agreement. The New Credit Agreement provides RBCA, as Borrower, with
(a) a $200,000 term loan facility (the “Term Loan”) and (b) a $350,000 revolving credit facility (the “Revolver”
and together with the Term Loan, the “Facilities”).
Amounts outstanding
under the Facilities generally bear interest at (a) a base rate determined by reference to the higher of (1) Wells Fargo’s
prime lending rate, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one-month LIBOR rate plus 1% or (b) LIBOR
rate plus a specified margin, depending on the type of borrowing being made. The applicable margin is based on the Company's consolidated
ratio of total net debt to consolidated EBITDA from time to time. Currently, the Company's margin is 0.5% for base rate loans
and 1.5% for LIBOR rate loans. As of September 26, 2015, there was $205,000 outstanding under the Revolver and $195,000 outstanding
under the Term Loan, offset by $6,529 in debt issuance costs (original amount was $7,122).
The New Credit Agreement
requires the Company to comply with various covenants, including among other things, financial covenants to maintain the following:
(1) a ratio of consolidated net debt to adjusted EBITDA, not to exceed 3.50 to 1; and (2) a consolidated interest coverage ratio
not to exceed 2.75 to 1. The New Credit Agreement allows the Company to, among other things, make distributions to shareholders,
repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain
requirements and limitations of the agreement. As of September 26, 2015, the Company was in compliance with all such covenants.
The Company’s
obligations under the New Credit Agreement are secured as well as providing for a pledge of substantially all of the Company’s
and RBCA’s assets. The Company and certain of its subsidiaries have also entered into a Guarantee to guarantee RBCA’s
obligations under the New Credit Agreement.
Approximately $3,290
of the Revolver is being utilized to provide letters of credit to secure RBCA’s obligations relating to certain insurance
programs, and $225,000 was utilized to finance the acquisition of Sargent. As of September 26, 2015, RBCA paid down $20,000 of
the Revolver and has the ability to borrow up to an additional $141,710 under the Revolver.
Prior Credit Facility
On November 30, 2010,
the Company entered into a credit agreement (the “JP Morgan Credit Agreement”) and related security and guaranty agreements
with certain banks, J.P. Morgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Chase Bank, N.A. and KeyBank National
Association as Co-Lead Arrangers and Joint Lead Book Runners. The JP Morgan Credit Agreement provides Roller Bearing Company of
America, Inc. (“RBCA”), as borrower, with a $150,000 five-year senior secured revolving credit facility which can
be increased by up to $100,000, in increments of $25,000, under certain circumstances and subject to certain conditions (including
the receipt from one or more lenders of the additional commitment).
Amounts outstanding under the JP Morgan
Credit Agreement generally bear interest at the prime rate or LIBOR plus a specified margin, depending on the type of borrowing
being made. The applicable margin is based upon the Company’s consolidated ratio of net debt to adjusted EBITDA, measured
at the end of each quarter. As of September 27, 2014, the Company’s margin is 0.5% for prime rate loans and 1.5% for LIBOR
rate loans.
The JP Morgan Credit
Agreement requires the Company to comply with various covenants, including among other things, financial covenants to maintain
the following: (1) a ratio of consolidated net debt to adjusted EBITDA, not to exceed 3.25 to 1; and (2) a consolidated fixed
charge coverage ratio not to exceed 1.5 to 1. The credit agreement allows the Company to, among other things, make distributions
to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies
with certain requirements and limitations of the agreement. The JP Morgan Credit Agreement was terminated and replaced by the
New Credit Agreement discussed above. $190 of debt issuance costs were written off on termination.
Other Notes Payable
On October 1, 2012,
Schaublin purchased the land and building, which it occupied and had been leasing, for 14,067 CHF (approximately $14,910). Schaublin
obtained a 20 year fixed rate mortgage of 9,300 CHF (approximately $9,857) at an interest rate of 2.9%. The balance of the purchase
price of 4,767 CHF (approximately $5,053) was paid from cash on hand. The balance on this mortgage as of September 26, 2015 was
7,905 CHF, or $8,077.
7. Income Taxes
The Company files
income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. With few exceptions, the Company
is no longer subject to state or foreign income tax examinations by tax authorities for years ending before March 31, 2007. The
Company is no longer subject to U.S. federal corporate income tax examination by the Internal Revenue Service for fiscal years
ending before March 29, 2014. A U.S. federal corporate income tax examination by the Internal Revenue Service for the fiscal year
ended March 30, 2013 was deemed effectively settled in the Company’s first quarter of fiscal 2016.
The effective income
tax rates for the three month periods ended September 26, 2015 and September 27, 2014, were 33.8% and 27.3%. In addition to discrete
items, the effective income tax rates for these periods are different from the U.S. statutory rates due to a special manufacturing
deduction in the U.S. and foreign income taxed at lower rates which decrease the rate, and state income taxes which increases
the rate.
The effective income
tax rate for the three month period ended September 26, 2015 of 33.8% includes immaterial discrete items of $51. The effective
income tax rate without discrete items for the three month period ended September 26, 2015 would have been 33.5%. The effective
income tax rate for the three month period ended September 27, 2014 of 27.3% includes discrete items of $3,131 which are comprised
substantially of items associated with the consolidation and restructuring of the Company’s U.K. manufacturing facility.
The effective income tax rate without discrete items and without other associated consolidated and restructuring expenses pertaining
to the Company’s UK manufacturing facility for the three month period ended September 27, 2014 would have been 32.9%. The
Company believes it is reasonably possible that some of its unrecognized tax positions may be effectively settled within the next
twelve months due to the closing of audits and the statute of limitations expiring in varying jurisdictions. The decrease, pertaining
primarily to credits and state tax, is estimated to be approximately $449.
8. Reportable Segments
The Company operates
through operating segments for which separate financial information is available, and for which operating results are evaluated
regularly by the Company's chief operating decision maker in determining resource allocation and assessing performance. Those
operating segments with similar economic characteristics and that meet all other required criteria, including nature of the products
and production processes, distribution patterns and classes of customers, are aggregated as reportable segments. With the acquisition
and integration of Sargent into the Company’s operating and reportable segment structure, the Company has transitioned the
Other segment to a new reportable segment titled Engineered Products. The Company has four reportable business segments; Plain
Bearings, Roller Bearings, Ball Bearings and Engineered Products, which are described below.
Plain Bearings.
Plain bearings are produced with either self-lubricating or metal-to-metal designs and consists of several sub-classes,
including rod end bearings, spherical plain bearings and journal bearings. Unlike ball bearings, which are used in high-speed
rotational applications, plain bearings are primarily used to rectify inevitable misalignments in various mechanical components.
The bearings and rings businesses of Sargent are included here.
Roller Bearings.
Roller bearings are anti-friction bearings that use rollers instead of balls. The Company manufactures four basic types
of roller bearings: heavy duty needle roller bearings with inner rings, tapered roller bearings, track rollers and aircraft roller
bearings.
Ball Bearings.
The Company manufactures four basic types of ball bearings: high precision aerospace, airframe control, thin section and
commercial ball bearings which are used in high-speed rotational applications.
Engineered Products.
Engineered Products consists of highly engineered hydraulics, fasteners, collets and precision components used in aerospace,
marine and industrial applications. The hydraulics, fasteners and precision components businesses of Sargent are included here.
Segment performance
is evaluated based on segment net sales and operating income. Items not allocated to segment operating income include corporate
administrative expenses and certain other amounts.
| |
Three Months Ended | | |
Six Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
September 26, 2015 | | |
September 27, 2014 | |
Net External Sales | |
| | | |
| | | |
| | | |
| | |
Plain | |
$ | 67,607 | | |
$ | 57,458 | | |
$ | 133,284 | | |
$ | 117,331 | |
Roller | |
| 27,151 | | |
| 33,504 | | |
| 57,731 | | |
| 65,269 | |
Ball | |
| 13,122 | | |
| 14,093 | | |
| 25,941 | | |
| 27,638 | |
Engineered Products | |
| 40,816 | | |
| 7,500 | | |
| 74,048 | | |
| 15,301 | |
| |
$ | 148,696 | | |
$ | 112,555 | | |
$ | 291,004 | | |
$ | 225,539 | |
Gross Margin | |
| | | |
| | | |
| | | |
| | |
Plain | |
$ | 26,763 | | |
$ | 20,817 | | |
$ | 52,711 | | |
$ | 43,284 | |
Roller | |
| 11,355 | | |
| 10,799 | | |
| 24,250 | | |
| 23,590 | |
Ball | |
| 5,292 | | |
| 5,360 | | |
| 10,475 | | |
| 10,787 | |
Engineered Products | |
| 8,708 | | |
| 2,775 | | |
| 17,446 | | |
| 5,911 | |
| |
$ | 52,118 | | |
$ | 39,751 | | |
$ | 104,882 | | |
$ | 83,572 | |
Selling, General & Administrative Expenses | |
| | | |
| | | |
| | | |
| | |
Plain | |
$ | 5,906 | | |
$ | 4,588 | | |
$ | 11,389 | | |
$ | 9,350 | |
Roller | |
| 1,483 | | |
| 1,566 | | |
| 2,973 | | |
| 3,251 | |
Ball | |
| 1,370 | | |
| 1,279 | | |
| 2,738 | | |
| 2,607 | |
Engineered Products | |
| 4,176 | | |
| 881 | | |
| 8,122 | | |
| 1,861 | |
Corporate | |
| 12,009 | | |
| 10,203 | | |
| 23,447 | | |
| 20,444 | |
| |
$ | 24,944 | | |
$ | 18,517 | | |
$ | 48,669 | | |
$ | 37,513 | |
Operating Income | |
| | | |
| | | |
| | | |
| | |
Plain | |
$ | 20,784 | | |
$ | 15,950 | | |
$ | 41,089 | | |
$ | 33,503 | |
Roller | |
| 9,724 | | |
| 6,497 | | |
| 21,064 | | |
| 17,449 | |
Ball | |
| 3,775 | | |
| 3,914 | | |
| 7,447 | | |
| 7,867 | |
Engineered Products | |
| 2,303 | | |
| 1,909 | | |
| 4,863 | | |
| 4,034 | |
Corporate | |
| (12,987 | ) | |
| (9,973 | ) | |
| (28,503 | ) | |
| (20,345 | ) |
| |
$ | 23,599 | | |
$ | 18,297 | | |
$ | 45,960 | | |
$ | 42,508 | |
Geographic External Sales | |
| | | |
| | | |
| | | |
| | |
Domestic | |
$ | 130,521 | | |
$ | 93,387 | | |
$ | 253,501 | | |
$ | 188,433 | |
Foreign | |
| 18,175 | | |
| 19,168 | | |
| 37,503 | | |
| 37,106 | |
| |
$ | 148,696 | | |
$ | 112,555 | | |
$ | 291,004 | | |
$ | 225,539 | |
Intersegment Sales | |
| | | |
| | | |
| | | |
| | |
Plain | |
$ | 977 | | |
$ | 1,041 | | |
$ | 2,116 | | |
$ | 2,020 | |
Roller | |
| 5,182 | | |
| 5,056 | | |
| 10,695 | | |
| 10,039 | |
Ball | |
| 486 | | |
| 706 | | |
| 1,047 | | |
| 1,258 | |
Engineered Products | |
| 7,023 | | |
| 7,840 | | |
| 15,134 | | |
| 15,028 | |
| |
$ | 13,668 | | |
$ | 14,643 | | |
$ | 28,992 | | |
$ | 28,345 | |
All intersegment sales
are eliminated in consolidation.
9. Restructuring of Operations
In the second quarter of fiscal 2015,
the Company consolidated the manufacturing capacity of its United Kingdom (U.K.) facility into its other manufacturing facilities
in order to better align manufacturing abilities and product development. As a result the Company recorded a charge of $6,382
in the second quarter and $88 in the third quarter of fiscal 2015 associated with the consolidation of operations attributable
to the Roller Bearings segment. The $6,382 charge includes $3,707 of inventory rationalization costs that were recorded in cost
of sales in the income statement. All other costs were recorded under operating expenses in the other, net category of the income
statement. The pre-tax charge of $6,382 was offset with an associated tax benefit of $3,131.
10. Acquisitions
On April 24, 2015,
the Company acquired Sargent from Dover Corporation for $500,000 financed through a combination of cash on hand and senior debt.
With headquarters in Tucson, Arizona, Sargent is a leader in precision-engineered products, solutions and repairs for aircraft
airframes and engines, rotorcraft, submarines and land vehicles. Sargent manufactures, sells and services hydraulic valves and
actuators, specialty bearings, specialty fasteners, seal rings & alignment joints and engineered components under leading
brands including Kahr Bearing, Airtomic, Sonic Industries, Sargent Controls and Sargent Aerospace & Defense. The Company acquired
Sargent because management believes it provides complementary products and channels, and expands and enhances the Company’s
product portfolio and engineering technologies. The bearings and rings businesses are included in the Plain Bearings segment.
The hydraulics, fasteners and precision components businesses are included in the Engineered Products segment.
The acquisition of
Sargent was accounted for as a purchase in accordance with FASB Accounting Standards Codification (“ASC”) Topic 805,
Business Combinations. Assets acquired and liabilities assumed were recorded at their fair values as of the acquisition
date. The fair values of identifiable intangible assets, which were primarily customer relationships, product approvals, trade
names, and patents and trademarks, were based on valuations using the income approach. The excess of the purchase price over the
estimated fair values of tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The
goodwill is attributable to expected synergies and expected growth opportunities. The preliminary price allocation resulted in
goodwill of $226,481. The Company estimates a majority of goodwill will be deductible for United States income tax purposes. The
allocation of purchase price is preliminary as the Company has not completed its analysis estimating the fair value of inventory,
property, plant, and equipment, intangible assets, income tax liabilities and certain contingent liabilities. The purchase price
allocation was updated to reflect current estimated fair values at the acquisition date, with the excess of purchase price over
the estimated fair value of the net assets acquired recorded as goodwill.
The preliminary purchase price allocation
for Sargent was as follows:
| |
As of April 24, 2015 | |
Current assets | |
$ | 3,086 | |
Trade receivables | |
| 23,892 | |
Inventories | |
| 47,709 | |
Property, plant and equipment | |
| 41,538 | |
Intangible assets | |
| 201,000 | |
Goodwill | |
| 226,481 | |
Total assets acquired | |
| 543,706 | |
Accounts payable | |
| 14,900 | |
Liabilities assumed | |
| 28,806 | |
Net assets acquired | |
$ | 500,000 | |
The valuation of the
net assets acquired of $500,000 was classified as Level 3 in the valuation hierarchy. Level 3 inputs represent unobservable inputs
for the asset or liability.
The components of intangible assets included
as part of the Sargent acquisition was as follows:
| |
Weighted Average Amortization Period (Years) | |
Gross Value | |
Amortizable intangible assets | |
| |
| | |
Customer relationships | |
25 | |
$ | 101,800 | |
| |
| |
| | |
Product approvals | |
25 | |
| 50,500 | |
Trademarks and tradenames | |
10 | |
| 18,000 | |
| |
| |
| 170,300 | |
Non-amortizable intangible assets | |
| |
| | |
Repair station certifications | |
- | |
| 30,700 | |
Intangible assets | |
| |
$ | 201,000 | |
Included in the Company’s
results of operations for the three and six months ended September 26, 2015 are revenues related to the Sargent acquisition of
$45,507 and $79,509, respectively. Also, included for the three and six months ended September 26, 2015 is net income of $1,407
and $5,232, respectively. Acquisition-related expenses were recorded in Other, net in the Consolidated Statements of Operations
for both the three and six months ended September 26, 2015 of $1,283 and $6,071, respectively.
The following supplemental
pro forma financial information presents the financial results for the three and six months ended September 26, 2015 and September
27, 2014, as if the acquisition of Sargent had occurred at the beginning of fiscal year 2015. The pro forma financial information
includes, where applicable, adjustments for: (i) the estimated amortization of acquired intangible assets, (ii) estimated additional
interest expense on acquisition related borrowings, (iii) the income tax effect on the pro forma adjustments using an estimated
effective tax rate. The pro forma financial information excludes, where applicable, adjustments for: (i) the estimated impact
of inventory purchase accounting adjustments and (ii) the estimated closing costs on the acquisition. The pro forma financial
information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would
have been achieved had the acquisition been completed as of the date indicated or the results that may be obtained in the future:
| |
Three Months Ended | | |
Six Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
September 26, 2015 | | |
September 27, 2014 | |
Pro forma net sales | |
$ | 148,696 | | |
$ | 162,145 | | |
$ | 299,378 | | |
$ | 325,355 | |
Pro forma net income | |
| 18,058 | | |
| 14,170 | | |
| 34,723 | | |
| 30,856 | |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings per share as reported | |
$ | 0.63 | | |
$ | 0.57 | | |
$ | 1.20 | | |
$ | 1.27 | |
Pro forma basic earnings per share | |
| 0.78 | | |
| 0.61 | | |
| 1.50 | | |
| 1.34 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted earnings per share as reported | |
$ | 0.62 | | |
$ | 0.57 | | |
$ | 1.19 | | |
$ | 1.25 | |
Pro forma diluted earnings per share | |
| 0.77 | | |
| 0.60 | | |
| 1.48 | | |
| 1.32 | |
On October 7,
2013, the Company acquired the net assets of Turbine Components Inc. (“TCI”) for approximately $3,925. Located in
San Diego, California, TCI is an FAA certified aircraft gas turbine repair station and manufacturer of precision components
for aerospace markets. TCI’s net sales for the prior calendar year were approximately $4,000. The purchase price
allocation is as follows: accounts receivable ($585), inventory ($125), fixed assets ($1,231), goodwill ($2,821), intangible
assets ($441), other non-current assets ($127), other current liabilities ($641) and noncurrent liabilities ($766). The
purchase price allocation, which resulted in goodwill of $2,821, is deductible for tax purposes. TCI is included in the Plain
Bearings segment. In connection with the acquisition the Company agreed to a contract for additional contingent consideration
that is dependent on the outcome of future events. The contingent consideration is based on a market valuation formula and
will be payable five years from the acquisition date. The current fair value of the contingent consideration is determined to
be $469. Pro forma net sales and net income inclusive of TCI are not materially different from the amounts reported in the
accompanying consolidated statements of operations.
On August 16,
2013, the Company acquired Climax Metal Products Company (“CMP”) located in Mentor, Ohio for $13,646. The
purchase price included $10,672 in cash and $2,974 of debt. CMP is a manufacturer of precision shaft collars, rigid
couplings, keyless locking devices and bearings for the industrial markets. CMP’s net sales for the prior calendar year
were approximately $14,100. The purchase price allocation is as follows: accounts receivable ($1,206), inventory ($4,509),
other current assets ($73), fixed assets ($2,466), goodwill ($5,623), intangible assets ($3,904), other non-current assets
($10), other current liabilities ($2,171) and noncurrent liabilities ($1,974). The purchase price allocation, which resulted
in goodwill of $5,623, is not deductible for tax purposes. CMP is included in the Ball Bearings segment. Pro forma net sales
and net income inclusive of CMP are not materially different from the amounts reported in the accompanying consolidated
statements of operations.
ITEM 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement As To Forward-Looking
Information
The information in
this discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934 which are subject to the “safe harbor” created by those sections.
All statements other than statements of historical facts, included in this quarterly report on Form 10-Q regarding our strategy,
future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management
are “forward-looking statements” as the term is defined in the Private Securities Litigation Reform Act of 1995.
The words “anticipates,”
“believes,” “estimates,” “expects,” “intends,” “may,” “plans,”
“projects,” “will,” “would” and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking
statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results
to differ materially from those in the forward-looking statements, including, without limitation: (a) the bearing industry is
highly competitive, and this competition could reduce our profitability or limit our ability to grow; (b) the loss of a major
customer could result in a material reduction in our revenues and profitability; (c) weakness in any of the industries in which
our customers operate, as well as the cyclical nature of our customers’ businesses generally, could materially reduce our
revenues and profitability; (d) future reductions or changes in U.S. government spending could negatively affect our business;
(e) fluctuating or interruption to supply, and availability of raw materials, components and energy resources could materially
increase our costs or reduce our revenues, cash flow from operations and profitability; (f) our products are subject to certain
approvals, and the loss of such approvals could materially reduce our revenues and profitability; (g) restrictions in our indebtedness
agreements could limit our growth and our ability to respond to changing conditions; (h) work stoppages and other labor problems
could materially reduce our ability to operate our business; (i) our business is capital intensive and may consume cash in excess
of cash flow from our operations; (j) unexpected equipment failures, catastrophic events or capacity constraints may increase
our costs and reduce our sales due to production curtailments or shutdowns; (k) we may not be able to continue to make the acquisitions
necessary for us to realize our growth strategy; (l) the costs and difficulties of integrating acquired businesses could impede
our future growth; (m) we depend heavily on our senior management and other key personnel, the loss of whom could materially affect
our financial performance and prospects; (n) our international operations are subject to risks inherent in such activities; (o)
currency translation risks may have a material impact on our results of operations; (p) we may be required to make significant
future contributions to our pension plan; (q) we may incur material losses for product liability and recall related claims; (r)
environmental regulations impose substantial costs and limitations on our operations, and environmental compliance may be more
costly than we expect; (s) our intellectual property and other proprietary rights are valuable, and any inability to protect them
could adversely affect our business and results of operations; in addition, we may be subject to infringement claims by third
parties; (t) cancellation of orders in our backlog of orders could negatively impact our revenues; (u) if we fail to maintain
an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud; (v)
provisions in our charter documents may prevent or hinder efforts to acquire a controlling interest in us; (w) health care reform
could adversely affect our operating results; and (x) we may not pay cash dividends in the foreseeable future. Additional information
regarding these and other risks and uncertainties is contained in our periodic filings with the SEC, including, without limitation,
the risks identified under the heading “Risk Factors” set forth in the Annual Report on Form 10-K for the year ended
March 28, 2015. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures or investments we may make. We do not intend, and undertake no obligation, to update or alter any forward-looking
statement. The following section is qualified in its entirety by the more detailed information, including our financial statements
and the notes thereto, which appears elsewhere in this Quarterly Report.
Overview
We are a well known
international manufacturer and maker of highly engineered precision bearings and components. Our precision solutions are integral
to the manufacture and operation of most machines and mechanical systems, reduce wear to moving parts, facilitate proper power
transmission and reduce damage and energy loss caused by friction. While we manufacture products in all major categories, we focus
primarily on the higher end of the bearing and engineered component markets where we believe our value added manufacturing and
engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability. We believe our unique
expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 37 facilities,
of which 33 are manufacturing facilities in five countries, we have been able to significantly broaden our end markets, products,
customer base and geographic reach. We currently operate under four reportable business segments: Plain Bearings; Roller Bearings;
Ball Bearings; and Engineered Products. The following further describes these reportable segments:
Plain Bearings.
Plain bearings are produced with either self-lubricating or metal-to-metal designs and consists of several sub-classes,
including rod end bearings, spherical plain bearings and journal bearings. Unlike ball bearings, which are used in high-speed
rotational applications, plain bearings are primarily used to rectify inevitable misalignments in various mechanical components.
Roller Bearings.
Roller bearings are anti-friction bearings that use rollers instead of balls. We manufacture four basic types of roller
bearings: heavy duty needle roller bearings with inner rings, tapered roller bearings, track rollers and aircraft roller bearings.
Ball Bearings.
We manufacture four basic types of ball bearings: high precision aerospace, airframe control, thin section and commercial ball
bearings which are used in high-speed rotational applications.
Engineered Products.
Engineered Products consists of highly engineered hydraulics, fasteners, collets and precision components used in aerospace,
marine and industrial applications.
Purchasers of bearings
and engineered products include industrial equipment and machinery manufacturers, producers of commercial and military aerospace
equipment such as missiles and radar systems, agricultural machinery manufacturers, construction, energy, mining, marine and specialized
equipment manufacturers and automotive and commercial truck manufacturers. The markets for our products are cyclical, and we have
endeavored to mitigate this cyclicality by entering into sole-source relationships and long-term purchase orders, through diversification
across multiple market segments within the aerospace and defense and diversified industrial segments, by increasing sales to the
aftermarket and by focusing on developing highly customized solutions.
Currently, our strategy is built around
maintaining our role as a leading manufacturer of highly engineered bearings and components through the following efforts:
| · | Developing
innovative solutions. By leveraging our design and manufacturing expertise and
our extensive customer relationships, we continue to develop new products for markets
in which there are substantial growth opportunities. |
| · | Expanding
customer base and penetrating end markets. We continually seek opportunities
to access new customers, geographic locations and platforms with existing products or
profitable new product opportunities. |
| · | Increasing
aftermarket sales. We believe that increasing our aftermarket sales of replacement
parts will further enhance the continuity and predictability of our revenues and enhance
our profitability. Such sales included sales to third party distributors and sales to
OEMs for replacement bearings and components. We will increase the percentage of our
revenues derived from the replacement market by continuing to implement several initiatives. |
| · | Pursuing
selective acquisitions. The acquisition of businesses that complement or expand
our operations has been and continues to be an important element of our business strategy.
We believe that there will continue to be consolidation within the industry that may
present us with acquisition opportunities. |
The following items highlight the most
recent significant events:
| · | In
the first quarter of fiscal 2016, subsequent to the close of the fiscal 2015 year, we
acquired Sargent for $500 million financed through a combination of cash on hand and
senior debt. Headquartered in Tucson, Arizona, Sargent is a leader in precision-engineered
products, solutions and repairs for aircraft airframes and engines, rotorcraft, submarines
and land vehicles. Sargent manufactures, sells and services hydraulic valves and actuators,
specialty bearings, specialty fasteners, seal rings & alignment joints and precision
components under leading brands including Kahr Bearing, Airtomic, Sonic Industries, Sargent
Controls and Sargent Aerospace & Defense. Annual sales are approximately $195 million
and the company has over 750 employees in six facilities in three countries. |
| · | In
connection with the Sargent acquisition on April 24, 2015, we entered into the New Credit
Agreement and related Guarantee, Pledge Agreement and Security Agreement with Wells Fargo
Bank, National Association, as Administrative Agent, Collateral Agent, Swingline Lender
and Letter of Credit Issuer and the other lenders party thereto. The New Credit Agreement
provides RBCA, as Borrower, with (a) a $200 million Term Loan and (b) a $350 million
Revolver and together with the Term Loan (the “Facilities”). |
| · | In
the second quarter of fiscal 2015, we reached a decision to consolidate the manufacturing
capacity of the United Kingdom (U.K.) facility into our other manufacturing facilities.
This decision was based on our intent to better align manufacturing abilities and product
development. |
| · | In
the third quarter of fiscal 2014, we acquired the net assets of Turbine Components Inc.
(“TCI”) for approximately $3,925. Located in San Diego, California, TCI is
an FAA certified aircraft gas turbine repair station and manufacturer of precision components
for aerospace markets. |
Outlook
Our net sales for
the three month period ended September 26, 2015 increased 32.1% compared to the same period last fiscal year. Our aerospace markets
increased 59.6% and the diversified industrial market decreased 2.4%. Our backlog, as of September 26, 2015, was $347.8 million
compared to $218.0 million as of September 27, 2014.
Management believes
that operating cash flows and available credit under the credit facilities will provide adequate resources to fund internal and
external growth initiatives for the foreseeable future. As of September 26, 2015, we had cash and cash equivalents of $44.1 million
of which approximately $29.4 million was cash held by our foreign operations. We expect that our undistributed foreign earnings
will be re-invested indefinitely for working capital, internal growth and acquisitions for and by our foreign entities.
Results of Operations
| |
Three Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
$ Change | | |
% Change | |
Organic net sales | |
$ | 103.2 | | |
$ | 112.6 | | |
$ | (9.4 | ) | |
| (8.3 | )% |
Sales by recent acquisitions | |
| 45.5 | | |
| — | | |
| 45.5 | | |
| | |
Total net sales | |
$ | 148.7 | | |
$ | 112.6 | | |
$ | 36.1 | | |
| 32.1 | % |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
$ | 14.5 | | |
$ | 13.2 | | |
$ | 1.3 | | |
| 9.6 | % |
| |
| | | |
| | | |
| | | |
| | |
Net income per common share: diluted | |
$ | 0.62 | | |
$ | 0.57 | | |
| | | |
| | |
Weighted average common shares: diluted | |
| 23,495,285 | | |
| 23,424,421 | | |
| | | |
| | |
Net sales increased
$36.1 million or 32.1% for the second quarter of fiscal 2016 over the same period last year. The increase in net sales was mainly
the result of a 59.6% increase in aerospace and defense sales offset by a 2.4% decrease in industrial sales. The increase in aerospace
and defense sales was mostly attributable to an increase in aerospace aftermarket of 28.0% and aerospace OEM of 66.8%. The decrease
in industrial sales was mostly attributable to a decrease in industrial aftermarket of 13.4% offset by an increase in industrial
OEM of 3.6%. Overall net sales for the quarter were negatively impacted by $0.9 million due to foreign exchange compared to the
same period last year. Excluding the $45.5 million in sales associated with the Sargent acquisition and the foreign exchange impact,
industrial sales decreased 12.7% and aerospace and defense sales decreased by 3.5%.
Net income for the
second quarter of fiscal 2016 was $14.5 million compared to $13.2 million for the same period last year. Excluding the after tax
impact of $0.7 million in costs associated with the acquisition, $2.8 million in inventory purchase accounting associated with
the Sargent acquisition, $0.1 million of costs associated with integration and restructuring, $0.1 million of discrete tax expense
offset by $0.4 million of favorable foreign exchange translation, net income would have been $17.8 million. Excluding the after
tax impact of $3.3 million of costs associated with the consolidation and restructuring of facilities, net income for the second
quarter of fiscal 2015 would have been $16.5 million.
| |
Six Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
$ Change | | |
% Change | |
Organic net sales | |
$ | 211.5 | | |
$ | 225.5 | | |
$ | (14.0 | ) | |
| (6.2 | )% |
Sales by recent acquisitions | |
| 79.5 | | |
| — | | |
| 79.5 | | |
| | |
Total net sales | |
$ | 291.0 | | |
$ | 225.5 | | |
$ | 65.5 | | |
| 29.0 | % |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
$ | 27.9 | | |
$ | 29.3 | | |
$ | (1.4 | ) | |
| (4.6 | )% |
| |
| | | |
| | | |
| | | |
| | |
Net income per common share: diluted | |
$ | 1.19 | | |
$ | 1.25 | | |
| | | |
| | |
Weighted average common shares: diluted | |
| 23,516,537 | | |
| 23,394,439 | | |
| | | |
| | |
Net sales increased
$65.5 million or 29.0% for the six month period ended September 26, 2015 over the same period last year. The increase in net sales
was mainly the result of a 51.0% increase in aerospace and defense sales and a 1.3% increase in industrial. The increase in aerospace
and defense sales was mostly attributable to an increase in aerospace aftermarket of 25.1% and aerospace OEM of 57.0%. The increase
in industrial sales was mostly attributable to an increase in industrial OEM of 8.1% offset by a decrease in industrial aftermarket
of 10.7%. Overall net sales for the six months were negatively impacted by $1.8 million due to foreign exchange compared to the
same period last year. Excluding the $79.5 million in sales associated with the Sargent acquisition and the foreign exchange impact,
industrial sales decreased 7.5% and aerospace and defense sales decreased by 3.8%.
Net income for the
six months ended September 26, 2015 was $27.9 million compared to $29.3 million for the same period last year. Excluding the after
tax impact of $3.5 million in costs associated with the acquisition, $4.4 million in inventory purchase accounting associated
with the Sargent acquisition, $0.7 million of costs associated with integration and restructuring, and offset by $0.2 million
of favorable foreign exchange translation, net income would have been $36.3 million. Excluding the after tax impact of $3.2 million
of costs associated with the consolidation and restructuring of facilities, net income would have been $32.5 million for the six
month period ended September 27, 2014.
Gross Margin
| |
Three Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Gross Margin | |
$ | 52.1 | | |
$ | 39.8 | | |
$ | 12.3 | | |
| 31.1 | % |
Gross Margin % | |
| 35.1 | % | |
| 35.3 | % | |
| | | |
| | |
Gross margin increased
$12.3 million or 31.1% in the second quarter of fiscal 2016 compared to the second quarter of fiscal 2015. Excluding the unfavorable
impact of $4.3 million of inventory purchase accounting associated with the Sargent acquisition, gross margin would have been
$56.4 million for the second quarter of fiscal 2016. Excluding the impact of the inventory rationalization associated with the
consolidation and restructuring of the U.K. facility of $3.7 million, gross margin would have been $43.5 million for the second
quarter of fiscal 2015.
| |
Six Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Gross Margin | |
$ | 104.9 | | |
$ | 83.6 | | |
$ | 21.3 | | |
| 25.5 | % |
Gross Margin % | |
| 36.0 | % | |
| 37.1 | % | |
| | | |
| | |
Gross margin increased
$21.3 million or 25.5% for the first six months of fiscal 2016 compared to the same period last year. Excluding the unfavorable
impact of $6.6 million of inventory purchase accounting associated with the Sargent acquisition, gross margin would have been
$111.5 million. Excluding the impact of the consolidation and restructuring of the U.K. facility of $3.7 million, gross margin
would have been $87.3 million for the first six months of fiscal 2015.
Selling, General and Administrative
| |
Three Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
SG&A | |
$ | 24.9 | | |
$ | 18.5 | | |
$ | 6.4 | | |
| 34.7 | % |
% of net sales | |
| 16.8 | % | |
| 16.5 | % | |
| | | |
| | |
SG&A increased
as a percentage of net sales to 16.8% in the second quarter of fiscal 2016 from 16.5% in the second quarter of fiscal 2015. SG&A
expenses increased by $6.4 million to $24.9 million for the second quarter of fiscal 2016 compared to the same period
last year. Excluding the impact of the Sargent acquisition of $4.6 million, the increase was primarily due to higher personnel
expenses of $1.1 million, professional expenses of $0.3 million, increase in incentive stock compensation of $0.2 million and
$0.2 million of other expenses.
| |
Six Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
SG&A | |
$ | 48.6 | | |
$ | 37.5 | | |
$ | 11.1 | | |
| 29.7 | % |
% of net sales | |
| 16.7 | % | |
| 16.6 | % | |
| | | |
| | |
SG&A increased
as a percentage of net sales to 16.7% for the first six months of fiscal 2016 from 16.6% for the same period last year. SG&A
expenses increased by $11.1 million to $48.6 million for the first six months of fiscal 2016 compared to the same period
last year. Excluding the impact of the Sargent acquisition of $8.3 million, the increase was primarily due to higher personnel
expenses of $1.5 million, increase in incentive stock compensation of $0.6 million, professional expenses of $0.4 million and
$0.3 million of other expenses.
Other, Net
| |
Three Months Ended | |
| |
September 26, 2015 | | |
September 27, 2014 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Other, net | |
$ | 3.6 | | |
$ | 2.9 | | |
$ | 0.7 | | |
| 21.7 | % |
% of net sales | |
| 2.4 | % | |
| 2.6 | % | |
| | | |
| | |
Other operating expenses
for the second quarter of fiscal 2016 totaled $3.6 million compared to $2.9 million for the same period last year. For the second
quarter of fiscal 2016 other operating expenses were comprised mainly of $2.4 million in amortization of intangibles, $1.1 million
of acquisition related costs, $0.2 million in integration and restructuring costs offset by $0.1 million of other income.
| |
Six Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Other, net | |
$ | 10.3 | | |
$ | 3.6 | | |
$ | 6.7 | | |
| 188.7 | % |
% of net sales | |
| 3.5 | % | |
| 1.6 | % | |
| | | |
| | |
Other operating expenses
for the first six months of fiscal 2016 totaled $10.3 million compared to $3.6 million for the same period last year. For the
first six months of fiscal 2016 other operating expenses were comprised mainly of $4.2 million in amortization of intangibles,
$5.1 million of acquisition related costs, $1.0 million in integration and restructuring costs.
Interest Expense, Net
| |
Three Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Interest expense, net | |
$ | 2.3 | | |
$ | 0.3 | | |
$ | 2.0 | | |
| 638.0 | % |
% of net sales | |
| 1.5 | % | |
| 0.3 | % | |
| | | |
| | |
Interest expense,
net, generally consists of interest charged on our credit facilities and amortization of deferred financing fees, offset by interest
income (see “Liquidity and Capital Resources – Liquidity”, below). Interest expense, net was $2.3 million for
the second quarter of fiscal 2016 compared to $0.3 million for the same period last year. For the second quarter of fiscal 2016
interest expense, net consisted of interest expense of $1.9 million and deferred debt fees of $0.4 million.
| |
Six Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Interest expense, net | |
$ | 4.0 | | |
$ | 0.5 | | |
$ | 3.5 | | |
| 648.9 | % |
% of net sales | |
| 1.4 | % | |
| 0.2 | % | |
| | | |
| | |
Interest expense,
net, generally consists of interest charged on our credit facilities and amortization of deferred financing fees, offset by interest
income (see “Liquidity and Capital Resources – Liquidity”, below). Interest expense, net was $4.0 million for
the first six months of fiscal 2016 compared to $0.5 million for the same period last year. For the first six months of fiscal
2016 interest expense, net consisted of interest expense of $3.4 million and deferred debt fees of $0.6 million.
Income Taxes
| |
Three Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | |
| |
| | |
| |
Income tax expense (benefit) | |
$ | 7.4 | | |
$ | 5.0 | |
Effective tax rate with discrete items | |
| 33.8 | % | |
| 27.3 | % |
Effective tax rate without discrete items | |
| 33.5 | % | |
| 32.9 | % |
Income tax expense
for the three month period ended September 26, 2015 was $7.4 million compared to $5.0 million for the three month period ended
September 27, 2014. Our effective income tax rate for the three month period ended September 26, 2015 was 33.8% compared to 27.3%
for the three month period ended September 27, 2014. The effective income tax rate for the three month period ended September
26, 2015 of 33.8% includes immaterial discrete expense of $0.1 million. The effective income tax rate without discrete items for
the three month period ended September 26, 2015 would have been 33.5%. The effective income tax rate for the three month period
ended September 27, 2014 of 27.3% includes discrete benefits of $3.1 million which are comprised substantially of items associated
with the consolidation and restructuring of the Company’s U.K. manufacturing facility. The effective income tax rate without
discrete items and without other associated consolidated and restructuring expenses pertaining to the Company’s U.K. manufacturing
facility for the three month period ended September 27, 2014 would have been 32.9%.
| |
Six Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | |
| |
| | |
| |
Income tax expense (benefit) | |
$ | 14.0 | | |
$ | 13.2 | |
Effective tax rate with discrete items | |
| 33.5 | % | |
| 31.1 | % |
Effective tax rate without discrete items | |
| 33.6 | % | |
| 33.4 | % |
Income tax expense
for the six month period ended September 26, 2015 was $14.0 million compared to $13.2 million for the six month period ended September
27, 2014. Our effective income tax rate for the six month period ended September 26, 2015 was 33.5% compared to 31.1% for the
six month period ended September 27, 2014. The effective income tax rate for the six month period ended September 26, 2015 of
33.5% includes immaterial discrete benefit of $0.1 million. The effective income tax rate without discrete items for the six month
period ended September 26, 2015 would have been 33.6%. The effective income tax rate for the six month period ended September
27, 2014 of 31.1% includes discrete benefits in the amount of $3.1 million which are substantially comprised of items associated
with the consolidation and restructuring of the Company’s U.K. manufacturing facility. The effective income tax rate without
these discrete items and without other associated consolidated and restructuring expenses pertaining to the Company’s U.K.
manufacturing facility would have been 33.4%.
Segment Information
We have four reportable
product segments: Plain Bearings, Roller Bearings, Ball Bearings and Engineered Products. In fiscal 2016 we integrated the Sargent
businesses into our Plain Bearings and Engineered Products segments (see Notes 8 and 10 of Notes to Unaudited Interim Consolidated
Financial Statements). We use gross margin as the primary measurement to assess the financial performance of each reportable segment.
The presentation of segment net sales includes a reconciliation to adjust for the effects of any acquisitions made in fiscal 2016
and fiscal 2015.
Plain Bearing Segment:
| |
Three Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Organic net sales | |
$ | 55.3 | | |
$ | 57.5 | | |
$ | (2.2 | ) | |
| (3.8 | )% |
Sales by recent acquisitions | |
| 12.3 | | |
| — | | |
| 12.3 | | |
| | |
Total net sales | |
$ | 67.6 | | |
$ | 57.5 | | |
$ | 10.1 | | |
| 17.7 | % |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 26.8 | | |
$ | 20.8 | | |
$ | 6.0 | | |
| 28.6 | % |
Gross margin % | |
| 39.6 | % | |
| 36.2 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 5.9 | | |
$ | 4.6 | | |
$ | 1.3 | | |
| 28.7 | % |
% of segment net sales | |
| 8.7 | % | |
| 8.0 | % | |
| | | |
| | |
Net sales increased
$10.1 million or 17.7% for the three months ended September 26, 2015 compared to the same period last year. The 17.7% increase
was primarily driven by a 29.6% increase in aerospace and defense sales and a 8.8% decrease in industrial sales. The 29.6% increase
in aerospace and defense sales was primarily due to a 286.8% increase in defense and a 16.5% increase in commercial aerospace.
Excluding the $12.3 million impact of acquisition volume from Sargent, the net sales decrease of $2.2 million for this segment
was mostly attributable to the unfavorable impacts of decreased volume of $1.7 million and foreign exchange of $0.5 million.
Gross margin increased
$6.0 million for the three months ended September 26, 2015 compared to the same period last year. Excluding the $5.8 million impact
from the Sargent acquisition, the gross margin increase of $0.2 million was mostly attributable to the favorable impact of cost
efficiencies of $1.0 million and offset by unfavorable product mix of $0.7 million and foreign exchange loss of $0.1 million.
| |
Six Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Organic net sales | |
$ | 112.7 | | |
$ | 117.3 | | |
$ | (4.6 | ) | |
| (3.9 | )% |
Sales by recent acquisitions | |
| 20.6 | | |
| — | | |
| 20.6 | | |
| | |
Total net sales | |
$ | 133.3 | | |
$ | 117.3 | | |
$ | 16.0 | | |
| 13.6 | % |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 52.7 | | |
$ | 43.3 | | |
$ | 9.4 | | |
| 21.8 | % |
Gross margin % | |
| 39.5 | % | |
| 36.9 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 11.4 | | |
$ | 9.3 | | |
$ | 2.1 | | |
| 21.8 | % |
% of segment net sales | |
| 8.5 | % | |
| 8.0 | % | |
| | | |
| | |
Net sales increased
$16.0 million or 13.6% for the six months ended September 26, 2015 compared to the same period last year. The 13.6% increase was
primarily driven by a 21.0% increase in aerospace and defense sales and a 3.0% decrease in industrial sales. The 21.0% increase
in aerospace and defense sales was primarily due to a 169.0% increase in defense and a 12.2% increase in commercial aerospace.
Excluding the $20.6 million impact of acquisition volume from Sargent, the net sales decrease of $4.6 million for this segment
was mostly attributable to the unfavorable impacts of volume of $3.5 million and foreign exchange of $1.1 million.
Gross margin increased
$9.4 million for the six months ended September 26, 2015 compared to the same period last year. Excluding the $9.6 million impact
from the Sargent acquisition, the gross margin decrease of $0.2 million was mostly attributable to the unfavorable impacts of
product mix of $1.9 million, foreign exchange of $0.1 million, offset by the favorable impact of increased volume of $1.4 million
and cost efficiencies of $0.4 million.
Roller Bearing Segment:
| |
Three Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Organic net sales | |
$ | 27.2 | | |
$ | 33.5 | | |
$ | (6.3 | ) | |
| (19.0 | )% |
Sales by recent acquisitions | |
| — | | |
| — | | |
| — | | |
| | |
Total net sales | |
$ | 27.2 | | |
$ | 33.5 | | |
$ | (6.3 | ) | |
| (19.0 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 11.3 | | |
$ | 10.8 | | |
$ | 0.5 | | |
| 5.1 | % |
Gross margin % | |
| 41.8 | % | |
| 32.2 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 1.5 | | |
$ | 1.5 | | |
| — | | |
| — | |
% of segment net sales | |
| 5.5 | % | |
| 4.7 | % | |
| | | |
| | |
Net sales decreased
$6.3 million or 19.0% over the second quarter of fiscal 2016. The decrease of 19.0% was primarily due to a 20.0% decrease in industrial
sales and a 17.9% decrease in aerospace, mainly defense sales.
The Roller Bearings
segment achieved a gross margin of $11.3 million in the three month period ended September 26, 2015 compared to $10.8 million
in the comparable period in fiscal 2015. This increase was primarily due to the impact of cost efficiencies of $1.7 million offset
by a volume decrease of $1.2 million.
| |
Six Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Organic net sales | |
$ | 57.7 | | |
$ | 65.3 | | |
$ | (7.6 | ) | |
| (11.5 | )% |
Sales by recent acquisitions | |
| — | | |
| — | | |
| — | | |
| | |
Total net sales | |
$ | 57.7 | | |
$ | 65.3 | | |
$ | (7.6 | ) | |
| (11.5 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 24.3 | | |
$ | 23.6 | | |
$ | 0.7 | | |
| 2.8 | % |
Gross margin % | |
| 42.0 | % | |
| 36.1 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 3.0 | | |
$ | 3.3 | | |
$ | (0.3 | ) | |
| (8.6 | )% |
% of segment net sales | |
| 5.1 | % | |
| 5.0 | % | |
| | | |
| | |
Net sales decreased
$7.6 million or 11.5% over the first six months of fiscal 2016. The decrease of 11.5% was primarily due to an 11.7% decrease in
industrial sales and a 11.4% decrease in aerospace and defense sales. The 11.4% decrease in aerospace and defense sales was due
to a 8.6% decline in commercial aerospace and a 42.3% decrease in defense. This decrease was attributable to a volume decrease
of $7.6 million.
The Roller Bearings
segment achieved a gross margin of $24.3 million for the first six months of fiscal 2016 compared to $23.6 million for the comparable
period in fiscal 2015. This increase of $0.7 million was primarily due to the unfavorable impacts of product mix of $1.0 million
and decreased volume of $2.2 million offset by cost efficiencies of $3.9.
Ball Bearing Segment:
| |
Three Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Organic net sales | |
$ | 13.1 | | |
$ | 14.1 | | |
$ | (1.0 | ) | |
| (6.9 | )% |
Sales by recent acquisitions | |
| — | | |
| — | | |
| — | | |
| | |
Total net sales | |
$ | 13.1 | | |
$ | 14.1 | | |
$ | (1.0 | ) | |
| (6.9 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 5.3 | | |
$ | 5.4 | | |
$ | (0.1 | ) | |
| (1.3 | )% |
Gross margin % | |
| 40.3 | % | |
| 38.0 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 1.3 | | |
$ | 1.3 | | |
| — | | |
| — | |
% of segment net sales | |
| 10.4 | % | |
| 9.1 | % | |
| | | |
| | |
Net sales decreased
$1.0 million or 6.9% for the second quarter of fiscal 2016 compared to the same period last year. The 6.9% decrease was primarily
driven by a 4.8% decrease in industrial sales and a 10.5% decrease in aerospace and defense sales. The decrease in industrial
sales was primarily due to a decline in oil and gas, and mining activity and the decrease in aerospace was mainly driven by defense.
Gross margin decreased
$0.1 million or 1.3% for the second quarter of fiscal 2016 compared to the same period last year. The decrease was primarily due
to the unfavorable impact of decreased volume of $0.7 million, offset by the favorable impact of product mix of $0.4 million and
cost efficiencies of $0.2 million.
| |
Six Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Organic net sales | |
$ | 25.9 | | |
$ | 27.6 | | |
$ | (1.7 | ) | |
| (6.1 | )% |
Sales by recent acquisitions | |
| — | | |
| — | | |
| — | | |
| | |
Total net sales | |
$ | 25.9 | | |
$ | 27.6 | | |
$ | (1.7 | ) | |
| (6.1 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 10.5 | | |
$ | 10.8 | | |
$ | (0.3 | ) | |
| (2.9 | )% |
Gross margin % | |
| 40.4 | % | |
| 39.0 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 2.7 | | |
$ | 2.6 | | |
$ | 0.1 | | |
| 5.0 | % |
% of segment net sales | |
| 10.6 | % | |
| 9.4 | % | |
| | | |
| | |
Net sales decreased
$1.7 million or 6.1% for the first six months of fiscal 2016 compared to the same period last year. The 6.1% decrease was primarily
driven by a 6.0% decrease in industrial sales and a 6.4% decrease in aerospace and defense sales. The decrease in industrial sales
was primarily due to a decline in oil and gas, and mining activity. The decrease in aerospace and defense of 6.4% was primarily
impacted by a 7.4% decline in commercial aerospace and offset by a 28.1% increase in defense. These decreases were attributable
to decreased volume of $1.7 million.
Gross margin decreased
$0.3 million or 2.9% for the first six months of fiscal 2016 compared to the same period last year. The decrease was primarily
due to the unfavorable impact of decreased volume of $1.1 million, offset by the favorable impact of product mix of $0.8 million.
Engineered Products Segment:
| |
Three Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Organic net sales | |
$ | 7.6 | | |
$ | 7.5 | | |
$ | 0.1 | | |
| 1.3 | % |
Sales by recent acquisitions | |
| 33.2 | | |
| — | | |
| 33.2 | | |
| | |
Total net sales | |
$ | 40.8 | | |
$ | 7.5 | | |
$ | 33.3 | | |
| 444.2 | % |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 8.7 | | |
$ | 2.8 | | |
$ | 5.9 | | |
| 213.8 | % |
Gross margin % | |
| 21.3 | % | |
| 37.0 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 4.2 | | |
$ | 0.9 | | |
$ | 3.3 | | |
| 374.0 | % |
% of segment net sales | |
| 10.2 | % | |
| 11.7 | % | |
| | | |
| | |
Net sales increased
$33.3 million or 444.2% for the second quarter of fiscal 2016 compared to the same period last year. The 444.2% increase was primarily
driven by a 69.6% increase in industrial sales and a 1,985.8% increase in aerospace and defense sales. Excluding the impact of
the Sargent Acquisition commercial aerospace increased 61.0% offset by a 1.1% decline in defense. Excluding the $33.2 million
impact of acquisition volume from Sargent, net sales increased $0.1 million. This increase was primarily attributable to the unfavorable
impacts of foreign exchange of $0.2 million offset by the favorable impact of volume of $0.3 million.
Gross margin increased
$5.9 million or 213.8% for the second quarter of fiscal 2016 compared to the same period last year. Excluding the $6.6 million
impact from the Sargent acquisition, the gross margin decrease of $0.7 million was mostly attributable to the unfavorable impacts
of product mix of $0.3 million and foreign exchange of $0.1 million and other costs of $0.3 million.
| |
Six Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Organic net sales | |
$ | 15.2 | | |
$ | 15.3 | | |
$ | (0.1 | ) | |
| (1.3 | )% |
Sales by recent acquisitions | |
| 58.9 | | |
| — | | |
| 58.9 | | |
| | |
Total net sales | |
$ | 74.1 | | |
$ | 15.3 | | |
$ | 58.8 | | |
| 383.9 | % |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 17.4 | | |
$ | 5.9 | | |
$ | 11.5 | | |
| 195.1 | % |
Gross margin % | |
| 23.6 | % | |
| 38.6 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 8.1 | | |
$ | 1.9 | | |
$ | 6.2 | | |
| 336.4 | % |
% of segment net sales | |
| 11.0 | % | |
| 12.2 | % | |
| | | |
| | |
Net sales increased
$58.8 million or 383.9% for the first six months of fiscal 2016 compared to the same period last year. The 383.9% increase was
primarily driven by a 60.0% increase in industrial sales and a 1,678.2% increase in aerospace and defense sales. Excluding the
impact of the Sargent acquisition commercial aerospace increased 27.3% and defense increased 2.9%. Excluding the $58.9 million
impact of acquisition volume from Sargent, net sales decreased $0.1 million. This decrease was primarily attributable to the unfavorable
impacts of foreign exchange of $0.2 million, offset by the favorable impact of volume of $0.1 million.
Gross margin increased
$11.5 million or 195.1% for the first six months of fiscal 2016 compared to the same period last year. Excluding the $12.3 million
impact from the Sargent acquisition, the gross margin decrease of $0.8 million was mostly attributable to the unfavorable impacts
of product mix of $0.4 million and foreign exchange of $0.2 million and other costs of $0.3 million, offset by the favorable impact
of volume of $0.1 million.
Corporate:
| |
Three Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
SG&A | |
$ | 12.0 | | |
$ | 10.2 | | |
$ | 1.8 | | |
| 17.7 | % |
% of total net sales | |
| 8.1 | % | |
| 9.1 | % | |
| | | |
| | |
| |
Six Months Ended | |
| |
September 26,
2015 | | |
September 27,
2014 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
SG&A | |
$ | 23.4 | | |
$ | 20.4 | | |
$ | 3.0 | | |
| 14.7 | % |
% of total net sales | |
| 8.1 | % | |
| 9.1 | % | |
| | | |
| | |
Corporate SG&A
increased for both the second quarter and first six months of fiscal 2016 compared to the same periods last year. This was primarily
due to unfavorable impacts in stock compensation and headcount – related expenses.
Liquidity and Capital Resources
Our business is capital
intensive. Our capital requirements include manufacturing equipment and materials. In addition, we have historically fueled our
growth in part through acquisitions. We have historically met our working capital, capital expenditure requirements and acquisition
funding needs through our net cash flows provided by operations, various debt arrangements and sale of equity to investors. We
believe that operating cash flows and available credit under the credit facilities will provide adequate resources to fund internal
and external growth initiatives for the foreseeable future.
Liquidity
New Credit Facility
In connection with
the Sargent acquisition on April 24, 2015, the Company entered into the New Credit Agreement and related Guarantee, Pledge Agreement
and Security Agreement with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, Swingline Lender
and Letter of Credit Issuer and the other lenders party thereto and terminated the JP Morgan Credit Agreement. The Credit Agreement
provides RBCA, as Borrower, with (a) a $200 million Term Loan and (b) a $350 million Revolver and together with the Term Loan
(the “Facilities”).
Amounts outstanding
under the Facilities generally bear interest at (a) a base rate determined by reference to the higher of (1) Wells Fargo’s
prime lending rate, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one-month LIBOR rate plus 1% or (b) LIBOR
rate plus a specified margin, depending on the type of borrowing being made. The applicable margin is based on the Company's consolidated
ratio of total net debt to consolidated EBITDA from time to time. Currently, our margin is 0.5% for base rate loans and 1.5% for
LIBOR rate loans. As of September 26, 2015, there was $205.0 million outstanding under the Revolver and $195.0 million outstanding
under the Term Loan, offset by $6.5 million in debt issuance costs (original amount was $7.1 million).
The New Credit Agreement
requires us to comply with various covenants, including among other things, financial covenants to maintain the following: (1)
a ratio of consolidated net debt to adjusted EBITDA, not to exceed 3.50 to 1; and (2) a consolidated interest coverage ratio not
to exceed 2.75 to 1. The New Credit Agreement allows us to, among other things, make distributions to shareholders, repurchase
our stock, incur other debt or liens, or acquire or dispose of assets provided that we comply with certain requirements and limitations
of the agreement. As of September 26, 2015, we were in compliance with all such covenants.
Our obligations under
the New Credit Agreement are secured as well as providing for a pledge of substantially all of our assets. We and certain of our
subsidiaries have also entered into a Guarantee to guarantee our obligations under the New Credit Agreement.
Approximately $3.3
million of the Revolver is being utilized to provide letters of credit to secure RBCA’s obligations relating to certain
insurance programs, and $225.0 million was utilized to finance the acquisition of Sargent. As of September 26, 2015, RBCA paid
down $20.0 million of the Revolver and has the ability to borrow up to an additional $141.7 million under the Revolver.
Prior Credit Facility
On November
30, 2010, we entered into a credit agreement (the “JP Morgan Credit Agreement”) and related security and
guaranty agreements with certain banks, J.P. Morgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Chase Bank,
N.A. and KeyBank National Association as Co-Lead Arrangers and Joint Lead Book Runners. The JP Morgan Credit Agreement
provides Roller Bearing Company of America, Inc. (“RBCA”), as borrower, with a $150 million five-year senior
secured revolving credit facility which can be increased by up to $100 million, in increments of $25 million, under certain
circumstances and subject to certain conditions (including the receipt from one or more lenders of the additional
commitment).
Amounts outstanding under
the JP Morgan Credit Agreement generally bear interest at the prime rate or LIBOR plus a specified margin, depending on the type
of borrowing being made. The applicable margin is based upon our consolidated ratio of net debt to adjusted EBITDA, measured at
the end of each quarter. As of September 27, 2014, our margin is 0.5% for prime rate loans and 1.5% for LIBOR rate loans.
The JP Morgan Credit
Agreement requires us to comply with various covenants, including among other things, financial covenants to maintain the following:
(1) a ratio of consolidated net debt to adjusted EBITDA, not to exceed 3.25 to 1; and (2) a consolidated fixed charge coverage
ratio not to exceed 1.5 to 1. The credit agreement allows us to, among other things, make distributions to shareholders, repurchase
our stock, incur other debt or liens, or acquire or dispose of assets provided that we comply with certain requirements and limitations
of the agreement. The JP Morgan Credit Agreement was terminated and replaced by the New Credit Agreement discussed above.
Other Notes Payable
On October 1, 2012,
Schaublin purchased the land and building, which it occupied and had been leasing, for 14.1 million CHF (approximately $14.9 million).
Schaublin obtained a 20 year fixed rate mortgage of 9.3 million CHF (approximately $9.9 million) at an interest rate of 2.9%.
The balance of the purchase price of 4.8 million CHF (approximately $5.1 million) was paid from cash on hand. The balance on this
mortgage as of September 26, 2015 was 7.9 million CHF, or $8.1 million.
Our ability to meet future working
capital, capital expenditures and debt service requirements will depend on our future financial performance, which will be affected
by a range of economic, competitive and business factors, particularly interest rates, cyclical changes in our end markets and
prices for steel and our ability to pass through price increases on a timely basis, many of which are outside of our control.
In addition, future acquisitions could have a significant impact on our liquidity position and our need for additional funds.
From time to time
we evaluate our existing facilities and operations and their strategic importance to us. If we determine that a given facility
or operation does not have future strategic importance, we may sell, partially or completely, relocate production lines, consolidate
or otherwise dispose of those operations. Although we believe our operations would not be materially impaired by such dispositions,
relocations or consolidations, we could incur significant cash or non-cash charges in connection with them.
On May 16, 2014, our
Board declared a special dividend to shareholders of $2.00 per common share or a total of approximately $46.0 million. The special
dividend was paid on June 13, 2014, to shareholders of record on May 30, 2014. The ex-dividend date was May 28, 2014. The Board
opted for a special dividend payment, rather than a regular recurring dividend to allow greater flexibility given our pipeline
of attractive growth opportunities. The Board, will however, consider the use of additional special cash dividends in the future
as circumstance warrant.
As of September 26,
2015, we had cash and cash equivalents of $44.1 million of which approximately $29.4 million was cash held by our foreign operations.
We expect that our undistributed foreign earnings will be re-invested indefinitely for working capital, internal growth and acquisitions
for and by our foreign entities.
Cash Flows
Six
Month Period Ended September 26, 2015 Compared to the Six Month Period Ended September 27, 2014
The following table summarizes
our cash flow activities:
| |
FY16 | | |
FY15 | | |
$ Change | |
Net cash provided by (used in): | |
| | | |
| | | |
| | |
Operating activities | |
$ | 40.3 | | |
$ | 44.7 | | |
$ | (4.4 | ) |
Investing activities | |
| (509.8 | ) | |
| (8.5 | ) | |
| (501.3 | ) |
Financing activities | |
| 388.4 | | |
| (45.3 | ) | |
| 433.7 | |
Effect of exchange rate changes on cash | |
| (0.3 | ) | |
| (2.7 | ) | |
| 2.4 | |
Decrease in cash and cash equivalents | |
$ | (81.4 | ) | |
$ | (11.8 | ) | |
$ | (69.6 | ) |
During fiscal 2016
we generated cash of $40.3 million from operating activities compared to generating cash of $44.7 million for fiscal 2015. The
decrease of $4.4 million for fiscal 2016 was mainly a result of the addition of non-cash charges of $1.8 million offset by the
unfavorable impacts of a net change in operating assets and liabilities of $4.9 million and a decrease in net income of $1.3 million.
The favorable impact of the non-cash charges of $1.8 was primarily due increased amortization of intangibles of $3.2 million and
impairment charges of $5.0 million in the second quarter of fiscal 2015 related to the consolidation of the U.K. facility. The
unfavorable change in operating assets and liabilities was primarily the result of a increase in the amount of cash being used
for working capital items.
The following chart summarizes
the favorable (unfavorable) change in operating assets and liabilities of ($4.9) million for fiscal 2016 versus fiscal 2015 and
$18.4 million for fiscal 2015 versus fiscal 2014.
| |
FY16 | | |
FY15 | |
Cash provided by (used in): | |
| | | |
| | |
Accounts receivable | |
$ | 1.2 | | |
$ | 5.0 | |
Inventory | |
| (3.2 | ) | |
| 6.6 | |
Prepaid expenses and other current assets | |
| (1.3 | ) | |
| (1.2 | ) |
Other non-current assets | |
| 0.7 | | |
| 0.7 | |
Accounts payable | |
| (0.6 | ) | |
| 0.5 | |
Accrued expenses and other current liabilities | |
| (6.7 | ) | |
| 7.1 | |
Other non-current liabilities | |
| 5.0 | | |
| (0.3 | ) |
Total change in operating assets and liabilities: | |
$ | (4.9 | ) | |
$ | 18.4 | |
During fiscal 2016,
we used $509.8 million for investing activities as compared to $8.5 for fiscal 2015. The increase of cash used in investing activities
of $501.3 million is primarily attributable to the $500.0 million used to finance the acquisition of Sargent.
During fiscal 2016,
we generated $388.4 million from financing activities compared to using $45.3 million for fiscal 2015. This increase in cash generated
was primarily attributable to the $225.0 million revolving credit facility and $200.0 million proceeds from the term loan associated
with the acquisition of Sargent in the first quarter of fiscal 2016.
Capital Expenditures
Our capital expenditures
were $9.8 million for the six month period ended September 26, 2015. In addition, we expect to make additional capital expenditures
of $10.0 to $12.0 million during fiscal 2016 in connection with our existing business. We expect to fund fiscal 2016 capital expenditures
principally through existing cash, internally generated funds and debt. We may also make substantial additional capital expenditures
in connection with acquisitions.
Obligations and Commitments
The contractual obligations
presented in the table below represent our estimates of future payments under fixed contractual obligations and commitments. Changes
in our business needs, cancellation provisions and interest rates, as well as actions by third parties and other factors, may
cause these estimates to change. Because these estimates are necessarily subjective, our actual payments in future periods are
likely to vary from those presented in the table. The following table summarizes certain of our contractual obligations and principal
and interest payments under our debt instruments and leases as of September 26, 2015:
| |
Payments Due By Period | |
Contractual
Obligations(1) | |
Total | | |
Less than 1 Year | | |
1 to 3 Years | | |
3 to 5 Years | | |
More than 5 Years | |
| |
(in thousands) | |
Total debt | |
$ | 402,298 | | |
$ | 7,301 | | |
$ | 25,601 | | |
$ | 363,695 | | |
$ | 5,701 | |
Operating leases | |
| 13,571 | | |
| 5,482 | | |
| 5,420 | | |
| 1,976 | | |
| 693 | |
Interest on fixed rate debt | |
| 2,134 | | |
| 235 | | |
| 429 | | |
| 375 | | |
| 1,095 | |
Interest on variable
rate debt(2) | |
| 29,715 | | |
| 6,686 | | |
| 12,809 | | |
| 10,220 | | |
| — | |
Pension and postretirement benefits | |
| 19,467 | | |
| 1,819 | | |
| 3,846 | | |
| 3,983 | | |
| 9,819 | |
Total contractual cash obligations | |
$ | 467,185 | | |
$ | 21,523 | | |
$ | 48,105 | | |
$ | 380,249 | | |
$ | 17,308 | |
| (1) | We cannot make a reasonably reliable
estimate of when (or if) the unrecognized tax liability of $5.7 million, which includes
interest and penalties, will be paid to the respective taxing authorities. These obligations
are therefore excluded from the above table. |
| (2) | These amounts represent expected cash
payments of interest on our variable rate long-term debt under our Facilities at the
prevailing interest rates at September 26, 2015. |
Other Matters
Critical Accounting Estimates
Preparation of our
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the Consolidated
Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated
Financial Statements in our fiscal 2015 Annual Report, incorporated by reference in our fiscal 2015 Form 10-K, describe the significant
accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas
could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during
the first six months of fiscal 2016.
ITEM 3. Quantitative
and Qualitative Disclosures About Market Risk
We are exposed to
market risks, which arise during the normal course of business from changes in interest rates and foreign currency exchange rates.
Interest Rates.
We currently have variable rate debt outstanding under the credit agreement. We regularly evaluate the impact of interest
rate changes on our net income and cash flow and take action to limit our exposure when appropriate.
Foreign Currency
Exchange Rates. As a result of our operations in Europe, we are exposed to risk associated with fluctuating currency exchange
rates between the U.S. dollar, the Euro, the Swiss Franc, the Polish Zloty and the Canadian Dollar. Our Swiss operations utilize
the Swiss Franc as the functional currency, our French operations utilize the Euro as the functional currency, our Polish operations
utilize the Polish Zloty as the functional currency and our Canadian operations utilize the Canadian Dollar as the functional
currency. Foreign currency transaction gains and losses are included in earnings. Approximately 11% and 14% of our net sales were
impacted by foreign currency fluctuations in the first six months of fiscal 2016 and fiscal 2015, respectively. We expect that
this proportion is likely to increase as we seek to increase our penetration of foreign markets, particularly within the aerospace
and defense markets. Foreign currency transaction exposure arises primarily from the transfer of foreign currency from one subsidiary
to another within the group, and to foreign currency denominated trade receivables. Unrealized currency translation gains and
losses are recognized upon translation of the foreign subsidiaries’ balance sheets to U.S. dollars. Because our financial
statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have
had, and will continue to have, an impact on our earnings. We periodically enter into derivative financial instruments in the
form of forward exchange contracts to reduce the effect of fluctuations in exchange rates on certain third-party sales transactions
denominated in non-functional currencies. Based on the accounting guidance related to derivatives and hedging activities, we record
derivative financial instruments at fair value. For derivative financial instruments designated and qualifying as cash flow hedges,
the effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income
(“AOCI”), and is reclassified into earnings when the hedged transaction affects earnings. As of September 26, 2015,
we had no derivatives.
Off-Balance Sheet Arrangements
We have no off-balance
sheet arrangements.
ITEM 4. Controls and
Procedures
Our management, with
the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)) as of September 26, 2015. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of September 26, 2015, our disclosure controls and procedures were (1) designed to ensure that information
relating to our Company required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported to our Chief Executive Officer and Chief Financial Officer within the time periods specified
in the rules and forms of the U.S. Securities and Exchange Commission, and (2) effective, in that they provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
Changes in Internal
Control over Financial Reporting
No change in our internal
control over financial reporting occurred during the six month period ended September 26, 2015 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act).
PART II - OTHER INFORMATION
ITEM 1. Legal
Proceedings
From time to time,
we are involved in litigation and administrative proceedings which arise in the ordinary course of our business. We do not believe
that any litigation or proceeding in which we are currently involved, either individually or in the aggregate, is likely to have
a material adverse effect on our business, financial condition, operating results, cash flow or prospects.
Our wholly owned subsidiary,
RBC Aircraft Products, Inc. is a plaintiff in a lawsuit against Precise Machining & Manufacturing LLC currently pending in
the United States District Court, District of Connecticut’s Case Number 3:10 CV 878 (SRU). A jury award against Precise
Machining & Manufacturing LLC and in favor of RBC Aircraft Products, Inc. in the amount of $2,986,089 was entered on April
9, 2013. Precise Machining & Manufacturing LLC subsequently filed a motion for judgment in its favor as a matter of law and
a motion for a new trial. On May 5, 2014 the presiding judge surprisingly overturned the jury verdict and granted a motion for
a new trial. RBC Aircraft Products, Inc. subsequently filed a motion for Certification of Judgment, which was unopposed by Precise
Machining & Manufacturing LLC, which was granted on July 28, 2014 and allows RBC Aircraft Products, Inc. to immediately appeal
the judges’ decision to overturn the jury verdict to the Second Circuit Court of Appeals. The overturning of a jury verdict
is highly unusual and RBC Aircraft Products, Inc. believes there is no credible support for doing so in this matter and expects
to be successful with its appeal.
We expect to prevail
in this appeal above; however, as litigation is inherently unpredictable, there can be no assurance in this regard. Any monetary
recovery from this lawsuit will be recognized only if and when it is received by the Company.
ITEM 1A. Risk Factors
There have been no
material changes to our risk factors and uncertainties during the six month period ended September 26, 2015. For a discussion
of the Risk Factors, refer to Part I, Item 2, “Cautionary Statement As To Forward-Looking Information,” contained
in this report and Part I, Item 1A, “Risk Factors,” contained in the Company’s Annual Report on Form 10-K for
the period ended March 28, 2015.
ITEM 2. Unregistered
Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
On February 7, 2013,
our board of directors authorized us to repurchase up to $50.0 million of our common stock, from time to time on the open market,
in block trade transactions and through privately negotiated transactions in compliance with Securities and Exchange Commission
Rule 10b-18 depending on market conditions, alternative uses of capital and other relevant factors. Purchases may be commenced,
suspended, or discontinued at any time without prior notice.
Total share repurchases
for the three months ended September 26, 2015 are as follows:
Period | |
Total number
of shares Purchased | | |
Average price paid
per share | | |
Number of shares
purchased as part of the publicly announced program | | |
Approximate dollar value
of shares still available to be purchased under the program (000’s) | |
06/28/2015 – 07/25/2015 | |
| 9,591 | | |
$ | 71.73 | | |
| 9,591 | | |
$ | 38,211 | |
07/26/2015 – 08/22/2015 | |
| — | | |
| — | | |
| — | | |
| 38,211 | |
08/23/2015 – 09/26/2015 | |
| 80,324 | | |
| 60.11 | | |
| 80,324 | | |
$ | 33,382 | |
Total | |
| 89,915 | | |
$ | 61.35 | | |
| 89,915 | | |
| | |
| ITEM 3. | Defaults
Upon Senior Securities |
Not applicable.
| ITEM 4. | Mine
Safety Disclosures |
Not applicable.
Not applicable.
Exhibit
Number |
|
Exhibit Description |
31.01 |
|
Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a). |
31.02 |
|
Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a). |
32.01 |
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* |
32.02 |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* |
101.INS |
|
X BRL Instance Document. |
101.SCH |
|
XBRL Taxonomy Extension Schema Document. |
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
*
This certification accompanies this Quarterly Report on Form 10-Q, is not deemed filed with the SEC and is not to be incorporated
by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation
language contained in such filing.
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
RBC Bearings Incorporated |
|
|
|
(Registrant) |
|
|
|
|
|
|
By: |
/s/
Michael J. Hartnett |
|
|
|
Name: |
Michael J. Hartnett |
|
|
|
Title: |
Chief Executive Officer |
|
|
|
Date: |
November 5, 2015 |
|
|
|
|
|
|
|
By: |
/s/
Daniel A. Bergeron |
|
|
|
Name: |
Daniel A. Bergeron |
|
|
|
Title: |
Chief Financial Officer |
|
|
|
Date: |
November 5, 2015 |
|
EXHIBIT INDEX
Exhibit
Number |
|
Exhibit Description |
31.01 |
|
Certification
of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a). |
31.02 |
|
Certification
of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a). |
32.01 |
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* |
32.02 |
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* |
101.INS |
|
XBRL Instance
Document. |
101.SCH |
|
XBRL Taxonomy
Extension Schema Document. |
101.CAL |
|
XBRL Taxonomy
Extension Calculation Linkbase Document. |
101.DEF |
|
XBRL Taxonomy
Extension Definition Linkbase Document. |
101.LAB |
|
XBRL Taxonomy
Extension Label Linkbase Document. |
101.PRE |
|
XBRL Taxonomy
Extension Presentation Linkbase Document. |
*
This certification accompanies this Quarterly Report on Form 10-Q, is not deemed filed with the SEC and is not to be incorporated
by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation
language contained in such filing.
Exhibit 31.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Michael J. Hartnett, certify that:
1. I have reviewed this quarterly report
on Form 10-Q of RBC Bearings Incorporated;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a) designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; and
c) evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any
change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: November 5, 2015 |
By: |
/s/ Michael J. Hartnett |
|
|
|
Michael J. Hartnett |
|
|
President and Chief Executive Officer |
Exhibit 31.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Daniel A. Bergeron, certify that:
1. I have reviewed this quarterly report
on Form 10-Q of RBC Bearings Incorporated;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a) designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; and
c) evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any
change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: November 5, 2015 |
By: |
/s/ Daniel A. Bergeron |
|
|
|
Daniel A. Bergeron |
|
|
Chief Financial Officer |
Exhibit 32.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C SECTION 1350
The undersigned, Michael J. Hartnett, the
President and Chief Executive Officer of RBC Bearings Incorporated (the “Company”), pursuant to 18 U.S.C. §1350,
hereby certifies that:
(i) the Quarterly Report on
Form 10-Q for the period ended September 26, 2015 of the Company (the “Report”) fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii) the information contained
in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 5, 2015
|
/s/ Michael J. Hartnett |
|
|
Michael J. Hartnett |
|
President and Chief Executive Officer |
Exhibit 32.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350
The undersigned, Daniel A. Bergeron, Chief
Financial Officer, of RBC Bearings Incorporated (the “Company”), pursuant to 18 U.S.C. §1350, hereby certifies:
(i) the Quarterly Report on
Form 10-Q for the period ended September 26, 2015 of the Company (the “Report”) fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii) the information contained
in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 5, 2015
|
/s/ Daniel A. Bergeron |
|
|
Daniel A. Bergeron |
|
Chief Financial Officer |
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