Notes to Consolidated Financial Statements
(dollars in thousands, except share
and per share data)
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1.
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Organization and Business
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RBC Bearings Incorporated
(the "Company", collectively with its subsidiaries), is a Delaware corporation. The Company operates in four reportable
business segments—roller bearings, plain bearings, ball bearings and engineered products—in which it manufactures
roller bearing components and assembled parts and designs and manufactures high-precision roller and ball bearings. The Company
sells to a wide variety of original equipment manufacturers ("OEMs") and distributors who are widely dispersed geographically.
In fiscal 2016, no one customer accounted for more than 10% of the Company’s net sales as compared to no more than 6% and
7% of the Company’s net sales in fiscal 2015 and 2014, respectively. The Company's segments are further discussed in Part
II, Item 8. “Financial Statements and Supplemental Data,” Note 18 “Reportable Segments.”
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2.
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Summary of Significant Accounting Policies
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General
The consolidated financial
statements include the accounts of RBC Bearings Incorporated, Roller Bearing Company of America, Inc. (“RBCA”)
and its wholly-owned subsidiaries, Industrial Tectonics Bearings Corporation (“ITB”), RBC Linear Precision Products, Inc.
(“LPP”), RBC Nice Bearings, Inc. (“Nice”), RBC Precision Products - Bremen, Inc. (“Bremen
(MBC)”), RBC Precision Products - Plymouth, Inc. (“Plymouth”), RBC Lubron Bearing Systems, Inc. (“Lubron”),
RBC Oklahoma, Inc. (“RBC Oklahoma”), RBC Aircraft Products, Inc. (“API”), RBC Southwest Products,
Inc. (“SWP”), All Power Manufacturing Co. (“All Power”), RBC Aerostructures LLC (“RAS”), Western
Precision Aero LLC (“WPA”), Climax Metal Products Company (“CMP”), RBC Turbine Components LLC (“TCI”),
Sonic Industries, Inc. (“Sonic”), Sargent Aerospace and Defense LLC (“Sargent”), Avborne Accessory Group,
Inc. (“AMS”), Schaublin Holdings S.A. and its wholly-owned subsidiaries Schaublin SA, RBC Bearings Polska SP ZOO and
RBC France SAS (“Schaublin”), RBC de Mexico S DE RL DE CV (“Mexico”), Shanghai Representative office of
Roller Bearing Company of America, Inc. (“RBC Shanghai”), RBC Bearings U.K. Limited and its wholly-owned subsidiary
Phoenix Bearings Limited (“Phoenix”), Allpower de Mexico S DE RL DE CV (“Tecate”) and RBC Bearings Canada,
Inc. Divisions of RBCA include: RBC Corporate, RBC E-Shop, RBC Aerospace sales office and warehouse, Transport Dynamics (“TDC”),
Heim (“Heim”), Engineered Components (“ECD”), RBC Aerocomponents (“RAC”), PIC Design (“PIC
Design”), RBC Hartsville, RBC West Trenton, RBC Bishopsville, RBC Eastern Distribution Center and RBC Grand Prarie TX location.
U.S. Bearings (“USB”) is a division of SWP and Schaublin USA is a division of Nice. All intercompany balances and
transactions have been eliminated in consolidation.
The Company has a
fiscal year consisting of 52 or 53 weeks, ending on the Saturday closest to March 31. Based on this policy, fiscal year 2016
contained 53 weeks and 2015 and 2014 contained 52 weeks. The amounts are shown in thousands, unless otherwise indicated.
Use of Estimates
The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of
the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts,
valuation of inventories, accrued expenses, depreciation and amortization, income taxes and tax reserves, pension and postretirement
obligations and the valuation of options.
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. The Company
maintains its cash accounts primarily with Bank of America, N.A and Wells Fargo & Company. The balances are insured by the
Federal Deposit Insurance Company up to $250. The Company has not experienced any losses in such accounts.
Inventory
Inventories are stated
at the lower of cost or market value. Cost is determined by the first-in, first-out method. The Company accounts for inventory
under a full absorption method, and records adjustments to the value of inventory based upon past sales history and forecasted
plans to sell our inventories. The physical condition, including age and quality, of the inventories is also considered in establishing
its valuation. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements
if future economic conditions, customer inventory levels or competitive conditions differ from our expectations.
Shipping and Handling
The sales price billed
to customers includes shipping and handling, which is included in net sales. The costs to the Company for shipping and handling
are included in cost of sales.
Property, Plant and Equipment
Property, plant and
equipment are recorded at cost. Depreciation and amortization of property, plant and equipment, including equipment under capital
leases, is provided for by the straight-line method over the estimated useful lives of the respective assets or the lease term,
if shorter. Depreciation of assets under capital leases is reported within depreciation and amortization. The cost of equipment
under capital leases is equal to the lower of the net present value of the minimum lease payments or the fair market value of
the leased equipment at the inception of the lease. Expenditures for normal maintenance and repairs are charged to expense as
incurred.
The estimated useful
lives of the Company's property, plant and equipment follows:
Buildings and improvements
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20-30 years
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Machinery and equipment
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3-15 years
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Leasehold improvements
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Shorter of the term of lease or estimated useful
life
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Recognition of Revenue and Accounts
Receivable and Concentration of Credit Risk
The Company recognizes
revenue only after the following four basic criteria are met:
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·
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Persuasive
evidence of an arrangement exists;
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·
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Delivery
has occurred or services have been rendered;
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·
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The
seller's price to the buyer is fixed or determinable; and
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·
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Collectability
is reasonably assured.
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Revenue is recognized
upon the passage of title, which generally is at the time of shipment, except for certain customers for which it occurs when the
products reach their destination. Accounts receivable, net of applicable allowances, is recorded when revenue is recorded.
We also recognize
revenue on a Ship-In-Place basis for two customers who have required that we hold the product after final production is complete. In
this case, a written agreement has been executed (at the customer’s request) whereby the customer accepts the risk of loss
for product that is invoiced under the Ship-In-Place arrangement. For each transaction for which revenue is recognized
under a Ship-In-Place arrangement, all final manufacturing inspections have been completed and customer acceptance has been obtained.
In the fiscal year ended April 2, 2016, 2.1% of the Company’s total net sales was recognized under Ship-In-Place transactions.
We also on occasion
record deferred revenue on our balance sheet as a liability. Deferred revenue represents progress payments received, primarily
from one customer, to cover purchases of raw materials per the terms of multi-year long term contracts. Revenue associated with
these agreements is recognized in accordance with the criteria discussed above.
The Company sells
to a large number of OEMs and distributors who service the aftermarket. The Company's credit risk associated with accounts
receivable is minimized due to its customer base and wide geographic dispersion. The Company performs ongoing credit evaluations
of its customers' financial condition and generally does not require collateral or charge interest on outstanding amounts. The
Company had no concentrations of credit risk with any one customer greater than 4% of accounts receivables at April 2, 2016 and
March 28, 2015, respectively.
Allowance for Doubtful Accounts
The Company maintains
an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.
The Company reviews the collectability of its receivables on an ongoing basis taking into account a combination of factors. The
Company reviews potential problems, such as past due accounts, a bankruptcy filing or deterioration in the customer's financial
condition, to ensure the Company is adequately accrued for potential loss. Accounts are considered past due based on when payment
was originally due. If a customer's situation changes, such as a bankruptcy or creditworthiness, or there is a change in the current
economic climate, the Company may modify its estimate of the allowance for doubtful accounts. The Company will write-off accounts
receivable after reasonable collection efforts have been made and the accounts are deemed uncollectible.
Goodwill and Indefinite-Lived Intangible
Assets
Goodwill (representing
the excess of the amount paid to acquire a company over the estimated fair value of the net assets acquired) and Indefinite Lived
Intangible Assets are not amortized but instead is tested for impairment annually, or when events or circumstances indicate that
its value may have declined. Separate tests are performed for goodwill and indefinite lived intangible assets. We apply a qualitative
test of impairment on the indefinite lived intangible assets. This is done by assessing the existence of events or circumstances
which would make it more likely than not that impairment is present. No such factors were identified during our current year analysis.
The determination of any goodwill impairment is made at the reporting unit level and consists of two steps. First, the Company
determines the fair value of a reporting unit and compares it to its carrying amount. Second, if the carrying amount of the reporting
unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill
over the goodwill's implied fair value. The Company uses the income approach (discounted cash flow method) in testing goodwill
for impairment. The key assumptions used in the discounted cash flow method used to estimate fair value include discount rates,
revenue growth rates, terminal growth rates and cash flow projections. Discount rates, growth rates and cash flow projections
are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined
by using a weighted average cost of capital (“WACC”). The WACC considers market and industry data as well as Company-specific
risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each
reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Terminal growth
rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last
projected period assuming a constant WACC and long-term growth rates. The Company has determined that, to date, no impairment
of goodwill exists and fair value of the reporting units exceeded the carrying value in total by approximately 74%. The fair value
of the reporting units exceeds the carrying value by a minimum of 37% at each of the four reporting units. The Company performs
the annual impairment testing during the fourth quarter of each fiscal year. Although no changes are expected, if the actual results
of the Company are less favorable than the assumptions the Company makes regarding estimated cash flows, the Company may be required
to record an impairment charge in the future.
Deferred Financing Costs
Deferred financing
costs are amortized on a straight line basis over the lives of the related credit agreements.
Derivative Financial Instruments
The Company utilizes
forward contracts and average rate options to mitigate the impact of currency fluctuations on monetary assets and liabilities
denominated in currencies other than the applicable functional currency as well as on forecasted transactions denominated in currencies
other than the applicable functional currency. The Company does not engage in other uses of these financial instruments. For a
financial instrument to qualify as a hedge, the Company must be exposed to interest rate or price risk, and the financial instrument
must reduce the exposure and be designated as a hedge. Financial instruments qualifying for hedge accounting must maintain a high
correlation between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. The
Company measures the effectiveness of the hedging relationship at the inception of the hedge and quarterly at a minimum.
If derivative financial
instruments qualify as fair value hedges, the gain or loss on the instrument and the offsetting loss or gain on the hedged item
attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For derivative
financial instruments that qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows
that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged
transaction affects earnings. The ineffective portion of a cash flow hedge, if any, is determined based on the dollar-offset method
(i.e., the gain or loss on the derivative financial instrument in excess of the cumulative change in the present value of future
cash flows of the hedged item) and is recognized in current earnings during the period of change. As long as hedge effectiveness
is maintained, interest rate swap arrangements and foreign currency exchange agreements qualify for hedge accounting as cash flow
hedges.
All derivatives are
recorded in the consolidated balance sheets at their fair values. Changes in fair values of derivatives are recorded in each period
in comprehensive income, since the derivative is designated and qualifies as a cash flow hedge. As of April 2, 2016, the Company
held no derivatives.
Income Taxes
The Company accounts
for income taxes using the liability method, which requires it to recognize a current tax liability or asset for current taxes
payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences between
the financial statement and tax reporting bases of assets and liabilities to the extent that they are realizable. Deferred tax
expense (benefit) results from the net change in deferred tax assets and liabilities during the year. A valuation allowance is
recorded to reduce deferred tax assets to the amount that is more likely than not to be realized.
Temporary differences
relate primarily to the timing of deductions for depreciation, stock-based compensation, goodwill amortization relating to the
acquisition of operating divisions, basis differences arising from acquisition accounting, pension and retirement benefits, and
various accrued and prepaid expenses. Deferred tax assets and liabilities are recorded at the rates expected to be in effect when
the temporary differences are expected to reverse.
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 year presented as well as the computation of basic and diluted
net income per common share:
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Fiscal Year Ended
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April 2,
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March 28,
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March 29,
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2016
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2015
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2014
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Net income
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$
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63,894
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$
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58,248
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$
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60,208
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Denominator:
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Denominator for basic net income per common share—weighted-average shares
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23,208,686
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23,073,940
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22,874,842
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Effect of dilution due to employee stock options
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299,732
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311,121
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369,399
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Denominator for diluted net income per common share—adjusted weighted-average shares
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23,508,418
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23,385,061
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23,244,241
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Basic net income per common share
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$
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2.75
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$
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2.52
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$
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2.63
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Diluted net income per common share
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$
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2.72
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$
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2.49
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$
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2.59
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At April 2, 2016,
443,250 employee stock options and no restricted shares have been excluded from the calculation of diluted earnings per share.
At March 28, 2015, 418,450 employee stock options and no restricted shares have been excluded from the calculation of diluted
earnings per share. At March 29, 2014, 193,500 employee stock options and no restricted shares have been excluded from the calculation
of diluted earnings per share. The inclusion of these employee stock options and restricted shares would be anti-dilutive.
Impairment of Long-Lived Assets
The Company assesses
the net realizable value of its long-lived assets and evaluates such assets for impairment whenever indicators of impairment are
present. For amortizable long-lived assets to be held and used, if indicators of impairment are present, management determines
whether the sum of the estimated undiscounted future cash flows is less than the carrying amount. The amount of asset impairment,
if any, is based on the excess of the carrying amount over its fair value, which is estimated based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost of funds. To date, no indicators of impairment
exist other than those resulting in the restructuring charges already recorded.
Long-lived assets
to be disposed of by sale or other means are reported at the lower of carrying amount or fair value, less costs to sell.
Foreign Currency Translation and Transactions
Assets and liabilities
of the Company's foreign operations are translated into U.S. dollars using the exchange rate in effect at the balance sheet date.
Results of operations are translated using the average exchange rate prevailing throughout the period. The effects of exchange
rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are included in accumulated other comprehensive
income (loss), while gains and losses resulting from foreign currency transactions are included in other non-operating expense
(income). Net income of the Company's foreign operations for fiscal 2016, 2015 and 2014 amounted to $8,660, $2,474, and $10,045,
respectively. Net assets of the Company's foreign operations were $104,382 and $96,545 at April 2, 2016 and March 28, 2015, respectively.
On January 15, 2015,
the Swiss National Bank, removed its three-year-old foreign exchange cap of Swiss Francs 1.20 against the Euro. The new exchange
rate was approximately 1.02 at the end of fiscal March 2015. This change in rates has impacted the translation and remeasurement
of the financial statements of our Swiss company, Schaublin S.A. Schaublin S.A. had approximately 16.0 million Euro deposits on
their balance sheet. When Euro deposits are re-measured to the functional currency of Swiss Francs, the change in exchange rate
is reflected in the income statement in other non-operating expense. Based on the exchange rate at the end of fiscal March 2015,
the income statement had a negative impact of approximately $3.1 million in the fourth quarter, and was partially offset by a
favorable impact of approximately $0.4 million in other comprehensive income on the balance sheet.
Fair Value of Measurements
Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date (exit price). Inputs used to measure fair value are within a hierarchy consisting of three levels. Level
1 inputs represent unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs represent unadjusted
quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets
or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3 inputs represent unobservable inputs for the asset or liability. Financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair value measurement.
The financial assets
and liabilities that are measured on a recurring basis in 2016 consist of the Company’s forward contracts and average rate
options. The Company has measured the fair value of these forward contracts and average rate options using observable market inputs
such as spot and forward rates (as provided by the financial institution with which these instruments has been executed). Based
on these inputs, these instruments are classified as Level 2 of the valuation hierarchy. As of April 2, 2016, the Company held
no forward contracts or average rate options.
The carrying amounts
reported in the balance sheet for cash and cash equivalents, short-term investments, accounts receivable, prepaids and other current
assets, and accounts payable and accruals, and other current liabilities approximate their fair value due to their short-term
nature.
The carrying amounts
of the Company's borrowings under its Wells Fargo Credit Agreement and Swiss Credit Facility approximate fair value, as these
obligations have interest rates which vary in conjunction with current market conditions. The carrying value of the mortgage on
our Schaublin building approximates fair value as the rates since entering into the mortgage in fiscal 2013 have not changed.
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), net of taxes:
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Currency
Translation
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Pension and
Postretirement
Liability
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Total
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Balance at March 28, 2015
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$
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(93
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)
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$
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(7,677
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)
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$
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(7,770
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)
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Other comprehensive income before reclassifications
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315
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644
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959
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Amounts reclassified from accumulated other comprehensive loss
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—
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(179
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)
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(179
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)
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Net current period other comprehensive income
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|
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315
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|
|
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465
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|
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780
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Balance at April 2, 2016
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$
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222
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|
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$
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(7,212
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)
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$
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(6,990
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)
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Stock-Based Compensation
The Company recognizes
compensation cost relating to all share-based payment transactions in the financial statements based upon the grant-date fair
value of the instruments issued over the requisite service period. The fair value of each option grant was estimated on the date
of grant using the Black-Scholes pricing model.
Recent Accounting Pronouncements
In March 2016, the
Financial Accounting Standards Board ("FASB") issued Accounting Standards update (“ASU") No. 2016-09: "Improvements
to Employee Share-Based Payment Accounting" which amends ASC Topic 718, Compensation - Stock Compensation. This ASU includes
provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial
statements. This ASU is effective for public companies for the financial statements issued for annual periods beginning after
December 15, 2016 and interim periods within those annual periods. Earlier application is permitted as of the beginning of an
interim or annual reporting period, with any adjustments reflected as of the beginning of the fiscal year of adoption. 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 November 2015, the
Financial Accounting Standards Board ("FASB") issued Accounting Standards update ("ASU") No. 2015-17 (Topic
740): "Balance Sheet Classification of Deferred Taxes". The FASB issued this ASU as part of its simplification initiative
to reduce complexity in accounting standards. This ASU eliminates the current requirement that requires an organization to present
deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations with a classified
balance sheet are now required to classify each tax jurisdictions deferred tax assets and liabilities as noncurrent assets or
noncurrent liabilities. This ASU will not change the existing guidance that prohibits the offsetting of deferred tax liabilities
of one jurisdiction against the deferred tax assets of another jurisdiction. This ASU is effective for public companies for the
financial statements issued for annual periods beginning after December 15, 2016 and interim periods within those annual periods.
The Company has elected to early adopt this guidance prospectively during the fourth quarter of fiscal year 2016. Given that the
Company elected prospective adoption, it did not reclassify prior year information to conform to the ASU.
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 June 28, 2015.
In July 2015,
the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” This update requires the company to
measure inventory using the lower of cost and net realizable value. Net realizable value is defined as the estimated selling
prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This
ASU applies to companies measuring inventory using methods other than the last-in, first-out (LIFO) and retail inventory methods,
including but not limited to the first-in, first-out (FIFO) or average costing methods. 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 April 2015, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 doesn’t 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 Company
has elected to adopt this guidance for the fiscal year ended April 2, 2016. The respective assets and liabilities associated with
the defined benefit plans have been valued as of March 31, 2016, with no 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. Other than requiring a different presentation within the balance sheet, the adoption of this ASU is not
expected to have a material impact on the Company’s consolidated 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.
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3.
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Acquisitions and Dispositions
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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 $223,888. 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 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
|
|
|
24,100
|
|
Inventories
|
|
|
48,867
|
|
Property, plant and equipment
|
|
|
39,907
|
|
Intangible assets
|
|
|
203,700
|
|
Goodwill
|
|
|
223,888
|
|
Total assets acquired
|
|
|
543,548
|
|
Accounts payable
|
|
|
14,900
|
|
Liabilities assumed
|
|
|
28,648
|
|
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
|
|
$
|
104,500
|
|
Product approvals
|
|
25
|
|
|
50,500
|
|
Trademarks and tradenames
|
|
10
|
|
|
18,000
|
|
|
|
|
|
|
173,000
|
|
Non-amortizable intangible assets
|
|
|
|
|
|
|
Repair station certifications
|
|
-
|
|
|
30,700
|
|
Intangible assets
|
|
|
|
$
|
203,700
|
|
Included in the Company’s
results of operations for the twelve months ended April 2, 2016 are revenues related to the Sargent acquisition of $172,547. Also,
included for the twelve months ended April 2, 2016 is net income of $14,132. Acquisition-related expenses were recorded in Other,
net in the Consolidated Statements of Operations for the twelve months ended April 2, 2016 of $6,096.
The following supplemental
pro forma financial information presents the financial results for the twelve months ended April 2, 2016 and March 28, 2015, 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:
|
|
Twelve Months Ended
|
|
|
|
April 2,
|
|
|
March 28,
|
|
|
|
2016
|
|
|
2015
|
|
Pro forma net sales
|
|
$
|
605,846
|
|
|
$
|
634,963
|
|
Pro forma net income
|
|
|
70,963
|
|
|
|
59,404
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share as reported
|
|
$
|
2.75
|
|
|
$
|
2.52
|
|
Pro forma basic earnings per share
|
|
|
3.06
|
|
|
|
2.57
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share as reported
|
|
$
|
2.72
|
|
|
$
|
2.49
|
|
Pro forma diluted earnings per share
|
|
|
3.02
|
|
|
|
2.54
|
|
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 calendar year 2012 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
fair value of the contingent consideration as of the acquisition date was $766. 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 (classified as level 3 of the valuation hierarchy). Proforma 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 calendar year 2012 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. Proforma net sales and net income inclusive of CMP are not materially
different from the amounts reported in the accompanying consolidated statements of operations.
|
4.
|
Allowance for Doubtful Accounts
|
The activity in the
allowance for doubtful accounts consists of the following:
Fiscal Year Ended
|
|
Balance at
Beginning of
Year
|
|
|
Additions
|
|
|
Other*
|
|
|
Write-offs
|
|
|
Balance at
End of Year
|
|
April 2, 2016
|
|
$
|
860
|
|
|
$
|
191
|
|
|
$
|
308
|
|
|
($
|
35
|
)
|
|
$
|
1,324
|
|
March 28, 2015
|
|
|
1,060
|
|
|
|
90
|
|
|
|
(72
|
)
|
|
|
(218
|
)
|
|
|
860
|
|
March 29, 2014
|
|
$
|
1,719
|
|
|
|
297
|
|
|
|
105
|
|
|
|
(1,061
|
)
|
|
$
|
1,060
|
|
*Foreign currency
and acquisition transactions.
Inventories
are summarized below:
|
|
April 2,
|
|
|
March 28,
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials
|
|
$
|
36,632
|
|
|
$
|
18,424
|
|
Work in process
|
|
|
73,761
|
|
|
|
50,243
|
|
Finished goods
|
|
|
170,144
|
|
|
|
137,491
|
|
|
|
$
|
280,537
|
|
|
$
|
206,158
|
|
|
6.
|
Property, Plant and Equipment
|
Property, plant and
equipment consist of the following:
|
|
April 2,
|
|
|
March 28,
|
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
18,309
|
|
|
$
|
14,243
|
|
Buildings and improvements
|
|
|
80,770
|
|
|
|
70,242
|
|
Machinery and equipment
|
|
|
228,506
|
|
|
|
190,661
|
|
|
|
|
327,585
|
|
|
|
275,146
|
|
Less: accumulated depreciation and amortization
|
|
|
142,841
|
|
|
|
133,497
|
|
|
|
$
|
184,744
|
|
|
$
|
141,649
|
|
|
7.
|
Restructuring of Operations
|
In the second quarter
of fiscal 2015, the Company reached a decision to consolidate the manufacturing capacity of its United Kingdom (U.K.) facility
into its other manufacturing facilities. This decision was based on the Company’s intent to better align manufacturing abilities
and product development. The consolidation of this facility into the European and South Carolina operations will strengthen and
bring improved manufacturing scale to those operations. As a result the Company recorded a charge of $6,382 associated with the
consolidation of operations in the second quarter of fiscal 2015 attributable to the Roller Bearings segment. The $6,382 charge
includes $3,707 of inventory rationalization costs, $1,319 in impairment of intangibles, $427 loss on fixed assets disposals,
$286 in employee related costs and $643 of other costs related to the consolidation of operations. The inventory rationalization
costs 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. The Company
determined that the market approach was the most appropriate method to estimate the fair value for the inventory and equipment
using comparable sales data and actual quotes from potential buyers in the market place. The consolidation of the majority of
operations was completed in the second quarter of fiscal 2015. Additional charges of $88 were recorded in the third quarter of
fiscal 2015.
|
8.
|
Goodwill and Intangible Assets
|
Goodwill
Goodwill balances,
by segment, consist of the following:
|
|
Roller
|
|
|
Plain
|
|
|
Ball
|
|
|
Engineered
Products
|
|
|
Total
|
|
March 28, 2015
|
|
$
|
16,007
|
|
|
$
|
20,641
|
|
|
$
|
5,623
|
|
|
$
|
1,168
|
|
|
$
|
43,439
|
|
Acquisitions
|
|
|
—
|
|
|
|
56,570
|
|
|
|
—
|
|
|
|
167,318
|
|
|
|
223,888
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(68
|
)
|
|
|
(68
|
)
|
April 2, 2016
|
|
$
|
16,007
|
|
|
$
|
77,211
|
|
|
$
|
5,623
|
|
|
$
|
168,418
|
|
|
$
|
267,259
|
|
Intangible Assets
|
|
|
|
April 2, 2016
|
|
|
March 28, 2015
|
|
|
|
Weighted
Average
Useful Lives
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
Product approvals
|
|
24
|
|
$
|
54,360
|
|
|
$
|
4,488
|
|
|
$
|
4,068
|
|
|
$
|
2,372
|
|
Customer relationships and lists
|
|
24
|
|
|
113,409
|
|
|
|
8,784
|
|
|
|
9,017
|
|
|
|
4,349
|
|
Trade names
|
|
10
|
|
|
20,019
|
|
|
|
3,211
|
|
|
|
2,102
|
|
|
|
1,372
|
|
Distributor agreements
|
|
5
|
|
|
722
|
|
|
|
722
|
|
|
|
722
|
|
|
|
722
|
|
Patents and trademarks
|
|
15
|
|
|
8,573
|
|
|
|
3,546
|
|
|
|
7,670
|
|
|
|
3,039
|
|
Domain names
|
|
10
|
|
|
437
|
|
|
|
342
|
|
|
|
437
|
|
|
|
299
|
|
Other
|
|
5
|
|
|
1,197
|
|
|
|
1,072
|
|
|
|
1,197
|
|
|
|
1,032
|
|
Non-amortizable repair station certifications
|
|
n/a
|
|
|
30,700
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
|
$
|
229,417
|
|
|
$
|
22,165
|
|
|
$
|
25,213
|
|
|
$
|
13,185
|
|
Amortization expense
for definite-lived intangible assets during fiscal year 2016, 2015 and 2014 was $9,000 $1,839, and $1,924, respectively. A gross
carrying amount of $2,776 and related amortization of $1,469 was written off in the three month period ended September 27, 2014
due to the consolidation of the Company’s United Kingdom (“U.K.”) facility. Estimated amortization expense for
the five succeeding fiscal years and thereafter is as follows:
2017
|
|
$
|
9,676
|
|
2018
|
|
|
9,554
|
|
2019
|
|
|
9,331
|
|
2020
|
|
|
9,224
|
|
2021
|
|
|
9,173
|
|
2022 and thereafter
|
|
|
129,594
|
|
|
9.
|
Accrued Expenses and Other Current Liabilities
|
The significant components
of accrued expenses and other current liabilities are as follows:
|
|
April 2,
|
|
|
March 28,
|
|
|
|
2016
|
|
|
2015
|
|
Employee compensation and related benefits
|
|
$
|
12,306
|
|
|
$
|
8,488
|
|
Taxes
|
|
|
8,173
|
|
|
|
3,393
|
|
Deferred Revenue
|
|
|
7,723
|
|
|
|
—
|
|
Workers Compensation
|
|
|
2,178
|
|
|
|
2,795
|
|
Software License
|
|
|
966
|
|
|
|
—
|
|
Legal
|
|
|
2,952
|
|
|
|
130
|
|
Other
|
|
|
7,936
|
|
|
|
2,520
|
|
|
|
$
|
42,234
|
|
|
$
|
17,326
|
|
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 and (b) a $350,000 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 April 2, 2016, there was $169,000 outstanding under the Revolver and $192,500 outstanding
under the Term Loan, offset by $5,816 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 April 2, 2016, 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. As of April 2, 2016, RBCA has the ability to borrow up to an additional $177,710 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 provided 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 bore interest at the prime rate or LIBOR plus a specified margin, depending on
the type of borrowing being made. The applicable margin was based upon our consolidated ratio of net debt to adjusted EBITDA,
measured at the end of this quarter. As of March 28, 2015, the Company’s margin was 0.5% for prime rate loans and 1.5% for
LIBOR rate loans.
The JP Morgan Credit
Agreement required 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. As of March 28, 2015 the Company was in compliance with all such covenants. The
credit agreement allowed 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 complied 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 upon 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 April 2, 2016 was 7,673
CHF, or $8,012.
The balances payable under all borrowing
facilities are as follows:
|
|
April 2,
|
|
|
March 28,
|
|
|
|
2016
|
|
|
2015
|
|
Revolver and term loan facilities
|
|
$
|
361,500
|
|
|
$
|
—
|
|
Debt issuance cost
|
|
|
(5,816
|
)
|
|
|
—
|
|
Other
|
|
|
8,012
|
|
|
|
9,198
|
|
Total debt
|
|
$
|
363,696
|
|
|
$
|
9,198
|
|
Less: current portion
|
|
|
10,486
|
|
|
|
1,233
|
|
Long-term debt
|
|
$
|
353,210
|
|
|
$
|
7,965
|
|
The current portion
of long-term debt as of April 2, 2016 includes the current portion of the Schaublin mortgage. The current portion of long-term
debt as of March 28, 2015 includes the current portion of the Schaublin mortgage and a $750 note payable relating to the AllPower
acquisition.
The Company’s
required future annual principal payments for the next five years are $10,486 for fiscal 2017, $14,236 for fiscal 2018, $19,236
for fiscal 2019, $24,236 for fiscal 2020, and $295,736 for fiscal 2021.
|
11.
|
Other Non-Current Liabilities
|
The significant components
of other non-current liabilities consist of:
|
|
April 2,
|
|
|
March 28,
|
|
|
|
2016
|
|
|
2015
|
|
Non-current pension liability
|
|
$
|
4,186
|
|
|
$
|
5,022
|
|
Other postretirement benefits
|
|
|
2,999
|
|
|
|
3,117
|
|
Non-current income tax liability
|
|
|
13,848
|
|
|
|
5,647
|
|
Deferred compensation
|
|
|
8,924
|
|
|
|
8,208
|
|
Other
|
|
|
2,871
|
|
|
|
537
|
|
|
|
$
|
32,828
|
|
|
$
|
22,531
|
|
At April 2, 2016,
the Company has one consolidated noncontributory defined benefit pension plan covering union employees in its Heim division plant
in Fairfield, Connecticut, its Bremen subsidiary plant in Plymouth, Indiana and former union employees of the Tyson subsidiary
in Glasgow, Kentucky and the Nice subsidiary in Kulpsville, Pennsylvania.
Plan assets are comprised
primarily of equity and fixed income investments, as follows:
|
|
April 2,
|
|
|
March 28,
|
|
|
|
2016
|
|
|
2015
|
|
Cash and cash equivalents
|
|
$
|
9,572
|
|
|
$
|
9,925
|
|
U.S. equity mutual funds
|
|
|
8,296
|
|
|
|
8,509
|
|
Fixed income mutual funds
|
|
|
4,864
|
|
|
|
4,791
|
|
|
|
$
|
22,732
|
|
|
$
|
23,225
|
|
The fair value of
the above investments is determined using quoted market prices of identical instruments. Therefore, the valuation inputs within
the fair value hierarchy established by ASC 820 are classified as Level 1 of the valuation hierarchy.
The following tables
set forth the funded status of the Company's defined benefit pension plan and the amount recognized in the balance sheet at April
2, 2016 and March 28, 2015:
|
|
April 2,
|
|
|
March 28,
|
|
|
|
2016
|
|
|
2015
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
28,247
|
|
|
$
|
25,698
|
|
Service cost
|
|
|
272
|
|
|
|
265
|
|
Interest cost
|
|
|
920
|
|
|
|
1,007
|
|
Actuarial (gain)/loss
|
|
|
(1,009
|
)
|
|
|
2,764
|
|
Benefits paid
|
|
|
(1,513
|
)
|
|
|
(1,487
|
)
|
Benefit obligation at end of year
|
|
$
|
26,917
|
|
|
$
|
28,247
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
23,225
|
|
|
$
|
21,603
|
|
Actual return on plan assets
|
|
|
(231
|
)
|
|
|
1,859
|
|
Employer contributions
|
|
|
1,250
|
|
|
|
1,250
|
|
Benefits paid
|
|
|
(1,513
|
)
|
|
|
(1,487
|
)
|
Fair value of plan assets at end of year
|
|
$
|
22,731
|
|
|
$
|
23,225
|
|
|
|
|
|
|
|
|
|
|
Underfunded status at end of year
|
|
$
|
(4,186
|
)
|
|
$
|
(5,022
|
)
|
Amounts recognized in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-current liabilities
|
|
|
(4,186
|
)
|
|
|
(5,022
|
)
|
Net liability recognized
|
|
$
|
(4,186
|
)
|
|
$
|
(5,022
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
167
|
|
|
$
|
233
|
|
Net actuarial loss
|
|
|
10,806
|
|
|
|
11,312
|
|
Accumulated other comprehensive loss
|
|
$
|
10,973
|
|
|
$
|
11,545
|
|
Amounts included in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost in 2017:
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
61
|
|
|
|
|
|
Net actuarial loss
|
|
|
1,343
|
|
|
|
|
|
Total
|
|
$
|
1,404
|
|
|
|
|
|
Benefits under the
union plans are not a function of employees' salaries; thus, the accumulated benefit obligation equals the projected benefit obligation.
The following table
sets forth net periodic benefit cost of the Company's plan for the three fiscal years in the period ended April 2, 2016:
|
|
Fiscal Year Ended
|
|
|
|
April 2,
|
|
|
March 28,
|
|
|
March 29,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
272
|
|
|
$
|
265
|
|
|
$
|
287
|
|
Interest cost
|
|
|
920
|
|
|
|
1,007
|
|
|
|
991
|
|
Expected return on plan assets
|
|
|
(1,615
|
)
|
|
|
(1,484
|
)
|
|
|
(1,591
|
)
|
Amortization of prior service cost
|
|
|
66
|
|
|
|
66
|
|
|
|
70
|
|
Amortization of losses
|
|
|
1,343
|
|
|
|
1,122
|
|
|
|
1,370
|
|
Net periodic benefit cost
|
|
$
|
986
|
|
|
$
|
976
|
|
|
$
|
1,127
|
|
The assumptions used
in determining the net periodic benefit cost information are as follows:
|
|
FY 2016
|
|
|
FY 2015
|
|
|
FY 2014
|
|
Discount rate
|
|
|
3.40
|
%
|
|
|
4.10
|
%
|
|
|
3.80
|
%
|
Expected long-term rate of return on plan assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
|
|
7.75
|
%
|
The discount rate
used in determining the funded status as of April 2, 2016 and March 28, 2015 was 3.40%.
In developing the
overall expected long-term return on plan assets assumption, a building block approach was used in which rates of return in excess
of inflation were considered separately for equity securities and debt securities. The excess returns were weighted by the representative
target allocation and added along with an appropriate rate of inflation to develop the overall expected long-term return on plan
assets assumption. The Company’s long-term target allocation of plan assets is 70% equity and 30% fixed income investments.
The Company's investment
program objective is to achieve a rate of return on plan assets which will fund the plan liabilities and provide for required
benefits while avoiding undue exposure to risk to the plan and increases in funding requirements.
The following benefit
payments, which reflect future service as appropriate, are expected to be paid. The benefit payments are based on the same assumptions
used to measure the Company's benefit obligation at the end of fiscal 2016:
2017
|
|
$
|
1,603
|
|
2018
|
|
|
1,634
|
|
2019
|
|
|
1,667
|
|
2020
|
|
|
1,698
|
|
2021
|
|
|
1,713
|
|
2022-2026
|
|
|
8,498
|
|
Although no contributions
are required for fiscal 2017, the Company expects to make cash contributions in the $750 to $1,500 range.
One of the Company’s
foreign operations, Schaublin, sponsors a pension plan for its approximately 157 employees in conformance with Swiss pension law.
The plan is funded with a reputable (S&P rating A+) Swiss insurer. Through the insurance contract, the Company has effectively
transferred all investment and mortality risk to the insurance company, which guarantees the federally mandated annual rate of
return and the conversion rate at retirement. As a result, the plan has no unfunded liability; the interest cost is exactly offset
by actual return. Thus, the net periodic cost is equal to the amount of annual premium paid by the Company. For fiscal years 2016,
2015 and 2014, the Company made contribution and premium payments equal to $861, $885 and $825, respectively.
The Company also has
defined contribution plans under Section 401(k) of the Internal Revenue Code for all of its employees not covered by a collective
bargaining agreement. Employer contributions under this plan, ranging from 10%-100% of eligible amounts contributed by employees,
amounted to $1,354, $576 and $733 in fiscal 2016, 2015 and 2014, respectively. The amount for fiscal 2014 included a $300 discretionary
match made by the Company.
Effective September 1,
1996, the Company adopted a non-qualified Supplemental Executive Retirement Plan ("SERP") for a select group of highly
compensated management employees designated by the Board of the Company. The SERP allowed eligible employees to elect to defer,
until termination of their employment, the receipt of up to 25% of their salary. In August 2008, the plan was modified, allowing
eligible employees to elect to defer up to 75% of their current salary and up to 100% of bonus compensation. Employer contributions
under this plan equal the lesser of 25% of the deferrals, or 1.75% of the employee’s annual salary, which vest in full after
one year of service following the effective date of the SERP. Employer contributions under this plan amounted to $214, $177 and
$162 in fiscal 2016, 2015 and 2014, respectively.
The fair value of
the investments in the SERP is determined using quoted market prices of identical instruments. Therefore, the valuation inputs
within the fair value hierarchy established by ASC 820 are classified as Level 1 of the valuation hierarchy.
|
13.
|
Postretirement Health Care and Life Insurance Benefits
|
The Company, for the
benefit of employees at its Heim, West Trenton, Bremen and PIC facilities and former union employees of its Tyson and Nice subsidiaries,
sponsors contributory defined benefit health care plans that provide postretirement medical and life insurance benefits to union
employees who have attained certain age and/or service requirements while employed by the Company. The plans are unfunded and
costs are paid as incurred. Postretirement benefit obligations are included in “Accrued expenses and other current liabilities”
and "Other non-current liabilities" in the consolidated balance sheet.
The following table
set forth the funded status of the Company’s postretirement benefit plans, the amount recognized in the balance sheet at
April 2, 2016 and March 28, 2015:
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
3,330
|
|
|
$
|
2,990
|
|
Service cost
|
|
|
54
|
|
|
|
50
|
|
Interest cost
|
|
|
107
|
|
|
|
115
|
|
Actuarial (gain) loss
|
|
|
(129
|
)
|
|
|
329
|
|
Benefits paid
|
|
|
(140
|
)
|
|
|
(154
|
)
|
Benefit obligation at end of year
|
|
$
|
3,222
|
|
|
$
|
3,330
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
—
|
|
|
$
|
—
|
|
Company contributions
|
|
|
140
|
|
|
|
154
|
|
Benefits paid
|
|
|
(140
|
)
|
|
|
(154
|
)
|
Fair value of plan assets at end of year
|
|
$
|
—
|
|
|
$
|
—
|
|
(Under) funded status at end of year
|
|
$
|
(3,222
|
)
|
|
$
|
(3,330
|
)
|
Amounts recognized in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
(223
|
)
|
|
$
|
(213
|
)
|
Non-current liability
|
|
|
(2,999
|
)
|
|
|
(3,117
|
)
|
Net liability recognized
|
|
$
|
(3,222
|
)
|
|
$
|
(3,330
|
)
|
Amounts recognized in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
22
|
|
|
$
|
25
|
|
Net actuarial loss
|
|
|
514
|
|
|
|
679
|
|
Accumulated other comprehensive loss
|
|
$
|
536
|
|
|
$
|
704
|
|
Amounts included in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost in 2017:
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
3
|
|
|
|
|
|
Net actuarial loss
|
|
|
28
|
|
|
|
|
|
Total
|
|
$
|
31
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 2,
|
|
|
March 28,
|
|
|
March 29,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
54
|
|
|
$
|
50
|
|
|
$
|
48
|
|
Interest cost
|
|
|
107
|
|
|
|
115
|
|
|
|
111
|
|
Prior service cost amortization
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Amount of loss recognized
|
|
|
37
|
|
|
|
17
|
|
|
|
39
|
|
Net periodic benefit cost
|
|
$
|
201
|
|
|
$
|
185
|
|
|
$
|
201
|
|
The Company measures
its plans as of the last day of the fiscal year.
The plans contractually
limit the benefit to be provided for certain groups of current and future retirees. As a result, there is no health care trend
associated with these groups. The discount rate used in determining the accumulated postretirement benefit obligation was 3.40%
at April 2, 2016 and March 28, 2015. The discount rate used in determining the net periodic benefit cost was 3.40% for fiscal
2016, 4.10% for fiscal 2015, and 3.80% for fiscal 2014. To determine the postretirement net periodic benefit costs in fiscal 2016
and fiscal 2015 the RP-2014 mortality table was used and for fiscal 2014 the RP-2000 combined mortality table was used.
The following benefit
payments, which reflect future service as appropriate, are expected to be paid. The benefit payments are based on the same assumptions
used to measure the Company's benefit obligation at the end of fiscal 2016:
2017
|
|
$
|
223
|
|
2018
|
|
|
237
|
|
2019
|
|
|
250
|
|
2020
|
|
|
250
|
|
2021
|
|
|
234
|
|
2022-2026
|
|
|
1,048
|
|
Income before income
taxes for the Company's domestic and foreign operations is as follows:
|
|
Fiscal Year Ended
|
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
|
March 29,
2014
|
|
Domestic
|
|
$
|
83,622
|
|
|
$
|
79,374
|
|
|
$
|
74,975
|
|
Foreign
|
|
|
11,163
|
|
|
|
5,181
|
|
|
|
12,778
|
|
|
|
$
|
94,785
|
|
|
$
|
84,555
|
|
|
$
|
87,753
|
|
The provision for
(benefit from) income taxes consists of the following:
|
|
Fiscal Year Ended
|
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
|
March 29,
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
26,281
|
|
|
$
|
21,833
|
|
|
$
|
22,835
|
|
State
|
|
|
1,960
|
|
|
|
809
|
|
|
|
1,292
|
|
Foreign
|
|
|
2,986
|
|
|
|
2,621
|
|
|
|
3,054
|
|
|
|
|
31,227
|
|
|
|
25,263
|
|
|
|
27,181
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(279
|
)
|
|
|
379
|
|
|
|
694
|
|
State
|
|
|
342
|
|
|
|
630
|
|
|
|
(9
|
)
|
Foreign
|
|
|
(399
|
)
|
|
|
35
|
|
|
|
(321
|
)
|
|
|
|
(336
|
)
|
|
|
1,044
|
|
|
|
364
|
|
Total
|
|
$
|
30,891
|
|
|
|
26,307
|
|
|
$
|
27,545
|
|
A reconciliation of income taxes computed
using the U.S. federal statutory rate to that reflected in operations follows:
|
|
Fiscal Year Ended
|
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
|
March 29,
2014
|
|
Income taxes using U.S. federal statutory rate
|
|
$
|
33,175
|
|
|
$
|
29,594
|
|
|
$
|
30,714
|
|
State income taxes, net of federal benefit
|
|
|
1,493
|
|
|
|
1,191
|
|
|
|
942
|
|
Domestic production activities deduction
|
|
|
(2,320
|
)
|
|
|
(2,414
|
)
|
|
|
(2,300
|
)
|
Foreign rate differential
|
|
|
(1,321
|
)
|
|
|
842
|
|
|
|
(1,739
|
)
|
Worthless stock deduction
|
|
|
—
|
|
|
|
(4,100
|
)
|
|
|
—
|
|
U.S. unrecognized tax positions
|
|
|
181
|
|
|
|
759
|
|
|
|
(295
|
)
|
Other
|
|
|
(317
|
)
|
|
|
435
|
|
|
|
223
|
|
|
|
$
|
30,891
|
|
|
$
|
26,307
|
|
|
$
|
27,545
|
|
Net deferred tax assets
(liabilities) consist of the following:
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Postretirement benefits
|
|
$
|
1,111
|
|
|
$
|
1,148
|
|
Employee compensation accruals
|
|
|
3,541
|
|
|
|
2,413
|
|
Net operating losses
|
|
|
431
|
|
|
|
423
|
|
Inventory
|
|
|
13,017
|
|
|
|
9,731
|
|
Stock compensation
|
|
|
6,357
|
|
|
|
5,289
|
|
Pension
|
|
|
1,549
|
|
|
|
1,868
|
|
State tax
|
|
|
1,672
|
|
|
|
1,450
|
|
Other
|
|
|
3,006
|
|
|
|
1,723
|
|
Total gross deferred tax assets
|
|
|
30,684
|
|
|
|
24,045
|
|
Valuation allowance
|
|
|
(580
|
)
|
|
|
(538
|
)
|
Total deferred tax assets
|
|
$
|
30,104
|
|
|
$
|
23,507
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(16,746
|
)
|
|
|
(14,200
|
)
|
Intangible assets
|
|
|
(16,566
|
)
|
|
|
(6,941
|
)
|
Total deferred tax liabilities
|
|
|
(33,312
|
)
|
|
|
(21,141
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets (liabilities)
|
|
$
|
(3,208
|
)
|
|
$
|
2,366
|
|
A valuation allowance
has been recorded on certain foreign net operating losses, state credits and state net operating losses as it is more likely than
not that these items will not be utilized. For the Company’s fiscal year ended April 2, 2016 the valuation allowance increased
by $42 which pertained to an increase of state credits. For the Company’s fiscal year ended March 28, 2015 the valuation
allowance decreased by $1,057 of which $1,104 pertained to a decrease of foreign net operating losses and $47 pertained to an
increase of state credits and state net operating losses.
The Company has determined
that its undistributed foreign earnings of approximately $84,524 at April 2, 2016 will be re-invested indefinitely based upon
the need for cash in its foreign operations, potential foreign acquisitions and the Company's inability to remit cash back to
the United States under its current foreign debt obligations.
As the Company’s
undistributed earnings in foreign subsidiaries are considered to be reinvested indefinitely, no provision for U.S. federal and
state income taxes has been provided. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company
would be subject to both U.S. income taxes (subject to an adjustment of foreign tax credits) and withholding taxes payable to
various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable due
to the complexities associated with its hypothetical calculation.
At April 2, 2016,
the Company has state net operating losses in different jurisdictions at varying amounts up to $7,418, which expire at various
dates through 2036. At April 2, 2016, the Company has state credits in different jurisdictions at varying amounts up to $2,148
which will expire at various dates through 2031. At April 2, 2016, the Company has foreign credits in different jurisdictions
at varying amounts up to $663 which will expire at various dates through 2036.
The Company files
income tax returns in the U.S. federal jurisdiction, and 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 April 2, 2005. The
Company is no longer subject to U.S. federal tax examination by the Internal Revenue Service for years ending before March 29,
2014. A U.S. federal tax examination by the Internal Revenue Service for the year ended March 30, 2013 was effectively settled
in the Company’s first quarter fiscal 2016. A U.S. federal tax examination by the Internal Revenue Service for the year
ended March 31, 2011 was completed during fiscal 2014.
A reconciliation of
the beginning and ending amount of unrecognized tax benefits are as follows:
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
|
March 29,
2014
|
|
Balance, beginning of year
|
|
$
|
5,514
|
|
|
$
|
5,250
|
|
|
$
|
5,892
|
|
Gross increases– tax positions taken during a prior period
|
|
|
248
|
|
|
|
(139
|
)
|
|
|
768
|
|
Gross increases– tax positions taken during the current period..
|
|
|
8,745
|
|
|
|
1,805
|
|
|
|
853
|
|
Decreases due to settlement with taxing authorities
|
|
|
—
|
|
|
|
(954
|
)
|
|
|
(1,182
|
)
|
Decreases due to lapse of the applicable statute of limitations
|
|
|
(210
|
)
|
|
|
(448
|
)
|
|
|
(1,081
|
)
|
Balance, end of year
|
|
$
|
14,297
|
|
|
$
|
5,514
|
|
|
$
|
5,250
|
|
If recognized, substantially
all of the unrecognized tax benefits for the Company’s fiscal years ended April 2, 2016 and March 28, 2015 would affect
the effective income tax rate.
The Company recognizes
the interest and penalties accrued related to unrecognized tax benefits in income tax expense. The Company recognized a detriment
of $182 of interest and penalties on its statement of operations for the fiscal years ended April 2, 2016 and a benefit of $20
of interest and penalties on its statement of operations for the fiscal year ended March 28, 2015. The Company has approximately
$900 and $718 of accrued interest and penalties at April 2, 2016 and March 28, 2015, respectively.
The Company believes
it is reasonably possible that some of its unrecognized tax positions may be effectively settled by the end of the Company’s
fiscal year ending April 1, 2017 due to the closing of audits and the statute of limitations expiring in varying jurisdictions.
The decrease, pertaining primarily to state credits and state tax, is estimated to be $269.
Stock Option Plans
2005 Long-Term
Incentive Plan
The 2005 Long-Term
Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock and performance awards. Directors,
officers and other employees and persons who engage in services for the Company are eligible for grants under the plan. The purpose
of the plan is to provide these individuals with incentives to maximize stockholder value and otherwise contribute to the Company’s
success and to enable the Company to attract, retain and reward the best available persons for positions of responsibility.
1,139,170 shares of
common stock were authorized for issuance under the plan, subject to adjustment in the event of a reorganization, stock split,
merger or similar change in the Company’s corporate structure or in the outstanding shares of common stock. An amendment
to increase the number of shares available for issuance under the 2005 Long-Term Incentive Plan from 1,139,170 to 1,639,170 was
approved by shareholder vote in September 2006. A further amendment to increase the number of shares available for issuance under
the 2005 Long-Term Incentive Plan from 1,639,170 to 2,239,170 was approved by shareholder vote in September 2007. The Company
may grant shares of restricted stock to its employees and directors in the future under the plan. The Company’s Compensation
Committee will administer the plan. The Company’s Board also has the authority to administer the plan and to take all actions
that the Compensation Committee is otherwise authorized to take under the plan. The terms and conditions of each award made under
the plan, including vesting requirements, is set forth consistent with the plan in a written agreement with the grantee.
2013 Long-Term
Incentive Plan
The 2013 Long-Term
Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock and performance awards. Directors,
officers and other employees and persons who engage in services for the Company are eligible for grants under the plan. The purpose
of the plan is to provide these individuals with incentives to maximize stockholder value and otherwise contribute to the Company’s
success and to enable the Company to attract, retain and reward the best available persons for positions of responsibility.
1,500,000 shares of
common stock were authorized for issuance under the plan, subject to adjustment in the event of a reorganization, stock split,
merger or similar change in the Company’s corporate structure or in the outstanding shares of common stock. The Company
may grant shares of restricted stock to its employees and directors in the future under the plan. The Company’s Compensation
Committee will administer the plan. The Company’s Board also has the authority to administer the plan and to take all actions
that the Compensation Committee is otherwise authorized to take under the plan. The terms and conditions of each award made under
the plan, including vesting requirements, is set forth consistent with the plan in a written agreement with the grantee.
Stock Options.
Under the 2005 Long-Term Incentive Plan, the Compensation Committee or the Board may approve the award of grants of incentive
stock options and other non-qualified stock options. The Compensation Committee also has the authority to approve the grant of
options that will become fully vested and exercisable automatically upon a change in control. The Compensation Committee may not,
however, approve an award to any one person in any calendar year for options to purchase common stock equal to more than 10% of
the total number of shares authorized under the plan, and it may not approve an award of incentive options first exercisable in
any calendar year whose underlying shares have a fair market value greater than $100,000 determined at the time of grant. The
Compensation Committee will approve the exercise price and term of any option in its discretion; however, the exercise price may
not be less than 100% of the fair market value of a share of common stock on the date of grant. In the case of any incentive stock
option, the option must be exercised within 10 years of the date of grant. The exercise price of an incentive option awarded
to a person who owns stock constituting more than 10% of the Company’s voting power may not be less than 110% of such fair
market value on such date and the option must be exercised within five years of the date of grant. As of April 2, 2016, there
were outstanding options to purchase 748,300 shares of common stock granted under the 2005 Long-Term Incentive Plan, 513,400 of
which were exercisable. There were 434,750 outstanding options to purchase shares of common stock granted under the 2013 Long-Term
Incentive Plan, 46,000 of which were exercisable.
Restricted Stock.
Under the 2005 Long-Term Incentive Plan, the Compensation Committee may approve the award of restricted stock subject to the
conditions and restrictions, and for the duration that it determines in its discretion. As of April 2, 2016, there were 93,564
shares of restricted stock outstanding. Under the 2013 Long-Term Incentive Plan, there were 195,402 shares of restricted stock
outstanding.
Stock Appreciation
Rights.
The Compensation Committee may approve the grant of stock appreciation rights, or SARs, subject to the terms and conditions
contained in the plan. Under the 2005 Long-Term Incentive Plan, the exercise price of a SAR must equal the fair market value of
a share of the Company’s common stock on the date the SAR was granted. Upon exercise of a SAR, the grantee will receive
an amount in shares of our common stock equal to the difference between the fair market value of a share of common stock on the
date of exercise and the exercise price of the SAR, multiplied by the number of shares as to which the SAR is exercised.
Performance Awards.
The Compensation Committee may approve the grant of performance awards contingent upon achievement by the grantee or by the
Company, of set goals and objectives regarding specified performance criteria, over a specified performance cycle. Awards may
include specific dollar-value target awards, performance units, the value of which is established at the time of grant, and/or
performance shares, the value of which is equal to the fair market value of a share of common stock on the date of grant. The
value of a performance award may be fixed or fluctuate on the basis of specified performance criteria. A performance award may
be paid out in cash and/or shares of common stock or other securities.
Amendment and Termination
of the Plan.
The Board may amend or terminate the 2005 Long-Term Incentive Plan at its discretion, except that no amendment
will become effective without prior approval of the Company’s stockholders if such approval is necessary for continued compliance
with the performance-based compensation exception of Section 162(m) of the Internal Revenue Code or any stock exchange listing
requirements. If not previously terminated by the Board, the plan will terminate on the tenth anniversary of its adoption.
A summary of the status
of the Company's stock options outstanding as of April 2, 2016 and changes during the year then ended is presented below. All
cashless exercises of options and warrants are handled through an independent broker.
|
|
Number Of
Common Stock
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Contractual Life
(Years)
|
|
|
Intrinsic Value
|
|
Outstanding, March 28, 2015
|
|
|
1,143,558
|
|
|
$
|
42.24
|
|
|
|
4.4
|
|
|
$
|
38,122
|
|
Awarded
|
|
|
211,500
|
|
|
|
72.35
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(171,758
|
)
|
|
|
26.68
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
(250
|
)
|
|
|
58.00
|
|
|
|
|
|
|
|
|
|
Outstanding, April 2, 2016
|
|
|
1,183,050
|
|
|
$
|
49.88
|
|
|
|
4.4
|
|
|
$
|
28,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, April 2, 2016
|
|
|
559,400
|
|
|
$
|
38.21
|
|
|
|
3.0
|
|
|
$
|
19,823
|
|
The fair value for
the Company's options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average
assumptions, which are updated to reflect current expectations of the dividend yield, expected life, risk-free interest rate and
using historical volatility to project expected volatility:
|
|
Fiscal Year Ended
|
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
|
March 29,
2014
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected weighted-average life (yrs.)
|
|
|
5.0
|
|
|
|
4.8
|
|
|
|
4.8
|
|
Risk-free interest rate
|
|
|
1.70
|
%
|
|
|
1.60
|
%
|
|
|
1.04
|
%
|
Expected volatility
|
|
|
31.2
|
%
|
|
|
33.2
|
%
|
|
|
45.2
|
%
|
The weighted average
fair value per share of options granted was $22.05 in fiscal 2016, $20.15 in fiscal 2015 and $20.76 in fiscal 2014.
As of April 2, 2016,
there was $9,861 of unrecognized compensation costs related to options which is expected to be recognized over a weighted average
period of 3.2 years. The total fair value of options that vested in fiscal 2016, 2015 and 2014 was $12,126, $14,350 and $9,570,
respectively. The total intrinsic value of options exercised in fiscal 2016, 2015 and 2014 was $7,219, $8,045 and $6,954, respectively.
Of the total awards
outstanding at April 2, 2016, 1,161,814 are either fully vested or are expected to vest. These shares have a weighted average
exercise price of $37.02, an intrinsic value of $42,561, and a weighted average contractual term of 4.4 years.
A summary of the status
of the Company’s restricted stock outstanding as of April 2, 2016 and the changes during the year then ended is presented
below.
|
|
Number Of
Restricted Stock
Shares
|
|
|
Weighted-
Average
Grant Date Fair
Value
|
|
Non-vested, March 28, 2015
|
|
|
253,384
|
|
|
$
|
53.79
|
|
Granted
|
|
|
142,450
|
|
|
|
71.57
|
|
Vested
|
|
|
(106,681
|
)
|
|
|
68.93
|
|
Forfeitures
|
|
|
(187
|
)
|
|
|
52.34
|
|
Non-vested, April 2, 2016
|
|
|
288,966
|
|
|
$
|
63.49
|
|
The Company recorded
$4,044 (net of taxes of $2,396) in compensation in fiscal 2016 related to restricted stock awards. These awards were valued at
the fair market value of the Company’s common stock on the date of issuance and are being amortized as expense over the
applicable vesting period. Unrecognized expense for restricted stock was $13,586 at April 2, 2016. This cost is expected to be
recognized over a weighted average period of approximately 2.9 years.
|
16.
|
Commitments and Contingencies
|
The Company leases
facilities under non-cancelable operating leases, which expire on various dates through January 2023, with rental expense aggregating
$5,101, $3,444 and $3,377 in fiscal 2016, 2015 and 2014, respectively.
The Company also has
non-cancelable operating leases for transportation, computer and office equipment, which expire at various dates. Rental expense
for fiscal 2016, 2015 and 2014 aggregated $1,606, $1,439 and $1,622, respectively.
Certain of the above
leases are renewable while none contain material contingent rent or concession clauses.
The aggregate future
minimum lease payments under operating leases are as follows:
2017
|
|
$
|
5,451
|
|
2018
|
|
|
4,335
|
|
2019
|
|
|
3,077
|
|
2020
|
|
|
1,350
|
|
2021
|
|
|
754
|
|
2022 and thereafter
|
|
|
664
|
|
As of April 2, 2016,
approximately 12% of the Company's hourly employees in the U.S. and abroad were represented by labor unions.
The Company enters
into government contracts and subcontracts that are subject to audit by the government. In the opinion of the Company's management,
the results of such audits, if any, are not expected to have a material impact on the cash flows, financial condition or results
of operations of the Company.
For fiscal 2016, 2015
and 2014, there were no audits by the government, the results of which, in the opinion of the Company’s management, had
a material impact on the cash flows, financial condition or results of operations of the Company.
The Company is subject
to federal, state and local environmental laws and regulations, including those governing discharges of pollutants into the air
and water, the storage, handling and disposal of wastes and the health and safety of employees. The Company also may be liable
under the Comprehensive Environmental Response, Compensation, and Liability Act or similar state laws for the costs of investigation
and cleanup of contamination at facilities currently or formerly owned or operated by the Company, or at other facilities at which
the Company may have disposed of hazardous substances. In connection with such contamination, the Company may also be liable for
natural resource damages, government penalties and claims by third parties for personal injury and property damage. Agencies responsible
for enforcing these laws have authority to impose significant civil or criminal penalties for non-compliance. The Company believes
it is currently in material compliance with all applicable requirements of environmental laws. The Company does not anticipate
material capital expenditures for environmental compliance in fiscal years 2017 or 2018.
Investigation and
remediation of contamination is ongoing at some of the Company's sites. In particular, state agencies have been overseeing groundwater
monitoring activities at the Company's facility in Hartsville, South Carolina and a corrective action plan at the Company’s
facility in Clayton, Georgia. At Hartsville, the Company is monitoring low levels of contaminants in the groundwater caused by
former operations. Plans are currently underway to conclude remediation and monitoring activities. In connection with the purchase
of the Fairfield, Connecticut facility in 1996, the Company agreed to assume responsibility for completing clean-up efforts previously
initiated by the prior owner. The Company submitted data to the state that the Company believes demonstrates that no further remedial
action is necessary, although the state may require additional clean-up or monitoring. In connection with the purchase of the
Company’s Clayton, Georgia facility, the Company agreed to take assignment of the hazardous waste permit covering such facility
and to assume certain responsibilities to implement a corrective action plan concerning the remediation of certain soil and groundwater
contamination present at that facility. The corrective action plan is ongoing. Although there can be no assurance, the Company
does not expect the costs associated with the above sites to be material.
There are
various claims and legal proceedings against the Company relating to its operations in the normal course of business. The
Company accrues costs associated with legal and non-income tax matters when they become probable and reasonably estimable.
Our wholly owned subsidiary, RBC Aircraft Products, Inc. was a plaintiff in a lawsuit against Precise Machining &
Manufacturing LLC 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
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
as a matter of law and, in the alternative granted Precise a motion for a new trial on grounds not even requested by Precise.
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 allowed RBC Aircraft Products, Inc. to immediately
appeal the judges’ decision to overturn the jury verdict to the Second Circuit Court of Appeals (“Second
Circuit”). RBC Aircraft Products, Inc. subsequently filed an appeal. On November 10, 2015 the Second Circuit reversed
the District Court’s judgment in favor of Precise as a matter of law. However, the Second Circuit Court of Appeals
remanded the case for a second trial giving deference to the District Court’s alternative holding that a second trial
on liability was appropriate. On January 6, 2016 the District Court entered a pre-trial order tentatively scheduling a trial
date on July 6, 2016. On May 20, 2016 RBC Aircraft Products, Inc. accepted an offer of judgement filed by Precise Machining
and Manufacturing, LLC with the court on May 6, 2016 which as of May 20, 2016 resulted in a judgment to enter against
Precise Machining and Manufacturing, LLC in the amount of $450 inclusive of costs.
On October 5, 2007
SKF USA, Inc. (“SKF”) filed suit in state court in Pennsylvania state court against Tyson Bearing Company, Inc. (now
known as RBC Lubron Bearing Systems, Inc. (“Tyson”) alleging that when Tyson vacated a facility in Glasgow, Kentucky
on June 29, 2007, it breached an alleged five-year lease. SKF sought to recover approximately $3,750, including rent, prejudgment
interest and attorney’s fees. After pending in the Pennsylvania court system for over nine years, a trial of the case was
finally held during February, 2016. On February 17, 2016 the jury returned a verdict against Tyson in the amount of $1,031. Both
SKF and Tyson filed post-trial motions. Oral argument for the post-trial motions and request was held on April 19, 2016.
The Court subsequently denied Tyson’s motion for a judgment notwithstanding the verdict as well as SKF’s motion for
a new trial. The Court did award SKF $450 in prejudgment interest. On May 18, 2016 Tyson and SKF entered into a confidential settlement
with respect to this matter.
|
17.
|
Other Operating Expense, Net
|
Other operating expense,
net is comprised of the following:
|
|
Fiscal Year Ended
|
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
|
March 29,
2014
|
|
Gain (loss) on impairment or disposition of assets
|
|
$
|
—
|
|
|
$
|
511
|
|
|
$
|
(31
|
)
|
Plant consolidation and restructuring costs
|
|
|
1,063
|
|
|
|
2,554
|
|
|
|
1,917
|
|
Acquisition costs
|
|
|
5,096
|
|
|
|
—
|
|
|
|
—
|
|
Provision for doubtful accounts
|
|
|
191
|
|
|
|
31
|
|
|
|
138
|
|
Amortization of intangibles
|
|
|
9,000
|
|
|
|
1,839
|
|
|
|
1,924
|
|
Other expense
|
|
|
866
|
|
|
|
867
|
|
|
|
230
|
|
|
|
$
|
16,216
|
|
|
$
|
5,802
|
|
|
$
|
4,178
|
|
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.
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.
The accounting policies
of the reportable segments are the same as those described in Part II, Item 8. “Financial Statements and Supplementary Data,”
Note 2 “Summary of Significant Accounting Policies.” Segment performance is evaluated based on segment net sales
and gross margin. Items not allocated to segment operating income include corporate administrative expenses and certain other
amounts. Identifiable assets by reportable segment consist of those directly identified with the segment's operations. Corporate
assets consist of cash, fixed assets and certain prepaid expenses.
|
|
Fiscal Year Ended
|
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
|
March 29,
2014
|
|
Net External Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
270,534
|
|
|
$
|
230,168
|
|
|
$
|
223,099
|
|
Roller
|
|
|
112,039
|
|
|
|
128,702
|
|
|
|
115,806
|
|
Ball
|
|
|
53,650
|
|
|
|
56,464
|
|
|
|
49,555
|
|
Engineered Products
|
|
|
161,249
|
|
|
|
29,944
|
|
|
|
30,426
|
|
|
|
$
|
597,472
|
|
|
$
|
445,278
|
|
|
$
|
418,886
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
103,500
|
|
|
$
|
86,058
|
|
|
$
|
85,158
|
|
Roller
|
|
|
47,469
|
|
|
|
50,002
|
|
|
|
48,785
|
|
Ball
|
|
|
21,352
|
|
|
|
22,501
|
|
|
|
18,125
|
|
Engineered Products
|
|
|
46,457
|
|
|
|
11,579
|
|
|
|
12,729
|
|
|
|
$
|
218,778
|
|
|
$
|
170,140
|
|
|
$
|
164,797
|
|
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
21,008
|
|
|
$
|
18,741
|
|
|
$
|
17,923
|
|
Roller
|
|
|
5,958
|
|
|
|
6,169
|
|
|
|
6,892
|
|
Ball
|
|
|
5,512
|
|
|
|
5,326
|
|
|
|
4,511
|
|
Engineered Products
|
|
|
19,631
|
|
|
|
4,018
|
|
|
|
3,991
|
|
Corporate
|
|
|
46,612
|
|
|
|
41,654
|
|
|
|
38,652
|
|
|
|
$
|
98,721
|
|
|
$
|
75,908
|
|
|
$
|
71,969
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
73,289
|
|
|
$
|
67,032
|
|
|
$
|
66,343
|
|
Roller
|
|
|
41,270
|
|
|
|
40,056
|
|
|
|
41,630
|
|
Ball
|
|
|
15,182
|
|
|
|
16,584
|
|
|
|
11,732
|
|
Engineered Products
|
|
|
26,970
|
|
|
|
7,639
|
|
|
|
8,968
|
|
Corporate
|
|
|
(52,870
|
)
|
|
|
(42,881
|
)
|
|
|
(40,023
|
)
|
|
|
$
|
103,841
|
|
|
$
|
88,430
|
|
|
$
|
88,650
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
628,531
|
|
|
$
|
474,208
|
|
|
$
|
441,770
|
|
Roller
|
|
|
286,418
|
|
|
|
234,377
|
|
|
|
207,676
|
|
Ball
|
|
|
55,675
|
|
|
|
50,074
|
|
|
|
44,119
|
|
Engineered Products
|
|
|
454,428
|
|
|
|
49,307
|
|
|
|
42,861
|
|
Corporate
|
|
|
(326,542
|
)
|
|
|
(175,893
|
)
|
|
|
(115,433
|
)
|
|
|
$
|
1,098,510
|
|
|
$
|
632,073
|
|
|
$
|
620,993
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
5,984
|
|
|
$
|
7,505
|
|
|
$
|
15,990
|
|
Roller
|
|
|
4,239
|
|
|
|
5,433
|
|
|
|
3,894
|
|
Ball
|
|
|
1,457
|
|
|
|
2,333
|
|
|
|
1,424
|
|
Engineered Products
|
|
|
5,693
|
|
|
|
1,592
|
|
|
|
3,991
|
|
Corporate
|
|
|
3,491
|
|
|
|
4,034
|
|
|
|
3,621
|
|
|
|
$
|
20,864
|
|
|
$
|
20,897
|
|
|
$
|
28,920
|
|
Depreciation & Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
9,145
|
|
|
$
|
7,012
|
|
|
$
|
6,742
|
|
Roller
|
|
|
4,008
|
|
|
|
2,933
|
|
|
|
3,392
|
|
Ball
|
|
|
1,790
|
|
|
|
1,706
|
|
|
|
1,799
|
|
Engineered Products
|
|
|
9,411
|
|
|
|
1,974
|
|
|
|
1,856
|
|
Corporate
|
|
|
1,453
|
|
|
|
1,420
|
|
|
|
1,198
|
|
|
|
$
|
25,807
|
|
|
$
|
15,045
|
|
|
$
|
14,987
|
|
Geographic External Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
522,405
|
|
|
$
|
374,820
|
|
|
$
|
351,418
|
|
Foreign
|
|
|
75,067
|
|
|
|
70,458
|
|
|
|
67,468
|
|
|
|
$
|
597,472
|
|
|
$
|
445,278
|
|
|
$
|
418,886
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
|
March 29,
2014
|
|
Geographic Long-Lived Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
145,538
|
|
|
$
|
112,519
|
|
|
$
|
105,018
|
|
Foreign
|
|
|
39,206
|
|
|
|
29,130
|
|
|
|
32,136
|
|
|
|
$
|
184,744
|
|
|
$
|
141,649
|
|
|
$
|
137,154
|
|
Intersegment Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
3,973
|
|
|
$
|
3,790
|
|
|
$
|
3,807
|
|
Roller
|
|
|
18,874
|
|
|
|
19,618
|
|
|
|
17,794
|
|
Ball
|
|
|
2,475
|
|
|
|
2,244
|
|
|
|
1,976
|
|
Engineered Products
|
|
|
30,341
|
|
|
|
29,567
|
|
|
|
26,574
|
|
|
|
$
|
55,663
|
|
|
$
|
55,219
|
|
|
$
|
50,151
|
|
All intersegment sales
are eliminated in consolidation.