Part I. FINANCIAL
INFORMATION
Item
1. Consolidated Financial Statements
RBC Bearings Incorporated
Consolidated Balance Sheets
(dollars in thousands, except share and
per share data)
|
|
September 26,
2020
|
|
|
March 28,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
166,352
|
|
|
$
|
103,255
|
|
Accounts receivable, net of allowance for doubtful accounts of $1,703 at September 26, 2020 and $1,627 at March 28, 2020
|
|
|
108,078
|
|
|
|
128,995
|
|
Inventory
|
|
|
371,546
|
|
|
|
367,494
|
|
Prepaid expenses and other current assets
|
|
|
15,038
|
|
|
|
12,262
|
|
Total current assets
|
|
|
661,014
|
|
|
|
612,006
|
|
Property, plant and equipment, net
|
|
|
214,347
|
|
|
|
219,846
|
|
Operating lease assets, net
|
|
|
29,686
|
|
|
|
28,953
|
|
Goodwill
|
|
|
277,784
|
|
|
|
277,776
|
|
Intangible assets, net of accumulated amortization of $58,408 at September 26, 2020 and $55,732 at March 28, 2020
|
|
|
159,034
|
|
|
|
162,747
|
|
Other assets
|
|
|
26,020
|
|
|
|
20,584
|
|
Total assets
|
|
$
|
1,367,885
|
|
|
$
|
1,321,912
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
39,600
|
|
|
$
|
51,038
|
|
Accrued expenses and other current liabilities
|
|
|
36,468
|
|
|
|
40,580
|
|
Current operating lease liabilities
|
|
|
5,808
|
|
|
|
5,708
|
|
Current portion of long-term debt
|
|
|
6,634
|
|
|
|
6,429
|
|
Total current liabilities
|
|
|
88,510
|
|
|
|
103,755
|
|
Deferred income taxes
|
|
|
20,700
|
|
|
|
16,560
|
|
Long-term debt, less current portion
|
|
|
13,758
|
|
|
|
16,583
|
|
Long-term operating lease liabilities
|
|
|
24,160
|
|
|
|
23,396
|
|
Other non-current liabilities
|
|
|
48,653
|
|
|
|
43,619
|
|
Total liabilities
|
|
|
195,781
|
|
|
|
203,913
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized shares: 10,000,000 at September 26, 2020 and March 28, 2020, respectively; none issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock, $.01 par value; authorized shares: 60,000,000 at September 26, 2020 and March 28, 2020, respectively; issued shares: 25,970,673 and 25,881,415 at September 26, 2020 and March 28, 2020, respectively
|
|
|
260
|
|
|
|
259
|
|
Additional paid-in capital
|
|
|
425,488
|
|
|
|
412,400
|
|
Accumulated other comprehensive loss
|
|
|
(4,593
|
)
|
|
|
(6,898
|
)
|
Retained earnings
|
|
|
812,329
|
|
|
|
769,219
|
|
Treasury stock, at cost, 870,223 shares and 838,982 shares at September 26, 2020 and March 28, 2020, respectively
|
|
|
(61,380
|
)
|
|
|
(56,981
|
)
|
Total stockholders’ equity
|
|
|
1,172,104
|
|
|
|
1,117,999
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,367,885
|
|
|
$
|
1,321,912
|
|
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Operations
(dollars in thousands, except share and
per share data)
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
Net sales
|
|
$
|
146,335
|
|
|
$
|
181,909
|
|
|
$
|
302,828
|
|
|
$
|
364,599
|
|
Cost of sales
|
|
|
89,739
|
|
|
|
110,795
|
|
|
|
186,779
|
|
|
|
222,791
|
|
Gross margin
|
|
|
56,596
|
|
|
|
71,114
|
|
|
|
116,049
|
|
|
|
141,808
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
26,023
|
|
|
|
30,774
|
|
|
|
52,852
|
|
|
|
60,861
|
|
Other, net
|
|
|
4,210
|
|
|
|
3,031
|
|
|
|
8,020
|
|
|
|
5,148
|
|
Total operating expenses
|
|
|
30,233
|
|
|
|
33,805
|
|
|
|
60,872
|
|
|
|
66,009
|
|
Operating income
|
|
|
26,363
|
|
|
|
37,309
|
|
|
|
55,177
|
|
|
|
75,799
|
|
Interest expense, net
|
|
|
343
|
|
|
|
473
|
|
|
|
768
|
|
|
|
1,020
|
|
Other non-operating expense
|
|
|
211
|
|
|
|
195
|
|
|
|
253
|
|
|
|
364
|
|
Income before income taxes
|
|
|
25,809
|
|
|
|
36,641
|
|
|
|
54,156
|
|
|
|
74,415
|
|
Provision for income taxes
|
|
|
5,388
|
|
|
|
5,371
|
|
|
|
11,046
|
|
|
|
12,646
|
|
Net income
|
|
$
|
20,421
|
|
|
$
|
31,270
|
|
|
$
|
43,110
|
|
|
$
|
61,769
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.82
|
|
|
$
|
1.27
|
|
|
$
|
1.74
|
|
|
$
|
2.52
|
|
Diluted
|
|
$
|
0.82
|
|
|
$
|
1.26
|
|
|
$
|
1.73
|
|
|
$
|
2.49
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,823,658
|
|
|
|
24,584,369
|
|
|
|
24,793,245
|
|
|
|
24,543,038
|
|
Diluted
|
|
|
24,957,158
|
|
|
|
24,905,173
|
|
|
|
24,944,608
|
|
|
|
24,856,561
|
|
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Comprehensive
Income
(dollars in thousands)
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
Net income
|
|
$
|
20,421
|
|
|
$
|
31,270
|
|
|
$
|
43,110
|
|
|
$
|
61,769
|
|
Pension and postretirement liability adjustments, net of taxes (1)
|
|
|
259
|
|
|
|
178
|
|
|
|
519
|
|
|
|
356
|
|
Foreign currency translation adjustments
|
|
|
1,377
|
|
|
|
(1,869
|
)
|
|
|
1,786
|
|
|
|
673
|
|
Total comprehensive income
|
|
$
|
22,057
|
|
|
$
|
29,579
|
|
|
$
|
45,415
|
|
|
$
|
62,798
|
|
|
(1)
|
These adjustments were net of tax expense of $79 and $55
for the three-month periods ended September 26, 2020 and September 28, 2019, respectively and $158 and $109 for the six-month
periods ended September 26, 2020 and September 28, 2019, respectively.
|
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements
of Stockholders’ Equity
(dollars in thousands)
(Unaudited)
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income/(Loss)
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
Balance at March 28, 2020
|
|
|
25,881,415
|
|
|
$
|
259
|
|
|
$
|
412,400
|
|
|
$
|
(6,898
|
)
|
|
$
|
769,219
|
|
|
|
(838,982
|
)
|
|
$
|
(56,981
|
)
|
|
$
|
1,117,999
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,689
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,689
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
5,438
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,438
|
|
Repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(31,179
|
)
|
|
|
(4,391
|
)
|
|
|
(4,391
|
)
|
Exercise of equity awards
|
|
|
4,200
|
|
|
|
—
|
|
|
|
231
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
231
|
|
Change in net prior service cost and actuarial losses, net of taxes of $79
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260
|
|
Issuance of restricted stock, net of forfeitures
|
|
|
56,157
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
409
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
409
|
|
Balance at June 27, 2020
|
|
|
25,941,772
|
|
|
$
|
259
|
|
|
$
|
418,069
|
|
|
$
|
(6,229
|
)
|
|
$
|
791,908
|
|
|
|
(870,161
|
)
|
|
$
|
(61,372
|
)
|
|
$
|
1,142,635
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,421
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,421
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
5,231
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,231
|
|
Repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(62
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
Exercise of equity awards
|
|
|
31,200
|
|
|
|
1
|
|
|
|
2,188
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,189
|
|
Change in net prior service cost and actuarial losses, net of taxes of $79
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
259
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
259
|
|
Issuance of restricted stock, net of forfeitures
|
|
|
(2,299
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,377
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,377
|
|
Balance at September 26, 2020
|
|
|
25,970,673
|
|
|
$
|
260
|
|
|
$
|
425,488
|
|
|
$
|
(4,593
|
)
|
|
$
|
812,329
|
|
|
|
(870,223
|
)
|
|
$
|
(61,380
|
)
|
|
$
|
1,172,104
|
|
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements
of Stockholders’ Equity (continued)
(dollars in thousands)
(Unaudited)
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income/(Loss)
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
Balance at March 30, 2019
|
|
|
25,607,196
|
|
|
$
|
256
|
|
|
$
|
378,655
|
|
|
$
|
(7,467
|
)
|
|
$
|
641,894
|
|
|
|
(752,913
|
)
|
|
$
|
(44,772
|
)
|
|
$
|
968,566
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,499
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,499
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
4,802
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,802
|
|
Repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(69,877
|
)
|
|
|
(9,514
|
)
|
|
|
(9,514
|
)
|
Exercise of equity awards
|
|
|
4,356
|
|
|
|
1
|
|
|
|
275
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
276
|
|
Change in net prior service cost and actuarial losses, net of taxes of $54
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
178
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
178
|
|
Issuance of restricted stock, net of forfeitures
|
|
|
86,490
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impact from adoption of ASU 2018-02
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,289
|
)
|
|
|
1,289
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,542
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,542
|
|
Balance at June 29, 2019
|
|
|
25,698,042
|
|
|
$
|
257
|
|
|
$
|
383,732
|
|
|
$
|
(6,036
|
)
|
|
$
|
673,682
|
|
|
|
(822,790
|
)
|
|
$
|
(54,286
|
)
|
|
$
|
997,349
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,270
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,270
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
5,059
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,059
|
|
Repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,048
|
)
|
|
|
(334
|
)
|
|
|
(334
|
)
|
Exercise of equity awards
|
|
|
138,898
|
|
|
|
1
|
|
|
|
10,184
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,185
|
|
Change in net prior service cost and actuarial losses, net of taxes of $55
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
178
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
178
|
|
Issuance of restricted stock, net of forfeitures
|
|
|
5,677
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,869
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,869
|
)
|
Balance at September 28, 2019
|
|
|
25,842,617
|
|
|
$
|
258
|
|
|
$
|
398,975
|
|
|
$
|
(7,727
|
)
|
|
$
|
704,952
|
|
|
|
(824,838
|
)
|
|
$
|
(54,620
|
)
|
|
$
|
1,041,838
|
|
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
43,110
|
|
|
$
|
61,769
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
11,744
|
|
|
|
10,729
|
|
Deferred income taxes
|
|
|
4,051
|
|
|
|
898
|
|
Amortization of intangible assets
|
|
|
5,089
|
|
|
|
4,593
|
|
Amortization of deferred financing costs
|
|
|
259
|
|
|
|
207
|
|
Share-based compensation
|
|
|
10,669
|
|
|
|
9,861
|
|
Other non-cash charges
|
|
|
3,004
|
|
|
|
75
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
21,267
|
|
|
|
2,303
|
|
Inventory
|
|
|
(4,981
|
)
|
|
|
(13,125
|
)
|
Prepaid expenses and other current assets
|
|
|
(2,812
|
)
|
|
|
(5,617
|
)
|
Other non-current assets
|
|
|
(6,885
|
)
|
|
|
(1,777
|
)
|
Accounts payable
|
|
|
(11,554
|
)
|
|
|
678
|
|
Accrued expenses and other current liabilities
|
|
|
(4,137
|
)
|
|
|
(5,760
|
)
|
Other non-current liabilities
|
|
|
5,655
|
|
|
|
(216
|
)
|
Net cash provided by operating activities
|
|
|
74,479
|
|
|
|
64,618
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(6,008
|
)
|
|
|
(20,216
|
)
|
Proceeds from sale of assets
|
|
|
10
|
|
|
|
300
|
|
Acquisition of business
|
|
|
245
|
|
|
|
(33,842
|
)
|
Net cash used in investing activities
|
|
|
(5,753
|
)
|
|
|
(53,758
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds received from revolving credit facilities
|
|
|
-
|
|
|
|
9,435
|
|
Proceeds received from term loans
|
|
|
-
|
|
|
|
15,383
|
|
Repayments of revolving credit facilities
|
|
|
-
|
|
|
|
(30,000
|
)
|
Repayments of term loans
|
|
|
(3,287
|
)
|
|
|
-
|
|
Repayments of notes payable
|
|
|
(249
|
)
|
|
|
(235
|
)
|
Finance fees paid in connection with credit facilities and term loans
|
|
|
-
|
|
|
|
(276
|
)
|
Exercise of stock options
|
|
|
2,420
|
|
|
|
10,461
|
|
Repurchase of common stock
|
|
|
(4,399
|
)
|
|
|
(9,848
|
)
|
Net cash used in financing activities
|
|
|
(5,515
|
)
|
|
|
(5,080
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(114
|
)
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Increase during the period
|
|
|
63,097
|
|
|
|
6,514
|
|
Cash and cash equivalents, at beginning of period
|
|
|
103,255
|
|
|
|
29,884
|
|
Cash and cash equivalents, at end of period
|
|
$
|
166,352
|
|
|
$
|
36,398
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
6,559
|
|
|
$
|
17,147
|
|
Interest
|
|
|
516
|
|
|
|
759
|
|
See accompanying notes.
RBC Bearings Incorporated
Notes to Unaudited Interim Consolidated
Financial Statements
(dollars in thousands, except share and
per share data)
1. Basis of Presentation
The interim consolidated
financial statements included herein have been prepared by RBC Bearings Incorporated, a Delaware corporation (collectively with
its subsidiaries, the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The interim financial statements included with this report have been prepared on a consistent basis with the Company’s
audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
March 28, 2020. We condensed or omitted certain information and footnote disclosures normally included in our annual audited financial
statements, which we prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP). As used in this report,
the terms “we,” “us,” “our,” “RBC” and the “Company” mean RBC Bearings
Incorporated and its subsidiaries, unless the context indicates another meaning.
These statements reflect
all adjustments, accruals and estimates, consisting only of items of a normal recurring nature, that are, in the opinion of management,
necessary for the fair presentation of the consolidated financial condition and consolidated results of operations for the interim
periods presented. These financial statements should be read in conjunction with the Company’s audited financial statements
and notes thereto included in the Annual Report on Form 10-K.
The results of operations
for the three- and six-month periods ended September 26, 2020 are not necessarily indicative of the operating results for the entire
fiscal year ending April 3, 2021. The three- and six-month periods ended September 26, 2020 and September 28, 2019 each include
13 weeks and 26 weeks, respectively. The amounts shown are in thousands, unless otherwise indicated.
2. Significant Accounting Policies
The Company’s
significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies” of our Annual
Report on Form 10-K for the year ended March 28, 2020. Significant changes to our accounting policies as a result of adopting new
accounting standards are discussed below.
Recent Accounting Standards Adopted
In September 2016,
the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments
– Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities measure
credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The
new guidance replaces the current incurred loss approach with a new expected credit loss impairment model. The new model applies
to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans,
held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition
of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure
(or pool of exposures). The estimate of expected credit losses considers historical information, current information and reasonable
and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics are grouped
together when estimating expected credit losses. ASU 2016-13 does not prescribe a specific method to make the estimate, so its
application requires significant judgment. The Company adopted this accounting standard update in the first quarter of fiscal 2021
and it did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the
FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
The objective of this standard update is to simplify the subsequent measurement of goodwill, eliminating Step 2 from the goodwill
impairment test. Under this ASU, an entity should perform its annual goodwill impairment test by comparing the fair value of a
reporting unit with its carrying amount. An entity would recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value, assuming the loss recognized does not exceed the total amount of goodwill for the
reporting unit. The standard update is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted.
The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
Recent Accounting Standards Yet to
Be Adopted
In December 2019, the
FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The objective
of this standard update is to simplify the accounting for income taxes by removing certain exceptions to the general principles
in Topic 740. This ASU also attempts to improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying
and amending existing guidance. This standard update is effective for fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. The Company is currently evaluating the effect that the adoption of this ASU will have
on the Company’s consolidated financial statements.
Other new pronouncements
issued but not effective until after April 3, 2021 are not expected to have a material impact on our financial position, results
of operations or liquidity.
3. Revenue from Contracts with Customers
Disaggregation of Revenue
The Company operates
in four business segments with similar economic characteristics, including nature of the products and production processes, distribution
patterns and classes of customers. Revenue is disaggregated within these business segments by our two principal end markets: aerospace
and industrial. Comparative information of the Company’s overall revenues for the three- and six-month periods ended September
26, 2020 and September 28, 2019 are as follows:
Principal End Markets
|
|
Three Months Ended
|
|
|
|
September 26, 2020
|
|
|
September 28, 2019
|
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Total
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Total
|
|
Plain
|
|
$
|
51,040
|
|
|
$
|
20,013
|
|
|
$
|
71,053
|
|
|
$
|
70,287
|
|
|
$
|
19,720
|
|
|
$
|
90,007
|
|
Roller
|
|
|
10,674
|
|
|
|
10,905
|
|
|
|
21,579
|
|
|
|
17,643
|
|
|
|
14,942
|
|
|
|
32,585
|
|
Ball
|
|
|
7,311
|
|
|
|
13,788
|
|
|
|
21,099
|
|
|
|
5,086
|
|
|
|
12,338
|
|
|
|
17,424
|
|
Engineered Products
|
|
|
18,116
|
|
|
|
14,488
|
|
|
|
32,604
|
|
|
|
24,368
|
|
|
|
17,525
|
|
|
|
41,893
|
|
|
|
$
|
87,141
|
|
|
$
|
59,194
|
|
|
$
|
146,335
|
|
|
$
|
117,384
|
|
|
$
|
64,525
|
|
|
$
|
181,909
|
|
|
|
Six Months Ended
|
|
|
|
September 26, 2020
|
|
|
September 28, 2019
|
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Total
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Total
|
|
Plain
|
|
$
|
110,392
|
|
|
$
|
39,536
|
|
|
$
|
149,928
|
|
|
$
|
137,593
|
|
|
$
|
39,903
|
|
|
$
|
177,496
|
|
Roller
|
|
|
23,904
|
|
|
|
20,575
|
|
|
|
44,479
|
|
|
|
36,956
|
|
|
|
32,488
|
|
|
|
69,444
|
|
Ball
|
|
|
14,333
|
|
|
|
25,606
|
|
|
|
39,939
|
|
|
|
10,516
|
|
|
|
24,618
|
|
|
|
35,134
|
|
Engineered Products
|
|
|
37,494
|
|
|
|
30,988
|
|
|
|
68,482
|
|
|
|
48,638
|
|
|
|
33,887
|
|
|
|
82,525
|
|
|
|
$
|
186,123
|
|
|
$
|
116,705
|
|
|
$
|
302,828
|
|
|
$
|
233,703
|
|
|
$
|
130,896
|
|
|
$
|
364,599
|
|
Remaining Performance Obligations
Remaining performance obligations represent the transaction
price of orders meeting the definition of a contract under Accounting Standards Codification (ASC) 606 for which work has not been
performed or has been partially performed and excludes unexercised contract options. The duration of many of our contracts, as
defined by ASC 606, is less than one year. The Company has elected to apply the practical expedient that allows companies to exclude
remaining performance obligations with an original expected duration of one year or less. Performance obligations having a duration
of more than one year are concentrated in contracts for certain products and services provided to the U.S. government or its contractors.
The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration
of more than one year was approximately $259,351 at September 26, 2020. The Company expects to recognize revenue on approximately
59% and 88% of the remaining performance obligations over the next 12 and 24 months, respectively, with the remainder recognized
thereafter.
Contract Balances
The timing of revenue
recognition, invoicing and cash collections affects accounts receivable, unbilled receivables (contract assets) and customer advances
and deposits (contract liabilities) on the consolidated balance sheets.
Contract Assets
(Unbilled Receivables) - Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer
being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when (1) the cost-to-cost method is applied
and (2) such revenue exceeds the amount invoiced to the customer.
Contract Liabilities
(Deferred Revenue) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer
advance, prior to revenue being recognized. Since the performance obligations related to such advances may not have been satisfied,
a contract liability is established. Advance payments are not considered a significant financing component as the timing of the
transfer of the related goods or services is at the discretion of the customer.
These assets and liabilities
are reported on the consolidated balance sheets at the end of each reporting period. As of September
26, 2020 and March 28, 2020, accounts receivable with customers, net, were $108,078 and $128,995, respectively. The tables below
represent a roll-forward of contract assets and contract liabilities for the six-month period ended September 26, 2020:
Contract Assets - Current (1)
|
|
|
|
|
|
|
|
Balance at March 28, 2020
|
|
$
|
2,604
|
|
Additional revenue recognized in excess of billings
|
|
|
3,732
|
|
Less: amounts billed to customers
|
|
|
(1,732
|
)
|
Balance at September 26, 2020
|
|
$
|
4,604
|
|
|
(1)
|
Included within prepaid expenses and other current assets
on the consolidated balance sheets.
|
Contract Liabilities – Current (2)
|
|
|
|
|
|
|
|
Balance at March 28, 2020
|
|
$
|
11,116
|
|
Payments received prior to revenue being recognized
|
|
|
6,611
|
|
Revenue recognized
|
|
|
(9,326
|
)
|
Reclassification (to)/from noncurrent
|
|
|
(498
|
)
|
Balance at September 26, 2020
|
|
$
|
7,903
|
|
|
(2)
|
Included within accrued expenses and other current liabilities
on the consolidated balance sheets. During the first six months of fiscal 2021, the Company recognized revenues of $7,765 that
were included within contract liabilites at March 28, 2020.
|
Contract Liabilities – Noncurrent (3)
|
|
|
|
|
|
|
|
Balance at March 28, 2020
|
|
$
|
2,427
|
|
Payments received prior to revenue being recognized
|
|
|
395
|
|
Reclassification (to)/from current
|
|
|
498
|
|
Balance at September 26, 2020
|
|
$
|
3,320
|
|
|
(3)
|
Included within other non-current liabilities on the consolidated
balance sheets.
|
As of September 26,
2020, the Company did not have any contract assets classified as noncurrent on the consolidated balance sheet.
4. 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.
The following summarizes
the activity within each component of accumulated other comprehensive income (loss), net of taxes:
|
|
Currency
Translation
|
|
|
Pension and
Postretirement
Liability
|
|
|
Total
|
|
Balance at March 28, 2020
|
|
$
|
(582
|
)
|
|
$
|
(6,316
|
)
|
|
$
|
(6,898
|
)
|
Other comprehensive income before reclassifications
|
|
|
1,786
|
|
|
|
—
|
|
|
|
1,786
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
|
519
|
|
|
|
519
|
|
Net current period other comprehensive income
|
|
|
1,786
|
|
|
|
519
|
|
|
|
2,305
|
|
Balance at September 26, 2020
|
|
$
|
1,204
|
|
|
$
|
(5,797
|
)
|
|
$
|
(4,593
|
)
|
5. 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 vesting or exercise of stock awards.
The table below reflects
the calculation of weighted-average shares outstanding for each period presented as well as the computation of basic and diluted
net income per common share:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20,421
|
|
|
$
|
31,270
|
|
|
$
|
43,110
|
|
|
$
|
61,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per common
share — weighted-average shares outstanding
|
|
|
24,823,658
|
|
|
|
24,584,369
|
|
|
|
24,793,245
|
|
|
|
24,543,038
|
|
Effect of dilution due to employee stock awards
|
|
|
133,500
|
|
|
|
320,804
|
|
|
|
151,363
|
|
|
|
313,523
|
|
Denominator for diluted net income per common share — weighted-average shares outstanding
|
|
|
24,957,158
|
|
|
|
24,905,173
|
|
|
|
24,944,608
|
|
|
|
24,856,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.82
|
|
|
$
|
1.27
|
|
|
$
|
1.74
|
|
|
$
|
2.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.82
|
|
|
$
|
1.26
|
|
|
$
|
1.73
|
|
|
$
|
2.49
|
|
At September 26, 2020,
502,861 employee stock options and 115,185 restricted shares have been excluded from the calculation of diluted earnings per share.
At September 28, 2019, 209,040 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.
6. Cash and Cash Equivalents
The Company considers
all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Short-term investments,
if any, are comprised of equity securities and are measured at fair value by using quoted prices in active markets and are classified
as Level 1 of the valuation hierarchy.
7. Inventory
Inventories
are stated at the lower of cost or net realizable value, using the first-in, first-out method, and are summarized below:
|
|
September 26,
2020
|
|
|
March 28,
2020
|
|
Raw materials
|
|
$
|
52,807
|
|
|
$
|
51,362
|
|
Work in process
|
|
|
89,310
|
|
|
|
97,286
|
|
Finished goods
|
|
|
229,429
|
|
|
|
218,846
|
|
|
|
$
|
371,546
|
|
|
$
|
367,494
|
|
8. Debt
The balances payable under all borrowing
facilities are as follows:
|
|
September 26,
2020
|
|
|
March 28,
2020
|
|
Revolver and term loan facilities
|
|
$
|
15,818
|
|
|
$
|
18,593
|
|
Debt issuance costs
|
|
|
(1,430
|
)
|
|
|
(1,687
|
)
|
Other
|
|
|
6,004
|
|
|
|
6,106
|
|
Total debt
|
|
|
20,392
|
|
|
|
23,012
|
|
Less: current portion
|
|
|
6,634
|
|
|
|
6,429
|
|
Long-term debt
|
|
$
|
13,758
|
|
|
$
|
16,583
|
|
The current portion
of long-term debt as of September 26, 2020 includes the current portion of the foreign term loan, foreign revolving facility and
the Schaublin mortgage, all of which are discussed below in further detail.
Domestic Credit Facility
The Company’s
credit agreement with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, Swingline Lender and Letter
of Credit Issuer, and the other lenders party thereto (the “Credit Agreement”) provides the Company with a $250,000
revolving credit facility (the “Revolver”), which expires on January 31, 2024. Debt issuance costs associated with
the Credit Agreement totaled $852 and will be amortized through January 31, 2024 along with the unamortized debt issuance costs
remaining from the Company’s prior credit agreement.
Amounts outstanding
under the Revolver 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
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 at each measurement date. Currently, the Company’s margin is 0.00% for base
rate loans and 0.75% for LIBOR loans.
The Credit Agreement
requires the Company to comply with various covenants, including among other things, a financial covenant to maintain a ratio of
consolidated net debt to adjusted EBITDA not greater than 3.50 to 1. The Credit Agreement allows the Company to, among other things,
make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that
the Company complies with certain requirements and limitations of the Credit Agreement. As of September 26, 2020, the Company was
in compliance with all such covenants.
The Company’s
domestic subsidiaries have guaranteed the Company’s obligations under the Credit Agreement, and the Company’s obligations
and the domestic subsidiaries’ guarantee are secured by a pledge of substantially all of the domestic assets of the Company
and its domestic subsidiaries.
Approximately $3,700
of the Revolver is being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance
programs. As of September 26, 2020, $1,319 in unamortized debt issuance costs remain. The Company has the ability to borrow up
to an additional $246,300 under the Revolver as of September 26, 2020.
Foreign Term Loan and Revolving Credit
Facility
On August 15,
2019, one of our foreign subsidiaries, Schaublin SA (“Schaublin”), entered into two separate credit agreements
(the “Foreign Credit Agreements”) with Credit Suisse (Switzerland) Ltd. to finance the acquisition of Swiss Tool
and provide future working capital. The Foreign Credit Agreements provided Schaublin with a CHF 15,000
(approximately $15,383) term loan (the “Foreign Term Loan”), which expires on July 31, 2024 and a CHF 15,000
(approximately $15,383) revolving credit facility (the “Foreign Revolver”), which continues in effect until
terminated by either Schaublin or Credit Suisse. Debt issuance costs associated with the Foreign Credit Agreements totaled
CHF 270 (approximately $277) and will be amortized throughout the life of the Foreign Credit Agreements.
Amounts outstanding
under the Foreign Term Loan and the Foreign Revolver generally bear interest at LIBOR plus a specified margin. The applicable margin
is based on Schaublin’s ratio of total net debt to consolidated EBITDA at each measurement date. Currently, Schaublin’s
margin is 1.00%.
The Foreign Credit
Agreements require Schaublin to comply with various covenants, which are tested annually on March 31. These covenants include,
among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.00
to 1 as of March 31, 2020 and not greater than 2.50 to 1 as of March 31, 2021 and thereafter. Schaublin is also required to maintain
an economic equity of CHF 20,000 at all times. The Foreign Credit Agreements allow Schaublin to, among other things, incur other
debt or liens and acquire or dispose of assets provided that Schaublin complies with certain requirements and limitations of the
Foreign Credit Agreements. As of March 31, 2020, Schaublin was in compliance with all such covenants.
Schaublin’s parent
company, Schaublin Holding, has guaranteed Schaublin’s obligations under the Foreign Credit Agreements. Schaublin Holding’s
guaranty and the Foreign Credit Agreements are secured by a pledge of the capital stock of Schaublin. In addition, the Foreign
Term Loan is secured with pledges of the capital stock of the top company and the three operating companies in the Swiss Tool System
group of companies.
As of September 26,
2020, there was approximately $2,906 outstanding under the Foreign Revolver and approximately $12,912 outstanding under the Foreign
Term Loan. These borrowings have been classified as Level 2 of the valuation hierarchy. As of September 26, 2020, approximately
$111 in unamortized debt issuance costs remain. Schaublin has the ability to borrow up to an additional $13,235 under the Foreign
Revolver as of September 26, 2020.
Schaublin’s required
future annual principal payments are approximately $6,134 for the next twelve months and approximately $3,228 for each year for
the next three years.
Other Notes Payable
On October 1, 2012,
Schaublin purchased the land and building that it occupied and had been leasing for approximately $14,910. Schaublin obtained a
20-year fixed-rate mortgage of approximately $9,857 at an interest rate of 2.9%. The balance of the purchase price of approximately
$5,053 was paid from cash on hand. The balance on this mortgage as of September 26, 2020 was approximately $6,004 and has been
classified as Level 2 of the valuation hierarchy.
The Company’s
required future annual principal payments are approximately $500 each year for the next five years and
$3,504 thereafter.
9. Income Taxes
The Company files income
tax returns in numerous U.S. and foreign jurisdictions, with returns subject to examination for varying periods, but generally
back to and including the year ending April 2, 2005. The Company is no longer subject to U.S. federal tax examination by the Internal
Revenue Service for years ending before April 1, 2017.
The effective income
tax rates for the three-month periods ended September 26, 2020 and September 28, 2019 were 20.9% and 14.7%, respectively. In addition
to discrete items, the effective income tax rates for these periods are different from the U.S. statutory rates due to the foreign-derived
intangible income provision and U.S. credit for increasing research activities, which decrease the rate, and state income taxes,
which increase the rate.
The effective income tax rate for the three-month period ended
September 26, 2020 of 20.9% includes $364 of tax benefits associated with share-based compensation. The effective income tax rate
without discrete items for the three-month period ended September 26, 2020 would have been 22.0%. The effective income tax rate
for the three-month period ended September 28, 2019 of 14.7% includes $2,529 of tax benefits associated with share-based compensation.
The effective income tax rate without discrete items for the three-month period ended September 28, 2019 would have been 21.3%.
The Company believes it is reasonably possible that some of its unrecognized tax positions may be effectively settled within the
next twelve months due to the closing of audits and the statute of limitations expiring in varying jurisdictions. The decrease
in the Company’s unrecognized tax positions, pertaining primarily to federal and state credits and state tax, is estimated
to be approximately $1,524.
Income tax expense for the six-month period ended September
26, 2020 was $11,046 compared to $12,646 for the six-month period ended September 28, 2019. Our effective income tax rate for the
six-month period ended September 26, 2020 was 20.4% compared to 17.0% for the six-month period ended September 28, 2019. The effective
income tax rate for the six-month period ended September 26, 2020 of 20.4% includes $679 of tax benefits associated with share-based
compensation. The effective income tax rate without these benefits and other items for the six-month period ended September 26,
2020 would have been 21.6%. The effective income tax rate for the six-month period ended September 28, 2019 of 17.0% included $3,039
of tax benefits associated with share-based compensation and $241 of tax benefits associated with other permanent adjustments from
filing the Company’s fiscal 2018 foreign tax returns. The effective income tax rate without these benefits and other items
for the six-month period ended September 28, 2019 would have been 21.3%.
10. Reportable Segments
The Company operates
through operating segments for which separate financial information is available, and for which operating results are evaluated
regularly by the Company’s chief operating decision maker in determining resource allocation and assessing performance. Those
operating segments are aggregated as reportable segments as they have similar economic characteristics, including nature of the
products and production processes, distribution patterns and classes of customers.
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.
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.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
Net External Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
71,053
|
|
|
$
|
90,007
|
|
|
$
|
149,928
|
|
|
$
|
177,496
|
|
Roller
|
|
|
21,579
|
|
|
|
32,585
|
|
|
|
44,479
|
|
|
|
69,444
|
|
Ball
|
|
|
21,099
|
|
|
|
17,424
|
|
|
|
39,939
|
|
|
|
35,134
|
|
Engineered Products
|
|
|
32,604
|
|
|
|
41,893
|
|
|
|
68,482
|
|
|
|
82,525
|
|
|
|
$
|
146,335
|
|
|
$
|
181,909
|
|
|
$
|
302,828
|
|
|
$
|
364,599
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
29,750
|
|
|
$
|
35,700
|
|
|
$
|
61,827
|
|
|
$
|
69,814
|
|
Roller
|
|
|
6,236
|
|
|
|
13,396
|
|
|
|
14,643
|
|
|
|
27,920
|
|
Ball
|
|
|
9,129
|
|
|
|
7,503
|
|
|
|
17,056
|
|
|
|
15,302
|
|
Engineered Products
|
|
|
11,481
|
|
|
|
14,515
|
|
|
|
22,523
|
|
|
|
28,772
|
|
|
|
$
|
56,596
|
|
|
$
|
71,114
|
|
|
$
|
116,049
|
|
|
$
|
141,808
|
|
Selling, General & Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
5,276
|
|
|
$
|
6,534
|
|
|
$
|
10,547
|
|
|
$
|
13,048
|
|
Roller
|
|
|
1,162
|
|
|
|
1,647
|
|
|
|
2,401
|
|
|
|
3,261
|
|
Ball
|
|
|
1,289
|
|
|
|
1,574
|
|
|
|
2,635
|
|
|
|
3,207
|
|
Engineered Products
|
|
|
3,838
|
|
|
|
4,434
|
|
|
|
7,650
|
|
|
|
8,737
|
|
Corporate
|
|
|
14,458
|
|
|
|
16,585
|
|
|
|
29,619
|
|
|
|
32,608
|
|
|
|
$
|
26,023
|
|
|
$
|
30,774
|
|
|
$
|
52,852
|
|
|
$
|
60,861
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
23,472
|
|
|
$
|
28,255
|
|
|
$
|
48,873
|
|
|
$
|
55,080
|
|
Roller
|
|
|
4,481
|
|
|
|
11,734
|
|
|
|
11,580
|
|
|
|
24,304
|
|
Ball
|
|
|
7,803
|
|
|
|
5,907
|
|
|
|
14,354
|
|
|
|
12,044
|
|
Engineered Products
|
|
|
6,112
|
|
|
|
8,423
|
|
|
|
12,093
|
|
|
|
17,425
|
|
Corporate
|
|
|
(15,505
|
)
|
|
|
(17,010
|
)
|
|
|
(31,723
|
)
|
|
|
(33,054
|
)
|
|
|
$
|
26,363
|
|
|
$
|
37,309
|
|
|
$
|
55,177
|
|
|
$
|
75,799
|
|
Intersegment Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
1,212
|
|
|
$
|
1,509
|
|
|
$
|
2,774
|
|
|
$
|
3,356
|
|
Roller
|
|
|
2,171
|
|
|
|
4,023
|
|
|
|
5,549
|
|
|
|
7,224
|
|
Ball
|
|
|
464
|
|
|
|
916
|
|
|
|
1,131
|
|
|
|
1,585
|
|
Engineered Products
|
|
|
6,832
|
|
|
|
10,751
|
|
|
|
17,481
|
|
|
|
21,573
|
|
|
|
$
|
10,679
|
|
|
$
|
17,199
|
|
|
$
|
26,935
|
|
|
$
|
33,738
|
|
All intersegment sales
are eliminated in consolidation.
11. Acquisition
On August 15, 2019,
the Company, through its Schaublin SA subsidiary, acquired all of the outstanding shares of Swiss Tool for a purchase price of
approximately $33,597 (CHF 32,768). We have finalized the purchase price allocation with no material adjustments subsequent to
March 28, 2020.
12. Restructuring and Consolidation
In the second quarter
of fiscal 2021, the Company made the decision to consolidate two of its manufacturing facilities. This resulted in $2,579 of non-cash
restructuring charges comprised of $1,994 of inventory rationalization costs included within cost of sales and $585 of fixed asset
disposals included within other operating expenses. These restructuring charges are included within the Roller segment.
ITEM 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement as to Forward-Looking
Information
The information in
this discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934 which are subject to the “safe harbor” created by those sections.
All statements, other than statements of historical facts, included in this quarterly report on Form 10-Q regarding our strategy,
future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management
are “forward-looking statements” as the term is defined in the Private Securities Litigation Reform Act of 1995.
The words “anticipates,”
“believes,” “estimates,” “expects,” “intends,” “may,” “plans,”
“projects,” “will,” “would” and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking
statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to
differ materially from those in the forward-looking statements, including, without limitation: (a) the bearing and engineered products
industries are highly competitive, and this competition could reduce our profitability or limit our ability to grow; (b) The loss
of a major customer, or a material adverse change in a major customer’s business, could result in a material reduction in
our revenues, cash flows and profitability; (c) our results are likely to be impacted by the COVID-19 pandemic; (d) weakness in
any of the industries in which our customers operate, as well as the cyclical nature of our customers’ businesses generally,
could materially reduce our revenues, cash flows and profitability; (e) future reductions or changes in U.S. government spending
could negatively affect our business; (f) fluctuating supply and costs of subcomponents, raw materials and energy resources, or
the imposition of import tariffs, could materially reduce our revenues, cash flows and profitability; (g) our results could be
impacted by governmental trade policies and tariffs relating to our supplies imported from foreign vendors or our finished goods
exported to other countries; (h) our products are subject to certain approvals and government regulations and the loss of such
approvals, or our failure to comply with such regulations, could materially reduce our revenues, cash flows and profitability;
(i) the retirement of commercial aircraft could reduce our revenues, cash flows and profitability; (j) work stoppages and other
labor problems could materially reduce our ability to operate our business; (k) unexpected equipment failures, catastrophic events
or capacity constraints could increase our costs and reduce our sales due to production curtailments or shutdowns; (l) we may not
be able to continue to make the acquisitions necessary for us to realize our growth strategy; (m) businesses that we have acquired
or that we may acquire in the future may have liabilities which are not known to us; (n) goodwill and indefinite-lived intangibles
comprise a significant portion of our total assets, and if we determine that goodwill and indefinite-lived intangibles have become
impaired in the future, our results of operations and financial condition in such years may be materially and adversely affected;
(o) we depend heavily on our senior management and other key personnel, the loss of whom could materially affect our financial
performance and prospects; (p) our international operations are subject to risks inherent in such activities; (q) currency translation
risks may have a material impact on our results of operations; (r) we are subject to changes in legislative, regulatory and legal
developments involving income and other taxes; (s) we may be required to make significant future contributions to our pension plan;
(t) we may incur material losses for product liability and recall-related claims; (u) environmental and health and safety laws
and regulations impose substantial costs and limitations on our operations, and environmental compliance may be more costly than
we expect; (v) our intellectual property and proprietary information are valuable, and any inability to protect them could adversely
affect our business and results of operations; in addition, we may be subject to infringement claims by third parties; (w) cancellation
of orders in our backlog could negatively impact our revenues, cash flows and profitability; (x) if we fail to maintain an effective
system of internal controls, we may not be able to accurately report our financial results or prevent fraud; (y) litigation could
adversely affect our financial condition; (z) changes in accounting standards or changes in the interpretations of existing standards
could affect our financial results; (aa) risks associated with utilizing information technology systems could adversely affect
our operations. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with
the SEC, including, without limitation, the risks identified under the heading “Risk Factors” set forth in the Annual
Report on Form 10-K for the year ended March 28, 2020. Our forward-looking statements do not reflect the potential impact of any
future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not intend, and undertake no obligation,
to update or alter any forward-looking statement. The following section is qualified in its entirety by the more detailed information,
including our financial statements and the notes thereto, which appears elsewhere in this Quarterly Report.
Overview
We are a well-known
international manufacturer and maker of highly engineered precision bearings and components. Our precision solutions are integral
to the manufacture and operation of most machines and mechanical systems, reduce wear to moving parts, facilitate proper power
transmission, and reduce damage and energy loss caused by friction. While we manufacture products in all major bearings categories,
we focus primarily on the higher end of the bearing and engineered component markets where we believe our value-added manufacturing
and engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability. We believe our
unique expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With
42 facilities in 7 countries, of which 33 are manufacturing facilities, we have been able to significantly broaden our end markets,
products, customer base and geographic reach. We currently operate under four reportable business segments: Plain Bearings, Roller
Bearings, Ball Bearings, and Engineered Products. The following further describes these reportable segments:
Plain Bearings.
Plain bearings are produced with either self-lubricating or metal-to-metal designs and consists of several sub-classes,
including rod end bearings, spherical plain bearings and journal bearings. Unlike ball bearings, which are used in high-speed rotational
applications, plain bearings are primarily used to rectify inevitable misalignments in various mechanical components.
Roller Bearings.
Roller bearings are anti-friction bearings that use rollers instead of balls. We manufacture four basic types of roller
bearings: heavy-duty needle roller bearings with inner rings, tapered roller bearings, track rollers and aircraft roller bearings.
Ball Bearings.
We manufacture four basic types of ball bearings: high precision aerospace, airframe control, thin section and commercial ball
bearings, which are used in high-speed rotational applications.
Engineered Products.
Engineered Products consists of highly engineered hydraulics, fasteners, collets and precision components used in aerospace,
marine and industrial applications.
Purchasers of bearings
and engineered products include industrial equipment and machinery manufacturers, producers of commercial and military aerospace
equipment such as missiles and radar systems, agricultural machinery manufacturers, construction, energy, mining, marine and specialized
equipment manufacturers, marine products, automotive and commercial truck manufacturers. The markets for our products are cyclical,
and we have endeavored to mitigate this cyclicality by entering into sole-source relationships and long-term purchase agreements,
through diversification across multiple market segments within the aerospace and defense and diversified industrial segments, by
increasing sales to the aftermarket and by focusing on developing highly customized solutions.
Currently, our strategy
is built around maintaining our role as a leading manufacturer of precision-engineered bearings and components through the following
efforts:
|
●
|
Developing innovative solutions. By leveraging
our design and manufacturing expertise and our extensive customer relationships, we continue to develop new products for markets
in which there are substantial growth opportunities.
|
|
●
|
Expanding customer base and penetrating end markets.
We continually seek opportunities to access new customers, geographic locations and bearing platforms with existing products
or profitable new product opportunities.
|
|
●
|
Increasing aftermarket sales. We believe
that increasing our aftermarket sales of replacement parts will further enhance the continuity and predictability of our revenues
and enhance our profitability. Such sales include sales to third party distributors and sales to OEMs for replacement products
and aftermarket services. We will increase the percentage of our revenues derived from the replacement market by continuing to
implement several initiatives.
|
|
●
|
Pursuing selective acquisitions. The acquisition
of businesses that complement or expand our operations has been and continues to be an important element of our business strategy.
We believe that there will continue to be consolidation within the industry that may present us with acquisition opportunities.
|
Outlook
Our net sales for the three-month period ended September 26,
2020 decreased 19.6% compared to the same period last fiscal year. The decrease in net sales was a result of a 25.8% decrease in
our aerospace markets and an 8.3% decrease in our industrial markets. The decrease in aerospace sales was primarily due to the
commercial markets, both OEM and aftermarket, offset by increases in our defense business. The decrease in industrial sales was
driven by decreases in the mining, energy, marine, and general industrial markets. Excluding $0.4 million of July sales associated
with Swiss Tool, which was acquired in August fiscal 2020, overall net sales decreased 19.8% year over year. Our backlog, as of
September 26, 2020, was $403.0 million compared to $473.2 million as of September 28, 2019.
The COVID-19 health
crisis, which was declared a pandemic in March 2020, has led to governments around the world implementing measures to reduce the
spread. These measures include quarantines, “shelter in place” orders, travel restrictions, and other measures and
have resulted in a slowdown of worldwide economic activity.
Our business is operating as an essential
business, and as such, our facilities have remained open, with the exception of a few temporary closures at some of our locations.
The COVID-19 pandemic is impacting our commercial aerospace and industrial sales in fiscal 2021. Our commercial aerospace sales
continue to face headwinds associated with build rate changes within the industry, while the general decline in global economic
activity has had an impact on the industrial markets.
Our production and sales in the second quarter of fiscal 2021 have been negatively
affected by the economic implications of the pandemic. We expect that commercial aerospace OEM and aftermarket will continue to
be impacted by the year-over-year decline in air travel and changes in aircraft production rates. Conversely, our sales to aerospace
defense markets are expected to grow throughout fiscal 2021. Sales in these markets grew 24.1% during the second quarter of fiscal
2021 (17.8% for the first six months of fiscal 2021) as compared to the same period last year. Our sales to industrial markets
will be adversely affected in the next quarter of fiscal 2021 due to the slowdown of economic activity compared to last year. Management
is continuously evaluating the status of our orders and operations, and restructuring efforts are being implemented where necessary
to align our cost structure to the new demand levels we experience in the marketplace.
We experienced solid cash flow generation during the second
quarter of fiscal 2021 (as discussed in the section “Liquidity and Capital Resources” below). Management believes
that these operating cash flows and available credit under all credit agreements will provide adequate resources to fund internal
and external growth initiatives for the foreseeable future, including at least the next twelve months. As of September 26, 2020,
we had cash and cash equivalents of $166.4 million of which approximately $13.1 million was cash held by our foreign operations.
The Company expects
net sales to be approximately $140.0 million to $145.0 million in the third quarter of fiscal 2021.
Results of Operations
(dollars in millions)
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
$
Change
|
|
|
%
Change
|
|
Total net sales
|
|
$
|
146.3
|
|
|
$
|
181.9
|
|
|
$
|
(35.6
|
)
|
|
|
(19.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20.4
|
|
|
$
|
31.3
|
|
|
$
|
(10.9
|
)
|
|
|
(34.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: diluted
|
|
$
|
0.82
|
|
|
$
|
1.26
|
|
|
|
|
|
|
|
|
|
Weighted average common shares: diluted
|
|
|
24,957,158
|
|
|
|
24,905,173
|
|
|
|
|
|
|
|
|
|
Our net sales for the
three-month period ended September 26, 2020 decreased 19.6% compared to the same period last fiscal year. The decrease in net sales
was a result of a 25.8% decrease in our aerospace markets and an 8.3% decrease in our industrial markets. The decrease in aerospace
sales was primarily due to the commercial markets, both OEM and aftermarket, which were down 36.7%, offset by increases in our
defense business of 24.1%. The decrease in industrial sales was driven by decreases in the mining, energy, marine and general industrial
markets partially offset by increases in the semiconductor, military vehicles, wind, nuclear, and a few other industrial markets.
Excluding $0.4 million of July sales associated with Swiss Tool, which was acquired in August fiscal 2020, overall net sales decreased
19.8% year over year.
Net income for the second quarter of fiscal 2021 was $20.4 million
compared to $31.3 million for the same period last year. Net income for the second quarter of fiscal 2021 was affected by $2.8
million of after-tax restructuring costs and related items primarily associated with the consolidation of two manufacturing facilities
and $0.1 million of losses on foreign exchange partially offset by $0.4 million of tax benefits associated with share-based compensation
and $0.1 million of other discrete tax benefits. Net income for the second quarter of fiscal 2020 was affected by $2.5 million
of tax benefits associated with share-based compensation partially offset by $0.8 million of after-tax costs associated with the
acquisition of Swiss Tool, $0.1 million of losses on foreign exchange and $0.1 million of other discrete tax losses.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
Total net sales
|
|
$
|
302.8
|
|
|
$
|
364.6
|
|
|
$
|
(61.8
|
)
|
|
|
(16.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
43.1
|
|
|
$
|
61.8
|
|
|
$
|
(18.7
|
)
|
|
|
(30.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: diluted
|
|
$
|
1.73
|
|
|
$
|
2.49
|
|
|
|
|
|
|
|
|
|
Weighted average common shares: diluted
|
|
|
24,944,608
|
|
|
|
24,856,561
|
|
|
|
|
|
|
|
|
|
Net sales decreased $61.8 million, or 16.9% for the six-month
period ended September 26, 2020 over the same period last year. The decrease in net sales was mainly the result of a 20.4% decrease
in aerospace sales and a 10.8% decrease in industrial sales. The decrease in aerospace sales was primarily due to the commercial
markets, both OEM and aftermarket, which were down 29.2%, which was partially offset by defense OEM and aftermarket, which increased
17.8% year over year. The decrease in industrial sales was primarily due to mining, energy, and general industrial markets partially
offset by increases in the semiconductor, military vehicles, wind, nuclear, and a few other industrial markets. Excluding $2.6
million of sales associated with Swiss Tool, overall net sales decreased 17.7% year over year.
Net income for the six months ended September 26, 2020 was $43.1
million compared to $61.8 million for the same period last year. Net income for the six month period in fiscal 2021 was affected
by $3.7 million of after-tax restructuring costs and related items and $0.2 million of losses on foreign exchange partially offset
by $0.7 million of tax benefits associated with share-based compensation and $0.1 million of other discrete tax benefits. The net
income of $61.8 million in fiscal 2020 was impacted by $3.0 million of tax benefits associated with share-based compensation and
$0.2 million of discrete tax benefits partially offset by $0.8 million of after-tax cost associated with the acquisition of Swiss
Tool and $0.3 million of loss on foreign exchange.
Gross Margin
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
$
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
56.6
|
|
|
$
|
71.1
|
|
|
$
|
(14.5
|
)
|
|
|
(20.4
|
)%
|
Gross Margin %
|
|
|
38.7
|
%
|
|
|
39.1
|
%
|
|
|
|
|
|
|
|
|
Gross margin was 38.7% of net sales for the second quarter of
fiscal 2021 compared to 39.1% for the second quarter of fiscal 2020. The decrease in gross margin as a percentage of net sales
was primarily due to $2.0 million in inventory rationalization costs associated with the consolidation of two manufacturing facilities
partially offset by product mix.
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
$
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
116.0
|
|
|
$
|
141.8
|
|
|
$
|
(25.8
|
)
|
|
|
(18.2
|
)%
|
Gross Margin %
|
|
|
38.3
|
%
|
|
|
38.9
|
%
|
|
|
|
|
|
|
|
|
Gross margin was 38.3% of net sales for the first six months
of fiscal 2021 compared to 38.9% for the same period last year. Although gross margin dollars decreased year over year, resulting
from current economic conditions, gross margin as a percentage of net sales is consistent due to product mix and cost containment
efforts during the period. Gross margin for the first six months of fiscal 2021 was also impacted by $0.8 million of capacity inefficiencies
driven by the decrease in volume and $2.0 million in inventory rationalization costs associated with the consolidation of two manufacturing
facilities, partially offset by beneficial product mix.
Selling, General and Administrative
|
|
Three Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
26.0
|
|
|
$
|
30.8
|
|
|
$
|
(4.8
|
)
|
|
|
(15.4
|
)%
|
% of net sales
|
|
|
17.8
|
%
|
|
|
16.9
|
%
|
|
|
|
|
|
|
|
|
SG&A for the second quarter of fiscal
2021 was $26.0 million, or 17.8% of net sales, as compared to $30.8 million, or 16.9% of net sales, for the same period of fiscal
2020. This reduction was due to decreases in personnel costs of $4.9 million partially offset by $0.1 million of other items.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
52.9
|
|
|
$
|
60.9
|
|
|
$
|
(8.0
|
)
|
|
|
(13.2
|
)%
|
% of net sales
|
|
|
17.5
|
%
|
|
|
16.7
|
%
|
|
|
|
|
|
|
|
|
SG&A expenses decreased by $8.0 million to $52.9 million
for the first six months of fiscal 2021 compared to $60.9 million for the same period last year. This decrease is primarily due
to $8.7 million of reductions in personnel costs and $0.1 million of other items partially offset by $0.8 million of additional
share-based compensation.
Other, Net
|
|
Three Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
$
|
4.2
|
|
|
$
|
3.0
|
|
|
$
|
1.2
|
|
|
|
38.9
|
%
|
% of net sales
|
|
|
2.9
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
Other operating expenses for the second quarter of fiscal 2021
totaled $4.2 million compared to $3.0 million for the same period last year. For the second quarter of fiscal 2021, other operating
expenses included $1.5 million of restructuring costs and related items, $2.6 million of amortization of intangible assets and
$0.1 million of other costs. Other operating expenses last year were comprised mainly of $2.3 million of amortization of intangible
assets and $0.9 million of costs associated with the acquisition of Swiss Tool, partially offset by $0.2 million of other income.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
$
|
8.0
|
|
|
$
|
5.1
|
|
|
$
|
2.9
|
|
|
|
55.8
|
%
|
% of net sales
|
|
|
2.6
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
Other operating expenses for the first six months of fiscal
2021 totaled $8.0 million compared to $5.1 million for the same period last year. For the first six months of fiscal 2021, other
operating expenses were comprised mainly of $5.1 million in amortization of intangibles, $2.6 million of restructuring and related
items and $0.3 million of other items. For the first six months of fiscal 2020, other operating expenses were comprised mainly
of $4.6 million in amortization of intangibles and $0.9 million of costs associated with the acquisition of Swiss Tool, partially
offset by $0.4 million of other income.
Interest Expense,
Net
|
|
Three Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
0.3
|
|
|
$
|
0.5
|
|
|
$
|
(0.2
|
)
|
|
|
(27.5
|
)%
|
% of net sales
|
|
|
0.2
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
Interest expense, net, generally consists of interest charged
on the Company’s debt agreements and amortization of deferred financing fees, offset by interest income (see “Liquidity
and Capital Resources” below). Interest expense, net, was $0.3 million for the second quarter of fiscal 2021 compared to
$0.5 million for the same period last year.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
0.8
|
|
|
$
|
1.0
|
|
|
$
|
(0.2
|
)
|
|
|
(24.7
|
)%
|
% of net sales
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
Interest expense, net
was $0.8 million for the first six months of fiscal 2021 compared to $1.0 million for the first six months of fiscal 2020.
Other Non-Operating Expense
|
|
Three Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expense
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.0
|
|
|
|
8.2
|
%
|
% of net sales
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
Other non-operating
expenses were $0.2 million for the second quarter of fiscal 2021 compared to $0.2 million for the same period in the prior year.
For the second quarter of fiscal 2021, other non-operating expenses were comprised of $0.1 million of foreign exchange loss and
$0.1 million of other items. For the second quarter of fiscal 2020, other non-operating expenses were primarily comprised of $0.1
million of foreign exchange loss and $0.1 million of other items.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expense
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
$
|
(0.1
|
)
|
|
|
(30.5
|
)%
|
% of net sales
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
Other non-operating
expenses were $0.3 million for the first six months of fiscal 2021 compared to $0.4 million for the same period in the prior year.
For the first six months of fiscal 2021, other non-operating expenses were comprised of $0.2 million of foreign exchange loss and
$0.1 million of other items. For the first six months of fiscal 2020, other non-operating expenses were primarily comprised of
$0.3 million of foreign exchange loss and $0.1 million of other items.
Income Taxes
|
|
Three Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
5.4
|
|
|
$
|
5.4
|
|
Effective tax rate
|
|
|
20.9
|
%
|
|
|
14.7
|
%
|
Income tax expense for the three-month period ended September
26, 2020 was $5.4 million compared to $5.4 million for the three-month period ended September 28, 2019. Our effective income tax
rate for the three-month period ended September 26, 2020 was 20.9% compared to 14.7% for the three-month period ended September
28, 2019. The effective income tax rate for the three-month period ended September 26, 2020 of 20.9% includes $0.4 million of tax
benefits associated with share-based compensation. The effective income tax rate without these benefits for the three-month
period ended September 26, 2020 would have been 22.0%. The effective income tax rate for the three-month period ended September
28, 2019 of 14.7% includes $2.5 million of tax benefits associated with share-based compensation. The effective income tax
rate without these benefits for the three-month period ended September 28, 2019 would have been 21.3%.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
11.0
|
|
|
$
|
12.6
|
|
Effective tax rate
|
|
|
20.4
|
%
|
|
|
17.0
|
%
|
Income tax expense for the six-month period ended September
26, 2020 was $11.0 million compared to $12.6 million for the six-month period ended September 28, 2019. Our effective income tax
rate for the six-month period ended September 26, 2020 was 20.4% compared to 17.0% for the six-month period ended September 28,
2019. The effective income tax rate for the six-month period ended September 26, 2020 of 20.4% includes $0.7 million of tax benefits
associated with share-based compensation. The effective income tax rate without these benefits for the six-month period ended September
26, 2020 would have been 21.6%. The effective income tax rate for the six-month period ended September 28, 2019 of 17.0% included
$3.0 million of tax benefits associated with share-based compensation and $0.2 million of tax benefits associated with other permanent
adjustments from filing the Company’s fiscal 2018 foreign tax returns. The effective income tax rate without these benefits
for the six-month period ended September 28, 2019 would have been 21.3%.
Segment Information
We have four reportable
product segments: Plain Bearings, Roller Bearings, Ball Bearings and Engineered Products. We use gross margin as the primary measurement
to assess the financial performance of each reportable segment.
Plain Bearings Segment
|
|
Three Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
71.1
|
|
|
$
|
90.0
|
|
|
$
|
(18.9
|
)
|
|
|
(21.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
29.8
|
|
|
$
|
35.7
|
|
|
$
|
(5.9
|
)
|
|
|
(16.7
|
)%
|
Gross margin %
|
|
|
41.9
|
%
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
5.3
|
|
|
$
|
6.5
|
|
|
$
|
(1.2
|
)
|
|
|
(19.3
|
)%
|
% of segment net sales
|
|
|
7.4
|
%
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
Net sales decreased $18.9 million, or 21.1%, for the three months
ended September 26, 2020 compared to the same period last year. The 21.1% decrease was primarily driven by a decrease of 27.4%
in our aerospace markets offset by a 1.5% increase in the industrial markets. The decrease in aerospace net sales was due to commercial
aerospace OEM and aftermarket, partially offset by defense OEM. The increase in industrial net sales was mostly driven by the general
industrial markets.
Gross margin as a percentage of net sales was 41.9% for the
second quarter of fiscal 2021 compared to 39.7% for the same period last year. The increase in gross margin as a percentage of
net sales was mainly due to product mix.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
149.9
|
|
|
$
|
177.5
|
|
|
$
|
(27.6
|
)
|
|
|
(15.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
61.8
|
|
|
$
|
69.8
|
|
|
$
|
(8.0
|
)
|
|
|
(11.4
|
)%
|
Gross margin %
|
|
|
41.2
|
%
|
|
|
39.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
10.5
|
|
|
$
|
13.0
|
|
|
$
|
(2.5
|
)
|
|
|
(19.2
|
)%
|
% of segment net sales
|
|
|
7.0
|
%
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
Net sales decreased $27.6 million, or 15.5%, for the six months
ended September 26, 2020 compared to the same period last year. The 15.5% decrease was primarily driven by a decrease of 19.8%
in our aerospace markets and a 0.9% decrease in the industrial markets. The decrease in aerospace was primarily due to commercial
OEM and aftermarket partially offset by defense OEM and aftermarket. The decrease in industrial sales was mostly driven by the
general industrial markets.
Gross margin as a percentage of net sales increased to 41.2%
for the first six months of fiscal 2021 compared to 39.3% for the same period last year. The increase is a result of product mix
during the period.
Roller Bearings Segment
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
21.6
|
|
|
$
|
32.6
|
|
|
$
|
(11.0
|
)
|
|
|
(33.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
6.2
|
|
|
$
|
13.4
|
|
|
$
|
(7.2
|
)
|
|
|
(53.4
|
)%
|
Gross margin %
|
|
|
28.9
|
%
|
|
|
41.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
1.2
|
|
|
$
|
1.6
|
|
|
$
|
(0.4
|
)
|
|
|
(29.4
|
)%
|
% of segment net sales
|
|
|
5.4
|
%
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
Net sales decreased $11.0 million, or 33.8%,
for the three months ended September 26, 2020 compared to the same period last year. Our aerospace markets decreased 39.5% while
our industrial markets decreased by 27.0%. The decrease in aerospace was driven by the commercial OEM and commercial and defense
aftermarkets. The decrease in industrial net sales was primarily due to mining market activity.
Gross margin for the three months ended September 26, 2020 was 28.9% of net sales,
compared to 41.1% in the comparable period in fiscal 2020. This decrease in the gross margin as a percentage of net sales was primarily
due to $2.0 million in inventory rationalization costs associated with the consolidation of two manufacturing facilities and decreased
volumes during the period.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
44.5
|
|
|
$
|
69.4
|
|
|
$
|
(24.9
|
)
|
|
|
(35.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
14.6
|
|
|
$
|
27.9
|
|
|
$
|
(13.3
|
)
|
|
|
(47.6
|
)%
|
Gross margin %
|
|
|
32.9
|
%
|
|
|
40.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
2.4
|
|
|
$
|
3.3
|
|
|
$
|
(0.9
|
)
|
|
|
(26.4
|
)%
|
% of segment net sales
|
|
|
5.4
|
%
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
Net sales decreased $24.9 million, or 35.9%,
for the six months ended September 26, 2020 compared to the same period last year. Our industrial markets decreased 36.7% while
our aerospace markets decreased by 35.3%. The decrease in industrial sales was primarily due to mining and general industrial market
activity while the decrease in aerospace was driven by the commercial OEM and commercial and defense aftermarkets.
Gross margin for the six months ended September 26, 2020 was 32.9% of net sales, compared
to 40.2% in the comparable period in fiscal 2020. This decrease in the gross margin as a percentage of net sales was primarily
due to $2.0 million in inventory rationalization costs associated with the consolidation of two manufacturing facilities and decreased
volumes during the period. During the first six months of fiscal 2021, gross margin was also impacted by approximately $0.3 million
of capacity inefficiencies driven by the impact of the COVID-19 pandemic.
Ball Bearings Segment
|
|
Three Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
21.1
|
|
|
$
|
17.4
|
|
|
$
|
3.7
|
|
|
|
21.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
9.1
|
|
|
$
|
7.5
|
|
|
$
|
1.6
|
|
|
|
21.7
|
%
|
Gross margin %
|
|
|
43.3
|
%
|
|
|
43.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
1.3
|
|
|
$
|
1.6
|
|
|
$
|
(0.3
|
)
|
|
|
(18.1
|
)%
|
% of segment net sales
|
|
|
6.1
|
%
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
Net sales increased by $3.7 million for the second quarter of
fiscal 2021 compared to the same period last year. Our aerospace markets increased 43.7% while our industrial sales increased 11.8%.
The increase in aerospace net sales was primarily driven by the defense and space OEM market. The increase in industrial was primarily
due to the semiconductor and general industrial markets.
Gross margin as a percentage
of net sales was 43.3% for the second quarter of fiscal 2021 as compared to 43.1% for the same period last year. The increase in
gross margin year over year is a result of additional sales during the period.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
39.9
|
|
|
$
|
35.1
|
|
|
$
|
4.8
|
|
|
|
13.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
17.1
|
|
|
$
|
15.3
|
|
|
$
|
1.8
|
|
|
|
11.5
|
%
|
Gross margin %
|
|
|
42.7
|
%
|
|
|
43.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
2.6
|
|
|
$
|
3.2
|
|
|
$
|
(0.6
|
)
|
|
|
(17.8
|
)%
|
% of segment net sales
|
|
|
6.6
|
%
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
Net sales increased $4.8 million, or 13.7% for the six months
ended September 26, 2020 compared to the same period last year. Our industrial market sales increased 4.0% while sales to our aerospace
markets increased 36.3%. The increase in industrial was primarily due to the semiconductor market. The increase in aerospace net
sales was primarily driven by the defense and space OEM market.
Gross margin as a percentage
of net sales decreased to 42.7% for the six months ended September 26, 2020 compared to 43.6% for the same period last year. The
decrease was primarily due to product mix during the period.
Engineered Products Segment
|
|
Three Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
32.6
|
|
|
$
|
41.9
|
|
|
$
|
(9.3
|
)
|
|
|
(22.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
11.5
|
|
|
$
|
14.5
|
|
|
$
|
(3.0
|
)
|
|
|
(20.9
|
)%
|
Gross margin %
|
|
|
35.2
|
%
|
|
|
34.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
3.8
|
|
|
$
|
4.4
|
|
|
$
|
(0.6
|
)
|
|
|
(13.4
|
)%
|
% of segment net sales
|
|
|
11.8
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
Net sales decreased $9.3 million, or 22.2%, for the second quarter
of fiscal 2021 compared to the same period last year. Our aerospace markets decreased 25.7% while our industrial markets decreased
17.3%. Excluding $0.4 million of current year net sales associated with our Swiss Tool division, acquired in August of fiscal 2020,
net sales decreased 23.2% for the second quarter of fiscal 2021 compared to the same period last year. The decrease in aerospace
net sales were driven by the commercial OEM and aftermarket, partially offset by the defense OEM market. The decrease in our industrial
net sales were driven by the marine and general industrial markets.
Gross margin as a percentage
of net sales was 35.2% for the second quarter of fiscal 2021 compared to 34.6% for the same period last year. This increase was
primarily attributable to product mix and cost reductions during the period.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
68.5
|
|
|
$
|
82.5
|
|
|
$
|
(14.0
|
)
|
|
|
(17.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
22.5
|
|
|
$
|
28.8
|
|
|
$
|
(6.3
|
)
|
|
|
(21.7
|
)%
|
Gross margin %
|
|
|
32.9
|
%
|
|
|
34.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
7.7
|
|
|
$
|
8.7
|
|
|
$
|
(1.0
|
)
|
|
|
(12.4
|
)%
|
% of segment net sales
|
|
|
11.2
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
Net sales decreased
$14.0 million, or 17.0%, for the six months ended September 26, 2020 compared to the same period last year. Our aerospace sales
decreased 22.9% while industrial sales decreased 8.6%.
Excluding $2.6 million of sales associated with the acquisition of Swiss Tool in fiscal 2020, overall sales decreased 20.2%. The
decrease in aerospace sales was primarily driven by the commercial OEM and aftermarket partially offset by the defense OEM markets.
The decrease in industrial sales was driven by the marine and general industrial markets.
Gross margin as a percentage of net sales decreased to 32.9%
for the six months ended September 26, 2020 compared to 34.9% for the same period last year. This decrease is primarily due to
lower sales volume and product mix. During the first half of fiscal 2021, gross margin was also impacted by approximately $0.5
million of capacity inefficiencies driven by the impact of the COVID-19 pandemic.
Corporate
|
|
Three Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
14.5
|
|
|
$
|
16.6
|
|
|
$
|
(2.1
|
)
|
|
|
(12.8
|
)%
|
% of total net sales
|
|
|
9.9
|
%
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
Corporate SG&A
decreased $2.1 million, or 12.8%, for the second quarter of fiscal 2021 compared to the same period last year. This was primarily
due to a decrease of $2.7 million in personnel costs, partially offset by an increase of $0.2 million in professional fees, $0.2
million of share-based compensation expenses, and $0.2 million of other items.
|
|
Six Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
29.6
|
|
|
$
|
32.6
|
|
|
$
|
(3.0
|
)
|
|
|
(9.2
|
)%
|
% of total net sales
|
|
|
9.8
|
%
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
Corporate SG&A
decreased $3.0 million for the six months ended September 26, 2020 compared to the same period last year due to a decrease of $4.7
million in personnel costs and $0.1 million of other items, partially offset by $0.8 million of additional share-based compensation
expenses and $1.0 million of additional professional costs.
Liquidity and Capital Resources
Our business is
capital-intensive. Our capital requirements include manufacturing equipment and materials. In addition, we have historically
fueled our growth, in part, through acquisitions. We have historically met our working capital, capital expenditure
requirements and acquisition funding needs through our net cash flows provided by operations, various debt arrangements and
sale of equity to investors. We believe that operating cash flows and available credit under the Revolver and Foreign
Revolver (see below) will provide adequate resources to fund internal and external growth initiatives for the foreseeable
future.
Our ability to meet
future working capital, capital expenditures and debt service requirements will depend on our future financial performance, which
will be affected by a range of economic, competitive and business factors, particularly interest rates, cyclical changes in our
end markets and prices for steel and our ability to pass through price increases on a timely basis, many of which are outside of
our control. In addition, future acquisitions could have a significant impact on our liquidity position and our need for additional
funds.
From time to time,
we evaluate our existing facilities and operations and their strategic importance to us. If we determine that a given facility
or operation does not have future strategic importance, we may sell, partially or completely, relocate production lines, consolidate
or otherwise dispose of those operations. Although we believe our operations would not be materially impaired by such dispositions,
relocations or consolidations, we could incur significant cash or non-cash charges in connection with them.
Liquidity
As of September 26,
2020, we had cash and cash equivalents of $166.4 million, of which, approximately $13.1 million was cash held by our foreign operations.
We expect that our undistributed foreign earnings will be re-invested indefinitely for working capital, internal growth and acquisitions
for and by our foreign entities.
Domestic Credit Facility
The Company’s
credit agreement with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, Swingline Lender and Letter
of Credit Issuer, and the other lenders party thereto (the “Credit Agreement”) provides the Company with a $250.0 million
revolving credit facility (the “Revolver”), which expires on January 31, 2024. Debt issuance costs associated with
the Credit Agreement totaled $0.9 million and will be amortized through January 31, 2024 along with the unamortized debt issuance
costs remaining from the Company’s prior credit agreement.
Amounts outstanding
under the Revolver 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
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 at each measurement date. Currently, the Company’s margin is 0.00% for base
rate loans and 0.75% for LIBOR loans.
The Credit Agreement
requires the Company to comply with various covenants, including among other things, a financial covenant to maintain a ratio of
consolidated net debt to adjusted EBITDA not greater than 3.50 to 1. The Credit Agreement allows the Company to, among other things,
make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that
the Company complies with certain requirements and limitations of the Credit Agreement. As of September 26, 2020, the Company was
in compliance with all such covenants.
The Company’s
domestic subsidiaries have guaranteed the Company’s obligations under the Credit Agreement, and the Company’s obligations
and the domestic subsidiaries’ guarantee are secured by a pledge of substantially all of the domestic assets of the Company
and its domestic subsidiaries.
Approximately $3.7
million of the Revolver is being utilized to provide letters of credit to secure the Company’s obligations relating to certain
insurance programs. As of September 26, 2020, $1.3 million in unamortized debt issuance costs remain. The Company has the ability
to borrow up to an additional $246.3 million under the Revolver as of September 26, 2020.
Foreign Term Loan and Revolving Credit
Facility
On August 15,
2019, one of our foreign subsidiaries, Schaublin SA (“Schaublin”), entered into two separate credit agreements
(the “Foreign Credit Agreements”) with Credit Suisse (Switzerland) Ltd. to finance the acquisition of Swiss Tool
and provide future working capital. The Foreign Credit Agreements provided Schaublin with a CHF 15.0 million
(approximately $15.4 million) term loan (the “Foreign Term Loan”), which expires on July 31, 2024 and a CHF 15.0
million (approximately $15.4 million) revolving credit facility (the “Foreign Revolver”), which continues in
effect until terminated by either Schaublin or Credit Suisse. Debt issuance costs associated with the Foreign Credit
Agreements totaled CHF 0.3 million (approximately $0.3 million) and will be amortized throughout the life of the Foreign
Credit Agreements.
Amounts outstanding
under the Foreign Term Loan and the Foreign Revolver generally bear interest at LIBOR plus a specified margin. The applicable margin
is based on Schaublin’s ratio of total net debt to consolidated EBITDA at each measurement date. Currently, Schaublin’s
margin is 1.00%.
The Foreign Credit
Agreements require Schaublin to comply with various covenants, which are tested annually on March 31. These covenants include,
among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.00
to 1 as of March 31, 2020 and not greater than 2.50 to 1 as of March 31, 2021 and thereafter. Schaublin is also required to maintain
an economic equity of CHF 20.0 million at all times. The Foreign Credit Agreements allow Schaublin to, among other things, incur
other debt or liens and acquire or dispose of assets provided that Schaublin complies with certain requirements and limitations
of the Foreign Credit Agreements. As of March 31, 2020, Schaublin was in compliance with all such covenants.
Schaublin’s parent
company, Schaublin Holding, has guaranteed Schaublin’s obligations under the Foreign Credit Agreements. Schaublin Holding’s
guaranty and the Foreign Credit Agreements are secured by a pledge of the capital stock of Schaublin. In addition, the Foreign
Term Loan is secured with pledges of the capital stock of the top company and the three operating companies in the Swiss Tool System
group of companies.
As of September 26,
2020, there was approximately $2.9 million outstanding under the Foreign Revolver and approximately $12.9 million outstanding under
the Foreign Term Loan. These borrowings have been classified as Level 2 of the valuation hierarchy. As of September 26, 2020, approximately
$0.1 million in unamortized debt issuance costs remain. Schaublin has the ability to borrow up to an additional $13.2 million under
the Foreign Revolver as of September 26, 2020.
Schaublin’s required
future annual principal payments are approximately $6.1 million for the next twelve months and approximately $3.2 million for each
year for the next three years.
Other Notes Payable
On October 1, 2012,
Schaublin purchased the land and building that it occupied and had been leasing for approximately $14.9 million. Schaublin obtained
a 20-year fixed-rate mortgage of approximately $9.9 million at an interest rate of 2.9%. The balance of the purchase price of approximately
$5.1 million was paid from cash on hand. The balance on this mortgage as of September 26, 2020 was approximately $6.0 million and
has been classified as Level 2 of the valuation hierarchy.
The Company’s
required future annual principal payments are approximately $0.5 million each year for the next five years
and $3.5 million thereafter.
Cash Flows
Six-month
Period Ended September 26, 2020 Compared to the Six-month Period Ended September 28, 2019
The following table summarizes our
cash flow activities:
|
|
FY21
|
|
|
FY20
|
|
|
$ Change
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
74.5
|
|
|
$
|
64.6
|
|
|
$
|
9.9
|
|
Investing activities
|
|
|
(5.8
|
)
|
|
|
(53.8
|
)
|
|
|
48.0
|
|
Financing activities
|
|
|
(5.5
|
)
|
|
|
(5.0
|
)
|
|
|
(0.5
|
)
|
Effect of exchange rate changes on cash
|
|
|
(0.1
|
)
|
|
|
0.7
|
|
|
|
(0.8
|
)
|
Increase in cash and cash equivalents
|
|
$
|
63.1
|
|
|
$
|
6.5
|
|
|
$
|
56.6
|
|
During the first six
months of fiscal 2021, we generated cash of $74.5 million from operating activities compared to $64.6 million of cash generated
during the same period of fiscal 2020. The increase of $9.9 million for fiscal 2021 was mainly a result of the favorable impact
of a net change in operating assets and liabilities of $20.1 million and a favorable change in non-cash charges of $8.5 million,
offset by a decrease in net income of $18.7 million. The favorable change in operating assets and liabilities is detailed in the
table below, while the increase in non-cash charges resulted from $0.5 million of amortization of intangible assets, $0.1 million
of amortization of deferred financing costs, $3.2 million in deferred taxes, $1.0 million of depreciation, $0.8 million of share-based
compensation charges, and $2.9 million of other non-cash charges related to restructuring efforts.
The following chart
summarizes the favorable change in operating assets and liabilities of $20.1 million for fiscal 2021 versus fiscal 2020 and the
favorable change of $3.8 million for fiscal 2020 versus fiscal 2019.
|
|
FY21
|
|
|
FY20
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
19.0
|
|
|
$
|
5.4
|
|
Inventory
|
|
|
8.1
|
|
|
|
6.9
|
|
Prepaid expenses and other current assets
|
|
|
2.8
|
|
|
|
(0.5
|
)
|
Other non-current assets
|
|
|
(5.1
|
)
|
|
|
1.3
|
|
Accounts payable
|
|
|
(12.2
|
)
|
|
|
(2.6
|
)
|
Accrued expenses and other current liabilities
|
|
|
1.6
|
|
|
|
(6.2
|
)
|
Other non-current liabilities
|
|
|
5.9
|
|
|
|
(0.5
|
)
|
Total change in operating assets and liabilities:
|
|
$
|
20.1
|
|
|
$
|
3.8
|
|
During the first six months of fiscal 2021,
we used $5.8 million for investing activities as compared to $53.8 million used during the first six months of fiscal 2020. This
decrease in cash used was attributable to a $14.2 million decrease in capital expenditures and the use of $33.8 million in the
prior year for the acquisition of Swiss Tool.
During the first
six months of fiscal 2021, we used $5.5 million for financing activities compared to $5.0 million for the first six months of
fiscal 2020. This increase in cash used was primarily attributable to $8.0 million less exercises of share-based awards
offset by $2.1 million less payments made on outstanding debt and $5.4 million less treasury stock purchases.
Capital Expenditures
Our capital expenditures
were $2.1 million and $6.0 million for the three- and six-month periods ended September 26, 2020, respectively. We expect to make
additional capital expenditures of $6.0 to $8.0 million during the remainder of fiscal 2021 in connection with our existing business.
We expect to fund these capital expenditures principally through existing cash and internally generated funds. We may also make
substantial additional capital expenditures in connection with acquisitions.
Other Matters
Critical Accounting Policies and
Estimates
Preparation of our financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the
most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily
from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis
of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements in our fiscal 2020 Annual
Report on Form 10-K describe the significant accounting estimates and policies used in preparation of the Consolidated Financial
Statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes
in our critical accounting estimates during the first six months of fiscal 2021 other than those described in Note 2 to the unaudited
interim consolidated financial statements contained in this quarterly report.
Off-Balance Sheet Arrangements
As of September 26,
2020, we had no significant off-balance sheet arrangements other than $3.7 million of outstanding standby letters of credit, all
of which were under the Revolver.