RBC Bearings INC 10-Q for FY2022 Q2
RBC Bearings INC (RBC)
About this 10-Q
RBC Bearings INC filed this 10-Q on November 12, 2021, covering the quarter ended October 2, 2021 (FY2022 Q2).
Headline figures
Quarter ended October 2, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $160.9M
- up 10.0% from $146.34M a year earlier
- Net income
- $6.93M
- down 66.1% from net income of $20.42M a year earlier
- Diluted EPS
- $0.25
- down 69.5% from $0.82 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
OR
For the transition period from to .
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
(Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| Nasdaq NMS | ||||
| 5.00% Series A Mandatory Convertible Preferred Stock, par value $0.01 per share | ROLLP | Nasdaq NMS |
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||
| Non-accelerated filer | ☐ | Smaller reporting company | ||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 5, 2021, RBC Bearings Incorporated had
TABLE OF CONTENTS
| Part I - | FINANCIAL INFORMATION | 1 |
| ITEM 1. | Consolidated Financial Statements | 1 |
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 |
| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | 33 |
| ITEM 4. | Controls and Procedures Changes in Internal Control over Financial Reporting | 33 |
| Part II - | OTHER INFORMATION | 34 |
| ITEM 1. | Legal Proceedings | 34 |
| ITEM 1A. | Risk Factors | 34 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
| ITEM 3. | Defaults Upon Senior Securities | 37 |
| ITEM 4. | Mine Safety Disclosures | 37 |
| ITEM 5. | Other Information | 37 |
| ITEM 6. | Exhibits | 38 |
i
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RBC Bearings Incorporated
Consolidated Balance Sheets
(dollars in thousands, except share and per share data)
October 2, 2021 | April 3, 2021 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | — | |||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease assets, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Current operating lease liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, less current portion | ||||||||
| Long-term operating lease liabilities | ||||||||
| Deferred income taxes | ||||||||
| Other noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Treasury stock, at cost, | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes.
1
RBC Bearings Incorporated
Consolidated Statements of Operations
(dollars in thousands, except share and per share data)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Other, net | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income | ||||||||||||||||
| Interest expense, net | ||||||||||||||||
| Other non-operating (income)/expense | ( | ) | ( | ) | ||||||||||||
| Income before income taxes | ||||||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income | ||||||||||||||||
| Preferred stock dividends | — | — | ||||||||||||||
| Net income available to common stockholders | $ | $ | $ | $ | ||||||||||||
| Net income per share available to common stockholders: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes.
2
RBC Bearings Incorporated
Consolidated Statements of Comprehensive Income
(dollars in thousands)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Foreign currency translation adjustments | ( | ) | ||||||||||||||
| Total comprehensive income | $ | $ | $ | $ | ||||||||||||
| (1) |
See accompanying notes.
3
RBC Bearings Incorporated
Consolidated Statements of Stockholders’ Equity
(dollars in thousands)
(Unaudited)
| Common Stock | Preferred Stock | Additional Paid-in | Accumulated Other Comprehensive | Retained |
Treasury Stock | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income/(Loss) | Earnings | Shares | Amount | Equity | |||||||||||||||||||||||||||||||
| Balance at April 3, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Exercise of equity awards | — | — | ||||||||||||||||||||||||||||||||||||||
| Change in net prior service cost and actuarial losses, net of tax expense of $ | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | — | ||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at July 3, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred stock issuance, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Common stock issuance, net of issuance costs | — | |||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Exercise of equity awards | — | — | ||||||||||||||||||||||||||||||||||||||
| Change in net prior service cost and actuarial losses, net of taxes of $ | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at October 2, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
See accompanying notes.
4
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 28, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | |||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Exercise of equity awards | — | — | — | |||||||||||||||||||||||||||||
| Change in net prior service cost and actuarial losses, net of taxes of $ | — | — | — | |||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | |||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | |||||||||||||||||||||||||||||
| Balance at June 27, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Exercise of equity awards | — | |||||||||||||||||||||||||||||||
| Change in net prior service cost and actuarial losses, net of taxes of $ | — | — | — | |||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | ( | ) | — | |||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | |||||||||||||||||||||||||||||
| Balance at September 26, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
See accompanying notes.
5
RBC Bearings Incorporated
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
| Six Months Ended | ||||||||
October 2, 2021 | September 26, 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Deferred income taxes | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of deferred financing costs | ||||||||
| Share-based compensation | ||||||||
| Loss/(gain) on disposition of assets | ||||||||
| Consolidation, restructuring, and other noncash charges | ||||||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other noncurrent assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Other noncurrent liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of assets | ||||||||
| Purchase of marketable securities | ( | ) | ||||||
| Proceeds from sale of marketable securities | ||||||||
| Acquisition of business | ||||||||
| Net cash provided by/(used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds received from issuance of common stock | ||||||||
| Proceeds received from issuance of preferred stock | ||||||||
| Finance fees paid in connection with credit facilities and term loans | ( | ) | ||||||
| Repayments of term loans | ( | ) | ( | ) | ||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Exercise of stock options | ||||||||
| Repurchase of common stock | ( | ) | ( | ) | ||||
| Net cash provided by/(used in) financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Cash and cash equivalents: | ||||||||
| Increase during the period | ||||||||
| Cash and cash equivalents, at beginning of period | ||||||||
| Cash and cash equivalents, at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | ||||||||
See accompanying notes.
6
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 April 3, 2021. 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 October 2, 2021 are not necessarily indicative of the operating results for the entire fiscal year ending April 2, 2022. The three- and six-month periods ended October 2, 2021 and September 26, 2020 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 April 3, 2021. Significant changes to our accounting policies as a result of adopting new accounting standards are discussed below.
Recent Accounting Standards Adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 U.S. 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 adopted this ASU effective April 4, 2021 and the impact of adoption was not material to the Company’s financial position, results of operations or liquidity.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this ASU simplify the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. This ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted this ASU in fiscal 2022.
The adoption of this ASU did not have a material
impact on our financial position, results of operations or liquidity. Adoption of this ASU did simplify the accounting of the
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.
7
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 October 2, 2021 and September 26, 2020 are as follows:
Principal End Markets
| Three Months Ended | ||||||||||||||||||||||||
| October 2, 2021 | September 26, 2020 | |||||||||||||||||||||||
| Aerospace | Industrial | Total | Aerospace | Industrial | Total | |||||||||||||||||||
| Plain | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Roller | ||||||||||||||||||||||||
| Ball | ||||||||||||||||||||||||
| Engineered Products | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Six Months Ended | ||||||||||||||||||||||||
| October 2, 2021 | September 26, 2020 | |||||||||||||||||||||||
| Aerospace | Industrial | Total | Aerospace | Industrial | Total | |||||||||||||||||||
| Plain | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Roller | ||||||||||||||||||||||||
| Ball | ||||||||||||||||||||||||
| Engineered Products | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
8
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of
orders meeting the definition of a contract for which work has not been performed or has been partially performed and excludes unexercised
contract options. The duration of the majority of our contracts, as defined by ASC Topic 606, is less than one year. The Company has elected
to apply the practical expedient, which allows companies to exclude remaining performance obligations with an original expected duration
of one year or less. 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 $
Contract Balances
The timing of revenue recognition, invoicing and cash collections affect accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the consolidated balance sheets. These assets and liabilities are reported on the consolidated balance sheets on an individual contract basis at the end of each reporting period.
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.
As of October 2, 2021 and April 3, 2021, current contract assets were
$
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.
As of October 2, 2021 and April 3, 2021, current contract liabilities were
$
As of October 2, 2021 and
April 3, 2021, noncurrent contract liabilities were $
Accounts Receivable
- As of October 2, 2021 and April 3, 2021, accounts receivable with customers, net, were $
9
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 April 3, 2021 | $ | $ | ( | ) | $ | ( | ) | |||||
| Other comprehensive income (loss) before reclassifications | — | |||||||||||
| Amounts recorded in/reclassified from accumulated other comprehensive income (loss) | ||||||||||||
| Net current period other comprehensive income (loss) | ||||||||||||
| Balance at October 2, 2021 | $ | $ | ( | ) | $ | ( | ) | |||||
5. Stockholders’ Equity
Preferred Stock
We are authorized to issue
On September 24, 2021, we
completed an offering of
As of October 2, 2021, the MCPS had an aggregate
liquidation preference of $
Holders of MCPS are entitled to receive, when,
as and if declared by our Board of Directors, or an authorized committee thereof, out of funds legally available for payment, cumulative
dividends at the annual rate of
Subject to certain exceptions, no dividend or
distribution will be declared or paid on shares of our common stock, and no common stock will be purchased, redeemed or otherwise acquired
for consideration by us or any of our subsidiaries unless, in each case, all accumulated and unpaid dividends for all preceding dividend
periods have been declared and paid, or a sufficient amount of cash or number of shares of common stock has been set apart for the payment
of such dividends, on all outstanding shares of MCPS. In the event of our voluntary or involuntary liquidation, winding-up or dissolution,
no distribution of our assets may be made to holders of our common stock until we have paid holders of MCPS, each of which will be entitled
to receive a liquidation preference in the amount of $
Unless earlier converted or redeemed, each share of MCPS will automatically
convert, for settlement on or about October 15, 2024, into between
10
Common Stock
We are authorized to issue
On September 24, 2021, we
completed an offering of
The net proceeds from the offering were approximately $
6. Net Income Per Share Available to Common Stockholders
Basic net income per share available to common stockholders is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding.
Diluted net income per share available to common stockholders is computed by dividing net income available to common stockholders by the sum of the weighted-average number of common shares and dilutive common share equivalents then outstanding using the treasury stock method. Common share equivalents consist of the incremental common shares issuable upon the exercise of stock options and conversion common stock shares of MCPS.
We exclude outstanding stock options, stock awards and the MCPS from the calculations if the effect would be anti-dilutive. The dilutive effect of the MCPS is calculated using the if-converted method. The if-converted method assumes that these securities were converted to shares of common stock at the later of the September 24, 2021 issuance date or the beginning of the reporting period to the extent that the effect is dilutive. If the effect is anti-dilutive, we calculate net income per share available to common stockholders by adjusting net income in the numerator for the effect of the cumulative MCPS dividends for the respective period.
For the three- and six-month periods ended October 2, 2021, the effect of assuming the conversion of the
For the three months
ended October 2, 2021,
11
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 share available to common stockholders:
| Three Months Ended | Six Months Ended | |||||||||||||||
October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Preferred stock dividends | ||||||||||||||||
| Net income available to common stockholders | $ | $ | $ | $ | ||||||||||||
| Denominator for basic net income per share available to common stockholders — weighted-average shares outstanding | ||||||||||||||||
| Effect of dilution due to employee stock awards | ||||||||||||||||
| Effect of dilution due to MCPS | ||||||||||||||||
| Denominator for diluted net income per share available to common stockholders — weighted-average shares outstanding | ||||||||||||||||
| Basic net income per share available to common stockholders | $ | $ | $ | $ | ||||||||||||
| Diluted net income per share available to common stockholders | $ | $ | $ | $ | ||||||||||||
7. Cash and Cash Equivalents
The Company considers all
highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains its
cash accounts primarily with Bank of America, N.A., Credit Suisse Group AG and Wells Fargo & Company. The domestic balances are insured
by the Federal Deposit Insurance Company up to $
During the second quarter of fiscal 2022, the Company sold all of its remaining short-term marketable securities to fund a portion of the cash purchase price for the acquisition of Dodge, to pay acquisition-related fees and expenses, and for other general corporate purposes. The resulting gain on sale was immaterial.
8. Inventory
Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out method, and are summarized below:
October 2, 2021 | April 3, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
9. Debt
The balances payable under all borrowing facilities are as follows:
October 2, 2021 | April 3, 2021 | |||||||
| Revolver and term loan facilities | $ | $ | ||||||
| Debt issuance costs | ( | ) | ( | ) | ||||
| Other | ||||||||
| Total debt | ||||||||
| Less: current portion | ||||||||
| Long-term debt | $ | $ | ||||||
The current portion of long-term debt as of October 2, 2021 included the current portion of the Schaublin mortgage. The current portion of long-term debt as of April 3, 2021 included the current portion of the Foreign Term Loan and the Schaublin mortgage.
12
Domestic Credit Facility
The Company’s credit agreement with Wells Fargo Bank, National
Association (“Wells Fargo”), as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer, and
the other lenders party thereto (the “2015 Credit Agreement”) provides the Company with a $
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. As of October 2, 2021, the Company’s margin was 0.00% for base rate loans and 0.75% for LIBOR loans.
The Company’s domestic subsidiaries have guaranteed the Company’s obligations under the 2015 Credit Agreement, and the Company’s obligations and the domestic subsidiaries’ guaranty are secured by a pledge of substantially all of the domestic assets of the Company and its domestic subsidiaries.
As of October 2, 2021, approximately
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 (i) finance the acquisition of Swiss Tool, and (ii) provide future working
capital. The Foreign Credit Agreements provided Schaublin with a CHF
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
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.
13
As of October 2, 2021, there was approximately $
Schaublin’s required
future principal payments are approximately $
Other Notes Payable
In 2012 Schaublin purchased
the land and building that it occupies for approximately $
The Company’s required
future principal payments are approximately $
10. 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 March 31, 2018.
The effective income tax
rates for the three-month periods ended October 2, 2021 and September 26, 2020 were
The effective income tax rate for the three-month period ended October
2, 2021 of 40.5% includes $
Income tax expense for the
six-month period ended October 2, 2021 was $
14
11. 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
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 | |||||||||||||||
October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||
| Net External Sales | ||||||||||||||||
| Plain | $ | $ | $ | $ | ||||||||||||
| Roller | ||||||||||||||||
| Ball | ||||||||||||||||
| Engineered Products | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Gross Margin | ||||||||||||||||
| Plain | $ | $ | $ | $ | ||||||||||||
| Roller | ||||||||||||||||
| Ball | ||||||||||||||||
| Engineered Products | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Selling, General & Administrative Expenses | ||||||||||||||||
| Plain | $ | $ | $ | $ | ||||||||||||
| Roller | ||||||||||||||||
| Ball | ||||||||||||||||
| Engineered Products | ||||||||||||||||
| Corporate | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Operating Income | ||||||||||||||||
| Plain | $ | $ | $ | $ | ||||||||||||
| Roller | ||||||||||||||||
| Ball | ||||||||||||||||
| Engineered Products | ||||||||||||||||
| Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| $ | $ | $ | $ | |||||||||||||
| Intersegment Sales | ||||||||||||||||
| Plain | $ | $ | $ | $ | ||||||||||||
| Roller | ||||||||||||||||
| Ball | ||||||||||||||||
| Engineered Products | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
All intersegment sales are eliminated in consolidation.
15
12. Subsequent Events
On November 1, 2021, the
Company completed the acquisition of Dodge for approximately $
With headquarters in Greenville, South Carolina, Dodge is a leading manufacturer of mounted bearings and mechanical products with market-leading brand recognition. Dodge manufactures a complete line of mounted bearings, enclosed gearing and power transmission components across a diverse set of industrial end markets. Dodge primarily operates across the construction and mining aftermarket, and the food & beverage, warehousing and general machinery verticals, with sales predominately in the Americas.
When the Company entered into
the Dodge acquisition agreement in July 2021, its obligation to pay the purchase price was supported by a $
On October 7, 2021, Roller
Bearing Company of America, Inc. (“RBCA”), a wholly-owned subsidiary of our top holding company RBC Bearings Incorporated,
issued $
On November 1, 2021 RBC Bearings
and RBCA entered into a Credit Agreement (the “New Credit Agreement”) with Wells Fargo, as Administrative Agent, Collateral
Agent, Swingline Lender and Letter of Credit Issuer and the other lenders party thereto, and terminated the 2015 Credit Agreement. The
New Credit Agreement provides the Company with
| Date | Term Loan Facility Repayment Amount | |||
| March 31, 2022 | % | |||
| June 30, 2022 | % | |||
| September 30, 2022 | % | |||
| December 31, 2022 | % | |||
| March 31, 2023 | % | |||
| June 30, 2023 | % | |||
| September 30, 2023 | % | |||
| December 31, 2023 | % | |||
| March 31, 2024 | % | |||
| June 30, 2024 | % | |||
| September 30, 2024 | % | |||
| December 31, 2024 | % | |||
| March 31, 2025 | % | |||
| June 30, 2025 | % | |||
| September 30, 2025 | % | |||
| December 31, 2025 | % | |||
| March 31, 2026 | % | |||
| June 30, 2026 | % | |||
| September 30, 2026 | % | |||
| November 2, 2026 | ||||
At November 1, 2021, the Company
had $
16
The New Credit Agreement requires the Company to comply with various covenants, including the following financial covenants beginning with the test period ending December 31, 2021: (a) a maximum Total Net Leverage Ratio of 5.50:1.00, which maximum Total Net Leverage Ratio shall decrease during certain subsequent test periods as set forth in the New Credit Agreement (provided that, no more than once during the term of the Facilities, such maximum ratio applicable at such time may be increased by the Borrower by 0.50:1.00 for a period of twelve (12) months after the consummation of a material acquisition), and (b) a minimum Interest Coverage Ratio of 2.00:1.00.
The New Credit Agreement allows the Company to, among other things, make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the New Credit Agreement.
The Company is currently performing procedures to determine the Dodge purchase price allocation and estimating the fair value of tangible and intangible assets acquired and liabilities assumed in connection with the Dodge acquisition. The initial fair value estimates will be recorded in the third quarter of fiscal 2022.
Acquisition and financing
costs incurred in the second quarter of fiscal 2022 totaled $
17
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement as to Forward-Looking Information
The objective of the discussion and analysis is to provide material information relevant to an assessment of the financial condition and results of operations of the registrant including an evaluation of the amounts and certainty of cash flows from operations and from outside sources.
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 have been and are likely to continue 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 (such as Dodge) or that we may acquire in the future may have liabilities that 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; (bb) our quarterly performance can be affected by the timing of government product inspections and approvals; (cc) we may not be able to efficiently integrate Dodge into our operations; and (dd) we may fail to realize some or all of the anticipated benefits of the Dodge acquisition or those benefits may take longer to realize than expected; (ee) we incurred substantial debt in order to complete the Dodge acquisition, which could constrain our business and exposes us to the risk of defaults under our debt instruments; and (ff) increases in interest rates would increase the cost of servicing Term Loan Facility and could reduce our profitability. 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 April 3, 2021. 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.
18
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 30 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 consist of highly engineered hydraulics, fasteners, collets, tool holders 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, agricultural machinery manufacturers, construction, energy, mining and specialized equipment manufacturers, and 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 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. |
19
| ● | 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 October 2, 2021 increased 10.0% compared to the same period last fiscal year. The increase in net sales was a result of a 31.1% increase in our industrial markets offset by a 4.4% decrease in our aerospace markets. The increase in industrial sales was driven by increases in the mining, energy, marine and general industrial markets. The decrease in aerospace sales was experienced primarily in our commercial OEM markets. Our backlog, as of October 2, 2021, was $456.7 million compared to $394.8 million as of April 3, 2021.
Our sales to industrial markets experienced growth of 31.1% in the second quarter of fiscal 2022 as compared to the same three-month period last year. This continued the growth we experienced in the first quarter of fiscal 2022. Sales to industrial markets were up 31.0% as compared to the same six-month period last year. We have experienced growth across most of our industrial products both to OEM and distribution customers. The general economic environment, both domestic and international, has led to sustained strength in our industrial order book which we expect to continue through the remainder of fiscal 2022.
The COVID-19 health crisis continues to impact our commercial aerospace sales in fiscal 2022 as a result of build rate changes within the industry. The commercial aerospace OEM market and aftermarket have been impacted by reduced air travel and changes in production rates but are expected to improve in the fourth quarter of the fiscal year.
On November 1, 2021, subsequent to the end of the quarter, RBC completed the acquisition of Dodge. The results of this business will be reflected in our results starting in the third quarter of fiscal 2022. Dodge operates in the industrial market, with a significant amount of their sales directed to customers in industrial distribution. Including the positive impact of this acquisition, the Company expects net sales to be approximately $245.0 million to $255.0 million in the third quarter of fiscal 2022.
We experienced strong cash flow generation during the second quarter of fiscal 2022 (as discussed in the section “Liquidity and Capital Resources” below). With the addition of Dodge, we expect this trend to continue throughout the fiscal year as customer demand continues to be significant. We believe that operating cash flows and available credit under the Revolving Credit Facility and Foreign Revolver will provide adequate resources to fund internal growth initiatives for the foreseeable future, including at least the next 12 months. For further discussion regarding the funding of the Dodge acquisition, refer to Part I, Item 1 – Notes 5 and 12. As of October 2, 2021, we had cash and cash equivalents of $1,348.6 million of which approximately $9.6 million was cash held by our foreign operations. As discussed within Part I, Item 1 – Note 12, approximately $1,100.0 million of this was used for the acquisition of Dodge on November 1, 2021.
Results of Operations
(dollars in millions)
| Three Months Ended | ||||||||||||||||
October 2, 2021 | September 26, 2020 | $ Change | % Change | |||||||||||||
| Total net sales | $ | 160.9 | $ | 146.3 | $ | 14.6 | 10.0 | % | ||||||||
| Net income | $ | 6.9 | $ | 20.4 | $ | (13.5 | ) | (66.1 | )% | |||||||
| Net income per share available to common stockholders: diluted | $ | 0.25 | $ | 0.82 | ||||||||||||
| Weighted average common shares: diluted | 25,775,794 | 24,957,158 | ||||||||||||||
20
Our net sales for the three-month period ended October 2, 2021 increased 10.0% compared to the same period last fiscal year. The increase in net sales was a result of a 31.1% increase in our industrial markets partially offset by a 4.4% decrease in our aerospace markets. The increase in industrial sales was driven by the mining, energy, marine and general industrial markets. The decrease in aerospace sales was primarily due to the commercial OEM markets, which decreased by 7.7% as compared to the same three-month period last year.
Net income for the second quarter of fiscal 2022 was $6.9 million compared to $20.4 million for the same period last year. Net income for the second quarter of fiscal 2022 was affected by approximately $13.0 million of after-tax costs associated with the acquisition of Dodge, $1.5 million of after-tax restructuring costs primarily associated with consolidation efforts at one of our domestic manufacturing facilities, and $2.0 million of discrete tax expense primarily associated with establishing a valuation allowance on a prior loss carryforward. These costs were partially offset by $0.1 million of tax benefits associated with share-based compensation. 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.
| Six Months Ended | ||||||||||||||||
October 2, 2021 | September 26, 2020 | $ Change | % Change | |||||||||||||
| Total net sales | $ | 317.1 | $ | 302.8 | $ | 14.3 | 4.7 | % | ||||||||
| Net income | $ | 32.9 | $ | 43.1 | $ | (10.2 | ) | (23.6 | )% | |||||||
| Net income per share available to common stockholders: diluted | $ | 1.27 | $ | 1.73 | ||||||||||||
| Weighted average common shares: diluted | 25,544,088 | 24,944,608 | ||||||||||||||
Net sales increased $14.3 million, or 4.7% for the six-month period ended October 2, 2021 over the same period last year. The increase in net sales was mainly the result of a 31.0% increase in industrial sales partially offset by an 11.8% decrease in aerospace sales. The increase in industrial sales was primarily due to mining, energy, and general industrial markets. The decrease in aerospace sales was realized in both our commercial and defense markets over the six-month period.
Net income for the six months ended October 2, 2021 was $32.9 million compared to $43.1 million for the same period last year. Net income for the six-month period in fiscal 2022 was affected by approximately $13.0 million of after-tax costs associated with the acquisition of Dodge, $2.0 million of after-tax restructuring costs, and $2.0 million of discrete tax expense primarily associated with establishing a valuation allowance on a prior loss carryforward. These costs were partially offset by $2.2 million of tax benefits associated with share-based compensation and $0.2 million of other discrete tax benefits. Net income of $43.1 million 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.
Gross Margin
| Three Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$ Change |
%
Change |
|||||||||||||
| Gross Margin | $ | 62.5 | $ | 56.6 | $ | 5.9 | 10.4 | % | ||||||||
| % of net sales | 38.8 | % | 38.7 | % | ||||||||||||
21
Gross margin was 38.8% of net sales for the second quarter of fiscal 2022 compared to 38.7% for the second quarter of fiscal 2021. Gross margin for the second quarter of fiscal 2022 was impacted by approximately $0.9 million of restructuring costs associated with consolidation efforts at one of our domestic facilities. Gross margin for the second quarter of fiscal 2022 included $2.0 million in inventory rationalization costs associated with the consolidation of two manufacturing facilities.
| Six Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26, 2020 |
$ Change |
%
Change |
|||||||||||||
| Gross Margin | $ | 126.2 | $ | 116.0 | $ | 10.2 | 8.8 | % | ||||||||
| % of net sales | 39.8 | % | 38.3 | % | ||||||||||||
Gross margin was 39.8% of net sales for the first six months of fiscal 2022 compared to 38.3% for the same period last year. Gross margin for the six-month period of fiscal 2022 was impacted by approximately $0.9 million of restructuring costs associated with consolidation efforts at one of our domestic facilities. Gross margin for the six-month period of fiscal 2021 was 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. The increase in gross margin year over year was primarily the result of cost efficiencies achieved through recent restructuring and consolidation efforts made throughout the Company.
Selling, General and Administrative
| Three Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$ Change |
%
Change |
|||||||||||||
| SG&A | $ | 29.7 | $ | 26.0 | $ | 3.7 | 14.0 | % | ||||||||
| % of net sales | 18.4 | % | 17.8 | % | ||||||||||||
SG&A for the second quarter of fiscal 2022 was $29.7 million, or 18.4% of net sales, as compared to $26.0 million, or 17.8% of net sales, for the same period of fiscal 2021. This increase was due to $2.4 million of additional personnel costs, $1.0 million of additional share-based compensation, and $0.3 million of other items.
| Six Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$
Change |
%
Change |
|||||||||||||
| SG&A | $ | 59.5 | $ | 52.9 | $ | 6.6 | 12.5 | % | ||||||||
| % of net sales | 18.8 | % | 17.5 | % | ||||||||||||
SG&A expenses increased by $6.6 million to $59.5 million for the first six months of fiscal 2022 compared to $52.9 million for the same period last year. This increase was due to $4.8 million of additional personnel costs, $1.3 million additional share-based compensation, and $0.5 million of other items.
22
Other, Net
| Three Months Ended | ||||||||||||||||
| October
2, 2021 |
September
26, 2020 |
$
Change |
%
Change |
|||||||||||||
| Other, net | $ | 5.7 | $ | 4.2 | $ | 1.5 | 34.6 | % | ||||||||
| % of net sales | 3.5 | % | 2.9 | % | ||||||||||||
Other operating expenses for the second quarter of fiscal 2022 totaled $5.7 million compared to $4.2 million for the same period last year. For the second quarter of fiscal 2022, other operating expenses included $1.1 million of restructuring costs and related items, $2.8 million of amortization of intangible assets, $1.4 million of costs associated with the acquisition of Dodge and $0.4 million of other costs. 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.
| Six Months Ended | ||||||||||||||||
| October
2, 2021 |
September
26, 2020 |
$ Change |
%
Change |
|||||||||||||
| Other, net | $ | 8.9 | $ | 8.0 | $ | 0.9 | 11.2 | % | ||||||||
| % of net sales | 2.8 | % | 2.6 | % | ||||||||||||
Other operating expenses for the first six months of fiscal 2022 totaled $8.9 million compared to $8.0 million for the same period last year. For the first six months of fiscal 2022, other operating expenses were comprised mainly of $5.4 million in amortization of intangibles, $1.6 million of restructuring and related items, $1.4 million of costs associated with the acquisition of Dodge, and $0.5 million of other items. 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.
Interest Expense, Net
| Three Months Ended | ||||||||||||||||
| October
2, 2021 |
September
26, 2020 |
$
Change |
%
Change |
|||||||||||||
| Interest expense, net | $ | 15.8 | $ | 0.3 | $ | 15.5 | 4,497.7 |
% | ||||||||
| % of net sales | 9.8 | % | 0.2 | % | ||||||||||||
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 $15.8 million for the second quarter of fiscal 2022 compared to $0.3 million for the same period last year. During the second quarter, the Company incurred approximately $15.5 million in costs associated with the amortization of fees for a bridge financing commitment established in association with the Dodge acquisition. Subsequent to the end of the quarter, this commitment was replaced with the permanent financings discussed in Notes 5 and 12 of Part 1, Item 1 above.
23
| Six Months Ended | ||||||||||||||||
| October
2, 2021 |
September
26, 2020 |
$ Change |
% Change |
|||||||||||||
| Interest expense, net | $ | 16.1 | $ | 0.8 | $ | 15.3 | 1,994.9 |
% | ||||||||
| % of net sales | 5.1 | % | 0.3 | % | ||||||||||||
Interest expense, net was $16.1 million for the first six months of fiscal 2022 compared to $0.8 million for the first six months of fiscal 2021. During the six months ended October 2, 2021 the Company incurred approximately $15.5 million in costs associated with the amortization of fees for a bridge financing commitment established in association with the Dodge acquisition. Subsequent to the end of the second quarter, this commitment was replaced with the permanent financings discussed in Notes 5 and 12 of Part 1, Item 1 above.
Other Non-operating Expense
| Three Months Ended | ||||||||||||||||
| October
2, 2021 |
September
26, 2020 |
$ Change |
% Change |
|||||||||||||
| Other non-operating expense | $ | (0.3 | ) | $ | 0.2 | $ | (0.5 | ) | (237.9 | )% | ||||||
| % of net sales | (0.2 | )% | 0.1 | % | ||||||||||||
Other non-operating expenses were $(0.3) million for the second quarter of fiscal 2022 compared to $0.2 million for the same period in the prior year. For the second quarter of fiscal 2022, other non-operating expenses were comprised of $0.5 million of income associated with short-term marketable securities partially offset by $0.1 million of foreign exchange loss and $0.1 million of other items. 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.
| Six Months Ended | ||||||||||||||||
| October
2, 2021 |
September
26, 2020 |
$ Change |
% Change |
|||||||||||||
| Other non-operating expense | $ | (0.8 | ) | $ | 0.3 | $ | (1.1 | ) | (398.8 | )% | ||||||
| % of net sales | (0.2 | )% | 0.1 | % | ||||||||||||
Other non-operating expenses were $(0.8) million for the first six months of fiscal 2022 compared to $0.3 million for the same period in the prior year. For the first six months of fiscal 2022, other non-operating expenses were comprised of $1.2 million of income associated with short-term marketable securities partially offset by $0.1 million of foreign exchange loss and $0.3 million of other items. 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.
Income Taxes
| Three Months Ended | ||||||||
| October
2, 2021 |
September 26, 2020 |
|||||||
| Income tax expense | $ | 4.7 | $ | 5.4 | ||||
| Effective tax rate | 40.5 | % | 20.9 | % | ||||
24
Income tax expense for the three-month period ended October 2, 2021 was $4.7 million compared to $5.4 million for the three-month period ended September 26, 2020. Our effective income tax rate for the three-month period ended October 2, 2021 was 40.5% compared to 20.9% for the three-month period ended September 26, 2020. The effective income tax rate for the three-month period ended October 2, 2021 of 40.5% included $2.0 million of discrete tax expense primarily associated with establishing a valuation allowance on a prior loss carryforward partially offset by $0.1 million of tax benefits associated with share-based compensation; the effective income tax rate without these items would have been 24.5%. The effective income tax rate for the three-month period ended September 26, 2020 of 20.9% included $0.4 million of tax benefits associated with share-based compensation; the effective income tax rate without these benefits would have been 22.0%.
| Six Months Ended | ||||||||
| October
2, 2021 |
September 26,
2020 |
|||||||
| Income tax expense | $ | 9.6 | $ | 11.0 | ||||
| Effective tax rate | 22.5 | % | 20.4 | % | ||||
Income tax expense for the six-month period ended October 2, 2021 was $9.6 million compared to $11.0 million for the six-month period ended September 26, 2020. Our effective income tax rate for the six-month period ended October 2, 2021 was 22.5% compared to 20.4% for the six-month period ended September 26, 2020. The effective income tax rate for the six-month period ended October 2, 2021 of 22.5% included $2.2 million of tax benefits associated with share-based compensation partially offset by $2.0 million of discrete tax expense primarily associated with establishing a valuation allowance on a loss carryforward; the effective income tax rate without these benefits would have been 23.6%. The effective income tax rate for the six-month period ended September 26, 2020 of 20.4% included $0.7 million of tax benefits associated with share-based compensation; the effective income tax rate without these benefits would have been 21.6%.
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 | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$
Change |
%
Change |
|||||||||||||
| Total net sales | $ | 74.1 | $ | 71.1 | $ | 3.0 | 4.3 | % | ||||||||
| Gross margin | $ | 28.0 | $ | 29.8 | $ | (1.8 | ) | (6.0 | )% | |||||||
| % of segment net sales | 37.7 | % | 41.9 | % | ||||||||||||
| SG&A | $ | 5.9 | $ | 5.3 | $ | 0.6 | 12.7 | % | ||||||||
| % of segment net sales | 8.0 | % | 7.4 | % | ||||||||||||
Net sales increased $3.0 million, or 4.3%, for the three months ended October 2, 2021 compared to the same period last year. The 4.3% increase was primarily driven by a 22.8% increase in the industrial markets partially offset by a decrease of 3.0% in our aerospace markets. The increase in industrial net sales was mostly driven by the general industrial markets to both OEM and distribution customers. The decrease in aerospace net sales was due to the commercial aerospace OEM market and aftermarket.
25
Gross margin as a percentage of segment net sales was 37.7% for the second quarter of fiscal 2022 compared to 41.9% for the same period last year. Gross margin for the three-month period ended October 2, 2021 was impacted by approximately $0.9 million of inventory rationalization costs as part of a restructuring effort at one of our domestic facilities. The decrease in gross margin as a percentage of net sales was also impacted by product mix.
| Six Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$
Change |
%
Change |
|||||||||||||
| Total net sales | $ | 147.4 | $ | 149.9 | $ | (2.5 | ) | (1.7 | )% | |||||||
| Gross margin | $ | 59.5 | $ | 61.8 | $ | (2.3 | ) | (3.8 | )% | |||||||
| % of segment net sales | 40.4 | % | 41.2 | % | ||||||||||||
| SG&A | $ | 11.8 | $ | 10.5 | $ | 1.3 | 12.2 | % | ||||||||
| % of segment net sales | 8.0 | % | 7.0 | % | ||||||||||||
Net sales decreased $2.5 million, or 1.7%, for the six months ended October 2, 2021 compared to the same period last year. The 1.7% decrease was primarily driven by a decrease of 10.8% in our aerospace markets offset by a 23.8% increase in the industrial markets. The decrease in aerospace was primarily due to both the commercial and defense markets. The increase in industrial sales was mostly driven by the general industrial markets to both OEM and distribution customers.
Gross margin as a percentage of net sales decreased to 40.4% for the first six months of fiscal 2022 compared to 41.2% for the same period last year. Gross margin for the six-month period ended October 2, 2021 was impacted by approximately $0.9 million of inventory rationalization costs as part of a restructuring effort at one of our domestic facilities.
Roller Bearings Segment
| Three Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$
Change |
%
Change |
|||||||||||||
| Total net sales | $ | 27.3 | $ | 21.6 | $ | 5.7 | 26.6 | % | ||||||||
| Gross margin | $ | 10.1 | $ | 6.2 | $ | 3.9 | 62.4 | % | ||||||||
| % of segment net sales | 37.1 | % | 28.9 | % | ||||||||||||
| SG&A | $ | 1.5 | $ | 1.2 | $ | 0.3 | 26.1 | % | ||||||||
| % of segment net sales | 5.4 | % | 5.4 | % | ||||||||||||
Net sales increased $5.7 million, or 26.6%, for the three months ended October 2, 2021 compared to the same period last year. Our industrial markets increased by 68.9% while our aerospace markets decreased 16.7%. The increase in industrial net sales was primarily due to the mining, class 8 truck, energy, and general industrial markets. The decrease in aerospace was driven by the commercial and defense OEM and aftermarkets.
26
Gross margin for the three months ended October 2, 2021 was 37.1% of net sales, compared to 28.9% in the comparable period in fiscal 2021. This increase in the gross margin as a percentage of net sales was primarily due to $2.0 million in inventory rationalization costs incurred in fiscal 2021 associated with the consolidation of two manufacturing facilities and decreased volumes during the period.
| Six Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$
Change |
%
Change |
|||||||||||||
| Total net sales | $ | 52.6 | $ | 44.5 | $ | 8.1 | 18.2 | % | ||||||||
| Gross margin | $ | 19.2 | $ | 14.6 | $ | 4.6 | 31.4 | % | ||||||||
| % of segment net sales | 36.6 | % | 32.9 | % | ||||||||||||
| SG&A | $ | 2.8 | $ | 2.4 | $ | 0.4 | 17.6 | % | ||||||||
| % of segment net sales | 5.4 | % | 5.4 | % | ||||||||||||
Net sales increased $8.1 million, or 18.2%, for the six months ended October 2, 2021 compared to the same period last year. Our industrial markets increased 69.5% while our aerospace markets decreased by 26.0%. The increase in industrial sales was primarily due to mining, energy, class 8 truck 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 October 2, 2021 was 36.6% of net sales, compared to 32.9% in the comparable period in fiscal 2021. This increase in the gross margin as a percentage of net sales was primarily due to $2.0 million in inventory rationalization costs incurred in fiscal 2021 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 | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$ Change |
%
Change |
|||||||||||||
| Total net sales | $ | 24.4 | $ | 21.1 | $ | 3.3 | 15.8 | % | ||||||||
| Gross margin | $ | 11.1 | $ | 9.1 | $ | 2.0 | 21.5 | % | ||||||||
| % of segment net sales | 45.4 | % | 43.3 | % | ||||||||||||
| SG&A | $ | 1.6 | $ | 1.3 | $ | 0.3 | 24.9 | % | ||||||||
| % of segment net sales | 6.6 | % | 6.1 | % | ||||||||||||
Net sales increased by $3.3 million for the second quarter of fiscal 2022 compared to the same period last year. Our aerospace markets increased 9.8% while our industrial sales increased 19.0%. The increase in aerospace net sales was primarily driven by the defense markets. The increase in industrial was primarily due to the general industrial markets.
27
Gross margin as a percentage of net sales was 45.4% for the second quarter of fiscal 2022 as compared to 43.3% for the same period last year. The increase in gross margin year over year is a result of product mix during the period.
| Six Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$
Change |
%
Change |
|||||||||||||
| Total net sales | $ | 47.6 | $ | 39.9 | $ | 7.7 | 19.1 | % | ||||||||
| Gross margin | $ | 21.8 | $ | 17.1 | $ | 4.7 | 27.7 | % | ||||||||
| % of segment net sales | 45.8 | % | 42.7 | % | ||||||||||||
| SG&A | $ | 3.3 | $ | 2.6 | $ | 0.7 | 23.4 | % | ||||||||
| % of segment net sales | 6.8 | % | 6.6 | % | ||||||||||||
Net sales increased $7.7 million, or 19.1% for the six months ended October 2, 2021 compared to the same period last year. Our industrial market sales increased 26.2% while sales to our aerospace markets increased 6.3%. The increase in industrial was primarily due to the general industrial market to both distribution and OEM customers. The increase in aerospace net sales was primarily driven by the defense markets.
Gross margin as a percentage of net sales increased to 45.8% for the six months ended October 2, 2021 compared to 42.7% for the same period last year. The decrease was primarily due to increased sales during the period.
Engineered Products Segment
| Three Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$ Change |
%
Change |
|||||||||||||
| Total net sales | $ | 35.1 | $ | 32.6 | $ | 2.5 | 7.6 | % | ||||||||
| Gross margin | $ | 13.3 | $ | 11.5 | $ | 1.8 | 15.8 | % | ||||||||
| % of segment net sales | 37.9 | % | 35.2 | % | ||||||||||||
| SG&A | $ | 4.2 | $ | 3.8 | $ | 0.4 | 10.1 | % | ||||||||
| % of segment net sales | 12.0 | % | 11.8 | % | ||||||||||||
Net sales increased $2.5 million, or 7.6%, for the second quarter of fiscal 2022 compared to the same period last year. Our industrial markets increased 25.8% while our aerospace markets decreased 6.9%. The increase in our industrial net sales was driven by the marine, machine tools and general industrial markets. The decrease in aerospace net sales was primarily driven by the commercial and defense OEM markets.
28
Gross margin as a percentage of net sales was 37.9% for the second quarter of fiscal 2022 compared to 35.2% for the same period last year. This increase, period over period, was primarily attributable to product mix and realization of benefit from recent consolidation and restructuring efforts.
| Six Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$
Change |
%
Change |
|||||||||||||
| Total net sales | $ | 69.6 | $ | 68.5 | $ | 1.1 | 1.6 | % | ||||||||
| Gross margin | $ | 25.7 | $ | 22.5 | $ | 3.2 | 14.2 | % | ||||||||
| % of segment net sales | 37.0 | % | 32.9 | % | ||||||||||||
| SG&A | $ | 8.5 | $ | 7.7 | $ | 0.8 | 10.8 | % | ||||||||
| % of segment net sales | 12.2 | % | 11.2 | % | ||||||||||||
Net sales increased $1.1 million, or 1.6%, for the six months ended October 2, 2021 compared to the same period last year. Our industrial sales increased 18.8% while our aerospace sales decreased 12.6%. The increase in industrial sales was driven by the machine tools and general industrial markets. The decrease in aerospace sales was primarily driven by the commercial and defense OEM markets.
Gross margin as a percentage of net sales increased to 37.0% for the six months ended October 2, 2021 compared to 32.9% for the same period last year. This increase was primarily attributable to the realization of cost efficiencies achieved through recent consolidation and restructuring efforts. 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 | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$
Change |
%
Change |
|||||||||||||
| SG&A | $ | 16.4 | $ | 14.5 | $ | 1.9 | 13.6 | % | ||||||||
| % of total net sales | 10.2 | % | 9.9 | % | ||||||||||||
Corporate SG&A increased $1.9 million, or 13.6%, for the second quarter of fiscal 2022 compared to the same period last year. This was primarily due to an increase of $1.0 million in personnel costs and $1.0 million of share-based compensation expenses, partially offset by $0.1 million of other items.
| Six Months Ended | ||||||||||||||||
| October
2, 2021 |
September 26,
2020 |
$ Change |
%
Change |
|||||||||||||
| SG&A | $ | 33.1 | $ | 29.6 | $ | 3.5 | 11.7 | % | ||||||||
| % of total net sales | 10.4 | % | 9.8 | % | ||||||||||||
Corporate SG&A increased $3.5 million for the six months ended October 2, 2021 compared to the same period last year due to an increase of $2.0 million in personnel costs, $1.3 million of share-based compensation expenses, and $0.2 million of other items.
29
Liquidity and Capital Resources
(dollars in millions in tables)
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 Revolving Credit Facility and Foreign Revolver will provide adequate resources to fund internal growth initiatives for the foreseeable future. For further discussion regarding the funding of the Dodge acquisition, refer to Part I, Item 1 – Notes 5 and 12.
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 October 2, 2021, we had cash and cash equivalents of $1,348.6 million, of which, approximately $9.6 million was cash held by our foreign operations. As discussed within Part I, Item 1 – Note 12, approximately $1,100.0 million of this was used for the acquisition of Dodge on November 1, 2021. We expect that our undistributed foreign earnings will be re-invested indefinitely for working capital, internal growth and acquisitions for and by our foreign subsidiaries.
Domestic Credit Facility
The Company’s credit agreement with Wells Fargo, as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer, and the other lenders party thereto (the “2015 Credit Agreement”) provides the Company with a $250.0 million revolving credit facility (the “Revolver”), which expires on January 31, 2024. As of October 2, 2021, $0.9 million in unamortized debt issuance costs remained.
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. As of October 2, 2021, the Company's margin was 0.00% for base rate loans and 0.75% for LIBOR loans.
The 2015 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 2015 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 2015 Credit Agreement. As of October 2, 2021, the Company was in compliance with all such covenants.
The Company’s domestic subsidiaries have guaranteed the Company’s obligations under the 2015 Credit Agreement, and the Company’s obligations and the domestic subsidiaries’ guaranty are secured by a pledge of substantially all of the domestic assets of the Company and its domestic subsidiaries.
As of October 2, 2021, approximately $3.6 million of the Revolver was being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs, and the Company had the ability to borrow up to an additional $246.4 million under the Revolver as of October 2, 2021. On November 1, 2021, the 2015 Credit Agreement was terminated and replaced with the New Credit Agreement referred to below.
Our New Credit Agreement with Wells Fargo provides the Company with (a) the Term Loan Facility, a $1,300 million term loan facility that was used to fund a portion of the cash purchase price for the acquisition of Dodge and to pay related fees and expenses, and (b) the Revolving Credit Facility, a $500 million revolving credit facility. Amounts outstanding under the Facilities generally bear interest at either, at our option, (a) a base rate determined by reference to the higher of (i) Wells Fargo’s prime lending rate, (ii) the federal funds effective rate plus 1/2 of 1.00% and (iii) the one-month LIBOR rate plus 1.00% or (b) the LIBOR rate plus a specified margin, depending on the type of borrowing being made. The applicable margin is based on the Company’s consolidated ratio of total net debt to consolidated EBITDA from time to time. Currently, the Company’s margin is 0.75% for base rate loans and 1.75% for LIBOR rate loans. The Facilities are subject to a “LIBOR” floor of 0.00% and contain “hard-wired” LIBOR replacement provisions as set forth in the New Credit Agreement. The Term Loan Facility and the Revolving Credit Facility will mature on November 2, 2026 (the “Maturity Date”). The Company can elect to prepay some or all of the outstanding balance from time to time without penalty. Commencing one full fiscal quarter after the execution of the New Credit Agreement, the Term Loan Facility will amortize in quarterly installments as set forth in the schedule included in Note 12 of Part 1, Item 1, above, with the balance payable on the Maturity Date unless otherwise extended in accordance with the terms of the Term Loan Facility.
30
The New Credit Agreement requires the Company to comply with various covenants, including the following financial covenants beginning with the test period ending December 31, 2021: (a) a maximum Total Net Leverage Ratio of 5.50:1.00, which maximum Total Net Leverage Ratio shall decrease during certain subsequent test periods as set forth in the New Credit Agreement (provided that, no more than once during the term of the Facilities, such maximum ratio applicable at such time may be increased by the Borrower by 0.50:1.00 for a period of twelve (12) months after the consummation of a material acquisition), and (b) a minimum Interest Coverage Ratio of 2.00:1.00.
The Company’s domestic subsidiaries have guaranteed the Company’s obligations under the New Credit Agreement, and the Company’s obligations and the domestic subsidiaries’ guaranty are secured by a pledge of substantially all of the domestic assets of the Company and its domestic subsidiaries.
Approximately $3.6 million of the Revolving Credit Facility is being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs. The Company has the ability to borrow up to an additional $496.4 million under the Revolving Credit Facility as of November 1, 2021.
Foreign Term Loan and Revolving Credit Facility
Our Foreign Credit Agreements with Credit Suisse (Switzerland) Ltd. provided us with financing to acquire Swiss Tool in 2019 and provide future working capital for Schaublin, our foreign subsidiary. The Foreign Credit Agreements provide (a) the Foreign Term Loan, a CHF 15.0 million (approximately $15.4 million) term loan, which expires on July 31, 2024, and (b) the Foreign Revolver, a CHF 15.0 million (approximately $15.4 million) revolving credit facility, 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. As of October 2, 2021, approximately $0.1 million in unamortized debt issuance costs remain.
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 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 October 2, 2021, 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 October 2, 2021, there was approximately $3.1 million outstanding under the Foreign Term Loan and no amounts outstanding under the Foreign Revolver. Schaublin has the ability to borrow up to an additional $16.1 million under the Foreign Revolver as of October 2, 2021.
Schaublin’s required future principal payments are approximately $0 for the remainder of fiscal 2022, $0 for fiscal 2023 and fiscal 2024 and $3.1 million for fiscal 2025.
Other Notes Payable
In 2012 Schaublin purchased the land and building that it occupies 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 $5.0 million was paid from cash on hand. The balance on this mortgage as of October 2, 2021 was approximately $5.5 million and has been classified as Level 2 of the valuation hierarchy.
The Company’s required future principal payments are approximately $0.3 million for the remainder of fiscal 2022, $0.5 million for each year from fiscal 2023 through fiscal 2026 and $3.2 million thereafter.
On October 7, 2021, RBCA issued $500.0 million aggregate principal amount of 4.375% Senior Notes due 2029 (the “Notes”).
31
Cash Flows
Six-month Period Ended October 2, 2021 Compared to the Six-month Period Ended September 26, 2020
The following table summarizes our cash flow activities:
| FY22 | FY21 | $ Change |
||||||||||
| Net cash provided by (used in): | ||||||||||||
| Operating activities | $ | 93.5 | $ | 74.5 | $ | 19.0 | ||||||
| Investing activities | 83.6 | (5.8 | ) | 89.4 | ||||||||
| Financing activities | 1,020.3 | (5.5 | ) | 1,025.8 | ||||||||
| Effect of exchange rate changes on cash | 0.1 | (0.1 | ) | 0.2 | ||||||||
| Increase in cash and cash equivalents | $ | 1,197.5 | $ | 63.1 | $ | 1,134.4 | ||||||
During the first six months of fiscal 2022, we generated cash of $93.5 million from operating activities compared to $74.5 million of cash generated during the same period of fiscal 2021. The increase of $19.0 million for fiscal 2022 was mainly a result of the favorable impact of a net change in operating assets and liabilities of $14.0 million and a favorable change in non-cash charges of $15.2 million, offset by a decrease in net income of $10.2 million. The favorable change in operating assets and liabilities is detailed in the table below, while the increase in non-cash charges resulted from $15.5 million of amortization of deferred financing costs, $1.3 million of share-based compensation charges, and $0.3 million of amortization of intangible assets, partially offset by unfavorable changes of $1.1 million in deferred taxes, $0.3 million of depreciation, and $0.5 million of loss on disposition of assets.
The following chart summarizes the favorable change in operating assets and liabilities of $14.0 million for fiscal 2022 versus fiscal 2021 and the favorable change of $20.1 million for fiscal 2021 versus fiscal 2020.
| FY22 | FY21 | |||||||
| Cash provided by (used in): | ||||||||
| Accounts receivable | $ | (20.6 | ) | $ | 19.0 | |||
| Inventory | (2.2 | ) | 8.1 | |||||
| Prepaid expenses and other current assets | (9.3 | ) | 2.8 | |||||
| Other noncurrent assets | 5.6 | (5.1 | ) | |||||
| Accounts payable | 22.8 | (12.2 | ) | |||||
| Accrued expenses and other current liabilities | 18.1 | 1.6 | ||||||
| Other noncurrent liabilities | (0.4 | ) | 5.9 | |||||
| Total change in operating assets and liabilities: | $ | 14.0 | $ | 20.1 | ||||
During the first six months of fiscal 2022, we generated $83.6 million for investing activities as compared to $5.8 million used during the first six months of fiscal 2021. This increase in cash generated was attributable to the sale of $120.5 million of highly liquid marketable securities during the current period, partially offset by the purchase of $29.9 million of highly liquid marketable securities during the current period, a $0.9 million increase in capital expenditures, and a purchase price adjustment in fiscal 2021 related to the Swiss Tool acquisition of $0.3 million.
During the first six months of fiscal 2022, we generated $1,020.3 million for financing activities compared to $5.5 million used during the first six months of fiscal 2021. This increase in cash used was primarily attributable to $605.7 million proceeds received from the issuance of common stock during the current period, $445.5 million proceeds received from the issuance of preferred stock during the current period, and $14.4 million more exercises of share-based awards offset by $32.2 million of finance fees paid in connection with credit facilities and term loans in the current period, $5.6 million more payments made on outstanding debt and $2.0 million more treasury stock purchases.
Capital Expenditures
Our capital expenditures were $3.5 million and $6.9 million for the three- and six-month periods ended October 2, 2021, respectively. We expect to make additional capital expenditures of $10.0 to $15.0 million during the remainder of fiscal 2022 in connection with our existing business, excluding capital expenditures we may incur related to the acquisition of Dodge. 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.
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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 2021 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 2022 other than the following:
Valuation of Business Combinations
We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their fair values at the date of acquisition, including identifiable intangible assets, which either arise from a contractual or legal right or are separable from goodwill. We base the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. We allocate to goodwill any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Transaction costs associated with these acquisitions are expensed as incurred through other, net on the consolidated statements of operations.
Off-Balance Sheet Arrangements
As of October 2, 2021, we had no significant off-balance sheet arrangements other than $3.6 million of outstanding standby letters of credit, all of which were under the Revolver.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign currency exchange rates.
Interest Rates. We currently have variable rate debt outstanding under our credit agreements. We regularly evaluate the impact of interest rate changes on our net income and cash flow and take action to limit our exposure when appropriate.
Foreign Currency Exchange Rates. Our Swiss operations utilize the Swiss franc as the functional currency, our French and German operations utilize the euro as the functional currency and our Polish operations utilize the Polish zloty as the functional currency. As a result, we are exposed to risk associated with fluctuating currency exchange rates between the U.S. dollar and these currencies. Foreign currency transaction gains and losses are included in earnings. Approximately 9% of our net sales were impacted by foreign currency fluctuations for both the three- and six-month periods ended October 2, 2021 compared to 8% for both the three- and six-month periods ended September 26, 2020. Foreign currency transaction exposure arises primarily from the transfer of foreign currency from one subsidiary to another within the group, and to foreign currency denominated trade receivables. Unrealized currency translation gains and losses are recognized upon translation of the foreign operations’ balance sheets to U.S. dollars. Because our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our earnings. We periodically enter into derivative financial instruments in the form of forward exchange contracts to reduce the effect of fluctuations in exchange rates on certain third-party sales transactions denominated in non-functional currencies. Based on the accounting guidance related to derivatives and hedging activities, we record derivative financial instruments at fair value. For derivative financial instruments designated and qualifying as cash flow hedges, the effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income, and is reclassified into earnings when the hedged transaction affects earnings. As of October 2, 2021, we had no derivatives.
ITEM 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of October 2, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of October 2, 2021, our disclosure controls and procedures were (1) designed to ensure that information relating to our Company required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported to our Chief Executive Officer and Chief Financial Officer within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, and (2) effective, in that they provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the three-month period ended October 2, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, we are involved in litigation and administrative proceedings, which arise in the ordinary course of our business. We do not believe that any litigation or proceeding in which we are currently involved, either individually or in the aggregate, is likely to have a material adverse effect on our business, financial condition, operating results, cash flow or prospects.
ITEM 1A. Risk Factors
There have been no material changes to our risk factors and uncertainties since the most recent filing of our Form 10-K, besides those noted below. For a discussion of the risk factors, refer to Part I, Item 2, “Cautionary Statement as to Forward-Looking Information” contained in this quarterly report and Part I, Item 1A, “Risk Factors,” contained in the Company’s Annual Report on Form 10-K for the fiscal year ended April 3, 2021.
Quarterly performance can be affected by the timing of government product inspections and approvals.
A portion of our quarterly revenue is associated with contracts with the U.S. government that require onsite inspection and approval of the products by government personnel before we may ship the products, and we have no control over the timing of those inspections and approvals. If products scheduled for delivery in one quarter are not inspected or approved until the following quarter, the delay would adversely affect our sales and profitability for the quarter in which the shipments were scheduled.
We may fail to realize some or all of the anticipated benefits of the Dodge Acquisition or those benefits may take longer to realize than expected.
We believe that there are significant benefits and synergies to be realized through leveraging the products, scale and combined enterprise customer bases of RBC and Dodge. However, the efforts to realize these benefits and synergies will be a complex process and may disrupt both companies’ existing operations if not implemented in a timely and efficient manner. The full benefits of the Dodge acquisition, including any anticipated sales or growth opportunities, may not be realized as expected or may not be achieved within the time frames we anticipate, or at all. Any data on the expected synergies from the Dodge acquisition included in the unaudited pro forma condensed combined financial information that was included in our Current Report on Form 8-K filed with the SEC on September 20, 2021 is based on various adjustments, assumptions and preliminary estimates. Such data have not been prepared, reviewed or analyzed by a third-party and may not be an accurate indication of the actual synergies we will realize, if any, from the Dodge acquisition and the integration of Dodge into our business. Failure to achieve the anticipated benefits of the acquisition could adversely affect our results of operations or cash flows.
We may not be able to efficiently integrate Dodge into our operations.
The future success of the Dodge acquisition, including its anticipated benefits and cost savings, depends, in part, on our ability to optimize our operations and integrate Dodge, its systems, operations and personnel into our existing business. These activities will require time and involve dedication of various resources of the Company that would otherwise be dedicated to our existing operations. These integration efforts may accordingly adversely affect our other operations to the extent such efforts take resources or attention away from our other operations. If we experience difficulties in the integration process, the anticipated benefits of the Dodge acquisition may not be realized fully or at all, or may take longer to realize than expected, which could have an adverse effect on us for an undetermined period. There can be no assurance that we will realize the operational or financial gains from the Dodge acquisition that we anticipated when originally determining to acquire Dodge.
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Additional challenges, risks and uncertainties we may encounter as part of the integration process include the following:
| ● | we may face significant costs of integration and compliance with any laws or regulations applicable to Dodge or our combined company; |
| ● | we may experience delays in the integration of management teams, strategies, operations, products and services; |
| ● | there may be differences in business backgrounds, corporate cultures and management philosophies that may delay the successful integration of Dodge’s management personnel into our operations; |
| ● | we may be unable to retain key Dodge employees; |
| ● | we may not be able to create and enforce uniform standards, controls, procedures, policies and information systems across our combined company; |
| ● | we may face challenges in integrating complex systems, technology, networks and other assets of Dodge into our operations in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies; |
| ● | there may be potential unknown liabilities and unforeseen increased expenses associated with the Dodge acquisition, including costs to integrate Dodge beyond current estimates; and |
| ● | we may experience disruptions of, or the loss of momentum in, our or Dodge’s ongoing businesses or inconsistencies in standards, controls, procedures and policies. |
Any of these factors could adversely affect our or Dodge’s ability to maintain relationships with customers, suppliers, employees and other constituencies or our ability to achieve the anticipated benefits of the Dodge acquisition, which could reduce earnings or otherwise adversely affect our business and financial results.
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We incurred substantial debt in order to complete the Dodge acquisition, which could constrain our business and exposes us to the risk of defaults under our debt instruments.
As of November 1, 2021, we had approximately $1,800.0 million of total debt as a result of the completion of the Dodge acquisition. This debt could or will have important consequences, including, but not limited to:
| ● | this debt requires us to make significant interest and principal payments in the future; |
| ● | a substantial portion of our cash flow from operations will be used to repay the principal and interest on our debt, thereby reducing the funds available to us for other purposes including for strategic acquisitions, working capital, capital expenditures, and general corporate purposes; |
| ● | our flexibility in planning for and reacting to changes in our business, the competitive landscape and the markets in which we operate may be limited; and |
| ● | we may be placed at a competitive disadvantage relative to other companies in our industry with less debt or comparable debt on more favorable terms. |
Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance and no assurance can be given that our business will generate sufficient cash flow to service our debt.
Additionally, our ability to comply with the financial and other covenants contained in our debt instruments could be affected by, among other things, changes in our results of operations, the incurrence of additional indebtedness, the pricing of our products, our success at implementing cost reduction initiatives, our ability to successfully implement our overall business strategy, or changes in industry-specific or general economic conditions which are beyond our control. The breach of any of these covenants could result in a default or event of default under the New Credit Agreement and the indenture that governs the Notes, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our prospects, business, financial condition, results of operations and cash flows could be materially and adversely affected and could cause us to become bankrupt or otherwise insolvent. In addition, these covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our business and stockholders.
Increases in interest rates would increase the cost of servicing Term Loan Facility and could reduce our profitability.
The $1,300.0 million outstanding under the Term Loan Facility bears interest at a variable rate. As a result, increases in interest rates would increase the cost of servicing the Term Loan Facility, and could materially reduce our profitability and cash flows. We have not entered into interest rate cap agreements on the Term Loan Facility. In addition, a transition away from the London Interbank Offered Rate (LIBOR) as a benchmark for establishing the applicable interest rate may affect the cost of servicing the Term Loan Facility. The Financial Conduct Authority of the United Kingdom has announced that it plans to no longer persuade or compel banks to submit rates for the calculation of LIBOR by the end of calendar year 2021. Although the Term Loan Facility provides for alternative base rates, such alternative base rates may or may not be related to LIBOR, and the consequences of the phase–out of LIBOR cannot be entirely predicted at this time.
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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
In 2019, our Board of Directors authorized us to repurchase up to $100.0 million of our common stock from time to time on the open market, in block trade transactions, and through privately negotiated transactions, in compliance with SEC Rule 10b-18 depending on market conditions, alternative uses of capital, and other relevant factors. Purchases may be commenced, suspended, or discontinued at any time without prior notice.
Total share repurchases under the 2019 plan for the three months ended October 2, 2021 are as follows:
| Period | Total number of shares purchased | Average price paid per share | Number of shares purchased as part of the publicly announced program | Approximate dollar value of shares still available to be purchased under the program (000’s) | ||||||||||||
| 07/04/2021 – 07/31/2021 | — | $ | — | — | $ | 81,315 | ||||||||||
| 08/01/2021 – 08/28/2021 | 406 | 226.86 | 406 | 81,223 | ||||||||||||
| 08/29/2021 – 10/02/2021 | — | — | — | $ | 81,223 | |||||||||||
| Total | 406 | $ | 226.86 | 406 | ||||||||||||
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
Not applicable.
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ITEM 6. Exhibits
| Exhibit Number |
Exhibit Description | |
| 31.01 | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a). | |
| 31.02 | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a). | |
| 32.01 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* | |
| 32.02 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* | |
| 101.INS | XBRL Instance Document. | |
| 101.SCH | XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
| * | This certification accompanies this Quarterly Report on Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| RBC Bearings Incorporated | |||
|
(Registrant) | ||
| By: | /s/ Michael J. Hartnett | ||
| Name: | Michael J. Hartnett | ||
| Title: | Chief Executive Officer | ||
| Date: | November 12, 2021 | ||
| By: | /s/ Robert M. Sullivan | ||
| Name: | Robert M. Sullivan | ||
| Title: | Chief Financial Officer | ||
| Date: | November 12, 2021 | ||
39
EXHIBIT INDEX
| Exhibit Number |
Exhibit Description | |
| 31.01 | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a). | |
| 31.02 | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a). | |
| 32.01 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* | |
| 32.02 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* | |
| 101.INS | XBRL Instance Document. | |
| 101.SCH | XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
| * | This certification accompanies this Quarterly Report on Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing. |
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Exhibit 31.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael J. Hartnett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of RBC Bearings Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 12, 2021 | By: | /s/ Michael J. Hartnett |
| Michael J. Hartnett | ||
| President and Chief Executive Officer |
Exhibit 31.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert M. Sullivan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of RBC Bearings Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 12, 2021 | By: | /s/ Robert M. Sullivan |
| Robert M. Sullivan | ||
| Vice President and Chief Financial Officer |
Exhibit 32.01
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C SECTION 1350
The undersigned, Michael J. Hartnett, the President and Chief Executive Officer of RBC Bearings Incorporated (the “Company”), pursuant to 18 U.S.C. §1350, hereby certifies that:
(i) the Quarterly Report on Form 10-Q for the period ended October 2, 2021 of the Company (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 12, 2021
| /s/ Michael J. Hartnett | |
| Michael J. Hartnett | |
| President and Chief Executive Officer |
Exhibit 32.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350
The undersigned, Robert M. Sullivan, Chief Financial Officer, of RBC Bearings Incorporated (the “Company”), pursuant to 18 U.S.C. §1350, hereby certifies:
(i) the Quarterly Report on Form 10-Q for the period ended October 2, 2021 of the Company (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 12, 2021
| /s/ Robert M. Sullivan | |
| Robert M. Sullivan | |
| Vice President and Chief Financial Officer |