UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission
File Number: 001-40840
RBC
BEARINGS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware | | 95-4372080 |
(State
or other jurisdiction of
incorporation or organization) | | (I.R.S.
Employer
Identification No.) |
| | |
One Tribology Center Oxford, CT | | 06478 |
(Address of principal executive offices) | | (Zip
Code) |
(203)
267-7001
(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 |
Common Stock, par value $0.01 per share | | RBC | | The New York Stock Exchange |
5.00% Series A Mandatory Convertible Preferred Stock, par value $0.01 per share | | RBCP | | The New York Stock Exchange |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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). Yes ☒ No ☐
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.
Large accelerated filer | ☒ | 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 3, 2023, RBC Bearings Incorporated had 29,084,999
shares of Common Stock and 4,600,000 shares of Preferred Stock outstanding.
TABLE
OF CONTENTS
Part
I. FINANCIAL INFORMATION
Item
1. Consolidated Financial Statements
RBC
Bearings Incorporated
Consolidated
Balance Sheets
(dollars
in millions, except per-share data)
| |
September
30,
2023 | | |
April
1,
2023 | |
| |
(Unaudited) |
|
|
| |
ASSETS | |
| | |
| |
Current assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 56.6 | | |
$ | 65.4 | |
Accounts receivable, net of allowance for doubtful accounts of $3.9 as of September 30, 2023 and $3.7 as of April 1, 2023 | |
| 244.6 | | |
| 239.6 | |
Inventory | |
| 615.0 | | |
| 587.2 | |
Prepaid expenses and other current assets | |
| 22.0 | | |
| 21.1 | |
Total current assets | |
| 938.2 | | |
| 913.3 | |
Property, plant and equipment, net | |
| 365.7 | | |
| 375.3 | |
Operating lease assets, net | |
| 43.9 | | |
| 41.4 | |
Goodwill | |
| 1,873.9 | | |
| 1,869.8 | |
Intangible assets, net | |
| 1,427.6 | | |
| 1,452.9 | |
Other noncurrent assets | |
| 42.4 | | |
| 37.7 | |
Total assets | |
$ | 4,691.7 | | |
$ | 4,690.4 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
| |
Current liabilities: | |
| | |
| |
Accounts payable | |
$ | 130.6 | | |
$ | 146.8 | |
Accrued expenses and other current liabilities | |
| 148.3 | | |
| 153.4 | |
Current operating lease liabilities | |
| 7.8 | | |
| 7.6 | |
Current portion of long-term debt | |
| 1.6 | | |
| 1.5 | |
Total current liabilities | |
| 288.3 | | |
| 309.3 | |
Long-term debt, less current portion | |
| 1,321.9 | | |
| 1,393.5 | |
Long-term operating lease liabilities | |
| 37.0 | | |
| 33.9 | |
Deferred income taxes | |
| 288.6 | | |
| 295.1 | |
Other noncurrent liabilities | |
| 121.7 | | |
| 122.7 | |
Total liabilities | |
| 2,057.5 | | |
| 2,154.5 | |
| |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Preferred stock, $.01 par value; authorized shares: 10,000,000 as of September 30, 2023 and April 1, 2023; issued shares: 4,600,000 as of September 30, 2023 and April 1, 2023 | |
| 0.0 | | |
| 0.0 | |
Common stock, $.01 par value; authorized shares: 60,000,000 as of September 30, 2023 and April 1, 2023; issued shares: 30,084,245 and 29,989,948 as of September 30, 2023 and April 1, 2023, respectively | |
| 0.3 | | |
| 0.3 | |
Additional paid-in capital | |
| 1,601.1 | | |
| 1,589.9 | |
Accumulated other comprehensive income | |
| (0.2 | ) | |
| (4.1 | ) |
Retained earnings | |
| 1,120.1 | | |
| 1,029.9 | |
Treasury stock, at cost; 999,938 shares and 966,398 shares as of September 30, 2023 and April 1, 2023, respectively | |
| (87.1 | ) | |
| (80.1 | ) |
Total stockholders’ equity | |
| 2,634.2 | | |
| 2,535.9 | |
Total liabilities and stockholders’ equity | |
$ | 4,691.7 | | |
$ | 4,690.4 | |
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Operations
(dollars
in millions, except per-share data)
(Unaudited)
| |
Three Months Ended | | |
Six Months Ended | |
| |
| | |
| | |
September 30,
2023 | | |
October 1,
2022 | |
Net sales | |
$ | 385.6 | | |
$ | 369.2 | | |
$ | 772.7 | | |
$ | 723.3 | |
Cost of sales | |
| 219.3 | | |
| 218.1 | | |
| 438.5 | | |
| 431.0 | |
Gross margin | |
| 166.3 | | |
| 151.1 | | |
| 334.2 | | |
| 292.3 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 60.5 | | |
| 57.5 | | |
| 125.2 | | |
| 113.3 | |
Other, net | |
| 18.0 | | |
| 21.6 | | |
| 36.2 | | |
| 42.5 | |
Total operating expenses | |
| 78.5 | | |
| 79.1 | | |
| 161.4 | | |
| 155.8 | |
Operating income | |
| 87.8 | | |
| 72.0 | | |
| 172.8 | | |
| 136.5 | |
Interest expense, net | |
| 20.1 | | |
| 18.3 | | |
| 40.6 | | |
| 34.1 | |
Other non-operating expense | |
| 0.8 | | |
| 0.2 | | |
| 1.3 | | |
| 1.0 | |
Income before income taxes | |
| 66.9 | | |
| 53.5 | | |
| 130.9 | | |
| 101.4 | |
Provision for income taxes | |
| 15.2 | | |
| 9.7 | | |
| 29.2 | | |
| 20.2 | |
Net income | |
| 51.7 | | |
| 43.8 | | |
| 101.7 | | |
| 81.2 | |
Preferred stock dividends | |
| 5.8 | | |
| 5.7 | | |
| 11.5 | | |
| 11.4 | |
Net income attributable to common stockholders | |
$ | 45.9 | | |
$ | 38.1 | | |
$ | 90.2 | | |
$ | 69.8 | |
| |
| | | |
| | | |
| | | |
| | |
Net income per common share attributable to common stockholders: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 1.59 | | |
$ | 1.32 | | |
$ | 3.13 | | |
$ | 2.43 | |
Diluted | |
$ | 1.58 | | |
$ | 1.31 | | |
$ | 3.10 | | |
$ | 2.40 | |
Weighted average common shares: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 28,885,411 | | |
| 28,758,403 | | |
| 28,866,142 | | |
| 28,714,445 | |
Diluted | |
| 29,138,596 | | |
| 29,093,791 | | |
| 29,126,670 | | |
| 29,020,403 | |
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Comprehensive Income/(Loss)
(dollars
in millions)
(Unaudited)
| |
Three Months Ended | | |
Six Months Ended | |
| |
September 30,
2023 | | |
October 1,
2022 | | |
September 30,
2023 | | |
October 1,
2022 | |
Net income | |
$ | 51.7 | | |
$ | 43.8 | | |
$ | 101.7 | | |
$ | 81.2 | |
Pension and postretirement liability adjustments, net of taxes (1) | |
| (0.0 | ) | |
| 0.5 | | |
| 0.5 | | |
| 1.0 | |
Change in fair value of derivative, net of taxes (2) | |
| 0.5 | | |
| — | | |
| 5.3 | | |
| — | |
Foreign currency translation adjustments | |
| (5.0 | ) | |
| (9.0 | ) | |
| (1.9 | ) | |
| (15.4 | ) |
Total comprehensive income | |
$ | 47.2 | | |
$ | 35.3 | | |
$ | 105.6 | | |
$ | 66.8 | |
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Stockholders’ Equity
(dollars
in millions)
(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 1, 2023 | |
| 29,989,948 | | |
$ | 0.3 | | |
| 4,600,000 | | |
$ | 0.0 | | |
$ | 1,589.9 | | |
$ | (4.1 | ) | |
$ | 1,029.9 | | |
| (966,398 | ) | |
$ | (80.1 | ) | |
$ | 2,535.9 | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 50.0 | | |
| — | | |
| — | | |
| 50.0 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4.9 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4.9 | |
Preferred stock dividends | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (5.7 | ) | |
| — | | |
| — | | |
| (5.7 | ) |
Repurchase of common stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (32,804 | ) | |
| (6.8 | ) | |
| (6.8 | ) |
Exercise of equity awards | |
| 11,772 | | |
| — | | |
| — | | |
| — | | |
| 1.0 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1.0 | |
Change in pension and post-retirement plan benefit adjustments, net of tax expense of $0.2 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 0.5 | | |
| — | | |
| — | | |
| — | | |
| 0.5 | |
Issuance of restricted stock, net of forfeitures | |
| 54,627 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Change in fair value of derivative, net of tax expense of $1.4 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4.8 | | |
| — | | |
| — | | |
| — | | |
| 4.8 | |
Currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3.1 | | |
| — | | |
| — | | |
| — | | |
| 3.1 | |
Balance at July 1, 2023 | |
| 30,056,347 | | |
$ | 0.3 | | |
| 4,600,000 | | |
$ | 0.0 | | |
$ | 1,595.8 | | |
$ | 4.3 | | |
$ | 1,074.2 | | |
| (999,202 | ) | |
$ | (86.9 | ) | |
$ | 2,587.7 | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 51.7 | | |
| — | | |
| — | | |
| 51.7 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3.3 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3.3 | |
Preferred stock dividends | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (5.8 | ) | |
| — | | |
| — | | |
| (5.8 | ) |
Repurchase of common stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (736 | ) | |
| (0.2 | ) | |
| (0.2 | ) |
Exercise of equity awards | |
| 14,013 | | |
| — | | |
| — | | |
| — | | |
| 2.0 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2.0 | |
Change in pension and post-retirement plan benefit adjustments, net of tax benefit of $0.0 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (0.0 | ) | |
| — | | |
| — | | |
| — | | |
| (0.0 | ) |
Issuance of restricted stock, net of forfeitures | |
| 13,885 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Change in fair value of derivative, net of tax expense of $0.1 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 0.5 | | |
| — | | |
| — | | |
| — | | |
| 0.5 | |
Currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (5.0 | ) | |
| — | | |
| — | | |
| — | | |
| (5.0 | ) |
Balance at September 30, 2023 | |
| 30,084,245 | | |
$ | 0.3 | | |
| 4,600,000 | | |
$ | 0.0 | | |
$ | 1,601.1 | | |
$ | (0.2 | ) | |
$ | 1,120.1 | | |
| (999,938 | ) | |
$ | (87.1 | ) | |
$ | 2,634.2 | |
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Stockholders’ Equity (continued)
(dollars
in millions)
(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 2, 2022 | |
| 29,807,208 | | |
$ | 0.3 | | |
| 4,600,000 | | |
$ | 0.0 | | |
$ | 1,564.3 | | |
$ | (5.8 | ) | |
$ | 886.1 | | |
| (928,322 | ) | |
$ | (72.4 | ) | |
$ | 2,372.5 | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 37.4 | | |
| — | | |
| — | | |
| 37.4 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3.8 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3.8 | |
Preferred stock dividends | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (5.7 | ) | |
| — | | |
| — | | |
| (5.7 | ) |
Repurchase of common stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (30,469 | ) | |
| (6.0 | ) | |
| (6.0 | ) |
Exercise of equity awards | |
| 13,713 | | |
| — | | |
| — | | |
| — | | |
| 1.5 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1.5 | |
Change in pension and post-retirement plan benefit adjustments, net of tax expense of $0.2 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 0.5 | | |
| — | | |
| — | | |
| — | | |
| 0.5 | |
Issuance of restricted stock, net of forfeitures | |
| 56,955 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (6.4 | ) | |
| — | | |
| — | | |
| — | | |
| (6.4 | ) |
Balance at July 2, 2022 | |
| 29,877,876 | | |
$ | 0.3 | | |
| 4,600,000 | | |
$ | 0.0 | | |
$ | 1,569.6 | | |
$ | (11.7 | ) | |
$ | 917.8 | | |
| (958,791 | ) | |
$ | (78.4 | ) | |
$ | 2,397.6 | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 43.8 | | |
| — | | |
| — | | |
| 43.8 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4.4 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4.4 | |
Preferred stock dividends | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (5.7 | ) | |
| — | | |
| — | | |
| (5.7 | ) |
Repurchase of common stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (63 | ) | |
| (0.0 | ) | |
| (0.0 | ) |
Exercise of equity awards | |
| 89,509 | | |
| 0.0 | | |
| — | | |
| — | | |
| 8.5 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 8.5 | |
Change in pension and post-retirement plan benefit adjustments, net of tax expense of $0.1 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 0.5 | | |
| — | | |
| — | | |
| — | | |
| 0.5 | |
Issuance of restricted stock, net of forfeitures | |
| 8,529 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (9.0 | ) | |
| — | | |
| — | | |
| — | | |
| (9.0 | ) |
Balance at October 1, 2022 | |
| 29,975,914 | | |
$ | 0.3 | | |
| 4,600,000 | | |
$ | 0.0 | | |
$ | 1,582.5 | | |
$ | (20.2 | ) | |
$ | 955.9 | | |
| (958,854 | ) | |
$ | (78.4 | ) | |
$ | 2,440.1 | |
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Cash Flows
(dollars
in millions)
(Unaudited)
| |
Six Months Ended | |
| |
| | |
| |
Cash flows from operating activities: | |
| | |
| |
Net income | |
$ | 101.7 | | |
$ | 81.2 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 59.7 | | |
| 57.1 | |
Deferred income taxes | |
| (6.5 | ) | |
| (6.5 | ) |
Amortization of deferred financing costs | |
| 1.6 | | |
| 4.3 | |
Stock-based compensation | |
| 9.1 | | |
| 8.2 | |
Noncash operating lease expense | |
| 3.5 | | |
| 3.6 | |
Loss on disposition of assets | |
| 0.4 | | |
| 0.1 | |
Consolidation, restructuring, and other noncash charges | |
| 0.6 | | |
| 0.3 | |
Changes in operating assets and liabilities, net of acquisitions: | |
| | | |
| | |
Accounts receivable | |
| (3.7 | ) | |
| 9.3 | |
Inventory | |
| (24.8 | ) | |
| (45.2 | ) |
Prepaid expenses and other current assets | |
| (0.7 | ) | |
| (13.0 | ) |
Other noncurrent assets | |
| (2.0 | ) | |
| 1.6 | |
Accounts payable | |
| (16.0 | ) | |
| (8.7 | ) |
Accrued expenses and other current liabilities | |
| (7.7 | ) | |
| 2.4 | |
Other noncurrent liabilities | |
| (0.4 | ) | |
| (6.3 | ) |
Net cash provided by operating activities | |
| 114.8 | | |
| 88.4 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Capital expenditures | |
| (14.2 | ) | |
| (23.1 | ) |
Proceeds from sale of assets | |
| 0.4 | | |
| 0.5 | |
Acquisition of business/purchase price adjustments for acquisition | |
| (18.7 | ) | |
| 23.0 | |
Net cash (used in)/provided by investing activities | |
| (32.5 | ) | |
| 0.4 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds received from revolving credit facility | |
| 18.0 | | |
| - | |
Repayments of term loans | |
| (90.0 | ) | |
| (170.0 | ) |
Repayments of notes payable | |
| (1.3 | ) | |
| (0.2 | ) |
Principal payments on finance lease obligations | |
| (1.6 | ) | |
| (2.3 | ) |
Preferred stock dividends paid | |
| (11.5 | ) | |
| (11.4 | ) |
Exercise of stock options | |
| 3.0 | | |
| 10.0 | |
Repurchase of common stock | |
| (7.0 | ) | |
| (6.0 | ) |
Net cash used in financing activities | |
| (90.4 | ) | |
| (179.9 | ) |
| |
| | | |
| | |
Effect of exchange rate changes on cash | |
| (0.7 | ) | |
| (3.3 | ) |
| |
| | | |
| | |
Cash and cash equivalents: | |
| | | |
| | |
Decrease during the period | |
| (8.8 | ) | |
| (94.4 | ) |
Cash and cash equivalents, at beginning of period | |
| 65.4 | | |
| 182.9 | |
Cash and cash equivalents, at end of period | |
$ | 56.6 | | |
$ | 88.5 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for: | |
| | | |
| | |
Income taxes | |
$ | 42.4 | | |
$ | 34.9 | |
Interest | |
| 39.1 | | |
| 30.1 | |
See
accompanying notes.
RBC
Bearings Incorporated
Notes
to Unaudited Interim Consolidated Financial Statements
(dollars
in millions, 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 “SEC”). The interim financial
statements included with this Quarterly Report on Form 10-Q 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 1, 2023
(our “Annual Report”). 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 (“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
financial 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 our Annual Report.
The results of operations for the three- and six-month periods ended September 30, 2023 are
not necessarily indicative of the operating results for the entire fiscal year ending March 30, 2024. The three-month periods ended September
30, 2023 and October 1, 2022 each included 13 weeks. All dollar amounts contained in these footnotes are stated in millions, except for
per-share data.
2.
Significant Accounting Policies
The
Company’s significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies” of our Annual
Report.
3.
Revenue from Contracts with Customers
Disaggregation
of Revenue
The following table disaggregates total revenue by end market, which
is how we view our reportable segments (see Note 12):
| | |
Three Months Ended | | |
Six Months Ended | |
| | |
September 30,
2023 | | |
October 1,
2022 | | |
September 30,
2023 | | |
October 1,
2022 | |
Aerospace/Defense | | |
$ | 127.3 | | |
$ | 103.6 | | |
$ | 247.8 | | |
$ | 203.0 | |
Industrial | | |
| 258.3 | | |
| 265.6 | | |
| 524.9 | | |
| 520.3 | |
Total | | |
$ | 385.6 | | |
$ | 369.2 | | |
$ | 772.7 | | |
$ | 723.3 | |
The
following table disaggregates total revenue by geographic origin:
| |
Three Months Ended | | |
Six Months Ended | |
| |
September 30,
2023 | | |
October 1,
2022 | | |
September 30,
2023 | | |
October 1,
2022 | |
United States | |
$ | 342.0 | | |
$ | 324.8 | | |
$ | 683.3 | | |
$ | 635.4 | |
International | |
| 43.6 | | |
| 44.4 | | |
| 89.4 | | |
| 87.9 | |
Total | |
$ | 385.6 | | |
$ | 369.2 | | |
$ | 772.7 | | |
$ | 723.3 | |
The
following table illustrates the approximate percentage of revenue recognized for performance obligations satisfied over time versus the
amount of revenue recognized for performance obligations satisfied at a point in time:
| |
Three Months Ended | | |
Six Months Ended | |
| |
September 30,
2023 | | |
October 1,
2022 | | |
September 30,
2023 | | |
October 1,
2022 | |
Point-in-time | |
| 98 | % | |
| 98 | % | |
| 98 | % | |
| 98 | % |
Over time | |
| 2 | % | |
| 2 | % | |
| 2 | % | |
| 2 | % |
Total | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
| 100 | % |
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 the Company 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 $428.7 at September
30, 2023. The Company expects to recognize revenue on approximately 63% and 91% of the remaining performance obligations over the next
12 and 24 months, respectively, with the remainder recognized thereafter.
Contract
Balances
The
timing of revenue recognition, invoicing and cash collections affects accounts receivable, unbilled receivables (contract assets) and
customer advances and deposits (contract liabilities) on the consolidated balance sheets. 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 September 30, 2023 and April 1, 2023, current contract assets were $6.1 and $4.5, respectively, and included within prepaid expenses
and other current assets on the consolidated balance sheets. The increase in contract assets was primarily due to the recognition of
revenue related to the satisfaction or partial satisfaction of performance obligations prior to billing, partially offset by amounts
billed to customers during the period. As of September 30, 2023 and April 1, 2023, the Company did not have any contract assets classified
as noncurrent on the consolidated balance sheets.
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 September 30, 2023 and
April 1, 2023, current contract liabilities were $20.4 and $20.6, respectively, and included within accrued expenses and other current
liabilities on the consolidated balance sheets. The decrease in current contract liabilities was primarily due to advance payments received
and the reclassification of a portion of advance payments received from the noncurrent portion of contract liabilities offset by revenue
recognized on customer contracts. For the three and six months ended September 30, 2023, the Company recognized revenues of $4.7 and $9.3,
respectively, that were included in the contract liability balance as of April 1, 2023. For the three and six months ended October 1,
2022, the Company recognized revenues of $3.6 and $7.5, respectively, that were included in the contract liability balance at April 2,
2022.
As
of September 30, 2023 and April 1, 2023, noncurrent contract liabilities were $22.4 and $19.8, respectively, and included within other
noncurrent liabilities on the consolidated balance sheets. The increase in noncurrent contract liabilities was primarily due to advance
payments received, partially offset by the reclassification of a portion of advance payments received to the current portion of contract
liabilities.
Variable
Consideration
The
amount of consideration to which the Company expects to be entitled in exchange for goods and services is not generally subject to significant
variations. However, the Company does offer certain customers rebates, prompt payment discounts, end-user discounts, and the right to
return eligible products. The Company estimates this variable consideration using the expected value amount, which is based on historical
experience. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal
of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company
adjusts the estimate of revenue at the earlier of when the amount of consideration the Company expects to receive changes or when the
consideration becomes fixed. Accrued customer rebates were $39.3 and $39.6 at September 30, 2023 and April 1, 2023, respectively, and
are included within accrued expenses and other current liabilities on the consolidated balance sheets.
4.
Accumulated Other Comprehensive Income/(Loss)
The
components of comprehensive income/(loss) that relate to the Company are net income, foreign currency translation adjustments, changes
in fair value of derivative, 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 | | |
Change in
Fair Value of
Derivative | | |
Pension and Postretirement Liability | | |
Total | |
Balance at April 1, 2023 | |
$ | (4.6 | ) | |
$ | (2.2 | ) | |
$ | 2.7 | | |
$ | (4.1 | ) |
Net loss on foreign currency translation | |
| (1.9 | ) | |
| — | | |
| — | | |
| (1.9 | ) |
Amortization of net loss, net of tax expense of $0.2 | |
| — | | |
| — | | |
| 0.5 | | |
| 0.5 | |
Gain on derivative instrument, net of tax expense of $1.5 | |
| — | | |
| 5.3 | | |
| — | | |
| 5.3 | |
Net current period other comprehensive income/(loss) | |
| (1.9 | ) | |
| 5.3 | | |
| 0.5 | | |
| 3.9 | |
Balance at September 30, 2023 | |
$ | (6.5 | ) | |
$ | 3.1 | | |
$ | 3.2 | | |
$ | (0.2 | ) |
5.
Net Income Per Share Attributable to Common Stockholders
Basic
net income per share attributable to common stockholders is computed by dividing net income attributable to common stockholders by
the weighted-average number of common shares outstanding.
Diluted
net income per share attributable to common stockholders is computed by dividing net income attributable 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 the
conversion of the outstanding 5.00% Series A Mandatory Convertible Preferred Stock (“MCPS”) to common shares.
We exclude outstanding stock options, stock awards and the MCPS from
the calculations if the effect would be antidilutive. 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 antidilutive, we calculate net
income per share attributable to common stockholders by adjusting the numerator for the effect of the cumulative MCPS dividends for the
respective period.
For the three-month and six-month
periods ended September 30, 2023 and October 1, 2022, respectively, the effect of assuming the conversion of the 4,600,000 shares of MCPS
into shares of common stock was antidilutive, and therefore excluded from the calculation of diluted earnings per share attributable to
common stockholders. Accordingly, net income was reduced by cumulative MCPS dividends, as presented in our consolidated statement of operations,
for purposes of calculating the numerator in the diluted net income per share attributable to common stockholders.
For the three months ended
September 30, 2023, 139,198 employee stock options and no restricted shares were excluded from the calculation of diluted earnings per
share attributable to common stockholders. For the six months ended September 30, 2023, 140,672 employee stock options and 105 restricted
shares were excluded from the calculation of diluted earnings per share attributable to common stockholders. The inclusion of these employee
stock options and restricted shares would have been antidilutive.
For the three months ended
October 1, 2022, 90,796 employee stock options and 485 restricted shares were excluded from the calculation of diluted earnings per share
attributable to common stockholders. For the six months ended October 1, 2022, 110,692 employee stock options and 9,780 restricted shares
were excluded from the calculation of diluted earnings per share attributable to common stockholders. The inclusion of these employee
stock options and restricted shares would have been antidilutive.
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 attributable to common stockholders.
| |
Three Months Ended | | |
Six Months Ended | |
| |
September 30,
2023 | | |
October 1,
2022 | | |
September 30,
2023 | | |
October 1,
2022 | |
| |
| | |
| | |
| | |
| |
Net income | |
$ | 51.7 | | |
$ | 43.8 | | |
$ | 101.7 | | |
$ | 81.2 | |
Preferred stock dividends | |
| 5.8 | | |
| 5.7 | | |
| 11.5 | | |
| 11.4 | |
Net income attributable to common stockholders | |
$ | 45.9 | | |
$ | 38.1 | | |
$ | 90.2 | | |
$ | 69.8 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator for basic net
income per share attributable to common stockholders — weighted-average shares outstanding | |
| 28,885,411 | | |
| 28,758,403 | | |
| 28,866,142 | | |
| 28,714,445 | |
Effect of dilution due to employee stock awards | |
| 253,185 | | |
| 335,388 | | |
| 260,528 | | |
| 305,958 | |
Denominator for diluted net income per share attributable to common stockholders — weighted-average shares outstanding | |
| 29,138,596 | | |
| 29,093,791 | | |
| 29,126,670 | | |
| 29,020,403 | |
| |
| | | |
| | | |
| | | |
| | |
Basic net income per share attributable to common stockholders | |
$ | 1.59 | | |
$ | 1.32 | | |
$ | 3.13 | | |
$ | 2.43 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted net income per share attributable to common stockholders | |
$ | 1.58 | | |
$ | 1.31 | | |
$ | 3.10 | | |
$ | 2.40 | |
6. Fair Value
Fair value is defined as
the price that would be expected to be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The FASB provides accounting rules that classify the inputs used to measure fair value
into the following hierarchy:
Level 1 – Unadjusted quoted prices in active
markets for identical assets or liabilities.
Level 2 – Unadjusted quoted prices in active
markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that
are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3 – Unobservable inputs for the asset
or liability.
Financial assets and liabilities
are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
As a result of the occurrence
of triggering events such as purchase accounting for acquisitions, the Company measures certain assets and liabilities based on Level
3 inputs.
Financial Instruments
The Company’s financial
instruments consist primarily of cash and cash equivalents, accounts receivable, trade accounts payable, accrued expenses, short-term
borrowings, long-term debt, and a derivative in the form of an interest rate swap. Due to their short-term nature, the carrying value
of cash and cash equivalents, accounts receivable, trade accounts payable, accrued expenses and short-term borrowings are a reasonable
estimate of their fair value. Long-term assets held on our balance sheets related to benefit plan obligations are measured at fair value.
The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $433.1 and $450.0 at September 30,
2023 and April 1, 2023, respectively. The carrying value of this debt was $493.7 at September 30, 2023 and $493.3 at April 1, 2023. The
fair value of long-term fixed-rate debt was measured using Level 1 inputs. Due to the nature of fair value calculations for variable-rate
debt, the carrying value of the Company’s long-term variable-rate debt is a reasonable estimate of its fair value. The fair value of
the interest rate swap was $4.0 at September 30, 2023, and is included in other noncurrent assets on the Company’s consolidated
balance sheets, and $2.8 at April 1, 2023, and is included in other noncurrent liabilities on the Company’s consolidated balance
sheets. The fair value of the interest rate swap is measured using Level 2 inputs.
The Company does not believe
it has significant concentrations of risk associated with the counterparties to its financial instruments.
7. Inventory
Inventories are
stated at the lower of cost or net realizable value, using the first-in, first-out method, and are summarized below:
| |
September 30,
2023 | | |
April 1,
2023 | |
Raw materials | |
$ | 142.2 | | |
$ | 132.4 | |
Work in process | |
| 133.3 | | |
| 132.5 | |
Finished goods | |
| 339.5 | | |
| 322.3 | |
| |
$ | 615.0 | | |
$ | 587.2 | |
8. Goodwill and Intangible Assets
Goodwill
Goodwill balances, by segment,
consist of the following:
| |
Aerospace/
Defense | | |
Industrial | | |
Total | |
April 1, 2023 | |
$ | 194.1 | | |
$ | 1,675.7 | | |
$ | 1,869.8 | |
Acquisition (1) | |
| 4.6 | | |
| — | | |
| 4.6 | |
Currency translation adjustments | |
| — | | |
| (0.5 | ) | |
| (0.5 | ) |
September 30, 2023 | |
$ | 198.7 | | |
$ | 1,675.2 | | |
$ | 1,873.9 | |
Intangible Assets
| |
Weighted
Average | | |
September 30, 2023 | | |
April 1, 2023 | |
| |
| | |
Gross
Carrying
Amount | | |
| | |
Gross
Carrying
Amount | | |
| |
Product approvals | |
24 | | |
$ | 50.7 | | |
$ | 19.3 | | |
$ | 50.7 | | |
$ | 18.4 | |
Customer relationships and lists | |
24 | | |
| 1,300.6 | | |
| 133.5 | | |
| 1,293.7 | | |
| 106.5 | |
Trade names | |
25 | | |
| 217.1 | | |
| 27.9 | | |
| 215.4 | | |
| 23.3 | |
Patents and trademarks | |
16 | | |
| 13.7 | | |
| 7.5 | | |
| 13.4 | | |
| 7.2 | |
Domain names | |
10 | | |
| 0.4 | | |
| 0.4 | | |
| 0.4 | | |
| 0.4 | |
Internal-use software | |
3 | | |
| 15.6 | | |
| 6.7 | | |
| 15.2 | | |
| 4.4 | |
Other | |
5 | | |
| 1.6 | | |
| 1.1 | | |
| 1.1 | | |
| 1.1 | |
| |
| | |
| 1,599.7 | | |
| 196.4 | | |
| 1,589.9 | | |
| 161.3 | |
Non-amortizable repair station certifications | |
n/a | | |
| 24.3 | | |
| — | | |
| 24.3 | | |
| — | |
Total | |
24 | | |
$ | 1,624.0 | | |
$ | 196.4 | | |
$ | 1,614.2 | | |
$ | 161.3 | |
Amortization expense for
definite-lived intangible assets during the three-month periods ended September 30, 2023 and October 1, 2022 was $17.6 and $16.8, respectively.
Amortization expense for definite-lived intangible assets during the six-month periods ended September 30, 2023 and October 1, 2022 were
$35.1 and $34.1, respectively. These amounts are included in other, net on the Company’s consolidated statements of operations.
Estimated amortization expense for the remainder of fiscal 2024 and for the five succeeding fiscal years and thereafter is as follows:
Remainder of Fiscal 2024 | |
$ | 35.3 | |
Fiscal 2025 | |
| 70.6 | |
Fiscal 2026 | |
| 67.7 | |
Fiscal 2027 | |
| 66.0 | |
Fiscal 2028 | |
| 65.5 | |
Fiscal 2029 | |
| 64.3 | |
Fiscal 2030 and thereafter | |
| 1,033.9 | |
9. Accrued Expenses and Other Current Liabilities
The significant components
of accrued expenses and other current liabilities are as follows:
| |
| | |
| |
Employee compensation and related benefits | |
$ | 32.5 | | |
$ | 34.7 | |
Taxes | |
| 12.5 | | |
| 17.5 | |
Contract liabilities | |
| 20.4 | | |
| 20.6 | |
Accrued rebates | |
| 39.3 | | |
| 39.6 | |
Current finance lease liabilities | |
| 5.4 | | |
| 5.2 | |
Accrued preferred stock dividends | |
| 4.8 | | |
| 4.9 | |
Interest | |
| 10.4 | | |
| 10.6 | |
Returns and warranties | |
| 7.9 | | |
| 7.5 | |
Other | |
| 15.1 | | |
| 12.8 | |
| |
$ | 148.3 | | |
$ | 153.4 | |
10. Debt
Domestic Credit Facility
In 2021 RBC Bearings Incorporated, our top holding company, and our Roller Bearing Company
of America, Inc. subsidiary (“RBCA”) entered into a Credit Agreement (the “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 Credit Agreement provides the Company with (a) a $1,300.0 term loan (the “Term Loan”),
which was used to fund a portion of the cash purchase price for the acquisition of Dodge Industrial, Inc. (“Dodge”) and to
pay related fees and expenses, and (b) a $500.0 revolving credit facility (the “Revolving Credit Facility” and together with
the Term Loan, the “Facilities”). Debt issuance costs associated with the Credit Agreement totaled $14.9 and are being amortized
over the life of the Credit Agreement.
Prior to December 2022, amounts
outstanding under the Facilities generally bore interest at either, at the Company’s 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
was based on the Company’s consolidated ratio of total net debt to consolidated EBITDA (as defined within the Credit Agreement)
from time to time. In December 2022 the Credit Agreement was amended to replace LIBOR with the secured overnight financing rate administered
by the Federal Reserve Bank of New York (“SOFR”) so that borrowings under the Facilities denominated in U.S. dollars bear
interest at a rate per annum equal to Term SOFR (as defined in the Credit Agreement) plus a credit spread adjustment of 0.10% plus a margin
ranging from 0.75% to 2.00% depending on the Company’s consolidated ratio of total net debt to consolidated EBITDA. The Facilities
are subject to a SOFR floor of 0.00%. As of September 30, 2023, the Company’s margin was 1.25% for SOFR loans, the commitment fee
rate was 0.20%, and the letter of credit fee rate was 1.25%. A portion of the Term Loan is subject to a fixed-rate interest swap as discussed
in Note 13.
The Term Loan matures in
November 2026 and amortizes in quarterly installments with the balance payable on the maturity date. The Company can elect to prepay
some or all of the outstanding balance from time to time without penalty, which will offset future quarterly amortization installments.
Due to prepayments previously made, the required future principal payments on the Term Loan are $0 for fiscal 2024, $0 for fiscal 2025,
$0 for fiscal 2026, and $810.0 for fiscal 2027. The Revolving Credit Facility expires in November 2026, at which time all amounts outstanding
under the Revolving Credit Facility will be payable.
The Credit Agreement requires
the Company to comply with various covenants, including the following financial covenants: (a) a maximum Total Net Leverage Ratio (as
defined within the Credit Agreement) of 5.00:1.00, which maximum Total Net Leverage Ratio shall decrease during certain subsequent test
periods as set forth in the 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 Company 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. As of September 30, 2023, the Company was in compliance with all
debt covenants.
The Credit Agreement allows
the Company to, among other things, make distributions to stockholders, repurchase its stock, incur other debt or liens, or acquire or
dispose of assets provided that the Company complies with certain requirements and limitations of the Credit Agreement.
The Company’s domestic
subsidiaries have guaranteed the Company’s obligations under the Credit Agreement, and the Company’s obligations and the
domestic subsidiaries’ guaranty are secured by a pledge of substantially all of the assets of the Company and its domestic subsidiaries.
As of September 30, 2023, $810.0 was outstanding
under the Term Loan, $3.7 of the Revolving Credit Facility was being utilized to provide letters of credit to secure the Company’s
obligations relating to certain insurance programs, and $18.0 of the Revolving Credit Facility had been used to fund the purchase of the
business assets of Specline, Inc. which is discussed in Note 14. The Company had the ability to borrow up to an additional $478.3 under
the Revolving Credit Facility as of September 30, 2023.
Senior Notes
In 2021, RBCA issued $500.0 aggregate principal
amount of 4.375% Senior Notes due 2029 (the “Senior Notes”). The net proceeds from the issuance of the Senior Notes were approximately
$492.0 after deducting initial purchasers’ discounts and commissions and offering expenses.
The Senior Notes were issued
pursuant to an indenture with Wilmington Trust, National Association, as trustee (the “Indenture”). The Indenture contains
covenants limiting the ability of the Company to (i) incur additional indebtedness or guarantee indebtedness, (ii) declare or pay dividends,
redeem stock or make other distributions to stockholders, (iii) make investments, (iv) create liens or use assets as security in other
transactions, (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of its assets, (vi) enter into transactions
with affiliates, and (vii) sell or transfer certain assets. These covenants contain various exceptions, limitations and qualifications.
At any time that the Senior Notes are rated investment grade, certain of these covenants will be suspended.
The Senior Notes are guaranteed
jointly and severally on a senior unsecured basis by RBC Bearings and certain of RBCA’s existing and future wholly-owned domestic
subsidiaries that also guarantee the Credit Agreement.
Interest on the Senior Notes
accrues at a rate of 4.375% and is payable semi–annually in cash in arrears on April 15 and October 15 of each year.
The Senior Notes will mature
on October 15, 2029. The Company may redeem some or all of the Senior Notes at any time on or after October 15, 2024 at the redemption
prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may
also redeem up to 40% of the Senior Notes using the proceeds of certain equity offerings completed before October 15, 2024, at a redemption
price equal to 104.375% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption
date. In addition, at any time prior to October 15, 2024, the Company may redeem some or all of the Senior Notes at a price equal to
100% of the principal amount, plus a “make–whole” premium, plus accrued and unpaid interest, if any, to, but excluding,
the redemption date. If the Company sells certain of its assets or experiences specific kinds of changes in control, the Company must
offer to purchase the Senior Notes.
Foreign Borrowing Arrangements
One of our foreign subsidiaries,
Schaublin SA (“Schaublin”), entered into a credit agreement in 2019 with Credit Suisse (Switzerland) Ltd. to provide Schaublin
with a CHF 15.0 (approximately $15.4 USD) revolving credit facility, which was terminated in October 2022. Schaublin now has a CHF 5.0
(approximately $5.5 USD) revolving credit facility with Credit Suisse to provide future working capital, if necessary. As of September
30, 2023, $0.1 of the new facility was being utilized to provide a bank guarantee. Fees associated with the new facility are nominal.
Debt Balances
The balances payable under
all our borrowing facilities are as follows:
| |
| | |
| |
Revolver and term loan facilities | |
$ | 828.0 | | |
$ | 900.0 | |
Senior notes | |
| 500.0 | | |
| 500.0 | |
Debt issuance costs | |
| (12.1 | ) | |
| (13.7 | ) |
Other | |
| 7.6 | | |
| 8.7 | |
Total debt | |
| 1,323.5 | | |
| 1,395.0 | |
Less: current portion | |
| 1.6 | | |
| 1.5 | |
Long-term debt | |
$ | 1,321.9 | | |
$ | 1,393.5 | |
11. 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 March 28, 2020, although certain tax credits generated in earlier years are open under statute from March
29, 2008. The Company is no longer subject to U.S. federal tax examination by the Internal Revenue Service for years ending before March
28, 2020.
Income tax expense for the
three-month period ended September 30, 2023 was $15.2 compared to $9.7 for the three-month period ended October 1, 2022. The effective
income tax rates for the three-month periods ended September 30, 2023 and October 1, 2022, were 22.7% and 18.1%, respectively. In addition
to discrete items, the effective income tax rates for both these periods were different from the U.S. statutory rates due to the foreign-derived
intangible income provision and U.S. credit for increasing research activities, which decreased the rate, and state income taxes, foreign
income taxes, and nondeductible stock-based compensation, which increased the rate.
The effective income tax rate for the three-month
period ended September 30, 2023 of 22.7% included $0.1 of discrete tax benefits associated with stock-based compensation; the effective
income tax rate without these benefits would have been 22.8%. The effective income tax rate for the three-month period ended October 1,
2022 of 18.1% includes $2.4 of tax benefits associated with stock-based compensation and $0.2 of other items; the effective income tax
rate without these benefits would have been 22.9%. The Company believes it is reasonably possible that some of its unrecognized tax positions
may be effectively settled within the next 12 months due to the closing of audits and the statute of limitations expiring in various jurisdictions.
The decrease in the Company’s unrecognized tax positions, pertaining primarily to federal and state credits and state tax, is estimated
to be approximately $2.1.
Income tax expense for
the six-month period ended September 30, 2023 was $29.2 compared to $20.2 for the six-month period ended October 1, 2022. Our effective
income tax rate for the six-month period ended September 30, 2023 was 22.3% compared to 19.9% for the six-month period ended October
1, 2022. The effective income tax rate for the six-month period ended September 30, 2023 of 22.3% includes $0.5 of tax benefits associated
with stock-based compensation; the effective income tax rate without these benefits would have been 22.7%. The effective income tax rate
for the six-month period ended October 1, 2022 of 19.9% includes $3.0 of tax benefits associated with stock-based compensation partially
offset by $0.2 of other items; the effective income tax rate without these benefits and other items would have been 23.0%.
12. Reportable Segments
The Company operates through
operating segments and reports its financial results based on how its chief operating decision maker makes operating decisions, assesses
the performance of the business, and allocates resources. These reportable operating segments are Aerospace/Defense and Industrial and
are described below.
Aerospace/Defense.
This segment represents the end markets for the Company’s highly engineered bearings and precision components used in commercial
aerospace, defense aerospace, and sea and ground defense applications.
Industrial.
This segment represents the end markets for the Company’s highly engineered bearings and precision components used in various industrial
applications including: power transmission; construction, mining, energy and specialized equipment manufacturing; semiconductor production
equipment manufacturing; agricultural machinery, commercial truck and automotive manufacturing; and tool holding.
Segment performance is evaluated
based on segment net sales and gross margin. Items not allocated to segment operating income include corporate administrative expenses
and certain other amounts. Identifiable assets by reportable segment consist of those directly identified with the segment’s operations.
| |
Three Months Ended | | |
Six Months Ended | |
| |
September 30,
2023 | | |
| | |
September 30,
2023 | | |
| |
Net External Sales | |
| | |
| | |
| | |
| |
Aerospace/Defense | |
$ | 127.3 | | |
$ | 103.6 | | |
$ | 247.8 | | |
$ | 203.0 | |
Industrial | |
| 258.3 | | |
| 265.6 | | |
| 524.9 | | |
| 520.3 | |
| |
$ | 385.6 | | |
$ | 369.2 | | |
$ | 772.7 | | |
$ | 723.3 | |
Gross Margin | |
| | | |
| | | |
| | | |
| | |
Aerospace/Defense | |
$ | 50.6 | | |
$ | 41.0 | | |
$ | 97.9 | | |
$ | 79.6 | |
Industrial | |
| 115.7 | | |
| 110.1 | | |
| 236.3 | | |
| 212.7 | |
| |
$ | 166.3 | | |
$ | 151.1 | | |
$ | 334.2 | | |
$ | 292.3 | |
Selling, General & Administrative Expenses | |
| | | |
| | | |
| | | |
| | |
Aerospace/Defense | |
$ | 9.1 | | |
$ | 7.5 | | |
$ | 18.2 | | |
$ | 15.0 | |
Industrial | |
| 31.8 | | |
| 30.1 | | |
| 65.8 | | |
| 60.1 | |
Corporate | |
| 19.6 | | |
| 19.9 | | |
| 41.2 | | |
| 38.2 | |
| |
$ | 60.5 | | |
$ | 57.5 | | |
$ | 125.2 | | |
$ | 113.3 | |
Operating Income | |
| | | |
| | | |
| | | |
| | |
Aerospace/Defense | |
$ | 39.7 | | |
$ | 31.5 | | |
$ | 76.5 | | |
$ | 61.0 | |
Industrial | |
| 69.5 | | |
| 60.1 | | |
| 140.6 | | |
| 113.4 | |
Corporate | |
| (21.4 | ) | |
| (19.6 | ) | |
| (44.3 | ) | |
| (37.9 | ) |
| |
$ | 87.8 | | |
$ | 72.0 | | |
$ | 172.8 | | |
$ | 136.5 | |
| |
September 30, 2023 | | |
April 1, 2023 | |
Total Assets | |
| | |
| |
Aerospace/Defense | |
$ | 786.2 | | |
$ | 749.8 | |
Industrial | |
| 3,817.5 | | |
| 3,845.7 | |
Corporate | |
| 88.0 | | |
| 94.9 | |
| |
$ | 4,691.7 | | |
$ | 4,690.4 | |
13. Derivative Financial Instruments
The Company is exposed to
certain risks relating to its ongoing business operations, including market risks relating to fluctuations in interest rates. Derivative
financial instruments are recognized on the consolidated balance sheets as either assets or liabilities and are measured at fair value.
Changes in the fair values of the derivative are recorded each period in earnings or accumulated other comprehensive income, depending
on whether a derivative is effective as part of a hedged transaction. Gains and losses on derivative instruments reported in accumulated
other comprehensive income (loss) are subsequently included in earnings in the periods in which earnings are affected by the hedged item.
The Company does not use derivative instruments for speculative purposes.
On October 28, 2022, the
Company entered into a three-year USD-denominated interest rate swap (the “Swap”) with a third-party financial counterparty
under the Credit Agreement (see Note 10). The Swap was executed to protect the Company from interest rate volatility on our variable-rate
Term Loan. The Swap became effective December 30, 2022 and is comprised of a $600.0 notional with a maturity of three years. We receive
a variable rate based on one-month Term SOFR and pay a fixed rate of 4.455%. As of September 30, 2023, approximately 83.1% of our debt
bears interest at a fixed rate. The notional on the Swap amortizes as follows:
Year 1: $600.0
Year 2: $400.0
Year 3: $100.0
The Swap has been designated
as a cash flow hedge of the variability of the first unhedged interest payments (the hedged transactions) paid over the hedging relationship’s
specified time period of three years attributable to the borrowing’s contractually specified interest index on the hedged principal
of its general borrowing program or replacement or refinancing thereof. The fair value of the Swap has been disclosed in Note 6. The
accumulated other comprehensive income/(loss) derivative component balance was a $3.1 gain at September 30, 2023 and a $2.2 loss at April
1, 2023, net of taxes. The gain/loss reclassified from accumulated other comprehensive income/(loss) into earnings will be recorded as
interest income/expense on the Swap and will be included in the operating section of the Company’s consolidated statements of cash
flows.
14. Specline Acquisition
On August 18, 2023, RBC acquired the business assets of Specline, Inc.
(“Specline”) for $18.7. The Company accounted for the transaction as a business combination for accounting purposes. Specline,
which is based in Carson City, Nevada, is a manufacturer of precision bearings for the commercial and defense aerospace markets. The preliminary
purchase price allocation is as follows: $1.6 of accounts receivable, $4.0 of inventory, $1.5 of fixed assets, $0.8 of operating lease
assets, $9.1 of intangible assets, $0.0 of accounts payable, $2.0 of earnout liability, and $0.8 of operating lease liabilities. Goodwill
of $4.6 resulting from the purchase price allocation is not deductible for tax purposes and is subject to change pending a final valuation
of the assets and liabilities. Specline is included in the Aerospace/Defense segment.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
All dollar amounts in this
MD&A presentation are stated in millions except for per-share amounts.
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
Company 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) 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; (d) future reductions or changes in U.S. government spending could negatively
affect our business; (e) 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; (f) 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; (g) some of 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; (h) the retirement of commercial aircraft could reduce
our revenues, cash flows and profitability; (i) work stoppages and other labor problems could materially reduce our ability to operate
our business; (j) unexpected equipment failures, catastrophic events or capacity constraints could increase our costs and reduce our sales
due to production curtailments or shutdowns; (k) we may not be able to continue to make the acquisitions necessary for us to realize our
growth strategy; (l) 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; (m) 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; (n) we depend heavily on our senior management and other key personnel, the loss
of whom could materially affect our financial performance and prospects; (o) our international operations are subject to risks inherent
in such activities; (p) currency translation risks may have a material impact on our results of operations; (q) we are subject to changes
in legislative, regulatory and legal developments involving income and other taxes; (r) we may be required to make significant future
contributions to our pension plan; (s) we may incur material losses for product liability and recall-related claims; (t) 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; (u) 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;
(v) cancellation of orders in our backlog could negatively impact our revenues, cash flows and profitability; (w) 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; (x) litigation
could adversely affect our financial condition; (y) changes in accounting standards or changes in the interpretations of existing standards
could affect our financial results; (z) risks associated with utilizing information technology systems could adversely affect our operations;
(aa) our quarterly performance can be affected by the timing of government product inspections and approvals; (bb) we may fail to realize
some of the anticipated benefits of the Dodge acquisition or those benefits may take longer to realize than expected; (cc) 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 (dd) increases in interest rates would increase the cost of servicing the Term Loan 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 our Annual Report.
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, that
appears elsewhere in this Quarterly Report.
Overview
We are a well-known international
manufacturer and maker of highly engineered bearings and precision 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 expertise has enabled us to garner
leading positions in many of the product markets in which we primarily compete. With 53 facilities in 10 countries, of which 38 are manufacturing
facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach.
Our
chief operating decision maker makes operating decisions, assesses the performance of the business, and allocates resources under
two reportable business segments – Aerospace/Defense and Industrial:
| ● | Aerospace/Defense.
This segment represents the end markets for the Company’s highly engineered
bearings and precision components used in commercial aerospace, defense aerospace, and marine
and ground defense applications. |
| ● | Industrial.
This segment represents the end markets for the Company’s highly engineered
bearings, gearings and precision components used in various industrial applications including:
power transmission; construction, mining, energy and specialized equipment manufacturing;
semiconductor production equipment manufacturing; agricultural machinery, commercial truck
and automotive manufacturing; and tool holding. |
The markets for our products
are cyclical, and we have endeavored to mitigate this cyclicality by entering into single and sole-source relationships and long-term
purchase agreements, through diversification across multiple market segments within the Aerospace/Defense 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 highly engineered bearings and precision 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. The acquisition of Dodge has had a profound
impact on our sales volumes to distributors and other aftermarket customers. We will work to further
increase the percentage of our revenues derived from the replacement market by continuing
to implement several initiatives. |
| ● | Pursuing
selective acquisitions. The acquisition of businesses that complement or expand our
operations has been and continues to be an important element of our business strategy. We
believe that there will continue to be consolidation within the industry that may present
us with acquisition opportunities. |
Outlook
Our net sales for the three-month period ended September 30, 2023 increased
4.4% compared to the same period last fiscal year. The increase in net sales was a result of a 22.9% increase in our Aerospace/Defense
segment partially offset by a 2.8% decrease in our Industrial segment.
Our backlog, as of September 30, 2023,
was $641.3 compared to $663.8 as of April 1, 2023. These figures exclude orders from our Sargent marine and Sargent aerospace businesses
that are expected to be fulfilled more than 12 months after the balance sheet dates. Including all orders from our Sargent marine and
Sargent aerospace businesses, our backlog as of September 30, 2023 was $762.4 compared to $759.4 as of April 1, 2023.
We are continuing to see the recovery of the commercial aerospace business,
which experienced a 23.6% increase in net sales for the three-month period ended September 30, 2023 over the same period last fiscal year.
We anticipate this growth to continue through at least the rest of the current fiscal year. Orders have continued to grow as evidenced
by our aerospace backlog. Defense sales, which represented approximately 31.9% of segment sales during the quarter, were up 21.5% year
over year. We expect this growth to continue as we are gearing up to fulfill the substantial number of marine orders in our backlog.
Our core industrial business
during the quarter remained relatively steady when compared to the same period in the prior fiscal year.
The Company expects net sales
to be approximately $370.0 to $380.0 in the third quarter of fiscal 2024 compared to $351.6 for the third quarter of the prior fiscal
year, a growth rate of 5.2% to 8.1%. We are on track to reach full year fiscal 2024 net sales of approximately $1,550.0 to $1,600.0.
We believe that operating
cash flows and available credit under the Revolving Credit Facility will provide adequate resources to fund internal growth initiatives
for the foreseeable future, including at least the next 12 months. As of September 30, 2023, we had cash and cash equivalents of $56.6,
of which approximately $33.4 was cash held by our foreign operations.
Results of Operations
(dollars in millions)
| |
Three Months Ended |
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
Total net sales | |
$ | 385.6 | | |
$ | 369.2 | | |
$ | 16.4 | | |
| 4.4 | % |
| |
| | | |
| | | |
| | | |
| | |
Net income attributable to common stockholders | |
$ | 45.9 | | |
$ | 38.1 | | |
$ | 7.8 | | |
| 20.8 | % |
| |
| | | |
| | | |
| | | |
| | |
Net income per share attributable to common stockholders: diluted | |
$ | 1.58 | | |
$ | 1.31 | | |
| | | |
| | |
Weighted average common shares: diluted | |
| 29,138,596 | | |
| 29,093,791 | | |
| | | |
| | |
Our net sales for the three-month
period ended September 30, 2023 increased 4.4% compared to the same period last fiscal year. Net sales in our Industrial segment decreased
2.8% year over year. While stable overall, we saw strength in food and beverage, mining and metals and general industrial distribution
offset by weakness in semiconductor. Net sales in our Aerospace/Defense segment increased 22.9% year over year, led by commercial aerospace,
which was up 23.6% compared to the same period in the prior fiscal year. Defense sales increased 21.5% compared to the same period in
the prior fiscal year, driven by marine. The increase in commercial aerospace reflected growth in orders from large OEMs as build rates
escalate and our expansion in the aftermarket. Specline contributed $1.1 of net sales during the three-month period ended September 30,
2023.
Net income attributable to
common stockholders for the second quarter of fiscal 2024 was $45.9 compared to $38.1 for the same period last fiscal year. Net income
for the second quarter of fiscal 2023 was affected by approximately $4.0 of pre-tax transition services costs and other costs associated
with the Dodge acquisition.
| |
Six Months Ended |
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
Total net sales | |
$ | 772.7 | | |
$ | 723.3 | | |
$ | 49.4 | | |
| 6.8 | % |
| |
| | | |
| | | |
| | | |
| | |
Net income attributable to common stockholders | |
$ | 90.2 | | |
$ | 69.8 | | |
$ | 20.4 | | |
| 29.4 | % |
| |
| | | |
| | | |
| | | |
| | |
Net income per share attributable to common stockholders: diluted | |
$ | 3.10 | | |
$ | 2.40 | | |
| | | |
| | |
Weighted average common shares: diluted | |
| 29,126,670 | | |
| 29,020,403 | | |
| | | |
| | |
Our net sales for the six-month
period ended September 30, 2023 increased 6.8% compared to the same period last fiscal year. Net sales in our Industrial segment increased
0.9% year over year. This reflected a pattern of sustained strong performance in areas including the food and beverage, mining, energy,
and general industrial markets. Net sales in our Aerospace/Defense segment increased 22.1% year over year, led by commercial aerospace
which was up 25.9% compared to the same period in the prior year while sales to the defense sector were up 14.6%. The increase in commercial
aerospace reflects the recovery in build rates from large OEMs and stability in the aftermarket. We are starting to ramp up shipments
on many of our defense orders, most notably, for the Virginia-class and Columbia-class submarines. Specline contributed $1.1 of net sales
in the Aerospace/Defense segment during the six-month period ended September 30, 2023.
Net income attributable
to common stockholders for the six months ended September 30, 2023 was $90.2 compared to $69.8 for the same period last fiscal year.
Net income for the six-month period in fiscal 2023 was affected by approximately $7.8 of pre-tax transition services costs and other
costs associated with the Dodge acquisition.
Gross Margin
| |
Three Months Ended |
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Gross Margin | |
$ | 166.3 | | |
$ | 151.1 | | |
$ | 15.2 | | |
| 10.0 | % |
% of net sales | |
| 43.1 | % | |
| 40.9 | % | |
| | | |
| | |
Gross margin was 43.1% of net sales for the second
quarter of fiscal 2024 compared to 40.9% for the second quarter of fiscal 2023. The increase in gross margin as a percentage of net sales
was driven by increased volumes, manufacturing efficiencies, pricing and product mix.
| |
Six Months Ended |
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Gross Margin | |
$ | 334.2 | | |
$ | 292.3 | | |
$ | 41.9 | | |
| 14.3 | % |
% of net sales | |
| 43.2 | % | |
| 40.4 | % | |
| | | |
| | |
Gross margin was 43.2% of net sales for the first six months of fiscal
2024 compared to 40.4% for the same period last fiscal year. The increase in gross margin as a percentage of net sales was driven by increased
volumes, manufacturing efficiencies, pricing and product mix.
Selling, General and Administrative
| |
Three Months Ended |
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
SG&A | |
$ | 60.5 | | |
$ | 57.5 | | |
$ | 3.0 | | |
| 5.3 | % |
% of net sales | |
| 15.7 | % | |
| 15.6 | % | |
| | | |
| | |
SG&A for the second quarter
of fiscal 2024 was $60.5, or 15.7% of net sales, as compared to $57.5, or 15.6% of net sales, for the same period of fiscal 2023. The
increase in SG&A was primarily driven by personnel costs, IT costs and other professional fees.
|
|
Six Months Ended |
|
|
|
|
|
September 30, 2023 |
|
|
October 1, 2022 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A |
|
$ |
125.2 |
|
|
$ |
113.3 |
|
|
$ |
11.9 |
|
|
|
10.5 |
% |
% of net sales |
|
|
16.2 |
% |
|
|
15.7 |
% |
|
|
|
|
|
|
|
|
SG&A expenses increased by $11.9 to $125.2 for the first six months
of fiscal 2024 compared to $113.3 for the same period last year. The increase in SG&A for the first six months of fiscal 2024 was
primarily related to increases in professional fees and personnel costs.
Other, Net
| |
Three Months Ended |
|
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Other, net | |
$ | 18.0 | | |
$ | 21.6 | | |
$ | (3.6 | ) | |
| (16.6 | )% |
% of net sales | |
| 4.7 | % | |
| 5.9 | % | |
| | | |
| | |
Other operating expenses for
the second quarter of fiscal 2024 totaled $18.0 compared to $21.6 for the same period last fiscal year. For the second quarter of fiscal
2024, other operating expenses included $17.6 of amortization of intangible assets, $0.3 of restructuring costs and $0.1 of other items.
For the second quarter of fiscal 2023, other operating expenses included $4.0 of transition services costs and other costs associated
with the Dodge acquisition, $16.8 of amortization of intangible assets, and $0.8 of other items.
| |
Six Months Ended |
|
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Other, net | |
$ | 36.2 | | |
$ | 42.5 | | |
$ | (6.3 | ) | |
| (14.8 | %) |
% of net sales | |
| 4.7 | % | |
| 5.9 | % | |
| | | |
| | |
Other
operating expenses for the first six months of fiscal 2024 totaled $36.2 compared to $42.5 for the same period last fiscal year. For the
first six months of fiscal 2024, other operating expenses were comprised primarily of $35.1 of amortization of intangible assets, $0.6
of restructuring costs, and $0.5 of other items. For the first six months of fiscal 2023, other operating expenses were comprised mainly
of $7.8 of transition services costs and other costs associated with the Dodge acquisition, $34.1
of amortization of intangible assets, and $0.6 of other items.
Interest Expense, Net
Interest expense, net,
consists of interest charged on the Company’s debt agreements and amortization of deferred financing fees, offset by interest income.
The rise in interest rates since 2022 has resulted in additional interest expense on our variable-rate debt. As discussed in the “Liquidity
and Capital Resources” section below, we have fixed the majority of our variable-rate debt with an interest rate swap.
| |
Three Months Ended |
|
| |
| |
September 30,
2023 | | |
October 1,
2022 | | |
$
Change | | |
%
Change | |
| |
| | |
| | |
| | |
| |
Interest expense, net | |
$ | 20.1 | | |
$ | 18.3 | | |
$ | 1.8 | | |
| 9.8 | % |
% of net sales | |
| 5.2 | % | |
| 5.0 | % | |
| | | |
| | |
Interest expense, net, was
$20.1 for the second quarter of fiscal 2024 compared to $18.3 for the same period last fiscal year.
| |
Six Months Ended |
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Interest expense, net | |
$ | 40.6 | | |
$ | 34.1 | | |
$ | 6.5 | | |
| 19.0 | % |
% of net sales | |
| 5.3 | % | |
| 4.7 | % | |
| | | |
| | |
Interest expense, net, was $40.6 for the first six months of fiscal
2024 compared to $34.1 for the same period last fiscal year.
Other Non-Operating Expense/(Income)
| |
Three Months Ended |
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Other non-operating expense /(income) | |
$ | 0.8 | | |
$ | 0.2 | | |
$ | 0.6 | | |
| 321.2 | % |
% of net sales | |
| 0.2 | % | |
| 0.0 | % | |
| | | |
| | |
Other non-operating expenses were $0.8 for the second quarter of fiscal
2024 compared to $0.2 for the same period in the prior fiscal year and consisted primarily of post-retirement benefit costs and foreign
exchange gains and losses.
| |
Six Months Ended |
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Other non-operating expense | |
$ | 1.3 | | |
$ | 1.0 | | |
$ | 0.3 | | |
| 36.9 | % |
% of net sales | |
| 0.2 | % | |
| 0.1 | % | |
| | | |
| | |
Other non-operating expenses were $1.3 for the first six months of
fiscal 2024 compared to $1.0 for the same period in the prior fiscal year and consisted primarily of post-retirement benefit costs and
foreign exchange gains and losses.
Income Taxes
| |
Three Months Ended | |
| |
September 30, 2023 | | |
October 1, 2022 | |
| |
| | |
| |
Income tax expense | |
$ | 15.2 | | |
$ | 9.7 | |
Effective tax rate | |
| 22.7 | % | |
| 18.1 | % |
Income tax expense for the second quarter of fiscal 2024 was $15.2 compared to $9.7 for the
same period in the prior fiscal year. Our effective income tax
rate for the second quarter of fiscal 2024 was 22.7% compared to 18.1% for the same period in the prior fiscal year.
The effective income tax rate for the second quarter of fiscal 2024 of 22.7% included $0.1
of discrete tax benefits associated with stock-based compensation; the effective income tax rate without these benefits would have been
22.8%. The effective income tax rate for the second quarter of fiscal 2023 of 18.1% included $2.4 of tax benefits associated with stock-based
compensation and $0.2 of other items; the effective income tax rate without these benefits and items would have been 22.9%.
| |
Six Months Ended | |
| |
September 30, 2023 | | |
October 1, 2022 | |
| |
| | |
| |
Income tax expense | |
$ | 29.2 | | |
$ | 20.2 | |
Effective tax rate | |
| 22.3 | % | |
| 19.9 | % |
Income tax expense for
the first six months of fiscal 2024 was $29.2 compared to $20.2 for the same period in the prior fiscal year. Our effective income tax
rate for the first six months of fiscal 2024 was 22.3% compared to 19.9% for the same period in the prior fiscal year. The effective
income tax rate for the first six months of fiscal 2024 of 22.3% included $0.5 of tax benefits associated with stock-based compensation.;
the effective income tax rate without these benefits would have been 22.7%. The effective income tax rate for the first six months of
fiscal 2023 of 19.9% included $3.0 of tax benefits associated with stock-based compensation partially offset by $0.2 of other items;
the effective income tax rate without these benefits and items would have been 23.0%.
Segment Information
Our chief
operating decision maker makes operating decisions, assesses
the performance of the business, and allocates resources under two operating segments: Aerospace/Defense; and Industrial. We use segment
net sales and gross margin as the primary measurements to assess the financial performance of each reportable segment.
Aerospace/Defense Segment
| |
Three Months Ended |
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Total net sales | |
$ | 127.3 | | |
$ | 103.6 | | |
$ | 23.7 | | |
| 22.9 | % |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 50.6 | | |
$ | 41.0 | | |
$ | 9.6 | | |
| 23.3 | % |
% of segment net sales | |
| 39.7 | % | |
| 39.6 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 9.1 | | |
$ | 7.5 | | |
$ | 1.6 | | |
| 22.2 | % |
% of segment net sales | |
| 7.2 | % | |
| 7.2 | % | |
| | | |
| | |
Net sales increased $23.7,
or 22.9%, for the second quarter of fiscal 2024 compared to the same period last fiscal year. Commercial aerospace, which consisted of
$67.5 of OEM and $19.2 of distribution and aftermarket, increased by 23.6% compared to fiscal 2023 when OEM net sales were $56.0 and distribution
and aftermarket net sales were $14.1. This was driven by a continuing recovery as build rates and orders escalate in the OEM markets and
the aftermarket begins to pick up. Our defense markets, which consisted of $34.9 of OEM and $5.7 of distribution and aftermarket, increased
by 21.5% compared to fiscal 2023 when OEM net sales were $27.8 and distribution and aftermarket net sales were $5.7. Sales in our marine
business have been strong and we are starting to ramp up shipments on many of our defense orders, most notably, for the Virginia-class
and Columbia-class submarines. Specline contributed $1.1 of net sales during the three-month period ended September 30, 2023.
Gross margin as a percentage of segment net sales was 39.7% for the
second quarter of fiscal 2024 compared to 39.6% for the same period last fiscal year. The increase in gross margin as a percentage of
net sales was driven by efficiencies achieved at the plants in part due to increased sales volumes. This margin improvement is expected
to continue as the commercial aerospace industry continues to expand. In addition, we have a substantial amount of defense orders in our
backlog that we are gearing up to fulfill over the next 12 months, which we expect will contribute to margin expansion.
| |
Six Months Ended |
|
| |
| |
September 30, 2023 | | |
October 1, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Total net sales | |
$ | 247.8 | | |
$ | 203.0 | | |
$ | 44.8 | | |
| 22.1 | % |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 97.9 | | |
$ | 79.6 | | |
$ | 18.3 | | |
| 22.9 | % |
% of segment net sales | |
| 39.5 | % | |
| 39.2 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 18.2 | | |
$ | 15.0 | | |
$ | 3.2 | | |
| 22.3 | % |
% of segment net sales | |
| 7.4 | % | |
| 7.4 | % | |
| | | |
| | |
Net
sales increased $44.8, or 22.1%, for the first six months of fiscal 2024 compared to the
same period last fiscal year. The 22.1% increase was primarily driven by a 25.9% increase
in our commercial aerospace market, both OEM and aftermarket, while our defense market was
up 14.6% year over year due to the timing of shipments related to our marine business. Commercial
aerospace, which consisted of $133.1 of OEM and $36.5 of distribution and aftermarket, increased
by 25.9% compared to fiscal 2023 when OEM net sales were $108.0 and distribution and aftermarket
net sales were $26.8. During the year, we have noted improvement in the sales and orders
to our commercial aerospace customers as build rates continue to grow. Our backlog and recent
results reflect this trend, which we expect to continue to see in upcoming quarters. Our
defense markets, which consisted of $65.2 of OEM and $13.0 of distribution and aftermarket,
increased by 14.6% compared to fiscal 2023 when OEM net sales were $55.0 and distribution
and aftermarket net sales were $13.2. Specline contributed $1.1 of net sales during the six-month
period ended September 30, 2023.
Gross margin as a percentage of net sales increased to 39.5% for the
first six months of fiscal 2024 compared to 39.2% for the same period last fiscal year. The increase in gross margin percentage was due
to increased volumes, manufacturing efficiencies, and product mix.
Industrial Segment
| |
Three Months Ended |
|
| |
| |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Total net sales | |
$ | 258.3 | | |
$ | 265.6 | | |
$ | (7.3 | ) | |
| (2.8 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 115.7 | | |
$ | 110.1 | | |
$ | 5.6 | | |
| 5.1 | % |
% of segment net sales | |
| 44.8 | % | |
| 41.5 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 31.8 | | |
$ | 30.1 | | |
$ | 1.7 | | |
| 5.7 | % |
% of segment net sales | |
| 12.3 | % | |
| 11.3 | % | |
| | | |
| | |
Net sales decreased $7.3,
or 2.8%, for the second quarter of fiscal 2024 compared to the same period last fiscal year. While stable overall, we saw strength in
food and beverage, mining and metals and general industrial distribution offset by weakness in semiconductor. Industrial OEM sales were
$84.7 and $87.7 for the three month periods ended September 30, 2023 and October 1, 2022, respectively. Industrial sales to distribution
and the aftermarket were $173.6 and $177.9 for the three month periods ended September 30, 2023 and October 1, 2022, respectively.
Gross margin for the second
quarter of fiscal 2024 was 44.8% of net sales, compared to 41.5% in the same period last fiscal year. The improved gross margin was due
to product mix and better manufacturing efficiencies.
| |
Six Months Ended |
|
| |
| |
September 30, 2023 | | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Total net sales | |
$ | 524.9 | | |
$ | 520.3 | | |
$ | 4.6 | | |
| 0.9 | % |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
$ | 236.3 | | |
$ | 212.7 | | |
$ | 23.6 | | |
| 11.1 | % |
% of segment net sales | |
| 45.0 | % | |
| 40.9 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
SG&A | |
$ | 65.8 | | |
$ | 60.1 | | |
$ | 5.7 | | |
| 9.6 | % |
% of segment net sales | |
| 12.5 | % | |
| 11.5 | % | |
| | | |
| | |
Net
sales increased $4.6, or 0.9%, for the first six months of fiscal 2024 compared to the same
period last fiscal year. Net sales were stable due to solid performance across our industrial
markets. The overall segment increase was driven by performance in food and beverage, energy,
mining, and the general industrial markets. Industrial OEM sales were $169.4 and $181.0 for
the six month periods ended September 30, 2023 and October 1, 2022, respectively. Industrial
sales to distribution and the aftermarket were $355.5 and $339.3 for the six month periods
ended September 30, 2023 and October 1, 2022, respectively.
Gross margin for the first six months of fiscal 2024 was 45.0% of net sales, compared to
40.9% in the same period last fiscal year. The increase in gross margin was driven by manufacturing efficiencies and price increases.
Corporate
| |
Three Months Ended |
|
| |
| |
September 30,
2023 | | |
October 1,
2022 | | |
$
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
SG&A | |
$ | 19.6 | | |
$ | 19.9 | | |
$ | (0.3 | ) | |
| (1.7 | )% |
% of total net sales | |
| 5.1 | % | |
| 5.4 | % | |
| | | |
| | |
Corporate SG&A was $19.6, or 5.1% of net sales, for the second quarter of fiscal 2024,
which was relatively flat compared to $19.9, or 5.4% of net sales, for the same period last fiscal year.
| |
Six Months Ended |
|
| |
| |
September 30, 2023 | | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
SG&A | |
$ | 41.2 | | |
$ | 38.2 | | |
$ | 3.0 | | |
| 7.3 | % |
% of total net sales | |
| 5.3 | % | |
| 5.3 | % | |
| | | |
| | |
Corporate SG&A increased $3.0
for the first six months of fiscal 2024 compared to the same period last fiscal year due to increases in personnel costs and professional
fees.
Liquidity and Capital Resources
Our capital requirements include
manufacturing equipment and materials. In addition, we have historically fueled our growth, in part, through acquisitions, including the
Dodge acquisition completed in fiscal 2022 and the Specline acquisition completed in fiscal 2024. We have historically met our working
capital, capital expenditure and acquisition funding needs through our net cash flows provided by operations, various debt arrangements
and sales of equity to investors. We believe that operating cash flows and available credit under the Revolving Credit Facility (which
expires in November 2026) will provide adequate resources to fund internal growth initiatives for the foreseeable future.
Our ability to meet future working capital, capital expenditure 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, 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, relocate, consolidate or otherwise dispose of that facility or operations. Although we
believe our operations would not be materially impaired by such dispositions, relocations or consolidations, we could incur significant
cash or non-cash charges in connection with them.
Liquidity
As of September 30, 2023, we had cash and cash equivalents of $56.6,
of which approximately $33.4 was cash held by our foreign operations. We expect that our undistributed foreign earnings will be reinvested
indefinitely for working capital, internal growth, and acquisitions for and by our foreign subsidiaries.
Domestic Credit Facility
The Credit Agreement, which was entered into in 2021 with Wells Fargo
and the other lenders party thereto, provides the Company with (a) the $1,300.0 Term Loan, which 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 $500.0 Revolving Credit Facility. Debt issuance
costs associated with the Credit Agreement totaled $14.9 and are being amortized over the life of the Credit Agreement.
Prior to December 2022, amounts
outstanding under the Facilities (i.e., the Term Loan and the Revolving Credit Facility) generally bore interest at either, at the Company’s
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 was based on the Company’s consolidated ratio of total net debt to consolidated EBITDA
(as defined within the Credit Agreement) from time to time. In December 2022 the Credit Agreement was amended to replace LIBOR with SOFR
(i.e., the secured overnight financing rate administered by the Federal Reserve Bank of New York) so that borrowings under the Facilities
denominated in U.S. dollars bear interest at a rate per annum equal to Term SOFR (as defined in the Credit Agreement) plus a credit spread
adjustment of 0.10% plus a margin ranging from 0.75% to 2.00% depending on the Company’s consolidated ratio of total net debt to
consolidated EBITDA. The Facilities are subject to a SOFR floor of 0.00%. As of September 30, 2023, the Company’s margin was 1.25%
for SOFR loans, the commitment fee rate was 0.20%, and the letter of credit fee rate was 1.25%. A portion of the Term Loan is subject
to a fixed-rate interest swap as discussed under “Interest Rate Swap” below.
The Term Loan matures in November
2026 and amortizes in quarterly installments with the balance payable on the maturity date. The Company can elect to prepay some or all
of the outstanding balance from time to time without penalty, which will offset future quarterly amortization installments. Due to prepayments
previously made, the required future principal payments on the Term Loan are $0 for fiscal 2024, $0 for fiscal 2025, $0 for fiscal 2026,
and $810.0 for fiscal 2027. The Revolving Credit Facility expires in November 2026, at which time all amounts outstanding under the Revolving
Credit Facility will be payable.
The Credit Agreement requires
the Company to comply with various covenants, including the following financial covenants: (a) a maximum Total Net Leverage Ratio (as
defined within the Credit Agreement) of 5.00:1.00, which maximum Total Net Leverage Ratio shall decrease during certain subsequent test
periods as set forth in the 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 Company 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. As of September 30, 2023, the Company was in compliance with all debt covenants.
The Credit Agreement allows
the Company to, among other things, make distributions to stockholders, repurchase its stock, incur other debt or liens, or acquire or
dispose of assets provided that the Company complies with certain requirements and limitations of the Credit Agreement.
The Company’s domestic subsidiaries have guaranteed the Company’s
obligations under the Credit Agreement, and the Company’s obligations and the domestic subsidiaries’ guaranty are secured
by a pledge of substantially all of the assets of the Company and its domestic subsidiaries.
As of September 30, 2023, $810.0 was outstanding under the Term Loan,
$3.7 of the Revolving Credit Facility was being utilized to provide letters of credit to secure the Company’s obligations relating
to certain insurance programs, and $18.0 of the Revolving Credit Facility had been used to fund the purchase of the business assets of
Specline. The Company had the ability to borrow up to an additional $478.3 under the Revolving Credit Facility as of September 30, 2023.
Senior Notes
In 2021, RBCA issued $500.0 aggregate principal amount of 4.375% Senior
Notes due 2029. The net proceeds from the issuance of the Senior Notes were approximately $492.0 after deducting initial purchasers’
discounts and commissions and offering expenses.
The Senior Notes were issued
pursuant to the Indenture with Wilmington Trust, National Association, as trustee. The Indenture contains covenants limiting the ability
of the Company to (i) incur additional indebtedness or guarantee indebtedness, (ii) declare or pay dividends, redeem stock or make other
distributions to stockholders, (iii) make investments, (iv) create liens or use assets as security in other transactions, (v) merge or
consolidate, or sell, transfer, lease or dispose of substantially all of its assets, (vi) enter into transactions with affiliates, and
(vii) sell or transfer certain assets. These covenants contain various exceptions, limitations and qualifications. At any time that the
Senior Notes are rated investment grade, certain of these covenants will be suspended.
The Senior Notes are guaranteed
jointly and severally on a senior unsecured basis by RBC Bearings and certain of RBCA’s existing and future wholly-owned domestic
subsidiaries that also guarantee the Credit Agreement.
Interest on the Senior Notes
accrues at a rate of 4.375% and is payable semi–annually in cash in arrears on April 15 and October 15 of each year.
The Senior Notes will mature
on October 15, 2029. The Company may redeem some or all of the Senior Notes at any time on or after October 15, 2024 at the redemption
prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also
redeem up to 40% of the Senior Notes using the proceeds of certain equity offerings completed before October 15, 2024, at a redemption
price equal to 104.375% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
In addition, at any time prior to October 15, 2024, the Company may redeem some or all of the Senior Notes at a price equal to 100% of
the principal amount, plus a “make–whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the
redemption date. If the Company sells certain of its assets or experiences specific kinds of changes in control, the Company must offer
to purchase the Senior Notes.
Foreign Borrowing Arrangements
One of our foreign subsidiaries,
Schaublin, entered into a credit agreement in 2019 with Credit Suisse (Switzerland) Ltd. to provide Schaublin with a CHF 15.0 (approximately
$15.4 USD) revolving credit facility, which was terminated in October 2022. Schaublin now has a CHF 5.0 (approximately $5.5 USD) revolving
credit facility with Credit Suisse to provide future working capital, if necessary. As of September 30, 2023, $0.1 of the new facility
was being utilized to provide a bank guarantee. Fees associated with the new facility are nominal.
Interest Rate Swap
The Company is exposed to
market risks relating to fluctuations in interest rates.
To hedge against this risk,
on October 28, 2022, the Company entered into the Swap with a third-party financial counterparty under the Credit Agreement. The Swap
was executed to protect the Company from interest rate volatility on our variable-rate Term Loan. The Swap became effective on December
30, 2022 and is comprised of a $600.0 notional with a maturity of three years. RBC receives a variable rate based on one-month Term SOFR
and pays a fixed rate of 4.455%. The notional on the Swap amortizes as follows:
Year 1: $600.0
Year 2: $400.0
Year 3: $100.0
The Swap has been designated
as a cash flow hedge of the variability of the first unhedged interest payments (the hedged transactions) paid over the hedging relationship’s
specified time period of three years attributable to the borrowing’s contractually specified interest index on the hedged principal
of its general borrowing program or replacement or refinancing thereof.
Cash Flows
Six-month Period Ended September 30, 2023
Compared to the Six-month Period Ended October 1, 2022
The following table summarizes our cash
flow activities:
| |
FY24 | | |
FY23 | | |
| |
Net cash provided by/(used in): | |
| | |
| |
Operating activities | |
$ | 114.8 | | |
$ | 88.4 | | |
$ | 26.4 | |
Investing activities | |
| (32.5 | ) | |
| 0.4 | | |
| (32.9 | ) |
Financing activities | |
| (90.4 | ) | |
| (179.9 | ) | |
| 89.5 | |
Effect of exchange rate changes on cash | |
| (0.7 | ) | |
| (3.3 | ) | |
| 2.6 | |
Increase/(decrease) in cash and cash equivalents | |
$ | (8.8 | ) | |
$ | (94.4 | ) | |
$ | 85.6 | |
During the first six months of fiscal 2024, we generated cash of $114.8
from operating activities compared to $88.4 during the same period of fiscal 2023. The increase of $26.4 was the result of an increase
in net income of $20.5, a favorable change in non-cash activity of $1.3, and the favorable impact of the net change in operating assets
and liabilities of $4.6. The favorable change in operating assets and liabilities is detailed in the table below. The change in non-cash
activity was driven by a $0.9 increase in stock-based compensation, a $2.6 increase in depreciation and amortization, a $0.3 increase
in consolidation and restructuring charges, and a $0.3 increase in loss on asset dispositions, partially offset by $2.7 less amortization
of deferred financing costs and $0.1 less noncash operating lease expense.
The following table summarizes
the impact of operating assets and liabilities for fiscal 2024 versus fiscal 2023.
| |
Six Months Ended |
|
| |
| |
| | |
| | |
| |
Cash provided by/(used in): | |
| | |
| | |
| |
Accounts receivable | |
$ | (3.7 | ) | |
$ | 9.3 | | |
$ | (13.0 | ) |
Inventory | |
| (24.8 | ) | |
| (45.2 | ) | |
| 20.4 | |
Prepaid expenses and other current assets | |
| (0.7 | ) | |
| (13.0 | ) | |
| 12.3 | |
Other noncurrent assets | |
| (2.0 | ) | |
| 1.6 | | |
| (3.6 | ) |
Accounts payable | |
| (16.0 | ) | |
| (8.7 | ) | |
| (7.3 | ) |
Accrued expenses and other current liabilities | |
| (7.7 | ) | |
| 2.4 | | |
| (10.1 | ) |
Other noncurrent liabilities | |
| (0.4 | ) | |
| (6.3 | ) | |
| 5.9 | |
Total change in operating assets and liabilities: | |
$ | (55.3 | ) | |
$ | (59.9 | ) | |
$ | 4.6 | |
During the first six months of fiscal 2024, we used $32.5 for investing
activities as compared to $0.4 generated in the first six months of fiscal 2023. This decrease from cash generated to cash used was primarily
attributable to $18.7 of cash used to acquire the business assets of Specline during fiscal 2024 and $23.1 of favorable Dodge acquisition
purchase price adjustment during the first six months of fiscal 2023, partially offset by an $8.9 decrease in capital expenditures during
fiscal 2024.
During the first six months
of fiscal 2024, we used cash of $90.4 for financing activities compared to $179.9 in the first six months of fiscal 2023. This decrease
in cash used was primarily attributable to $78.9 less repayment of outstanding debt, $18.0 of proceeds received from our Revolving Credit
Facility, and $0.6 less payment of principal on finance leases, partially offset by a $1.0 increase in repurchases of common stock and
$7.0 less received from the exercises of stock-based awards.
Capital Expenditures
Our capital expenditures were $14.2 for the first six months of fiscal
2024 compared to $23.1 for the same period in the prior fiscal year. We expect to make additional capital expenditures of $15.0 to $20.0
during the remainder of fiscal 2024 in connection with our existing business. We expect to fund these capital expenditures principally
through existing cash and internally generated funds. We may also make substantial additional capital expenditures in connection with
acquisitions.
Obligations and Commitments
The Company’s fixed contractual obligations and commitments are
primarily comprised of our debt obligations disclosed in Part I, Item 1 - Note 10 of this report. We also have lease obligations which
are materially consistent with what we disclosed in our Annual Report.
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 Annual Report
describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results
in these areas could differ from management’s estimates. There were no significant changes in our critical accounting estimates
during the first six months of fiscal 2024.
Off-Balance Sheet Arrangements
The Company has $3.7 of outstanding
standby letters of credit, all of which are under the Revolving Credit Facility. We also have a contractual obligation for licenses related
to the implementation and upgrade of an enterprise resource planning (ERP) system for Dodge. These license costs of $10.5 for the ERP
system are being incurred over the five-year period from the execution of the license agreement in May 2022.
Other than the items noted
above, we had no significant off-balance sheet arrangements as of September 30, 2023.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks
that arise during the normal course of business from changes in interest rates and foreign currency exchange rates.
Interest Rates. We
currently have variable rate debt outstanding under the Term Loan. 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. As discussed in Note 13 in Part I, Item I of this report,
we have utilized an interest rate swap to fix a portion of the variable rate interest expense associated with the Term Loan.
Foreign Currency Exchange
Rates. Our operations in the following countries utilize the following currencies as their functional currency:
|
● |
Australia – Australian dollar |
|
● |
India – rupee |
|
● |
Canada – Canadian dollar |
|
● |
Mexico – peso |
|
● |
China – Chinese yuan |
|
● |
Poland – zloty |
|
● |
France and Germany – euro |
|
● |
Switzerland – Swiss franc |
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
11% of our net sales were impacted by foreign currency fluctuations for the three-month period ended September 30, 2023 compared to approximately
12% for the three-month period ended October 1, 2022. Approximately 12% of our net sales were impacted by foreign currency fluctuations
for both the six-month period ended September 30, 2023 and the six-month period ended October 1, 2022. For those countries outside the
U.S. where we have sales, a strengthening in the U.S. dollar as we have seen over the past few years or devaluation in the local currency
would reduce the value of our local inventory as presented in our consolidated financial statements. In addition, a stronger U.S. dollar
or a weaker local currency would result in reduced net sales, operating profit and shareholders' equity due to the impact of foreign exchange
translation on our consolidated financial statements. Fluctuations in foreign currency exchange rates may make our products more expensive
or increase our operating costs, affecting our competitiveness and our profitability.
Changes in exchange rates
between the U.S. dollar and other currencies and volatile economic, political and market conditions in emerging market countries have
in the past adversely affected our financial performance and may in the future adversely affect the value of our assets located outside
the United States, our gross profit and our results of operations.
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. As of September 30, 2023, the Company had no forward exchange
contracts.
Item
4. Controls and Procedures
Our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September
30, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2023,
our disclosure controls and procedures were (a) 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 SEC, and (b) 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 September 30, 2023 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act).
PART II - OTHER INFORMATION
Item
1. Legal Proceedings
No legal proceeding became a reportable event during the quarter and
there were no material developments during the quarter with respect to any legal proceedings previously disclosed.
Item
1A. Risk Factors
There have been no material
changes to our risk factors and uncertainties since the filing of our Annual Report with the SEC on May 19, 2023. 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 our Annual Report.
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 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 September 30, 2023 are as follows:
| | |
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 (in millions) | |
07/02/2023 – 07/29/2023 | | |
| 606 | | |
$ | 218.45 | | |
| 606 | | |
$ | 64.4 | |
07/30/2023 – 08/26/2023 | | |
| 97 | | |
| 223.01 | | |
| 97 | | |
| 64.4 | |
08/27/2023 – 09/30/2023 | | |
| 33 | | |
| 241.86 | | |
| 33 | | |
$ | 64.3 | |
Total | | |
| 736 | | |
$ | 220.10 | | |
| 736 | | |
| | |
During the second quarter of fiscal 2024, we did not issue any common
stock that was not registered under the Securities Act of 1933.
Item 3. Defaults Upon
Senior Securities
Not applicable.
Item 4. Mine Safety
Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
* | 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 Exchange Act (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective
of any general incorporation language contained in such filing. |
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
RBC Bearings Incorporated |
|
|
(Registrant) |
|
|
|
|
|
By: |
/s/ Michael J. Hartnett |
|
|
Name: |
Michael J. Hartnett |
|
|
Title: |
Chief Executive Officer |
|
|
Date: |
November 9, 2023 |
|
|
|
|
|
By: |
/s/ Robert M. Sullivan |
|
|
Name: |
Robert M. Sullivan |
|
|
Title: |
Chief Financial Officer |
|
|
Date: |
November 9, 2023 |
36
2023
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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.
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.
The undersigned, Michael J. Hartnett, the President
and Chief Executive Officer of RBC Bearings Incorporated (the “Company”), pursuant to 18 U.S.C. §1350, hereby certifies
that:
(i) the Quarterly Report on Form 10-Q
for the period ended September 30, 2023 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.
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 September 30, 2023 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.