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 28, 201926, 2020

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

 

Commission File Number: 333-124824

 

RBC BEARINGS INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware 95-4372080
(State or other jurisdiction of(I.R.S. Employer
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 shareROLL ROLLNASDAQNasdaq NMS

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 Fileraccelerated filer☒ Accelerated filer☐
Non-accelerated filer☐(Do not check if a smaller reporting company)   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 October 25, 2019,23, 2020, RBC Bearings Incorporated had 25,019,98925,101,224 shares of Common Stock outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

Part I -FINANCIAL INFORMATION1
  
ITEM 1.Consolidated Financial Statements1
ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1916
ITEM 3.Quantitative and Qualitative Disclosures About Market Risk3431
ITEM 4.Controls and Procedures3432
Changes in Internal Control over Financial Reporting3432
  
Part II -OTHER INFORMATION3532
 
ITEM 1.Legal Proceedings3532
ITEM 1A. Risk Factors3532
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds3532
ITEM 3.Defaults Upon Senior Securities3533
ITEM 4.Mine Safety Disclosures3533
ITEM 5.Other Information3533
ITEM 6. ExhibitsExhibits3634

 

i

 

 

Part I. FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

RBC Bearings Incorporated

Consolidated Balance Sheets

(dollars in thousands, except share and per share data)

 

  September 28,
2019		  

March 30,

2019

 
ASSETS (Unaudited)    
Current assets:      
Cash and cash equivalents $36,398  $29,884 
Accounts receivable, net of allowance for doubtful accounts of $1,670 at September 28, 2019 and $1,430 at March 30, 2019  129,618   130,735 
Inventory  353,995   335,001 
Prepaid expenses and other current assets  13,939   7,661 
Total current assets  533,950   503,281 
Property, plant and equipment, net  220,063   207,895 
Operating lease assets, net  28,442   — 
Goodwill  276,798   261,431 
Intangible assets, net of accumulated amortization of $50,693 at September 28, 2019 and $46,101 at March 30, 2019  165,733   155,641 
Other assets  21,574   19,119 
Total assets $1,246,560  $1,147,367 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $50,788  $49,592 
Accrued expenses and other current liabilities  34,573   40,070 
Current operating lease liabilities  5,769   — 
Current portion of long-term debt  

12,774

   

467

 
Total current liabilities  103,904   90,129 
Deferred income taxes  11,239   6,862 
Long-term debt, less current portion  25,003   43,179 
Long-term operating lease liabilities  22,708   — 
Other non-current liabilities  41,868   38,631 
Total liabilities  204,722   178,801 
         
Stockholders’ equity:        
Preferred stock, $.01 par value; authorized shares: 10,000,000 at September 28, 2019 and March 30, 2019, respectively; NaN issued or outstanding  —   — 
Common stock, $.01 par value; authorized shares: 60,000,000 at September 28, 2019 and March 30, 2019, respectively; issued shares: 25,842,617 and 25,607,196 at September 28, 2019 and March 30, 2019, respectively  258   256 
Additional paid-in capital  398,975   378,655 
Accumulated other comprehensive loss  (7,727)  (7,467)
Retained earnings  704,952   641,894 
Treasury stock, at cost, 824,838 shares and 752,913 shares at September 28, 2019 and March 30, 2019, respectively  (54,620)  (44,772)
Total stockholders’ equity  1,041,838   968,566 
Total liabilities and stockholders’ equity $1,246,560  $1,147,367 
  September 26,
2020		  March 28,
2020		 
 (Unaudited)    
ASSETS      
Current assets:      
Cash and cash equivalents $166,352  $103,255 
Accounts receivable, net of allowance for doubtful accounts of $1,703 at September 26, 2020 and $1,627 at March 28, 2020  108,078   128,995 
Inventory  371,546   367,494 
Prepaid expenses and other current assets  15,038   12,262 
Total current assets  661,014   612,006 
Property, plant and equipment, net  214,347   219,846 
Operating lease assets, net  29,686   28,953 
Goodwill  277,784   277,776 
Intangible assets, net of accumulated amortization of $58,408 at September 26, 2020 and $55,732 at March 28, 2020  159,034   162,747 
Other assets  26,020   20,584 
Total assets $1,367,885  $1,321,912 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable��$39,600  $51,038 
Accrued expenses and other current liabilities  36,468   40,580 
Current operating lease liabilities  5,808   5,708 
Current portion of long-term debt  6,634   6,429 
Total current liabilities  88,510   103,755 
Deferred income taxes  20,700   16,560 
Long-term debt, less current portion  13,758   16,583 
Long-term operating lease liabilities  24,160   23,396 
Other non-current liabilities  48,653   43,619 
Total liabilities  195,781   203,913 
         
Stockholders’ equity:        
Preferred stock, $.01 par value; authorized shares: 10,000,000 at September 26, 2020 and March 28, 2020, respectively; none issued or outstanding  —   — 
Common stock, $.01 par value; authorized shares: 60,000,000 at September 26, 2020 and March 28, 2020, respectively; issued shares: 25,970,673 and 25,881,415 at September 26, 2020 and March 28, 2020, respectively  260   259 
Additional paid-in capital  425,488   412,400 
Accumulated other comprehensive loss  (4,593)  (6,898)
Retained earnings  812,329   769,219 
Treasury stock, at cost, 870,223 shares and 838,982 shares at September 26, 2020 and March 28, 2020, respectively  (61,380)  (56,981)
Total stockholders’ equity  1,172,104   1,117,999 
Total liabilities and stockholders’ equity $1,367,885  $1,321,912 

 

See accompanying notes.

 


1

RBC Bearings Incorporated

Consolidated Statements of Operations

(dollars in thousands, except share and per share data)

(Unaudited)

 

                 
  Three Months Ended  Six Months Ended 
  September 28, 2019  September 29, 2018  September 28, 2019  September 29, 2018 
Net sales $181,909  $172,916  $364,599  $348,901 
Cost of sales  110,795   105,097   222,791   213,343 
Gross margin  71,114   67,819   141,808   135,558 
Operating expenses:                
Selling, general and administrative  30,774   29,326   60,861   58,901 
Other, net  3,031   2,609   5,148   4,775 
Total operating expenses  33,805   31,935   66,009   63,676 
Operating income  37,309   35,884   75,799   71,882 
Interest expense, net  473   1,446   1,020   3,157 
Other non-operating expense  195   336   364   1,370 
Income before income taxes  36,641   34,102   74,415   67,355 
Provision for income taxes  5,371   3,991   12,646   9,777 
Net income $31,270  $30,111  $61,769  $57,578 
Net income per common share:                
Basic $1.27  $1.24  $2.52  $2.38 
Diluted $1.26  $1.22  $2.49  $2.34 
Weighted average common shares:                
Basic  24,584,369   24,325,754   24,543,038   24,233,266 
Diluted  24,905,173   24,719,056   24,856,561   24,635,146 
  Three Months Ended  Six Months Ended 
  September 26,
2020		  September 28,
2019		  September 26,
2020		  September 28,
2019		 
Net sales $146,335  $181,909  $302,828  $364,599 
Cost of sales  89,739   110,795   

186,779

   222,791 
Gross margin  

56,596

   71,114   116,049   141,808 
Operating expenses:                
Selling, general and administrative  26,023   30,774   52,852   60,861 
Other, net  4,210   3,031   8,020   5,148 
Total operating expenses  30,233   33,805   60,872   66,009 
Operating income  26,363   37,309   55,177   75,799 
Interest expense, net  343   473   768   1,020 
Other non-operating expense  211   195   253   364 
Income before income taxes  25,809   36,641   54,156   74,415 
Provision for income taxes  5,388   5,371   11,046   12,646 
Net income $20,421  $31,270  $43,110  $61,769 
Net income per common share:                
Basic $0.82  $1.27  $1.74  $2.52 
Diluted $0.82  $1.26  $1.73  $2.49 
Weighted average common shares:                
Basic  24,823,658   24,584,369   24,793,245   24,543,038 
Diluted  24,957,158   24,905,173   24,944,608   24,856,561 

 

See accompanying notes.


2

RBC Bearings Incorporated

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(Unaudited)

 

                 
  Three Months Ended  Six Months Ended 
  September 28, 2019  September 29, 2018  September 28, 2019  September 29, 2018 
Net income $31,270  $30,111  $61,769  $57,578 
Pension and postretirement liability adjustments, net of taxes  178   194   356   388 
Foreign currency translation adjustments  (1,869)  440   673   (3,621)
Total comprehensive income $29,579  $30,745  $62,798  $54,345 
  Three Months Ended  Six Months Ended 
  September 26,
2020		  September 28,
2019		  September 26,
2020		  September 28,
2019		 
Net income $20,421  $31,270  $43,110  $61,769 
Pension and postretirement liability adjustments, net of taxes (1)
  259   178   519   356 
Foreign currency translation adjustments  1,377   (1,869)  1,786   673 
Total comprehensive income $22,057  $29,579  $45,415  $62,798 

 

(1)These adjustments were net of tax expense of $79 and $55 for the three-month periods ended September 26, 2020 and September 28, 2019, respectively and $158 and $109 for the six-month periods ended September 26, 2020 and September 28, 2019, respectively.

See accompanying notes.

 

3

 

 

RBC Bearings Incorporated

Consolidated Statements of Stockholders’ Equity

(dollars in thousands)

(Unaudited)

Common Stock

Additional Paid-In Capital

Accumulated Other Comprehensive Income/(Loss)

Retained Earnings

Treasury Stock

 

                             
  Common Stock  Additional Paid-in  Accumulated
Other
Comprehensive		  Retained  

Treasury Stock

  Total
Stockholders’		 
  Shares  Amount  Capital  Income/(Loss)  Earnings  Shares  Amount  Equity 
Balance at March 30, 2019  25,607,196  $256  $378,655  $(7,467) $641,894   (752,913) $(44,772) $968,566 
Net income  —   —   —   —   30,499   —   —   30,499 
Share-based compensation  —   —   4,802   —   —   —   —   4,802 
Repurchase of common stock  —   —   —   —   —   (69,877)  (9,514)  (9,514)
Exercise of equity awards  4,356   1   275   —   —   —   —   276 
Change in net prior service cost and actuarial losses, net of taxes of $54  —   —   —   178   —   —   —   178 
Issuance of restricted stock  86,490   —   —   —   —   —   —   — 
Impact from adoption of ASU 2018-02  —   —   —   (1,289)  1,289   —   —   — 
Income tax benefit on exercise of non-qualified common stock options                                
Currency translation adjustments  —   —   —   2,542   —   —   —   2,542 
Balance at June 29, 2019  25,698,042  $257  $383,732  $(6,036) $673,682   (822,790) $(54,286) $997,349 
Balance at June 29, 2019  25,698,042   257   383,732   (6,036)   673,682   (822,790)   (54,286)   997,349 
Net income  —   —   —   —   31,270   —   —   31,270 
Share-based compensation  —   —   5,059   —   —   —   —   5,059 
Repurchase of common stock  —   —   —   —   —   (2,048)  (334)  (334)
Exercise of equity awards  138,898   1   10,184   —   —   —   —   10,185 
Change in net prior service cost and actuarial losses, net of taxes of $55  —   —   —   178   —   —   —   178 
Issuance of restricted stock  5,677   —   —   —   —   —   —   — 
Currency translation adjustments  —   —   —   (1,869)  —   —   —   (1,869)
Balance at September 28, 2019  25,842,617  $258  $398,975  $(7,727) $704,952   (824,838) $(54,620) $1,041,838 
  Common Stock  Additional
Paid-in		  Accumulated
Other
Comprehensive		  Retained  Treasury Stock  Total
Stockholders’		 
  Shares  Amount  Capital  Income/(Loss)  Earnings  Shares  Amount  Equity 
Balance at March 28, 2020  25,881,415  $259  $412,400  $(6,898) $769,219   (838,982) $(56,981) $1,117,999 
Net income  —   —   —   —   22,689   —   —   22,689 
Share-based compensation  —   —   5,438   —   —   —   —   5,438 
Repurchase of common stock  —   —   —   —   —   (31,179)  (4,391)  (4,391)
Exercise of equity awards  4,200   —   231   —   —   —   —   231 
Change in net prior service cost and actuarial losses, net of taxes of $79  —   —   —   260   —   —   —   260 
Issuance of restricted stock, net of forfeitures  56,157   —   —   —   —   —   —   — 
Currency translation adjustments  —   —   —   409   —   —   —   409 
Balance at June 27, 2020  25,941,772  $259  $418,069  $(6,229) $791,908   (870,161) $(61,372) $1,142,635 
Net income  —   —   —   —   20,421   —   —   20,421 
Share-based compensation  —   —   5,231   —   —   —   —   5,231 
Repurchase of common stock  —   —   —   —   —   (62)  (8)  (8)
Exercise of equity awards  31,200   1   2,188   —   —   —   —   2,189 
Change in net prior service cost and actuarial losses, net of taxes of $79  —   —   —   259   —   —   —   259 
Issuance of restricted stock, net of forfeitures  (2,299)  —   —   —   —   —   —   — 
Currency translation adjustments  —   —   —   1,377   —   —   —   1,377 
Balance at September 26, 2020  25,970,673  $260  $425,488  $(4,593) $812,329   (870,223) $(61,380) $1,172,104 

 

See accompanying notes.

 

4

 

 

RBC Bearings Incorporated

Consolidated Statements of Stockholders’ Equity (continued)

(dollars in thousands)

(Unaudited)

 

                             
  Common Stock  Additional
Paid-in		  Accumulated
Other
Comprehensive		  Retained  

 

Treasury Stock

  Total
Stockholders’		 
  Shares  Amount  Capital  Income/(Loss)  Earnings  Shares  Amount  Equity 
Balance at March 31, 2018  25,123,694  $251  $339,148  $(2,285) $536,978   (713,687) $(39,540) $834,552 
Net income  —   —   —   —   27,467   —   —   27,467 
Share-based compensation  —   —   3,766   —   —   —   —   3,766 
Repurchase of common stock  —   —   —   —   —   (11,865)  (1,491)  (1,491)
Exercise of equity awards  100,142   2   6,416   —   —   —   —   6,418 
Change in net prior service cost and actuarial losses, net of taxes of $58  —   —   —   194   —   —   —   194 
Issuance of restricted stock  87,345   —   —   —   —   —   —   — 
Impact from adoption of ASU 2014-09  —   —   —   —   (277)  —   —   (277)
Currency translation adjustments  —   —   —   (4,061)  —   —   —   (4,061)
Balance at June 30, 2018  25,311,181  $253  $349,330  $(6,152) $564,168   (725,552) $(41,031) $866,568 
Balance at June 30, 2018  25,311,181   253   349,330   (6,152)   564,168   (725,552)   (41,031)   866,568 
Net income  —   —   —   —   30,111   —   —   30,111 
Share-based compensation  —   —   4,039   —   —   —   —   4,039 
Repurchase of common stock  —   —   —   —   —   (15,522)  (2,040)  (2,040)
Exercise of equity awards  192,300   2   12,989   —   —   —   —   12,991 
Change in net prior service cost and actuarial losses, net of taxes of $58  —   —   —   194   —   —   —   194 
Issuance of restricted stock  6,210   —   —   —   —   —   —   — 
Income tax benefit on exercise of non-qualified common stock options  —   —   —   —   —   —   —   — 
Currency translation adjustments  —   —   —   440   —   —   —   440 
Balance at September 29, 2018  25,509,691  $255  $366,358  $(5,518) $594,279   (741,074) $(43,071) $912,303 
  Common Stock  Additional
Paid-in		  Accumulated
Other
Comprehensive		  Retained  Treasury Stock  Total
Stockholders’		 
  Shares  Amount  Capital  Income/(Loss)  Earnings  Shares  Amount  Equity 
Balance at March 30, 2019  25,607,196  $256  $378,655  $(7,467) $641,894   (752,913) $(44,772) $968,566 
Net income  —   —   —   —   30,499   —   —   30,499 
Share-based compensation  —   —   4,802   —   —   —   —   4,802 
Repurchase of common stock  —   —   —   —   —   (69,877)  (9,514)  (9,514)
Exercise of equity awards  4,356   1   275   —   —   —   —   276 
Change in net prior service cost and actuarial losses, net of taxes of $54  —   —   —   178   —   —   —   178 
Issuance of restricted stock, net of forfeitures  86,490   —   —   —   —   —   —   — 
Impact from adoption of ASU 2018-02  —   —   —   (1,289)  1,289   —   —   — 
Currency translation adjustments  —   —   —   2,542   —   —   —   2,542 
Balance at June 29, 2019  25,698,042  $257  $383,732  $(6,036) $673,682   (822,790) $(54,286) $997,349 
Net income  —   —   —   —   31,270   —   —   31,270 
Share-based compensation  —   —   5,059   —   —   —   —   5,059 
Repurchase of common stock  —   —   —   —   —   (2,048)  (334)  (334)
Exercise of equity awards  138,898   1   10,184   —   —   —   —   10,185 
Change in net prior service cost and actuarial losses, net of taxes of $55  —   —   —   178   —   —   —   178 
Issuance of restricted stock, net of forfeitures  5,677   —   —   —   —   —   —   — 
Currency translation adjustments  —   —   —   (1,869)  —   —   —   (1,869)
Balance at September 28, 2019  25,842,617  $258  $398,975  $(7,727) $704,952   (824,838) $(54,620) $1,041,838 

 

See accompanying notes.


5

RBC Bearings Incorporated

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

 

         
  Six Months Ended 
  

September 28,

2019

  

September 29,

2018

 
Cash flows from operating activities:      
Net income $61,769  $57,578 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation  10,729   10,021 
Deferred income taxes  898   3,442 
Amortization of intangible assets  4,593   4,931 
Amortization of deferred financing costs  207   555 
Loss on extinguishment of debt  -   987 
Share-based compensation  9,861   7,805 
Other non-cash charges  75   (54)
Changes in operating assets and liabilities, net of acquisitions:        
Accounts receivable  2,303   (3,123)
Inventory  (13,125)  (20,023)
Prepaid expenses and other current assets  (5,617)  (5,041)
Other non-current assets  (1,777)  (3,110)
Accounts payable  678   3,229 
Accrued expenses and other current liabilities  (5,760)  397 
Other non-current liabilities  (216)  271 
Net cash provided by operating activities  64,618   57,865 
         
Cash flows from investing activities:        
Purchase of property, plant and equipment  (20,216)  (17,746)
Proceeds from sale of assets  300   1,874 
Acquisition of business  (33,842)  - 
Net cash used in investing activities  (53,758)  (15,872)
         
Cash flows from financing activities:        
Proceeds received from revolving credit facilities  9,435   149,250 
Proceeds received from term loans  15,383   - 
Repayments of revolving credit facilities  (30,000)  (30,500)
Repayments of term loans  -   (168,750)
Repayments of notes payable  (235)  (237)
Finance fees paid in connection with credit facilities and term loans  (276)  - 
Exercise of stock options  10,461   19,409 
Repurchase of common stock  (9,848)  (3,531)
Net cash used in financing activities  (5,080)  (34,359)
         
Effect of exchange rate changes on cash  734   (1,432)
         
Cash and cash equivalents:        
Increase during the period  6,514   6,202 
Cash, at beginning of period  29,884   54,163 
Cash, at end of period $36,398  $60,365 
         
Supplemental disclosures of cash flow information:        
Cash paid for:        
Income taxes $17,147  $11,697 
Interest  759   2,535 
  Six Months Ended 
  September 26,
2020		  September 28,
2019		 
Cash flows from operating activities:      
Net income $43,110  $61,769 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation  11,744   10,729 
Deferred income taxes  4,051   898 
Amortization of intangible assets  5,089   4,593 
Amortization of deferred financing costs  259   207 
Share-based compensation  10,669   9,861 
Other non-cash charges  3,004   75 
Changes in operating assets and liabilities, net of acquisitions:        
Accounts receivable  21,267   2,303 
Inventory  (4,981)  (13,125)
Prepaid expenses and other current assets  (2,812)  (5,617)
Other non-current assets  (6,885)  (1,777)
Accounts payable  (11,554)  678 
Accrued expenses and other current liabilities  (4,137)  (5,760)
Other non-current liabilities  5,655   (216)
Net cash provided by operating activities  74,479   64,618 
         
Cash flows from investing activities:        
Purchase of property, plant and equipment  (6,008)  (20,216)
Proceeds from sale of assets  10   300 
Acquisition of business  245   (33,842)
Net cash used in investing activities  (5,753)  (53,758)
         
Cash flows from financing activities:        
Proceeds received from revolving credit facilities  -   9,435 
Proceeds received from term loans  -   15,383 
Repayments of revolving credit facilities  -   (30,000)
Repayments of term loans  (3,287)  - 
Repayments of notes payable  (249)  (235)
Finance fees paid in connection with credit facilities and term loans  -   (276)
Exercise of stock options  2,420   10,461 
Repurchase of common stock  (4,399)  (9,848)
Net cash used in financing activities  (5,515)  (5,080)
         
Effect of exchange rate changes on cash  (114)  734 
         
Cash and cash equivalents:        
Increase during the period  63,097   6,514 
Cash and cash equivalents, at beginning of period  103,255   29,884 
Cash and cash equivalents, at end of period $166,352  $36,398 
         
Supplemental disclosures of cash flow information:        
Cash paid for:        
Income taxes $6,559  $17,147 
Interest  516   759 

 

See accompanying notes.

 

6

 

 

RBC Bearings Incorporated

Notes to Unaudited Interim Consolidated Financial Statements

(dollars in thousands, except share and per share data)

 

1. Basis of Presentation

 

The interim consolidated financial statements included herein have been prepared by RBC Bearings Incorporated, a Delaware corporation (collectively with its subsidiaries, the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The interim financial statements included with this report have been prepared on a consistent basis with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2019.28, 2020. We condensed or omitted certain information and footnote disclosures normally included in our annual audited financial statements, which we prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP). As used in this report, the terms “we”, “us”, “our”,“we,” “us,” “our,” “RBC”, “RBCA” and the “Company” mean RBC Bearings Incorporated and its subsidiaries, unless the context indicates another meaning.

 

These statements reflect all adjustments, accruals and estimates, consisting only of items of a normal recurring nature, whichthat are, in the opinion of management, necessary for the fair presentation of the consolidated financial condition and consolidated results of operations for the interim periods presented. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Annual Report on Form 10-K.

 

The results of operations for the threethree- and six-month periods ended September 28, 201926, 2020 are not necessarily indicative of the operating results for the entire fiscal year ending March 28, 2020.April 3, 2021. The three-monththree- and six-month periods ended September 28, 201926, 2020 and September 29, 201828, 2019 each include 13 weeks.weeks and 26 weeks, respectively. The amounts shown are in thousands, unless otherwise indicated.

 

2. Significant Accounting Policies

Accounting Policies [Textual]

 

The Company’s significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended March 30, 2019.28, 2020. Significant changes to our accounting policies as a result of adopting new accounting standards are discussed below.

 

Recent Accounting Standards Adopted

 

In FebruarySeptember 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02,2016-13, LeasesFinancial Instruments – Credit Losses (Topic 842)326): Measurement of Credit Losses on Financial Instruments, which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance replaces the current incurred loss approach with a new expected credit loss impairment model. The new model applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures). The core principleestimate of thisexpected credit losses considers historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics are grouped together when estimating expected credit losses. ASU is that an entity should recognize on its balance sheet assets and liabilities arising from2016-13 does not prescribe a lease. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liabilityspecific method to make lease payments (the lease liability) and a lease asset (right-of-use asset) representingthe estimate, so its right to use the underlying leased asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on the lease classification as a finance or operating lease.

application requires significant judgment. The Company adopted this accounting standard on March 31, 2019 and has elected the modified retrospective transition method which permits the application of the new lease standard at the adoption date and recognition of a cumulative-effect adjustment to the opening balance of retained earningsupdate in the periodfirst quarter of adoption. The Company has electedfiscal 2021 and it did not to apply the recognition requirements to short-term leases, and will recognize the lease payments in the income statement onhave a straight-line basis over the lease term and variable payments in the period in which the obligation for those payments is incurred. The Company has elected the following practical expedients (which must be elected as a package and applied consistently to all leases): an entity need not reassess whether any expired or existing contracts are or contain leases; an entity need not reassess the lease classification for any expired or existing leases; and an entity need not reassess initial direct costs for any existing leases. The Company has also elected the practical expedient which permits the inclusion of lease and nonlease components as a single component and account for it as a lease. This election has been made for all asset classes. We also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases which resulted in the extension of lease terms for certain existing leases.


The cumulative-effect of the changes made to the balance sheet on the first day of adoption resulted in the recognition of lease assets and lease liabilities for operating lease commitments of $27,378. The adoption of this accounting standard had nomaterial impact on the Company’s consolidated statement of operations, debt compliance or the captions on the consolidated statement of cash flows.

The Company determines if an arrangement is a lease at contract inception. For leases where the Company is the lessee, it recognizes lease assets and related lease liabilities at the lease commencement date based on the present value of lease payments over the lease term. The lease term is the noncancellable period for which a lessee has the right to use an underlying asset, including periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. For renewal options, the Company performs an assessment at commencement if it is reasonably likely to exercise the option. The assessment is based on the Company’s intentions, past practices, estimates and factors that create an economic incentive for the Company. Generally, the Company is not reasonably certain to exercise the renewal option in a lease contract, with the exception of some of our leased manufacturing facilities. While some of the Company’s leases include options allowing early termination of the lease, the Company historically has not terminated its lease agreements early unless there is an economic, financial or business reason to do so; therefore, the Company does not typically consider the termination option in its lease term at commencement.

Most of the Company’s leases do not provide an implicit interest rate. As a result, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income which allows companies to reclassify stranded tax effects resulting from the TCJA from accumulated other comprehensive income to retained earnings. These stranded tax effects refer to the tax amounts included in accumulated other comprehensive income at the previous 35% U.S. corporate statutory federal tax rate, for which the related deferred tax asset or liability was remeasured to the new 21% U.S. corporate statutory federal tax rate in the period of the TCJA’s enactment. The new standard is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, and can be applied either in the period of adoption or retrospectively to each period impacted by the TCJA. As a result of the Company’s adoption on March 31, 2019, the Company reclassified $1,289 from accumulated other comprehensive income to retained earnings, both of which are components of total stockholders’ equity. The adoption of this accounting standard had no impact on the Company’s consolidated statement of operations, debt compliance or the captions on the consolidated statement of cash flows.statements.

 

87

 

Recent Accounting Standards Yet to Be Adopted

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.Impairment. The objective of this standard update is to simplify the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Under this ASU, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting unit. The standard update is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The adoption of this ASU isdid not expected to have a material impact on the Company’s consolidated financial statements.

Recent Accounting Standards Yet to Be Adopted

In September 2016,December 2019, the FASB issued ASU No. 2016-13, Financial Instruments –2019-12, Credit LossesIncome Taxes (Topic 326)740): Measurement of Credit Losses on Financial Instruments, which changes how entities will measure credit lossesSimplifying the Accounting for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance will replace the current incurred loss approach with an expected loss model. The new expected credit loss impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures)Income Taxes. The estimateobjective of expected credit losses should consider historical information, current informationthis standard update is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This ASU also attempts to improve consistent application of and reasonablesimplify GAAP for other areas of Topic 740 by clarifying and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics should be grouped together when estimating expected credit losses. ASU 2016-13 does not prescribe a specific method to make the estimate, so its application will require significant judgment.amending existing guidance. This ASUstandard update is effective for public companies in fiscal years beginning after December 15, 2019,2020, including interim periods within those fiscal years. The Company is currently evaluating the effect that the adoption of this ASU will have on the Company’s consolidated financial statements.

 

Other new pronouncements issued but not effective until after March 28, 2020April 3, 2021 are not expected to have a material impact on our financial position, results of operations or liquidity.

 

3. Revenue from Contracts with Customers

 

Disaggregation of Revenue

 

The Company operates in four business segments with similar economic characteristics, including nature of the products and production processes, distribution patterns and classes of customers. Revenue is disaggregated within these business segments by our two principal end markets: aerospace and industrial. Comparative information of the Company’s overall revenues for the threethree- and six-month periods ended September 28, 201926, 2020 and September 29, 201828, 2019 are as follows:

 

Principal End Markets

  Three Months Ended 
  September 26, 2020  September 28, 2019 
  Aerospace  Industrial  Total  Aerospace  Industrial  Total 
Plain $51,040  $20,013  $71,053  $70,287  $19,720  $90,007 
Roller  10,674   10,905   21,579   17,643   14,942   32,585 
Ball  7,311   13,788   21,099   5,086   12,338   17,424 
Engineered Products  18,116   14,488   32,604   24,368   17,525   41,893 
  $87,141  $59,194  $146,335  $117,384  $64,525  $181,909 

  Six Months Ended 
  September 26, 2020  September 28, 2019 
  Aerospace  Industrial  Total  Aerospace  Industrial  Total 
Plain $110,392  $39,536  $149,928  $137,593  $39,903  $177,496 
Roller  23,904   20,575   44,479   36,956   32,488   69,444 
Ball  14,333   25,606   39,939   10,516   24,618   35,134 
Engineered Products  37,494   30,988   68,482   48,638   33,887   82,525 
  $186,123  $116,705  $302,828  $233,703  $130,896  $364,599 

8

 

Schedule of revenue from business segments of customers                        
  Three Months Ended 
  September 28, 2019  September 29, 2018 
  Aerospace  Industrial  Total  Aerospace  Industrial  Total 
Plain $70,287  $19,720  $90,007  $57,821  $19,659  $77,480 
Roller  17,643   14,942   32,585   18,155   18,845   37,000 
Ball  5,086   12,338   17,424   5,017   13,021   18,038 
Engineered Products  24,368   17,525   41,893   25,517   14,881   40,398 
  $117,384  $64,525  $181,909  $106,510  $66,406  $172,916 

 


    
  Six Months Ended 
  September 28, 2019  September 29, 2018 
  Aerospace  Industrial  Total  Aerospace  Industrial  Total 
Plain $137,593  $39,903  $177,496  $114,205  $41,800  $156,005 
Roller  36,956   32,488   69,444   35,042   37,828   72,870 
Ball  10,516   24,618   35,134   9,021   27,091   36,112 
Engineered Products  48,638   33,887   82,525   52,733   31,181   83,914 
  $233,703  $130,896  $364,599  $211,001  $137,900  $348,901 

Remaining Performance Obligations

 

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract in the new revenue standardunder Accounting Standards Codification (ASC) 606 for which work has not been performed or has been partially performed and excludes unexercised contract options. The duration of the majoritymany of our contracts, as defined by ASC 606, is less than one year. The Company has elected to apply the practical expedient whichthat allows companies to exclude remaining performance obligations with an original expected duration of one year or less. Performance obligations having a duration of more than one year are concentrated in contracts for certain products and services provided to the U.S. government or its contractors. The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $259,181$259,351 at September 28, 2019. 26, 2020. The Company expects to recognize revenue on approximately 70%59% and 94%88% of the remaining performance obligations over the next 12 and 24 months, respectively, with the remainder recognized thereafter.

 

Contract Balances

 

The timing of revenue recognition, invoicing and cash collections affects accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the consolidated balance sheets.

 

Contract Assets (Unbilled Receivables) - Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when (1) the cost-to-cost method is applied and (2) such revenue exceeds the amount invoiced to the customer.

 

Contract Liabilities (Deferred Revenue) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior to revenue being recognized. Since the performance obligations related to such advances may not have been satisfied, a contract liability is established. Advance payments are not considered a significant financing component as the timing of the transfer of the related goods or services is at the discretion of the customer.

 


These assets and liabilities are reported on the consolidated balance sheets on an individual contract basis at the end of each reporting period. As of September 28, 201926, 2020 and March 30, 2019,28, 2020, accounts receivable with customers, net, were $129,618$108,078 and $130,735,$128,995, respectively. The tables below represent a roll-forward of contract assets and contract liabilities for the six-month period ended September 28, 2019:26, 2020:

 

Schedule of contract assets and contract liabilities Contract Assets - Current (1)) 
Contract Assets - Current (1)  
    
Balance at March 30, 2019 $1,895 
Additional revenue recognized in excess of billings  1,867 
Less: amounts billed to customers  (1,604)
Balance at September 28, 2019 $2,158 
(1) Included within prepaid expenses and other current assets on the consolidated balance sheets.
Contract Assets - Current (1)   
    
Balance at March 28, 2020 $2,604 
Additional revenue recognized in excess of billings  3,732 
Less: amounts billed to customers  (1,732)
Balance at September 26, 2020 $4,604 

(1)Included within prepaid expenses and other current assets on the consolidated balance sheets.

 

9

  Contract Liabilities – Current (2) 
Contract Liabilities – Current (2)   
    
Balance at March 30, 2019 $10,121 
Payments received prior to revenue being recognized  5,256 
Revenue recognized  (10,058)
Reclassification (to)/from noncurrent  47 
Balance at September 28, 2019 $5,366 
(2) Included within accrued expenses and other current liabilities on the consolidated balance sheets.

Contract Liabilities – Current (2)   
    
Balance at March 28, 2020 $11,116 
Payments received prior to revenue being recognized  6,611 
Revenue recognized  (9,326)
Reclassification (to)/from noncurrent  (498)
Balance at September 26, 2020 $7,903 

(2)Included within accrued expenses and other current liabilities on the consolidated balance sheets. During the first six months of fiscal 2021, the Company recognized revenues of $7,765 that were included within contract liabilites at March 28, 2020.

 

  Contract Liabilities – Noncurrent (3) 
Contract Liabilities – Noncurrent (3)   
    
Balance at March 30, 2019 $587 
Reclassification (to)/from current  (47)
Balance at September 28, 2019 $540 
(3) Included within other non-current liabilities on the consolidated balance sheets.
Contract Liabilities – Noncurrent (3)   
    
Balance at March 28, 2020 $2,427 
Payments received prior to revenue being recognized  395 
Reclassification (to)/from current  498 
Balance at September 26, 2020 $3,320 

(3)Included within other non-current liabilities on the consolidated balance sheets.

 

As of September 28, 2019,26, 2020, the Company did not have any contract assets classified as noncurrent on the consolidated balance sheets.sheet.

 

4. Accumulated Other Comprehensive Income (Loss)

 

The components of comprehensive income (loss) that relate to the Company are net income, foreign currency translation adjustments, and pension plan and postretirement benefits.

 

The following summarizes the activity within each component of accumulated other comprehensive income (loss), net of taxes:

 

Schedule of accumulated other comprehensive income (loss), net of taxes         
  

Currency

Translation

  

Pension and

Postretirement

Liability

  Total 
Balance at March 30, 2019 $(3,301) $(4,166) $(7,467)
Impact from adoption of ASU 2018-02  —   (1,289)  (1,289)
Other comprehensive income before reclassifications  673   —   673 
Amounts reclassified from accumulated other comprehensive income  —   356   356 
Net current period other comprehensive income  673   356   1,029 
Balance at September 28, 2019 $(2,628) $(5,099) $(7,727)
  

Currency

Translation

  

Pension and

Postretirement

Liability

  Total 
Balance at March 28, 2020 $(582) $(6,316) $(6,898)
Other comprehensive income before reclassifications  1,786   —   1,786 
Amounts reclassified from accumulated other comprehensive income  —   519   519 
Net current period other comprehensive income  1,786   519   2,305 
Balance at September 26, 2020 $1,204  $(5,797) $(4,593)

 


5. Net Income Per Common Share

 

Basic net income per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding.

 

Diluted net income per common share is computed by dividing net income by the sum of the weighted-average number of common shares and dilutive common share equivalents then outstanding using the treasury stock method. Common share equivalents consist of the incremental common shares issuable upon the vesting or exercise of stock options.awards.

 

10

The table below reflects the calculation of weighted-average shares outstanding for each period presented as well as the computation of basic and diluted net income per common share:

 

Schedule basic and diluted net income per common share                
  Three Months Ended  Six Months Ended 
  

September 28,

2019

  

September 29,

2018

  

September 28,

2019

  

September 29,

2018

 
             
Net income $31,270  $30,111  $61,769  $57,578 
                 
Denominator for basic net income  per common share—weighted-average shares outstanding  24,584,369   24,325,754   24,543,038   24,233,266 
Effect of dilution due to employee stock awards  320,804   393,302   313,523   401,880 
Denominator for diluted net income per common share — weighted-average shares outstanding  24,905,173   24,719,056   24,856,561   24,635,146 
                 
Basic net income per common share $1.27  $1.24  $2.52  $2.38 
                 
Diluted net income per common share $1.26  $1.22  $2.49  $2.34 
  Three Months Ended  Six Months Ended 
  September 26,
2020		  September 28,
2019		  September 26,
2020		  September 28,
2019		 
             
Net income $20,421  $31,270  $43,110  $61,769 
                 
Denominator for basic net income per common share — weighted-average shares outstanding  24,823,658   24,584,369   24,793,245   24,543,038 
Effect of dilution due to employee stock awards  133,500   320,804   151,363   313,523 
Denominator for diluted net income per common share — weighted-average shares outstanding  24,957,158   24,905,173   24,944,608   24,856,561 
                 
Basic net income per common share $0.82  $1.27  $1.74  $2.52 
                 
Diluted net income per common share $0.82  $1.26  $1.73  $2.49 

 

At September 28, 2019, 209,04026, 2020, 502,861 employee stock options and no115,185 restricted shares have been excluded from the calculation of diluted earnings per share. At September 29, 2018, 212,83528, 2019, 209,040 employee stock options and no restricted shares have been excluded from the calculation of diluted earnings per share. The inclusion of these employee stock options and restricted shares would be anti-dilutive.

 

6. Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Short-term investments, if any, are comprised of equity securities and are measured at fair value by using quoted prices in active markets and are classified as Level 1 of the valuation hierarchy.

 

7. Inventory

 

Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out method, and are summarized below:

 

Schedule of inventory      
  

September 28,

2019

  

March 30,

2019

 
Raw materials $52,693  $48,690 
Work in process  96,063   90,820 
Finished goods  205,239   195,491 
Inventory $353,995  $335,001 
  

September 26,

2020

  

March 28,

2020

 
Raw materials $52,807  $51,362 
Work in process  89,310   97,286 
Finished goods  229,429   218,846 
  $371,546  $367,494 

 

1211

 

8. Goodwill and Intangible Assets

Goodwill

 Schedule of goodwill               
  Roller  Plain  Ball  Engineered Products  Total 
March 30, 2019 $16,007  $79,597  $5,623  $160,204  $261,431 
Translation adjustments  —   —   —   (258)  (258)
Acquisition (1)  —   —   —   15,625   15,625 
September 28, 2019 $16,007  $79,597  $5,623  $175,571  $276,798 

(1) Includes the assets acquired as part of the Company's acquisition of Vianel Holding AG (“Swiss Tool”) on August 15, 2019, which is discussed further in Note 13.

(1)Includes the assets acquired as part of the Company's acquisition of Vianel Holding AG (“Swiss Tool”) on August 15, 2019, which is discussed further in Note 13.

Intangible Assets

Schedule of intangible assets         
     September 28, 2019  March 30, 2019 
  Weighted Average Useful Lives  Gross Carrying Amount  

 

Accumulated Amortization

  Gross Carrying Amount  

 

Accumulated Amortization

 
Product approvals  24  $50,878  $11,537  $50,878  $10,481 
Customer relationships and lists (2)  23   109,512   21,170   96,458   19,149 
Trade names  10   16,315   8,165   15,959   7,447 
Distributor agreements  5   722   722   722   722 
Patents and trademarks (2)  15   10,937   5,842   10,534   5,540 
Domain names  10   437   437   437   437 
Other  2   3,344   2,820   2,473   2,325 
       192,145   50,693   177,461   46,101 
Non-amortizable repair station certifications  n/a   24,281   —   24,281   — 
Total  21  $216,426  $50,693  $201,742  $46,101 

(2) Includes the assets acquired as part of the Company’s acquisition of Vianel Holding AG (“Swiss Tool”) on August 15, 2019, which is discussed further in Note 13.

(2)Includes the assets acquired as part of the Company's acquisition of Vianel Holding AG (“Swiss Tool”) on August 15, 2019, which is discussed further in Note 13.

Amortization expense for definite-lived intangible assets for the three and six-month periods ended September 28, 2019 were $2,309 and $4,593, respectively, compared to $2,568 and $4,931 for the three and six-month periods ended September 29, 2018, respectively. Estimated amortization expense for the remaining six months of fiscal 2020, the five succeeding fiscal years and thereafter is as follows:

Schedule of estimated amortization expense    
2020 $4,878 
2021  9,543 
2022  9,423 
2023  9,341 
2024  8,018 
2025  7,664 
2026 and thereafter  92,585 
     

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9.  Leases

The Company enters into operating leases for manufacturing facilities, warehouses, sales offices, information technology equipment, plant equipment, vehicles and certain other equipment with varying end dates from October 2019 to February 2038, including renewal options.

The following table represents the impact of leasing on the consolidated balance sheet:

Schedule of operating leases    
Operating Leases: 

September 28,

2019

 
Lease assets:   
Operating lease assets, net $28,442 
     
Lease liabilities:    
Current operating lease liabilities  5,769 
Long-term operating lease liabilities  22,708 
Total operating lease liabilities $28,477 

The Company did not have any finance leases as of September 28, 2019. Cash paid included in the measurement of lease liabilities was $1,368 and $2,731 for the three and six-month periods ended September 28, 2019, respectively. Lease assets obtained in exchange for new operating lease liabilities were $3,191 and $3,369 for the three and six-month periods ended September 28, 2019, respectively.

Operating lease expense was $1,651 and $3,488 for the three and six-month periods ended September 28, 2019, respectively. Short-term and variable lease expense were immaterial for both the three and six-month periods ended September 28, 2019.

Future undiscounted lease payments for the remaining lease terms as of September 28, 2019, including renewal options reasonably certain of being exercised, are as follows:

Schedule of future undiscounted lease payments    
  Operating
Leases		 
Within one year $6,009 
One to two years  5,209 
Two to three years  3,714 
Three to four years  2,726 
Four to five years  2,131 
Thereafter  15,426 
Total future undiscounted lease payments  35,215 
Less: imputed interest  (6,738)
Total operating lease liabilities $28,477 

The weighted-average remaining lease term on September 28, 2019 for our operating leases is 11.5 years. The weighted-average discount rate on September 28, 2019 for our operating leases is 4.3%.8. Debt

 

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10. Debt

The balances payable under all borrowing facilities are as follows:

 

Schedule of balances payable under borrowing facilities       
  

September 28,

2019

  

March 30,

2019

 
Domestic revolving facility $9,250  $39,250 
Foreign term loan  15,129   — 
Foreign revolving facility  9,279   — 
Debt issuance costs  (1,978)  (1,912)
Other  6,097   6,308 
Total debt  37,777   43,646 
Less: current portion  12,774   467 
Long-term debt $25,003  $43,179 
  

September 26,

2020

  

March 28,

2020

 
Revolver and term loan facilities $15,818  $18,593 
Debt issuance costs  (1,430)  (1,687)
Other  6,004   6,106 
Total debt  20,392  23,012 
Less: current portion  6,634  6,429 
Long-term debt $13,758  $16,583 

 

The current portion of long-term debt as of September 28, 201926, 2020 includes the current portion of the foreign term loan, foreign revolving facility and the Schaublin mortgage, all of which are discussed below in further detail.

Term Loan [Member]

CHF [Member]

Domestic Credit Facility

 

On January 31, 2019, the Company amended the 2015The Company’s credit agreement with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer, and the other lenders party thereto (the “2015 Credit“Credit Agreement”). The 2015 Credit Agreement as so amended (the “Amended Credit Agreement”) now provides the Company with a $250,000$250,000 revolving credit facility (the “Revolver”) in place of the revolver provided in the 2015 Credit Agreement. The Revolver, which expires on January 31, 2024.2024. Debt issuance costs associated with the Amended Credit Agreement totaled $852$852 and will be amortized through January 31, 2024 along with the unamortized debt issuance costs remaining from the 2015 Credit Agreement.Company’s prior credit agreement.

 

Amounts outstanding under the Revolver generally bear interest at (a) a base rate determined by reference to the higher of (1) Wells Fargo’s prime lending rate, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one-month LIBOR rate plus 1%, or (b) LIBOR plus a specified margin, depending on the type of borrowing being made. The applicable margin is based on the Company’s consolidated ratio of total net debt to consolidated EBITDA at each measurement date. Currently, the Company’s margin is 0.00% for base rate loans and 0.75% for LIBOR loans.

 

The Amended Credit Agreement requires the Company to comply with various covenants, including among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.50 to 1.1. The Amended Credit Agreement allows the Company to, among other things, make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the Amended Credit Agreement. As of September 28, 2019,26, 2020, the Company was in compliance with all such covenants.

 

The Company’s domestic subsidiaries have guaranteed the Company’s obligations under the Amended Credit Agreement. TheAgreement, and the Company’s obligations under the Amended Credit Agreement and the domestic subsidiaries’ guarantee are secured by a pledge of substantially all of the domestic assets of the Company and its domestic subsidiaries.

 


Approximately $3,850$3,700 of the Revolver is being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs. As of September 28, 2019, $1,71526, 2020, $1,319 in unamortized debt issuance costs remain. The Company has the ability to borrow up to an additional $236,900$246,300 under the Revolver as of September 28, 2019.26, 2020.

 

Foreign Term Loan and Revolving Credit Facility

 

On August 15, 2019, one of our foreign divisions,subsidiaries, Schaublin SA (“Schaublin”), entered into two separate credit agreements (the “Schaublin“Foreign Credit Agreements”) with Credit Suisse (Switzerland) Ltd. to (i) finance the acquisition of Swiss Tool which is discussed in further detail in Note 13, and (ii) provide future working capital. The SchaublinForeign Credit Agreements provided Schaublin with a CHF 15,000 (approximately $15,383)$15,383) term loan (the “Foreign Term Loan”), which expires on August 15,July 31, 2024 and a CHF 15,000 (approximately $15,383)$15,383) revolving credit facility (the “Foreign Revolver”), which continues in effect until terminated by either Schaublin or Credit Suisse.Suisse. Debt issuance costs associated with the SchaublinForeign Credit Agreements totaled CHF 270 (approximately $277)$277) and will be amortized throughout the life of the credit agreements.Foreign Credit Agreements.

 

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Amounts outstanding under the Foreign Term Loan and the Foreign Revolver generally bear interest at LIBOR plus a specified margin. The applicable margin is based on Schaublin’s ratio of total net debt to consolidated EBITDA at each measurement date. Currently, Schaublin’s margin is 2.00%1.00%.

 

The Foreign Credit Agreements require Schaublin to comply with various covenants, which are tested annually on March 31. These covenants include, among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.00 to 1 as of March 31, 2020 and not greater than 2.50 to 1 as of March 31, 2021 and thereafter. Schaublin is also required to maintain an economic equity of CHF 20,000 at all times. The Foreign Credit Agreements allow Schaublin to, among other things, incur other debt or liens and acquire or dispose of assets provided that Schaublin complies with certain requirements and limitations of the Foreign Credit Agreements. As of September 28, 2019,March 31, 2020, Schaublin was in compliance with all such covenants.

 

Schaublin'sSchaublin’s parent company, Schaublin Holding, has guaranteed Schaublin’s obligations under the Foreign Credit Agreements. Schaublin Holding'sHolding’s guaranty and the Foreign Credit Agreements are secured by a pledge of the capital stock of Schaublin. In addition, the Foreign Term Loan is secured with pledges of the capital stock of the top company and the three operating companies in the Swiss Tool System group of companies.

 

As of September 28, 2019,26, 2020, there was approximately $9,279$2,906 outstanding under the Foreign Revolver and approximately $15,129$12,912 outstanding under the Foreign Term Loan. These borrowings have been classified as Level 2 of the valuation hierarchy. As of September 28, 2019,26, 2020, approximately $263$111 in unamortized debt issuance costs remain. Schaublin has the ability to borrow up to an additional $5,850$13,235 under the Foreign Revolver as of September 28, 2019.26, 2020.

 

Schaublin’s required future annual principal payments are approximately $6,134 for the next five yearstwelve months and thereafter are $0 for fiscal 2020, approximately $12,305 for fiscal 2021, approximately $3,026$3,228 for each year from fiscal 2022 through fiscal 2024 and approximately $3,025 thereafter.for the next three years.

 

Other Notes Payable

 

On October 1, 2012, Schaublin purchased the land and building that it occupied and had been leasing for approximately $14,910.$14,910. Schaublin obtained a 20-year20-year fixed-rate mortgage of approximately $9,857$9,857 at an interest rate of 2.9%. The balance of the purchase price of approximately $5,053$5,053 was paid from cash on hand. The balance on this mortgage as of September 28, 201926, 2020 was approximately $6,097.

$6,004 and has been classified as Level 2 of the valuation hierarchy.

 

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The Company’s required future annual principal payments are approximately $500 each year for the next five years and $3,504 thereafter.

 

11. 9.Income Taxes

 

The Company files income tax returns in thenumerous U.S. federal jurisdiction and various states and foreign jurisdictions. With few exceptions, the Company is no longerjurisdictions, with returns subject to state or foreign income tax examinations by tax authoritiesexamination for yearsvarying periods, but generally back to and including the year ending before April 2, 2005. The Company is no longer subject to U.S. federal tax examination by the Internal Revenue Service for years ending before April 2, 2016.1, 2017.

 

The effective income tax rates for the three-month periods ended September 26, 2020 and September 28, 2019 were 20.9% and September 29, 2018, were 14.7% and 11.7%., respectively. In addition to discrete items, the effective income tax rates for these periods are different from the U.S. statutory rates due to the foreign-derived intangible income provision and U.S. credit for increasing research activities, which decrease the rate, and state income taxes, which increase the rate.

 

The effective income tax rate for the three-month period ended September 26, 2020 of 20.9% includes $364 of tax benefits associated with share-based compensation. The effective income tax rate without discrete items for the three-month period ended September 26, 2020 would have been 22.0%. The effective income tax rate for the three-month period ended September 28, 2019 of 14.7% includes $2,529$2,529 of tax benefitbenefits associated with share-based compensation. The effective income tax rate without this benefit and otherdiscrete items would have been 21.3%. The effective income tax rate for the three-month period ended September 29, 2018 of 11.7% includes $3,176 of tax benefit associated with share-based compensation. The effective income tax rate without this benefit and other items28, 2019 would have been 20.9%21.3%. The Company believes it is reasonably possible that some of its unrecognized tax positions may be effectively settled within the next twelve months due to the closing of audits and the statute of limitations expiring in variousvarying jurisdictions. The decrease in the Company’s unrecognized tax positions, pertaining primarily to federal and state credits and state tax, is estimated to be approximately $1,246.$1,524.

 

13

Income tax expense for the six-month period ended September 28, 201926, 2020 was $12,646$11,046 compared to $9,777$12,646 for the six-month period ended September 29, 2018.28, 2019. Our effective income tax rate for the six-month period ended September 28, 201926, 2020 was 17.0%20.4% compared to 14.5%17.0% for the six-month period ended September 29, 2018.28, 2019. The effective income tax rate for the six-month period ended September 26, 2020 of 20.4% includes $679 of tax benefits associated with share-based compensation. The effective income tax rate without these benefits and other items for the six-month period ended September 26, 2020 would have been 21.6%. The effective income tax rate for the six-month period ended September 28, 2019 of 17.0% includes $3,039 included $3,039 of tax benefitbenefits associated with share-based compensation and $241$241 of tax benefitbenefits associated with other permanent adjustments from filing the Company'sCompany’s fiscal 2018 foreign tax returns. The effective income tax rate without these benefits and other items for the six-month period ended September 28, 2019 would have been 21.3%. The effective income tax rate for the six-month period ended September 29, 2018 of 14.5% included $4,506 of tax benefits associated with share-based compensation. The effective income tax rate without this benefit and other items for the six-month period ended September 29, 2018 would have been 21.3%.

10. Reportable Segments

 

12. Reportable Segments

The Company operates through operating segments for which separate financial information is available, and for which operating results are evaluated regularly by the Company’s chief operating decision maker in determining resource allocation and assessing performance. Those operating segments are aggregated as reportable segments as they have similar economic characteristics, including nature of the products and production processes, distribution patterns and classes of customers.

 

The Company has 4 reportable business segments, Plain Bearings, Roller Bearings, Ball Bearings and Engineered Products, which are described below.

 

Plain Bearings. Plain bearings are produced with either self-lubricating or metal-to-metal designs and consists of several sub-classes, including rod end bearings, spherical plain bearings and journal bearings. Unlike ball bearings, which are used in high-speed rotational applications, plain bearings are primarily used to rectify inevitable misalignments in various mechanical components.

 

Roller Bearings. Roller bearings are anti-friction bearings that use rollers instead of balls. The Company manufactures four basic types of roller bearings: heavy-duty needle roller bearings with inner rings, tapered roller bearings, track rollers and aircraft roller bearings.

Ball Bearings. The Company manufactures four basic types of ball bearings: high precision aerospace, airframe control, thin section and commercial ball bearings, which are used in high-speed rotational applications.

 

Engineered Products. Engineered Products consists of highly engineered hydraulics, fasteners, collets and precision components used in aerospace, marine and industrial applications.


14

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.

 Corporate [Member]

  Three Months Ended  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  

September 26,

2020

  

September 28,

2019

 
Net External Sales            
Plain $71,053  $90,007  $149,928  $177,496 
Roller  21,579   32,585   44,479   69,444 
Ball  21,099   17,424   39,939   35,134 
Engineered Products  32,604   41,893   68,482   82,525 
  $146,335  $181,909  $302,828  $364,599 
Gross Margin                
Plain $29,750  $35,700  $61,827  $69,814 
Roller  6,236   13,396   14,643   27,920 
Ball  9,129   7,503   17,056   15,302 
Engineered Products  11,481   14,515   22,523   28,772 
  $56,596  $71,114  $

116,049

  $141,808 
Selling, General & Administrative Expenses                
Plain $5,276  $6,534  $10,547  $13,048 
Roller  1,162   1,647   2,401   3,261 
Ball  1,289   1,574   2,635   3,207 
Engineered Products  3,838   4,434   7,650   8,737 
Corporate  14,458   16,585   29,619   32,608 
  $26,023  $30,774  $52,852  $60,861 
Operating Income                
Plain $23,472  $28,255  $48,873  $55,080 
Roller  4,481   11,734   11,580   24,304 
Ball  7,803   5,907   14,354   12,044 
Engineered Products  6,112   8,423   12,093   17,425 
Corporate  (15,505)  (17,010)  (31,723)  (33,054)
  $26,363  $37,309  $55,177  $75,799 
Intersegment Sales                
Plain $1,212  $1,509  $2,774  $3,356 
Roller  2,171   4,023   5,549   7,224 
Ball  464   916   1,131   1,585 
Engineered Products  6,832   10,751   17,481   21,573 
  $10,679  $17,199  $26,935  $33,738 

 

Schedule of segment information      
  Three Months Ended  Six Months Ended 
  

September 28,

2019

  

September 29,

2018

  

September 28,

2019

  

September 29,

2018

 
Net External Sales                
Plain $90,007  $77,480  $177,496  $156,005 
Roller  32,585   37,000   69,444   72,870 
Ball  17,424   18,038   35,134   36,112 
Engineered Products  41,893   40,398   82,525   83,914 
  $181,909  $172,916  $364,599  $348,901 
Gross Margin                
Plain $35,700  $30,867  $69,814  $61,483 
Roller  13,396   16,270   27,920   31,227 
Ball  7,503   7,408   15,302   14,687 
Engineered Products  14,515   13,274   28,772   28,161 
  $71,114  $67,819  $141,808  $135,558 
Selling, General & Administrative Expenses                
Plain $6,534  $6,160  $13,048  $12,522 
Roller  1,647   1,556   3,261   3,180 
Ball  1,574   1,609   3,207   3,211 
Engineered Products  4,434   5,076   8,737   10,436 
Corporate  16,585   14,925   32,608   29,552 
  $30,774  $29,326  $60,861  $58,901 
Operating Income                
Plain $28,255  $23,955  $55,080  $47,399 
Roller  11,734   14,702   24,304   28,034 
Ball  5,907   5,750   12,044   11,368 
Engineered Products  8,423   7,520   17,425   16,397 
Corporate  (17,010)  (16,043)  (33,054)  (31,316)
  $37,309  $35,884  $75,799  $71,882 
Intersegment Sales                
Plain $1,509  $1,643  $3,356  $3,240 
Roller  4,023   3,074   7,224   7,169 
Ball  916   762   1,585   1,562 
Engineered Products  10,751   9,978   21,573   19,116 
  $17,199  $15,457  $33,738  $31,087 

All intersegment sales are eliminated in consolidation.

 

11. Acquisition

 

13. Acquisition

CHF [Member]

On August 15, 2019, the Company, through its Schaublin SA subsidiary, acquired all of the outstanding shares of Vianel Holding AG (“Swiss Tool”)Tool for a purchase price of approximately $33,842$33,597 (CHF 33,000), subject to a working capital adjustment. Swiss Tool, which is based in Bürglen, Switzerland, owns Swiss Tool Systems AG and other subsidiaries which collectively develop and manufacture high precision boring and turning solutions for metal cutting machines under32,768). We have finalized the Swiss Tool Systems name. The preliminary purchase price allocation is as follows: accounts receivable ($1,325), inventory ($5,963), other current assets ($586), fixed assets ($3,487), intangible assets ($13,635), operating lease assets ($2,851), other non-current assets ($154), accounts payable ($562), other current liabilities ($894), operating lease liabilities ($2,851), deferred tax liabilities ($3,480)with no material adjustments subsequent to March 28, 2020.

12. Restructuring and noncurrent liabilities ($2,085). The purchase price allocation, whichConsolidation

In the second quarter of fiscal 2021, the Company made the decision to consolidate two of its manufacturing facilities. This resulted in goodwill$2,579 of approximately $15,625, is not deductible for tax purposesnon-cash restructuring charges comprised of $1,994 of inventory rationalization costs included within cost of sales and is subject to change pending a final valuation$585 of fixed asset disposals included within other operating expenses. These restructuring charges are included within the assets and liabilities, including intangible assets and deferred income taxes. Swiss Tool is included in the Engineered Products reportingRoller segment.

 


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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement As Toas to Forward-Looking Information

The information in this discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts, included in this quarterly report on Form 10-Q regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management are “forward-looking statements” as the term is defined in the Private Securities Litigation Reform Act of 1995.

The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation: (a) the bearing and engineered products industries are highly competitive, and this competition could reduce our profitability or limit our ability to grow; (b) The loss of a major customer, or a material adverse change in a major customer’s business, could result in a material reduction in our revenues, cash flows and profitability; (c) our results are likely to be impacted by the COVID-19 pandemic; (d) weakness in any of the industries in which our customers operate, as well as the cyclical nature of our customers'customers’ businesses generally, could materially reduce our revenues, cash flows and profitability; (d)(e) future reductions or changes in U.S. government spending could negatively affect our business; (e)(f) fluctuating supply and costs of subcomponents, raw materials and energy resources, or the imposition of import tariffs, could materially reduce our revenues, cash flows and profitability; (f)(g) our results could be impacted by changes ingovernmental trade agreementspolicies and tariffs relating to our supplies imported from foreign vendors or treaties and the imposition of tariffs on our finished goods exported to other countries; (g)(h) our products are subject to certain approvals and government regulations and the loss of such approvals, or our failure to comply with such regulations, could materially reduce our revenues, cash flows and profitability; (h)(i) the retirement of commercial aircraft could reduce our revenues, cash flows and profitability; (i)(j) work stoppages and other labor problems could materially reduce our ability to operate our business; (j)(k) unexpected equipment failures, catastrophic events or capacity constraints could increase our costs and reduce our sales due to production curtailments or shutdowns; (k)(l) we may not be able to continue to make the acquisitions necessary for us to realize our growth strategy; (l)(m) businesses that we have acquired or that we may acquire in the future may have liabilities which are not known to us; (m)(n) goodwill and indefinite-lived intangibles comprise a significant portion of our total assets, and if we determine that goodwill and indefinite-lived intangibles have become impaired in the future, our results of operations and financial condition in such years may be materially and adversely affected; (n)(o) we depend heavily on our senior management and other key personnel, the loss of whom could materially affect our financial performance and prospects; (o)(p) our international operations are subject to risks inherent in such activities; (p)(q) currency translation risks may have a material impact on our results of operations; (q)(r) we are subject to changes in legislative, regulatory and legal developments involving income and other taxes; (r)(s) we may be required to make significant future contributions to our pension plan; (s)(t) we may incur material losses for product liability and recall-related claims; (t)(u) environmental and health and safety laws and regulations impose substantial costs and limitations on our operations, and environmental compliance may be more costly than we expect; (u)(v) our intellectual property and proprietary information are valuable, and any inability to protect them could adversely affect our business and results of operations; in addition, we may be subject to infringement claims by third parties; (v)(w) cancellation of orders in our backlog could negatively impact our revenues, cash flows and profitability; (w)(x) if we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud; (x)(y) litigation could adversely affect our financial condition; (y)(z) changes in accounting standards or changes in the interpretations of existing standards could affect our financial results; (z)(aa) risks associated with utilizing information technology systems could adversely affect our operations. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with the SEC, including, without limitation, the risks identified under the heading “Risk Factors” set forth in the Annual Report on Form 10-K for the year ended March 30, 2019.28, 2020. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not intend, and undertake no obligation, to update or alter any forward-looking statement. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appears elsewhere in this Quarterly Report.

16

19

 

Overview

We are a well-known international manufacturer and maker of highly engineered precision bearings and components. Our precision solutions are integral to the manufacture and operation of most machines and mechanical systems, reduce wear to moving parts, facilitate proper power transmission, and reduce damage and energy loss caused by friction. While we manufacture products in all major bearings categories, we focus primarily on the higher end of the bearing and engineered component markets where we believe our value addedvalue-added manufacturing and engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability. We believe our unique expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 4342 facilities in 7 countries, of which 33 are manufacturing facilities, in four countries, we have been able to significantly broaden our end markets, products, customer base and geographic reach. We currently operate under four reportable business segments: Plain Bearings;Bearings, Roller Bearings;Bearings, Ball Bearings;Bearings, and Engineered Products. The following further describes these reportable segments:

 

Plain Bearings. Plain bearings are produced with either self-lubricating or metal-to-metal designs and consists of several sub-classes, including rod end bearings, spherical plain bearings and journal bearings. Unlike ball bearings, which are used in high-speed rotational applications, plain bearings are primarily used to rectify inevitable misalignments in various mechanical components.

 

Roller Bearings. Roller bearings are anti-friction bearings that use rollers instead of balls. We manufacture four basic types of roller bearings: heavy-duty needle roller bearings with inner rings, tapered roller bearings, track rollers and aircraft roller bearings.

 

Ball Bearings. We manufacture four basic types of ball bearings: high precision aerospace, airframe control, thin section and commercial ball bearings, which are used in high-speed rotational applications.

 

Engineered Products. Engineered Products consists of highly engineered hydraulics, fasteners, collets and precision components used in aerospace, marine and industrial applications.

Purchasers of bearings and engineered products include industrial equipment and machinery manufacturers, producers of commercial and military aerospace equipment such as missiles and radar systems, agricultural machinery manufacturers, construction, energy, mining, marine and specialized equipment manufacturers, marine products, automotive and commercial truck manufacturers. The markets for our products are cyclical, and we have endeavored to mitigate this cyclicality by entering into sole-source relationships and long-term purchase agreements, through diversification across multiple market segments within the aerospace and defense and diversified industrial segments, by increasing sales to the aftermarket and by focusing on developing highly customized solutions.

17

20

 

Currently, our strategy is built around maintaining our role as a leading manufacturer of precision-engineered bearings and components through the following efforts:

●Developing innovative solutions. By leveraging our design and manufacturing expertise and our extensive customer relationships, we continue to develop new products for markets in which there are substantial growth opportunities.

●Expanding customer base and penetrating end markets. We continually seek opportunities to access new customers, geographic locations and bearing platforms with existing products or profitable new product opportunities.

●Increasing aftermarket sales. We believe that increasing our aftermarket sales of replacement parts will further enhance the continuity and predictability of our revenues and enhance our profitability. Such sales include sales to third party distributors and sales to OEMs for replacement products and aftermarket services. We will increase the percentage of our revenues derived from the replacement market by continuing to implement several initiatives.

 

●Pursuing selective acquisitions. The acquisition of businesses that complement or expand our operations has been and continues to be an important element of our business strategy. We believe that there will continue to be consolidation within the industry that may present us with acquisition opportunities.

Outlook

Our net sales for the three-month period ended September 28, 2019 increased 5.2%26, 2020 decreased 19.6% compared to the same period last fiscal year. The increasedecrease in net sales was a result of a 10.2% increase25.8% decrease in our aerospace markets and an 8.3% decrease in our industrial markets. The decrease in aerospace sales partially offset by a decrease of 2.8% in industrial sales. Excluding $3.9 million of sales associated with the Miami division sold in fiscal 2019, aerospace sales increased 14.4% year over year. The increase in aerospace markets was primarily due to the commercial and defensemarkets, both OEM and aftermarket, business. Excluding $1.5 million of sales from the Swiss Tool acquisitionoffset by increases in fiscal 2020, industrial sales decreased 5.0% year over year.our defense business. The decrease in industrial sales was driven by decreases in the mining, energy, marine, and general industrial markets. Overall, excludingExcluding $0.4 million of July sales associated with the Miami division and Swiss Tool, which was acquired in August fiscal 2020, overall net sales increased 6.8%decreased 19.8% year over year. Our backlog, as of September 28, 201926, 2020, was $473.2$403.0 million compared to $429.9$473.2 million as of September 29, 2018.28, 2019.

The Company expects net salesCOVID-19 health crisis, which was declared a pandemic in March 2020, has led to be approximately $177.0 milliongovernments around the world implementing measures to $179.0 millionreduce the spread. These measures include quarantines, “shelter in the third quarter of fiscal 2020. This would resultplace” orders, travel restrictions, and other measures and have resulted in a growth rateslowdown of 3.2%worldwide economic activity.

Our business is operating as an essential business, and as such, our facilities have remained open, with the exception of a few temporary closures at some of our locations. The COVID-19 pandemic is impacting our commercial aerospace and industrial sales in fiscal 2021. Our commercial aerospace sales continue to 4.4% on a year-over-year basis and 3.6% to 4.7% excluding $2.9 million in salesface headwinds associated with our Miami division, which was soldbuild rate changes within the industry, while the general decline in global economic activity has had an impact on the third quarter of fiscal 2019,industrial markets.

Our production and $2.5 million of sales associated with Swiss Tool, which we acquired in the second quarter of fiscal 2020. The third quarter2021 have been negatively affected by the economic implications of the pandemic. We expect that commercial aerospace OEM and aftermarket will continue to be impacted by approximately fourthe year-over-year decline in air travel and changes in aircraft production rates. Conversely, our sales to five fewer production and shipping daysaerospace defense markets are expected to grow throughout fiscal 2021. Sales in these markets grew 24.1% during the second quarter of fiscal 2021 (17.8% for the first six months of fiscal 2021) as compared to the same period last year. Our sales to industrial markets will be adversely affected in the next quarter of fiscal 2021 due to the holiday schedule.slowdown of economic activity compared to last year. Management is continuously evaluating the status of our orders and operations, and restructuring efforts are being implemented where necessary to align our cost structure to the new demand levels we experience in the marketplace.

18

We experienced solid cash flow generation during the second quarter of fiscal 2021 (as discussed in the section “Liquidity and Capital Resources” below). Management believes that these operating cash flows and available credit under all credit agreements will provide adequate resources to fund internal and external growth initiatives for the foreseeable future.future, including at least the next twelve months. As of September 28, 2019,26, 2020, we had cash and cash equivalents of $36.4$166.4 million of which approximately $18.2$13.1 million was cash held by our foreign operations.

21

 

The Company expects net sales to be approximately $140.0 million to $145.0 million in the third quarter of fiscal 2021.

Results of Operations

(dollars in millions)

  Three Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
Total net sales $181.9  $172.9  $9.0   5.2%
                 
Net income $31.3  $30.1  $1.2   3.8%
                 
Net income per common share: diluted $1.26  $1.22         
Weighted average common shares: diluted  24,905,173   24,719,056         
  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change		  %
Change		 
Total net sales $146.3  $181.9  $(35.6)  (19.6)%
                 
Net income $20.4  $31.3  $(10.9)  (34.7)%
                 
Net income per common share: diluted $0.82  $1.26         
Weighted average common shares: diluted  24,957,158   24,905,173         

Our net sales for the three-month period ended September 28, 2019 increased 5.2%26, 2020 decreased 19.6% compared to the same period last fiscal year. The increasedecrease in net sales was a result of a 10.2% increase25.8% decrease in our aerospace markets and an 8.3% decrease in our industrial markets. The decrease in aerospace sales partially offset by a decrease of 2.8% in industrial sales. Excluding $3.9 million of sales associated with the Miami division sold in fiscal 2019, aerospace sales increased 14.4% year over year. The increase in aerospace markets was primarily due to the commercial and defensemarkets, both OEM and aftermarket, business. Excluding $1.5 millionwhich were down 36.7%, offset by increases in our defense business of sales from the Swiss Tool acquisition in fiscal 2020, industrial sales decreased 5.0% year over year.24.1%. The decrease in industrial sales was driven by decreases in the mining, energy, marine and general industrial markets partially offset by increases in the semiconductor, military vehicles, wind, nuclear, and a few other industrial markets. Overall, excludingExcluding $0.4 million of July sales associated with the Miami division and Swiss Tool, which was acquired in August fiscal 2020, overall net sales increased 6.8%decreased 19.8% year over year.

Net income for the second quarter of fiscal 20202021 was $31.3$20.4 million compared to $30.1$31.3 million for the same period last year. Net income for the second quarter of fiscal 2021 was affected by $2.8 million of after-tax restructuring costs and related items primarily associated with the consolidation of two manufacturing facilities and $0.1 million of losses on foreign exchange partially offset by $0.4 million of tax benefits associated with share-based compensation and $0.1 million of other discrete tax benefits. Net income for the second quarter of fiscal 2020 was affected by $2.5 million of tax benefitbenefits associated with share-based compensation partially offset by $0.8 million of after-tax costs associated with the acquisition of Swiss Tool, $0.1 million of losses on foreign exchange and $0.1 million of other discrete tax losses. Net income for the second quarter of fiscal 2019 was affected by $3.2 million of tax benefit associated with share-based compensation.

  Six Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
Total net sales $364.6  $348.9  $15.7   4.5%
                 
Net income $61.8  $57.6  $4.2   7.3%
                 
Net income per common share: diluted $2.49  $2.34         
Weighted average common shares: diluted  24,856,561   24,635,146         

 

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change		  %
Change		 
Total net sales $302.8  $364.6  $(61.8)  (16.9)%
                 
Net income $43.1  $61.8  $(18.7)  (30.2)%
                 
Net income per common share: diluted $1.73  $2.49         
Weighted average common shares: diluted  24,944,608   24,856,561         

Net sales increased $15.7decreased $61.8 million, or 4.5%16.9% for the six-month period ended September 28, 201926, 2020 over the same period last year. The increasedecrease in net sales was mainly the result of a 10.8% increase20.4% decrease in aerospace sales partially offset byand a 5.1%10.8% decrease in industrial sales. Excluding $8.4 million of sales associated with the Miami division in fiscal 2019, aerospace sales increased 15.3% year over year. The increasedecrease in aerospace sales was primarily due to the commercial markets, both OEM and aftermarket, which were down 29.2%, which was partially offset by defense OEM and aftermarket, business. Excluding $1.5 million of sales from the Swiss Tool acquisition in fiscal 2020, industrial sales decreased 6.1%which increased 17.8% year over year. The decrease in industrial sales was primarily due to mining, energy, and general industrial markets partially offset by increases in the semiconductor, military vehicles, wind, nuclear, and a few other industrial markets. Overall, excludingExcluding $2.6 million of sales associated with the Miami division and Swiss Tool, overall net sales increased 6.6%decreased 17.7% year over year.

19

Net income for the six months ended September 28, 201926, 2020 was $61.8$43.1 million compared to $57.6$61.8 million for the same period last year. Net income for the six month period in fiscal 2021 was affected by $3.7 million of after-tax restructuring costs and related items and $0.2 million of losses on foreign exchange partially offset by $0.7 million of tax benefits associated with share-based compensation and $0.1 million of other discrete tax benefits. The net income of $61.8 million in fiscal 2020 was impacted by $3.0 million of tax benefits associated with share-based compensation and $0.2 million of discrete tax benefits partially offset by $0.8 million of after-tax cost associated with the acquisition of Swiss Tool and $0.3 million of loss on foreign exchange. The net income of $57.6 million in fiscal 2019 was impacted by $4.5 million of tax benefits associated with share-based compensation and $0.1 million associated with foreign exchange and discrete taxes and $0.8 million of after-tax cost associated with the loss on the extinguishment of debt.

 

22

Gross Margin

 

  Three Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
Gross Margin $71.1  $67.8  $3.3   4.9%
Gross Margin %  39.1%  39.2%        

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change		  

%
Change

 
             
Gross Margin $56.6  $71.1  $(14.5)  (20.4)%
Gross Margin %  38.7%  39.1%        

Gross margin increased $3.3 million, or 4.9%, inwas 38.7% of net sales for the second quarter of fiscal 20202021 compared to 39.1% for the second quarter of fiscal 2019. This was mainly driven by higher sales achieved during the current period.2020. The exclusion of the Miami divisiondecrease in fiscal 2020 also benefited gross margin as a percentage comparedof net sales was primarily due to $2.0 million in inventory rationalization costs associated with the prior period.consolidation of two manufacturing facilities partially offset by product mix.

  Six Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
Gross Margin $141.8  $135.6  $6.2   4.6%
Gross Margin %  38.9%  38.9%        
  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change		  

%
Change

 
             
Gross Margin $116.0  $141.8  $(25.8)  (18.2)%
Gross Margin %  38.3%  38.9%        

Gross margin increased $6.2 million or 4.6%was 38.3% of net sales for the first six months of fiscal 20202021 compared to 38.9% for the same period last year. The increaseAlthough gross margin dollars decreased year over year, resulting from current economic conditions, gross margin as a percentage of net sales is primarily a result of higher sales achievedconsistent due to product mix and cost containment efforts during the period. The exclusionGross margin for the first six months of fiscal 2021 was also impacted by $0.8 million of capacity inefficiencies driven by the Miami divisiondecrease in fiscal 2020 also benefited gross margin percentage compared tovolume and $2.0 million in inventory rationalization costs associated with the prior period.consolidation of two manufacturing facilities, partially offset by beneficial product mix.

Selling, General and Administrative

 

  Three Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
 Change		 
             
SG&A $30.8  $29.3  $1.5   4.9%
% of net sales  16.9%  17.0%        
  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
SG&A $26.0  $30.8  $(4.8)  (15.4)%
% of net sales  17.8%  16.9%        

SG&A expenses increased by $1.5 million to $30.8 million for the second quarter of fiscal 20202021 was $26.0 million, or 17.8% of net sales, as compared to $29.3$30.8 million, or 16.9% of net sales, for the second quartersame period of fiscal 2019.2020. This increasereduction was mainly drivendue to decreases in personnel costs of $4.9 million partially offset by $1.0 million of additional share-based compensation expense, $0.4 million of personnel-related expenses, and $0.1 million of other costs. As a percentage of sales, SG&A was 16.9% for the second quarter of fiscal 2020 compared to 17.0% for the same period last year.items.

  Six Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
 Change		 
             
SG&A $60.9  $58.9  $2.0   3.3%
% of net sales  16.7%  16.9%        
  Six Months Ended 
  September 26,
2020		  September 28,
2019		  $
Change		  %
Change		 
             
SG&A $52.9  $60.9  $(8.0)  (13.2)%
% of net sales  17.5%  16.7%        

SG&A expenses increaseddecreased by $2.0$8.0 million to $60.9$52.9 million for the first six months of fiscal 20202021 compared to $58.9$60.9 million for the same period last year. This increasedecrease is primarily due to $2.0$8.7 million of reductions in personnel costs and $0.1 million of other items partially offset by $0.8 million of additional share-based compensation.

 

20

23

 

Other, Net

 

  Three Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
Other, net $3.0  $2.6  $0.4   16.2%
% of net sales  1.7%  1.5%        
  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
Other, net $4.2  $3.0  $1.2   38.9%
% of net sales  2.9%  1.7%        

 

Other operating expenses for the second quarter of fiscal 20202021 totaled $3.0$4.2 million compared to $2.6$3.0 million for the same period last year. For the second quarter of fiscal 2020,2021, other operating expenses included $1.5 million of restructuring costs and related items, $2.6 million of amortization of intangible assets and $0.1 million of other costs. Other operating expenses last year were comprised mainly of $2.3 million of amortization of intangible assets and $0.9 million of costs associated with the acquisition of Swiss Tool, partially offset by $0.2 million of other income. For the second quarter of fiscal 2019, other operating expenses were comprised mainly of $2.6 million of amortization of intangible assets.

  Six Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
Other, net $5.1  $4.8  $0.3   7.8%
% of net sales  1.4%  1.4%        
  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change		  

%

Change

 
             
Other, net $8.0  $5.1  $2.9   55.8%
% of net sales  2.6%  1.4%        

Other operating expenses for the first six months of fiscal 20202021 totaled $5.1$8.0 million compared to $4.8$5.1 million for the same period last year. For the first six months of fiscal 2021, other operating expenses were comprised mainly of $5.1 million in amortization of intangibles, $2.6 million of restructuring and related items and $0.3 million of other items. For the first six months of fiscal 2020, other operating expenses were comprised mainly of $4.6 million in amortization of intangibles and $0.9 million of costs associated with the acquisition of Swiss Tool, partially offset by $0.4 million of other income. For the first six months of fiscal 2019, other operating expenses were comprised mainly of $4.9 million in amortization of intangibles offset by $0.1 million of other income.

 

Interest Expense, Net

 

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
Interest expense, net $0.3  $0.5  $(0.2)  (27.5)%
% of net sales  0.2%  0.3%        

21

  Three Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
Interest expense, net $0.5  $1.4  $(0.9)  (67.3)%
% of net sales  0.3%  0.8%        

Interest expense, net, generally consists of interest charged on the Company’s bank credit facilitiesdebt agreements and amortization of deferred financing fees, offset by interest income (see “Liquidity and Capital Resources – Liquidity”Resources” below). Interest expense, net, was $0.5$0.3 million for the second quarter of fiscal 20202021 compared to $1.4$0.5 million for the same period last year. The Company had total debt of $37.8 million at September 28, 2019 compared to $124.5 million at September 29, 2018.

24

 

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change		  

%

Change

 
             
Interest expense, net $0.8  $1.0  $(0.2)  (24.7)%
% of net sales  0.3%  0.3%        

  Six Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
 Change		 
             
Interest expense, net $1.0  $3.2  $(2.2)  (67.7)%
% of net sales  0.3%  0.9%        

Interest expense, net was $0.8 million for the first six months of fiscal 2021 compared to $1.0 million for the first six months of fiscal 20202020.

Other Non-Operating Expense

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change		  

%

Change

 
             
Other non-operating expense $0.2  $0.2  $0.0   8.2%
% of net sales  0.1%  0.1%        

Other non-operating expenses were $0.2 million for the second quarter of fiscal 2021 compared to $3.2$0.2 million for the same period in the prior year. For the second quarter of fiscal 2021, other non-operating expenses were comprised of $0.1 million of foreign exchange loss and $0.1 million of other items. For the second quarter of fiscal 2020, other non-operating expenses were primarily comprised of $0.1 million of foreign exchange loss and $0.1 million of other items.

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change		  

%

Change

 
             
Other non-operating expense $0.3  $0.4  $(0.1)  (30.5)%
% of net sales  0.1%  0.1%        

Other non-operating expenses were $0.3 million for the first six months of fiscal 2019.2021 compared to $0.4 million for the same period in the prior year. For the first six months of fiscal 2021, other non-operating expenses were comprised of $0.2 million of foreign exchange loss and $0.1 million of other items. For the first six months of fiscal 2020, other non-operating expenses were primarily comprised of $0.3 million of foreign exchange loss and $0.1 million of other items.

Income Taxes

 

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

 
       
Income tax expense (benefit) $5.4  $5.4 
Effective tax rate  20.9%  14.7%

22

  Three Months Ended 
  September 28,
2019		  September 29,
2018		 
       
Income tax expense (benefit) $5.4  $4.0 
Effective tax rate  14.7%  11.7%

Income tax expense for the three-month period ended September 28, 201926, 2020 was $5.4 million compared to $4.0$5.4 million for the three-month period ended September 29, 2018.28, 2019. Our effective income tax rate for the three-month period ended September 28, 201926, 2020 was 14.7%20.9% compared to 11.7%14.7% for the three-month period ended September 29, 2018.28, 2019. The effective income tax rate for the three-month period ended September 26, 2020 of 20.9% includes $0.4 million of tax benefits associated with share-based compensation. The effective income tax rate without these benefits for the three-month period ended September 26, 2020 would have been 22.0%. The effective income tax rate for the three-month period ended September 28, 2019 of 14.7% includes $2.5 million of tax benefitbenefits associated with share-based compensation. The effective income tax rate without these benefits for the three-month period ended September 28, 2019 would have been 21.3%.

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

 
       
Income tax expense (benefit) $11.0  $12.6 
Effective tax rate  20.4%  17.0%

Income tax expense for the six-month period ended September 26, 2020 was $11.0 million compared to $12.6 million for the six-month period ended September 28, 2019. Our effective income tax rate for the six-month period ended September 26, 2020 was 20.4% compared to 17.0% for the six-month period ended September 28, 2019. The effective income tax rate for the six-month period ended September 26, 2020 of 20.4% includes $0.7 million of tax benefits associated with share-based compensation. The effective income tax rate without these benefits and other items for the three-month period ended September 28, 2019 would have been 21.3%. The effective income tax rate for the three-month period ended September 29, 2018 of 11.7% includes $3.2 million of tax benefit associated with share-based compensation. The effective income tax rate without this benefit and other items for the three-month period ended September 29, 2018 would have been 20.9%.

  Six Months Ended 
  September 28,
2019		  September 29,
2018		 
       
Income tax expense (benefit) $12.6  $9.8 
Effective tax rate  17.0%  14.5%

Income tax expense for the six-month period ended September 28, 2019 was $12.6 million compared to $9.8 million for the six-month period ended September 29, 2018. Our effective income tax rate for the six-month period ended September 28, 2019 was 17.0% compared to 14.5% for the six-month period ended September 29, 2018.26, 2020 would have been 21.6%. The effective income tax rate for the six-month period ended September 28, 2019 of 17.0% includesincluded $3.0 million of tax benefitbenefits associated with share-based compensation and $0.2 million of tax benefitbenefits associated with other permanent adjustments from filing the Company’s fiscal 2018 foreign tax returns. The effective income tax rate without these benefits and other items for the six-month period ended September 28, 2019 would have been 21.3%. The effective income tax rate for the six-month period ended September 29, 2018 of 14.5% includes $4.5 million of tax benefits associated with share-based compensation. The effective income tax rate without this benefit and other items for the six-month period ended September 29, 2018 would have been 21.3%.

25

 

Acquisition

On August 15, 2019, the Company, through its Schaublin SA subsidiary, acquired all of the outstanding shares of Vianel Holding AG (“Swiss Tool”) for a purchase price of approximately $33.8 million (CHF 33.0 million), subject to a working capital adjustment. Swiss Tool, which is based in Bürglen, Switzerland, owns Swiss Tool Systems AG and other subsidiaries which collectively develop and manufacture high precision boring and turning solutions for metal cutting machines under the Swiss Tool Systems name. The preliminary purchase price allocation is as follows: accounts receivable ($1.3 million), inventory ($6.0 million), other current assets ($0.6 million), fixed assets ($3.5 million), intangible assets ($13.6 million), operating lease assets ($2.9 million), other non-current assets ($0.2 million), accounts payable ($0.6 million), other current liabilities ($0.9 million), operating lease liabilities ($2.9 million), deferred tax liabilities ($3.5 million) and noncurrent liabilities ($2.0 million). The purchase price allocation, which resulted in goodwill of approximately $15.6 million, is not deductible for tax purposes and is subject to change pending final valuation of the asset and liabilities, including intangible assets and deferred income taxes. Swiss Tool is included in the Engineered Products reporting segment.

Segment Information

We have four reportable product segments: Plain Bearings, Roller Bearings, Ball Bearings and Engineered Products. We use gross margin as the primary measurement to assess the financial performance of each reportable segment.

Plain Bearings Segment

 

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $71.1  $90.0  $(18.9)  (21.1)%
                 
Gross margin $29.8  $35.7  $(5.9)  (16.7)%
Gross margin %  41.9%  39.7%        
                 
SG&A $5.3  $6.5  $(1.2)  (19.3)%
% of segment net sales  7.4%  7.3%        

Plain Bearing Segment

  Three Months Ended 
  September 28,
2019		  September 29,
2018		  $
 Change		  %
 Change		 
             
Total net sales $90.0  $77.5  $12.5   16.2%
                 
Gross margin $35.7  $30.9  $4.8   15.7%
Gross margin %  39.7%  39.8%        
                 
SG&A $6.5  $6.2  $0.3   6.1%
% of segment net sales  7.3%  8.0%        

Net sales increased $12.5decreased $18.9 million, or 16.2%21.1%, for the three months ended September 28, 201926, 2020 compared to the same period last year. The 16.2% increase21.1% decrease was primarily driven by an increasea decrease of 21.6%27.4% in our aerospace markets andoffset by a 0.3%1.5% increase in ourthe industrial markets. The increasedecrease in aerospace net sales was primarily due to commercial and defense, bothaerospace OEM and aftermarket.aftermarket, partially offset by defense OEM. The increase in industrial net sales was mostly driven by the general industrial markets.

23

Gross margin as a percentpercentage of net sales was 39.7%41.9% for the second quarter of fiscal 20202021 compared to 39.8%39.7% for the same period last year.

The increase in gross margin as a percentage of net sales was mainly due to product mix.

26

 

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $149.9  $177.5  $(27.6)  (15.5)%
                 
Gross margin $61.8  $69.8  $(8.0)  (11.4)%
Gross margin %  41.2%  39.3%        
                 
SG&A $10.5  $13.0  $(2.5)  (19.2)%
% of segment net sales  7.0%  7.4%        

  Six Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
Total net sales $177.5  $156.0  $21.5   13.8%
                 
Gross margin $69.8  $61.5  $8.3   13.6%
Gross margin %  39.3%  39.4%        
                 
SG&A $13.0  $12.5  $0.5   4.2%
% of segment net sales  7.4%  8.0%        

Net sales increased $21.5decreased $27.6 million, or 13.8%15.5%, for the six months ended September 28, 201926, 2020 compared to the same period last year. The 13.8% increase15.5% decrease was primarily driven by an increasea decrease of 20.5%19.8% in our aerospace markets partially offset byand a 4.5%0.9% decrease in the industrial markets. The increasedecrease in aerospace was primarily due to commercial OEM and aftermarket partially offset by defense both OEM and aftermarket. The decrease in industrial sales was mostly driven by the mining, distribution and the general industrial markets.

Gross margin as a percentpercentage of net sales decreasedincreased to 39.3%41.2% for the first six months of fiscal 20202021 compared to 39.4%39.3% for the same period last year. The increase is a result of product mix during the period.

 

Roller BearingBearings Segment

 

  Three Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
Total net sales $32.6  $37.0  $(4.4)  (11.9)%
                 
Gross margin $13.4  $16.3  $(2.9)  (17.7)%
Gross margin %  41.1%  44.0%        
                 
SG&A $1.6  $1.6  $0.0   5.8%
% of segment net sales  5.1%  4.2%        

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $21.6  $32.6  $(11.0)  (33.8)%
                 
Gross margin $6.2  $13.4  $(7.2)  (53.4)%
Gross margin %  28.9%  41.1%        
                 
SG&A $1.2  $1.6  $(0.4)  (29.4)%
% of segment net sales  5.4%  5.1%        

Net sales decreased $4.4$11.0 million, or 11.9%33.8%, for the three months ended September 28, 201926, 2020 compared to the same period last year. Our aerospace markets decreased 39.5% while our industrial markets decreased 20.7%, while our aerospace markets decreased 2.8%by 27.0%. The decrease in industrial sales was primarily in our mining, energy and general industrial markets while the decrease in aerospace was primarily in our defense OEM market.

Gross margin for the three months ended September 28, 2019 was $13.4 million, or 41.1% of sales, compared to $16.3 million, or 44.0%, in the comparable period in fiscal 2019. This decrease in the gross margin percentage was primarily due to product mix during the period.

27

  Six Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
Total net sales $69.4  $72.9  $(3.5)  (4.7)%
                 
Gross margin $27.9  $31.2  $(3.3)  (10.6)%
Gross margin %  40.2%  42.9%        
                 
SG&A $3.3  $3.2  $0.1   2.5%
% of segment net sales  4.7%  4.4%        

Net sales decreased $3.5 million, or 4.7%, for the six months ended September 28, 2019 compared to the same period last year. Our industrial markets decreased 14.1% while our aerospace markets increased by 5.5%. The decrease in industrial sales was primarily due to mining, energy and general industrial market activity while the increase in aerospace was driven by the commercial OEM and distribution markets.commercial and defense aftermarkets. The decrease in industrial net sales was primarily due to mining market activity.

Gross margin for the three months ended September 26, 2020 was 28.9% of net sales, compared to 41.1% in the comparable period in fiscal 2020. This decrease in the gross margin as a percentage of net sales was primarily due to $2.0 million in inventory rationalization costs associated with the consolidation of two manufacturing facilities and decreased volumes during the period.

24

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $44.5  $69.4  $(24.9)  (35.9)%
                 
Gross margin $14.6  $27.9  $(13.3)  (47.6)%
Gross margin %  32.9%  40.2%        
                 
SG&A $2.4  $3.3  $(0.9)  (26.4)%
% of segment net sales  5.4%  4.7%        

Net sales decreased $24.9 million, or 35.9%, for the six months ended September 28, 2019 was $27.9 million, or 40.2% of sales, compared to $31.2 million, or 42.9%, in the comparable period in fiscal 2019. This decrease in the gross margin percentage was primarily due to product mix during the period.

Ball Bearing Segment

  Three Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
Total net sales $17.4  $18.0  $(0.6)  (3.4)%
                 
Gross margin $7.5  $7.4  $0.1   1.3%
Gross margin %  43.1%  41.1%        
                 
SG&A $1.6  $1.6  $(0.0)  (2.2)%
% of segment net sales  9.0%  8.9%        

Net sales decreased $0.6 million, or 3.4%, for the second quarter of fiscal26, 2020 compared to the same period last year. Our industrial markets decreased 5.2%36.7% while our aerospace markets increased 1.4% during the period.decreased by 35.3%. The decrease in industrial sales was a result ofprimarily due to mining and general industrial markets partially offsetmarket activity while the decrease in aerospace was driven by the semiconductor market. The increasecommercial OEM and commercial and defense aftermarkets.

Gross margin for the six months ended September 26, 2020 was 32.9% of net sales, compared to 40.2% in aerospacethe comparable period in fiscal 2020. This decrease in the gross margin as a percentage of net sales was primarily due to $2.0 million in inventory rationalization costs associated with the defense OEM market.

Grossconsolidation of two manufacturing facilities and decreased volumes during the period. During the first six months of fiscal 2021, gross margin as a percentwas also impacted by approximately $0.3 million of capacity inefficiencies driven by the impact of the COVID-19 pandemic.

Ball Bearings Segment

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $21.1  $17.4  $3.7   21.1%
                 
Gross margin $9.1  $7.5  $1.6   21.7%
Gross margin %  43.3%  43.1%        
                 
SG&A $1.3  $1.6  $(0.3)  (18.1)%
% of segment net sales  6.1%  9.0%        

Net sales increased to 43.1%by $3.7 million for the second quarter of fiscal 20202021 compared to 41.1%the same period last year. Our aerospace markets increased 43.7% while our industrial sales increased 11.8%. The increase in aerospace net sales was primarily driven by the defense and space OEM market. The increase in industrial was primarily due to the semiconductor and general industrial markets.

Gross margin as a percentage of net sales was 43.3% for the second quarter of fiscal 2021 as compared to 43.1% for the same period last year. The increase in gross margin percentage wasyear over year is a result of cost efficiencies achievedadditional sales during the period.

25

28

 

  Six Months Ended 
  September 28,
2019		  September 29,
2018		  $
 Change		  %
 Change		 
             
Total net sales $35.1  $36.1  $(1.0)  (2.7)%
                 
Gross margin $15.3  $14.7  $0.6   4.2%
Gross margin %  43.6%  40.7%        
                 
SG&A $3.2  $3.2  $(0.0)  (0.1)%
% of segment net sales  9.1%  8.9%        
  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $39.9  $35.1  $4.8   13.7%
                 
Gross margin $17.1  $15.3  $1.8   11.5%
Gross margin %  42.7%  43.6%        
                 
SG&A $2.6  $3.2  $(0.6)  (17.8)%
% of segment net sales  6.6%  9.1%        

 

Net sales decreased $1.0increased $4.8 million, or 2.7%,13.7% for the six months ended September 28, 201926, 2020 compared to the same period last year. Our industrial market sales decreased 9.1%increased 4.0% while sales to our aerospace markets increased 16.6%36.3%. The decreaseincrease in industrial sales was mainly driven byprimarily due to the general industrial markets while thesemiconductor market. The increase in aerospace net sales was primarily driven by the defense and space OEM market.

Gross margin as a percentpercentage of net sales increaseddecreased to 43.6%42.7% for the six months ended September 28, 201926, 2020 compared to 40.7%43.6% for the same period last year. The increasedecrease was primarily due to cost efficiencies achievedproduct mix during the period.

Engineered Products Segment

  Three Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
 Change		 
             
Total net sales $41.9  $40.4  $1.5   3.7%
                 
Gross margin $14.5  $13.3  $1.2   9.3%
Gross margin %  34.6%  32.9%        
                 
SG&A $4.4  $5.1  $(0.7)  (12.6)%
% of segment net sales  10.6%  12.6%        
  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $32.6  $41.9  $(9.3)  (22.2)%
                 
Gross margin $11.5  $14.5  $(3.0)  (20.9)%
Gross margin %  35.2%  34.6%        
                 
SG&A $3.8  $4.4  $(0.6)  (13.4)%
% of segment net sales  11.8%  10.6%        

Net sales increased $1.5decreased $9.3 million, or 3.7%22.2%, for the second quarter of fiscal 2021 compared to the same period last year. Our aerospace markets decreased 25.7% while our industrial markets decreased 17.3%. Excluding $0.4 million of current year net sales associated with our Swiss Tool division, acquired in August of fiscal 2020, net sales decreased 23.2% for the second quarter of fiscal 2021 compared to the same period last year. The decrease in aerospace net sales were driven by the commercial OEM and aftermarket, partially offset by the defense OEM market. The decrease in our industrial net sales were driven by the marine and general industrial markets.

Gross margin as a percentage of net sales was 35.2% for the second quarter of fiscal 2021 compared to 34.6% for the same period last year. This increase was primarily attributable to product mix and cost reductions during the period.

26

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $68.5  $82.5  $(14.0)  (17.0)%
                 
Gross margin $22.5  $28.8  $(6.3)  (21.7)%
Gross margin %  32.9%  34.9%        
                 
SG&A $7.7  $8.7  $(1.0)  (12.4)%
% of segment net sales  11.2%  10.6%        

Net sales decreased $14.0 million, or 17.0%, for the six months ended September 26, 2020 compared to the same period last year. Our industrial sales increased 17.8% while our aerospace sales decreased 4.5%22.9% while industrial sales decreased 8.6%. Excluding $3.9 million of sales associated with our Miami division sold in fiscal 2019, aerospace sales increased 12.6%. The increase in aerospace sales was primarily driven by the commercial and defense OEM markets. Excluding $1.5$2.6 million of sales associated with the acquisition of Swiss Tool in fiscal 2020, industrial sales increased 8.0% year over year. The increase in industrial sales was driven by the marine business. Overall, excluding sales associated with the Miami division and Swiss Tool, net sales increased 10.7% compared to the same period last year.

Gross margin as a percent of sales increased to 34.6% for the second quarter of fiscal 2020 compared to 32.9% for the same period last year. This increase is primarily due to product mix.

29

  Six Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
Total net sales $82.5  $83.9  $(1.4)  (1.7)%
                 
Gross margin $28.8  $28.2  $0.6   2.2%
Gross margin %  34.9%  33.6%        
                 
SG&A $8.7  $10.4  $(1.7)  (16.3)%
% of segment net sales  10.6%  12.4%        

Netoverall sales decreased $1.4 million, or 1.7%, for the six months ended September 28, 2019 compared to the same period last year. Our aerospace sales decreased 7.8% which was partially offset by an 8.7% increase in industrial sales during the period. Excluding $8.4 million of sales associated with our Miami division sold in fiscal 2019, aerospace sales increased 9.7% year over year.20.2%. The increasedecrease in aerospace sales was primarily driven by the commercial OEM and aftermarket partially offset by the defense OEM markets. Excluding $1.5 million of sales associated with the acquisition of Swiss Tool in fiscal 2020, industrial sales increased 4.0% year over year. The increasedecrease in industrial sales was driven by the marine business. Overall, excluding sales associated with the Miami division and Swiss Tool, net sales increased 7.3% year over year.general industrial markets.

Gross margin as a percentpercentage of net sales increaseddecreased to 34.9%32.9% for the six months ended September 28, 201926, 2020 compared to 33.6%34.9% for the same period last year. This increasedecrease is primarily due to lower sales volume and product mix. During the first half of fiscal 2021, gross margin was also impacted by approximately $0.5 million of capacity inefficiencies driven by the impact of the COVID-19 pandemic.

Corporate

 

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

 
             
SG&A $14.5  $16.6  $(2.1)  (12.8)%
% of total net sales  9.9%  9.1%        

Corporate

  Three Months Ended 
  September 28,
2019		  September 29,
2018		  $
 Change		  %
 Change		 
             
SG&A $16.6  $14.9  $1.7   11.1%
% of total net sales  9.1%  8.6%        

Corporate SG&A increased $1.7decreased $2.1 million, or 12.8%, for the second quarter of fiscal 2021 compared to the same period last year. This was primarily due to a decrease of $2.7 million in personnel costs, partially offset by an increase of $0.2 million in professional fees, $0.2 million of share-based compensation expenses, and $0.2 million of other items.

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change		  

%

Change

 
             
SG&A $29.6  $32.6  $(3.0)  (9.2)%
% of total net sales  9.8%  8.9%        

Corporate SG&A decreased $3.0 million for the threesix months ended September 28, 201926, 2020 compared to the same period last year due to $1.0a decrease of $4.7 million in personnel costs and $0.1 million of other items, partially offset by $0.8 million of additional share-based compensation expenses and $0.7$1.0 million of additional personnel-related costs.

  Six Months Ended 
  September 28,
2019		  September 29,
2018		  $
Change		  %
Change		 
             
SG&A $32.6  $29.6  $3.0   10.3%
% of total net sales  8.9%  8.5%        

Corporate SG&A increased $3.0 million for the six months ended September 28, 2019 compared to the same period last year due to $2.0 million of additional share-based compensation expenses and $1.5 million of additional personnel-related costs partially offset by a reduction of $0.5 million of professional costs.

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30

 

Liquidity and Capital Resources

Our business is capital-intensive. Our capital requirements include manufacturing equipment and materials. In addition, we have historically fueled our growth, in part, through acquisitions. We have historically met our working capital, capital expenditure requirements and acquisition funding needs through our net cash flows provided by operations, various debt arrangements and sale of equity to investors. We believe that operating cash flows and available credit under the Revolver and Foreign Revolver (see below) will provide adequate resources to fund internal and external growth initiatives for the foreseeable future.

Our ability to meet future working capital, capital expenditures and debt service requirements will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, particularly interest rates, cyclical changes in our end markets and prices for steel and our ability to pass through price increases on a timely basis, many of which are outside of our control. In addition, future acquisitions could have a significant impact on our liquidity position and our need for additional funds.

From time to time, we evaluate our existing facilities and operations and their strategic importance to us. If we determine that a given facility or operation does not have future strategic importance, we may sell, partially or completely, relocate production lines, consolidate or otherwise dispose of those operations. Although we believe our operations would not be materially impaired by such dispositions, relocations or consolidations, we could incur significant cash or non-cash charges in connection with them.

 

Liquidity

 

As of September 28, 2019,26, 2020, we had cash and cash equivalents of $36.4$166.4 million, of which, approximately $18.2$13.1 million was cash held by our foreign operations. We expect that our undistributed foreign earnings will be re-invested indefinitely for working capital, internal growth and acquisitions for and by our foreign entities.

 

Domestic Credit Facility

On January 31, 2019, the Company amended the 2015The Company’s credit agreement with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer, and the other lenders party thereto (the “2015 Credit“Credit Agreement”). The 2015 Credit Agreement as so amended (the “Amended Credit Agreement”) now provides the Company with a $250.0 million revolving credit facility (the “Revolver”) in place of the revolver provided in the 2015 Credit Agreement. The Revolver, which expires on January 31, 2024. Debt issuance costs associated with the Amended Credit Agreement totaled $0.9 million and will be amortized through January 31, 2024 along with the unamortized debt issuance costs remaining from the 2015 Credit Agreement.Company’s prior credit agreement.

Amounts outstanding under the Revolver generally bear interest at (a) a base rate determined by reference to the higher of (1) Wells Fargo’s prime lending rate, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one-month LIBOR rate plus 1%, or (b) LIBOR plus a specified margin, depending on the type of borrowing being made. The applicable margin is based on the Company’s consolidated ratio of total net debt to consolidated EBITDA at each measurement date. Currently, the Company’s margin is 0.00% for base rate loans and 0.75% for LIBOR loans.

The Amended Credit Agreement requires the Company to comply with various covenants, including among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.50 to 1. The Amended Credit Agreement allows the Company to, among other things, make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the Amended Credit Agreement. As of September 28, 2019,26, 2020, the Company was in compliance with all such covenants.

The Company’s domestic subsidiaries have guaranteed the Company’s obligations under the Amended Credit Agreement. TheAgreement, and the Company’s obligations under the Amended Credit Agreement and the domestic subsidiaries’ guarantee are secured by a pledge of substantially all of the domestic assets of the Company and its domestic subsidiaries.

28

31

 

Approximately $3.9$3.7 million of the Revolver is being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs. As of September 28, 2019, $1.726, 2020, $1.3 million in unamortized debt issuance costs remain. The Company has the ability to borrow up to an additional $236.9$246.3 million under the Revolver as of September 28, 2019.26, 2020.

Foreign Term Loan and Revolving Credit Facility

On August 15, 2019, one of our foreign divisions,subsidiaries, Schaublin SA ("Schaublin"(“Schaublin”), entered into two separate credit agreements (the "Schaublin“Foreign Credit Agreements"Agreements”) with Credit Suisse (Switzerland) Ltd. to (i) finance the acquisition of Swiss Tool which is discussed in further detail in Note 13, and (ii) provide future working capital. The SchaublinForeign Credit Agreements provided Schaublin with a CHF 15.0 million (approximately $15.4 million) term loan (the "Foreign“Foreign Term Loan"Loan”), which expires on August 15,July 31, 2024 and a CHF 15.0 million (approximately $15.4 million) revolving credit facility (the "Foreign Revolver"“Foreign Revolver”), which continues in effect until terminated by either Schaublin or Credit Suisse. Debt issuance costs associated with the SchaublinForeign Credit Agreements totaled CHF 0.3 million (approximately $0.3 million) and will be amortized throughout the life of the credit agreements.Foreign Credit Agreements.

Amounts outstanding under the Foreign Term Loan and the Foreign Revolver generally bear interest at LIBOR plus a specified margin. The applicable margin is based on Schaublin’s ratio of total net debt to consolidated EBITDA at each measurement date. Currently, Schaublin’s margin is 2.00%1.00%.

The Foreign Credit Agreements require Schaublin to comply with various covenants, which are tested annually on March 31. These covenants include, among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.00 to 1 as of March 31, 2020 and not greater than 2.50 to 1 as of March 31, 2021 and thereafter. Schaublin is also required to maintain an economic equity of CHF 20.0 million at all times. The Foreign Credit Agreements allow Schaublin to, among other things, incur other debt or liens and acquire or dispose of assets provided that Schaublin complies with certain requirements and limitations of the Foreign Credit Agreements. As of September 28, 2019,March 31, 2020, Schaublin was in compliance with all such covenants.

Schaublin’s parent company, Schaublin Holding, has guaranteed Schaublin’s obligations under the Foreign Credit Agreements. Schaublin Holding’s guaranty and the Foreign Credit Agreements are secured by a pledge of the capital stock of Schaublin. In addition, the Foreign Term Loan is secured with pledges of the capital stock of the top company and the three operating companies in the Swiss Tool System group of companies.

As of September 28, 2019,26, 2020, there was approximately $9.3$2.9 million outstanding under the Foreign Revolver and approximately $15.1$12.9 million outstanding under the Foreign Term Loan. These borrowings have been classified as Level 2 of the valuation hierarchy. As of September 28, 2019,26, 2020, approximately $0.3$0.1 million in unamortized debt issuance costs remain. Schaublin has the ability to borrow up to an additional $5.9$13.2 million under the Foreign Revolver as of September 28, 2019.26, 2020.

Schaublin’s required future annual principal payments are approximately $6.1 million for the next five yearstwelve months and thereafter are $0 for fiscal 2020, approximately $12.3 million for fiscal 2021, approximately $3.0$3.2 million for each year from fiscal 2022 through fiscal 2024 and approximately $3.0 million thereafter.for the next three years.

Other Notes Payable

On October 1, 2012, Schaublin purchased the land and building that it occupied and had been leasing for approximately $14.9 million. Schaublin obtained a 20-year fixed-rate mortgage of approximately $9.9 million at an interest rate of 2.9%. The balance of the purchase price of approximately $5.1 million was paid from cash on hand. The balance on this mortgage as of September 28, 201926, 2020 was approximately $6.1 million.$6.0 million and has been classified as Level 2 of the valuation hierarchy.

The Company’s required future annual principal payments are approximately $0.5 million each year for the next five years and $3.5 million thereafter.

 

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32

 

 

Cash Flows

Six-MonthSix-month Period Ended September 26, 2020 Compared to the Six-month Period Ended September 28, 2019 Compared to the Six-Month Period Ended September 29, 2018

The following table summarizes our cash flow activities:

  FY20  FY19  $ Change 
Net cash provided by (used in):         
Operating activities $64.6  $57.9  $6.7 
Investing activities  (53.8)  (15.9)  (37.9)
Financing activities  (5.0)  (34.4)  29.4 
Effect of exchange rate changes on cash  0.7   (1.4)  2.1 
Increase in cash and cash equivalents $6.5  $6.2  $0.3 
  FY21  FY20  $ Change 
Net cash provided by (used in):         
Operating activities $74.5  $64.6  $9.9 
Investing activities  (5.8)  (53.8)  48.0 
Financing activities  (5.5)  (5.0)  (0.5)
Effect of exchange rate changes on cash  (0.1)  0.7   (0.8)
Increase in cash and cash equivalents $63.1  $6.5  $56.6 

During the first six months of fiscal 2020,2021, we generated cash of $64.6$74.5 million from operating activities compared to generating$64.6 million of cash generated during the same period of $57.9fiscal 2020. The increase of $9.9 million for fiscal 2019. The increase of $6.7 million for fiscal 20202021 was mainly a result of the favorable impact of thea net change in operating assets and liabilities of $3.8$20.1 million and an increasea favorable change in non-cash charges of $8.5 million, offset by a decrease in net income of $4.2 million offset by non-cash charges of $1.3$18.7 million. The favorable change in operating assets and liabilities was primarily the result of an increase in the amount of cash being provided by working capital items asis detailed in the table below, while the reduction ofincrease in non-cash charges resulted from a decrease$0.5 million of $2.5 million in deferred taxes, $0.3amortization of intangible assets, $0.1 million of amortization of deferred financing costs, $3.2 million in deferred taxes, $1.0 million from extinguishment of debt, and $0.3 million of amortization of intangible assets offset by an increase in depreciation, of $0.7 million, $2.0$0.8 million of share-based compensation charges, and $0.1$2.9 million of other non-cash charges.charges related to restructuring efforts.

The following chart summarizes the favorable change in operating assets and liabilities of $20.1 million for fiscal 2021 versus fiscal 2020 and the favorable change of $3.8 million for fiscal 2020 versus fiscal 2019 and2019.

  FY21  FY20 
Cash provided by (used in):      
Accounts receivable $19.0  $5.4 
Inventory  8.1   6.9 
Prepaid expenses and other current assets  2.8   (0.5)
Other non-current assets  (5.1)  1.3 
Accounts payable  (12.2)  (2.6)
Accrued expenses and other current liabilities  1.6  (6.2)
Other non-current liabilities  5.9   (0.5)
Total change in operating assets and liabilities: $20.1  $3.8 

During the unfavorable changefirst six months of $26.7 million for fiscal 2019 versus fiscal 2018.

  FY20  FY19 
Cash provided by (used in):      
Accounts receivable $5.4  $(3.5)
Inventory  6.9   (13.2)
Prepaid expenses and other current assets  (0.5)  (6.7)
Other non-current assets  1.3   (0.8)
Accounts payable  (2.6)  (0.8)
Accrued expenses and other current liabilities  (6.2)  0.5 
Other non-current liabilities  (0.5)  (2.2)
Total change in operating assets and liabilities: $3.8  $(26.7)

During fiscal 2020,2021, we used $53.8$5.8 million for investing activities as compared to $15.9$53.8 million forused during the first six months of fiscal 2019.2020. This increasedecrease in cash used was attributable to the $33.8a $14.2 million acquisition of Swiss Tool in fiscal 2020, an increase of $2.5 milliondecrease in capital expenditures and a reductionthe use of $1.6$33.8 million in proceeds received inthe prior year for the acquisition of Swiss Tool.

During the first six months of fiscal 2020 from the sale of assets.

During fiscal 2020,2021, we used $5.0$5.5 million fromfor financing activities compared to using $34.4$5.0 million for the first six months of fiscal 2019.2020. This decreaseincrease in cash used was primarily attributable to proceeds received from borrowings$8.0 million less exercises of $24.8 million for the acquisition of Swiss Tool and $20.0share-based awards offset by $2.1 million less payments made on outstanding debt partially offset by $8.9and $5.4 million fewer proceeds from the exercise of stock options, $6.3 million of additionalless treasury stock purchases, and $0.2 million of finance fees paid in connection with the credit facilities.purchases.

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33

 

 

Capital Expenditures

 

Our capital expenditures were $20.2$2.1 million and $6.0 million for the three- and six-month periodperiods ended September 28, 2019. In addition, we26, 2020, respectively. We expect to make additional capital expenditures of $12.0$6.0 to $17.0$8.0 million during the remainder of fiscal 20202021 in connection with our existing business. We expect to fund fiscal 2020these capital expenditures principally through existing cash and internally generated funds. We may also make substantial additional capital expenditures in connection with acquisitions.

Other Matters

Critical Accounting Policies and Estimates

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements in our fiscal 20192020 Annual Report incorporated by reference in our fiscal 2019on Form 10-K describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the first six months of fiscal 20202021 other than those described withinin Note 2 ofto the unaudited interim consolidated financial statements.statements contained in this quarterly report.

Off-Balance Sheet Arrangements

As of September 28, 2019,26, 2020, we had no significant off-balance sheet arrangements other than $3.9$3.7 million of outstanding standby letters of credit, all of which were under the Revolver.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign currency exchange rates.

Interest Rates. We currently have variable rate debt outstanding under our credit agreements. We regularly evaluate the impact of interest rate changes on our net income and cash flow and take action to limit our exposure when appropriate.

Foreign Currency Exchange Rates. Our Swiss operations utilize the Swiss franc as the functional currency, our French and German operations utilize the euro as the functional currency and our Polish operations utilize the Polish zloty as the functional currency. As a result, we are exposed to risk associated with fluctuating currency exchange rates between the U.S. dollar and these currencies. Foreign currency transaction gains and losses are included in earnings. Approximately 8% of our net sales were impacted by foreign currency fluctuations for both the three-month periodthree- and six-month periods ended September 28, 201926, 2020 compared to 8% for both the same period in the prior year. Approximately 8% of our net sales were impacted by foreign currency fluctuations for thethree- and six-month periodperiods ended September 28, 2019 compared to 8% for the same period in the prior year.2019. We expect that this proportion is likely to increase as we seek to increase our penetration of foreign markets, particularly within the aerospace and defense markets. Foreign currency transaction exposure arises primarily from the transfer of foreign currency from one subsidiary to another within the group, and to foreign currency denominated trade receivables. Unrealized currency translation gains and losses are recognized upon translation of the foreign operations’ balance sheets to U.S. dollars. Because our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our earnings. We periodically enter into derivative financial instruments in the form of forward exchange contracts to reduce the effect of fluctuations in exchange rates on certain third-party sales transactions denominated in non-functional currencies. Based on the accounting guidance related to derivatives and hedging activities, we record derivative financial instruments at fair value. For derivative financial instruments designated and qualifying as cash flow hedges, the effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income, and is reclassified into earnings when the hedged transaction affects earnings. As of September 28, 2019,26, 2020, we had no derivatives.

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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 28, 2019.26, 2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 28, 2019,26, 2020, our disclosure controls and procedures were (1) designed to ensure that information relating to our Company required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported to our Chief Executive Officer and Chief Financial Officer within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, and (2) effective, in that they provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the three-month period ended September 28, 201926, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we are involved in litigation and administrative proceedings, which arise in the ordinary course of our business. We do not believe that any litigation or proceeding in which we are currently involved, including those discussed below, either individually or in the aggregate, is likely to have a material adverse effect on our business, financial condition, operating results, cash flow or prospects.

ITEM 1A. Risk Factors

There have been no material changes to our risk factors and uncertainties duringsince the three-month period ended September 28, 2019.most recent filing of our Form 10-K. For a discussion of the Risk Factors,risk factors, refer to Part I, Item 2, “Cautionary Statement As Toas to Forward-Looking Information,”Information” contained in this quarterly report and Part I, Item 1A, “Risk Factors,” contained in the Company’s Annual Report on Form 10-K for the periodfiscal year ended March 30, 2019.28, 2020.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds

Not applicable.

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Issuer Purchases of Equity Securities

On May 21,In 2019, theour Board of Directors authorized us to repurchase up to $100.0 million of our common stock from time to time on the open market, in block trade transactions, and through privately negotiated transactions, in compliance with SEC Rule 10b-18 depending on market conditions, alternative uses of capital, and other relevant factors. Purchases may be commenced, suspended, or discontinued at any time without prior notice. This repurchase authorization terminates and replaces the $50.0 million stock repurchase program authorized by the Board in 2013.

Total share repurchases under the 2019 plan for the three months ended September 28, 201926, 2020 are as follows:

Period Total
number
of shares
purchased		  Average
price paid
per share		  Number of
shares
purchased
as part of the
publicly
announced
program		  Approximate
dollar value
of shares still
available to be
purchased
under the
program
(000’s)		 
06/30/2019 – 07/27/2019  2,018  $162.95   2,018  $96,791 
07/28/2019 – 08/24/2019  -   -   -   96,791 
08/25/2019 – 09/28/2019  30   169.85   30  $96,786 
Total  2,048  $163.11   2,048     
Period 

Total
number

of shares

purchased

  

Average

price paid

per share

  

Number of

shares

purchased

as part of the

publicly

announced

program

  

Approximate

dollar value

of shares still

available to
be

purchased

under the

program

(000’s)

 
06/28/2020 – 07/25/2020          —  $       —             —  $90,033 
07/26/2020 – 08/22/2020  62   122.42   62   90,026 
08/23/2020 – 09/26/2020  —   —   —  $90,026 
Total  62  $122.42   62     

The 2013 plan was terminated on May 21, 2019, therefore, there were no share repurchases during the three months ended September 28, 2019 under the plan.

ITEM 3.Defaults Upon Senior Securities

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4.Mine Safety Disclosures

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5.Other Information

ITEM 5. Other Information

Not applicable.

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35

 

ITEM 6. Exhibits

ITEM 6.Exhibits

Exhibit
Number		Exhibit Description
4.1Description of Capital Stock
31.01Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).
31.02Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).
32.01Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*
32.02Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.

*This certification accompanies this Quarterly Report on Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

RBC Bearings Incorporated
(Registrant)
By:/s/ Michael J. Hartnett
Name: Michael J. Hartnett
Title:Chief Executive Officer
Date:November 1, 2019
By:/s/ Daniel A. Bergeron
Name:Daniel A. Bergeron
Title:Chief Financial Officer and Chief Operating Officer
Date:November 1, 2019

37

EXHIBIT INDEX

Exhibit
Number		 

Exhibit Description

4.1Description of Capital Stock

31.01 Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).
31.02 Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).
32.01 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*
32.02 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

*This certification accompanies this Quarterly Report on Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

34

38

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:October 30, 2020
By:

/s/ Robert M. Sullivan

Name:Robert M. Sullivan
Title:Chief Financial Officer
Date:October 30, 2020

35

EXHIBIT INDEX

Exhibit
Number

Exhibit Description

31.01Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).
31.02Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).
32.01Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*
32.02Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.

 

*This certification accompanies this Quarterly Report on Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

 

36