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 26, 2020July 3, 2021

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)

Delaware95-4372080
(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 ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.01 per shareROLLNasdaq 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
Non-accelerated filerSmaller 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 23, 2020,July 30, 2021, RBC Bearings Incorporated had 25,101,22425,420,756 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 Operations1615
ITEM 3.Quantitative and Qualitative Disclosures About Market Risk3125
ITEM 4.Controls and Procedures3225
Changes in Internal Control over Financial Reporting3225
Part II -OTHER INFORMATION3226
ITEM 1.Legal Proceedings3226
ITEM 1A.Risk Factors3226
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds3226
ITEM 3.Defaults Upon Senior Securities3327
ITEM 4.Mine Safety Disclosures3327
ITEM 5.Other Information3327
ITEM 6. Exhibits34Exhibits27

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 26,
2020
  March 28,
2020
  July 3,
2021
 April 3,
2021
 
 (Unaudited)    (Unaudited)   
ASSETS          
Current assets:          
Cash and cash equivalents $166,352  $103,255  $175,771  $151,086 
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 
Marketable securities  120,320   90,249 
Accounts receivable, net of allowance for doubtful accounts of $1,872 at July 3, 2021 and $1,792 at April 3, 2021  105,756   110,472 
Inventory  371,546   367,494   369,854   364,147 
Prepaid expenses and other current assets  15,038   12,262   14,423   12,248 
Total current assets  661,014   612,006   786,124   728,202 
Property, plant and equipment, net  214,347   219,846   206,276   208,264 
Operating lease assets, net  29,686   28,953   34,671   35,664 
Goodwill  277,784   277,776   277,930   277,536 
Intangible assets, net of accumulated amortization of $58,408 at September 26, 2020 and $55,732 at March 28, 2020  159,034   162,747 
Intangible assets, net  153,756   154,399 
Other assets  26,020   20,584   31,842   30,195 
Total assets $1,367,885  $1,321,912  $1,490,599  $1,434,260 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable��$39,600  $51,038  $42,687  $36,336 
Accrued expenses and other current liabilities  36,468   40,580   46,724   43,564 
Current operating lease liabilities  5,808   5,708   5,586   5,726 
Current portion of long-term debt  6,634   6,429   505   2,612 
Total current liabilities  88,510   103,755   95,502   88,238 
Deferred income taxes  20,700   16,560 
Long-term debt, less current portion  13,758   16,583   10,249   13,495 
Long-term operating lease liabilities  24,160   23,396   29,142   29,982 
Other non-current liabilities  48,653   43,619 
Deferred income taxes  17,956   17,178 
Other noncurrent liabilities  63,374   55,416 
Total liabilities  195,781   203,913   216,223   204,309 
                
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 
Preferred stock, $.01 par value; authorized shares: 10,000,000 at July 3, 2021 and April 3, 2021, respectively; none issued or outstanding      
Common stock, $.01 par value; authorized shares: 60,000,000 at July 3, 2021 and April 3, 2021, respectively; issued shares: 26,336,894 and 26,110,320 at July 3, 2021 and April 3, 2021, respectively  263   261 
Additional paid-in capital  425,488   412,400   467,524   445,073 
Accumulated other comprehensive loss  (4,593)  (6,898)  (8,172)  (10,409)
Retained earnings  812,329   769,219   884,851   858,852 
Treasury stock, at cost, 870,223 shares and 838,982 shares at September 26, 2020 and March 28, 2020, respectively  (61,380)  (56,981)
Treasury stock, at cost, 916,273 shares and 884,701 shares at July 3, 2021 and April 3, 2021, respectively  (70,090)  (63,826)
Total stockholders’ equity  1,172,104   1,117,999   1,274,376   1,229,951 
Total liabilities and stockholders’ equity $1,367,885  $1,321,912  $1,490,599  $1,434,260 

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  Three Months Ended 
 September 26,
2020
  September 28,
2019
  September 26,
2020
  September 28,
2019
  July 3,
2021
 June 27,
2020
 
Net sales $146,335  $181,909  $302,828  $364,599  $156,205  $156,493 
Cost of sales  89,739   110,795   

186,779

   222,791   92,432   97,040 
Gross margin  

56,596

   71,114   116,049   141,808   63,773   59,453 
Operating expenses:                        
Selling, general and administrative  26,023   30,774   52,852   60,861   29,802   26,829 
Other, net  4,210   3,031   8,020   5,148   3,248   3,810 
Total operating expenses  30,233   33,805   60,872   66,009   33,050   30,639 
Operating income  26,363   37,309   55,177   75,799   30,723   28,814 
Interest expense, net  343   473   768   1,020   319   425 
Other non-operating expense  211   195   253   364 
Other non-operating (income)/expense  (465)  42 
Income before income taxes  25,809   36,641   54,156   74,415   30,869   28,347 
Provision for income taxes  5,388   5,371   11,046   12,646   4,870   5,658 
Net income $20,421  $31,270  $43,110  $61,769  $25,999  $22,689 
        
Net income per common share:                        
Basic $0.82  $1.27  $1.74  $2.52  $1.04  $0.92 
Diluted $0.82  $1.26  $1.73  $2.49  $1.03  $0.91 
        
Weighted average common shares:                        
Basic  24,823,658   24,584,369   24,793,245   24,543,038   25,021,063   24,763,903 
Diluted  24,957,158   24,905,173   24,944,608   24,856,561   25,308,723   24,933,941 

See accompanying notes.

2


 

RBC Bearings Incorporated

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(Unaudited)

 Three Months Ended  Six Months Ended  Three Months Ended 
 September 26,
2020
  September 28,
2019
  September 26,
2020
  September 28,
2019
  

July 3,
2021

 

June 27,
2020

 
Net income $20,421  $31,270  $43,110  $61,769  $25,999  $22,689 
Pension and postretirement liability adjustments, net of taxes (1)
  259   178   519   356   318   260 
Foreign currency translation adjustments  1,377   (1,869)  1,786   673   

1,919

   409 
Total comprehensive income $22,057  $29,579  $45,415  $62,798  $28,236  $23,358 

(1)These adjustments were net of tax expense of $79$83 and $55$79 for the three-month periods ended September 26,July 3, 2021 and June 27, 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
  Accumulated
Other
Comprehensive
  Retained  Treasury Stock  Total
Stockholders’
  Common Stock Additional
Paid-in
 Accumulated
Other
Comprehensive
 Retained Treasury Stock Total
Stockholders’
 
 Shares  Amount  Capital  Income/(Loss)  Earnings  Shares  Amount  Equity  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 
Balance at April 3, 2021  26,110,320  $261  $445,073  $(10,409) $858,852   (884,701) $(63,826) $1,229,951 
Net income              22,689         22,689               25,999         25,999 
Share-based compensation        5,438               5,438         5,772               5,772 
Repurchase of common stock                 (31,179)  (4,391)  (4,391)                 (31,572)  (6,264)  (6,264)
Exercise of equity awards  4,200      231               231   135,518   2   16,679               16,681 
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                      
Change in net prior service cost and actuarial losses, net of tax expense of $83           318            318 
Issuance of restricted stock  91,056                      
Currency translation adjustments           409            409            1,919            1,919 
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 
Balance at July 3, 2021  26,336,894  $263  $467,524  $(8,172) $884,851   (916,273) $(70,090) $1,274,376 

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’
  Common Stock Additional
Paid-in
 Accumulated
Other
Comprehensive
 Retained Treasury Stock Total
Stockholders’
 
 Shares  Amount  Capital  Income/(Loss)  Earnings  Shares  Amount  Equity  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 
Balance at March 28, 2020  25,881,415  $259  $412,400  $(6,898) $769,219   (838,982) $(56,981) $1,117,999 
Net income              30,499         30,499               22,689         22,689 
Share-based compensation        4,802               4,802         5,438               5,438 
Repurchase of common stock                 (69,877)  (9,514)  (9,514)                 (31,179)  (4,391)  (4,391)
Exercise of equity awards  4,356   1   275               276   4,200      231               231 
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          
Change in net prior service cost and actuarial losses, net of tax expense of $79           260            260 
Issuance of restricted stock  56,157                      
Currency translation adjustments           2,542            2,542            409            409 
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 
Balance at June 27, 2020  25,941,772  $259  $418,069  $(6,229) $791,908   (870,161) $(61,372) $1,142,635 

See accompanying notes.

5


 

RBC Bearings Incorporated

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

 Six Months Ended  Three Months Ended 
 September 26,
2020
  September 28,
2019
  July 3,
2021
 June 27,
2020
 
Cash flows from operating activities:          
Net income $43,110  $61,769  $25,999  $22,689 
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation  11,744   10,729   5,628   5,892 
Deferred income taxes  4,051   898   725   2,865 
Amortization of intangible assets  5,089   4,593   2,584   2,504 
Amortization of deferred financing costs  259   207   106   141 
Share-based compensation  10,669   9,861   5,772   5,438 
Other non-cash charges  3,004   75 
Loss/(gain) on disposition of assets  13   3 
Consolidation, restructuring and other non-cash charges  467   - 
Changes in operating assets and liabilities, net of acquisitions:                
Accounts receivable  21,267   2,303   4,890   15,848 
Inventory  (4,981)  (13,125)  (4,879)  (3,294)
Prepaid expenses and other current assets  (2,812)  (5,617)  (2,201)  1,240 
Other non-current assets  (6,885)  (1,777)  (2,003)  (4,678)
Accounts payable  (11,554)  678   6,285   739 
Accrued expenses and other current liabilities  (4,137)  (5,760)  2,899   (4,180)
Other non-current liabilities  5,655   (216)  7,008   3,152 
Net cash provided by operating activities  74,479   64,618   53,293   48,359 
                
Cash flows from investing activities:                
Purchase of property, plant and equipment  (6,008)  (20,216)  (3,367)  (3,875)
Proceeds from sale of assets  10   300   5   5 
Purchase of marketable securities  (29,949)  - 
Acquisition of business  245   (33,842)  -   245 
Net cash used in investing activities  (5,753)  (53,758)  (33,311)  (3,625)
                
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 term loan  (5,753)  - 
Repayments of notes payable  (249)  (235)  (128)  (122)
Finance fees paid in connection with credit facilities and term loans  -   (276)
Exercise of stock options  2,420   10,461   16,681   231 
Repurchase of common stock  (4,399)  (9,848)  (6,264)  (4,391)
Net cash used in financing activities  (5,515)  (5,080)
Net cash provided by/(used in) financing activities  4,536   (4,282)
                
Effect of exchange rate changes on cash  (114)  734   167   (92)
                
Cash and cash equivalents:                
Increase during the period  63,097   6,514   24,685   40,360 
Cash and cash equivalents, at beginning of period  103,255   29,884 
Cash and cash equivalents, at end of period $166,352  $36,398 
Cash, at beginning of period  151,086   103,255 
Cash, at end of period $175,771  $143,615 
                
Supplemental disclosures of cash flow information:                
Cash paid for:                
Income taxes $6,559  $17,147  $606  $899 
Interest  516   759   216   267 

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 28, 2020.April 3, 2021. We condensed or omitted certain information and footnote disclosures normally included in our annual audited financial statements, which we prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP). As used in this report, the terms “we,” “us,” “our,” “RBC” and the “Company” mean RBC Bearings Incorporated and its subsidiaries, unless the context indicates another meaning.

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

The results of operations for the three- and six-month periodsthree-month period ended September 26, 2020July 3, 2021 are not necessarily indicative of the operating results for the entire fiscal year ending April 3, 2021.2, 2022. The three- and six-monththree-month periods ended September 26,July 3, 2021 and June 27, 2020 and September 28, 2019 each include 13 weeks and 26 weeks, respectively.weeks. The amounts shown are in thousands, unless otherwise indicated.

2. Significant Accounting Policies

The Company’s significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended March 28, 2020.April 3, 2021. Significant changes to our accounting policies as a result of adopting new accounting standards are discussed below.

Recent Accounting Standards Adopted

In September 2016,December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance replaces the current incurred loss approach with a new expected credit loss impairment model. The new model applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses considers historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics are grouped together when estimating expected credit losses. ASU 2016-13 does not prescribe a specific method to make the estimate, so its application requires significant judgment. The Company adopted this accounting standard update in the first quarter of fiscal 2021 and it did not have a material impact on the Company’s consolidated financial statements.

7

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

Recent Accounting Standards Yet to Be Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The objective of this standard update is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This ASU also attempts to improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This standard update is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the effect that the adoption ofadopted this ASU will have oneffective April 4, 2021 and the impact of adoption was not material to the Company’s consolidated financial statements.position, results of operations or liquidity.

Other new pronouncements issued but not effective until after April 3, 20212, 2022 are not expected to have a material impact on our financial position, results of operations or liquidity.


3. Revenue from Contracts with Customers

Disaggregation of Revenue

The Company operates in four business segments with similar economic characteristics, including nature of the products and production processes, distribution patterns and classes of customers. Revenue is disaggregated within these business segments by our two principal end markets: aerospace and industrial. Comparative information of the Company’s overall revenues for the three- and six-monththree-month periods ended September 26,July 3, 2021 and June 27, 2020 and September 28, 2019 are as follows:

Principal End Markets

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

 Six Months Ended  Three Months Ended 
 September 26, 2020  September 28, 2019  July 3, 2021  June 27, 2020 
 Aerospace  Industrial  Total  Aerospace  Industrial  Total  Aerospace  Industrial  Total  Aerospace  Industrial  Total 
Plain $110,392  $39,536  $149,928  $137,593  $39,903  $177,496  $48,968  $24,353  $73,321  $59,352  $19,523  $78,875 
Roller  23,904   20,575   44,479   36,956   32,488   69,444   8,787   16,460   25,247   13,230   9,670   22,900 
Ball  14,333   25,606   39,939   10,516   24,618   35,134   7,210   15,918   23,128   7,022   11,818   18,840 
Engineered Products  37,494   30,988   68,482   48,638   33,887   82,525   15,928   18,581   34,509   19,378   16,500   35,878 
 $186,123  $116,705  $302,828  $233,703  $130,896  $364,599  $80,893  $75,312  $156,205  $98,982  $57,511  $156,493 

8

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract under Accounting Standards Codification (ASC) 606in the new revenue standard for which work has not been performed or has been partially performed and excludes unexercised contract options. The duration of manythe majority of our contracts, as defined by ASC Topic 606, is less than one year. The Company has elected to apply the practical expedient, thatwhich allows companies to exclude remaining performance obligations with an original expected duration of one year or less. Performance obligations having a duration of more than one year are concentrated in contracts for certain products and services provided to the U.S. government or its contractors. The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $259,351$288,731 at September 26, 2020.July 3, 2021. The Company expects to recognize revenue on approximately 59%56% and 88%84% 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 affectsaffect accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the consolidated balance sheets. These assets and liabilities are reported on the consolidated balance sheets on an individual contract basis at the end of each reporting period.

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

As of July 3, 2021 and April 3, 2021, current contract assets were $6,196 and $5,584, respectively, and included within prepaid expenses and other current assets on the consolidated balance sheets. The increase in contract assets was primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations prior to billing partially offset by amounts billed to customers during the period. As of July 3, 2021 and April 3, 2021, the Company did not have any contract assets classified as noncurrent on the consolidated balance sheets. There were no impairment losses related to the Company’s contract assets during the three months ended July 3, 2021.


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

As of July 3, 2021 and April 3, 2021, current contract liabilities were $14,624 and $16,998, respectively, and included within accrued expenses and other current liabilities on the consolidated balance sheets. The decrease in current contract liabilities was primarily due to the amount of advanced payments received and reclassifications between current and noncurrent contract liabilities based on anticipated timing of performance obligations and revenue recognized during the period. For the three months ended July 3, 2021, the Company recognized revenues of $4,650 that were included in the contract liability balance as of April 3, 2021. For the three months ended June 27, 2020, the Company recognized revenues of $5,821 that were included in the contract liability balance at March 28, 2020.

 

These assetsAs of July 3, 2021 and April 3, 2021, noncurrent contract liabilities are reportedwere $9,642 and $3,754, respectively, and included within other noncurrent liabilities on the consolidated balance sheets atsheets. The increase in noncurrent contract liabilities was primarily due to the endamount of each reportingadvanced payments received and reclassifications between current and noncurrent contract liabilities based on anticipated timing of performance obligations and revenue recognized during the period.

Accounts Receivable - As of September 26, 2020July 3, 2021 and March 28, 2020,April 3, 2021, accounts receivable with customers, net, were $108,078$105,756 and $128,995,$110,472, respectively. The tables below represent a roll-forward of contract assets and contract liabilities for the six-month period ended September 26, 2020:

Contract Assets - Current (1)   
    
Balance at March 28, 2020 $2,604 
Additional revenue recognized in excess of billings  3,732 
Less: amounts billed to customers  (1,732)
Balance at September 26, 2020 $4,604 

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

9

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

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

Contract Liabilities – Noncurrent (3)   
    
Balance at March 28, 2020 $2,427 
Payments received prior to revenue being recognized  395 
Reclassification (to)/from current  498 
Balance at September 26, 2020 $3,320 

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

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

4. Accumulated Other Comprehensive Income (Loss)

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

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

  

Currency

Translation

  

Pension and

Postretirement

Liability

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

  Currency
Translation
  Pension and
Postretirement
Liability
  Total 
Balance at April 3, 2021 $445  $(10,854) $(10,409)
Amounts recorded in/reclassified from accumulated other comprehensive loss     318   318 
Net current period other comprehensive income  1,919   318   2,237 
Balance at July 3, 2021 $2,364  $(10,536) $(8,172)

5. Net Income Per Common Share

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

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

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:

 Three Months Ended  Six Months Ended 
 September 26,
2020
  September 28,
2019
  September 26,
2020
  September 28,
2019
  Three Months Ended 
          

July 3,

2021

 

June 27,

2020

 
Net income $20,421  $31,270  $43,110  $61,769  $25,999  $22,689 
                        
Denominator for basic net income per common share — weighted-average shares outstanding  24,823,658   24,584,369   24,793,245   24,543,038   25,021,063   24,763,903 
Effect of dilution due to employee stock awards  133,500   320,804   151,363   313,523   287,660   170,038 
Denominator for diluted net income per common share — weighted-average shares outstanding  24,957,158   24,905,173   24,944,608   24,856,561   25,308,723   24,933,941 
                       
Basic net income per common share $0.82  $1.27  $1.74  $2.52  $1.04  $0.92 
                        
Diluted net income per common share $0.82  $1.26  $1.73  $2.49  $1.03  $0.91 

At September 26, 2020, 502,861July 3, 2021, 160,600 employee stock options and 115,185no restricted shares have been excluded from the calculation of diluted earnings per share. At September 28, 2019, 209,040June 27, 2020, 504,768 employee stock options and no61,025 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 and Marketable Securities

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains its cash accounts primarily with Bank of America, N.A., Credit Suisse Group AG and Wells Fargo & Company. The domestic balances are insured by the Federal Deposit Insurance Company up to $250. The Company has not experienced any losses in such accounts.

Short-term investments, if any, areAt July 3, 2021, the Company held $120,320 of short-term marketable securities comprised of equity securities andmutual funds as part of the Company’s investment strategy compared to $90,249 at April 3, 2021. These investments are measured at fair value by using quoted prices in active markets and are classified as Level 1 of the valuation hierarchy. These mutual funds can be liquidated at the Company’s discretion. They are held for investment and are not considered debt securities. Preservation of principal is the primary goal of our cash and investment policy. Pursuant to our established investment guidelines, we strive to achieve high levels of credit quality, liquidity and diversification. Our investment guidelines do not permit us to invest in puts, calls, strips, short sales, straddles, options, commodities, precious metals, futures or investments on margin.

7. Inventory

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

 

September 26,

2020

 

March 28,

2020

  

July 3,

2021

 

April 3,

2021

 
Raw materials $52,807  $51,362  $56,325  $57,764 
Work in process  89,310   97,286   92,268   86,183 
Finished goods  229,429   218,846   221,261   220,200 
 $371,546  $367,494  $369,854  $364,147 

11


 

8. Debt

The balances payable under all borrowing facilities are as follows:

 

September 26,

2020

 

March 28,

2020

  July 3,
2021
 April 3,
2021
 
Revolver and term loan facilities $15,818  $18,593  $6,188  $11,657 
Debt issuance costs  (1,430)  (1,687)  (1,112)  (1,216)
Other  6,004   6,106   5,678   5,666 
Total debt  20,392  23,012   10,754   16,107 
Less: current portion  6,634  6,429   505   2,612 
Long-term debt $13,758  $16,583  $10,249  $13,495 

The current portion of long-term debt as of September 26, 2020July 3, 2021 includes the current portion of the foreign term loan, foreign revolving facilitySchaublin mortgage. The current portion of long-term debt as of April 3, 2021 includes the current portion of the Foreign Term Loan and the Schaublin mortgage, all of which are discussed below in further detail.mortgage.

Domestic Credit Facility

The Company’s credit agreement with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer, and the other lenders party thereto (the “Credit Agreement”) provides the Company with a $250,000 revolving credit facility (the “Revolver”), which expires on January 31, 2024. Debt issuance costs associated with the Credit Agreement totaled $852 and will be amortized through January 31, 2024 along with the unamortized debt issuance costs remaining from the Company’s prior credit agreement. As of July 3, 2021, $1,022 in unamortized debt issuance costs remain.

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

The Credit Agreement requires the Company to comply with various covenants including, among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.50 to 1. The Credit Agreement allows the Company to, among other things, make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the Credit Agreement. As of September 26, 2020,July 3, 2021, the Company was in compliance with all such covenants.

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

Approximately $3,700$3,550 of the Revolver is being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs. As of September 26, 2020, $1,319 in unamortized debt issuance costs remain. The Company has the ability to borrow up to an additional $246,300$246,450 under the Revolver as of September 26, 2020.July 3, 2021.

Foreign Term Loan and Revolving Credit Facility

On August 15, 2019, one of our foreign subsidiaries, Schaublin SA (“Schaublin”), entered into two separate credit agreements (the “Foreign Credit Agreements”) with Credit Suisse (Switzerland) Ltd. to (i) finance the acquisition of Swiss Tool, and (ii) provide future working capital. The Foreign Credit Agreements provided Schaublin with a CHF 15,000 (approximately $15,383) term loan (the “Foreign Term Loan”), which expires on July 31, 2024 and a CHF 15,000 (approximately $15,383) revolving credit facility (the “Foreign Revolver”), which continues in effect until terminated by either Schaublin or Credit Suisse. Debt issuance costs associated with the Foreign Credit Agreements totaled CHF 270 (approximately $277) and will be amortized throughout the life of the Foreign Credit Agreements. As of July 3, 2021, approximately $90 in unamortized debt issuance costs remain.

12


 

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

The Foreign Credit Agreements require Schaublin to comply with various covenants, which are tested annually on March 31. These covenants include, among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.00 to 1 as of March 31, 2020 and not greater than 2.50 to 1 as of March 31, 2021 and thereafter. Schaublin is also required to maintain an economic equity of CHF 20,000 at all times. The Foreign Credit Agreements allow Schaublin to, among other things, incur other debt or liens and acquire or dispose of assets provided that Schaublin complies with certain requirements and limitations of the Foreign Credit Agreements. As of March 31, 2020,July 3, 2021, Schaublin was in compliance with all such covenants.

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

As of September 26, 2020,July 3, 2021, there was approximately $2,906 outstanding under the Foreign Revolver and approximately $12,912$6,188 outstanding under the Foreign Term Loan. These borrowings have been classified as Level 2 ofLoan and no amounts outstanding under the valuation hierarchy. As of September 26, 2020, approximately $111 in unamortized debt issuance costs remain.Foreign Revolver. Schaublin has the ability to borrow up to an additional $13,235$16,283 under the Foreign Revolver as of September 26, 2020.July 3, 2021.

Schaublin’s required future annual principal payments are approximately $6,134$0 for the next twelve monthsremainder of fiscal 2022, $0 for fiscal 2023, $2,931 for fiscal 2024 and approximately $3,228$3,257 for each year for the next three years.fiscal 2025.

Other Notes Payable

On October 1,In 2012 Schaublin purchased the land and building that it occupied and had been leasingoccupies for approximately $14,910. Schaublin obtained a 20-year fixed-rate mortgage of approximately $9,857 at an interest rate of 2.9%. The balance of the purchase price of approximately $5,053 was paid from cash on hand. The balance on this mortgage as of September 26, 2020July 3, 2021 was approximately $6,004$5,678 and has been classified as Level 2 of the valuation hierarchy.

 

The Company’s required future annual principal payments are approximately $500$379 for the remainder of fiscal 2022, $505 for each year for the next five yearsfrom fiscal 2023 through fiscal 2026 and $3,504$3,279 thereafter.

9.Income Taxes

The Company files income tax returns in numerous U.S. and foreign jurisdictions, with returns subject to examination for varying periods, but generally back to and including the year ending April 2, 2005. The Company is no longer subject to U.S. federal tax examination by the Internal Revenue Service for years ending before April 1, 2017.March 31, 2018.

The effective income tax rates for the three-month periods ended September 26,July 3, 2021 and June 27, 2020, were 15.8% and September 28, 2019 were 20.9% and 14.7%20.0%, 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 whichthat increase the rate.

The effective income tax rate for the three-month period ended September 26, 2020July 3, 2021 of 20.9%15.8% includes $364$2,139 of tax benefitsbenefit associated with share-based compensation.compensation, along with $160 of tax benefit for the release of unrecognized tax positions associated with a statute of limitations expiration. The effective income tax rate without discrete items for the three-month period ended September 26, 2020July 3, 2021 would have been 22.0%23.2%. The effective income tax rate for the three-month period ended September 28, 2019June 27, 2020 of 14.7%20.0% includes $2,529$315 of tax benefitsbenefit associated with share-based compensation.compensation, along with $75 of tax benefit for the release of unrecognized tax positions associated with a statute of limitations expiration. The effective income tax rate without discrete items for the three-month period ended September 28, 2019June 27, 2020 would have been 21.3%. The Company believes it is reasonably possible that some of its unrecognized tax positions may be effectively settled within the next twelve12 months due to the closing of audits and the statute of limitations expiring in varying jurisdictions. The decrease in the Company’s unrecognized tax positions, pertaining primarily to federal and state credits and state tax, is estimated to be approximately $1,524.$1,429.

13


 

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

10. Reportable Segments

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

The Company has 4four 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.

  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 


  Three Months Ended 
  July 3,
2021
  June 27,
2020
 
Net External Sales        
Plain $73,321  $78,875 
Roller  25,247   22,900 
Ball  23,128   18,840 
Engineered Products  34,509   35,878 
  $156,205  $156,493 
Gross Margin        
Plain $31,524  $32,077 
Roller  9,118   8,407 
Ball  10,692   7,927 
Engineered Products  12,439   11,042 
  $63,773  $59,453 
Selling, General & Administrative Expenses        
Plain $5,885  $5,271 
Roller  1,358   1,239 
Ball  1,641   1,346 
Engineered Products  4,249   3,812 
Corporate  16,669   15,161 
  $29,802  $26,829 
Operating Income        
Plain $24,830  $25,401 
Roller  7,293   7,099 
Ball  9,016   6,551 
Engineered Products  7,603   5,981 
Corporate  (18,019)  (16,218)
  $30,723  $28,814 
Intersegment Sales        
Plain $1,567  $1,562 
Roller  2,254   3,378 
Ball  1,017   667 
Engineered Products  10,482   10,649 
  $15,320  $16,256 

All intersegment sales are eliminated in consolidation.

11. AcquisitionSubsequent Events

 

On August 15, 2019,July 24, 2021, the Company through its Schaublin SA subsidiary, acquired allentered into a Purchase Agreement with ABB Asea Brown Boveri Ltd (“ABB”) pursuant to which the Company has agreed to acquire the mechanical power transmission division of ABB operated under the outstanding sharesDodge brand (“Dodge”). In connection with the acquisition, the Company will purchase the capital stock of Swiss Tool for a purchase price of approximately $33,597 (CHF 32,768). We have finalized the purchase price allocation with no material adjustments subsequentcertain entities, including Dodge Mechanical Power Transmission Company Inc. and certain other assets relating to March 28, 2020.

12. Restructuring and ConsolidationABB’s mechanical power transmission business.

 

InThe purchase price for the second quarter of fiscal 2021,acquisition will be $2,900,000 in cash, subject to certain adjustments, in accordance with the Company made the decision to consolidate two of its manufacturing facilities. This resulted in $2,579 of non-cash restructuring charges comprised of $1,994 of inventory rationalization costs included within cost of sales and $585 of fixed asset disposals included within other operating expenses. These restructuring charges are included within the Roller segment.Purchase Agreement.

 

With headquarters in Greenville, South Carolina, Dodge is a leading manufacturer of mounted bearings and mechanical products with market-leading brand recognition. Dodge manufactures a complete line of mounted bearings, enclosed gearing and power transmission components across a diverse set of industrial end markets. Dodge primarily operates across the construction and mining aftermarket, food & beverage, warehousing and general machinery verticals, with sales predominately in the Americas.

The acquisition is supported by a fully committed bridge facility. Permanent financing is expected to include an appropriate mix of cash on hand, debt and equity. The Company expects to close the transaction in our fiscal 2022 third quarter, subject to customary closing conditions, including regulatory review.

The Company has evaluated subsequent events through the issuance date of these financial statements. Other than the matter noted above, no material subsequent events were identified that require disclosure.

15


 

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

Cautionary Statement as to Forward-Looking Information

The objective of the discussion and analysis is to provide material information relevant to an assessment of the financial condition and results of operations of the registrant including an evaluation of the amounts and certainty of cash flows from operations and from outside sources.

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

The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation: (a) the bearing and engineered products industries are highly competitive, and this competition could reduce our profitability or limit our ability to grow; (b) Thethe loss of a major customer, or a material adverse change in a major customer’s business, could result in a material reduction in our revenues, cash flows and profitability; (c) our results have been and are likely to continue to be impacted by the COVID-19 pandemic; (d) weakness in any of the industries in which our customers operate, as well as the cyclical nature of our customers’ businesses generally, could materially reduce our revenues, cash flows and profitability; (e) future reductions or changes in U.S. government spending could negatively affect our business; (f) fluctuating supply and costs of subcomponents, raw materials and energy resources, or the imposition of import tariffs, could materially reduce our revenues, cash flows and profitability; (g) our results could be impacted by governmental trade policies and tariffs relating to our supplies imported from foreign vendors or our finished goods exported to other countries; (h) our products are subject to certain approvals and government regulations and the loss of such approvals, or our failure to comply with such regulations, could materially reduce our revenues, cash flows and profitability; (i) the retirement of commercial aircraft could reduce our revenues, cash flows and profitability; (j) work stoppages and other labor problems could materially reduce our ability to operate our business; (k) unexpected equipment failures, catastrophic events or capacity constraints could increase our costs and reduce our sales due to production curtailments or shutdowns; (l) we may not be able to continue to make the acquisitions necessary for us to realize our growth strategy; (m) businesses that we have acquired or that we may acquire in the future may have liabilities whichthat are not known to us; (n) goodwill and indefinite-lived intangibles comprise a significant portion of our total assets, and if we determine that goodwill and indefinite-lived intangibles have become impaired in the future, our results of operations and financial condition in such years may be materially and adversely affected; (o) we depend heavily on our senior management and other key personnel, the loss of whom could materially affect our financial performance and prospects; (p) our international operations are subject to risks inherent in such activities; (q) currency translation risks may have a material impact on our results of operations; (r) we are subject to changes in legislative, regulatory and legal developments involving income and other taxes; (s) we may be required to make significant future contributions to our pension plan; (t) we may incur material losses for product liability and recall-related claims; (u) environmental and health and safety laws and regulations impose substantial costs and limitations on our operations, and environmental compliance may be more costly than we expect; (v) our intellectual property and proprietary information are valuable, and any inability to protect them could adversely affect our business and results of operations; in addition, we may be subject to infringement claims by third parties; (w) cancellation of orders in our backlog could negatively impact our revenues, cash flows and profitability; (x) if we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud; (y) litigation could adversely affect our financial condition; (z) changes in accounting standards or changes in the interpretations of existing standards could affect our financial results; and (aa) risks associated with utilizing information technology systems could adversely affect our operations. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with the SEC, including, without limitation, the risks identified under the heading “Risk Factors” set forth in the Annual Report on Form 10-K for the year ended March 28, 2020.April 3, 2021. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not intend, and undertake no obligation, to update or alter any forward-looking statement. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appears elsewhere in this Quarterly Report.

16


 

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 bearingsbearing categories, we focus primarily on the higher end of the bearing and engineered component marketsmarket 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 4243 facilities in 7seven countries, of which 3331 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach. We currently operate under four reportable business segments: Plain Bearings,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 consistsconsist 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-dutyheavy 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 consistsconsist of highly engineered hydraulics, fasteners, collets, tool holders and precision components used in aerospace, marine and industrial applications.

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

17

Currently, our strategy is built around maintaining our role as a leading manufacturer of precision-engineeredprecision 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 willexpect to 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.

OutlookWe have demonstrated expertise in acquiring and integrating bearing and precision engineered component manufacturers that have complementary products or distribution channels and have provided significant margin enhancement. We have consistently increased the profitability of acquired businesses through a process of methods and systems improvement coupled with the introduction of complementary and proprietary new products. Since 1992 we have completed 26 acquisitions, which have broadened our end markets, products, customer base and geographic reach.


Outlook

Our net sales for the three-month period ended September 26, 2020July 3, 2021 decreased 19.6%by 0.2% compared to the same period last fiscal year. The decrease in net sales was a result of a 25.8%31.0% increase in our industrial markets offset by an 18.3% decrease in our aerospace marketsmarkets. The increase in industrial sales was driven by increases in the mining, energy, and an 8.3% decrease in ourgeneral industrial markets. The decrease in aerospace sales was primarily due to the commercial markets,experienced both OEM and aftermarket, offset by increases in our commercial and defense business. The decrease in industrial sales was driven by decreases in the mining, energy, marine, and general industrial markets. Excluding $0.4 million of July sales associated with Swiss Tool, which was acquired in August fiscal 2020, overall net sales decreased 19.8% year over year. Our backlog, as of September 26, 2020,July 3, 2021, was $403.0$420.2 million compared to $473.2$394.8 million as of September 28, 2019.April 3, 2021.

Our sales to industrial markets experienced growth of 31.0% in the first quarter of fiscal 2022 as compared to the same three month period last year. This growth was evidenced across most of our industrial products both to OEM and distribution customers. The improvement in domestic and international economic conditions in recent months has been reflected through increased orders received which we expect to sustain throughout fiscal 2022.

 

The COVID-19 health crisis, which was declared a pandemic in March 2020, has ledcontinues to governments around the world implementing measures to reduce the spread. These measures include quarantines, “shelter in place” orders, travel restrictions, and other measures and have resulted in a slowdown of worldwide economic activity.

Our business is operating as an essential business, and as such, our facilities have remained open, with the exception of a few temporary closures at some of our locations. The COVID-19 pandemic is impactingimpact our commercial aerospace and industrial sales in fiscal 2021. Our commercial aerospace sales continue to face headwinds associated with2022 as a result of build rate changes within the industry, while the general decline in global economic activity has had an impact on the industrial markets.

Our production and sales in the second quarter of fiscal 2021 have been negatively affected by the economic implications of the pandemic. We expect thatindustry. The commercial aerospace OEM and aftermarket will continue to be impacted by the year-over-year decline inreduced air travel and changes in aircraft production rates. Conversely, our sales to aerospace defense marketsrates in the first half of fiscal 2022, but are expected to grow throughout fiscal 2021. Sales in these markets grew 24.1% during the second quarterhalf of fiscal 2021 (17.8% for the first six months of fiscal 2021) as compared to the same period last year. Our sales to industrial markets will be adversely affected in the next quarter of fiscal 2021 due to the slowdown of economic activity compared to last year. Management is continuously evaluating the status of our orders and operations, and restructuring efforts are being implemented where necessary to align our cost structure to the new demand levels we experience in the marketplace.

18

We experienced solidstrong cash flow generation during the second quarterfirst three months of fiscal 20212022 (as discussed in the section “Liquidity and Capital Resources” below). Management believesWe expect this trend to continue throughout the fiscal year as customer demand continues to improve. We believe that these operating cash flows and available credit under all credit agreementsthe Revolver and Foreign Revolver will provide adequate resources to fund internal and external growth initiatives for the foreseeable future, including at least the next twelve12 months. For further discussion regarding plans to fund external growth initiatives, refer to Part I, Item 1 – Note 11 “Subsequent Events.” As of September 26, 2020,July 3, 2021, we had cash and cash equivalents and highly liquid marketable securities of $166.4$296.1 million of which approximately $13.1$11.8 million was cash held by our foreign operations.

The Company expects net sales to be approximately $140.0$158.0 million to $145.0$162.0 million in the thirdsecond quarter of fiscal 2021.2022.

Results of Operations

 

Results of Operations

(dollars in millions)millions in tables)

 Three Months Ended  Three Months Ended 
 

September 26,

2020

 

September 28,

2019

  $
Change
  %
Change
  July 3,
2021
 June 27,
2020
 $
Change
 %
Change
 
Total net sales $146.3  $181.9  $(35.6)  (19.6)% $156.2  $156.5  $(0.3)  (0.2)%
                                
Net income $20.4  $31.3  $(10.9)  (34.7)% $26.0  $22.7  $3.3   14.6%
                                
Net income per common share: diluted $0.82  $1.26          $1.03  $0.91         
Weighted average common shares: diluted  24,957,158   24,905,173           25,308,723   24,933,941         


Our net sales for the three-month period ended September 26, 2020July 3, 2021 decreased 19.6%0.2% compared to the same period last fiscal year. The decrease in net sales was a result of a 25.8%31.0% increase in our industrial markets offset by an 18.3% decrease in our aerospace marketsmarkets. The increase in industrial sales was driven by increases in the mining, energy, and an 8.3% decrease in ourgeneral industrial markets. The decrease in aerospace sales was primarily due to the commercial markets,experienced both OEM and aftermarket, which were down 36.7%, offset by increases in our commercial and defense business of 24.1%. The decrease in industrial sales was driven by decreases in the mining, energy, marine and general industrial markets partially offset by increases in the semiconductor, military vehicles, wind, nuclear, and a few other industrial markets. Excluding $0.4 million of July sales associated with Swiss Tool, which was acquired in August fiscal 2020, overall net sales decreased 19.8% year over year.

 

Net income for the secondfirst quarter of fiscal 20212022 was $20.4$26.0 million compared to $31.3$22.7 million for the same period last year. Net income for the secondfirst quarter of fiscal 2022 was affected by $0.2 million of discrete tax benefit. Net income for the first quarter of fiscal 2021 was affected by $2.8$0.9 million of after-taxafter tax restructuring costs and related items primarily associated with the consolidation of two manufacturing facilities and $0.1 million of losses on foreign exchange partially offset by $0.4 million of tax benefits associated with share-based compensation and $0.1 million of other discrete tax benefits. Net income for the second quarter of fiscal 2020 was affected by $2.5 million of tax benefits associated with share-based compensation partially offset by $0.8 million of after-tax costs associated with the acquisition of Swiss Tool, $0.1 million of losses on foreign exchange and $0.1 million of other discrete tax losses.

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

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

Net sales decreased $61.8 million, or 16.9% for the six-month period ended September 26, 2020 over the same period last year. The decrease in net sales was mainly the result of a 20.4% decrease in aerospace sales and a 10.8% decrease in industrial sales. The decrease in aerospace sales was primarily due to the commercial markets, both OEM and aftermarket, which were down 29.2%, which was partially offset by defense OEM and aftermarket, which increased 17.8% year over year. The decrease in industrial sales was primarily due to mining, energy, and general industrial markets partially offset by increases in the semiconductor, military vehicles, wind, nuclear, and a few other industrial markets. Excluding $2.6 million of sales associated with Swiss Tool, overall net sales decreased 17.7% year over year.

19

Net income for the six months ended September 26, 2020 was $43.1 million compared to $61.8 million for the same period last year. Net income for the six month period in fiscal 2021 was affected by $3.7 million of after-tax restructuring costs and related items and $0.2 million of losses on foreign exchange partially offset by $0.7 million of tax benefits associated with share-based compensation and $0.1 million of other discrete tax benefits. The net income of $61.8 million in fiscal 2020 was impacted by $3.0 million of tax benefits associated with share-based compensation and $0.2 million of discrete tax benefits partially offset by $0.8 million of after-tax cost associated with the acquisition of Swiss Tool and $0.3 million of loss on foreign exchange.benefit.

Gross Margin

 Three Months Ended 
 

September 26,

2020

 

September 28,

2019

  $
Change
  

%
Change

  Three Months Ended 
          July 3,
2021
 June 27,
2020
 $
Change
 %
Change
 
Gross Margin $56.6  $71.1  $(14.5)  (20.4)% $63.8  $59.5  $4.3   7.3%
Gross Margin %  38.7%  39.1%          40.8%  38.0%        

Gross margin was 38.7% of net sales for the second quarter of fiscal 2021 compared to 39.1% for the second quarter of fiscal 2020. The decrease in gross margin as a percentage of net sales was primarily due to $2.0 million in inventory rationalization costs associated with the consolidation of two manufacturing facilities partially offset by product mix.

  Six Months Ended 
  

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 was 38.3%40.8% of net sales for the first six monthsquarter of fiscal 20212022 compared to 38.9% for the same period last year. Although gross margin dollars decreased year over year, resulting from current economic conditions, gross margin as a percentage of net sales is consistent due to product mix and cost containment efforts during the period. Gross margin38.0% for the first six monthsquarter of fiscal 20212021. The increase was also impacted by $0.8 millionprimarily the result of capacity inefficiencies driven bycost efficiencies achieved through recent restructuring and consolidation efforts made throughout the decrease in volume and $2.0 million in inventory rationalization costs associated with the consolidation of two manufacturing facilities, partially offset by beneficial product mix.company.

Selling, General and Administrative

 Three Months Ended 
 

September 26,

2020

 

September 28,

2019

 

$

Change

 

%

Change

  Three Months Ended 
          July 3,
2021
 June 27,
2020
 $
Change
 %
Change
 
SG&A $26.0  $30.8  $(4.8)  (15.4)% $29.8  $26.8  $3.0   11.1%
% of net sales  17.8%  16.9%          19.1%  17.1%        

SG&A for the secondfirst quarter of fiscal 20212022 was $26.0$29.8 million, or 17.8%19.1% of net sales, as compared to $30.8$26.8 million, or 16.9%17.1% of net sales, for the same period of fiscal 2020.2021. This reduction was dueis attributable to decreasesincreases in personnel costs of $4.9$2.4 million, partially offset by $0.1share-based compensation of $0.3 million and other costs of other items.$0.3 million.

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

SG&A expenses decreased by $8.0 million to $52.9 million for the first six months of fiscal 2021 compared to $60.9 million for the same period last year. This decrease is primarily due to $8.7 million of reductions in personnel costs and $0.1 million of other items partially offset by $0.8 million of additional share-based compensation.

20

Other, Net

 Three Months Ended 
 

September 26,

2020

 

September 28,

2019

 

$

Change

 

%

Change

  Three Months Ended 
          July 3,
2021
 June 27,
2020
 $
Change
 %
Change
 
Other, net $4.2  $3.0  $1.2   38.9% $3.2  $3.8  $(0.6)  (14.8)%
% of net sales  2.9%  1.7%          2.1%  2.4%        

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

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change
  

%

Change

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

Other operating expenses for the first six monthsquarter of fiscal 20212022 totaled $8.0$3.2 million compared to $5.1$3.8 million for the same period last year. For the first six monthsquarter of fiscal 2022, other operating expenses were comprised mainly of $2.6 million of amortization of intangible assets and $0.6 million of restructuring costs and other items. For the first quarter of fiscal 2021, other operating expenses were comprised mainly of $5.1 million in amortization of intangibles, $2.6$1.1 million of restructuring costs and related items, $2.5 million of amortization of intangible assets and $0.3$0.2 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.costs.

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


 

Interest Expense, Net

  Three Months Ended 
  July 3,
2021
  June 27,
2020
  $
Change
  %
Change
 
Interest expense, net $0.3  $0.4  $(0.1)  (24.9)%
% of net sales  0.2%  0.3%        

Interest expense, net, generally consists of interest charged on the Company’s debt agreementsRevolver and amortization of deferred financing fees, offset by interest income (see “Liquidity and Capital Resources” below). Interest expense, net, was $0.3 million for the secondfirst quarter of fiscal 20212022 compared to $0.5$0.4 million for the same period last year.

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change
  

%

Change

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

Interest expense, netOther Non-Operating (Income)/Expense

  Three Months Ended 
  July 3,
2021
  June 27,
2020
  $
Change
  %
Change
 
Other non-operating (income)/expense $(0.5) $0.0  $(0.5)  (1,207.1)%
% of net sales  (0.3)%  0.0%        

Other non-operating income was $0.8$0.5 million for the first six monthsquarter of fiscal 2021 compared to $1.0 million2022, primarily comprised of dividend income received from short-term marketable securities. Other non-operating expense for the first six months of fiscal 2020.

Other Non-Operating Expense

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change
  

%

Change

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

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

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change
  

%

Change

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

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

Income Taxes

 Three Months Ended 
 

September 26,

2020

 

September 28,

2019

  Three Months Ended 
      July 3,
2021
 June 27,
2020
 
Income tax expense (benefit) $5.4  $5.4  $4.9  $5.7 
Effective tax rate  20.9%  14.7%  15.8%  20.0%

22

Income tax expense for the three-month period ended September 26, 2020July 3, 2021 was $5.4$4.9 million compared to $5.4$5.7 million for the three-month period ended September 28, 2019.June 27, 2020. Our effective income tax rate for the three-month period ended September 26, 2020July 3, 2021 was 20.9%15.8% compared to 14.7%20.0% for the three-month period ended September 28, 2019.June 27, 2020. The effective income tax rate for the three-month period ended September 26, 2020July 3, 2021 of 20.9% includes $0.415.8% included $2.1 million of tax benefitsbenefit associated with share-based compensation. along with $0.2 million of tax benefit associated with the release of unrecognized tax positions associated with the statute of limitations expiration. The effective income tax rate without these benefits and other items for the three-month period ended September 26, 2020July 3, 2021 would have been 22.0%23.2%. The effective income tax rate for the three-month period ended September 28, 2019June 27, 2020 of 14.7% includes $2.520.0% included $0.3 million of tax benefitsbenefit associated with share-based compensation. along with $0.1 million of tax benefit associated with the release of unrecognized tax positions associated with the statute of limitations expiration. The effective income tax rate without these benefits and other items for the three-month period ended September 28, 2019June 27, 2020 would have been 21.3%.

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

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

Income tax expense for the six-month period ended September 26, 2020 was $11.0 million compared to $12.6 million for the six-month period ended September 28, 2019. Our effective income tax rate for the six-month period ended September 26, 2020 was 20.4% compared to 17.0% for the six-month period ended September 28, 2019. The effective income tax rate for the six-month period ended September 26, 2020 of 20.4% includes $0.7 million of tax benefits associated with share-based compensation. The effective income tax rate without these benefits for the six-month period ended September 26, 2020 would have been 21.6%. The effective income tax rate for the six-month period ended September 28, 2019 of 17.0% included $3.0 million of tax benefits associated with share-based compensation and $0.2 million of tax benefits associated with other permanent adjustments from filing the Company’s fiscal 2018 foreign tax returns. The effective income tax rate without these benefits for the six-month period ended September 28, 2019 would have been 21.3%.


Segment Information

Segment Information(dollars in millions in tables)

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

  Three Months Ended 
          July 3,
2021
 June 27,
2020
 $
Change
 %
Change
 
Total net sales $71.1  $90.0  $(18.9)  (21.1)% $73.3  $78.9  $(5.6)  (7.0)%
                                
Gross margin $29.8  $35.7  $(5.9)  (16.7)% $31.5  $32.1  $(0.6)  (1.7)%
Gross margin %  41.9%  39.7%          43.0%  40.7%        
                                
SG&A $5.3  $6.5  $(1.2)  (19.3)% $5.9  $5.3  $0.6   11.6%
% of segment net sales  7.4%  7.3%          8.0%  6.7%        

Net sales decreased $18.9$5.6 million, or 21.1%7.0%, for the three months ended September 26, 2020July 3, 2021 compared to the same period last year. The 21.1%7.0% decrease was primarily driven by a decrease of 27.4%17.5% in our aerospace markets offset by a 1.5%24.7% increase in the industrial markets. The decrease in aerospace net sales was due todriven by both the commercial aerospace OEM and aftermarket, partially offset by defense OEM.markets. The increase in industrial net sales was mostly driven by the general industrialmining and energy markets.

23

 

Gross margin as a percentage of net sales was 41.9%43.0% for the secondfirst quarter of fiscal 20212022 compared to 39.7%40.7% for the same period last year. The increase in gross margin as a percentage of net sales was mainly due to cost efficiencies and product mix.

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

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

Roller Bearings Segment

  Three Months Ended 
  July 3,
2021
  June 27,
2020
  $
Change
  %
Change
 
Total net sales $25.2  $22.9  $2.3   10.2%
                 
Gross margin $9.1  $8.4  $0.7   8.5%
Gross margin %  36.1%  36.7%        
                 
SG&A $1.4  $1.2  $0.2   9.6%
% of segment net sales  5.4%  5.4%        

Net sales decreased $27.6increased $2.3 million, or 15.5%10.2%, for the sixthree months ended September 26, 2020July 3, 2021 compared to the same period last year. The 15.5% decrease was primarily driven by a decrease of 19.8% in ourOur aerospace markets decreased 33.6% while our industrial markets increased by 70.2%. The increase in industrial sales were due to the mining, class 8 truck and a 0.9% decrease in thegeneral industrial markets. The decrease in aerospace was primarily due todriven by the commercial OEM and aftermarket partiallyslightly offset by an increase in the OEM defense OEM and aftermarket.market.

Gross margin for the three months ended July 3, 2021 was 36.1% of net sales, compared to 36.7% in the comparable period in fiscal 2021. The decrease in gross margin as a percentage of sales was due to product mix.


Ball Bearings Segment

  Three Months Ended 
  July 3,
2021
  June 27,
2020
  $
Change
  %
Change
 
Total net sales $23.1  $18.8  $4.3   22.8%
                 
Gross margin $10.7  $7.9  $2.8   34.9%
Gross margin %  46.2%  42.1%        
                 
SG&A $1.6  $1.3  $0.3   21.9%
% of segment net sales  7.1%  7.1%        

Net sales increased by $4.3 million for the first quarter of fiscal 2022 compared to the same period last year. Our industrial sales increased 34.7% and our aerospace markets increased 2.7%. The increase in industrial sales were primarily due to semiconductor, distribution, and general industrial markets. The increase in aerospace net sales was mostlyprimarily driven by the general industrial markets.commercial OEM market.

 

Gross margin as a percentage of net sales increased to 41.2%was 46.2% for the first six monthsquarter of fiscal 20212022 as compared to 39.3%42.1% for the same period last year. The increase isin margin percentage was a result of product mix and increased volume during the period.

Roller BearingsEngineered Products Segment

 Three Months Ended 
 

September 26,

2020

 

September 28,

2019

 

$

Change

 

%

Change

  

Three Months Ended

 
          

July 3,

2021

 

June 27,

2020

 

$

Change

 

%
Change

 
Total net sales $21.6  $32.6  $(11.0)  (33.8)% $34.5  $35.9  $(1.4)  (3.8)%
                                
Gross margin $6.2  $13.4  $(7.2)  (53.4)% $12.4  $11.0  $1.4   12.7%
Gross margin %  28.9%  41.1%          36.0%  30.8%        
                                
SG&A $1.2  $1.6  $(0.4)  (29.4)% $4.2  $3.8  $0.4   11.5%
% of segment net sales  5.4%  5.1%          12.3%  10.6%        

Net sales decreased $11.0$1.4 million, or 33.8%3.8%, for the first three months ended September 26, 2020of fiscal 2022 compared to the same period last year. Our aerospace markets decreased 39.5%17.8% while our industrial markets decreased by 27.0%increased 12.6%. The decrease in aerospace was driven by the commercial OEM and commercial and defense aftermarkets. The decrease in industrial net sales was primarily due to mining market activity.

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

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 26, 2020 compared to the same period last year. Our industrial markets decreased 36.7% while our aerospace markets decreased by 35.3%. The decrease in industrial sales was primarily due to mining and general industrial market activity while the decrease in aerospace was driven by the commercial OEM and commercial and defense aftermarkets.

Gross margin for the six months ended September 26, 2020 was 32.9% of net sales, compared to 40.2% in the comparable period in fiscal 2020. This decrease in the gross margin as a percentage of net sales was primarily due to $2.0 million in inventory rationalization costs associated with the consolidation of two manufacturing facilities and decreased volumes during the period. During the first six months of fiscal 2021, gross margin was also impacted by approximately $0.3 million of capacity inefficiencies driven by the impact of the COVID-19 pandemic.

Ball Bearings Segment

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

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

Net sales increased by $3.7 million for the second quarter of fiscal 2021 compared to the same period last year. Our aerospace markets increased 43.7% while our industrial sales increased 11.8%. The increase in aerospace net sales was primarily driven by the commercial and defense and space OEM market.markets. The increase in our industrial net sales was primarily due todriven by the semiconductormachine tools and general industrial markets.

 

Gross margin as a percentage of net sales was 43.3%36.0% for the secondfirst quarter of fiscal 2021 as2022 compared to 43.1% for the same period last year. The increase in gross margin year over year is a result of additional sales during the period.

25

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

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

Net sales increased $4.8 million, or 13.7% for the six months ended September 26, 2020 compared to the same period last year. Our industrial market sales increased 4.0% while sales to our aerospace markets increased 36.3%. The increase in industrial was primarily due to the semiconductor market. The increase in aerospace net sales was primarily driven by the defense and space OEM market.

Gross margin as a percentage of net sales decreased to 42.7% for the six months ended September 26, 2020 compared to 43.6% for the same period last year. The decrease was primarily due to product mix during the period.

Engineered Products Segment

  Three Months Ended 
  

September 26,

2020

  

September 28,

2019

  

$

Change

  

%

Change

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

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

Gross margin as a percentage of net sales was 35.2% for the second quarter of fiscal 2021 compared to 34.6%30.8% 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 aerospace sales decreased 22.9% while industrial sales decreased 8.6%. Excluding $2.6 million of sales associated with the acquisition of Swiss Tool in fiscal 2020, overall sales decreased 20.2%. The decrease in aerospace sales was primarily driven by the commercial OEMefficiencies achieved through recent consolidation and aftermarket partially offset by the defense OEM markets. The decrease in industrial sales was driven by the marine and general industrial markets.

Gross margin as a percentage of net sales decreased to 32.9% for the six months ended September 26, 2020 compared to 34.9% for the same period last year. This decrease is primarily due to lower sales volume and product mix.restructuring efforts. During the first halfquarter 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

  Three Months Ended 
          

July 3,

2021

 

June 27,

2020

 

$

Change

 

%

Change

 
SG&A $14.5  $16.6  $(2.1)  (12.8)% $16.7  $15.2  $1.5   9.9%
% of total net sales  9.9%  9.1%          10.7%  9.7%        

Corporate SG&A decreased $2.1increased $1.5 million, or 12.8%9.9%, for the secondfirst quarter of fiscal 20212022 compared to the same period last year. This was primarily dueis attributable to a decrease of $2.7 millionincreases in personnel costs partially offset by an increaseof $1.0 million, share-based compensation of $0.3 million and other costs of $0.2 million in professional fees, $0.2 million of share-based compensation expenses, and $0.2 million of other items.million.

  Six Months Ended 
  

September 26,

2020

  

September 28,

2019

  $
Change
  

%

Change

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

Corporate SG&A decreased $3.0 million for the six months ended September 26, 2020 compared to the same period last year due to a decrease of $4.7 million in personnel costs and $0.1 million of other items, partially offset by $0.8 million of additional share-based compensation expenses and $1.0 million of additional professional costs.

27


 

Liquidity and Capital Resources

(dollars in millions in tables)

Our business is capital-intensive. Our capital requirements include manufacturing equipment and materials. In addition, we have historically fueled our growth, in part, through acquisitions. We have historically met our working capital, capital expenditure requirements and acquisition funding needs through our net cash flows provided by operations, various debt arrangements and sale of equity to investors. We believe that operating cash flows and available credit under the Revolver and Foreign Revolver (see below) will provide adequate resources to fund internal and external growth initiatives for the foreseeable future. For further discussion regarding plans to fund external growth initiatives, refer to Part I, Item 1 – Note 11 “Subsequent Events.”

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

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

Liquidity

As of September 26, 2020,July 3, 2021, we had cash and cash equivalents and highly liquid marketable securities of $166.4$296.1 million, of which, approximately $13.1$11.8 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.subsidiaries.

Domestic Credit Facility

The Company’s credit agreement with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer, and the other lenders party thereto (the “Credit Agreement”) provides the Company with a $250.0 million revolving credit facility (the “Revolver”), which expires on January 31, 2024. Debt issuance costs associated with the Credit Agreement totaled $0.9 million and will be amortized through January 31, 2024 along with the unamortized debt issuance costs remaining from the Company’s prior credit agreement. As of July 3, 2021, $1.0 million in unamortized debt issuance costs remain.

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

The Credit Agreement requires the Company to comply with various covenants including, among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.50 to 1. The Credit Agreement allows the Company to, among other things, make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the Credit Agreement. As of September 26, 2020,July 3, 2021, the Company was in compliance with all such covenants.

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

28

Approximately $3.7$3.6 million of the Revolver is being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs. As of September 26, 2020, $1.3 million in unamortized debt issuance costs remain. The Company has the ability to borrow up to an additional $246.3$246.4 million under the Revolver as of September 26, 2020.July 3, 2021.


Foreign Term Loan and Revolving Credit Facility

On August 15, 2019, one of our foreign subsidiaries, Schaublin SA (“Schaublin”), entered into two separate credit agreements (the “Foreign Credit Agreements”) with Credit Suisse (Switzerland) Ltd. to (i) finance the acquisition of Swiss Tool, and (ii) provide future working capital. The Foreign Credit Agreements provided Schaublin with a CHF 15.0 million (approximately $15.4 million) term loan (the “Foreign Term Loan”), which expires on July 31, 2024 and a CHF 15.0 million (approximately $15.4 million) revolving credit facility (the “Foreign Revolver”), which continues in effect until terminated by either Schaublin or Credit Suisse. Debt issuance costs associated with the Foreign Credit Agreements totaled CHF 0.3 million (approximately $0.3 million) and will be amortized throughout the life of the Foreign Credit Agreements. As of July 3, 2021, approximately $0.1 million in unamortized debt issuance costs remain.

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

The Foreign Credit Agreements require Schaublin to comply with various covenants, which are tested annually on March 31. These covenants include, among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.00 to 1 as of March 31, 2020 and not greater than 2.50 to 1 as of March 31, 2021 and thereafter. Schaublin is also required to maintain an economic equity of CHF 20.0 million at all times. The Foreign Credit Agreements allow Schaublin to, among other things, incur other debt or liens and acquire or dispose of assets provided that Schaublin complies with certain requirements and limitations of the Foreign Credit Agreements. As of March 31, 2020,July 3, 2021, Schaublin was in compliance with all such covenants.

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

As of September 26, 2020,July 3, 2021, there was approximately $2.9 million outstanding under the Foreign Revolver and approximately $12.9$6.2 million outstanding under the Foreign Term Loan. These borrowings have been classified as Level 2 ofLoan and no amounts outstanding under the valuation hierarchy. As of September 26, 2020, approximately $0.1 million in unamortized debt issuance costs remain.Foreign Revolver. Schaublin has the ability to borrow up to an additional $13.2$16.3 million under the Foreign Revolver as of September 26, 2020.July 3, 2021.

Schaublin’s required future annual principal payments are approximately $6.1$0 for the remainder of fiscal 2022, $0 for fiscal 2023, $2.9 million for the next twelve monthsfiscal 2024 and approximately $3.2$3.3 million for each year for the next three years.fiscal 2025.

Other Notes Payable

On October 1,In 2012 Schaublin purchased the land and building that it occupied and had been leasingoccupies 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$5.0 million was paid from cash on hand. The balance on this mortgage as of September 26, 2020July 3, 2021 was approximately $6.0$5.7 million and has been classified as Level 2 of the valuation hierarchy.

The Company’s required future annual principal payments are approximately $0.4 million for the remainder of fiscal 2022, $0.5 million for each year for the next five yearsfrom fiscal 2023 through fiscal 2026 and $3.5$3.3 million thereafter.

29

Cash Flows

Six-monthThree-month Period Ended September 26, 2020July 3, 2021 Compared to the Six-monthThree-month Period Ended September 28, 2019June 27, 2020

The following table summarizes our cash flow activities:

 FY21  FY20  $ Change  

FY22

 

FY21

 

$
Change

 
Net cash provided by (used in):                   
Operating activities $74.5  $64.6  $9.9  $53.3  $48.4  $4.9 
Investing activities  (5.8)  (53.8)  48.0   (33.3)  (3.6)  (29.7)
Financing activities  (5.5)  (5.0)  (0.5)  4.5   (4.3)  8.8 
Effect of exchange rate changes on cash  (0.1)  0.7   (0.8)  0.2   (0.1)  0.3 
Increase in cash and cash equivalents $63.1  $6.5  $56.6  $24.7  $40.4  $(15.7)


During the first sixthree months of fiscal 2021,2022, we generated cash of $74.5$53.3 million from operating activities compared to $64.6$48.4 million of cash generated during the same period of fiscal 2020.2021. The increase of $9.9$4.9 million for fiscal 20212022 was mainly a result of the favorable impact of a net change in operating assets and liabilities of $20.1$3.2 million and a favorablean increase in net income of $3.3 million partially offset by an unfavorable change in non-cash charges of $8.5 million, offset by a decrease in net income of $18.7$1.6 million. The favorable change in operating assets and liabilities iswas primarily the result of an increase in the amount of cash being provided by working capital items as detailed in the table below, while the increasedecrease in non-cash charges resulted from $0.5an unfavorable change in deferred taxes of $2.2 million and depreciation of $0.3 million offset by favorable changes to share-based compensation of $0.3 million, amortization of intangible assets of $0.1 million and restructuring and other charges of amortization of deferred financing costs, $3.2 million in deferred taxes, $1.0 million of depreciation, $0.8 million of share-based compensation charges, and $2.9 million of other non-cash charges related to restructuring efforts.$0.5 million.

The following chart summarizes the favorable change in operating assets and liabilities of $20.1$3.2 million for fiscal 2022 versus fiscal 2021 and the favorable change of $12.8 million for fiscal 2021 versus fiscal 2020 and the favorable change of $3.8 million for fiscal 2020 versus fiscal 2019.2020.

 FY21  FY20  

FY22

 

FY21

 
Cash provided by (used in):             
Accounts receivable $19.0  $5.4  $(11.0) $15.0 
Inventory  8.1   6.9   (1.6)  4.2 
Prepaid expenses and other current assets  2.8   (0.5)  (3.4)  2.3 
Other non-current assets  (5.1)  1.3   2.7   (3.6)
Accounts payable  (12.2)  (2.6)  5.5   (1.2)
Accrued expenses and other current liabilities  1.6  (6.2)  7.1   (7.0)
Other non-current liabilities  5.9   (0.5)  3.9   3.1 
Total change in operating assets and liabilities: $20.1  $3.8  $3.2  $12.8 

During the first sixthree months of fiscal 2021,2022, we used $5.8$33.3 million for investing activities as compared to $53.8$3.6 million used during the first sixthree months of fiscal 2020.2021. This decreaseincrease in cash used was attributable to the purchase of $29.9 million of highly liquid marketable securities during the current period and a $14.2purchase price adjustment in fiscal 2021 related to the Swiss Tool acquisition of $0.3 million decrease inoffset by $0.5 million fewer capital expenditures and the use of $33.8 million in the prior year for the acquisition of Swiss Tool.fiscal 2022 compared to fiscal 2021.

 

During the first sixthree months of fiscal 2021, we used $5.52022, $4.5 million forof cash was provided by financing activities compared to $5.0$4.3 million used for the first sixthree months of fiscal 2020. This increase in cash used2021. The favorable change of $8.8 million was primarily attributable to $8.0$16.5 million lessmore exercises of share-based awards partially offset by $2.1$5.8 million lessmore payments made on outstanding debt and $5.4$1.9 million lessmore treasury stock purchases.repurchases.

30

Capital Expenditures

Our capital expenditures were $2.1 million and $6.0$3.4 million for the three- and six-month periodsthree-month period ended September 26, 2020, respectively.July 3, 2021. We expect to make additional capital expenditures of $6.0$10.0 to $8.0$15.0 million during the remainder of fiscal 20212022 in connection with our existing business. We expect to fund these capital expenditures principally through existing cash and internally generated funds. We may also make substantial additional capital expenditures in connection with acquisitions.

Other Matters

Critical Accounting Policies and Estimates

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements in our fiscal 20202021 Annual Report on Form 10-K describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the first sixthree months of fiscal 2021 other than those described in Note 2 to the unaudited interim consolidated financial statements contained in this quarterly report.2022.


Off-Balance Sheet Arrangements

As of September 26, 2020,July 3, 2021, we had no significant off-balance sheet arrangements other than $3.7$3.6 million of outstanding standby letters of credit, all of which were under the Revolver.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

Foreign Currency Exchange Rates. Our Swiss operations utilize the Swiss franc as the functional currency, our French and German operations utilize the euro as the functional currency and our Polish operations utilize the Polish zloty as the functional currency. As a result, we are exposed to risk associated with fluctuating currency exchange rates between the U.S. dollar and these currencies. Foreign currency transaction gains and losses are included in earnings. Approximately 8%9% of our net sales were impacted by foreign currency fluctuations for both the three- and six-month periodsthree-month period ended September 26, 2020July 3, 2021 compared to 8%9% for both the three- and six-month periods ended September 28, 2019.same period in the prior year. 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 26, 2020,July 3, 2021, we had no derivatives.

31

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 26, 2020.July 3, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 26, 2020,July 3, 2021, our disclosure controls and procedures were (1) designed to ensure that information relating to our Company required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported to our Chief Executive Officer and Chief Financial Officer within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, and (2) effective, in that they provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the three-month period ended September 26, 2020July 3, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).


PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

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

ITEM 1A. Risk Factors

There have been no material changes to our risk factors and uncertainties since the most recent filing of our Form 10-K. For a discussion of the risk factors, refer to Part I, Item 2, “Cautionary Statement as to Forward-Looking Information” contained in this quarterly report and Part I, Item 1A, “Risk Factors,” contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020.April 3, 2021.

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

Unregistered Sales of Equity Securities

None.

Use of Proceeds

Not applicable.

32

Issuer Purchases of Equity Securities

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

Total share repurchases under the 2019 plan for the three months ended September 26, 2020July 3, 2021 are as follows:

Period 

Total
number

of shares

purchased

  

Average

price paid

per share

  

Number of

shares

purchased

as part of the

publicly

announced

program

  

Approximate

dollar value

of shares still

available to
be

purchased

under the

program

(000’s)

 
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     
           Approximate 
        Number of  dollar value 
        shares  of shares still 
        purchased  available to be 
  Total     as part of the  purchased 
  number  Average  publicly  under the 
  of shares  price paid  announced  program 
Period purchased  per share  program  (000’s) 
04/04/2021 – 05/01/2021  8  $201.38   8  $87,577 
05/02/2021 – 05/29/2021  37   202.08   37   87,570 
05/30/2021 – 07/03/2021  31,527   198.40   31,527  $81,315 
Total  31,572  $198.41   31,572     

 


ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

33

ITEM 6. Exhibits

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.

34


 

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, 2020August 5, 2021
By:

/s/ Robert M. Sullivan

Name:Robert M. Sullivan
Title:Chief Financial Officer
Date:October 30, 2020August 5, 2021

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


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