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 December 26, 2020January 1, 2022

 

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: 333-124824001-40840

 

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

Delaware 95-4372080
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

One Tribology Center
Oxford, CT
 06478
One Tribology Center
Oxford, CT06478
(Address of principal executive offices) (Zip Code)

(203) 267-7001
(Registrant’s telephone number, including area 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
5.00% Series A Mandatory Convertible Preferred Stock, par value $0.01 per shareROLLPNasdaq NMS

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filerAccelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of January 22, 2021,February 4, 2022, RBC Bearings Incorporated had 25,139,63528,876,359 shares of Common Stock and 4,600,000 shares of Preferred Stock outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

Part I -FINANCIAL INFORMATION1
ITEMItem 1.Consolidated Financial Statements1
ITEMItem 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1621
ITEMItem 3.Quantitative and Qualitative Disclosures About Market Risk3234
ITEMItem 4.Controls and Procedures3234
Changes in Internal Control over Financial Reporting3234
Part II -OTHER INFORMATION3335
ITEMItem 1.Legal Proceedings3335
ITEMItem 1A.Risk Factors3335
ITEMItem 2.Unregistered Sales of Equity Securities and Use of Proceeds3337
ITEMItem 3.Defaults Upon Senior Securities3437
ITEMItem 4.Mine Safety Disclosures3437
ITEMItem 5.Other Information3437
ITEMItem 6.Exhibits3438

 

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)

 

 December 26,
2020
  

March 28,

2020

  January 1,
2022
  

April 3,

2021

 
 (Unaudited)    (Unaudited)   
ASSETS          
Current assets:          
Cash and cash equivalents $126,192  $103,255  $255,503  $151,086 
Marketable securities  75,539         90,249 
Accounts receivable, net of allowance for doubtful accounts of $1,874 at December 26, 2020 and $1,627 at March 28, 2020  106,506   128,995 
Accounts receivable, net of allowance for doubtful accounts of $2,619 as of January 1, 2022 and $1,792 as of April 3, 2021  199,785   110,472 
Inventory  372,104   367,494   510,175   364,147 
Prepaid expenses and other current assets  12,001   12,262   21,774   12,248 
Total current assets  692,342   612,006   987,237   728,202 
Property, plant and equipment, net  212,702   219,846   396,164   208,264 
Operating lease assets, net  36,880   28,953   42,816   35,664 
Goodwill  278,472   277,776   1,886,874   277,536 
Intangible assets, net of accumulated amortization of $61,054 at December 26, 2020 and $55,732 at March 28, 2020  157,320   162,747 
Other assets  31,266   20,584 
Intangible assets, net  1,524,715   154,399 
Other noncurrent assets  37,244   30,195 
Total assets $1,408,982  $1,321,912  $4,875,050  $1,434,260 
                
LIABILITIES AND STOCKHOLDERS' EQUITY     
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:             
Accounts payable $39,936  $51,038  $140,374  $36,336 
Accrued expenses and other current liabilities  36,386   40,580   131,169   43,564 
Current operating lease liabilities  5,963   5,708   7,974   5,726 
Current portion of long-term debt  6,127   6,429   63,519   2,612 
Total current liabilities  88,412   103,755   343,036   88,238 
Deferred income taxes  19,391   16,560 
Long-term debt, less current portion  14,366   16,583   1,726,734   13,495 
Long-term operating lease liabilities  31,347   23,396   35,076   29,982 
Other non-current liabilities  50,659   43,619 
Deferred income taxes  307,819   17,178 
Other noncurrent liabilities  127,411   55,416 
Total liabilities  204,175   203,913   2,540,076   204,309 
                
Stockholders' equity:        
Preferred stock, $.01 par value; authorized shares: 10,000,000 at December 26, 2020 and March 28, 2020, respectively; none issued or outstanding      
Common stock, $.01 par value; authorized shares: 60,000,000 at December 26, 2020 and March 28, 2020, respectively; issued shares: 26,011,098 and 25,881,415 at December 26, 2020 and March 28, 2020, respectively  260   259 
Stockholders’ equity:        
Preferred stock, $.01 par value; authorized shares: 10,000,000 as of January 1, 2022 and April 3, 2021, respectively; issued shares: 4,600,000 and 0 as of January 1, 2022 and April 3, 2021, respectively  46    
Common stock, $.01 par value; authorized shares: 60,000,000 as of January 1, 2022 and April 3, 2021, respectively; issued shares: 29,798,240 and 26,110,320 as of January 1, 2022 and April 3, 2021, respectively  298   261 
Additional paid-in capital  434,346   412,400   1,531,552   445,073 
Accumulated other comprehensive loss  (510)  (6,898)  (10,896)  (10,409)
Retained earnings  833,898   769,219   885,456   858,852 
Treasury stock, at cost, 881,096 shares and 838,982 shares at December 26, 2020 and March 28, 2020, respectively  (63,187)  (56,981)
Total stockholders' equity  1,204,807   1,117,999 
Total liabilities and stockholders' equity $1,408,982  $1,321,912 
Treasury stock, at cost, 923,340 shares and 884,701 shares as of January 1, 2022 and April 3, 2021, respectively  (71,482)  (63,826)
Total stockholders’ equity  2,334,974   1,229,951 
Total liabilities and stockholders’ equity $4,875,050  $1,434,260 

 

See accompanying notes.

 


 

 

RBC Bearings Incorporated

Consolidated Statements of Operations

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

(Unaudited)

 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
 December 26,
2020
  December 28,
2019
  December 26,
2020
  December 28,
2019
  January 1,
2022
  December 26,
2020
  January 1,
2022
  December 26,
2020
 
Net sales $145,861  $177,019  $448,689  $541,618  $266,953  $145,861  $584,058  $448,689 
Cost of sales  90,273   106,308   277,052   329,099   173,608   90,273   364,476   277,052 
Gross margin  55,588   70,711   171,637   212,519   93,345   55,588   219,582   171,637 
Operating expenses:                                
Selling, general and administrative  25,739   30,719   78,591   91,580   43,196   25,739   102,672   78,591 
Other, net  3,308   2,526   11,328   7,674   35,778   3,308   44,693   11,328 
Total operating expenses  29,047   33,245   89,919   99,254   78,974   29,047   147,365   89,919 
Operating income  26,541   37,466   81,718   113,265   14,371   26,541   72,217   81,718 
Interest expense, net  327   466   1,095   1,486   11,848   327   27,937   1,095 
Other non-operating expense (income)  (50)  217   203   581 
Other non-operating (income)/expense  1,395   (50)  639   203 
Income before income taxes  26,264   36,783   80,420   111,198   1,128   26,264   43,641   80,420 
Provision for income taxes  4,695   6,268   15,741   18,914   1,191   4,695   10,776   15,741 
Net income $21,569  $30,515  $64,679  $92,284 
Net income per common share:                
Net income/(loss)  (63)  21,569   32,865   64,679 
Preferred stock dividends  5,751      6,261    
Net income/(loss) available to common stockholders $(5,814) $21,569  $26,604  $64,679 
                
Net income/(loss) per share available to common stockholders:                
Basic $0.87  $1.24  $2.61  $3.75  $(0.20) $0.87  $1.01  $2.61 
Diluted $0.86  $1.22  $2.59  $3.71  $(0.20) $0.86  $1.00  $2.59 
Weighted average common shares:                                
Basic  24,861,792   24,699,461   24,816,451   24,595,179   28,618,495   24,861,792   26,379,984   24,816,451 
Diluted  25,060,812   24,981,480   24,985,848   24,898,635   28,618,495   25,060,812   26,663,990   24,985,848 

 

See accompanying notes.

 


 

 

RBC Bearings Incorporated

Consolidated Statements of Comprehensive IncomeIncome/(Loss)

(dollars in thousands)

(Unaudited)

 

 Three Months Ended Nine Months Ended  Three Months Ended  Nine Months Ended 
 December 26,
2020
 December 28,
2019
 December 26,
2020
 December 28,
2019
  January 1,
2022
  December 26,
2020
  January 1,
2022
  December 26,
2020
 
Net income $21,569  $30,515  $64,679  $92,284 
Net income/(loss) $(63) $21,569  $32,865  $64,679 
Pension and postretirement liability adjustments, net of taxes (1)
  260   178   779   534   318   260   954   779 
Foreign currency translation adjustments  3,823   1,624   5,609   2,297   (1,951)  3,823   (1,441)  5,609 
Total comprehensive income $25,652  $32,317  $71,067  $95,115 
Total comprehensive income/(loss) $(1,696) $25,652  $32,378  $71,067 

 

(1)These adjustments were net of tax expense of $79$82 and $55$79 for the three-month periods ended January 1, 2022 and December 26, 2020, and December 28, 2019, respectively and $237$247 and $164$237 for the nine-month periods ended January 1, 2022 and December 26, 2020, and December 28, 2019, respectively.

 

See accompanying notes.

 


 

 

RBC Bearings Incorporated

Consolidated Statements of Stockholders'Stockholders’ Equity

(dollars in thousands)

(Unaudited)

 

 Common Stock Additional
Paid-in
 Accumulated
Other
Comprehensive
  Retained 

Treasury Stock

  Total
Stockholders'
  Common Stock  Preferred Stock  Additional
Paid-in
  Accumulated
Other
Comprehensive
  Retained 

 

 

Treasury Stock

  Total
Stockholders’
 
 Shares Amount Capital Income/(Loss) Earnings Shares Amount Equity  Shares  Amount  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 
Change in net prior service cost and actuarial losses, net of tax expense of $83                 318            318 
Issuance of restricted stock, net of forfeitures  56,157                        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 
Balance at July 3, 2021  26,336,894  $263     $  $467,524  $(8,172) $884,851   (916,273) $(70,090) $1,274,376 
Net income              20,421         20,421                     6,929         6,929 
Share-based compensation        5,231               5,231               6,224               6,224 
Preferred stock issuance, net of issuance costs        4,600,000   46   445,407               445,453 
Common stock issuance, net of issuance costs  3,450,000   35         605,642               605,677 
Preferred stock dividends                    (510)        (510)
Repurchase of common stock                 (62)  (8)  (8)                       (406)  (92)  (92)
Exercise of equity awards  31,200   1   2,188               2,189   1,332            131               131 
Change in net prior service cost and actuarial losses, net of taxes of $79           259            259 
Change in net prior service cost and actuarial losses, net of taxes of $82                 318            318 
Issuance of restricted stock, net of forfeitures  (2,299)                       (1,064)                           
Currency translation adjustments           1,377            1,377                  (1,409)           (1,409)
Balance at September 26, 2020  25,970,673  $260  $425,488  $(4,593) $812,329   (870,223) $(61,380) $1,172,104 
Net income              21,569         21,569 
Balance at October 2, 2021  29,787,162  $298   4,600,000  $46  $1,524,928  $(9,263) $891,270   (916,679) $(70,182) $2,337,097 
Net income/(loss)                    (63)        (63)
Share-based compensation        5,173               5,173               6,038               6,038 
Preferred stock dividends                    (5,751)        (5,751)
Repurchase of common stock                 (10,873)  (1,807)  (1,807)                       (6,661)  (1,300)  (1,300)
Exercise of equity awards  40,199      3,685               3,685   9,759            905               905 
Change in net prior service cost and actuarial losses, net of taxes of $79           260            260 
Change in net prior service cost and actuarial losses, net of taxes of $82                 318            318 
Issuance of restricted stock, net of forfeitures  226                        1,319                            
Preferred stock issuance, net of issuance costs              

(134

)              

(134

)

Common stock issuance, net of issuance costs

              (185)              (185)
Currency translation adjustments           3,823            3,823                  (1,951)           (1,951)
Balance at December 26, 2020  26,011,098  $260  $434,346  $(510) $833,898   (881,096) $(63,187) $1,204,807 
Balance at January 1, 2022  29,798,240  $298   4,600,000  $46  $1,531,552  $(10,896) $885,456   (923,340) $(71,482) $2,334,974 

 

See accompanying notes.

 


 

 

RBC Bearings Incorporated

Consolidated Statements of Stockholders'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 
Change in net prior service cost and actuarial losses, net of taxes of $79           260            260 
Issuance of restricted stock, net of forfeitures  86,490                        56,157                      
Impact from adoption of ASU 2018-02           (1,289)  1,289          
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 
Balance at June 27, 2020  25,941,772  $259  $418,069  $(6,229) $791,908   (870,161) $(61,372) $1,142,635 
Net income              31,270         31,270               20,421         20,421 
Share-based compensation        5,059               5,059         5,231               5,231 
Repurchase of common stock                 (2,048)  (334)  (334)                 (62)  (8)  (8)
Exercise of equity awards  138,898   1   10,184               10,185   31,200   1   2,188               2,189 
Change in net prior service cost and actuarial losses, net of taxes of $55           178            178 
Change in net prior service cost and actuarial losses, net of taxes of $79           259            259 
Issuance of restricted stock, net of forfeitures  5,677                        (2,299)                     
Currency translation adjustments           (1,869)           (1,869)           1,377            1,377 
Balance at September 28, 2019  25,842,617  $258  $398,975  $(7,727) $704,952   (824,838) $(54,620) $1,041,838 
Balance at September 26, 2020  25,970,673  $260  $425,488  $(4,593) $812,329   (870,223) $(61,380) $1,172,104 
Net income              30,515         30,515               21,569         21,569 
Share-based compensation        5,135               5,135         5,173               5,173 
Repurchase of common stock                 (10,249)  (1,700)  (1,700)                 (10,873)  (1,807)  (1,807)
Exercise of equity awards  18,419   1   1,615               1,616   40,199      3,685               3,685 
Change in net prior service cost and actuarial losses, net of taxes of $55           178            178 
Change in net prior service cost and actuarial losses, net of taxes of $79           260            260 
Issuance of restricted stock, net of forfeitures  2,110                        226                      
Currency translation adjustments           1,624            1,624            3,823            3,823 
Balance at December 28, 2019  25,863,146  $259  $405,725  $(5,925) $735,467   (835,087) $(56,320) $1,079,206 
Balance at December 26, 2020  26,011,098  $260  $434,346  $(510) $833,898   (881,096) $(63,187) $1,204,807 

 

See accompanying notes.


 

 

RBC Bearings Incorporated

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

 

 Nine Months Ended  Nine Months Ended 
 December 26,
2020
 December 28,
2019
  

January 1,

2022

 

December 26,

2020

 
Cash flows from operating activities:             
Net income $64,679  $92,284  $32,865  $64,679 
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation  17,129   16,209 
Depreciation and amortization  37,355   24,812 
Deferred income taxes  2,580   249   778   2,580 
Amortization of intangible assets  7,683   7,066 
Amortization of deferred financing costs  365   365   17,600   365 
Share-based compensation  15,842   14,996   18,034   15,842 
Other non-cash charges  3,278   90 
Loss/(gain) on disposition of assets  68   965 
Loss on extinguishment of debt  890   - 
Consolidation, restructuring, and other noncash charges  2,378   2,313 
Changes in operating assets and liabilities, net of acquisitions:                
Accounts receivable  23,285   10,283   (5,929)  23,285 
Inventory  (4,717)  (20,739)  (8,531)  (4,717)
Prepaid expenses and other current assets  (251)  (2,049)  (10,298)  (251)
Other non-current assets  (11,724)  (6,426)
Other noncurrent assets  (225)  (11,724)
Accounts payable  (11,400)  22   34,215   (11,400)
Accrued expenses and other current liabilities  (4,575)  (4,092)  6,003   (4,575)
Other non-current liabilities  8,412   2,937 
Other noncurrent liabilities  8,223   8,412 
Net cash provided by operating activities  110,586   111,195   133,426   110,586 
                
Cash flows from investing activities:                
Purchase of property, plant and equipment  (8,809)  (27,562)  (21,761)  (8,809)
Proceeds from sale of assets  18   300   22   18 
Purchase of marketable securities  (75,075)  -   (29,982)  (75,075)
Acquisition of business  245   (33,842)
Net cash used in investing activities  (83,621)  (61,104)
Proceeds from sale of marketable securities  120,483   - 
Acquisition of business, net of cash acquired  (2,908,241)  245 
Net cash provided by/(used in) investing activities  (2,839,479)  (83,621)
                
Cash flows from financing activities:                
Proceeds received from revolving credit facilities  -   9,435 
Proceeds received from term loans  -   15,383 
Proceeds received from issuance of common stock  605,492   - 
Proceeds received from issuance of preferred stock  445,319   - 
Proceeds received from term loans, net of financing costs  1,286,230   - 
Proceeds received from senior notes, net of financing costs  494,200   - 
Finance fees paid in connection with credit facilities and senior notes  (20,000)  - 
Repayments of term loans  (9,952)  (3,287)
Repayments of revolving credit facilities  (773)  (45,411)  -   (773)
Repayments of term loans  (3,287)  - 
Repayments of notes payable  (379)  (352)  (380)  (379)
Finance fees paid in connection with credit facilities and term loans  -   (276)
Principal payments on finance lease obligations  (679)  - 
Exercise of stock options  6,105   12,077   17,717   6,105 
Repurchase of common stock  (6,206)  (11,548)  (7,656)  (6,206)
Net cash used in financing activities  (4,540)  (20,692)
Net cash provided by/(used in) financing activities  2,810,291   (4,540)
                
Effect of exchange rate changes on cash  512   1,045   179   512 
                
Cash and cash equivalents:                
Increase during the period  22,937   30,444   104,417   22,937 
Cash and cash equivalents, at beginning of period  103,255   29,884   151,086   103,255 
Cash and cash equivalents, at end of period $126,192  $60,328  $255,503  $126,192 
                
Supplemental disclosures of cash flow information:                
Cash paid for:                
Income taxes $12,880  $21,569  $12,405  $12,880 
Interest  737   1,029   4,925   737 

 

See accompanying notes.

 


 

 

RBC Bearings Incorporated

Notes to Unaudited Interim Consolidated Financial Statements

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

1. Basis of Presentation

The interim consolidated financial statements included herein have been prepared by RBC Bearings Incorporated, a Delaware corporation (collectively with its subsidiaries, the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The interim financial statements included with this report have been prepared on a consistent basis with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020.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 nine-month periods ended December 26, 2020January 1, 2022 are not necessarily indicative of the operating results for the entire fiscal year ending April 3, 2021.2, 2022. The three- and nine-month periods ended January 1, 2022 and December 26, 2020 and December 28, 2019 each includeincluded 13 weeks, 39 weeks, 13 weeks and 39 weeks, respectively. The amounts shown are in thousands, unless otherwise indicated.

 

2. Significant Accounting Policies

 

The Company'sCompany’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 guidance replaces the former incurred loss approach with a new expected credit loss impairment model. The new model applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses considers historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics are grouped together when estimating expected credit losses. ASU 2016-13 does not prescribe a specific method to make the estimate, so its application requires significant judgment. The Company adopted this accounting standard update in the first quarter of fiscal 2021 and it did not have a material impact on the Company's consolidated financial statements.


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

Recent Accounting Standards Yet to Be Adopted

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

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this ASU simplify the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. This ASU is currently evaluating the effect that theeffective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted this ASU in fiscal 2022.

The adoption of this ASU did not have a material impact on our financial position, results of operations or liquidity. Adoption of this ASU did simplify the accounting of the 5.00% Series A Mandatory Convertible Preferred Stock (“MCPS”) referred to in Note 5 by removing the requirement to assess the financial instrument for beneficial conversion features and clarifying how diluted EPS should be calculated using the “if-converted” method. Refer to Note 6 for further details regarding the “if-converted” method.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 840): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this ASU require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements in accordance with U.S. GAAP. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted this ASU in fiscal 2022 and the impact of adoption was not material to the Company’s financial position, results of operations or liquidity.

Recent Accounting Standards Yet to Be Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The objective of the standard is to address operational challenges likely to arise in accounting for contract modifications and hedge accounting due to reference rate reform. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The standard update is effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by topic or industry subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. Once elected for a topic or industry subtopic, the amendments in this standard update must be applied prospectively for all eligible contract modifications for that topic or industry subtopic. An entity may elect to apply the amendments for eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. If an entity elects to apply any of the amendments for an eligible hedging relationship existing as of the beginning of the interim period that includes March 12, 2020, any adjustments as a result of those elections must be reflected as of the beginning of that interim period. If an entity elects to apply any of the amendments for a new hedging relationship entered into between the beginning of the interim period that includes March 12, 2020 and March 12, 2020, any adjustments as a result of those elections must be reflected as of the beginning of the hedging relationship. The Company has not yet assessed the impact of adoption will have on the Company’s consolidated financial statements.

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 under 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 nine-month periods ended December 26, 2020 and December 28, 2019 are as follows:

Principal End Markets

  Three Months Ended 
  December 26, 2020  December 28, 2019 
  Aerospace  Industrial  Total  Aerospace  Industrial  Total 
Plain $48,676  $20,645  $69,321  $67,753  $19,123  $86,876 
Roller  10,122   12,286   22,408   17,332   14,497   31,829 
Ball  6,964   13,711   20,675   6,103   12,372   18,475 
Engineered Products  15,895   17,562   33,457   24,958   14,881   39,839 
  $81,657  $64,204  $145,861  $116,146  $60,873  $177,019 

  Nine Months Ended 
  December 26, 2020  December 28, 2019 
  Aerospace  Industrial  Total  Aerospace  Industrial  Total 
Plain $159,068  $60,181  $219,249  $205,346  $59,026  $264,372 
Roller  34,026   32,861   66,887   54,288   46,985   101,273 
Ball  21,297   39,317   60,614   16,619   36,990   53,609 
Engineered Products  53,389   48,550   101,939   73,596   48,768   122,364 
  $267,780  $180,909  $448,689  $349,849  $191,769  $541,618 


 

3. Revenue from Contracts with Customers

Disaggregation of Revenue

The following table disaggregates total revenue by end market which is how we view our reportable segments (see Note 12):

  

Three Months Ended

  

Nine Months Ended

 
  

January 1,

2022

  

December 26,

2020

  

January 1,

2022

  

December 26,

2020

 
             
Aerospace/Defense $93,203  $93,267  $276,483  $299,833 
Industrial  173,750   52,594   307,575   148,856 
  $266,953  $145,861  $584,058  $448,689 

The following table disaggregates total revenue by geographic origin:

  

Three Months Ended

  

Nine Months Ended

 
  

January 1,

2022

  

December 26,

2020

  

January 1,

2022

  

December 26,

2020

 
             
United States $233,900  $130,082  $517,764  $402,808 
International  33,053   15,779   66,294   45,881 
  $266,953  $145,861  $584,058  $448,689 

The following table illustrates the approximate percentage of revenue recognized for performance obligations satisfied over time versus the amount of revenue recognized for performance obligations satisfied at a point in time:

  

Three Months Ended

  

Nine Months Ended

 
  

January 1,

2022

  

December 26,

2020

  

January 1,

2022

  

December 26,

2020

 
             
Point-in-time  98%  96%  97%  96%
Over time  2%  4%  3%  4%
   100%  100%  100%  100%

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract under Accounting Standards Codification (ASC) 606 for which work has not been performed or has been partially performed and excludes unexercised contract options. The duration of 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 $255,459$289,870 at December 26, 2020.January 1, 2022. The Company expects to recognize revenue on approximately 59% and 87%86% 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. CurrentAs of January 1, 2022 and April 3, 2021, current contract assets arewere $4,499 and $5,584, respectively, and included within prepaid expenses and other current assets on the consolidated balance sheets. NoncurrentThe decrease in contract assets are included within otherwas primarily due to amounts billed to customers during the period partially offset by the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations prior to billing. As of January 1, 2022 and April 3, 2021, the Company did not have any contract assets classified as noncurrent on the consolidated balance sheets. There were $0 and $77 of impairment losses related to the Company’s contract assets during the three and nine months ended January 1, 2022, respectively.

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. CurrentAs of January 1, 2022 and April 3, 2021, current contract liabilities were $14,038 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. $2,205 of contract liabilities were acquired during the quarter as part of the Dodge acquisition (see Note 13). For the three and nine months ended January 1, 2022, the Company recognized revenues related to contract liabilities of $3,783 and $10,562, respectively. For the three and nine months ended December 26, 2020, the Company recognized revenues related to contract liabilities of $2,291 and $10,056, respectively. As of January 1, 2022 and April 3, 2021, noncurrent contract liabilities were $8,072 and $3,754, respectively, and included within other noncurrent liabilities on the consolidated balance sheets. The increase in noncurrent 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. 

Accounts Receivable - As of January 1, 2022 and April 3, 2021, accounts receivable with customers, net, were $199,785 and $110,472, respectively.

Variable Consideration

The amount of consideration to which the Company expects to be entitled in exchange for the goods and services is not generally subject to significant variations. However, the Company does offer certain customers rebates, prompt payment discounts, end-user discounts, the right to return eligible products, and/or other forms of variable consideration. The Company estimates this variable consideration using the expected value amount, which is based on historical experience. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company adjusts the estimate of revenue at the earlier of when the amount of consideration the Company expects to receive changes or when the consideration becomes fixed. Accrued customer rebates were $37,314 and $2,674 at January 1, 2022 and April 3, 2021, respectively, and are included within accrued expenses and other current liabilities on the consolidated balance sheets. Noncurrent contract liabilities are included within other non-current liabilities on the consolidated balance sheets.

As of December 26, 2020 and March 28, 2020, accounts receivable with customers, net, were $106,506 and $128,995, respectively. Contract assets and contract liabilities were as follows:

  December 26,
2020
  March 28,
2020
 
Contract Assets – Current $2,094  $2,604 
Contract Assets – Noncurrent  2,128    
Contract Liabilities – Current  8,813   11,116 
Contract Liabilities – Noncurrent  3,527   2,427 

During the three- and nine-month periods ended December 26, 2020, we recognized $2,291 and $10,056 of our current contract liabilities that existed at March 28, 2020 as revenue. During the three- and nine- month periods ended December 26, 2020, we recognized $769 of our noncurrent contract liabilities that existed at March 28, 2020 as revenue.


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  5,609      5,609 
Amounts reclassified from accumulated other comprehensive income     779   779 
Net current period other comprehensive income  5,609   779   6,388 
Balance at December 26, 2020 $5,027  $(5,537) $(510)

  

Currency
Translation

  

Pension and
Postretirement
Liability

  Total 
Balance at April 3, 2021 $445  $(10,854) $(10,409)
Other comprehensive income (loss) before reclassifications  (1,441)      (1,441)
Amounts recorded in/reclassified from accumulated other comprehensive income (loss)      954   954 
Net current period other comprehensive income (loss)  (1,441)  954   (487)
Balance at January 1, 2022 $(996) $(9,900) $(10,896)


5. Stockholders’ Equity

Preferred Stock

We are authorized to issue 10,000,000 shares of preferred stock, $0.01 par value per share, in one or more series and to fix the powers, designations, preferences and relative participating, option or other rights thereof, including dividend rights, conversion rights, voting rights, redemption terms, liquidation preferences and the number of shares constituting any series, without any further vote or action by our stockholders.

On September 24, 2021, we completed an offering of 4,600,000 shares of 5.00% Series A Mandatory Convertible Preferred Stock (“MCPS”) in a public offering registered under the Securities Act of 1933, as amended (the “Securities Act”), including 600,000 shares issued pursuant to the full exercise of the option granted to the underwriters of the MCPS offering to purchase additional shares solely to cover over-allotments. The trading symbol for the MCPS is “ROLLP.” The net proceeds from the offering were approximately $445,273 after deducting underwriting discounts and commissions and offering expenses. On November 1, 2021, the Company used the proceeds to fund a portion of the cash purchase price for the acquisition of the Dodge Mechanical Power Transmission business (“Dodge”) from ABB Asea Brown Boveri Ltd.

Holders of MCPS are entitled to receive, when, as and if declared by our Board of Directors, or an authorized committee thereof, out of funds legally available for payment, cumulative dividends at the annual rate of 5.00% of the liquidation preference of $100 per share, payable in cash or, subject to certain limitations, by delivery of shares of common stock or any combination of cash and shares of common stock, at our election; provided, however, that any unpaid dividends on the MCPS will continue to accumulate as described in the Certificate of Designations that sets forth the rights, preferences and privileges of the MCPS. During the third quarter of fiscal 2022, the Company had accrued dividends of $5,751, which were included in the dividend payment to be made on January 15, 2022.

The MCPS has a liquidation preference of $100 per share plus accrued and unpaid dividends. As of January 1, 2022, the MCPS had an aggregate liquidation preference of $466,261.

Subject to certain exceptions, no dividend or distribution will be declared or paid on shares of our common stock, and no common stock will be purchased, redeemed or otherwise acquired for consideration by us or any of our subsidiaries unless, in each case, all accumulated and unpaid dividends for all preceding dividend periods have been declared and paid, or a sufficient amount of cash or number of shares of common stock has been set apart for the payment of such dividends, on all outstanding shares of MCPS. In the event of our voluntary or involuntary liquidation, winding-up or dissolution, no distribution of our assets may be made to holders of our common stock until we have paid holders of MCPS, each of which will be entitled to receive a liquidation preference in the amount of $100 per share plus accumulated and unpaid dividends.

Unless earlier converted or redeemed, each share of MCPS will automatically convert, for settlement on or about October 15, 2024, into between 0.4413 and 0.5405 shares of common stock, subject to customary anti-dilution adjustments. The conversion rate that will apply to mandatory conversions will be determined based on the average of the daily volume-weighted average prices over the 20 consecutive trading days beginning on, and including, the 21st scheduled trading day immediately before October 15, 2024. The conversion rate applicable to mandatory conversions may in certain circumstances be increased to compensate holders of the MCPS for certain unpaid accumulated dividends.


Common Stock

We are authorized to issue 60,000,000 shares of common stock, $0.01 par value per share. Holders of common stock are entitled to one vote per share. Holders of common stock are entitled to receive dividends, if and when declared by our Board of Directors, and to share ratably in our assets legally available for distribution to our stockholders in the event of liquidation after giving effect to any liquidation preference for the benefit of the MCPS or any other preferred stock then outstanding. Holders of common stock have no preemptive, subscription, redemption, or conversion rights. The holders of common stock do not have cumulative voting rights. The holders of a majority of the shares of common stock can elect all of the directors and can control our management and affairs.

On September 24, 2021, we completed an offering of 3,450,000 shares of common stock in a public offering registered under the Securities Act at an offering price of $185 per share, including 450,000 shares issued pursuant to the full exercise of the option granted to the underwriters of the offering to purchase additional shares. The net proceeds from the offering were approximately $605,457 after deducting underwriting discounts and commissions and offering expenses. On November 1, 2021, the Company used the proceeds to fund a portion of the cash purchase price for the acquisition of Dodge.

6. Net Income Per Share Available to Common ShareStockholders

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

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

We exclude outstanding stock options, stock awards and the MCPS from the calculations if the effect would be anti-dilutive. The dilutive effect of the MCPS is calculated using the if-converted method. The if-converted method assumes that these securities were converted to shares of common stock at the later of the September 24, 2021 issuance date or the beginning of the reporting period to the extent that the effect is dilutive. If the effect is anti-dilutive, we calculate net income per share available to common stockholders by adjusting net income in the numerator for the effect of the cumulative MCPS dividends for the respective period.

For the three- and nine-month periods ended January 1, 2022, the effect of assuming the conversion of the 4,600,000 shares of MCPS into shares of common stock was anti-dilutive, and therefore excluded from the calculation of diluted earnings per share available to common stockholders. Accordingly, net income was reduced by cumulative MCPS dividends, as presented in our consolidated statement of operations, for purposes of calculating net income available to common stockholders.

For the three months ended January 1, 2022, all employee stock options and restricted shares were excluded from the calculation of diluted earnings per share available to common stockholders as the Company generated a loss for the period. For the nine months ended January 1, 2022, 164,265 employee stock options and 200 restricted shares were excluded from the calculation of diluted earnings per share available to common stockholders. For the three months ended December 26, 2020, 443,294 employee stock options and 1,000 restricted shares were excluded from the calculation of diluted earnings per share available to common stockholders. For the nine months ended December 26, 2020, 480,631 employee stock options and 1,280 restricted shares were excluded from the calculation of diluted earnings per share available to common stockholders. The inclusion of these employee stock options and restricted shares would have been anti-dilutive.


The table below reflects the calculation of weighted-average shares outstanding for each period presented as well as the computation of basic and diluted net income per share available to common share:stockholders. Since we were in a loss position for the three months ended January 1, 2022, basic net loss per share was the same as diluted net loss per share.


  Three Months Ended  Nine months Ended 
  

January 1,

2022

  

December 26,

2020

  

January 1,

2022

  

December 26,

2020

 
             
Net income/(loss) $(63) $21,569  $32,865  $64,679 
Preferred stock dividends  5,751      6,261    
Net income/(loss) available to common stockholders $(5,814) $21,569  $26,604  $64,679 
                 
Denominator for basic net income/(loss) per share available to common stockholders — weighted-average shares outstanding  28,618,495   24,861,792   26,379,984   24,816,451 
Effect of dilution due to employee stock awards     199,020   284,006   169,397 
Effect of dilution due to MCPS            
Denominator for diluted net income/(loss) per share available to common stockholders — weighted-average shares outstanding  28,618,495   25,060,812   26,663,990   24,985,848 
                 
Basic net income/(loss) per share available to common stockholders $(0.20) $0.87  $1.01  $2.61 
                 
Diluted net income/(loss) per share available to common stockholders $(0.20) $0.86  $1.00  $2.59 

  Three Months Ended  Nine Months Ended 
  

December 26,
2020

  

December 28,

2019

  

December 26,
2020

  

December 28,

2019

 
             
Net income $21,569  $30,515  $64,679  $92,284 
                 
Denominator for basic net income  per common share — weighted-average shares outstanding  24,861,792   24,699,461   24,816,451   24,595,179 
Effect of dilution due to employee stock awards  199,020   282,019   169,397   303,456 
Denominator for diluted net income per common share — weighted-average shares outstanding  25,060,812   24,981,480   24,985,848   24,898,635 
                 
Basic net income per common share $0.87  $1.24  $2.61  $3.75 
                 
Diluted net income per common share $0.86  $1.22  $2.59  $3.71 

At December 26, 2020, 443,294 employee stock options and 1,000 restricted shares have been excluded from the calculation of diluted earnings per share. At December 28, 2019, 217,470 employee stock options and no restricted shares have been excluded from the calculation of diluted earnings per share. The inclusion of these employee stock options and restricted shares would be anti-dilutive.

6.7. 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., JPMorgan Chase & Co., HSBC Holdings plc, Credit Suisse Group AG, and Wells Fargo & Company. The Company has not experienced any losses in such accounts.

8. Inventory

At December 26, 2020, the Company held $75,539 of short-term marketable securities comprised of mutual funds as part of the Company’s investment strategy. 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:

 December 26,
2020
  

March 28,

2020

  

January 1,
2022

  

April 3,

2021

 
Raw materials $56,289  $51,362  $106,737  $57,764 
Work in process  89,121   97,286   117,063   86,183 
Finished goods  226,694   218,846   286,375   220,200 
 $372,104  $367,494  $510,175  $364,147 


 

8. Debt

9. Goodwill and Intangible Assets

Goodwill

Goodwill balances, by segment, consist of the following:

  Plain  Roller  Ball  Engineered Products  Aerospace/Defense  Industrial  Total 
April 3, 2021 $79,597  $16,007  $5,623  $176,309        $277,536 
Allocation in the third quarter of fiscal 2022 (1)  (79,597)  (16,007)  (5,623)  (176,309)  194,124   83,412    
Acquisition (2)                 1,611,470   1,611,470 
Translation adjustments                 (2,132)  (2,132)
January 1, 2022             $194,124  $1,692,750  $1,886,874 

(1)Represents reallocation of goodwill as a result of our change in segments in the third quarter of fiscal 2022. See Note 12 for further details.

(2)Goodwill associated with the acquisition of Dodge discussed further in Note 13.

We evaluate our reportable operating segments periodically, as well as when changes in our operating segments occur. For changes in reportable segments, we reassign goodwill using a relative fair value allocation approach as mentioned in tickmark 1 above. As a result of this change in segments during the quarter, the Company performed an interim goodwill impairment analysis and determined that the estimated fair values of the segments exceeded their carrying values (including goodwill). As such, there was no impairment as a result of this change.

Intangible Assets

    

January 1, 2022

  

April 3, 2021

 
  

Weighted
Average
Useful Lives

 

Gross
Carrying
Amount

  

 

Accumulated
Amortization

  

Gross
Carrying
Amount

  

 

Accumulated
Amortization

 
Product approvals 24 $50,878  $16,199  $50,878  $14,691 
Customer relationships and lists (1) 24  1,294,952   39,999   109,762   28,253 
Trade names (1) 25  216,346   12,786   16,333   10,392 
Distributor agreements 5  722   722   722   722 
Patents and trademarks 16  12,545   6,594   11,612   6,211 
Domain names 10  437   437   437   437 
Other(1) 3  5,521   4,230   3,745   2,665 
     1,581,401   80,967   193,489   63,371 
Non-amortizable repair station certifications n/a  24,281      24,281    
Total 24 $1,605,682  $80,967  $217,770  $63,371 

(1)Includes $1,185,000 of customer relationships, $200,000 of trade names and $82 of software intangibles resulting from the Dodge acquisition.

Amortization expense for definite-lived intangible assets during the three-month periods ended January 1, 2022 and December 26, 2020 were $12,133 and $2,594, respectively. Amortization expense for definite-lived intangible assets during the nine-month periods ended January 1, 2022 and December 26, 2020 were $17,542 and $7,683, respectively. Estimated amortization expense for the remainder of fiscal 2022 and the five succeeding fiscal years and thereafter is as follows:

Remainder of Fiscal 2022 $16,735 
Fiscal 2023  67,403 
Fiscal 2024  67,273 
Fiscal 2025  66,570 
Fiscal 2026  64,081 
Fiscal 2027  63,489 
Fiscal 2028 and thereafter  1,154,883 


10. Debt

The balances payable under all borrowing facilities are as follows:

  December 26,
2020
  

March 28,

2020

 
Revolver and term loan facilities $15,695  $18,593 
Debt issuance costs  (1,328)  (1,687)
Other  6,126   6,106 
Total debt  20,493   23,012 
Less: current portion  6,127   6,429 
Long-term debt $14,366  $16,583 

  

January 1,

2022

  

April 3,

2021

 
Revolver and term loan facilities $1,302,082  $11,657 
Senior notes  500,000    
Debt issuance costs  (22,298)  (1,216)
Other  10,469   5,666 
Total debt  1,790,253   16,107 
Less: current portion  63,519   2,612 
Long-term debt $1,726,734  $13,495 

The current portion of long-term debt as of December 26, 2020 includesJanuary 1, 2022 included the current portion of the Term Loan Facility, a mortgage held at one of our foreign term loan,entities and a note payable for purchased equipment. The current portion of long-term debt as of April 3, 2021 included the current portion of the Foreign Term Loan and a mortgage held at one of our foreign revolving facility and the Schaublin mortgage, all of which are discussed below in further detail.entities.

Domestic Credit Facility

The Company’s credit agreement

On November 1, 2021 RBC Bearings Incorporated, our top holding company, and our Roller Bearing Company of America, Inc. subsidiary (“RBCA”) entered into a Credit Agreement (the “New Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer and the other lenders party thereto, and terminated the Company’s prior Credit Agreement, which was entered into with Wells Fargo in 2015 (the “Credit“2015 Credit Agreement”). The New Credit Agreement provides the Company with (a) a $250,000$1,300,000 term loan facility (the “Term Loan Facility”), which was used to fund a portion of the cash purchase price for the acquisition of Dodge and to pay related fees and expenses, and (b) a $500,000 revolving credit facility (the “Revolver”“Revolving Credit Facility” and together with the Term Loan Facility, the “Facilities”), which expires on January 31, 2024.. Debt issuance costs associated with the New Credit Agreement totaled $852$14,947 and will be amortized through January 31, 2024 along withover the life of the New Credit Agreement. When the 2015 Credit Agreement was terminated the Company wrote off $890 of previously unamortized debt issuance costs remaining from the Company’s prior credit agreement. As of December 26, 2020, $1,220 in unamortized debt issuance costs remain.costs.

Amounts outstanding under the RevolverFacilities generally bear interest at either, at the Company’s option, (a) a base rate determined by reference to the higher of (1)(i) Wells Fargo’s prime lending rate, (2)(ii) the federal funds effective rate plus 1/2 of 1%1.00% and (3)(iii) the one-month LIBOR rate plus 1%,1.00% or (b) the LIBOR rate plus a specified margin, depending on the type of borrowing being made. The applicable margin is based on the Company's consolidated ratio of total net debt to consolidated EBITDA at each measurement date.from time to time. Currently, the Company's margin is 0.00%0.75% for base rate loans and 0.75%1.75% for LIBOR rate loans. The Facilities are subject to a “LIBOR” floor of 0.00% and contain “hard-wired” LIBOR replacement provisions as set forth in the New Credit Agreement. We are also required to pay a commitment fee on the unutilized portion of the Revolving Credit Facility as well as letter of credit fees on any amounts secured by the revolver. As of January 1, 2022, the Company’s commitment fee rate is 0.25% and the letter of credit fee rate is 1.75%.


The Term Loan Facility and the Revolving Credit Facility will mature on November 2, 2026 (the “Maturity Date”). The Company can elect to prepay some or all of the outstanding balance from time to time without penalty. Commencing one full fiscal quarter after the execution of the New Credit Agreement, the Term Loan Facility will amortize in quarterly installments with the balance payable on the Maturity Date unless otherwise extended in accordance with the terms of the Term Loan Facility. The required future principal payments are approximately $16,250 for the remainder of fiscal 2022, $65,000 for fiscal 2023, $73,125 for fiscal 2024, $105,625 for fiscal 2025, $138,125 for fiscal 2026 and $901,875 for fiscal 2027. 

The New Credit Agreement requires the Company to comply with various covenants, including among other things,the following financial covenants beginning with the test period ending December 31, 2021: (a) a financial covenant to maintainmaximum Total Net Leverage Ratio of 5.50:1.00, which maximum Total Net Leverage Ratio shall decrease during certain subsequent test periods as set forth in the New Credit Agreement (provided that, no more than once during the term of the Facilities, such maximum ratio applicable at such time may be increased by the Borrower by 0.50:1.00 for a ratioperiod of consolidated net debt to adjusted EBITDA not greater than 3.50 to 1. 12 months after the consummation of a material acquisition), and (b) a minimum Interest Coverage Ratio of 2.00:1.00.

The New Credit Agreement allows the Company to, among other things, make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the New Credit Agreement. As of December 26, 2020, the Company was in compliance with all such covenants.

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

Approximately $3,700As of January 1, 2022, $1,300,000 was outstanding under the Term Loan Facility and approximately $3,550 of the Revolver isRevolving Credit Facility was being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs. Theprograms, and the Company hashad the ability to borrow up to an additional $246,300$496,450 under the Revolver asRevolving Credit Facility. The Term Loan is reported at carrying value on the consolidated balance sheets. As the Term Loan is variable-rate debt, the carrying value approximates fair value. The Term Loan is classified within Level 2 of December 26, 2020.the fair value hierarchy. 

Senior Notes

On October 7, 2021, RBCA issued $500,000 aggregate principal amount of 4.375% Senior Notes due 2029 (the “Senior Notes”). The net proceeds from the issuance of the Senior Notes were approximately $491,992 after deducting initial purchasers’ discounts and commissions and offering expenses. On November 1, 2021, the Company used the proceeds to fund a portion of the cash purchase price for the acquisition of Dodge.


The Senior Notes were issued pursuant to an indenture, dated as of October 7, 2021 (the “Indenture”), between RBCA and Wilmington Trust, National Association, as trustee. The Indenture contains covenants limiting the ability of the Company to (i) incur additional indebtedness or guarantee indebtedness, (ii) declare or pay dividends, redeem stock or make other distributions to stockholders, (iii) make investments, (iv) create liens or use assets as security in other transactions, (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of its assets, (vi) enter into transactions with affiliates, and (vii) sell or transfer certain assets. These covenants contain various exceptions, limitations and qualifications. At any time that the Senior Notes are rated investment grade, certain covenants will be suspended.

The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by RBC Bearings and certain of RBCA’s existing and future wholly-owned domestic subsidiaries that also guarantee the New Credit Agreement.

Interest on the Senior Notes accrues from October 7, 2021 at a rate of 4.375% and will be payable semi–annually in cash in arrears on April 15 and October 15 of each year, commencing April 15, 2022.

The Senior Notes will mature on October 15, 2029. The Company may redeem some or all of the Senior Notes at any time on or after October 15, 2024 at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also redeem up to 40% of the Senior Notes using the proceeds of certain equity offerings completed before October 15, 2024, at a redemption price equal to 104.375% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to October 15, 2024, the Company may redeem some or all of the Senior Notes at a price equal to 100% of the principal amount, plus a “make–whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company sells certain of its assets or experiences specific kinds of changes in control, the Company must offer to purchase the Senior Notes.

The Senior Notes are reported at carrying value on the consolidated balance sheets. The fair value of the Senior Notes as of January 1, 2022 was $510,790 and was computed based on quoted market prices (observable inputs). The Senior Notes are classified within Level 2 of the fair value hierarchy.

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 December 26, 2020,January 1, 2022, approximately $108$76 in unamortized debt issuance costs remain.remained.


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,January 1, 2022, 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 threetwo operating companies in the Swiss Tool System group of companies.

As of December 26, 2020,January 1, 2022, there was approximately $2,243$2,082 outstanding under the Foreign Term Loan and no amounts outstanding under the Foreign Revolver, and approximately $13,452 outstanding under the Foreign Term Loan. These borrowings have been classified as Level 2 of the valuation hierarchy. Schaublin hashad the ability to borrow up to an additional $14,575$16,439 under the Foreign Revolver as of December 26, 2020.

Revolver. Schaublin’s required future annual principal payments are approximately $5,606$0 for the next 12 monthsremainder of fiscal 2022, $0 for fiscal 2023 through fiscal 2024 and approximately $3,363$2,082 for each of the following three years.fiscal 2025.


11. Income Taxes

Other Notes Payable

In 2012 Schaublin purchased the land and building that it occupies 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 December 26, 2020 was approximately $6,126 and has been classified as Level 2 of the valuation hierarchy.

The Company’s required future annual principal payments are approximately $521 each year for the next five years and $3,521 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 January 1, 2022 and December 26, 2020 were 105.6% and December 28, 2019 were 17.9% and 17.0%, respectively. In addition to discrete items, the effective income tax rates for these periods wereare different from the U.S. statutory rates due to the foreign-derived intangible income provision and U.S. credit for increasing research activities, which decreaseddecrease the rate, and state income taxes, which increasedincrease the rate. The effective rate is higher in the three-month period ended January 1, 2022 because of non-deductible transaction costs incurred in connection with the Dodge acquisition and executive compensation deductions that may be disallowed under Section 162(m).


The effective income tax rate for the three-month period ended January 1, 2022 of 105.6% includes $473 of tax benefits associated with share-based compensation partially offset by $146 of other items. The effective income tax rate without discrete items for the three-month period ended January 1, 2022 would have been 134.6%. The effective income tax rate for the three-month period ended December 26, 2020 of 17.9% included $1,003 of tax benefits associated with share-based compensation. The effective income tax rate without discrete items for the three-month period ended December 26, 2020 would have been 21.4%. The effective income tax rate for the three-month period ended December 28, 2019 of 17.0% included $857 of tax benefits associated with share-based compensation. The third quarter provision for fiscal 2020 was also impacted by $567 of tax benefit associated with the decrease in the Company’s unrecognized tax positions related to the statute of limitations expiration. The effective income tax rate without discrete items for the three-month period ended December 28, 2019 would have been 20.9%. The Company believes it is reasonably possible that some of its unrecognized tax positions may be effectively settled within the next 12twelve 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 reserve, pertaining primarily to federal and state credits and state tax, is estimated to be approximately $1,524.$1,429 over the next 12 months.

Income tax expense for the nine-month period ended December 26, 2020 was $15,741 compared to $18,914 for the nine-month period ended December 28, 2019. Our

The effective income tax rate for the nine-month period ended December 26, 2020January 1, 2022 was 19.6%24.7% compared to 17.0%19.6% for the nine-month period ended December 28, 2019.26, 2020. The effective income tax rate for the nine-month period ended January 1, 2022 of 24.7% includes $2,703 of tax benefits associated with share-based compensation and partially offset by the establishment of a $1,853 valuation allowance for capital loss carryforwards we do not expect to recognize. The effective income tax rate without these benefits and other items for the nine-month period ended January 1, 2022 would have been 26.4%. The effective income tax rate for the nine-month period ended December 26, 2020 of 19.6% included $1,682 of tax benefits associated with share-based compensation. The effective income tax rate without these benefits and other items for the nine-month period ended December 26, 2020 would have been 21.5%. The effective income tax rate for the nine-month period ended December 28, 2019 of 17.0% included $3,896 of tax benefits associated with share-based compensation and $477 of tax benefits associated with the decrease in the Company’s unrecognized tax positions related to statute of limitations expiration and $241 of tax benefit 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 nine-month period ended December 28, 2019 would have been 21.2%.

10.

12. Reportable Segments

The Company operates throughpreviously reported its financial results under 4 operating segments forsegments: Plain Bearings; Roller Bearings; Ball Bearings; and Engineered Products. During the third quarter of fiscal 2022, the Company completed the acquisition of Dodge, which separate financial information is available,has resulted in a change in the internal organization of the Company and for which operating results are evaluated regularly by the Company'show its chief operating decision maker in determining resource allocation and assessing performance. Thosemakes operating segments are aggregated as reportable segments as they have similar economic characteristics, including naturedecisions, assesses the performance of the productsbusiness, and production processes, distribution patternsallocates resources. Accordingly, the Company’s financial results will now be reported in two new reportable operating segments: Aerospace/Defense and classes of customers.Industrial:

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

Plain Bearings.Aerospace/Defense. Plain bearings are produced with either self-lubricating or metal-to-metal designs and consists of several sub-classes, including rodThis segment represents the 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 ofmarkets for the Company’s highly engineered hydraulics, fasteners, colletsbearings and precision components used in commercial aerospace, marinedefense aerospace, and industrialsea and ground defense applications.

Industrial. This segment represents the end markets for the Company’s highly engineered bearings and precision components used in various industrial applications including: power transmission; construction, mining, energy and specialized equipment manufacturing; semiconductor production equipment manufacturing; agricultural machinery, commercial truck and automotive manufacturing; and tool holding.

Financial information for fiscal 2021 has been recast to conform to the new segment presentation.


 

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  Nine Months Ended 
  December 26,
2020
  

December 28,

2019

  December 26,
2020
  

December 28,

2019

 
Net External Sales            
Plain $69,321  $86,876  $219,249  $264,372 
Roller  22,408   31,829   66,887   101,273 
Ball  20,675   18,475   60,614   53,609 
Engineered Products  33,457   39,839   101,939   122,364 
  $145,861  $177,019  $448,689  $541,618 
Gross Margin                
Plain $27,841  $35,016  $89,668  $104,830 
Roller  7,626   14,048   22,269   41,968 
Ball  9,183   8,184   26,239   23,486 
Engineered Products  10,938   13,463   33,461   42,235 
  $55,588  $70,711  $171,637  $212,519 
Selling, General & Administrative Expenses                
Plain $5,443  $6,726  $15,990  $19,774 
Roller  1,125   1,632   3,526   4,893 
Ball  1,293   1,598   3,928   4,805 
Engineered Products  3,771   4,410   11,421   13,147 
Corporate  14,107   16,353   43,726   48,961 
  $25,739  $30,719  $78,591  $91,580 
Operating Income                
Plain $20,830  $27,503  $69,703  $82,583 
Roller  6,339   12,427   17,919   36,731 
Ball  7,835   6,579   22,189   18,623 
Engineered Products  6,341   8,274   18,434   25,699 
Corporate  (14,804)  (17,317)  (46,527)  (50,371)
  $26,541  $37,466  $81,718  $113,265 
Intersegment Sales            
Plain $1,500  $1,638  $4,274  $4,994 
Roller  1,633   3,498   7,182   10,722 
Ball  777   585   1,908   2,170 
Engineered Products  7,182   11,449   24,663   33,022 
  $11,092  $17,170  $38,027  $50,908 

All intersegment sales are eliminated in consolidation.

  

Three Months Ended

  

Nine Months Ended

 
  

January 1,

2022

  

December 26,

2020

  

January 1,

2022

  

December 26,

2020

 
Net External Sales                
Aerospace/Defense $93,203  $93,267  $276,483  $299,833 
Industrial  173,750   52,594   307,575   148,856 
  $266,953  $145,861  $584,058  $448,689 
Gross Margin                
Aerospace/Defense $37,486  $38,056  $112,666  $121,960 
Industrial  55,859   17,532   106,916   49,677 
  $93,345  $55,588  $219,582  $171,637 
Selling, General & Administrative Expenses                
Aerospace/Defense $7,114  $7,116  $21,646  $21,483 
Industrial  18,168   4,396   29,836   13,019 
Corporate  17,914   14,227   51,190   44,089 
  $43,196  $25,739  $102,672  $78,591 
Operating Income                
Aerospace/Defense $28,543  $28,630  $84,629  $93,646 
Industrial  23,197   12,904   62,414   35,247 
Corporate  (37,369)  (14,993)  (74,826)  (47,175)
  $14,371  $26,541  $72,217  $81,718 

  

January 1,
2022

  

April 3,
2021

 
Total Assets        
Aerospace/Defense $856,071  $792,280 
Industrial  3,818,541   357,353 
Corporate  200,438   284,627 
  $4,875,050  $1,434,260 

13. Dodge Acquisition

11. AcquisitionOn November 1, 2021, the Company completed the acquisition of Dodge for approximately $2,908,241, net of cash acquired and subject to certain adjustments. The purchase price was paid with (i) $1,285,053 of borrowing under the Term Loan Facility, net of issuance costs (see Note 10), (ii) $1,050,730 of net proceeds from the common stock and MCPS offerings (see Note 5), (iii) $491,992 of net proceeds from the Senior Notes offering (see Note 10), and (iv) approximately $80,466 of cash on hand. In the acquisition, the Company purchased 100% of the capital stock of certain entities, including Dodge Mechanical Power Transmission Company Inc. (now known as Dodge Industrial, Inc.), and certain other assets relating to ABB Asea Brown Boveri Ltd’s mechanical power transmission business.

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

 

On August 15, 2019,When the Company throughentered into the Dodge acquisition agreement in July 2021, its Schaublin SA subsidiary, acquired all of the outstanding shares of Swiss Tool for a purchase price of approximately $33,597 (CHF 32,768). We have finalizedobligation to pay the purchase price was supported by a $2,800,000 bridge financing commitment (the “Bridge Commitment”), which was replaced prior to the closing of the acquisition by the equity and debt financings described in Notes 5 and 10 and cash on hand.

Acquisition costs incurred in the three- and nine- month periods ended January 1, 2022 totaled $20,141 and $21,574 and were recorded as period expenses and included within other, net within the consolidated statements of operations.


This acquisition was accounted for as a purchase transaction. The preliminary purchase price allocation is subject to change pending a final valuation of the assets and liabilities acquired. The assets acquired and liabilities assumed were recorded based on their fair values at the date of acquisition as follows:

  November 1,
2021
 
Cash and cash equivalents $81,868 
Accounts receivable  83,532 
Inventory  137,652 
Prepaid expenses and other current assets  1,261 
Property, plant and equipment  168,606 
Operating lease assets  9,768 
Goodwill  1,611,470 
Other intangible assets  1,385,082 
Other noncurrent assets  2,714 
Accounts payable  69,757 
Accrued rebates  29,352 
Accrued expenses and other current liabilities  43,948 
Deferred tax liabilities  289,792 
Other noncurrent liabilities  58,995 
Net assets acquired  2,990,109 
Less cash received  81,868 
Net consideration $2,908,241 

The goodwill associated with no material adjustmentsthis acquisition is the result of expected synergies from combining the operations of the acquired business with the Company’s operations and intangible assets that do not qualify for separate recognition, such as an assembled workforce. The majority of goodwill is not deductible for tax purposes.

The fair value of the identifiable intangible assets of $1,385,082, consisting primarily of customer relationships and trade name, was determined using the income approach. Specifically, a multi-period, excess earnings method was utilized for the customer relationships and the relief-from-royalty method was utilized for the trade name. The fair value of the customer relationships, $1,185,000, is being amortized based on the economic pattern of benefit over a period of 24 years; the fair value of the trade name, $200,000, is being amortized on a straight-line basis over a 26 year term. These amortization periods represent the estimated useful lives of the assets.

The results of operations for Dodge have been included in the Company’s financial statements for the period subsequent to the completion of the acquisition on November 1, 2021. Dodge contributed $109,976 of revenue and $5,348 of operating income for the quarter ended January 1, 2022. The following table reflects the unaudited pro forma operating results of the Company for the three- and nine-month fiscal periods ended January 1, 2022 and December 26, 2020, which gives effect to the acquisition of Dodge as if the Company had been acquired on March 28,29, 2020. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisitions been effective March 29, 2020, nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the historical financial results of the Company and the acquired business adjusted for certain items such as amortization of acquired intangible assets and acquisition costs incurred. The pro forma information does not include the effects of any synergies, cost reduction initiatives or anticipated integration costs related to the acquisitions.

  

Three Months Ended

  

Nine Months Ended

 
  

January 1,

2022

  

December 26,

2020

  

January 1,

2022

  

December 26,

2020

 
             
Net sales $319,100  $287,116  $968,680  $852,757 
Net income $17,958  $25,013  $72,623  $40,764 
Basic net income per share available to common stockholders $0.45  $0.72  $2.27  $1.28 
Diluted net income per share available to common stockholders $0.45  $0.72  $2.25   1.27 

12. RestructuringUpon closing, the Company entered into a transition services agreement ("TSA") with ABB, pursuant to which ABB agreed to support the information technology, human resources and Consolidationbenefits, finance, tax and treasury functions of the Dodge business for six to twelve months. The Company has the option to extend the support period for up to a maximum of an additional year for certain IT services. RBC has the right to terminate individual services at any point over the renewal term. All services are expected to be terminated by the end of the second quarter of fiscal 2023. Since the purchase of the Dodge business, costs associated with the TSA were $3,325 through January 1, 2022 and were included in other, net on the Company's consolidated statement of operations.

 

DuringThe acquisition of Dodge resulted in additional lease obligations. The Company’s total lease obligations, including leases acquired, are $3,029 for the third quarterremainder of fiscal 2021, the Company continued its efforts to consolidate certain manufacturing facilities to increase efficiencies of our operations. This resulted in $1,692 of restructuring charges incurred during the third quarter, including $835 of inventory rationalization costs included within cost of sales, all of which were attributable to the Plain segment. The restrucuturing charges also included $355 of fixed asset disposals included within other operating costs, a $138 lease impairment charge,2022, $11,880 for fiscal 2023, $10,093 for fiscal 2024, $8,605 for fiscal 2025, $8,024 for fiscal 2026, $8,175 for fiscal 2027 and $364 of other items. $255 of these restructuring charges within other operating expenses were included within the Engineered Products segment and the rest were included within the Plain segment. The Company secured right of use assets obtained in exchange for new operating lease liabilities of $7,662 as part of this restructuring. The Company anticipates additional costs associated with these consolidation efforts of $500 to $1,000 to be incurred in the fourth quarter of fiscal 2021 and the first quarter of fiscal 2022.$71,063 thereafter.


 

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

Cautionary Statement as to Forward-Looking Information

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

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

The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation: (a) the bearing and engineered products industries are highly competitive, and this competition could reduce our profitability or limit our ability to grow; (b) the loss of a major customer, or a material adverse change in a major customer’s business, could result in a material reduction in our revenues, cash flows and profitability; (c) our results have been and are likely to continue to be impacted by the COVID-19 pandemic; (d) weakness in any of the industries in which our customers operate, as well as the cyclical nature of our customers'customers’ businesses generally, could materially reduce our revenues, cash flows and profitability; (e) future reductions or changes in U.S. government spending could negatively affect our business; (f) fluctuating supply and costs of subcomponents, raw materials and energy resources, or the imposition of import tariffs, could materially reduce our revenues, cash flows and profitability; (g) our results could be impacted by governmental trade policies and tariffs relating to our supplies imported from foreign vendors or our finished goods exported to other countries; (h) our products are subject to certain approvals and government regulations and the loss of such approvals, or our failure to comply with such regulations, could materially reduce our revenues, cash flows and profitability; (i) the retirement of commercial aircraft could reduce our revenues, cash flows and profitability; (j) work stoppages and other labor problems could materially reduce our ability to operate our business; (k) unexpected equipment failures, catastrophic events or capacity constraints could increase our costs and reduce our sales due to production curtailments or shutdowns; (l) we may not be able to continue to make the acquisitions necessary for us to realize our growth strategy; (m) businesses that we have acquired (such as Dodge) or that we may acquire in the future may have liabilities that are not known to us; (n) goodwill and indefinite-lived intangibles comprise a significant portion of our total assets, and if we determine that goodwill and indefinite-lived intangibles have become impaired in the future, our results of operations and financial condition in such years may be materially and adversely affected; (o) we depend heavily on our senior management and other key personnel, the loss of whom could materially affect our financial performance and prospects; (p) our international operations are subject to risks inherent in such activities; (q) currency translation risks may have a material impact on our results of operations; (r) we are subject to changes in legislative, regulatory and legal developments involving income and other taxes; (s) we may be required to make significant future contributions to our pension plan; (t) we may incur material losses for product liability and recall-related claims; (u) environmental and health and safety laws and regulations impose substantial costs and limitations on our operations, and environmental compliance may be more costly than we expect; (v) our intellectual property and proprietary information are valuable, and any inability to protect them could adversely affect our business and results of operations; in addition, we may be subject to infringement claims by third parties; (w) cancellation of orders in our backlog could negatively impact our revenues, cash flows and profitability; (x) if we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud; (y) litigation could adversely affect our financial condition; (z) changes in accounting standards or changes in the interpretations of existing standards could affect our financial results; and (aa) risks associated with utilizing information technology systems could adversely affect our operations.operations; (bb) our quarterly performance can be affected by the timing of government product inspections and approvals; (cc) we may not be able to efficiently integrate Dodge into our operations; (dd) we may fail to realize some or all of the anticipated benefits of the Dodge acquisition or those benefits may take longer to realize than expected; (ee) we incurred substantial debt in order to complete the Dodge acquisition, which could constrain our business and exposes us to the risk of defaults under our debt instruments; and (ff) increases in interest rates would increase the cost of servicing the Term Loan Facility and could reduce our profitability. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with the SEC, including, without limitation, the risks identified under the heading “Risk Factors” set forth in the Annual Report on Form 10-K for the year ended 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.


 

Overview

We are a well-known international manufacturer and maker of highly engineered precisionhighly-engineered bearings and precision components. Our precision solutions are integral to the manufacture and operation of most machines and mechanical systems, reduce wear to moving parts, facilitate proper power transmission, and reduce damage and energy loss caused by friction. While we manufacture products in all major bearings categories, we focus primarily on the higher end of the bearing and engineered component markets where we believe our value-added manufacturing and engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability. We believe our unique expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 4353 facilities in seven10 countries, of which 3138 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach. We currently operate

Previously we operated under four reportable business segments:segments – Plain Bearings, Roller Bearings, Ball Bearings, and Engineered Products. The following further describes theseProducts – but the Dodge acquisition has resulted in a change in the internal organization of the Company and how our chief operating decision maker makes operating decisions, assesses the performance of the business, and allocates resources so that we now operate under two reportable segments:business segments – Aerospace/Defense and Industrial:

 

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.

Aerospace/Defense. This segment represents the end markets for the Company’s highly engineered bearings and precision components used in commercial aerospace, defense aerospace, and sea and ground defense applications.

 

Industrial. This segment represents the end markets for the Company’s highly engineered bearings and precision components used in various industrial applications including: power transmission; construction, mining, energy and specialized equipment manufacturing; semiconductor production equipment manufacturing; agricultural machinery, commercial truck and automotive manufacturing; and tool holding.

Roller Bearings. Roller bearings are anti-friction bearings that use rollers instead of balls. We manufacture four basic types of roller bearings: heavy-duty needle roller bearings with inner rings, tapered roller bearings, track rollers and aircraft roller bearings.Financial information for fiscal 2021 has been recast to conform to the new segment presentation.

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

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


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

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

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

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

Increasing aftermarket sales. We believe that increasing our aftermarket sales of replacement parts will further enhance the continuity and predictability of our revenues and enhance our profitability. Such sales include sales to third party distributors and sales to OEMs for replacement products and aftermarket services. The acquisition of Dodge has had a profound impact on our sales volumes to distributors and other aftermarket customers. We will further increase the percentage of our revenues derived from the replacement market by continuing to implement several initiatives.

 

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

Outlook

Our net sales for the three-month period ended December 26, 2020 decreased 17.6%January 1, 2022 increased 83.0% compared to the same period last fiscal year.year; excluding Dodge sales in the third quarter of fiscal 2022, net sales were up 7.6% period over period. The decreaseincrease in net sales was a result of a 29.7% decrease in our aerospace markets offset by a 5.5%230.4% increase in our industrial markets. The decreaseIndustrial segment while sales in aerospace sales was primarily due to the commercial markets, both OEM and aftermarket. The increase in industrial sales was driven by increases in the marine, wind, semiconductor and general industrial markets.our Aerospace/Defense segment were flat. Our backlog, as of December 26, 2020,January 1, 2022, was $393.9$552.7 million compared to $477.7$394.8 million as of December 28, 2019.April 3, 2021.

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

Our business is operating as an essential business, and as such, our facilities have remained open, with the exception of a few temporary closures at some of our locations. The COVID-19 pandemic is impacting our commercial aerospace and industrialbusiness versus the same period last year, the overall recovery of this space has been marginally slower than anticipated. The orders have started to fill in however, as noted in our backlog increase over recent periods. Defense sales, which represented approximately 38.0% of segment sales this period, were down more than 10.0% year over year. This is in fiscal 2021. Our commercial aerospace sales continuepart due to face headwinds associated with build rate changes within the industry, while the general decline in global economic activity has had an impacttiming of delivery on the industrial markets.parts that require government approval and/or completion of certain milestone achievements prior to invoicing.


 

Excluding Dodge sales, sales to our industrial segment increased 21.3% year over year. This reflects a pattern of sustained growth in our industrial sales, with strong results in several areas. Mining increased by more than 50.0% year over year, driven by strong order activity from large OEM customers. Our productionoil and gas business this quarter showed the start of a strong recovery which is expected to continue into future periods. Other notable strengths in industrial were in semiconductor and general industrial markets.

On November 1, 2021, RBC completed the acquisition of Dodge, which operates in our Industrial segment, with a significant amount of their sales derived from customers in industrial distribution. Including the positive impact of this acquisition, the Company expects net sales to be approximately $340.0 million to $350.0 million in the thirdfourth quarter of fiscal 2021 have been negatively affected by the economic implications of the pandemic. We expect that commercial aerospace OEM and aftermarket will continue to be impacted by the year-over-year decline in air travel and changes in aircraft production rates. Although our sales to aerospace defense markets have grown 9.1% through the first nine months of the year, they were down 6.2% during the third quarter of fiscal 2021 as compared to the same period last year. Sales to industrial markets benefited from strong sales in our marine, wind and other general industrial business during the quarter, while we faced headwinds in mining and energy markets. We expect this trend to continue through the remainder of the fiscal 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.2022.

We experienced solidstrong cash flow generation during the third quarter of fiscal 20212022 (as discussed in the section “Liquidity and Capital Resources” below). Management believesWith the addition of Dodge, we expect this trend to continue throughout the fiscal year as customer demand continues to be significant. We believe that these operating cash flows and available credit under all credit agreementsthe Revolving Credit Facility and Foreign Revolver will provide adequate resources to fund internal and external growth initiatives for the foreseeable future, including at least the next 12 months. For further discussion regarding the funding of the Dodge acquisition, refer to Part I, Item 1 – Notes 5, 10 and 13. As of December 26, 2020,January 1, 2022, we had cash and cash equivalents and highly liquid marketable securities of $201.7$255.5 million of which approximately $16.0$29.4 million was cash held by our foreign operations.

The Company expects net sales to be approximately $155.0 million to $160.0 million in the fourth quarter of fiscal 2021.

Results of Operations

(dollars in millions)

  Three Months Ended 
  December 26,
2020
  

December 28,

2019

  $
Change
  %
Change
 
Total net sales $145.9  $177.0  $(31.1)  (17.6)%
                 
Net income $21.6  $30.5  $(8.9)  (29.3)%
                 
Net income per common share: diluted $0.86  $1.22         
Weighted average common shares: diluted  25,060,812   24,981,480         

  Three Months Ended 
  

January 1,

2022

  

December 26,

2020

  $ Change  % Change 
Total net sales $267.0  $145.9  $121.1   83.0%
                 
Net income/(loss) available to common stockholders $(5.8) $21.6  $(27.4)  (127.0)%
                 
Net income/(loss) per share available to common stockholders: diluted $(0.20) $0.86         
Weighted average common shares: diluted  28,618,495   25,060,812         

Our net sales for the three-month period ended December 26, 2020 decreased 17.6%January 1, 2022 increased 83.0% compared to the same period last fiscal year.year; excluding Dodge sales in the third quarter of fiscal 2022, net sales were up 7.6% period over period. The decreaseincrease in net sales was a result of a 29.7% decrease in our aerospace markets partially offset by a 5.5%230.4% increase in our industrial markets. The decrease in aerospace salesIndustrial segment. Sales to our Aerospace/Defense segment were led by aircraft OEM, which was primarily due to the commercial markets, both OEM and aftermarket, which were down 37.2% and 31.2%, respectively. Aerospace defense was also down 6.2% this quarterup 10.5% compared to the same period in the prior year. Sales to the defense sector were down, principally as a result of production delays, rendering the Aerospace/Defense segment to be even with the prior year. Excluding Dodge sales, sales to our industrial segment increased 21.3% year with OEM sales down by 8.2% partially offset byover year. This reflects a 15.9% increasepattern of sustained growth in aftermarket sales. The increase inour industrial sales, was driven primarily by increaseswith strong results in areas including the marinesemiconductor, mining, energy, and certain general industrial markets. ComparedWithin aerospace, we experienced an increase in our commercial aerospace business while the defense end markets were down as compared to the secondsame period last year.

Net income available to common stockholders for the third quarter of fiscal 2021, overall net sales have been consistent. Industrial sales have increased by 8.5% while aerospace sales have decreased by 13.3%. The increase in industrial sales2022 was driven mostly bya loss of $5.8 million compared to income of $21.6 million for the marine and certain general industrial markets. The decrease in aerospace sales was attributable to the commercial and defense OEM markets offset by increases to the defense distribution markets.

same period last year. Net income for the third quarter of fiscal 20212022 was $21.6affected by approximately $7.0 million compared to $30.5of pre-tax inventory purchase accounting adjustments associated with the Dodge acquisition, $23.5 million forof other costs associated with the same period last year.acquisition of Dodge, interest expense of $11.9 million, and tax expense of $1.2 million. Net income for the third quarter of fiscal 2021 was affected by $1.1 million of after-tax restructuring costs and related items primarily associated with the consolidation of certain manufacturing facilities, as well as $0.2 million of losses on foreign exchange, partially offset by $1.0 million of tax benefits associated with share-based compensation. Net income for the third quarter of fiscal 2020 was affected by $0.9 million of tax benefit associated with share-based compensation and $0.6 million of tax benefit associated with the decrease in the Company’s unrecognized tax positions due to the statute of limitations expiration, partially offset by $0.2 million of inventory purchase accounting costs associated with the acquisition of Swiss Tool, $0.2 million of losses on foreign exchange, and $0.1 million of other items.


 

  Nine Months Ended 
  December 26,
2020
  

December 28,

2019

  $
Change
  %
Change
 
Total net sales $448.7  $541.6  $(92.9)  (17.2)%
                 
Net income $64.7  $92.3  $(27.6)  (29.9)%
                 
Net income per common share: diluted $2.59  $3.71         
Weighted average common shares: diluted  24,985,848   24,898,635         

  Nine months Ended 
  

January 1,

2022

  

December 26,

2020

  $ Change  % Change 
Total net sales $584.1  $448.7  $135.4   30.2%
                 
Net income available to common stockholders $26.6  $64.7  $(38.1)  (58.9)%
                 
Net income per share available to common stockholders: diluted $1.00  $2.59         
Weighted average common shares: diluted  26,663,990   24,985,848         

Net sales decreased $92.9increased $135.4 million, or 17.2%,30.2% for the nine-month period ended December 26, 2020January 1, 2022 over the same period last year. The decreaseincrease in net sales was mainly the result of a 23.5%106.6% increase in Industrial sales partially offset by a 7.8% decrease in aerospaceAerospace/Defense sales. The increase in Industrial sales was felt across many end markets, notably in mining, energy, and a 5.7% decrease ingeneral industrial sales.markets. The decrease in aerospaceAerospace/Defense sales was primarily duerealized in both our commercial and defense markets. While the first half of the year reflected difficult results in aerospace and defense, we have seen an improvement in our commercial aerospace end market, which has slowed the decline in this segment. This trend is expected to the commercial markets, both OEM and aftermarket, which were down 32.2% and 28.1%, respectively, and was partially offset by defense OEM and aftermarket, which increased year over year by 8.4% and 17.1%, respectively. The decreasecontinue to improve in industrial sales was primarily due to mining and energy, 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 17.6% year over year.future periods.

Net income for the nine months ended December 26, 2020January 1, 2022 was $64.7$26.6 million compared to $92.3$64.7 million for the same period last year. Net income for the nine monthnine-month period in fiscal 2022 was affected by approximately $7.0 million of pre-tax inventory purchase accounting adjustments associated with the Dodge acquisition, $24.9 million of other costs associated with the acquisition of Dodge, interest expense of $27.9 million and tax expense of $10.8 million. Net income for the nine-month period in fiscal 2021 was affected by $4.8$0.8 million of after-tax restructuringcapacity inefficiencies driven by the decrease in volume, $5.9 million costs associated with the consolidation of certain manufacturing facilities, and related items, and $0.4 million of losses on foreign exchange, partially offset by $1.7$15.7 million of tax benefits associated with share-based compensation. The net income of $92.3 million for fiscal 2020 was impacted by $3.9 million of tax benefits associated with share-based compensation, and $0.7 million of discrete tax benefits, partially offset by $1.0 million of after-tax cost associated with the acquisition of Swiss Tool, $0.5 million of loss on foreign exchange, and $0.2 million of other items.expense.

 

Gross Margin

 

 Three Months Ended  

Three Months Ended

 
 December 26,
2020
  

December 28,

2019

  $
Change
  

%

Change

  

January 1,

2022

 

December 26,

2020

  

$
Change

  

%
Change

 
                  
Gross Margin $55.6  $70.7  $(15.1)  (21.4)% $93.3  $55.6  $37.7   67.9%
Gross Margin %  38.1%  39.9%        
% of net sales  35.0%  38.1%        

Gross margin was 38.1%35.0% of net sales for the third quarter of fiscal 20212022 compared to 39.9%38.1% for the third quarter of fiscal 2020.2021. Gross margin for the third quarter of fiscal 2021 was impacted by $0.82022 included the unfavorable impact of $7.0 million inof inventory rationalization costspurchase accounting adjustments associated with the consolidation of certain manufacturing facilities. The year-over-year decrease in gross margin as a percentage of sales was driven by these additional rationalization costs and reduced sales volumes during the period.Dodge acquisition.

  Nine Months Ended 
  December 26,
2020
  

December 28,
2019

  $
Change
  

%

Change

 
             
Gross Margin $171.6  $212.5  $(40.9)  (19.2)%
Gross Margin %  38.3%  39.2%        

  Nine months Ended 
  

January 1,

2022

  

December 26,

2020

  $ Change  

%

Change

 
             
Gross Margin $219.6  $171.6  $48.0   27.9%
% of net sales  37.6%  38.3%        

Gross margin was 38.3%37.6% of net sales for the first nine months of fiscal 20212022 compared to 39.2%38.3% for the same period last year. Gross margin for the first nine monthsnine-month period of fiscal 2022 included the unfavorable impact of $7.0 million of inventory purchase accounting adjustments associated with the Dodge acquisition and $0.9 million of other inventory rationalization costs associated with consolidation efforts at one of our facilities. Gross margin for the nine-month period of fiscal 2021 was impacted by $0.8 million of capacity inefficiencies driven by the decrease in volume and $2.8 million in inventory rationalization costs associated with the consolidation of certain manufacturing facilities.


 

Selling, General and Administrative

 

  Three Months Ended 
  December 26,
2020
  

December 28,

2019

  

$

Change

  

%

Change

 
             
SG&A $25.7  $30.7  $(5.0)  (16.2)%
% of net sales  17.6%  17.4%        

  Three Months Ended 
  

January 1,

2022

  

December 26,

2020

  

$
Change

  

%
Change

 
             
SG&A 

$

43.2  $25.7  $17.5   68.1%
% of net sales  16.2%  17.6%        

SG&A expenses for the third quarter of fiscal 20212022 was $25.7$43.2 million, or 17.6%16.2% of net sales, as compared to $30.7$25.7 million, or 17.4%17.6% of net sales, for the same period of fiscal 2020. This reduction was due to decreases2021. SG&A for the third quarter of fiscal 2022 includes approximately $12.0 million of costs from the Dodge business. The remainder of the increase is primarily associated with an increase in personnel costs of $4.4 million, professional fees of $0.1 million, and $0.5 million of other items.year over year.

 

 Nine Months Ended  

Nine months Ended

 
 December 26,
2020
  

December 28,

2019

  $
Change
  

%

Change

  

January 1,

2022

 

December 26,

2020

  

$
Change

  

%

Change

 
                  
SG&A $78.6  $91.6  $(13.0)  (14.2)% $102.7  $78.6  $24.1   30.1%
% of net sales  17.5%  16.9%          17.6%  17.5%        

 

SG&A expenses decreasedincreased by $13.0$24.1 million to $78.6$102.7 million for the first nine months of fiscal 20212022 compared to $91.6$78.6 million for the same period last year. This decrease wasSG&A for the first nine months of fiscal 2022 includes approximately $12.0 million of costs from the Dodge business. The remainder of the increase is primarily due to reductions of $13.1 millionassociated with an increase in personnel costs partially offset by $0.1 million of other items.year over year.

 

Other, Net

 

 Three Months Ended  

Three Months Ended

 
 

December 26,

2020

  

December 28,

2019

 

$

Change

 

%

Change

  

January 1,

2022

 

December 26,

2020

 

$

Change

 

%

Change

 
                  
Other, net $3.3  $2.5  $0.8   31.0% $35.8  $3.3  $32.5   984.8%
% of net sales  2.3%  1.4%          13.4%  2.3%        

Other operating expenses for the third quarter of fiscal 20212022 totaled $3.3$35.8 million compared to $2.5$3.3 million for the same period last year. For the third quarter of fiscal 2022, other operating expenses included $23.5 million of costs associated with the Dodge acquisition, $12.1 million of amortization of intangible assets, and $0.2 million of other items. For the third quarter of fiscal 2021, other operating expenses included $2.6 million of amortization of intangible assets, $0.5 million of restructuring costs and related items, and $0.2 million of other costs. Other operating expenses last year were comprised mainly of $2.5 million of amortization of intangible assets and $0.1 million of restructuring costs, partially offset by $0.1 million of other income.

 Nine Months Ended  

Nine months Ended

 
 December 26,
2020
  

December 28,

2019

  $
Change
  

%

Change

  

January 1,

2022

 

December 26,

2020

  

$
Change

  

%

Change

 
                  
Other, net $11.3  $7.7  $3.6   47.6% $44.7  $11.3  $33.4   295.6%
% of net sales  2.5%  1.4%          7.7%  2.5%        

Other operating expenses for the first nine months of fiscal 20212022 totaled $11.3$44.7 million compared to $7.7$11.3 million for the same period last year. For the first nine months of fiscal 2022, other operating expenses were comprised mainly of $24.9 million of costs associated with the Dodge acquisition, $17.5 million of amortization of intangible assets, $1.7 million of restructuring and related items, and $0.6 million of other items. For the first nine months of fiscal 2021, other operating expenses were comprised mainly of $7.7 million in amortization of intangibles, $3.1 million of restructuring and related items, $0.4 million of additions to the allowance for doubtful accounts, and $0.1 million of other items. For the first nine months of fiscal 2020, other operating expenses were comprised mainly of $7.1 million of amortization of intangibles, $0.9 million of costs associated with the acquisition of Swiss Tool, and $0.2 million of restructuring costs, partially offset by $0.5 million of other income.


 

Interest Expense, Net

 

 Three Months Ended  Three Months Ended 
 

December 26,

2020

  

December 28,

2019

 

$

Change

 

%

Change

  January 1,
2022
 December 26,
2020
 $
Change
 %
Change
 
                  
Interest expense, net $0.3  $0.5  $(0.2)  (29.8)% $11.9  $0.3  $11.6   3,866.7%
% of net sales  0.2%  0.3%          4.4%  0.2%        

 

Interest expense, net, generally consists of interest charged on the Company’s debt agreements and amortization of deferred financing fees, offset by interest income (see “Liquidity and Capital Resources” below). Interest expense, net, was $0.3$11.9 million for the third quarter of fiscal 20212022 compared to $0.5$0.3 million for the same period last year. During the third quarter, the Company incurred approximately $1.1 million in costs associated with the amortization of fees for the Bridge Commitment established in association with the Dodge acquisition (see Note 13 of Part 1, Item 1 above), which was replaced during the quarter with the permanent financings discussed in Notes 5 and 9 of Part 1, Item 1 above. The increase in interest cost during the period is a result of the quarterly impact of the permanent financing in place.

 

 Nine Months Ended  Nine months Ended 
 

December 26,

2020

  

December 28,

2019

  $
Change
  

%

Change

  January 1,
2022
 December 26,
2020
  $
Change
  %
Change
 
                  
Interest expense, net $1.1  $1.5  $(0.4)  (26.3)% $27.9  $1.1  $26.8   2,436.4%
% of net sales  0.2%  0.3%          4.7%  0.2%        

 

Interest expense, net was $27.9 million for the first nine months of fiscal 2022 compared to $1.1 million for the first nine months of fiscal 2021 compared to $1.52021. During the nine months ended January 1, 2022 the Company incurred approximately $16.6 million in costs associated with the amortization of fees for the first nine monthsBridge Commitment and $11.3 million of fiscal 2020.interest expense on outstanding financing.

Other Non-OperatingNon-operating Expense (Income)

 

 Three Months Ended  Three Months Ended 
 

December 26,

2020

  

December 28,

2019

  $
Change
  

%

Change

  January 1,
2022
 December 26,
2020
  $
Change
  %
Change
 
                  
Other non-operating expense (income) $(0.1) $0.2  $(0.3)  (123.0)%
Other non-operating expense $1.4  $(0.1) $1.5   1,500.0%
% of net sales  0.0%  0.1%          0.5%  0.0%        

 

Other non-operating income was $0.1expenses were $1.4 million for the third quarter of fiscal 20212022 compared to $0.2$0.1 million of expense for the same period in the prior year. For the third quarter of fiscal 2022, other non-operating expenses were comprised of $0.9 million of charges associated with the elimination of a domestic debt facility, $0.4 million of post retirement benefit costs, and $0.1 million of other items. For the third quarter of fiscal 2021, other non-operating income was comprised of $0.5 million of gains on marketable securities, partially offset by $0.2 million of foreign exchange loss and $0.2 million of other items. For the third quarter of fiscal 2020, other non-operating expenses were comprised of $0.2 million of foreign exchange loss.

  Nine Months Ended 
  

December 26,

2020

  

December 28,

2019

  $
Change
  

%

Change

 
             
Other non-operating expense (income) $0.2  $0.6  $(0.4)  (65.1)%
% of net sales  0.0%  0.1%        

 

  Nine months Ended 
  January 1,
2022
  December 26,
2020
  $
Change
  %
Change
 
             
Other non-operating expense $0.6  $0.2  $0.4   200.0%
% of net sales  0.1%  0.0%        


 

 

Other non-operating expenses were $0.2$0.6 million for the first nine months of fiscal 20212022 compared to $0.6$0.2 million for the same period in the prior year. For the first nine months of fiscal 2022, other non-operating expenses were comprised of $0.9 million of charges associated with the elimination of a debt facility, $0.6 million of post retirement benefit costs, $0.1 million of foreign exchange loss, and $0.2 million of other items partially offset by $1.2 million of income associated with short-term marketable securities. For the first nine months of fiscal 2021, other non-operating expenses were comprised of $0.4 million of foreign exchange loss and $0.3 million of other items, partially offset by $0.5 million of gains on marketable securities. For the first nine months of fiscal 2020, other non-operating expenses were comprised of $0.6 million of foreign exchange loss.

 

Income Taxes

 

 Three Months Ended 
 December 26,
2020
  

December 28,

2019

  Three Months Ended 
      January 1,
2022
 December 26,
2020
 
Income tax expense $4.7  $6.3  $1.2  $4.7 
Effective tax rate  17.9%  17.0%  105.6%  17.9%

Income tax expense for the three-month period ended December 26, 2020January 1, 2022 was $4.7$1.2 million compared to $6.3$4.7 million for the three-month period ended December 28, 2019.26, 2020. Our effective income tax ratesrate for the three-month period ended January 1, 2022 was 105.6% compared to 17.9% for the three-month period ended December 26, 2020 was 17.9% compared to 17.0%2020. The effective income tax rate for the three-month period ended December 28, 2019.January 1, 2022 of 105.6% included $0.5 million of tax benefits associated with share-based compensation partially offset by $0.1 million of discrete tax expense; the effective income tax rate without these items would have been 134.6%. The tax rate for the third quarter was negatively impacted by the inclusion of certain pre-tax acquisition related charges that are not deductible for tax purposes. The effective income tax rate for the three-month period ended December 26, 2020 of 17.9% includes $1.0 million of tax benefit associated with share-based compensation. The effective income tax rate without these benefits and other items for the three-month period ended December 26, 2020 would have been 21.4%. The effective income tax rate for the three-month period ended December 28, 2019 of 17.0% includes $0.9 million of tax benefit associated with share-based compensation and $0.6 million of tax benefit associated with the decrease in the Company’s unrecognized tax positions related to statute of limitations expiration. The effective income tax rate without this benefit and other items for the three-month period ended December 28, 2019 would have been 20.9%.

 

 Nine Months Ended  Nine months Ended 
 December 26,
2020
  

December 28,

2019

  January 1,
2022
 December 26,
2020
 
          
Income tax expense $15.7  $18.9  $10.8  $15.7 
Effective tax rate  19.6%  17.0%  24.7%  19.6%

Income tax expense for the nine-month period ended December 26, 2020January 1, 2022 was $15.7$10.8 million compared to $18.9$15.7 million for the nine-month period ended December 28, 2019.26, 2020. Our effective income tax ratesrate for the nine-month period ended January 1, 2022 was 24.7% compared to 19.6% for the nine-month period ended December 26, 2020 was 19.6% compared to 17.0%2020. The effective income tax rate for the nine-month period ended December 28, 2019.January 1, 2022 of 24.7% included $2.7 million of tax benefits associated with share-based compensation partially offset by $1.9 million of discrete tax expense primarily associated with establishing a valuation allowance on a loss carryforward; the effective income tax rate without these benefits would have been 26.4%. The tax rate for the nine months ended January 1, 2022 was negatively impacted by the inclusion of certain pre-tax acquisition related charges that are not deductible for tax purposes. The effective income tax rate for the nine-month period ended December 26, 2020 of 19.6% includes $1.7 million of tax benefit associated with share-based compensation. The effective income tax rate without these benefits and other items for the nine-month period ended December 26, 2020 would have been 21.5%. The effective income tax rate for the nine-month period ended December 28, 2019 of 17.0% includes $3.9 million of tax benefit associated with share-based compensation and $0.5 million of tax benefit associated with the decrease in the Company’s unrecognized tax positions related to statute of limitations expiration and $0.2 million of tax benefit associated with other permanent adjustments from filing the Company’s fiscal 2018 foreign tax returns. The effective income tax rate without this benefit and other items for the nine-month period ended December 28, 2019 would have been 21.2%.

 

Segment Information

 

We havepreviously reported our financial results under four reportable product segments: Plain Bearings,operating segments (Plain Bearings; Roller Bearings,Bearings; Ball BearingsBearings; and Engineered Products.Products), but the Dodge acquisition has resulted in a change in the internal organization of the Company and how our chief operating decision maker makes operating decisions, assesses the performance of the business, and allocates resources. Accordingly, we will now report our financial results under two operating segments: Aerospace/Defense; and Industrial. Financial information for fiscal 2021 has been recast to conform to the new segment presentation. We use gross margin as the primary measurement to assess the financial performance of each reportable segment.

 


 

Aerospace/Defense Segment

Plain Bearings Segment

 

 Three Months Ended  Three Months Ended 
 December 26,
2020
  

December 28,

2019

 

$

Change

 

%

Change

  

January 1,

2022

 

December 26,

2020

 

$

Change

 

%

Change

 
                  
Total net sales $69.3  $86.9  $(17.6)  (20.2)% $93.2  $93.3  $(0.1)  (0.1)%
                                
Gross margin $27.8  $35.0  $(7.2)  (20.5)% $37.5  $38.1  $(0.6)  (1.5)%
Gross margin %  40.2%  40.3%        
% of segment net sales  40.2%  41.6%        
                                
SG&A $5.4  $6.7  $(1.3)  (19.1)% $7.1  $7.1  $(0.0)  (0.0)%
% of segment net sales  7.9%  7.7%          7.6%  7.6%        

 

Net sales decreased $17.6$0.1 million, or 20.2%0.1%, for the three months ended December 26, 2020January 1, 2022 compared to the same period last year. Commercial aerospace increased during the period 7.5% year over year. The 20.2% decreaseaerospace OEM component was primarily driven byup 10.5%, demonstrating early signs of a decrease of 28.2% in our aerospace markets, partially offset by an 8.0% increaserecovery in the industrialOEM markets. The decrease in aerospace netThis was further evidenced by continuing expansion of our backlog during the period. Our defense markets, which represent about 38.0% of sales, was duedecreased by approximately 10.3% during the period. These markets were impacted by the timing of deliveries to commercial aerospace OEMcertain government customers which require sign off or achievement of certain milestones prior to shipment. Overall distribution and aftermarket partially offset by defense OEM. The increase in industrial net sales, was mostly driven by the wind and general industrial markets.which represent a little less than 20.0% of segment sales, were down 14.8% year over year.

 

Gross margin as a percentage of segment net sales was 40.2% for the third quarter of fiscal 20212022 compared to 40.3%41.6% for the same period last year. GrossThe decrease in gross margin foras a percentage of net sales was driven by product mix during the third quarter of fiscal 2021 was affected by $0.8 million of inventory rationalization costs associated with the restructuring of certain manufacturing facilities.period.

  Nine Months Ended 
  December 26,
2020
  

December 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $219.2  $264.4  $(45.2)  (17.1)%
                 
Gross margin $89.7  $104.8  $(15.1)  (14.5)%
Gross margin %  40.9%  39.7%        
                 
SG&A $16.0  $19.8  $(3.8)  (19.1)%
% of segment net sales  7.3%  7.5%        

  Nine months Ended 
  

January 1,

2022

  

December 26,

2020

  

$

Change

  

%

Change

 
             
Total net sales $276.5  $299.8  $(23.3)  (7.8)%
                 
Gross margin $112.7  $122.0  $(9.3)  (7.6)%
% of segment net sales  40.8%  40.1%        
                 
SG&A $21.7  $21.5  $0.2   0.8%
% of segment net sales  7.8%  7.2%        

 

Net sales decreased $45.2$23.4 million, or 17.1%7.8%, for the nine months ended December 26, 2020January 1, 2022 compared to the same period last year. The 17.1%7.8% decrease was primarily driven by a 7.5% decrease of 22.5% in our commercial aerospace markets offset by a 2.0% increase in the industrial markets. The decrease in aerospace was primarily due to commercialmarket, both OEM and aftermarket, partially offset bywhile our defense OEM aftermarket. The increasemarket is down 7.7% year over year for reasons outlined above. During the year, as evidenced in industrialthe quarter discussion above, we have noted improvement in the sales was mostly driven byand orders to our commercial aerospace customers. Although the windrecovery has taken longer than previously anticipated, our backlog and general industrial markets.recent results reflect the early stages of this process which we expect to continue to see in the future. Overall distribution and aftermarket sales were down 16.9% year over year as excess channel inventory is consumed.

 

Gross margin as a percentage of net sales increased to 40.9%40.8% for the first nine months of fiscal 20212022 compared to 39.7%40.1% for the same period last year. The increase was a result of product mix during the period. Gross margin infor the first nine months of fiscal 2021nine-month period ended January 1, 2022 was affectedimpacted by $0.8approximately $0.9 million of inventory rationalization costs associated with the restructuringa consolidation efforts at one of certain manufacturing facilities during the period.


Roller Bearings Segment

  Three Months Ended 
  December 26,
2020
  

December 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $22.4  $31.8  $(9.4)  (29.6)%
                 
Gross margin $7.6  $14.0  $(6.4)  (45.7)%
Gross margin %  34.0%  44.1%        
                 
SG&A $1.1  $1.6  $(0.5)  (31.1)%
% of segment net sales  5.0%  5.1%        

Net sales decreased $9.4 million, or 29.6%, for the three months ended December 26, 2020 compared to the same period last year. Our aerospace markets decreased 41.6% while our industrial markets decreased by 15.3%. The decrease in aerospace was driven by the commercial and defense OEM and aftermarket. The decrease in industrial net sales was primarily due to mining and energy market activity.

Gross margin for the three months ended December 26, 2020 was 34.0% of net sales compared to 44.1% for the comparable period in fiscal 2020. This decrease in gross margin as a percentage of net sales was primarily due to decreased sales volumes and product mix.

  Nine Months Ended 
  December 26,
2020
  

December 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $66.9  $101.3  $(34.4)  (34.0)%
                 
Gross margin $22.3  $42.0  $(19.7)  (46.9)%
Gross margin %  33.3%  41.4%        
                 
SG&A $3.5  $4.9  $(1.4)  (27.9)%
% of segment net sales  5.3%  4.8%        

Net sales decreased $34.4 million, or 34.0%, for the nine months ended December 26, 2020 compared to the same period last year. Our industrial markets decreased 30.1% while our aerospace markets decreased by 37.3%. The decrease in industrial sales was primarily due to mining, energy and general industrial market activity while the decrease in aerospace was driven by the commercial and defense OEM markets and commercial aftermarket.

Gross margin for the nine months ended December 26, 2020 was 33.3% of net sales compared to 41.4% for the comparable period in fiscal 2020. This decrease in gross margin as a percentage of net sales was driven by a reduction in sales volume and product mix. Further, the first nine months of fiscal 2021 were impacted by $2.0 million in inventory rationalization costs associated with the consolidation of certain manufacturing facilities, as well as approximately $0.3 million of capacity inefficiencies driven by the impact of the COVID-19 pandemic.facilities.

 


 

 

Ball BearingsIndustrial Segment

 Three Months Ended  Three Months Ended 
 December 26,
2020
  

December 28,

2019

 

$

Change

 

%

Change

  January 1,
2022
 December 26,
2020
 $
Change
 %
Change
 
                  
Total net sales $20.7�� $18.5  $2.2   11.9% $173.8  $52.6  $121.2   230.4%
                                
Gross margin $9.2  $8.2  $1.0   12.2% $55.9  $17.5  $38.4   218.6%
Gross margin %  44.4%  44.3%        
% of segment net sales  32.2%  33.3%        
                                
SG&A $1.3  $1.6  $(0.3)  (19.1)% $18.2  $4.4  $13.8   313.3%
% of segment net sales  6.3%  8.6%          10.5%  8.4%        

 

Net sales increased $121.2 million, or 230.4%, for the three months ended January 1, 2022 compared to the same period last year. The increase was primarily due to two months of Dodge sales in fiscal 2022 and continued strong performance across the majority of our industrial markets. Excluding Dodge sales of $110.0 million, net sales increased $11.2 million, or 21.3%, period over period. This increase was driven by $2.2performance in semiconductor, energy, mining, and the general industrial markets. Sales to distribution and the aftermarket reflected more than 60.0% of our quarterly industrial sales. These distribution and aftermarket sales increased 445.1% compared to the same quarter in the prior year, and 15.5% on an organic basis.

Gross margin for the three months ended January 1, 2022 was 32.2% of net sales, compared to 33.3% in the comparable period in fiscal 2021. The gross margin for the third quarter of fiscal 2022 included the unfavorable impact of $7.0 million of inventory purchase accounting adjustments associated with the Dodge acquisition. Gross margin for the third quarter of fiscal 2021 was impacted by approximately $0.8 million of inventory rationalization costs associated with the consolidation of certain manufacturing facilities.

  Nine months Ended 
  

January 1,

2022

  

December 26,

2020

  

$

Change

  

%

Change

 
             
Total net sales $307.6  $148.9  $158.7   106.6%
                 
Gross margin $106.9  $49.7  $57.2   115.2%
% of segment net sales  34.8%  33.4%        
                 
SG&A $29.8  $13.0  $16.8   129.2%
% of segment net sales  9.7%  8.7%        

Net sales increased $158.7 million, or 106.6%, for the nine months ended January 1, 2022 compared to the same period last year. Our aerospace markets increased 14.1% while our industrial sales increased 10.8%. The increase in aerospace net sales was primarily driven by the defense and space OEM market. The increase in industrial was primarily due to two months of Dodge sales in fiscal 2022 and strong performance across our industrial markets. Excluding Dodge sales, net sales increased $48.7 million, or 32.7%, period over period. Sales to distribution and the aftermarket increased 182.6% over last year, and 28.3% on an organic basis. The overall segment increase, excluding the addition of Dodge, was driven by performance in semiconductor, energy, mining, and the general industrial markets.

  

Gross margin as a percentage of net sales was 44.4% for the third quarter of fiscal 2021 compared to 44.3% for the same period last year.

  Nine Months Ended 
  December 26,
2020
  

December 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $60.6  $53.6  $7.0   13.1%
                 
Gross margin $26.2  $23.5  $2.7   11.7%
Gross margin %  43.3%  43.8%        
                 
SG&A $3.9  $4.8  $(0.9)  (18.3)%
% of segment net sales  6.5%  9.0%        

Net sales increased $7.0 million, or 13.1% for the nine months ended December 26, 2020 compared to the same period last year. Our aerospace market sales increased 28.2% while sales to our industrial markets increased 6.3%. The increase in industrialJanuary 1, 2022 was primarily due to the semiconductor market. The increase in aerospace net sales was primarily driven by the defense and space markets.

Gross margin as a percentage34.8% of net sales, decreasedcompared to 43.3%33.4% in the comparable period in fiscal 2021. The gross margin for the first nine months ended December 26, 2020 compared to 43.8% for the same period last year. The decrease was primarily due to product mix during the period.


Engineered Products Segment

  Three Months Ended 
  December 26,
2020
  

December 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $33.5  $39.8  $(6.3)  (16.0)%
                 
Gross margin $10.9  $13.5  $(2.6)  (18.8)%
Gross margin %  32.7%  33.8%        
                 
SG&A $3.8  $4.4  $(0.6)  (14.5)%
% of segment net sales  11.3%  11.1%        

Net sales decreased $6.3 million, or 16.0%, for the third quarter of fiscal 2021 compared to2022 included the same period last year. Our aerospace markets decreased 36.3% while our industrial markets increased 18.0%. The decrease in aerospace net sales was driven by the commercial and defense OEM and aftermarket. The increase in our industrial net sales was driven by the marine and general industrial markets.

Gross margin as a percentageunfavorable impact of net sales was 32.7% for the third quarter of fiscal 2021 compared to 33.8% for the same period last year. This decrease was primarily attributable to product mix and decreased sales volume compared to the same period in the prior year.

  Nine Months Ended 
  December 26,
2020
  

December 28,

2019

  

$

Change

  

%

Change

 
             
Total net sales $101.9  $122.4  $(20.5)  (16.7)%
                 
Gross margin $33.5  $42.2  $(8.7)  (20.8)%
Gross margin %  32.8%  34.5%        
                 
SG&A $11.4  $13.1  $(1.7)  (13.1)%
% of segment net sales  11.2%  10.7%        

Net sales decreased $20.5 million, or 16.7%, for the nine months ended December 26, 2020 compared to the same period last year. Our aerospace sales decreased 27.5% while industrial sales decreased 0.4%. Excluding $2.6$7.0 million of salesinventory purchase accounting adjustments associated with the acquisition of Swiss Tool in fiscal 2020, overall sales decreased 18.8%. The decrease in aerospace sales was primarily driven by the commercial OEM market and commercial aftermarket. The decrease in industrial sales was driven by the general industrial markets offset by increased sales in the marine markets.

Dodge acquisition. Gross margin as a percentage of net sales decreased to 32.8% for the nine months ended December 26, 2020 compared to 34.5% for the same period last year. This decrease was primarily due to lower sales volume and product mix. During the first nine months of fiscal 2021 gross margin was also impacted by approximately $0.5$2.8 million in inventory rationalization costs associated with the consolidation of capacity inefficiencies driven by the impact of the COVID-19 pandemic.certain manufacturing facilities..

 


 

 

Corporate

 

 Three Months Ended  Three Months Ended 
 December 26,
2020
  

December 28,

2019

 

$

Change

 

%

Change

  January 1,
2022
 December 26,
2020
 $
Change
 %
Change
 
                  
SG&A $14.1  $16.4  $(2.3)  (13.7)% $17.9  $14.2  $3.7   25.9%
% of total net sales  9.7%  9.2%          6.7%  9.8%        

 

Corporate SG&A decreased $2.3was $17.9 million, or 13.7%,6.7% of sales for the third quarter of fiscal 20212022 compared to $14.2 million, or 9.8% of sales for the same period last year. ThisThe year over year increase was primarily due to a decrease of $2.0 millionan increase in personnel costs $0.1 million inand professional fees and $0.2 million of other items.during the period.

 

 Nine Months Ended  Nine months Ended 
 December 26,
2020
  

December 28,

2019

  $
Change
  

%

Change

  January 1,
2022
 December 26,
2020
  $
Change
  %
Change
 
                  
SG&A $43.7  $49.0  $(5.3)  (10.7)% $51.2  $44.1  $7.1   16.1%
% of total net sales  9.7%  9.0%          8.8%  9.8%        

Corporate SG&A decreased $5.3increased $7.1 million for the nine months ended December 26, 2020January 1, 2022 compared to the same period last year due to a decrease of $6.7 millionan increase in personnel costs, professional fees, and $0.3 million of other items, partially offset by $0.8 million of additional share-based compensation expenses and $0.9 million of additional professionaltravel related costs.

 

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.acquisitions, including the Dodge acquisition completed on November 1, 2021. 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 RevolverRevolving Credit Facility and Foreign Revolver (see below) will provide adequate resources to fund internal and external growth initiatives for the foreseeable future. For further discussion regarding the funding of the Dodge acquisition, refer to Part I, Item 1 – Notes 5, 10 and 13.

 

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 the COVID-19 pandemic, 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 December 26, 2020,January 1, 2022, we had cash and cash equivalents and highly liquid marketable securities of $201.7$255.5 million, of which, approximately $16.0$29.4 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 subsidiaries.

 


 

 

Domestic Credit Facility

 

The Company’s credit agreementCompany entered into the New 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”)on November 1, 2021 and terminated the 2015 Credit Agreement. The New Credit Agreement provides the Company with (a) the $1,300.0 million Term Loan Facility, which was used to fund a $250.0portion of the cash purchase price for the acquisition of Dodge and to pay related fees and expenses, and (b) the $500.0 million revolving credit facility (the “Revolver”), which expires on January 31, 2024.Revolving Credit Facility. Debt issuance costs associated with the New Credit Agreement totaled $0.9$14.9 million and will be amortized through January 31, 2024 along withover the life of the New Credit Agreement. When the 2015 Credit Agreement was terminated the Company wrote off $890 of previously unamortized debt issuance costs remaining fromrelating to the Company’s prior credit agreement. As of December 26, 2020, $1.2 million in unamortized debt issuance costs remain.2015 Credit Agreement.

  

Amounts outstanding under the RevolverFacilities generally bear interest at either, at the Company’s option, (a) a base rate determined by reference to the higher of (1)(i) Wells Fargo’s prime lending rate, (2)(ii) the federal funds effective rate plus 1/2 of 1%1.00% and (3)(iii) the one-month LIBOR rate plus 1%,1.00% or (b) the LIBOR rate plus a specified margin, depending on the type of borrowing being made. The applicable margin is based on the Company's consolidated ratio of total net debt to consolidated EBITDA at each measurement date.from time to time. Currently, the Company's margin is 0.00%0.75% for base rate loans and 0.75%1.75% for LIBOR rate loans. The Facilities are subject to a “LIBOR” floor of 0.00% and contain “hard-wired” LIBOR replacement provisions as set forth in the New Credit Agreement. As of January 1, 2022, the Company’s commitment fee rate is 0.25% and the letter of credit fee rate is 1.75%.

The Term Loan Facility and the Revolving Credit Facility will mature on November 2, 2026. The Company can elect to prepay some or all of the outstanding balance from time to time without penalty. Commencing one full fiscal quarter after the execution of the New Credit Agreement, the Term Loan Facility will amortize in quarterly installments as set forth in Part I, Item 1 – Note 10, with the balance payable on the Maturity Date unless otherwise extended in accordance with the terms of the Term Loan Facility.

 

The New Credit Agreement requires the Company to comply with various covenants, including among other things,the following financial covenants beginning with the test period ending December 31, 2021: (a) a financial covenant to maintainmaximum Total Net Leverage Ratio of 5.50:1.00, which maximum Total Net Leverage Ratio shall decrease during certain subsequent test periods as set forth in the New Credit Agreement (provided that, no more than once during the term of the Facilities, such maximum ratio applicable at such time may be increased by the Borrower by 0.50:1.00 for a ratioperiod of consolidated net debt to adjusted EBITDA not greater than 3.50 to 1. twelve (12) months after the consummation of a material acquisition), and (b) a minimum Interest Coverage Ratio of 2.00:1.00.

The New Credit Agreement allows the Company to, among other things, make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the New Credit Agreement. As of December 26, 2020, the Company was in compliance with all such covenants.

 

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

 

Approximately $3.7As of January 1, 2022, $1,300.0 million was outstanding under the Term Loan Facility and none of the Revolver isRevolving Credit Facility was being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs. Theprograms, and the Company hashad the ability to borrow up to an additional $246.3$496.5 million under the Revolver as of December 26, 2020.Revolving Credit Facility.

 

Senior Notes

On October 7, 2021, RBCA issued $500.0 million aggregate principal amount of the Senior Notes and used the approximately $492.0 million of net proceeds from the issuance (after deducting initial purchasers’ discounts and commissions and offering expenses) to fund a portion of the cash purchase price for the acquisition of Dodge.

The Senior Notes were issued pursuant to the Indenture with Wilmington Trust, National Association, as trustee. The Indenture contains covenants limiting the ability of the Company to (i) incur additional indebtedness or guarantee indebtedness, (ii) declare or pay dividends, redeem stock or make other distributions to stockholders, (iii) make investments, (iv) create liens or use assets as security in other transactions, (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of its assets, (vi) enter into transactions with affiliates, and (vii) sell or transfer certain assets. These covenants contain various exceptions, limitations and qualifications. At any time that the Senior Notes are rated investment grade, certain covenants will be suspended.

The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by RBC Bearings and certain of RBCA’s existing and future wholly-owned domestic subsidiaries that also guarantee the New Credit Agreement.

Interest on the Senior Notes accrues from October 7, 2021 at a rate of 4.375% and will be payable semi–annually in cash in arrears on April 15 and October 15 of each year, commencing April 15, 2022.


The Senior Notes will mature on October 15, 2029. The Company may redeem some or all of the Senior Notes at any time on or after October 15, 2024 at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also redeem up to 40% of the Senior Notes using the proceeds of certain equity offerings completed before October 15, 2024, at a redemption price equal to 104.375% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to October 15, 2024, the Company may redeem some or all of the Senior Notes at a price equal to 100% of the principal amount, plus a “make–whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company sells certain of its assets or experiences specific kinds of changes in control, the Company must offer to purchase the Senior Notes.

Foreign 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 “ForeignOur Foreign Credit Agreements”)Agreements with Credit Suisse (Switzerland) Ltd. provided us with financing to finance the acquisition ofacquire Swiss Tool in 2019 and provide future working capital.capital for Schaublin, our foreign subsidiary. The Foreign Credit Agreements provided Schaublin withprovide (a) the Foreign Term Loan, a CHF 15.0 million (approximately $15.4 million) term loan, (the “Foreign Term Loan”), which expires on July 31, 2024, and (b) the Foreign Revolver, a CHF 15.0 million (approximately $15.4 million) revolving credit facility, (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 beare being amortized throughout the life of the Foreign Credit Agreements. As of December 26, 2020,January 1, 2022, 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,January 1, 2022, 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 December 26, 2020,January 1, 2022, there was approximately $2.2 million outstanding under the Foreign Revolver and approximately $13.5$2.1 million outstanding under the Foreign Term Loan. These borrowings have been classified as Level 2 ofLoan and no amounts outstanding under the valuation hierarchy.Foreign Revolver. Schaublin has the ability to borrow up to an additional $14.6$16.1 million under the Foreign Revolver as of December 26, 2020.

January 1, 2022. Schaublin’s required future annual principal payments are approximately $5.6$0 for the remainder of fiscal 2022, $0 for fiscal 2023 and fiscal 2024 and $2.1 million for the next 12 months and approximately $3.4 million for each of the following three years.fiscal 2025.

 

Other Notes Payable

In 2012 Schaublin purchased the land and building that it occupies for approximately $14.9 million. Schaublin obtained a 20-year fixed-rate mortgage of approximately $9.9 million at an interest rate of 2.9%. The balance of the purchase price of approximately $5.1 million was paid from cash on hand. The balance on this mortgage as of December 26, 2020 was approximately $6.1 million and has been classified as Level 2 of the valuation hierarchy.

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

Cash Flows

 

Nine-month Period Ended December 26, 2020January 1, 2022 Compared to the Nine-month Period Ended December 28, 201926, 2020

 

The following table summarizes our cash flow activities:

 

 FY21 FY20  

$ Change

  FY22 FY21  

 

$ Change

 
Net cash provided by (used in):              
Operating activities $110.6  $111.2  $(0.6) $133.4  $110.6  $22.8 
Investing activities  (83.6)  (61.1)  (22.5)  (2,839.5)  (83.6)  (2,755.9)
Financing activities  (4.6)  (20.7)  16.1   2,810.3   (4.6)  2,814.9 
Effect of exchange rate changes on cash  0.5   1.0   (0.5)  0.2   0.5   (0.3)
Increase in cash and cash equivalents $22.9  $30.4  $(7.5) $104.4  $22.9  $81.5 

 

During the first nine months of fiscal 2021,2022, we generated cash of $110.6$133.4 million from operating activities compared to $111.2$110.6 million of cash generated during the same period of fiscal 2020.2021. The decreaseincrease of $0.6$22.8 million for fiscal 20212022 was mainly a result of a decrease in net income of $27.6 million offset by the favorable impact of a net change in operating assets and liabilities of $19.1$24.4 million and a favorable change in non-cash charges of $7.9$30.2 million, offset by a decrease in net income of $31.8 million. It is important to note that our net income was affected by approximately $21.6 million of non-recurring costs related to the Dodge acquisition. Further, cash flows from operating activities only include two months of cash flow activity from Dodge. The favorable change in operating assets and liabilities is detailed in the table below. Thebelow, while the increase in non-cash charges resulted from $0.6$17.2 million of amortization of intangible assets, $2.3 million in deferred taxes, $0.9 million of depreciation, $0.9financing costs, $2.2 million of share-based compensation charges, and $3.2$12.6 million of other non-cash chargesdepreciation and amortization and $0.9 million of costs related to restructuring efforts. Excluded from the consolidated statementsextinguishment of cash flows are rightdebt partially offset by unfavorable changes of use assets obtained$1.8 million in exchange for new operating lease liabilitiesdeferred taxes and $0.9 million of $7.7 million during the fiscal year.loss on disposition of assets.

 


 

 

The following chart summarizes the favorable change in operating assets and liabilities of $24.4 million for fiscal 2022 versus fiscal 2021 and the favorable change of $19.1 million for fiscal 2021 versus fiscal 2020 and the favorable change of $26.3 million for fiscal 2020 versus fiscal 2019.2020.

  

 FY21 FY20  FY22 FY21 
Cash provided by (used in):          
Accounts receivable $13.0  $13.4  $(29.2) $13.0 
Inventory  16.0   11.2   (3.8)  16.0 
Prepaid expenses and other current assets  1.8   1.1   (10.1)  1.8 
Other non-current assets  (5.3)  (4.1)
Other noncurrent assets  11.5   (5.3)
Accounts payable  (11.4)  0.4   45.6   (11.4)
Accrued expenses and other current liabilities  (0.5)  (1.0)  10.6   (0.5)
Other non-current liabilities  5.5   5.3 
Other noncurrent liabilities  (0.2)  5.5 
Total change in operating assets and liabilities: $19.1  $26.3  $24.4  $19.1 

 

During the first nine months of fiscal 2021,2022, we used $83.6$2,839.5 million for investing activities as compared to $61.1$83.6 million used during the first nine months of fiscal 2020.2021. This increase in cash used was attributable to the purchaseacquisition of $75.1Dodge for $2,908.2 million and an increase in capital expenditures of $13.0 million partially offset by proceeds from the sale of $120.5 million of highly liquid marketable securities during the current period offset by an $18.8and $45.1 million decreaseless in capital expenditures andpurchase of marketable securities compared to the use of $33.8 millionsame period in the prior year. The prior year foralso included $0.3 million of purchase accounting adjustments related to the acquisition of Swiss Tool.

 

During the first nine months of fiscal 2021,2022, we used $4.5generated $2,810.3 million forfrom financing activities compared to $20.7$4.6 million forused during the first nine months of fiscal 2020.2021. This decreaseincrease in cash usedgenerated was primarily attributable to $41.3$1,286.2 million less payments made on outstanding debt, $0.3of net proceeds received from the Term Loan Facility, $494.2 million less financingof net proceeds received from the Senior Notes, $605.5 million of net proceeds received from the issuance of common stock during the current period, $445.3 million of net proceeds received from the issuance of preferred stock during the current period, and $11.6 million more exercises of share-based awards partially offset by $20.0 million of finance fees paid in connection with credit facilities and $5.3senior notes in the current period, $5.8 million lessmore payments made on outstanding debt, $1.4 million more treasury stock purchases partially offset by proceeds received from borrowings of $24.8and $0.7 million forin principal payments made on finance lease obligations during the acquisition of Swiss Tool in the prior year and $6.0 million less exercises of share-based awards.current fiscal year.

Capital Expenditures

 

Our capital expenditures were $2.8$14.9 million and $8.8$21.8 million for the three- and nine-month periods ended December 26, 2020,January 1, 2022, respectively. We expect to make additional capital expenditures of $3.0$7.0 million to $4.0$12.0 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.

 

Obligations and Commitments

The Company’s fixed contractual obligations and commitments are materially consistent with what we disclosed in our Form 10-K for the fiscal year ended April 3, 2021 with the exception of what we’ve disclosed within Note 10 included in Part I, Item 1 of this report and additional lease obligations resulting from the acquisition of Dodge. The Company’s total lease obligations are $3.0 million for the remainder of fiscal 2022, $11.9 million for fiscal 2023, $10.1 million for fiscal 2024, $8.6 million for fiscal 2025, $8.0 million for fiscal 2026, $8.2 million for fiscal 2027 and $71.1 million thereafter.

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 nine months of fiscal 20212022 other than those described in Note 2the following:

Valuation of Business Combinations

We allocate the amounts we pay for each acquisition to the unaudited interimassets we acquire and liabilities we assume based on their fair values at the date of acquisition, including identifiable intangible assets, which either arise from a contractual or legal right or are separable from goodwill. We base the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. We allocate to goodwill any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Transaction costs associated with these acquisitions are expensed as incurred through other, net on the consolidated financial statements contained in this quarterly report.of operations.


Off-Balance Sheet Arrangements

As of December 26, 2020,January 1, 2022, 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.Revolving Credit Facility.


 

ITEMItem 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 in the following countries utilize the Swiss francfollowing currencies as thetheir 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. currency:

Australia – Australian dollarIndia – rupee
Canada – Canadian dollarMexico – peso
China – Chinese yuanPoland – zloty
France – euroSwitzerland – Swiss franc
Germany – euro

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 10%12% and 11% of our net sales were impacted by foreign currency fluctuations for the three-month periodthree- and nine-month periods ended January 1, 2022, respectively, compared to 11% and 10% for the three- and nine-month periods ended December 26, 2020, compared to 10% for the three-month period ended December 28, 2019. Approximately 9% of our net sales were impacted by foreign currency fluctuations for the nine-month period ended December 26, 2020 compared to 9% for the 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.respectively. 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 December 26, 2020,January 1, 2022, we had no derivatives.

 

ITEMItem 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 December 26, 2020.January 1, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 26, 2020,January 1, 2022, 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 December 26, 2020January 1, 2022 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).

As discussed within Note 13 included within Part I, Item 1 of this report, we acquired Dodge on November 1, 2021. We are currently in the process of integrating the internal controls and procedures of Dodge into our internal controls over financial reporting. As provided under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the Securities and Exchange Commission, we will include the internal controls and procedures of Dodge in our annual assessment of the effectiveness of our internal control over financial reporting for our 2023 fiscal year. 


 

PART II - OTHER INFORMATION



ITEMItem 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.

 

ITEMItem 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.10-K, besides those noted below. For a discussion of the risk factors, refer to Part I, Item 2, “Cautionary Statement as to Forward-Looking Information” contained in this quarterly report and Part I, Item 1A, “Risk Factors,” contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020.April 3, 2021.

 

Quarterly performance can be affected by the timing of government product inspections and approvals.

A portion of our quarterly revenue is associated with contracts with the U.S. government that require onsite inspection and approval of the products by government personnel before we may ship the products, and we have no control over the timing of those inspections and approvals. If products scheduled for delivery in one quarter are not inspected or approved until the following quarter, the delay would adversely affect our sales and profitability for the quarter in which the shipments were scheduled.

We may fail to realize some or all of the anticipated benefits of the Dodge acquisition or those benefits may take longer to realize than expected.

We believe that there are significant benefits and synergies to be realized through leveraging the products, scale and combined enterprise customer bases of RBC and Dodge. However, the efforts to realize these benefits and synergies will be a complex process and may disrupt both companies’ existing operations if not implemented in a timely and efficient manner. The full benefits of the Dodge acquisition, including any anticipated sales or growth opportunities, may not be realized as expected or may not be achieved within the time frames we anticipate, or at all. Any data on the expected synergies from the Dodge acquisition included in the unaudited pro forma condensed combined financial information that was included in our Current Report on Form 8-K filed with the SEC on September 20, 2021 is based on various adjustments, assumptions and preliminary estimates. Such data have not been prepared, reviewed or analyzed by a third-party and may not be an accurate indication of the actual synergies we will realize, if any, from the Dodge acquisition and the integration of Dodge into our business. Failure to achieve the anticipated benefits of the acquisition could adversely affect our results of operations or cash flows.

We may not be able to efficiently integrate Dodge into our operations.

The future success of the Dodge acquisition, including its anticipated benefits and cost savings, depends, in part, on our ability to optimize our operations and integrate Dodge, its systems, operations and personnel into our existing business. These activities will require time and involve dedication of various resources of the Company that would otherwise be dedicated to our existing operations. These integration efforts may accordingly adversely affect our other operations to the extent such efforts take resources or attention away from our other operations. If we experience difficulties in the integration process, the anticipated benefits of the Dodge acquisition may not be realized fully or at all, or may take longer to realize than expected, which could have an adverse effect on us for an undetermined period. There can be no assurance that we will realize the operational or financial gains from the Dodge acquisition that we anticipated when originally determining to acquire Dodge.

Additional challenges, risks and uncertainties we may encounter as part of the integration process include the following:

we may face significant costs of integration and compliance with any laws or regulations applicable to Dodge or our combined company;

we may experience delays in the integration of management teams, strategies, operations, products and services;

there may be differences in business backgrounds, corporate cultures and management philosophies that may delay the successful integration of Dodge’s management personnel into our operations;

we may be unable to retain key Dodge employees;

we may not be able to create and enforce uniform standards, controls, procedures, policies and information systems across our combined company;


we may face challenges in integrating complex systems, technology, networks and other assets of Dodge into our operations in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;

there may be potential unknown liabilities and unforeseen increased expenses associated with the Dodge acquisition, including costs to integrate Dodge beyond current estimates; and

we may experience disruptions of, or the loss of momentum in, our or Dodge’s ongoing businesses or inconsistencies in standards, controls, procedures and policies.

Any of these factors could adversely affect our or Dodge’s ability to maintain relationships with customers, suppliers, employees and other constituencies or our ability to achieve the anticipated benefits of the Dodge acquisition, which could reduce earnings or otherwise adversely affect our business and financial results.

We incurred substantial debt in order to complete the Dodge acquisition, which could constrain our business and exposes us to the risk of defaults under our debt instruments.

As of January 1, 2022, we had approximately $1,790.3 million of total debt, net of deferred issuance costs, as a result of the completion of the Dodge acquisition. This debt could or will have important consequences, including, but not limited to:

this debt requires us to make significant interest and principal payments in the future;

a substantial portion of our cash flow from operations will be used to repay the principal and interest on our debt, thereby reducing the funds available to us for other purposes including for strategic acquisitions, working capital, capital expenditures, and general corporate purposes;

our flexibility in planning for and reacting to changes in our business, the competitive landscape and the markets in which we operate may be limited; and

we may be placed at a competitive disadvantage relative to other companies in our industry with less debt or comparable debt on more favorable terms.

Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance and no assurance can be given that our business will generate sufficient cash flow to service our debt.

Additionally, our ability to comply with the financial and other covenants contained in our debt instruments could be affected by, among other things, changes in our results of operations, the incurrence of additional indebtedness, the pricing of our products, our success at implementing cost reduction initiatives, our ability to successfully implement our overall business strategy, or changes in industry-specific or general economic conditions which are beyond our control. The breach of any of these covenants could result in a default or event of default under the New Credit Agreement and the indenture that governs the Notes, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our prospects, business, financial condition, results of operations and cash flows could be materially and adversely affected and could cause us to become bankrupt or otherwise insolvent. In addition, these covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our business and stockholders.


Increases in interest rates would increase the cost of servicing Term Loan Facility and could reduce our profitability.

The $1,300.0 million outstanding under the Term Loan Facility bears interest at a variable rate. As a result, increases in interest rates would increase the cost of servicing the Term Loan Facility, and could materially reduce our profitability and cash flows. We have not entered into interest rate cap agreements on the Term Loan Facility. In addition, a transition away from the London Interbank Offered Rate (LIBOR) as a benchmark for establishing the applicable interest rate may affect the cost of servicing the Term Loan Facility. The Financial Conduct Authority of the United Kingdom has announced that it plans to no longer persuade or compel banks to submit rates for the calculation of LIBOR at some point in the future. Although the Term Loan Facility provides for alternative base rates, such alternative base rates may or may not be related to LIBOR, and the consequences of the phase–out of LIBOR cannot be entirely predicted at this time. The Credit Agreement for the Term Loan Facility includes language which would allow us to modify the rate used if and when the LIBOR phase-out occurs. The Company is currently evaluating whether or not to enter into an interest rate swap agreement to hedge our risk.

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

Unregistered Sales of Equity Securities

 

None.

 

Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities

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

 

Total share repurchases under the 2019 plan for the three months ended December 26, 2020January 1, 2022 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)

 
09/27/2020 – 10/24/2020  24  $124.55   24  $90,023 
10/25/2020 – 11/21/2020  104   118.71   104   90,011 
11/22/2020 – 12/26/2020  10,745   166.82   10,745  $88,218 
Total  10,873  $166.26   10,873     


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)
 
10/03/2021 – 10/30/2021  171  $226.32   171  $81,184 
10/31/2021 – 11/27/2021           81,184 
11/28/2021 – 01/01/2022  6,490   194.34   6,490  $79,923 
Total  6,661  $195.16   6,661     

 

ITEMItem 3. Defaults Upon Senior Securities

Not applicable.

ITEMItem 4. Mine Safety Disclosures

Not applicable.

ITEMItem 5. Other Information

Not applicable.

 


ITEMItem 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.INSInline XBRL Instance Document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.

104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*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.

 


 

 

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:January 29, 2021February 10, 2022
    
 By:

/s/ Robert M. Sullivan

  Name:Robert M. Sullivan
  Title:Chief Financial Officer
  Date:January 29, 2021February 10, 2022

 


 

 

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.INSInline XBRL Instance Document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

*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

40

 

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