| Summary of Significant Accounting Policies | 2. Summary
of Significant Accounting Policies General The consolidated financial
statements include the accounts of RBC Bearings Incorporated, Roller Bearing Company of America, Inc. (“RBCA”) and its
wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has a fiscal
year consisting of 52 or 53 weeks, ending on the Saturday closest to March 31. Based on this policy, fiscal year 2022 contained
52 weeks, fiscal year 2021 contained 53 weeks and fiscal year 2020 contained 52 weeks. The amounts are shown in thousands, unless otherwise
indicated. Use of Estimates The preparation of financial
statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates
are used for, but not limited to, the accounting for the allowance for doubtful accounts, valuation of inventories, goodwill and intangible
assets, depreciation and amortization, income taxes and tax reserves, purchase price allocation for acquired assets and liabilities,
and the valuation of options. Revenue Recognition A contract with a customer
exists when there is commitment and approval from both parties involved, the rights of the parties are identified, payment terms are
defined, the contract has commercial substance, and collectability of consideration is probable. The Company has determined that the
contract with the customer is established when the customer purchase order is accepted or acknowledged. Long-term agreements (LTAs) are
used by the Company and certain of its customers to reduce their supply uncertainty for a period of time, typically multiple years. While
these LTAs define commercial terms including pricing, termination rights and other contractual requirements, they do not represent the
contract with the customer for revenue recognition purposes. When the Company accepts
or acknowledges the customer purchase order, the type of good or service is defined on a line-by-line basis. Individual performance obligations
are established by virtue of the individual line items identified on the sales order acknowledgment at the time of issuance. The majority
of the Company’s revenue relates to the sale of goods and contains a single performance obligation for each distinct good. The
remainder of the Company’s revenue from customers is generated from services performed. These services include repair and refurbishment
work performed on customer-controlled assets as well as design and test work. The performance obligations for these services are also
identified on the sales order acknowledgement at the time of issuance on a line-by-line basis. Transaction price reflects
the amount of consideration that the Company expects to be entitled to in exchange for transferred goods or services. A contract’s
transaction price is allocated to each distinct performance obligation and revenue is recognized as the performance obligation is satisfied.
For the majority of our contracts, the Company either provides distinct goods or services. Where both distinct goods and services are
provided, we separate the contract into more than one performance obligation (i.e., a good or service is individually listed in a contract
or sold individually to a customer). The Company generally sells products and services with observable standalone selling prices. The performance obligations
for the majority of RBC’s product sales are satisfied at the point in time in which the products are shipped. The Company has determined
that the customer obtains control upon shipment of the product based on the shipping terms (either when it ships from RBC’s dock
or when the product arrives at the customer’s dock) and recognizes revenue accordingly. Once a product has shipped, the customer
is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The Company has determined
performance obligations are satisfied over time for customer contracts where RBC provides services to customers and also for a limited
number of product sales. RBC has determined revenue recognition over time is appropriate for our service revenue contracts as they create
or enhance an asset that the customer controls throughout the duration of the contract. Revenue recognition over time is appropriate
for customer contracts with product sales in which the product sold has no alternative use to RBC without significant economic loss and
an enforceable right to payment exists, including a normal profit margin from the customer, in the event of contract termination. These
types of contracts comprised less than 1% of total sales for the years ended April 2, 2022, April 3, 2021 and March 28, 2020, respectively.
For both of these types of contracts, revenue is recognized over time based on the extent of progress towards completion of the performance
obligation. The Company utilizes the cost-to-cost measure of progress for over-time revenue recognition contracts as we believe this
measure best depicts the transfer of control to the customer, which occurs as we incur costs on contracts. Revenues, including profits,
are recorded proportionally as costs are incurred. Costs to fulfill include labor, materials, subcontractors’ costs, and other
direct and indirect costs. Contract costs are the incremental
costs of obtaining and fulfilling a contract (i.e., costs that would not have been incurred if the contract had not been obtained) to
provide goods and services to customers. Contract costs largely consist of design and development costs for molds, dies and other tools
that RBC will own and that will be used in producing the products under the supply arrangements. These contract costs are amortized to
expense on a systematic and rational basis over a period consistent with the transfer to the customer of the goods or services to which
the asset relates. Costs incurred to obtain a contract are primarily related to sales commissions and are expensed as incurred as they
are generally not tied to specific customer contracts. These costs are included within selling, general and administrative costs on the
consolidated statements of operations. In certain contracts, the
Company facilitates shipping and handling activities after control has transferred to the customer. The Company has elected to record
all shipping and handling activities as costs to fulfill a contract. In situations where the shipping and handling costs have not been
incurred at the time revenue is recognized, the estimated shipping and handling costs are accrued. 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 with various banks and has
not experienced any losses in such accounts. Accounts Receivable, Net and Concentration
of Credit Risk Accounts receivable include
amounts billed and currently due from customers. The amounts due are stated at their estimated net realizable value. The Company maintains
an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The
Company uses an expected credit loss model 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. The Company will write-off accounts receivable after reasonable collection efforts have been made and the accounts are
deemed uncollectible. The Company sells to a large
number of OEMs and distributors who service the aftermarket. The Company’s credit risk associated with accounts receivable is minimized
due to its customer base and wide geographic dispersion. The Company performs ongoing credit evaluations of its customers’ financial
condition and generally does not require collateral or charge interest on outstanding amounts. The Company had no concentrations of credit
risk with any one customer greater than approximately 15% of accounts receivables at April 2, 2022 and 7% at April 3, 2021. Inventory Inventories are stated at
the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. The Company accounts for inventory under
a full absorption method, and records adjustments to the value of inventory based upon past sales history and forecasted plans to sell
our inventories. The physical condition, including age and quality, of the inventories is also considered in establishing its valuation.
These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future
economic conditions, customer inventory levels or competitive conditions differ from our expectations. Contract Assets (Unbilled Receivables) Pursuant to the over-time
revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect
revenue that is recognized when (1) the cost-to-cost method is applied and (2) such revenue exceeds the amount invoiced to the customer.
Contract assets are included within prepaid expenses and other current assets or other assets on the consolidated balance sheets. Property, Plant and Equipment Property, plant and equipment
are recorded at cost. Depreciation and amortization of property, plant and equipment, is provided for by the straight-line method over
the estimated useful lives of the respective assets. Depreciation of assets is reported within depreciation and amortization. Expenditures
for normal maintenance and repairs are charged to expense as incurred. The estimated useful lives
of the Company’s property, plant and equipment are as follows:
Buildings and improvements 20-30 years
Machinery and equipment 3-15 years
Leasehold improvements Shorter of the term of lease or estimated useful life Leases The Company adopted ASC 842, Leases, on March
31, 2019. The Company has elected not to apply the recognition requirements to short-term leases, and recognizes lease payments in the
income statement on a straight-line basis over the lease term and variable payments in the period in which the obligation for those payments
is incurred. The Company has elected the following practical expedients (which must be elected as a package and applied consistently
to all leases): an entity need not reassess whether any expired or existing contracts are or contain leases; an entity need not reassess
the lease classification for any expired or existing leases; and an entity need not reassess initial direct costs for any existing leases.
The Company has also elected the practical expedient that permits the inclusion of lease and nonlease components as a single component
and accounts for it as a lease; this election has been made for all asset classes. We also elected the hindsight practical expedient
to determine the reasonably certain lease term for existing leases, which resulted in the extension of lease terms for certain existing
leases. The Company determines if
an arrangement is a lease at contract inception. For leases where the Company is the lessee, it recognizes lease assets and related lease
liabilities at the lease commencement date based on the present value of lease payments over the lease term. The lease term is the noncancellable
period for which a lessee has the right to use an underlying asset, including periods covered by an option to extend the lease if the
lessee is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the lessee is reasonably
certain not to exercise that option. For renewal options, the Company performs an assessment at commencement if it is reasonably likely
to exercise the option. The assessment is based on the Company’s intentions, past practices, estimates and factors that create an economic
incentive for the Company. Generally, the Company is not reasonably certain to exercise the renewal option in a lease contract, with
the exception of some of our leased manufacturing facilities. While some of the Company’s leases include options allowing early termination
of the lease, the Company historically has not terminated its lease agreements early unless there is an economic, financial or business
reason to do so; therefore, the Company does not typically consider the termination option in its lease term at commencement. Most of the Company’s
leases do not provide an implicit interest rate. As a result, the Company uses its incremental borrowing rate based on the information
available at the commencement date in determining the present value of lease payments. Lease expense for operating
leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized
as depreciation expense and interest expense using the accelerated interest method of recognition. Subsequent to the initial
measurement, the right-of-use asset for a finance lease is equivalent to the initial measurement less accumulated amortization and any
accumulated impairment losses. Generally, amortization of finance leases is recorded to cost of sales or selling, general and administrative
expenses on a straight-line basis over the lease term. Goodwill and Indefinite-Lived Intangible Assets Goodwill (representing the
excess of the amount paid to acquire a company over the estimated fair value of the net assets acquired) and indefinite-lived intangible
assets are not amortized but instead are tested for impairment annually, or when events or circumstances indicate that the carrying value
of such asset may not be recoverable. Separate tests are performed for goodwill and indefinite lived intangible assets. We completed a
quantitative test of impairment on the indefinite lived intangible assets in February 2022 with no impairment noted in the current year.
In addition, we also completed a quantitative test of impairment on goodwill as of November 1, 2021 in connection with the allocation
of existing goodwill amongst our newly defined business reporting segments. No impairment was noted as a result of that interim impairment
test. The determination of any goodwill impairment is made at the reporting unit level. The Company determines the fair value of a reporting
unit and compares it to its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is
recognized for any amount by which the carrying amount exceeds the reporting unit's fair value up to the value of goodwill. The Company
applies the income approach (discounted cash flow method) in testing goodwill for impairment. The key assumptions used in the discounted
cash flow method used to estimate fair value include discount rates, revenue growth rates, terminal growth rates and cash flow projections.
Discount rates, revenue growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant
management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”). The WACC considers
market and industry data as well as Company-specific risk factors for each reporting unit in determining the appropriate discount rate
to be used. The discount rate utilized for each reporting unit for our fiscal 2022 test was 9.5% and is indicative of the return an investor
would expect to receive for investing in such a business. Terminal growth rate determination follows common methodology of capturing the
present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and long-term growth rates. The
terminal growth rate used for our fiscal 2022 test was 2.5%. The Company has determined that, to date, no impairment of goodwill exists
and fair value of the reporting units exceeded the carrying value in total by approximately 53.9%. The fair value of the reporting units
exceeds the carrying value by a minimum of 24.9% at each of the two reporting units. 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. Contract liabilities
are included within accrued expenses and other current liabilities or other noncurrent liabilities on the consolidated balance sheets
until the respective revenue is recognized. 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. Income Taxes The Company accounts for
income taxes using the liability method, which requires it to recognize a current tax liability or asset for current taxes payable or
refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences between the financial
statement and tax reporting bases of assets and liabilities to the extent that they are realizable. Deferred tax expense (benefit) results
from the net change in deferred tax assets and liabilities during the year. A valuation allowance is recorded to reduce deferred tax
assets to the amount that is more likely than not to be realized. The Company is exposed to certain tax contingencies in the ordinary
course of business and records those tax liabilities in accordance with the guidance for accounting for uncertain tax positions. Temporary differences relate
primarily to the timing of deductions for depreciation, stock-based compensation, goodwill amortization relating to the acquisition of
operating divisions, basis differences arising from acquisition accounting, pension and retirement benefits, and various accrued and
prepaid expenses. Deferred tax assets and liabilities are recorded at the rates expected to be in effect when the temporary differences
are expected to reverse. Net Income Per Common Share Available to Common
Stockholders Basic net income per share
available to common stockholders is computed by dividing net income available to common stockholders by the weighted-average number of
common shares outstanding. Diluted net income per share
available to common stockholders is computed by dividing net income available to common stockholders by the sum of the weighted-average
number of common shares and dilutive common share equivalents then outstanding using the treasury stock method. Common share equivalents
consist of the incremental common shares issuable upon the exercise of stock options and 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 twelve months ended
April 2, 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 twelve months ended
April 2, 2022, 179,289 employee stock options and 325 restricted shares were excluded from the calculation of diluted earnings per share
available to common stockholders. For the twelve months ended April 3, 2021, 457,324 employee stock options and 35,780 restricted shares
have been excluded from the calculation of diluted earnings per share available to common stockholders. At March 28, 2020, 350,540 employee
stock options and 1,350 restricted shares have been 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 stockholders.
Fiscal Year Ended
April
2, April
3, March
28,
Net income $ 65,065 $ 89,633 $ 126,036
Preferred stock dividends 12,011 — —
Net income available to common stockholders $ 53,054 $ 89,633 $ 126,036
Denominator:
Denominator for basic net income per share available to common stockholders — weighted-average shares outstanding 26,946,355 24,851,344 24,632,637
Effect of dilution due to employee stock awards 267,877 197,107 289,994
Denominator for diluted net income per share available to common stockholders — weighted-average shares outstanding 27,214,232 25,048,451 24,922,631
Basic net income per share available to common stockholders $ 1.97 $ 3.61 $ 5.12
Diluted net income per share available to common stockholders $ 1.95 $ 3.58 $ 5.06 Impairment of Long-Lived Assets The Company assesses the net
realizable value of its long-lived assets and evaluates such assets for impairment whenever indicators of impairment are present. For
amortizable long-lived assets to be held and used, if indicators of impairment are present, management determines whether the sum of the
estimated undiscounted future cash flows is less than the carrying amount. The amount of asset impairment, if any, is based on the excess
of the carrying amount over its fair value, which is estimated based on projected discounted future operating cash flows using a discount
rate reflecting the Company’s average cost of funds. To date, no indicators of impairment exist other than those resulting in the restructuring
charges already recorded. Long-lived assets to be disposed
of by sale or other means are reported at the lower of carrying amount or fair value, less costs to sell. Foreign Currency Translation and Transactions Assets and liabilities of
the Company’s foreign operations are translated into U.S. dollars using the exchange rate in effect at the balance sheet date. Results
of operations are translated using the average exchange rate prevailing throughout the period. The effects of exchange rate fluctuations
on translating foreign currency assets and liabilities into U.S. dollars are included in accumulated other comprehensive income (loss),
while gains and losses resulting from foreign currency transactions are included in other non-operating expense (income). Fair Value of Measurements Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date (exit price). Inputs used to measure fair value are within a hierarchy consisting of three levels. Level 1 inputs represent unadjusted
quoted prices in active markets for identical assets or liabilities. Level 2 inputs represent unadjusted quoted prices in active markets
for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not
active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs represent unobservable inputs
for the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that
is significant to the fair value measurement. The carrying amounts reported
in the balance sheet for cash and cash equivalents, short-term investments, accounts receivable, prepaids and other current assets, and
accounts payable and accruals, and other current liabilities approximate their fair value due to their short-term nature. The carrying amounts of the
Company’s borrowings under the Revolver, the Term Loan, Foreign Revolver and Foreign Term Loan approximate fair value, as these obligations
have interest rates which vary in conjunction with current market conditions. The carrying value of the mortgage on our Schaublin building
approximates fair value as the rates since entering into the mortgage in fiscal 2013 have not significantly changed. All borrowings have
been classified as Level 2 in the valuation hierarchy. The Senior Notes are reported at carrying value on the consolidated balance sheets.
The fair value of the Senior Notes as of April 2, 2022 was $463,750 and was computed based on quoted market prices (observable inputs).
The Senior Notes are classified within Level 2 of the fair value hierarchy. 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, all of which are presented in the consolidated statements of stockholders’ equity and comprehensive income (loss). The following summarizes the
activity within each component of accumulated other comprehensive income (loss), net of taxes:
Currency Pension and Postretirement Total
Balance at April 3, 2021 $ 445 $ (10,854 ) $ (10,409 )
Other comprehensive income before reclassifications 415 — 415
Amounts recorded in/ reclassified from accumulated other comprehensive loss — 4,194 4,194
Net current period other comprehensive income 415 4,194 4,609
Balance at April 2, 2022 $ 860 $ (6,660 ) $ (5,800 ) Share-Based Compensation The Company recognizes compensation
cost relating to all share-based payment transactions in the financial statements based upon the grant-date fair value of the instruments
issued over the requisite service period. The fair value of each option grant was estimated on the date of grant using the Black-Scholes
pricing model. Recent Accounting Pronouncements Recent Accounting Standards Adopted In December 2019, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, Income Taxes (Topic 740) Simplifying
the Accounting for Income Taxes 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 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. Recent Accounting Standards Yet to Be Adopted In March 2020, the FASB issued ASU 2020-04, Reference
Rate Reform Facilitation of the Effects of Reference Rate Reform on Financial Reporting Other new pronouncements issued
but not effective until after April 2, 2022 are not expected to have a material impact on our financial position, results of operations
or liquidity. |
