See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per
share data)
1. Organization
and Business
RBC Bearings Incorporated, together with its subsidiaries,
is an international manufacturer and marketer of highly engineered precision bearings, components and essential systems for the industrial,
defense and aerospace industries, which are integral to the manufacture and operation of most machines, aircraft and mechanical systems,
to reduce wear to moving parts, facilitate proper power transmission, reduce damage and energy loss caused by friction and control pressure
and flow. The terms “we,” “us,” “our,” “RBC” and the “Company” mean RBC Bearings
Incorporated and its subsidiaries, unless the context indicates another meaning. While we manufacture products in all major categories,
we focus primarily on highly technical or regulated bearing products and engineered products for specialized markets that require sophisticated
design, testing and manufacturing capabilities. We believe our unique expertise has enabled us to garner leading positions in many of
the product markets in which we primarily compete. Over the past 17 years, we have broadened our end markets, products, customer base
and geographic reach. We currently have 56 facilities in 10 countries, of which 37 are manufacturing facilities.
The Company operates in two
reportable business segments—aerospace/defense and industrial—in which it manufactures roller bearing components and assembled
parts and designs and manufactures high-precision roller and ball bearings. The Company sells to a wide variety of original equipment
manufacturers (“OEMs”) and distributors who are widely dispersed geographically. No one customer accounted for more than 11%
of the Company’s net sales in fiscal 2022, 7% of net sales in fiscal 2021 and 9% of net sales in fiscal 2020. The Company’s segments
are further discussed in Note 18 “Reportable Segments.”
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 | |
| |
| | |
| | |
| |
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 Translation | | |
Pension and Postretirement Liability | | |
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. 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 effective 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 15 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 2 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. This guidance is available immediately and
may be implemented in any period prior to the guidance expiration on December 31, 2022. The Company is currently assessing which of its
various contracts will require an update for a new reference rate and will determine the timing for implementation of this guidance after
completing that analysis.
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.
| 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 18):
| |
Fiscal Year Ended | |
| |
April 2,
2022 | | |
April 3,
2021 | | |
March 28,
2020 | |
Aerospace/Defense | |
$ | 381,468 | | |
$ | 396,222 | | |
$ | 507,417 | |
Industrial | |
| 561,469 | | |
| 212,762 | | |
| 220,044 | |
| |
$ | 942,937 | | |
$ | 608,984 | | |
$ | 727,461 | |
The following table disaggregates
total revenue by geographic origin:
|
|
Fiscal Year Ended |
|
|
|
April 2,
2022 |
|
|
April 3,
2021 |
|
|
March 28,
2020 |
|
United States |
|
$ |
833,409 |
|
|
$ |
546,018 |
|
|
$ |
651,381 |
|
International |
|
|
109,528 |
|
|
|
62,966 |
|
|
|
76,080 |
|
|
|
$ |
942,937 |
|
|
$ |
608,984 |
|
|
$ |
727,461 |
|
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:
|
|
Fiscal Year Ended |
|
|
|
April 2,
2022 |
|
|
April 3,
2021 |
|
|
March 28,
2020 |
|
Point-in-time |
|
|
97 |
% |
|
|
96 |
% |
|
|
95 |
% |
Over time |
|
|
3 |
% |
|
|
4 |
% |
|
|
5 |
% |
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Remaining Performance Obligations
Remaining performance obligations
represent the transaction price of orders meeting the definition of a contract in the new revenue standard for which work has not been
performed or has been partially performed and excludes unexercised contract options. The duration of the majority of our contracts, as
defined by ASC Topic 606, is less than one year. The Company has elected to apply the practical expedient, which allows companies to exclude
remaining performance obligations with an original expected duration of one year or less. The aggregate amount of the transaction price
allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $283,612 at
April 2, 2022. The Company expects to recognize revenue on approximately 61% and 87% 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 affect accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract
liabilities) on the consolidated balance sheets. These assets and liabilities are reported on the consolidated balance sheets on an individual
contract basis at the end of each reporting period.
Contract Assets (Unbilled
Receivables) - Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced.
An unbilled receivable is recorded to reflect revenue that is recognized when (1) the cost-to-cost method is applied and (2) such revenue
exceeds the amount invoiced to the customer.
As of April 2, 2022 and April
3, 2021, current contract assets were $3,882 and $5,584, respectively, and included within prepaid expenses and other current assets on
the consolidated balance sheets. The decrease in contract assets was primarily due to the recognition of revenue related to the satisfaction
or partial satisfaction of performance obligations prior to billing partially offset by amounts billed to customers during the period.
As of April 2, 2022 and April 3, 2021, the Company did not have any contract assets classified as noncurrent on the consolidated balance
sheets.
Contract Liabilities (Deferred
Revenue) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior
to revenue being recognized. Since the performance obligations related to such advances may not have been satisfied, a contract liability
is established. Advance payments are not considered a significant financing component as the timing of the transfer of the related goods
or services is at the discretion of the customer.
As of April 2, 2022 and April
3, 2021, current contract liabilities were $19,556 and $16,998, respectively, and included within accrued expenses and other current liabilities
on the consolidated balance sheets. The increase in current contract liabilities was primarily due to advance payments received and the
reclassification of a portion of advance payments received from the noncurrent portion of contract liabilities partially offset by revenue
recognized on customer contracts. $2,205 of contract liabilities were acquired during the year as part of the Dodge acquisition (see Note
8). For the year ended April 2, 2022, the Company recognized revenues of $13,586 that were included in the contract liability balance
as of April 3, 2021. For the year ended April 3, 2021, the Company recognized revenues of $10,355 that were included in the contract liability
balance at March 28, 2020.
As of April 2, 2022 and April
3, 2021, noncurrent contract liabilities were $10,401 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 advance payments received partially
offset by the reclassification of a portion of advance payments received to the current portion of contract liabilities.
Variable Consideration
The amount of consideration to
which the Company expects to be entitled in exchange for 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 $35,234 and $2,674 at April 2, 2022 and April 3, 2021,
respectively, and are included within accrued expenses and other current liabilities on the consolidated balance sheets.
| 4. | Allowance for Doubtful Accounts |
The activity in the allowance
for doubtful accounts consists of the following:
Fiscal Year Ended |
|
Balance at Beginning of Year | | |
Additions | | |
| | |
Write-offs | | |
Balance at End of Year |
April 2, 2022 |
|
$ | 1,792 | | |
$ | 1,436 | | |
$ | (140 | ) | |
$ | (351 | ) | |
$2,737 |
April 3, 2021 |
|
| 1,627 | | |
| 480 | | |
| (86 | ) | |
| (229 | ) | |
1,792 |
March 28, 2020 |
|
| 1,430 | | |
| 263 | | |
| 13 | | |
| (79 | ) | |
1,627 |
| * | Foreign currency, price discrepancies, customer returns, disposition
and acquisition transactions. |
Inventories are
summarized below:
| |
April 2, 2022 | | |
April 3, 2021 | |
Raw materials | |
$ | 112,651 | | |
$ | 57,764 | |
Work in process | |
| 122,983 | | |
| 86,183 | |
Finished goods | |
| 280,506 | | |
| 220,200 | |
| |
$ | 516,140 | | |
$ | 364,147 | |
| 6. | Property, Plant and Equipment |
Property, plant and equipment
consist of the following:
|
|
April 2,
2022 |
|
|
April 3,
2021 |
|
Land |
|
$ |
24,188 |
|
|
$ |
17,658 |
|
Buildings and improvements |
|
|
170,131 |
|
|
|
90,668 |
|
Machinery and equipment |
|
|
444,719 |
|
|
|
322,949 |
|
|
|
|
639,038 |
|
|
|
431,275 |
|
Less: accumulated depreciation |
|
|
(252,306 |
) |
|
|
(223,011 |
) |
|
|
$ |
386,732 |
|
|
$ |
208,264 |
|
Depreciation expense was $30,840, $22,527 and
$21,808 for the twelve-month periods ended April 2, 2022, April 3, 2021 and March 28, 2020, respectively.
Finance Leases
For the year ended April 2,
2022, $50,371 of assets included in buildings and improvements and $1,220 of assets included in machinery and equipment were accounted
for as finance leases. These finance leases were acquired as part of the Dodge acquisition discussed in Note 8. The Company did not have
any finance leases as of April 3, 2021. At April 2, 2022, the Company had accumulated amortization of $1,310 associated with these assets.
Amortization expense associated with these finance leases was $1,310 and is included within depreciation expense as mentioned above.
The Company enters into leases for manufacturing
facilities, warehouses, sales offices, information technology equipment, plant equipment, vehicles and certain other equipment with varying
end dates from April 2022 to November 2041, including renewal options.
The following table represents
the impact of leasing on the consolidated balance sheets:
Assets: | |
Balance Sheet Classification | |
| | |
| |
Operating lease assets, net | |
Operating lease assets, net | |
$ | 44,535 | | |
$ | 35,664 | |
Finance lease right of use assets, net | |
Property, plant and equipment, net | |
| 51,591 | | |
| — | |
Total leased assets, net | |
| |
$ | 96,126 | | |
$ | 35,664 | |
| |
| |
| | | |
| | |
Liabilities: | |
| |
| | | |
| | |
Current operating lease liabilities | |
Current operating lease liabilities | |
| 8,059 | | |
| 5,726 | |
Current finance lease liabilities | |
Accrued expenses and other current liabilities | |
| 3,863 | | |
| — | |
Noncurrent operating lease liabilities | |
Noncurrent operating lease liabilities | |
| 36,680 | | |
| 29,982 | |
Noncurrent finance lease liabilities | |
Other noncurrent liabilities | |
| 48,049 | | |
| — | |
Total lease liabilities | |
| |
$ | 96,651 | | |
$ | 35,708 | |
Cash paid included in the measurement of operating
lease liabilities was $7,826 and $6,869 for the twelve-month periods ended April 2, 2022 and April 3, 2021, respectively, all of which
were included within the operating cash flow section of the consolidated statements of cash flows. Lease assets obtained in exchange for
new operating lease liabilities were $11,639 and $1,637 for the twelve-month periods ended April 2, 2022 and April 3, 2021, respectively.
Of the $11,639 of operating lease assets obtained for new operating lease liabilities during fiscal 2022, $9,768 were obtained on November
1, 2021 as part of the Dodge acquisition. Lease modifications which resulted in newly obtained lease assets in exchange for new operating
lease liabilities were $3,338 for the twelve-month period ended April 2, 2022 and were $11,110 for the twelve-month period ended April
3, 2021.
Cash paid included in the measurement of finance
lease liabilities was $1,646 for the twelve-month periods ended April 2, 2022 and was included within the financing cash flow section
of the consolidated statements of cash flows. Lease assets obtained in exchange for new finance lease liabilities were $52,902 for the
twelve- month period ended April 2, 2022, of which, $39,030 were obtained on November 1, 2021 as part of the Dodge acquisition. Lease
modifications which resulted in newly obtained lease assets in exchange for new finance lease liabilities were $0 for the twelve-month
period ended April 2, 2022.
Total operating lease expense
was $8,282, $7,647 and $7,079 for the twelve-month periods ended April 2, 2022, April 3, 2021 and March 28, 2020, respectively. Short-term
and variable lease expense were immaterial.
Total finance lease expense was $1,967 for the twelve-month period ended April 2, 2022, of
which, $1,310 was related to amortization expense of finance lease assets and $657 was related to interest expense.
Future undiscounted lease
payments for the remaining lease terms as of April 2, 2022, including renewal options reasonably certain of being exercised, are as follows:
| |
Operating
Leases | |
Within one year | |
$ | 8,214 | |
One to two years | |
| 6,663 | |
Two to three years | |
| 5,123 | |
Three to four years | |
| 4,521 | |
Four to five years | |
| 4,559 | |
Thereafter | |
| 24,075 | |
Total future undiscounted lease payments | |
| 53,155 | |
Less: imputed interest | |
| (8,416 | ) |
Total operating lease liabilities | |
$ | 44,739 | |
| |
Finance
Leases | |
Within one year | |
$ | 3,927 | |
One to two years | |
| 3,813 | |
Two to three years | |
| 3,905 | |
Three to four years | |
| 3,906 | |
Four to five years | |
| 4,019 | |
Thereafter | |
| 49,316 | |
Total future undiscounted lease payments | |
| 68,886 | |
Less: imputed interest | |
| (16,974 | ) |
Total finance lease liabilities | |
$ | 51,912 | |
The weighted-average remaining
lease term on April 2, 2022 for our operating leases is 10.3 years. The weighted-average discount rate on April 2, 2022 for our operating
leases is 3.7%.
The weighted-average remaining
lease term on April 2, 2022 for our finance leases is 17.1 years. The weighted-average discount rate on April 2, 2022 for our finance
leases is 3.3%.
On 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) $1,285,761 of borrowing under the Term Loan Facility, net of issuance costs, (ii) $1,050,811 of net proceeds from the common
stock and MCPS offerings, (iii) $494,200 of net proceeds from the Senior Notes offering, and (iv) approximately $77,469 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 offices in Greenville, South Carolina, Dodge
is a leading manufacturer of mounted bearings, gearings 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.
When the Company entered into
the Dodge acquisition agreement in July 2021, its obligation 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 15 and 11 and cash on hand.
Acquisition costs incurred
for the fiscal year ended April 2, 2022 totaled $22,598 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 | |
| 136,376 | |
Prepaid expenses and other current assets | |
| 1,261 | s |
Property, plant and equipment | |
| 165,109 | |
Operating lease assets | |
| 9,768 | |
Goodwill | |
| 1,624,793 | |
Other intangible assets | |
| 1,385,082 | |
Other noncurrent assets | |
| 3,672 | |
Accounts payable | |
| 69,757 | |
Accrued rebates | |
| 30,184 | |
Accrued expenses and other current liabilities | |
| 46,699 | |
Deferred tax liabilities | |
| 299,711 | |
Other noncurrent liabilities | |
| 57,001 | |
Net assets acquired | |
| 2,990,109 | |
Less cash received | |
| 81,868 | |
Net consideration | |
$ | 2,908,241 | |
The goodwill associated with
this 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. $44,952 of the acquired goodwill is
deductible for tax purposes.
The fair value of the identifiable
intangible assets of $1,385,082, consisting primarily of customer relationships and trade names, 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 $291,873 of revenue and $29,260 of operating income for the fiscal year ended April 2, 2022. The following
table reflects the unaudited pro forma operating results of the Company for the twelve month periods ended April 2, 2022, April 3, 2021
and March 28, 2020, which gives effect to the acquisition of Dodge as if the Company had been acquired on March 31, 2019. 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 31, 2019, 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.
|
|
Fiscal Year Ended |
|
|
|
April 2,
2022 |
|
|
April 3,
2021 |
|
|
March 28,
2020 |
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,327,559 |
|
|
$ |
1,182,017 |
|
|
$ |
1,322,910 |
|
Net income |
|
$ |
123,418 |
|
|
$ |
99,438 |
|
|
$ |
104,980 |
|
Basic net income per share available to common stockholders |
|
$ |
3.52 |
|
|
$ |
2.69 |
|
|
$ |
2.92 |
|
Diluted net income per share available to common stockholders |
|
$ |
3.48 |
|
|
$ |
2.67 |
|
|
$ |
2.89 |
|
Upon 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 benefits, 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 $8,003 through April 2, 2022 and were included
in other, net on the Company’s consolidated statement of operations.
| 9. | Goodwill and Intangible Assets |
Goodwill
Goodwill balances, by segment,
consist of the following:
| |
Plain | | |
Roller | | |
Ball | | |
Engineered Products | | |
Aerospace/
Defense | | |
Industrial | | |
Total | |
March 28, 2020 | |
$ | 79,597 | | |
$ | 16,007 | | |
$ | 5,623 | | |
$ | 176,549 | | |
| — | | |
| — | | |
$ | 277,776 | |
Acquisition (3) | |
| — | | |
| — | | |
| — | | |
| (383 | ) | |
| — | | |
| — | | |
| (383 | ) |
Translation adjustments | |
| — | | |
| — | | |
| — | | |
| 143 | | |
| — | | |
| — | | |
| 143 | |
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) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,624,793 | | |
| 1,624,793 | |
Translation adjustments | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (225 | ) | |
| (225 | ) |
April 2, 2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
$ | 194,124 | | |
$ | 1,707,980 | | |
$ | 1,902,104 | |
(1) | Represents reallocation of goodwill as a result of our change
in segments in the third quarter of fiscal 2022. See Note 18 for further details. |
(2) | Goodwill associated with the acquisition of Dodge discussed further
in Note 8. |
(3) | Includes a reduction of goodwill recognized due to opening balance
sheet adjustments made during the measurement period of the Company’s acquisition of Vianel Holding AG (“Swiss Tool”)
on August 15, 2019. |
Intangible Assets
|
|
|
|
|
April 2, 2022 |
|
|
April 3, 2021 |
|
|
|
Weighted Average Useful Lives |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
Product approvals |
|
|
24 |
|
|
$ |
50,878 |
|
|
$ |
16,680 |
|
|
$ |
50,878 |
|
|
$ |
14,691 |
|
Customer relationships and lists (1) |
|
|
24 |
|
|
|
1,294,577 |
|
|
|
53,376 |
|
|
|
109,762 |
|
|
|
28,253 |
|
Trade names (1) |
|
|
25 |
|
|
|
216,340 |
|
|
|
15,073 |
|
|
|
16,333 |
|
|
|
10,392 |
|
Distributor agreements |
|
|
5 |
|
|
|
722 |
|
|
|
722 |
|
|
|
722 |
|
|
|
722 |
|
Patents and trademarks |
|
|
16 |
|
|
|
12,342 |
|
|
|
6,607 |
|
|
|
11,612 |
|
|
|
6,211 |
|
Domain names |
|
|
10 |
|
|
|
437 |
|
|
|
437 |
|
|
|
437 |
|
|
|
437 |
|
Other (1) |
|
|
3 |
|
|
|
9,720 |
|
|
|
4,887 |
|
|
|
3,745 |
|
|
|
2,665 |
|
|
|
|
|
|
|
|
1,585,016 |
|
|
|
97,782 |
|
|
|
193,489 |
|
|
|
63,371 |
|
Non-amortizable repair station certifications |
|
|
n/a |
|
|
|
24,281 |
|
|
|
— |
|
|
|
24,281 |
|
|
|
— |
|
Total |
|
|
24 |
|
|
$ |
1,609,297 |
|
|
$ |
97,782 |
|
|
$ |
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 fiscal years 2022, 2021 and 2020 was $34,692, $10,217 and $9,612, respectively. Estimated amortization
expense for the five succeeding fiscal years and thereafter is as follows:
2023 | |
$ | 68,324 | |
2024 | |
| 68,318 | |
2025 | |
| 67,854 | |
2026 | |
| 64,700 | |
2027 | |
| 63,664 | |
2028 and thereafter | |
| 1,154,374 | |
| 10. | Accrued Expenses and Other Current Liabilities |
The significant components
of accrued expenses and other current liabilities are as follows:
|
|
April 2,
2022 |
|
|
April 3,
2021 |
|
Employee compensation and related benefits |
|
$ |
34,697 |
|
|
$ |
11,846 |
|
Taxes |
|
|
11,706 |
|
|
|
2,896 |
|
Contract liabilities |
|
|
19,556 |
|
|
|
16,998 |
|
Accrued rebates |
|
|
35,234 |
|
|
|
2,674 |
|
Workers compensation and insurance |
|
|
1,144 |
|
|
|
2,915 |
|
Acquisition costs |
|
|
4,568 |
|
|
|
— |
|
Current finance lease liabilities |
|
|
3,863 |
|
|
|
— |
|
Accrued preferred stock dividends |
|
|
4,919 |
|
|
|
— |
|
Interest |
|
|
10,987 |
|
|
|
37 |
|
Audit fees |
|
|
599 |
|
|
|
89 |
|
Legal |
|
|
450 |
|
|
|
380 |
|
Other |
|
|
17,529 |
|
|
|
5,729 |
|
|
|
$ |
145,252 |
|
|
$ |
43,564 |
|
Domestic Credit Facility
On November 1, 2021 RBCA entered
into the New Credit Agreement with Wells Fargo as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer
and the other lenders party thereto, and terminated the 2015 Credit Agreement. The New Credit Agreement provides the Company with (a)
a $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 “Revolving Credit
Facility” and together with the Term Loan Facility, the “Facilities”). Debt issuance costs associated with the New Credit
Agreement totaled $14,947 and will be amortized over the life of the New Credit Agreement using the effective interest method. When the
2015 Credit Agreement was terminated the Company wrote off $890 of previously unamortized debt issuance costs.
Amounts outstanding under
the Facilities generally bear interest at either, at the Company’s option, (a) a base rate determined by reference to the higher
of (i) Wells Fargo’s prime lending rate, (ii) the federal funds effective rate plus 1/2 of 1.00% and (iii) the one-month LIBOR rate
plus 1.00% or (b) the LIBOR rate plus a specified margin, depending on the type of borrowing being made. The applicable margin is based
on the Company’s consolidated ratio of total net debt to consolidated EBITDA from time to time. Currently, the Company’s margin is 0.75%
for base rate loans and 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 April 2, 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 $0
for fiscal 2023, $30,000 for fiscal 2024, $97,500 for fiscal 2025, $130,000 for fiscal 2026, and $942,500 for fiscal 2027.
The New Credit Agreement requires
the Company to comply with various covenants, including the following financial covenants beginning with the test period ending December
31, 2021: (a) a maximum 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 period of 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.
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’ guaranty are secured by a pledge of substantially all of the domestic assets of the Company and its domestic
subsidiaries.
As of April 2, 2022, $1,200,000
was outstanding under the Term Loan Facility and approximately $3,550 of the Revolving Credit Facility was being utilized to provide letters
of credit to secure the Company’s obligations relating to certain insurance programs, and the Company had the ability to borrow
up to an additional $496,450 under the Revolving Credit Facility. The Term Loan is reported at carrying value on the consolidated balance
sheets.
Senior Notes
On October 7, 2021, RBCA issued
$500,000 aggregate principal amount of 4.375% Senior Notes due 2029. 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. Debt issuance cost associated with the Senior
Notes totaled $8,008 and will be amortized over the life of the Senior Notes using the effective interest method.
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.
Foreign Term Loan and Revolving Credit Facility
On August 15, 2019, one of
our foreign subsidiaries, 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 was extinguished in
February 2022 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). When the Foreign Term Loan was extinguished, Schaublin wrote off $73 of previously unamortized debt issuance
costs.
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 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 April 2, 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 April 2, 2022, the Foreign Term Loan has
been paid, with no balance outstanding. There were no amounts outstanding under the Foreign Revolver. Schaublin has the ability to borrow
up to an additional $16,202 under the Foreign Revolver as of April 2, 2022.
The balances payable under all borrowing facilities
are as follows:
|
|
April 2,
2022 |
|
|
April 3,
2021 |
|
Revolver and term loan facilities |
|
$ |
1,200,000 |
|
|
$ |
11,657 |
|
Senior notes |
|
|
500,000 |
|
|
|
— |
|
Debt issuance cost |
|
|
(20,895 |
) |
|
|
(1,216 |
) |
Other |
|
|
9,236 |
|
|
|
5,666 |
|
Total debt |
|
|
1,688,341 |
|
|
|
16,107 |
|
Less: current portion |
|
|
1,543 |
|
|
|
2,612 |
|
Long-term debt |
|
$ |
1,686,798 |
|
|
$ |
13,495 |
|
| 12. | Other Noncurrent Liabilities |
The significant components
of other noncurrent liabilities consist of:
| |
| | |
| |
Other postretirement benefits | |
$ | 16,306 | | |
$ | 7,807 | |
Noncurrent income tax liability | |
| 18,054 | | |
| 18,658 | |
Deferred compensation | |
| 26,380 | | |
| 25,189 | |
Contract liabilities | |
| 10,401 | | |
| 3,754 | |
Noncurrent finance lease liabilities | |
| 48,049 | | |
| — | |
Other | |
| 1,219 | | |
| 8 | |
| |
$ | 120,409 | | |
$ | 55,416 | |
| 13. | Employee Benefit Plans |
At April 2, 2022, the Company
has one consolidated noncontributory defined benefit pension plan covering union employees in its Heim division plant in Fairfield, Connecticut,
its Plymouth subsidiary plant in Plymouth, Indiana and former union employees of the Tyson subsidiary in Glasgow, Kentucky and the Nice
subsidiary in Kulpsville, Pennsylvania.
Plan assets are comprised primarily
of equity and fixed income investments. As of April 2, 2022 and April 3, 2021, plan assets were $26,022 and $27,238, respectively.
The fair value of the above
investments is determined using quoted market prices of identical instruments. Therefore, the valuation inputs within the fair value hierarchy
established by ASC 820 are classified as Level 1 of the valuation hierarchy.
Benefits under the union plans
are not a function of employees’ salaries; thus, the accumulated benefit obligation equals the projected benefit obligation. At April
2, 2022 and April 3, 2021, the projected benefit obligation was $22,838 and $25,380, respectively.
The discount rates used in
determining the funded status as of April 2, 2022 and April 3, 2021 were 3.30% and 2.70%, respectively.
The funded status of the Company’s
defined benefit pension plan and the amount recognized in the balance sheet at April 2, 2022 and April 3, 2021 were $3,184 and $1,858,
respectively. These overfunded amounts are included within noncurrent assets on the consolidated balance sheets.
Net periodic benefit cost for
fiscal years 2022, 2021 and 2020 was $42, $529 and $276, respectively. The discount rate used to determine net periodic benefit cost for
fiscal years 2022, 2021 and 2020 was 2.70%, 2.80% and 3.50%, respectively.
Two of the Company’s
foreign operations, Schaublin and Swiss Tool, sponsor pension plans for their approximately 143 and 31 employees, respectively, in conformance
with Swiss pension law. The Schaublin plan is funded with an independent semi-autonomous collective provident foundation whereas the Swiss
Tool plan is funded with a reputable Swiss insurer. The unfunded liabilities of these plans at April 2, 2022 were $3,073. For fiscal years
2022, 2021 and 2020, net periodic benefit cost for these plans was $1,660, $1,123 and $1,101, respectively.
The Company has defined contribution
plans under Section 401(k) of the Internal Revenue Code for all of its employees not covered by a collective bargaining agreement.
Employer contributions under this plan, ranging from 10%-100% of eligible amounts contributed by employees, amounted to $4,601, $2,162
and $2,212 in fiscal 2022, 2021 and 2020, respectively.
The Company maintains a non-qualified
Supplemental Executive Retirement Plan (“SERP”) for a select group of senior management employees. When the SERP was initially
adopted in 1996, it allowed eligible employees to elect to defer, until termination of their employment, the receipt of up to 25% of their
salary. In August 2008, the plan was modified to allow eligible employees to elect to defer up to 75% of their current salary and up to
100% of bonus compensation. As of April 2, 2022 and April 3, 2021, the SERP assets were $29,020 and $27,856, respectively, and are included
within other assets on the consolidated balance sheets. As of April 2, 2022 and April 3, 2021, the SERP liabilities were $24,861 and $24,178,
respectively, and are included within accrued expenses and other current liabilities and other noncurrent liabilities on the balance sheets.
The Company also maintains a similar SERP for employees of the newly acquired Dodge division with SERP assets as of April 2, 2022 of $1,486
and SERP liabilities of $1,519. These amounts are included within the same balance sheet line items as the other SERP maintained by the
Company.
The Company, for the benefit
of employees at its Heim, West Trenton, Plymouth and PIC facilities and former union employees of its Tyson and Nice subsidiaries, sponsors
contributory defined benefit health care plans that provide postretirement medical and life insurance benefits to union employees who
have attained certain age and/or service requirements while employed by the Company. The plans are unfunded and costs are paid as incurred.
Postretirement benefit obligations were $2,291and $2,646 at April 2, 2022 and April 3, 2021, respectively. Of these amounts, $151 and
$174 are considered current and are included within accrued expenses and other current liabilities on the consolidated balance sheets
as of April 2, 2022 and April 3, 2021, respectively. The remainder of the balances are included in other noncurrent liabilities in the
consolidated balance sheets. The Company also maintains a frozen defined benefit heath care plan for employees of the newly acquired Dodge
division with postretirement benefit obligations of $10,000, of which, $1,168 was considered current. The amounts are included within
the same balance sheet line items as other postretirement health care plans maintained by the Company.
Income before income taxes for the Company’s domestic
and foreign operations is as follows:
| |
Fiscal Year Ended | |
| |
| | |
| | |
| |
Domestic | |
$ | 77,773 | | |
$ | 105,434 | | |
$ | 148,154 | |
Foreign | |
| 9,946 | | |
| 4,625 | | |
| 5,985 | |
Total income before income taxes | |
$ | 87,719 | | |
$ | 110,059 | | |
$ | 154,139 | |
The provision for income taxes consists of the
following:
|
|
Fiscal Year Ended |
|
|
|
April 2,
2022 |
|
|
April 3,
2021 |
|
|
March 28,
2020 |
|
Current tax expense: |
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
18,329 |
|
|
$ |
15,171 |
|
|
$ |
16,370 |
|
State |
|
|
2,593 |
|
|
|
1,100 |
|
|
|
2,578 |
|
Foreign |
|
|
2,933 |
|
|
|
2,646 |
|
|
|
2,653 |
|
|
|
|
23,855 |
|
|
|
18,917 |
|
|
|
21,601 |
|
Deferred tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(1,892 |
) |
|
|
336 |
|
|
|
6,210 |
|
State |
|
|
(278 |
) |
|
|
1,210 |
|
|
|
1,076 |
|
Foreign |
|
|
969 |
|
|
|
(37 |
) |
|
|
(784 |
) |
|
|
|
(1,201 |
) |
|
|
1,509 |
|
|
|
6,502 |
|
Total income taxes |
|
$ |
22,654 |
|
|
$ |
20,426 |
|
|
$ |
28,103 |
|
An analysis of the difference
between the provision for income taxes and the amount computed by applying the U.S. statutory income tax rate to pre-tax income follows:
| |
Fiscal Year Ended | |
| |
| | |
| | |
| |
Income taxes using U.S. federal statutory rate | |
$ | 18,421 | | |
$ | 23,113 | | |
$ | 32,369 | |
State income taxes, net of federal benefit | |
| 1,931 | | |
| 2,083 | | |
| 2,851 | |
Stock-based compensation | |
| (2,646 | ) | |
| (2,056 | ) | |
| (3,834 | ) |
Foreign rate differential | |
| 1,603 | | |
| 1,638 | | |
| 613 | |
Transition tax | |
| — | | |
| — | | |
| 135 | |
Research and development credits | |
| (1,492 | ) | |
| (1,258 | ) | |
| (1,737 | ) |
Company-owned life insurance | |
| (37 | ) | |
| (1,173 | ) | |
| 334 | |
Foreign derived intangible income (FDII) | |
| (1,489 | ) | |
| (1,088 | ) | |
| (1,569 | ) |
U.S. unrecognized tax positions | |
| 2,142 | | |
| 4 | | |
| (146 | ) |
Acquisition costs | |
| 1,654 | | |
| — | | |
| — | |
Valuation allowance | |
| 2,273 | | |
| 200 | | |
| 147 | |
Other - net | |
| 294 | | |
| (1,037 | ) | |
| (1,060 | ) |
| |
$ | 22,654 | | |
$ | 20,426 | | |
$ | 28,103 | |
Net deferred tax assets (liabilities) are comprised
of the following:
| |
| | |
| |
Deferred tax assets: | |
| | |
| |
Pension and postretirement benefits | |
$ | 2,725 | | |
$ | 1,021 | |
Employee compensation accruals | |
| 8,186 | | |
| 7,080 | |
Inventory | |
| 14,121 | | |
| 9,269 | |
Operating lease liabilities | |
| 8,839 | | |
| 8,527 | |
Finance lease liabilities | |
| 7,676 | | |
| — | |
Stock compensation | |
| 3,462 | | |
| 6,132 | |
Tax loss and credit carryforwards | |
| 12,121 | | |
| 10,942 | |
State tax | |
| 1,377 | | |
| 1,441 | |
Other accrued liabilities | |
| 11,422 | | |
| 1,233 | |
Other | |
| 2,344 | | |
| 919 | |
Total gross deferred tax assets | |
| 72,273 | | |
| 46,564 | |
Valuation allowance | |
| (8,655 | ) | |
| (6,292 | ) |
Total deferred tax assets | |
$ | 63,618 | | |
$ | 40,272 | |
Deferred tax liabilities: | |
| | |
| |
Property, plant and equipment | |
$ | (42,702 | ) | |
$ | (20,744 | ) |
Operating lease assets | |
| (8,884 | ) | |
| (8,492 | ) |
Other | |
| (2,860 | ) | |
| (2,657 | ) |
Intangible assets | |
| (324,431 | ) | |
| (25,557 | ) |
Total deferred tax liabilities | |
$ | (378,877 | ) | |
$ | (57,450 | ) |
| |
| | | |
| | |
Total net deferred liabilities | |
$ | (315,259 | ) | |
$ | (17,178 | ) |
The Company evaluates deferred tax assets to ensure that the estimated
future taxable income will be sufficient in character (i.e. capital versus ordinary income treatment), amount and timing to result in
their recovery. After considering the positive and negative evidence, a valuation allowance has been recorded on foreign tax credits and
on certain state and foreign credits and net operating losses as it is more likely than not (i.e. greater than a 50% likelihood) that
these items will not be utilized. For the Company’s fiscal year ended April 2, 2022 the valuation allowance increased by $2,363,
which primarily pertained to a capital loss carryforward and an increase of U.S. federal and state credits. For the Company’s fiscal
year ended April 3, 2021 the valuation allowance increased by $2,042, which pertained to an increase of U.S. federal and state credits.
These valuation allowances are required because management has determined, based on financial projections and available tax strategies,
that it is unlikely the net operating losses and credits will be utilized before they expire. If events or circumstances change, valuation
allowances are adjusted at that time resulting in an income tax benefit or charge.
At April 2, 2022, the Company had state net operating loss carryovers
in different jurisdictions at varying amounts up to $7,332, which expire at various dates through 2036. At April 2, 2022, the Company
had foreign net operating loss carryovers in different jurisdictions at varying amounts up to $3,367 which will expire at various dates
through fiscal 2040. At April 2, 2022, the Company had U.S. federal and state credits in different jurisdictions at varying amounts up
to $9,359 which will expire at various dates through 2036. At April 2, 2022, the Company had Canadian investment tax credits up to $210
which will expire at various dates through 2037.
Under accounting standards (ASC 740) a deferred
tax liability is not recorded for the excess of the tax basis over the financial reporting (book) basis of an investment in a foreign
subsidiary if the indefinite reinvestment criteria is met. The Tax Cuts and Jobs Act (TCJA) required a mandatory deemed repatriation of
certain undistributed earnings of the Company’s foreign subsidiaries as of December 31, 2017, and income taxes were accrued accordingly.
If these deemed repatriated earnings were distributed in the form of cash dividends, the Company would not be subject to additional U.S.
income taxes, other than tax arising from the movement of foreign exchange rates on previously taxed earnings, but could be subject to
foreign income and withholding taxes. A provision has not been made for additional U.S. and foreign taxes at April 2, 2022 on approximately
$40,711 of undistributed earnings of foreign subsidiaries or for any additional tax on the deemed repatriated earnings because the Company
intends to reinvest these funds indefinitely to support foreign growth opportunities. Due to the inherent complexity of the multinational
tax environment in which the company operates, it is not practicable to estimate the unrecognized deferred tax liability on these undistributed
earnings. These earnings could become subject to additional tax under certain circumstances including, but not limited to, loans to the
Company, or upon sale or pledging of the foreign subsidiary’s stock.
Uncertain Tax Positions
Unrecognized income tax benefits
represent income tax positions taken on income tax returns but not yet recognized in the consolidated financial statements. If recognized,
substantially all of the unrecognized tax benefits for the Company’s fiscal years ended April 2, 2022 and April 3, 2021 would affect
the effective income tax rate.
A reconciliation of the beginning and ending amount
of unrecognized tax benefits is as follows:
| |
April 2,
2022 | | |
April 3,
2021 | | |
March 28,
2020 | |
Balance, beginning of year | |
$ | 14,617 | | |
$ | 14,212 | | |
$ | 13,479 | |
Gross increases (decreases) – tax positions taken during a prior period | |
| 415 | | |
| (166 | ) | |
| 123 | |
Gross increases – tax positions taken during the current period | |
| 3,888 | | |
| 2,016 | | |
| 1,702 | |
Reductions due to lapse of the applicable statute of limitations | |
| (1,764 | ) | |
| (1,445 | ) | |
| (1,092 | ) |
Balance, end of year | |
$ | 17,156 | | |
$ | 14,617 | | |
$ | 14,212 | |
The Company recognizes the
interest and penalties accrued related to unrecognized tax benefits in income tax expense. The Company recognized expense of $61, $86
and $213 of interest and penalties on its statement of operations for the fiscal years ended April 2, 2022, April 3, 2021 and March 28,
2020, respectively. The Company had approximately $1,431 and $1,492 of accrued interest and penalties at April 2, 2022 and April 3, 2021,
respectively.
The Company believes it is
reasonably possible that some of its unrecognized tax positions may be effectively settled by the end of the Company’s fiscal year
ending April 1, 2023 due to the closing of audits and the statute of limitations expiring in various jurisdictions. The decrease, pertaining
primarily to federal and state credits and state tax, is estimated to be $1,734.
The Company files income tax returns in numerous U.S. and foreign jurisdictions,
with returns subject to examination for varying periods, but generally back to and including the year ending March 30, 2019, although
certain tax credits generated in earlier years are open under statute from April 2, 2005. The Company is no longer subject to U.S. federal
tax examination by the Internal Revenue Service for years ending before March 31, 2019.
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 $445,319 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.
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. The Company made a $7,092 dividend payment on January 15, 2022 and had
accrued $4,919 as of April 2, 2022 for dividends to be paid out on April 15, 2022.
The MCPS has a liquidation
preference of $100 per share plus accrued and unpaid dividends. As of April 2, 2022, the MCPS had an aggregate liquidation preference
of $464,919.
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 $605,492 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.
Long-Term Equity Incentive Plans
2013 Long-Term Incentive Plan
The 2013 Long-Term Incentive
Plan provides for grants of stock options, stock appreciation rights, restricted stock and performance awards. The purpose of the Plan
is to provide our directors, officers and other employees and persons who engage in services for us with incentives to maximize stockholder
value and otherwise contribute to our success and to enable us to attract, retain and reward the best available persons for positions
of responsibility.
1,500,000 shares of common
stock were authorized for issuance under the Plan, subject to adjustment in the event of a reorganization, stock split, merger or similar
change in the Company’s corporate structure or in the outstanding shares of common stock. The Company may grant shares of restricted
stock to its employees and directors in the future under the Plan. The Company’s Compensation Committee administers the Plan. The
Company’s Board also has the authority to administer the Plan and to take all actions that the Compensation Committee is otherwise
authorized to take under the Plan. The terms and conditions of each award made under the Plan, including vesting requirements, is set
forth consistent with the Plan in a written agreement with the grantee.
2017 Long-Term Incentive Plan
The 2017 Long-Term Incentive
Plan provides for grants of stock options, stock appreciation rights, restricted stock and performance awards. Directors, officers and
other employees and persons who engage in services for the Company are eligible for grants under the Plan. The purpose of the Plan is
to provide these individuals with incentives to maximize stockholder value and otherwise contribute to the Company’s success and
to enable the Company to attract, retain and reward the best available persons for positions of responsibility.
1,500,000 shares of common
stock were authorized for issuance under the Plan, subject to adjustment in the event of a reorganization, stock split, merger or similar
change in the Company’s corporate structure or in the outstanding shares of common stock. The Company may grant shares of restricted
stock to its employees and directors in the future under the Plan. The Company’s Compensation Committee administers the Plan. The
Company’s Board also has the authority to administer the Plan and to take all actions that the Compensation Committee is otherwise
authorized to take under the Plan. The terms and conditions of each award made under the Plan, including vesting requirements, is set
forth consistent with the Plan in a written agreement with the grantee.
2021 Long-Term Incentive Plan
The 2021 Long-Term Incentive
Plan provides for grants of stock options, stock appreciation rights, restricted stock and performance awards. Directors, officers and
other employees and persons who engage in services for the Company are eligible for grants under the Plan. The purpose of the Plan is
to provide these individuals with incentives to maximize stockholder value and otherwise contribute to the Company’s success and
to enable the Company to attract, retain and reward the best available persons for positions of responsibility.
1,500,000 shares of common stock were authorized for issuance under the Plan, subject to
adjustment in the event of a reorganization, stock split, merger or similar change in the Company’s corporate structure or in the
outstanding shares of common stock. The Company may grant shares of restricted stock to its employees and directors in the future under
the Plan. The Company’s Compensation Committee administers the Plan. The Company’s Board also has the authority to administer
the Plan and to take all actions that the Compensation Committee is otherwise authorized to take under the Plan. The terms and conditions
of each award made under the Plan, including vesting requirements, is set forth consistent with the Plan in a written agreement with the
grantee.
Stock Options. Under the Plans, the Compensation
Committee or the Board may approve the award of grants of incentive stock options and other non-qualified stock options. The Compensation
Committee also has the authority to approve the grant of options that will become fully vested and exercisable automatically upon a change
in control. The Compensation Committee may not, however, approve an award to any one person in any calendar year for options to purchase
common stock equal to more than 10% of the total number of shares authorized under the relevant Plan, and it may not approve an award
of incentive options first exercisable in any calendar year whose underlying shares have a fair market value greater than $100 determined
at the time of grant. The Compensation Committee will approve the exercise price and term of any option in its discretion; however, the
exercise price may not be less than 100% of the fair market value of a share of common stock on the date of grant. Under the 2013 and
2017 Plans, any incentive stock option must be exercised within seven years of the date of grant. Under the 2021 Plan, any incentive stock
option must be exercised within ten years of the date of grant. Under the Plans, the exercise price of an incentive option awarded to
a person who owns stock constituting more than 10% of the Company’s voting power may not be less than 110% of such fair market value
on such date and the option must be exercised within five years of the date of grant. There were 177,512 outstanding options to purchase
shares of common stock granted under the 2013 Long-Term Incentive Plan, 138,052 of which were exercisable. There were 518,375 outstanding
options to purchase shares of common stock granted under the 2017 Long-Term Incentive Plan, 92,461 of which were exercisable. There were
no outstanding options to purchase shares of common stock granted under the 2021 Long-Term Incentive Plan.
Restricted Stock. Under
the Plans, the Compensation Committee may approve the award of restricted stock subject to the conditions and restrictions, and for the
duration that it determines in its discretion. Under the 2017 and 2021 Long-Term Incentive Plans, the number of shares that may be used
for restricted stock or restricted unit grants under the Plan may not exceed 50% of the total authorized number of shares under the Plan.
As of April 2, 2022, there were 11,170, 217,479 and zero shares of restricted stock outstanding under the 2013, 2017 and 2021 Long-Term
Incentive Plans, respectively.
Stock Appreciation Rights.
The Compensation Committee may approve the grant of stock appreciation rights, or SARs, subject to the terms and conditions contained
in the Plans. The exercise price of a SAR must equal the fair market value of a share of the Company’s common stock on the date
the SAR was granted. Upon exercise of a SAR, the grantee will receive an amount in shares of our common stock equal to the difference
between the fair market value of a share of common stock on the date of exercise and the exercise price of the SAR, multiplied by the
number of shares as to which the SAR is exercised. There were no SARs issued or outstanding under the Plans as of April 2, 2022.
Performance Awards. The Compensation Committee
may approve the grant of performance awards contingent upon achievement by the grantee or by the Company, of set goals and objectives
regarding specified performance criteria, over a specified performance cycle. Awards may include specific dollar-value target awards,
performance units, the value of which is established at the time of grant, and/or performance shares, the value of which is equal to the
fair market value of a share of common stock on the date of grant. The value of a performance award may be fixed or fluctuate on the basis
of specified performance criteria. A performance award may be paid out in cash and/or shares of common stock or other securities. There
were no performance awards issued or outstanding under the Plans as of April 2, 2022.
Amendment and Termination
of the Plans. The Board may amend or terminate the Plans at its discretion, except that no amendment will become effective without
prior approval of the Company’s stockholders if such approval is necessary for continued compliance with the performance-based compensation
exception of Section 162(m) of the Internal Revenue Code or any stock exchange listing requirements. Subject to the provisions of
an Award Agreement, which may be more restrictive, no termination of the Plan shall materially and adversely affect any of the rights
or obligations of any person, without his or her written consent, under any grant of options or other incentives theretofore granted under
the Plan.
A summary of the status of
the Company’s stock options outstanding as of April 2, 2022 and changes during the year then ended is presented below. All cashless exercises
of options and warrants are handled through an independent broker.
|
|
Number Of Common Stock
Options |
|
|
Weighted Average Exercise
Price |
|
|
Weighted Average Contractual Life (Years) |
|
|
Intrinsic Value |
|
Outstanding, April 3, 2021 |
|
|
695,402 |
|
|
$ |
124.24 |
|
|
|
4.4 |
|
|
$ |
51,391 |
|
Awarded |
|
|
155,150 |
|
|
|
197.78 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(149,896 |
) |
|
|
120.24 |
|
|
|
|
|
|
|
|
|
Forfeitures |
|
|
(4,682 |
) |
|
|
145.20 |
|
|
|
|
|
|
|
|
|
Expirations |
|
|
(87 |
) |
|
|
128.00 |
|
|
|
|
|
|
|
|
|
Outstanding, April 2, 2022 |
|
|
695,887 |
|
|
$ |
141.36 |
|
|
|
4.1 |
|
|
$ |
38,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, April 2, 2022 |
|
|
230,513 |
|
|
$ |
109.17 |
|
|
|
2.7 |
|
|
$ |
19,911 |
|
The fair value for the Company’s
options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions,
which are updated to reflect current expectations of the dividend yield, expected life, risk-free interest rate and using historical volatility
to project expected volatility:
|
|
Fiscal Year Ended |
|
|
|
April 2,
2022 |
|
|
April 3,
2021 |
|
|
March 28,
2020 |
|
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
Expected weighted-average life (yrs.) |
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
Risk-free interest rate |
|
|
0.95 |
% |
|
|
0.35 |
% |
|
|
1.82 |
% |
Expected volatility |
|
|
43.43 |
% |
|
|
41.35 |
% |
|
|
26.93 |
% |
The weighted average fair
value per share of options granted was $76.65 in fiscal 2022, $52.78 in fiscal 2021 and $39.34 in fiscal 2020.
The Company recorded $5,456
(net of taxes of $1,640) in compensation in fiscal 2022 related to option awards. As of April 2, 2022, there was $19,658 of unrecognized
compensation costs related to options which is expected to be recognized over a weighted average period of 3.4 years. The total intrinsic
value of options exercised in fiscal 2022, 2021 and 2020 was $11,915, $12,726 and $15,273, respectively.
Of the total awards outstanding
at April 2, 2022, 687,857 were either fully vested or are expected to vest. These shares have a weighted average exercise price of $141.03,
an intrinsic value of $38,033 and a weighted average contractual term of 4.1 years.
A summary of the status of
the Company’s restricted stock outstanding as of April 2, 2022 and the changes during the year then ended is presented below.
| |
Number Of Restricted Stock Shares | | |
Weighted-
Average Grant Date Fair Value | |
Non-vested, April 3, 2021 | |
| 246,850 | | |
$ | 140.39 | |
Granted | |
| 101,465 | | |
| 198.04 | |
Vested | |
| (115,193 | ) | |
| 132.91 | |
Forfeitures | |
| (4,473 | ) | |
| 142.68 | |
Non-vested, April 2, 2022 | |
| 228,649 | | |
$ | 169.69 | |
The weighted average fair
value per share of restricted stock awards granted was $198.04 in fiscal 2022, $153.70 in fiscal 2021 and $145.72 in fiscal 2020.
The Company recorded $12,939
(net of taxes of $3,890) in compensation in fiscal 2022 related to restricted stock awards. These awards were valued at the fair market
value of the Company’s common stock on the date of issuance and are being amortized as expense over the applicable vesting period.
The total fair value of restricted stock awards that vested during fiscal 2022, 2021, and 2020 was $22,094, $19,470 and $19,916, respectively.
Unrecognized expense for restricted stock was $27,475 at April 2, 2022. This cost is expected to be recognized over a weighted average
period of approximately 2.5 years.
| 16. | Commitments and Contingencies |
As of April 2, 2022, approximately
6% of the Company’s hourly employees in the U.S. and abroad were represented by labor unions.
The Company enters into U.S.
government contracts and subcontracts that are subject to audit by the U.S. government. In the opinion of the Company’s management, the
results of such audits, if any, are not expected to have a material impact on the cash flows, financial condition or results of operations
of the Company.
For fiscal 2022, 2021 and
2020, there were no audits by the U.S. government, the results of which, in the opinion of the Company’s management, had a material
impact on the cash flows, financial condition or results of operations of the Company.
The Company is subject to
federal, state and local environmental laws and regulations, including those governing discharges of pollutants into the air and water,
the storage, handling and disposal of wastes and the health and safety of employees. The Company also may be liable under the Comprehensive
Environmental Response, Compensation, and Liability Act or similar state laws for the costs of investigation and cleanup of contamination
at facilities currently or formerly owned or operated by the Company, or at other facilities at which the Company may have disposed of
hazardous substances. In connection with such contamination, the Company may also be liable for natural resource damages, U.S. government
penalties and claims by third parties for personal injury and property damage. Agencies responsible for enforcing these laws have authority
to impose significant civil or criminal penalties for non-compliance. The Company believes it is currently in material compliance with
all applicable requirements of environmental laws. The Company does not anticipate material capital expenditures for environmental compliance
in fiscal years 2023 or 2024.
Investigation and remediation
of contamination is ongoing at some of the Company’s sites. In particular, state agencies have been overseeing groundwater monitoring
activities at the Company’s facility in Hartsville, South Carolina and a corrective action plan at the Company’s property in Clayton,
Georgia. At Hartsville, the Company is monitoring low levels of contaminants in the groundwater caused by former operations. Plans are
currently underway to conclude remediation and monitoring activities. In connection with the purchase of the Fairfield, Connecticut facility
in 1996, the Company agreed to assume responsibility for completing clean-up efforts previously initiated by the prior owner. The Company
submitted data to the state that the Company believes demonstrates that no further remedial action is necessary, although the state may
require additional clean-up or monitoring. In connection with the purchase of the Company’s Clayton, Georgia property, the Company
agreed to take assignment of the hazardous waste permit covering such facility and to assume certain responsibilities to implement a corrective
action plan concerning the remediation of certain soil and groundwater contamination present at that facility. The corrective action plan
is ongoing. Although there can be no assurance, the Company does not expect the costs associated with the above sites to be material.
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.
Other, net is comprised of
the following:
| |
Fiscal Year Ended | |
| |
| | |
| | |
| |
Plant consolidation and restructuring costs | |
$ | 1,061 | | |
$ | 2,862 | | |
$ | 1,087 | |
Acquisition costs | |
| 30,601 | | |
| — | | |
| 901 | |
Provision for doubtful accounts | |
| 460 | | |
| 480 | | |
| 263 | |
Amortization of intangibles | |
| 34,692 | | |
| 10,217 | | |
| 9,612 | |
Loss (gain) on disposal of assets | |
| 347 | | |
| 1,314 | | |
| (1,227 | ) |
Other expense (income) | |
| 1,210 | | |
| 1,775 | | |
| (883 | ) |
| |
$ | 68,371 | | |
$ | 16,648 | | |
$ | 9,753 | |
The Company previously reported its financial
results under four operating segments: Plain Bearings; Roller Bearings; Ball Bearings; and Engineered Products. During the third quarter
of fiscal 2022, the Company completed the acquisition of Dodge, which has resulted in a change in the internal organization of the Company
and how its chief operating decision maker makes operating decisions, assesses the performance of the business, and allocates resources.
Accordingly, the Company's financial results are now reported in two new reportable operating segments: Aerospace/Defense and Industrial:
Aerospace/Defense.
This segment represents the end markets for the Company’s highly engineered bearings and precision components used in commercial
aerospace, defense aerospace, and sea and ground defense applications.
Industrial. This segment represents
the end markets for the Company’s highly engineered bearings, gearings and precision components used in various industrial applications
including: power transmission; construction, mining, energy and specialized equipment manufacturing; semiconductor production equipment
manufacturing; agricultural machinery, commercial truck and automotive manufacturing; and tool holding.
Financial information for
fiscal 2021 and fiscal 2020 have been recast to conform to the new segment presentation.
The accounting policies of
the reportable segments are the same as those described in Note 2 “Summary of Significant Accounting Policies.” Segment
performance is evaluated based on segment net sales and gross margin. Items not allocated to segment operating income include corporate
administrative expenses and certain other amounts. Identifiable assets by reportable segment consist of those directly identified with
the segment’s operations.
|
|
Fiscal Year Ended |
|
|
|
April 2,
2022 |
|
|
April 3,
2021 |
|
|
March 28,
2020 |
|
Net External Sales |
|
|
|
|
|
|
|
|
|
Aerospace/Defense |
|
$ |
381,468 |
|
|
$ |
396,222 |
|
|
$ |
507,417 |
|
Industrial |
|
|
561,469 |
|
|
|
212,762 |
|
|
|
220,044 |
|
|
|
$ |
942,937 |
|
|
$ |
608,984 |
|
|
$ |
727,461 |
|
Gross Margin | |
| | | |
| | | |
| | |
Aerospace/Defense | |
$ | 155,127 | | |
$ | 161,190 | | |
$ | 210,442 | |
Industrial | |
| 201,941 | | |
| 72,916 | | |
| 78,661 | |
| |
$ | 357,068 | | |
$ | 234,106 | | |
$ | 289,103 | |
Selling, General and Administrative Expenses | |
| | | |
| | | |
| | |
Aerospace/Defense | |
$ | 28,997 | | |
$ | 29,134 | | |
$ | 36,597 | |
Industrial | |
| 58,603 | | |
| 17,982 | | |
| 20,238 | |
Corporate | |
| 71,034 | | |
| 58,884 | | |
| 65,730 | |
| |
$ | 158,634 | | |
$ | 106,000 | | |
$ | 122,565 | |
Operating Income | |
| | | |
| | | |
| | |
Aerospace/Defense | |
$ | 117,858 | | |
$ | 122,402 | | |
$ | 165,698 | |
Industrial | |
| 107,478 | | |
| 52,911 | | |
| 56,665 | |
Corporate | |
| (95,273 | ) | |
| (63,855 | ) | |
| (65,578 | ) |
| |
$ | 130,063 | | |
$ | 111,458 | | |
$ | 156,785 | |
Total Assets | |
| | | |
| | | |
| | |
Aerospace/Defense | |
$ | 776,505 | | |
$ | 792,280 | | |
$ | 788,060 | |
Industrial | |
| 3,920,957 | | |
| 357,353 | | |
| 390,363 | |
Corporate | |
| 147,955 | | |
| 284,627 | | |
| 143,489 | |
| |
$ | 4,845,417 | | |
$ | 1,434,260 | | |
$ | 1,321,912 | |
Capital Expenditures | |
| | | |
| | | |
| | |
Aerospace/Defense | |
$ | 7,510 | | |
$ | 8,672 | | |
$ | 25,993 | |
Industrial | |
| 19,312 | | |
| 2,951 | | |
| 11,129 | |
Corporate | |
| 2,937 | | |
| 149 | | |
| 175 | |
| |
$ | 29,759 | | |
$ | 11,772 | | |
$ | 37,297 | |
Depreciation & Amortization | |
| | | |
| | | |
| | |
Aerospace/Defense | |
$ | 19,055 | | |
$ | 19,855 | | |
$ | 19,262 | |
Industrial | |
| 43,127 | | |
| 9,659 | | |
| 8,948 | |
Corporate | |
| 3,350 | | |
| 3,230 | | |
| 3,210 | |
| |
$ | 65,532 | | |
$ | 32,744 | | |
$ | 31,420 | |
Geographic External Sales | |
| | | |
| | | |
| | |
Domestic | |
$ | 833,409 | | |
$ | 546,018 | | |
$ | 651,381 | |
Foreign | |
| 109,528 | | |
| 62,966 | | |
| 76,080 | |
| |
$ | 942,937 | | |
$ | 608,984 | | |
$ | 727,461 | |
Geographic Long-Lived Assets | |
| | | |
| | | |
| | |
Domestic | |
$ | 372,995 | | |
$ | 188,366 | | |
$ | 190,215 | |
Foreign | |
| 58,272 | | |
| 55,562 | | |
| 58,584 | |
| |
$ | 431,267 | | |
$ | 243,928 | | |
$ | 248,799 | |