Notes to Consolidated Financial Statements
(dollars in thousands, except share and
per share data)
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1.
|
Organization
and Business
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RBC Bearings Incorporated
(the "Company", collectively with its subsidiaries), is a Delaware corporation. The Company operates in four reportable
business segments—roller bearings, plain bearings, ball bearings and engineered products—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.
In fiscal 2017, no one customer accounted for more than 9% of the Company’s net sales as compared to no more than 10% and
6% of the Company’s net sales in fiscal 2016 and 2015, respectively. The Company's segments are further discussed in Part
II, Item 8. “Financial Statements and Supplemental Data,” Note 18 “Reportable Segments.”
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2.
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Summary
of Significant Accounting Policies
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General
The consolidated financial
statements include the accounts of RBC Bearings Incorporated, Roller Bearing Company of America, Inc. (“RBCA”)
and its wholly-owned subsidiaries, Industrial Tectonics Bearings Corporation (“ITB”), RBC Linear Precision Products, Inc.
(“LPP”), RBC Nice Bearings, Inc. (“Nice”), RBC Precision Products - Bremen, Inc. (“Bremen
(MBC)”), RBC Precision Products - Plymouth, Inc. (“Plymouth”), RBC Lubron Bearing Systems, Inc. (“Lubron”),
RBC Oklahoma, Inc. (“RBC Oklahoma”), RBC Aircraft Products, Inc. (“API”), RBC Southwest Products,
Inc. (“SWP”), All Power Manufacturing Co. (“All Power”), RBC Aerostructures LLC (“RAS”), Western
Precision Aero LLC (“WPA”), Climax Metal Products Company (“CMP”), RBC Turbine Components LLC (“TCI”),
Sonic Industries, Inc. (“Sonic”), Sargent Aerospace and Defense LLC (“Sargent”), Avborne Accessory Group,
Inc. (“AMS”), Schaublin Holdings S.A. and its wholly-owned subsidiaries Schaublin SA, RBC Bearings Polska sp. Z.o.o.,
RBC France SAS and Schaublin GmbH (“Schaublin”), RBC de Mexico S DE RL DE CV (“Mexico”), Shanghai Representative
office of Roller Bearing Company of America, Inc. (“RBC Shanghai”), RBC Bearings U.K. Limited and its wholly-owned
subsidiary Phoenix Bearings Limited (“Phoenix”), Allpower de Mexico S DE RL DE CV (“Tecate”) and RBC Bearings
Canada, Inc. Divisions of RBCA include: RBC Corporate, RBC E-Shop, RBC Aerospace sales office and warehouse, Transport Dynamics
(“TDC”), Heim (“Heim”), Engineered Components (“ECD”), RBC Aerocomponents (“RAC”),
PIC Design (“PIC Design”), RBC Hartsville, RBC West Trenton, RBC Bishopsville, RBC Eastern Distribution Center and
RBC Grand Prarie TX location. U.S. Bearings (“USB”) is a division of SWP and Schaublin USA is a division of Nice.
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 2017 contained
52 weeks, 2016 contained 53 weeks and 2015 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, accrued expenses, depreciation and amortization, income taxes and tax reserves, pension and postretirement
obligations and the valuation of options.
Cash and Cash Equivalents
The Company considers
all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company
maintains its cash accounts primarily with Bank of America, N.A and Wells Fargo & Company. The balances are insured by the
Federal Deposit Insurance Company up to $250. The Company has not experienced any losses in such accounts.
Inventory
Inventories are stated
at the lower of cost or market 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.
Shipping and Handling
The sales price billed
to customers includes shipping and handling, which is included in net sales. The costs to the Company for shipping and handling
are included in cost of sales.
Property, Plant and Equipment
Property, plant and equipment
are recorded at cost. Depreciation and amortization of property, plant and equipment, including equipment under capital leases,
is provided for by the straight-line method over the estimated useful lives of the respective assets or the lease term, if shorter.
Depreciation of assets under capital leases is reported within depreciation and amortization. The cost of equipment under capital
leases is equal to the lower of the net present value of the minimum lease payments or the fair market value of the leased equipment
at the inception of the lease. Expenditures for normal maintenance and repairs are charged to expense as incurred.
The estimated useful lives
of the Company's property, plant and equipment follows:
Buildings and improvements
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20-30 years
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Machinery and equipment
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3-15 years
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Leasehold improvements
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Shorter of the term of lease or estimated useful life
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Recognition of Revenue and Accounts Receivable
and Concentration of Credit Risk
The Company recognizes
revenue only after the following four basic criteria are met:
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·
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Persuasive
evidence of an arrangement exists;
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·
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Delivery
has occurred or services have been rendered;
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|
·
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The
seller's price to the buyer is fixed or determinable; and
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·
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Collectability
is reasonably assured.
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Revenue is recognized
upon the passage of title, which generally is at the time of shipment, except for certain customers for which it occurs when the
products reach their destination. Accounts receivable, net of applicable allowances, is recorded when revenue is recorded.
We also recognize revenue
on a Ship-In-Place basis for three customers who have required that we hold the product after final production is complete. In
this case, a written agreement has been executed (at the customer’s request) whereby the customer accepts the risk of loss
for product that is invoiced under the Ship-In-Place arrangement. For each transaction for which revenue is recognized
under a Ship-In-Place arrangement, all final manufacturing inspections have been completed and customer acceptance has been obtained.
In fiscal 2017, 2.6% of our total net sales were recognized under Ship-In-Place transactions compared to 2.1% in fiscal 2016.
We also on occasion record
deferred revenue on our balance sheet as a liability. Deferred revenue represents progress payments received, primarily from one
customer, to cover purchases of raw materials per the terms of multi-year long term contracts. Revenue associated with these agreements
is recognized in accordance with the criteria discussed above.
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 8% of accounts receivables at April 1, 2017 and 4% at April 2,
2016.
Allowance for Doubtful Accounts
The Company maintains
an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.
The Company reviews the collectability of its receivables on an ongoing basis taking into account a combination of factors. The
Company reviews potential problems, such as past due accounts, a bankruptcy filing or deterioration in the customer's financial
condition, to ensure the Company is adequately accrued for potential loss. Accounts are considered past due based on when payment
was originally due. If a customer's situation changes, such as a bankruptcy or creditworthiness, or there is a change in the current
economic climate, the Company may modify its estimate of the allowance for doubtful accounts. The Company will write-off accounts
receivable after reasonable collection efforts have been made and the accounts are deemed uncollectible.
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 is tested for impairment annually, or when events or circumstances indicate that
its value may have declined. Separate tests are performed for goodwill and indefinite lived intangible assets. We apply a qualitative
test of impairment on the indefinite lived intangible assets. This is done by assessing the existence of events or circumstances
which would make it more likely than not that impairment is present. No such factors were identified during our current year analysis.
The determination of any goodwill impairment is made at the reporting unit level and consists of two steps. First, the Company
determines the fair value of a reporting unit and compares it to its carrying amount. Second, if the carrying amount of the reporting
unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill
over the goodwill's implied fair value. 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, 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 2017 test was 10.5% 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 2017 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 83.0%. The fair value of the reporting units
exceeds the carrying value by a minimum of 19.0% at each of the four reporting units. A decrease of 1.0% in our terminal growth
rate would not result in impairment of goodwill for any of our reporting units. An increase of 1.0% in our discount rate would
not result in impairment of goodwill for any of our reporting units. The Company performs the annual impairment testing during
the fourth quarter of each fiscal year. Although no changes are expected, if the actual results of the Company are less favorable
than the assumptions the Company makes regarding estimated cash flows, the Company may be required to record an impairment charge
in the future.
Deferred Financing Costs
Deferred financing costs
are amortized on a straight line basis over the lives of the related credit agreements.
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.
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
Basic net income per common
share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding.
Diluted net income per
common share is computed by dividing net income by the sum of the weighted-average number of common shares and dilutive common
share equivalents then outstanding using the treasury stock method. Common share equivalents consist of the incremental common
shares issuable upon the exercise of stock options.
The table below reflects
the calculation of weighted-average shares outstanding for each year presented as well as the computation of basic and diluted
net income per common share:
|
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Fiscal Year Ended
|
|
|
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April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Net income
|
|
$
|
70,623
|
|
|
$
|
63,894
|
|
|
$
|
58,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Denominator:
|
|
|
|
|
|
|
|
|
|
|
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Denominator for basic net income per common share—weighted-average
shares
|
|
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23,521,615
|
|
|
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23,208,686
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|
|
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23,073,940
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Effect of dilution due to employee stock options
|
|
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263,021
|
|
|
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299,732
|
|
|
|
311,121
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Denominator for diluted
net income per common share—adjusted weighted-average shares
|
|
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23,784,636
|
|
|
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23,508,418
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|
|
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23,385,061
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Basic net income per common share
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$
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3.00
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|
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$
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2.75
|
|
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$
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2.52
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Diluted net income per common share
|
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$
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2.97
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|
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$
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2.72
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|
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$
|
2.49
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At April 1, 2017, 459,500
employee stock options and 3,000 restricted shares have been excluded from the calculation of diluted earnings per share. At April
2, 2016, 443,250 employee stock options and no restricted shares have been excluded from the calculation of diluted earnings per
share. At March 28, 2015, 418,450 employee stock options and no restricted shares have been excluded from the calculation of diluted
earnings per share. The inclusion of these employee stock options and restricted shares would be anti-dilutive.
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). Net income of the Company's foreign operations for fiscal 2017, 2016 and 2015 amounted to $7,414, $8,660, and $2,474,
respectively. Total assets of the Company's foreign operations were $125,164 and $104,382 at April 1, 2017 and April 2, 2016,
respectively.
On January 15, 2015, the
Swiss National Bank, removed its three-year-old foreign exchange cap of Swiss Francs 1.20 against the Euro. The new exchange rate
was approximately 1.02 at the end of fiscal March 2015. This change in rates has impacted the translation and remeasurement of
the financial statements of our Swiss company, Schaublin S.A. Schaublin S.A. had approximately 16.0 million Euro deposits on their
balance sheet. When Euro deposits are re-measured to the functional currency of Swiss Francs, the change in exchange rate is reflected
in the income statement in other non-operating expense. Based on the exchange rate at the end of fiscal March 2015, the income
statement had a negative impact of approximately $3.1 million in the fourth quarter, and was partially offset by a favorable impact
of approximately $0.4 million in other comprehensive income on the balance sheet.
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 its Wells Fargo Credit Agreement and Swiss Credit Facility 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.
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:
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Currency
Translation
|
|
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Pension and
Postretirement
Liability
|
|
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Total
|
|
Balance at April 2, 2016
|
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$
|
222
|
|
|
$
|
(7,212
|
)
|
|
$
|
(6,990
|
)
|
Other comprehensive income before reclassifications
|
|
|
(4,164
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)
|
|
|
1,028
|
|
|
|
(3,136
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)
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Amounts reclassified from accumulated
other comprehensive loss
|
|
|
—
|
|
|
|
303
|
|
|
|
303
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|
Net current period other comprehensive
income
|
|
|
(4,164
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)
|
|
|
1,331
|
|
|
|
(2,833
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)
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Balance at April 1, 2017
|
|
$
|
(3,942
|
)
|
|
$
|
(5,881
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)
|
|
$
|
(9,823
|
)
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Stock-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
In March 2017, the Financial
Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU") No. 2017-07, “Compensation
– Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost”, in an effort to improve the presentation of these costs within the income statement. Under current GAAP,
all components of both net periodic pension cost and net periodic postretirement cost are included within selling, general and
administrative costs on the income statement. This ASU would require entities to include only the service cost component within
selling, general and administrative costs whereas all other components would be included within other non-operating expense. In
addition, only the service cost component would be eligible for capitalization when applicable (for example, as a cost of internally
manufactured inventory or a self-constructed asset). The amendments in this Update should be applied retrospectively for the presentation
of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost
in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component
of net periodic pension cost and net periodic postretirement benefit in assets. This ASU is effective for public companies for
the financial statements issued for annual periods beginning after December 15, 2017, including interim periods within those annual
periods. The Company has not determined the effect that the adoption of the pronouncement may have on its financial position and/or
results of operations.
In January 2017, the FASB
issued ASU 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment".
The objective of this standard update is to simplify the subsequent measurement of goodwill, eliminating Step 2 from the goodwill
impairment test. Under this ASU, an entity should perform its annual goodwill impairment test by comparing the fair value of a
reporting unit with its carrying amount. An entity would recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit's fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting
unit. The standard update is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The adoption
of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.
In October 2016, the FASB
issued ASU No. 2016-16, “Income Taxes (Topic 740)”, in an effort to improve the accounting for the income tax consequences
of intra-equity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income
taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This ASU establishes the requirement
that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer
occurs. This ASU is effective for public companies for the financial statements issued for annual periods beginning after December
15, 2017 and interim periods within those annual periods. Earlier application is permitted as of the beginning of an interim or
annual reporting period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company has not
determined the effect that the adoption of the pronouncement may have on its financial position and/or results of operations.
In August 2016, the FASB
issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”,
which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is
effective for public companies for the financial statements issued for annual periods beginning after December 15, 2017 and interim
periods within those annual periods. Earlier application is permitted as of the beginning of an interim or annual reporting period,
with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company has not determined the effect that
the adoption of the pronouncement may have on its statements of cash flows.
In March 2016, the FASB
issued ASU No. 2016-09, "Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting" which amends ASC Topic 718, Compensation - Stock Compensation. This ASU includes provisions intended to simplify
various aspects related to how share-based payments are accounted for and presented in the financial statements. This ASU is effective
for public companies for the financial statements issued for annual periods beginning after December 15, 2016 and interim periods
within those annual periods. Earlier application is permitted as of the beginning of an interim or annual reporting period, with
any adjustments reflected as of the beginning of the fiscal year of adoption. The adoption of this ASU is not expected to have
a material impact on the Company’s consolidated financial statements.
In February 2016, the
FASB issued ASU No. 2016-02, “Leases (Topic 842).” The core principal of ASU 2016-02 is that an entity should recognize
on its balance sheet assets and liabilities arising from a lease. In accordance with that principle, ASU 2016-02 requires that
a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to
use the underlying leased asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows
arising from a lease by a lessee will depend on the lease classification as a finance or operating lease. This new accounting
guidance is effective for public companies for fiscal years beginning after December 15, 2018 under a modified retrospective approach
and early adoption is permitted. The Company is currently evaluating the impact this adoption will have on its consolidated financial
statements.
In July 2015, the FASB
issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This update requires the
company to measure inventory using the lower of cost and net realizable value. Net realizable value is defined as the estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.
This ASU applies to companies measuring inventory using methods other than the last-in, first-out (LIFO) and retail inventory
methods, including but not limited to the first-in, first-out (FIFO) or average costing methods. This pronouncement is effective
for fiscal years and interim periods beginning after December 15, 2016. The adoption of this ASU is not expected to have a material
impact on the Company’s consolidated financial statements.
In August 2014, the FASB
issued ASU No. 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40: Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern.” This update requires management to evaluate whether there
are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, and requires
related footnote disclosures. This pronouncement is effective for fiscal years and interim periods ending after December 15, 2016.
The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB
issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)". The objective of this standard update is
to remove inconsistent practices with regards to revenue recognition between U.S. GAAP and IFRS. The standard intends to improve
comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The provisions
of ASU No. 2014-09 will be effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted
for annual periods beginning after December 15, 2016.
The guidance permits use
of either a retrospective or cumulative effect transition method. Based upon the FASB's decision to approve a one-year delay in
implementation, the new standard is now effective for the Company in fiscal 2019, with early adoption permitted, but not earlier
than fiscal 2018. The Company has not yet determined which adoption method it will use but is currently anticipating using the
modified retrospective method with a final decision to be determined based on the results of its assessment, once completed.
The Company is currently
assessing the impact of the new standard on its business by reviewing its current accounting policies and practices to identify
potential differences that would result from applying the requirements of the new standard to its revenue contracts. The assessment
phase of the project has identified potential accounting and disclosure differences that may arise from the application of the
new standard. The Company is in the process of reviewing individual contracts and performing a deeper analysis of the impacts
of the new standard. The Company has made significant progress on its contract reviews during the fourth quarter of fiscal 2017
and expects to finalize its evaluation of these and other potential differences that may result from applying the new standard
to its contracts with customers in fiscal 2018. The Company will provide updates on its progress in future filings.
|
3.
|
Acquisitions
and Dispositions
|
On April 24, 2015, the
Company acquired Sargent from Dover Corporation for $500,000 financed through a combination of cash on hand and senior debt. With
headquarters in Tucson, Arizona, Sargent is a leader in precision-engineered products, solutions and repairs for aircraft airframes
and engines, rotorcraft, submarines and land vehicles. Sargent manufactures, sells and services hydraulic valves and actuators,
specialty bearings, specialty fasteners, seal rings & alignment joints and engineered components under leading brands including
Kahr Bearing, Airtomic, Sonic Industries, Sargent Controls and Sargent Aerospace & Defense. The Company acquired Sargent because
management believes it provides complementary products and channels, and expands and enhances the Company’s product portfolio
and engineering technologies. The bearings and rings businesses are included in the Plain Bearings segment. The hydraulics, fasteners
and precision components businesses are included in the Engineered Products segment.
The acquisition of Sargent
was accounted for as a purchase in accordance with FASB Accounting Standards Codification (“ASC”) Topic 805, Business
Combinations. Assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The fair
values of identifiable intangible assets, which were primarily customer relationships, product approvals, trade names, and patents
and trademarks, were based on valuations using the income approach. The excess of the purchase price over the estimated fair values
of tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The goodwill is attributable
to expected synergies and expected growth opportunities. The purchase price allocation resulted in goodwill of $224,715. Goodwill
in the amount of $172,578 is deductible for tax purposes. The Company has completed its analysis estimating the fair value of
inventory, property, plant, and equipment, intangible assets, income tax liabilities and certain liabilities. The purchase price
allocation was updated to reflect current estimated fair values at the acquisition date, with the excess of purchase price over
the estimated fair value of the net assets acquired recorded as goodwill.
The purchase price allocation
for Sargent was as follows:
|
|
As of
April 24, 2015
|
|
Current assets
|
|
$
|
3,086
|
|
Trade receivables
|
|
|
24,100
|
|
Inventories
|
|
|
49,245
|
|
Property, plant and equipment
|
|
|
39,907
|
|
Intangible assets
|
|
|
202,500
|
|
Goodwill
|
|
|
224,715
|
|
Total assets acquired
|
|
|
543,553
|
|
Accounts payable
|
|
|
14,900
|
|
Liabilities assumed
|
|
|
28,653
|
|
Net assets acquired
|
|
$
|
500,000
|
|
The valuation of the net
assets acquired of $500,000 was classified as Level 3 in the valuation hierarchy. Level 3 inputs represent unobservable inputs
for the asset or liability.
The components of intangible
assets included as part of the Sargent acquisition was as follows
:
|
|
Weighted Average
Amortization
Period
(Years)
|
|
Gross Value
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
Customer relationships
|
|
25
|
|
$
|
99,800
|
|
Product approvals
|
|
25
|
|
|
50,500
|
|
Trademarks and tradenames
|
|
10
|
|
|
18,000
|
|
|
|
|
|
|
168,300
|
|
Non-amortizable intangible assets
|
|
|
|
|
|
|
Repair station certifications
|
|
-
|
|
|
34,200
|
|
Intangible assets
|
|
|
|
$
|
202,500
|
|
Included in the Company’s
results of operations for the twelve months ended April 1, 2017 and April 2, 2016 are revenues related to the Sargent acquisition
of $184,654 and $172,547, respectively. Also included for the twelve months ended April 1, 2017 and April 2, 2016 is net income
of $20,640 and $14,132, respectively. Acquisition-related expenses were recorded in Other, net in the Consolidated Statements
of Operations for the twelve months ended April 1, 2017 and April 2, 2016 of $4 and $6,096, respectively.
The following supplemental
pro forma financial information presents the financial results for the twelve months ended April 1, 2017, April 2, 2016 and March
28, 2015, as if the acquisition of Sargent had occurred at the beginning of fiscal year 2015. The pro forma financial information
includes, where applicable, adjustments for: (i) the estimated amortization of acquired intangible assets, (ii) estimated additional
interest expense on acquisition related borrowings, (iii) the income tax effect on the pro forma adjustments using an estimated
effective tax rate. The pro forma financial information excludes, where applicable, adjustments for: (i) the estimated impact
of inventory purchase accounting adjustments and (ii) the estimated closing costs on the acquisition. The pro forma financial
information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would
have been achieved had the acquisition been completed as of the date indicated or the results that may be obtained in the future:
|
|
Twelve Months Ended
|
|
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Pro forma net sales
|
|
$
|
615,388
|
|
|
$
|
605,846
|
|
|
$
|
634,963
|
|
Pro forma net income
|
|
|
70,877
|
|
|
|
70,963
|
|
|
|
59,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share as reported
|
|
$
|
3.00
|
|
|
$
|
2.75
|
|
|
$
|
2.52
|
|
Pro forma basic earnings per share
|
|
|
3.01
|
|
|
|
3.06
|
|
|
|
2.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share as reported
|
|
$
|
2.97
|
|
|
$
|
2.72
|
|
|
$
|
2.49
|
|
Pro forma diluted earnings per share
|
|
|
2.98
|
|
|
|
3.02
|
|
|
|
2.54
|
|
|
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
|
|
|
Other*
|
|
|
Write-offs
|
|
|
Balance
at
End of Year
|
|
April
1, 2017
|
|
$
|
1,324
|
|
|
$
|
96
|
|
|
$
|
(157
|
)
|
|
$
|
(50
|
)
|
|
$
|
1,213
|
|
April
2, 2016
|
|
|
860
|
|
|
|
191
|
|
|
|
308
|
|
|
|
(35
|
)
|
|
|
1,324
|
|
March
28, 2015
|
|
$
|
1,060
|
|
|
$
|
90
|
|
|
$
|
(72
|
)
|
|
$
|
(218
|
)
|
|
$
|
860
|
|
*Foreign currency
and acquisition transactions.
Inventories are
summarized below:
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Raw materials
|
|
$
|
35,364
|
|
|
$
|
36,632
|
|
Work in process
|
|
|
79,048
|
|
|
|
73,761
|
|
Finished goods
|
|
|
175,182
|
|
|
|
170,144
|
|
|
|
$
|
289,594
|
|
|
$
|
280,537
|
|
|
6.
|
Property,
Plant and Equipment
|
Property, plant
and equipment consist of the following:
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Land
|
|
$
|
18,164
|
|
|
$
|
18,309
|
|
Buildings and improvements
|
|
|
81,467
|
|
|
|
80,770
|
|
Machinery and equipment
|
|
|
240,128
|
|
|
|
228,506
|
|
|
|
|
339,759
|
|
|
|
327,585
|
|
Less: accumulated depreciation
and amortization
|
|
|
156,134
|
|
|
|
142,841
|
|
|
|
$
|
183,625
|
|
|
$
|
184,744
|
|
|
7.
|
Restructuring
of Operations
|
In the third quarter of
fiscal 2017, the Company reached a decision to integrate and restructure its industrial manufacturing operation in South Carolina.
The Company will exit a few smaller product offerings and consolidate two manufacturing facilities into one. These restructuring
efforts will better align our manufacturing capacity and market focus. As a result, the Company recorded a charge of $7,060 associated
with the restructuring in the third quarter of fiscal 2017 attributable to the Roller Bearings segment. The $7,060 charge includes
$3,215 of inventory rationalization costs, $261 in impairment of intangibles, $2,402 loss on fixed assets disposals, and $1,182
exit obligation associated with a building operating lease. The inventory rationalization costs were recorded in Cost of Sales
in the income statement. All other costs were recorded under operating expenses in the Other, Net category of the income statement.
The pre-tax charge of $7,060 was offset with a tax benefit of approximately $2,222. The Company determined that the market approach
was the most appropriate method to estimate the fair value for the inventory, intangible assets, equipment and building operating
lease using comparable sales data and actual quotes from potential buyers in the market place.
In the second quarter
of fiscal 2015, the Company reached a decision to consolidate the manufacturing capacity of its United Kingdom (U.K.) facility
into its other manufacturing facilities. This decision was based on the Company’s intent to better align manufacturing abilities
and product development. The consolidation of this facility into the European and South Carolina operations will strengthen and
bring improved manufacturing scale to those operations. As a result, the Company recorded a charge of $6,382 associated with the
consolidation of operations in the second quarter of fiscal 2015 attributable to the Roller Bearings segment. The $6,382 charge
includes $3,707 of inventory rationalization costs, $1,319 in impairment of intangibles, $427 loss on fixed assets disposals,
$286 in employee related costs and $643 of other costs related to the consolidation of operations. The inventory rationalization
costs were recorded in cost of sales in the income statement. All other costs were recorded under operating expenses in the other,
net category of the income statement. The pre-tax charge of $6,382 was offset with an associated tax benefit of $3,131. The Company
determined that the market approach was the most appropriate method to estimate the fair value for the inventory and equipment
using comparable sales data and actual quotes from potential buyers in the market place. The consolidation of the majority of
operations was completed in the second quarter of fiscal 2015. Additional charges of $88 were recorded in the third quarter of
fiscal 2015.
|
8.
|
Goodwill
and Intangible Assets
|
Goodwill
Goodwill balances, by
segment, consist of the following:
|
|
Roller
|
|
|
Plain
|
|
|
Ball
|
|
|
Engineered
Products
|
|
|
Total
|
|
April 2, 2016
|
|
$
|
16,007
|
|
|
$
|
77,211
|
|
|
$
|
5,623
|
|
|
$
|
168,418
|
|
|
$
|
267,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions and valuation adjustments
|
|
|
—
|
|
|
|
2,386
|
|
|
|
—
|
|
|
|
(1,559
|
)
|
|
|
827
|
|
Translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(44
|
)
|
|
|
(44
|
)
|
April 1, 2017
|
|
$
|
16,007
|
|
|
$
|
79,597
|
|
|
$
|
5,623
|
|
|
$
|
166,815
|
|
|
$
|
268,042
|
|
Intangible Assets
|
|
|
|
April 1, 2017
|
|
|
April 2, 2016
|
|
|
|
Weighted
Average
Useful Lives
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
Product approvals
|
|
24
|
|
$
|
53,869
|
|
|
$
|
6,465
|
|
|
$
|
54,360
|
|
|
$
|
4,488
|
|
Customer relationships and lists
|
|
24
|
|
|
107,864
|
|
|
|
12,308
|
|
|
|
113,409
|
|
|
|
8,784
|
|
Trade names
|
|
10
|
|
|
19,923
|
|
|
|
5,137
|
|
|
|
20,019
|
|
|
|
3,211
|
|
Distributor agreements
|
|
5
|
|
|
722
|
|
|
|
722
|
|
|
|
722
|
|
|
|
722
|
|
Patents and trademarks
|
|
15
|
|
|
8,803
|
|
|
|
4,130
|
|
|
|
8,573
|
|
|
|
3,546
|
|
Domain names
|
|
10
|
|
|
437
|
|
|
|
386
|
|
|
|
437
|
|
|
|
342
|
|
Other
|
|
5
|
|
|
1,174
|
|
|
|
1,043
|
|
|
|
1,197
|
|
|
|
1,072
|
|
Non-amortizable repair station
certifications
|
|
n/a
|
|
|
34,200
|
|
|
|
—
|
|
|
|
30,700
|
|
|
|
—
|
|
Total
|
|
|
|
$
|
226,992
|
|
|
$
|
30,191
|
|
|
$
|
229,417
|
|
|
$
|
22,165
|
|
Amortization expense for
definite-lived intangible assets during fiscal years 2017, 2016 and 2015 was $9,272, $9,000, and $1,839, respectively. The Company
recorded a net intangible asset impairment charge in the third quarter of fiscal 2017 of $261 associated with the integration
and restructuring of industrial manufacturing operations in South Carolina. A gross carrying amount of $2,776 and related amortization
of $1,469 was written off in the three-month period ended September 27, 2014 due to the consolidation of the Company’s United
Kingdom (“U.K.”) facility. Estimated amortization expense for the five succeeding fiscal years and thereafter is as
follows:
2018
|
|
$
|
9,339
|
|
2019
|
|
|
9,144
|
|
2020
|
|
|
9,037
|
|
2021
|
|
|
8,986
|
|
2022
|
|
|
8,869
|
|
2023 and thereafter
|
|
|
117,226
|
|
|
9.
|
Accrued
Expenses and Other Current Liabilities
|
The significant components
of accrued expenses and other current liabilities are as follows:
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Employee compensation and related benefits
|
|
$
|
12,262
|
|
|
$
|
12,306
|
|
Taxes
|
|
|
2,501
|
|
|
|
8,173
|
|
Deferred Revenue
|
|
|
17,974
|
|
|
|
7,723
|
|
Workers Compensation
|
|
|
2,548
|
|
|
|
2,178
|
|
Software License
|
|
|
617
|
|
|
|
966
|
|
Legal
|
|
|
1,533
|
|
|
|
2,952
|
|
Other
|
|
|
7,097
|
|
|
|
7,936
|
|
|
|
$
|
44,532
|
|
|
$
|
42,234
|
|
New Credit Facility
In connection with the
Sargent Aerospace & Defense (“Sargent”) acquisition on April 24, 2015, the Company entered into a new credit agreement
(the “New Credit Agreement”) and related Guarantee, Pledge Agreement and Security Agreement with Wells Fargo Bank,
National Association, as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer and the other lenders
party thereto and terminated the JP Morgan Credit Agreement. The New Credit Agreement provides RBCA, as Borrower, with (a) a $200,000
Term Loan and (b) a $350,000 Revolver and together with the Term Loan (the “Facilities”).
Amounts outstanding under
the Facilities generally bear interest at (a) a base rate determined by reference to the higher of (1) Wells Fargo’s prime
lending rate, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one-month LIBOR rate plus 1% or (b) LIBOR 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 0.25% for base rate loans
and 1.25% for LIBOR rate loans. As of April 1, 2017, there was $84,500 outstanding under the Revolver and $182,500 outstanding
under the Term Loan, offset by $4,392 in debt issuance costs (original amount was $7,122).
The New Credit Agreement
requires the Company to comply with various covenants, including among other things, financial covenants to maintain the following:
(1) a ratio of consolidated net debt to adjusted EBITDA, not to exceed 3.50 to 1; and (2) a consolidated interest coverage ratio
not to exceed 2.75 to 1. 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 agreement. As of April 1, 2017, the Company was in compliance with all such covenants.
The Company’s obligations
under the New Credit Agreement are secured as well as providing for a pledge of substantially all of the Company’s and RBCA’s
assets. The Company and certain of its subsidiaries have also entered into a Guarantee to guarantee RBCA’s obligations under
the New Credit Agreement.
Approximately $3,690 of
the Revolver is being utilized to provide letters of credit to secure RBCA’s obligations relating to certain insurance programs.
As of April 1, 2017, RBCA has the ability to borrow up to an additional $261,810 under the Revolver.
Other Notes Payable
On October 1, 2012, Schaublin
purchased the land and building, which it occupied and had been leasing, for 14,067 CHF (approximately $14,910). Schaublin obtained
a 20 year fixed rate mortgage of 9,300 CHF (approximately $9,857) at an interest rate of 2.9%. The balance of the purchase price
of 4,767 CHF (approximately $5,053) was paid from cash on hand. The balance on this mortgage as of April 1, 2017 was 7,208 CHF,
or $7,192.
The balances payable under
all borrowing facilities are as follows:
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Revolver and term loan facilities
|
|
$
|
267,000
|
|
|
$
|
361,500
|
|
Debt issuance cost
|
|
|
(4,392
|
)
|
|
|
(5,816
|
)
|
Other
|
|
|
7,192
|
|
|
|
8,012
|
|
Total debt
|
|
|
269,800
|
|
|
|
363,696
|
|
Less: current portion
|
|
|
14,214
|
|
|
|
10,486
|
|
Long-term debt
|
|
$
|
255,586
|
|
|
$
|
353,210
|
|
The current portion of
long-term debt as of both April 1, 2017 and April 2, 2016 includes the current portion of the Schaublin mortgage and the current
portion of the revolver and term loan facilities.
The Company’s required
future annual principal payments for the next five years and thereafter are $14,214 for fiscal 2018, $19,214 for fiscal 2019,
$24,214 for fiscal 2020, $211,214 for fiscal 2021, $464 for fiscal 2022 and $4,872 thereafter.
|
11.
|
Other Non-Current
Liabilities
|
The significant components
of other non-current liabilities consist of:
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Non-current pension liability, net
|
|
$
|
1,895
|
|
|
$
|
4,186
|
|
Other postretirement benefits
|
|
|
2,744
|
|
|
|
2,999
|
|
Non-current income tax liability
|
|
|
13,492
|
|
|
|
13,848
|
|
Deferred compensation
|
|
|
11,195
|
|
|
|
8,924
|
|
Other
|
|
|
1,717
|
|
|
|
2,871
|
|
|
|
$
|
31,043
|
|
|
$
|
32,828
|
|
At April 1, 2017, the
Company has one consolidated noncontributory defined benefit pension plan covering union employees in its Heim division plant
in Fairfield, Connecticut, its Bremen 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 follows:
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Cash and cash equivalents
|
|
$
|
10,277
|
|
|
$
|
9,572
|
|
U.S. equity mutual funds
|
|
|
8,978
|
|
|
|
8,296
|
|
Fixed income mutual funds
|
|
|
3,899
|
|
|
|
4,864
|
|
|
|
$
|
23,154
|
|
|
$
|
22,732
|
|
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.
The following tables set
forth the funded status of the Company's defined benefit pension plan and the amount recognized in the balance sheet at April
1, 2017 and April 2, 2016:
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
26,917
|
|
|
$
|
28,247
|
|
Service cost
|
|
|
251
|
|
|
|
272
|
|
Interest cost
|
|
|
889
|
|
|
|
920
|
|
Actuarial gain
|
|
|
(1,452
|
)
|
|
|
(1,009
|
)
|
Benefits paid
|
|
|
(1,556
|
)
|
|
|
(1,513
|
)
|
Benefit obligation at end of year
|
|
$
|
25,049
|
|
|
$
|
26,917
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
22,731
|
|
|
$
|
23,225
|
|
Actual return on plan assets
|
|
|
479
|
|
|
|
(231
|
)
|
Employer contributions
|
|
|
1,500
|
|
|
|
1,250
|
|
Benefits paid
|
|
|
(1,556
|
)
|
|
|
(1,513
|
)
|
Fair value of plan assets at end of year
|
|
$
|
23,154
|
|
|
$
|
22,731
|
|
|
|
|
|
|
|
|
|
|
Underfunded status at end of year
|
|
$
|
(1,895
|
)
|
|
$
|
(4,186
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-current liabilities
|
|
|
(1,895
|
)
|
|
|
(4,186
|
)
|
Net liability recognized
|
|
$
|
(1,895
|
)
|
|
$
|
(4,186
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
106
|
|
|
$
|
167
|
|
Net actuarial loss
|
|
|
9,064
|
|
|
|
10,806
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
9,170
|
|
|
$
|
10,973
|
|
|
|
|
|
|
|
|
|
|
Amounts included in accumulated other comprehensive loss expected to be recognized as components
of net periodic benefit cost in 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
35
|
|
|
|
|
|
Net actuarial loss
|
|
|
1,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,164
|
|
|
|
|
|
Benefits under the union
plans are not a function of employees' salaries; thus, the accumulated benefit obligation equals the projected benefit obligation.
The following table sets
forth net periodic benefit cost of the Company's plan for the three fiscal years in the period ended April 1, 2017:
|
|
Fiscal Year Ended
|
|
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
251
|
|
|
$
|
272
|
|
|
$
|
265
|
|
Interest cost
|
|
|
889
|
|
|
|
920
|
|
|
|
1,007
|
|
Expected return on plan assets
|
|
|
(1,581
|
)
|
|
|
(1,615
|
)
|
|
|
(1,484
|
)
|
Amortization of prior service cost
|
|
|
60
|
|
|
|
66
|
|
|
|
66
|
|
Amortization of losses
|
|
|
1,394
|
|
|
|
1,343
|
|
|
|
1,122
|
|
Net periodic benefit cost
|
|
$
|
1,013
|
|
|
$
|
986
|
|
|
$
|
976
|
|
The assumptions used in
determining the net periodic benefit cost information are as follows:
|
|
FY 2017
|
|
|
FY 2016
|
|
|
FY 2015
|
|
Discount rate
|
|
|
3.40
|
%
|
|
|
3.40
|
%
|
|
|
4.10
|
%
|
Expected long-term rate of return on plan assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
The discount rates used
in determining the funded status as of April 1, 2017 and April 2, 2016 were 3.70% and 3.40%, respectively.
In developing the overall
expected long-term return on plan assets assumption, a building block approach was used in which rates of return in excess of
inflation were considered separately for equity securities and debt securities. The excess returns were weighted by the representative
target allocation and added along with an appropriate rate of inflation to develop the overall expected long-term return on plan
assets assumption. The Company’s long-term target allocation of plan assets is 70% equity and 30% fixed income investments.
The Company's investment
program objective is to achieve a rate of return on plan assets which will fund the plan liabilities and provide for required
benefits while avoiding undue exposure to risk to the plan and increases in funding requirements.
The following benefit
payments, which reflect future service as appropriate, are expected to be paid. The benefit payments are based on the same assumptions
used to measure the Company's benefit obligation at the end of fiscal 2017:
2018
|
|
$
|
1,610
|
|
2019
|
|
|
1,645
|
|
2020
|
|
|
1,686
|
|
2021
|
|
|
1,708
|
|
2022
|
|
|
1,712
|
|
2023-2026
|
|
|
8,366
|
|
Although no contributions
are required for fiscal 2018, the Company expects to make cash contributions in the $750 to $1,500 range.
One of the Company’s
foreign operations, Schaublin, sponsors a pension plan for its approximately 148 employees in conformance with Swiss pension law.
The plan is funded with a reputable (S&P rating A+) Swiss insurer. Through the insurance contract, the Company has effectively
transferred all investment and mortality risk to the insurance company, which guarantees the federally mandated annual rate of
return and the conversion rate at retirement. As a result, the plan has no unfunded liability; the interest cost is exactly offset
by actual return. Thus, the net periodic cost is equal to the amount of annual premium paid by the Company. For fiscal years 2017,
2016 and 2015, the Company made contribution and premium payments equal to $875, $861 and $885, respectively.
The Company also 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 $1,585, $1,354 and $576 in fiscal 2017, 2016 and 2015, respectively.
Effective September 1,
1996, the Company adopted a non-qualified Supplemental Executive Retirement Plan ("SERP") for a select group of highly
compensated management employees designated by the Board of the Company. The SERP 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, allowing
eligible employees to elect to defer up to 75% of their current salary and up to 100% of bonus compensation. Employer contributions
under this plan equal the lesser of 25% of the deferrals, or 1.75% of the employee’s annual salary, which vest in full after
one year of service following the effective date of the SERP. Employer contributions under this plan amounted to $256, $214 and
$177 in fiscal 2017, 2016 and 2015, respectively.
|
13.
|
Postretirement
Health Care and Life Insurance Benefits
|
The Company, for the benefit
of employees at its Heim, West Trenton, Bremen 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 are included in “Accrued expenses and other current liabilities”
and "Other non-current liabilities" in the consolidated balance sheet.
The following table set
forth the funded status of the Company’s postretirement benefit plans, the amount recognized in the balance sheet at April
1, 2017 and April 2, 2016:
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
3,222
|
|
|
$
|
3,330
|
|
Service cost
|
|
|
42
|
|
|
|
54
|
|
Interest cost
|
|
|
102
|
|
|
|
107
|
|
Actuarial gain
|
|
|
(281
|
)
|
|
|
(129
|
)
|
Benefits paid
|
|
|
(122
|
)
|
|
|
(140
|
)
|
Benefit obligation at end of year
|
|
$
|
2,963
|
|
|
$
|
3,222
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
—
|
|
|
$
|
—
|
|
Company contributions
|
|
|
122
|
|
|
|
140
|
|
Benefits paid
|
|
|
(122
|
)
|
|
|
(140
|
)
|
Fair value of plan assets at end of year
|
|
$
|
—
|
|
|
$
|
—
|
|
Underfunded status at end of year
|
|
$
|
(2,963
|
)
|
|
$
|
(3,222
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
(219
|
)
|
|
$
|
(223
|
)
|
Non-current liability
|
|
|
(2,744
|
)
|
|
|
(2,999
|
)
|
Net liability recognized
|
|
$
|
(2,963
|
)
|
|
$
|
(3,222
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
19
|
|
|
$
|
22
|
|
Net actuarial loss
|
|
|
207
|
|
|
|
514
|
|
Accumulated other comprehensive loss
|
|
$
|
226
|
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
Amounts included in accumulated other comprehensive
loss expected to be recognized as components of net periodic benefit cost in 2018:
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
3
|
|
|
|
|
|
Net actuarial loss
|
|
|
12
|
|
|
|
|
|
Total
|
|
$
|
15
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
41
|
|
|
$
|
54
|
|
|
$
|
50
|
|
Interest cost
|
|
|
102
|
|
|
|
107
|
|
|
|
115
|
|
Prior service cost amortization
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Amount of loss recognized
|
|
|
26
|
|
|
|
37
|
|
|
|
17
|
|
Net periodic benefit cost
|
|
$
|
172
|
|
|
$
|
201
|
|
|
$
|
185
|
|
The Company measures its
plans as of the last day of the fiscal year.
The plans contractually
limit the benefit to be provided for certain groups of current and future retirees. As a result, there is no health care trend
associated with these groups. The discount rate used in determining the accumulated postretirement benefit obligation was 3.70%
at April 1, 2017 and 3.40% at April 2, 2016. The discount rate used in determining the net periodic benefit cost was 3.40% for
fiscal 2017, 3.40% for fiscal 2016, and 4.10% for fiscal 2015. To determine the postretirement net periodic benefit costs in fiscal
2017, the RP-2014 mortality table projected to the measurement date with Scale MP-2016 was used and for fiscal 2016 and fiscal
2015 the RP-2014 mortality table with Scale MP-2015 and MP-2014, respectively, were used.
The following benefit
payments, which reflect future service as appropriate, are expected to be paid. The benefit payments are based on the same assumptions
used to measure the Company's benefit obligation at the end of fiscal 2017:
2018
|
|
$
|
219
|
|
2019
|
|
|
241
|
|
2020
|
|
|
246
|
|
2021
|
|
|
234
|
|
2022
|
|
|
215
|
|
2023-2027
|
|
|
1,062
|
|
Income before income taxes
for the Company's domestic and foreign operations is as follows:
|
|
Fiscal Year Ended
|
|
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Domestic
|
|
$
|
94,629
|
|
|
$
|
83,622
|
|
|
$
|
79,374
|
|
Foreign
|
|
|
10,255
|
|
|
|
11,163
|
|
|
|
5,181
|
|
|
|
$
|
104,884
|
|
|
$
|
94,785
|
|
|
$
|
84,555
|
|
The provision for (benefit
from) income taxes consists of the following:
|
|
Fiscal Year Ended
|
|
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
21,903
|
|
|
$
|
26,281
|
|
|
$
|
21,833
|
|
State
|
|
|
887
|
|
|
|
1,960
|
|
|
|
809
|
|
Foreign
|
|
|
3,148
|
|
|
|
2,986
|
|
|
|
2,621
|
|
|
|
|
25,938
|
|
|
|
31,227
|
|
|
|
25,263
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
8,299
|
|
|
|
(279
|
)
|
|
|
379
|
|
State
|
|
|
245
|
|
|
|
342
|
|
|
|
630
|
|
Foreign
|
|
|
(221
|
)
|
|
|
(399
|
)
|
|
|
35
|
|
|
|
|
8,323
|
|
|
|
(336
|
)
|
|
|
1,044
|
|
Total
|
|
$
|
34,261
|
|
|
$
|
30,891
|
|
|
$
|
26,307
|
|
A reconciliation of income
taxes computed using the U.S. federal statutory rate to that reflected in operations follows:
|
|
Fiscal Year Ended
|
|
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Income taxes using U.S. federal statutory
rate
|
|
$
|
36,710
|
|
|
$
|
33,175
|
|
|
$
|
29,594
|
|
State income taxes, net of federal benefit
|
|
|
676
|
|
|
|
1,493
|
|
|
|
1,191
|
|
Domestic production activities deduction
|
|
|
(1,803
|
)
|
|
|
(2,320
|
)
|
|
|
(2,414
|
)
|
Foreign rate differential
|
|
|
(662
|
)
|
|
|
(1,321
|
)
|
|
|
842
|
|
Worthless stock deduction
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,100
|
)
|
U.S. unrecognized tax positions
|
|
|
(290
|
)
|
|
|
181
|
|
|
|
759
|
|
Other
|
|
|
(370
|
)
|
|
|
(317
|
)
|
|
|
435
|
|
|
|
$
|
34,261
|
|
|
$
|
30,891
|
|
|
$
|
26,307
|
|
Net deferred tax assets
(liabilities) consist of the following:
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Postretirement benefits
|
|
$
|
1,018
|
|
|
$
|
1,111
|
|
Employee compensation accruals
|
|
|
4,128
|
|
|
|
3,541
|
|
Net operating losses
|
|
|
443
|
|
|
|
431
|
|
Inventory
|
|
|
12,110
|
|
|
|
13,017
|
|
Stock compensation
|
|
|
6,455
|
|
|
|
6,357
|
|
Pension
|
|
|
698
|
|
|
|
1,549
|
|
State tax
|
|
|
1,466
|
|
|
|
1,672
|
|
Other
|
|
|
3,947
|
|
|
|
3,006
|
|
Total gross deferred tax assets
|
|
|
30,265
|
|
|
|
30,684
|
|
Valuation allowance
|
|
|
(919
|
)
|
|
|
(580
|
)
|
Total deferred tax assets
|
|
$
|
29,346
|
|
|
$
|
30,104
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(19,548
|
)
|
|
|
(16,746
|
)
|
Intangible assets
|
|
|
(21,834
|
)
|
|
|
(16,566
|
)
|
Total deferred tax liabilities
|
|
|
(41,382
|
)
|
|
|
(33,312
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets (liabilities)
|
|
$
|
(12,036
|
)
|
|
$
|
(3,208
|
)
|
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 certain state credits and state 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 1, 2017 the valuation
allowance increased by $339 which pertained to an increase of state credits. For the Company’s fiscal year ended April 2,
2016 the valuation allowance increased by $42 which pertained to an increase of 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 1, 2017, the
Company has state net operating losses in different jurisdictions at varying amounts up to $8,502, which expire at various dates
through 2037. At April 1, 2017, the Company has state credits in different jurisdictions at varying amounts up to $2,524 which
will expire at various dates through 2037. At April 1, 2017, the Company has foreign credits in different jurisdictions at varying
amounts up to $703 which will expire at various dates through 2037.
A provision has not
been made for additional U.S. federal and foreign taxes at April 1, 2017 of approximately $90,182 of undistributed earnings of
foreign subsidiaries because the Company intends to reinvest these funds indefinitely to support foreign growth opportunities.
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, the remission as dividends, loans
to the Company, or upon sale or pledging of the 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 1, 2017 and
April 2, 2016 would affect the effective income tax rate.
A reconciliation of the
beginning and ending amount of unrecognized tax benefits are as follows:
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Balance, beginning of year
|
|
$
|
14,297
|
|
|
$
|
5,514
|
|
|
$
|
5,250
|
|
Gross (decreases) increases – tax positions taken
during a prior period
|
|
|
(488
|
)
|
|
|
248
|
|
|
|
(139
|
)
|
Gross increases – tax positions taken during
the current period
|
|
|
1,280
|
|
|
|
8,745
|
|
|
|
1,805
|
|
Reductions due to settlement with taxing authorities
|
|
|
(223
|
)
|
|
|
—
|
|
|
|
(954
|
)
|
Reductions due to lapse of the
applicable statute of limitations
|
|
|
(1,091
|
)
|
|
|
(210
|
)
|
|
|
(448
|
)
|
Balance, end of year
|
|
$
|
13,775
|
|
|
$
|
14,297
|
|
|
$
|
5,514
|
|
The Company recognizes
the interest and penalties accrued related to unrecognized tax benefits in income tax expense. The Company recognized a benefit
of $36 and a charge of $182 of interest and penalties on its statement of operations for the fiscal years ended April 1, 2017
and April 2, 2016, respectively. The Company has approximately $864 and $900 of accrued interest and penalties at April 1, 2017
and April 2, 2016, 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 March 31, 2018 due to the closing of audits and the statute of limitations expiring in varying jurisdictions.
The decrease, pertaining primarily to federal and state credits and state tax, is estimated to be $512.
The Company files income
tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is
no longer subject to state or foreign income tax examinations by tax authorities for years ending before April 2, 2005. The Company
is no longer subject to U.S. federal tax examination by the Internal Revenue Service for years ending before March 29, 2014. A
U.S. federal tax examination by the Internal Revenue Service for the year ended March 30, 2013 was effectively settled in fiscal
2016.
Long-Term Equity Incentive Plans
2005 Long-Term Incentive
Plan
The 2005 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.
1,139,170 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. An amendment
to increase the number of shares available for issuance under the 2005 Long-Term Incentive Plan from 1,139,170 to 1,639,170 was
approved by shareholder vote in September 2006. A further amendment to increase the number of shares available for issuance under
the 2005 Long-Term Incentive Plan from 1,639,170 to 2,239,170 was approved by shareholder vote in September 2007. A further amendment
to increase the number of shares available for issuance under the 2005 Long-Term Incentive Plan from 2,239,170 to 2,939,170 was
approved by shareholder vote in September, 2010. The Company may grant shares of restricted stock to its employees and directors
in the future under the plan. The Company’s Compensation Committee will administer 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.
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. 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 will administer 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 2005 and 2013 Long-Term Incentive 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 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 $100,000 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 2005 Long-Term Incentive
Plan any incentive stock option must be exercised within 10 years of the date of grant. Under the 2013 Long-Term Incentive
Plan any incentive stock option must be exercised within 7 years of the date of grant. 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. As of April 1, 2017,
there were outstanding options to purchase 316,674 shares of common stock granted under the 2005 Long-Term Incentive Plan, 198,174
of which were exercisable. There were 659,300 outstanding options to purchase shares of common stock granted under the 2013 Long-Term
Incentive Plan, 109,350 of which were exercisable.
Restricted Stock.
Under the 2005 and 2013 Long-Term Incentive 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. As of April 1, 2017, there were
30,225 shares of restricted stock outstanding under the 2005 Long-Term Incentive Plan. Under the 2013 Long-Term Incentive Plan,
there were 288,166 shares of restricted stock outstanding.
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 plan. Under the 2005 and 2013 Long-Term Incentive 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.
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.
Amendment and Termination
of the Plan.
The Board may amend or terminate the 2005 and 2013 Long-Term Incentive 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. The 2005 Long-Term Incentive Plan terminated on the tenth anniversary of its adoption. 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 1, 2017 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 2, 2016
|
|
|
1,183,050
|
|
|
$
|
49.88
|
|
|
|
4.4
|
|
|
$
|
28,118
|
|
Awarded
|
|
|
249,750
|
|
|
|
75.82
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(456,826
|
)
|
|
|
35.40
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, April 1, 2017
|
|
|
975,974
|
|
|
$
|
63.30
|
|
|
|
5.2
|
|
|
$
|
32,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, April 1, 2017
|
|
|
307,524
|
|
|
$
|
53.40
|
|
|
|
3.9
|
|
|
$
|
13,435
|
|
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 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected weighted-average life (yrs.)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
4.8
|
|
Risk-free interest rate
|
|
|
1.17
|
%
|
|
|
1.70
|
%
|
|
|
1.60
|
%
|
Expected volatility
|
|
|
28.5
|
%
|
|
|
31.2
|
%
|
|
|
33.2
|
%
|
The weighted average fair
value per share of options granted was $20.58 in fiscal 2017, $22.05 in fiscal 2016 and $20.15 in fiscal 2015.
As of April 1, 2017, there
was $10,664 of unrecognized compensation costs related to options which is expected to be recognized over a weighted average period
of 3.3 years. The total fair value of options that vested in fiscal 2017, 2016 and 2015 was $19,899, $12,126 and $14,350, respectively.
The total intrinsic value of options exercised in fiscal 2017, 2016 and 2015 was $21,188, $7,219 and $8,045, respectively.
Of the total awards outstanding
at April 1, 2017, 961,903 are either fully vested or are expected to vest. These shares have a weighted average exercise price
of $63.27, an intrinsic value of $32,534, and a weighted average contractual term of 5.2 years.
A summary of the status
of the Company’s restricted stock outstanding as of April 1, 2017 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 2, 2016
|
|
|
288,966
|
|
|
$
|
63.49
|
|
Granted
|
|
|
157,500
|
|
|
|
78.73
|
|
Vested
|
|
|
(124,785
|
)
|
|
|
58.39
|
|
Forfeitures
|
|
|
(3,290
|
)
|
|
|
63.48
|
|
Non-vested, April 1, 2017
|
|
|
318,391
|
|
|
$
|
73.02
|
|
The Company recorded $4,895
(net of taxes of $2,877) in compensation in fiscal 2017 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. Unrecognized expense for restricted stock was $17,969 at April 1, 2017. This cost is expected to be recognized
over a weighted average period of approximately 3.5 years.
|
16.
|
Commitments
and Contingencies
|
The Company leases facilities
under non-cancelable operating leases, which expire on various dates through January 2023, with rental expense aggregating $5,548,
$5,101 and $3,444 in fiscal 2017, 2016 and 2015, respectively.
The Company also has non-cancelable
operating leases for transportation, computer and office equipment, which expire at various dates. Rental expense for fiscal 2017,
2016 and 2015 aggregated $1,656, $1,606 and $1,439, respectively.
Certain of the above leases
are renewable while none contain material contingent rent or concession clauses.
The aggregate future minimum
lease payments under operating leases are as follows:
2018
|
|
$
|
6,016
|
|
2019
|
|
|
4,860
|
|
2020
|
|
|
3,331
|
|
2021
|
|
|
2,087
|
|
2022
|
|
|
1,736
|
|
2023 and thereafter
|
|
|
1,303
|
|
As of April 1, 2017, approximately
12% of the Company's hourly employees in the U.S. and abroad were represented by labor unions.
The Company enters into
government contracts and subcontracts that are subject to audit by the 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 2017, 2016
and 2015, there were no audits by the 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, 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 2018 or 2019.
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 facility
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 facility, 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, including those discussed below, either individually or
in the aggregate, is likely to have a material adverse effect on our business, financial condition, operating results, cash flow
or prospects.
|
17.
|
Other Operating
Expense, Net
|
Other operating expense,
net is comprised of the following:
|
|
Fiscal Year Ended
|
|
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Loss on impairment or disposition of assets
|
|
$
|
63
|
|
|
$
|
—
|
|
|
$
|
511
|
|
Plant consolidation and restructuring costs
|
|
|
4,124
|
|
|
|
1,063
|
|
|
|
2,554
|
|
Acquisition costs
|
|
|
55
|
|
|
|
5,096
|
|
|
|
—
|
|
Provision for doubtful accounts
|
|
|
96
|
|
|
|
191
|
|
|
|
31
|
|
Amortization of intangibles
|
|
|
9,272
|
|
|
|
9,000
|
|
|
|
1,839
|
|
Other (income) expense
|
|
|
(629
|
)
|
|
|
866
|
|
|
|
867
|
|
|
|
$
|
12,981
|
|
|
$
|
16,216
|
|
|
$
|
5,802
|
|
The Company operates through
operating segments for which separate financial information is available, and for which operating results are evaluated regularly
by the Company's chief operating decision maker in determining resource allocation and assessing performance. Those operating
segments with similar economic characteristics and that meet all other required criteria, including nature of the products and
production processes, distribution patterns and classes of customers, are aggregated as reportable segments. With the acquisition
and integration of Sargent into the Company’s operating and reportable segment structure, the Company has transitioned the
Other segment to a new reportable segment titled Engineered Products.
The Company has four reportable
business segments, Plain Bearings, Roller Bearings, Ball Bearings and Engineered Products, which are described below.
Plain Bearings.
Plain bearings are produced with either self-lubricating or metal-to-metal designs and consists of several sub-classes,
including rod end bearings, spherical plain bearings and journal bearings. Unlike ball bearings, which are used in high-speed
rotational applications, plain bearings are primarily used to rectify inevitable misalignments in various mechanical components.
Roller Bearings.
Roller bearings are anti-friction bearings that use rollers instead of balls. The Company manufactures four basic types
of roller bearings: heavy duty needle roller bearings with inner rings, tapered roller bearings, track rollers and aircraft roller
bearings.
Ball Bearings.
The Company manufactures four basic types of ball bearings: high precision aerospace, airframe control, thin section and commercial
ball bearings which are used in high-speed rotational applications.
Engineered Products.
Engineered Products consists of highly engineered hydraulics, fasteners, collets and precision components used in aerospace,
marine and industrial applications. The hydraulics, fasteners and precision components businesses of Sargent are included here.
The accounting policies
of the reportable segments are the same as those described in Part II, Item 8. “Financial Statements and Supplementary Data,”
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. Corporate
assets consist of cash, fixed assets and certain prepaid expenses.
|
|
Fiscal Year Ended
|
|
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Net External Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
277,700
|
|
|
$
|
270,534
|
|
|
$
|
230,168
|
|
Roller
|
|
|
109,483
|
|
|
|
112,039
|
|
|
|
128,702
|
|
Ball
|
|
|
58,448
|
|
|
|
53,650
|
|
|
|
56,464
|
|
Engineered Products
|
|
|
169,757
|
|
|
|
161,249
|
|
|
|
29,944
|
|
|
|
$
|
615,388
|
|
|
$
|
597,472
|
|
|
$
|
445,278
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
110,215
|
|
|
$
|
103,500
|
|
|
$
|
86,058
|
|
Roller
|
|
|
41,678
|
|
|
|
47,469
|
|
|
|
50,002
|
|
Ball
|
|
|
22,772
|
|
|
|
21,352
|
|
|
|
22,501
|
|
Engineered Products
|
|
|
54,931
|
|
|
|
46,457
|
|
|
|
11,579
|
|
|
|
$
|
229,596
|
|
|
$
|
218,778
|
|
|
$
|
170,140
|
|
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
23,585
|
|
|
$
|
21,008
|
|
|
$
|
18,741
|
|
Roller
|
|
|
6,116
|
|
|
|
5,958
|
|
|
|
6,169
|
|
Ball
|
|
|
5,657
|
|
|
|
5,512
|
|
|
|
5,326
|
|
Engineered Products
|
|
|
19,065
|
|
|
|
19,631
|
|
|
|
4,018
|
|
Corporate
|
|
|
48,499
|
|
|
|
46,612
|
|
|
|
41,654
|
|
|
|
$
|
102,922
|
|
|
$
|
98,721
|
|
|
$
|
75,908
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
81,063
|
|
|
$
|
73,289
|
|
|
$
|
67,032
|
|
Roller
|
|
|
33,821
|
|
|
|
41,270
|
|
|
|
40,056
|
|
Ball
|
|
|
16,593
|
|
|
|
15,182
|
|
|
|
16,584
|
|
Engineered Products
|
|
|
30,877
|
|
|
|
26,970
|
|
|
|
7,639
|
|
Corporate
|
|
|
(48,661
|
)
|
|
|
(52,870
|
)
|
|
|
(42,881
|
)
|
|
|
$
|
113,693
|
|
|
$
|
103,841
|
|
|
$
|
88,430
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
371,169
|
|
|
$
|
628,531
|
|
|
$
|
474,208
|
|
Roller
|
|
|
147,226
|
|
|
|
286,418
|
|
|
|
234,377
|
|
Ball
|
|
|
55,788
|
|
|
|
55,675
|
|
|
|
50,074
|
|
Engineered Products
|
|
|
474,339
|
|
|
|
454,428
|
|
|
|
49,307
|
|
Corporate
|
|
|
60,325
|
|
|
|
(326,542
|
)
|
|
|
(175,893
|
)
|
|
|
$
|
1,108,847
|
|
|
$
|
1,098,510
|
|
|
$
|
632,073
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
9,386
|
|
|
$
|
5,984
|
|
|
$
|
7,505
|
|
Roller
|
|
|
4,021
|
|
|
|
4,239
|
|
|
|
5,433
|
|
Ball
|
|
|
2,155
|
|
|
|
1,457
|
|
|
|
2,333
|
|
Engineered Products
|
|
|
4,591
|
|
|
|
5,693
|
|
|
|
1,592
|
|
Corporate
|
|
|
741
|
|
|
|
3,491
|
|
|
|
4,034
|
|
|
|
$
|
20,894
|
|
|
$
|
20,864
|
|
|
$
|
20,897
|
|
Depreciation & Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
9,075
|
|
|
$
|
9,145
|
|
|
$
|
7,012
|
|
Roller
|
|
|
4,198
|
|
|
|
4,008
|
|
|
|
2,933
|
|
Ball
|
|
|
1,836
|
|
|
|
1,790
|
|
|
|
1,706
|
|
Engineered Products
|
|
|
10,443
|
|
|
|
9,411
|
|
|
|
1,974
|
|
Corporate
|
|
|
1,820
|
|
|
|
1,453
|
|
|
|
1,420
|
|
|
|
$
|
27,372
|
|
|
$
|
25,807
|
|
|
$
|
15,045
|
|
Geographic External Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
540,774
|
|
|
$
|
522,405
|
|
|
$
|
374,820
|
|
Foreign
|
|
|
74,614
|
|
|
|
75,067
|
|
|
|
70,458
|
|
|
|
$
|
615,388
|
|
|
$
|
597,472
|
|
|
$
|
445,278
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
March 28,
2015
|
|
Geographic Long-Lived Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
144,389
|
|
|
$
|
145,538
|
|
|
$
|
112,519
|
|
Foreign
|
|
|
39,236
|
|
|
|
39,206
|
|
|
|
29,130
|
|
|
|
$
|
183,625
|
|
|
$
|
184,744
|
|
|
$
|
141,649
|
|
Intersegment Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
4,061
|
|
|
$
|
3,973
|
|
|
$
|
3,790
|
|
Roller
|
|
|
15,202
|
|
|
|
18,874
|
|
|
|
19,618
|
|
Ball
|
|
|
1,732
|
|
|
|
2,475
|
|
|
|
2,244
|
|
Engineered Products
|
|
|
28,955
|
|
|
|
30,341
|
|
|
|
29,567
|
|
|
|
$
|
49,950
|
|
|
$
|
55,663
|
|
|
$
|
55,219
|
|
All intersegment sales
are eliminated in consolidation.