Notes
to Unaudited Interim Consolidated Financial Statements
(dollars
in thousands, except share and per share data)
1.
Basis of Presentation
The
interim consolidated financial statements included herein have been prepared by RBC Bearings Incorporated, a Delaware corporation
(collectively with its subsidiaries, the “Company”), without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The interim financial statements included with this report have been prepared on a consistent basis with
the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K
for the fiscal year ended March 31, 2018. We condensed or omitted certain information and footnote disclosures normally included
in our annual audited financial statements, which we prepared in accordance with U.S. Generally Accepted Accounting Principles
(U.S. GAAP). As used in this report, the terms “we”, “us”, “our”, “RBC” and the
“Company” mean RBC Bearings Incorporated and its subsidiaries, unless the context indicates another meaning.
These
statements reflect all adjustments, accruals and estimates, consisting only of items of a normal recurring nature, that are, in
the opinion of management, necessary for the fair presentation of the consolidated financial condition and consolidated results
of operations for the interim periods presented. These financial statements should be read in conjunction with the Company’s
audited financial statements and notes thereto included in our Annual Report on Form 10-K.
The
results of operations for the three-month period ended December 29, 2018 are not necessarily indicative of the operating results
for the entire fiscal year ending March 30, 2019. The three-month periods ended December 29, 2018 and December 30, 2017 each contain
13 weeks. The amounts shown are in thousands, unless otherwise indicated.
2.
Significant Accounting Policies
The
Company’s significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies” of
our Annual Report on Form 10-K for the year ended March 31, 2018. Significant changes to our accounting policies as a result of
adopting new accounting standards are discussed below.
Recent
Accounting Standards Adopted
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from
Contracts with Customers (Topic 606)
. The Company adopted this standard on April 1, 2018. This new guidance provides a five-step
model to determine when and how revenue is recognized, and requires an entity to recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services.
A
contract with a customer exists when there is commitment and approval from both parties involved, the rights of the parties are
identified, payment terms are defined, the contract has commercial substance and collectability of consideration is probable.
The Company has determined that the contract with the customer is established when the customer purchase order is accepted or
acknowledged. Long-term agreements (LTAs) are used by the Company and certain of its customers to reduce their supply uncertainty
for a period of time, typically multiple years. While these LTAs define commercial terms including pricing, termination rights
and other contractual requirements, they do not represent the contract with the customer for revenue recognition purposes.
When
the Company accepts or acknowledges the customer purchase order, the type of good or service is defined on a line-by-line basis.
Individual performance obligations are established by virtue of the individual line items identified on the sales order acknowledgment
at the time of issuance. The majority of the Company’s revenue relates to the sale of goods and contains a single performance
obligation for each distinct good. The remainder of the Company’s revenue from customers is generated from services performed.
These services include repair and refurbishment work performed on customer-controlled assets as well as design and test work.
The performance obligations for these services are also identified on the sales order acknowledgement at the time of issuance
on a line-by-line basis.
Transaction
price reflects the amount of consideration that the Company expects to be entitled to in exchange for transferred goods or services.
A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized as the performance
obligation is satisfied. For the majority of our contracts, the Company may provide distinct goods or services, in which case
we separate the contract into more than one performance obligation (
i.e.,
a good or service is individually listed in a
contract or sold individually to a customer). The Company generally sells products and services with observable standalone selling
prices.
The
performance obligations for the majority of RBC’s product sales are satisfied at the point in time in which the products
are shipped, consistent with the pattern of revenue recognition under the previous accounting standard. The Company has determined
that the customer obtains control upon shipment of the product based on the shipping terms (either when it ships from RBC’s
dock or when the product arrives at the customer’s dock) and recognizes revenue accordingly. Once a product has shipped,
the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Approximately
94% of the Company’s revenue was recognized in this manner based on sales for the three and nine-month periods ended December
29, 2018, respectively.
The
Company has determined performance obligations are satisfied over time for customer contracts where RBC provides services to customers
and also for a limited number of product sales. RBC has determined revenue recognition over time is appropriate for our service
revenue contracts as they create or enhance an asset that the customer controls throughout the duration of the contract. Approximately
6% of the Company’s revenue was recognized in this manner based on sales for the three and nine-month periods ended December
29, 2018, respectively. Revenue recognition over time is appropriate for customer contracts with product sales in which the product
sold has no alternative use to RBC without significant economic loss and an enforceable right to payment exists, including a normal
profit margin from the customer, in the event of contract termination. These types of contracts comprised less than 1% of total
sales for both the three and nine-month periods ended December 29, 2018, respectively. For both of these types of contracts, revenue
is recognized over time based on the extent of progress towards completion of the performance obligation. The Company utilizes
the cost-to-cost measure of progress for over-time revenue recognition contracts as we believe this measure best depicts the transfer
of control to the customer, which occurs as we incur costs on contracts. Revenues, including profits, are recorded proportionally
as costs are incurred. Costs to fulfill include labor, materials, subcontractors’ costs, and other direct and indirect costs.
Contract
costs are the incremental costs of obtaining and fulfilling a contract (
i.e
., costs that would not have been incurred if
the contract had not been obtained) to provide goods and services to customers. Contract costs largely consist of design and development
costs for molds, dies and other tools that RBC will own and that will be used in producing the products under the supply arrangements.
These contract costs are amortized to expense on a systematic and rational basis over a period consistent with the transfer to
the customer of the goods or services to which the asset relates. Costs incurred to obtain a contract are primarily related to
sales commissions and are expensed as incurred as they are generally not tied to specific customer contracts. These costs are
included within selling, general and administrative costs on the consolidated statements of operations.
In
certain contracts, the Company facilitates shipping and handling activities after control has transferred to the customer. The
Company has elected to record all shipping and handling activities as costs to fulfill a contract. In situations where the shipping
and handling costs have not been incurred at the time revenue is recognized, the estimated shipping and handling costs are accrued.
In
June 2018, the FASB issued ASU No. 2018-07,
Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting
, as part of its simplification initiative. This update will expand the scope of Topic 718 to
include share-based payment transactions for acquiring goods and services from nonemployees. This ASU also clarifies that Topic
718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction
with selling goods or services to customers as part of a contract accounted for under Topic 606,
Revenue from Contracts with
Customers
. This update is effective for public companies for fiscal years beginning after December 15, 2018, including interim
periods within that year. Early adoption is permitted, but no earlier than a company’s adoption of Topic 606. The Company
has early adopted this ASU in the second quarter of fiscal 2019 and it did not have a material impact on the Company’s consolidated
financial statements.
In
May 2017, the FASB issued ASU No. 2017-09,
Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting
,
in an effort to reduce diversity in practice as it relates to applying modification accounting for changes to the terms and conditions
of share-based payment awards. This ASU was effective for public companies for financial statements issued for annual periods
beginning after December 15, 2017, including interim periods within those annual periods. Early adoption was permitted. The Company
adopted this ASU on April 1, 2018 and it did not have a material impact on the Company’s consolidated financial statements.
In
March 2017, the FASB issued 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. Prior to this ASU, all components of both net periodic pension cost and net periodic postretirement
cost were included within the same line items as other compensation costs arising from services rendered by pertinent employees
during the period on the income statement. This ASU requires entities to include only the service cost component within those
line items and all other components are to 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 ASU 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 was effective for public companies for the financial statements
issued for annual periods beginning after December 15, 2017, including interim periods within those annual periods. A practical
expedient allows the Company to use the amount disclosed for net periodic benefit costs for the prior comparative periods as the
estimation basis for applying the retrospective presentation requirements. The Company retrospectively adopted the ASU on April
1, 2018 and utilized this practical expedient. The adoption of this ASU resulted in the reclassification of $159 of net periodic
benefit cost from compensation costs ($107 included within cost of sales and $52 within other, net) to other non-operating expense
on the consolidated statement of operations for the three-month period ended December 30, 2017 and $477 of net periodic benefit
cost from compensation costs ($321 included within cost of sales and $156 within other, net) to other non-operating expense on
the consolidated statement of operations for the nine-month period ended December 30, 2017.
In
October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
,
in an effort to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory.
Previous GAAP prohibited 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 established 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 was 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 adoption was 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 adopted this ASU on April 1, 2018 and it did not have a material
impact on the Company’s consolidated financial statements.
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 was 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 adoption was 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 adopted
this ASU on April 1, 2018 and it did not have a material impact on the Company’s consolidated financial statements.
Recent
Accounting Standards Yet to Be Adopted
In
February 2018, the FASB issued ASU No. 2018-02,
Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income
which allows companies to reclassify stranded tax effects
resulting from the Tax Cuts and Jobs Act of 2017 (TCJA or “the Act”) from accumulated other comprehensive income to
retained earnings. These stranded tax effects refer to the tax amounts included in accumulated other comprehensive income at the
previous 35% U.S. corporate statutory federal tax rate, for which the related deferred tax asset or liability was remeasured to
the new 21% U.S. corporate statutory federal tax rate in the period of the TCJA’s enactment. The new standard is effective
for fiscal years beginning after December 15, 2018, with early adoption permitted, and can be applied either in the period of
adoption or retrospectively to each period impacted by the TCJA. The Company is evaluating the effect of adopting this new accounting
guidance, but does not expect adoption will have a material impact on the Company’s financial position as the adjustment
will be between accumulated other comprehensive income and retained earnings, both of which are components of total stockholders’
equity.
In
January 2017, the FASB issued ASU No. 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment
. The objective of this standard update is to simplify the subsequent measurement of goodwill, eliminating Step
2 from the goodwill impairment test. Under this ASU, an entity should perform its annual goodwill impairment test by comparing
the fair value of a reporting unit with its carrying amount. An entity would recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value, assuming the loss recognized does not exceed the total amount
of goodwill for the reporting unit. The standard update is effective for fiscal years beginning after December 15, 2019. Early
adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated
financial statements.
In
September 2016, the FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses (Topic 326), Measurement of Credit
Losses on Financial Instruments
, which changes how entities will measure credit losses for most financial assets and certain
other instruments that are not measured at fair value through net income. The new guidance will replace the current incurred loss
approach with an expected loss model. The new expected credit loss impairment model will apply to most financial assets measured
at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments,
net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected
credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures).
The estimate of expected credit losses should consider historical information, current information and reasonable and supportable
forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics should be grouped together
when estimating expected credit losses. ASU 2016-13 does not prescribe a specific method to make the estimate, so its application
will require significant judgment. This ASU is effective for public companies in fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. The Company is currently evaluating the effect that the adoption of this
ASU will have on the Company’s consolidated financial statements.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The core principle of this ASU 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 and early adoption is permitted.
The Company has formed an implementation team to assess its leases as defined under the new accounting standard and anticipates
making certain changes to existing processes, policies and systems during implementation. The Company anticipates the amended
guidance will have a material impact on its assets and liabilities due to the addition of right-of-use assets and lease liabilities
to the balance sheet; however, it does not expect the amended guidance to have a material impact on its cash flows, results of
operations or debt covenant compliance.
Other
new pronouncements issued but not effective until after March 30, 2019 are not expected to have a material impact on our financial
position, results of operations or liquidity.
3.
Revenue from Contracts with Customers
Adoption
Method and Impact
The
Company adopted ASC 606 using the modified retrospective method and applied the related provisions to all open contracts. The
Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance
of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards
in effect for those periods. As a result of adoption, the Company recognized a $277 decrease to retained earnings at the beginning
of the 2019 fiscal year for the cumulative effect of adoption of this standard, representing the impact to prior results had the
over-time revenue recognition model been applied to service contracts. Contract assets of $1,323 and contract liabilities of $754
were recorded, along with an $847 reduction to work-in-process inventory as a result of the ASC 606 adoption using the modified
retrospective method.
In
addition, as a result of the accounting changes resulting from this new accounting standard, sales, operating income and net income
for the three-month period ended December 29, 2018 increased by $1,132, $615 and $523, respectively. For the nine-month period
ended December 29, 2018, sales, operating income and net income increased by $2,002, $1,075 and $897, respectively. Basic and
diluted net income per common share each increased by $0.02 and $0.04 for the three and nine-month periods ended December 29,
2018, respectively, as revenue from service contracts was accelerated into these periods as a result of the change to an over-time
revenue recognition model. On the consolidated balance sheet, work-in-process inventory was $1,404 lower at December 29, 2018
than it would have been under the previous accounting guidance. In addition, prepaids and other current assets, accrued expenses
and other current liabilities, and retained earnings increased by $2,449, $313 and $620, respectively. The changes in other current
assets and accrued expenses were directly related to the activity within the customer contract assets and liabilities.
Disaggregation
of Revenue
The
Company operates in four business segments with similar economic characteristics, including nature of the products and production
processes, distribution patterns and classes of customers. Revenue is disaggregated within these business segments by our two
principal end markets: aerospace and industrial. Comparative information of the Company’s overall revenues for the three
and nine-month periods ended December 29, 2018 and December 30, 2017 are as follows:
Principal
End Markets:
|
|
Three Months Ended
|
|
|
|
December 29, 2018
|
|
|
December 30, 2017
|
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Total
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Total
|
|
Plain
|
|
$
|
58,733
|
|
|
$
|
20,573
|
|
|
$
|
79,306
|
|
|
$
|
51,281
|
|
|
$
|
18,483
|
|
|
$
|
69,764
|
|
Roller
|
|
|
17,763
|
|
|
|
17,078
|
|
|
|
34,841
|
|
|
|
16,884
|
|
|
|
15,601
|
|
|
|
32,485
|
|
Ball
|
|
|
5,513
|
|
|
|
11,207
|
|
|
|
16,720
|
|
|
|
5,043
|
|
|
|
11,453
|
|
|
|
16,496
|
|
Engineered Products
|
|
|
23,670
|
|
|
|
16,916
|
|
|
|
40,586
|
|
|
|
31,739
|
|
|
|
16,374
|
|
|
|
48,113
|
|
|
|
$
|
105,679
|
|
|
$
|
65,774
|
|
|
$
|
171,453
|
|
|
$
|
104,947
|
|
|
$
|
61,911
|
|
|
$
|
166,858
|
|
|
|
Nine Months Ended
|
|
|
December 29, 2018
|
|
|
December
30, 2017
|
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Total
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Total
|
|
Plain
|
|
$
|
172,938
|
|
|
$
|
62,373
|
|
|
$
|
235,311
|
|
|
$
|
160,642
|
|
|
$
|
54,167
|
|
|
$
|
214,809
|
|
Roller
|
|
|
52,805
|
|
|
|
54,906
|
|
|
|
107,711
|
|
|
|
47,974
|
|
|
|
48,241
|
|
|
|
96,215
|
|
Ball
|
|
|
14,534
|
|
|
|
38,298
|
|
|
|
52,832
|
|
|
|
12,445
|
|
|
|
36,311
|
|
|
|
48,756
|
|
Engineered Products
|
|
|
76,403
|
|
|
|
48,097
|
|
|
|
124,500
|
|
|
|
89,337
|
|
|
|
45,955
|
|
|
|
135,292
|
|
|
|
$
|
316,680
|
|
|
$
|
203,674
|
|
|
$
|
520,354
|
|
|
$
|
310,398
|
|
|
$
|
184,674
|
|
|
$
|
495,072
|
|
In
addition to disaggregating revenue by segment and principal end markets, the Company believes information about the timing of
transfer of goods or services, type of customer and distinguishing service revenue from product sales is also relevant. Refer
to Note 2 – “Significant Accounting Policies” for further details.
Remaining
Performance Obligations
Remaining
performance obligations represent the transaction price of orders meeting the definition of a contract in the new revenue standard
for which work has not been performed or has been partially performed and excludes unexercised contract options. The duration
of the majority of our contracts, as defined by ASC 606, is less than one year. The Company has elected to apply the practical
expedient, which allows companies to exclude remaining performance obligations with an original expected duration of one year
or less. Performance obligations having a duration of more than one year are concentrated in contracts for certain products and
services provided to the U.S. government or its contractors. The aggregate amount of the transaction price allocated to remaining
performance obligations for such contracts with a duration of more than one year was approximately $217,562 at December 29, 2018.
The Company expects to recognize revenue on approximately 67% and 94% of the remaining performance obligations over the next 12
and 24 months, respectively, with the remainder recognized thereafter.
Contract
Balances
The
timing of revenue recognition, invoicing and cash collections affect accounts receivable, unbilled receivables (contract assets)
and customer advances and deposits (contract liabilities) on the consolidated balance sheets.
Contract
Assets (Unbilled Receivables)
- Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the
customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when (1) the cost-to-cost method
is applied and (2) such revenue exceeds the amount invoiced to the customer.
Contract
Liabilities (Deferred Revenue)
- The Company may receive a customer advance or deposit, or have an unconditional right to
receive a customer advance, prior to revenue being recognized. Since the performance obligations related to such advances may
not have been satisfied, a contract liability is established. Contract liabilities are included within accrued expenses and other
current liabilities or other non-current liabilities on the consolidated balance sheets until the respective revenue is recognized.
Advance payments are not considered a significant financing component as the timing of the transfer of the related goods or services
is at the discretion of the customer.
These
assets and liabilities are reported on the consolidated balance sheet on an individual contract basis at the end of each reporting
period. As of December 29, 2018 and March 31, 2018, accounts receivable with customers, net, were $116,673 and $116,890, respectively.
The tables below represent a roll-forward of contract assets and contract liabilities for the nine-month period ended December
29, 2018:
Contract Assets - Current
(1)
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2018
|
|
$
|
1,323
|
|
Additional revenue recognized in excess of billings
|
|
|
2,840
|
|
Less: amounts billed to customers
|
|
|
(1,714
|
)
|
Balance at December 29, 2018
|
|
$
|
2,449
|
|
(1) Included within prepaid expenses and other current assets on the consolidated balance sheet.
|
Contract Liabilities – Current
(2)
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2018
|
|
$
|
14,450
|
|
Payments received prior to revenue being recognized
|
|
|
10,580
|
|
Revenue recognized on beginning balance
|
|
|
(15,083
|
)
|
Reclassification to/from noncurrent
|
|
|
87
|
|
Balance at December 29, 2018
|
|
$
|
10,034
|
|
(2) Included within accrued expenses and other current liabilities on the consolidated balance sheet.
|
|
|
|
|
Contract Liabilities – Noncurrent
(3)
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2018
|
|
$
|
1,254
|
|
Reclassification to/from current
|
|
|
(87
|
)
|
Balance at December 29, 2018
|
|
$
|
1,167
|
|
(3) Included within other non-current liabilities on the consolidated balance sheet.
|
|
|
|
|
As
of December 29, 2018, the Company does not have any contract assets classified as noncurrent on the consolidated balance sheet.
4.
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 period presented as well as the computation
of basic and diluted net income per common share:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 29,
2018
|
|
|
December 30,
2017
|
|
|
December 29,
2018
|
|
|
December 30,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,178
|
|
|
$
|
23,832
|
|
|
$
|
73,756
|
|
|
$
|
60,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per common share—weighted-average shares outstanding
|
|
|
24,457,555
|
|
|
|
23,985,925
|
|
|
|
24,308,029
|
|
|
|
23,912,474
|
|
Effect of dilution due to employee stock awards
|
|
|
343,092
|
|
|
|
460,190
|
|
|
|
384,986
|
|
|
|
409,691
|
|
Denominator for diluted net income per common share — weighted-average shares outstanding
|
|
|
24,800,647
|
|
|
|
24,446,115
|
|
|
|
24,693,015
|
|
|
|
24,322,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.66
|
|
|
$
|
0.99
|
|
|
$
|
3.03
|
|
|
$
|
2.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.65
|
|
|
$
|
0.97
|
|
|
$
|
2.99
|
|
|
$
|
2.49
|
|
At
December 29, 2018, 221,315 employee stock options have been excluded from the calculation of diluted earnings per share. At December
30, 2017, no employee stock options have been excluded from the calculation of diluted earnings per share. The inclusion of these
employee stock options would be anti-dilutive.
5.
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.
Short-term
investments, if any, are comprised of equity securities and are measured at fair value by using quoted prices in active markets
and are classified as Level 1 of the valuation hierarchy.
6.
Inventory
Inventories
are stated at the lower of cost or net realizable value, using the first-in, first-out method, and are summarized below:
|
|
December 29,
2018
|
|
|
March 31,
2018
|
|
Raw materials
|
|
$
|
47,260
|
|
|
$
|
44,102
|
|
Work in process
|
|
|
89,266
|
|
|
|
77,890
|
|
Finished goods
|
|
|
192,970
|
|
|
|
184,132
|
|
|
|
$
|
329,496
|
|
|
$
|
306,124
|
|
7.
Goodwill and Intangible Assets
Goodwill
|
|
Roller
|
|
|
Plain
|
|
|
Ball
|
|
|
Engineered Products
|
|
|
Total
|
|
March 31, 2018
|
|
$
|
16,007
|
|
|
$
|
79,597
|
|
|
$
|
5,623
|
|
|
$
|
166,897
|
|
|
$
|
268,124
|
|
Disposition
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,691
|
)
|
|
|
(6,691
|
)
|
Translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
December 29, 2018
|
|
$
|
16,007
|
|
|
$
|
79,597
|
|
|
$
|
5,623
|
|
|
$
|
160,204
|
|
|
$
|
261,431
|
|
$6,691
of goodwill was included in the net loss on the sale of the Miami division during the third quarter of fiscal 2019. Miami was
previously included within the Engineered Products (“EP”) Reporting Unit (“RU”). When a business within
an RU is sold, the Company is required to perform an interim goodwill impairment test on that RU which consists of two steps.
First, the Company determines the fair value of the RU and compares it to its carrying amount. Second, if the carrying amount
of the RU exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the RU’s goodwill
over the goodwill’s implied fair value. The Company conducted this interim test over the EP RU as of the date of sale (November
28, 2018) using the same approach used during our most recent annual test (the income approach, also known as the discounted cash
flow method). 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 RU in determining the appropriate discount rate to be used. The discount rate utilized for the EP RU for
our interim test was 11.0% 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 interim
test was 2.5%. The Company has determined that, to date, no impairment of goodwill exists and fair value of the EP RU exceeded
the carrying value in total by approximately 21.9%. A decrease of 1.0% in our terminal growth rate would not result in impairment
of goodwill for the EP RU. An increase of 1.0% in our discount rate would not result in impairment of goodwill for the EP RU.
The Company will perform the annual impairment testing during the fourth quarter of fiscal 2019 for all of the Company’s
RUs. 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.
Intangible
Assets
|
|
|
|
|
December 29, 2018
|
|
|
March 31, 2018
|
|
|
|
Weighted Average Useful Lives
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
Product approvals
|
|
|
24
|
|
|
$
|
50,878
|
|
|
$
|
9,950
|
|
|
$
|
50,878
|
|
|
$
|
8,351
|
|
Customer relationships and lists
|
|
|
24
|
|
|
|
96,458
|
|
|
|
18,188
|
|
|
|
106,583
|
|
|
|
16,499
|
|
Trade names
|
|
|
10
|
|
|
|
15,959
|
|
|
|
7,092
|
|
|
|
18,734
|
|
|
|
6,765
|
|
Distributor agreements
|
|
|
5
|
|
|
|
722
|
|
|
|
722
|
|
|
|
722
|
|
|
|
722
|
|
Patents and trademarks
|
|
|
16
|
|
|
|
10,350
|
|
|
|
5,353
|
|
|
|
9,657
|
|
|
|
4,810
|
|
Domain names
|
|
|
10
|
|
|
|
437
|
|
|
|
437
|
|
|
|
437
|
|
|
|
430
|
|
Other
|
|
|
6
|
|
|
|
2,361
|
|
|
|
2,023
|
|
|
|
1,433
|
|
|
|
1,303
|
|
|
|
|
|
|
|
|
177,165
|
|
|
|
43,765
|
|
|
|
188,444
|
|
|
|
38,880
|
|
Non-amortizable repair station certifications
|
|
|
n/a
|
|
|
|
24,281
|
|
|
|
—
|
|
|
|
34,200
|
|
|
|
—
|
|
Total
|
|
|
|
|
|
$
|
201,446
|
|
|
$
|
43,765
|
|
|
$
|
222,644
|
|
|
$
|
38,880
|
|
$9,919
of net assets associated with the repair station certifications, $8,674 of net assets associated with customer relationships,
and $1,780 of net assets associated with trade names were included in the net loss on the sale of the Miami division during the
third quarter of fiscal 2019.
Amortization
expense for definite-lived intangible assets for the three and nine-month periods ended December 29, 2018 were $2,400 and $7,331,
respectively, compared to $2,303 and $7,041 for the three and nine-month periods ended December 30, 2017, respectively. Estimated
amortization expense for the remaining three months of fiscal 2019, the five succeeding fiscal years and thereafter is as follows:
2019
|
|
|
$
|
2,297
|
|
2020
|
|
|
|
8,053
|
|
2021
|
|
|
|
8,002
|
|
2022
|
|
|
|
7,885
|
|
2023
|
|
|
|
7,801
|
|
2024
|
|
|
|
7,670
|
|
2025 and thereafter
|
|
|
|
91,692
|
|
8.
Debt
The
balances payable under all borrowing facilities are as follows:
|
|
December 29,
2018
|
|
|
March 31,
2018
|
|
Revolver Facility
|
|
$
|
109,250
|
|
|
$
|
500
|
|
Term Loan Facility
|
|
|
—
|
|
|
|
168,750
|
|
Debt issuance costs
|
|
|
(1,201
|
)
|
|
|
(2,968
|
)
|
Other
|
|
|
6,502
|
|
|
|
7,073
|
|
Total debt
|
|
|
114,551
|
|
|
|
173,355
|
|
Less: current portion
|
|
|
473
|
|
|
|
19,238
|
|
Long-term debt
|
|
$
|
114,078
|
|
|
$
|
154,117
|
|
The
current portion of long-term debt as of December 29, 2018 includes the current portion of the Schaublin mortgage. The current
portion of long-term debt as of March 31, 2018 includes the current portion of the Schaublin mortgage and the current portion
of the Term Loan Facility.
Credit
Facility
In connection with the Sargent Aerospace & Defense acquisition on April 24, 2015, the Company entered
into a credit agreement (the “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 Company’s prior credit agreement with JP Morgan. The Credit Agreement
provides the Company with a $200,000 term loan (the “Term Loan”) and a $350,000 revolving credit facility (the “Revolver”).
The Term Loan and the Revolver (the “Facilities”) expire on April 24, 2020.
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 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 0.00% for base
rate loans and 1.00% for LIBOR loans.
On
May 31, 2018, the Company paid off the remaining balance of the Term Loan. $987 in unamortized debt issuance costs associated
with the Term Loan were written off at the time of payoff and were recorded within other non-operating expense on the consolidated
statements of operations.
The
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 greater than 3.50 to 1; and (2) a consolidated interest
coverage ratio of at least 2.75 to 1. The Credit Agreement allows the Company to, among other things, make distributions to shareholders,
repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain
requirements and limitations of the Credit Agreement. As of December 29, 2018, the Company was in compliance with all such covenants.
The
Company’s domestic subsidiaries are parties to a Guarantee to guarantee the Company’s obligations under the Credit
Agreement. The Company’s obligations under the Credit Agreement and the domestic subsidiaries’ guarantee are secured
by a pledge of substantially all of the domestic assets of the Company and its domestic subsidiaries.
Approximately
$3,990 of the Revolver is being utilized to provide letters of credit to secure the Company’s obligations relating to certain
insurance programs. As of December 29, 2018, $1,201 in unamortized debt issuance costs remain. As of December 29, 2018, the Company
has the ability to borrow up to an additional $236,760 under the Revolver.
Other
Notes Payable
On
October 1, 2012, one of our foreign divisions, Schaublin, purchased the land and building, that 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 December 29, 2018 was 6,394 CHF, or $6,502.
9.
Pension Plan and Postretirement Health Care and Life Insurance Benefits
The
following tables set forth the net periodic benefit cost of the Company’s noncontributory defined benefit pension plan and
contributory defined benefit health care plans. The amounts for the three months ended December 29, 2018 are based on calculations
prepared by the Company’s actuaries and represent the Company’s best estimate of the respective period’s proportionate
share of the amounts to be recorded for the year ending March 30, 2019. The amounts disclosed below for the three and nine-month
periods ending December 30, 2017 were calculated based on the amounts disclosed within the Company’s fiscal 2018 Annual
Report on Form 10-K.
Pension
Plan:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
December 29,
2018
|
|
|
December 30,
2017
|
|
|
December 29,
2018
|
|
|
December 30,
2017
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
64
|
|
|
$
|
58
|
|
|
$
|
192
|
|
|
$
|
174
|
|
Interest cost
|
|
|
221
|
|
|
|
226
|
|
|
|
663
|
|
|
|
678
|
|
Expected return on plan assets
|
|
|
(417
|
)
|
|
|
(403
|
)
|
|
|
(1,251
|
)
|
|
|
(1,209
|
)
|
Amortization of prior service cost
|
|
|
9
|
|
|
|
9
|
|
|
|
27
|
|
|
|
27
|
|
Amortization of losses
|
|
|
249
|
|
|
|
302
|
|
|
|
747
|
|
|
|
906
|
|
Net periodic benefit cost
|
|
$
|
126
|
|
|
$
|
192
|
|
|
$
|
378
|
|
|
$
|
576
|
|
Postretirement
Health Care and Life Insurance Benefits:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 29,
2018
|
|
|
December 30,
2017
|
|
|
December 29,
2018
|
|
|
December 30,
2017
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
12
|
|
|
$
|
8
|
|
|
$
|
36
|
|
|
$
|
24
|
|
Interest cost
|
|
|
23
|
|
|
|
25
|
|
|
|
69
|
|
|
|
75
|
|
Amortization of prior service cost
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
Amortization of losses
|
|
|
(7
|
)
|
|
|
(1
|
)
|
|
|
(21
|
)
|
|
|
(3
|
)
|
Net periodic benefit cost
|
|
$
|
29
|
|
|
$
|
33
|
|
|
$
|
87
|
|
|
$
|
99
|
|
The
components of net periodic benefit cost other than the service component are included in other non-operating expense on the consolidated
statements of operations.
10.
Income Taxes
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, 2015. A U.S. federal tax examination by the Internal Revenue Service for the year ended March 30, 2013 was effectively
settled in fiscal 2016.
The
effective income tax rates for the three month periods ended December 29, 2018 and December 30, 2017, were 15.0% and 23.9%. The
reduction in the effective income tax rate for the three months ended December 29, 2018 as compared with the prior year period
reflects the net benefits of the Tax Cut and Jobs Act (“TCJA” or “the Act”), which reduced the U.S. statutory
rate from 35% to 21% for tax years beginning in 2018 and made other changes to the U.S. federal income tax laws affecting both
domestic and foreign income. The reduction in the effective income tax rate includes a benefit associated with the sale of the
Miami division, a tax benefit associated with the decrease in the Company’s unrecognized tax positions related to the statute
of limitations expiration, and a benefit associated with share-based compensation. The effective tax rate was also increased by
a tax expense associated with withholding tax on a one-time repatriation of cash from the Company’s foreign operations during
the three months ended December 29, 2018.
The TCJA was signed into law on December 22, 2017 revising the U.S. corporate income tax. Changes included,
but were not limited to, the reduction of the U.S. federal corporate rate from 35% to 21%, the elimination of certain deductions
and imposing one-time net charge related to the taxation of undistributed foreign earnings. Also on December 22, 2017, the SEC
issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations where a
registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting
for certain income tax effects of the Act. SAB 118 allowed companies to record provisional estimates during a measurement period
not extending beyond one year from the TCJA enactment date.
For
the year ended March 31, 2018 the Company recognized as components of income tax expense $9,166 for the one-time net charge related
to the taxation of undistributed foreign earnings and $9,318 tax benefit related to the remeasurement of U.S. deferred tax balances
to reflect the new U.S. corporate income tax rate. As of December 22, 2018, we have completed the accounting for all impacts of
the TCJA and there have been no changes to previously recorded amounts.
No
additional income tax provision has been made on any remaining undistributed foreign earnings not subject to the one-time net
charge related to the taxation of unremitted foreign earnings or any additional outside basis difference as these amounts continue
to be indefinitely reinvested in foreign operations.
One
of the international tax law changes provided for with the TCJA relates to the taxation of a corporation’s global intangible
low-taxed income (“GILTI”) for tax years beginning after December 31, 2017. The Company has evaluated this provision
of the TCJA and the application of ASC 740, and does not believe that GILTI will have a significant impact.
An
additional tax law change provided under the TCJA introduced new rules for the treatment of certain foreign income, including
foreign derived intangible income (“FDII”) for tax years beginning after December 31, 2017. The Company has evaluated
this provision of the TCJA and believes the FDII results in a favorable impact on the application of ASC 740.
In
addition to discrete items, the effective income tax rates for these periods are different from the U.S. statutory rates due to
a special U.S. manufacturing deduction (fiscal 2018 only), the U.S. credit for increasing research activities which decrease the
rate, and state income taxes which increases the rate.
The
effective income tax rate for the three-month period ended December 29, 2018 of 15.0% includes $4,048 of tax benefit associated
with the sale of the Miami division. The third quarter provision was also impacted by $1,469 of tax benefit associated with the
decrease in the Company’s unrecognized tax positions, pertaining primarily to the statute of limitations expiration of items
associated with the consolidation and restructuring of the Company’s U.K. manufacturing facility. The third quarter provision
also includes $943 tax expense associated with withholding tax on a one-time repatriation of cash from the Company’s foreign
operations and $558 of tax benefits associated with share-based compensation. The effective income tax rate without discrete items
for the three-month period ended December 29, 2018 would have been 22.3%. The effective income tax rate for the three-month period
ended December 30, 2017 of 23.9% was impacted by one-time adjustments associated with the enactment of the TCJA. Included in these
adjustments was an estimated charge of $9,491 associated with the repatriation transition tax and an estimated benefit of $8,708
associated with the revaluation of our deferred tax liabilities. The TCJA also impacted the third quarter provision with a benefit
from the lower blended statutory tax rate of 31.5% and by $1,238 of tax benefit associated with share-based compensation. The
effective income tax rate without discrete items for the three-month period ended December 30, 2017 would have been 25.3%. The
Company believes it is reasonably possible that some of its unrecognized tax positions may be effectively settled within the next
twelve months due to the closing of audits and the statute of limitations expiring in varying jurisdictions. The decrease in the
Company’s unrecognized tax positions, pertaining primarily to credits and state tax, is estimated to be approximately $356.
The
effective income tax rate for the nine-month period ended December 29, 2018 of 14.6% includes a benefit of $4,048 million associated
with the sale of the Miami division. The effective tax rate was also impacted by $1,510 of tax benefit associated with the decrease
of the Company’s unrecognized tax positions, pertaining primarily to the consolidation and restructuring of the Company’s
U.K. manufacturing facility. The effective rate was also impacted by $943 of tax expense associated with withholding tax on a
one-time repatriation of cash from the Company’s foreign operations and $5,063 associated with share-based compensation.
The effective income tax rate without this benefit and other items for the nine-month period ended December 29, 2018 would have
been 21.6%. The effective income tax rate for the nine-month period ended December 30, 2017 of 28.0% was impacted by one-time
adjustments associated with the enactment of the TCJA. These adjustments were mainly comprised of a charge of $9,491 for the repatriation
transition tax and a benefit of $8,708 associated with the revaluation of our deferred tax liabilities. The effective income tax
rate also benefited from a lower blended statutory tax rate of 31.5% as a result of the enactment of the TCJA and $3,916 tax benefit
associated with share-based compensation. The effective income tax rate without discrete items for the three-month period ended
December 30, 2017 would have been 33.0%.
11.
Reportable Segments
The
Company operates through operating segments for which separate financial information is available, and for which operating results
are evaluated regularly by the Company’s chief operating decision maker in determining resource allocation and assessing performance.
Those operating segments are aggregated as reportable segments as they have similar economic characteristics, including nature
of the products and production processes, distribution patterns and classes of customers.
The
Company has 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.
Segment
performance is evaluated based on segment net sales and gross margin. Items not allocated to segment operating income include
corporate administrative expenses and certain other amounts.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 29,
2018
|
|
|
December 30,
2017
|
|
|
December 29,
2018
|
|
|
December 30,
2017
|
|
Net External Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
79,306
|
|
|
$
|
69,764
|
|
|
$
|
235,311
|
|
|
$
|
214,809
|
|
Roller
|
|
|
34,841
|
|
|
|
32,485
|
|
|
|
107,711
|
|
|
|
96,215
|
|
Ball
|
|
|
16,720
|
|
|
|
16,496
|
|
|
|
52,832
|
|
|
|
48,756
|
|
Engineered Products
|
|
|
40,586
|
|
|
|
48,113
|
|
|
|
124,500
|
|
|
|
135,292
|
|
|
|
$
|
171,453
|
|
|
$
|
166,858
|
|
|
$
|
520,354
|
|
|
$
|
495,072
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
31,921
|
|
|
$
|
26,689
|
|
|
$
|
93,404
|
|
|
$
|
82,941
|
|
Roller
|
|
|
14,631
|
|
|
|
14,458
|
|
|
|
45,858
|
|
|
|
40,176
|
|
Ball
|
|
|
6,861
|
|
|
|
7,021
|
|
|
|
21,548
|
|
|
|
19,936
|
|
Engineered Products
|
|
|
14,714
|
|
|
|
16,604
|
|
|
|
42,875
|
|
|
|
45,653
|
|
|
|
$
|
68,127
|
|
|
$
|
64,772
|
|
|
$
|
203,685
|
|
|
$
|
188,706
|
|
Selling, General & Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
6,475
|
|
|
$
|
6,371
|
|
|
$
|
18,997
|
|
|
$
|
19,143
|
|
Roller
|
|
|
1,559
|
|
|
|
1,553
|
|
|
|
4,739
|
|
|
|
4,765
|
|
Ball
|
|
|
1,656
|
|
|
|
1,707
|
|
|
|
4,867
|
|
|
|
5,002
|
|
Engineered Products
|
|
|
4,795
|
|
|
|
5,338
|
|
|
|
15,231
|
|
|
|
15,737
|
|
Corporate
|
|
|
14,657
|
|
|
|
13,193
|
|
|
|
44,209
|
|
|
|
38,888
|
|
|
|
$
|
29,142
|
|
|
$
|
28,162
|
|
|
$
|
88,043
|
|
|
$
|
83,535
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
25,044
|
|
|
$
|
19,208
|
|
|
$
|
72,443
|
|
|
$
|
61,179
|
|
Roller
|
|
|
13,049
|
|
|
|
12,905
|
|
|
|
41,083
|
|
|
|
35,390
|
|
Ball
|
|
|
5,164
|
|
|
|
5,237
|
|
|
|
16,532
|
|
|
|
14,752
|
|
Engineered Products
|
|
|
(8,082
|
)
|
|
|
8,817
|
|
|
|
8,315
|
|
|
|
17,839
|
|
Corporate
|
|
|
(15,337
|
)
|
|
|
(12,885
|
)
|
|
|
(46,653
|
)
|
|
|
(38,482
|
)
|
|
|
$
|
19,838
|
|
|
$
|
33,282
|
|
|
$
|
91,720
|
|
|
$
|
90,678
|
|
Intersegment Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
1,285
|
|
|
$
|
1,240
|
|
|
$
|
4,525
|
|
|
$
|
3,793
|
|
Roller
|
|
|
3,602
|
|
|
|
3,438
|
|
|
|
10,771
|
|
|
|
9,731
|
|
Ball
|
|
|
740
|
|
|
|
606
|
|
|
|
2,302
|
|
|
|
1,758
|
|
Engineered Products
|
|
|
9,284
|
|
|
|
7,785
|
|
|
|
28,400
|
|
|
|
23,806
|
|
|
|
$
|
14,911
|
|
|
$
|
13,069
|
|
|
$
|
45,998
|
|
|
$
|
39,088
|
|
The
net loss of $16,802 related to the sale of the Miami division during the third quarter of fiscal 2019 is included within the Engineered
Products segment. All intersegment sales are eliminated in consolidation.
12.
Integration and Restructuring of Operations
On
November 28, 2018, the Company sold its Avborne Accessory Group, Inc. subsidiary (“Miami division”) for a sales
price of $22,284, subject to a final working capital adjustment. The Miami division, which is based in Miami, Florida,
provides maintenance, repair and overhaul services (“MRO”) for a wide variety of aircraft accessories. As a
result of the transaction, the Company recorded an after-tax loss of $12,754 associated with the restructuring in the third
quarter of fiscal 2019 attributable to the Engineered Products segment. The $12,754 loss was comprised of $22,284 of proceeds
received less transaction costs of $1,690, charges associated with goodwill of $6,691, intangible assets of $20,373 and other
net assets of $10,332, partially offset by a $4,048 tax benefit. The pre-tax loss of $16,802 was recognized within other, net
within the consolidated statement of operations. Prior to the transaction, the Franklin, IN division, which was previously
included within Avborne Accessory Group, Inc., was transferred to a separate subsidiary of the Company named Airtomic
LLC.
In
the second quarter of fiscal 2018, the Company reached a decision to restructure its manufacturing operation in Montreal, Canada.
After completing its obligations, the Company closed its RBC Canada location and consolidated certain residual assets into other
locations. As a result, the Company recorded an after-tax charge of $5,577 associated with the restructuring in the second quarter
of fiscal 2018 attributable to the Engineered Products segment. The $5,577 charge included a $1,337 impairment of fixed assets
and a $5,157 impairment of intangible assets offset by a $917 tax benefit. The impairment charges were recognized within other,
net within the consolidated statement of operations. The Company determined that the market approach was the most appropriate
method to estimate the fair value of the fixed assets using comparable sales data and actual quotes from potential buyers in the
market place. The fixed assets were comprised of land, a building, machinery and equipment. The Company assessed the fair value
of the intangible assets in accordance with ASC 360-10, which were comprised of customer relationships, product approvals, tradenames
and trademarks. These fair value measurements were classified as Level 3 in the valuation hierarchy. In the third and fourth quarters
of fiscal 2018, the Company incurred restructuring charges of $1,091 and $100, respectively, comprised primarily of employee termination
costs and building maintenance costs. These costs were recorded within other, net within the consolidated statement of operations
and are all attributable to the Engineered Products segment. The impact from restructuring in fiscal 2019 has been immaterial.
The total cumulative impact resulting from the restructuring was $6,743 in after-tax charges, all attributable to the Engineered
Products segment.
13.
Subsequent Events
On
January 31, 2019, the Company amended the Credit Agreement with Wells Fargo Bank, National Association, as Administrative Agent,
Collateral Agent, Swingline Lender and Letter of Credit Issuer, and the other lenders party thereto. The Credit Agreement as so
amended (the “Amended Credit Agreement”) now provides the Company with a $250,000 revolving credit facility (the “New
Revolver”). The New Revolver expires on January 31, 2024.
Amounts
outstanding under the New Revolver generally bear interest at (a) a base rate determined by reference to the higher of (1) Wells
Fargo’s prime lending rate, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one-month LIBOR rate plus 1%,
or (b) LIBOR plus a specified margin, depending on the type of borrowing being made. The applicable margin is based on the Company's
consolidated ratio of total net debt to consolidated EBITDA from time to time. Currently, the Company's margin is 0.00% for base
rate loans and 0.75% for LIBOR loans.
The
Amended Credit Agreement requires the Company to comply with various covenants, including among other things, a financial
covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater than 3.50 to 1. The Amended 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 Amended Credit Agreement. The Company is currently in compliance with all such covenants.
The
Company’s domestic subsidiaries are parties to a Guarantee to guarantee the Company’s obligations under the Amended
Credit Agreement. The Company’s obligations under the Amended Credit Agreement and the domestic subsidiaries’ guarantee
are secured by a pledge of substantially all of the domestic assets of the Company and its domestic subsidiaries.