Item
1. Consolidated Financial Statements
RBC
Bearings Incorporated
Consolidated
Balance Sheets
(dollars
in thousands, except share and per share data)
|
|
June 27,
2020
|
|
|
March 28,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
143,615
|
|
|
$
|
103,255
|
|
Accounts receivable, net of allowance for doubtful accounts of $1,642 at June 27, 2020 and $1,627 at March 28, 2020
|
|
|
113,184
|
|
|
|
128,995
|
|
Inventory
|
|
|
371,009
|
|
|
|
367,494
|
|
Prepaid expenses and other current assets
|
|
|
11,041
|
|
|
|
12,262
|
|
Total current assets
|
|
|
638,849
|
|
|
|
612,006
|
|
Property, plant and equipment, net
|
|
|
218,128
|
|
|
|
219,846
|
|
Operating lease assets, net
|
|
|
30,530
|
|
|
|
28,953
|
|
Goodwill
|
|
|
277,455
|
|
|
|
277,776
|
|
Intangible assets, net of accumulated amortization of $58,242 at June 27, 2020 and $55,732 at March 28, 2020
|
|
|
161,060
|
|
|
|
162,747
|
|
Other assets
|
|
|
23,187
|
|
|
|
20,584
|
|
Total assets
|
|
$
|
1,349,209
|
|
|
$
|
1,321,912
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
51,812
|
|
|
$
|
51,038
|
|
Accrued expenses and other current liabilities
|
|
|
36,098
|
|
|
|
40,580
|
|
Current operating lease liabilities
|
|
|
5,891
|
|
|
|
5,708
|
|
Current portion of long-term debt
|
|
|
6,489
|
|
|
|
6,429
|
|
Total current liabilities
|
|
|
100,290
|
|
|
|
103,755
|
|
Deferred income taxes
|
|
|
19,425
|
|
|
|
16,560
|
|
Long-term debt, less current portion
|
|
|
16,635
|
|
|
|
16,583
|
|
Long-term operating lease liabilities
|
|
|
24,857
|
|
|
|
23,396
|
|
Other non-current liabilities
|
|
|
45,367
|
|
|
|
43,619
|
|
Total liabilities
|
|
|
206,574
|
|
|
|
203,913
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized shares: 10,000,000 at June 27, 2020 and March 28, 2020, respectively; none issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock, $.01 par value; authorized shares: 60,000,000 at June 27, 2020 and March 28, 2020, respectively; issued shares: 25,941,772 and 25,881,415 at June 27, 2020 and March 28, 2020, respectively
|
|
|
259
|
|
|
|
259
|
|
Additional paid-in capital
|
|
|
418,069
|
|
|
|
412,400
|
|
Accumulated other comprehensive loss
|
|
|
(6,229
|
)
|
|
|
(6,898
|
)
|
Retained earnings
|
|
|
791,908
|
|
|
|
769,219
|
|
Treasury stock, at cost, 870,161 shares and 838,982 shares at June 27, 2020 and March 28, 2020, respectively
|
|
|
(61,372
|
)
|
|
|
(56,981
|
)
|
Total stockholders’ equity
|
|
|
1,142,635
|
|
|
|
1,117,999
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,349,209
|
|
|
$
|
1,321,912
|
|
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Operations
(dollars
in thousands, except share and per share data)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Net sales
|
|
$
|
156,493
|
|
|
$
|
182,690
|
|
Cost of sales
|
|
|
97,040
|
|
|
|
111,996
|
|
Gross margin
|
|
|
59,453
|
|
|
|
70,694
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
26,829
|
|
|
|
30,087
|
|
Other, net
|
|
|
3,810
|
|
|
|
2,117
|
|
Total operating expenses
|
|
|
30,639
|
|
|
|
32,204
|
|
Operating income
|
|
|
28,814
|
|
|
|
38,490
|
|
Interest expense, net
|
|
|
425
|
|
|
|
547
|
|
Other non-operating expense
|
|
|
42
|
|
|
|
169
|
|
Income before income taxes
|
|
|
28,347
|
|
|
|
37,774
|
|
Provision for income taxes
|
|
|
5,658
|
|
|
|
7,275
|
|
Net income
|
|
$
|
22,689
|
|
|
$
|
30,499
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.92
|
|
|
$
|
1.24
|
|
Diluted
|
|
$
|
0.91
|
|
|
$
|
1.23
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,763,903
|
|
|
|
24,501,707
|
|
Diluted
|
|
|
24,933,941
|
|
|
|
24,807,307
|
|
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Comprehensive Income
(dollars
in thousands)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Net income
|
|
$
|
22,689
|
|
|
$
|
30,499
|
|
Pension and postretirement liability adjustments, net of taxes (1)
|
|
|
260
|
|
|
|
178
|
|
Foreign currency translation adjustments
|
|
|
409
|
|
|
|
2,542
|
|
Total comprehensive income
|
|
$
|
23,358
|
|
|
$
|
33,219
|
|
|
(1)
|
These
adjustments were net of tax expense of $79 and $54 for the three-month periods ended June 27, 2020 and June 29, 2019, respectively.
|
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Stockholders’ Equity
(dollars
in thousands)
(Unaudited)
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income/(Loss)
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
Balance at March 28, 2020
|
|
|
25,881,415
|
|
|
$
|
259
|
|
|
$
|
412,400
|
|
|
$
|
(6,898
|
)
|
|
$
|
769,219
|
|
|
|
(838,982
|
)
|
|
$
|
(56,981
|
)
|
|
$
|
1,117,999
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,689
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,689
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
5,438
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,438
|
|
Repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(31,179
|
)
|
|
|
(4,391
|
)
|
|
|
(4,391
|
)
|
Exercise of equity awards
|
|
|
4,200
|
|
|
|
—
|
|
|
|
231
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
231
|
|
Change in net prior service cost and actuarial losses, net of tax expense of $79
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260
|
|
Issuance of restricted stock
|
|
|
56,157
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
409
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
409
|
|
Balance at June 27, 2020
|
|
|
25,941,772
|
|
|
$
|
259
|
|
|
$
|
418,069
|
|
|
$
|
(6,229
|
)
|
|
$
|
791,908
|
|
|
|
(870,161
|
)
|
|
$
|
(61,372
|
)
|
|
$
|
1,142,635
|
|
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Stockholders’ Equity (continued)
(dollars
in thousands)
(Unaudited)
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income/(Loss)
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
Balance at March 30, 2019
|
|
|
25,607,196
|
|
|
$
|
256
|
|
|
$
|
378,655
|
|
|
$
|
(7,467
|
)
|
|
$
|
641,894
|
|
|
|
(752,913
|
)
|
|
$
|
(44,772
|
)
|
|
$
|
968,566
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,499
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,499
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
4,802
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,802
|
|
Repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(69,877
|
)
|
|
|
(9,514
|
)
|
|
|
(9,514
|
)
|
Exercise of equity awards
|
|
|
4,356
|
|
|
|
1
|
|
|
|
275
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
276
|
|
Change in net prior service cost and actuarial losses, net of tax expense of $54
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
178
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
178
|
|
Issuance of restricted stock
|
|
|
86,490
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impact from adoption of ASU 2018-02
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,289
|
)
|
|
|
1,289
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,542
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,542
|
|
Balance at June 29, 2019
|
|
|
25,698,042
|
|
|
$
|
257
|
|
|
$
|
383,732
|
|
|
$
|
(6,036
|
)
|
|
$
|
673,682
|
|
|
|
(822,790
|
)
|
|
$
|
(54,286
|
)
|
|
$
|
997,349
|
|
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Cash Flows
(dollars
in thousands)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
22,689
|
|
|
$
|
30,499
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5,892
|
|
|
|
5,236
|
|
Deferred income taxes
|
|
|
2,865
|
|
|
|
1,153
|
|
Amortization of intangible assets
|
|
|
2,504
|
|
|
|
2,284
|
|
Amortization of deferred financing costs
|
|
|
141
|
|
|
|
99
|
|
Share-based compensation
|
|
|
5,438
|
|
|
|
4,802
|
|
Other non-cash charges
|
|
|
3
|
|
|
|
(11
|
)
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
15,848
|
|
|
|
815
|
|
Inventory
|
|
|
(3,294
|
)
|
|
|
(7,423
|
)
|
Prepaid expenses and other current assets
|
|
|
1,240
|
|
|
|
(1,052
|
)
|
Other non-current assets
|
|
|
(4,678
|
)
|
|
|
(1,041
|
)
|
Accounts payable
|
|
|
739
|
|
|
|
1,986
|
|
Accrued expenses and other current liabilities
|
|
|
(4,180
|
)
|
|
|
2,773
|
|
Other non-current liabilities
|
|
|
3,152
|
|
|
|
16
|
|
Net cash provided by operating activities
|
|
|
48,359
|
|
|
|
40,136
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(3,875
|
)
|
|
|
(12,040
|
)
|
Proceeds from sale of assets
|
|
|
5
|
|
|
|
2
|
|
Acquisition of business
|
|
|
245
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(3,625
|
)
|
|
|
(12,038
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayments of revolving credit facilities
|
|
|
-
|
|
|
|
(17,000
|
)
|
Repayments of notes payable
|
|
|
(122
|
)
|
|
|
(117
|
)
|
Exercise of stock options
|
|
|
231
|
|
|
|
276
|
|
Repurchase of common stock
|
|
|
(4,391
|
)
|
|
|
(9,514
|
)
|
Net cash used in financing activities
|
|
|
(4,282
|
)
|
|
|
(26,355
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(92
|
)
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Increase during the period
|
|
|
40,360
|
|
|
|
2,829
|
|
Cash, at beginning of period
|
|
|
103,255
|
|
|
|
29,884
|
|
Cash, at end of period
|
|
$
|
143,615
|
|
|
$
|
32,713
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
899
|
|
|
$
|
489
|
|
Interest
|
|
|
267
|
|
|
|
408
|
|
See
accompanying notes.
RBC
Bearings Incorporated
Notes
to Unaudited Interim Consolidated Financial Statements
(dollars
in thousands, except share and per share data)
1.
Basis of Presentation
The
interim consolidated financial statements included herein have been prepared by RBC Bearings Incorporated, a Delaware corporation
(collectively with its subsidiaries, the “Company”), without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The interim financial statements included with this report have been prepared on a consistent basis with
the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K
for the fiscal year ended March 28, 2020. We condensed or omitted certain information and footnote disclosures normally included
in our annual audited financial statements, which we prepared in accordance with U.S. Generally Accepted Accounting Principles
(U.S. GAAP). As used in this report, the terms “we,” “us,” “our,” “RBC” and the
“Company” mean RBC Bearings Incorporated and its subsidiaries, unless the context indicates another meaning.
These
statements reflect all adjustments, accruals and estimates, consisting only of items of a normal recurring nature, that are, in
the opinion of management, necessary for the fair presentation of the consolidated financial condition and consolidated results
of operations for the interim periods presented. These financial statements should be read in conjunction with the Company’s
audited financial statements and notes thereto included in the Annual Report on Form 10-K.
The
results of operations for the three-month period ended June 27, 2020 are not necessarily indicative of the operating results for
the entire fiscal year ending April 3, 2021. The three-month periods ended June 27, 2020 and June 29, 2019 each include 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 28, 2020. Significant changes to our accounting policies as a result of
adopting new accounting standards are discussed below.
Recent
Accounting Standards Adopted
In
September 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities
measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net
income. The new guidance replaces the current incurred loss approach with a new expected credit loss impairment model. The
new model applies to most financial assets measured at amortized cost and certain other instruments, including trade and other
receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit.
Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected
over the life of an exposure (or pool of exposures). The estimate of expected credit losses considers historical information,
current information and reasonable and supportable forecasts, including estimates of prepayments. Financial instruments with similar
risk characteristics are grouped together when estimating expected credit losses. ASU 2016-13 does not prescribe a specific
method to make the estimate, so its application requires significant judgment. The Company adopted this accounting standard update
in the first quarter of fiscal 2021 and it did not have a material impact on the Company’s consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment. The objective of this standard update is to simplify the subsequent measurement of goodwill, eliminating
Step 2 from the goodwill impairment test. Under this ASU, an entity should perform its annual goodwill impairment test by comparing
the fair value of a reporting unit with its carrying amount. An entity would recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value, assuming the loss recognized does not exceed the total amount
of goodwill for the reporting unit. The standard update is effective for fiscal years beginning after December 15, 2019. Early
adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
Recent
Accounting Standards Yet to Be Adopted
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
The objective of this standard update is to simplify the accounting for income taxes by removing certain exceptions to the general
principles in Topic 740. This ASU also attempts to improve consistent application of and simplify GAAP for other areas of Topic
740 by clarifying and amending existing guidance. This standard update is effective for fiscal years beginning after December
15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the effect that the adoption
of this ASU will have on the Company’s consolidated financial statements.
Other
new pronouncements issued but not effective until after April 3, 2021 are not expected to have a material impact on our financial
position, results of operations or liquidity.
3.
Revenue from Contracts with Customers
Disaggregation
of Revenue
The
Company operates 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-month
periods ended June 27, 2020 and June 29, 2019 are as follows:
Principal
End Markets
|
|
Three Months Ended
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Total
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Total
|
|
Plain
|
|
$
|
59,352
|
|
|
$
|
19,523
|
|
|
$
|
78,875
|
|
|
$
|
67,306
|
|
|
$
|
20,183
|
|
|
$
|
87,489
|
|
Roller
|
|
|
13,230
|
|
|
|
9,670
|
|
|
|
22,900
|
|
|
|
19,313
|
|
|
|
17,546
|
|
|
|
36,859
|
|
Ball
|
|
|
7,022
|
|
|
|
11,818
|
|
|
|
18,840
|
|
|
|
5,430
|
|
|
|
12,280
|
|
|
|
17,710
|
|
Engineered Products
|
|
|
19,378
|
|
|
|
16,500
|
|
|
|
35,878
|
|
|
|
24,270
|
|
|
|
16,362
|
|
|
|
40,632
|
|
|
|
$
|
98,982
|
|
|
$
|
57,511
|
|
|
$
|
156,493
|
|
|
$
|
116,319
|
|
|
$
|
66,371
|
|
|
$
|
182,690
|
|
Remaining
Performance Obligations
Remaining
performance obligations represent the transaction price of orders meeting the definition of a contract under Accounting Standards
Codification (ASC) 606 for which work has not been performed or has been partially performed and excludes unexercised contract
options. The duration of many of our contracts, as defined by ASC 606, is less than one year. The Company has elected to apply
the practical expedient that 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 $274,688 at June
27, 2020. The Company expects to recognize revenue on approximately 65% and 88% of the remaining performance obligations over
the next 12 and 24 months, respectively, with the remainder recognized thereafter. Excluded from these remaining performance
obligations are orders received from customers for which the delivery date has not yet been agreed to.
Contract
Balances
The
timing of revenue recognition, invoicing and cash collections affects 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. 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 sheets on an individual contract basis at the end of each reporting
period. As of June 27, 2020 and March 28, 2020, accounts receivable with customers, net, were $113,184 and $128,995, respectively.
The tables below represent a roll-forward of contract assets and contract liabilities for the three-month period ended June 27,
2020:
Contract Assets - Current (1)
|
|
|
|
|
|
|
|
Balance at March 28, 2020
|
|
$
|
2,604
|
|
Additional revenue recognized in excess of billings
|
|
|
670
|
|
Less: amounts billed to customers
|
|
|
(1,429
|
)
|
Balance at June 27, 2020
|
|
$
|
1,845
|
|
|
(1)
|
Included within prepaid expenses and other current assets
on the consolidated balance sheets.
|
Contract Liabilities – Current (2)
|
|
|
|
|
|
|
|
Balance at March 28, 2020
|
|
$
|
11,116
|
|
Payments received prior to revenue being recognized
|
|
|
634
|
|
Revenue recognized
|
|
|
(6,310
|
)
|
Reclassification (to)/from noncurrent
|
|
|
727
|
|
Balance at June 27, 2020
|
|
$
|
6,167
|
|
|
(2)
|
Included
within accrued expenses and other current liabilities on the consolidated balance sheets. During the first three months of fiscal
2021, the Company recognized revenues of $5,821 that were included in the contract liability balance at March 28, 2020.
|
Contract Liabilities – Noncurrent (3)
|
|
|
|
|
|
|
|
Balance at March 28, 2020
|
|
$
|
2,427
|
|
Payments received prior to revenue being recognized
|
|
|
—
|
|
Reclassification (to)/from current
|
|
|
(727
|
)
|
Balance at June 27, 2020
|
|
$
|
1,700
|
|
|
(3)
|
Included
within other non-current liabilities on the consolidated balance sheets.
|
As
of June 27, 2020, the Company did not have any contract assets classified as noncurrent on the consolidated balance sheet.
4.
Accumulated Other Comprehensive Income (Loss)
The
components of comprehensive income (loss) that relate to the Company are net income, foreign currency translation adjustments,
and pension plan and postretirement benefits.
The
following summarizes the activity within each component of accumulated other comprehensive income (loss), net of taxes:
|
|
Currency
Translation
|
|
|
Pension and
Postretirement
Liability
|
|
|
Total
|
|
Balance at March 28, 2020
|
|
$
|
(582
|
)
|
|
$
|
(6,316
|
)
|
|
$
|
(6,898
|
)
|
Other comprehensive income before reclassifications
|
|
|
409
|
|
|
|
—
|
|
|
|
409
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
|
260
|
|
|
|
260
|
|
Net current period other comprehensive income
|
|
|
409
|
|
|
|
260
|
|
|
|
669
|
|
Balance at June 27, 2020
|
|
$
|
(173
|
)
|
|
$
|
(6,056
|
)
|
|
$
|
(6,229
|
)
|
5.
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
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,689
|
|
|
$
|
30,499
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per common share—weighted-average shares outstanding
|
|
|
24,763,903
|
|
|
|
24,501,707
|
|
Effect of dilution due to employee stock awards
|
|
|
170,038
|
|
|
|
305,600
|
|
Denominator for diluted net income per common share — weighted-average shares outstanding
|
|
|
24,933,941
|
|
|
|
24,807,307
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.92
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.91
|
|
|
$
|
1.23
|
|
At
June 27, 2020, 504,768 employee stock options and 61,025 restricted shares have been excluded from the calculation of diluted
earnings per share. At June 29, 2019, 373,840 employee stock options and 86,040 restricted shares have been excluded from the
calculation of diluted earnings per share. The inclusion of these employee stock options and restricted shares would be anti-dilutive.
6.
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.
7.
Inventory
Inventories
are stated at the lower of cost or net realizable value, using the first-in, first-out method, and are summarized below:
|
|
June 27,
2020
|
|
|
March 28,
2020
|
|
Raw materials
|
|
$
|
52,310
|
|
|
$
|
51,362
|
|
Work in process
|
|
|
93,496
|
|
|
|
97,286
|
|
Finished goods
|
|
|
225,203
|
|
|
|
218,846
|
|
|
|
$
|
371,009
|
|
|
$
|
367,494
|
|
8.
Goodwill and Intangible Assets
Goodwill
|
|
Roller
|
|
|
Plain
|
|
|
Ball
|
|
|
Engineered
Products
|
|
|
Total
|
|
March 28, 2020
|
|
$
|
16,007
|
|
|
$
|
79,597
|
|
|
$
|
5,623
|
|
|
$
|
176,549
|
|
|
$
|
277,776
|
|
Translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62
|
|
|
|
62
|
|
Acquisition (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(383
|
)
|
|
|
(383
|
)
|
June 27, 2020
|
|
$
|
16,007
|
|
|
$
|
79,597
|
|
|
$
|
5,623
|
|
|
$
|
176,228
|
|
|
$
|
277,455
|
|
|
(1)
|
Includes
a reduction of goodwill recognized due to opening balance sheet adjustments made during the measurement period of the Company’s
acquisition of Vianel Holding AG (“Swiss Tool”) on August 15, 2019.
|
Intangible
Assets
|
|
|
|
June 27, 2020
|
|
|
March 28, 2020
|
|
|
|
Weighted
Average
Useful
Lives
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated Amortization
|
|
Product approvals
|
|
24
|
|
$
|
50,878
|
|
|
$
|
13,125
|
|
|
$
|
50,878
|
|
|
$
|
12,597
|
|
Customer relationships and lists
|
|
23
|
|
|
109,696
|
|
|
|
24,731
|
|
|
|
109,645
|
|
|
|
23,557
|
|
Trade names
|
|
10
|
|
|
16,331
|
|
|
|
9,278
|
|
|
|
16,330
|
|
|
|
8,906
|
|
Distributor agreements
|
|
5
|
|
|
722
|
|
|
|
722
|
|
|
|
722
|
|
|
|
722
|
|
Patents and trademarks
|
|
16
|
|
|
11,775
|
|
|
|
6,167
|
|
|
|
11,553
|
|
|
|
6,045
|
|
Domain names
|
|
10
|
|
|
437
|
|
|
|
437
|
|
|
|
437
|
|
|
|
437
|
|
Other
|
|
3
|
|
|
5,182
|
|
|
|
3,782
|
|
|
|
4,633
|
|
|
|
3,468
|
|
|
|
|
|
|
195,021
|
|
|
|
58,242
|
|
|
|
194,198
|
|
|
|
55,732
|
|
Non-amortizable repair station certifications
|
|
n/a
|
|
|
24,281
|
|
|
|
—
|
|
|
|
24,281
|
|
|
|
—
|
|
Total
|
|
21
|
|
$
|
219,302
|
|
|
$
|
58,242
|
|
|
$
|
218,479
|
|
|
$
|
55,732
|
|
Amortization
expense for definite-lived intangible assets for the three-month period ended June 27, 2020 was $2,504, compared to $2,284 for
the three-month period ended June 29, 2019. Estimated amortization expense for the remaining nine months of fiscal 2021, the five
succeeding fiscal years and thereafter is as follows:
2021
|
|
$
|
7,240
|
|
2022
|
|
|
9,538
|
|
2023
|
|
|
9,456
|
|
2024
|
|
|
9,327
|
|
2025
|
|
|
8,679
|
|
2026
|
|
|
7,218
|
|
2027 and thereafter
|
|
|
85,321
|
|
9.
Debt
The
balances payable under all borrowing facilities are as follows:
|
|
June 27,
2020
|
|
|
March 28,
2020
|
|
Revolver and term loan facilities
|
|
$
|
18,664
|
|
|
$
|
18,593
|
|
Debt issuance costs
|
|
|
(1,546
|
)
|
|
|
(1,687
|
)
|
Other
|
|
|
6,006
|
|
|
|
6,106
|
|
Total debt
|
|
|
23,124
|
|
|
$
|
23,012
|
|
Less: current portion
|
|
|
6,489
|
|
|
$
|
6,429
|
|
Long-term debt
|
|
$
|
16,635
|
|
|
$
|
16,583
|
|
The
current portion of long-term debt as of June 27, 2020 includes the current portion of the foreign term loan, foreign revolving
facility and the Schaublin mortgage, all of which are discussed below in further detail.
Domestic
Credit Facility
The
Company’s 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”) provides the Company
with a $250,000 revolving credit facility (the “Revolver”), which expires on January 31, 2024. Debt issuance costs
associated with the Credit Agreement totaled $852 and will be amortized through January 31, 2024 along with the unamortized debt
issuance costs remaining from the Company’s prior credit agreement.
Amounts
outstanding under the 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 at each measurement date. Currently, the Company’s margin is 0.00% for base rate
loans and 0.75% for LIBOR loans.
The
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 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 June 27,
2020, the Company was in compliance with all such covenants.
The
Company’s domestic subsidiaries have guaranteed the Company’s obligations under the Credit Agreement, and the Company’s
obligations 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
$3,700 of the Revolver is being utilized to provide letters of credit to secure the Company’s obligations relating to certain
insurance programs. As of June 27, 2020, $1,418 in unamortized debt issuance costs remain. The Company has the ability to borrow
up to an additional $246,300 under the Revolver as of June 27, 2020.
Foreign
Term Loan and Revolving Credit Facility
On
August 15, 2019, one of our foreign subsidiaries, Schaublin SA (“Schaublin”), entered into two separate credit agreements
(the “Foreign Credit Agreements”) with Credit Suisse (Switzerland) Ltd. to finance the acquisition of Swiss Tool and
provide future working capital. The Schaublin Credit Agreements provided Schaublin with a CHF 15,000 (approximately $15,383) term
loan (the “Foreign Term Loan”), which expires on July 31, 2024 and a CHF 15,000 (approximately $15,383) revolving
credit facility (the “Foreign Revolver”), which continues in effect until terminated by either Schaublin or Credit
Suisse. Debt issuance costs associated with the Foreign Credit Agreements totaled CHF 270 (approximately $277) and will be amortized
throughout the life of the Foreign Credit Agreements.
Amounts
outstanding under the Foreign Term Loan and the Foreign Revolver generally bear interest at LIBOR plus a specified margin. The
applicable margin is based on Schaublin’s ratio of total net debt to consolidated EBITDA at each measurement date. Currently,
Schaublin’s margin is 1.00%.
The
Foreign Credit Agreements require Schaublin to comply with various covenants, which are tested annually on March 31. These covenants
include, among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater
than 3.00 to 1 as of March 31, 2020 and not greater than 2.50 to 1 as of March 31, 2021 and thereafter. Schaublin is also required
to maintain an economic equity of CHF 20,000 at all times. The Foreign Credit Agreements allow Schaublin to, among other things,
incur other debt or liens and acquire or dispose of assets provided that Schaublin complies with certain requirements and limitations
of the Foreign Credit Agreements. As of March 31, 2020, Schaublin was in compliance with all such covenants.
Schaublin’s
parent company, Schaublin Holding, has guaranteed Schaublin’s obligations under the Foreign Credit Agreements. Schaublin
Holding’s guaranty and the Foreign Credit Agreements are secured by a pledge of the capital stock of Schaublin. In addition,
the Foreign Term Loan is secured with pledges of the capital stock of the top company and the three operating companies in the
Swiss Tool System group of companies.
As
of June 27, 2020, there was approximately $2,847 outstanding under the Foreign Revolver and approximately $15,817 outstanding
under the Foreign Term Loan. These borrowings have been classified as Level 2 of the valuation hierarchy. As of June 27,
2020, approximately $128 in unamortized debt issuance costs remain. Schaublin has the ability to borrow up to an additional
$12,970 under the Foreign Revolver as of June 27, 2020.
Schaublin’s
required future annual principal payments for the next five years and thereafter are approximately $5,999 for fiscal 2021, approximately
$3,163 for each year from fiscal 2022 through fiscal 2024 and approximately $3,176 for fiscal 2025.
Other
Notes Payable
On
October 1, 2012, Schaublin purchased the land and building that it occupied and had been leasing for approximately $14,910.
Schaublin obtained a 20-year fixed-rate mortgage of approximately $9,857 at an interest rate of 2.9%. The balance of the
purchase price of approximately $5,053 was paid from cash on hand. The balance on this mortgage as of June 27, 2020 was
approximately $6,006 and has been classified as Level 2 of the valuation hierarchy.
The
Company’s required future annual principal payments for the next five years are approximately $490 for each year from fiscal
2021 through fiscal 2025 and $3,556 thereafter.
10.
Income Taxes
The
Company files income tax returns in numerous U.S. and foreign jurisdictions, with returns subject to examination for varying periods,
but generally back to and including the year ending April 2, 2005. The Company is no longer subject to U.S. federal tax examination
by the Internal Revenue Service for years ending before April 1, 2017.
The
effective income tax rates for the three-month periods ended June 27, 2020 and June 29, 2019, were 20.0% and 19.3%, respectively.
In addition to discrete items, the effective income tax rates for these periods are different from the U.S. statutory rates due
to the foreign-derived intangible income provision and U.S. credit for increasing research activities, which decrease the rate,
and state income taxes that increase the rate.
The
effective income tax rate for the three-month period ended June 27, 2020 of 20.0% includes $315 of tax benefit associated with
share-based compensation, along with $75 of tax benefit for the release of unrecognized tax positions associated with a statute
of limitations expiration. The effective income tax rate without discrete items for the three-month period ended June 27, 2020
would have been 21.3%. The effective income tax rate for the three-month period ended June 29, 2019 of 19.3% includes discrete
items of $510 of tax benefit associated with share-based compensation and $241 of tax benefit associated with other permanent
adjustments from filing the Company’s fiscal 2018 foreign tax returns. The effective income tax rate without discrete items
for the three-month period ended June 29, 2019 would have been 21.2%. The Company believes it is reasonably possible that some
of its unrecognized tax positions may be effectively settled within the next 12 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 federal and state credits and state tax, is estimated to be approximately $1,524.
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
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Net External Sales
|
|
|
|
|
|
|
Plain
|
|
$
|
78,875
|
|
|
$
|
87,489
|
|
Roller
|
|
|
22,900
|
|
|
|
36,859
|
|
Ball
|
|
|
18,840
|
|
|
|
17,710
|
|
Engineered Products
|
|
|
35,878
|
|
|
|
40,632
|
|
|
|
$
|
156,493
|
|
|
$
|
182,690
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
32,077
|
|
|
$
|
34,114
|
|
Roller
|
|
|
8,407
|
|
|
|
14,524
|
|
Ball
|
|
|
7,927
|
|
|
|
7,799
|
|
Engineered Products
|
|
|
11,042
|
|
|
|
14,257
|
|
|
|
$
|
59,453
|
|
|
$
|
70,694
|
|
Selling, General & Administrative Expenses
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
5,271
|
|
|
$
|
6,514
|
|
Roller
|
|
|
1,239
|
|
|
|
1,614
|
|
Ball
|
|
|
1,346
|
|
|
|
1,633
|
|
Engineered Products
|
|
|
3,812
|
|
|
|
4,303
|
|
Corporate
|
|
|
15,161
|
|
|
|
16,023
|
|
|
|
$
|
26,829
|
|
|
$
|
30,087
|
|
Operating Income
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
25,401
|
|
|
$
|
26,825
|
|
Roller
|
|
|
7,099
|
|
|
|
12,570
|
|
Ball
|
|
|
6,551
|
|
|
|
6,137
|
|
Engineered Products
|
|
|
5,981
|
|
|
|
9,002
|
|
Corporate
|
|
|
(16,218
|
)
|
|
|
(16,044
|
)
|
|
|
$
|
28,814
|
|
|
$
|
38,490
|
|
Intersegment Sales
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
1,562
|
|
|
$
|
1,847
|
|
Roller
|
|
|
3,378
|
|
|
|
3,201
|
|
Ball
|
|
|
667
|
|
|
|
669
|
|
Engineered Products
|
|
|
10,649
|
|
|
|
10,822
|
|
|
|
$
|
16,256
|
|
|
$
|
16,539
|
|
All
intersegment sales are eliminated in consolidation.
12.
Acquisition
On
August 15, 2019, the Company, through its Schaublin SA subsidiary, acquired all of the outstanding shares of Swiss Tool for a
purchase price of approximately $33,597 (CHF 32,768). We have finalized the purchase price allocation with no material adjustments
subsequent to March 28, 2020.
ITEM
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary
Statement as to Forward-Looking Information
The
information in this discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which are subject to the “safe harbor” created
by those sections. All statements, other than statements of historical facts, included in this quarterly report on Form 10-Q regarding
our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives
of management are “forward-looking statements” as the term is defined in the Private Securities Litigation Reform
Act of 1995.
The
words “anticipates,” “believes,” “estimates,” “expects,” “intends,”
“may,” “plans,” “projects,” “will,” “would” and similar expressions
are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not
place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions
and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and
uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including,
without limitation: (a) the bearing and engineered products industries are highly competitive, and this competition could reduce
our profitability or limit our ability to grow; (b) The loss of a major customer, or a material adverse change in a major customer’s
business, could result in a material reduction in our revenues, cash flows and profitability; (c) our results are likely to be
impacted by the COVID-19 pandemic; (d) weakness in any of the industries in which our customers operate, as well as the cyclical
nature of our customers’ businesses generally, could materially reduce our revenues, cash flows and profitability; (e) future
reductions or changes in U.S. government spending could negatively affect our business; (f) fluctuating supply and costs of subcomponents,
raw materials and energy resources, or the imposition of import tariffs, could materially reduce our revenues, cash flows and
profitability; (g) our results could be impacted by governmental trade policies and tariffs relating to our supplies imported
from foreign vendors or our finished goods exported to other countries; (h) our products are subject to certain approvals and
government regulations and the loss of such approvals, or our failure to comply with such regulations, could materially reduce
our revenues, cash flows and profitability; (i) the retirement of commercial aircraft could reduce our revenues, cash flows and
profitability; (j) work stoppages and other labor problems could materially reduce our ability to operate our business; (k) unexpected
equipment failures, catastrophic events or capacity constraints could increase our costs and reduce our sales due to production
curtailments or shutdowns; (l) we may not be able to continue to make the acquisitions necessary for us to realize our growth
strategy; (m) businesses that we have acquired or that we may acquire in the future may have liabilities which are not known to
us; (n) goodwill and indefinite-lived intangibles comprise a significant portion of our total assets, and if we determine that
goodwill and indefinite-lived intangibles have become impaired in the future, our results of operations and financial condition
in such years may be materially and adversely affected; (o) we depend heavily on our senior management and other key personnel,
the loss of whom could materially affect our financial performance and prospects; (p) our international operations are subject
to risks inherent in such activities; (q) currency translation risks may have a material impact on our results of operations;
(r) we are subject to changes in legislative, regulatory and legal developments involving income and other taxes; (s) we may be
required to make significant future contributions to our pension plan; (t) we may incur material losses for product liability
and recall-related claims; (u) environmental and health and safety laws and regulations impose substantial costs and limitations
on our operations, and environmental compliance may be more costly than we expect; (v) our intellectual property and proprietary
information are valuable, and any inability to protect them could adversely affect our business and results of operations; in
addition, we may be subject to infringement claims by third parties; (w) cancellation of orders in our backlog could negatively
impact our revenues, cash flows and profitability; (x) if we fail to maintain an effective system of internal controls, we may
not be able to accurately report our financial results or prevent fraud; (y) litigation could adversely affect our financial condition;
(z) changes in accounting standards or changes in the interpretations of existing standards could affect our financial results;
(aa) risks associated with utilizing information technology systems could adversely affect our operations. Additional information
regarding these and other risks and uncertainties is contained in our periodic filings with the SEC, including, without limitation,
the risks identified under the heading “Risk Factors” set forth in the Annual Report on Form 10-K for the year ended
March 28, 2020. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures or investments we may make. We do not intend, and undertake no obligation, to update or alter any forward-looking
statement. The following section is qualified in its entirety by the more detailed information, including our financial statements
and the notes thereto, which appears elsewhere in this Quarterly Report.
Overview
We
are a well-known international manufacturer and maker of highly engineered precision bearings and components. Our precision solutions
are integral to the manufacture and operation of most machines and mechanical systems, reduce wear to moving parts, facilitate
proper power transmission, and reduce damage and energy loss caused by friction. While we manufacture products in all major bearings
categories, we focus primarily on the higher end of the bearing and engineered component markets where we believe our value-added
manufacturing and engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability.
We believe our unique expertise has enabled us to garner leading positions in many of the product markets in which we primarily
compete. With 42 facilities in 7 countries, of which 33 are manufacturing facilities, we have been able to significantly broaden
our end markets, products, customer base and geographic reach. We currently operate under four reportable business segments: Plain
Bearings, Roller Bearings, Ball Bearings, and Engineered Products. The following further describes these reportable segments:
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. We manufacture four basic types
of roller bearings: heavy-duty needle roller bearings with inner rings, tapered roller bearings, track rollers and aircraft roller
bearings.
Ball
Bearings. We manufacture four basic types of ball bearings: high precision aerospace, airframe control, thin section and
commercial ball bearings, which are used in high-speed rotational applications.
Engineered
Products. Engineered Products consists of highly engineered hydraulics, fasteners, collets and precision components used
in aerospace, marine and industrial applications.
Purchasers
of bearings and engineered products include industrial equipment and machinery manufacturers, producers of commercial and military
aerospace equipment such as missiles and radar systems, agricultural machinery manufacturers, construction, energy, mining, marine
and specialized equipment manufacturers, marine products, automotive and commercial truck manufacturers. The markets for our products
are cyclical, and we have endeavored to mitigate this cyclicality by entering into sole-source relationships and long-term purchase
agreements, through diversification across multiple market segments within the aerospace and defense and diversified industrial
segments, by increasing sales to the aftermarket and by focusing on developing highly customized solutions.
Currently,
our strategy is built around maintaining our role as a leading manufacturer of precision-engineered bearings and components through
the following efforts:
|
●
|
Developing
innovative solutions. By leveraging our design and manufacturing expertise and
our extensive customer relationships, we continue to develop new products for markets
in which there are substantial growth opportunities.
|
|
●
|
Expanding
customer base and penetrating end markets. We continually seek opportunities
to access new customers, geographic locations and bearing platforms with existing products
or profitable new product opportunities.
|
|
●
|
Increasing
aftermarket sales. We believe that increasing our aftermarket sales of replacement
parts will further enhance the continuity and predictability of our revenues and enhance
our profitability. Such sales include sales to third party distributors and sales to
OEMs for replacement products and aftermarket services. We will increase the percentage
of our revenues derived from the replacement market by continuing to implement several
initiatives.
|
|
●
|
Pursuing
selective acquisitions. The acquisition of businesses that complement or expand
our operations has been and continues to be an important element of our business strategy.
We believe that there will continue to be consolidation within the industry that may
present us with acquisition opportunities.
|
Outlook
Our
net sales for the three-month period ended June 27, 2020 decreased 14.3% compared to the same period last fiscal year. The decrease
in net sales was a result of a 14.9% decrease in our aerospace markets and a 13.3% decrease in our industrial markets. The decrease
in aerospace sales was primarily due to the commercial markets, both OEM and aftermarket, offset by increases in our
defense business. The decrease in industrial sales was driven by decreases in the mining, energy, and general industrial markets.
Excluding $2.2 million of sales associated with Swiss Tool, which was acquired in fiscal 2020, overall net sales decreased 15.5%
year over year. Our backlog, as of June 27, 2020, was $431.9 million compared to $459.4 million as of June 29, 2019.
The
COVID-19 health crisis, which was declared a pandemic in March 2020, has led to governments around the world implementing measures
to reduce the spread. These measures include quarantines, “shelter in place” orders, travel restrictions, and other
measures and have resulted in a slowdown of worldwide economic activity.
Our
business is operating as an essential business, and as such, our facilities have remained open, with the exception of a few temporary
closures at some of our locations. The COVID-19 pandemic impacted our commercial aerospace and industrial sales in the first quarter
of fiscal 2021. During this period, our commercial aerospace sales continued to face headwinds associated with build rate changes
within the industry.
Our
production and sales in the first quarter of fiscal 2021 have been negatively affected by the economic implications of the pandemic.
We expect that commercial aerospace OEM and aftermarket, which make up approximately half of our sales annually, will continue
to be impacted by the year-over-year decline in air travel and changes in production rates. Conversely, our sales to aerospace
defense markets are expected to grow throughout fiscal 2021. Sales in these markets grew 11.9% during the first quarter of fiscal
2021 as compared to the same period last year. Our sales to industrial markets will continue to be adversely affected in the next
quarter of fiscal 2021 due to the slowdown of economic activity. Management is continuously evaluating the status of our orders
and operations, and restructuring efforts are being implemented where necessary to align our cost structure to the new demand
levels we experience in the marketplace.
We
experienced strong cash flow generation during the first quarter of fiscal 2021 (as discussed in the section “Liquidity
and Capital Resources”, below). Management believes that these operating cash flows and available credit under all credit
agreements will provide adequate resources to fund internal and external growth initiatives for the foreseeable future, including
at least the next twelve months. As of June 27, 2020, we had cash and cash equivalents of $143.6 million of which approximately
$15.3 million was cash held by our foreign operations.
The
Company expects net sales to be approximately $148.0 million to $152.0 million in the second quarter of fiscal 2021.
Results
of Operations
(dollars
in millions)
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
156.5
|
|
|
$
|
182.7
|
|
|
$
|
(26.2
|
)
|
|
|
(14.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22.7
|
|
|
$
|
30.5
|
|
|
$
|
(7.8
|
)
|
|
|
(25.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: diluted
|
|
$
|
0.91
|
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
Weighted average common shares: diluted
|
|
|
24,933,941
|
|
|
|
24,807,307
|
|
|
|
|
|
|
|
|
|
Our
net sales for the three-month period ended June 27, 2020 decreased 14.3% compared to the same period last fiscal year. The
decrease in net sales was a result of a 14.9% decrease in our aerospace markets and a 13.3% decrease in our industrial
markets. The decrease in aerospace sales was primarily due to the commercial markets, both OEM and aftermarket, which were down 21.4%, offset by increases in our defense business of 11.9%. The decrease in industrial sales was driven by decreases in the mining,
energy, and general industrial markets. Excluding $2.2 million of sales associated with Swiss Tool, which was acquired in
fiscal 2020, overall net sales decreased 15.5% year over year.
Net
income for the first quarter of fiscal 2021 was $22.7 million compared to $30.5 million for the same period last year. Net
income for the first quarter of fiscal 2021 was affected by $0.9 million of after tax restructuring costs and related items
and $0.1 million of losses on foreign exchange offset by $0.1 million of discrete tax benefit. Net income for the first
quarter of fiscal 2020 was affected by $0.3 million of after tax costs associated with losses on foreign exchange offset by
$0.2 million of discrete tax benefit.
Gross
Margin
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
59.5
|
|
|
$
|
70.7
|
|
|
$
|
(11.2
|
)
|
|
|
(15.9
|
)%
|
Gross Margin %
|
|
|
38.0
|
%
|
|
|
38.7
|
%
|
|
|
|
|
|
|
|
|
Gross
margin was 38.0% of net sales for the first quarter of fiscal 2021 compared to 38.7% for the first quarter of fiscal 2020.
The decrease was primarily the result of lower sales volumes during the period in our aerospace and industrial markets. During
the first quarter of fiscal 2021, gross margin was also impacted by approximately $0.8 million of capacity inefficiencies
driven by the decrease in volume.
Selling,
General and Administrative
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
26.8
|
|
|
$
|
30.1
|
|
|
$
|
(3.3
|
)
|
|
|
(10.8
|
)%
|
% of net sales
|
|
|
17.1
|
%
|
|
|
16.5
|
%
|
|
|
|
|
|
|
|
|
SG&A
for the first quarter of fiscal 2021 was $26.8 million, or 17.1% of net sales, as compared to $30.1 million, or 16.5% of net
sales, for the same period of fiscal 2020. Increases in professional fees of $0.8 million and shared-based compensation of
$0.6 million were offset by decreases in personnel costs of $4.1 million and other cost reductions of $0.6
million.
Other,
Net
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
$
|
3.8
|
|
|
$
|
2.1
|
|
|
$
|
1.7
|
|
|
|
80.0
|
%
|
% of net sales
|
|
|
2.4
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
Other
operating expenses for the first quarter of fiscal 2021 totaled $3.8 million compared to $2.1 million for the same period last
year. For the first quarter of fiscal 2021, other operating expenses were comprised mainly of $1.1 million of restructuring costs and related items, $2.5 million of amortization of intangible assets and $0.2 million of other costs. Other operating expenses
last year were comprised mainly of $2.3 million of amortization of intangible assets offset by $0.2 million of other income.
Interest
Expense, Net
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June
29,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
0.4
|
|
|
$
|
0.5
|
|
|
$
|
(0.1
|
)
|
|
|
(22.3
|
)%
|
% of net sales
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
Interest
expense, net, generally consists of interest charged on the Revolver and amortization of deferred financing fees, offset by interest
income (see “Liquidity and Capital Resources”, below). Interest expense, net, was $0.4 million for
the first quarter of fiscal 2021 compared to $0.5 million for the same period last year.
Other
Non-Operating Expense
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expense
|
|
$
|
0.0
|
|
|
$
|
0.2
|
|
|
$
|
(0.2
|
)
|
|
|
(75.1
|
)%
|
% of net sales
|
|
|
0.0
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
Other
non-operating expenses were $0.0 million for the first quarter of fiscal 2021 compared to $0.2 million for the same period in
the prior year. For the first quarter of fiscal 2021, other non-operating expenses were comprised of $0.1 million of foreign exchange
loss offset by $0.1 million of other items. For the first quarter of fiscal 2020, other non-operating expenses were
primarily comprised of $0.4 million of foreign exchange loss partially offset by $0.2 million of other items.
Income
Taxes
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
5.7
|
|
|
$
|
7.3
|
|
Effective tax rate
|
|
|
20.0
|
%
|
|
|
19.3
|
%
|
Income
tax expense for the three-month period ended June 27, 2020 was $5.7 million compared to $7.3 million for the three-month
period ended June 29, 2019. Our effective income tax rate for the three-month period ended June 27, 2020 was 20.0% compared
to 19.3% for the three-month period ended June 29, 2019. The effective income tax rate for the three-month period ended June
27, 2020 of 20.0% included $0.3 million of tax benefit associated with share-based compensation along with $0.1 million of
tax benefit associated with the release of unrecognized tax positions associated with the statute of limitations expiration.
The effective income tax rate without these benefits and other items for the three-month period ended June 27, 2020 would
have been 21.3%. The effective income tax rate for the three-month period ended June 29, 2019 of 19.3% included $0.5 million
of tax benefit associated with share-based compensation and $0.2 million of tax benefit associated with other permanent
adjustments from filing the Company’s fiscal 2018 foreign tax returns.
Segment
Information
We
have four reportable product segments: Plain Bearings, Roller Bearings, Ball Bearings and Engineered Products. We use gross margin
as the primary measurement to assess the financial performance of each reportable segment.
Plain
Bearings Segment
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
78.9
|
|
|
$
|
87.5
|
|
|
$
|
(8.6
|
)
|
|
|
(9.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
32.1
|
|
|
$
|
34.1
|
|
|
$
|
(2.0
|
)
|
|
|
(6.0
|
)%
|
Gross margin %
|
|
|
40.7
|
%
|
|
|
39.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
5.3
|
|
|
$
|
6.5
|
|
|
$
|
(1.2
|
)
|
|
|
(19.1
|
)%
|
% of segment net sales
|
|
|
6.7
|
%
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
Net
sales decreased $8.6 million, or 9.8%, for the three months ended June 27, 2020 compared to the same period last year. The
9.8% decrease was primarily driven by a decrease of 11.8% in our aerospace markets and a 3.3% decrease in the industrial
markets. The decrease in aerospace net sales was due to commercial aerospace OEM, partially offset by aftermarket and defense
OEM. The decrease in industrial net sales was mostly driven by the mining and energy markets.
Gross
margin as a percentage of net sales was 40.7% for the first quarter of fiscal 2021 compared to 39.0% for the same period last
year. The increase in gross margin as a percentage of sales was due to product mix.
Roller
Bearings Segment
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
22.9
|
|
|
$
|
36.9
|
|
|
$
|
(14.0
|
)
|
|
|
(37.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
8.4
|
|
|
$
|
14.5
|
|
|
$
|
(6.1
|
)
|
|
|
(42.1
|
)%
|
Gross margin %
|
|
|
36.7
|
%
|
|
|
39.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
1.2
|
|
|
$
|
1.6
|
|
|
$
|
(0.4
|
)
|
|
|
(23.2
|
)%
|
% of segment net sales
|
|
|
5.4
|
%
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
Net
sales decreased $14.0 million, or 37.9%, for the three months ended June 27, 2020 compared to the same period last year. Our
aerospace markets decreased 31.5% while our industrial markets decreased by 44.9%. The decrease in aerospace was driven by
the commercial and defense OEM and distribution markets. The decrease in industrial net sales was due to mining and energy
markets.
Gross
margin for the three months ended June 27, 2020 was 36.7% of net sales, compared to 39.4% in the comparable period in fiscal
2020. This decrease in the gross margin was primarily due to decreased volumes during the period. During the first quarter of
fiscal 2021, gross margin was also impacted by approximately $0.3 million of capacity inefficiencies driven by the impact of
the COVID-19 pandemic.
Ball
Bearings Segment
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
18.8
|
|
|
$
|
17.7
|
|
|
$
|
1.1
|
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
7.9
|
|
|
$
|
7.8
|
|
|
$
|
0.1
|
|
|
|
1.7
|
%
|
Gross margin %
|
|
|
42.1
|
%
|
|
|
44.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
1.3
|
|
|
$
|
1.6
|
|
|
$
|
(0.3
|
)
|
|
|
(17.6
|
)%
|
% of segment net sales
|
|
|
7.1
|
%
|
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
Net
sales increased by $1.1 million for the first quarter of fiscal 2021 compared to the same period last year. Our aerospace
markets increased 29.3% while our industrial sales decreased 3.8%. The increase in aerospace net sales was primarily driven
by the defense OEM market. The decrease in industrial was primarily due to the energy and general industrial markets
partially offset by increases in the semiconductor market.
Gross
margin as a percentage of net sales was 42.1% for the first quarter of fiscal 2021 as compared to 44.0% for the same
period last year. The decrease in margin percentage was a result of product mix during the period.
Engineered
Products Segment
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
35.9
|
|
|
$
|
40.6
|
|
|
$
|
(4.7
|
)
|
|
|
(11.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
11.0
|
|
|
$
|
14.3
|
|
|
$
|
(3.3
|
)
|
|
|
(22.6
|
)%
|
Gross margin %
|
|
|
30.8
|
%
|
|
|
35.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
3.8
|
|
|
$
|
4.3
|
|
|
$
|
(0.5
|
)
|
|
|
(11.4
|
)%
|
% of segment net sales
|
|
|
10.6
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
Net
sales decreased $4.7 million, or 11.7%, for the first three months of fiscal 2021 compared to the same period last year. Our
aerospace markets decreased 20.2% while our industrial markets increased 0.8%. Excluding $2.2 million of current year net
sales associated with our Swiss Tool division, acquired during the second quarter of fiscal 2020, net sales decreased 17.1%
for the first three months of fiscal 2021 compared to the same period last year, with a 20.2% decrease in aerospace net sales
and a 12.5% decrease in industrial net sales. The decrease in aerospace net sales were driven by the commercial OEM and
aftermarket, partially offset by the defense OEM market. The decrease in our industrial net sales were driven by the general
industrial markets.
Gross
margin as a percentage of net sales was 30.8% for the first quarter of fiscal 2021 compared to 35.1% for the same period last
year. This decrease was primarily attributable to the decrease in sales volumes during the period. During the first quarter
of fiscal 2021, gross margin was also impacted by approximately $0.5 million of capacity inefficiencies driven by the impact
of the COVID-19 pandemic.
Corporate
|
|
Three Months Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
15.2
|
|
|
$
|
16.0
|
|
|
$
|
(0.8
|
)
|
|
|
(5.4
|
)%
|
% of total net sales
|
|
|
9.7
|
%
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
Corporate
SG&A decreased $0.8 million, or 5.4%, for the first quarter of fiscal 2021 compared to the same period last year. This was
primarily due to a decrease of $2.0 million in personnel costs and $0.2 million in other costs, partially offset by an
increase of $0.8 million in professional fees and $0.6 million of share-based compensation.
Liquidity
and Capital Resources
Our
business is capital-intensive. Our capital requirements include manufacturing equipment and materials. In addition, we have
historically fueled our growth, in part, through acquisitions. We have historically met our working capital, capital
expenditure requirements and acquisition funding needs through our net cash flows provided by operations, various debt
arrangements and sale of equity to investors. We believe that operating cash flows and available credit under the Revolver
and Foreign Revolver will provide adequate resources to fund internal and external growth initiatives for the foreseeable
future.
Our
ability to meet future working capital, capital expenditures and debt service requirements will depend on our future financial
performance, which will be affected by a range of economic, competitive and business factors, particularly interest rates, cyclical
changes in our end markets and prices for steel and our ability to pass through price increases on a timely basis, many of which
are outside of our control. In addition, future acquisitions could have a significant impact on our liquidity position and our
need for additional funds.
From
time to time, we evaluate our existing facilities and operations and their strategic importance to us. If we determine that a
given facility or operation does not have future strategic importance, we may sell, partially or completely, relocate production
lines, consolidate or otherwise dispose of those operations. Although we believe our operations would not be materially impaired
by such dispositions, relocations or consolidations, we could incur significant cash or non-cash charges in connection with them.
Liquidity
As
of June 27, 2020, we had cash and cash equivalents of $143.6 million, of which, approximately $15.3 million was cash held by
our foreign operations. We expect that our undistributed foreign earnings will be re-invested indefinitely for working
capital, internal growth and acquisitions for and by our foreign entities.
Domestic
Credit Facility
The
Company’s 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”) provides the Company
with a $250.0 million revolving credit facility (the “Revolver”), which expires on January 31, 2024. Debt issuance
costs associated with the Credit Agreement totaled $0.9 million and will be amortized through January 31, 2024 along with the
unamortized debt issuance costs remaining from the Company’s prior credit agreement.
Amounts
outstanding under the 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 at each measurement date. Currently, the Company’s margin is 0.00% for base rate
loans and 0.75% for LIBOR loans.
The
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 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 June 27,
2020, the Company was in compliance with all such covenants.
The
Company’s domestic subsidiaries have guaranteed the Company’s obligations under the Credit Agreement, and the Company’s
obligations 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
$3.7 million of the Revolver is being utilized to provide letters of credit to secure the Company’s obligations relating
to certain insurance programs. As of June 27, 2020, $1.4 million in unamortized debt issuance costs remain. The Company has the
ability to borrow up to an additional $246.3 million under the Revolver as of June 27, 2020.
Foreign
Term Loan and Revolving Credit Facility
On
August 15, 2019, one of our foreign subsidiaries, Schaublin SA (“Schaublin”), entered into two separate credit agreements
(the “Foreign Credit Agreements”) with Credit Suisse (Switzerland) Ltd. to finance the acquisition of Swiss Tool and
provide future working capital. The Schaublin Credit Agreements provided Schaublin with a CHF 15.0 million (approximately $15.4
million) term loan (the “Foreign Term Loan”), which expires on July 31, 2024 and a CHF 15.0 million (approximately
$15.4 million) revolving credit facility (the “Foreign Revolver”), which continues in effect until terminated by either
Schaublin or Credit Suisse. Debt issuance costs associated with the Foreign Credit Agreements totaled CHF 0.3 million (approximately
$0.3 million) and will be amortized throughout the life of the Foreign Credit Agreements.
Amounts
outstanding under the Foreign Term Loan and the Foreign Revolver generally bear interest at LIBOR plus a specified margin. The
applicable margin is based on Schaublin’s ratio of total net debt to consolidated EBITDA at each measurement date. Currently,
Schaublin’s margin is 1.00%.
The
Foreign Credit Agreements require Schaublin to comply with various covenants, which are tested annually on March 31. These covenants
include, among other things, a financial covenant to maintain a ratio of consolidated net debt to adjusted EBITDA not greater
than 3.00 to 1 as of March 31, 2020 and not greater than 2.50 to 1 as of March 31, 2021 and thereafter. Schaublin is also required
to maintain an economic equity of CHF 20.0 million at all times. The Foreign Credit Agreements allow Schaublin to, among other
things, incur other debt or liens and acquire or dispose of assets provided that Schaublin complies with certain requirements
and limitations of the Foreign Credit Agreements. As of March 31, 2020, Schaublin was in compliance with all such covenants.
Schaublin’s
parent company, Schaublin Holding, has guaranteed Schaublin’s obligations under the Foreign Credit Agreements. Schaublin
Holding’s guaranty and the Foreign Credit Agreements are secured by a pledge of the capital stock of Schaublin. In addition,
the Foreign Term Loan is secured with pledges of the capital stock of the top company and the three operating companies in the
Swiss Tool System group of companies.
As
of June 27, 2020, there was approximately $2.8 million outstanding under the Foreign Revolver and approximately $15.8 million
outstanding under the Foreign Term Loan. These borrowings have been classified as Level 2 of the valuation hierarchy. As of
June 27, 2020, approximately $0.1 million in unamortized debt issuance costs remain. Schaublin has the ability to borrow up
to an additional $13.0 million under the Foreign Revolver as of June 27, 2020.
Schaublin’s
required future annual principal payments for the next five years and thereafter are approximately $6.0 million for fiscal 2021
and approximately $3.2 million for each year from fiscal 2022 through fiscal 2025.
Other
Notes Payable
On
October 1, 2012, Schaublin purchased the land and building that it occupied and had been leasing for approximately $14.9 million.
Schaublin obtained a 20-year fixed-rate mortgage of approximately $9.9 million at an interest rate of 2.9%. The balance of the
purchase price of approximately $5.1 million was paid from cash on hand. The balance on this mortgage as of June 27, 2020 was
approximately $6.0 million and has been classified as Level 2 of the valuation hierarchy.
The
Company’s required future annual principal payments for the next five years are approximately $0.5 million for each year
from fiscal 2021 through fiscal 2025 and $3.6 million thereafter.
Cash
Flows
Three-month
Period Ended June 27, 2020 Compared to the Three-month Period Ended June 29, 2019
The
following table summarizes our cash flow activities:
|
|
FY21
|
|
|
FY20
|
|
|
$
Change
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
48.4
|
|
|
$
|
40.1
|
|
|
$
|
8.3
|
|
Investing activities
|
|
|
(3.6
|
)
|
|
|
(12.0
|
)
|
|
|
8.4
|
|
Financing activities
|
|
|
(4.3
|
)
|
|
|
(26.4
|
)
|
|
|
22.1
|
|
Effect of exchange rate changes on cash
|
|
|
(0.1
|
)
|
|
|
1.1
|
|
|
|
(1.2
|
)
|
Increase in cash and cash equivalents
|
|
$
|
40.4
|
|
|
$
|
2.8
|
|
|
$
|
37.6
|
|
During
the first three months of fiscal 2021, we generated cash of $48.4 million from operating activities compared to $40.1 million
of cash generated during the same period of fiscal 2020. The increase of $8.3 million for fiscal 2021 was mainly a result of the
favorable impact of a net change in operating assets and liabilities of $12.8 million and a favorable change in non-cash charges
of $3.3 million, offset by a decrease in net income of $7.8 million. The favorable change in operating assets and liabilities
was primarily the result of an increase in the amount of cash being provided by working capital items as detailed in the table
below, while the increase in non-cash charges resulted from $0.2 million of amortization of intangible assets, $1.7 million in
deferred taxes, $0.7 million of depreciation, $0.6 million of share-based compensation charges, and $0.1 million of other non-cash
charges.
The
following chart summarizes the favorable change in operating assets and liabilities of $12.8 million for fiscal 2021 versus fiscal
2020 and the favorable change of $4.6 million for fiscal 2020 versus fiscal 2019.
|
|
FY21
|
|
|
FY20
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
15.0
|
|
|
$
|
0.6
|
|
Inventory
|
|
|
4.2
|
|
|
|
(0.2
|
)
|
Prepaid expenses and other current assets
|
|
|
2.3
|
|
|
|
(0.9
|
)
|
Other non-current assets
|
|
|
(3.6
|
)
|
|
|
0.3
|
|
Accounts payable
|
|
|
(1.2
|
)
|
|
|
2.9
|
|
Accrued expenses and other current liabilities
|
|
|
(7.0
|
)
|
|
|
3.5
|
|
Other non-current liabilities
|
|
|
3.1
|
|
|
|
(1.6
|
)
|
Total change in operating assets and liabilities:
|
|
$
|
12.8
|
|
|
$
|
4.6
|
|
During
the first three months of fiscal 2021, we used $3.6 million for investing activities as compared to $12.0 million used during
the first three months of fiscal 2020. This decrease in cash used was attributable to an $8.2 million decrease in capital expenditures
and $0.2 million in cash received as a result of opening balance sheet adjustments made during the measurement period for the
acquisition of Swiss Tool.
During
the first three months of fiscal 2021, we used $4.3 million for financing activities compared to $26.4 million for the first three
months of fiscal 2020. This decrease in cash used was primarily attributable to $17.0 million less payments made on outstanding
debt and $5.1 million less treasury stock purchases.
Capital
Expenditures
Our
capital expenditures were $3.9 million for the three-month period ended June 27, 2020. We expect to make additional capital expenditures
of $10.0 to $15.0 million during the remainder of fiscal 2021 in connection with our existing business. We expect to fund these
capital expenditures principally through existing cash and internally generated funds. We may also make substantial additional
capital expenditures in connection with acquisitions.
Other
Matters
Critical
Accounting Policies and Estimates
Preparation
of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the
Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently
uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated
Financial Statements in our fiscal 2020 Annual Report on Form 10-K describe the significant accounting estimates and policies
used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s
estimates. There have been no significant changes in our critical accounting estimates during the first three months of fiscal
2021 other than those described in Note 2 to the unaudited interim consolidated financial statements contained in this quarterly
report.
Off-Balance
Sheet Arrangements
As
of June 27, 2020, we had no significant off-balance sheet arrangements other than $3.7 million of outstanding standby letters
of credit, all of which were under the Revolver.