UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 10-K
(Mark
One)
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þ
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE
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ACT
OF 1934
For
the fiscal year ended April 3, 2010
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¨
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
|
ACT
OF 1934
For the transition period from
__________to _________
Commission
file number 333-124824
RBC
BEARINGS INCORPORATED
(Exact
name of registrant as specified in its charter)
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Delaware
(State
or other jurisdiction of
incorporation
or organization)
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95-4372080
(I.R.S.
Employer
Identification
No.)
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One
Tribology Center, Oxford, CT
(Address
of principal executive offices)
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06478
(Zip
Code)
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(203)
267-7001
(Registrant’s
telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act:
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Class A Common Stock, Par Value $0.01 per
Share
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|
(Title of
class)
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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes þ No ¨
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes ¨ No
þ
Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes þ No ¨
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
o No
¨
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer þ Accelerated
filer ¨ Non-accelerated
filer ¨ (Do
not check if a smaller reporting company)
Smaller
reporting company ¨
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No
þ
The
aggregate market value of the registrant’s Class A Common Stock held by
non-affiliates of the registrant on September 26, 2009 (based on the September
25, 2009 closing sales price of $23.55 of the registrant’s Class A Common Stock,
as reported by the Nasdaq National Market) was approximately
$511,050,000.
Number of
shares outstanding of the registrant’s Class A Common Stock at May 24,
2010:
21,732,423
Shares of Class A Common Stock, par value $0.01 per share.
Documents
Incorporated by Reference:
Portions
of the registrant’s proxy statement to be filed within 120 days of the close of
the registrant’s fiscal year in connection with the registrant’s Annual Meeting
of Shareholders to be held September 8, 2010 are incorporated by reference into
Part III of this Form 10-K.
TABLE
OF CONTENTS
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Page
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PART
I
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Item
1
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Business
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1
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Item
1A
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Risk
Factors
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6
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Item
1B
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Unresolved
Staff Comments
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13
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Item
2
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Properties
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14
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Item
3
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Legal
Proceedings
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14
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Item
4
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Submission
of Matters to a Vote of Security Holders
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15
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PART
II
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Item
5
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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15
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Item
6
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Selected
Financial Data
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18
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Item
7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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19
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Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
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31
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Item
8
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Financial
Statements and Supplementary Data
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32
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Item
9
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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59
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Item
9A
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Controls
and Procedures
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59
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Item
9B
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Other
Information
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62
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PART
III
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Item
10
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Directors,
Executive Officers and Corporate Governance
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62
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Item
11
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Executive
Compensation
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62
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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62
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Item
13
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Certain
Relationships, Related Transactions and Director
Independence
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62
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Item
14
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Principal
Accounting Fees and Services
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62
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PART
IV
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Item
15
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Exhibits
and Financial Statement Schedules
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62
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Signatures
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Signatures
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65
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PART
I
ITEM
1. BUSINESS
RBC
Bearings Incorporated
We are an international manufacturer
and marketer of highly engineered precision plain, roller and ball bearings.
Bearings, which 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 bearing categories, we focus primarily on
highly technical or regulated bearing products for specialized markets that
require sophisticated design, testing and manufacturing capabilities. We believe
our unique expertise has enabled us to garner leading positions in many of the
product markets in which we primarily compete. We have been providing bearing
solutions to our customers since 1919. Over the past ten years, we have
significantly broadened our end markets, products, customer base and geographic
reach. We currently have 26 facilities of which 23 are manufacturing facilities
in four countries.
The
Bearing Industry
The bearing industry is a highly
fragmented multi-billion dollar market. Purchasers of bearings include producers
of commercial and military aerospace equipment, automotive and commercial truck
manufacturers, industrial equipment and machinery manufacturers, agricultural
machinery manufacturers and construction, mining and specialized equipment
manufacturers.
Demand for bearings in the diversified
industrial market is influenced by growth factors in industrial machinery and
equipment shipments and construction, mining, energy and general industrial
activity. In addition, usage of existing machinery will impact aftermarket
demand for replacement bearing products. In the aerospace market, aging of the
existing commercial aircraft fleet along with carrier traffic growth determines
demand for our bearing solutions. Lastly, activity in the defense market is
being influenced by modernization programs necessitating increased spending on
new equipment, as well as continued utilization of deployed equipment supporting
aftermarket demand for replacement bearings.
Customers
and Markets
We serve a broad range of end markets
where we can add value with our specialty, precision bearing products and
applications. We classify our customers into two principal categories:
diversified industrial and aerospace and defense. These principal end markets
utilize a large number of both commercial and specialized bearing products.
Although we provide a relatively small percentage of total bearing products
supplied to each of our overall principal markets, we believe we have leading
market positions in many of the specialized bearing product markets in which we
primarily compete. Financial information regarding geographic areas is set forth
in Part II, Item 8. “Financial Statements and Supplementary Data,” Note 20
“Reportable Segments.”
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·
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Diversified
Industrial Market (42% of net sales for the fiscal year ended April 3,
2010)
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We manufacture bearing products for a
wide range of diversified industrial markets, including construction and mining,
oil and natural resource extraction, heavy truck, packaging and semiconductor
machinery. Nearly all mechanical devices and machinery require bearings to
relieve friction where one part moves relative to another. Our products target
existing market applications in which our engineering and manufacturing
capabilities provide us with a competitive advantage in the
marketplace.
Our largest diversified industrial
customers include AxleTech International, Caterpillar, ITT Corporation, Komatsu
America, National Oilwell Varco and various aftermarket distributors including
Applied Industrial, Kaman Corporation and Motion Industries. We believe that the
diversification of our sales among the various segments of the industrial
bearings market reduces our exposure to downturns in any individual market. We
believe opportunities exist for growth and margin improvement in this market as
a result of the introduction of new products and the expansion of aftermarket
sales.
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·
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Aerospace
and Defense Market (58% of net sales for the fiscal year ended April 3,
2010)
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We supply
bearings for use in commercial, private and military aircraft. We supply
bearings for many of the commercial aircraft currently operating worldwide and
are the primary supplier for many of their product lines. This includes military
contractors for airplanes, helicopters and missile systems. Commercial aerospace
customers generally require precision products, often of special materials, made
to unique designs and specifications. Many of our aerospace bearing products are
designed and certified during the original development of the aircraft being
served, which often makes us the primary bearing supplier for the life of the
aircraft.
1
We manufacture bearing products used by
the U.S. Department of Defense and certain foreign governments for use in
fighter jets, troop transports, naval vessels, helicopters, gas turbine engines,
armored vehicles, guided weaponry and satellites. We manufacture an extensive
line of standard products that conform to many domestic military application
requirements, as well as customized products designed for unique applications.
We specialize in the manufacture of high precision ball and roller bearings,
commercial ball bearings and metal-to-metal and self-lubricating plain bearings
for the defense market. Our bearing products are manufactured to conform to U.S.
military specifications and are typically custom designed during the original
product design phase, which often makes us the sole or primary bearing supplier
for the life of the product. In addition to products that meet military
specifications, these customers often require precision products made of
specialized materials to custom designs and specifications. Product approval for
use on military equipment is often a lengthy process ranging from six months to
six years.
Our largest aerospace and defense
customers include Airbus, BAE Systems, Boeing, Embraer, General
Electric, Lockheed Martin, Raytheon, Snecma Group, U.S.
Department of Defense, United Technologies and various aftermarket channels. We
estimate that over 55% of aerospace net sales are actually used as replacement
parts, as bearings are regularly replaced on aircraft in conjunction with
routine maintenance procedures. We believe our strong relationships with
OEMs help drive our aftermarket sales since a portion of OEM sales are
ultimately intended for use as replacement parts. We believe that growth and
margin expansion in this segment will be driven primarily by expanding our
international presence, new commercial aircraft introductions, and the
refurbishment and maintenance of existing commercial aircraft.
In fiscal 2010, 5.2% of our net sales
were made directly, and we estimate that approximately an additional 22.4% of
our net sales were made indirectly, to the U.S. government. These contracts or
subcontracts may be subject to renegotiation of profit or termination of
contracts at the election of the government. We, based on experience, believe
that no material renegotiations or refunds will be required. See Part I, Item
1A. “Risk Factors – Future reductions or changes in U.S. government spending
could negatively affect our business.”
Products
Bearings are employed to fulfill
several functions including reduction of friction, transfer of motion and
carriage of loads. We design, manufacture and market a broad portfolio of
bearing products. The following table provides a summary of our product
segments:
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Net Sales for the Fiscal Year Ended
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|||||||||||||
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Segment
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April 3, 2010
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March 28, 2009
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March 29, 2008
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Representative Applications
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|||||||||
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Plain
Bearings
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$ | 134,303 | $ | 166,658 | $ | 154,535 |
·
Aircraft engine controls and landing gear
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||||||
| (48.9 | )% | (46.8 | )% | (46.7 | )% |
· Missile
launchers
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|||||||
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· Mining
and construction equipment
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|||||||||||||
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Roller
Bearings
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$ | 73,164 | $ | 94,428 | $ | 97,019 |
· Aircraft
hydraulics
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||||||
| (26.6 | )% | (26.6 | )% | (29.4 | )% |
· Military
and commercial truck chassis
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· Packaging
machinery and gear pumps
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Ball
Bearings
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$ | 45,442 | $ | 63,625 | $ | 56,677 |
· Radar
and night vision systems
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||||||
| (16.6 | )% | (17.9 | )% | (17.1 | )% |
· Airframe
control and actuation
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|||||||
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· Semiconductor
equipment
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|||||||||||||
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Other
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$ | 21,793 | $ | 31,085 | $ | 22,369 |
· Collets
for machine tools
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||||||
| (7.9 | )% | (8.7 | )% | (6.8 | )% |
· Industrial
gears
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|||||||
Plain
Bearings. Plain bearings are primarily used to rectify
inevitable misalignments in various mechanical components, such as aircraft
controls, helicopter rotors, or in heavy mining and construction equipment. Such
misalignments are either due to machining inaccuracies or result when components
change position relative to each other. Plain bearings are produced with either
self-lubricating or metal-to-metal designs and consist of several sub-classes,
including rod end bearings, spherical plain bearings and journal bearings. Sales
of plain bearings accounted for 48.9% of our net sales in fiscal
2010.
2
Roller
Bearings. Roller bearings are anti-friction products that
utilize cylindrical rolling elements. We produce three main designs: tapered
roller bearings, needle roller bearings and needle bearing track rollers and cam
followers. We produce medium sized tapered roller bearings used primarily in
heavy truck axle applications. We offer several needle roller bearing designs
that are used in both industrial applications and certain U.S. military aircraft
platforms. These products are generally specified for use where there are high
loads and the design is constrained by space considerations. A significant
portion of the sales of this product is to the aftermarket. Needle bearing track
rollers and cam followers have wide and diversified use in the industrial market
and are often prescribed as a primary component in articulated aircraft wings.
We believe we are the world's largest producer of aircraft needle bearing track
rollers. The sale of roller bearings accounted for 26.6% of our net sales in
fiscal 2010.
Ball
Bearings. Ball bearings are devices which utilize high
precision ball elements to reduce friction in high speed applications. We
specialize in four main types of ball bearings: high precision aerospace,
airframe control, thin section and industrial ball bearings. High precision
aerospace bearings are primarily sold to customers in the defense industry that
require more technically sophisticated bearing products, such as missile
guidance systems, providing higher degrees of fault tolerance given the
criticality of the applications in which they are used. Airframe control ball
bearings are precision ball bearings that are plated to resist corrosion and are
qualified under a military specification. Thin section ball bearings are
specialized bearings that use extremely thin cross sections and give specialized
machinery manufacturers many advantages. We produce a general line of industrial
ball bearings sold primarily to the aftermarket. Ball bearings accounted for
16.6% of our net sales in fiscal 2010.
Other. Our other
products consist primarily of precision mechanical components and machine tool
collets. Precision mechanical components are used in all general industrial
applications, where some form of movement is required. Machine tool
collets are cone-shaped metal sleeves, used for holding circular or rodlike
pieces in a lathe or other machine that provide effective part holding and
accurate part location during machining operations. Our other products accounted
for 7.9% of our net sales in fiscal 2010.
Product
Design and Development
We produce specialized bearings that
are often tailored to the specifications of a customer or application. Our sales
professionals are highly experienced engineers who collaborate with our
customers on a continual basis to develop bearing solutions. The product
development cycle can follow many paths which are dependent on the end market or
sales channel. The process normally takes between 3-6 years from concept to
sale depending upon the application and the market. A common route that is used
for major OEM projects begins when our design engineers meet with their customer
counterparts at the machine design conceptualization stage and work with them
through the conclusion of the product development.
Often, at the early stage, a bearing
design concept is produced that addresses the expected demands of the
application. Environmental demands are many but normally include load, stress,
heat, thermal gradients, vibration, lubricant supply and corrosion resistance,
with one or two of these environmental constraints being predominant in the
design consideration. A bearing design must perform reliably for a period of
time specified by the customer's product objectives.
Once a bearing is designed, a
mathematical simulation is created to replicate the expected application
environment and thereby allow optimization with respect to these design
variables. Upon conclusion of the design and simulation phase, samples are
produced and laboratory testing commences at one of our test laboratories. The
purpose of this testing phase is not only to verify the design and the
simulation model but also to allow further design improvement where needed.
Finally, upon successful field testing by the customer, the product is ready for
sale.
For the majority of our products, the
culmination of this lengthy process is the receipt of a product approval or
certification, generally obtained from either the OEM, the Department of Defense
or the Federal Aviation Administration, or “FAA,” which allows us to supply the
product to the customer. We currently have in excess of 32,800 of such
approvals, which often gives us a significant competitive advantage, and in many
of these instances we are the only approved supplier of a given bearing
product.
Manufacturing
and Operations
Our manufacturing strategies are
focused on product reliability, quality and service. Custom and standard
products are produced according to manufacturing schedules that ensure maximum
availability of popular items for immediate sale while carefully considering the
economies of lot production and special products. Capital programs and
manufacturing methods development are focused on quality improvement and low
production costs. A monthly review of product line production performance
assures an environment of continuous attainment of profitability
goals.
3
Capacity. Our
plants currently run on a single shift and a light second shift at
selected locations to meet the demands of our customers. We believe that current
capacity levels and future annual estimated capital expenditures on equipment up
to approximately 4% of net sales should permit us to effectively meet demand
levels for the foreseeable future.
Inventory
Management. Our increasing emphasis on the
distributor/aftermarket sector has required us to maintain greater inventories
of a broader range of products than the OEM market historically demanded. This
requires a greater investment in working capital to maintain these levels. We
operate an inventory management program designed to balance customer delivery
requirements with economically optimal inventory levels. In this program, each
product is categorized based on characteristics including order frequency,
number of customers and sales volume. Using this classification system, our
primary goal is to maintain a sufficient supply of standard items while
minimizing warehousing costs. In addition, production cost savings are achieved
by optimizing plant scheduling around inventory levels and customer delivery
requirements. This leads to more efficient utilization of manufacturing
facilities and minimizes plant production changes while maintaining sufficient
inventories to service customer needs.
Sales,
Marketing and Distribution
Our marketing strategy is aimed at
increasing sales within our two primary markets, targeting specific applications
in which we can exploit our competitive strengths. To effect this strategy, we
seek to expand into geographic areas not previously served by us and we continue
to capitalize on new markets and industries for existing and new products. We
employ a technically proficient sales force and utilize marketing managers,
product managers, customer service representatives and product application
engineers in our selling efforts.
We have accelerated the development of
our sales force through the hiring of sales personnel with prior bearing
industry experience, complemented by an in-house training program. We intend to
continue to hire and develop expert sales professionals and strategically locate
them to implement our expansion strategy. Today, our direct sales force is
located to service North America, Europe and Latin America and is responsible
for selling all of our products. This selling model leverages our relationship
with key customers and provides opportunities to market multiple product lines
to both established and potential customers. We also sell our products through a
well-established, global network of industrial and aerospace distributors. This
channel primarily provides our products to smaller OEM customers and the end
users of bearings that require local inventory and service. In addition,
specific larger OEM customers are also serviced through this channel to
facilitate requirements for "Just In Time" deliveries or "Kan Ban" systems. Our
worldwide distributor network provides our customers with more than 1,900 points
of sale for our products. We intend to continue to focus on building distributor
sales volume.
The sale of our products is supported
by a well-trained and experienced customer service organization. This
organization provides customers with instant access to key information regarding
their bearing purchase and delivery requirements. We also provide customers with
updated information through our website, and we have developed on-line
integration with specific customers, enabling more efficient ordering and timely
order fulfillment for those customers.
We store product inventory in five
company-owned and operated warehouses located on the East and West coasts of the
U.S., and in France and Switzerland. The inventory is located in these
warehouses based on analysis of customer demand to provide superior service and
product availability.
Competition
Our principal competitors include
Kaydon Corporation, McGill Manufacturing Company, Inc. and New Hampshire Ball
Bearings, although we compete with different companies for each of our product
lines. We believe that for the majority of our products, the principal
competitive factors affecting our business are product qualifications, product
line breadth, service and price. Although some of our current and potential
competitors may have greater financial, marketing, personnel and other resources
than us, we believe that we are well positioned to compete with regard to each
of these factors in each of the markets in which we operate.
Product
Qualifications. Many of the products we produce are qualified
for the application by the OEM, the U.S. Department of Defense, the FAA or a
combination of these agencies. These credentials have been achieved for
thousands of distinct items after years of design, testing and improvement. In
many cases patent protection presides, in all cases there is strong brand
identity and in numerous cases we have the exclusive product for the
application.
4
Product Line
Breadth. Our products encompass an extraordinarily broad range
of designs which often create a critical mass of complementary bearings and
components for our markets. This position allows many of our industrial and
aircraft customers the ability for a single manufacturer to provide the
engineering service and product breadth needed to achieve a series of OEM design
objectives or aftermarket requirements. This ability enhances our value to the
OEM considerably while strengthening our overall market position.
Service. Product
design, performance, reliability, availability, quality and technical and
administrative support are elements that define the service standard for this
business. Our customers are sophisticated and demanding, as our products are
fundamental and enabling components to the construction or operation of their
machinery. We maintain inventory levels of our most popular items for immediate
sale and service with well over 14,000 voice and electronic contacts per month.
Our customers have high expectations regarding product availability, and the
primary emphasis of our service efforts is to ensure the widest possible range
of available products and delivering them on a timely basis.
Price. We believe
our products are priced competitively in the markets we serve. We continually
evaluate our manufacturing and other operations to maximize efficiencies in
order to reduce costs, eliminate unprofitable products from our portfolio and
maximize our profit margins. While we compete with larger bearing manufacturers
who direct the majority of their business activities, investments and expertise
toward the automotive industries, our sales in this industry are only a small
percentage of our business. We invest considerable effort to develop our price
to value algorithms and we price to market levels where required by competitive
pressures.
Suppliers
and Raw Materials
We obtain raw materials, component
parts and supplies from a variety of sources and generally from more than one
supplier. Our principal raw material is steel. Our suppliers and sources of raw
materials are based in the U.S., Europe and Asia. We purchase steel at market
prices, which fluctuate as a result of supply and demand driven by economic
conditions in the marketplace. For further discussion of the possible
effects of changes in the cost of raw materials on our business, see Part I,
Item 1A. “Risk Factors” in this Annual Report on Form 10-K.
Backlog
As of April 3, 2010, we had order
backlog of $157.9 million compared to a backlog of $179.3 million in
the prior year. The amount of backlog includes orders which we estimate will be
fulfilled within the next 12 months; however, orders included in our
backlog are subject to cancellation, delay or other modifications by our
customers prior to fulfillment. We sell many of our products pursuant to
contractual agreements, single source relationships or long-term purchase
orders, each of which may permit early termination by the customer. However, due
to the nature of many of the products supplied by us and the lack of
availability of alternative suppliers to meet the demands of such customers'
orders in a timely manner, we believe that it is not practical or prudent for
most of our customers to shift their bearing business to other
suppliers.
Employees
We had 1,186 hourly employees and
605 salaried employees as of April 3, 2010, of whom 348 were employed in our
European and Mexican operations. As of April 3, 2010, 142 of our hourly
employees were represented by unions in the U.S. We believe that our employee
relations are satisfactory.
We are subject to three collective
bargaining agreements with the United Auto Workers covering substantially all of
the hourly employees at our Fairfield, Connecticut, West Trenton, New Jersey and
Plymouth, Indiana plants. These agreements expire on January 31, 2013,
June 30, 2012 and October 30, 2015, respectively.
Intellectual
Property
We own U.S. and foreign patents and
trademark registrations and U.S. copyright registrations, and have U.S.
trademark and patent applications pending. We currently have 59 issued or
pending U.S. and foreign patents. We file patent applications and maintain
patents to protect certain technology, inventions and improvements that are
important to the development of our business, and we file trademark applications
and maintain trademark registrations to protect product names that have achieved
brand-name recognition among our customers. We also rely upon trade secrets,
know-how and continuing technological innovation to develop and maintain our
competitive position. Many of our brands are well recognized by our customers
and are considered valuable assets of our business. We currently have 183 issued
or pending U.S. and foreign trademark registrations and applications. We do not
believe, however, that any individual item of intellectual property is material
to our business.
5
Regulation
Product
Approvals. Essential to servicing the aerospace market is the
ability to obtain product approvals. We have a substantial number of product
approvals in the form of OEM approvals or Parts Manufacturer Approvals, or
“PMAs,” from the FAA. We also have a substantial number of active PMA
applications in process. These approvals enable us to provide products used in
virtually all domestic aircraft platforms presently in production or
operation.
We are subject to various other federal
laws, regulations and standards. Although we are not presently aware of any
pending legal or regulatory changes that may have a material impact on us, new
laws, regulations or standards or changes to existing laws, regulations or
standards could subject us to significant additional costs of compliance or
liabilities, and could result in material reductions to our results of
operations, cash flow or revenues.
Environmental
Matters
We are subject to federal, state and
local environmental laws and regulations, including those governing discharges
of pollutants into the air and water, the storage, handling and disposal of
wastes and the health and safety of employees. We also may be liable under the
Comprehensive Environmental Response, Compensation, and Liability Act or similar
state laws for the costs of investigation and clean-up of contamination at
facilities currently or formerly owned or operated by us, or at other facilities
at which we have disposed of hazardous substances. In connection with such
contamination, we may also be liable for natural resource damages, government
penalties and claims by third parties for personal injury and property damage.
Agencies responsible for enforcing these laws have authority to impose
significant civil or criminal penalties for non-compliance. We believe we are
currently in material compliance with all applicable requirements of
environmental laws. We do not anticipate material capital expenditures for
environmental compliance in fiscal 2011.
Investigation and remediation of
contamination is ongoing at some of our sites. In particular, state agencies
have been overseeing groundwater monitoring activities at our facility in
Hartsville, South Carolina and a corrective action plan at our Clayton, Georgia
facility. At Hartsville, we are monitoring low levels of contaminants in the
groundwater caused by former operations. The state will permit us to cease
monitoring activities after two consecutive sampling periods demonstrate
contaminants are below action levels. In connection with the purchase of our
Fairfield, Connecticut facility in 1996, we agreed to assume responsibility for
completing clean-up efforts previously initiated by the prior owner. We
submitted data to the state that we believe demonstrates that no further
remedial action is necessary although the state may require additional clean-up
or monitoring. In connection with the purchase of our Clayton, Georgia facility,
we agreed to take assignment of the hazardous waste permit covering such
facility and to assume certain responsibilities to implement a corrective action
plan concerning the remediation of certain soil and groundwater contamination
present at that facility. The corrective action plan is in the early stages.
Although there can be no assurance, we do not expect expenses associated with
these activities to be material.
Available
Information
We file
our annual, quarterly and current reports, proxy statements, and other documents
with the Securities and Exchange Commission (“SEC”) under the Securities
Exchange Act of 1934. The public may read and copy any materials filed with the
SEC at the SEC’s Public Reference Room at 405 Fifth Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an
Internet website that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC. The
public can obtain any documents that are filed by us at
http://www.sec.gov.
In
addition, this Annual Report on Form 10-K, as well as our quarterly reports on
Form 10-Q, current reports on Form 8-K and any amendments to all of the
foregoing reports and our governance documents, are made available free of
charge on our Internet website (http://www.rbcbearings.com) as soon as
reasonably practicable after such reports are electronically filed with or
furnished to the SEC. A copy of the above filings will also be provided free of
charge upon written request to us.
ITEM
1A. RISK FACTORS
Cautionary
Statement As To Forward-Looking Information
This report includes “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. All statements other than
statements of historical fact are "forward-looking statements" for purposes of
federal and state securities laws, including any projections of earnings, cash
flows, revenue or other financial items; any statements of the plans, strategies
and objectives of management for future operations; any statements concerning
proposed new services or developments; any statements regarding future economic
conditions or performance; future growth rates in the markets we serve;
increases in foreign sales; supply and cost of raw materials, any statements of
belief; and any statements of assumptions underlying any of the
foregoing. Forward-looking statements may include the words "may,"
"estimate," "intend," "continue," "believe," "expect," "anticipate," the
negative of such terms or other comparable terminology.
6
Although
we believe that the expectations reflected in any of our forward-looking
statements are reasonable, actual results could differ materially from those
projected or assumed in any of our forward-looking statements. Our future
financial condition, results of operations and cash flows, as well as any
forward-looking statements, are subject to change and to inherent risks and
uncertainties, such as those disclosed in this Annual Report on Form 10-K.
Factors that could cause our actual results, performance and achievements or
industry results to differ materially from estimates or projections contained in
forward-looking statements include, among others, the following:
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Weaknesses
and cyclicality in any of the industries in which our customers
operate;
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Changes
in marketing, product pricing and sales strategies or developments of new
products by us or our competitors;
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Future
reductions in U.S. governmental spending or changes in governmental
programs, particularly military equipment procurement
programs;
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Our
ability to obtain and retain product
approvals;
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Supply
and costs of raw materials, particularly steel, and energy resources and
our ability to pass through these costs on a timely
basis;
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Our
ability to acquire and integrate complementary
businesses;
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Unexpected
equipment failures, catastrophic events or capacity
constraints;
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The
costs of defending, or the results of, new
litigation;
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Our
ability to attract and retain our management team and other highly-skilled
personnel;
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Increases
in interest rates;
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Work
stoppages and other labor problems for us and our customers or
suppliers;
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Limitations
on our ability to expand our
business;
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Regulatory
changes or developments in the U.S. and foreign
countries;
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Developments
or disputes concerning patents or other proprietary
rights;
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Changes
in accounting standards, policies, guidance, interpretation or
principles;
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Risks
associated with operating internationally, including currency translation
risks;
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The
operating and stock performance of comparable
companies;
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Investors’
perceptions of us and our industry;
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General
economic, geopolitical, industry and market conditions;
and
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Changes
in tax requirements (including tax rate changes and new tax
laws).
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Additional factors that could cause
actual results to differ materially from our forward-looking statements are set
forth in this Annual Report on Form 10-K, including under Part I, Item 1.
“Business,” Part I, Item 1A. “Risk Factors,” Part II, Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
Part II, Item 8. “Financial Statements and Supplementary Data.”
We are not under any duty to update any
forward-looking statements after the date of this report to conform such
statements to actual results or to changes in our expectations. You are advised,
however, to review any further disclosures we make on related subjects in our
periodic filings with the Securities and Exchange Commission. All
forward-looking statements contained in this report and any subsequently filed
reports are expressly qualified in their entirety by these cautionary
statements.
Our business, operating results, cash
flows or financial condition could be materially adversely affected by any of
the following risks. The trading price of our common stock could decline due to
any of these risks, and you may lose all or part of your investment. You should
carefully consider these risks before investing in shares of our common
stock.
Risk
Factors Related to Our Company
The
bearing industry is highly competitive, and competition could reduce our
profitability or limit our ability to grow.
The global bearing industry is highly
competitive, and we compete with many U.S. and non-U.S. companies, some of which
benefit from lower labor costs and fewer regulatory burdens than us. We compete
primarily based on product qualifications, product line breadth, service and
price. Certain competitors may be better able to manage costs than us or may
have greater financial resources than we have. Due to the competitiveness in the
bearing industry we may not be able to increase prices for our products to cover
increases in our costs, and we may face pressure to reduce prices, which could
materially reduce our revenues, gross margin and profitability. Competitive
factors, including changes in market penetration, increased price competition
and the introduction of new products and technology by existing and new
competitors could result in a material reduction in our revenues and
profitability.
7
The
loss of a major customer could result in a material reduction in our revenues
and profitability.
Our top ten customers generated 31% of
our net sales during fiscal 2010 and fiscal 2009. Accordingly, the loss of one
or more of those customers or a substantial decrease in such customers'
purchases from us could result in a material reduction in our revenues and
profitability.
In addition, the consolidation and
combination of defense or other manufacturers may eliminate customers from the
industry and/or put downward pricing pressures on sales of component parts. For
example, the consolidation that has occurred in the defense industry in recent
years has significantly reduced the overall number of defense contractors in the
industry. In addition, if one of our customers is acquired or merged with
another entity, the new entity may discontinue using us as a supplier because of
an existing business relationship with the acquiring company or because it may
be more efficient to consolidate certain suppliers within the newly formed
enterprise. The significance of the impact that such consolidation may have on
our business is difficult to predict because we do not know when or if one or
more of our customers will engage in merger or acquisition activity. However, if
such activity involved our material customers it could materially impact our
revenues and profitability.
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 and profitability.
The commercial aerospace, mining and
construction equipment and other diversified industrial industries to which we
sell our products are, to varying degrees, cyclical and tend to decline in
response to overall declines in industrial production. Margins in those
industries are highly sensitive to demand cycles, and our customers in those
industries historically have tended to delay large capital projects, including
expensive maintenance and upgrades, during economic downturns. As a result, our
business is also cyclical, and the demand for our products by these customers
depends, in part, on overall levels of industrial production, general economic
conditions and business confidence levels. Downward economic cycles have
affected our customers and reduced sales of our products resulting in reductions
in our revenues and net earnings. Any future material weakness in demand in any
of these industries could materially reduce our revenues and
profitability.
In addition, many of our customers have
historically experienced periodic downturns, which often have had a negative
effect on demand for our products. For example, the severe downturn in 2001 in
the aerospace industry resulted in deferrals or cancellations in aircraft
orders, which reduced the volume and price of orders placed for products used to
manufacture commercial aircraft, including our bearings and other individual
parts and components we manufacture. Previous industry downturns have negatively
affected, and future industry downturns will negatively affect, our net sales,
gross margin and net income.
Future
reductions or changes in U.S. government spending could negatively affect our
business.
In fiscal 2010, 5.2% of our net sales
were made directly, and we estimate that approximately an additional 22.4% of
our net sales were made indirectly, to the U.S. government to support military
or other government projects. Our failure to obtain new government contracts,
the cancellation of government contracts or reductions in federal budget
appropriations regarding our products could result in materially reduced
revenue. In addition, the funding of defense programs also competes with
non-defense spending of the U.S. government. Our business is sensitive to
changes in national and international priorities and the U.S. government budget.
A shift in government defense spending to other programs in which we are not
involved or a reduction in U.S. government defense spending generally could
materially reduce our revenues, cash flows from operations and profitability. If
we, or our prime contractors for which we are a subcontractor, fail to win any
particular bid, or we are unable to replace lost business as a result of a
cancellation, expiration or completion of a contract, our revenues or cash flows
could be reduced.
Fluctuating
supply and costs of raw materials and energy resources could materially reduce
our revenues, cash flow from operations and profitability.
Our business is dependent on the
availability and costs of energy resources and raw materials, particularly
steel, generally in the form of stainless and chrome steel, which are commodity
steel products. The availability and prices of raw materials and energy sources
may be subject to curtailment or change due to, among other things, new laws or
regulations, suppliers' allocations to other purchasers, interruptions in
production by suppliers, changes in exchange rates and worldwide price levels.
Although we currently maintain alternative sources for raw materials, our
business is subject to the risk of price fluctuations and periodic delays in the
delivery of certain raw materials. Disruptions in the supply of raw materials
and energy resources could temporarily impair our ability to manufacture our
products for our customers or require us to pay higher prices in order to obtain
these raw materials or energy resources from other sources, which could thereby
affect our net sales and profitability.
8
We seek to pass through a significant
portion of our additional costs to our customers through steel surcharges or
price increases. However, even if we are able to pass these steel surcharges or
price increases to our customers, there may be a time lag of up to 3 months or
more between the time a cost increase goes into effect and our ability to
implement surcharges or price increases, particularly for orders already in our
backlog. As a result our gross margin percentage may decline, and we may not be
able to implement other price increases for our products. We cannot provide
assurances that we will be able to continue to pass these additional costs on to
our customers at all or on a timely basis or that our customers will not seek
alternative sources of supply if there are significant or prolonged increases in
the price of steel or other raw materials or energy resources.
Our
products are subject to certain approvals, and the loss of such approvals could
materially reduce our revenues and profitability.
Essential to servicing the aerospace
market is the ability to obtain product approvals. We have a substantial number
of product approvals, which enable us to provide products used in virtually all
domestic aircraft platforms presently in production or operation. Product
approvals are typically issued by the FAA to designated OEMs who are
Production Approval Holders of FAA approved aircraft. These Production Approval
Holders provide quality control oversight and generally limit the number of
suppliers directly servicing the commercial aerospace aftermarket. Regulations
enacted by the FAA provide for an independent process (the PMA process), which
enables suppliers who currently sell their products to the Production Approval
Holders, to sell products to the aftermarket. Our foreign sales may be subject
to similar approvals or U.S. export control restrictions. Although we have not
lost any material product approvals in the past, we cannot assure you that we
will not lose approvals for our products in the future. The loss of product
approvals could result in lost sales and materially reduce our revenues and
profitability.
Restrictions
in our indebtedness agreements could limit our growth and our ability to respond
to changing conditions.
The KeyBank Credit Agreement contains a
number of restrictive covenants that limit our ability, among other things,
to:
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incur
additional indebtedness and issue preferred stock and guarantee
indebtedness;
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create
liens on our assets;
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pay
dividends or make other equity
distributions;
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purchase
or redeem capital stock;
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create
restrictions on payments of dividends or other amounts to us by our
restricted subsidiaries;
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make
investments;
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merge,
consolidate or sell assets;
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engage
in activities unrelated to our current
business;
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engage
in transactions with our affiliates;
and
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sell
or issue capital stock of certain
subsidiaries.
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In addition, the KeyBank Credit
Agreement contains other financial covenants requiring us to maintain a minimum
fixed charge coverage ratio and maximum senior leverage ratios and to satisfy
certain other financial conditions. Our KeyBank Credit Agreement prohibits us
from incurring capital expenditures of more than $30 million per year.
These restrictions could limit our ability to obtain future financings, make
needed capital expenditures, withstand a future downturn in our business or the
economy in general or otherwise conduct necessary corporate
activities.
As of April 3, 2010, we had $37.0
million of outstanding borrowings and letters of credit of $6.0 million
under our $150.0 million KeyBank Credit Agreement. Under the KeyBank Credit
Agreement, we had borrowing availability of $107.0 million as of April 3,
2010. This agreement expires on June 24, 2011.
Work
stoppages and other labor problems could materially reduce our ability to
operate our business.
As of April 3, 2010, approximately 12%
of our hourly employees were represented by labor unions in the U.S. and abroad.
While we believe our relations with our employees are satisfactory, a lengthy
strike or other work stoppage at any of our facilities, particularly at some of
our larger facilities, could materially reduce our ability to operate our
business. In addition, any attempt by our employees not currently represented by
a union to join a union could result in additional expenses, including with
respect to wages, benefits and pension obligations. We currently have three
collective bargaining agreements, one agreement covering approximately 49
employees will expire in June 2012, one agreement covering approximately 68
employees will expire in January 2013 and one agreement covering
approximately 25 employees will expire in October 2015.
9
In addition, work stoppages at one or
more of our customers or suppliers, including suppliers of transportation
services, many of which have large unionized workforces, for labor or other
reasons could also cause disruptions to our business that we cannot control, and
these disruptions may materially reduce our revenues and
profitability.
Our
business is capital intensive and may consume cash in excess of cash flows from
our operations.
Our ability to remain competitive,
sustain our growth and expand our operations largely depends on our cash flows
from operations and our access to capital. We intend to fund our cash needs
through operating cash flow and borrowings under our KeyBank Credit Agreement,
but may require additional equity or debt financing to fund our growth and debt
repayment obligations. In addition, we may need additional capital to fund
future acquisitions. Our business may not generate sufficient cash flow, and we
may not be able to obtain sufficient funds to enable us to pay our debt
obligations and capital expenditures or we may not be able to refinance our
existing debt on commercially reasonable terms, if at all. See Part II, Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Liquidity."
Unexpected
equipment failures, catastrophic events or capacity constraints may increase our
costs and reduce our sales due to production curtailments or
shutdowns.
Our manufacturing processes are
dependent upon critical pieces of equipment, such as furnaces, continuous
casters and rolling equipment, as well as electrical equipment, such as
transformers, and this equipment may, on occasion, be out of service as a result
of unanticipated failures. In addition to equipment failures, our facilities are
also subject to the risk of catastrophic loss due to unanticipated events such
as fires, explosions, earthquakes or violent weather conditions. In the future,
we may experience material plant shutdowns or periods of reduced production as a
result of these types of equipment failures or catastrophes. Interruptions in
production capabilities will inevitably increase our production costs and reduce
sales and earnings for the affected period.
Certain of our facilities are operating
at a single shift with a light second shift, and additional demand may require
additional shifts and/or capital investments at these facilities. We cannot
assure you that we will be able to add additional shifts as needed in a timely
way and production constraints may result in lost sales. In certain markets we
refrain from making additional capital investments to expand capacity where we
believe market expansion in a particular end market is not sustainable or
otherwise does not justify the expansion or capital investment. Our assumptions
and forecasts regarding market conditions in these end markets may be erroneous
and may result in lost earnings, potential sales going to competitors and
inhibit our growth.
We
may not be able to continue to make the acquisitions necessary for us to realize
our growth strategy.
The acquisition of businesses that
complement or expand our operations has been and continues to be an important
element of our business strategy. We frequently engage in evaluations of
potential acquisitions and negotiations for possible acquisitions, some of
which, if consummated, could be significant to us. We cannot assure you that we
will be successful in identifying attractive acquisition candidates or
completing acquisitions on favorable terms in the future. Our inability to
acquire businesses, or to operate them profitably once acquired, could have a
material adverse effect on our business, financial position, cash flow and
growth.
The
costs and difficulties of integrating acquired businesses could impede our
future growth.
We cannot assure you that any future
acquisition will enhance our financial performance. Our ability to effectively
integrate any future acquisitions will depend on, among other things, the
culture of the acquired business matching with our culture, the ability to
retain and assimilate employees of the acquired business, the ability to retain
customers and integrate customer bases, the adequacy of our implementation
plans, the ability of our management to oversee and operate effectively the
combined operations and our ability to achieve desired operating efficiencies
and sales goals. The integration of any acquired businesses might cause us to
incur unforeseen costs, which would lower our future earnings and would prevent
us from realizing the expected benefits of these acquisitions.
10
Even if we are able to integrate future
acquired businesses with our operations successfully, we cannot assure you that
we will realize all of the cost savings, synergies or revenue enhancements that
we anticipate from such integration or that we will realize such benefits within
the expected time frame. As a result of our acquisitions of other businesses, we
may be subject to the risk of unforeseen business uncertainties or legal
liabilities relating to those acquired businesses for which the sellers may not
indemnify us. Future acquisitions may also result in potentially dilutive
issuances of securities.
We
depend heavily on our senior management and other key personnel, the loss of
whom could materially affect our financial performance and
prospects.
Our business is managed by a number of
key executive officers, including Dr. Michael J. Hartnett. Our future
success will depend on, among other things, our ability to keep the services of
these executives and to hire other highly qualified employees at all
levels.
We compete with other potential
employers for employees, and we may not be successful in hiring and retaining
executives and other skilled employees that we need. Our ability to successfully
execute our business strategy, market and develop our products and serve our
customers could be adversely affected by a shortage of available skilled
employees or executives.
Our
international operations are subject to risks inherent in such
activities.
We have established operations in
certain countries outside the U.S., including Mexico, France, Switzerland, China
and England. Of our 26 facilities, 6 are located outside the U.S., including 4
manufacturing facilities.
Approximately 26% of our net sales were
derived from sales directly or indirectly outside the U.S. We expect that this
proportion is likely to increase as we seek to increase our penetration of
foreign markets, including through acquisitions, particularly within the
aerospace and defense markets. Our foreign operations are subject to the risks
inherent in such activities such as: currency devaluations, logistical and
communications challenges, costs of complying with a variety of foreign laws and
regulations, greater difficulties in protecting and maintaining our rights to
intellectual property, difficulty in staffing and managing geographically
diverse operations, acts of terrorism or war or other acts that may cause social
disruption which are difficult to quantify or predict and general economic
conditions in these foreign markets. Our international operations may be
negatively impacted by changes in government policies, such as changes in laws
and regulations (or the interpretation thereof), restrictions on imports and
exports, sources of supply, duties or tariffs, the introduction of measures to
control inflation and changes in the rate or method of taxation. To date we have
not experienced significant difficulties with the foregoing risks associated
with our international operations.
Currency
translation risks may have a material impact on our results of
operations.
Our Swiss operations utilize the Swiss
Franc as the functional currency, our French operations utilize the Euro as the
functional currency and our English operations utilize the British Pound
Sterling as the functional currency. Foreign currency transaction gains and
losses are included in earnings. Foreign currency transaction exposure arises
primarily from the transfer of foreign currency from one subsidiary to another
within the group and to foreign currency denominated trade receivables.
Unrealized currency translation gains and losses are recognized upon translation
of the foreign subsidiaries' balance sheets to U.S. dollars. Because our
financial statements are denominated in U.S. dollars, changes in currency
exchange rates between the U.S. dollar and other currencies have had, and will
continue to have, an impact on our earnings. While we monitor exchange rates, we
currently do not have exchange rate hedges in place to reduce the risk of an
adverse currency exchange movement. Currency fluctuations have not had a
material impact on our financial performance in the past, but such fluctuations
may affect our financial performance in the future and we cannot predict the
impact of future exchange rate fluctuations on our results of operations. See
Part II, Item 7A. "Quantitative and Qualitative Disclosures about Market
Risk—Foreign Currency Exchange Rates."
We
may be required to make significant future contributions to our pension
plan.
As of April 3, 2010, we maintained one
noncontributory defined benefit pension plan. The plan was underfunded by
$1.7 million as of April 3, 2010 and overfunded by $0.9 million as of March
28, 2009, which are the amounts by which the accumulated benefit obligations are
more or less than the sum of the fair market value of the plan’s assets. We are
required to make cash contributions to our pension plan to the extent necessary
to comply with minimum funding requirements imposed by employee benefit laws and
tax laws. The amount of any such required contributions is determined based on
annual actuarial valuation of the plan as performed by the plan’s actuaries. The
amount of future contributions will depend upon asset returns, then-current
discount rates and a number of other factors, and, as a result, the amount we
may elect or be required to contribute to our pension plan in the future may
increase significantly. Additionally, there is a risk that if the Pension
Benefit Guaranty Corporation concludes that its risk with respect to our pension
plan may increase unreasonably if the plan continues to operate, if we are
unable to satisfy the minimum funding requirement for the plan or if the plan
becomes unable to pay benefits, then the Pension Benefit Guaranty Corporation
could terminate the plan and take control of its assets. In such event, we may
be required to make an immediate payment to the Pension Benefit Guaranty
Corporation of all or a substantial portion of the underfunding as calculated by
the Pension Benefit Guaranty Corporation based upon its own assumptions. The
underfunding calculated by the Pension Benefit Guaranty Corporation could be
substantially greater than the underfunding we have calculated because, for
example, the Pension Benefit Guaranty Corporation may use a significantly lower
discount rate. If such payment is not made, then the Pension Benefit Guaranty
Corporation could place liens on a material portion of our assets and the assets
of any members of our controlled group. Such action could result in a material
increase in our pension related expenses and a corresponding reduction in our
cash flow and net income. For additional information concerning our pension plan
and plan liabilities, see Part II, Item 8. “Financial Statements and
Supplementary Data,” Note 13 “Pension Plans.”
11
We
may incur material losses for product liability and recall related
claims.
We are subject to a risk of product and
recall related liability in the event that the failure, use or misuse of any of
our products results in personal injury, death, or property damage or our
products do not conform to our customers' specifications. In particular, our
products are installed in a number of types of vehicle fleets, including
airplanes, trains, automobiles, heavy trucks and farm equipment, many of which
are subject to government ordered as well as voluntary recalls by the
manufacturer. If one of our products is found to be defective, causes a fleet to
be disabled or otherwise results in a product recall, significant claims may be
brought against us. Although we have not had any material product liability or
recall related claims made against us, and we currently maintain product
liability insurance coverage for product liability, although not for recall
related claims, we cannot assure you that product liability or recall related
claims, if made, would not exceed our insurance coverage limits or would be
covered by insurance which, in turn, may result in material losses related to
these claims, increased future insurance costs and a corresponding reduction in
our cash flow and net income.
Environmental
regulations impose substantial costs and limitations on our operations, and
environmental compliance may be more costly than we expect.
We are subject to various federal,
state and local environmental laws and regulations, including those governing
discharges of pollutants into the air and water, the storage, handling and
disposal of wastes and the health and safety of employees. These laws and
regulations could subject us to material costs and liabilities, including
compliance costs, civil and criminal fines imposed for failure to comply with
these laws and regulatory and litigation costs. We also may be liable under the
federal Comprehensive Environmental Response, Compensation, and Liability Act,
or similar state laws, for the costs of investigation and clean-up of
contamination at facilities currently or formerly owned or operated by us or at
other facilities at which we have disposed of hazardous substances. In
connection with such contamination, we may also be liable for natural resource
damages, government penalties and claims by third parties for personal injury
and property damage. Compliance with these laws and regulations may prove to be
more limiting and costly than we anticipate. New laws and regulations, stricter
enforcement of existing laws and regulations, the discovery of previously
unknown contamination or the imposition of new clean-up requirements could
require us to incur costs or become the basis for new or increased liabilities
that could cause a material increase in our environmental related compliance
costs and a corresponding reduction in our cash flow and net income.
Investigation and remediation of contamination at some of our sites is ongoing.
Actual costs to clean-up these sites may exceed our current estimates. Although
we have indemnities and other agreements for certain pre-closing environmental
liabilities from the prior owners in connection with our acquisition of several
of our facilities, we cannot assure you that the indemnities will be adequate to
cover known or newly discovered pre-closing liabilities.
Our
intellectual property and other proprietary rights 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.
Our ability to compete effectively is
dependent upon our ability to protect and preserve the intellectual property and
other proprietary rights and materials owned, licensed or otherwise used by us.
We have numerous U.S. and foreign patents, trademark registrations and U.S.
copyright registrations. We also have U.S. and foreign trademark and patent
applications pending. We cannot assure you that our pending trademark and patent
applications will result in trademark registrations and issued patents, and our
failure to secure rights under these applications may limit our ability to
protect the intellectual property rights that these applications were intended
to cover. Although we have attempted to protect our intellectual property and
other proprietary rights both in the United States and in foreign countries
through a combination of patent, trademark, copyright and trade secret
protection and non-disclosure agreements, these steps may be insufficient to
prevent unauthorized use of our intellectual property and other proprietary
rights, particularly in foreign countries where the protection available for
such intellectual property and other proprietary rights may be limited. We
cannot assure you that any of our intellectual property rights will not be
infringed upon or that our trade secrets will not be misappropriated or
otherwise become known to or independently developed by competitors. We may not
have adequate remedies available for any such infringement or other unauthorized
use. We cannot assure you that any infringement claims asserted by us will not
result in our intellectual property being challenged or invalidated, that our
intellectual property will be held to be of adequate scope to protect our
business or that we will be able to deter current and former employees,
contractors or other parties from breaching confidentiality obligations and
misappropriating trade secrets. In addition, we may become subject to claims
which could require us to pay damages or limit our ability to use certain
intellectual property and other proprietary rights found to be in violation of a
third party's rights, and, in the event such litigation is successful, we may be
unable to use such intellectual property and other proprietary rights at all or
on reasonable terms. Regardless of its outcome, any litigation, whether
commenced by us or third parties, could be protracted and costly and could
result in increased litigation related expenses, the loss of intellectual
property rights or payment of money or other damages, which may result in lost
sales and reduced cash flow and decrease our net income. See Part I, Item 1.
"Business—Intellectual Property."
12
Cancellation
of orders in our backlog of orders could negatively impact our
revenues.
As of April 3, 2010, we had an order
backlog of $157.9 million, which we estimate will be fulfilled within the
next 12 months. However, orders included in our backlog are subject to
cancellation, delay or other modifications by our customers prior to
fulfillment. For these reasons, we cannot assure you that orders included in our
backlog will ultimately result in the actual receipt of revenues from such
orders.
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.
Effective internal controls are
necessary for us to provide reliable financial reports and effectively prevent
fraud. Any inability to provide reliable financial reports or prevent fraud
could harm our business. To date, we have not detected any material weakness or
significant deficiencies in our internal controls over financial reporting.
However, we are continuing to evaluate and, where appropriate, enhance our
policies, procedures and internal controls. If we fail to maintain the adequacy
of our internal controls, as such standards are modified, supplemented or
amended from time to time, we could be subject to regulatory scrutiny, civil or
criminal penalties or shareholder litigation. In addition, failure to maintain
adequate internal controls could result in financial statements that do not
accurately reflect our financial condition. Inferior internal controls could
also cause investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our
stock.
Risk
Factors Related to our Common Stock
Provisions
in our charter documents may prevent or hinder efforts to acquire a controlling
interest in us.
Provisions of our certificate of
incorporation and bylaws may discourage, delay or prevent a merger, acquisition
or other change in control that stockholders may consider favorable, including
transactions which might benefit our stockholders or in which our
stockholders might otherwise receive a premium for their shares. These
provisions may also prevent or frustrate attempts by our stockholders to replace
or remove our management.
Our certificate of incorporation
authorizes the issuance of preferred stock with such designations, rights and
preferences as may be determined from time to time by our board of directors
without stockholder approval. Holders of the common stock may not have
preemptive rights to subscribe for a pro rata portion of any capital stock which
may be issued by us. In the event of issuance, such preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of us or could impede our stockholders’ ability
to approve a transaction they consider in their best interests. Although we have
no present intention to issue any new shares of preferred stock, we may do so in
the future.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None
13
ITEM
2. PROPERTIES
Our principal executive office is
located at One Tribology Center, Oxford, Connecticut 06478. We also use this
facility for manufacturing.
We own facilities in the following
locations:
|
Rancho
Dominguez, California
|
Bremen,
Indiana
|
|
Santa
Ana, California
|
Plymouth,
Indiana
|
|
Fairfield,
Connecticut
|
Bishopville,
South Carolina
|
|
Torrington,
Connecticut
|
Hartsville,
South Carolina
|
|
Canton,
Georgia
|
Houston,
Texas
|
|
Clayton,
Georgia
|
We have leases in effect with respect
to the following facilities:
|
Location of Leased Facility
|
Lease Expiration Date
|
Location of Leased Facility
|
Lease Expiration Date
|
|||
|
Baldwin
Park, California
|
April
30, 2013
|
Horsham,
Pennsylvania
|
April
14, 2012
|
|||
|
Huntington
Beach, California
|
September
30, 2011
|
Bishopville,
South Carolina
|
January
31, 2016
|
|||
|
Santa
Fe Springs, California
|
November
30, 2012
|
Hartsville,
South Carolina
|
September
30, 2014
|
|||
|
Middlebury,
Connecticut
|
June
30, 2011
|
Delemont,
Switzerland
|
August
31, 2015
|
|||
|
Oxford,
Connecticut
|
September
30, 2014
|
Houston,
Texas
|
June
19, 2012
|
|||
|
Gloucestershire,
England
|
May
21, 2012
|
Hoffman
Estates, Illinois
|
March
31, 2012
|
|||
|
Reynosa,
Mexico
|
June
13, 2013
|
Shanghai,
China
|
May
31, 2011
|
|||
|
West
Trenton, New Jersey
|
February
29, 2012
|
Les
Ulis, France
|
July
31, 2010
|
|||
|
Oklahoma
City, Oklahoma
|
|
September
30, 2021
|
|
|
We have several small field offices
located in various locations to support field sales operations.
We believe that our existing property,
facilities and equipment are generally in good condition, are well maintained
and adequate to carry on our current operations. We also believe that our
existing manufacturing facilities have sufficient capacity to meet increased
customer demand. Substantially all of our owned domestic properties and most of
our other assets are subject to a lien securing our obligations under our
KeyBank Credit Agreement.
ITEM
3. LEGAL PROCEEDINGS
From time to time, we are involved in
litigation and administrative proceedings which arise in the ordinary course of
our business. We do not believe that any litigation or proceeding in which we
are currently involved, either individually or in the aggregate, is likely to
have a material adverse effect on our business, financial condition, operating
results, cash flow or prospects.
14
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of
security holders during the fourth quarter of the fiscal year ended April 3,
2010.
EXECUTIVE OFFICERS OF THE
REGISTRANT
The
executive officers are elected by the Board of Directors normally for a term of
one year and until the election of their successors. The executive officers of
the company as of May 24, 2010 are as follows:
|
Name
|
Age
|
Current Position and Previous Positions During Last Five Years
|
||||
|
Michael
J. Hartnett
|
64
|
1992
|
Chairman,
President and Chief Executive Officer
|
|||
|
Daniel
A. Bergeron
|
50
|
2003
|
Vice
President and Chief Financial Officer and Secretary
|
|||
|
2006
|
Vice
President and Chief Financial Officer and Assistant
Secretary
|
|||||
|
Thomas
C. Crainer
|
52
|
2003
|
General
Manager
|
|||
|
2008
|
Vice
President and General Manager
|
|||||
|
Richard
J. Edwards
|
54
|
1996
|
Vice
President and General Manager
|
|||
|
Thomas
J. Williams
|
58
|
2006
|
Corporate
General Counsel and Secretary
|
|||
|
Thomas
M. Burigo
|
58
|
2005
|
Director
of Accounting
|
|||
|
|
|
2006
|
|
Corporate
Controller
|
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Price
range of our Common Stock
Our common stock is quoted on the
Nasdaq National Market under the symbol "ROLL." As of May 24, 2010, there were
51 holders of record of our common stock.
The following table shows the high and
low sales prices of our common stock as reported by the Nasdaq National Market
during the periods indicated:
|
Fiscal 2010
|
Fiscal 2009
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
First
Quarter
|
$ | 21.84 | $ | 14.76 | $ | 41.20 | $ | 33.24 | ||||||||
|
Second
Quarter
|
24.67 | 19.33 | 42.30 | 29.23 | ||||||||||||
|
Third
Quarter
|
26.29 | 19.23 | 35.74 | 16.03 | ||||||||||||
|
Fourth
Quarter
|
32.27 | 22.20 | 22.66 | 12.18 | ||||||||||||
The last reported sale price of our
common stock on the Nasdaq National Market on May 24, 2010 was $26.87 per
share.
Dividend
Policy
We have never declared or paid any cash
dividends on our common stock and do not expect to pay cash dividends for the
foreseeable future. Our current policy is to retain all of our earnings to
finance future growth. In addition, covenants in our credit facilities restrict
our ability to pay dividends. Any future declaration of dividends will be
determined by our board of directors, based upon our earnings, capital
requirements, financial condition, debt covenants, tax consequences and other
factors deemed relevant by our board of directors.
15
Issuer
Purchases of Equity Securities
On June 15, 2007, our board of
directors authorized us to repurchase up to $10.0 million of our common stock
from time to time on the open market, through block trades, or in privately
negotiated transactions depending on market conditions, alternative uses of
capital and other factors. Purchases may be commenced, suspended or
discontinued at any time without prior notice. The new program, which does not
have an expiration date, replaced a $7.5 million program that expired on March
31, 2007.
Total
share repurchases for the three months ended April 3, 2010, all of
which were made under this program, are as follows:
|
Period
|
Total
number
of shares
purchased
|
Average
price paid
per share
|
Number of
shares
purchased
as part of the
publicly
announced
program
|
Approximate
dollar value
of shares still
available to be
purchased
under the
program
(000’s)
|
||||||||||||
|
12/27/2009–
01/30/2010
|
— | $ | — | — | $ | 6,101 | ||||||||||
|
01/31/2010
– 02/27/2010
|
2,966 | 24.92 | 2,966 | 6,027 | ||||||||||||
|
02/28/2010
– 04/03/2010
|
— | — | — | $ | 6,027 | |||||||||||
|
Total
|
2,966 | $ | 24.92 | 2,966 | ||||||||||||
During the fourth quarter of fiscal
2010, we did not issue any common stock that was not registered under the
Securities Act.
Equity
Compensation Plans
Information regarding equity
compensation plans required to be disclosed pursuant to this Item is included in
Part II, Item 8. “Financial Statements and Supplementary Data,” Note 16
“Stockholders’ Equity-Stock Option Plans” of this Annual Report on Form
10-K.
16
Performance
Graph
The following graph shows the total
return to our stockholders compared to a peer group and the Nasdaq Composite
over the period from August 10, 2005 (the date of our initial public offering)
to April 3, 2010. Each line on the graph assumes that $100 was invested in our
common stock on August 10, 2005 or in the respective indices at the closing
price on August 10, 2005. The graph then presents the value of these
investments, assuming reinvestment of dividends, through the close of trading on
April 3, 2010.
Comparison
of 55 Month Cumulative Return*
Among RBC
Bearings Incorporated, The Nasdaq Composite Index
And a
Peer Group
|
August 10,
2005
|
April 1,
2006
|
March 31,
2007
|
March 29,
2008
|
March 28,
2009
|
April 3,
2010
|
|||||||||||||||||||
|
RBC
Bearings Incorporated
|
$ | 100.00 | $ | 134.25 | $ | 218.93 | $ | 237.00 | $ | 106.02 | $ | 207.79 | ||||||||||||
|
Nasdaq
Composite Index
|
100.00 | 109.09 | 113.70 | 107.02 | 73.89 | 115.97 | ||||||||||||||||||
|
Peer
Group
|
100.00 | 123.55 | 178.23 | 175.72 | 106.56 | 205.37 | ||||||||||||||||||
The peer group consists of Kaydon
Corporation, Moog Inc., NN Inc., Precision Industries Castparts Corp., Timken
Company and Triumph Group Inc., which in our opinion, most closely represent the
peer group for our business segments.
*The cumulative total return shown on
the stock performance graph indicates historical results only and is not
necessarily indicative of future results.
17
ITEM
6. SELECTED FINANCIAL DATA
The following table sets forth our
selected consolidated historical financial and other data as of the dates and
for the periods indicated. The selected financial data as of and for the years
ended April 3, 2010, March 28, 2009, March 29, 2008, March 31, 2007 and
April 1, 2006 have been derived from our historical consolidated financial
statements audited by Ernst & Young LLP, independent registered public
accounting firm. Historical results are not necessarily indicative of the
results expected in the future. You should read the data presented below
together with, and qualified by reference to, Part II, Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements included in Part II, Item 8.
“Financial Statements and Supplementary Data” of this Annual Report
on Form 10-K.
|
Fiscal Year Ended
|
||||||||||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
March 31,
2007
|
April 1,
2006
|
||||||||||||||||
|
(in thousands, except share and per share amounts)
|
||||||||||||||||||||
|
Statement of Operations
Data:
|
||||||||||||||||||||
|
Net
sales(1)
|
$ | 274,702 | $ | 355,796 | $ | 330,600 | $ | 306,062 | $ | 274,509 | ||||||||||
|
Cost
of sales
|
190,136 | 237,576 | 217,022 | 205,953 | 191,561 | |||||||||||||||
|
Gross
margin
|
84,566 | 118,220 | 113,578 | 100,109 | 82,948 | |||||||||||||||
|
Selling,
general and administrative(2)
|
47,367 | 55,779 | 48,904 | 42,256 | 41,945 | |||||||||||||||
|
Other,
net
|
2,529 | 7,471 | 1,824 | 5,934 | 2,424 | |||||||||||||||
|
Operating
income
|
34,670 | 54,970 | 62,850 | 51,919 | 38,579 | |||||||||||||||
|
Interest
expense, net
|
1,807 | 2,605 | 3,407 | 5,780 | 15,657 | |||||||||||||||
|
Loss
on early extinguishment of debt(3)
|
— | 319 | 27 | 3,576 | 3,771 | |||||||||||||||
|
Other
non-operating expense (income)
|
(147 | ) | 645 | (463 | ) | (1,504 | ) | 78 | ||||||||||||
|
Income
before income taxes
|
33,010 | 51,401 | 59,879 | 44,067 | 19,073 | |||||||||||||||
|
Provision
for income taxes
|
8,625 | 16,947 | 19,685 | 15,588 | 6,634 | |||||||||||||||
|
Net
income
|
24,385 | 34,454 | 40,194 | 28,479 | 12,439 | |||||||||||||||
|
Preferred
stock dividends
|
— | — | — | — | (893 | ) | ||||||||||||||
|
Participation
rights of preferred stock in undistributed earnings
|
— | — | — | — | (630 | ) | ||||||||||||||
|
Net
income available to common stockholders
|
$ | 24,385 | $ | 34,454 | $ | 40,194 | $ | 28,479 | $ | 10,916 | ||||||||||
|
Net
income per common share:(4)
|
||||||||||||||||||||
|
Basic
|
$ | 1.13 | $ | 1.60 | $ | 1.87 | $ | 1.38 | $ | 0.84 | ||||||||||
|
Diluted
|
$ | 1.12 | $ | 1.58 | $ | 1.84 | $ | 1.33 | $ | 0.76 | ||||||||||
|
Weighted
average common shares:(4)
|
||||||||||||||||||||
|
Basic
|
21,590,421 | 21,570,979 | 21,457,846 | 20,579,498 | 12,931,185 | |||||||||||||||
|
Diluted
|
21,747,082 | 21,738,812 | 21,802,711 | 21,335,307 | 14,452,264 | |||||||||||||||
|
Other
Financial Data:
|
||||||||||||||||||||
|
Capital
expenditures
|
$ | 9,906 | $ | 27,583 | $ | 17,758 | $ | 16,174 | $ | 10,341 | ||||||||||
|
As of
|
||||||||||||||||||||
|
April 3,
|
March 28,
|
March 29,
|
March 31,
|
April 1,
|
||||||||||||||||
|
2010
|
2009
|
2008
|
2007
|
2006
|
||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 21,389 | $ | 30,557 | $ | 9,859 | $ | 5,184 | $ | 16,126 | ||||||||||
|
Working
capital
|
202,714 | 205,904 | 176,269 | 138,970 | 146,612 | |||||||||||||||
|
Total
assets
|
375,955 | 382,067 | 337,112 | 273,713 | 275,923 | |||||||||||||||
|
Total
debt
|
38,453 | 68,151 | 57,750 | 59,405 | 165,747 | |||||||||||||||
|
Total
stockholders' equity
|
283,547 | 256,011 | 223,910 | 168,171 | 73,340 | |||||||||||||||
|
(1)
|
Net
sales were $274.7 million in fiscal 2010 compared to $355.8 million in
fiscal 2009, a decrease of $81.1 million. Net sales in the compared
periods included net sales of $2.3 million for Lubron, which was acquired
in September 2009.
|
Net sales
were $355.8 million in fiscal 2009 compared to $330.6 million in fiscal 2008, an
increase of $25.2 million. Net sales in the compared periods included net sales
of $6.6 million for PIC Design (acquired in June 2008), $6.1 million for AID
(acquired in March 2008) and $4.8 million for BEMD (acquired in March 2008), all
in fiscal 2009.
18
|
|
Net
sales were $330.6 million in fiscal 2008 compared to $306.1 million in
fiscal 2007, an increase of $24.5 million. Net sales in the
compared periods included net sales of $5.4 million for Phoenix
(acquired in May 2007), $2.7 million for CBS (acquired in July 2007), $0.3
million for AID (acquired in March 2008) and $0.3 million for BEMD
(acquired in March 2008), all in fiscal
2008.
|
Net sales
were $306.1 million in fiscal 2007 compared to $274.5 million in fiscal 2006, an
increase of $31.6 million. Net sales in the compared periods included net sales
of $8.4 million in fiscal 2007 for All Power, which was acquired in September
2006.
|
(2)
|
Selling,
general and administrative expense for the fiscal year ended April 1, 2006
included non-recurring compensation expense of
$5.2 million.
|
|
(3)
|
Loss
on early extinguishment of debt in fiscal 2009 was $0.3 million for the
non-cash write-off of deferred financing fees associated with the paydown
of $15.5 million of industrial revenue
bonds.
|
|
|
Loss
on early extinguishment of debt in fiscal 2007 was $3.6 million for the
non-cash write-off of deferred financing costs associated with the early
termination of the senior credit
facility.
|
|
|
Loss
on early extinguishment of debt of $3.8 million in fiscal 2006
included $1.6 million for non-cash write-off of deferred financing
fees and unamortized bond discount associated with retired debt,
$1.3 million of redemption premium associated with the retirement of
all of our 13% discount debentures in September 2005,
$0.5 million of prepayment fees related to the repayment of all of
the outstanding balance under our second lien term loan in
August 2005 and $0.4 million in interest expense for the 30-day
call period related to the early extinguishment of our 13% discount
debentures.
|
|
(4)
|
Amounts
for the fiscal year ended March 31, 2007 reflect the consummation of our
secondary public offering in April 2006, which included: (1) the sale by
us of 8,989,550 shares of our common stock (5,995,529 sold by certain of
our stockholders) at the offering price of $20.50 per share and (2) the
repayment of $57.8 million of our Term
Loan.
|
|
|
Amounts
for the fiscal year ended April 1, 2006 reflect the consummation of our
initial public offering in August 2005, which included: (1) the
sale by us of 7,034,516 shares at the offering price of $14.50 per share,
(2) the repayment of all of our $38.6 million in aggregate
principal amount of 13% senior subordinated discount debentures due 2009,
(3) the repayment of all outstanding indebtedness under our
$45.0 million second lien term loan, (4) the addition of
$40.0 million to our Term Loan and (5) the redemption of all of
our then outstanding Class C and Class D preferred stock for an
aggregate redemption price of
$38.6 million.
|
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We are a well known international
manufacturer of highly engineered precision plain, roller and ball bearings. 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 bearing categories, we focus primarily on
the higher end of the bearing market where we believe our value added
manufacturing and engineering capabilities enable us to differentiate ourselves
from our competitors and enhance profitability. We estimate that approximately
two-thirds of our net sales during fiscal 2010 were generated by products for
which we hold the number one or two market position. We have been providing
bearing solutions to our customers since 1919. Over the past ten years, under
the leadership of our current management team, we have significantly broadened
our end markets, products, customer base and geographic reach. We currently
operate 26 facilities of which 23 are manufacturing facilities in four
countries.
Demand for bearings generally follows
the market for products in which bearings are incorporated and the economy as a
whole. Purchasers of bearings include industrial equipment and machinery
manufacturers, producers of commercial and military aerospace equipment such as
missiles and radar systems, agricultural machinery manufacturers, construction,
mining and specialized equipment manufacturers and automotive and commercial
truck manufacturers. The markets for our products are cyclical, and general
market conditions could negatively impact our operating results. We have
endeavored to mitigate the cyclicality of our product markets by entering into
sole-source relationships and long-term purchase orders, 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.
19
During the first nine months of fiscal
2010, the world economy continued to contract, and we experienced unfavorable
conditions across our two major markets: diversified industrial and aerospace
and defense. Our net sales for diversified industrial decreased 23% year over
year, and our net sales for aerospace and defense decreased 23% year over year.
In our fiscal fourth quarter, we started to experience stronger demand for our
diversified industrial products driven by an overall recovery in most worldwide
industrial markets. We are cautiously optimistic that these conditions will
continue through our fiscal 2011.
Approximately 16% of our costs are
attributable to raw materials, a majority of which are related to steel and
related products. During the past four years, steel prices have increased to
historically high levels, responding to unprecedented levels of world demand. To
date, we have generally been able to pass through these costs to our customers
through price increases and the assessment of surcharges, although there can be
a time lag of up to 3 months or more.
Competition in specialized bearing
markets is based on engineering design, brand, lead times and reliability of
product and service. These markets are generally not as price sensitive as the
markets for standard bearings.
We have demonstrated expertise in
acquiring and integrating bearing and precision-engineered component
manufacturers that have complementary products or distribution channels and
provide significant potential for margin enhancement. We have consistently
increased the profitability of acquired businesses through a process of methods
and systems improvement coupled with the introduction of complementary and
proprietary new products. Since October 1992 we have completed 20
acquisitions which have broadened our end markets, products, customer base and
geographic reach.
Sources
of Revenue
Revenue is generated primarily from
sales of bearings to the diversified industrial market and the aerospace and
defense markets. Sales are often made pursuant to sole-source relationships,
long-term agreements and purchase orders with our customers. We recognize
revenues principally from the sale of products at the point of passage of title,
which is at the time of shipment.
Sales to the diversified industrial
market accounted for 42% of our net sales for the fiscal year ended April 3,
2010. Sales to the aerospace and defense markets accounted for 58% of our net
sales for the same period. In our fourth fiscal quarter, sales to the
diversified industrial market accounted for 49% of our net sales, and sales to
the aerospace and defense markets accounted for 51%.
Aftermarket sales of replacement parts
for existing equipment platforms represented approximately 55% of our net sales
for fiscal 2010. We continue to develop our OEM relationships which have
established us as a leading supplier on many important aerospace and defense
platforms. Over the past several years, we have experienced increased demand
from the replacement parts market, particularly within the aerospace and defense
sectors; one of our business strategies has been to increase the proportion of
sales derived from this sector. We believe these activities increase the
stability of our revenue base, strengthen our brand identity and provide
multiple paths for revenue growth.
Approximately
26% of our net sales were derived from sales directly or indirectly outside
the U.S. for fiscal 2010, compared to 28% for fiscal 2009. We expect that
this proportion will increase as we seek to increase our penetration of foreign
markets, particularly within the aerospace and defense sectors. Our top ten
customers generated 31% of our net sales in fiscal 2010 and 2009. Out
of the 31% of net sales generated by our top ten customers during the fiscal
year ended April 3, 2010, 19% of net sales was generated by our top four
customers compared to 18% for the comparable period last year. No single
customer was responsible for generating more than 8% of our net sales for the
same period.
Cost
of Revenues
Cost of sales includes employee
compensation and benefits, materials, outside processing, depreciation of
manufacturing machinery and equipment, supplies and manufacturing
overhead.
20
We monitor gross margin performance
through a process of monthly operation management reviews. We will develop new
products to target certain markets allied to our strategies by first
understanding volume levels and product pricing and then constructing
manufacturing strategies to achieve defined margin objectives. We only pursue
product lines where we believe that the developed manufacturing process will
yield the targeted margins. Management monitors gross margins of all product
lines on a monthly basis to determine which manufacturing processes or prices
should be adjusted.
Selling,
General and Administrative Expenses
Selling, general and administrative, or
SG&A, expenses relate primarily to the compensation and associated costs of
selling, general and administrative personnel, professional fees, insurance,
incentive stock compensation, facility costs and information technology. We have
decreased SG&A expenses by $8.4 million in fiscal 2010 compared to fiscal
2009. The decrease was due to the overall economic slowdown experienced over the
last fifteen months.
Other
Expenses
In March 2010, we finished the
consolidation of our Houston, Texas facilities resulting in a total charge of
$0.6 million. Of this amount, $0.4 million was related to the remaining months
on the original leased facility and $0.2 million was related to moving
expenses.
In March 2009, we recorded a non-cash
impairment charge of approximately $3.8 million. This charge was associated with
a change in production capacity for the Class 8 truck market due to continued
decline in the build rates for Class 8 trucks.
In December 2008, we completed the
consolidation and rationalization of our RBC Linear Precision Products, Inc.
subsidiary in Walterboro, South Carolina. This resulted in a total charge of
$1.4 million, of which $0.4 million was related to the net disposal and
impairment of fixed assets, $0.7 million was for a writedown of excess
inventory, $0.2 million for severance costs and $0.1 million for other
miscellaneous items.
In December 2007, our RBC Aircraft
Products, Inc. subsidiary relocated from a leased to an owned facility within
Torrington, Connecticut. Moving expenses related to the relocation of this
manufacturing facility resulted in a charge of approximately $0.5 million in
fiscal 2008.
In February 2007, our Tyson Bearing
Company, Inc. subsidiary closed operations at our Glasgow, Kentucky
facility. The production that was conducted at the Tyson facility has been moved
to other RBC locations. This consolidation resulted in a charge of approximately
$5.1 million in fiscal 2007.
Results
of Operations
The following table sets forth the
various components of our consolidated statements of operations, expressed as a
percentage of net sales, for the periods indicated that are used in connection
with the discussion herein:
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Statement of Operations
Data:
|
||||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Gross
margin
|
30.8 | 33.2 | 34.4 | |||||||||
|
Selling,
general and administrative
|
17.3 | 15.7 | 14.8 | |||||||||
|
Other,
net
|
0.9 | 2.1 | 0.6 | |||||||||
|
Operating
income
|
12.6 | 15.4 | 19.0 | |||||||||
|
Interest
expense, net
|
0.7 | 0.7 | 1.0 | |||||||||
|
Loss
on early extinguishment of debt
|
— | 0.1 | — | |||||||||
|
Other
non-operating expense (income)
|
(0.1 | ) | 0.2 | (0.1 | ) | |||||||
|
Income
before income taxes
|
12.0 | 14.4 | 18.1 | |||||||||
|
Provision
for income taxes
|
3.1 | 4.7 | 6.0 | |||||||||
|
Net
income
|
8.9 | % | 9.7 | % | 12.1 | % | ||||||
21
Segment Information
We have four reportable product
segments: Plain Bearings, Roller Bearings, Ball Bearings and Other. Other
consists primarily of precision ball screws and machine tool collets. The
following table shows our net sales and operating income with respect to each of
our reporting segments plus Corporate for the last three fiscal
years:
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
(in thousands)
|
||||||||||||
|
Net
External Sales
|
||||||||||||
|
Plain
|
$ | 134,303 | $ | 166,658 | $ | 154,535 | ||||||
|
Roller
|
73,164 | 94,428 | 97,019 | |||||||||
|
Ball
|
45,442 | 63,625 | 56,677 | |||||||||
|
Other
|
21,793 | 31,085 | 22,369 | |||||||||
|
Total
|
$ | 274,702 | $ | 355,796 | $ | 330,600 | ||||||
|
Operating
Income
|
||||||||||||
|
Plain
|
$ | 28,554 | $ | 41,517 | $ | 40,982 | ||||||
|
Roller
|
20,969 | 23,697 | 28,818 | |||||||||
|
Ball
|
5,594 | 14,474 | 14,284 | |||||||||
|
Other
|
1,992 | 2,375 | 2,669 | |||||||||
|
Corporate
|
(22,439 | ) | (27,093 | ) | (23,903 | ) | ||||||
|
Total
|
$ | 34,670 | $ | 54,970 | $ | 62,850 | ||||||
Geographic Information
The following table summarizes our net
sales, by shipping location, for the periods shown:
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
(in thousands)
|
||||||||||||
|
Geographic
Revenues
|
||||||||||||
|
Domestic
|
$ | 234,329 | $ | 301,413 | $ | 280,510 | ||||||
|
Foreign
|
40,373 | 54,383 | 50,090 | |||||||||
|
Total
|
$ | 274,702 | $ | 355,796 | $ | 330,600 | ||||||
For additional information concerning
our business segments, see Part II, Item 8. “Financial Statements and
Supplementary Data,” Note 20 “Reportable Segments.”
Fiscal
2010 Compared to Fiscal 2009
Net Sales. Net
sales for fiscal 2010 were $274.7 million, a decrease of
$81.1 million, or 22.8%, compared to $355.8 million for the same
period in fiscal 2009. During fiscal 2010, we experienced net sales declines in
all of our four segments, driven by lower demand across our end markets due to
the weak economic climate. Overall, net sales to aerospace and defense customers
fell 22.5% in fiscal 2010 compared to the same period last year, mainly driven
by a slowdown in the business jet market and inventory liquidations by aircraft
distributors. Net sales to diversified industrial customers decreased 23.2% in
fiscal 2010 compared to the same period last year as a result of the overall
decline in the global industrial markets. This decline was offset by the
inclusion of our Lubron acquisition which contributed $2.3 million of net sales
to our diversified industrial customers in fiscal 2010.
The Plain
Bearings segment achieved net sales of $134.3 million in fiscal 2010, a
decrease of $32.4 million, or 19.4%, compared to $166.7 million for the
same period in the prior year. The weak economy contributed to the overall net
sales decline in this segment, with a $27.7 million decrease in net sales to
aerospace and defense customers combined with a $7.0 million decline in net
sales to diversified industrial customers. This decline was offset by the
inclusion of our Lubron acquisition which contributed $2.3 million of net sales
to our diversified industrial sector.
22
The
Roller Bearings segment achieved net sales of $73.2 million in fiscal 2010,
a decrease of $21.2 million, or 22.5%, compared to $94.4 million for
the same period in the prior year. The weak economic performance of
the industrial sector contributed $17.9 million of this net sales decline
combined with a $3.3 million decrease in net sales to aerospace and defense
customers.
The Ball
Bearings segment achieved net sales of $45.4 million in fiscal 2010, a decrease
of $18.2 million, or 28.6%, compared to $63.6 million for the same
period in the prior year. Of this decline, $4.7 million was attributable to the
impact of the economic downturn on the industrial sector while net sales to the
aerospace and defense sector declined $13.5 million compared to the same period
in fiscal 2009.
The Other
segment, which is focused mainly on the sale of machine tool collets and
precision components, achieved net sales of $21.8 million in fiscal 2010, a
decrease of $9.3 million, or 29.9%, compared to $31.1 million for the same
period last year. Of this decrease, $6.8 million was attributable to a decline
in the sale of machine tool collets in Europe combined with a decline of $2.5
million due to the general industrial decline for mechanical
components.
Gross
Margin. Gross margin was $84.6 million, or 30.8% of net
sales, in fiscal 2010, versus $118.2 million, or 33.2% of net sales, for
the comparable period in fiscal 2009. The decrease in our gross margin as a
percentage of net sales was primarily the result of the current economic
downturn combined with costs of approximately $2.6 million associated with our
expansion into large bearing product lines.
Selling, General and
Administrative. SG&A expenses decreased by
$8.4 million, or 15.1%, to $47.4 million in fiscal 2010 compared to
$55.8 million for the same period in fiscal 2009. The decrease was
primarily due to a decline of $9.2 million in compensation expenses,
professional fees and general expense offset by higher stock compensation
expense of $0.7 million and $0.1 million associated with acquisitions. As a
percentage of net sales, SG&A was 17.3% in fiscal 2010 compared to 15.7% for
the same period in fiscal 2009.
Other, net. Other,
net in fiscal 2010 was $2.5 million compared to $7.5 million for the
same period in fiscal 2009. In fiscal 2010, other, net included $1.3 million of
amortization of intangibles, $1.2 million of restructuring and moving expenses,
primarily related to reductions in workforce and the consolidation of our
Houston, Texas facility, and a loss of $0.2 million on the disposal of fixed
assets offset by $0.2 million of other miscellaneous income. In fiscal 2009,
other, net included $1.6 million of amortization of intangibles, $1.1 million of
plant consolidation and moving expenses primarily related to the consolidation
of our Walterboro, South Carolina facility, a loss on disposal and
impairment of fixed assets and intangibles of $4.4 million and bad debt expense
of $0.4 million.
Operating
Income. Operating income was $34.7 million, or 12.6% of
net sales, in fiscal 2010 compared to $55.0 million, or 15.4% of net sales,
in fiscal 2009. Operating income for the Plain Bearings segment was
$28.6 million in fiscal 2010, or 21.3% of net sales, compared to
$41.5 million for the same period last year, or 24.9% of net sales. The
Roller Bearings segment achieved an operating income in fiscal 2010 of $21.0
million, or 28.7% of net sales, compared to $23.7 million, or 25.1% of net
sales, in fiscal 2009. The Ball Bearings segment achieved an operating income of
$5.6 million, or 12.3% of net sales, in fiscal 2010, compared to
$14.5 million, or 22.7% of net sales, for the same period in fiscal 2009.
The Other segment achieved an operating income of $2.0 million, or 9.1% of
net sales, in fiscal 2010, compared to $2.4 million or 7.6% of net sales,
for the same period in fiscal 2009. The decrease in operating income in all four
of our business segments was driven by a decrease in volume due to the current
economic climate. Our operating income as a percentage of net sales declined in
two of our four business segments as a result of the current economic downturn
and costs for our large bearing product lines.
Interest Expense,
net. Interest expense, net decreased by $0.8 million to $1.8
million in fiscal 2010, compared to $2.6 million in fiscal 2009, driven by debt
reduction.
Other Non-Operating Expense
(Income). In fiscal 2010, we incurred a foreign exchange loss
of approximately $0.1 million related primarily to a loan to our Phoenix
subsidiary denominated in British Pound Sterling. This was offset by
approximately $0.2 million in payments received under the U.S. Continued Dumping
and Subsidy Offset Act (CDSOA) compared to $0.4 million in payments
received in fiscal 2009. The CDSOA distributes antidumping duties
paid by overseas companies to domestic firms hurt by unfair trade.
Income Before Income
Taxes. Income before taxes was $33.0 million in fiscal
2010 compared to income before taxes of $51.4 million in fiscal
2009.
23
Income
Taxes. Income tax expense in fiscal 2010 was $8.6 million
compared to $16.9 million in fiscal 2009. The effective income tax
rate in fiscal 2010 was 26.1% compared to 33.0% in fiscal 2009. For
fiscal 2010, the income tax expense of $8.6 million and the effective tax rate
of 26.1% include the benefit of the Advanced Manufacturing Tax Credit
under Internal Revenue Code 48C (“Section 48C Credit”). Without
consideration of this tax credit, the income tax expense would have been $11.3
million and the effective tax rate would have been 34.2% for fiscal
2010.
Net Income. Net
income was $24.4 million in fiscal 2010 compared to net income of
$34.5 million in fiscal 2009.
Fiscal
2009 Compared to Fiscal 2008
Net Sales. Net
sales for fiscal 2009 were $355.8 million, an increase of
$25.2 million, or 7.6%, compared to $330.6 million for the same period
in fiscal 2008. During fiscal 2009, we experienced net sales growth in three of
our four segments, driven by demand across end markets as well as continued
efforts to supply new products to existing and new customers. Overall, net sales
to aerospace and defense customers grew 18.6% in fiscal 2009 compared to the
same period last year, driven mainly by commercial and military aerospace
aftermarket, OEM demand and the $11.6 million contribution of newly-acquired
divisions AID, BEMD and PIC Design. Net sales to diversified industrial
customers decreased 4.6% in fiscal 2009 compared to the same period last year.
This decline was offset by the inclusion of our PIC Design acquisition which
contributed $5.3 million of net sales to our diversified industrial customers in
fiscal 2009.
The Plain
Bearings segment achieved net sales of $166.7 million in fiscal 2009, an
increase of $12.2 million, or 7.8%, compared to $154.5 million for the same
period in the prior year. The commercial and military aerospace market grew
$13.9 million due to an increase in airframe and aerospace bearing shipments to
aircraft manufacturers and continued demand for aftermarket product. The
inclusion of AID accounted for $5.9 million of this increase. This increase was
offset by a $1.7 million decline in net sales to our diversified industrial
customers. This decline was mainly due to a shift in manufacturing capacity in
response to growing aerospace demand and lower industrial OEM and aftermarket
demand.
The
Roller Bearings segment achieved net sales of $94.4 million in fiscal 2009,
a decrease of $2.6 million, or 2.7%, compared to $97.0 million for the
same period in the prior year. Net sales to the diversified industrial market
declined by $3.9 million primarily driven by a continued slowdown in our Class 8
truck market and the overall diversified industrial market offset by an increase
of $1.3 million in sales to the aerospace and defense sector.
The Ball
Bearings segment achieved net sales of $63.6 million in fiscal 2009, an increase
of $6.9 million, or 12.3%, compared to $56.7 million for the same
period in the prior year. Strong aerospace and defense-related demand
contributed an increase of $9.9 million which was offset by a decline of $3.0
million in sales to customers in the diversified industrial
markets.
The Other
segment, which is focused mainly on the sale of machine tool collets and
precision components, achieved net sales of $31.1 million in fiscal 2009,
an increase of $8.7 million, or 39.0%, compared to $22.4 million for the
same period last year. Contributing to this increase was $11.0 million from the
inclusion of BEMD and PIC Design offset by a decrease of $2.3 million in sales
of machine tool collets in Europe and a decline in precision ball
screws.
Gross
Margin. Gross margin was $118.2 million, or 33.2% of net
sales, in fiscal 2009, versus $113.6 million, or 34.4% of net sales, for
the comparable period in fiscal 2008. The decrease in our gross margin as a
percentage of net sales was mainly driven by start-up costs associated with our
expansion into new bearing products of approximately $2.3 million and the
inclusion of recent acquisitions which are currently operating at lower gross
margin levels.
Selling, General and
Administrative. SG&A expenses increased by
$6.9 million, or 14.1%, to $55.8 million in fiscal 2009 compared to
$48.9 million for the same period in fiscal 2008. The increase was
primarily due to an increase of $3.4 million for personnel necessary to support
increased volume, higher incentive stock compensation expense of $1.2 million,
and $2.3 million associated with acquisitions. As a percentage of net sales,
SG&A was 15.7% in fiscal 2009 compared to 14.8% for the same period in
fiscal 2008.
Other, net. Other,
net in fiscal 2009 was $7.5 million compared to $1.8 million for the
same period in fiscal 2008. In fiscal 2009, other, net included $1.6 million of
amortization of intangibles, $1.1 million of plant consolidation and moving
expenses primarily related to the consolidation of our Walterboro, South
Carolina facility, a loss on disposal and impairment of fixed assets
and intangibles of $4.4 million and bad debt expense of $0.4 million. In fiscal
2008, other, net included $1.3 million of amortization of intangibles, $0.5
million of moving expenses related to the relocation of our aircraft products
manufacturing facility and a loss on disposal of fixed assets of $0.4 million,
offset by other miscellaneous income of $0.4 million.
24
Operating
Income. Operating income was $55.0 million, or 15.4% of
net sales, in fiscal 2009 compared to $62.9 million, or 19.0% of net sales,
in fiscal 2008. Operating income for the Plain Bearings segment was
$41.5 million in fiscal 2009, or 24.9% of net sales, compared to
$41.0 million for the same period last year, or 26.5% of net sales. The
Roller Bearings segment achieved an operating income in fiscal 2009 of $23.7
million, or 25.1% of net sales, compared to $28.8 million, or 29.7% of net
sales, in fiscal 2008. This segment was impacted by the non-cash impairment
charge of $3.8 million associated with the Class 8 truck market. The Ball
Bearings segment achieved an operating income of $14.5 million, or 22.7% of
net sales, in fiscal 2009, compared to $14.3 million, or 25.2% of net
sales, for the same period in fiscal 2008. The Other segment achieved an
operating income of $2.4 million, or 7.6% of net sales, in fiscal 2009,
compared to $2.7 million or 11.9% of net sales, for the same period in
fiscal 2008. The increase in operating income in the Plain and Ball segments was
driven primarily by an increase in net sales. The decrease in operating income
in the Roller segment was primarily driven by the decrease in net sales to
industrial customers.
Interest Expense,
net. Interest expense, net decreased by $0.8 million to $2.6
million in fiscal 2009, compared to $3.4 million in fiscal 2008, driven by debt
reduction.
Loss on Early Extinguishment of
Debt. For fiscal 2009, loss on early extinguishment of debt
was $0.3 million for the non-cash write-off of deferred financing fees
associated with the paydown of $15.5 million of industrial revenue
bonds.
Other Non-Operating Expense
(Income). In fiscal 2009, we incurred a foreign exchange loss
of approximately $1.0 million related primarily to a loan to our Phoenix
subsidiary denominated in British Pound Sterling. This was offset by
approximately $0.4 million in payments received under the U.S. Continued Dumping
and Subsidy Offset Act (CDSOA) for 2008. This compared to $0.3
million in payments received in fiscal 2008 for 2007. The CDSOA distributes
antidumping duties paid by overseas companies to domestic firms hurt by unfair
trade.
Income Before Income
Taxes. Income before taxes was $51.4 million in fiscal
2009 compared to income before taxes of $59.9 million in fiscal
2008.
Income
Taxes. Income tax expense in fiscal 2009 was $16.9 million
compared to $19.7 million in fiscal 2008. The effective income tax
rate in fiscal 2009 was 33.0% compared to 32.9% in fiscal 2008.
Net Income. Net
income was $34.5 million in fiscal 2009 compared to net income of
$40.2 million in fiscal 2008.
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.
Liquidity
RBCA has a credit agreement (the
“KeyBank Credit Agreement”) and related security and guaranty agreements with
certain banks, KeyBank National Association, as Administrative Agent, and J.P.
Morgan Chase Bank, N.A. as Co-Lead Arrangers. The KeyBank Credit Agreement
provides RBCA with a $150.0 million five-year senior secured revolving credit
facility which can be increased by up to $75.0 million, in increments of $25.0
million, under certain circumstances and subject to certain conditions
(including the receipt from one or more lenders of the additional
commitment).
Amounts
outstanding under the KeyBank Credit Agreement generally bear interest at the
prime rate, or LIBOR plus a specified margin, depending on the type of borrowing
being made. The applicable margin is based on our consolidated ratio of net debt
to adjusted EBITDA from time to time. Currently, our margin is 0.0% for prime
rate loans and 0.625% for LIBOR rate loans. Amounts outstanding under the
KeyBank Credit Agreement are due and payable on the expiration date of the
credit agreement (June 24, 2011). We can elect to prepay some or all
of the outstanding balance from time to time without penalty.
The KeyBank Credit Agreement requires
us to comply with various covenants, including among other things, financial
covenants to maintain a ratio of consolidated net debt to adjusted EBITDA not to
exceed 3.25 to 1, and a consolidated fixed charge coverage ratio not to exceed
1.5 to 1 and a limit on capital expenditures (excluding acquisitions) in any
fiscal year to an amount not to exceed $30.0 million. As of April 3, 2010, we
were in compliance with all such covenants.
25
The KeyBank Credit Agreement allows us
to, among other things, make distributions to shareholders, repurchase our
stock, incur other debt or liens, or acquire or dispose of assets provided that
we comply with certain requirements and limitations of the credit agreement. Our
obligations under the KeyBank Credit Agreement are secured by a pledge of
substantially all of our and RBCA’s assets and a guaranty by us of RBCA’s
obligations.
On
June 26, 2006, we borrowed approximately $79.0 million under the KeyBank
Credit Agreement and used such funds to (i) pay fees and expenses
associated with the KeyBank Credit Agreement and (ii) repay the
approximately $78.0 million balance outstanding under a credit agreement in
place at that time. We recorded a non-cash pre-tax charge of approximately $3.6
million in fiscal 2007 to write off deferred debt issuance costs associated with
the early termination of the Amended Credit Agreement. Deferred financing fees
of $0.9 million associated with the KeyBank Credit Agreement were also recorded
in fiscal 2007.
On September 10, 2007, we entered into
an amendment of the KeyBank Credit Agreement. Pursuant to the terms
of the amendment, the commitment fees payable under the KeyBank Credit Agreement
were decreased from a range of 10 to 27.5 basis points, based on our leverage
ratio (as defined under the KeyBank Credit Agreement) to a range of 7.5 to 20
basis points. Further, the margin payable under the KeyBank Credit
Agreement for revolving loans that are base rate loans, based on
our leverage ratio, was decreased from a range of 0 to 75 basis
points to a range of 0 to 25 basis points. The margin payable under
the KeyBank Credit Agreement for revolving loans that are fixed rate loans,
based on our leverage ratio (as defined under the agreement) was decreased from
a range of 62.5 to 165 basis points to a range of 37.5 to 115 basis
points. Also, the covenant requiring us to limit capital expenditures
(excluding acquisitions) in any fiscal year to an amount not to exceed $20,000
was amended to increase the limit to an amount not to exceed $30,000. As of
April 3, 2010, $37.0 million was outstanding under the KeyBank Credit
Agreement. Approximately $6.0 million of the KeyBank Credit Agreement
is being utilized to provide letters of credit to secure our obligations
relating to certain insurance programs. As of April 3, 2010, we had the ability
to borrow up to an additional $107.0 million under the KeyBank Credit
Agreement.
On October 27, 2008, Schaublin entered
into a new bank credit facility with Credit Suisse which replaced the prior bank
credit facility of December 8, 2003 and its amendment of November 8, 2004. This
facility provides for up to 4.0 million Swiss francs, or $3.8 million, of
revolving credit loans and letters of credit. Borrowings under this facility
bear interest at Credit Suisse’s prevailing prime bank rate. As of April 3,
2010, there were no borrowings under the Swiss Credit Facility.
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.
Cash Flows
Fiscal 2010 Compared to Fiscal
2009
In the fiscal year ended April 3, 2010,
we generated cash of $41.2 million from operating activities compared to
$44.7 million for the fiscal year ended March 28, 2009. The decrease of
$3.5 million was mainly a result of a decrease of $10.1 million in net
income and the net of non-cash charges of $4.1 million offset by a change in
operating assets and liabilities of $10.7 million. The change in working capital
investment was primarily attributable to a decrease in accounts receivable, a
decrease in inventory, a decrease in other non-current assets and an increase in
accounts payable offset by an increase in prepaid expenses and other
current assets, a decrease in accrued expenses and other current liabilities and
a decrease in non-current liabilities.
Cash used for investing activities for
fiscal 2010 included $9.9 million relating to capital expenditures compared to
$27.6 million for fiscal 2009. Investing activities also included $7.2
million for the purchase of short-term investments and $1.9 million related
to the acquisition of Lubron.
In fiscal 2010, financing activities
used $31.4 million, primarily for the paydown of our revolver by
$30.0 million.
26
Fiscal
2009 Compared to Fiscal 2008
In the fiscal year ended March 28,
2009, we generated cash of $44.7 million from operating activities compared
to $27.1 million for the fiscal year ended March 29, 2008. The increase of
$17.6 million was mainly a result of a change in operating assets and
liabilities of $7.4 million and the net of non-cash charges of $15.9 million
offset by a decrease of $5.7 million in net income. The change in working
capital investment was primarily attributable to a decrease in accounts
receivable, a decrease in prepaid expenses and other current assets and an
increase in accounts payable offset by decrease in accrued expenses and other
current liabilities, a decrease in non-current liabilities and an increase in
other non-current assets.
Cash used for investing activities for
fiscal 2009 included $27.6 million relating to capital expenditures compared to
$17.8 million for fiscal 2008. $13.5 million of capital expenditures was
associated with the building of a new wind bearing facility in Texas. Investing
activities also included $6.3 million relating to the acquisition of PIC
Design.
In fiscal 2009, financing activities
provided $9.9 million. We received $26.0 million from an increase in our
revolving credit facility, $0.2 million from the exercise of stock options and
an income tax benefit of $0.1 million related to the exercise of non-qualified
stock options. This was offset by the payoff of IRBs for $15.5 million, the
repurchase of common stock of $0.6 million, capital lease payments of $0.2
million and payments on notes payable of $0.1 million.
Capital
Expenditures
Our capital expenditures in fiscal 2010
were $9.9 million. We expect to make capital expenditures of approximately $9.0
to $12.0 million during fiscal 2011 in connection with our existing business. We
have funded our fiscal 2010 capital expenditures, and expect to fund fiscal 2011
capital expenditures, principally through existing cash, internally generated
funds and borrowings under our KeyBank Credit Agreement. We may also make
substantial additional capital expenditures in connection with
acquisitions.
Obligations and
Commitments
The contractual obligations presented
in the table below represent our estimates of future payments under fixed
contractual obligations and commitments. Changes in our business needs,
cancellation provisions and interest rates, as well as actions by third parties
and other factors, may cause these estimates to change. Because these estimates
are necessarily subjective, our actual payments in future periods are likely to
vary from those presented in the table. The following table summarizes certain
of our contractual obligations and principal and interest payments under our
debt instruments and leases as of April 3, 2010:
|
Payments Due By Period
|
||||||||||||||||||||
|
Contractual Obligations
|
Total
|
Less than
1 Year
|
1 to
3 Years
|
3 to
5 Years
|
More than
5 Years
|
|||||||||||||||
|
(in thousands)
|
||||||||||||||||||||
|
Total
debt(1)
|
$ | 38,453 | $ | 1,453 | $ | 37,000 | $ | — | $ | — | ||||||||||
|
Capital
lease obligations
|
516 | 257 | 205 | 54 | — | |||||||||||||||
|
Operating
leases
|
18,528 | 4,861 | 6,933 | 3,931 | 2,803 | |||||||||||||||
|
Interest
on fixed rate debt(2)
|
1,828 | 1,472 | 355 | 1 | — | |||||||||||||||
|
Interest
on variable rate debt(3)
|
76 | 61 | 15 | — | — | |||||||||||||||
|
Pension
and postretirement benefits
|
18,216 | 1,649 | 3,387 | 3,548 | 9,632 | |||||||||||||||
|
Total
contractual cash obligations
|
$ | 77,617 | $ | 9,753 | $ | 47,895 | $ | 7,534 | $ | 12,435 | ||||||||||
|
(1)
|
Includes
the $37.0 million five-year senior secured revolving credit facility
under our KeyBank Credit Agreement, which
expires on June 24, 2011 and $1.5 million notes
payable.
|
|
(2)
|
Interest
payments are calculated based on a LIBOR rate of 3.64% (per the interest
rate swap agreement) plus the current bank margin per our bank
agreement.
|
|
(3)
|
Interest
payments are calculated based on beginning of period debt balances that
reflect contractual debt amortization over the term of the instruments and
assume a constant LIBOR rate of 0.5% plus bank margin per our KeyBank
Credit Agreement. To the extent that actual rates change, our
interest rate obligations will change
accordingly.
|
27
Quarterly
Results of Operations
|
Quarter Ended
|
||||||||||||||||||||||||||||||||
|
Apr. 3,
2010
|
Dec. 26,
2009
|
Sept. 26,
2009
|
Jun. 27,
2009
|
Mar. 28,
2009
|
Dec. 27,
2008
|
Sept. 27,
2008
|
Jun. 28,
2008
|
|||||||||||||||||||||||||
|
(Unaudited)
(in thousands, except per share data)
|
||||||||||||||||||||||||||||||||
|
Net
sales
|
$ | 79,832 | $ | 67,481 | $ | 63,657 | $ | 63,732 | $ | 83,841 | $ | 85,281 | $ | 94,294 | $ | 92,380 | ||||||||||||||||
|
Gross
margin
|
25,130 | 20,439 | 19,093 | 19,904 | 28,946 | 28,502 | 30,217 | 30,555 | ||||||||||||||||||||||||
|
Operating
income
|
11,515 | 8,139 | 7,237 | 7,779 | 9,961 | 12,795 | 15,168 | 17,046 | ||||||||||||||||||||||||
|
Net
income
|
$ | 9,665 | $ | 5,249 | $ | 4,404 | $ | 5,067 | $ | 6,483 | $ | 7,700 | $ | 9,588 | $ | 10,683 | ||||||||||||||||
|
Net
income per common share:
|
||||||||||||||||||||||||||||||||
|
Basic(1)(2)
|
$ | 0.45 | $ | 0.24 | $ | 0.20 | $ | 0.23 | $ | 0.30 | $ | 0.36 | $ | 0.44 | $ | 0.50 | ||||||||||||||||
|
Diluted(1)(2)
|
$ | 0.44 | $ | 0.24 | $ | 0.20 | $ | 0.23 | $ | 0.30 | $ | 0.35 | $ | 0.44 | $ | 0.49 | ||||||||||||||||
|
(1)
|
See
Part II, Item 8. “Financial Statements and Supplementary Data,”
Note 2 “Summary of Significant Accounting Policies-Net Income Per
Common Share.”
|
|
(2)
|
Net
income per common share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not
necessarily equal the total for the
year.
|
Critical
Accounting Policies
Our discussion and analysis of our
financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with U.S. generally
accepted accounting principles. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to product returns, bad debts, inventories,
recoverability of intangible assets, income taxes, financing operations,
pensions and other postretirement benefits and contingencies and litigation. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
We believe the following critical
accounting policies affect our more significant judgments and estimates used in
the preparation of our consolidated financial statements.
Revenue
Recognition. We recognize revenue in accordance with
SEC Staff Accounting Bulletin 101 "Revenue Recognition in Financial
Statements as amended by Staff Accounting Bulletin 104.” We recognize
revenue upon the passage of title on the sale of manufactured goods, which
generally is at time of shipment.
Accounts
Receivable. We are required to estimate the collectibility of
our accounts receivable, which requires a considerable amount of judgment in
assessing the ultimate realization of these receivables, including the current
credit-worthiness of each customer. Changes in required reserves may occur in
the future as conditions in the marketplace change.
Inventory. Inventories
are stated at the lower of cost or market value. Cost is principally determined
by the first-in, first-out method. We account for inventory under a full
absorption method. We record adjustments to the value of inventory based upon
past sales history and forecasted plans to sell our inventories. The physical
condition, including age and quality, of the inventories is also considered in
establishing its valuation. These adjustments are estimates, which could vary
significantly, either favorably or unfavorably, from actual requirements if
future economic conditions, customer inventory levels or competitive conditions
differ from our expectations.
Goodwill. Goodwill
(representing the excess of the amount paid to acquire a company over the
estimated fair value of the net assets acquired) and intangible assets with
indefinite useful lives are not amortized but instead are tested for impairment
annually (performed by us during the fourth quarter of each fiscal year), or
when events or circumstances indicate that its value may have declined. This
determination of any goodwill impairment is made at the reporting unit level and
consists of two steps. First, we determine the fair value of a reporting unit
and compare it to our carrying amount. Second, if the carrying amount of the
reporting unit exceeds its fair value, an impairment loss is recognized for any
excess of the carrying amount of the reporting unit's goodwill over the
goodwill's implied fair value. The fair value of our reporting units is
calculated by the combination of a present value of future cash flow method and
a multiple of EBITDA method. Although no changes are expected as a result of the
comparison, if the assumptions management makes regarding estimated cash flows
are less favorable than expected, we may be required to record an impairment
charge in the future.
28
Income Taxes. As
part of the process of preparing the consolidated financial statements, we are
required to estimate the income taxes in each jurisdiction in which we operate.
This process involves estimating the actual current tax liabilities together
with assessing temporary differences resulting from the differing treatment of
items for tax and financial reporting purposes. These differences result in
deferred tax assets and liabilities, which are included in the Consolidated
Balance Sheet. We must then assess the likelihood that the deferred tax assets
will be recovered, and to the extent that we believe that recovery is not more
than likely, we are required to establish a valuation allowance. If a valuation
allowance is established or increased during any period, we are required to
include this amount as an expense within the tax provision in the Consolidated
Statements of Operations. Significant judgment is required in determining our
provision for income taxes, deferred tax assets and liabilities, accrual for
uncertain tax positions and any valuation allowance recognized against net
deferred tax assets.
Pension Plan and Postretirement
Health Care. We have a noncontributory defined benefit pension
plan covering union employees in our Heim division plant in Fairfield,
Connecticut, our Bremen subsidiary plant in Plymouth, Indiana
and former union employees of our Tyson subsidiary in Glasgow,
Kentucky and Nice subsidiary in Kulpsville, Pennsylvania.
Our pension plan funding policy is to
make the minimum annual contribution required by the Employee Retirement Income
Security Act of 1974. Plan obligations and annual pension expense are
determined by independent actuaries using a number of assumptions provided by us
including assumptions about employee demographics, retirement age, compensation
levels, pay rates, turnover, expected long-term rate of return on plan assets,
discount rate and the amount and timing of claims. Each plan assumption reflects
our best estimate of the plan's future experience. The most sensitive assumption
in the determination of plan obligations for pensions is the discount rate. The
discount rate that we use for determining future pension obligations is based on
a review of long-term bonds that receive one of the two highest ratings given by
a recognized rating agency. The discount rate determined on this basis has
increased from 6.25% at March 29, 2008 to 7.00% at March 28, 2009 and decreased
to 6.00% at April 3, 2010. In developing the overall expected long-term rate of
return on plan assets assumption, a building block approach was used in which
rates of return in excess of inflation were considered separately for equity
securities and debt securities. The excess returns were weighted by the
representative target allocation and added along with an appropriate rate of
inflation to develop the overall expected long-term rate of return on plan
assets assumption. The expected long-term rate of return on the assets of our
pension plan was 8.25% in fiscal 2010 and 8.50% in fiscal 2009.
Lowering the discount rate assumption
used to determine net periodic pension cost by 1.00% (from 7.00%
to 6.00%) would have increased our pension expense for fiscal 2010 by
approximately $0.2 million. Increasing the discount rate assumption used to
determine net periodic pension cost by 1.00% (from 7.00% to 8.00%)
would have had no impact on our pension expense for fiscal 2010.
Lowering the expected long-term rate of
return on the assets of our pension plan by 1.00% (from 8.25% to 7.25%)
would have increased our pension expense for fiscal 2010 by approximately $0.2
million. Increasing the expected long-term rate of return on the assets of our
pension plan by 1.00% (from 8.25% to 9.25%) would have reduced our
pension expense for fiscal 2010 by approximately $0.2 million.
Lowering the discount rate assumption
used to determine the funded status as of April 3, 2010 by 1.00% (from
6.00% to 5.00%) would have increased the projected benefit obligation of
our pension plans by approximately $2.3 million. Increasing the discount
rate assumption used to determine the funded status as of April 3, 2010
by 1.00% (from 6.00% to 7.00%) would have reduced the projected
benefit obligation of our pension plans by approximately
$2.0 million.
Our investment program objective is to
achieve a rate of return on plan assets which will fund the plan liabilities and
provide for required benefits while avoiding undue exposure to risk to the plan
and increases in funding requirements. Our actual target allocation of plan
assets was 100 percent short-term investments as of April 3, 2010 and March
28, 2009. In our opinion, there is still uncertainty in the global equity and
debt markets and the global financial system. We have developed a new asset
allocation strategy for fiscal 2011 and beyond based on a 60% to 80% equity
allocation and 20% to 40% fixed income allocation, but until we see
stabilization in the global financial markets, we will continue to be vested
100% in short-term investments.
Stock-Based Compensation. The
Company recognizes compensation cost relating to all share-based payment
transactions in the financial statements based upon the grant-date fair value of
the instruments issued over the requisite service period.
29
The fair value for our options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions:
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Dividend
yield
|
0.0 | % | 0.0 | % | 0.0 | % | ||||||
|
Expected
weighted-average life (yrs.)
|
4.7 | 4.5 | 5.0 | |||||||||
|
Risk-free
interest rate
|
2.25 | % | 1.78 | % | 5.0 | % | ||||||
|
Expected
volatility
|
39.8 | % | 42.8 | % | 35.4 | % | ||||||
The Black-Scholes option pricing model
was developed for use in estimating the fair value of traded options which have
no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions, including
the expected stock price volatility. Because our options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, the
existing models do not necessarily provide a reliable single measure of the fair
value of our options.
Derivative
Instruments. We recognize all derivatives on the balance sheet
at fair value. Derivatives that are not designated as hedges must be adjusted to
fair value through earnings. If the derivative is designated and qualifies as a
hedge, depending on the nature of the hedge, changes in the fair value of the
derivative is either offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive loss until the hedged item is recognized in earnings. In fiscal
2008, we entered into an interest rate swap agreement to hedge a portion of our
debt. This instrument qualifies as a cash flow hedge. Accordingly, the gain or
loss on both the hedging instrument and the hedged item attributable to the
hedged risk are recognized currently in other comprehensive income
(loss).
Impact
of Inflation, Changes in Prices of Raw Materials and Interest Rate
Fluctuations
To date, inflation in the economy as a
whole has not significantly affected our operations. However, we purchase steel
at market prices, which fluctuate as a result of supply and demand in the
marketplace. To date, we have generally been able to pass through these price
increases through price increases on our products, the assessment of steel
surcharges on our customers or entry into long-term agreements with our
customers which often contain escalator provisions tied to our invoiced price of
steel. However, even if we are able to pass these steel surcharges or price
increases to our customers, there may be a time lag of up to 3 months or more
between the time a price increase goes into effect and our ability to implement
surcharges or price increases, particularly for orders already in our backlog.
As a result, our gross margin percentage may decline, and we may not be able to
implement other price increases for our products.
Competitive pressures and the terms of
certain of our long-term contracts may require us to absorb at least part of
these cost increases, particularly during periods of high inflation. Our
principal raw material is 440c and 52100 wire and rod steel (types of stainless
and chrome steel), which has historically been readily available. We have never
experienced a work stoppage due to a supply shortage. We maintain multiple
sources for raw materials including steel and have various supplier agreements.
Through sole-source arrangements, supplier agreements and pricing, we have been
able to minimize our exposure to fluctuations in raw material
prices.
Our suppliers and sources of raw
materials are based in the U.S., Europe and Asia. We believe that our
sources are adequate for our needs in the foreseeable future, that there exist
alternative suppliers for our raw materials and that in most cases readily
available alternative materials can be used for most of our raw
materials.
Because we have indebtedness which
bears interest at floating rates, our financial results will be sensitive to
changes in prevailing market rates of interest. As of April 3, 2010, we had
$38.5 million of indebtedness outstanding, of which $7.0 million bore interest
at floating rates after taking into account an interest rate swap agreement that
we entered into to mitigate the effect of interest rate fluctuations. Under this
agreement, we pay a fixed rate of interest of 3.64% and receive floating rates
of interest based on one month LIBOR, as required. This agreement matures on
June 24, 2011. Depending upon market conditions, we may enter into additional
interest swap or hedge agreements (with counterparties that, in our judgment,
have sufficient credit worthiness) to hedge our exposure against interest rate
volatility.
30
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We are exposed to market risks, which
arise during the normal course of business from changes in interest rates and
foreign currency exchange rates.
Interest Rates. We
are exposed to market risk from changes in the interest rates on a significant
portion of our outstanding indebtedness. Outstanding balances under
our KeyBank Credit Agreement generally bear interest at the prime rate or LIBOR
(the London inter-bank offered rate for deposits in U.S. dollars for the
applicable LIBOR period) plus a specified margin, depending on the type of
borrowing being made. The applicable margin is based on our
consolidated ratio of net debt to adjusted EBITDA from time to time. As of April
3, 2010, our margin is 0.0% for prime rate loans (prime rate at April 3, 2010
was 3.25%) and 0.625% for LIBOR rate loans (one month LIBOR rate at April 3,
2010 was 0.25%).
Our interest rate risk management
objective is to limit the impact of interest rate changes on our net income and
cash flow. To achieve our objective, we regularly evaluate the amount of our
variable rate debt as a percentage of our aggregate debt. During fiscal 2010 and
2009, our average outstanding variable rate debt, after taking into account the
average outstanding notational amount of our interest rate swap agreement, was
18% and 54% of our average outstanding debt, respectively. We manage a
significant portion of our exposure to interest rate fluctuations in our
variable rate debt through an interest rate swap agreement. This agreement
effectively converts interest rate exposure from variable rates to fixed rates
of interest. Please read Part II, Item 8. “Financial Statements and
Supplementary Data” Note 2 “Summary of Significant Accounting
Policies-Derivative Financial Instruments” and Note 11
“Debt” included elsewhere in this Annual Report on Form 10-K which
outline the principal and notional interest rates, fair values and other terms
required to evaluate the expected cash flow from this agreement.
Based on the outstanding amount of our
variable rate indebtedness of $7.0 million, a 100 basis point change in interest
rate would have changed our interest expense by $0.1 million per year, after
taking into account the $30.0 million notional amount of our interest rate swap
agreement at April 3, 2010.
Foreign Currency Exchange
Rates. As a result of our operations in
Europe, we are exposed to risk associated with fluctuating currency
exchange rates between the U.S. dollar, the Euro, the Swiss Franc and the
British Pound Sterling. Our Swiss operations utilize the Swiss Franc as the
functional currency, our French operations utilize the Euro as the functional
currency and our English operations utilize the British Pound Sterling as the
functional currency. Foreign currency transaction gains and losses are included
in earnings. Approximately 15% of our net sales were denominated in foreign
currencies for fiscal 2010 and 2009, respectively. We expect that this
proportion is likely to increase as we seek to increase our penetration of
foreign markets, particularly within the aerospace and defense markets. Foreign
currency transaction exposure arises primarily from the transfer of foreign
currency from one subsidiary to another within the group, and to foreign
currency denominated trade receivables. Unrealized currency translation gains
and losses are recognized upon translation of the foreign subsidiaries’ balance
sheets to U.S. dollars. Because our financial statements are denominated in
U.S. dollars, changes in currency exchange rates between the
U.S. dollar and other currencies have had, and will continue to have, an
impact on our earnings. We currently do not have exchange rate hedges in place
to reduce the risk of an adverse currency exchange movement. Although currency
fluctuations have not had a material impact on our financial performance in the
past, such fluctuations may materially affect our financial performance in the
future. The impact of future exchange rate fluctuations on our results of
operations cannot be accurately predicted.
Off-Balance
Sheet Arrangements
We have no off-balance sheet
arrangements.
31
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
of RBC
Bearings Incorporated
We have audited the accompanying
consolidated balance sheets of RBC Bearings Incorporated as of April 3, 2010 and
March 28, 2009, and the related consolidated statements of operations,
stockholders’ equity and comprehensive income, and cash flows for each of the
three years in the period ended April 3, 2010. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of RBC Bearings Incorporated at April 3, 2010
and March 28, 2009, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended April 3, 2010, in
conformity with U.S. generally accepted accounting principles.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of RBC Bearings
Incorporated’s internal control over financial reporting as of April 3, 2010,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated June 2, 2010 expressed an unqualified opinion thereon.
|
/s/
Ernst & Young LLP
|
Hartford,
Connecticut
June 2,
2010
32
RBC
Bearings Incorporated
Consolidated
Balance Sheets
(dollars
in thousands, except share and per share data)
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 21,389 | $ | 30,557 | ||||
|
Short-term
investments
|
7,234 | — | ||||||
|
Accounts
receivable, net of allowance for doubtful accounts of $1,242 in 2010
and $1,571 in 2009
|
53,978 | 63,692 | ||||||
|
Inventory
|
136,366 | 134,275 | ||||||
|
Deferred
income taxes
|
6,249 | 6,677 | ||||||
|
Prepaid
expenses and other current assets
|
9,287 | 8,912 | ||||||
|
Total
current assets
|
234,503 | 244,113 | ||||||
|
Property,
plant and equipment, net
|
89,537 | 87,697 | ||||||
|
Goodwill
|
34,713 | 32,999 | ||||||
|
Intangible
assets, net of accumulated amortization of $6,354 in 2010 and $5,035
in 2009
|
12,665 | 12,673 | ||||||
|
Other
assets
|
4,537 | 4,585 | ||||||
|
Total
assets
|
$ | 375,955 | $ | 382,067 | ||||
See
accompanying notes.
33
RBC
Bearings Incorporated
Consolidated
Balance Sheets (continued)
(dollars
in thousands, except share and per share data)
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 18,897 | $ | 20,525 | ||||
|
Accrued
expenses and other current liabilities
|
11,439 | 16,533 | ||||||
|
Current
portion of long-term debt
|
1,453 | 1,151 | ||||||
|
Total
current liabilities
|
31,789 | 38,209 | ||||||
|
Long-term
debt, less current portion
|
37,000 | 67,000 | ||||||
|
Deferred
income taxes
|
5,922 | 6,341 | ||||||
|
Other
non-current liabilities
|
17,697 | 14,506 | ||||||
|
Total
liabilities
|
92,408 | 126,056 | ||||||
|
Commitments
and contingencies (Note 17)
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Preferred
stock, $.01 par value; authorized shares: 10,000,000 in 2010 and 2009;
none issued and outstanding
|
— | — | ||||||
|
Common
stock, $.01 par value; authorized shares: 60,000,000 in 2010 and 2009;
issued and outstanding shares: 21,902,761 in 2010 and 21,838,486 in
2009
|
219 | 218 | ||||||
|
Additional
paid-in capital
|
189,496 | 187,139 | ||||||
|
Accumulated
other comprehensive (loss)
|
(1,672 | ) | (3,327 | ) | ||||
|
Retained
earnings
|
100,527 | 76,142 | ||||||
|
Treasury
stock, at cost, 170,338 shares in 2010 and 132,230 shares in
2009
|
(5,023 | ) | (4,161 | ) | ||||
|
Total
stockholders' equity
|
283,547 | 256,011 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 375,955 | $ | 382,067 | ||||
See
accompanying notes.
34
RBC
Bearings Incorporated
Consolidated
Statements of Operations
(dollars
in thousands, except share and per share data)
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Net
sales
|
$ | 274,702 | $ | 355,796 | $ | 330,600 | ||||||
|
Cost
of sales
|
190,136 | 237,576 | 217,022 | |||||||||
|
Gross
margin
|
84,566 | 118,220 | 113,578 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Selling,
general and administrative
|
47,367 | 55,779 | 48,904 | |||||||||
|
Other,
net
|
2,529 | 7,471 | 1,824 | |||||||||
|
Total
operating expenses
|
49,896 | 63,250 | 50,728 | |||||||||
|
Operating
income
|
34,670 | 54,970 | 62,850 | |||||||||
|
Interest
expense, net
|
1,807 | 2,605 | 3,407 | |||||||||
|
Loss
on early extinguishment of debt
|
— | 319 | 27 | |||||||||
|
Other
non-operating expense (income)
|
(147 | ) | 645 | (463 | ) | |||||||
|
Income
before income taxes
|
33,010 | 51,401 | 59,879 | |||||||||
|
Provision
for income taxes
|
8,625 | 16,947 | 19,685 | |||||||||
|
Net
income
|
$ | 24,385 | $ | 34,454 | $ | 40,194 | ||||||
|
Net
income per common share:
|
||||||||||||
|
Basic
|
$ | 1.13 | $ | 1.60 | $ | 1.87 | ||||||
|
Diluted
|
$ | 1.12 | $ | 1.58 | $ | 1.84 | ||||||
|
Weighted
average common shares:
|
||||||||||||
|
Basic
|
21,590,421 | 21,570,979 | 21,457,846 | |||||||||
|
Diluted
|
21,747,082 | 21,738,812 | 21,802,711 | |||||||||
See
accompanying notes.
35
RBC
Bearings Incorporated
Consolidated
Statements of Stockholders' Equity and Comprehensive Income
(dollars
in thousands)
|
Common Stock
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Retained
Earnings
(Accumulated
|
Treasury Stock
|
Total
Stockholders'
|
Comprehensive
|
||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Income/(Loss)
|
Deficit)
|
Shares
|
Amount
|
Equity
|
Income
|
||||||||||||||||||||||||||||
|
Balance
at March 31, 2007
|
21,408,994 | $ | 214 | $ | 169,489 | $ | (2,206 | ) | $ | 1,724 | (37,356 | ) | $ | (1,050 | ) | $ | 168,171 | |||||||||||||||||||
|
Net
income
|
— | — | — | — | 40,194 | — | — | 40,194 | $ | 40,194 | ||||||||||||||||||||||||||
|
Repurchase
of common stock
|
— | — | — | — | — | (70,367 | ) | (2,308 | ) | (2,308 | ) | |||||||||||||||||||||||||
|
Stock-based
compensation
|
— | — | 1,255 | — | — | — | — | 1,255 | ||||||||||||||||||||||||||||
|
Exercise
of equity awards
|
323,942 | 3 | 4,036 | — | — | (5,599 | ) | (235 | ) | 3,804 | ||||||||||||||||||||||||||
|
Change
in net prior service cost and actuarial losses, net of tax benefit of
$199
|
— | — | — | (322 | ) | — | — | — | (322 | ) | (322 | ) | ||||||||||||||||||||||||
|
Issuance
of restricted stock
|
49,250 | 1 | — | — | — | — | — | 1 | ||||||||||||||||||||||||||||
|
Change
in fair value of derivatives, net of tax benefit of
$288
|
— | — | — | (464 | ) | — | — | — | (464 | ) | (464 | ) | ||||||||||||||||||||||||
|
Income
tax benefit on exercise of non-qualified common stock
options
|
— | — | 9,505 | — | — | — | — | 9,505 | ||||||||||||||||||||||||||||
|
Currency translation
adjustments
|
— | — | — | 4,304 | — | — | — | 4,304 | 4,304 | |||||||||||||||||||||||||||
|
Adoption
of uncertainty in income tax position guidance
|
— | — | — | — | (230 | ) | — | — | (230 | ) | ||||||||||||||||||||||||||
|
Comprehensive
income
|
43, 712 | |||||||||||||||||||||||||||||||||||
|
Balance
at March 29, 2008
|
21,782,186 | 218 | 184,285 | 1,312 | 41,688 | (113,322 | ) | (3,593 | ) | 223,910 | ||||||||||||||||||||||||||
|
Net
income
|
— | — | — | — | 34,454 | — | — | 34,454 | 34,454 | |||||||||||||||||||||||||||
|
Repurchase
of common stock
|
— | — | — | — | — | (10,000 | ) | (336 | ) | (336 | ) | |||||||||||||||||||||||||
|
Stock-based
compensation
|
— | — | 2,502 | — | — | — | — | 2,502 | ||||||||||||||||||||||||||||
|
Exercise
of equity awards
|
12,800 | — | 253 | — | — | (8,908 | ) | (232 | ) | 21 | ||||||||||||||||||||||||||
|
Change
in net prior service cost and actuarial losses, net of taxes of
$144
|
— | — | — | 233 | — | — | — | 233 | 233 | |||||||||||||||||||||||||||
|
Issuance
of restricted stock
|
43,500 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
|
Change
in fair value of derivatives, net of tax benefit of
$360
|
— | — | — | (582 | ) | — | — | — | (582 | ) | (582 | ) | ||||||||||||||||||||||||
|
Income
tax benefit on exercise of non-qualified common stock
options
|
— | — | 99 | — | — | — | — | 99 | ||||||||||||||||||||||||||||
|
Currency translation
adjustments
|
— | — | — | (4,290 | ) | — | — | — | (4,290 | ) | (4,290 | ) | ||||||||||||||||||||||||
|
Comprehensive
income
|
29,815 | |||||||||||||||||||||||||||||||||||
|
Balance
at March 28, 2009
|
21,838,486 | 218 | 187,139 | (3,327 | ) | 76,142 | (132,230 | ) | (4,161 | ) | 256,011 | |||||||||||||||||||||||||
|
Net
income
|
— | — | — | — | 24,385 | — | — | 24,385 | 24,385 | |||||||||||||||||||||||||||
|
Repurchase
of common stock
|
— | — | — | — | — | (24,400 | ) | (565 | ) | (565 | ) | |||||||||||||||||||||||||
|
Stock-based
compensation
|
— | — | 3,182 | — | — | — | — | 3,182 | ||||||||||||||||||||||||||||
|
Exercise
of equity awards
|
23,275 | — | 323 | — | — | (13,708 | ) | (297 | ) | 26 | ||||||||||||||||||||||||||
|
Change
in net prior service cost and actuarial losses, net of taxes of
$1,301
|
— | — | — | (2,189 | ) | — | — | — | (2,189 | ) | (2,189 | ) | ||||||||||||||||||||||||
|
Issuance
of restricted stock
|
41,000 | 1 | (1 | ) | — | — | — | — | — | |||||||||||||||||||||||||||
|
Adjusted
tax benefit from IRS settlement
|
— | — | (1,060 | ) | — | — | — | — | (1,060 | ) | ||||||||||||||||||||||||||
|
Change
in fair value of derivatives, net of tax benefit of
$210
|
— | — | — | 353 | — | — | — | 353 | 353 | |||||||||||||||||||||||||||
|
Income
tax benefit on exercise of non-qualified common stock
options
|
— | — | (87 | ) | — | — | — | — | (87 | ) | ||||||||||||||||||||||||||
|
Unrealized
gain on investments, net of taxes of $46
|
— | — | — | 79 | — | — | — | 79 | 79 | |||||||||||||||||||||||||||
|
Currency translation
adjustments
|
— | — | — | 3,412 | — | — | — | 3,412 | 3,412 | |||||||||||||||||||||||||||
|
Comprehensive
income
|
$ | 26,040 | ||||||||||||||||||||||||||||||||||
|
Balance
at April 3, 2010
|
21,902,761 | $ | 219 | $ | 189,496 | $ | (1,672 | ) | $ | 100,527 | (170,338 | ) | $ | (5,023 | ) | $ | 283,547 | |||||||||||||||||||
See
accompanying notes.
36
RBC
Bearings Incorporated
Consolidated
Statements of Cash Flows
(dollars
in thousands)
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income
|
$ | 24,385 | $ | 34,454 | $ | 40,194 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
|
10,497 | 10,592 | 9,211 | |||||||||
|
Excess
tax benefits from stock-based compensation
|
87 | (99 | ) | (9,505 | ) | |||||||
|
Deferred
income taxes
|
1,082 | 123 | 1,110 | |||||||||
|
Amortization
of intangible assets
|
1,333 | 1,568 | 1,254 | |||||||||
|
Amortization
of deferred financing costs and debt discount
|
209 | 234 | 229 | |||||||||
|
Stock-based
compensation
|
3,182 | 2,502 | 1,255 | |||||||||
|
Loss
on disposition of assets
|
200 | 4,383 | 131 | |||||||||
|
Loss
on early extinguishment of debt (non-cash portion)
|
— | 319 | 27 | |||||||||
|
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||||||
|
Accounts
receivable
|
9,570 | 1,487 | (6,241 | ) | ||||||||
|
Inventory
|
(612 | ) | (11,056 | ) | (11,737 | ) | ||||||
|
Prepaid
expenses and other current assets
|
(341 | ) | 1,087 | (6,996 | ) | |||||||
|
Other
non-current assets
|
(1,155 | ) | (1,446 | ) | (2,189 | ) | ||||||
|
Accounts
payable
|
(2,131 | ) | (3,959 | ) | 341 | |||||||
|
Accrued
expenses and other current liabilities
|
(6,281 | ) | 2,877 | 6,553 | ||||||||
|
Other
non-current liabilities
|
1,128 | 1,675 | 3,440 | |||||||||
|
Net
cash provided by operating activities
|
41,153 | 44,741 | 27,077 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchase
of property, plant and equipment
|
(9,906 | ) | (27,583 | ) | (17,758 | ) | ||||||
|
Purchase
of short-term investments
|
(7,219 | ) | — | — | ||||||||
|
Acquisition
of businesses, net of cash acquired
|
(1,943 | ) | (6,325 | ) | (13,896 | ) | ||||||
|
Proceeds
from sale of assets
|
15 | 568 | 43 | |||||||||
|
Net
cash used in investing activities
|
(19,053 | ) | (33,340 | ) | (31,611 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Net
increase (decrease) in revolving credit facility
|
(30,000 | ) | 26,000 | (1,000 | ) | |||||||
|
Repurchase
of common stock
|
(862 | ) | (569 | ) | (2,542 | ) | ||||||
|
Exercise
of stock options
|
323 | 253 | 4,038 | |||||||||
|
Excess
tax benefits from stock-based compensation
|
(87 | ) | 99 | 9,505 | ||||||||
|
Payments
of notes payable
|
(473 | ) | (99 | ) | — | |||||||
|
Retirement
of industrial revenue bonds
|
— | (15,500 | ) | (1,155 | ) | |||||||
|
Other,
net
|
(289 | ) | (262 | ) | (254 | ) | ||||||
|
Net
cash (used in) provided by financing activities
|
(31,388 | ) | 9,922 | 8,592 | ||||||||
|
Effect
of exchange rate changes on cash
|
120 | (625 | ) | 617 | ||||||||
|
Cash
and cash equivalents:
|
||||||||||||
|
Increase
(decrease) during the year
|
(9,168 | ) | 20,698 | 4,675 | ||||||||
|
Cash,
at beginning of year
|
30,557 | 9,859 | 5,184 | |||||||||
|
Cash,
at end of year
|
$ | 21,389 | $ | 30,557 | $ | 9,859 | ||||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||||
|
Cash
paid during the year for:
|
||||||||||||
|
Interest
|
$ | 1,703 | $ | 2,365 | $ | 3,065 | ||||||
|
Income
taxes
|
$ | 8,704 | $ | 14,856 | $ | 11,396 | ||||||
See
accompanying notes.
37
RBC
Bearings Incorporated
Notes
to Consolidated Financial Statements
(dollars
in thousands, except share and per share data)
|
1.
|
Organization
and Business
|
RBC Bearings Incorporated (the
"Company", collectively with its subsidiaries), is a Delaware corporation. The
Company operates in four reportable business segments—roller bearings, plain
bearings, ball bearings, other and corporate—in which it manufactures roller
bearing components and assembled parts and designs and manufactures
high-precision roller and ball bearings. The Company sells to a wide variety of
original equipment manufacturers ("OEMs") and distributors who are widely
dispersed geographically. In fiscal 2010, 2009 and 2008, no one customer
accounted for more than 8% of the Company's sales. The Company's segments are
further discussed in Part II, Item 8. “Financial Statements and Supplemental
Data,” Note 20 “Reportable Segments.”
|
2.
|
Summary
of Significant Accounting Policies
|
General
The consolidated financial statements
include the accounts of RBC Bearings Incorporated, Roller Bearing Company of
America, Inc. (“RBCA”) and its wholly-owned subsidiaries, Industrial
Tectonics Bearings Corporation (“ITB”), RBC Linear Precision Products, Inc.
(“LPP”), RBC Nice Bearings, Inc. (“Nice”), RBC Precision Products -
Bremen, Inc. (“Bremen (MBC)”), RBC Precision Products - Plymouth, Inc.
(“Plymouth”), RBC Lubron Bearings Systems, Inc. (“Lubron”), Schaublin Holdings
S.A. and its wholly-owned subsidiaries (“Schaublin”), RBC de Mexico S DE RL DE
CV (“Mexico”), RBC Oklahoma, Inc. (“RBC Oklahoma”), RBC Aircraft
Products, Inc. (“API”), Shanghai Representative office of Roller Bearing
Company of America, Inc. (“RBC Shanghai”), RBC Southwest Products, Inc. (“SWP”),
All Power Manufacturing Co. (“All Power”), RBC Bearings U.K. Limited and its
wholly-owned subsidiary Phoenix Bearings Limited (“Phoenix”) and RBC CBS Coastal
Bearing Services LLC (“CBS”), as well as its Transport Dynamics (“TDC”), Heim
(“Heim”), Engineered Components (“ECD”), A.I.D. Company (“AID”), BEMD Company
(“BEMD”) and PIC Design (“PIC Design”) divisions of RBCA. U.S. Bearings (“USB”)
is a division of SWP and Schaublin USA is a division of Nice. All
intercompany balances and transactions have been eliminated in
consolidation.
The Company has a fiscal year
consisting of 52 or 53 weeks, ending on the Saturday closest to March 31.
Based on this policy, fiscal year 2010 contained 53 weeks and fiscal years 2009
and 2008 each contained 52 weeks. The amounts are shown in thousands, unless
otherwise indicated.
The Company has performed a review of
subsequent events through the date of filing.
Use
of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities, at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates are used for, but not limited to, the accounting for the allowance for
doubtful accounts, valuation of inventories, accrued expenses, depreciation and
amortization, income taxes and tax reserves, pension and
postretirement obligations and the valuation of options.
Cash
and Cash Equivalents
The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Inventory
Inventories are stated at the lower of
cost or market, using the first-in, first-out method. A reserve against
inventory is recorded for obsolete and slow-moving inventory within each class
of inventory.
38
Shipping
and Handling
The sales price billed to customers
includes shipping and handling, which is included in net sales. The costs to the
Company for shipping and handling are included in cost of sales.
Property,
Plant and Equipment
Property, plant and equipment are
recorded at cost. Depreciation and amortization of property, plant and
equipment, including equipment under capital leases, is provided for by the
straight-line method over the estimated useful lives of the respective assets or
the lease term, if shorter. Depreciation of assets under capital leases is
reported within depreciation and amortization. The cost of equipment under
capital leases is equal to the lower of the net present value of the minimum
lease payments or the fair market value of the leased equipment at the inception
of the lease. Expenditures for normal maintenance and repairs are charged to
expense as incurred.
The estimated useful lives of the
Company's property, plant and equipment follows:
|
Buildings
|
20-30
years
|
|
Machinery
and equipment
|
3-15
years
|
|
Leasehold
improvements
|
Shorter
of the term of lease or estimated useful
life
|
Recognition
of Revenue and Accounts Receivable and Concentration of Credit Risk
The Company recognizes revenue only
after the following four basic criteria are met:
|
|
·
|
Persuasive
evidence of an arrangement exists;
|
|
|
·
|
Delivery
has occurred or services have been
rendered;
|
|
|
·
|
The
seller's price to the buyer is fixed or determinable;
and
|
|
|
·
|
Collectibility
is reasonably assured.
|
Revenue is recognized upon the passage
of title, which generally is at the time of shipment. Accounts receivable, net
of applicable allowances, is recorded when goods are shipped.
The Company sells to a large number of
OEMs and distributors who service the aftermarket. The Company's credit
risk associated with accounts receivable is minimized due to its customer base
and wide geographic dispersion. The Company performs ongoing credit evaluations
of its customers' financial condition and generally does not require collateral
or charge interest on outstanding amounts. The Company had no concentrations of
credit risk with any one customer greater than 6% and 12% of accounts
receivables at April 3, 2010 and March 28, 2009, respectively.
Short-Term
Investments
The Company holds investments in high
grade corporate bonds which are classified in the accompanying consolidated
balance sheets based upon the long or short term nature of the investment and
the Company’s intent and ability to hold to maturity. Investment returns
comprise dividends, interest, and gains and losses. The investments are required
to be recorded at fair value and are classified as available for sale, with all
unrealized gains and losses included in accumulated other comprehensive income,
net of applicable taxes and other adjustments. We regularly review investment
securities for impairment using both qualitative and quantitative
criteria.
Allowance
for Doubtful Accounts
The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. The Company reviews the collectibility of
its receivables on an ongoing basis taking into account a combination of
factors. The Company reviews potential problems, such as past due accounts, a
bankruptcy filing or deterioration in the customer's financial condition, to
ensure the Company is adequately accrued for potential loss. Accounts are
considered past due based on when payment was originally due. If a customer's
situation changes, such as a bankruptcy or creditworthiness, or there is a
change in the current economic climate, the Company may modify its estimate of
the allowance for doubtful accounts. The Company will write-off accounts
receivable after reasonable collection efforts have been made and the accounts
are deemed uncollectible.
39
Goodwill
Goodwill (representing the excess of
the amount paid to acquire a company over the estimated fair value of the net
assets acquired) and intangible assets with indefinite useful lives are not
amortized but instead are tested for impairment annually, or when events or
circumstances indicate that its value may have declined. This determination of
any goodwill impairment is made at the reporting unit level and consists of two
steps. First, the Company determines the fair value of a reporting unit and
compares it to its carrying amount. Second, if the carrying amount of the
reporting unit exceeds its fair value, an impairment loss is recognized for any
excess of the carrying amount of the reporting unit's goodwill over the
goodwill's implied fair value. The fair value of the Company’s reporting units
is calculated by comparing the combination of the net present value of future
cash flows method and a market approach method to the reporting units' carrying
value. The Company utilizes discount rates determined by management to be
similar with the level of risk in its current business model. The Company
performs the annual impairment testing during the fourth quarter of each fiscal
year and has determined that, to date, no impairment of goodwill exists.
Although no changes are expected, if the actual results of the Company are less
favorable than the assumptions the Company makes regarding estimated cash flows,
the Company may be required to record an impairment charge in the
future.
Deferred
Financing Costs
Deferred financing costs are amortized
by the effective interest method over the lives of the related credit
agreements.
Derivative
Financial Instruments
The Company utilizes a derivative
financial instrument to manage a portion of its interest rate exposure. The
Company does not engage in other uses of these financial instruments. For a
financial instrument to qualify as a hedge, the Company must be exposed to
interest rate or price risk, and the financial instrument must reduce the
exposure and be designated as a hedge. Financial instruments qualifying for
hedge accounting must maintain a high correlation between the hedging instrument
and the item being hedged, both at inception and throughout the hedged
period. The Company must measure the effectiveness of the hedging
relationship at the inception of the hedge and on an on-going
basis.
If derivative financial instruments
qualify as fair value hedges, the gain or loss on the instrument and the
offsetting loss or gain on the hedged item attributable to the hedged risk are
recognized in current earnings during the period of the change in fair values.
For derivative financial instruments that qualify as cash flow hedges (i.e.,
hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss on
the derivative instrument is reported as a component of other comprehensive
income and reclassified into earnings in the same period or periods during which
the hedged transaction affects earnings. The ineffective portion of a cash flow
hedge, if any, is determined based on the dollar-offset method (i.e., the gain
or loss on the derivative financial instrument in excess of the cumulative
change in the present value of future cash flows of the hedged item) and is
recognized in current earnings during the period of change. As long as hedge
effectiveness is maintained, interest rate swap arrangements and foreign
currency exchange agreements qualify for hedge accounting as cash flow
hedges.
All derivatives are to be recorded in
the Consolidated Balance Sheets at their fair values. Changes in fair values of
derivatives are recorded in each period in comprehensive income, since the
derivative is designated and qualifies as a cash flow hedge.
Income
Taxes
The Company accounts for income taxes
using the liability method, which requires it to recognize a current tax
liability or asset for current taxes payable or refundable and a deferred tax
liability or asset for the estimated future tax effects of temporary differences
between the financial statement and tax reporting bases of assets and
liabilities to the extent that they are realizable. Deferred tax expense
(benefit) results from the net change in deferred tax assets and liabilities
during the year. A valuation allowance is recorded to reduce deferred tax assets
to the amount that is more likely than not to be realized.
Temporary differences relate primarily
to the timing of deductions for depreciation, goodwill amortization relating to
the acquisition of operating divisions, basis differences arising from
acquisition accounting, pension and retirement benefits, and various accrued and
prepaid expenses. Deferred tax assets and liabilities are recorded at the rates
expected to be in effect when the temporary differences are expected to
reverse.
40
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, dilutive common share equivalents then outstanding using the
treasury stock method. Common share equivalents consist of the incremental
common shares issuable upon the exercise of stock options.
The table below reflects the
calculation of weighted-average shares outstanding for each year presented as
well as the computation of basic and diluted net income per common
share:
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Net
income
|
$ | 24,385 | $ | 34,454 | $ | 40,194 | ||||||
|
Denominator:
|
||||||||||||
|
Denominator
for basic net income per common share—weighted-average
shares
|
21,590,421 | 21,570,979 | 21,457,846 | |||||||||
|
Effect
of dilution due to employee stock options
|
156,661 | 167,833 | 344,865 | |||||||||
|
Denominator
for diluted net income per common share—adjusted weighted-average
shares
|
21,747,082 | 21,738,812 | 21,802,711 | |||||||||
|
Basic
net income per common share
|
$ | 1.13 | $ | 1.60 | $ | 1.87 | ||||||
|
Diluted
net income per common share
|
$ | 1.12 | $ | 1.58 | $ | 1.84 | ||||||
At April 3, 2010, 1,114,700 employee
stock options have been excluded from the calculation of diluted earnings per
share, as the inclusion of these shares would be anti-dilutive.
Impairment
of Long-Lived Assets
The Company assesses the net realizable
value of its long-lived assets and evaluates such assets for impairment whenever
indicators of impairment are present. For amortizable long-lived assets to be
held and used, if indicators of impairment are present, management determines
whether the sum of the estimated undiscounted future cash flows is less than the
carrying amount. The amount of asset impairment, if any, is based on the excess
of the carrying amount over its fair value, which is estimated based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. To date, no indicators of
impairment exist.
Long-lived assets to be disposed of by
sale or other means are reported at the lower of carrying amount or fair value,
less costs to sell.
Foreign
Currency Translation and Transactions
Assets and liabilities of the Company's
foreign operations are translated into U.S. dollars using the exchange rate in
effect at the balance sheet date. Results of operations are translated using the
average exchange rate prevailing throughout the period. The effects of exchange
rate fluctuations on translating foreign currency assets and liabilities into
U.S. dollars are included in accumulated other comprehensive income (loss),
while gains and losses resulting from foreign currency transactions, which were
not material for any of the fiscal years presented, are included in other
non-operating expense (income). Net income of the Company's foreign operations
for fiscal 2010, 2009 and 2008 amounted to $3,310, $6.115 and $6,400,
respectively. Net assets of the Company's foreign operations were $50,241 and
$43,986 at April 3, 2010 and March 28, 2009, respectively.
Fair
Value of Measurements
The Company adopted ACS 820, “Fair
Value Measurement and Disclosure-Overall” (“ASC 820”), as it relates to
financial assets and financial liabilities, on March 30, 2008. ASC 820 defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date (exit price). ACS 820 classifies the inputs used to measure
fair value into a hierarchy consisting of three levels. Level 1 inputs represent
unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 inputs represent unadjusted quoted prices in active markets for similar
assets or liabilities, or unadjusted quoted prices for identical or similar
assets or liabilities in markets that are not active, or inputs other than
quoted prices that are observable for the asset or liability. Level 3 inputs
represent unobservable inputs for the asset or liability. Financial assets and
liabilities are classified in their entirety based on the lowest level of input
that is significant to the fair value measurement.
41
The financial assets and liabilities
that are measured on a recurring basis at April 3, 2010 consist of the Company’s
interest rate swap agreement and short-term investments. The Company has
measured the fair value of the swap agreement using observable market inputs
such as yield curves (as provided by the financial institution with which the
swap has been executed). Based on these inputs, the swap is classified as a
Level 2 of the valuation hierarchy. The fair value of this agreement reflects
the estimated amount that the Company would pay or receive based on the present
value of the expected cash flows derived from market rates and
prices. The fair value of the short-term investments was determined
using quoted prices in active markets for identical assets and are classified as
Level 1 of the valuation hierarchy.
The carrying amounts reported in the
balance sheet for cash, accounts receivable, prepaids and other current assets,
and accounts payable and accruals approximate their fair value due to their
short-term nature.
The carrying amounts of the Company's
borrowings under its KeyBank Credit Agreement and Swiss Credit Facility
approximate fair value, as these obligations have interest rates which vary in
conjunction with current market conditions.
Accumulated
Other Comprehensive Income (Loss)
The components of comprehensive income
(loss) that relate to the Company are net income, derivatives, foreign currency
translation adjustments and pension plan and postretirement benefits, all of
which are presented in the consolidated statements of stockholders' equity and
comprehensive income (loss).
The following summarizes the activity
within each component of accumulated other comprehensive income
(loss):
|
Currency
Translation
|
Fair Value
of
Derivatives
|
Pension and
Postretirement
Liability
|
Investments
|
Total
|
||||||||||||||||
|
Balance
at March 31, 2007
|
$ | (477 | ) | $ | — | $ | (1,729 | ) | $ | — | $ | (2,206 | ) | |||||||
|
Currency
translation
|
4,304 | — | — | — | 4,304 | |||||||||||||||
|
Change
in fair value of derivatives, net of taxes
|
— | (464 | ) | — | — | (464 | ) | |||||||||||||
|
Net
prior service cost and actuarial losses, net of taxes
|
— | — | (322 | ) | — | (322 | ) | |||||||||||||
|
Balance
at March 29, 2008
|
3,827 | (464 | ) | (2,051 | ) | — | 1,312 | |||||||||||||
|
Currency
translation
|
(4,290 | ) | — | — | — | (4,290 | ) | |||||||||||||
|
Change
in fair value of derivatives, net of taxes
|
— | (582 | ) | — | — | (582 | ) | |||||||||||||
|
Net
prior service cost and actuarial losses, net of taxes
|
— | — | 233 | — | 233 | |||||||||||||||
|
Balance
at March 28, 2009
|
(463 | ) | (1,046 | ) | (1,818 | ) | — | (3,327 | ) | |||||||||||
|
Currency
translation
|
3,412 | — | — | — | 3,412 | |||||||||||||||
|
Change
in fair value of derivatives, net of taxes
|
— | 353 | — | — | 353 | |||||||||||||||
|
Net
prior service cost and actuarial losses, net of taxes
|
— | — | (2,189 | ) | — | (2,189 | ) | |||||||||||||
|
Unrealized
gain on investments, net of taxes
|
— | — | — | 79 | 79 | |||||||||||||||
|
Balance
at April 3, 2010
|
$ | 2,949 | $ | (693 | ) | $ | (4,007 | ) | $ | 79 | $ | (1,672 | ) | |||||||
Stock-Based
Compensation
The Company recognizes compensation
cost relating to all share-based payment transactions in the financial
statements based upon the grant-date fair value of the instruments issued over
the requisite service period. The fair value of each option grant was estimated
on the date of grant using the Black-Scholes pricing model.
Recent
Accounting Pronouncements
In June 2009, the FASB issued SFAS No.
168, which was later superseded by the FASB Codification and included in ASC
105-10, “Generally Accepted Accounting Principles – Overall” (“ASC 105-10”). ASC
105-10 establishes the FASB Accounting Standards Codification™ (the
“Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with U.S. GAAP. The Codification does not
change current U.S. GAAP, but is intended to simplify user access to all
authoritative U.S. GAAP by providing all the authoritative literature related to
a particular topic in one place. The Codification is effective for interim and
annual periods ending after September 15, 2009, and as of the effective date,
all existing accounting standard documents will be superseded. The Codification
became effective for the Company in the quarter ended September 26, 2009.
Accordingly, all subsequent public filings reference the Codification as the
sole source of authoritative literature. The new pronouncement did not have an
impact on the Company's results of operations or financial
position.
42
In September 2006, the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standard (“SFAS”) No. 157, later superseded by the FASB Codification and
included in ASC 820-10, “Fair Value Measurement and Disclosure - Overall” (“ASC
820-10”), in order to establish a single definition of fair value and a
framework for measuring fair value that is intended to result in increased
consistency and comparability in fair value measurements. The Company completed
the adoption of ASC 820-10 as of the beginning of its 2010 fiscal year, which
did not have an impact on the Company’s results of operations and financial
position.
In December 2008, the FASB issued FASB
Staff Position, or FSP, No. FAS 132(R)-1, amending SFAS 132, which was later
superseded by the FASB Codification and included in ASC
715-20, “Defined Benefit Plans - General” (“ASC 715-20”). ASC 715-20
requires enhanced disclosures about plan assets in an employer’s defined benefit
pension or other postretirement plans. These disclosures are intended
to provide users of financial statements with a greater understanding of how
investment allocation decisions are made, the major categories of plan assets,
the inputs and valuation techniques used to measure the fair value of plan
assets and significant concentrations of risk within plan assets. ASC
715-20 applied to the Company’s plan asset disclosures in its fiscal year ending
April 3, 2010. Adoption did not have an impact on the Company’s results of
operations and financial position.
|
3.
|
Acquisitions
|
On September 29, 2009, Lubron acquired
certain assets of Lubron Bearing Systems, a manufacturer of highly
engineered self-lubricating bearings used in bridge building, power generation,
subsea oil production and earthquake seismic isolation, located in Huntington
Beach, California for $2,976. The purchase price included
$1,943 in cash, a $775 note payable and the assumption of certain liabilities.
The purchase price allocation is as follows: inventory ($103), fixed assets
($829), goodwill ($1,713) and intangible assets ($331). The products
associated with the acquisition are complementary with products already provided
by other Company businesses. Lubron is included in the Plain Bearings
segment.
On June 6, 2008, the Company acquired
the assets of Precision Industrial Components LLC, a manufacturer and supplier
of tight-tolerance, precision mechanical components for use in the motion
control industry, located in Middlebury, CT for $6,325 in cash and the
assumption of certain liabilities. The preliminary purchase price allocation is
as follows: accounts receivable ($1,072), inventory ($2,919), other
current assets ($64), property, plant and equipment ($1,678), goodwill ($1,168),
intangible assets ($885), non-current assets ($57), current liabilities ($1,098)
and long-term liabilities ($420). The products associated with the
acquisition are complementary with products already provided by other Company
businesses. PIC Design is included in the Other segment.
On March 12, 2008, the Company acquired
the assets of A.I.D. Corporation, a manufacturer of integrated bearing
assemblies and aircraft components for the commercial and defense aerospace
markets, located in Clayton, Georgia for $3,254. The purchase price allocation
is as follows: accounts receivable ($420), inventory ($2,094), other current
assets ($18), property, plant and equipment ($1,629), intangible assets
($1,211), goodwill ($1,389), current liabilities ($3,257) and long-term
liabilities ($250). The products associated with the acquisition are
complementary with products already provided by other Company businesses. AID is
included in the Plain Bearings segment.
On March 12, 2008, the Company acquired
the assets of BEMD, Inc., a machining business of integrated bearing assemblies
and aircraft components for the commercial and defense aerospace markets,
located in Canton, Georgia for $2,719. The purchase price allocation is as
follows: accounts receivable ($318), inventory ($1,275), other current assets
($56), property, plant and equipment ($1,326), intangible assets ($565), current
liabilities ($571) and long-term liabilities ($250). The products associated
with the acquisition are complementary with products already provided by other
Company businesses. BEMD is included in the Other segment.
On July 25, 2007, the Company acquired
the assets of Coastal Bearing Services, Inc., for $3,671. Located in Houston,
Texas, CBS manufactures, inspects and refurbishes large bearings for the oil and
mining industries, as well as other general industrial applications with sizes
ranging up to 124 inches in diameter. The purchase price allocation
is as follows: accounts receivable ($644), inventory ($653), other current
assets ($86), property, plant and equipment ($825), intangible assets ($1,464),
goodwill ($671) and accrued expenses ($672). The products associated
with the acquisition are complementary with products already provided by other
Company businesses. CBS is included in the Ball Bearings
segment.
43
On May 22, 2007, the Company acquired
the capital stock of Phoenix, a manufacturer of bearings for the steel and
mining industries as well as other general industrial applications with bore
sizes ranging from 100 millimeters to one meter, located in Gloucestershire,
England for $4,739. The purchase price allocation is as follows: accounts
receivable ($1,344), inventory ($881), other current
assets ($385), property, plant and equipment ($550), intangible assets ($3,347),
goodwill ($15), current liabilities ($1,701) and long-term
liabilities ($82). The products associated with the acquisition are
complementary with products already provided by other Company businesses.
Phoenix is included in the Roller Bearings segment
The results of operations subsequent to
the effective dates of the acquisitions are included in the results of
operations of the Company. Unaudited pro forma consolidated results of
operations of the Company, based upon pre-acquisition unaudited historical
information provided for the years ended April 3, 2010 and March 28, 2009, as if
the Lubron and PIC Design acquisitions took place on March 30, 2008, are as
follows:
|
Fiscal Year Ended
|
||||||||
|
April
3,
2010
|
March
28,
2009
|
|||||||
|
Net
sales
|
$ | 275,702 | $ | 359,525 | ||||
|
Net
income
|
$ | 24,585 | $ | 34,993 | ||||
|
Net
income per common share:
|
||||||||
|
Basic
|
$ | 1.14 | $ | 1.62 | ||||
|
Diluted
|
$ | 1.13 | $ | 1.61 | ||||
|
4.
|
Short-term
Investments
|
Short-term investments include
corporate bonds that are classified as available-for-sale expected to be sold
within the next twelve months. These bonds, with an amortized basis
of $7,043 and with maturity dates ranging from March 2011 to March 2016, were
measured at fair value by using quoted prices in active markets for identical
assets and are classified as Level 1 of the valuation hierarchy. The
impact of these investments on results of operations and financial position was
not significant.
|
5.
|
Allowance
for Doubtful Accounts
|
The activity in the allowance for
doubtful accounts consists of the following:
|
Fiscal Year Ended
|
Balance at
Beginning of
Year
|
Additions
|
Other*
|
Write-offs
|
Balance at
End of Year
|
|||||||||||||||
|
April
3, 2010
|
$ | 1,571 | $ | 273 | $ | 30 | $ | (632 | ) | $ | 1,242 | |||||||||
|
March
28, 2009
|
1,018 | 702 | (3 | ) | (146 | ) | 1,571 | |||||||||||||
|
March
29, 2008
|
867 | 114 | 37 | — | 1,018 | |||||||||||||||
*Acquisition transactions (see Part
II, Item 8. “Financial Statements and Supplementary Data,” Note 3
“Acquisitions”).
|
6.
|
Inventory
|
Inventories
are stated at the lower of cost or market, using the first-in, first-out method,
and are summarized below:
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
Raw
materials
|
$ | 10,392 | $ | 11,325 | ||||
|
Work
in process
|
42,622 | 39,155 | ||||||
|
Finished
goods
|
83,352 | 83,795 | ||||||
| $ | 136,366 | $ | 134,275 | |||||
44
|
7.
|
Property,
Plant and Equipment
|
Property, plant and equipment consist
of the following:
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
Land
|
$ | 9,827 | $ | 9,826 | ||||
|
Buildings
and improvements
|
35,077 | 33,217 | ||||||
|
Machinery
and equipment
|
133,025 | 126,942 | ||||||
| 177,929 | 169,985 | |||||||
|
Less:
accumulated depreciation and amortization
|
88,392 | 82,288 | ||||||
| $ | 89,537 | $ | 87,697 | |||||
|
8.
|
Restructuring
of Operations
|
In March 2010, the Company finished the
consolidation of its Houston, Texas facilities. This resulted in a total charge
of $620 of which $350 was related to the remaining months on the original lease
and $270 was for moving expenses.
In December 2008, the Company completed
the consolidation and rationalization of its Walterboro, South Carolina plant.
This resulted in a total charge of $1,410 of which $412 was related to the net
disposal and impairment of fixed assets, $741 was for impairment of excess
inventory, $165 for severance costs and $92 for other miscellaneous
items.
9. Goodwill
and Amortizable Intangible Assets
Goodwill
During fiscal 2010, goodwill increased
$1,714 mostly due to the acquisition of Lubron. During fiscal 2009, goodwill
increased $1,168 with the acquisition of PIC Design in addition to a $10
adjustment related to the fiscal 2008 acquisition of Phoenix.
Goodwill balances, by segment, consist
of the following:
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
Roller
|
$ | 15,684 | $ | 15,683 | ||||
|
Plain
|
17,190 | 15,477 | ||||||
|
Ball
|
671 | 671 | ||||||
|
Other
|
1,168 | 1,168 | ||||||
| $ | 34,713 | $ | 32,999 | |||||
Intangible Assets
|
April 3, 2010
|
March 28, 2009
|
||||||||||||||||||
|
Weighted
Average
Useful Lives
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
|||||||||||||||
|
Product
approvals
|
15
|
$ | 6,083 | $ | 1,383 | $ | 5,969 | $ | 965 | ||||||||||
|
Customer
relationships and lists
|
10
|
5,538 | 2,144 | 5,214 | 1,755 | ||||||||||||||
|
Trade
names
|
11
|
1,380 | 709 | 1,374 | 575 | ||||||||||||||
|
Distributor
agreements
|
5
|
722 | 722 | 722 | 722 | ||||||||||||||
|
Patents
and trademarks
|
13
|
3,884 | 530 | 3,022 | 219 | ||||||||||||||
|
Domain
names
|
12
|
437 | 80 | 437 | 36 | ||||||||||||||
|
Other
|
5
|
975 | 786 | 970 | 763 | ||||||||||||||
|
Total
|
$ | 19,019 | $ | 6,354 | $ | 17,708 | $ | 5,035 | |||||||||||
Amortization expense for definite-lived
intangible assets during fiscal year 2010, 2009 and 2008 was $1,333, $1,568 and
$1,254, respectively. Estimated amortization expense for the five succeeding
fiscal years and thereafter is as follows:
45
|
2011
|
$ | 1,364 | ||
|
2012
|
1,364 | |||
|
2013
|
1,366 | |||
|
2014
|
1,270 | |||
|
2015
|
1,269 | |||
|
2016
and thereafter
|
6,032 |
|
10.
|
Accrued
Expenses and Other Current
Liabilities
|
The significant components of accrued
expenses and other current liabilities are as follows:
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
Employee
compensation and related benefits
|
$ | 4,322 | $ | 6,362 | ||||
|
Taxes
|
2,192 | 1,215 | ||||||
|
Insurance
|
770 | 1,734 | ||||||
|
Interest
rate swap
|
1,131 | 1,694 | ||||||
|
Other
|
3,024 | 5,528 | ||||||
| $ | 11,439 | $ | 16,533 | |||||
|
11.
|
Debt
|
On June 26, 2006, RBCA entered
into a credit agreement (the “KeyBank Credit Agreement”) and related security
and guaranty agreements with certain banks, KeyBank National Association, as
Administrative Agent, and J.P. Morgan Chase Bank, N.A. as Co-Lead Arrangers. The
KeyBank Credit Agreement provides RBCA with a $150,000 five-year senior secured
revolving credit facility which can be increased by up to $75,000, in increments
of $25,000, under certain circumstances and subject to certain conditions
(including the receipt from one or more lenders of the additional commitment).
Amounts outstanding under the KeyBank Credit Agreement generally bear interest
at the prime rate, or 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 net debt to adjusted EBITDA from time to time. Currently,
the Company’s margin is 0.0% for prime rate loans and 0.625% for LIBOR rate
loans. Amounts outstanding under the KeyBank Credit Agreement are due and
payable on the expiration date of the credit agreement (June 24,
2011). The Company can elect to prepay some or all of the outstanding balance
from time to time without penalty. The KeyBank Credit Agreement requires the
Company to comply with various covenants. As of April 3, 2010, the Company was
in compliance with all such covenants. The KeyBank 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. The Company’s obligations under the KeyBank Credit Agreement
are secured by a pledge of substantially all of the Company’s and RBCA’s assets
and a guaranty by the Company of RBCA’s obligations.
Approximately
$5,971 of the KeyBank Credit Agreement is being utilized to provide letters of
credit to secure RBCA’s obligations relating to certain insurance programs. As
of April 3, 2010, RBCA had the ability to borrow up to an additional $107,028
under the KeyBank Credit Agreement.
On January 8, 2008, the Company entered
into an interest rate swap agreement with a total notional value of $30,000 to
hedge a portion of its variable rate debt. Under the terms of the agreement, the
Company pays interest at a fixed rate (3.64%) and receives interest
at variable rates. The maturity date of the interest swap is June 24, 2011. The
fair value of this swap at April 3, 2010 was a liability of $1,131, included in
other current liabilities, and was measured using observable market inputs such
as yield curves. Based on these inputs, the swap is classified as a
Level 2 of the valuation hierarchy. This instrument is designated and qualifies
as a cash flow hedge. Accordingly, the gain or loss on both the hedging
instrument and the hedged item attributable to the hedged risk are recognized in
other comprehensive income and reclassified into earnings contemporaneously with
the earnings effect of the hedged transaction. Earnings effect and
the hedged item are reported in interest expense.
On September 10, 2007, the Company and
RBCA entered into an amendment of the KeyBank Credit
Agreement. Pursuant to the terms of the amendment, the commitment
fees payable under the KeyBank Credit Agreement were decreased from a range of
10 to 27.5 basis points, based on the Company’s leverage ratio (as defined under
the KeyBank Credit Agreement) to a range of 7.5 to 20 basis
points. Further, the margin payable under the KeyBank Credit
Agreement for revolving loans that are base rate loans, based on the Company’s
leverage ratio, was decreased from a range of 0 to 75 basis points to a range of
0 to 25 basis points. The margin payable under the KeyBank Credit
Agreement for revolving loans that are fixed rate loans, based on the Company’s
leverage ratio (as defined under the agreement) was decreased from a range of
62.5 to 165 basis points to a range of 37.5 to 115 basis
points. Also, the covenant requiring the Company to limit capital
expenditures (excluding acquisitions) in any fiscal year to an amount not to
exceed $20,000 was amended to increase the limit to an amount not to exceed
$30,000.
46
On October 27, 2008, Schaublin entered
into a new bank credit facility with Credit Suisse (the “Swiss Credit Facility”)
which replaced the prior bank credit facility of December 8, 2003 and its
amendment of November 8, 2004. This facility provides for up to 4,000
Swiss francs, or $3,780, of revolving credit loans and letters of
credit. Borrowings under the Swiss Credit Facility bear interest at
Credit Suisse’s prevailing prime bank rate. As of April 3, 2010,
there were no borrowings under the Swiss Credit Facility.
On May 1, 2008, the Company voluntarily
paid off the Series 1999 bonds, the principal of which was $4,800. In addition,
on June 2, 2008, the Company voluntarily paid off the Series 1994 A and B bonds,
the principal amounts of which were $7,700 and $3,000, respectively. The Company
recorded a non-cash pre-tax charge of approximately $319 in the period ended
March 28, 2009 to write off deferred financing costs associated with the
voluntary payoff of the bonds.
The balances payable under all
borrowing facilities are as follows:
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
KeyBank
Credit Agreement
|
||||||||
|
Five-year
senior secured revolving credit facility; amounts outstanding bear
interest at the prime rate or LIBOR, plus a specified margin, depending on
the type of borrowing being made (prime rate 3.25% at April 3,
2010 and March 28, 2009, respectively, and LIBOR 0.25% and
0.5% at April 3, 2010 and March 28, 2009,
respectively)
|
$ | 37,000 | $ | 67,000 | ||||
|
Notes
Payable
|
1,453 | 1,151 | ||||||
|
Total
Debt
|
38,453 | 68,151 | ||||||
|
Less:
Current Portion
|
1,453 | 1,151 | ||||||
|
Long-Term
Debt
|
$ | 37,000 | $ | 67,000 | ||||
The current portion of long-term debt
as of April 3, 2010 includes a $703 note payable related to the acquisition of
Lubron and a $750 note payable related to the AllPower acquisition. As of March
28, 2009, the current portion of long-term debt includes $401 notes payable
related to the acquisitions of AID and BEMD and a $750 note payable related to
the All Power acquisition.
Maturities of debt during each of the
following two fiscal years are as follows:
|
2011
|
$ | 1,453 | ||
|
2012
|
37,000 |
|
12.
|
Other
Non-Current Liabilities
|
The significant components of other
non-current liabilities consist of:
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
Non-current
pension liability
|
$ | 1,730 | $ | — | ||||
|
Other
postretirement benefits
|
2,652 | 2,848 | ||||||
|
Non-current
income tax liability
|
8,747 | 8,153 | ||||||
|
Other
|
4,568 | 3,505 | ||||||
| $ | 17,697 | $ | 14,506 | |||||
|
13.
|
Pension
Plans
|
At April 3, 2010, the Company has one
consolidated noncontributory defined benefit pension plan covering union
employees in its Heim division plant in Fairfield, Connecticut, its Bremen
subsidiary plant in Plymouth, Indiana and former union employees of the Tyson
subsidiary in Glasgow, Kentucky and the Nice subsidiary in Kulpsville,
Pennsylvania.
47
Effective March 31, 2007, the pension
plan for the Tyson subsidiary in Glasgow, Kentucky was curtailed in the terms of
the Shutdown Agreement between Tyson Bearings Company, Inc. and the United
Steelworkers of America (AFL-CIO) Local 7461-01 dated February 6, 2007. No
further benefits will accrue against this plan and no new employees will become
eligible for participation in the plan.
As of April 3, 2010, plan assets are
comprised primarily of cash and short-term investments. The fair
value of the short-term investments are determined using quoted market prices of
identical instruments and are therefore Level 1 investments. The plan
provides benefits of stated amounts based on a combination of an employee's age
and years of service. The Company uses a March 31 measurement date for its
plan.
The following tables set forth the
funded status of the Company's defined benefit pension plan and the amount
recognized in the balance sheet at April 3, 2010 and March 28,
2009:
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
Change
in benefit obligation:
|
||||||||
|
Benefit
obligation at beginning of year
|
$ | 18,842 | $ | 20,253 | ||||
|
Service
cost
|
307 | 441 | ||||||
|
Interest
cost
|
1,279 | 1,211 | ||||||
|
Actuarial
(gain) loss
|
2,133 | (1,169 | ) | |||||
|
Benefits
paid
|
(1,539 | ) | (1,894 | ) | ||||
|
Benefit
obligation, at measurement date
|
$ | 21,022 | $ | 18,842 | ||||
|
Change
in plan assets:
|
||||||||
|
Fair
value of plan assets at beginning of year
|
$ | 19,783 | $ | 20,745 | ||||
|
Actual
return on plan assets
|
48 | 682 | ||||||
|
Employer
contributions
|
1,000 | 250 | ||||||
|
Benefits
paid
|
(1,539 | ) | (1,894 | ) | ||||
|
Fair
value of plan assets
|
$ | 19,292 | $ | 19,783 | ||||
|
Over
(under) funded status
|
$ | (1,730 | ) | $ | 941 | |||
|
Amounts
recognized in the consolidated balance sheet:
|
||||||||
|
Non-current
assets
|
$ | — | $ | 941 | ||||
|
Non-current
liabilities
|
(1,730 | ) | — | |||||
|
Net
asset recognized
|
$ | (1,730 | ) | $ | 941 | |||
|
Amounts
recognized in accumulated other comprehensive loss:
|
||||||||
|
April
3,
2010&
lt;
/font>
|
March
28,
2009
|
|||||||
|
Prior
service cost
|
$ | 270 | $ | 311 | ||||
|
Net
actuarial loss
|
5,702 | 2,069 | ||||||
|
Accumulated
other comprehensive loss
|
$ | 5,972 | $ | 2,380 | ||||
|
Amounts
included in accumulated other comprehensive loss expected to be recognized
as components of net periodic benefit cost in 2011:
|
||||||||
|
Prior
service cost
|
$ | 53 | ||||||
|
Net
actuarial loss
|
400 | |||||||
|
Total
|
$ | 453 | ||||||
Benefits under the union plans are not
a function of employees' salaries; thus, the accumulated benefit obligation
equals the projected benefit obligation.
The following table sets forth net
periodic benefit cost of the Company's plan for the three fiscal years in the
period ended April 3, 2010:
48
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Components
of net periodic benefit cost:
|
||||||||||||
|
Service
cost
|
$ | 307 | $ | 441 | $ | 270 | ||||||
|
Interest
cost
|
1,280 | 1,211 | 1,184 | |||||||||
|
Expected
return on plan assets
|
(1,574 | ) | (1,691 | ) | (1,474 | ) | ||||||
|
Amortization
of prior service cost
|
49 | 40 | 8 | |||||||||
|
Amortization
of losses
|
25 | — | 163 | |||||||||
|
Additional
amount recognized due to curtailment
|
(8 | ) | — | — | ||||||||
|
Net
periodic benefit cost
|
$ | 79 | $ | 1 | $ | 151 | ||||||
The assumptions used in determining the
net periodic benefit cost information are as follows:
|
FY 2010
|
FY 2009
|
FY 2008
|
||||||||||
|
Discount
rate
|
7.00 | % | 6.25 | % | 6.00 | % | ||||||
|
Expected
long-term rate of return on plan assets
|
8.25 | % | 8.50 | % | 8.50 | % | ||||||
The discount rate used in determining
the funded status as of April 3, 2010 and March 28, 2009 was 6.00% and 7.00%,
respectively.
In developing the overall expected
long-term return on plan assets assumption, a building block approach was used
in which rates of return in excess of inflation were considered separately for
equity securities and debt securities. The excess returns were weighted by the
representative target allocation and added along with an appropriate rate of
inflation to develop the overall expected long-term return on plan assets
assumption.
The Company's investment program
objective is to achieve a rate of return on plan assets which will fund the plan
liabilities and provide for required benefits while avoiding undue exposure to
risk to the plan and increases in funding requirements. The Company's target
allocation of plan assets was 100 percent short-term investments as of
April 3, 2010 and March 28, 2009. In the Company’s opinion, there is still
uncertainty in the global equity and debt markets and the global financial
system. The Company has developed a new asset allocation strategy for fiscal
2011 and beyond based on a 60% to 80% equity allocation and 20% to 40% fixed
income allocation, but until the Company sees stabilization in the global
financial markets, it will continue to be vested 100% in short-term
investments.
The following benefit payments, which
reflect future service as appropriate, are expected to be paid. The benefit
payments are based on the same assumptions used to measure the Company's benefit
obligation at the end of fiscal 2010.
|
2011
|
$ | 1,394 | ||
|
2012
|
1,454 | |||
|
2013
|
1,456 | |||
|
2014
|
1,518 | |||
|
2015
|
1,550 | |||
|
2016-2020
|
8,363 |
One of
the Company’s foreign operations, Schaublin, sponsors a pension plan for its
approximately 132 employees in conformance with Swiss pension
law. The plan is funded with a reputable (S&P rating AA-) Swiss
insurer. Through the insurance contract, the Company has effectively
transferred all investment and mortality risk to the insurance company, which
guarantees the federally mandated annual rate of return and the conversion rate
at retirement. As a result, the plan has no unfunded liability; the
interest cost is exactly offset by actual return. Thus, the net
periodic cost is equal to the amount of annual premium paid by the
Company. For fiscal years 2010, 2009 and 2008, the Company made
contribution and premium payments equal to $644, $588 and $530,
respectively.
The Company also has a defined
contribution plan under Section 401(k) of the Internal Revenue Code for all
of its employees not covered by a collective bargaining agreement. The plan is
funded by eligible participants through employee contributions and by Company
contributions which equaled 30% of the first 6% of eligible employee
compensation. Effective January 1, 2009, the Company temporarily
suspended the employer contribution to this plan. Employer
contributions under this plan amounted to $0, $568 and $595 in fiscal 2010, 2009
and 2008, respectively.
49
Effective September 1, 1996, the
Company adopted a non-qualified Supplemental Executive Retirement Plan ("SERP")
for a select group of highly compensated management employees designated by the
Board of Directors of the Company. The SERP allowed eligible employees to elect
to defer, until termination of their employment, the receipt of up to 25% of
their salary. In August 2008, the plan was modified, allowing
eligible employees to elect to defer up to 75% of their current salary and up to
100% of bonus compensation. The Company made contributions equal to
the lesser of 50% of the deferrals, or 3.5% of the employees' annual salary,
which vest in full after one year of service following the effective date of the
SERP. Effective January 1, 2009, the Company temporarily suspended
the employer contribution to this plan. Employer contributions under
this plan amounted to $0, $131 and $175 in fiscal 2010, 2009 and 2008,
respectively.
|
14.
|
Postretirement
Health Care and Life Insurance
Benefits
|
The Company, for the benefit of
employees at its Heim, West Trenton and Bremen facilities and former union
employees of its Tyson and Nice subsidiaries, sponsors contributory defined
benefit health care plans that provide postretirement medical and life insurance
benefits to union employees who have attained certain age and/or service
requirements while employed by the Company. As a result of the acquisition of
PIC Design in fiscal 2009, the Company assumed the postretirement health care
and life insurance liability for former employees covered by the existing plan.
The plans are unfunded and costs are paid as incurred. Postretirement benefit
obligations are included in “Accrued expenses and other current liabilities” and
"Other non-current liabilities" in the Consolidated Balance Sheet.
The following table set forth the
funded status of the Company’s postretirement benefit plans, the amount
recognized in the balance sheet at April 3, 2010 and March 28,
2009:
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
Change
in benefit obligation:
|
||||||||
|
Benefit
obligation at beginning of year
|
$ | 3,153 | $ | 2, 891 | ||||
|
Service
cost
|
44 | 49 | ||||||
|
Interest
cost
|
190 | 200 | ||||||
|
Actuarial
(gain) loss
|
(47 | ) | (154 | ) | ||||
|
Benefits
paid
|
(227 | ) | (249 | ) | ||||
|
Acquisition
|
— | 416 | ||||||
|
Gain
on curtailment
|
(206 | ) | — | |||||
|
Benefit
obligation at end of year
|
$ | 2,907 | $ | 3,153 | ||||
|
Change
in plan assets:
|
||||||||
|
Fair
value of plan assets at beginning of year
|
$ | — | $ | — | ||||
|
Company
contributions
|
227 | 249 | ||||||
|
Benefits
paid
|
(227 | ) | (249 | ) | ||||
|
Fair
value of plan assets at end of year
|
$ | — | $ | — | ||||
|
Funded
status, end of year
|
$ | (2,907 | ) | $ | (3,153 | ) | ||
|
Amounts
recognized in the consolidated balance sheet:
|
||||||||
|
Current
liability
|
$ | (255 | ) | $ | (305 | ) | ||
|
Non-current
liability
|
(2,652 | ) | (2,848 | ) | ||||
|
Net
liability recognized
|
$ | (2,907 | ) | $ | (3,153 | ) | ||
|
Amounts
recognized in accumulated other comprehensive loss:
|
||||||||
|
Prior
service cost
|
$ | 40 | $ | 109 | ||||
|
Net
actuarial loss
|
349 | 382 | ||||||
|
Accumulated
other comprehensive loss
|
$ | 389 | $ | 491 | ||||
|
Amounts
included in accumulated other comprehensive loss (income) expected to be
recognized as components of net periodic benefit cost (income) in
2011:
|
||||||||
|
Prior
service cost (income)
|
$ | (21 | ) | |||||
|
Net
actuarial loss
|
9 | |||||||
|
Total
|
$ | (12 | ) | |||||
50
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Components
of net periodic benefit cost:
|
||||||||||||
|
Service
cost
|
$ | 44 | $ | 49 | $ | 60 | ||||||
|
Interest
cost
|
190 | 200 | 165 | |||||||||
|
Prior
service cost amortization
|
29 | 1 | (30 | ) | ||||||||
|
Amount
of loss recognized
|
2 | 22 | 38 | |||||||||
|
Gain
on curtailment
|
(100 | ) | — | — | ||||||||
|
Net
periodic benefit cost
|
$ | 165 | $ | 272 | $ | 233 | ||||||
The Company uses a March 31
measurement date for its plans.
The plans contractually limit the
benefit to be provided for certain groups of current and future retirees. As a
result, there is no health care trend associated with these groups. The discount
rate used in determining the accumulated postretirement benefit obligation was
6.00% at April 3, 2010 and 7.00% at March 28, 2009. The discount rate used in
determining the net periodic benefit cost was 7.00% for fiscal 2010, 6.50% for
fiscal 2009 and 6.00% for fiscal 2008. The RP-2000 Combined Mortality Table was
used to determine the postretirement net periodic benefit costs in fiscal 2010,
2009 and 2008.
The following benefit payments, which
reflect future service as appropriate, are expected to be paid. The benefit
payments are based on the same assumptions used to measure the Company's benefit
obligation at the end of fiscal 2010:
|
2011
|
$ | 255 | ||
|
2012
|
239 | |||
|
2013
|
238 | |||
|
2014
|
242 | |||
|
2015
|
238 | |||
|
2016-2020
|
1,269 |
|
15.
|
Income
Taxes
|
Income before income taxes for the
Company's domestic and foreign operations is as follows:
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Domestic
|
$ | 29,238 | $ | 44,011 | $ | 51,660 | ||||||
|
Foreign
|
3,772 | 7,390 | 8,219 | |||||||||
| $ | 33,010 | $ | 51,401 | $ | 59,879 | |||||||
The provision for (benefit from) income
taxes consists of the following:
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 4,870 | $ | 14,224 | $ | 6,781 | ||||||
|
State
|
2,212 | 1,326 | 1,428 | |||||||||
|
Foreign
|
461 | 1,274 | 1,269 | |||||||||
| 7,543 | 16,824 | 9,478 | ||||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
1,446 | 22 | 10,057 | |||||||||
|
State
|
(364 | ) | 101 | 150 | ||||||||
| 1,082 | 123 | 10,207 | ||||||||||
|
Total
|
$ | 8,625 | $ | 16,947 | $ | 19,685 | ||||||
51
A
reconciliation of income taxes computed using the U.S. federal statutory rate to
that reflected in operations follows:
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Income
taxes using U.S. federal statutory rate
|
$ | 11,554 | $ | 17,990 | $ | 20,958 | ||||||
|
State
income taxes, net of federal benefit
|
1,381 | 1,105 | 887 | |||||||||
|
Domestic
production activities deduction
|
(526 | ) | (842 | ) | (907 | ) | ||||||
|
Foreign
rate differential
|
(859 | ) | (1,312 | ) | (1,699 | ) | ||||||
|
Advanced
energy manufacturing tax credit
|
(2,665 | ) | — | — | ||||||||
|
Other
|
(260 | ) | 6 | 446 | ||||||||
| $ | 8,625 | $ | 16,947 | $ | 19,685 | |||||||
Net deferred tax assets (liabilities)
consist of the following:
|
April 3,
2010
|
March 28,
2009
|
|||||||
|
Deferred
tax assets (liabilities):
|
||||||||
|
Postretirement
benefits
|
$ | 942 | $ | 1,020 | ||||
|
Employee
compensation accruals
|
1,042 | 1,787 | ||||||
|
State
net operating losses
|
918 | 959 | ||||||
|
Inventory
|
4,625 | 4,326 | ||||||
|
Stock
compensation
|
1,998 | 1,536 | ||||||
|
Pension
|
598 | (351 | ) | |||||
|
State
tax
|
1,655 | 1,354 | ||||||
|
Fair
value of derivative
|
422 | 632 | ||||||
|
Other
|
1,846 | 1,161 | ||||||
|
Valuation
allowance
|
(353 | ) | (353 | ) | ||||
|
Total
deferred tax assets
|
13,693 | 12,071 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Property,
plant and equipment
|
(9,090 | ) | (7,573 | ) | ||||
|
Intangible
assets
|
(4,276 | ) | (4,162 | ) | ||||
|
Total
deferred tax liabilities
|
(13,366 | ) | (11,735 | ) | ||||
|
Net
deferred tax assets
|
$ | 327 | $ | 336 | ||||
A valuation allowance has been recorded
on certain state net operating losses as it is more likely than not that these
losses will not be utilized.
The Company has determined that its
undistributed foreign earnings of approximately $39,114 at April 3, 2010 will be
re-invested indefinitely based upon the need for cash in its foreign operations,
potential foreign acquisitions and the Company's inability to remit cash back to
the United States under its current foreign debt
obligations. Schaublin has a tax holiday that provides a 75%
reduction of the statutory rate relating to its Swiss facility. This
resulted in a tax benefit of approximately $1,000, $1,200 and $1,400 in fiscal
2010, 2009 and 2008, respectively. This tax holiday expired in March
2010.
As the Company’s undistributed earnings
in foreign subsidiaries are considered to be reinvested indefinitely, no
provision for U.S. federal and state income taxes has been
provided. Upon repatriation of those earnings, in the form of
dividends or otherwise, the Company would be subject to both U.S. income taxes
(subject to an adjustment of foreign tax credits) and withholding taxes payable
to various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable due to the
complexities associated with its hypothetical calculation.
At April 3, 2010, the Company has state
net operating losses in different jurisdictions at varying amounts up to
$17,900, which expire at various dates through 2026. The Company's tax returns
are subject to review and examination by various taxing authorities, which could
result in changes to accrued tax estimates.
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 March 31, 2003. The Company is no longer subject to U.S.
federal tax examination by the Internal Revenue Service for years ending before
March 31, 2005. The Company is currently under Internal Revenue Service
examination for fiscal years 2007 and 2008.
52
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
are as follows:
|
Balance
at March 29, 2008
|
$ | 3,878 | ||
|
Increases
for tax positions taken during the current period
|
3,531 | |||
|
Balance
at March 28, 2009
|
7,409 | |||
|
Increases
for tax positions taken during the current period
|
1,341 | |||
|
Decrease
due to a settlement with taxing authorities
|
(541 | ) | ||
|
Balance
at April 3,
2010
|
$ | 8,209 |
The
increase in tax positions is a result of tax credits and state income taxes. The
decrease in tax positions is due to an agreed-upon IRS audit adjustment.
Substantially all of the Company’s unrecognized tax benefits would impact the
effective tax rate if recognized.
The
Company recognizes the interest and penalties accrued related to unrecognized
tax benefits in income tax expense. The Company recognized a benefit
of $205 and a charge of $390 of interest and penalties on its statement of
operations for the fiscal years ended April 3, 2010 and March 28, 2009,
respectively. The Company has approximately $538 and $743 of accrued interest
and penalties at April 3, 2010 and March 28, 2009, respectively.
The
American Recovery and Reinvestment Act of 2009 provides for a new Advanced
Energy Manufacturing Credit under Internal Revenue Code 48C (“Section 48C
credit”). This 30% investment credit on qualified property is a
collaborative effort of the Internal Revenue Service and the Department of
Energy. Its purpose is to encourage the re-equipment, expansion, or
establishment of a manufacturing facility for the production of qualified
advanced energy property. This Section 48C credit is generally
allowed in the taxable year in which the eligible property is placed in service
by the taxpayer. On January 7, 2010, the Company was notified by the
Internal Revenue Service that it has received an award of $4,200 related to the
recently completed investment in the Company’s Houston, Texas
facility. This facility was placed in service by the Company in
fiscal 2010. As such, the net benefit of this credit has been recorded in fiscal
2010.
|
16.
|
Stockholders'
Equity
|
Stock
Option Plans
2001 Stock Option Plan
The RBC Bearings Incorporated (f/k/a
Roller Bearing Holding Company, Inc.) 2001 Stock Option Plan was adopted in
fiscal 2002 and amended and restated on October 24, 2003. The terms of the
2001 Stock Option Plan provide for the grant of options to purchase up to
1,008,553 shares of common stock to officers and employees of, and consultants
(including members of the board of directors) to, the Company and its
subsidiaries selected by the CEO to participate in the plan. Options granted may
be either incentive stock options (under Section 422 of the Internal
Revenue Code) or non-qualified stock options. The 2001 Stock Option Plan, which
expires in July 2011, is to be governed by the Company’s board of directors
or a committee to which the board of directors delegates its responsibilities.
As of April 3, 2010, there were outstanding options to purchase 92,300 shares of
common stock granted under the 2001 Stock Option Plan, all of which were
exercisable. As of August 15, 2005, the 2001 Stock Option Plan was frozen and no
additional stock options will be awarded pursuant to the plan.
2005 Long-Term Incentive
Plan
The 2005 Long-Term Incentive Plan
provides for grants of stock options, stock appreciation rights, restricted
stock and performance awards. Directors, officers and other employees and
persons who engage in services for the Company are eligible for grants under the
plan. The purpose of the plan is to provide these individuals with incentives to
maximize stockholder value and otherwise contribute to the Company’s success and
to enable the Company to attract, retain and reward the best available persons
for positions of responsibility.
1,139,170 shares of common stock were
authorized for issuance under the plan, subject to adjustment in the event of a
reorganization, stock split, merger or similar change in the Company’s corporate
structure or in the outstanding shares of common stock. An amendment to increase
the number of shares available for issuance under the 2005 Long-Term Incentive
Plan from 1,139,170 to 1,639,170 was approved by shareholder vote in September
2006. A further amendment to increase the number of shares available for
issuance under the 2005 Long-Term Incentive Plan from 1,639,170 to 2,239,170 was
approved by shareholder vote in September 2007. The Company may grant shares of
restricted stock to its employees and directors in the future under the plan.
The Company’s compensation committee will administer the plan. The Company’s
board of directors also has the authority to administer the plan and to take all
actions that the compensation committee is otherwise authorized to take under
the plan. The terms and conditions of each award made under the plan, including
vesting requirements, is set forth consistent with the plan in a written
agreement with the grantee.
53
Stock
Options. Under the 2005 Long-Term Incentive Plan, the
compensation committee or the board may approve the award of grants of incentive
stock options and other non-qualified stock options. The compensation committee
also has the authority to approve the grant of options that will become fully
vested and exercisable automatically upon a change in control. The compensation
committee may not, however, approve an award to any one person in any calendar
year options to purchase common stock equal to more than 10% of the total number
of shares authorized under the plan, and it may not approve an award of
incentive options first exercisable in any calendar year whose underlying shares
have a fair market value greater than $100,000 determined at the time of grant.
The compensation committee will approve the exercise price and term of any
option in its discretion; however, the exercise price may not be less than 100%
of the fair market value of a share of common stock on the date of grant. In the
case of any incentive stock option, the option must be exercised within
10 years of the date of grant. The exercise price of an incentive option
awarded to a person who owns stock constituting more than 10% of our voting
power may not be less than 110% of such fair market value on such date and the
option must be exercised within five years of the date of grant. As of April 3,
2010, there were outstanding options to purchase 1,758,202 shares of common
stock granted under the 2005 Long-Term Incentive Plan, 947,913 of which were
exercisable.
Restricted
Stock. Under the 2005 Long-Term Incentive Plan, the
compensation committee may approve the award of restricted stock subject to the
conditions and restrictions, and for the duration that it determines in its
discretion. As of April 3, 2010, there were 122,775 shares of restricted stock
outstanding.
Stock Appreciation
Rights. The compensation committee may approve the grant of
stock appreciation rights, or SARs, subject to the terms and conditions
contained in the plan. Under the 2005 Long-Term Incentive Plan, the exercise
price of a SAR must equal the fair market value of a share of the Company’s
common stock on the date the SAR was granted. Upon exercise of a SAR, the
grantee will receive an amount in shares of our common stock equal to the
difference between the fair market value of a share of common stock on the date
of exercise and the exercise price of the SAR, multiplied by the number of
shares as to which the SAR is exercised.
Performance
Awards. The compensation committee may approve the grant of
performance awards contingent upon achievement by the grantee or by the Company,
of set goals and objectives regarding specified performance criteria, over a
specified performance cycle. Awards may include specific dollar-value target
awards, performance units, the value of which is established at the time of
grant, and/or performance shares, the value of which is equal to the fair market
value of a share of common stock on the date of grant. The value of a
performance award may be fixed or fluctuate on the basis of specified
performance criteria. A performance award may be paid out in cash and/or shares
of common stock or other securities.
Amendment and Termination of the
Plan. The board may amend or terminate the 2005 Long-Term
Incentive Plan at its discretion, except that no amendment will become effective
without prior approval of the Company’s stockholders if such approval is
necessary for continued compliance with the performance-based compensation
exception of Section 162(m) of the Internal Revenue Code or any stock
exchange listing requirements. If not previously terminated by the board, the
plan will terminate on the tenth anniversary of its adoption.
A summary of the status of the
Company's stock options outstanding as of April 3, 2010, March 28, 2009 and
March 29, 2008, and changes during the years ended on those dates, is presented
below. All cashless exercises of options and warrants are handled through an
independent broker.
|
Number Of
Common Stock
Options
|
Weighted Average
Exercise Price
|
Weighted Average
Contractual Life
(Years)
|
Intrinsic Value
|
|||||||||||||
|
Outstanding,
March 28, 2009
|
1,512,277 | $ | 20.78 | 5.9 | $ | 1,564 | ||||||||||
|
Awarded
|
363,000 | 23.90 | ||||||||||||||
|
Exercised
|
(23,275 | ) | 13.86 | |||||||||||||
|
Forfeitures
|
(1,500 | ) | 32.85 | |||||||||||||
|
Outstanding,
April 3, 2010
|
1,850,502 | $ | 21.47 | 5.3 | $ | 19,155 | ||||||||||
|
Exercisable,
April 3, 2010
|
1,040,213 | $ | 18.44 | 4.9 | $ | 13,890 | ||||||||||
54
The fair value for the Company's
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions, which are updated
to reflect current expectations of the dividend yield, expected life, risk-free
interest rate and using historical volatility to project expected
volatility:
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Dividend
yield
|
0.0 | % | 0.0 | % | 0.0 | % | ||||||
|
Expected
weighted-average life (yrs.)
|
4.7 | 4.5 | 5.0 | |||||||||
|
Risk-free
interest rate
|
2.25 | % | 1.78 | % | 5.0 | % | ||||||
|
Expected
volatility
|
39.8 | % | 42.8 | % | 35.4 | % | ||||||
The weighted average fair value per
share of options granted was $8.86 in fiscal 2010, $7.69 in fiscal 2009 and
$12.79 in fiscal 2008.
As of April 3, 2010, there was $6,687
of unrecognized compensation costs related to options which is expected to be
recognized over a weighted average period of 2.9 years. The total fair value of
options that vested in fiscal 2010, 2009 and 2008 was $5,775, $1,592
and $1,738, respectively. The total intrinsic value of options exercised in
fiscal 2010, 2009 and 2008 was $364, $259 and $6,925, respectively.
Of the total awards outstanding at
April 3, 2010, 1,814,061 are either fully vested or are expected to vest. These
shares have a weighted average exercise price of $21.39, an intrinsic value of
$18,920, and a weighted average contractual term of 5.3 years.
A summary of the status of the
Company’s restricted stock outstanding as of April 3, 2010 and changes during
the year then ended, is presented below.
|
Number Of
Restricted Stock
Shares
|
Weighted-
Average
Grant Date Fair
Value
|
|||||||
|
Non-vested,
March 28, 2009
|
123,649 | $ | 25.02 | |||||
|
Granted
|
41,000 | 22.73 | ||||||
|
Vested
|
(41,874 | ) | 24.28 | |||||
|
Non-vested,
April 3, 2010
|
122,775 | $ | 24.51 | |||||
The Company recorded $1,037 (net of
taxes of $355) in compensation in fiscal 2010 related to restricted stock
awards. These awards were valued at the fair market value of the Company’s
common stock on the date of issuance and are being amortized as expense over the
applicable vesting period. Unrecognized expense for restricted stock was $2,480
at April 3, 2010. This cost is expected to be recognized over a weighted average
period of approximately 2.1 years.
|
17.
|
Commitments and
Contingencies
|
The Company leases facilities under
non-cancelable operating leases, which expire on various dates through September
2021, with rental expense aggregating $4,186, $3,945 and $3,893 in fiscal 2010,
2009 and 2008, respectively.
The Company also has non-cancelable
operating leases for transportation, computer and office equipment, which expire
at various dates. Rental expense for fiscal 2010, 2009 and 2008 aggregated
$1,295, $1,341 and $1,347, respectively.
Certain of the above leases are
renewable while none bear material contingent rent or concession
clauses.
The aggregate future minimum lease
payments under operating leases are as follows:
|
2011
|
$ | 4,861 | ||
|
2012
|
4,057 | |||
|
2013
|
2,876 | |||
|
2014
|
2,104 | |||
|
2015
|
1,827 | |||
|
2016
and thereafter
|
2,803 | |||
| $ | 18,528 |
55
As of April 3, 2010, approximately 12%
of the Company's hourly employees in the U.S. and abroad were represented by
labor unions.
The Company enters into government
contracts and subcontracts that are subject to audit by the government. In the
opinion of the Company's management, the results of such audits, if any, are not
expected to have a material impact on the financial condition or results of
operations of the Company.
In fiscal 2010, 5.2% of the Company’s
net sales were made directly, and approximately an additional 22.4% of the
Company’s net sales were made indirectly, to the U.S. government.
The Company is subject to federal,
state and local environmental laws and regulations, including those governing
discharges of pollutants into the air and water, the storage, handling and
disposal of wastes and the health and safety of employees. The Company also may
be liable under the Comprehensive Environmental Response, Compensation, and
Liability Act or similar state laws for the costs of investigation and cleanup
of contamination at facilities currently or formerly owned or operated by the
Company, or at other facilities at which the Company may have disposed of
hazardous substances. In connection with such contamination, the Company may
also be liable for natural resource damages, government penalties and claims by
third parties for personal injury and property damage. Agencies responsible for
enforcing these laws have authority to impose significant civil or criminal
penalties for non-compliance. The Company believes it is currently in material
compliance with all applicable requirements of environmental laws. The Company
does not anticipate material capital expenditures for environmental compliance
in fiscal years 2011 or 2012.
Investigation and remediation of
contamination is ongoing at some of the Company's sites. In particular, state
agencies have been overseeing groundwater monitoring activities at the Company's
facilities in Hartsville, South Carolina and Fairfield, Connecticut. At
Hartsville, the Company is monitoring low levels of contaminants in the
groundwater caused by former operations. The state will permit the Company to
cease monitoring activities after two consecutive sampling periods demonstrate
contaminants are below action levels. In connection with the purchase of the
Fairfield, Connecticut facility in 1996, the Company agreed to assume
responsibility for completing clean-up efforts previously initiated by the prior
owner. The Company submitted data to the state that the Company believes
demonstrates that no further remedial action is necessary, although the state
may require additional clean-up or monitoring. In connection with the purchase
of the Company’s Clayton, Georgia facility, the Company agreed to take
assignment of the hazardous waste permit covering such facility and to assume
certain responsibilities to implement a corrective action plan concerning the
remediation of certain soil and groundwater contamination present at that
facility. The corrective action plan is in the early stages. Although
there can be no assurance, the Company does not expect the costs associated with
the above sites to be material.
There are various claims and legal
proceedings against the Company relating to its operations in the normal course
of business, none of which the Company believes is material to its financial
position or results of operations. The Company currently maintains insurance
coverage for product liability claims.
|
18.
|
U.S.
Continued Dumping and Subsidy Offset Act (CDSOA)
Payment
|
On December 2, 2009, the Company
received approximately $186 in payments under the U.S. Continued Dumping and
Subsidy Act (CDSOA) for 2009. On December 12, 2008, the Company received
approximately $377 in payments under the CDSOA for 2008. In addition, on
December 7, 2007, the Company received approximately $255 in payments under the
CDSOA for 2007. The CDSOA distributes antidumping duties paid by overseas
companies to qualified domestic firms hurt by unfair trade. These payments have
been classified below Operating Income in “Other non-operating expense (income)”
on the Consolidated Statements of Operations.
56
|
19.
|
Other
Operating Expense, Net
|
Other operating expense, net is
comprised of the following:
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Loss
on disposition of assets
|
$ | 200 | $ | 4,377 | $ | 131 | ||||||
|
Plant
consolidation and moving costs
|
1,199 | 1,081 | 481 | |||||||||
|
Provision
for doubtful accounts
|
10 | 394 | 114 | |||||||||
|
Amortization
of intangibles
|
1,333 | 1,568 | 1,254 | |||||||||
|
Other
expense (income)
|
(213 | ) | 51 | (156 | ) | |||||||
| $ | 2,529 | $ | 7,471 | $ | 1,824 | |||||||
|
20.
|
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 with similar economic characteristics and that meet all
other required criteria, including nature of the products and production
processes, distribution patterns and classes of customers, are aggregated as
reportable segments. Certain other operating segments do not exhibit the common
attributes mentioned above and do not meet the quantitative thresholds for
separate disclosure, and their information is combined and disclosed as "Other".
There is also a segment reflecting corporate charges.
The Company has four reportable
business segments engaged in the manufacture and sale of the
following:
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.
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.
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.
Other. Other
consists of four minor operating locations that do not fall into the above
segmented categories. The Company produces precision ground ball bearing screws
that offer repeatable positioning accuracy in machine tools, transfer lines,
robotic handling and semiconductor equipment. The Company’s precision machine
tool collets provide effective part holding and accurate part location during
machining operations. Additionally, the Company provides machining for
integrated bearing assemblies and aircraft components for the commercial and
defense aerospace markets and tight-tolerance, precision mechanical components
for use in the motion control industry.
Corporate. Corporate
consists of expenses incurred at the corporate office.
The accounting policies of the
reportable segments are the same as those described in Part II, Item 8.
“Financial Statements and Supplementary Data,” Note 2 “Summary of
Significant Accounting Policies.” Segment performance is evaluated based on
segment net sales, operating income and total assets. Items not allocated to
segment operating income include corporate administrative expenses and certain
other amounts. Identifiable assets by reportable segment consist of those
directly identified with the segment's operations. Corporate assets consist of
cash, fixed assets and certain prepaid expenses.
57
|
Fiscal Year Ended
|
||||||||||||
|
April 3,
2010
|
March 28,
2009
|
March 29,
2008
|
||||||||||
|
Net
External Sales
|
||||||||||||
|
Roller
|
$ | 73,164 | $ | 94,428 | $ | 97,019 | ||||||
|
Plain
|
134,303 | 166,658 | 154,535 | |||||||||
|
Ball
|
45,442 | 63,625 | 56,677 | |||||||||
|
Other
|
21,793 | 31,085 | 22,369 | |||||||||
| $ | 274,702 | $ | 355,796 | $ | 330,600 | |||||||
|
Operating
Income
|
||||||||||||
|
Roller
|
$ | 20,969 | $ | 23,697 | $ | 28,818 | ||||||
|
Plain
|
28,554 | 41,517 | 40,982 | |||||||||
|
Ball
|
5,594 | 14,474 | 14,284 | |||||||||
|
Other
|
1,992 | 2,375 | 2,669 | |||||||||
|
Corporate
|
(22,439 | ) | (27,093 | ) | (23,903 | ) | ||||||
| $ | 34,670 | $ | 54,970 | $ | 62,850 | |||||||
|
Total
Assets
Roller
|
$ | 105,912 | $ | 94,391 | $ | 88,053 | ||||||
|
Plain
|
242,973 | 218,922 | 203,201 | |||||||||
|
Ball
|
45,819 | 52,075 | 37,303 | |||||||||
|
Other
|
7,904 | 8,952 | 11,773 | |||||||||
|
Corporate
|
(26,653 | ) | 7,727 | (3,218 | ) | |||||||
| $ | 375,955 | $ | 382,067 | $ | 337,112 | |||||||
|
Capital
Expenditures
|
||||||||||||
|
Roller
|
$ | 1,544 | $ | 5,885 | $ | 10,611 | ||||||
|
Plain
|
2,369 | 3,001 | 3,919 | |||||||||
|
Ball
|
5,610 | 17,793 | 2,084 | |||||||||
|
Other
|
313 | 750 | 1,065 | |||||||||
|
Corporate
|
70 | 154 | 79 | |||||||||
| $ | 9,906 | $ | 27,583 | $ | 17,758 | |||||||
|
Depreciation
& Amortization
|
||||||||||||
|
Roller
|
$ | 3,636 | $ | 3,635 | $ | 3,363 | ||||||
|
Plain
|
4,583 | 5,466 | 4,534 | |||||||||
|
Ball
|
1,561 | 907 | 732 | |||||||||
|
Other
|
1,205 | 1,441 | 1,299 | |||||||||
|
Corporate
|
845 | 711 | 537 | |||||||||
| $ | 11,830 | $ | 12,160 | $ | 10,465 | |||||||
|
Geographic
External Sales
|
||||||||||||
|
Domestic
|
$ | 234,329 | $ | 301,413 | $ | 280,510 | ||||||
|
Foreign
|
40,373 | 54,383 | 50,090 | |||||||||
| $ | 274,702 | $ | 355,796 | $ | 330,600 | |||||||
|
Geographic
Long-Lived Assets
|
||||||||||||
|
Domestic
|
$ | 84,718 | $ | 84,082 | $ | 69,975 | ||||||
|
Foreign
|
4,819 | 3,615 | 3,268 | |||||||||
| $ | 89,537 | $ | 87,697 | $ | 73,243 | |||||||
|
Intersegment
Sales
|
||||||||||||
|
Roller
|
$ | 8,331 | $ | 10,393 | $ | 8,298 | ||||||
|
Plain
|
1,692 | 1,846 | 1,417 | |||||||||
|
Ball
|
3,764 | 7,793 | 7,105 | |||||||||
|
Other
|
15,416 | 19,283 | 17,093 | |||||||||
| $ | 29,203 | $ | 39,315 | $ | 33,913 | |||||||
All intersegment sales are eliminated
in consolidation.
58
ITEM
9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
The Company’s management is responsible
for establishing and maintaining effective disclosure controls and procedures,
as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934. As of
the end of the period covered by this report, the Company performed an
evaluation, under the supervision and with the participation of the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the Company’s disclosure controls and procedures. Based
upon that evaluation, the Company’s Chief Executive Officer and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures provide
reasonable assurance that the material information required to be disclosed by
the Company in the reports that it files or submits to the Securities and
Exchange Commission under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Commission’s rules and forms. No changes were made to the Company’s internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934) during the last fiscal quarter that materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting. The Company’s management believes that its
disclosure controls and procedures were effective as of April 3,
2010.
59
Management’s
Report on Internal Control Over Financial Reporting
Management
of RBC Bearings Incorporated is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Securities Exchange Act of 1934.
The
Company’s internal control over financial reporting is supported by written
policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company’s assets; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of the Company’s management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the Company’s internal control over financial
reporting as of April 3, 2010 as required by Securities Exchange Act of
1934. In making this assessment, we used the criteria set forth in
the framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal
Control-Integrated Framework, our management concluded that our internal
control over financial reporting was effective as of April 3, 2010.
The
effectiveness of our internal control over financial reporting as of April 3,
2010 has been audited by Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which appears on the following
page.
RBC
Bearings Incorporated
Oxford,
Connecticut
June 2,
2010
60
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
of RBC
Bearings Incorporated
We have
audited RBC Bearings Incorporated’s internal control over financial reporting as
of April 3, 2010, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). RBC Bearings Incorporated’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, RBC Bearings Incorporated maintained, in all material respects,
effective internal control over financial reporting as of April 3, 2010, based
on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of RBC Bearings
Incorporated as of April 3, 2010 and March 28, 2009, and the related
consolidated statements of operations, stockholders’ equity and comprehensive
income and cash flows, for each of the three years in the period ended April 3,
2010, and our report dated June 2, 2010 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Hartford,
Connecticut
June 2,
2010
61
ITEM
9B. OTHER INFORMATION
None.
PART
III
The
information called for by Part III (Items 10, 11, 12, 13 and 14) of Form 10-K
will be included in our Proxy Statement for our 2010 Annual Meeting of
Shareholders, which the Company intends to file within 120 days after the close
of its fiscal year ended April 3, 2010 and which is incorporated herein by
reference to such Proxy Statement.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1.
Financial Statements
The following Consolidated Financial
Statements of the Company are included in Item 8, “Financial Statements and
Supplementary Data”:
|
Report
of Independent Registered Public Accounting Firm
|
32
|
|
Consolidated
Balance Sheets at April 3, 2010 and March 28, 2009
|
33
|
|
Consolidated
Statements of Operations for the years ended April 3, 2010, March 28, 2009
and March 29, 2008
|
35
|
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income for the years
ended April 3, 2010, March 28, 2009 and March 29, 2008
|
36
|
|
Consolidated
Statements of Cash Flows for the years ended April 3, 2010, March 28, 2009
and March 29, 2008
|
37
|
|
Notes
to Consolidated Financial Statements
|
38
|
(a) 2. Financial
Statement Schedules
All schedules have been omitted because
of the absence of conditions under which they are required or because the
required information is presented in the financial statements or notes
thereto.
(a) 3. Exhibits
The
following exhibits are filed as part of this report.
Certain of the following exhibits have
been previously filed with the Securities and Exchange Commission by the Company
pursuant to the requirements of the Securities Act of 1933 and the Securities
Exchange Act of 1934. Such exhibits are identified by the parenthetical
references following the listing of each such exhibit and are incorporated
herein by reference. The Company’s Commission file number is
333-124824.
|
Exhibit
|
||
|
Number
|
Description
of Document
|
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of RBC Bearings Incorporated
dated August 13, 2005 as filed with Amendment No. 4 to RBC Bearings
Incorporated's Registration Statement on Form S-1, file No. 333-124824
(the "Registration Statement") dated August 8, 2005 is hereby incorporated
by reference herein.
|
|
|
3.2
|
Bylaws
of RBC Bearings Incorporated, as filed as Exhibit 3.3 to Amendment No. 4
to the Registration Statement on Form S-1 dated August 8, 2005 is hereby
incorporated by reference herein.
|
|
|
4.1
|
Form
of stock certificate for common stock, as filed as Exhibit 4.3 to RBC
Bearings Incorporated's Amendment No. 3 to Registration Statement on Form
S-1 dated August 4, 2005 is hereby incorporated by reference
herein.
|
62
|
4.2
|
Form
of Amended and Restated Warrants to Purchase Common Stock, as filed as
Exhibit 4.7 to RBC Bearing Incorporated’s Registration Statement on Form
S-8 dated March 15, 2006, is hereby incorporated by reference
herein.
|
|
|
4.3
|
Amended
and Restated Warrants to Purchase Class B Supervoting Common Stock, as
filed as Exhibit 4.8 to RBC Bearing Incorporated’s Registration Statement
on Form S-8 dated March 15, 2006, is hereby incorporated by reference
herein.
|
|
|
10.1
|
Amended
and Restated 2001 Stock Option Plan of RBC Bearings Incorporated (f/k/a
Roller Bearing Holding Company, Inc.), dated October 24, 2003 filed as
Exhibit 10.2 to the Registration Statement on Form S-1 dated May 11, 2005
is hereby incorporated by reference herein.
|
|
|
10.2
|
Form
of RBC Bearings Inc. 2005 Long-Term Equity Incentive Plan, as filed as
Exhibit 4.6 to RBC Bearing Incorporated’s Registration Statement on Form
S-8 dated November 18, 2005, is hereby incorporated by reference
herein.
|
|
|
10.3
|
Agreement
of Lease between Robear West Trenton Associates, L.P. and Roller Bearing
Company of America, Inc., dated February 10, 1999, for West Trenton, New
Jersey premises filed as Exhibit 10.6 to the Registration Statement on
Form S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.4
|
First
Amendment to Office Lease, dated July 26, 2004, between Robear West
Trenton Associates, L.P. and Roller Bearing Company of America, Inc. filed
as Exhibit 10.7 to the Registration Statement on Form S-1 dated May 11,
2005 is hereby incorporated by reference herein.
|
|
|
10.5
|
Indenture
of Lease dated March 31, 2004 between Roller Bearing Company of America,
Inc., and Raymond Hunicke, LLC, a Connecticut limited liability company
filed as Exhibit 10.8 to the Registration Statement on Form S-1 dated May
11, 2005 is hereby incorporated by reference herein.
|
|
|
10.6
|
Executed
counterpart of the Pledge and Security Agreement, dated as of September 1,
1994, between Roller Bearing Company of America, Inc., Heller Financial,
Inc. and Mark Twain Bank filed as Exhibit 10.9 to the Registration
Statement on Form S-1 dated May 11, 2005 is hereby incorporated by
reference herein.
|
|
|
10.7
|
Collective
Bargaining Agreement between Roller Bearing Company of America, Inc. and
the International Union U.A.W. and its Local 502, expires June 30, 2007
filed as Exhibit 10.15 to the Registration Statement on Form S-1 dated May
11, 2005 is hereby incorporated by reference herein.
|
|
|
10.8
|
Employment
Agreement, dated as of July 1, 2005, between the Company and Michael J.
Hartnett, Ph.D filed as Exhibit 10.19 to Amendment No. 4 to the
Registration Statement dated August 8, 2005 is hereby incorporated by
reference herein.
|
|
|
10.9
|
Lease
Agreement, dated as of December 17, 1999, between Schaublin SA and RBC
Schaublin SA filed as Exhibit 10.24 to the Registration Statement on Form
S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.10
|
Lease
Agreement dated May 17, 2004 by and between Shadowmoss Properties, LLC, a
South Carolina limited liability company and Roller Bearing Company of
America, Inc filed as Exhibit 10.33 to the Registration Statement on
Form S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.11
|
Credit
Agreement, dated December 8, 2003, between Credit Suisse and Schaublin SA
filed as Exhibit 10.34 to the Registration Statement on Form S-1 dated May
11, 2005 is hereby incorporated by reference herein.
|
|
|
10.12
|
Amendment
No. 1 to Credit Agreement, dated November 8, 2004, between Credit Suisse
and Schaublin SA filed as Exhibit 10.35 to the Registration Statement on
Form S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.13
|
Credit
Agreement, dated as of June 26, 2006, among Roller Bearing Company of
America, Inc., RBC Bearings Incorporated, the Lenders named therein,
KeyBank National Association, J.P. Morgan Securities Inc. and LaSalle Bank
National Association, filed as Exhibit 99.1 to Form 8-K dated July 18,
2006 is hereby incorporated by reference herein.
|
|
|
10.14
|
Parent
Guaranty, dated as of June 26, 2006, by RBC Bearings Incorporated, in
favor of KeyBank National Association, filed as Exhibit 99.2 to Form 8-K
dated July 18, 2006 is hereby incorporated by reference
herein.
|
|
|
10.15
|
Security
Agreement, dated as of June 26, 2006, among Roller Bearing Company of
America, Inc., RBC Bearings Incorporated, the Subsidiary Guarantors (as
defined therein), and KeyBank National Association, filed as Exhibit 99.3
to Form 8-K dated July 18, 2006 is hereby incorporated by reference
herein.
|
|
|
10.16
|
RBC
Bearings Incorporated 2005 Long Term Incentive Plan (Amended and Restated
as of August 29, 2007) filed as Exhibit 10.1 on Form 8-K dated August 30,
2007 is hereby incorporated by reference
herein.
|
63
|
10.17
|
Amendment
No. 2 to Credit Agreement, dated as of September 10, 2007 by and between
Roller Bearing Company of America, Inc., RBC Bearings Incorporated and
KeyBank National Association, as Administrative Agent and Lender filed as
Exhibit 10.1 on Form 8-K dated September 10, 2007 is hereby incorporated
by reference herein.
|
|
|
10.18
|
Agreement
between RBC Heim Bearings and Local No. 376 International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America
effective February 1, 2008 filed as Exhibit 10.5 on Form 10-Q dated
February 7, 2008 is hereby incorporated by reference
herein.
|
|
|
10.19
|
Form
of Change in Control Letter Agreement for Named Executive Officers, filed
as Exhibit 10.1 to Form 10-Q dated February 1, 2010 is hereby incorporated
by reference herein.
|
|
|
14.1
|
Code
of Ethics of the Registrant filed as Exhibit 14 to Form 10-Q dated
February 14, 2006 is hereby incorporated by reference
herein.
|
|
|
21
|
Subsidiaries
of the Registrant. Filed herewith.
|
|
|
23
|
Consent
of Ernst & Young LLP. Filed herewith.
|
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. Filed herewith.
|
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. Filed herewith.
|
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* Filed
herewith.
|
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* Filed
herewith.
|
*
This certification accompanies this Annual Report on Form 10-K, is not
deemed filed with the SEC and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (whether made before or after the
date of this Annual Report on Form 10-K), irrespective of any general
incorporation language contained in such filing.
64
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
RBC
Bearings Incorporated
|
|||
|
(Registrant)
|
|||
|
By:
|
/s/
Michael
J. Hartnett
|
||
|
Name:
|
Michael
J. Hartnett
|
||
|
Title:
|
Chief
Executive Officer
|
||
|
Date:
|
June
2, 2010
|
||
Pursuant to the requirements of the
Securities Exchange Act of 1934, this Report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
|
Signature
|
Title
|
|
|
/s/
Michael
J. Hartnett
|
Chairman,
President and Chief Executive Officer
|
|
|
Michael
J. Hartnett
|
(Principal
Executive Officer and Chairman)
|
|
|
Date: June
2, 2010
|
||
|
/s/
Daniel
A. Bergeron
|
Chief
Financial Officer
|
|
|
Daniel
A. Bergeron
|
(Principal
Financial and Accounting Officer)
|
|
|
Date: June
2, 2010
|
||
|
/s/
Thomas
M. Burigo
|
Corporate
Controller
|
|
|
Thomas
M. Burigo
|
||
|
Date: June
2, 2010
|
||
|
/s/
Richard
R. Crowell
|
Director
|
|
|
Richard
R. Crowell
|
||
|
Date: June
2, 2010
|
||
|
/s/
Alan
B. Levine
|
Director
|
|
|
Alan
B. Levine
|
||
|
Date: June
2, 2010
|
||
|
/s/
Dr.
Amir Faghri
|
Director
|
|
|
Dr.
Amir Faghri
|
||
|
Date: June
2, 2010
|
||
|
/s/
Dr.
Thomas J. O’Brien
|
Director
|
|
|
Dr.
Thomas J. O'Brien
|
||
|
Date: June
2, 2010
|
|
65
Exhibit
21
Roller
Bearing Company of America, Inc.
RBC
Precision Products—Plymouth, Inc.
Industrial
Tectonics Bearings Corporation
RBC
Linear Precision Products, Inc.
RBC
Precision Products—Bremen, Inc.
RBC Nice
Bearings, Inc.
RBC
Lubron Bearing Systems, Inc.
RBC
Oklahoma, Inc.
RBC
Aircraft Products, Inc.
RBC
Southwest Products, Inc.
All Power
Manufacturing Co.
RBC de
Mexico S DE RL DE CV
Schaublin
Holdings S.A.
Schaublin
SA
RBC
France SAS
Shanghai
Representative office of Roller Bearing Company of America, Inc.
RBC
Bearings U.K. Limited
Phoenix
Bearings, Ltd.
RBC CBS
Coastal Bearing Services LLC
Exhibit 23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-129826) pertaining to the RBC Bearings Incorporated 2005 Long-Term
Equity Incentive Plan, the RBC Bearings Incorporated Amended and Restated 2001
Stock Option Plan, the RBC Bearings Incorporated 1998 Stock Option Plan, and the
June 23, 1997 RBC Bearings Incorporated Warrant Agreement of our reports dated
June 2, 2010, with respect to the consolidated financial statements of RBC
Bearings Incorporated and the effectiveness of internal control over financial
reporting of RBC Bearings Incorporated, included in this Annual Report (Form
10-K) for the year ended April 3, 2010.
|
/s/
Ernst & Young LLP
|
Hartford,
Connecticut
June 2,
2010
Exhibit 31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dr.
Michael J. Hartnett, certify that:
1. I have
reviewed this annual report on Form 10-K of RBC Bearings
Incorporated;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including any consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; and
c)
evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
and
5. The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) all
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
|
Date:
June 2, 2010
|
By:
|
/s/
Michael J. Hartnett
|
|
|
Michael
J. Hartnett
|
|||
|
President
and Chief Executive Officer
|
|||
Exhibit 31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel
A. Bergeron, certify that:
1. I have
reviewed this annual report on Form 10-K of RBC Bearings
Incorporated;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including any consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; and
c)
evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
and
5. The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) all
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
|
Date:
June 2, 2010
|
By:
|
/s/
Daniel A. Bergeron
|
|
|
Daniel
A. Bergeron
|
|||
|
Chief
Financial Officer
|
|||
Exhibit 32.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO
18 U.S.C
SECTION 1350
The
undersigned, Dr. Michael J. Hartnett, the President and Chief Executive Officer
of RBC Bearings Incorporated (the “Company”), pursuant to 18 U.S.C. §1350,
hereby certifies that:
(i) the
Annual Report on Form 10-K for the year ended April 3, 2010 of the Company
(the “Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(ii) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Dated:
June 2, 2010
|
/s/
Michael J. Hartnett
|
||
|
Michael
J. Hartnett
|
||
|
President
and Chief Executive
Officer
|
||
Exhibit 32.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO
18 U.S.C.
SECTION 1350
The
undersigned, Daniel A. Bergeron, Chief Financial Officer, of RBC Bearings
Incorporated (the “Company”), pursuant to 18 U.S.C. §1350, hereby
certifies:
(i) the
Annual Report on Form 10-K for the period ended April 3, 2010 of the
Company (the “Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(ii) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Dated:
June 2, 2010
|
/s/
Daniel A. Bergeron
|
||
|
Daniel
A. Bergeron
|
||
|
Chief
Financial Officer
|
||