UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1,December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .to.
Commission File Number: 001-40840
RBC BEARINGS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware | 95-4372080 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
One Tribology Center Oxford, CT | 06478 | |
(Address of principal executive offices) | 06478 |
(203) 267-7001
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
Common Stock, par value $0.01 per share | RBC | The New York Stock Exchange | ||
5.00% Series A Mandatory Convertible Preferred Stock, par value $0.01 per share | RBCP | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 ☒ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 4, 2022,February 3, 2023, RBC Bearings Incorporated had 29,017,34629,021,918 shares of Common Stock and 4,600,000 shares of Preferred Stock outstanding.
TABLE OF CONTENTS
Part I - FINANCIAL INFORMATION | 1 | |
Item 1. | Consolidated Financial Statements | 1 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | 34 |
Changes in Internal Control over Financial Reporting | ||
Part II - OTHER INFORMATION | 35 | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits |
i
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RBC Bearings Incorporated
Consolidated Balance Sheets
(dollars in thousands, except per share data)
December 31, 2022 | April 2, 2022 | |||||||||||||||
October 1, 2022 | April 2, 2022 | (Unaudited) | ||||||||||||||
ASSETS | (Unaudited) | |||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 88,495 | $ | 182,862 | $ | 82,036 | $ | 182,862 | ||||||||
Accounts receivable, net of allowance for doubtful accounts of $2,986 as of October 1, 2022 and $2,737 as of April 2, 2022 | 236,527 | 247,487 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $3,537 as of December 31, 2022 and $2,737 as of April 2, 2022 | 214,536 | 247,487 | ||||||||||||||
Inventory | 557,801 | 516,140 | 577,627 | 516,140 | ||||||||||||
Prepaid expenses and other current assets | 28,708 | 15,748 | 27,572 | 15,748 | ||||||||||||
Total current assets | 911,531 | 962,237 | 901,771 | 962,237 | ||||||||||||
Property, plant and equipment, net | 378,291 | 386,732 | 375,763 | 386,732 | ||||||||||||
Operating lease assets, net | 43,263 | 44,535 | 42,015 | 44,535 | ||||||||||||
Goodwill | 1,872,689 | 1,902,104 | 1,869,238 | 1,902,104 | ||||||||||||
Intangible assets, net | 1,485,016 | 1,511,515 | 1,468,673 | 1,511,515 | ||||||||||||
Other noncurrent assets | 36,270 | 38,294 | 35,421 | 38,294 | ||||||||||||
Total assets | $ | 4,727,060 | $ | 4,845,417 | $ | 4,692,881 | $ | 4,845,417 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 148,870 | $ | 158,606 | $ | 136,722 | $ | 158,606 | ||||||||
Accrued expenses and other current liabilities | 147,584 | 145,252 | 136,162 | 145,252 | ||||||||||||
Current operating lease liabilities | 8,283 | 8,059 | 8,244 | 8,059 | ||||||||||||
Current portion of long-term debt | 1,512 | 1,543 | 1,544 | 1,543 | ||||||||||||
Total current liabilities | 306,249 | 313,460 | 282,672 | 313,460 | ||||||||||||
Long-term debt, less current portion | 1,520,602 | 1,686,798 | 1,462,534 | 1,686,798 | ||||||||||||
Long-term operating lease liabilities | 35,109 | 36,680 | 34,535 | 36,680 | ||||||||||||
Deferred income taxes | 308,956 | 315,463 | 303,999 | 315,463 | ||||||||||||
Other noncurrent liabilities | 116,007 | 120,408 | 128,215 | 120,408 | ||||||||||||
Total liabilities | 2,286,923 | 2,472,809 | 2,211,955 | 2,472,809 | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, $.01 par value; authorized shares: 10,000,000 as of October 1, 2022 and April 2, 2022, respectively; issued shares: 4,600,000 as of October 1, 2022 and April 2, 2022, respectively | 46 | 46 | ||||||||||||||
Common stock, $.01 par value; authorized shares: 60,000,000 as of October 1, 2022 and April 2, 2022, respectively; issued shares: 29,975,914 and 29,807,208 as of October 1, 2022 and April 2, 2022, respectively | 300 | 298 | ||||||||||||||
Preferred stock, $.01 par value; authorized shares: 10,000,000 as of December 31, 2022 and April 2, 2022; issued shares: 4,600,000 as of December 31, 2022 and April 2, 2022 | 46 | 46 | ||||||||||||||
Common stock, $.01 par value; authorized shares: 60,000,000 as of December 31, 2022 and April 2, 2022; issued shares: 29,980,270 and 29,807,208 as of December 31, 2022 and April 2, 2022, respectively | 300 | 298 | ||||||||||||||
Additional paid-in capital | 1,582,455 | 1,564,261 | 1,585,701 | 1,564,261 | ||||||||||||
Accumulated other comprehensive loss | (20,208 | ) | (5,800 | ) | (12,683 | ) | (5,800 | ) | ||||||||
Retained earnings | 955,895 | 886,155 | 986,473 | 886,155 | ||||||||||||
Treasury stock, at cost, 958,854 shares and 928,322 shares as of October 1, 2022 and April 2, 2022, respectively | (78,351 | ) | (72,352 | ) | ||||||||||||
Treasury stock, at cost, 961,374 shares and 928,322 shares as of December 31, 2022 and April 2, 2022, respectively | (78,911 | ) | (72,352 | ) | ||||||||||||
Total stockholders’ equity | 2,440,137 | 2,372,608 | 2,480,926 | 2,372,608 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 4,727,060 | $ | 4,845,417 | $ | 4,692,881 | $ | 4,845,417 |
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Operations
(dollars in thousands, except per share data)
(Unaudited)
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | October 1, 2022 | October 2, 2021 | December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | |||||||||||||||||||||||||
Net sales | $ | 369,167 | $ | 160,900 | $ | 723,247 | $ | 317,105 | $ | 351,625 | $ | 266,953 | $ | 1,074,872 | $ | 584,058 | ||||||||||||||||
Cost of sales | 218,020 | 98,436 | 430,948 | 190,868 | 205,585 | 173,608 | 636,533 | 364,476 | ||||||||||||||||||||||||
Gross margin | 151,147 | 62,464 | 292,299 | 126,237 | 146,040 | 93,345 | 438,339 | 219,582 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative | 57,519 | 40,223 | 113,347 | 71,435 | 56,782 | 41,702 | 170,129 | 113,137 | ||||||||||||||||||||||||
Other, net | 21,611 | 5,667 | 42,465 | 8,915 | 18,866 | 35,778 | 61,331 | 44,693 | ||||||||||||||||||||||||
Total operating expenses | 79,130 | 45,890 | 155,812 | 80,350 | 75,648 | 77,480 | 231,460 | 157,830 | ||||||||||||||||||||||||
Operating income | 72,017 | 16,574 | 136,487 | 45,887 | 70,392 | 15,865 | 206,879 | 61,752 | ||||||||||||||||||||||||
Interest expense, net | 18,332 | 15,770 | 34,131 | 16,089 | 20,901 | 11,848 | 55,032 | 27,937 | ||||||||||||||||||||||||
Other non-operating (income)/expense | 184 | (291 | ) | 951 | (756 | ) | ||||||||||||||||||||||||||
Other non-operating expense | 1,539 | 1,395 | 2,490 | 639 | ||||||||||||||||||||||||||||
Income before income taxes | 53,501 | 1,095 | 101,405 | 30,554 | 47,952 | 2,622 | 149,357 | 33,176 | ||||||||||||||||||||||||
Provision for income taxes | 9,699 | 2,447 | 20,165 | 7,868 | 11,688 | 2,076 | 31,853 | 9,944 | ||||||||||||||||||||||||
Net income/(loss) | 43,802 | (1,352 | ) | 81,240 | 22,686 | |||||||||||||||||||||||||||
Net income | 36,264 | 546 | 117,504 | 23,232 | ||||||||||||||||||||||||||||
Preferred stock dividends | 5,750 | 510 | 11,500 | 510 | 5,686 | 5,751 | 17,186 | 6,261 | ||||||||||||||||||||||||
Net income/(loss) available to common stockholders | $ | 38,052 | $ | (1,862 | ) | $ | 69,740 | $ | 22,176 | |||||||||||||||||||||||
Net income/(loss) attributable to common stockholders | $ | 30,578 | $ | (5,205 | ) | $ | 100,318 | $ | 16,971 | |||||||||||||||||||||||
Net income/(loss) per share available to common stockholders: | ||||||||||||||||||||||||||||||||
Net income/(loss) per share attributable to common stockholders: | ||||||||||||||||||||||||||||||||
Basic | $ | 1.32 | $ | (0.07 | ) | $ | 2.43 | $ | 0.88 | $ | 1.06 | $ | (0.18 | ) | $ | 3.49 | $ | 0.64 | ||||||||||||||
Diluted | $ | 1.31 | $ | (0.07 | ) | $ | 2.40 | $ | 0.87 | $ | 1.05 | $ | (0.18 | ) | $ | 3.45 | $ | 0.63 | ||||||||||||||
Weighted average common shares: | ||||||||||||||||||||||||||||||||
Basic | 28,758,403 | 25,500,393 | 28,714,445 | 25,260,728 | 28,805,305 | 28,618,495 | 28,744,732 | 26,379,984 | ||||||||||||||||||||||||
Diluted | 29,093,791 | 25,500,393 | 29,020,403 | 25,632,845 | 29,120,318 | 28,618,495 | 29,053,608 | 26,757,811 |
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Comprehensive IncomeIncome/(Loss)
(dollars in thousands)
(Unaudited)
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | October 1, 2022 | October 2, 2021 | December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | |||||||||||||||||||||||||
Net income/(loss) | $ | 43,802 | $ | (1,352 | ) | $ | 81,240 | $ | 22,686 | |||||||||||||||||||||||
Net income | $ | 36,264 | $ | 546 | $ | 117,504 | $ | 23,232 | ||||||||||||||||||||||||
Pension and postretirement liability adjustments, net of taxes (1) | 535 | 318 | 1,070 | 636 | 535 | 318 | 1,605 | 954 | ||||||||||||||||||||||||
Change in fair value of derivatives | (1,116 | ) | — | (1,116 | ) | — | ||||||||||||||||||||||||||
Foreign currency translation adjustments | (8,993 | ) | (1,409 | ) | (15,478 | ) | 510 | 8,106 | (1,951 | ) | (7,372 | ) | (1,441 | ) | ||||||||||||||||||
Total comprehensive income/(loss) | $ | 35,344 | $ | (2,443 | ) | $ | 66,832 | $ | 23,832 | $ | 43,789 | $ | (1,087 | ) | $ | 110,621 | $ | 22,745 |
(1) | These adjustments were net of tax expense of $148 and $82 for the three-month periods ended |
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Stockholders’ Equity
(dollars in thousands)
(Unaudited)
Common Stock | Preferred Stock | Additional Paid-in | Accumulated Other Comprehensive | Retained | Treasury Stock | Total Stockholders’ | Common Stock | Preferred Stock | Additional Paid-in | Accumulated Other Comprehensive | Retained | Treasury Stock | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income/(Loss) | Earnings | Shares | Amount | Equity | Shares | Amount | Shares | Amount | Capital | Income/(Loss) | Earnings | Shares | Amount | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 2, 2022 | 29,807,208 | $ | 298 | 4,600,000 | $ | 46 | $ | 1,564,261 | $ | (5,800 | ) | $ | 886,155 | (928,322 | ) | $ | (72,352 | ) | $ | 2,372,608 | 29,807,208 | $ | 298 | 4,600,000 | $ | 46 | $ | 1,564,261 | $ | (5,800 | ) | $ | 886,155 | (928,322 | ) | $ | (72,352 | ) | $ | 2,372,608 | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 37,438 | — | — | 37,438 | — | — | — | — | — | — | 37,438 | — | — | 37,438 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | 3,819 | — | — | — | — | 3,819 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 3,819 | — | — | — | — | 3,819 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | — | (5,750 | ) | — | — | (5,750 | ) | — | — | — | — | — | — | (5,750 | ) | — | — | (5,750 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | (30,469 | ) | (5,984 | ) | (5,984 | ) | — | — | — | — | — | — | — | (30,469 | ) | (5,984 | ) | (5,984 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of equity awards | 13,713 | 1 | — | — | 1,459 | — | — | — | — | 1,460 | 13,713 | 1 | — | — | 1,459 | — | — | — | — | 1,460 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in net prior service cost and actuarial losses, net of tax expense of $148 | — | — | — | — | — | 535 | — | — | — | 535 | — | — | — | — | — | 535 | — | — | — | 535 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | 56,955 | — | — | — | — | — | — | — | — | — | 56,955 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | (6,485 | ) | — | — | — | (6,485 | ) | — | — | — | — | — | (6,485 | ) | — | — | — | (6,485 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at July 2, 2022 | 29,877,876 | $ | 299 | 4,600,000 | $ | 46 | $ | 1,569,539 | $ | (11,750 | ) | $ | 917,843 | (958,791 | ) | $ | (78,336 | ) | $ | 2,397,641 | 29,877,876 | $ | 299 | 4,600,000 | $ | 46 | $ | 1,569,539 | $ | (11,750 | ) | $ | 917,843 | (958,791 | ) | $ | (78,336 | ) | $ | 2,397,641 | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 43,802 | — | — | 43,802 | — | — | — | — | — | — | 43,802 | — | — | 43,802 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | 4,354 | — | — | — | — | 4,354 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 4,354 | — | — | — | — | 4,354 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | — | (5,750 | ) | — | — | (5,750 | ) | — | — | — | — | — | — | (5,750 | ) | — | — | (5,750 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | (63 | ) | (15 | ) | (15 | ) | — | — | — | — | — | — | — | (63 | ) | (15 | ) | (15 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of equity awards | 89,509 | 1 | — | — | 8,562 | — | — | — | — | 8,563 | 89,509 | 1 | — | — | 8,562 | — | — | — | — | 8,563 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in net prior service cost and actuarial losses, net of tax expense of $148 | — | — | — | — | — | 535 | — | — | — | 535 | — | — | — | — | — | 535 | — | — | — | 535 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | 8,529 | — | — | — | — | — | — | — | — | — | 8,529 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | (8,993 | ) | — | — | — | (8,993 | ) | — | — | — | — | — | (8,993 | ) | — | — | — | (8,993 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at October 1, 2022 | 29,975,914 | $ | 300 | 4,600,000 | $ | 46 | $ | 1,582,455 | $ | (20,208 | ) | $ | 955,895 | (958,854 | ) | $ | (78,351 | ) | $ | 2,440,137 | 29,975,914 | $ | 300 | 4,600,000 | $ | 46 | $ | 1,582,455 | $ | (20,208 | ) | $ | 955,895 | (958,854 | ) | $ | (78,351 | ) | $ | 2,440,137 | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 36,264 | — | — | 36,264 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 2,874 | — | — | — | — | 2,874 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | — | (5,686 | ) | — | — | (5,686 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | (2,520 | ) | (560 | ) | (560 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of equity awards | 3,714 | — | — | — | 372 | — | — | — | — | 372 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in net prior service cost and actuarial losses, net of tax expense of $148 | — | — | — | — | — | 535 | — | — | — | 535 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | 642 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives | — | — | — | — | — | (1,116 | ) | — | — | — | (1,116 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | 8,106 | — | — | — | 8,106 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 29,980,270 | $ | 300 | 4,600,000 | $ | 46 | $ | 1,585,701 | $ | (12,683 | ) | $ | 986,473 | (961,374 | ) | $ | (78,911 | ) | $ | 2,480,926 |
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Stockholders’ Equity (continued)
(dollars in thousands)
(Unaudited)
Common Stock | Preferred Stock | Additional Paid-in | Accumulated Other Comprehensive | Retained | Treasury Stock | Total Stockholders’ | Common Stock | Preferred Stock | Additional Paid-in | Accumulated Other Comprehensive | Retained | Treasury Stock | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income/(Loss) | Earnings | Shares | Amount | Equity | Shares | Amount | Shares | Amount | Capital | Income/(Loss) | Earnings | Shares | Amount | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 3, 2021 | 26,110,320 | $ | 261 | — | $ | — | $ | 462,616 | $ | (10,409 | ) | $ | 843,456 | (884,701 | ) | $ | (63,826 | ) | $ | 1,232,098 | 26,110,320 | $ | 261 | — | $ | — | $ | 462,616 | $ | (10,409 | ) | $ | 843,456 | (884,701 | ) | $ | (63,826 | ) | $ | 1,232,098 | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 24,038 | — | — | 24,038 | — | — | — | — | — | — | 24,038 | — | — | 24,038 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | 7,182 | — | — | — | — | 7,182 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 7,182 | — | — | — | — | 7,182 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | (31,572 | ) | (6,264 | ) | (6,264 | ) | — | — | — | — | — | — | — | (31,572 | ) | (6,264 | ) | (6,264 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of equity awards | 135,518 | 2 | — | — | 16,679 | — | — | — | — | 16,681 | 135,518 | 2 | — | — | 16,679 | — | — | — | — | 16,681 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in net prior service cost and actuarial losses, net of tax expense of $83 | — | — | — | — | — | 318 | — | — | — | 318 | — | — | — | — | — | 318 | — | — | — | 318 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | 91,056 | — | — | — | — | — | — | — | — | — | 91,056 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | 1,919 | — | — | — | 1,919 | — | — | — | — | — | 1,919 | — | — | — | 1,919 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at July 3, 2021 | 26,336,894 | $ | 263 | — | $ | — | $ | 486,477 | $ | (8,172 | ) | $ | 867,494 | (916,273 | ) | $ | (70,090 | ) | $ | 1,275,972 | 26,336,894 | $ | 263 | — | $ | — | $ | 486,477 | $ | (8,172 | ) | $ | 867,494 | (916,273 | ) | $ | (70,090 | ) | $ | 1,275,972 | ||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (1,352 | ) | — | — | (1,352 | ) | — | — | — | — | — | — | (1,352 | ) | — | — | (1,352 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | 16,774 | — | — | — | — | 16,774 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 16,773 | — | — | — | — | 16,773 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock issuance, net of issuance costs | — | — | 4,600,000 | 46 | 445,407 | — | — | — | — | 445,453 | — | — | 4,600,000 | 46 | 445,407 | — | — | — | — | 445,453 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issuance, net of issuance costs | 3,450,000 | 35 | — | — | 605,642 | — | — | — | — | 605,677 | 3,450,000 | 35 | — | — | 605,642 | — | — | — | — | 605,677 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | — | (510 | ) | — | — | (510 | ) | — | — | — | — | — | — | (510 | ) | — | — | (510 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | (406 | ) | (92 | ) | (92 | ) | — | — | — | — | — | — | — | (406 | ) | (92 | ) | (92 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of equity awards | 1,332 | — | — | — | 131 | — | — | — | — | 131 | 1,332 | — | — | — | 131 | — | — | — | — | 131 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in net prior service cost and actuarial losses, net of tax expense of $82 | — | — | — | — | — | 318 | — | — | — | 318 | — | — | — | — | — | 318 | — | — | — | 318 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | (1,064 | ) | — | — | — | — | — | — | — | — | — | (1,064 | ) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | (1,409 | ) | — | — | — | (1,409 | ) | — | — | — | — | — | (1,409 | ) | — | — | — | (1,409 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at October 2, 2021 | 29,787,162 | $ | 298 | 4,600,000 | $ | 46 | $ | 1,554,431 | $ | (9,263 | ) | $ | 865,632 | (916,679 | ) | $ | (70,182 | ) | $ | 2,340,962 | 29,787,162 | $ | 298 | 4,600,000 | $ | 46 | $ | 1,554,430 | $ | (9,263 | ) | $ | 865,632 | (916,679 | ) | $ | (70,182 | ) | $ | 2,340,961 | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 546 | — | — | 546 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 4,544 | — | — | — | — | 4,544 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock issuance, net of issuance costs | — | — | — | — | (134 | ) | — | — | — | — | (134 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issuance, net of issuance costs | — | — | — | — | (185 | ) | — | — | — | — | (185 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | — | (5,751 | ) | — | — | (5,751 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | (6,661 | ) | (1,300 | ) | (1,300 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of equity awards | 9,759 | — | — | — | 905 | — | — | — | — | 905 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in net prior service cost and actuarial losses, net of tax expense of $82 | — | — | — | — | — | 318 | — | — | — | 318 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | 1,319 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | (1,951 | ) | — | — | — | (1,951 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 | 29,798,240 | $ | 298 | 4,600,000 | $ | 46 | $ | 1,559,560 | $ | (10,896 | ) | $ | 860,427 | (923,340 | ) | $ | (71,482 | ) | $ | 2,337,953 |
See accompanying notes.
RBC Bearings Incorporated
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Six Months Ended | Nine Months Ended | |||||||||||||||
October 1, 2022 | October 2, 2021 | December 31, 2022 | January 1, 2022 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 81,240 | $ | 22,686 | $ | 117,504 | $ | 23,232 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 57,068 | 16,857 | 85,811 | 37,355 | ||||||||||||
Deferred income taxes | (6,523 | ) | 1,276 | (10,513 | ) | (54 | ) | |||||||||
Amortization of deferred financing costs | 4,338 | 15,682 | 6,164 | 17,600 | ||||||||||||
Share-based compensation | 8,173 | 23,955 | ||||||||||||||
Loss/(gain) on disposition of assets | 85 | 75 | ||||||||||||||
Stock-based compensation | 11,047 | 28,499 | ||||||||||||||
Loss on disposition of assets | 132 | 68 | ||||||||||||||
Loss on extinguishment of debt | - | 890 | ||||||||||||||
Consolidation, restructuring, and other noncash charges | 318 | 2,378 | 318 | 2,378 | ||||||||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||||||||||
Accounts receivable | 9,265 | 642 | 32,268 | (5,929 | ) | |||||||||||
Inventory | (45,176 | ) | (7,173 | ) | (62,771 | ) | (8,531 | ) | ||||||||
Prepaid expenses and other current assets | (12,954 | ) | (12,059 | ) | (12,166 | ) | (10,298 | ) | ||||||||
Other noncurrent assets | 5,238 | (1,310 | ) | 7,369 | (225 | ) | ||||||||||
Accounts payable | (8,664 | ) | 11,248 | (21,018 | ) | 34,215 | ||||||||||
Accrued expenses and other current liabilities | 2,402 | 14,000 | (9,692 | ) | 6,003 | |||||||||||
Other noncurrent liabilities | (6,430 | ) | 5,217 | 4,805 | 8,223 | |||||||||||
Net cash provided by operating activities | 88,380 | 93,474 | 149,258 | 133,426 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Capital expenditures | (23,076 | ) | (6,882 | ) | (29,577 | ) | (21,761 | ) | ||||||||
Proceeds from sale of assets | 510 | 10 | 518 | 22 | ||||||||||||
Purchase of marketable securities | - | (29,982 | ) | - | (29,982 | ) | ||||||||||
Proceeds from sale of marketable securities | - | 120,483 | - | 120,483 | ||||||||||||
Acquisition of business, net of cash acquired | - | (2,908,241 | ) | |||||||||||||
Purchase price adjustments for acquisition of business | 22,966 | - | 27,466 | - | ||||||||||||
Net cash (used in)/ provided by investing activities | 400 | 83,629 | ||||||||||||||
Net cash used in investing activities | (1,593 | ) | (2,839,479 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds received from issuance of common stock | - | 605,677 | - | 605,492 | ||||||||||||
Proceeds received from issuance of preferred stock | - | 445,453 | - | 445,319 | ||||||||||||
Finance fees paid in connection with credit facilities and term loans | - | (32,208 | ) | |||||||||||||
Proceeds received from term loans, net of financing costs | - | 1,286,230 | ||||||||||||||
Proceeds received from senior notes, net of financing costs | - | 494,200 | ||||||||||||||
Finance fees paid in connection with credit facilities and senior notes | (57 | ) | (20,000 | ) | ||||||||||||
Repayments of term loans | (170,000 | ) | (8,866 | ) | (230,000 | ) | (9,952 | ) | ||||||||
Repayments of notes payable | (240 | ) | (254 | ) | (364 | ) | (380 | ) | ||||||||
Principal payments on finance lease obligations | (2,219 | ) | - | (3,196 | ) | (679 | ) | |||||||||
Preferred stock dividends paid | (11,500 | ) | - | (17,250 | ) | - | ||||||||||
Exercise of stock options | 10,023 | 16,812 | 10,395 | 17,717 | ||||||||||||
Repurchase of common stock | (5,999 | ) | (6,356 | ) | (6,559 | ) | (7,656 | ) | ||||||||
Net cash provided by/(used in) financing activities | (179,935 | ) | 1,020,258 | (247,031 | ) | 2,810,291 | ||||||||||
Effect of exchange rate changes on cash | (3,212 | ) | 164 | (1,460 | ) | 179 | ||||||||||
Cash and cash equivalents: | ||||||||||||||||
Increase/(Decrease) during the period | (94,367 | ) | 1,197,525 | (100,826 | ) | 104,417 | ||||||||||
Cash and cash equivalents, at beginning of period | 182,862 | 151,086 | 182,862 | 151,086 | ||||||||||||
Cash and cash equivalents, at end of period | $ | 88,495 | $ | 1,348,611 | $ | 82,036 | $ | 255,503 | ||||||||
Supplemental disclosures of cash flow information: | ||||||||||||||||
Cash paid for: | ||||||||||||||||
Income taxes | $ | 34,881 | $ | 10,777 | $ | 47,694 | $ | 12,405 | ||||||||
Interest | 30,101 | 416 | 54,940 | 4,925 |
See accompanying notes.
RBC Bearings Incorporated
Notes to Unaudited Interim Consolidated Financial Statements
(dollars in thousands, except per share data)
1. Basis of Presentation
The interim consolidated financial statements included herein have been prepared by RBC Bearings Incorporated, a Delaware corporation (collectively with its subsidiaries, the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The interim financial statements included with this report have been prepared on a consistent basis with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended April 2, 2022.2022 (our “Annual Report”). We condensed or omitted certain information and footnote disclosures normally included in our annual audited financial statements, which we prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP)(“GAAP”). As used in this report, the terms “we,” “us,” “our,” “RBC” and the “Company” mean RBC Bearings Incorporated and its subsidiaries, unless the context indicates another meaning.
These statements reflect all adjustments, accruals, and estimates, consisting only of items of a normal recurring nature, that are, in the opinion of management, necessary for the fair presentation of the consolidated financial condition and consolidated results of operations for the interim periods presented. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in theour Annual Report on Form 10-K/A.Report.
The results of operations for the three- and six-monthnine-month periods ended October 1,December 31, 2022 are not necessarily indicative of the operating results for the entire fiscal year ending April 1, 2023. The three- and six-monthnine-month periods ended OctoberDecember 31, 2022 and January 1, 2022 and October 2, 2021 each included 13 weeks and 2639 weeks, respectively. The amounts shown are in thousands, unless otherwise indicated.
2. Significant Accounting Policies
The Company’s significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies” of our Annual Report on Form 10-K/A for the year ended April 2, 2022.Report.
Significant changes to our accounting policies as a result of adopting new accounting standards are discussed below.
Recent Accounting Standards Adopted
Not applicable.
Recent Accounting Standards Yet to Be Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The objective of the standard is to address operational challenges likely to arise in accounting for contract modifications and hedge accounting due to reference rate reform. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The standard update is effective for all entities as of March 12, 2020 through December 31, 2022. This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company will adoptadopted this ASU during the third quarter of our fiscal year.year and elected to apply the practical expedient which allows us to account for the modification of the New Credit Agreement discussed in Note 10 to the financial statements as if the modification was not substantial. The impact of the adoption of this standard update is dependent on the Company's contracts modifications as a result of reference rate reform; however, the Company doesdid not expect the adoption of the amendments associated with hedging relationships to have a material impact on the Company'sCompany’s consolidated financial statements.
Recent Accounting Standards Yet to Be Adopted
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832). ASU 2021-10 is intended to increase transparency of government assistance by requiring entities to disclose the types of government assistance, the entity’s accounting for government assistance, and the effect of the government assistance on an entity’s financial statements. This new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact of the new guidance.
Other new pronouncements issued but not effective until after April 1, 2023 are not expected to have a material impact on our financial position, results of operations or liquidity.
3. Revenue from Contracts with Customers
Disaggregation of Revenue
The following table disaggregates total revenue by end market which is how we view our reportable segments (see Note 12):
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | October 1, 2022 | October 2, 2021 | December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | |||||||||||||||||||||||||
Aerospace/Defense | $ | 103,548 | $ | 92,915 | $ | 202,947 | $ | 183,280 | $ | 105,532 | $ | 93,203 | $ | 308,479 | $ | 276,483 | ||||||||||||||||
Industrial | 265,619 | 67,985 | 520,300 | 133,825 | 246,093 | 173,750 | 766,393 | 307,575 | ||||||||||||||||||||||||
Total | $ | 369,167 | $ | 160,900 | $ | 723,247 | $ | 317,105 | $ | 351,625 | $ | 266,953 | $ | 1,074,872 | $ | 584,058 |
The following table disaggregates total revenue by geographic origin:
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | October 1, 2022 | October 2, 2021 | December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | |||||||||||||||||||||||||
United States | $ | 324,774 | $ | 144,074 | $ | 635,404 | $ | 283,864 | $ | 311,509 | $ | 233,900 | $ | 946,913 | $ | 517,764 | ||||||||||||||||
International | 44,393 | 16,826 | 87,843 | 33,241 | 40,116 | 33,053 | 127,959 | 66,294 | ||||||||||||||||||||||||
Total | $ | 369,167 | $ | 160,900 | $ | 723,247 | $ | 317,105 | $ | 351,625 | $ | 266,953 | $ | 1,074,872 | $ | 584,058 |
The following table illustrates the approximate percentage of revenue recognized for performance obligations satisfied over time versus the amount of revenue recognized for performance obligations satisfied at a point in time:
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | October 1, 2022 | October 2, 2021 | December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | |||||||||||||||||||||||||
Point-in-time | 98 | % | 96 | % | 98 | % | 96 | % | 98 | % | 98 | % | 98 | % | 97 | % | ||||||||||||||||
Over time | 2 | % | 4 | % | 2 | % | 4 | % | 2 | % | 2 | % | 2 | % | 3 | % | ||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of orders meeting the definition of a contract for which work has not been performed or has been partially performed and excludes unexercised contract options. The duration of the majority of our contracts, as defined by ASC Topic 606, is less than one year. The Company has elected to apply the practical expedient, which allows companiesthe Company to exclude remaining performance obligations with an original expected duration of one year or less. The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $305,457$342,081 at October 1,December 31, 2022. The Company expects to recognize revenue on approximately 63%62% and 91%86% of the remaining performance obligations over the next 12 and 24 months, respectively, with the remainder recognized thereafter.
Contract Balances
The timing of revenue recognition, invoicing and cash collections affect accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the consolidated balance sheets. These assets and liabilities are reported on the consolidated balance sheets on an individual contract basis at the end of each reporting period.
Contract Assets (Unbilled Receivables) - Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when (1) the cost-to-cost method is applied and (2) such revenue exceeds the amount invoiced to the customer.
As of October 1,December 31, 2022 and April 2, 2022, current contract assets were $4,707$5,011 and $3,882, respectively, and included within prepaid expenses and other current assets on the consolidated balance sheets. The increase in contract assets was primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations prior to billing, partially offset by amounts billed to customers during the period. As of October 1,December 31, 2022 and April 2, 2022, the Company did not have any contract assets classified as noncurrent on the consolidated balance sheets.
Contract Liabilities (Deferred Revenue) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior to revenue being recognized. Since the performance obligations related to such advances may not have been satisfied, a contract liability is established. Advance payments are not considered a significant financing component as the timing of the transfer of the related goods or services is at the discretion of the customer.
As of October 1,December 31, 2022 and April 2, 2022, current contract liabilities were $22,414$17,474 and $19,556, respectively, and included within accrued expenses and other current liabilities on the consolidated balance sheets. The increasedecrease in current contract liabilities was primarily due to revenue recognized on customer contracts, partially offset by advance payments received and the reclassification of a portion of advance payments received from the noncurrent portion of contract liabilities partially offset by revenue recognized on customer contracts.liabilities. For the three and sixnine months ended October 1,December 31, 2022, the Company recognized revenues of $3,606$2,589 and $7,474,$10,063, respectively, that were included in the contract liability balance as of April 2, 2022. For the three and sixnine months ended October 2, 2021,January 1, 2022, the Company recognized revenues of $2,129$3,783 and $6,779,$10,562, respectively, that were included in the contract liability balance at April 3, 2021.
As of October 1,December 31, 2022 and April 2, 2022, noncurrent contract liabilities were $9,295$17,819 and $10,401, respectively, and included within other noncurrent liabilities on the consolidated balance sheets. The decreaseincrease in noncurrent contract liabilities was primarily due to advance payments received, partially offset by the reclassification of a portion of advance payments received to the current portion of contract liabilities.
Variable Consideration
The amount of consideration to which the Company expects to be entitled in exchange for the goods and services is not generally subject to significant variations. However, the Company does offer certain customers rebates, prompt payment discounts, end-user discounts, the right to return eligible products, and/or other forms of variable consideration. The Company estimates this variable consideration using the expected value amount, which is based on historical experience. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company adjusts the estimate of revenue at the earlier of when the amount of consideration the Company expects to receive changes or when the consideration becomes fixed. Accrued customer rebates were $38,829$38,284 and $35,234 at October 1,December 31, 2022 and April 2, 2022, respectively, and are included within accrued expenses and other current liabilities on the consolidated balance sheets.
4. Accumulated Other Comprehensive Income Income/(Loss)
The components of comprehensive income income/(loss) that relate to the Company are net income/(loss), foreign currency translation adjustments, changes in fair value of derivatives, and pension plan and postretirement benefits.
The following summarizes the activity within each component of accumulated other comprehensive income income/(loss), net of taxes:
Currency Translation | Pension and Postretirement Liability | Total | ||||||||||
Balance at April 2, 2022 | $ | 860 | $ | (6,660 | ) | $ | (5,800 | ) | ||||
Other comprehensive income (loss) before reclassifications | (15,478 | ) | — | (15,478 | ) | |||||||
Amounts recorded in/reclassified from accumulated other comprehensive income (loss) | — | 1,070 | 1,070 | |||||||||
Net current period other comprehensive income (loss) | (15,478 | ) | 1,070 | (14,408 | ) | |||||||
Balance at October 1, 2022 | $ | (14,618 | ) | $ | (5,590 | ) | $ | (20,208 | ) |
Currency Translation | Change in Fair Value of Derivatives | Pension and Postretirement Liability | Total | |||||||||||||
Balance at April 2, 2022 | $ | 860 | $ | — | $ | (6,660 | ) | $ | (5,800 | ) | ||||||
Other comprehensive loss before reclassifications | (7,372 | ) | — | — | (7,372 | ) | ||||||||||
Amounts recorded in/reclassified from accumulated other comprehensive income/(loss) | — | (1,116 | ) | 1,605 | 489 | |||||||||||
Net current period other comprehensive income/(loss) | (7,372 | ) | (1,116 | ) | 1,605 | (6,883 | ) | |||||||||
Balance at December 31, 2022 | $ | (6,512 | ) | $ | (1,116 | ) | $ | (5,055 | ) | $ | (12,683 | ) |
5. Net Income/(Loss) Per Share AvailableAttributable to Common Stockholders
Basic net income/(loss) per share availableattributable to common stockholders is computed by dividing net income/(loss) availableattributable to common stockholders by the weighted-average number of common shares outstanding.
Diluted net income/(loss) per share availableattributable to common stockholders is computed by dividing net income/(loss) availableattributable to common stockholders by the sum of the weighted-average number of common shares and dilutive common share equivalents then outstanding using the treasury stock method. Common share equivalents consist of the incremental common shares issuable upon the exercise of stock options and the conversion of the outstanding 5.00% Series A Mandatory Convertible Preferred Stock (“MCPS”) to common shares. The MCPS was issued on September 24, 2021.
We exclude outstanding stock options, stock awards and the MCPS from the calculations if the effect would be anti-dilutive. The dilutive effect of the MCPS is calculated using the if-converted method. The if-converted method assumes that these securities were converted to shares of common stock at the later of the September 24, 2021 issuance date or the beginning of the reporting period to the extent that the effect is dilutive. If the effect is anti-dilutive, we calculate net income/(loss) per share availableattributable to common stockholders by adjusting net income/(loss) in the numerator for the effect of the cumulative MCPS dividends for the respective period.
For the three- and six-monthnine-month periods ended October 1,December 31, 2022, the effect of assuming the conversion of the 4,600,000 shares of MCPS into shares of common stock was anti-dilutive, and therefore excluded from the calculation of diluted earnings per share availableattributable to common stockholders. Accordingly, net income/(loss) was reduced by cumulative MCPS dividends, as presented in our consolidated statement of operations, for purposes of calculating net income/(loss) availableattributable to common stockholders.
For the three months ended October 1,December 31, 2022, 90,79691,816 employee stock options and 4851,085 restricted shares were excluded from the calculation of diluted earnings per share availableattributable to common stockholders. For the sixnine months ended October 1,December 31, 2022, 110,692111,446 employee stock options and 9,7801,085 restricted shares were excluded from the calculation of diluted earnings per share availableattributable to common stockholders. The inclusion of these employee stock options and restricted shares would have been anti-dilutive.
For the three months ended January 1, 2022, all employee stock options and restricted shares were excluded from the calculation of diluted earnings per share attributable to common stockholders as the Company generated a loss for the period. For the nine months ended January 1, 2022, 164,265 employee stock options and 200 restricted shares were excluded from the calculation of diluted earnings per share attributable to common stockholders. The inclusion of these employee stock options and restricted shares would have been anti-dilutive.
For the three months ended October 2, 2021, no employee stock options or restricted shares were excluded from the calculation of diluted earnings per share available to common stockholders. For the six months ended October 2, 2021, 159,925 employee stock options and no restricted shares were excluded from the calculation of diluted earnings per share available to common stockholders. The inclusion of these employee stock options would have been anti-dilutive.
The table below reflects the calculation of weighted-average shares outstanding for each period presented as well as the computation of basic and diluted net income/(loss) per share availableattributable to common stockholders.
Three Months Ended | Six Months Ended | |||||||||||||||
October 1, 2022 | October 2, 2021 | October 1, 2022 | October 2, 2021 | |||||||||||||
Net income/(loss) | $ | 43,802 | $ | (1,352 | ) | $ | 81,240 | $ | 22,686 | |||||||
Preferred stock dividends | 5,750 | 510 | 11,500 | 510 | ||||||||||||
Net income/(loss) available to common stockholders | $ | 38,052 | $ | (1,862 | ) | $ | 69,740 | $ | 22,176 | |||||||
Denominator for basic net income/(loss) per share available to common stockholders — weighted-average shares outstanding | 28,758,403 | 25,500,393 | 28,714,445 | 25,260,728 | ||||||||||||
Effect of dilution due to employee stock awards | 335,388 | — | 305,958 | 372,117 | ||||||||||||
Denominator for diluted net income/(loss) per share available to common stockholders — weighted-average shares outstanding | 29,093,791 | 25,500,393 | 29,020,403 | 25,632,845 | ||||||||||||
Basic net income/(loss) per share available to common stockholders | $ | 1.32 | $ | (0.07 | ) | $ | 2.43 | $ | 0.88 | |||||||
Diluted net income/(loss) per share available to common stockholders | $ | 1.31 | $ | (0.07 | ) | $ | 2.40 | $ | 0.87 |
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | |||||||||||||
Net income | $ | 36,264 | $ | 546 | $ | 117,504 | $ | 23,232 | ||||||||
Preferred stock dividends | 5,686 | 5,751 | 17,186 | 6,261 | ||||||||||||
Net income/(loss) attributable to common stockholders | $ | 30,578 | $ | (5,205 | ) | $ | 100,318 | $ | 16,971 | |||||||
Denominator for basic net income/(loss) per share attributable to common stockholders — weighted-average shares outstanding | 28,805,305 | 28,618,495 | 28,744,732 | 26,379,984 | ||||||||||||
Effect of dilution due to employee stock awards | 315,013 | — | 308,876 | 377,827 | ||||||||||||
Denominator for diluted net income/(loss) per share attributable to common stockholders — weighted-average shares outstanding | 29,120,318 | 28,618,495 | 29,053,608 | 26,757,811 | ||||||||||||
Basic net income/(loss) per share attributable to common stockholders | $ | 1.06 | $ | (0.18 | ) | $ | 3.49 | $ | 0.64 | |||||||
Diluted net income/(loss) per share attributable to common stockholders | $ | 1.05 | $ | (0.18 | ) | $ | 3.45 | $ | 0.63 |
6. Fair Value
Fair value is defined as the price that would be expected to 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). The FASB provides accounting rules that classify the inputs used to measure fair value into the following hierarchy:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – 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 – 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.
As a result of the occurrence of triggering events such as purchase accounting for acquisitions, the Company does measuremeasures certain assets and liabilities based on Level 3 inputs.
Financial Instruments:Recurring Fair Value Measurements
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, trade accounts payable, short-term borrowings, long-term debt, and long-term debt.a derivative in the form of an interest rate swap. Due to their short-term nature, the carrying value of cash and cash equivalents, accounts receivable, trade accounts payable, accrued expenses and short-term borrowings are a reasonable estimate of their fair value. Long-term assets held on our balance sheetsheets related to benefit plan obligations are measured at fair value. The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $436,175 and $463,750 at December 31, 2022 and April 2, 2022, respectively. The carrying value of this debt was $493,040 at December 31, 2022 and $492,396 at April 2, 2022. The fair value of long-term fixed-rate debt was measured using Level 1 inputs. Due to the nature of fair value calculations for variable-rate debt, the carrying value of the Company’s long-term variable-rate debt is a reasonable estimate of its fair value. The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices,interest rate swap was $421,745 and $463,750$1,116 at October 1,December 31, 2022, and April 2, 2022, respectively. The carrying value of this debt was $492,822 at October 1, 2022 and $492,396 at April 2, 2022. The fair value of long-term fixed-rate debt was measured using Level 2 inputs. This amount is included in other noncurrent liabilities and accumulated other comprehensive income on the Company’s consolidated balance sheets, and in the Company’s consolidated statements of comprehensive income.
The Company does not believe it has significant concentrations of risk associated with the counterparties to its financial instruments.
7. Inventory
Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out method, and are summarized below:
October 1, 2022 | April 2, 2022 | December 31, 2022 | April 2, 2022 | |||||||||||||
Raw materials | $ | 118,612 | $ | 112,651 | $ | 130,040 | $ | 112,651 | ||||||||
Work in process | 128,860 | 122,983 | 131,946 | 122,983 | ||||||||||||
Finished goods | 310,329 | 280,506 | 315,641 | 280,506 | ||||||||||||
$ | 557,801 | $ | 516,140 | $ | 577,627 | $ | 516,140 |
8. Goodwill and Intangible Assets
Goodwill
Goodwill balances, by segment, consist of the following:
Aerospace/ Defense | Industrial | Total | Aerospace/Defense | Industrial | Total | |||||||||||||||||||
April 2, 2022 | $ | 194,124 | $ | 1,707,980 | $ | 1,902,104 | $ | 194,124 | $ | 1,707,980 | $ | 1,902,104 | ||||||||||||
Acquisition (1) | — | (22,912 | ) | (22,912 | ) | — | (28,710 | ) | (28,710 | ) | ||||||||||||||
Translation adjustments | — | (6,503 | ) | (6,503 | ) | — | (4,156 | ) | (4,156 | ) | ||||||||||||||
October 1, 2022 | $ | 194,124 | $ | 1,678,565 | $ | 1,872,689 | ||||||||||||||||||
December 31, 2022 | $ | 194,124 | $ | 1,675,114 | $ | 1,869,238 |
(1) | Purchase accounting adjustments to goodwill associated with the acquisition of Dodge discussed further in Note 13. |
Intangible Assets
October 1, 2022 | April 2, 2022 | Weighted | December 31, 2022 | April 2, 2022 | ||||||||||||||||||||||||||||||||||
Weighted Average Useful Lives (Years) | Gross Carrying Amount |
Accumulated Amortization | Gross Carrying Amount |
Accumulated Amortization | Average Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||||||||||||||
Product approvals | 24 | $ | 50,878 | $ | 17,645 | $ | 50,878 | $ | 16,680 | 24 | $ | 50,878 | $ | 18,125 | $ | 50,878 | $ | 16,680 | ||||||||||||||||||||
Customer relationships and lists | 24 | 1,293,729 | 80,225 | 1,294,577 | 53,376 | 24 | 1,293,592 | 92,923 | 1,294,577 | 53,376 | ||||||||||||||||||||||||||||
Trade names | 25 | 216,317 | 19,639 | 216,340 | 15,073 | 25 | 216,341 | 21,945 | 216,340 | 15,073 | ||||||||||||||||||||||||||||
Distributor agreements | 5 | 722 | 722 | 722 | 722 | — | — | — | 722 | 722 | ||||||||||||||||||||||||||||
Patents and trademarks | 16 | 13,017 | 6,878 | 12,342 | 6,607 | 16 | 13,131 | 7,018 | 12,342 | 6,607 | ||||||||||||||||||||||||||||
Domain names | 10 | 437 | 437 | 437 | 437 | 10 | 437 | 437 | 437 | 437 | ||||||||||||||||||||||||||||
Other | 5 | 14,469 | 3,288 | 9,720 | 4,887 | 4 | 14,715 | 4,254 | 9,720 | 4,887 | ||||||||||||||||||||||||||||
1,589,569 | 128,834 | 1,585,016 | 97,782 | 1,589,094 | 144,702 | 1,585,016 | 97,782 | |||||||||||||||||||||||||||||||
Non-amortizable repair station certifications | n/a | 24,281 | — | 24,281 | — | n/a | 24,281 | — | 24,281 | — | ||||||||||||||||||||||||||||
Total | 24 | $ | 1,613,850 | $ | 128,834 | $ | 1,609,297 | $ | 97,782 | 24 | $ | 1,613,375 | $ | 144,702 | $ | 1,609,297 | $ | 97,782 |
Amortization expense for definite-lived intangible assets during the three-month periods ended OctoberDecember 31, 2022 and January 1, 2022 was $17,400 and October 2, 2021 were $16,755 and $2,825,$12,133, respectively. Amortization expense for definite-lived intangible assets during the six-monthnine-month periods ended OctoberDecember 31, 2022 and January 1, 2022 was $51,459 and October 2, 2021 were $34,059 and $5,409,$17,542, respectively. These amounts are included in other, net on the Company’s consolidated statements of operations. Estimated amortization expense for the remainder of fiscal 2023 and the five succeeding fiscal years and thereafter is as follows:
Remainder of Fiscal 2023 | $ | 34,307 | $ | 17,385 | ||||
Fiscal 2024 | 68,040 | 69,270 | ||||||
Fiscal 2025 | 67,926 | 69,204 | ||||||
Fiscal 2026 | 66,634 | 67,248 | ||||||
Fiscal 2027 | 65,591 | 66,185 | ||||||
Fiscal 2028 | 64,832 | 64,259 | ||||||
Fiscal 2029 and thereafter | 1,093,405 | 1,090,841 |
9. Accrued Expenses and Other Current Liabilities
The significant components of accrued expenses and other current liabilities are as follows:
October 1, 2022 | April 2, 2022 | December 31, 2022 | April 2, 2022 | |||||||||||||
Employee compensation and related benefits | $ | 35,982 | $ | 34,697 | $ | 39,244 | $ | 34,697 | ||||||||
Taxes | 8,447 | 11,706 | 8,053 | 11,706 | ||||||||||||
Contract liabilities | 22,414 | 19,556 | 17,474 | 19,556 | ||||||||||||
Accrued rebates | 38,829 | 35,234 | 38,284 | 35,234 | ||||||||||||
Workers’ compensation and insurance | 1,067 | 1,144 | 869 | 1,144 | ||||||||||||
Acquisition costs | 2,487 | 4,568 | 1,239 | 4,568 | ||||||||||||
Current finance lease liabilities | 4,686 | 3,863 | 4,693 | 3,863 | ||||||||||||
Accrued preferred stock dividends | 4,919 | 4,919 | 4,856 | 4,919 | ||||||||||||
Interest | 10,685 | 10,987 | 4,920 | 10,987 | ||||||||||||
Audit fees | 464 | 599 | 544 | 599 | ||||||||||||
Legal | 925 | 450 | 1,141 | 450 | ||||||||||||
Returns and warranties | 8,409 | 7,889 | 7,075 | 7,889 | ||||||||||||
Other | 8,270 | 9,640 | 7,770 | 9,640 | ||||||||||||
$ | 147,584 | $ | 145,252 | $ | 136,162 | $ | 145,252 |
10. Debt
Domestic Credit Facility
On November 1, 2021 RBC Bearings Incorporated, our top holding company, and our Roller Bearing Company of America, Inc. subsidiary (“RBCA”) entered into a Credit Agreement (the “New Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer and the other lenders party thereto, and terminated the Company’s prior Credit Agreement,credit agreement, which was entered into with Wells Fargo in 2015 (the “2015 Credit Agreement”).2015. The New Credit Agreement provides the Company with (a) a $1,300,000 term loan facility (the “Term Loan Facility”), which was used to fund a portion of the cash purchase price for the acquisition of our Dodge business unit and to pay related fees and expenses, and (b) a $500,000 revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Facilities”). Debt issuance costs associated with the New Credit Agreement totaled $14,947 and will beare being amortized over the life of the New Credit Agreement.
AmountsPrior to December 2022, amounts outstanding under the Facilities generally bearbore interest at either, at the Company’s option, (a) a base rate determined by reference to the higher of (i) Wells Fargo’s prime lending rate, (ii) the federal funds effective rate plus 1/2 of 1.00%0.50% and (iii) the one-month LIBORLondon interbank offered rate (LIBOR) rate plus 1.00% or (b) the LIBOR rate plus a specified margin, depending on the type of borrowing being made. The applicable margin iswas based on the Company’s consolidated ratio of total net debt to consolidated EBITDA from time to time. Currently,In December 2022 the New Credit Agreement was amended to replace LIBOR with the secured overnight financing rate administered by the Federal Reserve Bank of New York (“SOFR”) so that borrowings under the Facilities denominated in U.S. dollars bear interest at a rate per annum equal to Term SOFR (as defined in the New Credit Agreement) plus a credit spread adjustment of 0.10% plus a margin ranging from 0.75% to 2.00% depending on the Company’s consolidated ratio of total net debt to consolidated EBITDA. The Facilities are subject to a SOFR floor of 0.00%. As of December 31, 2022, the Company’s margin iswas 0.50% for base rate loans and 1.50% for LIBOR rateSOFR loans. The Facilities are subject to a “LIBOR” floor of 0.00% and contain “hard-wired” LIBOR replacement provisions as set forth in the New Credit Agreement. As of October 1, 2022, the Company’s commitment fee rate iswas 0.20% and the letter of credit fee rate was 1.50%.
The Term Loan Facility will mature on November 2, 2026 and amortizes in quarterly installments with the balance payable on the Maturity Date.maturity date. The Company can elect to prepay some or all of the outstanding balance from time to time without penalty, which will offset future quarterly amortization installments. The required future principal payments on the Term Loan Facility are $0 for the remainder of fiscal 2023, $0 for fiscal 2024, and $0 for fiscal 2025, due to prepayments previously made, and approximately $87,500$27,500 for fiscal 2026, and $942,500 for fiscal 2027. The Revolving Credit Facility will mature on November 2, 2026, at which time all amounts outstanding under the Revolving Credit Facility will be payable.
The New Credit Agreement requires the Company to comply with various covenants, including the following financial covenants: (a) a maximum Total Net Leverage Ratiototal net leverage ratio of 5.50:1.00, which maximum Total Net Leverage Ratio shallratio will decrease during certain subsequent test periods as set forth in the New Credit Agreement (provided that, no more than once during the term of the Facilities, such maximum ratio applicable at such time may be increased by the Company by 0.50:1.00 for a period of 12 months after the consummation of a material acquisition), and (b) a minimum Interest Coverage Ratiointerest coverage ratio of 2.00:1.00. As of October 1,December 31, 2022, the Company was in compliance with all debt covenants.
The New Credit Agreement allows the Company to, among other things, make distributions to stockholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the New Credit Agreement.
The Company’s domestic subsidiaries have guaranteed the Company’s obligations under the New Credit Agreement, and the Company’s obligations and the domestic subsidiaries’ guaranty are secured by a pledge of substantially all of the domestic assets of the Company and its domestic subsidiaries.
As of October 1,December 31, 2022, $1,030,000$970,000 was outstanding under the Term Loan Facility and approximately $3,675 of the Revolving Credit Facility was being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs, and the Company had the ability to borrow up to an additional $496,325 under the Revolving Credit Facility.
Senior Notes
On October 7, 2021, RBCA issued $500,000 aggregate principal amount of 4.375% Senior Notes due 2029 (the “Senior Notes”). The net proceeds from the issuance of the Senior Notes were approximately $491,992 after deducting initial purchasers’ discounts and commissions and offering expenses. On November 1, 2021, the Company used the proceeds to fund a portion of the cash purchase price for the acquisition of Dodge.
The Senior Notes were issued pursuant to an indenture with Wilmington Trust, National Association, as trustee (the “Indenture”). The Indenture contains covenants limiting the ability of the Company to (i) incur additional indebtedness or guarantee indebtedness, (ii) declare or pay dividends, redeem stock or make other distributions to stockholders, (iii) make investments, (iv) create liens or use assets as security in other transactions, (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of its assets, (vi) enter into transactions with affiliates, and (vii) sell or transfer certain assets. These covenants contain various exceptions, limitations and qualifications. At any time that the Senior Notes are rated investment grade, certain of these covenants will be suspended.
The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by RBC Bearings and certain of RBCA’s existing and future wholly owned domestic subsidiaries that also guarantee the New Credit Agreement.
Interest on the Senior Notes accrues at a rate of 4.375% and is payable semi–annually in cash in arrears on April 15 and October 15 of each year.
The Senior Notes will mature on October 15, 2029. The Company may redeem some or all of the Senior Notes at any time on or after October 15, 2024 at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also redeem up to 40% of the Senior Notes using the proceeds of certain equity offerings completed before October 15, 2024, at a redemption price equal to 104.375% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to October 15, 2024, the Company may redeem some or all of the Senior Notes at a price equal to 100% of the principal amount, plus a “make–whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company sells certain of its assets or experiences specific kinds of changes in control, the Company must offer to purchase the Senior Notes.
Foreign Term Loan and Revolving Credit FacilityBorrowing Arrangements
On August 15, 2019, oneOne of our foreign subsidiaries, Schaublin SA (“Schaublin”), entered into two separate credit agreements (the “Foreign Credit Agreements”)in 2019 with Credit Suisse (Switzerland) Ltd. (the “Foreign Credit Agreements”) to (i) finance the acquisition of our Swiss Tool business unit, and (ii) provide future working capital. The Foreign Credit Agreements provided Schaublin with a CHF 15,000 (approximately $15,383) term loan, (the “Foreign Term Loan”), which was extinguished in February 2022, and a CHF 15,000 (approximately $15,383) revolving credit facility, (the “Foreign Revolver”), which was terminated asin October 2022. Schaublin now has a separate CHF 5,000 (approximately $5,407 USD) revolving credit facility (the “New Foreign Revolver”) with Credit Suisse to provide future working capital, if necessary. As of October 1, 2022.December 31, 2022, $0 had been borrowed from the New Foreign Revolver. Fees associated with the New Foreign Revolver are nominal if the facility is not utilized.
A summary of the Company’s debt is presented in the table below:
October 1, 2022 | April 2, 2022 | December 31, 2022 | April 2, 2022 | |||||||||||||
Revolver and term loan facilities | $ | 1,030,000 | $ | 1,200,000 | $ | 970,000 | $ | 1,200,000 | ||||||||
Senior notes | 500,000 | 500,000 | 500,000 | 500,000 | ||||||||||||
Debt issuance costs | (16,557 | ) | (20,895 | ) | (14,787 | ) | (20,895 | ) | ||||||||
Other | 8,671 | 9,236 | 8,865 | 9,236 | ||||||||||||
Total debt | 1,522,114 | 1,688,341 | 1,464,078 | 1,688,341 | ||||||||||||
Less: current portion | 1,512 | 1,543 | 1,544 | 1,543 | ||||||||||||
Long-term debt | $ | 1,520,602 | $ | 1,686,798 | $ | 1,462,534 | $ | 1,686,798 |
11. Income Taxes
The Company files income tax returns in numerous U.S. and foreign jurisdictions, with returns subject to examination for varying periods, but generally back to and including the year ending March 30, 2019, although certain tax credits generated in earlier years are open under statute from March 29, 2008. The Company is no longer subject to U.S. federal tax examination by the Internal Revenue Service for years ending before March 30, 2019.
The effective income tax rates for the three-month periods ended OctoberDecember 31, 2022 and January 1, 2022, were 24.4% and October 2, 2021, were 18.1% and 223.5%79.2%, respectively. In addition to discrete items, the effective income tax rates for both these periods were different from the U.S. statutory rates due to the foreign-derived intangible income provision and U.S. credit for increasing research activities, which decreased the rate, and state income taxes, foreign income taxes, and nondeductible stock-based compensation, which increased the rate. In the quarter ended, January 1, 2022, the Company’s tax rate was also increased by non-deductible transaction costs incurred in the Dodge acquisition.
The effective income tax rate for the three-month period ended December 31, 2022 of 24.4% included $253 of tax benefits associated with stock-based compensation, partially offset by $218 of other items. The effective income tax rate without discrete items for the three-month period ended December 31, 2022 would have been 24.5%. The effective income tax rate for the three-month period ended January 1, 2022 of 79.2% included $473 of tax benefits associated with stock-based compensation, partially offset by $146 of other items. The effective income tax rate without discrete items for the three-month period ended January 1, 2022 would have been 91.6%. The Company believes it is reasonably possible that some of its unrecognized tax positions may be effectively settled within the next 12 months due to the closing of audits and the statute of limitations expiring in various jurisdictions. The decrease in the Company’s unrecognized tax positions, pertaining primarily to federal and state credits and state tax, is estimated to be approximately $3,086.
Income tax expense for the nine-month period ended December 31, 2022 was $31,853 compared to $9,944 for the nine-month period ended January 1, 2022. Our effective income tax rate for the nine-month period ended December 31, 2022 was 21.3% compared to 30.0% for the nine-month period ended January 1, 2022. In addition to discrete items, the effective income tax rates for both these periods are different from the U.S. statutory rates due to the foreign-derived intangible income provision and U.S. credit for increasing research activities, which decrease the rate, and state income taxes, foreign income taxes, and nondeductible stock-based compensation, that increase the rate. In the quarter ended, January 1, 2022, the Company’s tax rate was also increased by non-deductible transaction costs incurred in the Dodge acquisition.
The effective income tax rate for the three-monthnine-month period ended October 1,December 31, 2022 of 18.1% includes $2,37221.3% included $3,228 of tax benefits associated with share-based compensation and $174 of other items. The effective income tax rate without discrete items for the three-month period ended October 1, 2022 would have been 22.9%. The effective income tax rate for the three-month period ended October 2, 2021 of 223.5% includes $91 of tax benefits associated with share-based compensation offset by the establishment of a $1,853 valuation allowance for capital loss carryforwards we do not expect to recognize and $100 of other items. The effective income tax rate without discrete items for the three-month period ended October 2, 2021 would have been 53.5%. The Company believes it is reasonably possible that some of its unrecognized tax positions may be effectively settled within the next 12 months due to the closing of audits and the statute of limitations expiring in varying jurisdictions. The decrease in the Company’s unrecognized tax positions, pertaining primarily to federal and state credits and state tax, is estimated to be approximately $3,068.
Income tax expense for the six-month period ended October 1, 2022 was $20,165 compared to $7,868 for the six-month period ended October 2, 2021. Our effective income tax rate for the six-month period ended October 1, 2022 was 19.9% compared to 25.8% for the six-month period ended October 2, 2021. The effective income tax rate for the six-month period ended October 1, 2022 of 19.9% includes $2,971 of tax benefits associated with share-basedstock-based compensation partially offset by $187$30 of other items. The effective income tax rate without these benefits and other items for the six-monthnine-month period ended October 1,December 31, 2022 would have been 23.0%23.5%. The effective income tax rate for the six-monthnine-month period ended October 2, 2021January 1, 2022 of 25.8% includes $2,23130.0% included $2,703 of tax benefits associated with share-basedstock-based compensation offset by the establishment of a $1,853 valuation allowance for capital loss carryforwards we don’t expect to recognize and $60$86 of other items. The effective income tax rate without these benefits, valuation allowance and other items for the six-monthnine-month period ended October 2, 2021January 1, 2022 would have been 27.2%32.3%.
12. Reportable Segments
The Company operates through operating segments and reports its financial results based on how its chief operating decision maker makes operating decisions, assesses the performance of the business, and allocates resources. These reportable operating segments are Aerospace/Defense and Industrial and are described below.
Aerospace/Defense. This segment represents the end markets for the Company’s highly engineered bearings and precision components used in commercial aerospace, defense aerospace, and sea and ground defense applications.
Industrial. This segment represents the end markets for the Company’s highly engineered bearings and precision components used in various industrial applications including: power transmission; construction, mining, energy and specialized equipment manufacturing; semiconductor production equipment manufacturing; agricultural machinery, commercial truck and automotive manufacturing; and tool holding.
Segment performance is evaluated based on segment net sales and gross margin. Items not allocated to segment operating income include corporate administrative expenses and certain other amounts. Identifiable assets by reportable segment consist of those directly identified with the segment’s operations.
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | |||||||||||||
Net External Sales | ||||||||||||||||
Aerospace/Defense | $ | 105,532 | $ | 93,203 | $ | 308,479 | $ | 276,483 | ||||||||
Industrial | 246,093 | 173,750 | 766,393 | 307,575 | ||||||||||||
$ | 351,625 | $ | 266,953 | $ | 1,074,872 | $ | 584,058 | |||||||||
Gross Margin | ||||||||||||||||
Aerospace/Defense | $ | 41,650 | $ | 37,454 | $ | 121,283 | $ | 112,666 | ||||||||
Industrial | 104,390 | 55,891 | 317,056 | 106,916 | ||||||||||||
$ | 146,040 | $ | 93,345 | $ | 438,339 | $ | 219,582 | |||||||||
Selling, General & Administrative Expenses | ||||||||||||||||
Aerospace/Defense | $ | 7,778 | $ | 7,111 | $ | 22,718 | $ | 21,646 | ||||||||
Industrial | 29,150 | 18,171 | 89,223 | 29,836 | ||||||||||||
Corporate | 19,854 | 16,420 | 58,188 | 61,655 | ||||||||||||
$ | 56,782 | $ | 41,702 | $ | 170,129 | $ | 113,137 | |||||||||
Operating Income | ||||||||||||||||
Aerospace/Defense | $ | 32,081 | $ | 28,518 | $ | 93,065 | $ | 84,629 | ||||||||
Industrial | 59,255 | 23,215 | 172,600 | 62,414 | ||||||||||||
Corporate | (20,944 | ) | (35,868 | ) | (58,786 | ) | (85,291 | ) | ||||||||
$ | 70,392 | $ | 15,865 | $ | 206,879 | $ | 61,752 |
December 31, 2022 | April 2, 2022 | |||||||
Total Assets | ||||||||
Aerospace/Defense | $ | 796,363 | $ | 776,505 | ||||
Industrial | 3,793,892 | 3,920,957 | ||||||
Corporate | 102,626 | 147,955 | ||||||
$ | 4,692,881 | $ | 4,845,417 |
Three Months Ended | Six Months Ended | |||||||||||||||
October 1, 2022 | October 2, 2021 | October 1, 2022 | October 2, 2021 | |||||||||||||
Net External Sales | ||||||||||||||||
Aerospace/Defense | $ | 103,548 | $ | 92,915 | $ | 202,947 | $ | 183,280 | ||||||||
Industrial | 265,619 | 67,985 | 520,300 | 133,825 | ||||||||||||
$ | 369,167 | $ | 160,900 | $ | 723,247 | $ | 317,105 | |||||||||
Gross Margin | ||||||||||||||||
Aerospace/Defense | $ | 41,033 | $ | 36,580 | $ | 79,633 | $ | 75,212 | ||||||||
Industrial | 110,114 | 25,884 | 212,666 | 51,025 | ||||||||||||
$ | 151,147 | $ | 62,464 | $ | 292,299 | $ | 126,237 | |||||||||
Selling, General & Administrative Expenses | ||||||||||||||||
Aerospace/Defense | $ | 7,472 | $ | 7,287 | $ | 14,940 | $ | 14,535 | ||||||||
Industrial | 30,101 | 5,918 | 60,073 | 11,665 | ||||||||||||
Corporate | 19,946 | 27,018 | 38,334 | 45,235 | ||||||||||||
$ | 57,519 | $ | 40,223 | $ | 113,347 | $ | 71,435 | |||||||||
Operating Income | ||||||||||||||||
Aerospace/Defense | $ | 31,480 | $ | 26,521 | $ | 60,984 | $ | 56,111 | ||||||||
Industrial | 60,050 | 19,813 | 113,345 | 39,199 | ||||||||||||
Corporate | (19,513 | ) | (29,760 | ) | (37,842 | ) | (49,423 | ) | ||||||||
$ | 72,017 | $ | 16,574 | $ | 136,487 | $ | 45,887 |
October 1, 2022 | April 2, 2022 | |||||||||||||||
Total Assets | ||||||||||||||||
Aerospace/Defense | $ | 789,204 | $ | 776,505 | ||||||||||||
Industrial | 3,824,386 | 3,920,957 | ||||||||||||||
Corporate | 113,470 | 147,955 | ||||||||||||||
$ | 4,727,060 | $ | 4,845,417 |
13. Dodge Acquisition
On November 1, 2021, the Company completed the acquisition of Dodge for approximately $2,908,241, net of cash acquired and subject to certain adjustments. The purchase price was paid with (i) $1,285,761 of borrowing under the Term Loan Facility, net of issuance costs, (ii) $1,050,811 of net proceeds from common stock and MCPS offerings, (iii) $494,200 of net proceeds from the Senior Notes offering, and (iv) approximately $77,469 of cash on hand. Since the close of the transaction, purchase price adjustments totaling $22,966$28,710 have been recorded.
In the acquisition, the Company purchased 100% of the capital stock of certain entities, including Dodge Mechanical Power Transmission Company Inc. (now known as Dodge Industrial, Inc.), and certain other assets relating to ABB Asea Brown Boveri Ltd.’s mechanical power transmission business.
With offices in Greenville, South Carolina, Dodge is a leading manufacturer of mounted bearings, gearings and mechanical products with market-leading brand recognition. Dodge manufactures a complete line of mounted bearings, enclosed gearing and power transmission components across a diverse set of industrial end markets. Dodge primarily operates across the construction and mining aftermarket, and the food & beverage, warehousing and general machinery verticals, with sales predominately in the Americas.
Acquisition costs incurred for the fiscal year ended April 2, 2022 totaled $22,598 and were recorded as period expenses and included within other, net within the consolidated statements of operations. Remaining acquisition-related costs incurred for the three and sixnine months ended October 1,December 31, 2022 were immaterial. This acquisition was accounted for as a purchase transaction. The purchase price allocation will bewas completed during the third quarter of fiscal 2023 as we finalize the impact from taxes and other minor items.2023. The assets acquired and liabilities assumed were recorded based on their fair values at the date of acquisition as follows:
November 1, 2021 | ||||
Cash and cash equivalents | $ | 81,868 | ||
Accounts receivable | 83,533 | |||
Inventory | 136,376 | |||
Prepaid expenses and other current assets | 1,261 | |||
Property, plant and equipment | 165,109 | |||
Operating lease assets | 9,768 | |||
Goodwill | 1,601,881 | |||
Other intangible assets | 1,385,082 | |||
Other noncurrent assets | 3,672 | |||
Accounts payable | (69,757 | ) | ||
Accrued rebates | (30,184 | ) | ||
Accrued expenses and other current liabilities | (44,766 | ) | ||
Deferred tax liabilities | (299,711 | ) | ||
Other noncurrent liabilities | (56,989 | ) | ||
Net assets acquired | 2,967,143 | |||
Less cash received | 81,868 | |||
Net consideration | $ | 2,885,275 |
November 1, 2021 | ||||
Cash and cash equivalents | $ | 81,868 | ||
Accounts receivable | 83,533 | |||
Inventory | 136,062 | |||
Prepaid expenses and other current assets | 1,261 | |||
Property, plant and equipment | 165,109 | |||
Operating lease assets | 9,768 | |||
Goodwill | 1,596,083 | |||
Other intangible assets | 1,385,082 | |||
Other noncurrent assets | 3,697 | |||
Accounts payable | (69,263 | ) | ||
Accrued rebates | (30,184 | ) | ||
Accrued expenses and other current liabilities | (44,766 | ) | ||
Deferred tax liabilities | (298,618 | ) | ||
Other noncurrent liabilities | (56,989 | ) | ||
Net assets acquired | 2,962,643 | |||
Less cash received | 81,868 | |||
Net consideration | $ | 2,880,775 |
The goodwill associated with this acquisition is the result of expected synergies from combining the operations of the acquired business with the Company'sCompany’s operations, and intangible assets that do not qualify for separate recognition, such as an assembled workforce. $44,941 of the acquired goodwill is deductible for tax purposes.
The fair value of the identifiable intangible assets of $1,385,082, consisting primarily of customer relationships and trade names, was determined using the income approach. Specifically, a multi-period, excess earnings method was utilized for the customer relationships and the relief-from-royalty method was utilized for the trade name. The fair value of the customer relationships, $1,185,000, is being amortized based on the economic pattern of benefit over a period of 24 years; the fair value of the trade names, $200,000, is being amortized on a straight-line basis over a 26-year term. These amortization periods represent the estimated useful lives of the assets.
The results of operations for Dodge have been included in the Company’s financial statements for the period subsequent to the completion of the acquisition on November 1, 2021. Dodge contributed $192,267$174,765 of revenue and $38,152$37,532 of operating income for the three months ended October 1,December 31, 2022. Dodge contributed $369,740$544,505 of revenue and $68,646$106,178 of operating income for the sixnine months ended OctoberDecember 31, 2022. Dodge contributed $109,976 of revenue and $5,348 of operating income for both the three and nine months ended January 1, 2022.
The following table reflects the unaudited pro forma operating results of the Company for the three- and nine-month fiscal periods ended January 1, 2022, which gives effect to the acquisition of Dodge as if it had been acquired on March 29, 2020. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition been effective March 29, 2020, nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the historical financial results of the Company and the acquired business adjusted for certain items such as amortization of acquired intangible assets and acquisition costs incurred. The pro forma information does not include the effects of any synergies, cost reduction initiatives or anticipated integration costs related to the acquisitions.
Three Months Ended | Nine Months Ended | |||||||
January 1, 2022 | January 1, 2022 | |||||||
Net sales | $ | 319,100 | $ | 968,680 | ||||
Net income | $ | 18,567 | $ | 62,990 |
Upon closing, the Company entered into a transition services agreement ("TSA"(the “Dodge TSA”) with ABB, pursuant to which ABB agreed to support the information technology, human resources and benefits, finance, tax and treasury functions of the Dodge business for six to 12 months. Substantially all services under the Dodge TSA terminated on November 1, 2022. Costs associated with the Dodge TSA were $3,999$1,241 and $7,704$8,945 for the three and sixnine months ended October 1,December 31, 2022, respectively, and are included in other, net on the Company’s consolidated statement of operations. Since the purchase of the Dodge business on November 1, 2021, costs associated with the Dodge TSA were $15,707$16,948 through October 1,December 31, 2022.
14. Subsequent EventsDerivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to fluctuations in interest rates. Derivative financial instruments are recognized on the consolidated balance sheets as either assets or liabilities and are measured at fair value. Changes in the fair values of derivatives are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective as part of a hedged transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income (loss) are subsequently included in earnings in the periods in which earnings are affected by the hedged item. The Company does not use derivative instruments for speculative purposes.
On October 28, 2022, the Company entered into a three-year USD-denominated interest rate swap (“the Swap”(the “Swap”) fromwith a third-party financial counterparty under the New Credit Agreement (see Note 10). The Swap was executed to protect the Company from interest rate volatility on our variable-rate Term Loan Facility. The Swap has an effective date of December 30, 2022 and is comprised of a $600,000 notional with a maturity of three years. RBC will receive a variable rate based on one-month USD-SOFR CME Term SOFR and will pay a fixed rate of 4.455%. The notional on the Swap will amortize as follows:
Year 1: $600,000
Year 2: $400,000
Year 3: $100,000
The Swap has been designated as a cash flow hedge of the variability of the first unhedged interest payments (the hedged transactions) paid over the hedging relationship’s specified time period of three years attributable to the borrowing’s contractually specified interest index on the hedged principal of its general borrowing program or replacement or refinancing thereof. The fair value of the Swap has been disclosed in Note 6. The accumulated other comprehensive income derivative component balance was a $1,116 loss at December 31, 2022. The gain/loss reclassified from accumulated other comprehensive income into earnings will be recorded as interest income/expense on the Swap and will be included in the operating section of the Company’s consolidated statements of cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement as to Forward-Looking Information
The objective of the discussion and analysis is to provide material information relevant to an assessment of the financial condition and results of operations of the registrantCompany including an evaluation of the amounts and certainty of cash flows from operations and from outside sources.
The information in this discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts, included in this quarterly report on Form 10-Q regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management are “forward-looking statements” as the term is defined in the Private Securities Litigation Reform Act of 1995.
The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation: (a) the bearing and engineered products industries are highly competitive, and this competition could reduce our profitability or limit our ability to grow; (b) the loss of a major customer, or a material adverse change in a major customer’s business, could result in a material reduction in our revenues, cash flows and profitability; (c) our results have been and are likely to continue to be impacted by the COVID-19 pandemic; (d) weakness in any of the industries in which our customers operate, as well as the cyclical nature of our customers’ businesses generally, could materially reduce our revenues, cash flows and profitability; (e) future reductions or changes in U.S. government spending could negatively affect our business; (f) fluctuating supply and costs of subcomponents, raw materials and energy resources, or the imposition of import tariffs, could materially reduce our revenues, cash flows and profitability; (g) our results could be impacted by governmental trade policies and tariffs relating to our supplies imported from foreign vendors or our finished goods exported to other countries; (h) some of our products are subject to certain approvals and government regulations and the loss of such approvals, or our failure to comply with such regulations, could materially reduce our revenues, cash flows and profitability; (i) the retirement of commercial aircraft could reduce our revenues, cash flows and profitability; (j) work stoppages and other labor problems could materially reduce our ability to operate our business; (k) unexpected equipment failures, catastrophic events or capacity constraints could increase our costs and reduce our sales due to production curtailments or shutdowns; (l) we may not be able to continue to make the acquisitions necessary for us to realize our growth strategy; (m) businesses that we have acquired (such as Dodge) or that we may acquire in the future may have liabilities that are not known to us; (n) goodwill and indefinite-lived intangibles comprise a significant portion of our total assets, and if we determine that goodwill and indefinite-lived intangibles have become impaired in the future, our results of operations and financial condition in such years may be materially and adversely affected; (o) we depend heavily on our senior management and other key personnel, the loss of whom could materially affect our financial performance and prospects; (p) our international operations are subject to risks inherent in such activities; (q) currency translation risks may have a material impact on our results of operations; (r) we are subject to changes in legislative, regulatory and legal developments involving income and other taxes; (s) we may be required to make significant future contributions to our pension plan; (t) we may incur material losses for product liability and recall-related claims; (u) environmental and health and safety laws and regulations impose substantial costs and limitations on our operations, and environmental compliance may be more costly than we expect; (v) our intellectual property and proprietary information are valuable, and any inability to protect them could adversely affect our business and results of operations; in addition, we may be subject to infringement claims by third parties; (w) cancellation of orders in our backlog could negatively impact our revenues, cash flows and profitability; (x) if we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud; (y) litigation could adversely affect our financial condition; (z) changes in accounting standards or changes in the interpretations of existing standards could affect our financial results; (aa) risks associated with utilizing information technology systems could adversely affect our operations; (bb) our quarterly performance can be affected by the timing of government product inspections and approvals; (cc) we may not be able to efficiently integrate Dodge into our operations; (dd) we may fail to realize some or all of the anticipated benefits of the Dodge acquisition or those benefits may take longer to realize than expected; (ee) we incurred substantial debt in order to complete the Dodge acquisition, which could constrain our business and exposes us to the risk of defaults under our debt instruments; and (ff) increases in interest rates would increase the cost of servicing the Term Loan Facility and could reduce our profitability. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with the SEC, including, without limitation, the risks identified under the heading “Risk Factors” set forth in theour Annual Report on Form 10-K/A for the year ended April 2, 2022.Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not intend, and undertake no obligation, to update or alter any forward-looking statement. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, whichthat appears elsewhere in this Quarterly Report.
Overview
We are a well-known international manufacturer and maker of highly engineered bearings and precision components. Our precision solutions are integral to the manufacture and operation of most machines and mechanical systems, reduce wear to moving parts, facilitate proper power transmission, and reduce damage and energy loss caused by friction. While we manufacture products in all major bearings categories, we focus primarily on the higher end of the bearing and engineered component markets where we believe our value-added manufacturing and engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability. We believe our expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 56 facilities in 10 countries, of which 37 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach.
Previously we operated under four reportable business segments – Plain Bearings, Roller Bearings, Ball Bearings, and Engineered Products – but the Dodge acquisition has resulted in a change in the internal organization of the Company and how our chief operating decision maker makes operating decisions, assesses the performance of the business, and allocates resources so that we now operate under two reportable business segments – Aerospace/Defense and Industrial:
● | Aerospace/Defense. This segment represents the end markets for the Company’s highly engineered bearings and precision components used in commercial aerospace, defense aerospace, and marine and ground defense applications. |
● | Industrial. This segment represents the end markets for the Company’s highly engineered bearings, gearings and precision components used in various industrial applications including: power transmission; construction, mining, energy and specialized equipment manufacturing; semiconductor production equipment manufacturing; agricultural machinery, commercial truck and automotive manufacturing; and tool holding. |
Financial information for fiscal 2022 has been recast to conform to the new segment presentation.
The markets for our products are cyclical, and we have endeavored to mitigate this cyclicality by entering into single and sole-source relationships and long-term purchase agreements, through diversification across multiple market segments within the Aerospace/Defense and Industrial segments, by increasing sales to the aftermarket, and by focusing on developing highly customized solutions.
Currently, our strategy is built around maintaining our role as a leading manufacturer of highly engineered bearings and precision components through the following efforts:
● | Developing innovative solutions. By leveraging our design and manufacturing expertise and our extensive customer relationships, we continue to develop new products for markets in which there are substantial growth opportunities. |
● | Expanding customer base and penetrating end markets. We continually seek opportunities to access new customers, geographic locations and bearing platforms with existing products or profitable new product opportunities. |
● | Increasing aftermarket sales.We believe that increasing our aftermarket sales of replacement parts will further enhance the continuity and predictability of our revenues and enhance our profitability. Such sales include sales to third party distributors and sales to OEMs for replacement products and aftermarket services. The acquisition of Dodge has had a profound impact on our sales volumes to distributors and other aftermarket customers. We |
● | Pursuing selective acquisitions. The acquisition of businesses that complement or expand our operations has been and continues to be an important element of our business strategy. We believe that there will continue to be consolidation within the industry that may present us with acquisition opportunities. |
Outlook
Our net sales for the three-month period ended October 1,December 31, 2022 increased 129.4%31.7% compared to the same period last fiscal year; excludingyear, which included only two months of sales attributable to the Dodge sales in the second quarter of fiscal 2023, net sales were up 9.9% period over period.division. The increase in net sales was a result of a 290.7%41.6% increase in our Industrial segment and 11.4%13.2% increase in our Aerospace/Defense segment. Excluding sales from Dodge, our Industrial segment increased 7.9%11.8% year over year. Our backlog, as of October 1,December 31, 2022, was $653.2$613.6 million compared to $603.1 million as of April 2, 2022.
We are continuing to see the recovery of the commercial aerospace business, which increased by 31.3%24.2% for the three-month period ended October 1,December 31, 2022 versus the same period last fiscal year. We anticipate this recoverygrowth to continue throughout the rest of the fiscal year and beyond. Orders have continued to grow as evidenced by our backlog. Defense sales, which represented approximately 32.3%31.7% of segment sales during the quarter, were down 15.3%4.8% year over year. This iswas in part due to the timing of delivery on parts that require government approval and/or completion of certain milestone achievements prior to invoicing.revenue being recognized.
The increase in our industrialIndustrial sales reflectsreflected a pattern of sustained growth over the last fiscal year, with strong results in several areas. Our oil and gasenergy business during the quarter continued a pattern of growth which is expected to continue into future periods. Other notable strengths in industrial were in semiconductor and general industrial markets.
The Company expects net sales to be approximately $348.0$375.0 million to $360.0$385.0 million in the thirdfourth quarter of fiscal 2023.
We experienced strong cash flow generation during the secondthird quarter of fiscal 2023 (asas discussed in the section “Liquidity and Capital Resources” below).below. We expect this trend to continue throughoutinto the fourth quarter of the fiscal year as customer demand continues to be significant. We believe that operating cash flows and available credit under the Revolving Credit Facility will provide adequate resources to fund internal growth initiatives for the foreseeable future, including at least the next 12 months. As of October 1,December 31, 2022, we had cash and cash equivalents of $88.5$82.0 million, of which approximately $25.2$30.8 million was cash held by our foreign operations.
Results of Operations
(dollars in millions)
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Total net sales | $ | 369.2 | $ | 160.9 | $ | 208.3 | 129.4 | % | $ | 351.6 | $ | 267.0 | $ | 84.6 | 31.7 | % | ||||||||||||||||
Net income/(loss) available to common stockholders | $ | 38.1 | $ | (1.9 | ) | $ | 40.0 | 2,143.6 | % | |||||||||||||||||||||||
Net income/(loss) attributable to common stockholders | $ | 30.6 | $ | (5.2 | ) | $ | 35.8 | 687.5 | % | |||||||||||||||||||||||
Net income/(loss) per share available to common stockholders: diluted | $ | 1.31 | $ | (0.07 | ) | |||||||||||||||||||||||||||
Net income/(loss) per share attributable to common stockholders: diluted | $ | 1.05 | $ | (0.18 | ) | |||||||||||||||||||||||||||
Weighted average common shares: diluted | 29,093,791 | 25,500,393 | 29,120,318 | 28,618,495 |
Our net sales for the three-month period ended October 1,December 31, 2022 increased 129.4%31.7% compared to the same period last fiscal year; excludingon an organic basis (excluding Dodge sales in the second quarter of fiscal 2023,for both periods), net sales were up 9.9%12.7% year over year. Net sales in our Industrial segment increased 290.7%41.6% year over year; excluding Dodge, Industrial segment sales increased 7.9%11.8% year over year. This reflected a pattern of sustained growth, with strong results in areas including the energy and general industrial markets. Net sales in our Aerospace/Defense segment increased 13.2% year over year, led by commercial OEM, which was up 22.8% compared to the same period in the prior year while sales to the defense sector were down 4.8%. The increase in commercial aerospace reflected recovery in orders from large OEMs as build rates escalate and our expansion in the aftermarket. Defense sales were negatively impacted by the timing of delivery on parts that require government approval and/or completion of certain milestone achievements prior to revenue being recognized.
Net income attributable to common stockholders for the third quarter of fiscal 2023 was $30.6 million compared to a $5.2 million net loss for the same period last fiscal year. Net income for the third quarter of fiscal 2023 was affected by approximately $1.2 million of pre-tax transition services costs associated with the Dodge acquisition. Net income for the third quarter of fiscal 2022 was affected by approximately $7.0 million of pre-tax inventory purchase accounting adjustments associated with the Dodge acquisition and $23.5 million of other costs associated with the acquisition of Dodge.
Nine Months Ended | ||||||||||||||||
December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||
Total net sales | $ | 1,074.9 | $ | 584.1 | $ | 490.8 | 84.0 | % | ||||||||
Net income attributable to common stockholders | $ | 100.3 | $ | 17.0 | $ | 83.3 | 491.1 | % | ||||||||
Net income per share attributable to common stockholders: diluted | $ | 3.45 | $ | 0.63 | ||||||||||||
Weighted average common shares: diluted | 29,053,608 | 26,757,811 |
Our net sales for the nine-month period ended December 31, 2022 increased 84.0% compared to the same period last fiscal year; on an organic basis (excluding Dodge sales for both periods), net sales were up 11.9% year over year. Net sales in our Industrial segment increased 149.2% year over year; excluding Dodge, Industrial segment sales increased 12.3% year over year. This reflects a pattern of sustained growth, with strong results in areas including the semiconductor, mining, energy, and general industrial markets. Net sales in our Aerospace/Defense segment increased 11.4%11.6% year over year, led by commercial OEM, which was up 32.4%25.3% compared to the same period in the prior year while sales to the defense sector were down 15.3%7.3%. The increase in commercial aerospace reflects continued recovery in orders from large OEMs as build rates escalate and stability in the aftermarket. Defense sales were negatively impacted by the timing of delivery on parts that require government approval and/or completion of certain milestone achievements prior to invoicing.
Net income available to common stockholders for the second quarter of fiscal 2023 was $38.1 million compared to $1.9 million net loss for the same period last year. Net income for the second quarter of fiscal 2023 was affected by approximately $4.0 million of pre-tax transition services costs associated with the Dodge acquisition. Net loss for the second quarter of fiscal 2022 was affected by approximately $16.9 million of pre-tax costs associated with the acquisition of Dodge and $2.0 million of pre-tax restructuring costs primarily associated with consolidation efforts at one of our domestic manufacturing facilities.
Six Months Ended | ||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | |||||||||||||
Total net sales | $ | 723.2 | $ | 317.1 | $ | 406.1 | 128.1 | % | ||||||||
Net income available to common stockholders | $ | 69.7 | $ | 22.2 | $ | 47.5 | 214.5 | % | ||||||||
Net income per share available to common stockholders: diluted | $ | 2.40 | $ | 0.87 | ||||||||||||
Weighted average common shares: diluted | 29,020,403 | 25,632,845 |
Our net sales for the six-month period ended October 1, 2022 increased 128.1% compared to the same period last fiscal year; excluding Dodge sales in the first six months of fiscal 2023, net sales were up 11.5% year over year. Net sales in our Industrial segment increased 288.8% year over year; excluding Dodge, Industrial segment sales increased 12.5% year over year. This reflects a pattern of sustained growth, with strong results in areas including the semiconductor, mining, energy, and general industrial markets. Net sales in our Aerospace/Defense segment increased 10.7% year over year, led by commercial OEM, which was up 27.8% compared to the same period in the prior year while sales to the defense sector were down 9.6%. The increase in commercial aerospace reflectsreflected the recovery in build rates from large OEMs and stability in the aftermarket. Defense sales were negatively impacted by the timing of shipments associated with our marine business.
Net income availableattributable to common stockholders for the sixnine months ended October 1,December 31, 2022 was $69.7$100.3 million compared to $22.2$17.0 million for the same period last fiscal year. Net income for the six-monthnine-month period in fiscal 2023 was affected by approximately $7.7$8.9 million of pre-tax transition services costs associated with the Dodge acquisition. Net income for the six-monthnine-month period in fiscal 2022 was affected by approximately $16.9$7.0 million of pre-tax inventory purchase accounting adjustments associated with the Dodge acquisition and $24.9 million of other costs associated with the acquisition of Dodge and $2.5 million of pre-tax restructuring costs primarily associated with consolidation efforts at one of our domestic manufacturing facilities.Dodge.
Gross Margin
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Gross Margin | $ | 151.1 | $ | 62.5 | $ | 88.6 | 142.0 | % | $ | 146.0 | $ | 93.3 | $ | 52.7 | 56.5 | % | ||||||||||||||||
% of net sales | 40.9 | % | 38.8 | % | 41.5 | % | 35.0 | % |
Gross margin was 40.9%41.5% of net sales for the secondthird quarter of fiscal 2023 compared to 38.8%35.0% for the secondthird quarter of fiscal 2022. The increase in gross margin as a percentage of net sales was driven by increased volumes and efficiencies achieved and approximately $0.9$7.0 million of restructuring costsinventory purchase accounting adjustments associated with consolidation efforts at one of our domestic facilitiesthe Dodge acquisition during the secondthird quarter of fiscal 2022.
Six Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Gross Margin | $ | 292.3 | $ | 126.2 | $ | 166.1 | 131.5 | % | $ | 438.3 | $ | 219.6 | $ | 218.7 | 99.6 | % | ||||||||||||||||
% of net sales | 40.4 | % | 39.8 | % | 40.8 | % | 37.6 | % |
Gross margin was 40.4%40.8% of net sales for the first sixnine months of fiscal 2023 compared to 39.8%37.6% for the same period last fiscal year. Gross margin for the six-monthnine-month period of fiscal 2022 was impacted by approximately $7.0 million of inventory purchase accounting adjustments associated with the Dodge acquisition and approximately $0.9 million of restructuring costs associated with consolidation efforts at one of our domestic facilities.
Selling, General and Administrative
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
SG&A | $ | 57.5 | $ | 40.2 | $ | 17.3 | 43.0 | % | $ | 56.8 | $ | 41.7 | $ | 15.1 | 36.2 | % | ||||||||||||||||
% of net sales | 15.6 | % | 25.0 | % | 16.1 | % | 15.6 | % |
SG&A for the secondthird quarter of fiscal 2023 was $57.5$56.8 million, or 15.6%16.1% of net sales, as compared to $40.2$41.7 million, or 25.0%15.6% of net sales, for the same period of fiscal 2022. The improvementincrease in SG&A as a %was primarily driven by an additional month of net sales is primarily due to $12.4 million less stock-based compensation expense recognizedcosts associated with the Dodge business in the secondthird quarter of fiscal 2023 compared to the prior year.same quarter in fiscal 2022 and increased personnel costs, freight costs, IT costs and other professional fees.
Six Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
SG&A | $ | 113.3 | $ | 71.4 | $ | 41.9 | 58.7 | % | $ | 170.1 | $ | 113.1 | $ | 57.0 | 50.4 | % | ||||||||||||||||
% of net sales | 15.7 | % | 22.5 | % | 15.8 | % | 19.4 | % |
SG&A expenses increased by $41.9$57.0 million to $113.3$170.1 million for the first sixnine months of fiscal 2023 compared to $71.4$113.1 million for the same period last fiscal year. The increase in SG&A was primarily driven by increased personnel costs, selling costs and administrative costs associated with the Dodge acquisition. SG&A as a percentage of sales was comparatively higher for the first sixnine months of fiscal 2023 included approximately $48.02022 primarily due to $17.5 million of costs frommore stock-based compensation recognized during the Dodge business and increases in professional fees and personnel costs, partially offset by a decrease in stock compensation expense.period.
Other, Net
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Other, net | $ | 21.6 | $ | 5.7 | $ | 15.9 | 281.3 | % | $ | 18.9 | $ | 35.8 | $ | (16.9 | ) | (47.3 | )% | |||||||||||||||
% of net sales | 5.9 | % | 3.5 | % | 5.4 | % | 13.4 | % |
Other operating expenses for the secondthird quarter of fiscal 2023 totaled $21.6$18.9 million compared to $5.7$35.8 million for the same period last fiscal year. For the secondthird quarter of fiscal 2023, other operating expenses included $4.0$1.2 million of Dodge TSA costs and other costs associated with the Dodge acquisition, $16.8$17.4 million of amortization of intangible assets, and $0.8$0.3 million of other items. For the secondthird quarter of fiscal 2022, other operating expenses included $1.1$20.2 million of restructuring costs and related items, $2.8associated with the Dodge acquisition, $3.3 million of Dodge TSA costs, $12.1 million of amortization of intangible assets $1.4 million of costs associated with the acquisition of Dodge and $0.4$0.2 million of other costs.
Six Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Other, net | $ | 42.5 | $ | 8.9 | $ | 33.6 | 376.3 | % | $ | 61.3 | $ | 44.7 | $ | 16.6 | 37.2 | % | ||||||||||||||||
% of net sales | 5.9 | % | 2.8 | % | 5.7 | % | 7.7 | % |
Other operating expenses for the first sixnine months of fiscal 2023 totaled $42.5$61.3 million compared to $8.9$44.7 million for the same period last fiscal year. For the first sixnine months of fiscal 2023, other operating expenses were comprised mainly of $7.8$8.9 million of Dodge TSA costs and other costs associated with the Dodge acquisition, $34.1$51.5 million of amortization of intangible assets, and $0.6$0.9 million of other items. For the first sixnine months of fiscal 2022, other operating expenses were comprised mainly of $5.4$21.6 million of costs associated with the Dodge acquisition, $3.3 million of Dodge TSA costs, $17.5 million in amortization of intangibles, $1.6$1.7 million of restructuring and related items, $1.4 million of costs associated with the acquisition of Dodge, and $0.5$0.6 million of other items.
Interest Expense, Net
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Interest expense, net | $ | 18.3 | $ | 15.8 | $ | 2.5 | 16.2 | % | $ | 20.9 | $ | 11.9 | $ | 9.0 | 76.4 | % | ||||||||||||||||
% of net sales | 5.0 | % | 9.8 | % | 5.9 | % | 4.4 | % |
Interest expense, net, generally consists of interest charged on the Company’s debt agreements and amortization of deferred financing fees, offset by interest income (see “Liquidity and Capital Resources” below). Interest expense, net, was $18.3$20.9 million for the secondthird quarter of fiscal 2023 compared to $15.8$11.9 million for the same period last fiscal year. TheDuring the third quarter of fiscal 2022, the Company incurred approximately $15.5$1.1 million in costs associated with the amortization of fees for a bridge financing commitment established in connection with the Dodge acquisition during the secondthird quarter of fiscal 2022, which was replaced with the Term Loan Facility, Revolving Credit Facility and Senior Notes in the third quarter of fiscal 2022.same quarter. The increase in interest expense from fiscal 2022 to fiscal 2023 was primarily due to an additional month of interest expense associated with the Term Loan Facility and Revolving Credit Facility and the increase in LIBOR during the second quarter offrom fiscal 2022 to fiscal 2023.
Six Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Interest expense, net | $ | 34.1 | $ | 16.1 | $ | 18.0 | 112.1 | % | $ | 55.0 | $ | 27.9 | $ | 27.1 | 97.0 | % | ||||||||||||||||
% of net sales | 4.7 | % | 5.1 | % | 5.1 | % | 4.7 | % |
Interest expense, net was $34.1$55.0 million for the first sixnine months of fiscal 2023 compared to $16.1$27.9 million for the first sixnine months of fiscal 2022. TheDuring the nine months ended January 1, 2022 the Company incurred approximately $15.5$16.6 million in costs associated with the amortization of fees for athe bridge financing commitment establishedmentioned above and $11.3 million of interest expense on outstanding financing. The increase in association with the Dodge acquisition during the second quarter ofinterest expense from fiscal 2022 whichto fiscal 2023 was replacedprimarily due to seven more months of interest expense associated with the Term Loan Facility and Senior Notes inRevolving Credit Facility and the third quarter of fiscal 2022. The increase in interest expense was primarily due interest we are now incurring relatedLIBOR from fiscal 2022 to the debt disclosed within Item 1, Part I, Note 10 of this report.fiscal 2023.
Other Non-Operating Expense/(Income)
Three Months Ended | ||||||||||||||||
December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||
Other non-operating expense /(income) | $ | 1.5 | $ | 1.4 | $ | 0.1 | 10.3 | % | ||||||||
% of net sales | 0.4 | % | 0.5 | % |
Three Months Ended | ||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | |||||||||||||
Other non-operating expense /(income) | $ | 0.2 | $ | (0.3 | ) | $ | 0.5 | (163.2 | )% | |||||||
% of net sales | 0.0 | % | (0.2 | )% |
Other non-operating expenses were $0.2$1.5 million for the secondthird quarter of fiscal 2023 compared to $0.3$1.4 million of income for the same period in the prior year. For the second quarter of fiscal 2023, other non-operating expenses wereyear and consisted primarily comprised of $0.4 million of post-retirement benefit costs partially offset by $0.2 million ofand foreign exchange gain. For the second quarter of fiscal 2022, other non-operating income was comprised of $0.5 million of income associated with short-term marketable securities partially offset by $0.1 million of foreign exchange lossgains and $0.1 million of other items.losses.
Nine Months Ended | ||||||||||||||||
December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||
Other non-operating expense /(income) | $ | 2.5 | $ | 0.6 | $ | 1.9 | 289.7 | % | ||||||||
% of net sales | 0.2 | % | 0.1 | % |
Six Months Ended | ||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | |||||||||||||
Other non-operating expense /(income) | $ | 1.0 | $ | (0.8 | ) | $ | 1.8 | (225.8 | )% | |||||||
% of net sales | 0.1 | % | (0.2 | )% | ||||||||||||
Other non-operating expenses were $1.0$2.5 million for the first sixnine months of fiscal 2023 compared to $0.8$0.6 million of income for the same period in the prior year. For the first sixnine months of fiscal 2023, other non-operating expenses were comprised of $1.4$2.6 million of post-retirement benefit costs, partially offset by $0.4$0.1 million of foreign exchange gain. For the first sixnine months of fiscal 2022, other non-operating income wasexpenses were comprised of $0.9 million of charges associated with the elimination of a debt facility, $0.6 million of post-retirement benefit costs, $0.1 million of foreign exchange loss, and $0.2 million of other items partially offset by $1.2 million of income associated with short-term marketable securities partially offset by $0.1 million of foreign exchange loss and $0.3 million of other items.securities.
Income Taxes
Three Months Ended | ||||||||
December 31, 2022 | January 1, 2022 | |||||||
Income tax expense | $ | 11.7 | $ | 2.1 | ||||
Effective tax rate | 24.4 | % | 79.2 | % |
Three Months Ended | ||||||||
October 1, 2022 | October 2, 2021 | |||||||
Income tax expense | $ | 9.7 | $ | 2.4 | ||||
Effective tax rate | 18.1 | % | 223.5 | % |
Income tax expense for the three-month period ended October 1,December 31, 2022 was $9.7$11.7 million compared to $2.4$2.1 million for the three-month period ended October 2, 2021.January 1, 2022. Our effective income tax rate for the three-month period ended October 1,December 31, 2022 was 18.1%24.4% compared to 223.5%79.2% for the three-month period ended October 2, 2021.January 1, 2022. The effective income tax rate for the three-month period ended October 1,December 31, 2022 of 18.1% includes $2.424.4% included $0.3 million of tax benefits associated with share-basedstock-based compensation andoffset by $0.2 million of other items. The effective income tax rate without discrete items would have been 22.9%24.5%. The effective income tax rate for the three-month period ended October 2, 2021January 1, 2022 of 223.5%79.2% included $0.1$0.5 million of tax benefits associated with share-basedstock-based compensation offset by the establishment of a $1.9 million valuation allowance for capital loss carryforwards we do not expect to recognize and $0.1 million of other items. The effective income tax rate without discrete items for the three-month period ended October 2, 2021January 1, 2022 would have been 53.5%91.6%. The effective income tax rate without discrete items differed from the statutory rate primarily due to nondeductible share-basedstock-based compensation expense recognized in the period, and state and foreign taxes that increased the rate while R&D credits.credits and the foreign-derived intangible income provision decreased the rate. In the quarter ended, January 1, 2022, the Company’s tax rate was also increased by non-deductible transaction costs incurred in the Dodge acquisition.
Nine Months Ended | ||||||||
December 31, 2022 | January 1, 2022 | |||||||
Income tax expense | $ | 31.9 | $ | 9.9 | ||||
Effective tax rate | 21.3 | % | 30.0 | % |
Six Months Ended | ||||||||
October 1, 2022 | October 2, 2021 | |||||||
Income tax expense | $ | 20.2 | $ | 7.9 | ||||
Effective tax rate | 19.9 | % | 25.8 | % |
Income tax expense for the six-monthnine-month period ended October 1,December 31, 2022 was $20.2$31.9 million compared to $7.9$9.9 million for the six-monthnine-month period ended October 2, 2021.January 1, 2022. Our effective income tax rate for the six-monthnine-month period ended October 1,December 31, 2022 was 19.9%21.3% compared to 25.8%30.0% for the six-monthnine-month period ended October 2, 2021.January 1, 2022. The effective income tax rate for the six-monthnine-month period ended October 1,December 31, 2022 of 19.9% includes $3.021.3% included $3.2 million of tax benefits associated with share-basedstock-based compensation partially offset by $0.2$0.1 million of discrete tax expense primarily associated with establishing a valuation allowance on a loss carryforward;other items; the effective income tax rate without these benefits and other items would have been 23.0%23.5%. The effective income tax rate for the six-monthnine-month period ended October 2, 2021January 1, 2022 of 25.8% includes $2.230.0% included $2.7 million of tax benefits associated with share-basedstock-based compensation offset by the establishment of a $1.9 million valuation allowance for capital loss carryforwards we don’t expect to recognize and $0.1 million of other items. The effective income tax rate without these benefits, valuation allowance and other items for the six-monthnine-month period ended October 2, 2021January 1, 2022 would have been 27.2%32.3%. The effective income tax rate differed from the statutory rate primarily due to nondeductible stock-based compensation expense recognized in the period, and state and foreign taxes that increased the rate while R&D credits and the foreign-derived intangible income provision decreased the rate. In the nine-month period ended, January 1, 2022, the Company’s tax rate was also increased by non-deductible transaction costs incurred in the Dodge acquisition.
Segment Information
Segment Information
We previously reported our financial results under four operating segments (Plain Bearings; Roller Bearings; Ball Bearings; and Engineered Products), but the Dodge acquisition has resulted in a change in the internal organization of the Company and how our chief operating decision maker makes operating decisions, assesses the performance of the business, and allocates resources. Accordingly, we will now report our financial results under two operating segments: Aerospace/Defense; and Industrial. Financial information for fiscal 2022 has been recast to conform to the new segment presentation. We use segment net sales and gross margin as the primary measurementmeasurements to assess the financial performance of each reportable segment.
Aerospace/Defense Segment
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Total net sales | $ | 103.5 | $ | 92.9 | $ | 10.6 | 11.4 | % | $ | 105.5 | $ | 93.2 | $ | 12.3 | 13.2 | % | ||||||||||||||||
Gross margin | $ | 41.0 | $ | 36.6 | $ | 4.4 | 12.2 | % | $ | 41.7 | $ | 37.5 | $ | 4.2 | 11.2 | % | ||||||||||||||||
% of segment net sales | 39.6 | % | 39.4 | % | 39.5 | % | 40.2 | % | ||||||||||||||||||||||||
SG&A | $ | 7.4 | $ | 7.2 | $ | 0.2 | 2.5 | % | $ | 7.8 | $ | 7.1 | $ | 0.7 | 9.4 | % | ||||||||||||||||
% of segment net sales | 7.2 | % | 7.8 | % | 7.4 | % | 7.6 | % |
Net sales increased $10.6$12.3 million, or 11.4%13.2%, for the three months ended October 1,December 31, 2022 compared to the same period last fiscal year. Commercial aerospace increased during the period 31.3%24.2% year over year. The commercial OEM business was up 32.4%22.8%, demonstrating continued recovery as build rates and orders escalate in the OEM markets. Our defense markets, which represented approximately 32.3%31.7% of segment sales, decreased by approximately 15.3%4.8% during the period. These markets were impacted by the timing of deliveries to certain government customers whichthat require sign offsign-off or achievement of certain milestones prior to shipment. Overall distribution and aftermarket sales, which represent 18.4%represented 17.3% of segment sales, increased 14.9%16.8% year over year.
Gross margin as a percentage of segment net sales was 39.6%39.5% for the secondthird quarter of fiscal 2023 compared to 39.4%40.2% for the same period last fiscal year. The increasedecrease in gross margin as a percentage of net sales was driven by increased volumes and greater cost efficiencies achieved in our plants during the period.product mix.
Six Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Total net sales | $ | 202.9 | $ | 183.3 | $ | 19.6 | 10.7 | % | $ | 308.5 | $ | 276.5 | $ | 32.0 | 11.6 | % | ||||||||||||||||
Gross margin | $ | 79.6 | $ | 75.2 | $ | 4.4 | 5.9 | % | $ | 121.3 | $ | 112.7 | $ | 8.6 | 7.6 | % | ||||||||||||||||
% of segment net sales | 39.2 | % | 41.0 | % | 39.3 | % | 40.8 | % | ||||||||||||||||||||||||
SG&A | $ | 14.9 | $ | 14.5 | $ | 0.4 | 2.8 | % | $ | 22.7 | $ | 21.7 | $ | 1.0 | 5.0 | % | ||||||||||||||||
% of segment net sales | 7.4 | % | 7.9 | % | 7.4 | % | 7.8 | % |
Net sales increased $19.6$32.0 million, or 10.7%11.6%, for the sixnine months ended October 1,December 31, 2022 compared to the same period last fiscal year. The 10.7%11.6% increase was primarily driven by a 25.0%24.1% increase in our commercial aerospace market, both OEM and aftermarket, while our defense market was down 9.6%7.3% year over year due to the timing of shipments related to our marine business. During the year, we have notedsaw improvement in the sales and orders to our commercial aerospace customers as build rates continuecontinued to grow. Our backlog and recent results reflect the early stages of this process which we expect to continue to see in upcoming quarters. Overall distribution and aftermarket sales were up 8.6%11.5% year over year.
Gross margin as a percentage of net sales decreased to 39.3% for the first nine months of fiscal 2023 compared to 40.8% for the same period last fiscal year. The decrease in gross margin percentage was due to product mix.
Gross margin as a percentage of net sales decreased to 39.2% for the first six months of fiscal 2023 compared to 41.0% for the same period last year. The decrease in gross margin percentage is due to product mix.
Industrial Segment
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Total net sales | $ | 265.6 | $ | 68.0 | $ | 197.6 | 290.7 | % | $ | 246.1 | $ | 173.8 | $ | 72.3 | 41.6 | % | ||||||||||||||||
Gross margin | $ | 110.1 | $ | 25.8 | $ | 84.3 | 325.4 | % | $ | 104.4 | $ | 55.9 | $ | 48.5 | 86.8 | % | ||||||||||||||||
% of segment net sales | 41.5 | % | 38.1 | % | 42.4 | % | 32.2 | % | �� | |||||||||||||||||||||||
SG&A | $ | 30.1 | $ | 6.0 | $ | 24.1 | 408.6 | % | $ | 29.2 | $ | 18.2 | $ | 11.0 | 60.4 | % | ||||||||||||||||
% of segment net sales | 11.3 | % | 8.7 | % | 11.8 | % | 10.5 | % |
Net sales increased $197.6$72.3 million, or 290.7%41.6%, for the three months ended October 1,December 31, 2022 compared to the same period last fiscal year. The increase was primarily due to three monthsthe inclusion of a full quarter of Dodge sales in fiscal 2023 and continued strong performance across the majority of our industrial markets. Excluding Dodge sales of $192.3 million,from both periods, organic net sales increased $5.3 million, or 7.9%,11.8% period over period. This increase was driven by performance in semiconductor, energy mining, and the general industrial markets. Sales to distribution and the aftermarket reflected 67.0%represented 67.7% of our quarterly industrial sales. These distribution and aftermarket sales increased 637.2%54.7% compared to the same quarter in the prior year and 0.6%7.8% organically.
Gross margin for the three months ended October 1,December 31, 2022 was 41.5%42.4% of net sales, compared to 38.1%32.2% in the comparable period in fiscal 2022. The improved gross margin iswas due to price and volume increases and also the unfavorable impact of $0.9$7.0 million of restructuring costsinventory purchase accounting adjustments associated with consolidation efforts at one of our domestic facilities in the secondDodge acquisition during the third quarter of fiscal 2022.
Six Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||||||||||||||
Total net sales | $ | 520.3 | $ | 133.8 | $ | 386.5 | 288.8 | % | $ | 766.4 | $ | 307.6 | $ | 458.8 | 149.2 | % | ||||||||||||||||
Gross margin | $ | 212.7 | $ | 51.0 | $ | 161.7 | 316.8 | % | $ | 317.1 | $ | 106.9 | $ | 210.2 | 196.5 | % | ||||||||||||||||
% of segment net sales | 40.9 | % | 38.1 | % | 41.4 | % | 34.8 | % | ||||||||||||||||||||||||
SG&A | $ | 60.1 | $ | 11.7 | $ | 48.4 | 415.0 | % | $ | 89.2 | $ | 29.8 | $ | 59.4 | 199.0 | % | ||||||||||||||||
% of segment net sales | 11.5 | % | 8.7 | % | 11.6 | % | 9.7 | % |
Net sales increased $386.5$458.8 million, or 288.8%149.2%, for the sixnine months ended October 1,December 31, 2022 compared to the same period last fiscal year. The increase was primarily due to sixnine months of Dodge sales in fiscal 2023 compared to two months in fiscal 2022 and strong performance across our industrial markets. Excluding Dodge sales, net sales increased $16.8$24.3 million, or 12.5%12.3%, period over period. Sales to distribution and the aftermarket increased 601.0%224.1% over last fiscal year, and 6.1%6.6% on an organic basis. The overall segment increase, excluding the addition of Dodge, was driven by performance in semiconductor, energy, mining, and the general industrial markets.
Gross margin for the sixnine months ended October 1,December 31, 2022 was 40.9%41.4% of net sales, compared to 38.1%34.8% in the same period in fiscal 2022. The increase in gross margin is driven by price and volume increases and the fact that gross margin for the first sixnine months of fiscal 2022 included the unfavorable impact of $0.9$7.0 million of restructuring costsinventory purchase accounting adjustments associated with consolidation efforts at one of our domestic facilities.the Dodge acquisition.
Corporate
Three Months Ended | ||||||||||||||||
December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||
SG&A | $ | 19.9 | $ | 16.4 | $ | 3.5 | 20.9 | % | ||||||||
% of total net sales | 5.6 | % | 6.2 | % |
Three Months Ended | ||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | |||||||||||||
SG&A | $ | 20.0 | $ | 27.0 | $ | (7.0 | ) | (26.2 | )% | |||||||
% of total net sales | 5.4 | % | 16.8 | % |
Corporate SG&A was $20.0$19.9 million, or 5.4%5.6% of sales, for the secondthird quarter of fiscal 2023 compared to $27.0$16.4 million, or 16.8%6.2% of sales, for the same period last fiscal year. The year over year decreaseincrease was primarily due to increases in personnel costs and professional fees.
Nine Months Ended | ||||||||||||||||
December 31, 2022 | January 1, 2022 | $ Change | % Change | |||||||||||||
SG&A | $ | 58.2 | $ | 61.7 | $ | (3.5 | ) | (5.6 | )% | |||||||
% of total net sales | 5.4 | % | 10.6 | % |
Corporate SG&A decreased $3.5 million for the nine months ended December 31, 2022 compared to the same period last fiscal year due to a $17.5 million decrease in stockstock-based compensation expense, partially offset by increases in other personnel costs and professional fees.
Six Months Ended | ||||||||||||||||
October 1, 2022 | October 2, 2021 | $ Change | % Change | |||||||||||||
SG&A | $ | 38.3 | $ | 45.2 | $ | (6.9 | ) | (15.3 | )% | |||||||
% of total net sales | 5.3 | % | 14.3 | % |
Corporate SG&A decreased $6.9 million for the six months ended October 1, 2022 compared to the same period last year due to a decrease in stock compensation expense, partially offset by increases in other personnel costs and professional fees.
Liquidity and Capital Resources
(dollars in millions in tables)
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, including the Dodge acquisition completed on November 1, 2021. We have historically met our working capital, capital expenditure and acquisition funding needs through our net cash flows provided by operations, various debt arrangements and salesales of equity to investors. We believe that operating cash flows and available credit under the Revolving Credit Facility will provide adequate resources to fund internal growth initiatives for the foreseeable future. For further discussion regarding the funding of the Dodge acquisition, refer to Part I, Item 1 – Note 13.
Our ability to meet future working capital, capital expenditure 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, relocate, consolidate or otherwise dispose of thosethat facility or operations. Although we believe our operations would not be materially impaired by such dispositions, relocations or consolidations, we could incur significant cash or non-cash charges in connection with them.
Liquidity
As of October 1,December 31, 2022, we had cash and cash equivalents of $88.5$82.0 million, of which approximately $25.2 million$30.8 was cash held by our foreign operations. We expect that our undistributed foreign earnings will be re-invested indefinitely for working capital, internal growth and acquisitions for and by our foreign subsidiaries.
Domestic Credit Facility
On November 1, 2021 RBC Bearings Incorporated, our top holding company, and RBCA, our Roller Bearing Company of America, Inc.top operating subsidiary, (“RBCA”) entered into athe New Credit Agreement (the “New Credit Agreement”) with Wells Fargo, Bank, National Association (“Wells Fargo”), as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer and the other lenders party thereto, and terminated the Company’s prior Credit Agreement,credit agreement, which was entered into with Wells Fargo in 2015 (the “2015 Credit Agreement”).2015. The New Credit Agreement provides the Company with (a) a $1,300.0 million term loan facility (the “Term Loan Facility”), which was used to fund a portion of the cash purchase price for the acquisition of Dodge and to pay related fees and expenses, and (b) a $500.0 million revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Facilities”). Debt issuance costs associated with the New Credit Agreement totaled $14.9 million and will beare being amortized over the life of the New Credit Agreement.
Amounts
Prior to December 2022, amounts outstanding under the Facilities generally bearbore interest at either, at the Company’s option, (a) a base rate determined by reference to the higher of (i) Wells Fargo’s prime lending rate, (ii) the federal funds effective rate plus 1/2 of 1.00%0.50% and (iii) the one-month LIBORLondon interbank offered rate (LIBOR) rate plus 1.00% or (b) the LIBOR rate plus a specified margin, depending on the type of borrowing being made. The applicable margin iswas based on the Company’s consolidated ratio of total net debt to consolidated EBITDA from time to time. Currently,In December 2022 the New Credit Agreement was amended to replace LIBOR with the secured overnight financing rate administered by the Federal Reserve Bank of New York (“SOFR”) so that borrowings under the Facilities denominated in U.S. dollars bear interest at a rate per annum equal to Term SOFR (as defined in the New Credit Agreement) plus a credit spread adjustment of 0.10% plus a margin ranging from 0.75% to 2.00% depending on the Company’s consolidated ratio of total net debt to consolidated EBITDA. The Facilities are subject to a SOFR floor of 0.00%. As of December 31, 2022, the Company’s margin iswas 0.50% for base rate loans and 1.50% for LIBOR rateSOFR loans. The Facilities are subject to a “LIBOR” floor of 0.00% and contain “hard-wired” LIBOR replacement provisions as set forth in the New Credit Agreement. As of October 1, 2022, the Company’s commitment fee rate iswas 0.20% and the letter of credit fee rate was 1.50%.
The Term Loan Facility will mature on November 2, 2026 and amortizes in quarterly installments with the balance payable on the Maturity Date.maturity date. The Company can elect to prepay some or all of the outstanding balance from time to time without penalty, which will offset future quarterly amortization installments. The required future principal payments on the Term Loan Facility are $0 for the remainder of fiscal 2023, $0 for fiscal 2024, and $0 for fiscal 2025, due to prepayments previously made, and approximately $87.5$27.5 million for fiscal 2026, and $942.5 million for fiscal 2027. The Revolving Credit Facility will mature on November 2, 2026, at which time all amounts outstanding under the Revolving Credit Facility will be payable.
The New Credit Agreement requires the Company to comply with various covenants, including the following financial covenants: (a) a maximum Total Net Leverage Ratiototal net leverage ratio of 5.50:1.00, which maximum Total Net Leverage Ratio shallratio will decrease during certain subsequent test periods as set forth in the New Credit Agreement (provided that, no more than once during the term of the Facilities, such maximum ratio applicable at such time may be increased by the Company by 0.50:1.00 for a period of 12 months after the consummation of a material acquisition), and (b) a minimum Interest Coverage Ratiointerest coverage ratio of 2.00:1.00. As of October 1,December 31, 2022, the Company was in compliance with all debt covenants.
The New Credit Agreement allows the Company to, among other things, make distributions to stockholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the New Credit Agreement.
The Company’s domestic subsidiaries have guaranteed the Company’s obligations under the New Credit Agreement, and the Company’s obligations and the domestic subsidiaries’ guaranty are secured by a pledge of substantially all of the domestic assets of the Company and its domestic subsidiaries.
As of October 1,December 31, 2022, $1,030.0$970.0 million was outstanding under the Term Loan Facility and approximately $3.7 million of the Revolving Credit Facility was being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs, and the Company had the ability to borrow up to an additional $496.3 million under the Revolving Credit Facility.
Senior Notes
On October 7, 2021, RBCA issued $500.0 million aggregate principal amount of 4.375%the Senior Notes due 2029 (the “Senior Notes”).Notes. The net proceeds from the issuance of the Senior Notes were approximately $492.0 million after deducting initial purchasers’ discounts and commissions and offering expenses. On November 1, 2021, the Company used the proceeds to fund a portion of the cash purchase price for the acquisition of Dodge.
The Senior Notes were issued pursuant to an indenture with Wilmington Trust, National Association, as trustee (the “Indenture”). Thethe Indenture, which contains covenants limiting the ability of the Company to (i) incur additional indebtedness or guarantee indebtedness, (ii) declare or pay dividends, redeem stock or make other distributions to stockholders, (iii) make investments, (iv) create liens or use assets as security in other transactions, (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of its assets, (vi) enter into transactions with affiliates, and (vii) sell or transfer certain assets. These covenants contain various exceptions, limitations and qualifications. At any time that the Senior Notes are rated investment grade, certain of these covenants will be suspended.
The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by RBC Bearings and certain of RBCA’s existing and future wholly owned domestic subsidiaries that also guarantee the New Credit Agreement.
Interest on the Senior Notes accrues at a rate of 4.375% and is payable semi–annually in cash in arrears on April 15 and October 15 of each yearyear.
The Senior Notes will mature on October 15, 2029. The Company may redeem some or all of the Senior Notes at any time on or after October 15, 2024 at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also redeem up to 40% of the Senior Notes using the proceeds of certain equity offerings completed before October 15, 2024, at a redemption price equal to 104.375% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to October 15, 2024, the Company may redeem some or all of the Senior Notes at a price equal to 100% of the principal amount, plus a “make–whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company sells certain of its assets or experiences specific kinds of changes in control, the Company must offer to purchase the Senior Notes.
Foreign Term Loan and Revolving Credit Facility
On August 15, 2019, one of our foreign subsidiaries, Schaublin SA (“Schaublin”), entered into two separateThe New Foreign Revolver is a CHF 5.0 million (approximately $5.4 million USD) revolving credit agreements (the “Foreign Credit Agreements”)facility with Credit Suisse (Switzerland) Ltd. to (i) finance the acquisition of Swiss Tool, and (ii) provide future working capital. capital, if necessary. As of December 31, 2022, $0 had been borrowed from the New Foreign Revolver. Fees associated with the New Foreign Revolver are nominal if the facility is not utilized.
Interest Rate Swap
The ForeignCompany is exposed to certain risks relating to its ongoing business operations, including market risks relating to fluctuations in interest rates.
On October 28, 2022, the Company entered into a three-year USD-denominated interest rate swap (“the Swap”) from a third-party financial counterparty under the New Credit Agreements provided SchaublinAgreement. The Swap was executed to protect the Company from interest rate volatility on our variable-rate Term Loan Facility. The Swap has an effective date of December 30, 2022 and is comprised of a $600.0 million notional with a CHF 15.0 million (approximately $15.4 million) term loan (the “Foreignmaturity of three years. RBC will receive a variable rate based on one-month Term Loan”), which was extinguished in February 2022SOFR and will pay a CHF 15.0 million (approximately $15.4 million) revolving credit facility (the “Foreign Revolver”), which was terminatedfixed rate of 4.455%. The notional on the Swap will amortize as of October 1, 2022.follows:
Cash FlowsYear 1: $600.0 million
Year 2: $400.0 million
Six-month Period Ended October 1, 2022 ComparedYear 3: $100.0 million
The Swap has been designated as a cash flow hedge of the variability of the first unhedged interest payments (the hedged transactions) paid over the hedging relationship’s specified time period of three years attributable to the Six-month Period Ended October 2, 2021borrowing’s contractually specified interest index on the hedged principal of its general borrowing program or replacement or refinancing thereof.
The following table summarizes our cash flow activities:
FY23 | FY22 | $ Change | ||||||||||
Net cash provided by/(used in): | ||||||||||||
Operating activities .. | $ | 88.4 | $ | 93.5 | $ | (5.1 | ) | |||||
Investing activities | 0.4 | 83.6 | (83.2 | ) | ||||||||
Financing activities | (179.9 | ) | 1,020.3 | (1,200.2 | ) | |||||||
Effect of exchange rate changes on cash | (3.3 | ) | 0.1 | (3.4 | ) | |||||||
Increase/(decrease) in cash and cash equivalents | $ | (94.4 | ) | $ | 1,197.5 | $ | (1,291.9 | ) |
Cash Flows
Nine-month Period Ended December 31, 2022 Compared to the Nine-month Period Ended January 1, 2022
The following table summarizes our cash flow activities:
FY23 | FY22 | $ Change | ||||||||||
Net cash provided by/(used in): | ||||||||||||
Operating activities | $ | 149.3 | $ | 133.4 | $ | 15.9 | ||||||
Investing activities | (1.6 | ) | (2,839.5 | ) | 2,837.9 | |||||||
Financing activities | (247.0 | ) | 2,810.3 | (3,057.3 | ) | |||||||
Effect of exchange rate changes on cash | (1.5 | ) | 0.2 | (1.7 | ) | |||||||
Increase/(decrease) in cash and cash equivalents | $ | (100.8 | ) | $ | 104.4 | $ | (205.2 | ) |
During the first sixnine months of fiscal 2023, we generated cash of $88.4$149.3 million from operating activities compared to $93.5$133.4 million of cash generated during the same period of fiscal 2022. The decreaseincrease of $5.1$15.9 million for fiscal 2023 was mainly a result of an increase in net income of $94.3 million and a favorable change in non-cash activity of $6.2 million partially offset by the unfavorable impact of athe net change in operating assets and liabilities of $66.9 million, partially offset by a favorable change in non-cash activity of $3.2 million and an increase in net income of $58.6$84.6 million. The unfavorable change in operating assets and liabilities is detailed in the table below, while the increase in non-cash charges resulted from a $40.2$48.5 million increase in depreciation and amortization and a $0.1 million increase in the loss on disposal of assets, partially offset by unfavorable changes of $15.8$17.5 million of share-basedstock-based compensation charges, $11.3$11.4 million of amortization of deferred financing costs, $7.8$10.5 million in deferred taxes, $0.9 million related to the extinguishment of debt in the prior year and $2.1 million of consolidation, restructuring, and other noncash charges.
The following chart summarizes the unfavorable change in operating assets and liabilities of $66.9$84.6 million for fiscal 2023 versus fiscal 2022 and the favorable change of $14.0$24.4 million for fiscal 2022 versus fiscal 2021.
FY23 | FY22 | FY23 | FY22 | |||||||||||||
Cash provided by/(used in): | ||||||||||||||||
Accounts receivable | $ | 8.6 | $ | (20.6 | ) | $ | 38.2 | $ | (29.2 | ) | ||||||
Inventory | (38.0 | ) | (2.2 | ) | (54.2 | ) | (3.8 | ) | ||||||||
Prepaid expenses and other current assets | (0.9 | ) | (9.3 | ) | (1.9 | ) | (10.1 | ) | ||||||||
Other noncurrent assets | 6.5 | 5.6 | 7.6 | 11.5 | ||||||||||||
Accounts payable | (19.9 | ) | 22.8 | (55.2 | ) | 45.6 | ||||||||||
Accrued expenses and other current liabilities | (11.6 | ) | 18.1 | (15.7 | ) | 10.6 | ||||||||||
Other noncurrent liabilities | (11.6 | ) | (0.4 | ) | (3.4 | ) | (0.2 | ) | ||||||||
Total change in operating assets and liabilities: | $ | (66.9 | ) | $ | 14.0 | $ | (84.6 | ) | $ | 24.4 |
During the first sixnine months of fiscal 2023, we generated $0.4used $1.6 million infor investing activities as compared to generating $83.6using $2,839.5 million during the first sixnine months of fiscal 2022. This decrease in cash generatedused compared to the prior year was attributable to $2,935.7 million less cash used for acquisitions, $30.0 million less purchases of marketable securities and $0.5 million more proceeds from the sale of assets partially offset by a $7.8 million increase in capital expenditures and $120.5 million less in proceeds from the sale of marketable securities and an increase in capital expenditures of $16.2 million, partially offset by a $30.0 million decrease in purchases of marketable securities, $0.5 million increase in proceeds from the sale of assets and Dodge acquisition purchase price adjustments of $23.0 million.securities.
During the first sixnine months of fiscal 2023, we used $179.9$247.0 million in financing activities compared to $1,020.3$2,810.3 million generated during the first sixnine months of fiscal 2022. This decrease from cash generated to cash used was primarily attributable to $605.7proceeds received during the first nine months of fiscal 2022 related to $605.5 million proceeds from the issuance of common stock, during
the first six months of fiscal 2022, $445.5$445.3 million proceeds from the issuance of preferred stock, during$1,286.2 million from the first six months ofTerm Loan Facility, and $494.2 million from the Senior Notes. During fiscal 2022, $161.12023 there were $220.0 million more payments made on outstanding debt, $11.5$17.3 million cash dividends paid on preferred stock, $6.8$7.3 million fewer exercises of share-basedstock-based awards, and $2.2$2.5 million more in principal payments made on finance lease obligations, during the current fiscal year, partially offset by $32.2$19.9 million less in finance fees paid in connection with credit facilities and term loans and $0.4$1.1 million fewer repurchases of common stock.
Capital Expenditures
Our capital expenditures were $15.2$6.5 million and $23.1$29.6 million for the three- and six-monthnine-month periods ended October 1,December 31, 2022, respectively. We expect to make additional capital expenditures of $15.0$5.0 million to $20.0$10.0 million during the remainder of fiscal 2023 in connection with our existing business. We expect to fund these capital expenditures principally through existing cash and internally generated funds. We may also make substantial additional capital expenditures in connection with acquisitions.
Obligations and Commitments
The Company’s fixed contractual obligations and commitments are primarily comprised of our debt obligations disclosed in Part I, Item 1- Note 10 of this report. We also have lease obligations which are materially consistent with what we disclosed in our Form 10-K/A for the fiscal year ended April 2, 2022.Annual Report.
Other Matters
Critical Accounting Policies and Estimates
Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements in our fiscal 2022 Annual Report on Form 10-K/A describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results in these areas could differ from management’s estimates. There have beenwere no significant changes in our critical accounting estimates during the first sixnine months of fiscal 2023.
Off-Balance Sheet Arrangements
As of October 1, 2022, we had no significant off-balance sheet arrangements other thanThe Company has $3.7 million of outstanding standby letters of credit, all of which wereare under the Revolving Credit Facility. We also have a contractual obligation for licenses related to the implementation and upgrade of an enterprise resource planning (“ERP”) system for Dodge. These license costs of $10.5 million will be incurred over a five-year period.
Other than the items noted above, we had no significant off-balance sheet arrangements as of December 31, 2022.
Item 3. 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 currently have variable rate debt outstanding under the Term Loan Facility. We regularly evaluate the impact of interest rate changes on our net income and cash flow and take action to limit our exposure when appropriate. As discussed in Note 14 in Part I, Item I of this report, we entered into an interest rate swapthe Swap on October 28, 2022, which became effective on December 30, 2022.
Foreign Currency Exchange Rates. Our operations in the following countries utilize the following currencies as their functional currency:
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As a result, we are exposed to risk associated with fluctuating currency exchange rates between the U.S. dollar and these currencies. Foreign currency transaction gains and losses are included in earnings. Approximately 11% and 12% of our net sales were impacted by foreign currency fluctuations for both the three- and six-monthnine-month periods ended October 1,December 31, 2022, respectively, compared to 9%12% and 11% for both the three- and six-monthnine-month periods ended October 2, 2021.January 1, 2022, respectively. 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 operations’ 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 periodically enter into derivative financial instruments in the form of forward exchange contracts to reduce the effect of fluctuations in exchange rates on certain third-party sales transactions denominated in non-functional currencies. Based on the accounting guidance related to derivatives and hedging activities, we record derivative financial instruments at fair value. For derivative financial instruments designated and qualifying as cash flow hedges, the effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income, and is reclassified into earnings when the hedged transaction affects earnings. As of October 1,December 31, 2022, wethe Company had no derivatives. As discussed in Note 14 in Part I, Item I of this report, we entered into an interest rate swap on October 28, 2022.forward exchange contracts.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of October 1,December 31, 2022. This evaluation excluded the Dodge business acquired on November 1, 2021 as we are currently in the process of integrating the internal controls and procedures of Dodge into our internal controls over financial reporting. As provided under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the SEC, we will include the internal controls and procedures of Dodge in our annual assessment of the effectiveness of internal control over financial reporting for our 2023 fiscal year.
Remediation of Material Weakness
To address the previously reported material weakness in internal control over financial reporting described in Part I, Item 4 of the Company’s Form 10-Q for the quarterly period ended July 2, 2022, the Company enhanced and revised the design of existing controls and procedures to properly review employment agreements involving equity awards to ensure they are accounted for in accordance with the latest accounting pronouncements. The Company’s internal audit department will test the operating effectiveness of management’s controls during the fiscal year.
Changes in Internal Control over Financial Reporting
Except for the changes related to the Company'sCompany’s remediation efforts described above, there has been no change in the Company’s internal control over financial reporting that occurred during the secondthird quarter of fiscal 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).
As discussed in Note 13 included in Part I, Item 1 of this report, we acquired Dodge on November 1, 2021. We are currently in the process of integrating the internal controls and procedures of Dodge into our internal controls over financial reporting. As provided under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the SEC, we will include the internal controls and procedures of Dodge in our annual assessment of the effectiveness of our internal control over financial reporting for our 2023 fiscal year.
PART II - OTHER INFORMATION
Item 1. 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.
Item 1A. Risk Factors
There have been no material changes to our risk factors and uncertainties since the filing of our Form 10-K/A filedAnnual Report with the SEC on August 5, 2022. For a discussion of the risk factors, refer to Part I, Item 2, “Cautionary Statement as to Forward-Looking Information” contained in this quarterly report and Part I, Item 1A, “Risk Factors,” contained in the Company’sour Annual Report on Form 10-K/A for the fiscal year ended April 2, 2022.Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
In 2019, our Board of Directors authorized us to repurchase up to $100.0 million of our common stock from time to time on the open market, in block trade transactions, and through privately negotiated transactions, in compliance with SEC Rule 10b-18 depending on market conditions, alternative uses of capital, and other relevant factors. Purchases may be commenced, suspended, or discontinued at any time without prior notice.
Total share repurchases under the 2019 plan for the three months ended October 1,December 31, 2022 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) | ||||||||||||
07/03/2022 – 07/30/2022 | — | $ | — | — | $ | 73,069 | ||||||||||
07/31/2022 – 08/27/2022 | 63 | 236.00 | 63 | 73,054 | ||||||||||||
08/28/2022 – 10/01/2022 | — | — | — | $ | 73,054 | |||||||||||
Total | 63 | $ | 236.00 | 63 |
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) | ||||||||||||
10/02/2022 – 10/29/2022 | 90 | $ | 216.26 | 90 | $ | 73,035 | ||||||||||
10/30/2022 – 11/26/2022 | 176 | 252.34 | 176 | 72,991 | ||||||||||||
11/27/2022 – 12/31/2022 | 2,254 | 220.18 | 2,254 | $ | 72,495 | |||||||||||
Total | 2,520 | $ | 222.29 | 2,520 |
During the secondthird quarter of fiscal 2023, we did not issue any common stock that was not registered under the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
Exhibit | Exhibit Description | |
31.01 | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a). | |
31.02 | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a). | |
32.01 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* | |
32.02 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* | |
101.INS | Inline XBRL Instance Document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | This certification accompanies this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing. |
SIGNATURES
Pursuant to the requirements 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: |
By: | /s/ Robert M. Sullivan | ||
Name: | Robert M. Sullivan | ||
Title: | Chief Financial Officer | ||
Date: |
EXHIBIT INDEX
Exhibit | Exhibit Description | |
31.01 | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a). | |
31.02 | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a). | |
32.01 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* | |
32.02 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* | |
101.INS | Inline XBRL Instance Document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | This certification accompanies this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing. |
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