UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 10-K
(Mark
One)
| þ |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT
OF 1934
|
For
the fiscal year ended March 29, 2008
| o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
|
For
the transition period from __________to _________
Commission
file number 333-124824
RBC BEARINGS INCORPORATED
(Exact
Name of Registrant as Specified in Its Charter)
|
Delaware
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
95-4372080
(I.R.S.
Employer
Identification
No.)
|
|
|
One
Tribology Center, Oxford, CT
(Address
of Principal Executive Offices)
|
06478
(Zip
Code)
|
|
(203)
267-7001
(Telephone
Number, Including Area Code)
|
Securities registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Class
A Common Stock, Par Value $0.01 per Share
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes þ
No
o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o
No
þ
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be
filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Accelerated filer o
|
Non-accelerated filer o
|
Smaller reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No
þ
The
aggregate market value of the registrant’s Class A Common Stock held by
non-affiliates of the registrant on September 29, 2007 (based on the September
28, 2007 closing sales price of $38.35 of the registrant’s Class A Common Stock,
as reported by the Nasdaq National Market) was approximately
$826,112,000.
Number
of
shares outstanding of the registrant’s Class A Common Stock at May 20,
2008:
21,782,186
Shares of Class A Common Stock, par value $0.01 per share.
Documents
Incorporated by Reference:
Portions
of the registrant’s proxy statement to be filed within 120 days of the close of
the registrant’s fiscal year in connection with the registrant’s Annual Meeting
of Shareholders to be held September 10, 2008 are incorporated by reference
into
Part III of this Form 10-K.
TABLE
OF CONTENTS
|
Page
|
||
|
PART
I
|
||
|
Item
1
|
Business
|
1
|
|
Item
1A
|
Risk
Factors
|
6
|
|
Item
1B
|
Unresolved
Staff Comments
|
14
|
|
Item
2
|
Properties
|
14
|
|
Item
3
|
Legal
Proceedings
|
14
|
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
15
|
|
PART
II
|
||
|
Item
5
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
15
|
|
Item
6
|
Selected
Financial Data
|
17
|
|
Item
7
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
19
|
|
Item
7A
|
Quantitative
and Qualitative Disclosures About Market Risk
|
33
|
|
Item
8
|
Financial
Statements and Supplementary Data
|
35
|
|
Item
9
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
66
|
|
Item
9A
|
Controls
and Procedures
|
66
|
|
Item
9B
|
Other
Information
|
69
|
|
PART
III
|
||
|
Item
10
|
Directors
and Executive Officers of the Registrant
|
69
|
|
Item
11
|
Executive
Compensation
|
69
|
|
Item
12
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
69
|
|
Item
13
|
Certain
Relationships and Related Transactions
|
69
|
|
Item
14
|
Principal
Accounting Fees and Services
|
69
|
|
PART
IV
|
||
|
Item
15
|
Exhibits,
Financial Statement Schedules
|
69
|
|
Signatures
|
Signatures
|
73
|
PART
I
ITEM
1. BUSINESS
RBC
Bearings Incorporated
We
are an
international manufacturer and marketer of highly engineered precision plain,
roller and ball bearings. Bearings, which are integral to the manufacture and
operation of most machines and mechanical systems, reduce wear to moving parts,
facilitate proper power transmission and reduce damage and energy loss caused
by
friction. While we manufacture products in all major bearing categories, we
focus primarily on highly technical or regulated bearing products for
specialized markets that require sophisticated design, testing and manufacturing
capabilities. We believe our unique expertise has enabled us to garner leading
positions in many of the product markets in which we primarily compete. We
have
been providing bearing solutions to our customers since 1919. Over the past
ten
years, we have significantly broadened our end markets, products, customer
base
and geographic reach. We currently have 25 facilities of which 22 are
manufacturing facilities in four countries.
The
Bearing Industry
The
bearing industry is a highly fragmented multi-billion dollar market. Purchasers
of bearings include producers of commercial and military aerospace equipment,
automotive and commercial truck manufacturers, industrial equipment and
machinery manufacturers, agricultural machinery manufacturers and construction,
mining and specialized equipment manufacturers.
Demand
for bearings in the diversified industrial market is being influenced by growth
in industrial machinery and equipment shipments and nonresidential construction
and mining activity. In addition, increased usage of existing machinery will
improve aftermarket demand for replacement bearing products. In the aerospace
market, aging of the existing commercial aircraft fleet along with carrier
traffic growth is expected to continue to expand demand for our bearing
solutions. Lastly, growth in the defense market is being influenced by
modernization programs necessitating increased spending on new equipment, as
well as continued utilization of deployed equipment supporting aftermarket
demand for replacement bearings.
Customers
and Markets
We
serve
a broad range of end markets where we can add value with our specialty,
precision bearing products and applications. We classify our customers into
two
principal categories: diversified industrial and aerospace and defense. These
principal end markets utilize a large number of both commercial and specialized
bearing products. Although we provide a relatively small percentage of total
bearing products supplied to each of our overall principal markets, we believe
we have leading market positions in many of the specialized bearing product
markets in which we primarily compete. Financial information regarding
geographic areas is set forth in Item 8, Note 21.
|
·
|
Diversified
Industrial Market (47% of net sales for the fiscal year ended March
29,
2008)
|
We
manufacture bearing products for a wide range of diversified industrial markets,
including construction and mining, oil and natural resource extraction, heavy
truck, packaging and semiconductor machinery. Nearly all mechanical devices
and
machinery require bearings to relieve friction where one part moves relative
to
another. Our products target existing market applications in which our
engineering and manufacturing capabilities provide us with a competitive
advantage in the marketplace.
Our
largest diversified industrial customers include Caterpillar, Federal Mogul,
Komatsu America, Parker-Hannifin Corporation and various aftermarket
distributors including Applied Industrial, Kaman Corporation and Motion
Industries. We believe that the diversification of our sales among the various
segments of the industrial bearings market reduces our exposure to downturns
in
any individual market. We believe opportunities exist for growth and margin
improvement in this market as a result of increasing demand for industrial
machinery, the introduction of new products and the expansion of aftermarket
sales.
|
·
|
Aerospace
and Defense Market (53% of net sales for the fiscal year ended March
29,
2008)
|
We
supply
bearings for use in commercial and private aircraft. We supply bearings for
many
of the commercial aircraft currently operating worldwide and are the primary
supplier for many of their product lines. This includes military contractors
for
airplanes, helicopters and missile systems. Commercial aerospace customers
generally require precision products, often of special materials, made to unique
designs and specifications. Many of our aerospace bearing products are designed
and certified during the original development of the aircraft being served,
which often makes us the primary bearing supplier for the life of the
aircraft.
1
We
manufacture bearing products used by the U.S. Department of Defense and certain
foreign governments for use in fighter jets, troop transports, naval vessels,
helicopters, gas turbine engines, armored vehicles, guided weaponry and
satellites. We manufacture an extensive line of standard products that conform
to many domestic military application requirements, as well as customized
products designed for unique applications. We specialize in the manufacture
of
high precision ball and roller bearings, commercial ball bearings and
metal-to-metal and self-lubricating plain bearings for the defense market.
Our
bearing products are manufactured to conform to U.S. military specifications
and
are typically custom designed during the original product design phase, which
often makes us the sole or primary bearing supplier for the life of the product.
In addition to products that meet military specifications, these customers
often
require precision products made of specialized materials to custom designs
and
specifications. Product approval for use on military equipment is often a
lengthy process ranging from six months to six years.
Our
largest aerospace and defense customers include Airbus, Boeing, Embraer, General
Electric, Lockheed Martin, Raytheon, Snecma Group, Textron, U.S. Department
of
Defense, United Technologies and various aftermarket channels. We estimate
that
over 58% of aerospace net sales are actually used as replacement parts, as
bearings are regularly replaced on aircraft in conjunction with routine
maintenance procedures. We believe our strong relationships with OEMs help
drive our aftermarket sales since a portion of OEM sales are ultimately intended
for use as replacement parts. We believe that growth and margin expansion in
this segment will be driven primarily by expanding our international presence,
growth in the commercial aircraft build rates, and the refurbishment and
maintenance of existing commercial aircraft.
Products
Bearings
are employed to fulfill several functions including reduction of friction,
transfer of motion and carriage of loads. We design, manufacture and market
a
broad portfolio of bearing products. The following table provides a summary
of
our product segments:
|
Net
Sales for the Fiscal Year Ended
|
|||||||||||||
|
Segment
|
March 29, 2008
|
March 31, 2007
|
April 1, 2006
|
Representative Applications
|
|||||||||
|
Plain
Bearings
|
$
|
154,535
(46.7
|
)%
|
$
|
143,907
(47.0
|
)%
|
$
|
115,091
(41.9
|
)%
|
·Aircraft
engine controls and landing gear
·Missile
launchers
·Mining
and construction equipment
|
|||
|
Roller
Bearings
|
$
|
97,019
(29.4
|
)%
|
$
|
92,123
(30.1
|
)%
|
$
|
96,466
(35.1
|
)%
|
·Aircraft
hydraulics
·Military
and commercial truck chassis
·Packaging
machinery and gear pumps
|
|||
|
Ball
Bearings
|
$
|
56,677
(17.1
|
)%
|
$
|
50,466
(16.5
|
)%
|
$
|
46,378
(16.9
|
)%
|
·Radar
and night vision systems
·Airframe
control and actuation
·Semiconductor
equipment
|
|||
|
Other
|
$
|
22,369
|
|
$
|
19,566
|
|
$
|
16,574
|
|
·Precision
ground ball screws for robotic
|
|||
|
(6.8
|
)%
|
(6.4
|
)%
|
(6.1
|
)%
|
handling
and missile guidance
·Collets
for machine tools
|
|||||||
Plain
Bearings.
Plain
bearings are primarily used to rectify inevitable misalignments in various
mechanical components, such as aircraft controls, helicopter rotors, or in
heavy
mining and construction equipment. Such misalignments are either due to
machining inaccuracies or result when components change position relative to
each other. Plain bearings are produced with either self-lubricating or
metal-to-metal designs and consist of several sub-classes, including rod end
bearings, spherical plain bearings and journal bearings. Sales of plain bearings
accounted for 46.7% of our net sales in fiscal 2008.
Roller
Bearings.
Roller
bearings are anti-friction products that utilize cylindrical rolling elements.
We produce three main designs: tapered roller bearings, needle roller bearings
and needle bearing track rollers and cam followers. We produce medium sized
tapered roller bearings used primarily in heavy truck axle applications. We
offer several needle roller bearing designs that are used in both industrial
applications and certain U.S. military aircraft platforms. These products are
generally specified for use where there are high loads and the design is
constrained by space considerations. A significant portion of the sales of
this
product is to the aftermarket. Needle bearing track rollers and cam followers
have wide and diversified use in the industrial market and are often prescribed
as a primary component in articulated aircraft wings. We believe we are the
world's largest producer of aircraft needle bearing track rollers. The sale
of
roller bearings accounted for 29.4% of our net sales in fiscal
2008.
2
Ball
Bearings.
Ball
bearings are devices which utilize high precision ball elements to reduce
friction in high speed applications. We specialize in four main types of ball
bearings: high precision aerospace, airframe control, thin section and
industrial ball bearings. High precision aerospace bearings are primarily sold
to customers in the defense industry that require more technically sophisticated
bearing products, such as missile guidance systems, providing higher degrees
of
fault tolerance given the criticality of the applications in which they are
used. Airframe control ball bearings are precision ball bearings that are plated
to resist corrosion and are qualified under a military specification. Thin
section ball bearings are specialized bearings that use extremely thin cross
sections and give specialized machinery manufacturers many advantages. We
produce a general line of industrial ball bearings sold primarily to the
aftermarket. Ball bearings accounted for 17.1% of our net sales in fiscal
2008.
Other.
Our
other products consist primarily of precision linear products and machine tool
collets. Precision linear products are precision ground ball bearing screws
that
offer repeatable positioning accuracy in defense, machine tools, robotic
handling and semiconductor equipment. Machine tool collets are cone-shaped
metal
sleeves, used for holding circular or rodlike pieces in a lathe or other machine
that provide effective part holding and accurate part location during machining
operations. Our other products accounted for 6.8% of our net sales in fiscal
2008.
Product
Design and Development
We
produce specialized bearings that are often tailored to the specifications
of a
customer or application. Our sales professionals are highly experienced
engineers who collaborate with our customers on a continual basis to develop
bearing solutions. The product development cycle can follow many paths which
are
dependent on the end market or sales channel. The process normally takes between
3-6 years from concept to sale depending upon the application and the
market. A common route that is used for major OEM projects begins when our
design engineers meet with their customer counterparts at the machine design
conceptualization stage and work with them through the conclusion of the product
development.
Often,
at
the early stage, a bearing design concept is produced that addresses the
expected demands of the application. Environmental demands are many but normally
include load, stress, heat, thermal gradients, vibration, lubricant supply,
corrosion resistance, with one or two of these environmental constraints being
predominant in the design consideration. A bearing design must perform reliably
for a period of time specified by the customer's product
objectives.
Once
a
bearing is designed, a mathematical simulation is created to replicate the
expected application environment and thereby allow optimization with respect
to
these design variables. Upon conclusion of the design and simulation phase,
samples are produced and laboratory testing commences at one of our test
laboratories. The purpose of this testing phase is not only to verify the design
and the simulation model but also to allow further design improvement where
needed. Finally, upon successful field testing by the customer, the product
is
ready for sale.
For
the
majority of our products, the culmination of this lengthy process is the receipt
of a product approval or certification, generally obtained from either the
OEM,
the Department of Defense or the Federal Aviation Administration, or “FAA,”
which allows us to supply the product to the customer. We currently have in
excess of 32,000 of such approvals, which often gives us a significant
competitive advantage, and in many of these instances we are the only approved
supplier of a given bearing product.
Manufacturing
and Operations
Our
manufacturing strategies are focused on product reliability, quality and
service. Custom and standard products are produced according to manufacturing
schedules that ensure maximum availability of popular items for immediate sale
while carefully considering the economies of lot production and special
products. Capital programs and manufacturing methods development are focused
on
quality improvement and low production costs. A monthly review of product line
production performance assures an environment of continuous attainment of
profitability goals.
Capacity.
Our
plants currently run on a single shift, and light second and third shifts at
selected locations, to meet the demands of our customers. We believe that
current capacity levels and future annual estimated capital expenditures on
equipment up to approximately 4% of net sales should permit us to effectively
meet demand levels for the foreseeable future.
Inventory
Management.
Our
increasing emphasis on the distributor/aftermarket sector has required us to
maintain greater inventories of a broader range of products than the OEM market
historically demanded. We operate an inventory management program designed
to
balance customer delivery requirements with economically optimal inventory
levels. In this program, each product is categorized based on characteristics
including order frequency, number of customers and sales volume. Using this
classification system, our primary goal is to maintain a sufficient supply
of
standard items while minimizing warehousing costs. In addition, production
cost
savings are achieved by optimizing plant scheduling around inventory levels
and
customer delivery requirements. This leads to more efficient utilization of
manufacturing facilities and minimizes plant production changes while
maintaining sufficient inventories to service customer needs.
3
Sales,
Marketing and Distribution
Our
marketing strategy is aimed at increasing sales within our two primary markets,
targeting specific applications in which we can exploit our competitive
strengths. To effect this strategy, we seek to expand into geographic areas
not
previously served by us and we continue to capitalize on new markets and
industries for existing and new products. We employ a technically proficient
sales force and utilize marketing managers, product managers, customer service
representatives and product application engineers in our selling
efforts.
We
have
accelerated the development of our sales force through the hiring of sales
personnel with prior bearing industry experience, complemented by an in-house
training program. We intend to continue to hire and develop expert sales
professionals and strategically locate them to implement our expansion strategy.
Today, our direct sales force is located to service North America, Europe and
Latin America and is responsible for selling all of our products. This selling
model leverages our relationship with key customers and provides opportunities
to market multiple product lines to both established and potential customers.
We
also sell our products through a well-established, global network of industrial
and aerospace distributors. This channel primarily provides our products to
smaller OEM customers and the end users of bearings that require local inventory
and service. In addition, specific larger OEM customers are also serviced
through this channel to facilitate requirements for "Just In Time" deliveries
or
"Kan Ban" systems. Our worldwide distributor network provides our customers
with
more than 2,000 points of sale for our products. We intend to continue to focus
on building distributor sales volume.
The
sale
of our products is supported by a well-trained and experienced customer service
organization. This organization provides customers with instant access to key
information regarding their bearing purchase and delivery requirements. We
also
provide customers with updated information through our website, and we have
developed on-line integration with specific customers, enabling more efficient
ordering and timely order fulfillment for those customers.
We
store
product inventory in six company-owned and operated warehouses located on the
East and West coasts of the U.S., and in France and Switzerland. The inventory
is located in these warehouses based on analysis of customer demand to provide
superior service and product availability.
Competition
Our
principal competitors include Kaydon Corporation, New Hampshire Ball Bearings
and McGill Manufacturing Company, Inc., although we compete with different
companies for each of our product lines. We believe that for the majority of
our
products, the principal competitive factors affecting our business are product
qualifications, product line breadth, service and price. Although some of our
current and potential competitors may have greater financial, marketing,
personnel and other resources than us, we believe that we are well positioned
to
compete with regard to each of these factors in each of the markets in which
we
operate.
Product
Qualifications.
Many of
the products we produce are qualified for the application by the OEM, the U.S.
Department of Defense, the FAA or a combination of these agencies. These
credentials have been achieved for thousands of distinct items after years
of
design, testing and improvement. In many cases patent protection presides,
in
all cases there is strong brand identity and in numerous cases we have the
exclusive product for the application.
Product
Line Breadth.
Our
products encompass an extraordinarily broad range of designs which often create
a critical mass of complementary bearings and components for our markets. This
position allows many of our industrial and aircraft customers the ability for
a
single manufacturer to provide the engineering service and product breadth
needed to achieve a series of OEM design objectives or aftermarket requirements.
This ability enhances our value to the OEM considerably while strengthening
our
overall market position.
Service.
Product
design, performance, reliability, availability, quality, technical and
administrative support are elements that define the service standard for this
business. Our customers are sophisticated and demanding, as our products are
fundamental and enabling components to the construction or operating of their
machinery. We maintain inventory levels of our most popular items for immediate
sale and service well over 15,000 voice and electronic contacts per month.
Our
customers have high expectations regarding product availability, and the primary
emphasis of our service efforts is to ensure the widest possible range of
available products and delivering them on a timely basis.
4
Price.
We
believe our products are priced competitively in the markets we serve. We
continually evaluate our manufacturing and other operations to maximize
efficiencies in order to reduce costs, eliminate unprofitable products from
our
portfolio and maximize our profit margins. While we compete with larger bearing
manufacturers who direct the majority of their business activities, investments
and expertise toward the automotive industries, our sales in this industry
are
only a small percentage of our business. We invest considerable effort to
develop our price to value algorithms and we price to market levels where
required by competitive pressures.
Suppliers
and Raw Materials
We
obtain
raw materials, component parts and supplies from a variety of sources and
generally from more than one supplier. Our principal raw material is steel.
Our
suppliers and sources of raw materials are based in the U.S., Europe and Asia.
We purchase steel at market prices, which during the past three years have
increased to historical highs as a result of a relatively low level of supply
and a relatively high level of demand. To date, we have generally managed to
pass through these raw material price increases to our customers by assessing
steel surcharges on, or price increases of, our bearing products. However,
we
have from time to time experienced a time lag of up to 3 months or more in
our
ability to pass through steel surcharges to our customers which has negatively
impacted our gross margins. We will continue to pass on raw material price
increases as competitive conditions allow.
Backlog
As
of
March 29, 2008, we had order backlog of $217.7 million compared to a
backlog of $176.6 million in the prior year. The amount of backlog includes
orders which we estimate will be fulfilled within the next 12 months;
however, orders included in our backlog are subject to cancellation, delay
or
other modifications by our customers prior to fulfillment. We sell many of
our
products pursuant to contractual agreements, single source relationships or
long-term purchase orders, each of which may permit early termination by the
customer. However, due to the nature of many of the products supplied by us
and
the lack of availability of alternative suppliers to meet the demands of such
customers' orders in a timely manner, we believe that it is not practical or
prudent for most of our customers to shift their bearing business to other
suppliers.
Employees
We
had
1,453 hourly employees and 693 salaried employees as of March 29, 2008, of
whom 409 were employed in our European and Mexican operations. As of March
29,
2008, 182 of our hourly employees were represented by unions in the U.S. We
believe that our employee relations are satisfactory.
We
are
subject to three
collective bargaining agreements with the United Auto Workers covering
substantially all of the hourly employees at our Fairfield, Connecticut, West
Trenton, New Jersey and Bremen, Indiana plants. These agreements expire on
January 31, 2013, June 30, 2009 and October 31, 2009,
respectively.
Intellectual
Property
We
own
U.S. and foreign patents and trademark registrations and U.S. copyright
registrations, and have U.S. trademark and patent applications pending. We
currently have 77 issued or pending U.S. and foreign patents. We file patent
applications and maintain patents to protect certain technology, inventions
and
improvements that are important to the development of our business, and we
file
trademark applications and maintain trademark registrations to protect product
names that have achieved brand-name recognition among our customers. We also
rely upon trade secrets, know-how and continuing technological innovation to
develop and maintain our competitive position. Many of our brands are well
recognized by our customers and are considered valuable assets of our business.
We currently have 174 issued or pending U.S. and foreign trademark registrations
and applications. We do not believe, however, that any individual item of
intellectual property is material to our business. See "Risk
Factors."
Regulation
Product
Approvals.
Essential to servicing the aerospace market is the ability to obtain product
approvals. We have a substantial number of product approvals in the form of
OEM
approvals or Parts Manufacturer Approvals, or “PMAs,” from the FAA. We also have
a substantial number of active PMA applications in process. These approvals
enable us to provide products used in virtually all domestic aircraft platforms
presently in production or operation.
5
We
are
subject to various other federal laws, regulations and standards. Although
we
are not presently aware of any pending legal or regulatory changes that may
have
a material impact on us, new laws, regulations or standards or changes to
existing laws, regulations or standards could subject us to significant
additional costs of compliance or liabilities, and could result in material
reductions to our results of operations, cash flow or revenues.
Environmental
Matters
We
are
subject to federal, state and local environmental laws and regulations,
including those governing discharges of pollutants into the air and water,
the
storage, handling and disposal of wastes and the health and safety of employees.
We also may be liable under the Comprehensive Environmental Response,
Compensation, and Liability Act or similar state laws for the costs of
investigation and clean-up of contamination at facilities currently or formerly
owned or operated by us, or at other facilities at which we have disposed of
hazardous substances. In connection with such contamination, we may also be
liable for natural resource damages, government penalties and claims by third
parties for personal injury and property damage. Agencies responsible for
enforcing these laws have authority to impose significant civil or criminal
penalties for non-compliance. We believe we are currently in material compliance
with all applicable requirements of environmental laws. We do not anticipate
material capital expenditures for environmental compliance in fiscal
2009.
Investigation
and remediation of contamination is ongoing at some of our sites. In particular,
state agencies have been overseeing groundwater monitoring activities at our
facility in Hartsville, South Carolina and a corrective action plan at our
Clayton, Georgia facility. At Hartsville, we are monitoring low levels of
contaminants in the groundwater caused by former operations. The state will
permit us to cease monitoring activities after two consecutive sampling periods
demonstrate contaminants are below action levels. In connection with the
purchase of our Fairfield, Connecticut facility in 1996, we agreed to assume
responsibility for completing clean-up efforts previously initiated by the
prior
owner. We submitted data to the state that we believe demonstrates that no
further remedial action is necessary although the state may require additional
clean-up or monitoring. In connection with the purchase of our Clayton, Georgia
facility, we agreed to assume certain responsibilities to implement a corrective
action plan concerning the remediation of certain soil and groundwater
contamination present at that facility. The corrective action plan is in the
early stages. Although there can be no assurance, we do not expect expenses
associated with these activities to be material.
Available
Information
We
file
our annual, quarterly and current reports, proxy statements, and other documents
with the Securities and Exchange Commission (“SEC”) under the Securities
Exchange Act of 1934. The public may read and copy any materials filed with
the
SEC at the SEC’s Public Reference Room at 405 Fifth Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains
an
Internet website that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC.
The
public can obtain any documents that are filed by us at http://www.sec.gov.
In
addition, this Annual Report on Form 10-K, as well as our quarterly reports
on
Form 10-Q, current reports on Form 8-K and any amendments to all of the
foregoing reports, are made available free of charge on our Internet website
(http://www.rbcbearings.com) as soon as reasonably practicable after such
reports are electronically filed with or furnished to the SEC. A copy of the
above filings will also be provided free of charge upon written request to
us.
ITEM
1A. RISK FACTORS
Cautionary
Statement As To Forward-Looking Information
This
report includes “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of
1934. All statements other than statements of historical fact are
"forward-looking statements" for purposes of federal and state securities laws,
including any projections of earnings, cash flows, revenue or other financial
items; any statements of the plans, strategies and objectives of management
for
future operations; any statements concerning proposed new services or
developments; any statements regarding future economic conditions or
performance; future growth rates in the markets we serve; increases in foreign
sales; supply and cost of raw materials, any statements of belief; and any
statements of assumptions underlying any of the foregoing. Forward-looking
statements may include the words "may," "estimate," "intend," "continue,"
"believe," "expect," "anticipate," the negative of such terms or other
comparable terminology.
6
Although
we believe that the expectations reflected in any of our forward-looking
statements are reasonable, actual results could differ materially from those
projected or assumed in any of our forward-looking statements. Our future
financial condition, results of operations and cash flows, as well as any
forward-looking statements, are subject to change and to inherent risks and
uncertainties, such as those disclosed in this Annual Report on Form 10-K.
Factors that could cause our actual results, performance and achievements or
industry results to differ materially from estimates or projections contained
in
forward-looking statements include, among others, the following:
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Weaknesses
and cyclicality in any of the industries in which our customers
operate;
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Changes
in marketing, product pricing and sales strategies or developments
of new
products by us or our competitors;
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Future
reductions in U.S. governmental spending or changes in governmental
programs, particularly military equipment procurement
programs;
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Our
ability to obtain and retain product
approvals;
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Supply
and costs of raw materials, particularly steel, and energy resources
and
our ability to pass through these costs on a timely
basis;
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Our
ability to acquire and integrate complementary
businesses;
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Unexpected
equipment failures, catastrophic events or capacity
constraints;
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The
costs of defending, or the results of, new
litigation;
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Our
ability to attract and retain our management team and other highly-skilled
personnel;
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Increases
in interest rates;
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Work
stoppages and other labor problems for us and our customers or
suppliers;
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Contractual
limitations on our ability to expand our
business;
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Regulatory
developments in the U.S. and foreign
countries;
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Developments
or disputes concerning patents or other proprietary
rights;
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Actual
or anticipated changes in our earnings, fluctuations in our operating
results or the failure to meet the expectations of financial market
analysts and investors;
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Changes
in accounting standards, policies, guidance, interpretation or
principles;
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Risks
associated with operating internationally, including currency translation
risks;
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The
operating and stock performance of comparable
companies;
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Investors’
perceptions of us and our industry;
and
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General
economic, geopolitical, industry and market
conditions.
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Additional
factors that could cause actual results to differ materially from our
forward-looking statements are set forth in this Annual Report on Form 10-K,
including under Item 1. “Business,” Item 1A. “Risk Factors,” Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and Item 8. “Financial Statements and Supplementary
Data.”
We
are
not under any duty to update any forward-looking statements after the date
of
this report to conform such statements to actual results or to changes in our
expectations. All forward-looking statements contained in this report and any
subsequently filed reports are expressly qualified in their entirety by these
cautionary statements.
Our
business, operating results, cash flows or financial condition could be
materially adversely affected by any of the following risks. The trading price
of our common stock could decline due to any of these risks, and you may lose
all or part of your investment. You should carefully consider these risks before
investing in shares of our common stock.
Risk
Factors Related to Our Company
The
bearing industry is highly competitive, and this competition could reduce our
profitability or limit our ability to grow.
The
global bearing industry is highly competitive, and we compete with many U.S.
and
non-U.S. companies, some of which benefit from lower labor costs and fewer
regulatory burdens than us. We compete primarily based on product
qualifications, product line breadth, service and price. Certain competitors
are
larger than us or subsidiaries of larger entities and may be better able to
manage costs than us or may have greater financial resources than we have.
Due
to the competitiveness in the bearing industry we may not be able to increase
prices for our products to cover increases in our costs, or we may face pressure
to reduce prices, which could materially reduce our revenues, gross margin
and
profitability. Competitive factors, including changes in market penetration,
increased price competition and the introduction of new products and technology
by existing and new competitors could result in a material reduction in our
revenues and profitability.
7
The
loss of a major customer could result in a material reduction in our revenues
and profitability.
Our
top
ten customers generated 31% and 32% of our net sales during fiscal 2008 and
fiscal 2007, respectively. Accordingly, the loss of one or more of those
customers or a substantial decrease in such customers' purchases from us could
result in a material reduction in our revenues and profitability.
In
addition, the consolidation and combination of defense or other manufacturers
may eliminate customers from the industry and/or put downward pricing pressures
on sales of component parts. For example, the consolidation that has occurred
in
the defense industry in recent years has significantly reduced the overall
number of defense contractors in the industry. In addition, if one of our
customers is acquired or merged with another entity, the new entity may
discontinue using us as a supplier because of an existing business relationship
with the acquiring company or because it may be more efficient to consolidate
certain suppliers within the newly formed enterprise. The significance of the
impact that such consolidation may have on our business is difficult to predict
because we do not know when or if one or more of our customers will engage
in
merger or acquisition activity. However, if such activity involved our material
customers it could materially impact our revenues and
profitability.
Weakness
in any of the industries in which our customers operate, as well as the cyclical
nature of our customers' businesses generally, could materially reduce our
revenues and profitability.
The
commercial aerospace, mining and construction equipment and other diversified
industrial industries to which we sell our products are, to varying degrees,
cyclical and tend to decline in response to overall declines in industrial
production. Margins in those industries are highly sensitive to demand cycles,
and our customers in those industries historically have tended to delay large
capital projects, including expensive maintenance and upgrades, during economic
downturns. As a result, our business is also cyclical, and the demand for our
products by these customers depends, in part, on overall levels of industrial
production, general economic conditions and business confidence levels. Downward
economic cycles have affected our customers and reduced sales of our products
resulting in reductions in our revenues and net earnings. Any future material
weakness in demand in any of these industries could materially reduce our
revenues and profitability.
In
addition, many of our customers have historically experienced periodic
downturns, which often have had a negative effect on demand for our products.
For example, the severe downturn in 2001 in the aerospace industry resulted
in
deferrals or cancellations in aircraft orders, which reduced the volume and
price of orders placed for products used to manufacture commercial aircraft,
including our bearings and other individual parts and components we manufacture.
Previous industry downturns have negatively affected, and future industry
downturns may negatively affect, our net sales, gross margin and net
income.
Future
reductions or changes in U.S. government spending could negatively affect our
business.
In
fiscal
2008, 6.1% of our net sales were made directly, and we estimate that
approximately an additional 15.4% of our net sales were made indirectly, to
the
U.S. government to support military or other government projects. Our failure
to
obtain new government contracts, the cancellation of government contracts or
reductions in federal budget appropriations regarding our products could result
in materially reduced revenue. In addition, the funding of defense programs
also
competes with non-defense spending of the U.S. government. Our business is
sensitive to changes in national and international priorities and the U.S.
government budget. A shift in government defense spending to other programs
in
which we are not involved or a reduction in U.S. government defense spending
generally could materially reduce our revenues, cash flows from operations
and
profitability. If we, or our prime contractors for which we are a subcontractor,
fail to win any particular bid, or we are unable to replace lost business as
a
result of a cancellation, expiration or completion of a contract, our revenues
or cash flows could be reduced.
Fluctuating
supply and costs of raw materials and energy resources could materially reduce
our revenues, cash flow from operations and profitability.
Our
business is dependent on the availability and costs of energy resources and
raw
materials, particularly steel, generally in the form of stainless and chrome
steel, which are commodity steel products. The availability and prices of raw
materials and energy sources may be subject to curtailment or change due to,
among other things, new laws or regulations, suppliers' allocations to other
purchasers, interruptions in production by suppliers, changes in exchange rates
and worldwide price levels. Although we currently maintain alternative sources
for raw materials, our business is subject to the risk of price fluctuations
and
periodic delays in the delivery of certain raw materials. Disruptions in the
supply of raw materials and energy resources could temporarily impair our
ability to manufacture our products for our customers or require us to pay
higher prices in order to obtain these raw materials or energy resources from
other sources, which could thereby affect our net sales and
profitability.
8
For
example, we purchase steel at market prices, which during the past three years
have increased to historical highs as a result of a relatively low level of
supply and a relatively high level of demand. As a result, we are currently
being assessed surcharges on certain of our purchases of steel, and under
certain circumstances, we have experienced difficulty in identifying steel
for
purchase. If we are unable to purchase steel for our operations for a
significant period of time, our operations would be disrupted, which could
reduce or delay sales of our products, and, in turn, could result in a material
reduction in our revenues, cash flow from operations and profitability. In
addition, we may be unable to pass on the increased costs of raw materials
to
our customers, which could materially reduce our cash flow from operations
and
profitability.
We
seek
to pass through a significant portion of our additional costs to our customers
through steel surcharges or price increases. However, even if we are able to
pass these steel surcharges or price increases to our customers, there may
be a
time lag of up to 3 months or more between the time a cost increase goes into
effect and our ability to implement surcharges or price increases, particularly
for orders already in our backlog. As a result our gross margin percentage
may
decline, and we may not be able to implement other price increases for our
products. We cannot provide assurances that we will be able to continue to
pass
these additional costs on to our customers at all or on a timely basis or that
our customers will not seek alternative sources of supply if there are
significant or prolonged increases in the price of steel or other raw materials
or energy resources.
Our
products are subject to certain approvals, and the loss of such approvals could
materially reduce our revenues and profitability.
Essential
to servicing the aerospace market is the ability to obtain product approvals.
We
have a substantial number of product approvals, which enable us to provide
products used in virtually all domestic aircraft platforms presently in
production or operation. Product approvals are typically issued by the FAA
to
designated OEMs who are Production Approval Holders of FAA approved
aircraft. These Production Approval Holders provide quality control oversight
and generally limit the number of suppliers directly servicing the commercial
aerospace aftermarket. Regulations enacted by the FAA provide for an independent
process (the PMA process), which enables suppliers who currently sell their
products to the Production Approval Holders, to sell products to the
aftermarket. Our foreign sales may be subject to similar approvals or U.S.
export control restrictions. Although we have not lost any material product
approvals in the past, we cannot assure you that we will not lose approvals
for
our products in the future. The loss of product approvals could result in lost
sales and materially reduce our revenues and profitability.
Restrictions
in our indebtedness agreements could limit our growth and our ability to respond
to changing conditions.
The
KeyBank Credit Agreement contains a number of restrictive covenants that limit
our ability, among other things, to:
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incur
additional indebtedness and issue preferred stock and guarantee
indebtedness;
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create
liens on our assets;
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pay
dividends or make other equity
distributions;
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purchase
or redeem capital stock;
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create
restrictions on payments of dividends or other amounts to us by our
restricted subsidiaries;
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make
investments;
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merge,
consolidate or sell assets;
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engage
in activities unrelated to our current
business;
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engage
in transactions with our affiliates;
and
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sell
or issue capital stock of certain
subsidiaries.
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In
addition, the KeyBank Credit Agreement contains other financial covenants
requiring us to maintain a minimum fixed charge coverage ratio and maximum
senior leverage ratios and to satisfy certain other financial conditions. Our
KeyBank Credit Agreement prohibits us from incurring capital expenditures of
more than $30 million per year. These restrictions could limit our ability
to obtain future financings, make needed capital expenditures, withstand a
future downturn in our business or the economy in general or otherwise conduct
necessary corporate activities.
As
of
March 29, 2008, we had $41.0 of million outstanding borrowings and letters
of
credit of $21.6 million under our $150.0 million KeyBank Credit
Agreement. Under the KeyBank Credit Agreement, we had borrowing availability
of
$87.4 million as of March 29, 2008.
9
Work
stoppages and other labor problems could materially reduce our ability to
operate our business.
As
of
March 29, 2008, approximately 13% of our hourly employees were represented
by
labor unions in the U.S. While we believe our relations with our employees
are
satisfactory, a lengthy strike or other work stoppage at any of our facilities,
particularly at some of our larger facilities, could materially reduce our
ability to operate our business. In addition, any attempt by our employees
not
currently represented by a union to join a union could result in additional
expenses, including with respect to wages, benefits and pension obligations.
We
currently have three collective bargaining agreements, one agreement covering
approximately 65 employees will expire in June 2009, one agreement covering
approximately 34 employees will expire in October 2009, and one agreement
covering approximately 83 employees will expire in January 2013.
Negotiations
for the extension of these agreements may result in modifications to the terms
of these agreements, and these modifications could cause us to incur increased
costs relating to our labor force.
In
addition, work stoppages at one or more of our customers or suppliers, including
suppliers of transportation services, many of which have large unionized
workforces, for labor or other reasons could also cause disruptions to our
business that we cannot control, and these disruptions may materially reduce
our
revenues and profitability.
Our
business is capital intensive and may consume cash in excess of cash flows
from
our operations.
Our
ability to remain competitive, sustain our growth and expand our operations
largely depends on our cash flows from operations and our access to capital.
We
intend to fund our cash needs through operating cash flow and borrowings under
our KeyBank Credit Agreement. We may require additional equity or debt financing
to fund our growth and debt repayment obligations. In addition, we may need
additional capital to fund future acquisitions. Our business may not generate
sufficient cash flow, and we may not be able to obtain sufficient funds to
enable us to pay our debt obligations and capital expenditures or we may not
be
able to refinance on commercially reasonable terms, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Liquidity."
Unexpected
equipment failures, catastrophic events or capacity constraints may increase
our
costs and reduce our sales due to production curtailments or
shutdowns.
Our
manufacturing processes are dependent upon critical pieces of equipment, such
as
furnaces, continuous casters and rolling equipment, as well as electrical
equipment, such as transformers, and this equipment may, on occasion, be out
of
service as a result of unanticipated failures. In addition to equipment
failures, our facilities are also subject to the risk of catastrophic loss
due
to unanticipated events such as fires, explosions, earthquakes or violent
weather conditions. In the future, we may experience material plant shutdowns
or
periods of reduced production as a result of these types of equipment failures
or catastrophes. Interruptions in production capabilities will inevitably
increase our production costs and reduce sales and earnings for the affected
period.
Certain
of our facilities are operating at a single shift with light second and third
shifts, and additional demand may require additional shifts and/or capital
investments at these facilities. We cannot assure you that we will be able
to
add additional shifts as needed in a timely way and production constraints
may
result in lost sales. In certain markets we refrain from making additional
capital investments to expand capacity where we believe market expansion in
a
particular end market is not sustainable or otherwise does not justify the
expansion or capital investment. Our assumptions and forecasts regarding market
conditions in these end markets may be erroneous and may result in lost
earnings, potential sales going to competitors and inhibit our
growth.
We
may not be able to continue to make the acquisitions necessary for us to realize
our growth strategy.
The
acquisition of businesses that complement or expand our operations has been
and
continues to be an important element of our business strategy. We frequently
engage in evaluations of potential acquisitions and negotiations for possible
acquisitions, some of which, if consummated, could be significant to us. We
cannot assure you that we will be successful in identifying attractive
acquisition candidates or completing acquisitions on favorable terms in the
future for a number of different reasons including the increased competition
for
targets, which may increase acquisition costs, and consolidation in our
industries reducing the number of acquisition targets. Our inability to acquire
businesses, or to operate them profitably once acquired, could have a material
adverse effect on our business, financial position, cash flow and
growth.
10
The
costs and difficulties of integrating acquired businesses could impede our
future growth.
We
cannot
assure you that any future acquisition will enhance our financial performance.
Our ability to effectively integrate any future acquisitions will depend on,
among other things, the culture of the acquired business matching with our
culture, the ability to retain and assimilate employees of the acquired
business, the ability to retain customers and integrate customer bases, the
adequacy of our implementation plans, the ability of our management to oversee
and operate effectively the combined operations and our ability to achieve
desired operating efficiencies and sales goals. The integration of any acquired
businesses might cause us to incur unforeseen costs, which would lower our
future earnings and would prevent us from realizing the expected benefits of
these acquisitions.
Even
if
we are able to integrate future acquired businesses with our operations
successfully, we cannot assure you that we will realize all of the cost savings,
synergies or revenue enhancements that we anticipate from such integration
or
that we will realize such benefits within the expected time frame. As a result
of our acquisitions of other businesses, we may be subject to the risk of
unforeseen business uncertainties or legal liabilities relating to those
acquired businesses for which the sellers may not indemnify us, or be
financially able to indemnify us. Future acquisitions may also result in
potentially dilutive issuances of securities.
We
depend heavily on our senior management and other key personnel, the loss of
whom could materially affect our financial performance and
prospects.
Our
business is managed by a small number of key executive officers, including
Dr. Michael J. Hartnett. Our future success will depend on, among other
things, our ability to keep the services of these executives and to hire other
highly qualified employees at all levels.
We
compete with other potential employers for employees, and we may not be
successful in hiring and retaining executives and other skilled employees that
we need. Our ability to successfully execute our business strategy, market
and
develop our products and serve our customers could be adversely affected by
a
shortage of available skilled employees or executives.
Our
international operations are subject to risks inherent in such
activities.
We
have
established operations in certain countries outside the U.S., including Mexico,
France, Switzerland, China and England. Of our 25 facilities, 6 are located
outside the U.S., including 4 manufacturing facilities.
Approximately
27% of our net sales were derived from sales directly or indirectly outside
the
U.S. for fiscal 2008. We expect that this proportion is likely to increase
as we
seek to increase our penetration of foreign markets, including through
acquisitions, particularly within the aerospace and defense markets. Our foreign
operations are subject to the risks inherent in such activities such as:
currency devaluations, logistical and communications challenges, costs of
complying with a variety of foreign laws and regulations, greater difficulties
in protecting and maintaining our rights to intellectual property, difficulty
in
staffing and managing geographically diverse operations, acts of terrorism
or
war or other acts that may cause social disruption which are difficult to
quantify or predict and general economic conditions in these foreign markets.
We
are not aware of any proposed material regulatory changes, but our international
operations may be negatively impacted by changes in government policies, such
as
changes in laws and regulations (or the interpretation thereof), restrictions
on
imports and exports, sources of supply, duties or tariffs, the introduction
of
measures to control inflation and changes in the rate or method of taxation.
To
date we have not experienced significant difficulties with the foregoing risks
associated with our international operations, however, as the size of our
international operations has continued to grow, we expect these risks to become
increasingly important to our business operations.
Currency
translation risks may have a material impact on our results of
operations.
Our
Swiss
operations utilize the Swiss Franc as the functional currency, our French
operations utilize the Euro as the functional currency and our English
operations utilize the British Pound Sterling as the functional currency.
Foreign currency transaction gains and losses are included in earnings. Foreign
currency transaction exposure arises primarily from the transfer of foreign
currency from one subsidiary to another within the group and to foreign currency
denominated trade receivables. Unrealized currency translation gains and losses
are recognized upon translation of the foreign subsidiaries' balance sheets
to
U.S. dollars. Because our financial statements are denominated in U.S. dollars,
changes in currency exchange rates between the U.S. dollar and other currencies
have had, and will continue to have, an impact on our earnings. While we monitor
exchange rates, we currently do not have exchange rate hedges in place to reduce
the risk of an adverse currency exchange movement. Although currency
fluctuations have not had a material impact on our financial performance in
the
past, such fluctuations may affect our financial performance in the future.
The
impact of future exchange rate fluctuations on our results of operations cannot
be accurately predicted. See "Quantitative and Qualitative Disclosures about
Market Risk—Foreign Currency Exchange Rates."
11
We
may be required to make significant future contributions to our pension
plan.
As
of
March 29, 2008, we maintained one noncontributory defined benefit pension plan.
The plan was overfunded by $0.5 million in the aggregate as of March 29,
2008 and underfunded by $1.1 million as of March 31, 2007, which are the amounts
by which the accumulated benefit obligations are less than or exceed,
respectively, the sum of the fair market value of the plan’s assets. We are
required to make cash contributions to our pension plan to the extent necessary
to comply with minimum funding requirements imposed by employee benefit laws
and
tax laws. The amount of any such required contributions is determined based
on
annual actuarial valuation of the plan as performed by the plan’s actuaries. The
amount of future contributions will depend upon asset returns, then-current
discount rates and a number of other factors, and, as a result, the amount
we
may elect or be required to contribute to our pension plan in the future may
increase significantly. Additionally, there is a risk that if the Pension
Benefit Guaranty Corporation concludes that its risk with respect to our pension
plan may increase unreasonably if the plan continues to operate, if we are
unable to satisfy the minimum funding requirement for the plan or if the plan
becomes unable to pay benefits, then the Pension Benefit Guaranty Corporation
could terminate the plan and take control of its assets. In such event, we
may
be required to make an immediate payment to the Pension Benefit Guaranty
Corporation of all or a substantial portion of the underfunding as calculated
by
the Pension Benefit Guaranty Corporation based upon its own assumptions. The
underfunding calculated by the Pension Benefit Guaranty Corporation could be
substantially greater than the underfunding we have calculated because, for
example, the Pension Benefit Guaranty Corporation may use a significantly lower
discount rate. If such payment is not made, then the Pension Benefit Guaranty
Corporation could place liens on a material portion of our assets and the assets
of any members of our controlled group. Such action could result in a material
increase in our pension related expenses and a corresponding reduction in our
cash flow and net income. For additional information concerning our pension
plan
and plan liabilities, see Note 13 to our consolidated financial statements
for the fiscal year ended March 29, 2008.
We
may incur material losses for product liability and recall related
claims.
We
are
subject to a risk of product and recall related liability in the event that
the
failure, use or misuse of any of our products results in personal injury, death,
or property damage or our products do not conform to our customers'
specifications. In particular, our products are installed in a number of types
of vehicle fleets, including airplanes, trains, automobiles, heavy trucks and
farm equipment, many of which are subject to government ordered as well as
voluntary recalls by the manufacturer. If one of our products is found to be
defective, causes a fleet to be disabled or otherwise results in a product
recall, significant claims may be brought against us. Although we have not
had
any material product liability or recall related claims made against us, and
we
currently maintain product liability insurance coverage for product liability,
although not for recall related claims, we cannot assure you that product
liability or recall related claims, if made, would not exceed our insurance
coverage limits or would be covered by insurance which, in turn, may result
in
material losses related to these claims, increased future insurance costs and
a
corresponding reduction in our cash flow and net income.
Environmental
regulations impose substantial costs and limitations on our operations, and
environmental compliance may be more costly than we
expect.
We
are
subject to various federal, state and local environmental laws and regulations,
including those governing discharges of pollutants into the air and water,
the
storage, handling and disposal of wastes and the health and safety of employees.
These laws and regulations could subject us to material costs and liabilities,
including compliance costs, civil and criminal fines imposed for failure to
comply with these laws and regulatory and litigation costs. We also may be
liable under the federal Comprehensive Environmental Response, Compensation,
and
Liability Act, or similar state laws, for the costs of investigation and
clean-up of contamination at facilities currently or formerly owned or operated
by us or at other facilities at which we have disposed of hazardous substances.
In connection with such contamination, we may also be liable for natural
resource damages, government penalties and claims by third parties for personal
injury and property damage. Compliance with these laws and regulations may
prove
to be more limiting and costly than we anticipate. New laws and regulations,
stricter enforcement of existing laws and regulations, the discovery of
previously unknown contamination or the imposition of new clean-up requirements
could require us to incur costs or become the basis for new or increased
liabilities that could cause a material increase in our environmental related
compliance costs and a corresponding reduction in our cash flow and net income.
Investigation and remediation of contamination at some of our sites is ongoing.
Actual costs to clean-up these sites may exceed our current estimates. Although
we have indemnities and other agreements for certain pre-closing environmental
liabilities from the prior owners in connection with our acquisition of several
of our facilities, we cannot assure you that the indemnities will be adequate
to
cover known or newly discovered pre-closing liabilities.
12
Our
intellectual property and other proprietary rights are valuable, and any
inability to protect them could adversely affect our business and results of
operations; in addition, we may be subject to infringement claims by third
parties.
Our
ability to compete effectively is dependent upon our ability to protect and
preserve the intellectual property and other proprietary rights and materials
owned, licensed or otherwise used by us. We have numerous U.S. and foreign
patents, trademark registrations and U.S. copyright registrations. Our issued
patents are expected to expire by their own terms at various dates and most
such
patents will not expire for at least 5 years. We also have U.S. and foreign
trademark and patent applications pending. We cannot assure you that our pending
trademark and patent applications will result in trademark registrations and
issued patents, and our failure to secure rights under these applications may
limit our ability to protect the intellectual property rights that these
applications were intended to cover. Although we have attempted to protect
our
intellectual property and other proprietary rights both in the United States
and
in foreign countries through a combination of patent, trademark, copyright
and
trade secret protection and non-disclosure agreements, these steps may be
insufficient to prevent unauthorized use of our intellectual property and other
proprietary rights, particularly in foreign countries where the protection
available for such intellectual property and other proprietary rights may be
limited. We cannot assure you that any of our intellectual property rights
will
not be infringed upon or that our trade secrets will not be misappropriated
or
otherwise become known to or independently developed by competitors. We may
not
have adequate remedies available for any such infringement or other unauthorized
use. We cannot assure you that any infringement claims asserted by us will
not
result in our intellectual property being challenged or invalidated, that our
intellectual property will be held to be of adequate scope to protect our
business or that we will be able to deter current and former employees,
contractors or other parties from breaching confidentiality obligations and
misappropriating trade secrets. In addition, we may become subject to claims
against us which could require us to pay damages or limit our ability to use
certain intellectual property and other proprietary rights found to be in
violation of a third party's rights, and, in the event such litigation is
successful, we may be unable to use such intellectual property and other
proprietary rights at all or on reasonable terms. Regardless of its outcome,
any
litigation, whether commenced by us or third parties, could be protracted and
costly and could result in increased litigation related expenses, the loss
of
intellectual property rights or payment of money or other damages, which may
result in lost sales and reduced cash flow and decrease our net income. See
"Business—Intellectual Property."
Cancellation
of orders in our backlog of orders could negatively impact our
revenues.
As
of
March 29, 2008, we had an order backlog of $217.7 million, which we
estimate will be fulfilled within the next 12 months. However, orders
included in our backlog are subject to cancellation, delay or other
modifications by our customers prior to fulfillment. For these reasons, we
cannot assure you that orders included in our backlog will ultimately result
in
the actual receipt of revenues from such orders.
If
we fail to maintain an effective system of internal controls, we may not be
able
to accurately report our financial results or prevent
fraud.
Effective
internal controls are necessary for us to provide reliable financial reports
and
effectively prevent fraud. Any inability to provide reliable financial reports
or prevent fraud could harm our business. To date, we have not detected any
material weakness or significant deficiencies in our internal controls over
financial reporting. However, we are continuing to evaluate and, where
appropriate, enhance our policies, procedures and internal controls. If we
fail
to maintain the adequacy of our internal controls, as such standards are
modified, supplemented or amended from time to time, we could be subject to
regulatory scrutiny, civil or criminal penalties or shareholder litigation.
In
addition, failure to maintain adequate internal controls could result in
financial statements that do not accurately reflect our financial condition.
Inferior internal controls could also cause investors to lose confidence in
our
reported financial information, which could have a negative effect on the
trading price of our stock.
Risk
Factors Related to our Common Stock
Provisions
in our charter documents may prevent or hinder efforts to acquire a controlling
interest in us.
Provisions
of our certificate of incorporation and bylaws may discourage, delay or prevent
a merger, acquisition or other change in control that stockholders may consider
favorable, including transactions which might benefit our stockholders or in
which our stockholders might otherwise receive a premium for their shares.
These
provisions may also prevent or frustrate attempts by our stockholders to replace
or remove our management.
Our
certificate of incorporation authorizes the issuance of preferred stock with
such designations, rights and preferences as may be determined from time to
time
by our board of directors without stockholder approval. Holders of the common
stock may not have preemptive rights to subscribe for a pro rata portion of
any
capital stock which may be issued by us. In the event of issuance, such
preferred stock could be utilized, under certain circumstances, as a method
of
discouraging, delaying or preventing a change in control of us or could impede
our stockholders’ ability to approve a transaction they consider in their best
interests. Although we have no present intention to issue any new shares of
preferred stock, we may do so in the future.
13
ITEM
1B. UNRESOLVED STAFF COMMENTS
None
ITEM
2. PROPERTIES
Our
principal executive offices are located at One Tribology Center, Oxford,
Connecticut 06478. We also use this facility for manufacturing.
We
own
facilities in the following locations:
|
Rancho
Dominguez, California
|
Bremen,
Indiana
|
|
Santa
Ana, California
|
Plymouth,
Indiana
|
|
Fairfield,
Connecticut
|
Bishopville,
South Carolina
|
|
Torrington,
Connecticut
|
Hartsville,
South Carolina
|
|
Canton,
Georgia
|
Walterboro,
South Carolina
|
|
Clayton,
Georgia
|
|
We
have
leases in effect with respect to the following facilities:
|
Location
of Leased Facility
|
Lease
Expiration Date
|
Location
of Leased Facility
|
Lease
Expiration Date
|
|||
|
Baldwin
Park, California
|
April
30, 2013
|
Oklahoma
City, Oklahoma
|
September
30, 2021
|
|||
|
Irwindale,
California
|
August
31, 2008
|
Bishopville,
South Carolina
|
January
31, 2016
|
|||
|
Santa
Fe Springs, California
|
July
1, 2009
|
Hartsville,
South Carolina
|
September
30, 2014
|
|||
|
Oxford,
Connecticut
|
September
30, 2014
|
Delmont,
Switzerland
|
December
31, 2009
|
|||
|
Torrington,
Connecticut
|
December
22, 2008
|
Houston,
Texas
|
June
30, 2012
|
|||
|
Gloucestershire,
England
|
May
20, 2012
|
Hoffman
Estates, Illinois
|
March
31, 2009
|
|||
|
Reynosa,
Mexico
|
June
13, 2013
|
Shanghai,
China
|
May
24, 2009
|
|||
|
West
Trenton, New Jersey
|
February
2, 2012
|
Les
Ulis, France
|
July
31, 2010
|
We
have
several small field offices located in various locations to support field sales
operations.
We
believe that our existing property, facilities and equipment are generally
in
good condition, are well maintained and adequate to carry on our current
operations. We also believe that our existing manufacturing facilities have
sufficient capacity to meet increased customer demand. Substantially all of
our
owned domestic properties and most of our other assets are subject to a lien
securing our obligations under our KeyBank Credit Agreement.
ITEM
3. LEGAL PROCEEDINGS
From
time
to time, we are involved in litigation and administrative proceedings which
arise in the ordinary course of our business. We do not believe that any
litigation or proceeding in which we are currently involved, either individually
or in the aggregate, is likely to have a material adverse effect on our
business, financial condition, operating results, cash flow or
prospects.
The
Federal District Court of Connecticut has issued an injunction against SKF
USA
Inc. in connection with the sale of Nice® radial ball bearings. Among other
things, the Federal Court found that SKF USA Inc.’s use of its 2008 price list
and other advertisements created confusion in the marketplace about whether
SKF
USA Inc. was still an authorized distributor of NICE products. The Federal
Court
found that SKF USA Inc.’s “2008 price list was missing a significant portion of
RBC’s product line,” making its distribution by SKF USA Inc. “far more damaging
to RBC and more likely to create confusion.”
The
Federal Court’s injunction prohibits SKF USA Inc. from distributing the current
versions of its 2008 price list and product interchange document. The Federal
Court’s injunction also prohibits SKF USA Inc. from suggesting to consumers that
SKF USA Inc. is an authorized distributor of Nice® products. To comply with the
injunction, SKF USA Inc.’s price lists, advertisements and similar documents
must “clearly disclaim any authorized affiliation with the NICE brand and
clearly disclaim any status as an authorized distributor of Nice® products.” The
injunction was effective on Monday May 12, 2008 at 5pm (EDT).
14
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended March 29, 2008.
EXECUTIVE
OFFICERS OF THE REGISTRANT
The
executive officers are elected by the Board of Directors normally for a term
of
one year and until the election of their successors. The executive officers
of
the company as of May 20, 2008 are as follows:
|
Name
|
Age
|
Current
Position and Previous Positions During Last Five
Years
|
|||
|
Dr. Michael
J. Hartnett
|
62
|
1992
|
Chairman,
President and Chief Executive Officer
|
||
|
Daniel
A. Bergeron
|
48
|
2003
2003
2006
|
Vice
President Finance
Vice
President and Chief Financial Officer and Secretary
Vice
President and Chief Financial Officer and Assistant
Secretary
|
||
|
Phillip
H. Beausoleil (a)
|
64
|
1995
2007
|
General
Manager
General
Manager
|
||
|
Thomas
C. Crainer
|
50
|
2000
2003
2008
|
General
Manager
General
Manager
Vice
President and General Manager
|
||
|
Richard
J. Edwards
|
52
|
1996
|
Vice
President and General Manager
|
||
|
Thomas
J. Williams
|
56
|
2006
|
Corporate
General Counsel and Secretary
|
||
|
Thomas
M. Burigo
|
56
|
2003
2005
2006
|
Manager
of Accounting
Director
of Accounting
Corporate
Controller
|
|
(a)
|
Mr.
Beausoleil retired from the company on March 31,
2008.
|
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Price
range of our Common Stock
Our
common stock is quoted on the Nasdaq National Market under the symbol "ROLL."
As
of May 20, 2008, there were 54 holders of record of our common
stock.
The
following table shows the high and low sales prices of our common stock as
reported by the Nasdaq National Market during the periods
indicated:
|
Fiscal
2008
|
Fiscal
2007
|
||||||||||||
|
High
|
Low
|
High
|
Low
|
||||||||||
|
First
Quarter
|
$
|
42.90
|
$
|
33.70
|
$
|
27.19
|
$
|
19.33
|
|||||
|
Second
Quarter
|
42.67
|
31.77
|
25.57
|
19.63
|
|||||||||
|
Third
Quarter
|
43.98
|
33.46
|
30.12
|
23.78
|
|||||||||
|
Fourth
Quarter
|
43.87
|
27.48
|
34.88
|
25.81
|
|||||||||
The
last
reported sale price of our common stock on the Nasdaq National Market on May
20,
2008 was $39.19 per share.
15
Dividend
Policy
We
have
never declared or paid any cash dividends on our common stock and do not expect
to pay cash dividends for the foreseeable future. Our current policy is to
retain all of our earnings to finance future growth. In addition, covenants
in
our credit facilities restrict our ability to pay dividends. Any future
declaration of dividends will be determined by our board of directors, based
upon our earnings, capital requirements, financial condition, debt covenants,
tax consequences and other factors deemed relevant by our board of
directors.
Issuer
Purchases of Equity Securities
On
June
15, 2007, our board of directors authorized us to repurchase up to $10.0 million
of our common stock from time to time on the open market, through block trades,
or in privately negotiated transactions depending on market conditions,
alternative uses of capital and other factors. Purchases may be commenced,
suspended or discontinued at any time without prior notice. The new program,
which does not have an expiration date, replaces a $7.5 million program that
expired on March 31, 2007.
|
Period
|
Total
number
of
shares
purchased
|
Average
price
paid
per
share
|
Number
of
shares
purchased
as
part of the
publicly
announced
program
|
Approximate
dollar
value
of
shares still
available to be
purchased
under the
program
(000’s)
|
|||||||||
|
12/30/2007 –
01/26/2008
|
—
|
$
|
—
|
—
|
$
|
9,250
|
|||||||
|
01/27/2008
– 02/23/2008
|
9,798
|
31.20
|
9,798
|
8,944
|
|||||||||
|
02/24/2008
– 03/29/2008
|
45,569
|
32.60
|
45,569
|
$
|
7,458
|
||||||||
|
Total
|
55,367
|
$
|
32.36
|
55,367
|
|||||||||
During
the fourth quarter of fiscal 2008, we did not issue any common stock that was
not registered under the Securities Act.
Equity
Compensation Plans
Information
regarding equity compensation plans required to be disclosed pursuant to this
Item is included elsewhere in Note 16, Item 8 of this Annual Report on Form
10-K.
Performance
Graph
The
following graph shows the total return to our stockholders compared to a peer
group and the Nasdaq Composite over the period from August 10, 2005 (the date
of
our initial public offering) to March 29, 2008. Each line on the graph assumes
that $100 was invested in our common stock on August 10, 2005 or in the
respective indices at the closing price on August 10, 2005. The graph then
presents the value of these investments, assuming reinvestment of dividends,
through the close of trading on March 29, 2008.
16
|
August
10,
2005
|
April
1,
2006
|
March
31,
2007
|
March
29,
2008
|
||||||||||
|
RBC
Bearings Incorporated
|
$
|
100.00
|
$
|
134.25
|
$
|
218.93
|
$
|
237.00
|
|||||
|
Nasdaq
Composite Index
|
100.00
|
109.00
|
114.16
|
106.85
|
|||||||||
|
Peer
Group
|
100.00
|
124.18
|
179.46
|
176.90
|
|||||||||
The
peer
group consists of Kaydon Corporation, Moog Inc., NN Inc., Precision Industries
Castparts Corp., Timken Company and Triumph Group Inc., which in our opinion,
most closely represent the peer group for our business segments.
*The
cumulative total return shown on the stock performance graph indicates
historical results only and is not necessarily indicative of future
results.
ITEM
6. SELECTED FINANCIAL DATA
The
following table sets forth our selected consolidated historical financial and
other data as of the dates and for the periods indicated. The selected financial
data as of and for the years ended March 29, 2008, March 31, 2007, April 1,
2006, April 2, 2005, and April 3, 2004 have been derived from our
historical consolidated financial statements audited by Ernst & Young
LLP, independent registered public accounting firm. Historical results are
not
necessarily indicative of the results expected in the future. You should read
the data presented below together with, and qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements included elsewhere in
this
Form 10-K.
17
|
Fiscal
Year Ended
|
||||||||||||||||
|
March
29,
2008
|
March
31,
2007
|
April
1,
2006
|
April
2,
2005
|
April
3,
2004
|
||||||||||||
|
(in
thousands, except share and per share amounts)
|
||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||
|
Net
sales(1)
|
$
|
330,600
|
$
|
306,062
|
$
|
274,509
|
$
|
243,016
|
$
|
187,331
|
||||||
|
Cost
of sales
|
217,022
|
205,953
|
191,561
|
174,602
|
135,433
|
|||||||||||
|
Gross
margin
|
113,578
|
100,109
|
82,948
|
68,414
|
51,898
|
|||||||||||
|
Selling,
general and administrative(2)
|
48,904
|
42,256
|
41,945
|
32,749
|
28,107
|
|||||||||||
|
Other,
net
|
1,824
|
5,934
|
2,424
|
3,526
|
1,662
|
|||||||||||
|
Operating
income
|
62,850
|
51,919
|
38,579
|
32,139
|
22,129
|
|||||||||||
|
Interest
expense, net
|
3,407
|
5,780
|
15,657
|
19,669
|
20,380
|
|||||||||||
|
Loss
on early extinguishment of debt(3)
|
27
|
3,576
|
3,771
|
6,950
|
—
|
|||||||||||
|
Other
non-operating expense (income)
|
(463
|
)
|
(1,504
|
)
|
78
|
(355
|
)
|
16
|
||||||||
|
Income
before income taxes
|
59,879
|
44,067
|
19,073
|
5,875
|
1,733
|
|||||||||||
|
Provision
for (benefit from) income taxes
|
19,685
|
15,588
|
6,634
|
(1,385
|
)
|
1,070
|
||||||||||
|
Net
income
|
40,194
|
28,479
|
12,439
|
7,260
|
663
|
|||||||||||
|
Preferred
stock dividends
|
—
|
—
|
(893
|
)
|
(2,280
|
)
|
(2,144
|
)
|
||||||||
|
Participation
rights of preferred stock in undistributed earnings
|
—
|
—
|
(630
|
)
|
(1,142
|
)
|
—
|
|||||||||
|
Net
income (loss) available to common stockholders
|
$
|
40,194
|
$
|
28,479
|
$
|
10,916
|
$
|
3,838
|
$
|
(1,481
|
)
|
|||||
|
Net
income (loss) per common share:(4)
|
||||||||||||||||
|
Basic
|
$
|
1.87
|
$
|
1.38
|
$
|
0.84
|
$
|
0.62
|
$
|
(0.24
|
)
|
|||||
|
Diluted
|
$
|
1.84
|
$
|
1.33
|
$
|
0.76
|
$
|
0.35
|
$
|
(0.24
|
)
|
|||||
|
Weighted
average common shares:(4)
|
||||||||||||||||
|
Basic
|
21,457,846
|
20,579,498
|
12,931,185
|
6,202,615
|
6,188,903
|
|||||||||||
|
Diluted
|
21,802,711
|
21,335,307
|
14,452,264
|
10,854,584
|
6,188,903
|
|||||||||||
|
Other
Financial Data:
|
||||||||||||||||
|
Capital
expenditures
|
$
|
17,758
|
$
|
16,174
|
$
|
10,341
|
$
|
9,526
|
$
|
4,951
|
||||||
|
As
of
|
||||||||||||||||
|
March
29,
|
March
31,
|
April
1,
|
April
2,
|
April
3,
|
||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||
|
Cash
|
$
|
9,859
|
$
|
5,
184
|
$
|
16,126
|
$
|
2,635
|
$
|
3,250
|
||||||
|
Working
capital
|
176,269
|
138,970
|
146,612
|
120,656
|
105,550
|
|||||||||||
|
Total
assets
|
337,112
|
273,713
|
275,923
|
250,169
|
234,746
|
|||||||||||
|
Total
debt
|
57,750
|
59,405
|
165,747
|
220,079
|
215,224
|
|||||||||||
|
Total
stockholders' equity (deficit)
|
223,910
|
168,171
|
73,340
|
(7,759
|
)
|
(16,285
|
)
|
|||||||||
|
(1)
|
Net
sales were $330.6 million in fiscal 2008 compared to $306.1 million
in
fiscal 2007, an increase of $24.5 million. Net sales in the compared
periods included net sales of $5.4 million for Phoenix (acquired
in May
2007), $2.7 million for CBS (acquired in July 2007), $0.3 million
for AID
(acquired in March 2008) and $0.3 million for BEMD (acquired in March
2008).
|
Net
sales
were $306.1 million in fiscal 2007 compared to $274.5 million in fiscal 2006,
an
increase of $31.6 million. Net sales in the compared periods included net sales
of $8.4 million in fiscal 2007 for All Power, which was acquired in September
2006.
Net
sales
were $274.5 million in fiscal 2006 compared to $243.0 million in fiscal 2005,
an
increase of $31.5 million. Net sales in the compared periods included net sales
of $1.7 million in fiscal 2006 for SWP, which was acquired in September
2005.
Net
sales
were $243.0 million in fiscal 2005 compared to $187.3 million in
fiscal 2004, an increase of $55.7 million. Net sales in the compared
periods included net sales of $19.3 million in fiscal 2005 and
$6.1 million in fiscal 2004 for RBC-API, which was acquired in
December 2003.
|
(2)
|
Selling,
general and administrative expense for the fiscal year ended April
1, 2006
included non-recurring compensation expense of $5.2 million.
|
|
(3)
|
Loss
on early extinguishment of debt in fiscal 2007 was $3.6 million for
the
non-cash write-off of deferred financing costs associated with the
early
termination of the senior credit
facility.
|
18
|
Loss
on early extinguishment of debt of $3.8 million in fiscal 2006
included $1.6 million for non-cash write-off of deferred financing
fees and unamortized bond discount associated with retired debt,
$1.3 million of redemption premium associated with the retirement of
all of our 13% discount debentures in September 2005,
$0.5 million of prepayment fees related to the repayment of all of
the outstanding balance under our second lien term loan in
August 2005 and $0.4 million in interest expense for the 30-day
call period related to the early extinguishment of our 13% discount
debentures.
|
Loss
on
early extinguishment of debt of $7.0 million in fiscal 2005 included
$4.3 million for non-cash write-off of deferred financing fees associated
with retired debt, $1.8 million of redemption premium and $0.9 million
of accrued interest for the 30-day call period related to the early
extinguishment of $110.0 million of 9
5¤8%
senior
subordinated notes in July 2004.
|
(4)
|
Amounts
for the fiscal year ended March 31, 2007 reflect the consummation
of our
secondary public offering in April 2006, which included: (1) the
sale by
us of 8,989,550 shares of our common stock (5,995,529 sold by certain
of
our stockholders) at the offering price of $20.50 per share and (2)
the
repayment of $57.8 million of our Term
Loan.
|
|
Amounts
for the fiscal year ended April 1, 2006 reflect the consummation
of our
initial public offering in August 2005, which included: (1) the
sale by us of 7,034,516 shares at the offering price of $14.50 per
share,
(2) the repayment of all of our $38.6 million in aggregate
principal amount of 13% senior subordinated discount debentures due
2009,
(3) the repayment of all outstanding indebtedness under our
$45.0 million second lien term loan, (4) the addition of
$40.0 million to our Term Loan and (5) the redemption of all of
our then outstanding Class C and Class D preferred stock for an
aggregate redemption price of
$38.6 million.
|
Amounts
shown for periods prior to August 15, 2005 include shares of both
Class A common stock and Class B common stock, all of which were
reclassified into a single class of common stock on a one-for-one basis in
connection with our initial public offering as of such date.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Overview
We
are a
well known international manufacturer of highly engineered precision plain,
roller and ball bearings. Our precision solutions are integral to the
manufacture and operation of most machines and mechanical systems, reduce wear
to moving parts, facilitate proper power transmission and reduce damage and
energy loss caused by friction. While we manufacture products in all major
bearing categories, we focus primarily on the higher end of the bearing market
where we believe our value added manufacturing and engineering capabilities
enable us to differentiate ourselves from our competitors and enhance
profitability. We estimate that approximately two-thirds of our net sales during
fiscal 2008 were generated by products for which we hold the number one or
two
market position. We have been providing bearing solutions to our customers
since
1919. Over the past ten years, under the leadership of our current management
team, we have significantly broadened our end markets, products, customer base
and geographic reach. We currently operate 25 facilities of which 22 are
manufacturing facilities in four countries.
Demand
for bearings generally follows the market for products in which bearings are
incorporated and the economy as a whole. Purchasers of bearings include
industrial equipment and machinery manufacturers, producers of commercial and
military aerospace equipment such as missiles and radar systems, agricultural
machinery manufacturers, construction, mining and specialized equipment
manufacturers and automotive and commercial truck manufacturers. The markets
for
our products are cyclical, and general market conditions could negatively impact
our operating results. We have endeavored to mitigate the cyclicality of our
product markets by entering into sole-source relationships and long-term
purchase orders, through diversification across multiple market segments within
the aerospace and defense and diversified industrial segments, by increasing
sales to the aftermarket and by focusing on developing highly customized
solutions.
During
fiscal 2008, the world economy continued to grow and expand, and we experienced
favorable conditions across our two major markets: diversified industrial and
aerospace and defense. In particular, the diversified industrial market has
been
driven by requirements in non-residential construction, mining and the oil
and
gas sectors. These conditions have resulted in demand for bearings for both
OEM
and replacement markets. In the aerospace market a strong recovery continued,
and we believe it is at the mid-stages of an extended cycle. Expansion of the
commercial aircraft sector, in response to increased passenger demand and the
need of the carriers to upgrade the worldwide fleet, drove increased build
schedules at Boeing and Airbus. The defense sector continued to replace and
develop its weapons and cargo platforms. This sector demonstrated increased
requirements for replacement bearings for combat systems strained by extensive
use in harsh environments over the past four years.
19
Approximately
22% of our costs are attributable to raw materials, a majority of which are
related to steel and related products. During the past three years, steel prices
have increased to historically high levels, responding to unprecedented levels
of world demand. To date, we have generally been able to pass through these
costs to our customers through price increases and the assessment of surcharges,
although there can be a time lag of up to 3 months or more.
Competition
in specialized bearing markets is based on engineering design, brand, lead
times
and reliability of product and service. These markets are generally not as
price
sensitive as the markets for standard bearings.
We
have
demonstrated expertise in acquiring and integrating bearing and
precision-engineered component manufacturers that have complementary products
or
distribution channels and provide significant potential for margin enhancement.
We have consistently increased the profitability of acquired businesses through
a process of methods and systems improvement coupled with the introduction
of
complementary and proprietary new products. Since October 1992 we have
completed 18 acquisitions which have significantly broadened our end markets,
products, customer base and geographic reach.
Sources
of Revenue
Revenue
is generated primarily from sales of bearings to the diversified industrial
market and the aerospace and defense markets. Sales are often made pursuant
to
sole-source relationships, long-term agreements and purchase orders with our
customers. We recognize revenues principally from the sale of products at the
point of passage of title, which is at the time of shipment.
Sales
to
the diversified industrial market accounted for 47% of our net sales for the
fiscal year ended March 29, 2008. Sales to the aerospace and defense markets
accounted for 53% of our net sales for the same period. We anticipate that
sales
to the aerospace and defense markets will increase as a percentage of our net
sales.
Aftermarket
sales of replacement parts for existing equipment platforms represented
approximately 58% of our net sales for fiscal 2008. We continue to develop
our
OEM relationships which have established us as a leading supplier on many
important aerospace and defense platforms. Over the past several years, we
have
experienced increased demand from the replacement parts market, particularly
within the aerospace and defense sectors; one of our business strategies has
been to increase the proportion of sales derived from this sector. We believe
these activities increase the stability of our revenue base, strengthen our
brand identity and provide multiple paths for revenue growth.
Approximately
27% of our net sales were derived from sales directly or indirectly outside
the U.S. for fiscal 2008, compared to 24% for fiscal 2007. We expect that
this proportion will increase as we seek to increase our penetration of foreign
markets, particularly within the aerospace and defense sectors. Our top ten
customers, generated 31% and 32% of our net sales in fiscal 2008 and 2007,
respectively. Out of the 31% of net sales generated by our top ten customers
during the fiscal year ended March 29, 2008, 20% of net sales was generated
by
our top four customers. No single customer was responsible for generating more
than 8% of our net sales for the same period.
Cost
of Revenues
Cost
of
sales includes employee compensation and benefits, materials, outside
processing, depreciation of manufacturing machinery and equipment, supplies
and
manufacturing overhead.
During
the past four years, our gross margin was impacted by rising raw material
prices, in particular, steel and related products. In response, we have, to
date, managed to pass on the majority of these price increases of raw materials
to our customers through steel surcharges assessed on, or price increases of,
our bearing products. However, we have from time to time experienced a time
lag
of up to 3 months or more in our ability to pass through steel surcharges to
our
customers, which has negatively impacted our gross margin. We will continue
to
pass on raw material price increases as competitive conditions
allow.
We
have
not been significantly impacted by recent increases in energy prices because
energy costs, the most significant component of which is natural gas used in
heat treating operations, represent approximately 3% of our overall
costs.
We
monitor gross margin performance through a process of monthly operation
management reviews. We will develop new products to target certain markets
allied to our strategies by first understanding volume levels and product
pricing and then constructing manufacturing strategies to achieve defined margin
objectives. We only pursue product lines where we believe that the developed
manufacturing process will yield the targeted margins. Management monitors
gross
margins of all product lines on a monthly basis to determine which manufacturing
processes or prices should be adjusted.
20
Selling,
General and Administrative Expenses
Selling,
general and administrative, or SG&A, expenses relate primarily to the
compensation and associated costs of selling, general and administrative
personnel, professional fees, insurance, facility costs and information
technology. We expect SG&A expenses will increase in absolute terms as we
increase our sales efforts and incur increased costs related to the anticipated
growth of our business.
Other
Expenses
In
December 2007, our RBC Aircraft Products, Inc. subsidiary relocated from a
leased to an owned facility within Torrington, Connecticut. Moving expenses
related to the relocation of this manufacturing facility resulted in a charge
of
approximately $0.5 million in fiscal 2008.
In
February 2007, our Tyson Bearing Company, Inc. subsidiary and the United
Steelworkers of America (AFL-CIO) Local 7461-01 entered into a shutdown
agreement in connection with our decision to close operations at our Glasgow,
Kentucky facility. Under the shutdown agreement, the union agreed to take no
action against us in connection with such shutdown. The agreement also addressed
closure and other transition issues related to pensions, workers compensation
insurance, adjustment assistance and other matters. The production that was
conducted at the Tyson facility has been moved to other RBC locations. This
consolidation resulted in a charge of approximately $5.1 million in fiscal
2007.
Approximately $2.2 million of this charge related to the disposal of fixed
assets.
In
February 2006, our RBC Nice Bearings, Inc. subsidiary and the United
Steelworkers of America (AFL-CIO) Local 6816-12 entered into a shutdown
agreement in connection with our decision to close operations at our Kulpsville,
Pennsylvania facility. Under the shutdown agreement, the union agreed to take
no
action against us in connection with such shutdown. The agreement also addressed
closure and other transition issues related to pensions, workers compensation
insurance, adjustment assistance and other matters. The production that was
conducted at the Nice facility has been moved to other RBC locations. Shutdown
costs included $0.6 million of severance and $0.4 million for fixed asset
impairments which were recorded in fiscal 2006.
Results
of Operations
The
following table sets forth the various components of our consolidated statements
of operations, expressed as a percentage of net sales, for the periods indicated
that are used in connection with the discussion herein:
|
Fiscal
Year Ended
|
||||||||||
|
March
29,
2008
|
March
31,
2007
|
April
1,
2006
|
||||||||
|
Statement
of Operations Data:
|
||||||||||
|
Net
sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
|
Gross
margin
|
34.4
|
32.7
|
30.2
|
|||||||
|
Selling,
general and administrative
|
14.8
|
13.8
|
15.3
|
|||||||
|
Other,
net
|
0.6
|
1.9
|
0.9
|
|||||||
|
Operating
income
|
19.0
|
17.0
|
14.0
|
|||||||
|
Interest
expense, net
|
1.0
|
1.9
|
5.7
|
|||||||
|
Loss
on early extinguishment of debt
|
—
|
1.2
|
1.4
|
|||||||
|
Other
non-operating expense (income)
|
(0.1
|
)
|
(0.5
|
)
|
—
|
|||||
|
Income
before income taxes
|
18.1
|
14.4
|
6.9
|
|||||||
|
Provision
for income taxes
|
6.0
|
5.1
|
2.4
|
|||||||
|
Net
income
|
12.1
|
%
|
9.3
|
%
|
4.5
|
%
|
||||
Segment
Information
We
have
four reportable product segments: Plain Bearings, Roller Bearings, Ball Bearings
and Other. Other consists primarily of precision ball screws and machine tool
collets. The following table shows our net sales and operating income with
respect to each of our reporting segments plus Corporate for the last three
fiscal years:
21
|
Fiscal
Year Ended
|
||||||||||
|
March
29,
2008
|
March
31,
2007
|
April
1,
2006
|
||||||||
|
(in
thousands)
|
||||||||||
|
Net
External Sales
|
||||||||||
|
Plain
|
$
|
154,535
|
$
|
143,907
|
$
|
115,091
|
||||
|
Roller
|
97,019
|
92,123
|
96,466
|
|||||||
|
Ball
|
56,677
|
50,466
|
46,378
|
|||||||
|
Other
|
22,369
|
19,566
|
16,574
|
|||||||
|
Total
|
$
|
330,600
|
$
|
306,062
|
$
|
274,509
|
||||
|
Operating
Income
|
||||||||||
|
Plain
|
$
|
40,982
|
$
|
41,163
|
$
|
30,955
|
||||
|
Roller
|
28,818
|
18,766
|
23,340
|
|||||||
|
Ball
|
14,284
|
12,523
|
9,692
|
|||||||
|
Other
|
2,669
|
2,200
|
1,478
|
|||||||
|
Corporate
|
(23,903
|
)
|
(22,733
|
)
|
(26,886
|
)
|
||||
|
Total
|
$
|
62,850
|
$
|
51,919
|
$
|
38,579
|
||||
Geographic
Information
The
following table summarizes our net sales, by shipping location, for the periods
shown:
|
Fiscal
Year Ended
|
||||||||||
|
March
29,
2008
|
March
31,
2007
|
April
1,
2006
|
||||||||
|
(in
thousands)
|
||||||||||
|
Geographic
Revenues
|
||||||||||
|
Domestic
|
$
|
280,510
|
$
|
265,644
|
$
|
243,576
|
||||
|
Foreign
|
50,090
|
40,418
|
30,933
|
|||||||
|
Total
|
$
|
330,600
|
$
|
306,062
|
$
|
274,509
|
||||
For
additional information concerning our business segments, see Item 8,
Note 21.
Fiscal
2008 Compared to Fiscal 2007
Net
Sales.
Net
sales for fiscal 2008 were $330.6 million, an increase of
$24.5 million, or 8.0%, compared to $306.1 million for the same period
in fiscal 2007. During fiscal 2008, we experienced net sales growth in all
our
four segments, driven by demand across end markets as well as continued efforts
to supply new products to existing and new customers. Overall, net sales to
aerospace and defense customers grew 14.5% in fiscal 2008 compared to the same
period last year, driven mainly by commercial and military aerospace
aftermarket, OEM demand and a full year of All Power which was acquired in
fiscal 2007. Net sales to diversified industrial customers grew 1.7% in fiscal
2008 compared to the same period last year. Reflected in this change, our core
markets of construction, mining, semiconductor capital equipment and
distribution were up 8.8% offset by a decline in year-over-year volume in our
Class 8 truck market. The addition of CBS and Phoenix during fiscal 2008
contributed $8.0 million towards this core growth.
The
Plain
Bearings segment achieved net sales of $154.5 million in fiscal 2008, an
increase of $10.6 million, or 7.4%, compared to $143.9 million for the same
period in the prior year. The commercial and military aerospace market grew
$15.2 million due to an increase in airframe and aerospace bearing shipments
to
aircraft manufacturers and continued demand for aftermarket product. The
inclusion of AID accounted for $0.3 million of this increase. This was offset
by
a $4.6 million decline in net sales to our diversified industrial customers.
This decline was mainly due to a shift in manufacturing capacity in response
to
growing aerospace demand and lower industrial OEM demand.
The
Roller Bearings segment achieved net sales of $97.0 million in fiscal 2008,
an increase of $4.9 million, or 5.3%, compared to $92.1 million for
the same period in the prior year. Net sales to the aerospace and defense market
increased by $2.9 million, while the inclusion of Phoenix accounted for $5.3
million of diversified industrial market sales, offset by a decrease of $3.3
million in diversified industrial market sales primarily driven by a continued
slowdown in our Class 8 truck market.
22
The
Ball
Bearings segment achieved net sales of $56.7 million in fiscal 2008, an increase
of $6.2 million, or 12.3%, compared to $50.5 million for the same
period in the prior year. Of this increase, $2.5 million was driven principally
by increased aerospace and defense-related demand. Sales to our customers in
the
industrial market increased $3.7 million compared to the same period in the
prior year. The inclusion of CBS accounted for $2.7 million of the net
diversified industrial sales increase.
The
Other
segment, which is focused mainly on the sale of precision ball screws and
machine tool collets, achieved net sales of $22.4 million in fiscal 2008,
an increase of $2.8 million, or 14.3%, compared to $19.6 million for the
same period last year. This increase was primarily due to increased sales of
machine tool collets in Europe. Included in this increase was $0.3 million
for
the recent acquisition of BEMD.
Gross
Margin.
Gross
margin was $113.6 million, or 34.4% of net sales, in fiscal 2008, versus
$100.1 million, or 32.7% of net sales, for the comparable period in fiscal
2007. The increase in our gross margin as a percentage of net sales was
primarily the result of an overall increase in volume and a shift in mix toward
higher margin products combined with the corresponding effects of efficiency
improvements.
Selling,
General and Administrative.
SG&A
expenses increased by $6.6 million, or 15.6%, to $48.9 million in
fiscal 2008 compared to $42.3 million for the same period in fiscal 2007.
The increase was primarily due to an increase of $5.4 million for personnel
necessary to support increased volume, higher stock compensation expense of
$0.5
million, and $0.7 million associated with acquisitions. As a percentage of
net
sales, SG&A was 14.8% in fiscal 2008 compared to 13.8% for the same period
in fiscal 2007.
Other,
net.
Other,
net in fiscal 2008 was $1.8 million compared to $5.9 million for the
same period in fiscal 2007. In fiscal 2008, other, net included $1.3 million
of
amortization of intangibles, $0.5 million of moving expenses related to the
relocation of our aircraft products manufacturing facility and a loss on
disposal of fixed assets of $0.4 million, offset by other miscellaneous income
of $0.4 million. In fiscal 2007, other, net included plant consolidation
expenses for both the Tyson and Nice facilities of $3.2 million, a loss on
disposal of fixed assets of $2.7 million relating primarily to the Tyson plant
consolidation, a gain on the sale of the Nice facility of $0.8 million,
amortization of intangibles of $0.7 million and $0.2 million of bad debt
expense.
Operating
Income.
Operating income was $62.9 million, or 19.0% of net sales, in fiscal 2008
compared to $51.9 million, or 17.0% of net sales, in fiscal 2007. Operating
income for the Plain Bearings segment was $41.0 million in fiscal 2008, or
26.5% of net sales, compared to $41.2 million for the same period last
year, or 28.6% of net sales. The Roller Bearings segment achieved an operating
income in fiscal 2008 of $28.8 million, or 29.7% of net sales, compared to
$18.8 million, or 20.4% of net sales, in fiscal 2007. The Ball Bearings
segment achieved an operating income of $14.3 million, or 25.2% of net
sales, in fiscal 2008, compared to $12.5 million, or 24.8% of net sales,
for the same period in fiscal 2007. The Other segment achieved an operating
income of $2.7 million, or 11.9% of net sales, in fiscal 2008, compared to
$2.2 million or 11.2% of net sales, for the same period in fiscal 2007. The
increase in operating income in the Roller, Ball and Other segments was driven
primarily by an increase in net sales and a shift in mix toward higher margin
products. The decrease in operating income in the Plain segment was primarily
driven by the decrease in net sales to industrial customers.
Interest
Expense, net.
Interest
expense, net decreased by $2.4 million to $3.4 million in fiscal 2008, compared
to $5.8 million in fiscal 2007, driven by debt reduction.
Loss
on Early Extinguishment of Debt.
For
fiscal 2007, loss on early extinguishment of debt was $3.6 million for non-cash
write-off of deferred financing fees.
Other
Non-Operating Expense (Income).
In
fiscal 2008, we received approximately $0.3 million in payments under the U.S.
Continued Dumping and Subsidy Offset Act (CDSOA) for 2007. This compared to
$1.2
million in payments received in fiscal 2007 for 2006. The CDSOA distributes
antidumping duties paid by overseas companies to domestic firms hurt by unfair
trade.
Income
Before Income Taxes.
Income
before taxes was $59.9 million in fiscal 2008 compared to income before
taxes of $44.1 million in fiscal 2007.
Income
Taxes.
Income
tax expense in fiscal 2008 was $19.7 million compared to $15.6 million in fiscal
2007. The effective income tax rate in fiscal 2008 was 32.9% compared to 35.4%
in fiscal 2007. The
decrease in the effective income tax rate was primarily due to a manufacturing
deduction taken in 2008 and benefits related to research and development
credits, partially offset by a lower international rate
differential.
23
Net
Income.
Net
income was $40.2 million in fiscal 2008 compared to net income of
$28.5 million in fiscal 2007.
Fiscal
2007 Compared to Fiscal 2006
Net
Sales.
Net
sales for fiscal 2007 were $306.1 million, an increase of
$31.6 million, or 11.5%, compared to $274.5 million for the same
period in fiscal 2006. During fiscal 2007, we experienced net sales growth
in
three of our four segments, driven by demand across end markets as well as
continued efforts to supply new products to existing and new customers. Overall,
net sales to aerospace and defense customers grew 25.8% in fiscal 2007 compared
to the same period last year, driven mainly by commercial and military aerospace
aftermarket, OEM demand and the inclusion of recently acquired All Power. Net
sales to diversified industrial customers grew 0.3% in fiscal 2007 compared
to
the same period last year. Reflected in this change, our core markets of
construction, mining, semiconductor capital equipment and distribution were
up
6.8% offset by a decline in year-over-year volume in our Class 8 truck market.
The
Plain
Bearings segment achieved net sales of $143.9 million in fiscal 2007, an
increase of $28.8 million, or 25.0%, compared to $115.1 million for the
same period in the prior year. The commercial and military aerospace market
accounted for $28.2 million of the increase due to an increase in airframe
and
aerospace bearing shipments to aircraft manufacturers and continued demand
for
aftermarket product. Net sales to diversified industrial customers accounted
for
$0.6 million of the increase driven by general industrial
applications.
The
Roller Bearings segment achieved net sales of $92.1 million in fiscal 2007,
a decrease of $4.4 million, or 4.5%, compared to $96.5 million for the
same period in the prior year. $8.1 million of this decrease was attributable
to
sales to customers in the industrial market, mainly a result of the slowdown
in
the class 8 truck market. The aerospace and defense market accounted for the
offsetting $3.7 million increase, driven primarily by increasing build rates
and
maintenance requirements for commercial and military aircraft.
The
Ball
Bearings segment achieved net sales of $50.5 million in fiscal 2007, an
increase of $4.1 million, or 8.8%, compared to $46.4 million for the
same period in the prior year. The increase was driven principally by increased
demand from airframe, electro-optical, and satellite and communications
applications and increased penetration of the airframe market.
The
Other
segment, which is focused mainly on the sale of precision ball screws and
machine tool collets, achieved net sales of $19.6 million in fiscal 2007,
an increase of $3.0 million, or 18.1%, compared to $16.6 million for the
same period last year. This increase was primarily due to increased sales of
machine tool collets to the industrial market in Europe and precision ball
screws to aerospace and industrial applications.
Gross
Margin.
Gross
margin was $100.1 million, or 32.7% of net sales, in fiscal 2007, versus
$82.9 million, or 30.2% of net sales, for the comparable period in fiscal
2006. The increase in our gross margin as a percentage of net sales was
primarily the result of an overall increase in volume, higher prices, increased
manufacturing efficiency, and overall product mix.
Selling,
General and Administrative.
SG&A
expenses increased by $0.4 million, or 0.7%, to $42.3 million in
fiscal 2007 compared to $41.9 million for the same period in fiscal 2006.
The increase was primarily due to higher stock compensation expense of $0.4
million, higher professional service fees of $1.3 million and an increase of
$3.9 million for personnel necessary to support increased volume, offset by
$5.2
million in non-recurring compensation expense in fiscal 2006. As a percentage
of
net sales, SG&A was 13.8% in fiscal 2007 compared to 15.3% for the same
period in fiscal 2006.
Other,
net.
Other,
net in fiscal 2007 was $5.9 million compared to $2.4 million for the
same period in fiscal 2006. In fiscal 2007, other, net included plant
consolidation expenses for both the Tyson and Nice facilities of $3.2 million,
a
loss on disposal of fixed assets of $2.7 million relating primarily to the
Tyson
plant consolidation, a gain on the sale of the Nice facility of $0.8 million,
amortization of intangibles of $0.7 million and $0.2 million of bad debt
expense. In fiscal 2006, other, net included amortization of intangibles of
$0.7 million, severance costs of $0.6 million and losses on fixed asset
disposals of $0.4 million for the RBC Nice Bearings, Inc. plant consolidation,
$0.2 million of non-recurring management fees, $0.3 million of bad debt
expense, and $0.2 million of other expenses.
Operating
Income.
Operating income was $51.9 million, or 17.0% of net sales, in fiscal 2007
compared to $38.6 million, or 14.0% of net sales, in fiscal 2006. Operating
income for the Plain Bearings segment was $41.2 million in fiscal 2007, or
28.6% of net sales, compared to $31.0 million for the same period last
year, or 26.9% of net sales. The Roller Bearings segment achieved an operating
income in fiscal 2007 of $18.8 million, or 20.4% of net sales, compared to
$23.3 million, or 24.2% of net sales, in fiscal 2006. The Ball Bearings
segment achieved an operating income of $12.5 million, or 24.8% of net
sales, in fiscal 2007, compared to $9.7 million, or 20.9% of net sales, for
the same period in fiscal 2006. The Other segment achieved an operating income
of $2.2 million, or 11.2% of net sales, in fiscal 2007, compared to
$1.5 million or 8.9% of net sales, for the same period in fiscal 2006. The
increase in operating income in the Plain, Ball and Other segments was driven
primarily by an increase in net sales. The decrease in operating income in
the
Roller segment was primarily driven by the decrease in net sales to industrial
distributor customers.
24
Interest
Expense, net.
Interest
expense, net decreased by $9.9 million to $5.8 million in fiscal 2007,
compared to $15.7 million in fiscal 2006, driven by debt reduction.
Loss
on Early Extinguishment of Debt.
For
fiscal 2007, loss on early extinguishment of debt was $3.6 million for non-cash
write-off of deferred financing fees. For fiscal 2006, loss on early
extinguishment of debt of $3.8 million included $1.6 million for non-cash
write-off of deferred financing fees and unamortized bond discount associated
with retired debt, $1.3 million of redemption premium associated with the
redemption of all our 13% discount debentures in September 2005, $0.5 million
prepayment fees related to the prepayment of all the outstanding balance under
our second lien term loan in August 2005 and $0.4 million in interest expense
for the 30-day call period related to the early extinguishment of our 13%
debentures.
Other
Non-Operating Expense (Income).
In
fiscal 2007, we received approximately $1.2 million in payments under the U.S.
Continued Dumping and Subsidy Offset Act (CDSOA). The CDSOA distributes
antidumping duties paid by overseas companies to domestic firms hurt by unfair
trade.
Income
Before Income Taxes.
Income
before taxes was $44.1 million in fiscal 2007 compared to income before
taxes of $19.1 million in fiscal 2006.
Income
Taxes.
Income
tax expense in fiscal 2007 was $15.6 million compared to $6.6 million in fiscal
2006. The effective income tax rate in fiscal 2007 was 35.4% compared to 34.8%
in fiscal 2006. The
increase in the effective income tax rate from year to year is primarily due
to
the recording of a valuation allowance on certain state net operating losses
due
to plant shutdowns as well as the elimination of the ETI benefit, partially
offset by a reduction in state tax expense due to the elimination of most state
franchise taxes.
Net
Income.
Net
income was $28.5 million in fiscal 2007 compared to net income of
$12.4 million in fiscal 2006.
Liquidity
and Capital Resources
Our
business is capital intensive. Our capital requirements include manufacturing
equipment and materials. In addition, we have historically fueled our growth
in
part through acquisitions. We have historically met our working capital, capital
expenditure requirements and acquisition funding needs through our net cash
flows provided by operations, various debt arrangements and sale of equity
to
investors.
Liquidity
On
June 26, 2006, RBCA entered into a credit agreement (the “KeyBank Credit
Agreement”) and related security and guaranty agreements with certain banks,
KeyBank National Association, as Administrative Agent, and J.P. Morgan Chase
Bank, N.A. as Co-Lead Arrangers and Joint Lead Book Runners. The KeyBank Credit
Agreement provides RBCA, as borrower, with a $150.0 million five-year senior
secured revolving credit facility which can be increased by up to $75.0 million,
in increments of $25.0 million, under certain circumstances and subject to
certain conditions (including the receipt from one or more lenders of the
additional commitment).
Amounts
outstanding under the KeyBank Credit Agreement generally bear interest at the
prime rate, or LIBOR plus a specified margin, depending on the type of borrowing
being made. The applicable margin is based on our consolidated ratio of net
debt
to adjusted EBITDA from time to time. Currently, our margin is 0.0% for prime
rate loans and 0.625% for LIBOR rate loans. Amounts outstanding under the
KeyBank Credit Agreement are due and payable on the expiration date of the
credit agreement (June 24, 2011). We can elect to prepay some or all
of the outstanding balance from time to time without penalty.
The
KeyBank Credit Agreement requires us to comply with various covenants, including
among other things, financial covenants to maintain a ratio of consolidated
net
debt to adjusted EBITDA not to exceed 3.25 to 1, and a consolidated fixed charge
coverage ratio not to exceed 1.5 to 1. As of March 29, 2008, we were in
compliance with all such covenants.
25
The
KeyBank Credit Agreement allows us to, among other things, make distributions
to
shareholders, repurchase our stock, incur other debt or liens, or acquire
or
dispose of assets provided that we comply with certain requirements and
limitations of the credit agreement. Our obligations under the KeyBank Credit
Agreement are secured by a pledge of substantially all of our and RBCA’s assets
and a guaranty by us of RBCA’s obligations.
On
June 26, 2006, we borrowed approximately $79.0 million under the KeyBank
Credit Agreement and used such funds to (i) pay fees and expenses
associated with the KeyBank Credit Agreement and (ii) repay the
approximately $78.0 million balance outstanding under a credit agreement in
place at that time. We recorded a non-cash pre-tax charge of approximately
$3.6
million in fiscal 2007 to write off deferred debt issuance costs associated
with
the early termination of the Amended Credit Agreement. Deferred financing fees
of $0.9 million associated with the KeyBank Credit Agreement were also recorded
in fiscal 2007.
On
September 10, 2007, we entered into an amendment of the KeyBank Credit
Agreement. Pursuant to the terms of the amendment, the commitment fees payable
under the KeyBank Credit Agreement were decreased from a range of 10 to 27.5
basis points, based on our leverage ratio (as defined under the KeyBank Credit
Agreement) to a range of 7.5 to 20 basis points. Further, the margin payable
under the KeyBank Credit Agreement for revolving loans that are base rate loans,
based on our leverage ratio, was decreased from a range of 0 to 75 basis points
to a range of 0 to 25 basis points. The margin payable under the KeyBank Credit
Agreement for revolving loans that are fixed rate loans, based on our leverage
ratio (as defined under the agreement) was decreased from a range of 62.5 to
165
basis points to a range of 37.5 to 115 basis points. Also, the covenant
requiring us to limit capital expenditures (excluding acquisitions) in any
fiscal year to an amount not to exceed $20,000 was amended to increase the
limit
to an amount not to exceed $30,000. As
of
March 29, 2008, $41.0 million was outstanding under the KeyBank Credit
Agreement.
Approximately $21.6 million of the KeyBank Credit Agreement is being utilized
to
provide letters of credit to secure our obligations relating to certain
Industrial Development Revenue Bonds (the “IRB’s”) and insurance programs. As of
March 29, 2008, we had the ability to borrow up to an additional $87.4 million
under the KeyBank Credit Agreement.
On
December 8, 2003, Schaublin entered into a bank credit facility (the "Swiss
Credit Facility") with Credit Suisse providing for 10.0 million Swiss francs,
or
approximately $10.0 million, of term loan (the "Swiss Term Loan") and up to
2.0
million Swiss francs, or approximately $2.0 million, of revolving credit loans
and letters of credit (the "Swiss Revolving Credit Facility"). We pledged 99.4%
of the present and future share capital of Schaublin S.A. (1,366 shares) against
this facility. On November 8, 2004, Schaublin amended the Swiss Credit
Facility to increase the Swiss Revolving Credit Facility to 4.0 million Swiss
francs, or approximately $4.0 million. Borrowings under the Swiss Revolving
Credit Facility bear interest at a floating rate of LIBOR plus 2.25%. As of
March 29, 2008, the term loan was paid off in full and there were no borrowings
outstanding under the Swiss Credit Facility. The credit agreement for the Swiss
Credit Facility contains affirmative and negative covenants regarding the
Schaublin financial position and results of operations and other terms customary
to such financings. As of March 29, 2008, we were in compliance with all such
covenants.
On
April 18, 2006, pursuant to a purchase agreement with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, KeyBanc Capital Markets and Robert W. Baird & Co., we, along
with certain of our stockholders, sold 8,989,550 shares of our common stock
(5,995,529 sold by certain of our stockholders). The offering yielded us
aggregate net proceeds of approximately $57.0 million after payment of the
underwriting discount, commissions and offering expenses. The full amount of
the
net proceeds were used to prepay outstanding balances under a term loan
outstanding at that time.
On
August 15, 2005, pursuant to a purchase agreement with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, KeyBanc Capital Markets and Jefferies &
Company, Inc., we, along with certain of our stockholders, sold 10,531,200
shares of our common stock (3,496,684 sold by certain of our stockholders).
The
offering yielded us aggregate net proceeds of $92.1 million after payment of
the
underwriting discount and offering expenses. After redemption of our
Class C and Class D preferred stock for $34.6 million, our net
proceeds were $57.5 million. Immediately prior to the consummation of the
initial public offering, all outstanding shares of Class B preferred stock
were converted in accordance with their terms into 1,846,396 shares of
Class A common stock, 306,298 shares of Class C preferred stock and
240,000 shares of Class D preferred stock. All shares of Class C and
Class D preferred stock were redeemed with cash or common stock and all
shares of Class A and Class B common stock were reclassified as common
stock on a one-for-one basis. In connection with the initial public offering,
we
filed an Amended and Restated Certificate of Incorporation (the "Amendment").
The Amendment increased
our authorized capital stock to 70,000,000 shares, (i) 60,000,000 of which
is common stock, $0.01 par value per share, and (ii) 10,000,000 of which is
preferred stock, $0.01 par value per share.
Our
ability to meet future working capital, capital expenditures and debt service
requirements will depend on our future financial performance, which will be
affected by a range of economic, competitive and business factors, particularly
interest rates, cyclical changes in our end markets and prices for steel and
our
ability to pass through price increases on a timely basis, many of which are
outside of our control. In addition, future acquisitions could have a
significant impact on our liquidity position and our need for additional
funds.
26
From
time
to time we evaluate our existing facilities and operations and their strategic
importance to us. If we determine that a given facility or operation does not
have future strategic importance, we may sell, partially or completely, relocate
production lines, consolidate or otherwise dispose of those operations. Although
we believe our operations would not be materially impaired by such dispositions,
relocations or consolidations, we could incur significant cash or non-cash
charges in connection with them.
Cash
Flows
Fiscal
2008 Compared to Fiscal 2007
In
the
fiscal year ended March 29, 2008, we generated cash of $27.1 million from
operating activities compared to $55.7 million for the fiscal year ended
March 31, 2007. The decrease of $28.6 million was mainly a result of an
increase of $11.7 million in net income, a change in operating assets and
liabilities of $22.1 million and the net of non-cash charges of $18.2 million.
The change in working capital investment was primarily attributable to an
increase in inventory due to builds related to fiscal 2009 orders, an increase
in accounts receivable related to higher sales, an increase in prepaid expenses
and other current assets, an increase in non-current assets offset by an
increase in accounts payable, an increase in accrued expenses and other current
liabilities and an increase in other non-current liabilities.
Cash
used
for investing activities for fiscal 2008 included $17.7 million relating to
capital expenditures compared to $16.2 million for fiscal 2007. Investing
activities also included $13.9 million relating to the acquisitions of the
Phoenix, CBS, AID and BEMD businesses.
In
fiscal
2008, financing activities provided $8.6 million. We received $4.0 million
from
the exercise of stock options and an income tax benefit of $9.5 million related
to the exercise of non-qualified stock options. This was offset by the
repurchase of common stock of $2.5 million, a decrease in our revolving credit
facility of $1.0 million, the payoff of an IRB for $1.2 million and capital
lease payments of $0.2 million.
Fiscal
2007 Compared to Fiscal 2006
In
the
fiscal year ended March 31, 2007, we generated cash of $55.7 million from
operating activities compared to $24.6 million for the fiscal year ended
April 1, 2006. The increase of $31.1 million was mainly a result of an
increase of $16.0 million in net income, a change in operating assets and
liabilities of $9.2 million and the net of non-cash charges of $5.9 million.
The
change in working capital investment was primarily attributable to a decrease
in
inventory due to improved turns and a decrease in accounts payable offset by
an
increase in accounts receivable related to increased sales and an increase
in
non-current assets.
Cash
used
for investing activities for fiscal 2007 included $16.2 million relating to
capital expenditures compared to $10.3 million for fiscal 2006. Investing
activities also included $8.8 million relating to the acquisition of the
All Power Manufacturing business offset by proceeds of $3.6 million related
primarily to the sale of the RBC Nice Bearings facility.
In
fiscal
2007, financing activities used $45.5 million. We received net proceeds of
$57.8
million from our secondary offering (see Item 8, Note 1) which were used, in
addition to $10.0 million in cash from operations, to pay down the term loan
under the Amended Credit Agreement. The balance of approximately $78.0 million
was refinanced and further reduced to $42.0 million by using approximately
$36.0
million in cash from operations. In addition, we received $3.1 million from
the
exercise of stock options, received an income tax benefit of $3.4 million
related to the exercise of non-qualified stock options, repurchased 37,356
shares of stock for $1.1 million, used $0.3 million of funds for capital lease
obligations and paid $0.9 million of financing fees in connection with our
KeyBank Credit Agreement.
Capital
Expenditures
Our
capital expenditures in fiscal 2008 were $17.7 million. We expect to make
capital expenditures of approximately $15.0 to $20.0 million during fiscal
2009
in connection with our existing business and the expansion into the large
bearing market segment. We have funded our fiscal 2008 capital expenditures,
and
expect to fund fiscal 2009 capital expenditures, principally through existing
cash, internally generated funds and borrowings under our KeyBank Credit
Agreement. We may also make substantial additional capital expenditures in
connection with acquisitions.
27
Obligations
and Commitments
The
contractual obligations presented in the table below represent our estimates
of
future payments under fixed contractual obligations and commitments. Changes
in
our business needs, cancellation provisions and interest rates, as well as
actions by third parties and other factors, may cause these estimates to change.
Because these estimates are necessarily subjective, our actual payments in
future periods are likely to vary from those presented in the table. The
following table summarizes certain of our contractual obligations and principal
and interest payments under our debt instruments and leases as of March 29,
2008:
|
Payments
Due By Period
|
||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less than
1 Year
|
1 to
3 Years
|
3 to
5 Years
|
More than
5 Years
|
|||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Total
debt(1)
|
$
|
57,750
|
$
|
750
|
$
|
1,850
|
$
|
42,320
|
$
|
12,830
|
||||||
|
Capital
lease obligations
|
609
|
211
|
370
|
28
|
—
|
|||||||||||
|
Operating
leases
|
19,842
|
4,132
|
6,821
|
4,114
|
4,775
|
|||||||||||
|
Interest
on fixed rate debt(2)
|
4,548
|
1,334
|
2,575
|
639
|
—
|
|||||||||||
|
Interest
on variable rate debt(3)
|
6,644
|
1,067
|
2,082
|
1,160
|
2,335
|
|||||||||||
|
Pension
and postretirement benefits
|
17,368
|
1,547
|
3,248
|
3,347
|
9,226
|
|||||||||||
|
Total
contractual cash obligations
|
$
|
106,761
|
$
|
9,041
|
$
|
16,946
|
$
|
51,608
|
$
|
29,166
|
||||||
|
(1)
|
Includes
the $41.0 million five-year senior secured revolving credit facility
under our KeyBank Credit Agreement, $1.3 million note payable and
other
debt totaling $15.5 million.
|
|
(2)
|
Interest payments are calculated based on a LIBOR rate of 3.64% (per the interest rate swap agreement) plus the current bank margin per our bank agreement. |
|
(3)
|
Interest
payments are calculated based on beginning of period debt balances
that
reflect contractual debt amortization over the term of the instruments
and
assume a constant LIBOR rate of 3.125% plus bank margin per our
KeyBank Credit Agreement. To the extent that actual rates change,
our
interest rate obligations will change
accordingly.
|
Quarterly
Results of Operations
|
Quarter
Ended
|
|||||||||||||||||||||||||
|
Mar. 29,
2008
|
Dec. 29,
2007
|
Sept. 29,
2007
|
Jun. 30,
2007
|
Mar. 31,
2007
|
Dec. 30,
2006
|
Sept. 30,
2006
|
Jul. 1,
2006
|
||||||||||||||||||
|
(Unaudited)
(in
thousands, except per share data)
|
|||||||||||||||||||||||||
|
Net
sales
|
$
|
92,138
|
$
|
80,407
|
$
|
78,232
|
$
|
79,823
|
$
|
81,039
|
$
|
76,544
|
$
|
73,248
|
$
|
75,231
|
|||||||||
|
Gross
margin
|
32,342
|
27,554
|
26,237
|
27,445
|
28,554
|
24,543
|
23,503
|
23,509
|
|||||||||||||||||
|
Operating
income
|
17,963
|
15,111
|
13,995
|
15,781
|
11,478
|
14,333
|
12,610
|
13,498
|
|||||||||||||||||
|
Net
income
|
$
|
12,039
|
$
|
9,581
|
$
|
8,749
|
$
|
9,825
|
$
|
6,718
|
$
|
9,359
|
$
|
7,378
|
$
|
5,024
|
|||||||||
|
Net
income per common share:
|
|||||||||||||||||||||||||
|
Basic(1)(2)
|
$
|
0.56
|
$
|
0.45
|
$
|
0.41
|
$
|
0.46
|
$
|
0.32
|
$
|
0.45
|
$
|
0.36
|
$
|
0.25
|
|||||||||
|
Diluted(1)(2)
|
$
|
0.55
|
$
|
0.44
|
$
|
0.40
|
$
|
0.45
|
$
|
0.31
|
$
|
0.44
|
$
|
0.35
|
$
|
0.24
|
|||||||||
|
(1)
|
See
Note 2 to the Consolidated Financial Statements for a discussion of
net income per common share.
|
|
(2)
|
Net
income per common share is computed independently for each of the
quarters
presented. Therefore, the sum of the quarterly earnings per share
may not
necessarily equal the total for the
year.
|
Recent
Accounting Pronouncements
The
Company adopted Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
Interpretation of SFAS No. 109,” (“FIN
48”),
as of the beginning of its 2008 fiscal year. This interpretation clarifies
the
accounting for uncertainty in income taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken on a tax return.
Under FIN 48, the Company first assesses whether it is more likely than not
that
an individual tax position will be sustained upon examination based on its
technical merits. If the tax position is more likely than not to be sustained,
under the presumption the taxing authority has all relevant information, it
is
recognized. The recognized tax position is measured as the largest benefit
that
is greater than 50% likely of being realized upon ultimate settlement.
Previously recognized tax positions that no longer meet the more likely than
not
recognition threshold are derecognized in the period in which that threshold
is
no longer met. Accordingly, the unit of account under FIN 48 is the individual
tax position and not a higher level such as the aggregate of the various
positions that are encompassed by the total tax return filing. As a result
of
the adoption of FIN 48, the Company recognized a $0.2 million increase in its
income tax liabilities and a reduction to the April 1, 2007 beginning balance
of
retained earnings of $0.2 million (see Note 15).
28
In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, “Fair Value Measurements,” (“SFAS 157”). This statement is
effective as of the beginning of fiscal 2009. SFAS 157 provides a common fair
value hierarchy for companies to follow in determining fair value measurements
in the preparation of financial statements and expands disclosure requirements
relating to how fair value measurements were developed. SFAS 157 clarifies
the
principal that fair value should be based on the assumptions that the
marketplace would use when pricing an asset or liability, rather than company
specific data. The Company does not expect SFAS 157 to have a material impact
on
its results of operations and financial position.
In
February 2007, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Liabilities,
Including an amendment of FASB Statement No. 115,” (“SFAS 159”). This Statement
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at
fair
value. SFAS 159 is effective as of the beginning of fiscal 2009. The Company
does not expect SFAS 159 to have a material impact on its results of operations
and financial position.
In
December 2007, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 141(R), “Business Combinations,” (“SFAS 141(R)”) and Statement of
Financial Accounting Standard (“SFAS”) No. 160, “Accounting and Reporting of
Noncontrolling Interests in Consolidated Financial Statements, an amendment
of
ARB No. 51,” (“SFAS 160”). These new standards will significantly change the
financial accounting and reporting of business combination transactions and
noncontrolling (or minority) interests in consolidated financial
statements.
In
comparison to current practice, the most significant changes to business
combination accounting pursuant to SFAS 141(R) include requirements
to:
|
·
|
Recognize,
with certain exceptions, 100 percent of the fair values of assets
acquired, liabilities assumed, and noncontrolling interests in
acquisitions of less than a 100 percent controlling interest when
the
acquisition constitutes a change in control of the acquired
entity.
|
|
·
|
Measure
acquirer shares issued in consideration for a business combination
at fair
value on the acquisition date.
|
|
·
|
Recognize
contingent consideration arrangements at their acquisition-date fair
values, with subsequent changes in fair value generally reflected
in
earnings.
|
|
·
|
With
certain exceptions, recognize preacquisition loss and gain contingencies
at their acquisition-date fair
values.
|
|
·
|
Capitalize
in-process research and development (IPR&D) assets
acquired.
|
|
·
|
Expense,
as incurred, acquisition-related transaction
costs.
|
|
·
|
Capitalize
acquisition-related restructuring costs only if the criteria in SFAS
146
are met as of the acquisition date.
|
|
·
|
Recognize
changes that result from a business combination transaction in an
acquirer’s existing income tax valuation allowances and tax uncertainty
accruals as adjustments to income tax
expense.
|
The
premise of SFAS 160 is based on the economic entity concept of consolidated
financial statements. Under the economic entity concept, all residual economic
interest holders in an entity have an equity interest in the consolidated
entity, even if the residual interest is relative to only a portion of the
entity (i.e., a residual interest in a subsidiary). Therefore, SFAS 160 requires
that a noncontrolling interest in a consolidated subsidiary be displayed in
the
consolidated statement of financial position as a separate component of equity
because the noncontrolling interests meet the definition of equity of the
consolidated entity. SFAS 141(R) is required to be adopted concurrently with
SFAS 160 and is effective for business combination transactions for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, which for the Company is fiscal
2010. Early adoption is prohibited. The Company is currently assessing the
impact that SFAS 141(R) and SFAS 160 will have on its results of operations
and
financial position.
In
March
2008, the FASB issued Statement
of Financial Accounting Standard (“SFAS”) No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133
(“SFAS 161”). SFAS 161 applies to all derivative instruments and related hedged
items accounted for under FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS 133”). SFAS 161 requires entities to
provide greater transparency about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and hedged items are accounted
for
under SFAS 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
results of operations, and cash flow. To meet those objectives, SFAS 161
requires (1) qualitative disclosures about objectives for using derivatives
by
primary underlying risk exposure (e.g., interest rate, credit or foreign
exchange rate) and by purpose or strategy (fair value hedge, cash flow hedge,
net investment hedge, and non-hedges), (2) information about the volume of
derivative activity in a flexible format the preparer believes is the most
relevant and practicable, (3) tabular disclosures about balance sheet location
and gross fair value amounts of derivative instruments, income statement and
other comprehensive income (OCI) location and amounts of gains and losses on
derivative instruments by type of contract (e.g., interest rate contracts,
credit contracts or foreign exchange contracts), and (4) disclosures about
credit-risk-related contingent features in derivative agreements. SFAS 161
is
effective for financial statements issued for fiscal years or interim periods
beginning after November 15, 2008, which for the Company is fiscal 2010. Early
application is encouraged, as are comparative disclosures for earlier periods,
but neither are required. The Company is currently assessing the impact that
SFAS 161 will have on its results of operations and financial
position.
29
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates, including those related to product returns, bad
debts, inventories, recoverability of intangible assets, income taxes, financing
operations, pensions and other postretirement benefits and contingencies and
litigation. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions
or
conditions.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue
Recognition.
We
recognize revenue in accordance with SEC Staff Accounting Bulletin 101
"Revenue Recognition in Financial Statements as amended by Staff Accounting
Bulletin 104.”
We
recognize revenue upon the passage of title on the sale of manufactured goods,
which generally is at time of shipment.
Accounts
Receivable.
We are
required to estimate the collectibility of our accounts receivable, which
requires a considerable amount of judgment in assessing the ultimate realization
of these receivables, including the current credit-worthiness of each customer.
Changes in required reserves may occur in the future as conditions in the
marketplace change.
Inventory.
Inventories are stated at the lower of cost or market value. Cost is principally
determined by the first-in, first-out method. We account for inventory under
a
full absorption method. We record adjustments to the value of inventory based
upon past sales history and forecasted plans to sell our inventories. The
physical condition, including age and quality, of the inventories is also
considered in establishing its valuation. These adjustments are estimates,
which
could vary significantly, either favorably or unfavorably, from actual
requirements if future economic conditions, customer inventory levels or
competitive conditions differ from our expectations.
Goodwill.
Goodwill
(representing the excess of the amount paid to acquire a company over the
estimated fair value of the net assets acquired) and intangible assets with
indefinite useful lives are not amortized but instead are tested for impairment
annually (performed by us during the fourth quarter of each fiscal year), or
when events or circumstances indicate that its value may have declined. This
determination of any goodwill impairment is made at the reporting unit level
and
consists of two steps. First, we determine the fair value of a reporting unit
and compare it to our carrying amount. Second, if the carrying amount of the
reporting unit exceeds its fair value, an impairment loss is recognized for
any
excess of the carrying amount of the reporting unit's goodwill over the
goodwill's implied fair value. The fair value of our reporting units is
calculated by the weighted average of a present value of future cash flow method
and a multiple of EBITDA method. Although no changes are expected as a result
of
the comparison, if the assumptions management makes regarding estimated cash
flows are less favorable than expected, we may be required to record an
impairment charge in the future.
30
Income
Taxes.
As part
of the process of preparing the consolidated financial statements, we are
required to estimate the income taxes in each jurisdiction in which we operate.
This process involves estimating the actual current tax liabilities together
with assessing temporary differences resulting from the differing treatment
of
items for tax and financial reporting purposes. These differences result in
deferred tax assets and liabilities, which are included in the Consolidated
Balance Sheet. We must then assess the likelihood that the deferred tax assets
will be recovered, and to the extent that we believe that recovery is not more
than likely, we are required to establish a valuation allowance. If a valuation
allowance is established or increased during any period, we are required to
include this amount as an expense within the tax provision in the Consolidated
Statements of Operations. Significant judgment is required in determining our
provision for income taxes, deferred tax assets and liabilities and any
valuation allowance recognized against net deferred tax assets.
Pension
Plans and Postretirement Health Care.
We have
a noncontributory defined benefit pension plan covering union employees in
our
Heim division plant in Fairfield, Connecticut and in our Bremen subsidiary
plant
in Plymouth, Indiana.
Our
pension plan funding policy is to make the minimum annual contribution required
by the Employee Retirement Income Security Act of 1974. Plan obligations
and annual pension expense are determined by independent actuaries using a
number of assumptions provided by us including assumptions about employee
demographics, retirement age, compensation levels, pay rates, turnover, expected
long-term rate of return on plan assets, discount rate and the amount and timing
of claims. Each plan assumption reflects our best estimate of the plan's future
experience. The most sensitive assumption in the determination of plan
obligations for pensions is the discount rate. The discount rate that we use
for
determining future pension obligations is based on a review of long-term bonds
that receive one of the two highest ratings given by a recognized rating agency.
The discount rate determined on this basis has increased from 5.75% at
April 1, 2006 to 6.00% at March 31, 2007, and increased to 6.25% at
March 29, 2008. In developing the overall expected long-term rate of return
on
plan assets assumption, a building block approach was used in which rates of
return in excess of inflation were considered separately for equity securities
and debt securities. The excess returns were weighted by the representative
target allocation and added along with an appropriate rate of inflation to
develop the overall expected long-term rate of return on plan assets assumption.
The expected long-term rate of return on the assets of our pension plans was
8.5% and 9.0% in fiscal 2008 and fiscal 2007, respectively.
Lowering
the expected long-term rate of return on the assets of our pension plans by
1.00% (from 8.50% to 7.50%) would have increased our pension expense for
fiscal 2008 by approximately $0.2 million. Increasing the expected long-term
rate of return on the assets of our pension plans by 1.00% (from 8.50%
to 9.50%) would have reduced our pension expense for fiscal 2008 by
approximately $0.2 million.
Lowering
the discount rate assumption used to determine net periodic pension cost
by 1.00% (from 6.00% to 5.00%) would have increased our pension
expense for fiscal 2008 by approximately $0.1 million. Increasing the discount
rate assumption used to determine net periodic pension cost by 1.00% (from
6.00% to 7.00%) would have reduced our pension expense for fiscal 2008 by
approximately $0.1 million.
Lowering
the discount rate assumption used to determine the funded status as of March
29,
2008 by 1.00% (from 6.25% to 5.25%) would have increased the projected
benefit obligation of our pension plans by approximately $2.3 million.
Increasing the discount rate assumption used to determine the funded status
as
of March 29, 2008 by 1.00% (from 6.25% to 7.25%) would have reduced
the projected benefit obligation of our pension plans by approximately
$1.9 million.
Our
investment program objective is to achieve a rate of return on plan assets
which
will fund the plan liabilities and provide for required benefits while avoiding
undue exposure to risk to the plan and increases in funding requirements. Our
actual target allocation of plan assets was 100 percent short-term
investments as of March 29, 2008 and 100 percent equity as of March 31,
2007.
Our
foreign operation, Schaublin, sponsors a pension plan for its approximately
160
employees, in conformance with Swiss pension law. The plan is funded with a
reputable (S&P rating AA-) Swiss insurer. Through the insurance contract,
the Company has effectively transferred all investment and mortality risk to
the
insurance company, which guarantees the federally mandated annual rate of return
and the conversion rate at retirement. As a result, the plan has no unfunded
liability; the interest cost is exactly offset by actual return. Thus, the
net
periodic cost is equal to the amount of annual premium paid by the Company.
For
fiscal years 2008, 2007 and 2006, the Company reported premium payments equal
to
$0.5 million, $0.5 million, and $0.4 million, respectively.
The
postretirement health care plans are unfunded and costs are paid as incurred.
Postretirement benefit obligations as of March 29, 2008 and March 31, 2007
were, respectively, $2.9 million ($2.6 million in “Other non-current
liabilities” and $0.3 million in “Current liabilities”) and $2.7 million
($2.5 million in “Other non-current liabilities” and $0.2 million in “Current
liabilities”) in our Consolidated Balance Sheet.
31
Our
(income) expense for the Postretirement Plans was $0.2 million and $(0.3)
million for the years ended March 29, 2008 and March 31, 2007, respectively,
and
was calculated based upon a number of actuarial assumptions. The income for
the
year ended March 31, 2007 was primarily the result of a gain on the curtailment
of two of the plans.
We
use a
March 31 measurement date for our plans. We expect to contribute
approximately $0.3 million to our postretirement benefit plans in fiscal
year 2009.
Stock-Based
Compensation.
Effective April 2, 2006, the first day of the Company’s 2007 fiscal year, we
adopted SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) requires that
the compensation cost relating to all share-based payment transactions be
recognized in the financial statements. That cost is measured based upon the
grant-date fair value of the instruments issued recognized over the requisite
service period. We have elected to use the “modified prospective” method in
adopting SFAS No. 123(R). Accordingly, after the effective date, compensation
cost is recognized based on the requirements of SFAS No. 123(R) (all awards
granted to employees prior to the effective date of SFAS No. 123(R) were
accelerated in fiscal 2006 and have no compensation cost impact after the
effective date). Results for periods prior to fiscal 2007 have not been
restated.
The
fair
value for our options was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted-average
assumptions:
|
Fiscal
Year Ended
|
||||||||||
|
March 29,
2008
|
March 31,
2007
|
April 1,
2006
|
||||||||
|
Dividend
yield
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
||||
|
Expected
weighted-average life
|
5.0
|
4.9
|
7.0
|
|||||||
|
Risk-free
interest rate
|
5.0
|
%
|
5.0
|
%
|
3.5
|
%
|
||||
|
Expected
volatility
|
35.4
|
%
|
34.4
|
%
|
32.0
|
%
|
||||
The
Black-Scholes option pricing model was developed for use in estimating the
fair
value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
our options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, the existing models do not necessarily provide
a
reliable single measure of the fair value of our options.
Derivative
Instruments.
We
account for derivative instruments in accordance with SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities”, as amended. We recognize all
derivatives on the balance sheet at fair value. Derivatives that are not
designated as hedges must be adjusted to fair value through earnings. If the
derivative is designated and qualifies as a hedge, depending on the nature
of
the hedge, changes in the fair value of the derivative is either offset against
the change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive loss until the hedged
item
is recognized in earnings. In fiscal 2008, we entered into an interest rate
swap
agreement to hedge a portion of our debt. This instrument qualifies as a cash
flow hedge. Accordingly, the gain or loss on both the hedging instrument and
the
hedged item attributable to the hedged risk are recognized currently in other
comprehensive income.
Impact
of Inflation, Changes in Prices of Raw Materials and Interest Rate
Fluctuations
To
date,
inflation in the economy as a whole has not significantly affected our
operations. However, we purchase steel at market prices, which during the past
three years have increased to historical highs as a result of a relatively
low
level of supply and a relatively high level of demand. To date, we have
generally been able to pass through these price increases through price
increases on our products, the assessment of steel surcharges on our customers
or entry into long-term agreements with our customers which often contain
escalator provisions tied to our invoiced price of steel. However, even if
we
are able to pass these steel surcharges or price increases to our customers,
there may be a time lag of up to 3 months or more between the time a price
increase goes into effect and our ability to implement surcharges or price
increases, particularly for orders already in our backlog. As a result, our
gross margin percentage may decline, and we may not be able to implement other
price increases for our products.
Competitive
pressures and the terms of certain of our long-term contracts may require us
to
absorb at least part of these cost increases, particularly during periods of
high inflation. Our principal raw material is 440c and 52100 wire and rod steel
(types of stainless and chrome steel), which has historically been readily
available. Recently, because of extraordinarily high demand for certain grades
of steel, suppliers have in some instances allocated certain types of steel
in
limited quantities to customers. However, to date, we have never experienced
a
work stoppage due to a supply shortage. We maintain multiple sources for raw
materials including steel and have various supplier agreements. Through
sole-source arrangements, supplier agreements and pricing, we have been able
to
minimize our exposure to fluctuations in raw material prices.
32
Our
suppliers and sources of raw materials are based in the U.S., Europe and
Asia. We believe that our sources are adequate for our needs in the foreseeable
future, that there exist alternative suppliers for our raw materials and that
in
most cases readily available alternative materials can be used for most of
our
raw materials.
Because
we have indebtedness which bears interest at floating rates, our financial
results will be sensitive to changes in prevailing market rates of interest.
As
of March 29, 2008, we had $57.8 million of indebtedness outstanding, of which
$26.5 million bore interest at floating rates after taking into account an
interest rate swap agreement that we entered into to mitigate the effect of
interest rate fluctuations. Under this agreement, we pay a fixed rate of
interest of 3.64% and receive floating rates of interest based on one month
LIBOR, as required. This agreement matures on June 24, 2011. Depending upon
market conditions, we may enter into additional interest swap or hedge
agreements (with counterparties that, in our judgment, have sufficient credit
worthiness) to hedge our exposure against interest rate volatility
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We
are
exposed to market risks, which arise during the normal course of business from
changes in interest rates and foreign currency exchange rates.
Interest
Rates.
We are
exposed to market risk from changes in the interest rates on a significant
portion of our outstanding indebtedness. Outstanding balances under our KeyBank
Credit Agreement generally bear interest at the prime rate or LIBOR (the London
inter-bank offered rate for deposits in U.S. dollars for the applicable LIBOR
period) plus a specified margin, depending on the type of borrowing being made.
The applicable margin is based on our consolidated ratio of net debt to adjusted
EBITDA from time to time. As of March 29, 2008, our margin is 0.0% for prime
rate loans (prime rate at March 29, 2008 was 5.25%) and 0.625% for LIBOR rate
loans (one month LIBOR rate at March 29, 2008 was 2.65%).
Our
interest rate risk management objective is to limit the impact of interest
rate
changes on our net income and cash flow. To achieve our objective, we regularly
evaluate the amount of our variable rate debt as a percentage of our aggregate
debt. During fiscal 2008 and 2007, our average outstanding variable rate debt,
after taking into account the average outstanding notational amount of our
interest rate swap agreement, was 46% and 99% of our average outstanding debt,
respectively. We manage a significant portion of our exposure to interest rate
fluctuations in our variable rate debt through an interest rate swap agreement.
This agreement effectively converts interest rate exposure from variable rates
to fixed rates of interest. Please read Notes 2 and 10 to our Consolidated
Financial Statements for the year ended March 29, 2008 included elsewhere in
this Annual Report which outline the principal and notional interest rates,
fair
values and other terms required to evaluate the expected cash flow from this
agreement.
Based
on
the outstanding amount of our variable rate indebtedness of $26.5 million,
a 100
basis point change in interest rate would have changed our interest expense
by
$0.3 million per year, after taking into account the $30.0 million notional
amount of our interest rate swap agreement at March 29, 2008.
Foreign
Currency Exchange Rates.
As a
result of increased sales in Europe, our exposure to risk associated with
fluctuating currency exchange rates between the U.S. dollar, the Euro, the
Swiss Franc and the British Pound Sterling has increased. Our Swiss operations
utilize the Swiss Franc as the functional currency, our French operations
utilize the Euro as the functional currency and our English operations utilize
the British Pound Sterling as the functional currency. Foreign currency
transaction gains and losses are included in earnings. Approximately 16% of
our
net sales were denominated in foreign currencies for fiscal 2008 compared to
14%
in fiscal 2007. We expect that this proportion is likely to increase as we
seek
to increase our penetration of foreign markets, particularly within the
aerospace and defense markets. Foreign currency transaction exposure arises
primarily from the transfer of foreign currency from one subsidiary to another
within the group, and to foreign currency denominated trade receivables.
Unrealized currency translation gains and losses are recognized upon translation
of the foreign subsidiaries’ balance sheets to U.S. dollars. Because our
financial statements are denominated in U.S. dollars, changes in currency
exchange rates between the U.S. dollar and other currencies have had, and
will continue to have, an impact on our earnings. We currently do not have
exchange rate hedges in place to reduce the risk of an adverse currency exchange
movement. Although currency fluctuations have not had a material impact on
our
financial performance in the past, such fluctuations may materially affect
our
financial performance in the future. The impact of future exchange rate
fluctuations on our results of operations cannot be accurately
predicted.
33
Off-Balance
Sheet Arrangements
We
have
no off-balance sheet arrangements.
34
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders
RBC
Bearings Incorporated
We
have
audited the accompanying consolidated balance sheets of RBC Bearings
Incorporated as of March 29, 2008 and March 31, 2007, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income, and cash flows for each of the three years in the period ended March
29,
2008. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of RBC Bearings
Incorporated at March 29, 2008 and March 31, 2007, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 29, 2008, in conformity with U.S. generally accepted accounting
principles.
As
discussed in Notes 2 and 13 to the consolidated financial statements, effective
April 2, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123(R), “Share-Based Payment,” using the modified
prospective transition method, effective March 31, 2007, adopted the provisions
of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans,” and, effective
April 1, 2007, adopted Financial Accounting Standards Board Interpretation
No.
48 “Accounting for Uncertainty in Income Taxes - an Interpretation of Statement
of Financial Accounting Standards No. 109.”
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of RBC Bearings
Incorporated’s internal control over financial reporting as of March 29, 2008,
based on criteria established in Internal Control-Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission, and
our
report dated May 22, 2008 expressed an unqualified opinion thereon.
|
/s/
Ernst & Young LLP
|
Hartford,
Connecticut
May
22,
2008
35
RBC
Bearings Incorporated
Consolidated
Balance Sheets
(dollars
in thousands, except share and per share data)
|
March
29,
2008
|
March
31,
2007
|
||||||
|
ASSETS
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
|
$
|
9,859
|
$
|
5,184
|
|||
|
Accounts
receivable, net of allowance for doubtful accounts of $1,018
in 2008 and $867 in 2007
|
66,137
|
54,636
|
|||||
|
Inventory
|
123,820
|
103,022
|
|||||
|
Deferred
income taxes
|
5,567
|
7,115
|
|||||
|
Prepaid
expenses and other current assets
|
9,976
|
2,914
|
|||||
|
Total
current assets
|
215,359
|
172,871
|
|||||
|
Property,
plant and equipment, net
|
73,243
|
61,209
|
|||||
|
Goodwill
|
31,821
|
29,631
|
|||||
|
Intangible
assets, net of accumulated amortization of $3,583 in 2008
and $2,329 in 2007
|
11,404
|
5,793
|
|||||
|
Other
assets
|
5,285
|
4,209
|
|||||
|
Total
assets
|
$
|
337,112
|
$
|
273,713
|
|||
See
accompanying notes.
36
RBC
Bearings Incorporated
Consolidated
Balance Sheets (continued)
(dollars
in thousands, except share and per share data)
|
March
29,
2008
|
March
31,
2007
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
24,851
|
$
|
21,299
|
|||
|
Accrued
expenses and other current liabilities
|
13,489
|
11,852
|
|||||
|
Current
portion of long-term debt
|
750
|
750
|
|||||
|
Total
current liabilities
|
39,090
|
33,901
|
|||||
|
Long-term
debt, less current portion
|
57,000
|
58,655
|
|||||
|
Deferred
income taxes
|
6,064
|
6,479
|
|||||
|
Other
non-current liabilities
|
11,048
|
6,507
|
|||||
|
Total
liabilities
|
113,202
|
105,542
|
|||||
|
Commitments
and contingencies (Note 17)
|
|||||||
|
Stockholders'
equity:
|
|||||||
|
Preferred
stock, $.01 par value; authorized shares: 10,000,000 in 2008 and
2007;
none issued and outstanding
|
—
|
—
|
|||||
|
Common
stock, $.01 par value; authorized shares: 60,000,000 in 2008 and
2007;
issued and outstanding shares: 21,782,186 in 2008 and 21,408,994
in
2007
|
218
|
214
|
|||||
|
Additional
paid-in capital
|
184,285
|
169,489
|
|||||
|
Accumulated
other comprehensive income (loss)
|
1,312
|
(2,206
|
)
|
||||
|
Retained
earnings
|
41,688
|
1,724
|
|||||
|
Treasury
stock, at cost, 113,322 shares in 2008 and 37,356 shares in
2007
|
(3,593
|
)
|
(1,050
|
)
|
|||
|
Total
stockholders' equity
|
223,910
|
168,171
|
|||||
|
Total
liabilities and stockholders' equity
|
$
|
337,112
|
$
|
273,713
|
|||
See
accompanying notes.
37
RBC
Bearings Incorporated
Consolidated
Statements of Operations
(dollars
in thousands, except share and per share data)
|
Fiscal
Year Ended
|
||||||||||
|
March
29,
2008
|
March
31,
2007
|
April
1,
2006
|
||||||||
|
Net
sales
|
$
|
330,600
|
$
|
306,062
|
$
|
274,509
|
||||
|
Cost
of sales
|
217,022
|
205,953
|
191,561
|
|||||||
|
Gross
margin
|
113,578
|
100,109
|
82,948
|
|||||||
|
Operating
expenses:
|
||||||||||
|
Selling,
general and administrative
|
48,904
|
42,256
|
41,945
|
|||||||
|
Other,
net
|
1,824
|
5,934
|
2,424
|
|||||||
|
Total
operating expenses
|
50,728
|
48,190
|
44,369
|
|||||||
|
Operating
income
|
62,850
|
51,919
|
38,579
|
|||||||
|
Interest
expense, net
|
3,407
|
5,780
|
15,657
|
|||||||
|
Loss
on early extinguishment of debt
|
27
|
3,576
|
3,771
|
|||||||
|
Other
non-operating expense (income)
|
(463
|
)
|
(1,504
|
)
|
78
|
|||||
|
Income
before income taxes
|
59,879
|
44,067
|
19,073
|
|||||||
|
Provision
for income taxes
|
19,685
|
15,588
|
6,634
|
|||||||
|
Net
income
|
40,194
|
28,479
|
12,439
|
|||||||
|
Preferred
stock dividends
|
—
|
—
|
(893
|
)
|
||||||
|
Participation
rights of preferred stock in undistributed earnings
|
—
|
—
|
(630
|
)
|
||||||
|
Net
income available to common stockholders
|
$
|
40,194
|
$
|
28,479
|
$
|
10,916
|
||||
|
Net
income per common share:
|
||||||||||
|
Basic
|
$
|
1.87
|
$
|
1.38
|
$
|
0.84
|
||||
|
Diluted
|
$
|
1.84
|
$
|
1.33
|
$
|
0.76
|
||||
|
Weighted
average common shares:
|
||||||||||
|
Basic
|
21,457,846
|
20,579,498
|
12,931,185
|
|||||||
|
Diluted
|
21,802,711
|
21,335,307
|
14,452,264
|
|||||||
See
accompanying notes.
38
RBC
Bearings Incorporated
Consolidated
Statements of Stockholders' Equity and Comprehensive Income
(dollars
in thousands)
|
Class
B
Preferred
Stock
|
Class
C
Preferred
Stock
|
Class
D
Preferred
Stock
|
Common
Stock
|
Additional
Paid-in
|
Deferred
|
Accumulated
Other
Comprehensive
|
Retained
Earnings
(Accumulated
|
Treasury
Stock
|
Total
Stockholders'
|
Comprehensive
|
||||||||||||||||||||||||||||||
|
Amount
|
Amount
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Income/(Loss)
|
Deficit)
|
Shares
|
Amount
|
Equity
|
Income
|
||||||||||||||||||||||||||||
|
Balance
at April 2, 2005
|
$
|
2
|
$
|
—
|
$
|
—
|
6,202,769
|
$
|
62
|
$
|
34,252
|
$
|
(349
|
)
|
$
|
(2,532
|
)
|
$
|
(39,194
|
)
|
—
|
$
|
—
|
$
|
(7,759
|
)
|
|
|||||||||||||
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
12,439
|
—
|
—
|
12,439
|
$
|
12,439
|
||||||||||||||||||||||||||
|
Stock
compensation charge for options granted at below market
value
|
—
|
—
|
—
|
—
|
—
|
16
|
(16
|
)
|
—
|
—
|
—
|
—
|
—
|
|
||||||||||||||||||||||||||
|
Amortization
of deferred stock compensation
|
—
|
—
|
—
|
—
|
—
|
—
|
365
|
—
|
—
|
—
|
—
|
365
|
|
|||||||||||||||||||||||||||
|
Conversion
of Class B preferred stock
|
(2
|
)
|
3
|
2
|
1,846,396
|
19
|
(22
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
|
|||||||||||||||||||||||||
|
Redemption
of Class C preferred stock
|
—
|
(3
|
)
|
—
|
—
|
—
|
(30,627
|
)
|
—
|
—
|
—
|
—
|
—
|
(30,630
|
)
|
|
||||||||||||||||||||||||
|
Redemption
of Class D preferred stock
|
—
|
—
|
(2
|
)
|
275,863
|
3
|
(4,001
|
)
|
—
|
—
|
—
|
—
|
—
|
(4,000
|
)
|
|
||||||||||||||||||||||||
|
Net
proceeds from issuance of common stock
|
—
|
—
|
—
|
7,034,516
|
70
|
92,058
|
|
—
|
—
|
—
|
—
|
92,128
|
|
|||||||||||||||||||||||||||
|
Exercise
of common stock options and warrants
|
—
|
—
|
—
|
139,284
|
1
|
497
|
—
|
—
|
—
|
—
|
—
|
498
|
|
|||||||||||||||||||||||||||
|
Income
tax benefit on IRS settlement
|
—
|
—
|
—
|
—
|
—
|
2,478
|
—
|
—
|
—
|
—
|
—
|
2,478
|
|
|||||||||||||||||||||||||||
|
Cashless
exercise of common stock options and warrants
|
—
|
—
|
—
|
1,477,553
|
15
|
(15
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
|
||||||||||||||||||||||||||
|
Income
tax benefit on exercise of non-qualified common stock
options and
warrants
|
—
|
—
|
—
|
—
|
—
|
8,681
|
—
|
—
|
—
|
—
|
—
|
8,681
|
|
|||||||||||||||||||||||||||
|
Currency
translation adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(569
|
)
|
—
|
—
|
—
|
(569
|
)
|
(569
|
)
|
||||||||||||||||||||||||
|
Minimum
pension liability adjustment, net of taxes of $223
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(291
|
)
|
—
|
—
|
—
|
(291
|
)
|
(291
|
)
|
||||||||||||||||||||||||
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,579
|
||||||||||||||||||||||||||
|
Balance
at April 1, 2006
|
—
|
—
|
—
|
16,976,381
|
170
|
103,317
|
—
|
(3,392
|
)
|
(26,755
|
)
|
—
|
—
|
73,340
|
|
|||||||||||||||||||||||||
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
28,479
|
—
|
—
|
28,479
|
$
|
28,479
|
||||||||||||||||||||||||||
|
Net
proceeds from issuance of common stock
|
—
|
—
|
—
|
2,994,021
|
30
|
57,794
|
|
—
|
—
|
—
|
—
|
57,824
|
|
|||||||||||||||||||||||||||
|
Repurchase
of common stock
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(37,356
|
)
|
(1,050
|
)
|
(1,050
|
)
|
|
||||||||||||||||||||||||
|
Stock-based
compensation
|
—
|
—
|
—
|
—
|
—
|
767
|
—
|
—
|
—
|
—
|
—
|
767
|
|
|||||||||||||||||||||||||||
|
Exercise
of common stock options
|
—
|
—
|
—
|
1,362,917
|
13
|
3,077
|
—
|
—
|
—
|
—
|
—
|
3,090
|
|
|||||||||||||||||||||||||||
|
Issuance
of restricted stock
|
—
|
—
|
—
|
75,675
|
1
|
—
|
—
|
—
|
—
|
—
|
—
|
1
|
|
|||||||||||||||||||||||||||
|
Income
tax benefit on IRS settlement
|
—
|
—
|
—
|
—
|
—
|
1,122
|
—
|
—
|
—
|
—
|
—
|
1,122
|
|
|||||||||||||||||||||||||||
|
Income
tax benefit realized on exercise of non-qualified common
stock
options
|
—
|
—
|
—
|
—
|
—
|
3,412
|
—
|
—
|
—
|
—
|
—
|
3,412
|
|
|||||||||||||||||||||||||||
|
Minimum
pension liability adjustment, net of taxes of $549
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
887
|
—
|
—
|
—
|
887
|
887
|
|||||||||||||||||||||||||||
|
Currency
translation adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
908
|
—
|
—
|
—
|
908
|
908
|
|||||||||||||||||||||||||||
|
Adoption
of SFAS No. 158, net of taxes of $377
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(609
|
)
|
—
|
|
|
(609
|
)
|
|
|||||||||||||||||||||||||
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,274
|
||||||||||||||||||||||||||
|
Balance
at March 31, 2007
|
—
|
—
|
—
|
21,408,994
|
214
|
169,489
|
$
|
—
|
(2,206
|
)
|
1,724
|
(37,356
|
)
|
(1,050
|
)
|
168,171
|
|
|||||||||||||||||||||||
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
40,194
|
—
|
—
|
40,194
|
$
|
40,194
|
||||||||||||||||||||||||||
|
Repurchase
of common stock
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(70,367
|
)
|
(2,308
|
)
|
(2,308
|
)
|
|
||||||||||||||||||||||||
|
Stock-based
compensation
|
—
|
—
|
—
|
—
|
—
|
1,255
|
—
|
—
|
—
|
—
|
—
|
1,255
|
|
|||||||||||||||||||||||||||
|
Exercise
of equity awards
|
—
|
—
|
—
|
323,942
|
3
|
4,036
|
—
|
—
|
—
|
(5,599
|
)
|
(235
|
)
|
3,804
|
|
|||||||||||||||||||||||||
|
Change
in net prior service cost and actuarial losses, net
of tax benefit of
$199
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(322
|
)
|
—
|
—
|
—
|
(322
|
)
|
(322
|
)
|
||||||||||||||||||||||||
|
Issuance
of restricted stock
|
—
|
—
|
—
|
49,250
|
1
|
—
|
—
|
—
|
—
|
—
|
—
|
1
|
|
|||||||||||||||||||||||||||
|
Change
in fair value of derivatives, net of tax benefit of
$288
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(464
|
)
|
—
|
—
|
—
|
(464
|
)
|
(464
|
)
|
||||||||||||||||||||||||
|
Income
tax benefit on exercise of non-qualified common stock
options
|
—
|
—
|
—
|
—
|
—
|
9,505
|
—
|
—
|
—
|
—
|
—
|
9,505
|
|
|||||||||||||||||||||||||||
|
Currency
translation adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
4,304
|
—
|
—
|
—
|
4,304
|
4,304
|
|||||||||||||||||||||||||||
|
Adoption
of FIN 48
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(230
|
)
|
—
|
—
|
(230
|
)
|
|
|||||||||||||||||||||||||
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,
712
|
||||||||||||||||||||||||||
|
Balance
at March 29, 2008
|
$
|
—
|
$
|
—
|
$
|
—
|
21,782,186
|
$
|
218
|
$
|
184,285
|
$
|
—
|
$
|
1,312
|
$
|
41,688
|
(113,322
|
)
|
$
|
(3,593
|
)
|
$
|
223,910
|
|
|||||||||||||||
See
accompanying notes.
39
RBC
Bearings Incorporated
Consolidated
Statements of Cash Flows
(dollars
in thousands)
|
Fiscal Year Ended
|
||||||||||
|
March 29,
2008
|
March 31,
2007
|
April 1,
2006
|
||||||||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
income
|
$
|
40,194
|
$
|
28,479
|
$
|
12,439
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||
|
Depreciation
|
9,211
|
8,933
|
8,664
|
|||||||
|
Excess
tax benefits from stock-based compensation
|
(9,505
|
)
|
(3,412
|
)
|
—
|
|||||
|
Deferred
income taxes
|
1,110
|
9,282
|
3,956
|
|||||||
|
Amortization
of intangible assets
|
1,254
|
713
|
667
|
|||||||
|
Amortization
of deferred financing costs and debt discount
|
229
|
353
|
829
|
|||||||
|
Stock-based
compensation
|
1,255
|
767
|
365
|
|||||||
|
Loss
on disposition of assets
|
131
|
1,917
|
24
|
|||||||
|
Loss
on early extinguishment of debt (non-cash portion)
|
27
|
3,576
|
1,536
|
|||||||
|
Other
|
—
|
(169
|
)
|
20
|
||||||
|
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||||
|
Accounts
receivable
|
(6,241
|
)
|
(1,215
|
)
|
2,713
|
|||||
|
Inventory
|
(11,737
|
)
|
2,489
|
(8,025
|
)
|
|||||
|
Prepaid
expenses and other current assets
|
(6,996
|
)
|
(401
|
)
|
246
|
|||||
|
Other
non-current assets
|
(2,189
|
)
|
37
|
298
|
||||||
|
Accounts
payable
|
341
|
917
|
470
|
|||||||
|
Accrued
expenses and other current liabilities
|
6,553
|
4,738
|
(224
|
)
|
||||||
|
Other
non-current liabilities
|
3,440
|
(1,269
|
)
|
664
|
||||||
|
Net
cash provided by operating activities
|
27,077
|
55,735
|
24,642
|
|||||||
|
Cash
flows from investing activities:
|
||||||||||
|
Purchase
of property, plant and equipment
|
(17,758
|
)
|
(16,174
|
)
|
(10,341
|
)
|
||||
|
Acquisition
of businesses, net of cash acquired
|
(13,896
|
)
|
(8,753
|
)
|
(2,682
|
)
|
||||
|
Proceeds
from sale of assets
|
43
|
3,574
|
44
|
|||||||
|
Net
cash used in investing activities
|
(31,611
|
)
|
(21,353
|
)
|
(12,979
|
)
|
||||
|
Cash
flows from financing activities:
|
||||||||||
|
Net
increase (decrease) in revolving credit facility
|
(1,000
|
)
|
42,000
|
(5,000
|
)
|
|||||
|
Net
proceeds from sale of stock in initial public offering
|
—
|
—
|
92,128
|
|||||||
|
Net
proceeds from issuance of common stock
|
—
|
57,824
|
—
|
|||||||
|
Repurchase
of common stock
|
(2,542
|
)
|
(1,050
|
)
|
—
|
|||||
|
Redemption
of Class C redeemable preferred stock
|
—
|
—
|
(30,630
|
)
|
||||||
|
Redemption
of Class D preferred stock
|
—
|
—
|
(4,000
|
)
|
||||||
|
Exercise
of stock options
|
4,038
|
3,090
|
498
|
|||||||
|
Excess
tax benefits from stock-based compensation
|
9,505
|
3,412
|
—
|
|||||||
|
Proceeds
from term loans
|
—
|
—
|
41,100
|
|||||||
|
Retirement
of senior subordinated discount debentures
|
—
|
—
|
(38,562
|
)
|
||||||
|
Retirement
of industrial revenue bonds
|
(1,155
|
)
|
—
|
—
|
||||||
|
Retirement
of term loans
|
—
|
(144,875
|
)
|
(45,000
|
)
|
|||||
|
Payments
on term loans
|
—
|
(4,654
|
)
|
(7,054
|
)
|
|||||
|
Principal
payments on capital lease obligations
|
(189
|
)
|
(317
|
)
|
(257
|
)
|
||||
|
Financing
fees paid in connection with senior credit facility
|
(65
|
)
|
(903
|
)
|
(1,312
|
)
|
||||
|
Net
cash provided by (used in) financing activities
|
8,592
|
(45,473
|
)
|
1,911
|
||||||
|
Effect
of exchange rate changes on cash
|
617
|
149
|
(83
|
)
|
||||||
|
Cash
and cash equivalents:
|
||||||||||
|
Increase
(decrease) during the year
|
4,675
|
(10,942
|
)
|
13,491
|
||||||
|
Cash,
at beginning of year
|
5,184
|
16,126
|
2,635
|
|||||||
|
Cash,
at end of year
|
$
|
9,859
|
$
|
5,184
|
$
|
16,126
|
||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||
|
Cash
paid during the year for:
|
||||||||||
|
Interest
|
$
|
3,065
|
$
|
5,929
|
$
|
17,135
|
||||
|
Income
taxes
|
$
|
11,396
|
$
|
780
|
$
|
892
|
||||
See
accompanying notes.
40
RBC
Bearings Incorporated
Notes
to Consolidated Financial Statements
(dollars
in thousands, except share and per share data)
1. Organization
and Business
RBC
Bearings Incorporated (the "Company", collectively with its subsidiaries),
is a
Delaware corporation. The Company operates in four reportable business
segments—roller bearings, plain bearings, ball bearings, other and corporate—in
which it manufactures roller bearing components and assembled parts and designs
and manufactures high-precision roller and ball bearings. The Company sells
to a
wide variety of original equipment manufacturers ("OEMs") and distributors
who
are widely dispersed geographically. In fiscal 2008, 2007 and 2006, no one
customer accounted for more than 8% of the Company's sales. The Company's
segments are further discussed in Note 21.
On
August 15, 2005, pursuant to a purchase agreement with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, KeyBanc Capital Markets and Jefferies &
Company, Inc., the Company and the selling stockholders sold 10,531,200
shares of the Company's common stock (3,496,684 sold by the selling
stockholders). The offering yielded aggregate net proceeds to the Company
of
$92,128 after payment of the underwriting discount and offering expenses.
After
redemption of the Company's Class C and Class D preferred stock for
$34,630, the net proceeds to the Company were $57,498. Immediately prior
to the
consummation of the initial public offering, all outstanding shares of
Class B preferred stock were converted in accordance with their terms into
1,846,396 shares of Class A common stock, 306,298 shares of Class C
preferred stock and 240,000 shares of Class D preferred stock. All shares
of Class C and Class D preferred stock were redeemed with cash or
common stock and all shares of Class A and Class B common stock were
reclassified as common stock on a one-for-one basis. In connection with the
initial public offering, the Company filed an Amended and Restated Certificate
of Incorporation (the "Amendment"). The Amendment increased the Company's
authorized capital stock to 70,000,000 shares, (i) 60,000,000 of which is
common stock, $0.01 par value per share, and (ii) 10,000,000 of which is
preferred stock, $0.01 par value per share.
The
proceeds of the offering and additional term loan borrowings under the Amended
Credit Agreement (as discussed in Note 10) were used as follows:
(1) to redeem all of the Company's outstanding 13% senior subordinated
discount debentures by payment to the Bank of New York, as trustee for the
holders of debentures, of a total payoff amount of approximately $40,000;
(2) to redeem 293,536 shares of Class C Preferred Stock held by
Whitney RBHC Investor, LLC ("Whitney") for an aggregate redemption price
of
$29,354; (3) to redeem 12,762 shares of Class C Preferred Stock held
by Dr. Michael Hartnett for an aggregate redemption price of $1,276;
(4) to repurchase 230,000 shares of Class D Preferred Stock held by
Whitney for an aggregate repurchase price of $7,667, of which $3,833 was
paid in
cash out of the proceeds of the offering and term loan borrowings and the
balance of which was paid by issuance of 264,368 shares of Common Stock;
(5) to repurchase 10,000 shares of Class D Preferred Stock held by
Hartnett for an aggregate repurchase price of $333, of which $167 was paid
in
cash out of the proceeds of the offering and term loan borrowings, and the
balance of which was paid by issuance of 11,495 shares of Common Stock;
(6) to repay approximately $45,000 of indebtedness under the Company's
second lien term loan credit facility, which represented repayment in full
of
all amounts owing under such facility, plus approximately $1,400 in fees
and
expenses in connection with such repayment and amendment; (7) to pay
approximately $5,000 in mandatory prepayments under the Company's credit
facility in connection with the initial public offering; and (8) to
pay $2,732 in legal, printing, accounting and other miscellaneous expenses
payable in connection with the initial public offering.
On
April 18, 2006, pursuant to a purchase agreement with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, KeyBanc Capital Markets and Robert W. Baird & Co., the
Company, along with certain of its stockholders, sold 8,989,550 shares of
our
common stock (5,995,529 sold by certain of its stockholders). The offering
yielded the Company aggregate net proceeds of approximately $57,000 after
payment of the underwriting discount, commissions and offering expenses.
The
full amount of the net proceeds were used to prepay outstanding balances
under a
term loan outstanding at that time.
2. Summary
of Significant Accounting Policies
General
The
consolidated financial statements include the accounts of RBC Bearings
Incorporated, Roller Bearing Company of America, Inc. (“RBCA”) and its
wholly-owned subsidiaries, Industrial Tectonics Bearings Corporation (“ITB”),
RBC Linear Precision Products, Inc. (“LPP”), RBC Nice Bearings, Inc.
(“Nice”), RBC Precision Products - Bremen, Inc. (“Bremen (MBC)”), RBC
Precision Products - Plymouth, Inc. (“Plymouth”), Tyson Bearings, Inc.
(“Tyson”), Schaublin Holdings S.A. and its wholly-owned subsidiaries
(“Schaublin”), RBC de Mexico S DE RL DE CV (“Mexico”), RBC Oklahoma, Inc.
(“RBC Oklahoma”), RBC Aircraft Products, Inc. (“API”), Shanghai
Representative office of Roller Bearing Company of America, Inc. (“RBC
Shanghai”), RBC Southwest Products, Inc. (“SWP”), All Power Manufacturing Co.
(“All Power”), RBC Bearings U.K. Limited and its wholly-owned subsidiary Phoenix
Bearings Limited (“Phoenix”) and RBC CBS Coastal Bearing Services LLC (“CBS”),
as well as its Transport Dynamics (“TDC”), Heim (“Heim”), Engineered Components
(“ECD”), A.I.D. Company (“AID”) and BEMD Company (“BEMD”) divisions. U.S.
Bearings (“USB”) is a division of SWP and Schaublin USA is a division of Nice.
All material intercompany balances and transactions have been eliminated
in
consolidation.
41
The
Company has a fiscal year consisting of 52 or 53 weeks, ending on the Saturday
closest to March 31. Based on this policy, fiscal years 2008, 2007 and 2006
contained 52 weeks.
Certain
reclassifications have been made to prior years’ financial statements to conform
with current year presentation.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial statements,
and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Estimates are used for,
but
not limited to, the accounting for the allowance for doubtful accounts,
valuation of inventories, accrued expenses, depreciation and amortization,
income taxes and tax valuation reserves, pension and postretirement obligations
and the valuation of options.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventory
Inventories
are stated at the lower of cost or market, using the first-in, first-out
method.
A reserve against inventory is recorded for obsolete and slow-moving inventory
within each class of inventory.
Shipping
and Handling
The
sales
price billed to customers includes shipping and handling, which is included
in
net sales. The costs to the Company for shipping and handling are included
in
cost of sales.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. Depreciation and amortization of
property, plant and equipment, including equipment under capital leases,
is
provided for by the straight-line method over the estimated useful lives
of the
respective assets or the lease term, if shorter. Amortization of assets under
capital leases is reported within depreciation and amortization. The cost
of
equipment under capital leases is equal to the lower of the net present value
of
the minimum lease payments or the fair market value of the leased equipment
at
the inception of the lease. Expenditures for normal maintenance and repairs
are
charged to expense as incurred.
The
estimated useful lives of the Company's property, plant and equipment
follows:
|
Buildings
|
20-30
years
|
|
|
Machinery
and equipment
|
3-10
years
|
|
|
Leasehold
improvements
|
Shorter
of the term of lease or estimated useful
life
|
Recognition
of Revenue and Accounts Receivable and Concentration of Credit
Risk
The
Company recognizes revenue only after the following four basic criteria are
met:
|
·
|
Persuasive
evidence of an arrangement exists;
|
|
·
|
Delivery
has occurred or services have been
rendered;
|
|
·
|
The
seller's price to the buyer is fixed or determinable;
and
|
|
·
|
Collectibility
is reasonably assured.
|
42
Revenue
is recognized upon the passage of title, which generally is at the time of
shipment. Accounts receivable, net of applicable allowances, is recorded
when
goods are shipped.
The
Company sells to a large number of OEMs and distributors who service the
aftermarket. The Company's credit risk associated with accounts receivable
is
minimized due to its customer base and wide geographic dispersion. The Company
performs ongoing credit evaluations of its customers' financial condition
and
generally does not require collateral or charge interest on outstanding amounts.
At March 29, 2008 and March 31, 2007, the Company had no concentrations of
credit risk greater than 10% of accounts receivables.
Allowance
for Doubtful Accounts
The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments.
The
Company reviews the collectibility of its receivables on an ongoing basis
taking
into account a combination of factors. The Company reviews potential problems,
such as past due accounts, a bankruptcy filing or deterioration in the
customer's financial condition, to ensure the Company is adequately accrued
for
potential loss. Accounts are considered past due based on when payment was
originally due. If a customer's situation changes, such as a bankruptcy or
creditworthiness, or there is a change in the current economic climate, the
Company may modify its estimate of the allowance for doubtful accounts. The
Company will write-off accounts receivable after reasonable collection efforts
have been made and the accounts are deemed uncollectible.
Goodwill
Goodwill
(representing the excess of the amount paid to acquire a company over the
estimated fair value of the net assets acquired) and intangible assets with
indefinite useful lives are not amortized but instead are tested for impairment
annually, or when events or circumstances indicate that its value may have
declined. This determination of any goodwill impairment is made at the reporting
unit level and consists of two steps. First, the Company determines the fair
value of a reporting unit and compares it to its carrying amount. Second,
if the
carrying amount of the reporting unit exceeds its fair value, an impairment
loss
is recognized for any excess of the carrying amount of the reporting unit's
goodwill over the goodwill's implied fair value. The fair value of the Company’s
reporting units is calculated by comparing the weighted average of the net
present value of future cash flows and a market approach based on the reporting
units' carrying value. The Company utilizes discount rates determined by
management to be similar with the level of risk in its current business model.
The Company performs the annual impairment testing during the fourth quarter
of
each fiscal year and has determined that, to date, no impairment of goodwill
exists. Although no changes are expected, if the actual results of the Company
are less favorable than the assumptions the Company makes regarding estimated
cash flows, the Company may be required to record an impairment charge in
the
future.
Deferred
Financing Costs
Deferred
financing costs are amortized by the effective interest method over the lives
of
the related credit agreements.
Derivative
Financial Instruments
The
Company utilizes a derivative financial instrument to manage a portion of
its
interest rate exposure. The Company does not engage in other uses of these
financial instruments. For a financial instrument to qualify as a hedge,
the
Company must be exposed to interest rate or price risk, and the financial
instrument must reduce the exposure and be designated as a hedge. Financial
instruments qualifying for hedge accounting must maintain a high correlation
between the hedging instrument and the item being hedged, both at inception
and
throughout the hedged period.
The
Company accounts for derivative financial instruments under Statement of
Financial Accounting Standards, or SFAS, No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended and interpreted which requires
all derivatives to be recorded in the Consolidated Balance Sheets at their
fair
values. Changes in fair values of derivatives are recorded in each period
in
comprehensive income, since the derivative is designated and qualifies as
a cash
flow hedge.
43
Income
Taxes
The
Company accounts for income taxes using the liability method, which requires
it
to recognize a current tax liability or asset for current taxes payable or
refundable and a deferred tax liability or asset for the estimated future
tax
effects of temporary differences between the financial statement and tax
reporting bases of assets and liabilities to the extent that they are
realizable. Deferred tax expense (benefit) results from the net change in
deferred tax assets and liabilities during the year.
Temporary
differences relate primarily to the timing of deductions for depreciation,
goodwill amortization relating to the acquisition of operating divisions,
basis
differences arising from acquisition accounting, pension and retirement
benefits, and various accrued and prepaid expenses. Deferred tax assets and
liabilities are recorded at the rates expected to be in effect when the
temporary differences are expected to reverse.
The
Company adopted Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
Interpretation of SFAS No. 109,” (“FIN
48”),
as of the beginning of its 2008 fiscal year. This interpretation clarifies
the
accounting for uncertainty in income taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken on a tax return.
Under FIN 48, the Company first assesses whether it is more likely than not
that
an individual tax position will be sustained upon examination based on its
technical merits. If the tax position is more likely than not to be sustained,
under the presumption the taxing authority has all relevant information,
it is
recognized. The recognized tax position is measured as the largest benefit
that
is greater than 50% likely of being realized upon ultimate settlement.
Previously recognized tax positions that no longer meet the more likely than
not
recognition threshold are derecognized in the period in which that threshold
is
no longer met. Accordingly, the unit of account under FIN 48 is the individual
tax position and not a higher level such as the aggregate of the various
positions that are encompassed by the total tax return filing. As a result
of
the adoption of FIN 48, the Company recognized a $230 increase in its income
tax
liabilities and a reduction to the April 1, 2007 beginning balance of retained
earnings of $230 (see Note 15).
Net
Income Per Common Share
Basic
net
income per common share is computed by dividing net income available to common
stockholders (both Class A and Class B common stockholders share
equally in net income) by the weighted-average number of common shares
outstanding. Prior to August 15, 2005, the Company also had outstanding
Class B convertible participating preferred stock (the Class B
preferred stock participated in all undistributed earnings with the common
stock). The Company allocated earnings to the common stockholders and the
Class B convertible participating preferred stockholders under the
two-class method as required by Emerging Issues Task Force Issue No. 03-6,
"Participating Securities and the Two-Class Method under FASB Statement
No. 128." The two-class method is an earnings allocation method under which
basic net income per share is calculated for the Company's common stock and
its
Class B convertible participating preferred stock considering both accrued
preferred stock dividends and participation rights in undistributed earnings
as
if all such earnings had been distributed during the year. Since the Company's
Class B convertible participating preferred stock was not contractually
responsible to share in the Company's losses, in applying the two-class method
to compute basic net income per common share, no allocation was made to the
Class B preferred stock if a net loss existed or if an undistributed net
loss resulted from reducing net income by the accrued preferred stock
dividends.
Diluted
net income per common share is computed by dividing net income by the sum
of the
weighted-average number of common shares, dilutive common share equivalents
then
outstanding using the treasury stock method and, prior to August 15, 2005,
the
assumed conversion of the Class B convertible participating preferred stock
to common shares (if-converted method). If the if-converted method was
anti-dilutive (that is, the if-converted method resulted in a higher net
income
per common share amount than basic net income per share calculated under
the
two-class method), then the two-class method was used to compute diluted
net
income per common share, including the effect of common share equivalents.
Common share equivalents consist of the incremental common shares issuable
upon
the exercise of stock options.
44
The
table
below reflects the calculation of weighted-average shares outstanding for
each
year presented as well as the computation of basic and diluted net income
per
common share:
|
Fiscal Year Ended
|
||||||||||
|
March 29,
2008
|
March 31,
2007
|
April 1,
2006
|
||||||||
|
Numerator:
|
||||||||||
|
Net
income
|
$
|
40,194
|
$
|
28,479
|
$
|
12,439
|
||||
|
Preferred
stock dividends*
|
—
|
—
|
(893
|
)
|
||||||
|
Participation
rights of preferred stock in undistributed earnings
|
—
|
—
|
(630
|
)
|
||||||
|
Numerator
for basic and diluted net income per common share—income available to
common stockholders under the two-class method
|
40,194
|
28,479
|
10,916
|
|||||||
|
Preferred
stock dividends and participation rights of preferred
stock
|
—
|
—
|
1,523
|
|||||||
|
Numerator
for diluted net income per common share—income available to common
stockholders after assumed conversion of preferred stock
|
$
|
40,194
|
$
|
28,479
|
$
|
12,439
|
||||
|
Denominator:
|
||||||||||
|
Denominator
for basic net income per common share—weighted-average
shares
|
21,457,846
|
20,579,498
|
12,931,185
|
|||||||
|
Effect
of dilution due to employee stock options
|
344,865
|
755,809
|
866,725
|
|||||||
|
Effect
of dilution due to convertible preferred stock*
|
—
|
—
|
654,354
|
|||||||
|
Denominator
for diluted net income per common share—adjusted weighted-average
shares
|
21,802,711
|
21,335,307
|
14,452,264
|
|||||||
|
Basic
net income per common share
|
$
|
1.87
|
$
|
1.38
|
$
|
0.84
|
||||
|
Diluted
net income per common share
|
$
|
1.84
|
$
|
1.33
|
$
|
0.76
|
|
*
|
through
August 15, 2005 (see Note 1).
|
For
additional disclosures regarding the outstanding preferred stock and the
employee stock options, see Note 16.
Impairment
of Long-Lived Assets
The
Company assesses the net realizable value of its long-lived assets and evaluates
such assets for impairment whenever indicators of impairment are present.
For
amortizable long-lived assets to be held and used, if indicators of impairment
are present, management determines whether the sum of the estimated undiscounted
future cash flows is less than the carrying amount. The amount of asset
impairment, if any, is based on the excess of the carrying amount over its
fair
value, which is estimated based on projected discounted future operating
cash
flows using a discount rate reflecting the Company's average cost of funds.
To
date, no indicators of impairment exist.
Long-lived
assets to be disposed of by sale or other means are reported at the lower
of
carrying amount or fair value, less costs to sell.
Foreign
Currency Translation and Transactions
Assets
and liabilities of the Company's foreign operations are translated into U.S.
dollars using the exchange rate in effect at the balance sheet date. Results
of
operations are translated using the average exchange rate prevailing throughout
the period. The effects of exchange rate fluctuations on translating foreign
currency assets and liabilities into U.S. dollars are included in accumulated
other comprehensive income (loss), while gains and losses resulting from
foreign
currency transactions, which were not material for any of the fiscal years
presented, are included in other non-operating expense (income). Net income
of
the Company's foreign operations for fiscal 2008, 2007 and 2006 amounted
to
$6,950, $5,767, and $2,624, respectively. Net assets of the Company's foreign
operations were $47,155 and $30,208 at March 29, 2008 and March 31, 2007,
respectively.
Fair
Value of Financial Instruments
The
carrying amounts reported in the balance sheet for cash, accounts receivable,
prepaids and other current assets, and accounts payable and accruals approximate
their fair value.
The
carrying amounts of the Company's borrowings under its KeyBank Credit Agreement,
Swiss Credit Facility and Industrial Development Revenue Bonds approximate
fair
value, as these obligations have interest rates which vary in conjunction
with
current market conditions.
Accumulated
Other Comprehensive Income
The
components of comprehensive income that relate to the Company are net income,
derivatives, foreign currency translation adjustments and pension plan and
postretirement liability and after-tax impact of the adoption of SFAS No.
158 on
pension benefits, all of which are presented in the consolidated statements
of
stockholders' equity and comprehensive income.
45
The
following summarizes the activity within each component of accumulated other
comprehensive income:
|
Currency
Translation
|
Fair Value
of
Derivatives
|
Pension and
Postretirement
Liability
|
Total
|
||||||||||
|
Balance
at April 2, 2005
|
$
|
(816
|
)
|
$
|
—
|
$
|
(1,716
|
)
|
$
|
(2,532
|
)
|
||
|
Currency
translation
|
(569
|
)
|
—
|
—
|
(569
|
)
|
|||||||
|
Minimum
pension liability, net of taxes
|
—
|
—
|
(291
|
)
|
(291
|
)
|
|||||||
|
Balance
at April 1, 2006
|
(1,385
|
)
|
—
|
(2,007
|
)
|
(3,392
|
)
|
||||||
|
Currency
translation
|
908
|
—
|
—
|
908
|
|||||||||
|
Minimum
pension liability, net of taxes
|
—
|
—
|
887
|
887
|
|||||||||
|
Adoption
of SFAS No. 158, net of taxes
|
—
|
—
|
(609
|
)
|
(609
|
)
|
|||||||
|
Balance
at March 31, 2007
|
(477
|
)
|
—
|
(1,729
|
)
|
(2,206
|
)
|
||||||
|
Currency
translation
|
4,304
|
—
|
—
|
4,304
|
|||||||||
|
Change
in fair value of derivatives, net of taxes
|
—
|
(464
|
)
|
—
|
(464
|
)
|
|||||||
|
Net
prior service cost and actuarial losses, net of taxes
|
—
|
—
|
(322
|
)
|
(322
|
)
|
|||||||
|
Balance
at March 29, 2008
|
$
|
3,827
|
$
|
(464
|
)
|
$
|
(2,051
|
)
|
$
|
1,312
|
|||
Stock-Based
Compensation
Effective
April 2, 2006, the first day of the Company’s 2007 fiscal year, the Company
adopted SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) requires that
the compensation cost relating to all share-based payment transactions be
recognized in the financial statements. That cost is measured based upon
the
grant-date fair value of the instruments issued recognized over the requisite
service period. The Company elected to use the “modified prospective” method in
adopting SFAS No. 123(R). Accordingly, after the effective date, compensation
cost is recognized based on the requirements of SFAS No. 123(R) (the vesting
of
all awards granted to employees prior to the effective date of SFAS No. 123(R)
was accelerated in fiscal 2006 and has no compensation cost impact after
the
effective date). Results for periods prior to fiscal 2007 have not been
restated.
The
fair
value of each option grant was estimated on the date of grant using the
Black-Scholes pricing model. The Company, with the assistance of an outside
valuation firm, estimated the fair value of stock option grants made during
fiscal 2008 and fiscal 2007.
Prior
to
its adoption of SFAS No. 123(R), the Company accounted for options and warrants
granted to employees using the intrinsic value method pursuant to APB
No. 25, "Accounting for Stock Issued to Employees," under which
compensation cost was recognized only if the exercise price of grants issued
was
below the fair market value of the Company's common stock at the date of
grant.
Had compensation cost for these grants been determined based on the fair
value
at the grant dates consistent with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income would have been reduced
to
the following pro forma amounts:
|
Fiscal Year
Ended
|
||||
|
April
1,
2006
|
||||
|
Net
income, as reported
|
$
|
12,439
|
||
|
Plus:
stock-based compensation expense included in reported net income,
net of
tax
|
230
|
|||
|
Less:
stock-based compensation expense determined under fair value method,
net
of tax
|
(1,842
|
)
|
||
|
Pro
forma net income
|
$
|
10,827
|
||
|
Net
income per common share, as reported:
|
||||
|
Basic
|
$
|
0.84
|
||
|
Diluted
|
$
|
0.76
|
||
|
Net
income per common share, pro forma:
|
||||
|
Basic
|
$
|
0.72
|
||
|
Diluted
|
$
|
0.64
|
||
For
purposes of the pro forma disclosures, the estimated fair value of the options
and warrants was amortized to expense over the service period that generally
was
the option or warrant vesting period.
On
April
1, 2006, the Company accelerated the vesting of 523,585 stock options whose
exercise prices were below its closing stock price on the date the vesting
of
the options was accelerated. As a result, a charge of approximately $73,
net of
tax, was recorded in fiscal 2006. The accelerated vesting of these stock
options
was intended to eliminate compensation expense associated with these options
in
future periods due to the adoption of SFAS No. 123(R). The impact of the
acceleration of vesting is also included in the pro forma table
above.
46
Recent
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, “Fair Value Measurements,” (“SFAS 157”). This statement is
effective as of the beginning of fiscal 2009. SFAS 157 provides a common
fair
value hierarchy for companies to follow in determining fair value measurements
in the preparation of financial statements and expands disclosure requirements
relating to how fair value measurements were developed. SFAS 157 clarifies
the
principal that fair value should be based on the assumptions that the
marketplace would use when pricing an asset or liability, rather than company
specific data. The Company does not expect SFAS 157 to have a material impact
on
its results of operations and financial position.
In
February 2007, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Liabilities,
Including an amendment of FASB Statement No. 115,” (“SFAS 159”). This Statement
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured
at fair
value. SFAS 159 is effective as of the beginning of fiscal 2009. The Company
does not expect SFAS 159 to have a material impact on its results of operations
and financial position.
In
December 2007, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 141(R), “Business Combinations,” (“SFAS 141(R)”) and SFAS No. 160,
“Accounting and Reporting of Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51,” (“SFAS 160”). These new standards will
significantly change the financial accounting and reporting of business
combination transactions and noncontrolling (or minority) interests in
consolidated financial statements.
In
comparison to current practice, the most significant changes to business
combination accounting pursuant to SFAS 141(R) include requirements
to:
|
·
|
Recognize,
with certain exceptions, 100 percent of the fair values of assets
acquired, liabilities assumed, and noncontrolling interests in
acquisitions of less than a 100 percent controlling interest when
the
acquisition constitutes a change in control of the acquired
entity.
|
|
·
|
Measure
acquirer shares issued in consideration for a business combination
at fair
value on the acquisition date.
|
|
·
|
Recognize
contingent consideration arrangements at their acquisition-date
fair
values, with subsequent changes in fair value generally reflected
in
earnings.
|
|
·
|
With
certain exceptions, recognize preacquisition loss and gain contingencies
at their acquisition-date fair
values.
|
|
·
|
Capitalize
in-process research and development (IPR&D) assets
acquired.
|
|
·
|
Expense,
as incurred, acquisition-related transaction
costs.
|
|
·
|
Capitalize
acquisition-related restructuring costs only if the criteria in
SFAS 146
are met as of the acquisition date.
|
|
·
|
Recognize
changes that result from a business combination transaction in
an
acquirer’s existing income tax valuation allowances and tax uncertainty
accruals as adjustments to income tax
expense.
|
The
premise of SFAS 160 is based on the economic entity concept of consolidated
financial statements.
Under
the
economic entity concept, all residual economic interest holders in an entity
have an equity interest in the consolidated entity, even if the residual
interest is relative to only a portion of the entity (i.e., a residual interest
in a subsidiary). Therefore, SFAS 160 requires that a noncontrolling interest
in
a consolidated subsidiary be displayed in the consolidated statement of
financial position as a separate component of equity because the noncontrolling
interests meet the definition of equity of the consolidated entity.
SFAS
141(R) is required to be adopted concurrently with SFAS 160 and is effective
for
business combination transactions for which the acquisition date is on or
after
the beginning of the first annual reporting period beginning on or after
December 15, 2008, which for the Company is fiscal 2010. Early adoption is
prohibited. The Company is currently assessing the impact that SFAS 141(R)
will
have on its results of operations and financial position.
47
In
March
2008, the FASB issued Statement
of Financial Accounting Standard (“SFAS”) No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133
(“SFAS 161”). SFAS 161 applies to all derivative instruments and related hedged
items accounted for under FASB Statement No. 133, “Accounting for Derivatives
Instruments and Hedging Activities” (“SFAS 133”). SFAS 161 requires entities to
provide greater transparency about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and hedged items are accounted
for
under SFAS 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
results of operations, and cash flow. To meet those objectives, SFAS 161
requires (1) qualitative disclosures about objectives for using derivatives
by
primary underlying risk exposure (e.g., interest rat, credit or foreign exchange
rate) and by purpose or strategy (fair value hedge, cash flow hedge, net
investment hedge, and non-hedges), (2) information about the volume of
derivative activity in a flexible format the preparer believes is the most
relevant and practicable, (3) tabular disclosures about balance sheet location
and gross fair value amounts of derivative instruments, income statement
and
other comprehensive income (OCI) location and amounts of gains and losses
on
derivative instruments by type of contract (e.g., interest rate contracts,
credit contracts or foreign exchange contracts), and (4) disclosures about
credit-risk-related contingent features in derivative agreements.
SFAS
161
is effective for financial statements issued for fiscal years or interim
periods
beginning after November 15, 2008, which for the Company is fiscal 2010.
Early
application is encouraged, as are comparative disclosures for earlier periods,
but neither are required.
3. Acquisitions
On
March
12, 2008, the Company acquired the assets of A.I.D. Corporation, a manufacturer
of integrated bearing assemblies and aircraft components for the commercial
and
defense aerospace markets, located in Clayton, Georgia for approximately
$3,254.
The purchase price allocation is as follows: accounts receivable ($420),
inventory ($2,094), other current assets ($18), property, plant and equipment
($1,629), intangible assets ($1,211), goodwill ($1,389), current liabilities
($3,257) and long-term liabilities ($250). The products associated with the
acquisition are complementary with products already provided by other Company
businesses. AID is included in the Plain Bearings segment.
On
March
12, 2008, the Company acquired the assets of BEMD, Inc., a machining business
of
integrated bearing assemblies and aircraft components for the commercial
and
defense aerospace markets, located in Canton, Georgia for approximately $2,719.
The purchase price allocation is as follows: accounts receivable ($318),
inventory ($1,275), other current assets ($56), property, plant and equipment
($1,326), intangible assets ($565), current liabilities ($571) and long-term
liabilities ($250). The products associated with the acquisition are
complementary with products already provided by other Company businesses.
BEMD
is included in the Other segment.
On
July
25, 2007, the Company acquired the assets of Coastal Bearing Services, Inc.,
for
approximately $3,671. Located in Houston, Texas, CBS manufactures, inspects
and
refurbishes large bearings for the oil and mining industries, as well as
other
general industrial applications with sizes ranging up to 124 inches in diameter.
The purchase price allocation is as follows: accounts receivable ($644),
inventory ($653), other current assets ($86), property, plant and equipment
($825), intangible assets ($1,464), goodwill ($671) and accrued expenses
($672).
The products associated with the acquisition are complementary with products
already provided by other Company businesses. CBS is included in the Ball
Bearings segment.
On
May
22, 2007, the Company acquired the capital stock of Phoenix, a manufacturer
of
bearings for the steel and mining industries as well as other general industrial
applications with bore sizes ranging from 100 millimeters to one meter, located
in Gloucestershire, England for approximately $4,739. The purchase price
allocation is as follows: accounts receivable ($1,369), inventory ($1,538),
other current assets ($385), property, plant and equipment ($456), intangible
assets ($2,774), current liabilities ($1,701) and long-term liabilities ($82).
The products associated with the acquisition are complementary with products
already provided by other Company businesses. Phoenix is included in the
Roller
Bearings segment
On
September 12, 2006, the Company acquired the capital stock of All Power,
a
manufacturer of highly-engineered precision plain, roller and ball bearings
for
the industrial, defense and aerospace industries, for approximately $9,926.
The
purchase price included approximately $8,753 in cash, a $750 note payable
and
approximately $423 in transaction expenses. The purchase price allocation
is as
follows: accounts receivable ($1,969), inventory ($1,382), other current
assets
($261), property, plant and equipment ($1,614), intangible assets ($3,672),
goodwill ($4,708), current liabilities ($1,508) and long-term liabilities
($2,172). The products associated with the acquisition are complementary
with
products already provided by other Company businesses. All Power, which is
located in Santa Fe Springs, California, is included in the plain bearings
reportable segment. Goodwill associated with the acquisition is expected
to be
deductible for tax purposes.
The
results of operations subsequent to the effective dates of the acquisitions
are
included in the results of operations of the Company. Unaudited pro forma
consolidated results of operations of the Company, based upon pre-acquisition
unaudited historical information provided for the years ended March 29, 2008
and
March 31, 2007, as if the AID, BEMD, CBS, Phoenix and All Power acquisitions
took place on April 2, 2006, are as follows:
48
|
Fiscal Year Ended
|
|||||||
|
March 29,
2008
|
March 31,
2007
|
||||||
|
Net
sales
|
$
|
343,247
|
$
|
328,804
|
|||
|
Net
income
|
$
|
40,794
|
$
|
30,690
|
|||
|
Net
income per common share:
|
|||||||
|
Basic
|
$
|
1.90
|
$
|
1.49
|
|||
|
Diluted
|
$
|
1.87
|
$
|
1.44
|
|||
4. Allowance
for Doubtful Accounts
The
activity in the allowance for doubtful accounts consists of the
following:
|
Fiscal
Year Ended
|
Balance at
Beginning of
Year
|
Additions
|
Other*
|
Write-offs
|
Balance at
End of Year
|
|||||||||||
|
March 29, 2008
|
$
|
867
|
$
|
114
|
$
|
37
|
$
|
—
|
$
|
1,018
|
||||||
|
March 31,
2007
|
838
|
183
|
39
|
(193
|
)
|
867
|
||||||||||
|
April
1, 2006
|
628
|
244
|
—
|
(34
|
)
|
838
|
||||||||||
*Acquisition
transactions (see Note 3).
5. Inventory
Inventories
are stated at the lower of cost or market, using the first-in, first-out method,
and are summarized below:
|
March 29,
2008 |
March 31,
2007
|
||||||
|
Raw
materials
|
$
|
11,561
|
$
|
8,133
|
|||
|
Work
in process
|
38,488
|
32,457
|
|||||
|
Finished
goods
|
73,771
|
62,432
|
|||||
|
$
|
123,820
|
$
|
103,022
|
||||
6. Property,
Plant and Equipment
Property,
plant and equipment consist of the following:
|
March 29,
2008 |
March 31,
2007
|
||||||
|
Land
|
$
|
8,696
|
$
|
8,152
|
|||
|
Buildings
and improvements
|
26,247
|
18,323
|
|||||
|
Machinery
and equipment
|
120,274
|
109,059
|
|||||
|
155,217
|
135,534
|
||||||
|
Less:
accumulated depreciation and amortization
|
81,974
|
74,325
|
|||||
|
$
|
73,243
|
$
|
61,209
|
||||
7. Restructuring
of Operations
In
January 2007, the Company began the consolidation of its tapered bearing
manufacturing capacity. The Company has discontinued manufacturing tapered
bearings in its Glasgow, Kentucky facility and has consolidated the remaining
manufacturing into other Company manufacturing facilities. This consolidation
resulted in a charge of approximately $5,088 in fiscal 2007. Approximately
$2,211 of this charge related to the non-cash disposal of fixed assets. The
remaining charge of $2,877 includes termination benefits of approximately
$1,153, moving costs of approximately $755, rent of approximately $628 and
cleanup and turnover costs of approximately $250. As of March 31, 2007, $1,984
had been paid and $893 had been accrued. This balance was paid in fiscal
2008.
On
December 18, 2006, the Company completed the final phase of its Nice
consolidation plan with the sale of its facility located in Kulpsville,
Pennsylvania. The asset was sold for approximately $3,507 after expenses and
the
Company realized a gain on the sale of approximately $807 before
taxes.
49
8. Goodwill
and Amortizable Intangible Assets
Goodwill
During
fiscal 2008, goodwill increased $2,190 with the acquisitions of CBS $671 and
AID
$1,292 in addition to a $227 adjustment related to the fiscal 2007 acquisition
of All Power. During fiscal 2007, goodwill increased $4,481 in connection with
the acquisition of All Power.
Goodwill
balances, by segment, consist of the following:
|
March 29,
2008 |
March 31,
2007
|
||||||
|
Roller
|
$
|
15,673
|
$
|
15,673
|
|||
|
Plain
|
15,477
|
13,958
|
|||||
|
Ball
|
671
|
—
|
|||||
|
$
|
31,821
|
$
|
29,631
|
||||
Intangible
Assets
|
March 29, 2008
|
March 31, 2007
|
|||||||||||||||
|
Weighted
Average Useful Lives |
Gross
Carrying Amount |
Accumulated
Amortization |
Gross
Carrying Amount |
Accumulated
Amortization |
||||||||||||
|
Product
approvals
|
15
|
$
|
6,261
|
$
|
604
|
$
|
3,083
|
$
|
240
|
|||||||
|
Customer
relationships and lists
|
10
|
4,818
|
1,382
|
2,704
|
987
|
|||||||||||
|
Trade
names
|
11
|
1,391
|
446
|
1,195
|
316
|
|||||||||||
|
Distributor
agreements
|
5
|
722
|
722
|
722
|
612
|
|||||||||||
|
Patents
and trademarks
|
13
|
812
|
29
|
—
|
—
|
|||||||||||
|
Other
|
5
|
983
|
400
|
418
|
174
|
|||||||||||
|
Total
|
$
|
14,987
|
$
|
3,583
|
$
|
8,122
|
$
|
2,329
|
||||||||
Amortization
expense for definite-lived intangible assets during fiscal year 2008, 2007,
and
2006 was $1,254, $713 and $667, respectively. Estimated amortization expense
for
the five succeeding fiscal years and thereafter is as follows:
|
2009
|
$
|
1,346
|
||
|
2010
|
989
|
|||
|
2011
|
989
|
|||
|
2012
|
989
|
|||
|
2013
|
989
|
|||
|
2014
and thereafter
|
6,102
|
9. Accrued
Expenses and Other Current Liabilities
The
significant components of accrued expenses and other current liabilities are
as
follows:
|
March 29,
2008 |
March 31,
2007
|
||||||
|
Employee
compensation and related benefits
|
$
|
5,592
|
$
|
4,290
|
|||
|
Plant
consolidation costs
|
—
|
893
|
|||||
|
Taxes
|
2,198
|
3,140
|
|||||
|
Insurance
|
1,134
|
1,100
|
|||||
|
Other
|
4,565
|
2,429
|
|||||
|
$
|
13,489
|
$
|
11,852
|
||||
50
10. Debt
On
August 15, 2005, the Company entered into a Fifth Amended and Restated
Credit Agreement (the "Amended Credit Agreement"), among RBCA; the other Credit
Parties signatory thereto; General Electric Capital Corporation, a Delaware
corporation, for itself, as lender, and as agent for the lenders, concurrently
with the closing of the Company's initial public offering. Pursuant to the
Amended Credit Agreement, the Company increased its term loan borrowings by
approximately $40,000 from $110,000 under the term loan portion of the Amended
Credit Agreement. The Amended Credit Agreement provided a $55,000 revolving
credit agreement (the "Amended Revolving Credit Facility") and a $150,000 term
loan (the "Amended Term Loan"). The principal amount of the Amended Term Loan
was to be repaid in twenty-five (25) consecutive quarterly installments
commencing December 31, 2005. Each loan was secured by a lien against
substantially all of the assets of the Company and subjected the Company to
standard affirmative and negative covenants, as well as financial leverage
tests.
On
June 26, 2006, RBCA terminated the Amended Credit Agreement, and the
related credit, security and ancillary agreements, and entered into a credit
agreement (the “KeyBank Credit Agreement”) and related security and guaranty
agreements with certain banks, KeyBank National Association, as Administrative
Agent, and J.P. Morgan Chase Bank, N.A. as Co-Lead Arrangers and Joint Lead
Book
Runners. The KeyBank Credit Agreement provides RBCA, as borrower, with a
$150,000 five-year senior secured revolving credit facility which can be
increased by up to $75,000, in increments of $25,000, under certain
circumstances and subject to certain conditions (including the receipt from
one
or more lenders of the additional commitment). Amounts outstanding under the
KeyBank Credit Agreement generally bear interest at the prime rate, or LIBOR
plus a specified margin, depending on the type of borrowing being made. The
applicable margin is based on the Company’s consolidated ratio of net debt to
adjusted EBITDA from time to time. Currently, the Company’s margin is 0.0% for
prime rate loans and 0.625% for LIBOR rate loans. Amounts outstanding under
the
KeyBank Credit Agreement are due and payable on the expiration date of the
credit agreement (June 24, 2011). The Company can elect to prepay some
or all of the outstanding balance from time to time without penalty. The KeyBank
Credit Agreement requires the Company to comply with various covenants. As
of
March 29, 2008, the Company was in compliance with all such covenants. The
KeyBank Credit Agreement allows the Company to, among other things, make
distributions to shareholders, repurchase its stock, incur other debt or liens,
or acquire or dispose of assets provided that the Company complies with certain
requirements and limitations of the credit agreement. The Company’s obligations
under the KeyBank Credit Agreement are secured by a pledge of substantially
all
of the Company’s and RBCA’s assets and a guaranty by the Company of RBCA’s
obligations.
On
June 26, 2006, the Company borrowed approximately $79,000 under the KeyBank
Credit Agreement and used such funds to (i) pay fees and expenses
associated with the KeyBank Credit Agreement and (ii) repay the
approximately $78,000 balance outstanding under the Amended Credit Agreement.
As
of March 29, 2008, $41,000 was outstanding under the KeyBank Credit Agreement.
The Company recorded a non-cash pre-tax charge of approximately $3,576 in fiscal
2007 to write off deferred debt issuance costs associated with the early
termination of the Amended Credit Agreement. Approximately
$21,638 of the KeyBank Credit Agreement is being utilized to provide letters
of
credit to secure RBCA’s obligations relating to certain Industrial Development
Revenue Bonds (the “IRB’s”) and insurance programs. As of March 29, 2008, RBCA
had the ability to borrow up to an additional $87,362 under the KeyBank Credit
Agreement.
On
January 8, 2008, the Company entered into an interest rate swap agreement with
a
total notional value of $30,000 to hedge a portion of its variable rate debt.
Under the terms of the agreement, the Company pays interest at a fixed rate
(3.64%) and receives interest at variable rates. The maturity date of the
interest swap is June 24, 2011. The fair value of this swap at March 29, 2008
was a liability of $752 and was included in other current liabilities. This
instrument is designated and qualifies as a cash flow hedge. Accordingly, the
gain or loss on both the hedging instrument and the hedged item attributable
to
the hedged risk are recognized in other comprehensive income.
On
September 10, 2007, the Company and RBCA entered into an amendment of the
KeyBank Credit Agreement. Pursuant to the terms of the amendment, the commitment
fees payable under the KeyBank Credit Agreement were decreased from a range
of
10 to 27.5 basis points, based on the Company’s leverage ratio (as defined under
the KeyBank Credit Agreement) to a range of 7.5 to 20 basis points. Further,
the
margin payable under the KeyBank Credit Agreement for revolving loans that
are
base rate loans, based on the Company’s leverage ratio, was decreased from a
range of 0 to 75 basis points to a range of 0 to 25 basis points. The margin
payable under the KeyBank Credit Agreement for revolving loans that are fixed
rate loans, based on the Company’s leverage ratio (as defined under the
agreement) was decreased from a range of 62.5 to 165 basis points to a range
of
37.5 to 115 basis points. Also, the covenant requiring the Company to limit
capital expenditures (excluding acquisitions) in any fiscal year to an amount
not to exceed $20,000 was amended to increase the limit to an amount not to
exceed $30,000.
On
December 8, 2003, Schaublin entered into a bank credit facility (the "Swiss
Credit Facility") with Credit Suisse providing for 10,000 Swiss francs, or
approximately $10,047, of term loan (the "Swiss Term Loan") and up to 2,000
Swiss francs, or approximately $2,009, of revolving credit loans and letters
of
credit (the "Swiss Revolving Credit Facility"). RBCA pledged 99.4% of the
present and future share capital of Schaublin S.A. (1,366 shares) against this
facility. On November 8, 2004, Schaublin amended the Swiss Credit Facility
to increase the Swiss Revolving Credit Facility to 4,000 Swiss francs, or
approximately $4,019. Borrowings under the Swiss Credit Facility bear interest
at a floating rate of LIBOR plus 2.25%. As of March 29, 2008, there were no
borrowings outstanding under the Swiss Credit Facility.
51
During
fiscal 1995, the Company entered into a loan agreement with the South Carolina
Jobs Economic Development Authority ("SC JEDA") which provided for borrowings
up
to $10,700 under two industrial development revenue bonds (Series 1994 A
and B) and, during fiscal 1999, the Company entered into an additional loan
agreement with the SC JEDA which provided for borrowings up to $3,000 under
an
industrial development revenue bond (Series 1998). The interest rate is
variable and based on the 90-day U.S. Treasury Bill rate. Additionally, during
fiscal 2000, the Company entered into a loan agreement with the California
Infrastructure and Economic Development Bank which provided for borrowings
up to
$4,800 under an industrial development revenue bond (Series 1999)
(collectively, "Bonds"). The interest rate on the Bonds is variable and based
on
the Bond Market Association 7-day Municipal Swap Index. The proceeds from the
Bonds are restricted for working capital requirements and capital expenditure
purposes. On September 4, 2007, the Company voluntarily paid off the Series
1998
bonds, the principal of which was $1,155. The Series 1994 A and B bonds are
secured by an irrevocable direct-pay letter of credit issued by one of the
Company's lenders. The letter of credit is equal to the aggregate principal
amount of the bonds plus not less than forty-five days' interest thereon,
calculated at 12% per annum ($11,326 at March 29, 2008). The Series 1999
bonds are likewise secured by an irrevocable direct-pay letter of credit issued
by one of the Company's lenders. The Company's obligation to its lenders is
secured pursuant to the provisions of the Credit Facility and is equal to the
aggregate principal amount of the bonds plus not less than fifty days' interest
thereon, calculated at 12% per annum ($4,879 at March 29, 2008).
The
balances payable under all borrowing facilities are as follows:
|
March 29,
2008 |
March 31,
2007
|
||||||
|
KeyBank
Credit Agreement
|
|||||||
|
Five-year
senior secured revolving credit facility; amounts outstanding bear
interest at the prime rate or LIBOR, plus a specified margin, depending
on
the type of borrowing being made (prime rate 6.00% at March 29, 2008
and
LIBOR 3.75% and 6.06% at March 29, 2008 and March 31, 2007,
respectively)
|
$
|
41,000
|
$
|
42,000
|
|||
|
Note
Payable, payable
through September 2009 (weighted average interest rate was 6.30%
and 6.50%
at March 29, 2008 and March 31, 2007, respectively)
|
1,250
|
750
|
|||||
|
Industrial
Development Revenue Bonds
|
|||||||
|
Series
1994 A, due in annual installments of $180 beginning September 1,
2006, graduating to $815 on September 1, 2014, with final payment
due on
September 1, 2017; bears interest at a variable rate (weighted average
interest rate was 5.20% and 5.76% for the fiscal years ended March
29,
2008 and March 31, 2007, respectively), payable monthly through
September 2017
|
7,700
|
7,700
|
|||||
|
Series
1994 B, bears interest at a variable rate (weighted average interest
rate
was 5.20% and 5.76% for the fiscal years ended March 29, 2008 and
March 31, 2007, respectively), payable monthly through December
2017
|
3,000
|
3,000
|
|||||
|
Series
1998, bears interest at variable rates (weighted average interest
rate was
4.39% for the fiscal year ended March 31, 2007)
|
—
|
1,155
|
|||||
|
Series
1999, bearing interest at variable rates (weighted average interest
rate
was 3.81% and 4.05% for the fiscal years ended March 29, 2008 and
March 31, 2007, respectively), payable monthly through April
2024
|
4,800
|
4,800
|
|||||
|
Total
Debt
|
57,750
|
59,405
|
|||||
|
Less:
Current Portion
|
750
|
750
|
|||||
|
Long-Term
Debt
|
$
|
57,000
|
$
|
58,655
|
|||
The
current portion of long-term debt as of March 29, 2008 and March 31, 2007,
respectively, includes a $750 note payable related to the All Power acquisition.
Maturities
of debt during each of the following five fiscal years are as
follows:
|
2009
|
$
|
750
|
||
|
2010
|
1,310
|
|||
|
2011
|
540
|
|||
|
2012
|
41,660
|
|||
|
2013
|
660
|
52
11. Obligations
Under Capital Leases
Obligations
under capital leases are included in other liabilities. Machinery and equipment
additions under capital leases amounted to $440 and $246 in fiscal 2007 and
2006, respectively. The average imputed rate of interest on capital leases
at
each year end was 3.8%, 3.9% and 4.7% in fiscal 2008, 2007 and 2006,
respectively.
Included
in property, plant and equipment are the following assets held under capital
leases:
|
March 29,
2008 |
March 31,
2007
|
||||||
|
Machinery
and equipment
|
$
|
4,271
|
$
|
4,077
|
|||
|
Accumulated
depreciation
|
(3,316
|
)
|
(3,288
|
)
|
|||
|
$
|
955
|
$
|
789
|
||||
Future
minimum lease payments under capital leases at March 29, 2008 are as
follows:
|
2009
|
$
|
231
|
||
|
2010
|
230
|
|||
|
2011
|
163
|
|||
|
2012
|
29
|
|||
|
Total
minimum lease payments
|
653
|
|||
|
Less:
amount representing interest
|
44
|
|||
|
Present
value of net minimum lease payments
|
609
|
|||
|
Less:
current maturities
|
211
|
|||
|
Non-current
capital lease obligations
|
$
|
398
|
12. Other
Non-Current Liabilities
The
significant components of other non-current liabilities consist of:
|
March 29,
2008 |
March 31,
2007
|
||||||
|
Non-current
pension liability
|
$
|
794
|
$
|
1,113
|
|||
|
Other
postretirement benefits
|
2,616
|
2,467
|
|||||
|
Non-current
income tax liability
|
4,231
|
—
|
|||||
|
Other
|
3,407
|
2,927
|
|||||
|
$
|
11,048
|
$
|
6,507
|
||||
13. Pension
Plans
At
March
29, 2008, the Company has one consolidated noncontributory defined benefit
pension plan covering union employees in its Heim division plant in Fairfield,
Connecticut and its Bremen subsidiary plant in Plymouth, Indiana.
Effective
March 31, 2007, the pension plan for the Tyson subsidiary in Glasgow, Kentucky
was curtailed in the terms of the Shutdown Agreement between Tyson Bearings
Company, Inc. and the United Steelworkers of America (AFL-CIO) Local 7461-01
dated February 6, 2007. No further benefits will accrue against this plan and
no
new employees will become eligible for participation in the plan. However,
the
Company will continue to maintain the plan. The impact of curtailment was $202,
which is included in the net periodic benefit cost in fiscal 2007.
Effective
May 1, 2006, the pension plan
for the Nice subsidiary in Kulpsville, Pennsylvania was frozen in accordance
with the terms of the Shutdown Agreement between RBC Nice Bearings, Inc. and
the
United Steelworkers of America (AFL-CIO) Local 6816-12 dated February 15, 2006.
No further benefits will accrue against this plan and no new employees will
become eligible for participation in the plan. However, the Company will
continue to maintain the plan. The impact of curtailment was $97, which is
included in the net periodic benefit cost in fiscal 2007.
As
of
March 29, 2008, plan assets are comprised primarily of cash and short-term
investments. The plan provides benefits of stated amounts based on a combination
of an employee's age and years of service. The Company uses a December 31
measurement date for its plan.
53
On
March
31, 2007, the Company adopted the recognition and disclosure provisions of
SFAS
No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans.” SFAS No. 158 required the Company to recognize the funded
status (i.e., the difference between the Company’s fair value of plan assets and
the projected benefit obligations) of its defined benefit pension plans in
the
March 31, 2007 Consolidated Balance Sheet with a corresponding adjustment to
accumulated other comprehensive income, net of tax. The adjustment to
accumulated other comprehensive income at adoption represents the net
unrecognized actuarial losses, unrecognized prior service costs and unrecognized
transition obligation remaining from the initial adoption of SFAS No. 87 and
SFAS No. 106, all of which were previously netted against the plans’ funded
status in the Company’s Consolidated Balance Sheet in accordance with the
provisions of SFAS No. 87 and SFAS No. 106. These amounts will be subsequently
recognized as net periodic benefit cost in accordance with the Company’s
historical accounting policy for amortizing these amounts.
The
following tables set forth the funded status of the Company's defined benefit
pension plans and the amount recognized in the balance sheet at March 29, 2008
and March 31, 2007:
|
March 29,
2008 |
March 31,
2007
|
||||||
|
Change
in benefit obligation:
|
|||||||
|
Benefit
obligation at beginning of year
|
$
|
18,111
|
$
|
18,024
|
|||
|
Service
cost
|
270
|
484
|
|||||
|
Interest
cost
|
1,184
|
1,033
|
|||||
|
Actuarial
(gain) loss
|
2,013
|
(166
|
)
|
||||
|
Benefits
paid
|
(1,325
|
)
|
(1,264
|
)
|
|||
|
Benefit
obligation, at measurement date
|
$
|
20,253
|
$
|
18,111
|
|||
|
Change
in plan assets:
|
|||||||
|
Fair
value of plan assets at beginning of year
|
$
|
16,997
|
$
|
14,267
|
|||
|
Actual
return on plan assets
|
2,977
|
2,167
|
|||||
|
Employer
contributions
|
2,096
|
1,827
|
|||||
|
Benefits
paid
|
(1,325
|
)
|
(1,264
|
)
|
|||
|
Fair
value of plan assets
|
$
|
20,745
|
$
|
16,997
|
|||
|
Reconciliation
of funded status:
|
|||||||
|
Over
(under) funded status at measurement date
|
$
|
492
|
$
|
(1,114
|
)
|
||
|
Contributions
in fourth quarter
|
—
|
360
|
|||||
|
Over
(under) funded status, end of year
|
$
|
492
|
$
|
(754
|
)
|
||
|
Amounts
recognized in the consolidated balance sheet:
|
|||||||
|
Non-current
assets
|
$
|
1,287
|
$
|
359
|
|||
|
Non-current
liability
|
(795
|
)
|
(1,113
|
)
|
|||
|
Net
asset (liability) recognized
|
$
|
492
|
$
|
(754
|
)
|
||
|
Amounts
recognized in accumulated other comprehensive loss:
|
|||||||
|
Prior
service cost
|
$
|
361
|
$
|
2,157
|
|||
|
Net
actuarial loss
|
2,219
|
85
|
|||||
|
Accumulated
other comprehensive loss
|
$
|
2,580
|
$
|
2,242
|
|||
|
Amounts
included in accumulated other comprehensive loss expected to be recognized
as components of net periodic benefit cost in 2009:
|
|||||||
|
Prior
service cost
|
$
|
40
|
|||||
|
Net
actuarial loss
|
|
64 | |||||
|
Total
|
$
|
104 | |||||
Benefits
under the union plans are not a function of employees' salaries; thus, the
accumulated benefit obligation equals the projected benefit
obligation.
54
The
following table sets forth net periodic benefit cost of the Company's plans
for
the three fiscal years in the period ended March 29, 2008:
|
Fiscal Year Ended
|
||||||||||
|
March 29,
2008 |
March 31,
2007
|
April 1,
2006
|
||||||||
|
Components
of net periodic benefit cost:
|
||||||||||
|
Service
cost
|
$
|
270
|
$
|
484
|
$
|
575
|
||||
|
Interest
cost
|
1,184
|
1,033
|
984
|
|||||||
|
Expected
return on plan assets
|
(1,474
|
)
|
(1,309
|
)
|
(1,130
|
)
|
||||
|
Amortization
of prior service cost
|
8
|
28
|
39
|
|||||||
|
Amortization
of losses
|
163
|
166
|
209
|
|||||||
|
Additional
amount recognized due to curtailment
|
—
|
299
|
—
|
|||||||
|
Net
periodic benefit cost
|
$
|
151
|
$
|
701
|
$
|
677
|
||||
The
assumptions used in determining the net periodic benefit cost information are
as
follows:
|
FY 2008
|
FY 2007
|
FY 2006
|
||||||||
|
Discount
rate
|
6.00
|
%
|
5.75
|
%
|
5.90
|
%
|
||||
|
Expected
long-term rate of return on plan assets
|
8.50
|
%
|
9.00
|
%
|
9.00
|
%
|
||||
The
discount rate used in determining the funded status as of March 29, 2008 and
March 31, 2007 was 6.25% and 6.00%, respectively.
In
developing the overall expected long-term return on plan assets assumption,
a
building block approach was used in which rates of return in excess of inflation
were considered separately for equity securities and debt securities. The excess
returns were weighted by the representative target allocation and added along
with an appropriate rate of inflation to develop the overall expected long-term
return on plan assets assumption.
The
Company's investment program objective is to achieve a rate of return on plan
assets which will fund the plan liabilities and provide for required benefits
while avoiding undue exposure to risk to the plan and increases in funding
requirements. The Company's target allocation of plan assets was
100 percent short-term investments as of March 29, 2008 and 100% equity as
of March 31, 2007.
The
following benefit payments, which reflect future service as appropriate, are
expected to be paid. The benefit payments are based on the same assumptions
used
to measure the Company's benefit obligation at the end of fiscal
2008.
|
2009
|
$
|
1,272
|
||
|
2010
|
1,351
|
|||
|
2011
|
1,382
|
|||
|
2012
|
1,442
|
|||
|
2013
|
1,452
|
|||
|
2014-2018
|
8,009
|
The
Company’s foreign operation, Schaublin, sponsors a pension plan for its
approximately 160 employees in conformance with Swiss pension law. The plan
is
funded with a reputable (S&P rating AA-) Swiss insurer. Through the
insurance contract, the Company has effectively transferred all investment
and
mortality risk to the insurance company, which guarantees the federally mandated
annual rate of return and the conversion rate at retirement. As a result, the
plan has no unfunded liability; the interest cost is exactly offset by actual
return. Thus, the net periodic cost is equal to the amount of annual premium
paid by the Company. For fiscal years 2008, 2007 and 2006, the Company made
contribution and premium payments equal to $530, $476 and $445,
respectively.
The
Company also has a defined contribution plan under Section 401(k) of the
Internal Revenue Code for all of its employees not covered by a collective
bargaining agreement. The plan is funded by eligible participants through
employee contributions and by Company contributions which currently equal 30%
of
the first 6% of eligible employee compensation. Employer contributions under
this plan amounted to $595, $328 and $284 in fiscal 2008, 2007 and 2006,
respectively.
55
Effective
September 1, 1996, the Company adopted a non-qualified Supplemental
Executive Retirement Plan ("SERP") for a select group of highly compensated
management employees designated by the Board of Directors of the Company. The
SERP allows eligible employees to elect to defer, until termination of their
employment, the receipt of up to 25% of their current salary. The Company makes
contributions equal to the lesser of 50% of the deferrals, or 3.5% of the
employees' annual salary, which vest in full after three years of service
following the effective date of the SERP. Employer contributions under this
plan
amounted to $175, $154 and $86 in fiscal 2008, 2007 and 2006,
respectively.
14. Postretirement
Health Care and Life Insurance Benefits
The
Company, for the benefit of employees at its Heim, West Trenton and Bremen
facilities, sponsors contributory defined benefit health care plans that provide
postretirement medical and life insurance benefits to union employees who have
attained certain age and/or service requirements while employed by the Company.
The plans are unfunded and costs are paid as incurred. Postretirement benefit
obligations are included in “Accrued expenses and other current liabilities” and
"Other non-current liabilities" in the Consolidated Balance Sheet.
The
postretirement medical and life insurance benefits for the Tyson subsidiary
in
Glasgow, Kentucky were curtailed in the terms of the Shutdown Agreement between
Tyson Bearing Company, Inc. and the United Steelworkers of America (AFL-CIO)
Local 7461-01 dated February 6, 2007. The impact of curtailment was $(437),
which was included in net periodic benefit cost (income) for fiscal 2007.
Effective
May 1, 2006, the postretirement medical and life insurance benefits for the
Nice
subsidiary in Kulpsville, Pennsylvania were curtailed in the terms of the
Shutdown Agreement between RBC Nice Bearings, Inc. and the United Steelworkers
of America (AFL-CIO) Local 6816-12 dated February 15, 2006. Life insurance
benefits terminated July 31, 2006. Postretirement medical benefits were
available until the contract expired on January 31, 2008. The impact of
curtailment was $(131), which was included in net periodic benefit cost (income)
for fiscal 2007.
On
December 8, 2003, the Medicare Prescription Drug Improvement and
Modernization Act of 2003 (the "Act") was signed into law. The Company's
prescription drug benefit for all postretirement plans is capped at a set amount
each month, which is paid to the retirees so they can obtain prescription drug
coverage. As such, the Company is not self-insured for prescription drugs and
the Act has no impact on the recorded obligation.
The
impact of the adoption of SFAS No. 158 to other postretirement benefit plans
increased current liabilities by $227, increased non-current liabilities by
$332
and increased the loss in accumulated other comprehensive loss by $345, net
of
deferred tax provision of $214.
The
following table set forth the funded status of the Company’s postretirement
benefit plans, the amount recognized in the balance sheet at March 29, 2008
and
March 31, 2007:
|
March 29,
2008 |
March 31,
2007
|
||||||
|
Change in benefit obligation:
|
|||||||
|
Benefit
obligation at beginning of year
|
$
|
2,
694
|
$
|
3,455
|
|||
|
Service
cost
|
60
|
112
|
|||||
|
Interest
cost
|
165
|
182
|
|||||
|
Actuarial
(gain) loss
|
191
|
(188
|
)
|
||||
|
Benefits
paid
|
(219
|
)
|
(211
|
)
|
|||
|
Curtailment
(gain) loss
|
—
|
(656
|
)
|
||||
|
Benefit
obligation at end of year
|
$
|
2,891
|
$
|
2,694
|
|||
|
Change
in plan assets:
|
|||||||
|
Fair
value of plan assets at beginning of year
|
$
|
—
|
$
|
—
|
|||
|
Company
contributions
|
219
|
211
|
|||||
|
Benefits
paid
|
(219
|
)
|
(211
|
)
|
|||
|
Fair
value of plan assets at end of year
|
$
|
—
|
$
|
—
|
|||
|
Funded
status, end of year
|
$
|
(2,891
|
)
|
$
|
(2,694
|
)
|
|
|
Amounts
recognized in the consolidated balance sheet:
|
|||||||
|
Non-current
liability
|
$
|
(2,616
|
)
|
$
|
(2,467
|
)
|
|
|
Current
liability
|
(275
|
)
|
(227
|
)
|
|||
|
Net
liability recognized
|
$
|
(2,891
|
)
|
$
|
(2,694
|
)
|
|
|
Amounts
recognized in accumulated other comprehensive (gain) loss:
|
|||||||
|
Prior
service credit
|
$
|
(138
|
)
|
$
|
(20
|
)
|
|
|
Net
actuarial (gain) loss
|
(603
|
)
|
578
|
||||
|
Accumulated
other comprehensive (gain) loss
|
$
|
(741
|
)
|
$
|
558
|
||
|
Amounts
included in accumulated other comprehensive (gain) loss expected
to be
recognized as components of net periodic benefit cost in
2009:
|
|||||||
|
Prior
service cost
|
$
|
41
|
|||||
|
Net
actuarial loss
|
26
|
||||||
|
Total
|
$
|
67
|
|||||
56
|
Fiscal
Year Ended
|
||||||||||
|
Components
of net periodic benefit cost:
|
March
29,
2008 |
March
31,
2007
|
April
1,
2006
|
|||||||
|
Service
cost
|
$
|
60
|
$
|
112
|
$
|
141
|
||||
|
Interest
cost
|
165
|
182
|
198
|
|||||||
|
Prior
service cost amortization
|
(30
|
)
|
(45
|
)
|
(486
|
)
|
||||
|
Amount
of loss recognized
|
38
|
29
|
117
|
|||||||
|
Curtailment
|
—
|
(568
|
)
|
—
|
||||||
|
Net
periodic benefit cost (income)
|
$
|
233
|
$
|
(290
|
)
|
$
|
(30
|
)
|
||
The
Company uses a March 31 measurement date for its plans.
The
plans
contractually limit the benefit to be provided for certain groups of current
and
future retirees. As a result, there is no health care trend associated with
these groups. The discount rate used in determining the accumulated
postretirement benefit obligation was 6.50% at March 29, 2008 and 6.00% at
March
31, 2007. The discount rate used in determining the net periodic benefit cost
was 6.00% for fiscal 2008, 6.25% for fiscal 2007 and 5.90% for fiscal 2006.
The
RP-2000 Combined Mortality Table was used to determine the postretirement net
periodic benefit costs in fiscal 2008; the 1983 Group Annuity Mortality table
was used to determine the postretirement net periodic benefit costs in fiscal
2007 and 2006.
The
following benefit payments, which reflect future service as appropriate, are
expected to be paid. The benefit payments are based on the same assumptions
used
to measure the Company's benefit obligation at the end of fiscal
2008:
|
2009
|
$
|
275
|
||
|
2010
|
282
|
|||
|
2011
|
233
|
|||
|
2012
|
229
|
|||
|
2013
|
224
|
|||
|
2014-2018
|
1,217
|
15. Income
Taxes
Income
before income taxes for the Company's domestic and foreign operations is as
follows:
|
Fiscal
Year Ended
|
||||||||||
|
March
29,
2008 |
March
31,
2007
|
April
1,
2006
|
||||||||
|
Domestic
|
$
|
51,660
|
$
|
37,213
|
$
|
15,953
|
||||
|
Foreign
|
8,219
|
6,854
|
3,120
|
|||||||
|
$
|
59,879
|
$
|
44,067
|
$
|
19,073
|
|||||
57
The
provision for (benefit from) income taxes consists of the
following:
|
Fiscal Year Ended
|
||||||||||
|
March 29,
2008 |
March 31,
2007
|
April 1,
2006
|
||||||||
|
Current:
|
||||||||||
|
Federal
|
$
|
6,781
|
$
|
3,140
|
$
|
1,615
|
||||
|
State
|
1,428
|
2,079
|
566
|
|||||||
|
Foreign
|
1,269
|
1,087
|
497
|
|||||||
|
9,478
|
6,306
|
2,678
|
||||||||
|
Deferred:
|
||||||||||
|
Federal
|
10,057
|
9,506
|
3,694
|
|||||||
|
State
|
150
|
(224
|
)
|
262
|
||||||
|
10,207
|
9,282
|
3,956
|
||||||||
|
Total
|
$
|
19,685
|
$
|
15,588
|
$
|
6,634
|
||||
A reconciliation
of income taxes computed using the U.S. federal statutory rate to that reflected
in operations follows:
|
Fiscal Year Ended
|
||||||||||
|
March 29,
2008 |
March 31,
2007
|
April 1,
2006
|
||||||||
|
Income taxes using
U.S. federal statutory rate
|
$
|
20,958
|
$
|
15,424
|
$
|
6,676
|
||||
|
State
income taxes, net of federal benefit
|
887
|
1,101
|
660
|
|||||||
|
Domestic
production activities deduction
|
(907
|
)
|
—
|
—
|
||||||
|
Foreign
rate differential
|
(1,699
|
)
|
(1,312
|
)
|
(595
|
)
|
||||
|
Other
|
446
|
375
|
(107
|
)
|
||||||
|
$
|
19,685
|
$
|
15,588
|
$
|
6,634
|
|||||
Net
deferred tax assets (liabilities) consist of the following:
|
March 29,
2008 |
March 31,
2007
|
||||||
|
Deferred tax assets (liabilities):
|
|||||||
|
Postretirement
benefits
|
$
|
1,106
|
$
|
740
|
|||
|
Employee
compensation accruals
|
1,112
|
1,491
|
|||||
|
Net
operating losses
|
1,244
|
628
|
|||||
|
Inventory
|
3,839
|
4,839
|
|||||
|
Stock
compensation
|
654
|
293
|
|||||
|
Pension
|
(188
|
)
|
502
|
||||
|
Other
|
903
|
1,194
|
|||||
|
Valuation
allowance
|
197
|
277
|
|||||
|
Total
deferred tax assets
|
8,867
|
9,964
|
|||||
|
Deferred
tax liabilities:
|
|||||||
|
Property,
plant and equipment
|
(5,500
|
)
|
(5,497
|
)
|
|||
|
Amortization
of intangibles
|
(3,864
|
)
|
(3,831
|
)
|
|||
|
Total
deferred tax liabilities
|
(9,364
|
)
|
(9,328
|
)
|
|||
|
Net
deferred tax assets (liabilities)
|
$
|
(497
|
)
|
$
|
636
|
||
A
valuation allowance has been recorded on certain state net operating losses
as
it is more likely than not that these losses will not be utilized.
The
Company has determined that its undistributed foreign earnings of approximately
$28,900 at March 29, 2008 will be re-invested indefinitely based upon the need
for cash in its foreign operations, potential foreign acquisitions and the
Company's inability to remit cash back to the United States under its current
foreign debt obligations. Schaublin has a tax holiday that provides a 75%
reduction of the statutory rate relating to its Swiss facility. This resulted
in
a tax benefit of approximately $1,000 and $1,200 in fiscal 2008 and fiscal
2007,
respectively. This tax holiday expires in December 2009.
As
the
Company’s undistributed earnings in foreign subsidiaries are considered to be
reinvested indefinitely, no provision for U.S. federal and state income taxes
has been provided. Upon repatriation of those earnings, in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject
to
an adjustment of foreign tax credits) and withholding taxes payable to various
foreign countries. Determination of the amount of unrecognized deferred U.S.
income tax liability is not practicable due to the complexities associated
with
its hypothetical calculation.
58
At
March
29, 2008, the Company has state net operating losses in different jurisdictions
at varying amounts up to $13,500, which expire at various dates through 2026.
The Company's tax returns are subject to review and examination by various
taxing authorities, which could result in changes to accrued tax estimates.
The
Company adopted the provisions of FIN 48 on April 1, 2007. As a result, the
Company recognized an increase in the liability for unrecognized tax benefits
of
approximately $230 and a reduction to the April 1, 2007 balance of retained
earnings. The total amount of unrecognized tax benefits as of April 1, 2007,
including the cumulative effect of the adoption of FIN 48, is $3,210,
substantially all of which represents liabilities that, if recognized, would
impact the effective tax rate.
The
Company files income tax returns in the U.S. federal jurisdiction, and various
states and foreign jurisdictions. With few exceptions, the Company is no longer
subject to state or foreign income tax examinations by tax authorities for
years
ending before March 31, 2002. The Company is no longer subject to U.S. federal
tax examination by the Internal Revenue Service for years ending before March
31, 2004.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
are as follows:
|
Balance,
April 1, 2007
|
$
|
3,210
|
||
|
Increases
for tax positions taken during the current period
|
668
|
|||
|
Balance,
March 29, 2008
|
$
|
3,878
|
Included
in the balance at March 29, 2008, are $3,337 of unrecognized tax benefits that
would affect the annual effective tax rate.
The
Company recognizes the interest and penalties accrued related to unrecognized
tax benefits in income tax expense. The Company had approximately $352 of
accrued interest and penalties at March 29, 2008.
The
Company does not believe that it is reasonably possible that the amount of
unrecognized tax benefits will significantly decrease over the next twelve
months.
| 16. |
Stockholders'
Equity
|
Prior
to
the initial public offering of common shares in August 2005, the Company
had three classes of capital stock outstanding: Class B preferred stock,
Class A common stock and Class B common stock. Prior to the
consummation of the initial public offering, the Company effectuated a series
of
transactions in order to, among other things, simplify its capital structure.
The Company’s simplified capital structure has two classes of authorized capital
stock (common stock and preferred stock), of which only shares of common stock
remained outstanding after the Company’s initial public offering. The
recapitalization transaction involved a number of steps that were effectuated
contemporaneously with the consummation of the Company’s initial public
offering. These steps were as follows:
Stock
Split.
The
Company amended its certificate of incorporation to effect a 5-for-2 stock
split
of its common stock. All share and per share information in the consolidated
financial statements has been retroactively restated to reflect the stock split
for all years presented.
Conversion
of Class B Preferred Stock.
Immediately prior to the consummation of the recapitalization, all outstanding
shares of Class B preferred stock were converted in accordance with their
terms into 1,846,396 (on a post stock split basis) shares of Class A common
stock, shares of Class C preferred stock and shares of Class D
preferred stock. All shares of Class C and Class D preferred stock
were redeemed with cash or common stock as described below.
Redemption
of Class C Preferred Stock.
Immediately after the conversion of the Class B preferred stock, the
Company used proceeds from its initial public offering and the refinancing
of
its then existing credit facility to redeem all outstanding Class C
preferred stock, including any accrued and unpaid dividends, for an aggregate
redemption price determined in accordance with its pre-offering certificate
of
incorporation. The aggregate redemption price of the Class C preferred
stock was equal to $30,600.
Repurchase
of Class D Preferred Stock.
Immediately after the conversion of the Class B preferred stock, the
Company repurchased all of the outstanding Class D preferred stock for an
aggregate repurchase price equal to $8.0 million payable as follows:
$4.0 million of the repurchase price paid in cash using proceeds from the
initial public offering and the refinancing of its Senior Credit Facility,
and
$4.0 million paid in shares of its Class A common stock based on the
initial public offering price of $14.50 per share (before giving effect to
the
underwriting discount).
59
A
summary
of the status of the Company’s preferred stock outstanding as of March 29, 2008,
March 31, 2007, April 1, 2006 and April 2, 2005 and changes during the year
ended April 1, 2006 is presented below.
|
Class
B
|
Class
C
|
Class
D
|
||||||||
|
Balance
at April 2, 2005
|
240,000
|
—
|
—
|
|||||||
|
Conversion
of Class B preferred stock
|
(240,000
|
)
|
306,298
|
240,000
|
||||||
|
Redemption
of Class C preferred stock
|
—
|
(306,298
|
)
|
—
|
||||||
|
Redemption
of Class D preferred stock
|
—
|
—
|
(240,000
|
)
|
||||||
|
Balance
at April 1, 2006, March 31, 2007 and March 29, 2008
|
—
|
—
|
—
|
|||||||
Reclassification
of Class A Common Stock and Class B Common Stock.
Immediately after the transactions described above, the Company amended and
restated its certificate of incorporation to provide for, among other things,
authorized capital stock of 60.0 million shares of common stock and
10.0 million shares of preferred stock after giving effect to the 5-for-2
stock split. As a result, all of the Company’s Class A common stock and
Class B common stock (including shares of Class A common stock issued
upon conversion of the Class B preferred stock and repurchase of the
Class D preferred stock) were reclassified as common stock, on a
one-for-one basis.
Stock
Options and Warrants.
Following the reclassification of the Company’s shares, all outstanding options
and warrants to purchase the Company’s Class A common stock and Class B common
stock became exercisable into shares of the Company’s newly created common stock
in accordance with the terms of our stock option plans and stock option and
warrant agreements. As of March 29, 2008, there were 1,326,577 outstanding
options, 714,308 of which were exercisable. There are no outstanding
warrants.
As
part
of its preparation for the initial public offering, the Company reassessed
the
value of its then Class A Common Stock given the significant improvement in
the
Company’s operating performance during the fiscal year ended April 2, 2005. The
retrospective review indicated that the fair value of the then Class A Common
Stock was in excess of the option exercise price ($8.00 per share) at the
various grant dates. As a result, deferred compensation of approximately $785
was recorded for the intrinsic value of the stock (based on the 2,500 options
and 179,575 options granted during fiscal 2006 and 2005, respectively), which
was amortized over the vesting period. Approximately $365 and $420 was recorded
as compensation expense in fiscal 2006 and 2005, respectively.
Stock
Option Plans
1998
Stock Option Plan
Effective
February 18, 1998, the Company adopted the RBC Bearings Incorporated (f/k/a
Roller Bearing Holding Company, Inc.) 1998 Stock Option Plan. The terms of
the 1998 option plan provide for the grant of options to purchase up to
8,413,900 shares of common stock to officers and employees of, and consultants
(including members of the board of directors) to, the Company and its
subsidiaries. Options granted may be either incentive stock options (under
Section 422 of the Internal Revenue Code) or non-qualified stock options.
The 1998 option plan, which expires on December 31, 2008, is to be governed
by the Company’s board of directors or a committee to which the board delegates
its responsibilities. As of March 29, 2008, there were outstanding options
to
purchase 3,275 shares of common stock granted under the 1998 option plan, all
of
which were exercisable. As of August 15, 2005, the 1998 Stock Option Plan was
frozen and no additional stock options will be awarded pursuant to the
plan.
2001
Stock Option Plan
The
RBC
Bearings Incorporated (f/k/a Roller Bearing Holding Company, Inc.) 2001
Stock Option Plan was adopted in fiscal 2002 and amended and restated on
October 24, 2003. The terms of the 2001 option plan provide for the grant
of options to purchase up to 1,008,553 shares of common stock to officers and
employees of, and consultants (including members of the board of directors)
to,
the Company and its subsidiaries selected by the CEO to participate in the
plan.
Options granted may be either incentive stock options (under Section 422 of
the Internal Revenue Code) or non-qualified stock options. The 2001 option
plan,
which expires in July 2011, is to be governed the Company’s board of
directors or a committee to which the board of directors delegates its
responsibilities. As of March 29, 2008, there were outstanding options to
purchase 107,300 shares of common stock granted under the 2001 option plan,
all
of which were exercisable. As of August 15, 2005, the 2001 Stock Option Plan
was
frozen and no additional stock options will be awarded pursuant to the
plan.
60
2005
Long-Term Incentive Plan
The
Company adopted the 2005 Long-Term Incentive Plan effective upon the completion
of its initial public offering in August 2005. The plan provides for grants
of stock options, stock appreciation rights, restricted stock and performance
awards. Directors, officers and other employees and persons who engage in
services for the Company are eligible for grants under the plan. The purpose
of
the plan is to provide these individuals with incentives to maximize stockholder
value and otherwise contribute to the Company’s success and to enable the
Company to attract, retain and reward the best available persons for positions
of responsibility.
1,139,170
shares of common stock were authorized for issuance under the plan, subject
to
adjustment in the event of a reorganization, stock split, merger or similar
change in the Company’s corporate structure or in the outstanding shares of
common stock. Of this amount, 683,502 options were awarded to the Company’s CEO
at the time of the Company’s initial public offering in August 2005 at the
offering price of $14.50 per share and the remainder was reserved for grants
to
the Company’s employees (other than the Company’s CEO) at the discretion of the
Company’s compensation committee. An amendment to increase the number of shares
available for issuance under the 2005 Long-Term Incentive Plan from 1,139,170
to
1,639,170 was approved by shareholder vote in September 2006. A further
amendment to increase the number of shares available for issuance under the 2005
Long-Term Incentive Plan from 1,639,170 to 2,239,170 was approved by shareholder
vote in September 2007. The Company may grant shares of restricted stock to
its
employees and directors in the future under the plan. The Company’s compensation
committee will administer the plan. The Company’s board of directors also has
the authority to administer the plan and to take all actions that the
compensation committee is otherwise authorized to take under the plan. The
terms
and conditions of each award made under the plan, including vesting
requirements, is set forth consistent with the plan in a written agreement
with
the grantee.
Stock
Options.
Under
the 2005 Long-Term Incentive Plan, the compensation committee or the board
may
approve the award of grants of incentive stock options and other non-qualified
stock options. The compensation committee also has the authority to approve
the
grant of options that will become fully vested and exercisable automatically
upon a change in control. The compensation committee may not, however, approve
an award to any one person in any calendar year options to purchase common
stock
equal to more than 10% of the total number of shares authorized under the plan
(other than the initial award to the Company’s CEO discussed above), and it may
not approve an award of incentive options first exercisable in any calendar
year
whose underlying shares have a fair market value greater than $100,000
determined at the time of grant. The compensation committee will approve the
exercise price and term of any option in its discretion; however, the exercise
price may not be less than 100% of the fair market value of a share of common
stock on the date of grant. In the case of any incentive stock option, the
option must be exercised within 10 years of the date of grant. The exercise
price of an incentive option awarded to a person who owns stock constituting
more than 10% of our voting power may not be less than 110% of such fair market
value on such date and the option must be exercised within five years of the
date of grant. As of March 29, 2008, there were outstanding options to purchase
1,216,002 shares of common stock granted under the 2005 plan, 603,733 of which
were exercisable.
Restricted
Stock.
Under
the 2005 Long-Term Incentive Plan, the compensation committee may approve the
award of restricted stock subject to the conditions and restrictions, and for
the duration that it determines in its discretion. As of March 29, 2008, there
were 107,162 shares of restricted stock outstanding.
Stock
Appreciation Rights.
The
compensation committee may approve the grant of stock appreciation rights,
or
SARs, subject to the terms and conditions contained in the plan. Under the
2005
Long-Term Incentive Plan, the exercise price of a SAR must equal the fair market
value of a share of the Company’s common stock on the date the SAR was granted.
Upon exercise of a SAR, the grantee will receive an amount in shares of our
common stock equal to the difference between the fair market value of a share
of
common stock on the date of exercise and the exercise price of the SAR,
multiplied by the number of shares as to which the SAR is
exercised.
Performance
Awards.
The
compensation committee may approve the grant of performance awards contingent
upon achievement by the grantee or by the Company, of set goals and objectives
regarding specified performance criteria, over a specified performance cycle.
Awards may include specific dollar-value target awards, performance units,
the
value of which is established at the time of grant, and/or performance shares,
the value of which is equal to the fair market value of a share of common stock
on the date of grant. The value of a performance award may be fixed or fluctuate
on the basis of specified performance criteria. A performance award may be
paid
out in cash and/or shares of common stock or other securities.
Amendment
and Termination of the Plan.
The
board may amend or terminate the 2005 Long-Term Incentive Plan at its
discretion, except that no amendment will become effective without prior
approval of the Company’s stockholders if such approval is necessary for
continued compliance with the performance-based compensation exception of
Section 162(m) of the Internal Revenue Code or any stock exchange listing
requirements. If not previously terminated by the board, the plan will terminate
on the tenth anniversary of its adoption.
61
A
summary
of the status of the Company's warrants and stock options outstanding as of
March 29, 2008, March 31, 2007 and April 1, 2006, and changes during the
years ended on those dates, is presented below. All cashless exercises of
options and warrants are handled through an independent broker.
|
Number Of
Common Stock
Warrants/Options
|
Weighted Average
Exercise Price
|
Weighted Average
Contractual Life
(Years)
|
Intrinsic Value
|
||||||||||
|
Outstanding,
March 31, 2007
|
1,294,319
|
$
|
15.60
|
||||||||||
|
Awarded
|
356,200
|
32.21
|
|||||||||||
|
Exercised
|
(323,942
|
)
|
12.47
|
||||||||||
|
Outstanding,
March 29, 2008
|
1,326,577
|
$
|
20.83
|
6.7
|
$
|
20,381
|
|||||||
|
Exercisable,
March 29, 2008
|
714,308
|
$
|
14.51
|
7.0
|
$
|
15,488
|
|||||||
The
fair
value for the Company's options and warrants was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:
|
Fiscal Year Ended
|
||||||||||
|
March 29,
2008
|
March 31,
2007
|
April 1,
2006
|
||||||||
|
Dividend
yield
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
||||
|
Expected
weighted-average life
|
5.0
|
4.9
|
7.0
|
|||||||
|
Risk-free
interest rate
|
5.0
|
%
|
5.0
|
%
|
3.5
|
%
|
||||
|
Expected
volatility
|
35.4
|
%
|
34.4
|
%
|
32.0
|
%
|
||||
The
weighted average fair value per share of options granted was $12.79 in fiscal
2008, $8.70 in fiscal 2007 and $6.00 in fiscal 2006.
The
expected weighted-average life assumption was calculated by taking the average
of the weighted vesting term and the contractual term of the options. In
determining its risk-free interest rate assumption, the Company used the yield
on zero-coupon U.S. Treasury strips to extrapolate a forward-yield curve.
Finally, since the Company has only been public since August 2005, it used
six
public companies (in addition to itself), engaged in the manufacture of
bearings, for the determination of the volatility.
As
of
March 29, 2008, there was $5,950 of unrecognized compensation costs related
to
options which is expected to be recognized over a weighted average period of
3.9
years. The total fair value of options that vested in fiscal 2008, 2007 and
2006
was $1,738, $0 and $5,106, respectively. The total intrinsic value of options
exercised in fiscal 2008, 2007 and 2006 was $6,925, $31,523 and $25,081,
respectively.
Of
the
total awards outstanding at March 29, 2008, 1,291,147 are either fully vested
or
are expected to vest. These shares have a weighted average exercise price of
$20.81, an intrinsic value of $19,863, and a weighted average contractual term
of 6.7 years.
A
summary
of the status of the Company’s restricted stock outstanding as of March 29, 2008
and changes during the year then ended, is presented below.
|
Number Of
Restricted Stock
Shares
|
Weighted-
Average
Grant Date Fair
Value
|
||||||
|
Non-vested,
March 31, 2007
|
74,775
|
$
|
22.62
|
||||
|
Granted
|
49,250
|
32.13
|
|||||
|
Vested
|
(16,863
|
)
|
22.68
|
||||
|
Non-vested,
March 29, 2008
|
107,162
|
$
|
26.99
|
||||
62
The
Company recorded $272 (net of taxes of $169) in compensation in fiscal 2008
related to restricted stock awards. These awards were valued at the fair market
value of the Company’s common stock on the date of issuance and are being
amortized as expense over the applicable vesting period. Unrecognized expense
for restricted stock was $2,477 at March 29, 2008. This cost is expected to
be
recognized over a weighted average period of approximately 3.6
years.
| 17. |
Commitments
and Contingencies
|
The
Company leases facilities under non-cancelable operating leases, which expire
on
various dates through September 2021, with rental expense aggregating $3,893,
$3,708 and $1,936 in fiscal 2008, 2007 and 2006, respectively.
The
Company also has non-cancelable operating leases for transportation, computer
and office equipment, which expire at various dates. Rental expense for fiscal
2008, 2007 and 2006 aggregated $1,347, $1,356 and $1,220,
respectively.
Certain
of the above leases are renewable while none bear material contingent rent
or
concession clauses.
The
aggregate future minimum lease payments under operating leases are as
follows:
|
2009
|
$
|
4,132
|
||
|
2010
|
3,513
|
|||
|
2011
|
3,308
|
|||
|
2012
|
2,850
|
|||
|
2013
|
1,264
|
|||
|
2014
and thereafter
|
4,775
|
|||
|
$
|
19,842
|
As
of
March 29, 2008, approximately 13% of the Company's hourly employees in the
U.S.
and abroad were represented by labor unions.
The
Company enters into government contracts and subcontracts that are subject
to
audit by the government. In the opinion of the Company's management, the results
of such audits, if any, are not expected to have a material impact on the
financial condition or results of operations of the Company.
The
Company is subject to federal, state and local environmental laws and
regulations, including those governing discharges of pollutants into the air
and
water, the storage, handling and disposal of wastes and the health and safety
of
employees. The Company also may be liable under the Comprehensive Environmental
Response, Compensation, and Liability Act or similar state laws for the costs
of
investigation and cleanup of contamination at facilities currently or formerly
owned or operated by the Company, or at other facilities at which the Company
may have disposed of hazardous substances. In connection with such
contamination, the Company may also be liable for natural resource damages,
government penalties and claims by third parties for personal injury and
property damage. Agencies responsible for enforcing these laws have authority
to
impose significant civil or criminal penalties for non-compliance. The Company
believes it is currently in material compliance with all applicable requirements
of environmental laws. The Company does not anticipate material capital
expenditures for environmental compliance in fiscal years 2009 or
2010.
Investigation
and remediation of contamination is ongoing at some of the Company's sites.
In
particular, state agencies have been overseeing groundwater monitoring
activities at the Company's facilities in Hartsville, South Carolina and
Fairfield, Connecticut. At Hartsville, the Company is monitoring low levels
of
contaminants in the groundwater caused by former operations. The state will
permit the Company to cease monitoring activities after two consecutive sampling
periods demonstrate contaminants are below action levels. In connection with
the
purchase of the Fairfield, Connecticut facility in 1996, the Company agreed
to
assume responsibility for completing clean-up efforts previously initiated
by
the prior owner. The Company submitted data to the state that the Company
believes demonstrates that no further remedial action is necessary, although
the
state may require additional clean-up or monitoring. In connection with the
purchase of the Company’s Clayton, Georgia facility, the Company agreed to
assume certain responsibilities to implement a corrective action plan concerning
the remediation of certain soil and groundwater contamination present at that
facility. The corrective action plan is in the early stages. Although there
can
be no assurance, the Company does not expect any of those to be
material.
The
Company received notice in 2003 from the U.S. Environmental Protection Agency
that the Company had been named a potentially responsible de
minimis
party
for past disposal of hazardous substances at the Operating Industries, Inc.
Landfill in Monterey, Calif. Any such disposal would have been conducted prior
to the Company's ownership, and the Company notified the former owners of a
potential claim for indemnification based on the indemnity described above.
The
Company is currently negotiating a de
minimis
settlement with the U.S. Environmental Protection Agency and expects that any
settlement, even if the Company is unsuccessful in obtaining indemnification,
will not be material to its financial position or results of
operations.
63
There
are
various claims and legal proceedings against the Company relating to its
operations in the normal course of business, none of which the Company believes
is material to its financial position or results of operations. The Company
currently maintains insurance coverage for product liability
claims.
| 18. |
U.S.
Continued Dumping and Subsidy Offset Act (CDSOA)
Payment
|
On
December 7, 2007, the Company received approximately $255 in payments under
the
U.S. Continued Dumping and Subsidy Act (CDSOA) for 2007. On December 1, 2006,
respectively, the Company received approximately $1,229 in payments under the
CDSOA for 2006. The CDSOA distributes antidumping duties paid by overseas
companies to qualified domestic firms hurt by unfair trade. These payments
have
been classified below Operating Income in “Other non-operating expense (income)”
on the Consolidated Statements of Operations.
| 19. |
Related
Party Transactions
|
On
June
13, 2005, subject to the approval of the Company’s senior lenders under the
Credit Facility and Second Lien Term Loan, which was subsequently obtained,
the
Board of Directors agreed to pay the CEO a one-time special compensation payment
of $5,200 to reimburse the CEO for taxes owed by him in connection with a
previous stock sale by the CEO to Whitney. The Company’s senior lenders approved
the payment on July 13, 2005. As such, the Company recorded a charge of
$5,200 (classified as selling, general and administrative expense) in the
second quarter of fiscal 2006.
| 20. |
Other
Operating Expense, Net
|
Other
operating expense, net is comprised of the following:
|
Fiscal Year Ended
|
||||||||||
|
March 29,
2008
|
March
31,
2007
|
April
1,
2006
|
||||||||
|
Management
fees
|
$
|
—
|
$
|
—
|
$
|
173
|
||||
|
Loss
on disposition of assets
|
131
|
1,917
|
24
|
|||||||
|
Plant
consolidation and moving costs
|
481
|
3,188
|
1,024
|
|||||||
|
Provision
for doubtful accounts
|
114
|
183
|
244
|
|||||||
|
Amortization
of intangibles
|
1,254
|
713
|
667
|
|||||||
|
Other
expense (income)
|
(156
|
)
|
(67
|
)
|
292
|
|||||
|
$
|
1,824
|
$
|
5,934
|
$
|
2,424
|
|||||
| 21. |
Reportable
Segments
|
The
Company operates through operating segments for which separate financial
information is available, and for which operating results are evaluated
regularly by the Company's chief operating decision maker in determining
resource allocation and assessing performance. Those operating segments with
similar economic characteristics and that meet all other required criteria,
including nature of the products and production processes, distribution patterns
and classes of customers, are aggregated as reportable segments. Certain other
operating segments do not exhibit the common attributes mentioned above and
do
not meet the quantitative thresholds for separate disclosure, and their
information is combined and disclosed as "Other". There is also a segment
reflecting corporate charges.
The
Company has four reportable business segments engaged in the manufacture and
sale of the following:
Roller
Bearings.
Roller
bearings are anti-friction bearings that use rollers instead of balls. The
Company manufactures four basic types of roller bearings: heavy duty needle
roller bearings with inner rings, tapered roller bearings, track rollers and
aircraft roller bearings.
Plain
Bearings.
Plain
bearings are produced with either self-lubricating or metal-to-metal designs
and
consists of several sub-classes, including rod end bearings, spherical plain
bearings and journal bearings. Unlike ball bearings, which are used in
high-speed rotational applications, plain bearings are primarily used to rectify
inevitable misalignments in various mechanical components.
64
Ball
Bearings.
The
Company manufactures four basic types of ball bearings: high precision
aerospace, airframe control, thin section and commercial ball bearings which
are
used in high-speed rotational applications.
Other.
Other
consists of two minor operating locations that do not fall into the above
segmented categories. The Company produces precision ground ball bearing screws
at its LPP plant that offer repeatable positioning accuracy in machine tools,
transfer lines, robotic handling and semiconductor equipment. The Company's
Schaublin location produces precision machine tool collets that provide
effective part holding and accurate part location during machining
operations.
Corporate.
Corporate consists of expenses incurred at the corporate office.
The
accounting policies of the reportable segments are the same as those described
in Note 2. Segment performance is evaluated based on segment net sales,
operating income and total assets. Items not allocated to segment operating
income include corporate administrative expenses and certain other amounts.
Identifiable assets by reportable segment consist of those directly identified
with the segment's operations. Corporate assets consist of cash, fixed assets
and certain prepaid expenses.
|
Fiscal Year Ended
|
||||||||||
|
March 29,
2008
|
March 31,
2007
|
April 1,
2006
|
||||||||
|
Net
External Sales
|
||||||||||
|
Roller
|
$
|
97,019
|
$
|
92,123
|
$
|
96,466
|
||||
|
Plain
|
154,535
|
143,907
|
115,091
|
|||||||
|
Ball
|
56,677
|
50,466
|
46,378
|
|||||||
|
Other
|
22,369
|
19,566
|
16,574
|
|||||||
|
$
|
330,600
|
$
|
306,062
|
$
|
274,509
|
|||||
|
Operating
Income
|
||||||||||
|
Roller
|
$
|
28,818
|
$
|
18,766
|
$
|
23,340
|
||||
|
Plain
|
40,982
|
41,163
|
30,955
|
|||||||
|
Ball
|
14,284
|
12,523
|
9,692
|
|||||||
|
Other
|
2,669
|
2,200
|
1,478
|
|||||||
|
Corporate
|
(23,903
|
)
|
(22,733
|
)
|
(26,886
|
)
|
||||
|
$
|
62,850
|
$
|
51,919
|
$
|
38,579
|
|||||
|
Total
Assets
|
||||||||||
|
Roller
|
$
|
88,053
|
$
|
64,491
|
$
|
52,545
|
||||
|
Plain
|
203,201
|
168,350
|
142,957
|
|||||||
|
Ball
|
37,303
|
27,417
|
21,023
|
|||||||
|
Other
|
11,773
|
7,595
|
6,932
|
|||||||
|
Corporate
|
(3,218
|
)
|
5,860
|
52,466
|
||||||
|
$
|
337,112
|
$
|
273,713
|
$
|
275,923
|
|||||
|
Capital
Expenditures
|
||||||||||
|
Roller
|
$
|
10,611
|
$
|
10,872
|
$
|
4,390
|
||||
|
Plain
|
3,919
|
2,502
|
3,490
|
|||||||
|
Ball
|
2,084
|
1,374
|
1,130
|
|||||||
|
Other
|
1,065
|
1,007
|
832
|
|||||||
|
Corporate
|
79
|
419
|
499
|
|||||||
|
$
|
17,758
|
$
|
16,174
|
$
|
10,341
|
|||||
|
Depreciation
& Amortization
|
||||||||||
|
Roller
|
$
|
3,363
|
$
|
3,355
|
$
|
3,073
|
||||
|
Plain
|
4,534
|
3,653
|
3,035
|
|||||||
|
Ball
|
732
|
601
|
1,299
|
|||||||
|
Other
|
1,299
|
1,238
|
1,151
|
|||||||
|
Corporate
|
537
|
799
|
773
|
|||||||
|
$
|
10,465
|
$
|
9,646
|
$
|
9,331
|
|||||
|
Geographic
External Sales
|
||||||||||
|
Domestic
|
$
|
280,510
|
$
|
265,644
|
$
|
243,576
|
||||
|
Foreign
|
50,090
|
40,418
|
30,933
|
|||||||
|
$
|
330,600
|
$
|
306,062
|
$
|
274,509
|
|||||
|
Geographic
Long-Lived Assets
|
||||||||||
|
Domestic
|
$
|
69,975
|
$
|
57,910
|
$
|
55,224
|
||||
|
Foreign
|
3,268
|
3,299
|
2,804
|
|||||||
|
$
|
73,243
|
$
|
61,209
|
$
|
58,028
|
|||||
|
Intersegment
Sales
|
||||||||||
|
Roller
|
$
|
8,298
|
$
|
8,512
|
$
|
9,412
|
||||
|
Plain
|
1,417
|
1,017
|
851
|
|||||||
|
Ball
|
7,105
|
5,053
|
5,099
|
|||||||
|
Other
|
17,093
|
14,825
|
13,313
|
|||||||
|
$
|
33,913
|
$
|
29,407
|
$
|
28,675
|
|||||
65
All
intersegment sales are eliminated in consolidation.
ITEM
9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
The
Company’s management is responsible for establishing and maintaining effective
disclosure controls and procedures, as defined under Rule 13a-15(e) of the
Securities Exchange Act of 1934. As of the end of the period covered by this
report, the Company performed an evaluation, under the supervision and with
the
participation of the Company’s management, including its Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the Company’s disclosure
controls and procedures. Based upon that evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures provide reasonable assurance that the
material information required to be disclosed by the Company in the reports
that
it files or submits to the Securities and Exchange Commission under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Commission’s rules and forms. No
changes were made to the Company’s internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during
the
last fiscal quarter that materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
66
Management’s Report on Internal Control Over Financial Reporting
Management
of RBC Bearings Incorporated is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined
in
Securities Exchange Act of 1934.
The
Company’s internal control over financial reporting is supported by written
policies and procedures that (i) pertain to the maintenance of records that,
in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company’s assets; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and
that
receipts and expenditures of the Company are being made only in accordance
with
authorizations of the Company’s management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under
the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the Company’s internal control over financial
reporting as of March 29, 2008 as required by Securities Exchange Act of 1934.
In making this assessment, we used the criteria set forth in the framework
in
Internal
Control-Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission. Based
on
our evaluation under the framework in Internal
Control-Integrated Framework,
our
management concluded that our internal control over financial reporting was
effective as of March 29, 2008.
The
effectiveness of our internal control over financial reporting as of March
29,
2008 has been audited by Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which appears on the following
page.
RBC
Bearings Incorporated
Oxford,
Connecticut
May
22,
2008
67
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders
RBC
Bearings Incorporated
We
have
audited RBC Bearings Incorporated’s internal control over financial reporting as
of March 29, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). RBC Bearings Incorporated’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on
the
company’s internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, assessing the risk that a material weakness exists,
testing
and evaluating the design and operating effectiveness of internal control
based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or
timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, RBC Bearings Incorporated maintained, in all material respects,
effective internal control over financial reporting as of March 29, 2008,
based
on the
COSO
criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of RBC Bearings
Incorporated as of March 29, 2008 and March 31, 2007, and the related
consolidated statements of operations, stockholders’ equity and
comprehensive income and cash flows, for each of the three years in the period
ended March
29,
2008, and our report dated May 22, 2008 expressed an unqualified opinion
thereon.
/s/
Ernst
& Young LLP
Hartford,
Connecticut
May
22,
2008
68
ITEM
9B. OTHER INFORMATION
None.
PART
III
The
information called for by Part III (Items 10, 11, 12, 13 and 14) of Form 10-K
will be included in our Proxy Statement for our 2008 Annual Meeting of
Shareholders, which the Company intends to file within 120 days after the close
of its fiscal year ended March 29, 2008 and which is incorporated herein by
reference to such Proxy Statement.
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial
Statements
The
following Consolidated Financial Statements of the Company are included in
Item
8, “Financial Statements and Supplementary Data”:
|
Report
of Independent Registered Public Accounting Firm
|
35
|
|
|
Consolidated
Balance Sheets at March 29, 2008 and March 31, 2007
|
36
|
|
|
Consolidated
Statements of Operations for the years ended March 29, 2008, March
31,
2007, and April 1, 2006
|
38
|
|
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income for the years
ended March 29, 2008, March 31, 2007, and April 1, 2006
|
39
|
|
|
Consolidated
Statements of Cash Flows for the years ended March 29, 2008, March
31,
2007, and April 1, 2006
|
40
|
|
|
Notes
to Consolidated Financial Statements
|
41
|
(a) 2. Financial
Statement Schedules
All
schedules have been omitted because of the absence of conditions under which
they are required or because the required information is presented in the
financial statements or notes thereto.
(a) 3. Exhibits
The
following exhibits are filed as part of this report.
Certain
of the following exhibits have been previously filed with the Securities and
Exchange Commission by the Company pursuant to the requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Such exhibits
are identified by the parenthetical references following the listing of each
such exhibit and are incorporated herein by reference. The Company’s Commission
file number is 333-124824.
|
Exhibit
|
||
|
Number
|
Description
of Document
|
|
|
|
||
|
3.1
|
Amended
and Restated Certificate of Incorporation of RBC Bearings Incorporated
dated August 13, 2005 as filed with Amendment No. 4 to RBC Bearings
Incorporated's Registration Statement on Form S-1, file No. 333-124824
(the "Registration Statement") dated August 8, 2005 is hereby incorporated
by reference herein.
|
|
|
3.2
|
Bylaws
of RBC Bearings Incorporated, as filed as Exhibit 3.3 to Amendment
No. 4
to the Registration Statement on Form S-1 dated August 8, 2005 is
hereby
incorporated by reference herein.
|
|
|
4.1
|
Form
of stock certificate for common stock, as filed as Exhibit 4.3 to
RBC
Bearings Incorporated's Amendment No. 3 to Registration Statement
on Form
S-1 dated August 4, 2005 is hereby incorporated by reference
herein.
|
69
|
4.2
|
Form
of Amended and Restated Warrants to Purchase Common Stock, as filed
as
Exhibit 4.7 to RBC Bearing Incorporated’s Registration Statement on Form
S-8 dated March 15, 2006, is hereby incorporated by reference
herein.
|
|
|
4.3
|
Amended
and Restated Warrants to Purchase Class B Supervoting Common Stock,
as
filed as Exhibit 4.8 to RBC Bearing Incorporated’s Registration Statement
on Form S-8 dated March 15, 2006, is hereby incorporated by reference
herein.
|
|
|
10.1
|
Stock
Option Plan of RBC Bearings Incorporated (f/k/a Roller Bearing Holding
Company, Inc.), dated as of February 18, 1998 with form of agreement
filed
as Exhibit 10.2 to the Registration Statement on Form S-1 dated May
11,
2005 is hereby incorporated by reference herein.
|
|
|
10.2
|
Form
of Stock Transfer Restriction Agreement between RBC Bearings Incorporated
(f/k/a Roller Bearing Holding Company, Inc.) and certain of its
stockholders filed as Exhibit 10.2 to the Registration Statement
on Form
S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.3
|
Amended
and Restated 2001 Stock Option Plan of RBC Bearings Incorporated
(f/k/a
Roller Bearing Holding Company, Inc.), dated October 24, 2003 filed
as
Exhibit 10.2 to the Registration Statement on Form S-1 dated May
11, 2005
is hereby incorporated by reference herein.
|
|
|
10.4
|
Form
of RBC Bearings Inc. 2005 Long-Term Equity Incentive Plan, as filed
as
Exhibit 4.6 to RBC Bearing Incorporated’s Registration Statement on Form
S-8 dated November 18, 2005, is hereby incorporated by reference
herein.
|
|
|
10.5
|
Agreement
of Lease between Robear West Trenton Associates, L.P. and Roller
Bearing
Company of America, Inc., dated February 10, 1999, for West Trenton,
New
Jersey premises filed as Exhibit 10.6 to the Registration Statement
on
Form S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.6
|
First
Amendment to Office Lease, dated July 26, 2004, between Robear West
Trenton Associates, L.P. and Roller Bearing Company of America, Inc.
filed
as Exhibit 10.7 to the Registration Statement on Form S-1 dated May
11,
2005 is hereby incorporated by reference herein.
|
|
|
10.7
|
Indenture
of Lease dated March 31, 2004 between Roller Bearing Company of America,
Inc., and Raymond Hunicke, LLC, a Connecticut limited liability company
filed as Exhibit 10.8 to the Registration Statement on Form S-1 dated
May
11, 2005 is hereby incorporated by reference herein.
|
|
|
10.8
|
Executed
counterpart of the Pledge and Security Agreement, dated as of September
1,
1994, between Roller Bearing Company of America, Inc., Heller Financial,
Inc. and Mark Twain Bank filed as Exhibit 10.9 to the Registration
Statement on Form S-1 dated May 11, 2005 is hereby incorporated by
reference herein.
|
|
|
10.9
|
Loan
Agreement, dated as of September 1, 1994, between the South Carolina
Job—Economic Development Authority and Roller Bearing Company of America,
Inc. with respect to the Series 1994A Bonds filed as Exhibit 10.10
to the
Registration Statement on Form S-1 dated May 11, 2005 is hereby
incorporated by reference herein.
|
|
|
10.10
|
Trust
Indenture, dated as of September 1, 1994, between the South Carolina
Job—Economic Development Authority and Mark Twain Bank, as Trustee, with
respect to the Series 1994A Bonds filed as Exhibit 10.12 to the
Registration Statement on Form S-1 dated May 11, 2005 is hereby
incorporated by reference herein.
|
|
|
10.11
|
Loan
Agreement, dated as of September 1, 1994, between the South Carolina
Job—Economic Development Authority and Roller Bearing Company of America,
Inc., with respect to the Series 1994B Bonds filed as Exhibit 10.13
to the
Registration Statement on Form S-1 dated May 11, 2005 is hereby
incorporated by reference herein.
|
|
|
10.12
|
Trust
Indenture, dated as of September 1, 1994, between the South Carolina
Job—Economic Development Authority and Mark Twain Bank, as Trustee, with
respect to the Series 1994B Bonds filed as Exhibit 10.14 to the
Registration Statement on Form S-1 dated May 11, 2005 is hereby
incorporated by reference herein.
|
|
|
10.13
|
Collective
Bargaining Agreement between Heim, the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America,
U.A.W., and Amalgamated Local 376, U.A.W., expires January 31, 2008
filed as Exhibit 10.15 to the Registration Statement on Form S-1
dated May
11, 2005 is hereby incorporated by reference herein.
|
|
|
10.14
|
Collective
Bargaining Agreement between Roller Bearing Company of America, Inc.
and
the International Union U.A.W. and its Local 502, expires June 30,
2007
filed as Exhibit 10.15 to the Registration Statement on Form S-1
dated May
11, 2005 is hereby incorporated by reference herein.
|
|
|
10.15
|
Collective
Bargaining Agreement between Tyson Bearing Company, Inc. and the
United
Steelworkers of America, AFL-CIO, Local 7461- 01, expires June 13,
2008,
as filed as Exhibit 10.18 to Amendment No. 2 to the Registration
Statement
on Form S-1 dated July 26, 2005, is hereby incorporated by reference
herein.
|
70
|
10.16
|
Employment
Agreement, dated as of July 1, 2005, between the Company and Michael
J.
Hartnett, Ph.D filed as Exhibit 10.19 to Amendment No. 4 to the
Registration Statement dated August 8, 2005 is hereby incorporated
by
reference herein.
|
|
|
10.17
|
Amended
and Restated Promissory Note, dated as of December 15, 2000, for
$500,000,
made by Michael J. Hartnett, Ph.D. and payable to Roller Bearing
Company
of America, Inc filed as Exhibit 10.20 to the Registration Statement
on
Form S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.18
|
Loan
Agreement, dated as of April 1, 1999, by and between California
Infrastructure and Economic Development Bank and Roller Bearing Company
of
America, Inc filed as Exhibit 10.21 to the Registration Statement on
Form S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.19
|
Indenture
Of Trust, dated as of April 1, 1999, between California Infrastructure
and
Economic Development Bank and U.S. Bank Trust National Association,
as
Trustee filed as Exhibit 10.22 to the Registration Statement on Form
S-1
dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.20
|
Tax
Regulatory Agreement, dated as of April 1, 1999, by and among California
Infrastructure and Economic Development Bank, U.S. Bank Trust National
Association, as Trustee, and Roller Bearing Company of America, Inc
filed
as Exhibit 10.23 to the Registration Statement on Form S-1 dated
May 11,
2005 is hereby incorporated by reference herein.
|
|
|
10.21
|
Lease
Agreement, dated as of December 17, 1999, between Schaublin SA and
RBC
Schaublin SA filed as Exhibit 10.24 to the Registration Statement
on Form
S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.22
|
Lease
Agreement dated May 17, 2004 by and between Shadowmoss Properties,
LLC, a
South Carolina limited liability company and Roller Bearing Company
of
America, Inc filed as Exhibit 10.33 to the Registration Statement on
Form S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.23
|
Credit
Agreement, dated December 8, 2003, between Credit Suisse and Schaublin
SA
filed as Exhibit 10.34 to the Registration Statement on Form S-1
dated May
11, 2005 is hereby incorporated by reference herein.
|
|
|
10.24
|
Amendment
No. 1 to Credit Agreement, dated November 8, 2004, between Credit
Suisse
and Schaublin SA filed as Exhibit 10.35 to the Registration Statement
on
Form S-1 dated May 11, 2005 is hereby incorporated by reference
herein.
|
|
|
10.25
|
Letter
Agreement by and among RBC Bearings Incorporated, Roller Bearing
Company
of America, Inc. Whitney & Co. and Dr. Michael J. Hartnett dated June
17, 2005, as filed as Exhibit 10.36 to Amendment No. 2 to the Registration
Statement on Form S-1 dated July 26, 2005, is hereby incorporated
by
reference herein.
|
|
|
10.26
|
Second
Amended and Restated Stockholders' Agreement by and among RBC Bearings
Incorporated, Whitney RBHC Investor, LLC, Whitney V.L.P., Dr. Michael
J.
Hartnett and Hartnett Family Investments, L.P. dated February 6,
2003
filed as Exhibit 10.37 to Amendment No. 4 to the Registration Statement
dated August 9, 2005 is hereby incorporated by reference
herein.
|
|
|
10.27
|
Amendment
No. 1 dated August 13, 2005 to the Second Amended and Restated
Stockholders' Agreement by and among RBC Bearings Incorporated, Whitney
RBHC Investors, LLC, Whitney V.L.P., Dr. Michael J. Hartnett and
Hartnett
Family Investments, L.P. dated February 6, 2003, filed as Exhibit
10.38 to Amendment No. 4 to the Registration Statement dated August
9,
2005 is hereby incorporated by reference herein.
|
|
|
10.28
|
Purchase
Agreement dated August 9, 2005 filed as Exhibit 1.1 to Form 8-K dated
August 15, 2005 is hereby incorporated by reference
herein.
|
|
|
10.29
|
Purchase
Agreement dated April 11, 2006 filed as Exhibit 1.1 to Form 8-K dated
April 13, 2006 is hereby incorporated by reference
herein.
|
|
|
10.30
|
Credit
Agreement, dated as of June 26, 2006, among Roller Bearing Company
of
America, Inc., RBC Bearings Incorporated, the Lenders named therein,
KeyBank National Association, J.P. Morgan Securities Inc. and LaSalle
Bank
National Association, filed as Exhibit 99.1 to Form 8-K dated July
18,
2006 is hereby incorporated by reference herein.
|
|
|
10.31
|
Parent
Guaranty, dated as of June 26, 2006, by RBC Bearings Incorporated,
in
favor of KeyBank National Association, filed as Exhibit 99.2 to Form
8-K
dated July 18, 2006 is hereby incorporated by reference
herein.
|
|
|
10.32
|
Security
Agreement, dated as of June 26, 2006, among Roller Bearing Company
of
America, Inc., RBC Bearings Incorporated, the Subsidiary Guarantors
(as
defined therein), and KeyBank National Association, filed as Exhibit
99.3
to Form 8-K dated July 18, 2006 is hereby incorporated by reference
herein.
|
71
|
10.33
|
RBC
Bearings Incorporated 2005 Long Term Incentive Plan (Amended and
Restated
as of August 29, 2007) filed as Exhibit 10.1 on Form 8-K dated August
30,
2007 is hereby incorporated by reference herein.
|
|
|
10.34
|
Amendment
No. 2 to Credit Agreement, dated as of September 10, 2007 by and
between
Roller Bearing Company of America, Inc., RBC Bearings Incorporated
and
KeyBank National Association, as Administrative Agent and Lender
filed as
Exhibit 10.1 on Form 8-K dated September 10, 2007 is hereby incorporated
by reference herein.
|
|
|
10.35
|
Agreement
between RBC Heim Bearings and Local No. 376 International Union,
United
Automobile, Aerospace and Agricultural Implement Workers of America
effective February 1, 2008 filed as Exhibit 10.5 on Form 10-Q dated
February 7, 2008 is hereby incorporated by reference
herein.
|
|
|
14.1
|
Code
of Ethics of the Registrant filed as Exhibit 14 to Form 10-Q dated
February 14, 2006 is hereby incorporated by reference
herein.
|
|
|
21
|
Subsidiaries
of the Registrant. Filed herewith.
|
|
|
23
|
Consent
of Ernst & Young LLP. Filed herewith.
|
|
|
31.1
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Certification
of Chief Executive Officer Pursuant to Securities Exchange Act
Rule 13a-14(a). Filed herewith.
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31.2
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Certification
of Chief Financial Officer Pursuant to Securities Exchange Act
Rule 13a-14(a). Filed herewith.
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32.1
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Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and
Securities Exchange Act Rule 13a-14(b).* Filed
herewith.
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32.2
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Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and
Securities Exchange Act Rule 13a-14(b).* Filed
herewith.
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* This
certification accompanies this Annual Report on Form 10-K, is not deemed
filed with the SEC and is not to be incorporated by reference into any filing
of
the Company under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (whether made before or after the date of
this
Annual Report on Form 10-K), irrespective of any general incorporation
language contained in such filing.
72
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
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RBC
Bearings Incorporated
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(Registrant)
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By:
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/s/
Dr.
Michael J. Hartnett
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Name:
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Dr.
Michael J. Hartnett
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||
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Title:
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Chief
Executive Officer
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||
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Date:
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May
28 , 2008
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||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has
been
signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
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Signature
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Title
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/s/
Dr.
Michael J. Hartnett
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Chairman,
President and Chief Executive Officer
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Dr.
Michael J. Hartnett
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(Principal
Executive Officer and Chairman)
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Date:
May 28, 2008
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||
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/s/
Daniel
A. Bergeron
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Chief
Financial Officer
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Daniel
A. Bergeron
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(Principal
Financial and Accounting Officer)
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Date:
May 28, 2008
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||
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/s/
Thomas
Burigo
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Corporate
Controller
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Thomas
Burigo
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Date:
May 28, 2008
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/s/
Richard
R. Crowell
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Director
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Richard
R. Crowell
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Date:
May 28, 2008
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||
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/s/
William
P. Killian
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Director
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William
P. Killian
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Date:
May 28, 2008
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/s/
Alan
B. Levine
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Director
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Alan
B. Levine
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Date:
May 28, 2008
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||
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/s/
Dr.
Amir Faghri
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Director
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Dr.
Amir Faghri
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Date:
May
28, 2008
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||
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/s/
Dr.
Thomas J. O’Brien
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Director
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Dr.
Thomas J. O'Brien
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||
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Date:
May
28, 2008
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73
Exhibit
21
Roller
Bearing Company of America, Inc.
RBC
Precision Products—Plymouth, Inc.
Industrial
Tectonics Bearings Corporation
RBC
Linear Precision Products, Inc.
RBC
Precision Products—Bremen, Inc.
RBC
Nice
Bearings, Inc.
Tyson
Bearing Company, Inc.
RBC
Oklahoma, Inc.
RBC
Aircraft Products, Inc.
RBC
Southwest Products, Inc.
All
Power
Manufacturing Co.
RBC
de
Mexico S DE RL DE CV
Schaublin
Holdings S.A.
Schaublin
SA
J.
Bovagnet SA
RBC
France SAS
Shanghai
Representative office of Roller Bearing Company of America, Inc.
RBC
Bearings U.K. Limited
RBC
CBS
Coastal Bearing Services LLC
Exhibit 23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-129826) pertaining to the RBC Bearings Incorporated 2005 Long-Term
Equity Incentive Plan, the RBC Bearings Incorporated Amended and Restated
2001
Stock Option Plan, the RBC Bearings Incorporated 1998 Stock Option Plan,
and the
June 23, 1997 RBC Bearings Incorporated Warrant Agreements of our reports
dated
May 22, 2008 with respect to the consolidated financial statements of RBC
Bearings Incorporated and the effectiveness of internal control over financial
reporting of RBC Bearings Incorporated, included in this Annual Report (Form
10-K) for the year ended March 29, 2008.
/s/
Ernst
& Young LLP
Hartford,
Connecticut
May
22,
2008
Exhibit 31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Dr.
Michael J. Hartnett, certify that:
1.
I have
reviewed this annual report on Form 10-K of RBC Bearings
Incorporated;
2.
Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including any consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; and
c)
evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
and
5.
The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a)
all
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b)
any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant’s internal control over financial
reporting.
|
Date:
May 28, 2008
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By:
|
/s/
Dr. Michael J. Hartnett
|
|
Dr.
Michael J. Hartnett
|
||
|
President
and Chief Executive Officer
|
Exhibit 31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Daniel
A. Bergeron, certify that:
1.
I have
reviewed this annual report on Form 10-K of RBC Bearings
Incorporated;
2.
Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including any consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; and
c)
evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
and
5.
The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a)
all
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b)
any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant’s internal control over financial
reporting.
|
Date:
May 28, 2008
|
By:
|
/s/
Daniel A. Bergeron
|
|
Daniel
A. Bergeron
|
||
|
Chief
Financial Officer
|
Exhibit 32.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO
18
U.S.C
SECTION 1350
The
undersigned, Dr. Michael J. Hartnett, the President and Chief Executive Officer
of RBC Bearings Incorporated (the “Company”), pursuant to 18 U.S.C. §1350,
hereby certifies that:
(i) the
Annual Report on Form 10-K for the year ended March 29, 2008 of the Company
(the “Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(ii) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Dated:
May 28, 2008
|
/s/
Dr. Michael J. Hartnett
|
|
Dr.
Michael J. Hartnett
|
|
President
and Chief Executive Officer
|
Exhibit 32.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO
18
U.S.C.
SECTION 1350
The
undersigned, Daniel A. Bergeron, Chief Financial Officer, of RBC Bearings
Incorporated (the “Company”), pursuant to 18 U.S.C. §1350, hereby
certifies:
(i) the
Annual Report on Form 10-K for the period ended March 29, 2008 of the
Company (the “Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(ii) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Dated:
May
28,
2008
|
/s/
Daniel A. Bergeron
|
|
Daniel
A. Bergeron
|
|
Chief
Financial Officer
|