UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended September 26, 2009
OR
¨ 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
|
06478
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(203)
267-7001
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
|
Large
accelerated filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o (Do not
check if a smaller reporting company) 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 ¨ No x
As of
October 23, 2009, RBC Bearings Incorporated had 21,703,923 shares of Common
Stock outstanding.
TABLE
OF CONTENTS
|
Part
I - FINANCIAL INFORMATION
|
3
|
|
|
|
|
|
ITEM
1.
|
Unaudited
Consolidated Financial Statements
|
3
|
|
ITEM
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
|
|
ITEM
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
20
|
|
ITEM
4.
|
Controls
and Procedures
|
21
|
|
|
Changes
in Internal Control over Financial Reporting
|
21
|
|
|
|
|
|
Part
II - OTHER INFORMATION
|
22
|
|
|
|
|
|
ITEM
1.
|
Legal
Proceedings
|
22
|
|
ITEM
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
22
|
|
ITEM
3.
|
Defaults
Upon Senior Securities
|
23
|
|
ITEM
4.
|
Submission
of Matters to a Vote of Security Holders
|
23
|
|
ITEM
5.
|
Other
Information
|
23
|
|
ITEM
6.
|
Exhibits
|
23
|
PART
I. FINANCIAL INFORMATION
ITEM 1. Financial
Statements
RBC
Bearings Incorporated
Consolidated
Balance Sheets
(dollars
in thousands, except share and per share data)
|
|
|
|
|
|
|
|
| |
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
36,795 |
|
|
$ |
30,557 |
|
|
Short-term
investments
|
|
|
4,825 |
|
|
|
— |
|
|
Accounts
receivable, net of allowance for doubtful accounts of $1,557
at September 26, 2009 and $1,571 at March 28,
2009
|
|
|
48,230 |
|
|
|
63,692 |
|
|
Inventory
|
|
|
138,879 |
|
|
|
134,275 |
|
|
Deferred
income taxes
|
|
|
9,061 |
|
|
|
6,677 |
|
|
Prepaid
expenses and other current assets
|
|
|
7,800
|
|
|
|
8,912
|
|
|
Total
current assets
|
|
|
245,590 |
|
|
|
244,113 |
|
|
Property,
plant and equipment, net
|
|
|
88,222 |
|
|
|
87,697 |
|
|
Goodwill
|
|
|
33,000 |
|
|
|
32,999 |
|
|
Intangible
assets, net of accumulated amortization of $5,638 at September
26, 2009 and $5,035 at March 28, 2009
|
|
|
12,425 |
|
|
|
12,673 |
|
|
Other
assets
|
|
|
5,096
|
|
|
|
4,585
|
|
|
Total
assets
|
|
$ |
384,333
|
|
|
$ |
382,067
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
13,928 |
|
|
$ |
20,525 |
|
|
Accrued
expenses and other current liabilities
|
|
|
15,507 |
|
|
|
16,533 |
|
|
Current
portion of long-term debt
|
|
|
1,005
|
|
|
|
1,151
|
|
|
Total
current liabilities
|
|
|
30,440 |
|
|
|
38,209 |
|
|
Long-term
debt, less current portion
|
|
|
62,000 |
|
|
|
67,000 |
|
|
Deferred
income taxes
|
|
|
6,509 |
|
|
|
6,341 |
|
|
Other
non-current liabilities
|
|
|
14,937
|
|
|
|
14,506
|
|
|
Total
liabilities
|
|
|
113,886 |
|
|
|
126,056 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; authorized shares: 10,000,000 at September 26, 2009
and March 28, 2009; none issued and outstanding
|
|
|
— |
|
|
|
— |
|
|
Common
stock, $.01 par value; authorized shares: 60,000,000 at September 26, 2009
and March 28, 2009; issued and outstanding shares: 21,838,486 shares at
September 26, 2009 and March 28, 2009, respectively
|
|
|
218 |
|
|
|
218 |
|
|
Additional
paid-in capital
|
|
|
188,591 |
|
|
|
187,139 |
|
|
Accumulated
other comprehensive income (loss)
|
|
|
301 |
|
|
|
(3,327 |
) |
|
Retained
earnings
|
|
|
85,613 |
|
|
|
76,142 |
|
|
Treasury
stock, at cost, 137,838 shares at September 26, 2009 and 132,230 shares at
March 28, 2009
|
|
|
(4,276 |
) |
|
|
(4,161 |
) |
|
Total
stockholders' equity
|
|
|
270,447
|
|
|
|
256,011
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
384,333
|
|
|
$ |
382,067
|
|
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Operations
(dollars
in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
63,657 |
|
|
$ |
94,294 |
|
|
$ |
127,389 |
|
|
$ |
186,674 |
|
|
Cost
of sales
|
|
|
44,564
|
|
|
|
64,077
|
|
|
|
88,392
|
|
|
|
125,902
|
|
|
Gross
margin
|
|
|
19,093 |
|
|
|
30,217 |
|
|
|
38,997 |
|
|
|
60,772 |
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
11,132 |
|
|
|
13,952 |
|
|
|
22,751 |
|
|
|
27,079 |
|
|
Other,
net
|
|
|
724
|
|
|
|
1,097
|
|
|
|
1,230
|
|
|
|
1,479
|
|
|
Total
operating expenses
|
|
|
11,856
|
|
|
|
15,049
|
|
|
|
23,981
|
|
|
|
28,558
|
|
|
Operating
income
|
|
|
7,237 |
|
|
|
15,168 |
|
|
|
15,016 |
|
|
|
32,214 |
|
|
Interest
expense, net
|
|
|
460 |
|
|
|
650 |
|
|
|
929 |
|
|
|
1,331 |
|
|
Loss
on early extinguishment of debt
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
319 |
|
|
Other
non-operating expense (income)
|
|
|
85
|
|
|
|
249
|
|
|
|
(240 |
) |
|
|
166
|
|
|
Income
before income taxes
|
|
|
6,692 |
|
|
|
14,269 |
|
|
|
14,327 |
|
|
|
30,398 |
|
|
Provision
for income taxes
|
|
|
2,288
|
|
|
|
4,681
|
|
|
|
4,856
|
|
|
|
10,127
|
|
|
Net
income
|
|
$ |
4,404 |
|
|
$ |
9,588 |
|
|
$ |
9,471 |
|
|
$ |
20,271 |
|
|
Net
income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.20 |
|
|
$ |
0.44 |
|
|
$ |
0.44 |
|
|
$ |
0.94 |
|
|
Diluted
|
|
$ |
0.20 |
|
|
$ |
0.44 |
|
|
$ |
0.44 |
|
|
$ |
0.93 |
|
|
Weighted
average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,591,779 |
|
|
|
21,567,551 |
|
|
|
21,587,193 |
|
|
|
21,564,463 |
|
|
Diluted
|
|
|
21,746,552 |
|
|
|
21,761,677 |
|
|
|
21,718,805 |
|
|
|
21,771,849 |
|
See
accompanying notes.
RBC
Bearings Incorporated
Consolidated
Statements of Cash Flows
(dollars
in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
9,471 |
|
|
$ |
20,271 |
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5,222 |
|
|
|
5,651 |
|
|
Excess
tax benefits from stock-based compensation
|
|
|
— |
|
|
|
(99 |
) |
|
Deferred
income taxes
|
|
|
(2,217 |
) |
|
|
404 |
|
|
Amortization
of intangible assets
|
|
|
645 |
|
|
|
765 |
|
|
Amortization
of deferred financing costs
|
|
|
102 |
|
|
|
115 |
|
|
Stock-based
compensation
|
|
|
1,453 |
|
|
|
1,105 |
|
|
Loss
on disposition of assets
|
|
|
19 |
|
|
|
375 |
|
|
Loss
on early extinguishment of debt (non-cash portion)
|
|
|
— |
|
|
|
319 |
|
|
Changes
in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
16,448 |
|
|
|
(520 |
) |
|
Inventory
|
|
|
(2,548 |
) |
|
|
(6,820 |
) |
|
Prepaid
expenses and other current assets
|
|
|
1,155 |
|
|
|
393 |
|
|
Other
non-current assets
|
|
|
(982 |
) |
|
|
(1,107 |
) |
|
Accounts
payable
|
|
|
(6,904 |
) |
|
|
403 |
|
|
Accrued
expenses and other current liabilities
|
|
|
(1,149 |
) |
|
|
2,313 |
|
|
Other
non-current liabilities
|
|
|
664
|
|
|
|
375
|
|
|
Net
cash provided by operating activities
|
|
|
21,379 |
|
|
|
23,943 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
(6,021 |
) |
|
|
(11,020 |
) |
|
Purchase
of short-term investments
|
|
|
(4,825 |
) |
|
|
— |
|
|
Acquisition
of businesses, net of cash acquired
|
|
|
— |
|
|
|
(6,579 |
) |
|
Proceeds
from sale of assets
|
|
|
—
|
|
|
|
525
|
|
|
Net
cash used in investing activities
|
|
|
(10,846 |
) |
|
|
(17,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in revolving credit facility
|
|
|
(5,000 |
) |
|
|
9,000 |
|
|
Exercise
of stock options
|
|
|
— |
|
|
|
253 |
|
|
Excess
tax benefits from stock-based compensation
|
|
|
— |
|
|
|
99 |
|
|
Repurchase
of common stock
|
|
|
(115 |
) |
|
|
(510 |
) |
|
Retirement
of industrial revenue bonds
|
|
|
— |
|
|
|
(15,500 |
) |
|
Payments
on notes payable
|
|
|
(140 |
) |
|
|
(60 |
) |
|
Principal
payments on capital lease obligations and other
|
|
|
(148 |
) |
|
|
(102 |
) |
|
Net
cash used in financing activities
|
|
|
(5,403 |
) |
|
|
(6,820 |
) |
|
Effect
of exchange rate changes on cash
|
|
|
1,108
|
|
|
|
(646 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) during the period
|
|
|
6,238 |
|
|
|
(597 |
) |
|
Cash,
at beginning of period
|
|
|
30,557
|
|
|
|
9,859
|
|
|
Cash,
at end of period
|
|
$ |
36,795
|
|
|
$ |
9,262
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
834 |
|
|
$ |
1,218 |
|
|
Income
taxes
|
|
$ |
5,309 |
|
|
$ |
9,840 |
|
See
accompanying notes.
RBC
Bearings Incorporated
Notes
to Unaudited Interim Consolidated Financial Statements
(dollars
in thousands, except share and per share data)
The
consolidated financial statements included herein have been prepared by RBC
Bearings Incorporated, a Delaware corporation (collectively with its
subsidiaries, the “Company”), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The March 28, 2009 fiscal
year end balance sheet data have been derived from the Company’s audited
financial statements, but do not include all disclosures required by generally
accepted accounting principles in the United States. The interim financial
statements included with this report have been prepared on a consistent basis
with the Company’s audited financial statements and notes thereto included in
the Company’s Annual Report on Form 10-K for the fiscal year ended March 28,
2009.
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”), BEMD Company
(“BEMD”) and PIC Design (“PIC Design”) divisions of RBCA. U.S. Bearings (“USB”)
is a division of SWP and Schaublin USA is a division of Nice. All
intercompany balances and transactions have been eliminated in
consolidation.
These
statements reflect all adjustments, accruals and estimates consisting only of
items of a normal recurring nature, which are, in the opinion of management,
necessary for the fair presentation of the consolidated financial condition and
consolidated results of operations for the interim periods
presented. These financial statements should be read in conjunction
with the Company’s audited financial statements and notes thereto included in
the Annual Report on Form 10-K.
The
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.
The Company has performed a review of
subsequent events through the date of filing (November 2, 2009) of this Form
10-Q.
The results of operations for the
three and six month periods ended September 26, 2009 are not necessarily
indicative of the operating results for the full year. The six month periods
ended September 26, 2009 and September 27, 2008 each include 26 weeks. The
amounts shown are in thousands, unless otherwise indicated.
Adoption
of Recent Accounting Pronouncements
In June
2009, the FASB issued SFAS No. 168, which was later superseded by the FASB
Codification and included in ASC 105-10, “Generally Accepted Accounting
Principles – Overall” (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting
Standards Codification™ (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. The Codification does not change current U.S. GAAP, but is intended to
simplify user access to all authoritative U.S. GAAP by providing all the
authoritative literature related to a particular topic in one place. The
Codification is effective for interim and annual periods ending after September
15, 2009, and as of the effective date, all existing accounting standard
documents will be superseded. The Codification is effective for the Company in
the quarter ending September 26, 2009. Accordingly, the Company’s Quarterly
Report on Form 10-Q for the quarter ending September 26, 2009 and all subsequent
public filings reference the Codification as the sole source of authoritative
literature. The new pronouncement does not have an impact on the Company's
results of operations or financial position.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 157, later superseded by
the FASB Codification and included in ASC 820-10, “Fair Value Measurement and
Disclosure - Overall” (“ASC 820-10”), in order to establish a single definition
of fair value and a framework for measuring fair value that is intended to
result in increased consistency and comparability in fair value measurements.
The Company completed the adoption of ASC 820-10 as of the beginning of its 2010
fiscal year, which did not have an impact on the Company’s results of operations
and financial position.
In
December 2008, the FASB issued FASB Staff Position, or FSP, No. FAS
132(R)-1,amending SFAS 132, which was later superseded by the FASB Codification
and included in ASC 715-20, “Defined Benefit Plans - General” (“ASC
715-20”). ASC 715-20 requires enhanced disclosures about plan assets in an
employer’s defined benefit pension or other postretirement
plans. These disclosures are intended to provide users of financial
statements with a greater understanding of how investment allocation decisions
are made, the major categories of plan assets, the inputs and valuation
techniques used to measure the fair value of plan assets and significant
concentrations of risk within plan assets. ASC 715-20 will apply to
the Company’s plan asset disclosures in its fiscal year ending April 3,
2010. The Company is currently evaluating the disclosure implications
of this pronouncement, however the adoption of it will not have an impact on the
Company’s results of operations and financial position.
1. Net
Income Per Common Share
Basic net
income per common share is computed by dividing net income available to common
stockholders by the weighted-average number of common shares
outstanding.
Diluted
net income per common share is computed by dividing net income by the sum of the
weighted-average number of common shares, dilutive common share equivalents then
outstanding using the treasury stock method. Common share equivalents consist of
the incremental common shares issuable upon the exercise of stock
options.
The table
below reflects the calculation of weighted-average shares outstanding for each
period presented as well as the computation of basic and diluted net income per
common share:
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
September 26,
2009
|
|
|
September 27,
2008
|
|
|
September 26,
2009
|
|
|
September 27,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,044 |
|
|
$ |
9,588 |
|
|
$ |
9,471 |
|
|
$ |
20,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic net income per common share—weighted-average
shares
|
|
|
21,591,779 |
|
|
|
21,567,551 |
|
|
|
21,587,193 |
|
|
|
21,564,463 |
|
|
Effect
of dilution due to employee stock options
|
|
|
154,773 |
|
|
|
194,126 |
|
|
|
131,612 |
|
|
|
207,386 |
|
|
Denominator
for diluted net income per common share — weighted-average
shares
|
|
|
21,746,552 |
|
|
|
21,761,677 |
|
|
|
21,718,805 |
|
|
|
21,771,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per common share
|
|
$ |
0.20 |
|
|
$ |
0.44 |
|
|
$ |
0.44 |
|
|
$ |
0.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per common share
|
|
$ |
0.20 |
|
|
$ |
0.44 |
|
|
$ |
0.44 |
|
|
$ |
0.93 |
|
Basic weighted-average common shares do
not include 107,190 unvested restricted stock shares.
At September 26, 2009, 846,700 employee
stock options have been excluded from the calculation of diluted earnings per
share, as the inclusion of these shares would be anti-dilutive. No
such options were excluded at September 27, 2008.
2. 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.
3. Short-term
Investments
Short-term investments include
corporate bonds that are classified as available-for-sale expected to be sold
within the next twelve months. These bonds, with an amortized basis
of $4,663 and with maturity dates ranging from March 2011 to November 2012, were
measured at fair value by using quoted prices in active markets for identical
assets and are classified as Level 1 of the valuation hierarchy. The
impact of these investments on results of operations and financial position was
not significant.
4. Inventory
Inventories
are stated at the lower of cost or market, using the first-in, first-out method,
and are summarized below:
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
11,038 |
|
|
$ |
11,325 |
|
|
Work
in process
|
|
|
39,833 |
|
|
|
39,155 |
|
|
Finished
goods
|
|
|
88,008
|
|
|
|
83,795
|
|
|
|
|
$ |
138,879
|
|
|
$ |
134,275
|
|
5. Comprehensive
Income
Total
comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,404 |
|
|
$ |
9,588 |
|
|
$ |
9,471 |
|
|
$ |
20,271 |
|
|
Net
prior service cost and actuarial losses, net of taxes
|
|
|
16 |
|
|
|
(13 |
) |
|
|
32 |
|
|
|
(27 |
) |
|
Change
in fair value of derivatives, net of taxes
|
|
|
28 |
|
|
|
(87 |
) |
|
|
154 |
|
|
|
417 |
|
|
Unrealized
gain on investments, net of taxes
|
|
|
82 |
|
|
|
— |
|
|
|
82 |
|
|
|
— |
|
|
Foreign
currency translation adjustments
|
|
|
1,873
|
|
|
|
(1,945 |
) |
|
|
3,360
|
|
|
|
(2,689 |
) |
|
Total
comprehensive income
|
|
$ |
6,403 |
|
|
$ |
7,543 |
|
|
$ |
13,099 |
|
|
$ |
17,972 |
|
6. Debt
The balances payable under all
borrowing facilities are as follows:
|
|
|
|
|
|
|
|
|
KeyBank
Credit Agreement, five-year senior secured revolving credit facility;
amounts outstanding bear interest at LIBOR plus a specified margin (LIBOR
0.25% and 0.5% at September 26, 2009 and March 28, 2009,
respectively)
|
|
$ |
62,000 |
|
|
$ |
67,000 |
|
|
Note
Payable
|
|
|
1,005
|
|
|
|
1,151
|
|
|
Total
Debt
|
|
|
63,005 |
|
|
|
68,151 |
|
|
Less:
Current Portion
|
|
|
1,005
|
|
|
|
1,151
|
|
|
Long-Term
Debt
|
|
$ |
62,000
|
|
|
$ |
67,000
|
|
The current portion of long-term
debt includes notes payable related to the acquisitions of AID, BEMD and All
Power.
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 September 26, 2009 was a liability of $1,444,
included in other current liabilities, and was measured using observable market
inputs such as the current market price (as provided by the financial
institution with which the swap has been executed). Based on these inputs, the
swap is classified within Level 2 of the valuation hierarchy. This instrument is
designated and qualifies as a cash flow hedge. Accordingly, the gain or loss on
both the hedging instrument and the hedged item attributable to the hedged risk
are recognized in other comprehensive income.
7. Income
Taxes
The
Company files income tax returns in the U.S. federal jurisdiction, and various
states and foreign jurisdictions. With few exceptions, the Company is
no longer subject to state or foreign income tax examinations by tax authorities
for years ending before 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. The Company is currently
under examination for fiscal years 2007 and 2008.
There
have been no material changes to the total amount of unrecognized tax benefits
during the three and six months ended September 26, 2009.
The
effective income tax rates for the three and six month periods ended September
26, 2009 and September 27, 2008 were 34.2% and 32.8% and 33.9% and 33.3%,
respectively. The effective income tax rates are below the U.S. statutory rate
due to foreign income taxed at lower rates and a special manufacturing deduction
in the U.S.
8.
Reportable Segments
The Company operates through operating
segments for which separate financial information is available, and for which
operating results are evaluated regularly by the Company's chief operating
decision maker in determining resource allocation and assessing performance.
Those operating segments with similar economic characteristics and that meet all
other required criteria, including nature of the products and production
processes, distribution patterns and classes of customers, are aggregated as
reportable segments. Certain other operating segments do not exhibit the common
attributes mentioned above and do not meet the quantitative thresholds for
separate disclosure, and their information is combined and disclosed as "Other".
There is also a segment reflecting corporate charges.
The Company has four reportable
business segments engaged in the manufacture and sale of the
following:
Roller
Bearings. Roller bearings are anti-friction bearings that use
rollers instead of balls. The Company manufactures four basic types of roller
bearings: heavy duty needle roller bearings with inner rings, tapered roller
bearings, track rollers and aircraft roller bearings.
Plain
Bearings. Plain bearings are produced with either
self-lubricating or metal-to-metal designs and consists of several sub-classes,
including rod end bearings, spherical plain bearings and journal bearings.
Unlike ball bearings, which are used in high-speed rotational applications,
plain bearings are primarily used to rectify inevitable misalignments in various
mechanical components.
Ball
Bearings. The Company manufactures four basic types of ball
bearings: high precision aerospace, airframe control, thin section and
commercial ball bearings which are used in high-speed rotational
applications.
Other. Other
consists of three minor operating locations that do not fall into the above
segmented categories. The Company’s precision machine tool
collets provide effective part holding and accurate part location
during machining operations. Additionally, the Company provides machining for
integrated bearing assemblies and aircraft components for the commercial and
defense aerospace markets and tight-tolerance, precision mechanical components
for use in the motion control industry.
Corporate. Corporate
consists of expenses incurred at the corporate office.
Segment
performance is evaluated based on segment net sales and operating income. Items
not allocated to segment operating income include corporate administrative
expenses and certain other amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
External Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roller
|
|
$ |
17,311 |
|
|
$ |
25,666 |
|
|
$ |
32,879 |
|
|
$ |
50,623 |
|
|
Plain
|
|
|
30,262 |
|
|
|
43,181 |
|
|
|
61,262 |
|
|
|
86,896 |
|
|
Ball
|
|
|
11,370 |
|
|
|
16,555 |
|
|
|
23,612 |
|
|
|
31,601 |
|
|
Other
|
|
|
4,714 |
|
|
|
8,892 |
|
|
|
9,636 |
|
|
|
17,554 |
|
|
|
|
$ |
63,657 |
|
|
$ |
94,294 |
|
|
$ |
127,389 |
|
|
$ |
186,674 |
|
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roller
|
|
$ |
5,213 |
|
|
$ |
6,770 |
|
|
$ |
9,833 |
|
|
$ |
13,858 |
|
|
Plain
|
|
|
5,989 |
|
|
|
10,955 |
|
|
|
11,762 |
|
|
|
22,042 |
|
|
Ball
|
|
|
1,306 |
|
|
|
3,631 |
|
|
|
3,506 |
|
|
|
7,241 |
|
|
Other
|
|
|
63 |
|
|
|
272 |
|
|
|
115 |
|
|
|
1,253 |
|
|
Corporate
|
|
|
(5,334 |
) |
|
|
(6,460 |
) |
|
|
(10,200 |
) |
|
|
(12,180 |
) |
|
|
|
$ |
7,237 |
|
|
$ |
15,168 |
|
|
$ |
15,016 |
|
|
$ |
32,214 |
|
|
Geographic
External Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
54,007 |
|
|
$ |
80,182 |
|
|
$ |
108,251 |
|
|
$ |
157,280 |
|
|
Foreign
|
|
|
9,650 |
|
|
|
14,112 |
|
|
|
19,138 |
|
|
|
29,394 |
|
|
|
|
$ |
63,657 |
|
|
$ |
94,294 |
|
|
$ |
127,389 |
|
|
$ |
186,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roller
|
|
$ |
2,398 |
|
|
$ |
2,763 |
|
|
$ |
4,361 |
|
|
$ |
5,229 |
|
|
Plain
|
|
|
346 |
|
|
|
411 |
|
|
|
700 |
|
|
|
1,062 |
|
|
Ball
|
|
|
1,047 |
|
|
|
2,211 |
|
|
|
2,703 |
|
|
|
4,192 |
|
|
Other
|
|
|
3,470 |
|
|
|
5,020 |
|
|
|
7,572 |
|
|
|
9,703 |
|
|
|
|
$ |
7,261 |
|
|
$ |
10,405 |
|
|
$ |
15,336 |
|
|
$ |
20,186 |
|
All
intersegment sales are eliminated in consolidation.
9.
Subsequent Event
On September 29, 2009, the Company
acquired certain assets of Lubron Bearing Systems (“Lubron”) for approximately
$2,900. Lubron, located in Huntington Beach, California, is a manufacturer of
highly engineered self-lubricating bearings used in bridge building, power
generation, subsea oil production and earthquake seismic isolation. Lubron will
be included in the Plain Bearings segment.
ITEM
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Cautionary
Statement As To Forward-Looking Information
The
information in this discussion contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 which are subject to the “safe harbor” created
by those sections. All statements other than statements of historical facts,
included in this quarterly report on Form 10-Q regarding our strategy, future
operations, future financial position, future revenues, projected costs,
prospects and plans and objectives of management are “forward-looking
statements” as the term is defined in the Private Securities Litigation Reform
Act of 1995.
The
words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,”
“plans,” “projects,” “will,” “would” and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these identifying words. We may not actually achieve the
plans, intentions or expectations disclosed in our forward-looking statements
and you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially from the
plans, intentions and expectations disclosed in the forward-looking statements
that we make. These forward-looking statements involve risks and
uncertainties that could cause our actual results to differ materially from
those in the forward-looking statements, including, without
limitation: (a) the bearing industry is highly competitive, and this
competition could reduce our profitability or limit our ability to grow; (b) the
loss of a major customer could result in a material reduction in our revenues
and profitability; (c) 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; (d) future reductions or
changes in U.S. government spending could negatively affect our business; (e)
fluctuating supply and costs of raw materials and energy resources could
materially reduce our revenues, cash flow from operations and profitability; (f)
our products are subject to certain approvals, and the loss of such approvals
could materially reduce our revenues and profitability; (g) restrictions in our
indebtedness agreements could limit our growth and our ability to respond to
changing conditions; (h) work stoppages and other labor problems could
materially reduce our ability to operate our business; (i) our business is
capital intensive and may consume cash in excess of cash flow from our
operations; (j) unexpected equipment failures, catastrophic events or capacity
constraints may increase our costs and reduce our sales due to production
curtailments or shutdowns; (k) we may not be able to continue to make the
acquisitions necessary for us to realize our growth strategy; (l) the costs and
difficulties of integrating acquired businesses could impede our future growth;
(m) we depend heavily on our senior management and other key personnel, the loss
of whom could materially affect our financial performance and prospects; (n) our
international operations are subject to risks inherent in such activities; (o)
currency translation risks may have a material impact on our results of
operations; (p) we may be required to make significant future contributions to
our pension plan; (q) we may incur material losses for product liability and
recall related claims; (r) environmental regulations impose substantial costs
and limitations on our operations, and environmental compliance may be more
costly than we expect; (s) 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; (t) cancellation of orders in our backlog
of orders could negatively impact our revenues; (u) 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; and (v) provisions in our charter
documents may prevent or hinder efforts to acquire a controlling interest in us.
Additional information regarding these and other risks and uncertainties is
contained in our periodic filings with the SEC, including, without limitation,
the risks identified under the heading “Risk Factors” set forth in the Annual
Report on Form 10-K for the year ended March 28, 2009. Our
forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or investments we may make.
We do not intend, and undertake no obligation, to update or alter any
forward-looking statement. The following section is qualified in its
entirety by the more detailed information, including our financial statements
and the notes thereto, which appears elsewhere in this Quarterly
Report.
Overview
We are an international manufacturer
and marketer of highly engineered precision plain, roller and ball bearings.
Bearings, which are integral to the manufacture and operation of most machines
and mechanical systems, reduce wear to moving parts, facilitate proper power
transmission and reduce damage and energy loss caused by friction. While we
manufacture products in all major bearing categories, we focus primarily on
highly technical or regulated bearing products for specialized markets that
require sophisticated design, testing and manufacturing capabilities. We believe
our unique expertise has enabled us to garner leading positions in many of the
product markets in which we primarily compete. We have been providing bearing
solutions to our customers since 1919. Over the past ten years, we have
significantly broadened our end markets, products, customer base and geographic
reach. We currently have 26 facilities, of which 23 are manufacturing
facilities, in four countries.
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 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.
Outlook
Backlog, as of September 26, 2009, was
$160.5 million versus $239.9 million as of September 27, 2008. Management
believes that operating cash flows and available credit under the credit
facility will provide adequate resources to fund internal and external growth
initiatives for the foreseeable future.
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.
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
September 26,
2009
|
|
|
September 27,
2008
|
|
|
September 26,
2009
|
|
|
September 27,
2008
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Gross
margin
|
|
|
30.0 |
|
|
|
32.0 |
|
|
|
30.6 |
|
|
|
32.6 |
|
|
Selling,
general and administrative
|
|
|
17.5 |
|
|
|
14.8 |
|
|
|
17.9 |
|
|
|
14.5 |
|
|
Other,
net
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.0 |
|
|
|
0.8 |
|
|
Operating
income
|
|
|
11.4 |
|
|
|
16.1 |
|
|
|
11.7 |
|
|
|
17.3 |
|
|
Interest
expense, net
|
|
|
0.8 |
|
|
|
0.7 |
|
|
|
0.8 |
|
|
|
0.7 |
|
|
Loss
on early extinguishment of debt
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
|
Other
non-operating income
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
(0.2 |
) |
|
|
0.1 |
|
|
Income
before income taxes
|
|
|
10.5 |
|
|
|
15.1 |
|
|
|
11.1 |
|
|
|
16.3 |
|
|
Provision
for income taxes
|
|
|
3.6 |
|
|
|
4.9 |
|
|
|
3.8 |
|
|
|
5.4 |
|
|
Net
income
|
|
|
6.9 |
|
|
|
10.2 |
|
|
|
7.3 |
|
|
|
10.9 |
|
Three
Month Period Ended September 26, 2009 Compared to Three Month Period Ended
September 27, 2008
Net Sales. Net
sales for the three month period ended September 26, 2009 were $63.7 million,
a decrease of $30.6 million, or 32.5%, compared to
$94.3 million for the same period in the prior year. During the three month
period ended September 26, 2009, we experienced a net sales decline in all four
of our business segments, driven by lower demand across our end markets due to
the weak economic climate. Our net sales to our diversified industrial customers
fell 43.4% in the three month period ended September 26, 2009 compared to the
same period last fiscal year. This is mainly the result of the
overall decline in the global industrial markets. Net sales to
aerospace and defense customers declined 23.5% in the three month period ended
September 26, 2009 compared to the same period last fiscal year, mainly driven
by a slowdown in the business jet market and inventory liquidations by aircraft
distributors.
The Plain
Bearings segment achieved net sales of $30.3 million for the three month
period ended September 26, 2009, a decrease of $12.9 million, or 29.9%, compared
to $43.2 million for the same period in the prior fiscal year. The weak
economy contributed to an overall net sales decline in this segment, with a $5.2
million decrease in net sales to diversified industrial customers combined with
a $7.7 million decline in net sales to aerospace and defense
customers.
The
Roller Bearings segment achieved net sales of $17.3 million for the three
month period ended September 26, 2009, a decrease of $8.4 million, or
32.6%, compared to $25.7 million for the same period in the prior fiscal
year. The weak economic performance of the industrial sector contributed $7.7
million of this net sales decline combined with a $0.7 million decrease in net
sales to aerospace and defense customers.
The Ball
Bearings segment achieved net sales of $11.4 million for the three month period
ended September 26, 2009, a decrease of $5.2 million, or 31.3%, compared to
$16.6 million for the same period in the prior year. Of this
decline, $2.2 million was attributable to the impact of the economic downturn on
the industrial sector while net sales to the aerospace and defense sector
declined $3.0 million compared to the same period in fiscal 2009.
The Other
segment, which is focused mainly on the sale of machine tool collets and
precision mechanical components, achieved net sales of $4.7 million for the
three month period ended September 26, 2009, a decrease of $4.2 million, or
47.0%, compared to $8.9 million for the same period last year. Of this
decrease, $2.5 million was attributable to lower sales of collets in Europe for
the machine tool industry and $1.7 million due to the general industrial decline
for mechanical components.
Gross
Margin. Gross margin was $19.1 million, or 30.0% of net
sales, for the three month period ended September 26, 2009, versus
$30.2 million, or 32.0% of net sales, for the comparable period in fiscal
2009. The decrease in our gross margin as a percentage of net sales was
primarily the result of the current economic downturn combined with start-up
costs associated with our expansion into new bearing product lines.
Selling, General and
Administrative. SG&A expenses decreased by
$2.9 million, or 20.2%, to $11.1 million for the three month period
ended September 26, 2009 compared to $14.0 million for the same period in
fiscal 2009. As a percentage of net sales, SG&A increased to 17.5% for the
three month period ended September 26, 2009 compared to 14.8% for the three
month period ended September 27, 2008. The decrease of $2.9 million was
primarily attributable to personnel-related cost reductions and reductions in
professional fees and other expenses.
Other, net. Other,
net for the three month period ended September 26, 2009 was $0.7 million, a
decrease of $0.4 million, compared to $1.1 million for the same period last
fiscal year. For the three month period ended September 26, 2009,
other, net consisted of $0.3 million of amortization of intangibles and $0.4
million of restructuring and moving costs, including severance costs and the
consolidation of our Houston, Texas facilities. For the three month
period ended September 27, 2008, other, net consisted of $0.4 million of
amortization of intangibles, $0.4 million of facility moving and consolidation
expenses and $0.3 million of net loss on disposal of fixed assets both related
to the consolidation of our South Carolina operations.
Operating Income. The
decrease in operating income in all four of our business segments was driven
primarily by a decrease in volume due to the current economic climate. Our
operating income as a percentage of net sales declined in three of our four
business segments as a result of the current economic downturn and start-up
costs for our large bearing product lines. Operating income was
$7.2 million, or 11.4% of net sales, for the three month period ended
September 26, 2009 compared to $15.2 million, or 16.1% of net sales, for
the three month period ended September 27, 2008. Operating income for the Plain
Bearings segment was $6.0 million for the three month period ended September 26,
2009, or 19.8% of net sales, compared to $11.0 million for the same period
last year, or 25.4% of net sales. Our Roller Bearings segment achieved an
operating income for the three month period ended September 26, 2009 of
$5.2 million, or 30.1% of net sales, compared to $6.8 million, or
26.4% of net sales, for the three month period ended September 27,
2008. Our Ball Bearings segment achieved an operating income of
$1.3 million, or 11.5% of net sales, for the three month period ended
September 26, 2009, compared to $3.6 million, or 21.9% of net sales, for
the same period in fiscal 2009. Our Other segment achieved an operating income
of $0.1 million, or 1.3% of net sales, for the three month period ended
September 26, 2009, compared to $0.3 million, or 3.1% of net sales, for the
same period in fiscal 2009.
Interest Expense,
net. Interest expense, net decreased by $0.2 million, or
29.2%, to $0.5 million in the three month period ended September 26, 2009,
compared to $0.7 million in the same period last fiscal year, driven
by a combination of lower debt and interest rates.
Other Non-Operating Expense
(Income). Other non-operating expense for the three month period ended
September 26, 2009 was $0.1 million compared to $0.3 million for the three month
period ended September 27, 2008. This was mainly comprised of foreign
exchange losses on intercompany loans between our U.S. division and
International division.
Income Before Income
Taxes. Income before taxes decreased by $7.6 million, to
$6.7 million for the three month period ended September 26, 2009 compared
to $14.3 million for the three month period ended September 27,
2008.
Income
Taxes. Income tax expense for the three month period ended
September 26, 2009 was $2.3 million compared to $4.7 million for the
three month period ended September 27, 2008. Our effective income tax rate for
the three month period ended September 26, 2009 was 34.2% compared to 32.8% for
the three month period ended September 27, 2008. The effective income
tax rates are below the U.S. statutory rate due to foreign income taxed at lower
rates and a special manufacturing deduction in the U.S.
Net Income. Net
income decreased by $5.2 million to $4.4 million for the three month
period ended September 26, 2009 compared to $9.6 million for the three
month period ended September 27, 2008.
Six
Month Period Ended September 26, 2009 Compared to Six Month Period Ended
September 27, 2008
Net Sales. Net
sales for the six month period ended September 26, 2009 were $127.4 million, a
decrease of $59.3 million, or 31.8%, compared to $186.7 million for
the same period in the prior fiscal year. During the six month period ended
September 26, 2009, we experienced a net sales decline in all four of our
business segments, driven by lower demand across our end markets due to the weak
economic climate. Our net sales to our diversified industrial customers fell
44.8% in the six month period ended September 26, 2009 compared to the same
period last fiscal year. This was mainly the result of the overall
decline in the global industrial markets. Net sales to aerospace and
defense customers also declined 20.9% in the six month period ended September
26, 2009 compared to the same period last fiscal year, mainly driven by a
slowdown in the business jet market and inventory liquidations by aircraft
distributors.
The Plain
Bearings segment achieved net sales of $61.3 million for the six month
period ended September 26, 2009, a decrease of $25.6 million, or 29.5%, compared
to $86.9 million for the same period in the prior fiscal year. The weak economy
contributed to an overall net sales decline in this segment, with a $10.7
million decrease in net sales to diversified industrial customers combined with
a $14.9 million decline in net sales to aerospace and defense
customers.
The
Roller Bearings segment achieved net sales of $32.9 million for the six
month period ended September 26, 2009, a decrease of $17.7 million, or
35.1%, compared to $50.6 million for the same period in the prior fiscal
year. The weak economic performance of the industrial sector contributed $15.6
million of this net sales decline combined with a $2.1 million decrease in net
sales to aerospace and defense customers.
The Ball
Bearings segment achieved net sales of $23.6 million for the six month period
ended September 26, 2009, a decrease of $8.0 million, or 25.3%, compared to
$31.6 million for the same period in the prior fiscal year. Of this
decline, $5.0 million was attributable to the impact of the economic downturn on
the industrial sector while net sales to the aerospace and defense sector
declined $3.0 million compared to the same period in fiscal 2009.
The Other
segment, which is focused mainly on the sale of precision ball screws, machine
tool collets and precision mechanical components, achieved net sales of
$9.6 million for the six month period ended September 26, 2009, a decrease
of $8.0 million, or 45.1%, compared to $17.6 million for the same period
last fiscal year. Of this decrease, $5.7 million was attributable to a decline
in the sale of machine tool collets in Europe combined with a decline of $2.3
million due to the general industrial decline for mechanical
components.
Gross
Margin. Gross margin was $39.0 million, or 30.6% of net
sales, for the six month period ended September 26, 2009, versus
$60.8 million, or 32.6% of net sales, for the comparable period in fiscal
2009. The decrease in our gross margin as a percentage of net sales was
primarily the result of the current economic downturn combined with start-up
costs associated with our expansion into new bearing product lines.
Selling, General and
Administrative. SG&A expenses decreased by
$4.3 million, or 16.0%, to $22.8 million for the six month period
ended September 26, 2009 compared to $27.1 million for the same period in
fiscal 2009. As a percentage of net sales, SG&A increased to 17.9% for the
six month period ended September 26, 2009 compared to 14.5% for the comparable
period last fiscal year. The decrease of $4.3 million was primarily due to $4.0
million related to personnel-related cost reductions and reductions in
professional fees and other expenses.
Other, net. Other,
net for the six month period ended September 26, 2009 decreased by $0.3 million,
to $1.2 million compared to $1.5 million for the comparable
period in fiscal 2009. For the six month period ended September 26, 2009, other,
net consisted of $0.6 million of amortization of intangibles and $0.6 million of
restructuring and moving costs. For the six month period ended September 27,
2008, other, net consisted of $0.8 million of amortization of intangibles,
$0.5 million of facility moving and consolidation expenses and $0.4 million
of net loss on disposal of fixed assets, both primarily related to the
consolidation of our South Carolina operations, offset by other miscellaneous
income of $0.2 million.
Operating Income. The
decrease in operating income in all four of our business segments was driven by
a decrease in volume due to the current economic climate. Our operating income
as a percentage of net sales declined in three of our four business segments as
a result of the current economic downturn and start-up costs for our large
bearing product lines.
Operating
income was $15.0 million, or 11.7% of net sales, for the six month period
ended September 26, 2009 compared to $32.2 million, or 17.3% of net sales,
for the six month period ended September 27, 2008. Operating income for the
Plain Bearings segment was $11.8 million for the six month period ended
September 26, 2009, or 19.2% of net sales, compared to $22.0 million for
the same period last year, or 25.4% of net sales. Our Roller Bearings segment
achieved an operating income for the six month period ended September 26, 2009
of $9.8 million, or 29.9% of net sales, compared to $13.9 million, or
27.4% of net sales, for the six month period ended September 27,
2008. Our Ball Bearings segment achieved an operating income of
$3.5 million, or 14.8% of net sales, for the six month period ended
September 26, 2009, compared to $7.2 million, or 22.9% of net sales, for
the same period in fiscal 2009. Our Other segment achieved an operating income
of $0.1 million, or 1.2% of net sales, for the six month period ended
September 26, 2009, compared to $1.3 million, or 7.1% of net sales, for the
same period in fiscal 2009.
Interest Expense,
net. Interest expense, net decreased by $0.4 million, or
30.2%, to $0.9 million in the six month period ended September 26, 2009,
compared to $1.3 million in the same period last fiscal year, mainly driven by
debt reduction.
Loss on Early Extinguishment of
Debt. For the six month period ended September 27, 2008, loss
on extinguishment of debt was $0.3 million for the non-cash write-off of
deferred financing fees associated with the paydown of $15.5 million of
industrial revenue bonds.
Other Non-Operating Expense
(Income). Other non-operating expense (income) for the six month period
ended September 26, 2009 was a gain of $0.2 million compared to a loss of $0.2
million for the six month period ended September 27, 2008, related primarily to
foreign exchange gains/losses on intercompany loans between our U.S. division
and International division.
Income Before Income
Taxes. Income before taxes decreased by $16.1 million, to
$14.3 million for the six month period ended September 26, 2009 compared to
$30.4 million for the six month period ended September 27,
2008.
Income
Taxes. Income tax expense for the six month period ended
September 26, 2009 was $4.9 million compared to $10.1 million for the
six month period ended September 27, 2008. Our effective income tax rate for the
six month period ended September 26, 2009 was 33.9% compared to 33.3% for the
six month period ended September 27, 2008. The effective income tax
rates are below the U.S. statutory rate due to foreign income taxed at lower
rates and a special manufacturing deduction in the U.S.
Net Income. Net
income decreased by $10.8 million to $9.5 million for the six month
period ended September 26, 2009 compared to $20.3 million for the six month
period ended September 27, 2008.
Liquidity
and Capital Resources
Liquidity
Our
credit agreement (the “KeyBank Credit Agreement”) provides the Company 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 its expiration date
(June 24, 2011). We may elect to prepay some or all of the outstanding
balance from time to time without penalty.
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. Capital expenditures (excluding acquisitions) in any
fiscal year, previously limited to an amount not to exceed $20.0 million was
amended to increase the limit to an amount not to exceed $30.0
million. As of September 26, 2009, $62.0 million was outstanding
under the KeyBank Credit Agreement. Approximately $6.3 million of the
KeyBank Credit Agreement is being utilized to provide letters of credit to
secure our obligations relating to certain insurance programs. As of September
26, 2009, we had the ability to borrow up to an additional $81.7 million under
the KeyBank Credit Agreement.
On October 27, 2008, Schaublin entered
into a new bank credit facility with Credit Suisse (the “Swiss Credit Facility”)
which replaced the prior bank credit facility of December 8, 2003 and its
amendment of November 8, 2004. This facility provides for up to 4.0
million Swiss francs, or $3.9 million, of revolving credit loans and letters of
credit. Borrowings under the Swiss Credit Facility bear interest at
Credit Suisse’s prevailing prime bank rate. As of September 26, 2009,
there were no borrowings under the Swiss Credit Facility.
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. As of September 26, 2009, 100,482
shares have been repurchased under this plan for an aggregate cost of $3.2
million.
On May 1, 2008, the Company voluntarily
paid off the Series 1999 Industrial Revenue Bond (“IRB”), the prinicipal amount
of which was $4.8 million. In addition, on June 2, 2008, the Company voluntarily
paid off the Series 1994 A and B IRBs, the principal amounts of which were $7.7
million and $3.0 million, respectively. The Company recorded a non-cash pre-tax
charge of approximately $0.3 million in the six month period ended September 27,
2008 to write off deferred financing costs associated with the voluntary payoff
of the IRBs.
Our ability to meet future working
capital, capital expenditures and debt service requirements will depend on our
future financial performance, which will be affected by a range of economic,
competitive and business factors, particularly interest rates, cyclical changes
in our end markets and prices for steel and our ability to pass through price
increases on a timely basis, many of which are outside of our
control. In addition, future acquisitions could have a significant
impact on our liquidity position and our need for additional funds.
From time to time we evaluate our
existing facilities and operations and their strategic importance to us. If we
determine that a given facility or operation does not have future strategic
importance, we may sell, partially or completely, relocate production lines,
consolidate or otherwise dispose of those operations. Although we believe our
operations would not be materially impaired by such dispositions, relocations or
consolidations, we could incur significant cash or non-cash charges in
connection with them.
Cash
Flows
Six
Month Period Ended September 26, 2009 Compared to the Six Month Period Ended
September 27, 2008
In the six month period ended September
26, 2009, we generated cash of $21.4 million from operating activities
compared to $23.9 million for the six month period ended September 27,
2008. The decrease of $2.5 million was mainly a result of a decrease in net
income of $10.8 million, a positive change in operating assets and liabilities
of $11.6 million and a decrease in non-cash charges of $3.3
million.
Cash used
for investing activities for the six month period ended September 26, 2009
included $6.0 million related to capital expenditures compared to $11.0 million
for the six month period ended September 27, 2008. Of this amount, $3.6 million
was associated with the building of a new wind bearing facility in
Texas. Cash used for investing activities in the six month period
ended September 26, 2009 also included $4.8 million for the purchase of
short-term investments. Investing activities in the six month period ended
September 27, 2008 also included $6.6 million related to the acquisition of PIC
Design offset by proceeds of $0.5 million related primarily to the consolidation
of our South Carolina operations.
Financing
activities used $5.4 million in the six month period ended September 26,
2009 compared to $6.8 million for the six month period ended September 27, 2008,
primarily for debt reduction.
Capital
Expenditures
Our capital expenditures were $6.0
million for the six month period ended September 26, 2009. Of this amount, $3.6
million was associated with the building of a new wind bearing facility in
Texas. We expect to make capital expenditures of approximately $8.0 to
$10.0 million during fiscal 2010 in connection with our existing business and
the expansion into the large bearing market segment. We intend to fund our
fiscal 2010 capital expenditures principally through existing cash, internally
generated funds and borrowings under our KeyBank Credit Agreement. We may also
make substantial additional capital expenditures in connection with
acquisitions.
Obligations
and Commitments
As of
September 26, 2009, there was no material change in debt and interest, capital
lease, operating lease or pension and postretirement obligations as compared to
such obligations and liabilities as of March 28, 2009.
Other
Matters
Critical
Accounting Estimates - Goodwill
The
Company has acquired businesses in purchase transactions that have resulted in
the recognition of goodwill. In accordance with Accounting Standards
Codification (“ASC”) 350-20 or SFAS No. 142, “Goodwill and Other Intangible
Assets” acquired goodwill is not amortized. Instead, it is subject to impairment
testing on an annual basis and at any other time when an event occurs or
circumstances change that indicate it is more likely than not an impairment
exists. These analyses utilize management’s estimates and assumptions. The
assets and liabilities of acquired businesses are recorded at fair value at the
date of acquisition and therefore goodwill represents costs in excess of fair
values assigned to the underlying net assets of acquired businesses. As of
September 26, 2009, the Company reported $33.0 million of goodwill. As required
by the Company’s policy, goodwill will be tested for impairment in the third
quarter of fiscal 2010. In accordance with ASC 350-20, management tests goodwill
for impairment at the reporting unit, as defined by ASC 280-10 or SFAS No. 131,
“Disclosures About Segments of an Enterprise and Related Information”, level as
it represents the lowest level with discrete financial information that is
regularly reviewed by operating segment management or an aggregate of component
levels of a reportable operating segment having similar economic
characteristics. If the carrying value of a reporting unit (including
the value of goodwill) is greater than its fair value an impairment may
exist. An impairment charge would be recorded to the extent that the
recorded value of goodwill exceeded the implied fair value.
The
Company assesses the fair value of its reporting units based on a discounted
cash flow valuation model. The key assumptions used are discount
rates and perpetual growth rates applied to cash flow
projections. Also inherent in the discounted cash flow valuation are
near-term revenue growth rates over the next five years. These
assumptions contemplate business, market and overall economic conditions.
Changes in assumptions of estimates could materially affect the determination of
the fair value of a reporting unit, and therefore, could affect the amount of
potential impairment. In the event that operating results in the future do not
meet current expectations, management, based upon conditions at the time, would
consider taking restructuring or other actions as necessary to maximize
profitability.
In our
opinion, there have been no such events that would require an interim test for
goodwill impairment as there are no existing impairment indicators that are not
more likely than not to reduce the fair value of a reporting unit below its
carrying amount, therefore no interim impairment test has been
performed.
ITEM
3. Quantitative and Qualitative Disclosures About Market
Risk
Quantitative
and Qualitative Disclosure 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 September 26, 2009, our margin is 0.0% for prime
rate loans (prime rate at September 26, 2009 was 3.25%) and 0.625% for LIBOR
rate loans (one month LIBOR rate at September 26, 2009 was 0.25%).
Our interest rate risk management
objective is to limit the impact of interest rate changes on our net income and
cash flow. To achieve our objective, we regularly evaluate the amount of our
variable rate debt as a percentage of our aggregate debt. As of September 26,
2009, our average outstanding variable rate debt, after taking into account the
average outstanding notional amount of our interest rate swap agreement, was 51%
of our average outstanding debt. 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.
Based on
the aggregate amount of our variable rate indebtedness of $32.0 million, a 100
basis point change in interest rates would have changed our interest expense by
approximately $0.3 million per year, after taking into account the $30.0
million notional amount of our interest rate swap agreement at September 26,
2009.
Foreign Currency Exchange
Rates. 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 15% of our net sales were denominated in foreign
currencies in the first six months of fiscal 2010 compared to 16% in the
comparable period last fiscal year. We expect that this proportion is likely to
increase as we seek to increase our penetration of foreign markets, particularly
within the aerospace and defense markets. Foreign currency transaction exposure
arises primarily from the transfer of foreign currency from one subsidiary to
another within the group, and to foreign currency denominated trade receivables.
Unrealized currency translation gains and losses are recognized upon translation
of the foreign subsidiaries’ balance sheets to U.S. dollars. Because our
financial statements are denominated in U.S. dollars, changes in currency
exchange rates between the U.S. dollar and other currencies have had, and will
continue to have, an impact on our earnings. We currently do not have exchange
rate hedges in place to reduce the risk of an adverse currency exchange
movement. Although currency fluctuations have not had a material impact on our
financial performance in the past, such fluctuations may materially affect our
financial performance in the future. The impact of future exchange rate
fluctuations on our results of operations cannot be accurately
predicted.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements.
ITEM
4. Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the “Exchange Act”)) as of September 26, 2009. Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of September 26, 2009, our disclosure controls and procedures
were (1) designed to ensure that information relating to our Company required to
be disclosed by us in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported to our Chief Executive Officer
and Chief Financial Officer within the time periods specified in the rules and
forms of the U.S. Securities and Exchange Commission, and (2) effective, in that
they 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.
Changes
in Internal Control over Financial Reporting
No change
in our internal control over financial reporting occurred during the three month
period ended September 26, 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act).
PART
II - OTHER INFORMATION
ITEM
1. Legal Proceedings
From time
to time, we are involved in litigation and administrative proceedings which
arise in the ordinary course of our business. We do not believe that any
litigation or proceeding in which we are currently involved, either individually
or in the aggregate, is likely to have a material adverse effect on our
business, financial condition, operating results, cash flow or
prospects.
ITEM
1A. Risk Factors
There
have been no material changes to our risk factors and uncertainties during the
three or six month periods ended September 26, 2009. For a discussion of the
Risk Factors, refer to Part I, Item 1A, “Risk Factors,” contained in the
Company’s Annual Report on Form 10-K for the period ended March 28,
2009.
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Unregistered
Sales of Equity Securities
None.
Use of Proceeds
Not
applicable.
Issuer Purchases of Equity
Securities
On June 15, 2007, our board of
directors authorized us to repurchase up to $10.0 million of our common stock
from time to time on the open market, through block trades, or in privately
negotiated transactions depending on market conditions, alternative uses of
capital and other factors. Purchases may be commenced, suspended or
discontinued at any time without prior notice. The new program, which does not
have an expiration date, replaced a $7.5 million program that expired on March
31, 2007.
Total share repurchases for the three
months ended September 26, 2009 are as follows:
|
|
|
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)
|
|
|
06/28/2009–07/25/2009
|
|
|
5,608 |
|
|
$ |
20.53 |
|
|
|
5,608 |
|
|
$ |
6,774 |
|
|
07/26/2009–08/22/2009
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,774 |
|
|
08/23/2009–09/26/2009
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
6,774 |
|
|
Total
|
|
|
5,608
|
|
|
$ |
20.53 |
|
|
|
5,608
|
|
|
|
|
|
ITEM
3. Defaults Upon Senior Securities
Not
applicable.
ITEM
4. Submission of Matters to a Vote of Security Holders
The
Annual General Meeting of Stockholders of the Company was held on September 9,
2009. The items voted upon by the Company’s shareholders included
nominations to elect one member of the Company’s board of directors and the
ratification of the appointment of the Company’s Independent Registered Public
Accounting Firm for fiscal 2010.
The shareholders voted as follows on
the following matters:
The election of the following director
to hold office for a three-year term expiring in 2012 was approved by the
following votes:
Dr. Thomas O’Brien was approved by a
vote of 20,283,691 shares voting for and 244,775 shares
withheld.
The
ratification of the appointment of Ernst & Young LLP as the Company’s
Independent Registered Public Accounting Firm for fiscal year 2010 was approved
by a vote of 20,509,640 shares voting for, 7,485 shares voting against, and
11,340 shares abstaining.
ITEM
5. Other Information
Not
applicable.
ITEM
6. Exhibits
|
Exhibit
Number
|
|
Exhibit Description
|
|
31.01
|
|
Certification
of Chief Executive Officer Pursuant to Securities Exchange Act
Rule 13a-14(a).
|
|
31.02
|
|
Certification
of Chief Financial Officer Pursuant to Securities Exchange Act
Rule 13a-14(a).
|
|
32.01
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and
Securities Exchange Act Rule 13a-14(b).*
|
|
32.02
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and
Securities Exchange Act
Rule 13a-14(b).*
|
*
This certification accompanies this Quarterly Report on Form 10-Q, is not
deemed filed with the SEC and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (whether made before or after the
date of this Quarterly Report on Form 10-Q), irrespective of any general
incorporation language contained in such filing.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
RBC
Bearings Incorporated
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
Michael
J. Hartnett
|
|
|
|
Title:
|
Chief
Executive Officer
|
|
|
|
Date:
|
November
2, 2009
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
Daniel
A. Bergeron
|
|
|
|
Title:
|
Chief
Financial Officer
|
|
|
|
Date:
|
November
2,
2009
|
EXHIBIT
INDEX
|
|
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
31.01
|
|
Certification
of Chief Executive Officer Pursuant to Securities Exchange Act
Rule 13a-14(a).
|
|
31.02
|
|
Certification
of Chief Financial Officer Pursuant to Securities Exchange Act
Rule 13a-14(a).
|
|
32.01
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and
Securities Exchange Act Rule 13a-14(b).*
|
|
32.02
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and
Securities Exchange Act
Rule 13a-14(b).*
|
*
This certification accompanies this Quarterly Report on Form 10-Q, is not
deemed filed with the SEC and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (whether made before or after the
date of this Quarterly Report on Form 10-Q), irrespective of any general
incorporation language contained in such filing.