UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For
the quarterly period ended
OR
For the transition period from to .
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of October 25, 2024, RBC Bearings Incorporated had
TABLE OF CONTENTS
| Part I - | FINANCIAL INFORMATION | 1 | ||
| Item 1. | Consolidated Financial Statements | 1 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 32 | ||
| Item 4. | Controls and Procedures | 33 | ||
| Part II - | OTHER INFORMATION | 34 | ||
| Item 1. | Legal Proceedings | 34 | ||
| Item 1A. | Risk Factors | 34 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 34 | ||
| Item 3. | Defaults Upon Senior Securities | 35 | ||
| Item 4. | Mine Safety Disclosures | 35 | ||
| Item 5. | Other Information | 35 | ||
| Item 6. | Exhibits | 35 |
i
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RBC Bearings Incorporated
Consolidated Balance Sheets
(dollars in millions)
| September 28, 2024 | March 30, 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | | $ | |||||
| Accounts receivable, net of allowances of $ | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease assets, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Current operating lease liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, less current portion | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Deferred income taxes | ||||||||
| Other noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost; | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes.
1
RBC Bearings Incorporated
Consolidated Statements of Operations
(dollars in millions, except per share data)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Other, net | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income | ||||||||||||||||
| Interest expense, net | ||||||||||||||||
| Other non-operating expense | ||||||||||||||||
| Income before income taxes | ||||||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income | ||||||||||||||||
| Preferred stock dividends | ||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | ||||||||||||
| Net income per common share attributable to common stockholders: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes.
2
RBC Bearings Incorporated
Consolidated Statements of Comprehensive Income
(dollars in millions)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Pension and postretirement liability adjustments, net of taxes (1) | ( | ) | ||||||||||||||
| Change in fair value of interest rate swap (2) | ( | ) | ( | ) | ||||||||||||
| Change in fair value of cross currency swap(3) | ( | ) | ( | ) | ||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Total comprehensive income | $ | $ | $ | $ | ||||||||||||
| (1) |
| (2) |
| (3) |
See accompanying notes.
3
RBC Bearings Incorporated
Consolidated Statements of Stockholders’ Equity
(dollars in millions)
(Unaudited)
| Common Stock | Preferred Stock | Additional Paid-in | Accumulated Other Comprehensive | Retained | Treasury Stock | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income/(Loss) | Earnings | Shares | Amount | Equity | |||||||||||||||||||||||||||||||
| Balance at March 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Exercise of equity awards | — | — | ||||||||||||||||||||||||||||||||||||||
| Change in pension and post-retirement plan benefit adjustments, net of tax benefit of $ | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | — | ||||||||||||||||||||||||||||||||||||||
| Change in fair value of interest rate swap, net of tax benefit of $ | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 29, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Early conversion of mandatory convertible preferred stock to common stock | ( | ) | — | |||||||||||||||||||||||||||||||||||||
| Exercise of equity awards | — | — | ||||||||||||||||||||||||||||||||||||||
| Change in pension and post-retirement plan benefit adjustments, net of tax expense of $ | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||
| Change in fair value of interest rate swap, net of tax benefit of $ | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Change in fair value of cross currency swap, net of tax benefit of $ | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at September 28, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
See accompanying notes.
4
RBC Bearings Incorporated
Consolidated Statements of Stockholders’ Equity
(dollars in millions)
(Unaudited)
| Common Stock | Preferred Stock | Additional Paid-in | Accumulated Other Comprehensive | Retained | Treasury Stock | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income/(Loss) | Earnings | Shares | Amount | Equity | |||||||||||||||||||||||||||||||
| Balance at April 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Exercise of equity awards | — | — | ||||||||||||||||||||||||||||||||||||||
| Change in pension and post-retirement plan benefit adjustments, net of tax expense of $ | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | — | ||||||||||||||||||||||||||||||||||||||
| Change in fair value of interest rate swap, net of tax expense of $ | — | — | — | |||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Exercise of equity awards | — | — | ||||||||||||||||||||||||||||||||||||||
| Change in pension and post-retirement plan benefit adjustments, net of tax benefit of $ | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | — | ||||||||||||||||||||||||||||||||||||||
| Change in fair value of interest rate swap, net of tax expense of $ | — | — | — | |||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
See accompanying notes.
5
RBC Bearings Incorporated
Consolidated Statements of Cash Flows
(dollars in millions)
(Unaudited)
| Six Months Ended | ||||||||
| September 28, 2024 | September 30, 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Amortization of deferred financing costs | ||||||||
| Stock-based compensation | ||||||||
| Noncash operating lease expense | ||||||||
| Loss on disposition of assets | ||||||||
| Consolidation, restructuring, and other noncash charges | ||||||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other noncurrent assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||
| Other noncurrent liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Proceeds from sale of assets | ||||||||
| Acquisition of business/purchase price adjustments for acquisition | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds received from revolving credit facility | - | |||||||
| Repayment of revolving credit facility | ( | ) | - | |||||
| Repayments of term loans | ( | ) | ( | ) | ||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Proceeds from mortgage | ||||||||
| Principal payments on finance lease obligations | ( | ) | ( | ) | ||||
| Preferred stock dividends paid | ( | ) | ( | ) | ||||
| Exercise of stock options | ||||||||
| Repurchase of common stock | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Cash and cash equivalents: | ||||||||
| Increase/(decrease) during the period | ( | ) | ||||||
| Cash and cash equivalents, at beginning of period | ||||||||
| Cash and cash equivalents, at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | ||||||||
See accompanying notes.
6
RBC Bearings Incorporated
Notes to Unaudited Interim Consolidated Financial Statements
(dollars in millions, except per share data)
1. Basis of Presentation
The interim consolidated financial statements included herein have been prepared by RBC Bearings Incorporated, a Delaware corporation (collectively with its subsidiaries, the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The interim financial statements included with this report have been prepared on a consistent basis with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2024 (our “Annual Report”). We condensed or omitted certain information and footnote disclosures normally included in our annual audited financial statements, which we prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). As used in this report, the terms “we,” “us,” “our,” “RBC” and the “Company” mean RBC Bearings Incorporated and its subsidiaries, unless the context indicates another meaning.
These financial statements reflect all adjustments, accruals, and estimates, consisting only of items of a normal recurring nature, that are, in the opinion of management, necessary for the fair presentation of the consolidated financial condition and consolidated results of operations for the interim periods presented. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in our Annual Report.
The
results of operations for the three- and six-month periods ended September 28, 2024 are not necessarily indicative of the operating results
for the entire fiscal year ending March 29, 2025. The three-month periods ended September 28, 2024 and September 30, 2023 each included
2. Significant Accounting Policies
The Company’s significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies” of our Annual Report.
Significant changes to our accounting policies as a result of adopting new accounting standards are discussed below.
Recent Accounting Standards Adopted
Not Applicable.
Recent Accounting Standards Yet to Be Adopted
In November 2023, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in ASU 2023-07 improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. ASU 2023-07 is effective for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. As of September 28, 2024, the Company is evaluating the impact the standard will have on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in ASU 2023-09 address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024. As of September 28, 2024, the Company is evaluating the impact the standard will have on its consolidated financial statements.
7
3. Revenue from Contracts with Customers
Disaggregation of Revenue
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||
| Aerospace/Defense | $ | $ | | $ | | $ | | |||||||||
| Industrial | | |||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||
| United States | $ | | $ | | $ | | $ | | ||||||||
| International | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||
| Point-in-time | | % | | % | | % | | % | ||||||||
| Over time | % | % | % | % | ||||||||||||
| Total | % | % | % | % | ||||||||||||
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of
orders meeting the definition of a contract for which work has not been performed or has been partially performed and excludes unexercised
contract options. The duration of the majority of our contracts, as defined by ASC Topic 606, is less than one year. The Company has elected
to apply the practical expedient, which allows the Company to exclude remaining performance obligations with an original expected duration
of one year or less. The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with
a duration of more than one year was approximately $
8
Contract Balances
The timing of revenue recognition, invoicing and cash collections affects accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the consolidated balance sheets. These assets and liabilities are reported on the consolidated balance sheets on an individual contract basis at the end of each reporting period.
Contract Assets (Unbilled Receivables) - Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when (1) the cost-to-cost method is applied and (2) such revenue exceeds the amount invoiced to the customer.
As
of September 28, 2024 and March 30, 2024, current contract assets were $
Contract Liabilities (Deferred Revenue) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior to revenue being recognized. Since the performance obligations related to such advances may not have been satisfied, a contract liability is established. Advance payments are not considered a significant financing component as the timing of the transfer of the related goods or services is at the discretion of the customer.
As of September 28, 2024
and March 30, 2024, current contract liabilities were $
As
of September 28, 2024 and March 30, 2024, noncurrent contract liabilities were $
Variable Consideration
The
amount of consideration to which the Company expects to be entitled in exchange for goods and services is not generally subject to significant
variations. However, the Company does offer certain customers rebates, prompt payment discounts, end-user discounts and the right to
return eligible products. The Company estimates this variable consideration using the expected value amount, which is based on historical
experience. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal
of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company
adjusts the estimate of revenue at the earlier of when the amount of consideration the Company expects to receive changes or when the
consideration becomes fixed. Accrued customer rebates were $
9
4. Accumulated Other Comprehensive Income
The components of comprehensive income that relate to the Company are net income, foreign currency translation adjustments, changes in fair value of derivatives, and pension plan and postretirement benefits.
| Currency Translation | Change in Fair Value of Interest Rate Swap | Change in Fair Value of Cross Currency Swap | Pension and Postretirement Liability | Total | ||||||||||||||||
| Balance at March 30, 2024 | $ | ( | ) | $ | $ | $ | $ | |||||||||||||
| Reclassification to net income | ||||||||||||||||||||
| Change in pension and postretirement liability | ||||||||||||||||||||
| Net gain on foreign currency translation | — | |||||||||||||||||||
| Loss on interest rate swap, net of taxes | ( | ) | ( | ) | ||||||||||||||||
| Loss on cross currency swap, net of taxes | — | ( | ) | ( | ) | |||||||||||||||
| Net current period other comprehensive income | ( | ) | ( | ) | ||||||||||||||||
| Balance at September 28, 2024 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||
5. Net Income Per Share Attributable to Common Stockholders
Basic net income per share attributable to common stockholders is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding.
Diluted net income per share
attributable to common stockholders is computed by dividing net income attributable to common stockholders by the sum of the weighted-average
number of common shares and dilutive common share equivalents then outstanding using the treasury stock method. Common share equivalents
consist of the incremental common shares issuable upon the exercise of stock options and the conversion of our
We exclude outstanding stock options, stock awards and the MCPS from the calculations if the effect would be anti-dilutive. The dilutive effect of the MCPS is calculated using the if-converted method. The if-converted method assumes that these securities were converted to shares of common stock at the beginning of the reporting period to the extent that the effect is dilutive. If the effect is anti-dilutive, we calculate net income per share attributable to common stockholders by adjusting the numerator for the effect of the cumulative MCPS dividends for the respective period.
During the three-month period
ended September 28, 2024, certain holders of the MCPS elected to exercise their right to convert their MCPS shares into common shares
prior to the mandatory conversion date of October 15, 2024. This resulted in
As of September 28, 2024 and
September 30, 2023, there were
For the three months ended
September 28, 2024,
10
For the three months ended
September 30, 2023,
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||
| Net income | $ | | $ | $ | $ | |||||||||||
| Preferred stock dividends | ||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | ||||||||||||
| Denominator for basic net income per share attributable to common stockholders — weighted-average shares outstanding | ||||||||||||||||
| Effect of dilution due to employee stock awards | ||||||||||||||||
| Denominator for diluted net income per share attributable to common stockholders — weighted-average shares outstanding | ||||||||||||||||
| Basic net income per share attributable to common stockholders | $ | $ | $ | $ | ||||||||||||
| Diluted net income per share attributable to common stockholders | $ | $ | $ | $ | ||||||||||||
6. Fair Value
Fair value is defined as the price that would be expected to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The FASB provides accounting rules that classify the inputs used to measure fair value into the following hierarchy:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3 – Unobservable inputs for the asset or liability.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
As a result of the occurrence of triggering events such as purchase accounting for acquisitions, the Company measures certain assets and liabilities based on Level 3 inputs.
11
Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, trade accounts payable, accrued expenses, short-term borrowings, long-term debt, and derivatives in the form of an interest rate swap and a cross currency swap. Refer to Note 13 for further details on our derivative instruments.
Due to their short-term nature, the carrying value of cash and cash equivalents, accounts receivable, trade accounts payable, accrued expenses and short-term borrowings are a reasonable estimate of their fair value. Long-term assets held on our balance sheets related to benefit plan obligations are measured at fair value.
The
fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $
The
fair value of the interest rate swap was $(
The fair value of the cross currency swap was
$(
The Company does not believe it has significant concentrations of risk associated with the counterparties to its financial instruments.
7. Inventory
| September 28, 2024 | March 30, 2024 | |||||||
| Raw materials | $ | | $ | |||||
| Work in process | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
8. Goodwill and Intangible Assets
Goodwill
| Aerospace/ Defense | Industrial | Total | ||||||||||
| March 30, 2024 | $ | $ | $ | |||||||||
| Currency translation adjustments | ||||||||||||
| September 28, 2024 | $ | $ | $ | |||||||||
12
| Weighted | September 28, 2024 | March 30, 2024 | ||||||||||||||||
Average Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||
| Product approvals | $ | $ | $ | $ | ||||||||||||||
| Customer relationships and lists | ||||||||||||||||||
| Trade names | ||||||||||||||||||
| Patents and trademarks | ||||||||||||||||||
| Domain names | ||||||||||||||||||
| Internal-use software | ||||||||||||||||||
| Other | ||||||||||||||||||
| Non-amortizable repair station certifications | ||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||
Amortization
expense for definite-lived intangible assets during the three-month periods ended September 28, 2024 and September 30, 2023 was $
| Remainder of Fiscal 2025 | $ | |||
| Fiscal 2026 | ||||
| Fiscal 2027 | ||||
| Fiscal 2028 | ||||
| Fiscal 2029 | ||||
| Fiscal 2030 | ||||
| Fiscal 2031 and thereafter |
9. Accrued Expenses and Other Current Liabilities
| September 28, 2024 | March 30, 2024 | |||||||
| Employee compensation and related benefits | $ | $ | ||||||
| Taxes | ||||||||
| Contract liabilities | ||||||||
| Accrued rebates | ||||||||
| Current finance lease liabilities | ||||||||
| Accrued preferred stock dividends | ||||||||
| Interest | ||||||||
| Returns and warranties | ||||||||
| Other | ||||||||
| $ | $ | |||||||
13
10. Debt
Domestic Credit Facility
In
fiscal 2022, RBC Bearings Incorporated, our top holding company, and our Roller Bearing Company of America, Inc. subsidiary (“RBCA”)
entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”),
as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer, and the other lenders party thereto. The Credit
Agreement provides the Company with (a) a $
Initially,
The
Term Loan matures in November 2026 and amortizes in quarterly installments with the balance payable on the maturity date. The Company
can elect to prepay some or all of the outstanding balance from time to time without penalty, which will offset future quarterly amortization
installments. Due to prepayments previously made, the required future principal payments on the Term Loan are $
The Credit Agreement allows the Company to, among other things, make distributions to stockholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the Credit Agreement.
The Company’s domestic subsidiaries have guaranteed the Company’s obligations under the Credit Agreement, and the Company’s obligations and the domestic subsidiaries’ guaranty are secured by a pledge of substantially all of the assets of the Company and its domestic subsidiaries.
As of September 28, 2024, $
14
Senior Notes
In
fiscal 2022, RBCA issued $
The Senior Notes were issued pursuant to an indenture with Wilmington Trust, National Association, as trustee (the “Indenture”). The Indenture contains covenants limiting the ability of the Company to (i) incur additional indebtedness or guarantee indebtedness, (ii) declare or pay dividends, redeem stock or make other distributions to stockholders, (iii) make investments, (iv) create liens or use assets as security in other transactions, (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of its assets, (vi) enter into transactions with affiliates, and (vii) sell or transfer certain assets. These covenants contain various exceptions, limitations and qualifications. At any time that the Senior Notes are rated investment grade, certain of these covenants will be suspended.
The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by RBC Bearings and RBCA’s domestic subsidiaries that also guarantee the Credit Agreement.
Interest
on the Senior Notes accrues at a rate of
The Senior Notes will mature
on
Foreign Borrowing Arrangements
One
of our foreign subsidiaries, Schaublin SA, has a CHF
In July 2024, Swiss Tool
Systems, one of our foreign subsidiaries, purchased the building where it operates for CHF
15
| September 28, 2024 | March 30, 2024 | |||||||
| Revolver and term loan facilities | $ | | $ | |||||
| Senior notes | ||||||||
| Debt issuance costs | ( | ) | ( | ) | ||||
| Other | ||||||||
| Total debt | ||||||||
| Less: current portion | ||||||||
| Long-term debt | $ | $ | ||||||
11. Income Taxes
The Company files income tax returns in numerous U.S. and foreign jurisdictions,
with returns subject to examination for varying
The
effective income tax rates for the three-month periods ended September 28, 2024 and September 30, 2023, were
The
effective income tax rate for the three-month period ended September 28, 2024 of
The effective income tax rate for the six-month period ended September
28, 2024 was
Global Minimum Tax
In October 2021, the Organisation for Economic
Co-operation and Development (OECD) announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules
defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of
16
12. Reportable Segments
The Company operates through operating segments and reports its financial results based on how its chief operating decision maker makes operating decisions, assesses the performance of the business, and allocates resources. Our operating segments are our reportable segments. These reportable operating segments are Aerospace/Defense and Industrial and are described below.
Aerospace/Defense. This segment represents the end markets for the Company’s highly engineered bearings and precision components used in commercial aerospace, defense aerospace, and sea and ground defense applications.
Industrial. This segment represents the end markets for the Company’s highly engineered bearings and precision components used in various industrial applications including: power transmission; construction, mining, energy and specialized equipment manufacturing; semiconductor production equipment manufacturing; agricultural machinery, commercial truck and automotive manufacturing; and tool holding.
Segment
performance is evaluated based on segment net sales and gross margin. Items not allocated to segment operating income include corporate
administrative expenses and certain other amounts. Where not separately disclosed, corporate costs are allocated to each segment.
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||
| Net External Sales | ||||||||||||||||
| Aerospace/Defense | $ | $ | | $ | | $ | | |||||||||
| Industrial | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Gross Margin | ||||||||||||||||
| Aerospace/Defense | $ | $ | $ | $ | ||||||||||||
| Industrial | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Selling, General & Administrative Expenses | ||||||||||||||||
| Aerospace/Defense | $ | $ | $ | $ | ||||||||||||
| Industrial | ||||||||||||||||
| Corporate | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Operating Income | ||||||||||||||||
| Aerospace/Defense | $ | $ | $ | $ | ||||||||||||
| Industrial | ||||||||||||||||
| Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| $ | $ | $ | $ | |||||||||||||
| September 28, 2024 | March 30, 2024 | |||||||
| Total Assets | ||||||||
| Aerospace/Defense | $ | $ | ||||||
| Industrial | ||||||||
| Corporate | ||||||||
| $ | $ | |||||||
17
13. Derivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to fluctuations in interest rates and foreign exchange rates. Derivative financial instruments are recognized on the consolidated balance sheets as either assets or liabilities and are measured at fair value. Changes in the fair values of the derivative are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective as part of a hedged transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income are subsequently included in earnings in the periods in which earnings are affected by the hedged item. The Company does not use derivative instruments for speculative purposes.
In fiscal 2023, the Company
entered into a three-year U.S. dollar-denominated interest rate swap (the “Interest Swap”) with a third-party financial counterparty
under the Credit Agreement (see Note 10). The Interest Rate Swap was executed to protect the Company from interest rate volatility on
our variable-rate Term Loan. The Interest Rate Swap became effective December 30, 2022 and is comprised of a $
Year
1: $
Year
2: $
Year
3: $
The Interest Rate Swap has
been designated as a cash flow hedge of the variability of the first unhedged interest payments (the hedged transactions) paid over the
hedging relationship’s specified time period of
On August 12, 2024, the Company
entered into a three-year pay Swiss franc fixed/receive U.S. dollar fixed, cross currency swap (the “Cross Currency Swap”)
with a third-party financial counterparty. The objective of the Cross Currency Swap is to economically hedge the Company’s net
investment in its lower-tier European subsidiary, Schaublin, against adverse changes in the Swiss franc/U.S. dollar exchange rate. The
Cross Currency Swap is based upon a net investment of CHF
The Cross Currency Swap has been designated as a net investment hedge on an after-tax basis. The fair value of the Cross Currency Swap has been disclosed in Note 6. The balance in accumulated other comprehensive income related to the Cross Currency Swap has been disclosed in Note 4.
14. Subsequent Events
On October 15, 2024, each then-outstanding
share of the MCPS converted into
The dividend on the MCPS that accrued through the conversion date was paid on the conversion date to holders of record on October 1, 2024 and therefore was not factored into the conversion rate.
The Company issued
Because the MCPS is no longer
outstanding, the Company will not pay dividends on the MCPS in the future. This will amount to a cash savings of $
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
All dollar amounts in this MD&A presentation are stated in millions except for per share amounts.
Cautionary Statement as to Forward-Looking Information
The objective of the discussion and analysis is to provide material information relevant to an assessment of the financial condition and results of operations of the Company including an evaluation of the amounts and certainty of cash flows from operations and from outside sources.
The information in this discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts, included in this quarterly report on Form 10-Q regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management are “forward-looking statements” as the term is defined in the Private Securities Litigation Reform Act of 1995.
The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation: (a) the bearing and engineered products industries are highly competitive, and this competition could reduce our profitability or limit our ability to grow; (b) the loss of a major customer, or a material adverse change in a major customer’s business, could result in a material reduction in our revenues, cash flows and profitability; (c) weakness in any of the industries in which our customers operate, as well as the cyclical nature of our customers' businesses generally, could materially reduce our revenues, cash flows and profitability; (d) future reductions or changes in U.S. government spending could negatively affect our business; (e) fluctuating supply and costs of subcomponents, raw materials and energy resources, or the imposition of import tariffs, could materially reduce our revenues, cash flows and profitability; (f) our results could be impacted by governmental trade policies and tariffs relating to our supplies imported from foreign vendors or our finished goods exported to other countries; (g) some of our products are subject to certain approvals and government regulations and the loss of such approvals, or our failure to comply with such regulations, could materially reduce our revenues, cash flows and profitability; (h) the retirement of commercial aircraft could reduce our revenues, cash flows and profitability; (i) work stoppages and other labor problems could materially reduce our ability to operate our business; (j) unexpected equipment failures, catastrophic events or capacity constraints could 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) businesses that we have acquired (such as Dodge) or that we may acquire in the future may have liabilities that are not known to us; (m) goodwill and indefinite-lived intangibles comprise a significant portion of our total assets, and if we determine that goodwill and indefinite-lived intangibles have become impaired in the future, our results of operations and financial condition in such years may be materially and adversely affected; (n) we depend heavily on our senior management and other key personnel, the loss of whom could materially affect our financial performance and prospects; (o) our international operations are subject to risks inherent in such activities; (p) currency translation risks may have a material impact on our results of operations; (q) we may incur material losses for product liability and recall-related claims; (r) our intellectual property and proprietary information are valuable, and any inability to protect them could adversely affect our business and results of operations; in addition, we may be subject to infringement claims by third parties; (s) cancellation of orders in our backlog could negatively impact our revenues, cash flows and profitability; (t) our failure to maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on the Company’s financial condition and the trading price of our common stock; (u) risks associated with utilizing information technology systems could adversely affect our operations; (v) our quarterly performance can be affected by the timing of government product inspections and approvals; (w) we incurred substantial debt in order to complete the Dodge acquisition, which could constrain our business and exposes us to the risk of defaults under our debt instruments; (x) increases in interest rates would increase the cost of servicing the Term Loan and could reduce our profitability; and (y) fluctuations in interest rates and foreign exchange rates could impact future earnings and cash flows related to our Interest Rate Swap and Cross Currency Swap. 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 our Annual Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not intend, and undertake no obligation, to update or alter any forward-looking statement. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, that appears elsewhere in this Quarterly Report.
19
Overview
We are a leading international manufacturer of highly engineered precision bearings, components and essential systems for the industrial, aerospace and defense industries. Our precision solutions are integral to the manufacture and operation of most machines and mechanical systems, reduce wear to moving parts, facilitate proper power transmission, and reduce damage and energy loss caused by friction. While we manufacture products in all major bearings categories, we focus primarily on the higher end of the bearing and engineered component markets where we believe our value-added manufacturing and engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability. We believe our expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 52 facilities in 11 countries, of which 37 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach.
Our chief operating decision maker (CODM) makes operating decisions, assesses the performance of the business, and allocates resources under two reportable business segments – Aerospace/Defense and Industrial:
| ● | Aerospace/Defense. This segment represents the end markets for the Company’s highly engineered bearings and precision components used in commercial aerospace, defense aerospace, and marine and ground defense applications. |
| ● | Industrial. This segment represents the end markets for the Company’s highly engineered bearings, gearings and precision components used in various industrial applications including: power transmission; construction, mining, energy and specialized equipment manufacturing; semiconductor production equipment manufacturing; agricultural machinery, commercial truck and automotive manufacturing; and tool holding. |
The markets for our products are cyclical, and we have endeavored to mitigate this cyclicality by entering into single and sole-source relationships and long-term purchase agreements, through diversification across multiple market segments within the Aerospace/Defense and Industrial segments, by increasing sales to the aftermarket, and by focusing on developing highly customized solutions.
Currently, our strategy is built around maintaining our role as a leading manufacturer of highly engineered bearings and precision components through the following efforts:
| ● | Developing innovative solutions. By leveraging our design and manufacturing expertise and our extensive customer relationships, we continue to develop new products for markets in which there are substantial growth opportunities. |
| ● | Expanding customer base and penetrating end markets. We continually seek opportunities to access new customers, geographic locations and bearing platforms with existing products or profitable new product opportunities. |
| ● | Increasing aftermarket sales. We believe that increasing our aftermarket sales of replacement parts will further enhance the continuity and predictability of our revenues and enhance our profitability. Such sales include sales to third party distributors and sales to OEMs for replacement products and aftermarket services. The acquisition of Dodge has had a profound impact on our sales volumes to distributors and other aftermarket customers. We will further increase the percentage of our revenues derived from the replacement market by continuing to implement several initiatives. |
| ● | Pursuing selective acquisitions. The acquisition of businesses that complement or expand our operations has been and continues to be an important element of our business strategy. We believe that there will continue to be consolidation within the industry that may present us with acquisition opportunities. |
Outlook
Our net sales for the three-month period ended September 28, 2024 increased 3.2% compared to the same period last fiscal year. The increase in net sales was a result of a 12.5% increase in our Aerospace/Defense segment partially offset by a 1.4% decrease in our Industrial segment. Our backlog, as of September 28, 2024 was $864.0 compared to $821.5 as of March 30, 2024.
We are continuing to see the expansion of our commercial aerospace business, which experienced a 10.3% increase in net sales for the three-month period ended September 28, 2024 versus the same period last fiscal year. We anticipate this growth to continue through the rest of the current fiscal year and beyond. Orders have continued to grow as evidenced by our backlog. Defense sales, which represented approximately 33.3% of segment sales during the quarter, were up 17.3% quarter over quarter. We expect this growth to continue throughout the current fiscal year and beyond as we are gearing up to fulfill the substantial number of defense orders in our backlog. Though sales in our Industrial segment have decreased compared to the comparable period in the prior year, our margins have continued to improve driven by continuous operational improvements and product mix.
20
The Company expects net sales to be approximately $390.0 to $400.0 in the third quarter of fiscal 2025, an increase of 4.3% to 7.0% compared to the third quarter of fiscal 2024.
We believe that operating cash flows and available credit under the Revolving Credit Facility will provide adequate resources to fund internal growth initiatives for the foreseeable future, including at least the next 12 months. As of September 28, 2024, we had cash and cash equivalents of $89.1, of which approximately $22.8 was cash held by our foreign subsidiaries.
Results of Operations
| Three Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Total net sales | $ | 397.9 | $ | 385.6 | $ | 12.3 | 3.2 | % | ||||||||
| Net income attributable to common stockholders | $ | 48.5 | $ | 45.9 | $ | 2.6 | 5.6 | % | ||||||||
| Net income per share attributable to common stockholders: diluted | $ | 1.65 | $ | 1.58 | ||||||||||||
| Weighted average common shares: diluted | 29,336,466 | 29,138,596 | ||||||||||||||
Our net sales for the three-month period ended September 28, 2024 increased 3.2% compared to the same period last fiscal year. Net sales in our Industrial segment decreased 1.4% quarter over quarter. While stable overall, we saw strength in the mining and metals and warehousing markets offset by weakness in semicon and oil and gas sales compared to the prior year. Net sales in our Aerospace/Defense segment increased 12.5% quarter over quarter, led by defense sales, which increased 17.3% compared to the same period in the prior year, driven by aerospace and marine. Aerospace commercial OEM and the aftermarket were up 10.3% compared to the same period in the prior year. Net sales during the quarter ended September 28, 2024 were adversely effected by a temporary stoppage of shipping and receiving activities at certain of our facilities due to local flooding caused by Hurricane Helene, as well as a shipping slowdown to one of our commercial aerospace OEM customers that is experiencing a labor strike. We estimate the impact to net sales from these events to have been between $4.0 and $5.0 during the quarter.
Net income attributable to common stockholders for the second quarter of fiscal 2025 was $48.5 compared to $45.9 for the same period last fiscal year.
| Six Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Total net sales | $ | 804.2 | $ | 772.7 | $ | 31.5 | 4.1 | % | ||||||||
| Net income attributable to common stockholders | $ | 104.2 | $ | 90.2 | $ | 14.0 | 15.5 | % | ||||||||
| Net income per share attributable to common stockholders: diluted | $ | 3.55 | $ | 3.10 | ||||||||||||
| Weighted average common shares: diluted | 29,316,493 | 29,126,670 | ||||||||||||||
Our net sales for the six-month period ended September 28, 2024 increased 4.1% compared to the same period last fiscal year. Net sales in our Industrial segment decreased 2.5% year over year. This reflected a pattern of sustained strong performance in areas including the food and beverage, mining and metals, power generation, logistics and warehousing and grain markets offset by semicon and oil and gas. Net sales in our Aerospace/Defense segment increased 18.0% year over year, led by the defense sector which was up 27.3% compared to the same period in the prior year while net sales to the commercial aerospace sector were up 13.7%. The increase in the defense sector reflects continued strength and stability from our large OEMs and the aftermarket.
21
Net income attributable to common stockholders for the six months ended September 28, 2024 was $104.2 compared to $90.2 for the same period last fiscal year.
Gross Margin
| Three Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Gross Margin | $ | 173.8 | $ | 166.3 | $ | 7.5 | 4.5 | % | ||||||||
| % of net sales | 43.7 | % | 43.1 | % | ||||||||||||
Gross margin was 43.7% of net sales for the second quarter of fiscal 2025 compared to 43.1% for the second quarter of fiscal 2024.
| Six Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Gross Margin | $ | 357.8 | $ | 334.2 | $ | 23.6 | 7.1 | % | ||||||||
| % of net sales | 44.5 | % | 43.2 | % | ||||||||||||
Gross margin was 44.5% of net sales for the first six months of fiscal 2025 compared to 43.2% for the same period last fiscal year. The increase in gross margin as a percentage of net sales was mostly driven by volumes and sustained manufacturing efficiencies.
Selling, General and Administrative
| Three Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| SG&A | $ | 69.5 | $ | 60.5 | $ | 9.0 | 14.8 | % | ||||||||
| % of net sales | 17.5 | % | 15.7 | % | ||||||||||||
SG&A for the second quarter of fiscal 2025 was $69.5, or 17.5% of net sales, as compared to $60.5, or 15.7% of net sales, for the same period of fiscal 2024. The increase in SG&A was primarily driven by increased personnel costs, stock compensation costs, travel costs and other professional fees.
| Six Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| SG&A | $ | 137.1 | $ | 125.2 | $ | 11.9 | 9.5 | % | ||||||||
| % of net sales | 17.0 | % | 16.2 | % | ||||||||||||
SG&A expenses increased by $11.9 to $137.1 for the first six months of fiscal 2025 compared to $125.2 for the same period last year. The increase in SG&A for the first six months of fiscal 2025 was primarily related to increases in professional fees, stock compensation costs, travel costs and personnel costs.
22
Other, Net
| Three Months Ended | ||||||||||||||||
September
28, | September
30, | $ Change | % | |||||||||||||
| Other, net | $ | 18.2 | $ | 18.0 | $ | 0.2 | 1.3 | % | ||||||||
| % of net sales | 4.6 | % | 4.7 | % | ||||||||||||
Other operating expenses for the second quarter of fiscal 2025 totaled $18.2 compared to $18.0 for the same period last fiscal year. For the second quarter of fiscal 2025, other operating expenses included $17.9 of amortization of intangible assets and $0.5 of restructuring costs offset by $0.2 of other items. For the second quarter of fiscal 2024, other operating expenses included $17.6 of amortization of intangible assets, $0.3 of restructuring costs and $0.1 of other items.
| Six Months Ended | ||||||||||||||||
September
28, | September
30, | $ Change | % | |||||||||||||
| Other, net | $ | 37.1 | $ | 36.2 | $ | 0.9 | 2.7 | % | ||||||||
| % of net sales | 4.6 | % | 4.7 | % | ||||||||||||
Other operating expenses for the first six months of fiscal 2025 totaled $37.1 compared to $36.2 for the same period last fiscal year. For the first six months of fiscal 2025, other operating expenses were comprised primarily of $35.7 of amortization of intangible assets, $0.5 of restructuring costs, and $0.9 of other items. For the first six months of fiscal 2024, other operating expenses were comprised primarily of $35.1 of amortization of intangible assets, $0.6 of restructuring costs, and $0.5 of other items.
Interest Expense, Net
| Three Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Interest expense, net | $ | 15.6 | $ | 20.1 | $ | (4.5 | ) | (22.2 | )% | |||||||
| % of net sales | 3.9 | % | 5.2 | % | ||||||||||||
Interest expense, net, consists of interest charged on the Company’s debt arrangements and amortization of deferred financing fees, offset by interest income (see “Liquidity and Capital Resources” below). Interest expense, net, was $15.6 for the second quarter of fiscal 2025 compared to $20.1 for the same period last fiscal year. The decrease in interest expense between the periods was related to the debt reduction efforts made by the Company over the past fiscal year, the Interest Rate Swap (which has enabled us to manage interest costs as approximately 82% of our debt bears interest at a fixed rate, after giving effect to the Interest Rate Swap), and the Cross Currency Swap. See “Liquidity and Capital Resources” below for more information regarding the Interest Rate Swap and the Cross Currency Swap.
| Six Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Interest expense, net | $ | 32.8 | $ | 40.6 | $ | (7.8 | ) | (19.1 | )% | |||||||
| % of net sales | 4.1 | % | 5.3 | % | ||||||||||||
23
Interest expense, net, was $32.8 for the first six months of fiscal 2025 compared to $40.6 for the same period last fiscal year. The decrease was mainly attributable to our debt reduction efforts, as well as the Interest Rate Swap and the Cross Currency Swap, which have enabled us to manage interest costs.
Other Non-Operating Expense
| Three Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Other non-operating expense | $ | 1.1 | $ | 0.8 | $ | 0.3 | 24.8 | % | ||||||||
| % of net sales | 0.2 | % | 0.2 | % | ||||||||||||
Other non-operating expenses were $1.1 for the second quarter of fiscal 2025 compared to $0.8 for the same period in the prior year and consisted primarily of post-retirement benefit costs and foreign exchange gains and losses.
| Six Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Other non-operating expense | $ | 1.5 | $ | 1.3 | $ | 0.2 | 10.7 | % | ||||||||
| % of net sales | 0.2 | % | 0.2 | % | ||||||||||||
Other non-operating expenses were $1.5 for the first six months of fiscal 2025 compared to $1.3 for the same period in the prior fiscal year and consisted primarily of post-retirement benefit costs and foreign exchange gains and losses.
Income Taxes
| Three Months Ended | ||||||||
| September 28, 2024 | September 30, 2023 | |||||||
| Income tax expense | $ | 15.2 | $ | 15.2 | ||||
| Effective tax rate | 21.9 | % | 22.7 | % | ||||
Income tax expense for the three-month period ended September 28, 2024 was $15.2 compared to $15.2 for the three-month period ended September 30, 2023. Our effective income tax rate for the three-month period ended September 28, 2024 was 21.9% compared to 22.7% for the three-month period ended September 30, 2023. The effective income tax rate for the three-month period ended September 28, 2024 of 21.9% included $1.1 of tax benefits associated with stock-based compensation which was slightly offset by $0.1 of other tax expenses. The effective income tax rate without discrete items for the three-month period ended September 28, 2024 would have been 23.4%. The effective income tax rate for the three-month period ended September 30, 2023 of 22.7% included $0.1 of tax benefits associated with stock-based compensation. The effective income tax rate without discrete items for the three-month period ended September 30, 2023 would have been 22.8%.
| Six Months Ended | ||||||||
September
28, | September
30, | |||||||
| Income tax expense | $ | 33.7 | $ | 29.2 | ||||
| Effective tax rate | 22.6 | % | 22.3 | % | ||||
24
Income tax expense for the six-month period ended September 28, 2024 was $33.7 compared to $29.2 for the six-month period ended September 30, 2023. Our effective income tax rate for the six-month period ended September 28, 2024 was 22.6% compared to 22.3% for the six-month period ended September 30, 2023. The effective income tax rate for the six-month period ended September 28, 2024 of 22.6% included $1.7 of tax benefits associated with stock-based compensation which was slightly offset by $0.1 of other tax expenses. The effective income tax rate without discrete items for the six-month period ended September 28, 2024 would have been 23.6%. The effective income tax rate for the six-month period ended September 30, 2023 of 22.3% included $0.5 of tax benefits associated with stock-based compensation. The effective income tax rate without discrete items for the six-month period ended September 30, 2023 would have been 22.7%.
Segment Information
Our CODM makes operating decisions, assesses the performance of the business, and allocates resources under two operating segments: Aerospace/Defense; and Industrial. We use segment net sales and gross margin as the primary measurements to assess the financial performance of each reportable segment.
Aerospace/Defense Segment
| Three Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Total net sales | $ | 143.2 | $ | 127.3 | $ | 15.9 | 12.5 | % | ||||||||
| Gross margin | $ | 56.8 | $ | 50.6 | $ | 6.2 | 12.3 | % | ||||||||
| % of segment net sales | 39.7 | % | 39.7 | % | ||||||||||||
| SG&A | $ | 10.4 | $ | 9.1 | $ | 1.3 | 13.6 | % | ||||||||
| % of segment net sales | 7.2 | % | 7.2 | % | ||||||||||||
Net sales increased $15.9, or 12.5%, for the three months ended September 28, 2024 compared to the same period last fiscal year. Our commercial aerospace markets, which consisted of $75.4 of OEM and $20.1 of distribution and aftermarket, increased by 10.3% compared to fiscal 2024 when OEM net sales were $67.5 and distribution and aftermarket net sales were $19.2. This was driven by strong execution on the incremental orders we have seen in recent periods in the OEM markets and expansion in the aftermarket. Our defense markets, which consisted of $35.5 of OEM and $12.2 of distribution and aftermarket, increased by 17.3% compared to fiscal 2024 when OEM net sales were $34.9 and distribution and aftermarket net sales were $5.7. The increase in defense sales was driven by marine, helicopters and missiles.
25
Gross margin as a percentage of segment net sales was 39.7% for the second quarter of fiscal 2025 which was consistent for the same period last fiscal year.
| Six Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Total net sales | $ | 292.3 | $ | 247.8 | $ | 44.5 | 18.0 | % | ||||||||
| Gross margin | $ | 119.9 | $ | 97.9 | $ | 22.0 | 22.5 | % | ||||||||
| % of segment net sales | 41.0 | % | 39.5 | % | ||||||||||||
| SG&A | $ | 20.7 | $ | 18.2 | $ | 2.5 | 13.0 | % | ||||||||
| % of segment net sales | 7.1 | % | 7.4 | % | ||||||||||||
Net sales increased $44.5, or 18.0%, for the first six months of fiscal 2025 compared to the same period last fiscal year. The 18.0% increase was primarily driven by a 27.3% increase in our defense market, while our commercial aerospace market was up 13.7% year over year. Commercial aerospace, which consisted of $153.9 of OEM and $38.9 of distribution and aftermarket, increased by 13.7% compared to fiscal 2024 when OEM net sales were $133.1 and distribution and aftermarket net sales were $36.5. Our defense markets, which consisted of $75.7 of OEM and $23.8 of distribution and aftermarket, increased by 27.3% compared to fiscal 2024 when OEM net sales were $65.2 and distribution and aftermarket net sales were $13.0.
Gross margin as a percentage of segment net sales was 41.0% for the second quarter of fiscal 2025 compared to 39.5% for the same period last fiscal year. The increase in gross margin as a percentage of net sales was primarily driven by efficiencies achieved at the plants in part due to increased sales volumes and favorable product mix.
Industrial Segment
| Three Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Total net sales | $ | 254.7 | $ | 258.3 | $ | (3.6 | ) | (1.4 | )% | |||||||
| Gross margin | $ | 117.0 | $ | 115.7 | $ | 1.3 | 1.1 | % | ||||||||
| % of segment net sales | 46.0 | % | 44.8 | % | ||||||||||||
| SG&A | $ | 33.1 | $ | 31.8 | $ | 1.3 | 4.0 | % | ||||||||
| % of segment net sales | 13.0 | % | 12.3 | % | ||||||||||||
Net sales decreased $3.6 for the three months ended September 28, 2024 compared to the same period last fiscal year. We saw strength in the mining and metals, logistics and warehousing, grain, food and beverage and power generation markets offset by weakness in the semiconductor and oil and gas markets. Industrial OEM sales were $82.7 and $84.7 for the three month periods ended September 28, 2024 and September 30, 2023, respectively. Industrial sales to distribution and the aftermarket were $172.0 and $173.6 for the three month periods ended September 28, 2024 and September 30, 2023, respectively.
26
Gross margin for the three months ended September 28, 2024 was 46.0% of net sales, compared to 44.8% in the comparable period in fiscal 2024. The improved gross margin was due to product mix and manufacturing efficiencies achieved at the plants.
| Six Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| Total net sales | $ | 511.9 | $ | 524.9 | $ | (13.0 | ) | (2.5 | )% | |||||||
| Gross margin | $ | 237.9 | $ | 236.3 | $ | 1.6 | 0.7 | % | ||||||||
| % of segment net sales | 46.5 | % | 45.0 | % | ||||||||||||
| SG&A | $ | 67.2 | $ | 65.8 | $ | 1.4 | 2.1 | % | ||||||||
| % of segment net sales | 13.1 | % | 12.5 | % | ||||||||||||
Net sales decreased $13.0, or 2.5%, for the first six months of fiscal 2025 compared to the same period last fiscal year. We saw strength in the mining and metals, logistics and warehousing, grain, food and beverage and power generation markets offset by weakness in the semiconductor and oil and gas markets. Industrial OEM sales were $164.5 and $169.4 for the six month periods ended September 28, 2024 and September 30, 2023, respectively. Industrial sales to distribution and the aftermarket were $347.4 and $355.5 for the six month periods ended September 28, 2024 and September 30, 2023, respectively.
Gross margin for the first six months of fiscal 2025 was 46.5% of net sales, compared to 45.0% in the same period last fiscal year. The increase in gross margin was driven by manufacturing efficiencies and product mix.
Corporate
| Three Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| SG&A | $ | 26.0 | $ | 19.6 | $ | 6.4 | 32.9 | % | ||||||||
| % of total net sales | 6.5 | % | 5.1 | % | ||||||||||||
Corporate SG&A was $26.0, or 6.5% of net sales, for the second quarter of fiscal 2025 compared to $19.6, or 5.1% of net sales, for the same period last fiscal year. The quarter over quarter increase was primarily due to increases in professional fees, stock compensation costs, travel costs and personnel costs.
| Six Months Ended | ||||||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||
| SG&A | $ | 49.2 | $ | 41.2 | $ | 8.0 | 19.7 | % | ||||||||
| % of total net sales | 6.1 | % | 5.3 | % | ||||||||||||
Corporate SG&A increased $8.0 for the first six months of fiscal 2025 compared to the same period last fiscal year due to increases in personnel costs, professional fees, travel costs and stock compensation costs.
27
Liquidity and Capital Resources
Our capital requirements include manufacturing equipment and materials. We have historically fueled our growth, in part, through acquisitions, including the Dodge acquisition completed in fiscal 2022 and the Specline acquisition completed in fiscal 2024. We have historically met our working capital, capital expenditure and acquisition funding needs through our net cash flows provided by operations, various debt arrangements and public sales of equity. We believe that operating cash flows and available credit under the Revolving Credit Facility (which expires in November 2026) will provide adequate resources to fund internal growth initiatives for the foreseeable future.
Our ability to meet future working capital, capital expenditure and debt service requirements will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, particularly interest rates, cyclical changes in our end markets, and our ability to pass through raw material price increases on a timely basis, many of which are outside of our control. In addition, future acquisitions could have a significant impact on our liquidity position and our need for additional funds.
From time to time, we evaluate our existing facilities and operations and their strategic importance to us. If we determine that a given facility or operation does not have future strategic importance, we may sell, relocate, consolidate or otherwise dispose of that facility or operations. Although we believe our operations would not be materially adversely affected by such dispositions, relocations or consolidations, we could incur significant cash or non-cash charges in connection with them.
Liquidity
As of September 28, 2024, we had cash and cash equivalents of $89.1, of which approximately $22.8 was cash held by our foreign subsidiaries. We expect that our undistributed foreign earnings will be re-invested indefinitely for working capital, internal growth, and acquisitions for and by certain of our foreign subsidiaries.
Domestic Credit Facility
The Credit Agreement, which was entered into in fiscal 2022, provides the Company with (a) the $1,300.0 Term Loan, which was used to fund a portion of the purchase price for the acquisition of Dodge and to pay related fees and expenses, and (b) the $500.0 Revolving Credit Facility. Debt issuance costs associated with the Credit Agreement totaled $14.9 and are being amortized over the life of the Credit Agreement.
Initially, amounts outstanding under the Facilities generally bore interest, at the Company’s option, at either, (a) a base rate determined by reference to the higher of (i) Wells Fargo’s prime lending rate, (ii) the federal funds effective rate plus 1/2 of 1.00% and (iii) the one-month LIBOR rate plus 1.00% or (b) the LIBOR rate plus a specified margin, depending on the type of borrowing being made. The applicable margin was based on the Company’s consolidated ratio of total net debt to consolidated EBITDA (as defined in the Credit Agreement) from time to time. In December 2022, the Credit Agreement was amended to replace LIBOR with the secured overnight financing rate administered by the Federal Reserve Bank of New York (i.e., SOFR) so that borrowings under the Facilities denominated in U.S. dollars bear interest at a rate per annum equal to Term SOFR (as defined in the Credit Agreement) plus a credit spread adjustment of 0.10%, plus a margin ranging from 0.75% to 2.00% depending on the Company’s consolidated ratio of total net debt to consolidated EBITDA. The Facilities are subject to a SOFR floor of 0.00%. As of September 28, 2024, the Company’s margin was 1.00% for SOFR loans, the commitment fee rate was 0.175%, and the letter of credit fee rate was 1.00%. A portion of the Term Loan is subject to the Interest Rate Swap.
The Term Loan matures in November 2026 and amortizes in quarterly installments with the balance payable on the maturity date. The Company can elect to prepay some or all of the outstanding balance from time to time without penalty, which will offset future quarterly amortization installments. Due to prepayments previously made, the required future principal payments on the Term Loan are $0 for fiscal 2025, $0 for fiscal 2026, and $600.0 for fiscal 2027. The Revolving Credit Facility expires in November 2026, at which time all amounts outstanding under the Revolving Credit Facility will be payable.
28
The Credit Agreement requires the Company to comply with various covenants, including the following financial covenants: (a) a maximum Total Net Leverage Ratio (as defined in the Credit Agreement) of 5.00:1.00, which maximum Total Net Leverage Ratio shall decrease during certain subsequent test periods as set forth in the Credit Agreement (provided that, no more than once during the term of the Facilities, such maximum ratio applicable at such time may be increased by the Company by 0.50:1.00 for a period of 12 months after the consummation of a material acquisition); and (b) a minimum Interest Coverage Ratio of 2.00:1.00. As of September 28, 2024 the Company was in compliance with all debt covenants.
The Credit Agreement allows the Company to, among other things, make distributions to stockholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the Credit Agreement.
The Company’s domestic subsidiaries have guaranteed the Company’s obligations under the Credit Agreement, and the Company’s obligations and the domestic subsidiaries’ guaranty are secured by a pledge of substantially all of the assets of the Company and its domestic subsidiaries.
As of September 28, 2024, $600.0 was outstanding under the Term Loan and $3.7 of the Revolving Credit Facility was being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs. The Company had the ability to borrow an additional $496.3 under the Revolving Credit Facility as of September 28, 2024. On September 30, 2024, the Company paid $32.0 on the Term Loan.
Senior Notes
In fiscal 2022, RBCA issued $500.0 aggregate principal amount of Senior Notes. The net proceeds from the issuance of the Senior Notes were approximately $492.0, after deducting initial purchasers’ discounts and commissions and offering expenses, and were used to fund a portion of the cash purchase price for the acquisition of Dodge.
The Senior Notes were issued pursuant to the Indenture with Wilmington Trust, National Association, as trustee. The Indenture contains covenants limiting the ability of the Company to (i) incur additional indebtedness or guarantee indebtedness, (ii) declare or pay dividends, redeem stock or make other distributions to stockholders, (iii) make investments, (iv) create liens or use assets as security in other transactions, (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of its assets, (vi) enter into transactions with affiliates, and (vii) sell or transfer certain assets. These covenants contain various exceptions, limitations and qualifications. At any time that the Senior Notes are rated investment grade, certain of these covenants will be suspended.
The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by RBC Bearings and RBCA’s domestic subsidiaries that also guarantee the Credit Agreement.
Interest on the Senior Notes accrues at a rate of 4.375% and is payable semi–annually in cash in arrears on April 15 and October 15 of each year.
The Senior Notes will mature on October 15, 2029. The Company may redeem some or all of the Senior Notes at any time on or after October 15, 2024 at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company sells certain of its assets or experiences specific kinds of changes in control, the Company must offer to purchase the Senior Notes.
29
Foreign Borrowing Arrangements
The Foreign Credit Line is a CHF 5.0 (approximately $5.9 USD) credit line with Credit Suisse (Switzerland) Ltd. to provide our Swiss subsidiary, Schaublin SA, future working capital, if necessary. As of September 28, 2024, $0.1 was being utilized to provide a bank guarantee. Fees associated with the Foreign Credit Line are nominal.
In July 2024, Swiss Tool Systems, one of our foreign subsidiaries, purchased the building where it operates for CHF 7.1 (approximately $8.4 USD) and took out a 10-year fixed-rate mortgage on the building for CHF 4.0 (approximately $4.5 USD).
Interest Rate Swap
The Company is exposed to market risks relating to fluctuations in interest rates.
To hedge against this risk, in fiscal 2023, the Company entered into the Interest Rate Swap with a third-party financial counterparty under the Credit Agreement. The Interest Rate Swap was executed to protect the Company from interest rate volatility on our variable-rate Term Loan. The Interest Rate Swap became effective December 30, 2022 and is comprised of a $600.0 notional with a maturity of three years. The notional was $400.0 as of September 28, 2024. We receive a variable rate based on one-month Term SOFR and pay a fixed rate of 4.455%. As of September 28, 2024, approximately 82% of our debt bore interest at a fixed rate after giving effect to the Interest Rate Swap in place. The notional on the Interest Rate Swap amortizes as follows:
Year 1: $600.0
Year 2: $400.0
Year 3: $100.0
The Interest Rate Swap has been designated as a cash flow hedge of the variability of the first unhedged interest payments (the hedged transactions) paid over the hedging relationship’s specified time period of three years attributable to the borrowing’s contractually specified interest index on the hedged principal of its general borrowing program or replacement or refinancing thereof.
Cross Currency Swap
The Company is exposed to foreign exchange rate fluctuations as some of our subsidiaries operate in various countries.
On August 12, 2024, the Company entered into the Cross Currency Swap with a third-party financial counterparty. The objective of the Cross Currency Swap is to economically hedge the Company’s net investment in its lower-tier European subsidiary, Schaublin, against adverse changes in the Swiss franc/U.S. dollar exchange rate. The Cross Currency Swap is based upon a net investment of CHF 69.4 ($80.0 USD) notional amount with a three-year maturity date. RBC receives a fixed U.S. dollar amount on a month-to-month basis based upon a fixed annual rate of 2.77% of the notional amount. At maturity, RBC will net-settle the principal of the Cross Currency Swap in cash with the counterparty. The Cross Currency Swap has been designated as a net investment hedge on an after-tax basis.
30
Cash Flows
Six-month Period Ended September 28, 2024 Compared to the Six-month Period Ended September 30, 2023
The following table summarizes our cash flow activities:
| FY25 | FY24 | $ Change | ||||||||||
| Net cash provided by/(used in): | ||||||||||||
| Operating activities | $ | 140.4 | $ | 114.8 | $ | 25.6 | ||||||
| Investing activities | (25.2 | ) | (32.5 | ) | 7.3 | |||||||
| Financing activities | (89.0 | ) | (90.4 | ) | 1.4 | |||||||
| Effect of exchange rate changes on cash | (0.6 | ) | (0.7 | ) | 0.1 | |||||||
| Increase/(decrease) in cash and cash equivalents | $ | 25.6 | $ | (8.8 | ) | $ | 34.4 | |||||
During the first six months of fiscal 2025, we generated cash of $140.4 from operating activities compared to $114.8 during the same period of fiscal 2024. The increase of $25.6 was the result of an increase in net income of $13.9 and a favorable change in operating assets and liabilities of $12.7, partially offset by the unfavorable impact of non-cash activity of $1.0. The favorable change in operating assets and liabilities is detailed in the table below. The change in non-cash activity was driven by $4.0 more in stock-based compensation and $0.5 more in depreciation and amortization, offset by $3.7 more in deferred taxes, $0.6 less in amortization of deferred financing costs, $0.6 less in consolidation and restructuring charges, $0.3 less in losses on asset dispositions and $0.3 less in noncash operating lease expense.
The following table summarizes the impact on cash flow from operating assets and liabilities for fiscal 2025 versus fiscal 2024.
| Six Months Ended | ||||||||||||
| September 28, 2024 | September 30, 2023 | $ Change | ||||||||||
| Cash provided by/(used in): | ||||||||||||
| Accounts receivable | $ | 0.8 | $ | (3.7 | ) | $ | 4.5 | |||||
| Inventory | (20.7 | ) | (24.8 | ) | 4.1 | |||||||
| Prepaid expenses and other current assets | (7.0 | ) | (0.7 | ) | (6.3 | ) | ||||||
| Other noncurrent assets | (2.0 | ) | (2.0 | ) | 0.0 | |||||||
| Accounts payable | 11.0 | (16.0 | ) | 27.0 | ||||||||
| Accrued expenses and other current liabilities | (16.2 | ) | (7.7 | ) | (8.5 | ) | ||||||
| Other noncurrent liabilities | (8.5 | ) | (0.4 | ) | (8.1 | ) | ||||||
| Total change in operating assets and liabilities: | $ | (42.6 | ) | $ | (55.3 | ) | $ | 12.7 | ||||
During the first six months of fiscal 2025, we used $25.2 for investing activities as compared to $32.5 used in the first six months of fiscal 2024. This decrease in cash used was primarily attributable to a $18.7 decrease in business acquisition costs while capital expenditures increased $11.0 period over period.
During the first six months of fiscal 2025, we used cash of $89.0 for financing activities compared to $90.4 in the first six months of fiscal 2024. This decrease in cash used was primarily attributable to $22.2 more exercises of stock-based awards and $4.5 received from proceeds related to the Swiss Tool mortgage, partially offset by $18.0 less in proceeds received in drawdowns from our revolving credit facility, $5.4 more payments made on outstanding debt, $0.5 more principal payments made on finance lease obligations and $1.4 more repurchases of common stock.
31
Capital Expenditures
Our capital expenditures were $25.2 for the first six months of fiscal 2025 compared to $14.2 for the same period in the prior fiscal year. We expect to make additional capital expenditures of $20.0 to $25.0 during the remainder of fiscal 2025 in connection with our existing business. We expect to fund these capital expenditures principally through existing cash and internally generated funds. We may also make substantial additional capital expenditures in connection with acquisitions.
Obligations and Commitments
The Company’s fixed contractual obligations and commitments are primarily comprised of our debt obligations disclosed in Note 10 in Part I, Item 1 of this report. We also have lease obligations which are materially consistent with what we disclosed in our Annual Report.
Other Matters
Critical Accounting Policies and Estimates
Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements in our Annual Report describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results in these areas could differ from management’s estimates. There were no significant changes in our critical accounting estimates during the first six months of fiscal 2025.
Off-Balance Sheet Arrangements
The Company has $3.7 of outstanding standby letters of credit, all of which are under the Revolving Credit Facility. We also have a contractual obligation for licenses related to the implementation and upgrade of an enterprise resource planning (ERP) system. The remaining contractual obligation related to these ERP license costs of $7.6 will end in June of 2026.
Other than the items noted above, we had no significant off-balance sheet arrangements as of September 28, 2024.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks that arise during the normal course of business from changes in interest rates and foreign currency exchange rates.
Interest Rates. We currently have variable rate debt outstanding under the Term Loan. We regularly evaluate the impact of interest rate changes on our net income and cash flow and take action to limit our exposure when appropriate. As discussed in Note 13 in Part I, Item 1 of this report, we have utilized an interest rate swap to fix a portion of the variable rate interest expense associated with the Term Loan. As of September 28, 2024, approximately 82% of our debt bears interest at a fixed rate, after giving effect to the interest rate swap agreement in place.
32
Foreign Currency Exchange Rates. Our operations in the following countries utilize the following currencies as their functional currency:
| ● | Australia – Australian dollar | ● | India – rupee | ||
| ● | Canada – Canadian dollar | ● | Mexico – peso | ||
| ● | China – Chinese yuan | ● | Poland – zloty | ||
| ● | France and Germany – euro | ● | Switzerland – Swiss franc | ||
| ● | England – British pound |
As a result, we are exposed to risk associated with fluctuating currency exchange rates between the U.S. dollar and these currencies. Foreign currency transaction gains and losses are included in earnings. Approximately 11% of our net sales were impacted by foreign currency fluctuations for both the three- and six-month periods ended September 28, 2024. Approximately 11% and 12% of our net sales were impacted by foreign currency fluctuations for the three- and six-month periods ended September 30, 2023, respectively. For those foreign countries where we have sales, a strengthening in the U.S. dollar as we have seen over the past few years or devaluation in the local currency would reduce the value of our local inventory as presented in our consolidated financial statements. In addition, a stronger U.S. dollar or a weaker local currency would result in reduced net sales, operating profit and shareholders’ equity due to the impact of foreign exchange translation on our consolidated financial statements. Fluctuations in foreign currency exchange rates may make our products more expensive for others to purchase or increase our operating costs, affecting our competitiveness and our profitability.
Changes in exchange rates between the U.S. dollar and other currencies and volatile economic, political and market conditions in emerging market countries have in the past adversely affected our financial performance and may in the future adversely affect the value of our assets located outside the United States, our gross profit and our results of operations.
We periodically enter into derivative financial instruments to reduce the effect of fluctuations in exchange rates on our business. As of September 28, 2024, the Company had a cross currency swap, which is discussed in further detail within Notes 6 and 13 in Part I, Item 1 of this report.
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 28, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 28, 2024, 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 SEC, 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 GAAP.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the first six months of fiscal 2025 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).
33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No legal proceeding became a reportable event during the quarter ended September 28, 2024 and there were no material developments during the quarter with respect to any legal proceedings previously disclosed.
Item 1A. Risk Factors
There have been no material changes to our risk factors and uncertainties since the filing of our Annual Report with the SEC on May 17, 2024, other than what we’ve noted within item (y) within Part I, Item 2, “Cautionary Statement as to Forward-Looking Information” contained in this quarterly report. For further discussion regarding all of our other risk factors and uncertainties, refer to Part I, Item 1A, “Risk Factors,” contained in our Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
During the second quarter of fiscal 2025, we did not issue any common stock that was not registered under the Securities Act of 1933.
Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
In 2019, our Board of Directors authorized us to repurchase up to $100.0 of our common stock from time to time on the open market, in block trade transactions, and through privately negotiated transactions, in compliance with SEC Rule 10b-18 depending on market conditions, alternative uses of capital, and other relevant factors. Purchases may be commenced, suspended, or discontinued at any time without prior notice.
Total share repurchases under the 2019 plan for the three months ended September 28, 2024 are as follows:
| Period | Total number of shares purchased | Average price paid per share | Number of shares purchased as part of the publicly announced program | Approximate dollar value of shares still available to be purchased under the program (in millions) | ||||||||||||
| 06/30/2024 – 07/27/2024 | 545 | $ | 292.72 | 545 | $ | 52.1 | ||||||||||
| 07/28/2024 – 08/24/2024 | 879 | 285.98 | 879 | $ | 51.8 | |||||||||||
| 08/25/2024 – 09/28/2024 | 45 | 284.56 | 45 | $ | 51.7 | |||||||||||
| Total | 1,469 | $ | 288.44 | 1,469 | ||||||||||||
34
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 6. Exhibits
|
Exhibit |
Exhibit Description | |
| 31.01 | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a). | |
| 31.02 | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a). | |
| 32.01 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* | |
| 32.02 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. |
| * | This certification accompanies this Quarterly Report on Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| RBC Bearings Incorporated | |||
| (Registrant) | |||
| By: | /s/ Michael J. Hartnett | ||
| Name: | Michael J. Hartnett | ||
| Title: | Chief Executive Officer | ||
| Date: | November 1, 2024 | ||
| By: | /s/ Robert M. Sullivan | ||
| Name: | Robert M. Sullivan | ||
| Title: | Chief Financial Officer | ||
| Date: | November 1, 2024 | ||
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