What changed in RBC Bearings INC's 10-K — 2023 vs 2024
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Paragraph-level year-over-year comparison of RBC Bearings INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.
+249 added−278 removedSource: 10-K (2024-05-17) vs 10-K (2022-05-26)
Top changes in RBC Bearings INC's 2024 10-K
249 paragraphs added · 278 removed · 174 edited across 7 sections
- Item 7. Management's Discussion & Analysis+127 / −141 · 85 edited
- Item 1A. Risk Factors+48 / −70 · 40 edited
- Item 1. Business+44 / −43 · 34 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+10 / −8 · 4 edited
- Item 2. Properties+8 / −5 · 3 edited
Item 1. Business
Business — how the company describes what it does
34 edited+10 added−9 removed59 unchanged
Item 1. Business
Business — how the company describes what it does
34 edited+10 added−9 removed59 unchanged
2023 filing
2024 filing
Biggest changeHuman Capital RBC employs 3,549 people at our 37 U.S. facilities, approximately 4% of which are exempt and 96% are non-exempt. In addition, we employ 1,343 people at our 19 facilities located in Canada, Mexico, France, Switzerland, Germany, Poland, India, Australia and China.
Biggest changeOf that, 3,738 are employed at our 35 U.S. facilities and 1,564 are employed at our 19 international facilities located in Canada, Mexico, France, Switzerland, Germany, Poland, India, Australia, China and England. The majority of our personnel are RBC employees rather than independent contractors, temporaries or third-party labor provider personnel.
In addition, this Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to any of the foregoing reports, and our governance documents, are made available free of charge on our website (http://www.rbcbearings.com) as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.
In addition, this Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-K, any amendments to any of the foregoing reports, and our governance documents, are made available free of charge on our website (http:// www.rbcbearings.com ) as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.
Based on experience, we believe that no material renegotiations or refunds will be required. See Part I, Item 1A. “Risk Factors – Future reductions or changes in U.S. government spending could negatively affect our business” of this Annual Report on Form 10-K. 2 Our two reportable business segments are aligned with the end-markets for our products.
Based on experience, we believe that no material renegotiations or refunds will be required. See Part I, Item 1A. “Risk Factors – Future reductions or changes in U.S. government spending could negatively affect our business” of this Annual Report on Form 10-K. Our two reportable business segments are aligned with the end-markets for our products.
These programs provide our employees with a uniform foundation regarding how we do business, expand their subject matter expertise, and develop the various leadership positions across our organization, including plant management and general management. We also offer a tuition reimbursement program for many employees wishing to further their classroom education in their chosen field. 7 Ethics.
These programs provide our employees with a uniform foundation regarding how we do business, expand their subject matter expertise, and develop the various leadership positions across our organization, including plant management and general management. We also offer a tuition reimbursement program for many employees wishing to further their classroom education in their chosen field. Ethics.
We believe that current capacity levels and future annual estimated capital expenditures on equipment up to approximately 2.5% to 3.0% of net sales should permit us to effectively meet demand levels for the foreseeable future. Inventory Management. We operate an inventory management program designed to balance customer delivery requirements with economically optimal inventory levels.
We believe that current capacity levels and future annual estimated capital expenditures on equipment up to approximately 3.0% to 3.5% of net sales should permit us to effectively meet demand levels for the foreseeable future. Inventory Management. We operate an inventory management program designed to balance customer delivery requirements with economically optimal inventory levels.
We store product inventory in warehouses located in the Midwest, Southwest and on the East and West coasts of the U.S. as well as in Australia, Canada, France, India, Mexico, the People’s Republic of China and Switzerland. The inventory is located in these locations based on analysis of customer demand to provide superior service and product availability.
We store product inventory in warehouses located in the Midwest, Southwest and on the East and West coasts of the U.S. as well as in Australia, Canada, France, India, Mexico, the People’s Republic of China, England and Switzerland. The inventory is located in these locations based on analysis of customer demand to provide superior service and product availability.
Demand for bearings, gearing and precision components in the diversified industrial market is influenced by growth factors in industrial machinery and equipment shipments, and construction, mining, energy, marine, food and beverage, packaging and canning, semiconductor, and general industrial activity. In addition, usage of existing machinery will impact aftermarket demand for replacement products.
Demand for bearings, gearing and precision components in the diversified industrial market is influenced by growth factors in industrial machinery and equipment shipments, and construction, mining, energy, food and beverage, packaging and canning, semiconductor, and general industrial activity. In addition, usage of existing machinery will impact aftermarket demand for replacement products.
Needle bearing track rollers and cam followers have wide and diversified use in the industrial market and are often prescribed as a primary component in articulated aircraft wings. 3 Ball Bearings. Ball bearings are devices that utilize high precision ball elements to reduce friction in high-speed applications.
Needle bearing track rollers and cam followers have wide and diversified use in the industrial market and are often prescribed as a primary component in articulated aircraft wings. Ball Bearings. Ball bearings are devices that utilize high precision ball elements to reduce friction in high-speed applications.
An important part of achieving our human capital objective is our in-house training programs – RBC University, Materials University, Mechanical Engineering Training and the Dodge Customer, Application, Product Training (CAPT) Program.
An important part of achieving our human capital objective is our in-house training programs – RBC University, Materials University, Mechanical Engineering Training and the Customer, Application, Product Training (CAPT) Program.
Competition Our principal competitors include SKF, New Hampshire Ball Bearings, Regal Rexnord, Precision Castparts and Timken, although we compete with different companies for each of our product lines. We believe that for the majority of our products, the principal competitive factors affecting our business are product qualifications, product line breadth, service, quality and price.
Competition Our principal competitors include SKF, New Hampshire Ball Bearings, Regal Rexnord, NORD and Timken, although we compete with different companies for each of our product lines. We believe that for the majority of our products, the principal competitive factors affecting our business are product qualifications, product line breadth, service, quality and price.
We do not anticipate material capital expenditures for environmental compliance in fiscal year 2023. 8 Available Information We file our annual, quarterly and current reports, proxy statements, and other documents with the Securities Exchange Commission (“SEC”) under the Securities Exchange Act of 1934.
We do not anticipate material capital expenditures for environmental compliance in fiscal year 2025. Available Information We file our annual, quarterly and current reports, proxy statements, and other documents with the Securities Exchange Commission (“SEC”) under the Securities Exchange Act of 1934.
In fiscal 2022, approximately 2% of our net sales were made directly, and we estimate that approximately an additional 16% of our net sales were made indirectly, to the U.S. government. The contracts or subcontracts for these sales may be subject to renegotiation of profit or termination at the election of the U.S. government.
In fiscal 2024, approximately 2% of our net sales were made directly, and we estimate that approximately an additional 9% of our net sales were made indirectly, to the U.S. government. The contracts or subcontracts for these sales may be subject to renegotiation of profit or termination at the election of the U.S. government.
We believe our expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 56 facilities in 10 countries, of which 37 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach.
We believe our expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 54 facilities in 11 countries, of which 38 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach.
Our products target market applications in which our engineering and manufacturing capabilities provide us with a competitive advantage in the marketplace. Our largest industrial customers include Caterpillar, Komatsu and Kurt Manufacturing and various aftermarket distributors including Motion Industries, Applied Industrial, BDI, Kaman and Purvis Industries.
Our products target market applications in which our engineering and manufacturing capabilities provide us with a competitive advantage in the marketplace. 1 Our largest industrial customers include Caterpillar, Komatsu and Halliburton and various aftermarket distributors including Motion Industries, Applied Industrial, Baldwin Supply, BDI and Purvis Industries.
However, we believe that the unique nature of many of our products prevents other suppliers from being able to satisfy customer orders on a timely or cost-effective basis, thereby making it impracticable for our customers to shift their purchase of these products to other suppliers.
However, we believe that the unique nature of many of our products prevents other suppliers from being able to satisfy customer orders on a timely or cost-effective basis, thereby making it impracticable for our customers to shift their purchase of these products to other suppliers. Human Capital RBC employs 5,302 people worldwide.
Our largest aerospace and defense customers include the U.S. Department of Defense, Boeing, Airbus, Newport News Shipbuilding, Lockheed Martin, Northrop Grumman, Raytheon and various aftermarket distributors including National Precision Bearing, Jamaica Bearings, Wencor, and Wesco Aircraft.
Our largest aerospace and defense customers include the U.S. Department of Defense, Boeing, Airbus, Newport News Shipbuilding, Lockheed Martin, Northrop Grumman, Raytheon, Blue Origin and SpaceX and various aftermarket distributors including National Precision Bearing and Wencor.
Aerospace/Defense Market (40% of net sales for the fiscal year ended April 2, 2022) We supply bearings and engineered components for use in commercial, private and military aircraft and aircraft engines, guided weaponry, space and satellites and vision and optical systems, and military marine and ground applications.
Aerospace/Defense Market (33% of net sales for the fiscal year ended March 30, 2024) We supply bearings and engineered components for use in commercial, private and military aircraft and aircraft engines, guided weaponry, space and satellites, vision and optical systems, and military marine and ground applications.
The following table provides a summary of our two reportable business segments: Net Sales and Percent of Sales for the Fiscal Year Ended (Dollars in millions) Segment April 2, 2022 April 3, 2021 March 28, 2020 Representative Applications Industrial $ 561.4 60 % $ 212.8 35 % $ 220.1 30 % ● Mining, energy, construction, wind equipment and material handling ● Packaging and canning machinery ● Semiconductor equipment ● Hydraulics, valves and fasteners ● Industrial gears, components and collets Aerospace/Defense $ 381.5 40 % $ 396.2 65 % $ 507.4 70 % ● Airframe control and actuation ● Aircraft engine controls and landing gear ● Missile launchers ● Aircraft hydraulics ● Radar and night vision systems ● Space applications Products Bearings, gearing and engineered components are employed to perform several functions including reduction of friction, transfer of motion, carriage of loads, and control of pressure and flows.
The following table provides a summary of our two reportable business segments: Net Sales and Percent of Sales for the Fiscal Year Ended (amounts in millions) Segment March 30, 2024 April 1, 2023 April 2, 2022 Representative Applications Industrial $ 1,040.9 67 % $ 1,039.0 71 % $ 561.4 60 % ● Mining, energy, aggregates, construction, wind equipment and material handling ● Packaging and canning machinery ● Semiconductor equipment ● Industrial gears, components and collets Aerospace/Defense $ 519.4 33 % $ 430.3 29 % $ 381.5 40 % ● Airframe control and actuation ● Aircraft engine controls and landing gear ● Missile launchers ● Radar and night vision systems ● Hydraulics and valves ● Space applications 2 Products Bearings, gearing and engineered components are employed to perform several functions including reduction of friction, transfer of motion, carriage of loads, and control of pressure and flows.
Copies of the above filings will also be provided free of charge upon written request to us.
Copies of the above reports and documents will also be provided free of charge upon written request to us. 7
We believe our products are priced competitively in the markets we serve and we continually evaluate our manufacturing and other operations to maximize efficiencies in order to maintain competitive prices while maximizing our profit margins.
We believe our products are priced competitively in the markets we serve and we continually evaluate our manufacturing and other operations to maximize efficiencies in order to maintain competitive prices while maximizing our profit margins. We invest considerable effort to develop our price-to-value algorithms and we price to market levels where required by competitive pressures.
A typical process for a major OEM project begins when our design engineers meet with the customer at the machine design conceptualization stage and work with them through the conclusion of the product development. 4 Often, at the early stage, a bearing or engineered component design is produced that addresses the expected demands of the application including load, stress, heat, thermal gradients, vibration, lubricant supply, pressure and flows, and corrosion resistance, with one or two of these environmental constraints being predominant in the design consideration.
Often, at the early stage, a bearing or engineered component design is produced that addresses the expected demands of the application including load, stress, heat, thermal gradients, vibration, lubricant supply, pressure and flows, and corrosion resistance, with one or two of these environmental constraints being predominant in the design consideration.
Monthly, each of our facilities reports to senior leadership on key safety metrics and we maintain a proactive approach in assessing and mitigating risk through root cause analysis, communication, training and teamwork.
Monthly, each of our facilities reports to senior leadership on key safety metrics and we maintain a proactive approach in assessing and mitigating risk through root cause analysis, communication, training and teamwork. 6 Intellectual Property We own U.S. and foreign patents and trademark registrations and U.S. copyright registrations and have U.S. trademark and patent applications pending.
Our suppliers and sources of raw materials are based in the U.S., Europe and Asia. We purchase steel at market prices, which fluctuate as a result of supply and demand driven by economic conditions in the marketplace. For further discussion of the possible effects of changes in the cost of raw materials on our business, see Part I, Item 1A.
Our principal raw materials are steel and cast iron. Our suppliers and sources of raw materials are based in the U.S., Europe and Asia. We purchase steel at market prices, which fluctuate as a result of supply and demand driven by economic conditions in the marketplace.
Applications include unit and bulk material handling, industrial air handling, large rotor fans, food processing, roll-out tables, and forest pulp and paper processing equipment. Engineered Components. Engineered components include highly engineered hydraulics and valves, fasteners, precision mechanical components and machine tool collets. Engineered hydraulics and valves are used in aircraft and submarine applications and aerospace and defense aftermarket services.
Applications include unit and bulk material handling, industrial air handling, large rotor fans, food processing, roll-out tables, and forest pulp and paper processing equipment. We also provide actuation components to customers within our commercial aerospace and space markets. Engineered Components. Engineered components include highly engineered hydraulics and valves, fasteners, precision mechanical components and machine tool collets.
Applicable Dodge products are compliant as required with related communications, safety, and Ex certifications for use in North America, Mexico, the EU, as well as other select international locations. This includes, but is not limited to, ATEX, IECEx, NYCE NOM, and C/US declarations of conformity.
Applicable Dodge products are compliant as required with related communications, safety, and Ex certifications for use in North America, Mexico, the EU, as well as other select international locations.
To achieve that objective, we maintain an aggressive talent recruitment program, a fair and competitive compensation program, an on-going training and development program, and an ethical and safe work environment. Talent Recruitment.
Our human capital objective is to attract and retain high-performing people who can work in a culture that fosters innovation and continuous improvement. To achieve that objective, we maintain an aggressive talent recruitment program, a fair and competitive compensation program, an on-going training and development program, and an ethical and safe work environment. Talent Recruitment.
Product Design and Development We produce specialized bearings and engineered components that are often tailored to the specifications of a customer or application. Our sales professionals are highly experienced engineers who collaborate with our customers to develop bearing and engineered component solutions. The product development cycle can follow many paths, which are dependent on the end market or sales channel.
Our sales professionals are highly experienced engineers who collaborate with our customers to develop bearing and engineered component solutions. The product development cycle can follow many paths, which are dependent on the end market or sales channel. The process normally takes between three and six years from concept to sale depending upon the application and the market.
To affect this strategy, we seek to expand into geographic areas not previously served by us and we continue to capitalize on new markets and industries for existing and new products.
To affect this strategy, we seek to expand into geographic areas not previously served by us and we continue to capitalize on new markets and industries for existing and new products. We employ a technically proficient sales force and utilize marketing managers, product managers, customer service representatives and product application engineers in our selling efforts.
This channel primarily provides our products to smaller OEM customers, aftermarket customers and the end users of bearings and engineered components that require local inventory and service. We intend to continue to focus on building distributor sales volume.
We also sell our products through a well-established, global network of industrial and aerospace distributors. This channel primarily provides our products to smaller OEM customers, aftermarket customers and the end users of bearings and engineered components that require local inventory and service.
Financial information regarding geographic areas is set forth in Part II, Item 8, Note 18 of this Annual Report on Form 10-K. 1 Industrial Market (60% of net sales for the fiscal year ended April 2, 2022) We manufacture bearings, gearing and engineered components for a wide range of diversified industrial markets, including construction and mining, oil and natural resource extraction, heavy truck, marine, rail and train, food and beverage, packaging and canning, semiconductor machinery, wind, and the general industrial markets.
Industrial Market (67% of net sales for the fiscal year ended March 30, 2024) We manufacture bearings, gearing and engineered components for a wide range of diversified industrial markets, including construction and mining, oil and natural resource extraction, heavy truck, aggregates, rail and train, food and beverage, packaging and canning, material handling, semiconductor machinery, wind, and the general industrial markets.
Precision mechanical components are used in all general industrial applications where some form of movement is required. Machine tool collets are cone-shaped metal sleeves used for holding circular or rod-like pieces in a lathe or other machine that provide effective part holding and accurate part location during machining operations.
Machine tool collets are cone-shaped metal sleeves used for holding circular or rod-like pieces in a lathe or other machine that provide effective part holding and accurate part location during machining operations. 3 Product Design and Development We produce specialized bearings and engineered components that are often tailored to the specifications of a customer or application.
The sale of our products is supported by a well-trained and experienced customer service organization, which provides customers with instant access to key information regarding their purchases. We also provide customers with updated information through our website, and we have developed on-line integration with specific customers, enabling more efficient ordering and timely order fulfillment for those customers.
We also provide customers with updated information through our website, and we have developed on-line integration with specific customers, enabling more efficient ordering and timely order fulfillment for those customers.
This selling model leverages our relationship with key customers and provides opportunities to market multiple product lines to both established and potential customers. We also sell our products through a well-established, global network of industrial and aerospace distributors.
Today, our direct sales force is located to service North America, Europe, Asia, Australia and Latin America and is responsible for selling all of our products. This selling model leverages our relationship with key customers and provides opportunities to market multiple product lines to both established and potential customers.
We employ a technically proficient sales force and utilize marketing managers, product managers, customer service representatives and product application engineers in our selling efforts. 5 We have developed our sales force through the hiring of sales personnel with prior industry experience, complemented by an in-house training program.
We have developed our sales force through the hiring of sales personnel with prior industry experience, complemented by an in-house training program. We intend to continue to hire and develop expert sales professionals and strategically locate them to implement our expansion strategy.
Removed
The Bearing, Gearing and Engineered Component Industry The bearing, gearing and engineered component industry is a fragmented multi-billion-dollar market.
Added
All quantitative data contained in this Annual Report on Form 10-K (the “Annual Report”) is stated in millions, except for share and per-share data, number of facilities and their locations, square footage, and headcount. The Bearing, Gearing and Engineered Component Industry The bearing, gearing and engineered component industry is a fragmented multi-billion-dollar market.
Removed
Our acquisition of Dodge Industrial on November 1, 2021, contributed $291.9 million of revenue from the industrial market in the second half of fiscal 2022.
Added
Financial information regarding geographic areas is set forth in Part II, Item 8, Note 20 of this Annual Report on Form 10-K.
Removed
The process normally takes between three and six years from concept to sale depending upon the application and the market.
Added
Engineered hydraulics and valves are used in aircraft and submarine applications and aerospace and defense aftermarket services. Precision mechanical components are used in all general industrial applications where some form of movement is required.
Removed
We intend to continue to hire and develop expert sales professionals and strategically locate them to implement our expansion strategy. Today, our direct sales force is located to service North America, Europe, Asia and Latin America and is responsible for selling all of our products.
Added
A typical process for a major OEM project begins when our design engineers meet with the customer at the machine design conceptualization stage and work with them through the conclusion of the product development.
Removed
We invest considerable effort to develop our price-to-value algorithms and we price to market levels where required by competitive pressures. 6 Suppliers and Raw Materials We obtain raw materials, component parts and supplies from a variety of sources and generally from more than one supplier. Our principal raw materials are steel and cast iron.
Added
We intend to continue to focus on building distributor sales volume. 4 The Company has a joint venture in North America focused on joint warehouse and transportation logistics and e-business services. This joint venture, CoLinx, LLC (“CoLinx”), includes five equity members: Timken, SKF Group, Schaeffler Group, RBC Bearings Incorporated and Gates Industrial Corp.
Removed
“Risk Factors” of this Annual Report on Form 10-K. Backlog As of April 2, 2022, we had order backlog of $603.1 million compared to a backlog of $394.8 million in the prior fiscal year. Orders included in our backlog are subject to cancellation, delay or modifications by our customers prior to fulfillment.
Added
The e-business service focuses on information and business services for authorized distributors in the Industrial segment. The sale of our products is supported by a well-trained and experienced customer service organization, which provides customers with instant access to key information regarding their purchases.
Removed
Nearly all of our personnel are RBC employees rather than independent contractors, temporaries or third-party labor provider personnel. Our human capital objective is to attract and retain high-performing people who can work in a culture that fosters innovation and continuous improvement.
Added
Joint Ventures Investments in affiliated companies accounted for under the equity method at March 30, 2024 and April 1, 2023 were $0.6 and $0.6, respectively, and were reported within other noncurrent assets on the consolidated balance sheets. 5 Suppliers and Raw Materials We obtain raw materials, component parts and supplies from a variety of sources and generally from more than one supplier.
Removed
As part of the nation’s critical infrastructure sectors (defense industrial base sector and critical manufacturing sector) RBC was required to operate our manufacturing facilities during the COVID-19 pandemic using a mostly in-person workforce. We implemented strict cleaning, social distancing, quarantining and other safety measures to minimize the risk to our employees of contracting COVID-19 at work.
Added
For further discussion of the possible effects of changes in the cost of raw materials on our business, see Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K. Backlog Our order backlog, as of March 30, 2024, was $726.1 compared to $663.8 as of April 1, 2023.
Removed
Intellectual Property We own U.S. and foreign patents and trademark registrations and U.S. copyright registrations and have U.S. trademark and patent applications pending.
Added
These figures exclude orders from our Sargent marine and Sargent aerospace businesses that are expected to be fulfilled more than 12 months after the balance sheet dates. Including all orders from our Sargent marine and Sargent aerospace businesses, our backlog as of March 30, 2024 was $821.5 compared to $759.4 as of April 1, 2023.
Added
Many of our orders are fulfilled immediately after the order has been placed by the customer and would not be seen in our backlog at the end of a reporting period. Orders included in our backlog are subject to cancellation, delay or modifications by our customers prior to fulfillment.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
40 edited+8 added−30 removed72 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
40 edited+8 added−30 removed72 unchanged
2023 filing
2024 filing
Biggest changeFactors that could cause our actual results, performance and achievements or industry results to differ materially from estimates or projections contained in forward-looking statements include, among others, the following: ● Effects of the COVID-19 pandemic; ● Weaknesses or cyclicality in any of the industries in which our customers operate; ● Changes in marketing, product pricing and sales strategies, or development of new products by us or our competitors; ● Future reductions in U.S. governmental spending or changes in governmental programs, particularly military equipment procurement programs; ● Conditions that adversely affect the business of any of our significant customers; ● Our ability to obtain and retain product approvals; ● Supply and costs of raw materials (particularly steel) and energy resources, the imposition of import tariffs, and our ability to pass through these costs on a timely basis; ● Our ability to acquire and integrate complementary businesses; ● Unanticipated liabilities of acquired businesses; ● Unexpected equipment failures or catastrophic events; ● Our ability to attract and retain our management team and other highly skilled personnel; ● Work stoppages and other labor problems affecting us or our customers or suppliers; ● Changes in trade agreements or treaties and the imposition of tariffs on our goods exported to other countries; 9 ● Regulatory changes or developments in the U.S. or in foreign countries where we produce or sell products; ● Developments or disputes concerning patents or other proprietary rights; ● Risks associated with utilizing information technology systems; ● Risks associated with operating internationally, including currency translation risks; ● Investors’ perceptions of us and our industry; ● Risks associated with the Dodge acquisition including the possible failure to realize the anticipated benefits from the acquisition and problems with the integration of Dodge with our legacy business; ● Risks associated with the substantial amount of debt we incurred to finance the Dodge acquisition; and ● Other risks and uncertainties including but not limited to those described from time to time in our current and quarterly reports filed with the SEC.
Biggest changeFactors that could cause our actual results, performance and achievements or industry results to differ materially from estimates or projections contained in forward-looking statements include, among others, the following: ● The Company’s failure to maintain effective disclosure controls and procedures and internal control over financial reporting; ● Competition in the bearings, engineered components and essential systems industries; ● Weaknesses or cyclicality in any of the industries in which our customers operate; ● Future reductions in U.S. governmental spending or changes in governmental programs, particularly military equipment procurement programs; ● The loss of one or more of our significant customers or conditions that adversely affect the business of any of our significant customers; ● Our ability to obtain and retain product approvals; ● Supply and costs of raw materials (particularly steel) and energy resources, the imposition of import tariffs, and our ability to pass through these costs on a timely basis; ● Our ability to acquire and integrate complementary businesses; ● Unanticipated liabilities of acquired businesses; ● Unexpected equipment failures or catastrophic events; ● Our ability to attract and retain our management team and other highly skilled personnel; ● Work stoppages and other labor problems affecting us or our customers or suppliers; ● Changes in trade agreements or treaties and the imposition of tariffs on our goods exported to other countries; ● Regulatory changes or developments in the U.S. or in foreign countries where we produce or sell products; ● Developments or disputes concerning patents or other proprietary rights; ● Risks associated with utilizing information technology systems, including cyber events; ● Risks associated with operating internationally, including currency translation risks; ● Investors’ perceptions of us and our industry; ● The cancellation of orders in our backlog; ● Possible liability and recalls with respect to our products; ● Risks associated with the substantial amount of goodwill that we have; 8 ● Risks associated with the substantial amount of debt we incurred to finance the Dodge acquisition; and ● Other risks and uncertainties including but not limited to those described from time to time in our current and quarterly reports filed with the SEC.
The unavailability of our IT systems, the failure of these systems to perform as anticipated, or any significant breach of data security could cause loss of data, disrupt our operations, require significant management attention and resources, subject us to liability to third parties, regulatory actions, or contract termination, and negatively impact our reputation among our customers and the public, which could have a negative impact on our financial and competitive position, results of operations and liquidity.
The unavailability of our IT systems, the failure of these systems to perform as anticipated, or any significant breach of data security could cause loss of data, disrupt our operations, require significant management attention and resources, subject us to liability to third parties or regulatory actions or contract termination, and negatively impact our reputation among our customers and the public, which could have a negative impact on our financial and competitive position, results of operations and liquidity.
Our ability to pay dividends on the MCPS depends on several factors including: ● The amount of cash we have on hand and cash generated by our business; ● Our anticipated financing needs, including our debt service obligations; ● The ability of our subsidiaries to distribute cash to our parent company, which issued the MCPS; ● Regulatory restrictions on our ability to pay dividends, including those under the Delaware General Corporation Law; and ● Contractual restrictions on our ability to pay dividends, including under our bank credit agreement with Wells Fargo. 20
Our ability to pay dividends on the MCPS depends on several factors including: ● The amount of cash we have on hand and cash generated by our business; ● Our anticipated financing needs, including our debt service obligations; ● The ability of our subsidiaries to distribute cash to our parent company, which issued the MCPS; ● Regulatory restrictions on our ability to pay dividends, including those under the Delaware General Corporation Law; and ● Contractual restrictions on our ability to pay dividends, including under our bank credit agreement with Wells Fargo.
Interruptions in production capabilities would inevitably increase our production costs and reduce revenues, cash flows and profitability for the affected period. 14 We may not be able to continue to make the acquisitions necessary for us to realize our growth strategy. The acquisition of businesses that complement or expand our operations is an important element of our business strategy.
Interruptions in production capabilities would inevitably increase our production costs and reduce revenues, cash flows and profitability for the affected period. We may not be able to continue to make the acquisitions necessary for us to realize our growth strategy. The acquisition of businesses that complement or expand our operations is an important element of our business strategy.
If we are required to record a charge to earnings because of an impairment of goodwill or indefinite-lived intangibles, our results of operations and financial condition could be materially and adversely affected. 15 We depend heavily on our senior management and other key personnel, the loss of whom could materially affect our financial performance and prospects.
If we are required to record a charge to earnings because of an impairment of goodwill or indefinite-lived intangibles, our results of operations and financial condition could be materially and adversely affected. We depend heavily on our senior management and other key personnel, the loss of whom could materially affect our financial performance and prospects.
In the case of an acquisition in which we do not assume all the liabilities of the acquired business, we obtain indemnification from the seller against the unassumed liabilities, although no assurance can be given that such indemnification will be sufficient in amount, scope or duration to fully offset the risk of the unassumed liabilities.
In the case of an acquisition in which we do not assume all the liabilities of the acquired business, we typically obtain indemnification from the seller against the unassumed liabilities, although no assurance can be given that such indemnification will be sufficient in amount, scope or duration to fully offset the risk of the unassumed liabilities.
In particular, our products are installed in a number of types of vehicle fleets, including airplanes, trains, automobiles, heavy trucks and farm equipment, many of which may be subject to government-ordered recalls as well as voluntary recalls by the manufacturer.
In particular, our products are installed in a number of types of vehicle fleets, including airplanes, helicopters, trains, automobiles, heavy trucks and farm equipment, many of which may be subject to government-ordered recalls as well as voluntary recalls by the manufacturer.
While this situation has not had a material adverse effect on our business in the past, future tariffs on our foreign-sourced supplies and/or our finished goods exported to other countries could adversely impact our operating costs or demand for our products. 12 Some of our products and operations 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.
While this situation has not had a material adverse effect on our business in the past, future tariffs on our foreign-sourced supplies and/or our finished goods exported to other countries could adversely impact our operating costs or demand for our products. 10 Some of our products and operations 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.
We cannot assure you that product liability claims, if made, would be covered by our insurance or would not exceed our insurance coverage limits. Claims that are not covered by insurance, or that exceed insurance coverage limits, could result in material losses.
We cannot assure you that product liability claims, if made, would not exceed our insurance coverage limits. Claims that are not covered by insurance, or that exceed insurance coverage limits, could result in material losses.
Our business is managed by a number of key personnel, including our CEO Dr. Michael J. Hartnett. Our future success will depend on, among other things, our ability to keep the services of these personnel and to hire their successors and other highly qualified employees at all levels. Our international operations are subject to risks inherent in such activities.
Our business is managed by a number of key personnel, including our CEO Dr. Michael J. Hartnett. Our future success will depend on, among other things, our ability to retain the services of these personnel and to hire their successors and other highly qualified employees at all levels. Our international operations are subject to risks inherent in such activities.
Claims that are covered by insurance could result in increased future insurance costs. 16 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.
Claims that are covered by insurance could result in increased future insurance costs. 13 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.
The commercial aerospace, mining and construction equipment and other diversified industrial industries to which we sell our products are, to varying degrees, cyclical and tend to decline in response to overall declines in industrial production.
The mining and construction equipment and other diversified industrial industries to which we sell our products are, to varying degrees, cyclical and tend to decline in response to overall declines in industrial production.
See Part II, Item 7A. "Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Exchange Rates" of this Annual Report on Form 10-K. We may incur material losses for product liability and recall-related claims.
See Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Exchange Rates” of this Annual Report on Form 10-K. We may incur material losses for product liability and recall-related claims.
In order to complete an acquisition, it may be necessary for us to assume the liabilities of the acquired business, which was the case in the Dodge acquisition. These liabilities may be known at the time of the acquisition, but could be underestimated by us, or they may not be known to us until after the acquisition.
In order to complete an acquisition, it may be necessary for us to assume the liabilities of the acquired business. These liabilities may be known at the time of the acquisition, but could be underestimated by us, or they may not be known to us until after the acquisition.
To date we have not experienced significant difficulties with the foregoing risks associated with our international operations. Currency translation risks may have a material impact on our results of operations. Primarily, each of our foreign operations utilizes the local currency as their functional currency. Foreign currency transaction gains and losses are included in earnings.
To date we have not experienced significant difficulties with the foregoing risks associated with our international operations. Currency translation risks may have a material impact on our results of operations. The majority of our foreign operations utilize the local currency as their functional currency. Foreign currency transaction gains and losses are included in earnings.
In fiscal 2022, approximately 2% of our net sales were made directly, and we estimate that approximately an additional 16% of our net sales were made indirectly, to the U.S. government to support military or other government projects.
In fiscal 2024, approximately 2% of our net sales were made directly, and we estimate that approximately an additional 9% of our net sales were made indirectly, to the U.S. government to support military or other government projects.
A portion of our quarterly revenue is associated with contracts with the U.S. government that require onsite inspection and approval of the products by government personnel before we may ship the products, and we have no control over the timing of those inspections and approvals.
Quarterly performance can be affected by the timing of government product inspections and approvals. A portion of our revenue is associated with contracts with the U.S. government that require onsite inspection and approval of the products by government personnel before we may ship the products, and we have no control over the timing of those inspections and approvals.
The availability and prices of subcomponents, raw materials and energy resources may be subject to change due to, among other things, new laws or regulations, economic inflation, suppliers’ allocations to other purchasers, interruptions in production or deliveries by suppliers (including interruption caused by the COVID-19 pandemic), and changes in exchange rates and supplier costs and profit expectations.
The availability and prices of subcomponents, raw materials and energy resources may be subject to change due to, among other things, new laws or regulations, economic inflation, suppliers’ allocations to other purchasers, interruptions in production or deliveries by suppliers and changes in exchange rates and supplier costs and profit expectations.
We have operations in Australia, Canada, France, Germany India, Mexico, the Peoples Republic of China, Poland and Switzerland. Of our 56 facilities in ten countries, 19 are located outside the U.S., including 10 manufacturing facilities in four countries . In fiscal 2022, approximately 12% of our net sales were generated by our international operations.
We have operations in Australia, England, Canada, France, Germany, India, Mexico, the Peoples Republic of China, Poland and Switzerland. Of our 54 facilities in 11 countries, 19 are located outside the U.S., including 10 manufacturing facilities in four countries . In fiscal 2024, approximately 12% of our net sales were generated by our international operations.
In the future the Board could authorize the issuance of additional preferred stock with rights, preferences and privileges that rank equally with the MCPS, or that could have the effect of discouraging, delaying or preventing a change in control of us, or that could impede our stockholders’ ability to approve a transaction they consider in their best interests.
In the future the Board could authorize the issuance of some or all of the 5,400,000 remaining authorized shares of preferred stock with rights, preferences and privileges that rank equally with the MCPS, or that could have the effect of discouraging, delaying or preventing a change in control of us, or that could impede our stockholders’ ability to approve a transaction they consider in their best interests.
We rely upon our information technology (“IT”) systems to process, transmit and store electronic information to manage and operate our business. Further, in the ordinary course of business we store sensitive data, including intellectual property, on our networks.
We rely upon our information technology (“IT”) systems to process, transmit and store electronic information to manage and operate our business. Further, in the ordinary course of business we store sensitive data, including intellectual property, on our networks. The secure maintenance and transmission of this information is critical to our business operations.
In addition, these covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our business and stockholders. Increases in interest rates would increase the cost of servicing our term loan and could reduce our profitability. Our $1,300.0 million term loan bears interest at a variable rate.
In addition, these covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our business and stockholders. Increases in interest rates would increase the cost of servicing our term loan and could reduce our profitability.
We currently have three collective bargaining agreements covering employees at our Plymouth, Indiana, Fairfield, Connecticut and West Trenton, New Jersey facilities, representing approximately 8% of our U.S.-based hourly employees as of April 2, 2022.
We currently have three collective bargaining agreements covering employees at our Plymouth, Indiana, Fairfield, Connecticut and West Trenton, New Jersey facilities, representing approximately 7% of our U.S.-based hourly employees as of March 30, 2024.
The secure maintenance and transmission of this information is critical to our business operations. 13 We may face cyber events and other IT security threats, including malware, ransomware, phishing and other intrusions, to our IT infrastructure, attempts to gain unauthorized access to proprietary, classified or confidential information, and threats to the physical security of our IT systems.
We may face cyber events and other IT security threats, including malware, ransomware, phishing and other intrusions, to our IT infrastructure, attempts to gain unauthorized access to proprietary, classified or confidential information, and threats to the physical security of our IT systems.
The significance of the impact that such consolidations could have on our business is difficult to predict because we do not know when or if one or more of our customers will engage in merger or acquisition activity. However, if such activity involved our material customers it could materially impact our revenues, cash flows and profitability.
The significance of the impact that such consolidations could have on our business is difficult to predict because we do not know when or if one or more of our customers will engage in merger or acquisition activity.
Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. Indefinite-lived intangibles represent repair station certifications obtained in business combinations and assumed to have indefinite lives. As of April 2, 2022, we had $1,902.1 million of goodwill and $24.3 million of indefinite-lived intangibles, representing approximately 40% of our total assets.
Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. Indefinite-lived intangibles represent repair station certifications obtained in business combinations and assumed to have indefinite lives. As of March 30, 2024, we had $1,874.9 of goodwill and $24.3 of indefinite-lived intangibles, representing approximately 41% of our total assets.
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. Our top ten customers generated approximately 36%, 36% and 34% of our net sales during fiscal 2022, 2021 and 2020, respectively.
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. Our top ten customers collectively accounted for approximately 44%, 41% and 36% of our net sales during fiscal 2024, 2023 and 2022, respectively.
Foreign currency transaction exposure arises primarily from the transfer of foreign currency from one subsidiary to another within the group and to foreign currency-denominated trade receivables. Unrealized currency translation gains and losses are recognized upon translation of the foreign operations' balance sheets to U.S. dollars.
Foreign currency transaction exposure arises primarily from the transfer of foreign currency from one subsidiary to another within the group and to foreign currency-denominated trade receivables. Unrealized currency translation gains and losses are recorded on the balance sheet upon translation of the foreign operations’ functional currency to the reporting currency.
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.
However, if such activity involved our material customers it could materially impact our revenues, cash flows and profitability. 9 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.
Additionally, our ability to comply with the financial and other covenants contained in our debt instruments could be affected by, among other things, changes in our results of operations, the incurrence of additional indebtedness, the pricing of our products, our success at implementing cost reduction initiatives, our ability to successfully implement our overall business strategy, or changes in industry-specific or general economic conditions which are beyond our control.
Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance and no assurance can be given that our business will generate sufficient cash flow to service our debt. 14 Additionally, our ability to comply with the financial and other covenants contained in our debt instruments could be affected by, among other things, changes in our results of operations, the incurrence of additional indebtedness, the pricing of our products, our success at implementing cost reduction initiatives, our ability to successfully implement our overall business strategy, or changes in industry-specific or general economic conditions which are beyond our control.
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. As of November 1, 2021, we had approximately $1,800.0 million of total debt as a result of the completion of the Dodge acquisition.
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. In fiscal 2022, we incurred $1,800.0 of total debt to finance the Dodge acquisition. As of March 30, 2024, our total debt was $1,191.9.
We expect that this proportion is likely to increase as we seek to increase our penetration of foreign markets, including through acquisitions such as Dodge, which included operations in Australia, Canada, India, Mexico and China.
We expect that this proportion is likely to increase as we seek to increase our penetration of foreign markets, including through acquisitions.
If products scheduled for delivery in one quarter are not inspected or approved until the following quarter, the delay would adversely affect our sales and profitability for the quarter in which the shipments were scheduled. 17 We may fail to realize some or all of the anticipated benefits of the Dodge acquisition or those benefits may take longer to realize than expected.
If products scheduled for delivery in one quarter are not inspected or approved until the following quarter, the delay would adversely affect our sales and profitability for the quarter in which the shipments were scheduled.
Although we have no present intention to issue any additional preferred stock, no assurance can be given that we will not do so in the future. Holders of our common stock do not have preemptive rights to subscribe for a pro rata portion of preferred stock or any other capital stock that we may issue in the future.
Although we have no present intention to issue any additional preferred stock, no assurance can be given that we will not do so in the future.
In addition, after we complete an acquisition we may learn of other matters that adversely affect us, such as issues relating to the acquired business’s compliance with applicable laws, or issues relating to its supply chain, customer relationships or order demand.
In addition, after we complete an acquisition we may learn of other matters that adversely affect us, such as issues relating to the acquired business’s compliance with applicable laws, or issues relating to its supply chain, customer relationships or order demand. 12 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.
We do not expect to pay cash dividends on our common stock in the foreseeable future and our ability to pay dividends on the MCPS is subject to various limitations.
Holders of our common stock do not have preemptive rights to subscribe for a pro rata portion of preferred stock or any other capital stock that we may issue in the future. 15 We do not expect to pay cash dividends on our common stock in the foreseeable future and our ability to pay dividends on the MCPS is subject to various limitations.
As of April 2, 2022, we had an order backlog of $603.1 million. However, orders included in our backlog may be subject to cancellation, delay or other modifications by our customers and we cannot assure you that these orders will ultimately be fulfilled. Quarterly performance can be affected by the timing of government product inspections and approvals.
As of March 30, 2024, we had an order backlog of $821.5, including all orders from our Sargent marine and Sargent aerospace businesses. However, orders included in our backlog may be subject to cancellation, delay or other modifications by our customers and we cannot assure you that these orders will ultimately be fulfilled.
For example, the consolidation that has occurred in the defense industry in recent years has significantly reduced the overall number of defense contractors.
The consolidation and combination of manufacturers could eliminate customers and/or put downward pricing pressures on sales of component parts. For example, the consolidation that has occurred in the defense industry in recent years has reduced the overall number of defense contractors.
Although the term loan provides for alternative base rates, such alternative base rates may or may not be related to LIBOR, and the consequences of the phase-out of LIBOR cannot be entirely predicted at this time. 19 Risk Factors Related to our Capital Stock Provisions in our charter documents may prevent or hinder efforts to acquire a controlling interest in us.
Future increases in interest rates would increase the cost of servicing the portion of the term loan not subject to a swap, which could materially reduce our profitability and cash flows. Risk Factors Related to our Capital Stock Provisions in our charter documents may prevent or hinder efforts to acquire a controlling interest in us.
Future downward economic cycles or customer downturns could reduce sales of our products resulting in reductions in our revenues, cash flows and profitability. The COVID-19 pandemic caused a significant reduction in air travel, which lead various airlines to delay or cancel previously-scheduled aircraft purchases.
Future downward economic cycles or customer downturns could reduce sales of our products resulting in reductions in our revenues, cash flows and profitability. Future reductions or changes in U.S. government spending could negatively affect our business.
Removed
For example, due to Boeing’s 737 MAX production temporary shutdown, we experienced the suspension or cancellation of orders for product used in the 737 MAX airframe and engines over the last 24 months.
Added
The Company’s 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.
Removed
In addition, in fiscal 2021 and fiscal 2022 we experienced reduced purchasing from customers whose businesses were constrained by the COVID-19 pandemic. 10 The consolidation and combination of manufacturers could eliminate customers and/or put downward pricing pressures on sales of component parts.
Added
A material weakness in a company’s internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of that company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Removed
Our results have been and are likely to continue to be impacted by the COVID-19 pandemic.
Added
During the first quarter of fiscal year 2023, the Company’s management identified a material weakness in internal control over financial reporting related to the design of our control to consider all relevant terms within executive employment agreements and the related application of relevant authoritative accounting guidance for stock-based compensation, a non-cash item.
Removed
The public health issues resulting from COVID-19 and the precautionary measures instituted by governments and businesses to mitigate its spread have caused, and are expected to continue to cause, world-wide business disruption, plant closures, inventory shortages, delivery delays, supply chain disruptions, and order cancellations and deferrals.
Added
Management then re-evaluated its assessment of the effectiveness of internal control over financial reporting and its disclosure controls and procedures and concluded that they were not effective as of April 2, 2022, making it necessary for the Company to restate the financial statements for fiscal years 2022, 2021 and 2020.
Removed
As a result, the pandemic had an adverse effect on our financial results and business operations throughout fiscal 2021, which contributed to the 16.3% decline in our revenue from the prior fiscal year. The lower demand for our products made it necessary to reduce our workforce and consolidate certain of our production facilities.
Added
Although we have remediated this material weakness, there can be no assurance that additional material weaknesses will not occur in the future.
Removed
We continued to see the pandemic’s adverse effect on our business during fiscal 2022, and expect it to continue during fiscal 2023 although the severity and duration depend on future developments that are highly uncertain and unpredictable.
Added
If the Company is unable to maintain effective internal control over financial reporting in the future, our ability to record, process and report financial information timely and accurately could be adversely affected, which could subject the Company to litigation or investigations, require management resources, increase costs, negatively affect investor confidence and adversely impact our stock price.
Removed
While we have been able to keep our operations open for the most part during the pandemic and COVID-19 vaccines have become widely available, it remains possible that there could be future increases in the COVID-19 infection rate as new variants of the virus develop, which could result in governmental orders or COVID-19 outbreaks among the local workforce that necessitate the closure of any of our operations or those of any of our critical suppliers, which would adversely affect our production.
Added
Refer to Part I, Item 1C of this Annual Report for details regarding our data protection and cybersecurity risk management program. 11 Work stoppages and other labor problems could materially reduce our ability to operate our business.
Removed
In addition, operations that remain open may be adversely affected by personnel shortages, which could impair the operation’s efficiency. Demand for our products would be affected if the pandemic leads to the closure of any operations of our significant customers.
Added
As of March 30, 2024, $400.0 of our term loan was subject to a fixed-rate interest swap but the remaining $275.0 balance of the term loan bears interest at a variable rate.
Removed
For example, Boeing’s temporary shut-down of its two primary production facilities in April 2020 led to the cancellation or deferral of various orders for our products that support Boeing production. In addition, demand for our commercial aerospace products was adversely affected by the significant reduction in commercial air travel during the pandemic.
Removed
This reduction in new aircraft purchases has had an adverse effect on our sales of bearings and component parts. 11 Future reductions or changes in U.S. government spending could negatively affect our business.
Removed
A cyber event occurred during the last week of February 2021 that disrupted our IT systems. We took immediate steps to address the incident, including engaging two IT security and forensics experts to assess the impact to any affected data and to correct the security weakness that was exploited in the event.
Removed
Based upon the forensic review, there was no evidence of data access or exfiltration and no material impact to the operations of the Company.
Removed
Since the cyber event the Company has implemented a variety of measures to enhance and modernize our systems to guard against similar incidents in the future, and is also enhancing the Company’s recovery capabilities in the event of future incidents.
Removed
We continue to evaluate the need to upgrade and/or replace our systems and network infrastructure to protect our IT environment, improve the effectiveness of our systems, and strengthen our cybersecurity program. However, these upgrades and replacements may not result in the protection or improvements anticipated. Work stoppages and other labor problems could materially reduce our ability to operate our business.
Removed
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.
Removed
We believe that there are significant benefits and synergies to be realized through leveraging the products, scale and combined enterprise customer bases of our legacy business and our new Dodge business. However, the efforts to realize these benefits and synergies will be a complex process and may disrupt operations if not implemented in a timely and efficient manner.
Removed
The full benefits of the Dodge acquisition, including any anticipated sales or growth opportunities, may not be realized as expected or may not be achieved within the time frames we anticipate, or at all.
Removed
Any data on the expected synergies from the Dodge acquisition included in the unaudited pro forma condensed combined financial information that was included in our Current Report on Form 8-K filed with the SEC on September 20, 2021 or in our purchase price allocation disclosed within Part II, Item 8, Note 8 of this report was based on various adjustments, assumptions and preliminary estimates made at that time.
Removed
Failure to achieve the anticipated benefits of the acquisition could adversely affect our results of operations or cash flows. We may not be able to efficiently integrate Dodge into our operations.
Removed
The success of the Dodge acquisition, including its anticipated benefits and cost savings, depends, in part, on our ability to optimize our operations and integrate Dodge, its systems, operations and personnel into our legacy business. These activities will require time and involve dedication of various resources of the Company that would otherwise be dedicated to our other operations.
Removed
These integration efforts may accordingly adversely affect our other operations to the extent such efforts take resources or attention away from those operations.
Removed
If we experience difficulties in the integration process, the anticipated benefits of the Dodge acquisition may not be realized fully or at all, or may take longer to realize than expected, which could have an adverse effect on us for an undetermined period.
Removed
There can be no assurance that we will realize the operational or financial gains from the Dodge acquisition that we anticipated when we originally decided to acquire Dodge.
Removed
Additional challenges, risks and uncertainties we may encounter as part of the integration process include the following: ● we may face significant costs of integration and compliance with any laws or regulations applicable to Dodge or our combined company; ● we may experience delays in the integration of management teams, strategies, operations, products and services; ● differences in business backgrounds, corporate cultures and management philosophies may delay the successful integration of Dodge’s management personnel into our operations; ● we may be unable to retain key Dodge employees; ● we may not be able to create and enforce uniform standards, controls, procedures, policies and information systems across our combined company; ● we may face challenges in integrating complex systems, technology, networks and other assets of Dodge into our operations in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies; ● there may be potential unknown liabilities and unforeseen increased expenses associated with the Dodge acquisition, including costs to integrate Dodge beyond current estimates; and ● we may experience disruptions of, or the loss of momentum in, our legacy business or the Dodge businesses or inconsistencies in standards, controls, procedures and policies. 18 Any of these factors could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies or our ability to achieve the anticipated benefits of the Dodge acquisition, which could reduce earnings or otherwise adversely affect our business and financial results.
Removed
As of April 2, 2022, our total debt was $1,688.3 million.
Removed
Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance and no assurance can be given that our business will generate sufficient cash flow to service our debt.
Removed
As of April 2, 2022, $1,200.0 million remains outstanding on this term loan. As a result, increases in interest rates would increase the cost of servicing the term loan, and could materially reduce our profitability and cash flows.
Removed
A 1% increase in interest rates would increase our annual interest expense by approximately $12.0 million whereas a 1% decrease in interest rates would decrease our annual interest expense by approximately $12.0 million (assuming no repayments on the principal balance during the period). We have not entered into interest rate cap agreements on the term loan.
Removed
In addition, a transition away from the London Interbank Offered Rate (LIBOR) as a benchmark for establishing the applicable interest rate may affect the cost of servicing the term loan.
Removed
The Financial Conduct Authority of the United Kingdom has announced that it plans to no longer persuade or compel banks to submit rates for the calculation of LIBOR in the coming years.
Item 2. Properties
Properties — owned and leased real estate
3 edited+5 added−2 removed0 unchanged
Item 2. Properties
Properties — owned and leased real estate
3 edited+5 added−2 removed0 unchanged
2023 filing
2024 filing
Biggest changeWe believe that as the term for each of our leased facilities expires we will be able to either secure a renewal or enter into a lease for an alternate location on market terms. We believe that our existing facilities and equipment are generally in good condition, are well maintained and adequate to carry on our current operations.
Biggest changeWe also utilize third party logistics’ firms located strategically around the world to supplement distribution of our products. We believe that as the term of each of our leased facilities expires we will be able to either secure a renewal or enter into a lease for an alternate location on market terms.
ITEM 2. PROPERTIES Our principal executive office consists of 42,000 square feet located at One Tribology Center, Oxford, Connecticut, which we own, and our Dodge Industrial subsidiary has 74,970 square feet of office space in Greenville, South Carolina, which we lease.
ITEM 2. PROPERTIES Our principal executive office consists of approximately 70,000 square feet located at One Tribology Center, Oxford, Connecticut, which we own, and our Dodge Industrial subsidiary has approximately 75,000 square feet of office space in Simpsonville, South Carolina, which we lease.
We also believe that our existing manufacturing facilities have sufficient capacity to meet increased customer demand.
We believe that our existing facilities and equipment are generally in good condition, are well maintained and adequate to carry on our current operations. We also believe that our existing manufacturing facilities have sufficient capacity to meet increased customer demand.
Removed
We also own or lease manufacturing facilities in the United States, China, Mexico, Switzerland and Poland as follows: Manufacturing Facility Location Owned/Leased Square Footage Arizona: Tucson owned 155,000 California: Baldwin Park leased 30,000 Garden Grove leased 18,000 Rancho Dominguez owned 70,000 San Diego leased 38,000 Santa Ana owned 70,000 Santa Fe Springs leased 40,000 Torrance leased 72,000 Connecticut: Fairfield owned 80,000 Middlebury owned 60,000 Oxford owned 89,000 Torrington owned 137,000 Georgia: Ball Ground owned 40,000 Indiana: Bremen owned 50,000 Franklin owned 30,000 Plymouth owned 40,000 New Jersey: West Trenton leased 86,000 North Carolina: Marion owned 271,000 Weaverville leased 167,000 Ohio: Mentor leased 57,000 Oklahoma: Oklahoma City leased 75,000 South Carolina: Belton owned 187,000 Greenville leased 264,000 Greer leased 34,000 Hartsville owned 148,000 Westminster owned 78,000 Tennessee: Rogersville leased 221,000 China: Shanghai leased 62,000 Mexico: Guaymas, Sonora leased 70,000 Reynosa, Tamaulipas leased 202,000 Tecate, Baja leased 38,000 Poland: Mielec owned 44,000 Switzerland: Bürglen leased 20,000 Delémont owned 132,000 21 We also own or lease the following distribution centers: Distribution Center Location Owned/Leased Square Footage California: Rancho Dominguez owned 4,000 Illinois: Hoffman Estates leased 2,200 South Carolina: Bishopville owned 77,000 Texas: Grand Prairie leased 5,000 Tennessee; Crossville leased 158,000 Australia; Sydney leased 9,000 Canada: Burlington leased 7,000 Edmonton leased 13,000 Mississauga leased 40,000 St.
Added
Our Industrial business segment maintains approximately 1,725,000 square feet of manufacturing space across 14 facilities in California, Connecticut, Indiana, New Jersey, North Carolina, Ohio, Oklahoma, South Carolina and Tennessee, some of which we own and some of which we lease.
Removed
Hubert leased 7,000 India: Pune leased 5,000 In addition, we lease several sales offices in various locations throughout the United States and in Les Ulis, France; Shanghai, China; and Langenselbold, Germany to support our sales activities.
Added
This manufacturing space includes approximately 460,000 square feet in two owned facilities in North Carolina and South Carolina, and approximately 650,000 square feet in three leased facilities in North Carolina, South Carolina and Tennessee, all of which are used by Dodge Industrial.
Added
The Industrial business segment also maintains approximately 467,000 square feet of manufacturing space across six leased facilities in China, Mexico, and Switzerland and two owned facilities in Poland and Switzerland.
Added
Our Aerospace/Defense business segment maintain approximately 889,000 square feet of manufacturing space across 14 facilities in Arizona, California, Connecticut, Georgia, Indiana, South Carolina and Nevada, some of which we own and some of which we lease. This manufacturing space includes 163,000 square feet in one owned facility in Arizona.
Added
The Aerospace/Defense business segment also maintains approximately 108,000 square feet of manufacturing space across two leased facilities in Mexico. We own or lease approximately 239,000 square feet in three distribution centers located in California, South Carolina, and Tennessee, and we also lease several sales offices in various locations in the United States, Canada, France, China, Germany India and Australia.
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+3 added−1 removed0 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+3 added−1 removed0 unchanged
2023 filing
2024 filing
Biggest changeWe do not believe that any litigation or proceeding in which we are currently involved, either individually or in the aggregate, is likely to have a material adverse effect on our business, financial condition, operating results, cash flow or prospects.
Biggest changeBesides the matter described in the previous paragraph, from time to time we are involved in litigation that arises in the ordinary course of business, but we do not believe that any such litigation in which we are currently involved, either individually or in the aggregate, is likely to have a material adverse effect on our business, financial condition, operating results, cash flow or prospects.
Removed
ITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in litigation and administrative proceedings that arise in the ordinary course of our business.
Added
ITEM 3. LEGAL PROCEEDINGS On March 9, 2022 and March 21, 2023, the Company received civil investigative demands from the United States Department of Justice pursuant to the False Claims Act, 31 U.S.C. § 3733 (the “FCA”).
Added
The investigation concerns allegations that the Company submitted false claims in connection with (i) certifying that the Company’s employees were eligible for unemployment insurance benefits and pandemic relief and worked reduced hours and (ii) received grant proceeds in violation of the FCA. The Company is cooperating with the investigation.
Added
As the investigation is in its early stages, it is not possible to determine whether the investigation will have a material adverse effect, if any, on the Company.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
7 edited+1 added−2 removed3 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
7 edited+1 added−2 removed3 unchanged
2023 filing
2024 filing
Biggest changeThe graph then presents the value of these investments, assuming reinvestment of dividends, through the close of trading on April 2, 2022. 24 April 1, 2017 March 31, 2018 March 30, 2019 March 28, 2020 April 3, 2021 April 2, 2022 RBC Bearings Incorporated $ 100.00 $ 127.92 $ 130.98 $ 113.30 $ 204.08 $ 201.41 Nasdaq Composite Index 100.00 120.76 133.60 131.04 237.37 252.78 Russell 3000 Index 100.00 113.81 123.79 110.70 185.17 205.53 The cumulative total return shown on the stock performance graph indicates historical results only and may not be indicative of future results.
Biggest changeMarch 30, 2019 March 28, 2020 April 3, 2021 April 2, 2022 April 1, 2023 March 30, 2024 RBC Bearings Incorporated $ 100.00 $ 86.50 $ 155.81 $ 153.77 $ 182.98 $ 212.54 Russell 3000 Index 100.00 89.43 149.58 166.03 151.13 195.39 S&P 400 Industrials (Sector) (TR) 100.00 78.98 154.57 159.24 165.64 224.20 The cumulative total return shown on the stock performance graph indicates historical results only and may not be indicative of future results.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Price range of our Common Stock and Preferred Stock Our common stock is quoted on the Nasdaq National Market under the symbol “ROLL.” As of May 20, 2022, there was one holder of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Price Range of Our Common Stock and Preferred Stock Our common stock is quoted on the New York Stock Exchange under the symbol “RBC.” As of May 10, 2024, there was one holder of record of our common stock.
The following table shows the high and low sales prices of our preferred stock as reported by the Nasdaq National Market during the periods indicated: Fiscal 2022 Fiscal 2021 High Low High Low First Quarter $ — $ — $ — $ — Second Quarter 126.88 101.00 — — Third Quarter 122.74 101.17 — — Fourth Quarter 109.76 91.35 — — The last reported sale price of our preferred stock on the Nasdaq National Market on May 20, 2022 was $84.55 per share. 23 Issuer Purchases of Equity Securities In 2019, our Board of Directors authorized us to repurchase up to $100.0 million of our common stock from time to time on the open market, in block trade transactions, and through privately negotiated transactions, in compliance with SEC Rule 10b-18 depending on market conditions, alternative uses of capital, and other relevant factors.
The following table shows the high and low sales prices of the MCPS during the periods indicated: Fiscal 2024 Fiscal 2023 High Low High Low First Quarter $ 112.53 $ 98.75 $ 102.93 $ 81.01 Second Quarter 118.68 101.97 127.19 92.95 Third Quarter 131.99 103.29 123.15 101.39 Fourth Quarter 129.12 116.30 121.21 101.57 The last reported sale price of the MCPS on the New York Stock Exchange on May 10, 2024 was $122.34 per share. 18 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.
Total share repurchases under the 2019 plan for the three months ended April 2, 2022 are as follows: Period Total number of shares purchased Average price paid per share Number of shares purchased as part of the publicly announced program Approximate dollar value of shares still available to be purchased under the program (000’s) 01/02/2022 – 01/29/2022 - $ - - $ 79,923 01/30/2022 – 02/26/2022 4,982 174.65 4,982 79,053 02/27/2022 – 04/02/2022 - - - $ 79,053 Total 4,982 $ 174.65 4,982 During the fourth quarter of fiscal 2022, we did not issue any common stock that was not registered under the Securities Act of 1933.
Total share repurchases under the 2019 plan during the fourth quarter of fiscal 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) 12/31/2023 – 01/27/2024 16 $ 278.77 16 $ 63.7 01/28/2024 – 02/24/2024 12,565 268.22 12,565 60.3 02/25/2024 – 03/30/2024 7 264.87 7 $ 60.3 Total 12,588 $ 268.23 12,588 During the fourth quarter of fiscal 2024, we did not issue any common stock that was not registered under the Securities Act of 1933.
Our preferred stock is quoted on the Nasdaq National Market under the symbol “ROLLP.” As of May 20, 2022, there was one holder of record of our preferred stock.
The MCPS ( i.e ., our outstanding preferred stock) is quoted on the New York Stock Exchange under the symbol “RBCP.” As of May 10, 2024, there was one holder of record of the MCPS.
Each line on the graph assumes that $100 was invested in our common stock or in the respective indices on April 1, 2017 based on the closing price on that date.
Each line on the graph assumes that $100 was invested in our common stock or in the respective indices on March 30, 2019 based on the closing price on that date. The graph then presents the value of these investments, assuming reinvestment of dividends, through the close of trading on March 30, 2024.
Equity Compensation Plans Information regarding equity compensation plans required to be disclosed pursuant to this Item is included in Part II, Item 8, Note 15 of this Annual Report on Form 10-K.
Equity Compensation Plans Information regarding equity compensation plans required to be disclosed pursuant to this Item is included in Part II, Item 8, Note 17 of this Annual Report on Form 10-K. 19 Performance Graph The following graph shows the total return to our stockholders compared to the Russell 3000 Index and the S&P 400 Industrials (Sector) (TR) over the period from March 30, 2019 to March 30, 2024.
Removed
The following table shows the high and low sales prices of our common stock as reported by the Nasdaq National Market during the periods indicated: Fiscal 2022 Fiscal 2021 High Low High Low First Quarter $ 208.11 $ 185.00 $ 159.04 $ 103.09 Second Quarter 250.52 179.60 145.55 113.40 Third Quarter 242.74 188.51 184.83 114.49 Fourth Quarter 214.80 165.99 206.64 160.51 The last reported sale price of our common stock on the Nasdaq National Market on May 20, 2022 was $157.36 per share.
Added
The following table shows the high and low sales prices of our common stock during the periods indicated: Fiscal 2024 Fiscal 2023 High Low High Low First Quarter $ 236.95 $ 195.18 $ 202.73 $ 152.90 Second Quarter 253.00 203.65 264.94 179.21 Third Quarter 288.16 214.14 256.29 202.13 Fourth Quarter 285.79 240.36 254.50 204.67 The last reported sale price of our common stock on the New York Stock Exchange on May 10, 2024 was $271.56 per share.
Removed
Performance Graph The following graph shows the total return to our stockholders compared to the Russell 3000 Index and the Nasdaq Composite Index over the period from April 1, 2017 to April 2, 2022.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
85 edited+42 added−56 removed31 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
85 edited+42 added−56 removed31 unchanged
2023 filing
2024 filing
Biggest changeWe have consistently increased the profitability of acquired businesses through a process of methods and systems improvement coupled with the introduction of complementary and proprietary new products. Since 1992 we have completed 27 acquisitions, which have broadened our end markets, products, customer base and geographic reach.
Biggest changeSince 1992 we have completed 29 acquisitions, which have broadened our end markets, products, customer base and geographic reach. Outlook Our net sales increased 6.2% year over year due to an increase of 20.7% in Aerospace and Defense segment sales and a 0.2% increase in Industrial segment sales. Aerospace and Defense segment sales increased 20.7% year over year.
These covenants contain various exceptions, limitations and qualifications. At any time that the Senior Notes are rated investment grade, certain of these covenants will be suspended. The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by RBC Bearings and certain of RBCA’s existing and future wholly-owned domestic subsidiaries that also guarantee the New Credit Agreement.
These covenants contain various exceptions, limitations and qualifications. At any time that the Senior Notes are rated investment grade, certain of these covenants will be suspended. The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by RBC Bearings and certain of RBCA’s existing and future wholly-owned domestic subsidiaries that also guarantee the Credit Agreement.
We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their fair values at the date of acquisition, including identifiable intangible assets, which either arise from a contractual or legal right or are separable from goodwill.
We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their estimated fair values at the date of acquisition, including identifiable intangible assets, which either arise from a contractual or legal right or are separable from goodwill.
Cost of Sales Cost of sales includes employee compensation and benefits, raw materials, outside processing, depreciation of manufacturing machinery and equipment, supplies and manufacturing overhead. 27 Less than half of our factory costs, depending on product mix, are attributable to raw materials, purchased components and outside processing.
Cost of Sales Cost of sales includes employee compensation and benefits, raw materials, outside processing, depreciation of manufacturing machinery and equipment, supplies and manufacturing overhead. Less than half of our factory costs, depending on product mix, are attributable to raw materials, purchased components and outside processing.
When we experience raw material inflation, we attempt to offset these cost increases by changing our buying patterns, expanding our vendor network and passing through price increases when possible. Although we experienced cost inflation on raw material for this fiscal year, we were able to mitigate it through pricing and strategic sourcing efforts.
When we experience raw material inflation, we attempt to offset these cost increases by changing our buying patterns, expanding our vendor network and passing through price increases when possible. Although we experienced cost inflation on raw material, labor and overhead for this fiscal year, we were able to mitigate it through pricing and strategic sourcing efforts.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The financial and business analysis below provides information which we believe is relevant to an assessment and understanding of our consolidated financial position, results of operations and cash flows. This financial and business analysis should be read in conjunction with the consolidated financial statements and related notes.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The financial and business analysis below provides information that we believe is relevant to an assessment and understanding of our consolidated financial position, results of operations and cash flows. This financial and business analysis should be read in conjunction with the consolidated financial statements and related notes.
The Company has determined that the contract with the customer is established when the customer purchase order is accepted or acknowledged. Long-term agreements (LTAs) are used by the Company and certain of its customers to reduce their supply uncertainty for a period of time, typically multiple years.
The Company has determined that the contract with the customer is established when the customer purchase order is accepted or acknowledged. Long-term agreements (“LTAs”) are used by the Company and certain of its customers to reduce their supply uncertainty for a period of time, typically multiple years.
Terminal growth rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and long-term growth rates. The terminal growth rate used for our fiscal 2022 test was 2.5%.
Terminal growth rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and long-term growth rates. The terminal growth rate used for our fiscal 2024 test was 2.5%.
Amounts outstanding under the Facilities generally bear interest at either, at the Company’s option, (a) a base rate determined by reference to the higher of (i) Wells Fargo’s prime lending rate, (ii) the federal funds effective rate plus 1/2 of 1.00% 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.
Initially, amounts outstanding under the Facilities generally bore interest at either, at the Company’s option, (a) a base rate determined by reference to the higher of (i) Wells Fargo’s prime lending rate, (ii) the federal funds effective rate plus 1/2 of 1.00% 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 Company determines the fair value of a reporting unit and compares it to its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized for any amount by which the carrying amount exceeds the reporting unit’s fair value up to the value of goodwill.
The Company determines the fair value of a reporting unit and compares it to its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized for any amount by which the carrying amount exceeds the reporting unit’s fair value.
To date, we have managed price increases by changing our buying patterns, expanding our vendor network, and passing increases on to our customers through price increases on our products, the assessment of steel surcharges on our customers, or entry into long-term agreements with our customers containing escalator provisions tied to our invoiced price of steel.
To date, we have managed price increases by changing our buying patterns, expanding our vendor network, and passing increases on to our customers through price increases on our products, the assessment of steel surcharges on our customers, or entry into LTAs with our customers containing escalator provisions tied to our invoiced price of steel.
We have a fiscal year consisting of 52 or 53 weeks, ending on the Saturday closest to March 31. Based on this policy, fiscal year 2022 had 52 weeks and fiscal year 2021 had 53 weeks. We currently operate under two reportable business segments – Aerospace/Defense and Industrial: ● Aerospace/Defense.
We have a fiscal year consisting of 52 or 53 weeks, ending on the Saturday closest to March 31. Based on this policy, fiscal 2024 had 52 weeks and fiscal 2023 had 52 weeks. We currently operate under two reportable business segments – Aerospace/Defense and Industrial: ● Aerospace/Defense.
The New Credit Agreement requires the Company to comply with various covenants, including the following financial covenants beginning with the test period ending December 31, 2021: (a) a maximum Total Net Leverage Ratio of 5.50:1.00, which maximum Total Net Leverage Ratio shall decrease during certain subsequent test periods as set forth in the New Credit Agreement (provided that, no more than once during the term of the Facilities, such maximum ratio applicable at such time may be increased by the Borrower by 0.50:1.00 for a period of twelve (12) months after the consummation of a material acquisition), and (b) a minimum Interest Coverage Ratio of 2.00:1.00.
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 within 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 twelve (12) months after the consummation of a material acquisition); and (b) a minimum Interest Coverage Ratio of 2.00:1.00.
The WACC considers market and industry data as well as Company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit for our fiscal 2022 test was 9.5% and is indicative of the return an investor would expect to receive for investing in such a business.
The WACC considers market and industry data as well as Company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit for our fiscal 2024 test was 10.0% and is indicative of the return an investor would expect to receive for investing in such a business.
Interest on the Senior Notes accrues at a rate of 4.375% and will be payable semi–annually in cash in arrears on April 15 and October 15 of each year, commencing April 15, 2022. The Senior Notes will mature on October 15, 2029.
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.
We funded our fiscal 2022 capital expenditures, and expect to fund fiscal 2023 capital expenditures, principally through existing cash and internally generated funds. We may also make substantial additional capital expenditures in connection with acquisitions.
We funded our fiscal 2024 capital expenditures, and expect to fund fiscal 2025 capital expenditures, principally through existing cash and internally generated funds. We may also make substantial additional capital expenditures in connection with acquisitions.
We believe our unique expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 56 facilities in 10 countries, of which 37 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach.
We believe our unique expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 54 facilities in 11 countries, of which 38 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach.
The Company has determined that, to date, no impairment of goodwill exists and fair value of the reporting units exceeded the carrying value in total by approximately 53.9%. The fair value of the reporting units exceeds the carrying value by a minimum of 24.9% at each of the two reporting units.
The Company has determined that, to date, no impairment of goodwill exists and fair value of the reporting units exceeded the carrying value in total by approximately 53.5%. The fair value of the reporting units exceeds the carrying value by a minimum of 18.8% at each of the two reporting units.
We utilize a specialist for these valuations due to the complexity and estimation uncertainty involved in determining the fair value given the significant assumptions involved. Significant assumptions utilized in the valuation models include discount rates, revenue growth rates and cash flow projections.
We utilize a specialist for these valuations due to the complexity and estimation uncertainty involved in determining the fair value given the significant assumptions involved. Significant assumptions utilized in the valuation models include discount rates, revenue growth rates and EBITDA margins.
Discount rates, revenue growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”).
Discount rates, revenue growth rates and EBITDA margin are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”).
Actual results may differ from these estimates under different assumptions or conditions. Revenue Recognition. The performance obligations for the majority of RBC’s product sales are satisfied at the point in time in which the products are shipped, consistent with the pattern of revenue recognition under the previous accounting standard.
Actual results may differ from these estimates under different assumptions or conditions. Revenue Recognition. The performance obligations for the majority of RBC’s product sales are satisfied at the point in time in which the products are shipped.
However, even if we are able to pass these steel surcharges or price increases to our customers, there may be a time lag of several months between the time a price increase goes into effect and our ability to implement surcharges or price increases, particularly for orders already in our backlog. As a result, our gross margin percentage may decline.
However, even if we are able to pass these cost increases to our customers, there may be a time lag of several months between the time we experience a cost increase and when we implement surcharges or price increases, particularly for orders already in our backlog. As a result, our gross margin percentage may decline.
The Company has determined that the customer obtains control upon shipment of the product based on the shipping terms (either when it ships from RBC’s dock or when the product arrives at the customer’s dock) and recognizes revenue accordingly.
The Company has determined that the customer obtains control upon shipment of the product based on the shipping terms (i.e. when it ships from RBC’s dock or when the product arrives at the customer’s dock) and recognizes revenue when control has transferred to the customer.
The Company utilizes the cost-to-cost measure of progress for over-time revenue recognition contracts as we believe this measure best depicts the transfer of control to the customer, which occurs as we incur costs on contracts. Revenues, including profits, are recorded proportionally as costs are incurred. Costs to fulfill include labor, materials, subcontractors’ costs, and other direct and indirect costs.
The Company utilizes the cost-to-cost measure of progress for over-time revenue recognition contracts as we believe this measure best depicts the transfer of control to the customer, which occurs as we incur costs on contracts. Revenues, including profits, are recorded proportionally as costs are incurred.
Our effective income tax rate for fiscal 2022 was 25.8% compared to 18.6% for fiscal 2021. The effective income tax rates are different from the U.S. statutory rate due to the U.S. credits for increasing research activities and foreign-derived intangible income provision which decrease the rate and differences in foreign and state income taxes which increase the rate.
Our effective income tax rate for fiscal 2024 was 19.8% compared to 20.5% for fiscal 2023. The effective income tax rates are different from the U.S. statutory rate due to the U.S. credits for increasing research activities and foreign-derived intangible income provision which decrease the rate and differences in foreign and state income taxes which increase the rate.
Domestic Credit Facility On November 1, 2021 RBC Bearings Incorporated, our top holding company, and our Roller Bearing Company of America, Inc. subsidiary (“RBCA”) entered into a Credit Agreement (the “New Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer and the other lenders party thereto, and terminated the Company’s prior Credit Agreement, which was entered into with Wells Fargo in 2015 (the “2015 Credit Agreement”).
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.
Liquidity As of April 2, 2022, we had cash and cash equivalents of $182.9 million, of which, approximately $34.9 million was cash held by our foreign operations. We expect that our undistributed foreign earnings will be re-invested indefinitely for working capital, internal growth and acquisitions for and by our foreign subsidiaries.
Liquidity As of March 30, 2024, we had cash and cash equivalents of $63.5, of which, approximately $25.9 was cash held by our foreign operations. We expect that our undistributed foreign earnings will be re-invested indefinitely for working capital, internal growth and acquisitions for and by our foreign subsidiaries.
These types of contracts comprised less than 1% of total sales for the year ended April 2, 2022 and the year ended April 3, 2021. For both of these types of contracts, revenue is recognized over time based on the extent of progress towards completion of the performance obligation.
These types of contracts comprised less than 1% of total sales for the fiscal years ended March 30, 2024 and April 1, 2023. For both of these types of contracts, revenue is recognized over time based on the extent of progress towards completion of the performance obligation.
Capital Expenditures Our capital expenditures in fiscal 2022 were $29.8 million compared to $11.8 million in fiscal 2021. We expect to make capital expenditures of approximately 2.5% to 3.0% of net sales during fiscal 2023 in connection with our existing business.
Capital Expenditures Our capital expenditures in fiscal 2024 were $33.2 compared to $42.0 in fiscal 2023. We expect to make capital expenditures of approximately 3.0% to 3.5% of net sales during fiscal 2025 in connection with our existing business.
For fiscal 2022, other operating expenses were comprised of $30.6 million of costs associated with the Dodge acquisition, $34.7 million of amortization expense, $1.1 million of plant consolidation and restructuring costs, $0.5 million of bad debt expense, $0.3 million of losses on disposal of assets, and $1.2 million of other items.
For fiscal 2023, other operating expenses were comprised of $8.9 of TSA costs and other costs associated with the Dodge acquisition, $69.1 of amortization expense, $2.5 of plant consolidation and restructuring costs, $0.8 of bad debt expense, $0.3 of asset impairments, $0.3 of losses on disposal of assets, and $0.2 of other items.
Separate tests are performed for goodwill and indefinite lived intangible assets. We completed a quantitative test of impairment on the indefinite lived intangible assets with no impairment noted in the current year.
Separate tests are performed for goodwill and indefinite lived intangible assets. We completed a quantitative test of impairment on the indefinite lived intangible assets with no impairment noted in fiscal year 2024. The determination of any goodwill impairment is made at the reporting unit level.
During fiscal 2022, approximately 3% of the Company’s revenue was derived from services performed for customers, which included repair and refurbishment work performed on customer-controlled assets as well as design and test work, compared to approximately 4% for fiscal 2021. Refer to Note 2 – “Summary of Significant Accounting Policies” for further discussion regarding the Company’s revenue policy.
The remaining 2% of the Company’s revenue for each of the last two fiscal years was derived from services performed for customers, which included repair and refurbishment work performed on customer-controlled assets as well as design and test work. Refer to Note 2 for further discussion regarding the Company’s revenue policy.
These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from our expectations. 35 Goodwill and Indefinite-Lived Intangible Assets.
The physical condition, including age and quality, of the inventories is also considered in establishing its valuation. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from our expectations. Goodwill and Indefinite-Lived Intangible Assets.
A decrease of 1.0% in our terminal growth rate would not result in impairment of goodwill for any of our reporting units. An increase of 1.0% in our discount rate would not result in impairment of goodwill for any of our reporting units. The Company performs the annual impairment testing during the fourth quarter of each fiscal year.
A decrease of 1.0% in our terminal growth rate would not result in impairment of goodwill for any of our reporting units. An increase of 1.0% in our discount rate would not result in impairment of goodwill for any of our reporting units.
We purchase steel at market prices, which fluctuate as a result of supply and demand in the marketplace.
Impact of Inflation and Changes in Prices of Raw Materials In fiscal 2024, the economy experienced inflation. We purchase steel at market prices, which fluctuate as a result of supply and demand in the marketplace.
The Company applies the income approach (discounted cash flow method) in testing goodwill for impairment. The key assumptions used in the discounted cash flow method used to estimate fair value include discount rates, revenue growth rates, terminal growth rates and cash flow projections.
The Company applies the income approach (discounted cash flow method) in testing goodwill for impairment. The key assumptions used in the discounted cash flow method used to estimate fair value include the discount rates, revenue growth rates and EBITDA margin which are affected by expectations about future market or economic conditions.
Significant judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, accrual for uncertain tax positions and any valuation allowance recognized against net deferred tax assets. Stock-Based Compensation .
Significant judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, accrual for uncertain tax positions and any valuation allowance recognized against net deferred tax assets. 30 Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, refer to Note 2.
Approximately 97% and 96% of the Company’s revenue was generated from the sale of products to customers in the industrial and aerospace/defense markets for each of the years ended April 2, 2022 and April 3, 2021, respectively.
Approximately 98% of the Company’s revenue was generated from the sale of products to customers in the Industrial and Aerospace/Defense markets for each of the years ended March 30, 2024 and April 1, 2023.
FY22 FY21 Cash provided by (used in): Accounts receivable $ (72.5 ) $ 15.7 Inventory (17.1 ) 26.3 Prepaid expenses and other current assets (1.4 ) 3.5 Other noncurrent assets 8.5 (7.0 ) Accounts payable 67.2 (15.7 ) Accrued expenses and other current liabilities 19.5 2.6 Other noncurrent liabilities (2.8 ) 5.7 Total change in operating assets and liabilities $ 1.4 $ 31.1 33 During fiscal 2022, we used $2,847.5 million for investing activities as compared to $101.5 million for fiscal 2021.
FY24 FY23 Cash provided by (used in): Accounts receivable $ (13.4 ) $ 7.8 Inventory (31.6 ) (71.7 ) Prepaid expenses and other current assets (2.4 ) (5.8 ) Other noncurrent assets (3.0 ) (0.8 ) Accounts payable (30.7 ) (11.1 ) Accrued expenses and other current liabilities 9.0 6.0 Other noncurrent liabilities (0.5 ) 4.5 Total change in operating assets and liabilities $ (72.6 ) $ (71.1 ) During fiscal 2024, we used $52.2 for investing activities as compared to $14.0 for fiscal 2023.
Overview We are a well-known international manufacturer of highly engineered precision bearings, components and essential systems for the industrial, defense and aerospace 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.
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.
Once a product has shipped, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Approximately 97% of the Company’s revenue was recognized in this manner based on sales for the year ended April 2, 2022 compared to approximately 96% for the year ended April 3, 2021.
Once a customer has obtained control, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Approximately 98% of the Company’s revenue was recognized in this manner based on sales for the fiscal years ended March 30, 2024 and April 1, 2023.
As discussed further below, we also have the ability to borrow up to approximately $512.7 million from our existing credit agreements.
As discussed in further detail below, we also have the ability to borrow money from our existing credit facilities.
The New Credit Agreement allows the Company to, among other things, make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the New Credit Agreement.
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. 26 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.
The increase of $27.9 million for fiscal 2022 was mainly the result of a $51.1 million increase in non-cash charges and a net favorable change in operating assets and liabilities of $1.4 million, partially offset by a $24.6 million decrease in net income. The favorable change in operating assets and liabilities is detailed in the table below.
The increase of $54.1 was mainly the result of a $43.2 increase in net income and a $12.4 favorable change in non-cash activity partially offset by a net unfavorable change in operating assets and liabilities of $1.5. The unfavorable change in operating assets and liabilities is detailed in the table below.
The New Credit Agreement provides the Company with (a) a $1,300.0 million term loan facility (the “Term Loan Facility”), which was used to fund a portion of the cash purchase price for the acquisition of Dodge and to pay related fees and expenses, and (b) a $500.0 million revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Facilities”).
The Credit Agreement provides the Company with (a) a $1,300.0 term loan (the “Term Loan”), which was used to fund a portion of the cash purchase price for the acquisition of Dodge Industrial, Inc.
(3) Dodge was acquired on November 1, 2021 and is included within the quarters ended April 2, 2022 and January 1, 2022 within the table above. 34 Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.
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. 25 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.
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.
We have historically met our working capital, capital expenditure requirements and acquisition funding needs through our net cash flows provided by operations, various debt arrangements and sale of equity to investors.
We have historically met our working capital, capital expenditure requirements and acquisition funding needs through our net cash flows provided by operations, various debt arrangements and sale of equity to investors. We believe that operating cash flows and available credit under our revolving bank credit facilities will provide adequate resources to fund internal growth initiatives for the foreseeable future.
On November 1, 2021, the Company used the proceeds to fund a portion of the cash purchase price for the acquisition of Dodge. The Senior Notes were issued pursuant to an indenture with Wilmington Trust, National Association, as trustee (the “Indenture”).
The 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 purchase price for the acquisition of Dodge. The Senior Notes were issued pursuant to an indenture with Wilmington Trust, National Association, as trustee (the “Indenture”).
Cash Flows Fiscal 2022 Compared to Fiscal 2021 The following table summarizes our cash flow activities: FY22 FY21 $ Change Net cash provided by (used in): Operating activities $ 180.3 $ 152.4 $ 27.9 Investing activities (2,847.5 ) (101.5 ) (2,746.0 ) Financing activities 2,698.5 (3.4 ) 2,701.9 Effect of exchange rate changes on cash 0.5 0.3 0.2 Increase in cash and cash equivalents $ 31.8 $ 47.8 $ (16.0 ) During fiscal 2022 we generated cash of $180.3 million from operating activities compared to $152.4 million for fiscal 2021.
Cash Flows Fiscal 2024 Compared to Fiscal 2023 The following table summarizes our cash flow activities: FY24 FY23 $ Change Net cash provided by (used in): Operating activities $ 274.7 $ 220.6 $ 54.1 Investing activities (52.2 ) (14.0 ) (38.2 ) Financing activities (223.5 ) (322.8 ) 99.3 Effect of exchange rate changes on cash (0.9 ) (1.3 ) 0.4 (Decrease)/increase in cash and cash equivalents $ (1.9 ) $ (117.5 ) $ 115.6 During fiscal 2024, we generated cash of $274.7 from operating activities compared to $220.6 for fiscal 2023.
Approximately 3% of the Company’s revenue was recognized in this manner based on sales for the year ended April 2, 2022 compared to approximately 4% for the year ended April 3, 2021.
Approximately 2% of the Company’s revenue was recognized in this manner based on sales for the fiscal years ended March 30, 2024 and April 1, 2023.
The effective income tax rate for fiscal 2022 without these discrete items would have been 27.5%. The effective income tax rate for fiscal 2021 of 18.6% includes discrete items of $2.2 million benefit which are comprised substantially of a benefit associated with share-based compensation and unrecognized tax benefits associated with the expiration of statutes of limitations.
The effective income tax rate for fiscal 2024 without these discrete items would have been 22.9%. The effective income tax rate for fiscal 2023 of 20.5% included discrete items of $5.1 of benefit comprised substantially of a benefit associated with stock-based compensation and a reduction in unrecognized tax benefits partially due to the expiration of the statute of limitations.
Changes in required reserves may occur in the future as conditions in the marketplace change. Inventory. Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. We account for inventory under a full absorption method.
Inventory is stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. We account for inventory under a full absorption method. We record adjustments to the value of inventory based upon past sales history and forecasted plans to sell our inventories.
Private Securities Litigation Reform Act of 1995. See the information provided in Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K under the heading “Cautionary Statement as to Forward-Looking Information.” We have omitted our discussion of fiscal 2020 from this section as permitted by Regulation S-K.
Private Securities Litigation Reform Act of 1995. See the information provided in Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K under the heading “Cautionary Statement as to Forward-Looking Information.” 20 General We are a well-known international manufacturer of highly engineered precision bearings, components and essential systems for the industrial, defense and aerospace industries.
Other Non-Operating Expense FY22 FY21 $ Change % Change Other non-operating expense $ 0.8 $ (0.0 ) $ 0.8 (2,790.3 )% % of net sales 0.1 % (0.0 )% Other non-operating expense for fiscal 2022 totaled $0.8 million, consisting primarily of costs associated with post-retirement benefit plans.
Other Non-Operating Expense FY24 FY23 $ Change % Change Other non-operating expense $ 1.7 $ 6.6 $ (4.9 ) (74.0 )% % of net sales 0.1 % 0.4 % Other non-operating expense for fiscal 2024 totaled $1.7, consisting primarily of post-retirement benefit costs.
Income Taxes FY22 FY21 Income tax expense $ 22.7 $ 20.4 Effective tax rate with discrete items 25.8 % 18.6 % Effective tax rate without discrete items 27.5 % 20.6 % Income tax expense for fiscal 2022 was $22.7 million compared to $20.4 million for fiscal 2021.
Income Taxes FY24 FY23 Income tax expense $ 51.9 $ 43.0 Effective tax rate with discrete items 19.8 % 20.5 % Effective tax rate without discrete items 22.9 % 22.9 % Income tax expense for fiscal 2024 was $51.9 compared to $43.0 for fiscal 2023.
We believe that operating cash flows and available credit under the Revolving Credit Facility and Foreign Revolver will provide adequate resources to fund internal growth initiatives for the foreseeable future, including at least the next 12 months. For further discussion regarding the funding of the Dodge acquisition, refer to Part II, Item 8 – Notes 8, 11 and 15.
We believe that operating cash flows and available credit under our revolving bank credit facilities will provide adequate resources to fund internal growth initiatives for the foreseeable future, including at least the next 12 months. As of March 30, 2024, we had cash and cash equivalents of $63.5, of which, $25.9 was cash held by our foreign operations.
The applicable margin is based on the Company’s consolidated ratio of total net debt to consolidated EBITDA from time to time. Currently, the Company’s margin is 0.75% for base rate loans and 1.75% for LIBOR rate loans.
The applicable margin was based on the Company’s consolidated ratio of total net debt to consolidated EBITDA (as defined within the Credit Agreement) from time to time.
Accordingly, we now report our financial results under two operating segments: Aerospace/Defense and Industrial. Financial information for fiscal 2021 has been recast to conform to the new segment presentation. We use gross margin as the primary measurement to assess the financial performance of each reportable segment.
We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions in which we operate. 24 Segment Information We report our financial results under two operating segments: Aerospace/Defense and Industrial. We use gross margin as the primary measurement to assess the financial performance of each reportable segment.
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.
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. Contract assets are included within prepaid expenses and other current assets or other noncurrent assets on the consolidated balance sheets. Inventory.
We only pursue product lines where we believe that the developed manufacturing process will yield the targeted margins. Management monitors gross margins of all product lines on a monthly basis to determine which manufacturing processes or prices should be adjusted.
We only pursue product lines where we believe that the developed manufacturing process will yield the targeted margins.
Industrial Segment: FY22 FY21 $ Change % Change Net sales $ 561.4 $ 212.8 $ 348.6 163.9 % Gross margin $ 202.0 $ 72.9 $ 129.1 177.0 % Gross margin % 36.0 % 34.3 % SG&A $ 58.6 $ 18.0 $ 40.6 225.9 % % of segment net sales 10.4 % 8.5 % Net sales increased $348.6 million, or 163.9%, during fiscal 2022 compared to the same period last year.
Industrial Segment: FY24 FY23 $ Change % Change Net sales $ 1,040.9 $ 1,039.0 $ 1.9 0.2 % Gross margin $ 461.7 $ 433.8 $ 27.9 6.4 % Gross margin % 44.4 % 41.8 % SG&A $ 132.8 $ 122.5 $ 10.3 8.4 % % of segment net sales 12.8 % 11.8 % Net sales increased $1.9, or 0.2%, during fiscal 2024 compared to the same period last year.
Aerospace/Defense Segment: FY22 FY21 $ Change % Change Net sales $ 381.5 $ 396.2 $ (14.7 ) (3.7 )% Gross margin $ 155.1 $ 161.2 $ (6.1 ) (3.8 )% Gross margin % 40.7 % 40.7 % SG&A $ 29.0 $ 29.1 $ (0.1 ) (0.5 )% % of segment net sales 7.6 % 7.4 % Net sales decreased $14.7 million, or 3.7%, for fiscal 2022 compared to fiscal 2021.
Aerospace/Defense Segment: FY24 FY23 $ Change % Change Net sales $ 519.4 $ 430.3 $ 89.1 20.7 % Gross margin $ 208.8 $ 171.0 $ 37.8 22.2 % Gross margin % 40.2 % 39.7 % SG&A $ 37.8 $ 31.1 $ 6.7 21.7 % % of segment net sales 7.3 % 7.2 % Net sales increased $89.1, or 20.7%, for fiscal 2024 compared to fiscal 2023.
For the fourth quarter of fiscal 2022, approximately 71.0% of our net sales were attributable to the Industrial segment compared to approximately 29.0% for the aerospace/defense segment. This shift in mix is primarily due to $181.9 million of sales attributable to the Dodge business in the fourth quarter.
For the fourth quarter of fiscal 2024, approximately 65.6% of our net sales were attributable to the Industrial segment compared to approximately 34.4% for the Aerospace/Defense segment.
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.
Such sales include sales to third party distributors, and sales to OEMs for replacement products and aftermarket services. We will further increase the percentage of our revenues derived from the replacement market by continuing to implement several initiatives. ● Pursuing selective acquisitions.
We believe that there will continue to be consolidation within the industry that may present us with acquisition opportunities. We have demonstrated expertise in acquiring and integrating bearing and precision engineered component manufacturers that have complementary products or distribution channels and have provided significant margin enhancement.
We have demonstrated expertise in acquiring and integrating bearing and precision engineered component manufacturers that have complementary products or distribution channels and have provided significant margin enhancement. We have consistently increased the profitability of acquired businesses through a process of methods and systems improvement coupled with the introduction of complementary and proprietary new products.
Gross Margin FY22 FY21 $ Change % Change Gross Margin $ 357.1 $ 234.1 $ 123.0 52.5 % Gross Margin % 37.9 % 38.4 % Gross margin was 37.9% of sales for fiscal 2022 compared to 38.4% for the same period last year.
Gross Margin FY24 FY23 $ Change % Change Gross Margin $ 670.5 $ 604.8 $ 65.7 10.9 % Gross Margin % 43.0 % 41.2 % Gross margin was 43.0% of sales for fiscal 2024 compared to 41.2% for the same period last year.
As of April 2, 2022, $1,200.0 million was outstanding under the Term Loan Facility and approximately $3.5 million of the Revolving Credit Facility was being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs, and the Company had the ability to borrow up to an additional $496.5 million under the Revolving Credit Facility.
As of March 30, 2024, $675.0 was outstanding under the Term Loan, $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, and $18.0 of the Revolving Credit Facility had been used to fund the purchase of the business assets of Specline, Inc. which is discussed in Note 9.
The Company expects net sales to be approximately $355.0 million to $365.0 million in the first quarter of fiscal 2023, compared to $156.2 million in the prior year, which represents a growth rate of 127.3% to 133.7%.
The Company forecasts net sales to be approximately $415.0 to $420.0 in the first quarter of fiscal 2025, compared to $387.1 in the first quarter of fiscal 2024, which represents a growth rate of 7.2% to 8.5%. Our order backlog, as of March 30, 2024, was $726.1 compared to $663.8 as of April 1, 2023.
Gross margin during fiscal 2022 included the unfavorable impact of $13.8 million of purchase accounting adjustments associated with the Dodge acquisition and $0.9 million of other inventory rationalization costs associated with consolidation efforts at one of our facilities.
Gross margin during fiscal 2024 included $0.3 of inventory rationalization costs associated with consolidation efforts at one of our facilities located in California. Gross margin in fiscal 2023 included $0.2 of inventory rationalization costs associated with consolidation efforts at one of our facilities located in South Carolina.
The net income available to common stockholders of $53.1 million in fiscal 2022 was impacted by $13.8 million of inventory purchase accounting adjustments associated with the Dodge acquisition, $30.6 million of other costs associated with the Dodge acquisition, $41.5 million of interest expense, $12.0 million of preferred stock dividends and $22.7 million of tax expense.
The net income attributable to common stockholders of $143.8 in fiscal 2023 was impacted by $8.8 of transition service agreement (TSA) costs associated with the Dodge acquisition, $2.7 of restructuring and consolidation charges incurred at some of our plants located in South Carolina, $76.7 of interest expense, $22.9 of preferred stock dividends and $43.0 of income tax expense.
As of April 2, 2022, the Company’s commitment fee rate is 0.25% and the letter of credit fee rate is 1.75%. 31 The Term Loan Facility and the Revolving Credit Facility will mature on November 2, 2026. The Company can elect to prepay some or all of the outstanding balance from time to time without penalty.
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.
Commercial aerospace decreased 1.5%, despite demonstrating early signs of recovery during the second half of the year. Defense sales, which represent approximately 39.0% of segment sales during the year, were down more than 7% for the year, driven by marine and aerospace markets.
Commercial aerospace increased 20.3%, demonstrating the continued recovery and early stages of a growth cycle. Defense sales, which represent approximately 31.9% of segment sales during the year, were up more than 21.6% for the year.
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.
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. 27 Foreign Borrowing Arrangements One of our foreign subsidiaries, Schaublin SA, has a CHF 5.0 (approximately $5.8 USD) credit line (the “Foreign Credit Line”) with Credit Suisse (Switzerland) Ltd. to provide future working capital, if necessary.
For fiscal 2021, other operating expenses were comprised of $10.2 million of amortization of intangible assets, $2.9 million of restructuring and consolidation costs, $1.5 million of forensic specialist and remediation costs related to a cyber event, $1.3 million loss on disposal of assets, $0.5 million of bad debt expense, and $0.3 million of other items.
For fiscal 2024, other operating costs consisted primarily of $70.4 of amortization expense, $2.7 of plant consolidation and restructuring costs, $0.2 of bad debt expense, $0.3 of acquisition costs, $0.6 of losses on disposal of assets, and $0.6 of other items.
Approximately 66.0% of Industrial sales in the fourth quarter were to distribution and aftermarket while approximately 34.0% were made directly to OEM’s. Approximately 36.0% of our aerospace/defense sales were to the defense market.
Approximately $186.8 of Industrial segment sales in the fourth quarter of fiscal 2024 were to distribution and aftermarket compared to $185.7 in the prior year while approximately $84.5 were made directly to OEMs in the fourth quarter of fiscal 2024 compared to $86.9 in the prior year.
The effective income tax rate for fiscal 2022 of 25.8% included discrete items of $1.5 million benefit which are comprised substantially of a benefit associated with share-based compensation and unrecognized tax benefits associated with the expiration of statutes of limitations partially offset by tax expense arising from an increase in the valuation allowance on a capital loss carryforward.
The effective income tax rate for fiscal 2024 of 19.8% included discrete items totaling a benefit of $8.2 which is substantially related to a benefit associated with stock-based compensation, a reduction in unrecognized tax benefits due to the expiration of the statute of limitations, and the accrual of deferred tax assets related to state tax modifications.
This was due to increases in personnel-related costs, professional fees, and share based compensation expense during the period. Liquidity and Capital Resources Our business is capital-intensive. Our capital requirements include manufacturing equipment and materials. In addition, we have historically fueled our growth, in part, through acquisitions, including the Dodge acquisition completed on November 1, 2021.
As a percentage of net sales, Corporate SG&A was relatively flat year over year. Liquidity and Capital Resources Our business is capital-intensive. Our capital requirements include manufacturing equipment and materials. In addition, we have historically fueled our growth, in part, through acquisitions.
Selling, General and Administrative FY22 FY21 $ Change % Change SG&A $ 158.6 $ 106.0 $ 52.6 49.7 % % of net sales 16.8 % 17.4 % SG&A expenses increased by $52.6 million to $158.6 million for fiscal 2022 compared to fiscal 2021. Included in the fiscal 2022 result is $34.6 million of costs from the Dodge business.
Selling, General and Administrative FY24 FY23 $ Change % Change SG&A $ 253.5 $ 229.7 $ 23.8 10.4 % % of net sales 16.2 % 15.6 % SG&A expenses increased by $23.8 to $253.5 for fiscal 2024 compared to fiscal 2023. The increase in SG&A was primarily driven by personnel costs, IT costs and other professional fees.
Excluding the impact of Dodge, total net sales increased 6.9%, and Industrial sales increased 26.7% year over year. The increase in industrial sales reflects a pattern of sustained growth during the year, led by results in semiconductor, mining, energy, and general industrial markets. Within Aerospace/Defense, total commercial aerospace decreased 1.5% and defense decreased 7.1% year over year.
This increase in net sales was the result of an 0.2% increase in our Industrial segment, while sales in our Aerospace/Defense segment increased 20.7% year over year. Industrial segment sales remain very strong, most notably, in the mining, energy, and general industrial markets. Within Aerospace/Defense, total commercial aerospace increased 20.3% and defense increased 21.6% year over year.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
4 edited+6 added−4 removed0 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
4 edited+6 added−4 removed0 unchanged
2023 filing
2024 filing
Biggest changeWe periodically enter into derivative financial instruments in the form of forward exchange contracts to reduce the effect of fluctuations in exchange rates on certain third-party sales transactions denominated in non-functional currencies. Based on the accounting guidance related to derivatives and hedging activities, we record derivative financial instruments at fair value.
Biggest changeWe periodically enter into derivative financial instruments in the form of forward exchange contracts to reduce the effect of fluctuations in exchange rates on certain third-party sales and purchase transactions denominated in non-functional currencies. As of March 30, 2024, the Company had no forward exchange contracts. 32
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 – euro ● Switzerland – Swiss franc ● Germany – euro As a result, we are exposed to risk associated with fluctuating currency exchange rates between the U.S. dollar and these currencies.
As an international company, our operations transact in the following foreign currencies: ● 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 in fiscal 2022 compared to approximately 9% of our net sales in fiscal 2021.
Foreign currency transaction gains and losses are included in earnings. Approximately 12% of our net sales were impacted by foreign currency fluctuations in fiscal 2024 compared to approximately 12% of net sales in fiscal 2023.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign currency exchange rates. Interest Rates. We have exposure to risk associated with interest rates on the Revolver.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign currency exchange rates. Interest Rates. We currently have variable rate debt outstanding under the Term Loan Facility.
Removed
See “Liquidity and Capital Resources” in Item 7 of this Annual Report on Form 10-K. Foreign Currency Exchange Rates.
Added
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.
Removed
We expect that this proportion is likely to increase as we seek to increase our penetration of foreign markets, particularly within the aerospace and defense markets. Foreign currency transaction exposure arises primarily from the transfer of foreign currency from one subsidiary to another within the group, and to foreign-currency-denominated trade receivables.
Added
As discussed in “Liquidity and Capital Resources” in Item 7 of this Annual Report, we have utilized an interest rate swap to fix a portion of the variable rate interest expense associated with the Term Loan.
Removed
Unrealized currency translation gains and losses are recognized upon translation of the foreign operations’ balance sheets to U.S. dollars. Because our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our earnings.
Added
As of March 30, 2024, approximately 75% of our debt bears interest at a fixed rate after giving effect to the interest rate swap agreement in place. Foreign Currency Exchange Rates.
Removed
For derivative financial instruments designated and qualifying as cash flow hedges, the effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income, and is reclassified into earnings when the hedged transaction affects earnings. As of April 2, 2022, we had no derivatives. 38
Added
For those countries outside the U.S. where we have sales, a strengthening in the U.S. dollar or devaluation in the local currency would reduce the value of our local inventory as presented in our consolidated financial statements.
Added
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 or increase our operating costs, affecting our competitiveness and our profitability.
Added
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 and our results of operations.