# RBC Bearings INC: Form 10-Q for the period ended Jul 1, 2023

- Company: [RBC Bearings INC](/companies/rbc.md) (CIK 1324948)
- Form: 10-Q
- Filed: 2023-08-04
- Accepted by EDGAR: Aug 4, 2023, 16:16 ET
- Period: 2023-07-01
- Accession: 0001213900-23-063656
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1324948/000121390023063656/f10q0723_rbcbearings.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1324948/000121390023063656/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-07-01.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-02 to 2023-07-01 | $387.1m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-04-02 to 2023-07-01 | $219.2m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-02 to 2023-07-01 | $167.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-04-02 to 2023-07-01 | $64.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-02 to 2023-07-01 | $85.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-02 to 2023-07-01 | $20.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-02 to 2023-07-01 | $14.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-02 to 2023-07-01 | $50.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-02 to 2023-07-01 | $1.52 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-02 to 2023-07-01 | $1.53 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-02 to 2023-07-01 | 29,114,819 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-04-02 to 2023-07-01 | $61.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 3 months, 2023-04-02 to 2023-07-01 | $6.8m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-07-01 | $56.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-07-01 | $935.5m | us-gaap:AssetsCurrent |
| Total assets | at 2023-07-01 | $4.70bn | us-gaap:Assets |
| Current liabilities | at 2023-07-01 | $316.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-07-01 | $2.11bn | us-gaap:Liabilities |
| Long-term debt | at 2023-07-01 | $1.34bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-07-01 | $1.6m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-07-01 | $2.59bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,706 characters.

All dollar amounts in this MD&A presentation are stated in millions except for per share amounts.

### Cautionary Statement as to Forward-Looking Information

The objective of the discussion and analysis is to provide material information relevant to an assessment of the financial condition and results of operations of the Company including an evaluation of the amounts and certainty of cash flows from operations and from outside sources.

The information in this discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts, included in this quarterly report on Form 10-Q regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management are “forward-looking statements” as the term is defined in the Private Securities Litigation Reform Act of 1995.

The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation: (a) the bearing and engineered products industries are highly competitive, and this competition could reduce our profitability or limit our ability to grow; (b) the loss of a major customer, or a material adverse change in a major customer’s business, could result in a material reduction in our revenues, cash flows and profitability; (c) weakness in any of the industries in which our customers operate, as well as the cyclical nature of our customers’ businesses generally, could materially reduce our revenues, cash flows and profitability; (d) future reductions or changes in U.S. government spending could negatively affect our business; (e) fluctuating supply and costs of subcomponents, raw materials and energy resources, or the imposition of import tariffs, could materially reduce our revenues, cash flows and profitability; (f) our results could be impacted by governmental trade policies and tariffs relating to our supplies imported from foreign vendors or our finished goods exported to other countries; (g) some of our products are subject to certain approvals and government regulations and the loss of such approvals, or our failure to comply with such regulations, could materially reduce our revenues, cash flows and profitability; (h) the retirement of commercial aircraft could reduce our revenues, cash flows and profitability; (i) work stoppages and other labor problems could materially reduce our ability to operate our business; (j) unexpected equipment failures, catastrophic events or capacity constraints could increase our costs and reduce our sales due to production curtailments or shutdowns; (k) we may not be able to continue to make the acquisitions necessary for us to realize our growth strategy; (l) businesses that we have acquired (such as Dodge) or that we may acquire in the future may have liabilities that are not known to us; (m) goodwill and indefinite-lived intangibles comprise a significant portion of our total assets, and if we determine that goodwill and indefinite-lived intangibles have become impaired in the future, our results of operations and financial condition in such years may be materially and adversely affected; (n) we depend heavily on our senior management and other key personnel, the loss of whom could materially affect our financial performance and prospects; (o) our international operations are subject to risks inherent in such activities; (p) currency translation risks may have a material impact on our results of operations; (q) we are subject to changes in legislative, regulatory and legal developments involving income and other taxes; (r) we may be required to make significant future contributions to our pension plan; (s) we may incur material losses for product liability and recall-related claims; (t) environmental and health and safety laws and regulations impose substantial costs and limitations on our operations, and environmental compliance may be more costly than we expect; (u) 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; (v) cancellation of orders in our backlog could negatively impact our revenues, cash flows and profitability; (w) if we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud; (x) litigation could adversely affect our financial condition; (y) changes in accounting standards or changes in the interpretations of existing standards could affect our financial results; (z) risks associated with utilizing information technology systems could adversely affect our operations; (aa) our quarterly performance can be affected by the timing of government product inspections and approvals; (bb) we may not be able to efficiently complete the integration of Dodge into our operations; (cc) 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; (dd) we incurred substantial debt in order to complete the Dodge acquisition, which could constrain our business and exposes us to the risk of defaults under our debt instruments; and (ee) increases in interest rates would increase the cost of servicing the Term Loan and could reduce our profitability. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with the SEC, including, without limitation, the risks identified under the heading “Risk Factors” set forth in our Annual Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not intend, and undertake no obligation, to update or alter any forward-looking statement. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, that appears elsewhere in this Quarterly Report.

### Overview

We are a well-known international manufacturer and maker of highly engineered bearings and precision components. Our precision solutions are integral to the manufacture and operation of most machines and mechanical systems, reduce wear to moving parts, facilitate proper power transmission, and reduce damage and energy loss caused by friction. While we manufacture products in all major bearings categories, we focus primarily on the higher end of the bearing and engineered component markets where we believe our value-added manufacturing and engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability. We believe our expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 52 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.

Our chief operating decision maker (“CODM”) makes operating decisions, assesses the performance of the business, and allocates resources under two reportable business segments – Aerospace/Defense and Industrial:

- ***Aerospace/Defense.*** This segment represents the end markets for the Company’s highly engineered bearings and precision components used in commercial aerospace, defense aerospace, and marine and ground defense applications.
- ***Industrial.*** This segment represents the end markets for the Company’s highly engineered bearings, gearings and precision components used in various industrial applications including: power transmission; construction, mining, energy and specialized equipment manufacturing; semiconductor production equipment manufacturing; agricultural machinery, commercial truck and automotive manufacturing; and tool holding.

The markets for our products are cyclical, and we have endeavored to mitigate this cyclicality by entering into single and sole-source relationships and long-term purchase agreements, through diversification across multiple market segments within the Aerospace/Defense and Industrial segments, by increasing sales to the aftermarket, and by focusing on developing highly customized solutions.

Currently, our strategy is built around maintaining our role as a leading manufacturer of highly engineered bearings and precision components through the following efforts:

- ***Developing innovative solutions.*** By leveraging our design and manufacturing expertise and our extensive customer relationships, we continue to develop new products for markets in which there are substantial growth opportunities.
- ***Expanding customer base and penetrating end markets.*** We continually seek opportunities to access new customers, geographic locations and bearing platforms with existing products or profitable new product opportunities.
- ***Increasing aftermarket sales.*** We believe that increasing our aftermarket sales of replacement parts will further enhance the continuity and predictability of our revenues and enhance our profitability. Such sales include sales to third party distributors and sales to OEMs for replacement products and aftermarket services. The acquisition of Dodge has had a profound impact on our sales volumes to distributors and other aftermarket customers. We will further increase the percentage of our revenues derived from the replacement market by continuing to implement several initiatives.
- ***Pursuing selective acquisitions.*** The acquisition of businesses that complement or expand our operations has been and continues to be an important element of our business strategy. We believe that there will continue to be consolidation within the industry that may present us with acquisition opportunities.

### Outlook

Our net sales for the three-month period ended July 1, 2023 increased 9.3% compared to the same period last fiscal year. The increase in net sales was a result of a 4.7% increase in our Industrial segment and 21.2% increase in our Aerospace/Defense segment. Our backlog, as of July 1, 2023, was $641.1 compared to $663.8 as of April 1, 2023. These figures only include orders from our Sargent marine and Sargent aerospace businesses, which are primarily defense orders, that will be fulfilled within 12 months of the balance sheet dates. Including all orders from our Sargent marine and Sargent aerospace businesses, our backlog as of July 1, 2023 was $765.2 compared to $759.4 as of April 1, 2023.

We are continuing to see the recovery of the commercial aerospace business, which experienced a 28.3% increase in net sales for the three-month period ended July 1, 2023 versus the same period last fiscal year. We anticipate this growth to continue through the rest of the current fiscal year and beyond. Orders have continued to grow as evidenced by our backlog. Defense sales, which represented approximately 31.2% of segment sales during the quarter, were up 7.9% year over year. We expect this growth to continue throughout the current fiscal year and beyond as we are gearing up to fulfill the substantial number of marine orders in our backlog.

The increase in our Industrial sales reflected a pattern of sustained growth over the last fiscal year, with strong results in several areas. Our core industrial business during the quarter continued a pattern of growth which is expected to continue into future periods.

The Company expects net sales to be approximately $380.0 to $390.0 in the second quarter of fiscal 2024.

We believe that operating cash flows and available credit under the Revolving Credit Facility will provide adequate resources to fund internal growth initiatives for the foreseeable future, including at least the next 12 months. As of July 1, 2023, we had cash and cash equivalents of $56.7, of which approximately $32.4 was cash held by our foreign operations.

### Results of Operations

### (dollars in millions)

|  | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total net sales | $387.1 | $354.1 | $33.0 | 9.3% |
| Net income attributable to common stockholders | $44.3 | $31.7 | $12.6 | 39.7% |
| Net income per-share attributable to common stockholders: diluted | $1.52 | $1.09 |  |  |
| Weighted average common shares: diluted | 29,114,819 | 28,944,955 |  |  |

20

Our net sales for the three-month period ended July 1, 2023 increased 9.3% compared to the same period last fiscal year. Net sales in our Industrial segment increased 4.7% year over year. This reflected a pattern of sustained growth, with strong results in areas including our core industrial markets of aggregate and cement, food and beverage, mining and metals and general industrial distribution. Net sales in our Aerospace/Defense segment increased 21.2% year over year, led by commercial OEM and the aftermarket, which was up 28.3% compared to the same period in the prior year. Defense sales increased 7.9% compared to the same period in the prior year, driven by aerospace and marine. The increase in commercial aerospace reflected recovery in orders from large OEMs as build rates escalate and our expansion in the aftermarket.

Net income attributable to common stockholders for the first quarter of fiscal 2024 was $44.3 compared to $31.7 for the same period last fiscal year. Net income for the first quarter of fiscal 2023 was affected by approximately $3.8 of pre-tax transition services costs and other costs associated with the Dodge acquisition.

### Gross Margin

|  | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Gross Margin | $167.9 | $141.2 | $26.7 | 18.9% |
| % of net sales | 43.4% | 39.9% |  |  |

Gross margin was 43.4% of net sales for the first quarter of fiscal 2024 compared to 39.9% for the first quarter of fiscal 2023. The increase in gross margin as a percentage of net sales was driven by increased volumes, manufacturing efficiencies achieved and product mix.

### Selling, General and Administrative

|  | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| SG&A | $64.7 | $55.8 | $8.9 | 15.8% |
| % of net sales | 16.7% | 15.8% |  |  |

SG&A for the first quarter of fiscal 2024 was $64.7, or 16.7% of net sales, as compared to $55.8, or 15.8% of net sales, for the same period of fiscal 2023. The increase in SG&A was primarily driven by increased personnel costs, freight costs, IT costs and other professional fees.

### Other, Net

|  | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other, net | $18.2 | $20.9 | $(2.7) | (12.9)% |
| % of net sales | 4.7% | 5.9% |  |  |

Other operating expenses for the first quarter of fiscal 2024 totaled $18.2 compared to $20.9 for the same period last fiscal year. For the first quarter of fiscal 2024, other operating expenses included $17.5 of amortization of intangible assets and $0.7 of other items. For the first quarter of fiscal 2023, other operating expenses included $3.8 of transition services costs and other costs associated with the Dodge acquisition and $17.3 of amortization of intangible assets partially offset by $0.2 of other income.

### Interest Expense, Net

|  | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest expense, net | $20.5 | $15.8 | $4.7 | 29.6% |
| % of net sales | 5.3% | 4.5% |  |  |

Interest expense, net, consists of interest charged on the Company’s debt agreements and amortization of deferred financing fees, offset by interest income (see “Liquidity and Capital Resources” below). Interest expense, net, was $20.5 for the first quarter of fiscal 2024 compared to $15.8 for the same period last fiscal year. The rise in interest rates since the beginning of 2022 have resulted in additional interest expense on our variable-rate debt. As discussed within the “Liquidity and Capital Resources” section below, we have fixed the majority of our remaining variable-rate debt with an interest rate swap.

### Other Non-Operating Expense/(Income)

|  | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other non-operating expense /(income) | $0.5 | $0.8 | $(0.3) | (31.3)% |
| % of net sales | 0.1% | 0.2% |  |  |

Other non-operating expenses were $0.5 for the first quarter of fiscal 2024 compared to $0.8 for the same period in the prior year and consisted primarily of post-retirement benefit costs and foreign exchange gains and losses.

### Income Taxes

|  | Three Months Ended July 1, 2023 | July 2, 2022 |
| --- | ---: | ---: |
| Income tax expense | $14.0 | $10.5 |
| Effective tax rate | 21.9% | 21.8% |

Income tax expense for the three-month period ended July 1, 2023 was $14.0 compared to $10.5 for the three-month period ended July 2, 2022. Our effective income tax rate for the three-month period ended July 1, 2023 was 21.9% compared to 21.8% for the three-month period ended July 2, 2022. The effective income tax rate for the three-month period ended July 1, 2023 of 21.9% included $0.4 of tax benefits associated with stock-based compensation and $0.1 of tax benefits associated with other items. The effective income tax rate without discrete items for the three-month period ended July 1, 2023 would have been 22.6%. The effective income tax rate for the three-month period ended July 2, 2022 of 21.8% included $0.6 of tax benefits associated with stock-based compensation; the effective income tax rate without these items would have been 23.1%.

### Segment Information

Our CODM makes operating decisions, assesses the performance of the business, and allocates resources under two operating segments: Aerospace/Defense; and Industrial. We use segment net sales and gross margin as the primary measurements to assess the financial performance of each reportable segment.

### Aerospace/Defense Segment

|  | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total net sales | $120.5 | $99.4 | $21.1 | 21.2% |
| Gross margin | $47.3 | $38.6 | $8.7 | 22.6% |
| % of segment net sales | 39.3% | 38.8% |  |  |
| SG&A | $9.1 | $7.5 | $1.6 | 22.3% |
| % of segment net sales | 7.6% | 7.5% |  |  |

Net sales increased $21.1, or 21.2%, for the three months ended July 1, 2023 compared to the same period last fiscal year. Commercial aerospace increased during the period 28.3% year over year. This was driven by a continued recovery as build rates and orders escalate in the OEM markets and the aftermarket begins to pick up. Our defense markets, which represented approximately 31.2% of segment sales, increased by 7.9% year over year, led by improved sales in aerospace and marine. Overall distribution and aftermarket sales, which represented 20.4% of segment sales, increased 21.3% year over year.

Gross margin as a percentage of segment net sales was 39.3% for the first quarter of fiscal 2024 compared to 38.8% for the same period last fiscal year. The increase in gross margin as a percentage of net sales was driven by efficiencies achieved at the plants in part due to increased sales volumes. This margin improvement is expected to continue as the commercial aerospace industry continues to expand. In addition, we have a substantial amount of defense orders in our backlog that we are gearing up to fulfill over the next 12 months which we expect will contribute to margin expansion.

### Industrial Segment

|  | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total net sales | $266.6 | $254.7 | $11.9 | 4.7% |
| Gross margin | $120.6 | $102.6 | $18.0 | 17.5% |
| % of segment net sales | 45.2% | 40.3% |  |  |
| SG&A | $34.0 | $30.0 | $4.0 | 13.5% |
| % of segment net sales | 12.8% | 11.8% |  |  |

Net sales increased $11.9, or 4.7%, for the three months ended July 1, 2023 compared to the same period last fiscal year. The increase was primarily due to the continued performance in our core industrial markets of aggregate and cement, food and beverage, mining and metals and general industrial distribution. Sales to distribution and the aftermarket represented 68.2% of segment sales for the quarter.

Gross margin for the three months ended July 1, 2023 was 45.2% of net sales, compared to 40.3% in the comparable period in fiscal 2023. The improved gross margin was due to improved volumes, product mix and better manufacturing efficiencies achieved at the plants.

### Corporate

|  | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| SG&A | $21.6 | $18.3 | $3.3 | 17.0% |
| % of total net sales | 5.6% | 5.2% |  |  |

Corporate SG&A was $21.6, or 5.6% of net sales, for the first quarter of fiscal 2024 compared to $18.3, or 5.2% of net sales, for the same period last fiscal year. The year over year increase was primarily due to increases in personnel costs and professional fees.

### Liquidity and Capital Resources

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 in fiscal 2022. We have historically met our working capital, capital expenditure and acquisition funding needs through our net cash flows provided by operations, various debt arrangements and sales of equity to investors. We believe that operating cash flows and available credit under the Revolving Credit Facility (which expires in November 2026) will provide adequate resources to fund internal growth initiatives for the foreseeable future.

Our ability to meet future working capital, capital expenditure and debt service requirements will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, particularly interest rates, cyclical changes in our end markets and prices for steel and our ability to pass through price increases on a timely basis, many of which are outside of our control. In addition, future acquisitions could have a significant impact on our liquidity position and our need for additional funds.

From time to time, we evaluate our existing facilities and operations and their strategic importance to us. If we determine that a given facility or operation does not have future strategic importance, we may sell, relocate, consolidate or otherwise dispose of that facility or operations. Although we believe our operations would not be materially impaired by such dispositions, relocations or consolidations, we could incur significant cash or non-cash charges in connection with them.

### Liquidity

As of July 1, 2023, we had cash and cash equivalents of $56.7, of which approximately $32.4 was cash held by our foreign operations. We expect that our undistributed foreign earnings will be re-invested indefinitely for working capital, internal growth, and acquisitions for and by our foreign subsidiaries.

#### Domestic Credit Facility

The Credit Agreement, which was entered into on November 1, 2021 with Wells Fargo and the other lenders party thereto, provides the Company with (a) the $1,300.0 Term Loan, 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) the $500.0 Revolving Credit Facility. Debt issuance costs associated with the Credit Agreement totaled $14.9 and are being amortized over the life of the Credit Agreement.

Prior to December 2022, amounts outstanding under the Facilities (i.e., the Term Loan and the Revolving Credit Facility) 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 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. In December 2022 the Credit Agreement was amended to replace LIBOR with SOFR (i.e., the secured overnight financing rate administered by the Federal Reserve Bank of New York) so that borrowings under the Facilities denominated in U.S. dollars bear interest at a rate per annum equal to Term SOFR (as defined in the Credit Agreement) plus a credit spread adjustment of 0.10% plus a margin ranging from 0.75% to 2.00% depending on the Company’s consolidated ratio of total net debt to consolidated EBITDA. The Facilities are subject to a SOFR floor of 0.00%. As of July 1, 2023, the Company’s margin was 1.25% for SOFR loans, the commitment fee rate was 0.20%, and the letter of credit fee rate was 1.25%. A portion of the Term Loan is subject to a fixed-rate interest swap as discussed under “Interest Rate Swap” below.

The Term Loan matures in November 2026 and amortizes in quarterly installments with the balance payable on the maturity date. The Company can elect to prepay some or all of the outstanding balance from time to time without penalty, which will offset future quarterly amortization installments. Due to prepayments previously made, the required future principal payments on the Term Loan are $0 for fiscal 2024, $0 for fiscal 2025, $0 for fiscal 2026, and $850.0 for fiscal 2027. The Revolving Credit Facility expires in November 2026, at which time all amounts outstanding under the Revolving Credit Facility will be payable.

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. As of July 1, 2023, the Company was in compliance with all debt covenants.

The Credit Agreement allows the Company to, among other things, make distributions to stockholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the Credit Agreement.

The Company’s domestic subsidiaries have guaranteed the Company’s obligations under the Credit Agreement, and the Company’s obligations and the domestic subsidiaries’ guaranty are secured by a pledge of substantially all of the assets of the Company and its domestic subsidiaries.

As of July 1, 2023, $850.0 was outstanding under the Term Loan and approximately $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 the Company had the ability to borrow up to an additional $496.3 under the Revolving Credit Facility.

#### Senior Notes

On October 7, 2021, RBCA issued $500.0 aggregate principal amount of 4.375% Senior Notes due 2029. The net proceeds from the issuance of the Senior Notes were approximately $492.0 after deducting initial purchasers’ discounts and commissions and offering expenses.

The Senior Notes were issued pursuant to the Indenture with Wilmington Trust, National Association, as trustee. The Indenture contains covenants limiting the ability of the Company to (i) incur additional indebtedness or guarantee indebtedness, (ii) declare or pay dividends, redeem stock or make other distributions to stockholders, (iii) make investments, (iv) create liens or use assets as security in other transactions, (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of its assets, (vi) enter into transactions with affiliates, and (vii) sell or transfer certain assets. These covenants contain various exceptions, limitations and qualifications. At any time that the Senior Notes are rated investment grade, certain of these covenants will be suspended.

The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by RBC Bearings and certain of RBCA’s existing and future wholly-owned domestic subsidiaries that also guarantee the Credit Agreement.

Interest on the Senior Notes accrues at a rate of 4.375% and is payable semi–annually in cash in arrears on April 15 and October 15 of each year.

The Senior Notes will mature on October 15, 2029. The Company may redeem some or all of the Senior Notes at any time on or after October 15, 2024 at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also redeem up to 40% of the Senior Notes using the proceeds of certain equity offerings completed before October 15, 2024, at a redemption price equal to 104.375% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to October 15, 2024, the Company may redeem some or all of the Senior Notes at a price equal to 100% of the principal amount, plus a “make–whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company sells certain of its assets or experiences specific kinds of changes in control, the Company must offer to purchase the Senior Notes.

#### Foreign Borrowing Arrangements

One of our foreign subsidiaries, Schaublin, entered into a credit agreement in 2019 with Credit Suisse (Switzerland) Ltd. to provide Schaublin with a CHF 15.0 (approximately $15.4 USD) revolving credit facility, which was terminated in October 2022. Schaublin now has a CHF 5.0 (approximately $5.4 USD) revolving credit facility with Credit Suisse to provide future working capital, if necessary. As of July 1, 2023, $0.1 of the new facility was being utilized to provide a bank guarantee. Fees associated with the new facility are nominal.

#### Interest Rate Swap

The Company is exposed to market risks relating to fluctuations in interest rates.

To hedge against this risk, on October 28, 2022, the Company entered into the Swap with a third-party financial counterparty under the Credit Agreement. The Swap was executed to protect the Company from interest rate volatility on our variable-rate Term Loan. The Swap became effective on December 30, 2022 and is comprised of a $600.0 notional with a maturity of three years. RBC receives a variable rate based on one-month Term SOFR and pays a fixed rate of 4.455%. The notional on the Swap amortizes as follows:

Year 1: $600.0

The Swap has been designated as a cash flow hedge of the variability of the first unhedged interest payments (the hedged transactions) paid over the hedging relationship’s specified time period of three years attributable to the borrowing’s contractually specified interest index on the hedged principal of its general borrowing program or replacement or refinancing thereof.

### Cash Flows

### Three-month Period Ended July 1, 2023 Compared to the Three-month Period Ended July 2, 2022

The following table summarizes our cash flow activities:

| Net cash provided by/(used in): | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change |
| --- | ---: | ---: | ---: |
| Operating activities | $61.7 | $59.0 | $2.7 |
| Investing activities | (6.5) | 15.2 | (21.7) |
| Financing activities | (63.6) | (136.4) | 72.8 |
| Effect of exchange rate changes on cash | (0.3) | (1.1) | 0.8 |
| Increase/(decrease) in cash and cash equivalents | $(8.7) | $(63.3) | $54.6 |

During the first three months of fiscal 2024, we generated cash of $61.7 from operating activities compared to $59.0 during the same period of fiscal 2023. The increase of $2.7 was the result of an increase in net income of $12.6 and a favorable change in non-cash activity of $3.3, partially offset by the unfavorable impact of the net change in operating assets and liabilities of $13.2. The unfavorable change in operating assets and liabilities is detailed in the table below. The change in non-cash activity was driven by $1.6 increase in stock-based compensation, $1.5 increase in deferred taxes, $1.1 increase in depreciation and amortization, $0.3 increase in consolidation and restructuring charges and $0.2 increase in loss on asset dispositions, partially offset by $1.4 less amortization of deferred financing costs.

The following table summarizes the impact of operating assets and liabilities for fiscal 2024 versus fiscal 2023.

| Cash provided by/(used in): | Three Months Ended July 1, 2023 | July 2, 2022 | $ Change |
| --- | ---: | ---: | ---: |
| Accounts receivable | $(12.0) | $11.4 | $(23.4) |
| Inventory | (15.6) | (28.2) | 12.6 |
| Prepaid expenses and other current assets | (2.1) | (2.8) | 0.7 |
| Other noncurrent assets | (2.6) | (4.3) | 1.7 |
| Accounts payable | (6.8) | 3.7 | (10.5) |
| Accrued expenses and other current liabilities | 13.0 | 13.3 | (0.3) |
| Other noncurrent liabilities | 2.2 | (3.8) | 6.0 |
| Total change in operating assets and liabilities: | $(23.9) | $(10.7) | $(13.2) |

During the first three months of fiscal 2024, we used $6.5 for investing activities as compared to $15.2 generated in the first three months of fiscal 2023. This decrease from cash generated to cash used was primarily attributable to favorable Dodge acquisition purchase price adjustments during the first three months of fiscal 2023 of $23.0, partially offset by a $1.2 decrease in capital expenditures and a $0.1 increase in proceeds from the sale of assets.

During the first three months of fiscal 2024, we used cash of $63.6 for financing activities compared to $136.4 in the first three months of fiscal 2023. This decrease in cash used was primarily attributable to $74.0 fewer payments made on outstanding debt and $0.1 fewer principal payments made on finance lease obligations, partially offset by a $0.8 increase in repurchases of common stock and $0.5 fewer exercises of stock-based awards.

### Capital Expenditures

Our capital expenditures were $6.7 for the three-month period ended July 1, 2023 compared to $7.9 for the three-month period ended July 2, 2022. We expect to make additional capital expenditures of $25.0 to $30.0 during the remainder of fiscal 2024 in connection with our existing business. We expect to fund these capital expenditures principally through existing cash and internally generated funds. We may also make substantial additional capital expenditures in connection with acquisitions.

### Obligations and Commitments

The Company’s fixed contractual obligations and commitments are primarily comprised of our debt obligations disclosed in Part I, Item 1- Note 10 of this report. We also have lease obligations which are materially consistent with what we disclosed in our Annual Report.

### Other Matters

### Critical Accounting Policies and Estimates

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements in our Annual Report describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results in these areas could differ from management’s estimates. There were no significant changes in our critical accounting estimates during the first three months of fiscal 2024.

### Off-Balance Sheet Arrangements

The Company has $3.7 of outstanding standby letters of credit, all of which are under the Revolving Credit Facility. We also have a contractual obligation for licenses related to the implementation and upgrade of an enterprise resource planning (“ERP”) system for Dodge. These license costs of $10.5 are being incurred over the five-year period from the execution of the license agreement in May 2022.

Other than the items noted above, we had no significant off-balance sheet arrangements as of July 1, 2023.

## Market risk

As filed, 2,730 characters.

We are exposed to market risks that arise during the normal course of business from changes in interest rates and foreign currency exchange rates.

*Interest Rates.* We currently have variable rate debt outstanding under the Term Loan. We regularly evaluate the impact of interest rate changes on our net income and cash flow and take action to limit our exposure when appropriate. As discussed in Note 13 in Part I, Item I of this report, we have utilized an interest rate swap to fix a portion of the variable rate interest expense associated with the Term Loan.

*Foreign Currency Exchange Rates.* Our operations in the following countries utilize the following currencies as their functional currency:

|  |  |  |  |
| --- | --- | --- | --- |
| ● | Australia – Australian dollar | ● | India – rupee |
| ● | Canada – Canadian dollar | ● | Mexico – peso |
| ● | China – Chinese yuan | ● | Poland – zloty |
| ● | France and Germany – euro | ● | Switzerland – Swiss franc |

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 12% of our net sales were impacted by foreign currency fluctuations for both the three-month period ended July 1, 2023 and the three-month period ended July 2, 2022. For those countries outside the U.S. where we have sales, a strengthening in the U.S. dollar as we have seen over the past few years or devaluation in the local currency would reduce the value of our local inventory as presented in our Consolidated Financial Statements. In addition, a stronger U.S. dollar or a weaker local currency would result in reduced net sales, operating profit and shareholders’ equity due to the impact of foreign exchange translation on our Consolidated Financial Statements. Fluctuations in foreign currency exchange rates may make our products more expensive for others to purchase or increase our operating costs, affecting our competitiveness and our profitability.

Changes in exchange rates between the U.S. dollar and other currencies and volatile economic, political and market conditions in emerging market countries have in the past adversely affected our financial performance and may in the future adversely affect the value of our assets located outside the United States, our gross profit and our results of operations.

We periodically enter into derivative financial instruments 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. As of July 1, 2023, the Company had no forward exchange contracts.

## Controls and procedures

As filed, 1,401 characters.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of July 1, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of July 1, 2023, our disclosure controls and procedures were (1) designed to ensure that information relating to our Company required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported to our Chief Executive Officer and Chief Financial Officer within the time periods specified in the rules and forms of the SEC, and (2) effective, in that they provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the three-month period ended July 1, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

## Risk factors

As filed, 365 characters.

There have been no material changes to our risk factors and uncertainties since the filing of our Annual Report with the SEC on May 19, 2023. For a discussion of the risk factors, refer to Part I, Item 2, “Cautionary Statement as to Forward-Looking Information” contained in this quarterly report and Part I, Item 1A, “Risk Factors,” contained in our Annual Report.

Filed Aug 4, 2023.
Source: SEC EDGAR, the filing index for accession 0001213900-23-063656. Last ingested by Listed: Nov 5, 2026, 21:41 ET. No prices; not investment advice.