RBC Bearings INC: Form 10-Q for the period ended Jun 28, 2025

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, could materially reduce our revenues, cash flows and profitability; (f) our results could be impacted by U.S. governmental trade policies and tariffs relating to the components and supplies we import from foreign vendors and foreign governmental trade policies and tariffs relating to 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 VACCO) or that we may acquire in the future may have liabilities that are not known to us; (m) goodwill and indefinite-lived intangibles comprise a significant portion of our total assets, and if we determine that goodwill and indefinite-lived intangibles have become impaired in the future, our results of operations and financial condition in such years may be materially and adversely affected; (n) we depend heavily on our senior management and other key personnel, the loss of whom could materially affect our financial performance and prospects; (o) our international operations are subject to risks inherent in such activities; (p) currency translation risks may have a material impact on our results of operations; (q) we may incur material losses for product liability and recall-related claims; (r) our intellectual property and proprietary information are valuable, and any inability to protect them could adversely affect our business and results of operations; in addition, we may be subject to infringement claims by third parties; (s) cancellation of orders in our backlog could negatively impact our revenues, cash flows and profitability; (t) our failure to maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on the Company’s financial condition and the trading price of our common stock; (u) risks associated with utilizing information technology systems could adversely affect our operations; (v) our quarterly performance can be affected by the timing of government product inspections and approvals; (w) we incurred substantial debt in order to complete the Dodge and VACCO acquisitions, which could constrain our business and exposes us to the risk of defaults under our debt instruments; (x) increases in interest rates would increase the cost of servicing the Term Loan and Revolving Credit Facility and could reduce our profitability; and (y) fluctuations in interest rates and foreign exchange rates could impact future earnings and cash flows related to our Interest Rate Swap and Cross Currency Swap. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with the SEC, including, without limitation, the risks identified under the heading “Risk Factors” set forth in our Annual Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not intend, and undertake no obligation, to update or alter any forward-looking statement.

The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, that appears elsewhere in this Quarterly Report.

Overview

We are a leading international manufacturer of highly engineered precision bearings, components and essential systems for the aerospace, defense and industrial industries. Our precision solutions are integral to the manufacture and operation of most machines and mechanical systems, reduce wear to moving parts, facilitate proper power transmission, and reduce damage and energy loss caused by friction. While we manufacture products in all major bearing categories, we focus primarily on the higher end of the bearing market where we believe our value-added manufacturing and engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability. We believe our unique expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 60 facilities in 11 countries, of which 42 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach. We have a fiscal year consisting of 52 or 53 weeks, ending on the Saturday closest to March 31. Based on this policy, fiscal 2026 will have 52 weeks and fiscal 2025 had 52 weeks. Both the first quarter of fiscal 2026 and the first quarter of fiscal 2025 had 13 weeks.

We currently operate 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, defense marine, defense ground vehicles, missiles and guided munitions, and space and satellite applications.
• Industrial. This segment represents the end markets for the Company’s highly engineered bearings, gearing and precision components used in various industrial applications including: construction, mining, forestry, energy, agricultural and other machinery; aggregate and cement handling; food and beverage manufacturing; grain, and agricultural product handling; metals and mining material handling; chemicals, oil and gas production; warehousing and logistics; manufacturing automation and semiconductor equipment; power generation; waste and water management; rail and transportation.

We use gross margin as the primary measurement to assess the financial performance of each reportable segment. End market and channel sales within our segments are based on internal definitions and metrics considered by management and are periodically reviewed and updated prospectively.

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. We can 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.

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. Since 1992 we have completed 30 acquisitions, including VACCO, which we acquired on July 18, 2025. These acquisitions have broadened our end markets, products, customer base and geographic reach.

Outlook

Our net sales for the three-month period ended June 28, 2025 increased 7.3% compared to the same period last fiscal year. The increase in net sales was a result of a 10.4% increase in our Aerospace/Defense segment and a 5.5% increase in our Industrial segment. Our backlog, as of June 28, 2025 was $1,017.3 compared to $940.7 as of March 29, 2025.

We are continuing to see the expansion of the commercial aerospace business, which experienced a 9.6% increase in net sales for the three-month period ended June 28, 2025 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 the increase in our backlog. Defense sales, which represented approximately 35.2% of segment sales during the quarter, were up 11.9% quarter over quarter. We expect this growth to continue throughout the current fiscal year and beyond as we are gearing up to fulfill the substantial number of defense orders in our backlog. Our industrial business continued to demonstrate strength in distribution across several major end markets, notably including mining and metals, warehousing, and aggregates.

The Company expects net sales to be approximately $445.0 to $455.0 in the second quarter of fiscal 2026, an increase of 11.8% to 14.4% compared to the second quarter of fiscal 2025.

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 June 28, 2025, we had cash of $132.9, of which approximately $28.0 was cash held by our foreign operations, although in July 2025 we used $75.0 of our domestic cash to fund a portion of the purchase price for VACCO.

Results of Operations

Our net sales for the three-month period ended June 28, 2025 increased 7.3% compared to the same period last fiscal year. Net sales in our Industrial segment increased 5.5% quarter over quarter against a strong quarter in the prior fiscal year. Aggregate and cement, and warehousing, parcel & baggage were very strong while semicon sales showed weakness compared to the prior year. Net sales in our Aerospace/Defense segment increased 10.4% quarter over quarter, led by Defense sales, which were up 11.9% compared to the same period in the prior fiscal year, driven by marine. Commercial OEM and the aftermarket sales increased 9.6% compared to the same period in the prior fiscal year. The increase in commercial aerospace sales reflected growth in orders from large OEMs as build rates escalated, as well as expansion in the aftermarket.

Net income attributable to common stockholders for the first quarter of fiscal 2026 was $68.5 compared to $55.7 for the same period last fiscal year.

Gross Margin

Gross margin remained strong at 44.8% of net sales for the first quarter of fiscal 2026 compared to 45.3% for the first quarter of fiscal 2025. Gross margin in fiscal 2026 was impacted by $2.9 in restructuring costs related to inventory rationalization efforts at one of our manufacturing plants.

Selling, General and Administrative

SG&A for the first quarter of fiscal 2026 was $73.9, or 16.9% of net sales, as compared to $67.6, or 16.6% of net sales, for the same period of fiscal 2025. The increase in SG&A was primarily driven by increased personnel costs and IT costs.

Other, Net

Other operating expenses for the first quarter of fiscal 2026 totaled $20.2 compared to $18.9 for the same period last fiscal year. For the first quarter of fiscal 2026, other operating expenses included $17.9 of amortization of intangible assets, $1.2 of restructuring costs, $0.1 of acquisition costs and $1.0 of other expense items. For the first quarter of fiscal 2025, other operating expenses included $17.8 of amortization of intangible assets and $1.1 of other items.

Interest Expense, Net

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 $12.2 for the first quarter of fiscal 2026 compared to $17.2 for the same period last fiscal year. The decrease in interest expense between the periods was due to the debt reduction efforts, as well as the Cross Currency Swap, which has enabled us to better manage interest costs.

Other Non-Operating Expense

Other non-operating expenses were $1.2 for the first quarter of fiscal 2026 compared to $0.4 for the same period in the prior fiscal year and consisted primarily of post-retirement benefit costs and foreign exchange gains and losses.

Income Taxes

24

Income tax expense for the three-month period ended June 28, 2025 was $19.2 compared to $18.5 for the three-month period ended June 29, 2024. Our effective income tax rate for the three-month period ended June 28, 2025 was 21.9% compared to 23.1% for the three-month period ended June 29, 2024. The effective income tax rate for the three-month period ended June 28, 2025 of 21.9% included $2.3 of tax benefits associated with stock-based compensation partially offset by $1.3 of other items. The effective income tax rate without discrete items for the three-month period ended June 28, 2025 would have been 23.1%. The effective income tax rate for the three-month period ended June 29, 2024 of 23.1% included $0.6 of discrete tax benefits associated with stock-based compensation. The effective income tax rate without discrete items for the three-month period ended June 29, 2024 would have been 23.8%.

Segment Information

We report our financial results under two operating segments: Aerospace/Defense and Industrial. The CODM uses gross margin as the primary measurement to assess the financial performance of each reportable segment. End market and channel sales within our segments are based on internal definitions and metrics considered by management and are periodically reviewed and updated prospectively. For the first quarter of fiscal year 2025, we estimate approximately $2.0 of sales classified as Industrial would now be classified as Aerospace/Defense. The first quarter of fiscal year 2025 was not recast to reflect this change.

Aerospace/Defense Segment

Net sales increased $15.5, or 10.4%, for the three months ended June 28, 2025 compared to the same period last fiscal year. Our commercial aerospace markets, which consisted of $83.6 of OEM sales and $23.0 of distribution and aftermarket sales, increased by 9.6% compared to fiscal 2025 when OEM net sales were $78.5 and distribution and aftermarket net sales were $18.8. The OEM markets have continued to improve as build rates have steadily increased over the last several months. We have also been expanding our footprint in the aftermarket as air travel has continued to increase year over year. Our defense markets, which consisted of $40.6 of OEM and $17.4 of distribution and aftermarket, increased by 11.9% compared to fiscal 2025 when OEM net sales were $40.2 and distribution and aftermarket net sales were $11.6. The increase in defense sales was driven by marine and missiles and reflects continued growth in demand which is evident by our growing backlog.

Gross margin as a percentage of segment net sales was 42.6% for the first quarter of fiscal 2026 compared to 42.3% for the same period last fiscal year. The increase in gross margin as a percentage of net sales was primarily driven by efficiencies achieved at the plants in part due to increased sales volumes and favorable product mix. This margin profile is expected to continue as the commercial aerospace industry continues to expand and we continue to enhance our manufacturing processes.

Industrial Segment

Net sales increased $14.2, or 5.5%, for the three months ended June 28, 2025 compared to the same period last fiscal year. We saw improvements in nearly all of our end markets, including mining and metals, warehousing and food and beverage, partially offset by softness in semicon. Industrial OEM sales were $78.5 and $81.8 for the three month periods ended June 28, 2025 and June 29, 2024, respectively. Industrial sales to distribution and the aftermarket were $192.9 and $175.4 for the three month periods ended June 28, 2025 and June 29, 2024, respectively.

Gross margin for the three months ended June 28, 2025 was 46.1% of net sales, compared to 47.0% in the comparable period in fiscal 2025. Gross margin in fiscal 2026 was impacted by $2.9 in restructuring costs related to inventory rationalization efforts at one of our manufacturing plants.

Corporate

Corporate SG&A was $27.3, or 6.3% of net sales, for the first quarter of fiscal 2026 compared to $23.2, or 5.7% of net sales, for the same period last fiscal year. The quarter over quarter increase was primarily due to an increase in personnel costs.

Liquidity and Capital Resources

Our capital requirements include manufacturing equipment and materials. We have historically fueled our growth, in part, through acquisitions. We have historically met our working capital, capital expenditure and acquisition funding needs through our net cash flows provided by operations, various debt arrangements and public sales of equity. We believe that operating cash flows and available credit under the Revolving Credit Facility (which expires in November 2026) will provide adequate resources to fund internal growth initiatives for at least the next 12 months.

Our ability to meet future working capital, capital expenditure and debt service requirements will depend on our future financial performance, which could be affected by a range of economic, competitive and business factors, many of which are outside of our control. These include interest rates, cyclical changes in our end markets, the imposition of trade tariffs, increased prices for steel and other supplies, and our ability to pass through tariffs and price increases on a timely basis. 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 June 28, 2025, we had cash of $132.9, of which approximately $28.0 was cash held by our foreign operations, although in July we used $75.0 of our domestic cash to fund a portion of the purchase price of VACCO. 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, with the exception of our Canadian operations as there are no current plans to expand the sales operations within that jurisdiction. As discussed in further detail below, we also have the ability to borrow money from our existing credit facilities.

Domestic Credit Facility

The Credit Agreement, which was entered into in fiscal 2022, provides the Company with (a) the $1,300.0 Term Loan, which was used to fund a portion of the purchase price for the acquisition of Dodge and to pay related fees and expenses, and (b) the $500.0 Revolving Credit Facility. Debt issuance costs associated with the Credit Agreement totaled $14.9 and are being amortized over the life of the Credit Agreement.

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 0.50% and (iii) Term SOFR plus 1.00% or (b) Term SOFR 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 June 28, 2025, the Company’s margin was 1.00% for SOFR loans, the commitment fee rate was 0.175%, and the letter of credit fee rate was 1.00%. A portion of the Term Loan is subject to a fixed-rate interest swap.

The Term Loan matures in November 2026 and amortizes in quarterly installments with the balance payable on the maturity date. The Company can elect to prepay some or all of the outstanding balance from time to time without penalty, which will offset future quarterly amortization installments. Due to prepayments previously made, the required future principal payments on the Term Loan are $0 for fiscal 2026, and $413.0 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 June 28, 2025, 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 June 28, 2025, $413.0 was outstanding under the Term Loan and $3.7 of the Revolving Credit Facility was being utilized to provide letters of credit to secure the Company’s obligations relating to certain insurance programs. The Company had the ability to borrow an additional $496.3 under the Revolving Credit Facility as of June 28, 2025. Following the $200.0 draw on the Revolving Credit Facility on July 18, 2025 to fund a portion of the purchase price for VACCO, there was $296.3 of undrawn capacity under the Revolving Credit Facility.

Senior Notes

In fiscal 2022, RBCA issued $500.0 aggregate principal amount of the Senior Notes. The net proceeds from the issuance of the Senior Notes were approximately $492.0, after deducting initial purchasers’ discounts and commissions and offering expenses, and were used to fund a portion of the cash purchase price for the acquisition of Dodge.

The Senior Notes were issued pursuant to an indenture with Wilmington Trust, National Association, as trustee. This 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 at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company sells certain of its assets or experiences specific kinds of changes in control, the Company must offer to repurchase the Senior Notes.

Foreign Borrowing Arrangements

The Foreign Credit Line provides Schaublin SA with a CHF 5.0 (approximately $6.1 USD) credit line to provide future working capital, if necessary. As of June 28, 2025, $0.1 was being utilized to provide a bank guarantee. Fees associated with the Foreign Credit Line are nominal.

In July 2024, Swiss Tool Systems, one of our foreign subsidiaries, purchased the building where it operates for CHF 7.1 (approximately $8.4 USD) and took out a 10-year, 2.9% fixed-rate mortgage on the building for CHF 4.0 (approximately $4.5 USD).

Interest Rate Swap

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

To hedge against this risk, in fiscal 2023, the Company entered into the Interest Rate Swap with a third-party financial counterparty under the Credit Agreement. The Interest Rate Swap was executed to protect the Company from interest rate volatility on our variable-rate Term Loan. The Interest Rate Swap became effective December 30, 2022 and is comprised of a $600.0 notional with a maturity of three years. The notional was $100.0 as of June 28, 2025. We receive a variable rate based on one-month Term SOFR and pay a fixed rate of 4.455%. The notional on the Interest Rate Swap amortizes as follows:

Year 1: $600.0

Year 2: $400.0

Year 3: $100.0

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

Cross Currency Swap

The Company is exposed to foreign exchange rate fluctuations as some of our subsidiaries operate in various countries.

On August 12, 2024, the Company entered into the Cross Currency Swap with a third-party financial counterparty. The objective of the Cross Currency Swap is to economically hedge the Company’s net investment in its lower-tier European subsidiary, Schaublin, against adverse changes in the Swiss franc/U.S. dollar exchange rate. The Cross Currency Swap is based upon a net investment of CHF 69.4 ($80.0 USD) notional amount with a three-year maturity date. RBC receives a fixed U.S. dollar amount on a month-to-month basis based upon a fixed annual rate of 2.77% of the notional amount. At maturity, RBC will net-settle the principal of the Cross Currency Swap in cash with the counterparty. The Cross Currency Swap has been designated as a net investment hedge on an after-tax basis.

Preferred Stock

Prior to October 15, 2024, the Company had outstanding 4,600,000 shares of MCPS to which we paid a quarterly dividend aggregating $5.75, but on that date each then-outstanding share of the MCPS converted into 0.4413 shares of common stock, resulting in the retirement of the MCPS and the issuance of 2,029,955 shares of common stock. Because the MCPS is no longer outstanding, the Company will not pay MCPS dividends in the future, resulting in a cash savings of $23.0 per year.

Cash Flows

Three-month Period Ended June 28, 2025 Compared to the Three-month Period Ended June 29, 2024

The following table summarizes our cash flow activities:

During the first three months of fiscal 2026, we generated cash of $120.0 from operating activities compared to $97.4 during the same period of fiscal 2025. The increase of $22.6 was the result of an increase in net income of $7.1, a favorable change in operating assets and liabilities of $12.9 and a favorable impact of non-cash activity of $2.6. The favorable change in operating assets and liabilities is detailed in the table below. The change in non-cash activity was driven by $0.1 more stock-based compensation, $0.2 more amortization of deferred financing costs and $3.8 more restructuring costs, offset by $0.4 less in depreciation and amortization, $0.5 less deferred taxes and a $0.6 gain on asset dispositions.

The following table summarizes the impact on cash flow from operating assets and liabilities for the first quarter of fiscal 2026 versus the first quarter of fiscal 2025.

During the first three months of fiscal 2026, we used $15.7 for investing activities as compared to $9.0 used in the first three months of fiscal 2025. This increase in cash used was attributable to a $6.7 increase in capital expenditures.

During the first three months of fiscal 2026, we used cash of $7.9 for financing activities compared to $74.7 in the first three months of fiscal 2025. This decrease in cash used was primarily attributable to $60.0 less payments made on the Term Loan, $5.7 less in preferred stock dividends paid and $10.3 more in exercises of stock-based awards partially offset by $5.0 more repayments of revolving credit facilities, $4.1 more repurchases of common stock and $0.1 more payments on finance lease obligations.

Capital Expenditures

Our capital expenditures were $15.7 for the three-month period ended June 28, 2025 compared to $9.0 for the three-month period ended June 29, 2024. We expect capital expenditures for fiscal 2026 will be between 3.0% to 3.5% of our net sales for the fiscal year. 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 the Credit Agreement and the Senior Notes. 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 quarter of fiscal 2026.

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 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. As of June 28, 2025, approximately 66% of our debt bears interest at a fixed rate, after giving effect to the interest rate swap agreement in place.

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

As a result, we are exposed to risk associated with fluctuating currency exchange rates between the U.S. dollar and these currencies. Foreign currency transaction gains and losses are included in earnings. Approximately 11% of our net sales were impacted by foreign currency fluctuations for both the three-month period ended June 28, 2025 and the three-month period ended June 29, 2024. 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. 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 June 28, 2025, the Company had a cross currency swap, which is discussed in further detail within Notes 6 and 13 in Part I, Item 1 of this report.

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 June 28, 2025. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 28, 2025, 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 June 28, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

There have been no material changes to our risk factors and uncertainties since the filing of our Annual Report with the SEC on May 16, 2025. 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.