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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended June 29, 2002
-------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ______ to ________
Commission file number: 333-33085
---------
ROLLER BEARING COMPANY OF AMERICA, INC.
---------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3426227
-------- ----------
(State or other jurisdiction (IRS Employer Identification Number)
incorporation)
60 ROUND HILL ROAD, FAIRFIELD, CT 06430
(Address of principal executive offices) (Zip code)
203-255-1511
------------
Registrant's Telephone Number:
Indicate by check mark the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
preceding twelve (12) months (or for shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 12, 2002
---------------------------- ------------------------------
Common stock, $.01 par value 100
ROLLER BEARING COMPANY OF AMERICA, INC.
INDEX
PAGE
Part I Financial Information
Item 1. Consolidated Balance Sheets -
At June 29, 2002 (unaudited) and March 30, 2002 3
Consolidated Statements of Operations - Three months ended
June 29, 2002 (unaudited) and June 30, 2001 (unaudited) 4
Consolidated Statements of Cash Flows Three months ended June
29, 2002 (unaudited)
and June 30, 2001 (unaudited) 5
Notes to Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-16
Item 3. Quantitative and Qualitative Disclosure of Market Risk 16
Part II Other Information 17
Signatures 18
2
PART I
ITEM 1. FINANCIAL INFORMATION
ROLLER BEARING COMPANY OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 29, MARCH 30,
2002 2002
(UNAUDITED) *
----------- --------
ASSETS
Current assets:
Cash $ 16,472 $ 7,178
Accounts receivable, net of allowance for doubtful accounts
of $631 at June 29, 2002 and $621 at March 30, 2002 31,339 38,415
Inventories 81,108 76,605
Prepaid expenses and other current assets 4,840 5,127
-------- --------
Total current assets 133,759 127,325
-------- --------
Property, plant and equipment, net 58,989 59,536
Restricted marketable securities 1,255 1,255
Goodwill, net of accumulated amortization
of $6,624 at June 29, 2002 and March 30, 2002 25,150 25,150
Deferred financing costs, net of accumulated amortization of $5,070 at
June 29, 2002 and $4,776 at March 30, 2002 5,920 3,413
Other assets 1,366 1,342
-------- --------
Total assets $226,439 $218,021
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 12,838 $ 13,880
Accrued expenses and other current liabilities 10,742 12,312
Current portion of long-term debt 7,672 31,594
Obligations under capital leases, current portion 493 533
-------- --------
Total current liabilities 31,745 58,319
-------- --------
Long-term debt 164,258 130,135
Capital lease obligations, less current portion 56 148
Other non-current liabilities 16,096 16,046
-------- --------
Total liabilities 212,155 204,648
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock - $.01 par value; 1,000 shares
authorized; issued and outstanding shares:
100 shares at June 29, 2002 and at March 30, 2002 -- --
Additional paid-in capital 9,708 9,708
Currency translation adjustment 174 88
Retained (deficit) earnings 4,402 3,577
-------- --------
Total stockholder's equity 14,284 13,373
Total liabilities and stockholder's equity $226,439 $218,021
======== ========
* Balances were derived from the audited balance sheet as of March 30, 2002
See Notes to Consolidated Financial Statements
3
ROLLER BEARING COMPANY OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
-------------------------
JUNE 29, JUNE 30,
2002 2001
------- -------
Net sales $38,521 $40,170
Cost of sales 27,065 27,277
------- -------
Gross margin 11,456 12,893
Operating expenses:
Selling, general and administrative 6,269 6,188
Other expense, net of other income 19 196
------- -------
6,288 6,384
Operating income 5,168 6,509
Interest expense, net 3,766 4,141
Minority interest 4 4
------- -------
Income before taxes 1,398 2,364
Provision for income taxes 573 970
------- -------
Net income $ 825 $ 1,394
======= =======
See Notes to Consolidated Financial Statements
4
ROLLER BEARING COMPANY OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED
JUNE 29, JUNE 30,
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 825 $ 1,394
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 2,246 2,297
Minority interest 4 4
Amortization of goodwill -- 200
Amortization of deferred financing costs 293 231
Changes in working capital, net of acquisitions:
(Increase) decrease in accounts receivable 7,076 6,718
(Increase) decrease in inventories (4,503) (3,297)
(Increase) decrease in prepaid expenses & other current assets 287 (664)
(Increase) decrease in other non-current assets (454) 27
Increase (decrease) in accounts payable & accrued expenses (2,272) (1,860)
Increase (decrease) in other non-current liabilities 45 4
-------- --------
Net cash provided by operating activities 3,547 5,054
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment, net (1,610) (1,724)
Sale of restricted marketable securities -- 445
-------- --------
Net cash used in investing activities (1,610) (1,279)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in revolving credit facility (28,500) (500)
Proceeds from long term debt 40,000 --
Financing fees paid in connection with the credit facility (2,800) --
Payments of bank term loan (1,841) (1,640)
Principal payments on capital lease obligations (132) (211)
-------- --------
Net cash (used in) provided by financing activities 6,727 (2,351)
CASH AND CASH EQUIVALENTS:
Effect of exchange rate changes 630 (64)
Increase during the period 9,294 1,360
Cash, at beginning of year 7,178 3,126
-------- --------
Cash, at end of period $ 16,472 $ 4,486
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,099 $ 6,575
======== ========
Income taxes $ 99 $ 59
======== ========
See Notes to Consolidated Financial Statements
5
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
The consolidated financial statements included herein have been prepared by
Roller Bearing Company of America, Inc. (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. The
fiscal year end balance sheet data was derived from the Company's audited
financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States. The interim
financial statements furnished with this report have been prepared on a
consistent basis with the Company's audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended March 30, 2002 (the "Form 10-K"). These statements reflect all
adjustments, consisting only of items of a normal recurring nature, which are,
in the opinion of management, necessary for the fair statement of the
consolidated financial condition and consolidated results of operations for the
interim periods presented. These financial statements should be read in
conjunction with the Company's audited financial statements and notes thereto
included in the Form 10-K.
The results of operations for the three month period ended June 29, 2002 are not
necessarily indicative of the operating results for the full year.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Industrial Tectonics Bearings Corporation
("ITB"), RBC Linear Precision Products ("LPP"), RBC Nice Bearings, Inc.
("Nice"), Bremen Bearings, Inc. ("Bremen"), Miller Bearings, Inc. ("Miller"),
Tyson Bearings, Inc. ("Tyson"), RBC Schaublin S.A. ("Schaublin"), OBB
Acquisition Corp. ("OBB") and Roller Bearing Company FSC, Inc. ("FSC"). All
material intercompany balances and transactions have been eliminated.
All references to "Holdings" refer to Roller Bearing Holding Company, Inc., a
Delaware corporation, and the parent and sole stockholder of the Company.
1. Debt
The Company and its domestic subsidiaries entered into a $94 million senior
secured credit facility, dated May 30, 2002, with General Electric Capital
Corporation as agent and lender, Congress Financial Corporation (Western) as
lender, GECC Capital Markets Group as lead arranger and other lenders signatory
thereto from time to time, consisting of a $40 million term loan and a
$54 million revolving credit facility. In connection with the new credit
facility the Company and its domestic subsidiaries granted liens and mortgages
on substantially all of their existing and after-acquired personal and real
property. In addition, the Company pledged all of its capital stock in its
domestic subsidiaries and a portion of its capital stock in its directly owned
foreign subsidiaries.
The proceeds of the term loan were used to pay off the Company's senior credit
facility, dated June 23, 1997, by and between the Company, Credit Suisse First
Boston, as administrative agent and the lenders thereto, to pay fees and
expenses with respect to the new credit facility and for other corporate
purposes. In addition, the Company has secured the letters of credit issued in
connection with its existing senior credit facility pursuant to its new credit
facility. The revolving credit facility is available for issuances of letters of
credit and for loans in connection with acquisitions, working capital needs or
other general corporate purposes.
On June 23, 1997, pursuant to a Redemption and Warrant Purchase Agreement dated
May 20, 1997, Holdings effected a recapitalization of its outstanding capital
stock (including the financing and other transactions consummated by Holdings,
the Company and its subsidiaries in connection therewith, the
"Recapitalization"). In connection with the financing of the Recapitalization,
the Company issued $110,000 aggregate principal amount of 9 5/8% Senior
Subordinated Notes due 2007 (the "Notes"). The Notes pay interest semiannually
and
6
mature on June 15, 2007, but may be redeemed at the Company's option beginning
on June 15, 2002, or earlier under certain conditions specified in the indenture
pursuant to which the Notes were issued (the "Indenture"). The Notes are
unsecured and subordinated to all existing and future Senior Indebtedness (as
defined in the Indenture) of the Company. The Notes are fully and
unconditionally and irrevocably guaranteed, jointly and severally, on a senior
subordinated basis by each of the wholly owned subsidiaries of the Company.
Consolidated financial information regarding the Company, guarantor subsidiaries
and non-guarantor subsidiaries as of June 29, 2002 and March 30, 2002 and for
fiscal quarters ended June 29, 2002 and June 30, 2001 is presented below for
purposes of complying with the reporting requirements of the guarantor
subsidiaries.
SUBTOTAL NON CORPORATE
AS OF 06/29/02: (unaudited) SUBSIDIARY GUARANTOR AND TOTAL
GUARANTORS SUBSIDIARIES DIVISIONS COMPANY
Cash $ (172) $ 915 $ 15,729 $ 16,472
Accounts receivable, net 6,671 21,431 31,339
3,237
Raw material 1,137 734 1,589 3,460
Work in process 10,848 2,854 5,161 18,863
Finished goods 25,683 5,453 27,649 58,785
--------- ---------- ---------- ----------
Inventories 37,668 9,041 34,399 81,108
Prepaid expense other current assets 522 486 3,832 4,840
--------- ---------- ---------- ----------
Total current assets 44,689 13,679 75,391 133,759
Property, plant and equipment, net 33,462 34,139 21,388 58,989
Restricted marketable securities 38 - 1,217 1,255
Goodwill, net 8,054 - 17,096 25,150
Deferred financing costs, net - - 5,920 5,920
Other assets - 203 1,163 1,366
--------- ---------- ---------- ----------
Total assets $ 86,243 $ 18,021 $ 122,175 $ 226,439
--------- ---------- ---------- ----------
Accounts payable $ 5,811 $ 1,546 $ 5,481 $ 12,838
Interco payable (receivables) 61,660 3,457 (65,117) -
Interco loans - 1,740 (1,740) -
Current portion of long-term debt 195 1,764 5,802 7,761
Obligations under capital leases 138 29 326 493
Accrued expenses and other current liabilities 3,206 1,190 6,257 10,653
--------- ---------- ---------- ----------
Total current liabilities 71,010 9,726 (48,991) 31,745
Long term debt 1,639 2,833 159,786 164,258
Capital lease obligations, less current portion 27 23 6 56
Other noncurrent liabilities 1,153 46 14,897 16,096
--------- ---------- ---------- ----------
Total liabilities 73,829 12,628 125,698 212,155
Stockholder's equity (deficit):
Common stock 63 (63)
Additional paid in capital - - 9,708 9,708
Currency translation adjustment - 174 - 174
Total retained earnings 12,414 5,156 (13,168) 4,402
--------- ---------- ---------- ----------
Total stockholder's equity 12,414 5,393 (3,523) 14,284
Total liabilities & stockholder's equity $ 86,243 $ 18,021 $ 122,175 $ 226,439
--------- ---------- ---------- ----------
Consolidated Balance Sheets
7
SUBTOTAL NON CORPORATE
AS OF 3/30/02: SUBSIDIARY GUARANTOR AND TOTAL
GUARANTORS SUBSIDIARIES DIVISIONS COMPANY
Cash $ (240) $ 1,134 $ 6,284 $ 7,178
Accounts receivable, net 8,175 3,084 27,156 38,415
Raw material 870 718 1,597 3,185
Work in process 8,884 2,582 7,110 18,576
Finished goods 24,287 4,477 26,080 54,844
--------- ---------- ---------- --------
Inventories 34,041 7,777 34,787 76,605
Prepaid expense other current assets 343 474 4,310 5,127
--------- ---------- ---------- --------
Total current assets 42,319 12,469 72,537 127,325
Property, plant and equipment, net 32,622 3,903 23,011 59,536
Restricted marketable securities 38 - 1,217 1,255
Goodwill, net 8,054 - 17,096 25,150
Deferred financing costs, net - - 3,413 3,413
Other assets (2,128) 180 3,290 1,342
--------- ---------- ---------- --------
Total assets $ 80,905 $ 16,552 $ 120,564 $218,021
========= ========== ========== ========
Accounts payable $ 6,113 $ 1,665 $ 6,102 $ 13,880
Interco payable (receivable) 52,245 3,989 (56,234) -
Current portion of long-term debt 203 1,515 29,876 31,594
Obligations under capital leases 151 29 353 533
Accrued expenses and other current liabilities 8,501 1,019 2,792 12,312
--------- ---------- ---------- --------
Total current liabilities 67,213 8,217 (17,111) 58,319
Long term debt 1,680 2,955 125,500 130,135
Capital lease obligations, less current portion 51 25 72 148
Other noncurrent liabilities 1,158 132 14,756 16,046
--------- ---------- ---------- --------
Total liabilities 70,102 11,329 123,217 204,648
Stockholder's equity (deficit):
Common stock - 63 (63) -
1,740
Additional paid in capital - - 9,708 9,708
Currency translation adjustment - 88 - 88
Total retained earnings 10,803 5,072 (12,298) 3,577
--------- ---------- ---------- --------
Total stockholder's equity 10,803 5,223 (2,653) 13,373
Total liabilities & stockholder's equity $ 80,905 $ 16,552 $ 120,564 $218,021
========= ========== ========== ========
CONSOLIDATING STATEMENTS OF OPERATIONS
NON
SUBSIDIARY GUARANTOR CORPORATE TOTAL
Three months ended June 29, 2002 (Unaudited) GUARANTORS SUBSIDIARIES AND DIVISIONS COMPANY
Net sales $ 17,547 $ 3,654 $ 17,320 $ 38,521
Cost of sales 13,383 2,464 11,218 27,065
-------- ------- -------- --------
Gross margin 4,164 1,190 6,102 11,456
Selling, general and administrative 1,416 839 4,014 6,269
Other expense, net of other income 6 16 (3) 19
-------- ------- -------- --------
Operating income 2,742 335 2,091 5,168
Interest expense, net 12 43 3,711 3,766
Minority interest - 4 - 4
-------- ------- -------- --------
Income before taxes 2,730 288 (1,620) 1,398
Provision for income taxes 1,119 118 (664) 573
-------- ------- -------- --------
Net income $ 1,611 $ 170 $ (956) $ 825
======== ======= ======== ========
8
CONSOLIDATING STATEMENTS OF OPERATIONS
NON
SUBSIDIARY GUARANTOR CORPORATE TOTAL
Three months ended June 30, 2001 (Unaudited) GUARANTORS SUBSIDIARIES AND DIVISIONS COMPANY
Net sales $ 17,119 $ 4,093 $ 18,958 $ 40,170
Cost of sales 13,145 2,714 11,418 27,277
-------- ------- -------- --------
Gross margin 3,974 1,379 7,540 12,893
Selling, general and administrative 1,373 745 4,070 6,188
Other expense, net of other income 74 (4) 126 196
-------- ------- -------- --------
Operating income 2,527 638 3,344 6,509
Interest expense, net 25 105 4,011 4,141
Minority interest - 4 - 4
-------- ------- -------- --------
Income before taxes 2,502 529 (667) 2,364
Provision for income taxes 1,026 217 (273) 970
-------- ------- -------- --------
Net income $ 1,476 $ 312 $ (394) $ 1,394
======== ======= ======== ========
CONSOLIDATING STATEMENTS OF CASH FLOWS
NON
SUBSIDIARY GUARANTOR CORPORATE TOTAL
Three Months Ended June 29, 2002 (Unaudited) GUARANTORS SUBSIDIARIES AND DIVISIONS COMPANY
Cash flows from operating activities:
Net income $ 1,611 $ 170 $ (956) $ 825
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation 919 177 1,150 2,246
Minority interest - 4 - 4
Amortization of goodwill - - - -
Amortization of deferred financing costs - - 293 293
Changes in working capital, net of acquisitions:
(Increase) decrease in current assets (411) 20 3,251 2,860
(Increase) decrease in non-current assets - - (454) (454)
Increase (decrease) in current liabilities (1,266) (620) (386) (2,272)
Increase (decrease) in non-current liabilities - - 45 45
---------- --------- ----------- --------
Net cash provided by operating activities 853 (249) 2,943 3,547
Cash flows from investing activities:
Purchase of property, plant & equipment, net (659) (143) (808) (1,610)
Sale of restricted marketable securities - - - -
Net cash used in investing activities (659) (143) (808) (1,610)
Cash flows from financing activities:
Net increase (decrease)in revolving credit facility - - (28,500) (28,500)
Proceeds from long term debt - - 40,000 40,000
Financing fees paid in connection with the credit facility - - (2,800) (2,800)
Payments on bank term loan (59) (457) (1,325) (1,841)
Principal payments on capital lease obligations (68) - (64) (132)
---------- --------- ----------- --------
Net cash used in financing activities (127) (457) 7,311 6,727
Cash and cash equivalents:
Effect of exchange rate changes - 630 - 630
Increase (decrease) during the year 67 (219) 9,446 9,294
Cash, at beginning of year (240) 1,134 6,284 7,178
---------- --------- ----------- --------
Cash, at end of period $ ( 173) $ 915 $ 15,730 $ 16,472
========== ========= =========== ========
9
NON
SUBSIDIARY GUARANTOR CORPORATE TOTAL
Three Months Ended June 30, 2001 (Unaudited) GUARANTORS SUBSIDIARIES AND DIVISIONS COMPANY
Cash flows from operating activities:
Net income $ 1,476 $ 312 $ (394) $ 1,394
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation 879 110 1,308 2,297
Minority interest - 4 - 4
Amortization of excess of cost over net
assets acquired 56 - 144 200
Amortization of deferred financing costs - - 231 231
Changes in working capital, net of acquisitions:
(Increase) decrease in current assets (58) 20 2,795 2,757
(Increase) decrease in non-current assets - - 27 27
Increase (decrease) in current liabilities (1,050) 50 (860) (1,860)
Increase (decrease) in non-current liabilities - - 4 4
--------- ------- -------- ---------
Net cash provided by operating activities 1,303 496 3,255 5,054
Cash flows from investing activities:
Purchase of property, plant & equipment, net (961) (143) (620) (1,724)
Sale of restricted marketable securities 445 - - 445
--------- ------- -------- ---------
Net cash used in investing activities (516) (143) (620) (1,279)
Cash flows from financing activities:
Net increase (decrease)in revolving credit facility - - (500) (500)
Payments on bank term loan (59) (457) (1,124) (1,640)
Principal payments on capital lease obligations (68) - (143) (211)
--------- ------- -------- ---------
Net cash used in financing activities (127) (457) (1,767) (2,351)
Cash and cash equivalents:
Effect of exchange rate changes - - (64) (64)
Increase (decrease) during the year 660 (104) 804 1,360
Cash, at beginning of year (504) 2,317 1,313 3,126
--------- ------- -------- ---------
Cash, at end of period $ 156 $ 2,213 $ 2,117 $ 4,486
========= ======= ======== =========
Approximately $16,900 of the Revolving Credit Facility is being utilized to
provide letters of credit to secure the Company's obligations relating to
certain Industrial Development Revenue Bonds. As of June 29, 2002 the Company
had the ability to borrow up to an additional $6,900 under the Revolving Credit
Facility.
10
The balances payable under all borrowing facilities are as follows:
JUNE 29, 2002 MARCH 30, 2002
------------- --------------
SENIOR SUBORDINATED NOTES PAYABLE $110,000 $110,000
CREDIT FACILITY
Term Loan, payable in quarterly installments of $250, commencing September 30,
1997, increasing annually thereafter to $1,375 from September 30, 2001 with
final payment due June 30, 2002; bears interest at variable rates, payable
monthly and quarterly for prime and LIBOR-based elections, respectively -- 1,375
Term Loan, payable in quarterly installments of $1,428, commencing September 30,
2002, with final payment of $12,857 due May 30, 2007; bears interest at variable
rates, payable monthly and upon maturity for prime and LIBOR-based elections,
respectively 40,000 --
Revolving Credit Facility borrowings outstanding -- 28,500
SWISS CREDIT FACILITY
- ---------------------
Term Loan, payable in quarterly installments of approximately
$287, commencing March 2001, increasing thereafter to
approximately $430 from March 2004; bears interest at variable
rates, payable quarterly 4,597 4,470
OTHER LOANS 678 729
- -----------
INDUSTRIAL DEVELOPMENT REVENUE BONDS
Series 1994 A due in annual installments of $180 beginning September 1, 2006,
graduating to $815 on September 1, 2014 with final payment due on September 1,
2017; bears interest at a variable rate, payable monthly through December 2017 7,700 7,700
Series 1994 B bears interest at a variable rate, payable monthly through
December 2017 3,000 3,000
Series 1998 tax-exempt industrial development bonds; bearing interest at
variable rates, payable monthly through December 2021 1,155 1,155
Series 1999 tax-exempt industrial development bonds; bearing interest at
variable rates, payable monthly through April 2024 4,800 4,800
-------- --------
TOTAL DEBT 171,930 161,729
LESS: CURRENT PORTION 7,672 31,594
-------- --------
LONG-TERM DEBT $164,258 $130,135
======== ========
The current portion of long-term debt as of March 30, 2002 includes $28,500
borrowing on the Revolving Credit Facility, which was retired in connection with
the GECC financing agreement completed in June 2002.
11
2. RECENTLY ISSUED PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". Statement No. 144 supersedes Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of". The provisions of this statement are
effective for financial statements issued for fiscal years beginning after
December 13, 2001. The Company has not yet determined the impact, if any, this
new standard will have on its reported results of operations, financial position
and cash flows.
3. COMPREHENSIVE INCOME
Comprehensive income includes all changes in a company's equity including, among
other things, unrealized holding gains and losses on available-for-sale
securities and foreign currency translation adjustments. Total comprehensive
income is as follows:
Three months ended
------------------
June 29, June 30,
2002 2001
---- ----
Net income $ 825 $1,394
Foreign currency translation adjustments 51 218
----- ------
Total comprehensive $ 876 $1,612
===== ======
4. GOODWILL
The Company adopted statement of Financial Accounting Standards ("SFAS") No.
142, Goodwill and Other Intangible Assets, effective March 31, 2002. Under SFAS
No. 142, goodwill is no longer amortized but reviewed for impairment annually,
or more frequently if certain indicators arise. The Company is required to
complete the initial step of a transitional impairment test within six months of
adoption of SFAS No. 142 and to complete the final step of the transitional
impairment test by the end of the fiscal year. Any impairment loss resulting
from the transitional impairment test will be recorded as a cumulative effect of
a change in accounting principle for the quarter ended June 30, 2001. Subsequent
impairment losses will be reflected in operating income in the income statement.
Had the Company been accounting for its goodwill under SFAS No. 142 for all
periods presented, the Company's net income (in thousands) and earnings per
share would have been as follows:
Three months ended
------------------
June 29, June 30,
2002 2001
---- ----
Reported net income $ 825 $1,394
Add back goodwill amortization, net of tax - 118
----- ------
Adjusted net income $ 825 $1,512
===== ======
5. SUBSEQUENT EVENT
During July 2002, Whitney Acquisition II, Corp. ("Whitney"), a principal
investor in Holdings, and Dr. Michael J. Hartnett, the Company's President,
Chief Executive Officer and Chairman of the Board, purchased an aggregate of
240,000 shares of Holdings' Class B Exchangeable Convertible Participating
Preferred Stock in exchange for gross proceeds of $24,000. In connection with
the purchase, Holdings paid a fee of $750 Whitney and amended the terms of
the management services agreement. Following the closing of the sale,
Holdings utilized the proceeds of the sale and certain of the Company's cash
on hand to repurchase approximately $30,400 in principal amount at maturity of
12
certain debt issued in connection with the Recapitalization (Note 1). This
repurchase satisfied Holdings' obligation to make a scheduled redemption payment
relating to such debt in December 2002. Holdings will recognize a pretax gain on
the extinguishment of this debt obligation of approximately $780, net of
transaction expenses of $406.
The holders of Holdings' Class B Preferred Stock are entitled to an 8% per annum
accumulating dividend and are further entitled to participate in any dividends
paid to the holders of shares of Holdings' Common Stock. The Class B Preferred
Stock is subject to conversion by Holdings or exchange by the holders thereof.
In either situation, each share of Class B Preferred would yield a number of
shares o f Holdings' Class A Common Stock determined by reference to a formula
set forth in Holdings' Amended and Reseated Certificate of Incorporation (which
includes anti-dilution protections), a number of shares of Holdings' Class C
Redeemable Preferred Stock also determined by reference to a formula set forth
in Holdings' Amended and Restated Certificate of Incorporation and one share of
Class D Preferred Stock. Any holders of Class C Preferred Stock would be
entitled to an 8% per annum accumulating dividend. The Class C Preferred Stock
is subject to redemption by Holdings at its option but is not subject to
mandatory redemption. The Class D Preferred Stock entitles the holders thereof,
upon liquidation, to a payment determined by reference to a formula set forth in
Holdings' Amended and Restated Certificate of Incorporation.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for the historical information and current statements contained in this
Quarterly Report on Form 10-Q, certain matters discussed herein, including,
without limitation, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" are forward looking statements that involve risks and
uncertainties, including, without limitation, the effect of economic and market
conditions and competition, the cyclical nature of the Company's target markets,
particularly, the aerospace industry, the cost of raw materials and the
Company's ability to pass cost increases to its customers, the reliance of the
Company on certain customers, the ability of the Company to expand into new
markets, the ability of the Company to integrate acquisitions and other factors
discussed from time to time in the reports filed by the Company with the
Securities and Exchange Commission, which could cause actual results to differ
materially.
The following discussion addresses the financial condition of the Company as of
June 29, 2002 and the results of its operations for the three month period ended
June 29, 2002, compared to the comparable periods last year. The discussion
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations for the fiscal year ended March
30, 2002 included in the Form 10-K.
THREE MONTHS ENDED JUNE 29, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
Net sales for the quarter ended June 29, 2002 were $38.5 million, a decrease of
$1.7 million or 4.1% over the quarter ended June 30, 2001. The decrease in net
sales is primarily attributed to overall sluggishness in the manufacturing
sector and softness in distributor areas.
Gross margin decreased by $1.4 million or 11.1% to $11.5 million for the quarter
ended June 29, 2002, as compared to the first quarter of last year. Gross margin
as a percentage of net sales decreased 2.4%, from 32.1% for the first quarter of
fiscal 2002, to 29.7% for the first quarter of fiscal 2003. This decrease is
primarily the result of the reduced sales and a change in the product mix.
Selling, general and administrative ("SG&A") expenses increased by $0.1 million
or 1.3% to $6.3 million for the three month period ended June 29, 2002 as
compared to the comparable period last year.
Operating income decreased by $1.3 million or 20.6% to $5.2 million for the
quarter ended June 29, 2002 compared to $6.5 million for the quarter ended
June 29, 2002. The decrease primarily resulted from lower gross margin somewhat
offset by lower operating expenses relating to goodwill amortization.
Interest expense for the first quarter of fiscal 2003 was $3.8 million compared
to $4.1 million for the first quarter of fiscal 2002, primarily due to lower
interest rates on the outstanding revolving credit facility.
Income before taxes decreased $1.0 million for the quarter ended June 29, 2002
to $1.4 million from $2.4 million for the quarter ended June 30, 2001, as a
result lower operating income and was somewhat offset by lower interest expense
in the first quarter of fiscal 2003.
Net income for the quarter ended June 29, 2002 reflects a tax provision of
$0.6 million compared to $1.0 million for the quarter ended June 30, 2001. Net
income decreased by $0.6 million to $0.8 million from $1.4 million for last
year, as a result of the lower income before taxes.
14
LIQUIDITY AND CAPITAL RESOURCES
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For the three months ended June 29, 2002, the Company provided cash of
$3.6 million from operating activities compared to $5.1 million for the
comparable period last year. The decrease of $1.5 million is primarily the
result of a decrease in net income of $0.6, goodwill amortization decrease of
$0.2 million and an increase in other non-cash working capital of $0.7 million.
Cash used for investing activities for the three months ended June 29, 2002
consisted of $1.6 million relating to capital expenditures compared to
$1.7 million for the three months ended June 30, 2001. Additionally, in the
three months ended June 30, 2001, $0.4 million was remitted to the Company in
connection with qualifying equipment purchases related to and Industrial Revenue
Bond.
For the three months ended June 29, 2002, the Company had net cash inflows from
financing activities of $6.7 million resulting from retirement of its 1997
revolving credit facility of $28.5 million, issuance of a new bank term loan of
$40.0 million, an increase in non current assets associated with deferred
finance fees in connection with the new credit facility of $2.8 million,
payments on bank debt of $1.8 million and payments on capital lease obligations
of $0.1 million. In the first quarter of fiscal 2001, the Company had net cash
outflows from financing activities of $2.3 million, consisting of repayments on
its revolving credit facility of $0.5 million, payments of bank debt of $1.6
million and capital lease obligations of $0.2 million.
The Company terminated its previous senior credit facility and the Company and
its domestic subsidiaries entered into a $94 million senior secured credit
facility (the "New Credit Facility"), dated May 30, 2002, with General Electric
Capital Corporation as agent and lender, Congress Financial Corporation
(Western) as lender, GECC Capital Markets Group as lead arranger and other
lenders signatory thereto from time to time, consisting of a $40 million term
loan (the "Term Loan") and a $54 million revolving credit facility (the
"Revolving Credit Facility"). In connection with the New Credit Facility the
Company and its domestic subsidiaries granted liens and mortgages on
substantially all of their existing and after-acquired personal and real
property. In addition, the Company pledged all of its capital stock in its
domestic subsidiaries and a portion of its capital stock in its directly owned
foreign subsidiaries.
The proceeds of the Term Loan were used to pay off the Company's senior credit
facility, dated June 23, 1997, by and between the Company, Credit Suisse First
Boston, as administrative agent and the lenders thereto, to pay fees and
expenses with respect to the new credit facility and for other corporate
purposes. In addition, the Company has secured the letters of credit issued in
connection with its previous senior credit facility pursuant to the New Credit
Facility. The Revolving Credit Facility is available for issuances of letters of
credit and for loans in connection with acquisitions, working capital needs or
other general corporate purposes. As of August 3, 2002 letters of credit in a
total amount of $19.1 million were issued under the Revolving Credit Facility.
No additional amounts have been drawn under the Revolving Credit Facility.
Principal and interest payments under the New Credit Facility, interest payments
on the Notes, and the funding of acquisitions, represent significant liquidity
requirements for the Company. With respect to the Term Loan, the Company will
begin to make its required quarterly scheduled principal payments on September
30, 2002. The Term Loan bears interest at a floating rate based upon an interest
rate option elected by the Company.
The Company's ability to incur indebtedness is limited by the terms of the
Credit Agreement, the Indenture and the Discount Debentures.
During July 2002, Whitney Acquisition II, Corp., a principal investor in
Holdings, and Dr. Michael J. Hartnett, the Company's President, Chief
Executive Officer and Chairman of the Board, purchased an aggregate of
240,000 shares of Holdings' Class B Exchangeable Convertible Participating
Preferred Stock in exchange for gross proceeds of $24.0 million. In
connection with the purchase, Holdings paid a fee of $0.7 million to Whitney
and the terms of the management services agreement were amended. Following
the closing of the sale, Holdings utilized the proceeds of the sale and
certain of the Company's cash on hand to repurchase approximately $30.4
million in principal amount at maturity of certain debt
15
issued in connection with the Recapitalization (See Note 1 to the interim
financial statements included in this Quarterly Report on Form 10-Q). This
repurchase satisfied Holdings' obligation to make a scheduled redemption
payment relating to such debt in December 2002. Holdings will recognize a
pretax gain on the extinguishment of this debt obligation of approximately
$780, net of transaction expenses of $406. The Company believes that
borrowings available under the Senior Secured Credit Facility, cash flow from
operations and cash on hand will provide adequate funds for its ongoing
operations and planned capital expenditures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's Swiss operations utilize the Swiss franc as the functional
currency. Foreign currency transaction gains and losses are included in
earnings. 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. Currency transaction and
translation exposures are not hedged as the Company does not use any derivative
financial instruments, and transaction gains and losses have not been
significant. Unrealized currency translation gains and losses are recognized
upon translation of the foreign subsidiaries' balance sheets to U.S. dollars.
Borrowings of the Company are denominated in U.S. dollars. Management believes
that the carrying amount of the Company's borrowings approximates fair value
because the interest rates are variable and reset frequently or are reasonable
to the quoted market prices of similar debt instruments.
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are various claims and legal proceedings against the Company relating to
its operations in the normal course of business, none of which the Company
believes is material. The Company currently maintains insurance coverage for
product liability claims. There can be no assurance that indemnification from
its customers and coverage under insurance policies will be adequate to cover
any future product liability claims against the Company.
ITEMS 2, 4, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
ROLLER BEARING COMPANY OF AMERICA, INC.
August 9, 2002 /s/ Michael J. Hartnett
---------------------------------------------
By: Michael J. Hartnett
President & Chief Executive Officer
Principal Executive Officer
August 9, 2002 /s/ Anthony S. Cavalieri
--------------------------------------------
By: Anthony S. Cavalieri
Vice President & Chief Financial Officer
Principal Financial and Accounting Officer
18