10-Q 1 a2087143z10-q.txt ROLLERBEARING 10Q 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

2 PART I ITEM 1. FINANCIAL INFORMATION ROLLER BEARING COMPANY OF AMERICA, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)

* 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)

See Notes to Consolidated Financial Statements 4 ROLLER BEARING COMPANY OF AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)

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.

CONSOLIDATING STATEMENTS OF OPERATIONS

8 CONSOLIDATING STATEMENTS OF OPERATIONS

CONSOLIDATING STATEMENTS OF CASH FLOWS

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:

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:

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:

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 ------------------------------- 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 17 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

ROLLER BEARING CO OF AMERICA INC 10-Q