<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 27, 1998
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or
( ) 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
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ROLLER BEARING COMPANY OF AMERICA , INC.
----------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3426227
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
60 ROUND HILL ROAD, FAIRFIELD , CT
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(Address of principal executive offices)
203-255-1511
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(Registrant's telephone number, including area code)
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 the
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
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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 11, 1998
---------------------------- ------------------------------
Common stock, $.01 par value 100
<PAGE>
ROLLER BEARING COMPANY OF AMERICA, INC.
INDEX
PAGE
Part I Financial Information
Item 1. Consolidated Balance Sheets -
at June 27, 1998 (unaudited) and March 28, 1998 3
Consolidated Statements of
Operations - Three Months ended
June 27, 1998 (unaudited) and June 28, 1997
(unaudited) 4
Consolidated Statements of Cash
Flows - Three Months ended June 27, 1998
(unaudited) and June 28, 1997 (unaudited) 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 10
Part II Other Information 11
Signatures 12
2
<PAGE>
PART I
ITEM 1. FINANCIAL INFORMATION
ROLLER BEARING COMPANY OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, MARCH 28,
1998 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,159 $ 10,625
Accounts receivable, net 25,350 26,859
Inventories 40,428 38,563
Prepaid expenses and other current assets 2,317 1,996
-------------- --------------
Total current assets 70,254 78,043
-------------- --------------
Property, plant and equipment, net of accumulated depreciation of
$27,866 at June 1998 and $25,815 at March 1998 48,363 45,237
Restricted marketable securities 3,580 4,005
Excess of cost over net assets acquired, net of accumulated amortization
of $3,620 at June 1998 and $3,420 at March 1998 28,154 19,334
Deferred financing costs, net of accumulated amortization of $1,006 at
June 1998 and $766 at March 1998 6,907 7,147
Other assets 3,285 2,639
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Total assets $ 160,543 $ 156,405
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 11,398 $ 12,925
Accrued expenses and other current liabilities 13,410 14,827
Current portion of long-term debt 1,375 1,490
Obligations under capital leases, current portion 1,659 1,585
-------------- --------------
Total current liabilities 27,842 30,827
Long-term debt 141,075 134,710
Capital lease obligations, less current portion 1,733 2,115
Other noncurrent liabilities 3,675 3,675
-------------- --------------
Total liabilities 174,325 171,327
-------------- --------------
Stockholder's (deficit) equity:
Common stock - $.01 par value; 1,000 shares
authorized; 100 shares issued and outstanding
at June 1998 and at March 1998 - -
Additional paid-in capital 6,600 6,600
Retained (deficit) earnings (20,382) (21,522)
-------------- --------------
Total stockholder's (deficit) equity (13,782) (14,922)
-------------- --------------
Total liabilities and stockholder's (deficit) equity $ 160,543 $ 156,405
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ROLLER BEARING COMPANY OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
THREE MONTHS ENDED
-------------------------
JUNE 27, JUNE 28,
1998 1997
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Net sales $ 37,480 $ 28,662
Cost of sales 26,679 20,286
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Gross margin 10,801 8,376
Operating expenses:
Selling, general and administrative 5,250 4,130
Other expense, net of other income 172 788
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5,422 4,918
Operating income 5,379 3,458
Interest expense, net 3,443 1,583
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Income before taxes and extraordinary charge 1,936 1,875
Income tax expense 793 769
Income before extraordinary charge 1,143 1,106
Extraordinary charge, net - 625
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Net income $ 1,143 $ 481
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---------- ----------
See notes to consolidated financial statements.
4
<PAGE>
ROLLER BEARING COMPANY OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
JUNE 27, JUNE 28,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,143 $ 481
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes (634) -
Depreciation 2,052 1,641
Amortization of excess of cost over net assets acquired 200 144
Amortization of deferred financing costs 240 68
Extraordinary charge, net - 625
Changes in working capital, net of acquisition:
Decrease in accounts receivable 2,450 1,255
(Increase) in inventories (601) (1,003)
(Increase) in prepaid expenses & other current assets (318) (78)
(Increase) decrease in other non current assets (1,248) 423
Increase (decrease) in accounts payable (2,155) 424
Decrease in accrued expenses & other current liabilities (1,927) (292)
Decrease in other non-current liabilities (159) -
------------ ------------
Net cash provided by (used in) operating activities (957) 3,688
Cash flows from investing activities:
Purchase of property, plant & equipment, net (2,787) (1,409)
Sale of restricted marketable securities, net 425 -
Acquisition of subsidiaries (11,088) -
------------ ------------
Net cash used in investing activities (13,450) (1,409)
Cash flows from financing activities:
Net increase (decrease) in revolving credit facility 6,500 (24,627)
Proceeds from long-term debt - 126,000
Payments of long-term debt - (27,488)
Payments of bank term loan (250) -
Principal payments on capital lease obligations (309) (375)
Dividend paid to parent company - (56,127)
Financing fees paid in connection with the Recapitalization - (8,163)
------------ ------------
Net cash provided by financing activities 5,941 9,220
Net (decrease) increase in cash (8,466) 11,499
Cash, at beginning of year 10,625 859
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Cash, at end of year $ 2,159 $ 12,358
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------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,416 $ 1,514
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------------ ------------
Income taxes $ 1,076 $ 784
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</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 "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 generally accepted accounting principles. 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 28,
1998 (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. It is suggested that these financial statements be read in
conjunction with the audited financial statements and notes thereto included in
the Form 10-K.
The results of operations for the three month period ended June 27, 1998 are not
necessarily indicative of the operating results for the full year.
All references to "Holdings" refer to Roller Bearing Holding Company, Inc., a
Delaware corporation, and the corporate parent and sole stockholder of the
Company.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Industrial Techtonics Bearings Corporation
("ITB") , RBC Linear Precision Products ("LPP"), RBC Nice Bearings, Inc.
("Nice"), Bremen Bearings, Inc. ("Bremen"), Miller Bearings, Inc. ("Miller") and
Roller Bearing Company FSC, Inc. ("FSC"). All material intercompany balances
and transactions have been eliminated.
1. ACQUISITION OF WHOLLY OWNED SUBSIDIARIES
On August 8, 1997, Bremen completed the acquisition of the Bremen Bearings
Division of SKF USA, Inc., a manufacturer of needle bearings with facilities in
Bremen, Indiana. The purchase was effective as of July 1, 1997. The
acquisition was accounted for under the purchase method of accounting. A
deferred payment of $546, which was paid in December 1997 for the installation
of certain equipment, has been classified as the purchase of property, plant and
equipment. Additionally, accrued liabilities include $749 for inventory which
was paid on August 7, 1998. The purchase price has been allocated to the assets
acquired and liabilities assumed based upon their respective estimated fair
values.
On June 3, 1998, Miller completed the acquisition of the assets of Miller
Bearing Company, Inc. ("MBC"), a manufacturer of pins, rollers and screw machine
products with facilities in Bremen, Indiana. The aggregate purchase price for
the acquisition, which was effective as of March 1, 1998, was $11,087. The
acquisition was accounted for as a purchase, resulting in approximately $2,138
allocable to tangible assets and $8,949 of excess of purchase price over net
assets acquired.
The results of operations of Bremen and Miller subsequent to the effective date
of acquisitions are included in the results of operations of the Company.
Therefore the results of the Company for the three months ended June 27, 1998
include the results of operations of Bremen and Miller. Pro forma consolidated
results of operations of the Company, based upon pre-acquisition unaudited
historical information provided by the seller of MBC, for the three months ended
June 28, 1997, as if the acquisition took place at the beginning of fiscal 1998,
are as follows:
6
<PAGE>
THREE MONTHS ENDED JUNE 28, 1997
-----------------------------------
BREMEN &
AS REPORTED MILLER PRO FORMA
-----------------------------------
Net sales $ 28,662 $ 6,029 $ 34,691
Income before extraordinary charge $ 1,106 $ 508 $ 1,614
Net income $ 481 $ 508 $ 989
2. DEBT
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 semi-annually
and 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 (the "Indenture"). The Notes are unsecured and subordinated to all
existing and future Senior Indebtedness (as defined in the Indenture pursuant to
which the Notes were issued) 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.
The separate financial statements of the subsidiary guarantors have not been
presented because management has determined that they would not be material to
investors. However, the summary combined financial information of the
subsidiary guarantors are as follows:
JUNE 27, MARCH 28,
Balance Sheet Data: 1998 1998
--------- ---------
Total current assets $ 25,649 $ 22,985
Noncurrent assets 32,539 21,061
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Total assets $ 58,188 $ 44,046
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Total current liabilities $ 49,225 $ 36,647
Noncurrent liabilities 548 694
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Total liabilities $ 49,773 $ 37,341
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Stockholder's equity $ 8,415 $ 6,705
JUNE 27, JUNE 28,
Operating Results: 1998 1997
--------- ---------
Net sales $ 16,414 $ 10,025
Gross margin 3,816 2,634
Income before extraordinary charge 1,392 952
Net income $ 1,392 $ 952
Total current liabilities include intercompany liabilities of $37,645 and
$25,936 as of June 27, 1998 and March 28, 1998, respectively. Income before
extraordinary charge includes a charge for corporate overhead allocated from the
Company of $260 and $260 in fiscal years 1998 and 1997, respectively, and a
provision for income taxes of $968 and $662 in fiscal years 1998 and 1997,
respectively.
7
<PAGE>
In addition, in connection with the Recapitalization, the Company entered into
bank credit facilities (the "Senior Credit Facilities") with a group of lenders
providing for $16,000 of term loans (the "Term Loans") and up to $54,000 of
revolving credit loans and letters of credit (the "Revolving Credit Facility").
Approximately $10,900 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 27, 1998, the Company
had the ability to borrow up to an additional $36,600 under the Revolving Credit
Facility.
The balances payable under all borrowing facilities are as follows:
<TABLE>
<CAPTION>
JUNE 27, MARCH 28,
1998 1998
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<S> <C> <C>
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 20, 2001 with final payment due
June 30, 2002; bears interest at variable rates, payable monthly
and quarterly for prime and LIBOR-based elections, respectively 15,250 15,500
Revolving Credit Facility borrowings outstanding 6,500 -
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. 7,700 7,700
Series 1994 B bears interest at a variable rate, payable monthly. 3,000 3,000
---------- ----------
Total Debt 142,450 136,200
Less: current portion 1,375 1,490
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Long term debt $ 141,075 $ 134,710
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---------- ----------
</TABLE>
The debt agreements require that the Company meet certain financial covenants
and principally limit the incurrence of additional indebtedness, the payment of
dividends, and certain other transactions.
3. EXTRAORDINARY CHARGE
The extraordinary charge for the three months ended June 28, 1997 resulted from
the write off of unamortized deferred financing costs due to the Company's early
extinguishment of debt in connection with the Recapitalization described above.
The extraordinary charge was $1,059 and is reflected net of the related tax
benefit of $434.
4. RECENTLY ISSUED PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. Because of the Company's
minimal exposure to derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
Except for the historical information and current statements contained in the
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 ability of the
Company to expand into new markets, the ability of the Company to integrate
recent acquisitions and other factors discussed from time to time in the reports
filed by the company with the Commission, which would cause actual results to
differ materially.
The following discussion addresses the financial condition of the Company as of
June 27, 1998 and the results of its operations for the three month period ended
June 27, 1998, compared to the same period 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 28, 1998
included in the Form 10-K.
THREE MONTHS ENDED JUNE 27, 1998 COMPARED TO JUNE 28, 1997
Net sales for the three months ended June 27, 1998 were $37,480, an increase of
$8,818 or 30.8% over the three months ended June 28, 1997. The increase includes
sales totaling $5,799 from Bremen Bearings, Inc. ("Bremen") and Miller
Bearings, Inc. ("Miller") acquired effective July 1997 and March 1998,
respectively. Net sales increased $3,019 or 10.5% without the Bremen and Miller
sales. The primary reason for this increase was due to increase in volume of
goods sold in most major areas of the Company's business.
Gross margin increased by $2,425 or 29.0% for the three months ended June 27,
1998, as compared to the same period last year, as a result of higher sales
volumes. Gross margin as a percentage of net sales decreased 0.4% from 29.2% for
the first quarter of fiscal 1997, primarily due to product mix.
Selling, general and administrative (SG&A) expenses increased by $1,120 or 27.1%
for the three month period ended June 27, 1998 compared to the same period last
year. The increase is primarily due to infrastructure costs necessary to support
the expanded business as well as the additional expenses related to the two
acquired companies. SG&A as a percentage of net sales decreased from 14.4% for
the first quarter of fiscal 1997, to 14.0% for the first quarter of fiscal 1998.
Other operating expenses decreased by $616 primarily due to a charge relating to
the difference between redemption price and exercise price of $546 of certain
options repurchased by Holdings at the time of the Recapitalization in 1997 and
other charges net of other income of $70.
Operating income increased by $1,921 or 55.6% to $5,379 for the three months
ended June 27, 1998 as compared to $3,458 for the corresponding period in the
prior year. The increase primarily resulted from higher gross margin from higher
sales volume, partially offset by higher SG& A net of other operating expenses.
Income before taxes and extraordinary charges for the three month period ended
June 27, 1998 increased to $1,936 from $1,875 for the same period last year, as
a result of higher operating income less higher interest expense resulting from
the debt incurred in connection with acquisition financing and the
Recapitalization in 1997.
Net income for the current quarter reflects a tax provision of $793 compared to
$769 for the first quarter of fiscal 1997, an effective combined Federal and
state effective tax rate of 41% in both years. Income before extraordinary
charges increased by $37 to $1,143 from $1,106 for the corresponding period last
year. Net income
9
<PAGE>
increased to $1,143 from $481 in fiscal 1997, due to an extraordinary charge
relating to the early extinguishment of debt of $1,059 less related tax benefit
of $434 ($625 net) in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 27, 1998 was $42,412 compared to $47,216 at March 28,
1998, a decrease of $4,804. For the three months ended June 27, 1998, the
Company had negative cash flow from operating activities of $957 primarily
related to first quarter inventory build-up and the payment in June 1998 of
interest due on the senior subordinated notes.
Cash used for investing activities for the three months ended June 27, 1998 was
$13,450 which included $11,088 for the acquisition of MBC with the remainder
relating to capital expenditures of $2,787 less the sale of restricted
securities of $425.
The Company had net cash inflows from financing activities of $5,941 resulting
from a draw down on its revolving credit facility of $6,500. During the three
month period ended June 28, 1997, the Company used $309 of funds for capital
lease obligations and made payments of $250 on its bank term loan.
Principal and interest payments under the Senior Credit Facilities, interest
payments on the Notes, and the funding of acquisitions, represent significant
liquidity requirements for the Company. With respect to the Term Loans, the
Company is required to make scheduled principal payments which commenced in
September 1997. The Term Loans bear interest at a floating rate based upon the
interest rate option elected by the Company. As a result of the indebtedness
incurred in connection with the Recapitalization, the Company's
post-Recapitalization interest expense will be higher and will have a greater
proportionate impact on net income in comparison to pre-Recapitalization
periods.
The Company believes that cash flows from operations and amounts available under
the Revolving Credit Facility will provide adequate funds for ongoing
operations, planned capital expenditures (including acquisitions) and debt
service payments for at least the next twelve months. The Company's ability to
borrow is limited by the terms of the Senior Credit Facilities and the Indenture
under which the Notes were issued.
YEAR 2000
The Company has made a comprehensive assessment of its computer operations to
identify systems that could be affected by the change in the millennium. The
Company has developed a detailed Year 2000 compliance plan and is utilizing both
internal and external resources to ensure Year 2000 compliance. The Company
expects its Year 2000 conversion to be completed by March, 1999. Costs related
to this conversion are not expected to have a material impact on the financial
results of the Company, the estimated remaining costs to the company are not
expected to exceed $250. However, there can be no assurance that the systems of
other companies on which the Company's system relies will also be converted on a
timely basis. A failure to convert by another company could have an adverse
effect on the Company's systems.
10
<PAGE>
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, 3, 4, AND 5 ARE NOT APPLICABLE, AND HAVE BEEN OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROLLER BEARING COMPANY OF AMERICA, INC.
August 11, 1998 /s/ Michael J. Hartnett
-----------------------------------
by Michael J. Hartnett
President & Chief Executive Officer
Principal Executive Officer
August 11, 1998 /s/ Anthony S. Cavalieri
-----------------------------------
by Anthony S. Cavalieri
Vice President & Chief Financial Officer
Principal Accounting Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-27-1999
<PERIOD-START> MAR-28-1998
<PERIOD-END> JUN-27-1998
<CASH> 2,159
<SECURITIES> 0
<RECEIVABLES> 25,518
<ALLOWANCES> 168
<INVENTORY> 40,428
<CURRENT-ASSETS> 70,254
<PP&E> 76,139
<DEPRECIATION> 27,776
<TOTAL-ASSETS> 160,543
<CURRENT-LIABILITIES> 27,842
<BONDS> 142,450
0
0
<COMMON> 0
<OTHER-SE> (13,782)
<TOTAL-LIABILITY-AND-EQUITY> 160,543
<SALES> 37,480
<TOTAL-REVENUES> 37,480
<CGS> 26,679
<TOTAL-COSTS> 5,250
<OTHER-EXPENSES> 172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,443
<INCOME-PRETAX> 1,936
<INCOME-TAX> 793
<INCOME-CONTINUING> 1,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,143
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
