{"url_path":"/sec/rbc/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1324948/0001213900-26-057626-index.html","accession_number":"0001213900-26-057626","cik":"0001324948","ticker":"RBC","issuer_name":"RBC Bearings INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/1324948/0001213900-26-057626-index.html","primary_entity_key":"0001324948","primary_entity_name":"RBC Bearings INC"},"word_count":7127,"has_tables":true,"body_markdown":"** **\n\n**ITEM\n7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**\n\n \n\nThe\nfinancial and business analysis below provides information that we believe is relevant to an assessment and understanding of our consolidated\nfinancial position, results of operations and cash flows. This financial and business analysis should be read in conjunction with the\nconsolidated financial statements and related notes. All references to “Notes” in this Item 7 refer to the “Notes to\nConsolidated Financial Statements” included in Item 8 of this Annual Report on Form 10-K.\n\n \n\nThe\nfollowing discussion contains statements reflecting our views about our future performance that constitute “forward-looking statements”\nwithin the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. See the information provided\nin Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K under the heading “Cautionary Statement as to\nForward-Looking Information.”\n\n \n\n**General**\n\n \n\nWe\nare a well-known international manufacturer of highly engineered precision bearings, components and essential systems for the\nAerospace & Defense and Industrial markets. Our precision solutions are integral to the manufacture and operation of most\nmachines and mechanical systems, reduce wear to moving parts, facilitate proper power transmission, and reduce damage and energy\nloss caused by friction. While we manufacture products in all major bearing categories, we focus primarily on the higher end of the\nbearing market where we believe our value-added manufacturing and engineering capabilities enable us to differentiate ourselves from\nour competitors and enhance profitability. We believe our unique expertise has enabled us to garner leading positions in many of the\nproduct markets in which we primarily compete. With 65 facilities in 11 countries, of which 44 are manufacturing facilities, we have\nbeen able to significantly broaden our end markets, products, customer base and geographic reach. We have a fiscal year consisting\nof 52 or 53 weeks, ending on the Saturday closest to March 31. Based on this policy, fiscal 2026 had 52 weeks and fiscal 2025\nhad 52 weeks.\n\n \n\nWe currently operate under two reportable business\nsegments – Aerospace & Defense and Industrial:\n\n \n\n●**Aerospace\n& Defense.** This segment represents the end markets for the Company’s highly\nengineered bearings and precision components used in commercial aerospace, defense aerospace,\ndefense marine, defense ground vehicles, missiles and guided munitions, and space and satellite\napplications.\n\n** **\n\n●**Industrial.**This segment represents the end markets for the Company’s highly engineered\nbearings, gearing and precision components used in various industrial applications including:\nconstruction, mining, forestry, energy, agricultural and other machinery; aggregate and cement\nhandling; food and beverage manufacturing; grain, and agricultural product handling; metals\nand mining material handling; chemicals, oil and gas production; warehousing and logistics;\nmanufacturing automation and semiconductor equipment; power generation; waste and water management;\nrail and transportation.\n\n \n\nWe\nuse gross margin as the primary measurement to assess the financial performance of each reportable segment. End market and channel sales\nwithin our segments are based on internal definitions and metrics considered by management and are periodically reviewed and updated\nprospectively.\n\n \n\nThe\nmarkets for our products are cyclical, and we have endeavored to mitigate this cyclicality by entering into single and sole-source\nrelationships and long-term purchase agreements, through diversification across multiple market segments within the Aerospace &\nDefense and Industrial segments, by increasing sales to the aftermarket, and by focusing on developing highly customized\nsolutions.\n\n \n\nCurrently,\nour strategy is built around maintaining our role as a leading manufacturer of highly engineered bearings and precision components through\nthe following efforts:\n\n** **\n\n●**Developing\ninnovative solutions.** By leveraging our design and manufacturing expertise and our\nextensive customer relationships, we continue to develop new products for markets in which\nthere are substantial growth opportunities.\n\n** **\n\n●**Expanding\ncustomer base and penetrating end markets.**We continually seek opportunities to access\nnew customers, geographic locations and bearing platforms with existing products or profitable\nnew product opportunities.\n\n \n\n20\n\n \n\n \n\n●**Increasing\naftermarket sales.** We believe that increasing our aftermarket sales of replacement\nparts will further enhance the continuity and predictability of our revenues and enhance\nour profitability. Such sales include sales to third party distributors, and sales to OEMs\nfor replacement products and aftermarket services. We can further increase the percentage\nof our revenues derived from the replacement market by continuing to implement several initiatives.\n\n** **\n\n●**Pursuing\nselective acquisitions.** The acquisition of businesses that complement or expand our\noperations has been and continues to be an important element of our business strategy. We\nbelieve that there will continue to be consolidation within the industry that may present\nus with acquisition opportunities.\n\n** **\n\nWe\nhave demonstrated expertise in acquiring and integrating bearing and precision engineered component manufacturers that have complementary\nproducts or distribution channels and have provided significant margin enhancement. We have consistently increased the profitability\nof acquired businesses through a process of methods and systems improvement coupled with the introduction of complementary and proprietary\nnew products. Since 1992 we have completed 30 acquisitions, including VACCO, which we acquired on July 18, 2025. These acquisitions have\nbroadened our end markets, products, customer base and geographic reach.\n\n** **\n\n**Outlook**\n\n** **\n\nFor\nthe fiscal year ended March 28, 2026, 57.9% of our net sales were attributable to the Industrial segment while the Aerospace &\nDefense segment contributed 42.1% of our net sales. Our net sales increased 14.3% year over year due to sales increases in both the\nAerospace & Defense and Industrial segments. VACCO, which was acquired on July 18, 2025, accounted for $83.9 of net sales in\nfiscal 2026. VACCO is part of our Aerospace & Defense segment.\n\n \n\nAerospace\n& Defense segment sales increased 32.9% year over year. Commercial aerospace increased 17.8%, due to the increased build rates from\nlarge OEMs. defense sales, which represented approximately 40.0% of segment sales during the year, were up 64.5% for the year. Excluding\nnet sales from VACCO, defense sales were up 22.9% year over year. Our backlog in this segment is significant and deliveries are expected\nto continue to grow in the coming years.\n\n \n\nIndustrial\nsegment sales increased 3.8% year over year, led by a 4.8% increase in distribution and aftermarket sales. Sales to OEMs were up 1.5%\nyear over year, primarily driven by aggregate & cement, warehousing, grain and food & beverage.\n\n \n\nOf\nour net sales for the fourth quarter of fiscal 2026, 57.1% was attributable to the Industrial segment compared to 42.9% for the\nAerospace & Defense segment. Approximately $200.0 of Industrial segment sales in the fourth quarter of fiscal 2026 were to\ndistribution and aftermarket compared to approximately $191.5 in the prior year while approximately $95.9 were made directly to OEMs\nin the fourth quarter of fiscal 2026 compared to approximately $88.9 in the prior year. Net sales in the Aerospace & Defense\nsegment increased $64.8, or 41.2%, for the fourth quarter of fiscal 2026 compared to the same period last fiscal year. Excluding net\nsales from VACCO, net sales increased in this segment by 22.8%. Commercial aerospace net sales, which consisted of $106.6 of OEM and\n$22.9 of distribution and aftermarket, increased by 18.5% compared to the fourth quarter of fiscal 2025 when OEM net sales were\n$85.9 and distribution and aftermarket net sales were $23.3. This was driven by increased build rates in the OEM market and\naftermarket demand remained strong. Our fiscal 2026 fourth quarter defense markets’ net sales, which consisted of $74.0 of OEM\nand $18.6 of distribution and aftermarket, increased 92.5% compared to the fourth quarter of fiscal 2025 when OEM net sales were\n$38.1 and distribution and aftermarket net sales were $10.0. Excluding net sales from VACCO, defense net sales were up 35.0%\ncompared to the same period in the prior year.\n\n \n\nThe\nCompany forecasts net sales to be approximately $500.0 to $510.0 in the first quarter of fiscal 2027, compared to $436.0 in the\nfirst quarter of fiscal 2026, which represents a growth rate of 14.7% to 17.0%. Excluding $28.0 of expected net sales from VACCO,\nnet sales are expected to grow 8.3% to 10.6%. Adjusted gross margin is expected to be in the range of 45.25% to 45.5% and SG&A\nas a percentage of net sales is expected to be in the range of 16.50% to 16.75%.\n\n \n\nOur\nbacklog as of March 28, 2026 was $2.3 billion, which included $0.6 billion of VACCO backlog and $1.1 billion of marine related backlog,\ncompared to a total of $0.9 billion as of March 29, 2025. This increase reflects continued growth, most notably in our commercial aerospace\nand marine defense end markets.\n\n \n\nWe\nexperienced solid operating cash flow generation during fiscal 2026 (as discussed in the “Liquidity and Capital Resources”\nsection below). We believe that operating cash flows and available credit under our revolving bank credit facilities will provide adequate\nresources to fund internal growth initiatives for the foreseeable future, including at least the next 12 months. As of March 28, 2026,\nwe had cash of $57.3, of which, $33.1 was cash held by our foreign operations.\n\n \n\n**Sources\nof Revenue**\n\n** **\n\nA\ncontract with a customer exists when there is commitment and approval from both parties involved, the rights of the parties are identified,\npayment terms are defined, the contract has commercial substance and collectability of consideration is probable. The Company has determined\nthat the contract with the customer is established when the customer purchase order is accepted or acknowledged. Long-term agreements\n(“LTAs”) are used by the Company and certain of its customers to reduce their supply uncertainty for a period of time, typically\nmultiple years. While these LTAs define commercial terms including pricing, termination rights and other contractual requirements, they\ndo not represent the contract with the customer for revenue recognition purposes.\n\n \n\n21\n\n \n\n \n\nApproximately\n95% of the Company’s revenue was generated from the sale of products to customers in the Aerospace & Defense and\nIndustrial markets for each of the years ended March 28, 2026 and March 29, 2025. The remaining 5% of the Company’s revenue\nfor each of the last two fiscal years was derived from services performed for customers, which included repair and refurbishment\nwork performed on customer-controlled assets as well as design and test work.\n\n \n\nRefer\nto Note 2 for further discussion regarding the Company’s revenue policy.\n\n** **\n\n**Cost\nof Sales**\n\n** **\n\nCost\nof sales includes employee compensation and benefits, raw materials, outside processing, depreciation of manufacturing machinery and\nequipment, supplies and manufacturing overhead.\n\n \n\nLess\nthan half of our factory costs, depending on product mix, are attributable to raw materials, purchased components and outside processing.\nWhen we experience raw material inflation, we attempt to offset these cost increases by changing our buying patterns, expanding our vendor\nnetwork and passing through price increases when possible. Although we experienced cost inflation on raw material, labor and overhead\nfor this fiscal year, we were able to mitigate it through pricing, insourcing and strategic sourcing efforts.\n\n \n\nWe\nmonitor gross margin performance through a process of monthly operation reviews with all our divisions. We develop new products to target\ncertain markets allied to our strategies by first understanding volume levels and product pricing and then constructing manufacturing\nstrategies to achieve defined margin objectives. We only pursue product lines where we believe that the developed manufacturing process\nwill yield the targeted margins. Management monitors gross margins of all product lines on a monthly basis to determine which manufacturing\nprocesses or prices should be adjusted.\n\n** **\n\n**Fiscal\n2026 Compared to Fiscal 2025**\n\n \n\n**Results\nof Operations**\n\n**(amounts\nin millions, except share and per share data)**\n\n** **\n\n  \nFY26  \nFY25  \n$\nChange  \n%\nChange \n\nNet\nsales \n$1,870.9  \n$1,636.3  \n$234.6  \n 14.3%\n\nNet\nincome attributable to common stockholders \n$287.6  \n$233.8  \n$53.8  \n 23.0%\n\nNet\nincome per common share attributable to common stockholders: Diluted \n$9.09  \n$7.70  \n    \n   \n\nWeighted\naverage common shares attributable to common stockholders: Diluted \n 31,634,888  \n 30,354,470  \n    \n   \n\n \n\nNet\nsales for the fiscal year ended March 28, 2026 increased $234.6, or 14.3%, compared to fiscal 2025. Excluding $83.9 of net sales from VACCO, net sales increased by 9.2%\ncompared to the prior year. This increase was the result of a\n3.8% increase in our Industrial segment, while net sales in our Aerospace & Defense segment increased 32.9% year over year. Industrial\nsegment sales experienced the strongest contribution to growth in the aggregate & cement, warehousing and logistics, food & beverage\nand grain markets. Within Aerospace & Defense, total commercial aerospace net sales increased 17.8% and defense net sales increased\n64.5% year over year. Commercial aerospace\nnet sales, which consisted of $387.4 of OEM and $85.0 of distribution and aftermarket, increased by 17.8% compared to fiscal 2025 when\nOEM net sales were $317.8 and distribution and aftermarket net sales were $83.1. The OEM markets have continued to improve as build rates\nhave steadily increased over the last several months. Our defense market net sales, which consisted of $237.1 of OEM and $78.5 of distribution\nand aftermarket, increased by 64.5% compared to fiscal 2025 when OEM net sales were $146.3 and distribution and aftermarket net sales\nwere $45.6. The increase in defense sales was led by marine, missiles and guided munitions and reflects continued growth in demand which\nis evident by our growing backlog. The acquisition of VACCO also contributed to the sales growth. Excluding VACCO, net sales increased\nby 19.1% for the Aerospace & Defense segment.\n\n \n\nNet\nincome attributable to common stockholders increased by $53.8 to $287.6 for fiscal 2026 compared to fiscal 2025. The net income attributable\nto common stockholders of $287.6 in fiscal 2026 was impacted by $14.8 of acquisition and related costs, $6.2 of restructuring and consolidation\ncharges, $49.8 of interest expense, and $81.7 of income tax expense. The net income attributable to common stockholders of $233.8 in\nfiscal 2025 was impacted by $1.5 of restructuring and consolidation charges, $59.8 of interest expense, $12.4 of preferred stock dividends,\nand $65.7 of income tax expense.\n\n \n\n**Gross\nMargin**\n\n** **\n\n  \nFY26  \nFY25  \n$\nChange  \n%\nChange \n\nGross Margin \n$830.2  \n$726.1  \n$104.1  \n 14.3%\n\nGross Margin % \n 44.4% \n 44.4% \n    \n   \n\n \n\nGross\nmargin was 44.4% of sales for fiscal 2026 compared to 44.4% for the same period last year. The increase in gross margin was primarily\ndriven by volume. Gross margin in fiscal 2026 was impacted by $2.1 in restructuring costs related to inventory rationalization efforts\nat one of our manufacturing plants and $13.2 of unfavorable purchase accounting adjustments associated with the VACCO acquisition.\n\n** **\n\n22\n\n \n\n** **\n\n**Selling,\nGeneral and Administrative**\n\n** **\n\n  \nFY26  \nFY25  \n$\nChange  \n%\nChange \n\nSG&A \n$316.1  \n$279.3  \n$36.8  \n 13.2%\n\n% of net sales \n 16.9% \n 17.1% \n    \n   \n\n** **\n\nSG&A\nas a % of net sales was 16.9% compared to 17.1% in the prior fiscal year. SG&A expenses increased by $36.8 to $316.1 for fiscal 2026\ncompared to fiscal 2025, primarily driven by increased personnel costs and $11.2 from the inclusion of VACCO.\n\n** **\n\n**Other,\nNet**\n\n** **\n\n  \nFY26  \nFY25  \n$\nChange  \n%\nChange \n\nOther, net \n$93.1  \n$76.9  \n$16.2  \n 21.1%\n\n% of net sales \n 5.0% \n 4.7% \n    \n   \n\n \n\nOther\noperating expenses for fiscal 2026 totaled $93.1 compared to $76.9 for fiscal 2025. For fiscal 2026, other operating costs consisted\nof $81.0 of amortization expense, $1.6 of acquisition costs, $4.1 of restructuring costs, $1.1 of bad debt expense and $5.3 of other\nitems. Of the amortization expense incurred during the period, $10.3 was related to acquired intangible assets from the VACCO\nacquisition. For fiscal 2025, other operating expenses consisted of $71.8 of amortization expense, $1.5 of restructuring costs, $1.2\nof bad debt expense and $2.4 of other items.\n\n** **\n\n**Interest\nExpense, Net**\n\n** **\n\n  \nFY26  \nFY25  \n$\nChange  \n%\nChange \n\nInterest expense, net \n$49.8  \n$59.8  \n$(10.0) \n (16.7)%\n\n% of net sales \n 2.7% \n 3.7% \n    \n   \n\n \n\nInterest\nexpense, net, consists of interest charged on the Company’s debt agreements and amortization of deferred financing fees, offset\nby interest income. Interest expense, net was $49.8 for fiscal 2026 compared to $59.8 for fiscal 2025. The decrease in interest expense\nbetween the periods was due to the reduction of the principal balance on our Term Loan (as defined in “Liquidity and Capital Resources—Liquidity—Domestic\nCredit Facility”), partially offset by the impact of a $200.0 draw on the Revolving Credit Facility (as defined in “Liquidity\nand Capital Resources—Liquidity—Domestic Credit Facility”) during the second quarter of fiscal 2026 to fund part of\nthe VACCO acquisition. In addition, the Cross Currency Swap has enabled us to better manage interest costs.\n\n** **\n\n**Other Non-Operating Expense/(Income)**\n\n** **\n\n  \nFY26  \nFY25  \n$\nChange  \n%\nChange \n\nOther non-operating expense/(income)\n \n$1.9  \n$(1.8) \n$3.7  \n 205.6%\n\n% of net sales \n 0.1% \n (0.1)% \n    \n   \n\n* *\n\nOther\nnon-operating expense for fiscal 2026 totaled $1.9, consisting primarily of post-retirement benefit costs and foreign exchange gains\nand losses. Non-operating income during fiscal 2025 was $1.8, consisting primarily of a $4.0 legal settlement partially offset by post-retirement\nbenefit costs and foreign exchange gains and losses.\n\n** **\n\n23\n\n \n\n** **\n\n**Income\nTaxes**\n\n** **\n\n  \nFY26  \nFY25 \n\nIncome tax expense \n$81.7  \n$65.7 \n\nEffective tax rate with discrete items \n 22.1% \n 21.1%\n\nEffective tax rate without discrete items \n 23.8% \n 23.5%\n\n \n\nIncome tax expense for fiscal 2026 was $81.7 compared to $65.7 for\nfiscal 2025. Our effective income tax rate for fiscal 2026 was 22.1% compared to 21.1% for fiscal 2025. The effective income tax rates\nare different from the U.S. statutory rate due to the U.S. credits for increasing research activities and foreign-derived intangible income\nprovision, which decrease the rate, and differences in foreign and state income taxes, which increase the rate. The effective income tax\nrate for fiscal 2026 of 22.1% included discrete items totaling a benefit of $6.2 which is substantially related to a benefit associated\nwith stock-based compensation, changes in valuation allowances, and one-time adjustments to record deferred tax liabilities for foreign\nsubsidiaries. The effective income tax rate for fiscal 2026 without these discrete items would have been 23.8%. The effective income tax\nrate for fiscal 2025 of 21.1% included discrete items totaling a benefit of $7.6 which is substantially related to a benefit associated\nwith stock-based compensation, a reduction in unrecognized tax benefits due to the expiration of the statute of limitations, and benefits\nrelated to the release of a valuation allowance and an adjustment related to state remeasurements. The effective income tax rate for fiscal\n2025 without these discrete items would have been 23.5%.\n\n \n\n*Global\nMinimum Tax*\n\n \n\nIn\nOctober 2021, the Organisation for Economic Co-operation and Development (“OECD”) announced an Inclusive Framework on Base\nErosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational\ncorporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions\nhave either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption\nof additional components in later years or announced their plans to enact legislation in future years. The Company has performed an assessment\nof the potential impact to its income taxes as a result of Pillar Two. Based on the results of the assessment, the Company believes that\nit can avail itself of the transitional safe harbor rules in all jurisdictions in which the Company operates. We will continue to monitor\nboth the U.S. and international legislative developments related to Pillar Two to assess for any potential impacts. We are continuing\nto evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions\nin which we operate.\n\n \n\n*One\nBig Beautiful Bill Act*\n\n \n\nOn\nJuly 4, 2025, the U.S. enacted new legislation, Public Law No: 119-21, The One Big Beautiful Bill Act (“The Act”). The Act\nincludes several U.S. corporate tax provisions, including restoring immediate deductibility of certain capital expenditures, restoring\nfull expensing of domestic research and development costs, and changes in the computations of U.S. taxation on international earnings.\nAs the Company continues to analyze the changes in tax law contained in the Act, we expect the Act to result in a favorable timing shift\nin our U.S. cash tax payments, with no material impact on our fiscal 2026 effective tax rate.\n\n** **\n\n**Segment\nInformation**\n\n \n\nWe\nreport our financial results under two operating segments: Aerospace & Defense and Industrial. We use gross margin as the primary\nmeasurement to assess the financial performance of each reportable segment.\n\n \n\n24\n\n \n\n** **\n\n**Aerospace\n& Defense Segment:**\n\n** **\n\n  \nFY26  \nFY25  \n$\nChange  \n%\nChange \n\nNet sales \n$788.0  \n$592.8  \n$195.2  \n 32.9%\n\n  \n    \n    \n    \n   \n\nGross margin \n$320.7  \n$243.1  \n$77.6  \n 31.9%\n\nGross margin % \n 40.7% \n 41.0% \n    \n   \n\n  \n    \n    \n    \n   \n\nSG&A \n$58.1  \n$42.6  \n$15.5  \n 36.4%\n\n% of segment net sales \n 7.4% \n 7.2% \n    \n   \n\n \n\nNet\nsales increased $195.2, or 32.9%, for fiscal 2026 compared to fiscal 2025. Commercial aerospace net sales, which consisted of $387.4\nof OEM and $85.0 of distribution and aftermarket, increased by 17.8% compared to fiscal 2025 when OEM net sales were $317.8 and distribution\nand aftermarket net sales were $83.1. The OEM markets have continued to improve in line with build rates. Our defense market net sales,\nwhich consisted of $237.1 of OEM and $78.5 of distribution and aftermarket, increased by 64.5% compared to fiscal 2025 when OEM net sales\nwere $146.3 and distribution and aftermarket net sales were $45.6. The increase in defense sales was led by marine, missiles and guided\nmunitions and reflects continued growth in demand which is evident by our growing backlog. The acquisition of VACCO also contributed\nto the sales growth. Excluding VACCO, net sales increased by 19.1% for the Aerospace & Defense segment.\nExcluding VACCO, commercial net sales increased 17.3% and defense market net sales increased 22.9% compared to the same period in the\nprior year.\n\n \n\nGross\nmargin was $320.7, or 40.7% of net sales, in fiscal 2026 compared to $243.1, or 41.0% of sales, for the same period in fiscal 2025. We\nanticipate additional margin expansion in the upcoming year as the growing orders for commercial products are expected to increase volumes\nflowing through our manufacturing facilities driving cost efficiencies. Expected synergies from the VACCO acquisition should also contribute\nto margin expansion. Gross margin in fiscal 2026 was affected by $13.2 of purchase accounting adjustments related to the VACCO acquisition.\n\n** **\n\n**Industrial\nSegment:**\n\n \n\n  \nFY26  \nFY25  \n$\nChange  \n%\nChange \n\nNet sales \n$1,082.9  \n$1,043.5  \n$39.4  \n 3.8%\n\n  \n    \n    \n    \n   \n\nGross margin \n$509.5  \n$483.0  \n$26.5  \n 5.5%\n\nGross margin % \n 47.0% \n 46.3% \n    \n   \n\n  \n    \n    \n    \n   \n\nSG&A \n$141.5  \n$136.5  \n$5.0  \n 3.7%\n\n% of segment net sales \n 13.1% \n 13.1% \n    \n   \n\n \n\nNet\nsales increased $39.4, or 3.8%, during fiscal 2026 compared to the same period last year. The continued strong performance was driven\nby the aggregate and cement, warehousing, food & beverage and grain markets, partially offset by softness in the mining & metals,\npower generation and oil & gas end markets. Sales to distribution and the aftermarket were $751.9 in fiscal 2026 compared to $717.4\nin the prior year, a 4.8% year-over-year increase. OEM sales increased 1.5% to $331.0 for fiscal 2026 compared to $326.1 in the prior\nyear.\n\n \n\nGross\nmargin was $509.5, or 47.0% of net sales, in fiscal 2026 compared to $483.0, or 46.3% of sales, for the same period in fiscal 2025. The\nexpansion in margin year over year was attributable to manufacturing efficiencies and product mix.\n\n** **\n\n25\n\n \n\n** **\n\n**Corporate:**\n\n** **\n\n  \nFY26  \nFY25  \n$\nChange  \n%\nChange \n\nSG&A \n$116.5  \n$100.2  \n$16.3  \n 16.3%\n\n% of total net sales \n 6.2% \n 6.1% \n    \n   \n\n \n\nCorporate\nSG&A for fiscal 2026 increased $16.3 or 16.3% compared to fiscal 2025 due to increased spending in IT and personnel-related costs.\nAs a percentage of net sales, Corporate SG&A was relatively flat year over year.\n\n** **\n\n**Liquidity\nand Capital Resources**\n\n** **\n\nOur\nbusiness is capital-intensive. Our capital requirements include manufacturing equipment and materials. In addition, we have historically\nfueled our growth, in part, through acquisitions. We have historically met our working capital, capital expenditure requirements and\nacquisition funding needs through our net cash flows provided by operations, various debt arrangements and sale of equity to investors.\nWe believe that operating cash flows and available credit under our revolving bank credit facilities will provide adequate resources\nto fund internal growth initiatives for the foreseeable future.\n\n \n\nOur\nability to meet future working capital, capital expenditures and debt service requirements will depend on our future financial performance,\nwhich will be affected by a range of economic, competitive and business factors, particularly interest rates, cyclical changes in our\nend markets and prices for steel and our ability to pass through price increases on a timely basis, many of which are outside of our\ncontrol. In addition, future acquisitions could have a significant impact on our liquidity position and our need for additional funds.\n\n \n\nFrom\ntime to time, we evaluate our existing facilities and operations and their strategic importance to us. If we determine that a given facility\nor operation does not have future strategic importance, we may sell, relocate, consolidate or otherwise dispose of those operations.\nAlthough we believe our operations would not be materially impaired by such dispositions, relocations or consolidations, we could incur\nsignificant cash or non-cash charges in connection with them.\n\n \n\n**Liquidity**\n\n** **\n\nAs\nof March 28, 2026, we had cash of $57.3, of which, approximately $33.1 was cash held by our foreign operations. We expect that our undistributed\nforeign earnings will be re-invested indefinitely for working capital, internal growth and acquisitions for and by our foreign subsidiaries,\nwith the exception of our Canadian operations as there are no current plans to expand on the sales operations within that jurisdiction.\nAs discussed in further detail below, we also have the ability to borrow money from our existing credit facilities.\n\n \n\n*Domestic\nCredit Facility*\n\n \n\nIn\nfiscal 2022, RBC Bearings Incorporated, our top holding company, and our Roller Bearing Company of America, Inc. subsidiary (“RBCA”)\nentered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”),\nand the other lenders party thereto. The Credit Agreement provides the Company with (a) a $1,300.0 term loan (the “Term Loan”),\nwhich was used to fund a portion of the cash purchase price for the acquisition of Dodge Industrial and to pay related fees and expenses,\nand (b) a $500.0 revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan, the “Facilities”).\n\n \n\n26\n\n \n\n \n\nAmounts\noutstanding under the Facilities generally bear interest at either, at the Company’s option, (a) a base rate determined by reference\nto the higher of (i) Wells Fargo’s prime lending rate, (ii) the federal funds effective rate plus 0.50% and (iii) Term SOFR (as\ndefined in the Credit Agreement based on SOFR, the secured overnight financing rate administered by the Federal Reserve Bank of New York)\nplus 1.00% or (b) Term SOFR plus a credit spread adjustment of 0.10% plus a margin ranging from 0.75% to a cap of 1.75% in the case of\nloans under the Revolving Credit Facility and 2.00% in the case of the Term Loan depending on the Company’s consolidated ratio\nof total net debt to consolidated EBITDA (as defined in the Credit Agreement) from time to time. The Facilities are subject to a SOFR\nfloor of 0.00%. As of March 28, 2026, the Company’s margin was 1.00% for SOFR loans, the commitment fee rate was 0.175%, and the\nletter of credit fee rate was 0.75%.\n\n \n\nThe\nTerm Loan matures in November 2026 and amortizes in quarterly installments with the balance payable on the maturity date. The Company\ncan elect to prepay some or all of the outstanding balance from time to time without penalty, which will offset future quarterly amortization\ninstallments. Due to prepayments previously made, the required future principal payments on the Term Loan are $173.0 for fiscal 2027.\n\n \n\nOriginally\nthe Revolving Credit Facility was to expire in November 2026 but on October 28, 2025, the Credit Agreement was amended to, among other\nthings, (i) extend the expiration date of the Revolving Credit Facility to October 2030, (ii) eliminate the minimum interest coverage\nratio covenant from the Credit Agreement, and (iii) reduce the margin cap within the pricing grid on Term SOFR-based loans under the\nRevolving Credit Facility from 2.00% to 1.75%. All amounts outstanding under the Revolving Credit Facility will be payable on its expiration\ndate.\n\n \n\nIn\nconnection with the amendment, new debt issuance costs totaled $1.8. Additionally, $0.6 of previously unamortized debt issuance costs\nassociated with the Revolving Credit Facility will now be associated with the new arrangement. The total of $2.4 debt issuance costs\nwill be amortized through the new term of October 2030. The remaining portion of original debt issuance costs associated with the Term\nLoan of $1.6 will continue to be amortized through the end of the Term Loan in November 2026.\n\n \n\nThe\nCredit Agreement requires the Company to comply with various covenants, including a maximum Total Net Leverage Ratio (as defined within\nthe Credit Agreement) of 4.50:1.00 (provided that such maximum ratio may be increased by the Company to 0.50:1.00 for a period of 12\nmonths after the consummation of a material acquisition (provided that there may be only one such increase in effect at any one time)).\nAs of March 28, 2026 the Company was in compliance with all debt covenants.\n\n \n\nThe\nCredit Agreement allows the Company to, among other things, make distributions to stockholders, repurchase its stock, incur other debt\nor liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations of the Credit\nAgreement.\n\n \n\nThe\nCompany’s domestic subsidiaries have guaranteed the Company’s obligations under the Credit Agreement, and the Company’s\nobligations and the domestic subsidiaries’ guaranty are secured by a pledge of substantially all of the assets of the Company and\nits domestic subsidiaries.\n\n \n\nAs\nof March 28, 2026, $173.0 was outstanding under the Term Loan, $200.0 was outstanding under the Revolving Credit Facility (used to fund\na portion of the purchase price for VACCO), and $3.7 of the Revolving Credit Facility was being utilized to provide letters of credit\nto secure the Company’s obligations relating to certain insurance programs. The Company had the ability to borrow an additional\n$296.3 under the Revolving Credit Facility as of March 28, 2026.\n\n \n\n*Senior\nNotes*\n\n \n\nIn\nfiscal 2022, RBCA issued $500.0 aggregate principal amount of 4.375% Senior Notes due 2029 (the “Senior Notes”). The net\nproceeds from the issuance of the Senior Notes were approximately $492.0, after deducting initial purchasers’ discounts and commissions\nand offering expenses, and were used to fund a portion of the purchase price for the acquisition of Dodge.\n\n \n\n27\n\n \n\n \n\nThe\nSenior Notes were issued pursuant to an indenture with Wilmington Trust, National Association, as trustee (the “Indenture”).\nThe Indenture contains covenants limiting the ability of the Company to (i) incur additional indebtedness or guarantee indebtedness,\n(ii) declare or pay dividends, redeem stock or make other distributions to stockholders, (iii) make investments, (iv) create liens or\nuse assets as security in other transactions, (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of its\nassets, (vi) enter into transactions with affiliates, and (vii) sell or transfer certain assets. These covenants contain various exceptions,\nlimitations and qualifications. At any time that the Senior Notes are rated investment grade, certain of these covenants will be suspended.\n\n \n\nThe\nSenior Notes are guaranteed jointly and severally on a senior unsecured basis by RBC Bearings and certain of RBCA’s existing and\nfuture wholly-owned domestic subsidiaries that also guarantee the Credit Agreement.\n\n \n\nInterest\non 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\nyear.\n\n \n\nThe\nSenior 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\nset forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company sells certain\nof its assets or experiences specific kinds of changes in control, the Company must offer to purchase the Senior Notes.\n\n \n\n*Foreign\nBorrowing Arrangements*\n\n \n\nOne\nof our foreign subsidiaries, Schaublin SA, has a CHF 5.0 (approximately $6.1 USD) credit line with Credit Suisse (Switzerland) Ltd. to\nprovide future working capital, if necessary. As of March 28, 2026, $0.1 was being utilized to provide a bank guarantee. Fees associated\nwith this credit line are nominal.\n\n \n\nIn\nJuly 2024, Swiss Tool Systems, one of our foreign subsidiaries, purchased the building where it operates for CHF 7.1 (approximately $8.4\nUSD) and took out a 10-year, 2.9% fixed-rate mortgage on the building for CHF 4.0 (approximately $4.5 USD).\n\n \n\n*Interest\nRate Swap*\n\n \n\nBecause\nthe Company is exposed to market risks relating to fluctuations in interest rates, the Company maintained an interest rate swap prior\nto its expiration on December 30, 2025 (the “Interest Rate Swap”). At this time we have not yet determined if we will enter\ninto a new interest rate swap arrangement.\n\n \n\n*Cross\nCurrency Swap*\n\n* *\n\nThe\nCompany is exposed to foreign exchange rate fluctuations as some of our subsidiaries operate in various countries.\n\n \n\nOn\nAugust 12, 2024, the Company entered into the Cross Currency Swap with a third-party financial counterparty. The objective of the Cross\nCurrency Swap is to economically hedge the Company’s net investment in its lower-tier European subsidiary, Schaublin, against adverse\nchanges 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)\nnotional 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\nannual 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\ncounterparty. The Cross Currency Swap has been designated as a net investment hedge on an after-tax basis.\n\n** **\n\n*Preferred\nStock*\n\n* *\n\nPrior\nto October 15, 2024, the Company had outstanding 4,600,000 shares of 5.00% Series A Mandatory Convertible Preferred Stock (“MCPS”)\nto which we paid a quarterly dividend aggregating $5.75, but on that date each then-outstanding share of the MCPS converted into 0.4413\nshares of common stock, resulting in the retirement of the MCPS and the issuance of 2,029,955 shares of common stock, and the cessation\nof the Company paying related dividends.\n\n** **\n\n28\n\n \n\n** **\n\n**Cash\nFlows**\n\n* *\n\n*Fiscal\n2026 Compared to Fiscal 2025*\n\n \n\nThe\nfollowing table summarizes our cash flow activities:\n\n \n\n  \nFY26  \nFY25  \n$\nChange \n\nNet cash provided by (used in): \n   \n   \n  \n\nOperating activities \n$415.7  \n$293.6  \n$122.1 \n\nInvesting activities \n (349.7) \n (49.8) \n (299.9)\n\nFinancing activities \n (43.3) \n (270.4) \n 227.1 \n\nEffect of exchange\nrate changes on cash \n (2.2) \n (0.1) \n (2.1)\n\n(Decrease)/increase\nin cash \n$20.5  \n$(26.7) \n$47.2 \n\n \n\nDuring\nfiscal 2026, we generated cash of $415.7 from operating activities compared to $293.6 for fiscal 2025. The increase of $122.1 was the\nresult of a $41.4 increase in net income, a $56.8 favorable change in non-cash activity and net favorable change in operating assets\nand liabilities of $23.9. The favorable change in operating assets and liabilities is detailed in the table below. The change in non-cash\nactivity was driven by $8.8 more depreciation and amortization, $6.1 more stock-based compensation, $0.6 more amortization of\ndeferred financing costs, $37.7 more deferred taxes, $0.9 more non-cash operating lease expense, $0.2 of additional losses on the\ndisposition of assets and $2.5 more restructuring and other non-cash charges.\n\n \n\nThe\nfollowing chart summarizes the impact on cash flow from operating assets and liabilities for fiscal 2026 versus fiscal 2025.\n\n \n\n  \nFY26  \nFY25 \n\nCash provided by (used in): \n   \n  \n\nAccounts receivable \n$(19.4) \n$(53.3)\n\nInventory \n (43.7) \n (32.3)\n\nPrepaid expenses and other current assets \n 10.5  \n (3.9)\n\nOther noncurrent assets \n (16.7) \n 0.5 \n\nAccounts payable \n 1.4  \n 22.2 \n\nAccrued expenses and other current liabilities \n (16.4)  \n (2.3)\n\nOther noncurrent\nliabilities \n 24.4 \n (14.7)\n\nTotal change in operating\nassets and liabilities \n$(59.9) \n$(83.8)\n\n \n\nDuring\nfiscal 2026, we used $349.7 for investing activities as compared to $49.8 for fiscal 2025. The increase in cash used was attributable\nto $276.7 used for the VACCO acquisition and a $23.3 increase in capital expenditures.\n\n \n\nDuring\nfiscal 2026, we used cash of $43.3 for financing activities compared to $270.4 in fiscal 2025. This change was primarily attributable\nto $133.0 of additional proceeds received from the Revolving Credit Facility. Additionally, we had $22.0 less of payments made on the\nTerm Loan, $17.2 less of preferred stock dividends paid, and $77.4 less of revolving credit facilities payments, partially offset by\n$1.8 more of financing fees paid, $10.7 less of exercises of stock-based awards, $4.9 more of repurchases of common stock, $0.5 more\npayments of finance lease obligations, $0.1 more repayments of notes payable and $4.5 less of proceeds received from mortgage.\n\n \n\n**Capital\nExpenditures**\n\n** **\n\nOur\ncapital expenditures in fiscal 2026 were $73.1 compared to $49.8 in fiscal 2025. We expect to make capital expenditures of approximately\n3.5% to 4.0% of net sales during fiscal 2027 in connection with our existing business. We funded our fiscal 2026 capital expenditures,\nand expect to fund fiscal 2027 capital expenditures, principally through existing cash and internally generated funds. We may also make\nsubstantial additional capital expenditures in connection with acquisitions.\n\n** **\n\n29\n\n \n\n** **\n\n**Critical\nAccounting Policies and Estimates**\n\n** **\n\nOur\ndiscussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which\nhave been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires\nus to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure\nof contingent assets and liabilities. We evaluate our estimates on an on-going basis. Estimates are used for, but not limited to, the\naccounting for the allowance for credit losses, valuation of inventories, goodwill and intangible assets, depreciation and amortization,\nincome taxes and tax reserves, the valuation of options and the valuation of business combinations. We base our estimates on historical\nexperience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the\nbasis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We believe\nour judgments related to these accounting estimates are appropriate. Actual results may differ from these estimates under different assumptions\nor conditions.\n\n \n\n*Revenue\nRecognition.* The performance obligations for the majority of RBC’s product sales are satisfied at the point in time in which\nthe products are shipped. The Company has determined that the customer obtains control upon shipment of the product based on the shipping\nterms (i.e. when it ships from RBC’s dock or when the product arrives at the customer’s dock) and recognizes revenue when\ncontrol has transferred to the customer. Once a customer has obtained control, the customer is able to direct the use of, and obtain\nsubstantially all of the remaining benefits from, the asset. Approximately 95% and 98% of the Company’s revenue was recognized\nin this manner based on sales for the fiscal years ended March 28, 2026 and March 29, 2025, respectively.\n\n \n\n*Inventory.*\nInventory is stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. We account for\ninventory under a full absorption method. We record adjustments to the value of inventory based upon past sales history and forecasted\nplans to sell our inventories. The physical condition, including age and quality, of the inventories is also considered in establishing\nits valuation. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements\nif future economic conditions, customer inventory levels or competitive conditions differ from our expectations.\n\n** **\n\n*Goodwill\nand Indefinite-Lived Intangible Assets.*Goodwill (representing the excess of the amount paid to acquire a company over the estimated\nfair value of the net assets acquired) and indefinite-lived intangible assets are not amortized but instead are tested for impairment\nannually, or when events or circumstances indicate that the carrying value of such asset may not be recoverable. Separate tests are performed\nfor goodwill and indefinite lived intangible assets. The Company performs the annual impairment testing during the fourth quarter of\neach fiscal year. We completed a quantitative test of impairment on the indefinite lived intangible assets with no impairment noted in\nfiscal year 2026. The determination of any goodwill impairment is made at the reporting unit level. The Company determines the fair value\nof a reporting unit and compares it to its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, an impairment\nloss is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company applies the\nincome approach (discounted cash flow method) in testing goodwill for impairment. The key assumptions used in the discounted cash flow\nmethod used to estimate fair value include gross margin, discount rate, and long-term growth rate,\nwhich is affected by expectations about future market or economic conditions. The\nfair value of the reporting units exceeds the carrying value by a minimum of 38.8% at each of the two reporting units. Assuming no growth\nin gross margin within the model would not result in impairment of goodwill for any of our reporting units. Although no changes are expected,\nif the actual results of the Company are less favorable than the assumptions the Company makes regarding estimated cash flows, the Company\nmay be required to record an impairment charge in the future.\n\n \n\n*Valuation\nof Business Combinations.* We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume\nbased on their estimated fair values at the date of acquisition, including identifiable intangible assets, which either arise from a\ncontractual or legal right or are separable from goodwill. We base the fair value of identifiable intangible assets acquired in a business\ncombination on detailed valuations which are prepared with the assistance of a specialist and consider our best estimates of inputs and\nassumptions that a market participant would use. We utilize a specialist for these valuations due to the complexity and estimation uncertainty\ninvolved in determining the fair value given the significant assumptions involved. Significant assumptions utilized in the valuation\nmodels include discount rates, revenue growth rates and EBITDA margins. We allocate to goodwill any excess purchase price over the fair\nvalue of the net tangible and identifiable intangible assets acquired. Transaction costs associated with these acquisitions are expensed\nas incurred through other, net on the consolidated statements of operations.\n\n \n\n*Income\nTaxes.* As part of the process of preparing the consolidated financial statements, we are required to estimate the income taxes in\neach jurisdiction in which we operate. This process involves estimating the actual current tax liabilities together with assessing temporary\ndifferences resulting from the differing treatment of items for tax and financial reporting purposes. These differences result in deferred\ntax assets and liabilities, which are included in the consolidated balance sheets. We must then assess the likelihood that the deferred\ntax assets will be recovered, and to the extent that we believe that recovery is not more than likely, we are required to establish a\nvaluation allowance. If a valuation allowance is established or increased during any period, we are required to include this amount as\nan expense within the tax provision in the consolidated statements of operations. Significant judgment is required in determining our\nprovision for income taxes, deferred tax assets and liabilities, accrual for uncertain tax positions and any valuation allowance recognized\nagainst net deferred tax assets.\n\n \n\n30\n\n \n\n** **\n\n**Recent\nAccounting Pronouncements**\n\n \n\nFor\na discussion of recent accounting pronouncements, refer to Note 2.\n\n** **\n\n**Off-Balance\nSheet Arrangements**\n\n \n\nThe\nCompany has $3.7 of outstanding standby letters of credit, all of which are under the Revolving Credit Facility. We had no significant\noff-balance sheet arrangements as of March 28, 2026."}