For the next twelve months, we expect capital expenditures to remain relatively consistent, the majority of which
relate to new or expanded business. We believe that funds generated from operations and borrowings from the credit facilities will be sufficient to finance our capital expenditures and working capital needs through this period. We base this
assertion on our current availability for borrowing of up to $56.2 million and our forecasted positive cash flow from operations for the next twelve months.
Seasonality and Fluctuation in Quarterly Results
economic conditions impact our business and financial results, and certain of our businesses experience seasonal and other trends related to the industries and end markets that they serve. For example, European sales are often weaker in the summer
months, medical device sales are often stronger in the fourth calendar quarter, and sales to original equipment manufacturers are often stronger immediately preceding and following the launch of new products. However, as a whole, we are not subject
to material seasonality.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material
current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Our critical accounting
policies, including the assumptions and judgments underlying them, are disclosed in the 2016 Annual Report, including those policies as discussed in Note 1 to the Notes to Consolidated Financial Statements included in the 2016 Annual Report. There
have been no changes to these policies during the six months ended June 30, 2017, except as discussed in Note 1 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form
||Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to changes in financial
market conditions in the normal course of our business due to use of certain financial instruments as well as transacting business in various foreign currencies. To mitigate the exposure to these market risks, we have established policies,
procedures and internal processes governing our management of financial market risks. We are exposed to changes in interest rates primarily as a result of our borrowing activities.
At June 30, 2017, we had $33.3 million outstanding under our variable rate revolving credit facilities, without regard to debt issuance costs. At
June 30, 2017, a one-percent increase in the interest rate charged on our outstanding variable rate borrowings under our Senior Secured Revolver would result in interest expense increasing annually by
approximately $0.3 million.
At June 30, 2017, we had $540.7 million outstanding under our variable rate Senior Secured Term Loan B,
without regard to debt issuance costs. At June 30, 2017, a one-percent increase in the interest rate charged on this outstanding variable rate borrowings under the Senior Secured Term Loan B would result
in interest expense increasing annually by approximately $5.4 million.
At June 30, 2017, we had $297.0 million outstanding under our
Incremental Term Loan, without regard to debt issuance costs. At June 30, 2017, a one-percent increase in the interest rate charged on this outstanding variable rate borrowings under the Incremental Term
Loan would result in interest expense increasing annually by approximately $3.0 million.
Our policy is to manage interest expense using a mix of
fixed and variable rate debt. As such, we entered into a $150.0 million interest rate swap that went into effect on December 29, 2015, which was amended and restated on September 30, 2016 to change the LIBOR indexed floor from 1.0% to
0.75%, and fix our interest rate at 6.466% for a portion of our Senior Secured Term Loan B. The nature and amount of our borrowings may vary as a result of future business requirements, market conditions and other factors.
Translation of our operating cash flows denominated in foreign currencies is impacted by changes in foreign exchange rates. Our Precision Bearing Components
Group invoices and receives payment in currencies other than the U.S. dollar including the euro. Additionally, we participate in various third party and intercompany loans, payables and receivables denominated in currencies other than the U.S.
dollar. To help reduce exposure to foreign currency fluctuation, we have incurred debt in euros in the past and have, from time to time, used foreign currency hedges to hedge currency exposures when these exposures meet certain discretionary levels.
We did not hold a position in any foreign currency hedging instruments as of June 30, 2017.
||Controls and Procedures |
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)). Our disclosure controls are designed to ensure that material information relating to us is made known to our Chief Executive Officer
and Chief Financial Officer by others within our organization. Based upon that evaluation, as a result of the material weaknesses in internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were not effective as of June 30, 2017 to ensure that information required to be disclosed in the reports that we file under the Exchange Act is