**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

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**FORM 10-K**

 

**FORANNUAL AND TRANSITION REPORTS PURSUANT TO**

**SECTIONS13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

| ý | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 29, 2003, OR**                                                                                                                                                                                                                                   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                     |
| o      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION  PERIOD FROM                       TO                    ** |

 

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**CommissionFile Number:  333-33085**

 

**ROLLER BEARING COMPANY OF AMERICA,INC.**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                                                    |   | **13-3426227**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State of other  jurisdiction of incorporation or organization) |   | (I.R.S. Employer  Identification Number) |

 

**60 RoundHill RoadFairfield, CT 06824**

(Address of principalexecutive offices, including zip code)

 

**(203)255-1511**

(Registrant’s telephonenumber, including area code)

 

Securities registeredpursuant to Section 12(b) of the Act:  **None**

 

Securities registered pursuantto Section 12(g) of the Act:  **None**

 

Indicate by check mark whether the Registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes    ý    No    o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of Registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.  ý

 

Indicate by check mark whether the Registrant is anaccelerated filer (as defined in Exchange Act Rule 12b-2).Yes    o    No    ý

 

As of June 25, 2003, there were 103 shares of theRegistrant’s Common Stock, par value $0.01 per share, outstanding, all of whichwere held by Roller Bearing Holding Company, Inc., a Delaware corporation.  There is no public market for theregistrant’s Common Stock.  Accordingly,the aggregate market value of the Common Stock held by non-affiliates of theRegistrant is not determinable.

 

 

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**INDEX**

 

**ROLLERBEARING COMPANY OF AMERICA, INC.**

** **

**ANNUALREPORT ON FORM 10-K**

 
| **Item**  |                                                                                        | **Description** |
|-----------|---------------------------------------------------------------------------------------------|-----------------|
|      |                                                                                        |
| Item  1.  | BUSINESS.                                                                                   |
|      |                                                                                        |
| Item 2.   | PROPERTIES                                                                                  |
|      |                                                                                        |
| Item 3.   | LEGAL PROCEEDINGS                                                                           |
|      |                                                                                        |
| Item  4.  | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                        |
|      |                                                                                        |
| Item  5.  | MARKET  FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS                  |
|      |                                                                                        |
| Item 6.   | SELECTED FINANCIAL DATA                                                                     |
|      |                                                                                        |
| Item  7.  | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|      |                                                                                        |
| Item  7A. | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS                                |
|      |                                                                                        |
| Item 8.   | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                |
|      |                                                                                        |
| Item 9.   | CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS                                              |
|      |                                                                                        |
| Item  10. | DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT                                         |
|      |                                                                                        |
| Item 11.  | EXECUTIVE COMPENSATION                                                                      |
|      |                                                                                        |
| Item  12. | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                             |
|      |                                                                                        |
| Item 13.  | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                             |
|      |                                                                                        |
| Item 14.  | CONTROLS AND PROCEDURES                                                                     |
|      |                                                                                        |
| Item  15. | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                            |

 

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**PART I**

 

*Asused in this Annual Report on Form 10-K, unless the context otherwise requires,“the Company,” “we,” “us,” or “our” refers to Roller Bearing Company ofAmerica, Inc., a Delaware corporation, and its direct and indirect subsidiarieson a consolidated basis.*

 

**Item 1.****                                   BUSINESS.**

 

**Business Overview**

 

We are an international manufacturer of highlyengineered precision roller, ball and plain bearings.  Bearings, which are integral to the manufacture and operation ofmost machines and mechanical systems, reduce wear to moving parts, facilitateproper power transmission and reduce damage and energy loss caused byfriction.  While we manufacture productsin all major bearing categories, we focus primarily on highly technical orregulated bearing products for niche markets. We target the higher end of the domestic bearing market where we believeour value added manufacturing and engineering capabilities enable us todifferentiate ourselves from our competitors and to enhance ourprofitability.  We believe that we are aleading supplier to many of our targeted markets and maintain secondarypositions in other product niches where we believe market share gains can beachieved.

 

We sell primarily to domestic original equipmentmanufacturers, or OEMs, and distributors in three markets:  industrial, aerospace and government(principally for aerospace applications). Many of our product offerings are in relatively small markets of between$30.0 million and $150.0 million.  Thesemarkets require high service levels, extensive technical engineering support,short lead times and small production runs. A significant portion of our sales, currently estimated to be 60%, areto the replacement market, which are sales that are, directly or indirectly,used to replace or upgrade installed products. During the period commencing on March 31, 2002 and ending on March 29,2003, or fiscal 2003, we had more than 6,000 customers with no single customeramounting to more than 7% of our net sales.

 

During fiscal 2003, approximately 67% of our net saleswere to the industrial market and approximately 33% of our net sales were tothe aerospace market for applications in commercial and military aviation.  Approximately 43% of our net sales to theaerospace market were, directly or indirectly, to the United States government.

 

Although we operate as a single manufacturing andoperational segment, we sell products to various customer markets.  Our aggregate foreign sales in fiscal 2003were $29.2 million or 17% of our total sales. RBC’s customer base in Europe consists of three major components. Thefirst is domestic U. S. product sold to large multinational companies such asCaterpillar, Deere & Company, Parker Hannifin and Bombardier and toEuropean distributors such as BSL in England and Rima Spa in Italy. A bonded warehousewas established in fiscal 2003 at the Schaublin facility in Switzerland tofacilitate the growth of this business. The second component of our Europeanbusiness is the sale of Schaublin bearings sold primarily to the OEM aerospaceand train markets and to authorized distributors. The last component of the RBCbusiness in Europe consists of the sale of collets and work holding devices forthe machine tool market. These products are sold to both OEMs and todistributors.

 

**CorporateOrganization**

 

We conduct and operate our business through four divisions:

 

•                  theRBC division;

•                  theHeim Bearings division;

•                  theTransport Dynamics Corporation division;

•                  theEngineered Components Division;

 

and six U.S. wholly-ownedsubsidiaries:

 

•                  RBCNice Bearings, Inc. ;

•                  RBCLinear Precision Products, Inc;

•                  BremenBearings, Inc. ;

•                  IndustrialTectonics Bearings Corporation;

•                  MillerBearing Company, Inc.; and

•                  TysonBearing Company, Inc.

 

In addition, we operate in Europe through several direct and indirectsubsidiaries:

 

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•                  SchaublinHolding S.A., or “Schaublin Holdings”, which is a holding company for ourEuropean operations;

•                  SchaublinS.A., or “Schaublin”

•                  RBCFrance SAS; and

•                  EtablissementsJ. Bovagnet.

 

We also produce component parts for furthermanufacture through our RBC de Mexico subsidiary, located in Reynosa,Tamaulipas, Mexico.

 

**History and Recent Developments**

 

We were incorporated in Delaware in 1987.  In July 1991, our Chairman, President andChief Executive Officer, Dr. Michael J. Hartnett, teamed up withaffiliates of Aurora Capital Partners, L.P. to implement a plan to acquire aseries of small to medium size domestic companies in the roller and ballbearing industry.  In March 1992, ourcapital stock was acquired for $52.0 million by RBC Acquisition Company, withwhich we subsequently merged and became a wholly-owned subsidiary of RollerBearing Holding Company, Inc., or Holdings.

 

On June 23, 1997, Holdings effected arecapitalization, pursuant to which Holdings and certain of its equityholdersredeemed and purchased all of Holdings’ outstanding preferred stock andsubstantially all of its outstanding common stock and warrants to purchase itscommon stock held by non-management stockholders.  The recapitalization was financed through the issuance ofwarrants to purchase Class A Common Stock of Holdings, the issuance by Holdingsof Senior Secured Discount Debentures, the issuance by us of SeniorSubordinated Notes due 2007, and the incurrence by us of $16.0 million of termloans.  The term loans were a part ofour senior credit facility with a group of lenders, which, as we discuss below,was replaced by a new senior credit facility on May 30, 2002.

 

***•******                                          Acquisitions***

 

Since 1992, we have employed a strategy of growththrough acquisitions and we have significantly expanded our operations througha number of acquisitions of complementary bearing companies. Through the end offiscal 2002, we completed nine acquisitions and integrated the acquired businesseseffectively into our existing operations.

 

In December 2002, we purchased, through our indirectwholly-owned subsidiary, Schaublin, all of the outstanding capital stock ofmyonic SAS, or Myonic, from myonic AG, a Swiss corporation.  The total consideration paid was $2.8million, of which $1.7 million was allocated to intangibles.  The corporate name of Myonic has since beenchanged to RBC France SAS.

 

We believe that there will continue to beconsolidation opportunities within the bearing industry.  We are currently in discussion with severalcompanies that meet our strategic goals. Priority will be given to acquiring bearing companies with sales ofbetween $15.0 million and $50.0 million. Additionally, we will seek smaller “fold-in” acquisitions, businesseswhose products can be manufactured at our existing facilities.

 

***•******                                          WhitneyInvestments***

 

In December 2000 and January 2001, the private equityfirm Whitney & Co., through an affiliate, purchased 2,368,265 shares ofHoldings Class A Common Stock from various stockholders of Holdings.  In connection with the transaction, weentered into a Management Services Agreement with Whitney, pursuant to whichWhitney provides us with certain financial consulting and management advisoryservices in exchange for the payment of certain management fees and thereimbursement of certain expenses.  SeeItem 13. “Certain Relationships and Related Transactions.”  In addition, Holdings, Dr. Hartnett,Hartnett Family Investments, L.P. and Whitney entered into a Stockholders’ Agreementrelated to their ownership of Holdings’ capital stock.

 

In July 2002, Dr. Hartnett and Whitney purchased anaggregate of 240,000 shares of Holdings Class B Exchangeable ConvertibleParticipating Preferred Stock in exchange for gross proceeds of $24.0million.  In connection with thepurchase, Holdings paid a fee of $750,000 to Whitney and the parties amendedthe terms of the Management Services Agreement and the Stockholders’ Agreement.  Following the closing of the sale, Holdingsutilized the proceeds of the sale and certain cash that we had paid to Holdingsas a dividend to repurchase approximately $30.4 million in principal amount atmaturity of Holdings’ Discount Debentures. This repurchase satisfied Holdings’ obligation to make a scheduled redemptionpayment relating to its Discount Debentures in December 2002.  Holdings recognized a pretax gain on theextinguishment of this debt obligation of approximately $800,000, net oftransaction expenses of approximately $400,000.

 

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***•******                                          New Senior CreditFacility***

 

On May 30, 2002, we, together with our domesticsubsidiaries, entered into a $94.0 million senior secured credit facility withGeneral Electric Capital Corporation as agent and lender, Congress FinancialCorporation (now known as Central) as lender, GECC Capital Markets Group aslead arranger, and other lenders consisting of a $40.0 million term loan and a$54.0 million revolving credit facility. In connection with this facility we, together with our domesticsubsidiaries, granted the lenders liens and mortgages on substantially all ofour existing and after-acquired personal and real property.  In addition, to secure the loans, we pledgedall of our capital stock in our domestic subsidiaries and a portion of ourcapital stock in our directly owned foreign subsidiaries to the lenders.

 

The proceeds of the term loan were used to pay off ourprevious senior credit facility with Credit Suisse First Boston and otherlenders, to pay fees and expenses with respect to our new senior creditfacility and for other corporate purposes. In addition, we have secured the letters of credit issued in connectionwith our previous senior credit facility pursuant to our new senior creditfacility.  The revolving credit facilityis available for issuances of letters of credit and for loans in connectionwith acquisitions, working capital needs or other general corporate purposes.

 

***•******                                          Certain Payments;Amendments to Senior Credit Facility***

 

On December 10, 2002, weadvanced $519,000 to our subsidiary, Schaublin Holding.  Schaublin Holding advanced the funds to itssubsidiary, Schaublin, SA, which were used by Schaublin to fund a portion ofthe purchase price of Myonic.  OnDecember 13, 2002, we made an additionalpayment of $450,000 to Schaublin Holding.  On December 13, 2002, we made a dividend payment of approximately $2.5million to Holdings, the proceeds of which were used by Holdings to payinterest due on its Discount Debentures. At the time of the making of these payments, we did not satisfy acertain minimum financial ratio set forth in the indenture for the Notes and,accordingly, those payments constituted defaults under one of the covenantscontained in the indenture for the Notes and a covenant in our senior creditfacility.  On February 6, 2003, inaccordance with the terms of the indenture for the Notes, we sent a notice ofthe defaults to the trustee for the holders of the Notes, which notice includeda description of how such defaults were cured.

 

On January 27, 2003, Schaublin Holding repaid the$450,000 December 13th payment to us. On February 6, 2003, we obtained additional equity investments in anamount equal to the aggregate of the payment we made in connection with thepurchase of Myonic and the dividend paid to Holdings, thereby effectivelyrepaying such amounts.  We and ouroutside advisors believe that these actions cured the defaults relating tothose payments under the indenture for the Notes prior to the time that theywould have matured into Events of Default under the indenture.  Further, on February 10, 2003, we designatedour direct and indirect European subsidiaries as Restricted Subsidiaries forpurposes of the indenture.  Giving proforma effect to that designation, we would have satisfied the ratio as of thedates of making each of the relevant payments.

 

On February 5, 2003, we received a waiver from ourlenders under the senior credit facility of the covenant default related to theabove payments.  On February 5, 2003, weagreed with those lenders to amend the senior credit facility to permit us toadvance certain funds to our European subsidiaries for the purpose ofdischarging all of their existing funded indebtedness and for general workingcapital purposes.

 

The equity raised to cure the indenture defaults thatresulted from the payments discussed above was provided to Holdings by WhitneyV, L.P., an affiliate of Whitney, and Dr. Hartnett.  On February 6, 2003, they purchased an aggregate of 1,008.41shares of Holdings’ Class A Preferred Stock for an aggregate purchase price ofapproximately $3.0 million.  The Class APreferred Stock is the most senior of Holdings’ capital stock in terms ofliquidation preference and is entitled to an accrued dividend at 8% perannum.  In connection with the sale ofthe Class A Preferred Stock, we paid to Whitney closing fees in the amountof  $200,000 and reimbursed Whitney forexpenses of approximately $35,000 incurred in connection with the purchase.

 

Holdings used the proceeds from the sale of Class A PreferredStock to purchase 3 shares of our Common Stock.  On February 10, 2003, we paid to Holdings a dividend in theamount of $3.0 million and, pursuant to the terms of the Purchase Agreement forthe Class A Preferred Stock, on February 10, 2003, Holdings used the proceedsfrom such dividend to exercise its option to repurchase all such stock for theoriginal purchase price plus all accrued dividends.  Accordingly, no Class A Preferred Stock is outstanding as of thedate hereof.  The transactions were unanimouslyapproved by the disinterested members of our and Holdings’ Boards of Directorsand the terms thereof were 

 

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unanimously determined bysuch Boards to have been no less favorable to us and Holdings than those thatcould have been obtained on the dates thereof in arm’s length dealings with aperson who was not an affiliate.  Atthis time, the defaults caused by the payments discussed above were cured, andwe sent a notice to the Trustee for the holders of the Notes to this effect.

 

On June 19, 2003, we further amended and restated oursenior credit facility in order, among other things, to establish a structureunder which we now may include certain of our foreign assets within our“borrowing base” which sets forth the amounts that we can borrow under therevolving credit facility.  In addition,this will simplify the process under which we can fund our foreignoperations.  As part of this amendment,we have created inter-company loan and asset pledge arrangements, includingpledges of certain foreign assets, that are all ultimately assigned to thelenders as further collateral to secure the borrowings under our new seniorcredit facility.

 

**Bearing Industry**

 

Demand for bearings generally follows the market forproducts in which bearings are incorporated and the economy as a whole.  Purchasers of bearings include (i)automotive and commercial truck manufacturers, (ii) industrial equipment andmachinery manufacturers, (iii) producers of commercial and military aerospaceequipment, (iv) agricultural machinery manufacturers and (v) construction andspecialized equipment manufacturers.  Weestimate that approximately one-third of all bearings manufactured are for usein the automobile industry.  We haverecently started to sell into select portions of the automotive market intargeted products where we believe our competitive strengths provide us withstrategic advantages.  We participate inthe automotive and heavy truck OEM and replacement markets with a productoffering through our Tyson and RBC Oklahoma operations. In addition, we haverecently begun supplying components to an automotive supplier using coremanufacturing technology.

 

The domestic bearing market is comprised of threeprimary product categories: ball bearings, roller bearings and plainbearings.  Ball bearings are used forhigh-speed applications; roller bearings for lower speed, heavily loadedapplications; and plain bearings for sliding action and misalignmentapplications.

 

The global bearings industry is experiencing aconsolidation trend.  Recent examples ofthis trend are the acquisitions of Torrington Company by The Timken Company andthe acquisition of FAG by The Ina Group. The domestic market for standard bearings is currently dominated bythree major international competitors: The Timken Company, The Ina Group andSKF USA, Inc.  The balance of thedomestic market, consisting primarily of specialty and custom engineeredbearings, is more fragmented.  Due tothe shorter production runs and significant post-sale technical supportassociated with these products, we believe they are not the primary focus ofthe larger bearing manufacturers.  Agroup of smaller companies, including ourselves, frequently establish leadingpositions, in market share and reputation, in certain of these niche productlines.  Furthermore, competition inthese niche markets is based on lead times and reliability of product andservice, and these markets are generally not as price sensitive as the marketsfor standard bearings.

 

**BusinessStrategy**

 

We have developed a business strategy that focuses onmaintaining profitability while growing, both internally and throughacquisitions.  Management believes thatour business strategy makes us well positioned to achieve continued growth andmarket share gains through (i) increasing sales to the aftermarket, (ii)continuing our focus on high margin niche markets where we believe we have asustainable competitive advantage, (iii) penetrating new markets withinnovative products that are extensions of existing products, (iv) expandinginternational OEM and distributor sales and (v) acquiring other manufacturerswhich have complementary products, similar distribution channels or providesignificant potential for margin enhancement.

 

**Customersand Markets**

 

We supply bearings to OEMs and distributors in theindustrial, aerospace and government markets. During fiscal 2003, the industrial OEM market continued to be ourlargest market, accounting for 60% of our net sales.  While our sales in our target markets have historically beenconcentrated on OEMs, over the past several years, we have shifted a portion ofour focus in the aerospace and industrial markets towards replacement partsales.  During fiscal 2003, our top tencustomers were responsible for generating 40% of our net sales and no singlecustomer was responsible for generating more than 7% our net sales.  Seven of our top ten customers are OEMs andthe remaining three are distributors.

 

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***•******                                          Industrial Market***

 

Industrial bearings are used in a wide range ofindustries such as heavy equipment, machine tools, agricultural equipment,pumps and packaging.  Nearly allmechanical devices and machinery require bearings to relieve friction where onepart moves relative to another.  Ourproducts target existing market applications in which our engineering andmanufacturing capabilities provide us with a competitive advantage in themarketplace.

 

We manufacture a wide range of roller, ball and plainbearings for industrial uses by customers including Chicago Rawhide, DanaCorporation, Parker Hannifin, Motion Industries and Applied IndustrialTechnologies.  During fiscal 2003, salesto the industrial market accounted for 67% of our net sales.  Approximately 73% of such sales were to OEMswhile 27% were to distributors.  Withinthe industrial market, we sell to the construction and mining equipment,material handling, machine tools, semiconductor manufacturing equipment andenergy and natural resources markets. We believe that the diversification of our sales among the variousmarkets of the industrial bearings market reduces our exposure to downturns inany individual market.

 

***•******                                          Aerospace Market***

 

Bearings are used in numerous applications withinairplanes, helicopters and aircraft engines. The aerospace market utilizes spherical plain bearings, rod ends,journal bearings and thin section ball bearings.  Bearings are regularly replaced on aircraft in conjunction withroutine maintenance procedures and include such items as high precision balland roller bearings and metal-to-metal and self-lubricating plainbearings.  Commercial aerospacecustomers generally require precision products, often of special materials,made to unique designs and specifications.

 

During fiscal 2003, sales to the aerospace marketaccounted for 33% of our net sales.  Ofthe sales to the aerospace market, 41% reflected sales to OEMs, 16% were todistributors and the balance of 43%, directly or indirectly, to agencies or instrumentalitiesof the U.S. government.  We estimatethat over 75% of commercial aerospace net sales are actually used asreplacement parts, since a portion of OEM sales are ultimately intended forreplacement market use.  We supplybearings for commercial aircraft, commercial aircraft engines and privateaircraft manufacturers, as well as to various military contractors forairplanes, helicopters and missile systems.

 

***•******                                          Government Market***

 

We manufacture high precision ball and rollerbearings, commercial ball bearings and metal-to-metal and self-lubricatingplain bearings for all branches of the U.S. military, and certain foreignmilitary forces.  In addition toproducts that meet military specifications, these customers often requireprecision products made of specialized materials to custom designs andspecifications.  We manufacture anextensive line of standard products that conform to many domestic militaryapplication requirements, as well as customized products designed for uniqueapplications.  Product approval for useon military equipment is often a lengthy process ranging from six months tothree years, and represents a significant barrier to new entrants.  Military programs for which we supplycomponent products include airplanes, helicopters, turbine engines and armoredvehicles.

 

Government sales are included in aerospace salesdescribed above and accounted for approximately 14% of our net sales duringfiscal 2003, consisting primarily of replacement bearings on programs for whichwe are the sole source supplier. Despite cutbacks in the overall defense budget during the 1990s,appropriations for maintenance and repairs for product platforms serviced by ushave remained stable.  With increasedgovernment spending on defense , demands for the repair and maintenance of theproduct platforms serviced by RBC has strengthened in the past year.

 

***•******                                          Products***

 

Bearings are employed to fulfill several functionsincluding reduction of friction, transfer of motion and carriage of loads.  Our products and services include six broadcategories: plain bearings, roller bearings, ball bearings, linear precisionproducts, machine tool collets and refurbishment, each of which includes bothstandard and highly specialized and customized products.  Within the major categories that encompassour product offerings, our major bearing products include heavy duty needleroller bearings, cam follower bearings, metal-to-metal, ball bearing andself-lubricating rod ends and spherical bearings, high precision ball androller bearings, precision ball screws and semi-precision unground ballbearings.

 

***•******                                          Plain Bearings***

 

Sales of plain bearings accounted for 30% of our netsales in fiscal 2003.  Plain bearingsare produced with either self-lubricating or metal-to-metal designs and consistof several sub-classes, including rod end bearings, spherical 

 

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plain bearings andjournal bearings.  Unlike ball bearings,which are used in high-speed rotational applications, plain bearings are primarilyused to rectify inevitable misalignments in various mechanical components.  Such misalignments are either due tomachining inaccuracies or result when components change position relative toeach other.  Spherical plain bearingsare designed for heavy equipment applications. Spherical plain bearings and rod end bearings are used in the aerospacemarket in the same applications as airframe control ball bearings.  Our Heim and Transport Dynamics divisionsproduce Teflon® fabric lined sleeves for the aerospace market.

 

***•******                                          Roller Bearings***

 

Roller bearings are anti-friction bearings that userollers instead of balls.  Wemanufacture four basic types of roller bearings: heavy duty needle rollerbearings with inner rings, tapered roller bearings, track rollers and aircraftroller bearings.  The sale of rollerbearings accounted for 46% of our net sales in fiscal 2003.

 

*NeedleRoller Bearings*.  Weoffer several needle roller bearing designs. Needle bearings are used in various industrial applications and incertain U.S. military aircraft platform bearing applications that require highload carrying capability in a confined space. Needle bearings are also used as a shaft for another type of bearing orto support rotating components in mechanical or electromechanical devices.  We produce this product in bearing qualitysteel but also have the capability to produce this product from various gradesof low carbon, stainless or tool steel.

 

*TaperedRoller Bearings*.  Weproduce medium sized tapered roller bearings used primarily in heavy truck axleapplications.  A significant portion ofthe sales of this product are to the aftermarket.

 

*TrackRollers*.  We producetrack rollers which have widespread use in heavy industrial machineryapplications.

 

*AircraftRoller bearings*.  Weare a leading producer of roller bearings for use in helicopters.

 

***•******                                          Ball Bearings***

 

We manufacture four basic types of ball bearings: highprecision aerospace, airframe control, thin section and commercial ballbearings. Ball bearings accounted for 18% of our net sales in fiscal 2003.

 

*HighPrecision Aerospace Bearings*.  High precision aerospace bearings are primarily sold to customersin government or the defense industry that require more technicallysophisticated bearing products providing higher degrees of fault tolerancegiven the criticality of the applications in which they are used.

 

*AirframeControl Ball Bearings*. We produce airframe control ball bearings which are precision ballbearings that are plated to resist corrosion and are qualified under a militaryspecification.

 

*ThinSection Ball Bearings*. We produce thin section ball bearings which are specialized bearingsthat use extremely thin cross sections and give specialized machinerymanufacturers many advantages.

 

We are also involved in two niche markets: ungroundball bearings and specialty inch and metric ball bearings.

 

***•******                                          Linear PrecisionProducts***

 

We produce precision ground ball bearing screws thatoffer repeatable positioning accuracy in machine tools, transfer lines, robotichandling and semiconductor equipment. Linear precision products accounted for approximately 1% of our netsales in fiscal 2003.  Our linearprecision products are primarily used in the machine tool industry where webelieve significant opportunities to cross-sell our other products, such ascollets, exist.  In addition, we haveseveral application development programs in progress in guided missile and“smart bomb” applications.  We supplyproducts to new, replacement and repair markets.

 

***•******                                          Machine Tool Collets***

 

Schaublin produces precision machine tool collets thatprovide effective part holding and accurate part location during machiningoperations.  The machine tool colletsaccounted for approximately 5% of our net sales in fiscal 2003.  We believe that significant opportunities toexpand sales of this product outside of Europe exist*.*

 

**Manufacturing and Operations**

 

Using our operating strategy, we endeavor to designour manufacturing process so that machine and labor utilization are optimizedand total costs are reduced.  Costsavings are generated through management of monthly product line profit andloss.  On a monthly basis, gross marginsof every product line within each product group are reviewed.  We monitor the progress of our efficiencyefforts on an ongoing basis and react quickly to resolve 

 

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problems or capitalize onunanticipated opportunities.

 

Custom products are sold at a premium based on factorssuch as lot size and availability.  Webelieve we have a thorough understanding of the products and customers in themarkets we serve, allowing us to utilize aggressive and competitive pricingpractices.

 

***•******                                          Capacity***

 

Our plants currently run on a single shift and lightsecond and third shifts at selected locations to meet the demands of ourcustomers.  We believe that currentcapacity levels, with annual capital expenditures equal to approximately 4% ofsales in turning and grinding equipment in the future, will permit us toeffectively meet demand levels through at least 2004.  We also believe that as we continue to invest in bearingprofessionals, the ability to increase capacity and move to full second shifts,if required, could be accomplished without compromising product quality orinvolving significant additional capital expenditures.

 

***•******                                          InventoryManagement***

 

Our increasing emphasis on the distributor/aftermarketsector has required us to maintain greater inventories of a broader range ofproducts than the OEM market historically demanded.  We operate an inventory management program designed to balancecustomer delivery requirements with economically optimal inventory levels.  In this program, each product is categorizedbased on characteristics including order frequency, number of customers and salesvolume.  Using this classificationsystem, our primary goal is to maintain a sufficient supply of standard itemswhile minimizing warehousing costs.  Inaddition, production cost savings are achieved by optimizing plant schedulingaround inventory levels and customer delivery requirements.  This leads to more efficient utilization ofmanufacturing facilities and minimized plant production changes whilemaintaining sufficient inventories to service customer needs.

 

***•******                                          Integration ofAcquisitions***

 

We have demonstrated an ability to institute programsthat improve the performance of acquired companies.  The process involves applying our operating strategy,rationalizing the product offerings and appropriately capitalizing theacquisition.  During the period from1992 through fiscal 2003, we integrated more than 10 acquisitions into ourongoing operations.

 

***•******                                          ISO Certification***

 

We are in the process of achieving ISO Certificationthroughout our locations and we have currently attained the followingapprovals:

 

| RBC                |   | ISO 9001             |
|--------------------|--------|----------------------|
| Transport Dynamics |   | ISO 9002 and AS 9100 |
| Heim               |   | ISO 9002 and AS 9000 |
| Bremen             |   | ISO 9002 and QS 9000 |
| Miller             |   | ISO 9002 and QS 9000 |
| Tyson              |   | ISO 9001             |
| Schaublin          |   | ISO 9001             |

 

**Marketing**

 

Our marketing strategy is aimed at increasing saleswithin our three primary market sectors and targeting specific profitable nicheproducts or other areas in which we can exploit our competitive strengths.  To effect this strategy, we seek to expandinto geographic areas not previously served by us and we continue to capitalizeon new markets and industries for existing and new products.  We employ a technically proficient salesforce and utilize marketing managers, product managers, customer servicerepresentatives and product application engineers in our selling efforts.

 

Despite the difficulties inherent in the developmentof a quality, technically astute, sales force in the bearing industry, we havebeen able to accelerate the development of our sales force through the hiringof sales personnel with prior bearing industry experience, complemented by anin-house training program.  We intend tocontinue to hire and develop expert sales professionals and strategicallylocate them to implement our expansion strategy.  Today, we employ strategically located sales professionals inNorth America, Europe and Latin America.

 

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We have placed an emphasis on increasing sales todistributors serving the spare parts aftermarket in our key industrymarkets.  Sales to this market tend tobe less cyclical as they arise out of end users’ needs for replacement bearingson existing equipment.  See “Customersand Markets.”  We estimate that sales,directly or indirectly, to the replacement market exceeded 60% of our net salesin fiscal 2003.  We intend to continueto focus on building distributor sales volume.

 

With regard to our OEM customers, we continue to focuson establishing and maintaining relationships with OEMs that produce productswith strong aftermarket demand characteristics for our products.  Our OEM relationships also provide us withextensive cross-selling opportunities, as many OEM products utilize severaltypes of bearings manufactured by us.

 

**Competition**

 

We believe the principal competitive factors affectingour business are price, product line offering, technical service and timelinessof supply.  Although many of our currentand potential competitors have greater financial, marketing, personnel andother resources than we do, we believe that we are well positioned to competewith regard to each of these factors in each of the markets in which weoperate.

 

*Price*.  For large run bearing products, price is avery important factor.  Largermanufacturers generally are relative low cost producers in the more standardbearing product lines and are thus able to attain extensive market shares.  However, in niche product lines, when theproduction runs are smaller, larger manufacturers are often unable to achievethe economies of scale needed to maintain their low-cost producer status.  As a result, while we compete with thelarger bearing manufacturers with respect to some of our more standard bearingproducts, our primary competition includes smaller niche companies such asKaydon Corporation, New Hampshire Ball Bearings and McGill ManufacturingCompany, Inc., a Division of Emerson Power Transmission.  Competitors in the market for ballscrewproducts are 20th Century (owned by SKF) and Thompson Industries (owned byDanaher).

 

*ProductLine Offering*. Bearings manufacturers operating in the more specialized market competeby maintaining a broad product line and adequate inventories to service theaftermarket.  This enables suchmanufacturers to exploit the trend of OEMs towards sourcing a broader range ofproducts from a small number of suppliers. Additionally, in certain industries and groups, purchasers requireproduct approval on an industry or company specific level for their componentparts.

 

Other factors in the more specialized bearing marketinclude strong distribution channels, quality product, strong technical productservice, customer support and long-term customer relationships.

 

**Competitive Strengths**

 

We believe that we benefit from the followingcompetitive strengths:

 

*ProvenRecord of Acquisition-Based and Internal Growth*.  We have executed a selective acquisitionstrategy whereby we have completed ten acquisitions since 1992.  We have been successful in integratingacquired operations into our regions and capitalizing on the synergiescreated.  In addition, we have been ableto generate internal growth through price and volume increases.

 

*ExperiencedManagement Team*. Our core management team has extensivemanagerial experience in the bearing industry. Michael J. Hartnett, our Chief Executive Officer and President has over30 years of experience in the bearing industry.

 

*Focuson Custom Products*. Custom products are sold at a premium based on factors such as lot sizeand availability.  We believe we have athorough understanding of the products and customers in the markets we serve,allowing us to utilize advantageous pricing practices.

 

**Backlog**

 

As of March 29, 2003, we had a backlog of $82.2million as compared to a backlog of $82.0 million as of March 30, 2002.  We sell many of our products pursuant tocontractual agreements, single source relationships or long-term purchaseorders, each of which may permit early termination by the customer.  However, due to the nature of many of theproducts supplied by us and the lack of availability of alternative suppliersto meet the demands of such customers’ orders in a timely manner, we believethat it is not practical or prudent for most customers, including many of ourlargest, to shift their bearing business to other suppliers.

 

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**Employees**

 

We had approximately 1,370 employees at March 29,2003, of whom 225 were employed in our European and Mexican operations.  We believe that our employee relations aregood.

 

We are subject to several collective bargainingagreements covering unionized workers, as follows:

 

•                  collectivebargaining agreements with the United Auto Workers covering substantially allof the hourly employees at our West Trenton, New Jersey, Fairfield,Connecticut, and Plymouth, Indiana plants. These agreements expire on June 30, 2004, January 31, 2005 and August 9,2004, respectively;

 

•                  collectivebargaining agreements with the United Steelworkers covering substantially allthe hourly employees at our Kulpsville, Pennsylvania and Glasgow, Kentuckyplants.  These agreements expire onOctober 25, 2003 and March 25, 2005 respectively; and

 

•                  a collectivebargaining agreement with the Association of Swiss Engineering Employerscovering substantially all of the hourly employees at our Delemont, Switzerlandplant.  This agreement expires onDecember 31, 2005.

 

Approximately 496 of our hourly employees arenon-unionized.  We are in the process ofnegotiating an extension of our Kulpsville collective bargaining agreement.

 

**Suppliers and Raw Materials**

 

We obtain raw materials, component parts and suppliesfrom a variety of sources and generally from more than one supplier.  Our principal raw material is steel.  Our suppliers and sources of raw materialsare based in the United States and Europe.  We believe that our sources are adequate for our needs in theforeseeable future, that there exist alternative suppliers for our rawmaterials and that in most cases readily available alternative materials can beused for most of our raw materials.  Wedo not believe that the loss of any one supplier would have a material adverseeffect on our financial condition or results of operations.

 

**Intellectual Property**

 

Our policy is to file patent applications to protectour technology, inventions and improvements that are important to the developmentof our business, and to seek trademark protection with respect to our producttitles that have achieved brand name recognition.  We also rely upon trade secrets, know-how and continuingtechnological innovation to develop and maintain our competitive position.

 

We hold approximately 116 United States and 49 foreignpatents and have additional U.S. patent applications pending. We and oursubsidiaries also have approximately 80 U.S. and 120 foreign registeredtrademarks and 6 U.S. copyrights.  Therecan be no assurance that such rights will not be infringed upon, thatadditional patents will be issued as a result of our applications and that ourtrade secrets will not otherwise become known to or independently developed bycompetitors.  We believe that we wouldhave adequate remedies for any such infringement or use or that claims allowedunder such patents or any existing patents will not be challenged orinvalidated or would be of adequate scope to protect our technology.  We do not believe that any individual itemof intellectual property is material to our business.

 

**Regulation**

 

Essential to servicing the aerospace market is theability to obtain product approvals.  Wehave in excess of 20,000 product approvals, which enable us to provide productsused in virtually all domestic aircraft platforms presently in production oroperation.  Product approvals aretypically issued by the Federal Aviation Administration, or FAA, to designatedOEMs who are Production Approval Holders of FAA approved aircraft.  These Production Approval Holders providequality control oversight and generally limit the number of suppliers directlyservicing the commercial aerospace aftermarket.  Regulations enacted by the FAA provide for an independent process(the Parts Manufacturer Approval, or PMA, process), which enables suppliers whocurrently sell their products to the Production Approval Holders, to sellproducts to the aftermarket.  We havesubmitted over 6,100 PMA applications 

 

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and have received over1,800 approvals to date.

 

**Environmental Compliance**

 

We are subject to various federal, state and localenvironmental laws, ordinances and regulations, including those governingdischarges of pollutants into the air and water, the storage, handling anddisposal of solid wastes, hazardous wastes and hazardous substances and thehealth and safety of employees, or Environmental Laws.  Agencies responsible for enforcingEnvironmental Laws have authority to impose significant civil or criminalpenalties for non-compliance.  Webelieve we are currently in material compliance with all applicablerequirements of Environmental Laws, but there can be no assurance that somefuture non-compliance will not result in the imposition of significantliabilities.

 

We also may be liable under Environmental Laws,including the Comprehensive Environmental Response, Compensation, and LiabilityAct, or CERCLA, state analogs to CERCLA and certain state property transferlaws, for the costs of investigation and remediation of contamination atfacilities currently or formerly owned or operated by us, or at otherfacilities at which we have disposed of hazardous substances.  In connection with such contamination, wemay also be liable for natural resource damages, government penalties andclaims by third parties for personal injury and property damage.

 

Prior to, and in connection with, the acquisition of afacility or business, we endeavor to obtain indemnification from parties whomwe believe to be able to support such indemnities.  Further, we take such actions as we deem warranted to establishthe scope of any environmental issues that exist as of such purchase, as wellas to project what potential environmental liabilities exist.  Such actions include investigations bymembers of our management of the records and facilities relating to thefacility or business to be acquired, analysis of existing investigations,analyses and compliance work done by the sellers and commissioning our ownstudies, investigations or analyses.

 

We monitor our various facilities and operations forcompliance with environmental laws and exposure to environmental claims,including, where deemed necessary, the hiring of outside consultants to conductsurveys and tests.  When presented witha potential violation or claim, the manager of the facility in question will,in coordination and consultation with our management, endeavor to establish thescope and nature of the issue, and, if possible, resolve the issue withoutresort to litigation or formal proceedings. We also undertake an analysis of the various indemnification obligationsowed to us to ascertain which, if any, would apply, and the procedures to befollowed to perfect our rights with respect to potential recoveries.  Several members of our management haveexperience in dealing with such issues and take a leading role in resolvingissues that arise.

 

State agencies are currently overseeing investigation,remediation and/or monitoring activities at our facilities in Fairfield,Connecticut, West Trenton, New Jersey, Santa Ana, California and Hartsville,South Carolina.  The local regulatoryagency recently issued a determination that no further action is required withrespect to groundwater at our Rancho Dominguez, California facility.  The prior property owners have conductedlimited remediation at our Kulpsville, Pennsylvania and Bremen, Indianafacilities.

 

The former owners of the above facilities agreed toindemnify us for liabilities arising from environmental conditions that existedprior to the date of purchase of such facilities by us.  Such indemnifications have covered most ofthe costs of ongoing activities to date, although we have relinquished theindemnity for the Fairfield, Connecticut facility.  Moreover, there can be no assurance that the indemnities relatingto the other facilities, all of which contain negotiated dollar limits, will beadequate to resolve any remaining cleanup liabilities or that the indemnifyingparties will perform or continue to perform their indemnification obligations.

 

At our two facilities located in California and NewJersey, the previous owners of the assets purchased by us indemnified theCompany for liabilities arising from environmental conditions that existedprior to the date of our purchase of such assets, subject to certainthresholds, limitations and caps.  Suchowners have undertaken or are undertaking cleanup in fulfillment of thoseindemnification obligations.  Withrespect to the Rancho Dominguez, California facility, the acquisition agreementprovides that the previous facility owner is responsible for all further coststo cleanup conditions existing at the time of the transfer of the facility, upto a maximum of the full purchase price. Although some residual contamination remained in groundwater, the localenvironmental regulatory agency issued a determination in December 2001 that nofurther remedial action is required at this facility.  To our knowledge, any further cleanup costs, if any, are notexpected to approach the indemnification cap limit.

 

***Santa Ana, California*.**  Cleanup has been completed at our Santa Ana,California facility, although groundwater monitoring continues as required bythe regional regulatory authority. Currently, the previous owner is working with this regulatory authorityto obtain final approval and closure of the now-concluded cleanup activities atthis facility.  We did not contributetoward the costs of cleanup and have not contributed toward the ongoingmonitoring costs.  To 

 

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our knowledge, cleanupand monitoring costs have not approached the $4.5 million limit on the previousowner’s liability under the acquisition agreement for this facility.

 

***Bremen, Indiana*.**  Each of our Bremen, Indiana facilitiesformerly operated by Bremen and Miller had on-site lagoons used for settlingprocess wastewater.  In each case, theformer owner of the facility discontinued use of the lagoon and removedresidual sludge for disposal off-site years before we began operations at thefacility.  With regard to the former SKFfacility located at 1342 West Plymouth Street in Bremen, some material from thelagoon was disposed of on-site.  Testingof this material revealed that it was not hazardous under the U.S. EnvironmentalProtection Agency’s EP toxicity protocol and some of this material remainson-site.  Sampling conducted prior toour acquisition of the business at the site revealed the presence of certaincontaminants in soil in another area of the property.  The former owner of this facility has indemnified us forpre-existing environmental liabilities at this site.  All operations at 1342 West Plymouth Street, Bremen, Indiana havebeen relocated to Plymouth, Indiana. Since the acquisition operation, there have been no known discreteenvironmental events and no post-closing issues have been identified.

 

At the former Miller Bearings facility located at 225Industrial Boulevard in Bremen, the former owner removed residual sludge foroff-site disposal, and a Phase II environmental sampling investigation at thisfacility did not reveal the existence of regulated substances in excess ofapplicable regulatory standards.  Theformer owner of this facility has indemnified us for pre-existing environmentalliabilities at this site.  Neither ofthe Bremen facilities has been the subject of any regulatory interest inconnection with the cleanup of the former lagoons.  Although there can be no assurance, we do not expect to incurmaterial costs with respect to these former lagoons.

 

***Kulpsville, Pennsylvania*.**  At our Kulpsville, Pennsylvania facility, weare operating an oil water separator installed by a previous owner to removepetroleum from groundwater impacted by releases from an underground storagetank that was removed from the site by the previous owner in the early1990’s.  Operation and maintenance costsfor this system to date have been minimal. We have paid for such costs and have been reimbursed by the priorowner.  If the state regulatory agencywere to require additional cleanup activities in the future with respect tothat area, we believe that the cost of that cleanup would be covered by anindemnity from the prior owner.  Therecan be no assurance that the cost of such a cleanup, if required, would not exceedthe limits of the prior owner’s indemnification obligations to us or that theprior owner would honor its indemnity obligations.

 

***Hartsville, South Carolina*.**  We are monitoring groundwater contaminationat our Hartsville, South Carolina facility pursuant to a groundwater assessmentplan approved by the state in February 2002. This contamination appears to have resulted from an underground storagetank removed from the site prior to our acquisition of the facility.  In addition, in the early 1990’s, we submittedto the state environmental regulatory agency a closure plan for a formerwastewater lagoon at the facility.  Todate, the state agency has not required that we take any action with respect tothe lagoon.  If the agency were torequire cleanup activities in the future regarding either the former lagoon orthe former tank, we believe that the cost of such cleanups would be covered byan indemnity from the prior owner of the facility.  There can be no assurance that the cost of such a cleanup, if required,would not exceed the limits of the prior owner’s indemnification obligations tous or that the prior owner would honor its indemnity obligations.

 

***Fairfield, Connecticut*.**  In connection with the purchase of ourFairfield, Connecticut facility in 1996, we were required by the ConnecticutTransfer Act, or the CTA, to submit an investigation and remediation plan forknown environmental contamination at that facility.  Although this known contamination had been the result ofoperations conducted by the facility’s prior owner, we agreed to assumeresponsibility for completing cleanup efforts previously initiated by thatowner.  In 1996, we submitted andobtained regulatory approval for our investigation and remediation plan asrequired by the CTA.  The results ofthis investigation revealed the continued presence of certain low level soiland groundwater contamination, the remediation of which had been commenced bythe previous owner of the facility.  InMarch 1998, we submitted these findings to Connecticut Department ofEnvironmental Protection, or CTDEP.  InApril 1999, CTDEP responded to this submission and requested that we develop awork plan for additional investigation, analysis and possible remediation toaddress the isolated, low level residual contamination at this facility.  Since then, we have been working with CTDEPin an effort to develop data showing that no further remedial action isnecessary.  We submitted data to CTDEPin November and December 2001 intended to show that contamination has notmigrated off the property.  CTDEP hasrequested additional information, which we are in the process ofdeveloping.  While we believe that ourtotal investigation and cleanup costs will not exceed $200,000, Connecticutregulators may require additional cleanup or monitoring of the residualcontamination at this facility.  If suchactivities are required, there can be no assurance that our total investigationand remediation costs will not exceed our $200,000 estimate.

 

***West Trenton, New Jersey*.**  At our West Trenton, New Jersey facility,the previous facility owner has been investigating and remediating the landwhere the facility is located since the mid-1980s.  The previous owner both 

 

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indemnified us withrespect to its cleanup obligations and is performing the cleanup pursuant to aconsent order with the New Jersey Department of Environmental Protection.  We have not contributed to the costs ofremediation at this facility and we do not expect to do so with respect toconditions existing at the time we acquired the facility.  The 1997 Recapitalization of Holdingstriggered obligations under the New Jersey Industrial Site Recovery Act, orISRA, at our West Trenton facility, obligating us to investigate all possiblepast hazardous substances releases, and to clean up any resultingcontamination, at that facility. Under ISRA, investigation requirements forfacilities that are currently being remediated pursuant to an earlierISRA-triggering transaction may be merged into that ongoing ISRAinvestigation.  In this case, the WestTrenton facility has been the subject of an ongoing ISRA (and its predecessorstatute) groundwater investigation and remediation by the facility’s priorowner since our acquisition of the facility in 1987.  Accordingly, the New Jersey regulatory authorities have informedus that our ISRA obligations triggered by the 1997 Recapitalization are beingsatisfied by the prior owner’s ongoing ISRA investigation and remediation.  That investigation has not found anyadditional contamination that would require remediation beyond that whichcontinues to be performed by the facility’s prior owner.

 

**Item 2.****                                   PROPERTIES**

 

Our principal executive offices are located at ourHeim division in Fairfield, Connecticut. We also use this facility for manufacturing our plain bearing products,both Teflon® lined and metal-to-metal, and commercial ball bearings.

 

In addition, we own the following manufacturingfacilities:

 

•                  a facility inHartsville, South Carolina, at which facility we manufacture the smaller end ofall of the RBC division’s product lines, and perform the initial machiningoperations for a large percentage of the product manufactured in the WestTrenton, New Jersey facility;

 

•                  a facility inKulpsville, Pennsylvania, at which facility we manufacture commercial groundand unground ball bearings;

 

•                  a facility inRancho Dominguez, California, at which facility we manufacture high precisionball and roller bearings for the aerospace industry, thin section ball bearingsand large diameter cam followers;

 

•                  a facility inSanta Ana, California, at which facility we manufacture journal bearings andspherical plain bearings;

 

•                  a facility inWalterboro, South Carolina, at which facility we manufacture ball screws, ballspline and ball screw actuator product lines; and

 

•                  a facility inBremen Indiana, at which facility we produce needle bearings.

 

•                  a facility inScionzier Cedex, France, at which facility we distribute collets and bearings.

 

We lease the following manufacturing facilities:

 

•                  a facility inWest Trenton, New Jersey, at which facility we manufacture heavy duty needleroller bearings for the aerospace industry as well as larger diameter heavyduty needle roller bearings and single fracture spherical plain bearings.  The lease for this facility expires onFebruary 10, 2009;

 

•                  a facility inWaterbury, Connecticut, at which facility we manufacture thin section bearings,primarily for use by ITB.  The lease forthis facility expires on February 28, 2005;

 

•                  a facility inPlymouth, Indiana, at which facility we manufacture needle rollerbearings.  The lease for this facilityexpires on May 15, 2022;

 

•                  a facility inGlasgow, Kentucky, at which facility we manufacture tapered rollerbearings.  The lease for this facilityexpires on June 30, 2005;

 

•                  a facility inDelemont, Switzerland, at which facility we manufacture spherical bearings, rodends, collets and tool holders.  Thelease for this facility expires on December 31, 2009;

 

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•                  a facility inReynosa, Tamaulipas, Mexico at which facility we manufacture thin sectionbearings, primarily for use by ITB.  Thelease for this facility expires on September 20, 2005 and

 

•                  a facility inOklahoma City, Oklahoma, at which facility we manufacture tapered thrustbearings for kingpin applications used in the heavy truck industry.  The lease for this facility expires onDecember 31, 2003.

 

•                  a facility inLes Ulis Cedex, France, at which facility we distribute bearings.  The lease for this facility expires on July1, 2004.

 

We believe that our existing property, facilities andequipment are generally in good condition, are well maintained, and aregenerally suitable and adequate to carry on our current operations. We alsobelieve that our existing manufacturing facilities have sufficient capacity tomeet increased customer demand. Substantially all of our owned domestic properties and most of our otherassets are subject to a lien securing our obligations under our senior creditfacility.

 

**Item 3.****                                   LEGAL PROCEEDINGS**

 

From time to time, we are involved in litigation andadministrative proceedings which arise in the ordinary course of ourbusiness.  Management does not believethat any of the litigations or proceedings in which we are currently involved,either individually or in the aggregate, are likely to have a material adverseeffect on our business, financial condition, operating results or cash flows.

 

**Item 4.****                                   SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

On July 29, 2002, in connection with the investment inHoldings by Dr. Hartnett and Whitney, the holders of a majority of HoldingsClass A Common Stock and Class B Common Stock, acting by written consent,approved and adopted an amendment to the Certificate of Incorporation ofHoldings.  See Item 13.  “Sale of Holdings Class B ExchangeableConvertible Participating Preferred Stock.”

 

On March 22, 2003, the holders of a majority ofHoldings Class A Common Stock and Class B Common Stock, acting by written consent,approved and adopted an amendment to the Certificate of Incorporation ofHoldings to reduce the authorized capital stock of Holdings.

 

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**PART II**

 

**Item 5.****                                   MARKET FOR REGISTRANT’S COMMON STOCKAND RELATED STOCKHOLDER MATTERS**

 

**Market Information**

 

As of June 25, 2003, there were 103 shares of ourcommon stock, par value $.01 per share outstanding, all of which were held byHoldings.  There is no establishedpublic trading market for our Common Stock.

 

As of June 25, 2003, there were 2,475,460.8 shares ofHoldings Class A Common Stock outstanding held by 7 holders and 100 shares ofHoldings Class B Common Stock outstanding held by Dr. Michael J. Hartnett.  In addition, as of March 29, 2003, therewere outstanding warrants and options to purchase up to an additional 659,193.5shares of Holdings Class A Common Stock and 549,146 shares of Holdings Class BCommon Stock.

 

All historical and currently issued shares and theexercise prices of and options and warrants have been adjusted for a 100 for 1split of Holdings’ Class A Common Stock and Class B Common Stock effectiveMarch 4, 2002.

 

**Dividends**

 

We, as a wholly-owned subsidiary of Holdings, fromtime to time will pay dividends to Holdings from funds legally availabletherefore to fund Holdings’ operations. Since the beginning of fiscal 2002, we have paid cash dividends toHoldings in such amounts and for such purposes as further set forth below:

 
| **Date of  Dividend** |   | **Amount** |         | **Purpose** |
|-----------------------|--------|------------|--------------|-------------|
|                  |   |       |         |        |
| May 2003              |   | $          | 2,510,000.00 |        | Payment of interest due on Discount Debentures |
|                  |   |       |         |        |
| February 2003         |   | $          | 3,028,545.32 |        | Redemption of Holdings Series A Preferred Stock |
|                  |   |       |         |        |
| December 2002         |   | $          | 2,506,530.00 |        | Payment of interest due on Discount Debentures |
|                  |   |       |         |        |
| September 2002        |   | $          | 5,700,218.68 |        | Redemption of Discount Debentures |

 

No cash dividends have been declared by Holdings onits Common Stock in the last three years. Holdings intends to retain earnings to finance the development andgrowth of its business.  Accordingly,Holdings does not anticipate that any dividends will be declared on theHoldings Common Stock for the foreseeable future.  Future payments of cash dividends, if any, will depend on thefinancial condition, results of operations, business conditions, capitalrequirements, restrictions contained in agreements, future prospects and otherfactors deemed relevant by our and Holdings’ Boards of Directors.  Further, our ability to declare and paydividends on our Common Stock is restricted by certain covenants in our seniorcredit facility and the indenture for the Notes.  Holdings’ ability to pay and declare dividends is restricted bycertain provisions in its Amended and Restated Certificate of Incorporation andcovenants in the indenture for the Discount Debentures.  In connection with Holdings’ repurchase ofits Class A Preferred Stock in February 2003, Whitney and Dr. Hartnett wereentitled to an accrued dividend at 7% per annum on the repurchased sharesduring the time they were issued and outstanding in the amount of $3,315.32.

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**Securities Authorized for IssuanceUnder Equity Compensation Plans**

 

 

The following table summarizes information aboutsecurities authorized for issuance under our equity compensation plans andother agreements as of March 29, 2003:

 
|                                                        |   | **(a) **                                                                               |       | **(b)**                                                                     |       | **(c)**                                                                                                                                                |       |
|-------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Plan  Category**                                          |   | **Number of  Securities to be  Issued Upon Exercise of  Outstanding Options and  Warrants** |       | **Weighted-Average  Exercise Price of  Outstanding  Options and  Warrants** |       | **Number of  Securities  Remaining Available for  Future Issuance Under  Equity Compensation  Plans (Excluding  Securities Reflected in  Column (a))** |       |
|                                                        |   |                                                                                        | ** ** |                                                                        | ** ** |                                                                                                                                                   | ** ** |
| Equity  compensation plans approved by security holders     |   | 94,096.5                                                                                    |       | $                                                                           | 30.00      |                                                                                                                                                   | 364,172.5  |   |
|                                                        |   |                                                                                        |       |                                                                        |       |                                                                                                                                                   |       |
| Equity  compensation plans not approved by security holders |   | 723,257                                                                                     |       | $                                                                           | 1.695      |                                                                                                                                                   | —     |   |
|                                                        |   |                                                                                        |       |                                                                        |       |                                                                                                                                                   |       |
| Total                                                       |   | 817,353.5                                                                                   |       |                                                                        |       | 364,172.5                                                                                                                                              |       |

 

**Recent Sales of UnregisteredSecurities**

 

None

 

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**Item 6.****                                   SELECTED FINANCIAL DATA**

 

We set forth below selected historical consolidatedfinancial data.  The information in thefollowing table is qualified by reference to, and should be read in conjunctionwith, Item 7. “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and our consolidated financial statements and therelated notes included elsewhere in this Annual Report on Form 10-K.

 

The selected financial data presented below for thetwo-year period ended March 29, 2003 has been derived from our ConsolidatedFinancial Statements which have been audited by Ernst & Young LLP.  The selected financial data presented belowfor the three-year period ended March 31, 2001 has been derived from ourConsolidated Financial Statements which have been audited by Arthur AndersenLLP.  

 
|                                 |   | **Fiscal  Year Ended** |   |
|--------------------------------------|--------|------------------------|--------|
| **(Dollars in thousands)**           |   | **April 3,  1999(a)**  |   | **April 1,  2000(b)** |   | **March 31,  2001** |   | **March 30,  2002(c)** |   | **March 29,  2003(d)** |   |
|                                 |   |                   |   |   |   |   |   |   |   |   |   |
| **Statement of Operations Data:**    |   |                   |   |   |   |   |   |   |   |   |   |
|                                 |   |                   |   |   |   |   |   |   |   |   |   |
| Net Sales                            |   | 147,932                |   | 177,148 |   | 176,435 |   | 168,331 |   | 172,860 |   |
| Operating Income                     |   | 21,073                 |   | 31,439 |   | 32,403 |   | 27,213 |   | 21,422 |   |
| Net Income                           |   | 3,895                  |   | 10,018 |   | 7,894 |   | 6,863 |   | 4,158 |   |
|                                 |   |                   |   |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**              |   |                   |   |   |   |   |   |   |   |   |   |
|                                 |   |                   |   |   |   |   |   |   |   |   |   |
| Total Assets                         |   | 164,819                |   | 192,093 |   | 207,189 |   | 218,274 |   | 227,275 |   |
| Total Debt                           |   | 147,918                |   | 159,706 |   | 162,869 |   | 162,410 |   | 173,494 |   |
| Cash Dividends                       |   | —                 |   | — |   | 3,571 |   | — |   | 11,235 |   |
| Stockholders’  Equity (Deficit) |   | (11,027                | )      | (1,159 | ) | 6,208 |   | 11,519 |   | 3,407 |   |

 

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(a)                                  Includesthe results of operations for Miller for the full fiscal year.

(b)                                 Includesthe results of operations for Tyson for the full fiscal year, and the resultsof Schaublin following the effective date of acquisition of October 1, 1999.

(c)                                  Includesthe results of operations for RBC Oklahoma following the effective date of itsacquisition in August 2001.

(d)                                 Includesthe results of operations for RBC France following the effective date of itsacquisition in December 2002.

 

**Item 7.****                                   MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OFOPERATIONS**

 

*ThisAnnual Report on Form 10-K contains “forward-looking statements” within themeaning of Section 27A of the Securities Act of 1933, as amended, or theSecurities Act, and Section 21E of the Securities Exchange Act of 1934, asamended, or the Exchange Act.  Theseforward-looking statements are not historical facts, but only predictions, andgenerally can be identified by use of statements that include phrases such as“believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee” or other wordsor phrases of similar import. Similarly, statements that describe our objectives, plans or goals arealso forward-looking statements.  Theseforward-looking statements are subject to risks and uncertainties which couldcause actual results to differ materially from those currentlyanticipated.  Factors that couldmaterially affect these forward-looking statements include those identifiedunder Item 7. “Management’s Discussion and Analysis of Financial Condition andResults of Operations-Risk Factors” and elsewhere in this Annual Report on Form10-K as well as in our other filings with the Securities and ExchangeCommission.  All subsequent written andoral forward-looking statements attributable to us or persons acting on ourbehalf are also expressly qualified in their entirety by such factors.  We urge you to carefully consider suchfactors in evaluating the forward-looking statements and caution you not toplace undue reliance on such forward-looking statements.  There may also be additional risks that wedo not presently know of, or that we currently believe are immaterial, whichcould also impair our business.  Inlight of these risks, uncertainties and assumptions, the forward-looking eventsmay or may not occur.  Theforward-looking statements made in this Annual Report on Form 10-K are madeonly as of the date hereof and we undertake no obligation to publicly updateany forward-looking statements to reflect new information, future events orotherwise.*

 

*Youshould read the following discussion in conjunction with Item 6. “SelectedFinancial Data” and our consolidated financial statements and the related notesincluded elsewhere in this Annual Report on Form 10-K. *

 

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*Some of the statements in the following discussion areforward-looking statements and, accordingly, are subject to risks anduncertainties discussed below under “—Risk Factors” and elsewhere in thisAnnual Report on Form 10-K, as well as in our other filings with the Securitiesand Exchange Commission, which could cause actual results to differ materiallyfrom those currently anticipated.*

 

**General**

 

We are an international manufacturer of highlyengineered precision roller, ball and plain bearings.  Bearings, which are integral to the manufacture and operation ofmost machines and mechanical systems, reduce wear to moving parts, facilitateproper power transmission and reduce damage and energy loss caused byfriction.  While we manufacture productsin all major bearing categories, we focus primarily on highly technical orregulated bearing products for niche markets. We target the higher end of the domestic bearing market where we believeour value added manufacturing and engineering capabilities enable us todifferentiate ourselves from our competitors and to enhance profitability.  We believe that we are a leading supplier tomany of our targeted markets and maintain secondary positions in other productniches where we believe market share gains can be achieved.

 

**Critical Accounting Policies**

 

Our discussion and analysis of our financial conditionand results of operations are based upon our consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States.  Thepreparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, we evaluate ourestimates, including those related to product returns, bad debts, inventories,investments, intangible assets, income taxes, financing operations, warrantyobligations, long-term service contracts, pensions and other post-retirement benefits,and contingencies and litigation.  Webase our estimates on historical experience and on various other assumptionsthat are believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates under different assumptions orconditions.

 

We believe the following critical accounting policiesaffect our more significant judgments and estimates used in the preparation ofour consolidated financial statements.

 

***•******                                          RevenueRecognition***

 

For revenues not recognized under the contract methodof accounting, as described below, we recognize revenues from the sale ofproducts at the point of passage of title, which is at the time of shipment.

 

We also have sales under long-term, fixed-pricedcontracts, many of which contain escalation clauses, requiring delivery ofproducts over several years and frequently providing the buyer with optionpricing on follow-on orders.  Sales andprofits on each contract are recognized in accordance with thepercentage-of-completion method of accounting, using the units-of-deliverymethod.  We follow the guidelines ofStatement of Position, or SOP, 81-1, “Accounting for Performance ofConstruction-Type and Certain Production-Type Contracts” (the contract methodof accounting).

 

***•******                                          AccountsReceivable***

 

We are required to estimate the collectability of ouraccounts receivable, which requires a considerable amount of judgment inassessing the ultimate realization of these receivables, including the currentcredit-worthiness of each customer. Changes in required reserves may occur in the future as we continue toexpand our business as conditions in the marketplace change.

 

***•******                                          Inventory***

 

Inventories are stated at the lower of cost or marketvalue.  Cost is principally determinedby the first-in, first-out method.  Werecord adjustments to the value of inventory based upon past sales history andforecasted plans to sell our inventories. The physical condition, including age and quality, of the inventories isalso considered in establishing its valuation. These adjustments are estimates, which could vary significantly, eitherfavorably or unfavorably, from actual requirements if future economicconditions, customer inventory levels or competitive conditions differ from ourexpectations.

 

Inventoried costs on long-term contracts includecertain preproduction costs, consisting primarily of tooling and 

 

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design costs andproduction costs, including applicable overhead.  The costs attributed to units delivered under long-termcommercial contracts are based on the estimated average cost of all unitsexpected to be produced and are determined under the learning curve concept,which anticipates a predictable decrease in unit costs as tasks and productiontechniques become more efficient through repetition. This usually results in anincrease in inventory (referred to as “excess-over average”) during the earlyyears of a contract.

 

If in-process inventory plus estimated costs tocomplete a specific contract exceeds the anticipated remaining sales value ofsuch contract, such excess is charged to current earnings, thus reducinginventory to estimated realizable value.

 

***•******                                          Goodwill andIntangible Assets***

 

We have significant amounts of goodwill and intangibleassets.  The determination of whether ornot goodwill or intangible assets has become impaired involves a significantamount of judgment.  Changes in strategyand/or market conditions could significantly impact these judgments and requireadjustments to recorded amounts.

 

**Sources of Revenue**

 

Our revenue is generated primarily from sales ofbearings to the industrial market, the aerospace market and to the U.S.Government.  Our sales are made pursuantto contractual agreements, single source relationships or long-term purchaseorders with our clients.  For revenuesnot recognized under the contract method of accounting, we recognize revenuesfrom the sale of products at the point of passage of title, which is at thetime of shipment.

 

Sales to the industrial market accounted for 67% ofour net sales in fiscal 2003. Approximately 73% of such sales were to OEMs while 27% were todistributors.  Sales to the aerospacemarket accounted for 33% of our net sales in fiscal 2003.  In our sales to the aerospace market, 41% ofour sales were to OEMs, 16% were to distributors and the balance of 43%,directly or indirectly, to the U.S. Government.  Our top ten customers were responsible for generating 40% of ournet sales in fiscal 2003 and no single customer was responsible for generatingmore than 7% of our net sales in fiscal 2003.

 

**Cost Structure**

 

Our cost of operations include materials, equipment,workers’ compensation, supplies, manufacturing compensation and benefits, andmanufacturing overhead.

 

Selling, general and administrative expenses includemanagement, clerical and administrative compensation and overhead costsassociated with our manufacturing, marketing and sales force and professionalservices.

 

**Impact of Inflation**

 

To date, inflation has not significantly affected ouroperations.  However, competitivepressures and the terms of certain of our long-term contracts may require us toabsorb at least part of these cost increases, particularly during periods ofhigh inflation.

 

**Impactof Currency Exchange Rate Fluctuations**

 

As a result of our increased sales in Europe, ourexposure to risk associated with fluctuating currency exchange rates betweenthe U.S. dollar, the Euro and the Swiss Franc has increased.

 

**Acquisitions**

 

Our integration plan for acquisitions contemplatescertain cost savings, including through the elimination of duplicativepersonnel and facilities.  Unforeseenfactors may offset the estimated cost savings or other components of ourintegration plan, in whole or in part and, as a result, we may not realize anycost savings or other benefits from future acquisitions, and we may experiencea net increase in costs.

 

All of our acquisitions were accounted for aspurchases and, accordingly, only the operations of acquired companies since theacquisition dates are included in our consolidated financial statements.  These acquisitions were financed through acombination of working capital and funds borrowed under our senior creditfacility.  We expect to be able tofinance any future acquisitions with cash provided from operations, borrowingsunder our senior credit facility, or some combination of the foregoing.

 

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**Results of Operations**

 

***Fiscal 2003Compared to Fiscal 2002***

 

Net Sales.  Ournet sales were $172.9 million in fiscal 2003 and $168.3 million in fiscal 2002,an increase of $4.6 million, or 2.7%. Net sales in the compared periods included net sales totaling $2.1million in fiscal 2003 for RBC France, which was acquired in December 2002, and$5.2 million in fiscal 2003 and $3.7 million in fiscal 2002 generated by RBCOklahoma, which was acquired effective August 2001.  Excluding RBC France and RBC Oklahoma’s sales, our net salesincreased $1.6 million or 0.9% from period to period.

 

*GrossMargin.* Despite theincrease in our net sales in fiscal 2003, our gross margin decreased by $5.0million or 9.3% to $48.8 million for fiscal 2003, as compared to $53.8 millionfor fiscal 2002.  Gross margin as apercentage of net sales decreased 3.7%, from 31.9% for fiscal 2002, to 28.2%for fiscal 2003.  This decrease is theprimarily the result of product mix.

 

*Selling,General and Administrative Expenses.*  Our selling, general and administrative, orSG&A, expenses increased by approximately 0.8%, or $0.2 million, to $25.8million in fiscal 2003 from $25.6 million in fiscal 2002.

 

*OtherOperating Expenses.* Other operating expenses, which primarily consist of management fees andexpenses associated with the relocation of our plant in Bremen, Indiana,increased by $0.6 million or 63.2% from $0.9 million in fiscal 2002 to $1.5million in fiscal 2003, primarily as a result of the relocation of our Bremenplant facility.

 

*OperatingIncome.*  Operatingincome decreased by approximately $5.8 million, or 21.2%, to $21.4 million infiscal 2003 compared to $27.2 million in fiscal 2002.  The decrease primarily resulted from lower gross margin andhigher SG&A expenses in fiscal 2003, and expenses associated with therelocation of our plant in Bremen, Indiana.

 

*InterestExpense.*  Interestexpense decreased by $0.8 million, or 5.5%, to $14.4 million in fiscal 2003 ascompared to $15.2 million in fiscal 2002. The decrease in interest expense is primarily due to lower interestrates in effect on the term loan and revolving credit facility under our newsenior credit facility.

 

*IncomeBefore Taxes.*  Incomebefore taxes decreased by $5.2 million, or 42.8%, to $6.8 million in fiscal2003 from $12.0 million in fiscal 2002. This decrease is primarily due to lower operating income of $5.8 millionand higher financing costs of $0.3 million and was offset somewhat by lowerinterest expense of $0.8 million.

 

*NetIncome.*  Net incomedecreased $2.9 million, or 40.8%, to $4.0 million in fiscal 2003 compared to$6.9 million in fiscal 2002, as a result of the items mentioned above.

 

***Fiscal 2002Compared to Fiscal 2001***

 

*NetSales. *Net sales were$168.3 million in fiscal 2002 compared to $176.4 million in fiscal 2001, adecrease of $8.1 million, or 4.6%.  Netsales related to the RBC Oklahoma acquisition, which was effective August 20,2001, were $3.7 million in fiscal 2002. Net sales excluding the RBC Oklahoma acquisition decreased $11.8 millionor 6.7% from fiscal 2001, primarily due to softness in the OEM heavy truckmarket, the industrial aftermarkets and the aerospace market after September11, 2001.

 

*Cost ofSales.*  Our cost ofsales decreased by $1.6 million or 1.4% to $114.6 million for fiscal 2002, ascompared to $116.2 million in fiscal 2001. The decrease of our cost of sales is primarily the result of thesoftness in the higher margin markets, primarily aerospace.

 

*GrossMargin.*  Gross margindecreased by approximately 10.6%, or $6.4 million, to $53.8 million for Fiscal2002 from $60.2 million for fiscal 2001. Gross margin as a percentage of net sales decreased from 34.1% to 31.9%.  These decreases are primarily the result ofproduct mix and volume related.

 

*Selling,General and Administrative Expenses.*  SG&A expenses decreased by approximately5.2%, or $1.4 million, to $25.6 million in fiscal 2002 from $27.0 million infiscal 2001 primarily due to cost conservation efforts in compensation andmarketing expenditures.

 

*OtherOperating Expenses.* Other operating expenses increased by $0.1 million in fiscal 2002 to$0.9 million compared to $0.8 in fiscal 2001.

 

*OperatingIncome.*  Operatingincome decreased by approximately 16.0%, or $5.2 million, to $27.2 million infiscal 2002 compared to $32.4 million in fiscal 2001.   This decrease is primarily attributable to the lower grossmargin and was partially offset by lower SG&A expenses.

 

*Non-operatingExpenses.* Non-operating expenses of $3.6 million in fiscal 2001 represent certainfees and 

 

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expenses associated withthe investment in Holdings by Whitney. There was no comparable expense in fiscal 2002.

 

*InterestExpense.*  Interestexpense for fiscal 2002 was $15.2 million as compared to $15.7 million forfiscal 2001.  The decrease in interestexpense is primarily due to lower interest rates in effect on the term loan andrevolving credit facility.

 

*IncomeBefore Taxes.*  Incomebefore taxes decreased by $1.1 million, or 8.4%, to $12.0 million in Fiscal2002 from $13.1 million in Fiscal 2001. This decrease is primarily due to lower operating income of $5.2 millionwhich was offset somewhat by lower interest of $0.5 million and lowernon-operating expenses of $3.6 million.

 

*NetIncome.*  Net incomefor both Fiscal 2002 and Fiscal 2001 reflects a tax provision of $5.2million.  Net income decreased by $1.0million, or 13.1%, to $6.9 million in Fiscal 2002 compared to $7.9 million inFiscal 2001, as a result of the items mentioned above.

 

**Liquidity and Capital Resources**

 

***Cash Flow***

 

Net cash provided by operating activities wasapproximately $6.4 million for fiscal 2003, versus $9.1 million in fiscal2002.  The decrease of $2.7 million isprimarily the result lower net income in fiscal 2003.

 

Cash used in investing activities increased by $1.7million to $8.2 million in fiscal 2003 from $6.5 million in fiscal 2002.  Acquisition costs increased by $0.7 millionfrom $2.1 million in fiscal 2002 to $2.8 million in fiscal 2003.

 

Cash used in financing activities of $0.4 million wasprimarily due to dividends paid to Holdings of $8.2 million, foreign debtrestructure/retirement of $3.9 million, net decrease in revolving creditfacility outstanding of $20.0 million, new debt of $40.6 million, feesassociated with the new senior credit facility of $3.2 million and payments onterm loans and capital leases of $5.7 million.

 

***Liquidity***

 

Our business is capital intensive.  Our capital requirements includemanufacturing equipment purchases, materials and acquisitions.  We have historically financed, and plan tocontinue to finance, our capital needs with cash provided from operations andborrowings under our senior credit facility. We believe that the foregoing sources together with cash on hand willprovide adequate funds for our ongoing operations and planned capitalexpenditures.

 

In May 2002, we terminated our previous senior creditfacility and together with our domestic subsidiaries entered into a $94.0million senior secured credit facility with General Electric CapitalCorporation as agent and lender, Congress Financial Corporation (now known asCentral) as lender, GECC Capital Markets Group as lead arranger, and otherlenders, consisting of a $40.0 million term loan and a $54.0 million revolvingcredit facility.  In connection withthis new senior credit facility, we together with our domestic subsidiariesgranted lenders liens and mortgages on substantially all of our existing andafter-acquired personal and real property. In addition, to secure the loans, we pledged all of our capital stock inour domestic subsidiaries and a portion of our capital stock in our directlyowned foreign subsidiaries to the lenders.

 

The proceeds of the term loan were used to pay off ourprevious senior credit facility, with Credit Suisse First Boston, asadministrative agent and the lenders thereto, to pay fees and expenses withrespect to the new senior credit facility and for other corporatepurposes.  In addition, we have securedthe letters of credit issued in connection with our previous senior creditfacility pursuant to the new senior credit facility.  The revolving credit facility is available for issuances ofletters of credit and for loans in connection with acquisitions, workingcapital needs or other general corporate purposes.  The revolving credit facility bears interest at a floating rateof either the higher of the base rate on corporate loans and the federal fundsrate plus 50 basis points, plus 1.25%; or LIBOR plus 2.25%.  We have the right to elect the applicableinterest rate on the revolving credit facility.  As of June 19, 2003, letters of credit in a total amount of $20.0million were issued and $11.5 million has been drawn under the revolving creditfacility.

 

Principal and interest payments under our seniorcredit facility, interest payments on the Notes, and the funding ofacquisitions represent significant liquidity requirements for us.  Holdings is also dependant upon us to makesemi-annual interest payments of approximately $2.5 million on Holdings’discount debentures, which accrue interest at the rate of 13% per annum andmature on June 15, 2009.  The balanceoutstanding on these debentures as of March 29, 2003 was approximately $37.7million.  We began making our requiredquarterly scheduled principal payments under the term loan on September 30,2002.  The term loan bears interest at afloating rate of either the higher of the base rate on corporate loans and thefederal funds rate plus 50 basis points, plus 1.25%; or LIBOR plus 2.25%.  We have the right to elect the applicableinterest rate on the term loan.  As ofJune 19, 2003 the blended interest rate on 

 

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the term loan was 3.66%.

 

During July 2002, Whitney and Dr. Hartnett, ourPresident and Chief Executive Officer, purchased an aggregate of 240,000 sharesof Class B Exchangeable Convertible Participating Preferred Stock of Holdingsin exchange for gross proceeds of $24.0 million.  Following the closing of the sale, Holdings utilized the proceedsof the sale and certain of our cash on hand to repurchase approximately $30.4million in principal amount at maturity of the Discount Debentures.  This repurchase satisfied Holdings’obligation to make a scheduled redemption payment relating to the DiscountDebentures in December 2002.

 

On February 5, 2003, we received a waiver from ourlenders under our senior credit facility of a default related to certainpayments we made in December 2002 as described in “Item 1. Business – Historyand recent Developments – “Certain Payments; Amendments to Senior CreditFacility.”  On February 5, 2003, weagreed with those lenders to amend our senior credit facility to permit us toadvance certain funds to our European subsidiaries for the purpose ofdischarging all of their existing funded indebtedness and for general workingcapital purposes.

 

On June 19, 2003, we further amended and restated oursenior credit facility in order, among other things, to establish a structureunder which we now may include certain of our foreign assets within our“borrowing base” which sets forth the amounts that we can borrow under therevolving credit facility. In addition, this will simplify the process underwhich we can fund our foreign operations. As part of this amendment, we havecreated inter-company loan and asset pledge arrangements, including pledges ofcertain foreign assets, that are all ultimately assigned to the lenders asfurther collateral to secure the borrowings under our new senior credit facility.

 

In connection with the financing of Holdings’ 1997recapitalization, we issued $110.0 million aggregate principal amount of 9 5/8%Senior Subordinated Notes due 2007.  TheNotes pay interest semi-annually and mature on June 15, 2007 but may be redeemedat our option earlier under certain conditions specified in the indenturepursuant to which the Notes were issued. The Notes are unsecured and subordinate to all of our existing andfuture senior indebtedness.  The Notesare fully, unconditionally and irrevocably guaranteed jointly and severally, ona senior subordinated basis by each of our domestic wholly-owned subsidiaries.

 

Pursuant to the terms of the indenture for theDiscount Debentures, Holdings is required to file in a timely manner with theSEC all annual reports, documents and other periodic reports required pursuantto Sections 13 and 15(d) of the Exchange Act. As of the date of this Annual Report on Form 10-K, Holdings has failedto so file a copy of its Annual Report on Form 10-K for the fiscal year endedMarch 29, 2003.  The terms of theindenture provide a cure period for any default following receipt by Holdingsof a notice of default.  The Companybelieves that Holdings will file its Annual Report within the applicable cureperiod.

 

Our senior creditfacility, the indenture for the Notes and the indenture for the DiscountDebentures contain affirmative and negative covenants and other terms customaryto such financings, including requirements that we maintain specified financialratios, including the following:

 

•                  **ConsolidatedCoverage Ratio –**Pursuant to the terms of the indenture for theNotes, we may not incur additional indebtedness if, after giving retroactiveeffect to such incurrence, our consolidated EBITDA to consolidated interestexpense ratio will be less than 2.25 to 1.00 for the prior four fiscalquarters.  Pursuant to the indenture forthe Discount Debentures, Holdings and its subsidiaries (including us) may notincur additional indebtedness, if as a result our consolidated coverage ratiowill be less than 2.00 to 1.00.

 

•                  **Fixed ChargeCoverage Ratio –**Pursuant to the terms of our senior creditfacility, Holdings’ ratio (on a consolidated basis) of EBITDA less capitalexpenditures and income taxes to fixed charges, at the end of each fiscalquarter, shall not be less than 1.10 to 1.00.

 

As of March 29, 2003, our consolidated coverage ratiowas 2.29 to 1.00 and Holdings’ fixed charge coverage ratio was 1.15 to 1.00.

 

We believe that cash flowfrom operations and borrowings under the revolving loan portion of our seniorcredit facility will provide adequate cash to fund our working capital, capitalexpenditure, debt service and other cash requirements for the foreseeablefuture.  Our ability to meet futureworking capital, capital expenditure and debt service requirements to providefinancial assurance, as requested or required, and to fund capital amountsrequired for the expansion of our existing business will depend on our futurefinancial performance, which will be affected by a range of economic,competitive and business factors, many of which are outside of ourcontrol.  See “—Risk Factors.” We cannotassure you that our business will generate sufficient cash flow fromoperations, that we will meet the financial covenants in our debt agreement topermit us to make any payments or investments, that future financings will beavailable to us in amounts sufficient to enable us to service our debt or tomake necessary capital expenditures, or that any refinancing would be availableon commercially reasonable terms, if at all. Further, depending on the timing, amount and structure of any possiblefuture acquisitions and the availability of funds under, and compliance withcertain other covenants in, our senior credit facility, we may need to raiseadditional capital.  We

 

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cannot assure you that wewill be able to secure such funding, if necessary, on favorable terms, if atall.

 

***Obligations andCommitments***

 

The following tables outline what we regard as oursignificant contractual obligations and commercial commitments as of March 29,2003.  The tables do not represent allof our contractual obligations and commercial commitments that we have enteredinto. 

 
|                                            |   | **Payments  Due By Period  (in thousands)** |    |
|-------------------------------------------------|--------|---------------------------------------------|---------|
| **Significant  Contractual Obligations**        |   | **Total**                                   |    | **Less Than  1 Year** |   | **1 to 3  Years** |   | **3 to 5  Years** |   | **More than  5 Years** |   |
|                                            |   |                                        |    |   |   |   |   |   |   |   |   |
| Long-term  debt(1)                              |   | $                                           | 173,270 |   | $ | 15,946 |   | $ | 12,097 |   | $ | 128,572 |   | $ | 16,655 |   |
| Capital Lease  Obligations                      |   | 224                                         |    | 149 |   | 75 |   | — |   | — |   |
| Operating leases                                |   | 11,913                                      |    | 2,159 |   | 3,093 |   | 2,542 |   | 4,119 |   |
| Total  significant contractual cash obligations |   | $                                           | 185,407 |   | $ | 18,254 |   | $ | 15,265 |   | $ | 131,114 |   | $ | 20,774 |   |

 

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(1)                                  Long-termdebt obligations include (i) $110.0 million aggregate principal amount ofour Notes, (ii) $8.6 million outstanding under the revolving loanportion of our senior credit facility, (iii) $37.1 millionoutstanding under the term loan portion of our senior credit facility,(iv) $16.7 million aggregate principal amount of our industrialrevenue bonds, and (v) other debt of $0.9 million.

 

***•******                                          CapitalExpenditures***

 

We made capital expenditures of $6.6 million duringfiscal 2003 as compared to $5.9 million in fiscal 2002.  We expect to make capital expenditures of approximately$5.0 to $7.0 million during fiscal 2004 in connection with our existingbusiness.  We intend to fund our plannedfiscal 2004 capital expenditures principally through existing cash, internallygenerated funds and borrowings under our revolving credit facility.

 

In addition, we may make substantial additionalcapital expenditures in acquiring complementary bearing companies.  We cannot currently determine the amount ofthese expenditures because they will depend on the number, nature, condition andpermitted status of any acquired target.

 

From time to time we evaluate our existing operationsand their strategic importance to us. If we determine that a given operating unit does not have futurestrategic importance, we may sell or otherwise dispose of thoseoperations.  Although we believe ouroperations would not be impaired by such dispositions, we could incur losses onthem.

 

**Recent Accounting Pronouncements**

 

In June 2002, the Financial Accounting StandardsBoard, or FASB,  issued Statement of FinancialAccounting Standards, or SFAS, No. 146, Accounting for Costs Associated withExit or Disposal Activities. SFAS No. 146, which requires that a liability fora cost associated with an exit or disposal activity be recognized in the periodin which the liability is incurred, is effective for exit or disposalactivities initiated after December 31, 2002. The adoption of SFAS No. 146 is not expected to have a significanteffect on our results of operations or financial position.

 

In August 2001, the FASB issued SFAS, No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets.”  SFAS No. 144supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to be Disposed of.” The adoption of this new standard had no effect on our reported resultsof operations, financial position and cash flows.

 

As required, at the beginning of 2002, we adopted SFASNo. 141, “Business Combinations” and SFAS No. 142, “Goodwill and OtherIntangible Assets.”  SFAS No. 141requires that all business combinations initiated after June 30, 2001 beaccounted for using the purchase method, thus eliminating the use of thepooling-of-interests accounting for business combinations.  SFAS No. 142 changed the accounting forgoodwill from an amortization method to an impairment-only approach, wherebygoodwill amortization is no longer permitted after March 30, 2002.  The statement requires an annual assessmentof goodwill for impairment and more frequent assessments if circumstances indicatea possible impairment.  Additionally,SFAS No. 141 requires all acquired intangible assets be separately recognizedif the benefit of the intangible asset is obtained through contractual or otherlegal rights, or if the intangible asset can be sold, transferred, licensed,rented, or exchanged, regardless of the acquirer’s intent to do so.  

 

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Whereas, SFAS No. 141 iseffective for all business combinations initiated after June 30, 2001, SFAS No.142 required us to continue to amortize goodwill existing at June 30, 2001through the end of Fiscal 2002, ceasing goodwill amortization on March 31, 2002(the start of Fiscal 2003).  Annualpretax charges for the amortization of goodwill were approximately $800 infiscal 2002 and 2001, respectively.  Wecompleted the required transition (as of March 31, 2002) and annual assessments(as of December 31, 2002), both of which indicated no impairment.

 

**Environmental Compliance**

 

We are subject to various federal, state and localenvironmental laws, ordinances and regulations, including those governingdischarges of pollutants into the air and water, the storage, handling anddisposal of solid wastes, hazardous wastes and hazardous substances and thehealth and safety of employees. Agencies responsible for enforcing environmental laws have authority toimpose significant civil or criminal penalties for non-compliance.  We believe we are currently in materialcompliance with all applicable requirements of environmental laws, but therecan be no assurance that some future non-compliance will not result in theimposition of significant liabilities.

 

Additionally, capital expenditures and operating costsassociated with our compliance with environmental laws may increase in thefuture if environmental laws become more stringent, are enforced morerigorously, or if our operations were to change.  For additional details see Item 1.  “Business-Environmental Compliance.”

 

**Risk Factors**

 

The following risk factors, among others, couldadversely affect our operations and future performance and cause actual resultsto differ materially from those indicated by forward-looking statements made inthis Annual Report on Form 10-K and subsequently presented (in writing ororally) by us or persons acting on our behalf. In addition to other information in this Annual Report on Form 10-K, youshould carefully consider the following risk factors in evaluating us and ourbusiness, operating results or financial condition.

 

***Our business is capitalintensive and may consume cash in excess of cash flow from our operations andborrowings.***

 

Our ability to remain competitive, sustain our growthand operations, and expand our operations largely depends on our cash flow fromoperations and our access to capital. We intend to fund our cash needs through operating cash flow andborrowings under our senior credit facility. We may require additional equity or debt financing to fund our growthand debt repayment obligations.  Inaddition, we may need to refinance our Notes, Discount Debentures or other debtto pay the principal amounts due at maturity. In addition, we may need additional capital to fund futureacquisitions.  Our business may notgenerate sufficient cash flow, we may not be able to obtain sufficient funds toenable us to pay our debt obligations and capital expenditures or we may not beable to refinance on commercially reasonable terms, if at all.

 

***We depend heavilyon our senior management.***

 

Our business is managed by a small number of keyexecutive officers, including Dr. Hartnett. Our future success will depend on, among other things, our ability tokeep the services of these executives and to hire other highly qualifiedemployees at all levels.  We competewith other potential employers for employees, and we may not be successful inhiring and keeping the services of executives and other employees that weneed.  Our ability to efficientlydevelop our products could be adversely affected by a shortage of availableskilled employees or executives.

 

***Unexpectedequipment failures may increase our costs and reduce our sales due toproduction curtailments or shutdowns.***

 

Interruptions in production capabilities willinevitably increase our production costs and reduce sales and earnings for the affectedperiod. In addition to equipment failures, our facilities are also subject tothe risk of catastrophic loss due to unanticipated events such as fires,explosions or violent weather conditions. Our manufacturing processes aredependent upon critical pieces of equipment, such as furnaces, continuouscasters and rolling equipment, as well as electrical equipment, such astransformers, and this equipment may, on occasion, be out of service as aresult of unanticipated failures. In the future, we may experience materialplant shutdowns or periods of reduced production as a result of these types ofequipment failures.

 

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***We may not be ableto continue to make the acquisitions necessary for us to realize our growthstrategy.***

 

The acquisition of businesses that complement orexpand our operations has been and continues to be an important element of ourbusiness strategy.  This strategy callsfor growth through acquisitions, internal growth and market generation.  We cannot assure you that we will besuccessful in identifying attractive acquisition candidates or completingacquisitions on favorable terms in the future. In addition, we may borrow funds to acquire other businesses, increasingour interest expense and debt levels. Our inability to acquire businesses, or to operate them profitably onceacquired, could have a material adverse effect on our business, financialposition, and cash flows.

 

***The costs anddifficulties of integrating acquired business could impede our future growth.***

 

We cannot assure you that any future acquisition willenhance our financial performance.  Ourability to effectively integrate any future acquisitions will depend on, amongother things, the adequacy of our implementation plans, the ability of ourmanagement to oversee and operate effectively the combined operations and ourability to achieve desired operating efficiencies and sales goals.  The integration of any acquired businessesmight cause us to incur unforeseen costs, which would lower our profit marginand future earnings and would prevent us from realizing the expected benefitsof these acquisitions.

 

***The loss of a majorcustomer could have a material adverse effect on our business and operations.***

 

Our top ten customers generated 40% of our net salesduring Fiscal 2003.  Accordingly, theloss of one of or more of those customers or a substantial decrease in suchcustomers’ purchases from us could have a material adverse effect on ourfinancial condition and results of operations.

 

A significant portion of our sales are directly orindirectly to the United States government, related military or othergovernment projects.  Compliance withvarious government regulations may be required as discussed elsewhere in thisAnnual Report on Form 10-K.  Violationsof such regulations could result in termination of our contracts, which mayhave material adverse effects on our operations.  In addition, the consolidation and combination of defensemanufacturers may eliminate customers from the industry and/or put downwardpricing pressures on sales of component parts sold by us could have a materialadverse effect on our business.

 

***The bearingindustry is highly competitive and this competition could reduce ourprofitability or limit our ability to grow.***

 

The global bearing industry is highly competitive andwe compete with many U.S. and non-U.S. companies, such as Kaydon Corporation,New Hampshire Ball Bearings and McGill Manufacturing Company, some of whombenefit from lower labor costs and regulatory burdens.  We face competition from these companies inthe markets we currently serve.  Wecompete primarily based on price, quality, timeliness of delivery and designand the ability to provide support and service.  The bearing industry is also capital intensive, and profitabilityis dependent on such factors as labor compensation, productivity and inventorymanagement, which are subject to risks that we may not be able to control.  In addition, certain competitors are largerthan us and may have greater resources. These larger competitors may be better able to manage these costs or mayhave greater financial resources than us and, therefore, can more easily affordto make these expenditures.  Due to thecompetitiveness in the bearing industry we may not be able to increase pricesfor our products to cover increases in our costs and, in many cases, we mayface pressure to reduce prices, which could adversely affect our profitability.

 

***The demand for ourproducts is cyclical, which could adversely impact our revenues.***

 

The aerospace, heavy equipment and other industries towhich we sell our products are, to varying degrees, cyclical and tend todecline in response to overall declines in industrial production.  Margins in those industries are highlysensitive to demand cycles.  As aresult, the demand for our products by these customers depends, in part, ongeneral economic conditions and business confidence levels.  Downward economic cycles have affected ourcustomers and reduced sales of our products resulting in reductions to ourrevenues and net earnings.  Although webelieve that by concentrating on products with a strong aftermarket demand wehave reduced our exposure to such business downturns, any future materialweakness in demand in any of these industries could have a material adverseeffect on our financial condition and results of operations.

 

24

----

*** ***

***We will require asignificant amount of cash to service our debt.  Our ability to generate cash depends on many factors, some ofwhich are beyond our control.***

 

Our ability to make payments on our debt will dependon our ability to generate cash from operations, which depends on many factors,including those described in this “Risk Factors” section and elsewhere in thisAnnual Report on Form 10-K.  Our abilityto generate adequate cash is also subject to general economic, financial,competitive, legislative and regulatory factors that may be beyond our control.  Also, if we consummate acquisitions in thefuture, our needs for cash will increase.

 

***Covenant restrictions in our senior creditfacility, the Notes indenture and the Discount Debenture indenture may limitour ability to operate our business.***

 

Our senior credit facility, the Notes indenture andthe Holdings’ Discount Debenture indenture governing Holdings’ DiscountDebentures contain covenants that restrict our ability to operate ourbusiness.  The Notes indenture and thediscount indenture restrict our ability to, among other things, incur orguarantee additional debt, sell assets, create liens or other encumbrances,make certain payments in respect of our equity securities, engage intransactions with affiliates and enter into a merger or consolidation.  Our senior credit facility contains similarrestrictions and also requires us to comply with certain financial covenantsand ratios, including a minimum interest coverage ratio and a fixed chargecoverage ratio.  These restrictions,covenants and ratios may limit our ability to operate our business, financefuture operations, respond to changing business and economic conditions, secureadditional financing, if needed, and take advantage of potential businessopportunities as they arise.

 

***Our failure to comply with the covenants contained in oursenior credit facility, the notes indenture, including due to events beyond our control, could result in an event ofdefault, which could materially and adversely affect our operating results andfinancial condition.***

 

If a default under the Notes indenture or our seniorcredit facility should occur, all amounts borrowed could be declaredimmediately due and payable. Furthermore, this could result in all amounts borrowed under otherinstruments, including the Notes indenture or our senior credit facility, beingdeclared immediately due and payable. In such event, we may not be able to pay the accelerated amounts orborrow funds sufficient to make any such payments.  Even if additional financing could be obtained, it may not be onterms that are favorable or acceptable to us. Further, if we are unable to repay, refinance or restructure our debtunder our senior credit facility, the lenders under our senior credit facilitycould proceed against the collateral securing that indebtedness.  In such event, any proceeds received upon arealization of the collateral would be applied first to amounts due under oursenior credit facility before any proceeds would be available to make paymentson our Notes.

 

***The interests ofcertain controlling stockholders could conflict with those of other holders ofour securities.***

 

Dr. Michael J. Hartnett, Chairman of our Board ofDirectors, President and Chief Executive Officer, controls a majority vote ofthe outstanding capital stock of Holdings, our parent and sole stockholder.  As a result, Dr. Hartnett effectivelycontrols the outcome of most matters submitted to a vote of our and Holdings’stockholders.  Dr. Hartnett’s interestsmay not be aligned with those of our other Stockholders and transactions may bepursued that could enhance Dr. Hartnett’s equity investments while involvingrisks to our other stockholders’ interests. In addition, pursuant to the Amended and Restated Stockholders Agreementamong Dr. Hartnett, his affiliates, Whitney, and its affiliates, Dr. Hartnetthas the right to designate four out of seven members of our Board.  In addition, pursuant to the Amended andRestated Stockholders Agreement, certain transactions require Whitney’s priorconsent and Whitney has the right to designate two out of seven members of ourBoard.  For more detailed information,see Item 13. “Certain Relationships and Related Transactions.”

 

***If Holdings were to default in itsobligations under the Discount Debentures, it likely could cause uncertainty inour business and could likely result in a change in control.***

 

Holdings relies on us for the capital necessary tomake its payments under the Discount Debentures.  Under the indenture for our Notes and our credit facility, we arerestricted from making certain payments to Holdings unless we meet certainfinancial ratios. Accordingly, if we are unable to make any required payment toHoldings, Holdings could default in its obligations related to the DiscountDebentures, which could have adverse consequences to us.  Holdings pledged shares of our common stockas collateral to the holders of the Discount Debentures.  If Holdings were to default in itsobligations under the Discount Debentures and it were unable to repurchase suchDiscount 

 

25

----

 

Debentures, the holdersof the Discount Debentures could be entitled to cause a change in control ofour ownership.  Further, under theindenture for our Notes, if a change in control of our ownership were to occur,the holders of our notes would be entitled to require us to offer to repurchasethe Notes.  If this were to occur, thereis no assurance that we would have the capital resources available torepurchase all outstanding Notes.

 

**Item 7A.****                          QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISKS**

 

We ordinarily do not hold market risk sensitiveinstruments for trading purposes. However, in the normal course of business, we are exposed to marketrisk, including changes in interest rates and certain commodity prices.  We use hedge agreements to manage a portionof our risks related to interest rates. While we are exposed to credit risk in the event of non-performance bycounterparties to our hedge agreements, in all cases such counterparties arehighly rated financial institutions and we do not anticipatenon-performance.  We do not hold orissue derivative financial instruments for trading purposes.  We monitor our hedge positions by regularlyevaluating the positions at market and by performing sensitivity analyses.

 

Our Swiss operations utilize the Swiss franc as itsfunctional currency.  Our Frenchoperations utilize the Euro as the functional currency.  Foreign currency transaction gains andlosses are included in earnings. Foreign currency transaction exposure arises primarily from the transferof foreign currency from one subsidiary to another within the group, and toforeign currency denominated trade receivables.  Currency transaction and translation exposures are not hedged aswe do not use any derivative financial instruments.  Unrealized currency translation gains and losses are recognizedupon translation of the foreign subsidiaries’ balance sheets to U.S. dollars.

 

26

----

**ITEM 8.****                             FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

 

**Roller Bearing Company of America,Inc**.

 

**Index to Consolidated FinancialStatements**

 

**ConsolidatedFinancial Statements as of March 29, 2003 and March 30, 2002 and for each ofthe three fiscal years in the period ended March 29, 2003**

 
| Report of Independent  Auditors - Ernst & Young LLP                                  |
|------------------------------------------------------------------------------------------|
|                                                                                     |
| Report  of Independent Public Accountants - Arthur Andersen LLP                          |
|                                                                                     |
| Consolidated Balance Sheets                                                              |
|                                                                                     |
| Consolidated  Statements of Operations                                                   |
|                                                                                     |
| Consolidated  Statements of Cash Flows                                                   |
|                                                                                     |
| Consolidated  Statements of Stockholder’s Equity (Deficit) and Comprehensive Income |
|                                                                                     |
| Notes to  Consolidated Financial Statements                                              |
|                                                                                     |
| Schedule II – Valuation and Qualifying  Accounts                                    |

 

F-1

----

 

**REPORT OF INDEPENDENT AUDITORS**

 

To the Board of Directors and Stockholderof Roller Bearing Company of America, Inc.:

 

We have audited the accompanying consolidatedbalance sheets of Roller Bearing Company of America, Inc., (a Delawarecorporation and a wholly owned subsidiary of Roller Bearing Holding Company,Inc.) and subsidiaries as of March 29, 2003 and March 30, 2002, and the relatedconsolidated statements of operations, stockholder’s equity (deficit) andcomprehensive income and cash flows for each of the two years in the periodended March 29, 2003. Our audit also included the information as of March 29,2003 and March 30, 2002, and for the years then ended, included in thefinancial statement schedule listed in the Index at Item 15(a). These financialstatements and schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andschedule based on our audits.

 

We conducted our audits in accordance withauditing standards generally accepted in the United States. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statementsreferred to above present fairly, in all material respects, the consolidatedfinancial position of Roller Bearing Company of America, Inc. and subsidiariesat March 29, 2003 and March 30, 2002, and the consolidated results of itsoperations and its cash flows for each of the two years in the period endedMarch 29, 2003, in conformity with accounting principles generally accepted inthe United States. Also, in our opinion, the related financial statementschedule, when considered in relation to the basic financial statements takenas a whole, presents fairly, in all material respects, the information setforth therein.

 

As discussed in Note 3, in fiscal 2003 theCompany changed its method of accounting for goodwill and other intangibleassets to conform to Statement of Financial Accounting Standards No. 142,“Goodwill and Other Intangible Assets.”

 

 
|                  | /s/ ERNST & YOUNG LLP |   |
|-----------------------|---------------------------|--------|
|                  |                      |   |
| Stamford, Connecticut |                      |   |
| June 27, 2003         |                      |   |

 

F-2

----

 

This is a copy of the audit reportpreviously issued by Arthur Andersen LLP (“Andersen”) in connection with theCompany’s filing on Form 10-K for the fiscal year ended March 31, 2002. Thisaudit report has not been reissued by Andersen nor has Andersen provided aconsent to the inclusion of its report in this annual report on Form 10-K. Theconsolidated balance sheet as of March 31, 2001 and the consolidated statementsof income, shareholders’ equity and cash flows for the fiscal year ended March31, 2000 have not been included in the accompanying financial statements.

 

**REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS**

 

To the Board of Directors and Stockholderof Roller Bearing Company of America, Inc.:

 

We have audited the accompanying consolidated balance sheet ofRoller Bearing Company of America, Inc. (a Delaware corporation and a whollyowned subsidiary of Roller Bearing Holding Company, Inc.) and subsidiaries asof March 31, 2001, and the related consolidated statements of operations,stockholder’s equity (deficit) and comprehensive income and cash flows for eachof the two years in the period ended March 31, 2001. These financial statementsand schedule referred to below are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements and the schedule based on ouraudits.

 

We conducted our audits in accordance with auditing standardsgenerally accepted in the United States. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements and schedule referred toabove present fairly, in all material respects, the financial position ofRoller Bearing Company of America, Inc. and subsidiaries as of March 31, 2001,and the results of their operations and their cash flows for each of the twoyears in the period ended March 31, 2001 in conformity with accountingprinciples generally accepted in the United States.

 

Our audits were made for the purpose of forming an opinion on thebasic financial statements taken as a whole. The schedule listed in the accompanying index is presented for purposesof complying with the Securities and Exchange Commission’s rules and is notpart of the basic financial statements. This schedule has been subjected to the auditing procedures applied inthe audits of the basic financial statements and, in our opinion, fairly statesin all material respects the financial data required to be set forth therein inrelation to the basic financial statements taken as a whole.

 
|                   |   | **/s/****ARTHUR****ANDERSEN LLP** |   |
|------------------------|--------|-----------------------------------|--------|
|                   |   |                              |   |
| Stamford,  Connecticut |   |                              |   |
| June 21,  2001         |   |                              |   |

 

F-3

----

 

**RollerBearing Company of America, Inc.**

**ConsolidatedBalance Sheets**

**(dollarsin thousands, except share data)**

 
|                                                                                                                                                                  |   | **March 29,  2003** |    | **March 30,  2002** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|---------------------|--------|
| **ASSETS**                                                                                                                                                            |   |                |    |                |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Current assets:                                                                                                                                                       |   |                |    |                |   |
| Cash                                                                                                                                                                  |   | $                   | 3,552   |                | $      | 7,178 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $744 at March 29, 2003  and $621 at March 30, 2002                                                    |   | 39,691              |    | 38,415              |   |
| Inventories                                                                                                                                                           |   | 86,188              |    | 76,605              |   |
| Prepaid expenses  and other current assets                                                                                                                            |   | 5,434               |    | 5,127               |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Total current  assets                                                                                                                                                 |   | 134,865             |    | 127,325             |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Property, plant  and equipment, net                                                                                                                                   |   | 57,772              |    | 59,536              |   |
| Restricted  marketable securities                                                                                                                                     |   | 113                 |    | 1,255               |   |
| Goodwill, net of  accumulated amortization of $6,624 at March 30, 2002                                                                                                |   | 25,150              |    | 25,150              |   |
| Intangible  assets, net of accumulated amortization of $105 at March 29, 2003 and $0 at  March 30, 2002                                                               |   | 2,090               |    | 253                 |   |
| Deferred financing  costs, net of accumulated amortization of $5,900 at March 29, 2003 and $4,776  at March 30, 2002                                                  |   | 5,515               |    | 3,413               |   |
| Other assets                                                                                                                                                          |   | 1,770               |    | 1,342               |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Total assets                                                                                                                                                          |   | $                   | 227,275 |                | $      | 218,274 |   |
|                                                                                                                                                                  |   |                |    |                |   |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                                                                                        |   |                |    |                |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Current  liabilities:                                                                                                                                                 |   |                |    |                |   |
| Accounts payable                                                                                                                                                      |   | $                   | 13,927  |                | $      | 13,880 |   |
| Accrued expenses  and other current liabilities                                                                                                                       |   | 12,817              |    | 12,312              |   |
| Current portion  of long-term debt                                                                                                                                    |   | 15,946              |    | 31,594              |   |
| Obligations  under capital leases, current portion                                                                                                                    |   | 149                 |    | 533                 |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Total current  liabilities                                                                                                                                            |   | 42,839              |    | 58,319              |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Long-term debt                                                                                                                                                        |   | 157,324             |    | 130,135             |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Capital lease  obligations, less current portion                                                                                                                      |   | 75                  |    | 148                 |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Other noncurrent  liabilities                                                                                                                                         |   | 23,630              |    | 18,153              |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Total liabilities                                                                                                                                                     |   | 223,868             |    | 206,755             |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Commitments and  contingencies                                                                                                                                        |   | —              |    | —              |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Stockholder’s  equity:                                                                                                                                           |   |                |    |                |   |
| Common stock -  $.01 par value; 1,000 shares authorized; 103 shares issued and outstanding at  March 29, 2003 and 100 shares issued and outstanding at March 30, 2002 |   | —              |    | —              |   |
| Additional paid  in capital                                                                                                                                           |   | 12,736              |    | 9,708               |   |
| Accumulated  other comprehensive income (loss)                                                                                                                        |   | (5,829              | )       | (1,766              | )      |
| Retained  earnings (deficit)                                                                                                                                          |   | (3,500              | )       | 3,577               |   |
| Total  stockholder’s equity                                                                                                                                      |   | 3,407               |    | 11,519              |   |
|                                                                                                                                                                  |   |                |    |                |   |
| Total liabilities  and stockholder’s equity                                                                                                                      |   | $                   | 227,275 |                | $      | 218,274 |   |

 

See notes to consolidatedfinancial statements.

 

F-4

----

 
| **Roller Bearing Company of America,  Inc.** |   |
|----------------------------------------------|--------|
| **Consolidated Statements of  Operations**   |   |
| **(dollars in thousands)**                   |   |

 
|                                 |   | **Fiscal  Year Ended** |    |
|--------------------------------------|--------|------------------------|---------|
|                                 |   | **March 29,**          |    | **March 30,** |   | **March 31,** |   |
|                                 |   | **2003**               |    | **2002** |   | **2001** |   |
|                                 |   |                   |    |   |   |   |   |
| Net sales                            |   | $                      | 172,860 |   | $ | 168,331 |   | $ | 176,435 |   |
|                                 |   |                   |    |   |   |   |   |
| Cost of sales                        |   | 124,086                |    | 114,575 |   | 116,245 |   |
|                                 |   |                   |    |   |   |   |   |
| Gross margin                         |   | 48,774                 |    | 53,756 |   | 60,190 |   |
|                                 |   |                   |    |   |   |   |   |
| Operating  expenses:                 |   |                   |    |   |   |   |   |
| Selling, general  and administrative |   | 25,823                 |    | 25,606 |   | 27,011 |   |
| Other expense,  net of other income  |   | 1,529                  |    | 937 |   | 776 |   |
|                                 |   | 27,352                 |    | 26,543 |   | 27,787 |   |
|                                 |   |                   |    |   |   |   |   |
| Operating income                     |   | 21,422                 |    | 27,213 |   | 32,403 |   |
|                                 |   |                   |    |   |   |   |   |
| Financing costs                      |   | 287                    |    | — |   | 3,600 |   |
| Interest  expense, net               |   | 14,363                 |    | 15,183 |   | 15,660 |   |
| Minority  interest                   |   | 11                     |    | 17 |   | 16 |   |
|                                 |   |                   |    |   |   |   |   |
| Income before  taxes                 |   | 6,761                  |    | 12,013 |   | 13,127 |   |
|                                 |   |                   |    |   |   |   |   |
| Income tax  expense                  |   | 2,603                  |    | 5,150 |   | 5,233 |   |
|                                 |   |                   |    |   |   |   |   |
| Net income                           |   | $                      | 4,158   |   | $ | 6,863 |   | $ | 7,894 |   |

 

See notes to consolidated financial statements.

 

F-5

----

 

**RollerBearing Company of America, Inc.**

**ConsolidatedStatements of Cash Flows**

**(dollarsin thousands)**

 
|                                                                     |   | **Fiscal Year Ended** |    |
|--------------------------------------------------------------------------|--------|-----------------------|---------|
|                                                                     |   | **March 29,  2003**   |    | **March 30,  2002** |   | **March 31,  2001** |   |
| **Cash  flows from operating activities:**                               |   |                  |    |   |   |   |   |
| Net income                                                               |   | $                     | 4,158   |   | $ | 6,863 |   | $ | 7,894 |   |
| Adjustments to  reconcile net income to net cash                         |   |                  |    |   |   |   |   |
| provided by  operating activities:                                       |   |                  |    |   |   |   |   |
| Depreciation                                                             |   | 8,714                 |    | 8,304 |   | 7,840 |   |
| Deferred income  taxes                                                   |   | 1,904                 |    | 747 |   | 1,155 |   |
| Minimum pension  liability adjustment                                    |   | (2,608                | )       | (1,628 | ) | (226 | ) |
| Tax benefit on  exercise of stock options/warrants                       |   | —                |    | — |   | 3,108 |   |
| Amortization of  goodwill and intangibles                                |   | 105                   |    | 801 |   | 801 |   |
| Amortization of  deferred financing costs                                |   | 1,125                 |    | 1,028 |   | 1,039 |   |
| Loss from  disposition of assets                                         |   | 858                   |    | 22 |   | — |   |
| Changes in  working capital, net of acquisitions:                        |   |                  |    |   |   |   |   |
| (Increase)  decrease in accounts receivable                              |   | 1,032                 |    | (1,566 | ) | (5,475 | ) |
| (Increase)  decrease in inventories                                      |   | (8,713                | )       | (8,586 | ) | (9,541 | ) |
| (Increase)  decrease in prepaid expenses & other current assets      |   | (441                  | )       | (1,131 | ) | (2,714 | ) |
| (Increase)  decrease in other non-current assets                         |   | (649                  | )       | (145 | ) | (9 | ) |
| Increase  (decrease) in accounts payable                                 |   | (1,009                | )       | (548 | ) | 4,015 |   |
| Increase  (decrease) in accrued expenses & other current liabilities |   | (1,352                | )  | (1,674 | ) | 165 |   |
| Increase  (decrease) in other non-current liabilities                    |   | 3,235                 |    | 6,605 |   | 664 |   |
|                                                                     |   |                  |    |   |   |   |   |
| Net cash  provided by operating activities                               |   | 6,359                 |    | 9,092 |   | 8,716 |   |
|                                                                     |   |                  |    |   |   |   |   |
| **Cash  flows from investing activities:**                               |   |                  |    |   |   |   |   |
| Acquisition of  subsidiaries, net of cash acquired                       |   | (2,822                | )       | (2,128 | ) | — |   |
| Purchase of  property, plant & equipment, net                        |   | (6,522                | )       | (5,941 | ) | (6,619 | ) |
| Proceeds from  sale of land                                              |   | —                |    | 627 |   | — |   |
| Sale (purchase)  of restricted marketable securities, net                |   | 1,143                 |    | 940 |   | 460 |   |
|                                                                     |   |                  |    |   |   |   |   |
| Net cash used in  investing activities                                   |   | (8,201                | )       | (6,502 | ) | (6,159 | ) |
|                                                                     |   |                  |    |   |   |   |   |
| **Cash  flows from financing activities:**                               |   |                  |    |   |   |   |   |
|                                                                     |   |                  |    |   |   |   |   |
| Net increase  (decrease) in revolving credit facility                    |   | (20,018               | )       | 9,000 |   | 9,000 |   |
| Proceeds from  bank term loan                                            |   | 40,664                |    | — |   | — |   |
| Retirement of  Industrial Revenue Bond                                   |   | —                |    | (1,845 | ) | — |   |
| Proceeds from  Industrial Revenue Bond trust account                     |   | —                |    | 1,845 |   | — |   |
| Payments of term  loans                                                  |   | (5,328                | )       | (7,139 | ) | (4,885 | ) |
| Restructure of  foreign debt                                             |   | 7,127                 |    | — |   | — |   |
| Principal  payments on capital lease obligations                         |   | (457                  | )       | (773 | ) | (906 | ) |
| Finance fees  paid in connection with credit facility                    |   | (3,226                | )       | — |   | — |   |
| Proceeds from  issuance of common stock                                  |   | 3,028                 |    | — |   | — |   |
| Dividends paid  to parent company                                        |   | (11,235               | )       | — |   | (3,571 | ) |
| Retirement of  foreign debt                                              |   | (10,974               | )       | — |   | — |   |
|                                                                     |   |                  |    |   |   |   |   |
| Net cash (used  in) provided by financing activities                     |   | (419                  | )       | 1,088 |   | (362 | ) |
|                                                                     |   |                  |    |   |   |   |   |
| **Cash  and Cash Equivalents:**                                          |   |                  |    |   |   |   |   |
| Effect of  exchange rate changes                                         |   | (1,365                | )       | 374 |   | (120 | ) |
|                                                                     |   |                  |    |   |   |   |   |
| Increase  (decrease) during the year                                     |   | (3,626                | )       | 4,052 |   | 2,075 |   |
| Cash, at  beginning of year                                              |   | 7,178                 |    | 3,126 |   | 1,051 |   |
| Cash, at end of  year                                                    |   | $                     | 3,552   |   | $ | 7,178 |   | $ | 3,126 |   |
|                                                                     |   |                  |    |   |   |   |   |
| **Supplemental  disclosures of cash flow information:**                  |   |                  |    |   |   |   |   |
| Cash paid during  the period for:                                        |   |                  |    |   |   |   |   |
| Interest                                                                 |   | $                     | 13,239  |   | $ | 14,127 |   | $ | 14,454 |   |
| Income taxes                                                             |   | $                     | 671     |   | $ | 255 |   | $ | 1,131 |   |

 

See notes toconsolidated financial statements.

 

F-6

----

 

**RollerBearing Company of America, Inc.**

**Consolidated Statements of Stockholder's Equity (Deficit) andComprehensive Income**

**(dollarsin thousands)**

 
|                               |   | **Additional  Paid in  Capital** |   | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Retained  Earnings/  Accumulated  (Deficit)** |   | **Total  Stockholder’s  Equity/(Deficit)** |   | **Comprehensive  Income/(Loss)** |   |
|------------------------------------|--------|----------------------------------|--------|------------------------------------------------------|--------|-------------------------------------------------|--------|-------------------------------------------------|--------|----------------------------------|--------|
|                               |   |                             |   |                                                 |   |                                            |   |                                            |   |                             |   |
| Balance at April  1, 2000          |   | 6,600                            |   | (150                                                 | )      | (7,609                                          | )      | (1,159                                          | )      |                             |   |
|                               |   |                             |   |                                                 |   |                                            |   |                                            |   |                             |   |
| Net income                         |   | —                           |   | —                                               |   | 7,894                                           |   | 7,894                                           |   | 7,894                            |   |
| Currency  translation adjustment   |   | —                           |   | 162                                                  |   | —                                          |   | 162                                             |   | 162                              |   |
| Tax benefit of  warrant redemption |   | 3,108                            |   | —                                               |   | —                                          |   | 3,108                                           |   | —                           |   |
| Minimum pension  liability         |   | —                           |   | (226                                                 | )      | —                                          |   | (226                                            | )      | (226                             | )      |
| Dividend paid to  parent           |   | —                           |   | —                                               |   | (3,571                                          | )      | (3,571                                          | )      | —                           |   |
| Comprehensive  income              |   |                             |   |                                                 |   |                                            |   |                                            |   | 7,830                            |   |
|                               |   |                             |   |                                                 |   |                                            |   |                                            |   |                             |   |
| Balance at March  31, 2001         |   | 9,708                            |   | (214                                                 | )      | (3,286                                          | )      | 6,208                                           |   |                             |   |
|                               |   |                             |   |                                                 |   |                                            |   |                                            |   |                             |   |
| Net income                         |   | —                           |   | —                                               |   | 6,863                                           |   | 6,863                                           |   | 6,863                            |   |
| Currency  translation adjustment   |   | —                           |   | 76                                                   |   | —                                          |   | 76                                              |   | 76                               |   |
| Minimum pension  liability         |   | —                           |   | (1,628                                               | )      | —                                          |   | (1,628                                          | )      | (1,628                           | )      |
| Comprehensive  income              |   |                             |   |                                                 |   |                                            |   |                                            |   | $                                | 5,311  |   |
|                               |   |                             |   |                                                 |   |                                            |   |                                            |   |                             |   |
| Balance at March  30, 2002         |   | $                                | 9,708  |                                                 | $      | (1,766                                          | )      | $                                               | 3,577  |                             | $      | 11,519 |   |   |   |
|                               |   |                             |   |                                                 |   |                                            |   |                                            |   |                             |   |
| Net income                         |   | —                           |   | —                                               |   | 4,158                                           |   | 4,158                                           |   | 4,158                            |   |
| Currency  translation adjustment   |   | —                           |   | (1,455                                               | )      | —                                          |   | (1,455                                          | )      | (1,455                           | )      |
| Additional paid  in capital        |   | 3,028                            |   | 3,028                                                |   |                                            |   |                                            |   |                             |   |
| Minimum pension  liability         |   | —                           |   | (2,608                                               | )      | —                                          |   | (2,608                                          | )      | (2,608                           | )      |
| Dividend paid to  parent           |   | —                           |   | —                                               |   | (11,235                                         | )      | (11,235                                         | )      |                             |   |
| Comprehensive  income              |   |                             |   |                                                 |   |                                            |   |                                            |   | $                                | 95     |   |
|                               |   |                             |   |                                                 |   |                                            |   |                                            |   |                             |   |
| Balance at March  29, 2003         |   | $                                | 12,736 |                                                 | $      | (5,829                                          | )      | $                                               | (3,500 | )                                | $      | 3,407 |   |   |   |

 

See notes to consolidatedfinancial statements.

 

F-7

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**Roller Bearing Company of America, Inc.Notes to Consolidated Financial Statements(all currencies in thousands)**

 

**1.****              Organization and Business**

 

RollerBearing Company of America, Inc., (“RBC” or the “Company”), a Delawarecorporation, is a wholly owned subsidiary of Roller Bearing Holding Company,Inc. (“Holdings”). On March 31, 1992, Holdings acquired all of the outstandingshares of RBC pursuant to an Agreement and Plan of Reorganization.  The acquisition was accounted for under thepurchase method of accounting.  Theexcess of the purchase price ($20,100) over the fair market value of thetangible net assets acquired by Holdings has been pushed down and recorded asgoodwill by the Company.

 

The Companyoperates in one business segment in which it manufactures roller bearingcomponents and assembled parts and designs and manufactures high-precisionroller and ball bearings.  The Companysells to a wide variety of Original Equipment Manufacturers (“OEMs”) and distributorswho are primarily domestic but widely dispersed geographically.

 

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, theCompany and its subsidiaries in connection therewith, the“Recapitalization”).  In connection withthe Recapitalization, the Company issued the Senior Subordinated Notes andincurred the Term Loans described in Note 5. The proceeds therefrom were utilized to pay a dividend to Holdings tofinance the redemption of a substantial portion of its common stock, all of itspreferred stock and certain outstanding warrants to purchase common stock, andto pay certain Recapitalization fees and expenses. This transaction was furtherfinanced from the proceeds of certain debt issued directly by Holdings.  In addition, a new group of investors (whowere not previously stockholders of Holdings) purchased shares of common stockand warrants to purchase common stock of Holdings, directly from certainstockholders of Holdings.  Theredemption of shares and warrants was treated by Holdings as a recapitalizationtransaction.

 

Stockholdersof Holdings owning approximately 7% of the outstanding voting shares prior tothe effective date of the Recapitalization, owned approximately 71% of theoutstanding voting shares immediately following the Recapitalization.  The new group of investors referred to aboveowned the remaining 29% of the voting shares at such time and thus were notcontrolling stockholders of either Holdings or the Company.  As a result, the transaction did not resultin the establishment of new bases in Holdings’ or the Company’s assets andliabilities.  Funds disbursed byHoldings and the Company were charged against their capital accounts to theextent permitted by law.

 

During fiscal 2001, Whitney Acquisition II, Corp. (“Whitney”), anaffiliate of the private equity firm Whitney & Co., purchased 23,682.65shares of Holdings Class A common Stock (the “Whitney Shares”) at a price of$3,018.33 per share.  The Whitney Shareswere acquired from various stockholders of Holdings, but none were purchasedfrom Holdings itself.  As Whitney wishedto acquire only issued and outstanding shares, many stockholders exercisedoptions and warrants and sold the underlying shares to Whitney uponexercise.  The Whitney Sharesrepresented, in the aggregate, 65.25% of the outstanding capital stock ofHoldings on a fully diluted basis on March 29, 2003.

 

During July 2002, Whitney made an additional investment in Holdingswhich is further discussed in Note 15.

 

**2.****              Acquisitions by Wholly Owned Subsidiaries**

 

In a transaction effective as of August 20, 2001, the Company, through its wholly owned subsidiary,RBC Oklahoma, Inc. (“RBC Oklahoma”), purchased certain assets used in thedesign, development, manufacture, assembly and sale of tapered thrust bearings,universal joints, synchronizing rings and GTRAG bearings, previously owned byDriveline Technologies, Inc., from Prime Financial Corporation and CongressFinancial Corporation (Southwest), for an aggregate purchase price of $2,400.

 

In a transaction effective in December 2002, the Company, through itsindirect wholly-owned subsidiary, Schaublin, SA, purchased all of the outstandingcapital stock of myonic SAS (“Myonic”). The capital stock of Myonic was purchased from myonic AG, a Swisscorporation.  Myonic is engaged in thesale of bearings manufactured by Schaublin S.A. and third parties.  The total cash consideration paid for thepurchased assets by the Company was $2,822, of which $1,722 was 

 

F-8

----

 

allocated to intangibles.  The corporate name of Myonic has sincebeen changed to RBC France SAS.

 

The resultsof operations subsequent to the effective dates of acquisition are included inthe results of operations of the Company. Pro forma consolidated results of operations of the Company, based uponpre-acquisition unaudited historical information for the years ended March 29,2003, March 30, 2002, and March 31, 2001 and includes pro forma adjustments, asif the acquisitions took place on  March31, 2002, April 1, 2001, and April 2, 2000 are as follows :

 
|            |   | **Fiscal Year Ended** |    |
|-----------------|--------|-----------------------|---------|
| **(Unaudited)** |   | **March 29, 2003**    |    | **March 30, 2002** |   | **March 31, 2001** |   |
| Net Sales       |   | $                     | 178,396 |   | $ | 174,763 |   | $ | 182,820 |   |
| Net Income      |   | $                     | 5,003   |   | $ | 7,223 |   | $ | 8,312 |   |

 

**3. Summary of Significant Accounting Policies**

 

**General**

 

Theconsolidated financial statements include the accounts of RBC and its whollyowned subsidiaries, Industrial Tectonics Bearings Corporation (“ITB”), RBCLinear Precision Products, Inc. (“LPP”), RBC Nice Bearings, Inc. (“Nice”),Bremen Bearings, Inc. (“Bremen”), Miller, Tyson, Schaublin, RBC de Mexico(“Mexico”), and RBC Oklahoma, Inc. (“RBC Oklahoma”) as well as its TransportDynamics (“TDC”), Heim (“Heim”) and Engineered Components (“ECD”)divisions.  All material intercompanybalances and transactions have been eliminated in consolidation.

 

The Companyhas a fiscal year consisting of 52 or 53 weeks, ending on the Saturday closestto March 31.  Based on this policy,fiscal years 2003, 2002 and 2001 contained 52 weeks.

 

**Cash and Cash Equivalents**

 

The Companyconsiders all highly liquid investments purchased with an original maturity ofthree months or less to be cash equivalents.

 

**Inventory**

 

Inventoriesare stated at the lower of cost or market, using the first-in, first-outmethod, and are summarized as follows:

 
|              |   | **March 29, 2003** |   | **March 30, 2002** |   |
|-------------------|--------|--------------------|--------|--------------------|--------|
| Raw material      |   | $                  | 2,707  |               | $      | 3,185 |   |
| Work in process   |   | 17,745             |   | 18,576             |   |
| Finished goods    |   | 65,736             |   | 54,844             |   |
| Total inventories |   | $                  | 86,188 |               | $      | 76,605 |   |

 

The Company accounts for inventory under a full absorption method andcapitalizes variances above its product cost standards over an estimatedproduction period to arrive at actual cost. Actual costs are evaluated and do not exceed the lower of cost ormarket.  Inventoried costs on long-termcontracts include certain preproduction costs, consisting primarily of toolingand design costs and production costs, including applicable overhead. The costsattributed to units delivered under long-term commercial contracts are based onthe estimated average cost of all units expected to be produced.

 

**Shipping and Handling**

 

The salesprice billed to customers generally includes the cost associated with shippingand handling.  The costs to the Companyfor shipping and handling are included in cost of sales.

 

F-9

----

 

**Property, Plant, and Equipment andDepreciation**

 

Property, plant,and equipment are recorded at cost. Depreciation of plant and equipment, including equipment under capitalleases, is provided for by the straight-line method over the estimated usefullives (3 to 39 years) of the respective assets or the lease term, ifshorter.  Amortization of assets undercapital leases is reported with depreciation. The cost of equipment under capital leases is equal to the lower of thenet present value of the minimum lease payments or the fair market value of theleased equipment at the inception of the lease.  Expenditures for normal maintenance and repairs are charged toexpense as incurred.

 

Property,plant and equipment are summarized as follows:

 
|                                  |   | **March 29, 2003** |   | **March 30, 2002** |   |
|---------------------------------------|--------|--------------------|--------|--------------------|--------|
| Land                                  |   | $                  | 6,983  |               | $      | 6,983 |   |
| Buildings                             |   | 14,081             |   | 13,257             |   |
| Machinery & equipment             |   | 99,670             |   | 94,667             |   |
| Total property, plant & equipment |   | 120,734            |   | 114,907            |   |
| Less:   accumulated depreciation |   | (62,962            | )      | (55,371            | )      |
| Property, plant and equipment, net    |   | $                  | 57,772 |               | $      | 59,536 |   |

 

**Revenue Recognition and Concentration ofCredit Risk**

 

Revenue isrecognized upon the passage of title on the sales of manufactured goods andpercentage of completion in certain aerospace long-term contracts at ITB.  The Company sells to a large number of OEMsand distributors who service the aftermarket. The Company’s credit risk associated with accounts receivable isminimized due to its customer base and wide geographic dispersion.  The Company performs ongoing creditevaluations of its customers’ financial condition, and calculates its allowancefor doubtful accounts accordingly and generally does not require collateral orcharge interest on outstanding amounts.

 

**Goodwill and Other Intangible Assets**

 

The Company adopted the provisions of SFAS No. 141, “BusinessCombinations,” and Statement of Financial Accounting Standards No. 142,“Goodwill and Other Intangible Assets,” (“SFAS No. 142”) at the beginning offiscal 2002. These standards require that all business combinations beaccounted for using the purchase method and that goodwill and intangible assetswith indefinite useful lives not be amortized but instead be tested forimpairment annually Goodwill had been amortized by the straight-line methodover a 40-year period, through March 30, 2002. Effective with fiscal 2003, goodwill amortization was suspended inconjunction with the adoption of SFAS No. 142.

 

Intangibleassets are being amortized over their useful lives of five to ten years.  Also included in intangible assets is anasset relating to the Company’s minimum pension liability, as further describedin Note 8. “Pension Plans.”

 

**DeferredFinancing Costs**

 

Deferredfinancing costs and related expenses are amortized by the effective interestmethod over the lives of the related credit agreements (5 to 23 years).

 

**Income Taxes**

 

The Companyis included in the consolidated tax return of Holdings and calculates itsprovision for income taxes on a separate entity basis pursuant to a tax sharingagreement.  Included in other noncurrentliabilities is $13,852 and $11,951, respectively at fiscal 2003 and 2002 due toHoldings for income taxes.

 

Income taxesare recognized during the year in which transactions occur and enter into thedetermination of financial statement income, with deferred taxes being providedfor temporary differences between amounts of assets and liabilities forfinancial reporting purposes and such amounts for tax purposes.  The differences relate primarily to thetiming of deductions for depreciation, goodwill amortization relating to theacquisition of operating divisions, basis differences arising from acquisitionaccounting, pension and retirement benefits, and various accrued and prepaidexpenses.  Deferred tax assets andliabilities are recorded at the rates expected to be in effect when thetemporary differences are expected to reverse.

 

F-10

----

 

**Other Noncurrent Liabilities**

 

Othernoncurrent liabilities consist of the amount due Holdings, as part of atax-sharing agreement, for income tax liabilities, the minimum pensionliability, and other post-employment benefit liabilities.

 

**Use of Estimates**

 

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, and disclosure ofcontingent assets and liabilities at the date of the financial statements, andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.  Estimates are used for, butnot limited to, the accounting for allowance for doubtful accounts, contractualallowance, valuation of inventories, accrued expenses, depreciation andamortization.

 

**Impairment ofLong-Lived Assets**

 

The Companyperiodically assesses the net realizable value of its long-lived assets andevaluates such assets for impairment whenever events or changes incircumstances indicate the carrying amount of an asset may not be recoverable.

 

For assets tobe held, impairment is determined to exist if estimated undiscounted futurecash flows are less than the carrying amount. The Company assesses therecoverability of intangible assets by determining whether the amortization ofthe asset balance over its remaining life can be recovered through undiscountedfuture operating cash flows of the acquired operation.  The amount of asset impairment, if any, ismeasured based on projected discounted future operating cash flows using adiscount rate reflecting the Company’s average cost of funds.

 

**Recently Issued Accounting Pronouncements**

 

In June 2002, the FASB issued SFAS No. 146, Accountingfor Costs Associated with Exit or Disposal Activities. SFAS No. 146, whichrequires that a liability for a cost associated with an exit or disposalactivity be recognized in the period in which the liability is incurred, iseffective for exit or disposal activities initiated after December 31,2002.  The adoption of SFAS No. 146 isnot expected to have a significant effect on the Company’s results of operationsor its financial position.

 

In August 2001, the Financial Accounting StandardsBoard, or FASB, issued Statement of Financial Accounting Standards, or SFAS,No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  SFAS No. 144 supersedes SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto be Disposed of.”  The adoption ofthis new standard had no effect on our reported results of operations,financial position and cash flows.

 

As required, at the beginning of 2002, the Companyadopted  SFAS No. 141, “BusinessCombinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 141 requires that all businesscombinations initiated after June 30, 2001 be accounted for using the purchasemethod, thus eliminating the use of the pooling-of-interests accounting forbusiness combinations.  SFAS No. 142changed the accounting for goodwill from an amortization method to animpairment-only approach, whereby goodwill amortization is no longer permittedafter March 30, 2002.  The statementrequires an annual assessment of goodwill for impairment and more frequentassessments if circumstances indicate a possible impairment.  Additionally, SFAS No. 141 requires allacquired intangible assets be separately recognized if the benefit of theintangible asset is obtained through contractual or other legal rights, or ifthe intangible asset can be sold, transferred, licensed, rented, or exchanged,regardless of the acquirer’s intent to do so. Whereas, SFAS No. 141 is effective for all business combinationsinitiated after June 30, 2001, SFAS No. 142 required us to continue to amortizegoodwill existing at June 30, 2001 through the end of Fiscal 2002, ceasinggoodwill amortization on March 31, 2002 (the start of Fiscal 2003).  Annual pretax charges for the amortizationof goodwill were $801 in fiscal 2002 and 2001. We completed the required transition (as of March 31, 2002) and annualassessments (as of December 31, 2002), both of which indicated no impairment.

 

F-11

----

 

##### **Foreign Currency Translation and Transactions**

##### ** **

Assets andliabilities of the Company’s foreign operations are translated into U.S.dollars using the exchange rate in effect at the balance sheet date.  Results of operations are translated usingthe average exchange rate prevailing throughout the period.  The effects of exchange rate fluctuations ontranslating foreign currency assets and liabilities into U.S. dollars areincluded in Accumulated Other Comprehensive Income (Loss)  of stockholder’s equity, while gains andlosses resulting from foreign currency transactions are included in netincome.  Net foreign currency translationlosses (gains) included in stockholder’s equity for fiscal years 2003, 2002 and2001 were $1,455, $(76) and $(162), respectively.

 

**Fair Value**

 

The carryingamounts reported in the balance sheet for cash, accounts receivable, prepaidsand other current assets and accounts payable and accruals approximate theirfair value.

 

The carryingamounts of the Company’s Senior Subordinated notes payable and IndustrialDevelopment Revenue Bonds approximate fair value and are estimated based on thequoted market price of similar debt instruments.  The carrying amounts of the Company’s borrowing under itsRevolving Credit Facility approximate fair value, as these obligations haveinterest rates which vary in conjunction with current market conditions.

 

**Accumulated Other Comprehensive Income (Loss)**

 

SFAS No.130, “Reporting Comprehensive Income,” establishes rules forthe reporting of comprehensive income and its components. The components ofcomprehensive income (loss) that relate to the Company are net income, foreigncurrency translation adjustments and pension plan additional minimum liability,all of which are presented in the consolidated statements of changes inshareholders’ equity. At March 29, 2003, the accumulated other comprehensiveloss account consists of foreign currency translation adjustments $1,367 andpension plan minimum additional liability $4,462.

 

**Stock Compensation**

 

Managementparticipates in Holdings’ stock option compensation plan. The Company accountsfor these options and warrants using the intrinsic value method pursuant toAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” under which no compensation cost has been recognized since allgrants were issued at the fair market value of Holding’s common stock at thedate of the grant.  Had compensationcost for these plans been determined based on the fair value at the grant datesconsistent with SFAS No. 123, “Accounting for Stock-Based Compensation,” theCompany’s net income would have been reduced to the following pro formaamounts:

 
|           |   | **Fiscal Year Ended** |   |
|----------------|--------|-----------------------|--------|
| **Net Income** |   | **March 29, 2003**    |   | **March 30, 2002** |   | **March 31, 2001** |   |
| As Reported    |   | $                     | 4,158  |   | $ | 6,863 |   | $ | 7,894 |   |
| Pro Forma      |   | $                     | 3,820  |   | $ | 6,863 |   | $ | 7,858 |   |

 

The fairvalue for the Holdings warrants was estimated at the date of grant using aBlack-Scholes warrant pricing model with the following weighted-averageassumptions: risk free interest rate used was 3.5% for fiscal 2003 and 5.7% forfiscal 2001; dividend yields of 0%, volatility factors of expected market priceof Holdings common stock of .1% and a weighted-average expected life of thewarrants of three years.  There were noissuances during fiscal 2002  thatqualified for measurement as compensatory options or warrants.

 

TheBlack-Scholes warrant pricing model was developed for use in estimating thefair value of traded warrants which have no vesting restrictions and are fullytransferable.  In addition, warrantvaluation models require the input of highly subjective assumptions includingthe expected stock price volatility. Because the Holdings warrants have characteristics significantlydifferent from those of traded warrants, and because changes in the subjectiveinput assumptions can materially affect the fair value, estimate, inmanagement’s opinion, the existing models do not necessarily provide a reliablesingle measure of the fair value of its warrants.

 

F-12

----

 

**Reclassifications**

 

Certainamounts in the prior years’ consolidated financials statements have beenreclassified to conform with the current year presentation.

 

**4. Restricted Marketable Securities**

 

Restrictedmarketable securities, which are classified as available for sale, consist ofshort-term investments of $113 and $1,255 at March 29, 2003 and March 30, 2002,respectively, which were purchased with proceeds from industrial developmentrevenue bonds issued by the Company during fiscal 2000, 1999 and 1995.  The use of these investments is restrictedprimarily for capital expenditure requirements in accordance with theapplicable loan agreement and, accordingly, are classified as long-term.  These investments consist of highly liquidinvestments with insignificant interest rate risk and original maturities ofthree months or less, and are carried at market value, which approximates cost.  Fixed maturities consist of U.S. TreasuryNotes and are stated at amortized cost, which approximates market value.

 

**5.Goodwill and Other Intangible Assets**

 

On March 31, 2002, the Company adopted Statement of FinancialAccounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets,which eliminates the amortization of goodwill and instead requires thatgoodwill be tested for impairment at least annually.  Transitional impairment tests of goodwill made by the Companyduring the quarter ended June 29, 2002 and annual impairment tests made duringthe quarter ended March 29, 2003, did not require adjustment to the carryingvalue of its goodwill.  Per theprovisions of SFAS No. 142, the Company’s definite lived intangible assets,consisting primarily of acquired distribution agreements and customer lists,are amortized over their useful lives.  Also includedin intangible assets is an asset relating to the Company’s minimum pensionliability, as further described in Note 8. “Pension Plans.”

 

As of March 29, 2003 the Company’s definite lived intangible assetsof   $1,617, net of accumulatedamortization of  $105   are being amortized over their useful livesof five years.

 

Amortization expense for definite lived intangible assets during thefiscal years ended 2003, 2002 and 2001 was $105, $0 and $0, respectively.  Estimated amortization expense for the fivesucceeding fiscal years is as follows:

 
|   |   | **Estimated  Amortization Expense** |   |
|--------|--------|-------------------------------------|--------|
| 2004   |   | $                                   | 344    |   |
| 2005   |   | 344                                 |   |
| 2006   |   | 345                                 |   |
| 2007   |   | 344                                 |   |
| 2008   |   | 240                                 |   |
|        |        |                                     |        |  |

 

Actual results of operations for the year ended March 29, 2003 and thepro forma results of operations for the years ended March 30, 2002 and March31, 2001 had we applied the non-amortization provisions of SFAS 142 in theprior period are as follows:

 
|                                         |   | **Fiscal  Year Ended** |   |
|----------------------------------------------|--------|------------------------|--------|
|                                         |   | **March 29,  2003**    |   | **March 30,  2002** |   | **March 31,  2001** |   |
| Net Income                                   |   | $                      | 4,158  |   | $ | 6,863 |   | $ | 7,894 |   |
| Add:  Goodwill amortization, net of tax |   | —                 |   | 481 |   | 481 |   |
| Adjusted net  income                         |   | $                      | 4,158  |   | $ | 6,382 |   | $ | 7,413 |   |

 

F-13

----

 

**6.****              Debt**

 

In connectionwith the financing of the Recapitalization disclosed in Note 1, the Companyissued $110,000 aggregate principal amount of 9 5/8% Senior Subordinated Notesdue 2007 (the “Notes”). The Notes pay interest semi-annually and mature on June15, 2007 but may be redeemed at the Company’s option earlier under certainconditions specified in the indenture (the “Indenture”) pursuant to which theNotes were issued.  The Notes areunsecured and subordinate to all existing and future Senior Indebtedness (asdefined in the Indenture) of the Company. The Notes are fully, unconditionally and irrevocably guaranteed jointlyand severally, on a senior subordinated basis by each of the domestic whollyowned subsidiaries of the Company.

 

Consolidatedfinancial information regarding the Company, guarantor subsidiaries andnon-guarantor subsidiaries as of March 29, 2003 and March 30, 2002 and for eachof the fiscal years ended March 29, 2003, March 30, 2002 and March 31, 2001 ispresented below for purposes of complying with the reporting requirements ofthe guarantor subsidiaries.

 

**Consolidating Balance Sheets**

 
| **AS OF 3/29/03:**                                |   | **SUBTOTAL  SUBSIDIARY  GUARANTORS** |   | **NON  GUARANTOR  SUBSIDIARIES** |   | **CORPORATE  AND  DIVISIONS** |   | **TOTAL  COMPANY** |    |
|---------------------------------------------------|--------|--------------------------------------|--------|----------------------------------|--------|-------------------------------|--------|--------------------|---------|
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Cash                                              |   | $                                    | (310   | )                                | $      | 1,078                         |   | $                  | 2,784   |   | $ | 3,552 |   |
| Accounts receivable, net                          |   | 3,826                                |   | 5,529                            |   | 30,336                        |   | 39,691             |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Raw material                                      |   | 742                                  |   | 586                              |   | 1,379                         |   | 2,707              |    |
| Work in process                                   |   | 9,659                                |   | 3,456                            |   | 4,630                         |   | 17,745             |    |
| Finished goods                                    |   | 25,176                               |   | 10,004                           |   | 30,556                        |   | 65,736             |    |
| Inventories                                       |   | 35,577                               |   | 14,046                           |   | 36,565                        |   | 86,188             |    |
| Prepaid expense other current assets              |   | 866                                  |   | 128                              |   | 4,440                         |   | 5,434              |    |
| Total current assets                              |   | 39,959                               |   | 20,781                           |   | 74,125                        |   | 134,865            |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Property, plant and equipment, net                |   | 32,081                               |   | 3,983                            |   | 21,708                        |   | 57,772             |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Restricted marketable securities                  |   | 38                                   |   | —                           |   | 75                            |   | 113                |    |
| Goodwill                                          |   | 8,054                                |   | —                           |   | 17,096                        |   | 25,150             |    |
| Intangible assets                                 |   | —                               |   | 1,617                            |   | 473                           |   | 2,090              |    |
| Deferred financing costs, net                     |   | —                               |   | —                           |   | 5,515                         |   | 5,515              |    |
| Other assets                                      |   | —                               |   | 1,093                            |   | 677                           |   | 1,770              |    |
| Total assets                                      |   | $                                    | 80,132 |                             | $      | 27,474                        |   | $                  | 119,669 |   | $ | 227,275  |   |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Accounts payable                                  |   | $                                    | 5,862  |                             | $      | 2,901                         |   | $                  | 5,164   |   | $ | 13,927 |   |
| Intercompany payable (receivable)                 |   | 53,115                               |   | 12,898                           |   | (66,013                       | )      | —             |    |
| Current portion of long-term debt                 |   | 221                                  |   | —                           |   | 15,725                        |   | 15,946             |    |
| Obligations under capital leases                  |   | 51                                   |   | —                           |   | 98                            |   | 149                |    |
| Accrued expenses and other current liabilities    |   | 5,829                                |   | 3,772                            |   | 3,216                         |   | 12,817             |    |
| Total current liabilities                         |   | 65,078                               |   | 19,571                           |   | (41,810                       | )      | 42,839             |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Long term debt                                    |   | 1,459                                |   | 365                              |   | 155,500                       |   | 157,324            |    |
| Capital lease obligations, less current portion   |   | —                               |   | —                           |   | 75                            |   | 75                 |    |
| Other noncurrent liabilities                      |   | 1,384                                |   | 546                              |   | 21,700                        |   | 23,630             |    |
| Total liabilities                                 |   | 67,921                               |   | 20,482                           |   | 135,465                       |   | 223,868            |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Stockholder’s equity (deficit):              |   |                                 |   |                             |   |                          |   |               |    |
| Common stock                                      |   | —                               |   | 63                               |   | (63                           | )      | —             |    |
| Additional paid in capital                        |   | —                               |   | —                           |   | 12,736                        |   | 12,736             |    |
| Accumulated other comprehensive income (loss)     |   | —                               |   | (1,367                           | )      | (4,462                        | )      | (5,829             | )       |
| Total retained earnings                           |   | 12,211                               |   | 8,296                            |   | (24,007                       | )      | (3,500             | )       |
| Total stockholder’s equity                   |   | 12,211                               |   | 6,992                            |   | (15,796                       | )      | 3,407              |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Total liabilities & stockholder’s equity |   | $                                    | 80,132 |                             | $      | 27,474                        |   | $                  | 119,669 |   | $ | 227,275 |   |

 

F-14

----

 
| **AS OF 03/30/02:**                               |   | **SUBTOTAL  SUBSIDIARY  GUARANTORS** |   | **NON  GUARANTOR  SUBSIDIARIES** |   | **CORPORATE  AND  DIVISIONS** |   | **TOTAL  COMPANY** |    |
|---------------------------------------------------|--------|--------------------------------------|--------|----------------------------------|--------|-------------------------------|--------|--------------------|---------|
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Cash                                              |   | $                                    | (240   | )                                | $      | 1,134                         |   | $                  | 6,284   |   | $ | 7,178 |   |
| Accounts receivable, net                          |   | 8,175                                |   | 3,084                            |   | 27,156                        |   | 38,415             |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Raw material                                      |   | 870                                  |   | 718                              |   | 1,597                         |   | 3,185              |    |
| Work in process                                   |   | 8,884                                |   | 2,582                            |   | 7,110                         |   | 18,576             |    |
| Finished goods                                    |   | 24,287                               |   | 4,477                            |   | 26,080                        |   | 54,844             |    |
| Inventories                                       |   | 34,041                               |   | 7,777                            |   | 34,787                        |   | 76,605             |    |
| Prepaid expense other current assets              |   | 343                                  |   | 474                              |   | 4,310                         |   | 5,127              |    |
| Total current assets                              |   | 42,319                               |   | 12,469                           |   | 72,537                        |   | 127,325            |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Property, plant and equipment, net                |   | 32,622                               |   | 3,903                            |   | 23,011                        |   | 59,536             |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Restricted marketable securities                  |   | 38                                   |   | —                           |   | 1,217                         |   | 1,255              |    |
| Goodwill                                          |   | 8,054                                |   | —                           |   | 17,096                        |   | 25,150             |    |
| Intangible assets                                 |   | —                               |   | —                           |   | 253                           |   | 253                |    |
| Deferred financing costs, net                     |   | —                               |   | —                           |   | 3,413                         |   | 3,413              |    |
| Other assets                                      |   | (2,128                               | )      | 180                              |   | 3,290                         |   | 1,342              |    |
| Total assets                                      |   | $                                    | 80,905 |                             | $      | 16,552                        |   | $                  | 120,817 |   | $ | 218,274 |   |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Accounts payable                                  |   | $                                    | 6,113  |                             | $      | 1,665                         |   | $                  | 6,102   |   | $ | 13,880 |   |
| Intercompany payable (receivables)                |   | 52,245                               |   | 3,989                            |   | (56,234                       | )      | —             |    |
| Current portion of long-term debt                 |   | 203                                  |   | 1,515                            |   | 29,876                        |   | 31,594             |    |
| Obligations under capital leases                  |   | 151                                  |   | 29                               |   | 353                           |   | 533                |    |
| Accrued expenses and other current liabilities    |   | 8,501                                |   | 1,019                            |   | 2,792                         |   | 12,312             |    |
| Total current liabilities                         |   | 67,213                               |   | 8,217                            |   | (17,111                       | )      | 58,319             |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Long term debt                                    |   | 1,680                                |   | 2,955                            |   | 125,500                       |   | 130,135            |    |
| Capital lease obligations, less current portion   |   | 51                                   |   | 25                               |   | 72                            |   | 148                |    |
| Other noncurrent liabilities                      |   | 1,158                                |   | 132                              |   | 16,863                        |   | 18,153             |    |
| Total liabilities                                 |   | 70,102                               |   | 11,329                           |   | 125,324                       |   | 206,755            |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Stockholder’s equity (deficit):              |   |                                 |   |                             |   |                          |   |               |    |
| Common stock                                      |   | —                               |   | 63                               |   | (63                           | )      | —             |    |
| Additional paid in capital                        |   | —                               |   | —                           |   | 9,708                         |   | 9,708              |    |
| Accumulated other comprehensive income (loss)     |   | —                               |   | 88                               |   | (1,854                        | )      | (1,766             | )       |
| Total retained earnings                           |   | 10,803                               |   | 5,072                            |   | (12,298                       | )      | 3,577              |    |
| Total stockholder’s equity                   |   | 10,803                               |   | 5,223                            |   | (4,507                        | )      | 11,519             |    |
|                                              |   |                                 |   |                             |   |                          |   |               |    |
| Total liabilities & stockholder’s equity |   | $                                    | 80,905 |                             | $      | 16,552                        |   | $                  | 120,817 |   | $ | 218,274 |   |

 

F-15

----

 

**Consolidating Statements of Operations**

 
| **FISCAL YEAR 2003**                |   | **SUBTOTAL  SUBSIDIARY  GUARANTORS** |       | **NON-  GUARANTOR  SUBSIDIARIES** |       | **CORPORATE  AND DIVISIONS** |       | **COMPANY  TOTAL** |       |
|-------------------------------------|--------|--------------------------------------|------------|-----------------------------------|------------|------------------------------|------------|--------------------|------------|
|                                |   |                                 | ** ** |                              | ** ** |                         | ** ** |               | ** ** |
| Net Sales                           |   | $                                    | 81,634     |                              | $          | 20,855                       |       | $                  | 70,371     |   | $ | 172,860 |   |
|                                |   |                                 |       |                              |       |                         |       |               |       |
| Total Cost of Sales                 |   | 65,697                               |       | 13,117                            |       | 45,272                       |       | 124,086            |       |
|                                |   |                                 |       |                              |       |                         |       |               |       |
| Gross Margin                        |   | 15,937                               |       | 7,738                             |       | 25,099                       |       | 48,774             |       |
|                                |   |                                 |       |                              |       |                         |       |               |       |
| Selling, general and administrative |   | 5,543                                |       | 3,979                             |       | 16,301                       |       | 25,823             |       |
| Other expense, net of other income  |   | 920                                  |       | 207                               |       | 402                          |       | 1,529              |       |
|                                |   |                                 |       |                              |       |                         |       |               |       |
| Operating Income                    |   | 9,474                                |       | 3,552                             |       | 8,396                        |       | 21,422             |       |
|                                |   |                                 |       |                              |       |                         |       |               |       |
| Financing costs                     |   | —                               |       | —                            |       | 287                          |       | 287                |       |
| Interest expense, net               |   | 3                                    |       | 203                               |       | 14,157                       |       | 14,363             |       |
| Minority interest                   |   | —                               |       | 11                                |       | —                       |       | 11                 |       |
|                                |   |                                 |       |                              |       |                         |       |               |       |
| Income before taxes                 |   | 9,471                                |       | 3,338                             |       | (6,048                       | )          | 6,761              |       |
|                                |   |                                 |       |                              |       |                         |       |               |       |
| Provision for income taxes          |   | 3,884                                |       | 1,369                             |       | (2,650                       | )          | 2,603              |       |
|                                |   |                                 |       |                              |       |                         |       |               |       |
| Net Income                          |   | 5,587                                |       | 1,969                             |       | (3,398                       | )          | 4,158              |       |
|                                     |        |                                      |            |                                   |            |                              |            |                    |            |  |  |  |  |

 
| **FISCAL YEAR 2002**                |   | **SUBTOTAL  SUBSIDIARY  GUARANTORS** |   | **NON-  GUARANTOR  SUBSIDIARIES** |   | **CORPORATE  AND DIVISIONS** |   | **COMPANY  TOTAL** |   |
|-------------------------------------|--------|--------------------------------------|--------|-----------------------------------|--------|------------------------------|--------|--------------------|--------|
|                                |   |                                 |   |                              |   |                         |   |               |   |
| Net Sales                           |   | $                                    | 78,490 |                              | $      | 16,129                       |   | $                  | 73,712 |   | $ | 168,331 |   |
|                                |   |                                 |   |                              |   |                         |   |               |   |
| Total Cost of Sales                 |   | 61,914                               |   | 10,758                            |   | 41,903                       |   | 114,575            |   |
|                                |   |                                 |   |                              |   |                         |   |               |   |
| Gross Margin                        |   | 16,576                               |   | 5,371                             |   | 31,809                       |   | 53,756             |   |
|                                |   |                                 |   |                              |   |                         |   |               |   |
| Selling, general and administrative |   | 5,527                                |   | 2,868                             |   | 17,211                       |   | 25,606             |   |
| Other expense, net of other income  |   | 211                                  |   | (31                               | )      | 757                          |   | 937                |   |
|                                |   |                                 |   |                              |   |                         |   |               |   |
| Operating Income                    |   | 10,838                               |   | 2,534                             |   | 13,841                       |   | 27,213             |   |
|                                |   |                                 |   |                              |   |                         |   |               |   |
| Interest expense, net               |   | 37                                   |   | 348                               |   | 14,798                       |   | 15,183             |   |
| Minority interest                   |   | —                               |   | 17                                |   | —                       |   | 17                 |   |
|                                |   |                                 |   |                              |   |                         |   |               |   |
| Income before taxes                 |   | 10,801                               |   | 2,169                             |   | (957                         | )      | 12,013             |   |
|                                |   |                                 |   |                              |   |                         |   |               |   |
| Provision for income taxes          |   | 4,630                                |   | 889                               |   | (369                         | )      | 5,150              |   |
|                                |   |                                 |   |                              |   |                         |   |               |   |
| Net Income                          |   | $                                    | 6,171  |                              | $      | 1,280                        |   | $                  | (588   | ) | $ | 6,863 |   |
|                                     |        |                                      |        |                                   |        |                              |        |                    |        |  |  |  |  |  |

 

F-16

----

 
| **FISCAL YEAR 2001**                |   | **SUBTOTAL  SUBSIDIARY  GUARANTORS** |       | **NON-  GUARANTOR  SUBSIDIARIES** |       | **CORPORATE  AND  DIVISIONS** |       | **COMPANY  TOTAL** |       |
|-------------------------------------|--------|--------------------------------------|------------|-----------------------------------|------------|-------------------------------|------------|--------------------|------------|
|                                |   |                                 | ** ** |                              | ** ** |                          | ** ** |               | ** ** |
| Net Sales                           |   | $                                    | 79,940     |                              | $          | 16,017                        |       | $                  | 80,478     |   | $ | 176,435 |   |
|                                |   |                                 |       |                              |       |                          |       |               |       |
| Total Cost of Sales                 |   | 57,905                               |       | 10,715                            |       | 47,625                        |       | 116,245            |       |
|                                |   |                                 |       |                              |       |                          |       |               |       |
| Gross Margin                        |   | 22,035                               |       | 5,302                             |       | 32,853                        |       | 60,190             |       |
|                                |   |                                 |       |                              |       |                          |       |               |       |
| Selling, general and administrative |   | 5,712                                |       | 3,131                             |       | 18,168                        |       | 27,011             |       |
| Other expense, net of other income  |   | 225                                  |       | —                            |       | 551                           |       | 776                |       |
|                                |   |                                 |       |                              |       |                          |       |               |       |
| Operating Income                    |   | 16,098                               |       | 2,171                             |       | 14,134                        |       | 32,403             |       |
|                                |   |                                 |       |                              |       |                          |       |               |       |
| Financing costs                     |   | —                               |       | —                            |       | 3,600                         |       | 3,600              |       |
| Interest expense, net               |   | (16                                  | )          | 500                               |       | 15,176                        |       | 15,660             |       |
| Minority interest                   |   | —                               |       | 16                                |       | —                        |       | 16                 |       |
| Income before taxes                 |   | 16,114                               |       | 1,655                             |       | (4,642                        | )          | 13,127             |       |
|                                |   |                                 |       |                              |       |                          |       |               |       |
| Provision for income taxes          |   | 6,423                                |       | 659                               |       | (1,849                        | )          | 5,233              |       |
|                                |   |                                 |       |                              |       |                          |       |               |       |
| Net Income                          |   | $                                    | 9,691      |                              | $          | 996                           |       | $                  | (2,793     | ) | $ | 7,894 |   |

 

**Consolidating Statements of Cash Flows**

** **
| **FISCAL YEAR 2003**                                                               |   | **SUBSIDIARY  GUARANTORS** |   | **NON-  GUARANTOR  SUBSIDIARIES** |   | **CORPORATE  AND  DIVISIONS** |   | **COMPANY  TOTAL** |   |
|------------------------------------------------------------------------------------|--------|----------------------------|--------|-----------------------------------|--------|-------------------------------|--------|--------------------|--------|
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Cash flows from operating activities:                                              |   |                       |   |                              |   |                          |   |               |   |
| Net income                                                                         |   | $                          | 5,587  |                              | $      | 1,969                         |   | $                  | (3,398 | ) | $ | 4,158 |   |
| Loss from sale of land                                                             |   | —                     |   | —                            |   | —                        |   | —             |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |                       |   |                              |   |                          |   |               |   |
| Depreciation                                                                       |   | 3,763                      |   | 761                               |   | 4,190                         |   | 8,714              |   |
| Deferred Taxes                                                                     |   | —                     |   | —                            |   | 1904                          |   | 1904               |   |
| Minimum pension liability adjustment                                               |   | —                     |   | —                            |   | (2,608                        | )      | (2,608             | )      |
| Amortization of goodwill and intangibles                                           |   | —                     |   | 105                               |   | —                        |   | 105                |   |
| Amortization of deferred financing costs                                           |   | —                     |   | —                            |   | 1,125                         |   | 1,125              |   |
| Loss from disposition of assets                                                    |   | 858                        |   | —                            |   | —                        |   | 858                |   |
| Changes in working capital, net of acquisitions:                                   |   |                       |   |                              |   |                          |   |               |   |
| (Increase) decrease in current assets                                              |   | 4,293                      |   | (8,368                            | )      | (4,047                        | )      | (8,122             | )      |
| (Increase) decrease in non-current assets                                          |   | (2,128                     | )      | (2,635                            | )      | 4,114                         |   | (649               | )      |
| Increase (decrease) in current liabilities                                         |   | (9,335                     | )      | 14,063                            |   | (7,089                        | )      | (2,361             | )      |
| Increase (decrease) in   non-current liabilities                              |   | 226                        |   | 414                               |   | 2,595                         |   | 3,235              |   |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Net cash provided by operating activities                                          |   | 3,264                      |   | 6,309                             |   | (3,214                        | )      | 6,359              |   |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Cash flows from investing activities:                                              |   |                       |   |                              |   |                          |   |               |   |
| Acquisition of subsidiaries                                                        |   | —                     |   | —                            |   | (2,822                        | )      | (2,822             | )      |
| Purchase of property, plant & equipment, net                                   |   | (2,980                     | )      | (841                              | )      | (2,701                        | )      | (6,522             | )      |
| Proceeds from sale of land                                                         |   | —                     |   | —                            |   | —                        |   | —             |   |
| Sale (purchase) of restricted marketable securities, net                           |   | —                     |   | —                            |   | 1,143                         |   | 1,143              |   |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Net cash used in investing activities                                              |   | (2,980                     | )      | (841                              | )      | (4,380                        | )      | (8,201             | )      |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Cash flows from financing activities:                                              |   |                       |   |                              |   |                          |   |               |   |
| Net increase (decrease) in revolving credit facility                               |   | —                     |   | —                            |   | (20,018                       | )      | (20,018            | )      |
| Payments of term loans                                                             |   | (203                       | )      | (922                              | )      | (4,203                        | )      | (5,328             | )      |
| Restructure of foreign debt                                                        |   | —                     |   | 7,127                             |   | —                        |   | 7,127              |   |
| Dividend paid to parent                                                            |   | —                     |   | —                            |   | (11,235                       | )      | (11,235            | )      |
| Finance fees paid in connection with credit facility                               |   | —                     |   | —                            |   | (3,226                        | )      | (3,226             | )      |
| Proceeds from issuance of common stock                                             |   | —                     |   | —                            |   | 3,028                         |   | 3,028              |   |
| Proceeds from bank term loan                                                       |   | —                     |   | 664                               |   | 40,000                        |   | 40,664             |   |
| Retirement of foreign debt                                                         |   | —                     |   | (10,974                           | )      | —                        |   | (10,974            | )      |
| Principal payments on capital lease obligations                                    |   | (151                       | )      | (54                               | )      | (252                          | )      | (457               | )      |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Net cash provided by financing activities                                          |   | (354                       | )      | (4,159                            | )      | 4,094                         |   | (419               | )      |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Cash and Cash Equivalents:                                                         |   |                       |   |                              |   |                          |   |               |   |
| Effect of exchange rate changes                                                    |   | —                     |   | (1,365                            | )      | —                        |   | (1,365             | )      |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Increase (decrease) during the year                                                |   | (70                        | )      | (56                               | )      | (3,500                        | )      | (3,626             | )      |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Cash, at beginning of year                                                         |   | (240                       | )      | 1,134                             |   | 6,284                         |   | 7,178              |   |
| Cash, at end of year                                                               |   | $                          | (310   | )                                 | $      | 1,078                         |   | $                  | 2,784  |   | $ | 3,552 |   |

 

F-17

----

 
| **FISCAL YEAR 2002**                                                               |   | **SUBSIDIARY  GUARANTORS** |   | **NON-  GUARANTOR  SUBSIDIARIES** |   | **CORPORATE  AND  DIVISIONS** |   | **COMPANY  TOTAL** |   |
|------------------------------------------------------------------------------------|--------|----------------------------|--------|-----------------------------------|--------|-------------------------------|--------|--------------------|--------|
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Cash flows from operating activities:                                              |   |                       |   |                              |   |                          |   |               |   |
| Net income                                                                         |   | $                          | 6,171  |                              | $      | 1,280                         |   | $                  | (588   | ) | $ | 6,863 |   |
| Loss from sale of land                                                             |   | 22                         |   | —                            |   |                          |   | 22                 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |                       |   |                              |   |                          |   |               |   |
| Depreciation                                                                       |   | 4,773                      |   | 533                               |   | 2,998                         |   | 8,304              |   |
| Deferred Taxes                                                                     |   | —                     |   | —                            |   | 747                           |   | 747                |   |
| Minimum pension liability adjustment                                               |   | —                     |   | —                            |   | (1,628                        | )      | (1,628             | )      |
| Amortization of excess of cost over net assets acquired                            |   | 224                        |   | —                            |   | 577                           |   | 801                |   |
| Amortization of deferred financing costs                                           |   | —                     |   | —                            |   | 1,028                         |   | 1,028              |   |
| Changes in working capital, net of acquisitions:                                   |   |                       |   |                              |   |                          |   |               |   |
| (Increase) decrease in current assets                                              |   | (4,221                     | )      | (2,663                            | )      | (4,399                        | )      | (11,283            | )      |
| (Increase) decrease in non-current assets                                          |   | (482                       | )      | 2,018                             |   | (1,681                        | )      | (145               | )      |
| Increase (decrease) in current liabilities                                         |   | (3,101                     | )      | (149                              | )      | 1,028                         |   | (2,222             | )      |
| Increase (decrease) in   non-current liabilities                              |   | 138                        |   | —                            |   | 6,467                         |   | 6,605              |   |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Net cash provided by operating activities                                          |   | 3,524                      |   | 1,019                             |   | 4,549                         |   | 9,092              |   |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Cash flows from investing activities:                                              |   |                       |   |                              |   |                          |   |               |   |
| Acquisition of subsidiaries                                                        |   | —                     |   | —                            |   | (2,128                        | )      | (2,128             | )      |
| Purchase of property, plant & equipment, net                                   |   | (4,128                     | )      | (756                              | )      | (1,057                        | )      | (5,941             | )      |
| Proceeds from sale of land                                                         |   | 627                        |   | —                            |   | —                        |   | 627                |   |
| Sale of restricted marketable securities, net                                      |   | 661                        |   | —                            |   | 279                           |   | 940                |   |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Net cash used in investing activities                                              |   | (2,840                     | )      | (756                              | )      | (2,906                        | )      | (6,502             | )      |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Cash flows from financing activities:                                              |   |                       |   |                              |   |                          |   |               |   |
| Net increase in revolving credit facility                                          |   | —                     |   | —                            |   | 9,000                         |   | 9,000              |   |
| Retirement of Industrial Revenue Bond                                              |   | (1,845                     | )      | —                            |   | —                        |   | (1,845             | )      |
| Proceeds of Industrial Revenue Bond trust account                                  |   | 1,845                      |   | —                            |   | —                        |   | 1,845              |   |
| Payments on bank term loan                                                         |   | (147                       | )      | (1,446                            | )      | (5,546                        | )      | (7,139             | )      |
| Principal payments on capital lease obligations                                    |   | (273                       | )      | —                            |   | (500                          | )      | (773               | )      |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Net cash provided by financing activities                                          |   | (420                       | )      | (1,446                            | )      | 2,954                         |   | 1,088              |   |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Cash and Cash Equivalents:                                                         |   |                       |   |                              |   |                          |   |               |   |
| Effect of exchange rate changes                                                    |   | —                     |   | —                            |   | 374                           |   | 374                |   |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Increase (decrease) during the year                                                |   | 264                        |   | (1,183                            | )      | 4,971                         |   | 4,052              |   |
|                                                                               |   |                       |   |                              |   |                          |   |               |   |
| Cash, at beginning of year                                                         |   | (504                       | )      | 2,317                             |   | 1,313                         |   | 3,126              |   |
| Cash, at end of year                                                               |   | $                          | (240   | )                                 | $      | 1,134                         |   | $                  | 6,284  |   | $ | 7,178 |   |

 

F-18

----

 
| **FISCAL YEAR 2001**                                                               |   | **SUBSIDIARY  GUARANTORS** |   | **NON-  GUARANTOR  SUBSIDIARIES** |   | **CORPORATE  AND  DIVISIONS** |   | **COMPANY  TOTAL** | ** ** |
|------------------------------------------------------------------------------------|--------|----------------------------|--------|-----------------------------------|--------|-------------------------------|--------|--------------------|------------|
|                                                                               |   |                       |   |                              |   |                          |   |               |       |
| Cash flows from operating activities:                                              |   |                       |   |                              |   |                          |   |               |       |
| Net income                                                                         |   | $                          | 9,826  |                              | $      | 995                           |   | $                  | (2,927     | ) | $ | 7,894 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |                       |   |                              |   |                          |   |               |       |
| Depreciation                                                                       |   | 3,540                      |   | 481                               |   | 3,819                         |   | 7,840              |       |
| Deferred Taxes                                                                     |   | —                     |   | —                            |   | 1,155                         |   | 1,155              |       |
| Minimum pension liability adjustment                                               |   | —                     |   | —                            |   | (226                          | )      | (226               | )          |
| Tax benefit on exercise of stock options                                           |   | —                     |   | —                            |   | 3,108                         |   | 3,108              |       |
| Amortization of excess of cost over net assets acquired                            |   | 224                        |   | —                            |   | 577                           |   | 801                |       |
| Amortization of deferred financing costs                                           |   | —                     |   | —                            |   | 1,039                         |   | 1,039              |       |
| Changes in working capital, net of acquisitions:                                   |   |                       |   |                              |   |                          |   |               |       |
| (Increase) decrease in current assets                                              |   | (9,579                     | )      | 1,856                             |   | (10,007                       | )      | (17,730            | )          |
| (Increase) decrease in non-current assets                                          |   | —                     |   | —                            |   | (9                            | )      | (9                 | )          |
| Increase (decrease) in current liabilities                                         |   | (1,952                     | )      | (994                              | )      | 7,126                         |   | 4,180              |       |
| Increase (decrease) in   non-current liabilities                              |   | 286                        |   | (114                              | )      | 492                           |   | 664                |       |
|                                                                               |   |                       |   |                              |   |                          |   |               |       |
| Net cash provided by operating activities                                          |   | 2,345                      |   | 2,224                             |   | 4,127                         |   | 8,716              |       |
|                                                                               |   |                       |   |                              |   |                          |   |               |       |
| Cash flows from investing activities:                                              |   |                       |   |                              |   |                          |   |               |       |
| Purchase of property, plant & equipment, net                                   |   | (2,704                     | )      | (152                              | )      | (3,763                        | )      | (6,619             | )          |
| Sale of restricted marketable securities, net                                      |   | 460                        |   | —                            |   | —                        |   | 460                |       |
|                                                                               |   |                       |   |                              |   |                          |   |               |       |
| Net cash used in investing activities                                              |   | (2,244                     | )      | (152                              | )      | (3,763                        | )      | (6,159             | )          |
|                                                                               |   |                       |   |                              |   |                          |   |               |       |
| Cash flows from financing activities:                                              |   |                       |   |                              |   |                          |   |               |       |
| Net increase in revolving credit facility                                          |   | —                     |   | —                            |   | 9,000                         |   | 9,000              |       |
| Payments on bank term loan                                                         |   | (348                       | )      | (287                              | )      | (4,250                        | )      | (4,885             | )          |
| Principal payments on capital lease obligations                                    |   | (254                       | )      | —                            |   | (652                          | )      | (906               | )          |
| Dividend paid to parent company                                                    |   | —                     |   | —                            |   | (3,571                        | )      | (3,571             | )          |
|                                                                               |   |                       |   |                              |   |                          |   |               |       |
| Net cash provided by financing activities                                          |   | (602                       | )      | (287                              | )      | 527                           |   | (362               | )          |
|                                                                               |   |                       |   |                              |   |                          |   |               |       |
| Cash and Cash Equivalents:                                                         |   |                       |   |                              |   |                          |   |               |       |
| Effect of exchange rate changes                                                    |   | —                     |   | —                            |   | (120                          | )      | (120               | )          |
|                                                                               |   |                       |   |                              |   |                          |   |               |       |
| Increase (decrease) during the year                                                |   | (501                       | )      | 1,785                             |   | 791                           |   | 2,075              |       |
|                                                                               |   |                       |   |                              |   |                          |   |               |       |
| Cash, at beginning of year                                                         |   | (3                         | )      | 532                               |   | 522                           |   | 1,051              |       |
| Cash, at end of year                                                               |   | $                          | (504   | )                                 | $      | 2,317                         |   | $                  | 1,313      |   | $ | 3,126 |   |

 

F-19

----

 

The Company and its domestic subsidiaries entered into a $94 millionsenior Secured Credit Facility, dated May 30, 2002, expiring May 30, 2007, withGeneral Electric Capital Corporation as agent and lender, Congress FinancialCorporation (Western) as lender, GECC Capital Markets Group as lead arrangerand other lenders signatory thereto from time to time, consisting of a $40million term loan (the “Term Loans”) and a $54 million Revolving CreditFacility.  In connection with thiscredit facility the Company and its domestic subsidiaries granted liens andmortgages on substantially all of their existing and after-acquired personaland real property.  In addition, theCompany pledged all of its capital stock in its domestic subsidiaries and aportion of its capital stock in its directly owned foreign subsidiaries.  The Company incurred approximately $3,000 of fees primarilyrelated to costs associated with the issuance of the Senior CreditFacilities.  These costs have beencapitalized as deferred financing costs and are being amortized over the termof the Term Loans.

 

The proceeds of the term loan were used to pay off the Company’s SeniorCredit Facility, dated June 23, 1997, by and between the Company, Credit SuisseFirst Boston, as administrative agent and the lenders thereto, to pay fees andexpenses with respect to the new credit facility and for other corporatepurposes.  The revolving credit facilityis available for issuances of letters of credit and for loans in connectionwith acquisitions, working capital needs or other general corporate purposes.

 

In connectionwith the purchase of Schaublin, the Company entered into a bank credit facility(the “Swiss Credit Facility”) with Credit Suisse providing for 10,000 SwissFrancs, or approximately $5,734 of term loans (the “Swiss Term Loans”) and upto 1,000 Swiss Francs, or approximately $573, of revolving credit loans andletters of credit (the “Swiss Revolving Credit Facility”).  The balance of this debt was repaid in fullduring fiscal 2003.

 

In connectionwith the purchase of Tyson, the Company entered into a loan with the formerowner of Tyson for the purchase of certain leasehold improvements, which areincluded in the property, plant and equipment assets.  This loan bears interest at 9.0% and is paid monthly.  The term of the loan is for 75 months, andends in June 2005.

 

At March 29, 2003, $18,989 of theRevolving Credit Facility was being utilized to provide letters of credit tosecure the Company’s obligations relating to certain Industrial Development RevenueBonds ($16,905), described below, a letter of credit securing a captiveinsurance policy primarily in relation to workers compensation ($1,994) andtrade import letters of credit ($90). A letter of credit fee of 2.25% per annumpayable quarterly in arrears is required on the outstanding amount of theletter of credit.  As of March 30, 2003the Company had the ability to borrow up to an additional $7,790 under theRevolving Credit Facility. Borrowings outstanding under this facility as ofMarch 29, 2003 were $8,582.  Acommitment fee of 0.5% or 0.75% per annum payable quarterly in arrears isrequired on the unused portion of the Revolving Credit Facility, which iscalculated on the percentage of the revolver that is utilized. Theweighted-average interest rate for borrowings outstanding on this facility asof March 29, 2003 was 4.25%.

 

The SeniorCredit Facility is secured by substantially all of the Company’s assets.  Under the terms of the Senior CreditFacility, the Company is required to comply with various operational andfinancial covenants, including minimum EBITDA, minimum fixed charge coverage,total interest coverage and maximum leverage ratio as defined in the creditagreements.

 

F-20

----

 

In addition,the Senior Credit Facility places limitations on the Company’s capitalexpenditures in any fiscal year, restricts its ability to pay dividends,requires the Company to obtain the lenders’ consent to certain acquisitions andcontains mandatory prepayment provisions which include prepayments from thesale of the Company’s stock and 50% of excess cash flow, as defined. TheCompany incurred approximately $7,605 of fees primarily related to costsassociated with the issuance of the Notes as well as the Senior CreditFacility.  These costs have beencapitalized as deferred financing costs and are being amortized over the termsof the Notes and Term Loans.

 

Proceeds fromthese borrowings were used to repay certain existing indebtedness as well as topay a dividend to Holdings in order to consummate the Recapitalizationdescribed in Note 1.

 

Jobs EconomicDevelopment Authority (“SC JEDA”) which provides for borrowings up to $10,700under two industrial development revenue bonds and during fiscal 1999 theCompany entered into an additional loan agreement with the SC JEDA whichprovides for borrowings up to $3,000 under an industrial development revenuebond (the “Bonds” or “IRBs”). Additionally, during fiscal 2000, the Company entered into a loanagreement with the California Infrastructure and Economic Development Bankwhich provides for borrowings up to $4,800 under an industrial developmentrevenue bond.  The proceeds from theBonds are restricted for working capital requirements and capital expenditurepurposes.  On March 1, 2002, the Companyretired the unused portion of the fiscal 1999 SC JEDA of $1,845, therebyreducing the debt and the restricted marketable securities balances by thisamount.  As of March 29, 2003, $18,153of the proceeds have been expended, and the remaining $113 (includingaccumulated interest of $1,611) is invested by the trustee in marketablesecurities.   The Series 1994 A and Band the Series 1999 SC JEDA Bonds are secured by an irrevocable direct-payletter of credit issued by one of the Company’s lenders.  The letter of credit is equal to theaggregate principal amounts of the bonds plus not less than forty-five days’interest thereon, calculated at 12% per annum ($12,026).  The Series 1999 California Infrastructureand Economic Development Bank bond is likewise secured by an irrevocabledirect-pay letter of credit issued by one of the Company’s lenders.  The Company’s obligation to its lenders issecured pursuant to the provisions of the Revolving Credit Facility and isequal to the aggregate principal amounts of the bond plus not less than fiftydays’ interest thereon, calculated at 12% per annum ($4,879).

 

F-21

----

 

The balancespayable under all borrowing facilities are as follows:     

 
|                                                                                                                                                                                                                                                                    |   | **March 29, 2003** |    | **March 30, 2002** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------------------|--------|
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| **Senior Subordinated Notes Payable**                                                                                                                                                                                                                                   |   | $                  | 110,000 |               | $      | 110,000 |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| **Credit Facility**                                                                                                                                                                                                                                                     |   |               |    |               |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| Term Loan, payable in quarterly  installments commencing September 30, 1997; bears interest at variable rates,  payable monthly and quarterly; was repaid in full during fiscal 2003.                                                                                   |   | —             |    | 1,375              |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| Revolving Credit Facility borrowings  outstanding                                                                                                                                                                                                                       |   | 8,582              |    | 28,500             |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| Term Loan, payable in quarterly  installments of $1,428,   commencing  September 30, 2002, with final payment of $12,857 due May 30, 2007; bears  interest at variable rates, payable monthly and upon maturity for prime and  LIBOR-based elections, respectively |   | 37,143             |    | —             |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| **Swiss  Credit Facility**                                                                                                                                                                                                                                              |   |               |    |               |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| Term Loan,  payable in quarterly installments commencing March 2001;  bears interest at variable rates, payable  quarterly; was repaid in full during fiscal 2003.                                                                                                 |   | —             |    | 4,470              |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| **Other Loans**                                                                                                                                                                                                                                                         |   | 890                |    | 729                |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| **Industrial Development Revenue Bonds**                                                                                                                                                                                                                                |   |               |    |               |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| Series 1994 A due in annual installments  of $180 beginning   September  1, 2006, graduating to $815 on September 1, 2014 with  final payment due on September 1, 2017;  bears interest at a   variable  rate, payable monthly through December 2017     |   | 7,700              |    | 7,700              |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| Series 1994 B bears interest at a  variable rate, payable monthly through December 2017                                                                                                                                                                                 |   | 3,000              |    | 3,000              |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| Series 1998  tax-exempt industrial development bonds; bear interest at variable rates,  payable monthly through December 2021                                                                                                                                           |   | 1,155              |    | 1,155              |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| Series 1999 tax-exempt  industrial development bonds; bearing   interest at variable rates, payable monthly through April 2024                                                                                                                                     |   | 4,800              |    | 4,800              |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| **Total Debt**                                                                                                                                                                                                                                                          |   | 173,270            |    | 161,729            |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| **Less:  Current  Portion**                                                                                                                                                                                                                                        |   | 15,946             |    | 31,594             |   |
|                                                                                                                                                                                                                                                                    |   |               |    |               |   |
| **Long-Term Debt**                                                                                                                                                                                                                                                      |   | $                  | 157,324 |               | $      | 130,135 |   |

 

The currentportion of long-term debt as of March 29, 2003 includes $8,582 borrowing on theRevolving Credit Facility.

 

The currentportion of long-term debt as of March 30, 2002 includes $28,500 borrowing onthe Revolving Credit Facility, which was retired in connection with the GECCfinancing agreement completed in June 2002.

 

Long-term debt does not include Holding’s discount debentures.  Holdings relies on the Company for thecapital necessary

 

F-22

----

 

to make its payments under the discount debentures.  The balance outstanding on these debentures as of March 29, 2003 and March 30,2002 was approximately $37.7 million and $65.0 million, respectively.  The discount debentures accrue interest at therate of 13% per annum, with semi-annual interest payments of approximately $2.5million, and fully mature on June 15, 2009. Holdings has pledged the stock of the Company as security for thediscount debentures.

 

The Companyis subject to fluctuating interest rates that may impact its consolidatedresults of operations or cash flows for its variable rate Revolving CreditFacility, Term Loan, Industrial Revenue Bonds, and cash equivalents. As ofMarch 29, 2003, the average interest rate on the Company’s debt wasapproximately 7.3%.

 

Maturities ofdebt during each of the following five fiscal years and thereafter are asfollows:

 

| 2004       |   | $       | 15,946  |   |
|------------|--------|---------|---------|--------|
| 2005       |   | 6,317   |    |
| 2006       |   | 5,780   |    |
| 2007       |   | 5,714   |    |
| 2008       |   | 122,858 |    |
| Thereafter |   | 16,655  |    |
| Total      |   | $       | 173,270 |   |

 

**7.****                                      Obligations Under Capital Leases**

 

Machinery andequipment additions under capital leases amounted to $0, $0 and $79 in fiscal2003, 2002 and 2001, respectively.  Theaverage imputed rate of interest on these leases at year end is 7.0%, 6.7% and7.2% in fiscal 2003, 2002 and 2001, respectively.

 

Included inproperty, plant and equipment are the following assets held under capitalleases as of:

 
|                     |   | **March 29,  2003** |   | **March 30,  2002** |   |
|--------------------------|--------|---------------------|--------|---------------------|--------|
| Machinery and equipment  |   | $                   | 6,054  |                | $      | 6,496 |   |
| Accumulated depreciation |   | (5,210              | )      | (5,022              | )      |
| Net capital lease assets |   | $                   | 844    |                | $      | 1,474 |   |

** **

 

Futureminimum lease payments of assets under capital leases at March 29, 2003 are asfollows:

 
| 2004                                         |   | $   | 160    |   |
|----------------------------------------------|--------|-----|--------|--------|
| 2005                                         |   | 39  |   |
| 2006                                         |   | 22  |   |
| 2007                                         |   | 22  |   |
| 2008                                         |   | 2   |   |
| Total minimum lease payments                 |   | $   | 245    |   |
| Less:   amount representing interest    |   | 21  |   |
| Present value of net minimum lease  payments |   | 224 |   |
| Less:   current maturities              |   | 149 |   |
| Non-current capital lease obligations        |   | $   | 75     |   |

 

F-23

----

 

**8.****                                      Pension Plans**

 

At March 29,2003, the Company has noncontributory defined benefit pension plans coveringunion employees in its Heim division plant in Fairfield, Connecticut, its Nicesubsidiary plant in Kulpsville, Pennsylvania, its Bremen subsidiary plant inPlymouth, Indiana and its Tyson subsidiary plant in Glasgow, Kentucky.

 

Plan assetsare comprised primarily of U.S. government securities, corporate bonds, andstocks.  The plans provide benefits ofstated amounts based on a combination of an employee’s age and years ofservice.

 

The followingtables set forth net periodic benefit cost of the Company’s plans, and totalpension benefit expense for the three fiscal years in the period ended March29, 2003:

 

 
|                                                   |   | **FY2003** |       | **FY2002** |       | **FY2001** |       |
|--------------------------------------------------------|--------|------------|------------|------------|------------|------------|------------|
| Components of net periodic benefit cost:               |   |       | ** ** |       | ** ** |       | ** ** |
| Service cost                                           |   | $          | 361        |       | $          | 276        |       | $ | 283 |   |
| Interest cost                                          |   | 894        |       | 864        |       | 813        |       |
| Actual return on plan assets                           |   | (912       | )          | (984       | )          | (1,039     | )          |
| Amortization of prior service cost and  deferrals      |   | (4         | )          | (29        | )          | (29        | )          |
| Amortization of (gains) losses                         |   | 108        |       | 38         |       | (43        | )          |
| Plan administrative expenses                           |   | —     |       | 54         |       | 103        |       |
| Net periodic benefit cost of the  Company’s plans |   | $          | 447        |       | $          | 219        |       | $ | 88 |   |

 

The followingtables set forth the funded status of the Company’s pension benefit plans, theamount recognized in the balance sheets of the Company at March 29, 2003 andMarch 30, 2002 and the principal weighted-average assumptions inherent in theirdetermination:

 
|                                                         |   | **FY2003** |   | **FY2002** |   |
|--------------------------------------------------------------|--------|------------|--------|------------|--------|
| Change in  benefit obligation:                               |   |       |   |       |   |
| Benefit obligation at beginning of year                      |   | $          | 12,684 |       | $      | 11,592 |   |
| Service cost                                                 |   | 386        |   | 276        |   |
| Interest cost                                                |   | 894        |   | 864        |   |
| Plan Amendments                                              |   | 290        |   | —     |   |
| Actuarial  loss                                         |   | 884        |   | 578        |   |
| Benefits paid                                                |   | (718       | )      | (626       | )      |
| Benefit obligation at end of year                            |   | 14,420     |   | 12,684     |   |
|                                                         |   |       |   |       |   |
| Change in plan assets:                                       |   |       |   |       |   |
| Fair value of plan assets at beginning  of year              |   | 10,341     |   | 11,162     |   |
| Actual return on plan assets                                 |   | (848       | )      | (493       | )      |
| Employer contributions                                       |   | 441        |   | 352        |   |
| Benefits paid                                                |   | (718       | )      | (626       | )      |
| Administrative expense                                       |   | (73        | )      | (54        | )      |
| Fair value of plan assets at end of year                     |   | 9,143      |   | 10,341     |   |
|                                                         |   |       |   |       |   |
| Reconciliation of funded status at end  of year:             |   |       |   |       |   |
| Funded status                                                |   | (5,277     | )      | (2,343     | )      |
| Unrecognized prior service cost (credit)                     |   | 75         |   | (219       | )      |
| Unrecognized actuarial net loss                              |   | 4,860      |   | 2,326      |   |
| Accrued benefit cost                                         |   | $          | (342   | )          | $      | (236 | ) |
|                                                         |   |       |   |       |   |
| Amounts recognized in the statement of  financial            |   |       |   |       |   |
| position consist of:                                         |   |       |   |       |   |
| Accrued benefit liability                                    |   | $          | (342   | )          | $      | (236 | ) |
| Additional minimum liability                                 |   | (4,935     | )      | (2,107     | )      |
| Intangible asset                                             |   | 473        |   | 253        |   |
| Accumulated amount recognized in other  comprehensive income |   | 4,462      |   | 1,854      |   |
| Accrued benefit cost                                         |   | $          | (342   | )          | $      | (236 | ) |

 

F-24

----

 

Benefitsunder the union plans are not a function of employees’ salaries; thus, theaccumulated benefit obligation equals the projected benefit obligation.

 

Theassumptions used in determining the funded status information were as follows:

 
|                                              |   | **FY2003** |   | **FY2002** |   | **FY2001** |   |
|---------------------------------------------------|--------|------------|--------|------------|--------|------------|--------|
| Discount rate                                     |   | 7.25       | %      | 7.50       | %      | 7.50       | %      |
| Expected long-term rate of return on  plan assets |   | 9.00       | %      | 9.00       | %      | 9.00       | %      |

 

The provisions of  SFAS No. 87“Employers’ Accounting for Pensions” require the Company to record a minimumpension liability of $4,935 and $2,107 at March 29, 2003 and March 30, 2002,respectively.  This liability, which hadno effect on income, represents the amount by which the accumulated benefitobligation exceeds the sum of the fair market value of plan assets.  The additional pension liability may beoffset by an intangible asset to the extent of previously unrecognized prior servicecost.  The intangible assets of $473 and$253 at March 29, 2003 and March 30, 2002, respectively, are included on theline item entitled “Intangible assets” in the Consolidated Balance Sheets.  The remaining amounts of $4,462 and $1,854are recorded as a component of stockholder’s equity on the line item titled“Accumulated other comprehensive income (loss)” in the Balance Sheets at March29, 2003 and March 30, 2002, respectively.

 

In addition,the Company has a defined contribution plan under Section 401(k) of theInternal Revenue Code for all of its employees not covered by a collectivebargaining agreement. The plan is funded by eligible participants throughemployee contributions and by Company contributions equal to a percentage ofeligible employee compensation. Employer contributions under this plan amounted to $0, $602 and $1,055in fiscal 2003, 2002 and 2001, respectively. Effective October 1, 2001 the Company suspended matching contributionsto this plan.

 

EffectiveSeptember 1, 1996 the Company adopted a non-qualified Supplemental ExecutiveRetirement Plan (“SERP”) for a select group of highly compensated managementemployees designated by the Board of Directors of the Company.  The SERP allows eligible employees to electto defer until termination of their employment the receipt of up to 25% oftheir current salary.  The Company makescontributions equal to the lesser of 50% of the deferrals or 3.5% of theemployees’ annual salary, which vest in full after three years of servicefollowing the effective date of the SERP.  Employer contributions under this plan amounted to $52, $69 and $88 infiscal 2003, 2002 and 2001, respectively.

 

**9.****                                      Postretirement Health Care and LifeInsurance Benefits**

 

The Company,for the benefit of employees at its Heim, West Trenton, Nice and Bremen facilities,sponsors contributory defined benefit health care plans that providepostretirement medical benefits to union employees who have attained certainage and/or service requirements while employed by the Company.  The plans are unfunded and costs are paid asincurred.  Postretirement benefitobligations are included in “Other noncurrent liabilities” within theConsolidated Balance Sheets.

 

F-25

----

 

|                                       |   | **FY2003** |   | **FY2002** |   |
|--------------------------------------------|--------|------------|--------|------------|--------|
|                                       |   |       |   |       |   |
| Accrued Benefit Cost at Beginning of  Year |   | $          | 2,979  |       | $      | 2,798 |   |
| Net Periodic Benefit Cost                  |   | 394        |   | 404        |   |
| Actual Benefit Payments                    |   | (220       | )      | (223       | )      |
| Accrued Benefit Cost at Year End           |   | $          | 3,153  |       | $      | 2,979 |   |

 

The netperiodic postretirement benefit costs are as follows:

 
|                            |   | **Fiscal Year Ended** |   |
|---------------------------------|--------|-----------------------|--------|
|                            |   | **March 29,  2003**   |   | **March 30,  2002** |   | **March 31,  2001** | ** ** |
| Service cost                    |   | $                     | 55     |   | $ | 61 |   | $ | 53 |   |
| Interest cost                   |   | 319                   |   | 317 |   | 256 |   |
| Prior service cost amortization |   | (71                   | )      | (71 | ) | (88 | ) |
| Amount of loss recognized       |   | 91                    |   | 97 |   | 50 |   |
|                            |   | $                     | 394    |   | $ | 404 |   | $ | 271 |   |

 

The Companyhas contractually capped its liability for certain groups of futureretirees.  As a result, there is nohealth care trend associated with these groups.  The effect of a 1% annual increase in the assumed cost trend ratewould increase the accumulated postretirement benefit obligation byapproximately 5.6% for these plans; the annual service and interest costcomponents in the aggregate would not be materially affected.  The discount rate used in determining theaccumulated postretirement benefit obligation for the plans was 7.25% forfiscal 2003, 7.5% for fiscal year 2002 and 7.5% for fiscal year 2001.

 

**10.****                Income Taxes**

 

The Companyis included in the consolidated tax return of Holdings and calculates itsprovision for income taxes on a separate entity basis.

 

The Company’seffective income tax rate is reconciled to the U.S. Federal statutory tax rateas follows:

 
|                                             |   | **Fiscal Year Ended** |   |
|--------------------------------------------------|--------|-----------------------|--------|
|                                             |   | **March 29,  2003**   |   | **March 30,  2002** |   | **March 31,  2001** |   |
|                                             |   |                  |   |   |   |   |   |
| Federal statutory tax rate                       |   | 34.0                  | %      | 34.0 | % | 34.0 | % |
| State income taxes - net of federal tax  benefit |   | 5.4                   | %      | 3.2 | % | 3.5 | % |
| Amortization of non-deductible goodwill          |   | 0.0                   | %      | 1.6 | % | 1.5 | % |
| Other non-deductible items                       |   | (0.9                  | )%     | 4.0 | % | 0.8 | % |
| Effective tax rate                               |   | 38.5                  | %      | 42.8 | % | 39.8 | % |

 

The incometax provision consisted of:

 
|          |   | **Fiscal Year Ended** |   |
|---------------|--------|-----------------------|--------|
|          |   | **March 29,  2003**   |   | **March 30,  2002** |   | **March 31,  2001** |   |
| Current:      |   |                  |   |   |   |   |   |
| Federal       |   | $                     | 67     |   | $ | 3,574 |   | $ | 3,299 |   |
| State         |   | 218                   |   | 553 |   | 503 |   |
| Foreign       |   | 276                   |   | 276 |   | 276 |   |
| Total Current |   | 561                   |   | 4,403 |   | 4,078 |   |
| Deferred      |   | 2,042                 |   | 747 |   | 1,155 |   |
| Total         |   | $                     | 2,603  |   | $ | 5,150 |   | $ | 5,233 |   |

 

F-26

----

 

The netdeferred tax asset, for which no valuation allowance has been established,consists of the following:

 
|                               |   | **March 29,  2003** |   | **March 30,  2002** |   |
|------------------------------------|--------|---------------------|--------|---------------------|--------|
|                               |   |                |   |                |   |
| Postretirement benefits            |   | $                   | 969    |                | $      | 1,379 |   |
| Employee compensation accruals     |   | 1,205               |   | 859                 |   |
| Property, plant and equipment      |   | (4,596              | )      | (3,619              | )      |
| Unremitted foreign earnings        |   | (2,557              | )      | (1,647              | )      |
| Amortizable excess purchase price  |   | (742                | )      | (519                | )      |
| Net operating loss                 |   | 494                 |   | —              |   |
| Other, net                         |   | 4,123               |   | 4,922               |   |
| Net deferred tax (liability) asset |   | $                   | (1,104 | )                   | $      | 1,375 |   |

 

In fiscal2003 and fiscal 2002, a component of deferred tax assets was related to therecording of certain liabilities in connection with purchase accounting.

 

**11. Stockholder’s Equity**

 

The Companyhas 103 shares of Common Stock, par value $.01 per share, outstanding all ofwhich are owned by Holdings.

 

All issuancesto, and redemptions of equity by, Holdings are shown on the financialstatements of the Company as dividends paid to and capital contributions fromHoldings.

 

A summary ofthe status of Holdings’ warrants and stock options outstanding as of March 29,2003, March 30, 2002 and March 31, 2001 (including activity other than relatedto compensation) and changes during the years ending on those dates ispresented below.  All historical andcurrent shares have been adjusted for a 100 for 1 split of the Class A CommonStock and Class B Common Stock effective March 4, 2002.

 
|                                             |   | **Number Of Class A  Common Stock  Warrants/Options** |   |
|--------------------------------------------------|--------|-------------------------------------------------------|--------|
| Outstanding, April 1, 2000                       |   | 1,640,100                                             |   |
| Awarded fiscal 2001                              |   | 10,600                                                |   |
| Exercised fiscal 2001                            |   | (1,205,660                                            | )      |
| Cancelled fiscal 2001                            |   | (5,620                                                | )      |
| Converted from Class B Common Stock  fiscal 2001 |   | 166,667                                               |   |
| Outstanding, March 31, 2001                      |   | 606,087                                               |   |
| Awarded fiscal 2002                              |   | 0                                                     |   |
| Exercised fiscal 2002                            |   | 0                                                     |   |
| Cancelled fiscal 2002                            |   | (1,310                                                | )      |
| Outstanding March 30, 2002                       |   | 604,777                                               |   |
| Awarded fiscal 2003                              |   | 114,096.5                                             |   |
| Exercised fiscal 2003                            |   | 0                                                     |   |
| Cancelled fiscal 2003                            |   | (62,180                                               | )      |
| Outstanding March 29, 2003                       |   | 656,693.5                                             |   |

 

F-27

----

 
|                             |   | **Number of Supervoting  Class B Common Stock  Warrants** | ** ** |
|----------------------------------|--------|-----------------------------------------------------------|------------|
| Outstanding, April 1, 2000       |   | 1,007,740                                                 |       |
| Awarded fiscal 2001              |   | 0                                                         |       |
| Converted to Class A fiscal 2001 |   | (166,667                                                  | )          |
| Exercised fiscal 2001            |   | (291,927                                                  | )          |
| Outstanding March 31, 2001       |   | 549,146                                                   |       |
| Exercised fiscal 2002            |   | 0                                                         |       |
| Cancelled fiscal 2002            |   | 0                                                         |       |
| Outstanding March 30, 2002       |   | 549,146                                                   |       |
| Exercised fiscal 2003            |   | 0                                                         |       |
| Cancelled fiscal 2003            |   | 0                                                         |       |
| Outstanding March 29, 2003       |   | 549,146                                                   |       |

 

In fiscal2001, 10,600 warrants were issued to a group of investors in respect of ananti-dilution protection triggered by an issuance of options under the 1998Stock Option Plan.  These warrants wereexercised in fiscal 2001.

 

Certainmembers of management left the Company during fiscal 2003 without exercisingthe vested portion of 16,410 warrants.

 

*Stock Based Compensation*

 

Holdings hasissued warrants to purchase shares of Class B Supervoting Common Stock to Dr.Hartnett.  All other warrants andoptions are to purchase Class A Common Stock.

 

No optionswere issued to management in fiscal 2001. Certain members of management left the Company during fiscal 2001without exercising the vested portion of 5,620 options.

 

No optionswere issued to management in fiscal 2002. Certain members of management left the Company during fiscal 2002without exercising the vested portion of 1,310 options.

 

114,096.5options to purchase shares of Class A Common Stock were granted to managementin fiscal 2003. Certain members of management left the Company during fiscal2003 without exercising the vested portion of 45,770 options.

 

The followingtable summarizes information about compensation related stock options andwarrants outstanding at March 29, 2003:

 
| **Options/Warrants Outstanding** |   | **Options/Warrants Exercisable**  |   |
|----------------------------------|--------|-----------------------------------|--------|
| **Exercise Price**               |   | **Options/Warrants  Outstanding** |   | **Weighted Average  Contractual Life** |   | **Options/Warrants  Exercisable** |   | **Weighted Average  Exercise Price** |   |
| **Class A**                      |   |                              |   |   |   |   |   |   |   |
| $1.00                            |   | 460,437                           |   | 4.3 years |   | 460,437 |   | $ | 1.00 |   |
| $5.14                            |   | 112,160                           |   | 4.8 years |   | 112,160 |   | $ | 5.14 |   |
| $30.00                           |   | 84,096.5                          |   | 9.5 years |   | 55,503 |   | $ | 30.00 |   |
| **Class B**                      |   |                              |   |   |   |   |   |   |   |
| $1.00                            |   | 424,146                           |   | 4.3 years |   | 424,146 |   | $ | 1.00 |   |
| $5.14                            |   | 125,000                           |   | 4.3 years |   | 125,000 |   | $ | 5.14 |   |

 

F-28

----

 

**12.****                               Commitments and Contingencies**

 

The Companyleases factory facilities under non-cancelable operating leases, which expireon various dates through February 2009 with rental expense aggregating $1,657,$1,403 and $1,204 in fiscal 2003, 2002 and 2001, respectively.

 

The Companyalso has non-cancelable operating leases for transportation, computer andoffice equipment, which expire at various dates.  Rental expense for 2003, 2002 and 2001 aggregated $747, $759 and$815, respectively.

 

TheCompany entered into an agreement with Whitney whereby a quarterly managementservices fee is paid for certain consulting and management advisory services,as directed by the Board of Directors of the Company and agreed to byWhitney.  Such ongoing fees aggregated$375, $188 and $0 for fiscal 2003, 2002 and 2001, respectively.

 

The aggregatefuture minimum lease payments under operating leases are as follows:

 

| 2004       |   | 2,159 |   |
|------------|--------|-------|--------|
| 2005       |   | 1,747 |   |
| 2006       |   | 1,346 |   |
| 2007       |   | 1,275 |   |
| 2008       |   | 1,267 |   |
| Thereafter |   | 4,119 |   |
| Total      |   | $     | 11,913 |   |
|            |        |       |        |  |

 

The Companyenters into government contracts and subcontracts that are subject to audit bythe government.  In the opinion of theCompany’s management, the results of such audits, if any, are not expected tohave a material impact on the financial statements of the Company.

 

Certain types of property transactions in Connecticut and New Jerseymay trigger investigation and cleanup obligations under the ConnecticutTransfer Act (the “CTA”) or the New Jersey Industrial Site Recovery Act (the“ISRA”), respectively. In connection with the purchase of its Fairfield,Connecticut facility in 1996, the Company was required by the CTA to submit aninvestigation and remediation plan for known environmental contamination atthat facility. Although this known contamination had been the result ofoperations conducted by the facility’s prior owner, the Company agreed toassume responsibility for completing cleanup efforts previously initiated bythat owner. In 1996, the Company submitted and obtained regulatory approval forits investigation and remediation plan as required by the CTA.  The results of this investigation revealedthe continued presence of certain low level soil and groundwater contamination,the remediation of which had been commenced by the previous owner of thefacility.  In March 1998, the Companysubmitted these findings to Connecticut Department of Environmental Protection(“CTDEP”).  In April 1999, CTDEPresponded to this submission and requested that the Company develop a workplanfor additional investigation, analysis and possible remediation to address theisolated, low level residual contamination at this facility. Since then, theCompany has been working with CTDEP in an effort to develop data showing thatno further remedial action is necessary. The Company submitted data to CTDEP in November and December 2001intended to show that contamination has not migrated off the property.  CTDEP has requested additional information,which the Company is in the process of developing.  While the Company believes that its total investigation andcleanup costs will not exceed $0.2 million, Connecticut regulators may requireadditional cleanup or monitoring of the residual contamination at thisfacility.  If such activities arerequired, there can be no assurance that the Company’s total investigation andremediation costs will not exceed its $200 estimate.

 

F-29

----

 

The Company’s Recapitalization in 1997 also triggered ISRA obligationsat its West Trenton facility, obligating the Company to investigate allpossible past hazardous substances releases, and to cleanup any resultingcontamination, at that facility. Under ISRA, investigation requirements forfacilities that are currently being remediated pursuant to an earlier ISRA-triggeringtransaction may be merged into that ongoing ISRA investigation. In this case,the West Trenton facility has been the subject of an ongoing ISRA (and itspredecessor statute) groundwater investigation and remediation by thefacility’s prior owner since the Company’s acquisition of the facility in 1987.Accordingly, the New Jersey regulatory authorities have informed the Companythat its ISRA obligations triggered by the 1997 Recapitalization are beingsatisfied by the prior owner’s ongoing ISRA investigation and remediation. Thatinvestigation has not found any additional contamination that would requireremediation beyond that which continues to be performed by the facility’s priorowner.

 

There arevarious claims and legal proceedings against the Company relating to itsoperations in the normal course of business, none of which the Company believesis material to its financial position or results of operations.  The Company currently maintains insurancecoverage for product liability claims.  TheCompany is subject to various federal, state and local environmental laws,ordinances and regulations.  Stateagencies are currently overseeing investigation and/or remediation activitiesat various Company facilities.  Inaddition, the previous owners of certain facilities are undertaking cleanup andlimited remediation in each case in fulfillment of certain indemnificationobligations.  The Company believes it iscurrently in material compliance with all applicable requirements ofenvironmental laws.

 

Currently, collective bargaining agreements with the United AutoWorkers (UAW) cover substantially all of the hourly employees at the Company’sWest Trenton, New Jersey, Fairfield, Connecticut, and Plymouth, Indiana plants,and collective bargaining agreements with the United Steelworkers (USWA) coversubstantially all the hourly employees at the Company’s Kulpsville,Pennsylvania and Glasgow, Kentucky plants. A collective bargaining agreement with the Association of SwissEngineering Employers (ASM) covers substantially all of the hourly employees atthe Company’s Delemont, Switzerland plant. Within the next twelve months, theWest Trenton agreement, covering 44 hourly employees, expires on June 30,2004.  The Kulpsville agreement,covering 53 hourly employees, expires on October 25, 2003. The Companyconsiders its relations with its employees to be satisfactory and has notexperienced a significant work stoppage in over fourteen years.  However, there can be no assurance thatadditional employees who are not represented by unions will not elect to be sorepresented in the future or that any of the collective bargaining agreementswill be renewed when they expire or that the Company will not experiencestrikes, work stoppages or other situations.

 

**13.****                               Other Expense, Net of Other Income**

 

Otherexpense, net of other income, is comprised of the following:

 
|                              |   | **Fiscal Year Ended** |   |
|-----------------------------------|--------|-----------------------|--------|
|                              |   | **March 29,  2003**   |   | **March 30,  2002** |   | **March 31,  2001** |   |
| Amortization of goodwill          |   | $                     | — |   | $ | 801 |   | $ | 801 |   |
| Amortization of intangible assets |   | 105                   |   | — |   | — |   |
| Royalty income                    |   | —                |   | — |   | (19 | ) |
| Management fee                    |   | 375                   |   | 188 |   | — |   |
| Disposition of assets             |   | 858                   |   | 22 |   | — |   |
| Other income/expense              |   | 191                   |   | (74 | ) | (6 | ) |
| Total                             |   | $                     | 1,529  |   | $ | 937 |   | $ | 776 |   |

 

F-30

----

 

**14.****                               Segment Information**

 

In 1998, SFASNo. 131, “Disclosures About Segments of an Enterprise and Related Information”was issued.  The objective of thisStatement is to present disaggregated information about segments of a businessenterprise to produce information about the types of activities in which anenterprise is engaged in and the economic environment in which those activitiesare carried out. The Company operates in a single reportable segment; themanufacture and distribution of various types of bearing products. No detailedsegment data is required to be disclosed under this pronouncement.  As it relates to geographical data, duringfiscal years 2003, 2002 and 2001, the Company’s Schaublin operations, based inDelemont, Switzerland, produced $18.4 million, $14.9 million and $16.0 millionin foreign sales, respectively, resulting in net income of $3.3 million, $2.2million, and $2.2 million, respectively. Schaublin had long-lived assets of $2.9 million  at March 29, 2003 and March 30, 2002, andhad intangible assets of $1.6 million and $0.0 million at March 29, 2003 andMarch 30, 2002, respectively.

 

On or aboutMay 29, 2002, the Company dissolved its wholly owned foreign sales subsidiary,Roller Bearing Company, FSC, Inc.

 

**15.****                               HoldingsCapitalization**

 

*Sale ofClass B Exchangeable Convertible Participating Preferred Stock*

 

During July 2002, two investors in Holdings purchased an aggregate of240,000 shares of its Class B Exchangeable Convertible Participating PreferredStock in exchange for gross proceeds of $24,000.  In connection with the purchase, Holdings paid a fee of $750 toone of the investors and amended the terms of the management servicesagreement.  Following the closing of thesale, Holdings utilized the proceeds of the sale and certain of the Company’scash on hand to repurchase approximately $30,400 in principal amount atmaturity of certain debt issued in connection with the Recapitalization (Note1).  This repurchase satisfied Holdings’obligation to make a scheduled redemption payment relating to such debt inDecember 2002.  Holdings will recognizea 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 anydividends paid to the holders of shares of Holdings’ Common Stock.  The Class B Preferred Stock is subject toconversion by Holdings or exchange by the holders thereof.  In either situation, each share of Class BPreferred would yield a number of shares o f Holdings’ Class A Common Stockdetermined by reference to a formula set forth in Holdings’ Amended andReseated Certificate of Incorporation (which includes anti-dilution protections),a number of shares of Holdings’ Class C Redeemable Preferred Stock alsodetermined by reference to a formula set forth in Holdings’ Amended andRestated Certificate of Incorporation and one share of Class D Preferred Stock.  Any holders of Class C Preferred Stock wouldbe entitled to an 8% per annum accumulating dividend.   The Class C Preferred Stock is subject to redemption by Holdingsat its option but is not subject to mandatory redemption.  The Class D Preferred Stock entitles theholders thereof, upon liquidation, to a payment determined by reference to aformula set forth in Holdings’ Amended and Restated Certificate ofIncorporation.

 

**16.****                               Retirementof Foreign Debt**

 

On December 10, 2002, the Company advanced $519to its subsidiary, Schaublin Holding SA. Schaublin Holdings advanced the funds to its subsidiary, Schaublin SA,which was used by Schaublin to fund a portion of the purchase price of Myonic(the “Myonic Funding”).  On December 13, 2002, the Company made an additionalpayment of $450 to Schaublin Holding SA (the “Additional SchaublinAdvance”).   On December 13, 2002, theCompany made a payment in the amount of $2,507 to Holdings, the proceeds ofwhich were used by Holdings to pay interest due on Holdings’ 13% Senior SecuredDiscount Debentures due 2009 (the “ Discount Debentures”) (together with theMyonic Funding and the Additional Schaublin Advance, the “Payments”). At thetime of the making of the Payments, the Company did not satisfy a certainminimum financial ratio set forth in the Indenture governing the SeniorSubordinated Notes and, accordingly, those Payments constituted Defaults underone of the covenants contained in the Indenture and a covenant in the CreditAgreement.  On February 6, 2003, inaccordance with the terms of the Indenture, the Company sent a notice of the 

 

F-31

----

 

Defaults to the trustee for the holders of theNotes (which notice included as description of how such Defaults were cured).

 

On January 27, 2003, Schaublin Holding repaid the Additional SchaublinAdvance to the Company.  On February 6,2003, the Company obtained additional equity investments in an amount equal tothe aggregate of the Myonic Funding and the dividend paid to Holdings, therebyeffectively repaying such Payments.  TheCompany and its outside advisors believe that these actions have cured theDefaults relating to the Payments under the Indenture prior to the time whenthey had matured into Events of Default under the Indenture.  Further, on February 10, 2003, the Company designated its direct and indirectEuropean subsidiaries as Restricted Subsidiaries for purposes of theIndenture.  Giving pro forma effect tothat designation, the Company would have satisfied the ratio as of the dates ofmaking of the Payments.

 

On February 5, 2003, the Company received awaiver from its lenders under the Credit Agreement of the covenant defaultunder the Credit Agreement related to the Payments.  On February 5, 2003, the Company agreed with those lenders toamend the Credit Agreement to permit the Company to advance certain funds toits European subsidiaries for the purpose of discharging all of their existingfunded indebtedness and for general working capital purposes.  The Company is discussing further amendmentsto the Credit Agreement with its senior banks, designed to increase theavailability of loans under the Credit Agreement based upon, and secured by,the assets of its European subsidiaries.

 

The equity raisedto cure the Indenture defaults that resulted from the Payments was raised atHoldings from Whitney V, L.P., an affiliate of one of Holdings’ keystockholders, and Michael Hartnett, a key stockholder of Holdings, the Chairmanof Holdings’ and our Boards of Directors and our President and Chief ExecutiveOfficer.  On February 6, 2003, suchpurchasers bought an aggregate of 1,008.41 shares of Holdings’ Class APreferred Stock for $3 per share, or an aggregate purchase price of $3,025.  The Class A Preferred Stock is the mostsenior of Holdings’ capital stock in terms of liquidation preference and isentitled to an accrued dividend at 8% per annum.  Pursuant to the terms of the Purchase Agreement for the Class ACommon Stock, on February 10, 2003, Holdings exercised its option to repurchasesuch stock for the purchase price plus all accrued dividends.  Accordingly, no Class A Preferred Stock isoutstanding as of the date hereof. This transaction was unanimously approved bythe disinterested members of the Boards of Directors of the Company andHoldings and the terms thereof were unanimously determined by such Boards ofDirectors to have been no less favorable to the Company and Holdings than thosethat could be obtained on the date thereof in arm’s-length dealings with aperson who was not an affiliate of the Company or Holdings.

 

Holdings used theproceeds from the sale of Class A Preferred Stock to purchase 3 shares of theCompany’s Common Stock.  At this time,the defaults caused by the Payments were cured, and the Company sent a noticeto the Trustee for the holders of the Notes to this effect.

 

**17.****                               RelatedParty Transactions**

 

In connection with the Recapitalization, Holdings loaned Dr. Michael J.Hartnett, the Company’s President and Chief Executive Officer, $500 to purchaseshares of capital stock of Holdings. The loan does not bear interest and is due on the earlier of (i) June23, 2007, (ii) the consummation of a sale of Holdings or (iii) the consummationof an initial public offering of Holdings. The loan is secured by a pledge of Dr. Hartnett’s shares in Holdings.

 

**18.****                               SubsequentEvent**

 

On June 19, 2003, the Company further amended and restated the SeniorCredit Facility in order to increase its liquidity and to facilitate thefunding of the Company’s foreign operations. The Senior Credit Facility now includes a structure under which theCompany may include certain of its foreign assets within the “collateralborrowing base” that sets forth the amounts that the Company may borrow underits revolving credit facility.  As partof this amendment, the Company has created intercompany loan and asset pledgearrangements (including pledges of certain foreign assets) that are allultimately assigned to the lenders as further collateral to secure theborrowings under the Senior Credit Facility.

 

F-32

----

 

**19.****                QuarterlyResults of Operations (unaudited)**

** **
|             |   | **Q1** |   | **Q2** |   | **Q3** |   | **Q4** |   | **Fiscal  Year Ended  March 29, 2003** |   |
|------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------------------------------------|--------|
|             |   |   |   |   |   |   |   |   |   |                                   |   |
| Net Sales        |   | $      | 38,521 |   | $      | 41,249 |   | $      | 41,496 |                                   | $      | 51,594 |   | $ | 172,860 |   |
| Operating income |   | $      | 5,168  |   | $      | 4,803  |   | $      | 4,948  |                                   | $      | 6,503 |   | $ | 21,422 |   |
| Net income       |   | $      | 825    |   | $      | 834    |   | $      | 441    |                                   | $      | 2,058 |   | $ | 4,158 |   |

 
|             |   | **Q1** |   | **Q2** |   | **Q3** |   | **Q4** |   | **Fiscal  Year Ended  March 30, 2002** |   |
|------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------------------------------------|--------|
|             |   |   |   |   |   |   |   |   |   |                                   |   |
| Net Sales        |   | $      | 40,170 |   | $      | 41,831 |   | $      | 38,675 |                                   | $      | 47,655 |   | $ | 168,331 |   |
| Operating income |   | $      | 6,509  |   | $      | 6,522  |   | $      | 5,564  |                                   | $      | 8,618 |   | $ | 27,213 |   |
| Net income       |   | $      | 1,394  |   | $      | 1,546  |   | $      | 1,166  |                                   | $      | 2,757 |   | $ | 6,863 |   |

 
|               |   | **Q1** |   | **Q2** |   | **Q3** |   | **Q4** |   | **Fiscal  Year Ended  March 31, 2001** |   |
|--------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------------------------------------|--------|
|               |   |   |   |   |   |   |   |   |   |                                   |   |
| Net Sales          |   | $      | 43,861 |   | $      | 41,160 |   | $      | 40,150 |                                   | $      | 51,264 |   | $ | 176,435 |   |
| Operating income   |   | $      | 7,653  |   | $      | 6,877  |   | $      | 6,187  |                                   | $      | 11,686 |   | $ | 32,403 |   |
| Net income  (loss) |   | $      | 2,355  |   | $      | 1,979  |   | $      | (642   | )                                      | $      | 4,202 |   | $ | 7,894 |   |

 

F-33

----

 

**Item 9.****                                   CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS**

 

On May 22, 2002, we dismissed Arthur Andersen LLP, asour independent accountants.  We engagedErnst & Young LLP, or E&Y, as our new independent accountants effectiveimmediately.  The decision to change ourindependent accountants was recommended by our Board of Directors.

 

Arthur Andersen’s reports on our financial statementsfor the fiscal years ended March 31, 2001 and April 1, 2000 did not contain anyadverse opinion or disclaimer of opinion and were not qualified or modified asto uncertainty, audit scope, or accounting principles.  During the two years ended March 31, 2001and through the subsequent interim period preceding the decision to changeindependent accountants, there were no disagreements with Arthur Andersen onany matter of accounting principle or practices, financial statementdisclosure, or auditing scope or procedure, which disagreement(s), if notresolved to the satisfaction of Arthur Andersen, would have caused it to makereference thereto in its report on the financial statements for such years.

 

During the two years ended March 31, 2001 and throughthe subsequent interim period preceding the decision to change independentaccountants, there were no “reportable events” (as defined below) requiringdisclosure pursuant to Item 304(a)(1)(v) of Regulation S-K, promulgated underthe Securities Act of 1934, as amended. As used herein, the term “reportable events” means any of the itemslisted in paragraphs (a)(1)(v)(A)-(D) of Item 304 of Regulation S-K.

 

We provided Arthur Andersen with a copy of theforegoing disclosures.  ArthurAndersen’s letter dated May 23, 2002, stating its agreement with suchstatements, was filed as Exhibit 16.1 to our Form 8-K filed May 24, 2002.

 

Effective May 22, 2002, we engaged E&Y as ourindependent accountants.  During the twoyears ended March 31, 2001 and through the subsequent interim period precedingthe decision to change independent accountants, neither we nor anyone acting onour behalf consulted E&Y regarding either the application of accountingprinciples as to a specified transaction, either completed or proposed, or thetype of audit opinion that might be rendered on our consolidated financialstatements, nor has E&Y provided to us a written report or oral adviceregarding such principles or audit opinion.

 

27

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**PART III**

 

**Item 10.****                            DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT**

 

The following table sets forth certain informationconcerning the directors and executive officers of Holdings, us and oursubsidiaries.  Each director is electedfor a one-year term or until such person’s successor is duly elected andqualified.

 
| **Name**                  |   | **Age** |   | **Positions**                                                                                                                                                                                                          |
|---------------------------|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |   |    |   |                                                                                                                                                                                                                   |
| Dr. Michael Hartnett      |   | 57      |   | Chairman, President and Chief Executive Officer of  Holdings and the Company, Chairman and President of ITB, President of Nice  and LLP, Director of the Company, ITB, Nice, LLP, Bremen, Miller, Tyson and  Schaublin |
|                      |   |    |   |                                                                                                                                                                                                                   |
| Michael S. Gostomski      |   | 52      |   | Executive Vice President, Mergers and Acquisitions  of Holdings, the Company, ITB, Nice and LLP, Executive Vice President of  Bremen, Miller, Tyson and Schaublin, Secretary of Nice and LPP                           |
|                      |   |    |   |                                                                                                                                                                                                                   |
| Daniel A. Bergeron        |   | 43      |   | Vice President Finance of Holdings and the Company                                                                                                                                                                     |
|                      |   |    |   |                                                                                                                                                                                                                   |
| Jane Bohrer               |   | 45      |   | Acting Chief Financial Officer and Corporate  Controller of Holdings and the Company                                                                                                                                   |
|                      |   |    |   |                                                                                                                                                                                                                   |
| Richard J. Edwards        |   | 47      |   | Vice President of Holdings and the Company, General  Manager of the RBC division                                                                                                                                       |
|                      |   |    |   |                                                                                                                                                                                                                   |
| Christopher   Thomas |   | 48      |   | Vice President, Business Development of Holdings and  the Company                                                                                                                                                      |
|                      |   |    |   |                                                                                                                                                                                                                   |
| Edward J. Trainer         |   | 59      |   | Secretary of Holdings, the Company and ITB                                                                                                                                                                             |
|                      |   |    |   |                                                                                                                                                                                                                   |
| Kurt B. Larsen            |   | 39      |   | Director of Holdings and the Company                                                                                                                                                                                   |
|                      |   |    |   |                                                                                                                                                                                                                   |
| Robert Anderson           |   | 83      |   | Director of Holdings and the Company                                                                                                                                                                                   |
|                      |   |    |   |                                                                                                                                                                                                                   |
| Richard R. Crowell        |   | 48      |   | Director of Holdings and the Company                                                                                                                                                                                   |
|                      |   |    |   |                                                                                                                                                                                                                   |
| William Killian           |   | 68      |   | Director of Holdings and the Company                                                                                                                                                                                   |
|                      |   |    |   |                                                                                                                                                                                                                   |
| Michael Stone             |   | 40      |   | Director of Holdings and the Company                                                                                                                                                                                   |

 

***Dr. Michael J. Hartnett*** has been ourpresident and Chief Executive Officer of the Company since April 1992 andChairman since June 1993.  Prior tothat, Dr. Hartnett served as Vice President and General Manager of ITB from1990, following eighteen years at Torrington Company, one of the three largestbearings manufacturers in the United States. While at Torrington, Dr. Hartnett held the position of Vice Presidentand General Manager of the Aerospace Business Unit and was, prior to that, VicePresident of the Research and Development Division.  Dr. Hartnett holds an undergraduate degree from University of NewHaven, a Masters degree from Worcester Polytechnic Institute, and a Ph.D. inApplied Mechanics from the University of Connecticut.  Dr. Hartnett has also developed numerous patents, authored morethan two dozen technical papers and is well known for his contributions to thefield of Tribology (the study of friction). Dr. Hartnett currently serves as a director of Aftermarket TechnologyCompany, a publicly-held company in the business of re-manufacturingaftermarket components for automobiles.

 

***Michael S. Gostomski***, our ExecutiveVice President, Mergers and Acquisitions joined the Company in September1993.  From January 1991 through August1993, he served as President and Chief Executive Officer for TransnationalIndustries, a publicly held manufacturer of components for commercial and militaryaircraft.  Mr. Gostomski holds a B.S. inAccounting and a M.B.A. in Finance from the University of Connecticut.  He is also a certified public accountant(CPA).  Mr. Gostomski currently servesas director of a number of publicly held companies, including Transnational 

 

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Industries Inc., SeatekCompany Inc., a publicly held manufacturer of small tools for the electronicsindustry, Protopak Corporation, a packaging equipment manufacturer and NewJersey Steel, a specialty steel manufacturer.

 

***Daniel A. Bergeron,*** our VicePresident, Finance, joined us in May 2003. From November 2002 through May 2003, he served as Vice President andChief Financial Officer of Allied Healthcare International, Inc, a publiclyheld provider of  healthcare staffingservices.  He served as Vice Presidentand Chief Financial Officer at Paragon Networks International, Inc, atelecommunications company from June 2000 to October 2002.  From April 1998 to February 2000, he servedas Vice President and Chief Financial Officer of Tridex Corporation, a publiclyheld software company.  From July 1987to March 1998, Mr. Bergeron held various financial reporting positions withDorr-Oliver Inc., an international engineering and manufacturing company,including Vice President and Chief Financial Officer from 1994 to March1998.  Mr. Bergeron holds a B.S. inFinance from Northeastern University and a M.B.A. from the University of NewHaven.

 

***Jane R. Bohrer***, our acting ChiefFinancial Officer and Corporate Controller joined us in October 1997 asDirector of Corporate Accounting.  Shebecame Corporate Controller in June 2001. Prior to joining us, she spent two years with Arthur Andersen LLP asExperienced Manager, five years with Paging Network, Inc. as General Manager,Operations Manager and Accounting Manager at locations in Anaheim, California,Charlotte, North Carolina and Stratford, Connecticut.  From 1980 through 1990, she held seven progressively responsiblefinancial reporting positions with ITT Rayonier, Inc. in Stamford,Connecticut.  Ms. Bohrer is a CertifiedManagement Accountant (CMA) and holds B.S. degrees in Accounting and MarketingManagement from Virginia Polytechnic Institute and State University.

 

***Richard J. Edwards*** joined us inFebruary 1990 as Manufacturing Manager in our Hartsville, South Carolinaplant.  He became Plant Manager of theHartsville facility, Director of Operations of the RBC division, and has beenthe Vice President and General Manager of the RBC division since 1998.  Prior to joining us, he spent six years withTorrington as Materials Manager and then Plant Superintendent at their TygerRiver plant.  Mr. Edwards holds a B.S.in Production Operations Management from Arizona State University and a CPIMcertification from APICS.

 

***Christopher S. Thomas*** joined us inOctober 1997 as Vice President, Business Development.  From March 1997 through October 1997, he served as BusinessManager of the Needle Bearing Division of Torrington, a manufacturer of needlebearings.  Mr. Thomas served as aManaging Director of NASTECH Europe, Ltd., located in Coventry, England, ajoint venture between Torrington and NSK Ltd., a Japanese bearing andautomotive component manufacturer from April 1995 until March 1997.  Prior to that, Mr. Thomas was the Chairmanof the Joint Task Force for the formation of NASTECH Europe Ltd from June 1994until March 1995.  From May 1990 throughJune 1994, Mr. Thomas served as the Business Manager of Precision Components, adivision of Torrington.  Mr. Thomasreceived a B.S. degree in Mechanical Engineering from Worcester PolytechnicInstitute and a M.B.A. from the University of Michigan.

 

***Edward J. Trainer*** has been employed byus since 1967.  He served from 1987 toJanuary 1995 as Vice President of Human Resources and has served as Director ofInternational Sales since January 1995. Mr. Trainer was named Secretary in 1993.

 

***Kurt Larsen*** has been a director sinceMarch 1992.  Mr. Larsen is presently aManaging Director of Cerberus Capital Management, L.P.  Prior to joining Cerberus in 2003, Mr. Larsenserved as the Managing Partner of Black Diamond Capital Partners, a privateequity firm which he founded, and directed the investment of over $245 millionof private equity in six companies. Prior to founding Black Diamond Capital Partners in 1997, Mr. Larsen wasa Principal at Aurora Capital Group where he worked from 1992 to 1997.  Prior to his experience at Aurora CapitalGroup, Mr. Larsen worked as an Associate at both WSGP Partners, a privateequity founded by William E. Simon, and Drexel Burnham Lambert Inc. in BeverlyHills, CA.  Mr. Larsen attended theUniversity of Utah from 1982 to 1987.

 

***Robert Anderson*** has been a directorsince June 1998.  Mr. Anderson served asChairman Emeritus of Rockwell Corporation since February 1990.  He also serves as a director of AftermarketTechnology Corporation and is a member of the Caltech Board of Trustees and theAnderson Graduate School of Management.

 

***Richard R. Crowell*** has been a directorsince June 1992.  Mr. Crowell isPresident and a Managing General Partner of Aurora Capital Group, a privateequity investment firm.  Prior toestablishing Aurora in 1991, Mr. Crowell was a Managing Partner of AcadiaPartners, a New York-based investment fund formed with The Robert M. BassGroup.  From 1983 to 1987, he was aManaging Director, Corporate Finance for Drexel Burnham Lambert.  He serves on the Board of Directors forAftermarket Technologies Inc.; Impaxx, Inc.; Tartan Textile Services, Inc.;ADCO Global, Inc. and Quality Distribution Service Partners, Inc.  Mr. Crowell earned a BA in EnglishLiterature from the University of California, Santa Cruz, and an MBA from theAnderson School of the University of California, Los Angeles.

 

***William P. Killian*** has been a directorsince October 2001.  Mr. Killian hasreported to and directly advised CEOs of Fortune 500, NYSE corporations onstrategy, corporate growth, acquisitions and divestitures for 25 years.  From 1986 

 

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until his retirement in2000, Mr. Killian was corporate VP, Development and Strategy for JohnstonControls, an $18 billion global market leader in automotive systems andfacility management and controls. Currently, he serves as a member of the board of directors of Aqua-Chem,Inc. and Premix, Inc.  Mr. Killian holdsa Bachelor of Chemical Engineering from Georgia Tech and a Master ofengineering Administration from the University of Utah.

 

***Michael Stone*** has been a directorsince April 2002.  Mr. Stone directs thefund management activities of Whitney and oversees the Growth IndustrialsGroup.  He also focuses on investmentsin Financial Services.  He has been withWhitney for over a decade and has been a senior investor in each of Whitney’soutside equity funds.  Previously, hewas with Bain & Company where he worked with manufacturing andpharmaceutical clients and Bain Capital-owned entities.  He is a graduate of Duke University, BA andHarvard Business School, MBA.

 

The Boards of Directors of Holdings and the Companycurrently consist of Dr. Hartnett and Messrs. Larsen, Anderson, Crowell, Stoneand Killian.

 

**Committees of Our Board of Directors**

 

Our board of directors has an Audit Committee but doesnot have a Compensation Committee or a Nominating Committee.  The members of the Audit Committee areappointed by the board of directors.

 

The Audit Committee recommends to the board ofdirectors the auditing firm to be selected each year as independent auditors ofour  financial statements and to performservices related to completion of such audit. The Audit Committee also has responsibility for, among other things: (1)reviewing the scope and results of the audit; (2) reviewing our  financial condition and results ofoperations with management; (3) considering the adequacy of internal accountingand control procedures; and (4) reviewing any non-audit services and specialengagements to be performed by the independent auditors and considering theeffect of such performance on the auditor’s independence.  The Audit Committee presently consists ofMessrs. Stone and Hartnett.  The AuditCommittee was in session during each of the three formal meetings of our  board of directors during the fiscal yearended March 29, 2003 and also met on one separate occasion during that period.

 

**Compensation of Directors**

 

None of the members of our board of directors receivecompensation for service on our board of directors or any committee of ourboard of directors.  Each of ourdirectors is entitled to be reimbursed for reasonable out-of-pocket expensesincurred in connection with attendance at our board of directors’ meetings orof any committee thereof.

 

 

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**Item 11.****                            EXECUTIVE COMPENSATION**

 

The following table sets forth the cash and othercompensation paid by us in fiscal years 2003, 2002 and 2001 to Dr. Hartnett,our Chairman, President and Chief Executive Officer, and our next four mosthighly paid executive officers of the Company, or the Named Executive Officers.  (Amounts shown below are in dollars)

 

**SUMMARYCOMPENSATION TABLE**

 
|                                                                                        |   |     |    | **Annual  Compensation** |    | **Long-Term  Compensation  Awards** |   |                               |   |
|---------------------------------------------------------------------------------------------|--------|----------|---------|--------------------------|---------|-------------------------------------|--------|------------------------------------|--------|
| **Name and  Principal Position**                                                            |   | **Year** |    | **Salary**               |    | **Bonus**                           |   | **Other  Annual  Compensation(1)** |   | **Securities  Underlying  Options/SARs** |   | **All Other  Compensation** |   |
| Dr.  Michael J. Hartnett,Chairman, President &  Chief Executive Officer                 |   | 2003     |    | $                        | 413,437 |                                | $      | 175,034                            | (b)    | $ | 11,832 | (c) | N/A |   | N/A |   |
|                                                                                        | 2002   |     | 413,437 | (d)                      | 50,684  | (e)                                 | 28,331 | (f)                                | N/A    |   | N/A |   |
|                                                                                        | 2001   |     | 493,706 | (a)(d)                   | 333,168 | (g)                                 | 34,718 | (h)                                | N/A    |   | N/A |   |
| Michael S. Gostomski,  Executive Vice President,  Mergers & Acquisitions                |   | 2003     |    | 159,500                  | (a)     | 105,000                             | (b)    | 10,024                             | (i)    | N/A |   | N/A |   |
|                                                                                        | 2002   |     | 159,500 | (a)                      | —  |                                | 11,658 | (j)                                | N/A    |   | N/A |   |
|                                                                                        | 2001   |     | 160,407 | (a)                      | 35,000  | (g)                                 | 14,791 | (k)                                | N/A    |   | N/A |   |
| Anthony S. Cavalieri,  Vice President & Chief  Financial Officer(v)                     |   | 2003     |    | 163,479                  | (a)(d)  | 25,000                              | (b)    | 13,210                             | (l)    | N/A |   | N/A |   |
|                                                                                        | 2002   |     | 154,350 | (a)(d)                   | 40,000  | (e)                                 | 15,932 | (m)                                | N/A    |   | N/A |   |
|                                                                                        | 2001   |     | 154,350 | (a)(d)                   | 60,000  | (g)                                 | 21,810 | (n)                                | N/A    |   | N/A |   |
| Richard J. Edwards,  Vice President & General  Manager, RBC, Tyson &  Nice Bearings |   | 2003     |    | 172,917                  | (a)(d)  | 30,000                              | (b)    | 13,323                             | (o)    | 0 | (u) | N/A |   |
|                                                                                        | 2002   |     | 171,071 | (a)(d)                   | 25,000  | (e)                                 | 17,344 | (p)                                | N/A    |   | N/A |   |
|                                                                                        | 2001   |     | 148,000 | (a)(d)                   | 70,000  | (g)                                 | 18,219 | (q)                                | N/A    |   | N/A |   |
| Christopher Thomas,  Vice President, Business  Development                                  |   | 2003     |    | 162,000                  | (a)(d)  | —                              |   | 12,857                             | (r)    | 0 | (u) | N/A |   |
|                                                                                        | 2002   |     | 162,138 | (a)(d)                   | 35,000  | (e)                                 | 16,335 | (s)                                | N/A    |   | N/A |   |
|                                                                                        | 2001   |     | 154,783 | (a)(d)                   | 42,599  | (g)                                 | 17,867 | (t)                                | N/A    |   | N/A |   |
|                                                                                             |        |          |         |                          |         |                                     |        |                                    |        |  |  |  |  |  |  |  |  |

 

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(a)                                  Includesamounts deferred by the executive pursuant to our 401(k) Plan.

(b)                                 Bonusearned in Fiscal 2002 and paid in Fiscal 2003. Bonus for Fiscal 2003 will be paid in Fiscal 2004.

(c)                                  Consistsof $11,832 paid by us to lease vehicles for Dr. Hartnett’s use.

(d)                                 Includesamounts deferred by the executive pursuant to our SERP.

(e)                                  Bonusearned in Fiscal 2001 and paid in Fiscal 2002. Bonus for Fiscal 2002 was paid in Fiscal 2003.

(f)                                    Consistsof (i) $20,373 paid by us to lease a car for Dr. Hartnett’s use and (ii) $7,958contributed by us to Dr. Hartnett’s SERP account.

(g)                                 Bonusearned in Fiscal 2000 and paid in Fiscal 2001. Bonus for Fiscal 2001 was paid in Fiscal 2002.

(h)                                 Consistsof (i) $20,523 paid by us to lease vehicles for Dr. Hartnett’s use and (ii)$2,666 contributed by us to Dr. Hartnett’s 401(k) Plan account, and (iii)$11,529 contributed us to Dr. Hartnett’s SERP account.

(i)                                     Consistsof $10,024 paid by us to lease a vehicle for Mr. Gostomski’s use.

(j)                                     Consistsof (i) $9,664 contributed by us to lease a car for Mr. Gostomski’s use, and(ii) $1,994 contributed by us to Mr. Gostomski’s 401(k) Plan account.

(k)                                  Consistsof (i) $9,906 contributed by us to lease a car for Mr. Gostomski’s use, and(ii) $4,885 contributed by us to Mr. Gostomski’s 401(k) Plan account.

(l)                                     Consistsof (i) $4,502 contributed by us to Mr. Cavalieri’s SERP account, and (ii)$8,708 paid by us to lease a vehicle for Mr. Cavalieri’s use.

(m)                               Consistsof (i) $8,601 paid by us to lease a car for Mr. Cavalieri’s use, and (ii)$1,929 contributed by us to Mr. Cavalieri’s 401(k) Plan account, and (iii)$5,402 contributed by us to Mr. Cavalieri’s SERP account.

(n)                                 Consistsof (i) $7,308 paid by us to lease a car for Mr. Cavalieri’s use, and (ii)$5,250 contributed by us to Mr. Cavalieri’s 401(k) Plan account, and (iii)$9,252 contributed by us to Mr. Cavalieri’s SERP account.

(o)                                 Consistsof (i) $9,573 paid by us to lease a vehicle for Mr. Edward’s use, and (ii)$3,750 contributed by us to Mr. Edward’s SERP account.

(p)                                 Consistsof (i) $12,083 paid by us to lease a vehicle for Mr. Edward’s use, and (ii)$2,094 contributed by us to Mr. Edward’s 401(k) Plan account, and (iii) $3,167contributed by us to Mr. Edward’s SERP account.

(q)                                 Consistsof (i) $10,387 paid by us to lease a vehicle for Mr. Edward’s use, and (ii)$5,703 contributed by us for Mr. Edward’s 401(k) Plan account, and (iii) $2,129contributed by us to Mr. Edward’s SERP account.

(r)                                    Consistsof (i) $9,157 paid by us to lease a vehicle for Mr. Thomas’s use, and (ii)$3,700 contributed by us to Mr. Thomas’s SERP account.

(s)                                  Consistsof (i) $9,292 paid by us to lease a vehicle for Mr. Thomas’s use, and (ii)$1,943 contributed by us to Mr. Thomas’s 401(k) Plan account, and (iii) $5,100contributed by us to Mr. Thomas’s SERP account.

(t)                                    Consistsof (i) $8,224 paid by us to lease a vehicle for Mr. Thomas’s use, and (ii)$4,943 contributed by us to Mr. Thomas’s 401(k) Plan account, and (iii) $4,700contributed by us to Mr. Thomas’s SERP account.

(u)                                 Consistsof an option to purchase 5,000 shares of Holdings’ Class A Common  Stock, at $30.00 per share.  Based on the current fair market value ofthe underlying shares, the value of the options is $0.00.

(v)                                 Mr.Cavalieri resigned, effective April 30, 2003.

 

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**Option Grants in Last Fiscal Year**

 

The following table provides information with respectto stock options granted to our named executive officers during Fiscal 2003: 

 
|                |   | **Individual  Grants**                                       |   | **Potential  Realizable  Value At Assumed  Annual Rates of Stock  Price Appreciation for  Option Term** |   |
|---------------------|--------|--------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|
| **Name**            |   | **Number of  Securities  Underlying  Options/SARs  Granted** |   | **% of Total  Options  Granted to  Employees in  2003**                                                 |   | **Exercise  or  Base Price  per  Share** |   | **Expiration  Date** |   | **5%** |   | **10%** |   |
| Richard J.  Edwards |   | 5,000                                                        |   | 4.38                                                                                                    | %      | $ | 30.00 |   | July 1, 2012 |   | $ | 94,334.19 |   | $ | 239,061.37 |   |
| Christopher  Thomas |   | 5,000                                                        |   | 4.38                                                                                                    | %      | $ | 30.00 |   | July 1, 2012 |   | $ | 94,334.19 |   | $ | 239,061.37 |   |

 

**Aggregated Stock Option Exercises inLast Fiscal Year and Fiscal year-end Option Values**

 

The following table sets forth the number ofexercisable and unexercisable options and warrants held by each of the NamedExecutive Officers at March 29, 2003. No securities of ours or Holdings were acquired during Fiscal 2003 uponthe exercise of stock options by the Named Executive Officers.  All the numbers in the table set forth belowhave been adjusted for Holding’s 100 for 1 stock split effective March 4, 2002.

 

**FiscalYear-End Option and Warrant Values**

 
|                         |   | **Number of  Securities Underlying  Unexercised Options and  Warrants at Fiscal Year-End** |   | **Value of  Unexercised  In-the-Money  Options and Warrants at  Fiscal Year-End** |   |
|------------------------------|--------|--------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|
|                         |   | **Exercisable**                                                                            |   | **Unexercisable**                                                                 |   | **Exercisable** |   | **Unexercisable(a)** |   |
| Dr. Michael J.  Hartnett (b) |   | 725,063                                                                                    |   | 0                                                                                 |   | $ | 20,471,032 |   | $ | 0 |   |
| Anthony S.  Cavalieri        |   | 130,300                                                                                    |   | 0                                                                                 |   | $ | 323,925 |   | $ | 0 |   |
| Richard J.  Edwards          |   | 65,820                                                                                     |   | 1,700                                                                             |   | $ | 1,771,680 |   | $ | 0 |   |
| Christopher Thomas           |   | 29,800                                                                                     |   | 1,700                                                                             |   | $ | 658,790 |   | $ | 0 |   |

 

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(a)                                  Basedupon a per share price of $30.00.

(b)                                 Theoptions and warrants are held by Dr. Hartnett and by Hartnett FamilyInvestments, L.P.

 

There is no public market for any of the Holdings Common Stock underlyingthe options and warrants reflected on the table and the values are based on themost recent sale of Holdings’ equity securities which took place in July2002.  We cannot accurately determinewhat the current value of the Holdings Common Stock, or accordingly the optionsand warrants reflected above, as of a more recent date.

 

***Stock Option Plans***

 

•                                          ***1998 Stock Option Plan***

 

Effective, February 18, 1998, Holdings adopted theRoller Bearing Holding Company, Inc. 1998 Stock Option Plan.  The terms of the 1998 option plan providefor the grant of options to purchase up to 356,934.6 shares of Class A CommonStock to officers and employees of, and consultants (including members of theboard of directors) to, Holdings and its subsidiaries.  Options granted may be either incentivestock options (under Section 422 of the Internal Revenue Code) or non-qualifiedstock options. The 1998 option plan, which expires on December 31, 2008, is tobe governed by the board of directors of Holdings or a committee to which the Boarddelegates its responsibilities.

 

The purpose of the 1998 option plan is to provideincentives which will attract and retain highly competent persons as 

 

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officers, employees anddirectors of, and consultants to, Holdings and its subsidiaries, by providingthem opportunities to acquire shares of Class A Common Stock.

 

The exercise price of options granted under the 1998option plan shall be determined by Holdings’ Board, but in no event less than100% of the Fair Market Value (as defined in the 1998 option plan) of the ClassA Common Stock on the date of grant.

 

Options granted under the 1998 option plan may beexercised during the period set forth in the agreement pursuant to which theoptions are granted, but in no event more than ten years following grant.

 

Incentive stock options granted under the 1998 optionplan may only be granted to employees of Holdings and its subsidiaries andsubject to further limitations set forth in the 1998 option plan.

 

The number of shares of Class A Common Stock for whichoptions may be granted under the 1998 option plan shall be increased, and thenumber of shares for which outstanding options shall be exercisable, and theexercise price thereof, shall be adjusted upon the happening of stockdividends, stock splits, recapitalizations and certain other capital eventsregarding Holdings or the Class A Common Stock. Upon any merger, consolidationor combination of Holdings where shares of Class A Common Stock are converted intocash, securities or other property, outstanding options shall be converted intothe right to receive upon exercise the consideration as would have been payablein exchange for the shares of Class A Common Stock underlying such options hadsuch options been exercised prior to such event.

 

Options granted under the 1998 option plan are nottransferable by the holders thereof except by the laws of descent anddistribution.

 

Holdings’ Board has the right to establish such rulesand regulations concerning the 1998 option plan, and to make suchdeterminations and interpretations of the terms thereof as it deems necessaryor advisable.

 

As of June 25, 2003, there were outstanding options topurchase 121,410 shares of Class A Common Stock granted under the 1998 optionplan, all of which were exercisable.

 

***•******                                          2001Stock Option Plan***

 

During Fiscal 2002, Holdings adopted the RollerBearing Holding Company, Inc. 2001 Stock Option Plan.  The terms of the 2001 option plan provide for the grant ofoptions to purchase up to 458,269 shares of Class A Common Stock to officersand employees of, and consultants (including members of the Board of Directors)to, Holdings and its subsidiaries. Options granted may be either incentivestock options (under Section 422 of the Internal Revenue Code) or non-qualifiedstock options. The 2001 option plan, which expires in July, 2011, is to begoverned by Holdings’ Board, or a committee to which the Board delegates itsresponsibilities.

 

The purpose of the 2001 option plan is to provide incentiveswhich will attract and retain highly competent persons as officers, employeesand directors of, and consultants to, Holdings and its subsidiaries, byproviding them opportunities to acquire shares of Class A Common Stock.

 

The exercise price of options granted under the 2001option plan shall be determined by the Board, but in no event less than 100% ofthe Fair Market Value (as defined in the 2001 option plan) of the Class ACommon Stock on the date of grant.

 

Options granted under the 2001 option plan may beexercised during the period set forth in the agreement pursuant to which theoptions are granted, but in no event more than ten years following grant.

 

Incentive stock options granted under the 2001 optionplan may only be granted to employees of Holdings and its subsidiaries andsubject to further limitations set forth in the 2001 option plan.

 

The number of shares of Class A Common Stock for whichoptions may be granted under the 2001 option plan shall be increased, and thenumber of shares for which outstanding options shall be exercisable, and theexercise price thereof, shall be adjusted upon the happening of stockdividends, stock splits, recapitalizations and certain other capital eventsregarding Holdings or the Class A Common Stock. Upon any merger, consolidationor combination of Holdings where shares of Class A Common Stock are convertedinto cash securities or other property, outstanding options shall be convertedinto the right to receive upon exercise the consideration as would have beenpayable in exchange for the shares of Class A Common Stock underlying suchoptions had such options been exercised prior to such event.

 

Options granted under the 2001 option plan are nottransferable by the holders thereof except (i) by the laws of descent anddistribution, (ii) transfers to members of any holder’s immediate family (whichfor purposes of the 2001 option plan shall be limited to the participant’schildren, grandchildren and spouse), (iii) to one or more trusts for thebenefit of such 

 

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family members, or (iv)to partnerships or limited liability companies in which such family membersand/or trusts are the only partners or members; provided, that options may betransferred pursuant to sections (ii) through (iv) hereof only if the optionexpressly so provides, or as otherwise approved by the CEO or the board ofdirectors in their discretion.

 

Holdings’ Board has the right to establish such rulesand regulations concerning the 2001 option plan, and to make suchdeterminations and interpretations of the terms thereof as it deems necessaryor advisable.

 

As of June 25, 2003, there were outstanding options topurchase 86,596.5 shares of Class A Common Stock granted under the 2001 optionplan, 54,678 of which were exercisable.

 

***401(k) Plan***

 

We maintain the Roller Bearing Company of America401(k) Retirement Plan, or the 401(k) Plan, a plan established pursuant toSection 401(k) of the Internal Revenue Code, for the benefit of our non-unionemployees.  All non-union employees whohave completed six months of service with us are entitled to participate.  Subject to various limits, employees areentitled to defer up to 15% of their annual salary on a pre-tax basis and up toan additional 10% of their annual salary on an after-tax basis.  We previously matched 50% of an employee’spre-tax contribution up to 10% of annual salary.  Effective October 1, 2001, we suspended matching contributions tothe 401(k) Plan.  Employees vest in ourcontributions ratably over three years.

 

***Supplemental Retirement Plan***

 

Effective September 1, 1996, we adopted anon-qualified supplemental retirement plan, or SERP, for a select group ofhighly compensated and management employees designated by our Board ofDirectors.  The SERP allows eligibleemployees to elect to defer until termination of their employment the receiptof up to 25% of their current salary. We make contributions equal to the lesser of 50% of the deferrals or3.5% of the employee’s annual salary, which vest in full after three years ofservice following the effective date of the SERP.  Accounts are paid, either in a lump sum or installments, uponretirement, death or termination of employment.  Accounts are generally payable from our general assets althoughit is intended that we set aside in a “rabbi trust” invested in annuitycontracts amounts necessary to pay benefits. Employees’ rights to receive payments are subject to the rights of ourcreditors.

 

**Compensation Committee Interlocks andInsider Participation**

 

In fiscal 2003, there was no compensation committee ofHoldings’ or our Boards of Directors. No member of the Board was involved in an interlocking relationship orinsider participation with respect to the compensation committee of any otherentity.

 

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**Item 12.****                            SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

 

As of June 25, 2003, there were outstanding 103 sharesof our common stock, par value $.01 per share, all of which were owned byHoldings and pledged by Holdings to The Bank of New York for the benefit of theholders of the Discount Debentures.  Thefollowing table lists, as of June 25, 2003, all shares of Holdings Common Stockbeneficially owned by (i) each of our directors, (ii) each named executiveofficer, (iii) each person known by us to beneficially own more than 5% of theoutstanding shares of any class of common stock of Holdings at such date and(iv) all directors and executive officers of Holdings and ourselves as a group(11 persons).  As of June 25, 2003,there were 2,475,460.8 shares of Holdings Class A Common Stock and 100 sharesof Holdings Class B Common Stock outstanding. Additionally, as of such date, there were outstanding (a) warrants andoptions to purchase up to an additional 659,193.5 shares of Holdings Class ACommon Stock, of which options and warrants to purchase 628,925 shares ofHoldings Class A Common Stock were currently exercisable, (b) warrants andoptions to purchase 549,146 shares of Holdings Class B Common Stock, all ofwhich are currently exercisable, and (c) 240,000 shares of Class B ExchangeableConvertible Participating Preferred Stock of Holdings which are convertibleinto 738,558 shares of Class A Common Stock within 60 days of the day hereof.

 
| **Name(a)**                                         |   | **Class A  Common(b)** |   | **Percentage  of  Class A  Common** |   | **Class B  Common** |   | **Percentage  of Class B  Common** |   | **Percentage  of  Total Voting  Shares** |   |
|-----------------------------------------------------|--------|------------------------|--------|-------------------------------------|--------|---------------------|--------|------------------------------------|--------|------------------------------------------|--------|
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Dr. Michael J.  Hartnett                            |   | 206,690                | (c)    | 7.71                                | %      | 549,246             | (d)    | 100                                | %      | 23.39                                    | %(e)   |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Michael S.  Gostomski                               |   | 0                      |   | *                                   |   | 0                   |   | *                                  |   | *                                        |   |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Anthony S.  Cavalieri                               |   | 13,030                 | (f)    | *                                   |   | 0                   |   | *                                  |   | *                                        |   |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Richard J.  Edwards                                 |   | 65,820                 | (f)    | 2.59                                | %      | 0                   |   | *                                  |   | 2.59                                     | %      |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| William P.  Killian(h)                              |   | 6,003.7                | (f)    | *                                   |   | 0                   |   | *                                  |   | *                                        |   |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Kurt Larsen(i)                                      |   | 18,630                 | (j)    | *                                   |   | 0                   |   | *                                  |   | *                                        |   |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Robert Anderson                                     |   | 8,170                  | (g)    | *                                   |   | 0                   |   | *                                  |   | *                                        |   |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Richard Crowell                                     |   | 8,170                  | (g)    | *                                   |   | 0                   |   | *                                  |   | *                                        |   |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Christopher  Thomas                                 |   | 34,800                 | (g)    | 1.39                                | %      | 0                   |   | *                                  |   | 1.39                                     | %      |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Edward J.  Trainer                                  |   | 2,863.4                |   | *                                   |   | 0                   |   | *                                  |   |                                     |   |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Michael Stone(k)                                    |   | 3,076,050              | (l)    | 96.63                               | %      | 0                   |   | *                                  |   | 96.62                                    | %      |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Whitney RBHC  Investor, LLC(m)                      |   | 3,076,050              | (n)    | 96.63                               | %      | 0                   |   | *                                  |   | 96.62                                    | %      |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| Hartnett Family  Investments, L.P.                  |   | 166,667                | (o)    | 6.31                                | %      | 0                   |   | *                                  |   | 6.31                                     | %      |
|                                                |   |                   |   |                                |   |                |   |                               |   |                                     |   |
| All directors  and officers as a group (11 persons) |   | 3,440,127.1            |   | 97.35                               | %      | 549,246             |   | 100                                | %      | 97.70                                    | %      |

 

----

* Less than 1%

 

(a)          Except where otherwiseindicated, the address for each stockholder is c/o Roller Bearing Company ofAmerica, Inc., 60 Round Hill Road, P.O. Box 430, Fairfield, Connecticut 06824.

 

(b)         All share numbers havebeen adjusted for the 100 for 1 stock split effective as of March 4, 2002.

 

(c)          Consists of (i) optionsgranted to Dr. Hartnett under the 1998 Stock Option Plan to purchase up to9,250 shares of Holdings Class A Common Stock, (ii) 10,000 shares of Class BExchangeable Convertible Participating Preferred Stock of Holdings, which arecurrently convertible into 30,773 shares of Class A Common Stock owned by Dr.Hartnett, and (iii) warrants to purchase 166,667 shares of Holdings Class ACommon Stock owned by Hartnett Family Investments, L.P.

 

35

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(d)         Consists of (i) 100shares of Holdings Class B Common Stock, and (ii) warrants to purchase up to549,146 shares of Holdings Class B Common Stock.

 

(e)          The 100 shares of ClassB Common Stock entitle Dr. Hartnett to 51% of the voting power of all votingsecurities of Holdings.

 

(f)            Consists of shares ofHoldings Class A Common Stock issuable upon exercise of stock options that arecurrently exercisable or exercisable within 60 days of June 25, 2003.

 

(g)         Consists of shares ofHoldings Class A Common Stock issuable upon exercise of stock options andwarrants that are currently exercisable or exercisable within 60 days of June25, 2003.

 

(h)         Consists of shares ofHoldings Class A Common Stock issuable upon exercise of stock options currentlyexercisable or exercisable within 60 days of June 25, 2003.  Mr. Killian maintains his address at Unit1801/1802, 888 Boulevard of the Arts, Sarasota, Florida 34236.

 

(i)             Mr. Larsen maintainshis address at P.O. Box 683130, Park City, Utah 84068.

 

(j)             Includes (i) 8,120shares of Holdings Class A Common Stock issuable upon exercise of stock optionsthat are currently exercisable or exercisable within 60 days of June 25, 2003,(ii) 5,210 shares of Class A Common Stock held by Kristen Larsen, the wife ofMr. Larsen, which may be deemed to be owned by Mr. Larsen and (iii) 5,300shares of Class A Common Stock held by the Aurora Capital Partners 401(k) Planfor the benefit of Mr. Larsen.

 

(k)          Mr. Stone maintains hisaddress at c/o Whitney & Co., 177 Broad Street, Stamford, Connecticut,06901.

 

(l)             Consists of (i)2,368,265 shares of Class A Common Stock and (ii) 230,000 shares of Class BConvertible Participating Preferred Stock of Holdings, which are currentlyconvertible into 707,785 shares of Class A Common Stock, owned by Whitney RBHCInvestor, LLC and Whitney V, L.P.  Tothe extent that Mr. Stone participates in the process to vote or to dispose ofany shares or warrants held by Whitney RBHC Investor, LLC, he may be deemedunder such circumstances for the purposes of Section 13 of the Exchange Act tobe the beneficial owner of such securities. Mr. Stone disclaims beneficial ownership of securities held by WhitneyRBHC Investor, LLC.

 

(m)       Whitney RBHC Investor, LLCmaintains its address at 177 Broad Street, Stamford, Connecticut, 06901.

 

(n)         Consists of (i) 2,368,265shares of Class A Common Stock and (ii) 230,000 shares of Class B ConvertibleParticipating Preferred Stock of Holdings, which are currently convertible into707,785 shares of Class A Common Stock, owned by Whitney RBHC Investor, LLC andWhitney V, L.P.

 

(o)         Consists of warrants topurchase 166,667 shares of Holdings Class A Common Stock.

 

**Change in Control Arrangements**

 

Pursuant to the Amended and Restated Stockholders’Agreement by and among Holdings, Dr. Hartnett, his affiliates and Whitney andits Affiliates, the parties to the Stockholders’ Agreement have the right totake certain actions, including a forced sale of Holdings.  See Item 13. “Certain Relationships andRelated Transactions-Amended and Restated Stockholders’ Agreement.”

 

36

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**Item 13.****                            CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

Set forth below is a summary of certain agreements andarrangements, as well as other transactions between us and related partieswhich have taken place during our most recent fiscal year.

 

**Sale of Holdings Class B ExchangeableConvertible Participating Preferred Stock**

 

On July 29, 2002, Dr. Hartnett purchased 10,000 sharesand Whitney, through an affiliate, purchased 230,000 shares, of Holdings ClassB Exchangeable Convertible Participating Preferred Stock in exchange for grossproceeds of $24.0 million.  Inconnection with the purchase, Holdings paid a fee of $750,000 to Whitney and weamended the terms of our management services agreement with Whitney.  Following the closing of the sale, Holdingsutilized the proceeds of the sale and certain of our cash on hand to repurchaseapproximately $30.4 million in principal amount at maturity of its DiscountDebentures.  This repurchase satisfiedHoldings’ obligation to make a scheduled redemption payment relating to suchdebt in December 2002.  For moreinformation on Whitney’s beneficial ownership of Holdings’ equity securitiessee “Item 12.  Security Ownership ofCertain Beneficial Owners and management.”

 

The holders of Holdings Class B Preferred Stock areentitled to an 8% per annum accumulating dividend and are further entitled toparticipate in any dividends paid to the holders of shares of Holdings CommonStock.  The Class B Preferred Stock issubject to conversion by Holdings or exchange by the holders thereof.  In either situation, each share of Class BPreferred would yield a number of shares of Holdings Class A Common Stockdetermined by reference to a formula set forth in Holdings’ Amended and RestatedCertificate of Incorporation (which includes anti-dilution protections), anumber of shares of Holdings’ Class C Redeemable Preferred Stock alsodetermined by reference to a formula set forth in Holdings’ Amended andRestated Certificate of Incorporation and one share of Class D PreferredStock.  Any holders of Class C PreferredStock would be entitled to an 8% per annum accumulating dividend.   The Class C Preferred Stock is subject toredemption by Holdings at its option but is not subject to mandatoryredemption.  The Class D Preferred Stockentitles the holders thereof, upon liquidation, to a payment determined byreference to a formula set forth in Holdings’ Amended and Restated Certificateof Incorporation.

 

**Amended and Restated ShareholdersAgreement**

 

On July 29, 2002, in connection with the investment inHoldings by Dr. Hartnett and Whitney, Holdings entered into an Amended andRestated Stockholders’ Agreement with Dr. Hartnett, Hartnett FamilyInvestments, L.P., or the Hartnett Partnership, and certain of Whitney’saffiliates.  The terms of the Amendedand Restated Stockholders’ Agreement contain the following provisions:

 

***•******                                          TransferRestrictions***

 

The parties to the agreement agreed to certainrestrictions with respect to the sale, transfer or other disposition ofHoldings’ capital stock, including: granting Whitney a right of first offer and certain tag along rightswith respect to shares transferred by Dr. Hartnett, and, subject to certainconditions and time limitations, Dr. Hartnett and Whitney have a right tocompel the sale of Holdings or its assets.

 

***•******                                          Right of FirstOffer and Participation Right***

 

The parties to the Amended and Restated Stockholders’Agreement, including Holdings, agreed to certain restrictions with respect tothe issuance of new shares of capital stock of Holdings, including thefollowing:

 

*Rightof First Offer*.  Theparties agreed that, so long as Whitney and its affiliates own at least 20% ofthe Holdings Common Stock that they owned on July 29, 2002, any issuance of newshares of capital stock of Holdings shall be subject to a right of first offerin favor of Whitney.

 

*ParticipationRights*.  Subject tocertain exceptions, if Whitney chooses not to exercise its right of firstoffer, and Holdings issues new shares, Whitney and Dr. Hartnett shall each havethe right to purchase new shares of the same class and series issued byHoldings, at the same price per share and upon the same terms andconditions.  Each party may purchase anumber of shares to maintain its ownership percentage prior to such issuance ofnew shares.  If the exercise by Whitneyof such right would cause Whitney’s voting power to exceed 49.9% of Holdings’Common Stock voting power, then the portion of the purchased securities soexceeding such 49.9% shall be replaced with other non-voting securities ofHoldings.

 

*Rightof First Offer on Subordinated Debt*.  So long as Whitney and its affiliates own atleast 25% of the Common 

 

37

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Stock of Holdings thatthey owned on July 29, 2002, Whitney shall have the right of first offer withrespect to any issuance of subordinated debt by Holdings.

 

***•******                                          RegistrationRights***

 

*PiggybackRegistration*. Whenever Holdings proposes to register a public offering of its commonstock, upon any request by Dr. Hartnett or Whitney, Holdings is required toinclude their shares in the offering.

 

*DemandRegistration*. Commencing on the earlier of (i) 6 months after an effective date of aninitial public offering of the Holdings Common Stock and (ii) July 29, 2005,the holders of the majority of shares owned by Whitney shall have the right, ontwo occasions, to demand that Holdings prepare and file with the Securities andExchange Commission a registration statement to permit the public offering ofthe shares owned by those parties demanding such registration.

 

Holdings will bear all registration expenses, exceptunderwriting discounts and selling commissions, incurred in connection with theregistrations described above.  Holdingshas agreed with Dr. Hartnett and Whitney to indemnify each other againstcertain liabilities, including liabilities under federal and state securitieslaws.

 

***•******                                          Special WhitneyPrivileges***

 

Pursuant to the terms of the Amended and RestatedStockholders’ Agreement,Whitney has a right of first offer and certain tagalong rights with respect to shares transferred by Hartnett and is entitled toapprove certain actions by us, Holdings and our subsidiaries.  Subject to certain conditions and timelimitations, Hartnett and Whitney each have a right to compel the sale ofHoldings or its assets.  In addition,until January 1, 2007, each of  Hartnettand Whitney is entitled to elect 4 and 2 members, respectively, to serve alongwith William Killian on Holdings’ Board of Directors.  Thereafter, each of Hartnett and Whitney is entitled to elect 3and 2 members, respectively, to serve along with one other person mutuallyagreeable to Killian, Hartnett, and Whitney.

 

***•******                                          Amendment andTermination***

 

The Amended and Restated Stockholders’ Agreement maybe terminated and its terms may be amended at any time with the consent of allthe parties to the agreement.

 

**Amended and Restated ManagementServices Agreement**

 

On July 29, 2002, in connection with the investment inHoldings by Dr. Hartnett and Whitney, we entered into an Amended and RestatedManagement Services Agreement with Whitney. Pursuant to the agreement, Whitney shall provide certain services to usin exchange for an annual advisory fee of approximately $500,000 (subject toreduction upon the occurrence of certain circumstances).  In addition, we paid Whitney a one-time feeof approximately $800,000.

 

**Retirement of Foreign Debt**

 

In connection with the retirement of foreign debt inFebruary 2003, which is described in more detail in Item 1. Business - Historyand recent Developments – Certain Payments; Amendment to Senior CreditFacility.”  Holdings raised capital fromDr. Hartnett and Whitney.  On February6, 2003, Dr. Hartnett and Whitney bought an aggregate of 1,008.41 shares ofHoldings’ Class A Preferred Stock for $3 per share, or an aggregate purchaseprice of approximately $3.0 million. The Class A Preferred Stock is the most senior of Holdings’ capitalstock in terms of liquidation preference and is entitled to an accrued dividendat 8% per annum.  In connection with thesale of the Class A Preferred Stock, we paid to Whitney closing fees in theamount of  $200,000, and reimbursedWhitney for expenses of approximately $35,000 incurred in connection with thepurchase.  Pursuant to the terms of thePurchase Agreement for the Class A Common Stock, on February 10, 2003, Holdingsexercised its option to repurchase such stock for the purchase price plus allaccrued dividends.  Accordingly, noClass A Preferred Stock is outstanding as of the date hereof.  This transaction was unanimously approved bythe disinterested members of our Board of Directors of and Holdings’ Board ofDirectors and the terms thereof were unanimously determined by such Boards ofDirectors to have been no less favorable to us and Holdings than those thatcould be obtained on the date thereof in arm’s-length dealings with a personwho was not an affiliate of ours or Holdings.

 

38

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**Board Member Relationships**

 

Mr. Stone, a member of our Board of Directors, directsthe fund management activities of Whitney, which owns shares of our capitalstock.  See Item 12. “Security Ownershipof Certain Beneficial Owners and Management.”

 

**Item 14.*****                           *CONTROLS AND PROCEDURES**

 

Our Chief Executive Officer and our acting ChiefFinancial Officer have concluded, based on their evaluation within 90 days ofthe filing date of this Annual Report on Form 10-K, that our disclosurecontrols and procedures are effective to ensure that information required to bedisclosed in the reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported, within the time periods specifiedin the Securities and Exchange Commission’s rules and forms.  There have been no significant changes inour internal controls or in other factors that could significantly affect thesecontrols subsequent to the date of the previously mentioned evaluation.

 

**PART IV**

** **

**Item 15.****                            EXHIBITS, FINANCIAL STATEMENTSCHEDULES AND REPORTS ON FORM 8-K**

 

(a)               Thefollowing documents are filed as part of this Annual Report on Form 10-K: 

 
| (1)    |   | Financial Statements:                                                                                                                                                                                                                                                    |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                          |
|   |   | (i)                                                                                                                                                                                                                                                                           | Report of Independent Auditors – Ernst & Young  LLP. |
|   |   | (ii)                                                                                                                                                                                                                                                                          | Report of Independent Auditors – Arthur Andersen LLP |
|   |   | (iii)                                                                                                                                                                                                                                                                         | Consolidated Balance Sheets as of March 29, 2003 and  March 30, 2002. |
|   |   | (iv)                                                                                                                                                                                                                                                                          | Consolidated Statements of Operations for the Years  Ended March 29, 2003, March 30, 2002 and March 31, 2001. |
|   |   | (v)                                                                                                                                                                                                                                                                           | Consolidated Statements of Stockholders’ Equity  (Deficit) and Comprehensive Income for the Years Ended March 29, 2003, March  30, 2002 and March 31, 2001. |
|   |   | (vi)                                                                                                                                                                                                                                                                          | Consolidated Statements of Cash Flows for the Years  March 29, 2003, March 30, 2002 and March 31, 2001. |
|   |   | (vii)                                                                                                                                                                                                                                                                         | Notes to Consolidated Financial Statements. |
|   |   |                                                                                                                                                                                                                                                                          |
| (2)    |   | Financial Statement Schedules:                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                          |
|   |   | Schedule II – Valuation and Qualifying Accounts                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                          |
|   |   | Consolidated financial statement schedules not filed  herein have been omitted either because they are not applicable or the  required information is presented in the notes to our consolidated financial  statements included elsewhere in this Annual Report on Form 10-K. |
|   |   |                                                                                                                                                                                                                                                                          |
| (3)    |   | Exhibits:                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                          |
|   |   | The exhibits that are filed as part of this Annual  Report on Form 10-K or incorporated by reference herein are set forth in the  accompanying Exhibit Index.                                                                                                                 |

 

(b)              Reportson Form 8-K:

 
| (1)    |   | Current Report on Form 8-K filed on April 28, 2003;  and |
|--------|--------|----------------------------------------------------------|
|   |   |                                                     |
| (2)    |   | Current Report on Form 8-K filed on May 24, 2003.        |

 

(c)               Exhibits

 
|   |   | The exhibits that are filed as part of this Annual  Report on Form 10-K or incorporated by reference herein are set forth in the  accompanying Exhibit Index. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

39

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Registrant has duly caused this AnnualReport on Form 10-K report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|         | **ROLLER  BEARING COMPANY OF AMERICA, INC.** |
|--------------|----------------------------------------------|
|         |                                         |
|         |                                         |
| July 9, 2003 | By:                                          | /s/ Michael J. Hartnett |
|         |                                         | Michael J. Hartnett  President and Chief Executive Officer  Chairman of the Board of Directors  (Principal Executive Officer) |
|         |                                         |   |
| July 9, 2003 | By:                                          | /s/ Jane R. Bohrer |
|         |                                         | Jane R. Bohrer |
|         |                                         | Acting Chief Financial Officer and Corporate  Controller  (Principal Financial and Accounting Officer) |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this Annual Report on Form10-K has been signed below by the following persons on behalf of the Registrantand in the capacities and on the dates indicated.

 
| July 9, 2003 | By:    | /s/ Michael J. Hartnett                                                                                |
|--------------|--------|--------------------------------------------------------------------------------------------------------|
|         |   | Michael J. Hartnett  Chairman of the Board of Directors,  President and Chief Executive Officer        |
|         |   |                                                                                                   |
|         |   |                                                                                                   |
| July 9, 2003 | By:    | /s/ Jane R. Bohrer                                                                                     |
|         |   | Jane R. Bohrer                                                                                         |
|         |   | Acting Chief Financial Officer and Corporate  Controller  (Principal Financial and Accounting Officer) |
|         |   |                                                                                                   |
| July 9, 2003 | By:    | /s/ Kurt B. Larsen                                                                                     |
|         |   | Kurt B. Larsen  Director                                                                               |
|         |   |                                                                                                   |
| July 8, 2003 | By:    | /s/ Robert Anderson                                                                                    |
|         |   | Robert Anderson  Director                                                                              |
|         |   |                                                                                                   |
|         |   |                                                                                                   |
| July 1, 2003 | By:    | /s/ Richard R. Crowell                                                                                 |
|         |   | Richard R. Crowell  Director                                                                           |
|         |   |                                                                                                   |
| July 9, 2003 | By:    | /s/ Michael J. Stone                                                                                   |
|         |   | Michael J. Stone  Director                                                                             |
|         |   |                                                                                                   |
| July 3, 2003 | By:    | /s/ William P. Killian                                                                                 |
|         |   | William P. Killian  Director                                                                           |

 

40

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**EXHIBITSAND FINANCIAL SCHEDULES**

** **

                (a)           Exhibits.
| **Exhibit  Number** |   | **Description  of Document**                                                                                                                                                                  |
|---------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1*                |   | Amended and Restated  Certificate of Incorporation, dated June 23, 1997, of the Company.                                                                                                      |
| 3.2**               |   | Bylaws of the Company.                                                                                                                                                                        |
| 3.2(a)***           |   | Amendment to the Bylaws of the  Company.                                                                                                                                                      |
| 4.1**               |   | Indenture, dated as of June 15,  1997 between the Company and the United States Trust Company of New York with  forms of Outstanding Note and Exchange Note.                                  |
| 4.1(a)**            |   | Supplemental Indenture, dated  as of August 8, 1997 by and between Bremen and United States Trust Company of  New York.                                                                       |
| 4.2**               |   | Global Note Issued to Depository Trust Co., duly authenticated by the  Company and United States Trust Company of New York.                 |
| 4.3***              |   | Stock Option Plan of Holdings,  dated as of February 18, 1998 with form of agreement.                                                                                                         |
| 4.4***              |   | Form of Stock Transfer  Restriction Agreement between Holdings and certain of its stockholders.                                                                                               |
| 4.5***              |   | Form of Amended and Restated  Warrant of Holdings.                                                                                                                                            |
| 4.6++               |   | 2001 Stock Option Plan of  Holdings, dated July, 2001, with form of agreement.                                                                                                                |
| 4.7#                |   | Amended and Restated  Certificate of Incorporation of Holdings.                                                                                                                               |
| 10.1**              |   | Lease between General Sullivan  Group, Inc. and RBC Bearings, dated July 11, 1995, for West Trenton, New  Jersey premises.                                                                    |
| 10.2**              |   | Lease between Industrial  Development Group and the Company, dated March 12, 1996 for Waterbury, Connecticut  premises.                                                                       |
| 10.3**              |   | Executed counterpart of the  Pledge and Security Agreement, dated as of September 1, 1994, between the  Company, Heller Financial, Inc. and Mark Twain Bank.                                  |
| 10.4**              |   | Loan Agreement, dated as of  September 1, 1994, between the South Carolina Job-Economic Development  Authority and the Company with respect to the Series 1994A Bonds.                        |
| 10.5#               |   | Agreement between Bremen,  Indiana Plant of SKF USA, Inc. and International Union Automobile, Aerospace  and Agricultural Workers of America, U.A.W., Local 1368, effective August 10,  2002. |
| 10.6**              |   | Trust Indenture, dated as of  September 1, 1994, between the South Carolina Job-Economic Development  Authority and Mark Twain Bank, as Trustee, with respect to the Series 1994A  Bonds.     |

 

41

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| 10.7**      | Loan  Agreement, dated as of September 1, 1994, between the South Carolina  Job-Economic Development Authority and the Company, with respect to the  Series 1994B Bonds.                                                     |
|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8**      | Trust  Indenture, dated as of September 1, 1994, between the South Carolina  Job-Economic Development Authority and Mark Twain Bank, as Trustee, with  respect to the Series 1994B Bonds.                                    |
| 10.9#       | Collective  Bargaining Agreement between Heim, the International Union, United  Automobile, Aerospace and Agricultural Implement Workers of America, U.A.W.,  and Amalgamated Local 376, U.A.W., effective January 31, 2002. |
| 10.10#      | Nice Union Agreement,  between Nice Ball Bearings, Inc. and United Steelworkers of America, Local  6816-12, effective October 23, 1999.                                                                                      |
| 10.11#      | Collective  Bargaining Agreement between the Company and the International Union U.A.W.  and its Local 502, effective July 1, 2001.                                                                                          |
| 10.11(a)#   | Collective  Bargaining Agreement between Tyson Bearing Company, Inc. and the United  Steelworkers of America, AFL-CIO, Local 7461-01, effective March 30, 2002.                                                              |
| 10.12++     | Employment  Agreement, effective as of December 18, 2000, between the Company and Michael  J. Hartnett, Ph.D.                                                                                                                |
| 10.13#      | Amended  and Restated Promissory Note, dated as of December 15, 2000, for $500,000, made  by Michael J. Hartnett, Ph.D. and payable to the Company                                                                           |
| 10.14**     | Tax  Sharing Agreement effective as of June 23, 1997, by and among Holdings, the  Company, ITB, LPP and Nice.                                                                                                                |
| 10.15**     | Asset  Purchase Agreement by and among SKF USA Inc., Bremen and the Company, dated  as of August 8, 1997.                                                                                                                    |
| 10.16***    | Amendment  to the Letter of Credit Agreement, dated as of June 23, 1998, between the  Company and Heller Financial, Inc.                                                                                                     |
| 10.17***    | Agreement  of Lease, dated as of November 1, 1964, between Bremen, Inc. and SKF Industries,  Inc. with Assignment and Agreement of Lease, dated August 8, 1997, between  SKF USA, Inc. and Bremen Bearings.                  |
| 10.18† | Loan  Agreement, dated as of April 1, 1999, by and between California  Infrastructure and Economic Development Bank and the Company.                                                                                         |
| 10.19† | Indenture  Of Trust, dated as of April 1, 1999, between California Infrastructure and  Economic Development Bank and U.S. Bank Trust National Association, as  Trustee.                                                      |
| 10.20† | Remarketing  Agreement, dated as of April 1, 1999, by and between The Chapman Company and  the Company.                                                                                                                      |

 

42

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| 10.21†       | Tax  Regulatory Agreement, dated as of April 1, 1999, by and among California  Infrastructure and Economic Development Bank, U.S. Bank Trust National  Association, as Trustee, and the Company.                                       |
|-------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.22†† | Lease  Agreement, dated as of December 17, 1999, between Schaublin SA and RBC  Schaublin SA.                                                                                                                                           |
| 10.23#            | Asset  Purchase Agreement, dated September 28, 2001, by and between OBB Acquisition  Corp. and Congress Financial Corporation (Southwest).                                                                                             |
| 10.24#            | Asset  Purchase Agreement, dated September 28, 2001, by and between OBB Acquisition  Corp. and Prime Financial Corporation.                                                                                                            |
| 10.25++           | Credit  Agreement, dated May 30, 2002, by and among the Company, certain of its  domestic subsidiaries, General Electric Capital Corporation, as agent and  lender and GECC Capital Markets Group, Inc.                                |
| 10.26++           | Security  Agreement, dated May 30, 2002, by and between the Company, certain of its  domestic subsidiaries, General Electric Capital Corporation, as agent and  Lender.                                                                |
| 10.27++           | Pledge  Agreement, dated May 30, 2002, by and between the Company, certain of its  domestic subsidiaries, General Electric Capital Corporation, as agent and  Lender.                                                                  |
| 10.28++           | Preferred Stock  Purchase Agreement, dated as of July 29, 2002, by and among Holdings, the  Company, Whitney V, L.P. and Michael J. Hartnett, Ph.D.                                                                                    |
| 10.29++           | Amended and Restated  Stockholders’ Agreement, dated July 29, 2002, by and among Holdings, Michael  J. Hartnett, Ph.D., Hartnett Family Investments, L.P., Whitney RBHC Investor,  LLC and Whitney V, L.P.                        |
| 10.30++           | Amended and Restated  Management Services Agreement, dated July 29, 2002, by and between the  Company and Whitney & Co.                                                                                                            |
| 10.31#            | Preferred Stock  Purchase Agreement, dated February 6, 2003, by and among Holdings, the  Company, Whitney V, L.P. and Michael J. Hartnett, Ph.D.                                                                                       |
| 10.32#            | Second Amended and  Restated Stockholders’ Agreement, dated as of February 6, 2003, by and among  Holdings, Michael J. Hartnett, Ph.D., Hartnett Family Investments, L.P.,  Whitney RBHC Investor, LLC and Whitney V, L.P.        |
| 10.33#            | Subscription Agreement,  dated February 6, 2003, by and between the Company and Holdings.                                                                                                                                              |
| 10.34#            | Limited Waiver and  Amendment No. 1 to Credit Agreement, dated February 5, 2003, by and among the  Company, General Electric Capital Corporation, the other Credit Parties  signatory thereto and the other Lenders Signatory thereto. |

 

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| 10.35#                 | Amended and Restated  Credit Agreement, dated June 19, 2003, by  and among the Company, certain of its subsidiaries, General Electric Capital  Corporation, as agent and lender and GECC Capital Markets Group, Inc. |
|------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 16.1††† | Letter  of Arthur Andersen LLP regarding Change in Certifying Accountant.                                                                                                                                            |
| 21.1#                  | Subsidiaries  of the Company                                                                                                                                                                                         |
| 99.1#                  | Certification Pursuant to 18 U.S.C. Section 1350  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief  Executive Officer, Dr. Michael J. Hartnett.                                            |
| 99.2#                  | Certification  Pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Acting Chief Financial Officer, Jane Bohrer.                                                 |

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| *                  |   | Incorporated by reference to the Registration  Statement on Form S-4, filed with the Securities and Exchange Commission  by the Company and its subsidiaries on August 8, 1997 (File no.  333-33085).                 |
|--------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **                 |   | Incorporated by reference to Amendment No. 1 to  the Registration Statement on Form S-4, filed with the Securities and  Exchange Commission by the Company and its subsidiaries on October 31, 1997  (File no. 333-33085). |
| ***                |   | Incorporated by reference to the Company’s Annual  Report on Form 10-K405 for the year ended March 28, 1998 (File no.  333-33085).                                                                                         |
| †             |   | Incorporated by reference to the Company’s Quarterly  Report on Form 10-Q for the quarter ended June 26, 1999 (File no. 333-33085).                                                                                        |
| ††       |   | Incorporated by reference to the Company’s Quarterly  Report on Form 10-Q for the quarter ended December 25, 1999 (File no.  333-33085).                                                                                   |
| ††† |   | Incorporated by reference to the Company’s Current  Report on Form 8-K dated May 23, 2002.                                                                                                                                 |
| +                  |   | Incorporated by reference to the Company’s Annual  Report on Form 10-K for the year ended March 31, 2001 (File no. 333-33085).                                                                                             |
| ++                 |   | Incorporated by reference to the Company’s Annual  Report on Form 10-K for the year ended March 30, 2002 (File no. 333-33085).                                                                                             |
| #                  |   | Filed herewith.                                                                                                                                                                                                                 |

 

 

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**CERTIFICATIONS**

 

I, Michael J. Hartnett, President and ChiefExecutive Officer of Roller Bearing Company of America, Inc., certify that:

 

1.                                       Ihave reviewed this annual report on Form 10-K of Roller Bearing Company ofAmerica, Inc. (the “registrant”);

 

2.                                       Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

(a)                                  designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this annual report is being prepared;

 

(b)                                 evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

(c)                                  presentedin this annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

(a)                                  allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b)                                 anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this annualreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

Date:  July 9, 2003

 
| By:    | /s/ Michael J. Hartnett               |   |
|--------|---------------------------------------|--------|
|   | Michael J. Hartnett                   |
|   | President and Chief Executive Officer |
|   | Chairman of the Board of Directors    |
|   | (Principal Executive Officer)         |

 

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**CERTIFICATIONS**

 

I, Jane R. Bohrer, Acting Chief FinancialOfficer and Corporate Controller of Roller Bearing Company of America, Inc.,certify that:

 

1.                                       Ihave reviewed this annual report on Form 10-K of Roller Bearing Company ofAmerica, Inc. (the “registrant”);

 

2.                                       Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

(a)                                  designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this annual report is being prepared;

 

(b)                                 evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

(c)                                  presentedin this annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

(a)                                  allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b)                                 anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this annualreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:  | July 9, 2003                                             |   |
|--------|----------------------------------------------------------|--------|
|   |                                                     |   |
| By:    | /s/ Jane R. Bohrer                                       |   |
|   | Jane R. Bohrer                                           |
|   | Acting Chief Financial Officer and Corporate  Controller |
|   | (Principal Financial Officer)                            |

 

46

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**SUPPLEMENTALINFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THEACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12OF THE ACT.**

 

No annual report to security holders covering theregistrant’s last fiscal year has been sent to security holders.  No proxy statement, form of proxy or otherproxy soliciting material has been sent to more than 10 of the registrant’ssecurity holders with respect to any annual or other meeting of security holders.

 

47

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**SCHEDULE II****Valuation and Qualifying Accounts(dollars in thousands)**

 

For the year ended March 29, 2003

 
| **Column A**          |   | **Column B**                         |    | **Column C**                        |   | **Column D**                    |       | **Column E**   |       |
|-----------------------|--------|--------------------------------------|---------|-------------------------------------|--------|---------------------------------|------------|----------------|------------|
|                  |   |                                 |    | **Additions**                       |   |                            |       |           |       |
| **Description**       |   | **Balance at  beginning of  period** |    | **Charged to  Costs and  Expenses** |   | **Charged to  other  accounts** |       | **Deductions** |       | **Balance  at end of  period** |   |
| **Bad  Debt Reserve** |   | **$**                                | **621** | ** **                          | **$**  | **123**                         | ** ** | **$**          | **—** | ** ** | **$** | **—** | ** ** | **$** | **744** | ** ** |
|                       |        |                                      |         |                                     |        |                                 |            |                |            |  |  |  |  |  |  |  |

 

For the year ended March 30, 2002

 
| **Column A**          |   | **Column B**                         |    | **Column C**                        |   | **Column D**                    |       | **Column E**   |       |
|-----------------------|--------|--------------------------------------|---------|-------------------------------------|--------|---------------------------------|------------|----------------|------------|
|                  |   |                                 |    | **Additions**                       |   |                            |       |           |       |
| **Description**       |   | **Balance at  beginning of  period** |    | **Charged to  Costs and  Expenses** |   | **Charged to  other  accounts** |       | **Deductions** |       | **Balance  at end of  period** |   |
| **Bad  Debt Reserve** |   | **$**                                | **257** | ** **                          | **$**  | **364**                         | ** ** | **$**          | **—** | ** ** | **$** | **—** | ** ** | **$** | **621** | ** ** |
|                       |        |                                      |         |                                     |        |                                 |            |                |            |  |  |  |  |  |  |  |

 

For the year ended March 31, 2001

 
| **Column A**          |   | **Column B**                          |    | **Column C**                        |   | **Column D**                    |       | **Column E**   |       |
|-----------------------|--------|---------------------------------------|---------|-------------------------------------|--------|---------------------------------|------------|----------------|------------|
|                  |   |                                  |    | **Additions**                       |   |                            |       |           |       |
| **Description**       |   | **Balance at  beginning of   period** |    | **Charged to  Costs and  Expenses** |   | **Charged to  other  accounts** |       | **Deductions** |       | **Balance  at end of  period** |   |
| **Bad  Debt Reserve** |   | **$**                                 | **279** | ** **                          | **$**  |                            | ** ** | **$**          | **—** | ** ** | **$** | **22** | ** ** | **$** | **257** | ** ** |
|                       |        |                                       |         |                                     |        |                                 |            |                |            |  |  |  |  |  |  |  |

 

48

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