RBC Bearings INC (RBC)

Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations

All dollar amounts in this
MD&A presentation are stated in millions except for per share amounts.

Cautionary Statement as to Forward-Looking
Information

The objective of the discussion
and analysis is to provide material information relevant to an assessment of the financial condition and results of operations of the
Company including an evaluation of the amounts and certainty of cash flows from operations and from outside sources.

The information in this discussion
contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934 which are subject to the “safe harbor” created by those sections. All statements, other
than statements of historical facts, included in this quarterly report on Form 10-Q regarding our strategy, future operations, future
financial position, future revenues, projected costs, prospects and plans and objectives of management are “forward-looking statements”
as the term is defined in the Private Securities Litigation Reform Act of 1995.

The words “anticipates,” “believes,” “estimates,”
“expects,” “intends,” “may,” “plans,” “projects,” “will,” “would”
and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these
identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you
should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions
and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties
that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation:
(a) the bearing and engineered products industries are highly competitive, and this competition could reduce our profitability or limit
our ability to grow; (b) the loss of a major customer, or a material adverse change in a major customer’s business, could result
in a material reduction in our revenues, cash flows and profitability; (c) weakness in any of the industries in which our customers operate,
as well as the cyclical nature of our customers’ businesses generally, could materially reduce our revenues, cash flows and profitability;
(d) future reductions or changes in U.S. government spending could negatively affect our business; (e) fluctuating supply and costs of
subcomponents, raw materials and energy resources, could materially reduce our revenues, cash flows and profitability; (f) our results
could be impacted by U.S. governmental trade policies and tariffs relating to the components and supplies we import from foreign vendors
and foreign governmental trade policies and tariffs relating to our finished goods exported to other countries; (g) some of our products
are subject to certain approvals and government regulations and the loss of such approvals, or our failure to comply with such regulations,
could materially reduce our revenues, cash flows and profitability; (h) the retirement of commercial aircraft could reduce our revenues,
cash flows and profitability; (i) work stoppages and other labor problems could materially reduce our ability to operate our business;
(j) unexpected equipment failures, catastrophic events or capacity constraints could increase our costs and reduce our sales due to production
curtailments or shutdowns; (k) we may not be able to continue to make the acquisitions necessary for us to realize our growth strategy;
(l) businesses that we have acquired (such as Dodge or VACCO) or that we may acquire in the future may have liabilities that are not known
to us; (m) goodwill and indefinite-lived intangibles comprise a significant portion of our total assets, and if we determine that goodwill
and indefinite-lived intangibles have become impaired in the future, our results of operations and financial condition in such years may
be materially and adversely affected; (n) we depend heavily on our senior management and other key personnel, the loss of whom could materially
affect our financial performance and prospects; (o) our international operations are subject to risks inherent in such activities; (p)
currency translation risks may have a material impact on our results of operations; (q) we may incur material losses for product liability
and recall-related claims; (r) our intellectual property and proprietary information are valuable, and any inability to protect them could
adversely affect our business and results of operations; in addition, we may be subject to infringement claims by third parties; (s) cancellation
of orders in our backlog could negatively impact our revenues, cash flows and profitability; (t) our failure to maintain effective disclosure
controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements
and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on the Company’s
financial condition and the trading price of our common stock; (u) risks associated with utilizing information technology systems could
adversely affect our operations; (v) our quarterly performance can be affected by the timing of government product inspections and approvals;
(w) we incurred substantial debt in order to complete the Dodge and VACCO acquisitions, which could constrain our business and exposes
us to the risk of defaults under our debt instruments; (x) increases in interest rates would increase the cost of servicing the Term Loan
and Revolving Credit Facility and could reduce our profitability; and (y) fluctuations in interest rates and foreign exchange rates could
impact future earnings and cash flows related to our Cross Currency Swap. Additional information regarding these and other risks and uncertainties
is contained in our periodic filings with the SEC, including, without limitation, the risks identified under the heading “Risk Factors”
set forth in our Annual Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or investments we may make. We do not intend, and undertake no obligation, to update or alter any forward-looking
statement.

The following section is
qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, that appears elsewhere
in this Quarterly Report.

20

Overview

We are a leading international
manufacturer of highly engineered precision bearings, components and essential systems for the aerospace, defense and industrial industries.
Our precision solutions are integral to the manufacture and operation of most machines and mechanical systems, reduce wear to moving
parts, facilitate proper power transmission, and reduce damage and energy loss caused by friction. While we manufacture products in all
major bearing categories, we focus primarily on the higher end of the bearing market where we believe our value-added manufacturing and
engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability. We believe our unique expertise
has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 66 facilities in 11 countries,
of which 44 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic
reach. We have a fiscal year consisting of 52 or 53 weeks, ending on the Saturday closest to March 31. Based on this policy, fiscal
2027 will have 53 weeks and fiscal 2026 had 52 weeks. Both the first quarter of fiscal 2027 and the first quarter of fiscal 2026 had
13 weeks.

We currently operate under two reportable business
segments – Aerospace & Defense and Industrial:

We use gross margin as the
primary measurement to assess the financial performance of each reportable segment. End market and channel sales within our segments
are based on internal definitions and metrics considered by management and are periodically reviewed and updated prospectively.

The markets for our products
are cyclical, and we have endeavored to mitigate this cyclicality by entering into single and sole-source relationships and long-term
purchase agreements, through diversification across multiple market segments within the Aerospace & Defense and Industrial segments,
by increasing sales to the aftermarket, and by focusing on developing highly customized solutions.

Currently, our strategy is
built around maintaining our role as a leading manufacturer of highly engineered bearings and precision components through the following
efforts:

We have demonstrated expertise in acquiring
and integrating bearing and precision engineered component manufacturers that have complementary products or distribution channels and
have provided significant margin enhancement. We have consistently increased the profitability of acquired businesses through a process
of methods and systems improvement coupled with the introduction of complementary and proprietary new products. Since 1992 we have completed
30 acquisitions, including VACCO, which we acquired on July 18, 2025. These acquisitions have broadened ou

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
financial and business analysis below provides information that we believe is relevant to an assessment and understanding of our consolidated
financial position, results of operations and cash flows. This financial and business analysis should be read in conjunction with the
consolidated financial statements and related notes. All references to “Notes” in this Item 7 refer to the “Notes to
Consolidated Financial Statements” included in Item 8 of this Annual Report on Form 10-K.

The
following discussion contains statements reflecting our views about our future performance that constitute “forward-looking statements”
within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. See the information provided
in Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K under the heading “Cautionary Statement as to
Forward-Looking Information.”

General

We
are a well-known international manufacturer of highly engineered precision bearings, components and essential systems for the
Aerospace & Defense and Industrial markets. Our precision solutions are integral to the manufacture and operation of most
machines and mechanical systems, reduce wear to moving parts, facilitate proper power transmission, and reduce damage and energy
loss caused by friction. While we manufacture products in all major bearing categories, we focus primarily on the higher end of the
bearing market where we believe our value-added manufacturing and engineering capabilities enable us to differentiate ourselves from
our competitors and enhance profitability. We believe our unique expertise has enabled us to garner leading positions in many of the
product markets in which we primarily compete. With 65 facilities in 11 countries, of which 44 are manufacturing facilities, we have
been able to significantly broaden our end markets, products, customer base and geographic reach. We have a fiscal year consisting
of 52 or 53 weeks, ending on the Saturday closest to March 31. Based on this policy, fiscal 2026 had 52 weeks and fiscal 2025
had 52 weeks.

We currently operate under two reportable business
segments – Aerospace & Defense and Industrial:

We
use gross margin as the primary measurement to assess the financial performance of each reportable segment. End market and channel sales
within our segments are based on internal definitions and metrics considered by management and are periodically reviewed and updated
prospectively.

The
markets for our products are cyclical, and we have endeavored to mitigate this cyclicality by entering into single and sole-source
relationships and long-term purchase agreements, through diversification across multiple market segments within the Aerospace &
Defense and Industrial segments, by increasing sales to the aftermarket, and by focusing on developing highly customized
solutions.

Currently,
our strategy is built around maintaining our role as a leading manufacturer of highly engineered bearings and precision components through
the following efforts:

20

We
have demonstrated expertise in acquiring and integrating bearing and precision engineered component manufacturers that have complementary
products or distribution channels and have provided significant margin enhancement. We have consistently increased the profitability
of acquired businesses through a process of methods and systems improvement coupled with the introduction of complementary and proprietary
new products. Since 1992 we have completed 30 acquisitions, including VACCO, which we acquired on July 18, 2025. These acquisitions have
broadened our end markets, products, customer base and geographic reach.

Outlook

For
the fiscal year ended March 28, 2026, 57.9% of our net sales were attributable to the Industrial segment while the Aerospace &
Defense segment contributed 42.1% of our net sales. Our net sales increased 14.3% year over year due to sales increases in both the
Aerospace & Defense and Industrial segments. VACCO, which was acquired on July 18, 2025, accounted for $83.9 of net sales in
fiscal 2026. VACCO is part of our Aerospace & Defense segment.

Aerospace
& Defense segment sales increased 32.9% year over year. Commercial aerospace increased 17.8%, due to the increased build rates from
large OEMs. defense sales, which represented approximately 40.0% of segment sales during the year, were up 64.5% for the year. Excluding
net sales from VACCO, defense sales were up 22.9% year over year. Our backlog in this segment is significant and deliveries are expected
to continue to grow in the coming years.

Industrial
segment sales increased 3.8% year over year, led by a 4.8% increase in distribution and aftermarket sales. Sales to OEMs were up 1.5%
year over year, primarily driven by aggregate & cement, warehousing, grain and food & beverage.

Of
our net sales for the fourth quarter of fiscal 2026, 57.1% was attributable to the Industrial segment compared to 42.9% for the
Aerospace & Defense segment. Approximately $200.0 of Industrial segment sales in the fourth quarter of fiscal 2026 were to
distribution and aftermarket compared to approximately $191.5 in the prior year while approximately $95.9 were made directly to OEMs
in the fourth quarter of fiscal 2026 compared to approximately $88.9 in the prior year. Net sales in the Aerospace & Defense
segment increased $64.8, or 41.2%, for the fourth quarter of fiscal 2026 compared to the same period last fiscal year. Excluding net
sales from VACCO, net sales increased in this segment by 22.8%. Commercial aerospace net sales, which consisted of $106.6 of OEM and
$22.9 of distribution and aftermarket, increased by 18.5% compared to the fourth quarter of fiscal 2025 when OEM net sales were
$85.9 and distribution and aftermarket net sales were $23.3. This was driven by increased build rates in the OEM market and
aftermarket demand remained strong. Our fiscal 2026 fourth quarter defense markets’ net sales, which consisted of $74.0 of OEM
and $18.6 of distribution and aftermarket, increased 92.5% compared to the fourth quarter of fiscal 2025 when OEM net sales were
$38.1 and distribution and aftermarket net sales were $10.0. Excluding net sales from VACCO, defense net sales were up 35.0%
compared to the same period in the prior year.

The
Company forecasts net sales to be approximately $500.0 to $510.0 in the first quarter of fiscal 2027, compared to $436.0 in the
first quarter of fiscal 2026, which represents a growth rate of 14.7% to 17.0%. Excluding $28.0 of expected net sales from VACCO,
net sales are expected to grow 8.3% to 10.6%. Adjusted gross margin is expected to be in the range of 45.25% to 45.5% and SG&A
as a percentage of net sales is expected to be in the range of 16.50% to 16.75%.

Our
backlog as of March 28, 2026 was $2.3 billion, which included $0.6 billion of VACCO backlog and $1.1 billion of marine related backlog,
compared to a total of $0.9 billion as of March 29, 2025. This increase reflects continued growth, most notably in our commercial aerospace
and marine defense end markets.

We
experienced solid operating cash flow generation during fiscal 2026 (as discussed in the “Liquidity and Capital Resources”
section below). We believe that operating cash flows and available credit under our revolving bank credit facilities will provide adequate
resources to fund internal growth initiatives for the foreseeable future, including at least the next 12 months. As of March 28, 2026,
we had cash of $57.3, of which, $33.1 was cash held by our foreign operations.

Sources
of Revenue

A
contract with a customer exists when there is commitment and approval from both parties involved, the rights of the parties are identified,
payment terms are defined, the contract has commercial substance and collectability of consideration is probable. The Company has determined
that the contract with the customer is established when the customer purchase order is accepted or acknowledged. Long-term agreements
(“LTAs”) are used by the Company and certain of its customers to reduce their supply uncertainty for a period of time, typically
multiple years. While these LTAs define commercial terms including pricing, termination rights and other contractual requirements, they
do not represent the contract with the customer for revenue recognition purposes.

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Approximately
95% of the Company’s revenue was generated from the sale of products to customers in the Aerospace & Defense and
Industrial markets for each of the years ended March 28, 2026 and March 29, 2025. The remaining 5% of the Company’s revenue
for each of the last two fiscal years was derived from services performed for customers, which included repair and refurbishment
work performed on customer-controlled assets as well as design and test work.

Refer
to Note 2 for further discussion regarding the Company’s revenue policy.

Cost
of Sales

Cost
of sales includes employee compensation and benefits, raw materials, outside processing, depreciation of manufacturing machinery and
equipment, supplies and manufacturing overhead.

Less
than half of our factory costs, depending on product mix, are attributable to raw materials, purchased components and outside processing.
When we experience raw material inflation, we attempt to offset these cost increases by changing our buying patterns, expanding our vendor
network and passing through price increases when possible. Although we

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