UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended June 28, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file Number 0-22053
GENERAL BEARING CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2796245
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
44 High Street, West Nyack, New York 10994
- ------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 358-6000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value per share
-------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [x] Yes [ ] No
<PAGE>
At July 28, 1997, the Registrant had issued and outstanding 3,900,000 shares of
common stock, $.01 par value per share.
<PAGE>
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements, which are statements other than those of
historical fact, including, without limitation, ones identified by the use of
the words "anticipates,: "estimates," "expects," "intends," "plans," "predicts,"
and similar expressions. In this Quarterly Report such statements may relate,
among other things, to the recoverability of deferred taxes, likely industry
trends, the continued availability of credit lines, the suitability of
facilities, access to suppliers and implementation of joint ventures and
marketing programs. Such forward looking statements involve important risks and
uncertainties that could cause actual results to differ materially from those
expected by the Company, and such statements should be read along with the
cautionary statements accompanying them and mindful of the following additional
risks and uncertainties possibly affecting the Company: the possibility of a
general economic downturn, which is likely to have an important impact on
historically cyclical industries such as manufacturing; significant price,
quality, quantity or marketing efforts from domestic or overseas competitors;
the loss of, or substantial reduction in orders from, a major customer; the loss
of, or failure to attain additional quality certifications; changes in U.S. or
foreign government regulations and policies, including the imposition of
antidumping orders on the Company or any of its suppliers; a significant
judgment or order against the Company in a legal or administrative proceeding;
and potential delays in implementing planned sales and marketing expansion
efforts and the failure of their effectiveness upon implementation.
<PAGE>
GENERAL BEARING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 28, 1997
TABLE OF CONTENTS
Page No.
--------
PART I
Item 1. Financial Statements ........................................ 2-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations................................... 6-7
PART II
Item 1. Legal Proceedings............................................ 8
Item 6. Exhibits and Reports on Form 8-K............................. 8
Signature ......................................................... 9
1
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
Item 1. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 28, December 29,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current:
Cash $ 135,930 $ 12,969
Accounts receivable - trade, less allowance
for doubtful accounts of $235,000 and $235,000 5,754,532 4,575,493
Inventories 13,385,263 13,898,595
Prepaid expenses and other current assets 256,384 467,081
Advances to parent and affiliates 395,027 710,397
------------ ------------
Total current assets 19,927,136 19,664,535
------------ ------------
Fixed assets, net 2,402,676 2,604,670
------------ ------------
Investments and advances:
Investments in affiliates 687,454 687,454
Advances to affiliate 255,824 255,824
------------ ------------
943,278 943,278
------------ ------------
Deferred tax asset, net 1,490,000 700,000
------------ ------------
Other assets 33,522 486,182
------------ ------------
Total Assets $ 24,796,612 $ 24,398,665
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable - bank $ 6,271,543 $ 9,526,484
Accounts payable:
Trade 1,598,227 1,998,361
Parent and affiliates 550,384 1,774,013
Accrued expenses and other current liabilities 1,855,294 2,245,386
Current maturities of long-term debt 222,840 222,840
------------ ------------
Total current liabilities 10,498,288 15,767,084
------------ ------------
Long-term debt, less current maturities:
Bank 891,480 1,002,900
Parent 1,250,142 2,750,142
Affiliate 751,243 739,588
------------ ------------
Total long-term liabilities 2,892,865 4,492,630
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock par value $.01 per share - shares
authorized 1,000,000 none issued and outstanding -- --
Common stock par value $.01 per share - shares
authorized 19,000,000, issued and outstanding
3,900,000 and 3,000,000 shares 39,000 30,000
Additional paid-in capital 28,592,391 23,654,524
Deficit (17,225,932) (19,545,573)
------------ ------------
Total stockholders' equity 11,405,459 4,138,951
------------ ------------
Total liabilities and stockholder's equity $ 24,796,612 $ 24,398,665
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-six weeks ended Thirteen weeks ended
-------------------------- --------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Sales $ 21,068,844 $21,006,585 $ 11,476,284 $11,087,852
Cost of sales 14,578,573 15,745,699 7,843,694 8,285,290
------------ ----------- ------------ -----------
Gross profit 6,490,271 5,260,886 3,632,590 2,802,562
Selling, general and administrative expenses 4,429,121 3,751,460 2,330,695 1,924,052
------------ ----------- ------------ -----------
Operating income 2,061,150 1,509,426 1,301,895 878,510
Interest, net, including $11,353, $75,000,
$5,639 and $37,500 to parent 497,506 674,744 215,910 343,563
------------ ----------- ------------ -----------
Income before income taxes 1,563,644 834,682 1,085,985 534,947
Income tax (Benefit) (756,000) 318,000 (367,000) 204,000
------------ ----------- ------------ -----------
Net income $ 2,319,644 $ 516,682 $ 1,452,985 $ 330,947
============ =========== ============ ===========
Net income per common share $ 0.63 $ 0.17 $ 0.37 $ 0.11
============ =========== ============ ===========
Weighted average number of common shares 3,697,252 3,000,000 3,900,000 3,000,000
============ =========== ============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-six weeks ended
-------------------------
June 28, June 29,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,319,644 $ 516,682
Add (deduct) noncash items charged (credited) to income:
Deferred income taxes (790,000) 318,000
Depreciation and amortization 301,326 271,117
Add (deduct) changes in operating assets and liabilities:
Accounts receivable (1,179,039) 772,221
Inventories 513,332 1,840,530
Prepaid expenses and other assets 661,643 80,971
Due to (from) affiliates (1,755,246) 696,784
Accounts payable and accrued expenses (790,229) (2,341,246)
Accrued customer damage claims -- (863,821)
----------- -----------
Net cash provided by (used in) operating activities (718,569) 1,291,238
----------- -----------
Cash flows from investing activities:
Equipment purchases (247,618) (444,072)
----------- -----------
Cash flows from financing activities:
Sale of common stock, net 4,946,867 --
Repayment of long-term debt - bank (111,420) (111,420)
Decrease in note payable - bank (3,254,941) (490,586)
Due to Parent 1,008,642 (278,844)
Repayment of long-term debt - Parent (1,500,000) --
----------- -----------
Net cash provided by (used in) financing activities 1,089,148 (880,850)
----------- -----------
Net (decrease) increase in cash 122,961 (33,684)
Cash, beginning of period 12,969 50,735
----------- -----------
Cash, end of period $ 135,930 $ 17,051
=========== ===========
Cash paid during the period for:
Interest $ 599,000 $ 605,000
Income Taxes $ 34,000 --
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
1. Basis of
Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the twenty-six weeks
ended June 28, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 27, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 28, 1996.
2. Litigation
There has been no material change in litigation from the quarter ended
March 29, 1997, except as specified in Part II Item 1.
3. Initial Public
Offering
On February 7, 1997, General Bearing Corporation completed an initial
public offering of 900,000 shares of common stock. The effect on the relevant
stockholders' equity accounts is as follows:
Common Stock Paid-in-Capital
------------ ---------------
Balance, December 28, 1996 $30,000 $23,654,524
Proceeds from sale of 900,000 shares of
common stock (par value 0.01 per share) 9,000 4,937,867
------- -----------
Balance, June 28, 1997 (unaudited) $39,000 $28,592,391
======= ===========
4. New Jersey
Plant Closing
In furtherance of the previously disclosed program to consolidate the
operations at the New York facility, the Company has given notice to the State
of New Jersey and the employees of the New Jersey facility of its' intention to
close the New Jersey facility. In this regard, the Company has reserved
$200,000, as of June 28, 1997, toward the cost of consolidating the two
facilities. The Company expects to realize significant manufacturing cost
savings upon completion of the consolidation.
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Sales. Sales for the second fiscal quarter of 1997 were $11,476,284, an
increase of $388,432 or 3.5% as compared to the same period in 1996. On a
year-to-date basis, sales were $21,068,844, an increase of $62,259 or 0.3% as
compared to the same period in 1996. Significant sales increases in spherical
roller bearings, traction motor bearings and railroad components were offset by
a decrease in sales of tapered journal bearings which have been negatively
impacted by the product recall in 1995. The Company is still striving to
re-enter this market.
Gross Profit. Gross profit as a percentage of sales was 31.7% in the
second fiscal quarter of 1997 as compared to 25.3% in the second fiscal quarter
of 1996. On a year-to-date basis, gross profit increased to 30.8% in 1997 as
compared to 25.0% in 1996. This increase resulted in part from the
implementation of a program to increase efficiency in plant operations. This
program entailed the consolidation of operations at the Company's West Nyack,
New York facility which resulted in a significant reduction of plant personnel
and simplification of tooling and quality control functions. The increase in
gross profit as a percentage of sales also reflects a 5% price increase in the
Distributor Bearing Division product lines, which have higher margins, as well
as the Company's strategy to de-emphasize sales of low margin commodity
bearings. Additionally, the Company increased sourcing from joint ventures, and
believes that the improvement in gross profits reflect, in part, savings
associated with this lower cost sourcing method.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of sales were 20.3% in the second fiscal
quarter of 1997 as compared to 17.4% in the second fiscal quarter in 1996. On a
year-to-date basis, selling, general and administrative expenses were 21.0% in
1997 as compared to 17.9% in 1996. Such percentage increases on a year-to-date
basis reflect $677,661 of additional expenditures in advertising ($77,000),
travel and entertainment ($66,000), personnel expense related to new hires
($69,000), moving expense reserve for New Jersey plant consolidation ($200,000),
salaries related to new hires and raises ($93,000), profit sharing accrual
($75,000) and professional fees ($100,000).
Interest Expense. Interest expense as a percentage of sales was 1.9% in
the second fiscal quarter as compared to 3.1% in the same period in 1996. On a
year-to-date basis, interest expense decreased to 2.4% as compared to 3.2% in
1996. This decrease in interest expense is primarily due to a decrease in
outstanding bank debt as a result of the proceeds from the public offering in
February, 1997, and record earnings in the second quarter of 1997, as well as
more favorable lending rates renegotiated in the second quarter of 1997.
Income Tax (Benefit). For the second fiscal quarter of 1997, the Company
accrued an additional ($401,000) tax benefit relating to the anticipated use of
net operating loss carryforwards as compared to a $204,000 tax expense recorded
in the same period of 1996. On a year-to-date basis, the company has accrued a
($790,000) tax benefit as compared to a $318,000 tax expense in 1996.
Net Income. As a result of the factors discussed above, net income for the
second fiscal quarter of 1997 increased to $1,452,985, or $.37 per common share,
as compared to $330,947, or $.11 per common share, for the same period in 1996.
On a year-to-date basis net income increased to $2,319,644 or $0.63 per common
share as compared to $516,682 or $0.17 per common share in 1996.
6
<PAGE>
Financial Condition, Liquidity and Capital Resources
The Company's primary sources of capital have been net cash provided by
operating activities, bank borrowings and financing from affiliates. Working
capital requirements also have been financed through borrowings under a
Revolving Credit Facility. The primary demands on the Company's capital
resources have been the need to fund inventory and receivables growth created in
normal business expansion. In 1996 there was an additional need for liquidity to
fund expenses associated with the product recall in 1995, as well as the related
carrying costs of inventory buildup. These liquidity demands were met through
cash from operations and borrowings under the Revolving Credit Facility.
On February 7, 1997, the Company successfully sold 900,000 shares of
common stock to the public at $7 per share. The Company recognized net proceeds
of $4,946,867 after expenses of the offering.
Cash flows from operations were $718,569 used for the twenty-six weeks
ended June 28, 1997 as compared to $1,291,238 provided for the comparable period
of 1996. The increase in net income less deferred income taxes was offset by
increases in accounts receivable and payments of affiliated debt and accounts
payable and accrued expenses. The Company initially used the proceeds from the
public offering to pay down its revolving credit facility. At June 28, 1997, the
Company had outstanding borrowings of $6,271,543 under its Revolving Credit
Facility and had further availability thereunder of approximately $4.2 million.
Additionally, the Company offset $1.5 million of advances due from parent
against $1.5 million of Long Term Debt due to parent. Inventories at June 28,
1997, decreased by approximately 3.7% to 13.4 million from $13.9 million at
December 29, 1996. The decrease in inventory was offset by the increase in
receivables by 25.8% to $5,754,532 at June 28, 1997 from $4,575,493 at December
29, 1996. Additionally, cash flows from financing activities were $1,089,148 for
the second fiscal quarter of 1997 as compared to ($880,850) for the comparable
period of 1996. Primarily as a result of the reduction in borrowings and
accounts payable and the increase in accounts receivable, the Company's working
capital increased by $5.5 million or 142% to $9.4 million at June 28, 1997, from
$3.9 million at December 29, 1996.
Net current assets increased by $397,947 or 1.6% for the 26 weeks ended
June 28, 1997. Additionally, net current liabilities decreased by $5,268,796 or
33.4% for the same period, primarily as a result of the net proceeds from the
public offering being initially used to pay down the revolving credit facility
as previously discussed. This decrease in current liabilities dramatically
improved the Company's current ratio from 1.55 to 1 on December 29, 1996, to
2.36 to 1 on June 28, 1997.
The Company believes that funds generated from continuing operations, the
net proceeds of the recently completed public offering of common stock and
borrowings under the Revolving Credit Facility will be sufficient to finance the
Company's anticipated working capital needs and capital expenditure requirements
for at least the next 24 months.
7
<PAGE>
PART II
Item 1. Legal Proceedings & Environmental Compliance
The Company's S-1 Registration Statement effective February 7, 1997, disclosed,
and the Annual Report on 10K for fiscal year 1996 referred to an action brought
by the Company and Gussack Realty Company (Realty) against Xerox related to
discharges by Xerox of contaminants into the subsurface at a property in the
vicinity of the Company's former facility in Blauvelt, New York. Following the
parties inability to reach an accord on the form of settlement documents, Xerox
recently filed a counterclaim against the Company and Realty, seeking
contribution for Xerox's remediation costs based upon Xerox's allegation of a
discharge of contaminants into the subsurface at the Blauvelt facility .
Inasmuch as neither Realty nor the Company have any knowledge of any such
discharge and the New York State Department of Environmental Conservation has no
record of any such discharge, the Company believes the counterclaim to be
without merit and will vigorously defend against it.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule
(b) The Registrant has not filed any reports on Form 8-K during the
quarter ended June 28, 1997.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: July 31, 1997.
GENERAL BEARING CORPORATION
(Registrant)
/s/ David L. Gussack
---------------------------------
David L. Gussack
President
/s/ Christopher Moore
---------------------------------
Christopher Moore
Vice President Finance
(Principal Financial and Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> JUN-28-1997
<CASH> 136
<SECURITIES> 0
<RECEIVABLES> 5,900
<ALLOWANCES> 235
<INVENTORY> 13,385
<CURRENT-ASSETS> 19,927
<PP&E> 5,801
<DEPRECIATION> 3,398
<TOTAL-ASSETS> 24,797
<CURRENT-LIABILITIES> 10,498
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 11,366
<TOTAL-LIABILITY-AND-EQUITY> 24,797
<SALES> 21,069
<TOTAL-REVENUES> 21,069
<CGS> 14,579
<TOTAL-COSTS> 14,579
<OTHER-EXPENSES> 4,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 497
<INCOME-PRETAX> 1564
<INCOME-TAX> (756)
<INCOME-CONTINUING> 2,320
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,320
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
</TABLE>
