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 September 27, 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 September 27, 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 SEPTEMBER 27, 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
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
Item 1. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 27, December 29,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS (Unaudited)
Current:
Cash $ 127,572 $ 12,969
Accounts receivable - trade, less allowance for
doubtful accounts of $235,000 and $235,000 5,307,838 4,575,493
Inventories 13,775,235 13,898,595
Prepaid expenses and other current assets 1,150,729 467,081
Advances to parent and affiliates 454,245 710,397
------------ ------------
Total current assets 20,815,619 19,664,535
------------ ------------
Fixed assets, net 2,385,235 2,604,670
------------ ------------
Investments and advances:
Investments in affiliates 687,454 687,454
Advances to affiliate 324,105 255,824
------------ ------------
1,011,559 943,278
------------ ------------
Deferred tax asset, net 1,885,000 700,000
------------ ------------
Other assets 31,311 486,182
------------ ------------
Total Assets $ 26,128,724 $ 24,398,665
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable - bank $ 6,034,466 $ 9,526,484
Accounts payable:
Trade 1,553,371 1,998,361
Parent and affiliates 394,862 1,774,013
Accrued expenses and other current liabilities 2,114,901 2,245,386
Current maturities of long-term debt 1,058,610 222,840
------------ ------------
Total current liabilities 11,156,210 15,767,084
------------ ------------
Long-term debt, less current maturities:
Bank 0 1,002,900
Parent 1,250,142 2,750,142
Affiliate 899,290 739,588
------------ ------------
Total long-term liabilities 2,149,432 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 28,592,390 23,654,524
Deficit (15,808,308) (19,545,573)
------------ ------------
Total stockholders' equity 12,823,082 4,138,951
------------ ------------
Total liabilities and stockholder's equity $ 26,128,724 $ 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>
Thirty-nine weeks ended Thirteen weeks ended
----------------------------- -----------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Sales $ 31,596,090 $ 29,800,338 $ 10,527,246 $ 8,793,753
Cost of sales 21,741,573 21,939,282 7,163,000 6,193,583
------------ ------------ ------------ -----------
Gross profit 9,854,517 7,861,056 3,364,246 2,600,170
Selling, general and administrative expenses 6,494,541 5,568,398 2,065,420 1,816,938
Other Income 0 (100,959) 0 (100,959)
------------ ------------ ------------ -----------
Operating income 3,359,976 2,393,617 1,298,826 884,191
Interest, net, including $17,346, $46,972,
$5,993 and ($28,028) to parent 753,708 969,313 256,202 294,569
------------ ------------ ------------ -----------
Income before income taxes 2,606,268 1,424,304 1,042,624 589,622
Income tax (Benefit) (1,131,000) 500,000 (375,000) 182,000
------------ ------------ ------------ -----------
Net income $ 3,737,268 $ 924,304 $ 1,417,624 $ 407,622
============ ============ ============ ===========
Net income per common share $ 0.99 $ 0.31 $ 0.36 $ 0.14
============ ============ ============ ===========
Weighted average number of common shares 3,764,835 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>
Thirty-nine weeks ended
----------------------------
September 27, September 28,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,737,268 $ 924,304
Add (deduct) noncash items charged (credited) to income:
Deferred income taxes (1,185,000) 500,000
Depreciation and amortization 375,700 414,203
Gain on sale of machinery (254,396) --
Add (deduct) changes in operating assets and liabilities:
Accounts receivable (732,345) 1,215,057
Inventories 123,360 1,641,161
Prepaid expenses and other assets (231,348) (160,387)
Due to/from affiliates (1,871,175) 828,869
Accounts payable and accrued expenses (575,479) (2,506,345)
Accrued customer damage claims -- (1,103,512)
----------- -----------
Net cash (used in) provided by operating activities (613,415) 1,753,350
----------- -----------
Cash flows from investing activities:
Equipment purchases (599,098) (545,860)
Sale of machinery 549,800 --
----------- -----------
Net cash (used in) investing activities (49,298) (545,860)
----------- -----------
Cash flows from financing activities:
Sale of common stock, net 4,946,867 --
Repayment of long-term debt - bank (167,130) (167,130)
Decrease in note payable - bank (3,492,018) (564,462)
Due to/from Parent 989,597 (518,082)
Repayment of long-term debt - Parent (1,500,000) --
----------- -----------
Net cash provided by (used in) financing activities 777,316 (1,249,674)
----------- -----------
Net increase (decrease) in cash 114,603 (42,184)
Cash, beginning of period 12,969 50,735
----------- -----------
Cash, end of period $ 127,572 $ 8,551
=========== ===========
Cash paid during the period for:
Interest $ 898,000 $ 1,043,000
Income Taxes $ 54,000 --
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
1. Basis of The accompanying unaudited condensed consolidated financial
Presentation 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 thirty-nine weeks ended September 27, 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 June 28, 1997 except as specified in Part II,
Item 1.
3. Initial Public On February 7, 1997, General Bearing Corporation completed
Offering 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, September 27, 1997 (unaudited) $39,000 $28,592,391
======= ===========
4. New Jersey In furtherance of the previously disclosed program to
Plant Closing 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 a net reserve of $478,680, as of September 27, 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 third fiscal quarter of 1997 were $10,527,246, an
increase of $1,733,493 or 19.7% as compared to the same period in 1996. On a
year-to-date basis, sales were $31,596,090, an increase of $1,795,752 or 6.0% as
compared to the same period in 1996. Significant sales increases in spherical
roller bearings, traction motor bearings and railroad components more than
offset a decrease in sales of tapered journal bearings.
Gross Profit. Gross profit as a percentage of sales was 32.0% in the third
fiscal quarter of 1997 as compared to 29.6% in the third fiscal quarter of 1996.
On a year-to-date basis, gross profit increased to 31.2% in 1997 as compared to
26.4% 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 19.6% in the third fiscal
quarter of 1997 as compared to 20.7% in the third fiscal quarter in 1996. On a
year-to-date basis, selling, general and administrative expenses were 20.6% in
1997 as compared to 18.7% in 1996. Such percentage increases on a year-to-date
basis reflect additional expenditures in advertising ($86,000), travel and
entertainment ($90,000), personnel expense related to new hires ($88,000),
moving expense reserve for New Jersey plant consolidation ($570,000), salaries
related to new hires and raises ($173,000), profit sharing accrual ($122,000)
and professional fees ($165,000). Selling, general and administrative expenses
on a year-to-date basis were partially offset by the gain realized on the sale
of equipment ($254,000).
Interest Expense. Interest expense as a percentage of sales was 2.4% in
the third fiscal quarter as compared to 3.4% in the same period in 1996. On a
year-to-date basis, interest expense decreased to 2.4% as compared to 3.3% 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 and third quarters of 1997, as
well as more favorable lending rates renegotiated in the second quarter of 1997.
Income Tax (Benefit). For the third fiscal quarter of 1997, the Company
accrued an additional ($395,000) tax benefit relating to the anticipated use of
net operating loss carryforwards as compared to a $182,000 tax expense recorded
in the same period of 1996. On a year-to-date basis, the company has accrued a
($1,185,000) tax benefit as compared to a $500,000 tax expense in 1996.
Net Income. As a result of the factors discussed above, net income for the
third fiscal quarter of 1997 increased to $1,417,624, or $.36 per common share,
as compared to $407,622, or $.14 per common share,
6
<PAGE>
for the same period in 1996. On a year-to-date basis net income increased to
$3,737,268 or $0.99 per common share as compared to $924,304 or $0.31 per common
share in 1996.
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.
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 ($613,415) for the thirty-nine weeks ended
September 27, 1997 as compared to $1,753,350 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 September 27, 1997, the
Company had outstanding borrowings of $6,169,048 under its Revolving Credit
Facility and had further availability thereunder of approximately $4.1 million.
Inventories at September 27, 1997, decreased by approximately 0.9% to $13.8
million from $13.9 million at December 29, 1996. The decrease in inventory was
offset by the increase in receivables by 16.0% to $5,307,838 at September 27,
1997 from $4,575,493 at December 29, 1996. Additionally, cash flows from
financing activities were $777,316 for the third fiscal quarter of 1997 as
compared to ($1,249,674) for the comparable period of 1996. Primarily as a
result of the reduction in borrowings and accounts payable as effected by the
proceeds of the initial public offering and funds generated from operations, and
the increase in accounts receivable, the Company's working capital increased by
$5.8 million or 148% to $9.7 million at September 27, 1997, from $3.9 million at
December 29, 1996.
Net current assets increased by $1,151,084 or 5.9% for the thirty-nine
weeks ended September 27, 1997. Additionally, net current liabilities decreased
by $4,610,874 or 29.2% 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 and despite the long term debt portion
of the bank term loan ($835,770) being reclassed to current liabilities. This
decrease in current liabilities dramatically improved the Company's current
ratio from 1.55 to 1 on December 29, 1996, to 1.87 to 1 on September 27, 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, Annual
Report on Form 10K for fiscal year 1996, and Quarterly Report on Form 10Q for
the second quarter, 1997, 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. In September, 1997, the Company and
Realty retained the law firm of Fischbein, Badillo, Wagner & Harding to handle
the matter. Also in September, Realty and the Company filed a motion seeking to
dismiss the counterclaim on the grounds that it is barred by the applicable
statute of limitations. Xerox has responded to the motion but an argument date
has not yet been set. Additionally, the Company has retained the law firm of
Weil, Gotschal & Manges, LLP to file a motion in the United States Bankruptcy
Court for the Southern District of New York, seeking to hold Xerox in Contempt
and for sanctions, on the grounds that the counterclaim filed by Xerox against
the Company was discharged upon confirmation of the Company's Chapter 11
Reorganization Plan in 1993. Xerox has not yet responded to the motion, which
was filed in October, 1997, and is still pending. While the Company believes its
legal position in the above action to be correct, the Company cannot predict the
outcome of the litigation but intends to vigorously defend its position.
In the action (previously disclosed in the Company's S-1 and 10K for the fiscal
year 1996) pending in the United States District Court for the Southern District
of New York, brought by the Company and WMW Machinery Inc. against a former East
German trade agency and its successor (collectively referred to as "WEMEX"), its
liquidator, Werne P. Muender ("Muender"), the Treuhandanstalt ("Treuhand") and
Bundesanstalt Fuer Vereinigungsbedingte Sonderaufgaben, the defendants had filed
a motion for summary judgment which was pending at the time of the Company's
initial public offering in Februrary 1997. By order of March 27, 1997, the Court
granted the motion in part and denied it in part. The Court granted that portion
of the motion seeking dismissal of the claims for breach of fiduciary duty by
defendants, Muender and WEMEX based on a finding that those defendants owed no
such duty to the plaintiffs. The Court also granted that portion of the motion
seeking the dismissal of the conversion claim against WEMEX and Muender based on
a finding that a contractual forum selection clause relegated resolution of such
claim to the German courts. The court denied those portions of the motion
seeking dismissal of the remaining claims against the Treuhand and/or WEMEX
based on the defenses of foreign sovereign immunity, lack of personal
jurisdiction, the Act of State Doctrine, changed circumstances and forum non
conveniens. In April, 1997, the defendants filed a motion for reargument on the
issues of personal jurisdiction and forum non conviens or, in the alternative,
for certification of the foreign sovereign immunity issue for appeal to the
United States Court of Appeals. By order of August 13, 1997, the Court denied
the defendants' motion for reargument in its entirety.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule
(b) Exhibits and Reports on Form 8-K.
During the quarter for which this report is filed, the Company filed
a Form 8-K on September 23, 1997, reporting a change in the
Company's Certifying Accountant from BDO Seidman, LLP, to Ferro,
Berdon & Company, LLP. On October 24, 1997, the Company filed an 8-K
reporting the dismissal of Ferro, Berdon & Company, LLP and the
reinstatement of BDO Seidman, LLP as the Company's Certifying
Accountant.
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: October 29, 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> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> SEP-27-1997
<CASH> 128
<SECURITIES> 0
<RECEIVABLES> 5,543
<ALLOWANCES> 235
<INVENTORY> 13,775
<CURRENT-ASSETS> 20,816
<PP&E> 4,838
<DEPRECIATION> 2,453
<TOTAL-ASSETS> 26,129
<CURRENT-LIABILITIES> 11,156
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 12,784
<TOTAL-LIABILITY-AND-EQUITY> 26,129
<SALES> 31,596
<TOTAL-REVENUES> 31,596
<CGS> 21,742
<TOTAL-COSTS> 21,742
<OTHER-EXPENSES> 6,495
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 754
<INCOME-PRETAX> 2606
<INCOME-TAX> (1,131)
<INCOME-CONTINUING> 3,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,737
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
