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 26, 1998
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 November 10, 1998, the Registrant had issued and outstanding 3,918,950 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;
potential delays in implementing planned sales and marketing expansion efforts
and the failure of their effectiveness upon implementation; and various adverse
effects of the "Year 2000" problem.
<PAGE>
GENERAL BEARING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 26, 1998
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 - 8
PART II
Item 1. Legal Proceedings........................................ 9
Item 5. Other Information........................................ 9
Item 6. Exhibits and Reports on Form 8-K......................... 10
Signature ......................................................... 11
1
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
Item 1. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS (Unaudited)
Current:
Cash $ 111,561 $ 117,941
Accounts receivable - trade, less allowance for doubtful
accounts of $235,000 and $235,000 6,609,503 5,473,096
Inventories 15,789,994 11,747,009
Prepaid expenses and other current assets 855,046 878,745
Advances to parent and affiliates 1,634,663 2,178,261
------------ ------------
Total current assets 25,000,767 20,395,052
------------ ------------
Fixed assets, net 2,941,405 2,387,062
------------ ------------
Investments and advances:
Investments in affiliates 1,649,059 712,717
Advances to affiliate 398,037 398,037
------------ ------------
2,047,096 1,110,754
------------ ------------
Deferred tax asset, net 1,700,000 2,880,000
------------ ------------
Other assets 26,207 28,954
------------ ------------
Total Assets $ 31,715,475 $ 26,801,822
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable - bank $ 9,022,260 $ 5,439,707
Accounts payable:
Trade 1,532,969 1,313,851
Affiliate -- 263,160
Parent -- 251,750
Accrued expenses and other current liabilities 1,000,755 1,938,654
Current maturities of long-term debt - Bank 222,840 1,002,900
Current maturities of long-term debt - Parent 1,250,142 1,250,142
------------ ------------
Total current liabilities 13,028,966 11,460,164
------------ ------------
Long-term debt, less current maturities:
Bank 612,930 --
Other 503,550 --
Affiliate 942,019 909,973
------------ ------------
Total long-term liabilities 2,058,499 909,973
------------ ------------
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 3,918,950
and 3,900,000 shares 39,190 39,000
Additional paid-in capital 28,724,850 28,592,387
Deficit (12,136,030) (14,199,702)
------------ ------------
Total stockholders' equity 16,628,010 14,431,685
------------ ------------
Total liabilities and stockholder's equity $ 31,715,475 $ 26,801,822
============ ============
</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
---------------------------- ----------------------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 32,730,090 $ 31,596,090 $ 11,382,346 $ 10,527,246
Cost of sales 22,308,361 21,741,573 7,818,250 7,163,000
------------ ------------ ------------ ------------
Gross profit 10,421,729 9,854,517 3,564,096 3,364,246
Selling, general and administrative expenses 6,821,894 6,494,541 2,170,858 2,065,420
------------ ------------ ------------ ------------
Operating income 3,599,835 3,359,976 1,393,238 1,298,826
Interest, net 563,327 753,708 209,568 256,202
Gain on Sale of Equipment (350,164) -- (54,924) --
------------ ------------ ------------ ------------
Income before income taxes 3,386,672 2,606,268 1,238,594 1,042,624
Income tax (Benefit) 1,323,000 (1,131,000) 471,000 (375,000)
------------ ------------ ------------ ------------
Net income $ 2,063,672 $ 3,737,268 $ 767,594 $ 1,417,624
============ ============ ============ ============
Net income per common share:
Basic $ 0.53 $ 0.99 $ 0.20 $ 0.36
------------ ------------ ------------ ------------
Diluted $ 0.52 $ 0.98 $ 0.20 $ 0.35
------------ ------------ ------------ ------------
Weighted average number of common shares
Basic 3,913,376 3,764,835 3,918,950 3,900,000
------------ ------------ ------------ ------------
Diluted 3,992,067 3,823,887 3,926,382 4,077,155
------------ ------------ ------------ ------------
</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
--------------------------
Sept. 26, Sept. 27,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,063,672 $ 3,737,268
Add (deduct) noncash items charged (credited) to income:
Deferred income taxes 1,180,000 (1,185,000)
Depreciation and amortization 423,818 375,700
Gain on sale of assets (350,164) (254,396)
Add (deduct) changes in operating assets and liabilities:
Accounts receivable (1,136,407) (732,345)
Inventories (4,042,985) 123,360
Prepaid expenses and other assets 23,875 (231,348)
Due to (from) affiliates 211,217 (1,871,175)
Accounts payable and accrued expenses (368,618) (575,479)
----------- -----------
Net cash provided by (used in) operating activities (1,995,592) (613,415)
----------- -----------
Cash flows from investing activities:
Investments in Joint Ventures, net (936,342) --
Equipment purchases (975,589) (599,098)
Sale of Equipment 694,304 549,800
----------- -----------
Net cash used in investing activities: (1,217,627) (49,298)
----------- -----------
Cash flows from financing activities:
Sale of common stock, net 132,653 4,946,867
Repayment of long-term debt - bank (167,130) (167,130)
Increase / (Decrease) in note payable - bank 3,582,553 (3,492,018)
Increase in other long-term debt 503,550 --
Change in Due to/(from) Parent (844,787) 989,597
Repayment of long-term debt - Parent -- (1,500,000)
----------- -----------
Net cash provided by financing activities 3,206,839 777,316
----------- -----------
Net (decrease) increase in cash (6,380) 114,603
Cash, beginning of period 117,941 12,969
----------- -----------
Cash, end of period 111,561 $ 127,572
=========== ===========
Cash paid during the period for:
Interest $ 599,000 $ 898,000
=========== ===========
Income Taxes $ 56,000 $ 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
Presentation 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
thirty-nine weeks ended September 26, 1998 are not necessarily
indicative of the results that may be expected for the year
ending January 2, 1999. 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 27, 1997.
2. Litigation There has been no material change in litigation from the
quarter ended June 27, 1998, except as specified in Part II,
Item 1.
3. Stockholder's The change in stockholder's equity is comprised as
Equity follows:
Common Paid-in Deficit Total
Stock Capital Stockholder's
Equity
------------ ------------ ------------ -------------
Balance,
December 27, 1997 $ 39,000 $ 28,592,387 ($14,199,702) $ 14,431,685
Proceeds from
Exercise of 18,950
Stock Options 190 132,463 132,653
Net Income 2,063,672 2,063,672
------------ ------------ ------------ -------------
Balance,
September 26, 1998
$ 39,190 $ 28,724,850 ($12,136,030) $ 16,628,010
============ ============ ============ =============
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 1998 were $11,382,346, an
increase of $855,100 or 8.1% compared to the same period in 1997. On a
year-to-date basis, sales were $32,730,090, an increase of $1,134,000 or 3.6% as
compared to the same period in 1997. Sales volume increases in tapered roller
bearings, tapered journal bearings, "special" and automotive ball bearings, and
ball transfers were offset by decreased sales of certain standard ball bearings
and mounted units. Mounted units was a product line eliminated by the Company as
of December 31, 1997. During the quarter, the Company's achievement of full
contract volume with Ford Motor Company more than compensated for the negative
impact of the strike at General Motors Corp. Looking ahead, an expiring contract
with one customer will not be renewed for one of the part numbers contained
therein. Through the end of the third quarter of 1998, sales of this item
represent approximately 5% of revenue. The Company anticipates that it will
continue to supply this item until the first or second quarter of 1999.
Gross Profit. Gross profit for the quarter was $3,564,096 compared to
$3,364,246 in the third fiscal quarter in 1997. On a year-to-date basis, gross
profit was $10,421,729 compared to $9,854,517 in 1997. As a percentage of sales,
gross profit was 31.3% compared to 32.0% in the third fiscal quarter of 1997. On
a year-to-date basis, gross profit as a percentage of sales increased to 31.8%
compared to 31.2% in 1997. 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, 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 profit
as a percentage of sales reflects, in part, savings associated with this lower
cost sourcing method. The reduction in gross profit percentage of sales for the
quarter is primarily due to product mix resulting from growth in our sales to
original equipment manufacturers combined with softness in the industrial
distribution aftermarket.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of sales were 19.1% compared to 19.6% in
the third fiscal quarter in 1997. This reduction reflects the effect of the
increased sales volume. On a year-to-date basis, selling, general and
administrative expenses were 20.8% compared to 20.6% in 1997. Such percentage
increases on a year-to-date basis reflect a $327,353 increase of expenditures
primarily attributable to increases in travel, salaries, commissions and
professional fees, partially offset by the elimination of one time move/closing
expenses relating to the New Jersey plant consolidation into New York, incurred
in 1997.
Interest Expense. Interest expense as a percentage of sales was 1.8%
compared to 2.4% in the third fiscal quarter in 1997. On a year-to-date basis,
interest expense decreased to 1.7% compared to 2.4% in 1997. This decrease in
interest expense is primarily due to a reduction in average debt achieved
through continued earnings and the public offering of the Company's stock in
1997 as well as lower interest rates in 1998.
Income Tax (Benefit). For the third fiscal quarter of 1998, the Company
had a tax expense of $471,000 compared to a tax benefit of ($375,000) for the
third quarter of 1997. The tax benefit in 1997 related to the creation of a
deferred tax asset related to the anticipated use of net operating loss carry
forwards, while the $471,000 tax expense reflects a normal rate of taxation. On
a year-to-date basis, the Company has set up a provision for taxes totaling
$1,323,000 in 1998 compared to a tax benefit of ($1,131,000) in 1997.
6
<PAGE>
Net Income. Income before taxes is up 18.8% and 29.9% over the third
quarter and year to date 1997 periods, respectively. Net income for the third
fiscal quarter of 1998 decreased to $767,594, or $0.20 per common share, from
$1,417,624, or $0.36 per common share a year ago, principally as a result of the
accrual for income taxes in 1998 as compared to the tax benefit recorded in
1997. On a year-to-date basis, net income decreased to $2,063,672 or $0.53 per
common share in 1998 from $3,737,268 or $0.99 per common share in 1997.
Financial Condition, Liquidity and Capital Resources
The Company's primary sources of capital have been net cash provided by
operating activities, a term loan, sale of common stock and financing from
affiliates. Working capital requirements also have been financed by 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. During April, 1998, the Company requested and obtained an
extension of both the amortization of the Term Loan and the termination of the
Revolving Credit Facility to April 7, 2000.
Cash used in operating activities during the first nine months of 1998 was
$1,995,592. Cash provided from net income and deferred income taxes was offset
by increased inventory and accounts receivable. The primary reasons for the
inventory increase are to support current and future demand for automotive ball
bearings and truck size tapered roller bearings.
Investment in Affiliates increased by $1,000,000 due to the Company's one
third ownership of a new joint venture, "Ningbo General Bearing Co. Ltd."
(NGBC). The Company anticipates that NGBC will supply competitively priced, high
quality bearings to the Company for resale. Investment in Affiliates also
increased by $150,192 for the Company's equity in Shanghai Pudong General
Bearing Co. Ltd. The Company's Investment in Shanghai General Bearing Co. Ltd.
was decreased $213,850 due to an equity distribution received during the third
fiscal quarter of 1998. Additional cash used in investing activities of $975,589
for capital expenditures was offset by receipt of $694,304 for equipment sold to
an affiliate.
At September 26, 1998, the Company had outstanding debt of $9,022,260
under its Revolving Credit Facility and had further availability of
approximately $2.0 million. Additionally, the Company financed $503,550 of its
fixed asset purchases via capital lease.
The Company believes that funds generated from continuing operations,
capital lease financing and borrowings under the Revolving Credit Facility will
be sufficient to finance the Company's anticipated working capital and capital
expenditure requirements for at least the next 24 months.
Year 2000 Compliance
The "Year 2000" problem refers to and arises from deficient computer
programs and related products, such as embedded chips, which do not properly
recognize or process a year that begins with "20" instead of "19". If not
corrected, many computer applications could fail or create erroneous results.
The extent of the
7
<PAGE>
potential impact of the Year 2000 problem is not yet known, and if not timely
corrected, it could affect the global economy.
A. The Company's Readiness:
1. (I) Information Technology (IT) systems: The Company has conducted a
comprehensive review of its computer systems to identify those that could be
affected by the Year 2000 issue. The Company's operating system and database
system are Year 2000 compliant. The Company presently believes that with minor
modifications (conversion and testing in progress) to existing software, the
Year 2000 problem will not pose significant operational problems for the
Company's computer systems as so modified. (ii) Non IT systems: Non IT systems
are those which typically include "embedded" technology such as microcontrollers
and chips. The Company currently is in the process of evaluating the effect of
the Year 2000 problem on non IT systems. The Company believes that all necessary
modifications to software and non-IT systems, if any, will be complete by the
end of 1998.
2. Third Parties: Due to the pervasive use of computers by the Company in
its dealings with suppliers, customers, financial institutions, and other third
parties, the Year 2000 problem could have a material impact on the Company if
not timely addressed by such third parties. To assess third party readiness, the
Company has surveyed its principal suppliers and financial institutions and
received responses which indicate that all such parties have adequately
addressed the problem. While the company has not surveyed its customers, it has
received surveys from its principal customers which indicate that they are also
addressing the problem.
B. Cost: The Company has not allocated anticipated year 2000 remediation costs
among the various systems which may be affected but believes that total
remediation costs will be immaterial.
C. Risks: The Company believes that the greatest risk presented by the year 2000
problem is from third parties, such as suppliers, financial institutions,
utility providers, etc. who may not have adequately addressed the problem. A
failure of any such third party's computer or other applicable systems in
sufficient magnitude could materially and adversely affect the Company. The
Company is not presently able to quantify this risk but believes that it is
minimal based upon the surveys it has conducted.
D. Contingency Plans: While the Company has no year 2000 contingency plans, per
se, and does not intend to create one, any problems encountered will be
addressed as expeditiously and efficiently as the circumstances permit.
Additionally, the Company normally keeps written back-up of all material
transactions which should facilitate continuation of business operations and
remediation of data loss in the event of a system failure.
8
<PAGE>
PART II
Item 1. Legal Proceedings
The Timken Company vs. United States
The Company's 10-K for F/Y 1997 disclosed actions by the Timken Company
("Timken") in the Court of International Trade challenging the Department of
Commerce's final determinations of the 4th, 5th, 6th, 7th and 8th annual reviews
under the antidumping order covering tapered roller bearings from the People's
Republic of China. The Company's 10-Q for the 2nd quarter, 1998, disclosed the
Court of International Trade's ruling on May 27, 1998, remanding certain issues
(in the 4th, 5th and 6th reviews) to the Department of Commerce for
redetermination.
On August 25, 1998, the Department of Commerce issued the final results of its
redeterminations of the issues remanded. Those redeterminations had no impact on
the Company as they did not materially affect the antidumping margins of the
Company's joint venture Shanghai General Bearing Company, Ltd. ("SGBC") and had
no impact on SGBC's partial revocation of the Antidumping Order covering tapered
roller bearings from the People's Republic of China.
In Timken's action in the Court of International Trade challenging the
Department of Commerce's final antidumping determinations in the 7th review
period (1993-1994) and SGBC's partial revocation, oral argument was heard on
Timken's motion for judgment on the agency record on July 29th, 1998, and the
parties are awaiting a ruling.
WMW et. al. v.s. WEMEX et. al.
Settlement of this matter was reported in the Company's 10-Qs for the first and
second quarters of 1998.
Gussack Realty Company and General Bearing Corporation vs. Xerox
There have been no material developments in this matter since the events
reported in the Company's 10-Q for the second quarter of 1998.
Item 5. Other Information
The Fiscal 1998 Year End will occur on January 2, 1999. This 53 week year will
allow for a year end as close as possible to the calendar year end and is
necessitated by our usage of a 4-4-5 accounting methodology. The Company does
not believe that this will have a material impact on the fourth quarter or
annual results.
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 September 26, 1998.
9
<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: November 10, 1998.
GENERAL BEARING CORPORATION
(Registrant)
/s/ David L. Gussack
- ------------------------------
David L. Gussack
President
/s/ Barry A. Morris
- ------------------------------
Barry A. Morris
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> SEP-26-1998
<CASH> 112
<SECURITIES> 0
<RECEIVABLES> 6,845
<ALLOWANCES> 235
<INVENTORY> 15,790
<CURRENT-ASSETS> 25,001
<PP&E> 5,686
<DEPRECIATION> 2,745
<TOTAL-ASSETS> 31,715
<CURRENT-LIABILITIES> 13,029
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 16,589
<TOTAL-LIABILITY-AND-EQUITY> 31,715
<SALES> 32,730
<TOTAL-REVENUES> 32,730
<CGS> 22,308
<TOTAL-COSTS> 22,308
<OTHER-EXPENSES> 6,822
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 563
<INCOME-PRETAX> 3,387<F1>
<INCOME-TAX> 1,323
<INCOME-CONTINUING> 2,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,064
<EPS-PRIMARY> .53
<EPS-DILUTED> .52
<FN>
<F1>
Includes other income of 350,000 from gain on sale of equipment
</FN>
</TABLE>
