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 March 28, 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 May 1, 1998, the Registrant had issued and outstanding 3,916,950 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 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 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 MARCH 28, 1998
TABLE OF CONTENTS
Page No.
--------
PART I
Item 1. Financial Statements ................................ 2 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Result of Operations.............. 7 - 8
PART II
Item 1. Legal Proceedings.................................... 9
Item 6. Exhibits and Reports on Form 8-K..................... 9
Signature ................................................ 10
- ---------
1
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
Item 1. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 28, December 27,
1998 1997
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current:
Cash $ 112,800 $ 117,941
Accounts receivable - trade, less allowance for doubtful
accounts of $235,000 and $235,000 5,701,822 5,473,096
Inventories 11,665,570 11,747,009
Prepaid expenses and other current assets 1,093,453 878,745
Advances to parent and affiliates 1,208,044 2,178,261
------------ ------------
Total current assets 19,781,689 20,395,052
------------ ------------
Fixed assets, net 2,697,391 2,387,062
------------ ------------
Investments and advances:
Investments in affiliates 712,717 712,717
Advances to affiliate 398,037 398,037
------------ ------------
1,110,754 1,110,754
------------ ------------
Deferred tax asset, net 2,496,000 2,880,000
------------ ------------
Other assets 34,128 28,954
------------ ------------
Total Assets $ 26,119,962 $ 26,801,822
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable - bank $ 4,961,934 $ 5,439,707
Accounts payable:
Trade 1,425,087 1,313,851
Affiliates 267,449 263,160
Parent -- 251,750
Accrued expenses and other current liabilities 1,170,607 1,938,654
Current maturities of long-term debt 1,472,982 2,253,042
------------ ------------
Total current liabilities 9,298,059 11,460,164
------------ ------------
Long-term debt, less current maturities:
Bank 724,350 --
Affiliate 920,655 909,973
------------ ------------
Total long-term liabilities 1,645,005 909,973
------------ ------------
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 3,916,950
and 3,900,000 shares 39,170 39,000
Additional paid-in capital 28,710,867 28,592,387
Deficit (13,573,139) (14,199,702)
------------ ------------
Total stockholders' equity 15,176,898 14,431,685
------------ ------------
Total liabilities and stockholder's equity $ 26,119,962 $ 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)
13 Weeks Ended
----------------------------
March 28, March 29,
1998 1997
------------ ------------
Sales $ 10,336,403 $ 9,592,560
Cost of sales 7,306,645 6,734,879
------------ ------------
Gross profit 3,029,758 2,857,681
Selling, general and administrative expenses 2,157,069 2,098,426
------------ ------------
Operating income 872,689 759,255
Other (Income) Expense:
Interest, net, including $1,453 and $5,714
to parent 157,364 281,596
Other Income (Gain on Sale of Equipment) (295,240) --
------------ ------------
Income before income tax (benefit) 1,010,565 477,659
Income tax (benefit) 384,000 (389,000)
------------ ------------
Net income $ 626,565 $ 866,659
============ ============
Net income per common share:
Basic $ 0.16 $ 0.25
------------ ------------
Diluted $ 0.15 $ 0.25
------------ ------------
Weighted average number of common shares:
Basic 3,903,657 3,494,500
------------ ------------
Diluted 4,055,921 3,494,500
------------ ------------
Net income is the same as comprehensive income.
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>
13 Weeks ended
--------------------------
March 28, March 29,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 626,565 $ 866,659
Add (deduct) noncash items charged(credited) to income:
Deferred income taxes 384,000 (389,000)
Depreciation and amortization 132,625 133,102
Gain on sale of equipment (295,240) --
Add (deduct) changes in operating assets and liabilities:
Accounts receivable (228,726) (782,641)
Inventories 81,439 428,376
Prepaid expenses and other assets (220,739) 509,936
Due to (from) affiliates 630,402 (1,574,395)
Accounts payable and accrued expenses (361,571) (1,157,316)
----------- -----------
Net cash provided by (used in) operating activities 748,755 (1,965,279)
----------- -----------
Cash flows from investing activities:
Equipment purchases (442,099) (104,062)
Sale of equipment 604,000 --
----------- -----------
Net cash provided by (used in) investing activities 161,901 (104,062)
----------- -----------
Cash flows from financing activities:
Sale of common stock, net 118,650 4,946,867
Repayment of long-term debt - bank (55,710) (55,710)
Increase (decrease) in note payable - bank (477,773) (2,381,590)
Due to Parent (500,964) (313,876)
----------- -----------
Net cash provided by (used in) financing activities (915,797) 2,195,691
----------- -----------
Net (decrease) increase in cash (5,141) 126,350
Cash, beginning of period 117,941 12,969
----------- -----------
Cash, end of period $ 112,800 $ 139,319
=========== ===========
Cash paid during the 13 weeks for:
Interest $ 176,623 $ 341,839
Income Taxes $ 0 $ 0
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
thirteen weeks ended March 28, 1998 are not necessarily
indicative of the results that may be expected for the year
ending December 26, 1998. 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.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 specifies
the computation, presentation, and disclosure requirements for
earnings per share. SFAS No. 128 is effective for periods
ending after December 15, 1997. The adoption of this statement
is not expected to have a material effect on the consolidated
financial statements.
2 Long Term On March 24, 1998, the Company refinanced an existing term
Debt loan scheduled to mature July 1, 1998. Principal is payable in
monthly installments of $18,570 plus interest calculated at
the bank's prime rate plus 2% (currently 10.5%), through April
1, 2000, with final payment of $482,840 due April 7, 2000.
3 Litigation Except as explained in Part II of this report, there has been
no material change in litigation from the year ended December
27, 1997. See Part II of this report for further disclosure.
5
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4 Initial Public On February 7, 1997, General Bearing Corporation completed an
Offering initial public offering of 900,000 shares of common stock. In
the first quarter of 1998, various stock options have been
exercised. The effect on the relevant stockholders' equity
accounts is as follows:
<TABLE>
<CAPTION>
Common Stock Paid-in-Capital
------------------ -----------------
<S> <C> <C>
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 4,937,863
------------------ -----------------
Balance, December 27, 1997 (unaudited) $39,000 $28,592,387
Proceeds from Exercise of Stock Options 170 118,480
Balance, March 28, 1998 (unaudited) $39,170 $28,710,867
================== =================
</TABLE>
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Sales. Sales for the first fiscal quarter of 1998 were $10,336,403, an
increase of $743,843 or 7.8% as compared to the same period in 1997. The
improvement in sales between the two periods reflected a significant increase in
tapered roller bearings (approximately $550,000) and tapered journal bearings
(approximately $200,000).
Gross Profit. Gross profit as a percentage of sales was 29.3% in the first
fiscal quarter of 1998 as compared to 29.8% in the first fiscal quarter of 1997.
The Company does not believe this decrease to be indicative of a trend, but
rather the result of product mix. This is evident in the fact that quarter over
quarter sales have increased in the OEM division, which sells traditionally
lower margin products, as compared to the Distributor division, traditionally
higher margin products, where sales were relatively flat quarter over quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of sales were 20.9% in the first fiscal
quarter of 1998 as compared to 21.9% in the same period in 1997. Such percentage
decrease is a result of relatively flat selling, general and administrative
expenses with increasing sales in 1998.
Income Tax (Benefit). For the first fiscal quarter of 1998, the Company
recorded income tax expense of $384,000 as compared to a ($389,000) tax benefit
recorded in the same quarter of 1997.
Net Income (Loss). As a result of the factors discussed above, net income
for the first fiscal quarter of 1998 decreased to $ 626,565, or $.16 per common
share, as compared to $ 866,659, or $.25 per common share, for the same period
in 1997.
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 revolving credit
borrowings. The primary demands on the Company's capital resources have been the
need to fund inventory and receivables growth created in normal business
expansion. Additionally, 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 flows from operations were $748,755 for the first fiscal quarter of
1998 as compared to ($1,965,279) for the comparable period of 1997. The change
in cash flow for the first fiscal quarter of 1998 is greatly attributable to
earnings and collections of balances due from affiliates. This was partially
offset by a reduction in accounts payable and accrued expenses as well as growth
of accounts receivable and other assets. The Company received $604,000 in the
first fiscal quarter of 1998 as payment for equipment sold to an affiliate in
1997. At March 28, 1998, the Company had outstanding borrowings of $4,961,934
under its Revolving Credit Facility and had further availability thereunder of
approximately $3.6 million.
7
<PAGE>
Additionally, cash flows from financing activities were ($915,797) for the first
fiscal quarter of 1998 as compared to 2,195,691 for the comparable period of
1997, primarily as a result of the paydown of bank debt in the first fiscal
quarter of 1998 compared to the cash raised from the sale of common stock in the
comparable period of 1997. The Company's working capital increased by
approximately $1.5 million or 17% to $10.5 million March 28, 1998 from $8.9
million at December 27, 1997.
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 needs and
capital expenditure requirements for at least the next 24 months.
8
<PAGE>
PART II
Item 1. Legal Proceedings.
WMW et al. Vs. WEMEX et al.
On April 3rd, 1998, the parties reached a final settlement of all claims,
including counterclaims and third party claims in the action (previously
disclosed in the Company's S-1 effective February 7, 1997, and the 10Ks for
fiscal years 1996 and 1997) 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, Werner P. Muender ("Muender"), the Treuhandanstalt
("Treuhand") and Bundesanstalt Fuer Vereinigunhsbedingte Sonderaufgaben. Under
the terms of settlement applicable to the Company, the Company released all of
its claims against the defendants and the defendants released all claims against
the Company without the Company making or receiving payment of any kind.
Accordingly, the settlement will have no impact on the Company's financial
condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule
(b) The Registrant has not filed a report on Form 8-K during the quarter
just ended.
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: May 6, 1998.
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)
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> MAR-28-1998
<CASH> 113
<SECURITIES> 0
<RECEIVABLES> 5,937
<ALLOWANCES> 235
<INVENTORY> 11,666
<CURRENT-ASSETS> 19,782
<PP&E> 5,330
<DEPRECIATION> 2,633
<TOTAL-ASSETS> 26,120
<CURRENT-LIABILITIES> 9,298
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 15,138
<TOTAL-LIABILITY-AND-EQUITY> 26,120
<SALES> 10,336
<TOTAL-REVENUES> 10,336
<CGS> 7,307
<TOTAL-COSTS> 7,307
<OTHER-EXPENSES> 2,157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157
<INCOME-PRETAX> 1,011<F1>
<INCOME-TAX> 384
<INCOME-CONTINUING> 627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 627
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
<FN>
Includes other income of 295,000 from gain on sale of equipment.
</FN>
</TABLE>
