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 April 3, 1999
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
At May 17, 1999, the Registrant had issued and outstanding 3,921,950 shares of
common stock, $.01 par value per share.
<PAGE>
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING
INFORMATION FOR THE PURPOSES 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 APRIL 3, 1999
TABLE OF CONTENTS
PART I Page No.
--------
Item 1. Financial Statements.................................... 2 - 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition...................... 7 - 10
PART II
Item 1. Legal Proceedings....................................... 11
Item 6. Exhibits and Reports on Form 8-K........................ 11
Signature ........................................................ 12
1
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
Item 1. CONSOLIDATED BALANCE SHEETS
(In Thousands - Except for Shares and Per Share Data)
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
---------- ----------
<S> <C> <C>
ASSETS (Unaudited)
Current:
Cash $ 13 $ 29
Accounts receivable - trade, less allowance for doubtful
accounts of $201K and $200K 6,785 5,772
Inventories 16,731 16,423
Prepaid expenses and other current assets 717 358
Advances to affiliates 628 940
Deferred tax asset 437 437
-------- --------
Total current assets 25,311 23,959
Fixed assets, net 3,250 3,277
Investments in affiliates 1,695 1,695
Advances to affiliate 426 423
Deferred tax asset, net 408 956
Other assets 42 28
-------- --------
Total Assets $ 31,132 $ 30,338
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable - bank $ 8,010 $ 8,126
Accounts payable:
Trade 1,305 1,271
Affiliates -- 3
Parent 66 94
Accrued expenses and other current liabilities 1,078 1,128
Current maturities of long-term debt 286 286
-------- --------
Total current liabilities 10,745 10,908
-------- --------
Long-term debt, less current maturities:
Bank 502 557
Other 440 440
Affiliate 964 954
-------- --------
Total long-term liabilities 1,906 1,951
-------- --------
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
shares 39 39
Additional paid-in capital 28,758 28,758
Deficit (10,316) (11,318)
-------- --------
Total stockholders' equity 18,481 17,479
-------- --------
Total liabilities and stockholder's equity $ 31,132 $ 30,338
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands - Except for Shares and Per Share Data)
(UNAUDITED)
13 Weeks Ended
--------------------------
April 3, March 28,
1999 1998
------------ -----------
Sales $ 13,722 $ 10,337
Cost of sales 9,383 7,307
----------- -----------
Gross profit 4,339 3,030
Selling, general and administrative expenses 2,531 2,157
----------- -----------
Operating income 1,808 873
Interest, net, including ($7) and $1 to parent 204 157
Other Income -- (295)
----------- -----------
Income before income tax 1,604 1,011
Income tax 602 384
----------- -----------
Net income $ 1,002 $ 627
=========== ===========
Net income per common share:
Basic $ 0.26 $ 0.16
----------- -----------
Diluted $ 0.26 $ 0.15
----------- -----------
Weighted average number of common shares:
Basic 3,918,950 3,903,657
----------- -----------
Diluted 3,919,946 4,055,921
----------- -----------
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
13 Weeks ended
-------------------
April 3, March 28,
1999 1998
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,002 $ 627
Add (deduct) noncash items charged(credited) to income:
Deferred income taxes 548 384
Depreciation and amortization 119 133
(Gain) / Loss on disposal of fixed assets 4 (295)
Add (deduct) changes in operating assets and liabilities:
Accounts receivable (1,013) (229)
Inventories (308) 81
Prepaid expenses and other assets (374) (221)
Due to (from) affiliates 316 630
Accounts payable and accrued expenses (16) (361)
------- -------
Net cash provided by (used in) operating activities 278 749
------- -------
Cash flows from investing activities:
Investments in Affiliates, net -- --
Fixed asset purchases (94) (442)
Proceeds from sale of fixed assets -- 604
------- -------
Net cash used in investing activities (94) 162
Cash flows from financing activities:
Proceeds from sale of common shares -- 119
Repayment of long-term debt - bank (56) (56)
Increase (decrease) in note payable - bank (116) (478)
Repayment of long-term debt and other balances - parent (28) (501)
------- -------
Net cash provided by (used in) financing activities (200) (916)
Net (decrease) increase in cash (16) (5)
Cash, beginning of period 29 118
------- -------
Cash, end of period $ 13 $ 113
======= =======
Cash paid during the 13 weeks for:
Interest $ 203 $ 177
Income Taxes $ 10 $ 0
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMETNS
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 thirteen weeks ended
April 3, 1999 are not necessarily indicative of the results that may be expected
for the year ending January 1, 2000. 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 January 2, 1999.
Earnings per common share are computed on the basis of the weighted
average number of common shares outstanding during the fiscal period. In 1997,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.
2. Long Term Debt
On March 24, 1998, the Company refinanced an existing term loan scheduled
to mature July 1, 1998. Principal is payable in monthly installments of $19,000
plus interest calculated at the bank's prime rate plus 2% (currently 9.75%),
through April 1, 2000, with final payment of $502,000 due April 7, 2000.
3. Litigation
Except as explained in Part II of this report, there has been no material
change in litigation since the events reported in the Company's 10-K for the
fiscal year ended January 2, 1999. See Part II of this report for further
disclosure.
4. Segment Information
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and
Related Information. SFAS 131 supersedes SFAS 14, Financial Reporting for
Segments of a Business Enterprise, replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
reporting that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments.
The Company operates in two divisions: the OEM Division, which supplies
Original Equipment Manufacturers (OEM's), and the Distribution Division, which
serves distributors that supply the repair and maintenance aftermarket and small
OEM's. The two divisions supply principally in the United States.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies outlined in the Company's 10-K
for the fiscal year ended January 2, 1999. The Company evaluates segment
performance based on operating income.
The table below presents information about the Company's business segments.
5
<PAGE>
<TABLE>
<CAPTION>
(In Thousands)
Quarter Ended April 3, 1999
OEM DISTRIBUTOR OTHER TOTAL
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales from External Customers $10,102 $3,620 $ -- $13,722
Gross Profit 2,454 1,885 -- 4,339
Operating Income 1,118 690 -- 1,808
Depreciation / Amortization 81 38 -- 119
Capital Expenditures 63 10 21 94
Total Assets 18,549 7,227 5,356 31,132
<CAPTION>
Quarter Ended March 28, 1998
OEM DISTRIBUTOR OTHER TOTAL
-----------------------------------------------------
Net Sales from External Customers $6,462 $3,875 $ -- $10,337
Gross Profit 1,244 1,786 -- 3,030
Operating Income 254 619 -- 873
Depreciation / Amortization 77 56 -- 133
Capital Expenditures 397 4 41 442
Total Assets 11,379 7,873 6,868 26,120
</TABLE>
Depreciation expense was allocated based on material, labor, and overhead.
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 1999 were $13,722,000. This
is an increase of $3,385,000 or 33% compared to the same period in 1998. Sales
in the OEM Division increased 56% over 1998 to $10,102,000 primarily as a result
of new business won during 1998 and 1999. The largest increase was in tapered
roller bearings, where General Bearing is a primary supplier to the heavy duty
truck trailer market. Also significant is a net increase in sales of ball
bearings and new sales of a drive line component to the automotive industry.
Distribution Division pricing is approximately 5% higher than last year,
however, softness in the industrial aftermarket resulted in a net decrease in
sales of 7% to $3,620,000.
Gross Profit. Gross profit for the quarter of $4,339,000 represents a 43%
increase over the first fiscal quarter of 1998. As a percentage of sales, gross
profit (GP%) was 31.6% compared to 29.3% in the first fiscal quarter of 1998.
Overall, the Company's GP% was favorably affected by 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. 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. Partially offsetting these increases, GP% was adversely
impacted by product mix resulting from growth in sales to original equipment
manufacturers combined with softness in the industrial aftermarket. GP% for the
OEM Division was 24.3% in 1999 compared to 19.3% in 1998 primarily as a result
of increased sales volume and the aforementioned cost reductions. GP% for the
Distribution Division was 52.1% in 1999 compared to 46.1% in 1998 due to higher
pricing and lower costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (S,G&A) as a percentage of sales were 18.4% for the
first fiscal quarter of 1999 compared to 20.9% in the first fiscal quarter in
1998. This reduction reflects the effect of the increased sales volume. S,G&A
increased by $374,000. This is primarily attributable to increases in salaries
and commissions in the OEM Division to support its growth.
Operating Income. Operating income of $1,808,000 for the first fiscal
quarter of 1999 represents a 107% increase over the same period in 1998. The
increase in the OEM Division of 340% over 1998 to $1,118,000 was due primarily
to the sales and gross profit increases partially offset by increased S,G&A as
detailed above. Operating income in the Distribution Division increased 11% over
1998 to $690,000 where increased GP% offset lower sales volume.
Interest Expense, Net. Net interest expense was $204,000 for the first
fiscal quarter of 1999 compared to $157,000 during the same period in 1998. As a
percentage of sales, interest was 1.5% for both periods. This increase is
primarily due to higher bank debt needed to fund inventory and receivables
growth created by normal business expansion.
Other Income. The Company recognized other income of $295,000 in the first
fiscal quarter of 1998 from the sale of fixed assets to an affiliate.
7
<PAGE>
Income Tax. For the first fiscal quarter of 1999, the Company had a tax
expense of $602,000 compared to $384,000 for the first quarter of 1998. This
increase results primarily from increased income before income taxes.
Net Income. As a result of the factors discussed above, net income for the
first fiscal quarter of 1999 increased by 60% to $1,002,000 or $.26 per basic
and diluted share from $627,000 or $.16 and $.15 per basic and diluted share,
respectively in 1998.
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. At January 2, 1999 and April 3,1999, the Company had working
capital of $13,051,000 and $14,566,000, respectively.
Cash provided by operating activities during the first fiscal quarter of
1999 was $277,000. Cash provided from net income and deferred income taxes was
offset by increased accounts receivable. The accounts receivable increase is
directly related to the increased sales volume as days sales outstanding are
comparable with historic results.
At April 3, 1999, the Company had outstanding debt of $8,010,000 under its
Revolving Credit Facility and had further availability of approximately $4.3
million.
The Company believes that funds generated from continuing operations,
capital lease financing and borrowing under the existing and any future
revolving credit facilities 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 potential impact of the Year 2000 problem is not yet known,
and if not timely corrected, it could affect the global economy.
8
<PAGE>
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 believes that with minor
modifications (conversion and testing in progress) to the operating system and
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
micro controllers and chips. The Company currently is in the process of
evaluating the effect of the Year 2000 problem on non IT systems and estimates
completion by June 30, 1999.
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 received.
D. Contingency Plans: The Company has decided to devise a Year 2000 contingency
plan. It is in the process of documenting the plan and estimates completion by
June 30, 1999. This plan will include detailed manual procedures for every
department should the Year 2000 problem cause an interruption in computer
services. Also, the Company will issue a comprehensive set of year-end reports
prior to January 1, 2000 to ensure that the necessary information is available
to conduct business in an uninterrupted fashion until all problems are resolved.
The procedures will include paper back up of the transactions executed during
down time to enable the Company to transfer these transactions to the computer
system when it becomes available.
Inflation
The effect of inflation on the Company has not been significant during the
last two fiscal years.
9
<PAGE>
Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk
The Company's primary market risks are fluctuations in interest rates and
variability in interest rate spread relationships (i.e., prime to LIBOR spreads)
on its bank debt. The Company does not use derivative financial instruments.
The Company's management believes that fluctuations in interest rates in
the near term would not materially affect the Company's consolidated operating
results, financial position or cash flows as the Company has limited risks
related to interest rate fluctuations.
Foreign Currency Risk
The Company does not use foreign currency forward exchange contracts or
purchased currency options to hedge local currency cash flows or for trading
purposes. All sales arrangements with international customers are denominated in
U.S. dollars. Only a small fraction of the Company's purchases are denominated
in foreign currency. Due to this limited activity, the Company does not expect
any material loss with respect to foreign currency risk.
10
<PAGE>
PART II
Item 1. Legal Proceedings.
TIMKEN vs. UNITED STATES
There have been no material developments in this matter subsequent to the
events reported in the Company's 10-K dated April 2, 1999.
GUSSACK REALTY COMPANY and GENERAL BEARING CORPORATION vs. XEROX
In 1995 Gussack Realty Company ("Realty") and the Company filed an action
against Xerox in the United States District Court for the Southern District of
New York (the "District Court") related to the discharge by Xerox of
contaminants into the subsurface at a property in the vicinity of property
formerly leased by the Company and owned by Realty in Blauvelt, New York
("Blauvelt Property"). Realty and the Company, among other things, alleged that
the subsurface discharge has adversely affected the Blauvelt Property. In July,
1997, Xerox 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.
On April, 22, 1999, the jury in the above matter found in favor of Realty
and the Company and against Xerox on both the complaint and the counterclaim.
Realty and the Company have filed a motion to set the amount of the judgment
based upon the verdict and for other relief, and the parties are awaiting a
ruling from the Court.
In the previously disclosed proceeding in the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court"), seeking to
hold Xerox in contempt and for sanctions (the "Contempt Motion"), on the ground
that the counterclaim filed by Xerox against the Company was discharged upon
confirmation of the Company's Chapter 11 Reorganization Plan in 1993, the
bankruptcy judge has denied motions by the Company and Xerox for summary
judgment. The Company now intends to proceed with its contempt application as
quickly as possible. Xerox Corporation has filed a second motion (which the
Company is opposing) requesting the District Court to try the Contempt Motion
and not to allow the Bankruptcy Court to consider it. The District Court denied
the first such motion in December 1998.
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.
11
<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 17, 1999
GENERAL BEARING CORPORATION
- ---------------------------
(Registrant)
/s/ David L. Gussack
- ---------------------------
David L. Gussack
President
/s/ Barry A. Morris
- ---------------------------
Barry A. Morris
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 6,986
<ALLOWANCES> 201
<INVENTORY> 16,731
<CURRENT-ASSETS> 25,311
<PP&E> 6,251
<DEPRECIATION> 3,001
<TOTAL-ASSETS> 31,132
<CURRENT-LIABILITIES> 10,745
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 18,442
<TOTAL-LIABILITY-AND-EQUITY> 31,132
<SALES> 13,722
<TOTAL-REVENUES> 13,722
<CGS> 9,383
<TOTAL-COSTS> 9,383
<OTHER-EXPENSES> 2,531
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> 1,604
<INCOME-TAX> 602
<INCOME-CONTINUING> 1,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,002
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
