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 30, 2000
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: (845) 358-6000
Securities registered pursuant to Section12(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.
|_| Yes |X| No
At November 20, 2000, the Registrant had issued 7,072,950 shares of common
stock, $.01 par value per share, and had outstanding 4,112,650 shares.
<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 affect 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 30, 2000
TABLE OF CONTENTS
PART I PAGE NO.
--------
Item 1. Financial Statement ....................................2 - 8
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition ..................9 - 11
PART II
Item 1. Legal Proceedings ..........................................13
Item 6. Exhibits and Reports on Form 8-K ...........................13
Signature ..................................................................14
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>
Sept. 30, Jan. 1,
2000 2000
Restated
----------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Current:
Cash $ 2,013 $ 3,576
Accounts receivable - trade, less allowance for
doubtful accounts of $336 and $360 8,751 7,983
Inventories 29,212 25,359
Prepaid expense and other current assets 916 1,199
Advances to affiliates 287 125
Deferred tax asset 239 587
--------- ---------
Total current assets 41,418 38,829
Fixed assets, net 8,650 8,846
Investments in affiliates 4,172 3,225
Advances to affiliate 2,486 442
Other assets 369 1,855
--------- ---------
Total Assets $ 57,095 $ 53,197
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable - bank $ 878 $ 3,809
Note payable - affiliate 500
Accounts payable:
Trade 5,984 4,013
Affiliate 319 244
Accrued expenses and other current liabilities 2,750 2,491
Current maturities of long-term debt 175 68
--------- ---------
Total current liabilities 10,606 10,625
Long-term debt, less current maturities
Bank
Bank 14,174 11,406
Other 695 458
Affiliate 1,027 996
--------- ---------
Total long-term debt 15,896 12,860
Deferred taxes 272 205
Commitments and contingencies
Minority interests 4,440 4,838
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 outstanding 4,112,650
and 4,114,950 shares 71 71
Treasury stock, at cost (51) --
Additional paid-in capital 39,923 39,610
Accumulated comprehensive income (10) (7)
Deficit (14,052) (15,005)
--------- ---------
Total stockholders' equity 25,881 24,669
--------- ---------
Total liabilities and stockholders' equity $ 57,095 $ 53,197
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE>
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In Thousands - Except for Shares and Per Share Data)
<TABLE>
<CAPTION>
Thirty-nine weeks ended Thirteen weeks ended
----------------------- --------------------
Sept. 30, Oct. 2, Sept. 30, Oct. 2,
2000 1999 2000 1999
Restated Restated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 49,512 $ 48,676 $ 14,651 $ 14,400
Cost of sales 32,916 33,851 9,627 9,532
----------- ----------- ----------- -----------
Gross Profit 16,596 14,825 5,024 4,868
Selling, general and administrative expenses 10,895 10,386 3,457 3,301
----------- ----------- ----------- -----------
Operating income 5,701 4,439 1,567 1,567
Other expense, net 629 58 275 429
Net interest expense 859 1,003 309 295
Equity in income of affiliates (386) (83) (98) (67)
----------- ----------- ----------- -----------
Income before income taxes 4,599 3,461 1,081 910
Income tax 1,963 1,674 514 384
Minority interest (392) (285) (27) (31)
----------- ----------- ----------- -----------
Net Income $ 3,028 $ 2,072 $ 594 $ 557
=========== =========== =========== ===========
Net income per common share:
Basic $ 0.74 $ 0.50 $ 0.14 $ 0.14
----------- ----------- ----------- -----------
Diluted $ 0.74 $ 0.49 $ 0.14 $ 0.14
----------- ----------- ----------- -----------
Weighted average number of common shares:
Basic 4,112,750 4,111,620 4,112,650 4,114,225
----------- ----------- ----------- -----------
Diluted 4,112,750 4,190,311 4,112,650 4,121,657
----------- ----------- ----------- -----------
</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)
(In Thousands)
<TABLE>
<CAPTION>
Thirty-nine weeks ended
-----------------------
Sept. 30, Oct. 2,
2000 1999
Restated
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 3,028 $ 2,072
Add (deduct) noncash items charged (credited) to income:
Minority interest (398) (284)
Deferred income taxes 417 1,154
Depreciation and amortization 579 549
Equity in income of affiliates (386) (83)
Other 120 (196)
Add (deduct) changes in operating assets and liabilities:
Accounts receivable (768) 1,236
Inventories (3,854) (2,394)
Prepaid expenses and other assets 364 (1,305)
Due to (from) affiliates 24 444
Accounts payable and accrued expenses 2,246 (679)
--------- ---------
Net cash provided by operating activities 1,372 514
--------- ---------
Cash flows from investing activities:
Investments in affiliates, net (750) (531)
Advances to affiliates (1,980) 0
Fixed asset purchases (335) (658)
--------- ---------
Net cash used in investing activities (3,065) (1,189)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of common shares, net 0 62
Cash dividend (500) (53)
Purchase of treasury stock (51) 0
Repayment of long-term debt - bank 0 (557)
Repayment of current maturity - bank (3,250) (223)
Increase in note payable - bank 0 970
Net proceeds from the revolving credit facility 2,768 0
Proceeds from bank loan 320 261
Proceeds from equipment financing 950 28
Change in due to (from) affiliate 500 0
Repayment of other long-term debt (607) (252)
--------- ---------
Net cash provided by financing activities 130 236
--------- ---------
Net decrease in cash (1,563) (439)
Cash, beginning of period 3,576 1,422
--------- ---------
Cash, end of period $ 2,013 $ 983
========= =========
Cash paid during 39 weeks for:
Interest 1,062 1,116
Income taxes 1,376 822
</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
thirty-nine weeks ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year
ending December 30, 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 1, 2000.
2. Acquisition In July 2000, the Company acquired 100% of World Machinery
Company ("World"), which, prior to the acquisition, owned
74.8% of the outstanding common stock of General Bearing.
World was principally owned by members of General Bearing's
Board of Directors and senior management. Its principal
business is the manufacture and sale of machine tools,
however, it also holds two bearing joint ventures for General
Bearing's benefit. This combination has been accounted for as
a pooling of interests. Prior periods have been restated as of
the companies have always been combined. In consideration for
this transaction, the Company issued 3,140,000 shares of its
common stock, $.01 per share par value. 2,950,000 shares of
the Company's common stock, owned by World, are now included
as treasury stock. The net stock paid for the acquisition of
190,000 shares are considered outstanding for all periods
presented. In 2000, prior to the acquisition, World had sales
of $6,425,000 and net loss of $169,000. Also prior to the
acquisition, there was a non cash distribution of a $1,593,000
note receivable and a cash distribution of $500,000 to World's
shareholders. As General Bearing was a fully consolidated
subsidiary of World prior to the acquisition, all intercompany
transactions were eliminated in World's financial statements.
For the prior periods presented, sales of $8,831,000 and
$2,713,000 and net losses of $640,000 and $141,000 have been
added to the amounts previously reported for the thirty-nine
and thirteen week periods, respectively.
3. Inventories Inventories consist of the following: (In Thousands)
<TABLE>
<CAPTION>
January 1, 2000 September 30, 2000
Restated
---------------------------------------------------------------------------------
<S> <C> <C>
Finished Goods $ 10,392 $ 12,782
Raw materials, purchased parts, and work-
in process 13,267 14,938
Machine replacement parts and accessories 1,700 1,492
---------------------------------------------------------------------------------
$ 25,359 $ 29,212
=================================================================================
</TABLE>
4. Comprehensive Comprehensive income is not materially different than net
Income income for both periods presented.
5. Earnings Basic earnings per share includes no dilution and is computed
per share by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted earnings per
share reflect, in periods in which they have a dilutive
effect, the dilution which would occur upon the exercise of
stock options. A reconciliation of the shares used in
calculating basic and diluted earnings per share follows:
5
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------
October 2, 1999 September 30, 2000
Restated
---------------------------------------------------------------------------------
<S> <C> <C>
Diluted earnings per share computation:
Basic weighted average common shares 4,112,620 4,112,750
outstanding
Incremental shares from assumed exercise 78,691 --
of dilutive options
---------------------------------------------------------------------------------
4,190,311 4,112,750
=================================================================================
<CAPTION>
Quarter Ended
----------------------------------------
October 2, 1999 September 30, 2000
Restated
---------------------------------------------------------------------------------
<S> <C> <C>
Diluted earnings per share computation:
Basic weighted average common shares 4,114,225 4,112,650
outstanding
Incremental shares from assumed exercise 7,432 --
of dilutive options
---------------------------------------------------------------------------------
4,121,657 4,112,650
=================================================================================
</TABLE>
6. 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 1, 2000.
7. Segment During 1998, the Company, adopted Statement of Financial
Information 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 three segments: the OEM Division,
which supplies bearings and bearing components to Original
Equipment Manufacturers (OEM's), the Distribution Division,
which serves distributors that supply bearings to the repair
and maintenance aftermarket and small OEM's, and Machine
Tools. The two bearing divisions supply principally in the
United States while machine tools are sold worldwide.
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 1, 2000. The
6
<PAGE>
Company evaluates segment performance based on operating
income.
The following table presents information about the Company's
business segments.
(In Thousands)
Year to Date September 30, 2000 (Restated)
OEM DISTRIB M. TOOL OTHER TOTAL
-----------------------------------------------
Net sales from external $30,281 $ 9,957 $ 9,274 $ -- $49,512
customers
Gross profit 8,086 5,452 3,058 -- 16,596
Operating income 3,867 1,669 165 -- 5,701
Depreciation / Amort 354 88 137 -- 579
Capital expenditures 190 0 64 81 335
Total assets 25,473 6,372 16,557 8,693 57,095
Year to Date October 2, 1999 (Restated)
OEM DISTRIB M. TOOL OTHER TOTAL
-----------------------------------------------
Net sales from external $29,420 $10,426 $ 8,830 $ -- $48,676
customers
Gross profit 6,858 5,588 2,379 -- 14,825
Operating income 2,741 1,994 (296) -- 4,439
Depreciation / Amort. 304 86 159 -- 549
Capital expenditures 320 49 140 149 658
Total assets 20,809 7,965 17,538 4,647 50,959
Quarter Ended September 30, 2000
OEM DISTRIB M. TOOL OTHER TOTAL
-----------------------------------------------
Net sales from external $ 8,736 $ 3,066 $ 2,849 $ -- $14,651
customers
Gross profit 2,418 1,635 971 -- 5,024
Operating income 1,087 425 55 -- 1,567
Depreciation / Amort. 121 31 44 -- 196
Capital expenditures 27 0 14 36 77
Total assets 25,473 6,372 16,557 8,693 57,095
7
<PAGE>
Quarter Ended October 2, 1999 (Restated)
OEM DISTRIB M. TOOL OTHER TOTAL
-----------------------------------------------
Net sales from external $ 8,446 $ 3,241 $ 2,713 $ -- $14,400
customers
Gross profit 1,911 1,701 1,256 -- 4,868
Operating income 589 502 476 -- 1,567
Depreciation / Amort 110 31 44 -- 185
Capital expenditures 108 20 86 47 261
Total assets 20,809 7,965 17,538 4,647 50,959
Depreciation expense was allocated based on material, labor, and overhead.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Sales. Sales of $14,651,000 for the third fiscal quarter of 2000 were
$251,000 or 1.7% higher than the same period in 1999. Sales in the OEM Division
increased 3.4% over 1999 to $8,736,000 primarily due to a net increase in sales
of ball bearings and drive line components to the automotive industry. There
were also increased sales of industrial ball bearings for various applications.
Partially offsetting these increases were decreased sales to the railroad and
heavy duty truck trailer markets. Distribution Division sales decreased 5.4%
from the third fiscal quarter of 1999 to $3,066,000. Increased sales at the
Company's largest distributors were offset by decreases at some of the smaller
distributors. Machine tool sales of $2,849,000 in the third fiscal quarter of
2000 were 5% higher than the third fiscal quarter of 1999. On a year-to-date
basis, sales of $49,512,000 were $836,000 or 1.7% higher compared to the same
period in 1999. Sales in the OEM Division increased 2.9% over 1999 to
$30,281,000 due to increased sales of automotive products, industrial ball
bearings and tapered roller bearings, partially offset by lower sales of
railroad bearings. Distribution Division sales of $9,957,000 were 4.5% lower
than 1999 due primarily to a decrease in orders for railroad bearings. Machine
tool sales of $9,274,000 were 5.0% higher than 1999 due to improved supply from
a machine tool producer acquired late in 1998.
Gross Profit. Gross profit for the quarter of $5,024,000 represents a 3.2%
increase over the third fiscal quarter of 1999. As a percentage of sales, gross
profit (GP%) was 34.3% compared to 33.8% in the third fiscal quarter of 1999.
The Company has lowered its cost of goods sold by increasing plant efficiency as
a result of last year's capital expenditures and also by reducing its material
cost. GP% for the OEM Division was 27.7% in the third fiscal quarter of 2000
compared to 22.6% in 1999 primarily as a result of material cost reductions,
increased plant efficiency and product mix. GP% for the Distribution Division
was 53.3% in the third fiscal quarter of 2000 compared to 52.5% in 1999 due
mainly to product mix. GP% for Machine tools was 34.1% in the third fiscal
quarter of 2000 compared to 46.3% in 1999 due to lower sales in the U.S. in 2000
and the return to income of an excess reserve in 1999. On a year-to-date basis,
gross profit was $16,596,000, or 33.5% of sales, in 2000 compared to
$14,825,000, or 30.5% of sales in 1999. GP% for the OEM Division was 26.7% in
2000 compared to 23.3% for the 1999 year-to-date period. Distribution Division
GP% increased to 54.8% from 53.6%. The increased for both divisions are due to
the same factors that affected the quarterly results. Machine tool GP% increased
to 33.0% from 26.9% due mainly to higher sales in the U.S. and the 1999 income
item mentioned above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (S,G&A) as a percentage of sales were 23.6% in the third
fiscal quarter of 2000 compared to 22.9% in the third fiscal quarter in 1999.
S,G&A increased by $156,000. Year-to-date, S,G&A as a percentage of sales was
22.0% compared to 21.3% in 1999. This represents an increase of $509,000 due
primarily to increases in promotion ($398,000), professional fees ($280,000) and
salaries ($199,000), offset by decreases in commissions ($171,000), bank charges
($62,000), travel and entertainment ($55,000), and freight ($39,000).
9
<PAGE>
Operating Income. Operating income was $1,567,000 for the third fiscal
quarters of both 2000 and 1999. OEM Division increased 85% over 1999 to
$1,087,000 due primarily to the gross profit increases detailed above. Operating
income in the Distribution Division decreased 15% compared to 1999 to $425,000
due mainly to lower sales volume. Operating income for machine tools decreased
88% compared to 1999 to $55,000 due primarily to the gross profit decreases and
higher S,G&A. On a year-to-date basis, operating income of $5,701,000 in 2000
represents a 28% increase compared to 1999. The OEM Division year-to-date
increase of 41% over 1999 to $3,867,000 is mainly due to the gross profit
increases detailed above and higher sales volume, partially offset by increased
S,G & A. The Distribution Division year-to-date operating income of 1,669,000 is
16% lower than 1999 primarily due to lower sales and higher S,G&A. Year-to-date
operating income for machine tools of $165,000 is $461,000 higher than 1999 due
mainly to the gross profit changes detailed above and higher sales, partially
offset by higher S,G&A.
Other Expense, net. Other expense, net was $275,000 in the third fiscal
quarter of 2000 compared to $429,000 in the third fiscal quarter of 1999. On a
year-to-date basis, other expense, net was $629,000 in 2000 compared to $58,000
in 1999. These amounts relate primarily to the effect of changes in foreign
exchange rates and accounting rules for financial reporting in hyperinflationary
economies.
Interest Expense, net. Net interest expense was $309,000 for the third
fiscal quarter of 2000 compared to $295,000 during the same period in 1999. On a
year-to-date basis, net interest expense was $859,000 in 2000 compared to
$1,003,000 in 1999 mainly due to lower interest rates partially offset by higher
debt.
Income of Affiliate. Affiliate income of $98,000 in the third fiscal
quarter of 2000 includes the Company's share of earnings in Jiangsu General Ball
and Roller Co., Ltd. ("JGBR") which began operations during the first quarter of
2000. Year-to-date affiliate income of $386,000 includes $336,000 from JGBR.
Income Tax. For the third fiscal quarter of 2000, the Company had an
effective tax rate of 47.5% compared to 42.3% for 1999. On a year-to-date basis,
the Company had an effective tax rate of 42.7% compared to 48.4% in 1999.
Effective tax rates are based on estimated year end effective rates.
Net Income. As a result of the factors discussed above, net income for the
third fiscal quarter of 2000 increased by 7% to $594,000 or $.14 per basic and
diluted share from $557,000 or $.14 per basic and diluted share in 1999. On a
year-to-date basis, net income increased by 46% to $3,028,000 or $.74 per basic
and diluted share from $2,072,000 or $.50 and $.49 per basic and diluted share,
respectively, in 1999.
Financial Condition, Liquidity and Capital Resources
The Company's primary sources of capital have been net cash provided by
operating activities, a term loan and sale of common stock. 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 1, 2000
and September 1, 2000, the Company had working capital of $28,204,000 and
$30,762,000, respectively.
Cash provided by operating activities during the first nine months of 2000
was $1,372,000. Cash provided from net income and increased accounts payable and
accrued expenses was partially offset by increased inventory and accounts
receivable. The primary reasons for the inventory increase are
10
<PAGE>
a recent slow down in the heavy duty truck trailer market segment combined with
increases necessary to support new products. Also, due to a change in certain
terms, in-transit inventory and accounts payable have increased.
Cash used in investing activities during the first nine months of 2000 was
$3,065,000. Included in this amount is $2,080,000 for the Company's 50% interest
in a new joint venture, NN Gerneral, LLC ("NNG"), which purchased 60% of JGBR.
This was structured as a $100,000 investment and loans of $1,980,000. The
Company also invested an additional $650,000 in Ningbo General Bearing Company,
Ltd., one of it's existing joint ventures in China. After this investment, the
Company's ownership increased from 33 1/3% to 42.0%. Cash used in investing
activities also includes $335,000 for capital expenditures.
Cash provided by financing activities during the first nine months of 2000
was $130,000. During July 2000, the Company repaid its short term loan of
$3,250,000 with funds available through its revolving credit facility due to
favorable interest rates and borrowing availability. The Company also refinanced
certain of its previously purchased machinery and equipment in the amount of
$950,000 under a lease finance facility. Part of these proceeds was used to
repay its existing $504,000 capital lease. A dividend of $500,000 was made by
World to its shareholders prior to its acquisition by General Bearing. A
non-cash dividend of $1,593,000 was made by World to its shareholders prior to
its acquisition by General Bearing. At January 1, 2000, the Company had cash
collateralized $1,818,000 in letters of credit outstanding with its former
lender. At September 30, 2000, all such cash has either been used to fund
inventory purchases or been returned to the Company. During the first nine
months of 2000, the Company had a net increase in debt under its revolving
credit facility of $2,768,000 and repaid $103,000 under its new capital lease.
At September 30, 2000, the Company had outstanding debt of $14,174,000
under its Revolving Credit Facility and had further availability of
approximately $5.0 million. As of November 14, 2000, the Company was in
violation of certain of its loan covenants relating to reporting. The bank
agreed to waive that violation and as of November 20, 2000, the Company is in
compliance with all of its loan covenants.
In July 2000, the Company acquired 100% of World Machinery Company in
exchange for common shares. The Company believes that this acquisition till have
no material effect on its liquidity.
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
commitment to provide up to $420,000 of additional funding to NNG, if necessary,
as well as anticipated working capital and capital expenditure requirements for
at least the next 24 months.
Inflation
11
<PAGE>
The effect of inflation on the Company has not been significant during the
last two fiscal years.
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.
12
<PAGE>
PART II
Item 1. Legal Proceedings
Gussack Realty Company and General Bearing Corporation vs. Xerox
The background of the above proceeding is described in detail in the Company's
Annual Report on Form10-K dated March 31, 2000.
On August 22, 2000 the United States Court of Appeals for the Second Circuit
(the "appellate court") affirmed the $1,083,000 judgment in favor of plaintiffs
insofar as it was based on plaintiffs' negligence claim and reversed such
judgment insofar as it was based on plaintiffs' CERCLA claims. The appellate
court also reversed the trial court's denial of plaintiffs' prejudgment interest
and remanded the issue to the district court for a determination of the amount
of prejudgment interest due. In addition, in ruling on the plaintiffs' appeal
the appellate court affirmed the trial court's rulings: a) setting plaintiffs'
past CERCLA response costs at zero, b) dismissing plaintiffs' nuisance claim
(thereby precluding the jury's consideration of punitive damages), c) refusing
to permit plaintiffs to amend their complaint to plead gross negligence, and d)
reducing sanctions imposed against Xerox at trial by 20%. The appellate court
reversed the trial judge's order that plaintiffs indemnify Xerox for future
response costs Xerox might incur remediating plaintiffs' property. On Xerox
cross-appeal, in addition to reversing the CERCLA judgment, as set forth above,
the appellate court also affirmed the trial judge's admission of plaintiff's
expert's testimony.
On approximately September 8, 2000, Xerox filed a Petition for Panel Rehearing
and Rehearing En Banc (the "Petition"), challenging the appellate court's a)
affirmation of the trial court's admission of plaintiffs' expert's testimony at
trial, b) reversal of the trial court's denial of prejudgment interest and c)
remand to the district court to fix prejudgment interest.
The parties are currently awaiting a ruling on the Petition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule
On July 24, 2000, the Company filed a Form 8-K reporting the Company's
acquisition on July 7, 2000, of World Machinery Company which, prior to
such acquisition, owned 74.8% of the Company's outstanding common stock.
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<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 20, 2000.
GENERAL BEARING CORPORATION
---------------------------
(Registrant)
/s/ David L. Gussack
-----------------------------
David L. Gussack
President
/s/ Barry A. Morris
-----------------------------
Barry A. Morris
Chief Financial Officer
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