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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 October 2, 2004
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
-------(State or other jurisdiction of
incorporation or organization)
13-2796245
---------(I.R.S. Employer
Identification No.)
44 High Street, West Nyack, New York
-----------------------------------(Address of principal executive offices)
10994
----(Zip Code)
Registrant's telephone number, including area code: (845) 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
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). |_| Yes
|X| No
At November 10, 2004, the Registrant had issued 7,124,450 shares of common stock, $.01 par value per share, and had outstanding 3,790,222
shares.
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," "believes," "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 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.
GENERAL BEARING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 2, 2004
TABLE OF CONTENTS
Page No.
--------
PART I
Item 1. Financial Statements .....................................
2 - 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition .......................
9 - 14
Item 3. Quantitative and Qualitative Disclosure about Market Risk. 15 - 16
Item 4. Controls and Procedures...................................
16
PART II
Item 1. Legal Proceedings ........................................
17
Item 5. Other Events..............................................
17
Item 6. Exhibits..................................................
17
Signature
.................................................
Certifications
................................................. 45 - 47
1
18
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands - Except for Shares and Per Share Data)
ASSETS
Current:
Cash and cash equivalents
Accounts receivable - net of allowance for doubtful
accounts of $586 and $330
Inventories
Prepaid taxes and taxes recoverable
Prepaid expenses and other current assets
Advances to affiliates
Deferred tax assets
Total current assets
Fixed assets, net of accumulated depreciation
Investment in and advances to joint ventures
and affiliates
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Notes payable - banks
Accounts payable:
Trade
Affiliates
Accrued expenses and other current liabilities
Current maturities of long-term debt
Total current liabilities
Long-term debt, net of current maturities
Other long-term liabilities - affiliate
Deferred taxes
Minority interests
Oct. 2,
2004
-------(Unaudited)
$
5,115
January 3,
2004
---------$
1,701
17,361
23,080
895
1,335
57
1,652
-------49,495
12,378
22,637
3,729
1,864
95
1,652
-------44,056
24,281
21,482
582
1,931
-------$ 76,289
========
3,362
1,347
-------$ 70,247
========
$
$
9,078
9,021
9,060
146
6,297
297
-------24,878
-------13,649
6,387
1,683
4,844
412
-------22,347
-------15,266
--
124
886
886
12,592
9,153
--
--
Commitments and contingencies
Stockholders' equity:
Preferred stock par value $.01 per share - 1,000,000
shares authorized, none issued and outstanding
Common stock par value $.01 per share - 19,000,000
shares authorized, 7,124,450 and 7,102,200
shares issued
Additional paid-in capital
Accumulated other comprehensive loss
Treasury stock at cost, 3,334,228 and 3,348,228 shares
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholder's equity
See accompanying notes to condensed consolidated financial statements
2
71
40,202
(557)
(1,395)
(14,037)
-------24,284
-------$ 76,289
========
71
40,133
(792)
(1,438)
(15,503)
-------22,471
-------$ 70,247
========
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands - Except for Shares and Per Share Data)
(Unaudited)
Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Other expenses, net
Income from continuing operations before income taxes and
minority interests
Income taxes / (benefit)
Income from continuing operations before minority interests
Minority interests
Income from continuing operations
Income / (loss) from discontinued operations
Income (taxes) / benefit
Income (loss) from discontinued operations
Net income
Income per common share from continuing operations:
Basic
Diluted
Thirty-nine weeks ended
-------------------------Oct. 2,
Sept. 27,
2004
2003
--------------------$
60,609
$
46,855
Thirteen weeks ended
--------------------------Oct. 2,
Sept. 27,
2004
2003
--------------------$
20,778
$
14,582
45,014
----------15,595
33,225
----------13,630
15,938
----------4,840
10,798
----------3,784
11,462
----------4,133
9,463
----------4,167
3,993
----------847
3,132
----------652
1,266
-----------
600
-----------
485
-----------
264
-----------
2,867
3,567
362
388
786
----------2,081
1,242
----------2,325
(4)
----------366
143
----------245
615
----------1,466
------------
470
----------1,855
----------(29)
278
----------88
------------
14
----------231
----------8
----------------------$
1,466
===========
10
----------(19)
----------$
1,836
===========
----------------------$
88
===========
(3)
----------5
----------$
236
===========
$
0.39
----------$
0.39
-----------
$
0.48
----------$
0.48
-----------
$
0.02
----------$
0.02
-----------
$
0.06
----------$
0.06
-----------
$
-----------$
------------
$
-----------$
------------
$
-----------$
------------
$
-----------$
------------
$
0.39
----------$
0.39
-----------
$
0.48
----------$
0.48
-----------
$
0.02
----------$
0.02
-----------
$
0.06
----------$
0.06
-----------
3,766,129
----------3,776,458
-----------
3,847,021
----------3,853,967
-----------
3,772,288
----------3,796,789
-----------
3,809,969
----------3,824,512
-----------
Loss per common share from discontinued operations:
Basic
Diluted
Income per common share from net income:
Basic
Diluted
Weighted average number of common shares:
Basic
Diluted
See accompanying notes to condensed consolidated financial statements
3
FINANCIAL STATEMENTS OF
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
Thirty-nine weeks ended
----------------------Oct. 2,
Sept. 27,
2004
2003
---------------$ 1,466
$ 1,836
Thirteen weeks ended
----------------------Oct. 2,
Sept. 27,
2004
2003
---------------$
88
$
236
Derivative fair market value adjustment
235
--------
168
--------
6
--------
148
--------
Comprehensive income
$ 1,701
========
$ 2,004
========
$
94
========
$
384
========
Net income
See accompanying notes to condensed consolidated financial statements
4
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash provided
by operating activities:
Minority interests
Depreciation and amortization
Equity in income of joint ventures and affiliates
Other non-cash items charged to income
(Gain) / loss on sales of fixed assets
Changes in:
Accounts receivable
Inventories
Prepaid expenses and other assets
Due from affiliates
Accounts payable and accrued expenses
Net cash provided by operating activities
Cash flows from investing activities:
Investment in affiliate
Acquisition of business, net of cash acquired
Fixed asset purchases
Net proceeds from sale of fixed assets
Net cash used in investing activities
Cash flows from financing activities:
Purchase of treasury stock
Proceeds from exercise of common stock options
Proceeds from partner contributions in a joint venture
Net proceeds from (repayment of) note payable - banks
Repayment of other long-term debt
Repayment of revolving credit facility
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Cash paid during the period for:
Interest
Income taxes
5
Thirty-nine weeks ended
---------------------------Oct. 2, 2004 Sept. 27, 2003
------------ -------------$ 1,466
$ 1,836
615
2,175
(114)
6
(2)
(477)
1,803
(321)
34
--
(2,961)
2,383
3,986
(1,364)
850
------7,040
-------
(637)
2,228
458
(1,268)
124
------3,780
-------
-871
(913)
5
------(37)
-------
(281)
-(2,063)
-------(2,344)
-------
-70
370
(2,358)
(172)
(1,499)
------(3,589)
------3,414
1,701
------$ 5,115
=======
(476)
--597
(158)
(2,374)
------(2,411)
------(975)
3,158
------$ 2,183
=======
$ 1,288
=======
$
475
=======
$ 1,141
=======
$
441
=======
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of
Presentation
The accompanying unaudited condensed consolidated
financial statements for General Bearing Corporation and
subsidiaries ("the Company") 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
October 2, 2004 are not necessarily indicative of the
results that may be expected for the year ending January
1, 2005. 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 3, 2004.
2. Change in Ownership
in Joint Venture
In April 2004, General Bearing Corporation ("General")
invested $1,000,000 in Shanghai General Bearing Co. Ltd.
("SGBC"), effectively increasing its ownership in SGBC
from 43.55% to 50% and assumed control of operations.
SGBC is a partnership between General and Shanghai
Roller Bearing Factory of Shanghai, China ("SRBF").
Beginning in the second quarter of 2004, the results of
SGBC have been fully consolidated and General's
investment in SGBC has been eliminated from "investments
in affiliates" accordingly.
In November 2001, General and SRBF agreed to a new joint
venture contract whereby ownership in SGBC would be
increased to 50% by virtue of General contributing an
additional $3,000,000 between 2002-2004. "Other assets"
includes $684,000 of goodwill relating to General's
increased ownership in SGBC which has not been allocated
to specific assets.
3. Discontinued
Operations
The Company's Board of Directors and management adopted
a plan in December 2002 to discontinue the operations of
the machine tool segment by sale of the assets during
2003. In accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets", prior year
statements of operations of the Company have been
reclassified to segregate discontinued operations from
continuing operations.
In December 2003, the Company completed management's
previously adopted plan and disposed of the assets and
liabilities of General Ball & Roller, Inc. (formerly
known as WMW Machinery Company) and World Machinery
Group's ("WMG") interest in World Machinery Works, S.A.,
to two separate entities that are majority owned by an
officer of General Bearing Corporation ("General").
The other assets of WMG were not successfully disposed
of during 2003 and management currently does not
anticipate disposing of them in the foreseeable future.
While collectively immaterial, the remaining assets and
liabilities of WMG, have been reclassified back to
continuing operations in 2003.
6
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Inventories Inventories consist of the following: (In Thousands)
October 2, 2004
September 27, 2003
----------------------------------------------------------------------------------------------------Finished bearings
$13,486
$10,895
Bearing raw materials, purchased parts and work
in process
9,594
14,846
------------$23,080
$25,741
=====================================================================================================
5. Earnings per Share
Basic earnings per share includes no dilution and is
computed 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:
Thirty-nine weeks ended
--------------------------------------Oct. 2, 2004
Sept. 27, 2003
----------------------------------------------------------------------------------------------------Diluted earnings per share computation:
Basic weighted average common shares outstanding
3,766,129
3,847,021
Incremental shares from assumed exercise of
dilutive options
10,329
6,946
----------------------------------------------------------------------------------------------------3,776,458
3,853,967
=====================================================================================================
Thirteen weeks ended
--------------------------------------Oct. 2, 2004
Sept. 27, 2003
----------------------------------------------------------------------------------------------------Diluted earnings per share computation:
Basic weighted average common shares outstanding
3,772,288
3,809,969
Incremental shares from assumed exercise of
dilutive options
24,501
14,543
----------------------------------------------------------------------------------------------------3,796,789
3,824,512
=====================================================================================================
7
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the thirty-nine weeks ended October 2, 2004 and
September 27, 2003, 243,550 and 245,800 options
outstanding, respectively, were anti-dilutive. For the
thirteen weeks ended October 2, 2004 and September 27,
2003, 160,800 and 245,800 options outstanding,
respectively, were anti-dilutive.
6. Derivative
Financial
Instruments
The Company follows Statement of Financial Accounting
Standards No. 133 ("SFAS 133") "Accounting for
Derivative Instruments and Hedging Activities", as
amended, and interpreted, which requires that all
derivative instruments be recorded on the balance sheet
at their fair value.
In order to manage it's exposure to changes in interest
rates, the Company has entered into an interest rate
swap agreement to hedge a portion of its total long-term
debt that is subject to variable interest rates. This
agreement is considered to be a hedge against changes in
the amount of future cash flows associated with the
interest payments on variable rate debt obligations. For
the thirty-nine weeks ended October 2, 2004 and
September 27, 2003, expenses recognized in earnings
relating to the interest rate swap totaled $270,000 and
$311,000, respectively and are included in the Statement
of Operations in "Other expenses, net". Any amounts
reported in "Comprehensive Income" will be reclassified
to earnings over the term of the agreement, through
2007.
7. Litigation
Except as explained in Part II of this report, there
have been no material changes in litigation since the
events reported in the Company's 10-Q for the fiscal
quarter ended July 3, 2004.
8
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
There are no non - GAAP financial measures provided in this report.
Business Overview
Prior to 2004, General Bearing Corporation ("General") and subsidiaries (collectively, the "Company") operated in two business segments:
Bearings ("Continuing Operations") and Machine Tools ("Discontinued Operations"). Based on several years of disappointing performance of
the machine tools segment and the Company's desire to focus its resources on its core business, the Company's Board of Directors and
management adopted a plan in December 2002 to discontinue the operations of the machine tool segment by sale of the assets during 2003.
Accordingly, pursuant to Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long Lived
Assets", the Company's prior period financial statements have been reclassified to segregate discontinued operations from continuing
operations.
In December 2003, the Company completed management's previously adopted plan and disposed of the assets and liabilities of General Ball &
Roller, Inc. (formerly known as WMW Machinery Company) and its interest in World Machinery Works, S.A., to two separate entities that are
majority owned by an officer of General. Currently, the entities owned by the officer are not current with regard to their purchase payments
under the agreement of sale.
In April 2004, General increased its ownership in Shanghai General Bearing Co. Ltd. ("SGBC") from 43.55% to 50% and assumed control of
operations. Due to this increased ownership, the financial statements of SGBC have been consolidated for the first time beginning in April
2004.
Continuing Operations
The Company manufactures and distributes a variety of bearings and bearing components under the Hyatt(R) and The General(R) trademarks.
The Company supplies original equipment manufacturers ("OEMs") and distributors. The Company's products, sold principally in the United
States ("U.S.") and Asia, are used in a broad range of applications, including automobiles, railroad cars, locomotives, trucks, heavy duty
trailers, office equipment, machinery and appliances. General has entered into six joint ventures (5 with manufacturers in the Peoples Republic
of China ("PRC")) to enable it to manufacture high quality, low cost bearings and bearing components. General obtains a majority of its
bearing and component requirements from its manufacturing plants in the PRC.
Trends and Uncertainties
General's business model is based on providing low-cost, high-precision bearing products to predominantly North American customers. The
continued cost consciousness of this customer base is a positive trend for the Company, which the Company believes has resulted in increased
sales in 2003 - 2004 and the increased sales volume to the transportation market over the past three years. The Company's low-cost Chinese
operations provide a competitive advantage for high-precision bearing products. The Company believes this competitive advantage has created
opportunities for the Company to grow in 2004 and the future. The Company has attributed the decline in sales to distributors over the past
several years to the downturn in U.S. manufacturing. The Company has seen some improvement in 2004 and sees this as an indication that
there will be a recovery in U.S. manufacturing and that its sales will grow as a result of such recovery.
9
The major competition for the Company's lower cost products comes from three evolving trends:
1. Established higher cost competitors also moving their production to low-cost areas, such as China,
2. Customers establishing "buying" functions in China to pursue lower cost direct purchases, and
3. Customers moving their complete assembly processes from North America to China or other low-cost regions.
Other trends, events and areas of uncertainty which could materially affect the Company include the following:
1. The increased global cost of steel has significantly increased the cost of materials for manufacturing bearings. Additionally, the high demand
for steel in China has created a price increase in China that is even greater than the price increase in North America. While the Company has
been able to collect material surcharges to offset a portion of this increased cost, the inability to collect such material surcharges or any
significant limitation on it's ability to collect such surcharges could materially and adversely affect the Company's operating income and
liquidity.
2. The Company's business is based on low-cost, high-quality products from its Chinese operations. The Company's cost of goods is based in
part on the valuation of the Chinese RMB versus the U.S. Dollar. Should there be an adverse change in the exchange rate of the RMB against
the U.S. Dollar, GBC's competitive position, operating income and cash flow will be adversely impacted.
3. Several major North American customers have slowed their payments over the past year or two. Should a significant portion of the
Company's current customer base also move to slow payments, there could be a material adverse impact on the Company's liquidity.
4. The Company's dependence on Chinese products for the supply of bearings and bearing components creates an uncertainty and concentration
risk. If for any reason the Company was unable, or limited in its ability to continue to ship products from China, it could experience a material
disruption in supply, which would materially adversely affect the Company's operations and liquidity.
5. Expected increases in sales volume may not result in a proportional increase in cash flow as the Company may be required to use cash for
working capital associated with the growth in sales.
Results of Operations
Sales. Sales for the thirteen weeks ended October 2, 2004 ("Q-3 2004") of $20,778,000 represents a 42.5% increase compared to $14,582,000
for the thirteen weeks ended September 27, 2003 ("Q-3 2003"). A large portion of the sales increase ($2,677,000) is due to the consolidation of
SGBC's sales into the Company's financial statements. Additionally, the Company experienced increases in sales of tapered roller bearings for
heavy duty truck trailers, drive line components to the automotive industry, precision balls, tapered journal bearings to the railroad industry,
heavy duty aftermarket, and distribution.
10
Sales for the thirty-nine weeks ended October 2, 2004 ("2004") of $60,609,000 represents a 29.4% increase compared to $46,855,000 for the
thirty-nine weeks ended September 27, 2003 ("2003"). A large portion of the sales increase ($5,153,000) is due to the consolidation of SGBC's
sales into the Company's financial statements. Additionally, the Company experienced increases in sales of drive line components to the
automotive industry, tapered roller bearings for heavy duty truck trailers, precision balls, distribution, heavy duty aftermarket, and tapered
journal bearings to the railroad industry.
Gross Profit. Gross profit for Q-3 2004 of $4,840,000 represents a 27.9% increase compared to $3,784,000 for Q-3 2003. As a percentage of
sales, gross profit (GP%) was 23.3% for Q-3 2004 compared to 25.9% for Q-3 2003. The decrease in GP% was mainly due to material cost
increases as a result of higher steel costs, $910,000 in increased inventory provisions, the effect of the Chinese government reducing the Value
Added Tax credit for exports by 4%, and changes in product mix.
Gross profit for 2004 of $15,595,000 represents a 14.4% increase compared to $13,630,000 for 2003. As a percentage of sales, GP% was
25.7% for 2004 compared to 29.1% for 2003. The decrease in GP% was mainly due to material cost increases as a result of higher steel costs,
$1,317,000 in increased inventory provisions, the effect of the Chinese government reducing the Value Added Tax credit for exports by 4%,
and changes in product mix.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (S,G&A) as a percentage of sales were 19.2% in
Q-3 2004 compared to 21.5% in Q-3 2003. S,G&A increased by $861,000 mainly due to the consolidation of SGBC's expenses ($433,000) into
the Company's financial statements, increases in salaries, bad debts, travel and entertainment, professional fees, as well as increases in variable
expenses such as freight and sales commissions.
S,G&A as a percentage of sales were 18.9% in 2004 compared to 20.2% in 2003. S,G&A increased by $1,999,000 mainly due to the
consolidation of SGBC's expenses ($802,000) into the Company's financial statements, increases in salaries, professional fees, travel and
entertainment, bad debts, insurance, and sales commissions, partially offset by reduced promotion expense and real estate taxes as a result of a
reduced assessment.
Operating Income. Operating income for Q-3 2004 of $847,000 represents a 29.9% increase compared to $652,000 for Q-3 2003 due to the
higher sales volume, partially offset by lower GP% and higher S,G&A.
Operating income for 2004 of $4,133,000 represents a 0.8% decrease compared to $4,167,000 for 2003 due to higher S,G&A and lower GP%,
partially offset by increased sales.
Other Expense, net. Other expense, net was $485,000 in Q-3 2004 compared to $264,000 in Q-3 2003 and is comprised of miscellaneous
non-operating income and expenses, interest expense and equity in income of affiliates ("equity
income") as follows: (In thousands)
Third Quarter
2004
2003
-----------------Other non-operating (income) expenses, net
Interest expense, net
Equity loss / (income) in affiliates
11
$
5
472
8
----$ 485
=====
$
8
392
(136)
----$ 264
=====
Other expense, net was $1,266,000 in 2004 compared to $600,000 in 2003 as
follows: (in thousands)
Nine Months
2004
2003
--------------------Other non-operating (income) expenses, net
Interest expense, net
Equity (income) in affiliates
$
49
1,331
(114)
------$ 1,266
=======
$
(33)
954
(321)
------$
600
=======
Pursuant to requirements imposed in 1993 by the United States Office of Foreign Assets Control ("OFAC"), at the end of 2002 the Company
carried a net payable ("IKL payable") to General IKL Corp., an affiliate. The requirement arose out of sanctions imposed by the U.S.
government on the countries comprising the former Republic of Yugoslavia, "freezing" certain assets in the United States. In February 2003,
OFAC "unfroze" assets affected by the sanctions and the Company reduced a significant portion of the IKL payable which the Company
disputed, resulting in a $238,000 reduction in interest expense as of March 29, 2003.
Income Tax. The Company recorded an income tax benefit of $4,000 in Q-3 2004 compared to income tax expense of $143,000 in Q-3 2003.
The income tax benefit in Q-3 2004 was the result of a reversal of a previously recorded tax accrual in the amount of $154,000 at one of the
Company's joint ventures.
Income tax. The Company recorded income tax expense of $786,000 in 2004 compared to $1,242,000 in 2003. The Company's effective
income tax rate was 27.4% in 2004 compared to 34.8% in 2003.
Net Income. Net income for Q-3 2004 decreased by 62.7% to $88,000 or $.02 per basic and diluted share, from $236,000 or $.06 per basic and
diluted share in Q-3 2003. The decrease is primarily due to higher S,G&A, lower GP% and higher Other expenses, net, partially offset by
higher sales volume. Net income for 2004 decreased 20.2% from 2003 to $1,466,000 or $.39 per basic and diluted share, from $1,836,000 or
$.48 per basic and diluted share in 2003 mainly due to the factors affecting the quarterly net income.
Financial Condition, Liquidity and Capital Resources
During the periods presented, the Company's primary sources of capital have been net cash provided by operating activities and a Revolving
Credit Facility with KeyBank National Association ("Revolving Credit Facility"). The primary demands on the Company's capital resources
have been investments in, and advances to, affiliates (joint ventures) and fixed asset purchases made to increase capacity and broaden the
Company's product offering and improve operations. At October 2, 2004 and January 3, 2004, the Company had working capital of
$24,617,000 and $21,709,000, respectively.
Cash provided by operating activities in 2004 was $7,040,000. Cash provided by net income before depreciation and amortization, inventory
reductions, reduced prepaid expenses and other assets primarily due to the collection of taxes, and higher accounts payable and accrued
expenses was partially offset by increased accounts receivable and due from affiliates.
Cash used in investing activities in 2004 was $37,000. During the nine months ended October 2, 2004, the Company used cash of $913,000 for
capital expenditures. The Company invested cash of $807,000 in SGBC as part of the investment required to increase General's ownership
from 43.55% to 50%. As a result, $1,678,000 of cash was added to the Company's consolidated Balance Sheet.
12
Cash used in financing activities in 2004 was $3,589,000. During 2004, the Company had net decreases in Notes payable - banks of
$2,358,000, net decreases in debt under its Revolving Credit Facility of $1,499,000, and made $172,000 in payments under its capital lease
facility.
On October 2, 2004, the Company had outstanding debt of $7,682,000 under its Revolving Credit Facility, which expires on July 31, 2006, and
had further availability of approximately $11.9 million. The Company is in compliance with all of its loan covenants.
The Company has not repurchased any shares of it's common stock in 2004. The Company has purchased 410,228 shares of it's common stock
for a cost of $1,472,000 since the inception of the Company's Stock Repurchase Program ("the Program") on January 11, 2000. Of the 410,228
shares repurchased, 26,000 have been reissued, primarily to the Board of Directors as part of their annual compensation.
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 investment commitments, anticipated working capital and capital
expenditure requirements for at least the next twenty four months. The Company's operating cash flow could be adversely affected if there was
a decrease in demand for the Company's products.
13
The table and notes below describe the Company's contractual obligations related to its liquidity.
(In Thousands)
Contractual Obligations:
Bank revolving line of credit
Payments Due by Period
----------------------------------------------------------Less
than 1
1 - 3
4 - 5
After 5
Total
year
years
years
years
--------------------------------
$ 7,682
12,135
9,078
3,057
--
--
Capital lease obligations
124
97
17
10
--
Other long - term liabilities - affiliate
178
--
178
--
--
2,905
------23,024
200
------9,375
2,705
------13,639
-------10
---------
11,958
1,290
3,686
1,281
5,701
250
------$35,232
=======
250
------$10,915
=======
-------$17,325
=======
-------$ 1,291
=======
-------$ 5,701
=======
Notes payable - banks
Note payable - other
Total obligations - per Balance Sheet
$ 7,682
$
$
--
$
--
Off Balance Sheet items:
Operating leases
Equity investment obligations
Total contractual cash obligations
The amount outstanding under General's revolving line of credit increased by $863,000 to $7,682,000 during the third quarter primarily as a
result of cash invested in the China operations to increase capacity.
During the thirteen weeks ended October 2, 2004, Notes payable - banks decreased by $318,000 to $12,135,000 and represents debts of the
Company's joint ventures, for which General is not liable. It is anticipated that these debts will be paid by the joint ventures, to the extent
possible, from funds generated from their operations and the balance, if any, refinanced with new bank debt.
Off Balance Sheet Arrangements
The Company believes that all material off balance sheet arrangements have been included in the tabular disclosure of contractual obligations.
14
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company is subject to market risk primarily associated with changes in interest rates and foreign currency exchange rates. In order to
manage the volatility relating to interest rates, the Company has entered into an interest rate swap agreement. In order to manage the volatility
relating to foreign currency exchange rates the Company denominates substantially all purchase and sale transactions in U.S. dollars. The
Company does not anticipate any material changes in its primary market risk exposures in the near future.
The Company does not execute transactions or hold derivative financial instruments for trading purposes.
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 and interest rate swap. As of October 2, 2004, the Company had $5,625,000 outstanding subject to an interest rate
swap. This swap is used to convert floating rate debt relating to the Company's revolving credit agreement to fixed rate debt to reduce the
Company's exposure to interest rate fluctuations. The net result was to substitute a fixed interest rate of 9.17% for the variable rate. The swap
amortizes by $75,000 per month and terminates in December 2007. Under the interest rate environment during the thirty-nine weeks ended
October 2, 2004, the Company's interest rate swap agreement resulted in additional expense of approximately $270,000.
The following table provides information about the Company's interest rate swap agreement that is sensitive to changes in interest rates. The
table presents average notional amounts and weighted average interest rates by fiscal year. Notional amounts are used to calculate the
contractual cash flows to be exchanged under the swap contract.
In Thousands
Interest Rate Swaps
Variable to Fixed (US$)
Average Pay Rate
Average Receive Rate
2004
2005
2006
2007
Total
Fair
Value
5,812
9.17%
3.85%
4,912
9.17%
4.25%
4,012
9.17%
4.75%
3,112
9.17%
5.25%
5,625
9.17%
557
The following table provides information about the Company's variable rate debt.
In Thousands
Debt:
Variable Rate (US$)
Average Interest Rate
2004
2005
2006
2007
Total
10,000
3.70%
9,850
4.10%
9,750
4.60%
9,500
5.10%
7,682
3.61%
Fair
Value
7,682
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.
15
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 from domestic companies with international customers are denominated in U.S. dollars. Only a
small fraction of the Company's purchases are denominated in foreign currency. The Company purchases approximately $2,500,000 of product
monthly from its Chinese joint ventures, which use proceeds thereof, to satisfy locally incurred liabilities in Renminbi (RMB). Had there been
an adverse 10% fluctuation between the exchange rate of the U.S. dollar and the RMB, it would have resulted in a potential loss of earnings of
approximately $2,250,000 for the thirty-nine weeks ended October 2, 2004.
Item 4. Controls and Procedures
The Company evaluated the effectiveness of the design and operation of its "disclosure controls and procedures" ("Disclosure Controls") as of
the end of the period covered by this Report. This evaluation ("Controls Evaluation") was done under the supervision and with the participation
of management, including the Chief Executive Officer ("CEO") and Controller. The Company's management, including the CEO and
Controller, does not expect that its Disclosure Controls or its "internal control over financial reporting" ("Internal Controls") will prevent all
error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over
time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be
detected. The Company conducts periodic evaluations of its Internal Controls to enhance, where necessary, its procedures and controls.
Conclusions: Based upon the Controls Evaluation, the CEO and Controller have concluded that, subject to the limitations noted above, the
Disclosure Controls are effective in reaching a reasonable level of assurance that management is timely alerted to material information relating
to the Company during the period when its periodic reports are being prepared. In accordance with SEC requirements, the CEO and Controller
note that, since the date of the Controls Evaluation to the date of this report, there have been no significant changes in Internal Controls or in
other factors that could significantly affect Internal Controls, including any corrective actions with regard to significant deficiencies and
material weaknesses.
16
PART II
Item 1. Legal Proceedings
Trustee for Integrated Legal and Financial Problem Solvers, Inc., Defined Benefit Pension Plan and Trust vs. General Bearing Corporation, et
al.
The plaintiff in the above entitled action (disclosed in the Company's Report on form 8-K dated August 12, 2004), voluntarily dismissed the
action on August 30, 2004.
Item 5. Other Events
The Company has entered into an amendment, filed herewith as exhibit 10.26, with KeyBank National Association permitting additional
investment in its foreign subsidiaries.
Item 6. Exhibits
(a) Exhibits
10.26 Amendment number 4 to the Credit Agreement between KeyBank National Association and the Company.
31.1 Certification of the Chief Executive Officer required by Rule 13a - 14(a) or 15d - 14(a), as adopted pursuant to Section 302 of the
Sarbanes Oxley Act of 2002.
31.2 Certification of the Controller required by Rule 13a - 14(a) or 15d 14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32. Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
17
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 16, 2004.
GENERAL BEARING CORPORATION
(Registrant)
/s/ David L. Gussack
--------------------------David L. Gussack
Chief Executive Officer
/s/ Rocky Cambrea
--------------------------Rocky Cambrea
Controller
18
Exhibit 10.26
AMENDMENT NO. 4 TO CREDIT AGREEMENT
AMENDMENT NO. 4 to Credit Agreement (this "Amendment") entered into as of September 30, 2004 among GENERAL BEARING
CORPORATION (the "Borrower"), the Lenders party hereto and KEYBANK NATIONAL ASSOCIATION, as Administrative Agent (the
"Administrative Agent").
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to the Credit Agreement dated as of December 20, 1999 (as
amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"); and
WHEREAS, the obligations of the Borrower under the Credit Agreement are guaranteed by the Subsidiary Guarantors party to the Guarantee
and Collateral Agreement dated as of December 20, 1999 (the "Guarantee Agreement") between the Subsidiary Guarantors and the
Administrative Agent; and
WHEREAS, the Borrower has requested that the Lenders and the Administrative Agent amend certain provisions of the Credit Agreement, and
the Lenders and the Administrative Agent have agreed to make such amendments subject to the terms and conditions set forth herein; and
WHEREAS, terms not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Amendments to Credit Agreement.
(a) Additional Definitions. Section 1.1 of the Credit Agreement is hereby amended by adding the following new definitions in the appropriate
alphabetical order:
"Amendment No. 4" means Amendment No. 4 to Credit Agreement, dated as of September 30, 2004, by and among the Borrower, the Lenders
and the Administrative Agent.
(b) Investments. Section 7.8 of the Credit Agreement is hereby amended by deleting clause (h) thereof in its entirety and substituting the
following therefor:
(h) Investments by the Borrower or any of its Domestic Subsidiaries in Foreign Subsidiaries and other Affiliates of the Borrower in an
aggregate amount not to exceed for any Fiscal Year set forth below the amount set forth below opposite such Fiscal Year:
Fiscal Year 2003
Fiscal Year 2004
Aggregate Amount
of Investment
------------$1,750,000
$2,800,000
Fiscal Year
-----------
Fiscal Year 2005 and each Fiscal Year thereafter $2,000,000
provided that (x) both before and after giving effect to such Investment, no Default shall exist or result therefrom and (y) commencing with
Fiscal Year 2005, in the event that Investments made or incurred during the immediately preceding Fiscal Year are less than the amounts
permitted to be made or incurred during such Fiscal Year pursuant to this Section 7.8(h) without giving effect to any amounts permitted to be
carried forward to such Fiscal Year from the immediately preceding Fiscal Year, an amount equal to the lesser of (I) such unused amount and
(II) $800,000 may be carried forward to the immediately succeeding Fiscal Year provided that (A) no amounts once carried forwarded to the
next Fiscal Year may be carried forward to the Fiscal Years thereafter and (B) all Investments made or incurred in any Fiscal Year shall be
applied first to reduce the amount of Investments permitted to be made or incurred in such Fiscal Year pursuant to this Section 7.8(h) without
giving effect to any amounts permitted to be carried forward to such Fiscal Year from the immediately preceding Fiscal Year and then to
reduce the amount carried forward.
(c) Schedules to Credit Agreement. The Schedules to the Credit Agreement are hereby amended as set forth in the schedules attached hereto as
Exhibit A.
(d) Schedules to Guarantee and Collateral Agreement. The Schedules to the Guarantee and Collateral Agreement are hereby amended as set
forth in the schedules attached hereto as Exhibit B.
(e) General. All references to "this Agreement" in the Credit Agreement and to "the Credit Agreement" in the other Loan Documents shall be
deemed to refer to the Credit Agreement as amended by this Amendment.
2
2. Effectiveness of Amendment.
(a) The effectiveness of this Amendment is subject to the satisfaction of the following conditions:
(i) The Administrative Agent shall have received a counterpart of this Amendment executed by the Borrower.
(ii) The Administrative Agent shall have received counterparts of the Consent and Acknowledgment of Subsidiary Guarantors annexed hereto
by each of the Subsidiary Guarantors.
(iii) The Administrative Agent shall have received all fees and expenses due and payable on or prior to the date hereof (including, without
limitation, all fees and expenses of counsel to the Administrative Agent.
(iv) The Administrative Agent shall have received such other documents and certificates as the Administrative Agent or its counsel may
reasonably request, all in form and substance satisfactory to the Administrative Agent and its counsel.
(b) This Amendment shall become effective as of September 30, 2004 (the "Amendment No. 4 Effective Date") upon the satisfaction of the
conditions set forth in Section 2(a) hereof.
3. Acknowledgments and Confirmations. The Borrower and each Subsidiary Guarantor acknowledges and confirms that the Liens granted
pursuant to the Loan Documents secure, without limitation, the Indebtedness, liabilities and obligations of the Borrower to the Administrative
Agent and the Lenders under this Amendment, whether or not so stated in the Loan Documents, and that the term "Obligations" as used in the
Loan Documents (or any other term used therein to refer to the Indebtedness, liabilities and obligations of the Borrower to the Administrative
Agent or any of the Lenders) includes, without limitation, the Indebtedness, liabilities and obligations to the Administrative Agent and the
Lenders under the Credit Agreement as amended by this Amendment.
4. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that:
(a) The representations and warranties set forth in the Loan Documents (other than the representations and warranties made as of a specific date
and as set forth in Exhibits A and B hereto) are true and correct in all material respects as of the date hereof and with the same effect as though
made on and as of the date hereof, except that (i) Shanghai General Bearing Co., Ltd., Ningbo General Bearing Co., Ltd. and Jiangsu General
Ball & Roller Co.,
3
Ltd. may, from time to time, incur Guarantee Obligations which are non-recourse to the Borrower or any Guarantor Subsidiary and (ii) in
December 2003, the Borrower disposed of the assets and liabilities of General Ball and Roller, Inc. (formerly known as WMW Machinery
Company, Inc.) and its interest in World Machinery Works, S.A., collectively representing substantially all of the assets of the Borrower's
machine tools segment.
(b) No Default or Event of Default and no event or condition which, with the giving of notice or lapse of time or both, would constitute such a
Default or Event of Default, now exists or would exist.
(c) (i) The execution, delivery and performance by the Borrower of this Amendment is within its organizational powers and have been duly
authorized by all necessary action (corporate or otherwise) on the part of the Borrower,
(ii) this Amendment is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms,
and (iii) neither this Amendment nor the execution, delivery and performance by the Borrower hereof: (A) contravenes the terms of the
Borrower's organization documents, (B) conflicts with or results in any breach or contravention of, or the creation of any Lien under, any
document evidencing any contractual obligation to which the Borrower is a party or any order, injunction, writ or decree to which the Borrower
or its property is subject, or (C) violates any requirement of law.
5. Effect; No Waiver. Except as specifically set forth herein, the Credit Agreement and the other Loan Documents shall remain in full force and
effect in accordance with their terms and are hereby ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of the Administrative Agent or the Lenders under the Credit Agreement, nor constitute a
waiver of any provision of the Credit Agreement, except as specifically set forth herein.
6. Miscellaneous.
(a) The Borrower shall pay the Administrative Agent upon demand for all reasonable expenses, including reasonable attorneys' fees and
expenses of the Administrative Agent, incurred by the Administrative Agent in connection with the preparation, negotiation and execution of
this Amendment.
(b) THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK.
(c) This Amendment shall be binding upon the Borrower, the Administrative Agent and the Lenders and their respective successors and
assigns, and shall inure to the benefit of the Borrower, the Administrative Agent and the Lenders and the respective successors and assigns of
the Administrative Agent and the Lenders.
4
(d) This Amendment (and the Consent and Acknowledgment of Subsidiary Guarantors annexed hereto) may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an
original and all of which taken together shall constitute one and the same instrument.
[The remainder of this page intentionally has been left blank.]
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly
authorized officers on the date first above written.
GENERAL BEARING CORPORATION
By: /s/ David L. Gussack
-------------------------------------Name: David L. Gussack
Title: Chief Executive Officer
KEYBANK NATIONAL ASSOCIATION,
as Administrative Agent, Issuer and Lender
By: /s/ Robert D. Scott
-------------------------------------Name: Robert D. Scott
Title: Vice President
General Bearing Amendment No. 4 Signature Page
CONSENT AND ACKNOWLEDGMENT
OF SUBSIDIARY GUARANTORS
Each of the undersigned Subsidiary Guarantors hereby (1) consents to the execution and delivery by the Borrower of the foregoing
Amendment; (2) agrees that the definition of "Obligations" (and any other term referring to the indebtedness, liabilities and obligations of the
Borrower to the Administrative Agent or any of the Lenders) in the Guarantee Agreement and the other Loan Documents shall include the
Indebtedness of the Borrower under the Amendment;
(3) agrees that the definition of "Credit Agreement" in the Guarantee Agreement and the other Loan Documents to which it is a party is hereby
amended to mean the Credit Agreement as amended by the foregoing Amendment; (4) reaffirms its continuing liability under its Guarantee
Agreement (as modified hereby); and (5) confirms and agrees that it is a Subsidiary Guarantor party to the Guarantee Agreement and that the
Guarantee Agreement and the other Loan Documents to which it is a party are, and shall continue to be, in full force and effect in accordance
with their respective terms.
GENERAL BEARING BALL AND ROLLER, INC.
By: /s/ David L. Gussack
--------------------------------Name:
Title:
CHINA BEARING CENTER, INC.
By: /s/ David L. Gussack
--------------------------------Name:
Title:
NN GENERAL, LLC
By: /s/ David L. Gussack
--------------------------------Name:
Title:
GENERAL BALL AND ROLLER, INC.
By: /s/ David L. Gussack
--------------------------------Name:
Title:
Consent and Acknowledgment of Subsidiary Guarantors Signature Page
GENBEARCO INTERNATINAL CORP.
By: /s/ David L. Gussack
--------------------------------Name:
Title:
HYATT ZWZ BEARING CORPORATION
By: /s/ David L. Gussack
--------------------------------Name:
Title:
Consent and Acknowledgment of Subsidiary Guarantors Signature Page
EXHIBIT A TO AMENDMENT NO. 4 TO CREDIT AGREEMENT
Schedules to Credit Agreement
Amended Schedule 1.1B
CAPITALIZATION OF BORROWER
Authorized shares:
Total: 20,000,000
Common: 19,000,000
Preferred: 1,000,000
Issued shares:
Common: 7,124,450 @ $.01 par value
Outstanding Shares:
3,790,222
Shareholders:
Approximately 66% of outstanding shares
held by former shareholders of General
Bearing Ball & Roller, Inc.
Approximately 34% held by public
shareholders
Options:
Approximately 358,550 outstanding
Transfer Agent:
American Stock Transfer & Trust Company
Warrants:
None
Domestic Subsidiaries:
Total
shares
------
Total
Issued
------
No. held
by GBC
------
General Bearing Ball & Roller, Inc.
200 Common no par
200
200
General Ball and Roller, Inc.
1000 Common .01 par
150,000 preferred .01 par
100
0
100*
0
NN General, LLC
50 Class A
50 Class B
China Bearing Center, Inc
200 Common no par
Rockland Manufacturing Co.
(Partnership)
50
50
50
50
200
200*
N/A
Genbearco International Corp.
100 Common no par
100
100
Hyatt ZWZ Bearing Corporation
200 Common no par
100
65
*Owned by General Bearing Ball & Roller, Inc.
Amended Schedule 4.10
INTELLECTUAL PROPERTY
COPYRIGHTS AND COPYRIGHT LICENSES
None.
PATENTS AND PATENT LICENSES
None.
TRADEMARKS AND TRADEMARK LICENSES:
TRADEMARKS:
"The General": United States Patent Office Registration No. 1,076,300
The General {logo}:United States Patent Office Registration No.1158822
"HYATT": See Attachment A
Amended Schedule 4.7
LITIGATION
1. The Borrower was notified by United States Customs Service of its decision to assess additional antidumping duty and interest upon the
liquidation of entry Nos. 419 0157180-6 of February 16, 1989 and 419 0158606 9 of April 6, 1989 on August 7, 1998. General Bearing has
filed a Protest and Application for further review on approximately June 3, 1999.
2. Gussack Realty Company, General Bearing Corporation v. Xerox. In 1995 Gussack Realty Company and General Bearing filed an action
against Xerox in the United States District Court for the Southern District of New York regarding contaminants contained in the subsurface of a
property near property formerly leased by the Borrower. Xerox filed counterclaims. On approximately April 28, 1999, a jury exculpated the
Borrower from liability for clean-up costs. On February 9, 1999, the New York State Department of Environmental Conservation (the "DEC")
notified the Borrower and that it intended to conduct a Preliminary Site Assessment of the property to determine whether hazardous wastes had
been disposed of at the site.
3. Agreement #D3-0002-95-03 between Gussack Realty Company and the DEC regarding the investigation and remediation of petroleum
contamination the Grant Hardware Site. Gussack Realty, owner of 616 Route 303, Blauvelt, NY 10913, without admitting liability for the
contamination's occurrence or maintenance has agreed to investigate and remediate the site to the DEC's satisfaction. The Agreement does not
waive the DEC's right to pursue any claims against Gussack Realty company the DEC may have with regard to this site.
4. General Bearing Corporation vs. Shanghai Roller Bearing Factory and Shanghai Electric (Group) Co.
In the second half of 2003 the Company learned of acts of misconduct, including misappropriation, by certain personnel at SGBC, which
resulted in the loss or reduction of SGBC assets. In January, 2004, the company filed the two legal proceedings described below, seeking
compensation for the damages resulting from the misconduct.
First, on January 28, 2004, the Company filed suit in Federal District Court for the Southern District of New York against Shanghai Electric
(Group) Corp., a Chinese company which is the indirect parent of SRBF, alleging Conversion and Intentional Interference with Contract and
seeking unliquidated damages in excess of $75,000. The company is in the process of having the complaint served in accordance with the
Hague Convention.
Second, on February 6, 2004, the Company filed an arbitration proceeding against SRBF in the International Chamber of Commerce alleging
breach of contract, conversion, fraud, and breach of fiduciary duty, and seeking an award of damages believed to be in excess of $4,000,000,
inclusive of the Company's capital investment in SGBC. The demand for arbitration has been served on SRBF, who has failed to file an
answer, and the ICC is in the process of appointing arbitrators.
On February 24, 2004, the Company reached an agreement with SRBF (the "Settlement Agreement") whereunder:
GBC was granted the right to acquire additional equity of SGBC, resulting in GBC holding a 51.39% majority interest therein for an additional
investment of $250,000;
SGBC's board of directors agreed that SGBC would pursue compensation from all persons who wrongfully acquired assets of SGBC;
The employees of SGBC who were believed to have participated in the wrongful conduct were replaced and;
GBC agreed to dismissal of the Lawsuits upon completion of its acquisition of the majority interest in SGBC.
Subsequent to the above agreement, SRBF advised GBC that in order for it to be able to implement the above agreement, it needed to be
compensated for land use rights which it had previously contributed to SGBC. GBC disputes that SRBF has the right to be further compensated
for such rights and is proceeding with the Lawsuits.
Amended Schedule 4.16A
SUBSIDIARIES
General Bearing Ball & Roller, Inc.
44 High Street
West Nyack, New York 10994
Jurisdiction of Formation
------------------------Delaware
% owned
------See Sch. 1.1B
General Ball and Roller, Inc.
44 High Street
West Nyack, New York 10994
Delaware
See Sch. 1.1B
Rockland Manufacturing Co.
44 High Street
West Nyack, New York
New York
See Sch. 1.1B
Shanghai General Bearing Co., Ltd.
1201 Humin road
Min Hang, Shanghai 20024
China
PRC
50% by GBC
Ningbo General Bearing Co., Ltd.
Xinxin Industrial District
Langxia County, Yuyao
Zhejiang Province, China
PRC
50% by GBC
Genbearco International Corp.
44 High Street
West Nyack, New York 10994
New York
See Sch. 1.1B
Hyatt ZWZ Bearing Corporation
44 High Street
West Nyack, New York 10994
New York
See Sch. 1.1B
Jiangsu General Ball & Roller Co., Ltd.
80 Yuejin East Road
Rugao City, Jiangsu Province, China
PRC
51% by NN General, LLC
NN General, LLC
44 High Street
West Nyack, New York 10994
Delaware
See Sch. 1.1B
World Machinery Group, BV
Zandkant 3A
5473 Heeswijk
Netherlands
Netherlands
60% by GBBR
China Bearing Center, Inc.
44 High Street
W. Nyack, NY 10994
New York
See Sch. 1.1B
Amended Schedule 4.16B
NON-OPERATING DOMESTIC SUBSIDIARIES
Non-Operating
Domestic Subsidiaries:
---------------------Genbearco International Corp.
Total shares
-----------100 Common no par
Total Issued
-----------100
No. held by GBC
--------------100
China Bearing Center
200 Common no par
200
200
Hyatt ZWZ Bearing Corporation
200 Common no par
100
65
Amended Schedule 4.24A
REAL PROPERTY OWNED BY BORROWER OR DOMESTIC SUBSIDIARIES
NONE
EXHIBIT B TO AMENDMENT NO. 4 TO CREDIT AGREEMENT
Schedules to Guarantee and Collateral Agreement
Amended Schedule 1
NOTICE ADDRESSES OF GUARANTORS
General Bearing Ball & Roller, Inc.
44 High Street
West Nyack, New York 10994
General Ball & Roller, Inc.
44 High Street
West Nyack, New York 10994
Genbearco International Corp.
44 High Street
West Nyack, New York 10994
China Bearing Center
44 High Street
West Nyack, New York 10994
Hyatt ZWZ Bearing Corporation
44 High Street
West Nyack, New York 10994
NN General, LLC
44 High Street
West Nyack, New York 10994
Amended Schedule 2
DESCRIPTION OF INVESTMENT PROPERTY
Pledged Stock:
------------------------------------Investment Property Issuer
-------------------------General Bearing Ball & Roller, Inc.
General Ball & Roller, Inc.
NN General, LLC
-----------------------
------------------------
Class of Stock
-------------Common
Common
Stock Certificate No.
---------------------
--------------------No. of Shares
------------200
100
Class A & B
Membership Units
100
Genbearco International Corp.
Common
100
China Bearing Center
Common
200
Hyatt ZWZ Bearing Corporation
Common
65
Pledged Notes:
------------------------------------Investment Property Issuer
-------------------------None.
----------------------Payee
-----
------------------------
---------------------
Principal Amount
----------------
Amended Schedule 4
LOCATION OF GRANTORS' CHIEF EXECUTIVE OFFICES AND JURISDICTION
OF FORMATION
Location of Offices:
--------------------
Jurisdiction of Formation
-------------------------
General Bearing Ball & Roller, Inc.
44 High Street
West Nyack, New York 10994
Delaware
General Ball & Roller, Inc.
44 High Street
West Nyack, New York 10994
Delaware
Genbearco International Corp.
44 High Street
West Nyack, New York 10994
New York
Hyatt ZWZ Bearing Corporation
44 High Street
West Nyack, New York 10994
New York
NN General, LLC
44 High Street
West Nyack, New York 10994
Delaware
China Bearing Center, Inc.
44 High Street
West Nyack, New York
New York
Amended Schedule 5
INVENTORY AND EQUIPMENT BY LOCATION
Grantor and Location
General Bearing Corporation
44 High Street
West Nyack, NY 10994
Mahx F. Linster, Inc.
60 Technology Drive
Alpharetta, GA 30202
R.J. Hughes Sales Inc.
16 West 153 83rd Street
Burr Ridge, IL 60521
Applied Industrial Technologies
7575 Thoroughbred Drive
Florence, KY 41042
Quality Carton Inc.
100 Sterling Mine Road
Sloatsburg, NY 10974
Applied Industrial Technologies
11899 Cabernet Drive
Fontana, CA 92337
G/S Associates Inc.
3530 NW St. Helens Road
Portland, OR 97210
Applied Industrial Technologies
1515 Distribution Court
Lithia Springs, GA 30122
Atlantic Bearing Co., Inc.
606 N. Pender Street
Wilson, NC 27893
Applied Industrial Technologies
J.R. Cunin Distribution Center
1103 Claremont Road
Carlisle, PA 17013
Western Reserve Industrial Sales Co.
1900 Enterprise Pkwy
Twinsburg, OH 44087
Jelco Services
4577 Mint Way
Dallas, TX 75236
Raymond H. Dobberpuhl, Inc.
9515 Unit A, East Rush Street
S. El. Monte, CA 91733
Bartlett Bearing
4230-34 H Street
Philadelphia, PA 19124
Electrolux Home Products
149 Brentwood Drive
Hope, AR 71801
Consolidated Metco Inc.
13940 N. Rivergate Blvd.
Portland, OR 97203
Consolidated Metco Inc.
719 Seacrest Avenue
Monroe, NC 28110
American Allied Railway Equipment Co. Inc.
302 West Holland Street
Washington, Il 61571
Castle Rubber Company
1003 Railroad Street
East Butler, PA 16029
Kaman
910 S. Wanamaker Avenue,
Ontario, CA 91761
Kaman
11920 Carrier Court,
Louisville, KY 40299
Kaman
301 Old Niskayuna Road, Bldg 3-Suite 010, Latham, NY 12110
Kaman
4370 West 1750 South,
Salt Lake City, UT 84104
Progress Rail
29 Road 32 North,
Sidney, NE 69162
Progress Rail
168 Fischer Road,
Jackson, SC 29831
Manville Rubber
1009 Kennedy Blvd.,
Manville, NJ 08835
SKF
4682 Radford Road East,
Flowery Branch, GA 30542
Jonathan Engineered Solution
Circuito Sigio XXI #2136,
Mexicali, BCCP 21259, Mexico
PSS Warehouse & Transportation Co.,
614 Hampton Road,
Cherry Hill, NJ 08002
All equipment at West Nyack location
Amended Schedule 6
COPYRIGHTS AND COPYRIGHT LICENSES
None.
PATENTS AND PATENT LICENSES
None.
TRADEMARKS AND TRADEMARK LICENSES
"The General": United States Patent Office Registration No. 1,076,300
The General {logo}:United States Patent Office Registration No.1158822
"HYATT": See Attachment A
Amended Schedule 8
VEHICLES
1995
Dodge
Intrepid
1998
Ford
Econo Line Van E150
1998
Ford
Escort
1999
Ford
Taurus
1999
Volvo
S80
2000
Dodge
Intrepid
2001
BMW
330IA
2001
Lexus
300
2001
Audi
TT
2002
Ford
Taurus
2003
Lexus
LS430
2003
Mercedes
E320S4
2003
Ford
Explorer
2003
BMW
530IA
2004
Ford
Explorer
Amended Schedule 4.16A
SUBSIDIARIES
Jurisdiction of Formation
------------------------General Bearing Ball & Roller, Inc.
Delaware
44 High Street
West Nyack, New York 10994
% owned
------See Sch. 1.1B
General Ball and Roller, Inc.
44 High Street
West Nyack, New York 10994
Delaware
See Sch. 1.1B
Rockland Manufacturing Co.
44 High Street
West Nyack, New York
New York
See Sch. 1.1B
Shanghai General Bearing Co., Ltd.
1201 Humin road
Min Hang, Shanghai 20024
China
PRC
50% by GBC
Ningbo General Bearing Co., Ltd.
Xinxin Industrial District
Langxia County, Yuyao
Zhejiang Province, China
PRC
50% by GBC
Genbearco International Corp.
44 High Street
West Nyack, New York 10994
New York
See Sch. 1.1B
Hyatt ZWZ Bearing Corporation
44 High Street
West Nyack, New York 10994
New York
See Sch. 1.1B
Jiangsu General Ball & Roller Co., Ltd.
80 Yuejin East Road
Rugao City, Jiangsu Province, China
PRC
51% by NN General, LLC
NN General, LLC
44 High Street
West Nyack, New York 10994
Delaware
See Sch. 1.1B
World Machinery Group, BV
Zandkant 3A
5473 Heeswijk
Netherlands
Netherlands
60% by GBBR
China Bearing Center, Inc.
44 High Street,
W. Nyack, NY 10994
New York
See Sch. 1.1B
Amended Schedule 4.16B
NON-OPERATING DOMESTIC SUBSIDIARIES
Non-Operating
Domestic Subsidiaries:
---------------------Genbearco International Corp.
Total shares
-----------100 Common no par
Total Issued
-----------100
No. held by GBC
--------------100
China Bearing Center
200 Common no par
200
200
Hyatt ZWZ Bearing Corporation
200 Common no par
100
65
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, David L. Gussack, CEO of General Bearing Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of General Bearing Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's board of directors:
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
controls over financial reporting.
Date: November 16, 2004
/s/ David L. Gussack
----------------------David L. Gussack
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF THE CONTROLLER
I, Rocky Cambrea, Controller of General Bearing Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of General Bearing Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's board of directors:
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
controls over financial reporting.
Date: November 16, 2004
/s/ Rocky Cambrea
----------------------Rocky Cambrea
Controller
Exhibit 32.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002
In connection with the quarterly report of General Bearing Corporation and Subsidiaries (the "Company") on Form 10-Q for the period ending
October 2, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned Chief Executive
Officer and Controller of the Company hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley
Act of 2002 that based on their knowledge and belief: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, and 2) the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company as of and for the periods covered in the Report.
Date: November 16, 2004.
/s/ David L. Gussack
-----------------------David L. Gussack
Chief Executive Officer
/s/ Rocky Cambrea
-----------------------Rocky Cambrea
Controller