Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 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 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|
At March 30, 2001 the aggregate market value of the Registrant's outstanding
common stock, $.01 par value per share, held by non-affiliates, was $5,520,750,
based on the closing sale price as reported March 30, 2001 on the NASDAQ Small
Cap Market.
At March 30, 2001, the Registrant had issued 7,072,950 shares of common stock,
$.01 par value per share, and had outstanding 4,112,650 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None of the documents indicated on Form 10-K have been incorporated herein by
reference.
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 Annual Report such statements may
relate to the recoverability of deferred taxes, likely industry trends, the
continued availability of credit lines, the suitability of facilities, access to
suppliers and implementation of joint ventures and marketing programs. Such
forward looking statements involve important risks and uncertainties that could
cause actual results to differ materially from those expected by the Company,
and such statements should be read along with the cautionary statements
accompanying them and mindful of the following additional risks and
uncertainties possibly affecting the Company: the possibility of a general
economic downturn, which is likely to have an important impact on historically
cyclical industries such as manufacturing; significant price, quality or
marketing efforts from domestic or overseas competitors; the loss of, or
substantial reduction in orders from, a major customer; the loss of, or failure
to attain, additional quality certifications; changes in U.S. or foreign
government regulations and policies, including the imposition of antidumping
orders on the Company or any of its suppliers; a significant judgment or order
against the Company in a legal or administrative proceeding; and potential
delays in implementing planned sales and marketing expansion efforts and the
failure of their effectiveness upon implementation.
GENERAL BEARING CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000
TABLE OF CONTENTS
No. Page
- --- ----
PART I
Item 1.& 2 Business and Properties ..................................... 1
Item 3. Legal Proceedings ........................................... 7
Item 4. Submission of Matters to a Vote of Security Holders.......... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 9
Item 6. Selected Financial Data...................................... 10
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition...................................... 11
Item 7a. Quantitative and Qualitative Disclosure about Market Risk ... 14
Item 8. Financial Statements and Supplementary Data.................. 15
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.................................... 41
PART III
Item 10. Directors and Executive Officers of the Registrant........... 42
Item 11. Executive Compensation....................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 46
Item 13. Certain Relationships and Related Transactions............... 47
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K..................................................... 49
PART I
Item 1 & 2. Business and Properties
In July 2000, General Bearing Corporation ("General"), acquired 100% of World
Machinery Company ("World"), which, prior to the acquisition, owned 74.8% of the
outstanding common stock of General. World was principally owned by members of
General's Board of Directors and senior management. World's principal business
is the manufacture and sale of machine tools, however, it also holds two bearing
joint ventures for General's benefit. This combination has been accounted for in
a manner similar to a pooling of interests. Prior periods have been restated as
if the companies have always been combined. In consideration for this
transaction, General issued 3,140,000 shares of its common stock, $.01 per share
par value. 2,950,000 shares of General's common stock, owned by World, are now
carried as treasury stock. The net stock of 190,000 shares paid for the
acquisition are considered outstanding for all periods presented.
General and subsidiaries (collectively, "the Company") is actively engaged in
two principal lines of business: bearings and machine tools. Net sales, gross
profit and operating income attributable to each segment of the Company for each
of the last three years are set forth in Note 16 to the Company's consolidated
financial statements for the year ended December 30, 2000.
BEARINGS:
The Company manufactures, sources, assembles and distributes a variety of
bearing components and bearing products, including ball bearings, tapered roller
bearings, spherical roller bearings and cylindrical roller bearings. The Company
operates this line of business in two segments; under the Hyatt(R) and The
General(R) trademarks, the Company supplies original equipment manufacturers
("OEMs"), and it supplies the industrial aftermarket, both principally in the
United States ("U.S."). The Company's products are used in a broad range of
applications, including automobiles, railroad cars, locomotives, trucks, heavy
duty trailers, office equipment, machinery and appliances.
The Company operates in two divisions: the OEM Division, which supplies OEMs,
and the Distribution Division, which serves distributors that supply the repair
and maintenance aftermarket and small OEMs. The OEM Division's quality customer
base includes Visteon Automotive Systems ("Visteon"), Burlington Northern/Santa
Fe Railroad Co. ("Burlington Northern"), and eight of the nation's top twelve
manufacturers of heavy duty truck trailers. Beyond the transportation industry,
the OEM Division supplies precision ball bearings to manufacturers of office
equipment such as Pitney Bowes ("Pitney Bowes") and Eastman Kodak ("Kodak"). The
Distribution Division has customers ranging in size from the two largest
industrial distributors in the U.S., each of which has more than 400 outlets, to
independent single outlet operations. The Distribution Division's individual
shipments are typically smaller in volume but carry higher gross margins.
Through flexibility in manufacturing and sourcing, as well as attentive
customer service, the Company strives to be a reliable, innovative and cost
effective provider of bearing components and products to the approximately $6
billion per year U.S. bearing market. The Company's strategy to accomplish this
objective includes the following:
* PROVIDE HIGH QUALITY PRODUCTS AND SUPERIOR CUSTOMER SERVICE. General
maintains a detailed and extensive Quality Assurance Program and has been
certified to the M1003 standard by the Association of American Railroads
("AAR"). General has been granted "Unconditional Approval" from the AAR for its
tapered journal bearings. General also maintains ISO 9001 registration from the
International Standards Organization ("ISO") and QS-9000 registration from the
Automotive Industry Quality System. General also requires that both its
affiliated and unaffiliated suppliers conform to Company and customer quality
and engineering standards. In addition, General has been qualified as an
authorized supplier by leading automobile and truck trailer manufacturers and
national distributors of bearings. These certifications and qualifications,
which often take significant time to obtain because of testing and other
requirements, enable General to supply large markets currently served by a
limited number of competitors.
* PRESENCE IN CHINA. In 1987, General formed a joint venture, Shanghai
General Bearing Co., Ltd. ("SGBC"), in the People's Republic of China ("PRC") to
establish a low cost, quality controlled source for bearings and bearing
components. The Company has formed other joint ventures in the PRC, and it
continues to investigate joint venture opportunities. The Company believes that
potential customers in the U.S. intending to establish or expand manufacturing
and other facilities in the PRC have, and will continue to have, an incentive to
purchase bearings from the Company in order to satisfy
1
Chinese counter purchasing and local content requirements. On February 3, 1997,
the U.S. Department of Commerce ("Commerce") granted SGBC partial revocation of
the antidumping order affecting tapered roller bearings from the PRC. As a
result of SGBC receiving zero or de minimis antidumping margins for the periods
from 1990-1993 ("4th, 5th and 6th Reviews"), Commerce revoked the antidumping
order as to SGBC in the 1993-1994 period ("7th Review"). As a result of the
revocation, SGBC and the Company are no longer required to participate in the
annual reviews of the antidumping order conducted by Commerce. The Company
believes SGBC's revocation provides it with a competitive advantage.
* MANUFACTURING AND SOURCING FLEXIBILITY. The Company operates on the
principle that a flexible method of combining product and component purchasing
with its own manufacturing and assembly capabilities can provide customers with
high quality products and cost advantages. The Company uses its manufacturing,
engineering and purchasing expertise to determine the highest quality and most
cost effective methods of production. The Company currently sources bearing
components and products from over 20 factories worldwide. In order to maintain
the Company's flexibility to change with the market, the Company typically
limits the term of its supply contracts to one year.
PRODUCTS
The Company and its joint ventures manufacture and market high quality,
precision ball and roller bearings used in a broad range of applications
including automotive and trucking, rail car and locomotive, appliances, lawn and
garden implements, office equipment, consumer products, medical equipment,
material handling, and power tools.
The Company sells approximately 2,500 stock keeping units ("SKU's"). The
Company's product line includes standard and metric precision ball bearings,
double row ball bearings, unground bearings, and special ball bearings. The
Company offers its products in standard, modified, and custom designs where
appropriate. The Company produces standard, special and niche market bearings.
Special bearings are specifically manufactured to the requirements of a
customer, as determined in cooperation with the Company's engineering staff.
Examples of these products include bearings for copier machines, automotive
steering columns, postal equipment and wheelchairs. Niche bearings are bearings
used in specific industries, and are produced by a limited number of
manufacturers. Under the Hyatt(R) brand, the Company produces select tapered
roller bearings (TRB's), tapered journal bearings, spherical roller bearings and
cylindrical roller bearings which are used in railroad, truck/trailer,
automotive and other industrial applications.
MANUFACTURING AND SOURCING
The Company primarily manufactures and assembles bearings at its facilities in
New York and at the Company's joint venture facilities, discussed in greater
detail below, including SGBC in Shanghai, PRC and Ningbo General Bearing Co.,
Ltd. ("NGBC") in Yuyao City, PRC. Certain imports from various locations have
been subject to antidumping duties since 1987, requiring importing companies to
post cash deposits. No antidumping duties have been levied on TRB's imported
from SGBC, the Company's principal source of imported product, since 1991.
The Company obtains 76% of its bearing and component requirements from various
Chinese joint ventures. The Company currently relies on approximately 50
unaffiliated manufacturers to produce the remaining 24% of its requirements. The
Company has no long-term contracts with its unaffiliated manufacturing sources.
The Company attempts to maintain sourcing flexibility by not engaging in any
purchasing contracts that exceed one year.
CHINESE JOINT VENTURES
The Company has entered into six joint ventures with manufacturers in the PRC
to enable it to secure a reliable source of high quality, low cost bearings and
bearing components. By entering into joint ventures, rather than long-term
manufacturing contracts, the Company is better able to monitor and control
production and quality assurance by having access to the factories at both
management and production levels. Further, by sourcing from joint ventures, the
Company may not be required to incur inventory carrying costs, since the joint
ventures may hold all inventory until needed by the Company. The joint ventures
also provide a less capital intensive alternative to building Company-owned
facilities.
SGBC, a joint venture formed with Shanghai Roller Bearing Factory ("SRBF") in
June 1987, is a limited liability company formed in accordance with PRC law for
an initial term of ten years, which has been extended to June 2008. SGBC
produces tapered roller and ball bearings, which the Company imports
2
into the U.S. for further assembly, inspection, testing and distribution. The
Company contributed 25% of the initial capital of SGBC in the form of capital
equipment valued by the parties at $750,000 and the Company's joint venture
partner, SRBF, contributed 75% of the initial capital of SGBC in the form of
facilities and equipment, valued by the parties at $1,500,000 and $750,000,
respectively. The Company receives dividends based on its capital investment.
Upon the receipt of $1,375,000 in dividends, the Company will cease to receive
any further dividends. To date, the Company has receieved $315,000 in dividends.
An additional dividend of $87,000 has been declared.
The Company has the exclusive right to sell the products of SGBC in the
U.S. In 2000, 1999 and 1998, the Company purchased $12.4 million, $10.5 million
and $10.3 million respectively, in bearings and bearing components from SGBC.
Purchases are made upon terms and conditions established periodically by
negotiation between the Company and SGBC. Governance, operations, distributions
and the dissolution of SGBC are governed by PRC law and by SGBC's joint venture
contract and articles of association. SGBC's eight-member Board of Directors,
which consists of five directors chosen by SRBF and three directors chosen by
the Company, exercises authority over the joint venture by majority vote.
Certain decisions involving annual strategy, budgeting and production plans
require the vote of at least one Director chosen by the Company. Unanimous
consent of the Board of Directors is required for all fundamental corporate
changes.
NGBC, a joint venture with China Ningbo Genda Bearing Company, Ltd., was
established in early 1998. Located in Yuyao City, China, this venture
manufactures ball and roller bearings and their components. Initially, the
venture's production was directed to electric motor bearings. In its second
stage, production has been directed toward product for sale by the Company to
the U.S. automotive industry. The Company's initial contribution was $1.0
million; 33.3% of the registered capital. In 1999, the joint venture partners
agreed to increase the registered capital of NGBC for expansion of NGBC. The
Company contributed $450,000 in cash and equipment in line with its percentage
of ownership. During 2000, the Company increased its ownership to 42% by
contributing an additional $650,000 in cash. In 2001, the Company signed an
agreement to increase its ownership to 50%. The Company purchased $10.4 million,
$8.1 million and $3.4 million from NGBC in 2000, 1999 and 1998, respectively.
Shanghai Pudong General Bearing Company ("SPGBC"), a joint venture with
Shanghai Xiua Industrial Corporation was established in 1996. Located in the
Pudong Industrial Zone of Shanghai, this venture produces ball bearings for sale
in the U.S. by the Company. The Company contributed $150,000; 25% of the
registered capital of SPGBC, in 1998. In 2000, 1999 and 1998, the Company
purchased $1.2 million, $1.7 million and $1.6 million from SPGBC, respectively.
Jiangsu General Ball & Roller, Ltd. ("JGBR"), a joint venture with Jiangsu
Lixing Steel Ball Factory (Group) ("JSBF"), was established in 1999. Located in
Rugao City, China, this venture is comprised of the operations of JSBF, a
manufacturer of rolling elements for bearings. In March 2000, the Company formed
NN General, LLC ("NNG"), a joint venture with NN Ball & Roller, Inc. ("NN"). The
Company and NN each hold a 50% interest in NNG, which holds a 60% interest in
JGBR. The Company invested net cash for these transactions of $100,000 in 2000.
Also in 2000, the Company advanced $2,440,000 to NNG, which invested a total of
$4.8 million in JGBR.
Wafangdian General Bearing Co., Ltd. ("WGBC"), a joint venture with Wafangdian
Bearing Company, produces components for spherical roller bearings and railroad
bearings in the PRC. The Company sells the WGBC bearings in the U.S. In its
second stage, it is anticipated that WGBC will produce rear wheel automotive
bearings. Rockland paid $1.9 million and $2.6 million for consignment purchases
from WGBC in 2000 and 1999, respectively. Prior to negotiating consignment terms
in 1999, Rockland purchased $5.9 million from WGBC in 1998.
Rockland Manufacturing Company, ("Rockland") a joint venture with Wafangdian
USA Ltd., was established in 1993 and exists at the facilities of the Company.
Rockland offers flexibility to the Company by providing readily accessible
inventory, which the Company pays for at the time it is needed to fill customer
orders. The Company purchased $2.7 million, $3.5 million and $5.2 million from
Rockland in 2000, 1999 and 1998, respectively.
SALES, MARKETING AND CUSTOMERS
The Company markets its products in the U.S. and abroad through 12 salaried
sales employees and 29 commissioned independent sales representative
organizations, aggregating 96 sales persons. In addition, the Company has 11
customer service representatives responsible for handling orders and providing
sales support. Products sold through the OEM Division bear The General(R) label
for ball bearings and the Hyatt(R) brand for all types of roller bearings.
3
The OEM Division focuses on electric motor manufacturers and the
transportation industry; e.g., truck/trailer manufacturers, railroad locomotive
and freight car manufacturers, and automotive manufacturers. The OEM Division's
quality customer base includes Visteon, Burlington Northern, and eight of the
nation's top twelve manufacturers of heavy duty truck trailers. Beyond the
transportation industry, the OEM Division supplies precision ball bearings to
manufacturers of office equipment such as Pitney Bowes and Kodak. The
Distribution Division has customers ranging in size from the two largest
industrial distributors in the U.S., each of which has more than 400 outlets, to
independent single outlet operations. In 2000 and 1999, sales to Visteon
represented more than 10% of the company's total net sales. There were no
individual customers representing at least 10% of sales in 1998.
The OEM Division ships products within one to 365 days from the date an order
is placed. Actual shipments are dependent upon production schedules of the
Company's customers. The Distribution Division generally ships product within 24
hours of the time an order is placed. The Company's arrangements with its
customers typically provide that payments are due within 30 days following the
date of shipment of goods.
EMPLOYEES
The Company's bearing operations have 140 full-time employees, of whom 86 were
engaged in production, shipping and receiving, quality control, and maintenance,
and 22 of whom were engaged in sales and marketing. The balance of the Company's
full-time employees is primarily administration. 73 of the General's employees
engaged in production, shipping and receiving, quality control and maintenance
are subject to collective bargaining and are represented by the United
Brotherhood of Carpenters and Joiners of America, AFL-CIO, Local 3127 ("Union").
The current collective bargaining agreement with the Union expires on April 30,
2003. The Company believes that relations with its employees, including those
subject to collective bargaining, are good. General has a 20 year relationship
with the Union and has never experienced a Union work stoppage.
COMPETITION
The ball and roller bearing industry is highly competitive. The Company
believes that competition within the precision ball and roller bearing market is
based principally on quality, price and the ability to meet customer delivery
requirements. The Company's primary domestic and foreign competitors are Timken,
SKF USA Inc., NSK Corporation, American Koyo Corp., NTN Bearing Corporation of
America, the Torrington Company and FAG Holding Corporation. Management believes
that the Company's manufacturing and sourcing capabilities and its reputation
for consistent quality and reliability have positioned the Company for continued
growth.
PATENTS, TRADEMARKS AND LICENSES
Except for The General(R) trademark and the Hyatt(R) trademark, the Company
does not own any U.S. or foreign patents, trademarks or licenses that are
material to its business. The Company does rely on certain data, including
costing and customer lists, and the success of its business depends, to some
extent, on such information remaining confidential. Each employee who may have
access to confidential information is subject to a confidentiality agreement.
The Company's use of the Hyatt(R) trademark is pursuant to a license with
General Motors ("GM"). Under the Hyatt License, the Company has the right to use
the terms "Hyatt," "Hyatt Railway," "Hyatt Railway Products," "Hyatt
Manufacturing," "Hyatt General" and various derivatives of "Hyatt" in connection
with locomotive journal boxes, traction motor bearings, component parts thereof,
and other products. The initial term of the Hyatt License ended on January 1,
2000. The license has been renewed for an additional ten year term. The Company
paid licensing fees to GM of $35,000, $35,000 and $30,000 in 2000, 1999 and
1998, respectively.
ENVIRONMENTAL COMPLIANCE
The Company's operations are subject to federal, state and local regulatory
requirements relating to pollution control and protection of the environment.
Based on information compiled to date, management believes that the Company's
current operations materially comply with applicable environmental laws and
regulations. See Legal Proceedings.
PROPERTIES
4
The Company leases a facility located in West Nyack, New York, which has
approximately 190,000 square feet of floor space. Management believes that the
plant is adequate for the Company's present needs and anticipated expansion. The
West Nyack facility, which is used principally for administrative, assembly,
manufacturing, and distribution purposes, is owned by Gussack Realty Company
("Realty"). On November 1, 1996, the Company and Realty entered into a lease for
the West Nyack facility ("Lease"), which provides for an initial term expiring
on October 31, 2003, and is renewable at the option of the Company for an
additional six year term. The lease specifies a base rent of $4.81 per square
foot (or $913,000) annually, payable in monthly rent payments of $76,000. The
Lease provides for an increase in rent every other year, commencing in 1998,
equal to the greater of (i) 106% of the preceding year's rent or (ii) the
preceding year's rent multiplied by a fraction the numerator of which is the
Consumer Price Index for the area including Rockland County or, if no such index
is published, for Northern Jersey ("CPI") in effect 90 days prior to November 1
of the new rent year and the denominator of which is the CPI in effect 90 days
prior to November 1 of the preceding year. The November 1998 increase amounted
to 6% of the preceding year, resulting in rent of $5.0986 per square foot (or
$968,000) annually effective through October 31, 2000. The November 2000
increase also amounted to 6% of the preceding year, resulting in rent of $5.4045
per square foot (or $1,026,000) annually effective through October 31, 2002. See
"Item 13 - Certain Relationships and Related Transactions."
MACHINE TOOLS:
The Company's machine tool operations are conducted through three companies,
World Machinery Group, BV ("WMG"), World Machinery Works, S.A. ("W.M. Works")
and WMW Machinery Company, Inc. ("WMW"), all direct or indirect subsidiaries of
World, which became a wholly owned subsidiary of the Company in July, 2000.
WMG, a 60% owned subsidiary, owns 51% of W.M. Works, a Romanian machine tool
manufacturer, which was privatized by the Romanian government in 1998. The
Company contributed $1.5 million of the $2.5 million that WMG paid for the 51%
interest in W.M. Works and, under the share sale contract with the Romanian
government, is obligated to invest an additional $5.2 million in W.M. Works in
cash or in kind, over the four year period ending December 31, 2002. WMG has the
exclusive right to market the primary products of W.M. Works outside of Romania,
with some minor exceptions.
PRODUCTS
W.M. Works, formerly known as Masini Unelte, Bacau, S.A., a Romanian
corporation, produces a variety of machine tools used for boring, turning,
milling and grinding metal work pieces. W.M. Works' product lines include
horizontal boring mills, bridge and gantry mills, vertical turning lathes, heavy
duty lathes, roll grinders, belt grinders and vertical grinders.
WMW, a wholly-owned subsidiary, is the sole sales agent in North America for
most of the machine tool products manufactured by W.M. Works. WMW also markets
its own product lines of WMW HECKERT production milling machines and WMW Radial
Drills of 2" to 8" capacity, manufactured by independent suppliers abroad. In
addition, WMW imports and distributes CETOS grinding machines from the Czech
Republic.
SALES MARKETING AND CUSTOMERS
The majority of W.M. Works export sales are made through WMG, which utilizes
independent regional sales agencies in each sales territory. WMG presently has
approximately 8 sales agencies with exclusive distribution rights in North
America, Germany, Sweden, Norway, India, Poland, the former Soviet states and
Argentina. WMG also markets through approximately 15 non-exclusive agents
covering Italy, China, Finland, Turkey, Greece, Austria, Egypt, the United
Kingdom, the Czech Republic, Belgium, Holland, Brazil, South Africa, Pakistan,
Vietnam and Taiwan.
WMW sells primarily in North America through approximately 150 independent
machine tool dealers on a non-exclusive basis.
WMW and W.M. Works regularly participate in trade shows such as the
International Machine Tool Show in Chicago and METAV in Dusseldorf, Germany and
advertise in trade publications such as Modern Machine Shop and American
Machinist in the United States and Werkstatt und Betrieb in Germany.
5
The machine tools produced by W.M. Works and WMW are sold to a wide spectrum
of customers, from large corporations, such as Boeing and Chrysler, to small job
shops. W.M. Works also produces the mechanical components of machines for
certain machine tool producers in Germany, who complete the machines and sell
them under their own labels.
No individual customers of W.M. Works represented 10% or more of the Company's
sales in 2000, 1999, and 1998.
EMPLOYEES
The Company's machine tool operations have 587 employees, of whom 419 are in
production, 24 are sales personnel, 14 are in-house technical engineers (both
mechanical and electrical) and technicians, 52 are in design and the balance are
administrative.
COMPETITION
The machine tool industry is highly competitive. The principal competitors of
W.M. Works and WMW are Tos Varnsdorf (Czech Republic), Union Werkzeugmaschinen
(Germany), Defum (Poland), Mitsubishi (Japan), Giddings & Lewis (USA), Juristi
(Spain) Toshiba (Japan), Dorris-Schamann (Germany), Pheonix (USA), Karnaghi
(Italy), Waldrich (Germany), Hercules (Germany), Cetos (Czech Rep.) and Landis
(USA).
PATENTS. TRADEMARKS AND LICENSES
Except for the WMW(R) and WMW Heckert(R) trademarks owned by WMW in the United
States, neither WMW, W.M. Works nor WMG own any U.S. or foreign patents,
trademarks or licenses that are material to their businesses.
ENVIRONMENTAL COMPLIANCE
WMW and W.M. Works's operations are subject to governmental regulatory
requirements relating to pollution control and protection of the environment.
Based on information compiled to date, management believes that all current
machine tool operations materially comply with applicable environmental laws and
regulations.
Item 2. Properties
W.M. Works, owns and manufactures at a facility of approximately 680,000 sq.
ft. in Bacau, Romania. Management believes the plant is adequate for all present
and future needs of W.M. Works. WMW operates at the Company's principal
facilities in West Nyack, NY and has a leased sales office in Brea, California.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The amounts of sales and long-lived assets attributable to each of the
Company's geographic segments and the amount of export sales from the U.S. for
each of the last three fiscal years are set forth in Note 16 to the Company's
consolidated financial statements for the year ended December 30, 2000.
6
Item 3. Legal Proceedings.
LEGAL PROCEEDINGS
Gussack Realty Company and General Bearing Corporation vs. Xerox
In 1995, Gussack Realty Company ("Realty") and the Company filed an action
against Xerox in the United States District Court for the Southern District of
New York related to the discharge by Xerox of contaminants into the subsurface
at a property in the vicinity of property formerly leased by the Company and
owned by Realty in Blauvelt, New York ("Blauvelt Property"). Realty and the
Company, among other things, alleged that the subsurface discharge adversely
affected the Blauvelt Property. In July 1997, Xerox filed a counterclaim
against the Company and Realty, seeking contribution for Xerox's remediation
costs based upon Xerox's allegation of a discharge of contaminants into the
subsurface at the Blauvelt facility .
On April, 22, 1999, the jury in the above matter found in favor of Realty and
the Company and against Xerox on both the complaint and the counterclaim. On May
28th, 1999, the Court entered judgment in favor of Realty and the Company for
compensatory damages of $1,083,000 and sanctions of $27,897.70.
On June 24th, 1999, Realty and the Company filed an appeal with the United
States Court of Appeals for the Second Circuit (the"appellate court"),
challenging several rulings of the trial judge, including, among other things,
his denial of prejudgment interest and refusal to allow the jury to consider
punitive damages. On July 23rd, 1999, Xerox filed a cross appeal.
On August 22, 2000 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 in 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. On December 7th, 2000,
the appellate court denied the Petition in its entirety.
On March 26, 2001, on remand the district court fixed May 5, 1992 as the date
from which pre-judgment interest should accrue and awarded Plaintiffs such
interest from such date through the date of an Amended Judgment on Remand to be
filed, calculated at 9% per annum. Plaintiffs expect the Amended Judgment on
Remand to be filed imminently.
Additionally, in October, 1997, the Company filed a motion with the United
States Bankruptcy Court for the Southern District of New York, seeking to hold
Xerox in Contempt and for sanctions, on the grounds that the counterclaim filed
by Xerox against the Company was discharged upon confirmation of the Company's
Chapter 11 Reorganization Plan in 1993. In its response Xerox alleged that its
counterclaims were not discharged and that even if they were discharged, Xerox
can use them to offset the Company's claims against Xerox. On March 3, 1999, the
Company filed a motion for partial summary judgment before the U.S. Bankruptcy
Court judge on the contempt matter and Xerox filed a cross-motion for summary
judgment. After hearing oral argument on April 9, 1999, the Bankruptcy court
judge denied both motions. The case is awaiting trial.
7
WMW VS. AUERBACH MASCHINENFABRIK GMBH
In 1997, WMW entered into an agency contract with Auerbach Maschinenfabrik
GmbH ("Auerbach") a German machine tool manufacturer, pursuant to which WMW
became the exclusive distributor of certain Auerbach products in the United
States.
In July, 2000, Auerbach advised WMW it was terminating WMW's agency, as it was
going to use its subsidiary in the United States, Ixion Auerbach, Inc. ("IAI")
to sell its products in this territory and that IAI had hired an employee of WMW
who had, until then, been handling sales of Auerbach machines for WMW.
In November, 2000, WMW commenced an action in the Supreme Court of New York,
Rockland County, against Auerbach, IAI and the former WMW employee employed by
IAI.
The suit seeks injunctive relief and damages based on Auerbach's breach of the
agency contract with WMW; Auerbach's, IAI's and the former employee's theft of
trade secrets; breach of confidentiality agreement by the former WMW employee,
and related causes of action.
Plaintiff has served all of the defendants. Neither Auerbach nor IAI has filed
an answer. The former WMW employee has filed an answer and immaterial
counterclaim which the Company will defend.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock has been quoted on the NASDAQ Small Cap market
under the symbol "GNRL" since the Company's initial public offering effective
February 7, 1997.
The following charts set forth the high and low bid prices for each quarterly
period in the current and last two fiscal years.
2001
---------------------------------------
Stock Prices High Low
---------------------------------------
1st Quarter 6 3/8 4 25/32
2000
---------------------------------------
Stock Prices High Low
---------------------------------------
1st Quarter 7 5/8 3 1/2
2nd Quarter 5 7/8 4 1/8
3rd Quarter 6 1/2 5 15/16
4th Quarter 5 7/8 5
1999
---------------------------------------
Stock Prices High Low
---------------------------------------
1st Quarter 10 6
2nd Quarter 10 7/8 6 11/16
3rd Quarter 8 1/2 5 3/4
4th Quarter 8 3/8 8 5/16
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any earnings for future growth
and, therefore, does not anticipate declaring or paying any cash dividends in
the foreseeable future.
At March 14, 2001, the Company had in excess of 500 holders of its Common
Stock.
9
Item 6. Selected Financial Data
The selected financial data set forth below is derived from the Company's
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
Annual Report. See Management's Discussion and Analysis of Results of Operations
and Financial Condition.
General Bearing Corporation
Selected Financial Data
(In Thousands Except for Per Share Data)
Years Ended
- -------------------------------------------------------------------------------------------------
Dec. 28, Dec. 27, Jan. 2, Jan. 1, Dec 30,
1996 1997 1999 2000 2000
- -------------------------------------------------------------------------------------------------
Statement of
Operations Data:
Sales $45,560 $ 47,983 $ 51,089 $64,338 $59,393
Operating income $ 1,561 $ 1,506 $ 3,060 $ 5,825 $ 1,861
Income before income tax $ 1,194 $ 1,119 $ 2,520 $ 3,761 $ 1,562
Minority interests $ 80 $ (19) $ (34) $ 540 $ 1,628
Net income $ 1,363 $ 3,200 $ 798 $ 2,244 $ 1,879
Net income per basic share $ .43 $ .80 $ .19 $ .55 $ .46
Net income per diluted share $ .43 $ .79 $ .19 $ .55 $ .46
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
As of
- ------------------------------------------------------------------------------
Dec. 28, Dec. 27, Jan. 2, Jan. 1, Dec. 30,
1996 1997 1999 2000 2000
- ------------------------------------------------------------------------------
Balance Sheet Data:
Total current assets $ 28,295 $ 29,051 $ 34,907 $ 38,778 $ 38,778
Total Assets $ 37,075 $ 39,680 $ 45,812 $ 53,340 $ 55,264
Long-term debt (excluding
Current portion) $ 1,742 $ 4,090 $ 1,951 $ 12,861 $ 16,454
- ------------------------------------------------------------------------------
10
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Fiscal 2000 compared to Fiscal 1999
Sales. Sales for the fiscal year ended December 30, 2000 ("2000") of
$59,393,000 represents a 7.7% decrease compared to the fiscal year ended January
1, 2000 ("1999"). Sales in the OEM Division decreased 3.0% from 1999 to
$37,413,000 primarily as a result of decreased sales to the railroad market. Due
to the slowing economy during the second half of the year, there was also a
decrease in sales of tapered roller bearings for heavy duty truck trailers.
Partially offsetting these decreases was a net increase in sales of ball
bearings and drive line components to the automotive industry and higher sales
of industrial ball bearings for various applications. Distribution Division
sales decreased 2.8% from 1999 to $12,857,000 primarily due to a decrease in
orders for railroad bearings. Machine tool sales of $9,123,000 were 27.3% lower
than 1999 mainly due to lower export sales from Romania. The lower export sales
resulted from several orders being delayed by customers for 2001 delivery as
well as production delays and reduced marketing activity resulting from reduced
borrowing capacity.
Gross Profit. Gross profit for 2000 of $18,476,000 represents an 11.8%
decrease compared to 1999. As a percentage of sales, gross profit (GP%) was
31.1% for 2000 compared to 32.6% for 1999. GP% for the OEM Division was 23.6% in
2000 compared to 22.5% in 1999. This increase was mainly due to material cost
reductions, increased plant efficiency and a reduction in sales of tapered
journal bearings to the railroad industry, partially offset by increased
inventory provisions. GP% for the Distribution Division was 52.2% in 2000
compared to 53.7% in 1999. This decrease was primarily due to increased
inventory provisions, partially offset by decreased sales of lower margin
railroad bearings. GP% for machine tools was 32.1% in 2000 compared to 32.6% in
1999. This decrease is mainly due to the lower sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (S,G&A) as a percentage of sales were 28.0% in 2000
compared to 23.5% in 1999. This increase is primarily due to the decreased sales
volume and increased expenses of $1,488,000. S,G&A increased in the OEM Division
by $471,000 mainly due to increased salaries and professional expenses. S,G&A
increased in the Distribution Division by $341,000 also due to increased
salaries and professional expenses. S,G&A for machine tools increased by
$676,000 mainly due to a write-down of impaired assets and bad debts expense,
partially offset by lower personnel expenses.
Operating Income. Operating income for 2000 of $1,861,000 represents a
68.1% decrease compared to 1999. Operating income for the OEM Division decreased
9.2% compared to 1999 to $2,868,000 primarily due to increased S,G&A and
decreased sales, partially offset by higher GP%. Operating income in the
Distribution Division decreased 30.5% compared to 1999 to $1,692,000 reflecting
lower sales volume, increased S,G&A and lower GP%. Operating income for Machine
Tools was a loss of $2,699,000 in 2000 compared to a profit of $232,000 in 1999
primarily due to lower sales volume.
Other Expenses, net. Net interest expense was $1,145,000 in 2000 compared
to $1,371,000 in 1999 mainly due to lower interest rates, partially offset by
higher debt. Equity in income of affiliates ("equity income") was $669,000 in
2000 compared to $181,000 in 1999. The 2000 equity income includes $238,000,
which is the Company's share of net earnings from three joint ventures that
commenced operations during the year. Foreign currency exchange losses of $2,000
in 2000 compared to $874,000 in 1999 relate to machine tool operations in
Romania. Other income was $175,000 in 2000. There was no Other income in 1999.
Income Tax. The Company's effective income tax rate was 83.9% in 2000
compared to 54.7% in 1999. Both amounts reflect an increase in the valuation
allowance for deferred tax assets.
Net Income. Net income for 2000 decreased 16.3% from 1999 to $1,879,000 or
$.46 per basic and diluted share, from $2,244,000 or $.55 per basic and diluted
share in 1999. The decrease is primarily due to the lower sales volume and
higher S,G&A.
Fiscal 1999 compared to Fiscal 1998
Sales. Sales for 1999 of $64,388,000 represents a 25.9% increase over the
fiscal year ended January 2, 1999 ("1998"). Sales in the OEM Division increased
23.6% over 1998 to $38,555,000 primarily as a result of higher sales volume
11
to existing customers as well as new contracts awarded during the year. The
largest increase was in tapered roller bearings for heavy duty truck trailers.
The Company also increased sales to the automotive industry as a result of the
first full year of shipments on a two-year, $14,000,000 contract with Visteon to
supply certain ball bearings as well as new contracts to supply certain
driveline components. The Distribution Division was able to selectively increase
prices, however, softness in the industrial distribution aftermarket resulted in
a net decrease in sales of 7.2% from 1998 to $13,233,000. Machine tool sales of
$12,550,000 were 122.4% higher than 1998 mainly due to the acquisition of a
machine tool manufacturer in Romania.
Gross Profit. Gross profit for 1999 of $20,952,000 represents a 23.5%
increase over 1998. As a percentage of sales, gross profit (GP%) was 32.6% for
1999 compared to 33.2% for 1998. Overall GP% was favorably impacted by product
mix resulting from the addition of sales from the acquired machine tool
manufacturer partially offset by increased bearing sales to original equipment
manufacturers and decreased sales to the industrial distribution aftermarket.
GP% for the OEM Division was 22.5% in 1999 compared to 22.6% in 1998. GP% for
the Distribution Division was 53.7% in 1999 compared to 50.9% in 1998. This
increase was due to price increases, product mix and cost reductions. GP% for
machine tools was 41.3% in 1999 compared to 46.9% in 1998. This decrease is
mainly due to the acquisition, which markets its products through distributors.
The higher GP% in 1998 represents the Company's distributor business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (S,G&A) as a percentage of sales were 23.5% in 1999
compared to 27.2% in 1998. This reduction reflects the effect of the increased
sales volume. S,G&A increased by $1,227,000 primarily due to the S,G&A
associated with sales of machine tools produced in Romania, and increased S,G&A
in the OEM Division to support its current year and projected growth. This was
partially offset by a reduction of $1,123,000 at the Company's domestic machine
tool operation in line with sales performance.
Operating Income. Operating income for 1999 of $5,825,000 represents a
90.4% increase over 1998. Operating income for the OEM Division increased 44.1%
over 1998 to $3,159,000 primarily due to the sales and gross profit changes
described above. Operating income in the Distribution Division decreased 13.7%
compared to 1998 to $2,434,000 reflecting lower sales volume partially offset by
higher GP%. Operating income for Machine Tools improved from a loss of
$1,953,000 to a profit of $232,000 primarily due to the additional sales of
Romanian product and reduced S,G&A in the U.S.
Other Expenses, net. Net interest expense was $1,371,000 in 1999 compared
to $733,000 in 1998. This increase is primarily due to interest incurred by the
acquired machine tool company and lower interest income. Equity in income (loss)
of affiliates was $181,000 in 1999 compared to ($133,000) in 1998. Foreign
currency exchange losses of $874,000 in 1999 were incurred by the acquired
machine tool company. There were no foreign currency exchange losses in 1998.
Other income in 1998 includes $350,000 from the sale of fixed assets to WGBC.
There was no Other income in 1999.
Income Tax. The Company's effective income tax rate was 54.7% in 1999
compared to 67.0% in 1998. Both amounts reflect an increase in the valuation
allowance for deferred tax assets.
Net Income. Net income for 1999 increased 181.2% from 1998 to $2,244,000
or $.55 per basic and diluted share, from $798,000 or $.19 per basic and diluted
share in 1998. The increase is primarily due to the higher sales volume,
partially offset by higher other expenses, net.
Financial Condition, Liquidity and Capital Resources
During the three years ended December 30, 2000, the Company's primary sources
of capital have been net cash provided by operating activities and a term loan.
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 December 30, 2000, the Company had working
capital of $28,154,000 and $28,246,000, respectively.
Cash provided by operating activities in 2000 was $1,556,000. Cash provided
from net income before depreciation and amortization, reduced accounts
receivable and increased accounts payable and accrued expenses was partially
offset by increased inventory and the minority losses. The primary reasons for
the inventory
12
increase are 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 sales terms from certain suppliers, in-transit inventory and accounts payable
have increased.
Cash used in investing activities in 2000 was $4,295,000. Included in this
amount is $2,540,000 for the Company's 50% interest in a new joint venture, NNG,
which purchased 60% of JGBR. This was structured as a $100,000 investment and
advances to NNG totaling $2,440,000. 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%. Cash used in investing activities also includes $948,000 for
capital expenditures.
Cash used in financing activities in 2000 was $340,000. The Company repaid
short term loans of $3,459,000 primarily 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 $968,000 under a lease finance
facility. Part of these proceeds was used to repay its existing $504,000 capital
lease. During 2000, the Company had a net increase in debt under its revolving
credit facility of $3,347,000 and repaid $46,000 under its new lease facility.
At December 30, 2000, the Company had outstanding debt of $14,753,000 under
its Revolving Credit Facility and had further availability of approximately $4.6
million. At December 30, 2000, the Company was in compliance with all of its
loan covenants. Additionally, the Company had outstanding debt of $264,000
against a $548,000 line of credit that expired on April 30, 2001. At January 1,
2000, the Company had cash collateralized $1,818,000 in letters of credit
outstanding with its former lender. At December 30, 2000, all such cash had
either been used to fund inventory purchases or been returned to the Company.
In July 2000, the Company acquired 100% of World Machinery Company in exchange
for common shares. A cash dividend of $500,000 and a non-cash dividend of
$1,594,000 were made by World to its shareholders prior to its acquisition by
General. The Company believes that this acquisition will 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 anticipated working
capital and capital expenditure requirements for at least the next 24 months.
Inflation
The effect of inflation on the Company has not been significant during the
last two fiscal years.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." FAS 133 is effective, as
amended, for years beginning after June 15, 2000. FAS 133 requires that all
derivative instruments be recorded on the balance sheet at fair value. Changes
in the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of the hedged transaction and the type of hedge transaction. The
ineffective portion of all hedges will be recognized in earnings.
In June 2000, the FASB issued Statement of Financial Accounting Standards No.
138 ("FAS 138"), "Accounting for Certain Derivative Instruments and Certain
Hedging Activities" which amended FAS 133. The amendments in FAS 138 address
certain implementation issues and relate to such matters as the normal purchases
and normal sales exception, the definition of interest rate risk, hedging
recognized foreign currency denominated assets and liabilities, and intercompany
derivatives.
Effective December 31, 2000, the Company will adopt FAS 133 and FAS 138. The
initial impact of adoption on the Company's financial statements will be
recorded in the first fiscal quarter of 2001 and will not be material. The
ongoing effect of adoption on the Company's consolidated financial statements
will be determined each quarter by several factors, including the specific
hedging instruments in place and their relationships to hedged items, as well as
market conditions at the end of each period.
13
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition in financial statements. The Company has
adopted SAB 101 in 2000 and there was no material effect on the Company's
operating results.
Forward Looking Statements
Except for historical information contained herein, statements contained in
this Form 10-K constitute forward-looking statements made pursuant to the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve material risks and uncertainties,
including, without limitation, statements as to management's beliefs,
strategies, plans, projections, expectations or opinions related to the
Company's future performance which are based on a number of assumptions that may
ultimately prove to be inaccurate.
Item 7a. 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 (see Note 8 to the Consolidated Financial Statements). As of
December 30, 2000, the Company had $9.0 million outstanding in 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 year
ended December 30, 2000, the Company's interest rate swap agreement resulted in
additional expense of approximately $3,000.
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 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. Due to this limited
activity, the Company does not expect any material loss with respect to foreign
currency risk.
14
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
FOR THE THREE YEARS ENDED DECEMBER 30, 2000
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
----
Report of Independent Certified Public Accountants...................F-16
Report of Independent Certified Public Accountants...................F-17
Consolidated Balance Sheets, January 1, 2000 and December 30, 2000...F-18
Consolidated Statements of Operations for the Years Ended
January 2, 1999, January 1, 2000 and December 30, 2000...............F-19
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended January 2, 1999, January 1, 2000 and December 30,
2000.................................................................F-20
Consolidated Statements of Cash Flows for the Years Ended
January 2, 1999, January 1, 2000 and December 30, 2000...............F-21
Notes to Consolidated Financial Statements......................F-22 - 41
Report of Independent Certified Public Accountants
To the Stockholders
General Bearing Corporation
West Nyack, New York
We have audited the accompanying consolidated balance sheets of General Bearing
Corporation and subsidiaries as of December 30, 2000 and January 1, 2000, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 30, 2000. These
financial statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Rockland Manufacturing
Company and WMW Machinery Company, Inc., (wholly owned subsidiaries) whose
statements collectively reflect assets of 9.5% and 12.2% in the consolidated
balance sheets presented as of December 30, 2000 and January 1, 2000, and
revenues of 12.8%, 13.4% and 21.4% of the related consolidated totals, for each
of the three years in the period ended December 30, 2000, respectively. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Rockland
Manufacturing Company and WMW Machinery Company, Inc. is based solely on the
report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of General Bearing Corporation and
subsidiaries as of December 30, 2000 and January 1, 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 30, 2000, in conformity with accounting principles generally
accepted in the United States of America.
BDO Seidman, LLP
New York, New York
April 25, 2001
F-16
Report of Independent Certified Public Accountants
To the Partners and Shareholders
Rockland Manufacturing Company and WMW Machinery Company, Inc.
We have audited the balance sheets of Rockland Manufacturing Company and WMW
Machinery Company, Inc. as of December 30, 2000 and January 1, 2000, and the
related statements of operations, changes in partners' capital and shareholders'
equity and cash flows for the fiscal years ended December 30, 2000, January 1,
2000 and January 2, 1999, not separately presented herein. These financial
statements are the responsibility of the Companies management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rockland Manufacturing Co. and
WMW Machinery Company, Inc. as of December 30, 2000 and January 1, 2000, and the
results of their operations and their cash flows for the fiscal years ended
December 30, 2000, January 1, 2000, and January 2, 1999, in conformity with
accounting principles generally accepted in the United States of America.
Urbach, Kahn & Werlin LLP
New York, New York
February 8, 2001
F-17
General Bearing Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except for shares and per share data)
December 30, January 1,
2000 2000
- --------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 497 $ 3,576
Accounts receivable, net of allowance for doubtful
accounts of $988 in 2000 and $738 in 1999 6,478 7,983
Inventories 29,560 25,358
Prepaid expenses and other current assets 1,568 1,149
Advances to affiliates 230 125
Deferred tax assets 445 587
- --------------------------------------------------------------------------------------------
Total current assets 38,778 38,778
- --------------------------------------------------------------------------------------------
Fixed assets, net of accumulated depreciation 8,643 8,846
Investment in, advances to and accounts receivable
from joint ventures and affiliates 7,475 5,260
- --------------------------------------------------------------------------------------------
Other assets 368 456
- --------------------------------------------------------------------------------------------
$ 55,264 $ 53,340
- --------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Note payable - banks $ 339 $ 3,798
Accounts payable 4,642 4,023
Due to affiliates 746 244
Accrued expenses and other current liabilities 4,623 2,491
Current maturities of long term debt 182 68
- --------------------------------------------------------------------------------------------
Total current liabilities 10,532 10,624
- --------------------------------------------------------------------------------------------
Long term debt, net of current maturities 16,454 12,861
- --------------------------------------------------------------------------------------------
Deferred taxes 275 205
- --------------------------------------------------------------------------------------------
Minority interests 3,218 4,846
- --------------------------------------------------------------------------------------------
Commitments and contingencies (Note 15)
Stockholders' equity
Common shares - par value $.01 per share; authorized 19,000,000
shares; issued 7,072,950 and 7,064,950 shares 71 71
Paid-in capital 39,994 39,744
Accumulated other comprehensive income (10) (7)
Treasury stock, at cost (51) --
Retained deficit (15,219) (15,004)
- --------------------------------------------------------------------------------------------
24,785 24,804
- --------------------------------------------------------------------------------------------
$ 55,264 $ 53,340
- --------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
F-18
General Bearing Corporation and Subsidiaries
Consolidated Statements of Operations
(In Thousands except for shares and per share data)
- -----------------------------------------------------------------------------------------------
December 30, January 1, January 2,
2000 2000 1999
- -----------------------------------------------------------------------------------------------
Sales $ 59,393 $ 64,338 $ 51,089
Cost of sales 40,917 43,386 34,129
- -----------------------------------------------------------------------------------------------
Gross profit 18,476 20,952 16,960
Selling, general and administrative expenses 16,615 15,127 13,900
- -----------------------------------------------------------------------------------------------
Operating income 1,861 5,825 3,060
Other expenses, net 299 2,064 540
- -----------------------------------------------------------------------------------------------
Income before income taxes 1,562 3,761 2,520
Income taxes 1,311 2,057 1,688
- -----------------------------------------------------------------------------------------------
Income before minority interests 251 1,704 832
Minority interests 1,628 540 (34)
- -----------------------------------------------------------------------------------------------
Net income $ 1,879 $ 2,244 $ 798
- -----------------------------------------------------------------------------------------------
Income per common share:
Basic $ 0.46 $ 0.55 $ 0.19
Diluted $ 0.46 $ 0.55 $ 0.19
Weighted average number of common shares:
Basic 4,109,565 4,112,453 4,104,809
Diluted 4,109,565 4,112,602 4,162,397
See Notes to Consolidated Financial Statements
F-19
General Bearing Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(In Thousands except for shares)
Accumulated
Common Shares Other Treasury Stock
------------------- Comprehensive Paid-In -------------- Comprehensive
Shares Amount Income Capital Shares Amount Income Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 27, 1997 7,040,000 $ 71 $ -- $ 39,532 3,000,000 $ -- $ -- $ (18,046)
Sale of 18,950 common shares -
stock options exercised 18,950 -- -- 132 -- -- -- --
Tax benefit - stock options
exercised -- -- -- 34 -- -- -- --
Net income -- -- -- -- -- -- -- 798
---------- ------- ------------- -------- ---------- ------- ---------- ---------
Balance, January 2, 1999 7,058,950 71 -- 39,698 3,000,000 -- -- (17,248)
Sale of 6,000 common shares -
stock options exercised 6,000 -- -- 42 -- -- -- --
Tax benefit - stock options
exercised -- -- -- 4 -- -- -- --
Foreign currency translation adj. -- -- (7) -- -- -- (7) --
Net income -- -- -- -- -- -- 2,244 2,244
----------
Comprehensive income -- -- -- -- -- -- 2,237 --
---------- ------- ------------- -------- ---------- ------- ---------- ---------
Balance, January 1, 2000 7,064,950 71 (7) 39,744 3,000,000 -- -- (15,004)
Shares issued - compensation 8,000 -- -- 43 -- -- -- --
Treasury shares, at cost -- -- -- -- 10,300 (51) -- --
Foreign currency translation adj. -- -- (3) -- -- -- (3) --
Distribution to WMC shareholders -- -- -- -- -- -- -- (2,094)
Options exercised -- -- -- 207 (50,000) -- -- --
Net income -- -- -- -- -- -- 1,879 1,879
----------
Comprehensive income -- -- -- -- -- -- 1,876 --
---------- ------- ------------- -------- ---------- ------- ---------- ---------
Balance, December 30, 2000 7,072,950 $ 71 $ (10) $ 39,994 2,960,300 $ (51) -- $ (15,219)
====================================================================================================================================
See Notes to Consolidated Financial Statements
F-20
General Bearing Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
====================================================================================================
December January 1, January 2,
30, 2000 2000 1999
- ----------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 1,879 $ 2,244 $ 798
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interests (1,628) (540) 34
Depreciation and amortization 1,233 789 583
Deferred income taxes 212 1,011 1,521
Equity in income of joint ventures and affiliates (669) (181) 133
Net gain on equipment sales and disposal -- -- (315)
Other non - cash items charged to income 43 -- --
Changes in:
Accounts receivable 1,505 (1,242) (357)
Inventories (4,202) 652 (7,486)
Prepaid expenses and other assets (124) (918) 531
Advances to/from affiliates 369 (4,176) 3,612
Accounts payable and accrued expenses 2,938 2,246 (1,077)
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,556 (115) (2,023)
- ----------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Investments in affiliates, net (750) (648) (2,924)
Advances to affiliates (2,597) -- --
Fixed asset purchases (948) (731) (958)
Proceeds from sale of fixed assets -- -- 694
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,295) (1,379) (3,188)
- ----------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Repayment of capital lease (650) (782) (523)
Increase (decrease) in note payable - banks (3,459) (7,517) 2,686
Net proceeds from revolving credit facility 3,347 11,406 --
Proceeds from equipment financing 968 -- --
Proceeds from long-term debt -- 678 3,500
Proceeds from sale of common shares 5 42 132
Return of capital (500) -- --
Purchase of treasury stock (51) -- --
Redemption of preferred shares of subsidiary -- -- (2,400)
Repayment of shareholder loans -- -- (128)
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (340) 3,827 3,267
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,079) 2,333 (1,944)
Cash and cash equivalents, beginning of period 3,576 1,243 3,187
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 497 $ 3,576 $ 1,243
====================================================================================================
See Notes to Consolidated Financial Statements
F-21
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
Note 1. The Company and Summary of Significant Accounting Policies
General Bearing Corporation ("General") and subsidiaries
(collectively, "the Company") is actively engaged in two principal
lines of business and three business segments:
o Bearings and Bearing Components. The Company, through General
and its 50% owned joint venture Rockland Manufacturing Company
("Rockland"), manufactures, sources, assembles and distributes
a variety of bearing components and bearing products,
including ball bearings, tapered roller bearings, spherical
roller bearings and cylindrical roller bearings. The Company
operates in two business segments; under the Hyatt(R) and The
General(R) trademarks, the Company supplies original equipment
manufacturers ("OEMs") and the industrial aftermarket, both
primarily in the United States. The Company's products are
used in a broad range of applications, including automobiles,
railroad cars, locomotives, trucks, heavy duty truck trailers,
office equipment, machinery and appliances. Approximately 85%
of fiscal 2000 revenues relate to bearings and bearing
components (80% and 89% in 1999 and 1998, respectively).
o Machine Tools. The Company, through WMW Machinery Company,
Inc. ("WMW"), a wholly-owned subsidiary, distributes machine
tools in North America. The Company also distributes machine
tools throughout the rest of the world through its
majority-owned subsidiary, World Machinery Group, B.V.
("WMG"). WMG holds a 51% interest in World Machinery Works,
S.A. ("W.M.Works"), a Romanian manufacturer of machine tools.
Summary of Significant Accounting Policies
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of General, its wholly owned
subsidiaries and all joint ventures in which General maintains
control and has at least a 50% ownership share. Investments in other
joint ventures are carried under the equity method. The years ended
December 30, 2000, January 1, 2000 and January 2, 1999 are referred
to as fiscal 2000, fiscal 1999, and fiscal 1998, respectively.
All significant intercompany accounts and transactions have been
eliminated.
Adoption of Recent Accounting Principles: The consolidated financial
statements reflect, for all periods presented, the adoption of the
classification requirements pursuant to Emerging Issues Task Force
("EITF") 00-10, Accounting for Shipping and Handling Fees and Costs,
EITF 00-14, Accounting for Certain Sales Incentives, and EITF 00-22,
Accounting for "Points" and Certain Other Time Based or Volume Based
Sales Incentive Offers, and Offers for Free Products to be Delivered
in the Future, which were effective in the Company's fourth quarter
of 2000. The Company reclassified to "Net sales" income from freight
charged to customers, and the cost of rebates provided to customers
pursuant to promotional incentive programs, which were historically
included in "Selling, general and administrative" expenses for all
periods presented.
F-22
General Bearing Corporation and Subsidiaries
Note 1. The Company and Summary of Significant Accounting Policies,
(Continued)
Cash Equivalents: The Company considers all investments in highly
liquid debt instruments with maturities of three months or less from
date of purchase and money market funds to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market.
During fiscal 1999, Rockland negotiated revised terms under which it
purchases inventory. Rockland maintains the right to return all
unsold inventory and is obligated to remit payment for inventory
only upon sale. Accordingly, the Company treats these materials to
be inventory held on consignment and has not recorded them in
inventory at December 30, 2000 and January 1, 2000. Inventory at
December 30, 2000 and January 1, 2000 consists of approximately
$850,000 and $691,000, respectively, of inventory acquired under the
previously existing purchasing arrangement and inventory held for
rework and costs related to consigned goods. Inventory held on
consignment approximated $3,450,000 and $4,165,000 at December 30,
2000 and January 1, 2000, respectively.
Comprehensive Income: Comprehensive income refers to revenue,
expenses, gains and losses that under generally accepted accounting
principles are excluded from net income, as these amounts are
recorded directly as an adjustment to shareholders' equity. The
Company's comprehensive income is comprised of foreign currency
translation adjustments. The comprehensive income for each of the
three years in the period ended December 30, 2000 is presented in
the Statement of Changes in Stockholders' Equity.
Fixed Assets: The cost of depreciable plant and equipment is
depreciated for financial reporting purposes over the estimated
useful lives using the straight-line or declining balance methods.
The estimated lives for each property classification are as follows:
--------------------------------------------------------------------
Land and buildings No depreciation - land, 10-40 years
- building
Machinery and equipment 3 to 10 years
Furniture and fixtures 10 years
Transportation equipment 3 to 5 years
Leasehold improvements Lesser of life of lease or useful life
--------------------------------------------------------------------
Expenditures for maintenance, repairs and minor renewals or
betterments are charged against income. Major renewals and
replacements are capitalized.
Evaluating Recoverability of Long Lived Assets: The Company reviews
the carrying values of its long-lived and identifiable intangible
assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may
not be recoverable. The Company assesses recoverability of these
assets by estimating future nondiscounted cash flows. Any long-lived
assets held for disposal are reported at the lower of their carrying
amounts or fair value less cost to sell. During 2000, the Company
recorded an impairment write-down of $501,000 (see Note 18).
Fiscal Year: The reporting period for the Company is a 52-53 week
fiscal year. There were 52 weeks in the periods ended December 30,
2000 and January 1, 2000, and 53 weeks in the period ended January
2, 1999.
Revenue Recognition: The Company recognizes revenue when products
are shipped. The Company provides, as a reduction in sales, for
anticipated returns and allowances on defective merchandise based on
known claims and an estimate of anticipated returns.
Shipping and Handling Costs: The Company accounts for certain
shipping and handling costs as a component of "Selling, general and
administrative expenses." These costs represent primarily the
freight and direct compensation costs of employees who pick, pack
and otherwise prepare, if necessary, merchandise for shipment to the
Company's customers. Total costs were $683,000, $707,000 and
$659,000 in fiscal 2000, 1999 and 1998, respectively.
F-23
General Bearing Corporation and Subsidiaries
Note 1. The Company and Summary of Significant Accounting Policies,
(Continued)
Income Taxes: Prior to the transaction described in Note 2, General
filed a consolidated Federal income tax return with World Machinery
Company ("World") through the date of its initial public offering,
completed in February, 1997; thereafter, it filed its own federal
returns. State and local tax returns are filed separately. Federal
income taxes were calculated as if General filed its tax return on a
separate return basis for all periods presented. World filed a
consolidated federal income tax return with its wholly owned
subsidiaries and separate state and local tax returns. Subsequent to
the transaction described in Note 2, the Company will file a
consolidated Federal income tax return.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes, and operating loss carryforwards.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Estimated Fair Value of Financial Instruments: Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosure About
Fair Value of Financial Instruments", requires disclosures of fair
value information about financial instruments, for which it is
practicable to estimate the value, whether or not recognized on the
balance sheet.
The fair value of financial instruments, including cash, accounts
receivable and accounts payable, approximate their carrying value
because of the current nature of these instruments. The carrying
amounts of the Company's note payable - bank and long-term debt -
bank approximate fair value because the interest rates on these
instruments are subject to changes with market interest rates. To
reduce its exposure to fluctuations in interest rates, the Company
is party to an interest rate swap with its bank (Note 8). It is not
practical to determine the fair value of receivables from, payables
to and long-term debt payable to affiliates and other because of the
nature of their terms.
Concentration of Credit Risk: The Company extends credit based on an
evaluation of the customer's financial condition, generally without
requiring collateral. Exposure to losses on receivables is
principally dependent on each customer's financial condition. The
Company monitors its exposure for credit losses and maintains
allowances for anticipated losses. The Company obtained 85%, 77%,
and 72% of its bearing and component requirements from various
Chinese joint ventures in the fiscal years ended 2000, 1999 and
1998, respectively. In 2000 and 1999, respectively, the Company
obtained 87% and 64% of its machine tool requirements from various
companies in Romania.
Cash accounts at financial institutions from time to time may exceed
the federal depository insurance coverage limit.
Foreign Currency Translation: Foreign currency financial statements
of foreign operations where the local currency is the functional
currency are translated using exchange rates in effect at period end
for assets and liabilities and average exchange rates during the
period for results of operations. Related translation adjustments
are reported as a separate component of shareholders' equity. For
foreign operations where the US dollar is the functional currency
and for countries which are considered highly inflationary,
translation practices differ in that inventories, properties,
accumulated depreciation and depreciation accounts are translated at
historical rates of exchange and translation adjustments are
included in earnings. Gains and losses from foreign currency
transactions are generally included in earnings. All foreign
subsidiaries, except for W.M. Works, use the local currency as the
functional currency. The effect on cash of foreign currency
translation is not material.
F-24
General Bearing Corporation and Subsidiaries
Note 1. The Company and Summary of Significant Accounting Policies, (Continued)
Stock-Based Compensation: The Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation ("SFAS No. 123") requires entities which have
arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of its stock to either record the
fair value of the arrangements or disclose the proforma effects of the
fair value of the arrangements. The Company has adopted the disclosure
method of SFAS No. 123.
Earnings Per Common Share: Earnings per common share are computed on the
basis of the weighted average number of common shares outstanding during
the year. Basic earnings per share excludes and diluted earnings per share
includes any dilutive effects of options, warrants, and convertible
securities.
Reclassification: Certain prior year amounts have been reclassified to
conform with the current year presentation.
Recent Accounting Standards: In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 133 ("FAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." FAS 133 is effective, as amended, for years beginning
after June 15, 2000. FAS 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as
part of the hedged transaction and the type of hedge transaction. The
ineffective portion of all hedges will be recognized in earnings.
In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138 ("FAS 138"), "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" which amended FAS 133. The amendments in FAS
138 address certain implementation issues and relate to such matters as
the normal purchases and normal sales exception, the definition of
interest rate risk, hedging recognized foreign currency denominated assets
and liabilities, and intercompany derivatives.
Effective December 31, 2000, the Company will adopt FAS 133 and FAS 138.
The initial impact of adoption on the Company's financial statements will
be recorded in the first fiscal quarter of 2001 and will not be material.
The ongoing effect of adoption on the Company's consolidated financial
statements will be determined each quarter by several factors, including
the specific hedging instruments in place and their relationships to
hedged items, as well as market conditions at the end of each period.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company has adopted SAB 101 in 2000 and there was no material effect on
the Company's operating results.
F-25
General Bearing Corporation and Subsidiaries
Note 2. Acquisition
In July 2000, General acquired 100% of World Machinery Company, which,
prior to the acquisition, owned 74.8% of the outstanding common stock of
General. World was principally owned by members of General Bearing's Board
of Directors and senior management. World's principal business is the
manufacture and sale of machine tools, however, it also holds two bearing
joint ventures for General's benefit. This combination has been accounted
for in a manner similar to a pooling of interests. Prior periods have been
restated as if the companies have always been combined. In consideration
for this transaction, General issued 3,140,000 shares of its common stock,
$ .01 per share par value. 2,950,000 shares of General's common stock,
owned by World, are now carried as treasury stock. The net stock of
190,000 shares paid for the acquisition are considered outstanding for all
periods presented.
Note 3. Inventories
Inventories are comprised as follows at: (In Thousands)
December 30, January 1,
2000 2000
- --------------------------------------------------------------------------------
Bearing and Bearing Products
Finished goods $ 8,260 $ 7,019
Raw materials, purchased parts and work-in
process 15,736 14,857
- --------------------------------------------------------------------------------
23,996 21,876
- --------------------------------------------------------------------------------
Machine Tools
Machines and machine tools 2,936 2,477
Service parts and accessories 2,628 1,005
- --------------------------------------------------------------------------------
5,564 3,482
- --------------------------------------------------------------------------------
$29,560 $25,358
================================================================================
In 1999 the Company adjusted the book value of certain of its inventory to
net realizable value. In line with this adjustment, inventory reserves
were reduced by $792,000.
Note 4. Fixed Assets
Fixed assets are comprised as follows at: (In Thousands)
December 30, January 1,
2000 2000
- --------------------------------------------------------------------------------
Land and buildings $ 5,133 $ 5,133
Machinery and equipment 9,279 9,656
Furniture and fixtures 1,947 1,469
Leasehold improvements 761 729
Transportation equipment 510 525
- --------------------------------------------------------------------------------
17,630 17,512
Less accumulated depreciation and amortization 8,987 8,666
- --------------------------------------------------------------------------------
$ 8,643 $ 8,846
================================================================================
F-26
General Bearing Corporation and Subsidiaries
Included in machinery and equipment is construction in process of
$252,000. The Company estimates that it will cost $500,000 to complete
construction in process. Included in furniture and fixtures is
construction in process of $467,000. The Company estimates that it will
cost $333,000 to complete construction in process relating to furniture
and fixtures.
Depreciation and amortization expense was $742,000, $782,000, and $582,000
in fiscal 2000, 1999, and 1998, respectively.
Note 5. Investments in, Advances to and Accounts Receivable from Joint Ventures
and Affiliates
Investment in, advances to and accounts receivable from joint ventures and
affiliates consist of the following at: (In Thousands)
December 30, January 1,
2000 2000
- --------------------------------------------------------------------------------
Investments:
Shanghai General Bearing Company, Ltd. (a) $ 972 $ 828
Ningbo General Bearing Company, Ltd. (b) 2,304 1,403
Shanghai Pudong General Bearing
Company, Ltd. (c) 162 156
Wafangdian General Bearing Company, Ltd. (d) 781 838
NN General, LLC (e) 230 --
NNA, LLC (f) (82) --
- --------------------------------------------------------------------------------
4,367 3,225
- --------------------------------------------------------------------------------
Advances and accounts receivable:
Short Term
Gussack Realty Company (g) 37 37
Shanghai Pudong General Bearing
Company, Ltd. 30 17
Shanghai General Bearing Company, Ltd. 124 71
Wafangdian General Bearing Company, Ltd. 13 --
NN General, LLC 26 --
- --------------------------------------------------------------------------------
230 125
- --------------------------------------------------------------------------------
Long Term
Gussack Realty Company -- 1,593
General IKL Corp. (h) 461 442
NN General, LLC 2,520 --
NNA, LLC 127 --
- --------------------------------------------------------------------------------
3,108 2,035
- --------------------------------------------------------------------------------
$ 7,705 $5,385
================================================================================
(a) Shanghai General Bearing Company, Ltd. ("SGBC"), a 25% owned joint
venture with General, was formed in June 1987 for an initial term of
ten years. During 1996, General extended the term to June 2008 and
can further extend the term for an additional ten year interval upon
six months notice and unanimous consent of SGBC's Board of
Directors. General is not required to contribute additional capital.
Upon
F-27
General Bearing Corporation and Subsidiaries
receipt of $1,375,000 in dividends, General will cease to receive
any further dividends. Through December 30, 2000, General has
recorded $402,000 in dividends from SGBC. Furthermore, after
termination of the joint venture, all equipment and machinery
contributed by General will be turned over to the joint venture
partner without compensation to General. The advances relate
primarily to inventory purchases. Condensed financial data of SGBC
are as follows: (In Thousands)
- --------------------------------------------------------------------------------
December 30, January 1,
Balance Sheet: 2000 2000
- --------------------------------------------------------------------------------
Current assets $4,904 $4,083
- --------------------------------------------------------------------------------
Total assets 7,945 7,667
- --------------------------------------------------------------------------------
Current liabilities 4,057 4,357
- --------------------------------------------------------------------------------
Total liabilities 4,057 4,357
- --------------------------------------------------------------------------------
Stockholders' equity 3,888 3,310
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 30, January 1, January 2,
Income Statement: 2000 2000 1999
- --------------------------------------------------------------------------------
Net sales $17,980 $17,131 $13,356
- --------------------------------------------------------------------------------
Gross Profit 2,512 1,673 1,071
- --------------------------------------------------------------------------------
Operating income 1,699 773 368
- --------------------------------------------------------------------------------
Net income 835 567 268
- --------------------------------------------------------------------------------
(b) Ningbo General Bearing Company, Ltd., was initially established as a
33% owned joint venture with General in March 1998 for a term of
sixteen years. During 2000, the Company increased its ownership to
42% by contributing an additional $650,000 in cash. In 2001, the
Company signed an agreement to increase its ownership to 50%. Upon
expiration or early termination of the business term, assets will be
distributed to the partners in the same proportion as their
respective paid investments to the registered capital. Condensed
financial data of NGBC are as follows: (In Thousands)
- --------------------------------------------------------------------------------
December 30, January 1,
Balance Sheet: 2000 2000
- --------------------------------------------------------------------------------
Current assets $2,600 $1,937
- --------------------------------------------------------------------------------
Total assets 7,009 5,928
- --------------------------------------------------------------------------------
Current liabilities 1,523 1,681
- --------------------------------------------------------------------------------
Total liabilities 1,523 1,681
- --------------------------------------------------------------------------------
Stockholders' equity 5,486 4,247
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 30, January 1, January 2,
Income Statement: 2000 2000 1999
- --------------------------------------------------------------------------------
Net sales $10,231 $ 4,063 $ 241
- --------------------------------------------------------------------------------
Gross profit 963 71 (61)
- --------------------------------------------------------------------------------
Operating income/(loss) 585 (32) (71)
- --------------------------------------------------------------------------------
Net income/(loss) 589 (32) (71)
- --------------------------------------------------------------------------------
(c) Shanghai Pudong General Bearing Company, Ltd., ("SPGBC") a 25% owned
joint venture with General, was formed in 1996. General contributed
$150,000 in fiscal 1998 representing its interest in the registered
capital. The advances related to inventory returned to SPGBC.
General is not required to contribute additional capital.
(d) Wafangdian General Bearing Company, Ltd. ("WGBC"), a 25% owned joint
venture with World, supplies special purpose bearings to Rockland.
(e) In March 2000, General entered into a 50% joint venture, NN General,
LLC ("NNG"). In connection therewith, General agreed to equally
share its 60% interest, which it acquired in 2000, in Jiangsu
General Ball and Roller Co., Ltd. ("JGBR") with its joint venture
partner. Prior to March, General recorded its share of equity income
in JGBR, which amounted to $190,000. JGBR is a manufacturer of
rolling elements for bearings. The Company's
F-28
General Bearing Corporation and Subsidiaries
net cash investment for these transactions was $100,000. The Company
is not required to contribute additional capital. The Company also
advanced to NNG loans totaling $2,520,000, including interest at the
applicable federal rate for a period of 30 years. The rate in effect
at December 30, 2000 was 5.98%.
(f) NNA, LLC ("NNA"), a 33.33% owned joint venture with General, was
formed in 2000 to market the products of JGBR. The Company advanced
to NNA $127,000, including interest at the applicable federal
rate for a period of 30 years. The rate in effect at December 30,
2000 was 5.98%.
(g) Advances to Gussack Realty Company ("Realty"), an affiliate through
common ownership by certain officers and directors, are unsecured.
The short term amount due from Realty was repaid during the first
quarter of 2001. The long term advance to Realty was distributed to
the former shareholders or World prior to the transaction described
in Note 2.
(h) Amounts receivable from and payable to General-IKL Corp., a
corporate joint venture with a manufacturer located in the former
Republic of Yugoslavia, are subject to collection and repayment
restrictions due to the suspension of economic activity with that
country. General accrues interest on the balances due to and from
this affiliate.
Note 6. Note Payable - Banks
In December 1999, World borrowed $3,250,000 from a bank to repay
outstanding indebtedness. The note was due March 19, 2000. Interest is
calculated at 1.75% over a reference rate based on Eurodollars or an
equivalent, as defined. During 2000, this loan was repaid with funds
obtained under the Company's revolving line of credit.
W.M. Works has available a line of credit amounting to approximately
$548,000. Borrowings against the line at December 30, 2000 amounted to
$264,000. The line of credit, secured by land and buildings of $4,653,000,
contains no major covenants. Interest on outstanding obligations is
payable at 12.5% per year. The line of credit expires on April 30, 2001.
W.M. Works has also been granted a short term loan of $75,000 from a
second bank, bearing an interest rate of 9.5%.
Note 7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
(In Thousands)
- --------------------------------------------------------------------------------
December 30, January 1,
2000 2000
- --------------------------------------------------------------------------------
Payroll & related benefits $ 880 $ 451
Insurance 440 520
Customer deposits 1,518 317
Sales commissions 238 292
Sales rebates 162 149
Other 1,385 762
- --------------------------------------------------------------------------------
Total $4,623 $2,491
================================================================================
F-29
General Bearing Corporation and Subsidiaries
Note 8. Long-Term Debt
Long-term debt consists of the following at: (In Thousands)
December 30, January 1,
2000 2000
- --------------------------------------------------------------------------------
Bank and other:
Banks revolving line of credit (a) $ 14,753 $ 11,406
Long-term lease obligation (See Note 15) 845 527
- --------------------------------------------------------------------------------
15,598 11,933
Less current maturities (182) (68)
- --------------------------------------------------------------------------------
15,416 11,865
Affiliates:
General - IKL Corp. (see Note 5(h)) 1,038 996
- --------------------------------------------------------------------------------
Total long-term debt $ 16,454 $ 12,861
================================================================================
(a) General is obligated to a bank under a revolving line of
credit, which expires on April 30, 2003. The credit agreement
provides General with a secured line of credit of up to $21
million for acquisitions, working capital and general
corporate purposes. The maximum amount available is reduced by
outstanding letters of credit. Interest on outstanding
obligations is payable at either the bank's prime rate plus up
to 1.00%, or LIBOR plus 1.00% to 2.00%. These percentages are
determined quarterly based upon the financial performance of
General. The average monthly rate in effect at December 30,
2000 was 7.83%. Also based upon the financial performance of
General is a commitment fee of either .125% or .25% of unused
availability. The loan is secured by General's assets. The
credit agreement also contains certain restrictive covenants,
which include, among others, maintenance of financial ratios
relating to funded debt, fixed charge coverage and interest
coverage and limitations on capital expenditures and
investments. The Company is in compliance with all of its loan
covenants.
As of December 30, 2000, borrowing under the credit line
amounted to $14,753,000, and letter of credit commitments
under this credit line amounted to $1,621,000.
As of December 30, 2000, the Company had $9.0 million
outstanding in 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 year ended December 30, 2000, the Company's interest rate
swap agreement resulted in additional expense of approximately
$3,000.
F-30
General Bearing Corporation and Subsidiaries
Note 9. Income Taxes
Federal, state and local income taxes consist of the following for the fiscal
year ended : (In Thousands)
- --------------------------------------------------------------------------------
December 30, January 1, January 2,
2000 2000 1999
- --------------------------------------------------------------------------------
Deferred:
Federal $ (358) $ (977) $(1,436)
State and local 4 (34) (85)
Foreign 142 -- --
- --------------------------------------------------------------------------------
(212) (1,011) (1,521)
- --------------------------------------------------------------------------------
Current:
Federal (912) (656) (80)
State and local (96) (238) (87)
Foreign (91) (152) --
- --------------------------------------------------------------------------------
(1,099) (1,046) (167)
- --------------------------------------------------------------------------------
$(1,311) $(2,057) $(1,688)
================================================================================
The major elements contributing to the difference between the Federal statutory
rate and the Company's effective tax rate are as follows:
- --------------------------------------------------------------------------------
December 30, January 1, January 2,
2000 2000 1999
- --------------------------------------------------------------------------------
Statutory rate 34.0% 34.0% 34.0%
Increase in valuation allowance 55.2 19.7 24.6
State and local income taxes
less federal income tax benefit 3.9 10.5 4.5
Tax effect of differences between
U.S. statutory & foreign effective
rates 10.9 8.6 --
Equity in (income) loss of affiliates (14.6) (1.4) 1.8
Dividends recorded 8.1 -- 2.9
Other differences (13.6) (16.7) (0.9)
- --------------------------------------------------------------------------------
Effective rate 83.9% 54.7% 66.9%
================================================================================
F-31
General Bearing Corporation and Subsidiaries
Note 9. Income Taxes, (Continued)
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows: (In Thousands)
December 30, January 1,
2000 2000
- --------------------------------------------------------------------------------
Gross deferred tax assets
Accounts receivable and inventory allowances $ 392 $ 374
Tax credits -- 379
Net operating loss carryforwards 1,930 1,585
Foreign losses 613 --
All other 399 276
- --------------------------------------------------------------------------------
Gross deferred tax liabilities 3,334 2,614
Plant and equipment depreciation differences (232) (205)
All other (44) --
- --------------------------------------------------------------------------------
3,058 2,409
Valuation allowance (2,888) (2,027)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 170 $ 382
================================================================================
The Company has provided a valuation allowance against all of the deferred
tax assets of World and WMW.
The valuation allowance has increased by $861,000, $335,000, and $621,000
in 2000, 1999, and 1998, respectively.
As of December 30, 2000, the Company had aggregate federal tax loss
carryovers of approximately $4.3 million, which may be used to offset
future taxable income of certain of its subsidiaries, expiring at various
dates through the year 2019.
In fiscal 2000, 1999 and 1998, foreign pretax losses amounted to
$2,453,000, $505,000 and $0, respectively.
As of December 30, 2000, cumulative foreign losses amounted to
approximately $2.5 million. The Company has provided a valuation allowance
against this loss.
Note 10. Discretionary Profit-Sharing Plan
The Company maintains a profit sharing plan covering eligible salaried and
nonunion employees. Contributions are made to the plan at the discretion
of the management of the Company. The Company recorded expense of
approximately $178,000, $165,000 and $145,000 in fiscal 2000, 1999, and
1998, respectively.
F-32
General Bearing Corporation and Subsidiaries
Note 11. Other Expenses, Net
Others expenses consist of the following for the fiscal years ended: (In
Thousands)
December 30, January 1, January 2,
2000 2000 1999
- --------------------------------------------------------------------------------
Interest expense $(1,335) $(1,563) $(1,008)
Interest income 190 192 275
- --------------------------------------------------------------------------------
Interest, net (1,145) (1,371) (733)
Equity in income (loss) of
affiliates 669 181 (133)
Foreign currency exchange losses 2 (874) --
Other 175 -- 326
- --------------------------------------------------------------------------------
$ (299) $(2,064) $ (540)
================================================================================
Note 12. Transactions with Affiliates
General made purchases of approximately $26.7 million, $23.8 million and
$20.5 from its joint ventures and affiliates in fiscal 2000, 1999, and
1998, respectively. WMW made purchases of approximately $801,000,
$1,162,000 and $0 from an affiliate in fiscal 2000, 1999 and 1998,
respectively.
The Company lease property from Realty. The Company entered into a lease
agreement with Realty for its new premises effective November 1, 1996 for
an initial term of seven years. Rent and real estate taxes paid to this
affiliate totaled $1,302,000, $1,189,000, and $1,144,000 in fiscal 2000,
1999, and 1998, respectively.
The amounts receivable from and payable to General-IKL Corp., a corporate
joint venture with a manufacturer located in the former Republic of
Yugoslavia, are restricted due to suspension, by the United States
government, of certain economic activity with that country. The Company
accrues interest on the balances due to and from this affiliate.
Gain on sale of equipment of $350,000 in 1998 resulted from equipment sold
to Wafangdian General Bearing Co., Ltd.
Note 13. Stock Options
In September 1996, General adopted the 1996 Stock Option and Performance
Award Plan ("1996 Plan"), which authorizes the granting to directors,
officers and key employees of the Company of incentive or non-qualified
stock options, performance shares, restricted shares and performance
units. The 1996 plan covers up to 500,000 shares of common stock.
The exercise price of any incentive stock option granted to an eligible
employee may not be less than 100% of the fair market value of the shares
underlying such option on the date of grant, unless such employee owns
more than 10% of the outstanding common stock or stock of any subsidiary
or parent of the Company, in which case the exercise price of any
incentive stock option may not be less than 110% of such fair market
value. No option may be exercisable
F-33
General Bearing Corporation and Subsidiaries
more than ten years after the date of grant and, in the case of an
incentive stock option granted to an eligible employee owning more than
10% of the common stock or stock of any subsidiary or parent of the
Company, no more than five years from its date of grant.
Options are not transferable, except upon the death of the optionee. Upon
death of an optionee, vested options are exercisable according to the
original term of the option grant. In general, upon termination of
employment of an optionee, all options granted to such person which are
not exercisable on the date of such termination immediately expire, and
any options that are exercisable expire three months following termination
of employment if such termination is not the result of death or retirement
and one year following such termination if such termination was because of
death, retirement, disability or with the consent of the Company.
The Company estimates the fair value of each stock option at the grant
date by using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in the year ended January 1,
2000: no dividend yield, expected volatility of 45.8%, risk free rates of
5.0% and expected lives of 5 to 10 years. For the year ended January 2,
1999, the weighted average assumptions used for grants were: no dividend
yield, expected volatility of 37.3%, risk free interest rates of 4.7% to
5.5% and expected lives of 5 to 10 years. If compensation cost for the
Company's stock option plan had been determined in accordance with SFAS
No. 123, consolidated net income would have been reduced by approximately
$161,000 or $.04 per diluted share, $169,000 or $.04 per diluted share,
and $211,000 or $.05 per diluted share for the fiscal years ended 2000,
1999, and 1998, respectively. The following table summarizes information
about the Company's stock options outstanding at December 30, 2000:
Options Outstanding
---------------------------------------------------------
Weighted Average Weighted
Number Remaining Contractual Average Exercise
Outstanding Life (Years) Price
- --------------------------------------------------------------------------------
Exercise prices:
$7.00 to $7.70 245,300 6.5 $7.16
================================================================================
Transactions under the stock option plan are summarized as follows:
F-34
General Bearing Corporation and Subsidiaries
December 30, 2000 January 1, 2000 January 2, 1999
--------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 259,800 $ 7.15 269,550 $ 8.72 257,500 $ 7.19
Granted -- -- 5,000 7.63 94,000 12.32
Exercised -- -- (6,000) 7.00 (18,950) 7.00
Canceled (14,500) 7.00 (8,750) 7.00 (63,000) 8.18
- ------------------------------------------------------------------------------------------------------
Outstanding at end year 245,300 7.16 259,800 7.15 269,550 8.72
- ------------------------------------------------------------------------------------------------------
Options exercisable at year end 137,850 7.20 85,450 7.20 32,800 7.27
- ------------------------------------------------------------------------------------------------------
Weighted average fair value of
options granted during the year $ -- $ 4.30 $ 6.92
- ------------------------------------------------------------------------------------------------------
In addition, General has 90,000 warrants outstanding with an exercise
price of $9.80. These warrants expire in February 2002.
During 1999, the Company repriced options to purchase 80,000 shares with a
weighted average exercise price of $12.36 to $7.00. This repricing has
resulted in variable accounting for these options. To date, there have
been no charges to the Statement of Operations relating to these options.
Note 14. Earnings per share
(In Thousands except shares and per share data)
Year Ended
-----------------------------------------------
December 30, January 1, January 2,
2000 2000 1999
-----------------------------------------------
Net income available to common stockholders $ 1,879 $ 2,244 $ 798
-----------------------------------------------
Basic earnings per share computation:
Weighted Average Common shares
outstanding 4,109,565 4,112,453 4,104,809
-----------------------------------------------
Basic earnings per share .46 .55 .19
-----------------------------------------------
Diluted earnings per share computation:
Weighted Average Common shares
outstanding 4,109,565 4,112,453 4,104,809
Incremental shares from assumed exercise of
dilutive options -- 149 57,588
-----------------------------------------------
4,109,565 4,112,602 4,162,397
-----------------------------------------------
Diluted earnings per share $ .46 $ .55 $ .19
-----------------------------------------------
For the years ended December 30, 2000, January 1, 2000 and January 2,
1999, 335,300, 349,800 and 172,000 options and warrants outstanding,
respectively, were anti-dilutive.
F-35
General Bearing Corporation and Subsidiaries
Note 15. Commitments, Contingencies and Other Comments
Operating Lease: The Company leases its premises from Realty.
The future minimum annual rentals under the lease with Realty are as
follows: (In Thousands)
- --------------------------------------------------------------------------------
2001 $ 1,026
2002 1,036
2003 1,098
2004 1,152
2005 1,164
- --------------------------------------------------------------------------------
$ 5,476
================================================================================
Rent expense was $1,166,000, $968,000, and $922,000 in fiscal 2000, 1999,
and 1998, respectively.
Capital Leases: The Company also leases certain equipment under capital
leases. The assets acquired under capital leases have a cost of $996,000
and accumulated depreciation of $149,000 as of December 30, 2000.
The following is a schedule, by year, of approximate future minimum lease
payments under capitalized leases, together with the present value of the
net minimum lease payment at December 30, 2000. (In Thousands)
- --------------------------------------------------------------------------------
Payment for the year ending:
2001 $ 242
2002 242
2003 242
2004 235
2005 52
- --------------------------------------------------------------------------------
Total minimum lease payments 1,013
Less: amount representing interest 168
- --------------------------------------------------------------------------------
Present value of net minimum lease payments 845
Less: current portion 182
- --------------------------------------------------------------------------------
Long-term lease obligation $ 663
================================================================================
Other: General is guarantor of certain of Realty's outstanding obligations
totaling $571,000 to a bank and other parties at December 30, 2000.
General has a management consulting and non competition agreement with a
former officer and shareholder. The agreement, which commenced as of
January 1, 2000, provides for monthly payments aggregating $55,000 per
annum for ten years. As of December 30, 2000 future payments required
under the agreement total $492,000.
F-36
General Bearing Corporation and Subsidiaries
General is party to a trademark license agreement which provides for
increasing annual fees of between $20,000 and $35,000 through 2000, and
$27,500 per year plus an inflation factor thereafter until 2009. The
agreement contains an acceleration clause which provides for immediate
payment of all remaining fees in the event of a breach of contract.
In 1995, Realty and General filed an action against Xerox Corporation, for
contamination caused by Xerox of property formerly leased by General and
owned by Realty in Blauvelt, New York. Xerox counterclaimed alleging that
General contaminated the property and increased remedial costs to Xerox.
On April 22, 1999, the jury in the above matter found in favor of Realty
and General, and against Xerox on both the complaint and the counterclaim.
On May 28, 1999, the Court entered judgment in favor of Realty and General
for compensatory damages of $1,083,000 and sanctions of $28,000. On June
14, 1999, Xerox filed a motion for entry of a judgment in favor of Xerox
notwithstanding the verdict, pursuant to Rule 50(b) of the Federal Rules
of Civil Procedure, which the Court denied. On June 24, 1999, Realty and
General filed an appeal with the United States Court of Appeals for the
Second Circuit (the "Appellate Court"), challenging several rulings of the
trial judge, including, among other things, his denial of prejudgment
interest and refusal to allow the jury to consider punitive damages. On
July 23, 1999, Xerox filed a cross appeal. On August 22, 2000 the
appellate court affirmed the $1,083,000 judgment in favor of plaintiffs.
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. On March 26,
2001, on remand, the district court fixed May 5, 1992 as the date from
which prejudgment interest should accrue and awarded Plaintiffs such
interest from such date through the date of an Amended Judgment on Remand
to be filed, calculated at 9% per annum. Plaintiffs expect the Amended
Judgment on Remand to be filed imminently. General has not recognized any
amounts related to this judgment in its financial statements.
The Company advanced $1,750,000 plus incidental costs to WMG, a
Netherlands company whose principal asset is a 50.97% equity interest in
Masini Unelte Bacau S.A. ("World Machinery Works", "Masini") a Romanian
manufacturer of machine tools acquired during 1998 pursuant to that
country's privatization program. Pursuant to related shareholder
agreements, the Company (a) owns 60% of WMG (b) WMG assumed World's
contractual obligation to invest $5.2 million in Masini over five years
and agreed to indemnify and hold the Company harmless as to such
obligation. The investment may be made in cash, machinery, equipment,
services, "know how", or any equivalent thereof in any combination. In the
event WMG does not make a scheduled investment in Masini, it must pay the
State Ownership Fund of Romania ("SOF") a penalty equal to 30% of such
amount not invested. The contract with SOF provides for investments in
2001 of $1,000,000 and in 2002 of $2,720,000. The investment has been
consolidated at December 30, 2000 and January 1, 2000. The Company had not
consolidated this investment at January 2, 1999, as it was immaterial.
Additionally, US Customs has a claim against the Company, which the
Company believes to be without merit. The Company intends to vigorously
defend this claim and believes that the claim will not have a material
impact on the financial condition, operations or liquidity of the Company.
General is currently undergoing a New York State Sales and Use Tax audit
for the June 1996 - February 1999 periods. General believes that the audit
will not have a material impact on the financial condition, operations or
liquidity of the Company.
F-37
General Bearing Corporation and Subsidiaries
World Machinery Company and Subsidiaries is currently undergoing a New
York State Income and Corporate Business Tax audit. The Company believes
that the audit will not have a material impact on the financial condition,
operations or liquidity of the Company.
Note 16. Segment and Geographic Information
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 ("FAS 131"), Disclosures about Segments of an Enterprise
and Related Information. FAS 131 supersedes FAS 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
Original Equipment Manufacturers (OEM's), the Distribution Division, which
serves distributors that supply the repair and maintenance aftermarket and
small OEM's, and the Machine Tools Division, which distributes to machine
tool dealers and manufacturers.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
segment performance based on operating income.
The following tables present information about the Company's business
segments and geographic data: (In Thousands)
2000
- ----------------------------------------------------------------------------------------------
Machine
OEM Distributor Tools Other Total
- ----------------------------------------------------------------------------------------------
Net sales to External Customers $37,413 $12,857 $ 9,123 $ -- $59,393
Gross profit 8,841 6,708 2,927 -- 18,476
Operating income/(loss) 2,868 1,692 (2,699) -- 1,861
Depreciation/amortization 482 121 630 -- 1,233
Capital expenditures 259 -- 108 581 948
Total assets $25,374 $ 5,985 $14,233 $9,672 $55,264
- ----------------------------------------------------------------------------------------------
1999
- ----------------------------------------------------------------------------------------------
Machine
OEM Distributor Tools Other Total
- ----------------------------------------------------------------------------------------------
Net sales to External Customers $38,555 $13,233 $12,550 $ -- $64,338
Gross profit 8,661 7,109 5,182 -- 20,952
Operating income 3,159 2,434 232 -- 5,825
Depreciation/amortization 439 130 220 -- 789
Capital expenditures 422 49 162 98 731
Total assets $21,292 $ 7,205 $17,213 $7,630 $53,340
- ----------------------------------------------------------------------------------------------
F-38
General Bearing Corporation and Subsidiaries
1998
- ----------------------------------------------------------------------------------------------
Machine
OEM Distributor Tools Other Total
- ----------------------------------------------------------------------------------------------
Net sales to External Customers $31,184 $14,262 $ 5,643 $ -- $51,089
Gross profit 7,052 7,260 2,648 -- 16,960
Operating income/(loss) 2,192 2,821 (1,953) -- 3,060
Depreciation/amortization 341 176 66 -- 583
Capital expenditures 566 48 25 319 958
Total assets $20,371 $10,575 $ 9,809 $5,057 $45,812
- ----------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 30, January 1, January 2,
2000 2000 1999
- --------------------------------------------------------------------------------
Long lived Assets:
United States $ 3,351 $ 2,968 $ 3,562
Europe 5,292 5,878 --
- -----------------------------------------------------------------------------
Total $ 8,643 $ 8,846 $ 3,562
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 30, January 1, January 2,
2000 2000 1999
- --------------------------------------------------------------------------------
Sales:
United States $52,618 $54,706 $48,555
Europe 4,251 7,572 181
Other 2,524 2,060 2,353
- --------------------------------------------------------------------------------
$59,393 $64,338 $51,089
- --------------------------------------------------------------------------------
Fiscal 2000, 1999 and 1998 depreciation expense was allocated between the
OEM and Distributor Divisions based on material, labor, and overhead.
In fiscal 2000 and 1999, the Company had one customer that represented
approximately 17% and 13% of total sales, respectively. These sales are
included in the OEM segment. There were no individual customers
representing at least 10% of total sales in fiscal 1998.
F-39
General Bearing Corporation and Subsidiaries
Note 17. Supplemental Cash Flow Information
The Company paid interest in the amount of $1,323,000 in fiscal 2000,
$1,502,000 in fiscal 1999 and $1,041,000 in fiscal 1998, and income taxes
of $1,415,000, $1,352,000 and $173,000 in fiscal 2000, 1999 and 1998,
respectively.
The Company distributed a note receivable from Realty, in the amount of
$1,594,000, to the former shareholders of World prior to the inversion
transaction described in Note 2.
During fiscal 2000, the Company had a non-cash financing activity of
$207,000 whereby options to purchase 50,000 shares previously issued for
services rendered were exercised. The option was previously granted by
World for the right to purchase from World 50,000 options that World held
in General.
The Company entered into a capital lease obligation for ne equipment in
1998 in the amount of $504,000. The Company entered into an additional
capital lease for new equipment in 2000 in the amount of $19,000.
During fiscal 1999, the Company negotiated a price reduction of $200,000
on a previously capitalized fixed asset. This non-cash transaction is not
reflected in investing activities. There is a corresponding offset to the
previously recorded liability to the parent in financing activities.
Also during fiscal 1999, the Company transferred a machine valued at
$300,000 as payment for additional investment in NGBC.
Note 18. Quarterly Financial Data (In Thousands except for per share data -
Unaudited)
F-40
General Bearing Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Basic Diluted
Gross Net Earnings Earnings
2000 Net Sales Profit Income Per Share Per Share
- --------------------------------------------------------------------------------
First Qtr. $18,450 $ 6,090 $ 1,569 $ .38 $ .38
Second Qtr. 16,343 5,416 865 .21 .21
Third Qtr. 14,602 4,974 594 .14 .14
Fourth Qtr. 9,998 1,996 (1,149) (.27) (.27)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Basic Diluted
Gross Net Earnings Earnings
1999 Net Sales Profit Income Per Share Per Share
- --------------------------------------------------------------------------------
First Qtr. $17,322 $ 5,456 $ 795 $ .19 $ .19
Second Qtr. 16,914 5,112 721 .18 .18
Third Qtr. 14,381 5,176 557 .14 .14
Fourth Qtr. 15,721 5,208 171 .04 .04
- --------------------------------------------------------------------------------
Sales:
Second Quarter 2000: There were no major variances in the Company's core
businesses compared to the first quarter. However, taken in the aggregate, the
sales volume decreased due to the strength of the first quarter.
Third Quarter 2000: The sales volume decrease was mainly due to the seasonality
in the OEM Division as well as the beginning of an economic slowdown in the
Company's industrial markets.
Fourth Quarter 2000: The sales volume decrease was primarily attributable to
worsening economic conditions in the Company's industrial markets and
adjustments at WMG related to a billing error and the timing of sales
recognition totaling $1,292,000 originally recorded in prior quarters.
Third Quarter 1999: The sales volume decrease was mainly due to seasonality in
the OEM Division as well as the timing of orders received on a new product line.
The first large order received on this product line was shipped in the second
quarter.
Net income:
Second Quarter 2000: The decrease in net income was due to the effect of the
reduced sales volume coupled with a reduction in gross margins in the Machine
Tool segment.
Fourth Quarter 2000: The decrease in net income in the Bearing segment was
primarily due to the reduced sales volume with a reduction in gross margins
including increased inventory provisions ($544,000). The decrease in the Machine
Tool segment was mainly due to the reduced sales volume and adjustments
mentioned above as well as increased operating expenses including a write-down
of assets in use ($501,000).
Fourth Quarter 1999: The decrease in net income relates primarily to the effect
of changes in foreign exchange rates and accounting rules for financial
reporting in hyperinflationary economies.
F-41
General Bearing Corporation and Subsidiaries
Supplementary Financial Data
Furnished Pursuant to the
Requirements of Form 10-K
F-42
General Bearing Corporation and Subsidiaries
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
General Bearing Corporation
West Nyack, New York
The audits referred to in our report dated April 25, 2001 relating to the
consolidated financial statements of General Bearing Corporation and
subsidiaries, which is referred to in Item 8 of this Form 10-K, includes the
audits of the accompanying financial statement schedule for each of the three
years in the period ended December 30, 2000. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein for each of the three years
in the period ended December 30, 2000.
BDO Seidman, LLP
New York, New York
April 25, 2001
F-43
General Bearing Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts (In Thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Add
Balance at Charged to
Beginning of Costs and Balance at
Description Period Expenses Deductions (1) End of Period
----------- ------ -------- -------------- -------------
Year Ended January 2, 1999
Allowance for Doubtful Accounts $335 $ 69 $ 4 $400
---- ---- ---- ----
$335 $ 69 $ 4 $400
---- ---- ---- ----
Year Ended January 1, 2000
Allowance for Doubtful Accounts $400 $460 (2) $122 $738
---- ---- ---- ----
$400 $460 $122 $738
---- ---- ---- ----
Year Ended December 30, 2000
Allowance for Doubtful Accounts $738 $280 $ 30 $988
---- ---- ---- ----
$738 $280 $ 30 $988
---- ---- ---- ----
Note: (1) Uncollectible accounts written off net of recoveries.
(2) Acquisition of World Machinery Group results in addition to
reserve totaling $418.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Since the Company's inception, there has not been any Form 8-K filed under
the Securities and Exchange Act of 1934 reporting a change in accountants
in which there was a reported disagreement on any matter of accounting
principles or practices or financial statement disclosure.
15
General Bearing Corporation and Subsidiaries
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
---- --- --------
Seymour I. Gussack...75 Chairman of the Board of Directors
David L. Gussack.....43 President and Director
Robert E. Baruc......49 Director
Peter Barotz.........73 Director
Nina M. Gussack......45 Director
Barbara M. Henagan...42 Director
Alistair G. Crannis..53 Vice President - Sales & Marketing
William F. Kurtz.....42 Vice President - Director of Operations
Joseph J. Hoo........66 Vice President - Advanced Technology and China Affairs
Barry A. Morris......46 Chief Financial Officer
John E. Stein, Esq...44 Secretary & General Counsel
Set forth below is certain additional information with respect to the Directors,
and executive officers.
SEYMOUR I. GUSSACK founded the Company in 1958 and has served as Chairman of
the Board of Directors and a Director of General Bearing since its formation.
Seymour I. Gussack is also the Chairman of the Board of Directors and a Director
of World and a partner of Realty. See "Certain Relationships and Related
Transactions. Seymour I. Gussack's son is David L. Gussack, President of the
Company and a Director.
DAVID L. GUSSACK became President of the Company in 1993 and has been a
Director of the Company since 1987. David L. Gussack has held various positions
with the Company since 1979, including Executive Vice President from 1991 to
1992, General Manager of the OEM Division from 1988 to 1990, Supervisor and
Coordinator, Hyatt Absorption Project from 1987 to 1988, Plant Manager from 1986
to 1987, Office Facilities Manager from 1985 to 1986, and Manager of Special
Projects from 1983 to 1985. David L. Gussack is a Director of SGBC and NGBC. He
also is a Director of World and a partner of Realty. See "Certain Relationships
and Related Transactions." David L. Gussack is a graduate of the University of
Pennsylvania. David L. Gussack's father is Seymour I. Gussack, Chairman of the
Board of Directors of the Company.
ALISTAIR G. CRANNIS has served as Vice President - Sales & Marketing since
June 1999. Mr. Crannis was General Manager - OEM Division of the Company from
January 1997 to June 1999. Prior to joining the Company, Mr. Crannis served as
President of RHP Bearings, Inc., the U.S. Subsidiary of RHP Bearing Ltd. United
Kingdom. He holds a B.S. Industrial Engineering Degree from the University of
Hartfordshire in England.
WILLIAM F. KURTZ has served as Vice President - Director of Operations since
1997. He served as Vice President - Technical Services of the Company from 1993
to 1997. Mr. Kurtz was Chief Engineer of the Company from 1989 to 1993 and
Senior Project Engineer of the Company from 1988 to 1989. He is a graduate of
Manhattan College (B.E. and M.E. in Mechanical Engineering) and a licensed
professional engineer.
JOSEPH J. HOO has served as Vice President - Advanced Technology and China
Affairs of the Company since August 1995. Mr. Hoo served as General Manager,
Industrial Products Division, from 1991 to 1995 and as Chief Metallurgist from
1987 to 1991. Mr. Hoo is a graduate of the National
16
General Bearing Corporation and Subsidiaries
University of Japan (B.S. in Engineering) and University of Michigan (M.S.E. in
Metallurgy and Engineering).
BARRY A. MORRIS was appointed Chief Financial Officer of the Company in July
1998. Prior to joining the Company, Mr. Morris served as Director of Financial
Services at the U.S. headquarters of BTR, plc, United Kingdom. He holds a Master
of Business Administration from the University of Connecticut and a B.S. in
Accounting from American International College.
JOHN E. STEIN has served as Secretary and General Counsel since July 1998.
From February 1997 to June 1998, he served as General Counsel. From April 1995
to January 1997, Mr. Stein served as Staff Counsel to the Company. Mr. Stein is
a graduate of the State University of New York, Purchase, (B.A. in Philosophy)
and Brooklyn Law School (J.D.). He is a member of the bars of New York, New
Jersey and District of Columbia.
ROBERT E. BARUC has been a Director of the Company since February 1997. From
January 1999 to December 2000, Mr. Baruc was Co-President of Unapix
Entertainment, Inc., an independent distributor of film and television
programming. From April 1994 to December 1998, Mr. Baruc was an Executive Vice
President of Unapix Entertainment, Inc. From September 1999 to December 2000,
he was the Chief Executive Officer of A-Pix Entertainment, Inc. From August 1993
to August 1999, he was the President and Chief Executive Officer of A-Pix
Entertainment, Inc. From December 1992 to August 1993, Mr. Baruc was President
of Triboro Entertainment Group, a company engaged principally in home video
distribution. From January 1991 to December 1992, Mr. Baruc primarily acted as
an independent consultant to the entertainment industry. He is the son-in-law of
Seymour I. Gussack and the brother-in-law of David L. Gussack and Nina M.
Gussack.
PETER BAROTZ has been a Director of the Company since December 30, 1997. For
the past 25 years, Mr. Barotz has been the President of Panda Capital
Corporation.
NINA M. GUSSACK has been a Director of the Company since February 1997. Ms.
Gussack has been litigation partner at the law firm of Pepper Hamilton LLP in
Philadelphia, Pennsylvania since 1987. She is a graduate of the University of
Pennsylvania (B.S. in History and M.S. in Secondary Education) and Villanova
University School of Law (J.D.). She is a member of the Pennsylvania bar. She is
the daughter of Seymour I. Gussack and the sister of David L. Gussack.
BARBARA M. HENAGAN was elected a Director of the Company on March 30, 1999.
Mrs. Henagan is presently Managing Director of Linx Partners. Previously Ms.
Henagan was Senior Managing Director of Bradford Ventures Ltd. She is also a
Director of Hampton Industries, V-Span, Inc. and Batteries Batteries, Inc. Mrs.
Henagan is a graduate of Princeton University and Columbia University's MBA
program.
Directors hold office until the next annual meeting of stockholders following
their election, or until their successors are elected and qualified. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board of Directors.
The standing committees of the Board of Directors are the Audit Committee, the
Compensation/Stock Option Committee and the Insider Trading Compliance
Committee.
The Audit Committee of the Board of Directors consists of three directors,
David L. Gussack, Robert E. Baruc and Barbara M. Henagan. Based on its charter,
the Audit Committee is to review the outside auditor designated by management
and render to the Board any of the Committee's comments and/or recommendations
relating to such auditor; meet with the outside auditor at least once per year
to discuss any issues raised by the auditor and report back to the Board for its
consideration; hold at least one meeting per year; submit the minutes of all
meetings of the Audit Committee to, or discuss matters discussed at each meeting
with the Board; ensure receipt from the outside auditor of a formal written
statement delineating all relationships between the auditor and the Company,
consistent with Independence Standards Board Standard 1; actively engage in a
dialogue with the outside auditor with
17
General Bearing Corporation and Subsidiaries
respect to any disclosed relationships or services that may impact the
objectivity and independence of the auditor; take, or recommend that the Board
take, appropriate action to oversee the independence of the outside auditor; and
review and assess the adequacy of the Audit Committee charter on an annual
basis.
The Compensation/Stock Option Committee consists of Messrs. Peter Barotz and
Robert E. Baruc, the former of whom is an independent Director. The
Compensation/Stock Option Committee's function is to review and approve annual
salaries and bonuses for all employees with salaries in excess of $100,000 and
review, approve and recommend to the Board of Directors the terms and conditions
of all employee benefit plans or changes thereto, including the granting of
stock options pursuant to the Company's 1996 Option Plan.
The Insider Trading Compliance Committee ("Compliance Committee") consists of
the Insider Trading Compliance Officer (currently the Company's Secretary &
General Counsel) and the directors who are members of the Audit Committee. The
Compliance Committee reviews and either approves or prohibits all proposed stock
trades by Key Insiders in accordance with the Company's Procedures and
Guidelines Governing Insider Trading and Tipping.
18
General Bearing Corporation and Subsidiaries
Item 11. Executive Compensation
The following table sets forth the aggregate compensation paid for services
rendered in all capacities to the Company's most highly compensated executive
officers during the fiscal year ended December 30, 2000:
ANNUAL
COMPENSATION(1) LONG-TERM COMPENSATION
- -----------------------------------------------------------------------------------------------------
Restricted
Name and Fiscal Salary Bonus Stock Stock All Other
Principal Position Year $ $ Awards Options# Compensation
- -----------------------------------------------------------------------------------------------------
David L. Gussack, President 2000 307,789 62,213 -- -- 25,000 (3)
1999 221,927 75,133 -- 20,000 (2) --
1998 181,981 10,379 -- 20,000 --
Alistair G. Crannis, VP Sales 2000 143,635 13,825 -- -- --
& Marketing 1999* 133,356 19,401 -- 10,000 (2) --
Barry A. Morris, Chief Financial 2000 123,116 11,850 -- --
Officer 1999* 120,000 18,462 -- 10,000 (2) --
Joseph J. Hoo, V.P. Advanced 2000 128,281 12,345 -- --
Technology & China Affairs 1999* 118,680 16,604 -- 5,000 --
William F. Kurtz, V.P. Director 2000 104,817 12,078 -- --
of Operations 1999* 101,694 15,341 -- 5,000 (2) --
* Fiscal 1999 was the first year of reportable compensation.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
- ------------------------------------------------------------------------------------------------
Number of Value of
Securities Unexercised In-the-
Underlying Money Options at
Unexercised December 30, 2000
Options at
December 30, 2000
------------------------------------------
Name Shares Acquired Value Realized Exercisable/ Exercisable/
on Exercise $ Unexercisable Unexercisable
#
- ------------------------------------------------------------------------------------------------
David L Gussack 0 0 43,750 / 21,250 N/A
Alistair G. Crannis 0 0 4,000 / 6,000 N/A
Barry A. Morris 0 0 5,000 / 5,000 N/A
Joseph J. Hoo 0 0 11,000 / 9,000 N/A
William F. Kurtz 0 0 7,800 / 7,000 N/A
19
General Bearing Corporation and Subsidiaries
Compensation of Directors
Standard Arrangements:
All fees described herein are for non-management directors only.
a. Attendance fee - $1,000 for actual physical attendance or $500 if
attendance is by telephone.
b. Committee fee - $500 fee per director unless the committee meets
immediately before or after a board meeting in which case the fee
will be $250. Fees will be halved for telephone attendance.
c. Stock grant - 2,000 shares per director per year will be issued at
calendar year end for the year served. The intent of this specific
quantity is to approximate $12,000 - $15,000 in value. It may be
changed annually to reflect this goal.
d. Each member of the board shall receive an option for 5,000 shares
(at the then market price) when joining the board.
Other Arrangements (1):
In 2000, Seymour I. Gussack, Chairman of the Board of Directors, received
salary of $241,102, bonus of $48,731 and other compensation of $25,000 (3). In
2001, he will receive salary and bonus as approved by the Compensation/Stock
Option Committee of the Board of Directors.
(1) Perquisites and other personal benefits are not included because they do not
exceed the lesser of $50,000 or 10% of the total base salary and annual bonus
for the named executive officer.
(2) Repricing.
(3) Board compensation: 4,000 shares at $6.25 per share, issued in 2001 (2,000
shares earned in 1999 & 2,000 shares earned in 2000).
20
General Bearing Corporation and Subsidiaries
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of the date of this Report certain
information concerning the beneficial ownership of Common Stock as to each
director and current executive officer of the Company, and each person who, to
the Company's knowledge, beneficially owns more than 5% of the outstanding
Common Stock.
NUMBER OF
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE OF SHARES
BENEFICIAL OWNER OWNED (1) BENEFICIALLY OWNED(1)
- ---------------- --------- ---------------------
David L. Gussack 683,474 (2,3) 16.6%
Estate of Harold Geneen 615,284 14.9%
Nina M. Gussack 612,272 (2,4) 14.8%
Seymour I. Gussack 383,986 (2) 9.3%
Amy Gussack 378,770 (2,5) 9.2%
Robert E. Baruc 356,378 (2,6) 8.6%
Joseph Hoo 77,079 1.9%
William F. Kurtz 10,000 *
Barry A. Morris 8,500 *
Peter Barotz 7,750 *
Alistair Crannis 6,000 *
Barbara Henagan 5,250 *
All Directors and Executive
Officers as a Group........ 2,509,459
* Less than 1%
(1) Pursuant to Rule 13d-3 under the U.S. Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared voting
power (including the power to vote or direct the voting) and/or sole or shared
investment power (including the power to dispose or direct the disposition) with
respect to a security whether through a contract, arrangement, understanding,
relationship or otherwise.
(2) Includes 5,000 shares of Common Stock owned by Realty over which Seymour I.
Gussack, David L. Gussack, Nina M. Gussack, Amy Gussack and Robert Baruc,
through his spouse Faith Gussack, as general partners of Realty, may be deemed
to share the power to vote and dispose of. Each disclaims beneficial ownership
of the shares of Common Stock owned by Realty.
(3) Includes 13,080 shares owned by his spouse, 4,076 shares owned by his
spouse's daughter, over which his spouse has voting power, 8,978 shares owned by
his daughter, over which he has voting power, and 60,000 options exercisable
through July 1, 2001.
21
General Bearing Corporation and Subsidiaries
(4) Includes 13,280 shares owned by her spouse, 9,752 shares owned by her
children over which she has voting power, and 5,000 options exercisable through
July 1, 2001.
(5) Includes 13,080 shares owned by her spouse.
(6) Includes 302,464 shares owned by his spouse, 22,032 shares owned by his
children over which he has voting power, and 5,000 options exercisable through
July 1, 2001.
Item 13. Certain Relationships and Related Transactions
ACQUISITION OF WORLD
In July 2000, General Bearing Corporation ("General"), acquired 100% of World
Machinery Company ("World"), which, prior to the acquisition, owned 74.8% of the
outstanding common stock of General. World was principally owned by members of
General's Board of Directors and senior management. World's principal business
is the manufacture and sale of machine tools, however, it also holds two bearing
joint ventures for General's benefit. This combination has been accounted for in
a manner similar to a pooling of interests. Prior periods have been restated as
if the companies have always been combined. In consideration for this
transaction, General issued 3,140,000 shares of its common stock, $.01 per share
par value. 2,950,000 shares of General's common stock, owned by World, are now
carried as treasury stock. The net stock of 190,000 shares paid for the
acquisition are considered outstanding for all periods presented.
In the acquisition transaction the following individuals, all former
shareholders of World, received the number of restricted shares of Company
common stock indicated:
Name & Relationship to Registrant Number of Shares
- ----------------------------------------------------------------------------------------
Seymour Gussack, Chairman of the Board 393,786
David Gussack, President, Director 597,850
Includes 11,280 shares received by spouse, 7,178 shares received
by child and 6,152 received by spouse's children.
Nina Gussack, Director 590,672
Includes 11,280 shares received by spouse and 6,152 shares
received by children.
Amy Gussack, Daughter of Seymour Gussack & Sibling of 959,842
David Gussack and Nina Gussack
Includes 11,280 shares received by spouse.
Faith Gussack, Daughter of Seymour Gussack, Sibling of 333,278
David Gussack and Nina Gussack and Spouse of Robert Baruc, who is
a Director. Includes 15,382 shares received by spouse and 17,432
shares received by children.
Lisa Gussack, Daughter of Seymour Gussack, Sibling of 176,481
David Gussack and Nina Gussack
Includes 7,178 shares received by spouse and 22,560 rececived by
children.
LEASES WITH REALTY
The Company leases a facility located at West Nyack, New York comprising
189,833 square feet owned by Realty, whose partners include Seymour I. Gussack,
David L. Gussack and Nina M. Gussack, each a member of the Board of Directors of
the Company. The Company and Realty entered into the Lease effective November 1,
1996, which provides for an initial term expiring on October 31, 2003, renewable
at the option of the Company for an additional six year term. The Company
initially paid rent of $4.81 per square foot (or $913,000) annually, payable in
monthly rent payments of $76,000. The Lease provides for an increase every other
year to the greater of: (i) 106% of the preceding year's rent; or (ii) the
preceding year's rent multiplied by a fraction the numerator of which is the CPI
for the area including Rockland County or if no such index is published, for
Northern New Jersey in effect 90 days prior to November 1 of the new rent year
and the denominator of which is the CPI in effect 90 days prior to November 1 of
the preceding year. The November 1998 increase amounted to 6% of the preceding
year, resulting in rent of $5.0986 per square foot (or $968,000) annually
effective through October 31, 2000. The November 2000 increase also amounted to
6% of the preceding year, resulting in rent of $5.4045 per square foor (or
$1,026,000) annually effective through October 31, 2002.
The Company is the guarantor with respect to a mortgage loan currently in the
principal amount of $346,000 from the Job Development Authority of Rockland
County and a mortgage loan currently in the principal amount of $225,000 from
the Industrial Development Authority of Rockland County on the property in
Blauvelt, New York. These mortgage loans were created for the purpose of
building a facility in 1983 which the Company subsequently occupied for 12 years
until 1996.
TAX SHARING AGREEMENT
General has been included in the consolidated federal income tax returns filed
by World during all periods in which it has been a wholly owned subsidiary of
World ("Affiliation Years"). Upon the completion of the IPO, General ceased to
be included in the consolidated federal income tax return filed by World, and
has filed on a separate basis. As a result, General and World have entered into
an agreement ("Tax Sharing Agreement") providing for the manner of determining
payment with respect to federal income tax liability, Generally determine on a
separate return basis, for the tax years which have ended and the portion of the
tax year preceding consummation of the IPO, and World will pay General for the
use of General's losses, and credits arising in such period, in each case net
of any amount theretofore paid or credited by World or General to the other with
respect thereto. Effective with the acquisition of World by General, the Company
will file a consolidated federal income tax return.
REGISTRATION RIGHTS AGREEMENT
22
General Bearing Corporation and Subsidiaries
World has certain rights with respect to the registration under the Securities
Act of 1933, as amended ("the Act") of shares of Common Stock owned by it
("Registrable Shares"). Such rights will be exercisable by any person or entity
(together with World, "Holders") acquiring Registrable Shares from World,
including any options, warrant to purchase, or other security exchangeable for
or convertible into Registrable Shares other than pursuant to an effective
registration statement under the Act. If the Company proposes to register any
securities under the Act (other than a registration on Form S-4 or Form S-8),
whether or not for its own account, the Holders are entitled to include
Registrable Shares, subject to the right of the managing underwriter of any such
offering to exclude, due to market conditions, some or all of such Registrable
Shares from such registration. In addition, commencing February 7, 1998, the
Holders have the right to require the Company to prepare and file registration
statements under the Act with respect to the Registrable Shares. The right may
be requested by any Holder holding Registrable Shares aggregating at least
50,000 shares of the Company's Common Stock outstanding at the date of the
Company's Initial Public Offering. The Company generally is required to bear the
expenses (except underwriting discounts and commissions and fees and expenses of
separate counsel) of all such registrations, whether or not initiated by any
Holder.
23
General Bearing Corporation and Subsidiaries
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements (included in Part II of this report):
Report of Independent Certified Public Accountants dated April 25, 2001.
Report of Independent Certified Public Accountants dated February 8, 2001.
Consolidated Balance Sheets for years ended January 1, 2000 and December
30, 2000.
Consolidated Statements of Operations for years ended January 2, 1999,
January 1, 2000 and December 30, 2000.
Consolidated Statement of Changes in Stockholders' Equity at December 27,
1997, January 2, 1999, January 1, 2000 and December 30, 2000.
Consolidated Statement of Cash Flows for years ended January 2, 1999,
January 1, 2000 and December 30, 2000.
Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements.
(a) 2. Financial Statement Schedules (included pursuant to Item 14(d) at page 42
of this report):
Report of Independent Certified Public Accountants dated April 25,
2001.
Schedule II - Valuation and Qualifying Accounts.
(a) 3. Exhibits:
Reference is made to the Exhibit Index commencing on page 40, filed
pursuant to Item 14(c).
(b) Reports on Form 8-K:
None.
24
General Bearing Corporation and Subsidiaries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, on April
30, 2001.
GENERAL BEARING CORPORATION
By: /s/ David L. Gussack
-------------------------
David L. Gussack, President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons on behalf of
the registrant and in the capacities indicated, on April 30, 2001.
Signatures Title Date
---------- ----- ----
/s/ Seymour I. Gussack Chairman of the Board of April 30, 2001
- ------------------------------------ Directors --------------
Seymour I. Gussack
/s/ David L. Gussack President and Director April 30, 2001
- ------------------------------------ (Principal Executive Officer) --------------
David L. Gussack
/s/ Barry A. Morris Chief Financial Officer April 30, 2001
- ------------------------------------ --------------
Barry A. Morris
/s/ Barbara M. Henagan Director April 30, 2001
- ------------------------------------ --------------
Barbara M. Henagan
/s/ Nina M. Gussack Director April 30, 2001
- ------------------------------------ --------------
Nina M. Gussack
/s/ Peter Barotz Director April 30, 2001
- ------------------------------------ --------------
Peter Barotz
/s/ Robert E. Baruc Director April 30, 2001
- ------------------------------------ --------------
Robert E. Baruc
23
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
EXHIBIT INDEX
NOTE: Except as to those items marked with an "*", which are filed herewith, all
Exhibits have been previously filed with the Company's Registration Statement on
Form S-1 effective February 7, 1997 (Registration No. 333-15477), or the
Company's Annual Report on Form 10-K for fiscal years 1996, 1997 and 1998.
Exhibit No. Description of Exhibit
----------- ----------------------
2.1 Agreement and Plan of Merger
3.1 Second Restated Certificate of Incorporation
3.2 By-Laws of the Company
4.1 Specimen Stock Certificate
4.1 Registration Rights Agreement
10.1 Loan and Security Agreement dated December 20, 1993 by and
among the Bank of New York Commercial Corporation, the
Company and Hyatt Railway Products Corp., including
amendments 1 through 8 thereto
10.2 Contract dated June 1988 by and between Shanghai Rolling
Bearing Factory and the Company, including Agreement for the
Revision and Amendment to the Contract
10.3 Lease Agreement dated November 1, 1996 by and between
Gussack Realty Company and the Company relating to West
Nyack, New York premises
10.4 Lease dated March 15, 1988 by and between Lamington
Associates II and the Company relating to the Union, New
Jersey premise
10.5 Sublease Agreement dated November 1, 1996 between the
Company and World Machinery Company
10.6 Sublease Agreement dated November 1, 1996 between the
Company and WMW Machinery Co.
10.9 1996 Stock Option and Performance Award Plan
10.10 Form of Representative's Warrant
10.11 Form of Registration Rights Agreement between the Company
and World (previously filed exhibit as 4.2)
10.12 Form of Tax Sharing and Indemnification Agreement between
the Company and World Machinery Company
10.13 Amendment Letter dated March 7, 1997 between the Company and
Bank of New York Commercial Corporation
10.14 Amendment No. 9 dated June, 1997 to the Loan and Security
Agreement between the Company and Bank of New York
Commercial Corporation.
10.15 Amendment No. 10 dated March 20, 1998 to the Loan and
Security Agreement between the Company and Bank of New York
Commercial Corporation.
General Bearing Corporation and Subsidaires
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10.16 Amendment Letter dated April 7, 1998 to the Loan and
Security Agreement between the Company and Bank of New York
Commercial Corporation.
10.17 Amendment No. 11 dated May, 1998 to the Loan and Security
Agreement between the Company and Bank of New York
Commercial Corporation.
10.18 Amendment No. 12 dated April 1, 1999 to the Loan and
Security Agreement between the Company and Bank of New York
Commercial Corporation .
10.19 Board Member Compensation Plan
10.20 Credit Agreement dated December 20, 1999 between KeyBank
National Association and the Company
21 List of Subsidiaries of the Company
23 Consent of Independent Certified Public Accountants (see
page 40) *