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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 28, 2002
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 Identification No.)
incorporation or organization)
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. |X|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). |_| Yes |X| No
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $5,197,000 at June 29, 2002.
At March 26, 2003, the Registrant had issued 7,102,200 shares of common stock,
$.01 par value per share, and had outstanding 3,867,380 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," "believes", "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 28, 2002
TABLE OF CONTENTS
No. Page
--- ----
PART I
Items 1 & 2. Business and Properties............................................................. 1
Item 3. Legal Proceedings................................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders................................. 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................................. 7
Item 6. Selected Financial Data............................................................. 8
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition................................................................. 9
Item 7a. Quantitative and Qualitative Disclosure about Market Risk........................... 16
Item 8. Financial Statements and Supplementary Data......................................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures............................................................... 49
PART III
Item 10. Directors and Executive Officers of the Registrant.................................. 50
Item 11. Executive Compensation.............................................................. 52
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters......................................................... 54
Item 13. Certain Relationships and Related Transactions...................................... 56
Item 14. Controls and Procedures............................................................. 58
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................... 58
PART I
Items 1 and 2. Business and Properties.
The Company operates in two business segments: bearings ("Continuing
Operations") and machine tools ("Discontinued Operations"). In December of 2002,
the Company's Board of Directors and management resolved to discontinue the
operations of the machine tool segment by disposing of the net assets by sale.
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long Lived Assets", prior period
financial statements of the Company have been reclassified to segregate
discontinued operations from continuing operations.
CONTINUING OPERATIONS:
General Bearing Corporation ("General"), a Delaware Corporation formed in
1958, and subsidiaries (collectively, "the Company") manufactures, sources,
assembles and distributes a variety of bearings and bearing components,
including ball bearings, tapered roller bearings, spherical roller bearings and
cylindrical roller bearings. Under the Hyatt(R) and The General(R) trademarks,
the Company supplies original equipment manufacturers ("OEMs") and the
industrial aftermarket, primarily in the United States ("U.S.") and Asia. 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.
The Company strives to be a reliable and cost effective provider of
bearings and bearing components. The Company's strategy includes the following:
* PROVIDE HIGH QUALITY PRODUCTS AND SUPERIOR CUSTOMER SERVICE. General
maintains a detailed and extensive Quality Assurance Program. It has been
certified to the M1003 standard by the Association of American Railroads
("AAR"); has been granted "Unconditional Approval" from the AAR for its tapered
journal bearings; maintains ISO 9001 registration from the International
Standards Organization ("ISO"); and maintains QS-9000 registration from the
Automotive Industry Quality System. General also requires that its suppliers
conform to Company and customer quality and engineering standards. Certain of
the Company's joint ventures have also achieved QS-9000 and/or ISO
certifications.
* PRESENCE IN CHINA. In 1987, General formed Shanghai General Bearing Co.,
Ltd. ("SGBC"), a joint venture in the People's Republic of China ("PRC") to
establish a low cost, quality controlled source for bearings and bearing
components. The Company has established other manufacturing joint ventures in
the PRC, and it continues to investigate further expansion opportunities. 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, 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. Any disruption in the supply of bearings and bearing components from
the PRC could have a material adverse effect on the Company's business.
PRODUCTS
The Company sells approximately 2,500 stock keeping units ("SKU's"). The
Company's product line includes ball and roller bearings and their components.
The Company offers its products in standard, modified, and custom designs where
appropriate. Under The General(R) trademark, the Company produces ball bearings
for a wide variety of products including copying machines, automotive steering
columns, postal equipment, wheelchairs and other applications. 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.
1
The following are the product classes which represented 10% or more of
consolidated revenue for the past three years:
2002 2001 2000
Automotive Driveline Components 14.27% 13.34% --
Tapered Roller Bearings 20.27% 26.31% 31.55%
Balls 19.95% -- --
MANUFACTURING
The Company primarily manufactures and assembles bearings at its
facilities in New York and the PRC as set forth below.
The Company obtains the majority of its bearing and component requirements
from its manufacturing plants in the PRC, discussed in greater detail below. The
Company maintains relationships with unaffiliated manufacturers to produce the
remainder of its requirements. The Company has no long-term contracts with its
unaffiliated manufacturing sources.
CHINESE MANUFACTURING
General has entered into six joint ventures (five with manufacturers in
the PRC) to enable it to manufacture high quality, low cost bearings and bearing
components. By entering into joint ventures, rather than long-term manufacturing
contracts, General 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 manufacturing at joint ventures, General may not be required
to incur inventory carrying costs, since the joint ventures may hold inventory
until needed by General.
SGBC, a joint venture formed with Shanghai Roller Bearing Factory ("SRBF")
was established in June 1987. SGBC produces various bearing products for the
U.S. and foreign markets. General contributed 25% of the initial capital of
SGBC, and General's joint venture partner, SRBF, contributed 75% of the initial
capital of SGBC. In November 2001, General and SRBF agreed to a new joint
venture contract whereby ownership would be shared equally, with General
assuming control of operations upon General meeting its revised requirement to
contribute an additional $3 million during the period 2002-2004. At March 24,
2003, General has satisfied $2 million of this requirement. The official
business license for the revised joint venture company was granted in February
2002.
General has the exclusive right to sell the products of SGBC in the U.S.
In 2002, General purchased $6.6 million in bearings and bearing components from
SGBC. Purchases are made upon terms and conditions established periodically by
negotiation between General and SGBC.
Ningbo General Bearing Company, Ltd. ("NGBC"), a joint venture with China
Ningbo Genda Bearing Company, Ltd., was established in 1998. Located in Yuyao
City, China, this venture manufactures ball and roller bearings and their
components. Initially, General contributed 33.3% of the registered capital.
Subsequently, General increased its ownership to 42% in 2000, and increased its
ownership to 50% and assumed control over operations in July 2001. In 2002,
General purchased $14.2 million from NGBC which has been eliminated in
consolidation.
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 various bearing
products for sale in the U.S. by General. General contributed 25% of the
registered capital of SPGBC, in 1998. In 2002, General purchased $300,000 from
SPGBC.
Jiangsu General Ball & Roller Company, 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. This venture produces
chrome, carbon and stainless steel balls. In March 2000, General formed NN
General, LLC ("NNG"), a joint venture with NN Ball & Roller, Inc. ("NN").
General and NN each held a 50% interest in NNG, which held a 60% interest in
JGBR. In December 2001, General purchased NN's 50% interest in NNG for cash and
notes valued at approximately $3.9 million (book value). On June 30, 2002, NNG's
ownership in JGBR was reduced to 51% by agreement of the partners, and in
conjunction with commitments by the partners to contribute additional capital
reflective of the new ownership percentages. In 2002, General purchased $164,000
from JGBR which has been eliminated in consolidation.
2
Rockland Manufacturing Company, ("Rockland") a 50% owned joint venture
with Wafangdian USA Ltd., was established in 1993 and shares facilities and
personnel with General at General's West Nyack facility. Rockland offers
flexibility to General by providing readily accessible inventory.
Wafangdian General Bearing Co., Ltd. ("WGBC"), a joint venture with
Wafangdian Bearing Company, produces various bearing components. General sells
the WGBC bearings in the U.S. In 2002, Rockland paid $1.9 million for purchases
from WGBC.
SALES, MARKETING AND CUSTOMERS
The Company markets its products principally in the U.S. through 8
salaried sales employees and 29 commissioned independent sales representative
organizations. In addition, the Company has 10 customer service representatives
responsible for handling orders and providing sales support. Products bear The
General(R) label for ball bearings and the Hyatt(R) brand for all types of
roller bearings.
The Company's OEM markets include truck/trailer manufacturers, railroad
locomotive and freight car manufacturers, and automotive manufacturers. Beyond
the transportation industry, the Company supplies precision ball bearings to
manufacturers of office equipment, machinery and appliances.
In addition to the OEM efforts, the Company markets a broad line of
products through distributors. The Distribution customer base varies from the
two largest multi-branch operations, which have in excess of 400 branches, to
independent single outlet operations. The Company provides distributors with a
high quality lower cost alternative for them to service their maintenance repair
order customers as well as small / medium sized OEM's.
In 2002, 2001 and 2000, sales to a customer, Visteon Corporation,
represented more than 10% of the Company's total net sales.
Shipments to OEMs can be within one to 365 days from the date an order is
placed. Actual shipments are dependent upon production schedules of the
Company's customers. Product is generally shipped to distributors 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.
In order to timely meet the delivery requirements of customers, the
Company maintains significant amounts of inventory.
Our total backlog at year end 2002 and 2001 was $10,200,000 and
$8,900,000, respectively. The Company anticipates that approximately $10,200,000
of the 2002 backlog will be filled in 2003. The Company believes that backlog is
not necessarily a reliable indicator of our future sales because a substantial
portion of the orders constituting this backlog may be cancelled at the
customer's option.
EMPLOYEES
The Company's bearing operations have 1,001 full-time employees, of whom
862 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. Seventy eight of
the Company'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 23 year relationship with the Union and has never experienced a Union work
stoppage.
3
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. Among the Company's primary domestic and foreign competitors are
Timken, NSK Corporation and NN Inc. 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
The Company owns The General(R) trademark and the Hyatt(R) trademarks. The
Company does not own any other U.S. or foreign patents, trademarks or licenses
that are material to its business.
During 2001, the Company purchased the Hyatt(R) trademark from an
affiliate of General Motors ("GM"). Prior to this, the Company's use of the
Hyatt(R) trademark was pursuant to a license from GM. The Company believes the
trademarks positively influence some customers but is unable to quantify or
estimate the extent of the benefits.
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.
PROPERTIES
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. (See "Item 13 - Certain Relationships and Related
Transactions.")
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The amounts of sales and long-lived assets attributable to each of the
principal geographic areas where the Company has sales and the amount of export
sales from the U.S. for each of the last three fiscal years are set forth in
Note 17 to the Company's consolidated financial statements for the year ended
December 28, 2002.
DISCONTINUED OPERATIONS:
In December of 2002, the Company's Board of Directors and management
resolved to discontinue the operations of the machine tool segment by disposing
of the net assets by sale during 2003. During 2002, the Company reduced the net
asset carrying amounts of machine tools to zero and recorded an impairment
writedown associated with discontinued operations of approximately $2,242,000.
The prior period financial statements of the Company have been reclassified to
segregate continuing operations from discontinued operations.
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 Machinery Company ("World"), which became a wholly owned
subsidiary of General in July 2000.
WMG, a 60% owned subsidiary, owns 60% 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, was obligated to invest an additional $5.2 million in W.M. Works in
cash or in kind, over a four year period ending December 31, 2002. As of
December 28, 2002, the Company had satisfied its investment obligation for which
it received an additional 9% interest in W.M. Works. WMG has the exclusive right
to market the primary products of W.M. Works outside of Romania, with some minor
exceptions.
4
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 of General, is WMG's 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 5 sales agencies with exclusive distribution rights
in North America, Germany, India, Poland and Argentina. WMG also markets through
approximately 17 non-exclusive agents covering Italy, China, Denmark, the former
Soviet states, 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.
The machine tools produced by W.M. Works and WMW are sold to a wide
spectrum of customers, from large corporations to small job shops. W.M. Works
also produces the mechanical components of machines for certain machine tool
producers in Germany.
No individual customers of W.M. Works and WMW represented 10% or more of
the Company's sales in 2002, 2001 and 2000.
EMPLOYEES
The Company's machine tool operations have 492 employees, located
primarily in Romania, of whom 329 are in production, 19 are sales personnel, 56
are in-house technical engineers (both mechanical and electrical) and
technicians, 56 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),
Phoenix (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.
5
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.
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.
Item 3. Legal Proceedings.
Antidumping Proceeding covering Ball Bearings and Parts thereof from China.
In its 10-K filed on April 15, 2002, the Company disclosed the filing of an
Antidumping proceeding (the "Proceeding") in the U.S. International Trade
Commission ("ITC") and U.S. Department of Commerce ("DOC") by the American
Bearing Manufacturer's Association ("ABMA"), seeking to impose antidumping
duties on ball bearings and parts thereof from the People's Republic of China.
On April 3, 2003, by a vote of 4 to 0, the ITC found that the United States ball
bearing industry has not been materially injured or threatened with material
injury by imports of ball bearings from China.
As a result, no antidumping duties or deposits will be imposed on imports of
ball bearings from PRC.
Arbitration Proceeding against World Machinery Company
On December 30, 2002, the Romanian authority for Privatization and Management of
State Ownership ("APAPS") filed a Request for Arbitration against World, with
the International Chamber of Commerce. The action arises out of the contract
under which World acquired a majority interest in W.M. Works from the Romanian
government in 1998 (the "Contract"). APAPS alleges that World breached its
contractual obligation to invest certain sums in W.M. Works in 1999 and 2000, as
required under the Contract. APAPS is seeking $570,000 in penalties and damages,
together with interest and costs, and any further damages and penalties to which
it would be entitled if it establishes that World also failed to make
investments required in 2001 and 2002.
World's management believes it has fully complied with its investment
obligations and has filed an Answer with the ICC disputing the allegations and
will vigorously defend the action. World is also considering the filing of
claims against APAPS based on APAPS' breach of the Contract by failing to honor
a representation and warranty as to the financial condition of W.M. Works, and
other acts of the Romanian government which have caused damages to World and
W.M. Works.
While the Company is confident that it will prevail in the arbitration, an
adverse ruling could be materially adverse to World's operations and financial
condition.
Arbitrators have been selected and the parties are awaiting scheduling from the
ICC.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
6
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 last two fiscal years.
2002
---------------------
Bid Prices High Low
-------- --------
1st Quarter 3.670 2.600
2nd Quarter 4.050 3.100
3rd Quarter 4.250 2.810
4th Quarter 3.120 2.680
2001
---------------------
Bid Prices High Low
-------- --------
1st Quarter 6.310 4.750
2nd Quarter 5.940 3.150
3rd Quarter 3.790 2.270
4th Quarter 3.470 2.580
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 26, 2003, the Company had in excess of 500 holders of its Common
Stock.
7
Item 6. Selected Financial Data
Pursuant to SFAS No. 144, the selected financial data set forth below for
the statement of operations has been reclassified to segregate discontinued
operations from continuing operations (see Business and Properties Items 1 and
2). Any line item on the Statement of Operations above the net income line not
designated as relating to discontinued operations, relates solely to continuing
operations.
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 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
Jan. 2 Jan. 1 Dec. 30 Dec. 29 Dec. 28
1999 2000 2000 2001 2002
- ----------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
Sales $ 45,446 $ 51,789 $ 50,270 $ 44,474 $ 60,306
Operating income $ 4,217 $ 5,293 $ 4,250 $ 2,674 $ 4,422
Income from continuing operations before income tax $ 3,795 $ 4,562 $ 3,907 $ 985 $ 2,625
Minority interests $ (34) $ (27) $ (8) $ 405 $ 672
Income from continuing operations $ 2,073 $ 2,685 $ 2,552 $ 368 $ 848
Income / (loss) from discontinued operations $ (1,275) $ (441) $ (673) $ 270 $ (2,932)
Net income / (loss) $ 798 $ 2,244 $ 1,879 $ 638 $ (2,084)
Net income per basic share from
continuing operations $ 0.51 $ 0.65 $ 0.62 $ 0.09 $ 0.22
Net income per diluted share from
continuing operations $ 0.50 $ 0.65 $ 0.62 $ 0.09 $ 0.22
Net income/(loss) per basic share $ 0.19 $ 0.55 $ 0.46 $ 0.16 $ (0.54)
Net income/(loss) per diluted share $ 0.19 $ 0.55 $ 0.46 $ 0.16 $ (0.54)
8
As Of
Jan. 2 Jan. 1 Dec. 30 Dec. 29 Dec. 28
1999 2000 2000 2001 2002
- --------------------------------------------------------------------------------------------------
Balance Sheet Data:
Total current assets $34,907 $38,778 $38,778 $50,819 $49,099
Total assets $45,812 $53,340 $55,264 $76,624 $75,413
Long-term debt (excluding current
portion) $ 1,951 $12,861 $16,454 $20,580 $ 8,563
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Business Overview
General Bearing Corporation and subsidiaries (collectively, the "Company")
operates in two business segments: Bearings ("Continuing Operations") and
Machine Tools ("Discontinued Operations"). In December 2002, the Company's Board
of Directors and management resolved to discontinue the operations of the
machine tool segment by disposing of the net assets by sale during 2003. During
2002, the Company reduced the net asset carrying amounts of machine tools to
zero and recorded an impairment writedown associated with discontinued
operations of approximately $2,242,000. Pursuant to SFAS No. 144, the financial
statements of the Company have been reclassified to segregate discontinued
operations from continuing operations.
Continuing Operations:
The Company manufactures and distributes a variety of bearings and bearing
components under the Hyatt(R) and The General(R) trademarks. The Company
supplies original equipment manufacturers ("OEMs") and distributors. The
Company's products, sold principally in the United States ("U.S.") and Asia, are
used in a broad range of applications, including automobiles, railroad cars,
locomotives, trucks, heavy duty trailers, office equipment, machinery and
appliances. General has entered into six joint ventures (5 with manufacturers in
the Peoples Republic of China ("PRC")) to enable it to manufacture high quality,
low cost bearings and bearing components. General obtains a majority of its
bearing and component requirements from its manufacturing plants in the PRC.
In July 2001, General Bearing Corporation ("General") increased its ownership in
Ningbo General Bearing Company, Ltd. ("NGBC"), one of its joint ventures in
China, from 42% to 50% and assumed control of management of the operations. The
financial statements of NGBC have been fully consolidated beginning with the
start of the third fiscal quarter of 2001. The majority of NGBC's sales are
eliminated in consolidation as the majority of its production is sold to General
for sale in the U.S.
In December 2001, General increased its ownership in NN General, LLC ("NNG")
from 50% to 100%. NNG is a holding company that held as its primary asset, a 60%
investment in Jiangsu General Ball and Roller Company, Ltd. ("JGBR"), another
Chinese joint venture. Due to this increased ownership, the operations of NNG
and JGBR have been fully consolidated since the beginning of the first quarter
of 2002. On June 30, 2002, NNG's ownership in JGBR was reduced to 51% by
agreement of the partners, and in conjunction with commitments by the partners
to contribute additional capital reflective of the new ownership percentages.
Discontinued Operations:
In the Machine Tools segment, the Company produces and distributes a variety of
machine tools used for boring, turning, milling and grinding metal work pieces.
The Company's product lines include horizontal boring mills, bridge and gantry
mills, vertical turning lathes, heavy duty lathes, roll grinders, belt grinders
and vertical grinders.
9
Results of Operations
Fiscal 2002 compared to Fiscal 2001
Sales. Sales for the fiscal year ended December 28, 2002 ("2002") of
$60,306,000 represents a 35.6% increase compared to the fiscal year ended
December 29, 2001 ("2001") primarily due to the consolidation of JGBR sales.
Additionally, increased sales of driveline components to the automotive
industry, tapered roller bearings for heavy duty truck trailers and tapered
journal bearings to the railroad industry were partially offset by lower sales
volume in the heavy duty aftermarket as well as lower sales volume to
distributors. The reductions in the sales to the heavy duty aftermarket and
distributors are believed to be related to the general downturn of the U.S.
economy.
Gross Profit. Gross profit for 2002 of $17,155,000 represents a 29.9%
increase compared to 2001. As a percentage of sales, gross profit ("GP%") was
28.4% for 2002 compared to 29.7% in 2001. This decrease was mainly due to
product mix as well as the consolidation of JGBR's sales to the Chinese domestic
market, which have lower GP% than General's sales in the U.S.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("S,G&A") as a percentage of sales were 21.1% in 2002
compared to 23.7% in 2001. The decrease in S,G&A, as a percentage of sales, is
primarily due to higher sales volume. S,G&A increased by $2,205,000 in 2002
mainly due to the consolidation of the S,G&A expenses of NNG ($1,187,000) and
NGBC ($669,000). Additionally, 2002 S,G&A includes $500,000 in costs associated
with the start up of the Ball and Roller Division, as well as increases in
freight, professional fees, depreciation, and insurance partially offset by
reductions in bad debts.
Operating Income. Operating income for 2002 of $4,422,000 represents a
65.4% increase compared to 2001 due to higher sales volume and the consolidation
of JGBR, partially offset by lower GP% and higher S,G&A.
Other Expense, net. Other expense, net was $1,797,000 in 2002 compared to
$1,689,000 in 2001 and is comprised of miscellaneous non-operating income and
expenses, interest expense, and equity in income / loss of affiliates ("equity
income") as follows: (in thousands)
2002 2001
------- -------
Litigation settlement $ 0 $ 763
Interest expense, net 1,597 986
Equity (income) / loss in affiliates 193 (60)
Other non-operating expenses, net 7 0
------- -------
$ 1,797 $ 1,689
2001 included a charge of $763,000 for an agreement reached between the Company
and Gussack Realty Company ("GRC"), allocating the proceeds and litigation costs
from the previously reported litigation with Xerox. The reimbursement is being
paid to GRC in the form of additional rent payments by the Company of $18,780.17
per month for 48 months beginning in June 2001. Even though the Company was not
legally or contractually obligated to reimburse GRC, a related party, the
Company agreed to enter into the reimbursement agreement because the Company
believed it was fair and equitable to do so as Realty had paid legal expenses
for the benefit of the Company.
Interest expense, net increased in 2002 mainly due to the consolidation of
interest expense incurred at JGBR and increased borrowings.
Income tax. The Company recorded income tax expense of $1,105,000 in 2002
compared to income tax expense of $212,000 in 2001. The Company's effective
income tax rate was 42.1% in 2002 compared to 21.5% in 2001. The 2002 effective
rate is reflective of taxes being provided for previously earned foreign income
originally expected to be permanently reinvested.
10
Discontinued Operations. Machine tools sales of $8,613,000 were 23.0%
lower than 2001 primarily due to lower export sales from Romania due to
irregularity in demand for the Company's products. GP% for machine tools was
28.5% in 2002 compared to 38.6% in 2001. The decrease is mainly due to lower
sales volume and product mix. S,G&A for machine tools increased by $4,000 in
2002 compared to 2001. Operating loss for machine tools was $1,632,000 in 2002
compared to operating income of $227,000 in 2001 due to the lower sales volume
and lower GP%. Other expense, net was $506,000 in 2002 compared to $28,000 in
2001 due to higher interest expense at W.M. Works relating to increased debt.
The net loss for machine tools was $2,932,000 in 2002 compared to net income of
$270,000 in 2001. The net loss consists of a loss from operations of $690,000
and a business impairment charge of $2,242,000.
Net Income. Net loss for 2002 was $2,084,000 or ($.54) per basic and
diluted share compared to net income of $638,000 or $.16 per basic and diluted
share in 2001 primarily due to the loss from operations and the effect of the
impairment charge in the Machine Tool segment, partially offset by higher sales
volume in the Company's continuing operations.
Fiscal 2001 compared to Fiscal 2000
Sales. Sales for the fiscal year ended 2001 of $44,474,000 represents an
11.5% decrease compared to the fiscal year ended 2000 ("2000") primarily due to
the economic slowdown that began during the second half of 2001. The largest
decrease was due to lower sales volume of tapered roller bearings for heavy duty
truck trailers, however other product lines were also negatively affected.
Gross Profit. Gross profit for 2001 of $13,202,000 represents a 15.1%
decrease compared to 2000. As a percentage of sales, GP% was 29.7% for 2001
compared to 30.9% for 2000. This decrease was mainly due to lower sales volume
and introductory pricing necessary to increase market share.
Selling, General and Administrative Expenses. S,G&A as a percentage of
sales was 23.7% in 2001 compared to 22.5% in 2000. The increase in S,G&A as a
percentage of sales is primarily due to decreased sales volume, partially offset
by reduced expenses. S,G&A decreased by $770,000 mainly due to lower sales
related variable costs, promotion expense and legal expense, partially offset by
higher bad debt expense.
Operating Income. Operating income for 2001 of $2,674,000 represents a
37.1% decrease compared to 2000 primarily due to lower sales volume and lower
GP%, partially offset by lower S,G&A.
Other Expenses, net. Other expenses, net was $1,689,000 in 2001 compared
to $343,000 in 2000 mainly due to reduced equity in income of affiliates
("equity income") and a one-time charge as described below. Net interest expense
was $986,000 in 2001 compared to $1,012,000 in 2000. Equity income was $60,000
in 2001 compared to $669,000 in 2000. Lower sales to General due to economic
conditions in the U.S. reduced the earnings of its joint ventures. The
consolidation of NGBC's financial statements also caused a decrease in equity
income. Additionally, the 2000 equity income includes the Company's share of net
earnings from a joint venture prior to the inclusion of an additional partner.
2001 also includes a one-time charge of $763,000 for an agreement reached
between General and GRC, allocating the proceeds and litigation costs from the
previously reported litigation with Xerox (see the Company's report on Form 8-K
dated May 29, 2001 as well as the Company's Annual Report on Form 10-K for the
fiscal year ended December 30, 2000.) Even though the Company was not legally or
contractually obligated to reimburse GRC, a related party, the Company agreed to
enter into the reimbursement agreement because the Company believed it was fair
and equitable to do so as Realty had paid legal expenses for the benefit of the
Company. The reimbursement, due to GRC in the form of additional rent payments
by General of $18,780.17 per month for 48 months, commenced in June 2001.
Income Tax. The Company recorded income tax expense of $212,000 in 2001
compared to $1,363,000 in 2000. The Company's effective income tax rate was
21.5% in 2001 compared to 34.9% in 2000. The 2001 effective rate is reflective
of income taxes not being provided for on certain foreign income expected to be
permanently reinvested. The 2000 effective rate reflects a normal rate of
taxation.
Discontinued Operations. Machine tool sales of $11,179,000 were 22.5%
higher than 2000 due primarily to the continued development of markets for the
Company's plant in Romania, partially offset by slower economic conditions in
the United States. GP% for machine tools was 38.6% in 2001 compared to 32.1% in
2000. This increase is mainly due to higher sales volume. S,G&A for machine
tools decreased by $1,231,000 mainly due to reduced bad debt expenses and lower
costs for trade conventions as well as the implementation of cost reduction
programs to offset the economic conditions in the United States. Operating
income for Machine Tools increased to $227,000 in 2001 compared to a loss of
$2,389,000 in 2000 primarily due to higher sales volume and reduced S,G&A. Other
expense, net was $28,000 in 2001 compared to income of $44,000 in 2000.
11
Net Income. Net income for 2001 decreased 66.0% from 2000 to $638,000 or
$.16 per basic and diluted share, from $1,879,000 or $.46 per basic and diluted
share in 2000, primarily due to lower sales volume and increased other expenses,
net, partially offset by reduced S,G&A.
Financial Condition, Liquidity and Capital Resources
During the three years ended December 28, 2002, the Company's primary
sources of capital have been net cash provided by operating activities and a
Revolving Credit Facility. The primary demands on the Company's capital
resources have been investments in and advances to affiliates (joint ventures)
and fixed asset purchases made to broaden the Company's product offering and
improve operations. At December 28, 2002 and December 29, 2001, the Company had
working capital of $14,201,000 and $30,276,000, respectively. The reduction in
working capital is attributable to the reclassification of the revolving line of
credit as short term as the agreement expires on June 30, 2003. The Company
expects to enter into a new Revolving Credit Facility upon its expiration.
Cash provided by operating activities in 2002 was $2,346,000. Cash
provided from net income before the loss on impairment of the discontinued
operations, depreciation and amortization, reduced accounts receivable and
increased accounts payable and accrued expenses was partially offset by
increased inventory and prepaid expenses and other assets. The increase in
accounts payable and accrued expenses is primarily due to higher inventory in
transit.
Cash used in investing activities in 2002 was $7,374,000. General invested
cash of $820,000 in SGBC as part of the new joint venture contract whereby
ownership will be shared equally, with General assuming control of operations
upon meeting its revised investment requirement. Cash used in investing
activities also includes $6,587,000 for capital expenditures. The majority of
the capital expenditures is related to the growth of NGBC and JGBR.
Cash provided by financing activities in 2002 was $6,339,000. During 2002,
the Company had a net increase in debt under its revolving credit facility of
$1,711,000 and a net increase of $5,701,000 in Notes payable - banks mainly to
finance payments for capital equipment to support the growth of NGBC and JGBR.
The Company used cash of $720,000 for stock repurchases under the Company's
Stock Repurchase Program ("the Program") and repaid $153,000 against its lease
finance facility.
At December 28, 2002, the Company had outstanding debt of $14,458,000
under its Revolving Credit Facility and had further availability of
approximately $6.0 million. The Company expects to enter into a new Revolving
Credit Facility upon its expiration. The Company is in compliance with all of
its loan covenants.
During 2002, the Company repurchased 194,550 shares of its common stock
for a cost of $720,000 under its Program. The Company has purchased 284,820
shares for a cost of $996,000 since the inception of the Program on January
11,2000.
The Company believes that funds generated from continuing operations,
capital lease financing and borrowing under the existing and any future
revolving credit facilities will be sufficient to finance the Company's
investment commitments, anticipated working capital and capital expenditure
requirements for at least the next 24 months. The Company's operating cash flow
could be adversely affected if there was a decrease in demand for the Company's
products, if the Company was unable to continue to reduce its inventory, or if
General was unable to renew or replace the revolving credit facility when the
current facility expires on June 30, 2003. The table and notes below describe
the Company's contractual obligations related to its liquidity.
12
Payments Due by Period
-----------------------------------------------------------
Less
than 1 1 - 3 4 - 5 After 5
Total year years years years
------- ------- ------- ------- -------
Contractual Obligations:
Bank revolving line of credit $14,458 $14,458 $ -- $ -- $ --
Notes payable - banks 11,377 7,114 3,659 604 --
Notes payable - other 3,105 200 2,905 -- --
Capital lease obligations 467 196 271 -- --
Other long term liabilities - affiliate 1,123 -- 1,123 -- --
------- ------- ------- ------- -------
Total obligations - per Balance Sheet 30,530 21,968 7,958 604 --
Off Balance Sheet items:
Operating leases 6,414 1,323 3,857 1,234 --
Investment obligations 1,281 281 1,000 -- --
------- ------- ------- ------- -------
Total contractual cash obligations $38,225 $23,572 $12,815 $ 1,838 $ --
======= ======= ======= ======= =======
Pursuant to requirements imposed in 1993 by the United States Office of Foreign
Assets Control ("OFAC"), at the end of 2002 the Company also carried on its
books a $619,000 net payable ("IKL payable") to General IKL Corp., an affiliate.
The requirement arose out of sanctions imposed by the U.S. government on the
countries comprising the former Republic of Yugoslavia, "freezing" certain
assets in the United States. In February, 2003, OFAC "unfroze" assets affected
by the sanctions and the Company reduced a significant portion of the IKL
payable which the Company disputed.
The Company uses letters of credit to support certain advance payments received
from customers in the normal course of business.
Inflation
The effect of inflation on the Company has not been significant during the
last three fiscal years.
Recent Accounting Standards
In June 2000, the Financial Accounting Standards Board ("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 adopted FAS 133 and FAS 138. The
initial impact of adoption on the Company's financial statements was recorded in
2001 and was not 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 adopted
SAB 101 in 2000 and there was no material effect on the Company's operating
results.
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.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This
pronouncement eliminated the use of the "pooling of interests" method of
accounting for all mergers and acquisitions. As a result, all mergers and
acquisitions will be accounted for using the "purchase" method of accounting.
SFAS No. 141 is effective for all mergers and acquisitions initiated after June
30, 2001. Adoption of this pronouncement had no impact on the Company's
financial results.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement addresses financial accounting and reporting for
intangible assets (excluding goodwill) acquired individually or with a group of
other assets at the time of their acquisition. It also addresses financial
accounting and reporting for goodwill and other intangible assets subsequent to
their acquisition. Intangible assets (excluding goodwill) acquired outside of a
business combination will be initially recorded at their estimated fair value.
If the intangible asset has a finite useful life, it will be amortized over that
life. Intangible assets with an indefinite life are not amortized. Both types of
intangible assets will be reviewed annually for impairment and a loss recorded
when the asset's carrying value exceeds its estimated fair value. The impairment
test for intangible assets consists of comparing the fair value of the
intangible asset to its carrying value. Fair value for goodwill and intangible
assets is determined based upon discounted cash flows and appraised values. If
the carrying value of the intangible asset exceeds its fair value, an impairment
loss is recognized. Goodwill will be treated similar to an intangible asset with
an indefinite life. As required, the Company adopted SFAS No. 142 effective
December 30, 2001. The Company believes that the adoption of this pronouncement
will not have a material impact on the Company's financial results.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement deals with the costs of closing
facilities and removing assets. SFAS No. 143 requires entities to record the
fair value of a legal liability for an asset retirement obligation in the period
it is incurred. This cost is initially capitalized and amortized over the
remaining life of the underlying asset. Once the obligation is ultimately
settled, any difference between the final cost and the recorded liability is
recognized as a gain or loss on disposition. As required, the Company will adopt
SFAS No. 143 effective January 1, 2003. The Company believes that the adoption
of this pronouncement will not have a material impact on the Company's financial
results.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets." This pronouncement addresses how
to account for and report impairments or disposals of long lived assets. Under
SFAS No. 144, an impairment loss is to be recorded on long lived assets being
held or used when the carrying amount of the asset is not recoverable from its
expected future undiscounted cash flows. The impairment loss is equal to the
difference between the asset's carrying amount and estimated fair value. In
addition, SFAS No. 144 requires long lived assets to be disposed of by other
than a sale for cash to be accounted for and reported like assets being held and
used. Long lived assets to be disposed of by sale are to be recorded at the
lower of their carrying amount or estimated fair value (less costs to sell) at
the time the plan of disposition has been approved and committed to by the
appropriate company management. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The Company adopted SFAS No. 144 on December
30, 2001 (for more information see Note 1 of Notes to Financial Statements and
the discontinued operations section of this MD&A).
14
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS No. 146), the provisions of which are effective for any exit or disposal
activities initiated by the Company after December 31, 2002. SFAS No. 146
provides guidance on the recognition and measurement of liabilities associated
with exit or disposal activities and requires that such liabilities be
recognized when incurred. The adoption of the provisions of SFAS No. 146 will
impact the measurement and timing of costs associated with any exit and disposal
activities initiated after December 31, 2002. The Company does not expect the
adoption of the provisions of SFAS No. 146 to have a material effect on its
consolidated results of operations or financial position.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45), which expands previously issued
accounting guidance and disclosure requirements for certain guarantees. FIN 45
requires the Company to recognize an additional liability for the fair value of
an obligation assumed by issuing a guarantee. The disclosure provisions of FIN
45 are effective as of December 31, 2002. The provisions for initial recognition
and measurement of the liability are effective on a prospective basis for
guarantees that are issued or modified after December 31, 2002. The Company does
not expect the adoption of the provisions of FIN 45 to have a material effect on
its consolidated results of operations or financial position.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46), which requires that the
primary beneficiary of a variable interest entity (VIE) consolidate the VIE. The
Company does not expect the adoption of the provisions of FIN 46 to have a
material effect on its consolidated results of operations or financial position.
Critical Accounting Policies:
The preparation of our consolidated financial statements in accordance with
generally accepted accounting principles is based on the selection and
application of accounting policies that require the Company to make significant
estimates and assumptions about the effect of matters that are inherently
uncertain. The Company considers the accounting policies discussed below to be
critical to the understanding of our financial statements. Actual results could
differ from our estimates and assumptions, and any such differences could be
material to our consolidated financial statements.
The Company did not initially adopt any accounting policies with a material
impact during 2002 other than the required adoption of SFAS No. 144.
Long Lived Assets (including Tangible and Definite Lived Intangible Assets).
The Company periodically evaluates the recoverability of the carrying amount of
its long lived assets (including property, plant and equipment and definite
lived intangible assets) whenever events or changes in circumstances indicate
that the carrying amount of a long lived asset group may not be fully
recoverable. These events or changes in circumstances include business plans and
forecasts, economic or competitive positions within an industry, as well as
current operating performance and anticipated future performance based on a
business' competitive position. An impairment is assessed when the undiscounted
expected future cash flows derived from an asset are less than its carrying
amount. Impairment losses are measured as the amount by which the carrying value
of a long lived asset exceeds its fair value and are recognized in earnings. The
Company continually applies its best judgment when applying the impairment rules
to determine the timing of the impairment test, the undiscounted cash flows used
to assess impairment, and the fair value of an impaired long lived asset group.
The dynamic economic environment in which our businesses operate and the
resulting assumptions used to estimate future cash flows impact the outcome of
all impaired tests. For information on recognized impairment charges see Note 1
of Notes to Financial Statements and the discontinued operations section of this
MD&A.
Interest Rate Swap
See Item 7a Quantitative and Qualitative Disclosure about Market Risk for
information about the Company's interest rate swap.
15
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
The Company is subject to market risk primarily associated with changes in
interest rates and foreign currency exchange rates. In order to manage the
volatility relating to interest rates, the Company has entered into an interest
rate swap agreement. In order to manage the volatility relating to foreign
currency exchange rates the Company denominates substantially all purchase and
sale transactions in U.S. dollars. The Company does not anticipate any material
changes in its primary market risk exposures in the near future.
The Company does not execute transactions or hold derivative financial
instruments for trading purposes.
INTEREST RATE RISK
The Company's primary market risks are fluctuations in interest rates and
variability in interest rate spread relationships (i.e., prime to LIBOR spreads)
on its bank debt and interest rate swap (see Note 8 to the Consolidated
Financial Statements). As of December 28, 2002, the Company had $7.2 million
outstanding subject to an interest rate swap. This swap is used to convert
floating rate debt relating to the Company's revolving credit agreement to fixed
rate debt to reduce the Company's exposure to interest rate fluctuations. The
net result was to substitute a fixed interest rate of 9.17% for the variable
rate. The swap amortizes by $75,000 per month and terminates in December 2007.
Under the interest rate environment during the year ended December 28, 2002, the
Company's interest rate swap agreement resulted in additional expense of
approximately $422,000.
The following table provides information about the Company's interest rate
swap agreement that is sensitive to changes in interest rates. The table
presents average notional amounts and weighted average interest rates by fiscal
year. Notional amounts are used to calculate the contractual cash flows to be
exchanged under the swap contract.
Fair
2003 2004 2005 2006 2007 Total Value
In Thousands
Interest Rate Swaps
Variable to Fixed (US$) 6,712 5,812 4,912 4,012 3,112 7,200 1,084
Average Pay Rate 9.17% 9.17% 9.17% 9.17% 9.17% 9.17%
Average Receive Rate 3.35% 3.86% 4.40% 4.82% 5.17%
The following table provides information about the Company's variable rate debt.
Fair
2003 2004 2005 2006 2007 Total Value
In Thousands
Debt:
Variable Rate (US$) 17,737 18,135 16,007 16,500 17,000 14,458 14,458
Average Interest Rate 3.75% 4.25% 4.75% 5.25% 6.25% 3.75%
16
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. The Company purchases
approximately $2,000,000 of product monthly from its Chinese joint ventures,
which use proceeds thereof, to satisfy locally incurred liabilities in Renminbi
(RMB). Had there been an adverse 10% fluctuation between the exchange rate of
the U.S. dollar and the RMB, it would have resulted in a potential loss of
earnings of approximately $2.4 million at December 28, 2002. However, based upon
minimal historical volatility between the RMB and the U.S. Dollar, the Company
believes the likelihood of a significant potential loss in future earnings from
changes in the foreign currency exchange rate to be minimal.
17
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 28, 2002
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
----
Report of Independent Certified Public Accountants........................................F-19
Consolidated Balance Sheets as of, December 28, 2002 and December 29, 2001................F-20
Consolidated Statements of Operations for the Years Ended
December 28, 2002, December 29, 2001 and December 30, 2000................................F-21
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 28, 2002, December 29, 2001 and December 30, 2000..........................F-22
Consolidated Statements of Cash Flows for the Years Ended
December 28, 2002, December 29, 2001 and December 30, 2000................................F-23
Notes to Consolidated Financial Statements...........................................F-24 - 45
18
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
General Bearing Corporation
We have audited the accompanying consolidated balance sheets of General Bearing
Corporation and subsidiaries as of December 28, 2002 and December 29, 2001, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
28, 2002. These financial statements are the responsibility of the Company's
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of General Bearing
Corporation and subsidiaries as of December 28, 2002 and December 29, 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended December 28, 2002, in conformity with accounting principles
generally accepted in the United States of America.
Urbach Kahn & Werlin LLP
New York, New York
April 8, 2003
F-19
General Bearing Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands, except for shares and per share data)
================================================================================
December 28, December 29,
2002 2001
- -------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 3,158 $ 1,847
Accounts receivable, net of allowance for doubtful
accounts of $335 in 2002 and $874 in 2001 10,742 13,355
Inventories 28,218 30,116
Prepaid expenses and other current assets 4,368 4,756
Advances to affiliates 186 114
Deferred tax assets 2,427 631
- -------------------------------------------------------------------------------------------
Total current assets 49,099 50,819
- -------------------------------------------------------------------------------------------
Fixed assets, net of accumulated depreciation 21,308 22,049
- -------------------------------------------------------------------------------------------
Investment in, advances to and accounts receivable
from joint ventures and affiliates 3,670 2,841
- -------------------------------------------------------------------------------------------
Other assets 1,336 915
- -------------------------------------------------------------------------------------------
Total assets $ 75,413 $ 76,624
===========================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Notes payable - banks $ 7,114 $ 5,415
Bank - revolving line of credit 14,458 --
Accounts payable 7,127 9,781
Due to affiliates 1,696 306
Accrued expenses and other current liabilities 4,107 4,660
Current maturities of long term debt 396 381
- -------------------------------------------------------------------------------------------
Total current liabilities 34,898 20,543
- -------------------------------------------------------------------------------------------
Long term debt, net of current maturities 8,563 20,580
- -------------------------------------------------------------------------------------------
Other long term liabilities - affiliate 315 491
- -------------------------------------------------------------------------------------------
Deferred taxes 714 320
- -------------------------------------------------------------------------------------------
Minority interests 9,464 10,119
- -------------------------------------------------------------------------------------------
Commitments and contingencies (Note 16)
Stockholders' equity
Common shares - par value $.01 per share; authorized
19,000,000 shares; issued 7,102,200 and 7,088,950 shares 71 71
Paid-in capital 40,133 40,094
Accumulated other comprehensive loss (1,084) (737)
Treasury stock, at cost; 3,234,820 and 3,040,270 shares (996) (276)
Accumulated deficit (16,665) (14,581)
- -------------------------------------------------------------------------------------------
Total stockholders' equity 21,459 24,571
- -------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 75,413 $ 76,624
===========================================================================================
See Notes to Consolidated Financial Statements
F-20
General Bearing Corporation and Subsidiaries
Consolidated Statements of Operations
(In Thousands except for shares and per share data)
================================================================================
December 28, December 29, December 30,
2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Sales $ 60,306 $ 44,474 $ 50,270
Cost of sales 43,151 31,272 34,722
- -------------------------------------------------------------------------------------------------------------------
Gross profit 17,155 13,202 15,548
Selling, general and administrative expenses 12,733 10,528 11,298
- -------------------------------------------------------------------------------------------------------------------
Operating income 4,422 2,674 4,250
Other expenses, net 1,797 1,689 343
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 2,625 985 3,907
Income taxes 1,105 212 1,363
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations before minority interests 1,520 773 2,544
Minority interests (672) (405) 8
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations 848 368 2,552
- -------------------------------------------------------------------------------------------------------------------
Income / (loss) from discontinued operations (4,706) 506 (724)
Income tax benefit (expense) 1,774 (236) 51
- -------------------------------------------------------------------------------------------------------------------
Income / (loss) from discontinued operations (2,932) 270 (673)
- -------------------------------------------------------------------------------------------------------------------
Net income / (loss) $ (2,084) $ 638 $ 1,879
===================================================================================================================
Income per common share from continuing operations:
Basic $ 0.22 $ 0.09 $ 0.62
Diluted $ 0.22 $ 0.09 $ 0.62
Income / (loss) per common share from discontinued operations:
Basic $ (0.76) $ 0.07 $ (0.16)
Diluted $ (0.76) $ 0.07 $ (0.16)
Income / (loss) per common share from net income:
Basic $ (0.54) $ 0.16 $ 0.46
Diluted $ (0.54) $ 0.16 $ 0.46
Weighted average number of common shares:
Basic 3,867,380 4,108,993 4,109,565
Diluted 3,874,853 4,108,993 4,109,565
See Notes to Consolidated Financial Statements
F-21
General Bearing Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(In Thousands except for shares)
================================================================================
Accumulated
Common Shares Other
-------------------- Comprehensive Paid-In Treasury Stock Comprehensive Accum.
Shares Amt. Income Capital Shares Amt. Income Deficit
===================================================================================================================================
Balance, January 1, 2000 7,064,950 $ 71 $ (7) $ 39,744 3,000,000 $ -- $ -- $ (15,004)
Shares issued - board
compensation 8,000 -- -- 43 -- -- -- --
Treasury shares, at cost -- -- -- -- 10,300 (51) -- --
Foreign currency translation
adjustment -- -- (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)
Shares issued - board
compensation 16,000 -- -- 100 -- -- -- --
Treasury shares, at cost -- -- -- -- 79,970 (225) -- --
Net income -- -- -- -- -- -- 638 638
Mark to market - interest
rate swap -- -- (727) -- -- -- (727) --
---------- -------- ---------- ---------- ---------- --------- ---------- ----------
Comprehensive loss -- -- -- -- -- -- (89) --
---------- -------- ---------- ---------- ---------- --------- ---------- ----------
Balance, December 29, 2001 7,088,950 71 (737) 40,094 3,040,270 (276) -- (14,581)
Shares issued - board
compensation 12,000 -- -- 33 -- -- -- --
Options exercised 1,250 -- -- 6 -- -- -- --
Treasury shares, at cost -- -- -- -- 194,550 (720) -- --
Net loss -- -- -- -- -- -- (2,084) (2,084)
Adjust for change in
foreign currency -- -- 10 -- -- -- 10 --
Mark to market - interest
rate swap -- -- (357) -- -- -- (357) --
---------- -------- ---------- ---------- ---------- --------- ---------- ----------
Comprehensive loss -- -- -- -- -- -- (2,431) --
---------- -------- ---------- ---------- ---------- --------- ---------- ----------
Balance, December 28, 2002 7,102,200 $ 71 $ (1,084) $ 40,133 3,234,820 $ (996) -- $ (16,665)
===================================================================================================================================
See Notes to Consolidated Financial Statements
F-22
General Bearing Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
================================================================================
December December December
28, 2002 29, 2001 30, 2000
- -------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income / (loss) $(2,084) $ 638 $ 1,879
Adjustments to reconcile net income / (loss) to net cash
provided by operating activities:
Minority interests (834) 98 (1,628)
Depreciation and amortization 2,065 1,066 1,233
Loss on impairment of discontinued operations, net 3,965 -- --
Deferred income taxes (1,350) (142) 212
Equity in (income) loss of joint ventures and affiliates 193 (60) (669)
Net (gain) loss on equipment sales and disposal (24) 57 --
Other non - cash items charged to income 38 100 43
Changes in:
Accounts receivable 1,935 (1,522) 1,505
Inventories (3,899) 3,758 (4,202)
Prepaid expenses and other assets (830) 554 (124)
Advances to / (from) affiliates 1,163 999 369
Accounts payable and accrued expenses 2,008 (1,273) 2,938
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,346 4,273 1,556
- -------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Investments in affiliates, net (820) -- (750)
Advances to affiliates -- (600) (2,597)
Increase in equity interests, net of cash acquired -- 1,986 --
Fixed asset purchases (6,587) (2,555) (948)
Proceeds from sale of fixed assets 33 100 --
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,374) (1,069) (4,295)
- -------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Repayment of capital lease (153) (181) (650)
Increase (decrease) in note payable - banks 5,701 440 (3,459)
Decrease in note payable - other (200) -- --
Net proceeds from / (repayment of) revolving credit facility 1,711 (2,006) 3,347
Proceeds from equipment financing -- -- 968
Proceeds from long-term debt -- 118 --
Proceeds from sale of common shares -- -- 5
Return of capital -- -- (500)
Purchase of treasury stock (720) (225) (51)
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 6,339 (1,854) (340)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,311 1,350 (3,079)
Cash and cash equivalents, beginning of period 1,847 497 3,576
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 3,158 $ 1,847 $ 497
=======================================================================================================
See Notes to Consolidated Financial Statements
F-23
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 1. The Company and Summary of Significant Accounting Policies
The Company
General Bearing Corporation ("General") and subsidiaries
(collectively, "the Company") operates in two business segments:
bearings and machine tools. In December of 2002, the Company's Board
of Directors and management resolved to discontinue the operations
of the machine tool segment by disposing of the net assets by sale
during 2003. Subsequent to SFAS No. 144, prior year financial
statements of the Company have been reclassified to segregate
discontinued operations from continuing operations.
>> Continuing Operations (Bearing Segment). The Company, through
General and its 50% or more owned joint ventures, Rockland
Manufacturing Company ("Rockland"), Ningbo General Bearing
Company, Ltd. ("NGBC") and Jiangsu General Ball and Roller
Company, Ltd. ("JGBR"), manufactures, sources, assembles and
distributes a variety of bearings and bearing components,
including ball bearings, tapered roller bearings, spherical
roller bearings and cylindrical roller bearings. 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 and Asia. 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.
>> Discontinued Operations (Machine Tool Segment). The Company
manufactures machine tools through its majority owned
subsidiary World Machinery Works ("W.M. Works"). The Company,
through WMW Machinery Company, Inc. ("WMW"), a wholly-owned
subsidiary of General, distributes machine tools in North
America. The Company also distributes machine tools in other
countries through its majority-owned subsidiary, World
Machinery Group, BV ("WMG").
Based on several years of disappointing performance of the
machine tool segment and the Company's desire to focus its
resources on its core business, the Company's Board of
Directors and management resolved to discontinue the
operations of the segment by disposing of the net assets by
sale in 2003. During 2002, the Company reduced the net asset
carrying amounts of machine tools to zero and recorded an
impairment writedown associated with discontinued operations
of approximately $2,242,000.
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. The Consolidated
Statements of Operations have been restated to reflect the results
from discontinued operations of the machine tool segment as a single
line item for all years presented. Investments in other joint
ventures are carried under the equity method. The years ended
December 28, 2002, December 29, 2001, and December 30, 2000 are
referred to as fiscal 2002, fiscal 2001, and fiscal 2000,
respectively.
A summary description of each of the Company's wholly owned
subsidiaries and joint ventures in which General maintains control
and has at least a 50% ownership interest are as follows:
F-24
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 1. The Company and Summary of Significant Accounting Policies,
(Continued)
Continuing Operations:
NGBC, established in 1998 for an initial term of sixteen years, is a
joint venture with China Ningbo Genda Bearing Company, Ltd. Located
in Yuyao City, Peoples Republic of China (PRC), this venture
manufactures ball and roller bearings and their components.
Initially a 33% owned joint venture of General, General increased
its ownership to 42% in 2000 by contributing an additional $650,000
in cash. In July 2001, General increased its ownership to 50% by
contributing $1.2 million in cash and General assumed control of
management of the operations. Operations since July 2001 have been
fully consolidated in the financial statements. 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.
NN General, LLC ("NNG") established in March 2000, was initially a
50% owned joint venture with NN Ball & Roller, Inc. ("NN"), an
unrelated party. Pursuant to the terms of this venture General
assigned its 60% interest in JGBR to NNG. General's initial cash
investment in NNG was $100,000. General also advanced NNG loans
amounting to approximately $2,767,000 including interest at the
applicable federal rate. On December 27, 2001, General and NN
contributed all loans and accrued interest advanced to NNG to NNG's
capital and General purchased NN's 50% interest for cash and notes
valued at approximately $3.9 million (book value), effectively
increasing General's interest in JGBR back to 60%. On June 30, 2002,
NNG's ownership in JGBR was reduced to 51% by agreement of the
partners, and in conjunction with commitments by the partners to
contribute additional capital reflective of the new ownership
percentages.
JGBR, established in 1999, is a joint venture with Jiangsu Lixing
Steel Ball Factory ("JSBF"), an unrelated party. Located in Rugao
City, China, this venture is comprised of the operations of JSBF, a
manufacturer of rolling elements for bearings. Effective with
General's acquisition of NN's interest in NNG, the operations of
JGBR have been fully consolidated.
Rockland, a general partnership, is owned equally by General and
Wafangdian USA, Inc., a wholly owned subsidiary of Wafangdian
Bearing Company, Ltd. ("WFGDN"). Rockland's principal business is
the design and manufacture of cylindrical roller and spherical
roller bearings and bearing components. Substantially all of
Rockland's inventory (see below) is purchased on a consigned basis
from WFGDN, or Wafangdian General Bearing Company, Ltd. ("WGBC", see
below), a foreign joint venture in which General owns a minority
interest. Substantially all of Rockland's production is sold to
General.
General IKL Corporation ("IKL") is an inactive joint venture located
in the former Republic of Yugoslavia in which General holds a 50%
interest.
World Machinery Company ("World") is a holding company and is 100%
owned by General. World exists primarily to hold stock of other
companies. World owns 2,950,000 shares of General's common stock
which have been treated as treasury stock in the consolidated
financial statements.
Discontinued Operations:
WMW is a wholly owned subsidiary of World. WMW is engaged in the
distribution of machines and machine tools in North America,
principally to machine tool dealers and manufacturing companies.
WMG is a 60% owned joint venture of World located in the
Netherlands, whose principal asset is a 60% interest in W.M. Works,
a Romanian manufacturer of machine tools acquired during 1998
pursuant to Romania's privatization program. The majority of W.M.
Works' sales are made through WMG, which utilizes independent
regional sales agencies.
F-25
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 1. The Company and Summary of Significant Accounting Policies,
(Continued)
Revenues for discontinued operations for each of the three years in
the period ended December 28, 2002 were $8,613,000, $11,179,000 and
$9,123,000, respectively.
A summary of joint ventures (all in continuing operations) in which
the Company holds less than a 50% interest are as follows:
Shanghai General Bearing Company, Ltd. ("SGBC") was established in
1987 as a 25% owned joint venture with Shanghai Roller Bearing
Factory ("SRBF"), located in Shanghai, PRC. The venture is a limited
liability company formed in accordance with PRC law. SGBC produces
tapered roller bearings, which the Company imports into the U.S. for
further assembly, inspection, testing and distribution. In November
2001, General and SRBF agreed to a new joint venture contract
whereby ownership would be shared equally, with General assuming
control of operations upon General meeting its requirement to
contribute an additional $3 million through 2004. At March 24, 2003,
General has satisfied $2 million of this requirement. The official
business license for the revised joint venture company was granted
in February 2002. General maintains the exclusive right to sell the
products of SGBC in the United States.
Shanghai Pudong General Bearing Company, Ltd ("SPGBC") is a 25%
owned joint venture with Shanghai Xiua Industrial Corporation,
established in 1996. Located in the Pudong Industrial Zone of
Shanghai, China, this venture produces ball bearings for sale in the
U.S. by General.
WGBC is a 25% owned joint venture with Wafangdian Bearing Company.
This venture produces components for spherical roller bearings and
railroad bearings in the PRC. General sells WGBC's products in the
United States.
All significant intercompany accounts and transactions have been
eliminated.
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.
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
28, 2002, December 29, 2001 and December 30, 2000. Inventory at
December 28, 2002 and December 29, 2001 consists of approximately
$1,686,000 and $1,494,000, respectively, of inventory acquired
outside the consignment agreement and costs related to consigned
goods. The consigned inventory amounted to approximately $2,604,000
and $3,194,000 at December 28, 2002 and December 29, 2001,
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 adjustments to stockholders' equity. The
Company's comprehensive income is comprised of foreign currency
translation adjustments and accounting for an interest rate swap.
The Company uses an interest rate swap agreement as a derivative to
hedge against the variable interest rate on a portion of its
revolving credit facility, to reduce its exposure to fluctuations in
interest rates. The Company's accounting policies for these
instruments are based on its designation of such instruments as
hedging transactions. The Company does not enter into such contracts
for speculative purposes. The Company records all derivatives on the
balance sheet at fair value.
F-26
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 1. The Company and Summary of Significant Accounting Policies,
(Continued)
For derivative instruments that are designated and qualify as a fair
value hedge (i.e. hedging the exposure to changes in the fair value
of an asset or a liability or an identified portion thereof that is
attributable to a particular risk), the gain or loss on the
derivative instrument as well as the offsetting gain or loss on the
hedged item attributable to the hedged risk are recognized in
earnings in the current period. For derivative instruments that are
designated and qualify as a cash flow hedge, such as the swap
agreement, (i.e. hedging the exposure of variability of expected
future cash flows that is attributable to a particular risk), the
effective portion of the gain or loss on the derivative instrument
is reported as a component of Accumulated Comprehensive Income (a
component of stockholders' equity) and reclassified into earnings in
the same period or periods during which the hedged transaction
affects earnings. The remaining gain or loss on the derivative
instrument, if any (i.e. the ineffective portion of any portion of
the derivative excluded from the assessment of effectiveness) is
recognized in earnings in the current period. For derivative
instruments not designated as hedged instruments, changes in their
fair values are recognized in earnings in the current period.
Comprehensive income for each of the three years in the period ended
December 28, 2002 is presented in the Statements 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:
Classification Estimated Life (Years)
--------------------------------------------------------------------
Land No depreciation
Buildings 10 to 40
Machinery and equipment 3 to 10
Furniture and fixtures 10
Transportation equipment 3 to 5
Leasehold improvements Lesser of life of lease or useful life
Software 5
--------------------------------------------------------------------
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 writedown of $501,000. During 2002, the
Company recorded an impairment writedown, net of related tax
effects, on assets associated with discontinued operations of
approximately $2,242,000.
Fiscal Year: The reporting period for the Company is a 52-53 week
fiscal year. There were 52 weeks in the periods ended December 28,
2002, December 29, 2001 and December 30, 2000.
Revenue Recognition: The Company recognizes revenue when products
are shipped and title passes to the customer. Selling prices are
fixed based on purchase orders or contractual arrangements. Customer
acceptance and account collectibility can be reasonably assured as
write-offs of accounts receivable have historically been low. 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 in accordance with SFAS No 5.
F-27
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 1. The Company and Summary of Significant Accounting Policies,
(Continued)
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 $1,200,000, $644,000, and
$671,000 in fiscal 2002, 2001 and 2000, respectively.
Advertising: Advertising costs are expensed as incurred. Advertising
expense for each of the three years in the period ended December 28,
2002 was $91,000, $150,000, and $228,000, respectively.
Income Taxes: Prior to the transaction described in Note 2, General
filed a consolidated Federal income tax return with 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 files 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 and Other 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
76%, 76%, and 85% of its bearing and component requirements from
various Chinese joint ventures in the fiscal years ended 2002, 2001
and 2000, respectively. In 2002, 2001 and 2000, respectively, the
Company obtained 57%, 51% and 87% 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.
F-28
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 1. The Company and Summary of Significant Accounting Policies,
(Continued)
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 stockholders' equity. For
foreign operations where the U.S. 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
translations is not material.
Stock-Based Compensation: The Financial Accounting Standards Board
("FASB") 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.
Income / (loss) Per Common Share: Income / (loss) per common share
is computed on the basis of the weighted average number of common
shares outstanding during the year. Basic income / (loss) per share
excludes and diluted income / (loss) 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. The Consolidated
Statements of Operations have been reclassified to reflect the
results from discontinued operations of the machine tool segment as
a single line item for all years presented.
Recent Accounting Standards: 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 adopted FAS 133 and FAS
138. The initial impact of adoption on the Company's financial
statements was not 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 adopted SAB 101 in 2000 and there
was no material effect on the Company's operating results.
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
became 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-29
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 1. The Company and Summary of Significant Accounting Policies,
(Continued)
In June 2001, the FASB issued SFAS No. 141, "Business Combinations."
This pronouncement eliminated the use of the "pooling of interests"
method of accounting for all mergers and acquisitions. As a result,
all mergers and acquisitions will be accounted for using the
"purchase" method of accounting. SFAS No. 141 is effective for all
mergers and acquisitions initiated after June 30, 2001. Adoption of
this pronouncement had no impact on the Company's financial results.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement addresses financial accounting
and reporting for intangible assets (excluding goodwill) acquired
individually or with a group of other assets at the time of their
acquisition. It also addresses financial accounting and reporting
for goodwill and other intangible assets subsequent to their
acquisition. Intangible assets (excluding goodwill) acquired outside
of a business combination will be initially recorded at their
estimated fair value. If the intangible asset has a finite useful
life, it will be amortized over that life. Intangible assets with an
indefinite life are not amortized. Both types of intangible assets
will be reviewed annually for impairment and a loss recorded when
the asset's carrying value exceeds its estimated fair value. The
impairment test for intangible assets consists of comparing the fair
value of the intangible asset to its carrying value. Fair value for
goodwill and intangible assets is determined based upon discounted
cash flows and appraised values. If the carrying value of the
intangible asset exceeds its fair value, an impairment loss is
recognized. Goodwill will be treated similar to an intangible asset
with an indefinite life. As required, the Company adopted SFAS No.
142 effective December 30, 2001. The Company believes that the
adoption of this pronouncement will not have a material impact on
the Company's financial results.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement deals with the costs of
closing facilities and removing assets. SFAS No. 143 requires
entities to record the fair value of a legal liability for an asset
retirement obligation in the period it is incurred. This cost is
initially capitalized and amortized over the remaining life of the
underlying asset. Once the obligation is ultimately settled, any
difference between the final cost and the recorded liability is
recognized as a gain or loss on disposition. As required, the
Company will adopt SFAS No. 143 effective January 1, 2003. The
Company believes that the adoption of this pronouncement will not
have a material impact on the Company's financial results.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets." This pronouncement
addresses how to account for and report impairments or disposals of
long lived assets. Under SFAS No. 144, an impairment loss is to be
recorded on long lived assets being held or used when the carrying
amount of the asset is not recoverable from its expected future
undiscounted cash flows. The impairment loss is equal to the
difference between the asset's carrying amount and estimated fair
value. In addition, SFAS No. 144 requires long lived assets to be
disposed of by other than a sale for cash to be accounted for and
reported like assets being held and used. Long lived assets to be
disposed of by sale are to be recorded at the lower of their
carrying amount or estimated fair value (less costs to sell) at the
time the plan of disposition has been approved and committed to by
the appropriate company management. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. The Company adopted
SFAS No. 144 on December 30, 2001.
F-30
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 1. The Company and Summary of Significant Accounting Policies,
(Continued)
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" (SFAS No. 146), the provisions of which are
effective for any exit or disposal activities initiated by the
Company after December 31, 2002. SFAS No. 146 provides guidance on
the recognition and measurement of liabilities associated with exit
or disposal activities and requires that such liabilities be
recognized when incurred. The adoption of the provisions of SFAS No.
146 will impact the measurement and timing of costs associated with
any exit and disposal activities initiated after December 31, 2002.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" (FIN 45),
which expands previously issued accounting guidance and disclosure
requirements for certain guarantees. FIN 45 requires the Company to
recognize an additional liability for the fair value of an
obligation assumed by issuing a guarantee. The disclosure provisions
of FIN 45 are effective as of December 31, 2002. The provisions for
initial recognition and measurement of the liability are effective
on a prospective basis for guarantees that are issued or modified
after December 31, 2002. The Company does not expect the adoption of
the provisions of FIN 45 to have a material effect on its
consolidated results of operations or financial position.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46), which
requires that the primary beneficiary of a variable interest entity
(VIE) consolidate the VIE. The Company does not expect the adoption
of the provisions of FIN 46 to have a material effect on its
consolidated results of operations or financial position.
Note 2. Acquisition
In July 2000, General acquired 100% of 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. This combination was accounted for
in a manner similar to a pooling of interests. In consideration for
this transaction, General issued 3,140,000 shares of its common
stock, $.01 per share par value. Shares of General's common stock,
now owned by World (2,950,000), are now carried as treasury stock in
consolidation. Net shares issued (190,000 shares) for the
acquisition are considered outstanding for all periods presented.
F-31
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 3. Inventories
Inventories are comprised as follows at: (In Thousands)
December 28, December 29,
2002 2001
- --------------------------------------------------------------------------------
Bearings and Bearing Products
Finished goods $ 9,686 $ 9,096
Raw materials, purchased parts and work-in
process 18,532 16,824
- --------------------------------------------------------------------------------
28,218 25,920
- --------------------------------------------------------------------------------
Machine Tools
Machines and machine tools -- 2,457
Service parts and accessories -- 1,739
- --------------------------------------------------------------------------------
-- 4,196
- --------------------------------------------------------------------------------
$28,218 $30,116
================================================================================
Note 4. Prepaid Expenses and Other Current Assets
Prepaid Expenses and Other Current Assets are comprised as follows
at: (In Thousands)
December 28, December 29,
2002 2001
- --------------------------------------------------------------------------------
Prepaid taxes and taxes recoverable $ 2,605 $ 344
Advances to suppliers 771 3,265
Prepaid real estate taxes 177 179
Prepaid insurance 149 124
Sundry receivables 427 587
Other prepaids 239 257
- --------------------------------------------------------------------------------
$ 4,368 $ 4,756
================================================================================
Note 5. Fixed Assets
Fixed Assets are comprised as follows at: (In Thousands)
December 28, December 29,
2002 2001
- --------------------------------------------------------------------------------
Land and buildings $ 6,153 $11,154
Machinery and equipment 19,730 17,347
Furniture and fixtures 1,363 1,494
Leasehold improvements 808 776
Software 867 891
Transportation equipment 510 666
- --------------------------------------------------------------------------------
29,431 32,328
Less: accumulated depreciation and amortization 8,123 10,279
- --------------------------------------------------------------------------------
$21,308 $22,049
================================================================================
F-32
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 5. Fixed Assets, (Continued)
Machinery and equipment at December 28, 2002 includes construction
in process of $140,000. The estimated cost to complete construction
in process is $101,000.
Depreciation expense was $1,855,000, $995,000 and $1,162,000,
respectively for each of the three years in the period ended
December 28, 2002. Amortization expense was $104,000, $71,000 and
$71,000, respectively for each of the three years in the period
ended December 28, 2002.
Note 6. Investments in, Advances to and Accounts Receivable from Joint
Ventures and Affiliates
Investments in, Advances to and Accounts Receivable from Joint
Ventures and Affiliates consist of the following at: (In Thousands)
December 28, December 29,
2002 2001
- -------------------------------------------------------------------------------------
Investments:
Shanghai General Bearing Company, Ltd. (c ) $2,573 $ 822
Shanghai Pudong General Bearing Company, Ltd. (a ) 161 171
Wafangdian General Bearing Company, Ltd. 432 766
- -------------------------------------------------------------------------------------
3,166 1,759
- -------------------------------------------------------------------------------------
Advances and Accounts Receivable:
Short-Term
Shanghai Pudong General Bearing Company, Ltd. (a ) 79 80
Shanghai General Bearing Company, Ltd. 89 18
Wafangdian General Bearing Company, Ltd. 18 16
- -------------------------------------------------------------------------------------
186 114
- -------------------------------------------------------------------------------------
Long-Term
General IKL Corp. (b ) 504 482
Shanghai General Bearing Company, Ltd. (c ) -- 600
- -------------------------------------------------------------------------------------
504 1,082
- -------------------------------------------------------------------------------------
$3,856 $2,955
=====================================================================================
(a) 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.
(b) Amounts receivable from and payable to General IKL Corp., are
subject to collection and repayment restrictions due to
sanctions imposed by the U.S. government on the countries
comprising the former Republic of Yugoslavia. General accrues
interest on the balances due to and from this affiliate (see
Note 9). Subsequent to year end, the government imposed
restriction of economic activity was lifted.
(c) The $600,000 long term advance was contributed to equity in
2002 as part of the new joint venture contract whereby
ownership would be shared equally with General assuming
control of operations. The new joint venture contract requires
General to contribute an additional $3,000,000 through 2004.
At March 24, 2003, General has satisfied $2,000,000 of this
requirement (see Note 1). Condensed financial data of SGBC are
as follows: (In Thousands)
F-33
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 6. Investments in, Advances to and Accounts Receivable from Joint
Ventures and Affiliates, (Continued)
|------------------------------------------------------------------------------|
| Balance Sheet: December 28, 2002 December 29, 2001|
|------------------------------------------------------------------------------|
|Current assets $ 6,986 $ 4,929|
|------------------------------------------------------------------------------|
|Total assets 10,614 8,201|
|------------------------------------------------------------------------------|
|Current liabilities 5,329 4,912|
|------------------------------------------------------------------------------|
|Total liabilities 5,329 4,912|
|------------------------------------------------------------------------------|
|Ventures' equity 5,285 3,289|
|------------------------------------------------------------------------------|
|------------------------------------------------------------------------------|
| Income Statement: December 28, 2002 December 29, 2001 December 30, 2000|
|------------------------------------------------------------------------------|
|Net sales $ 15,172 $ 13,763 $ 17,980|
|------------------------------------------------------------------------------|
|Gross profit 1,485 1,067 2,512|
|------------------------------------------------------------------------------|
|Operating income 791 239 1,699|
|------------------------------------------------------------------------------|
|Net income 531 83 835|
|------------------------------------------------------------------------------|
Note 7. Notes Payable - Banks
JGBR has short term unsecured notes payable aggregating $5,435,000,
with an interest rate of 4.8675%, maturing throughout 2003.
NGBC has a short term government loan in the amount of $1,679,000,
with an interest rate of 4.43%, maturing on October 10, 2003. The
loan is secured by NGBC's taxes receivable.
Note 8. Accrued Expenses and Other Current Liabilities
Accrued Expenses and Other Current Liabilities consist of the
following: (In Thousands)
- --------------------------------------------------------------------------------
December 28, 2002 December 29, 2001
- --------------------------------------------------------------------------------
Payroll and related benefits $ 594 $ 929
Insurance - 280
Customer deposits - 197
Sales commissions 174 189
Sales rebates 234 212
Swap obligations 1,084 727
Professional fees 374 260
Other 1,657 1,866
- --------------------------------------------------------------------------------
Total $4,107 $4,660
- --------------------------------------------------------------------------------
F-34
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 9. Long Term Debt
Long Term Debt consists of the following at: (In Thousands)
December 28, December 29,
2002 2001
- --------------------------------------------------------------------------------
Bank and other:
Bank revolving line of credit (a) $ -- $ 12,747
Notes payable (b) 7,368 6,470
Long term lease obligations (See Note 16) 468 663
- --------------------------------------------------------------------------------
7,836 19,880
Less current maturities (396) (381)
- --------------------------------------------------------------------------------
7,440 19,499
Affiliates:
General IKL Corp. (see Note 6(b)) 1,123 1,081
- --------------------------------------------------------------------------------
Total long term debt $ 8,563 $ 20,580
================================================================================
(a) General is obligated to a bank under a revolving line of
credit, which expires on June 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 28,
2002 was 5.05%. 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. General is in compliance with all of its loan
covenants.
As of December 28, 2002, borrowing under the credit line
amounted to $14,458,000, and letter of credit commitments
under this credit line amounted to $572,000.
As of December 28, 2002, General had $7.2 million outstanding
subject to an interest rate swap. This swap is used to convert
floating rate debt relating to the Company's revolving credit
agreement to fixed rate debt to reduce the Company's exposure
to interest rate fluctuations. The net result was to
substitute a fixed interest rate of 9.17% for the variable
rate. The swap amortizes by $75,000 per month and terminates
in December 2007. Under the interest rate environment during
the year ended December 28, 2002, the Company's interest rate
swap agreement resulted in additional expense of approximately
$422,000.
(b) JGBR has long term unsecured notes payable aggregating
$4,263,000, with various interest rates ranging from 4.65% to
5.275%, maturing between 2004 and 2007.
General has a long term note payable of $3,105,000. The
interest rate on the note is the 30 day LIBOR plus 1.5%.
Annual principal installments of $200,000 plus accrued
interest commenced December 2002, and will continue through
December 2005. In December 2006, the outstanding principal
balance is payable.
F-35
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 9. Long Term Debt, (Continued)
Long Term Debt as of December 28, 2002 is payable as follows: (In
Thousands)
- -----------------------------------------------------------------------------
2003 $ 396
2004 1,587
2005 2,139
2006 3,109
2007 605
Thereafter --
- -----------------------------------------------------------------------------
$ 7,836
=============================================================================
Note 10. Income Taxes
Federal, state and local income taxes consist of the following for
the fiscal year ended : (In Thousands)
December 28, December 29, December 30,
2002 2001 2000
- --------------------------------------------------------------------------------
Deferred:
Federal $ 1,188 $ 299 $ (358)
State and local 160 38 4
Foreign -- (195) 142
- --------------------------------------------------------------------------------
1,348 142 (212)
- --------------------------------------------------------------------------------
Current:
Federal (345) (431) (912)
State and local (86) (118) (96)
Foreign (248) (41) (92)
- --------------------------------------------------------------------------------
(679) (590) (1,100)
- --------------------------------------------------------------------------------
$ 669 $ (448) $(1,312)
================================================================================
F-36
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 10. Income Taxes, (Continued)
The major elements contributing to the difference between the
Federal statutory rate and the Company's effective tax rate on
income from continuing operations are as follows:
December 28, December 29, December 30,
2002 2001 2000
- --------------------------------------------------------------------------------------------------
Statutory rate 34.0% 34% 34%
State and local income taxes
less federal income tax benefit 1.8 5.4 1.6
Tax effect of differences between
U.S. statutory and foreign effective rates (2.0) (42.9) 5.5
Dividends recorded 5.7 23.4 (7.0)
Other differences 2.6 1.6 .8
- --------------------------------------------------------------------------------------------------
Effective rate 42.1% 21.5% 34.9%
==================================================================================================
Temporary differences which give rise to a significant portion of
deferred tax assets and liabilities are as follows: (In Thousands)
December 28, December 29,
2002 2001
- ------------------------------------------------------------------------------------
Gross deferred tax assets
Accounts receivable and inventory allowances $ 532 $ 477
Net operating loss carryforwards 1,471 1,464
Foreign losses -- 613
Loss from discontinued operations 1,774 --
All other 253 345
- ------------------------------------------------------------------------------------
4,030 2,899
Gross deferred tax liabilities
Plant and equipment depreciation differences (335) (204)
Foreign income (308) --
All other (57) (95)
- ------------------------------------------------------------------------------------
3,330 2,600
Valuation allowance (1,617) (2,289)
- ------------------------------------------------------------------------------------
Net deferred tax asset $ 1,713 $ 311
====================================================================================
The Company has provided a valuation allowance against all of the
deferred tax assets of World.
The valuation allowance has increased / (decreased) by ($672,000),
($599,000) and $861,000 in 2002, 2001 and 2000, respectively.
As of December 28, 2002, the Company had aggregate federal tax loss
carryovers of approximately $4.0 million, which may be used to
offset future taxable income of certain of its subsidiaries,
expiring at various dates through the year 2019.
F-37
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 11. 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 $78,000, $0, and $178,000 in
fiscal 2002, 2001 and 2000, respectively.
Note 12. Other Expenses, Net
Other Expenses consist of the following for the fiscal years ended:
(In Thousands)
December 28, December 29, December 30,
2002 2001 2000
- ------------------------------------------------------------------------------------------
Interest expense $ 1,679 $ 1,237 $ 1,176
Interest income (82) (251) (164)
- ------------------------------------------------------------------------------------------
Interest, net 1,597 986 1,012
Equity in (income) loss of affiliates 193 (60) (669)
Foreign currency exchange gain (40) -- --
Legal settlement -- 763 --
Other 47 -- --
- ------------------------------------------------------------------------------------------
$ 1,797 $ 1,689 $ 343
==========================================================================================
Note 13. Transactions with Affiliates
General made purchases of approximately $9.5 million, $11.4 million
and $26.7 million from its joint ventures and affiliates in fiscal
2002, 2001, and 2000, respectively.
From 1995 through May 2001, the Company and Gussack Realty Company
("Realty"), an entity owned by the principal stockholders of
General, were plaintiffs and counterclaim defendants in an action
against Xerox for contamination to real property owned by Realty and
previously leased by the Company from Realty. The action resulted in
a judgment against Xerox for $1,111,483 (including sanctions awarded
of $27,898) which, together with interest of $883,048 amounted to a
total recovery of $1,994,530. The jury rejected Xerox's counterclaim
in its entirety.
Inasmuch as the judgment against Xerox was expressly for damage to
Realty's property, and Realty expended $2.5 million in both the
prosecution of Realty's and the Company's claims, and defense of
Xerox's counterclaims against Realty and the Company, on May 29,
2001, the Company and Realty entered into an agreement whereby (i)
the Company waived any interest in the judgment, (ii) the Company
agreed to reimburse Realty $763,387 over the next four years with
interest at 8.4% per annum from the date of the agreement,
representing 30% of the litigation costs in the action and (iii)
Realty released the Company from any further claims for
indemnification for litigation expenses in connection with the
action. Even though the Company was not legally or contractually
obligated to reimburse GRC, a related party, the Company agreed to
enter into the reimbursement agreement because the Company believed
it was fair and equitable to do so as Realty had paid legal expenses
for the benefit of the Company. The reimbursement is being paid to
Realty in the form of additional rent payments by the Company of
$18,780 per month for 48 months beginning in June, 2001. The entire
amount of the reimbursement was charged to operations in fiscal
2001. At December 28, 2002, the Company has paid $357,000 toward
this agreement.
F-38
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 13. Transactions with Affiliates, (Continued)
The Company leases 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 $1,450,000, $1,373,000 and
$1,302,000 in fiscal 2002, 2001, and 2000, respectively.
Prior to 2003, the amounts receivable from and payable to General
IKL Corp., a corporate joint venture with a manufacturer located in
the former Republic of Yugoslavia, were restricted due to
suspension, by the United States government, of certain economic
activity with that country. The Company accrued interest on the
balances due to and from this affiliate. In February 2003, the
government imposed restriction of economic activity was lifted.
Note 14. 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 General 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 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 General.
General 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 December 28, 2002: no dividend yield, expected volatility of
53.4%, risk free interest rate of 5.1% and expected life of 10
years. For the year ended December 29, 2001, the weighted average
assumptions used for grants were: no dividend yield, expected
volatility of 54.0%, risk free interest rate of 5.0% and expected
life of 10 years. If compensation cost for General's stock option
plan had been determined in accordance with SFAS No. 123, net income
/ (loss) would have been increased / (decreased) by approximately
$262,000 or $.07 per diluted share, ($138,000) or $.03 per diluted
share, and ($161,000) or $.04 per diluted share for the fiscal years
ended 2002, 2001, and 2000, respectively. The following table
summarizes information about General's stock options outstanding at
December 28, 2002:
F-39
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 14. Stock Options, (Continued)
Options Outstanding
------------------------------------------------------
Weighted Average Weighted
Number Remaining Contractual Average
Outstanding Life (Years) Price
- --------------------------------------------------------------------------------------------------
Exercise prices:
$2.90 to $3.80 210,000 8.8 $ 3.34
$7.00 to $7.63 172,800 4.5 $ 7.02
==================================================================================================
Transactions under the stock option plan are summarized as follows:
December 28, December 29, December 30,
2002 2001 2000
----------------------- ------------------------ -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 337,800 $ 6.20 245,300 $ 7.16 259,800 $ 7.15
Granted 125,000 3.05 95,000 3.75 -- --
Exercised (1,250) 3.75 -- -- -- --
Canceled (78,750) 7.08 (2,500) 7.00 (14,500) 7.00
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at end year 382,800 5.00 337,800 6.20 245,300 7.16
===============================================================================================================================
Options exercisable at year end 277,200 5.27 185,250 7.20 137,850 7.20
===============================================================================================================================
Weighted average fair value of
options granted during the year $ 2.02 $ 2.06 $ --
===============================================================================================================================
Note 15. Earnings per share
(In Thousands except shares and per share data)
Year Ended
--------------------------------------------
December 28, December 29, December 30,
2002 2001 2000
--------------------------------------------
Income from continuing operations $ 848 $ 368 $ 2,552
--------------------------------------------
Basic earnings per share computation:
Weighted Average Common shares Outstanding 3,867,380 4,108,993 4,109,565
--------------------------------------------
Basic earnings per share from continuing
operations 0.22 0.09 0.62
--------------------------------------------
Diluted earnings per share computation:
Weighted Average Common shares Outstanding 3,867,380 4,108,993 4,109,565
Incremental shares from assumed exercise of
dilutive options 7,473 -- --
--------------------------------------------
3,874,853 4,108,993 4,109,565
--------------------------------------------
Diluted earnings per share from continuing
operations $ 0.22 $ 0.09 $ 0.62
--------------------------------------------
F-40
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 15. Earnings per share, (Continued)
For the years ended December 28, 2002, December 29, 2001 and
December 30, 2000, 287,800, 427,800, and 335,300 options and
warrants outstanding, respectively, were anti-dilutive.
Note 16. Commitments, Contingencies and Other Comments
Operating Lease: The Company leases its premises from Realty.
The estimated future minimum annual rentals under the lease with
Realty are as follows: (In Thousands)
- -------------------------------------------------------------------------------
2003 $ 1,323
2004 1,378
2005 1,258
2006 1,222
2007 1,233
- -------------------------------------------------------------------------------
$ 6,414
===============================================================================
Rent expense was $1,036,000, $1,026,000 and $1,166,000 in fiscal
2002, 2001, and 2000, 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 $348,000 as of December
28, 2002. Interest rates on the Company's capital leases range from
6.90% to 9.6425%.
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 28, 2002. (In
Thousands)
- -------------------------------------------------------------------------------
Payment for the year ending:
2003 $ 223
2004 235
2005 51
2006 -
2007 -
- -------------------------------------------------------------------------------
Total minimum lease payments 509
Less: amount representing interest 42
- -------------------------------------------------------------------------------
Present value of net minimum lease payments 467
Less: current portion 196
- -------------------------------------------------------------------------------
Long-term lease obligation $ 271
===============================================================================
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 28, 2002
future payments required under the agreement total $386,000.
F-41
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 16. Commitments, Contingencies and Other Comments, (Continued)
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 W.M. Works over five years and agreed to indemnify and
hold the Company harmless as to such obligation. The investment was
required to be made in cash, machinery, equipment, services, "know
how", or any equivalent thereof in any combination. In the event WMG
did not make a scheduled investment in W.M. Works, it would have
been obligated to pay the State Ownership Fund of Romania ("SOF") a
penalty equal to 30% of such amount not invested. The contract with
SOF provides for investment of $2,720,000 in 2002, which was
satisfied by the Company.
On December 30, 2002, the Romanian authority for Privatization and
Management of State Ownership ("APAPS") filed a Request for
Arbitration against World, with the International Chamber of
Commerce ("ICC"). The action arises out of the contract under which
World acquired a majority interest in W.M. Works from the Romanian
government in 1998 (the "Contract"). APAPS alleges that World
breached its contractual obligation to invest certain sums in W.M.
Works in 1999 and 2000, as required under the Contract. APAPS is
seeking $570,000 in penalties and damages, together with interest
and costs, and any further damages and penalties to which it would
be entitled if it establishes that World also failed to make
investments required in 2001 and 2002. World's management believes
it has fully complied with its investment obligations and has filed
an Answer with the ICC disputing the allegations and will vigorously
defend the action. World is also considering the filing of claims
against APAPS based on APAPS' breach of the Contract by failing to
honor a representation and warranty as to the financial condition of
W.M. Works, and other acts of the Romanian government which have
caused damages to World and W.M. Works. While the Company is
confident that it will prevail in the arbitration, an adverse ruling
could be materially adverse to World's operations and financial
condition. Arbitrators have been selected and the parties are
awaiting scheduling from the ICC.
Additionally, U.S. 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-42
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 17. Financial Information About Geographic Areas
The Company has adopted SFAS No. 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.
During 2001, the Company redefined its operating segments to more
accurately reflect those used by management. Prior period
information has been restated.
The Company operates in two segments: Bearings, which manufactures
bearings and bearing components for OEMs and distributors; and
Machine Tools, which manufactures machine tools for dealers and
manufacturers.
In December 2002, the Company's Board of Directors and management
resolved to discontinue the operations of the Machine Tool segment
by disposing of the net assets by sale during 2003. As a result,
pursuant to SFAS No. 144, the Company has not provided segment
information.
The following tables present information about the Company's
geographic data: (In Thousands)
- --------------------------------------------------------------------------------
December 28, December 29, December 30,
2002 2001 2000
- --------------------------------------------------------------------------------
Long lived Assets:
United States $ 3,680 $ 3,593 $ 3,351
Europe - 5,083 5,292
Asia 17,628 13,373 -
- --------------------------------------------------------------------------------
Total $21,308 $ 22,049 $ 8,643
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 28, December 29, December 30,
2002 2001 2000
- --------------------------------------------------------------------------------
Sales:
United States $ 47,164 $ 43,021 $ 47,812
Asia 11,967 540 -
Other 1,175 913 2,458
- --------------------------------------------------------------------------------
Total $ 60,306 $ 44,474 $ 50,270
- --------------------------------------------------------------------------------
In fiscal 2002, 2001 and 2000, the Company had one customer that
represented approximately 22%, 19% and 17% of total sales,
respectively.
F-43
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 18. Supplemental Cash Flow Information
The Company paid interest in the amount of $1,844,000 in fiscal
2002, $1,172,000 in fiscal 2001 and $1,323,000 in fiscal 2000, and
income taxes of $325,000, $318,000 and $1,415,000 in fiscal 2002,
2001 and 2000, respectively.
During fiscal 2002, the Company converted the $600,000 loan
receivable from SGBC to investment as part of the new joint venture
contract pursuant to which ownership would be shared equally, with
General assuming control of operations upon meeting its revised
investment requirement.
In December 2002, the Company's Board of Directors and management
resolved to discontinue the operations of the machine tool segment
by disposing of the net assets by sale. The Company recorded an
impairment writedown, net of related tax effects, on assets
associated with discontinued operations of approximately $2,242,000
in 2002.
During fiscal 2001, the Company increased its equity interest in
NGBC and JGBR resulting in the consolidation of these entities. The
fair value of assets acquired at the date the Company increased its
equity interests was approximately $9,577,000 and the Company
assumed liabilities of approximately $4,450,000. Total cash paid in
these transactions was approximately $1,822,000 and the Company
issued debt amounting to approximately $3,305,000.
World distributed a note receivable from Realty, in the amount of
$1,594,000, to the former shareholders of World prior to the
acquisition described in Note 2.
The Company entered into a lease for new equipment in 2000 in the
amount of $19,000.
Note 19. Subsequent Events
In February 2003, pursuant to the lifting of the sanctions on the
countries comprising the former Republic of Yugoslavia, the Company
reduced a significant portion of its payable to General IKL which
the Company disputed.
Note 20. Quarterly Financial Data (In Thousands except for per share data -
Unaudited)
The net sales and gross profit presented are reflective of continuing operations
only.
- -----------------------------------------------------------------------------------------------------
Basic Diluted
Earnings Earnings Per
2002 Net Sales Gross Profit Net Income/(loss) Per Share Share
- -----------------------------------------------------------------------------------------------------
First Qtr. $15,376 $4,483 $856 $0.21 $0.21
Second Qtr. 15,136 4,458 207 0.06 0.06
Third Qtr. 15,215 4,560 546 0.14 0.14
Fourth Qtr. 14,579 3,654 (3,693) (0.95) (0.95)
- -----------------------------------------------------------------------------------------------------
F-44
General Bearing Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Note 20. Quarterly Financial Data (In Thousands except for per share data -
Unaudited), (Continued)
The net sales and gross profit presented are reflective of continuing operations
only.
- ---------------------------------------------------------------------------------------------------
Basic Diluted
Earnings Earnings Per
2001 Net Sales Gross Profit Net Income/(loss) Per Share Share
- ---------------------------------------------------------------------------------------------------
First Qtr. $11,320 $3,566 $524 $0.13 $0.13
Second Qtr. 11,857 3,433 (29) (0.01) (0.01)
Third Qtr. 10,748 3,245 280 0.07 0.07
Fourth Qtr. 10,549 2,958 (137) (0.03) (0.03)
- ---------------------------------------------------------------------------------------------------
Sales:
First Quarter 2002: The sales volume increase was mainly due to the
consolidation of JGBR and NGBC as well as increased sales of
driveline components to the automotive industry and tapered roller
bearings for heavy duty truck trailers.
Third Quarter 2001: The sales volume decrease was mainly due to
seasonality as well as the worsening economic conditions in the
Company's industrial markets.
Net income:
Second Quarter 2002: The reduction in net income is mainly due to
increases in salaries, travel, professional fees, promotion and
personnel expenses.
Fourth Quarter 2002: The reduction in net income is primarily
attributable to the business impairment recorded on the machine tool
operations.
Second Quarter 2001: The decrease in net income is primarily related
to a one time charge of $763,000 for an agreement reached between
the Company and Gussack Realty, allocating the proceeds and
litigation costs from the litigation with Xerox. Even though the
Company was not legally or contractually obligated to reimburse GRC,
a related party, the Company agreed to enter into the reimbursement
agreement because the Company believed it was fair and equitable to
do so as Realty had paid legal expenses for the benefit of the
Company. The reimbursement is being paid to Gussack Realty in the
form of additional rent payments by the Company of $18,780 per month
for 48 months beginning in June 2001.
Third Quarter 2001: The increase in net income is due to the one
time charge of $763,000 that the Company incurred in the second
quarter partially offset by the effect of the Company's reduced
sales volume.
Fourth Quarter 2001: The decrease in net income is primarily due to
a $350,000 increase to the allowance for doubtful accounts.
F-45
Supplementary Financial Data
Furnished Pursuant to the
Requirements of Form 10-K
F-46
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders'
General Bearing Corporation
The audits referred to in our report dated April 8, 2003 relating to the
consolidated financial statements of General Bearing Corporation and
subsidiaries, which are 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 28, 2002. 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 28, 2002.
Urbach Kahn & Werlin LLP
New York, New York
April 8, 2003
F-47
General Bearing Corporation and Subsidiaries
================================================================================
Schedule II - Valuation and Qualifying Accounts (In Thousands)
Allowance for Doubtful Accounts
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Add Subtract
--- --------
Balance at Charged to
Beginning of Costs and Balance at
Description Period Expenses Deductions (1) End of Period
----------- ------ -------- -------------- -------------
Year Ended December 30, 2000
Allowance for Doubtful Accounts $738 $280 $30 $988
---- ---- --- ----
$738 $280 $30 $988
==== ==== === ====
Year Ended December 29, 2001
Allowance for Doubtful Accounts $988 $428 $542 $874
---- ---- ---- ----
$988 $428 $542 $874
==== ==== ==== ====
Year Ended December 28, 2002
Allowance for Doubtful Accounts $874 $17 $556 (2) $335
---- --- ---- ----
$874 $17 $556 $335
==== === ==== ====
Note: (1) Uncollectible accounts written off net of recoveries.
(2) Includes the impairment recognized in the amount of $350,000 relating
to the writedown of allowance for doubtful accounts for machine tools.
48
General Bearing Corporation and Subsidiaries
================================================================================
Schedule II - Valuation and Qualifying Accounts, continued (In Thousands)
Inventory Allowances
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Add Subtract
--- --------
Balance at Charged to
Beginning of Costs and Balance at
Description Period Expenses Deductions End of Period
----------- ------ -------- ---------- -------------
Year Ended December 30, 2000
Allowance for slow moving and
obsolescence $1,744 $329 $39 $2,034
------ ---- --- ------
$1,744 $329 $39 $2,034
====== ==== === ======
Year Ended December 29, 2001
Allowance for slow moving and
obsolescence $2,034 $287 $0 $2,321
------ ---- -- ------
$2,034 $287 $0 $2,321
====== ==== == ======
Year Ended December 28, 2002
Allowance for slow moving and
obsolescence $2,321 $712 $1,229 (1) $1,804
------ ---- ------ -- ------
$2,321 $712 $1,229 $1,804
====== ==== ====== ======
Note: (1) Includes the impairment recognized in the amount of $1,119,000
relating to the writedown of inventory reserves for machine tools.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
49
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.....................79 Chairman of the Board of Directors
David L. Gussack.......................46 President and Director
Robert E. Baruc........................51 Director
Peter Barotz...........................75 Director
Nina M. Gussack........................47 Director
Barbara M. Henagan.....................44 Director
Ronald Fetzer..........................39 Director
Thomas J. Uhlig........................53 Executive Vice President
Corby W. Self..........................46 Vice President - Ball & Roller Operations
William F. Kurtz.......................45 Vice President - Director of Operations
Joseph J. Hoo..........................68 Vice President - Advanced Technology and China Affairs
John E. Stein, Esq.....................46 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 Machinery Company ("World") and a member of Realty. See "Certain
Relationships and Related Transactions". Seymour I. Gussack's son is David L.
Gussack, President of the Company and a Director. Seymour I. Gussack is also the
father of Nina M. Gussack, 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 Shanghai General
Bearing Co., Ltd. ("SGBC") and Ningbo General Bearing Co., Ltd. ("NGBC") . He
also is a Director of World and a member 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 and David L. Gussack is the brother of Nina M.
Gussack, Director.
THOMAS J. UHLIG became Executive Vice President in 2003. Mr. Uhlig came to
General Bearing Corporation from The Timken Company where he was Vice President
of the Timken Super Precision Group from 1998 to 2002. His prior experiences
include senior management positions as President of Johnstown America
Corporation, Director of Manufacturing for Timken's North and South America
Operations and President of MPB Corporation. Mr. Uhlig holds BS and MBA degrees
from the University of Rhode Island.
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 University of Japan (B.S. in
Engineering) and University of Michigan (M.S.E. in Metallurgy and Engineering).
50
CORBY W. SELF has served as Vice President - Ball & Roller Operations
since January 2002. Prior to his appointment, Mr. Self spent eleven years at NN
Inc., a manufacturer of precision steel balls and rollers. There he progressed
from Quality Management to Operations Management, with full responsibility for
four plants. His early experience included quality management positions with
Eaton Corporation and CMI Corporation. Mr. Self obtained a BS in Computer
Science / Management from Johnson and Wales University in 1984.
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 August 2001 to present Mr. Baruc has been President of Screen Media Films,
a feature film acquisition and marketing company, which distributes to the U.S.
home video market through Universal Studios Home Entertainment. From August 1993
to December 2000 Mr. Baruc was President and CEO of A-Pix Entertainment an
independent distributor of film and television programming. He was also
Executive Vice President from 1994 to 1998 and Co-President from 1999 to 2000 of
A-Pix's parent company Unapix Entertainment Inc. Mr. Baruc was President of two
other home video distribution companies, Triboro Entertainment from 1992 to 1993
and Academy Entertainment from 1986 to 1991. 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. Ms. 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. Ms.
Henagan is a graduate of Princeton University and Columbia University's MBA
program.
RONALD FETZER was elected a Director of the Company on April 9, 2003. Mr.
Fetzer is and has been Director of Accounting and Finance and Controller at Bill
Blass, Ltd., New York, NY, a fashion and licensing company, for the past 3
years. Mr. Fetzer, who is a licensed and practicing CPA in New York, is a member
of the NYS Society of CPA's and a member of the American Institute of CPA's.
Prior to his employment at Bill Blass, Ltd., Mr. Fetzer was a senior manager at
the accounting firm of Urbach, Kahn & Werlin LLP for approximately three years.
Mr. Fetzer received an MBA in International Finance from Baruch College in 1991
and BA in Accounting and Economics from Queens College in 1985.
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.
51
The Audit Committee of the Board of Directors consists of three directors,
Peter Barotz, Ron Fetzer 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 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 proposed stock
trades by key insiders in accordance with the Company's Procedures and
Guidelines Governing Insider Trading and Tipping.
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 28, 2002:
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 2002 318,510 21,586 -- 100,000 5,600 (2)
2001 315,495 75,287 -- 20,000 5,620 (3)
2000 307,789 62,213 -- -- 25,000 (4)
Joseph J. Hoo, V.P. Advanced 2002 132,712 8,994 -- -- --
Technology & China Affairs 2001 131,456 6,370 -- 5,000 --
2000 128,281 12,345 -- -- --
William F. Kurtz, V.P. Director 2002 121,580 8,486 -- -- --
of Operations 2001 112,304 5,442 -- 5,000 --
2000 104,817 12,078 -- -- --
Corby W. Self, V.P. Ball * 2002 141,476 10,139 -- 20,000 --
and Roller Operations
John E. Stein, Secretary & 2002 127,404 8,634 -- -- --
General Counsel 2001 126,198 11,115 -- 5,000 --
2000 123,116 14,220 -- -- --
* - Fiscal 2002 was the first year of reportable compensation.
52
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
- ---------------------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
December 28, 2002 at December 28, 2002
----------------------------------------------
Shares Acquired on
Exercise Value Realized Exercisable/ Exercisable/
Name # $ Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
David L Gussack 0 0 125,000 / 15,000 N/A
Corby W. Self 0 0 0 / 20,000 0 / $200
Joseph J. Hoo 0 0 17,250 / 7,750 N/A
William F. Kurtz 0 0 13,050 / 6,750 N/A
John E. Stein 0 0 13,250 / 6,750 N/A
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 2002, Seymour I. Gussack, Chairman of the Board of Directors, received
salary of $249,500, bonus of $16,908, other compensation of $5,600 (2) and was
granted 5,000 stock options. In 2003, 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) Board compensation: 2,000 shares at $2.80 per share, issued in 2003.
(3) Board compensation: 2,000 shares at $2.81 per share, issued in 2002.
(4) Board compensation: 4,000 shares at $6.25 per share, issued in 2001 (2,000
shares earned in 1999 & 2,000 shares earned in 2000).
53
OPTION / SAR GRANTS IN LAST FISCAL YEAR
Potential Realized Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
- ---------------------------------------------------------------------------------------------------------------------
Percent of
Number of total
securities options/ SARS Exercise Expiration
Name underlying granted to of base date 5% 10%
option / employees in price ($) / $ ($) / $
SARS granted fiscal year ($/Sh)
(#)
- ---------------------------------------------------------------------------------------------------------------------
David L. Gussack 100,000 80% $3.08 02/11/2012 $193,700 $491,000
- ---------------------------------------------------------------------------------------------------------------------
Seymour I. Gussack 5,000 4% $3.08 02/11/2012 $ 9,685 $ 24,550
- ---------------------------------------------------------------------------------------------------------------------
Corby W. Self 20,000 16% $2.90 01/22/2012 $ 36,400 $ 92,400
- ---------------------------------------------------------------------------------------------------------------------
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 726,974 (2,3) 18.1%
Estate of Harold Geneen 615,284 15.9%
Nina M. Gussack 616,272 (2,4) 15.9%
Seymour I. Gussack 327,486 (2,5) 8.4%
Amy Gussack 380,970 (2,6) 9.8%
Robert E. Baruc 341,302 (2,7) 8.8%
Joseph Hoo 80,829 (8) 2.1%
William F. Kurtz 16,500 (9) *
Peter Barotz 9,000 (10) *
Barbara Henagan 11,750 (11) *
John E. Stein 15,500 (12) *
Corby W. Self 4,000 (13) *
All Directors and Executive
Officers as a Group 2,134,613 52.4%
* 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.
54
(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 members 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 130,000 vested options as of
June 30, 2003.
(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 vested options as of June
30, 2003.
(5) Includes 7,500 vested options as of June 30, 2003.
(6) Includes 13,080 shares owned by her spouse.
(7) Includes 300,664 shares owned by his spouse, 17,956 shares owned by his
children over which he has voting power, and 5,000 vested options as of June 30,
2003.
(8) Includes 21,000 vested options as of June 30, 2003.
(9) Includes 16,300 vested options as of June 30, 2003.
(10) Includes 5,000 vested options as of June 30, 2003.
(11) Includes 3,750 vested options as of June 30, 2003.
(12) Includes 15,500 vested options as of June 30, 2003.
(13) Includes 4,000 vested options as of June 30, 2003.
Equity Compensation Plan Information
- ----------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- ----------------------------------------------------------------------------------------------------------------------
Number of securities
remaining available for
Number of securities to be Weighted average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
Plan category outstanding options, options, warrants and rights (excluding securities
warrants and rights reflected in column (a))
- ----------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 382,800 $5.00 91,000
- ----------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders - - -
- ----------------------------------------------------------------------------------------------------------------------
Total 382,800 $5.00 91,000
- ----------------------------------------------------------------------------------------------------------------------
55
Item 13. Certain Relationships and Related Transactions
ACQUISITION OF WORLD
In July 2000, General, acquired 100% of 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 held interests in 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.
Net shares issued (190,000) 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 shares 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 369,170
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 shares received by
children.
56
LEASES WITH REALTY
The Company leases a facility located at West Nyack, New York comprising
189,833 square feet owned by Realty, whose members 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 foot (or
$1,026,000) annually effective through October 31, 2002. The November 2002
increase amounted to 6% of the preceding year, resulting in rent of $5.7288 per
square foot (or $1,088,000) annually effective through October 31, 2003. The
Company and Realty are currently in negotiations on terms of a new lease to take
effect on expiration of the current lease.
TAX SHARING AGREEMENT
General was included in the consolidated federal income tax returns filed
by World during all periods in which it was 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 returns 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
payments with respect to federal income tax liabilities and benefits arising
during the Affiliation Years. Under the Tax Sharing Agreement, General has paid
to World an amount equal to General's share of World's consolidated federal
income tax liability, generally determined 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 periods, in each case net of any amounts
theretofore paid or credited by World or General to the other with respect
thereto. Since the acquisition of World by General, the Company has filed a
consolidated Federal income tax return.
XEROX SETTLEMENT
From 1995 through May 2001, the Company and Gussack Realty Company ("Realty")
were plaintiffs and counterclaim defendants in an action against Xerox for
contamination to real property owned by Realty and previously leased by the
Company from Realty. The action resulted in a judgment against Xerox for
$1,111,483 (including sanctions awarded of $27,898) which, together with
interest of $883,048 amounted to a total recovery of $1,994,530. The jury
rejected Xerox's counterclaim in its entirety.
Inasmuch as the judgment against Xerox was expressly for damage to Realty's
property, and Realty expended $2.5 million in both the prosecution of Realty's
and the Company's claims, and defense of Xerox's counterclaims against Realty
and the Company, on May 29, 2001, the Company and Realty entered into an
agreement whereby (i) the Company waived any interest in the judgment, (ii) the
Company agreed to reimburse Realty $763,387 over the next four years with
interest at 8.4% per annum from the date of the agreement, representing 30% of
the litigation costs in the action and (iii) Realty released the Company from
any further claims for indemnification for litigation expenses in connection
with the action. Even though the Company was not legally or contractually
obligated to reimburse GRC, a related party, the Company agreed to enter into
the reimbursement agreement because the Company believed it was fair and
equitable to do so as Realty had paid legal expenses for the benefit of the
Company. The reimbursement is being paid to Realty in the form of additional
rent payments by the Company of $18,780 per month for 48 months beginning in
June, 2001. The entire amount of the reimbursement was charged to operations in
fiscal 2001. At December 28, 2002, the Company has paid $357,000 toward this
agreement.
57
Item 14. Controls and Procedures
Within the 90 days prior to the filing of this report, General's
management, including the President and Controller, conducted an evaluation of
the effectiveness of the Company's disclosure controls and procedures pursuant
to Exchange Act Rule 13a-14. Based upon that evaluation, the President and the
Controller concluded that such disclosure controls and procedures are effective
in alerting them on a timely basis to material information relating to General
required to be included in General's periodic filings under the Exchange Act.
There have been no significant changes in internal controls or in factors that
could significantly affect internal controls, including any corrective actions
with regard to significant deficiencies and material weaknesses, subsequent to
the date the President and Controller completed their evaluation.
PART IV
Item 15. 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 8,
2003.
Consolidated Balance Sheets for years ended December 28, 2002 and
December 29, 2001.
Consolidated Statements of Operations for the years ended December
28, 2002, December 29, 2001 and December 30, 2000.
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 28, 2002, December 29, 2001 and December 30,
2000.
Consolidated Statement of Cash Flows for the years ended December
28, 2002, December 29, 2001 and December 30, 2000.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules (included pursuant to Item 15 on pages
48-49 of this report):
Report of Certified Public Accountants dated April 8, 2003.
Schedule II - Valuation and Qualifying Accounts
(a) 3. Exhibits:
Reference is made to the Exhibit Index commencing on page 62, filed
pursuant to Item 14(c).
(b) Reports on Form 8-K:
None.
58
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
9, 2003.
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 9, 2003.
Signatures Title Date
---------- ----- ----
/s/ Seymour I. Gussack Chairman of the Board of April 9, 2003
- ------------------------------- Directors -------------
Seymour I. Gussack
/s/ David L. Gussack President and Director April 9, 2003
- ------------------------------- (Principal Executive Officer) -------------
David L. Gussack
/s/ Barbara M. Henagan Director April 9, 2003
- ------------------------------- -------------
Barbara M. Henagan
/s/ Nina M. Gussack Director April 9, 2003
- ------------------------------- -------------
Nina M. Gussack
/s/ Peter Barotz Director April 9, 2003
- ------------------------------- -------------
Peter Barotz
/s/ Robert E. Baruc Director April 9, 2003
- ------------------------------- -------------
Robert E. Baruc
/s/ Ronald Fetzer Director April 9, 2003
- ------------------------------- -------------
Ronald Fetzer
59
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, David L. Gussack, President of General Bearing Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of General Bearing
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's Board of Directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 9, 2003
/s/ David L. Gussack
- --------------------
David L. Gussack
President
60
CERTIFICATION OF THE CONTROLLER
I, Rocky Cambrea, Controller of General Bearing Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of General Bearing
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's Board of Directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 9, 2003
/s/ Rocky Cambrea
- -----------------
Rocky Cambrea
Controller
61
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, 1998, 1999,
2000 and 2001.
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
10.2 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
10.5 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
10.19 Board Member Compensation Plan
10.20 Credit Agreement dated December 20, 1999 between KeyBank
National Association and the Company
10.21 List of Subsidiaries of the Company
10.22 * Amendment number 1 to the Credit Agreement between KeyBank
National Association and the Company
10.23 * Amendment number 2 to the Credit Agreement between KeyBank
National Association and the Company
62
10.24 * Extension of the Credit Agreement between KeyBank National
Association and the Company
99.2 * Certification of the Chief Executive Officer and the
Controller
63