10-Q 1 e400696_10q-gbc.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended July 3, 2004 OR |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from .......... to .......... Commission file Number 0-22053 GENERAL BEARING CORPORATION --------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2796245 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 44 High Street, West Nyack, New York 10994 ------------------------------------ ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (845) 358-6000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock $.01 par value per share ------------------------------------ (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes |_| No Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). |_| Yes |X| No At August 10, 2004, the Registrant had issued 7,102,200 shares of common stock, $.01 par value per share, and had outstanding 3,767,972 shares. CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements, which are statements other than those of historical fact, including, without limitation, ones identified by the use of the words: "anticipates," "estimates," "believes," "expects," "intends," "plans," "predicts," and similar expressions. In this Quarterly Report such statements may relate, among other things, to the recoverability of deferred taxes, likely industry trends, the continued availability of credit lines, the suitability of facilities, access to suppliers and implementation of joint ventures and marketing programs. Such forward-looking statements involve important risks and uncertainties that could cause actual results to differ materially from those expected by the Company, and such statements should be read along with the cautionary statements accompanying them and mindful of the following additional risks and uncertainties possibly affecting the Company: the possibility of a general economic downturn, which is likely to have an important impact on historically cyclical industries such as manufacturing; significant price, quality or marketing efforts from domestic or overseas competitors; the loss of, or substantial reduction in, orders from a major customer; the loss of, or failure to attain additional quality certifications; changes in U.S. or foreign government regulations and policies, including the imposition of antidumping orders on the Company or any of its suppliers; a significant judgment or order against the Company in a legal or administrative proceeding; and potential delays in implementing planned sales and marketing expansion efforts and the failure of their effectiveness upon implementation. GENERAL BEARING CORPORATION QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JULY 3, 2004 TABLE OF CONTENTS

1 FINANCIAL STATEMENTS OF GENERAL BEARING CORPORATION AND SUBSIDIARIES Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands - Except for Shares and Per Share Data)

See accompanying notes to condensed consolidated financial statements 2 FINANCIAL STATEMENTS OF GENERAL BEARING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands - Except for Shares and Per Share Data) (Unaudited)

See accompanying notes to condensed consolidated financial statements 3 FINANCIAL STATEMENTS OF GENERAL BEARING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) (Unaudited)

See accompanying notes to condensed consolidated financial statements 4 FINANCIAL STATEMENTS OF GENERAL BEARING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)

See accompanying notes to condensed consolidated financial statements 5 GENERAL BEARING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of The accompanying unaudited condensed consolidated Presentation financial statements for General Bearing Corporation and subsidiaries ("the Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the twenty-six weeks ended July 3, 2004 are not necessarily indicative of the results that may be expected for the year ending January 1, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2004. 2. Change in In April 2004, General Bearing Corporation ("General") Ownership in invested $1,000,000 in Shanghai General Bearing Co. Ltd. Joint Venture ("SGBC"), effectively increasing its ownership in SGBC from 43.55% to 50%. SGBC is a partnership between General of New York and Shanghai Roller Bearing Factory of Shanghai, China. The April - June 2004 results of SGBC have been fully consolidated in the second quarter of 2004. 3. Discontinued The Company's Board of Directors and management adopted Operations a plan in December 2002 to discontinue the operations of the machine tool segment by sale of the assets during 2003. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets", prior year statements of operations of the Company have been reclassified to segregate discontinued operations from continuing operations. In December 2003, the Company completed management's previously adopted plan and disposed of the assets and liabilities of General Ball & Roller, Inc. (formerly known as WMW Machinery Company) and World Machinery Group's ("WMG") interest in World Machinery Works, S.A., to two separate entities that are majority owned by an officer of General Bearing Corporation ("General"). The other assets of WMG were not successfully disposed of during 2003 and management currently does not anticipate disposing of them in the foreseeable future. While collectively immaterial, the remaining assets and liabilities of WMG, have been reclassified back to continuing operations in 2003. 6 GENERAL BEARING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Inventories Inventories consist of the following: (In Thousands)

5. Earnings per Basic earnings per share includes no dilution and is Share computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the dilution which would occur upon the exercise of stock options. A reconciliation of the shares used in calculating basic and diluted earnings per share follows:

7 GENERAL BEARING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the twenty-six weeks ended July 3, 2004 and June 28, 2003, 245,800 and 245,800 options outstanding, respectively, were anti-dilutive. For the thirteen weeks ended July 3, 2004 and June 28, 2003, 245,800 and 245,800 options outstanding, respectively, were anti-dilutive. 6. Derivative The Company follows Statement of Financial Accounting Financial Standards No. 133 ("SFAS 133") "Accounting for Instruments Derivative Instruments and Hedging Activities", as amended, and interpreted, which requires that all derivative instruments be recorded on the balance sheet at their fair value. In order to manage it's exposure to changes in interest rates, the Company has entered into an interest rate swap agreement to hedge a portion of its total long- term debt that is subject to variable interest rates. This agreement is considered to be a hedge against changes in the amount of future cash flows associated with the interest payments on variable rate debt obligations. For the twenty-six weeks ended July 3, 2004 and June 28, 2003, expenses recognized in earnings relating to the interest rate swap totaled $186,000 and $207,000, respectively and are included in the Statement of Operations in "Other expenses, net". Any amounts reported in "Comprehensive Income" will be reclassified to earnings over the term of the agreement, through 2007. 7. Litigation Except as explained in Part II of this report, there have been no material changes in litigation since the events reported in the Company's 10-Q for the fiscal quarter ended April 3, 2004. 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition There are no non - GAAP financial measures provided in this report. Business Overview Prior to 2004, General Bearing Corporation ("General") and subsidiaries (collectively, the "Company") operated in two business segments: Bearings ("Continuing Operations") and Machine Tools ("Discontinued Operations"). Based on several years of disappointing performance of the machine tools segment and the Company's desire to focus its resources on its core business, the Company's Board of Directors and management adopted a plan in December 2002 to discontinue the operations of the machine tool segment by sale of the assets during 2003. Accordingly, pursuant to Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets", the Company's prior period financial statements have been reclassified to segregate discontinued operations from continuing operations. In December 2003, the Company completed management's previously adopted plan and disposed of the assets and liabilities of General Ball & Roller, Inc. (formerly known as WMW Machinery Company) and its interest in World Machinery Works, S.A., to two separate entities that are majority owned by an officer of General. In April 2004, General increased its ownership in Shanghai General Bearing Co. Ltd. ("SGBC") from 43.55% to 50%. Due to this increased ownership, the financial statements of SGBC have been consolidated for the first time beginning in April 2004. Continuing Operations The Company manufactures and distributes a variety of bearings and bearing components under the Hyatt(R) and The General(R) trademarks. The Company supplies original equipment manufacturers ("OEMs") and distributors. The Company's products, sold principally in the United States ("U.S.") and Asia, are used in a broad range of applications, including automobiles, railroad cars, locomotives, trucks, heavy duty trailers, office equipment, machinery and appliances. General has entered into six joint ventures (five with manufacturers in the Peoples Republic of China ("PRC")) to enable it to manufacture high quality, low cost bearings and bearing components. General obtains a majority of its bearing and component requirements from its manufacturing plants in the PRC. Trends and Uncertainties: General's business model is based on providing low-cost, high-precision bearing products to predominantly North American customers. The continued cost consciousness of this customer base is a positive trend for the Company, which the Company believes has resulted in increased sales in 2003 - 2004 and the increased sales volume to the automotive market over the past three years. The Company's low-cost Chinese operations provide a competitive advantage for high-precision bearing products. The Company believes this competitive advantage has created opportunities for the Company to grow in 2004 and the future. The Company has attributed the decline in sales to distributors over the past several years to the downturn in U.S. manufacturing. The Company believes there are indications that there will be a recovery in U.S. manufacturing and that its sales will grow as a result of such recovery. 9 The major competition for the Company's lower cost products comes from three evolving trends: 1. Established higher cost competitors also moving their production to low-cost areas, such as China, 2. Customers establishing "buying" functions in China to pursue lower cost direct purchases, and 3. Customers moving their complete assembly processes from North America to China or other low-cost regions. Other trends, events and areas of uncertainty which could materially affect the Company include the following: 1. The increased global cost of steel has significantly increased the cost of materials for manufacturing bearings. Additionally, the high demand for steel in China has created a price increase in China that is even greater than the price increase in North America. While the Company has been able to collect material surcharges to offset the increased cost, to some extent, the inability to collect such material surcharges or any significant limitation on it's ability to collect such surcharges could materially and adversely affect the Company's operating income and liquidity. 2. The Company's business is based on low-cost, high-quality products from its Chinese operations. The Company's cost of goods is based in part on the valuation of the Chinese RMB versus the U.S. Dollar. Should there be an adverse change in the exchange rate of the RMB against the U.S. Dollar, GBC's competitive position, operating income and cash flow will be adversely impacted. 3. Several major North American customers have slowed their payments over the past year or two. Should a significant portion of the Company's current customer base also move to slow payments, there could be a material adverse impact on the Company's liquidity. 4. The Company's dependence on Chinese products for the supply of bearings and bearing components creates an uncertainty and concentration risk. If for any reason the Company was unable, or limited in its ability to continue to ship products from China, it could experience a material disruption in supply, which would materially adversely affect the Company's operations and liquidity. 5. Expected increases in sales volume may not result in a proportional increase in cash flow as the Company may be required to use cash for working capital associated with the growth in sales. 10 Results of Operations Sales. Sales for the second fiscal quarter ended July 3, 2004 ("Q-2 2004") of $21,526,000 represents a 33.8% increase compared to the second fiscal quarter ended June 28, 2003 ("Q-2 2003"). A large portion of the sales increase is due to the consolidation of SGBC's sales. Additionally, the Company experienced increases in sales of tapered roller bearings for heavy duty truck trailers, drive line components to the automotive industry, precision balls, tapered journal bearings to the railroad industry, heavy duty aftermarket, and distribution. Sales for the twenty-six weeks ended July 3, 2004 ("2004") of $39,831,000 represents a 23.4% increase compared to the twenty-six weeks ended June 28, 2003 ("2003"). A large portion of the sales increase is due to the consolidation of SGBC's sales. Additionally, there were increases in sales of drive line components to the automotive industry, tapered roller bearings for heavy duty truck trailers, precision balls, and distribution. Gross Profit. Gross profit for Q-2 2004 of $5,818,000 represents a 19.6% increase compared to Q-2 2003. As a percentage of sales, gross profit (GP%) was 27.0% for Q-2 2004 compared to 30.3% for Q-2 2003. The decrease in GP% was mainly due to material cost increases as a result of higher steel costs, the effect of the Chinese government reducing the Value Added Tax credit for exports by 4%, $308,000 in increased inventory provisions, and changes in product mix. Gross profit for 2004 of $10,754,000 represents a 9.2% increase compared to 2003. As a percentage of sales, GP% was 27.0% for 2004 compared to 30.5% for 2003. The decrease in GP% was mainly due to material cost increases as a result of higher steel costs, the effect of the Chinese government reducing the Value Added Tax credit for exports by 4%, $450,000 in increased inventory provisions, and changes in product mix. Selling, General and Administrative Expenses. Selling, general and administrative expenses (S,G&A) as a percentage of sales were 18.7% in Q-2 2004 compared to 20.2% in Q-2 2003. S,G&A increased by $769,000 mainly due to the consolidation of SGBC's expenses, increases in salaries, bad debts, professional fees and travel expenses. S,G&A as a percentage of sales were 18.8% in 2004 compared to 19.6% in 2003. S,G&A increased by $1,137,000 mainly due to the consolidation of SGBC's expenses, increases in salaries, bad debts, professional fees, and travel expenses. Operating Income. Operating income for Q-2 2004 of $1,802,000 represents an 11.3% increase compared to Q-2 2003 due to higher sales volume, partially offset by lower GP% and higher S,G&A. Operating income for 2004 of $3,285,000 represents a 6.5% decrease compared to 2003 due to higher S,G&A and lower GP%, partially offset by higher sales volume. 11 Other Expense, net. Other expense, net was $412,000 in Q-2 2004 compared to $276,000 in Q-2 2003 and is comprised of miscellaneous non-operating income and expenses, interest expense and equity in income of affiliates ("equity income") as follows: (In thousands) Second Quarter 2004 2003 ---------------------- Other non-operating (income) expenses, net $ 12 $ (35) Interest expense, net 462 392 Equity (income) in affiliates (62) (81) ----- ----- $ 412 $ 276 Other expense, net was $781,000 in 2004 compared to $336,000 in 2003 as follows: (in thousands) Six Months 2004 2003 ---------------------- Other non-operating (income) expenses, net $ 43 $ (41) Interest expense, net 859 562 Equity (income) in affiliates (121) (185) ----- ----- $ 781 $ 336 Pursuant to requirements imposed in 1993 by the United States Office of Foreign Assets Control ("OFAC"), at the end of 2002 the Company carried a net payable ("IKL payable") to General IKL Corp., an affiliate. The requirement arose out of sanctions imposed by the U.S. government on the countries comprising the former Republic of Yugoslavia, "freezing" certain assets in the United States. In February 2003, OFAC "unfroze" assets affected by the sanctions and the Company reduced a significant portion of the IKL payable which the Company disputed resulting in a $238,000 reduction in interest expense as of March 29, 2003. Income Tax. The Company recorded income tax expense of $405,000 in Q-2 2004 compared to $551,000 in Q-2 2003. The effective income tax rate was 29.1% in Q-2 2004 compared to 41.0% in Q-2 2003. The Company's effective income tax rate was 31.5% in 2004 compared to 34.6% in 2003. Net Income. Net income for Q-2 2004 increased by 29.4% to $691,000 or $.18 per basic and diluted share, from $531,000 or $.14 per basic and diluted share in Q-2 2003. The increase is primarily due to higher sales volume, partially offset by lower GP% and higher S,G&A. Net income for 2004 decreased 13.9% from 2003 to $1,378,000 or $.37 per basic and diluted share, from $1,600,000 or $.41 per basic and diluted share in 2003 mainly due to higher S,G&A, higher Other expenses, net, and lower GP%, partially offset by increased sales volume. 12 Financial Condition, Liquidity and Capital Resources During the periods presented, the Company's primary sources of capital have been net cash provided by operating activities and a Revolving Credit Facility with KeyBank National Association ("Revolving Credit Facility"). The primary demands on the Company's capital resources have been investments in, and advances to, affiliates (joint ventures) and fixed asset purchases made to broaden the Company's product offering and improve operations. At July 3, 2004 and January 3, 2004, the Company had working capital of $21,266,000 and $21,709,000, respectively. Cash provided by operating activities in 2004 was $6,346,000. Cash provided by net income before depreciation and amortization, reduced inventory, and reduced prepaid expenses and other assets primarily due to the collection of taxes, was partially offset by increased accounts receivable and due from affiliates. Cash provided by investing activities in 2004 was $614,000. The Company invested cash of $807,000 in SGBC as part of the investment required to increase General's ownership from 43.55% to 50%. As a result, $1,678,000 of cash was added to the Company's Consolidated Balance Sheet. During the six months ended July 3, 2004, the Company used cash of $262,000 for capital expenditures. Cash used in financing activities in 2004 was $4,516,000. During 2004, the Company had net decreases in debt under its Revolving Credit Facility of $2,362,000, net decreases in Notes payable - banks of $2,040,000 and made $114,000 in payments under its capital lease facility. At July 3, 2004, the Company had outstanding debt of $6,819,000 under its Revolving Credit Facility, which expires on July 31, 2006, and had further availability of approximately $14.5 million. The Company is in compliance with all of its loan covenants. The Company has not repurchased any shares of it's common stock in 2004. The Company has purchased 410,228 shares of it's common stock for a cost of $1,472,000 since the inception of the Company's Stock Repurchase Program ("the Program") on January 11, 2000. Of the 410,228 shares repurchased, 26,000 have been reissued, primarily to the Board of Directors as part of their annual compensation. The Company believes that funds generated from continuing operations, capital lease financing and borrowing under the existing and any future revolving credit facilities will be sufficient to finance the Company's investment commitments, anticipated working capital and capital expenditure requirements for at least the next 24 months. The Company's operating cash flow could be adversely affected if there was a decrease in demand for the Company's products. 13 The table and notes below describe the Company's contractual obligations related to its liquidity. (In Thousands)

The amount outstanding under General's revolving line of credit decreased by $2,711,000 to $6,819,000 during the second quarter primarily as a result of cash generated by operating activities as well as the receipt of dividends. Notes payable - banks increased by $2,713,000 to $12,453,000 and represents debts of the Company's joint ventures, for which General is not liable. The increase in Notes payable - banks is mainly due to the consolidation of SGBC. It is anticipated that these debts will be paid by the joint ventures, to the extent possible, from funds generated from their operations and the balance, if any, refinanced with new bank debt. 14 Off Balance Sheet Arrangements The Company believes that all material off balance sheet arrangements have been included in the tabular disclosure of contractual obligations. Item 3. Quantitative and Qualitative Disclosure about Market Risk The Company is subject to market risk primarily associated with changes in interest rates and foreign currency exchange rates. In order to manage the volatility relating to interest rates, the Company has entered into an interest rate swap agreement. In order to manage the volatility relating to foreign currency exchange rates the Company denominates substantially all purchase and sale transactions in U.S. dollars. The Company does not anticipate any material changes in its primary market risk exposures in the near future. The Company does not execute transactions or hold derivative financial instruments for trading purposes. Interest Rate Risk The Company's primary market risks are fluctuations in interest rates and variability in interest rate spread relationships (i.e., prime to LIBOR spreads) on its bank debt and interest rate swap. As of July 3, 2004, the Company had $5,850,000 outstanding subject to an interest rate swap. This swap is used to convert floating rate debt relating to the Company's revolving credit agreement to fixed rate debt to reduce the Company's exposure to interest rate fluctuations. The net result was to substitute a fixed interest rate of 9.17% for the variable rate. The swap amortizes by $75,000 per month and terminates in December 2007. Under the interest rate environment during the twenty-six weeks ended July 3, 2004, the Company's interest rate swap agreement resulted in additional expense of approximately $186,000. 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.

15 The following table provides information about the Company's variable rate debt.

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. General purchases approximately $2,500,000 of product monthly from its Chinese joint ventures, which use proceeds thereof, to satisfy locally incurred liabilities in Renminbi (RMB). Had there been an adverse 10% fluctuation between the exchange rate of the U.S. dollar and the RMB, it would have resulted in a potential loss of earnings of approximately $1,500,000 for the twenty-six weeks ended July 3, 2004. Item 4. Controls and Procedures As of the end of the period covered by this Report, the Company has evaluated the effectiveness of the design and operation of its "disclosure controls and procedures" ("Disclosure Controls"). This evaluation ("Controls Evaluation") was done under the supervision and with the participation of management, including the Chief Executive Officer ("CEO") and Controller. The Company's management, including the CEO and Controller, does not expect that its Disclosure Controls or its "internal control over financial reporting" ("Internal Controls") will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its Internal Controls to enhance, where necessary, its procedures and controls. 16 Conclusions: Based upon the Controls Evaluation, the CEO and Controller have concluded that, subject to the limitations noted above, the Disclosure Controls are effective in reaching a reasonable level of assurance that management is timely alerted to material information relating to the Company during the period when its periodic reports are being prepared. In accordance with SEC requirements, the CEO and Controller note that, since the date of the Controls Evaluation to the date of this report, there have been no significant changes in Internal Controls or in other factors that could significantly affect Internal Controls, including any corrective actions with regard to significant deficiencies and material weaknesses, except as follows: Following the Company's discovery of the conduct at SGBC which formed the basis of the lawsuit and arbitration proceeding described in the Company's Annual Report on Form 10-K dated April 19, 2004, the Company has taken the following measures: (a) replacement of the individuals who it determined were involved in the wrongful conduct; (b) implementation of a dual signature requirement for certain SGBC expenditures, and (c) the hiring of a Financial Controller, in China, responsible for financial oversight and reporting of the joint ventures. PART II Item 1. Legal Proceedings There have been no material developments in any of the Company's legal matters subsequent to the events reported in the Company's 10-Q filed May 18, 2004. Item 5. Other Events On April 28, 2004, the Company reported that it received a letter from a group of managers and current stockholders led by Seymour I. Gussack, Chairman of the Company's Board of Directors, David L. Gussack, Chief Executive Officer and Director, and Directors Robert E. Baruc and Nina M. Gussack (the "Management Group"), expressing the Management Group's consideration of taking the Company private through a tender offer for all of the outstanding shares of the Company not owned by the Management Group. On July 16, 2004, the Company announced that GBC Acquisition Corp., a company controlled by Seymour Gussack and David Gussack, was commencing a cash tender offer to acquire all of the outstanding common stock of the Company not owned by the Management Group, at an offer price of $4.00 per share. On August 16, 2004, GBC Acquisition Corp. announced that the cash tender offer expired in accordance with its terms. The tender offer was subject to a number of conditions, including the tender of a sufficient number of shares such that, GBC Acquisition Corp. would own at least 90% of the outstanding shares. This condition was not satisfied and no shares were purchased in the tender offer. 17 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31.1 Certification of the Chief Executive Officer required by Rule 13a - 14(a) or 15d - 14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002. 31.2 Certification of the Controller required by Rule 13a - 14(a) or 15d - 14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002. 32. Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. (b) Current reports on Form 8-K On April 28, 2004, the Company filed a Form 8-K reporting that it received a letter from a group of managers and current stockholders led by Seymour I. Gussack, Chairman of the Company's Board of Directors, David L. Gussack, Chief Executive Officer and Director, and Directors Robert E. Baruc and Nina M. Gussack, expressing the group's consideration of taking the Company private through a tender offer for all of the outstanding shares of the Company not owned by the group. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 17, 2004. GENERAL BEARING CORPORATION --------------------------- (Registrant) /s/ David L. Gussack ------------------------------------ David L. Gussack Chief Executive Officer /s/ Rocky Cambrea ------------------------------------ Rocky Cambrea Controller 19

GENERAL BEARING CORP 10-Q