UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 quarterly period ended March 31, 1997
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 0-2977
General Magnaplate Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1641813
------------------------------- ------------------
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification No.
1331 U.S. Route 1, Linden, New Jersey 07036
------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 862-6200
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 1, 1997:
Common Stock, No Par Value 2,465,897
- -------------------------- ------------------
(Class) (Number of Shares)
<PAGE>
INDEX OF DOCUMENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Accountants' Report
Balance Sheet - End of Current Quarter
Balance Sheet - End of Prior Fiscal Year
Statement of Income
Statement of Changes in Financial Position
Notes to Consolidated Financial Statements
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS - None
ITEM 4 - Submission of Matters to a Vote of Security Holders - None
ITEM 5 - Other Information - Press Release - Enclosed
ITEM 6 - Exhibits and Reports on Form 8-K - None
<PAGE>
MAURIELLO, FRANKLIN & LoBRACE
A Professional Corporation
Certified Public Accountants
45 Springfield Avenue, Springfield, New Jersey 07081
Telephone (201) 379-5400 Fax (201) 379-3696
ACCOUNTANTS' REVIEW REPORT
To The Board of Directors of
General Magnaplate Corporation:
We have reviewed the accompanying balance sheet of General Magnaplate
Corporation and Wholly-Owned Subsidiaries as of March 31, 1997 and the related
consolidated statement of stockholders' equity for the nine months ended March
31, 1997 and the related consolidated statements of income and cash flows for
the nine months ended March 31, 1997 and 1996, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of management of General Magnaplate
Corporation.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion on
the March 31, 1997 and 1996 statements.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order for them
to be in conformity with generally accepted accounting principles.
Our review was made for the purpose of expressing limited assurance
that there are no material modifications that should be made to the financial
statements in order for them to be in conformity with generally accepted
accounting principles. The supplementary information for the nine months ended
and three months ended March 31, 1997 and 1996 included in the accompanying
supplementary information is presented for supplementary analysis purposes. Such
information has been subjected to the inquiry and analytical procedures applied
in the review of the basic financial statements, and we are not aware of any
material modifications that should be made thereto.
The balance sheet for the year ended June 30, 1996 was audited by us,
and we expressed an unqualified opinion on it in our report dated August 9,
1996. We have not performed any auditing procedures on the balance sheet since
August 9, 1996.
/s/ Mauriello, Franklin & Lo Brace, P.C.
----------------------------------------
Mauriello, Franklin & Lo Brace, P.C.
April 23, 1997
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
ASSETS 1997 1996
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................ $ 884,790 $ 680,570
Marketable securities (Note 1) ........... 2,714,308 4,192,421
Accounts receivable--trade, net of
allowance for doubtful accounts of
$132,000 (June 30, 1996-$137,000) ...... 1,459,735 1,254,845
Inventories (Note 1) ..................... 272,536 273,073
Prepaid expenses ......................... 134,389 177,321
Other current assets ..................... 160,252 158,287
----------- -----------
Total current assets ................. $ 5,626,010 $ 6,736,517
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ............. 5,263,666 5,432,330
Cash surrender value of officers' life
insurance, net ........................... 664,162 664,162
Other assets (Note 3) ...................... 1,153,490 500,707
----------- -----------
Total assets ........................... $12,707,328 $13,333,716
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable ......................... $ 245,595 $ 437,113
Accrued liabilities (Note 5) ............. 338,880 559,903
Corporate income taxes payable ........... 153,513 70,560
------------ ------------
Total current liabilities .............. $ 737,988 $ 1,067,576
------------ ------------
Long-term liabilities:
Rent security deposit .................... $ 9,193 $ 7,877
Accrued deferred compensation (Note 6) ... 1,093,010 977,831
------------ ------------
Total long-term liabilities ............ $ 1,102,203 $ 985,708
------------ ------------
Total liabilities ...................... $ 1,840,191 $ 2,053,284
------------ ------------
Contingencies (Note 7)
Stockholders' equity:
Common stock--no par value
Authorized--5,000,000 shares
Issued and outstanding--2,471,797 shares
(June 30, 1996 - 2,634,797 shares) ..... $ 223,180 $ 223,180
Retained earnings ........................ 10,782,291 11,178,589
Foreign currency translation adjustment
(Note 1) ............................... (138,334) (121,337)
------------ ------------
Total stockholders' equity ............. $ 10,867,137 $ 11,280,432
------------ ------------
Total liabilities and
stockholders' equity ................. $ 12,707,328 $ 13,333,716
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1997
Foreign
Currency
Common Retained Translation
Stock Earnings Adjustment
----- -------- ----------
<S> <C> <C> <C>
Balance,
July 1, 1996 ............... $ 223,180 $ 11,178,589 $ (121,337)
Add--net income .............. -0- 1,035,449 -0-
Add--foreign currency
translation adjustment ...... -0- -0- (16,997)
Less--dividends paid ......... -0- (335,684) -0-
Less--purchase and retirement
of 163,000 treasury shares . -0- (1,096,063) -0-
--------- ------------ ------------
Balance, March 31, 1997 ...... $ 223,180 $ 10,782,291 $ (138,334)
========= ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended Three Months Ended
March 31, March 31,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross revenue:
Sales ....................... $7,712,118 $7,470,665 $2,737,640 $2,623,513
Royalty income .............. 232,276 203,999 67,283 67,587
Investment and other
income, net ............... 324,528 364,886 73,762 28,174
---------- ---------- ---------- ----------
$8,268,922 $8,039,550 $2,878,685 $2,719,274
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales ............... $3,274,116 $3,025,623 $1,189,661 $1,061,534
Selling and administration .. 2,932,954 2,837,470 981,174 881,592
Depreciation and amortization 437,069 448,236 149,568 147,560
Interest .................... 234 5,414 -- --
---------- ---------- ---------- ----------
$6,644,373 $6,316,743 $2,320,403 $2,090,686
---------- ---------- ---------- ----------
Income before corporate
income taxes ................ $1,624,549 $1,722,807 $ 558,282 $ 628,588
Corporate income taxes
(Notes 1 and 4) ............. 589,100 628,800 211,600 229,500
---------- ---------- ---------- ----------
Net income .................... $1,035,449 $1,094,007 $ 346,682 $ 399,088
========== ========== ========== ==========
Earnings per share
(Note 1) .................... $ .40 $ .40 $ .14 $ .15
========== ========== ========== ==========
Weighted average shares
outstanding ................. 2,570,650 2,742,767 2,504,244 2,704,344
========== ========== ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,035,449 $ 1,094,007
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ......................... $ 437,069 $ 448,236
Deferred taxes ........................................ (37,600) (58,500)
Accrued deferred compensation ......................... 115,179 129,782
Foreign currency translation adjustment ............... (16,997) 650
Provision for doubtful accounts ....................... 28,336 53,000
Increase (decrease) in cash resulting from changes in
current assets and liabilities:
Marketable securities .............................. 1,478,113 489,243
Accounts receivable ................................ (233,226) (117,772)
Other current assets ............................... 65,180 187,008
Accounts payable and accrued liabilities ........... (412,541) (136,229)
Corporate income taxes payable ..................... 82,953 (125,187)
Rent security deposit .............................. 1,316 --
----------- -----------
Total adjustments .................................. $ 1,507,782 $ 870,231
----------- -----------
Net cash provided by operating activities ............... $ 2,543,231 $ 1,964,238
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment .............. $ (264,975) $ (256,106)
Additions to patent costs and other assets ................ (93,963) (3,155)
Note receivable - officer ................................. (550,000) -0-
Installment collections - note receivable ................. 1,674 -0-
----------- -----------
Net cash used in investing activities ................... $ (907,264) $ (259,261)
----------- -----------
<PAGE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(continued)
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase and retirement of treasury stock ................. $(1,096,063) $ (678,256)
Dividends paid ............................................ (335,684) (273,404)
Reduction in long-term debt ............................... -0- (177,544)
----------- -----------
Net cash used in financing activities ................... $(1,431,747) $(1,129,204)
----------- -----------
Increase (decrease) in cash and cash equivalents ............ $ 204,220 $ 575,773
Cash and cash equivalents, beginning of period .............. 680,570 369,276
----------- -----------
Cash and cash equivalents, end of period .................... $ 884,790 $ 945,049
=========== ===========
Supplementary cash flow data:
Income taxes paid ......................................... $ 543,747 $ 814,597
Interest paid ............................................. $ 234 $ 5,414
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
General Magnaplate Corporation and its wholly-owned subsidiaries;
accordingly all intercompany transactions and balances have been
eliminated in consolidation.
Nature of Business
The Company is in one line of business. It provides
synergistic coatings and other related services to its customers'
products from five plants located in the United States and Canada.
Marketable Securities
All marketable securities are considered trading securities
and are valued at fair market value in accordance with SFAS No. 115.
Realized and unrealized gains and losses are reported in current period
income. Market value exceeded cost by $12,542 at March 31, 1997.
Inventories
Inventories consist principally of industrial supplies and
plating solutions which are valued at the lower of FIFO cost or market
and are included in Cost of Sales.
Depreciation and Amortization
Property, plant and equipment are stated at cost and
depreciation is provided principally on a straight line basis using
estimated service lives of 3-5 years for transportation equipment, 5-10
years for factory machinery and office equipment, and 10-39 years for
buildings and building improvements. Expenditures for renewals and
betterments are capitalized. Items of identifiable property which are
sold, retired, or otherwise disposed of are removed from the asset
accounts, and any gains or losses thereon are reflected in income.
Patents and trademarks are amortized on a straight line basis
over periods not exceeding 17 years.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies (Continued)
Corporate Income Taxes
Taxes are provided based on income reported for financial
statement purposes, including deferred taxes which are principally
provided due to temporary differences between financial and tax
reporting of certain revenue and expense items.
Company Earnings Per Share
Earnings per share of common stock have been computed based on
the weighted average number of shares outstanding during the period.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Foreign Currency Translation Adjustment
Assets and liabilities of the subsidiary operating in Canada
are translated into U.S. dollars using the exchange rate in effect at
the balance sheet date. Results of operations are translated using the
average exchange rate prevailing throughout the period. The effects of
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included as part of the Foreign
Currency Translation Adjustment component of shareholders' equity,
while gains and losses resulting from foreign currency transactions are
generally included in income.
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 financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2--Property, Plant and Equipment
Property, plant and equipment are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
----------- -----------
<S> <C> <C>
Land ................................... $ 805,350 $ 805,350
Buildings .............................. 3,366,208 3,366,208
Building improvements .................. 3,428,765 3,393,127
Factory machinery ...................... 4,641,207 4,465,319
Office equipment ....................... 904,719 865,614
Transportation equipment ............... 252,150 264,026
----------- -----------
Total .................................. $13,398,399 $13,159,644
Less--accumulated depreciation ......... 8,134,733 7,727,314
----------- -----------
Net .................................... $ 5,263,666 $ 5,432,330
=========== ===========
</TABLE>
Note 3--Other Assets
Other assets are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
---------- ----------
<S> <C> <C>
Deferred income taxes ..................................... $ 199,034 $ 174,676
Note receivable-related party ............................. 235,000 235,000
Deferred compensation contracts ........................... 94,011 54,011
Patents and trademarks, at cost, net of
accumulated amortization ............................. 87,553 37,020
Note receivable-officer (less current maturity)............ 537,892 --
---------- ----------
$1,153,490 $ 500,707
========== ==========
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4--Corporate Income Taxes
Components of corporate income taxes are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
------------------------- -------------------------
March 31, March 31,
------------------------- -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current:
Federal ..... $ 533,000 $ 582,800 $ 184,300 $ 197,200
State ....... 93,700 104,500 39,600 57,600
Foreign ..... -- -- --
--------- --------- --------- ---------
$ 626,700 $687,300 $ 223,900 $ 254,800
--------- --------- --------- ---------
Deferred:
Federal ...... $(29,100) $ (45,300) $ (9,500) $ (19,900)
State ........ (8,500) (13,200) (2,800) (5,400)
Foreign ...... -- -- --
--------- --------- --------- ---------
$ (37,600) $ (58,500) $ (12,300) $ (25,300)
--------- --------- --------- ---------
Total .......... $ 589,100 $ 628,800 $ 211,600 $ 229,500
========= ========= ========= =========
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4--Corporate Income Taxes (Continued)
Components of corporate income taxes are as follows:
A reconciliation of the provision for corporate income taxes compared
with amounts computed at the US statutory tax rate is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
-------------------------- ----------------------
March 31, March 31,
-------------------------- ----------------------
1997 1996 1997 1996
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Based on U.S. statutory
federal tax rate $552,347 $585,754 $189,816 $213,754
Increase (decrease) in
taxes resulting from:
State taxes, net of
federal tax benefit 56,232 60,258 24,288 34,458
Non-deductible (reportable)
expenses (income) (19,479) (17,212) (2,504) (18,712)
-------- -------- --------- --------
Total $589,100 $628,800 $211,600 $229,500
======== ======== ======== ========
Effective tax rate 36.3% 36.5% 37.9% 36.5%
</TABLE>
The Canadian subsidiary has available unused tax benefits in the form
of operating loss carryforwards of $168,000 to reduce future Canadian taxable
income. These carryforwards principally expire in 1999. Due to their uncertainty
of realization, these tax benefits have been reflected net of a 100% valuation
allowance.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5--Accrued Liabilities
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
-------- --------
<S> <C> <C>
Compensation ................................. $245,199 $309,695
Payroll, sales, and property taxes ........... 72,376 75,775
401-k plan contribution ...................... 10,287 27,176
Environmental and other costs ................ 11,018 147,257
-------- --------
$338,880 $559,903
======== ========
</TABLE>
Note 6--Employee Benefits
The Company maintains a 401(k) savings plan which covers all full time
U.S. employees. The Company matches 50% of voluntary pre-tax employee
participant contributions up to 4% of compensation as well as providing
discretionary contributions based on compensation for all employees. Employer
discretionary contributions, which are forfeited due to employee termination
prior to the full seven year vesting period, revert back to the Company. Total
expense under the plan was $30,124 in 1997 and $16,349 in 1996.
Pursuant to employment contracts and letter agreements with officers
and key employees, the Company maintains non-qualified incentive compensation
plans which are based on the realization of pre-tax income and royalty income.
Total expense under these plans was $370,770 in 1997 and $375,300 in 1996.
The Company is obligated to provide a non-qualified retirement pension
to its chief executive officer. Such obligation provides a monthly benefit of
$7,100 and is payable for a period of fifteen years to the officer, or to his
wife in the event of his death. The Company is accruing the obligation over the
active term of employment of the officer. The Company is also accruing and
funding deferred compensation contracts with two other officers based on 10% of
annual compensation. Total expense under these three obligations was $112,505 in
1997 and $129,783 in 1996.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7--Contingencies and Risks
Litigation
In April, 1991, a claim was served on the Canadian subsidiary,
General Magnaplate Canada, Ltd., by Dynasurf International, Inc. for
$170,000 representing the unpaid contract liability for the net assets
acquired by the Canadian subsidiary from the sellers, Carrigan
Industries, Ltd. and Dynasurf International, Inc. on January 2, 1990.
The Subsidiary filed a counterclaim for environmental and
other costs incurred which resulted from the seller not resolving
certain environmental issues warranted in the contract of purchase.
Further, a shareholder of Dynasurf International, Inc. also filed a
claim for breach of oral contract of employment for $119,000 which the
Company denied in their related statement of defense.
The Company reached an out of court agreement with the
plaintiffs in September, 1996 wherein the plaintiffs were collectively
paid the sum of $65,000 in full settlement of their claim. Such
settlement did not have an adverse effect on the Company's financial
statements.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of its cash, marketable
securities and trade receivables.
The Company's cash and marketable securities are in
high-quality securities placed with a wide array of institutions with
high credit and investment ratings. This investment policy limits the
Company's exposure to concentrations of credit risk.
The trade receivable balances, reflecting the Company's
diversified sources of revenue, are dispersed across many different
geographic areas. As a consequence, concentrations of credit risk are
limited. The Company routinely assesses the financial strength of its
customers and generally does not require collateral to support its
credit sales.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8--Related Party Transactions
The Company engaged in the following related party
transactions:
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Was charged computer consulting services
by an outside director of the Company; $29,193 $25,353
Accrued interest income on an installment note receivable of $235,000
secured by a deed of trust on the Texas real estate. The note bears
interest of 6.83% per annum collectible annually for three years.
Thereafter the note shall be collected in (5) equal annual principal
installments of $47,000 plus interest of 6.83% per annum commencing
July 1, 1999 with the final collection due July 1, 2003; $12,038 $12,038
Charged interest income on a bridge note receivable of $550,000 from
its chief executive officer on December 16, 1996. The note is to be
repaid in (35) equal installments of $3,814 which includes interest of
5.6% per annum commencing February 1, 1997 with the final balloon
payment of $516,915 due
December 16, 1999. $ 8,924 $ -0-
</TABLE>
Note 9--Fair Value of Financial Instruments
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and
Accrued Liabilities--The carrying amount approximates fair value
because of the short maturity of these instruments.
Marketable Securities--The carrying amount approximates fair value
because such securities are valued based on market quotes.
Notes Receivable - Long-term--The carrying amount approximates fair
value because of similar rates on issues offered to the Corporation
under some or similar provisions.
Accrued Deferred Compensation--The carrying amount approximates fair
value because such liability is being valued based on current market
values.
<PAGE>
Item 2A - Management's Discussion and Analysis of Financial Position:
Financial Condition
Liquidity and Capital Resources
Nine-Months ended March 1997
Cash and cash equivalents increased to $884,790 at March 31, 1997 from
$680,570 at June 30, 1996. For the period, $2,543,231 net cash was provided by
the operating activities, $907,264 was used for investing activities and
$1,431,747 was used for financing activities. During the past nine months, the
registrant's investment activities were primarily comprised of $264,975 used for
additions to property, plant and equipment $93,963 used for additions to patent
costs and $550,000 was used for a note receivable. The $1,431,747 for financing
activities was used for the payment of dividends of $335,684 and $1,096,063 for
the purchase and retirement of treasury stock.
Working capital of $4,888,022 decreased $780,919 or 16% during the nine
months and the working capital ratio increased to 7.62 to 1 from 6.31 to 1 at
June 30, 1996.
Stockholders' equity per share March 31, 1997 increased 3% to $4.40 per
share compared with $4.28 per share June 30, 1996. As previously authorized by
the Board, 163,000 shares of GMCC stock were purchased at the cost of $1,096,062
(an average price per share of $6.72) which was retired and canceled during the
current nine month period.
Management believes that internal cash flow and/or incomes from
marketable securities are expected to be sufficient to provide the capital
resources necessary to support future operating needs, and does not anticipate
any material expenditures that will have a significant impact on future cash
flows.
Item 2B - Management's Discussion and Analysis of Results of Operations
Quarter --- March 31, 1997 compared with March 31, 1996:
Sales increased this quarter, as reflected in the current period sales
of $2,737,640, by $114,127 or 4% from the same quarter last year. Sales at all
locations increased this quarter with the exception of our California facility,
whose sales are down slightly. Management feels that sales will continue to
increase thru the remainder of the year as a result of increases in customer
contracts, and volume and a larger sales force. Our Web site
(http://www.magnaplate.com) continues to be met with tremendous response and has
also generated more sales. The additional space at our Wisconsin facility is
almost 100% operational at this time.
Although no increase is reflected in royalty income for the quarter,
($67,283 vs. $ 67,587) this is primarily due to a timing difference. Only minium
royalties were accrued this quarter, since reports from our licensees of
additional royalties due had not been received at the time the third quarter
financials were prepared. Additional royalties due will be reported in the
fourth quarter. The international advertising continues to be very successful.
Senior management attended a European sales meeting hosted by our Dutch
licensee, Mifa. In the opinion of management the meeting was very successful and
expect positive results in the future. Management is investigating licensee
candidates in Italy. The first installment of $50,000 was paid by Black & Decker
<PAGE>
in accordance with the terms of the contract regarding the exclusive trademark
agreement allowing them to use our MAGNAGLIDE mark on their OSD steam irons.
This payment will be reflected as royalty income during the fourth quarter. The
$45,588 increase in investment and other income is directly associated with the
high yield, fixed income investments in our portfolio which was not severely
affected by the poor performance of the market at the end of the quarter.
Management believes the investment portfolio to be sound, diversified and less
susceptible to market fluctuations while providing dividend and interest income.
Reflecting the above, gross revenue for the latest quarter of this year
of $2,878,685 increased $159,411 or 6% from the same quarter last year.
Total costs and expenses were $2,320,403 in the third quarter, an
increase of $229,717 or 11% from the same quarter of last year. The primary
increase to expenses has been in raw materials and production supplies. Recent
extensive chemical purchases were made during the third quarter in preparation
for large jobs which were started in the early part of the fourth quarter.
Management will continue to monitor spending.
Income before corporate income taxes was $558,282 for the current
quarter, a decrease of $70,306 or 11% from the $628,588 achieved in the same
quarter last year. Corporate income taxes and the effective tax rate in this
year's third quarter were $211,600 and 37.9% respectively, compared with
$229,500 and 36.5% in the third quarter of last year.
As a result of the above, net income in the third quarter of this year
of $346,682 dropped $52,406 or 13% from the same quarter last year.
Earnings per share were $.14 compared to $.15 in last year's third
quarter. During the current three month period 49,000 shares of treasury stock
were retired and canceled, resulting in weighted average shares outstanding of
2,504,244 compared to 2,704,344 for the same period last year.
Nine Months ------- March 31, 1997 compared with March 31, 1996:
Gross revenue for this year's first nine months of $8,268,922 increased
$229,372 or 3% from last year.
Total costs and expenses for the current nine month period were
$6,644,373, an increase of $327,630 or 5% from last year. As a percentage of
gross revenue, total costs and expenses in 1997 were 80% compared to 79% in
1996. Cost of Sales as a percentage of gross revenue for the latest nine months
increased to 39% from 38% in the same period of last year.
Selling and administration remained at 35% of gross revenue and depreciation and
amortization decreased to 5% of gross revenue compared to 6% last year.
As a result of the above, income before corporate income taxes for the
first nine months of this year was $1,624,549, a decline of $98,258 or 6% from
last year.
Corporate income taxes in this year's first nine months were $589,100,
compared with $628,800 for the same period last year, a decrease of $39,700 or
7%. As detailed in Note 5, this year's effective tax rate was 36.3% compared
with 36.5% in 1996.
<PAGE>
As a result of the above, net income of $1,035,449 this year was
$58,558 or 6% less than the $1,094,007 achieved last year. Earnings per share
remain at $.40 for this period. During the nine month period 163,000 shares of
treasury stock were retired and canceled resulting in weighted shares
outstanding of 2,570,650 compared with 2,742,767 in 1996.
As detailed in Note 7 to the consolidated financial statements, the
previous legal matters have been resolved. No new legal matters are expected.
As discussed above preliminary investigations into potential licensees
in Italy are being conducted.
General Magnaplate was honored by OSHA as a merit worksite in their
Voluntary Protection Program. This is a pilot program for smaller companies with
outstanding safety records combined with employee and management commitment to
strict safety standards.
No other significant financial matters are expected in future months
which will have an adverse impact on earnings.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL MAGNAPLATE CORPORATION
------------------------------
(Registrant)
DATE May 14, 1997
---------------------------
/s/Candida C. Aversenti
-----------------------
Candida C. Aversenti
President
DATE May 14, 1997
---------------------------
/s/Susan E. Neri
---------------------
Susan E. Neri
Chief Accounting Officer
<PAGE>
[GRAPHIC -- COMPANY LOGO]
MAGNAPLATE NEWS
1331 U.S. Route #1
Linden, New Jersey 07036
Telephone: 908-862-6200
Fax: 908-862-6110
FOR IMMEDIATE RELEASE
Linden, New Jersey May 7, 1997
NASDAQ SYMBOL GMCC
GENERAL MAGNAPLATE CORPORATION (GMCC)
Nine Month Report To Shareholders -- March 31, 1997
Condensed Statement of Income - Nine Months Ending March 31, 1997
------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Gross Revenue ............................ $8,268,922 $8,039,550
Income Before Taxes ...................... 1,624,549 1,722,807
Net Income ............................... 1,035,449 1,094,007
Earnings Per Share ....................... $0.40 $0.40
Avg. Shares Outstanding .................. 2,570,650 2,742,767
</TABLE>
***********************
Condensed Statement of Income - Three Months Ending March 31, 1997
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Gross Revenue ............................ $2,878,685 $2,719,274
Income Before Taxes ...................... 558,282 628,588
Net Income ............................... 346,682 399,088
Earnings Per Share ....................... $0.14 $0.15
Avg. Shares Outstanding .................. 2,504,244 2,704,344
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 884,790
<SECURITIES> 2,714,308
<RECEIVABLES> 1,591,735
<ALLOWANCES> 132,000
<INVENTORY> 272,536
<CURRENT-ASSETS> 5,626,010
<PP&E> 13,398,399
<DEPRECIATION> 8,134,733
<TOTAL-ASSETS> 12,707,328
<CURRENT-LIABILITIES> 737,988
<BONDS> 0
0
0
<COMMON> 223,180
<OTHER-SE> 10,643,957
<TOTAL-LIABILITY-AND-EQUITY> 12,707,328
<SALES> 7,712,118
<TOTAL-REVENUES> 8,268,922
<CGS> 3,274,116
<TOTAL-COSTS> 6,644,373
<OTHER-EXPENSES> 3,370,257
<LOSS-PROVISION> 28,336
<INTEREST-EXPENSE> 234
<INCOME-PRETAX> 1,624,549
<INCOME-TAX> 589,100
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,035,449
<EPS-PRIMARY> .40
<EPS-DILUTED> 0
</TABLE>
