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 September 30, 1998
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 November 4, 1998 :
Common Stock, No Par Value 4,918,794
-------------------------- ------------------
(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 - Although the Company may from time to time be
involved in routine litigation incidental to its business, none of these actions
are expected, individually or in the aggregate, to have a material adverse
impact upon the company or its results of operations.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS - Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5 - OTHER INFORMATION - None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) None
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Accountants' Review Report
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Supplementary Information
<PAGE>
MAURIELLO, FRANKLIN & LOBRACE
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
45 Springfield Avenue, Springfield, New Jersey 07081
Telephone (973) 379-5400 FAX (973) 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 September 30, 1998 and the
related consolidated statement of changes in stockholders' equity for the three
months ended September 30, 1998 and the related consolidated statements of
income, comprehensive income, and cash flows for the three months ended
September 30, 1998 and 1997. These financial statements are the responsibility
of the management of General Magnaplate Corporation.
We conducted our review in accordance with standards established by the
American Institution of Certified Public Accountants. A review of interim
financial statements consists primarily of applying analytical review procedures
to financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements 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 three months ended
September 30, 1998 and 1997 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, 1998 was audited by us,
and we expressed an unqualified opinion on it in our report dated August 10,
1998. We have not performed any auditing procedures on the balance sheet since
August 10, 1998.
/s/ Mauriello, Franklin & LoBrace
---------------------------------
Mauriello, Franklin & LoBrace
October 27, 1998
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
ASSETS 1998 1998
------ ------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 1,134,370 $ 1,301,317
Marketable securities (Note 1) ................. 2,901,793 3,136,420
Accounts receivable--trade, net of
allowance for doubtful accounts of
$102,000 (June 30, 1998-$93,000) ............. 1,416,828 1,326,070
Inventories (Note 1) ........................... 354,142 355,285
Prepaid expenses ............................... 181,490 190,817
Other current assets ........................... 128,967 169,229
----------- -----------
Total current assets ....................... $ 6,117,590 $ 6,479,138
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ................... 6,251,573 6,331,313
Cash surrender value of officers' life
insurance ...................................... 899,811 874,811
Note receivable-officer (Note 8) ................. 486,781 490,686
Note receivable-related party partnership (Note 8) 195,000 195,000
Other assets (Note 3) ............................ 614,382 609,453
----------- -----------
Total assets ................................. $14,565,137 $14,980,401
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998
- ------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Current maturity of long-term debt ..................... $ 28,593 $ 29,841
Accounts payable ....................................... 176,056 434,915
Accrued liabilities (Note 6) ........................... 281,622 426,234
Corporate income taxes payable ......................... 114,498 40,743
Dividends payable ...................................... 243,540 -0-
------------ ------------
Total current liabilities ............................ $ 844,309 $ 931,733
------------ ------------
Long-term liabilities:
Rent security deposit .................................. $ 9,193 $ 9,193
Accrued deferred compensation (Note 7) ................. 1,343,669 1,319,864
Long-term debt (Note 4) ................................ 388,383 412,800
------------ ------------
Total long-term liabilities .......................... $ 1,741,245 $ 1,741,857
------------ ------------
Total liabilities .................................... $ 2,585,554 $ 2,673,590
------------ ------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock--no par value
Authorized--5,000,000 shares
Issued--4,918,794 shares of which 56,000 and 11,000
shares are held as treasury stock respectively ...... $ 223,180 $ 223,180
Retained earnings ...................................... 12,270,159 12,338,744
Accumulated other comprehensive income (loss) (Note 1) . (218,858) (189,388)
------------ ------------
$ 12,274,481 $ 12,372,536
Less--cost of 56,000 and 11,000 shares of treasury stock (294,898) (65,725)
------------ ------------
Total stockholders' equity .......................... $ 11,979,583 $ 12,306,811
------------ ------------
Total liabilities and stockholders' equity ........... $ 14,565,137 $ 14,980,401
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
----------- -----------
<S> <C> <C>
Gross revenue:
Sales ............................................. $ 2,623,234 $ 2,680,860
Royalty income ...................................... 52,042 56,172
Investment and other income (loss) ................ (18,484) 158,469
----------- -----------
$ 2,656,792 $ 2,895,501
----------- -----------
Costs and expenses:
Cost of sales ..................................... $ 1,295,458 $ 1,176,214
Selling and administration ........................ 904,381 1,021,208
Depreciation and amortization ..................... 172,570 153,466
Interest .......................................... 8,328 -0-
----------- -----------
$ 2,380,737 $ 2,350,888
----------- -----------
Income before corporate income taxes ................ $ 276,055 $ 544,613
Corporate income taxes (Notes 1 and 5) .............. 101,100 199,600
----------- -----------
Net income .......................................... $ 174,955 $ 345,013
=========== ===========
Earnings per share (Note 1) ......................... $ .04 $ .07
=========== ===========
Weighted average shares outstanding ................. 4,873,316 4,918,794
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
--------- ---------
<S> <C> <C>
Net income ............................................. $ 174,955 $ 345,013
Other comprehensive income, net of tax:
Foreign exchange translation adjustment .............. (29,470) (1,691)
--------- ---------
Comprehensive income ................................... $ 145,485 $ 343,322
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1998
Accumulated
Other Cost of
Common Retained Comprehensive Treasury
Stock Earnings Income (Loss) Stock
-------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Balance, July 1, 1998 $223,180 $12,338,744 $(189,388) $ (65,725)
Net income for three months
September 30, 1998 174,955
Dividend declared ($.05 per share) (243,540)
Acquisition of 45,000 shares of
treasury stock (229,173)
Foreign exchange translation adjustment (29,470)
-------- ----------- --------- ---------
Balance, September 30, 1998 $223,180 $12,270,159 $(218,858) $(294,898)
======== =========== ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 174,955 $ 345,013
----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .................................. $ 172,570 $ 153,466
Reserve for unrealized gain (loss) ............................. 193,653 (57,891)
Deferred tax credits ........................................... (24,400) (16,000)
Allowance for doubtful accounts ................................ 13,627 13,800
Accrued deferred compensation .................................. 37,962 44,287
Foreign exchange translation adjustment ........................ (29,470) (1,691)
Increase (decrease) in cash resulting from changes in
current assets and liabilities:
Marketable securities ....................................... 40,974 (186,461)
Accounts receivable ......................................... (104,385) 11,113
Inventories ................................................. 1,143 0
Prepaid and other current assets ............................ 61,642 72,788
Accounts payable and accrued liabilities ................... (403,473) (86,088)
Corporate income taxes payable .............................. 73,755 136,770
----------- -----------
Total adjustments ..................................... $ 33,598 $ 84,093
----------- -----------
Net cash provided by operating activities ....................... $ 208,553 $ 429,106
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment, net ................... $ (88,908) $ (226,519)
Additions to patents and trademarks ................................ (10,426) (5,343)
Additions to deferred compensation contracts ....................... 0 (17,288)
Collection of note receivable-officer .............................. 3,672 3,064
Increase in cash surrender value-officers' life insurance .......... (25,000) (23,316)
----------- -----------
Net cash used in investing activities ............................ $ (120,662) $ (269,402)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments - long-term debt ................................ $ (25,665) $ 0
Acquisition of treasury stock ..................................... (229,173) 0
----------- -----------
Net cash used in financing activities ........................... $ (254,838) $ 0
----------- ----------
INCREASE IN CASH (Note 11) .......................................... $ (166,947) $ 159,704
Cash and cash equivalents, beginning of period .................... 1,301,317 1,216,824
----------- -----------
Cash and cash equivalents, end of period .......................... $ 1,134,370 $ 1,376,528
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<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 commercial customers' products from five
plants located in the United States and Canada. Included in the Company's
consolidated balance sheet at June 30, 1998 are $1,336,000 of net assets of the
Canadian operation.
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. Net
unrealized holding gains (losses) on trading securities of ($193,653) and
$57,891 were reported in 1998 and 1997, respectively. Cost exceeded market value
by $97,060 at September 30, 1998. Market value exceeded cost by $60,719 at June
30, 1998.
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 10 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 reporting periods.
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 Accumulated Other Comprehensive Income (Loss) 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:
September 30, June 30,
1998 1998
----------- -----------
Land ..................................... $ 1,020,627 $ 1,030,025
Buildings ................................ 3,664,326 3,677,341
Building improvements .................... 3,720,985 3,670,396
Factory machinery ........................ 4,039,203 3,995,672
Office equipment ......................... 686,599 674,261
Transportation equipment ................. 308,710 309,251
----------- -----------
Total .................................... $13,440,450 $13,356,946
Less--accumulated depreciation ........... 7,188,877 7,025,633
----------- -----------
Net ...................................... $ 6,251,573 $ 6,331,313
=========== ===========
Note 3--Other Assets
Other assets are as follows:
September 30, June 30,
1998 1998
-------- --------
Patents and trademarks, at cost, net of
accumulated amortization of $117,163
and $113,241 .............................. $127,429 $120,925
Deferred income taxes .......................... 311,243 298,463
Deferred compensation contracts ................ 171,238 185,398
Mortgage financing costs ....................... 4,472 4,667
-------- --------
$614,382 $609,453
======== ========
Note 4--Long-Term Debt
The Company is indebted to Business Development Bank of Canada for
$457,925 borrowed March 31, 1998 and payable in equal monthly principal
installments of $2,487 together with interest of 7.6% per annum commencing June
23, 1998 with the final payment due April 23, 2013. The note is secured by a
first mortgage on real estate owned in Ajax, Ontario.
Current maturities of the debt for the five years ended June 30, 2003
are as follows: 1999 - $29,841; 2000 - $29,841; 2001 - $29,841; 2002 - $29,841;
and 2003 - $29,841.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5--Corporate Income Taxes
Components of corporate income taxes are as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Current:
Federal ............................ $ 109,400 $ 190,200
State .............................. 16,100 25,400
Foreign ............................ 0 0
--------- ---------
$ 125,500 $ 215,600
--------- ---------
Deferred:
Federal ............................. $ (19,300) $ (12,400)
State ............................... (5,100) (3,600)
Foreign ............................. 0 0
--------- ---------
$ (24,400) $ (16,000)
--------- ---------
Total ................................. $ 101,100 $ 199,600
========= =========
</TABLE>
A reconciliation of the provision for corporate income taxes
compared with the amounts at the US statutory tax is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Based on U.S. statutory federal tax rate of 34% ...... $ 93,858 $ 185,168
Increase (decrease) in taxes resulting from:
State taxes, net of federal tax benefit ... 7,260 14,388
Non-deductible expenses (reportable income) (18) 44
--------- ---------
Total ................................. $ 101,100 $ 199,600
========= =========
Effective tax rate .................................... 36.6% 36.7%
</TABLE>
The Canadian subsidiary has available unused tax benefits in the form
of operating loss carryforwards of approximately U.S. $80,000 to reduce future
Canadian taxable income. These carryforwards principally expire in 2002 and
2003. A deferred tax asset of $38,000 has been provided subject to a 100%
valuation allowance since it is not likely that the loss carryforwards will be
utilized prior to their expiration.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6--Accrued Liabilities
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
-------- --------
<S> <C> <C>
Compensation ................................... $223,110 $347,184
Payroll, sales, and property taxes ............. 23,907 29,168
401-k plan contribution ........................ 20,808 20,040
Environmental and other costs .................. 13,797 29,842
-------- --------
$281,622 $426,234
======== ========
</TABLE>
Note 7--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 $16,518 in 1998 and $12,487 in 1997.
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 $64,044 in 1998 and $115,071 in 1997.
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 $37,962 in
1998 and $39,567 in 1997.
<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:
Three Months Ended
September 30
-----------------------
1998 1997
Was charged computer consulting services
by an outside director of the Company; $16,545 $12,175
Accrued interest income on an original
installment note receivable of $235,000
due from a limited partnership
controlled by a stockholder of the
Company 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. The
receivable balance at September 30, 1998
was $195,000. $ 3,330 $ 4,013
Charged interest income on a mortgage
note receivable of $550,000 from its
chief executive officer on December 16,
1996. The note is being repaid in (34)
equal monthly installments of $3,814
which includes interest of 6.16% per
annum commencing February 1, 1997 with
the final balloon payment of $512,124
due December 16, 1999. The receivable
balance at September 30, 1998 was
$502,049 and is secured by a real estate
first mortgage. $ 7,769 $ 8,377
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 - Related Parties--The carrying amount approximates fair value
because of similar rates on issues offered to the Corporation under some or
similar provisions.
Accrued Deferred Compensation and Long-Term Debt--The carrying amount
approximates fair value because such liabilities are being valued based on
current market values.
Note 10--Commitments and Contingencies
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.
Lease Commitment
The Company leases warehouse space in its New Jersey facility to a
tenant under an operating lease expiring December 31, 1999. Minimum future
rentals to be received on the lease as of June 30, 1998 are as follows: 1998-99
- - $118,443; and 1999-00 - $60,844.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11--Statement of Cash Flows
Three Months Ended
September 30,
-------------------------
1998 1997
--------- ---------
Supplementary data:
Interest expense paid $ 8,328 $ 0
Income taxes paid 51,745 78,830
Non-cash transaction:
Declaration of dividend payable
of $.05 and $.05 per share respectively 243,540 245,940
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Position and Result
of Operations:
Financial Condition
Liquidity and Capital Resources
Three-Months ended September 1998
Cash and cash equivalents increased to $1,134,370 at September 30, 1998,
with net cash increasing $166,947 from the $1,301,317 at June 30, 1998. Of this,
$208,553 net cash was provided by the operating activities of the first three
months, $120,662 was used by investing activities and $254,838 was used by
financing activities. During the three months, the Registrant's investment
activities were primarily comprised of $99,334 used for additions to property,
plant and equipment, and for additions to patents and trademarks, and $25,000
for additions to cash surrender value-life insurance. The net cash used in
financing activities was principally from the acquisition of treasury stock of
$229,173, and principal payments on long term debt of $25,665.
In September of 1998, a $.05 per share dividend was declared and was
payable on October 9, 1998.
Working capital of $5,273,281 decreased $274,124 or 5.2% during the three
months and the working capital ratio increased to 7.25 to 1 from 6.95 to 1 at
June 30, 1998. The decrease in working capital reflects the third quarter
dividend ($243,539 in the aggregate) and the repurchase of the Company's stock
discussed above.
Stockholders' equity per share at September 30, 1998 decreased 2.4% to
$2.44 per share compared with $2.50 per share at June 30, 1998. As previously
authorized by the Board, 45,000 shares of GMCC stock were purchased at the cost
of $229,173 and are currently being held in the treasury, leaving the Company
with 4,918,794 shares outstanding at September 30, 1998. Under the Registrant's
previously announced buyback program, the Company is authorized to repurchase
shares of its common stock from time to time up to the total purchase price of
$1,500,000.
Management believes that internal cash flow from operations 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 currently
anticipate any material expenditures that will have significant impact on future
cash flows.
Quarter --- September 30, 1998 compared with September 30, 1997:
Sales decreased this quarter by 2.2% as reflected in the current period
sales of $2,623,234, a decrease of $57,626 from the same quarter last year.
Sales at the New Jersey and Canadian facilities showed increases of $77,477 and
28,787 respectively. The Texas, California, and Wisconsin facilities had lower
sales this quarter compared to the same period last year. The reduced sales for
the Texas facility reflect continued low levels of oil exploration due to the
low price of crude oil. Oil drilling manufacturers represent a significant
portion of the customer base for the Texas facility. Reduced sales for the
California facility reflect slowdowns in the airframe and electronics industries
<PAGE>
served by the plant, caused both by the Asian economic crises, which slowed
orders of parts for items such as aircraft, and the continued decrease in
military contracting. The Wisconsin facility's main customer base is in the
food, and pulp and paper industries which currently are not expanding their
manufacturing plants, resulting in no expenditures for our surface enhancement
processes used on new equipment. Although sales were lower during July and
August, they improved during September company-wide.
Royalty and investment and other income for the first quarter were $52,042
and $(18,484) compared with $56,172 and $158,469 from last year's first quarter.
Although royalty income is down slightly, this is primarily due to a timing
difference, as not all royalty reports were received from our licensees prior to
quarter end. Additional royalties due will be reported in the second quarter.
Investment income decreased 111.7% or $176,953. The Company maintains an
investment portfolio to enhance earnings and provide liquidity for future cash
needs. The portfolio is composed of equity securities, U.S. Treasury Securities
and obligations of U.S. Government agencies and government sponsored entities,
and corporate debt.
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," (SFAS
115). Under SFAS 115, securities are classified as securities held to maturity
based on management's intent and the Company's ability to hold them to maturity.
Such securities are stated at cost, adjusted for the purpose of selling them in
the near term are classified as trading securities, which are carried at market
value. Realized gains and losses and gains and losses from marking the portfolio
to market value are included in trading revenue. Securities not classified as
securities held to maturity or trading securities are classified as securities
available for sale, and are stated at fair value. Unrealized gains and losses on
securities available for sale are excluded from results of operations, and are
reported as a separate component of stockholders' equity, net of taxes.
Securities classified as available for sale include securities that may be sold
in response to changes in interest rates, changes in prepayment risks, the need
to increase regulatory capital or other similar requirement.
Management determines the appropriate classification of securities at the
time of purchase. At September 30, 1998, all of the Company's investment
securities were classified as trading securities.
The $176,953 decline in trading income is primarily attributable to the
mark to market adjustments to the portfolio, reflecting the market volatility of
August and September. Although the Company's portfolio will continue to be
subject to market changes, management believes the portfolio is well diversified
and is a prudent cash management tool for investing the Company's excess cash.
Reflecting the factors discussed above, gross revenue for the first quarter
of this year totaled $2,656,792, a decrease of 8.2% or $238,709 from the same
quarter of last year.
Total costs and expenses were $2,380,737 in the first quarter, an increase
of $29,849 or 1.3% from the same period last year. Primary components of costs
and expenses included costs of sales of $1,295,458 an increase over cost of
sales of $1,176,214 for the same quarter last year, selling and administration
expense of $904,381, a decline from selling and administration expenses of
$1,021,208 in the same quarter of last year, and depreciation and amortization
expenses of $ 172,570, an increase over depreciation and amortization expenses
of $ 153,466 in the same quarter of last year. The increase in the costs of
sales reflects increased raw material costs as the Company expanded it
operations and the Company's efforts to augment its sales force, particularly in
its Canadian facility.
<PAGE>
Income before corporate income taxes was $276,055 in this year's first
quarter, a decrease of $268,558 or 49.3% from the $544,613 achieved in last
year's first quarter. Corporate income taxes and the effective tax rate for the
period were $101,100 and 36.6% respectively, compared with $199,600 and 36.7% in
the first quarter of last year.
Based on the above, net income in the first quarter of this year of
$174,955 decreased $170,058 or 49.3% from the $345,013 in the same period last
year.
Earnings per share were down 42.9% in this year's first quarter (or $.04
compared to $.07 in last year's first quarter). During the quarter, 45,000
shares of GMCC stock were purchased and are being held in the treasury,
resulting in a weighted average of shares outstanding of 4,873,316 compared with
4,918,794 for the same period last year. However, the decrease in net income
more than offset the reduction in average outstanding shares.
Year 2000
The Company has recognized the need to ensure that its computer systems
will not be adversely affected by the upcoming calendar year 2000. The Company
has assessed how it may be impacted by Year 2000 and has formulated and
commenced implementation of a comprehensive plan to address known issues to its
computer systems. The plan, as it relates to computer systems, involves a
combination of software modification, upgrades and replacement. The accounting
software has already been upgraded at this time at a cost of $11,000. The
company estimates that the cost of Year 2000 compliance will not have a material
adverse effect on future results of operations of the Company. However, the
Company cannot measure the impact that the Year 2000 issue will have on its
vendors, suppliers, customers and other parties with which it conducts business.
Market Risk
The Company's Canadian operations expose the Company to potential foreign
currency exchange risk on cash flows related to sales, expenses and financing
transactions. The Company believes its exposure to currency rate risk is not
material, and the Company has not used currency exchange contracts to address
this risk.
<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: November 10, 1998 /s/Candida C. Aversenti
--------------------
Candida C. Aversenti
President
DATE: November 10, 1998 /s/Susan E. Neri
----------------
Susan E. Neri
Chief Accounting Officer
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<PERIOD-END> SEP-30-1998
<CASH> 1,134,370
<SECURITIES> 2,901,793
<RECEIVABLES> 1,518,828
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