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 December 31, 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 February 10, 1999:
Common Stock, No Par Value 4,786,294
-------------------------- -----------------
(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 -
Minutes of Annual Meeting of Shareholders Enclosed
ITEM 5 - OTHER INFORMATION - Press Release
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
SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Accountants' Review Report
Consolidated Financial Statements:
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, NJ 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 December 31, 1998 and the
related consolidated statement of changes in stockholders' equity for the six
months ended December 31, 1998 and the related consolidated statements of
income, comprehensive income, and cash flows for the six months ended December
31, 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 six months ended
December 31, 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.
January 27, 1999
/s/ Mauriello, Franklin & Lo Brace
----------------------------------
Mauriello, Franklin & Lo Brace
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
ASSETS 1998 1998
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................... $ 848,257 $ 1,301,317
Marketable securities (Note 1) .................... 3,045,709 3,136,420
Accounts receivable--trade, net of
allowance for doubtful accounts of
$105,000 (June 30, 1998-$93,000) ................ 1,386,011 1,326,070
Inventories (Note 1) .............................. 377,949 355,285
Prepaid expenses .................................. 168,657 190,817
Other current assets .............................. 179,366 169,229
Note receivable--related party partnership (Note 8) 195,000 0
----------- -----------
Total current assets .......................... $ 6,200,949 $ 6,479,138
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ...................... 6,280,406 6,331,313
Cash surrender value of officers' life
insurance ......................................... 934,733 874,811
Note receivable-officer (Note 8) .................... 482,815 490,686
Note receivable-related party partnership (Note 8) .. 0 195,000
Other assets (Note 3) ............................... 672,307 609,453
----------- -----------
Total assets .................................... $14,571,210 $14,980,401
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998
- ------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Current maturity of long-term debt ....................... $ 28,492 $ 29,841
Accounts payable ......................................... 169,477 434,915
Accrued liabilities (Note 6) ............................. 316,170 426,234
Corporate income taxes payable ........................... 0 40,743
------------ ------------
Total current liabilities .............................. $ 514,139 $ 931,733
------------ ------------
Long-term liabilities:
Rent security deposit .................................... $ 9,193 $ 9,193
Accrued deferred compensation (Note 7) ................... 1,406,965 1,319,864
Long-term debt (Note 4) .................................. 379,892 412,800
------------ ------------
Total long-term liabilities ............................ $ 1,796,050 $ 1,741,857
------------ ------------
Total liabilities ...................................... $ 2,310,189 $ 2,673,590
------------ ------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock--no par value
Authorized--20,000,000 shares
Issued--4,918,794 shares of which 82,500 and 11,000
shares are held as treasury stock ..................... $ 223,180 $ 223,180
Retained earnings ........................................ 12,671,182 12,338,744
Accumulated other comprehensive income (loss) (Note 1).... (222,130) (189,388)
------------ ------------
$ 12,672,232 $ 12,372,536
Less--cost of 82,500 and 11,000 shares of treasury stock . (411,211) (65,725)
------------ ------------
Total stockholders' equity ............................ $ 12,261,021 $ 12,306,811
------------ ------------
Total liabilities and stockholders' equity ............. $ 14,571,210 $ 14,980,401
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended Three Months Ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross revenue:
Sales ....................... $5,303,961 $5,382,442 $2,680,727 $2,701,582
Royalty and license income .. 135,493 176,548 83,451 120,376
Investment and other
income, net (Note 1) ...... 354,383 298,506 372,867 140,037
---------- ---------- ---------- ----------
$5,793,837 $5,857,496 $3,137,045 $2,961,995
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales ............... $2,595,551 $2,297,792 $1,300,093 $1,121,578
Selling and administration .. 1,923,850 2,088,337 1,019,469 1,067,129
Depreciation and amortization 346,628 310,725 174,058 157,259
Interest .................... 16,130 6,471 7,802 6,471
---------- ---------- ---------- ----------
$4,882,159 $4,703,325 $2,501,422 $2,352,437
---------- ---------- ---------- ----------
Income before corporate
income taxes ................ $ 911,678 $1,154,171 $ 635,623 $ 609,558
Corporate income taxes
(Notes 1 and 5) ............. 335,700 426,500 234,600 226,900
---------- ---------- ---------- ----------
Net income .................... $ 575,978 $ 727,671 $ 401,023 $ 382,658
========== ========== ========== ==========
Earnings per share (Note 1) ... $ .12 $ .15 $ .08 $ .08
========== ========== ========== ==========
Weighted average shares
outstanding ................. 4,873,316 4,915,208 4,846,778 4,911,620
========== ========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
--------- ---------
<S> <C> <C>
Net income ................................. $ 575,978 $ 727,671
Other comprehensive income, net of tax:
Foreign exchange translation adjustment .. (32,742) (27,996)
--------- ---------
Comprehensive income ....................... $ 543,236 $ 699,675
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1998
Foreign
Currency
Common Retained Translation Treasury
Stock Earnings Adjustment Stock
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance,
July 1, 1998 ................ $ 223,180 $12,338,744 $ (189,388) $ (65,725)
Add--net income for six months
December 31, 1998 ........... 575,978
Dividend paid ($.05 per share) (243,540)
Acquisition of 71,500 shares of
treasury stock .............. (345,486)
Foreign exchange translation
adjustment .................. 0 0 (32,742) 0
----------- ----------- ----------- -----------
Balance,
December 31, 1998 ........... $ 223,180 $12,671,182 $ (222,130) $ (411,211)
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES:
Net income ............................................ $ 575,978 $ 727,671
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Reserve for unrealized gain ........................ $ (50,521) $ (59,531)
Depreciation and amortization ...................... 346,628 310,725
Deferred tax credits ............................... (47,300) (30,700)
Accrued deferred compensation ...................... 75,158 77,442
Foreign currency translation adjustment ............ (32,742) (27,996)
Allowance for doubtful accounts .................... 42,907 27,565
Increase (decrease) in cash resulting from changes
in current assets and
liabilities:
Marketable securities ........................... 141,232 (233,927)
Accounts receivable ............................. (102,848) (30,782)
Inventories ..................................... (22,664) 916
Prepaid and other current assets ................ 43,919 33,398
Accounts payable and accrued liabilities ........ (375,502) (125,078)
Corporate income taxes payable .................. (50,550) (61,123)
----------- -----------
Total adjustments ............................. $ (32,283) $ (119,091)
----------- -----------
Net cash provided by operating activities ........... $ 543,695 $ 608,580
----------- -----------
CASH FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment ........... $ (287,545) $(1,016,613)
Additions to patent costs and other assets ............ (21,979) (10,162)
Collection (issuance) of note receivable--officer ..... 7,402 6,176
Additions to deferred compensation contracts .......... (11,428) (23,442)
Increase in cash surrender value--life insurance ...... (59,922) (54,025)
----------- -----------
Net cash used in investing activities ............... $ (373,472) $(1,098,066)
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(continued)
1998 1997
----------- -----------
<S> <C> <C>
CASH FROM FINANCING ACTIVITIES:
Principal payments - long-term debt ................... $ (34,257) $ 0
Proceeds from broker loan ............................. 0 500,000
Principal payments on broker loan ..................... 0 (13,439)
Purchase of treasury shares .......................... (345,486) (64,750)
Dividends paid ........................................ (243,540) (245,940)
----------- -----------
Net cash provided by (used in) financing activities . $ (623,283) $ 175,871
----------- -----------
NET DECREASE IN CASH (Note 11) ......................... $ (453,060) $ (313,615)
Cash and cash equivalents, beginning of period ........ 1,301,317 1,216,824
----------- -----------
Cash and cash equivalents, end of period .............. $ 848,257 $ 903,209
=========== ===========
</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 $104,470 and $59,530
were reported in 1998 and 1997, respectively. Market value exceeded cost by
$165,189 at December 31, 1998 and 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:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
----------- -----------
<S> <C> <C>
Land .............................................. $ 1,019,869 $ 1,030,025
Buildings ......................................... 3,663,275 3,677,341
Building improvements ............................. 3,756,744 3,670,396
Factory machinery ................................. 4,200,942 3,995,672
Office equipment .................................. 687,180 674,261
Transportation equipment .......................... 308,666 309,251
----------- -----------
Total ............................................. $13,636,676 $13,356,946
Less--accumulated depreciation .................... 7,356,270 7,025,633
----------- -----------
Net ............................................... $ 6,280,406 $ 6,331,313
=========== ===========
</TABLE>
Note 3--Other Assets
Other assets are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
----------- -----------
<S> <C> <C>
Patents and trademarks, at cost, net of
accumulated amortization of $121,417
and $113,241 ........................ $ 134,939 $ 120,925
Deferred income taxes .................... 324,143 298,463
Deferred compensation contracts .......... 208,769 185,398
Mortgage financing costs ................. 4,456 4,667
----------- -----------
$ 672,307 $ 609,453
=========== ===========
</TABLE>
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>
Six Months Ended Three Months Ended
December 31, December 31,
----------------------- ---------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Current:
Federal $334,100 $398,700 $224,700 $208,500
State 48,900 58,500 32,800 33,100
Foreign 0 0 0 0
-------- -------- --------- --------
$383,000 $457,200 $257,500 $241,600
-------- -------- --------- --------
Deferred:
Federal $(37,400) $(23,800) $(18,100) $(11,400)
State (9,900) (6,900) (4,800) (3,300)
Foreign 0 0 0 0
-------- -------- --------- --------
$(47,300) $(30,700) $ (22,900) (14,700)
-------- -------- --------- --------
Total $335,700 $426,500 $234,600 226,900
======== ======== ======== ========
</TABLE>
A reconciliation of the provision for corporate income taxes compared
with amounts computed at the US statutory tax rate is as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
------------------------ ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Based on U.S. statutory federal tax rate $310,000 $392,400 $216,142 $207,232
Increase (decrease) in taxes resulting from:
State taxes, net of federal tax benefit 25,700 34,000 18,440 19,612
Non-deductible (reportable) expenses (income) 0 100 18 56
-------- -------- -------- --------
Total $335,700 $426,500 $234,600 $226,900
======== ======== ======== ========
Effective tax rate 36.8% 37.0% 36.9% 37.2%
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Note 6--Accrued Liabilities
Accrued liabilities are as follows:
December 31, June 30,
1998 1998
-------- --------
Compensation ................................. $224,938 $347,184
Payroll, sales, and property taxes ........... 58,117 29,168
401-k plan contribution ...................... 31,450 20,040
Environmental and other costs ................ 1,665 29,842
-------- --------
$316,170 $426,234
======== ========
Note 7--Employee Benefits
The Company maintains a 401(k) savings plan which covers all 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 $29,680 in 1998 and $24,747 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 $194,551 in 1998 and $262,524 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 $75,158 in
1998 and $77,442 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:
Six Months Ended
December 31,
--------------------------
1998 1997
------- -------
Was charged computer consulting services by
an outside director of the Company; $26,299 $29,492
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 was collected in
full on January 4, 1999. $ 6,660 $ 8,025
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 December 31, 1998
was $498,319 and is secured by a real estate
first mortgage. $15,481 $16,707
<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
Six Months Ended
December 31,
------------------------
1998 1997
--------- ----------
Supplementary data:
Interest expense paid $ 16,130 $ 6,471
Income taxes paid 433,550 518,324
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Position and Result
of Operation:
- --------------------------------------------------------------------------------
Financial Condition
Liquidity and Capital Resources
Six-Months ended December 1998
Cash and cash equivalents decreased to $848,257 at December 31, 1998
from $1,301,317 at June 30, 1998. Of the total cash and cash equivalents,
$543,695 net cash was provided by the operating activities, $373,472 was used in
investing activities and $623,283 was used by financing activities. During the
six months, the Registrant's investment activities were primarily comprised of
$309,524 for additions to property, plant and equipment and patents and
trademarks, $11,428 used for additions to deferred compensation contracts and
$59,922 for additions to cash surrender value-life insurance. The increase in
net cash used in financing activities was principally from the acquisition of
treasury stock ($345,486) and the payment of dividends ( $.05 per share paid on
October 9, 1998) of $ 243,540.
Working capital of $5,686,810 increased $139,405 or 2.5% during the
six months ended December 31, 1998 and the working capital ratio increased to
12.06 to 1 from 6.95 to 1 as of June 30, 1998. The working capital increased
based on the net effect of the increase in the mark to market value of the
marketable securities, the paydown of Accounts Payable and accrued liabilities
and the repurchase of the Company's stock discussed above.
Stockholders' equity per share at December 31, 1998 increased $.04 to
$2.54 per share compared with $2.50 at June 30, 1998. The increase reflects the
quarter's income, less the cost of cash dividends ($243,540) and a reduction in
outstanding shares through stock repurchases. As previously authorized by the
Board, 71,500 shares of GMCC stock were purchased at the cost of $345,486 and
are currently being held in the treasury, leaving the Company with 4,836,294
shares outstanding at December 31, 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 internal cash flow from operations and/or incomes
from marketable securities to be sufficient to provide the capital resources
necessary to support future operating needs, and does not currently anticipate
material capital expenditures that will have significant impact on future cash
flows.
Quarter Ended--- December 31, 1998 compared with December 31, 1997
Sales decreased this quarter by 0.8% as reflected in the current
period sales of $2,680,727, a decrease of $20,855 from the same quarter last
year. Sales at the Wisconsin and Canadian facilities showed increases of $16,307
and $72,399 respectively. The New Jersey, Texas, and California facilities had
lower sales this quarter compared to the same period last year. The primary
reduction in sales for the New Jersey facility is directly attributed to the
slowdown in the electronics industry caused by the Asian economic crises and a
slight decline from a general industrial slowdown. 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 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.
<PAGE>
Royalty and investment and other income for the second quarter were
$83,451 and $372,867 respectively, compared with $120,376 and $140,037,
respectively, in last year's second quarter. Although royalty income is down,
last year's royalty income includes the second and last installment of $50,000
from Black and Decker for their exclusive use of the Magnaglide service mark.
Exclusive of the Black and Decker payment, total royalties from established
licensees has increased 18.5% or $13,075 from the same quarter last year.
Investment income increased 166.2% or $232,830, reflecting the upward movement
in investment markets during the three months ended December 31, 1998. 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 unamortized purchase
premiums and discounts. Securities that are bought and held principally 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 investment
income. 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, or other similar circumstances.
Management determines the appropriate classification of securities at
the time of purchase. At December 31, 1998 all of the Company's investment
securities were classified as trading securities.
The $232,830 increase in trading income for this quarter versus the
1997 quarter is primarily attributable to the mark to market adjustments to the
portfolio. 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 second
quarter of this year totaled $3,137,045, an increase of 5.9% or $175,050 from
the same quarter of last year.
Total costs and expenses were $2,501,422 in the second quarter, an
increase of $148,985 or 6.3% from the same period last year. Primary components
of costs and expenses included costs of sales of $1,300,093, an increase of
$178,515 over cost of sales of $1,121,578 for the same quarter last year,
selling and administration expense of $1,019,469, a decline of $47,660 from
selling and administration expenses of $1,067,129 in the same quarter of last
year, and depreciation and amortization expenses of $ 174,058, an increase of
$16,799 over depreciation and amortization expenses of $ 157,259 in the same
quarter of last year. The increase in the costs of sales reflects increased raw
material costs as the Company expanded its operations.
<PAGE>
Income before corporate income taxes was $635,623 in this year's
second quarter, an increase of $26,065 or 4.3% from the $609,558 achieved in
last year's second quarter. Corporate income taxes and the effective tax rate
for the period were $234,600 and 36.9% respectively, compared with $226,900 and
37.2% in the second quarter of last year.
Based on the above, net income in the second quarter of this year of
$401,023 increased $18,365 or 4.8% from the $382,658 in the same period last
year.
Earnings per share for the second quarter 1998 and 1997 were each $.08
per share. During the quarter, 26,500 shares of GMCC stock were purchased and
are being held in the treasury, resulting in a weighted average of shares
outstanding of 4,846,778 compared with 4,911,620 for the same period last year.
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. 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.
Six Months Ended December 31, 1998 compared with December 31, 1997:
Gross revenue for this year's first six months of $5,793,837 decreased
1.1% or $63,659 over last year. Sales and Royalty and Licensee income both
declined for the six months ended December 31, 1998 over the comparable period
of last year, reflecting the same factors discussed above for the quarterly
comparison. Over the six months ended December 31, 1998, investment income
increased $55,877 partially offsetting the declines in Sales and Royalty and
other income. The investment income primarily reflects mark to market adjustment
to the portfolio.
Total costs and expenses for the current six month period were
$4,882,159 an increase of $178,834 or 3.8% from last year. As a percentage of
gross revenue, total costs and expenses increased to 84.3% compared with 80.3%
in 1997. Cost of Sales as a percentage of gross revenue for the six months
increased to 44.8% from 39.2% during the comparative six month period. The
increase in Cost of Sales reflects the factors discussed above for the quarterly
period. Selling and administration expenses decreased to 33.2% of gross revenue
in the latest period compared with 35.7% last year. Depreciation and
amortization increased to 6.0% of gross revenue this year compared with 5.3% in
1997.
<PAGE>
As a result of the above, gross income before corporate income taxes
for the first six months of this year was $911,678, a decrease of $242,493 or
21.0% from last year.
Corporate income taxes in this year's first six months were $335,700,
compared to $426,500 for the comparable period of last year. This year's
effective tax rate was 36.8% compared with 37.0% last year.
As a result of the above, net income of $575,978 declined 20.8% or
$151,693 from last year. Earnings per share were $.12 this year, compared with
$.15 a share last year, a decrease of $.03 or 20.0%. During the six month period
71,500 shares of common stock were purchased and are currently being held in the
treasury, resulting in a weighted average this year of 4,873,316 compared with
4,915,208 in 1997.
<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 2/12/99
/s/Candida C. Aversenti
- ------------------------
Candida C. Aversenti
President
DATE 2/12/99
/s/Susan E. Neri
- ----------------
Susan E. Neri
Chief Accounting Officer
<PAGE>
[GRAPHIC COMPANY LOGO]
magnaplate news
Dedicated to the Future Needs of Mankind
Through Surface Enhancement
- -----------------------------
1331 U.S. Route #1
Linden, New Jersey 07036
908.862.6200
FOR IMMEDIATE RELEASE Fax: 908.862.6110
February 10, 1999 http://www.magnaplate.com
e-mail:[email protected]
General Magnaplate Corporation (NASDAQ: GMCC), announces an increase in
dividends of 20% over prior dividends, to $.06 per share. The record date will
be February 26, 1999 and the dividend will be payable to stockholders on March
12, 1999.
<PAGE>
GENERAL MAGNAPLATE CORP.
ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 4, 1998 2:00 P.M., E.S.T.
Will the meeting please come to order.
Mrs. Candida C. Aversenti, President of your Company, is pleased to
welcome you to our Annual Meeting. Introduce Edmund V. Aversenti, Secretary. Mr.
Aversenti will act as Secretary of the Annual Meeting.
1. PRESIDENT I would like to introduce to you the officers and
directors of the Company who are present.
INTRODUCTIONS
2. PRESIDENT When the formal portion of the meeting is concluded,
anyone present wishing to ask any questions will have an
opportunity to do so.
3. PRESIDENT Copies of the Annual Report have been mailed to all
shareholders and extra copies are available. Notice of
the meeting was mailed to all shareholders of record, as
well as the proxy card and the proxy statement. I will
entertain a motion to waive the reading of the notice of
the meeting, the proxy statement, and the affidavit of
mailing. Walter P. Alina makes motion, who seconds the
motion Edward A. Partenope.
PRESIDENT Will all those in favor of the motion so signify by
raising their hands (unanimous). All opposed (none). The
motion is carried, and a reading of the notice of
meeting, the proxy statement, and the affidavit of
mailing are waived, and will be attached to and filed
with the minutes of this meeting.
4. PRESIDENT The shareholders list, prepared and certified by the
Registrar & Transfer Co., Cranford, New Jersey, is here
and available during the meeting for inspection by any
shareholder. Mr. Aversenti, our Secretary, will please
report on the number of shares represented by proxy or by
shareholders present at the meeting in person.
MR. AVERSENTI MAKES HIS REPORT. TOTAL SHARES REPRESENTED BY PROXY ARE:
4,460,899 (91.6 %). (including 200 shares ea Becker/Carver)
PRESIDENT I now declare that quorum is present and that the meeting
is open for the conduct of business.
5. PRESIDENT I will entertain a motion to waive the reading of the
minutes of the last annual meeting of shareholders. S.
Thomas Aitken makes motion, Ann Dente seconds it.
PRESIDENT All those in favor of the motion please signify by
raising their hands (unanimous). All opposed (none). The
reading of the minutes has been waived.
<PAGE>
6. PRESIDENT The first order of business will be the election of seven
(7) directors to serve until the 1999 Annual Meeting of
Shareholders and until their successors shall be elected
and shall qualify.
PRESIDENT I will entertain nominations for the Board of Directors.
PRESIDENT recognizes Susan Neri, who nominates the seven (7)
candidates. She then recognizes Jim Wallwork who seconds
the nominations.
PRESIDENT recognizes Walter P. Alina, who moves that nominations be
closed. She then recognizes Larry Campbell who seconds
the motion.
PRESIDENT Will all those in favor of the motion to close
nominations signify by raising their hands (unanimous).
All opposed (none).
Nominations are closed.
7. PRESIDENT I am appointing Valerie Corigliano and Jim Becker as
Inspectors of Election and ask that they review the
shareholders list and determine the number of proxies
received. I would also ask that all shareholders who are
present, who have not sent in a proxy, to identify
themselves to the Inspectors of Election, and if they do
not wish to vote in person, to advise them that there are
extra proxies on hand which they may fill in and give to
the Inspectors of Election.
8. PRESIDENT & While awaiting report from the Inspectors of Election, I
CHAIRMAN would like to discuss certain aspects of the business,
etc.
(DISCUSSION & OUTLOOK BY PRESIDENT AND CHAIRMAN)
9. PRESIDENT We now have the report from the Inspectors of Election on
the number of shares voting, in person or by proxy, for,
or abstain, with respect to the election of the seven (7)
directors nominated: (incl Becker/Carver 200 each by
proxy)
<PAGE>
No. of Shares Voting by PROXY FOR ABSTAIN
- --------------------------------------------------------------------------------
S. Thomas Aitken 4,456,708 4,191
Candida C. Aversenti 4,452,708 8,191
Edmund V. Aversenti, Jr. 4,452,708 8,191
Charles P. Covino 4,456,708 4,191
Harold F. Levin 4,456,408 4,491
Edward A. Partenope, Jr. 4,456,708 4,191
James H. Wallwork 4,456,708 4,191
No. of Shares Voting in PERSON FOR ABSTAIN
- --------------------------------------------------------------------------------
S. Thomas Aitken
Candida C. Aversenti
Edmund V. Aversenti
Charles P. Covino
Harold F. Levin
Edward A. Partenope, Jr.
James H. Wallwork
PRESIDENT If there are any shareholders present who wish to
vote and who have not given a proxy to the Inspectors
of Election, would they please identify themselves by
name and the number of shares held and how they are
voting so that the number of shares so voted may be
added to the report of the Inspectors of Election.
PRESIDENT I declare each of the seven (7) nominees to be duly
elected as Directors of the Corporation, to serve
until the next Annual Meeting and until their
successors shall be elected and shall qualify.
10. PRESIDENT The next order of business will be the vote for the
confirmation of the selection by the Board of
Directors of Mauriello, Franklin & LoBrace, Certified
Public Accountants, as independent auditors for the
Corporation for the current fiscal year ending June
30, 1999.
<PAGE>
PRESIDENT I will entertain a motion for the confirmation of the
selection of the Corporation's independent auditors.
PRESIDENT recognizes Susan Neri who makes motion. She then
recognizes S. Thomas Aitken, who seconds the motion.
11. PRESIDENT We also have the report from the Inspectors of
Election on the number of shares voting in person or
by proxy for, against or abstain with respect to the
selection by the Board of Directors of Mauriello,
Franklin & LoBrace, Certified Public Accountants, as
independent auditors for the Corporation for the
current fiscal year ending June 30, 1999. The report
is as follows:
FOR: 4,450,652 AGAINST: 2,444 ABSTAIN: 7,803
PRESIDENT If there are any shareholders present who wish to
vote and who have not given a proxy to the Inspectors
of Election, would they please identify themselves by
name and the number of shares held and how they are
voting so that the number of shares voted may be
added to the report of the Inspectors of Election.
PRESIDENT I declare confirmation of the action of the Board of
Directors in selecting Mauriello, Franklin & LoBrace,
Certified Public Accountants, as independent auditors
for the Corporation for the current fiscal year
ending June 30, 1999.
12. PRESIDENT The next order of business will be the vote on an
Amendment to the Articles of Incorporation,
increasing the Authorized Shares of Common Stock, No
Par Value to 20,000,000 shares from 5,000,000 shares.
I will entertain a motion to open this matter for a
vote.
PRESIDENT recognizes Harold F. Levin who makes motion. She then
recognizes Jim Wallwork who seconds the motion.
PRESIDENT We have the report from the Inspectors of Election on
the number of shares voting in person or by proxy
for, against or abstain with respect to this
Amendment. The report is as follows:
FOR: 4,293,332 AGAINST: 151,620 ABSTAIN: 15,947
If there are any shareholders present who wish to
vote and who have not given a proxy to the Inspectors
of Election, would they please identify themselves by
name and the number of shares held and how they are
voting so that the number of shares voted may be
added to the report of the Inspectors of Election.
PRESIDENT I declare that the Amendment to the Articles of
Incorporation has been adopted.
<PAGE>
13. PRESIDENT At this time I will be pleased to entertain
any questions which anyone present may wish to ask. I
would also like to point out that Mr. Joe Franklin a
certified public accountant and a member of the firm
of Mauriello, Franklin & LoBrace, our auditors, is
also present and available for questions as well.
ANY QUESTIONS?
14. PRESIDENT Are there any further matters to be acted
upon, for, if not, this will conclude the Annual
Meeting of Shareholders and I will now entertain a
motion to adjourn. A motion to adjourn was then made
by S. Thomas Aitken , seconded by Ann Dente, and
unanimously carried.
15. PRESIDENT The meeting is now officially adjourned.
May I remind the Directors that we will be holding
our Annual Meeting of the Board of Directors very
shortly.
16. PRESIDENT I wish to thank all of you for attending
the Annual Meeting of Shareholders.
IF ANY OTHER PROPOSALS COME UP:
FOR: 4,272,639 AGAINST: 140,586 ABSTAIN: 47,674
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 848,257
<SECURITIES> 3,045,709
<RECEIVABLES> 1,491,011
<ALLOWANCES> 105,000
<INVENTORY> 377,949
<CURRENT-ASSETS> 6,200,949
<PP&E> 13,636,676
<DEPRECIATION> 7,356,270
<TOTAL-ASSETS> 14,571,210
<CURRENT-LIABILITIES> 514,139
<BONDS> 0
0
0
<COMMON> 223,180
<OTHER-SE> 12,037,841
<TOTAL-LIABILITY-AND-EQUITY> 14,571,210
<SALES> 5,303,961
<TOTAL-REVENUES> 5,793,837
<CGS> 2,595,551
<TOTAL-COSTS> 4,866,029
<OTHER-EXPENSES> 16,130
<LOSS-PROVISION> 39,379
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 911,678
<INCOME-TAX> 335,700
<INCOME-CONTINUING> 575,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 575,978
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
</TABLE>
