UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 1996 Commission file number: 0-2977
GENERAL MAGNAPLATE CORPORATION
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(exact name of Registrant as specified in its charter)
A New Jersey corporation No. 22-1641813
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1331 U.S. Route 1, Linden, New Jersey 07036
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(address of principal executive offices)
Registrant's telephone number, including area code (908) 862-6200
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, No Par Value NASDAQ under the symbol GMCC
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant. (The market value is computed by reference to the price at which the
stock was sold as of August 15, 1996): $7,656,789
The number of shares outstanding of each of the Registrant's classes of common
stock, as of June 30, 1996: 2,634,797 one class Common Stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report for year ended June 30, 1996, to be filed pursuant to
Section 14 of the Securities and Exchange Act of 1934 within 120 days
after the end of the Registrant's 1996 fiscal year, is incorporated by
reference or in Parts I through IV.
(2) Proxy and Proxy Soliciting material for Annual Meeting to be held
November 6, 1996, to be filed pursuant to Section 14 of the Securities
and Exchange Act of 1934 within 120 days after the end of the
Registrant's 1996 fiscal year, is incorporated by reference or in Parts
I through IV.
PART I
Item 1. BUSINESS
General Magnaplate Corporation (the "Registrant") is principally
engaged in applying, through various proprietary and other processes, coatings
which cannot chip, peel or rub off and which increase the hardness, corrosion
resistance, wear resistance and/or lubricity of metal parts produced by its
customers.
The Registrant applies coatings to aluminum, steel, copper alloys,
titanium, magnesium and other special alloys. Depending on the results sought,
these coatings are more resistant to corrosion, more durable and have lower
friction characteristics than the metals to which they are applied. The
Registrant terms its coatings "Synergistic" because they apply several types of
materials or metals to the base metal to form a composite coating which is then
infused to become an integral part of the underlying metal. The composition and
thickness of the coatings are controllable and thus can be varied according to
the characteristics which the Registrant's customers need for the end product
required. Because the coatings change the surface qualities of the base metal,
they can permit the use, in some applications, of underlying metals which are
less expensive, easier to shape or lighter than other metals or alloys with
similar qualities.
The Registrant's names for its main proprietary processes are: TUFRAM
for aluminum, NEDOX for most metals, MAGNAPLATE HMF for most metals, MAGNAPLATE
HCR for aluminum, CANADIZE for titanium, MAGNADIZE for magnesium, LECTROFLUOR
for all metals, HI-T-LUBE a specialized dry film lubrication coating,
PLASMADIZE, a composite coating for extreme wear application for most metals,
MAGNAGOLD, an enhanced titanium nitride PVD coating for various metals and
ultra-hard alloy steels to increase surface hardness, GOLDENEDGE, an ultra-hard,
ultra-thin TiN PVD coating for blades and all sharp-edged tools, MAGNAPLATE HTR,
for superior release on all metals and MAGNAGLOW, a high-visibility, hi-lite
colored coating for most metals. Each proprietary process consists of a number
of variations that can be employed to meet customer requirements. The Registrant
has obtained trademark coverage for twelve of these proprietary processes in the
United States and on several of them in certain foreign countries. Coatings
using these and other proprietary processes have represented approximately 95%
of the Registrant's total operating revenues for the fiscal year ended June 30,
1996.
The Registrant handles each job on a "custom" basis, according to each
customer's specifications. Items coated vary greatly in size and shape.
Production runs vary from a few to thousands. Prices for coating services depend
on the length of the production run, the complexity of the work and other
factors associated with custom work. The Registrant's coatings are used in the
machine tool, food processing, packaging, defense, aerospace, pharmaceutical,
pulp and paper, oil service and electronics industries, as well as in other
industries which use metal parts. Should United States Government expenditures
for military equipment increase, the Registrant expects that there will be a
greater demand for its coating services, although it cannot predict the effect
of such an increase on its profits.
The Registrant is in one line of business, i.e., providing synergistic
coatings and other related services to its customers' products. Hence there is
no financial information about industry segments.
Financial information relating to foreign operations is as follows:
The company has invested net assets of $191,933 in its Ajax Ontario
operation as of June 30, 1996.
Foreign operations (principally Canada) constitutes 8.7%, 6.3%, and 6.5
% of total sales in the three years ending June 30, 1994, 1995 and 1996
respectively. Foreign operations constitute 4.9%, 0% and 1.7% of pre-tax profits
for the three years ended June 30, 1994, 1995 and 1996 respectively.
Marketing
The Registrant markets its metal coating services through a staff of
twenty two technical market support personnel, including six independent
representatives operating from its facilities in New Jersey, Texas, Wisconsin,
California and Canada. New customers also come to the Registrant through
advertising, trade shows, seminars and editorial coverage in numerous trade
journals and referrals from the Registrant's customers.
The Registrant's marketing, operation, management and engineering
staffs include persons who have training in metallurgy and other technical
fields. The Registrant's objective is to work with customers and prospective
customers in the early stages of the design and specification process, with a
view toward obtaining production contracts for the coating of the items being
designed. Coatings initially developed for one customer are, in some instances,
sold by the Registrant to other customers.
For the fiscal year ended June 30, 1996, no one customer accounted for
more than 10% of the total revenues of the Registrant.
Research and Development
The metal coatings industry is characterized by rapid technological
changes requiring the Registrant to make continuing expenditures for development
of new coatings and the improvement of existing coatings in order to meet
customer needs.
During the fiscal year ended June 30, 1996, the Registrant spent an
estimated $35,000 on unreimbursed research and development. Additional costs
incurred were paid by customers requiring special coatings and treatments. All
costs associated with the development of new processes and the maintenance and
enhancement of existing processes are charged against income as incurred or
borne by the customer in the form of contracts.
License Agreements
The Registrant has licensing agreements with the following overseas
organizations: Ulvac Japan, Ltd. (Japan), YTTEC AB (Sweden), A.T. Poeton & Sons,
Ltd. (United Kingdom), and MIFA Aluminum BV (Netherlands), and will continue
seeking additional licensees. Since inception, several of these licensees have
increased their processing capabilities by taking licenses for additional
proprietary processes.
The Registrant receives periodic royalty payments under these
agreements based on sales of products to which Registrant's coating technology
is applied. The agreements also provide for two-way exchange of new and related
technology developed by Registrant and licensees.
The contributions of the licensees amounted to 2.7% of the gross
revenue of the Registrant and are expected to continue to rise.
Competition
The metal coatings industry is highly competitive. There are many
companies which provide metal treatments which, to varying extents, are
alternatives to the Registrant's processes. However, the Registrant believes
that none of the Registrant's competitors utilize processes similar to the
Registrant's proprietary processes. The Registrant believes that it competes
primarily on the basis of its manufacturing expertise, its superior proven
processes and coatings, and its reputation for problem solving, and that its
pricing is a less significant competitive consideration than these factors.
Raw Materials
The Registrant's primary raw materials are chemicals and polymers which
are manufactured by large chemical companies and are readily available. The
Registrant blends these raw materials in its proprietary processes. The
Registrant believes that sources of supply are adequate for its needs and that
it is not substantially dependent upon any one supplier.
Protection of Proprietary Information
Several new patents have been filed on processes for surface treatments
in the US and in key foreign nations. While management believes that its
existing patents have had competitive merit, it does not believe that patent
protection is essential to the ongoing operations of the Registrant due to the
know-how developed over the past years.
The Registrant has acquired 17 United States trademarks and
servicemarks, and 13 foreign trademarks and servicemarks. These trademarks and
servicemarks cover 15 of the Registrant's processes in the United States and one
or more of the Registrant's processes in Canada, Great Britain, France, Japan,
Sweden, and Norway. While management believes these trademarks and servicemarks
have competitive merit, it does not believe that trademark and servicemark
protection is essential to the ongoing operations of the Registrant.
Many processes cannot be patented due to cost and limited market
potential. Also, the patenting process can be expensive and can result in public
disclosure of proprietary information. Therefore, the Registrant's present
approach is to treat its production processes as confidential and rely on
internal non-disclosure safeguards, including written confidential disclosure
agreements, particularly among its more technically trained personnel, and on
trade secrets laws, as well as on restrictions incorporated in its license
agreements for protection of what it regards as proprietary information about
its coatings and processes. Notwithstanding these efforts, it may be possible
for competitors to duplicate or copy the Registrant's processes.
Employees
At June 30, 1996, the Registrant had 122 employees, of whom 14 were
employed in marketing and sales operations, 22 in administration and 86 in
production and quality assurance.
The Registrant's employees in all of the Registrant's plants, New
Jersey, California, Texas, Wisconsin and Canada are not represented by labor
unions. Management believes that its relations with its employees are good.
Environmental, Safety and Health Matters
The Registrant believes it is currently in compliance with all Federal,
state and local environmental protection laws and Federal and state occupational
safety and health standards. Capital expenditures made by the Registrant for
enhancement and improvement of environmental, health and safety systems
represented approximately 5% of the Registrant's revenues, and the Registrant
anticipates that such expenditures will not exceed that level for the
foreseeable future to meet existing Federal, state and local laws and standards.
Changes in current laws and standards could require additional expenditures and
adversely affect the Registrant's operations and profitability.
Item 2. PROPERTIES
The Registrant's corporate executive offices and a production facility
are located in a modern, one story, high ceiling, steel and concrete structure,
with an attached two story administrative and office area, located at 1331 U.S.
Route 1, Linden, New Jersey. The Registrant owns this structure and the
approximately 4 acres of land on which it is located. Total square footage
within the structure is approximately 100,000 square feet. Approximately 30% of
the premises is leased to an unrelated party. Title is unencumbered.
In November 1982, the Registrant, through its wholly-owned subsidiary,
Candida Realty Texas, purchased a manufacturing facility, including executive
offices, in Arlington, Texas (in the Dallas/Fort Worth area). This property
consists of a modern, one story, cinder block and concrete structure, containing
approximately 37,500 square feet of space located on approximately 2 acres of
land. Title is unencumbered.
In 1989, the Registrant, through its wholly-owned subsidiary Candida
Realty Texas, purchased a modern one story brick and concrete structure
containing 30,401 square feet of office and manufacturing facility on 2.2 acres
in Arlington, Texas, and which property is adjacent to the existing plant of the
Registrant's Arlington operation. Approximately 10,000 square feet is available
for lease to an unrelated party. Title is unencumbered.
In 1980, the Registrant, through its wholly-owned subsidiary, Candida
Realty California, purchased a production and office facility in Ventura,
California, consisting of 4 modern, 1 story, concrete block and steel buildings,
which contain a total of approximately 32,000 square feet of space located on
approximately 2 acres of land. Title is unencumbered.
On December 28, 1989, the Registrant acquired certain assets of Ra-Tech
Inc., a Racine, Wisconsin based hard anodizing metal specialist. The operations
were incorporated under the name of General Magnaplate Wisconsin, Inc., a
wholly-owned subsidiary of Registrant. During the fiscal year ending June 30,
1991, the Registrant, through its wholly-owned subsidiary, Candida Realty
Wisconsin, Inc., acquired 16,000 square feet of production and office space in a
building located on over 2.5 acres, into which General Magnaplate Wisconsin,
Inc. moved in October, 1991 and its business is now operational. During the
fiscal year ended June 30, 1996 the registrant substantially completed a 7,550
square foot expansion and renovation of this facility. Title is unencumbered.
On January 2, 1990 the Registrant acquired the operating assets of
Dynasurf International, Inc., an Ontario, Canada based hard metal coatings
specialist. The operations were incorporated under the name General Magnaplate
Canada, Ltd., a wholly-owned subsidiary of Registrant, which has continued
operations in the same premises consisting of some 9,000 square feet in a one
story brick building, leased on a month to month basis.
Item 3. LEGAL PROCEEDINGS
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 has filed a counterclaim
for environmental and other costs which result from the seller not resolving
certain environmental issues warranted in the contract of purchase. Further, a
shareholder of Dynasurf International, Inc. has also filed a claim for breach of
oral contract of employment for $119,000 which the Registrant has denied in its
related statement of defense. The Company reached an out of court agreement with
the plaintiffs on September 9, 1996 wherein the plaintiffs were collectively to
be paid the sum of $65,000 U.S. dollars in full settlement of their claim. Such
settlement shall not have an adverse effect on the Company's financial
statements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1996.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
Market Information
The Registrant's Common Stock is traded in the over-the-counter market
under the symbol GMCC, and is reported on the National Association of Security
Dealers Automated Quotations System ("NASDAQ"). The following table sets forth
the range of high and low sales price per share of the Registrant's Common Stock
for the periods indicated, as reported by NASDAQ on the composite tape as
provided by the National Quotation Bureau, Incorporated.
FISCAL PERIOD HIGH/LOW SALES PRICE
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1996 High Low
1st Quarter .............................. 5 1/4 4 1/8
2nd Quarter .............................. 6 1/8 4 3/4
3rd Quarter .............................. 6 5/8 5 1/4
4th Quarter .............................. 7 1/4 6
1995 High Low
1st Quarter .............................. 4 5/8 3 7/8
2nd Quarter .............................. 4 3/4 3 3/4
3rd Quarter .............................. 6 1/2 4 3/8
4th Quarter .............................. 6 5
Holders
The approximate number of security holders of the Registrant's Common
Stock as of June 30, 1996 was 288.
Dividends
The Registrant has paid cash dividends on its Common Stock since 1977.
Payments for the past five fiscal years are as follows:
To Holders of Record as of
Amount Date Paid the Close of Business On
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$.05 March 8, 1996 February 23, 1996
.05 October 16, 1995 September 29, 1995
.05 March 1, 1995 February 20, 1995
.04 January 28, 1994 January 14, 1994
.08 June 15, 1993 June 4, 1993
.03 October 4, 1991 September 13, 1991
.015 April 5, 1991 March 8, 1991
.03 October 5, 1990 September 14, 1990
.02 April 6, 1990 March 9, 1990
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data with respect to
the Consolidated Statements of Income of the Company for the five years ended
June 30, 1996 and the Consolidated Balance Sheets of the Registrant as of the
end of such years. The selected financial data for the five years are derived
from financial statements for such years and as of such dates as examined by
Mauriello, Franklin & LoBrace, independent auditors, including the Consolidated
Financial Statements for the three years ended June 30, 1996 and the
Consolidated Balance Sheets, as of June 30, 1996 and 1995 included elsewhere
herein, and such data are qualified by reference to such financial statements
and notes thereto.
Years Ended June 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Selected Income Statement Data:
Gross Revenue ............................ $10,777,072 $10,048,857 $ 9,893,134 $10,302,712 $ 8,690,238
Income Before Taxes ...................... 2,349,529 2,086,084 2,033,177 2,111,418 401,277
Net Income ............................... 1,486,285 1,217,305 1,323,575 1,341,853 194,429
Earnings per share ....................... $ .55 $ .42 $ .44 $ .44 $ .06
Dividends per share ...................... $ .10 $ .05 $ .04 $ .08 $ .03
Shares Outstanding:
Weighted Average Shares ............... 2,717,958 2,887,504 3,040,331 3,051,694 3,078,148
At Year End ........................... 2,634,797 2,774,013 2,956,194 3,051,694 3,051,694
Selected Balance Sheet Data:
Total Assets ............................. $13,333,716 $12,923,076 $12,782,623 $12,260,467 $11,285,651
Working Capital .......................... 5,668,941 5,358,460 4,907,254 3,538,425 2,416,642
Long-Term Debt ........................... -0- -0- 175,682 510,763 593,113
Stockholders' Equity ..................... 11,280,432 10,902,198 10,830,153 10,156,354 9,097,506
Stockholders' Equity per share ........... $ 4.28 $ 3.93 $ 3.66 $ 3.33 $ 2.98
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Business Environment
General Magnaplate Corporation is principally engaged in applying,
through various proprietary and other processes, synergistic coatings for metal
parts produced by its customers. Rapid technological advances, typical of the
coatings industry, compel General Magnaplate to improve existing coatings or
develop new processes to meet our customers' changing needs.
Management believes that it competes primarily on the basis of
manufacturing expertise, its superior proven proprietary processes and coatings,
and its reputation for problem solving, and that its pricing is a less
significant competitive consideration than these factors. These factors are
responsible for our continuing growth of marketshare as well as our financial
stability in an uncertain economy. Management expects that there will be a
greater demand for its coating services although it cannot predict the impact on
future earnings.
Financial Condition
Liquidity and Capital Resources
Three Years Ended 1996
In the three-year period ended June 30, 1996, $5,131,695 net cash was
provided by operating activities of which $1,643,720 net cash was used in
investing activities and $3,429,579 net cash was used in financing activities,
resulting in an increase in cash and cash equivalents of $58,396.
The net cash provided by operating activities was principally from: net
income of $4,027,165; depreciation and amortization of $1,847,700; allowance for
unrealized losses on marketable securities of $252,564; and accrued deferred
compensation of $383,831; reduced by the increase in marketable securities of
$1,390,855.
The net cash used in investing activities was principally from:
additions to marketable securities of $3,757,167; and additions to property,
plant and equipment of $1,129,774; reduced by proceeds from sales of marketable
securities of $2,801,944; and the redemption of cash surrender value - life
insurance of $514,734.
The net cash used in financing activities was principally from: the
acquisition of treasury stock of $2,296,999; dividends paid of $540,717; and the
payment of bank debt of $591,863.
Working capital of $5,668,941 at June 30, 1996 increased by $2,130,516
or 60% during the three-year period and the working capital ratio increased to
6.3 to 1 from 4.6 to 1 at June 30, 1993. Stockholders' equity per share at June
30, 1996 increased 29% to $4.28 per share compared with $3.33 per share at June
30, 1993. During 1996, 139,216 shares of treasury stock at a cost of $833,243
were retired and canceled. During 1995, 182,181 shares of treasury stock at a
cost of $1,001,105 were retired and canceled.
Management believes that cash provided by operating activities and
proceeds from sales of marketable securities will be sufficient to provide the
capital resources necessary to support future operating needs, and does not
anticipate any material expenditures which will have a significant impact on
future cash flows.
Results of Operations
Fiscal 1996 vs. 1995 vs. 1994
Total revenue for 1996 of $10,777,072 represented an increase of
$728,215 or 7.2% over 1995, while total revenue for 1995 was $155,723 or 1.6%
over 1994.
The respective increases in total revenue for 1996 over 1995 were from:
sales of $385,826 or 4.0%; royalty and license income of $68,993 or 30.6%; and
investment and other income of $273,396 or 136.6%.
The respective net increase in total revenue for 1995 over 1994 was
from: sales of $84,737 or 0.9%; and investment and other income of $89,020 or
80.1%; while royalty and license income decreased $18,034 or 7.4%.
Sales for 1996, 1995 and 1994 were $10,008,851, $9,623,025 and
$9,538,288, respectively, representing approximately 93%, 96% and 96% of total
revenue in each respective year. Management expects that these positive sales
trends will continue into the upcoming year.
Royalty and license income was $294,651 in 1996, $225,658 in 1995, and
$243,692 in 1994. Negotiations are continuing to take place regarding potential
new licensees worldwide in the upcoming year.
Investment and other income was $473,570 in 1996, $200,174 in 1995, and
$111,154 in 1994. These increases were principally due to the increases in
marketable securities and the addition of high yield fixed income investments to
the portfolio.
Total costs and expenses for 1996 of $8,427,543 represented an increase
of $464,770 or 5.8% over 1995, while total costs and expenses for 1995 of
$7,962,773 was an increase of $102,816 or 1.3% over 1994. As a percentage of
total revenue, total costs and expenses were 78.2% in 1996, 79.2% in 1995 and
79.4% in 1994.
The reduction of 1.0% in total costs and expenses as a percentage of
total revenue in 1996 when compared to 1995, is primarily due to the reduction
in cost of sales.
These percentage reductions illustrate management's ability to
stabilize operating costs and expenses in view of the increases in revenue.
As the result of the above, income before corporate income taxes was
$2,349,529 or 21.8% of total revenue in 1996, representing an increase of
$263,445 or 12.6% over 1995, while income before corporate income taxes was
$2,086,084 or 20.8% of total revenue in 1995, an increase of $52,907 or 2.6%
over 1994.
Corporate income taxes and the effective tax rate were $863,244 and
36.7%, respectively, in 1996, $868,779 and 41.7% in 1995 and $709,602 and 34.9%
in 1994.
Net income in 1996 of $1,486,285 or 13.8% of total revenue, represented
an increase of $268,980 or 22.1% over 1995. Net income in 1995 of $1,217,305 or
12.1% of total revenue, represented a decrease of $106,270 or 8.0% when compared
to 1994. The increase in the current year over 1995 was primarily due to the
reduction in total costs and expenses as a percentage to total revenue, when
applied to the greater revenue base. The decrease in 1995 compared to 1994 was
primarily due to the higher effective corporate income tax rate in 1995 versus
1994.
Earnings per share in 1996, 1995 and 1994 were $.55, $.42, and $.44,
respectively. During this three-year period, 416,897 shares of treasury stock
were canceled and retired, resulting in weighted average shares outstanding of
2,717,958, 2,887,504 and 3,040,331 in 1996, 1995 and 1994, respectively.
Management believes that the litigation as detailed in Note 9 of the
Consolidated Financial Statements will have no significant impact on future
earnings.
No other significant financial matters are expected in the future which
will have a material adverse impact on earnings.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The accompanying Consolidated Financial Statements and related
Schedules of the Registrant and its wholly-owned subsidiaries have been filed
with the Securities and Exchange Commission and are incorporated herein by
reference.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and have therefore
been omitted.
Item 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change of accountants nor any disagreements.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of the Shareholders to be held
on November 6, 1996, to be filed pursuant to Section 14 of the Securities and
Exchange Act of 1934 within 120 days after the end of the Registrant's 1996
fiscal year.
Item 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of the Shareholders to be held
on November 6, 1996, to be filed pursuant to Section 14 of the Securities and
Exchange Act of 1934 within 120 days after the end of the Registrant's 1996
fiscal year.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of the Shareholders to be held
on November 6, 1996, to be filed pursuant to Section 14 of the Securities and
Exchange Act of 1934 within 120 days after the end of the Registrant's 1996
fiscal year.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of the Shareholders to be held
on November 6, 1996, to be filed pursuant to Section 14 of the Securities and
Exchange Act of 1934 within 120 days after the end of the Registrant's 1996
fiscal year.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report.
(1) Financial Statements: The following Consolidated Financial Statements
of General Magnaplate Corporation and Report of Independent Auditors
are incorporated by reference:
Consolidated Balance Sheet - June 30, 1996 and 1995
Consolidated Statement of Income - Fiscal Years Ended June 30,
1996, 1995 and 1994
Consolidated Statement of Shareholders' Equity - Three-Year
Period Ended June 30, 1996
Consolidated Statement of Cash Flows - Fiscal Years Ended
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Auditors
Consent of Independent Auditors
(2) Financial Statement Schedules: The following financial statement
schedule of General Magnaplate Corporation for the fiscal years ended
June 30, 1996, 1995 and 1994 is filed as part of this report and should
be read in conjunction with the Consolidated Financial Statements of
General Magnaplate Corporation.
Schedule VIII Valuation and Qualifying Accounts
(3) Exhibits: The Exhibits listed below are immediately following the
financial statement schedule and are filed as part of, or incorporated
by reference into, this Report.
Exhibit No. Description
1 List of Subsidiaries
2 Performance Graph
(b) Reports on Form 8-K: No reports were filed by the Company during the
fiscal quarter ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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) By: /s/ Charles P. Covino
---------------------
Charles P. Covino
Chairman, Board of Directors
(Chief Executive Officer and
Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(Date) By: /s/ Candida C. Aversenti
------------------------
Candida C. Aversenti
President and Director
(Date) By: /s/ Edward A. Partenope, Jr.
----------------------------
Edward A. Partenope, Jr.
Director
(Date) By: /s/ Susan E. Neri
-------------------
Susan E. Neri
Assistant Vice President
and Principal Accounting Officer
(Date) By: /s/ Edmund V. Aversenti, Jr.
----------------------------
Edmund V. Aversenti, Jr.
Vice President, Secretary and Director
MAURIELLO, FRANKLIN & LoBRACE
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
45 SPRINGFIELD AVENUE, SPRINGFIELD, NEW JERSEY 07061
TELEPHONE (201) 379-5400 FAX (201) 379-3696
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
General Magnaplate Corporation:
We have audited the accompanying consolidated balance sheets of General
Magnaplate Corporation and Wholly-Owned Subsidiaries as of June 30, 1996 and
June 30, 1995 and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended June 30,
1996. Our audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company and Wholly-Owned
Subsidiaries at June 30, 1996 and June 30, 1995 and the results of their
operations and cash flows for each of the three years in the period ended June
30, 1996, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/Mauriello, Franklin & LoBrace, P.C.
-----------------------------------
Mauriello, Franklin & LoBrace, P.C.
August 9, 1996, except for
Note 9 as to which the date
is September 9, 1996
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of General Magnaplate Corporation and Wholly-Owned Subsidiaries of
our report dated August 9, 1996, except for Note 9 as to which the date is
September 9, 1996, included in the 1996 Annual Report to Shareholders of General
Magnaplate Corporation and Wholly-Owned Subsidiaries.
Our audits also included the financial statement schedule of General
Magnaplate Corporation and Wholly-Owned Subsidiaries listed in Item 14(a). This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Mauriello, Franklin, & LoBrace, P.C.
-----------------------------------
Mauriello, Franklin, & LoBrace, P.C.
Springfield, New Jersey
September 20, 1996
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
ASSETS 1996 1995
------ ----------- -----------
Current assets:
Cash and cash equivalents .................... $ 680,570 $ 369,276
Marketable securities (Note 1) ............... 4,192,421 4,128,758
Accounts receivable--trade, net of
allowance for doubtful accounts of
$137,000 (June 30, 1995-$106,000) .......... 1,254,845 1,328,954
Inventories (Note 1) ......................... 273,073 271,518
Prepaid expenses ............................. 177,321 170,141
Other current assets ......................... 158,287 292,814
----------- -----------
Total current assets ..................... $ 6,736,517 $ 6,561,461
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ................. 5,432,330 5,427,711
Cash surrender value of officers' life
insurance, net ............................... 664,162 555,141
Other assets (Note 3) .......................... 500,707 378,763
----------- -----------
Total assets ............................... $13,333,716 $12,923,076
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------ ----------- -----------
Current liabilities:
Note payable-bank (Note 4) $ -0- $ 177,544
Accounts payable 437,113 193,360
Accrued liabilities (Note 6) 559,903 644,593
Corporate income taxes payable 70,560 187,504
----------- -----------
Total current liabilities $ 1,067,576 $ 1,203,001
----------- -----------
Long-term liabilities:
Rent security deposit $ 7,877 $ 7,877
Accrued deferred compensation (Note 7) 977,831 810,000
----------- -----------
Total long-term liabilities $ 985,708 $ 817,877
----------- -----------
Total liabilities $ 2,053,284 $ 2,020,878
----------- -----------
Contingencies (Note 9)
Stockholders' equity:
Common stock--no par value
Authorized--5,000,000 shares
Issued and outstanding--2,634,797
shares (1995--2,774,013 shares) $ 223,180 $ 223,180
Retained earnings 11,178,589 10,798,949
Foreign currency translation adjustment
(Note 1) (121,337) (119,931)
----------- -----------
Total stockholders' equity $11,280,432 $10,902,198
----------- -----------
Total liabilities and
stockholders' equity $13,333,716 $12,923,076
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
Foreign
Currency
Common Retained Translation
Stock Earnings Adjustment
----------- ------------ ----------
Balance, July 1, 1993 .............. $ 223,180 $ 9,989,140 $ (55,966)
Net income for year ended
June 30, 1994 .................. -0- 1,323,575 -0-
Dividends paid ................... -0- (122,068) -0-
Acquisition and retirement of
95,500 shares of treasury
stock .......................... -0- (462,651) -0-
Foreign currency translation
adjustment ..................... -0- -0- (65,057)
----------- ------------ ----------
Balance, June 30, 1994 ............. $ 223,180 $ 10,727,996 $ (121,023)
Net income for year ended
June 30, 1995 .................. -0- 1,217,305 -0-
Dividends paid ................... -0- (145,247) -0-
Acquisition and retirement of
182,181 shares of treasury
stock .......................... -0- (1,001,105) -0-
Foreign currency translation
adjustment ..................... -0- -0- 1,092
----------- ------------ ----------
Balance, June 30, 1995 ............. $ 223,180 $ 10,798,949 $ (119,931)
Net income for year ended
June 30, 1996 .................. -0- 1,486,285 -0-
Dividends paid ................... -0- (273,402) -0-
Acquisition and retirement of
139,216 shares of treasury
stock .......................... -0- (833,243) -0-
Foreign currency transaction
adjustment ..................... -0- -0- (1,406)
----------- ------------ ----------
Balance, June 30, 1996 ............. $ 223,180 $ 11,178,589 $ (121,337)
=========== ============ ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
----------- ----------- -----------
Gross revenue:
Sales ........................... $10,008,851 $ 9,623,025 $ 9,538,288
Royalty and license income ...... 294,651 225,658 243,692
Investment and other
income, net (Note 1) .......... 473,570 200,174 111,154
----------- ----------- -----------
$10,777,072 $10,048,857 $ 9,893,134
----------- ----------- -----------
Costs and expenses:
Cost of sales ................... $ 4,083,037 $ 3,912,387 $ 3,804,162
Selling and
administration ................ 3,737,594 3,392,307 3,383,838
Depreciation and
amortization .................. 600,460 619,238 628,002
Interest ........................ 6,452 38,841 43,955
----------- ----------- -----------
$ 8,427,543 $ 7,962,773 $ 7,859,957
----------- ----------- -----------
Income before corporate
income taxes .................... $ 2,349,529 $ 2,086,084 $ 2,033,177
Corporate income taxes
(Notes 1 and 5) ................. 863,244 868,779 709,602
----------- ----------- -----------
Net income ........................ $ 1,486,285 $ 1,217,305 $ 1,323,575
=========== =========== ===========
Earnings per share (Note 1) ....... $ .55 $ .42 $ .44
=========== =========== ===========
Weighted average shares
outstanding (Note 1) ............ 2,717,958 2,887,504 3,040,331
=========== =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................. $ 1,486,285 $ 1,217,305 $ 1,323,575
----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............. $ 600,460 $ 619,238 $ 628,002
Provision for losses on accounts receivable 90,463 17,635 2,000
Allowance for unrealized losses on
marketable securities ................... -- -- 252,564
Realized and unrealized losses (gains) from
marketable securities ................... (29,746) (30,489) (45,839)
Gain on sale of land held for investment .. -- (25,000) --
Deferred taxes ............................ (36,959) (1,133) (82,376)
Deferred compensation ..................... 167,831 108,000 108,000
Foreign currency translation adjustment ... (1,406) 1,092 (65,057)
Change in operating assets and liabilities:
Marketable securities .................... (33,917) (1,356,938) --
Accounts receivable ...................... (16,354) (35,093) 47,147
Inventories .............................. (1,555) 3,732 (19,467)
Other current assets ..................... 46,330 15,683 (40,357)
Accounts payable and accrued liabilities . 159,063 125,225 (40,401)
Corporate income taxes ................... (61,473) 166,471 (113,723)
Rent security deposit .................... -- 7,877 (25,000)
----------- ----------- -----------
Total adjustments .................... $ 882,737 $ (383,700) $ 605,493
----------- ----------- -----------
Net cash provided by operating activities . $ 2,369,022 $ 833,605 $ 1,929,068
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable securities $ -- -- $ 2,801,944
Additions to marketable securities .......... -- -- (3,757,167)
Additions to property, plant, and equipment . (601,227) (268,647) (259,900)
Reduction in (additions to) other assets .... (63,291) (4,473) (5,693)
Redemption of (additions to) cash surrender
value-life insurance ...................... (109,021) (43,323) 667,078
----------- ----------- -----------
Net cash used in investing activities ..... $ (773,539) $ (316,443) $ (553,738)
----------- ----------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of bank debt ..................... $ (177,544) $ (333,800) $ (80,519)
Acquisition of treasury stock ............ (833,243) (1,001,105) (462,651)
Dividends paid ........................... (273,402) (145,247) (122,068)
----------- ----------- -----------
Net cash used in financing activities .. $(1,284,189) $(1,480,152) $ (665,238)
----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents ......................... $ 311,294 $ (962,990) $ 710,092
Cash and cash equivalents, beginning of year 369,276 1,332,266 622,174
----------- ----------- -----------
Cash and cash equivalents, end of year ..... $ 680,570 $ 369,276 $ 1,332,266
=========== =========== ===========
Supplementary cash flow data:
Interest paid ............................ $ 6,452 $ 38,841 $ 43,955
Income taxes paid ........................ $ 924,717 $ 702,308 $ 966,537
Non-cash transactions:
Sale of land in consideration for
note receivable ......................... $ -- $ 310,000 $ --
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Cost exceeded market value by $2,046 at June 30, 1996.
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.
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.
Reclassifications
Certain amounts in the 1995 consolidated financial statements
have been reclassified to conform with the 1996 presentation.
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:
June 30,
------------------------------
1996 1995
----------- -----------
Land ..................................... $ 805,350 $ 805,350
Buildings ............................ 3,366,208 3,366,208
Building improvements ................ 3,393,127 3,007,478
Factory machinery .................... 4,465,319 5,064,890
Office equipment ..................... 865,614 822,687
Transportation equipment ............. 264,026 224,440
----------- -----------
Total ................................ $13,159,644 $13,291,053
Less--accumulated
depreciation ....................... 7,727,314 7,863,342
----------- -----------
Net .................................. $ 5,432,330 $ 5,427,711
=========== ===========
Note 3--Other Assets
Other assets are as follows:
June 30,
------------------------------
1996 1995
----------- -----------
Patents and trademarks, at
cost, net of accumulated
amortization ............................... $ 37,020 $ 30,414
Deferred income taxes ........................ 174,676 112,171
Note receivable-related party ................ 235,000 235,000
Deferred compensation contracts .............. 54,011 -0-
Unamortized deferred mortgage
fees ........................................ -0- 1,178
----------- -----------
$500,707 $378,763
======== ========
Note 4--Note Payable-Bank
Note payable-bank is as follows:
Note payable Bank One, Racine, NA in the original amount of $260,000 secured by
a first mortgage on Racine, Wisconsin real estate and payable in equal monthly
installments of $2,955 commencing November 1, 1990 and continuing until October
1, 1995 at which time the note balance was paid in full. Interest was computed
at the bank's base lending rate plus .4% per annum subject to a floor of 7% and
a ceiling of 13% per annum.
June 30,
1996 1995
-------- --------
$ -0- $177,544
======== ========
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5--Corporate Income Taxes
Components of corporate income tax expense are as follows:
Years Ended June 30,
--------------------
1996 1995 1994
--------- --------- ---------
Current:
Federal ............. $ 730,220 $ 770,988 $ 700,189
State ............... 169,983 98,925 91,789
Foreign ............. -0- -0- -0-
--------- --------- ---------
$ 900,203 $ 869,913 $ 791,978
--------- --------- ---------
Deferred:
Federal ............. $ (14,182) $ 3,658 $ (72,949)
State ............... (22,777) (4,792) (9,427)
Foreign ............. -0- -0- -0-
--------- --------- ---------
$ (36,959) $ (1,134) $ (82,376)
--------- --------- ---------
Total ................. $ 863,244 $ 868,779 $ 709,602
========= ========= =========
A reconciliation of the provision for income taxes compared with the amounts at
the U.S. statutory tax is as follows:
Years Ended June 30,
--------------------
1996 1995 1994
--------- --------- ---------
Based on U.S. statutory
federal tax rate of 34% ............. $ 798,840 $ 709,268 $ 691,280
Increase (decrease) in taxes
resulting from:
State taxes, net of
federal tax benefit ............. 97,486 62,128 54,359
Unutilized foreign loss
(income) ........................ (13,348) 47,775 (34,028)
Other ............................. (34,914) 26,348 (2,009)
Unrealized investment losses ...... 15,180 23,260 -0-
--------- --------- ---------
Total .................... $ 863,244 $ 868,779 $ 709,602
========= ========= =========
Effective tax rate .................... 36.7% 41.7% 34.9%
The Canadian subsidiary has available unused tax benefits in the form
of operating loss carryforwards of approximately U.S. $168,000 to reduce future
Canadian taxable income. These carryforwards principally expire in 1999. A
deferred tax asset 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.
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5--Corporate Income Taxes (Continued)
Components of deferred tax assets (liabilities) are as follows:
June 30,
1996 1995
--------- ---------
Operating loss carryforwards ............. $ 81,213 $ 122,500
Deferred compensation ........................ 420,319 340,200
Bad debts and vacation pay ................... 61,758 49,692
Net unrealized losses ........................ 18,336 37,612
Accelerated depreciation ................. (245,678) (228,029)
--------- ---------
$ 335,948 $ 321,975
Valuation allowance .......................... 99,514 122,500
--------- ---------
$ 236,434 $ 199,475
========= =========
Reported as:
Other current assets ............... $ 61,758 $ 87,304
Other assets ....................... 174,676 112,171
--------- ---------
$ 236,434 $ 199,475
========= =========
Note 6--Accrued Liabilities
Accrued liabilities are as follows:
June 30,
1996 1995
-------- --------
Compensation ................................... $309,695 $375,276
Payroll, sales, and property taxes ............. 75,775 73,247
401-k plan contribution ........................ 27,176 44,014
Environmental and other costs .................. 147,257 152,056
-------- --------
$559,903 $644,593
======== ========
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 $24,677 in 1996, $43,501 in 1995, and $44,219 in
1994.
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7--Employee Benefits (Continued)
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 $511,233 in 1996, $406,683 in 1995, and
$379,722 in 1994.
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 present value of its
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 $167,487 in 1996, $108,000 in 1995 and $108,000 in 1994.
Note 8--Sale of Land to Related Party
On June 30, 1995 the Texas real estate subsidiary sold 7 acres of
unimproved land in Carrollton, Texas to a limited partnership controlled by a
shareholder of the Company at an independently appraised price of $310,000.
The Company received cash of $75,000 in July 1995 and 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 commencing July 1, 1999 with the final collection due
July 1, 2003 plus interest of 6.83% per annum. Interest of $16,051 was earned
and collected as income in the current year.
Note 9--Contingencies and Risks
Certain Significant Estimates
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 has 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. has also filed a
claim for breach of oral contract of employment for $119,000 which the
Company has denied in their related statement of defense.
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9--Contingencies and Risks (Continued)
The Company reached an out of court agreement with the
plaintiffs on September 9, 1996 wherein the plaintiffs were
collectively to be paid the sum of $65,000 U.S. dollars in full
settlement of their claim. Such settlement shall 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.
Note 10--Related Party Transactions
The Company was charged legal and computer consulting services by two
outside directors of the Company in the ordinary course of business as follows:
1996 - $42,586; 1995 - $59,648; 1994 - $94,917.
Note 11--Advertising
The Company expenses the cost of advertising as incurred, except for
direct-response advertising comprised of magazine ads and sales brochures which
are capitalized and amortized over their expected period of future benefit.
Advertising materials of $71,465 and $68,733 were reported as assets at
June 30, 1996 and 1995 respectively. Advertising expense was reported as
$334,000, $272,000, and $307,000 for 1996, 1995, and 1994 respectively.
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12--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.
Note Receivable - Sale of Land--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.
Note 13--Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended June 30, 1996
and 1995 is as follows:
Year Ended Quarter Ended
June 30, 1996 Sept. 30 Dec. 31 March 31 June 30
------------- -------- ------- -------- -------
Gross revenue .............. $2,612,065 $2,708,211 $2,719,274 $2,737,522
Gross profit ........... 1,439,762 1,443,301 1,561,979 1,480,772
Net income ............. 335,555 359,364 399,088 392,278
Earnings per share ..... $ .12 $ .13 $ .15 $ .15
Year Ended Quarter Ended
June 30, 1995 Sept. 30 Dec. 31 March 31 June 30
------------- -------- ------- -------- -------
Gross revenue .............. $2,434,985 $2,264,688 $2,534,049 $2,815,135
Gross profit ........... 1,273,211 1,439,000 1,472,143 1,526,284
Net income ............. 272,822 164,841 313,588 466,054
Earnings per share ..... $ .09 $ .06 $ .11 $ .17
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Schedule VIII-Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E
- -------- ---------- ---------- ---------- ----------
Balance At Charged To Balance At
Beginning Costs and (A) End Of
Classification Of Year Expenses Deductions Year
- -------------- ---------- ---------- ---------- ----------
Year ended June 30, 1996:
- -------------------------
Allowance for doubtful
accounts $106,000 $ 90,463 $59,463 $137,000
Accumulated
amortization:
Patents 79,715 2,673 -- 82,388
Mortgage finance
costs and fees 3,412 1,178 (4,590) --
Allowance for unrealized
loss (gain)-marketable
securities (41,466) (41,466) 2,042 2,042
Year ended June 30, 1995:
- -------------------------
Allowance for doubtful
accounts $111,000 $17,636 $22,636 $106,000
Accumulated
amortization:
Patents 77,362 2,353 -- 79,715
Mortgage finance
costs and fees 11,427 2,434 10,449 3,412
Allowance for unrealized
loss (gain)-marketable
securities 252,565 252,565 (41,466) (41,466)
Year ended June 30, 1994:
- -------------------------
Allowance for doubtful
accounts $109,000 $27,921 $25,921 $111,000
Accumulated
amortization:
Patents 74,440 2,922 -- 77,362
Mortgage finance
costs and fees 8,618 2,809 -- 11,427
Allowance for unrealized
loss--marketable
securities -- 252,565 -- 252,565
(A) Write-offs, net of recoveries
EXHIBIT 1
SUBSIDIARIES OF GENERAL MAGNAPLATE CORPORATION
General Magnaplate Texas, Inc.
801 Avenue G East
Arlington, Texas 76011
General Magnaplate California
2707 Palma Drive
Ventura, California 93003
General Magnaplate Wisconsin, Inc.
2924 Rapids Drive
Racine, Wisconsin 53404
General Magnaplate Canada, Ltd.
119 McMaster Avenue
Ajax, Ontario Canada L1S 2E6
GMIC, Corp.
1331 U.S. Route 1
Linden, New Jersey 07036
Theoretical Research Institute
1331 U.S. Route 1
Linden, New Jersey 07036
Tufram, Inc.
1331 U.S. Route 1
Linden, New Jersey 07036
Candida Realty Co., Inc.
1331 U.S. Route 1
Linden, New Jersey 07036
Candida Realty of Texas, Inc.
1331 U.S. Route 1
Linden, New Jersey 07036
Candida Realty California
1331 U.S. Route 1
Linden, New Jersey 07036
Candida Realty Wisconsin, Inc.
1331 U.S. Route 1
Linden, New Jersey 07036
Exhibit 2
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG GENERAL MAGNAPLATE CORP,
NASDAQ MARKET INDEX AND SIC CODE INDEX
ASSUMES $100 INVESTED ON JULY 1, 1991
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JUNE 28, 1996
FISCAL YEAR ENDING
------------------------------------------------
COMPANY 1991 1992 1993 1994 1995 1996
- ------- ---- ---- ---- ---- ---- ----
GENERAL MAGNAPLATE CORP 100 66.70 76.99 98.09 106.75 135.20
INDUSTRY INDEX 100 135.44 177.54 249.45 375.94 596.79
BROAD MARKET 100 107.75 132.27 145.04 170.11 214.14