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, 1998 Commission file number: 0-2977
GENERAL MAGNAPLATE CORPORATION
------------------------------------------------------
(exact name of Registrant as specified in its charter)
A New Jersey corporation No. 22-1641813
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1331 U.S. Route 1, Linden, New Jersey 07036
---------------------------------------------
(address of principal executive offices)
Registrant's telephone number, including area code (908) 862-6200
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- -------------------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. 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 14, 1998): $9,410,878
The number of shares outstanding of each of the Registrant's classes of common
stock, as of August 14, 1998: 4,918,794 one class Common Stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report for year ended June 30, 1998, 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 1998 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
4, 1998, 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 1998 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 required end
product. 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 high temperature release on all metals, MAGNAGLIDE, a coating
developed for the exclusive use by Black & Decker for its irons, and Magnaplate
CMPT, a robotically controlled toolface production process. Each proprietary
process consists of a number of variations that can be employed to meet customer
requirements. The Registrant has obtained trademark coverage for fourteen of
these proprietary processes in the United States and on most 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, 1998.
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 $933,080 in its Ajax, Ontario
operation as of June 30, 1998.
Foreign operations (principally Canada) constitutes 6.5%, 7.5% and 8.1%
of total sales in the three years ending June 30, 1996, 1997 and 1998,
respectively. Foreign operations constitute 1.7%, 3.5%, and 0% of pre-tax
profits for the three years ended June 30, 1996, 1997 and 1998, respectively.
2
Marketing
The Registrant markets its metal coating services through a staff of
twenty four 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, our web site 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, 1998, 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, 1998, the Registrant spent an
estimated $75,000 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 Techno, 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 Registrant has an exclusive worldwide licensing agreement with
Household Products, Inc. (Black & Decker) in connection with irons using the
MAGNAGLIDE process technology and name.
The contributions of the licensees amounted to 3% 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.
3
Raw Materials
The Registrant's primary raw materials are chemicals, polymers and
powdered or wire metals manufactured by large chemical and metal 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 it has 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 and the European Community.
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, 1998, the Registrant had 138 employees, of whom 18 were
employed in marketing and sales operations, 22 in administration and 98 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.
4
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. 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. During the fiscal year ended June 30, 1997 the
registrant 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. During the fiscal year
ended June 30, 1998, the registrant acquired a modern 19,000 square foot
facility located in Ajax, Ontario. The building's production area is a one
story, high ceiling, steel and cinder block structure with an attached two story
office area situated on approximately 3 acres. During the same fiscal year, the
registrant completed a 2,000 square foot, one story steel and cinder block
addition onto the existing structure. Title to this property is subject to an
existing mortgage.
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 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. also filed a claim for breach of
oral contract of employment for $119,000 which the Registrant 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
paid the sum of $65,000 U.S. dollars in full settlement of their claim. Such
settlement did not have an adverse effect on the Company's financial statements.
5
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 1998.
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
------------- --------------------
1998 High Low
---- ---- ---
1st Quarter* 4 3/8 2 15/16
2nd Quarter* 8 3 13/16
3rd Quarter 9 3/8 5 1/2
4th Quarter 7 7/8 4 3/4
1997* High Low
----- ---- ---
1st Quarter 3 3/16 2 5/8
2nd Quarter 3 5/8 2 7/8
3rd Quarter 3 1/2 3 1/16
4th Quarter 3 7/16 2 15/16
Holders
The approximate number of security holders of the Registrant's Common
Stock as of June 30, 1998 was 548.
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
- ------ --------- ------------------------
$.05 March 13, 1998 February 27, 1998
.05* October 10, 1997 September 26, 1997
.03* March 14, 1997 February 28, 1997
.035* October 15, 1996 September 27, 1996
.025* March 8, 1996 February 23, 1996
.025* October 16, 1995 September 29, 1995
.025* March 1, 1995 February 20, 1995
.02* January 28, 1994 January 14, 1994
.04* June 15, 1993 June 4, 1993
* Adjusted to reflect forward 2 for 1 stock split on December 16, 1997.
6
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, 1998 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, 1998 and the
Consolidated Balance Sheets, as of June 30, 1998 and 1997 included elsewhere
herein, and such data are qualified by reference to such financial statements
and notes thereto. Data has been adjusted, as necessary, to reflect forward 2
for 1 stock split on December 16, 1997.
Years Ended June 30,
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------
Selected Income Statement Data:
Gross Revenue $11,720,331 $11,453,658 $10,777,072 $10,048,857 $9,893,134
Income Before Taxes 2,232,410 2,533,707 2,349,529 2,086,084 2,033,177
Net Income 1,474,960 1,694,687 1,486,285 1,217,305 1,323,575
Earnings per Share $0.30 $0.33 $0.27 $0.21 $0.22
Dividends per Share $0.10 $0.065 $0.05 $0.025 $0.02
Shares Outstanding:
Weighted Average Shares 4,913,635 5,089,124 5,435,916 5,775,008 6,080,662
At Year End 4,918,794 4,918,794 5,269,594 5,548,026 5,912,388
Selected Balance Sheet Data:
Total Assets $14,980,401 $13,513,276 $13,333,716 $12,923,076 $12,782,623
Working Capital 5,547,405 5,295,362 5,668,941 5,358,460 4,907,254
Long-Term Debt 412,800 -0- -0- -0- -0-
Stockholders' Equity 12,306,811 11,451,484 11,280,432 10,902,198 10,830,153
Stockholders' Equity per Share $2.50 $2.33 $2.14 $1.96 $1.83
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, compels 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. Management believes
that these factors are responsible for the company's continuing growth of
marketshare as well as for its financial stability. Management expects that
there will be a greater demand for its coating services although it cannot
predict the impact on future earnings.
7
Financial Condition
Liquidity and Capital Resources
Three Years Ended 1998
In the three-year period ended June 30, 1998, $7,685,638 net cash was
provided by operating activities of which $3,816,083 net cash was used in
investing activities and $2,937,514 net cash was used in financing activities,
resulting in a increase in cash and cash equivalents of $932,041.
The net cash provided by operating activities was principally from: net
income of $4,655,932; depreciation and amortization of $1,849,970; accrued
deferred compensation of $469,387; primarily reduced by the increase in accounts
receivable of $123,909 and a decrease in Marketable Securities of $1,083,182.
The net cash used in investing activities was principally from:
additions to property, plant and equipment of $2,761,732; note receivable net of
installment collections of $505,721; and net additions to cash surrender
value-life insurance of $319,670.
The net cash used in financing activities was principally from: the
acquisition of treasury stock of $2,097,277; dividends paid of $1,100,585; and
the payment of bank debt of $177,544.
Working capital of $5,547,405 at June 30, 1998 increased by $188,945 or
3.5% during the three-year period and the working capital ratio increased to 7.0
to 1 from 5.5 to 1 at June 30, 1995.
All references to stock give effect to the December 16, 1997 two for
one forward stock split as if same had occurred prior. Stockholders' equity per
share at June 30, 1998 increased 27% to $2.51 per share compared with $1.97 per
share at June 30, 1995.
Management believes that internal cash flow and/or income from
marketable securities are expected to be sufficient to provide the capital
resources necessary to support future operating needs and does not anticipate
any material expenditures that will have a significant impact on future cash
flows.
Results of Operations
Fiscal 1998 vs. 1997 vs. 1996
Total revenue for 1998 of $11,720,331 represented an increase of
$266,673 or 2.3% over 1997, while total revenue for 1997 was $11,453,658, an
increase of $676,586 or 6.3% over 1996.
The respective increases in total revenue for 1998 over 1997 were from:
sales of $299,070 or 2.8%; investment and other income of $47,335 or 10.2%; and
a decrease in royalty and licensee income of $79,732 or 18.8%.
The respective net increase in total revenue for 1997 over 1996 was
from: sales of $555,451 or 5.5%; royalty and license income of $128,662 or
43.7%; and a slight decrease in investment and other income of $7,527 or 1.6%.
Sales for 1998, 1997 and 1996 were $10,863,372, $10,564,302 and
$10,008,851, respectively, representing approximately 93%, 92% and 93% of total
revenue in each respective year. During the current fiscal year we have
increased property, plant and equipment by $1,653,940 with a national plant
expansion and modernization program, as well as the addition of Plasmadize areas
to all of our locations in preparation for significant increases in sales and
production in the upcoming fiscal year.
8
Royalty and license income was $343,581 in 1998, $423,313 in 1997, and
$294,651 in 1996. The decrease in current year royalties is directly attributed
to the decrease in royalties from our Japanese licensee and the impact the
turmoil in the Asian market is having on their business. Royalties from our
other licensees continue to increase.
Total costs and expenses for 1998 of $9,487,921 represented an increase
of $567,970 or 6.4% over 1997, while total costs and expenses for 1997 of
$8,919,951 was an increase of $492,408 or 5.8% over 1996. As a percentage of
total revenue, total costs and expenses were 80.9% in 1998, 77.9% in 1997 and
78.2% in 1996. The increase in total cost and expenses as a percentage of total
revenue when compared to 1997, is primarily due to upgrades of production
equipment at all of our facilities resulting in higher depreciation expense,
increased production personal to accommodate greater sales volume, the
associated costs of moving the Canadian facility to its new location and the
write off of old production and computer equipment.
The reduction of .3% in total costs and expenses as a percentage of
total revenue in 1997 when compared to 1996, is primarily due to increased sales
and stabilized costs.
As the result of the above, income before corporate income taxes was
$2,232,410 or 19.0% of total revenue in 1998, representing a decrease of
$301,297 or 11.9% over 1997, while income before corporate income taxes was
$2,533,707 or 22.1% of total revenue in 1997, an increase of $184,178 or 7.8%
over 1996.
Corporate income taxes and the effective tax rate were $757,450 and
33.9%, respectively, in 1998, $839,020 and 33.1% in 1997 and $863,244 and 36.7%
in 1996.
Net income in 1998 of $1,474,960 or 12.6% of total revenue, represented
a decrease of $219,727 or 12.3% over 1997. Net income in 1997 of $1,694,687 or
14.8% of total revenue, represented an increase of $208,402 or 14.0% when
compared to 1996. The decrease in the current year is attributable to greater
expenses and depreciation as a result of the expansion and equipment purchases
to accommodate our planned growth for the future, and a higher effective
corporate income tax rate versus 1997. The increase in 1997 compared with 1996
was primarily due to greater revenues, and a lower effective corporate income
tax rate versus 1996.
Earnings per share in 1998, 1997 and 1996 were $.30, $.33, and $.27,
respectively. In the current year, 15,000 shares of GMCC stock were purchased
and placed in treasury, 4,000 of these shares were subsequently issued as
employee compensation and the remaining 11,000 shares are still being held in
the treasury. During the same three-year period 629,232 shares of treasury stock
were canceled and retired, resulting in weighted average shares outstanding of
4,913,635, 5,089,124 and 5,435,916 in 1998, 1997 and 1996, respectively.
As detailed in Note 10 to the Consolidated Financial Statement the
previous legal matter has been resolved. No new legal matters are expected.
During the current fiscal year General Magnaplate Canada, Ltd.
purchased and moved into a newer more modern facility located in Ajax, Ont.
which will allow for increased production capabilities and further expansion of
the Canadian Market.
After examining the year 2000 computer issues, management has
determined that it will not have a material impact on its business, operations,
or its financial position.
No other significant financial matters are expected in the future which
will have a material adverse impact on earnings.
9
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 4, 1998, 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 1998
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 4, 1998, 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 1998
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 4, 1998, 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 1998
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 4, 1998, 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 1998
fiscal year.
10
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, 1998 and 1997
Consolidated Statement of Income - Fiscal Years Ended June 30,
1998, 1997 and 1996
Consolidated Statement of Shareholders' Equity - Three-Year
Period Ended June 30, 1998
Consolidated Statement of Cash Flows - Fiscal Years Ended June
30, 1998, 1997 and 1996
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, 1998, 1997 and 1996 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
(b) Reports on Form 8-K: No reports were filed by the Company during the period
ended June 30, 1998.
11
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)
By: /s/Charles P. Covino
--------------------
Charles P. Covino
Chairman, Board of Directors
(Chief Executive Officer and Principal Financial Officer)
September 24, 1998
------------------
(Date)
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.
/s/Candida C. Aversenti
-----------------------
Candida C. Aversenti
President and Director
September 24, 1998
------------------
(Date)
/s/Edward A. Partenope, Jr.
---------------------------
Edward A. Partenope, Jr.
Director
September 24, 1998
------------------
(Date)
/s/Susan E. Neri
----------------
Susan E. Neri
Assistant Vice President
and Principal Accounting Officer
September 24, 1998
------------------
(Date)
/s/Edmund V. Aversenti, Jr.
---------------------------
Edmund V. Aversenti, Jr.
Vice President, Secretary and Director
September 24, 1998
------------------
(Date)
MAURIELLO, FRANKLIN & LOBRACE
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED
JUNE 30, 1998, 1997, AND 1996
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
Independent Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheets 2-3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-16
Independent Auditors' Report on Supplementary Data 17
Supplementary Data 18
MAURIELLO, FRANKLIN & LOBRACE
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
45 Springfield Avenue, Springfield, New Jersey 07081
Telephone (973) 379-5400 Fax (973) 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, 1998 and
June 30, 1997 and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended June 30,
1998. 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, 1998 and June 30, 1997 and the results of their
operations and cash flows for each of the three years in the period ended June
30, 1998, in conformity with generally accepted accounting principles.
/s/ Mauriello, Franklin & LoBrace
-----------------------------
Mauriello, Franklin & LoBrace
August 10, 1998
PAGE 1
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
ASSETS 1998 1997
------ ----------- -----------
Current assets:
Cash and cash equivalents ...................... $ 1,301,317 $ 1,216,824
Marketable securities (Note 1) ................. 3,136,420 2,875,776
Accounts receivable--trade, net of
allowance for doubtful accounts of
$93,000 (June 30, 1997-$116,000) ............. 1,326,070 1,426,471
Inventories (Note 1) ........................... 355,285 303,088
Prepaid expenses ............................... 190,817 170,806
Other current assets ........................... 169,229 215,298
----------- -----------
Total current assets ....................... $ 6,479,138 $ 6,208,263
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ................... 6,331,313 5,355,600
Cash surrender value of officers' life
insurance ...................................... 874,811 752,148
Note receivable-officer (Note 8) ................. 490,686 532,449
Note receivable-related party partnership (Note 8) 195,000 235,000
Other assets (Note 3) ............................ 609,453 429,816
----------- -----------
Total assets ................................. $14,980,401 $13,513,276
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 2
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- ------------------------------------ ------------ ------------
Current liabilities:
Current maturity of long-term debt .............. $ 29,841 $ --
Accounts payable ................................ 434,915 196,179
Accrued liabilities (Note 6) .................... 426,234 548,333
Corporate income taxes payable .................. 40,743 168,389
------------ ------------
Total current liabilities ..................... $ 931,733 $ 912,901
------------ ------------
Long-term liabilities:
Rent security deposit ........................... $ 9,193 $ 9,193
Accrued deferred compensation (Note 7) .......... 1,319,864 1,139,698
Long-term debt (Note 4) ......................... 412,800 --
------------ ------------
Total long-term liabilities ................... $ 1,741,857 $ 1,148,891
------------ ------------
Total liabilities ............................. $ 2,673,590 $ 2,061,792
------------ ------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock--no par value
Authorized--5,000,000 shares
Issued--4,918,794 shares of which 11,000 shares
are held as treasury stock ................... $ 223,180 $ 223,180
Retained earnings ............................... 12,338,744 11,365,263
Foreign currency translation adjustment (Note 1) (189,388) (136,959)
------------ ------------
$ 12,372,536 $ 11,451,484
Less--cost of 11,000 shares of treasury stock ... (65,725) --
------------ ------------
Total stockholders' equity ................... $ 12,306,811 $ 11,451,484
------------ ------------
Total liabilities and stockholders' equity .... $ 14,980,401 $ 13,513,276
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 3
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1998, 1997, AND 1996
1998 1997 1996
----------- ----------- -----------
Gross revenue:
Sales ............................ $10,863,372 $10,564,302 $10,008,851
Royalty and license income ....... 343,581 423,313 294,651
Investment and other
income, net (Note 1) ........... 513,378 466,043 473,570
----------- ----------- -----------
$11,720,331 $11,453,658 $10,777,072
----------- ----------- -----------
Costs and expenses:
Cost of sales .................... $ 4,719,897 $ 4,418,248 $ 4,083,037
Selling and administration ....... 4,061,832 3,900,080 3,737,594
Depreciation and amortization .... 648,121 601,389 600,460
Interest ......................... 58,071 234 6,452
----------- ----------- -----------
$ 9,487,921 $ 8,919,951 $ 8,427,543
----------- ----------- -----------
Income before corporate income taxes $ 2,232,410 $ 2,533,707 $ 2,349,529
Corporate income taxes
(Notes 1 and 5) .................. 757,450 839,020 863,244
----------- ----------- -----------
Net income ......................... $ 1,474,960 $ 1,694,687 $ 1,486,285
=========== =========== ===========
Earnings per share (Note 1) ........ $ .30 $ .33 $ .27
=========== =========== ===========
Weighted average shares
outstanding (Note 1) ............. 4,913,635 5,089,124 5,435,916
=========== =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 4
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
Foreign
Currency
Common Retained Translation Treasury
Stock Earnings Adjustment Stock
---------- ----------- ---------- -----------
Balance, July 1, 1995 $ 223,180 $10,798,949 $ (119,931) $ -0-
Net income for year ended
June 30, 1996 -0- 1,486,285 -0-
Dividends paid ($.05 per share) -0- (273,402) -0-
Acquisition and retirement of
278,432 shares of treasury stock -0- (833,243) -0-
Foreign currency translation
adjustment -0- -0- (1,406)
---------- ----------- ---------- -----------
Balance, June 30, 1996 $ 223,180 $11,178,589 $(121,337) $ -0-
Net income for year ended
June 30, 1997 -0- 1,694,687 -0- -0-
Dividends paid ($.065 per share) -0- (335,604) -0-
Acquisition and retirement of
350,800 shares of treasury stock -0- (1,172,409) -0-
Foreign currency translation adjustment -0- -0- (15,622)
---------- ----------- ---------- -----------
Balance, June 30, 1997 $ 223,180 $11,365,263 $(136,959) $ -0-
Net income for year ended
June 30, 1998 -0- 1,474,960 -0-
Dividends paid ($.10 per share) -0- (491,579) -0-
Acquisition of 15,000 shares
of treasury stock $ (91,625)
Issuance of 4,000 shares of treasury
stock as employee compensation (9,900) 25,900
Foreign currency translation
adjustment -0- -0- (52,429)
---------- ----------- ---------- ----------
Balance, June 30, 1998 $ 223,180 $12,338,744 $ (189,388) $ (65,725)
========== =========== ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 5
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997, AND 1996
1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 1,474,960 $ 1,694,687 $ 1,486,285
----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .......................... $ 648,121 $ 601,389 $ 600,460
Provision for losses on accounts receivable ............ 21,956 14,374 90,463
Realized and unrealized gains from marketable securities (29,183) (31,915) (29,746)
Loss on disposal of property and equipment ............. 42,948 -- --
Deferred taxes ......................................... (52,443) (47,966) (36,959)
Deferred compensation .................................. 152,216 149,340 167,831
Foreign currency translation adjustment ................ (52,429) (15,622) (1,406)
Change in operating assets and liabilities:
Marketable securities ................................. (231,461) 1,348,560 (33,917)
Accounts receivable ................................... 78,445 (186,000) (16,354)
Inventories ........................................... (52,197) (30,015) (1,555)
Other current assets .................................. 13,339 (13,979) 46,330
Accounts payable and accrued liabilities .............. 116,637 (252,504) 159,063
Corporate income taxes ................................ (125,358) 63,400 (61,473)
Rent security deposit ................................. -- 1,316 --
----------- ----------- -----------
Total adjustments ................................. $ 530,591 $ 1,600,378 $ 882,737
----------- ----------- -----------
Net cash provided by operating activities .............. $ 2,005,551 $ 3,295,065 $ 2,369,022
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable-officer .................................. $ -- $ (550,000) $ --
Collection-note receivable-related party partnership ..... 40,000 -- --
Installment collections-note receivable-officer .......... 39,274 5,005 --
Additions to property, plant, and equipment .............. (1,653,940) (506,565) (601,227)
Additions to deferred compensation contracts ............. (43,751) (47,160) (54,011)
Additions to patents and trademarks ...................... (50,666) (64,092) (9,280)
Additions to cash surrender value-life insurance ........ (122,663) (87,986) (109,021)
----------- ----------- -----------
Net cash used in investing activities .................. $(1,791,746) $(1,250,798) $ (773,539)
----------- ----------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 6
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997, AND 1996
1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage financing costs paid ............ $ (4,749) $ -- $ --
Proceeds from long-term debt ............. 457,925 -- --
Principal payments on long-term debt ..... (15,284) -- --
Issuance of treasury stock to employees .. 16,000 -- --
Payment of bank debt ..................... -- -- (177,544)
Acquisition of treasury stock ............ (91,625) (1,172,409) (833,243)
Dividends paid ........................... (491,579) (335,604) (273,402)
----------- ----------- -----------
Net cash used in financing activities .. $ (129,312) $(1,508,013) $(1,284,189)
----------- ----------- -----------
Increase in cash and cash equivalents ...... $ 84,493 $ 536,254 $ 311,294
Cash and cash equivalents, beginning of year 1,216,824 680,570 369,276
----------- ----------- -----------
Cash and cash equivalents, end of year ..... $ 1,301,317 $ 1,216,824 $ 680,570
=========== =========== ===========
Supplementary cash flow data:
Interest paid ............................ $ 58,071 $ 234 $ 6,452
Income taxes paid ........................ $ 935,251 $ 823,586 $ 924,717
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 7
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 $29,183, $31,915, and
$(378) were reported for the years 1998, 1997, and 1996, respectively. Market
value exceeded cost by $60,719 and $31,915 at June 30, 1998 and 1997
respectively.
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 8
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 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 1997 consolidated financial statements have been
reclassified to conform with the 1998 presentation.
PAGE 9
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,
--------------------------------
1998 1997
------------ --------------
Land ................................... $ 1,030,025 $ 805,350
Buildings .............................. 3,677,341 3,366,208
Building improvements .................. 3,670,396 3,450,824
Factory machinery ...................... 3,995,672 4,828,457
Office equipment ....................... 674,261 911,058
Transportation equipment ............... 309,251 271,018
----------- -----------
Total .................................. $13,356,946 $13,632,915
Less--accumulated depreciation ......... 7,025,633 8,277,315
----------- -----------
Net .................................... $ 6,331,313 $ 5,355,600
=========== ===========
Note 3--Other Assets
Other assets are as follows:
June 30,
------------------------------
1998 1997
------------ ------------
Patents and trademarks, at cost, net of
accumulated amortization of $113,241
and $100,481 ............................... $ 120,925 $ 83,018
Deferred income taxes ........................... 298,463 233,100
Deferred compensation contracts .............. 185,398 113,698
Mortgage financing costs ..................... 4,667 -0-
------------ ------------
$ 609,453 $ 429,816
============ ============
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 $2,571 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 10
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,
-----------------------------------------------
1998 1997 1996
--------- --------- ---------
Current:
Federal ............. $ 700,469 $ 770,806 $ 730,220
State ............... 109,424 116,180 169,983
Foreign ............. -0- -0- -0-
--------- --------- ---------
$ 809,893 $ 886,986 $ 900,203
--------- --------- ---------
Deferred:
Federal ............. $ (39,842) $ (36,992) $ (14,182)
State ............... (12,601) (10,974) (22,777)
Foreign ............. -0- -0- -0-
--------- --------- ---------
$ (52,443) $ (47,966) $ (36,959)
--------- --------- ---------
Total ................. $ 757,450 $ 839,020 $ 863,244
========= ========= =========
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,
-----------------------------------------
1998 1997 1996
--------- --------- ---------
Based on U.S. statutory federal tax
rate of 34% .............................. $ 759,019 $ 846,840 $ 798,840
Increase (decrease) in taxes resulting from:
State taxes, net of federal tax benefit .. 66,903 69,436 97,486
Foreign loss (income) .................... 13,472 (30,472) (13,348)
Other .................................... (3,578) (1,806) (7,714)
Realized investment losses (income) ...... (29,000) (13,951) 15,180
Non-taxable income ....................... (49,366) (31,027) (27,200)
--------- --------- ---------
Total ............................. $ 757,450 $ 839,020 $ 863,244
========= ========= =========
Effective tax rate ......................... 33.9% 33.1% 36.7%
PAGE 11
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5--Corporate Income Taxes (Continued)
The Canadian subsidiary has available unused tax benefits in the form
of operating loss carryforwards of approximately U.S. $80,000 to reduce future
Canadian taxable income. These carryforwards principally expire in 2002 and
2003. A deferred tax asset of $38,000 has been provided subject to a 100%
valuation allowance since it is not likely that the loss carryforwards will be
utilized prior to their expiration.
Components of deferred tax assets (liabilities) are as follows:
June 30,
--------------------------
1998 1997
---------- ---------
Operating loss carryforwards $ 43,900 $ 39,100
Deferred compensation 546,550 481,000
Bad debts and vacation pay 38,380 51,300
Investment loss carryforwards 0 3,400
Accelerated depreciation (186,450) (247,900)
Unrealized investment income (17,737) 0
---------- ---------
$ 424,643 $ 326,900
Valuation allowance 87,800 42,500
--------- ---------
$ 336,843 $ 284,400
========= =========
Reported as:
Other current assets $ 38,380 $ 51,300
Other assets 298,463 233,100
---------- ---------
$ 336,843 $ 284,400
========= =========
Note 6--Accrued Liabilities
Accrued liabilities are as follows:
June 30,
-----------------------
1998 1997
--------- ----------
Compensation ................................ $ 347,184 $ 435,256
Payroll, sales, and property taxes .......... 29,168 61,718
401-k plan contribution ..................... 20,040 19,954
Environmental and other costs ............... 29,842 31,405
--------- ----------
$ 426,234 $ 548,333
========= ==========
PAGE 12
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. There
were no significant changes in the plan in the current year. Total expense under
the plan was $45,356 in 1998, $39,791 in 1997 and $24,677 in 1996.
Pursuant to employment contracts and letter agreements with officers
and key employees, the Company maintains non-qualified incentive compensation
plans which are based on the realization of sales, pre-tax income and royalty
income. Total expense under these plans was $520,465 in 1998, $594,397 in 1997
and $511,233 in 1996.
The Company is obligated to provide a non-qualified retirement pension
to its chief executive officer. Such obligation provides a monthly benefit of
$7,100 and is payable for a period of fifteen years to the officer, or to his
wife in the event of his death. The Company is accruing the 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 $152,216 in 1998, $149,340 in 1997 and $167,487 in 1996.
Note 8--Related Party Transactions
The Company engaged in the following
related party transactions:
Year Ended June 30,
---------------------------------
1998 1997 1996
------- ------- -------
Was charged computer consulting services
by an outside director of the Company; $56,369 $52,686 $42,586
Accrued interest income on an
installment note receivable of $235,000
due from a limited partnership
controlled by a stockholder of the
Company and 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
amount due July 1, 2003. The partnership
prepaid a principal payment of $40,000
on June 30, 1998; $16,050 $16,050 $16,050
PAGE 13
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8--Related Party Transactions (Continued)
Year Ended June 30,
---------------------------------
1998 1997 1996
------- ------- -------
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 June 30, 1998 was $505,721
and is secured by a real estate first
mortgage. $32,707 $14,066 $ -0-
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 liability is being valued based on current
market values.
Note 10--Commitments and Contingencies
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. Further, a shareholder of Dynasurf
International, Inc. also filed a claim for breach of oral contract of employment
for $119,000. The Subsidiary filed a counterclaim for environmental and other
costs incurred which resulted from the seller not resolving certain
environmental issues warranted in the contract of purchase.
The Company reached an out of court agreement with the plaintiffs on
September 9, 1996 wherein the plaintiffs were collectively paid the sum of
$65,000 in full settlement of their claim. Such settlement did not have an
adverse effect on the Company's financial statements.
PAGE 14
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10--Commitments and Contingencies (Continued)
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.
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 $-0- and $48,401 were reported as assets at
June 30, 1998 and 1997 respectively. Advertising expense was reported as of
$332,000, $335,000, and $334,000 for 1998, 1997, and 1996, respectively.
PAGE 15
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12--Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended June 30, 1998
and 1997 is as follows:
Year Ended June 30, 1998:
Quarter Ended
-------------------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
---------- ---------- ---------- ----------
Gross revenue ........................ $2,895,501 $2,961,995 $2,893,094 $2,969,741
Gross profit ......................... 1,504,646 1,580,004 1,449,062 1,609,763
Net income ........................... 345,013 382,658 295,367 451,922
Earnings per share ................... $ .07 $ .08 $ .06 $ .09
Year Ended June 30, 1997:
Quarter Ended
-------------------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
---------- ---------- ---------- ----------
Gross revenue ........................ $2,601,018 $2,789,219 $2,878,685 $3,184,736
Gross profit ......................... 1,375,587 1,514,436 1,547,979 1,708,052
Net income ........................... 299,837 388,930 346,682 659,238
Earnings per share ................... $ .06 $ .07 $ .07 $ .13
PAGE 16
MAURIELLO, FRANKLIN & LoBRACE
A Professional Corporation
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY DATA
Our audits of the financial statements of General Magnaplate Corporation
and Wholly-Owned Subsidiaries for the years ended June 30, 1998, 1997, and 1996
were intended primarily for the purpose of formulating an opinion on the basic
financial statements taken as a whole. The supplementary data presented on page
18 has been taken primarily from accounting and other records of the company and
is not, in our opinion, necessary for fair presentation of its financial
position, results of operations, or cash flows. Such information has not been
subjected to tests and other auditing procedures sufficient to enable us to
express an opinion as to the fairness of all the details included therein and,
accordingly, we do not express an opinion on the supplementary information.
/s/ Mauriello, Franklin & LoBrace
-----------------------------
Mauriello, Franklin & LoBrace
August 10, 1998
PAGE 17
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
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, 1998:
Allowance for doubtful accounts $116,000 $ 21,956 $ 44,956 $ 93,000
Accumulated amortization:
Patents 100,481 12,760 -- 113,241
Year ended June 30, 1997:
Allowance for doubtful accounts $137,000 $ 14,375 $ 35,375 $ 116,000
Accumulated amortization:
Patents 82,388 18,039 -- 100,481
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
(A) Write-offs, net of recoveries
PAGE 18
MAURIELLO, FRANKLIN & LoBRACE
A Professional Corporation 45 Springfield Avenue, Springfield, NJ 07081
Certified Public Accountants (973) 379-5400, FAX (973) 379-3696
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 10, 1998, included in the 1997 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
August 11, 1998
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.
72 Orchard Road
Ajax, Ontario Canada L1S 6L1
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
[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
Linden, New Jersey August 27, 1998 http://www.magnaplate.com
e-mail:info@magnaplate.com
NASDAQ - GMCC
GENERAL MAGNAPLATE REPORTS EARNINGS
AND ANNOUNCES DIVIDEND
YEAR-END 1998
General Magnaplate Corporation, the world's leader in surface
enhancement coatings and treatments that increase performance and durability of
all metal and/or plastic, for a wide spectrum of products, announces a dividend
of $0.05 per share to stockholders of record September 25, 1998, and payable
October 9, 1998. Expansion of all five US plants, plus the recent completion of
a new four-times larger Canadian plant during this fiscal year, will enable
processing of large composite mold tools on-site. Specific target industries are
aircraft and transportation, where lighter materials impact fuel and payload
profitability, for those modes of transportation. More details later.
Condensed Statement of Income - Years Ended June 30
1998 1997
----------- -----------
Gross Revenue $11,720,331 $11,453,658
Income Before Taxes 2,232,410 2,533,707
Net Income 1,474,960 1,694,687
Net Income Per Share $0.30 $0.33
Average Shares Outstanding 4,913,635 5,089,124
Condensed Statement of Income - Three Months Ended June 30
1998 1997
----------- -----------
Gross Revenue $ 2,969,741 $ 3,184,736
Income Before Taxes 606,672 909,158
Net Income 451,922 659,238
Net Income Per Share $0.09 $0.13
Average Shares Outstanding 4,912,080 4,932,024