UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission file number 0-2977
General Magnaplate Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1641813
------------------------------- ------------------
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification No.
1331 U.S. Route 1, Linden, New Jersey 07036
------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 862-6200
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 4, 1999:
Common Stock, No Par Value 4,723,146
(Class) (Number of Shares)
INDEX OF DOCUMENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Accountants' Report
Balance Sheet - End of Current Quarter
Balance Sheet - End of Prior Fiscal Year
Statement of Income
Statement of Changes in Financial Position
Notes to Consolidated Financial Statements
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS - Although the Company may from time to time be
involved in routine litigation incidental to its business, none of these actions
are expected, individually or in he aggregate, to have a material adverse impact
upon the Company or its results of operations.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS - Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5 - OTHER INFORMATION - None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) None
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Accountants' Review Report
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statement of Stockholders' Equity
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
MAURIELLO, FRANKLIN & LoBRACE
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
45 SPRINGFIELD AVENUE
SPRINGFIELD, NEW JERSEY 07081
TELEPHONE (973) 379-5400 FAX (973) 379-3696
ACCOUNTANTS' REVIEW REPORT
--------------------------
To The Board of Directors of
General Magnaplate Corporation:
We have reviewed the accompanying balance sheet of General Magnaplate
Corporation and Wholly- Owned Subsidiaries as of March 31, 1999 and the related
consolidated statement of stockholders' equity for the nine months ended March
31, 1999 and the related consolidated statements of income and cash flows for
the nine months and three months ended March 31, 1999 and 1998, in accordance
with Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of management of General
Magnaplate Corporation.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion on
the March 31, 1998 and 1997 statements.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order for them
to be in conformity with generally accepted accounting principles.
Our review was made for the purpose of expressing limited assurance
that there are no material modifications that should be made to the financial
statements in order for them to be in conformity with generally accepted
accounting principles. The supplementary information for the nine months ended
and three months ended March 31, 1999 and 1998 included in the accompanying
supplementary information is presented for supplementary analysis purposes. Such
information has been subjected to the inquiry and analytical procedures applied
in the review of the basic financial statements, and we are not aware of any
material modifications that should be made thereto.
The balance sheet for the year ended June 30, 1998 was audited by us,
and we expressed an unqualified opinion on it in our report dated August 10,
1998. We have not performed any auditing procedures on the balance sheet since
August 10, 1998.
/s/ Mauriello, Franklin & LoBrace
---------------------------------
Mauriello, Franklin & LoBrace
April 30, 1999
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
ASSETS 1999 1998
------ ----------- -----------
Current assets:
Cash and cash equivalents ...................... $ 856,749 $ 1,301,317
Marketable securities (Note 1) ................. 3,292,812 3,136,420
Accounts receivable--trade, net of
allowance for doubtful accounts of
$108,000 (June 30, 1998-$93,000) ............. 1,425,554 1,326,070
Inventories (Note 1) ........................... 378,443 355,285
Prepaid expenses ............................... 161,953 190,817
Other current assets ........................... 149,199 169,229
----------- -----------
Total current assets ....................... $ 6,264,710 $ 6,479,138
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ................... 6,219,214 6,331,313
Cash surrender value of officers' life
insurance ...................................... 943,233 874,811
Note receivable-officer (Note 8) ................. -0- 490,686
Note receivable-related party partnership (Note 8) -0- 195,000
Other assets (Note 3) ............................ 720,060 609,453
----------- -----------
Total assets ................................. $14,147,217 $14,980,401
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- ------------------------------------ ------------ ------------
Current liabilities:
Current maturity of long-term debt ...................... $ 29,031 $ 29,841
Accounts payable ........................................ 243,011 434,915
Accrued liabilities (Note 6) ............................ 334,602 426,234
Corporate income taxes payable .......................... 84,895 40,743
------------ ------------
Total current liabilities ............................. $ 691,539 $ 931,733
------------ ------------
Long-term liabilities:
Long-term debt (Note 4) ................................... $ 318,127 $ 412,800
Accrued deferred compensation (Note 7) ................... 1,451,578 1,319,864
Rent security deposit .................................... 9,193 9,193
------------ ------------
Total long-term liabilities ........................... $ 1,778,898 $ 1,741,857
------------ ------------
Total liabilities ..................................... $ 2,470,437 $ 2,673,590
------------ ------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock--no par value
Authorized--20,000,000 shares
Issued--4,918,794 shares of which 195,648 and 11,000
shares are held as treasury stock .................... $ 223,180 $ 223,180
Retained earnings ....................................... 12,695,572 12,338,744
Accumulated other comprehensive income (Note 1) ......... (201,495) (189,388)
------------ ------------
$ 12,717,257 $ 12,372,536
Less--cost of 195,648 and 11,000 shares of treasury stock (1,040,477) (65,725)
------------ ------------
Total stockholders' equity ........................... $ 11,676,780 $ 12,306,811
------------ ------------
Total liabilities and stockholders' equity ............ $ 14,147,217 $ 14,980,401
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended Three Months Ended
March 31, March 31,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Gross revenue:
Sales ....................... $7,883,900 $8,075,936 $2,579,939 $2,693,494
Royalty income .............. 201,889 256,073 66,396 79,525
Investment and other
income, net ............... 521,423 418,581 167,040 120,075
---------- ---------- ---------- ----------
$8,607,212 $8,750,590 $2,813,375 $2,893,094
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales ............... $3,785,132 $3,542,224 $1,189,581 $1,244,432
Selling and administration .. 2,883,527 3,095,175 959,677 1,006,838
Depreciation and amortization 500,085 471,795 153,457 161,070
Interest .................... 23,796 15,658 7,666 9,187
---------- ---------- ---------- ----------
$7,192,540 $7,124,852 $2,310,381 $2,421,527
---------- ---------- ---------- ----------
Income before corporate
income taxes ................ $1,414,672 $1,625,738 $ 502,994 $ 471,567
Corporate income taxes
(Notes 1 and 5) ............. 527,100 602,700 191,400 176,200
---------- ---------- ---------- ----------
Net income .................... $ 887,572 $1,023,038 $ 311,594 $ 295,367
========== ========== ========== ==========
Earnings per share
(Note 1) .................... $ .18 $ .21 $ .07 $ .06
========== ========== ========== ==========
Weighted average shares
outstanding ................. 4,830,188 4,914,152 4,769,144 4,911,994
========== ========== ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1999
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Earnings Income (Loss) Stock Total
-------- ----------- ------------- ------------ -----------
Balance, July 1, 1998 $223,180 $12,338,744 $(189,388) $ (65,725) $12,306,811
Comprehensive income:
Net income for nine months
ended March 31, 1999 887,572 887,572
Foreign exchange transaction
adjustment (12,107) (12,107)
----------
Total comprehensive income 875,465
Dividend paid ($.11 per share) (530,744) (530,744)
Acquisition of 184,648 shares of
of treasury stock (974,752) (974,752)
-------- ----------- --------- ------------ -----------
Balance, March 31, 1999 $223,180 $12,695,572 $(201,495) $(1,040,477) $11,676,780
======== =========== ========= =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 887,572 $ 1,023,038
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Reserve for unrealized gain ........................... $ (93,853) $ (80,916)
Depreciation and amortization ......................... 500,085 471,795
Deferred taxes ........................................ (65,300) (52,900)
Accrued deferred compensation ......................... 113,358 114,852
Foreign currency translation adjustment ............... (12,109) (25,588)
Provision for doubtful accounts ....................... 15,000 16,300
Increase (decrease) in cash resulting from changes in
current assets and liabilities:
Marketable securities .............................. (62,539) (221,870)
Accounts receivable ................................ (114,484) (64,538)
Inventories ........................................ (23,158) -0-
Prepaid expenses and other current assets .......... 70,516 53,468
Accounts payable and accrued liabilities ........... (283,536) (44,917)
Corporate income taxes payable ..................... 44,152 (28,999)
----------- -----------
Total adjustments .................................. $ 88,132 $ 136,687
----------- -----------
Net cash provided by operating activities ............... $ 975,704 $ 1,159,725
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to deferred compensation contracts .............. $ (32,824) $ (33,849)
Additions to property, plant, and equipment .............. (376,023) (1,305,501)
Additions to patent costs and other assets ................ (27,710) (21,718)
Collection of note receivable - officer ................... 242,358 -0-
Collection of note receivable - partnership ............... 195,000 35,676
Increase in cash surrender value - life insurance ......... (68,422) (54,025)
----------- -----------
Net cash used in investing activities ................... $ (67,621) $(1,379,417)
----------- -----------
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of ) long-term debt .............. $ (95,483) $ 457,925
Purchase of treasury stock ................................ (726,424) (64,750)
Dividends paid ............................................ (530,744) (491,580)
Issuance of treasury stock as compensation ................ -0- 4,800
Net proceeds from broker loan ............................. -0- 504,714
Mortgage financing costs .................................. -0- (6,127)
----------- -----------
Net cash provided by (used in) financing activities ..... $(1,352,651) $ 404,982
----------- -----------
Increase (decrease) in cash and cash equivalents ............ $ (444,568) $ 185,290
Cash and cash equivalents, beginning of period .............. 1,301,317 1,216,824
----------- -----------
Cash and cash equivalents, end of period .................... $ 856,749 $ 1,402,114
=========== ===========
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 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 on trading securities of $93,853 and $80,916 were
reported in 1999 and 1998, respectively. Market value exceeded cost by $129,020
and $60,719 at March 31, 1999 and June 30, 1998 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.
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies (Continued)
- --------------------------------------------------------------
Corporate Income Taxes
- ----------------------
Taxes are provided based on income reported for financial statement
purposes, including deferred taxes which are principally provided due to
temporary differences between financial and tax reporting of certain revenue and
expense items.
Company Earnings Per Share
- --------------------------
Earnings per share of common stock have been computed based on the
weighted average number of shares outstanding during the reporting periods.
Statement of Cash Flows
- -----------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Foreign Currency Translation Adjustment
- ---------------------------------------
Assets and liabilities of the subsidiary operating in Canada are
translated into U.S. dollars using the exchange rate in effect at the balance
sheet date. Results of operations are translated using the average exchange rate
prevailing throughout the period. The effects of exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
included as part of the Accumulated Other Comprehensive Income (Loss) component
of shareholders' equity, while gains and losses resulting from foreign currency
transactions are generally included in income.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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:
March 31, June 30,
1999 1998
----------- -----------
Land ................................... $ 1,021,925 $ 1,030,025
Buildings .............................. 3,668,892 3,677,341
Building improvements .................. 3,766,656 3,670,396
Factory machinery ...................... 4,240,275 3,995,672
Office equipment ....................... 689,668 674,261
Transportation equipment ............... 341,402 309,251
----------- -----------
Total .................................. $13,728,818 $13,356,946
Less--accumulated depreciation ......... 7,509,604 7,025,633
----------- -----------
Net .................................... $ 6,219,214 $ 6,331,313
=========== ===========
Note 3--Other Assets
- --------------------
Other assets are as follows:
March 31, June 30,
1999 1998
-------- --------
Patents and trademarks, at cost, net of
accumulated amortization of $125,835
and $113,241 .................................... $136,799 $120,925
Deferred income taxes ................................ 342,143 298,463
Deferred compensation contracts ...................... 236,578 185,398
Mortgage financing costs ............................. 4,540 4,667
-------- --------
$720,060 $609,453
======== ========
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4--Long-Term Debt
- ----------------------
The Company borrowed $457,925 from Business Development Bank of Canada
on March 31, 1998 payable in equal monthly principal installments of $2,487
together with interest of 7.6% per annum commencing June 23, 1998 with the final
payment due April 23, 2013. The note is secured by a first mortgage on real
estate owned in Ajax, Ontario. The outstanding balance at March 31, 1999 was
$347,158.
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.
Note 5--Corporate Income Taxes
- ------------------------------
Components of corporate income taxes are as follows:
Nine Months Ended Three Months Ended
March 31, March 31,
------------------------ -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
Current:
Federal $507,800 $568,000 $173,700 $169,300
State 84,600 87,600 35,700 29,100
Foreign -- -- -- --
-------- -------- -------- --------
$592,400 $655,600 $209,400 $198,400
-------- -------- -------- --------
Deferred:
Federal $(50,600) $ (41,000) $(13,200) $ (17,200)
State (14,700) (11,900) (4,800) (5,000)
Foreign -- -- -- --
--------- --------- -------- ----------
$(65,300) $ (52,900) $(18,000) $ (22,200)
-------- --------- -------- ---------
Total $527,100 $602,700 $191,400 $ 176,200
======== ======== ======== =========
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the provision for corporate income taxes compared
with amounts computed at the US statutory tax rate is as follows:
Nine Months Ended Three Months Ended
March 31, March 31,
1999 1998 1999 1998
-------- -------- -------- ----------
Based on U.S. statutory
federal tax rate $480,988 $552,750 $171,018 $160,333
Increase (decrease) in taxes resulting from:
State taxes, net of
federal tax benefit 46,134 49,962 20,394 18,876
Non-deductible (reportable)
expenses (income) (22) (12) (12) (3,009)
-------- -------- -------- ----------
Total $527,100 $602,700 $191,400 $ 176,200
======== ======== ======== =========
Effective tax rate 37.3% 37.1% 38.0% 37.4%
The Canadian subsidiary has available unused tax benefits in the form
of operating loss carryforwards of $168,000 to reduce future Canadian taxable
income. These carryforwards principally expire in 1999. Due to their uncertainty
of realization, these tax benefits have been reflected net of a 100% valuation
allowance.
Note 6--Accrued Liabilities
- ---------------------------
Accrued liabilities are as follows:
March 31, June 30,
1999 1998
--------- ---------
Compensation $ 274,689 $ 347,184
Payroll, sales, and property taxes 48,848 29,168
401-k plan contribution 5,522 20,040
Environmental and other costs 5,543 29,842
---------- ---------
$ 334,602 $ 426,234
========== =========
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 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 $41,957 in 1999 and $33,307 in 1998.
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 $300,747 in 1999 and $377,933 in 1998.
The Company is obligated to provide a non-qualified retirement pension
to its chief executive officer. Such obligation provides a monthly benefit of
$7,100 and is payable for a period of fifteen years to the officer, or to his
wife in the event of his death. The Company is accruing the obligation over the
active term of employment of the officer. The Company is also accruing and
funding deferred compensation contracts with two other officers based on 10% of
annual compensation. Total expense under these three obligations was $113,358 in
1999 and $114,852 in 1998.
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8--Related Party Transactions
- ----------------------------------
The Company engaged in the following related party transactions:
Nine Months Ended
March 31,
-------------------------
1999 1998
------- -------
Was charged computer consulting services by
an outside director of the Company; $33,887 $43,840
Accrued interest income on an original
installment note receivable dated June 30,
1996 of $235,000 due from a limited
partnership which is controlled by a
stockholder of the Company and is secured by
a deed of trust on Texas real estate. The
note bears interest of 6.83% per annum
collectible annually for three years.
Thereafter the note shall be collected in (5)
equal annual principal installments of
$47,000 plus interest of 6.83% per annum
commencing July 1, 1999 with the final
collection due July 1, 2003. The outstanding
receivable balance was collected in full on
January 4, 1999. $ 6,660 $12,038
Charged interest income on a mortgage note
receivable of $550,000 from its chief
executive officer dated December 16, 1996.
The note is to be collected 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 outstanding receivable balance of
$495,801 was collected in full on February
12, 1999 of which $247,473 was cash and
$248,328 was in the form of 34,748 shares of
the Company's common stock. $20,591 $24,935
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9--Fair Value of Financial Instruments
- -------------------------------------------
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and Accrued
Liabilities--The carrying amount approximates fair value because of the short
maturity of these instruments.
Marketable Securities--The carrying amount approximates fair value because such
securities are valued based on market quotes.
Notes Receivable - Related Parties--The carrying amount approximates fair value
because of similar rates on issues offered to the Corporation under some or
similar provisions.
Accrued Deferred Compensation and Long-Term Debt--The carrying amount
approximates fair value because such liabilities are being valued based on
current market values.
Note 10--Commitments and Contingencies
- --------------------------------------
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of its cash, marketable securities and trade
receivables.
The Company's cash and marketable securities are in high-quality
securities placed with a wide array of institutions with high credit and
investment ratings. This investment policy limits the Company's exposure to
concentrations of credit risk.
The trade receivable balances, reflecting the Company's diversified
sources of revenue, are dispersed across many different geographic areas. As a
consequence, concentrations of credit risk are limited. The Company routinely
assesses the financial strength of its customers and generally does not require
collateral to support its credit sales.
Lease Commitment
- ----------------
The Company leases warehouse space in its New Jersey facility to a
tenant under an operating lease expiring December 31, 1999. Minimum future
rentals to be received on the lease as of June 30, 1998 are as follows: 1998-99
- - $118,443; and 1999-00 - $60,844.
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11--Statement of Cash Flows
- --------------------------------
Nine Months Ended
March 31,
-----------------------
1999 1998
--------- ---------
Supplementary cash flow data:
Income taxes paid ................................ $ 548,248 $ 684,599
Interest paid .................................... $ 23,796 $ 15,658
Non-cash financing transaction:
Collection of note receivable - officer in form of
34,748 shares of the Company's common stock
held as treasury shares ......................... $ 248,328 $ -0-
Item 2 - Management's Discussion and Analysis of Financial Position and Result
of Operation:
- --------------------------------------------------------------------------------
Financial Condition
Liquidity and Capital Resources
Nine-Months ended March 31, 1999
Cash and cash equivalents decreased to $856,749 at March 31, 1999 from
$1,301,317 at June 30, 1998, reflecting a net outflow of cash primarily related
to the Company's repurchase of 184,648 shares of common stock. Of the total cash
and cash equivalents, $975,704 net cash was provided by the operating
activities, $67,621 was used in investing activities and $1,352,651 was used by
financing activities. During the nine months, the Registrant's investment
activities were primarily comprised of $403,733 for additions to property, plant
and equipment, and patents and trademarks, $32,824 used for additions to
deferred compensation contracts and $68,422 for additions to cash surrender
value-life insurance, while $242,358 was provided from the collection of note
receivable-officer and $195,000 was provided by the collection of the note
receivable-partnership. The increase in net cash used in financing activities
was principally from the acquisition of treasury stock ($726,424) and the
payment of dividends ( $.05 per share paid on October 9, 1998 and $.06 per share
paid on March 12, 1999) of $ 530,744.
Working capital of $5,573,171 increased $25,766 or 0.5% during the
nine months ended March 31, 1999 and the working capital ratio increased to 9.06
to 1 from 6.95 to 1 as of June 30, 1998. The working capital increased based on
the net effect of the increase in the mark to market value of the marketable
securities, the increase in Accounts Receivables-trade, net of allowance for
doubtful accounts and the paydown of Accounts Payable and accrued liabilities.
Stockholders' equity per share at March 31, 1999 decreased $.03 to
$2.54 per share compared with $2.50 at June 30, 1998. The decrease is primarily
due to excess dividends paid and the cost of treasury stock acquired over income
earned for the nine month period. As previously authorized by the Board, 184,648
shares of GMCC stock were purchased in the current nine month period at the cost
of $974,752 and are currently being held in the treasury, leaving the Company
with 4,723,146 shares outstanding at March 31, 1999. Under the Registrant's
previously announced buyback program, the Company is authorized to repurchase
shares of its common stock from time to time up to the total purchase price of
$1,500,000.
Management believes internal cash flow from operations and/or incomes
from marketable securities to be sufficient to provide the capital resources
necessary to support future operating needs, and does not currently anticipate
material capital expenditures that will have significant impact on future cash
flows.
Results of Operations: Quarter Ended--- March 31, 1999 compared with March 31,
1998
- --------------------------------------------------------------------------------
Sales decreased this quarter by 4.2% as reflected in the current
period sales of $2,579,939, a decrease of $113,555 from the same quarter last
year. Sales at the New Jersey and Canadian facilities showed increases of
$15,023 and $22,272 respectively. The Texas, California and Wisconsin facilities
had lower sales this quarter compared to the same period last year. The reduced
sales for the Texas facility reflect continued low levels of oil exploration due
to the low price of crude oil experienced during the quarter, although crude oil
prices have increased recently, the Company has not yet seen an increased level
of exploration activity in its Southwestern United States market. Oil drilling
manufacturers represent a significant portion of the customer base for the Texas
facility. Reduced sales for the California facility reflect slowdowns in the
airframe and electronics industries served by the plant, caused both by the
Asian economic crises, which slowed orders of parts for items such as aircraft,
and the continued decrease in military contracting. The Wisconsin facility's
main customer base is in the food, and pulp and paper industries which currently
are not expanding their manufacturing plants, resulting in no expenditures for
our surface enhancement processes used on new equipment.
Royalty and investment and other income for the third quarter were
$66,396 and $164,491 respectively, compared with $79,525 and $120,075,
respectively, in last year's third quarter. Total royalties from established
licensees decreased 16.5%, or $13,129, from the same quarter last year. The
Company believes that the quarter to quarter decrease in royalty income reflects
bookkeeping and timing differences rather than an actual decline in revenue. For
the third quarter of 1998, royalty income reflects the actual fees due from
licensees based upon their actual sales, while the 1999 figures reflect the
minimum payments due under licenses, as many licensees have not yet finalized
their sales figures. Management believes that the final third quarter royalty
fees will not show a decline from 1998 levels. Investment income increased 3.7%,
or $44,416, reflecting the continuing upward movement in investment markets
during the three months ended March 31, 1999. The Company maintains an
investment portfolio to enhance earnings and provide liquidity for future cash
needs. The portfolio is composed of equity securities, U.S. Treasury Securities
and obligations of U.S. Government agencies and government sponsored entities,
and corporate debt.
The Company has adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
(SFAS 115). Under SFAS 115, securities are classified as securities held to
maturity based on management's intent and the Company's ability to hold them to
maturity. Such securities are stated at cost, adjusted for unamortized purchase
premiums and discounts. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities,
which are carried at market value. Realized gains and losses and gains and
losses from marking the portfolio to market value are included in investment
income. Securities not classified as securities held to maturity or trading
securities are classified as securities available for sale, and are stated at
fair value. Unrealized gains and losses on securities available for sale are
excluded from results of operations, and are reported as a separate component of
stockholders' equity, net of taxes. Securities classified as available for sale
include securities that may be sold in response to changes in interest rates,
changes in prepayment risks, or other similar circumstances.
Management determines the appropriate classification of securities at
the time of purchase. At March 31, 1999 all of the Company's investment
securities were classified as trading securities.
The $44,416 increase in trading income for this quarter versus the
1998 quarter is primarily attributable to the mark to market adjustments to the
portfolio. Although the Company's portfolio will continue to be subject to
market changes, management believes the portfolio is well diversified and is a
prudent cash management tool for investing the Company's excess cash.
Reflecting the factors discussed above, gross revenue for the third
quarter of this year totaled $2,813,375, a decrease of 2.8% or $79,719 from the
same quarter of last year.
Total costs and expenses were $2,310,381 in the third quarter, a
decrease of $111,146, or 4.6%, from the same period last year. Primary
components of costs and expenses included costs of sales of $1,189,581, a
decrease of $54,851 over cost of sales of $1,244,432 for the same quarter last
year, selling and administration expense of $959,677, a decline of $47,161 from
selling and administration expenses of $1,006,838 in the same quarter of last
year, and depreciation and amortization expenses of $153,457, a decrease of
$7,613 over depreciation and amortization expenses of $161,070 in the same
quarter of last year. The decrease in the costs of sales reflects decreased raw
material costs as the Company's sales decreased during the quarter and the
decline in selling and administrative expenses also reflects the Company's
reduced sales.
Income before corporate income taxes was $502,994 in the current
year's third quarter, an increase of $31,427 or 6.7%, from the $471,567 achieved
in last year's third quarter. Corporate income taxes and the effective tax rate
for the period were $191,400 and 38.0% respectively, compared with $176,200 and
37.4% in the third quarter of last year.
Based on the above, net income in the third quarter of this year of
$311,594 increased $16,227 or 5.5% from the $295,367 in the same period last
year.
Earnings per share were $.07 for the third quarter 1999, compared with
$.06 per share last year, an increase of $.01, or 16.7%. During the quarter,
113,148 shares of GMCC stock were purchased and are being held in the treasury,
resulting in a weighted average of shares outstanding of 4,769,144 compared with
4,911,994 for the same period last year.
Year 2000
- ---------
The Company has recognized the need to ensure that its computer
systems will not be adversely affected by the upcoming calendar year 2000. The
Company has assessed how it may be impacted by Year 2000 and has formulated and
commenced implementation of a comprehensive plan to address known issues to its
computer systems. The plan, as it relates to computer systems, involves a
combination of software modification, upgrades and replacement. The accounting
software has already been upgraded at this time, at a cost of $12,000. The
Company estimates that any additional costs of Year 2000 compliance will not be
material. However, the Company cannot measure the impact that the Year 2000
issue will have on its vendors, suppliers, customers and other parties with
which it conducts business.
Market Risk
- -----------
The Company's Canadian operations expose the Company to potential
foreign currency exchange risk on cash flows related to sales, expenses and
financing transactions. The Company believes its exposure to currency rate risk
is not material, and the Company has not used currency exchange contracts to
address this risk.
Nine Months --- March 31, 1999 compared with March 31, 1998:
------------------------------------------------------------
Gross revenue for this year's first nine months of $8,607,212
decreased 1.6%, or $143,378, over gross revenue of $8,750,590 for the first nine
months of fiscal 1998. Both Sales and Royalty and licensee income both declined
for the nine months ended March 31, 1999 over the comparable period of last
year, reflecting the same factors discussed above in the quarterly comparison.
Over the nine months ended March 31, 1999, investment income increased $102,842
partially offsetting the declines in Sales and Royalty and other income. The
investment income primarily reflects a positive mark to market adjustment to the
portfolio and short-term capital gains.
Total costs and expenses for the current nine month period were
$7,192,540 an increase of $67,688 or 1.0% from last year. As a percentage of
gross revenue, total costs and expenses increased to 83.6% compared with 81.4%
in 1998. Cost of Sales as a percentage of gross revenue for the nine months
increased to 44.0% from 40.4% during the comparative nine month period. The
increase in Cost of Sales reflects increased raw material costs for the nine
month period as the Company expanded its operations. Selling and administration
expenses decreased to 33.5% of gross revenue in the latest period compared with
34.8% last year. Depreciation and amortization remained at 6.0% of gross
revenue.
As a result of the above, gross income before corporate income taxes
for the first nine months of this year was $1,414,672, a decrease of $211,066,
or 13.0%, from last year.
Corporate income taxes in this year's first nine months were $527,100,
compared to $602,700 for the comparable period of last year. This year's
effective tax rate was 37.3% compared with 37.1% last year.
As a result of the above, net income of $887,572 declined 13.2%, or
$135,466, from last year. Earnings per share were $.18 this year, compared with
$.21 a share last year, a decrease of $.03, or 14.3%. During the nine month
period 184,648 shares of common stock were purchased and are currently being
held in the treasury, resulting in a weighted average this year of 4,830,188
compared with 4,914,152 in 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL MAGNAPLATE CORPORATION
(Registrant)
DATE May 14, 1999
/s/Candida C. Aversenti
-----------------------
Candida C. Aversenti
President
DATE May 14, 1999
/s/Susan E. Neri
----------------
Susan E. Neri
Chief Accounting Officer