<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For quarterly period ended: December 31, 1995
Commission File number: 1-9429
ROTONICS MANUFACTURING INC.
---------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2467474
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
17022 SOUTH FIGUEROA STREET, GARDENA, CALIFORNIA 90248
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(310) 538-4932
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year, if changed since last
report)
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 the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at December 30, 1995
----- --------------------------------
Common Shares 14,155,336 Shares
($.01 stated value)
Total Pages 17
Exhibit Index at Page 16
</TABLE>
<PAGE> 2
ROTONICS MANUFACTURING INC.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets -
December 31, 1995 (Unaudited)
and June 30, 1995 (Audited) 3
Statements of Income and
Accumulated Deficit -
Three Months and Six Months Ended December 31, 1995
and 1994 (Unaudited) 4
Statements of Cash Flows -
Six Months Ended December 31, 1995
and 1994 (Unaudited) 5
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROTONICS MANUFACTURING INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash $ 6,900 $ 96,700
Accounts receivable, net (Notes 5 and 6) 4,725,600 5,341,500
Notes receivable 117,300 110,900
Inventories (Notes 2, 5 and 6) 4,831,100 5,352,100
Deferred income taxes, net (Note 9) 1,387,200 887,200
Prepaid expenses and other current assets 238,300 114,800
----------- -----------
Total current assets 11,306,400 11,903,200
Notes receivable, less current portion 385,800 396,800
Deferred income taxes, net (Note 9) 3,323,000 3,658,100
Property, plant and equipment, net (Notes 3, 5 and 6) 8,484,900 8,605,900
Intangible assets, net (Note 4) 5,535,600 5,692,700
Other assets 89,100 102,700
----------- -----------
$29,124,800 $30,359,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt (Note 6) $ 1,087,300 $ 1,034,500
Current portion of long-term debt due related parties 90,000 140,000
Accounts payable 1,817,200 2,357,100
Accrued liabilities (Note 7) 895,000 1,211,000
Dividends payable (Note 8) 566,200 -
Income taxes payable (Note 9) - 23,400
----------- -----------
Total current liabilities 4,455,700 4,766,000
Bank Line of credit (Note 5) 2,884,400 3,060,300
Long-term debt, less current portion (Note 6) 3,927,100 4,624,900
Long-term debt due related parties, less current portion - 22,500
Deferred pension liabilities 4,000 4,000
----------- -----------
Total liabilities 11,271,200 12,477,700
----------- -----------
Stockholders' equity:
Preferred stock, stated value $.01, redemption value $1: authorized
4,250,000 shares; issued and outstanding zero and 3,000,000 shares,
respectively (Note 8) - 3,000,000
Common stock, stated value $.01: authorized 20,000,000 shares;
issued and outstanding 14,153,557 and 12,903,752 shares, respectively,
net of treasury shares (Note 8) 24,573,900 21,980,500
Accumulated deficit (6,720,300) (7,098,800)
----------- -----------
Total stockholders' equity 17,853,600 17,881,700
----------- -----------
$29,124,800 $30,359,400
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ROTONICS MANUFACTURING INC.
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------- ----------------------------
1995 1994 1995 1994
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 8,904,100 $ 8,010,100 $17,886,000 $ 17,089,300
----------- ----------- ----------- ------------
Costs and expenses:
Cost of goods sold 6,719,400 5,611,100 13,517,400 12,206,300
Selling, general and
and administrative expenses 1,634,700 1,370,000 3,177,600 2,806,900
----------- ----------- ----------- ------------
Total costs and expenses 8,354,100 6,981,100 16,695,000 15,013,200
----------- ----------- ----------- ------------
Income from operations 550,000 1,029,000 1,191,000 2,076,100
----------- ----------- ----------- ------------
Other (expense)/income:
Interest expense (179,000) (185,300) (370,000) (337,300)
Other income 46,100 10,200 95,000 19,900
----------- ----------- ----------- ------------
Total other expenses (132,900) (175,100) (275,000) (317,400)
----------- ----------- ----------- ------------
Income before income taxes 417,100 853,900 916,000 1,758,700
Income tax benefit/(provision) (Note 9) 138,700 (74,500) 90,700 (133,900)
----------- ----------- ----------- ------------
Net income 555,800 779,400 1,006,700 1,624,800
Accumulated deficit, beginning of period (6,709,900) (9,320,700) (7,098,800) (10,084,800)
Preferred stock dividends - (75,000) (62,000) (156,300)
Common stock dividends (566,200) - (566,200) -
----------- ----------- ----------- ------------
Accumulated deficit, end of period $(6,720,300) $(8,616,300) $(6,720,300) $ (8,616,300)
=========== =========== =========== ============
Income per common share (Note 10):
Net income:
Primary $ .04 $ .06 $ .07 $ .12
======= ======= ======= =======
Fully diluted $ .04 $ .06 $ .07 $ .12
======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding:
Primary 14,165,197 12,606,415 13,533,954 12,456,018
========== ========== ========== ==========
Fully diluted 14,165,577 12,606,415 (1) 13,534,736 12,456,018 (1)
========== ========== ========== ==========
</TABLE>
(1) The result of the fully diluted earnings per share computation is
anti-dilutive.
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ROTONICS MANUFACTURING INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,006,700 $ 1,624,800
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 791,700 714,300
Gain on sale of equipment (1,200) -
Deferred income tax provision (164,900) 47,100
Provision for doubtful accounts 52,800 (54,200)
Changes in assets and liabilities:
Decrease in accounts receivable 563,100 495,500
Decrease/(increase) in inventories 521,000 (1,815,900)
(Increase)/decrease in prepaid expenses and other current assets (123,500) 93,800
Decrease in other assets 11,300 1,300
(Decrease)/increase in accounts payable (539,900) 443,200
(Decrease)/increase in accrued liabilities (292,600) 47,300
Decrease in income taxes payable (23,400) (40,600)
Decrease in deferred pension liability - (1,000)
----------- -----------
Net cash provided by operating activities 1,801,100 1,555,600
----------- -----------
Cash flows from investing activities:
Repayments on notes receivable, net 4,600 87,000
Capital expenditures (511,300) (2,552,000)
Proceeds from sale of equipment 1,200 -
----------- -----------
Net cash used in investing activities (505,500) (2,465,000)
----------- -----------
Cash flows from financing activities:
Net (repayments)/borrowings under line of credit (175,900) 406,800
Proceeds from issuance of long-term debt - 1,330,000
Repayment of long-term debt (717,500) (518,900)
Redemption of preferred stock (250,200) (125,000)
Payment of preferred stock dividends (85,400) (161,400)
Proceeds from exercise of stock options - 2,000
Purchase of treasury stock (156,400) -
----------- -----------
Net cash (used in)/provided by financing activities (1,385,400) 933,500
----------- -----------
Net (decrease)/increase in cash (89,800) 24,100
Cash at beginning of period 96,700 2,600
----------- -----------
Cash at end of period $ 6,900 $ 26,700
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 377,400 $ 334,100
=========== ===========
Income taxes $ 157,500 $ 134,000
=========== ===========
Supplemental schedule of noncash financing activities:
Conversion of preferred stock to common stock $ 2,749,800 $ 500,000
=========== ===========
Preferred dividends declared but not paid $ - $ 24,400
=========== ===========
Common dividends declared but not paid $ 566,200 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ROTONICS MANUFACTURING INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-INTERIM REPORTING:
The interim financial information included herein is unaudited. This
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of operating results for the interim periods. This interim financial
information should be read in conjunction with the Rotonics Manufacturing Inc.
("the Company") Annual Report as filed on Form 10-K for the fiscal year ended
June 30, 1995.
During the second quarter of fiscal 1996 the Company initiated the closure and
relocation of its Deerfield, Wisconsin facility into its Bensenville, Illinois
facility. During the transition the Company has incurred to date approximately
$140,000 in costs associated with inefficiencies and continued overhead costs
inherent to the consolidation process. Management anticipates additional
costs, although minimal, in connection with the closure of the Wisconsin
facility as it completes the consolidation process in the third quarter. Once
the process is complete, the Illinois division will be one of the Company's
flagship operations. As part of the closure, the Company plans to sell the
Wisconsin real property which should net a gain of approximately $250,000 once
sold.
NOTE 2 - INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ ----------
<S> <C> <C>
Raw materials $ 2,403,200 $ 3,059,000
Finished goods 2,427,900 2,293,100
----------- -----------
$ 4,831,100 $ 5,352,100
=========== ===========
</TABLE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December, 31, June 30,
1995 1995
------------- -----------
<S> <C> <C>
Land $ 574,200 $ 574,200
Buildings and building improvements 2,634,200 2,486,800
Machinery, equipment, furniture and fixtures 10,606,900 10,635,100
Construction in progress 497,700 120,200
----------- -----------
14,313,000 13,816,300
Less - accumulated depreciation (5,828,100) (5,210,400)
----------- -----------
$ 8,484,900 $ 8,605,900
=========== ===========
</TABLE>
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consist of:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ ------------
<S> <C> <C>
Patents, net of accumulated amortization of $76,700 and $73,700 $ 53,700 $ 59,600
Goodwill, net of accumulated amortization
of $1,618,400 and $1,467,900 5,481,900 5,633,100
----------- -----------
$ 5,535,600 $ 5,692,700
=========== ===========
</TABLE>
6
<PAGE> 7
NOTE 5 - BANK LINE OF CREDIT:
The Company has a $5,000,000 revolving line of credit with Wells Fargo Bank.
The line matures May 16, 1997 and is secured by the Company's machinery and
equipment, accounts receivable and inventories. Interest is payable monthly at
the bank's prime rate. The bank's prime rate at December 31, 1995 was 8.5% per
annum. The loan agreement allows the Company to convert the outstanding
principal balance in increments of $250,000 to a LIBOR-based loan for periods
up to 90 days. At December 31, 1995 the Company had $2,750,000 borrowed under
the LIBOR option bearing interest at 8.19% per annum and maturing on January
26, 1996. Proceeds from the loan were used for working capital purposes. At
December 31, 1995 the Company had approximately $2,115,600 available for future
borrowings under the revolving line of credit.
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ -----------
<S> <C> <C>
Unsecured note payable (A) $ - $ 93,800
Note payable - Bank (B) 3,533,300 3,933,300
Note payable - Bank (C) 207,900 217,400
Note payable - Bank (D) 1,246,900 1,280,100
Other 26,300 134,800
----------- -----------
5,014,400 5,659,400
Less current portion (1,087,300) (1,034,500)
----------- -----------
$ 3,927,100 $ 4,624,900
=========== ===========
</TABLE>
(A) This note was issued in connection with the settlement of the Garney
Companies, Inc.("Garney") lawsuit on December 11, 1992. The
settlement requires payments to Garney amounting to $400,000, of which
$150,000 was paid in December 1992. The remaining $250,000 was due
in quarterly principal installments of $15,600 plus interest at 6% per
annum beginning April 1, 1993. In August 1995 the note was repaid
in full net of a $8,000 discount for early extinguishment.
(B) In May 1995 the Company restructured its credit agreement with Wells
Fargo Bank. The loan consists of a $4,000,000 sixty-month term loan.
The note is due in monthly principal installments of $66,700 plus
interest at the bank's prime rate (8.5% at December 31, 1995). In
addition, the loan agreement allows the Company to convert all or a
portion of the outstanding principal in increments of $250,000 to a
LIBOR-based loan for periods up to 180 days. At December 31, 1995 the
Company had $3,250,000 of the outstanding principal balance under the
LIBOR option at 8.25% per annum. The note is secured by the Company's
machinery and equipment, accounts receivable and inventories and
matures on May 16, 2000.
(C) This note was issued to the First State bank of Gainesville in the
original amount of $250,000. The loan is due in monthly installments
of approximately $3,000 including interest at 8% per annum beginning
September 1993 and continuing for 36 months, at which time the entire
balance of unpaid principal plus accrued interest is due and payable.
The note is secured by a deed of trust on the Company's real property
in Gainesville, Texas. Proceeds from the loan were used for working
capital purposes and to finance the majority of a fixed asset
expansion project at the Company's Idaho facility.
(D) This note was issued to Wells Fargo Bank on September 15, 1994 in
connection with the purchase of real property in Bensenville,
Illinois. The note is due in monthly principal installments of
approximately $5,500 plus interest at the bank's prime rate (8.5% per
annum at December 31, 1995) on a twenty-year amortization with the
outstanding principal due in five years. The note is secured by a
first trust deed on the real property and matures September 15, 1999.
7
<PAGE> 8
NOTE 7 - ACCRUED LIABILITIES:
Accrued liabilities consist of:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ -----------
<S> <C> <C>
Salaries, wages, commissions and related payables $782,200 $ 980,400
Other 112,800 230,600
-------- ----------
$895,000 $1,211,000
======== ==========
</TABLE>
NOTE 8 - PREFERRED STOCK AND COMMON STOCK:
In September 1995, the Company redeemed 250,232 shares of its preferred stock
at the stated redemption value of $1. Subsequent to the redemptions, in
accordance with unanimous approval of the Board of Directors, the Company
converted the remaining 2,749,768 shares of the outstanding series A preferred
stock to 1,374,884 shares of the Company's common stock. The shares were
converted on the basis of one share of common stock issued for every two shares
of preferred stock outstanding. The fair market value of the Company's common
stock on the date of conversion was $2.4375.
On December 8, 1995 the Board of Directors' declared at its Annual Meeting of
Stockholders a common stock dividend of $.04 per common share payable on
January 29, 1996 to stockholders of record on January 10, 1996.
NOTE 9 - INCOME TAXES:
The components of the income tax provision/(benefit) were:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31
------------------------------ ---------------------------
1995 1994 1995 1994
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Current:
Federal $ 13,400 $15,000 $ 18,700 $ 24,500
State 26,100 36,900 55,500 62,300
--------- ------- --------- --------
39,500 51,900 74,200 86,800
--------- ------- --------- --------
Deferred:
Federal (190,100) - (190,100) -
State 11,900 22,600 25,200 47,100
--------- ------- --------- --------
(178,200) 22,600 (164,900) 47,100
--------- ------- --------- --------
$(138,700) $74,500 $ (90,700) $133,900
========= ======= ========= ========
</TABLE>
At December 31, 1995, the Company had net operating loss (NOL) carryforwards of
approximately $16,600,000 and $2,600,000, respectively, for federal and state
income tax purposes expiring in varying amounts through 2006. The NOL
carryforwards, which are available to offset future profits of the Company and
are subject to limitations should a "change in ownership" as defined in the
Internal Revenue Code occur, will begin to expire in 1998 and 1995 for federal
and state tax purposes, respectively, if not utilized.
In conjunction with the adoption of Statement of Financial Accounting Standards
No. 109 (FAS 109) "Accounting for Income Taxes", management determined the
future taxable income of the Company will more likely than not be sufficient to
realize the tax benefits of its NOL's. As such, an initial deferred tax asset
of $4,013,000, net of a valuation allowance of $2,662,000 was recorded.
8
<PAGE> 9
Based on the operating results since the adoption of FAS 109 and management's
continuing assessment, management believes that the Company will continue to
utilize its NOL's on a go-forward basis. As such, through December 31, 1995
management has reduced the initial valuation allowance by $2,571,700. For the
six months ended December 31, 1995 and 1994, the Company recorded adjustments
to the valuation allowance amounting to $500,000 and $585,100, respectively.
At December 31, 1995 the federal valuation allowance was completely depleted
and the state valuation allowance was $90,300. Now that the federal valuation
allowance has been depleted the Company will begin to realize a higher
effective income tax rate in future periods. The adjustments to the valuation
allowance have been reflected as a component of the respective period's income
tax provision.
NOTE 10 - COMPUTATION OF EARNINGS PER SHARE:
Primary and fully diluted earnings per share have been computed in accordance
with APB No. 15 "Earnings per Share", using the treasury stock method for
applicable common stock warrants and options. Net income was reduced by the
appropriate amount of preferred stock dividends to determine earnings
applicable to common stock.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Three Months Ended December 30, 1995 and 1994
Net sales for the three months ended December 31, 1995 increased by $894,000,
or 11.1% to $8,904,000 compared to $8,010,100 for the same period last year. A
substantial portion, approximately 65%, of the increase is attributed to the
sales volumes contributed by the Company's Arleta, California division which
was acquired during the fourth quarter of fiscal 1995. In contrast to the
prior quarter, the Company has begun to realize some improvement in what
continues to be a lackluster marketplace. Despite this sluggish economy the
Company has been able to sustain its sales volume growth reporting notable
increase in its refuse container and marine product groups for the current
quarter when compared with the same period last year. The Company anticipates
continued improvement during the remaining portion of fiscal 1996 as prior
volatile pricing adjustments continue to stabilize within the marketplace. In
addition, the Company continues to restructure and refine its sales/marketing
work force in our efforts to strengthen customer relation, build market share
for our proprietary products and venture into new market segments. During this
quarter the Company began and has substantially completed the closure and
relocation of its Deerfield, Wisconsin facility into its Bensenville, Illinois
facility. Although currently disruptive to the Illinois operation, once the
transition is completed the Company will realize substantial operational
benefits and savings. Overall, with all things taken into consideration,
management is pleased with the second quarter sales volumes which have improved
over prior year results and have remained relatively consistent with the first
quarter results.
Cost of goods sold increased 5.4% to 75.5% of net sales for the three months
ended December 31, 1995 compared to 70.1% for the same period last year.
Although, the second quarters gross margins has improved slightly over first
quarter results, we still have not returned to our desired levels of
performance. As previously mentioned, the Company had experienced significant
plastic resin cost increases during fiscal 1995. During fiscal 1995 the
Company effectively absorbed these costs through raw material purchasing
strategies and sales price increases. Although the Company did institute
several general price increases to compensate for the increases in resin costs,
due to market resistance the Company could not increase its pricing enough to
stay in step on an equal basis. As such, the Company continues to report
diminished gross margins due to higher resin costs. Management anticipates a
dramatic improvement in its gross margins now that it has substantially
depleted resin purchased at higher prices and begins to take advantage of
recent reductions in resin costs. During the last quarter resin prices have
dropped approximately $.07 per pound. Another key element was the change in
the Company's overall product mix during the quarter ended December 31, 1995.
The Company reported a larger proportionate share of refuse container sales
during the current period. Historically sales of refuse containers is very
competitive and thus yield lower gross margins. Also, due to supply and demand
constraints instituted within the resin industry the Company was unable to
purchase special competitively priced resin usually used to manufacture its
refuse containers resulting in additional pressure to retain desired gross
margins on these products. The Company is also experiencing a temporary
increase in its cost of goods sold due to the reduction in efficiencies and
continued overhead expenses inherent during the Wisconsin plant consolidation.
These costs amounted to approximately $100,000. Management anticipates future
expenses associated with the Wisconsin operation to be minimal now that their
manufacturing operations have been completely discontinued and the majority of
the equipment has been relocated to other operating divisions. Again,
management has taken a proactive stance to improve margins which should in turn
improve performance during the remaining portion of fiscal 1996. In addition,
the Company should benefit in future periods if current reductions in resin
prices hold.
Selling, general, and administrative expenses were $1,634,700, or 18.4% of net
sales for three months ended December 31, 1995 compared with $1,370,000, or
17.1% for the same period last year. The increase is partly attributed to
$125,000 in additional expenses incurred associated with the Arleta, California
facility which was acquired during the fourth quarter or fiscal 1995. The
remaining increase is attributed to increased marketing expenses in connection
with restructure of sales work force and increased administrative expenses
associated with the recently expanded operations at our Illinois facility as
well as approximately $30,000 - $40,000 in excess selling and administrative
expenses during the consolidation of our Wisconsin facility.
Total interest expense decreased $6,300 to $179,000 for the three months ended
December 31, 1995 compared to $185,300 for the same period last year. The
Company is beginning to realize the effect of the deductions in the bank's
prime rate, .5% in the last six months, coupled with the renegotiated interest
rates on our bank facility. If bank borrowings remain consistent during the
balance of fiscal 1996, the Company will continue to realize lower interest
costs.
Net income was $555,800, or $.04 per common share for the three months ended
December 31, 1995 compared to $779,400, or $.06 per common share for the same
period last year. The decrease is attributed to higher raw material costs,
increased cost associated with manufacturing inefficiencies and administrative
costs during the Wisconsin facility consolidation and additional selling,
general and administrative expenses
10
<PAGE> 11
associated with the Arleta, California division. Management foresees improved
financial performance during the balance of fiscal 1996. Forecasted sales
volumes in the next quarter look promising. The Company anticipates the
Wisconsin facility transition to the Illinois facility, allowing the Illinois
facility to be fully operational, to be completed within the third quarter.
These factors in conjunction with a stable plastic resin market should boost
our performance as we move forward. The Company also plans on selling the
Wisconsin real property which should net a gain of approximately $250,000 once
sold.
Results of Operations - Six Months ended December 31, 1995 & 1994
Net sales for the six months ended December 31, 1995 increased $796,700, or
4.7% to $17,886,000 compared to $17,089,300 for the same period last year. The
increase is attributable to sales volumes contributed by the Company's Arleta,
California division of approximately $1.4 million. In addition, the Company's
west coast operations continue to report increased volumes facilitated by
substantial refuse container sales despite a lackluster marketplace. These
increases have been partially offset by the Company's mid-west divisions which
currently report a reduction in sales volumes of approximately $900,000 due
primarily to a lackluster marketplace caused by the industry's increased
pricing in retaliation to the unprecedented increases in plastic resin costs
during fiscal 1995. During the second quarter the Company has begun to realize
improved conditions within the marketplace in these regions as prior volatile
pricing adjustments continue to stabilize. During the second quarter the
Company began and has substantially completed the closure and relocation of its
Deerfield, Wisconsin facility into its Bensenville, Illinois facility.
Although currently disruptive to the Illinois operation, once the transition is
completed the Company will realize operational benefits and savings. The
Company has structured the Illinois facility to be one of its flagship
operations and to support continued growth well into the 21st century.
Cost of goods sold increased 4.2% to 75.6% of net sales for the six months
ended December 31, 1995 compared to 71.4% for the same period last year.
Although, the second quarters gross margins has improved slightly over first
quarter results, we still have not returned to our desired levels of
performance. As previously mentioned, the Company had experienced significant
plastic resin cost increases during fiscal 1995. During fiscal 1995 the
Company effectively absorbed these costs through raw material purchasing
strategies and sales price increases. Although the Company did institute
several general price increases to compensate for the increases in resin costs,
due to market resistance the Company could not increase its pricing enough to
stay in step on an equal basis. As such, the Company continues to report
diminished gross margins due to higher resin costs. Management anticipates a
dramatic improvement in its gross margins now that it has substantially
depleted resin purchased at higher prices and begins to take advantage of
recent reductions in resin costs. During the current period resin prices have
dropped approximately $.14 per pound. Another key element was the change in
the Company's overall product mix during the six months ended December 31,
1995. The Company reported a larger proportionate share of refuse container
sales during the current period. Historically sales of refuse containers is
very competitive and thus yield lower gross margins. Also, due to supply and
demand constraints instituted within the resin industry the Company was unable
to purchase special competitively priced resin usually used to manufacture its
refuse containers resulting in additional pressure to retain desired gross
margins on these products. The Company is also experiencing a temporary
increase in its cost of goods sold due to the reduction in efficiencies and
continued overhead expenses inherent during the Wisconsin plant consolidation.
These costs amounted to approximately $100,000. Management anticipates future
expenses associated with the Wisconsin operation to be minimal now that their
manufacturing operations have been completely discontinued and the majority of
the equipment has been relocated to other operating divisions. Again,
management has taken a proactive stance to improve margins which should in turn
improve performance during the remaining portion of fiscal 1996. In addition,
the Company should benefit in future periods if current reductions in resin
prices hold.
Selling, general, and administrative expenses were $3,177,600, or 17.8% of net
sales for six months ended December 31, 1995 compared with $2,806,900, or 16.4%
for the same period last year. The increase is substantially attributed to
$301,400 in additional expenses incurred associated with the Arleta, California
facility which was acquired during the fourth quarter or fiscal 1995. The
remaining increase is attributed to increased marketing expenses in connection
with restructure of sales work force and increased administrative expenses
associated with the recently expanded operations at our Illinois facility as
well as approximately $30,000 - $40,000 in excess selling and administrative
expenses during the consolidation of our Wisconsin facility.
11
<PAGE> 12
Total interest expense increased $32,700 to $370,000 for the six months ended
December 31, 1995 compared to $337,300 for the same period last year. The
increase is attributed to the debt issued associated with the purchase of the
Bensenville, Illinois property in September 1994 and the repayment of debt
assumed (approximately $700,000) in connection with the purchase of the Arleta,
California facility. However, the Company has begun to realize reduced
interest costs during the second quarter based on recent reductions in the
bank's prime lending interest rate and renegotiated interest rates on our bank
facility resulting in a current reduction in interest rate of 1.5% - 1.8%
during fiscal 1996. If bank borrowings remain consistent during the balance of
fiscal 1996, the Company will continue to realize lower interest costs.
Income taxes decreased $224,600 resulting in a tax benefit of $90,700 for the
six months ending December 31, 1995 compared to an income tax expense of
$133,900 for the same period last year. The decreases in income tax expense
resulted in reporting a $164,900 net deferred tax benefit attributed in part to
the final reduction to the federal valuation allowance against deferred tax
assets. Now that the federal valuation allowance has been depleted the Company
will begin to realize a higher effective income tax rate in future periods.
Net income was $1,006,700, or $.07 per common share for the six months ended
December 31, 1995 compared to $1,624,800, or $.12 per common share for the same
period last year. The decrease is primarily attributed to an improved but
still sluggish marketplace in the mid-west region, an increase in plastic resin
cost which have lowered our gross margins, increased costs associated with
manufacturing inefficiencies and administrative expenses during the Wisconsin
facility consolidation and additional selling, general and administrative
expenses associated with the Arleta, California division. Again management
continues its efforts to improve sales volumes and control manufacturing and
overhead costs which should improve our financial performance during the
balance of fiscal 1996. Forecasted sales volumes in the next quarter look
promising. The Company anticipates the Wisconsin facility transition into the
Illinois facility, allowing the Illinois facility to be fully operational, to
be completed within the third quarter. These factors in conjunction with a
stable plastic resin market should boost our performance as we move forward.
The Company also plans on selling the Wisconsin real property which should net
a gain of approximately $250,000 once sold.
Financial Condition
Working capital decreased $286,500 to $6,850,700 at December 31, 1995 compared
to $7,137,200 at June 30, 1995. The decrease is attributed to a $500,000
decrease in the deferred tax valuation allowance for the additional recognition
of the Company's net operating loss carryforwards and an increase dividends
payable associated with a $566,200 common stock dividend declared in December
1995 net of normal fluctuations in accounts receivable, accounts payable,
accrued liabilities and inventories consistent with current operations. Cash
flows from operations increased $245,500 when compared with the same period
last year and continue to verify the Company's ability to sustain profitable
operations at current sales volumes.
The Company expended a total of $511,300 for property, plant and equipment
during the six months ended December 31, 1995 compared to $2,552,000 for the
same period last year. The decrease is attributed to the purchase of the
Bensenville, Illinois property ($1,700,000) and various construction in
progress projects ($560,000) which were completed during the prior year period
ended December 31, 1994. The Company anticipates spending an additional
$750,000 during the remaining of fiscal 1996 on its Illinois facility expansion
and various machinery, equipment and plant expansion projects at its Gardena,
California, Boise, Idaho, and Gainesville, Texas facilities.
Borrowings under the line of credit decreased slightly by $175,900 to
$2,884,400 between June 30, 1995 and December 31, 1995. At December 31, 1995
the Company had approximately $2,100,000 available for future borrowings under
its revolving line of credit.
In September 1995 the Company redeemed 250,232 shares of its 9% preferred stock
at the stated redemption value of $1 per share. On September 25, 1995,
pursuant to unanimous Board of Directors approval, the Company proceeded to
convert remaining outstanding preferred shares to the Company common stock.
The conversion was based on the issuance of one share of the Company's common
stock for every two shares of preferred stock outstanding. The conversion
resulted in the issuance of 1,374,884 shares of common stock. The complete
conversion of the remaining outstanding preferred stock will save the Company
approximately $250,000 annual cash flows due to the elimination of future
preferred dividend payments, eliminate the need to incur additional debt and
interest costs to redeem the preferred stock, as well as enhance overall common
shareholder value. Management is committed to providing the best possible
return to its shareholders and believe this will provide essential long-term
benefits. The Company does not plan to issue any preferred shares in the
future.
12
<PAGE> 13
On December 8, 1995 the Board of Directors declared at its Annual Meeting of
Stockholders its first dividend on the Company's common stock since the July
1991 merger. A regular dividend of $.04 per common share will be paid on
January 29, 1996 to stockholders of record on January 10, 1996. With the
recent redemption of all preferred stock, eliminating the obligation to pay
future preferred stock dividends, and with the full support of the Company's
bankers, the Board of Directors felt it was an appropriate time to recognize
and reward its loyal stockholders with the declaration and payment of this
dividend.
Cash flows from operations in conjunction with the Company's revolving line of
credit and machinery and equipment loan commitment are expected to meet the
Company's needs for working capital, capital expenditures repayment of
long-term debt and payment of its common stock dividend for the foreseeable
future.
13
<PAGE> 14
ROTONICS MANUFACTURING INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Statement Regarding Computation of Per Share Earnings.
(b) Reports on Form 8-K
None.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on behalf by the
undersigned thereunto duly authorized.
Rotonics Manufacturing Inc.
Registrant
Date: January, 23 1996 /s/ SHERMAN McKINNISS
-------------------------------
Sherman McKinniss
President and
Chief Executive Officer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
II Statement Regarding Computation of Per Share Earnings 17
</TABLE>
16
<PAGE> 1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
EXHIBIT II
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- -----------------------------
1995 1994 1995 1994
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Net income $ 555,800 $ 779,400 $1,006,700 $1,624,800
Less preferred stock dividends - (75,000) (62,000) (156,300)
----------- ----------- ---------- ----------
Income applicable to common shares $ 555,800 $ 704,400 $ 944,700 $1,468,500
=========== =========== ========== ==========
Weighted average number of
common shares outstanding 14,155,393 12,588,055 13,523,669 12,443,168
Add -common equivalent shares:
Shares issuable upon exercise of options to
purchase common stock 9,804 18,360 10,285 12,850
----------- ----------- ---------- ----------
Weighted average number of common shares
used in computation of primary earnings per
common share 14,165,197 12,606,415 13,533,954 12,456,018
=========== =========== ========== ==========
Primary earnings per common share $ .04 $ .06 $ .07 $ .12
======= ======= ======= =======
FULLY DILUTED
- -------------
Net income $ 555,800 $ 779,400 $1,006,700 $1,624,800
Less preferred stock dividends - (75,000) (62,000) (156,300)
----------- ----------- ---------- ----------
Income applicable to common shares $ 555,800 $ 704,400 $ 944,700 $1,468,500
=========== =========== ========== ==========
Weighted average number of
common shares outstanding 14,155,393 12,588,055 13,523,669 12,443,168
Add -common equivalent shares:
Shares issuable upon exercise of options to
purchase common stock 10,184 18,360(1) 11,067 12,850(1)
----------- ----------- ---------- ----------
Weighted average number of common shares
used in computation of primary earnings
per common share 14,165,577 12,606,415(1) 13,534,736 12,456,018(1)
=========== =========== ========== ==========
Fully diluted earnings per common share $ .04 $ .06 $ .07 $ .12
======= ======= ======= =======
</TABLE>
(1) The result of the fully diluted earnings per share computation is
anti-dilutive.
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 6,900
<SECURITIES> 0
<RECEIVABLES> 4,927,300
<ALLOWANCES> 84,400
<INVENTORY> 4,831,100
<CURRENT-ASSETS> 11,306,400
<PP&E> 14,313,000
<DEPRECIATION> 5,828,100
<TOTAL-ASSETS> 29,124,800
<CURRENT-LIABILITIES> 4,455,700
<BONDS> 0
0
0
<COMMON> 24,573,900
<OTHER-SE> (6,720,300)
<TOTAL-LIABILITY-AND-EQUITY> 29,124,800
<SALES> 17,886,000
<TOTAL-REVENUES> 17,886,000
<CGS> 13,517,400
<TOTAL-COSTS> 16,695,000
<OTHER-EXPENSES> 275,000
<LOSS-PROVISION> 52,800
<INTEREST-EXPENSE> 370,000
<INCOME-PRETAX> 916,000
<INCOME-TAX> (90,700)
<INCOME-CONTINUING> 1,006,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,006,700
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
