<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: March 31, 1996
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>
<CAPTION>
Class Outstanding at March 31, 1996
----- -----------------------------
<S> <C>
Common Shares 14,155,344 Shares
($.01 stated value)
</TABLE>
<PAGE> 2
ROTONICS MANUFACTURING INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets -
March 31, 1996 (Unaudited)
and June 30, 1995 (Audited) 3
Statements of Income and
Accumulated Deficit-
Three Months and Nine Months
Ended March 31, 1996
and 1995 (Unaudited) 4
Statements of Cash Flows
Nine Months Ended March 31, 1996
and 1995 (Unaudited) 5
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROTONICS MANUFACTURING INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
-------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,800 $ 96,700
Accounts receivable, net (Notes 5 and 6) 4,706,600 5,341,500
Notes receivable 121,400 110,900
Inventories (Notes 2,5 and 6) 4,465,500 5,352,100
Deferred income taxes, net (Note 9) 1,246,800 887,200
Prepaid expenses and other current assets 260,100 114,800
----------- -----------
Total current assets 10,803,200 11,903,200
Notes receivable, less current portion 380,000 396,800
Deferred income taxes, net (Note 9) 2,832,000 3,658,100
Property, plant and equipment, net (Notes 3, 5 and 6) 8,390,200 8,605,900
Intangible assets, net (Note 4) 5,458,800 5,692,700
Other assets 98,400 102,700
----------- -----------
$27,962,600 $30,359,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 6) $ 1,082,500 $ 1,034,500
Current portion of long-term debt due related parties 45,000 140,000
Accounts payable 1,768,700 2,357,100
Accrued liabilities (Note 7) 802,100 1,211,000
Dividends payable (Note 8) 19,500 --
Income taxes payable (Note 9) -- 23,400
----------- -----------
Total current liabilities 3,717,800 4,766,000
Bank Line of credit (Note 5) 3,000,000 3,060,300
Long-term debt, less current portion (Note 6) 3,707,600 4,624,900
Long-term debt due related parties, less current portion -- 22,500
Deferred pension liabilities 4,000 4,000
----------- -----------
Total liabilities 10,429,400 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 14,153,519 and 12,903,752 shares, respectively,
net of treasury shares (Note 8) 24,573,400 21,980,500
Accumulated deficit (7,040,200) (7,098,800)
----------- -----------
Total stockholders' equity 17,533,200 17,881,700
------------ -----------
$27,962,600 $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 Nine Months Ended
March 31, March 31,
-------------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 8,178,900 $ 8,436,600 $26,064,900 $ 25,525,900
----------- ----------- ----------- ------------
Costs and expenses:
Cost of goods sold 6,124,500 6,296,200 19,641,900 18,502,500
Selling, general and administrative expenses 1,562,400 1,409,700 4,740,000 4,216,600
----------- ----------- ----------- ------------
Total costs and expenses 7,686,900 7,705,900 24,381,900 22,719,100
----------- ------------ ----------- ------------
Income from operations 492,000 730,700 1,683,000 2,806,800
----------- ----------- ----------- ------------
Other (expense)/income:
Interest expense (173,200) (211,700) (543,200) (549,000)
Other income, net 28,200 6,000 123,200 25,900
------------ ----------- ----------- -----------
Total other expenses (145,000) (205,700) (420,000) (523,100)
----------- ----------- ----------- ------------
Income before income taxes 347,000 525,000 1,263,000 2,283,700
Income tax provision (Note 9) (217,500) (90,500) (576,200) (224,400)
------------ ----------- ----------- ------------
Net Income 129,500 434,500 686,800 2,059,300
Accumulative deficit, beginning of period (7,169,700) (8,616,300) (7,098,800) (10,084,800)
----------- ----------- ----------- -----------
Preferred stock dividends -- (73,100) (62,000) (229,400)
Common stock dividends (per share $.04) -- -- (566,200) -
----------- ----------- ----------- ------------
Accumulated deficit, end of period $(7,040,200) $(8,254,900) $(7,040,200) $ (8,254,900)
=========== =========== ============ ============
Income per common share (Note 10):
Net income:
Primary $ .01 $ .03 $ .05 $ .15
======= ======= ======= =======
Fully diluted $ .01 $ .03 $ .05 $ .15
======= ======= ======= =======
Weighted average number common and
common equivalent shares outstanding:
Primary 14,165,568 12,608,353 13,742,987 12,505,948
========== ========== ========== ==========
Fully diluted 14,165,987 12,608,353 13,743,649 12,505,948(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>
Nine Months Ended
March 31,
--------------------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 686,800 $ 2,059,300
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,200,800 1,116,000
Gain of sales of equipment (1,000) --
Deferred income tax provision 466,500 61,300
Provision/(recovery) for doubtful accounts 76,200 (34,000)
Changes in assets and liabilities:
Decrease/(increase) in accounts receivable 558,700 (271,800)
Decrease/(increase) in inventories 886,600 (1,952,100)
(Increase)/decrease in prepaid expenses and other current assets (145,300) 89,200
(Increase)/decrease in other assets (600) 4,100
(Decrease)/increase in accounts payable (588,400) 31,800
(Decrease)/increase in accrued liabilities (385,500) 35,900
Decrease in income taxes payable (23,400) (2,200)
Decrease in deferred pension liabilities -- (1,000)
----------- -----------
Net cash provided by operating activities 2,731,400 1,136,500
----------- -----------
Cash flows from investing activities:
Repayments on notes receivable, net 6,300 95,700
Capital expenditures (746,500) (2,750,300)
Proceeds from sale of equipment 1,200 --
----------- -----------
Net cash used in investing activities (739,000) (2,654,600)
----------- -----------
Cash flows from financing activities:
Net (repayments)/borrowings under line of credit (60,300) 618,900
Proceeds from issuance of long-term debt -- 2,080,000
Repayment of long-term debt (986,800) (812,900)
Payment common stock dividends (546,700) --
Redemption of preferred stock (250,200) (125,000)
Payment of preferred stock dividends (85,400) (234,500)
Proceeds from exercise of stock options -- 15,000
Purchase of treasury stock (156,900) --
----------- -----------
Net cash (used in)/provided by financing activities (2,086,300) 1,541,500
----------- -----------
Net (decrease)/increase in cash (93,900) 23,400
Cash at beginning of period 96,700 2,600
----------- -----------
Cash at end of period $ 2,800 $ 26,000
=========== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 553,700 $ 471,300
=========== ===========
Income taxes $ 213,100 $ 188,800
=========== ===========
Supplemental schedule of non-cash 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 $ 19,500 $ --
=========== ===========
</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. The 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
$160,000 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 during the remainder of
fiscal 1996. 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 once sold.
NOTE 2 - INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $2,274,300 $3,059,000
Finished goods 2,191,200 2,293,100
---------- ----------
$4,465,500 $5,352,100
========== ==========
</TABLE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Land $ 574,200 $ 574,200
Buildings and building improvements 2,681,100 2,486,800
Machinery, equipment, furniture and fixtures 11,007,000 10,635,100
Construction in progress 293,200 120,200
----------- -----------
14,555,500 13,816,300
Less - Accumulated depreciation (6,165,300) (5,210,400)
---------- -----------
$8,390,200 $ 8,605,900
========== ===========
</TABLE>
6
<PAGE> 7
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consist of:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- ----------
<S> <C> <C>
Patents, net of accumulated amortization
of $78,200 and $73,700 $ 52,200 $ 59,600
Goodwill, net of accumulated amortization
of $1,693,600 and $1,467,900 5,406,600 5,633,100
---------- ----------
$5,458,800 $5,692,700
========== ==========
</TABLE>
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 March 31, 1996 was 8.25% 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 March 31, 1996 the Company had $3,000,000 borrowed under the
LIBOR option bearing interest at 7.94% per annum and maturing on April 29,
1996. Proceeds from the loan were used for working capital purposes. At March
31, 1996 the Company had approximately $2,000,000 available for future
borrowings under the revolving line of credit.
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
------------- ------------
<S> <C> <C>
Unsecured note payable (A) $ -- $ 93,800
Note payable-Bank (B) 3,333,300 3,933,300
Note payable-Bank (C) 203,000 217,400
Notes payable-Bank (D) 1,230,300 1,280,100
Other 23,500 134,800
------------ -----------
4,790,100 5,659,400
Less current portion (1,082,500) (1,034,500)
------------ -----------
$ 3,707,600 $ 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 is 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.
7
<PAGE> 8
(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 (8.25% at March 31,
1996). 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 March 31, 1996 the Company had $3,250,000 of the
outstanding principal balance under the LIBOR option at 8.25% per
annum and maturing on April 10, 1996. 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 $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 (8.25%
per annum at March 31, 1996) 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.
NOTE 7 - ACCRUED LIABILITIES:
Accrued liabilities consist of:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
--------- -----------
<S> <C> <C>
Salaries, wages, commissions and related payables $620,700 $ 980,400
Other 181,400 230,600
-------- ----------
$802,100 $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 redeemed 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 $24,375.
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.
8
<PAGE> 9
NOTE 9 - INCOME TAXES:
The components of the income tax provision/(benefit) were:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
March 31, March 31,
------------------------- -----------------------
1996 1995 1996 1995
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Current:
Federal $ 14,500 $ 21,900 $ 33,200 $ 46,400
State 21,000 54,400 76,500 116,700
--------- -------- --------- --------
35,500 76,300 109,700 163,100
--------- -------- -------- --------
Deferred:
Federal 167,000 - 431,100 -
State 15,000 14,200 35,400 61,300
--------- -------- --------- ---------
182,000 14,200 466,500 61,300
--------- -------- --------- ---------
$217,500 $90,500 $576,200 $224,400
======== ======= ======== ========
</TABLE>
At March 31, 1996, the Company had net operating loss (NOL) carryforwards of
approximately $15,600,00 and $2,200,000, respectively, for federal and state
income tax purposes expiring in varying amounts through 2011. 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 1996 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.
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 March 31, 1996
management has reduced the initial valuation allowance by $2,459,400. For the
nine months ended March 31, 1996 and 1995, the Company recorded adjustments to
the valuation allowance amounting to $387,700 and $770,000, respectively. The
current nine month period valuation allowance adjustment includes a $325,400
reduction in connection with adjustments made to the Company's net operating
loss carryforwards. The Company realized additional taxable income in prior
years based on a certain income tax expense item which was recently deemed
non-deductible. As such, the Company has reduced its NOL carryforwards
accordingly to reflect the additional utilization. At March 31, 1996 the
combined federal and state valuation allowance was $202,600. Now that the
majority of the federal valuation allowance has been depleted the Company will
continue to realize a higher effective income tax rate in relation to its
taxable income. The adjustments to the valuation allowance have been reflected
as a component of the respective period's income tax provision.
9
<PAGE> 10
NOTE 10 - INCOME TAXES:
Primary and fully diluted earnings per share have 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.
NOTE 11 - SUBSEQUENT EVENT/CONTINGENCIES:
On or about April 16, 1996, the Company was named as defendant in a complaint
filed by Bonar U.S., Inc. in Delaware Superior Court. The complaint alleges
claims for breach of contract and promissory estoppel relating to an Agreement
in Principle entered into in connection with a proposed acquisition of the
Company by Bonar. On April 3, 1996 the Company had announced that it had
terminated the Agreement of Principal pursuant to its terms. The complaint
request damages of $7,011,484. The Company believes the allegations in the
complaint are without merit and intends to vigorously defend its position.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Three Months Ended March 31, 1996 and 1995
Net sales for the three months ended March 31, 1995 decreased $257,700 to
$8,178,900 compared to $8,436,600 for the same period last year. The Company
has continued to experience a sluggish marketplace during the quarter ended
March 31, 1996. Sales volumes have been slow to return to normal levels since
last years marketplace reaction to the unprecedented increases in plastic resin
prices. The Company has experienced reductions in its proprietary product
lines, especially notable in refuse containers. The Company reported a
decrease in refuse container sales of $762,000 during the quarter ended March
31, 1996 when compared to the same period last year. Although substantial,
this trend is typical of the refuse industry. Sales of refuse containers are
very competitive and large contracts, such as reported during the prior
quarter, are not awarded evenly throughout the year. The Company has also
realized reduced sales volumes during the closure of its Wisconsin facility and
transition of its operations to its new Illinois facility. During this quarter
the transition has been substantially completed and operations are primed to
handle increased sales volumes which currently boast a backlog in excess of a
million dollars. The Company has minimized the effects of a lackluster
marketplace with increases in its marine and custom product lines. The later
is primarily attributed to the acquisition of its Arleta, California division
during the fourth quarter of fiscal 1995. Management anticipates sales volumes
of these items to increase throughout the remainder of this fiscal year.
Again, the Company boasts a strong backlog and anticipates additional refuse
container orders. which should boost sales through the next quarter.
Cost of goods sold remained relatively consistent at 74.9% for the three
months ended March 31, 1996 compared to 74.6% for the same period last year.
Although gross margins are still slightly lower than desired levels of
operation, management is pleased that costs have begun to stabilize. Prior
period cost of goods sold was up slightly due to the increased refuse container
sales volumes while the current period increase is due to overall lower sales
volumes and the temporary reduction in efficiencies and continued overhead
expenses inherent during the Wisconsin plant consolidation. Management
continues to take a proactive stance to improve margins during the remainder of
fiscal 1996. Management anticipates higher sales volumes during the fourth
quarter which should have a positive effect on our performance. However, a
second and equally important factor is how long current resin prices will
hold. In April 1996 the Company will incur approximately a 9% increase in
plastic resin costs. Based on recent resin supplier information substantial
additional increases have been proposed which if initiated are expected to
begin during May 1996. The level of increases may again impact our future
performance level.
Selling, general and administrative expenses were $1,562,400 or 19.1% of the
net sales for the three months ended March 31, 1996 compared with $1,409,700 or
16.7% for the same period last year. The increase is partly attributed to
$100,000 in additional expenses incurred associated with the Arleta, California
facility which was acquired during the fourth quarter of fiscal 1995. The
remaining increase is attributed to increased marketing expenses in connection
with the restructure of sales work forces and increased administrative expenses
associated with expanded operations at our Illinois facility as well as excess
selling and administrative expenses during the consolidation of our Wisconsin
facility.
Total interest expense decreased $38,500 to $173,200 for the three months ended
March 31, 1996 compared to $211,700 for the same period last year. The
decrease is attributed to approximately a $900,000 reduction in the Company's
debt structure when compared to the same period last year. In addition, the
Company is now realizing the benefits from reductions in the banks prime rate,
.75% in the last nine months, coupled with renegotiated interest rates on our
bank facility. As such, overall interest rates charged against the Company's
loan facility have dropped 1.75% - 2% when compared to the same period last
year.
Income tax increased $127,000 to $217,500, or $.015 per common share compared
to $90,500 for the same period last year. The increase is due to additional
deferred income tax expense reported in the current period. Prior to fiscal
1996 the Company's deferred tax provision had been effectively minimized by the
reversal of the Company's deferred tax asset valuation allowance reserve in
accordance with FAS 109 calculations.
11
<PAGE> 12
Net income was $129,500 or $.01 per common share for the three months ended
March 31, 1996 compared to $434,500 or $.03 per common share for the same
period last year. The decrease is attributed to lower sales volumes, higher
manufacturing costs associated with manufacturing inefficiencies and
administrative costs associated with the Wisconsin facility consolidation and
additional selling, general and administrative expenses associated with the
Arleta, California division. In addition, the Company's income tax provision
increased $127,000 when compared to the same period last year. This trend will
continue now that the Company has utilized the majority of its valuation
allowance against prior deferred income tax expenses. Management foresees
improved financial performance during the fourth quarter of fiscal 1996. The
current business climate continues to be quite challenging. Forecasted sales
volumes continue to look promising and management feels confident it will be
able to increase volumes as well as minimize cost increases associated with a
resin price fluctuations anticipated during the next quarter.
Results of Operations - Nine Months Ended March 31, 1996 and 1995
Net sales for the nine months ended March 31, 1996 increased $539,000 to
$26,064,900 compared to $25,525,900 for the same period last year. The
increase is attributed to sales volumes contributed by the Company's Arleta,
California division of approximately $2.1 million net of a 6% sales volume
reduction in the Company's proprietary product lines. The Company continues to
experience a sluggish marketplace resulting from last years inflationary events
caused by the unprecedented increases in plastic resin prices. The Company has
also realized a reduction in sales volumes during the closure of its Wisconsin
facility and transition of its operations into the Company's new Illinois
facility. Now that the transition is substantially completed, the Illinois
facility is primed to handle increased sales volumes.
Cost of goods sold increased 2.9% to 75.4% of net sales for the nine months
ended March 31, 1996 compared to 72.5% for the same period last year. The
Company continues to see slight improvements in its operating results since the
beginning of the fiscal year, but the Company has not yet returned to desired
levels of performance. As previously mentioned the Company 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. Thus, during the current
period the Company has realized diminished gross margins due to higher resin
costs and sluggish sales volumes. Management anticipates continued improvement
in its gross margins now that it has depleted resin purchased at higher
prices and continues to take advantage of recent reductions in resin costs.
However, these savings will again be minimized if additional increases in resin
prices expected during May 1996 hold or escalate beyond the proposed amount.
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. Management anticipates future
expenses associated with the Wisconsin operation to be minimal now that their
manufacturing operations have been completely discontinued and 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.
Selling, general, and administrative expenses were $4,740,000, or 18.2% of
net sales for nine months ended March 31, 1996 compared with $4,216,600, or
16.5% for the same period last year. The increase is substantially attributed
to approximately $350,000 in additional expenses incurred associated with the
Arleta, California facility which was acquired during the fourth quarter of
fiscal 1995. The remaining increase is attributed to increased marketing
expenses in connection with the restructure of sales work force and increased
administrative expenses associated with the recently expanded operations at our
Illinois facility as well as approximately $45,000 in excess selling and
administrative expenses during the consolidation of our Wisconsin facility.
Total interest expense remained fairly consistent amounting to $543,200 for the
nine months ended March 31, 1996 compared to $549,000 for the same period last
year. In spite of repaying approximately $700,000 in debt assumed in
connection with the Arleta, California facility as well as current year fixed
asset additions, employee bonus payments and common stock dividend payments
totaling approximately $1.7 million the Company has reduced its overhead debt
structure by $900,000 when compared to the same period last year. The
reduction in the Company's debt structure in conjunction with last years
renegotiated interest rates and reductions in the bank's prime lending interest
rate (amounting to 1.75% - 2.0% in fiscal 1996) have begun to spur lower
interest costs. If the Company's bank borrowings remain consistent during the
balance of fiscal 1996, the Company will continue to report lower interest
costs.
12
<PAGE> 13
Income taxes increased $351,800 to $576,200 or $.04 per common share for the
nine months ended March 31, 1996 compared to $224,400 for the same period last
year. The increase is due to the additional deferred income tax reported in
the current period. Prior to fiscal 1996 the Company's deferred income tax
provision had been effectively minimized by the reversal of the Company's
deferred tax asset valuation allowance reserve in accordance with FAS 109
calculations.
Net income was $686,800 or $.05 per common share for the nine months ended
March 31, 1996 compared to $2,059,300 or $.15 per common share for the same
period last year. The decrease is attributed to overall lower sales volumes
attributed to a sluggish marketplace, increased plastic resin costs during the
first six months of fiscal 1996, higher manufacturing inefficiencies and
administrative costs relating to the Wisconsin facility consolidation, and the
additional selling, general and administrative expenses associated with the
Arleta, California division. In addition the Company's income tax provision
increased $351,800, net of a $79,300 adjustment to record the benefit from
Custom Rotational Molding Inc.'s net operating loss carryforwards. This trend
will continue now that the Company has utilized the majority of its valuation
allowance against prior deferred income tax expenses. 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 1996.
Financial Condition
Working capital decreased slightly by $51,800 to $7,085,400 at March 31,
1996 compared to $7,137,200 at June 30, 1995. The decrease is attributed to a
$466,500 net decrease in deferred tax assets for the additional utilization of
the Company's net operating loss carryforwards net of normal fluctuations in
accounts receivable, accounts payable, accrued liabilities and inventories
consistent with current operations. Cash flows from operations increased
$1,594,900 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 $746,500 for property, plant and equipment
during the nine months ended March 31, 1996 compared to $2,750,300 for the
same period last year. The decrease is attributed to the purchase of the
Bensenville, Illinois property ($1,700,000) and various building improvements
and machinery and equipment projects at the Bensenville, Illinois property
which were completed during the nine months year period ended March 31, 1995.
The Company anticipates spending an additional $250,000 during the remaining
of fiscal 1996 on its Illinois 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 $60,300 to
$3,000,000 between June 30, 1995 and March 31, 1996. At March 31, 1996 the
Company had approximately $2,000,000 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 in annual cash flow due to the elimination of future
preferred dividend payments, eliminate the need to incur additional debt and
interest costs to redeem the preferred stock. The Company does not plan to
issue any preferred shares in the future.
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 dividend of $.04 per common share was 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.
13
<PAGE> 14
On or about April 16, 1996, the Company was named as defendant in a complaint
filed by Bonar U.S., Inc. in Delaware Superior Court. The complaint alleges
claims for breach of contract and promissory estoppel relating to an Agreement
in Principal entered into in connection with a proposed acquisition of the
Company by Bonar. On April 3, 1996 the Company had announced that it had
terminated the Agreement in Principal pursuant to its terms. The complaint
request damages of $7,011,484. The Company believes the allegations in the
complaint are without merit and intends to vigorously defend its position.
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 and repayment of
long-term debt for the foreseeable future.
14
<PAGE> 15
ROTONICS MANUFACTURING INC.
PART II. OTHER INFORMATION
MARCH 31, 1996
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.
15
<PAGE> 16
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: May 1, 1996
-------------------------------------
Sherman McKinniss
President and Chief Executive Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
11 Statement Regarding Computation of Per Share Earnings 18
</TABLE>
17
<PAGE> 1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY
NetIncome $ 129,500 $ 434,500 $ 686,800 $ 2,059,300
Less preferredstock dividend -- (73,100) (62,000) (229,400)
----------- ----------- ----------- -----------
Net income applicable to commonshares $ 129,500 $ 361,400 $ 624,800 $ 1,829,900
=========== =========== =========== ===========
Weighted average number of commonshares outstanding 14,155,362 12,592,146 13,732,729 12,492,101
Add - common equivalent shares:
Shares issuable upon exercise of warrants
and options topurchase common stock 10,206 16,207 10,258 13,847
----------- ----------- ----------- -----------
Weighted average number of shares used in calculation
of primary income per common share 14,165,568 12,608,353 13,742,987 12,505,948
=========== =========== =========== ===========
Primary income percommon share $ 0.01 $ 0.03 $ 0.05 $ 0.15
=========== =========== =========== ===========
FULLY DILUTED
Net income $ 129,500 $ 434,500 $686,800 $ 2,059,300
Less preferred stock dividends -- (73,100) (62,000) (229,400)
----------- ----------- ----------- -----------
Net income applicable to common shares $ 129,500 $ 361,400 $624,800 $ 1,829,900
=========== =========== =========== ===========
Weighted averagenumber of common shares outstanding 14,155,362 12,592,146 13,732,729 12,492,101
Add - Common Equivalent shares:
Shares issuable upon exercise of warrants and
options to purchase common stock 10,625 16,207 10,920 13,847(1)
----------- ----------- ----------- -----------
Weighted average number of shares used in calculation
of fully diluted incomeper common share 14,165,987 12,608,353 13,743,649 12,505,948(1)
=========== =========== =========== ===========
Fully diluted income percommon share $ 0.01 $ 0.03 $ 0.05 $ 0.15
=========== =========== =========== ===========
</TABLE>
(1) The result of the fully diluted earnings per share computation is
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,800
<SECURITIES> 0
<RECEIVABLES> 4,813,900
<ALLOWANCES> 107,300
<INVENTORY> 4,465,500
<CURRENT-ASSETS> 10,803,200
<PP&E> 14,555,500
<DEPRECIATION> 6,165,300
<TOTAL-ASSETS> 27,962,600
<CURRENT-LIABILITIES> 3,717,800
<BONDS> 0
0
0
<COMMON> 24,573,400
<OTHER-SE> (7,040,200)
<TOTAL-LIABILITY-AND-EQUITY> 27,962,600
<SALES> 26,064,900
<TOTAL-REVENUES> 26,064,900
<CGS> 19,641,900
<TOTAL-COSTS> 24,381,900
<OTHER-EXPENSES> (123,200)
<LOSS-PROVISION> 72,700
<INTEREST-EXPENSE> 543,200
<INCOME-PRETAX> 1,263,000
<INCOME-TAX> 576,200
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 686,800
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
