<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, 1997
Commission File number: 1-9429
ROTONICS MANUFACTURING INC.
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2467474
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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.
Class Outstanding at March 31, 1997
----- -----------------------------
Common Shares 14,067,782 Shares
($.01 stated value)
Total Pages 17
Exhibit Index at Page 16
1
<PAGE> 2
ROTONICS MANUFACTURING INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets -
March 31, 1997 (Unaudited)
and June 30, 1996 (Audited) 3
Statements of Income and
Accumulated Deficit-
Three Months and Nine Months
Ended March 31, 1997
and 1996 (Unaudited) 4
Statements of Cash Flows
Nine Months Ended March 31, 1997
and 1996 (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 14
SIGNATURES 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROTONICS MANUFACTURING INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 18,500 $ 11,600
Accounts receivable, net of allowance for doubtful accounts
of $81,700 and $90,000, respectively (Notes 5 and 6) 5,219,300 5,790,700
Notes receivable 48,400 46,900
Inventories (Notes 2, 5 and 6) 5,117,000 4,939,400
Deferred income taxes, net (Note 9) 1,974,300 2,015,900
Prepaid expenses and other current assets 271,100 218,500
------------ ------------
Total current assets 12,648,600 13,023,000
Notes receivable, less current portion 455,000 455,000
Deferred income taxes, net (Note 9) 1,150,000 1,786,300
Property, plant and equipment, net (Notes 3, 5 and 6) 9,791,600 8,316,900
Intangible assets, net (Note 4) 5,142,200 5,382,100
Other assets 70,800 92,400
------------ ------------
$ 29,258,200 $ 29,055,700
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 6) $ 1,082,200 $ 1,176,700
Accounts payable 2,818,700 2,686,100
Accrued liabilities (Note 7) 701,100 1,001,700
------------ ------------
Total current liabilities 4,602,000 4,864,500
Bank line of credit (Note 5) 2,545,600 1,983,500
Long-term debt, less current portion (Note 6) 3,566,400 3,880,600
Other liabilities 4,000 4,000
------------ ------------
Total liabilities 10,718,000 10,732,600
------------ ------------
Stockholders' equity:
Common stock, stated value $.01: authorized 20,000,000 shares;
issued and outstanding 14,065,993 and 14,158,517 shares, respectively,
net of treasury shares (Note 8) 24,422,500 24,577,400
Accumulated deficit (5,882,300) (6,254,300)
------------ ------------
Total stockholders' equity 18,540,200 18,323,100
------------ ------------
$ 29,258,200 $ 29,055,700
============ ============
</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,
---------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 9,560,300 $ 8,178,900 $ 29,268,400 $ 26,064,900
------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods sold 7,373,700 6,124,500 21,999,100 19,641,900
Selling, general and administrative
expenses 1,652,000 1,562,400 4,616,400 4,740,000
------------ ------------ ------------ ------------
Total costs and expenses 9,025,700 7,686,900 26,615,500 24,318,900
------------ ------------ ------------ ------------
Income from operations 534,600 492,000 2,652,900 1,683,000
------------ ------------ ------------ ------------
Other (expense)/income:
Interest expense (132,000) (173,200) (392,200) (543,200)
Lawsuit settlement (Note 11) (484,800) - (622,300) -
Other income, net 11,900 28,200 72,800 123,200
------------ ------------ ------------ ------------
Total other expenses (604,900) (145,000) (941,700) (420,000)
------------ ------------ ------------ ------------
Income/(loss) before income taxes (70,300) 347,000 1,711,200 1,263,000
Income tax benefit/(provision) (Note 9) 56,100 (217,500) (773,800) (576,200)
------------ ------------ ------------ ------------
Net income/(loss) (14,200) 129,500 937,400 686,800
Accumulated deficit, beginning of period (5,868,100) (7,169,700) (6,254,300) (7,098,800)
Preferred stock dividends - - - (62,000)
Common stock dividends (per share $.04) - - (565,400) (566,200)
------------ ------------ ------------ ------------
Accumulated deficit, end of period $ (5,882,300) $ (7,040,200) $ (5,882,300) $ (7,040,200)
============ ============ ============ ============
Income per common share (Note 10):
Net income:
Primary $ .00 $ .01 $ .07 $ .05
============ ============ ============ ============
Fully diluted $ .00 $ .01 $ .07 $ .05
============ ============ ============ ============
Weighted average number common and
common equivalent shares outstanding:
Primary 14,137,796 14,165,568 14,157,640 13,742,987
============ ============ ============ ============
Fully diluted 14,137,796 14,165,987 14,157,640(1) 13,743,649
============ ============ ============ ============
</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,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 937,400 $ 686,800
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,200,200 1,200,800
Loss/(gain) on sales of equipment 14,700 (1,000)
Deferred income tax provision 677,900 466,500
Provision for doubtful accounts 45,500 76,200
Changes in assets and liabilities:
Decrease in accounts receivable 525,900 558,700
(Increase)/decrease in inventories (177,600) 886,600
Increase in prepaid expenses and other current assets (52,600) (145,300)
Decrease/(increase) in other assets 13,900 (600)
Increase/(decrease) in accounts payable 109,000 (588,400)
Decrease in accrued liabilities (288,400) (385,500)
Decrease in income taxes payable - (23,400)
----------- -----------
Net cash provided by operating activities 3,005,900 2,731,400
----------- -----------
Cash flows from investing activities:
(Advanced)/Repayments on notes receivable, net (1,500) 6,300
Capital expenditures (2,445,200) (746,500)
Proceeds from sale of equipment 3,200 1,200
----------- -----------
Net cash used in investing activities (2,443,500) (739,000)
----------- -----------
Cash flows from financing activities:
Borrowing under line of credit 6,495,200 6,692,000
Repayments under line of credit (5,933,100) (6,752,300)
Proceeds from issuance of long-term debt 526,400 -
Repayment of long-term debt (935,100) (986,800)
Payment of common stock dividends (554,000) (546,700)
Redemption of preferred stock - (250,200)
Payment of preferred stock dividends - (85,400)
Proceeds from exercise of stock options 6,100 -
Purchase of treasury stock (161,000) (156,900)
----------- -----------
Net cash (used in)/provided by financing activities (555,500) (2,086,300)
----------- -----------
Net increase/(decrease) in cash 6,900 (93,900)
Cash at beginning of period 11,600 96,700
----------- -----------
Cash at end of period $ 18,500 $ 2,800
=========== ===========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 392,000 $ 553,700
=========== ===========
Income taxes $ 165,500 $ 213,100
=========== ===========
Supplemental schedule of non-cash financing activities:
Conversion of preferred stock to common stock $ - $ 2,749,800
=========== ===========
Common dividends declared but not paid $ 11,800 $ 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,
1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of accounts receivable and trade payables approximates the
fair value due to their short-term maturities. The carrying value of the
Company's line of credit and notes payable is considered to approximate fair
market value because the interest rates of these instruments are based
predominately on variable reference rates.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
Effective in fiscal 1997, the Company will be required to adopt Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and Long-lived Assets to be Disposed of" and SFAS No. 123,
"Accounting for Stock based compensation." The Company plans to adopt SFAS No.
123 utilizing the disclosure alternative under the Statement. The impact of the
adoption of these pronouncements is not expected to be material to the Company's
financial position or results of operations.
NOTE 2 - INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $2,664,000 $2,691,300
Finished goods 2,453,000 2,248,100
---------- ----------
$5,117,000 $4,939,400
========== ==========
</TABLE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
---------- -----------
<S> <C> <C>
Land $ 1,039,500 $ 574,200
Buildings and building improvements 3,220,600 2,701,500
Machinery, equipment, furniture and fixtures 12,452,800 11,376,200
Construction in progress 379,200 93,800
---------- -----------
17,092,100 14,745,700
Less - accumulated depreciation (7,300,500) (6,428,800)
---------- ----------
$9,791,600 $8,316,900
========== ==========
</TABLE>
6
<PAGE> 7
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consist of:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
---------- ----------
<S> <C> <C>
Patents, net of accumulated amortization
of $93,700 and $79,600 $ 36,700 $ 50,800
Goodwill, net of accumulated amortization
of $1,994,700 and $1,768,900 5,105,500 5,331,300
---------- ----------
$5,142,200 $5,382,100
========== ==========
</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, 1998 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, 1997 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 March 31, 1997, the Company had three separate borrowings under
LIBOR interest rate options totally $2,500,000. The LIBOR borrowings consist of
$750,000, $750,000 and $1,000,000 at LIBOR interest rates of 7.9375%, 8.0% and
8.1875% maturing April 13, 1997, April 18, 1997 and April 25, 1997,
respectively. Proceeds from the loan were used for working capital purposes. At
March 31, 1997, the Company had approximately $2,450,000 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,
1997 1996
---------- ------------
<S> <C> <C>
Note payable-Bank (A) $2,533,300 $ 3,133,300
Note payable-Bank (B) - 197,500
Note payable-Bank (C) 1,163,700 1,213,600
Note payable-Bank (D) 416,700 491,700
Note payable-Bank (E) 500,000 -
Other 34,900 21,200
---------- ------------
4,648,600 5,057,300
Less current portion (1,082,200) (1,176,700)
---------- ----------
$3,566,400 $3,880,600
========== ==========
</TABLE>
A) 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 March 31, 1997). 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, 1997 the
Company had $2,500,000 of the outstanding principal balance under the
LIBOR option at 7.9375% per annum maturing on April 12, 1997. The note
is secured by the Company's machinery and equipment, accounts
receivable and inventories and matures on May 16, 2000.
7
<PAGE> 8
B) This note was issued to the First State Bank of Gainesville in the
original amount of $250,000. The loan was 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 were due and
payable. The note was 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. In August 1996 the
note was paid in full pursuant to its terms and the lien on the Texas
real property was removed.
C) 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 March 31, 1997) 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.
D) In fiscal 1996 the Company was advanced $500,000 on its machinery and
equipment term-loan commitment with Wells Fargo Bank. The proceeds
were used to repay amounts originally borrowed under the Company's
revolving line of credit to finance approximately $700,000 in
machinery and equipment purchases. The note is due in monthly
principal installments of approximately $8,300 plus interest at the
bank's prime rate (8.5% at March 31, 1997) or LIBOR interest rate
option for periods up to six months. At March 31, 1997, the total
outstanding principal was under the LIBOR option at 7.9375% per annum
maturing April 12, 1997. The note is secured by the Company's
machinery and equipment and matures on May 15, 2001.
E) In March 1997 the Company was advanced $500,000 on its second
machinery and equipment term-loan commitment with Wells Fargo Bank.
The proceeds were used to repay amounts originally borrowed under the
Company's revolving line of credit to finance approximately $625,000
in machinery and equipment purchases. The note is subject to monthly
interest only payments at the bank's prime rate (8.5% per annum at
March 31, 1997) or LIBOR interest rate option for periods up to six
months. On May 15, 1997, all amounts borrowed will convert to a
sixty-month fully amortizable loan. At March 31, 1997 the total
outstanding principal was under the LIBOR option at 8.21875% per annum
maturing May 15, 1997. The note is secured by the Company's machinery
& equipment and matures on May 15, 2002.
NOTE 7 - ACCRUED LIABILITIES:
Accrued liabilities consist of:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
-------- -----------
<S> <C> <C>
Salaries, wages, commissions and related payables $514,800 $ 806,200
Other 186,300 195,500
-------- -----------
$701,100 $1,001,700
======== ==========
</TABLE>
NOTE 8 - COMMON STOCK:
Treasury stock is recorded at cost. At March 31, 1997, the treasury stock
consisted of 1,789 shares of common stock at a cost of $1,500 and at June 30,
1996, treasury stock consisted of 1,801 shares of common stock at a cost of
$1,500.
On December 10, 1996 the Board of Directors' declared at its Annual Meeting of
Stockholders a common stock dividend of $.04 per common share payable on January
24, 1997 to stockholders of record on January 6, 1997.
In March 1997, the Company retired 100,000 shares of its own common stock which
it had purchased in the open market at a total cost of $161,000.
8
<PAGE> 9
NOTE 9 - INCOME TAXES:
The components of the income tax (benefit)/provision were:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
March 31, March 31,
--------------------------- -------------------------
1997 1996 1997 1996
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Current:
Federal $ (1,500) $ 14,500 $ 41,000 $ 33,200
State (69,100) 21,000 54,900 76,500
--------- -------- -------- --------
(70,600) 35,500 95,900 109,700
--------- -------- -------- --------
Deferred:
Federal 12,000 167,000 653,200 431,100
State 2,500 15,000 24,700 35,400
--------- -------- -------- --------
14,500 182,000 677,900 466,500
--------- -------- -------- --------
$ (56,100) $217,500 $773,800 $576,200
========= ======== ======== ========
</TABLE>
At March 31, 1997, the Company had net operating loss (NOL) carryforwards of
approximately $12,500,000 and $600,000, respectively, that may be applied
against future taxable federal and state income and that expire as follows:
<TABLE>
<CAPTION>
Amount of unused operating Expiration during year
loss carryforwards ended June 30,
-------------------------- ----------------------
<S> <C>
Federal:
$ 380,900 2000
2,416,900 2001
97,000 2002
4,957,900 2003
3,400,300 2004
588,200 2005
490,200 2006
205,400 2009
-----------
$12,536,800
===========
State:
$ 268,300 1997
216,500 1998
112,200 1999
-----------
$ 597,000
===========
</TABLE>
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 in the normal course of business. As such, through fiscal 1996
management had reduced the majority of the $2,662,000 initial valuation
allowance. As depicted above, since the federal valuation allowance was reduced
to zero in fiscal 1996, the Company will report a greater deferred tax provision
until such time that the Company's NOL's and corresponding deferred tax assets
are fully utilized.
9
<PAGE> 10
NOTE 10 - COMPUTATION OF EARNINGS PER SHARE:
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 in fiscal 1996 to determine earnings
applicable to common stock.
NOTE 11 - Lawsuit Settlement
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 alleged
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. The complaint requested damages of $7,011,484. On May 17, 1996
the Company filed a counterclaim against Bonar U.S., Inc. and Bonar Plastics,
Inc. seeking damages totaling $25,237,725 for breach of the Confidentiality
Agreement with the Company, misappropriation of trade secrets, intentional
interference with a prospective economic advantage which the Company obtained as
a result of an expression of interest by a third party and breach of the Royalty
Agreement between Bonar Plastics, Inc. and one of the Company's operating
divisions (formally known as Custom Rotational Molding, Inc.) In March 1997, the
Company reached an amicable out of court settlement. The settlement involved
mutual general releases by the parties, dismissals of the actions brought by the
parties and payment to Bonar U.S., Inc. of $400,000. Pursuant to the settlement
agreement, the Company may be required to pay an additional $325,000 to Bonar
U.S., Inc. in September 1997.
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, 1997 and 1996
Net sales for the three months ended March 31, 1997 increased $1,381,400 or
$16.9% to $9,560,300 compared to $8,178,900 for the same period last year. Sales
volumes have reflected a marked improvement over prior year results. The
majority of the Company's product lines have sustained relatively level sales
volumes as compared to prior year results with the main increase attributed to
custom molded products and customer tooling. The increase in custom molded
products continues to reflect the expansion of rotationally molded products in
the marketplace as well as the Company's expanded marketing and engineering
focus to pursue this vast market. Management is pleased with the increased sales
volumes during this period which historically can be a lackluster period.
Management also believes that the Company is uniquely positioned to provide a
high level of service to its local and national markets and will continue to
capitalize on these strengths to maximize sustained growth for both its
proprietary and custom molded products.
Cost of goods sold increased 2.2% to 77.1% of net sales for the three months
ended March 31, 1997, compared to 74.9% for the same period last year. The
Company attributes the increase to a substantial increase in raw material costs.
Raw material prices per pound increased approximately 26.5% over prices paid
during the same period last year. Although management has instituted consumer
price increases to minimize the impact that these increased raw material costs
have had on the Company's gross margin, raw material costs continue to be
volatile and will continue to challenge future operating results.
Selling, general and administrative expenses were $1,652,000 or 17.3% of the net
sales for the three months ended March 31, 1997, compared with $1,562,400 or
19.1% for the same period last year. Management has been able to cap selling,
general and administrative costs in line with current sales volumes levels.
Increases in prior period costs were associated with the addition of the Arleta,
California facility and the consolidation of the Wisconsin and Illinois
facilities. Management continues to scrutinize these costs to optimize the
Company's internal operations.
Total interest expense decreased $41,200 to $132,000 for the three months ended
March 31, 1997, compared to $173,200 for the same period last year. The decrease
is attributed to approximately a $640,000 reduction in the Company's debt
structure when compared to the same period last year and overall stable interest
rates. Management anticipates this trend to change due to the recent 0.25%
increase in the bank's prime rate. This increase coupled with additional
borrowings related to the recent facility purchase for the relocation of the
Company's Colorado operations may translate into increased interest costs.
Total other expenses increased $459,900 for the three months ended March 31,
1997, compared to the same period last year. The increase is related to an out
of court settlement in the amount of $400,000 paid to Bonar U.S., Inc. plus
additional related legal costs of $84,800.
Income taxes decreased $273,600 to a benefit of $56,100 for the three months
ended March 31, 1997, compared to an income tax provision of $217,500 for the
same period last year. The decrease is primarily related to the Bonar U.S., Inc.
settlement expenses reported in the current period, as mentioned above, which in
turn resulted in a net loss before income taxes of $70,300 for the three months
ended March 31, 1997.
The three months ended March 31, 1997, reported a net loss of $14,200 or zero
earnings per common share for the three months ended March 31, 1997, compared to
$129,500 or $.01 per common share for the same period last year. The decrease is
again attributed to the litigation settlement expenses of $484,800 reported
during the current period. However, management believes income from operations
provides a better depiction of the current period operating results. Income from
operations increased $42,600 to $534,600 for the three month ended March 31,
1997, compared to $492,000 for the same period last year. This increase,
although modest, reflects increased profitability at higher sales volumes
inspite of unfavorable raw material costs.
11
<PAGE> 12
Results of Operations - Nine Months Ended March 31, 1996 and 1995
Net sales for the nine months ended March 31, 1997, increased $3,203,500 to
$29,268,400 compared to $26,064,900 for the same period last year. The majority
of the Company's product lines reported volume growth over prior year results
with the largest gains attributed to substantial increases in customer tooling
and custom molded products. Custom molded products increased 37.3% over prior
years sales volumes. This continues to depict a strong and growing demand for
rotationally molded products in the marketplace. The Company continues to expand
its manufacturing capacities throughout the organization to capitalize on this
growing market. Fiscal 1997 has been a year of substantial internal growth for
the Company. The Company has recently purchased a 9.73 acre facility with 63,000
square feet of manufacturing and administrative office space in Commerce City,
Colorado and plans to relocate its existing Denver, Colorado operations into the
new facility by fiscal year end. Early this year the Company also completed a
13,800 square foot addition to its Texas facility. To increase manufacturing
capacity and increase productivity at several of the Company's locations, a
total of six rotational molding machines and five automated routers will be
operational by fiscal year end. These improvements will greatly enhance the
Company's ability to increase marketshare.
Cost of Goods sold decreased slightly to 75.2% of net sales for the nine months
ended March 31, 1997, compared to 75.4% for the same period last year. Cost of
goods sold has plateued at its current level, but still remains at higher than
optimal levels due to the volitility of plastic resin prices. Plastic resin
prices have increased substantially during fiscal 1997 and are anticipated to
increase again by fiscal year end. Management will continue to improve operating
efficiencies, and institute raw material purchasing strategies to minimize
current as well as future price increases.
Selling, general and administrative expenses were $4,616,400 or 15.8% of net
sales for the nine months ended March 31, 1997, compared with $4,740,000, or
18.2% for the same period last year. The decrease is attributed to increased
sales volumes during the current period and cost savings realized from
reconfigured sales and administrative workforces including those obtained from
last year's consolidation of the Wisconsin and Illinois facilities.
Total interest expense decreased $151,000 to $392,200 for the nine months ended
March 31, 1997, compared to $543,200 for the same period last year. The Company
attributes the reduction to a substantial decrease in the Company's debt
structure between the reported periods. The Company has reduced its overall debt
structure by approximately $1.7 million since June 30, 1995. This coupled with a
reduction in the bank's prime rate (1.75% - 2.%) since the beginning of fiscal
1996 and the proactive use of LIBOR option rates has translated to significant
interest cost savings. Management anticipates a slight change to this trend due
to the recent 0.25% increase in the bank's prime rate. This interest rate
increase coupled with recent additional borrowings related to the Commerce City,
Colorado facility may translate into increased interest costs during the
remainder of fiscal 1997.
Total other expenses increased $521,700 for the nine months ended March 31,
1997, when compared to the same period last year. The increase, net of interest
cost savings, is attributed to an out of court settlement in the amount of
$400,000 paid to Bonar U.S. , Inc. plus additional related legal costs of
$222,300.
Income taxes increased $197,600 to $773,800 for the nine months ended March 31,
1997, compared to $576,200 for the same period last year. The increase is
attributed to a $448,200 increase in income before taxes reported during the
current period.
Net income was $937,400 or $.07 per common share for the nine months ended March
31, 1997, compared to $686,800 or $.05 per common share for the same period last
year. The increase is attributed to significant increase in income from
operations, net of the litigation settlement costs of $622,300 or $.04 per
common share, reported during the current period. Income from operations
increased $969,900 for the nine months ended March 31, 1997. Management
attributes the increase in income from operations to a 12.3% increase in sales
volumes coupled with a 2.4% decrease in operating costs. There continues to be
uncertainty as to whether current economic conditions will present additional
challenges during the ensuing months. As such, management stays focused on
maximizing financial performance during the balance of fiscal 1997.
12
<PAGE> 13
Financial Condition
Working capital decreased by $111,900 to $8,046,600 at June 30, 1996. The
decrease is consistent with normal fluctuations in accounts receivable, accounts
payable, inventories and accrued liabilities consistent with current operations.
Cash flows from operations continue to rise and reflected an increase of
$274,000 over prior period results. The increase is directly related to an
increase in net income of $250,600, to $937,400, for the nine months ended March
31, 1997, compared to the same period last year.
The Company expended a total of $2,445,200 for property, plant and equipment
during the nine months ended March 31, 1997. This reflects an increase of
$1,698,700 over prior period expenditures. The increase is attributed to the
purchase of the Commerce City, Colorado facility in February 1997. The facility
consists of 9.73 acres of land and 63,000 sq. feet of manufacturing and office
building space. The facility was purchased for $825,000 and the Company
anticipates having its current Denver, Colorado operations relocated and
operational at the new facility before fiscal year end. Management anticipates
spending approximately $400,000 on building repairs and improvements over the
next several months. In January 1997, we also completed a 13,800 sq. foot
facility expansion at our Texas facility. The Company spent approximately
$222,700 on the Texas facility expansion. Fiscal 1997 has also been a record
period for machinery and equipment acquisitions. The Company is scheduled to add
six additional roto-molding machines to its manufacturing operations. Two
roto-molding machines are currently in operation with the remaining four to
become operational by fiscal year end. The Company is also adding five automated
routers throughout the organization. Four are currently on-line and the fifth
will be up and running shortly at our new Commerce City facility. Since the 1991
merger, management has been very committed to expanding and improving its
operations. This commitment has allowed the Company to stay in the forefront of
the industry and optimizes our position for future growth.
Borrowings under the line of credit have increased $562,100 to $2,545,600
between June 30, 1996 and March 31, 1997. The increase is attributed to the
recent Commerce City, Colorado facility acquisition along with machinery and
equipment acquisitions and the litigation settlement expenses mentioned above.
Management anticipates borrowings on its line of credit to remain consistent
with current levels during the remaining portion of fiscal 1997. At March 31,
1997, the Company had approximately $2,450,000 available for future borrowings
under its revolving line of credit
In March 1997, the Company borrowed $500,000 against its second machinery and
equipment term loan commitment. The proceeds were used to pay down the Company's
revolving line of credit which had been used to temporarily finance
approximately $625,000 in machinery and equipment purchases. The note currently
is due in interest only payments through May 15, 1997, at which time it will
convert to a sixty month fully amortizable note.
The Company's financial position is strong. Stockholders' equity increased
$217,100 to $18,540,200 during the nine months ended March 31, 1997. Since
fiscal 1992 stockholders equity has doubled. It should be noted that this
increase is net of the Company's second annual common stock dividend of $.04 per
common share, or $565,400, and the repurchase and retirement of 100,000 shares
of the Company's common stock at a cost of $161,000. Management holds its
shareholders in high regard and will continue to strive to provide them with
best possible return.
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 alleged
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. The complaint requested damages of $7,011,484. On May 17,
1996, the Company filed a counterclaim against Bonar U.S., Inc. and Bonar
Plastics, Inc. seeking damages totaling $25,237,725 for breach of the
Confidentiality Agreement with the Company, misappropriation of trade secrets,
intentional interference with a prospective economic advantage which the Company
obtained as a result of an expression of interest by a third party and breach of
the Royalty Agreement between Bonar Plastics, Inc. and one of the Company's
operating divisions (formally known as Custom Rotational Molding, Inc.). In
March 1997, the Company reached an amicable out of court settlement. The
settlement involved mutual general releases by the parties, dismissals of the
actions brought by the parties and payment to Bonar U.S., Inc. of $400,000.
Pursuant to the settlement agreement, the Company may be required to pay an
additional $325,000 to Bonar, U.S., Inc. in September 1997.
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.
13
<PAGE> 14
ROTONICS MANUFACTURING INC.
PART II. OTHER INFORMATION
MARCH 31, 1997
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: April 18, 1997 _______________________________________
Sherman McKinniss
President and Chief Executive Officer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C>
11 Statement Regarding Computation of Per Share Earnings 17
</TABLE>
16
<PAGE> 1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ----------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
PRIMARY
Net (loss)/income $ (14,200) $ 129,500 $ 937,400 $ 686,800
Less preferred stock dividend - - - (62,000)
------------ ----------- ----------- ------------
Net (loss)/income applicable to common shares $ (14,200) $ 129,500 $ 937,400 $ 624,800
============ =========== =========== ============
Weighted average number of common shares outstanding 14,137,796 14,155,362 14,156,852 13,732,729
Add - common equivalent shares:
Shares issuable upon exercise of options
to purchase common stock (2) - 10,206 788 10,258
------------ ----------- ----------- ------------
Weighted average number of shares used in calculation
of primary income per common share 14,137,796 14,165,568 14,157,640 13,742,987
============ =========== =========== ============
Primary income per common share $ - $ .01 $ .07 $ .05
============ =========== =========== ============
FULLY DILUTED
Net (loss)/income $ (14,200) $ 129,500 $ 937,400 $ 686,800
Less preferred stock dividends - - - (6,200)
------------ ----------- ----------- ------------
Net (loss)/income applicable to common shares $ (14,200) $ 129,500 $ 937,400 $ 624,800
============ =========== =========== ============
Weighted average number of common shares outstanding 14,137,796 14,155,362 14,156,852 13,732,729
Add - Common Equivalent shares:
Shares issuable upon exercise of options
to purchase common stock (2) - 10,625 788(1) 10,920
------------ ----------- ----------- ------------
Weighted average number of shares used in calculation
of fully diluted income per common share 14,137,796 14,165,987 14,157,640(1) 13,743,649
============ =========== =========== ============
Fully diluted income per common share $ - $ .01 $ .07 $ .05
============ =========== =========== ============
</TABLE>
(1) The result of the fully diluted earnings per share computation is
anti-dilutive.
(2) As of August 12, 1996, all outstanding options were exercised or expired.
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 18,500
<SECURITIES> 0
<RECEIVABLES> 5,301,000
<ALLOWANCES> 81,700
<INVENTORY> 5,117,000
<CURRENT-ASSETS> 12,648,600
<PP&E> 17,092,100
<DEPRECIATION> 7,300,500
<TOTAL-ASSETS> 29,258,200
<CURRENT-LIABILITIES> 4,602,000
<BONDS> 0
0
0
<COMMON> 24,422,500
<OTHER-SE> (5,882,300)
<TOTAL-LIABILITY-AND-EQUITY> 29,258,200
<SALES> 29,268,400
<TOTAL-REVENUES> 29,268,400
<CGS> 21,999,100
<TOTAL-COSTS> 26,615,500
<OTHER-EXPENSES> 549,500
<LOSS-PROVISION> 44,900
<INTEREST-EXPENSE> 392,200
<INCOME-PRETAX> 1,711,200
<INCOME-TAX> 773,800
<INCOME-CONTINUING> 937,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 937,400
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
