<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: December 31, 1997
-----------------
Commission File number: 1-9429
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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
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(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 December 31, 1997
----- --------------------------------
Common Shares 13,842,990 Shares
($.01 stated value)
Total Pages 16
Exhibit Index at Page 15
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ROTONICS MANUFACTURING INC.
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets -
December 31, 1997 (Unaudited)
and June 30, 1997(Audited) 3
Statements of Income and
Accumulated Deficit -
Three Months and Six Months Ended
December 31, 1997 and 1996 (Unaudited) 4
Statements of Cash Flows -
Six Months Ended December 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 10
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROTONICS MANUFACTURING INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ ---------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 12,000 $ 12,100
Accounts receivable, net of allowance for doubtful accounts
of $50,000 and $90,000, respectively (Notes 5 and 6) 4,376,100 5,334,400
Notes receivable 57,300 48,100
Inventories (Notes 2, 5 and 6) 6,251,400 5,602,700
Deferred income taxes, net (Note 9) 1,574,600 1,574,600
Prepaid expenses and other current assets 249,600 242,100
----------- -----------
Total current assets 12,521,000 12,814,000
Notes receivable, less current portion 455,000 455,000
Deferred income taxes, net (Note 9) 1,386,900 1,441,400
Property, plant and equipment, net (Notes 3, 5 and 6) 11,265,600 10,799,500
Intangible assets, net (Note 4) 4,922,400 5,065,500
Other assets 64,100 59,000
----------- -----------
$30,615,000 $30,634,400
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 6) $ 1,275,500 $ 1,281,300
Accounts payable (Note 11) 2,206,000 2,953,100
Accrued liabilities (Note 7) 777,600 865,300
Dividends payable (Note 8) 576,900 -
----------- -----------
Total current liabilities 4,836,000 5,099,700
Bank line of credit (Note 5) 3,944,100 2,373,400
Long-term debt, less current portion (Note 6) 3,475,900 4,112,700
Other liabilities - 4,000
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Total liabilities 12,256,000 11,589,800
----------- -----------
Stockholders' equity:
Common stock, stated value $.01: authorized 20,000,000 shares;
issued and outstanding 13,841,222 and 14,065,995 shares, respectively,
net of treasury shares (Note 8) 24,084,700 24,422,500
Accumulated deficit (5,725,700) (5,377,900)
----------- -----------
Total stockholders' equity 18,359,000 19,044,600
----------- -----------
$30,615,000 $30,634,400
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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ROTONICS MANUFACTURING INC.
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 8,563,900 $ 9,478,200 $17,160,900 $19,708,100
----------- ----------- ----------- -----------
Costs and expenses:
Cost of goods sold 6,690,000 7,001,800 13,483,300 14,625,400
Selling, general and
and administrative expenses 1,559,100 1,483,500 3,125,900 2,964,400
----------- ----------- ----------- -----------
Total costs and expenses 8,249,100 8,485,300 16,609,200 17,589,800
----------- ----------- ----------- -----------
Income from operations 314,800 992,900 551,700 2,118,300
----------- ----------- ----------- -----------
Other (expense)/income:
Interest expense (182,800) (122,100) (342,500) (260,200)
Other income/(expense), net 31,300 (50,100) 69,300 (76,600)
----------- ----------- ----------- -----------
Total other expenses (151,500) (172,200) (273,200) (336,800)
----------- ----------- ----------- -----------
Income before income taxes 163,300 820,700 278,500 1,781,500
Income tax provision (Note 9) (55,700) (386,300) (72,600) (829,900)
----------- ----------- ----------- -----------
Net income 107,600 434,400 205,900 951,600
Accumulated deficit, beginning of period (5,279,600) (5,737,100) (5,377,900) (6,254,300)
Common stock dividends (553,700) (565,400) (553,700) (565,400)
----------- ----------- ----------- -----------
Accumulated deficit, end of period $(5,725,700) $(5,868,100) $(5,725,700) $(5,868,100)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income per common share (Note 10):
Net income:
Basic $ .01 $ .03 $ .02 $ .07
------ ------ ------ ------
------ ------ ------ ------
Diluted $ .01 $ .03 $ .02 $ .07
------ ------ ------ ------
------ ------ ------ ------
Weighted average number of common and
common equivalent shares outstanding:
Basic 14,006,516 14,167,808 14,006,516 14,166,177
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Diluted 14,006,516 14,167,808 14,006,516 14,166,868
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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ROTONICS MANUFACTURING INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 205,900 $ 951,600
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 896,400 776,300
Loss on sale of equipment 400 -
Deferred income tax provision 54,500 663,400
Provision for doubtful accounts (15,000) 21,000
Changes in assets and liabilities:
Decrease in accounts receivable 973,300 846,100
Increase in inventories (648,700) (342,600)
Increase in prepaid expenses and other current assets (7,500) (124,000)
(Increase)/decrease in other assets (20,100) 20,600
Decrease in accounts payable (723,800) (197,800)
(Decrease)/increase in accrued liabilities (91,700) 1,700
----------- -----------
Net cash provided by operating activities 623,700 2,616,300
----------- -----------
Cash flows from investing activities:
(Advances)/repayments on notes receivable, net (9,200) 800
Capital expenditures (1,205,800) (923,000)
Proceeds from sale of equipment 1,000 -
----------- -----------
Net cash used in investing activities (1,214,000) (922,200)
----------- -----------
Cash flows from financing activities:
Borrowings under line of credit 5,760,100 3,073,800
Repayments under line of credit (4,189,400) (4,057,300)
Proceeds from issuance of long-term debt - 26,400
Repayment of long-term debt (642,600) (689,200)
Payment of common stock dividends (100) (100)
Proceeds from exercise of stock options - 6,100
Repurchases of common stock (337,800) (51,600)
----------- -----------
Net cash provided by/(used in ) financing activities 590,200 (1,691,900)
----------- -----------
Net (decrease)/increase in cash (100) 2,200
Cash at beginning of period 12,100 11,600
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Cash at end of period $ 12,000 $ 13,800
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 325,800 $ 266,500
----------- -----------
----------- -----------
Income taxes $ 89,000 $ 164,000
----------- -----------
----------- -----------
Supplemental schedule of noncash financing activities:
Common dividends declared but not paid $ 553,700 $ 565,400
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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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, 1997.
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 December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share". SFAS No. 128 replaces primary EPS with basic EPS and fully diluted EPS
with diluted EPS. Basic EPS is computed by dividing reported earnings by
weighted average shares outstanding. Diluted EPS is computed the same way as
fully diluted EPS except that the calculation now uses the average share price
for the reporting period to compute dilution from options under the treasury
stock method. The adoption of this pronouncement did not have an impact on the
Company's earnings per share.
NOTE 2 - INVENTORIES:
Inventories consist of:
December 31, June 30,
1997 1997
----------- -----------
Raw materials $ 3,352,800 $ 3,160,000
Finished goods 2,898,600 2,442,700
----------- -----------
$ 6,251,400 $ 5,602,700
----------- -----------
----------- -----------
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of:
December 31, June 30,
1997 1997
----------- -----------
Land $ 1,039,500 $ 1,039,500
Buildings and building improvements 3,400,900 3,274,500
Machinery, equipment, furniture and fixtures 14,503,000 13,762,700
Construction in progress 686,200 359,900
----------- -----------
19,629,600 18,436,600
Less - accumulated depreciation (8,364,000) (7,637,100)
----------- -----------
$11,265,600 $10,799,500
----------- -----------
----------- -----------
6
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NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consist of: December 31, June 30,
1997 1997
------------ ----------
Patents, net of accumulated amortization
of $97,600 and $95,200 $ 42,700 $ 35,200
Goodwill, net of accumulated amortization
of $2,220,500 and $2,070,000 4,879,700 5,030,300
---------- ----------
$4,922,400 $5,065,500
---------- ----------
---------- ----------
NOTE 5 - BANK LINE OF CREDIT:
The Company has a $5,000,000 revolving line of credit with Wells Fargo Bank.
The line matures July 15, 1999 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, 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 December 31, 1997, total borrowings under the Company's line of
credit was $3,944,100 of which $3,500,000 was borrowed under the LIBOR option.
The LIBOR borrowings consist of two borrowings of $1,500,000 and $2,000,000,
bearing LIBOR interest rates of 8.22266% and 8.44141% per annum and maturing
January 29, 1998 and January 21, 1998, respectively. Proceeds from the loan
were used for working capital purposes. At December 31, 1997 the Company had
approximately $1,055,900 available for future borrowings under the revolving
line of credit.
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of: December 31, June 30,
1997 1997
---------- ----------
Note payable - Bank (A) $1,933,300 $2,333,300
Note payable - Bank (B) 341,600 391,700
Note payable - Bank (C) 440,700 491,500
Note payable - Bank (D) 900,000 1,000,000
Note payable - Bank (E) 1,113,900 1,147,100
Other 21,900 30,400
---------- ----------
4,751,400 5,394,000
Less current portion (1,275,500) (1,281,300)
---------- ----------
$3,475,900 $4,112,700
---------- ----------
---------- ----------
(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 December 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 December 31, 1997, the Company had $1,750,000 of the
outstanding principal balance under the LIBOR option at 8.44141% per annum
maturing on January 21, 1998. The note is secured by the Company's
machinery and equipment, accounts receivable and inventories and matures on
May 16, 2000.
(B) 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
December 31, 1997) or LIBOR interest rate option for periods up to six
months. At December 31, 1997, the total outstanding principal was under
the LIBOR option at 8.44141% per annum maturing January 21, 1998. The note
is secured by the Company's machinery and equipment and matures on May 15,
2001.
7
<PAGE>
(C) 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 purchased. The note is due in monthly principal installments of
approximately $8,500 plus interest at the bank's prime rate (8.5% per annum
at December 31, 1997) or LIBOR interest rate option for periods up to six
months. At December 31, 1997, the total outstanding principal was under
the LIBOR option at 8.5% per annum maturing January 23, 1998. The note is
secured by the Company's machinery and equipment and matures on May 15,
2002.
(D) In June 1997, the Company was advanced $1,000,000 on its third 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 $1,250,000 in machinery
and equipment purchases. The note is due in monthly principal installments
of approximately $16,700 plus interest at the bank's prime rate (8.5% per
annum at December 31, 1997) or LIBOR interest rate option for periods up to
three months. At December 31, 1997, the total outstanding principal was
under the LIBOR option at 8.19141% per annum maturing February 4, 1998.
The note is secured by the Company's machinery and equipment and matures on
June 15, 2002.
At December 31, 1997, the Company had available a term-loan commitment in
the amount of $1,200,000 for future machinery and equipment purchases.
Advances under the line will be subject to monthly interest only payments
at the bank's prime or LIBOR interest rate options until July 15, 1998 at
which time amounts borrowed will convert to a 60 month fully amortizable
loan.
(E) 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,
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 on September 15, 1999.
NOTE 7 - ACCRUED LIABILITIES:
Accrued liabilities consist of:
December 31, June 30,
1997 1997
------------ --------
Salaries, wages, commissions and related payables $599,500 $640,500
Other 178,100 224,800
-------- --------
$777,600 $865,300
-------- --------
-------- --------
NOTE 8 - COMMON STOCK:
Treasury stock is recorded at cost. At December 31, 1997, treasury stock
consisted of 127,668 shares of common stock at a cost of $195,800 and at June
30, 1997, treasury stock consisted of 1,776 shares of common stock at a cost of
$1,500.
On December 9, 1997, the Board of Directors declared at its Annual Meeting of
Stockholders a common stock dividend of $.04 per common share payable on January
28, 1998 to stockholders of record on January 8, 1998.
8
<PAGE>
NOTE 9 - INCOME TAXES:
The components of the income tax provision were:
For the three months ended For the six months ended
December 31, December 31
-------------------------- ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
Current:
Federal $ 3,700 $ 19,500 $ 4,200 $ 42,500
State 8,700 59,800 13,900 124,000
-------- -------- -------- --------
12,400 79,300 18,100 166,500
-------- -------- -------- --------
Deferred:
Federal 46,000 295,900 61,200 641,200
State (2,700) 11,100 (6,700) 22,200
-------- -------- -------- --------
43,300 307,000 54,500 663,400
-------- -------- -------- --------
$ 55,700 $386,300 $ 72,600 $829,900
-------- -------- -------- --------
-------- -------- -------- --------
At December 31, 1997, the Company had net operating loss (NOL) carryforwards of
approximately $9,300,000 for federal income tax purposes. The NOL carryforwards,
which are available to offset taxable income 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 2003 if not utilized. The federal NOL
carryforwards expire as follows:
Amount of unused operating Expiration during year
loss carryforwards ended June 30,
-------------------------- ----------------------
$4,600,000 2003
3,400,000 2004
600,000 2005
500,000 2006
200,000 2009
----------
$9,300,000
----------
----------
At December 31, 1997, the Company had a federal alternative minimum tax credit
of approximately $190,000 which is available to offset future federal income tax
once the Company is no longer subject to an alternative minimum tax for federal
income tax purposes.
NOTE 10 - COMPUTATION OF EARNINGS PER SHARE:
Basic and diluted earnings per share have been computed in accordance with SFAS
No. 128 "Earnings per Share", using the treasury stock method for applicable
common stock warrants and options when computing diluted earnings per share.
NOTE 11 - LAWSUIT SETTLEMENT:
On April 16, 1996, the Company was named as a 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
U.S., Inc. On April 3, 1996, the Company announced that it had terminated the
Agreement in Principle pursuant to its terms. The complaint requested damages
of $7,011,484. On May 17, 1996, the Company filed a counterclaim against Bonar
U.S., Inc. and Bonar Plastic, 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 indication of interest from a third
party and breach of a 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
with Bonar. The settlement involved mutual general releases by the parties,
dismissals of the actions brought by the parties and payments to Bonar of
$400,000 in March 1997 and $350,000 in September 1997. The $350,000 payment had
been previously accrued for and was included in accounts payable in the
accompanying June 30, 1997 balance sheet.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
To the extent that this 10-Q Quarterly Report discusses matters which are not
historical, including statements regarding future financial results, information
or expectation about products or markets, or otherwise makes statements about
future events, such statements are forward-looking and are subject to a number
of risks and uncertainties that could cause actual results to differ materially
from the statements made. These include, among others, fluctuations in costs of
raw materials and other expenses, costs associated with plant closures,
downturns in the markets served by the Company, the costs associated with new
product introductions, as well as other factors described under this Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and Footnote 1 to Financial Statements.
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Net sales for the three months ended December 31, 1997, decreased 9.6% to
$8,563,900 compared to $9,478,200 for the same period last year. The Company
continued to encounter a slow down in the marketplace during the current period.
However, the decrease in sales volumes was not as significant as reported during
the first quarter of fiscal 1998, which indicates a possible strengthening in
the marketplace. This coupled with increases in several proprietary product
lines as well as customer tooling sales during the current period also exhibit a
positive trend for the Company. In addition, backlog levels, which help provide
a benchmark for future performance, are currently $700,000 above prior year
levels. These positive trends are also reflected of management efforts to
strengthen and refine its sales and marketing tactics including adding
additional sales representatives to regain sales volumes and improve the
Company's overall marketshare.
Cost of goods sold increased 4.2% to 78.1% of net sales for the three months
ended December 31, 1997, compared to 73.9% for the same period last year. The
increase in cost of goods sold is directly related to the lackluster sales
volumes during the current period. Although the Company reported a slight
improvement in its gross margin when compared to the previous quarter, these
lower sales volume levels are sill not sufficient to sustain gross margins
consistent with prior year. Management remains optimistic that its current
backlog levels and more aggressive marketing efforts should translate into
improved sales volumes and gross margins in the ensuing months.
Selling, general, and administrative expenses were $1,559,100, or 18.2% of net
sales for the three months ended December 31, 1997, compared with $1,483,500, or
15.7% for the same period last year. Selling, general and administrative
expenses remained consistent with previous quarter levels but have increased
$75,600 over prior year results. The increase is attributed to increased
personnel and marketing costs associated with the Company's increased marketing
efforts as well as additional administrative staffing requirements consistent
with future growth plans. Management will continue to monitor these costs in
correlation to future sales volumes levels.
Total interest expense increased $60,700 to $182,800 for the three months ended
December 31, 1997, compared to $122,100 for the same period last year. The
increase is primarily related to an increase in the Company's debt structure of
approximately 3.3 million when compared to the same period last year. The
increase in the Company's debt structure is attributed to the Colorado facility
purchase and its subsequent improvements in the later part of fiscal 1997 and
the first part of fiscal 1998 (approximately 1.4 million), one million in
machinery and equipment purchases in fiscal 1998 and an increase in short-term
borrowings in connection with raw material purchasing strategies. The
forementioned events have also caused an increase in short term borrowings due
to a notable decrease in cash flows from operations. The Company also
experienced a rise in its short-term LIBOR interest rates due to the Asian
markets economic problems. As such, the disparity between the bank's prime and
LIBOR interest rates was significantly narrowed causing increased interest costs
for the Company.
Income taxes were $55,700 for the three months ended December 31, 1997, compared
to $386,300 for the same period last year. The decrease is directly related to
the reduced level of income from operations.
Net income was $107,600, or $.01 per common share, for the three months ended
December 31, 1997, compared to $434,400, or $.03 per common share for the same
period last year. The decrease is directly related to the reduction in sales
volume levels which impeded the preservation of the Company's gross margin goals
coupled with increases in selling, general, administrative and interest expenses
as outlined
10
<PAGE>
above. Management realizes that an on going down turn in the Company's
marketplace or increases in raw material costs could hinder the Company's drive
to improve its performance, but remains optimistic that current conditions are
an indication of improved sales volumes and operating results during the balance
of fiscal 1998.
RESULTS OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 1997 & 1996
Net sales for the six months ended December 31, 1997, decreased 12.9% to
$17,160,900 compared to $19,708,100 for the same period last year. The
reduction is attributed to a lackluster marketplace which has resulted in
notable volume reductions in several of the Company's main product lines as well
as the custom molded product arena. Although the Company is currently below
prior year results, management has seen positive trends during the last quarter
which should improve results as we move forward. Several proprietary product
lines realized improved volume momentum as well as an overall increase in
customer tooling sales of $275,000 during the current period. Notable increases
in customer tooling sales usually signifies increased activity for custom molded
products. Management is optimistic that this trend along with current backlog
levels will provide the thrust for overall improved sales volumes and operating
results.
Cost of goods sold increased 4.4% to 78.6% of net sales for the six months ended
December 31, 1997, compared to 74.2% for the same period last year. The
reduction is directly related to the lackluster sales volumes during the current
period. These lower sales volume levels have not been sufficient to sustain
gross margins consistent with prior years. During this period management has
also focused on reducing inefficiencies caused by operating at these sales
volume levels which will also continue to benefit the Company once we regain
higher sales volume levels. In addition, the Company continues to see the
significant efficiencies obtained at the operating facilities that are fully
utilizing the automated routing machines and expects that all facilities will be
obtaining cost benefits from these machines by fiscal year end.
Selling, general and administrative expenses were $3,125,900, or 18.2% of net
sales for the six months ended December 31, 1997, compared to $2,964,400 or
15.0% for the same period last year. Selling, general and administrative
expenses have increased approximately $160,000 during the current six month
period. The increase is attributed to increases in personnel and marketing
costs associated with the Company's advanced marketing efforts as well as
additional administrative staffing requirements consistent with future growth
plans. Management will continue to monitor these costs in correlation to future
sales volumes levels.
Total interest expense increased $82,300 to $342,500 for the six months ended
December 31, 1997, compared to $260,200 for the same period last year. The
increase is primarily related to an increase in the Company's debt structure of
approximately 3.3 million when compared to the same period last year. The
increase in the Company's debt structure is attributed to the Colorado facility
purchase and its subsequent improvements in the later part of fiscal 1997 and
the first part of fiscal 1998 (approximately 1.4 million), one million in
machinery and equipment purchases in fiscal 1998 and an increase in short-term
borrowings in connection with raw material purchasing strategies. The
forementioned events have also caused an increase in short term borrowings due
to a notable decrease in cash flows from operations. The Company also
experienced a rise in its short-term LIBOR interest rates due to the Asian
markets economic problems. As such, the disparity between the bank's prime and
LIBOR interest rates was significantly narrowed causing increased interest costs
for the Company.
Income taxes were $72,600 for the six months ended December 31, 1997, compared
to $829,900 for the same period last year. The decrease is directly related to
the reduced level of income from operations.
Net income was $205,900, or $.02 per common share, for the six months ended
December 31, 1997, compared to $951,600, or $.07 per common share for the same
period last year. The decrease is directly related to the reduction in sales
volume levels which impeded the preservation of the Company's gross margin goals
coupled with increases in selling, general, administrative and interest expenses
as outlined above. Management realizes that an on going down turn in the
Company's marketplace or increases in raw material costs could hinder the
Company's drive to improve its performance, but remains optimistic that current
conditions are an indication of improved sales volumes and operating results
during the balance of fiscal 1998.
11
<PAGE>
FINANCIAL CONDITION
Working capital decreased slightly by $29,300 to $7,685,000 at December 31, 1997
compared to $7,714,300 at June 30, 1997. The decrease was attributed to an
increase in dividends payable of $553,700 associated with the common stock
dividend declared in December 1997 in addition to decreases in accounts
receivable and accounts payable offset by a notable increase in inventories.
The decreases in accounts receivable is directly related to lower sales volumes
during the period ended December 31, 1997 and the decrease in accounts payable
is related to fluctuations consistent with current operations and the payment
of litigation settlement costs previously accrued for in fiscal 1997. The
increase in inventories is related to raw material purchasing strategies in
efforts to minimize resin cost volatility.
Cash provided by operations was $623,700 for the six months ended December 31,
1997 which reflected a decrease of $1,992,600 in relation to prior period
results. The reduction is primarily attributed to the lower sales volume levels
reported during the current period which resulted in a decrease in income from
operations of approximately 1.6 million, as well as a notable decrease in
accounts payable and an increase in inventories, as indicated above, which
increased cash used by operating activites by $832,100.
The Company expended a total of $1,205,800 for property, plant and equipment
during the six months ended December 31, 1997, compared to $923,000 for the same
period last year. The Company continued to complete its internal expansion
project that it began in fiscal 1997. During the current period the Company
acquired two additional roto-molding machines for its Idaho facility, a second
CNC router at its Chicago facility, as well as resin silo projects in Florida
and Colorado. The Company also substantially completed its building improvement
project at its new Commerce City, Colorado facility. Now that the majority of
the Company's internal expansion project is completed, management believes the
Company is primed to meet its future growth plans.
In July 1997, the Company renewed its $5 million secured line of credit with the
bank which extended its maturity date to July 15, 1999. Net borrowings under
the line of credit increased $1,570,000 to $3,944,100 between June 30, 1997 and
December 31, 1997. Current increases in the line are primarily related to
ongoing capital expenditures, including the building improvements in Commerce
City, Colorado, as mentioned above, until such time these costs are refinanced
under long-term debt arrangements. At December 31, 1997, the Company had
approximately $1,055,900 available for future borrowings under the revolving
line of credit. On January 16, 1998 the Company advanced $700,000 against its
machinery and equipment term loan commitment. Proceeds from the advance will be
used to pay down the Company's line of credit.
On December 9, 1997 the Board of Directors declared at its Annual Meeting of
Stockholders its third annual cash dividend on the Company's common stock. A
regular dividend of $.04 per common share will be paid on January 28, 1998 to
stockholders of record on January 8, 1998. The Board of Directors is confident
with the Company's continued success and believes our loyal shareholders should
continue to receive a return on their investments for their continued support.
On April 16, 1996, the Company was named as a 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
U.S., Inc. On April 3, 1996, the Company announced that it had terminated the
Agreement in Principle pursuant to its terms. The complaint requested damages
of $7,011,484. On May 17, 1996, the Company filed a counterclaim against Bonar
U.S., Inc. and Bonar Plastic, 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 indication of interest from a third
party and breach of a Royalty Agreement between Bonar Plastic, 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
with Bonar. The settlement involved mutual general releases by the parties,
dismissals of the actions brought by the parties and payments to Bonar of
$400,000 in March 1997 and $350,000 in September 1997. The $350,000 payment had
been previously accrued for and was included in accounts payable in the
accompanying June 30, 1997 balance sheet.
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.
12
<PAGE>
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.
13
<PAGE>
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 21, 1998 /s/ SHERMAN MCKINNISS
--------------------------------
Sherman McKinniss
President and
Chief Executive Officer
14
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
11 Statement Regarding Computation of Per Share Earnings 16
15
<PAGE>
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- -------------------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC EPS
Net income $ 107,600 $ 434,400 $ 205,900 $ 951,600
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Weighted average number of
common shares outstanding 14,006,516 14,167,808 14,006,516 14,166,177
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Basic earnings per common share $ .01 $ .03 $ .02 $ .07
------- ------- ------- -------
------- ------- ------- -------
DILUTED EPS
Net income $ 107,600 $ 434,400 $ 205,900 $ 951,600
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Weighted average number of
common shares outstanding 14,006,516 14,167,808 14,006,516 14,166,177
Add -common equivalent shares:
Shares issuable upon exercise of options to
purchase common stock - - - 691
------------ ----------- ----------- -----------
Weighted average number of common shares
used in computation of diluted earnings per
common share 14,006,516 14,167,808 14,006,516 14,166,868
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Diluted earnings per common share $ .01 $ .03 $ .02 $ .07
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,000
<SECURITIES> 0
<RECEIVABLES> 4,483,400
<ALLOWANCES> 50,000
<INVENTORY> 6,251,400
<CURRENT-ASSETS> 12,521,000
<PP&E> 19,629,600
<DEPRECIATION> 8,364,000
<TOTAL-ASSETS> 30,615,000
<CURRENT-LIABILITIES> 4,836,000
<BONDS> 0
0
0
<COMMON> 24,084,700
<OTHER-SE> (5,725,700)
<TOTAL-LIABILITY-AND-EQUITY> 30,615,000
<SALES> 17,160,900
<TOTAL-REVENUES> 17,160,900
<CGS> 13,483,300
<TOTAL-COSTS> 16,609,200
<OTHER-EXPENSES> (69,300)
<LOSS-PROVISION> (17,500)
<INTEREST-EXPENSE> 342,500
<INCOME-PRETAX> 278,500
<INCOME-TAX> 72,600
<INCOME-CONTINUING> 205,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 205,900
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
