<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended June 30, 2000
Commission file number 1-9429
ROTONICS MANUFACTURING INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-2467474
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17022 SOUTH FIGUEROA STREET
GARDENA, CALIFORNIA 90248
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (310) 538-4932
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK ($.01 STATED VALUE) AMERICAN STOCK EXCHANGE
-------------------------------- -----------------------
Titles of each class Name of each Exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) for 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 has been subject to such
filing requirements for the past 90 days. Yes /X/ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ /X/ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of September 1, 2000, was $6,269,600 (1).
The number of shares of common stock outstanding at September 1, 2000 was
12,906,587.
(1) Excludes 7,005,829 shares held by directors, officers and stockholders
whose ownership exceeded 5% of the outstanding shares at September 1, 2000.
Exclusion of such shares should not be construed to indicate that the holders
thereof possess the power, direct or indirect, to direct the management or
policies of registrant, or that such persons are controlled by or under
common control with the registrant.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT FORM 10-K
PART
<S> <C>
Definitive Proxy Statement to be used in connection
with the Annual Meeting of Stockholders to be held on
December 4, 2000 III
</TABLE>
2
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I
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Item 1 Business 4
Item 2 Properties 6
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of Security Holders 7
PART II
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Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters 8
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8 Financial Statements and Supplementary Data 14
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
PART III
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Item 10 Directors and Executive Officers of the Registrant 15
Item 11 Executive Compensation 15
Item 12 Security Ownership of Certain Beneficial Owners
and Management 15
Item 13 Certain Relationships and Related Transactions 15
PART IV
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Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 16
SIGNATURES 17
</TABLE>
3
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Rotonics Manufacturing Inc. (the "Company") was founded as an Illinois
Corporation, and was reincorporated in Delaware in December 1986. Effective
July 1, 1991, the Company merged with Rotonics Molding, Inc.-Chicago
("Rotonics"), with the Company being the surviving entity. In accordance with
the 1991 merger agreement, the Company issued 2,666,666 (after giving effect
to a 1-for-3 reverse stock split) shares of its common stock and 4,999,997
shares of a newly issued non-voting preferred stock in exchange for all the
outstanding voting stock of Rotonics. The preferred stock, which has
subsequently been redeemed, was entitled to cumulative dividends of $.09 per
share per annum and had a liquidation value of $1.00 per share, plus accrued
unpaid dividends in preference to any payment on the common stock.
Rotonics had operations in Itasca, Illinois; Deerfield, Wisconsin; Denver,
Colorado; and Bartow, Florida. Three of these operations currently conduct
business as divisions of the Company using the trade names RMI-C, RMI-D, and
RMI-F, respectively. Rotonics was a privately held California Corporation,
which was 52% owned by Mr. Sherman McKinniss. Mr. McKinniss became president
and chief executive officer of the Company on August 12, 1991.
In September 1991, the Company's wholly owned subsidiary, Rotational Molding,
Inc. ("RMI"), was merged into the Company and now operates as two divisions
using the trade names RMI-G and RMI-I with manufacturing operations in
Gardena, California and Caldwell, Idaho, respectively.
Effective January 1, 1992, the Company acquired Plastech Holdings, Inc.
("Plastech"), and its wholly owned subsidiary, Plastech International, Inc.,
for $1,777,070 in cash. Plastech was headquartered in Warminster,
Pennsylvania with an additional operation in Gainesville, Texas. In July
1992, Plastech was merged with the Company and now operates as a division of
the Company using the trade name RMI-T.
Effective April 1, 1995, the Company purchased certain assets and assumed
certain liabilities of Custom Rotational Molding, Inc. ("CRM") for 300,000
shares of the Company's common stock. The Company assumed CRM's operations in
Arleta, California.
In September 1994, the Company purchased a larger manufacturing facility in
Bensenville, Illinois and subsequently relocated its Itasca, Illinois
operations into this new facility. In December 1995, the Company discontinued
its operations at its Deerfield, Wisconsin location and combined these
operations into its newly purchased Bensenville, Illinois operation. The
Wisconsin facility is currently being leased to two tenants on a
month-to-month term basis at $4,200 per month.
In February 1997, the Company purchased a 9.73-acre facility consisting of
63,000 square feet of manufacturing and office building space in Commerce
City, Colorado. The Company has since expended significant resources to
refurbish the facility to house its Colorado operations. In addition to the
new facility the Company added two state of the art roto-molding machines and
a CNC router to increase and enhance existing manufacturing capacity. Also,
the facility is located within an enterprise zone, which should provide
additional benefits.
Effective April 1, 1998, the Company merged with Rotocast International, Inc.
and its wholly owned subsidiaries ("Rotocast"), with the Company being the
surviving entity. In accordance with the Merger Agreement, the Company issued
2,072,539 shared of its common stock and a $2,000,000 note payable secured by
a stand-by letter of credit in exchange for all the outstanding voting stock
of Rotocast. In January 2000, the Company repurchased these shares for $2.8
million. Upon consummation of the repurchase, the shares were retired.
Rotocast had operations in Miami, Florida; Knoxville, Tennessee; Brownwood,
Texas; Las Vegas, Nevada; and Bossier City, Louisiana. These operations
currently conduct business as divisions of the Company using the trade names
Nutron, Rotocast of Tennessee, RMI-B and RMI-Nevada. Prior to the merger the
operations in Bossier City, Louisiana were substantially discontinued.
Rotocast was a privately held Florida corporation owned by GSC Industries,
Inc. ("GSC"). The Company leases the remaining Rotocast facilities from GSC,
and other affiliated parties, under long-term lease arrangements. Effective
April 1998, and pursuant to the Merger Agreement, Mr. Robert Grossman, a
shareholder of GSC and former President of Rotocast, was named to the
Company's Board of Directors. Following the January 2000 repurchase of the
shares issued to GSC, Mr. Grossman resigned from the Board of Directors.
4
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In conjunction with the Rotocast merger the Company initiated the
consolidation of its Warminster, Pennsylvania and Arleta, California
facilities into its remaining operations. The consolidation of these
facilities has enhanced the operations of the Company's remaining facilities,
reduced its overall manufacturing overhead costs, and has allowed the Company
to take greater advantage of its marketing and distribution channels since
the completion of the Rotocast merger. The consolidation of the facilities
was completed in fiscal 1999. Also in fiscal 1999, the Company consolidated
its Miami operations into the remaining operating facilities.
The Corporate office of the Company is located at the same site as the RMI-G
(Gardena, California) facility.
DESCRIPTION OF BUSINESS
The Company currently has ten manufacturing locations and was again listed by
a plastics industry periodical as one of the top ten Rotational Molders in
North America. These operating divisions manufacture a variety of plastic
products for commercial, agricultural, pharmaceutical, point of purchase
display, medical waste, refuse, retail, recreation, marine, healthcare and
residential use, as well as a vast number of custom plastic products for a
variety of industries, utilizing the roto-molding process and, on a smaller
scale; injection molding and dip molding processes. In April 1998, the
injection molding process was added to the Company's manufacturing operations
as part of the Rotocast merger. Utilizing this process the Company markets a
variety of parts for commercial, promotional and residential uses under the
trade names Nutron and AMP. Roto-molding is a process for molding plastic
resin by rotating a mold in a heated environment while the plastic resin
powder placed inside the mold melts and evenly coats the inner wall of the
mold. The injection molding process varies in that the plastic resin is first
heated to a molten state and then injected under pressure into a mold. The
roto-molding process has been used for many years and continues to be
recognized as a growth industry in recent years as a result of numerous
ongoing business consolidations and the development of new resins. These new
resins allow roto-molded items to compete with more traditional materials
such as carbon and stainless steel, especially in the fabrication of large,
lightweight; one-piece molded items such as storage tanks. Roto-molding is a
particularly advantageous process for users of molded plastic products who
may want to test different prototypes, or who do not require sufficient
numbers of such products to justify a more expensive manufacturing process.
The Company's products include various types of storage tanks, bin lids,
refuse containers for automated removal, medical waste containers,
point-of-purchase displays, agricultural/livestock products, kayaks, outdoor
lamp posts, furniture, planters, and other molded items.
The Company purchases resin from four major suppliers in the U.S. and Canada.
As the majority of the resin used in the manufacturing process is a
polyethylene derived from natural gas, resin price is not directly related to
the price for petrochemicals and until recent years has not generally been
subject to volatile fluctuations which are often experienced by the petroleum
industry. The Company also incorporates the use of recycled plastic materials
blended with virgin materials in the manufacturing of products whenever
appropriate.
The Company holds several patents on storage containers used for
pharmaceutical, commercial and residential applications. The patents expire
through the year 2010. Although the Company has been able to capture its
share of these niche markets and expects to see continued growth, no one
patent or groups of patents is considered material to the business as a whole.
Competition for the Company's products is governed by geography and region
since large capacity tanks and bulky hollow products are expensive to ship
long distances and, as such, any prospective competitor is constrained by
shipping costs. There are numerous single-location as well as a growing trend
to structure multi-location roto-molding businesses throughout the United
States. However, each of these businesses still compete in a geographic
region which is determined by customer demand within that region, a
constraint inherent to the industry. Due to its nationwide presence, the
Company has substantially alleviated this constraint. The Company's sales are
usually not subject to large seasonal fluctuations as the business typically
operates on significant backlogs with a diverse product mix. Peak season is
usually experienced in the period from April through June. Historically the
quarter from January through March is the slowest production period of the
year. The Company's backlog was $3,683,900 and $4,017,800 as of June 30, 2000
and 1999, respectively. All of the backlog orders as of June 30, 2000 are
expected to be filled during fiscal 2001.
The Company's products are marketed through the in-house sales and
engineering staff, various distributors and outside commission-based sales
representatives. The Company continues to build a strong, broad and diverse
customer base, which covers a multitude of industries. Since fiscal 1991, no
sales to any one single customer represented a material part of the Company's
business.
Research and development expenditures for the Company were insignificant for
the last three fiscal years.
5
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REGULATION
The Company believes that it is in compliance with all applicable federal,
state and local laws relating to the protection of the environment and does
not anticipate that any such laws will have any material effect on its
financial position, capital expenditures, or competitive position.
EMPLOYEES
As of June 30, 2000, the Company employed a total of 525 individuals. The
Company maintains, for its respective employees who are eligible, a medical
insurance plan (some of which is contributory), a group life insurance plan,
an annual bonus plan and a semi-annual attendance bonus plan.
ITEM 2. PROPERTIES
The Company's corporate office occupies a separate building comprising
approximately 3,600 square feet of the facilities of RMI-G in Gardena,
California.
The operating divisions lease warehouse, production and office space as
follows:
<TABLE>
<CAPTION>
BUILDING TOTAL FACILITY
SQUARE SQUARE
LOCATION FOOTAGE FOOTAGE RENT DATE (2)
-------- -------- -------------- -------- ------------
<S> <C> <C> <C> <C>
Gardena, California (1) 42,800 183,300 $259,300 October 2001
Caldwell, Idaho (5) 21,250 71,200 $ 73,900 September 2000
Bartow, Florida 46,200 174,600 $123,200 September 2004
Miami, Florida (3) 50,000 86,000 $154,600 March 2013
Gainesville, Texas (4) - 108,900 $ 1,000 April 2001
Brownwood, Texas 42,800 136,120 $ 70,500 March 2013
Las Vegas, Nevada 30,000 90,000 $127,800 March 2013
Knoxville, Tennessee 44,000 174,240 $141,500 March 2013
</TABLE>
(1) The Company has an option to purchase these facilities.
(2) Does not give effect to any renewal options.
(3) The Company is currently listing the Rotocast-Miami building
(20,000 sq. ft.) for lease.
(4) Represents a 2.5 acre ground lease adjacent to Texas facility.
(5) The Company is currently renewing this lease for an additional five-year
term.
The Company owns 2.1 acres (including 38,000 square feet of warehouse,
production and office space) in Gainesville, Texas. In September 1994 the
Company purchased 3.1 acres (including 63,300 square feet of warehouse,
production and office space) in Bensenville, Illinois for the Company's
Illinois manufacturing operations. The Texas and Illinois facilities are
currently encumbered by a combined $1.83 million mortgage. In February 1997
the Company purchased for cash 9.73 acres (including 63,000 square feet of
warehouse, production and office space) in Commerce City, Colorado for the
Company's Colorado manufacturing operations. The Company also owns
approximately 1.59 unencumbered acres (including 35,100 square feet of
warehouse, production and office space) in Deerfield, Wisconsin which was
vacated in December 1995 by the Company and its operations incorporated into
the Illinois facility. The Wisconsin facility is currently leased to two
unrelated lessees for $4,200 per month. In January 2000, the Company leased
merchandise space in a showroom located in Atlanta, Georgia at an annual
lease rate of $30,200.
6
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ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company encounters certain litigation
matters, which in the opinion of management will not have a significant
adverse effect on the financial position or the results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock ($.01 stated value) is traded on the American
Stock Exchange ("AMEX") under the symbol "RMI". The number of stockholders of
record of the Company's Common Stock was approximately 3,800 at September 1,
2000.
PRICE RANGE OF COMMON STOCK
The following table sets forth the quarterly price ranges of the Company's
Common Stock in Fiscal 1999 and 1998, as reported on the composite
transactions reporting system for AMEX listed stocks.
<TABLE>
<S> <C> <C>
First Quarter Ended September 30, 1998 $ 1-3/16 $ 11/16
Second Quarter Ended December 31, 1998 1-1/16 9/16
Third Quarter Ended March 31, 1999 1-3/16 3/4
Fourth Quarter Ended June 30, 1999 1-1/8 7/8
First Quarter Ended September 30, 1999 $ 1-5/16 $ 15/16
Second Quarter Ended December 31, 1999 1-11/16 1-1/4
Third Quarter Ended March 31, 2000 1-15/16 1-3/16
Fourth Quarter Ended June 30, 2000 2-1/2 1-3/8
</TABLE>
In fiscal years 1996-1999, the Company paid a regular cash dividend of $.04
per share on its Common Stock. Any future cash dividends or other
distributions of stock will be determined solely by the Board of Directors
and will be based on the Company's future financial ability to declare and
pay such dividends. Additionally, certain lending agreements restrict the
Company from declaring or paying dividends on its Common Stock (see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations: Liquidity and Capital Resources"). According to the lending
agreement with its bank, the Company may not declare or pay any dividend or
distribution on any stock or redeem, retire, repurchase or otherwise acquire
any of such shares unless the Company can obtain prior bank authorization and
appropriate waivers.
8
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Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
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2000 1999 1998(B) 1997 1996
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<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $45,602,100 $45,499,700 $38,058,900 $39,385,100 $35,703,600
Cost of goods sold 33,599,400 33,335,300 29,268,400 29,292,100 26,443,700
Gross margin 12,002,700 12,164,400 8,790,500 10,093,000 9,259,900
Selling, general and
administrative expenses (C) 8,016,900 8,841,600 7,327,300 6,239,600 6,313,100
Interest expense 955,000 987,700 793,700 556,500 696,500
Net income (D) $ 1,953,700 $ 1,326,000 $ 417,200 $ 1,441,800 $ 1,472,700
Basic/diluted income
per common share $ 0.14 $ 0.09 $ 0.03 $ 0.10 $ 0.10
Average common shares
outstanding (A) 13,981,800 15,379,400 14,445,200 14,134,600 13,848,500
OTHER FINANCIAL DATA
Net income as a percent of sales 4.3% 2.9% 1.1% 3.7% 4.1%
</TABLE>
(A) Computed on the basis of the weighted average number of common
shares outstanding during each year.
(B) Includes the results of operations of Rotocast since the effective
date of merger.
(C) In fiscal 1999 and 1998, includes $394,400 and $280,300,
respectively, in plant consolidation expenses.
(D) Fiscal year 1997 includes $1,010,800 in costs relating to a lawsuit
settlement.
9
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<TABLE>
<CAPTION>
AT JUNE 30,
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2000 1999 1998(B) 1997 1996
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<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Current assets $ 14,866,100 $ 15,701,500 $ 16,463,600 $ 12,814,000 $ 13,023,000
Current liabilities 5,408,300 5,965,900 6,452,800 5,099,700 4,864,500
Working capital surplus 9,457,800 9,735,600 10,010,800 7,714,300 8,158,500
Total assets 37,065,200 39,300,300 40,563,800 30,634,400 29,055,700
Long-term debt 8,569,800 9,470,600 10,976,500 6,486,100 5,864,100
Total liabilities 16,578,200 17,866,000 19,155,900 11,589,800 10,732,600
Current ratio 2.7 to 1 2.6 to 1 2.6 to 1 2.5 to 1 2.7 to 1
Net book value per
common share (A) $ 1.59 $ 1.42 $ 1.35 $ 1.35 $ 1.29
</TABLE>
(A) Computed on the basis of the actual number of common shares outstanding
at the end of the fiscal year.
(B) Includes the effect of the Rotocast merger.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
To the extent that this 10-K Annual 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 the heading Item
3, "Legal Proceedings", under this Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations", and Footnote 1 to Financial
Statements.
OPERATIONS
Net sales were $45,602,100 in fiscal 2000 which was comparable to net sales of
$45,499,700 in fiscal 1999. Although sales volumes were static between fiscal
2000 and 1999 due primarily to lower refuse sales volumes, the Company continues
to see growth in its specialty product, marine and material handling product
lines. Management believes these product groups have tremendous future growth
potential. Management continues to devise strategies to expand its various niche
markets including new and enhanced product designs to meet target market
requirements. Although current market conditions show continued signs of
softening as a result of our government's inflationary tightening tactics,
management looks forward to hone its marketing strategies to optimize future
results.
Net sales increased 19.6% to $45,499,700 in fiscal 1999 compared to $38,058,900
in fiscal 1998. Approximately 81% of the increase is attributable to the product
lines acquired with the Rotocast merger with the remaining 19% attributed to
increased sales volumes pertaining the Company's pre-merger operations.
Following last year's transition through the merger and consolidation process of
several of its facilities, the Company has emerged with a heightened sense of
direction and a strong operating base. Market conditions were favorable in spite
of recent inflationary concerns. The Company noted the largest gains in its
custom molded, material handling and marine products compared to last year.
Management is also very enthused with the product lines acquired with the merger
(buoys, kayaks, lamp posts, and planters) as it continues to find avenues to
distribute and market these products. The Company also launched two new product
lines in fiscal 1999. The first is a line of residential planters and the second
was a new line of linen and laundry carts. Both lines are great additions to
RMI's family of products and continue to enhance regional sales volumes.
Cost of goods sold was $33,599,400 or 73.7% of net sales in fiscal 2000 compared
to $33,335,300 or 73.3% and $29,268,400 or 76.9% of net sales in fiscal 1999 and
1998, respectively. Management believes it continues to benefit from its cost
containment efforts which have effectively kept manufacturing, wage and various
overhead cost in line with operating results. However, these cost savings
continue to be mitigated by increasing payroll fringe and utility costs. In
addition, escalating resin prices continue to hamper the preservation of target
gross margins. Over the last six years the roto-molding industry has experienced
extreme volatility in plastic resin costs. The cost of plastic resin represents
a significant portion of the Company's manufacturing costs and has continually
challenged the Company to effectively mitigate these price increases. Over the
years the Company has been relatively successful in mitigating these resin price
increases by initiating customer price increases and various raw material
purchasing strategies. Management will continue to institute similar practices
in fiscal 2001. In the later portion of fiscal 1999 the Company experienced
significant increases in plastic resin costs. However with the positive impact
that prior plant consolidations had on reducing overall fixed overhead costs in
fiscal 1999 and a favorable product mix with the addition of the acquired
Rotocast product lines for the first complete year, the Company was able to
maintain favorable gross margin levels. In fiscal 1998, the Company realized a
noteable decline in custom product sales due to adverse market conditions. As
such, the Company was not able to maintain consistent operating results and
realized a 2.5% decrease in its gross margin during this period. Management is
optimistic about its ability to continue to mitigate existing resin price costs.
However, we would like to issue a word of caution that if market conditions
change and/or resin prices continue to rise, it could hamper the Company's goal
to maintain consistent future operating results.
Selling, general and administrative expenses were $8,016,900 or 17.6% of net
sales in fiscal 2000 compared to $8,447,200 or 18.6% of net sales in fiscal
1999. Again, the reduction is the result of management cost containment efforts
which have effectively reduced overall SG&A costs by $430,300 between the two
periods. Reductions were primarily realized in advertising and marketing costs
and significant reductions in employment wage costs. This is consistent with
management's goal to maintain SG&A levels in line with target sales volumes.
11
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Selling, general and administrative expenses were $8,447,200 or 18.6% of net
sales in fiscal 1999 compared to $7,047,000 or 18.5% of net sales in fiscal
1998. As a percentage of sales, selling, general and administrative costs remain
relatively consistent. However, total costs increased primarily due to the
additional operations acquired in connection with last year's merger. With the
consolidation of several plants since the merger, management anticipates
reducing overall selling, general, and administrative costs in the ensuing year.
In addition, management's efforts to realign and streamline its sales and
administrative functions continue to benefit the Company as it strives to keep
these costs in line with future sales projections.
The Company incurred $394,400 and $280,300 in fiscal years 1999 and 1998
respectively, in costs related to the consolidation of three of its plants. The
Company began and substantially completed the consolidation of its Arleta,
California and Warrminster, Pennsylvania. plants in the fourth quarter of fiscal
1998 and then completed the process during the first quarter of fiscal 1999.
Shortly after the completion of these consolidations, it launched the
consolidation of the Miami, Florida Rotocast operation. This consolidation was
completed during the third quarter of fiscal 1999.
These consolidations have had a definite impact on the current, as well as
future, operating results of the company. Although the Company had to incur the
initial costs associated with the consolidation process, the future benefits
obtainable are unsurpassed. The Company has improved manufacturing utilization
at its remaining sites and reduced manufacturing overhead. These are long-term
benefits the Company should realize without compromising the manufacturing,
marketing, or distribution of its products.
Income from operations was $3,985,800 or 8.7% of net sales in fiscal 2000
compared to $3,322,800 or 7.3% and $1,463,200 or 3.8% of net sales in fiscal
1999 and 1998, respectively. The 20% increase in operating income is
attributable to preservation of a favorable gross margin coupled with the
reductions in SG&A costs and savings from the one time additional plant
consolidation costs incurred last year. Management is pleased with the enhanced
operating income in relation to static sales volumes between fiscal 2000 and
1999. Improvements in fiscal 1999 operating income benefited from increased
sales volumes as well as the cost savings and efficiencies obtained from the
plant consolidations. Future operations will continue to benefit from these
consolidation and cost containment efforts.
Interest expense decreased $32,700 to $955,000 in fiscal 2000 compared to
$987,700 in fiscal 1999. The Company's cash flows during fiscal 2000 were very
strong allowing the Company to reduce its overall debt structure during the year
by approximately $1 million. Even though the bank's interest rate has increased
1.75% during fiscal 2000, the overall reduction in debt coupled with our
existing interest rate SWAP Agreement with the bank has kept interest costs in
line with prior results.
Interest expense increased $194,000 to $987,700 in fiscal 1999 compared to
$793,700 in fiscal 1998. The increase is primarily attributed to the initial
increase in the Company's debt structure of approximately $3.8 million resulting
from last year's merger. However, the additional interest costs incurred have
been partially mitigated due to subsequent repayments of debt and a drop in the
bank's prime rate during fiscal 1999.
Income taxes were $1,218,500, $1,147,500 and $348,500 in fiscal 2000, 1999 and
1998 respectively. Since the adoption of "FAS 109", a major portion of the
Company's tax provision is the deferred tax component which amounted to
$964,300, $923,400 and $323,000 in fiscal 2000, 1999 and 1998 respectively.
During the last three years these amounts primarily relate to the utilization of
the Company's federal and state net operating loss (NOL) carryforwards and thus
do not diminish current cash flow. At June 30, 2000 the Company had
approximately $1,469,000 in Federal NOL carryforwards and $409,100 in Federal
AMT credit carryforwards to offset future taxable income. Management anticipates
fully utilizing these carryforwards in fiscal 2001. Following the utilization of
these carryforwards, the Company will incur increased cashflow requirements for
the payment of current federal taxes.
Net income increased 47% to $1,953,700 in fiscal 2000 compared to $1,326,000 in
fiscal 1999. Earnings per share also increased 56% to $0.14 per common share in
fiscal 2000 compared to $0.09 per common share in fiscal 1999. Management
attributes the enhanced earnings to the current cost savings obtained from its
SG&A cost containment efforts and the one-time plant consolidation costs
realized in fiscal 1999 that did not dilute future earnings. The increase in
fiscal 2000 earnings per share also benefited from the 2,169,100 common shares
repurchased and retired in fiscal 2000.
Net income increased 218% to $1,326,000 in fiscal 1999 compared with $417,200 in
fiscal 1998. Earnings per share also increased 200% to $0.09 per common share in
fiscal 1999 compared to $0.03 per common share in fiscal 1998. Management
attributed the improvement to the increase in sales volumes, the Company's
enhanced marketing efforts and cost reductions obtained from prior plant
consolidations. Management is very pleased with these results reflecting the
first full year's operations since the Rotocast merger.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased $277,800 to $9,457,800 at June 30, 2000 compared to
$9,735,600 million at June 30, 1999. The decrease is attributed to fluctuations
in accounts receivable, inventories, accounts payable, and deferred taxes
consistent with the Company's current operations. However, cash provided by
operations increased 12.5% to $5,193,200, for fiscal 2000 compared with
$4,615,700 for the same period last year. The increase is related to the current
year's 47% increase in net income, net of adjustments in accounts receivables,
accounts payable and inventories. Earnings before interest, taxes, depreciation,
and amortization, ("EBITDA"), increased by 12% to $6,831,900 when compared to
the same period last year. EBITDA is not intended to represent cash flows for
the period, is not presented as an alternative to operating income as an
indicator of operating performance, may not be comparable to other similarly
titled measures of other companies, and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. However, EBITDA is a relevant measure
of the Company's operations and cash flow and is used internally as a substitute
measurement of cash provided by operating activities.
The Company expended a total of $1,415,100 for property, plant, and equipment
during fiscal 2000 compared to $2,141,400 for the same period last year. Over
the last several years, including fiscal 2000, management has allocated
significant resources to PP&E acquisitions and betterments. Management believes
that these efforts, which include the recently completed $200,000 building
expansion at its Bartow facility, have laid the foundation for productive and
efficient operations for years to come. Although management continues to support
allocating the necessary funding to keep its operations in the forefront of its
competition, management anticipates overall PP&E spending for fiscal 2001 to be
at or below fiscal 2000 levels.
In December 1999, the Company was advanced $2,000,000 on a five year term note
from Wells Fargo Bank. Proceeds from the note, along with an advance under the
line of credit, were used to purchase 2.1 million shares of common stock owned
by GSC. The note is due in monthly principal installments of $33,300 plus
interest at the bank prime or LIBOR option rates. The note matures on January 1,
2005.
In June 2000, the Company was advanced $1,200,000 available under its machinery
and equipment term-loan commitment. The proceeds were used to repay amounts
originally borrowed under the Company's revolving line of credit to finance $1.5
million in machinery and equipment purchases. The note is due in monthly
principal installments of $20,000 plus interest and matures on July 1, 2005.
Net borrowings under the line of credit increased $27,700 to $2,315,100 between
June 30, 1999 and June 30, 2000. The Company was able to keep fiscal 2000 net
borrowing to a minimum due to the significant cash flows generated and the
advances in term debt mentioned above which repaid short-term borrowings under
the line of credit. During fiscal 2000, the Company's total debt structure also
benefited from the cash flows generated resulting in overall reduction in debt
of approximately $1 million. At June 30, 2000, the Company had approximately
$4,684,900 available for future borrowings under the revolving line of credit.
During fiscal 2000 the Company has purchased and retired an additional 96,600
shares of common stock at a total cost of $103,000 under its buyback program. In
addition, pursuant to a Stock Purchase Agreement between the Company and GSC,
the Company acquired on January 6, 2000 all 2,072,539 shares owned by GSC for
$2,800,000. Funding for the transaction consisted of a five year $2,000,000 term
note from Wells Fargo Bank with the remaining $800,000 being funded from the
Company's line of credit.
Cash flows from operations in conjunction with the Company's revolving line of
credit are expected to meet the Company's needs for working capital, capital
expenditures and repayment of long-term debt for the foreseeable future.
In fiscal 2001, the Company will be required to adopt Statement of Financial
Accounting Standards "SFAS" No. 133 "Accounting for Derivative, Instruments and
Hedging Activities", as deferred and amended by SFAS No. 137. The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. At June 30, 2000, the estimated fair value of the Company's
interest rate SWAP with the bank was $109,400. The adoption of this
pronouncement will not have a significant impact on the Company's financial
condition or results of operations.
13
<PAGE>
On December 3, 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition, to provide
guidance on the recognition, presentation and disclosure of revenue in
financial statements. While SAB No. 101 provides framework by which to
recognize revenue in the financial statements, the Company believes that
adherence to this SAB will not have a material impact on the Company's
financial statements.
YEAR 2000
Management has been fully apprised of the issues surrounding the year 2000
dilemma. In assessing the potential impact this issue had on the Company,
management reviewed both its manufacturing and accounting systems to ascertain
critical applications, which would be affected. Due to the nature of the
Company's manufacturing process and the equipment utilized, it was determined
that even equipment which was operated by or incorporated computerized controls
or programs were not dependent on calendar functions to operate and thus would
not be impacted by the year 2000 problem.
As part of the year 2000 issue the Company also assessed compliance of its
network computing systems. To date the Company believes that all of its
operating divisions, including its corporate headquarters, were fully Y2K
compliant as of June 30, 1999. The Company has not encountered any problems
associated with the year 2000 issue since the start of the millennium. The costs
associated with becoming compliant did not have a material effect on the
Company's financial position.
To complete the Company's assessment of the year 2000 problem, the Company had
contacted its major suppliers in an effort to ascertain their readiness and
ability to function beyond this critical date and what impact, if any, it would
have on the Company's ability to continue normal operations. Based on their
responses, we feel confident that most of them were in compliance as of December
31, 1999, and to date have not impacted our ability to manufacture and supply
products to our customers.
ITEM 7a. DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company is exposed to certain market risks relating to interest rate
volatility on its existing and future issuances of variable rate debt with the
bank. Primary exposures include movements in U.S. Treasury rates and LIBOR rates
which in turn effect the bank's prime and LIBOR option rates.
The Company had approximately $10.5 million of variable rate debt as of June 30,
2000. In efforts to reduce interest rate volatility and mitigate exposure on
variable rate debt, the Company entered into an interest rate swap effective
July 15, 1998. The swap has a notional amount of $5 million as of July 15, 2000,
and will remain at this amount until its expiration on July 15, 2003. The swap
fixes the bank's LIBOR option rate at 6.2%, plus 200 basis points, over the term
of the contract. If average interest rates increased by 1% during fiscal 2001 as
compared to fiscal 2000, and additional borrowings are not incurred, the Company
would not expect a significant increase in projected fiscal 2001 interest
expense.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Financial Statement Schedules listed in Item
14(a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The Company incorporates by reference the information set forth under the
caption "Election of Directors" in the Company's Proxy Statement to be filed
with the Securities and Exchange Commission, and mailed to stockholders in
connection with the Company's Annual Meeting of the Stockholders to be held on
December 4, 2000 ("the Proxy Statement")
EXECUTIVE OFFICERS
As of September 1, 2000, the executive officers of the Company were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Sherman McKinniss 64 President, Chief Executive Officer, Chairman of the Board
Robert E. Gawlik 52 Executive Vice-President, Chief Operating Officer
E. Paul Tonkovich 62 Secretary, Director
Douglas W. Russell 39 Chief Financial Officer, Assistant Secretary/Treasurer
</TABLE>
SHERMAN MCKINNISS. Mr. McKinniss has served as President, Chief Executive
Officer and a Director of the Company since August 1991 and was appointed as
Chairman of the Board in December 1994. He was President and a Director of
Rotonics from 1987-1991. Previously, he owned and operated RMI, which he sold
to the Company in 1986 and was a partial owner of Rotational Molding,
Inc.-Florida which was merged into Rotonics in 1988.
ROBERT E. GAWLIK. Mr. Gawlik was appointed as Chief Operating Officer of
the Company in August 1998. Prior to this, he served as General Manager
for Bonar Plastic's Oregon facility from 1991-1998, and as Executive
Vice-President of Encore Industries from 1986-1989, and later as President of
Encore Group from 1989-1991.
E. PAUL TONKOVICH. Mr. Tonkovich has served as Secretary and a Director
of the Company since August 1991. He has been a practicing attorney since
January 1966. He was legal counsel to Rotonics and to Mr. McKinniss and is
now legal counsel for the Company.
DOUGLAS W. RUSSELL. Mr. Russell has served as Chief Financial Officer and
Assistant Secretary/Treasurer of the Company since 1991. Prior to that he
was a Senior Auditor for the accounting firm Hallstein & Warner from 1988
until 1991, and was Assistant Controller of RMI from September 1985 to
September 1987.
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information set forth under the
captions "Compensation of Executive Officers", the "Summary Compensation
Table" and related disclosure information, "Certain Transactions", and
"Compensation of Directors" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information set forth under the
caption "Security Ownership by Certain Beneficial Holders" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information set forth under the
headings "Information Concerning the Board of Directors" under the caption
"Election of Directors", "Executive Officers", and "Certain Transactions" in
the Proxy Statement.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
PAGE
<S> <C>
(1) Financial Statements:
Report of Independent Public Accountants F-1
Consolidated Balance Sheet, June 30, 2000 and 1999 F-2
Consolidated Statement of Income,
Years Ended June 30, 2000, 1999, and 1998 F-3
Consolidated Statement of Changes in Stockholders'
Equity, Years Ended June 30, 2000, 1999, and 1998 F-4
Consolidated Statement of Cash Flows,
Years Ended June 30, 2000, 1999, and 1998 F-5
Notes to Consolidated Financial Statements F-6
(2) Financial Statement Schedules:
VIII Valuation and Qualifying Accounts, Years Ended
June 30, 2000, 1999, and 1998 F-18
</TABLE>
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
(b) Reports on Form 8-K - None.
(c) The following exhibits are filed as part of this report:
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
10.1 Credit Agreement between registrant and Wells Fargo Bank dated
December 2, 1999.
23(a) Consent of Independent Public Accountants - Arthur Andersen LLP
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROTONICS MANUFACTURING INC.
By /s/ SHERMAN MCKINNISS
--------------------------------
Sherman McKinniss
President, Chief Executive Officer
Date 09/18/2000
By /s/ DOUGLAS W. RUSSELL
--------------------------------
Douglas W. Russell
Chief Financial Officer
Assistant Secretary/Treasurer
Date 09/18/2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ E. PAUL TONKOVICH Secretary, Director 09/18/2000
--------------------------
E. Paul Tonkovich
/s/ DAVID C. POLITE Director 09/18/2000
--------------------------
David C. Polite
/s/ LARRY M. DEDONATO Director 09/18/2000
--------------------------
Larry M. DeDonato
/s/ JAMES E. EVANS Director 09/18/2000
--------------------------
James E. Evans
/s/ LARRY L. SNYDER Director 09/18/2000
--------------------------
Larry L. Snyder
/s/ MARC L. BERMAN Director 09/18/2000
--------------------------
Marc L. Berman
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of Rotonics Manufacturing Inc.:
We have audited the accompanying consolidated balance sheets of ROTONICS
MANUFACTURING INC. (a Delaware corporation) as of June 30, 2000 and 1999, and
the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended June
30, 2000. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rotonics
Manufacturing Inc. as of June 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 2000 in conformity with accounting principles generally
accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index
appearing under Item 14(a)(2) is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Orange County, California
August 18, 2000
F-1
<PAGE>
ROTONICS MANUFACTURING INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
-------------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 20,800 $ 3,300
Accounts receivable, net of allowance for doubtful accounts
of $142,000 and $321,400, respectively (Notes 8 and 9) 6,151,500 6,570,200
Current portion of notes receivable (Note 3) 17,700 51,700
Inventories (Notes 4 , 8 and 9) 7,361,600 6,973,700
Deferred income taxes, net (Note 14) 1,092,200 1,885,900
Prepaid expenses and other current assets 222,300 216,700
----------- -----------
Total current assets 14,866,100 15,701,500
Notes receivable, less current portion (Note 3) 418,000 502,800
Investment in partnership (Note 5) 120,300 124,200
Property, plant and equipment, net (Notes 6, 8 and 9) 17,132,100 18,093,800
Intangible assets, net (Note 7) 4,470,400 4,800,800
Other assets 58,300 77,200
----------- -----------
$37,065,200 $39,300,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 9) $ 1,961,700 $ 2,067,000
Accounts payable 2,497,600 2,818,800
Accrued liabilities (Note 11) 949,000 1,037,100
Income taxes payable (Note 14) - 43,000
----------- -----------
Total current liabilities 5,408,300 5,965,900
Bank line of credit (Note 8) 2,315,100 2,287,400
Long-term debt, less current portion (Note 9) 6,254,700 5,183,200
Long-term debt, due related parties (Note 10) - 2,000,000
Deferred income taxes, net (Note 14) 2,600,100 2,429,500
----------- -----------
Total liabilities 16,578,200 17,866,000
----------- -----------
Commitments and contingencies (Note 15)
Stockholders' equity:
Common stock, stated value $.01: authorized 20,000,000 shares;
issued and outstanding 12,905,721 and 15,072,320 shares, respectively,
net of treasury shares (Note 13) 23,331,500 26,232,500
Accumulated deficit (2,844,500) (4,798,200)
----------- -----------
Total stockholders' equity 20,487,000 21,434,300
----------- -----------
$37,065,200 $39,300,300
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
ROTONICS MANUFACTURING INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended June 30,
----------------------------------------------------
2000 1999 1998
----------- ------------ ------------
<S> <C> <C> <C>
Net sales $45,602,100 $ 45,499,700 $ 38,058,900
Costs and expenses:
Cost of goods sold 33,599,400 33,335,300 29,268,400
Selling, general and administrative expenses 8,016,900 8,447,200 7,047,000
Plant consolidation expenses (Note 2) - 394,400 280,300
----------- ------------ ------------
Total costs and expenses 41,616,300 42,176,900 36,595,700
----------- ------------ ------------
Income from operations 3,985,800 3,322,800 1,463,200
----------- ------------ ------------
Other (expense)/income:
Interest expense (955,000) (987,700) (793,700)
Other income, net 141,400 138,400 96,200
----------- ------------ ------------
Total other expense (813,600) (849,300) (697,500)
----------- ------------ ------------
Income before income taxes 3,172,200 2,473,500 765,700
Income tax provision (Note 14) (1,218,500) (1,147,500) (348,500)
----------- ------------ ------------
Net income $ 1,953,700 $ 1,326,000 $ 417,200
=========== ============ ============
Basic and diluted income per common share (Note 1) $.14 $.09 $.03
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ROTONICS MANUFACTURING INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------------- Accumulated
Shares Amount Deficit Total
-------------- ---------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Balances, June 30, 1997 14,065,995 $24,422,500 $ (5,377,900) $ 19,044,600
Stock issued in connection with
Rotocast International, Inc. merger 2,072,539 3,000,000 - 3,000,000
Repurchase of common stock (332,173) (501,100) - (501,100)
Common stock dividends - - (552,800) (552,800)
Net income - - 417,200 417,200
-------------- ---------------- --------------- -----------------
Balances, June 30, 1998 15,806,361 26,921,400 (5,513,500) 21,407,900
Repurchase of common stock (734,041) (688,900) - (688,900)
Common stock dividends - - (610,700) (610,700)
Net income - - 1,326,000 1,326,000
-------------- ---------------- --------------- -----------------
Balances, June 30, 1999 15,072,320 26,232,500 (4,798,200) 21,434,300
Exercise of stock options 2,500 2,000 - 2,000
Repurchase of common stock (2,169,099) (2,903,000) - (2,903,000)
Net income - - 1,953,700 1,953,700
-------------- ---------------- --------------- -----------------
Balances, June 30, 2000 12,905,721 $ 23,331,500 $ (2,844,500) $20,487,000
============== ================ =============== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ROTONICS MANUFACTURING INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended June 30,
------------------------------------------------
2000 1999 1998
--------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,953,700 $ 1,326,000 $ 417,200
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,704,600 2,635,300 2,034,800
(Gain)/loss on sales of equipment (24,000) (1,500) 67,500
Deferred income tax expense 964,300 923,400 323,000
Provision for doubtful accounts 22,800 179,300 39,300
Changes in assets and liabilities, net of
effect from purchase of business:
Decrease/(increase) in accounts receivable 395,900 160,400 (324,900)
(Increase)/decrease in inventories (387,900) 108,200 (267,000)
(Increase)/decrease in prepaid expenses and other current assets (5,600) (8,500) 177,200
Decrease/(increase) in other assets 18,900 42,100 (72,400)
Decrease in accounts payable (318,400) (879,900) (177,100)
(Decrease)/increase in accrued liabilities (88,100) 87,900 (280,300)
(Decrease)/increase in income taxes payable (43,000) 43,000 -
--------------- --------------- --------------
Net cash provided by operating activities 5,193,200 4,615,700 1,937,300
--------------- --------------- --------------
Cash flows from investing activities:
Acquisition of Rotocast, net of cash obtained - - (74,100)
Repayments/(advances) on notes receivable 118,800 27,000 (11,600)
Capital expenditures (1,415,100) (2,141,400) (2,103,100)
Proceeds from sales of equipment 26,600 5,700 93,500
Distribution from investment in partnership 3,900 9,000 2,300
--------------- --------------- --------------
Net cash used in investing activities (1,265,800) (2,099,700) (2,093,000)
--------------- --------------- --------------
Cash flows from financing activities:
Borrowings under line of credit 14,055,200 11,670,500 11,638,800
Repayments under line of credit (14,027,500) (13,309,300) (10,086,000)
Proceeds from issuance of long-term debt 3,200,000 3,505,900 950,000
Repayments of long-term debt (4,233,800) (3,090,000) (1,285,500)
Payment of common stock dividends (2,800) (631,600) (541,900)
Proceeds from exercise of stock options 2,000 - -
Repurchases of common stock (2,903,000) (688,900) (501,100)
--------------- --------------- --------------
Net cash (used in)/provided by financing activities (3,909,900) (2,543,400) 174,300
--------------- --------------- --------------
Net increase/(decrease) in cash 17,500 (27,400) 18,600
Cash at beginning of year 3,300 30,700 12,100
--------------- --------------- --------------
Cash at end of year $ 20,800 $ 3,300 $ 30,700
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ROTONICS MANUFACTURING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND OPERATIONS
Rotonics Manufacturing Inc. (the "Company"), a Delaware corporation
manufactures and markets plastic products for commercial, agricultural,
refuse, pharmaceutical, marine, recreation, healthcare, retail, and
residential use, as well as an array of custom molded plastic products to
customers in a variety of industries located in diverse geographic markets.
No single customer accounted for more than 10% of the Company's net sales in
fiscal 2000, 1999, or 1998. In fiscal 2000, the Company purchased in
aggregate approximately 93% of its plastic resin from three vendors. Plastic
resin represents a significant portion of the Company's manufacturing costs.
As such, economic factors that affect the Company's plastic resin vendors
will have a potential impact on the Company's future operations.
The Company's significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Rotocast Plastic Products of Tennessee, Inc. All
intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenues are recognized upon shipment to the customer or when title passes to
the customer based on the terms of the sales, and are recorded net of sales
discounts, returns and allowances.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed using the straight-line method and the estimated
useful lives of the assets range from three to thirty-nine years. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
included in income for the period. The cost of maintenance and repairs is
charged to income as incurred; costs relating to significant renewals and
betterments are capitalized.
INTANGIBLE ASSETS
The excess of the aggregate purchase price over the fair value of the net
assets of businesses acquired is amortized on the straight-line basis over
periods ranging from fifteen to forty years. Patents are amortized on the
straight-line basis over their useful lives of seventeen years, or at their
remaining useful life from date of acquisition.
F-6
<PAGE>
INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes".
SFAS 109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements or
tax returns. In estimating future tax consequences, SFAS 109 generally
considers expected future events other than enactments of changes in tax laws
or rates.
SEGMENT REPORTING
Effective for fiscal year 1999, the Company adopted SFAS No. 131 "Disclosures
About Segments of an Enterprise and Related Information". SFAS No. 131
introduces management's approach to defining operating segments. This
approach corresponds to the way management organizes units and internally
evaluates performance of its operations based on products, services,
geography, legal or management structure. Once operating segments are
identified, they are then grouped based on similar characteristics to
determine reportable segments. Under the provisions of SFAS No. 131 the
Company's operations are conducted under one operating segment.
EARNINGS PER SHARE
Earnings per share are calculated under guidelines of SFAS No. 128 "Earnings
per Share" which was adopted by the Company as of December 31,1997. Basic EPS
is computed by dividing reported earnings by weighted average shares
outstanding. Diluted EPS include the effect of the potential shares
outstanding including dilutive securities using the treasury stock method.
Potential dilutive securities for the Company include outstanding stock
options.
The table below details the components of the basic and diluted earnings per
share ("EPS") calculations:
<TABLE>
<CAPTION>
Income Shares EPS Amount
----------------- ----------------- ----------------
<S> <C> <C> <C>
JUNE 30, 2000
Basic EPS
Net Income $ 1,953,700 13,981,814 $ 0.14
Effect of dilutive stock options - 57,969 -
----------------- ----------------- ----------------
Diluted EPS $ 1,953,700 14,039,783 $ 0.14
================= ================= ================
JUNE 30, 1999
Basic EPS
Net Income $ 1,326,000 15,379,400 $ 0.09
Effect of dilutive stock options - 4,700 -
----------------- ----------------- ----------------
Diluted EPS $ 1,326,000 15,384,100 $ 0.09
================= ================= ================
JUNE 30, 1998
Basic EPS
Net Income $ 417,200 14,445,200 $ 0.03
Effect of dilutive stock options - - -
----------------- ----------------- ----------------
Diluted EPS $ 417,200 14,445,200 $ 0.03
================= ================= ================
</TABLE>
F-7
<PAGE>
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In fiscal 2001, the Company will be required to adopt Statement of Financial
Accounting Standards ("SFAS") No. 133 "Accounting for Derivatives,
Instruments and Hedging Activities", as deferred and amended by SFAS No. 137.
The Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an
asset or liability measured at its fair value. The Statement requires changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. At June 30, 2000, the estimated
fair value of the Company's interest rate SWAP with the bank was $109,400.
The adoption of this pronouncement will not have a significant impact on the
Company's financial condition or results of operations.
On December 3, 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition, to provide
guidance on the recognition, presentation and disclosure of revenue in
financial statements. While SAB No. 101 provides a framework by which to
recognize revenue in the financial statements, the Company believes that
adherence to this SAB will not have a material impact on the Company's
financial statements.
NOTE 2 - ACQUISITIONS:
Pursuant to an Agreement and Plan of Merger and Reorganization dated March
24, 1998 between the Company and GSC Industries, Inc. ("GSC"), the Company
acquired all of GSC's outstanding common stock holdings in Rotocast
International, Inc. ("Rotocast") and Rotocast's wholly owned subsidiaries
Rotocast Plastic Products, Inc.; Wonder Products, Inc.; Nutron Plastic, Inc.;
Rotocast Plastic Products of Texas, Inc.; Rotocast Plastic Products of
Nevada, Inc.; Rotocast Plastic Products of Tennessee, Inc.; and Rotocast
Management Corporation. In accordance with the merger and reorganization
Rotocast was merged into the Company and the Company issued to GSC 2,072,539
shares of its own common stock and a $2,000,000 eighteen-month promissory
note bearing interest at 5.26% per annum. The promissory note was secured by
a $2,000,000 irrevocable standby letter of credit issued by Wells Fargo Bank,
and the note was paid in full in September 1999. In January 2000, the Company
repurchased and retired the 2,072,539 common shares issued to GSC for $2.8
million. Pursuant to the merger agreement the acquisition was effective March
31, 1998.
The Company incurred approximately $80,000 of fees and expenses in
conjunction with the merger. In addition the Company obtained an appraisal on
Rotocast's machinery and equipment which resulted in the write-up of
Rotocast's machinery and equipment to $7.2 million and the recognition of
goodwill amounting to $357,200. These amounts will be amortized over their
estimated useful life of fifteen years. The above transaction was accounted
for using the purchase accounting method and the results of the transaction
were included in the Company's financial statements effective as of March 31,
1998.
As part of the reorganization of Rotonics and Rotocast, the Company relocated
its operations in Warminster, Pennsylvania, Arleta, California, and Miami,
Florida into its other operating facilities. The relocation of these plants
resulted in non-recurring costs of approximately $394,400 and $280,300 in
fiscal years 1999 and 1998, respectively.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma condensed statement of combined operations
for the year ending June 30, 1998 assumes the Rotocast merger occurred at the
beginning of fiscal 1998 after giving effect to certain adjustments,
including amortization of goodwill, increased interest expense on acquisition
debt, depreciation expense and related income tax effects. The pro forma
results have been prepared for comparative purposes only and do not purport
to indicate the results of operations which would actually have occurred had
the combination been in effect on the date indicated, or which may occur in
the future.
F-8
<PAGE>
<TABLE>
<CAPTION>
COMBINED
FOR THE YEAR ENDING JUNE 30,
----------------------------
1998
-------------
<S> <C>
Net sales $ 45,746,800
Total costs and expenses (45,765,700)
Loss before provision for income taxes (18,900)
Provision for income taxes -
=============
Net loss $ (18,900)
=============
Income per common share $ .00
=======
</TABLE>
NOTE 3 - NOTES RECEIVABLE:
On March 31, 1995, the Company and a customer entered into an agreement under
which the Company acquired from this customer certain assets, including molds
and trade accounts receivable, at their total estimated fair value of
$357,800, which was applied against the principal of a 1993 Promissory Note
owed by this customer to the Company. The remaining unpaid principal,
together with accrued interest and open trade receivable from this customer
as of March 31, 1995, were exchanged for a new note with a principal balance
of $455,000, bearing interest at 8% per annum and maturing on March 31, 2005.
Effective March 31, 1995, the Company sold products manufactured using these
molds directly to end users. The Company pays this former customer royalties
at the initial rate of 10% (increased to 20% beginning fiscal 2000) of the
Company's net sales of these products. Half of the royalty payments shall be
applied to reduce principal and interest until the former customer has
received a total of $300,000 in royalty payments or March 31, 1998, whichever
is earlier. Subsequently, all royalty payments shall be applied to principal
and interest until such principal and interest are paid in full, at which
time the royalty rate will be reduced to 5% through March 31, 2005. As of
June 30, 2000 and 1999, the total balance of this note amounted to $387,900
and $490,700 including accrued interest of $35,700 in fiscal 1999. The
Company intends to hold this note until maturity.
NOTE 4 - INVENTORIES:
<TABLE>
<CAPTION>
Inventories consist of: JUNE 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Raw materials $ 2,194,400 $ 2,728,000
Finished goods 5,167,200 4,245,700
------------ ------------
$ 7,361,600 $ 6,973,700
============ ============
</TABLE>
NOTE 5 - INVESTMENT IN PARTNERSHIP:
The Company owns a 33-1/3% interest in a real estate venture that was
acquired in 1998 and is accounted for using the equity method. The investment
consists principally of a note receivable which is payable in monthly
installments, including interest at 7%, to 2004, with annual principal
reductions as provided.
F-9
<PAGE>
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
Property, plant and equipment consist of: JUNE 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Land $ 1,039,500 $ 1,039,500
Buildings and building improvements 4,725,200 4,291,300
Machinery, equipment, furniture and fixtures 24,879,100 23,603,300
Construction in progress 48,500 610,600
------------ ------------
30,692,300 29,544,700
Less - accumulated depreciation (13,560,200) (11,450,900)
------------ ------------
$ 17,132,100 $18,093,800
============ ===========
</TABLE>
NOTE 7 - INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
Intangible assets consist of: JUNE 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Patents, net of accumulated amortization of $112,600 and $107,000 $ 39,600 $ 45,200
Goodwill, net of accumulated amortization
of $3,026,600 and $2,701,800 4,430,800 4,755,600
------------ ------------
$ 4,470,400 $ 4,800,800
============ ============
</TABLE>
In accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of", the carrying values of
long-lived assets are reviewed if the facts and circumstances suggest that an
item may be impaired. If this review indicates that a long-lived asset will
not be recoverable, as determined based on the future undiscounted cash flows
of the asset, the Company's carrying value of the long-lived asset is reduced
to fair value.
NOTE 8 - BANK LINE OF CREDIT:
The Company has a $7,000,000 revolving line of credit with Wells Fargo Bank,
which matures on October 1, 2001. The line 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 June 30,
2000 was 9.5% per annum. In addition, the loan agreement allows the Company
to convert the outstanding principal balance in increments of $250,000 to a
LIBOR-based loan for up to 90-day periods. At June 30, 2000, total borrowings
under the Company's line of credit were $2,315,100 of which $2,000,000 was
borrowed under the LIBOR option bearing a LIBOR interest rate of 8.64875% per
annum and maturing on July 17, 2000. Proceeds from the loan were used for
working capital purposes. At June 30, 2000, the Company had approximately
$4,684,900 available for future borrowings under the revolving line of
credit. The loan agreement contains various covenants pertaining to tangible
net worth, net income and liquidity ratios, capital expenditures, payments of
dividends, payment of subordinated debt as well as various other
restrictions. The Company was in compliance with these covenants for fiscal
2000.
F-10
<PAGE>
NOTE 9 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
Long-term debt consists of: JUNE 30,
----------------------------
2000 1999
---------- -----------
<S> <C> <C>
Note payable - Bank (A) $ - $ 733,300
Note payable - Bank (B) 91,600 191,700
Note payable - Bank (C) 186,400 288,100
Note payable - Bank (D) 400,000 600,000
Note payable - Bank (E) 800,000 1,040,000
Note payable - Bank (F) 1,850,000 2,450,000
Note payable - Bank (G) 1,846,700 1,926,700
Note payable - Bank (H) 1,833,300 -
Note payable - Bank (I) 1,200,000 -
Other 8,400 20,400
---------- -----------
8,216,400 7,250,200
Less-current portion (1,961,700) (2,067,000)
---------- -----------
$6,254,700 $ 5,183,200
========== ===========
</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 was
due in monthly principal installments of $66,700 plus interest at the
bank's prime rate. In addition, the loan agreement allows the Company to
convert all or a portion of the outstanding principal to a LIBOR-based loan
for periods up to 180 days. The note was secured by the Company's machinery
and equipment, accounts receivable and inventories and matured 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 (9.5% at June
30, 2000) or LIBOR interest rate option for periods up to six months. At
June 30, 2000, the total outstanding principal was under the LIBOR option
at 8.64875% per annum maturing July 17, 2000. The note is secured by the
Company's machinery and equipment and matures on May 15, 2001.
(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 (9.5% per annum
at June 30, 2000) or LIBOR interest rate option for periods up to six
months. At June 30, 2000, the total outstanding principal was under the
LIBOR option at 8.64875% per annum maturing July 17, 2000. 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 (9.5% per
annum at June 30, 2000) or LIBOR interest rate option for periods up to
three months. At June 30, 2000, the total outstanding principal was under
the LIBOR option at 8.64875% per annum maturing July 17, 2000. The note is
secured by the Company's machinery and equipment and matures on June 27,
2002.
(E) In 1998, the Company was advanced $1,200,000 on its fourth 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 $1,500,000 in machinery and
equipment purchases. The note is due in monthly principal installments of
$20,000 plus interest at the bank's prime rate, (9.5% per annum at June 30,
2000), or LIBOR interest rate option for periods up to three months. At
June 30, 2000, the total outstanding principal was under the LIBOR option
at 8.64875% per annum maturing July 17, 2000. The note is secured by the
Company's machinery and equipment and matures on July 15, 2003.
F-11
<PAGE>
(F) In connection with the Rotocast acquisition, the Company retired Rotocast's
existing line of credit and long-term debt with a 90-day note issued by
Wells Fargo Bank in the amount of $1,750,000. In April 1998, pursuant to an
appraisal of Rotocast's machinery and equipment, this note was replaced
with a $2,000,000 sixty-month fully amortizable note. In July 1998, the
note again was replaced with a $3,000,000 sixty-month fully amortizable
loan. The note is due in monthly principal installments of $50,000 plus
interest at the bank's prime rate (9.5% per annum at June 30, 2000) or
LIBOR interest rate option for periods up to three months. At June 30,
2000, the total outstanding principal was under the LIBOR option at
8.64875% per annum maturing July 17, 2000. The note is secured by the
Company's machinery and equipment and matures on July 1, 2003.
(G) In July 1998, a $2,000,000 real estate loan secured by the Company's
Bensenville, Illinois and Gainesville, Texas properties was issued to Wells
Fargo Bank. This note replaced the 1994 real estate loan issued in
connection with the purchase of the Bensenville, Illinois property. The
note is due in monthly principal installments of approximately $6,700 plus
interest at the bank's prime rate, (9.5% per annum at June 30, 2000), or
LIBOR interest rate option on a twenty-five year amortization with the
outstanding principal due on July 1, 2008. At June 30, 2000, the total
outstanding principal was under the LIBOR option at 8.64875% per annum
maturing July 17, 2000.
(H) In December 1999, the Company was advanced $2,000,000 on a five-year term
note with Wells Fargo Bank. Proceeds from the note were used to pay down
borrowings under the Company's line of credit. The note is due on monthly
principal installments of approximately $33,300 plus interest at the bank's
prime rate (9.5% per annum at June 30, 2000), or LIBOR interest rate option
for periods up to three months. At June 30, 2000, the total outstanding
principal was under the LIBOR option at 8.64875% per annum maturing July
17, 2000. The note is secured by the Company's machinery and equipment and
matures January 1, 2005.
(I) In June 2000, the Company was advanced $1,200,000 on its sixth 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 $1,500,000 in machinery and equipment
purchases. The note is due in monthly interest only payments at the bank's
prime rate (9.5% per annum at June 30, 2000) or LIBOR interest rate option
until August 1, 2000. At this time the note will convert to a sixty month
fully amortized loan due in monthly principal installments of $20,000 plus
interest at the bank's prime rate or LIBOR interest rate option for periods
up to three months. At June 30, 2000, the total outstanding principal was
under the LIBOR option at 8.75% per annum maturing July 17, 2000. The note
is secured by the Company's machinery and equipment and matures on July 1,
2005.
Effective July 15, 1998, the Company initiated an interest rate swap
agreement with the bank. The agreement will allow the Company to fix a
portion of its outstanding term and line of credit debt ($5 million as of
July 15, 2000) from a variable floating rate to a fixed interest rate in
efforts to protect against future increases in the bank's prime rate. The
agreement matures July 15, 2003.
Aggregate annual maturities of long-term debt are summarized as follows:
<TABLE>
<CAPTION>
Year Ending June 30,
--------------------
<S> <C>
2001 $1,961,700
2002 1,844,700
2003 1,560,000
2004 850,000
2005 553,400
Thereafter 1,446,600
----------
$8,216,400
==========
</TABLE>
NOTE 10 - RELATED PARTY TRANSACTIONS:
<TABLE>
<CAPTION>
RELATED PARTY DEBT CONSISTS OF: JUNE 30,
----------------------------
2000 1999
---------- -----------
<S> <C> <C>
Note payable - (A) $ - $ 2,000,000
========== ===========
</TABLE>
F-12
<PAGE>
(A) This note was issued to GSC Industries, Inc., which a former director of
the Company has a 54% interest, in connection with the acquisition of
Rotocast. The note bears interest at 5.26% per annum. The note was repaid
at its maturity on September 25, 1999 and the payment was funded by an
advance on the Company's line of credit which was reserved for such
purpose. The note was also secured by a $2,000,000 irrevocable standby
letter of credit, which has subsequently expired.
ADDITIONAL RELATED PARTY TRANSACTIONS:
The Company sold plastic resin and molded plastic products to a company in which
an officer/director of the Company has an interest. Sales to the Company
amounted to $157,000, $461,000 and $392,400 in fiscal years 2000, 1999 and 1998,
respectively. Amounts due on sales to this company were $89,400 at June 30,
1999, and are included in accounts receivable in the accompanying balance sheet.
No amounts were due at June 30, 2000.
In fiscal years 2000, 1999 and 1998, the Company incurred legal fees and costs
amounting to $138,600, $44,500 and $83,400, respectively, for services by E.
Paul Tonkovich Professional Corporation, of which an officer/director of the
Company is an employee.
The Company leases its facilities in Miami, Florida; Knoxville, Tennessee;
Brownwood, Texas; and Las Vegas, Nevada from GSC Industries, Inc. of which a
former director of the Company has a 54% ownership interest. The facilities are
leased on a long-term basis through March 2013 and are subject to annual CPI
adjustments. In fiscal 1999 the Company leased an additional facility in Bossier
City, Louisiana on a month-to-month basis through August 1998. In fiscal 2000,
1999, and 1998 the Company paid rent on these facilities amounting to $483,500,
$491,300 and $135,000 respectively.
NOTE 11 - ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
Accrued liabilities consist of: JUNE 30,
------------------------------
2000 1999
------------ -----------
<S> <C> <C>
Salaries, wages, commissions and related payables $ 620,000 $ 712,800
Other 329,000 324,300
------------ -----------
$ 949,000 $ 1,037,100
============ ===========
</TABLE>
NOTE 12 - STOCK OPTION PLAN:
In December 1994, at the Annual Meeting of Stockholders of the Company, the
stockholders voted by majority decision to ratify and approve a new stock option
plan as adopted by the Board of Directors in June 1994. The plan allows, at the
discretion of the Board of Directors, for the granting of options to key
employees, officers, directors, and consultants of the Company to purchase
1,000,000 shares of the Company's common stock. Under the terms and conditions
set forth in the plan, the exercise price of the stock options will be a least
85% of the fair market value of the Company's common stock on the grant date.
The plan expires June 12, 2004.
<TABLE>
<CAPTION>
STOCK OPTION ACTIVITY
OUTSTANDING EXERCISABLE WEIGHTED AVERAGE
SHARES SHARES PRICE PER SHARE
------------ ------------ ----------------
<S> <C> <C> <C>
Balance outstanding at June 30, 1997 - -
============
Granted 115,000 $0.8669
------------
Balance outstanding at June 30, 1999 115,000 100,000 $0.8750
============
Granted 40,000 $0.9375
Exercised (2,500) $0.8125
Cancelled (2,500) $0.8125
------------
Balance outstanding at June 30, 2000 150,000 145,000 $0.8901
============= ============
</TABLE>
F-13
<PAGE>
In fiscal 1998, there was no activity in the plan. In August 1999, the Company
issued stock option to a key employee to purchase 40,000 shares of common stock
at fair market value at the date of grant. At June 30, 2000, the Company had
847,500 shares available for future grants.
In August and September 2000, the Company issued stock options to certain key
employees and directors to purchase an aggregate of 175,000 shares of common
stock at fair market value at the date of grant.
The Company accounts for stock options under Accounting Principles Board Opinion
25 ("APB25"), "Accounting for Stock Issued to Employees", which is permitted
under SFAS No. 123. "Accounting for Stock Based Compensation", issued in 1995.
Had compensation cost for the plan been determined in accordance with rules set
out in SFAS 123, the Company's net income and income per common share data would
not be significantly different.
NOTE 13 - COMMON STOCK:
Treasury stock is recorded at cost. At June 30, 2000 and 1999, treasury stock
consisted of 868 and 13,491 shares of common stock at a cost of $700 and
$13,800, respectively. In fiscal 2000 and 1999, the Company acquired 2,169,099
and 734,041 shares of its common stock at a total cost of $2,903,000 and
$688,900 respectively. The fiscal 2000 amount includes 2,072,539 shares of
common stock repurchased from GSC for $2.8 million. These shares were acquired
pursuant to a Stock Purchase Agreement dated December 2, 1999 between the
Company and GSC and which was consummated on January 6, 2000. As of June 30,
2000 all treasury shares acquired have been retired. In addition, the repurchase
of these shares in fiscal year 2000 precluded the payment of an annual cash
dividend for fiscal year 2000.
NOTE 14 - INCOME TAXES:
The components of the income tax provision were:
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal $ (75,000) $ (72,900) $ (6,400)
State (179,200) (151,200) (19,100)
--------------- --------------- ---------------
(254,200) (224,100) (25,500)
--------------- --------------- ---------------
Deferred:
Federal (917,500) (939,700) (301,500)
State (46,800) 16,300 (21,500)
--------------- --------------- ---------------
(964,300) (923,400) (323,000)
--------------- --------------- ---------------
$ (1,218,500) $ (1,147,500) $(348,500)
=============== =============== ===============
</TABLE>
At June 30, 2000, the Company has net operating loss (NOL) carryforwards of
approximately $1,469,000 and $7,109,000 for federal and state income tax
purposes, respectively. The NOL carryforwards, which are available to offset
future 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 2004 and 2001 for federal and state purposes, respectively, if not
utilized. The federal and state NOL carryforwards expire as follows:
F-14
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF UNUSED OPERATING LOSS CARRYFORWARDS
----------------------------------------------- EXPIRATION DURING YEAR
FEDERAL STATE ENDED JUNE 30,
----------- ----------- ----------------------
<S> <C> <C>
$ - $ 405,000 2001
- 207,000 2002
- 452,000 2003
186,000 273,000 2004
588,000 444,000 2005
490,000 89,000 2006
- 645,000 2007
- 603,000 2008
205,000 1,054,000 2009
- 396,000 2010
- 555,000 2011
- 477,000 2012
- 395,000 2013
- 850,000 2014
- 264,000 2015
----------- -----------
$1,469,000 $7,109,000
=========== ===========
</TABLE>
At June 30, 2000, the Company had a federal alternative minimum tax (AMT) credit
of approximately $409,100 which is available to offset future federal income
taxes once the Company is no longer subject to an alternative minimum tax for
federal income tax purposes.
In conjunction with the adoption of SFAS 109 in fiscal 1994, management
determined the future taxable income of the Company would 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 SFAS 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 of fiscal 1997,
management has reduced the initial $2,662,000 valuation allowance to zero. Since
this time, the Company's deferred tax provision increased substantially in
unison with the depletion of the federal valuation allowance in fiscal 1996. As
such, the Company's will continue to report a large deferred tax provision until
such time that the Company's NOL's and corresponding deferred tax assets are
fully utilized. In connection with the Rotocast merger, the Company recorded a
deferred tax asset of $394,400, net of a valuation allowance of $192,400 as of
June 30, 1998, for the future benefit related to state NOL carryforwards. The
current state valuation allowance represents the estimated amount of NOL's which
will expire prior to their utilization. Again, realization of the future tax
benefits of the NOL carryforwards is dependent on the Company's ability to
generate taxable income within the carryforward period. Management will continue
to assess the likelihood of utilizing its federal and state NOL's by taking into
consideration historical results and current economic conditions in which the
Company operates. Management does not consider any non-routine transactions in
assessing the likelihood of realization of the recorded deferred tax asset. Any
future adjustments to the valuation allowance will be reflected as a component
of the current years tax provision. Management also notes that the deferred tax
provision does not result in current outlays of cash flows due to the
utilization of its NOL's. These cashflow savings are then available to
supplement funding of the Company's expansion projects, pay common stock
dividends, acquire treasury stock and reduce outstanding debt. Under current
projections, management anticipates it will fully utilize the remaining Federal
NOL carryforward as well as the federal AMT credit in fiscal 2001.
F-15
<PAGE>
The following reconciles the federal statutory income tax rate to the effective
rate of the provision for income taxes:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
------------------------------------------
2000 1999 1998
------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes (net of federal benefit) 3.6 3.5 1.7
Goodwill amortization 3.5 4.5 13.6
Other items, net (2.7) 4.4 (3.8)
---------- ---------- ----------
---------
Effective income tax rate 38.4% 46.4% 45.5%
========== ========== ==========
Deferred tax assets and liabilities are summarized as follows:
JUNE 30,
--------------------------
2000 1999
--------------------------
Deferred tax assets:
Federal NOL $ 499,600 $1,680,900
State NOL (net of federal benefit) 417,800 412,900
Tax credit carryforwards 409,100 263,400
Employment-related reserves 120,300 144,600
Allowance for doubtful accounts 56,100 126,200
----------- ----------
1,502,900 2,628,000
Deferred tax liabilities:
Depreciation and amortization (2,709,100) (2,928,300)
----------- ----------
Net deferred tax liability before valuation allowance (1,206,200) (300,300)
Deferred tax assets valuation allowance (301,700) (243,300)
----------- ----------
Net deferred tax liability $(1,507,900) $ (543,600)
=========== ==========
</TABLE>
NOTE 15 - COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The Company leases various office and warehouse facilities, and equipment under
long-term operating leases expiring through March 2013. Certain of the leases
provide for five-year renewal options and rental increases based on the Consumer
Price Index. Operating lease expense for fiscal 2000, 1999, and 1998 amounted to
$1,006,700, $991,100 and $896,300, respectively.
At June 30, 2000, the future minimum lease commitments, excluding insurance and
taxes, are as follows:
<TABLE>
<CAPTION>
Year Ending June 30,
--------------------
<S> <C>
2001 $ 957,000
2002 735,900
2003 651,700
2004 633,800
2005 537,100
Thereafter 3,840,500
-----------
$ 7,356,000
===========
</TABLE>
In October 1998, the Company purchased a line of planters that it markets under
the name Terrabella. The Company agreed to pay the seller a total royalty of
$175,000 for the use of the Terrabella name which is to be paid in quarterly
installments at the rate of 3% of sales generated from the planters or $1,000,
whichever is greater. The royalty is due in full by October 15, 2004.
F-16
<PAGE>
CONTINGENCIES
In the normal course of business, the Company encounters certain litigation
matters, which in the opinion of management will not have a significant adverse
effect on the financial position or the results of operations of the Company.
NOTE 16 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Supplemental disclosures of cash flows information are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------------
2000 1999 1998
------------ ----------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 952,500 $ 1,002,400 $ 749,300
============ =========== ==========
Income taxes $ 391,600 $ 103,800 $ 103,800
============ =========== ==========
Non-cash investing activity:
Acquisition of Rotocast by issuance of common stock $ - $ - $3,000,000
============ =========== ==========
Non-cash financing activities:
Acquisition of Rotocast by issuance of note payable $ - $ - $2,000,000
============ =========== ==========
Conversion of Rotocast bank debt to new note payable $ - $ - $1,750,000
============ =========== ==========
Common dividends declared but not paid $ - $ 3,300 $ 11,400
============ =========== ==========
</TABLE>
NOTE 17 - UNAUDITED QUARTERLY RESULTS:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------
SEPTEMBER DECEMBER MARCH JUNE
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year 2000:
Net sales $12,070,900 $10,262,600 $11,274,700 $11,993,900
Gross profit 3,616,600 2,885,100 2,684,900 2,816,100
Net income 700,000 401,200 328,800 523,700
Per share:
Net income $ .05 $ .02 $ . 03 $ .04
================================================================
Fiscal Year 1999:
Net sales $11,873,800 $11,295,500 $10,370,500 $11,959,900
Gross profit 3,211,400 2,594,300 2,720,900 3,637,800
Net income 362,100 81,100 210,900 671,900
Per share:
Net income $ .02 $ .01 $ .01 $ .05
================================================================
</TABLE>
F-17
<PAGE>
ROTONICS MANUFACTURING INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
------------------------------------ --------------- ------------------------------- -------------- --------------
Additions
Balance at ------------------------------- Balance at
beginning Charged to beginning
Description of period Costs & Expenses Other Deductions of period
------------------------------------ --------------- ---------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
June 30, 2000:
Allowance for
doubtful accounts $ 321,400 $ 1,500 $ - $ (180,900) (1) $ 142,000
=============== =============== ============ ============== ==============
Deferred tax asset valuation allowance $ 243,300 $ - $ 58,400 (2) $ - $ 301,700
=============== =============== ============ ============== ==============
June 30, 1999:
Allowance for
doubtful accounts $ 148,000 $ 179,300 $ - $ (5,900) (1) $ 321,400
=============== =============== ============== ==============
Deferred tax asset valuation allowance $ 192,400 $ - $ 50,900 (2) $ - $ 243,300
=============== =============== ============ ============== ==============
June 30, 1998:
Allowance for
doubtful accounts $ 90,000 $ 34,600 $ 49,800 (3) $ (26,400) (1) $ 148,000
=============== =============== ============ ============== ==============
Deferred tax asset valuation allowance $ - $ - $ 192,400 (2) $ - $ 192,400
=============== =============== ============ ============== ==============
</TABLE>
(1) Doubtful accounts written off during the year, net of recoveries.
(2) Represents valuation allowance for potential state NOL's which will
expire prior to utilization.
(3) Represents Rotocast balance at date of merger.
F-18
