<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: March 31, 2000
Commission File number: 1-9429
ROTONICS MANUFACTURING INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2467474
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
17022 South Figueroa Street, Gardena, California 90248
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(310) 538-4932
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 31, 2000
----- -----------------------------
Common Shares 12,906,703 Shares
($.01 stated value)
Total Pages 18
<PAGE>
ROTONICS MANUFACTURING INC.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets -
March 31, 2000 (Unaudited)
and June 30, 1999 (Audited) 3
Consolidated Statements of Income and
Accumulated Deficit -
Three Months and Nine Months Ended March 31, 2000
and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 2000
and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROTONICS MANUFACTURING INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,200 $ 3,300
Accounts receivable, net of allowance for doubtful accounts
of $133,900 and $321,400, respectively (Notes 5 and 6) 6,446,200 6,570,200
Notes receivable 16,000 51,700
Inventories (Notes 2, 5 and 6) 8,182,700 6,973,700
Deferred income taxes, net (Note 11) 1,163,800 1,885,900
Prepaid expenses and other current assets 241,100 216,700
----------- -----------
Total current assets 16,053,000 15,701,500
Notes receivable, less current portion 458,200 502,800
Investment in partnership 120,300 124,200
Property, plant and equipment, net (Notes 3, 5 and 6) 17,540,500 18,093,800
Intangible assets, net (Note 4) 4,553,000 4,800,800
Other assets 60,100 77,200
----------- -----------
$38,785,100 $39,300,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 6) $ 1,862,500 $ 2,067,000
Accounts payable 3,028,000 2,818,800
Accrued liabilities (Note 8) 844,400 1,037,100
Income taxes payable - 43,000
----------- -----------
Total current liabilities 5,734,900 5,965,900
Bank line of credit (Note 5) 4,829,900 2,287,400
Long-term debt, less current portion (Note 6) 5,719,200 5,183,200
Long-term debt due related parties (Note 7) - 2,000,000
Deferred income taxes, net (Note 11) 2,537,800 2,429,500
----------- -----------
Total liabilities 18,821,800 17,866,000
Stockholders' equity:
Common stock, stated value $.01: authorized 20,000,000 shares;
issued and outstanding 12,905,721 and 15,072,300 shares, respectively,
net of treasury shares (Note 10) 23,331,500 26,232,500
Accumulated deficit (3,368,200) (4,798,200)
----------- -----------
Total stockholders' equity 19,963,300 21,434,300
$38,785,100 $39,300,300
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ROTONICS MANUFACTURING INC.
CONSOLIDATED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $11,274,700 $10,370,500 $33,608,200 $33,539,800
----------- ----------- ----------- -----------
Costs and expenses:
Cost of goods sold 8,589,800 7,649,600 24,421,600 24,954,600
Selling, general and
and administrative expenses 1,953,300 1,986,400 6,128,300 6,317,400
Plant consolidation expense - 224,600 - 394,400
----------- ----------- ----------- -----------
Total costs and expenses 10,543,100 9,860,600 30,549,900 31,666,400
----------- ----------- ----------- -----------
Income from operations 731,600 509,900 3,058,300 1,873,400
----------- ----------- ----------- -----------
Other (expense)/income:
Interest expense (264,000) (227,400) (712,100) (750,800)
Other income, net 29,300 25,000 122,600 95,200
----------- ----------- ----------- -----------
Total other expenses (234,700) (202,400) (589,500) (655,600)
----------- ----------- ----------- -----------
Income before income taxes 496,900 307,500 2,468,800 1,217,800
Income tax provision (Note 11) (168,100) (96,600) (1,038,800) (563,700)
----------- ----------- ----------- -----------
Net income 328,800 210,900 1,430,000 654,100
Accumulated deficit, beginning of period (3,697,000) (5,681,000) (4,798,200) (5,513,500)
Common stock dividends - - - (610,700)
----------- ----------- ----------- -----------
Accumulated deficit, end of period $(3,368,200) $(5,470,100) $(3,368,200) $(5,470,100)
=========== =========== =========== ===========
Income per common share (Note 12):
Net income:
Basic $ .03 $ .01 $ .10 $ .04
======= ======= ======= =======
Diluted $ .03 $ .01 $ .10 $ .04
======= ======= ======= =======
Weighted average number of common
and common equivalent shares outstanding:
Basic 13,020,632 15,268,501 14,337,729 15,447,415
========== ============ ============ ============
Diluted 13,070,467 15,273,554 14,387,564 15,449,669
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ROTONICS MANUFACTURING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------------------
2000 1999
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,430,000 $ 654,100
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,000,200 2,090,000
Gain on sale of equipment (23,700) (1,800)
Deferred income tax provision 830,400 475,200
Provision for doubtful accounts 9,700 34,100
Changes in assets and liabilities:
Decrease in accounts receivable 114,300 231,200
(Increase)/decrease in inventories (1,209,000) 113,000
(Increase)/decrease in prepaid expenses and other current assets (24,400) 44,000
Decrease in other assets 17,100 30,000
Increase/(decrease) in accounts payable 212,000 (610,700)
Decrease in accrued liabilities (192,700) (152,000)
Decrease in income taxes payable (43,000) -
---------- -----------
Net cash provided by operating activities 3,120,900 2,907,100
---------- -----------
Cash flows from investing activities:
Repayments on notes receivable, net 80,300 27,800
Capital expenditures (1,201,800) (1,645,300)
Distribution from investment in partnership 3,900 5,900
Proceeds from sale of equipment 26,400 2,600
---------- -----------
Net cash used in investing activities (1,091,200) (1,609,000)
---------- -----------
Cash flows from financing activities:
Borrowings under line of credit 11,932,000 9,278,500
Repayments under line of credit (9,389,500) (10,423,900)
Proceeds from issuance of long-term debt 2,000,000 3,505,900
Repayment of long-term debt (3,668,500) (2,553,300)
Payment of common stock dividends (2,800) (631,100)
Repurchases of common stock (2,903,000) (500,800)
Proceeds from issuance of common stock 2,000 -
---------- -----------
Net cash used in financing activities (2,029,800) (1,324,700)
---------- -----------
Net decrease in cash (100) (26,600)
Cash at beginning of period 3,300 30,700
---------- -----------
Cash at end of period $ 3,200 $ 4,100
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 699,000 $ 781,400
========== ===========
Income taxes $ 374,700 $ 106,600
========== ===========
Noncash financing activities:
Common dividends declared but not paid $ - $ 3,400
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ROTONICS MANUFACTURING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM REPORTING:
The interim financial information included herein is unaudited. This information
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of
operating results for the interim periods. This interim financial information
should be read in conjunction with the Rotonics Manufacturing Inc. ("the
Company") Annual Report as filed on Form 10-K for the fiscal year ended June 30,
1999.
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.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
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.
In June 1998, the Financial Standards Board issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities". 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 to be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS No. 133 is effective for fiscal year beginning after June 15, 2000.
The adoption of this pronouncement is not expected to have a significant impact
on the Company's financial statements.
NOTE 2 - INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Raw materials $ 2,427,400 $ 2,728,000
Finished goods 5,755,300 4,245,700
----------- -----------
$ 8,182,700 $ 6,973,700
=========== ===========
</TABLE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Land $ 1,039,500 $ 1,039,500
Buildings and building improvements 4,656,900 4,291,300
Machinery, equipment, furniture and fixtures 24,193,500 23,603,300
Construction in progress 589,000 610,600
----------- -----------
30,478,900 29,544,700
Less - accumulated depreciation (12,938,400) (11,450,900)
----------- -----------
$17,540,500 $18,093,800
=========== ===========
</TABLE>
6
<PAGE>
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consist of:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
---------- ----------
<S> <C> <C>
Patents, net of accumulated amortization of $111,200
and $107,000 $ 41,000 $ 45,200
Goodwill, net of accumulated amortization
of $2,945,500 and $2,701,800 4,512,000 4,755,600
---------- ----------
$4,553,000 $4,800,800
========== ==========
</TABLE>
NOTE 5 - BANK LINE OF CREDIT:
The Company has a $7,000,000 revolving line of credit with Wells Fargo Bank. The
line matures October 1, 2001 and is secured by the Company's machinery and
equipment, accounts receivable and inventories. Interest is payable monthly at
the bank's prime rate. The bank's prime rate at March 31, 2000 was 9.0% per
annum. The loan agreement allows the Company to convert the outstanding
principal balance in increments of $250,000 to a LIBOR-based loan for periods up
to 90 days. At March 31, 2000, total borrowings under the Company's line of
credit was $4,829,900 of which $4,725,000 was borrowed under the LIBOR option
bearing a LIBOR interest rate of 8.035% per annum and maturing April 17, 2000.
Proceeds from the loan were used for working capital purposes. At March 31,
2000, the Company had approximately $2,170,100 available for future borrowings
under the revolving line of credit.
On September 25,1999 the Company paid the $2,000,000 note due to GSC, Inc
("GSC"). The note payment was funded by an advance on the Company's line of
credit which was reserved for such a purpose. As such, the letter of credit
issued to secure the GSC note has subsequently expired. In December 1999 the
Company was advanced $2 million on a five year term note issued by the bank.
Proceeds from the note were used to pay down the outstanding borrowings under
the line of credit. The term debt was procured to fund the purchase of
approximately 2.1 million shares of the Company's common stock owned by GSC for
$2.8 million. The transaction was again secured by a letter of credit and the
bank had reserved $2.8 million under the line to fund the transaction. On
January 6, 2000 the shares were acquired and the letter of credit has been
cancelled.
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- ----------
<S> <C> <C>
Note payable - Bank (A) $ 133,300 $ 733,300
Note payable - Bank (B) 116,600 191,700
Note payable - Bank (C) 211,900 288,100
Note payable - Bank (D) 450,000 600,000
Note payable - Bank (E) 860,000 1,040,000
Note payable - Bank (F) 2,000,000 2,450,000
Note payable - Bank (G) 1,866,700 1,926,700
Note payable - Bank (H) 1,933,300 -
Other 9,900 20,400
----------- -----------
7,581,700 7,250,200
Less current portion (1,862,500) (2,067,000)
----------- -----------
$ 5,719,200 $ 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 is
due in monthly principal installments of $66,700 plus interest at the
bank's prime rate (9.0% per annum at March 31, 2000). 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. At March 31,
2000, the total outstanding principal balance was under the LIBOR option at
8.035% per annum maturing on April 17, 2000. The note is secured by the
Company's machinery and equipment, accounts receivable and inventories and
matures on May 16, 2000.
7
<PAGE>
(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, (9.0% per
annum at March 31, 2000), or LIBOR interest rate option for periods up to
six months. At March 31, 2000, the total outstanding principal was under
the LIBOR option at 8.035% per annum maturing April 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
purchases. The note is due in monthly principal installments of
approximately $8,500 plus interest at the bank's prime rate, (9.0% per
annum at March 31, 2000), or LIBOR interest rate option for periods up to
six months. At March 31, 2000, the total outstanding principal was under
the LIBOR option at 8.035% per annum maturing April 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, (9.0% per
annum at March 31, 2000), or LIBOR interest rate option for periods up to
three months. At March 31, 2000, the total outstanding principal was under
the LIBOR option at 8.035% per annum maturing April 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 was due in monthly interest only payments at
the bank's prime rate or LIBOR interest rate options until November 15,
1998. At this time the note converted to a sixty month fully amortizable
loan due in monthly principal installments of $20,000 plus interest at the
bank's prime rate, (9.0% per annum at March 31, 2000), or LIBOR interest
rate option for periods up to three months. At March 31, 2000, the total
outstanding principal was under the LIBOR option at 8.035% per annum
maturing April 17, 2000. The note is secured by the Company's machinery and
equipment and matures on July 15, 2003.
At March 31, 2000, the Company had available a term-loan commitment in the
amount of $1,200,000 for future machinery and equipment purchases. Advances
under the line will subject to monthly interest only payments at the bank's
prime or LIBOR interest rate options until July 1, 2000 at which time
amounts will convert to a sixty month fully amoritizable loan.
(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 was due in monthly interest only payments at the bank's
prime rate or LIBOR interest rate option for periods up to three months
until August 15, 1998. At this time the note converted to a sixty month
fully amortizable loan due in monthly principal installments of $50,000
plus interest at the bank's prime rate, (9.0% per annum at March 31, 2000),
or LIBOR interest rate option. At March 31, 2000, the total outstanding
principal was under the LIBOR option at 8.035% per annum maturing April 17,
2000. The note is secured by the Company's machinery and equipment and
matures 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, (9.0% per annum at March 31, 2000), or
LIBOR interest rate option on a twenty-five year amortization with the
outstanding principal due on July 1, 2008. At March 31, 2000, the total
outstanding principal was under the LIBOR option at 8.035% per annum
maturing April 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 (9.0% per annum at March 31, 2000), or LIBOR interest rate
option for periods up to three months. At March 31, 2000, the total
outstanding principal was under the LIBOR option at 8.125% per annum
maturing April 17, 2000. The note is secured by the Company's machinery and
equipment and matures January 1, 2005.
8
<PAGE>
Effective July 15, 1998, the Company initiated an interest rate swap
agreement with the bank. The agreement allows for the Company to fix a
portion of its outstanding term and line of credit debt ($7.5 million as of
March 31, 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.
NOTE 7 - RELATED PARTY DEBTS:
Related party debt consists of:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------------ ------------
<S> <C> <C>
Note payable - (A) $ - $ 2,000,000
Less current portion - -
------------ ------------
$ - $ 2,000,000
============ ============
</TABLE>
(A) This note was issued to GSC Industries, Inc., which a 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. September 25, 1999, and the payment was funded by and 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.
NOTE 8 - ACCRUED LIABILITIES:
Accrued liabilities consist of:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- ----------
<S> <C> <C>
Salaries, wages, commissions and related payables $ 586,900 $ 712,800
Other 257,500 324,300
----------- ----------
$ 844,400 $1,037,100
=========== ==========
</TABLE>
NOTE 9 - STOCK OPTION PLAN:
The Company has a stock option plan, which 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 maximum term for
options granted under the plan is five years. The plan expires June 12, 2004.
In the first quarter of fiscal 2000, the Company issued to a certain key
employee, pursuant to his employment agreement, options to purchase 40,000
shares of the Company's common stock. The outstanding options at March 31, 2000
are exercisable at prices ranging from $0.8125-$0.9375 (fair market value at
date of grant), and are exercisable as follows: 145,000 shares 100% exercisable,
and 5000 shares exercisable September 2000. At March 31, 2000 the Company had
847,500 shares available for future grants.
9
<PAGE>
STOCK OPTION ACTIVITY:
<TABLE>
<CAPTION>
Outstanding Weighted Average
Shares Price Per Share
----------- ----------------
<S> <C> <C>
Balance outstanding at June 30, 1999 115,000 $0.8668
Granted 40,000 $0.9375
Exercised (2,500) $0.8125
Cancelled (2,500) $0.8125
-----------
Balance outstanding at March 31, 2000 150,000 $0.8875
===========
</TABLE>
NOTE 10 - COMMON STOCK:
Treasury stock is recorded at cost. At March 31, 2000, treasury stock consisted
of 982 shares of common stock at a cost of $800 and at June 30, 1999, treasury
stock consisted of 13,491 shares of common stock at a cost of $13,800. In fiscal
2000, the Company has purchased and retired 2,169,100 shares of common stock at
a total cost of $2,903,000. This amount includes 2,072,539 shares of common
stock repurchased from GSC Industries LLC ("GSC") for $2.8 million. These shares
were acquired pursuant to a Stock Purchase Agreement dated December 2, 1999
between the Company and GSC. The transaction was consummated on January 6, 2000.
The purchase of these shares precluded the payment of an annual cash dividend
for fiscal year 2000. As of March 31, 2000, the Company has 12.9 million shares
of common stock outstanding.
NOTE 11 - INCOME TAXES:
The components of the income tax provision were:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
March 31, March 31,
-------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Current:
Federal $ 16,500 $ 11,900 $ 66,500 $ 41,600
State 1,200 (13,800) 141,900 46,900
--------- --------- ---------- --------
17,700 (1,900) 208,400 88,500
Deferred:
Federal 158,200 119,400 853,900 490,900
State (7,800) (20,900) (23,500) (15,700)
--------- --------- ---------- --------
150,400 98,500 830,400 475,200
--------- --------- ---------- --------
$ 168,100 $ 96,600 $1,038,800 $563,700
========= ========= ========== ========
</TABLE>
At March 31, 2000, the Company had net operating loss (NOL) carryforwards of
approximately $5,000,000 and $7,343,000 for federal and state income tax
purposes. The NOL carryforwards, which are available to offset taxable income of
the Company and are subject to limitations should a "change in ownership" as
defined in the Internal Revenue Code occur, will begin to expire in 2003 and
2000 for federal and state purposes, respectively, if not utilized. The federal
and state NOL carryforwards expire as follows:
10
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF UNUSED OPERATING LOSS CARRYFORWARDS
Expiration during year
Federal State ended June 30,
------- ----- ----------------------
<S> <C> <C>
$ - $ 371,000 2000
- 405,000 2001
- 207,000 2002
300,000 451,000 2003
3,400,000 273,000 2004
600,000 444,000 2005
500,000 155,000 2006
- 708,000 2007
- 603,000 2008
200,000 1,054,000 2009
- 395,000 2010
- 555,000 2011
- 477,000 2012
- 395,000 2013
- 850,000 2014
---------- ----------
$5,000,000 $7,343,300
========== ==========
</TABLE>
At March 31, 2000, the Company had a federal alternative minimum tax credit of
approximately $338,600 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.
NOTE 12 - COMPUTATION OF EARNINGS PER SHARE:
Basic and diluted earnings per share have been computed in accordance with SFAS
No. 128 "Earnings per Share", using the treasury stock method for applicable
common stock options when computing diluted earnings per share.
The tables below details the components of the basic and diluted earning per
share ("EPS") calculations:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 2000 March 31, 1999
------------------------------------- -------------------------------------
EPS EPS
Income Shares Amount Income Shares Amount
--------- ---------- ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $ 328,800 13,020,632 $ .03 $ 210,900 15,268,501 $ .01
Effect of dilutive stock options - 49,835 - - 5,053 -
--------- ---------- ------ --------- ---------- ------
Diluted EPS $ 328,800 13,070,467 $ .03 $ 210,900 15,273,554 $ .01
========= ========== ====== ========= ========== ======
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Nine months ended Nine months ended
March 31, 2000 March 31, 1999
------------------------------------- -------------------------------------
EPS EPS
Income Shares Amount Income Shares Amount
---------- ---------- ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $1,430,000 14,337,729 $ .10 $ 654,100 15,447,415 $ .04
Effect of dilutive stock options - 49,835 - - 2,254 -
---------- ---------- ------ --------- ---------- ------
Diluted EPS $1,430,000 14,387,564 $ .10 $ 654,100 15,449,669 $ .04
========== ========== ====== ========= ========== ======
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
To the extent that this 10-Q Quarterly Report discusses matters which are not
historical, including statements regarding future financial results, information
or expectation about products or markets, or otherwise makes statements about
future events, such statements are forward-looking and are subject to a number
of risks and uncertainties that could cause actual results to differ materially
from the statements made. These include, among others, fluctuations in costs of
raw materials and other expenses, costs associated with plant closures,
downturns in the markets served by the Company, the costs associated with new
product introductions, as well as other factors described under this Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and Footnote 1 to Financial Statements.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net sales for the three months ended March 31, 2000 increased 8.7% to
$11,274,700 compared to $10,370,500 for the same period last year. Market
conditions improved throughout the latter portion of the Company's third quarter
providing the catalyst for improved volumes in the Company's custom and refuse
sales categories. Management is also pleased with marketing strategies for its
various niche markets which have resulted in notable volume increase in its
marine, material handling and specialty product segments during the current
period. Management will continue to focus its attention on improving and
expanding its distribution channels and building strong product recognition
within their respective industries.
Cost of goods sold increased 2.4% to 76.2% of net sales for the three months
ended March 31, 2000 compared to 73.8% for the same period last year. Management
believes it continues to benefit from its cost containment efforts subsequent to
its prior year plant consolidations. However, these efforts have been currently
mitigated due to increases in plastic resin costs. In spite of these increased
raw material costs, the Company's gross margin still remains at an acceptable
level in relation to targeted operating results. Management will continue to
initiate various tactics to minimize current as well as future increases in raw
material prices.
Selling, general and administrative expenses were $1,953,300 or 17.3% of net
sales for the three months ended March 31, 2000 compared to $1,986,400 or 19.2%
for the same period last year. Management continues to meet its objective to
keep selling, general and administrative costs in line with current sales volume
levels. This is evident during the current quarter which reported a 8.7%
increase in sales volumes but held SG&A costs slightly below prior year levels.
The Company incurred $224,600 in costs during the three months ended March 31,
1999 in connection with the consolidation of its Miami, Florida facility. As
such, future operations will continue to benefit from the consolidation of this
plant through improved plant utilization and the elimination of excess overhead
costs.
Total interest expense increased $36,600 to $264,000 for the three months ended
March 31, 2000 compared to $227,400 for the same period last year. The increase
in interest costs during the current quarter is partially attributed to the $2.8
million in debt incurred for the repurchase of 2.1 million shares of the
Company's common stock. Even with the addition of these borrowings, the
Company's debt levels are still below total borrowings outstanding a year ago.
However, the Company has incurred several interest rate increases relating to
current market conditions totaling 1.25% compared to the same period last year.
These rate increases have generated some additional
13
<PAGE>
interest costs as noted above, but management anticipates to continue to
mitigate current and future rate hikes via its interest rate swap agreement with
the bank.
Income taxes were $168,100 for the three months ended March 31, 2000 compared to
$96,600 for the same period last year. The increase is consistent with the
increase in income before taxes compared to the same period last year. As usual,
a major portion of the Company's tax provision is the deferred tax component,
which amounted to $150,400 for the three months ended March 31, 2000. This
amount primarily relates to the utilization of the Company's Federal and State
net operating loss carryforwards and this does not diminish current cashflows.
Net income increased 56% to $328,800, or $.03 per common share, for the three
months ended March 31, 2000 compared to $210,900, or $.01 per common share, for
the same period last year. Management attributes the enhanced earning to
improved sales volumes obtained from expanding market share in targeted niche
markets and cost reductions and efficiencies obtained from prior years plant
consolidation.
RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 2000 AND 1999
Net sales for the nine months ended March 31, 2000 increased $68,400 to
$33,608,200 compared to $33,539,800 for the same period last year. Although
relatively consistent with prior year, management is pleased with its marketing
strategies that have resulted in notable growth in various niche markets. Most
notably are increased volumes for the Company's marine, material handling and
specialty product segments. These markets continue to grow as the Company
expands distribution channels and market share for its kayaks, light poles,
buoys and tool tainers as well as the marketing efforts for its new linen and
laundry and lawn and garden lines. Overall sales volumes have been hampered by
5.5% dip in refuse and custom molded products. However, these categories have
shown improvement during the last quarter and should continue to regain volume
by year end.
Cost of goods sold decreased 1.7% to 72.6 of net sales for the nine months ended
March 31, 2000, compared to 74.4% for the same period last year. The decrease is
related to the cost containment efforts and efficiencies stemming from prior
plant consolidations net of additional costs incurred relating to rising plastic
resin prices. The Company has obtained notable benefits from the plant
consolidations resulting in improved plant utilization and reductions in overall
fixed overhead. However, volatile resin prices continue to hamper the industry
and challenge management to preserve targeted gross margins. To date, management
has maintained targeted gross margins and will continue to initiate various
tactics to minimize any potential dilution to gross margins.
Selling, general and administrative expenses were $6,128,300 or 18.2% of net
sales for the nine months ended March 31, 2000, compared to $6,317,400 or 18.8%
for the same period last year. Overall SG&A costs have decreased $189,100 in
relation to consistent sales volumes between the two periods. This is consistent
with management's goal to maintain SG&A levels in line with target sales volumes
as well as savings from the elimination of excess overhead associated with last
years plant closure.
The Company incurred a total of $394,400 in costs during the prior year in
connection with the consolidation of its Miami, Florida facility. Again, future
operations will continue to benefit from the consolidation of this plant through
improved plant utilization and the elimination of excess overhead costs.
Total interest expense decreased $38,700 to $712,100 for the nine months ended
March 31, 2000 compared to $750,800 for the same period last year. The Company's
cashflows during fiscal 2000 continue to be strong and until this last quarter
have resulted in overall debt and interest cost reductions. During the last
quarter the Company's debt structure has increased by approximately $2.4 million
primarily due to the debt incurred to repurchase 2.1 million shares of the
Company's common stock. Although this has increased the Company's outstanding
debt, the total debt load is still below prior year levels. This coupled with
increases in the bank's interest rates, 1.25% over the last 12 months, will
result in increases in future interest costs. However, management does not
anticipate significant overall increases due to an existing interest rate swap
agreement with the bank which should mitigate some of these potential costs.
14
<PAGE>
Income taxes were $1,038,800 for the nine months ended March 31, 2000, compared
to $563,700 for the same period last year. The increase is consistent with a
103% increase in income before taxes as compared to the same period last year.
As usual, a major portion of the Company's tax provision is the deferred tax
component which amounted to $830,400 for the nine months ended March 31, 2000.
This amount primarily relates to the utilization of the Company's Federal and
State net operating loss carryforwards and thus does not diminish current
cashflows.
Net income increased 119% to $1,430,000 for the nine months ended March 31,
2000, compared to $654,100 for the same period last year. Management attributes
the enhanced operating results to improved gross margins during fiscal 2000
which benefited from improved efficiencies and reduced overhead following last
year's plant consolidation. In addition, a 3.0% decrease in comparative SG&A
costs and the plant consolidation cost which were isolated to fiscal 1999 have
also helped to enhance current year operating results. Hence, if market
conditions remain consistent management foresees continued improvement over
prior years results during the balance of fiscal 2000.
FINANCIAL CONDITION
Working capital increased $582,500 to $10,318,100 at March 31, 2000 compared to
$9,735,600 at June 30, 1999. In addition, cashflows from operations remain
strong at $3.1 million for the nine months ended March 31, 2000 compared to $2.9
million for the same period last year. Cashflows benefited from the 119%
increase in net income as well as the continued utilization of the Company's NOL
carryforwards.
The Company expended a total of $1,201,800 for property, plant and equipment
("PP&E") during the nine months ended March 31, 2000 compared to $1,645,300 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 2000 to stay below prior year levels.
In December 1999, the Company was advanced $2 million 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 $33,333 plus
interest at the bank prime or LIBOR option rates. The note matures on January 1,
2005.
Net borrowings under the line of credit increased $2,542,500 to $4,829,900
between June 30, 1999 and March 31, 2000. As noted above, the Company was
advanced $2 million dollars on a new term note. These funds were initially used
to pay down borrowings under the line of credit. Then on January 6, 2000, the
Company advanced $2.8 million under the line to fund the repurchase of 2.1
million shares of its common stock. At March 31, 2000 the Company had
approximately $2,170,000 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 2.1 million shares owned by GSC for
$2.8 million. Funding for the transaction consisted of a 5 year $2 million term
note from Wells Fargo Bank with the remaining $800,000 being funded from the
Company's line of credit. At March 31, 2000, the Company had 12.9 million shares
of common stock outstanding.
Cash flows from operations in conjunction with the Company's revolving line of
credit and machinery and equipment loan commitment are expected to meet the
Company's needs for working capital, capital expenditures and repayment of long
term debt for the foreseeable future.
Year 2000
Management has been fully apprised of the issues surrounding the year 2000
dilemma. In assessing the potential impact this issue has 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 which incorporated computerized
controls or programs were not dependent on calendar functions to operate and
thus would not be impacted by the year 2000 problem.
15
<PAGE>
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 to 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 the 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 the majority 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 2a. DISCLOSURES ABOUT MARKET RISK
Information regarding the Company's market risk relating to interest volatility
was disclosed in the Company's Form 10-K for the fiscal year ended June 30, 1999
and should be read in conjunction with this interim financial information. Since
June 30, 1999, there has been no significant change in the Company's exposure to
market risks.
16
<PAGE>
ROTONICS MANUFACTURING INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on behalf by the undersigned
thereunto duly authorized.
Rotonics Manufacturing Inc.
Registrant
Date: April 18, 2000 /s/ SHERMAN MCKINNISS
------------------------
Sherman McKinniss
President and
Chief Executive Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 3,200
<SECURITIES> 0
<RECEIVABLES> 6,596,100
<ALLOWANCES> 133,900
<INVENTORY> 8,182,700
<CURRENT-ASSETS> 16,053,000
<PP&E> 30,478,900
<DEPRECIATION> 12,938,400
<TOTAL-ASSETS> 38,785,100
<CURRENT-LIABILITIES> 5,734,900
<BONDS> 0
0
0
<COMMON> 23,331,500
<OTHER-SE> (3,368,200)
<TOTAL-LIABILITY-AND-EQUITY> 38,785,100
<SALES> 33,608,200
<TOTAL-REVENUES> 33,608,200
<CGS> 24,421,600
<TOTAL-COSTS> 30,549,900
<OTHER-EXPENSES> (122,600)
<LOSS-PROVISION> (600)
<INTEREST-EXPENSE> 712,100
<INCOME-PRETAX> 2,468,800
<INCOME-TAX> (1,038,800)
<INCOME-CONTINUING> 1,430,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,430,000
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
