<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: DECEMBER 31, 1999
-----------------
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 DECEMBER 31, 1999
----- --------------------------------
Common Shares 14,979,415 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 -
December 31, 1999 (Unaudited)
and June 30, 1999 (Audited) 3
Consolidated Statements of Income and
Accumulated Deficit -
Three Months and Six Months Ended December 31, 1999
and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1999
and 1998 (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>
DECEMBER 31, JUNE 30,
1999 1999
------------ ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash $ 3,200 $ 3,300
Accounts receivable, net of allowance for doubtful accounts
of $121,600 and $321,400, respectively (Notes 5 and 6) 6,042,800 6,570,200
Notes receivable 21,600 51,700
Inventories (Notes 2, 5 and 6) 7,984,200 6,973,700
Deferred income taxes, net (Note 11) 1,387,300 1,885,900
Prepaid expenses and other current assets 315,000 216,700
----------- -----------
Total current assets 15,754,100 15,701,500
Notes receivable, less current portion 495,000 502,800
Investment in Partnership 121,900 124,200
Property, plant and equipment, net (Notes 3, 5 and 6) 17,514,300 18,093,800
Intangible assets, net (Note 4) 4,635,600 4,800,800
Other assets 69,400 77,200
----------- -----------
$38,590,300 $39,300,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt (Note 6) $ 2,062,500 $ 2,067,000
Accounts payable 2,484,600 2,818,800
Accrued liabilities (Note 8) 1,052,600 1,037,100
Income taxes payable (Note 11) -- 43,000
----------- -----------
Total current liabilities 5,599,700 5,965,900
Bank line of credit (Note 5) 1,826,700 2,287,400
Long-term debt, less current portion (Note 6) 6,118,300 5,183,200
Long-term debt due related parties (Note 7) -- 2,000,000
Deferred income taxes, net (Note 11) 2,610,900 2,429,500
----------- -----------
Total liabilities 16,155,600 17,866,000
----------- -----------
Stockholders' equity:
Common stock, stated value $.01: authorized 20,000,000 shares;
issued and outstanding 14,978,360 and 15,072,300 shares, respectively,
net of treasury shares (Note 10) 26,131,700 26,232,500
Accumulated deficit (3,697,000) (4,798,200)
----------- -----------
Total stockholders' equity 22,434,700 21,434,300
----------- -----------
$38,590,300 $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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 10,262,600 $ 11,295,500 $ 22,333,500 $ 23,169,300
------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods sold 7,377,500 8,701,200 15,831,800 17,363,600
Selling, general
and administrative expenses 1,999,000 2,189,700 4,175,000 4,442,200
------------ ------------ ------------ ------------
Total costs and expenses 9,376,500 10,890,900 20,006,800 21,805,800
------------ ------------ ------------ ------------
Income from operations 886,100 404,600 2,326,700 1,363,500
------------ ------------ ------------ ------------
Other (expense)/income:
Interest expense (211,000) (262,800) (448,100) (523,400)
Other income, net 26,400 40,700 93,300 70,200
------------ ------------ ------------ ------------
Total other expenses (184,600) (222,100) (354,800) (453,200)
------------ ------------ ------------ ------------
Income before income taxes 701,500 182,500 1,971,900 910,300
Income tax provision (Note 11) (300,300) (101,400) (870,700) (467,100)
------------ ------------ ------------ ------------
Net income 401,200 81,100 1,101,200 443,200
Accumulated deficit, beginning of period (4,098,200) (5,151,400) (4,798,200) (5,513,500)
Common stock dividends -- (610,700) -- (610,700)
------------ ------------ ------------ ------------
Accumulated deficit, end of period $ (3,697,000) $ (5,681,000) $ (3,697,000) $ (5,681,000)
============ ============ ============ ============
Income per common share (Note 12):
Net income:
Basic $ .02 $ .01 $ .07 $ .03
============ ============ ============ ============
Diluted $ .02 $ .01 $ .07 $ .03
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding:
Basic 14,977,754 15,535,289 14,989,119 15,535,289
============ ============ ============ ============
Diluted 15,022,481 15,536,144 15,033,846 15,536,577
============ ============ ============ ============
</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>
SIX MONTHS ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,101,200 $ 443,200
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,333,600 1,376,700
Gain on sale of equipment (23,900) (500)
Deferred income tax provision 680,000 376,700
Provision for doubtful accounts (2,600) 7,100
Changes in assets and liabilities:
Decrease in accounts receivable 530,000 682,800
(Increase)/decrease in inventories (1,010,500) 360,100
Increase in prepaid expenses and other current assets (98,300) (38,500)
Decrease in other assets 7,800 22,400
Decrease in accounts payable (334,200) (931,600)
Increase/(decrease) in accrued liabilities 15,500 (18,200)
Decrease in income taxes payable (43,000) --
----------- -----------
Net cash provided by operating activities 2,155,600 2,280,200
----------- -----------
Cash flows from investing activities:
Repayments on notes receivable, net 37,900 25,800
Capital expenditures (590,100) (1,278,700)
Distribution from investment in partnership 2,300 4,200
Proceeds from sale of equipment 25,100 500
----------- -----------
Net cash used in investing activities (524,800) (1,248,200)
----------- -----------
Cash flows from financing activities:
Borrowings under line of credit 6,295,100 5,952,500
Repayments under line of credit (6,755,800) (8,021,900)
Proceeds from issuance of long-term debt 2,000,000 3,504,500
Repayment of long-term debt (3,069,400) (2,016,800)
Payment of common stock dividends -- (8,700)
Repurchases of common stock (102,800) (456,100)
Proceeds from issuance of common stock 2,000 --
----------- -----------
Net cash used in financing activities (1,630,900) (1,046,500)
----------- -----------
Net decrease in cash (100) (14,500)
Cash at beginning of period 3,300 30,700
----------- -----------
Cash at end of period $ 3,200 $ 16,200
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 465,500 $ 463,700
=========== ===========
Income taxes $ 115,000 $ 92,500
=========== ===========
Supplemental schedule of noncash financing activities:
Common dividends declared but not paid $ -- $ 610,700
=========== ===========
</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 years beginning after June 15,
2000. The adoption of this pronouncement is not expected to have a
significant impanct on the Company's financial statements.
NOTE 2 - INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------------ ------------
<S> <C> <C>
Raw materials $ 2,384,900 $ 2,728,000
Finished goods 5,599,300 4,245,700
------------ ------------
$ 7,984,200 $ 6,973,700
============ ============
</TABLE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------------ ------------
<S> <C> <C>
Land $ 1,039,500 $ 1,039,500
Buildings and building improvements 4,410,100 4,291,300
Machinery, equipment, furniture and fixtures 24,084,800 23,603,300
Construction in progress 598,900 610,600
------------ ------------
30,133,300 29,544,700
Less - accumulated depreciation (12,619,000) (11,450,900)
------------ ------------
$ 17,514,300 $ 18,093,800
============ ============
</TABLE>
6
<PAGE>
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------------ ------------
<S> <C> <C>
Patents, net of accumulated amortization of $109,800 and $107,000 $ 42,400 $ 45,200
Goodwill, net of accumulated amortization
of $2,864,200 and $2,701,800 4,593,200 4,755,600
------------ ------------
$ 4,635,600 $ 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 December 31, 1999
was 8.5% per annum. The loan agreement allows the Company to convert the
outstanding principal balance in increments of $250,000 to a LIBOR-based loan
for periods up to 90 days. At December 31, 1999, total borrowings under the
Company's line of credit was $1,826,700 of which $1,500,000 was borrowed
under the LIBOR option bearing a LIBOR interest rate of 8.46% per annum and
maturing January 18, 2000. Proceeds from the loan were used for working
capital purposes. At December 31, 1999, the Company had approximately $2.4
million (net of reserved balances) 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 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 future purchase of
approximately 2.1 million shares of the Company's common stock owned by GSC
for $2.8 million. The transaction is again secured by a letter of credit and
the bank has reserved $2.8 million under the line of credit to fund the
transaction. On January 6, 2000 the shares were acquired and the letter of
credit has been cancelled . Subsequent to the stock purchase, the Company had
approximately $2.5 million available under its line of credit for future
borrowings.
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------------ -----------
<S> <C> <C>
Note payable - Bank (A) $ 333,300 $ 733,300
Note payable - Bank (B) 141,600 191,700
Note payable - Bank (C) 237,300 288,100
Note payable - Bank (D) 500,000 600,000
Note payable - Bank (E) 920,000 1,040,000
Note payable - Bank (F) 2,150,000 2,450,000
Note payable - Bank (G) 1,886,700 1,926,700
Note payable - Bank (H) 2,000,000 --
Other 11,900 20,400
----------- -----------
8,180,800 7,250,200
Less current portion (2,062,500) (2,067,000)
----------- -----------
$ 6,118,300 $ 5,183,200
=========== ===========
</TABLE>
7
<PAGE>
(A) In May 1995, the Company restructured its credit agreement with Wells Fargo
Bank. The loan consists of a $4,000,000 sixty-month term loan. The note is
due in monthly principal installments of $66,700 plus interest at the
bank's prime rate (8.5% per annum at December 31, 1999). 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
December 31, 1999, the total outstanding principal balance was under the
LIBOR option at 8.46% per annum maturing on January 18, 2000. The note is
secured by the Company's machinery and equipment, accounts receivable and
inventories and matures on May 16, 2000.
(B) In fiscal 1996, the Company was advanced $500,000 on its machinery and
equipment term-loan commitment with Wells Fargo Bank. The proceeds were
used to repay amounts originally borrowed under the Company's revolving
line of credit to finance approximately $700,000 in machinery and equipment
purchases. The note is due in monthly principal installments of
approximately $8,300 plus interest at the bank's prime rate, (8.5% per
annum at December 31, 1999), or LIBOR interest rate option for periods up
to six months. At December 31, 1999, the total outstanding principal was
under the LIBOR option at 8.46% per annum maturing January 18, 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, (8.5% per
annum at December 31, 1999), or LIBOR interest rate option for periods up
to six months. At December 31, 1999, the total outstanding principal was
under the LIBOR option at 8.46% per annum maturing January 18, 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, (8.5% per
annum at December 31, 1999), or LIBOR interest rate option for periods up
to three months. At December 31, 1999, the total outstanding principal was
under the LIBOR option at 8.46% per annum maturing January 18, 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, (8.5% per annum at December 31, 1999), or LIBOR interest
rate option for periods up to three months. At December 31, 1999, the total
outstanding principal was under the LIBOR option at 8.46% per annum
maturing January 18, 2000. The note is secured by the Company's machinery
and equipment and matures on July 15, 2003.
At December 31, 1999, the Company had available a term-loan commitment in
the amount of $1,200,000 for future machinery and equipment purchases.
Advances under the line will be subject to monthly interest only payments
at the bank's prime or LIBOR interest rate options until July 1, 2000 at
which time amounts will convert to a sixty month fully amortizable 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, (8.5% per annum at December 31,
1999), or LIBOR interest rate option. At December 31, 1999, the total
outstanding principal was under the LIBOR option at 8.46% per annum
maturing January 18, 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, (8.5% per annum at December 31, 1999),
or LIBOR interest rate option on a twenty-five year amortization with the
outstanding principal due on July 1, 2008. At December 31, 1999, the total
outstanding principal was under the LIBOR option at 8.46% per annum
maturing January 18, 2000.
8
<PAGE>
(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 in monthly
principal installments of approximately $33,300 plus interest at the bank's
prime rate (8.5% per annum at December 31, 1999), or LIBOR interest rate
option for periods up to three months. At December 31, 1999, the total
outstanding principal was under the LIBOR option at 8.46% per annum
maturing January 18, 2000. The note is secured by the Company's machinery
and equipment and matures January 1, 2005.
Effective July 15, 1998, the Company initiated an interest rate swap
agreement with the bank. The agreement allows the Company to fix a portion of
its outstanding term and line of credit debt ($7.5 million as of December 31,
1999) 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>
DECEMBER 31, JUNE 30,
1999 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 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.
NOTE 8 - ACCRUED LIABILITIES:
Accrued liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
---------- ----------
<S> <C> <C>
Salaries, wages, commissions and related payables $ 825,700 $ 712,800
Other 226,900 324,300
---------- ----------
$1,052,600 $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 at 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 options outstanding at December 31,
1999 are exercisable at prices ranging from $0.8125 - $0.9375 (fair market
value at the date of grant). The outstanding options are exercisable as
follows: 145,000 shares 100% exercisable, and 7,500 shares exercisable
September 2000. At December 31, 1999, the Company had 845,000 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) $.08125
-----------
Balance outstanding at December 31, 1999 152,500 $0.8863
===========
</TABLE>
NOTE 10 - COMMON STOCK:
Treasury stock is recorded at cost. At December 31, 1999, treasury stock
consisted of 1,055 shares of common stock at a cost of $900 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 96,500 shares
of common stock at a total cost of $102,800 under its buyback program.
Pursuant to a Stock Purchase Agreement dated December 2, 1999 between the
Company and GSC Industries, LLC ("GSC"), the Company agreed to repurchase all
2,072,539 shares of common stock held by GSC for $2.8 million. The
transaction was consummated on January 6, 2000 and the shares were
immediately retired. After retirement of these shares, the Company has
approximately 12.9 million shares of common stock outstanding. The repurchase
of these shares precluded the payment of an annual cash dividend for fiscal
year 2000.
NOTE 11 - INCOME TAXES:
The components of the income tax provision were:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- ---------------------------
1999 1998 1999 1998
--------------------------- ------------ ------------
<S> <C> <C> <C> <C>
Current:
Federal $ 20,500 $ 8,700 $ 50,000 $ 29,700
State 55,900 17,600 140,700 60,700
------------ ------------ ------------ ------------
76,400 26,300 190,700 90,400
------------ ------------ ------------ ------------
Deferred:
Federal 231,800 77,800 695,700 371,500
State (7,900) (2,700) (15,700) 5,200
------------ ------------ ------------ ------------
223,900 75,100 680,000 376,700
------------ ------------ ------------ ------------
$ 300,300 $ 101,400 $ 870,700 $ 467,100
============ ============ ============ ============
</TABLE>
At December 31, 1999, the Company had net operating loss ("NOL")
carryforwards of approximately $4,900,000 and $7,346,000 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
200,000 451,000 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
- 406,000 2013
- 842,000 2014
---------- ----------
$4,900,000 $7,346,000
========== ==========
</TABLE>
At December 31, 1999, the Company had a federal alternative minimum tax
credit of approximately $263,400 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
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------- -------------------------------
EPS EPS
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ---------- ---- ---------- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $ 401,200 14,977,754 $.02 $ 81,100 15,535,289 $.01
Effect of dilutive stock options -- 44,727 -- -- 855 --
---------- ---------- ---- ---------- ---------- ----
Diluted EPS $ 401,200 15,022,481 $.02 $ 81,100 15,536,144 $.01
========== ========== ==== ========== ========== ====
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------- -------------------------------
EPS EPS
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ---------- ---- ---------- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $1,101,200 14,989,119 $.07 $ 443,200 15,535,289 $.03
Effect of dilutive stock options -- 44,727 -- -- 1,288 --
---------- ---------- ---- ---------- ---------- ----
Diluted EPS $1,101,200 15,033,846 $.07 $ 443,200 15,536,577 $.03
========== ========== ==== ========== ========== ====
</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 DECEMBER 31, 1999 AND 1998
Net sales for the three months ended December 31, 1999 decreased
approximately 9% to $10,262,600 compared to $11,295,500 for the same period
last year. The decrease is partly attributable to a dip in refuse sales. The
refuse bidding process is highly competitive and unpredictable. The other
drop in volume was noted in the custom sales category. Custom sales were very
strong last year, but recently we have realized an influx of custom molds
which should ignite custom product sales volumes in the ensuing months. With
this in mind, management is very pleased with its operations since last years
plant consolidations and is very optimistic about future growth potential in
many of its product lines.
Cost of goods sold decreased an impressive 5.1% to 71.9% of net sales for the
three months ended December 31, 1999, compared to 77% for the same period
last year. The reduction is a tribute to the Company's prior year
restructuring efforts, which have resulted in more efficient operations and
strengthened cost containment efforts in spite of volatile resin prices.
Management will continue to strive to maximize its operating efficiencies to
sustain favorable gross margin results.
Selling, general and administrative expenses were $1,999,000, or 19.5% of net
sales, for the three months ended December 31, 1999 compared with $2,189,700,
or 19.4% of net sales, for the same period last year. Overall selling,
general and administrative costs have decreased by $190,700. Management
attributes this reduction primarily to prior years Miami plant consolidation
project. These cost savings will continue to benefit future operating results
along with management's commitment to keep SG&A costs in synch with future
sales volume projections.
Total interest expense decreased $51,800 to $211,000 for the three months
ended December 31, 1999 compared to $262,800 for the same period last year.
In fiscal 1998, the Company realized an increase in its total debt structure
due to the Rotocast merger. However, since that time, the Company's cashflows
have continued to be strong and have resulted in overall debt and interest
cost reductions as noted above. However, the Company has recently increased
its debt by approximately $2.8 million for the repurchase of 2.1 million
shares of the Company's common stock. Although, we can expect some future
increases in interest costs, management believes the repurchase and
retirement of these shares will greatly enhance future shareholder value. The
Company has also realized several interest rate hikes during the last six
months and as news from the federal government proposes, we can anticipate
additional rate hikes. However, management does not foresee significant
increases in interest costs due to an existing interest rate swap agreement
with the bank which should mitigate some of these potential interest costs.
Income taxes were $300,300 for the three months ended December 31, 1999
compared to $101,400 for the same period last year. The increase is
consistent with a 284% 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 $223,900 for the three months
ended December 31, 1999. 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.
13
<PAGE>
Net income increased 395% to $401,200 for the three months ended December 31,
1999, compared to $81,100 for the same period last year. This also results in
a 440% increase in earnings per share which was actually $.027 per common
share for the current period compared to $.005 per common share for the same
period last year. Management believes this is one of the best performing
second quarters in the Company's recent history. Management attributed the
enhanced earnings to the merger and the subsequent plant consolidations which
have improved operating efficiencies, improved gross margins and minimized
unnecessary selling, general and administrative expenses.
RESULTS OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
Net sales for the six months ended December 31, 1999 decreased 3.6% to
$22,333,500 compared to $23,169,300 for the same period last year. Management
is pleased with sales volumes to date as it continues to focus on its
marketing strategies following the plant consolidations.. Since these
restructuring efforts, management has realized changes in its overall product
mix for its proprietary products. Although the major decrease is attributed
to refuse product sales, which is a highly competitive and unpredictable
market, the Company has seen notable growth in its marine, material handling
and specialty product lines. The growth in these product lines have not only
regained volume losses in the refuse lines, but they also command improved
gross margins. The Company has also realized an influx of custom mold sales
during the last quarter which should help fuel custom product sales in the
ensuing months. With this in mind, management is very optimistic about the
future growth potential in many of its product lines as they continue to
enhance and formulate existing and new distribution channels.
Cost of goods sold decreased 4% to 70.9% of net sales for the six months
ended December 31, 1999, compared to 74.9% for the same period last year. The
decrease is not only attributed to a change in product mix as noted above,
but also to the Company's prior year restructuring efforts. Again these
restructuring efforts have increased operating efficiencies and plant
utilization at its current operating sites. In addition, the Company has
benefited from reductions in overall fixed overhead costs and has
strengthened its cost containment efforts. The Company continues to see
volatility in resin prices, and will continue to effectively mitigate any
adverse changes.
Selling, general and administrative expenses were $4,175,000, or 18.7% of net
sales for the six month ended December 31, 1999, compared to $4,442,200, or
19.2% for the same period last year. Overall selling, general and
administrative costs have decreased by $267,200 between the two periods.
Management attributes the decrease to the consolidation of its Miami facility
which has helped trim overall SG&A costs to be in line with current sales
volume projections. These cost reductions will continue to enhance future
operating results.
Total interest expense decreased by $75,300 to $448,100 for the six months
ended December 31, 1999, compared to $523,400 for the same period last year.
In fiscal 1998, the Company realized an increase in its total debt structure
due to the Rotocast merger. However, since this time, the Company's cashflows
have continued to be strong and have resulted in overall debt and interest
cost reductions as noted above. However, the Company has recently increased
its debt by approximately $2.8 million for the repurchase of 2.1 million
shares of its common stock. Although we can expect some future increases in
interest costs, management believes the repurchasing and retirement of these
shares will greatly enhance future shareholder value. The Company has also
realized several interest rate hikes during the last six months and as news
from the federal government proposes we can anticipate additional rate hikes.
However, management does not foresee significant increases in interest costs
due to an existing interest rate swap agreement with the bank which should
mitigate some of these potential interest costs.
Income taxes were $870,700 for the six months ended December 31, 1999
compared to $467,100 for the same period last year. The increase is
consistent with a 117% 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 $680,000 for the
six months ended December 31, 1999. 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.
14
<PAGE>
Net income increased 148% to $1,101,200 for the six months ended December 31,
1999, compared to $443,200 for the same period last year. This also reflects
a 151% increase in earnings per share which was actually $.073 per common
share for the current period compared to $.029 per common share for the same
period last year. Management is pleased with its current period operating
results and is optimistic about the remaining portion of fiscal 2000.
Management attributes the enhanced earnings to the merger and subsequent
plant consolidations which not only has broadened its product base but has
improved operating efficiencies, gross margins and minimized unnecessary
selling, general and administrative expenses. The Company looks forward to
its prospects in the next millennium.
FINANCIAL CONDITION
Working capital increased $418,800 to $10,154,400 at December 31, 1999
compared to $9,735,600 at June 30, 1999. In addition, cashflows from
operations remained strong at $2.2 million for the current period compared to
$2.3 million for the same period last year. Cashflows benefited from the 148%
increase in net income as well as the continued utilization of the Company's
NOL carryforwards.
The Company expended $590,100 for property, plant and equipment ("PP&E")
during the six months ended December 31, 1999 compared to $1,278,700 for the
same period last year. Over the last several years, management has allocated
significant resources to PP&E acquisition and betterments. Therefore, as we
continue into fiscal 2000 management believes that these past efforts have
laid the foundation for productive and efficient operations at its
manufacturing facilities. Although management continues to support allocating
the necessary funding to keep its operation in the forefront of its
competition, including the recent project to expand its Bartow Florida
operations, the Company currently anticipates overall PP&E spending for
fiscal 2000 to be below prior years 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 Industries, LLC ("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 decreased $460,700 to $1,826,700
between June 30 1999 and December 31, 1999. 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 which resulted in the
net decrease in the line activity as indicated. 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. Following this transaction the Company's
outstanding borrowings under the line of credit was approximately $4.5
million leaving approximately $2.5 million available for future borrowings.
During fiscal 2000 the Company has purchased and retired 96,500 shares of
common stock at a total cost of $102,800 under its buyback program. In
December 1999, pursuant to a Stock Purchase Agreement between the Company and
GSC, the Company agreed to purchase all 2.1 million shares owned by GSC for
$2.8 million. Effective January 6, 2000, the shares were acquired and
immediately retired. Funding for the transaction consisted of a new $2
million term note from Wells Fargo Bank with the remaining $800,000 being
funded from the Company's line of credit. Following retirement of these
shares, the Company has approximately 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, common stock
repurchases 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 new 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 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 the majority of them were in
compliance as of December 31, 1999, and as such, 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 rate
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 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: January 21, 2000 /S/ SHERMAN MCKINNISS
---------------------------
Sherman McKinniss
President and
Chief Executive Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,200
<SECURITIES> 0
<RECEIVABLES> 6,164,400
<ALLOWANCES> 121,600
<INVENTORY> 7,984,200
<CURRENT-ASSETS> 15,754,100
<PP&E> 30,133,300
<DEPRECIATION> 12,619,000
<TOTAL-ASSETS> 38,590,300
<CURRENT-LIABILITIES> 5,599,700
<BONDS> 0
0
0
<COMMON> 26,131,700
<OTHER-SE> (3,697,000)
<TOTAL-LIABILITY-AND-EQUITY> 38,590,300
<SALES> 22,333,500
<TOTAL-REVENUES> 22,333,500
<CGS> 15,831,800
<TOTAL-COSTS> 20,006,800
<OTHER-EXPENSES> (93,300)
<LOSS-PROVISION> (2,900)
<INTEREST-EXPENSE> 448,100
<INCOME-PRETAX> 1,971,900
<INCOME-TAX> (870,700)
<INCOME-CONTINUING> 1,101,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,101,200
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
