<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: SEPTEMBER 30, 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.
<TABLE>
<CAPTION>
Class Outstanding at September 30, 2000
----- ---------------------------------
<S> <C>
Common Shares 12,909,087 Shares
($.01 stated value)
</TABLE>
Total Pages 15
<PAGE>
ROTONICS MANUFACTURING INC.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 2000 (Unaudited)
and June 30, 2000 (Audited) 3
Consolidated Statements of Income, Comprehensive Income and
Accumulated Deficit -
Three Months Ended September 30, 2000
and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 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 12
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROTONICS MANUFACTURING INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 21,700 $ 20,800
Accounts receivable, net of allowance for doubtful accounts
of $168,100 and $142,000, respectively (Notes 5 and 6) 5,930,500 6,151,500
Notes receivable -- 17,700
Inventories (Notes 2, 5 and 6) 7,284,000 7,361,600
Deferred income taxes, net (Note 10) 973,600 1,092,200
Prepaid expenses and other current assets 268,700 222,300
------------ ------------
Total current assets 14,478,500 14,866,100
Notes receivable, less current portion 370,400 418,000
Investment in partnership 118,700 120,300
Property, plant and equipment, net (Notes 3, 5 and 6) 16,850,400 17,132,100
Intangible assets, net (Note 4) 4,387,900 4,470,400
Other assets 85,600 58,300
------------ ------------
$ 36,291,500 $ 37,065,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 6) $ 950,500 $ 1,961,700
Accounts payable 2,444,400 2,497,600
Accrued liabilities (Note 7) 894,900 949,000
------------ ------------
Total current liabilities 4,289,800 5,408,300
Bank line of credit (Note 5) 2,100,000 2,315,100
Long-term debt, less current portion (Note 6) 6,793,400 6,254,700
Deferred income taxes, net (Note 10) 2,526,900 2,600,100
------------ ------------
Total liabilities 15,710,100 16,578,200
------------ ------------
Stockholders' equity:
Common stock, stated value $.01: authorized 20,000,000 shares;
issued and outstanding 12,908,222 and 12,905,721 shares, respectively,
net of treasury shares (Note 9) 23,333,600 23,331,500
Accumulated other comprehensive income 25,300 --
Accumulated deficit (2,777,500) (2,844,500)
------------ ------------
Total stockholders' equity 20,581,400 20,487,000
------------ ------------
$ 36,291,500 $ 37,065,200
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
ROTONICS MANUFACTURING INC.
CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 10,182,300 $ 12,070,900
------------ ------------
Costs and expenses:
Cost of goods sold 7,812,300 8,454,300
Selling, general and administrative expenses 1,993,700 2,176,000
------------ ------------
Total costs and expenses 9,806,000 10,630,300
------------ ------------
Income from operations 376,300 1,440,600
------------ ------------
Other (expense)/income:
Interest expense (214,800) (237,100)
Other (expense)/income, net (18,900) 66,900
------------ ------------
Total other expense (233,700) (170,200)
------------ ------------
Income before income taxes 142,600 1,270,400
Income tax provision (Note 10) (75,600) (570,400)
------------ ------------
Net income 67,000 700,000
------------ ------------
Other comprehensive income, before tax:
Cumulative effect of adoption of SFAS 133 109,400 --
Unrealized holding loss arising during the period (61,400) --
Less: reclassification adjustment for gains included in net income (5,900) --
------------ ------------
Total other comprehensive income, before tax 42,100 --
Income tax expense related to items of other comprehensive income (16,800) --
------------ ------------
Total other comprehensive income, net of tax 25,300 --
------------ ------------
Comprehensive Income $ 92,300 $ 700,000
============ ============
Accumulated deficit, beginning of period $ (2,844,500) $ (4,798,200)
Net income 67,000 700,000
------------ ------------
Accumulated deficit, end of period $ (2,777,500) $ (4,098,200)
============ ============
Income per common share (Note 11):
Net income:
Basic $ .01 $ .05
============ ============
Diluted $ .01 $ .05
============ ============
Weighted average number of common and common equivalent shares outstanding:
Basic 12,906,940 15,000,489
============ ============
Diluted 12,949,891 15,026,923
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
ROTONICS MANUFACTURING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 67,000 $ 700,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 672,300 669,300
Gain on sales of equipment (1,000) (26,300)
Deferred income tax provision 45,400 456,100
Provision for doubtful accounts 26,100 31,400
Changes in assets and liabilities:
Decrease in accounts receivable 194,900 183,400
Decrease/(increase) in inventories 77,600 (462,000)
Increase in prepaid expenses and other current assets (46,400) (192,400)
(Increase)/decrease in other assets (2,000) 11,600
(Decrease)/increase in accounts payable (53,200) 280,900
(Decrease)/increase in accrued liabilities (54,100) 65,000
Decrease in income taxes payable -- (34,700)
----------- -----------
Net cash provided by operating activities 926,600 1,682,300
----------- -----------
Cash flows from investing activities:
Repayments on notes receivable 65,300 13,400
Capital expenditures (308,100) (369,200)
Distribution from investment in partnership 1,600 1,500
Proceeds from sales of equipment 1,000 26,300
----------- -----------
Net cash used in investing activities (240,200) (328,000)
----------- -----------
Cash flows from financing activities:
Borrowings under line of credit 3,778,900 3,666,500
Repayments under line of credit (3,994,000) (2,382,800)
Repayment of long-term debt (472,500) (2,535,400)
Proceeds from exercise of stock options 2,100 --
Repurchases of common stock -- (102,700)
----------- -----------
Net cash used in financing activities (685,500) (1,354,400)
----------- -----------
Net increase/(decrease) in cash 900 (100)
Cash at beginning of period 20,800 3,300
----------- -----------
Cash at end of period $ 21,700 $ 3,200
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 226,400 $ 254,400
=========== ===========
Income taxes $ 80,200 $ 149,600
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated 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,
2000.
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
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended in June, 1999 by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133," and in June, 2000, by SFAS
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," (collectively SFAS 133). SFAS 133 requires that entities
recognize all derivatives as either assets or liabilities in the statement of
financial condition and measure those instruments at fair value. Under SFAS
133 an entity may designate a derivative as a hedge of exposure to either
changes in: (a) fair value of a recognized asset or liability or firm
commitment, (b) cash flows of a recognized or forecasted transaction, or (c)
foreign currencies of a net investment in foreign operations, firm
commitments, available-for-sale securities or a forecasted transaction.
Depending upon the effectiveness of the hedge and/or the transaction being
hedged, any changes in the fair value of the derivative instrument is either
recognized in earnings in the current year, deferred to future periods, or
recognized in other comprehensive income. Changes in the fair value of all
derivative instruments not recognized as hedge accounting are recognized in
current year earnings. SFAS 133 is required for all fiscal years beginning
after June 15, 2000. On July 1, 2000 the Company adopted SFAS 133. In
connection with the adoption of SFAS 133, the Company's interest rate swap
was designated as a hedge. On the initial adoption date of SFAS 133, the
Company recorded the fair value of its derivative on the balance sheet as an
asset valued at $109,400 with an offsetting entry to accumulated other
comprehensive income. The related unrealized net loss of $61,400 during the 3
months ended September 30, 2000 has been recognized in the comprehensive
income component of stockholders' equity.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998.
This statement requires that all items that meet the definition of components of
comprehensive income be reported in the financial statements for the period in
which they are recognized. Components of comprehensive income include revenues,
expenses, gains and losses that under accounting principles generally accepted
in the United States are included in comprehensive income, but excluded from net
income. The Company's reconciliation of net income, as reported, to
comprehensive income, as defined, is included in the combined statements of
income and comprehensive income.
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 - INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------ ------------
<S> <C> <C>
Raw materials $ 2,245,800 $ 2,194,400
Finished goods 5,038,200 5,167,200
------------ ------------
$ 7,284,000 $ 7,361,600
============ ============
</TABLE>
6
<PAGE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------ ------------
<S> <C> <C>
Land $ 1,039,500 $ 1,039,500
Buildings and building improvements 4,818,300 4,725,200
Machinery, equipment, furniture and fixtures 25,092,700 24,879,100
Construction in progress 50,000 48,500
------------ ------------
31,000,500 30,692,300
Less - accumulated depreciation (14,150,100) (13,560,200)
------------ ------------
$ 16,850,400 $ 17,132,100
============ ============
</TABLE>
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consist of:
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------- ------------
<S> <C> <C>
Patents, net of accumulated amortization of $113,900 and $112,600 $ 38,300 $ 39,600
Goodwill, net of accumulated amortization
of $3,107,900 and $3,026,600 4,349,600 4,430,800
------------- ------------
$ 4,387,900 $ 4,470,400
============= ============
</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 September 30, 2000 was 9.5% per
annum. The loan agreement allows the Company to convert the outstanding
principal balance in amounts no less than $250,000 to a LIBOR-based loan for
periods up to 90 days. At September 30, 2000, total borrowings under the
Company's line of credit was $2,100,000 of which the full amount was borrowed
under the LIBOR option bearing a LIBOR interest rate of 8.1225% per annum and
maturing October 16, 2000. Proceeds from the loan were used for working capital
purposes. At September 30, 2000 the Company had approximately $4,900,000
available for future borrowings under the revolving line of credit. On September
1, 2000 the bank reduced the Company's LIBOR borrowing rate from LIBOR plus 2%
to LIBOR plus 1.5%. On October 1, 2000 the bank extended the maturity date on
the line of credit to October 1, 2002 and reduced the interest rates applicable
to the line of credit to the bank's prime rate minus .25% or LIBOR interest rate
plus 1%.
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of:
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------- ------------
<S> <C> <C>
Note payable - Bank (A) 66,600 $ 91,600
Note payable - Bank (B) 161,000 186,400
Note payable - Bank (C) 350,000 400,000
Note payable - Bank (D) 740,000 800,000
Note payable - Bank (E) 1,700,000 1,850,000
Note payable - Bank (F) 1,826,700 1,846,700
Note payable - Bank (G) 1,733,300 1,833,300
Note payable - Bank (H) 1,160,000 1,200,000
Other 6,300 8,400
----------- ------------
7,743,900 8,216,400
Less current portion (950,500) (1,961,700)
----------- ------------
$6,793,400 $ 6,254,700
========== ============
</TABLE>
7
<PAGE>
(A) 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% per
annum at September 30, 2000), or LIBOR interest rate option for periods up
to six months. At September 30, 2000, the total outstanding principal was
under the LIBOR option at 8.1225% per annum maturing October 16, 2000. The
note is secured by the Company's machinery and equipment and matures on May
15, 2001.
(B) 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, (9.5% per
annum at September 30, 2000), or LIBOR interest rate option for periods up
to six months. At September 30, 2000, the total outstanding principal was
under the LIBOR option at 8.1225% per annum maturing October 16, 2000. The
note is secured by the Company's machinery and equipment and matures on May
15, 2002.
(C) 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 September 30, 2000), or LIBOR interest rate option for periods up
to three months. At September 30, 2000, the total outstanding principal was
under the LIBOR option at 8.1225% per annum maturing October 16, 2000. The
note is secured by the Company's machinery and equipment and matures on
June 27, 2002.
(D) 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
September 30, 2000), or LIBOR interest rate option for periods up to three
months. At September 30, 2000, the total outstanding principal was under
the LIBOR option at 8.1225% per annum maturing October 16, 2000. The note
is secured by the Company's machinery and equipment and matures on July 15,
2003.
(E) 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 September 30, 2000),
or LIBOR interest rate option. At September 30, 2000, the total outstanding
principal was under the LIBOR option at 8.1225% per annum maturing October
16, 2000. The note is secured by the Company's machinery and equipment and
matures July 1, 2003.
(F) 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 September 30, 2000),
or LIBOR interest rate option on a twenty-five year amortization with the
outstanding principal due on July 1, 2008. At September 30, 2000, the total
outstanding principal was under the LIBOR option at 8.1225% per annum
maturing October 16, 2000.
(G) 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 September 30, 2000), or LIBOR interest rate
option for periods up to three months. At September 30, 2000, the total
outstanding principal was under the LIBOR option at 8.1225% per annum
maturing October 16, 2000. The note is secured by the Company's machinery
and equipment and matures January 1, 2005.
(H) 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 was due in monthly interest only payments at
the bank's prime rate (9.5% per annum at September 30, 2000) or LIBOR
interest rate option until August 1, 2000. At this time the note converted
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 September 30, 2000, the total
outstanding principal was under the LIBOR option at 8.1225% per annum
maturing October 16, 2000. The note is secured by the Company's machinery
and equipment and matures on July 1, 2005.
8
<PAGE>
Effective October 1, 2000 the Company has 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 October 1, 2001 at
which time amounts borrowed will convert to a sixty-month fully
amortizable loan.
On 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 September 30,
2000) from a variable floating LIBOR rate to a fixed LIBOR rate in efforts
to protect against future increases in the bank's LIBOR rate. The agreement
matures July 15, 2003.
On September 1, 2000, the bank reduced its LIBOR interest rate option on
all of the Company's outstanding debt from LIBOR plus 2% to LIBOR plus
1.5%. Then, effective October 1, 2000, the Company renegotiated its
interest rate options in unison with the revolving line of credit renewal.
As such, the maturity date for the line of credit was extended to October
1, 2002 and the Company's interest rates will reflect reductions from their
current levels to the bank's prime rate minus .25%, LIBOR plus 1% for
borrowings under the line of credit and LIBOR plus 1.25% for all other term
debt. In addition, the Company consolidated all of its outstanding term
debt, except the real estate loan, with the bank into one new seven-year
term loan. The note will be due in monthly principal installments of
approximately $72,000 plus interest at the bank's prime rate or LIBOR
interest rate options. This restructuring of the Company's bank debt will
result in annual cash flow savings of approximately $1.1 million (principal
and interest) during the next twelve months. These amended terms have been
reflected in the September 30, 2000 balance sheet presentation of current
and long-term debt.
NOTE 7- ACCRUED LIABILITIES:
Accrued liabilities consist of:
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
--------------- -----------
<S> <C> <C>
Salaries, wages, commissions and related payables $ 625,400 $ 620,000
Other 269,500 329,000
--------------- -----------
$ 894,900 $ 949,000
=============== ===========
</TABLE>
NOTE 8 - 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 2001, the Company issued stock options to certain
key employees and directors to purchase an aggregate of 175,000 shares of the
Company's common stock. The options outstanding as of September 30, 2000 are
exercisable at prices ranging from $0.8125 - $1.1875 (fair market value at the
date of grant). The outstanding options are exercisable as follows: 292,500
shares 100% exercisable, 15,000 shares exercisable August 2001, and 15,000
shares exercisable August 2002. At September 30, 2000, the Company had 672,500
shares available for future grants.
STOCK OPTION ACTIVITY:
<TABLE>
<CAPTION>
Outstanding Weighted Average
Shares Price Per Share
----------- ----------------
<S> <C> <C>
Balance outstanding at June 30, 2000 150,000 $ 0.8901
Granted 175,000 $ 1.1393
Exercised (2,500) $ 0.8125
-----------
Balance outstanding at September 30, 2000 322,500 $ 1.0247
===========
</TABLE>
9
<PAGE>
NOTE 9 - COMMON STOCK:
Treasury stock is recorded at cost. At September 30, 2000, treasury stock
consisted of 866 shares of common stock at a cost of $700 and at June 30, 2000,
treasury stock consisted of 868 shares of common stock at a cost of $700.
The Company reinstated its buyback program in the latter part of September 2000.
The Company plans to actively pursue acquiring its common shares during Fiscal
2001 as long as the market value per share continues to be under recognized by
the stock market.
NOTE 10 - INCOME TAXES:
The components of the income tax provision were:
<TABLE>
<CAPTION>
For the three months ended
September 30,
------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Current:
Federal $ 5,000 $ 29,500
State 25,200 84,800
---------- ----------
30,200 114,300
---------- ----------
Deferred:
Federal 53,200 463,900
State (7,800) 7,800
---------- ----------
45,400 456,100
---------- ----------
$ 75,600 $ 570,400
========== ==========
</TABLE>
At September 30, 2000, the Company had 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
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:
<TABLE>
<CAPTION>
Amount of unused operating loss carryforwards
--------------------------------------------- Expiration during year
Federal State ended June 30,
----------- ----------- ----------------------
<S> <C> <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
- 396,000 2013
- 850,000 2014
- 264,000 2015
---------- -----------
$1,469,000 $7,109,000
========== ==========
</TABLE>
At September 30, 2000, the Company had a federal alternative minimum tax 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.
10
<PAGE>
NOTE 11 - 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 detail the components of the basic and diluted earning per
share ("EPS") calculations:
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 2000 September 30, 1999
------------------------------------------ ----------------------------------------
EPS EPS
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income $ 67,000 12,906,940 $ .01 $ 700,000 15,000,489 $ .05
Effect of dilutive stock options - 42,951 - - 26,434 -
----------- ---------- --------- ----------- ---------- ---------
Diluted EPS $ 67,000 12,949,891 $ .01 $ 700,000 15,026,923 $ .05
=========== ========== ========= =========== ========== =========
</TABLE>
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net sales for the three months ended September 30, 2000 decreased $1,888,600 to
$10,182,300 compared to $12,070,900 for the same period last year. The decrease
is two fold. First the prior year results included an additional week of
operations due to natural quarterly cut offs which accounted for approximately
$800,000 in sales reductions in comparison to the current period. The remaining
$1.1 million in sales reduction is attributed to a lackluster marketplace
reacting to the current uncertain economic conditions in the country. Although,
the Company is currently experiencing revenue dips in its tank, refuse, custom
and terracast product lines due to these market conditions, the Company realized
positive growth in its marine/rivers and waterways, linen and laundry and
customer tooling product lines. The latter should continue to fuel improvements
in custom sales during the ensuing months. In addition, backlogs have increased
slightly to $3,861,600 at September 30, 2000 compared to $3,683,900 at June 30,
2000.
Cost of goods sold increased 6.7% to 76.7% of net sales for the three months
ended September 30, 2000 compared to 70% for the same period last year. The
increase is primarily related to the decrease in sales volumes coupled with
increases in raw material, natural gas, labor and labor related insurance and
fringe costs. Management continues to react to mitigate the effects of current
inflationary trends related to these costs and will strive to minimize future
dilution to its gross margins.
Selling, general, and administrative expenses were $1,993,700, or 19.6% of net
sales, for the three months ended September 30, 2000 compared with $2,176,000,
or 18% of net sales, for the same period last year. Again, the comparative
percentage increase is attributed to lower sales volumes as well as inflationary
costs related to labor and labor related insurance and fringe costs. However,
management is pleased that it has maintained overall SG&A costs in correlation
with current operations.
Total interest expense decreased $22,300 to $214,800 for the three months ended
September 30, 2000 compared to $237,100 for the same period last year. The
decrease is related to a $442,000 decrease in the Company's total debt structure
in comparison to amounts outstanding as of September 30, 1999 coupled with the
Company's interest rate swap agreement which has mitigated rising interest costs
during the last twelve months. In September and October 2000, the Company
negotiated reductions in interest rates relating to its bank debt which will
have a positive effect on reducing future interest costs.
Income taxes were $75,600 for the three months ended September 30, 2000 compared
to $570,400 for the same period last year. The decrease is in correlation with
the current period operating earnings. The major portion of the Company's tax
provision is related to the deferred tax component. As the Company continues to
utilize its net operating loss carryforwards, management anticipates depleting
the remaining portion of its federal net operating losses during fiscal 2001, at
such time this will eventually result in an increase in the Company's current
federal tax liability.
Net income decreased $633,000 to 67,000, or $.01 per common share, for the three
months ended September 30, 2000 compared to $700,000, or $.05 per common share,
for the same period last year. The decrease is primarily attributed to the
reduction in sales volumes between the two periods coupled with increased raw
material and fuel costs. Even though market conditions continue to challenge
positive operating results, management remains focused to build on its strengths
to mitigate these adverse conditions and improve future operating results.
FINANCIAL CONDITION
Working capital increased to $10,188,700 at September 30, 2000 compared to
$9,457,800 at June 30, 2000. The increase is related to the reduction in the
current portion of long term debt due to the restructuring of the Company's debt
with the bank net of normal fluctuations in accounts receivable, inventories,
deferred taxes and accounts payable consistent with current operations. Cash
flows from operations also decreased by $755,700 to $926,600 for the three
months ended September 30, 2000 compared to $1,682,300 for the same period last
year. The decrease is primarily attributed to the $633,000 reduction in net
income between the two periods. Although operating results were down, the
overall cash flows generated from operations remained quite sufficient to
sustain normal cash flow requirements.
The Company expended $308,100 for property, plant, and equipment ("PP&E") during
the three months ended September 30, 2000. This is slightly below prior years
expenditures and is in synch with current years PP&E budget. The Company
currently anticipates expending $1.5 million on capital expenditures in fiscal
year 2001. The primary emphasis will be on new tooling and tooling modifications
to enhance future revenues and customer satisfaction.
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<PAGE>
Net borrowings under the line of credit decreased $215,100 to $2,100,000 between
June 30, 2000 and September 30, 2000. The decrease is attributed to the excess
cash flows generated from operations. At September 30, 2000, the Company had
$4.9 million available for future borrowings under the line of credit.
On September 1, 2000, the bank reduced its LIBOR interest rate option on all
of the Company's outstanding debt from LIBOR plus 2% to LIBOR plus 1.5%.
Then, effective October 1, 2000, the Company renegotiated its interest rate
options in unison with the revolving line of credit renewal. As such, the
maturity date for the line of credit was extended to October 1, 2002 and the
Company's interest rates will reflect reductions from their current levels to
the bank's prime rate minus .25%, LIBOR plus 1% for borrowings under the line
of credit and LIBOR plus 1.25% for all other term debt. In addition, the
Company consolidated all of its outstanding term debt, except the real estate
loan, with the bank into one new seven-year term loan. The note will be due
in monthly principal installments of approximately $72,000 plus interest at
the bank's prime or LIBOR interest rate options. This restructuring of the
Company's bank debt will result in annual cash flow savings of approximately
$1.1 million. These amended terms have been reflected in the September 30,
2000 balance sheet presentation of current and long-term debt.
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.
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended in June, 1999 by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133," and in June, 2000, by SFAS
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," (collectively SFAS 133). SFAS 133 requires that entities
recognize all derivatives as either assets or liabilities in the statement of
financial condition and measure those instruments at fair value. Under SFAS
133 an entity may designate a derivative as a hedge of exposure to either
changes in: (a) fair value of a recognized asset or liability or firm
commitment, (b) cash flows of a recognized or forecasted transaction, or (c)
foreign currencies of a net investment in foreign operations, firm
commitments, available-for-sale securities or a forecasted transaction.
Depending upon the effectiveness of the hedge and/or the transaction being
hedged, any changes in the fair value of the derivative instrument is either
recognized in earnings in the current year, deferred to future periods, or
recognized in other comprehensive income. Changes in the fair value of all
derivative instruments not recognized as hedge accounting are recognized in
current year earnings. SFAS 133 is required for all fiscal years beginning
after June 15, 2000. On July 1, 2000 the Company adopted SFAS 133. In
connection with the adoption of SFAS 133, the Company's interest rate swap
was designated as a hedge. On the initial adoption date of SFAS 133, the
Company recorded the fair value of its derivative on the balance sheet as an
asset valued at $109,400 with an offsetting entry to accumulated other
comprehensive income. The related unrealized net loss of $61,400 during the 3
months ended September 30, 2000 has been recognized in the comprehensive
income component of stockholders' equity.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998.
This statement requires that all items that meet the definition of components
of comprehensive income be reported in the financial statements for the
period in which they are recognized. Components of comprehensive income
include revenues, expenses, gains and losses that under accounting principles
generally accepted in the United States are included in comprehensive income,
but excluded from net income. The Company's reconciliation of net income, as
reported, to comprehensive income, as defined, is included in the combined
statements of income and comprehensive income.
ITEM 2a. DISCLOSURES ABOUT MARKET RISK
INTEREST RATE 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, 2000 and should be read in conjunction with this interim financial
information. Since June 30, 2000, there has been no significant change in the
Company's exposure to market risks.
13
<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.
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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: October 26, 2000 /s/ SHERMAN MCKINNISS
----------------------------------
Sherman McKinniss
President and
Chief Executive Officer
15
