<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15836
REXWORKS INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 39-1406918
- ---------------------------------- -----------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
445 West Oklahoma Avenue
Milwaukee, WI 53207
- ---------------------------------- -----------------------------------
(Address of principal executive office) (Zip Code)
P.O. Box 2037
Milwaukee, WI 53201
- ---------------------------------- -----------------------------------
(Mailing address of principal executive (Zip Code)
office)
Registrant's telephone number, including area code: 414-747-7200
------------
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 ____
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 10, 1995.
Common Stock, $0.12 par value: 1,884,332 shares
<PAGE> 2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these interim financial statements be read
in conjunction with the financial statements for the years ended December 31,
1994 and 1993 and notes thereto, included in the Company's 1994 Form 10K.
<PAGE> 3
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
September 30 December 31
ASSETS 1995 1994
- -------------------------------------------- ----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $10,000 $10,000
Accounts receivable 8,578,000 7,752,000
Inventories 11,700,000 10,046,000
Other current assets 45,000 267,000
------------- ------------
Total current assets 20,333,000 18,075,000
------------- ------------
DEFERRED INCOME TAX BENEFIT 535,000 535,000
NONCOMPETE AGREEMENT 2,260,000 2,407,000
OTHER ASSETS 717,000 1,104,000
PROPERTY, PLANT AND EQUIPMENT:
Land 36,000 36,000
Buildings and land improvements 1,282,000 1,282,000
Machinery and equipment 5,818,000 5,481,000
------------- ------------
7,136,000 6,799,000
Less accumulated depreciation (4,479,000) (4,004,000)
------------- ------------
Net property, plant and equipment 2,657,000 2,795,000
------------- ------------
TOTAL ASSETS $26,502,000 $24,916,000
------------- ------------
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
<PAGE> 4
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
September 30 December 31
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1995 1994
- ---------------------------------------- -------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $4,102,000 $2,980,000
Accounts payable - trade 4,928,000 4,599,000
Accrued expenses:
Salaries, wages and compensation
related benefits 1,095,000 980,000
Warranty claims 1,554,000 1,296,000
Product liability defense 1,713,000 1,550,000
Other 661,000 305,000
Deferred income taxes 0 207,000
Advances from customers 12,000 104,000
----------- -----------
Total current liabilities 14,065,000 12,021,000
----------- -----------
LONG TERM DEBT 4,514,000 4,753,000
----------- -----------
Total liabilities 18,579,000 16,774,000
----------- -----------
STOCKHOLDERS' INVESTMENT:
Common stock, $0.12 par value, 4,300,000
shares authorized, 1,886,668 and 1,858,021
shares issued and outstanding, respectively 226,000 223,000
Additional paid-in capital 6,995,000 6,936,000
Treasury stock (26,000) (26,000)
Retained earnings 728,000 1,009,000
----------- -----------
Total stockholders' investment 7,923,000 8,142,000
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $26,502,000 $24,916,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
<PAGE> 5
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30 September 30 September 30 September 30
1995 1994 1995 1994
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $13,397,000 $13,757,000 $40,795,000 $39,835,000
Cost of sales 10,394,000 10,817,000 32,423,000 31,424,000
------------- ------------- -------------- -------------
GROSS PROFIT 3,003,000 2,940,000 8,372,000 8,411,000
Selling, general and
administrative expenses 2,566,000 2,357,000 8,043,000 6,801,000
------------- ------------- -------------- -------------
INCOME (LOSS) FROM OPERATIONS 437,000 583,000 329,000 1,610,000
Interest expense (233,000) (181,000) (680,000) (519,000)
Other income (expense) (33,000) 52,000 (102,000) 148,000
------------- ------------- -------------- -------------
INCOME (LOSS) BEFORE PROVISION
(CREDIT) FOR INCOME TAXES 171,000 454,000 (453,000) 1,239,000
Provision (credit) for income taxes 65,000 186,000 (172,000) 509,000
------------- ------------- -------------- -------------
NET INCOME (LOSS) 106,000 268,000 (281,000) 730,000
------------- ------------- -------------- -------------
Retained earnings, beginning of period 622,000 310,000 1,009,000 (152,000)
RETAINED EARNINGS, END OF PERIOD $728,000 $578,000 $728,000 $578,000
============= ============= ============== =============
NET INCOME (LOSS) PER SHARE $0.06 $0.14 ($0.15) $0.37
============= ============= ============== =============
Weighted average number of common
shares outstanding 1,911,949 1,969,583 1,934,182 1,973,611
============= ============= ============== =============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE> 6
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30 September 30
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (281,000) $730,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,014,000 932,000
Gain on sale of equipment (2,000) (26,000)
Provision (credit) for deferred income taxes (201,000) 409,000
Changes in assets and liabilities:
Sale of accounts receivable 4,848,000 0
(Increase) in accounts receivable (5,674,000) (2,438,000)
(Increase) in inventories (1,654,000) (1,642,000)
Decrease in other current assets 222,000 143,000
Net increase in accounts payable, accrued
expenses and advances from customers 1,129,000 2,188,000
----------- -----------
Net cash provided by (used for) operating activities (599,000) 296,000
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (348,000) (518,000)
Proceeds from the sale of equipment 2,000 26,000
----------- -----------
Net cash (used for) investing activities (346,000) (492,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit agreement 883,000 403,000
Noncompete liability principal payments 0 (207,000)
Exercise of stock options 62,000 0
----------- -----------
Net cash provided by financing activities 945,000 196,000
Net increase in cash 0 0
CASH AT BEGINNING OF YEAR 10,000 10,000
----------- -----------
CASH AT END OF QUARTER $10,000 $10,000
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $733,000 $559,000
Income taxes paid 44,000 100,000
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and 1994
(1) In the opinion of management, all adjustments (consisting of only
normal recurring adjustments) which were necessary to a fair statement
of the results of the interim periods have been included in the
preceding financial statements. However, the results of operations
for the three and nine month periods ended September 30, 1995 are not
necessarily indicative of results to be expected for the year. Certain
items, including income taxes, LIFO charges and various other accruals
are included in these statements based on current estimates for the
entire year.
(2) Inventories
Substantially all inventories are stated at cost which does not exceed
market, determined on the last-in, first-out (LIFO) basis.
Inventory amounts as of September 30, 1995 and December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------- -------------
<S> <C> <C>
At lower of cost (FIFO) or market:
Raw materials $ 359,000 $ 335,000
Work -in-process & components 6,475,000 6,035,000
Finished goods 6,866,000 5,649,000
------------- -------------
13,700,000 12,019,000
Excess of FIFO over LIFO cost (2,000,000) (1,973,000)
------------- -------------
Total inventories at LIFO $11,700,000 $10,046,000
=========== ===========
</TABLE>
(3) Debt
Debt as of September 30, 1995 and December 31, 1994 is as follows:
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
----------- -----------
<S> <C> <C>
Borrowings under line-of-credit
agreement $7,228,000 $6,345,000
Liability for noncomplete payments to
be made to Norkot's sole shareholder 1,388,000 1,388,000
Less: Current portion (4,102,000) (2,980,000)
---------- ----------
Long term portion of debt $4,514,000 $4,753,000
========== ==========
</TABLE>
<PAGE> 8
(4) Legal Proceedings
Product liability claims against the Company arise from time to time in
the course of business. As explained more fully in the Company's
1994 Form 10K, Rexworks is self-insured against product liability
claims, because, in the opinion of management, the premiums the Company
would pay for insurance are cost prohibitive and not justified by the
Company's historical loss experience. The Company is currently party
to a number of legal proceedings involving product liability claims in
a number of states, some of which involve significant claims. These
proceedings are now pending before courts in various stages or are in
discovery stages. In most instances, pending claims allege the Company
produced faulty product which led to injury. The Company generally
denies liability and intends to vigorously defend these proceedings,
but considers settlements where appropriate.
There is an inherent uncertainty as to the eventual resolution of
unsettled claims. However, in the opinion of management, based in part
on advice from its outside legal counsel, any costs, losses and
settlements with respect to existing claims in excess of established
reserves will not have a material impact on the Company's operating
income.
(5) Sale of Receivables
In the second quarter of 1995, the Company entered into an agreement
with its bank to sell up to $6.0 million of receivables due in
January 1996 to the bank with full recourse at a discount rate of prime
plus 1.25%. As of September 30, 1995 the Company had sold $4,848,000
of receivables to the bank. The Company recorded charges of $113,000
and $80,000 in the second and third quarters of 1995, respectively, to
reflect the loss on sale of receivables. This loss is included in
Other Income (Expense) on the Company's Consolidated Statement of
Operations.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
The following comments are provided to assist in the understanding of the
Company's operations as set forth in the consolidated financial statements.
ANALYSIS OF FINANCIAL CONDITION
Liquidity and Capitalization
Working capital and current ratio are financial measurements that provide an
indication of the Company's ability to meet its short-term obligations. This
data at September 30, 1995 and December 31, 1994 is as follows:
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------ ------------
<S> <C> <C>
Current Assets $20,333,000 $18,075,000
Current Liabilities 14,065,000 12,021,000
Working Capital 6,268,000 6,054,000
Current Ratio 1.4 1.5
</TABLE>
Inventories were higher at September 30, 1995 compared with December 31, 1994
due to differences in product mix between the Company's production plans
compared to actual market demand in the first nine months of 1995. The
increase in inventory resulted in increased borrowings on the Company's
line-of-credit facility at September 30, 1995 compared to December 31, 1994.
At September 30, 1995 the Company had $2,772,000 of borrowings available under
its line-of-credit facility. In management's opinion, anticipated future cash
generated from operations and the existing credit facility will be sufficient
to meet the Company's short and long term needs for working capital and
required capital additions.
RESULTS OF OPERATIONS
The Third Quarter, 1995 Compared To The Third Quarter, 1994
Net sales for the third quarter of 1995 decreased $360,000 (2.6%) compared to
the third quarter of 1994. Sales of the Company's truck mounted concrete mixer
product line increased significantly compared to the third quarter of 1994 due
to continued strong market demand. Sales of the Company's Maxigrind materials
reduction product line were down significantly in the third quarter of 1995
compared to the third quarter of 1994 due to weak market demand.
<PAGE> 10
Gross profit increased $63,000 to $3,003,000 in the third quarter of 1995 from
the $2,940,000 reported in the third quarter of 1994. Gross profit as a
percentage of net sales increased to 22.4% compared to 21.4% for the third
quarter of 1994 due to productivity improvements and manufacturing overhead
expense reductions.
Selling, general and administrative expenses increased $209,000 (8.9%) to
$2,566,000 for the three months ended September 30, 1995 compared to the same
period in 1994 due primarily to additional marketing, new product introduction
and engineering expenses.
Interest expense increased $52,000 (28.7%) during the three month period ended
September 30, 1995, compared to the same period in 1994 due to higher average
borrowings and interest rate increases.
In addition, in the third quarter of 1995, the Company factored $2,637,000 of
accounts receivable payable in January 1996. The Company recorded a $80,000
loss on the factoring transaction which is included in Other Income (Expense)
in the third quarter of 1995.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1994
Net sales in the first nine months of 1995 increased $960,000 (2.4%) compared
to the first nine months of 1994 due primarily to continued strong market
demand for the Company's Trashmaster landfill compactor product line,
particularly the Company's largest model, the 3-90C as well as continued strong
market demand for the Company's truck mounted concrete mixer product line.
Sales of the Company's Maxigrind materials reduction products were lower in the
first nine months of 1995 compared to the first nine months of 1994 due to weak
market demand.
Gross profit decreased $39,000 for the nine months ended September 30, 1995
compared to the same period in 1994. Gross profit as a percentage of net sales
decreased to 20.5% for the first nine months of 1995 compared to 21.1% for the
same period in 1994. During the first nine months of 1995, a greater
percentage of the Company's sales were in the Company's lower margin products
compared to the first nine months of 1994. This change in sales mix was
partially offset by improvements in manufacturing productivity and
manufacturing overhead expense reductions.
Selling, general and administrative expenses increased $1,242,000 (18.3%) to
$8,043,000 for the nine months ended September 30, 1995 compared to the same
period in 1994 due to new product development and market introduction costs.
In addition, the Company incurred higher warranty, customer service and product
support expenses.
Interest expense increased $161,000 (31.0%) during the first nine months of
1995 compared to the same period in 1994 due to higher average borrowings and
interest rate increases.
<PAGE> 11
The results for the first nine months of 1995 also include a charge to earnings
of $193,000 for loss on factoring of receivables, which is included in Other
Income (Expense).
<PAGE> 12
PART II OTHER INFORMATION
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REXWORKS INC.
November 14, 1995 /s/ Thomas D. Lauerman
- ----------------- ------------------------------
Date Thomas D. Lauerman
Vice President
and Chief Financial Officer
November 14, 1995 /s/ Michael C. Hadjinian
- ----------------- ------------------------------
Date Michael C. Hadjinian
President, Chairman and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 8,578
<ALLOWANCES> 0
<INVENTORY> 11,700
<CURRENT-ASSETS> 20,333
<PP&E> 2,657
<DEPRECIATION> 4,479
<TOTAL-ASSETS> 26,502
<CURRENT-LIABILITIES> 14,065
<BONDS> 4,514
<COMMON> 225
0
0
<OTHER-SE> 7,697
<TOTAL-LIABILITY-AND-EQUITY> 26,502
<SALES> 13,397
<TOTAL-REVENUES> 13,397
<CGS> 10,394
<TOTAL-COSTS> 10,394
<OTHER-EXPENSES> 2,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233
<INCOME-PRETAX> 171
<INCOME-TAX> 65
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0
</TABLE>
