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REXWORKS INC.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
445 West Oklahoma Avenue
Milwaukee, Wisconsin 53207
- -------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 747-7200
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of each Class On Which Registered
-----------------------------------------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock; Par Value $.12
-----------------------------------------------------------
(Title of Class)
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value on February 29, 1996 of the voting stock held by
non-affiliates of the registrant was approximately $5,896,000. On February 29,
1996, there were 1,886,668 shares of registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part and Item Number of
Document Form 10-K into which Incorporated
- ------------------ ---------------------------------
Rexworks Notice of Annual Meeting Part III, Item 10
Of Stockholders and Proxy Statement Part III, Item 11
for the 1996 Annual Meeting of Stockholders Part III, Item 12
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REXWORKS INC.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Rexworks Inc. (the "Company") designs, manufacturers and sells truck
mounted concrete mixers, compaction equipment and the Maxigrind materials
reduction product. These products accounted for approximately 98% of sales in
1995. The remainder of the Company's sales are attributable to contract
machining operations performed for others.
Truck mixers are concrete mixers mounted on chassis of various
manufacturers. Compaction equipment (used to compact landfills and soil)
includes sanitary landfill compactors and embankment compactors. The Maxigrind
product grinds and reduces the volume of a variety of materials including green
waste, asphalt, demolition debris, wood products and trash. The Company's
products are used to build and repair roads, bridges, airports, sewers,
pipelines and other infrastructure; to compact and cover sanitary landfill
sites; and to reduce the volume of grindable material.
The Company operates in the highly competitive heavy equipment industry in
which cost containment, product quality, and customer service are important
factors of long term success. See "Competition".
PRODUCTS
Construction Equipment Products accounted for 38% of the Company's revenue
in 1995, 31% in 1994 and 43% in 1993.
Waste and Recycling Products accounted for 60% of the Company's 1995
revenue, 67% in 1994 and 54% in 1993.
CONSTRUCTION EQUIPMENT PRODUCTS
Truck Mounted Mixers. REX(R) truck mixers are rotating-drum assemblies
which are mounted on trucks supplied by others. They are used to mix concrete
and agitate it after it is mixed, while conveying it to the pour-site.
The Company manufactures rear discharge truck mixers to meet varying
highway weight laws and modes of operation in the ready-mix concrete industry.
The two main types of truck mixers offered are the REX Premier, in 8 to 12
cubic yard sizes, and the REX Premier Booster in 10 to 12 cubic yard sizes.
The Premier Booster includes a "trailing" axle at the rear of the truck to
distribute the weight over a longer wheelbase. The Company also sells the REX
Mark III paving mixer line for applications that demand particularly fast
charging and discharge cycles. The market for truck mounted concrete mixers
consists principally of ready mix concrete producers and paving contractors.
By dollar volume of sales, the Company believes it is the second largest
domestic manufacturer of truck-mounted rear discharge mixers.
WASTE AND RECYCLING PRODUCTS
Landfill and Embankment Compactors. Compactors are large, heavy,
specially-designed machines equipped with dozer blades and special wheels,
which spread, crush and compact refuse or soil. Embankment compactors are used
in compacting soil to specific densities in large earthmoving projects. Both
are powered by diesel engines which the Company purchases from various
suppliers.
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REXWORKS INC.
The Company manufactures four models of REX Trashmaster(TM) landfill
compactors. The smallest, the REX 3-35 Trashmaster, weighs approximately
40,000 pounds and provides 370 pounds per linear inch of compaction (a measure
of compactive effort over the width of the wheel). The largest, the REX 3-90C
Trashmaster, weighs approximately 99,000 pounds and provides 658 pounds per
linear inch of compaction. The use of landfill compactors helps extend the life
of a landfill site by compacting more refuse into a given volume.
REX Pactors are embankment compactors which are similar in design to
Trashmasters but use an open-wheel design to compact heavy clay soils in
construction projects. Typical uses include compaction of roadways, dams,
berms, landfill liners and airport runway bases.
The market for landfill and embankment compactors is principally private
and governmental landfill site operators and earthmoving contractors. By
dollar volume of sales, the Company believes it is the second largest
manufacturer for the domestic market of landfill compactors. Strict
environmental laws and the limited availability of landfill sites are forcing
landfill operators to increase the efficiency of their facilities.
Accordingly, the Company expects these markets to remain attractive in the
future.
Material Reduction Grinders. In February 1993, Rexworks purchased the
rights to manufacture and market the Maxigrind materials reduction grinder
product from Norkot Manufacturing Company, Inc. ("Norkot"). The Company began
production at its plant in Milwaukee, Wisconsin in March 1993. The Maxigrind
is a large, specially designed materials grinder used in a variety of waste
disposal and recycling applications. It grinds and reduces the volume of a
wide range of material including green waste, asphalt, demolition debris, wood
products, shingles, gypsum and trash. The Maxigrind utilizes a hydraulic push
ram feeder to force material against the machine's cutting surface and an
exclusive concave system to effectively size grindable material. The Company
has patents and patents pending for this unique design.
The Maxigrind typically competes with tub grinder technology. The Company
believes the machine's unique design and significant feature advantages make it
a superior product over the tub grinder.
The Company manufactures two basic Maxigrind models. One model contains a
grapple mechanism that is used to load material into the machine hopper, while
the other model is fed by a loader. In addition, the Company introduced a
larger grinder in late 1995 called the Megagrind. This machine is roughly
twice the size of the Maxigrind and used in high volume grinding applications.
The Company is developing a smaller grinder to further expand the product line.
Because the grinders can process a variety of material, their markets are
wide in scope. Typical purchasers include governmental entities involved in
the recycling of green waste, construction contractors interested in reducing
the volume of construction waste, demolition contractors interested in reducing
the bulk of demolished buildings, asphalt contractors involved in the recycling
of asphalt paving into the asphalt manufacturing process, and a wide range of
contract grinders involved in a variety of applications. The Company believes
continued growth in the recycling industry will have a positive impact on
future grinder sales.
OTHER
Approximately 2% of the Company's revenue in 1995, (2% in 1994 and 3%
1993) was attributed to contract machining operations performed for others.
The markets which the Company serves are generally sensitive to changes in
the economy as a whole. Recessionary periods are characterized by lower
construction and repair activity resulting in decreased sales. Periods of
prosperity are generally characterized by increased construction and repair
activity and increased sales.
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REXWORKS INC.
DISTRIBUTION
In 1995, approximately 84% of the Company's products were sold through a
network of 76 domestic and 52 foreign distributors.
Distributors generally represent several different manufacturers of
equipment, with minimal competition among product lines. The Company sells its
products to distributors, who in turn rent or sell the equipment to end users.
The Company supports its distributors by maintaining regional sales offices in
California, Colorado, Georgia, Michigan, Maine and Texas as well as its
corporate headquarters and manufacturing facility in Milwaukee, Wisconsin.
The Company believes good relationships with its distributors are
important to its success. Several distributors have been selling REX products
for more than 60 years. No single distributor has accounted for more than 10%
of the Company's sales in any of the past three years.
SOURCES OF SUPPLY
The Company purchases a number of components, including diesel engines,
axles, bearings and transmissions, from outside suppliers. Although identical
components are not always available from competing suppliers, the Company
believes that comparable components are available from alternative suppliers,
and as a result the Company is not dependent upon any single supplier for any
of its purchased components.
PATENTS AND TRADEMARKS
The Company holds numerous United States patents and has applications for
other patents pending. The Company considers its patents to be advantageous to
its business but it is not dependent on any single patent or group of patents.
All of the Company's equipment is sold under the trademark REX(R), REXWORKS(R)
or MAXIGRIND(R).
SEASONALITY
The Company typically experiences a seasonal variation in its quarterly
sales, with the highest sales typically occurring in the second quarter and the
lowest sales generally occurring in the fourth quarter of the year.
BACKLOG
The Company's backlog of firm orders totaled $5,868,000 and $8,359,000 at
December 31, 1995 and 1994, respectively. At February 29, 1996 and February
28, 1995, backlog totaled $6,594,000 and $10,984,000, respectively.
COMPETITION
The markets for the Company's products are highly competitive. In general,
the Company competes on the basis of quality, technological expertise,
performance features, product life, availability of parts and service, and
responsiveness to customer's special needs, rather than competing solely on the
basis of low price. Accordingly, the Company's products are not the lowest
priced equipment available, instead they maintain a reputation for high
quality, durability and performance.
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REXWORKS INC.
ENGINEERING
The Company employs 17 people in its engineering department, including 16
engineers, draftsmen and technical support personnel. For 1995, 1994, and
1993, the Company incurred product development, field testing and design
modification expenditures of $996,000, $721,000, and $230,000, respectively.
EMPLOYEES
As of December 31, 1995 the Company had 245 employees, 236 of whom were
employed or based at its Milwaukee facility. 156 employees at the Milwaukee
facility are represented by the United Steelworkers of America union. No other
employee groups are unionized. Management believes labor relations are good.
There have been no work stoppages since the inception of the Company in 1982.
FOREIGN SALES
Export sales represented 17% of total sales in 1995, 11% of total sales in
1994, and 12% of total sales in 1993.
ENVIRONMENTAL MATTERS
The Company seeks to comply in all regards with applicable federal, state,
and local environmental control requirements in its operations. Compliance
costs have not had a material effect upon the Company's capital expenditures,
results of operations or competitive position and are not expected to have a
material adverse impact in the future.
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REXWORKS INC.
ITEM 2. PROPERTIES
The Company's Milwaukee, Wisconsin manufacturing facility (383,000 square
feet) is owned by the Company and is subject to the Company's financing
agreements with its principal lender. In general, the buildings are well
maintained and well adapted for the purposes for which they are utilized.
The Company manufactures all of its products and performs subcontract work
at this facility. The Company currently rents approximately 33,000 square feet
of space to a tenant. The lease between the Company and the tenant expires in
October 1998; early termination is allowed with six months notice by either
party.
ITEM 3. LEGAL PROCEEDINGS
Product liability claims against the Company arise from time to time in
the ordinary course of business. 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.
The Company does not purchase product liability insurance because, in the
opinion of management, the premiums the Company would have to pay for such
insurance are not justified by the Company's historical and expected future
loss experience. Accordingly, all costs associated with product liability
claims must be paid by the Company and are not covered by any insurance.
As of December 31, 1995, there were 13 open product liability cases
against the Company. There is a possibility that up to five of these cases,
including three of the more significant cases, may come to trial in 1996.
There is also the possibility that the trial dates for those cases may be
postponed or the Company may consider settlement offers.
Management believes the Company has liability defenses for each of the
cases that may come to trial in 1996, but does recognize there is an inherent
uncertainty as to the eventual resolution of unsettled claims. In the opinion
of management, based in part on the advice of outside legal counsel, any losses
with respect to existing claims in excess of established reserves will not have
a material impact on the Company's operating income or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1995.
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REXWORKS INC.
EXECUTIVE OFFICERS OF REGISTRANT
The names, ages and positions of all executive officers of the Company as
of the date of this filing are listed below, together with their business
experience during the past five years. Executive officers are elected
annually by the Board of Directors at the annual meeting of directors
immediately following the annual meeting of stockholders. There are no family
relationships among any of the executive officers of the Company, nor any
arrangements or understanding between any such officer and another person
pursuant to which he was elected as an executive officer.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION BUSINESS EXPERIENCE
- ------------------------ -----------------------------------------------------------
<S> <C>
MICHAEL C. HADJINIAN, 45 Elected Chairman of the Board, Chief Executive Officer
Chairman, President, and Director in February 1992 and President in 1994. Mr.
Chief Executive Officer Hadjinian is primarily responsible for general management
and Director of the company. From 1988 until he joined the Company, Mr.
Hadjinian held various senior management positions at FMC Corporation,
most recently as General Manager of its Sweeper Division.
THOMAS D. LAUERMAN, 41 Mr. Lauerman is Vice President - Administration, Secretary,
Vice President-Administration, Treasurer and Chief Financial Officer since joining the
Secretary, Treasurer and Company in 1994. He is primarily responsible for corporate
Chief Financial Officer finance, data processing and human resources. From 1980
until he joined the Company Mr. Lauerman held various financial
management positions at FMC Corporation, most recently as
Controller of an overseas joint venture manufacturing military
vehicles.
CLINTON E. VOGUS, 52 Mr. Vogus is Vice President - Operations since joining the
Vice President - Company in 1994. He is primarily responsible for the
Operations manufacturing, engineering and service replacement parts
functions of the Company. From 1992 until the time he joined
the Company, Mr. Vogus was Vice President - Operation and
Business Development for Reach All, Inc., a manufacturer of
aerial devices for the utility industry. From 1989 to 1992 Mr.
Vogus was General Manager of the Chronos Richardson
Division of Staveley Industries, plc.
RICHARD C. CARONE, 53 Mr. Carone is Vice President - Marketing (since 1992). His
Vice President - previous positions include Vice President of Truck Mixer Sales
Marketing (1995), Vice President and General Manager - Compaction Division
(1989-1990) and Vice President - International Sales and Marketing
(1982-1989 and 1990-1992).
CHRISTOPHER J. KLINCK, 60 Mr. Klinck is Vice President-Compaction Sales (since 1990).
Vice President - His previous positions include Vice President - Domestic
Compaction Sales Sales (1989-1990).
</TABLE>
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REXWORKS INC.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The common stock of the Company is traded on the NASDAQ Stock Market
(Symbol REXW). Information as to high and low trade prices by quarter can be
found in Note 12 to the financial statements on page 29 of this report. The
Company has never paid cash dividends on its common stock and does not intend
to pay cash dividends during 1996. The Company's borrowing agreement, in
effect through April 1998, restricts the payment of dividends. The Company's
policy with respect to the payment of dividends in subsequent years has not yet
been determined. As of February 29, 1996 there were approximately 1500
shareholders of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Years Ended December 31:
Net sales $52,479 $51,023 $41,759 $27,519 $32,931
(Loss) Income from operations (598) 1,640 124 398 (2,045)
(Loss) Income before cumulative
effect of accounting change (260) 1,161 (128) 459 (1,877)
Cumulative effect of accounting
change -- -- 235 -- --
Net (Loss) Income (260) 1,161 107 459 (1,877)
Net (Loss) Income before
cumulative effect of accounting
change per share (0.13) 0.59 (0.07) 0.25 (1.02)
Net (Loss) Income per share (0.13) 0.59 0.05 0.25 (1.02)
At end of each year:
Total assets 28,676 24,916 20,031 13,297 16,387
Long-term debt 4,835 4,753 5,393 -- 2,675
</TABLE>
Results for 1994 were favorably impacted by the elimination of a valuation
allowance of $428,000 for deferred tax assets which was recorded in the
provision for income taxes.
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REXWORKS INC.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
For the year ended December 31, 1995, net sales increased $1,456,000 or
2.9% compared to 1994. Strong market demand resulted in increased sales of the
Company's truck mounted Mixer product line and also the Trashmaster landfill
compactor product line. The higher sales activity in these product lines more
than offset weaker market demand and lower sales activity in the Company's
Maxigrind material reduction product line.
Gross profit increased $560,000 or 5.2% to $11,432,000 for 1995 compared
to 1994. Gross profit as a percentage of sales increased to 21.8% in 1995 from
21.3% in 1994. Improved productivity and lower manufacturing spending were
primarily responsible for this improvement and more than offset the negative
gross profit impact of an unfavorable change in sales mix from 1994 to 1995.
Selling, general and administrative expenses increased $1,602,000 to
$10,834,000 or 17.4% in 1995 compared to 1994 due to higher expenses related to
product development, new product introduction, warranty, and customer support.
The majority of the increase in the product development and new product
introduction expenses were associated with the grinder product line.
Interest expense increased $208,000 in 1995 to $907,000 or 29.7% from 1994
due to higher average borrowings associated with working capital needs and
higher interest rates. Other income (expense) moved from $40,000 of income in
1994 to $159,000 of expense in 1995. This swing was due to costs resulting
from the sale of receivables, associated with a Trashmaster landfill compactor
promotional program, under a factoring agreement with Bank One Milwaukee, N.A.
The results for 1994 include a $428,000 credit to earnings for the
elimination of a deferred tax valuation allowance. This credit is included as
a reduction in the provision for income taxes on the Company's 1994
Consolidated Statement of Operations.
The Company's backlog of firm orders totaled $5,868,000 as of December 31,
1995 compared to $8,359,000 at December 31, 1994. This decrease is due to a
lower backlog for the Company's Trashmaster landfill compactor product line.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
For the year ended December 31, 1994, net sales increased $9,264,000
(22.2%) compared to 1993. Strong market demand resulted in increased sales of
the Company's Trashmaster landfill compactor product line, particularly the
Company's largest model, 3-90C. The Company's purchase of the rights to
manufacture and distribute the Maxigrind materials reduction product in
February 1993 also resulted in increased sales during 1994 compared to 1993.
Gross profit increased $2,882,000 to $10,872,000 for 1994 from $7,990,000
for 1993. Gross profit as a percentage of sales increased to 21.3% for 1994
compared to 19.1% for 1993. Sales for 1993 included several complete Maxigrind
units purchased from Norkot Manufacturing Company, Inc. ("Norkot") and resold at
low profit margins. In addition, factory overhead expenses were unusually high
in 1993 due to start-up expenses caused by the integration of Maxigrind
production into the Company's Milwaukee manufacturing
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REXWORKS INC.
facility, as well as expenses and production inefficiencies related to the
reorganization of the Company's manufacturing operations.
Selling, general and administrative expenses increased $1,366,000 (17.4%)
to $9,232,000 for 1994 compared to 1993 due primarily to additional selling and
promotional expenses related to the Maxigrind product. Additional expenditures
of $491,000 were incurred in 1994 for product design improvements and new
product development compared to 1993.
Interest expense increased $216,000 (44.7%) during 1994 compared to 1993
due to higher average borrowings resulting from the Maxigrind purchase and
higher interest rates.
The results for 1993 also include a credit to earnings of $235,000 to
reflect the comulative effect of an accounting change for the Company's
adoption of FASB Statement No. 109, "Accounting for Income Taxes." In
conjunction with the adoption of FASB 109, the Company also established a
$428,000 valuation allowance for deferred tax benefits related to net operating
loss ("NOL") carryforwards. This statement requires the Company to provide a
valuation allowance when it is uncertain whether some portion of the deferred
tax asset (including NOL carryforwards) will be realized. During 1994, the
Company used the entire amount of the NOL carryforward to offset 1994 taxable
income. Accordingly, the $428,000 valuation allowance established in 1993 was
eliminated with a credit to income in the fourth quarter of 1994. This credit
is included as a reduction in the provision for income taxes on the Company's
1994 Consolidated Statement of Operations.
The Company's backlog of firm orders totaled $8,359,000 as of December 31,
1994 compared to $2,933,000 at December 31, 1993. The increase was due to
strong market demand for the Company's Trashmaster landfill compactor product
line.
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REXWORKS INC.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
ANALYSIS OF FINANCIAL CONDITION
LIQUIDITY
Working capital and current ratio are financial measurements that provide
an indication of the Company's ability to meet its short-term obligations.
These data at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Current Assets $22,458,000 $18,075,000
Current Liabilities 15,897,000 $12,021,000
Working Capital 6,561,000 $6,054,000
Current Ratio 1.4 1.5
</TABLE>
As of December 31, 1995 accounts receivable and inventory were both higher
than the comparable amounts at December 31, 1994. The increase in accounts
receivable reflects the timing of payments on a number of customer accounts;
the increase in inventories reflects a higher level of finished machines in
inventory. The increases in receivables and inventories resulted in increased
borrowings on the Company's line-of-credit facility at December 31, 1995
compared to December 31, 1994.
Inflation did not have a significant impact on the Company's operations in
1995 and is not expected to have a significant impact on the Company's
operations in 1996.
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REXWORKS INC.
CAPITALIZATION
The following table presents the relationships between long term debt and
stockholders' investment as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Long term debt $4,835,000 $4,753,000
Stockholders' investment 7,944,000 8,142,000
Total long term debt as
a ratio to stockholders'
investment 0.6 0.6
</TABLE>
The line-of-credit agreement between the Company and Bank One Milwaukee,
N.A. (as amended) provides for borrowings up to the lesser of $10.0 million or
the sum of 80% of qualified accounts receivable (as defined), 40% of FIFO
inventory and a fixed asset amount. The fixed asset amount was $2,859,000 at
December 31, 1995, and will be reduced by $37,000 each month thereafter. A
portion of the total outstanding line ($3,000,000) carries a fixed interest
rate of 9.875%; interest rates on the balance of the line vary with the prime
rate. The variable rate at December 31, 1995 was 9.25%. Substantially all the
Company's accounts receivable, inventories and property, plant and equipment
are pledged as collateral for this debt.
The loan agreement requires that the Company achieve agreed levels of net
cash flow (as defined), and that the Company's ratio of total liabilities to
tangible net worth be less than 3.0 to 1.0 at December 31, 1995 and less than
2.5 to 1.0 thereafter. The agreement also limits capital expenditures to no
more than $1,000,000 in any year.
At December 31, 1995 the Company had $1,192,000 of borrowings available
under its line-of-credit facility. In management's opinion, anticipated future
cash generated from operations and the amended loan agreement will be
sufficient to meet the Company's short and long term needs for working capital
and required capital additions.
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REXWORKS INC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Covered by Report of Independent Public
Accountants
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1995 and 1994
For Years Ended December 31, 1995, 1994 and 1993:
- Consolidated Statements of Operations
- Consolidated Statements of Stockholders' Investment
- Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedule:
II. Valuation and Qualifying Accounts
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REXWORKS INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Rexworks Inc:
We have audited the accompanying consolidated balance sheets of Rexworks
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
investment and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rexworks
Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As explained in Note 5 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index on page 13 is the responsibility of the Company's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
February 9, 1996.
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REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 10,000 $ 10,000
Accounts receivable (less
reserves of $125,000 and
$150,000), respectively 10,308,000 7,752,000
Inventories 12,111,000 10,046,000
Other current assets 29,000 267,000
------------ ------------
Total current assets 22,458,000 18,075,000
------------ ------------
DEFERRED INCOME TAX BENEFIT 694,000 535,000
NONCOMPETE AGREEMENT 1,818,000 2,407,000
OTHER ASSETS 981,000 1,104,000
PROPERTY, PLANT AND EQUIPMENT:
Land 36,000 36,000
Buildings and land improvements 1,397,000 1,282,000
Machinery and equipment 5,863,000 5,481,000
------------ ------------
7,296,000 6,799,000
Less accumulated depreciation (4,571,000) (4,004,000)
------------ ------------
Net property, plant and equipment 2,725,000 2,795,000
------------ ------------
TOTAL ASSETS $28,676,000 $24,916,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
15
<PAGE> 16
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' INVESTMENT 1995 1994
- ------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term debt $ 5,362,000 $ 2,980,000
Accounts payable - trade 5,503,000 4,599,000
Accrued expenses:
Salaries and other benefits 786,000 980,000
Warranty 1,380,000 1,296,000
Product liability defense 1,560,000 1,550,000
Other 1,067,000 305,000
Deferred income taxes 156,000 207,000
Advances from customers 83,000 104,000
----------- -----------
Total current liabilities 15,897,000 12,021,000
LONG TERM DEBT 4,835,000 4,753,000
----------- -----------
Total liabilities 20,732,000 16,774,000
STOCKHOLDERS' INVESTMENT:
Common stock, $.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 749,000 1,009,000
----------- -----------
Total stockholders' investment 7,944,000 8,142,000
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $28,676,000 $24,916,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
16
<PAGE> 17
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $52,479,000 $51,023,000 $41,759,000
COST OF SALES 41,047,000 40,151,000 33,769,000
----------- ----------- -----------
Gross profit 11,432,000 10,872,000 7,990,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 10,834,000 9,232,000 7,866,000
----------- ----------- -----------
Income from operations 598,000 1,640,000 124,000
OTHER (EXPENSE) INCOME:
Interest expense (907,000) (699,000) (483,000)
Other (110,000) 260,000 130,000
----------- ----------- -----------
(Loss) Income before income taxes (419,000) 1,201,000 (229,000)
(CREDIT) PROVISION FOR
INCOME TAXES (159,000) 40,000 (101,000)
----------- ----------- -----------
(Loss) Income before cumulative
effect of accounting change (260,000) 1,161,000 (128,000)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE FOR
INCOME TAXES -- -- 235,000
----------- ----------- -----------
Net (Loss) Income $ (260,000) $ 1,161,000 $ 107,000
=========== =========== ===========
PER SHARE:
(Loss) Income before cumulative
effect of accounting change (0.13) $ 0.59 $ (0.07)
Cumulative accounting change $ -- $ -- $ 0.12
----------- ----------- -----------
Net (Loss) Income $ (0.13) $ 0.59 $ 0.05
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements of operations.
17
<PAGE> 18
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Common Stock Additional Paid-in Treasury Stock Retained Earnings
Shares Amount Capital Shares Amount (Deficit)
--------- -------- ------------------ ------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 1,841,984 $221,000 $6,905,000 (2,336) $(26,000) $ (259,000)
Net Income -- -- -- -- -- 107,000
Exercise of Stock Options 1,037 -- 3,000 -- -- --
--------- -------- ---------- ------- --------- ----------
Balance December 31, 1993 1,843,021 221,000 6,908,000 (2,336) (26,000) (152,000)
Net Income -- -- -- -- -- 1,161,000
Exercise of Stock Options 15,000 2,000 28,000 -- -- --
--------- -------- ---------- ------- --------- ----------
Balance December 31, 1994 1,858,021 223,000 6,936,000 (2,336) 26,000 1,009,000
Net Loss -- -- -- -- -- (260,000)
Exercise of Stock Options 28,647 3,000 59,000 -- -- --
--------- -------- ---------- ------- --------- ----------
Balance December 31, 1995 1,886,668 $226,000 $6,995,000 (2,336) $(26,000) $ 749,000
========= ======== ========== ======= ========= ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
18
<PAGE> 19
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) income $ (260,000) $ 1,161,000 $ 107,000
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization 1,283,000 1,210,000 1,087,000
Loss (gain) on sale of equipment 18,000 (6,000) (37,000)
(Credit) provision for deferred income taxes (210,000) 98,000 (101,000)
Cumulative effect of accounting change -- -- (235,000)
Changes in assets and liabilities net of changes related to
purchase of Maxigrind product assets in 1993:
Increase in accounts receivable (2,556,000) (2,075,000) (1,932,000)
Increase in inventories (2,065,000) (2,409,000) (686,000)
Decrease (increase) in other assets 237,000 (86,000) (50,000)
Net increase in accounts payable, accrued expenses and
advances from customers 1,546,000 1,872,000 414,000
----------- ----------- -----------
Net cash (used for) operating activities (2,007,000) (235,000) (1,433,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (523,000) (1,026,000) (627,000)
Proceeds from the sale of equipment 4,000 44,000 38,000
Purchase of Maxigrind product assets -- -- (2,887,000)
----------- ----------- -----------
Net cash (used for) investing activities (519,000) (982,000) (3,476,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit agreement 2,464,000 1,613,000 4,732,000
Noncompete liability principal payments -- (426,000) --
Exercise of stock options 62,000 30,000 3,000
----------- ----------- -----------
Net cash provided by financing activities 2,526,000 1,217,000 4,735,000
----------- ----------- -----------
Decrease in cash -- -- (174,000)
CASH AT BEGINNING OF YEAR 10,000 10,000 184,000
----------- ----------- -----------
CASH AT END OF YEAR $ 10,000 $ 10,000 $ 10,000
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 731,000 $ 818,000 $ 312,000
Income taxes paid 49,000 368,000 --
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
19
<PAGE> 20
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
(1) SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Rexworks Inc. (the "Company") and its wholly-owned subsidiaries,
Rexworks International, a Domestic International Sales Corporation,
and Rexworks International Trading Corporation, a Foreign Sales
Corporation. All intercompany accounts and transactions have been
eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results
could differ from those estimates. Specifically, the Company has
recorded a product liability reserve which could be significantly
different from actual settlements as described in Note 8.
Inventories
Substantially all inventories are stated at cost, which does not
exceed market, determined on the last-in, first-out ("LIFO") basis.
Inventory costs include the costs of material, labor and direct and
indirect costs of manufacturing.
Inventory amounts as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Lower of FIFO cost or market:
Raw materials $ 350,000 $ 335,000
Work-in-process and components 6,780,000 6,035,000
Finished goods 7,431,000 5,649,000
----------- -----------
14,561,000 12,019,000
Excess of FIFO over LIFO cost (2,450,000) (1,973,000)
----------- -----------
Total inventories at LIFO $12,111,000 $10,046,000
=========== ===========
</TABLE>
Property, Plant and Equipment
Plant and equipment is stated at cost and is depreciated over the
estimated useful lives of the assets using the straight-line method.
Asset lives used for financial statement purposes are:
Buildings and land improvements 6-20 years
Machinery and equipment 4-15 years
20
<PAGE> 21
REXWORKS INC.
Upon retirement, the asset account is reduced by the original cost
and the reserve account is reduced by the accumulated depreciation.
The gain or loss on disposition is reflected in current earnings.
Maintenance and repair costs are charged to expense as incurred.
Renewals and improvements are added to plant and equipment accounts.
In 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" which the Company will adopt on
January 1, 1996. Adoption of this statement is not expected to have
a significant impact on the Company's results of operations.
Advances from Customers
Advances from customers represent progress payments received by the
Company for equipment to be delivered at a later date.
Export Sales
Export sales represented 17% of net sales in 1995, 11% in 1994 and
12% in 1993, respectively.
(2) NATURE OF OPERATIONS
The Company designs, manufactures and sells truck mounted concrete mixers,
compaction equipment and the Maxigrind materials reduction product as well
as replacement parts for this equipment. Approximately 84% of 1995 sales
(91% in 1994 and 81% in 1993) were made to equipment distributors, who in
turn rent or sell equipment to end users. Approximately 13% of 1995
sales, consisting of waste and recycling products, were made to one
customer.
(3) PURCHASE OF RIGHTS TO MANUFACTURE AND MARKET GRINDER PRODUCT
In February 1993, the Company purchased the rights to manufacture and
market the Maxigrind materials reduction product from Norkot Manufacturing
Company, Inc. ("Norkot"). The Maxigrind product grinds and reduces the
volume of a variety of materials including asphalt, demolition debris,
wood products and trash. The Company paid $1.1 million in February 1993
for the technology to manufacture and market the Maxigrind product as well
as for patents, trademarks, tools and fixtures. The Company also agreed
to pay Norkot and its sole shareholder an additional $3,514,000
(discounted at 8%) for their agreement not to compete and to provide
certain future consulting services. Of this additional amount, $1,700,000
was paid in 1993 and $426,000 was paid in 1994. The remaining future cash
flows (discounted at an 8.0% interest rate) are included in long term debt
and current portion of long term debt on the Company's Consolidated
Balance Sheets. Scheduled future principal payments are as follows:
1996 $ 239,000
1997 334,000
1998 381,000
1999 434,000
--------
$1,388,000
==========
21
<PAGE> 22
REXWORKS INC.
The company allocated the purchase price of the assets acquired based on
estimated fair values as follows:
Noncompete Agreement $3,500,000 (6 year amortization)
Patents 820,000 (17 year amortization)
Other Assets 381,000 (3-10 year amortization)
Patents are included in other assets on the Consolidated Balance Sheets.
Accumulated amortization on the non-compete agreement was $1,682,000 and
$1,107,000 at December 31, 1995 and 1994, respectively. Accumulated
amortization on patents was $141,000 and $88,000 at December 31, 1995 and
1994, respectively.
(4) DEBT
Debt as of December 31, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Borrowings under line-of-credit agreement $8,809,000 $6,345,000
Liability for noncompete payments to be made to
Norkot's sole shareholder, discounted at 8%
(See Note 3) 1,388,000 1,388,000
Less: Current portion (5,362,000) (2,980,000)
---------- ----------
Long term portion of debt $4,835,000 $4,753,000
========== ==========
</TABLE>
The Company maintains a line-of-credit agreement with Bank One Milwaukee,
N.A. The agreement was originally entered into on May 31, 1990 and was
most recently amended on January 31, 1996. The agreement provides for
borrowings up to the lesser of $10.0 million or the sum of 80% of
qualified accounts receivable (as defined), 40% of FIFO inventory, and a
fixed asset amount. The fixed asset amount was $2,859,000 at December 31,
1995, and will be reduced by $37,000 each month thereafter. A portion of
the total outstanding line ($3,000,000) carries a fixed interest rate of
9.875%; interest rates on the balance of the line vary with the prime
rate. The variable rate at December 31, 1995 was 9.25%. Substantially
all the Company's accounts receivable, inventories and property, plant and
equipment are pledged as collateral for this debt.
The loan agreement requires that the Company achieve agreed levels of Net
Cash Flow (as defined), and that the Company's ratio of total liabilities
to tangible net worth be less than 3.0 to 1.0 at December 31, 1995 and
less than 2.5 to 1.0 thereafter. The agreement also limits capital
expenditures to no more than $1,000,000 in any year.
The amended loan agreement provides that the bank may terminate the
line-of-credit at any time after April 30, 1998 upon 90 days notice to the
Company.
Management does not expect to reduce line-of-credit borrowings below
$3,686,000 during 1996; therefore, that amount has been classified as long
term.
22
<PAGE> 23
REXWORKS INC.
Additional data related to borrowings due under the line-of-credit
agreement are summarized below:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
At December 31:
Unused line-of credit $1,191,000 $2,499,000
Interest rate 9.25% 9.75%
For the year ended December 31:
Maximum outstanding balance $9,256,000 $7,132,000
Average outstanding balance $7,549,000 $5,886,000
</TABLE>
The weighted average interest rate on all borrowings was 10.2% in 1995 and
9.3% in 1994.
Based on borrowing rates currently available to the Company for bank loans
with similar terms and maturities, the fair value of outstanding debt
approximates its carrying value.
(5) INCOME TAXES
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting For Income Taxes". Under this statement, deferred income
taxes are recorded on temporary differences between the book and tax basis
at the tax rate expected to be in effect when the temporary differences
reverse. A valuation allowance is provided when it is likely that some
portion of the deferred tax assets arising from temporary differences and
net operating losses will not be realized. In the first quarter of 1993,
the Company recorded a credit to earnings of $235,000 to reflect the
cumulative effect of an accounting change for the adoption of this
statement
In 1993, the Company established a $428,000 valuation allowance for
deferred tax benefits of net operating loss ("NOL") carryforwards which,
as of December 31, 1993, the Company believed may not be fully realizable.
During 1994, the Company used the entire amount of the NOL carryforward
to offset 1994 taxable income. Accordingly, the valuation allowance
established in 1993 was reversed with a credit to income in the fourth
quarter of 1994. In addition, the Company assessed the likelihood of
realization of deferred tax benefits for alternative minimum tax credit
carryforwards recorded at December 31, 1995 based upon projected future
taxable income and expects the entire amount to be realized.
23
<PAGE> 24
REXWORKS INC.
Information with respect to the Company's income tax provisions (credits) is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
CURRENT:
Federal $ 44,000 $ 351,000 --
State 7,000 19,000 --
Tax benefit of NOL carryforwards -- (428,000) --
--------- --------- ---------
Total current 51,000 (58,000) --
DEFERRED (210,000) 98,000 (101,000)
--------- --------- ---------
Total (credit) provision $(159,000) $ 40,000 $(101,000)
========= ========= =========
</TABLE>
A reconciliation of the Company's effective income tax rate to the statutory
federal tax rate for the years ended December 31, 1995, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
Statutory federal income tax rate (34.0%) 34.0% (34.0%)
State income taxes, net of
federal benefit (4.0%) 3.5% (3.6%)
Change in valuation allowance -- (35.6%) (6.5%)
Other .1% 1.4% --
------- ------- -------
Effective income tax rate (37.9%) 3.3% (44.1%)
======= ======= =======
</TABLE>
Temporary differences which give rise to net deferred taxes under FASB
Statement No. 109 as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Current deferred tax (liabilities) assets:
Inventory basis $(1,622,000) $(1,657,000)
Accruals and reserves not currently deductible 1,238,000 1,180,000
Alternative minimum tax credit carryforwards 228,000 270,000
----------- -----------
Net current deferred tax (liability) (156,000) (207,000)
----------- -----------
Long term deferred tax assets:
Property, plant and equipment 170,000 200,000
Intangibles 524,000 335,000
----------- -----------
Net long term deferred tax asset 694,000 535,000
----------- -----------
Net deferred tax asset $538,000 $328,000
=========== ===========
</TABLE>
24
<PAGE> 25
REXWORKS INC.
(6) STOCKHOLDER'S INVESTMENT.
In 1983, the Company established the Rexworks Inc. Employee Stock Plan
(the "Plan") and Employee Stock Ownership Trust (the "Trust"). The plan
is non-contributory and includes all employees who have completed one year
of service. Under the plan provisions, the Company may make contributions
to the Trust for the benefit of eligible employees. No contributions were
made to the plan in 1995, 1994 or 1993 and the Board of Directors has not
authorized any future contributions to the Plan at this time.
Beginning in 1990, the Company granted options to purchase shares of
Rexworks Inc. common stock to certain directors, officers and key
employees. In 1992, the Company (with the approval of its Board of
Directors) established the Rexworks Inc. Management Incentive Compensation
Program (the "Program"). Program awards are in the form of cash or stock
options and are based upon the Company's achievement of key financial
performance measures and individual performance objectives. In February
1995, participants in aggregate were awarded $204,000 in cash and options
to purchase 30,000 shares of Rexworks stock at an exercise price of $4.25
(the market value on the date of grant) for the 1994 Program. The Company
recorded a $204,000 accrual at December 31, 1994 to recognize the cash
expense portion of the awards. No awards were granted under the program
for 1995 or 1993. The number of options granted and outstanding is
summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Unexercised options as of January 1 337,060 332,060 264,000
Options granted 30,000 20,000 70,097
Options exercised (28,647) (15,000) (1,037)
Options expired -- -- (1,000)
------- ------- -------
Unexercised options as of December 31 338,413 337,060 332,060
======= ======= =======
Authorized for future issuance as of
December 31 362,000 392,000 412,000
======= ======= =======
</TABLE>
The exercise price of options outstanding as of December 31, 1995 ranges
from $2.00 to $8.00 with a weighted average exercise price of $4.03. As
of December 31, 1995, 295,080 options were fully vested and exercisable.
The remaining 43,333 options outstanding at December 31, 1995 vest at
various dates in 1996 and 1997. The option expiration dates range from
2000 to 2005.
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which establishes financial
accounting and reporting standards for stock-based employee compensation.
Rexworks plans to adopt the disclosure requirements of this statement, and
to continue to apply the accounting provisions of Accounting Principles
Board Opinion 25 to stock-based employee compensation arrangements, as is
allowed by the statement. The disclosure will be adopted effective with
the December 31, 1996 financial statements.
25
<PAGE> 26
REXWORKS INC.
(7) LEASES.
The Company has no material noncancellable operating lease arrangements
with expirations of more than one year. Rental expense under various
operating leases was $31,000 in 1995, $87,000 in 1994 and $83,000 in 1993.
(8) LEGAL PROCEEDINGS AND CONTINGENT LIABILITIES.
Product liability claims against the Company arise from time to time in
the ordinary course of business. 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 amounts. 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.
The Company does not purchase product liability insurance because, in the
opinion of management, the premiums the Company would have to pay for
insurance are not justified by the Company's historical and expected
future loss experience. Accordingly, all expenses related to product
liability claims must be paid by the Company and are not covered by
insurance.
The Company maintains a reserve for costs expected to arise out of known
and expected product liability claims. The reserve is increased by
provisions to current earnings and is decreased by payments of defense
costs, settlements and judgments, if any. Activity in the reserve account
is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Balance beginning of year $1,550,000 $1,175,000 $1,300,000
Provisions 793,000 707,000 699,000
Payments (783,000) (332,000) (824,000)
---------- ---------- ----------
Balance, end of year $1,560,000 $1,550,000 $1,175,000
========== ========== ==========
</TABLE>
As of December 31, 1995, there were 13 open product liability cases
against the Company. There is a possibility that up to five of these
cases, including three of the more significant cases, may come to trial in
1996. There is also the possibility that the trial dates for those cases
may be postponed or the Company may consider settlement offers.
Management believes the Company has liability defenses for each of the
cases that may come to trial in 1996, but does recognize there is an
inherent uncertainty as to the eventual resolution of unsettled claims and
the ultimate settlements could be for amounts significantly greater than
recorded liabilities. 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 or financial
condition.
26
<PAGE> 27
REXWORKS INC.
(9) EARNINGS PER SHARE.
The weighted average number of common shares and common share equivalents
used in calculating earnings per share as of December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Weighted average shares outstanding 1,881,947 1,854,435 1,839,735
Assuming exercise of options reduced
by the number of shares that could
have been purchased at average
market price for the year using exercise
proceeds 47,867 112,828 118,706
--------- --------- ---------
Weighted average common shares and
common share equivalents 1,929,814 1,967,263 1,958,441
========= ========= =========
</TABLE>
(10) RESEARCH AND DEVELOPMENT.
The Company expenses research and development cost as incurred. These
costs, net of proceeds from sales of prototypes, were $996,000, $721,000
and $230,000 in 1995, 1994 and 1993 respectively.
(11) SALES OF ACCOUNTS RECEIVABLE.
During 1995, the Company entered into an agreement with Bank One
Milwaukee, N.A. to sell, with recourse, up to $6,000,000 of certain
receivables related to a Trashmaster landfill compactor promotional
program. The amount of accounts receivable sold under this program
totaled $5,944,000 at December 31, 1995. The costs associated with the
sales were $182,000 and are included in other income and expense in the
accompanying consolidated statements of income.
27
<PAGE> 28
REXWORKS INC.
(12) QUARTERLY FINANCIAL AND STOCK PRICE INFORMATION (UNAUDITED).
Quarterly financial data for the years ended December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 First Second Third Fourth Total
- ---- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $13,718,000 $13,679,000 $13,397,000 $11,685,000 $52,479,000
Gross profit 2,956,000 2,412,000 3,003,000 3,061,000 11,432,000
Income (loss) before
income taxes 26,000 (651,000) 171,000 35,000 (419,000)
Net income (loss) 16,000 (403,000) 106,000 21,000 (260,000)
Net income per share:
Primary 0.01 (0.21) 0.06 0.01 (0.13)
Fully diluted 0.01 (0.21) 0.06 0.01 (0.13)
Dividends per share -- -- -- -- --
Trade Price:
High 4.88 4.38 3.75 3.13
Low 3.88 3.38 2.50 2.00
<CAPTION>
1994 First Second Third Fourth Total
- ---- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $12,467,000 $13,612,000 $13,757,000 $11,188,000 $51,023,000
Gross profit 2,619,000 2,839,000 2,940,000 2,474,000 10,872,000
Income (loss) before
income taxes 383,000 402,000 454,000 (39,000) 1,201,000
Net income 226,000 236,000 268,000 430,000 1,161,000
Net income per
share:
Primary 0.11 0.12 0.14 0.22 0.59
Fully diluted 0.11 0.12 0.14 0.22 0.59
Dividends per share -- -- -- -- --
Trade Price:
High 6.38 5.88 5.75 5.00
Low 4.00 5.00 4.50 3.75
</TABLE>
Results for the fourth quarter of 1994 were favorably impacted by the
elimination of a valuation allowance of $428,000 for deferred tax assets. (See
Note 5.)
28
<PAGE> 29
REXWORKS INC.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated herein by reference to the Election of Directors section of the
Proxy Statement for the Annual Meeting of Stockholders dated April 26, 1996
(the "Proxy Statement") and Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Executive Compensation section of the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Security Ownership section of the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as apart of this report.
1. Financial Statements
The following Consolidated Financial Statements of Rexworks Inc. and
subsidiaries at December 31, 1995 and 1994 and for the years ended December 31,
1995, 1994 and 1993, are included in Item 8 hereof:
a. Consolidated Balance Sheets.
b. Consolidated Statements of Operations.
c. Consolidated Statements of Stockholders' Investment.
d. Consolidated Statements of Cash Flows.
e. Notes to Consolidated Financial Statements.
f. Report of Independent Public Accountants.
Individual financial statements of the Registrant have been omitted because
consolidated financial statement have been filed.
2. Financial Statement Schedule
The financial statement schedule appended hereto, as required at December 31,
1995, 1994 and 1993 and for the years then ended, consists of the following:
29
<PAGE> 30
REXWORKS INC.
II. Valuation Qualifying Accounts
All other schedules have been omitted because they are not applicable, or not
required, or because the required information is shown in the consolidated
financial statements or notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation.(1)
3.2 By-Laws of Company, as amended.(1)
4.1 Restated Certificate of Incorporation of the Company (same as Exhibit 3.1).(1)
4.2 Articles II, X and XI of the By-Laws of the Company (included in Exhibit 3.2).(1)
4.13 Amended and Restated Loan and Security Agreement between Bank One, Milwaukee, N.A
and theCompany dated March 26, 1992.(5)
4.14 Third Amendment to Amended and Restated Loan and Security Agreement between Bank
One, Milwaukee, N.A. and the Company dated February 2, 1993.(6)
10.1 Agreement regarding trademarks between Rexnord Inc. and the Company dated April 23,
1982.(1)
10.4 Rexworks Inc. Employee Stock Plan as amended.(1)
10.5 Rexworks Inc. Employee Stock Ownership Trust.(1)
10.14 Employment agreement with C.J. Klinck dated February 23, 1989.(2)
10.15 Employment agreement with R.C. Carone dated February 23, 1989.(2)
10.24 Sample Stock Option Agreement.(3)
10.25 Employment agreement with M.C. Hadjinian dated February 20, 1992.(4)
10.26 Asset Purchase Agreement between the Company and Norkot Manufacturing Co., Inc. and its
sole shareholder.(5)
10.27 Noncompetition Agreement between the Company and Norkot Manufacturing Co., Inc.(6)
10.28 Consulting and Noncompetition Agreement between the Company and the sole shareholder of
Norkot Manufacturing Co., Inc.(6)
</TABLE>
_________________________
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-18, Registration Number 33-12488 effective April 21, 1987.
(2) Incorporated herein by reference to the Company's Annual Report on Form
10-K for 1988.
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-K for 1990.
(4) Incorporated herein by reference to the Company's Annual Report on Form
10-K for 1991.
(5) Incorporated herein by reference to the Company's Current Report on Form
10-K dated February 15, 1993.
(6) Incorporated herein by reference to the Company's Annual Report of Form
10-K for 1992.
(b) Reports on Form 8-K.
Registrant has not filed any reports on Form 8-K during the last quarter of the
period covered by this report.
30
<PAGE> 31
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Provisions (Charges) Credits
Balance at Charged for purposes for Balance
Beginning of (Credited) to Which Reserve at Close
Period Earnings was created of Period
------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended December 31, 1995 $150,000 29,000 (54,000) $125,000
Year Ended December 31, 1994 185,000 (76,000) 41,000 150,000
Year Ended December 31, 1993 150,000 53,000 (18,000) 185,000
</TABLE>
31
<PAGE> 32
REXWORKS INC.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REXWORKS INC.
By: /s/ Michael C. Hadjinian
----------------------------
Chairman and Chief Executive
Officer
Date: March 5, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated.
Signature Title Date
/s/ Michael C. Hadjinian Chairman, March 5, 1996
- ---------------------------- Chief Executive Officer
M.C. Hadjinian and Director
/s/ Thomas D. Lauerman Vice President - March 5, 1996
- ------------------------- Administration, Secretary,
T.D. Lauerman Treasurer and Chief
Financial Officer
/s/ Jeffrey L. Bleustein Director March 5, 1996
- -----------------------------
J.L. Bleustein
/s/ Fred L. Brengel Director March 5, 1996
- ---------------------------
F.L. Brengel
/s/ Warner C. Frazier Director March 5, 1996
- ---------------------------
W.C. Frazier
/s/ William J. Nasgovitz Director March 5, 1996
- ----------------------------
W.J. Nasgovitz
/s/ Richard A. Van Deuren Director March 5, 1996
- ---------------------------
R.A. Van Deuren
32
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,000
<SECURITIES> 0
<RECEIVABLES> 10,433,000
<ALLOWANCES> 125,000
<INVENTORY> 12,111,000
<CURRENT-ASSETS> 22,458,000
<PP&E> 7,296,000
<DEPRECIATION> 4,571,000
<TOTAL-ASSETS> 28,676,000
<CURRENT-LIABILITIES> 15,897,000
<BONDS> 4,835,000
0
0
<COMMON> 226,000
<OTHER-SE> 7,718,000
<TOTAL-LIABILITY-AND-EQUITY> 28,676,000
<SALES> 52,479,000
<TOTAL-REVENUES> 52,479,000
<CGS> 41,047,000
<TOTAL-COSTS> 41,047,000
<OTHER-EXPENSES> 110,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 907,000
<INCOME-PRETAX> (419,000)
<INCOME-TAX> (159,000)
<INCOME-CONTINUING> (260,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (260,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
