<PAGE> 1
================================================================================
REXWORKS INC.
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, 1996
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 8, 1996.
Common Stock, $0.12 par value: 1,896,668 shares
<PAGE> 2
REXWORKS INC.
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, 1995 and 1994 and notes thereto, included in the Company's 1995 Form 10K.
<PAGE> 3
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30 DECEMBER 31
ASSETS 1996 1995
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 10,000 $ 10,000
Accounts receivable (less reserves
of $133,000 and $125,000, respectively) 7,412,000 10,308,000
Inventories 9,256,000 12,111,000
Other current assets 163,000 29,000
----------- -----------
Total current assets 16,841,000 22,458,000
DEFERRED INCOME TAX BENEFIT 694,000 694,000
NONCOMPETE AGREEMENT 1,375,000 1,818,000
OTHER ASSETS 899,000 981,000
PROPERTY, PLANT AND EQUIPMENT:
Land 36,000 36,000
Buildings and land improvements 1,397,000 1,397,000
Machinery and equipment 6,265,000 5,863,000
----------- -----------
7,698,000 7,296,000
Less accumulated depreciation (5,032,000) (4,571,000)
----------- -----------
Net property, plant and equipment 2,666,000 2,725,000
----------- -----------
TOTAL ASSETS $22,475,000 $28,676,000
=========== ===========
</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
(CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED
LIABILITIES AND SEPTEMBER 30 DECEMBER 31
STOCKHOLDERS' INVESTMENT 1996 1995
- ------------------------ ------------ -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term debt $ 3,059,000 $ 5,362,000
Accounts payable - trade 2,974,000 5,503,000
Accrued Expenses:
Salaries, wages and other
compensation related benefits 746,000 786,000
Warranty 1,455,000 1,380,000
Product liability defense 1,531,000 1,560,000
Other 415,000 1,067,000
Deferred income taxes 278,000 156,000
Advances from customers 31,000 83,000
----------- -----------
Total current liabilities 10,489,000 15,897,000
LONG TERM DEBT 3,686,000 4,835,000
----------- -----------
Total liabilities 14,175,000 20,732,000
STOCKHOLDERS' INVESTMENT:
Common stock, $.12 par value,
4,300,000 shares authorized, 1,896,668
issued and outstanding 228,000 226,000
Additional paid-in capital 7,023,000 6,995,000
Treasury stock (26,000) (26,000)
Retained earnings 1,075,000 749,000
----------- -----------
Total stockholders' investment 8,300,000 7,944,000
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $22,475,000 $28,676,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
<PAGE> 5
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $10,395,000 $13,397,000 $38,176,000 $40,795,000
COST OF SALES 8,233,000 10,394,000 29,654,000 32,423,000
----------- ----------- ----------- -----------
Gross profit 2,162,000 3,003,000 8,522,000 8,372,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 2,306,000 2,566,000 7,736,000 8,043,000
----------- ----------- ----------- -----------
(Loss) income from operations (144,000) 437,000 786,000 329,000
OTHER (EXPENSE) INCOME:
Interest expense (211,000) (233,000) (669,000) (680,000)
Other 22,000 (33,000) 63,000 (102,000)
----------- ----------- ----------- -----------
(Loss) income before income taxes
and extraordinary item (333,000) 171,000 180,000 (453,000)
(BENEFIT) PROVISION FOR INCOME TAXES (125,000) 65,000 68,000 (172,000)
----------- ----------- ----------- -----------
Net (loss) income before extraordinary
item (208,000) 106,000 112,000 (281,000)
EXTRAORDINARY ITEM
Gain on early retirement of debt, net
of income taxes of $129,000 214,000 214,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) 6,000 106,000 326,000 (281,000)
Retained earnings,
beginning of period 1,069,000 622,000 749,000 1,009,000
----------- ----------- ----------- -----------
RETAINED EARNINGS, END OF PERIOD $ 1,075,000 $ 728,000 $ 1,075,000 $ 728,000
=========== =========== =========== ===========
PER SHARE AMOUNTS:
Net (loss) income before extraordinary
items (0.11) 0.06 0.06 (0.15)
Extraordinary item 0.11 0.00 0.11 0.00
Net income (loss) 0.00 0.06 0.17 (0.15)
Weighted average number of common
shares outstanding 1,917,536 1,911,949 1,911,459 1,934,182
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements of operations.
<PAGE> 6
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 326,000 $ (281,000)
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization 996,000 1,014,000
Gain on sale of equipment (2,000)
Gain on early retirement of debt (214,000)
Provision (credit) for deferred income taxes 122,000 (201,000)
Changes in assets and liabilities:
Sale of accounts receivable 455,000 4,848,000
Decrease (increase) in accounts receivable 2,441,000 (5,674,000)
Decrease (increase) in inventories 2,855,000 (1,654,000)
(Increase) decrease in other current assets (134,000) 222,000
Net (decrease) increase in other current liabilities (3,272,000) 1,129,000
---------- ----------
Net cash provided by (used for) operating activities 3,575,000 (599,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (402,000) (348,000)
Proceeds from the sale of equipment 2,000
Investment in joint venture (10,000)
---------- ----------
Net cash used for investing activities (412,000) (346,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayment) borrowings under line-of-credit agreement (2,064,000) 883,000
Noncompete liability principal payments (1,099,000) -
Exercise of stock options - 62,000
---------- ----------
Net cash (used for) provided by financing activities (3,163,000) 945,000
---------- ----------
Net increase in cash - -
CASH AT BEGINNING OF YEAR 10,000 10,000
---------- ----------
CASH AT END OF PERIOD $ 10,000 $ 10,000
========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $833,000 $733,000
Income taxes paid 77,000 48,000
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 7
REXWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995
(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 nine
month period ended September 30, 1996 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, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
At lower of cost (FIFO) or market:
Raw materials $ 156,000 $ 350,000
Work -in-process & components 6,111,000 6,780,000
Finished goods 5,439,000 7,431,000
----------- -----------
11,706,000 14,561,000
Excess of FIFO over LIFO cost (2,450,000) (2,450,000)
----------- -----------
Total inventories at LIFO $ 9,256,000 $12,111,000
=========== ===========
</TABLE>
(3) Debt
Debt as of September 30, 1996 and December 31, 1995 is as follows:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
Borrowings under line-of-credit
agreement $ 6,745,000 $ 8,809,000
Liability for non-compete payments to
be made to Norkot's sole shareholder 1,388,000
Less: Current portion (3,059,000) (5,362,000)
----------- -----------
Long term portion of debt $ 3,686,000 $ 4,835,000
=========== ===========
</TABLE>
During the third quarter, the Company paid $860,000 in full
settlement of its liability under a non-compete agreement with the former
owner of its Maxigrind product line. This liability was recorded on the
Company's books at $1,149,000
<PAGE> 8
REXWORKS INC.
plus accrued interest of $54,000, or a total of $1,203,000. This early
retirement of debt resulted in an extraordinary gain before income taxes
of $343,000, less income taxes of $129,000, and a net gain of $214,000.
The cash required to make this payment was borrowed under the Company's
revolving line of credit with Bank One Milwaukee, N.A.
(4) Legal Proceedings
Product liability claims against the Company arise from time to time in
the ordinary course of business. As explained more fully in the
Company's 1995 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.
<PAGE> 9
REXWORKS INC.
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, 1996 and December 31, 1995 is as follows:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
<S> <C> <C>
Current Assets $16,841,000 $22,458,000
Current Liabilities 10,489,000 15,897,000
Working Capital 6,352,000 6,561,000
Current Ratio 1.6 1.4
</TABLE>
Inventory balances declined in the second and third quarters of the year, after
rising in the first quarter, as the Company implemented programs to reduce
finished goods inventories and better balance production plans with actual
sales. Inventories at September 30, 1996 were $2,855,000 lower than at
December 31, 1995.
Accounts receivable declined to $7,412,000, a drop of $2,896,000 from December
31, 1995. The decline in receivables reflects lower sales volume in the third
quarter compared to earlier quarters.
During the third quarter, the Company paid $860,000 in full settlement of its
liability under a non-compete agreement with the former owner of its Maxigrind
product line. This liability was recorded on the Company's books at $1,149,000
plus accrued interest of $54,000, or a total of $1,203,000. This early
repayment of debt resulted in an extraordinary gain of $343,000 before income
taxes and $214,000 after income taxes. The cash required to make this payment
was borrowed under the Company's revolving line of credit with Bank One
Milwaukee, N.A.
Declines in inventory and receivables during the quarter and year are reflected
in correspondingly lower levels of bank debt and accounts payable - trade.
Bank debt declined by $2,064,000 since December 31, 1995, and accounts payable
- - trade declined by $2,529,000 during the same period. The decrease in bank
debt was partially offset by the $860,000 borrowed to settle the non-compete
liability discussed in the previous paragraph.
<PAGE> 10
REXWORKS INC.
At September 30, 1996 the Company had $3,255,000 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, 1996 Compared To The Third Quarter, 1995
Net sales for the third quarter of 1996 declined by $3,002,000 (22.4%) compared
to the third quarter of 1995. A decline in export shipments resulted in lower
sales of cement mixers, while softer demand from private (non-municipal)
landfills resulted in lower sales of landfill compactors. Sales of grinders in
the third quarter were comparable to last year's levels.
Gross profit declined by $841,000 to $2,162,000 compared to the third quarter
of 1995. Gross profit as a percentage of net sales was 20.8% in the third
quarter of 1996 compared to 22.4% in the third quarter of 1995. The decline in
gross profit percentages resulted from higher manufacturing variances that were
caused by lower levels of production.
Selling, general, and administrative expenses declined by $260,000 (10.1%) in
the third quarter of 1996 compared to the same period one year ago. The lower
expense levels resulted from spending reduction activities instituted earlier
in the year.
Other income and expense improved by $55,000 to income of $22,000 in the third
quarter of 1996 from year earlier levels. The Company recorded losses on the
sale of receivables of $80,000 in the third quarter of 1995; no receivables
were sold in the third quarter of 1996.
The provision for income tax expense was recorded in both 1996 and 1995 at an
effective rate of approximately 38% of pre-tax income. Changes in tax expense
are a result of changes in the level of pre-tax income or loss.
As previously discussed in the Liquidity and Capitalization section of this
report, the Company recorded an after-tax gain of $214,000 related to the early
retirement of debt in the third quarter of 1996. There was no similar
transaction in 1995.
The Nine Months Ended September 30, 1996 Compared to the Nine Months Ended
September 30, 1995
Net sales for the first nine months of 1996 decreased by $2,619,000 (6.4%)
compared to the same period in 1995. The primary cause of the sales decline
was lower sales of landfill compactors due to weaker demand from private
(non-municipal) landfills. The landfill compactor sales decline was partially
offset by improved grinder sales resulting from the introduction of the new
Megagrind and Biogrind models during 1996.
Despite lower sales activity, gross profit increased by $150,000 for the nine
months ended September 30, 1996 compared to the same period in 1995. Gross
profit as a percentage of sales improved to 22.3% for the first nine months of
1996 compared to 20.5% for the same
<PAGE> 11
REXWORKS INC.
period of 1995. The increase in gross profit percentage reflects the continued
impact of product cost reduction programs.
Selling, general, and administrative expenses declined by $307,000 to
$7,736,000 in the first nine months of 1996 compared to the same period of
1995. Engineering expenses declined as product development activities for both
the Biogrind and Megagrind were at lower levels in 1996 than in 1995. Selling
and administrative expenses also declined.
Other income and expense improved by $165,000 to income of $63,000 during the
first nine months of 1996 compared to the same period in 1995. During the
first nine months of 1995, the Company recorded losses of $165,000 on the sale
of receivables, while in 1996 these losses totalled only $14,000.
The provision for income tax expense is recorded in both 1996 and 1995 at an
effective rate of approximately 38% of pre-tax income. Changes in tax expense
are a result of changes in the level of pre-tax income or loss.
As previously discussed in the Liquidity and Capitalization section of this
report, in the third quarter of 1996 the Company recorded an after tax gain of
$214,000 related to the early retirement of debt. There was no similar
transaction in 1995.
<PAGE> 12
REXWORKS INC.
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 13, 1996 /s/ Thomas D. Lauerman
--------------------- -------------------------------
Date Thomas D. Lauerman
Vice President
and Chief Financial Officer
November 13, 1996 /s/ Michael C. Hadjinian
--------------------- -------------------------------
Date Michael C. Hadjinian
President, Chairman and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,000
<SECURITIES> 0
<RECEIVABLES> 7,545,000
<ALLOWANCES> 133,000
<INVENTORY> 9,256,000
<CURRENT-ASSETS> 16,841,000
<PP&E> 7,698,000
<DEPRECIATION> 5,032,000
<TOTAL-ASSETS> 22,475,000
<CURRENT-LIABILITIES> 10,489,000
<BONDS> 3,686,000
0
0
<COMMON> 228,000
<OTHER-SE> 8,072,000
<TOTAL-LIABILITY-AND-EQUITY> 22,475,000
<SALES> 10,305,000
<TOTAL-REVENUES> 10,305,000
<CGS> 8,233,000
<TOTAL-COSTS> 8,233,000
<OTHER-EXPENSES> (22,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211,000
<INCOME-PRETAX> (333,000)
<INCOME-TAX> (125,000)
<INCOME-CONTINUING> (208,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 214,000
<CHANGES> 0
<NET-INCOME> 6,000
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
