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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, 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 or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
445 West Oklahoma Avenue
Milwaukee, Wisconsin 53207
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(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 filers 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 28, 1997 of the voting stock held by
non-affiliates of the registrant was approximately $4,268,000. On February 28,
1997, there were 1,896,668 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 1997 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
1996. 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 37% of the Company's revenue
in 1996, 38% in 1995 and 31% in 1994.
Waste and Recycling Products accounted for 61% of the Company's 1996
revenue, 60% in 1995 and 67% in 1994.
CONSTRUCTION EQUIPMENT PRODUCTS
Truck Mounted Mixers. REXR 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.
During 1996 the Company formed a joint venture with Crane Carrier Company
to design, manufacture, and sell front discharge concrete mixers. The first
units were offered for sale in early 1997.
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REXWORKS INC.
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.
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 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 late 1995, the Company introduced a larger grinder unit called the
Megagrind. This machine is roughly twice the size of the Maxigrind and used in
high volume grinding applications. In mid-1996 the Company introduced a
smaller grinder unit, the Biogrind. This unit is designed for smaller-volume
grinding operations than either the Maxigrind or Megagrind, and is especially
well suited to the grinding of brush, wood products, and other green waste.
Both the Megagrind and Biogrind have been well received in the market place.
The Company's grinder products typically compete with tub grinder
technology. The Company believes the unique designs of these machines, and
significant feature advantages, makes Rexworks' grinder products superior to
tub grinders.
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
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REXWORKS INC.
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 each of the last three years
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.
DISTRIBUTION
In 1996, 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 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),
MAXIGRIND(R), BIOGRIND(R), or MEGAGRIND(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.
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REXWORKS INC.
BACKLOG
The Company's backlog of firm orders totaled $6,866,000 and $5,868,000 at
December 31, 1996 and 1995, respectively. At February 28, 1997 and February
29, 1996, backlog totaled $6,058,000 and $6,594,000, 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.
ENGINEERING
The Company employs 16 people in its engineering department, including 15
engineers, draftsmen and technical support personnel. For 1996, 1995, and
1994, the Company incurred product development, field testing and design
modification expenditures of $754,000, $996,000, and $721,000, respectively.
EMPLOYEES
As of December 31, 1996 the Company had 233 employees, 222 of whom were
employed or based at its Milwaukee facility. 149 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 12% of total sales in 1996, 17% of total sales in
1995, and 11% of total sales in 1994.
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
the third quarter of 1997.
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, 1996, there were eight open product liability cases
against the Company. There is a possibility that up to four of these cases,
including two of the more significant cases, may come to trial in 1997. 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 1997, 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, 1996.
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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>
LAURANCE R. NEWMAN, 55 Elected President and Chief Executive Officer in December
President and 1996. He is responsible for the general management of the
Chief Executive Officer Company. Prior to that Mr. Newman has been a consultant
to the Company. From 1963 to 1996 Mr. Newman held various
positions with S.C. Johnson Wax, retiring as Executive Vice
President. Mr. Newman is also a business consultant and Senior
Managing Director of the Kotler Marketing Group; a global
marketing consulting organization. Mr. Newman is a Director of
the Unico Corporation, Wesbar Corporation, and Dexide Corporation.
THOMAS D. LAUERMAN, 42 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, 53 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.
CHRISTOPHER J. KLINCK, 61 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.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION BUSINESS EXPERIENCE
- ------------------------------ ------------------------------------------------------------------------
<S> <C>
George T. Moeller, 53 Mr. Moeller is Vice President-Grinder Sales since joining
Vice President - the Company in 1993. Prior to joining the Company Mr.
Grinder Sales Moeller held various sales management positions with FMC
Corporation - Sweeper Division.
Harold J. Murdock, 53 Mr. Murdock is Vice President of International Sales since
Vice President - joining the Company in 1992. From 1978 until he joined the
International Sales Company, Mr. Murdock held various marketing management
positions at FMC Corporation - Sweeper Division
</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 11 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 1997. 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 28, 1997 there were approximately 1000
shareholders of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31 (in thousands):
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $48,373 $52,479 $51,023 $41,759 $27,519
Income from operations 484 598 1,640 124 398
(Loss) income before cumulative
effect of accounting change and
extraordinary item (185) (260) 1,161 (128) 459
Cumulative effect of accounting
change -- -- -- 235 --
Extraordinary item 214 -- -- -- --
Net income (loss) 29 (260) 1,161 107 459
Net (loss) income before
cumulative effect of accounting
change and extraordinary item
per share (0.09) (0.13) 0.59 (0.07) 0.25
Net income (loss) per share .02 (0.13) 0.59 0.05 0.25
At end of each year:
Total assets 24,283 28,899 24,916 20,031 13,297
Long-term debt 2,984 4,835 4,753 5,393 --
</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, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
For the year ended December 31, 1996, net sales declined $4,106,000, or
7.8%, to $48,373,000. Sales of the Company's Trashmaster landfill compactor
line were adversely affected by lower sales to private (non-municipal) landfill
operators, resulting from temporary capital spending reductions. The Company
also experienced lower concrete mixer sales in 1996 as compared to 1995. The
Company had an unusually high level of mixer export sales in 1995; these sales
returned to more normal levels in 1996. Lower sales in the Trashmaster and
cement mixer lines were partially offset by higher sales in the grinder product
line, where the successful introduction of new products (Megagrind and
Biogrind) had a positive impact on sales volume.
Gross profit declined $584,000, or 5.7% to $9,745,000 for 1996 compared
to 1995. Gross profit as a percentage of sales increased to 20.1% compared to
19.7% in 1995. The dollar decline in margin was a result of lower sales
volume. Margins as a percent of sales improved in the Company's cement mixer
and Trashmaster lines, and more than offset the impact of higher manufacturing
variances caused by lower levels of production.
Selling, general and administrative expenses declined $470,000 or 4.8% in
1996 compared to 1995. The decline reflects lower spending on product
development and product introduction costs, and management's efforts to
control spending in response to lower sales levels.
Interest expense declined by $96,000 to $811,000 in 1996. The decline
reflects lower levels of average borrowings in 1996, and the impact of slightly
lower interest rates. Other income (expense) moved to $30,000 of income in
1996 compared to $110,000 of expense in 1995. The change reflects a lower
level of activity in sales of receivables under a factoring agreement with Bank
One Milwaukee, N.A.
In 1996, the Company recorded a $214,000 after tax gain from the early
retirement of debt, more fully described in Note 3 to the audited financial
statements. There was no comparable item in 1995.
The Company's backlog of firm orders totaled $6,866,000 as of December 31,
1996 compared to $5,868,000 at December 31, 1995. The increase is due to a
higher backlog of orders for the Company's grinder products.
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 and a higher volume of exports
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 $38,000 or .4% to $10,329,000 for 1995 compared to
1994. Gross profit as a percentage of sales fell to 19.7% in 1995 from 20.2%
in 1994. Higher costs for product warranties, and an unfavorable change in
sales mix, offset the effects of improved productivity and reduced
manufacturing spending and caused the decline in margins as a percentage of
sales.
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REXWORKS INC.
Selling, general and administrative expenses increased $1,080,000 to
$9,731,000 or 12.5% in 1995 compared to 1994 due to higher expenses related to
product development, new product introduction, 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.
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REXWORKS INC.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Current Assets $18,528,000 $22,458,000
Current Liabilities 13,297,000 16,120,000
Working Capital 5,231,000 6,338,000
Current Ratio 1.4 1.4
</TABLE>
As of December 31, 1996 accounts receivable and inventory were both lower
than the comparable amounts at December 31, 1995. The decline in receivables
reflects lower sales levels in the fourth quarter of 1996 compared to the same
period in 1995. The decline in inventories reflects management's efforts to
reduce the level of finished machine and work in process inventories during the
course of 1996. Lower levels of inventory and receivables led to
correspondingly lower levels of accounts payable and bank debt at December 31,
1996 compared to 1995.
Inflation did not have a significant impact on the Company's operations in
1996 and is not expected to have a significant impact on the Company's
operations in 1997.
CAPITALIZATION
The following table presents the relationships between long term debt and
stockholders' investment as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Long term debt $2,984,000 $4,835,000
Stockholders' investment 8,002,000 7,944,000
Total long term debt as a ratio to stockholders'
investment 0.4 0.6
</TABLE>
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REXWORKS INC.
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 $2,415,000 at
December 31, 1996, 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 9.375%; interest rates on the balance of the line vary with the prime
rate. The variable rate at December 31, 1996 was 8.50%. 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 2.5 to 1.0. The agreement also limits capital
expenditures to no more than $1,000,000 in any year.
At December 31, 1996 the Company had $2,927,000 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, 1996 and 1995
For Years Ended December 31, 1996, 1995 and 1994:
- 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, 1996 and
1995, 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, 1996. 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, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
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 14 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.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
February 11, 1997.
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REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 5,000 $ 10,000
Accounts receivable, less reserves of
$125,000 in both years 9,231,000 10,308,000
Inventories 8,832,000 12,111,000
Other current assets 460,000 29,000
------------ ------------
Total current assets 18,528,000 22,458,000
------------ ------------
DEFERRED INCOME TAX BENEFIT 969,000 917,000
NONCOMPETE AGREEMENT 1,228,000 1,818,000
OTHER ASSETS 918,000 981,000
PROPERTY, PLANT AND EQUIPMENT:
Land 36,000 36,000
Buildings and land improvements 1,445,000 1,397,000
Machinery and equipment 6,300,000 5,863,000
------------ ------------
7,781,000 7,296,000
Less accumulated depreciation (5,141,000) (4,571,000)
------------ ------------
Net property, plant and equipment 2,640,000 2,725,000
------------ ------------
TOTAL ASSETS $24,283,000 $28,899,000
============ ============
</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 BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' INVESTMENT 1996 1995
- ------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term debt $ 4,088,000 $5,362,000
Accounts payable - trade 4,453,000 5,503,000
Accrued expenses:
Salaries and other benefits 964,000 786,000
Warranty 1,323,000 1,380,000
Product liability defense 1,657,000 1,560,000
Other 521,000 1,214,000
Deferred income taxes 253,000 232,000
Advances from customers 38,000 83,000
----------- -----------
Total current liabilities 13,297,000 16,120,000
LONG TERM DEBT 2,984,000 4,835,000
----------- -----------
Total liabilities 16,281,000 20,955,000
STOCKHOLDERS' INVESTMENT:
Common stock, $.12 par value,
4,300,000 shares authorized, 1,896,668 and
1,886,668 shares issued and outstanding,
respectively 227,000 226,000
Additional paid-in capital 7,023,000 6,995,000
Treasury stock (26,000) (26,000)
Retained earnings 778,000 749,000
----------- -----------
Total stockholders' investment 8,002,000 7,944,000
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $24,283,000 $28,899,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
17
<PAGE> 18
===============================================================================
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -----------
<S> <C> <C> <C>
NET SALES $48,373,000 $52,479,000 $51,023,000
COST OF SALES 38,628,000 42,150,000 40,732,000
----------- ----------- -----------
Gross profit 9,745,000 10,329,000 10,291,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 9,261,000 9,731,000 8,651,000
----------- ----------- -----------
Income from operations 484,000 598,000 1,640,000
OTHER (EXPENSE) INCOME:
Interest expense (811,000) (907,000) (699,000)
Other 30,000 (110,000) 260,000
----------- ----------- -----------
(Loss) income before income taxes and
extraordinary item (297,000) (419,000) 1,201,000
(BENEFIT) PROVISION
FOR INCOME TAXES (112,000) (159,000) 40,000
----------- ----------- -----------
Net (loss) income before extraordinary item (185,000) (260,000) 1,161,000
EXTRAORDINARY ITEM
Gain on early retirement of debt, net
of income taxes of $129,000 214,000 -- --
----------- ----------- -----------
NET INCOME (LOSS) $ 29,000 $ (260,000) $ 1,161,000
=========== =========== ===========
PER SHARE AMOUNTS:
Net (loss) income before extraordinary item (0.09) (0.13) 0.59
Extraordinary item 0.11 -- --
Net income (loss) 0.02 (0.13) 0.59
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements of operations.
18
<PAGE> 19
===============================================================================
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION> Additional Retained
Common Stock Paid-in Treasury Stock Earnings
Shares Amount Capital Shares Amount (Deficit)
--------- -------- ----------- ------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
Issuance of Shares 10,000 1,000 28,000 -- -- --
Net Income -- -- -- -- -- 29,000
--------- -------- ---------- ------ -------- ---------
Balance December 31, 1996 1,896,668 $227,000 $7,023,000 (2,336) $(26,000) $778,000
========= ======== ========== ====== ======== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
19
<PAGE> 20
===============================================================================
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,000 $ (260,000) $ 1,161,000
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization 1,282,000 1,283,000 1,210,000
Gain (loss) on sale of equipment -- 18,000 (6,000)
Gain on early retirement of debt, net of taxes (214,000) -- --
(Credit) provision for deferred income taxes (160,000) (210,000) 98,000
Changes in assets and liabilities:
Decrease in accounts receivable 1,077,000 (2,556,000) (2,075,000)
Decrease (increase) in inventories 3,279,000 (2,065,000) (2,409,000)
(Increase) decrease in other assets (481,000) 237,000 (86,000)
Net (decrease) increase in other current liabilities (1,487,000) 1,546,000 1,872,000
------------ ----------- -----------
Net cash provided by (used for) operating activities 3,325,000 (2,007,000) (235,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (495,000) (523,000) (1,026,000)
Proceeds from the sale of equipment -- 4,000 44,000
------------ ----------- -----------
Net cash used for investing activities (495,000) (519,000) (982,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayment) borrowings under line-of-credit agreement (1,736,000) 2,464,000 1,613,000
Noncompete liability payments (1,099,000) -- (426,000)
Exercise of stock options -- 62,000 30,000
------------ ----------- -----------
Net cash (used for) provided by financing activities (2,835,000) 2,526,000 1,217,000
------------ ----------- -----------
Net decrease in cash (5,000) -- --
CASH AT BEGINNING OF YEAR 10,000 10,000 10,000
------------ ----------- -----------
CASH AT END OF PERIOD $ 5,000 $ 10,000 $ 10,000
============ =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 968,000 $ 731,000 $ 818,000
Income taxes paid 157,000 49,000 368,000
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
20
<PAGE> 21
===============================================================================
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(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 7.
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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Lower of FIFO cost or market:
Raw materials $ 146,000 $350,000
Work-in-process and components 6,550,000 6,780,000
Finished goods 4,825,000 7,431,000
----------- -----------
11,521,000 14,561,000
Excess of FIFO over LIFO cost (2,689,000) (2,450,000)
----------- -----------
Total inventories at LIFO $ 8,832,000 $12,111,000
=========== ===========
</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:
<TABLE>
<S> <C>
Buildings and land improvements 6-20 years
Machinery and equipment 4-15 years
</TABLE>
21
<PAGE> 22
===============================================================================
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.
Effective January 1, 1996, the Company adopted the provisions of the
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 121 requires that
long-lived assets and certain identified intangibles be reviewed for
impairment whenever circumstances indicate that the carrying amount
of an asset may not be recoverable. Adoption of this statement did
not have a significant impact on the Company's results of
operations.
Noncompete Agreement and Other Intangible Assets
The Company has a noncompete agreement in place with the former
owner of the Maxigrind product line. The related asset had an
original value of $3,500,000 and is being amortized over six years,
the term of the agreement. Accumulated amortization on the
non-compete agreement was $2,272,000 and $1,682,000 at December 31,
1996 and 1995, respectively.
The Company also acquired patent rights from the former owner of
the Maxigrind product line for $820,000, which are being amortized
over 17 years. Accumulated amortization on patents was $187,000 and
$141,000 at December 31, 1996 and 1995, respectively. Patents are
included in other assets on the Consolidated Balance Sheets.
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 12% of net sales in 1996, 17% in 1995 and
11% in 1994, respectively.
Reclassifications
Certain prior year financial statement amounts have been
reclassified to conform with their current year classification.
(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 91% of 1996 sales
(84% in 1995 and 91% in 1994) 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. No one customer accounted for more than 10% of sales in 1996
and 1994.
22
<PAGE> 23
===============================================================================
REXWORKS INC.
(3) DEBT
Debt as of December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Borrowings under line-of-credit agreement $ 7,072,000 $ 8,809,000
Liability for noncompete payments to be made to
Norkot's sole shareholder, discounted at 8% 0 1,388,000
Less: Current portion (4,088,000) (5,362,000)
---------- -----------
Long term portion of debt $ 2,984,000 $ 4,835,000
=========== ===========
</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 1, 1997. 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 $2,415,000 at December 31,
1996, 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
9.375%; interest rates on the balance of the line vary with the prime
rate. The variable rate at December 31, 1996 was 8.50%. 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 2.5 to 1.0. 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
$2,984,000 during 1997; therefore, that amount has been classified as long
term.
Additional data related to borrowings due under the line-of-credit
agreement are summarized below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
At December 31:
Unused line-of credit $2,928,000 $1,191,000
Interest rate 8.50% 9.25%
For the year ended December 31:
Maximum outstanding balance $9,527,000 $9,256,000
Average outstanding balance 7,921,000 7,549,000
</TABLE>
23
<PAGE> 24
===============================================================================
REXWORKS INC.
The weighted average interest rate on all borrowings was 9.3% in 1996 and
10.2% in 1995.
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.
The original terms of the noncompete agreement with the former owner of
the Maxigrind product line (see note 1) provided for the Company to make
payments over future years. During 1996, the Company negotiated an
arrangement with the former owners of the Maxigrind product line to settle
in full the remaining liability and interest due under this agreement for
$860,000. The early retirement of this liability resulted in an
extraordinary gain of $214,000, after related income taxes, computed as
follows:
<TABLE>
<S> <C>
Remaining liability $1,149,000
Accrued interest 54,000
----------
Total 1,203,000
Settlement amount 860,000
----------
Gain on early retirement before income taxes 343,000
Income taxes 129,000
----------
Net gain on early retirement of debt $ 214,000
==========
</TABLE>
(4) INCOME TAXES
The Company accounts for income taxes as prescribed by SFAS 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.
Information with respect to the Company's income tax provisions (credits)
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CURRENT:
Federal $38,000 $44,000 $351,000
State 10,000 7,000 19,000
Reversal of valuation allowance -- -- (428,000)
--------- --------- --------
Total current 48,000 51,000 (58,000)
DEFERRED (160,000) (210,000) 98,000
--------- --------- --------
Total (credit) provision $(112,000) $(159,000) $40,000
========= ========= ========
</TABLE>
24
<PAGE> 25
===============================================================================
REXWORKS INC.
A reconciliation of the Company's effective income tax rate to the
statutory federal tax rate for the years ended December 31, 1996, 1995 and 1994
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Statutory federal income tax rate (34.0%) (34.0%) 34.0%
State income taxes, net of
federal benefit (2.2%) (1.6%) 3.5%
Change in valuation allowance -- -- (35.6%)
Other (1.5%) (2.3%) 1.4%
------- ------- ------
Effective income tax rate (37.7%) (37.9%) 3.3%
======= ======= ======
</TABLE>
Temporary differences which give rise to net deferred taxes under FASB
Statement No. 109 as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current deferred tax (liabilities) assets:
Inventory basis $(1,731,000) $(1,622,000)
Accruals and reserves not currently deductible 1,478,000 1,390,000
----------- -----------
Net current deferred tax (liability) (253,000) (232,000)
----------- -----------
Long term deferred tax assets:
Alternative minimum tax credit carryforwards 230,000 228,000
Property, plant and equipment 117,000 129,000
Intangibles 622,000 560,000
----------- -----------
Net long term deferred tax asset 969,000 917,000
----------- -----------
Net deferred tax asset $716,000 $685,000
=========== ===========
</TABLE>
(5) 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 1996, 1995 or 1994 and the Board of Directors has not
authorized any future contributions to the Plan at this time.
25
<PAGE> 26
===============================================================================
REXWORKS INC.
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. No awards
were granted under the program for 1996 or 1995.
On December 30, 1996 the Company granted Michael C. Hadjinian, the
Chairman of the Board and former President, options to purchase 50,000
shares of Rexworks stock at an exercise price of $2.25 per share. The
options expire on November 30, 1997.
Effective January 1, 1996, the Company adopted the disclosure provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation." This statement
establishes financial accounting and reporting standards for stock-based
employee compensation. The Company will 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
impact of the pro forma compensation cost on the earnings per share
calculations for stock options granted in 1996 and 1995 was not material
to the consolidated financial statements.
The number of options granted and outstanding is summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ----------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ --------- --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 338,413 4.03 337,060 3.86 332,060 3.71
Granted 50,000 2.25 30,000 4.25 20,000 4.94
Exercised -- -- (28,647) 2.16 (15,000) 2.00
Expired (75,000) 4.00 -- -- -- --
--------- --------- --------
Outstanding at December 31 313,413 3.76 338,413 4.03 337,060 3.86
========= ========= ========
Exercisable at end of year 313,413 3.76 295,080 4.23 262,060 4.10
========= ========= ========
Authorized for future issuance 312,000 362,000 392,000
========= ========= ========
</TABLE>
Of the 313,413 options outstanding at December 31, 1996, 218,413 have
exercise prices between $2.00 and $4.00, with a weighted average exercise
price of $2.84 and a weighted average remaining contractual life of 3.6
years. An additional 60,000 options outstanding at December 31, 1996 have
exercise prices between $4.00 and $6.00, with a weighted average exercise
price of $4.65 and a weighted average remaining contractual life of 7.1
years. The remaining 35,000 options outstanding have an exercise price
of $8.00 and a weighted average remaining contractual life of 3.3 years.
(6) 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 1996 and 1995, and $87,000 in 1994.
26
<PAGE> 27
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REXWORKS INC.
(7) 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>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance beginning of year $1,560,000 $1,550,000 $1,175,000
Provisions 800,000 793,000 707,000
Payments (703,000) (783,000) (332,000)
---------- ---------- ----------
Balance, end of year $1,657,000 $1,560,000 $1,550,000
========== ========== ==========
</TABLE>
As of December 31, 1996, there were eight open product liability cases
against the Company. There is a possibility that up to four of these
cases, including two of the more significant cases, may come to trial in
1997. 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 1997, 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.
27
<PAGE> 28
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REXWORKS INC.
(8) 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>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Weighted average shares outstanding 1,889,334 1,881,947 1,854,435
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 23,012 47,867 112,828
--------- --------- ---------
Weighted average common shares and
common share equivalents 1,912,346 1,929,814 1,967,263
========= ========= =========
</TABLE>
(9) RESEARCH AND DEVELOPMENT
The Company expenses research and development cost as incurred. These
costs, net of proceeds from sales of prototypes, were $745,000, $996,000,
and $721,000 in 1996, 1995 and 1994 respectively.
(10) SALES OF ACCOUNTS RECEIVABLE
The Company has an agreement with Bank One - Milwaukee that allows the
sale of certain qualified receivables, with recourse, up to a maximum of
$7,000,000. The amount of receivables that had been sold to Bank One, but
not yet collected from customers, was $1,621,000 and $5,944,000 at
December 31, 1996 and 1995, respectively. The costs associated with the
sales were $84,000 in 1996 and $182,000 in 1995, and are included in other
income and expense in the accompanying statements of income.
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which establishes standards for asset and
liability recognition when transfers occur. This statement, effective
January 1, 1997, specifies conditions for when control has been surrendered
which determines if sale treatment of the receivables would be allowed.
At the present time, this new standard is not expected to materially impact
the Company's financial position or results of operation.
28
<PAGE> 29
===============================================================================
REXWORKS INC.
(11) QUARTERLY FINANCIAL AND STOCK PRICE INFORMATION (UNAUDITED)
Quarterly financial data for the years ended December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996 First Second Third Fourth Total
- ---- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $13,477,000 $14,304,000 $10,395,000 $10,197,000 $48,373,000
Gross profit 3,045,000 2,819,000 1,956,000 1,925,000 9.745,000
Income (loss) before
income taxes and
extraordinary item 305,000 208,000 (333,000) (477,000) (297,000)
Income (loss) before
extraordinary item 189,000 131,000 (208,000) (297,000) (185,000)
Extraordinary item -- -- 214,000 -- 214,000
Net income 189,000 131,000 6,000 (297,000) 29,000
Net income (loss) per share:
Before extraordinary item 0.10 0.07 (0.11) (0.15) (0.09)
Extraordinary item -- -- 0.11 -- .11
Net income (loss) 0.10 0.07 -- (0.15) 0.02
Dividends per share -- -- -- -- --
Trade Price:
High 3.50 3.50 3.38 3.00
Low 2.25 2.75 2.63 2.25
</TABLE>
<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 2,693,000 2,092,000 2,755,000 2,789,000 10,329,000
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(loss) per share 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
</TABLE>
29
<PAGE> 30
===============================================================================
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 25, 1997
(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, 1996 and 1995 and for the years ended December 31,
1996, 1995 and 1994, 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.
30
<PAGE> 31
===============================================================================
REXWORKS INC.
2. Financial Statement Schedule
The financial statement schedule appended hereto, as required at December 31,
1996, 1995 and 1994 and for the years then ended, consists of the following:
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 the Company 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.
31
<PAGE> 32
===============================================================================
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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, 1996 $125,000 $(21,000) $ 21,000 $125,000
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
</TABLE>
32
<PAGE> 33
===============================================================================
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/ Laurance R. Newman
------------------------
President and Chief Executive
Officer
Date: March 26, 1997
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Michael C. Hadjinian
- ---------------------------- Chairman and Director March 26, 1997
M.C. Hadjinian
/s/ Laurance R. Newman
- ------------------------- Chief Executive Officer March 26, 1997
L.R. Newman
Vice President -
/s/ Thomas D. Lauerman Administration, Secretary,
- ------------------------- Treasurer and Chief March 26, 1997
T.D. Lauerman Financial Officer
/s/ Jeffrey L. Bleustein
- ----------------------------- Director March 26, 1997
J.L. Bleustein
/s/ Fred L. Brengel
- --------------------------- Director March 26, 1997
F.L. Brengel
/s/ Warner C. Frazier
- --------------------------- Director March 26, 1997
W.C. Frazier
/s/ Bruce A. Beda
- -------------------------- Director March 26, 1997
B.A. Beda
/s/ Richard A. Van Deuren
- --------------------------- Director March 26, 1997
R.A. Van Deuren
</TABLE>
33
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,000
<SECURITIES> 0
<RECEIVABLES> 9,356,000
<ALLOWANCES> 125,000
<INVENTORY> 8,832,000
<CURRENT-ASSETS> 18,528,000
<PP&E> 7,781,000
<DEPRECIATION> 5,141,000
<TOTAL-ASSETS> 24,283,000
<CURRENT-LIABILITIES> 13,297,000
<BONDS> 2,984,000
227,000
0
<COMMON> 0
<OTHER-SE> 7,775,000
<TOTAL-LIABILITY-AND-EQUITY> 24,283,000
<SALES> 48,373,000
<TOTAL-REVENUES> 48,373,000
<CGS> 38,628,000
<TOTAL-COSTS> 38,628,000
<OTHER-EXPENSES> (30,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 811,000
<INCOME-PRETAX> (297,000)
<INCOME-TAX> (112,000)
<INCOME-CONTINUING> (185,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 214,000
<CHANGES> 0
<NET-INCOME> 29,000
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
