<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 office) (Zip Code)
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 August 8, 1997.
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,
1996 and 1995 and notes thereto, included in the Company's 1996 Form 10-K.
2
<PAGE> 3
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30 DECEMBER 31
ASSETS 1997 1996
-------------------- --------------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 5,000 $ 5,000
Accounts receivable (less reserves of $125,000) 10,185,000 9,231,000
Inventories 8,674,000 8,832,000
Other current assets 351,000 460,000
----------- -----------
Total current assets 19,215,000 18,528,000
----------- -----------
DEFERRED INCOME TAX BENEFIT 969,000 969,000
NONCOMPETE AGREEMENT 933,000 1,228,000
OTHER ASSETS 859,000 918,000
PROPERTY, PLANT AND EQUIPMENT:
Land 36,000 36,000
Buildings and land improvements 1,445,000 1,445,000
Machinery and equipment 6,372,000 6,300,000
----------- -----------
7,853,000 7,781,000
Less accumulated depreciation (5,451,000) (5,141,000)
----------- -----------
Net property, plant and equipment 2,402,000 2,640,000
----------- -----------
TOTAL ASSETS $24,378,000 $24,283,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
3
<PAGE> 4
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED
LIABILITIES AND JUNE 30 DECEMBER 31
STOCKHOLDERS' INVESTMENT 1997 1996
-------------------- --------------------
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of long term debt $ 4,621,000 $ 4,088,000
Accounts payable - trade 4,200,000 4,453,000
Accrued expenses:
Salaries and other benefits 912,000 964,000
Warranty 1,272,000 1,323,000
Product liability defense 1,747,000 1,657,000
Other 484,000 521,000
Deferred income taxes 298,000 253,000
Advances from customers 132,000 38,000
----------- -----------
Total current liabilities 13,666,000 13,297,000
LONG TERM DEBT 2,984,000 2,984,000
----------- -----------
Total liabilities 16,650,000 16,281,000
STOCKHOLDERS' INVESTMENT:
Common stock, $.12 par value,
4,300,000 shares authorized, 1,896,668
issued and outstanding 227,000 227,000
Additional paid-in capital 7,023,000 7,023,000
Treasury stock (26,000) (26,000)
Retained earnings 504,000 778,000
----------- -----------
Total stockholders' investment 7,728,000 8,002,000
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $24,378,000 $24,283,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
4
<PAGE> 5
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
----------------------------------- ----------------------------------
1997 1996 1997 1996
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $11,364,000 $14,304,000 $23,614,000 $27,781,000
COST OF SALES 9,398,000 11,485,000 19,253,000 21,917,000
------------ ------------ ------------ ------------
Gross profit 1,966,000 2,819,000 4,361,000 5,864,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 2,307,000 2,402,000 4,415,000 4,934,000
------------ ------------ ------------ ------------
Income from operations (341,000) 417,000 (54,000) 930,000
OTHER (EXPENSE) INCOME:
Interest expense (173,000) (231,000) (346,000) (458,000)
Other (2,000) 22,000 (46,000) 41,000
------------ ------------ ------------ ------------
Income before income taxes (516,000) 208,000 (446,000) 513,000
PROVISION FOR INCOME TAXES (197,000) 77,000 (172,000) 193,000
------------ ------------ ------------ ------------
Net Income (319,000) 131,000 (274,000) 320,000
Retained Earnings,
Beginning of period 823,000 938,000 778,000 749,000
------------ ------------ ------------ ------------
RETAINED EARNINGS, END OF PERIOD $ 504,000 $ 1,069,000 $ 504,000 $ 1,069,000
=========== =========== =========== ===========
NET INCOME PER SHARE $ (0.16) $ 0.07 $ (0.14) $ 0.17
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 1,920,000 1,911,052 1,903,000 1,911,459
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements of operations.
5
<PAGE> 6
REXWORKS INC.
REXWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (274,000) $ 320,000
Adjustments to reconcile net income to net cash
provided by (used for) operating
activities:
Depreciation and amortization 664,000 667,000
Provision for deferred income taxes 45,000 118,000
Changes in assets and liabilities:
Increase in accounts receivable (954,000) (6,000)
Decrease in inventories 158,000 1,125,000
Decrease (increase) in other current assets 109,000 (36,000)
Net decrease in other current liabilities (209,000) (1,528,000)
-------------- -------------
Net cash provided by operating activities (461,000) 660,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (72,000) (227,000)
-------------- -------------
Net cash (used for) investing activities (72,000) (227,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line-of-credit
agreement 533,000 (190,000)
Noncompete liability principal payments - (239,000)
-------------- -------------
Net cash provided by financing activities 533,000 (429,000)
-------------- -------------
Net increase in cash - 4,000
CASH AT BEGINNING OF YEAR 10,000 10,000
-------------- -------------
CASH AT END OF QUARTER $ 10,000 $ 14,000
============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $347,000 $ 572,000
Income taxes paid (87,000) 77,000
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
<PAGE> 7
REXWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(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 six
month period ended June 30, 1997 are not necessarily indicative of results
to be expected for the entire 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 June 30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
----------- -----------
<S> <C> <C>
At lower of cost (FIFO) or market:
Raw materials $ 116,000 $ 146,000
Work -in-process and components 5,724,000 6,550,000
Finished goods 5,523,000 4,825,000
----------- -----------
11,363,000 11,521,000
Excess of FIFO over LIFO cost (2,689,000) (2,689,000)
----------- -----------
Total inventories at LIFO $ 8,674,000 $ 8,832,000
=========== ===========
</TABLE>
(3) Debt
Debt as of June 30, 1997 and December 31, 1996 is as follows:
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
------------- ------------
<S> <C> <C>
Borrowings under line-of-credit
agreement $ 7,605,000 $ 7,072,000
Less: Current portion (4,621,000) (4,088,000)
------------ ------------
Long term portion of debt $ 2,984,000 $ 2,984,000
============ =============
</TABLE>
7
<PAGE> 8
REXWORKS INC.
(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 1996 Form 10-K, Rexworks is self-insured against product
liability claims, because, in the opinion of management, the premiums the
Company would pay for insurance are cost prohibitive and not justified by
the Company's historical loss experience. The Company is currently party
to a number of legal proceedings involving product liability claims in a
number of states, some of which involve significant claims. These
proceedings are now pending before courts in various stages or are in
discovery stages. In most instances, pending claims allege the Company
produced faulty product which led to injury. The Company generally
denies liability and intends to vigorously defend these proceedings, but
considers settlements where appropriate.
There is an inherent uncertainty as to the eventual resolution of
unsettled claims. However, in the opinion of management, based in part
on advice from its outside legal counsel, any costs, losses and
settlements with respect to existing claims in excess of established
reserves will not have a material impact on the Company's operating
income.
(5) Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 128, "Earnings per
Share," which is effective for periods ending after December 31, 1997.
This Statement revised the calculation of earnings per share. The
Company does not expect the impact of adoption to be material to the
financial statements.
(6) Reporting Comprehensive Income
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards Number 130, "Reporting Comprehensive
Income," which is effective for periods beginning after December 15,
1997. This Statement establishes standards for the reporting and display
of comprehensive income and its components in a full set of general
purpose financial statements. The Company does not expect the impact of
adoption to be material to the financial statements.
(7) Disclosures About Segments of an Enterprise and Related Information
The Financial Accounting Standards Board also recently lissued Statement
of Financial Accounting Standards Number 131, "Disclosures About Segments
of an Enterprise and Related Information," which is effective for periods
beginning after December 15, 1997. This Statement revised the rules for
reporting information about segments of an enterprise in financial
statements. The Company does not expect the impact of adoption to be
material to the financial statements.
8
<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 June 30, 1997 and December 31, 1996 is as follows:
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
------- -----------
<S> <C> <C>
Current Assets $19,215,000 $18,528,000
Current Liabilities 13,666,000 13,297,000
Working Capital 5,549,000 5,231,000
Current Ratio 1.4 1.4
</TABLE>
Receivables increased by $954,000 to $10,185,000 from December 31, 1996 to June
30, 1997. The increase was caused by higher levels of Trashmaster and service
parts receivables at June 30, 1997 compared to December 31, 1996. The current
portion of bank borrowings increased to $4,621,000 at June 30, 1997 from
$4,088,000 at December 31, 1996. The increased borrowings were used to
partially fund the increase in receivables mentioned earlier.
At June 30, 1997 the Company had $2,395,000 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.
9
<PAGE> 10
REXWORKS INC.
RESULTS OF OPERATIONS
The Second Quarter, 1997 Compared To The Second Quarter, 1996
Net sales for the second quarter of 1997 decreased by $2,940,000 (20.6%) to
$11,364,000 from the $14,304,000 reported in the second quarter of 1996. Of
the total sales decline, $1,184,000 (40%) was related to the mixer product
line, where soft market demand has had a significant impact on 1997 sales. An
additional $1,474,000 (50%) of the sales decline was associated with the
grinder product line, where domestic sales were unexpectedly slow to develop in
the second quarter. Grinder export sales continue to be quite strong. The
balance of the sales decline of $282,000 (10%) occurred in the Company's
Trashmaster, service parts, and contract machining lines.
Gross profit declined by $853,000 (30.3%) to $1,966,000 from the $2,819,000
reported in the second quarter of 1996. Gross profit as a percentage of net
sales declined to 17.3% compared to 19.7% in the first quarter of 1996.
Factors which contributed to lower gross profits in the second quarter of 1997
compared to the same period one year ago, and their percentage share of the
total decline, include lower sales volume (65%), lower gross profit percentages
in the Company's service parts business (16%), unfavorable manufacturing
variances due to lower levels of production (15%), and higher warranty costs
(4%).
Selling, general and administrative expenses declined by $95,000 (4.0%) to
$2,307,000 compared to $2,402,000 during the same period one year ago.
Significant spending reductions for salaries and advertising were partially
offset by higher costs associated with new product development programs,
increased provisions for legal costs associated with product liability
ligitation, and severance payments for a number of salaried employees who were
terminated near the end of the quarter.
Interest expense declined by $58,000 (25.1%) to $173,000 during the second
quarter of 1997 compared to $231,000 during the same period one year ago. The
reduction was due to lower levels of average indebtedness during the second
quarter of 1997 compared to the same period in 1996.
The provision for income tax expense was recorded at effective rates of 38% and
37% in 1997 and 1996, respectively. Changes in tax expense are largely the
result of changes in the level of pre-tax income.
The Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30,
1996
Net sales in the first half of 1997 declined by $4,167,000 (15.0%), from
$27,781,000 to $23,614,000. The sales decline affected all of the Company's
product lines, with the Mixer and Grinder lines most affected (sales declined
18.8% and 14.6%, respectively). The declines were smaller in the Company's
Trashmaster and service parts lines. The Company continues to experience weak
market demand for its concrete mixers, and domestic sales demand for grinder
products has been lower than the Company's expectations and the prior year's
results
10
<PAGE> 11
REXWORKS INC.
Gross profit declined by $1,503,000 (25.6%), to $4,361,000 in the first half of
1997 compared to $5,864,000 in the same period one year ago. Gross profit as a
percentage of sales fell from 21.1% in 1996 to 18.5% in 1997. Factors
contributing to the decline in margin dollars (and the approximate percentage
contribution) include lower sales volume (62%), declines in gross profit
percentages associated with a less favorable mix of sales within the Company's
mixer and service parts businesses in 1997 compared to 1996 (18%), higher
warranty costs (13%), and unfavorable manufacturing variances caused by lower
levels of production (7%).
Selling, general, and administrative expenses declined by $519,000 (10.5%) to
$4,415,000 in the first half of 1997 from $4,934,000 in the same period last
year. Approximately 73% of the total spending reduction resulted from lower
costs for salaries and fringe benefits, and reflects the impact of of lower
levels of average employment in 1997 compared to 1996.
Interest expense declined by $112,000 (24.5%) to $346,000 in the first half of
1997 compared to $458,000 in the same period one year ago. The reduction
reflects lower average borrowing levels in 1997 compared to 1996.
Other income and expense changed to $46,000 of expense in 1997 from $41,000 of
income in 1996. The 1997 amounts include $80,000 of expense associated with a
dealer interest subsidy program; there was no comparable expense in the same
period in 1996.
The provision for income tax expense was recorded at effective rates of 39% and
38% in 1997 and 1996, respectively. Changes in tax expense are largely the
result of changes in the level of pre-tax income.
Forward Looking Statements
The forward-looking statements, or statements based on the Company's belief,
expectation, or opinion in this report are subject to many uncertainties. The
Company's actual results may differ materially from those described in the
forward-looking or other statements. Factors which could cause such a variance
to occur include, but are not limited to, changes in general economic
conditions in the geographical areas and market segments that the Company is
targeting for its products, access to sufficient debt or equity capital to meet
the Company's operating and financial needs, the inherent uncertainty of
litigation involving the Company's products, and the quality or price of
similar or comparable products offered by the Company's competitors.
11
<PAGE> 12
REXWORKS INC.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
------- ---------------------------------------
3.1 Restated Certificate of Incorporation.(1)
3.2 By-laws of Company, as amended.(1)
---------------
(1) Incorporated herein by reference to the Company's
Registration Statement on Form S-18, Registration Number
33-12488 effective April 21, 1987.
(b) Reports on Form 8-K
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.
August 11, 1997 /s/ Thomas D. Lauerman
------------------ --------------------------------
Date Thomas D. Lauerman
Vice President
and Chief Financial Officer
August 11, 1997 /s/ Laurance R. Newman
------------------ --------------------------------
Date Laurance R. Newman
President and Chief
Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,000
<SECURITIES> 0
<RECEIVABLES> 10,310,000
<ALLOWANCES> 125,000
<INVENTORY> 8,674,000
<CURRENT-ASSETS> 19,215,000
<PP&E> 7,853,000
<DEPRECIATION> 5,451,000
<TOTAL-ASSETS> 24,378,000
<CURRENT-LIABILITIES> 13,666,000
<BONDS> 2,984,000
0
0
<COMMON> 227,000
<OTHER-SE> 7,501,000
<TOTAL-LIABILITY-AND-EQUITY> 24,378,000
<SALES> 11,364,000
<TOTAL-REVENUES> 11,364,000
<CGS> 9,398,000
<TOTAL-COSTS> 9,398,000
<OTHER-EXPENSES> 2,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,000
<INCOME-PRETAX> (516,000)
<INCOME-TAX> (197,000)
<INCOME-CONTINUING> (319,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (319,000)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
