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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended December 31, 1997 Commission File
No. 0-1709
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RVM INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 31-1515410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
753 W. Waterloo Road, Akron, OH 44314-1519
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 753-4545.
Not Applicable
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(Former name, former address and former fiscal year,
if changed from last report)
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
--- ---
The number of shares outstanding of the issuer's classes of common stock as of
February 13, 1998 is: Common stock shares 1,936,755
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RVM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
1997
-----------------------------------
ASSETS December 31 March 31
------------ -----------
Current assets:
Cash and cash equivalents $ 505,627 $ 468,572
Receivables:
Trade, net of allowance for doubtful
accounts of $127,000 and $112,000
in December and March 8,293,015 6,506,008
Related party 314,612 120,008
Inventories 10,353,747 8,677,160
(Excess of replacement or current cost
over stated values was $2,010,000
and $1,955,000 in December and March)
Deferred income taxes 453,950 413,500
Other current assets 279,112 211,648
----------- -----------
Total current assets 20,200,063 16,396,896
Property, plant and equipment, net 20,782,515 19,021,289
Funds held by trustees for capital expenditures 2,658,300 2,762,242
Other assets 343,622 386,948
----------- -----------
Total assets $43,984,500 $38,567,375
=========== ===========
See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS, Continued
1997
--------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY December 31 March 31
----------- ----------
Current liabilities:
Note payable - bank $ 0 $ 3,581,881
Accounts payable - trade 7,098,769 6,151,924
- related parties 245,285 382,338
Accrued expenses and liabilities:
Compensation 770,811 695,384
Product warranty 625,000 540,000
Income taxes 177,686 94,750
Other 858,457 987,843
Current portion of long-term debt:
- other 1,216,075 1,579,982
- related parties 806,200 201,549
----------- -----------
Total current liabilities 11,798,283 14,215,651
Long-term debt 8,753,925 7,880,369
Note payable - bank 12,077,267 6,358,179
Notes payable - related parties 3,224,800 3,829,451
Deferred income taxes 588,000 227,500
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Total liabilities 36,442,275 32,511,150
----------- -----------
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.01 par value; authorized shares,
3,000,000; issued 1,936,755 shares at December 31
and 1,934,255 shares at March 31 19,368 19,343
Additional capital 4,783,344 4,985,020
Retained earnings 2,739,513 1,051,862
----------- -----------
Total shareholders' equity 7,542,225 6,056,225
----------- -----------
Total liabilities and shareholders' equity $43,984,500 $38,567,375
=========== ===========
See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Nine Months Ended December 31
---------------------------------
1997 1996
------------ ------------
Net sales $ 60,128,008 $ 48,181,015
Cost of sales 50,720,850 41,571,415
------------ ------------
Gross profit 9,407,158 6,609,600
Selling, general and administrative expenses 5,128,129 4,852,977
Impairment of long-lived assets 0 371,768
------------ ------------
Income from operations 4,279,029 1,384,855
Other income 74,578 68,319
Interest expense (1,160,324) (850,976)
Loss on disposal of equipment (15,432) (41,651)
------------ ------------
Income before income taxes and cumulative
effect of accounting change 3,177,851 560,547
Provision for income taxes 1,490,200 500,400
------------ ------------
Income before cumulative effect of
accounting change 1,687,651 60,147
Cumulative effect of accounting change 211,651 0
------------ ------------
Net income 1,476,000 60,147
Reclassification of undistributed net
loss of S-corporations 211,651 713,343
Treasury stock retired 0 (20,674)
Retained earnings, beginning of period 1,051,862 180,458
------------ ------------
Retained earnings, end of period $ 2,739,513 $ 933,274
============ ============
Pro forma income data:
Net income as reported $ 1,476,000 $ 60,147
Pro forma income tax benefit 77,691 263,937
Cumulative effect of accounting change 211,651 0
------------ ------------
Pro forma net income $ 1,765,342 $ 324,084
============ ============
Pro forma basic and diluted earnings per share $.91 $.17
==== ====
See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Three Months Ended December 31
---------------------------------
1997 1996
------------ ------------
Net sales $ 20,467,723 $ 16,905,244
Cost of sales 17,019,796 14,381,090
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Gross profit 3,447,927 2,524,154
Selling, general and administrative expenses 1,897,875 1,923,598
Impairment of long-lived assets 0 371,768
------------ ------------
Income from operations 1,550,052 228,788
Other income 31,308 19,522
Interest expense (404,765) (248,959)
(Loss) gain on disposal of equipment (13,703) 53,236
------------ ------------
Income before income taxes 1,162,892 52,587
Provision for income taxes 468,418 207,000
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Net income (loss) 694,474 (154,413)
Reclassification of undistributed net
loss of S-Corporations 0 418,786
Retained earnings, beginning of period 2,045,039 668,901
------------ ------------
Retained earnings, end of period $ 2,739,513 $ 933,274
============ ============
Pro forma income data:
Net income (loss) as reported $ 694,474 $ (154,413)
Pro forma income tax benefit 0 154,951
------------ ------------
Pro forma net income $ 694,474 $ 538
============ ============
Pro forma basic and diluted earnings per share $.36 $0
==== ==
See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended December 31
-----------------------------
1997 1996
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Cash flows from operating activities:
Net Income............................................................................. $1,476,000 $ 60,147
Adjustments to reconcile net income to net cash provided
from (used for) operating activities:
Depreciation and amortization......................................................... 1,129,547 1,097,505
Deferred income taxes................................................................. 320,050 31,400
Increase (decrease) on accrued product warranty ...................................... 85,000 15,000
Increase (decrease) in allowance for doubtful accounts................................ 15,000 94,000
Cumulative effect of accounting change................................................ 205,244 0
Loss on disposal of equipment......................................................... 15,432 41,651
Impairment of long-lived assets....................................................... 0 371,768
Increase (decrease) in cash from changes in:
Receivables .......................................................................... (1,996,611) 376,220
Inventories........................................................................... (1,676,587) 1,544,447
Other assets.......................................................................... (58,418) (7,248)
Accounts payable ..................................................................... 809,792 (1,028,317)
Refundable and accrued income taxes................................................... 82,936 161,486
Accrued expenses and other liabilities................................................ ( 53,959) 17,270
----------- ----------
Net cash provided from (used for) operating activities.............................. 353,426 2,775,329
----------- ----------
Cash flows from investing activities:
Capital expenditures................................................................... (3,077,669) (3,297,748)
Investment of proceeds and income from long-term debt with trustees.................... (98,609) (132,067)
Sale of investments and release of funds held by trustees.............................. 202,551 1,858,714
Proceeds from disposal of property, plant and equipment................................ 500 291,189
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Net cash provided from (used for) investing activities.............................. (2,973,227) (1,279,912)
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Cash flows from financing activities:
Payments on long-term debt............................................................. (1,290,351) (1,561,543)
Proceeds from (payments on) notes payable - bank, net.................................. 2,137,207 (2,541,218)
Proceeds from long-term debt, net of issuance costs.................................... 1,800,000 0
Proceeds from notes and accounts payable to related parties............................ 0 2,900,000
Payments on notes and accounts payable to related parties.............................. 0 (250,000)
Proceeds from exercise of stock options................................................ 10,000 0
Purchase of treasury stock............................................................. 0 (37,076)
----------- ----------
Net cash provided from (used for) financing activities.............................. 2,656,856 (1,489,837)
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Net increase (decrease) in cash and cash equivalents...................................... 37,055 5,580
Cash and cash equivalents at beginning of year............................................ 468,572 471,161
----------- ----------
Cash and cash equivalents at end of period................................................ $ 505,627 $ 476,741
=========== ==========
See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The information in this report reflects all adjustments which are, in
the opinion of management, necessary for a fair statement of the results
for the interim periods presented for RVM Industries, Inc. ("the
Company"). All adjustments other than those described in this report
are, in the opinion of management, of a normal and recurring nature.
These consolidated financial statements include the accounts of RVM's
wholly owned subsidiaries: Ravens, Inc. ("Ravens"), Albex Aluminum, Inc.
("Albex") and Signs and Blanks, Inc. ("SABI"). All significant
intercompany accounts and transactions have been eliminated. Certain
amounts in the financial statements were reclassified to conform to the
1997 presentation.
2. The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," in the quarter ended December 31, 1997. The
pronouncement replaces the presentation of primary earnings per share
with a presentation of basic earnings per share. It also requires the
presentation of diluted earnings per share reflecting the potential
dilution that could occur if all options or contracts to issue common
stock were exercised or converted. Basic earnings per share is based on
net income divided by the weighted average number of common shares
outstanding. The weighted average number of common shares outstanding
was approximately 1,936,000 in 1997 and 1,939,000 in 1996. Basic
earnings per share for the Company is the same as diluted earnings per
share.
3. Inventories consist of the following:
December 31, 1997 March 31, 1997
----------------- --------------
Raw materials $5,452,720 $5,314,901
Work in process 1,041,208 430,650
Finished goods 3,859,819 2,931,609
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$10,353,747 $8,677,160
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The reserve to reduce the carrying value of inventories from current
cost to the LIFO basis amounted to approximately $2,010,000 at December
31 and $1,955,000 at March 31.
4. On April 1, 1997, Albex and SABI changed their fiscal year ends from
December 31 to March 31 to conform with the March 31 year ends of RVM
and Ravens. $211,651 is the cumulative effect of this accounting change
and is equivalent to the net loss for Albex and SABI for the quarter
ended March 31, 1997. If the fiscal year ends had changed effective
April 1, 1996, net income for the nine months ended December 31, 1996
would have decreased by $97,796. RVM's net income for the nine months
ended December 31, 1997 includes a net loss of $293,164 for Albex and
SABI compared to a net loss of $713,343 for the nine months ended
December 31, 1996. Albex and SABI were S-corporations until March 31,
1997. The undistributed net loss was reclassified from accumulated
deficit to additional capital. The pro forma income tax benefit is the
amount that would have been recorded if Albex and SABI had been taxed as
C-corporations, based on the tax laws in effect during those periods.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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5. BUSINESS SEGMENT INFORMATION:
-----------------------------
Ravens Albex SABI Eliminations Consolidated
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Nine months ended December 31, 1997
-----------------------------------
Sales to customers $37,625,092 $13,845,336 $ 8,657,580 $60,128,008
Intersegment sales 0 5,158,009 (141) $ (5,157,868) 0
----------- ----------- ----------- ------------ -----------
Net sales $37,625,092 $19,003,345 $ 8,657,439 $ (5,157,868) $60,128,008
=========== =========== =========== ============= ===========
Income (loss) from operations $ 3,578,302 $ 190,194 $ 556,188 $ (45,655) $ 4,279,029
Nine months ended December 31, 1996
-----------------------------------
Sales to customers $32,728,208 $ 6,748,598 $ 8,704,209 $48,181,015
Intersegment sales 0 3,521,680 3,902 $(3,525,582) 0
----------- ----------- ----------- ------------ -----------
Net sales $32,728,208 $10,270,278 $ 8,708,111 $(3,525,582) $48,181,015
=========== =========== =========== ============ ===========
Income (loss) from operations $ 1,825,204 $ (867,360) $ 505,604 $ (78,593) $ 1,384,855
Three months ended December 31, 1997
------------------------------------
Sales to customers $13,873,310 $ 4,006,520 $ 2,587,893 $20,467,723
Intersegment sales 0 1,847,734 0 $(1,847,734) 0
----------- ----------- ----------- ------------ -----------
Net sales $13,873,310 $ 5,854,254 $ 2,587,893 $(1,847,734) $20,467,723
=========== =========== =========== ============ ===========
Income (loss) from operations $ 1,328,468 $ 132,515 $ 110,992 $ (21,923) $ 1,550,052
Three months ended December 31, 1996
------------------------------------
Sales to customers $11,256,006 $ 3,014,152 $ 2,635,086 $16,905,244
Intersegment sales 0 1,165,941 2,066 $(1,168,007) 0
----------- ----------- ----------- ------------ -----------
Net sales $11,256,006 $ 4,180,093 $ 2,637,152 $(1,168,007) $16,905,244
=========== =========== =========== ============ ===========
Income (loss) from operations $ 670,959 $ (490,402) $ 136,560 $ (88,329) $ 228,788
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RVM INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 1997
MATERIAL CHANGES IN FINANCIAL CONDITION
Cash from operating and financing activities was used mainly for capital
expenditures on Albex's aluminum billet casting facility and aluminum scrap
processing equipment in the nine months ended December 31, 1997. Working capital
increased to $8,401,780 at December 31 from $2,181,245 at March 31 due mainly to
replacing short-term bank financing with long-term financing and financing
increases in receivables and inventories with borrowings on the long-term line
of credit. Receivables, inventories, and accounts payable - trade increased
mainly due to a higher level of sales in November and December 1997 than in
February and March 1997.
On September 30, 1997, the Company entered into a line of credit agreement with
FirstMerit Bank, N.A. ("FM") replacing the existing agreements. The agreement
provides for borrowings up to $15,000,000 based on eligible accounts receivable
and inventories expiring on August 31, 1999. Interest is at FM's prime rate
minus 1/4%. The agreement is collateralized by accounts receivable, inventory
and equipment. The Company could have borrowed approximately $2,094,000 more
than the amount owed FM at December 31, 1997.
On September 30, 1997, the Company and FM also entered into a $5,000,000 fixed
asset term loan agreement for the financing of certain existing and to be
acquired fixed assets. Interest is at FM's prime rate. Repayment terms are
interest only for two years and principal plus interest for seven years. The
Company borrowed $1,800,000 under this agreement during the three months ended
December 31, 1997.
Jacob Pollock provided a $2,500,000 guarantee on the above loan agreements.
Although no assurances are possible, the Company believes that its cash
resources, credit arrangements, and internally generated funds will be
sufficient to meet its operating and capital expenditure requirements for
existing operations and to service its debt in the next 12 months and
foreseeable future. Cautionary statements: Demand for the Company's products is
subject to changes in general economic conditions and in the specific markets in
which the Company competes. The Company's liquidity could be adversely affected
if Albex is not successful in generating sufficient sales of billet.
The Company's sales order backlog for new trailers was approximately $8,000,000
and $5,700,000 at December 31 and May 31, 1997, respectively. The increase is
due mainly to strong industry demand for trailers and demand for the FleetHAWK
aluminum platform trailer introduced in October 1996.
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MATERIAL CHANGES IN RESULTS OF OPERATIONS
Nine Months Ended December 31, 1997 Compared to the
---------------------------------------------------
Nine Months Ended December 31, 1996
-----------------------------------
Net sales increased 24.8% mainly due to increased volume of aluminum extrusion
and billet sales by Albex and trailer sales by Ravens. The gross profit margin
increased to 15.6% from 13.7% mainly due to efficiencies gained from increased
production levels at Ravens' trailer facilities and closure of the utility
trailer division which generated losses in the prior year. Selling, general and
administrative expenses decreased to 8.5% from 10.1% of net sales as net sales
increased at a greater rate than selling, general and administrative expenses.
Interest expense increased mainly due to more debt outstanding during the period
ended December 31, 1997 versus the period ended December 31, 1996. The provision
for income taxes includes $261,000 for the establishment of deferred income tax
assets and liabilities as of April 1, 1997 when Albex and SABI converted from
S-corporations to C-corporations. See Note 4 to the consolidated financial
statements for an explanation of the cumulative effect of accounting change.
Ravens' net sales increased 15.0% due to strong industry demand and introduction
of the FleetHAWK aluminum platform trailer designed for fleet operations. Income
from operations increased 96.0% due to higher sales and plant utilization and
the closure of the utility trailer division.
Albex's net sales to customers other than Ravens and SABI increased 105.2% and
income from operations increased by $1,057,554 as Albex gained customers and
increased operating efficiencies in 1997 compared to 1996 when its production
facility was relocated from Elizabeth, West Virginia to Canton, Ohio. Albex
began producing billet for its extrusion operation and customers during the 1997
period.
Three Months Ended September 30,1997 Compared to the
----------------------------------------------------
Three Months Ended September 30, 1996
-------------------------------------
Net sales increased 21.1% mainly due to increased volume of aluminum extrusion
and billet sales by Albex and trailer sales by Ravens. The gross profit margin
increased to 16.8% from 14.9% and selling, general and administrative expenses
decreased to 9.3% from 11.4% of net sales due to the same reasons described
above.
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IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have time-sensitive software may recognize a date using "0" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, the inability to efficiently process transactions such as sales
invoices. The Company has assessed the impact of Year 2000 and formulated a plan
of action for each of its subsidiaries.
In December 1997, Ravens ordered a new computer which contains operating
software that is Year 2000 compliant. The new computer is expected to be
installed prior to March 31, 1998 at a cost of approximately $110,000 which will
be capitalized. In January 1998, Ravens retained a consulting firm to assist it
in selecting new enterprise software to replace the current integrated
manufacturing, inventory, and accounting software. Ravens expects to select the
new software prior to June 30, 1998 and expects to fully implement critical
modules of the new software prior to September 30, 1999. The cost of the new
software is expected to be less than $300,000, the majority of which will be
capitalized.
SABI will either purchase an upgrade to its software or purchase new software.
The cost is expected to be less than $50,000, the majority of which will be
capitalized.
Albex's software is Year 2000 compliant.
The above expenditures are expected to be paid with internally generated cash
and with borrowings. The Company does not have vendor or customer interfaces
that require modifications. In 1999, the Company will review the efforts
undertaken by its vendors to become Year 2000 compliant to ensure that its
operations are not adversely affected.
The costs and dates on which the Company believes that it will complete the Year
2000 modifications are based on management's best estimates, which were derived
utilizing assumptions of future events, including the continued availability of
necessary hardware, software, and personnel for implementation and training,
third party modification plans, and other factors. There can be no guarantee
that these estimates will be achieved, and actual results could differ
materially from those anticipated.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Item
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27 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on December 22, 1997 reporting the
following:
At a meeting held on December 15, 1997, the Board of Directors of the
Company approved the engagement of Ernst & Young LLP as its independent
auditors for the fiscal year ending March 31, 1998 to replace Coopers &
Lybrand L.L.P., who were dismissed as auditors of the Company. The audit
committee of the Board of Directors approved the change in auditors on
December 15, 1997.
The reports of Coopers & Lybrand L.L.P. on the Company's financial
statements for the past two fiscal years did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope, or accounting principles.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended March 31, 1997, and in the subsequent
interim period, there were no disagreements with Coopers & Lybrand L.L.P.
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of Coopers & Lybrand L.L.P. would have caused Coopers &
Lybrand L.L.P. to make reference to the matter in their report.
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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.
RVM INDUSTRIES, INC.
--------------------
(Registrant)
By: /S/John J. Stitz
-----------------------------
John J. Stitz
Chief Financial Officer
Date: February 13, 1998
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