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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 September 30, 1998 Commission File
No. 0-1709
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RVM INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(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, Ohio 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
--- ---
There were 1,936,755 shares outstanding of the Registrant's common stock as of
November 13, 1998.
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RVM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
1998
----------------------------
SEPTEMBER 30 MARCH 31
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 841,268 $ 846,128
Receivables:
Trade, net of allowance for doubtful accounts of $114,600
and $87,000 at September 30 and March 31 9,246,093 10,174,104
Related party 283,731 222,657
Inventories
(Excess of replacement or current cost over stated values was
$1,899,000 and $1,996,000 at September 30 and March 31) 14,955,783 11,396,269
Refundable income taxes 0 453,815
Deferred income taxes 789,400 789,400
Other current assets 265,417 173,596
------------ ------------
Total current assets 26,381,692 24,055,969
Property, plant and equipment, net 24,285,314 21,676,483
Funds held by trustee for capital expenditures 1,607,269 2,277,935
Other assets 315,545 337,643
------------ ------------
Total assets $ 52,589,820 $ 48,348,030
============ ============
See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS, Continued
1998
--------------------------
SEPTEMBER 30 MARCH 31
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 8,702,462 $ 8,737,487
- related parties 35,399 59,775
Accrued expenses and liabilities:
Compensation 918,391 916,349
Product warranty 800,000 775,000
Other 642,348 891,828
Income taxes 32,544 0
Current portion of long-term debt - other 1,279,220 1,278,033
- related parties 806,200 806,200
----------- -----------
Total current liabilities 13,216,564 13,464,672
Note payable - bank 16,681,636 13,579,800
Long-term debt 10,116,014 9,337,439
Notes payable - related parties 2,620,150 3,023,250
Deferred income taxes 1,054,700 1,054,700
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Total liabilities 43,689,064 40,459,861
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Shareholders' equity:
Common stock, $0.01 par value; authorized shares, 3,000,000; issued and
outstanding, 1,936,755 shares at September 30 and March 31
19,368 19,368
Additional capital 4,783,344 4,783,344
Retained earnings 4,098,044 3,085,457
----------- -----------
Total shareholders' equity 8,900,756 7,888,169
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Total liabilities and shareholders' equity $52,589,820 $48,348,030
=========== ===========
See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30
-----------------------------------------
1998 1997
----------------- -----------------
Net sales $ 41,971,679 $ 36,837,654
Cost of sales 36,154,518 31,185,645
----------------- -----------------
Gross profit 5,817,161 5,652,009
Selling, general and administrative expenses 3,272,168 2,924,761
----------------- -----------------
Income from operations 2,544,993 2,727,248
Other income (expense):
Other income 27,817 43,270
Interest expense (965,497) (755,559)
----------------- -----------------
Income before income taxes and cumulative effect
of accounting change 1,607,313 2,014,959
Provision for income taxes 594,726 1,021,782
----------------- -----------------
Income before cumulative effect of accounting
change 1,012,587 993,177
Cumulative effect of accounting change 0 (211,651)
----------------- -----------------
Net income $ 1,012,587 $ 781,526
================= =================
Basic and diluted earnings per share:
Income before cumulative effect of accounting
Change $ .52 $ .51
Cumulative effect of accounting change 0 (.11)
----------------- -----------------
Net income $ .52 $ .40
================= =================
See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30
-----------------------------------------
1998 1997
----------------- -----------------
Net sales $ 20,965,394 $ 17,972,238
Cost of sales 18,222,242 15,305,644
----------------- -----------------
Gross profit 2,743,152 2,666,594
Selling, general and administrative expenses 1,657,527 1,452,984
----------------- -----------------
Income from operations 1,085,625 1,213,610
Other income (expense):
Other income 4,515 20,870
Interest expense (489,197) (386,470)
----------------- -----------------
Income before income taxes 600,943 848,010
Provision for income taxes 222,351 315,884
----------------- -----------------
Net income $ 378,592 $ 532,126
================= =================
Basic and diluted earnings per share $ .19 $ .27
================= =================
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30
-------------------------------------
1998 1997
----------------- ----------------
Cash flows from operating activities:
Net income................................................................. $ 1,012,587 $ 781,526
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................ 977,877 741,931
Deferred income taxes.................................................... 0 320,050
Increase (decrease) on accrued product warranty.......................... 25,000 10,000
Increase (decrease) in allowance for doubtful accounts................... 27,600 38,000
Cumulative effect of accounting change................................... 0 205,244
Increase (decrease) in cash from changes in:
Receivables ............................................................ 839,337 (1,067,800)
Inventories.............................................................. (3,559,514) (1,914,922)
Other assets............................................................. (94,378) 29,788
Accounts payable ....................................................... (59,401) 1,949,383
Refundable and accrued income taxes...................................... 486,359 17,178
Accrued expenses and other current liabilities........................... (247,438) (153,371)
----------------- ----------------
Net cash provided by (used in) operating activities...................... (591,971) 957,007
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Cash flows from investing activities:
Capital expenditures....................................................... (3,562,054) (1,986,576)
Investment of income earned on investment of proceeds from long-term debt
with trustee............................................................. (43,696) (67,924)
Sale of investments and release of funds held by trustee................... 714,362 202,551
----------------- ----------------
Net cash provided by (used in) investing activities...................... (2,891,388) (1,851,949)
----------------- ----------------
Cash flows from financing activities:
Payments on long-term debt................................................. (378,693) (513,267)
Proceeds from (payments on) notes payable - bank, net...................... 3,101,836 1,467,301
Payments on notes payable to related parties............................... (403,100) 0
Proceeds from long-term debt, net of issuance costs........................ 1,158,456 0
Proceeds from exercise of stock options.................................... 0 10,000
----------------- ----------------
Net cash provided by (used in) financing activities...................... 3,478,499 964,034
----------------- ----------------
Net increase (decrease) in cash and cash equivalents.......................... (4,860) 69,092
Cash and cash equivalents at beginning of year................................ 846,128 468,572
----------------- ----------------
Cash and cash equivalents at end of period.................................... $ 841,268 $ 537,664
================= ================
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 1997 financial statements were
reclassified to conform to the 1998 presentation.
2. 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 1,936,755 in 1998 and 1,935,000
in 1997. Diluted earnings per share reflect the potential dilution that
could occur if all options or contracts to issue common stock were
issued or converted. Basic earnings per share for the Company is the
same as diluted earnings per share.
3. Inventories consist of the following:
September 30, 1998 March 31, 1998
------------------------ ---------------------
Raw materials $ 8,909,547 $ 7,233,712
Work in process 2,262,860 1,202,107
Finished goods 3,783,376 2,960,450
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$14,955,783 $ 11,396,269
======================== =====================
The reserve to reduce the carrying value of inventories from current
cost to the LIFO basis amounted to approximately $1,899,000 at
September 30 and $1,996,000 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. A charge of $211,651 was recorded as the cumulative effect
of an accounting change reflecting the net loss for Albex and SABI for
the quarter ended March 31, 1997. Albex and SABI were S-corporations
until March 31, 1997. The undistributed net loss was reclassified from
accumulated deficit to additional capital.
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5. Business Segment Information:
-----------------------------
RAVENS ALBEX SABI ELIMINATIONS CONSOLIDATED
------------ ----------- ------------ ------------ ------------
Six months ended September 30, 1998
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Sales to customers $25,866,652 $10,035,604 $6,069,423 $ 0 $41,971,679
Intersegment sales 0 3,874,412 376 (3,874,788) 0
------------ ----------- ------------ ----------- -----------
Net sales $25,866,652 $13,910,016 $6,069,799 $(3,874,788) $41,971,679
============ =========== ============ =========== ===========
Income (loss) from operations $ 2,381,080 $ (218,850) $ 428,436 $ (45,673) $ 2,544,993
Six months ended September 30, 1997
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Sales to customers $23,751,782 $ 7,016,185 $6,069,687 $ 0 $36,837,654
Intersegment sales 0 3,310,275 (141) (3,310,134) 0
------------ ----------- ------------ ----------- -----------
Net sales $23,751,782 $10,326,460 $6,069,546 $(3,310,134) $36,837,654
============ =========== ============ =========== ===========
Income (loss) from operations $ 2,248,105 $ 57,679 $ 445,196 $ (23,732) $ 2,727,248
Three months ended September 30, 1998
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Sales to customers $13,039,609 $4,931,643 $2,994,142 $ 0 $20,965,394
Intersegment sales 0 1,193,978 0 (1,193,978) 0
------------ ----------- ------------ ----------- -----------
Net sales $13,039,609 $6,125,621 $2,994,142 $(1,193,978) $20,965,394
============ =========== ============ =========== ===========
Income (loss) from operations $ 1,109,142 $ (344,787) $ 208,125 $ 113,145 $ 1,085,625
Three months ended September 30, 1997
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Sales to customers $11,021,774 $ 3,820,981 $3,129,483 $ 0 $17,972,238
Intersegment sales 0 1,350,188 0 (1,350,188) 0
------------ ----------- ------------ ----------- -----------
Net sales $11,021,774 $ 5,171,169 $3,129,483 $(1,350,188) $17,972,238
============ =========== ============ =========== ===========
Income (loss) from operations $ 929,737 $ 75,496 $ 200,041 $ 8,336 $ 1,213,610
6. The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), in the quarter
ended June 30, 1998. SFAS 130 establishes standards for the reporting
and display of "comprehensive income" and its components, in addition
to net income, in the financial statements. Comprehensive income
includes certain items such as minimum pension liability adjustments,
foreign currency translation adjustments, and unrealized gains and
losses from investing and hedging activities. Reclassification of
comparative financial statements for earlier periods is required.
Adoption of SFAS 130 did not have an effect on the Company's financial
statements for the periods presented.
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RVM INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1998
MATERIAL CHANGES IN FINANCIAL CONDITION
Cash from borrowings was used mainly for operating activities and for capital
expenditures primarily by Albex and Ravens. Albex incurred approximately
$2,000,000 mainly on its aluminum billet casting facility and related aluminum
scrap processing equipment. Ravens incurred approximately $1,500,000 mainly on a
new building in Kent, Ohio and equipment to cut aluminum coil into sheet.
Working capital increased to $13,165,128 at June 30 from $10,591,297 at March 31
due mainly to financing the increase in inventories with the long-term line of
credit. Receivables decreased due to a lower level of sales in September than
March. Raw materials inventories increased at Ravens by approximately $1,200,000
and at Albex by approximately $400,000 mainly due too overstocking. Work in
process increased mainly due to Albex producing billets classified as work in
process rather than purchasing billets classified as raw materials. Finished
goods increased mainly due to Ravens building trailers for stock in order to
maintain the same level of production.
On September 30, 1998, the Company and FirstMerit Bank, N.A. ("FM") amended its
line of credit agreement. The amended agreement provides for borrowings up to
$20,000,000 based on eligible accounts receivable and inventories and expires on
August 31, 2000. Interest is at FM's prime rate minus 1/4%. The Company could
have borrowed approximately $1,212,000 more than the amount owed at September
30, 1998. In addition, $1,396,675 was available to be borrowed under a fixed
asset line of credit.
The Company's sales order backlog for new trailers was approximately $4,900,000
and $6,900,000 at September 30 and May 31, 1998, respectively. The decrease in
backlog is due to a slower flow of orders while the Company maintained
production levels.
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 billets.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Six Months Ended September 30, 1998 Compared to the
---------------------------------------------------
Six Months Ended September 30, 1997
-----------------------------------
Net sales increased 13.9% mainly due to increased volume of trailer sales by
Ravens and extrusion sales by Albex. Albex's sales increase at lower margins
than Ravens and SABI was the principal cause of the consolidated gross profit
margin decreasing to 13.9% from 15.3%. Selling, general and
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administrative expenses were 7.8% and 7.9% of net sales in 1998 and 1997,
respectively. Interest expense increased mainly due to more debt outstanding
during the 1998 period. The provision for income taxes in the 1997 period
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.
Although income before income taxes and cumulative effect of accounting change
decreased by $407,646, the accounting change and establishment of deferred
income taxes in the 1997 period caused net income to increase by $231,061.
Ravens' net sales increased 8.9% while income from operations increased 5.8% and
the gross profit margin decreased from 17.9% to 17.3% due to operating expenses
increasing at a greater rate than sales.
Albex's net sales to customers other than Ravens and SABI increased 43.0% mainly
due to increased volume of extrusion sales. Income from operations decreased by
$276,529 as Albex experienced difficulties in producing billets during a portion
of the second quarter which caused Albex to purchase billets from third parties
at unfavorable prices and prevented Albex from absorbing more fixed casting
facility costs.
An approximate 2% increase in sales volume by SABI was offset by a price
decrease due to a decrease in the cost of aluminum. Income from operations
decreased 3.8% mainly due to a decline in the gross profit margin from 14.1% to
13.9% and increased selling costs.
Three Months Ended September 30, 1998 Compared to the
-----------------------------------------------------
Three Months Ended September 30, 1997
-------------------------------------
Net sales increased 16.7% mainly due to increased volume of trailer sales by
Ravens and extrusion sales by Albex. Albex's sales increase at lower margins
than Ravens and SABI was the principal cause of the consolidated gross profit
margin decreasing to 13.1% from 14.8%. Selling, general and administrative
expenses decreased to 7.9% from 8.1% of net sales. Interest expense increased
mainly due to more debt outstanding during the 1998 period.
Ravens' net sales increased 18.3% while income from operations increased 19.1%
even as the gross profit margin decreased from 17.5% to 16.5% due to operating
expenses increasing at a greater rate than sales.
Albex's net sales to customers other than Ravens and SABI increased 29.1% mainly
due to increased volume of extrusion sales. Income from operations decreased by
$420,283 as Albex experienced difficulties in producing billets during a portion
of the second quarter which caused Albex to purchase billets from third parties
at unfavorable prices and prevented Albex from absorbing more fixed casting
facility costs. In addition, advertising and certain administrative expenses
increased.
SABI's net sales decreased 4.3% due to an approximate 2% decrease in volume and
2% decrease in sales price. However, income from operations increased 4.0%
mainly due to an increase in the gross profit margin from 12.8% to 13.7% as
sales of higher margin finished signs increased and sales of lower margin blanks
decreased.
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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 completed its assessment of all systems that could be
significantly affected by the Year 2000. Significant affected systems are
general ledger, billing, costing, inventory, and other accounting related
systems. The Company does not have any critical manufacturing equipment that
presents Year 2000 exposure to the Company. The Company is not dependent upon
any third parties, other than a bank, which could materially impact the
Company's results of operations, liquidity, or capital resources.
Representatives of the bank have indicated that its critical systems are Year
2000 compliant. The Company has formulated a remediation and implementation plan
for each of its subsidiaries.
Ravens installed a new computer in March 1998. 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
selected the new software in June 1998 and is currently training personnel and
preparing for implementation. Ravens expects to fully implement critical modules
of the new software prior to September 30, 1999. The cost to be paid to the
software vendor for acquiring and installing the new software is expected to be
approximately $500,000, the majority of which will be capitalized. Approximately
$300,000 has been incurred and capitalized as of September 30, 1998.
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. SABI expects to make the software decision by December 31, 1998.
Management of Ravens and SABI believe that they have effective remediation and
implementation plans. If they are unable to implement critical modules prior to
the Year 2000, date sensitive processes will be performed manually or minor
modifications can be made to the current software.
Albex's software is Year 2000 compliant.
The above expenditures are expected to be paid with internally generated cash
and with borrowings.
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. In addition, disruptions in the economy
resulting from Year 2000 issues could adversely affect the Company.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of shareholders was held on September 9, 1998 at
which time the Board of Directors as previously reported were
re-elected or continued unexpired terms. In addition, Louis N. Strike
was elected as a Director. Jacob Pollock, holding 1,589,918 shares
representing 82.09% of the outstanding shares voted for the nominees.
1,715,803 affirmative votes were cast for the nominees and no negative
votes were cast.
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:
No reports on Form 8-K were filed during the three months
ended September 30, 1998.
SIGNATURES
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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.
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(Registrant)
By: /S/ John J. Stitz
--------------------
John J. Stitz
Chief Financial Officer
and Principal Accounting Officer
Date: November 13, 1998
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