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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, 1998 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
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(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
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There were 1,936,755 shares outstanding of the Registrant's common stock as of
February 12, 1999.
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RVM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
1998
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DECEMBER 31 MARCH 31
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ASSETS
Current assets:
Cash and cash equivalents $ 771,542 $ 846,128
Receivables:
Trade, net of allowance for doubtful accounts of $110,000
and $87,000 at December 31 and March 31 7,888,394 10,174,104
Related party 176,665 222,657
Inventories
(Excess of replacement or current cost over stated values was
$1,881,000 and $1,996,000 at December 31 and March 31) 14,648,380 11,396,269
Refundable income taxes 0 453,815
Deferred income taxes 789,400 789,400
Other current assets 277,849 173,596
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Total current assets 24,552,230 24,055,969
Property, plant and equipment, net 25,580,060 21,676,483
Funds held by trustee for capital expenditures 933,637 2,277,935
Other assets 312,294 337,643
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Total assets $51,378,221 $48,348,030
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See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS, Continued
1998
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DECEMBER 31 MARCH 31
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
- trade $ 7,472,129 $ 8,737,487
- related parties 99,024 59,775
Accrued expenses and liabilities:
Compensation 689,143 916,349
Product warranty 850,000 775,000
Other 1,093,477 891,828
Income taxes 170,069 0
Current portion of long-term debt - other 1,416,900 1,278,033
- related parties 371,200 806,200
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Total current liabilities 12,161,942 13,464,672
Note payable - bank 16,070,893 13,579,800
Long-term debt 9,885,466 9,337,439
Notes payable - related parties 2,998,601 3,023,250
Deferred income taxes 1,054,700 1,054,700
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Total liabilities 42,171,602 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 December 31 and March 31
19,368 19,368
Additional capital 4,783,344 4,783,344
Retained earnings 4,403,907 3,085,457
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Total shareholders' equity 9,206,619 7,888,169
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Total liabilities and shareholders' equity $51,378,221 $48,348,030
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See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31
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1998 1997
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Net sales $ 62,427,529 $ 57,368,573
Cost of sales 54,105,559 48,409,577
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Gross profit 8,321,970 8,958,996
Selling, general and administrative expenses 4,813,607 4,679,967
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Income from operations 3,508,363 4,279,029
Other income (expense):
Other income 55,448 74,578
Interest expense (1,431,918) (1,160,324)
Loss on disposal of equipment (39,077) (15,432)
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Income before income taxes and cumulative
effect of accounting change 2,092,816 3,177,851
Provision for income taxes 774,366 1,490,200
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Income before cumulative effect of
accounting change 1,318,450 1,687,651
Cumulative effect of accounting change 0 (211,651)
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Net income $ 1,318,450 $ 1,476,000
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Basic and diluted earnings per share:
Income before cumulative effect of
accounting change $ .68 $ .87
Cumulative effect of accounting change 0 (.11)
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Net income $ .68 $ .76
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See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31
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1998 1997
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Net sales $ 20,455,850 $ 20,530,919
Cost of sales 17,951,041 17,223,932
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Gross profit 2,504,809 3,306,987
Selling, general and administrative expenses 1,541,440 1,756,935
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Income from operations 963,369 1,550,052
Other income (expense):
Other income 38,066 31,308
Interest expense (466,421) (404,765)
Loss on disposal of equipment (49,512) (13,703)
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Income before income taxes 485,502 1,162,892
Provision for income taxes 179,640 468,418
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Net income $ 305,862 $ 694,474
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Basic and diluted earnings per share $ .16 $ .36
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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
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1998 1997
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Cash flows from operating activities:
Net income .......................................................... $ 1,318,450 $ 1,476,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................................... 1,460,485 1,129,547
Deferred income taxes ............................................. 0 320,050
Increase (decrease) in accrued product warranty ................... 75,000 85,000
Increase (decrease) in allowance for doubtful accounts ............ 23,000 15,000
Cumulative effect of accounting change ............................ 0 205,244
Loss on disposal of equipment ..................................... 39,077 15,432
Increase (decrease) in cash from changes in:
Receivables ....................................................... 2,308,701 (1,996,611)
Inventories ....................................................... (3,252,111) (1,676,587)
Other assets ...................................................... (115,876) (58,418)
Accounts payable .................................................. (1,226,110) 809,792
Refundable and accrued income taxes ............................... 623,884 82,936
Accrued expenses and other current liabilities .................... (25,556) (53,959)
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Net cash provided by (used in) operating activities ............... 1,228,944 353,426
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Cash flows from investing activities:
Capital expenditures ................................................ (5,379,616) (3,077,669)
Investment of income earned on investment of proceeds
from long-term debt with trustee .................................. (56,747) (98,609)
Sale of investments and release of funds held by trustee ............ 1,401,045 202,551
Proceeds from disposal of equipment ................................. 13,450 500
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Net cash provided by (used in) investing activities ............... (4,021,868) (2,973,227)
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Cash flows from financing activities:
Payments on long-term debt .......................................... (1,155,485) (1,290,351)
Proceeds from (payments on) notes payable - bank, net ............... 2,491,093 2,137,207
Payments on notes payable to related parties ........................ (459,650) 0
Proceeds from long-term debt, net of issuance costs ................. 1,842,380 1,800,000
Proceeds from exercise of stock options ............................. 0 10,000
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Net cash provided by (used in) financing activities ............... 2,718,338 2,656,856
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Net increase (decrease) in cash and cash equivalents ................... (74,586) 37,055
Cash and cash equivalents at beginning of year ......................... 846,128 468,572
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Cash and cash equivalents at end of period ............................. $ 771,542 $ 505,627
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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 1,936,000
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:
December 31, 1998 March 31, 1998
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Raw materials $ 7,791,433 $ 7,233,712
Work in process 3,112,850 1,202,107
Finished goods 3,744,097 2,960,450
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$14,648,380 $11,396,269
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The reserve to reduce the carrying value of inventories from current cost
to the LIFO basis amounted to approximately $1,881,000 at December 31 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:
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RAVENS ALBEX SABI ELIMINATIONS CONSOLIDATED
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Nine months ended December 31, 1998
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Sales to customers $ 38,633,355 $ 15,126,945 $ 8,667,229 $ 0 $ 62,427,529
Intersegment sales 0 5,070,350 398 (5,070,748) 0
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Net sales $ 38,633,355 $ 20,197,295 $ 8,667,627 $ (5,070,748) $ 62,427,529
============ ============ ============ ============ ============
Income (loss) from operations $ 3,412,489 $ (441,516) $ 546,437 $ (9,047) $ 3,508,363
Nine months ended December 31, 1997
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Sales to customers $ 37,625,092 $ 11,085,901 $ 8,657,580 $ 0 $ 57,368,573
Intersegment sales 0 5,158,009 (141) (5,157,868) 0
------------ ------------ ------------ ------------ ------------
Net sales $ 37,625,092 $ 16,243,910 $ 8,657,439 $ (5,157,868) $ 57,368,573
============ ============ ============ ============ ============
Income (loss) from operations $ 3,578,302 $ 190,194 $ 556,188 $ (45,655) $ 4,279,029
Three months ended December 31, 1998
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Sales to customers $ 12,766,704 $ 5,091,340 $ 2,597,806 $ 0 $ 20,455,850
Intersegment sales 0 1,195,938 22 (1,195,960) 0
------------ ------------ ------------ ------------ ------------
Net sales $ 12,766,704 $ 6,287,278 $ 2,597,828 $ (1,195,960) $ 20,455,850
============ ============ ============ ============ ============
Income (loss) from operations $ 1,031,409 $ (222,666) $ 118,001 $ 36,625 $ 963,369
Three months ended December 31, 1997
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Sales to customers $ 13,873,310 $ 4,069,716 $ 2,587,893 $ 0 $ 20,530,919
Intersegment sales 0 1,847,734 0 (1,847,734) 0
------------ ------------ ------------ ------------ ------------
Net sales $ 13,873,310 $ 5,917,450 $ 2,587,893 $ (1,847,734) $ 20,530,919
============ ============ ============ ============ ============
Income (loss) from operations $ 1,328,468 $ 132,515 $ 110,992 $ (21,923) $ 1,550,052
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.
In March 1998, the AICPA issued Statement of Position 98-1 ("SOP 98-1"),
Accounting For the Costs of Computer Software Developed For or Obtained
For Internal Use. SOP 98-1, which was adopted as of the beginning of the
third quarter, requires expensing or capitalizing certain costs incurred
in connection with developing or obtaining internal use software. The SOP
requires companies to adopt its provisions as of the beginning of the
year and restate previously reported interim results. The effect of this
accounting change was to increase net income for the three and nine month
periods ended December 31, 1998 by approximately
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$4,000. See Impact of Year 2000 in Management's Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of costs.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DECEMBER 31, 1998
MATERIAL CHANGES IN FINANCIAL CONDITION
Cash from borrowings, operating activities, and funds held by trustee for
capital expenditures was used mainly for capital expenditures by Albex and
Ravens. Albex incurred approximately $2,400,000 mainly on its aluminum billet
casting facility and related aluminum scrap processing equipment. Ravens
incurred approximately $2,900,000, of which $1,401,045 was provided by funds
held by trustee for capital expenditures, on a new building in Kent, Ohio and
equipment to cut aluminum coil into sheet. The building and cut to length
equipment are expected to be placed in service in the second quarter of fiscal
2000. Working capital increased to $12,390,288 at December 31 from $10,591,297
at March 31 due mainly to the amendment and restatement of the promissory note
from Albex to Jacob Pollock with $435,000 reclassified from current to long-term
and utilizing the long-term line of credit to reduce accounts payable and
increase inventories. Receivables decreased due to a lower level of sales in
December than March. Raw materials inventories increased at SABI by
approximately $600,000 mainly in order to defer purchasing inventory at higher
prices in calendar 1999. Work in process inventories increased mainly due to
Albex producing billets classified as work in process rather than purchasing
billets classified as raw materials. Finished goods inventories increased mainly
due to Ravens building trailers for stock in order to maintain stable production
levels.
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 available
collateral was fully borrowed against at December 31, 1998. $712,751 was
available to be borrowed under a fixed asset line of credit.
On October 1, 1998 the promissory note from Albex to Jacob Pollock was amended
and restated providing for interest only payments from October 1, 1998 through
September 1, 1999 and resumption of monthly principal payments in the amount of
$48,333 on October 1, 1999. The principal balance was $2,465,000 on December 31,
1998.
The Company's sales order backlog for new trailers was approximately $3,200,000
and $6,900,000 at December 31 and May 31, 1998, respectively. The decrease in
backlog is due to an industry decline in flatbed and dump trailer sales;
however, order activity has increased somewhat in February 1999 compared to
November 1998 through January 1999.
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. Albex has not reached a level of profitability. The
Company's liquidity could be adversely affected if Albex is not successful in
generating sufficient sales of billets and achieving profitability.
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MATERIAL CHANGES IN RESULTS OF OPERATIONS
Nine Months Ended December 31, 1998 Compared to the
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Nine Months Ended December 31, 1997
-----------------------------------
Consolidated net sales increased 8.8% mainly due to increased volume of trailer
sales by Ravens and extrusion sales by Albex. Albex's lower gross profit margin
than Ravens and SABI was the principal cause of the consolidated gross profit
margin decreasing to 13.3% from 15.6% although Ravens and SABI also experienced
declines. Selling, general and administrative expenses were 7.7% and 8.2% 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 $1,085,035, the $211,651 charge for effect of accounting change and
establishment of $261,000 of deferred income taxes in the 1997 period partially
accounts for net income decreasing by only $157,550.
Ravens' net sales increased 2.7% due to an increase in volume while income from
operations declined 4.6% and the gross profit margin decreased from 18.0% to
16.8% due to operating expenses, particularly warranty expense and salaries,
increasing at a greater rate than sales.
Albex's net sales to customers other than Ravens and SABI increased 36.5% mainly
due to increased volume of extrusion sales. Albex incurred a loss from
operations as the gross profit margin decreased from 6.3% to 3.2% and selling
and administrative expenses, particularly marketing expenses and salaries,
increased. Albex experienced difficulties in producing billets in the second
quarter which caused Albex to purchase billets from third parties at unfavorable
prices and prevented Albex from absorbing fixed casting facility costs. Cast
house facility additions were put in service in the quarter ended December 31,
1998 adding operating expenses at a greater rate than sales. Albex has
substantially completed the casting facility but has not achieved a sufficient
level of sales to cover the fixed expenses of the facility.
SABI's net sales increased .1% while income from operations decreased 1.8%
mainly due to a decline in the gross profit margin from 14.2% to 14.0%.
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Three Months Ended December 31, 1998 Compared to the
----------------------------------------------------
Three Months Ended December 31, 1997
------------------------------------
Consolidated net sales decreased .4% with a $1,021,624 increase at Albex offset
by a $1,106,606 decrease at Ravens. Albex's lower gross profit margin than
Ravens and SABI was the principal cause of the consolidated gross profit margin
decreasing to 12.2% from 16.1% although Ravens and SABI also experienced
declines. Selling, general and administrative expenses decreased to 7.5% from
8.6% of net sales. Interest expense increased mainly due to more debt
outstanding during the 1998 period.
Ravens' net sales decreased 8.0% due mainly to a change in product mix (an
increase in flatbed sales and a decrease in dump sales) and a decrease in sales
of parts and used trailers. The gross profit margin decreased from 18.1% to
15.8% and income from operations decreased 22.4% due mainly to lower production
in the 1998 period.
Albex's net sales to customers other than Ravens and SABI increased 25.1% mainly
due to increased volume of extrusion sales. Albex incurred a loss from
operations and the gross profit margin decreased from 7.6% to 1.4% as operating
expenses of the cast house facility additions exceeded the increase in sales.
SABI's net sales increased .4% and income from operations increased 6.3% mainly
due to a decrease in general and administrative expenses which was greater than
the effect of a gross profit margin decrease from 14.5% to 14.1%.
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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 has multiple
suppliers for all key components and raw materials; and therefore, 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 implementing the software. The
new software was implemented at the wholesale parts operation in
February 1999. The trailer sales and retail parts branch is scheduled
to begin using the new software on March 1, 1999. Ravens expects to
fully implement critical modules of the new software at its
manufacturing facilities prior to September 30, 1999. The costs for
acquiring and installing the new software is expected to be
approximately $600,000, of which approximately $500,000 is expected to
be capitalized. Approximately $391,000 has been incurred as of December
31, 1998, of which approximately $354,000 has been 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. SABI expects to make the software decision
by March 31, 1999.
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Item
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10 (i) Promissory Note (as amended and restated
October 1, 1998) between Albex Aluminum,
Inc. & Jacob Pollock
10 (ii) Promissory Note (as amended and restated
March 31, 1997) between Signs and Blanks,
Inc. & J. Pollock & Company
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
December 31, 1998.
SIGNATURES
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In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RVM INDUSTRIES, INC.
--------------------
(Registrant)
Date: February 12, 1999 By: /s/ John J. Stitz
-----------------
John J. Stitz
Chief Financial Officer
and Principal Accounting Officer
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