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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 June 30, 1999 Commission File No. 0-1709
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 1,937,505 shares outstanding of the Registrant's common stock as of
August 7, 1999.
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RVM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
1999
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June 30 March 31
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ASSETS
Current assets:
Cash and cash equivalents $ 1,176,184 $ 328,490
Receivables:
Trade, net of allowance for doubtful accounts of
$100,000 and $107,000 at June 30 and March 31 9,965,070 10,021,593
Related party 105,306 157,121
Inventories
(Excess of replacement or current cost over stated
values was $1,862,000 and $1,853,000 at June 30 and March 31) 12,222,093 10,697,909
Refundable income taxes 0 200,997
Deferred income taxes 758,000 758,000
Other current assets 309,890 201,934
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Total current assets 24,536,543 22,366,044
Property, plant and equipment, net 26,459,150 25,791,627
Funds held by trustee for capital expenditures 476,537 535,583
Other assets 296,402 306,636
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Total assets $51,768,632 $48,999,890
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See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
1999
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June 30 March 31
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LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable - trade $ 8,858,936 $ 6,552,072
- related parties 464,328 167,020
Accrued expenses and liabilities:
Compensation 874,854 982,363
Product warranty 944,000 850,000
Other 1,390,463 1,064,042
Current portion of long-term debt - other 1,841,084 1,579,252
- related parties 661,200 516,200
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Total current liabilities 15,034,865 11,710,949
Note payable-bank 11,801,020 13,237,473
Long-term debt 10,792,653 10,211,908
Notes payable - related parties 2,595,500 2,797,050
Deferred income taxes 1,620,000 1,620,000
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Total liabilities 41,844,038 39,577,380
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Shareholders' equity'
Common stock, $0.01 par value; authorized shares,
3,000,000; issued and outstanding, 1,937,505 shares
at June 30, 1999 and 1,937,005 at March 31, 1999 19,376 19,371
Additional capital 4,786,336 4,784,341
Retained earnings 5,118,882 4,618,798
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Total shareholders' equity 9,924,594 9,422,510
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Total liabilities and shareholders' equity $51,768,632 $48,999,890
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See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30
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1999 1998
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Net sales $24,125,939 $21,006,285
Cost of sales 21,088,267 17,692,988
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Gross profit 3,037,672 3,313,297
Selling, general and administrative expenses 1,771,294 1,853,929
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Income from operations 1,266,378 1,459,368
Other income (expense):
Other income 9,359 23,302
Interest expense (464,419) (476,300)
Loss on disposal of equipment (17,209) 0
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Income before income taxes 794,109 1,006,370
Provision for income taxes 294,025 372,375
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Net income $ 500,084 $ 633,995
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Basic and diluted earnings per share: $ 0.26 $ 0.33
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See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH PLOWS
Three Months Ended June 30
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1999 1998
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Cash flows from operating activities:
Net income $ 500,084 $ 633,995
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 567,110 476,989
Increase (decrease) in accrued product warranty 94,000 0
Increase (decrease) in allowance for doubtful accounts (7,000) 4,400
Loss on disposal of equipment 17,209 0
Increase (decrease) in cash from changes in:
Receivables 115,338 (236,115)
Inventories (1,524,184) (2,603,085)
Other assets (109,930) (42,166)
Accounts payable 2,604,173 43,757
Refundable and accrued income taxes 271,159 295,709
Accrued expenses and other current liabilities 148,750 (413,577)
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Net cash provided by (used in) operating activities 2,676,709 (1,840,093)
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Cash flows from investing activities:
Capital expenditures (1,242,635) (1,355,012)
Proceeds from disposal of fixed assets 3,000 0
Investment of income earned on investment of proceeds from
long-term debt with trustee (4,844) (23,905)
Sale of investments and release of funds held by trustee 63,890 263,975
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Net cash provided by (used in) investing activities (1,180,589) (1,114,942)
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Cash flows from financing activities:
Payments on long-term debt (257,423) (283,386)
Proceeds from (payments on) notes payable - bank, net (1,436,453) 2,593,482
Payments on notes payable to related parties (56,550) (56,550)
Proceeds from long-term debt, net of issuance costs 1,100,000 596,277
Proceeds from exercised stock options 2,000 0
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Net cash provided by (used in) financing activities (648,426) 2,849,823
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Net increase (decrease) in cash and cash equivalents 847,694 (105,212)
Cash and cash equivalents at beginning of period 328,490 846,128
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Cash and cash equivalents at end of period $ 1,176,184 $ 740,916
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See accompanying notes to the consolidated financial statements.
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RVM INDUSTRIES, INC. AND SUBSIDIARIES
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.
2. On April 8, 1999, Ravens completed an asset purchase of the Knox, Indiana
manufacturing facility of Galbreath, Inc. The Company will lease the
facility from a third party. The plant manufactures steel dump trailers.
The trailers will enhance the current product line and will be marketed
through the current Ravens distribution channel. The purchase price was
$1,265,000 and was primarily financed by a note through FirstMerit Bank,
N.A. The note for $1,100,000 is payable on a monthly installment through
November 30, 2004 at the lenders prime rate. Interest is payable monthly.
3. Basic earnings per share are based on net income divided by the weighted
average number of common shares outstanding. The weighted average number of
common shares outstanding was 1,937,478 in 1999 and 1,936,755 in 1998.
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.
4. Inventories consist of the following.
June 30, 1999 March 31, 1999
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Raw materials $ 7,524,590 $ 5,782,364
Work in process 2,364,641 2,160,389
Finished goods 2,332,862 2,755,156
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$12,222,093 $10,697,909
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The reserve to reduce the carrying value of inventories from current cost to the
LIFO basis amounted to approximately $1,862,000 at June 30 and $1,853,000 at
March 31.
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5. Business Segment Information:
Ravens Albex SABI Eliminations Consolidated
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Three months ended June 30, 1999
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Sales to customers $15,354,809 $6,197,330 $2,573,800 $ 0 $24,125,939
Intersegment sales 0 1,949,892 136 (1,950,028) 0
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Net sales $15,354,809 $8,147,222 $2,573,936 $(1,950,028) $24,125,939
=========== ========== ========== =========== ===========
Income (loss) from operations $ 1,294,738 $ (175,134) $ 152,165 $ (4,691) $ 1,266,378
Three months ended June 30, 1998
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Sales to customers $12,827,043 $5,103,961 $3,075,281 $ 0 $21,006,285
Intersegment sales 0 2,680,434 376 (2,680,810) 0
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Net sales $12,827,043 $7,784,395 $3,075,657 $(2,680,810) $21,006,285
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Income (loss) from operations $ 1,271,938 $ (125,937) $ 220,311 $ (158,818) $ 1,459,368
6. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, which, as amended by FASB Statement No. 137, is required to be
adopted in years beginning after June 15, 2000. The Statement permits early
adoptions as of the beginning of any fiscal quarter after its issuance. The
Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the stature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's portion
of a derivative's change in fair value will be immediately recognized in
earnings.
The Company has not yet determined what the effect of Statement No. 133
will be on its earnings and financial position and has not yet determined
the timing or method of adoption. However, the Statement could increase
volatility in earnings and comprehensive income.
7. On September 30, 1998, the Company entered into a line of credit agreement
with FirstMerit Bank, N.A. The agreement provides for borrowings up to
$20,000,000 based on eligible accounts receivable and inventories expiring
on August 31, 2000. Interest is at FM's prime rate minus 1/4%. The
agreement is collateralized by accounts receivable, inventory, equipment,
cash, intangibles and certain real estate. There are covenants relating to
the payment of dividends, acquiring treasury stock, the creation of
additional indebtedness, minimum tangible net worth, and cash flow
coverage. The Company was not in compliance with the cash flow coverage
covenant for the year ended March 31, 1999 and quarter ending June 30,
1999. On June 21, 1999, and August 10, 1999, the Company received a waiver
of such noncompliance from the lender. The Company expects to be in
compliance with this covenant for the year ending March 31, 2000. The
Company owed $11,801,020 under this agreement at March 31, 1999. The
Company could have borrowed approximately $2,785,848 more than the amount
owed to FirstMerit June 30, 1999.
8. See Impact of Year 2000 in Management's Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of the issue
and cost.
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RVM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1999
Material Changes in Financial Condition
The Company had cash and cash equivalents of $1,176,184 and $328,490 at June 30,
1999 and March 31, 1999, respectively. The Company could have borrowed
approximately $2,785,848 more on the line of credit at June 30, 1999. As
discussed in footnote 7, in Notes to Consolidated Financial Statements, the
Company was not in compliance with the bank covenant on cash flow coverage and
received a waiver on August 10, 1999. The Company expects to be in compliance
with the covenant for the year ending March 31, 2000.
Capital expenditures for the quarter were approximately $1,200,000, The major
expenditures were: at Ravens for $665,000 for the purchase of the fixed assets
at the Knox, Indiana facility and $187,000 at the Kent, Ohio facility for the
cut to length line and at Albex approximately $225,000 for purchase of extrusion
and other equipment and facility improvements.
Inventories increased from year end by $1,524,184 (14.2%). The increase was
primarily at Ravens and was to support a 26% increase in sales from the fourth
quarter Fiscal year 1999.
Account Receivables decreased $56,523 with net sales increasing for the previous
quarter by 17.0%. The decrease in receivables was due primarily to lower sales
at SABI and partially offset by the higher sales at Ravens.
Current Liabilities increased $3,323,916 mainly to support the increase in
operations at Ravens and reduce the FirstMerit, N.A. line of credit note.
On April 8, 1999, the Company entered into a long term note with FirstMerit N.A.
for $1,100,000. The funds were used by Ravens to purchase the Knox facility
assets. See footnote 2 in Notes to Consolidated Financial Statements.
The Company's sales order backlog for new trailers was approximately $9,815,186
and $9,445,000 at June 30, and May 31,1999, respectively. Although no assurances
are possible, the Company believes that its cash resources, credit arrangements,
and internally generated funds will he 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' 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
Three Months Ended June 30, 1999 Compared to the
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Three Months Ended June 30, 1998
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Consolidated net sales increased 14.8% with trailer sales at Ravens increasing
24.9% and was partially offset by lower sales at SABI of 8.2%. Gross profit
margin decreased to 12.5% from 15.7%. The higher sales at Ravens were at lower
margins, as the fleet sales of dump and flats lowered over all gross profit
margins, as did the start up of the Knox facility. Albex gross profit margin
decreased due to higher manufacturing costs, Selling, general and administrative
expenses decreased to 7.3% from 8.8% as overall costs were reduced at Albex and
SABI. At Ravens, the increase in cost was much lower than the increase in net
sales dollars.
Ravens net sales increased 24.9%. Fleet sales of both dump and flats improved
net sales, as did the introduction of steel dumps. The Knox facility started
production in April and generated net sales of approximately $921,000. Overall
mix shift of fleet sales and the start up of the Knox facility lowered gross
profit margins to 15.2% from 18.0%. Selling, general and administrative expense
decreased to 6.7% from 8.1% of net sales.
Albex net sales to customers other than to Ravens and SABI increased 12.0% due
mainly to increased extrusion sales. Gross profit margin decreased to 3.6% from
11.5%. Higher manufacturing costs caused the decrease in margin. Selling,
general and administrative expenses were reduced to 6.4% from 9.1% of net sales.
SABI net sales decreased 8.2% due mainly to competitive conditions. Gross profit
margins improved to 18.6% from 18.4%. Selling, general and administrative costs
increased to 12.6% from 11.2% as sales decreased faster than cost.
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.
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Ravens installed a new computer in March 1998. In January 1998, Ravens had
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 began using the new software in March 1999. Ravens expects to fully
implement critical modules of the new software at its manufacturing facilities
prior to October 30, 1999. The costs for acquiring and installing the new
software and computer is expected to be approximately $600,000, of which
approximately $500,000 is expected to be capitalized. Approximately $478,000 has
been incurred as of June 30, 1999, of which approximately $441,000 has been
capitalized.
SABI purchased new software and hardware and has retained a consulting firm to
assist in the implementation. The cost is expected to be approximately $120,000,
the majority of which will be capitalized. SABI expects to implement the
software by December 1, 1999.
Management of Ravens and SABI believes 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.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-Q are made pursuant to the safe
harbor provisions of Rule 175 promulgated under the Securities Act of 1933. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Potential risks and
uncertainties include, but are not limited to: general business and economic
conditions; the financial strength of the industries which the company serves;
the competitive pricing environment within the markets which the Company serves;
labor disruptions; interruptions in the supply of raw materials and services; a
significant increase in the price of aluminum; continued availability of credit
from lenders and vendors; government regulations; obsolescence of the Company's
products and manufacturing technologies; and the inability of outside vendors to
make their computer systems Year 2000 compliant in time or the magnitude of the
Year 2000 issue being greater than presently 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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10(i) Promissory Note between RVM industries, Inc.
and FirstMerit Bank, N.A. dated April 1, 1999
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
June 30, 1999.
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.
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(Registrant)
By: /S/ James R. McCourt
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James R. McCourt
Chief Financial Officer
and Principal Accounting Officer
Date: August 13, 1999
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