<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 31, 1997
RVM INDUSTRIES, INC.
(F/K/A RAVENS METAL PRODUCTS, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 0-1709 31-1515410
(State or other jurisdiction of (Commission file number) (IRS employer
incorporation or organization) identification
number)
P.O. BOX 10002, 861 EAST TALLMADGE AVENUE, AKRON, OHIO 44310
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (330) 630-4528
Former name or former address, if changed since last report: RAVENS METAL
PRODUCTS, INC.
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On March 31, 1997 Ravens Metal
Products, Inc. (the "Company") completed a holding company reorganization, as
described below in Item 5, and the acquisition of two complementary businesses.
RVM Industries, Inc., the holding company parent of the Company following the
reorganization, has acquired all the issued and outstanding capital stock of
Albex Aluminum, Inc. ("Albex") and Signs and Blanks, Inc. ("SABI"), each an Ohio
corporation. Albex and SABI had been wholly owned by Jacob Pollock, the largest
shareholder (holding 87.16% of the outstanding capital stock) and an officer and
director of the Company. Mr. Pollock also will serve as an officer and director
of RVM and will hold 87.16% of its outstanding capital stock.
The purchase price of the Albex shares will be that dollar amount that is equal
to seven times the average earnings of Albex before interest and taxes (plus
depreciation and amortization and less capital expenditures) for the fiscal
years ending March 31, 1999 and March 31, 2000, less all interest bearing debt,
all determined in accordance with generally accepted accounting principles (the
"Albex Purchase Price").
The purchase price of the SABI shares will be that dollar amount that is equal
to seven times the average earnings of SABI before interest and taxes (plus
depreciation and amortization and less capital expenditures) for the fiscal
years ending March 31, 1999 and March 31, 2000, less all interest bearing debt,
all determined in accordance with generally accepted accounting principles (the
"SABI Purchase Price").
Accordingly, neither the Albex Purchase Price nor the SABI Purchase Price can be
determined until the respective earnings of Albex and SABI, for the fiscal year
ending March 31, 2000, are known.
The Albex Purchase Price and the SABI Purchase Price each will be paid over a
five-year term, with interest thereon, at the rate of eight percent (8%) per
annum, accruing from and after July 1, 2000. In each case a payment of principal
only will be due on July 1, 2000, and a payment of principal and interest will
be due on August 1, 2000 and on the first day of each month thereafter, until
both the Albex Purchase Price (and all interest thereon) and the SABI Purchase
Price (and all interest thereon) have been paid in full.
Albex is the obligor on a note payable to Jacob Pollock in the principal amount
of $2,900,000 (the "Albex Note"), and SABI is the obligor on a note payable to
J. Pollock & Co. in the principal amount of $1,131,000 (the "SABI Note"). Albex
will repay the Albex Note, and SABI will repay the SABI Note over a five-year
term, with interest thereon, at the rate of seven percent (7%) per annum,
accruing from and after April 1, 1997. A payment of interest only on the Albex
Note and on the SABI Note will be due on May 1, 1997 and on the first day of
each month thereafter through December 1, 1997; a payment of principal in the
amount of $48,333.33 and interest on the Albex Note and in the amount of $18,850
and interest on the SABI Note will be due on January 1, 1998 and on the first
day of each month thereafter, until the principal amount (and all interest
thereon) of each Note has been paid in full; provided, however, that no payment
of principal on either Note will be due during the period that RVM is making
payments with respect to the Albex Purchase Price or the SABI Purchase Price.
However, interest will continue to accrue and be paid during any period in which
no principal payments are being made with respect to the Notes.
<PAGE> 3
Payments with respect to the Albex Purchase Price, the SABI Purchase Price, the
Albex Note and the SABI Note will be subordinated to the repayment of certain
bank loans. A notice describing these acquisitions was given or sent to all
Company shareholders of record on March 31, 1997.
The acquisitions will be accounted for as a reorganization of entities under
common control and prior period financial statements will be restated on an "as
if pooling" basis as required by Interpretation No. 39 to Accounting Principles
Board Opinion No. 16. The restated financial statements of prior periods will
consist of the Company, Albex and SABI.
ITEM 5. OTHER EVENTS. On March 31, 1997, the Company also completed a
reorganization of its legal structure pursuant to Section 251(g) of the Delaware
General Corporation Law. The effective date was March 31, 1997. Shareholder
approval of the reorganization is not required and has not been sought.
Shareholders of the Company are not entitled to dissenters' rights under Section
262 of the Delaware General Corporation Law. The principal purpose of the
reorganization is to improve internal operating flexibility. The business
conducted by the Company will not be changed as a result of the reorganization;
its assets and liabilities will remain substantially unchanged. A new parent
holding company has been created, with the Company (the existing publicly held
company) as its wholly owned subsidiary. The name of the new parent company is
RVM Industries, Inc., also a Delaware corporation ("RVM"). Each holder of the
Company's common stock will become the holder of an equal number of shares of
RVM common stock (evidencing the same proportional interest) pursuant to an
exchange of certificates, and the rights of holders of RVM common stock will be
substantially the same rights that they had as holders of the Company's common
stock. RVM common stock will be issued solely as part of the reorganization of
the Company into a holding company structure. As of the effective time of the
reorganization, the Board of Directors of Registrant and Predecessor (as the
surviving corporation) are identical to the Board of Directors of Predecessor as
constituted at the time of the Merger. Management of Registrant and Predecessor
(both immediately prior to the Merger and as the surviving corporation) are
substantially identical, except that, while Lowell Morgan will continue as
President of Predecessor (as the surviving corporation), Richard D. Pollock will
serve as President of Registrant. RVM registered its common stock on Form 8-B
filed on March 31, 1997 pursuant to Section 12(g) of the Securities Exchange Act
of 1934. The reorganization will be tax-free to shareholders of the Company. The
name of the Company following the reorganization is Ravens, Inc. A notice
describing the reorganization in detail was given or sent on March 31, 1997 to
all Company shareholders of record on March 31, 1997.
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS
1. Financial statements of Albex Aluminum, Inc., Report of
Independent Accountants, Balance Sheets at December 31,
1996 and 1995, Statements of Operations for the years ended
December 31, 1996 and 1995, Statements of Changes in
Shareholders' Equity for the years ended December 31, 1996
and 1995, Statements of Cash Flows for the years ended
December 31, 1996 and 1995, and Notes to these Financial
Statements. Unaudited Interim Financial Statements, Balance
Sheet as of March 31, 1997, Statements of Operations for
the three months ended March 31, 1997 and 1996, Statements
of Cash Flows for the three months ended March 31, 1997 and
1996, and Selected Unaudited Notes to these Financial
Statements.
2. Unaudited Financial Statements of Albex Aluminum, Inc.,
Balance Sheet at December 31, 1994, Statement of Operations
for the year ended December 31, 1994, Statement of Changes
in Stockholder's Deficit for the year ended December 31,
1994, Statement of Cash Flows for the year ended December
31, 1994, and Notes to these Financial Statements.
3. Financial statements of Signs and Blanks, Inc., Report of
Independent Accountants, Balance Sheets at December 31,
1996 and 1995, Statements of Operations and Accumulated
Deficit for the years ended December 31, 1996 and 1995,
Statements of Cash Flows for the years ended December 31,
1996 and 1995, and Notes to these Financial Statements.
Unaudited Interim Financial Statements, Balance Sheet as of
March 31, 1997, Statements of Operations for the three
months ended March 31, 1997 and 1996, Statements of Cash
Flows for the three months ended March 31, 1997 and 1996
and Selected Unaudited Notes to these Financial Statements.
4. Unaudited Financial Statements of Signs and Blanks, Inc.,
Balance Sheet at December 31, 1994, Statement of Income and
Accumulated Deficit for the year ended December 31, 1994,
Statement of Cash Flows for the year ended December 31,
1994, and Notes to these Financial Statements.
(B) PRO FORMA FINANCIAL INFORMATION
1. Unaudited Consolidated Historical Financial Statements,
reflecting the Restatement of the Balance Sheet as of March
31, 1997 and the Statements of Operations for the years
ended March 31, 1997, 1996 and 1995, and Notes to the
Unaudited Consolidated Financial Statements.
<PAGE> 5
(c) EXHIBITS
2.1 Stock Purchase Agreement (Filed as Exhibit 2.1 to Form 8-K
filed by Ravens Metal Products, Inc., predecessor to the
registrant, on March 31, 1997.)
2.2 Agreement and Plan of Reorganization (Filed as Exhibit 2.2 to
Form 8-K filed by Ravens Metal Products, Inc., predecessor to
the registrant, on March 31, 1997.)
20 Notice to Shareholders regarding the Reorganization of Ravens
Metal Products, Inc. and the Acquisition by RVM Industries,
Inc. of Albex Aluminum, Inc. and Signs and Blanks, Inc. (Filed
as Exhibit 20 to Form 8-K filed by Ravens Metal Products, Inc.,
predecessor to the registrant, on March 31, 1997.)
<PAGE> 6
SIGNATURE
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 hereunto duly authorized.
RAVENS, INC.
(FORMERLY RAVENS METAL PRODUCTS, INC.)
By: /s/ John J. Stitz
-----------------------------
John J. Stitz
Chief Financial Officer
Dated: June 16, 1997
<PAGE> 7
RAVENS METAL PRODUCTS, INC.
FORM 8-K CURRENT REPORT
INDEX OF EXHIBITS
2.1 Stock Purchase Agreement (Filed as Exhibit 2.1 to Form 8-K filed by
Ravens Metal Products, Inc., predecessor to the registrant, on March
31, 1997.)
2.2 Agreement and Plan of Reorganization (Filed as Exhibit 2.2 to Form 8-K
filed by Ravens Metal Products, Inc., predecessor to the registrant, on
March 31, 1997.)
20 Notice to Shareholders regarding the Reorganization of Ravens Metal
Products, Inc. and the Acquisition by RVM Industries, Inc. of Albex
Aluminum, Inc. and Signs and Blanks, Inc. (Filed as Exhibit 20 to Form
8-K filed by Ravens Metal Products, Inc., predecessor to the
registrant, on March 31, 1997.)
<PAGE> 8
ALBEX ALUMINUM, INC.
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE> 9
CONTENTS
PAGE
----
Report of Independent Accountants.................................. 1
Financial Statements:
Balance Sheets.................................................. 2
Statements of Operations........................................ 3
Statements of Changes in Shareholders' Equity................... 4
Statements of Cash Flows........................................ 5-6
Notes to Financial Statements.................................. 7-14
ALBEX ALUMINUM, INC.
<PAGE> 10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Albex Aluminum, Inc.:
We have audited the accompanying balance sheets of Albex Aluminum, Inc. (the
"Company") as of December 31, 1996 and 1995 and the related statements of
operations, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Albex Aluminum, Inc. as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 9 to the financial statements, in 1996 the Company changed
its method of accounting for the impairment of long-lived assets.
COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
March 31, 1997 1
<PAGE> 11
<TABLE>
<CAPTION>
BALANCE SHEETS
Unaudited
December 31, December 31, March 31,
ASSETS 1996 1995 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash $ 200 $ 500 $ 200
Restricted cash for revenue bond repayment 24,167 22,500 72,500
Receivables:
Trade, less allowance for doubtful accounts of $29,000,
$10,000 and $14,000 in March 1997, 1996 and 1995,
respectively 1,303,259 782,775 2,009,861
Affiliated companies 701,030 510,303 --
Inventories 1,394,310 1,262,333 1,800,102
Assets held for sale -- 200,000 --
Other current assets 44,443 28,400 42,214
------------ ------------ ------------
Total current assets 3,467,409 2,806,811 3,924,877
Property, plant and equipment, net 10,729,811 8,656,290 11,207,223
Restricted cash for plant relocation and development 21,684 1,812,243 1,000
Other assets 151,008 165,376 153,985
------------ ------------ ------------
Total assets $ 14,369,912 $ 13,440,720 $ 15,287,085
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,392,715 $ 3,877,546 $ 2,342,139
Advance from shareholder 313,447 -- 263,447
Advance from affiliate 1,201,500
Accounts payable:
Trade 2,664,913 2,458,241 3,036,320
Affiliated companies 33,176 67,867 --
Accrued expenses:
Compensation 81,019 86,624 32,125
Interest 17,454 44,047 20,459
Other 328,729 239,469 186,219
Other current liabilities 99,774
------------ ------------ ------------
Total current liabilities 6,831,453 6,773,794 7,181,983
Long-term debt, less current portion 3,242,031 4,030,404 4,082,317
Note payable - shareholder 2,900,000 2,900,000
Other long-term liabilities -- 45,000 --
------------ ------------ ------------
Total liabilities 12,973,484 10,849,198 14,164,299
------------ ------------ ------------
Commitments and contingencies (Note 10) -- -- --
Shareholders' equity:
Common stock, no par value, 750 shares authorized,
100 shares issued and outstanding 100 100 100
Additional capital 5,052,974 5,052,974 5,052,974
Accumulated deficit (3,656,646) (2,461,552) (3,930,289)
------------ ------------ ------------
Total shareholders' equity 1,396,428 2,591,522 1,122,785
------------ ------------ ------------
Total liabilities and shareholders' equity $ 14,369,912 $ 13,440,720 $ 15,287,085
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALBEX ALUMINUM, INC.
2
<PAGE> 12
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
For the years ended For the quarters ended
December 31, December 31, March 31, March 31,
1996 1995 1997 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 13,189,605 $ 14,433,403 $ 4,012,252 $ 2,919,327
Cost of sales 12,411,715 14,158,277 3,876,476 2,722,842
------------ ------------ ----------- -----------
Gross profit 777,890 275,126 136,048 196,485
Selling, general and administrative expenses 1,313,929 1,270,802 255,708 194,367
Special charges 371,768 89,923 39,608 42,566
------------ ------------ ----------- -----------
Loss from operations (907,807) (1,085,599) (159,268) (40,448)
Other income (expense):
Interest expense (352,193) (274,219) (114,375) (26,558)
Interest income 19,906 21,382 -- --
Gain (loss) on sale of plant facilities 45,000 (145,000) -- --
------------ ------------ ----------- -----------
Total other expense, net (287,287) (397,837) (114,375) (26,558)
------------ ------------ ----------- -----------
Net loss $ (1,195,094) $ (1,483,436) $ (273,643) $ (67,006)
============ ============ =========== ===========
Pro forma income data (unaudited) Note 11:
Net loss as reported $ (1,195,094) $ (1,483,436) $ (273,643) $ (67,006)
Pro forma income tax benefit 440,335 502,321 101,248 24,792
------------ ------------ ----------- -----------
Pro forma net loss $ (754,759) $ (981,115) $ (172,395) $ (42,214)
============ ============ =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALBEX ALUMINUM, INC. 3
<PAGE> 13
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Common Additional Accumulated Shareholders'
Stock Capital Deficit Equity
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1994 $100 $ 933,150 $ (978,116) $ (44,866)
Contributed capital -- 4,119,824 -- 4,119,824
(1,483,436)
Net loss -- -- (1,483,436)
---- ---------- ----------- -----------
Balances, December 31, 1995 100 5,052,974 (2,461,552) 2,591,522
Net loss -- -- (1,195,094) (1,195,094)
---- ---------- ----------- -----------
Balances, December 31, 1996 100 5,052,974 (3,656,646) 1,396,428
(Unaudited):
Net loss for the three months ended
March 31, 1997 -- -- (273,643) (273,643)
---- ---------- ----------- -----------
Balances, March 31, 1997 $100 $5,052,974 $(3,930,289) $ 1,122,785
==== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALBEX ALUMINUM, INC. 4
<PAGE> 14
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
FOR THE YEARS ENDED FOR THE QUARTERS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1995 1997 1996
---------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,195,094) $(1,483,436) $ (273,643) $ (67,006)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 643,477 507,802 164,456 120,965
Amortization 10,376 21,316 -- 81
Provision for doubtful accounts 4,000 32,664 19,000 6,000
Loss on plant closing -- 145,000 -- --
Loss on sale of equipment 10,908 -- --
Impairment of long-lived assets 371,768 -- -- --
Increase (decrease) in cash from changes in:
Receivables (715,211) 954,962 (24,572) (360,818)
Inventories (131,977) 1,432,341 (405,792) 373,040
Assets held for sale 200,000 (200,000) -- --
Other current assets (16,043) 69,654 2,229 (42,604)
Other assets 3,992 (3,000) (2,977) 3,467
Accounts payables 171,981 (756,460) 338,231 151,647
Accrued expenses and other current liabilities 57,062 56,793 (88,626) (29,202)
Other long-term liabilities (45,000) (31,170) -- --
----------- ----------- ----------- -----------
Net cash (used in) provided by operating
activities
(629,761) 746,466 (271,694) 155,570
----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (2,749,674) (6,839,349) (641,868) (1,670,310)
Grants (expended) received for capital expenditures (375,000) 375,000 -- --
Proceeds from sale of equipment 25,000 -- -- --
----------- ----------- ----------- -----------
Net cash used in investing activities (3,099,674) (6,464,349) (641,868) (1,670,310)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Contributed capital -- 2,217,047 -- --
Principal payments on long-term debt (894,930) (301,162) (1,050,576) (1,718,908)
Net (payments) proceeds from notes payable - banks (378,274) 1,140,433 -- --
Proceeds from note payable and advances from
shareholder
3,213,447 -- 1,991,787 1,502,786
Borrowings on long-term debt -- 4,640,000 --
Loan fees and bond issuance costs -- (160,509) --
Restricted cash for revenue bond repayment and plant
relocation and development 1,788,892 (1,834,743) (27,649) 1,730,862
----------- ----------- ----------- -----------
Net cash provided by financing activities 3,729,135 5,701,066 913,562 1,514,740
----------- ----------- ----------- -----------
Net decrease in cash (300) (16,817) -- --
Cash, beginning of period 500 17,317 200 500
----------- ----------- ----------- -----------
Cash, end of period $ 200 $ 500 $ 200 $ 500
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALBEX ALUMINUM, INC.
5
<PAGE> 15
STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
---------------- ----------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense, net of $10,440 and $178,137
capitalized, respectively $ 378,766 $ 47,165
Supplemental disclosure of noncash investing and
financing activities:
During 1995, a note payable to the majority shareholder amounting to
$1,452,777 was converted to additional paid-in capital.
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALBEX ALUMINUM, INC. 6
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS: Albex Aluminum, Inc. (the "Company"), formerly
Wirt Aluminum Company manufactures and sells a broad range of aluminum
extruded products to a diverse group of customers operating in the
transportation, distribution and building products industries, and to a
wide range of original equipment manufacturers (OEMs) located in the
midwestern portion of the United States. The Company currently operates
one production facility located in Canton, Ohio.
The following is a summary of significant accounting policies of the
Company:
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Financial instruments consist of
cash, receivables, accounts payable and financing instruments and are
carried at amounts that approximate fair value.
INVENTORIES: Inventories are valued at the lower of cost or market, cost
being determined on the first-in, first-out (FIFO) method of valuation.
PROPERTY, PLANT AND EQUIPMENT: Property, Plant and Equipment is stated at
cost. Grants received from state and local governmental units are
deducted in arriving at the carrying amount of the respective assets.
Major additions and betterments are capitalized while maintenance and
repairs and which do not improve or extend the lives of the respective
assets are expensed currently. When property, plant and equipment is
retired or otherwise disposed of, the cost of the property, plant and
equipment is removed from the asset account, accumulated depreciation is
charged with an amount equivalent to the depreciation provided, and the
difference is charged or credited to income.
Depreciation is provided using primarily the straight-line method over
the estimated useful lives of the assets for financial statement purposes
as follows:
<TABLE>
<CAPTION>
<S> <C>
Building and improvements 31.5 years
Machinery and equipment 3 to 15 years
Dies, net of customer reimbursements 3 years
Furniture and fixtures and computer equipment 5 to 10 years
Vehicles 5 years
</TABLE>
ALBEX ALUMINUM, INC. 7
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
LOAN COSTS: Loan costs associated with financing agreements are being
amortized over the life of the related agreements.
REVENUE RECOGNITION: Sales and related cost of sales are recorded when
goods are shipped to customers.
INCOME TAXES: The Company, with the consent of its shareholders, has
elected to be taxed under the provisions of the Internal Revenue Code as
an S Corporation. Under these provisions and similar provisions of state
law, the Company does not pay corporate income taxes on its taxable
income. Instead, the shareholders are liable for individual income taxes
on their respective portions of the Company's taxable income.
RECLASSIFICATIONS: Certain amounts in the 1995 financial statements have
been reclassified to conform to 1996 presentation.
UNAUDITED INTERIM FINANCIAL STATEMENTS: The unaudited financial
statements as of March 31, 1997 and for the three months ended March 31,
1997 and 1996 includes, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of such interim financial statements in
accordance with generally accepted accounting principles. The results of
operations for the interim periods are not necessarily indicative of
results of any other interim period or the full year.
2.INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, MARCH 31,
1996 1995 1997
--------------- -------------- -----------------
<S> <C> <C> <C>
Raw materials $ 1,072,783 $ 663,788 $ 946,569
Work-in-process 71,982 163,666 233,390
Finished goods 249,545 434,879 620,143
--------------- -------------- -----------------
$ 1,394,310 $ 1,262,333 $ 1,800,102
=============== ============== =================
</TABLE>
ALBEX ALUMINUM, INC. 8
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment, net consists of the following:
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, MARCH 31,
1996 1995 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Land $ 123,500 $ 123,500 $ 123,500
Building 334,087 334,087 334,087
Building improvements 649,276 - 649,276
Machinery and equipment 4,471,473 1,262,003 4,536,722
Furniture and fixtures 51,828 33,986 59,174
Computer equipment 115,034 91,012 123,043
Dies 1,675,469 1,430,549 1,766,412
Vehicles 25,115 21,861 25,115
Construction in progress 4,925,340 6,514,482 5,395,661
----------------- ----------------- -----------------
12,371,122 9,811,480 13,012,990
Less accumulated depreciation (1,641,311) (1,155,190) (1,805,767)
----------------- ----------------- -----------------
Total property, plant and equipment, net $ 10,729,811 $ 8,656,290 $ 11,207,223
================= ================= =================
</TABLE>
Approximately $2,664,000 and $5,991,000 of capital expenditures were
incurred in 1996 and 1995, respectively, for a new production facility
and casting house in Canton, Ohio. These capital expenditures include
capitalized interest of $10,440 and $178,137 in 1996 and 1995,
respectively.
In addition, during 1995, the Company received a grant from the State of
Ohio aggregating $375,000 which was deducted from the cost of purchased
machinery and equipment. This grant was required to be used for the
purchase of machinery and equipment to be used at the Canton, Ohio
facility. The terms of the grant also require the Company to employ a
specified number of employees at the Canton, Ohio facility.
ALBEX ALUMINUM, INC. 9
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
4. FINANCING:
Financing consists of the following:
UNAUDITED
DECEMBER 31, MARCH 31,
1996 1995 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Chapter 166 direct loan payable to the Department of Development of
the State of Ohio, due in monthly installments of $33,033 including
interest at 3.0%, plus a monthly service fee of .02%. The loan
matures December 2002 and is collateralized by substantially all
machinery and equipment of the Company, the personal guarantee of
the shareholders as well as the corporate guarantees of three
companies under common control. Principal payments have been
deferred for the period August 1996 to February 1997. Payments have
been adjusted for the period March 1997 to February 1998 in order to
maintain the original maturity date. $2,311,105 $2,500,000 $2,251,455
State of Ohio Economic Development Revenue Bonds dated July 1, 1995
with a face amount of $2,115,000. Interest of 5.6% is payable
semiannually on June 1 and December 1 of each year, plus a monthly
service fee of .02%. The bonds are subject to a mandatory semiannual
redemption schedule which requires monthly escrow payments of
principal amounting to $22,500. The bonds mature June 1, 2002 and
are collateralized by substantially all machinery and equipment of
the Company and the personal guarantee of the shareholders as well
as the corporate guarantees of three companies under common control. 1,840,000 2,115,000 1,815,833
The Company is obligated to maintain a $211,500 letter of credit with
First National Bank of Ohio based on a requirement of the above two
financing arrangements. - -
Line of credit for $4,500,000 with First National Bank of Ohio,
collateralized by accounts receivable, inventories, equipment,
contract rights, and general intangibles of the Company and
personally guaranteed of the majority shareholder. Interest is
payable monthly at the bank's prime rate (8.25% at December 31,
1996) plus .5%. The 1996 line of credit matures at January 31, 1998;
the 1995 line of credit matured on June 30, 1996. 2,467,382 2,845,656 2,047,552
Note payable to Stark County Community Improvement Corporation due in
60 monthly installments of $449, including interest at 3.0%. The
note matures February 2000. 16,259 21,086 15,029
Note payable to majority shareholder, interest only payments on the
unpaid principal balance beginning May 1, 1997 at a rate of 7.0% per
annum. Interest begins to accrue on April 1, 1997. Monthly principal
payments begin January 1, 1998 for 60 months in the amount of
$48,333. This note payable is subordinate to all other debt of the
Company. 2,900,000 - 2,900,000
Note payable to First National Bank of Ohio due January 2, 1996.
Interest only is due monthly at the Bank's prime rate plus .5%. The
note is collateralized by inventories, accounts receivable, contract
rights, machinery and equipment, and general intangibles of the
Company as well as the personal guarantee of the majority
shareholder. - 426,208 -
--------- ---------- ----------
Total financing 9,534,746 7,907,950 9,029,869
Less current portion 3,392,715 3,877,546 2,342,139
---------- ---------- ----------
Financing, less current portion $6,142,031 $4,030,404 $6,687,730
========== ========== ==========
ALBEX ALUMINUM, INC. 10
</TABLE>
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. FINANCING, CONTINUED:
The Chapter 166 Direct Loan, the State of Ohio Economic Development
Revenue Bonds and the Stark County Community Improvement Corporation Loan
contain covenants which limit the Company in certain areas including,
among others, total long-term debt to tangible net worth, minimum
tangible net worth and dividend payments. At December 31, 1996, the
Company was in compliance with these covenants.
The line of credit to First National Bank of Ohio contains covenants
which limit the Company in certain areas including, among others,
additional borrowings, disposal of collateral, and minimum tangible net
worth. At December 31, 1996, the Company was in compliance with these
covenants.
Under the line of credit, borrowings are available based on a formula of
trade accounts receivable and inventories, principally consisting of
advance rates of 85% of eligible accounts receivable and 65% of eligible
inventories with a $2,000,000 cap on inventories. At December 31, 1996,
management intended to finance future accounts receivable and inventories
for more than one year and estimated the amount of borrowings classified
as long-term under the agreement would not exceed the eligible collateral
at December 31, 1997. The Company could have borrowed approximately
$153,500 more than the amount owed at December 31, 1996.
The following is a schedule of maturities and sinking fund requirements
of all long-term debt for the next five years ending December 31:
<TABLE>
<S> <C> <C>
1997 $3,392,715
1998 1,088,473
1999 1,266,784
2000 1,293,223
2001 1,328,519
Thereafter 1,165,032
----------
$9,534,746
==========
</TABLE>
5. RETIREMENT PLANS:
The Company has two 401(k) retirement and profit sharing plans which
cover substantially all employees who have attained the age of 19 and
have completed one year of service. In accordance with the plans, the
Company matches contributions at the rate of 3% of eligible wages for
nonunion employees and 2% for union employees. The Company's expense
under these plans amounted to $9,835 in 1996 and $30,331 in 1995.
6. RELATED PARTY TRANSACTIONS:
The Company's majority shareholder also controls several affiliated
companies. As such, the majority shareholder is in a position to
influence sales, costs and expenses of the Company for the benefit of the
affiliates that are under his control.
The Company in the normal course of business purchases various materials
and services from companies which the majority shareholder also has a
majority interest. Purchases from these companies totaled $588,694 and
$507,089 during 1996 and 1995, respectively.
ALBEX ALUMINUM, INC. 11
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. RELATED PARTY TRANSACTIONS, CONTINUED:
The Company in the normal course of business also sells to companies in
which the majority shareholder also has a majority interest. Sales to
such companies totaled $4,917,007 and $5,328,500 during 1996 and 1995,
respectively.
The Company shares certain administrative, computer and financial
services with a related company. Management fees of $120,000 and $56,000
were incurred for such services during 1996 and 1995, respectively. In
addition, the Company participates in a group health insurance plan with
a related company and, accordingly, charges of $159,037 and $155,740 were
incurred for its portion of the plan costs during 1996 and 1995,
respectively.
The trade accounts payable and receivable - related parties, have been
classified in the financial statements based on management's expectations
for repayment.
In addition, during 1996, the majority shareholder loaned the Company
$3,213,447 in the form of a $2,900,000 note (Note 4) and an advance of
$313,447. The advance is non-interest bearing, without collateral and due
upon demand.
7. CONCENTRATIONS:
In 1996, two customers accounted for more than 10% of sales individually
and one customer accounted for more than 10% of sales in 1995. Sales to
customers greater than 10% of sales accounted for 44% and 35% of the
Company's total net sales in 1996 and 1995, respectively. Credit limits
and ongoing credit evaluations and account monitoring procedures have
been implemented to minimize the risk of loss. The Company does not
require collateral and maintains a reserve for potential credit losses,
which have been within management's expectations.
The Company has a concentration of its long-term financing with the State
of Ohio. Although other sources of financing may be available, management
believes that other sources would not provide comparable terms.
8. LEASE COMMITMENTS:
The Company leases vehicles and equipment under noncancelable operating
leases which expire at various dates between April 1997 and December
2001. The Company is responsible for maintenance, insurance and taxes on
all leases and excess mileage charges on the vehicle leases. Certain of
these leases contain purchase options under the expiration of their lease
terms. Rent expense under such agreements was $117,602 during 1996 and
$85,408 during 1995.
Future minimum rental payments for the next five years ending December 31
are as follows:
<TABLE>
<S> <C> <C>
1997 $ 53,275
1998 40,860
1999 17,613
2000 4,092
--------
$115,840
========
</TABLE>
ALBEX ALUMINUM, INC. 12
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. SPECIAL CHARGES AND ASSETS HELD FOR SALE:
During 1995, the Company made the decision to move its production
facilities from Elizabeth, West Virginia to Canton, Ohio. Concurrent with
this decision, the Company began construction of a new facility in
Canton, Ohio. In connection with the relocation of facilities, the
Company entered into a formal agreement on October 26, 1995 to sell the
land and buildings which housed the facility located in Elizabeth, West
Virginia. As a result of this agreement, the Company recorded an
estimated loss of $145,000 and assets held for sale of $200,000.
Additionally, the Company incurred $89,923 of moving expenses as part of
this move. During 1996, the Company finalized the sale of the Elizabeth,
West Virginia facility and revised its estimated loss to $100,000.
Also during 1996, the Company implemented Statement of Financial
Accounting Standards SFAS No. 121 - "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". In
accordance with this statement , the Company reviewed its assets
associated with its production facilities and determined that various
assets would no longer be used in the business. These assets consisted
primarily of dies and various machinery and equipment. Additionally, the
Company reduced the value of certain equipment to better reflect the
estimate of future cash flows expected to result from the use of the
respective equipment. In connection with the adoption of SFAS No. 121,
the Company recorded an impairment loss of $371,768 during 1996.
10. COMMITMENTS AND CONTINGENCIES:
The Company is committed to purchase minimum quantities of electric
energy over the next four years in exchange for reduced rates.
Additionally, the Company entered into a commitment to purchase minimum
quantities of raw aluminum from one vendor at market rates from March
1996 through August 1997.
The Company is involved in various claims and litigation arising in the
normal course of business. In the opinion of management, the ultimate
resolution of these claims will not materially affect the financial
position, results of operations, or cash flows of the Company.
The Company, along with other affiliated companies, have guaranteed an
obligation of their affiliate Signs and Blanks, Inc. and Ravens Metal
Products, Inc. aggregating $2,500,000 and $8,000,000, respectively.
11. SUBSEQUENT EVENTS:
On March 31, 1997, the Company's shareholders entered into a stock
purchase agreement to sell all of their issued and outstanding shares of
common stock to RVM Industries, Inc. ("RVM"), a company under common
control. Concurrent with the sale, the Company will change its year end
to March 31 and become a wholly-owned subsidiary of RVM. The purchase
price to be paid for the shares will be based upon the earnings of the
company, as defined in the agreement, for the two years ending March 31,
2000 times an agreed to multiple of earnings. The purchase price as then
determined will be paid monthly over five years beginning July 1, 2000.
The outstanding note payable will bear interest at 8% per annum.
ALBEX ALUMINUM, INC. 13
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. SUBSEQUENT EVENTS, CONTINUED:
Prior to the acquisition by RVM, the Company operated as an S Corporation
and, as such, was not liable for federal and certain state and local
income taxes. As a result, the earnings of the Company have been taxed
for federal and certain state and local income tax purposes directly to
the shareholder rather than to the Company. Cash distributions were
regularly made by the Company, in part to fund shareholders for these
liabilities. Accordingly, net loss, as reported in the accompanying
statements of operations does not include a provision (credit) for these
income taxes.
Effective April 1, 1997, the Company will no longer be treated as an S
Corporation and will be subject to all corporate federal and state and
local income taxes. Accordingly, for informational purposes, the
statements of operations include unaudited pro forma adjustments for
income taxes which would have been recorded if the Company had been taxed
as a C Corporation, based on the tax laws in effect during those periods.
Unaudited pro forma income tax expense (benefit) for each of the periods
presented is as follows:
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
----------------------------------- -------------------------------
YEARS ENDED DECEMBER 31, QUARTERS ENDED MARCH 31,
----------------------------------- -------------------------------
1996 1995 1997 1996
----------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Deferred provision (benefit):
Federal $ (386,781) $ (502,321) $ (95,680) $ (23,428)
State and local (53,554) - (5,568) (1,364)
--------------- --------------- ------------ -------------
Total $ (440,335) $ (502,321) $ (101,248) $ (24,792)
=============== =============== ============ =============
</TABLE>
The difference between unaudited pro forma income taxes at the statutory
federal income tax rate of 34% and those reported in the statements of
operations are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
% OF PRETAX % OF PRETAX
1996 INCOME 1995 INCOME
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Federal tax at statutory $ (406,332) (34.0)% $ (504,368) (34.0)%
rate
State and local income
taxes net of federal benefit (35,853) (3.0)
Other 1,850 .2 2,047 .1
---------- ----- ---------- -----
$ (440,335) (36.8)% $ (502,321) (33.9)%
========== ======= =========== ========
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
----------------------------------------------------
QUARTERS ENDED MARCH 31,
----------------------------------------------------
% OF PRETAX % OF PRETAX
1997 INCOME 1996 INCOME
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Federal tax at statutory $ (93,038) (34.0)% $ (22,782) (34.0)%
rate
State and local income
taxes net of federal benefit (8,210) (3.0) (2,010) (3.0)
---------- ---------- ---------- -----------
$ (101,248) (37.0)% $ (24,792) (37.0)%
========== ========= ========== ===========
ALBEX ALUMINUM, INC. 14
</TABLE>
<PAGE> 24
ALBEX ALUMINUM, INC.
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1994
<PAGE> 25
<TABLE>
<CAPTION>
BALANCE SHEET
(Unaudited)
December 31, 1994
ASSETS
<S> <C>
Current assets:
Cash $ 17,317
Accounts receivable, trade, less allowance
for doubtful accounts of $7,000 2,080,704
Inventories 2,694,674
Prepaid expenses and other current assets 98,054
-----------
Total current assets 4,890,749
-----------
Property, plant and equipment:
Land 3,300
Building and building improvements 280,218
Machinery and equipment 1,417,529
Furniture and fixtures 24,036
Dies 1,031,315
Vehicles 8,295
Construction in progress 422,808
-----------
3,187,501
Less accumulated depreciation (676,732)
-----------
Total property, plant and equipment 2,510,769
-----------
Other assets 23,183
-----------
Total assets $ 7,424,701
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
ALBEX ALUMINUM, INC.
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
1
<PAGE> 26
<TABLE>
<CAPTION>
BALANCE SHEET, CONTINUED
(Unaudited)
December 31, 1994
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
Current liabilities:
Notes payable to banks $ 1,534,502
Current portion of long-term debt 37,148
Accounts payable, trade 3,879,497
Accrued interest 3,586
Accrued expenses and other current liabilities 270,787
-----------
Total current liabilities 5,725,520
-----------
Long-term liabilities:
Note payable to West Virginia Economic Development
Authority, less current portion 260,100
Notes payable, stockholder 1,452,777
Other long-term liabilities 31,170
-----------
Total long-term liabilities 1,744,047
-----------
Total liabilities 7,469,567
-----------
Stockholders' deficit:
Common stock, no par value, 750 shares authorized,
100 shares issued and outstanding 100
Additional paid-in capital 933,150
Accumulated deficit (978,116)
-----------
Total stockholders' deficit (44,866)
-----------
Total liabilities and stockholders' deficit $ 7,424,701
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALBEX ALUMINUM
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
2
<PAGE> 27
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(Unaudited)
for the year ended December 31, 1994
<S> <C>
Net sales $ 14,269,127
Cost of goods sold 13,287,761
------------
Gross profit 981,366
Selling, general and administrative expenses 1,013,817
------------
Loss from operations (32,451)
------------
Other expense:
Interest expense (86,962)
Loss on disposal of equipment (3,540)
------------
Total other expense (90,502)
------------
Net loss $ (122,953)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALBEX ALUMINUM, INC.
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
3
<PAGE> 28
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
for the year ended December 31, 1994
ADDITIONAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT DEFICIT
----------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Balances, December 31, 1993 $ 100 $ 119,950 $(855,163) $(735,113)
Contributed capital -- 813,200 -- 813,200
Net loss for the year ended
December 31, 1994 -- -- (122,953) (122,953)
--------- --------- --------- ---------
Balances, December 31, 1994 $ 100 $ 933,150 $(978,116) $ (44,866)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALBEX ALUMINUM, INC.
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
4
<PAGE> 29
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
(Unaudited)
for the year ended December 31, 1994
<S> <C>
Cash flows from operating activities:
Net loss $ (122,953)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 368,120
Amortization 744
Provision for losses on accounts receivable 25,761
Loss on disposal of equipment 3,540
Changes in assets and liabilities:
Accounts receivable, trade (531,600)
Inventories (2,278,302)
Prepaid expenses and other current assets (68,187)
Other assets (7,379)
Accounts payable, trade 3,781,101
Accrued interest 2,316
Accrued expenses and other current liabilities 66,289
Other long-term liabilities 31,170
-----------
Total adjustments 1,393,573
-----------
Net cash provided by operating activities 1,270,620
-----------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,316,786)
-----------
Cash flows from investing activities:
Contributed capital 813,200
Principal payments on long-term debt (34,043)
Net borrowings on notes payable to banks 1,234,502
Advances payable, related party, net (1,953,791)
-----------
Net cash provided by financing activities 59,868
-----------
Net increase in cash 13,702
Cash, beginning of year 3,615
-----------
Cash, end of year $ 17,317
===========
Supplemental disclosure cash flows information:
Cash paid during the year for:
Interest $ 84,645
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALBEX ALUMINUM, INC.
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Company:
NATURE OF BUSINESS: Wirt Metal Products, Inc. (the Company) manufactures
and sells aluminum extruded products to a variety of customers engaged
in, among others, the manufacture of flat-bed trailers, building
products, marine wall construction, and energy related products.
INVENTORIES: Inventories are valued at the lower of cost or market; cost
being determined on the first-in, first-out (FIFO) method of valuation.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated
at cost. Major additions and betterments are capitalized while
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed currently. When property is retired or
otherwise disposed of, the cost of the property is removed from the asset
account, accumulated depreciation is charged with an amount equivalent to
the depreciation provided, and the difference is charged or credited to
income.
Depreciation is provided using primarily the straight-line method over
the estimated useful lives of the assets for financial statement purposes
as follows:
Building and building improvements 31.5 years
Machinery and equipment 5 to 15 years
Furniture and fixtures 5 to 10 years
Vehicles 5 years
DIES: Dies are stated at cost, and are being amortized using the
straight-line method over 36 months. Cost is net of any reimbursements
from the applicable customer.
LOAN COSTS: Loan costs associated with financing agreements are being
amortized over the life of the related agreements.
INCOME TAXES: The Company, with the consent of its stockholders, has
elected to be taxed under the provisions of the Internal Revenue Code as
an "S" Corporation. Under those provisions and similar provisions of
state law, the Company does not pay corporate income taxes on its taxable
income. Instead, each stockholder is liable for individual income taxes
on their respective portion of the Company's taxable income.
ALBEX ALUMINUM, INC.
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
6
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
2.INVENTORIES:
Inventories at December 31, 1994 consist of:
<TABLE>
<S> <C>
Raw materials $ 2,068,728
Work-in-process 65,571
Finished goods 560,375
-----------------
$ 2,694,674
=================
</TABLE>
<TABLE>
<CAPTION>
3.NOTES PAYABLE TO BANKS:
<S> <C>
At December 31, 1994, notes payable to banks consist of the following:
$300,000 notes payable to United National Bank
collateralized by machinery and equipment. Interest
is payable quarterly at 9.5%. $ 300,000
The United National Bank loan has been renewed every 90
days since inception and is due for renewal on March 9,
1995.
$2,500,000 revolving line of credit with PNC Bank,
National Association, collateralized by accounts receivable,
inventory and property and equipment. Interest is payable
monthly at the bank's base rate plus a marginal rate which
is based on obtaining certain financial ratios. The marginal
rate at December 31, 1994 was .75%. The total rate was 9.25%. $1,234,502
</TABLE>
Under the PNC line of credit, borrowings are available based on a certain
formula of trade accounts receivable and inventory, principally
consisting of advance rates of 85% of eligible accounts receivable and
60% of inventory. Available borrowings at December 31, 1994 approximated
$452,000. The line is due for renewal on June 30, 1995.
The PNC revolving line of credit contains covenants which limit the
Company in certain areas including among others, capital expenditures,
other borrowings, total debt to tangible net worth, and minimum tangible
net worth. At December 31, 1994, the Company was in violation of such
covenants. As such, the bank may declare, at its option, the revolving
credit commitment terminated with amounts due immediately.
The PNC agreement also restricts stockholder distributions.
The PNC revolving line of credit is guaranteed by the majority
stockholder of the Company.
ALBEX ALUMINUM, INC.
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
7
<PAGE> 32
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
4.LONG-TERM DEBT:
<S> <C>
Long-term debt consists of the following:
Promissory note payable to the West Virginia Economic Development
Authority, due in 120 monthly installments of $4,006 including interest
at the Wall Street Journal's prime rate less 4% (4.5% at December 31,
1994). The note is collateralized by machinery and equipment and
matures November 1, 2001. $ 297,248
Note payable, stockholder, interest only payable for three years at
7.94%, commencing December 31, 1994, then payable in monthly
installments of $2,583, including interest at 7.94%. The note is
subordinated to repayment of the notes payable to banks and the note
payable to the West Virginal Economic Development Authority. The note
is scheduled to mature December 2004. 166,047
Note payable, stockholder, interest only payable for three years at
7.94%, commencing December 31, 1994, then payable in monthly
installments of $20,017, including interest at a7.94%. The note is
subordinated to repayment of the notes payable to the banks and the
note payable to the West Virginia Economic Development Authority. The
note is scheduled to mature December 2004. 1,286,730
---------------
1,750,025
Less current portion 37,148
---------------
Long-term debt, less current portion $ 1,712,877
===============
</TABLE>
<TABLE>
<CAPTION>
The following is a schedule of maturities of all long-term debt for the
next five years ending December 31:
<S> <C> <C>
1995 $ 37,148
1996 38,662
1997 40,237
1998 203,523
1999 218,541
Thereafter 1,211,914
-----------------
$ 1,750,025
=================
</TABLE>
The promissory note is guaranteed by the majority stockholder of the
Company.
The promissory note contains certain covenants which limit the Company in
certain areas including among others, declaring dividends and making
loans to officers and stockholders. The note is callable, at the option
of the West Virginia Economic Development Authority, should the Company
cease operations at the West Virginia facility.
ALBEX ALUMINUM, INC.
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS, (UNAUDITED) CONTINUED
5.RETIREMENT PLAN:
The Company has a 401(K) retirement and profit sharing plan which covers
substantially all employees who have attained the age of 19 and have
completed one year of service. In accordance with the plan, the Company
matches contributions made by the employees up to 3% of their eligible
wages. Retirement costs were $38,256 in 1994.
6.RELATED PARTY TRANSACTIONS:
The Company's majority stockholder also controls several affiliated
companies. As such, the majority stockholder is in a position to
influence sales, costs and expenses of the Company for the benefit of the
affiliates that are under his control.
The Company purchases aluminum from a company which is wholly owned by
the majority stockholder of the Company. Purchases totalled $3,522,920
during 1994.
The Company in the normal course of business also sells to companies in
which the majority stockholder also has a majority interest. Sales to
such companies totalled $4,339,215 during 1994.
Prices for such products sold and materials purchased approximate the
prices which would be charged to an unrelated buyer or supplier.
The Company shares certain administrative, computer and financial
services with a related company. Charges of $100,000 during 1994 were
incurred for such services. In addition, the Company participates in a
group health insurance plan with a related company and, accordingly,
charges of $125,807 were incurred for its portion of the plan costs.
The Company has accounts payable of $67,858 and accounts receivable of
$553,537 due to and from related companies included in the accounts
payable and receivable, trade balances at December 31, 1994.
The trade accounts payable and receivable - related parties, and advances
due to related parties, have been classified in the financial statements
based on management's expectations for repayment.
7.CONCENTRATIONS OF CREDIT RISK:
ACCOUNTS RECEIVABLE: The Company sells a broad range of aluminum extruded
products to a diverse group of customers operating in the transportation,
distribution and building products industries, and to a wide range of
Original Equipment Manufacturers (OEMs) located within the United States.
Credit limits and ongoing credit evaluations and account monitoring
procedures have been implemented to minimize the risk of loss. The
Company does not require collateral and maintains a reserve for potential
credit losses, which have been within management's expectations.
ALBEX ALUMINUM, INC.
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
9
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS, (UNAUDITED) CONTINUED
CASH: At December 31,1994, the Company had a commercial checking account
with a bank balance that exceeded the federally insured limits by
$113,234.
8.LEASE COMMITMENTS:
The Company leases vehicles and equipment under noncancellable operating
leases which expire at various dates between April 1995 and March 2000.
The Company is responsible for maintenance, insurance, taxes and excess
mileage charges on the vehicles. Certain of these leases contain purchase
options upon the expiration of their lease terms. Rent expense under such
agreements was $48,169 during 1994. Future minimum rental payments are as
follows:
<TABLE>
<S> <C>
1995 $42,312
1996 42,240
1997 39,858
1998 30,849
1999 10,968
</TABLE>
ALBEX ALUMINUM, INC.
(FORMERLY KNOWN AS WIRT METAL PRODUCTS, INC.)
10
<PAGE> 35
SIGNS AND BLANKS, INC.
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE> 36
CONTENTS
PAGES
-----
Report of Independent Accountants.................................. 1
Financial Statements:
Balance Sheets................................................... 2
Statements of Operations and Accumulated Deficit................. 3
Statements of Cash Flows......................................... 4
Notes to Financial Statements.................................... 5-10
SIGNS AND BLANKS, INC.
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and
Board of Directors of
Signs and Blanks, Inc.:
We have audited the accompanying balance sheets of Signs and Blanks, Inc. (the
"Company") as of December 31, 1996 and 1995, and the related statements of
operations and accumulated deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Signs and Blanks, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
March 31, 1997
<PAGE> 38
<TABLE>
<CAPTION>
BALANCE SHEETS
UNAUDITED
DECEMBER 31, DECEMBER 31, MARCH 31,
ASSETS 1996 1995 1997
----------- -------------- --------------
<S> <C> <C> <C>
Current assets:
Cash $ 5,854 $ 6,271 $ 97,895
Receivables - trade, net of allowance for doubtful accounts
of $27,000 and $4,000 in 1997, 1996 and 1995, respectively 1,272,996 1,481,332 1,360,927
Inventories 1,279,306 1,740,316 1,644,225
Other current assets 44,693 122,227 39,049
----------- ----------- -----------
Total current assets 2,602,849 3,350,146 3,142,096
Equipment and improvements, net 946,886 1,057,632 926,220
Other assets 9,630 13,450 6,635
----------- ----------- -----------
Total assets $ 3,559,365 $ 4,421,228 $ 4,074,951
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Note payable - bank $ -- $ 1,701,719 $ 1,091,481
Current portion of long-term debt -- 35,000 --
Accounts payable - trade 879,951 1,320,791 1,407,582
Accounts payable - related party 15,399 12,889 19,416
Accrued expenses:
Compensation 20,226 21,820 12,322
Interest 28,884 13,769 7,829
Other 143,791 133,025 158,159
----------- ----------- -----------
Total current liabilities 1,088,251 3,239,013 2,696,789
Note payable - bank 1,154,944 -- --
Note and accounts payable - related party 1,131,000 1,381,000 1,131,000
----------- ----------- -----------
Total liabilities 3,374,195 4,620,013 3,827,789
----------- ----------- -----------
Commitments and contingencies (Note 8) -- -- --
Shareholder's equity (deficit):
Common stock, no par value, 750 shares authorized,
500 shares issued and 450 shares outstanding 5,000 5,000 5,000
Additional capital 1,834,430 1,834,430 1,834,430
Accumulated deficit (1,653,760) (2,037,715) (1,591,768)
Less treasury shares, 50 shares at cost (500) (500) (500)
----------- ----------- -----------
Total shareholder's equity (deficit) 185,170 (198,785) 247,162
----------- ----------- -----------
Total liabilities and shareholder's equity (deficit) $ 3,559,365 $ 4,421,228 $ 4,074,951
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
SIGNS AND BLANKS, INC.
2
<PAGE> 39
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
UNAUDITED
FOR THE YEARS ENDED FOR THE QUARTERS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1995 1997 1996
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 11,294,622 $ 11,455,437 $ 2,427,540 $ 2,586,512
Cost of sales 9,656,246 10,186,520 2,127,572 2,407,618
------------ ------------ ------------ ------------
Gross profit 1,638,376 1,268,917 299,968 178,894
Selling, general and administrative expenses 1,125,338 1,350,406 214,677 171,456
------------ ------------ ------------ ------------
Income (loss) from operations 513,038 (81,489) 85,291 7,438
Other income (expense):
Interest expense (127,719) (180,428) (23,299) (38,228)
Loss on disposal of fixed assets (1,364) -- -- --
------------ ------------ ------------ ------------
Total other expense, net (129,083) (180,428) (23,299) (38,228)
------------ ------------ ------------ ------------
Net income (loss) 383,955 (261,917) 61,992 (30,790)
Accumulated deficit, beginning of period (2,037,715) (1,775,798) (1,653,760) (2,037,715)
------------ ------------ ------------ ------------
Accumulated deficit, end of period $ (1,653,760) $ (2,037,715) $ (1,591,768) $ (2,068,505)
============ ============ ============ ============
Pro forma income data (unaudited) Note 10:
Net income (loss) as reported $ 383,955 $ (261,917) $ 61,993 $ (30,790)
Pro forma income tax (expense) benefit (144,398) 97,655 (23,557) 11,700
------------ ------------ ------------ ------------
Pro forma net income (loss) $ 239,557 $ (164,262) $ 38,436 $ (19,090)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SIGNS AND BLANKS, INC. 3
<PAGE> 40
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
FOR THE YEARS ENDED FOR THE QUARTERS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1995 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 383,955 $ (261,917) $ 61,992 $ 30,790
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 166,117 163,804 40,790 40,932
Provision for doubtful accounts 23,000 8,914 2,000 3,000
Loss on disposal of fixed assets 1,364 -- -- --
Increase (decrease) in cash from changes in:
Accounts receivable - trade 185,336 715,405 (89,931) (262,744)
Inventories 461,010 11,308 (364,919) 114,456
Other current assets 77,534 77,514 5,644 27,284
Other assets 3,820 (311) 2,994 --
Accounts payable - trade (440,840) 969,037 527,630 401,741
Accounts payable - related party 2,510 (1,563,176) 4,017 (2,585)
Accrued and other current liabilities 24,287 (38,165) (14,589) 8,882
----------- ----------- ----------- -----------
Net cash provided by operating activities 888,093 82,413 175,628 282,413
----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (56,735) (16,260) (20,125) (11,865)
Proceeds from disposal of fixed assets -- 1,000 -- --
----------- ----------- ----------- -----------
Net cash used in investing activities (56,735) (15,260) (20,125) (11,865)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net (payments on) proceeds from note payable - bank (546,775) 15,731 (63,463) (270,719)
Repayment of long-term debt (35,000) (60,000) -- --
Repayment of accounts payable - related party (250,000) (19,000) -- --
----------- ----------- ----------- -----------
Net cash used in financing activities (831,775) (63,269) (63,463) (270,719)
----------- ----------- ----------- -----------
Net (decrease) increase in cash (417) 3,884 92,041 (171)
Cash, beginning of period 6,271 2,387 5,854 6,271
----------- ----------- ----------- -----------
Cash, end of period $ 5,854 $ 6,271 $ 97,895 $ 6,100
========== ========= =========== ===========
Supplemental cash flows information:
Interest paid $ 126,137 $ 177,677 $ 23,299 $ 38,228
========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SIGNS AND BLANKS, INC.
4
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS: The Company's operations consist primarily of
manufacturing aluminum based traffic control signs for governmental
agencies and the transportation industry. The majority of the Company's
business activity is with customers located within the United States.
The following is a summary of significant accounting policies of the
Company:
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
STATEMENTS OF CASH FLOWS: For purposes of the statements of cash flows,
cash includes cash on hand and demand deposits.
INVENTORIES: Inventories are carried at the lower of cost or market, cost
being determined on the first-in, first-out (FIFO) method of valuation.
EQUIPMENT AND IMPROVEMENTS: Equipment and improvements are stated at
cost. Major additions and betterments are capitalized while maintenance
and repairs which do not improve or extend the lives of the respective
assets are expensed currently. When equipment or improvements are retired
or otherwise disposed of, the cost of the equipment or improvements is
removed from the asset account, accumulated depreciation or amortization
is charged with an amount equivalent to the depreciation or amortization
provided, and the difference is charged or credited to income.
Depreciation and amortization have been provided using the straight-line
method over the estimated useful lives of equipment of 3-15 years and
improvements over 10 years.
REVENUE RECOGNITION: Sales and related cost of sales are recorded as
goods are shipped to customers.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's financial instruments
consist principally of cash, accounts receivable, accounts payable, bank
financing agreements and subordinated debt to the shareholder. The fair
value of these financial instruments approximates the respective carrying
values.
INCOME TAXES: The Company, with the consent of its shareholder, has
elected to be taxed under provisions of the Internal Revenue Code as an S
corporation. Under those provisions and similar provisions of state law,
the Company does not pay corporate income taxes on its taxable income.
Instead, the shareholder is liable for individual income taxes on the
Company's taxable income.
RECLASSIFICATIONS: Certain amounts in the 1995 financial statements have
been reclassified to conform to 1996 presentation.
SIGNS AND BLANKS, INC. 5
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
UNAUDITED INTERIM FINANCIAL STATEMENTS: The unaudited financial
statements as of March 31, 1997 and the three months ended March 31, 1997
and 1996, includes, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of such interim financial statements in
accordance with generally accepted accounting standards. The results of
operations for the interim period are not necessarily indicative of
results of any other interim period or the full year.
2. INVENTORIES:
Inventories consist of the following at:
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, MARCH 31,
1996 1995 1997
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials and work in progress $ 924,794 $ 534,221 $ 504,724
Finished goods 354,512 1,206,095 1,139,501
---------- ---------- ----------
$1,279,306 $1,740,316 $1,644,225
========== ========== ==========
</TABLE>
3. EQUIPMENT AND IMPROVEMENTS, NET:
Equipment and improvements, net consist of the following at:
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, MARCH 31,
1996 1995 1997
---------- ---------- ----------
<S> <C> <C> <C>
Leasehold improvements $ 305,743 $ 289,559 $ 316,543
Machinery and equipment 1,662,210 1,636,120 1,658,947
Office furniture and equipment 106,114 94,527 118,701
---------- ---------- ----------
2,074,067 2,020,206 2,094,191
Less accumulated depreciation 1,127,181 962,574 1,167,971
---------- ---------- ----------
$ 946,886 $1,057,632 $ 926,220
========== ========== ==========
</TABLE>
SIGNS AND BLANKS, INC. 6
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. FINANCING:
Financing consists of the following at:
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, MARCH 31,
1996 1995 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Term loan, bank, collateralized by the Company's equipment,
accounts receivable and inventories and guaranteed by
the shareholder, payable in monthly principal payments
of $5,000 plus interest at prime (8.5% at December 31,
1995) plus 1.5%, paid in 1996 $ - $ 35,000 $ -
============== ============== ===============
</TABLE>
The Company has a revolving line of credit of $2,000,000 with a bank
under which credit is made available based on a certain formula of trade
receivables and inventories which including equipment collateralize the
borrowings. Interest is payable monthly at prime plus 1.0% (prime 8.25%
at December 31, 1996). The line is due for renewal in April 1997 and
$1,154,944 was outstanding on this line as of December 31, 1996 and
$1,701,719 as of December 31, 1995 (March 31, 1997 $1,091,481 -
unaudited). The Company could have borrowed approximately $760,000 more
than the amount owed at December 31, 1996. This agreement was replaced
with a new agreement at a different bank on January 17, 1997 (see Note
10).
The loans have covenants that limit the Company in certain areas
including payment of dividends, additional borrowings and selling or
otherwise transferring assets other than in the normal course of
business. In addition, the Company is required to maintain specific
levels of working capital and net worth.
5. RELATED PARTY TRANSACTIONS:
The Company leases its plant and office space from a related party under
an operating lease which also requires the Company to pay applicable
taxes, insurance and maintenance. Including other various rentals, total
rental expense was $69,800 in 1996 and $69,600 in 1995. Future minimum
rental payments are $78,000 for each of the next three years.
In 1994, the Company purchased substantially all of its aluminum coil
from companies which are wholly-owned by the sole shareholder of the
Company. Purchases from these companies totalled $6,882,379 in 1994. The
Company has accounts payable of $1,146,399 to these related companies at
December 31, 1996 and $1,393,889 at December 31, 1995, that are
classified as short-term or long-term based on management's expectations
for repayment. In addition, at March 31, 1997 the Company has a note
payable to its shareholder of $1,131,000 with interest only payments on
the unpaid principal balance commencing May 1, 1997 at a rate of 7% per
annum. Interest begins to accrue on April 1, 1997. Monthly payments begin
January 1, 1998 for 60 months in the amount of $18,850. The note is
subordinate to all other debt of the Company. In 1996 and 1995 the
Company purchased all of its aluminum coil from unrelated companies.
SIGNS AND BLANKS, INC. 7
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. RELATED PARTY TRANSACTIONS, CONTINUED:
The Company shares certain other administrative services with other
related companies. The Company incurred $127,409 in 1996 and $143,722 in
1995 for such services.
6. CONCENTRATION OF CREDIT RISK:
The Company performs ongoing credit evaluations of customers and
generally, requires no collateral. The Company establishes an allowance
for possible losses based on factors surrounding the credit risk of
specific customers. Such losses have been within management's
expectations.
7. EMPLOYEE BENEFIT PLANS:
The Company participates in the GMP and Employers Pension Fund, a
multi-employer defined benefit pension plan, that covers all of the
Company's hourly bargaining unit employees. Pension expense under this
plan amounted to $19,020 in 1996 and $25,162 in 1995.
The Company also participates in a 401(k) profit sharing plan with a
related company that covers all of the Company's non-bargaining unit
hourly and salary employees. Under the terms of the plan, employees may
voluntarily contribute up to 15% of their compensation to the plan. The
Company matches employee contributions up to 3% of compensation. The
Company's expense under this plan was $7,569 in 1996 and $3,768 in 1995.
8. COMMITMENTS AND CONTINGENCIES:
The Company, along with other affiliated companies, have guaranteed an
obligation of their affiliates Albex Aluminum, Inc. and Ravens Metal
Products, Inc. aggregating $4,500,000 and $8,000,000, respectively.
The Company is involved in various claims and litigation arising in the
normal course of business. In the opinion of management, the ultimate
resolution of these actions will not materially affect the financial
position, results of operations, or cash flows of the Company.
9. MAJOR SUPPLIERS:
During 1996 and 1995, the Company purchased approximately 95% and 78%,
respectively, of its inventories from five suppliers. At December 31,
1996 and 1995, amounts due to these suppliers included in accounts
payable, trade and accounts payable - related party were $794,595 and
$2,211,671, respectively.
SIGNS AND BLANKS, INC. 8
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. SUBSEQUENT EVENTS:
On January 17, 1997, the Company entered into a loan and security
agreement with First National Bank of Ohio ("FNBO"). The agreement
provides for borrowings under a line of credit up to $2,500,000 based on
eligible accounts receivable and inventories and expires on January 31,
1998. Interest is at FNBO's prime rate (8.25% at January 17, 1997). The
agreement is collateralized by cash, accounts receivable and inventories
and contains covenants relating to the payment of dividends, creation of
additional indebtedness and minimum tangible net worth. At January 17,
1997, management intended to finance future accounts receivable and
inventories for more than one year and estimated that the amount of
borrowings classified as long-term under the original agreement would not
exceed the eligible collateral at December 31, 1997.
On March 31, 1997, the Company's shareholder entered into a stock
purchase agreement to sell all of his issued and outstanding shares of
common stock to RVM Industries, Inc. ("RVM"); a company under common
control. Concurrent with the sale, the Company will change its year end
to March 31 and become a wholly-owned subsidiary of RVM. The purchase
price to be paid for the shares will be based upon the earnings of the
Company, as defined in the agreement, for the two years ending March 31,
2000 times an agreed to multiple of earnings. The purchase price as then
determined will be paid monthly over five years beginning July 1, 2000.
The outstanding note payable will bear interest at 8% per annum.
Prior to the acquisition by RVM, the Company operated as an S Corporation
and, as such, was not liable for federal and certain state and local
income taxes. As a result, income (losses) of the Company have been taxed
for federal and certain state and local income tax purposes directly to
the shareholders rather than to the Company. Cash distributions were
regularly made by the Company, in part to fund shareholders for these
liabilities. Accordingly, net income (loss), as reported in the
accompanying statements of operations does not include a provision
(benefit) for these income taxes.
Effective April 1, 1997, the Company will no longer be treated as an S
Corporation and will be subject to all corporate federal and state and
local income taxes. Accordingly, for informational purposes, the
statements of operations include unaudited pro forma adjustments for
additional income taxes (benefits) which would have been recorded if the
Company had been taxed as a C Corporation, based on the tax laws in
effect during those periods.
Unaudited pro forma income tax expense for each of the periods presented
is as follows:
<TABLE>
<CAPTION>
(UNAUDITED) UNAUDITED
---------------------- --------------------------
YEARS ENDED DECEMBER 31, QUARTERS ENDED MARCH 31,
----------------------- -----------------------
1996 1995 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Deferred provision (benefit):
Federal $136,745 $(83,853) $ 22,317 $(11,057)
State and local 7,653 (13,802) 1,240 (643)
-------- -------- -------- --------
Total $144,398 $(97,655) $ 23,557 $(11,700)
======== ======== ======== ========
</TABLE>
SIGNS AND BLANKS, INC. 9
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. SUBSEQUENT EVENTS, CONTINUED:
The difference between unaudited pro forma income taxes at the statutory
federal income tax rate of 34% and those reported in the statements of
operations are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
% OF PRETAX % OF PRETAX
1996 INCOME 1995 INCOME
-------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Federal tax at statutory rate $130,545 34.0% $(89,052) (34.0)%
Additional state and local
income taxes net of federal 13,438 3.5 (9,167) (3.5)
benefit
Other 414 .1 564 .2
-------- ---- -------- ----
$144,397 37.6% $(97,655) (37.3)%
======== ==== ======== =====
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------------------------------
QUARTERS ENDED MARCH 31,
------------------------------------------------
% OF PRETAX % OF PRETAX
1997 INCOME 1996 INCOME
-------- ------------- -------- ------------
<S> <C> <C> <C> <C>
Federal tax at statutory rate $ 21,078 34.0% $(10,468) (34.0)%
Additional state and local
income taxes net
of federal benefit 2,170 3.5 (1,078) (3.5)
Other 309 .5 (154) (.5)
-------- ---- -------- -----
$ 23,557 38.0% $(11,700) (38.0)%
======== ==== ======== =====
</TABLE>
SIGNS AND BLANKS, INC. 10
<PAGE> 47
SIGNS AND BLANKS, INC.
UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1994
<PAGE> 48
BALANCE SHEET
(Unaudited)
December 31, 1994
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Cash $ 2,387
Accounts receivable, trade - net of allowance for doubtful
accounts of $30,000 2,205,651
Inventories:
Raw materials 663,700
Finished goods 1,087,924
----------
1,751,624
----------
Prepaid expenses and other current assets 199,741
----------
Total current assets 4,159,403
----------
Equipment and improvements:
Leasehold improvements 289,559
Machinery and equipment 1,624,897
Office furniture and equipment 91,068
----------
Total cost 2,005,524
Less accumulated depreciation and amortization 799,348
----------
Equipment and improvements, net 1,206,176
----------
Other assets 13,139
----------
Total assets $5,378,718
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
SIGNS AND BLANKS, INC.
<PAGE> 49
BALANCE SHEET, CONTINUED
(Unaudited)
December 31, 1994
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Current liabilities:
<S> <C>
Notes payable $ 1,647,309
Accounts payable, trade 390,433
Accounts payable, related party 1,576,065
Accrued expenses and other current liabilities 206,779
Current portion of long-term debt 60,000
-----------
Total current liabilities 3,880,586
Long-term liabilities:
Accounts payable, related party 1,400,000
Long-term debt, less current portion 35,000
-----------
Total liabilities 5,315,586
Shareholder's equity:
Common stock, no par value, 750 shares authorized,
500 shares issued and 450 outstanding 5,000
Additional paid-in capital 1,834,430
Accumulated deficit (1,775,798)
Less treasury stock (500)
-----------
Total shareholder's equity 63,132
-----------
Total liabilities and shareholder's equity $ 5,378,718
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
SIGNS AND BLANKS, INC.
<PAGE> 50
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
(Unaudited)
for the year ended December 31, 1994
<TABLE>
<S> <C>
Net sales $ 11,074,108
Cost of goods sold 10,470,220
------------
Gross profit 603,888
------------
Selling expenses 363,431
General and administrative expenses 410,766
------------
Total selling, general and administrative expenses 774,197
------------
Income (loss) from operations (170,309)
Interest expense (125,045)
Other income -
------------
Net loss (295,354)
Accumulated deficit, beginning of year (1,480,444)
------------
Accumulated deficit, end of year $ (1,775,798)
============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
SIGNS AND BLANKS, INC.
<PAGE> 51
STATEMENT OF CASH FLOWS
(Unaudited)
for the year ended December 31, 1994
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net loss $(295,354)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 175,203
Provision for doubtful accounts 49,996
Changes in assets and liabilities:
Accounts receivable, trade (112,467)
Inventories (516,138)
Prepaid expenses and other current assets (59,411)
Other assets 8,702
Accounts payable, trade (104,607)
Accounts payable, related party 464,203
Accrued expenses and other current liabilities 11,131
---------
Net cash used in operating activities (378,742)
---------
Cash flows from investing activities:
Additions to equipment and improvements (62,901)
---------
Cash flows from financing activities:
Net borrowings on notes payable 502,309
Repayment of long-term debt (60,000)
---------
Net cash provided by financing activities 442,309
---------
Net increase in cash 666
Cash, beginning of year 1,721
---------
Cash, end of year $ 2,387
=========
Supplemental cash flow information:
Interest paid $ 130,092
=========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
SIGNS AND BLANKS, INC.
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES: Inventories are valued at the lower of cost or market, cost
being determined on the first-in, first-out (FIFO) method of valuation.
EQUIPMENT AND IMPROVEMENTS: Equipment and improvements are stated at cost.
Major additions and betterments are capitalized while maintenance and repairs
which do not improve or extend the lives of the respective assets are
expensed currently. When equipment or improvements are retired or otherwise
disposed of, the cost of the equipment or improvements is removed from the
asset account, accumulated depreciation or amortization is charged with an
amount equivalent to the depreciation or amortization provided, and the
difference is charged or credited to income.
Depreciation and amortization have been provided using the straight-line
method over the estimated useful lives of the assets. Depreciation and
amortization expense relating to equipment and improvements totalled $166,116
in 1994.
AMORTIZATION: Start-up and organizational costs are amortized using the
straight-line method over five years. Amortization expense relating to
start-up and organization costs totalled $9,087 in 1994.
INCOME TAXES: The Company, with the consent of its shareholder, has elected
to be taxed under provisions of the Internal Revenue Code as an S
corporation. Under those provisions and similar provisions of state law, the
Company does not pay corporate income taxes on its taxable income. Instead,
the shareholder is liable for individual income taxes on the Company's
taxable income.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, cash
includes cash on hand and demand deposits.
2. FINANCING ARRANGEMENTS:
Long-term debt consists of the following as of December 31:
<TABLE>
<S> <C>
Term loan, bank, collateralized by the Company's equipment,
accounts receivable and inventories, payable in monthly
principal payments of $5,000 plus interest at prime plus
1.5% (prime 8.5% at December 31, 1994), final payment no
later than July, 1996 $95,000
Less current portion 60,000
-------
Long-term debt, less current portion $35,000
=======
</TABLE>
5
SIGNS AND BLANKS, INC.
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
2. FINANCING ARRANGEMENTS, CONTINUED:
Annual principal payments required under the provisions of the long-term debt
agreement are as follows:
<TABLE>
<S> <C>
1995 $ 60,000
1996 35,000
---------
$ 95,000
=========
</TABLE>
The Company has a revolving line of credit of $2,300,000 (effective February
14, 1995) with a bank under which credit is made available based on a certain
formula of trade receivables and inventories which including equipment
collateralize the borrowings. Interest is payable monthly at prime plus 1.5%
(prime 8.5% at December 31, 1994). The line is due for renewal in April 1995
and $1,438,000 was outstanding on this line as of December 31, 1994.
The loans have covenants that limit the Company in certain areas including
payment of dividends, additional borrowings and selling or otherwise
transferring assets other than in the normal course of business. In addition,
the Company is required to maintain specific levels of working capital and
net worth.
The loans are guaranteed by the shareholder of the Company.
The Company has a short-term installment note payable to 3M Corporation of
$209,309 at December 31, 1994. Principal and interest payments of $30,729 are
payable monthly with final payment due on July 15, 1995. The interest rate is
8.25%.
3. RELATED PARTY TRANSACTION:
The Company leases its plant and office space from a related party under an
operating lease which also requires the Company to pay applicable taxes,
insurance and maintenance. Including other various rentals, total rental
expense was $71,800 in 1994.
The Company purchases substantially all of its aluminum coil from companies
which are wholly-owned by the sole shareholder of the Company. Purchases
totalled $6,882,379 in 1994. Prices charged for such products substantially
approximate the prices which would be charged by an unrelated supplier. The
Company has accounts payable of $2,976,065 to this related party at December
31, 1994, that are classified as short-term or long-term based on
management's expectations for repayment.
The Company shares certain other administrative services with other related
companies. The Company incurred $94,809 in 1994 for such services.
6
SIGNS AND BLANKS, INC.
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
4. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK:
Most of the Company's business activity is with customers located within the
United States. The Company's receivables from companies in various industries
and governmental agencies were $2,235,651 as of December 31, 1994.
5. EMPLOYEE BENEFIT PLAN:
As of August 10, 1994 the Company became a participant in the GMP and
Employers Pension Fund, a defined benefit pension plan. The Company did not
participate in a pension plan for the period September 1, 1993 through August
9, 1994. However, the Company continued to accrue for pension benefits for
its hourly bargaining unit employees in an amount similar to that under
provisions of the old plan. Benefits have been contributed to the new plan
for the period September 1, 1993 through December 31, 1994. Pension expense
amounted to $20,561 in 1994.
Effective January 1, 1995 the Company participates in a 401(K) plan with a
related company that covers all of the Company's non-bargaining unit hourly
and salary employees. Under the terms of the plan, employees may voluntarily
contribute up to 15% of their compensation to the plan. The Company matches
employee contributions up to 3% of compensation.
7
SIGNS AND BLANKS, INC.
<PAGE> 55
RVM INDUSTRIES, INC.
UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
<PAGE> 56
RVM INDUSTRIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
CONSOLIDATED PROFORMA CONSOLIDATED
ASSETS RVM ADJUSTMENTS TOTALS
----------------- ---------------- -----------------
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 468,572 $ $ 468,572
Receivables, net 6,626,016 6,626,016
Inventories 8,713,287 8,713,287
Deferred income taxes 413,500 413,500
Other current assets 211,648 211,648
---------------- ---------------- ----------------
Total current assets 16,433,023 16,433,023
Funds held by trustee for capital expenditures 2,762,242 2,762,242
Property, plant and equipment, net 19,021,289 19,021,289
Other assets 386,948 386,948
---------------- ---------------- ----------------
Total assets $ 38,603,502 $ - $ 38,603,502
================= ================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,534,262 $ $ 6,534,262
Accrued expenses 2,317,977 2,317,977
Current portion of term debt 5,161,863 5,161,863
---------------- ---------------- ----------------
Total current liabilities 14,014,102 14,014,102
Note payable - shareholder 2,900,000 2,900,000
Long-term debt 14,238,548 14,238,548
Other liabilities 1,358,500 1,358,500
---------------- ---------------- ----------------
Total liabilities 32,511,150 32,511,150
Commitments and contingent liabilities - - -
Shareholder's equity:
Common stock 19,343 19,343
Additional capital 4,985,020 4,985,020
Retained earnings 1,087,989 1,087,989
---------------- ---------------- ----------------
Total shareholders' equity 6,092,352 6,092,352
---------------- ---------------- ----------------
Total liabilities and shareholders' equity $ 38,603,502 $ - $ 38,603,502
================ ================ ================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
1
<PAGE> 57
RVM INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
CONSOLIDATED PROFORMA CONSOLIDATED
RVM ADJUSTMENTS TOTALS
------------ ----------- ------------
<S> <C> <C> <C>
Net sales $ 61,638,221 $ $ 61,638,221
Cost of sales 52,983,028 52,983,028
------------ ----------- ------------
Gross profit 8,655,193 8,655,193
Selling, general and administrative expense 6,333,561 6,333,561
Special charges 371,768 371,768
------------ ----------- ------------
Income from operations 1,949,864 1,949,864
Other income, (expense), net (302,127) (302,127)
Interest expense 1,061,336 1,061,336
------------ ----------- ------------
Income before income taxes 586,401 586,401
Provision (benefit) for income taxes 505,462 $ (295,937)2A 209,525
------------ ----------- ------------
Net income $ 80,939 $ 295,937 $ 376,876
============ =========== ============
Proforma net income per common share $ 0.19 2B
============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
2
<PAGE> 58
RVM INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
CONSOLIDATED PROFORMA CONSOLIDATED
RVM ADJUSTMENTS TOTALS
----------------- ---------------- ---------------
<S> <C> <C> <C>
Net sales $ 61,793,870 $ $ 61,793,870
Cost of sales 55,652,221 55,652,221
--------------- --------------- -------------
Gross profit 6,141,649 6,141,649
Selling, general and administrative expense 6,326,233 6,326,233
Special charges 89,923 89,923
--------------- --------------- -------------
Loss from operations (274,507) (274,507)
Other income (expenses), net (9,489) (9,489)
Interest expense 1,070,684 1,070,684
--------------- --------------- -------------
Loss before income taxes (1,354,680) (1,354,680)
Provision (benefit) for income taxes 110,973 (599,976)2A (489,003)
--------------- --------------- -------------
Net loss $ (1,465,653) $ 599,976 $ (865,677)
=============== =============== =============
Proforma net loss per common share $ (0.45)2B
=============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 59
RVM INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
CONSOLIDATED PROFORMA CONSOLIDATED
RVM ADJUSTMENTS TOTALS
---------------- --------------- ---------------
<S> <C> <C>
Net sales $ 61,333,643 $ $ 61,333,643
Cost of sales 53,527,499 53,527,499
--------------- -------------- --------------
Gross profit 7,806,144 7,806,144
Selling, general and administrative expense 5,108,642 5,108,642
--------------- -------------- --------------
Income from operations 2,697,502 2,697,502
Other income, (expenses), net 121,027 121,027
Interest expense 529,932 529,932
--------------- -------------- --------------
Income before income taxes 2,288,597 2,288,597
Provision (benefit) for income taxes 960,800 (151,200)2A 809,600
--------------- -------------- --------------
Net income $ 1,327,797 $ 151,200 $ 1,478,997
=============== ============== ==============
Proforma net income per common share $ 0.76 2B
==============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE> 60
RVM INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
ITEM 7 (b)(1)
1. Basis of Presentation
The unaudited consolidated balance sheet as of March 31, 1997 and the
unaudited consolidated statements of operations for the years ended March
31, 1997, 1996 and 1995 of RVM Industries, Inc. give effect to the
acquisitions of Albex Aluminum, Inc. ("Albex") and Signs and Blanks, Inc.
("SABI"). The acquisitions have been accounted for as a reorganization of
entities under common control and prior years' financial statements have
been restated on an "as if pooling" basis as required by Interpretation
No. 39 of the Accounting Principles Board Opinion No. 16 ("APB 16"). RVM
has recorded investment balances equal to that of the common stock and
additional capital balances of Albex and SABI and offsetting credits to
it's additional capital account. For purposes of consolidation, the
investment account balances have been eliminated against the common stock
and additional capital balances of Albex and SABI. Prior to April 1, 1997,
Albex and SABI operated as S-corporations. Therefore, in accordance with
Staff Accounting Bulletin Topic 4-B, the undistributed income and losses
of Albex and SABI were reclassified to their respective additional capital
balances. In addition, in accordance with paragraph 79 of APB 16, the
contingent consideration related to this transaction will be recorded
after the March 31, 2000 earnings of Albex and SABI are known and are
therefore not reflected in any period presented. The payments will be
recorded as dividends.
Albex and SABI have calendar year ends. The balance sheet date of both
Albex and SABI included in RVM's March 31, 1997 balance sheet is December
31, 1996. Additionally, RVM's Statements of Operations for the years ended
March 31, 1997, 1996 and 1995 include the Statements of Operations of
Albex and SABI as of December 31, 1996, 1995 and 1994, respectively.
Intercompany accounts and transactions have been eliminated.
The unaudited consolidated balance sheet and statements of operations
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for
the year ended March 31, 1996, and in conjunction with the financial
statements of Albex and SABI included in this Form 8-K/A.
As previously noted, prior to April 1, 1997, both Albex and SABI operated
as S-corporations and as such, were not liable for federal or state income
taxes. Pro forma adjustments have been made to present the results of
operations of each Albex and SABI as if they were C-corporations for all
periods presented.
5
<PAGE> 61
2. Unaudited Consolidated Financial Statements The following proforma
adjustments are reflected in the unaudited consolidated financial
statements.
(A) To reflect estimated federal, state and local income taxes as if
Albex and SABI were C-corporations rather than S-corporations.
(B) To reflect net income (loss) per common share based on the historical
weighted average common shares outstanding of 1,938,140 in 1997,
1,943,525 in 1996 and 1,943,525 in 1995.
6
