<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File
March 31, 1998 No. 0-1709
- ------------------------- ---------------
RVM INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1515410
- ---------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
753 W. Waterloo Road, Akron, Ohio 44314-1519
- ------------------------------------------------------ ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 753-4545
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
The aggregate market value of the voting stock held by non-affiliates as of June
19, 1998, based on a bid price of $12.50 was approximately $2,832,088.
There were 1,936,755 shares outstanding of the Registrant's common stock as of
June 19, 1998.
Documents Incorporated by Reference
-----------------------------------
None
1
<PAGE> 2
RVM INDUSTRIES, INC.
Index to Annual Report on Form 10-K
for the Fiscal Year Ended March 31, 1998
<TABLE>
<CAPTION>
PART I Pages
- ------ -----
<S> <C> <C>
Item 1 Business 3 - 8
Item 2 Properties 8 - 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
PART II
- -------
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters 10
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 15
Item 8 Financial Statements and Supplementary Data 16 - 43
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 44
PART III
- --------
Item 10 Directors and Executive Officers of the Registrant 45 - 46
Item 11 Executive Compensation 47 - 49
Item 12 Security Ownership of Certain Beneficial Owners
and Management 50
Item 13 Certain Relationships and Related Transactions 51
PART IV
- -------
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 52 - 54
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
--------
Companies
- ---------
RVM Industries, Inc. ("RVM") is a publicly held holding company.
Ravens, Inc. ("Ravens"), Albex Aluminum, Inc. ("Albex"), and Signs and Blanks,
Inc. ("SABI") are wholly owned subsidiaries of RVM. The "Company" refers to RVM,
Ravens, Albex and SABI, collectively. See Note 19 to the consolidated financial
statements for financial information about industry segments.
Fiscal Year
- -----------
RVM's fiscal year ends on March 31. References to 1998, 1997, etc.
are for the fiscal years ended March 31, 1998, 1997, etc., respectively.
General Development of the Business
- -----------------------------------
Ravens Metal Products, Inc. was incorporated in the State of West
Virginia on April 9, 1956 and reincorporated in the State of Delaware on
September 3, 1986. Jacob Pollock ("Pollock") acquired majority control on May 3,
1991.
On March 31, 1997, Ravens Metal Products, Inc. changed its name to
Ravens, Inc. and effected a reorganization with RVM pursuant to Section 251(g)
of the Delaware General Corporation Law. Each holder of the common stock of
Ravens became the holder of an equal number of shares of RVM, a newly created
holding company. The holders of RVM common stock have substantially the same
rights that they had as holders of the common stock of Ravens. RVM filed Form
8-B on March 31, 1997 to register the common stock shares of RVM with the
Securities and Exchange Commission.
On March 31, 1997, RVM purchased all of the common stock of Albex and
SABI which were corporations wholly owned by Pollock, the majority shareholder
of RVM. Since this was a business combination of entities under common control,
the financial statements of prior years were restated to reflect the combination
on an "as if pooling of interests" basis.
RVM acquired Albex and SABI because these companies, like Ravens,
utilize aluminum as the major material in their products, and RVM believes that
access to capital markets and the trading value of RVM's common stock may be
enhanced by increasing the size of RVM. The purchase prices of Albex and SABI
are contingent upon future earnings of Albex and SABI. See Note 2 to the
consolidated financial statements.
Albex was incorporated in the State of Ohio on February 25 1991, as
Wirt Metal Products, Inc., relocated its operations from Elizabeth, West
Virginia to Canton, Ohio in 1996, and changed its name in 1997 to better reflect
its business of manufacturing aluminum billets and extrusions. Albex purchased
the real estate and an extrusion press in Elizabeth from Ravens prior to Pollock
purchasing a majority interest in Ravens.
SABI was founded by Pollock and incorporated in the State of Ohio on
July 10, 1989.
3
<PAGE> 4
Markets
- -------
Ravens
------
The principal business of Ravens is the design and manufacture of
truck trailers, consisting of platform (flatbed) trailers, dump trailers, and
dump truck bodies. Since the late 1950s, Ravens has designed and manufactured
durable, lightweight aluminum trailers and bodies which provide the advantage of
lower operating costs plus higher legal payload capacity. Although Ravens'
products are primarily made with aluminum bodies and aluminum chassis, Ravens
also manufactures units with steel chassis. Ravens' truck trailers are basically
standardized products with a number of optional features available; however,
certain variations are often made to satisfy customers' requirements. Ravens
also manufactures truck and trailer accessories, including tool boxes, side kits
and boxes, bulkheads and other optional equipment. Ravens sells a wide variety
of after-market parts for trucks and trailers, including parts for its own
trailers. Ravens began selling aluminum utility, snowmobile, and personal
watercraft trailers in 1995 but exited this business in 1997.
The markets for Ravens' truck trailer and body product lines are
virtually all within the highway transportation industry in the U.S. with a
small amount of sales in Canada. These markets include both for-hire carriers
(commercial trucking companies and owner operators) and private carriers
(manufacturers and producers delivering their own products or commodities). Dump
trailer and body applications include construction and road building materials,
agricultural and mining products, industrial and municipal waste, and a wide
range of other bulk commodities. Platform trailers are utilized in a variety of
applications, including steel and other metals, lumber, building materials,
machinery, appliances, and industrial equipment. The overall business of Ravens
is not generally seasonal.
The U.S. market for truck trailers and related products has
historically been somewhat cyclical and has been affected by overall economic
conditions as well as regulatory changes for the highway transportation
industry.
Albex
-----
Albex operates three extrusion presses (1,400 ton, 2,200 ton, and
3,000 ton) for standard and custom soft alloy aluminum extruded shapes. In 1998,
Albex shipped approximately 18 million pounds of aluminum extrusions in a market
estimated to exceed 3.8 billion pounds. Several of aluminum's physical
properties such as tensile strength, corrosion resistance, thermal conductivity,
lighter weight than steel, and scrap value for recycling are attractive to a
wide range of markets. Albex sells to manufacturers, fabricators and
distributors in the transportation, building and construction, consumer
durables, and other aluminum extrusion markets. Most sales are to customers in
the Midwestern portion of the U.S. Albex's business is not generally seasonal.
Applications in the transportation market include truck trailers and
bodies, utility trailers, recreational vehicles, and railcars. Approximately
29%, 33% and 30% of Albex's net sales in 1998, 1997 and 1996, respectively, were
to Ravens. These sales and intercompany inventory profits have been eliminated
from the consolidated financial statements.
Primary uses in the building and construction markets are structural
beams and components for buildings, road sign supports, and components for
highway and bridge construction. Examples of consumer durables are components
for boats, sports and exercise equipment, greenhouses, and durable medical
equipment. Albex produces a wide variety of standard shapes such as angles,
bars, channels, pipes, and beams that are purchased by distributors for resale
to end users.
4
<PAGE> 5
Having reduced Ravens portion of the extrusion business from 100% to
approximately 29% by obtaining new customers, Albex constructed an aluminum
billet casting facility in 1997 in order to recycle aluminum scrap generated
internally and purchased from suppliers into aluminum billet to be used for
producing extrusions and to sell to customers. Albex began producing billet in
1998 and expects to complete installation of raw material (aluminum scrap)
handling equipment and a third billet casting furnace in 1999 at which time the
billet facility will be fully operational.
SABI
----
SABI is a fully automated manufacturer of aluminum sign blanks and
traffic, warning, and street signs. SABI distributes its manufactured products
and purchased sign posts to a market approximating $350 million per year.
Approximately two-thirds of SABI's sales are to fabricator/dealers who purchase
aluminum blanks, cover them with reflective sheeting that is often silk
screened, and then sell the finished signs to governmental agencies.
Approximately one-third of SABI's sales are directly to governmental agencies in
the form of blanks or signs silk screened by SABI's print shop. Most sales are
to customers east of the Mississippi River. SABI's business is not generally
seasonal.
Backlog
- -------
Ravens' backlog of orders for new trailers amounted to approximately
$6,900,000 at May 31, 1998 compared to approximately $5,700,000 at May 31, 1997.
The backlog is expected to be completed in the current fiscal year. The order
backlogs for the extrusion and sign industries are not relevant due to the
nature of the industries and customers. These backlogs tend to be low and of
short duration.
Distribution and Service
- ------------------------
Ravens
------
Ravens sells and services truck trailers nationally through 55
trailer dealerships located in 33 states and 5 dealerships located in Canada.
Ravens owns trailer and parts sales branches located in Dover, Ohio and
Parkersburg, West Virginia. In addition, Ravens has regional sales managers who
support the dealerships and solicit direct sales from fleet customers.
Service and maintenance on Ravens' products are performed by its
Dover, Ohio service branch. Company approved garages, repair shops, and
customers are also authorized to service its products.
Ravens assists in financing its trailer sales to customers by
guaranteeing the time payment notes of customers with acceptable credit standing
to a finance company. See Note 7 to the consolidated financial statements as to
contingent liabilities with respect to these notes.
Ravens accepts used trailers as trade-ins on sales of new trailers
and purchases used trailers for resale. Ravens generally reconditions these used
trailers when necessary and holds them for resale. Ravens does not generally
lease trailers.
Albex
-----
Albex utilizes its own sales force and manufacturer representatives
to solicit orders from distributors and other customers. Albex also toll
processes metal owned by customers into billets and extrusions.
5
<PAGE> 6
SABI
----
SABI solicits sales mainly through telephone contacts with customers
and through independent sales representatives.
Raw Materials
- -------------
Aluminum in the form of coil, sheet, plate, primary ingot, billet and
scrap is the principal raw material used by the Company. The Company also
purchases components such as reflective sheeting, tires, wheels, axles and other
hardware items. The Company is not dependent upon any single supplier for
aluminum or other raw materials and components; however, a significant increase
in the price or an interruption in the supply of aluminum could adversely affect
the Company.
Competition
- -----------
Ravens
------
Ravens competes nationally in the platform trailer and dump trailer
categories of the diverse and highly competitive truck trailer industry. There
are approximately 90 companies who manufacture aluminum, composite (aluminum and
steel), and steel platform and/or dump trailers. A majority of these companies
compete within local or regional areas. The Company believes that approximately
10 of these companies have larger market shares of the total platform and dump
trailer markets.
Ravens has developed product design, manufacturing, and marketing
expertise for aluminum platform and dump trailers. Aluminum trailers, compared
to composite and steel trailers, are lighter, enabling a larger payload to be
hauled, last longer, require less maintenance, and have higher resale and scrap
values. These factors are distinct advantages of aluminum trailers, but the
higher cost of aluminum compared to steel requires a larger investment by the
customer.
Ravens, particularly, is recognized as a leading manufacturer of
aluminum platform trailers. Ravens believes that there are no more than 10
manufacturers of aluminum platform trailers, of which 4 account for
approximately 90-95% of the units produced. Ravens believes, based upon 1998
estimates of units registered, that Ravens' market share was approximately 40%
and that East Manufacturing Corporation, Benson Truck Bodies, Inc., and
Reitnouer, Inc. had market shares of approximately 19%, 14% and 19%,
respectively. Ravens strives to compete based upon product performance, but
economic conditions and competition with aluminum, composite, and steel
manufacturers have caused the importance of price to increase.
Ravens commenced production of platform trailers in its Kent, Ohio
facility in June 1995 and in October 1996 introduced the FleetHawk, a platform
trailer designed to compete more effectively against composite trailers sold to
the more cost conscious fleet customer. The FleetHawk is heavier but less
expensive than the Ravens Eclipse II Classic. Ravens believes that the higher
initial cost of the FleetHawk can be more than recovered through lighter weight
and lower operating costs than the composite trailer offered by competitors.
Ravens also introduced an aluminum flatbed truck body with the same features as
the Eclipse II Classic flatbed (platform) trailer. Ravens introduced a dropdeck
platform trailer in March 1998.
6
<PAGE> 7
Albex
-----
The aluminum extrusion industry is highly competitive with over 100
companies participating in North America. Large, vertically integrated producers
of primary aluminum such as Alumax, Inc. and Kaiser Aluminum Corp. dominate the
industry. Major independent aluminum extruders such as Easco, Inc. operate
multiple facilities on a nationwide basis. Competition is based upon the ability
to supply a quality product at a competitive price but is primarily regional in
nature due to shipping costs. Albex is able to compete well within a 400 mile
radius of its facility due to its ability to cast billet, provide short customer
order to shipment times, and provide a wide variety of shapes.
SABI
----
SABI believes that it is one of the five largest companies who
together account for approximately 25% of the sign market and that its market
share approximates 5-6%. The other four companies are AmSign Corporation, Hall
Signs, Inc., Newman Traffic Signs, Inc. ("Newman"), and Vulcan, Inc. Newman
competes against SABI in all geographic markets, whereas the others are strong
in particular geographic areas. A large number of other manufacturers,
fabricator/dealers, and governmental sign shops account for the other 75% of the
sign market.
Patents and Trademarks
- ----------------------
Ravens has a registered trademark for its swirl design finish on its
manufactured products. Ravens believes that the swirl finish is a cosmetic
feature which favorably distinguishes its trailers and bodies from competitors'
products.
Employees
- ---------
The Company currently employs approximately 460 administrative,
sales, engineering, production, and repair and service personnel. The hourly
personnel at the Ravens facility in Dover, Ohio are represented by the
International Association of Machinists and Aerospace Workers, AFL-CIO, under an
agreement which expires on April 18, 2002. The hourly production employees at
the Ravens Kent, Ohio facility are represented by the International Association
of Bridge, Structural and Ornamental Iron Workers, AFL-CIO, under an agreement
that expires on April 15, 2001. The United Steelworkers of America, AFL-CIO,
represent Albex's hourly production employees under an agreement which expires
on June 5, 2002. SABI's hourly production employees are represented under an
agreement expiring on December 31, 2000 with The Glass, Molders, Pottery,
Plastics & Allied Workers International Union, AFL-CIO.
Regulation
- ----------
Truck trailer length, height, width, maximum capacity and other
specifications are regulated by the U.S. Government and State Governments. The
U.S. Government also regulates certain safety features incorporated in the
design of truck trailers.
7
<PAGE> 8
Environmental Matters
- ---------------------
The Company's facilities are subject to the environmental laws and
regulations of the jurisdictions in which they are located. RVM believes that
the environmental standards maintained at such locations meet applicable
regulatory requirements. The Company's operations, like those of other
competitors in basic industries, have in recent years become subject to
increasingly stringent legislation and regulations with regard to protection of
human health and the environment. More rigorous policies and requirements may be
imposed in the future. Although RVM is not aware of any specific measures or
expenditures that will be required, compliance with such laws, regulations or
policies may require expenditures in the future.
ITEM 2. PROPERTIES
----------
Ravens leases approximately 11,000 square feet of office space for
its corporate office in Akron, Ohio.
Ravens owns a manufacturing facility on an 8 acre site in
Jacksonville, North Carolina. This facility is comprised of a prestressed
concrete building that contains approximately 43,200 square feet of fabrication
area and a concrete block building with approximately 3,000 square feet of space
for washing and painting trailers.
Ravens commenced production in June 1995 at a 22 acre site owned by
Ravens in Kent, Ohio. The building consists of approximately 95,000 square feet
primarily of steel construction.
RVM believes that Ravens has sufficient production capacity at the
Jacksonville and Kent facilities to meet current and projected demand for its
current products. Ravens expects to complete construction of a 62,000 square
foot steel building at its Kent property in 1999. The building will house
aluminum cut-to-length equipment and provide space for manufacturing new
products.
The branch in Dover, Ohio is housed in three buildings of cement
block construction with approximately 25,000 square feet of floor area on 3.5
acres of land. This property is utilized for trailer sales, service, and
repairs. The building contains offices, storage space, and shop space. Yard area
is utilized for storage of new and used trailers and trailers in process of
repair and maintenance. Ravens owns the land and buildings.
Ravens also owns land and buildings situated on approximately 9.2
acres adjacent to the branch facility in Dover, Ohio. From 1995 to 1997, Ravens
utilized the buildings, constructed primarily of concrete block and totaling
approximately 36,000 square feet, for manufacturing of utility, snowmobile, and
personal watercraft trailers. Ravens will relocate the wholesale parts business
from Parkersburg, West Virginia in July 1998 to this property.
The branch in Parkersburg, West Virginia sells trailers and parts
from a metal building with approximately 17,500 square feet situated on
approximately 4.9 acres of land. Ravens owns the land and building. This
facility will be sold subsequent to relocating the wholesale parts business to
Dover, Ohio.
Albex owns a 47 acre site in Canton, Ohio. The extrusion operation
and administrative offices are located in a 250,000 square foot building
constructed primarily of brick. A 36,000 square foot prefabricated steel
building houses the billet casting operation. RVM believes that Albex has
sufficient production capacity to meet current and projected demand for its
products.
8
<PAGE> 9
SABI operates in a leased 64,000 square foot predominantly steel and
concrete block building in Akron, Ohio. RVM believes that SABI has sufficient
production capacity to meet current and projected demand for its products.
Certain owned property of the Company is subject to mortgages and is
collateral for lines of credit and a letter of credit. See Notes 5 and 6 to the
consolidated financial statements.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is involved in various claims and litigation arising in
the ordinary course of business. Management believes that the outcome of such
claims will not have a material adverse effect on the Company's financial
position and results of operations and cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted to a vote of security holders in the
quarter ended March 31, 1998.
9
<PAGE> 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS
-------
RVM's common stock (trading symbol "RVMI") is traded over-the-counter
and quoted on the OTC Bulletin Board and on "pink sheets" which are published
periodically. The high and low trade prices and shares traded of RVM's common
stock as reported by the OTC Bulletin Board for each quarterly period during the
last two fiscal years were as follows:
<TABLE>
<CAPTION>
SHARES
HIGH LOW TRADED
------------------------------------------
<S> <C> <C> <C>
1997
First quarter $ 9.375 $ .750 31,361
Second quarter 8.000 5.000 1,378
Third quarter 6.500 4.000 6,846
Fourth quarter 7.438 5.500 8,875
1998
First quarter 7.000 4.500 35,872
Second quarter 7.000 5.000 4,153
Third quarter 8.500 6.500 17,022
Fourth quarter 12.250 6.500 36,029
</TABLE>
Trading activity was limited. J.C. Bradford & Co. began making a
market in the first quarter of 1997 and Herzeg Heine Geduld began making a
market in the fourth quarter of 1998. The trade prices do not include retail
mark-ups, mark-downs or commissions.
RVM has not paid dividends in the last two years and is restricted
from paying dividends by its loan agreements. Payment of dividends is within the
discretion of RVM's Board of Directors and will depend on, among other factors,
earnings, capital requirements and the operating and financial condition of the
Company. RVM does not presently intend to pay dividends in the future.
There were approximately 4,000 holders of record of the Registrant's
common stock as of June 19, 1998. See Item 12.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA FOR THE YEARS ENDED MARCH 31
This information should be read in conjunction with the consolidated financial
statements and the related notes in Item 8 and Management's Discussion and
Analysis of Financial Condition and Results of Operations in Item 7.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 79,903,238 $ 61,638,221 $ 61,793,870 $ 61,333,643 $ 42,569,932
Income (loss) from operations 4,936,300 1,960,772 (4) (274,507) 2,624,801 1,375,988
Unusual (expense) income items 0 (390,015)(5) 0 0 565,000 (3)
Income (loss) before income taxes and
accounting change 3,518,657 586,401 (1,354,680) 2,215,896 1,626,830
Cumulative effect of accounting change (2) 211,651 0 0 0 0
Net income (loss) 1,821,944 80,939 (1,465,653) 1,255,096 2,050,030
Basic and diluted earnings per share: (6)
Income before cumulative effect of
accounting change $ 1.05
Cumulative effect of accounting
change (0.11)
------------
Net income $ 0.94
============
Pro forma basic and diluted earnings per
share (1) $ 1.09 $ .19 $ (.45) $ .72 $ 1.05
Average number of shares used in
computation of per share amounts (1) 1,935,776 1,938,140 1,943,525 1,943,525 1,943,525
Cash dividends declared per common share $ 0 $ 0 $ 0 $ 0 $ 0
Total assets 48,348,030 38,567,375 39,211,709 31,535,760 16,468,598
Total long-term obligations 26,995,189 18,295,499 17,853,851 13,226,854 8,771,310
Working capital 10,591,297 2,181,245 2,008,050 3,005,724 4,471,922
Shareholders' equity (deficit) 7,888,169 6,056,225 5,796,700 3,164,038 1,003,244
<FN>
(1) All per share amounts and number of shares have been restated to reflect a one-for-four reverse stock split effected on
December 26, 1995.
(2) Net loss for Albex and SABI for the quarter ended March 31, 1997 recorded as accounting change as Albex and SABI changed
their fiscal year ends from December 31 to March 31.
(3) Gain of $470,000 from a life insurance policy on the previous Chairman of the Company, Rodney E. Wilson, and a gain of
$95,000 for the settlement of all disputes and obligations with Mr. Wilson.
(4) Includes loss of $371,768 for impairment of long-lived assets.
(5) Loss on pension settlement.
(6) Historical earnings per share information for 1994 through 1997 is not presented because Albex and SABI were not tax
paying entities in those years and, therefore, the historical results of operations are not indicative of the operating
results of the Company on an ongoing basis.
</FN>
</TABLE>
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $846,128 and $468,572 at
March 31, 1998 and 1997, respectively. The Company could have borrowed
approximately $1,270,000 more on a line of credit at March 31, 1998. On May 11,
1998, the Company and FirstMerit Bank, N.A. amended the line of credit agreement
to increase allowable borrowings from $15,000,000 to $18,000,000 until September
30, 1998.
Albex expects to incur capital expenditures in 1999 of approximately
$2,500,000 to complete an aluminum billet casting facility and related material
handling equipment at its plant to be financed by a fixed asset line of credit.
Ravens expects to incur capital expenditures of approximately
$1,500,000 in 1999 to complete construction of a 62,000 square foot building at
its Kent, Ohio facility and for equipment to cut aluminum coil into sheet.
Ravens will cut sheet for its own use and for customers. There will be space
available for production of the dropdeck platform trailer introduced in March
1998 and other new products. These expenditures will be financed mainly by funds
held by a trustee for capital expenditures.
As discussed in Note 2 to the consolidated financial statements, the
purchase prices for Albex and SABI are not determinable until Albex's and SABI's
earnings for the year ended March 31, 2000 are known. Based solely upon the
results for the year ended March 31, 1998, the pro forma calculation of the
amount of the Albex Purchase Price would be zero due to the loss and capital
expenditures incurred by Albex. The pro forma calculation of the SABI Purchase
Price, based solely upon the results for the year ended March 31, 1998, would be
$2,815,000. The Company plans to use cash generated internally and from credit
arrangements to make payments on the five year notes commencing July 1, 2000 for
the purchase of Albex and SABI.
Although no assurances are possible, the Company believes that its
cash resources, credit arrangements, and internally generated funds will be
sufficient to meet its operating and capital expenditure requirements for
existing operations and to service its debt in the next 12 months and the
foreseeable future. Cautionary statements: Demand for the Company's products is
subject to changes in general economic conditions and in the specific markets in
which the Company competes. The Company's liquidity could be adversely affected
if Albex is not successful in completing the casting facility and generating
sufficient sales of billet and extrusions.
Based upon sales for early 1999 and a sales order backlog for new
trailers approximating $6,900,000 at May 31, 1998, the Company is projecting
sufficient sales to maintain profitability and meet debt covenants in 1999.
However, see the cautionary statements in the above paragraph which indicate
items which could adversely affect profitability. The order backlogs for the
extrusion and sign industries are not relevant due to the nature of the
industries and customers. These backlogs tend to be low and of short duration.
12
<PAGE> 13
1998
- ----
Cash provided by net borrowings was used mainly for approximately
$3,200,000 of capital expenditures by Albex for the aluminum billet casting
facility and related aluminum scrap processing equipment and for approximately
$1,200,000 by Ravens mainly for building improvements and construction of a new
building at its Kent, Ohio facility. Working capital increased to $10,591,297 at
March 31, 1998 from $2,181,245 due mainly to replacing short-term bank financing
with long-term financing and investing cash provided by net income and non-cash
items in receivables and inventories. Receivables, inventories, accounts payable
- - trade, and accrued expenses increased mainly due to increased production and
sales.
1997
- ----
Net cash provided by operating activities of $2,454,394 and
$2,900,000 from a note payable to Jacob Pollock were used for capital
expenditures, mainly at the Albex facility, and to reduce other long-term debt.
Working capital increased to $2,181,245 at March 31, 1997 from $2,008,050 at
March 31, 1996.
1996
- ----
Net cash used in operating activities of $594,296 and capital
expenditures at the Albex facility and at the Kent facility of Ravens were
financed by the proceeds of long-term debt, contributed capital from Jacob
Pollock, and lines of credit. Working capital decreased to $2,008,050 at March
31, 1996 from $3,005,724 at March 31, 1995.
RESULTS OF OPERATIONS
Years Ended March 31, 1998 and 1997
- -----------------------------------
Net sales increased 29.6% mainly due to increased volume of aluminum
extrusion and billet sales by Albex and trailer sales by Ravens. Gross profit
increased 37.7% to $11,913,663 in 1998 from $8,655,193 in 1997, and gross profit
margin increased to 14.9% in 1998 from 14.0% in 1997 mainly due to efficiencies
gained from increased production levels at Ravens' trailer facilities and
closure of the utility trailer division which generated losses in the prior
year. Selling, general and administrative expenses decreased to 8.7% from 10.3%
of net sales as net sales increased at a greater rate than selling, general and
administrative expenses. Interest expense increased mainly due to more debt
outstanding during 1998 versus 1997. See Note 8 to the consolidated financial
statements for a discussion of income taxes. See Note 1 to the consolidated
financial statements for an explanation of the cumulative effect of accounting
change.
Ravens' net sales increased 26.9% due to strong industry demand and
introduction in October 1996 of the FleetHAWK aluminum platform trailer designed
for fleet operations. Sales of FleetHAWK trailers increased to approximately
$10,200,000 in 1998 from approximately $2,900,000 in 1997. Income from
operations increased by $2,509,001 or 105.9% due to higher sales and plant
utilization and the closure of the utility trailer division.
Albex's net sales to customers other than Ravens and SABI increased
by $7,064,148 or 81.3%. Albex began producing billet for its extrusion operation
and customers during 1998 and incurred a loss from operations of $578,767 mainly
due to startup and learning costs.
SABI's gross profit margin increased to 17.0% from 14.5% and
operating income increased by $140,097 or $27.3% as SABI concentrated on more
profitable customers and lowered its costs.
13
<PAGE> 14
Years Ended March 31, 1997 and 1996
- -----------------------------------
Gross profit increased 43.0% to $8,655,193 in 1997 from $6,051,726 in
1996, and gross profit margin increased to 14.0% in 1997 from 9.8% in 1996 due
to improvements at all of the subsidiaries. Ravens and Albex did not have the
relocation and startup costs in 1997 that were incurred in 1996, and they began
to realize the cost savings and quality improvements resulting from the
construction of more efficient facilities. SABI increased its gross profit on
the same level of sales by concentrating on more profitable customers and
lowering costs. Gross profit at Ravens was adversely affected by losses at the
utility trailer division which was closed in 1997. In 1997, Albex recognized a
loss of $371,768 for the impairment of long-lived assets, mainly machinery and
equipment, and Ravens incurred a loss of $390,015 for the settlement of the
defined benefit pension plan for the former employees of the former Elizabeth,
West Virginia facility. See Note 8 to the consolidated financial statements for
a discussion of income taxes.
INFLATION
The Company does not believe that inflation has had a material effect
on the results of operations for the periods presented because of low inflation
levels during these periods.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes standards for the reporting and display of "comprehensive income"
and its components, in addition to net income, in the financial statements.
Comprehensive income includes certain items such as minimum pension liability
adjustments, foreign currency translation adjustments, and unrealized gains and
losses from investing and hedging activities. SFAS 130 is required to be adopted
in 1999. Reclassification of comparative financial statements for earlier
periods is required. The Company has evaluated the impact of SFAS 130 and
determined it will not have a significant effect on its financial statements.
In June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"), which requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments on the same basis that is used
internally for evaluating segment performance and allocating resources to
segments. SFAS 131 is required to be adopted in 1999. In the initial year of
application, comparative information for earlier years is to be restated. The
Company has evaluated the impact of SFAS 131 and determined it will not have a
significant effect on its financial statements.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
programs that have time-sensitive software may recognize a date using "0" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, the inability to efficiently process transactions such as sales
invoices. The Company has assessed the impact of Year 2000 and formulated a plan
of action for each of its subsidiaries.
14
<PAGE> 15
Ravens installed a new computer in March 1998 at a cost of
approximately $100,000 which was capitalized. In January 1998, Ravens retained a
consulting firm to assist it in selecting new enterprise software to replace the
current integrated manufacturing, inventory, and accounting software. Ravens
selected the new software in June 1998 and expects to fully implement critical
modules of the new software prior to September 30, 1999. The cost to the
software vendor for acquiring and installing the new software is expected to be
approximately $500,000, the majority of which will be capitalized.
SABI will either purchase an upgrade to its software or purchase new
software. The cost is expected to be less than $50,000, the majority of which
will be capitalized.
Albex's software is Year 2000 compliant.
The above expenditures are expected to be paid with internally
generated cash and with borrowings. The Company does not have vendor or customer
interfaces that require modifications. In 1999, the Company will review the
efforts undertaken by its vendors to become Year 2000 compliant to ensure that
its operations are not adversely affected.
The costs and dates on which the Company believes that it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing assumptions of future events, including the
continued availability of necessary hardware, software, and personnel for
implementation and training, third part modification plans, and other factors.
There can be no guarantee that these estimates will be achieved, and actual
results could differ materially from those anticipated.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-K are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Potential risks and
uncertainties include, but are not limited to: general business and economic
conditions; the financial strength of the industries which the company serves;
the competitive pricing environment within the markets which the Company serves;
labor disruptions; interruptions in the supply of raw materials and services; a
significant increase in the price of aluminum; continued availability of credit
from lenders and vendors; government regulations; obsolescence of the Company's
products and manufacturing technologies; and if outside vendors are unable to
make their computer systems Year 2000 compliant in time, or if the magnitude of
the Year 2000 issue is greater than presently anticipated.
15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
<TABLE>
<CAPTION>
Financial Statements: Pages
-----
<S> <C>
Report of Independent Auditors 17
Report of Independent Accountants 18
Consolidated Balance Sheets, March 31, 1998 and 1997 19 - 20
Consolidated Statements of Operations
for the years ended March 31, 1998, 1997 and 1996 21
Consolidated Statements of Changes in Shareholders'
Equity for the years ended March 31, 1998, 1997 and 1996 22
Consolidated Statements of Cash Flows
for the years ended March 31, 1998, 1997 and 1996 23
Notes to Consolidated Financial Statements 24 - 42
Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves
for the years ended March 31, 1998, 1997 and 1996 43
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is presented in the financial statements or the notes
thereto.
16
<PAGE> 17
Report of Independent Auditors
To the Shareholders and Board of Directors
RVM Industries, Inc.
We have audited the accompanying consolidated balance sheet of RVM Industries,
Inc. and subsidiaries as of March 31, 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. Our audit also included the financial statement schedule for the year
ended March 31, 1998 listed in Item 8. These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of RVM
Industries, Inc. and subsidiaries at March 31, 1998, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule for the year ended March 31, 1998, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 1998 two
subsidiaries changed their fiscal year end to be in conformity with RVM
Industries, Inc.
/S/ ERNST & YOUNG LLP
Akron, Ohio
June 24, 1998
17
<PAGE> 18
Report of Independent Accountants
To the Shareholders and Board of Directors
RVM Industries, Inc.:
We have audited the consolidated balance sheet of RVM Industries, Inc.
and Subsidiaries as of March 31, 1997 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows and related financial
statement schedule for each of the two years in the period ended March 31, 1997
listed in Item 8 of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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 consolidated financial position of RMV
Industries, Inc. and Subsidiaries as of March 31, 1997, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended March 31, 1997, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
/S/ COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
June 6, 1997
18
<PAGE> 19
RVM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
-------------------------
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 846,128 $ 468,572
Receivables:
Trade, net of allowance for doubtful accounts of $87,000 and
$112,000 in 1998 and 1997 10,174,104 6,506,008
Related party 222,657 120,008
Inventories
(Excess of replacement or current cost over stated values was
$1,996,000 and $1,955,000 in 1998 and 1997) 11,396,269 8,677,160
Refundable income taxes 453,815 0
Deferred income taxes 789,400 413,500
Other current assets 173,596 211,648
----------- -----------
Total current assets 24,055,969 16,396,896
Property, plant and equipment, net 21,676,483 19,021,289
Funds held by trustees for capital expenditures 2,277,935 2,762,242
Other assets 337,643 386,948
----------- -----------
Total assets $48,348,030 $38,567,375
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE> 20
RVM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS, Continued
<TABLE>
<CAPTION>
MARCH 31
-------------------------
1998 1997
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 8,737,487 $ 6,151,924
- related parties 59,775 382,338
Accrued expenses and liabilities:
Compensation 916,349 695,384
Product warranty 775,000 540,000
Income taxes 0 94,750
Other 891,828 987,843
Current portion of long-term debt - other 1,278,033 1,579,982
- related parties 806,200 201,549
Note payable - bank 0 3,581,881
----------- -----------
Total current liabilities 13,464,672 14,215,651
Note payable - bank 13,579,800 6,358,179
Long-term debt 9,337,439 7,880,369
Notes payable - related parties 3,023,250 3,829,451
Deferred income taxes 1,054,700 227,500
----------- -----------
Total liabilities 40,459,861 32,511,150
----------- -----------
Shareholders' equity:
Common stock, $0.01 par value; authorized shares, 3,000,000;
issued and outstanding: 1,936,755 shares at March 31, 1998
and 1,934,255 shares at March 31, 1997 19,368 19,343
Additional capital 4,783,344 4,985,020
Retained earnings 3,085,457 1,051,862
----------- -----------
Total shareholders' equity 7,888,169 6,056,225
----------- -----------
Total liabilities and shareholders' equity $48,348,030 $38,567,375
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 21
RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 79,903,238 $ 61,638,221 $ 61,793,870
Cost of sales 67,989,575 52,983,028 55,742,144
------------ ------------ ------------
Gross profit 11,913,663 8,655,193 6,051,726
Selling general and administrative expenses 6,977,363 6,322,653 6,326,233
Impairment of long-lived assets 0 371,768 0
------------ ------------ ------------
Income (loss) from operations 4,936,300 1,960,772 (274,507)
Other income (expense):
Other income 106,810 131,074 140,117
Interest expense (1,502,830) (1,061,336) (1,070,684)
Loss on pension settlement 0 (390,015) 0
Loss on disposal of property, plant and equipment (21,605) (54,094) (149,606)
------------ ------------ ------------
Total other expense, net (1,417,625) (1,374,371) (1,080,173)
------------ ------------ ------------
Income (loss) before income taxes and
cumulative effect of accounting change 3,518,675 586,401 (1,354,680)
Provision for income taxes 1,485,080 505,462 110,973
------------ ------------ ------------
Income (loss) before cumulative effect of
accounting change 2,033,595 80,939 (1,465,653)
Cumulative effect of accounting change (211,651) 0 0
------------ ------------ ------------
Net income (loss) $ 1,821,944 $ 80,939 $ (1,465,653)
============ ============ ============
Basic and diluted earnings per share:
Income before cumulative effect of accounting change $ 1.05
Cumulative effect of accounting change (0.11)
------------
Net income $ 0.94
============
Pro forma income data before accounting change:
Net income (loss) as reported $ 1,821,944 $ 80,939 $ (1,465,653)
Pro forma income tax benefit 77,691 295,937 599,976
Cumulative effect of accounting change 211,651 0 0
------------ ------------ ------------
Pro forma net income (loss) $ 2,111,286 $ 376,876 $ (865,677)
============ ============ ============
Pro forma basic and diluted earnings
(loss) per share $ 1.09 $ 0.19 $ (0.45)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE> 22
RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
COMMON RETAINED
COMMON STOCK ADDITIONAL EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at March 31, 1995 7,769,392 $ 77,694 $ 3,379,739 $ (99,242)
Net loss (1,465,653)
Contributed capital 4,119,824
Change in unrecognized pension liability
Reclassification of undistributed net loss of
S-Corporations (1,745,353) 1,745,353
One-for-four reverse stock split (5,825,867) (58,259) 58,259
----------- ----------- ----------- -----------
Balance at March 31 ,1996 1,943,525 19,435 5,812,469 180,458
Net income 80,939
Change in unrecognized pension liability
Reclassification of undistributed net loss of
S-Corporations (811,139) 811,139
Treasury stock purchased and retired (9,270) (92) (16,310) (20,674)
----------- ----------- ----------- -----------
Balance at March 31, 1997 1,934,255 19,343 4,985,020 1,051,862
Net income 1,821,944
Reclassification of undistributed net loss of
S-Corporations (211,651) 211,651
Stock options exercised 2,500 25 9,975
----------- ----------- ----------- -----------
Balance at March 31, 1998 1,936,755 $ 19,368 $ 4,783,344 $ 3,085,457
=========== =========== =========== ===========
<CAPTION>
UNRECOGNIZED
PENSION
LIABILITY TOTAL
----------- -----------
<S> <C> <C>
Balance at March 31, 1995 $ (194,153) $ 3,164,038
Net loss (1,465,653)
Contributed capital 4,119,824
Change in unrecognized pension liability (21,509) (21,509)
Reclassification of undistributed net loss of
S-Corporations 0
One-for-four reverse stock split 0
----------- -----------
Balance at March 31 ,1996 (215,662) 5,796,700
Net income 80,939
Change in unrecognized pension liability 215,662 215,662
Reclassification of undistributed net loss of
S-Corporations 0
Treasury stock purchased and retired (37,076)
----------- -----------
Balance at March 31, 1997 0 6,056,225
Net income 1,821,944
Reclassification of undistributed net loss of
S-Corporations 0
Stock options exercised 10,000
----------- -----------
Balance at March 31, 1998 $ 0 $ 7,888,169
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE> 23
RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31
--------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................... $ 1,821,944 $ 80,939 $ (1,465,653)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 1,626,913 1,376,096 1,212,212
Deferred income taxes ................................ 451,300 (28,340) 89,540
Increase (decrease)in accrued product warranty ....... 235,000 55,000 60,000
Increase (decrease) in allowance for doubtful
accounts ........................................... (25,000) 9,000 6,000
Cumulative effect of accounting change ............... 205,244 0 0
Loss (gain) on disposition of property, plant and
equipment .......................................... 21,605 54,094 149,606
Impairment of long-lived assets ...................... 0 371,768 0
Increase (decrease) in cash from changes in:
Receivables - trade .................................. (3,643,095) 413,488 1,209,221
- related party .......................... (102,649) (96,111) 5,934
Inventories .......................................... (2,719,109) 645,715 (495,509)
Other current assets ................................. 38,052 38,675 151,533
Other assets ......................................... (11,355) 7,128 (15,352)
Accounts payable - trade ............................. 2,585,563 (1,017,325) 839,924
- related parties ................... (322,563) 289,170 (1,482,897)
Refundable and accrued income taxes .................. (548,565) 125,538 (839,809)
Accrued expenses and other current liabilities ....... 124,949 189,190 48,162
Other long-term liabilities .......................... 0 (275,293) (45,699)
Unrecognized pension liability ....................... 0 215,662 (21,509)
-------------- -------------- --------------
Net cash provided by (used in) operating activities .. (261,766) 2,454,394 (594,296)
-------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures ................................... (4,448,996) (3,820,601) (8,444,054)
Grants (expended) received for capital expenditures .... 0 (375,000) 375,000
Proceeds from disposal of property, plant
and equipment ........................................ 700 304,731 1,000
Investment of proceeds from long-term debt with trustees
and income earned on investment of proceeds .......... (125,856) (166,957) (4,759,043)
Sale of investments and release of funds held
by trustees .......................................... 610,163 1,928,062 3,725,096
-------------- -------------- --------------
Net cash provided by (used in) investing activities .. (3,963,989) (2,129,765) (9,102,001)
-------------- -------------- --------------
Cash flows from financing activities:
Payments on long-term debt ............................. (1,340,031) (1,585,217) (565,342)
Proceeds from (payments on) notes payable - bank, net .. 3,599,296 (1,354,925) 3,641,539
Proceeds from notes and accounts payable to
related parties ...................................... 0 2,900,000 0
Payments on notes and accounts payable to
related parties ...................................... (201,550) (250,000) (19,000)
Proceeds from long-term debt, net of issuance costs .... 2,535,596 0 4,479,491
Purchase of treasury stock ............................. 0 (37,076) 0
Contributed capital .................................... 0 0 2,217,047
Proceeds from stock options exercised .................. 10,000 0 0
-------------- -------------- --------------
Net cash provided by (used in) financing activities .. 4,603,311 (327,218) 9,753,735
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents ...... 377,556 (2,589) 57,438
Cash and cash equivalents at beginning of year ............ 468,572 471,161 413,723
-------------- -------------- --------------
Cash and cash equivalents at end of year .................. $ 846,128 $ 468,572 $ 471,161
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE> 24
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
----------
1. Description of Business and Summary of Significant Accounting Policies:
-----------------------------------------------------------------------
Reorganization:
---------------
On March 31, 1997, Ravens Metal Products, Inc. changed its name to
Ravens, Inc. ("Ravens") and effected a reorganization with RVM
Industries, Inc. ("RVM") pursuant to Section 251(g) of the Delaware
General Corporation Law. Each holder of the common stock of Ravens
became the holder of an equal number of shares of RVM, a newly created
holding company. The holders of RVM common stock have substantially
the same rights that they had as holders of the common stock of
Ravens. In accordance with code section 368 of the Internal Revenue
Code, for tax purposes, the reorganization of RVM and Ravens
represented a tax free exchange. RVM filed Form 8-B on March 31, 1997
to register the common stock shares of RVM with the Securities and
Exchange Commission. RVM is now a publicly held holding company, and
Ravens is a non-public company wholly owned by RVM.
Acquisitions and Basis of Presentation:
---------------------------------------
On March 31, 1997, RVM purchased all of the common stock of Albex
Aluminum, Inc. ("Albex") and Signs and Blanks, Inc. ("SABI") which
were S-corporations. See Note 2. This was a business combination by
entities under the common control of Jacob Pollock ("Pollock"). The
financial statements of prior years were restated to reflect the
combination on an "as if pooling of interests" basis. The
undistributed net loss of the S-corporations was reclassified from
accumulated deficit to additional capital. All significant
intercompany accounts and transactions have been eliminated.
References to "the Company" refer to RVM and its wholly owned
subsidiaries: Ravens, Albex and SABI.
Description of Business:
------------------------
Ravens designs, manufactures, and sells aluminum truck trailers and
bodies, including dump trailers, dump bodies and flatbed trailers used
in the highway transportation industry throughout the U.S. and Canada.
These principal products are sold direct and through a nationwide
network of dealerships. Ravens currently has operating facilities in
North Carolina, Ohio, and West Virginia. Ravens also sells a wide
variety of after-market parts for trucks and trailers, including parts
for its own trailers.
Albex manufactures and sells custom and standard aluminum extruded
products to manufacturers, fabricators, and distributors in the
transportation, building and construction, consumer durables, and
other markets located mainly in the Midwestern portion of the U.S.
Albex operates a production facility located in Canton, Ohio. Albex
began production of aluminum billet in 1998 for its own use and for
customers.
SABI manufactures and sells aluminum blank and finished traffic
control signs to fabricators, distributors, and governmental agencies
located throughout the U.S. but primarily east of the Mississippi
River. Its production facility is in Akron, Ohio.
24
<PAGE> 25
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. Description of Business and Summary of Significant Accounting Policies,
-----------------------------------------------------------------------
Continued:
----------
Fiscal Year and Accounting Change:
----------------------------------
The fiscal year of RVM and Ravens ends on March 31. References to
1998, 1997, etc. are for the years ended March 31, 1998, 1997, etc.,
respectively. On April 1, 1997, Albex and SABI changed their fiscal
year ends from December 31 to March 31 to conform with the March 31
year ends of RVM and Ravens. A charge of $211,651 has been recorded as
the cumulative effect of an accounting change reflecting the net loss
for Albex and SABI for the quarter ended March 31, 1997. If the fiscal
year ends had changed effective April 1, 1996 or 1995, net income for
the years ended March 31, 1997 and 1996, respectively, would have
decreased by $97,796 and $2,626, respectively. Their financial
statements for the years ended December 31, 1996 and 1995 were
included in these consolidated statements because undue expense and
effort would have been required to prepare audited financial
statements through March 31, 1997 and 1996. Significant intervening
transactions and events between January 1 and March 31, 1997 and 1996
have been included in the consolidated financial statements or
disclosed in the notes to the financial statements.
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.
Cash Equivalents:
-----------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories:
------------
Inventories are valued at the lower of cost or market. The cost of
approximately 57% and 60% of the inventories in 1998 and 1997,
respectively, was determined under the last-in, first-out (LIFO)
method with the cost of the remainder of the inventories determined
under the first-in, first-out (FIFO) and weighted average methods of
valuation.
25
<PAGE> 26
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. Description of Business and Summary of Significant Accounting Policies,
-----------------------------------------------------------------------
Continued:
----------
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 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 and amortization of property, plant and equipment,
including assets under capital lease obligations, are computed using
the straight-line method based on the estimated useful lives of the
assets. Accelerated depreciation methods are used for tax purposes.
The estimated useful lives of the assets for financial statement
purposes are as follows:
<TABLE>
<S> <C> <C>
Buildings and improvements 31.5 to 40 years
Machinery and equipment .. 3 to 20 years
Office equipment ......... 5 to 10 years
Vehicles ................. 3 to 5 years
</TABLE>
Debt Discount and Expense:
--------------------------
Debt discount and expense are amortized on a straight-line basis,
which does not differ materially from the interest method, by charges
to expense over periods from date of issue to date of maturity.
Product Warranty Costs:
-----------------------
Anticipated costs related to product warranty are expensed when the
products are sold.
Revenue Recognition:
--------------------
Sales and related cost of sales for trailers manufactured according to
sales contracts are recorded when the trailers are available for
pick-up or delivery as ordered and invoiced. Trailers manufactured to
customer specifications have no right of return or exchange
privileges. Sales and related cost of sales for goods and services
other than trailers are recorded when goods are shipped and services
are rendered to customers.
Advertising Costs:
------------------
Costs incurred for producing and communicating advertising are
expensed when incurred.
26
<PAGE> 27
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. Description of Business and Summary of Significant Accounting Policies,
-----------------------------------------------------------------------
Continued:
----------
Income Taxes:
-------------
The Company provides for income taxes based upon earnings reported for
financial statement purposes. Deferred tax assets and liabilities are
established for temporary differences between financial statement and
tax accounting bases using currently enacted tax rates in effect for
the years in which the differences are expected to reverse. A
valuation allowance is established for any deferred tax asset for
which realization is not likely.
Reclassifications:
------------------
Certain amounts in previously issued financial statements were
reclassified to conform to the 1998 presentation.
Accounting Pronouncements:
--------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS
130 establishes standards for the reporting and display of
"comprehensive income" and its components, in addition to net income,
in the financial statements. Comprehensive income includes certain
items such as minimum pension liability adjustments, foreign currency
translation adjustments, and unrealized gains and losses from
investing and hedging activities. SFAS 130 is required to be adopted
in 1999. Reclassification of comparative financial statements for
earlier periods is required. The Company has evaluated the impact of
SFAS 130 and determined it will not have a significant effect on its
financial statements.
In June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"), which
requires that a public business enterprise report financial and
descriptive information about its reportable operating segments on the
same basis that is used internally for evaluating segment performance
and allocating resources to segments. SFAS 131 is required to be
adopted in 1999. In the initial year of application, comparative
information for earlier years is to be restated. The Company has
evaluated the impact of SFAS 131 and determined it will not have a
significant effect on its financial statements.
27
<PAGE> 28
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
2. Acquisitions:
-------------
On March 31, 1997, RVM purchased all the issued and outstanding shares of
capital stock of Albex and SABI from Jacob Pollock ("Pollock"), the owner
of all of the shares of Albex and SABI and an officer, director, and the
majority shareholder (holding 87.16% of the outstanding common stock as
of March 31, 1997) of RVM.
The purchase price of the Albex and SABI shares will be equal to seven
times the average earnings of Albex and SABI, computed for each company,
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 and
SABI Purchase Prices").
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. Payment of the respective Purchase
Prices will be recorded as dividends to Pollock at that time. Based
solely upon the results for the year ended March 31, 1998, the pro forma
calculation of the amount of the Albex Purchase Price would be zero due
to the loss and capital expenditures incurred by Albex. The pro forma
calculation of the SABI Purchase Price, based solely upon the results for
the year ended March 31, 1998, would be $2,815,000.
The Albex and SABI Purchase Prices 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. Payments of principal only will be
due on July 1, 2000, and payments of principal and interest will be due
on August 1, 2000 and on the first day of each month thereafter. Payments
on these notes are subordinated to the repayment of substantially all
other notes payable and long-term debt.
3. Inventories:
------------
<TABLE>
<CAPTION>
March 31 1998 1997
----------- -----------
<S> <C> <C> <C>
Raw materials $ 7,233,712 $ 5,314,901
Work in process 1,202,107 430,650
Finished goods 2,960,450 2,931,609
----------- -----------
$11,396,269 $ 8,677,160
=========== ===========
</TABLE>
The reserve to reduce the carrying value of inventories from current
cost to the LIFO basis amounted to approximately $1,996,000 and
$1,955,000 at March 31, 1998 and 1997, respectively.
28
<PAGE> 29
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
4. Property, Plant and Equipment:
------------------------------
<TABLE>
<CAPTION>
March 31 1998 1997
----------- -----------
<S> <C> <C> <C>
Buildings and improvements $ 8,029,924 $ 6,594,703
Machinery and equipment 18,109,610 11,117,062
Office equipment 1,122,296 994,512
Vehicles 559,935 434,317
Construction in progress 1,001,126 5,517,211
----------- -----------
28,822,891 24,657,805
Less accumulation depreciation and amortization 7,532,320 6,022,428
----------- -----------
21,290,571 18,635,377
Land 385,912 385,912
----------- -----------
$21,676,483 $19,021,289
=========== ===========
</TABLE>
Approximately $3,200,000, $3,390,000 and $5,991,000 of capital
expenditures were incurred in 1998, 1997 and 1996, respectively, for a
new production facility and casting house in Canton, Ohio. These capital
expenditures include capitalized interest of $66,480, $10,440 and
$178,137 in 1998, 1997 and 1996, respectively.
In addition, during 1996, Albex 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 at the Canton, Ohio facility. The
terms of the grant also require Albex to employ a specified number of
employees at this facility.
Approximately $705,000, $233,000 and $1,375,000 of capital expenditures
were incurred in 1998, 1997 and 1996, respectively, for a new production
facility in Kent, Ohio. These capital expenditures include capitalized
interest expense net of capitalized interest income of $25,269, $58,951
and $64,238 in 1998, 1997 and 1996, respectively.
Rent expense was approximately $172,000, $238,000 and $205,000 in 1998,
1997 and 1996, respectively.
29
<PAGE> 30
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
5. Note Payable - Bank
-------------------
On September 30, 1997, the Company entered into a line of credit
agreement with FirstMerit Bank, N.A. ("FM") replacing its existing
agreements. The agreement provides for borrowings up to $15,000,000 based
on eligible accounts receivable and inventories expiring on August 31,
1999. Interest is at FM's prime rate (8.5% at March 31, 1998) minus 1/4%.
The agreement is collateralized by accounts receivable, inventory,
equipment, cash, intangibles and certain real estate. There are covenants
relating to the payment of dividends, acquiring treasury stock, the
creation of additional indebtedness, minimum tangible net worth, and cash
flow coverage. The Company could have borrowed approximately $1,270,000
more than the amount owed FM at March 31, 1998. The Company owed
$13,579,800 under this agreement at March 31, 1998. On May 11, 1998, FM
and the Company amended the agreement to provide for borrowings up to
$18,000,000 until September 30, 1998.
On September 30, 1997, the Company and FM also entered into a $5,000,000
fixed asset term loan agreement for the financing of certain existing and
to be acquired fixed assets. Interest is at FM's prime rate. Repayment
terms are interest only for two years and principal plus interest for
seven years. The Company owed $2,444,869 under this agreement at March
31, 1998.
Jacob Pollock provided a $2,500,000 guarantee on the above loan
agreements.
At March 31, 1997, the Company owed $9,940,060 to FM under several
current and long-term lines of credit at interest rates ranging from FM's
prime rate (8.5% at March 31, 1997) plus 0.5% to minus 0.5%.
30
<PAGE> 31
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
6. Long-Term Debt:
---------------
<TABLE>
<CAPTION>
March 31 1998 1997
------------ ------------
<S> <C> <C> <C>
City of Kent, Ohio (a) $ 4,000,000 $ 4,450,000
Department of Development of the State of Ohio (b) 1,887,230 2,311,105
State of Ohio Economic Development Revenue Bonds (c) 1,545,000 1,840,000
Albex and SABI purchase prices (d)
Fixed asset term loan agreement (see Note 5) 2,444,869 0
7% subordinated debentures, payable in 2004, net of
unamortized discount of $47,553 and $55,252
433,747 430,248
Other 304,626 428,998
------------ ------------
10,615,472 9,460,351
Less current portion 1,278,033 1,579,982
------------ ------------
$ 9,337,439 $ 7,880,369
============ ============
<FN>
(a) City of Kent, Ohio Variable Rate Demand Industrial Development Revenue Bonds
due in annual principal payments of $450,000 in 1999 through 2001, $500,000 in
2002 through 2005, $150,000 in 2006 through 2008, and $100,000 in 2009 and
2010. Interest is payable monthly and the rate varies weekly (4.0% and 3.80%
at March 31, 1998 and 1997, respectively). Payment to bondholders is
guaranteed by a letter of credit in an amount equal to outstanding principal
plus specified interest ($4,080,000 at March 31, 1998) expiring December 15,
1999 issued by FirstMerit Bank, N.A. at a rate of 1% per annum and
collateralized by all equipment owned by Ravens and by the real estate at the
Kent facility and cross-collateralized with the lines of credit described in
Note 5. Proceeds from the loan agreement are held by a trustee and released to
Ravens for approved capital expenditures at the Kent facility. $2,277,935 and
$2,740,558 held by the trustee at March 31, 1998 and 1997, respectively, were
invested in short-term commercial paper and a money market fund.
(b) Chapter 166 Direct Loan payable to the Department of Development of the State
of Ohio, due in monthly installments of $35,566 including interest at 3.0%.
The loan matures December 2002 and is collateralized by substantially all
machinery and equipment of Albex, the corporate guarantees of Ravens and SABI,
and the personal guarantees of Jacob Pollock, Richard D. Pollock and Gertrude
Pollock, the wife of Jacob Pollock.
</FN>
</TABLE>
31
<PAGE> 32
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
6. Long-Term Debt, Continued:
--------------------------
(c) State of Ohio Economic Development Revenue Bonds are subject to a
mandatory semiannual redemption schedule which requires monthly
escrow payments of approximately $33,000 including interest at
5.6%. The bonds mature June 1, 2002 and are collateralized by
substantially all machinery and equipment of Albex, the corporate
guarantees of Ravens and SABI, and the personal guarantees of
Jacob Pollock, Richard D. Pollock and Gertrude Pollock, the wife
of Jacob Pollock.
The Chapter 166 Direct Loan and the State of Ohio Economic
Development Revenue Bonds contain covenants which limit Albex in
certain areas including, among others, total long-term debt to
tangible net worth, minimum tangible net worth, and dividend
payments. Albex was not in compliance with the long-term debt to
tangible net worth covenant at March 31, 1998. The Department of
Development of the State of Ohio waived such noncompliance through
April 1, 1999.
(d) See Note 2.
Maturities for long-term debt are:
<TABLE>
<CAPTION>
Debt Listed Albex and Note Payable
Above SABI Notes (1) - Bank (2) Total
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $ 1,278,033 $ 806,200 $ 0 $ 2,084,233
2000 1,364,773 806,200 13,759,800 15,930,773
2001 1,600,814 806,200 0 2,407,014
2002 1,644,228 806,200 0 2,450,428
2003 1,334,126 604,650 0 1,938,776
Thereafter 3,393,498 0 0 3,393,498
----------- ----------- ----------- -----------
$10,615,472 $ 3,829,450 $13,759,800 $28,204,722
=========== =========== =========== ===========
</TABLE>
(1) See Note 12.
(2) See Note 5.
32
<PAGE> 33
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
7. Commitments and Contingent Liabilities:
---------------------------------------
The Company is involved in various claims and litigation arising in the
ordinary course of business. Management believes that the outcome of such
claims will not have a material adverse effect on the Company's financial
position and results of operations and cash flows.
At March 31, 1998 and 1997, Ravens was contingently liable as guarantor
on certain sales contracts of customers in the amount of approximately
$552,000 and $454,000, respectively, which are collateralized by the
units sold. No reserve for losses has been provided because Ravens has
incurred an insignificant amount of losses related to guaranteed sales
contracts which generally have maturities less than five years. Ravens
guarantees 10-20% of the outstanding balance owed to the finance company
by the customers. Ravens recognizes revenue at the time the trailers are
sold.
See Note 2.
8. Income Taxes:
-------------
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C> <C>
Current:
Federal $ 945,527 $ 499,639 $ 14,064
State 88,253 34,163 7,369
---------- --------- --------
1,033,780 533,802 21,433
Deferred 451,300 (28,340) 89,540
---------- --------- --------
$1,485,080 $ 505,462 $110,973
========== ========= ========
</TABLE>
33
<PAGE> 34
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
8. Income Taxes, Continued:
------------
The sources of temporary differences which make up the deferred tax
balances are as follows:
<TABLE>
<CAPTION>
March 31 1998 1997
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Warranty reserve $ 292,900 $ 215,028
Vacation 83,900 57,057
Deferred interest and amortization of
discount on debentures 70,300 71,494
Allowance for doubtful accounts 32,700 29,865
Inventory 162,600 23,964
NOL carryforward 65,300 86,011
Other non-deductible accruals 111,200 59,730
Other 92,400 0
----------- -----------
Total deferred tax assets 911,300 543,149
Deferred tax liabilities:
Depreciable property (1,155,700) (345,444)
Pension (10,100) (11,437)
Other (10,800) (268)
----------- -----------
Total deferred tax liabilities (1,176,600) (357,149)
----------- -----------
Net deferred income taxes $ (265,300) $ 186,000
=========== ===========
</TABLE>
At March 31, 1998, the Company had available net operating loss
carryforwards of approximately $192,000 for federal income tax purposes,
which are subject to limitations based on Ravens' ability to generate
future taxable income. These loss carryforwards expire in years through
2006.
34
<PAGE> 35
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
8. Income Taxes, Continued:
------------
A reconciliation of the federal statutory income tax rate to the
effective rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
Amount Percent Amount Percent Amount Percent
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statutory amount and rate $ 1,196,350 34.0% $ 486,190 34.0% $ 103,874 34.0%
Effect of:
State taxes (net of utilization
of tax loss carryforwards) 110,964 3.1 19,714 1.4 7,369 2.4
Conversion from S
Corporation to C
Corporation for Albex
and SABI 261,000 7.4 0 0.0 0 0.0
Non-deductible expenses 9,575 0.3 5,917 0.4 5,606 1.8
Other (92,809) (2.6) (6,359) (0.5) (5,876) (1.9)
----------- ----------- ----------- ----------- ----------- -----------
$ 1,485,080 42.2% $ 505,462 35.3% $ 110,973 36.3%
=========== =========== =========== =========== =========== ===========
</TABLE>
Albex and SABI (See Note 2) had calendar year ends, were operated as
S-corporations, and, as such, were not liable for federal or state income
taxes. Effective April 1, 1997, both Albex and SABI are no longer
S-corporations and are subject to federal, state and local income taxes.
Accordingly, for informational purposes, the consolidated statements of
operations include unaudited pro forma adjustments for income taxes which
would have been recorded if Albex and SABI had been taxed as
C-corporations, based on the tax laws in effect during those periods.
The unaudited pro forma income tax benefit of $77,691 presented for 1998
represents the pro forma income tax benefit related to the net loss
incurred by Albex and SABI for the quarter ended March 31, 1997 at an
approximate effective tax rate of 36.7% for that period. Unaudited pro
forma income tax expense (benefit) for the years ended March 31, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
Unaudited
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred provision (benefit):
Federal $ (250,036) $ (586,174)
State (45,901) (13,802)
----------- -----------
Total $ (295,937) $ (599,976)
=========== ===========
</TABLE>
35
<PAGE> 36
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
8. Income Taxes, Continued:
------------
The differences between unaudited pro forma income taxes at the federal
statutory income tax rate and unaudited pro forma income taxes are as
follows:
<TABLE>
<CAPTION>
Unaudited
-----------------------------------------------------------
1997 1996
--------------------------- ---------------------------
Amount Percent Amount Percent
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statutory amount and rate $ (275,787) (34.0)% $ (593,420) (34.0)%
Effect of:
State taxes (net of utilization of
tax loss carryforwards) (22,415) (2.7) (9,167) (0.5)
Other 2,265 0.3 2,611 0.1
----------- ----------- ----------- -----------
$ (295,937) (36.4)% $ (599,976) (34.4)%
=========== =========== =========== ===========
</TABLE>
9. Retirement Plans:
-----------------
RVM has defined contribution plans covering salaried and non-union hourly
employees of the Company. The purpose of the plans is to provide
financial security during retirement by providing employees with an
incentive to make regular savings. Contributions of participating
employees are matched on the basis of the percentages specified in the
respective plans. The cost of such employer contributions was $57,451,
$28,110 and $45,436 for 1998, 1997 and 1996, respectively.
SABI participates in the GMP and Employers Pension Fund, a multi-employer
defined benefit pension plan, that covers all of its hourly bargaining
unit employees. Pension expense under this plan amounted to $16,406,
$19,020 and $25,162 in 1998, 1997 and 1996, respectively. These
contributions are determined in accordance with the provisions of a
negotiated labor contract and generally are based on the amount of wages
earned. Information as to the Company's portion of the accumulated plan
benefits, plan net assets and unfunded vested benefits, if any, is not
determinable.
Ravens has a defined benefit pension plan covering approximately 30
hourly employees at its service facility in Dover, Ohio. The plan
provides benefits of specified amounts for each year of service. Plan
assets at fair value exceeded the projected benefit obligation at March
31, 1998 and 1997, and prepaid pension cost recognized in the balance
sheet amounted to $26,769 and $24,304, respectively. Net pension cost for
this plan was $21,882, $39,304 and $54,369 for 1998, 1997 and 1996,
respectively.
Effective July 1, 1996, Ravens terminated the defined benefit pension
plan covering the former hourly employees at the former Elizabeth, West
Virginia facility. Ravens contributed approximately $460,000 to the plan
and recorded a settlement loss of $390,015 in 1997 for the termination of
the plan.
36
<PAGE> 37
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
10. Series Preferred Stock:
-----------------------
RVM is authorized to issue 300,000 shares of series preferred stock, $.01
par value, none of which was issued as of March 31, 1998. The features of
the preferred stock may vary, among other things, as to the rate of
dividend, conversion privilege and liquidation rights, based upon the
resolution of the Board of Directors at the time of issuance.
11. Earnings (Loss) Per Common Share:
---------------------------------
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings per Share, in the quarter ended December 31, 1997. The
pronouncement replaces the presentation of primary earnings per share
with a presentation of basic earnings per share. It also requires the
presentation of diluted earnings per share reflecting the potential
dilution that could occur if all options or contracts to issue common
stock were exercised or converted. Basic earnings per share is based on
net income divided by the weighted average number of common shares
outstanding. Weighted average number of common shares outstanding was
1,935,776, 1,938,140 and 1,943,525 in 1998, 1997 and 1996, respectively.
Basic earnings per share for the Company is the same as diluted earnings
per share.
Historical earnings per share information for 1997 and 1996 is not
presented because Albex and SABI were not tax paying entities in those
years and, therefore, the historical results of operations are not
indicative of the operating results of the Company on an ongoing basis.
12. Related Party Transactions:
---------------------------
Albex is the obligor on a note payable to Pollock in the principal amount
of $2,900,000 ("Albex Note"), and SABI is the obligor on a note payable
to J. Pollock & Company, wholly owned by Pollock, in the principal amount
of $1,131,000 ("SABI Note"). The Notes require payment 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
Notes was 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 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 and SABI Purchase
Prices. 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. Annual principal payments of $806,200 are due 1999 through 2002
and $604,650 in 2003. Payments with respect to these Notes are
subordinated to the repayment of substantially all other notes payable
and long-term debt.
37
<PAGE> 38
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
12. Related Party Transactions, Continued:
---------------------------
J. Pollock & Company, wholly owned by Pollock, purchases materials and
provides or contracts for certain administrative services for the Company
and charges the Company at its cost. Such transactions totaled $634,151,
$348,417 and $236,357 in 1998, 1997 and 1996, respectively. J. Pollock &
Company provided management services to the Company under agreements
which terminated on December 31, 1997. The Company paid $330,000,
$428,000 and $314,000 in 1998, 1997 and 1996, respectively, for these
services. $2,872 and $37,721 was owed at March 31, 1998 and 1997.
The Company leases office and manufacturing space from a corporation in
which Richard Pollock and Bruce Pollock are shareholders. The lease is
for five years expiring December 31, 1999 at a monthly base rent of
$9,300 with annual increases determined by the change in the Consumer
Price Index, plus the Company's share of utilities, real estate taxes,
insurance, and property maintenance. The Company paid approximately
$116,000, $114,000 and $113,000 in 1998, 1997 and 1996, respectively.
Richard Pollock and Bruce Pollock are sons of Jacob Pollock.
Since September 1, 1997, the Company has leased office space from Pollock
Real Estate, Ltd., of which Pollock and his wife are members. The lease
is for three years expiring August 31, 2000 at a monthly base rent of
$5,500 plus the Company's share of utilities, real estate taxes,
insurance, and property maintenance.
The Company paid $44,192 in 1998.
The Company purchased aluminum materials from The Aluminum Warehouse,
Inc., of which Richard Pollock and his family are shareholders, totaling
$114,356, $87,918 and $103,083 in 1998, 1997 and 1996, respectively.
$7,801 and $9,793 was owed at March 31, 1998 and 1997. The Company sold
aluminum extrusions to The Aluminum Warehouse, Inc. totaling $1,306,480,
$409,434 and $258,879 in 1998, 1997 and 1996, respectively. $222,657 and
$120,007 was owed at March 31, 1998 and 1997.
The Company hired temporary personnel from Flex-Team Incorporated, wholly
owned by the Jacob Pollock Irrevocable Trust, of which Richard Pollock
and other family members are beneficiaries, totaling $160,518, $245,233
and $832,628 in 1998, 1997 and 1996, respectively. $47,993 and $0 was
owed at March 31, 1998 and 1997, respectively.
See Note 2 regarding acquisitions from and notes payable to related
parties.
Management believes that the terms of the above transactions are
comparable to those which would have been obtainable from unaffiliated
sources.
38
<PAGE> 39
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
13. Stock Options:
--------------
RVM's 1993 Stock Option Plan (the "Plan") provides for the granting of
options to acquire up to 50,000 shares of the Company's common stock. The
Plan authorizes the granting of incentive stock options to employees of
the Company and nonqualified stock options to employees, officers and
directors, whether or not on the Company's payroll or otherwise paid for
services. The Plan provides that the option price shall not be less than
100% of the current market price of the stock on the date of the grant,
that the option is exercisable when granted, and that the term of the
option shall be fixed at the date of the grant and shall not exceed ten
years. The Plan terminates on July 7, 2003. At March 31, 1998, there were
7,979 shares reserved for future issuance under the Plan. The Company has
selected the disclosure-only option of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for stock-based Compensation. In
accordance with SFAS No. 123, RVM accounts for its Stock Option Plan in
accordance with Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations.
Under APB 25, because the exercise price of the Company's employee stock
options equals or exceeds the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to March 31, 1995 under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1998: risk-free interest rate of 5.7%; a
dividend yield of 0%; volatility factor of the expected market price of
the Company's common stock of 30%; and a weighted-average expected life
of the options of four years. The option valuation model requires the
input of highly subjective assumptions, primarily stock price volatility,
changes in which can materially affect the fair value estimate. The
weighted-average fair values of stock options granted during 1998 was
$3.85.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
options granted by the Company in 1998 were fully vested, and therefore
the total estimated fair value of the options was recognized as expense
in the 1998 amounts below. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss):
As reported $ 1,821,944 $ 80,939 $ (1,465,653)
Pro forma 1,698,662 80,939 (1,465,653)
Earnings (loss) per share:
As reported $ .94 $ 0.19 $ (0.45)
Pro forma .88 0.19 (0.45)
</TABLE>
39
<PAGE> 40
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
13. Stock Options, Continued:
-------------
A summary of the Company's stock option activity and related information
for the years ended March 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- --------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 10,000 $ 4.00 10,000 $ 4.00 10,250 $ 4.00
Granted 32,021 12.15 0 0
Exercised (2,500) 4.00 0 0
Forfeited or cancelled 0 0 (250) 4.00
--------- --------- ---------
Outstanding and exercisable at
end of year 39,521 10.60 10,000 4.00 10,000 4.00
========= ========= ========= ========= ========= =========
</TABLE>
The following table summarizes information about the Company's stock
options outstanding at March 31, 1998:
<TABLE>
<CAPTION>
Weighted- Weighted-Average
Options Options Average Remaining Contractual
Grant Date Outstanding Exercisable Exercise Price Life (Years)
---------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
1998 32,021 32,021 $12.15 5
1995 7,500 7,500 4.00 1
</TABLE>
14. Advertising Costs:
------------------
Advertising costs included in selling, general and administrative expense
were $229,455, $198,653 and $292,758 in 1998, 1997 and 1996,
respectively.
15. Concentrations:
---------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable.
The Company performs ongoing credit evaluations of its customers and does
not usually require collateral. The Company maintains a reserve for
potential credit losses.
The principal raw material used by the Company is aluminum. The Company
purchases aluminum from several suppliers and believes that there are
ready supplies of aluminum available for its needs at acceptable prices.
A significant increase in the price or an interruption in the supply of
aluminum could have a material adverse effect on the Company's operating
results.
40
<PAGE> 41
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
16. Fair Value of Financial Instruments:
------------------------------------
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, funds held by trustee for capital
expenditures, note payable and accounts payable approximate their fair
market values.
The fair value of the Company's long-term debt was estimated using quoted
market rates for similar debt or a discounted cash flow analysis based
upon the Company's estimated incremental borrowing rates for similar
types of debt. The fair value of the long-term debt at March 31, 1998 was
estimated to approximate the carrying amount reported in the balance
sheets.
17. Impairment of Long-Lived Assets:
--------------------------------
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, 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, Albex 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 and recorded an impairment loss of
$371,768 during 1997.
18. Supplemental Cash Flow Information:
-----------------------------------
(A) Cash payments for interest (net of amounts capitalized): 1998 -
$1,589,500; 1997 - $1,083,960; and 1996 - $796,936.
(B) Cash payments for income taxes: 1998 - $1,632,550; 1997 -
$408,264; and 1996 - $861,242.
(C) Noncash investing and financing activities: In 1996, a note
payable to Jacob Pollock amounting to $1,452,777 was converted to
additional capital, and real estate was contributed to the Company
by Jacob Pollock with $450,000 recorded as additional capital. In
1996, $200,000 was included in other current assets as the amount
to be received for the sale of real estate.
41
<PAGE> 42
RVM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
19. Business Segments:
------------------
Each of RVM's subsidiaries operates in one business segment. See Note 1
for a description of the segments. Substantially all the assets are
identifiable in segments. Intersegment sales generally are priced at
prevailing market prices.
<TABLE>
<CAPTION>
1998 RAVENS ALBEX SABI ELIMINATIONS CONSOLIDATION
- ----------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales to customers $ 52,843,370 $ 15,758,100 $ 11,301,768 $ 0 $ 79,903,238
Intersegment sales 0 6,813,863 855 (6,814,718) 0
------------ ------------ ------------ ------------ ------------
Net sales $ 52,843,370 $ 22,571,963 $ 11,302,623 $ (6,814,718) $ 79,903,238
============ ============ ============ ============ ============
Income (loss) from operations $ 4,878,058 $ (578,767) $ 653,135 $ (16,126) $ 4,936,300
Depreciation and amortization 543,623 930,419 152,871 0 1,626,913
Capital expenditures 1,164,343 3,164,284 120,369 0 4,448,996
Identifiable assets 23,769,518 20,963,376 3,951,223 (336,087) 48,348,030
<CAPTION>
1997
- -----------------------------------
<S> <C> <C> <C> <C> <C>
Sales to customers $ 41,652,421 $ 8,693,952 $ 11,291,848 $ 0 $ 61,638,221
Intersegment sales 0 4,495,653 2,774 (4,498,427) 0
------------ ------------ ------------ ------------ ------------
Net sales $ 41,652,421 $ 13,189,605 $ 11,294,622 $ (4,498,427) $ 61,638,221
============ ============ ============ ============ ============
Income (loss) from operations $ 2,369,057 $ (896,899) $ 513,038 $ (24,424) $ 1,960,772
Depreciation and amortization 556,126 653,853 166,117 0 1,376,096
Capital expenditures 372,325 3,391,541 56,735 0 3,820,601
Identifiable assets 19,908,167 15,103,090 3,556,118 0 38,567,375
<CAPTION>
1996
- -----------------------------------
<S> <C> <C> <C> <C> <C>
Sales to customers $ 40,238,755 $ 10,108,780 $ 11,446,335 $ 0 $ 61,793,870
Intersegment sales 0 4,324,623 9,102 (4,333,725) 0
------------ ------------ ------------ ------------ ------------
Net sales $ 40,238,755 $ 14,433,403 $ 11,455,437 $ (4,333,725) $ 61,793,870
============ ============ ============ ============ ============
Income (loss) from operations $ 807,419 $ (1,085,599) $ (81,489) $ 85,162 $ (274,507)
Depreciation and amortization 519,290 529,118 163,804 0 1,212,212
Capital expenditures 1,588,445 6,839,349 16,260 0 8,444,054
Identifiable assets 21,830,801 12,959,743 4,421,165 0 39,211,709
</TABLE>
42
<PAGE> 43
RVM INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
------------------------------- -------- ----------------------- -------- --------
Additions
-----------------------
Balance at Charged to Charged Balance at
Beginning Cost and to Other Deductions at End
Description of Period Expenses Accounts (A) Period
------------------------------- --------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Period ended:
March 31, 1998 $112,000 $123,480 $0 $148,480 $ 87,000
March 31, 1997 103,000 154,630 0 145,630 112,000
March 31, 1996 97,000 102,742 0 96,742 103,000
</TABLE>
(A) Uncollectible accounts written off, net of recoveries
43
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
At a meeting held on December 15, 1997, the Board of Directors of
the Company approved the engagement of Ernst & Young LLP as its
independent auditors for the fiscal year ending March 31, 1998 to
replace Coopers & Lybrand L.L.P., who were dismissed as auditors of
the Company. The Audit Committee of the Board of Directors approved
the change in auditors on December 15, 1997.
The reports of Coopers & Lybrand L.L.P. on the Company's financial
statements for the past two fiscal years did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the Company's financial statements
for each of the two fiscal years ended March 31, 1997, and in the
subsequent interim period, there were no disagreements with Coopers
& Lybrand L.L.P. on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and
procedures which, if not resolved to the satisfaction of Coopers &
Lybrand L.L.P., would have caused Coopers & Lybrand L.L.P. to make
reference to the matter in their report.
44
<PAGE> 45
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The directors and executive officers of the Registrant are listed
below:
<TABLE>
<CAPTION>
Name Age Since Position
------------------- ------- -------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
Jacob Pollock 73 May 3, 1991 Chairman of the Board, Chief Executive
(term expires in 1999) Officer, and Treasurer
Nicholas T. George 53 May 3, 1991 Secretary and Director
(term expires in 2000)
Richard D. Pollock 42 May 3, 1991 President and Director
(term expires in 1998)
C. Stephen Clegg 47 May 3, 1991 Director
(term expires in 1998)
Lowell P. Morgan 63 July 1, 1991 President of Ravens, Inc.
John J. Stitz 42 July 22, 1991 Chief Financial Officer and Vice President
</TABLE>
All years in Item 10 refer to calendar years.
Mr. Jacob Pollock has been Chairman of the Board of Directors,
Chief Executive Officer, and Treasurer since May 3, 1991, the date he
acquired controlling interest in the Company. He has been Chairman of
the Board and President of J. Pollock & Company, a company principally
engaged in the sale of aluminum, private investment, and consulting,
since April 1989. He was Chief Executive Officer of Barmet Aluminum
Corporation, an aluminum company, from 1949-1989. He serves as a
Director of Mid-West Spring Manufacturing Company, Inc., Diamond Home
Services, Inc. and several nonpublic companies.
Mr. George, an Attorney, was President of the law firm of
Nicholas T. George & Associates from 1979 to 1997. He joined the law
firm of Buckingham, Doolittle & Burroughs as a partner in 1997.
Mr. Richard Pollock has served as President of RVM since March 31,
1997, President of Albex since May 1991 and as a Vice President of J.
Pollock & Company since February 1990. Prior to joining J. Pollock &
Company, he was employed as a Vice President and then President of
Barmet Aluminum Corporation for more than five years. Richard Pollock is
the son of Jacob Pollock.
45
<PAGE> 46
Mr. Clegg has served as Chairman of the Board of Directors and
Chief Executive Officer of Diamond Home Services, Inc. since February
1996. He has served as Chairman of the Board of Directors of Mid-West
Spring Manufacturing Company, Inc. and Globe Building Materials, Inc.
for more than five years, and he is a Director of Birmingham Steel
Corporation.
Mr. Morgan had previously been employed by the Company from 1959 to
1983. During his former tenure with the Company, he served as an officer
and director for many years. Subsequently, he was Product Manager for
East Manufacturing Corporation from 1983-1990 and Vice President of
Travis Body and Trailer, Inc. from 1990-1991. All of his former
employers manufactured truck trailers.
Mr. Stitz, a Certified Public Accountant, received an M.B.A. degree
from the Wharton School of the University of Pennsylvania in 1988 and a
B.S. degree in Accounting from Wake Forest University in 1978. He served
as Chief Financial Officer of Environmental Tectonics Corporation, a
manufacturer, from 1988-1989 and as Assistant to the Chairman of Strick
Companies, a manufacturer and lessor of truck trailers, in 1990. He was
employed by Coopers & Lybrand, CPAs from 1978-1984.
Officers serve at the pleasure of the Board of Directors without
specific terms of office.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Based solely upon a review of copies of Forms 3, 4 and 5 furnished
to RVM during or with respect to the fiscal year ended March 31, 1998,
RVM is not aware of any person subject to Section 16 of the Securities
Exchange Act of 1934 with respect to RVM that failed to file on a timely
basis reports required by Section 16(a) during the most recent fiscal
year or prior fiscal years.
46
<PAGE> 47
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The following table discloses compensation in excess of $100,000
awarded to, earned by or paid to any executive officer:
<TABLE>
<CAPTION>
Name and Principal Fiscal All Other
Position Year Salary Bonus Compensation (1)
-------------------------------- ------------- ------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Jacob Pollock (2)
Chief Executive Officer 1998 $127,600 $ 0 $ 0
Richard D. Pollock (2)
President 1998 183,700 0 5,511
Lowell P. Morgan
President, Ravens, Inc. 1998 82,944 21,580 1,045
1997 82,975 20,836 1,038
1996 82,300 21,945 1,042
</TABLE>
(1) Amount contributed to the named person's 401(k) plan account.
(2) Jacob Pollock and Richard D. Pollock did not receive any cash or
noncash compensation from the Company until January 1, 1998. The Company
paid $330,000, $428,000 and $314,000 in 1998, 1997 and 1996,
respectively, to J. Pollock & Company for general management services.
The compensation disclosed was paid by the Company from January 1, 1998
to March 31, 1998 and by J. Pollock & Company from April 1, 1997 to
December 31, 1997.
In 1993, RVM adopted a Stock Option Plan which provides for the
granting of options to acquire up to 50,000 shares of its common stock.
The Plan authorizes the granting of incentive stock options to employees
of the Company and nonqualified stock options to employees, officers and
directors, whether or not on the Company's payroll or otherwise paid for
services. The Plan provides that the option price shall not be less than
100% (110% in the case of a person owning more than 10% of the Company's
stock) of the current market price of the stock on the date of the grant
and that the term of the option shall be fixed at the date of the grant.
The Plan terminates on July 7, 2003.
Directors of RVM are paid $1,000 for Board of Directors meetings
which they attend. Additional compensation is not paid for committee
meetings. In 1995, C. Stephen Clegg and Nicholas T. George were each
granted options to purchase 250 shares of common stock. The options have
an exercise price of $4.00 per share and expire on April 7, 1999. In
1998, Mr. Clegg and Mr. George were each granted options to purchase
1,000 shares of common stock. The options have an exercise price of
$12.00 per share and expire on March 27, 2003.
47
<PAGE> 48
The following table discloses for the named executive officers
information regarding stock options granted during 1998:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
-------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Individual Grants Appreciation for Option Term(2)
--------------------------------------------------------------------------------------- ---------------------------------
Number of % of Total
Securities Options Granted
Underlying to Employees
Options in Fiscal Exercise or Base
Name Granted(#) Year (1) Price ($/sh) Expiration Date 5%($) 10%($)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jacob Pollock 4,000 13.3% $ 13.20 3/27/03 $ 8,480 $24,520
Richard D. Pollock 4,625 15.4 12.00 3/27/03 15,355 33,901
Lowell P. Morgan 2,200 7.3 12.00 3/27/03 7,304 16,126
</TABLE>
(1) The Company granted options representing 30,021 shares to employees
during 1998.
(2) The dollar amounts in these columns represent the value of the
options assuming 5% and 10% rates of appreciation from the market price
of the common stock at the date of grant. These appreciation rates are
required by the Securities and Exchange Commission when the "Potential
Realizable Value" alternative is used and are not intended to represent
a forecast of the Company's stock price. Actual gains, if any, in the
stock price and on stock option exercises are dependent on the future
performance of the common stock and overall market conditions.
The following table discloses information on options for the named
executive officers:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
---------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options at March 31,
Options at March 31, 1998 (#) 1998 ($)
----------------------------- -------------------------------
Shares
Acquired on Value
Name Exercise(#) Realized Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jacob Pollock 4,000 0 $ 0 $ 0
Richard D. Pollock 4,625 0 0 0
Lowell P. Morgan 4,700 0 20,000 0
</TABLE>
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
The Compensation Committee of RVM's Board of Directors consists of
Jacob Pollock, Chief Executive Officer, and C. Stephen Clegg. Mr.
Pollock is a Director and Mr. Clegg is Chairman of the Board of
Directors of Mid-West Spring Manufacturing Company, Inc. and Diamond
Home Services, Inc., public companies, and Globe Building Products,
Inc., a nonpublic company. Mr. Pollock is a member of the Compensation
and Benefits Committee of the Board of Directors of Mid-West Spring
Manufacturing Company, Inc.
48
<PAGE> 49
Report of Compensation Committee
--------------------------------
The Committee has not formulated policies for compensation to Mr.
Pollock or other executive officers which relate compensation to
corporate performance. The compensation of each executive officer is
determined by negotiation between the executive officer and Mr. Pollock
subject to the approval of the Committee and the Board of Directors.
By: Jacob Pollock, Chairman
C. Stephen Clegg
Performance Graph
-----------------
The following line graph shows a comparison of cumulative total
returns, assuming reinvestment of dividends, for a hypothetical
investment of $100 made on March 31, 1993 in the common stock of RVM,
the NASDAQ Composite Index, and an index of peer companies ("peer
group") selected by RVM. The peer group consists of the following
companies: Dorsey Trailers, Inc., Featherlite Mfg., Inc., Miller
Industries, Inc./TN, Wabash National Corp., Supreme Industries, Inc.,
Easco, Inc., International Aluminum Corporation, and Tredegar
Industries, Inc.
Fruehauf Trailer Corp. ceased business in 1998, was deleted from the
peer group, and was replaced by Supreme Industries, Inc. Easco, Inc.,
International Aluminum Corporation, and Tredegar Industries, Inc.
manufacture aluminum extrusions, among other products, and were added to
the peer group to provide peer companies to the Albex portion of RVM.
RVM believes that the large returns in 1998 and 1997 are due to
J.C. Bradford & Co. making a market in RVM's common stock beginning in
the first quarter of 1997 and Herzeg Heine Geduld making a market
beginning in the fourth quarter of 1998. In addition, the Company
retained investor relations consultants in January 1998. Prior to May
1996, RVM's common stock did not actively trade, but a market maker
quoted bid prices and traded shares infrequently.
<TABLE>
<CAPTION>
RVM NASDAQ
Industries, Composite Peer
Inc. Index Group
------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
3/31/93 100.00 100.00 100.00
3/31/94 1,000.00 107.73 110.68
3/31/95 2,500.00 118.41 144.91
3/31/96 1,875.00 158.64 127.74
3/31/97 13,750.00 177.02 162.95
3/31/98 30,000.01 265.99 226.87
</TABLE>
49
<PAGE> 50
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The only owner of record or holder, to the knowledge of RVM as of
June 19, 1998, of more than 5% of RVM's Common Stock is set forth in the
following table:
<TABLE>
<CAPTION>
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
------------------- ---------------------------- ------------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock Jacob Pollock 1,628,653 (1) 84.09%
753 W. Waterloo Road
Akron, Ohio 44314
</TABLE>
(1) Jacob Pollock has sole voting and investment power with respect to
the listed shares.
The following shows the ownership of RVM's Common Stock
beneficially owned directly or indirectly by each director, and by all
directors and officers of RVM as a group, as of June 19, 1998:
<TABLE>
<CAPTION>
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
------------------- ---------------------------- ------------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock Jacob Pollock 1,628,653 (2) 84.09%
Nicholas T. George 57,690 (3) 2.98
C. Stephen Clegg 0 0.00
Richard D. Pollock 81,535 (3) 4.21
All directors and officers
as a group (6 persons) 1,710,188 88.30
</TABLE>
(2) Jacob Pollock has sole voting and investment power with respect to
the listed shares.
(3) 57,690 shares are held in an irrevocable trust for the benefit of
Richard Pollock's children. Richard Pollock and Nicholas T. George,
as co-trustees, equally share voting and investment power with
respect to these shares. 19,230 shares listed for Richard Pollock
are owned by his spouse; Mr. Pollock disclaims beneficial ownership
of these shares. The remaining 4,615 shares are owned directly by
Mr. Pollock.
No preferred stock is currently outstanding.
50
<PAGE> 51
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
J. Pollock & Company, wholly owned by Jacob Pollock, a Director and
majority shareholder of RVM, purchases materials and provides or
contracts for certain administrative services for the Company and
charges the Company at its cost. Such transactions totaled $634,151 in
1998. J. Pollock & Company provided management services to the Company
under agreements which terminated on December 31, 1997. The Company paid
$330,000 in 1998 for these services. $2,872 was owed at March 31, 1998.
The Company leases office and manufacturing space from a corporation
in which Richard Pollock and Bruce Pollock are shareholders. The lease
is for five years expiring December 31, 1999 at a monthly base rent of
$9,300 with annual increases determined by the change in the Consumer
Price Index, plus the Company's share of utilities, real estate taxes,
insurance, and property maintenance. The Company paid approximately
$116,000 in 1998. Richard Pollock and Bruce Pollock are sons of Jacob
Pollock.
Since September 1, 1997, the Company has leased office space from
Pollock Real Estate, Ltd., of which Jacob Pollock and his wife are
members. The lease is for three years expiring August 31, 2000 at a
monthly base rent of $5,500 plus the Company's share of utilities, real
estate taxes, insurance and property maintenance. The Company paid
$44,192 in 1998.
The Company purchased aluminum materials from The Aluminum
Warehouse, Inc., of which Richard Pollock and his family are
shareholders, totaling $114,356 in 1998. $7,801 was owed at March 31,
1998. The Company sold aluminum extrusions to The Aluminum Warehouse,
Inc. totaling $1,306,480 in 1998. $222,657 was owed at March 31, 1998.
The Company hired temporary personnel from Flex-Team Incorporated,
wholly owned by the Jacob Pollock Irrevocable Trust, of which Richard
Pollock and other family members are beneficiaries, totaling $160,518 in
1998. $47,993 was owed at March 31, 1998.
See Notes 2 and 12 to the consolidated financial statements
regarding acquisitions from and notes payable to related parties. See
Notes 5 and 6 to the consolidated financial statements regarding
guarantees of certain debt of the Company by related parties.
Management believes that the terms of the above transactions are
comparable to those which would have been obtainable from unaffiliated
sources.
51
<PAGE> 52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
<TABLE>
<CAPTION>
(a) List of documents filed as part of this report: Pages
-----
<S> <C>
(1) Financial Statements:
Report of Independent Auditors 17
Report of Independent Accountants 18
Consolidated Balance Sheets, March 31, 1998 and 1997 19 - 20
Consolidated Statements of Operations for the years ended
March 31, 1998, 1997 and 1996 21
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1998, 1997 and 1996 22
Consolidated Statements of Cash Flows for the years ended
March 31, 1998, 1997 and 1996 23
Notes to Consolidated Financial Statements 24 - 42
(2) Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves
for the years ended March 31, 1998, 1997 and 1996 43
</TABLE>
All other schedules are omitted because they are not
applicable or the required information is presented in the
financial statements or the notes thereto.
(3) Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit No. Item
----------- ----
<S> <C> <C>
2(i) Agreement and Plan of Reorganization among Ravens Metal Products,
Inc., RVM Industries, Inc. and Ravens, Inc. was filed as Exhibit 2
to Form 8-B filed March 31, 1997 and is incorporated herein by
reference.
2(ii) Stock Purchase Agreement for common stock of Albex Aluminum, Inc.
and Signs and Blanks, Inc. was filed as Exhibit 2.1 to Form 8-K
filed on March 31, 1997 and is incorporated herein by reference.
</TABLE>
52
<PAGE> 53
<TABLE>
<CAPTION>
Exhibit No. Item
----------- ----
<S> <C> <C>
3(i) Certificate of Incorporation of RVM was filed as Exhibit 3.1 to Form
8-B filed March 31, 1997 and is incorporated herein by reference.
3(ii) RVM's By-laws were filed as Exhibit 3.2 to Form 8-B filed March 31,
1997 and are incorporated herein by reference.
10(i) Management Agreement dated April 1, 1994 between J. Pollock &
Company and Registrant was filed as Exhibit 10(vii) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1994 and is incorporated herein by reference.
10(ii) Loan Agreement dated as of December 1, 1994 between the Registrant
and City of Kent, Ohio was filed as Exhibit 10(a) on Form 8-K dated
December 12, 1994 and is incorporated herein by reference.
10(iii) Promissory Note dated December 13, 1994 from the Registrant to the
City of Kent, Ohio was filed as Exhibit 10(b) on Form 8-K dated
December 12, 1994 and is incorporated herein by reference.
10(iv) Reimbursement Agreement dated June 26, 1995 between the Registrant
and FirstMerit Bank, N.A. (fka First National Bank of Ohio) was
filed as Exhibit 10(v) to Registrant's Annual Report on Form 10-K
for the fiscal year ended March 31, 1995 and is incorporated herein
by reference.
10(v) Guaranty Agreement dated as of July 1, 1995 and executed by the
Registrant on August 14, 1995 among Albex Aluminum, Inc., J. Pollock
& Company, Ravens Metal Products, Inc., Signs And Blanks, Inc.,
Jacob Pollock, Gertrude Pollock, Richard D. Pollock, The Provident
Bank, as trustee, and The Director of Development of the State of
Ohio was filed as Exhibit 99(b) on Form 8-K dated August 21, 1995
and is incorporated herein by reference.
10(vi) Loan Agreement and Promissory Note dated September 30, 1997 between
the Registrant and FirstMerit Bank, N.A. was filed as Exhibit 10(i)
on Form 10-Q for the quarter ended September 30, 1997 and is
incorporated herein by reference.
10(vii) Business Loan Agreement and Promissory Note dated September 30, 1997
between the Registrant and FirstMerit Bank, N.A. was filed as
Exhibit 10(ii) on Form 10-Q for the quarter ended September 30, 1997
and is incorporated herein by reference.
10(viii) Commercial Guaranty dated September 30, 1997 between Jacob Pollock
and FirstMerit Bank, N.A. was filed as Exhibit 10(iii) on Form 10-Q
for the quarter ended September 30, 1997 and is incorporated herein
by reference.
</TABLE>
53
<PAGE> 54
<TABLE>
<CAPTION>
Exhibit No. Item
----------- ----
<S> <C> <C>
21 Subsidiaries of the Registrant
23(i) Consent of Independent Auditors
23(ii) Consent of Independent Accountants
27.1 Financial Data Schedule for the year ended March 31, 1998
27.2 Restated Financial Data Schedules for the quarters ended December 31, 1996, September 30, 1996
and June 30, 1996
27.3 Financial Data Schedule for the year ended March 31, 1996 (Restated)
</TABLE>
Executive Compensation Plans and Arrangements
---------------------------------------------
The Registrant's executive compensation plans and arrangements
required to be filed as exhibits are listed under Exhibit 10
above.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended March
31, 1998.
54
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C> <C>
Date June 26, 1998 RVM INDUSTRIES, INC.
--------------------
By: /s/ Jacob Pollock
-----------------------
Jacob Pollock, Chief
Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
Date June 26, 1998 /s/ Jacob Pollock
-------------------- -----------------------------
Jacob Pollock, Director and
Chief Executive Officer
Date June 26, 1998 /s/ Nicholas T. George
-------------------- -----------------------------
Nicholas T. George, Director
Date
-------------------- -----------------------------
C. Stephen Clegg, Director
Date June 26, 1998 /s/ Richard D. Pollock
-------------------- -----------------------------
Richard D. Pollock, Director
Date June 26, 1998 /s/ John J. Stitz
-------------------- -----------------------------
John J. Stitz, Chief Financial
Officer and Principal Accounting
Date June 26, 1998 Officer
--------------------
</TABLE>
55
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
- -------------------------------------------------------------------------------
Albex Aluminum, Inc. (fka Wirt Metal Products, Inc.) Ohio
Ravens, Inc. (fka Ravens Metal Products, Inc.) Delaware
Also does business as Ravens Trailer Sales
Signs and Blanks, Inc. Ohio
56
<PAGE> 1
EXHIBIT 23 (i)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 filed June 6, 1994 pertaining to the RVM Industries, Inc., Stock Option
Plan (formerly the Ravens Metal Products, Inc., Stock Option Plan) of our report
dated June 24, 1998, with respect to the consolidated financial statements and
schedule of RVM Industries, Inc. included in the Annual Report (Form 10-K) for
the year ended March 31, 1998.
/S/ ERNST & YOUNG LLP
Akron, Ohio
June 24, 1998
57
<PAGE> 1
EXHIBIT 23 (ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
RVM Industries, Inc. and Subsidiaries, as reporting company successor to Ravens
Metal Products, Inc., on Form S-8 filed June 6, 1994 of our report dated June 6,
1997 on our audits of the consolidated financial statements and financial
statement schedule of RVM Industries, Inc. as of March 31, 1997, and for each of
the years ended March 31, 1997 and 1996, which report is included in this Annual
Report on Form 10-K.
/S/ COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
June 24, 1998
58
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 846,128
<SECURITIES> 0
<RECEIVABLES> 10,483,761
<ALLOWANCES> 87,000
<INVENTORY> 11,396,269
<CURRENT-ASSETS> 24,055,969
<PP&E> 29,208,803
<DEPRECIATION> 7,532,320
<TOTAL-ASSETS> 48,348,030
<CURRENT-LIABILITIES> 13,464,672
<BONDS> 25,940,489
0
0
<COMMON> 19,368
<OTHER-SE> 7,868,801
<TOTAL-LIABILITY-AND-EQUITY> 48,348,030
<SALES> 79,903,238
<TOTAL-REVENUES> 80,010,048
<CGS> 67,989,575
<TOTAL-COSTS> 67,989,575
<OTHER-EXPENSES> 6,998,968
<LOSS-PROVISION> 123,480
<INTEREST-EXPENSE> 1,502,830
<INCOME-PRETAX> 3,518,675
<INCOME-TAX> 1,485,080
<INCOME-CONTINUING> 2,033,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (211,651)
<NET-INCOME> 1,821,944
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATEMENTS ARE DUE TO COMBINATION OF COMPANIES UNDER COMMON CENTROL ON MARCH
31, 1997
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997 MAR-31-1997
<PERIOD-START> APR-01-1996 APR-01-1996 APR-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996
<CASH> 476,741 488,671 495,769
<SECURITIES> 0 0 0
<RECEIVABLES> 6,679,172 2,353,032 7,188,196
<ALLOWANCES> 197,000 173,000 132,500
<INVENTORY> 7,778,428 8,786,231 8,528,832
<CURRENT-ASSETS> 15,345,775 17,150,552 16,760,988
<PP&E> 24,310,141 24,141,373 23,977,225
<DEPRECIATION> 5,972,187 5,781,881 5,440,396
<TOTAL-ASSETS> 36,866,904 38,657,065 38,457,613
<CURRENT-LIABILITIES> 13,623,239 11,924,420 12,766,516
<BONDS> 17,064,779 20,381,311 19,502,553
0 0 0
0 0 0
<COMMON> 19,343 19,343 19,435
<OTHER-SE> 5,702,632 5,857,040 5,765,459
<TOTAL-LIABILITY-AND-EQUITY> 36,866,904 38,657,065 38,457,613
<SALES> 48,181,015 31,275,771 15,946,481
<TOTAL-REVENUES> 48,249,334 31,313,660 15,967,435
<CGS> 41,571,415 27,393,796 14,020,544
<TOTAL-COSTS> 41,571,415 27,393,796 14,020,544
<OTHER-EXPENSES> 5,266,396 2,809,887 1,414,683
<LOSS-PROVISION> 95,513 52,850 23,580
<INTEREST-EXPENSE> 850,976 602,017 312,017
<INCOME-PRETAX> 560,547 507,960 220,191
<INCOME-TAX> 500,400 293,400 134,200
<INCOME-CONTINUING> 60,147 214,560 85,991
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 60,147 214,560 85,991
<EPS-PRIMARY> .17 .17 .07
<EPS-DILUTED> .17 .17 .07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORM 10-K FOR THE FISCAL YEAR ENDED MARCH
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS. RESTATEMENT IS DUE TO
COMBINATION OF COMPANIES UNDER COMMON CONTROL ON MARCH
31, 1997.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 471,161
<SECURITIES> 0
<RECEIVABLES> 7,055,392
<ALLOWANCES> 103,000
<INVENTORY> 9,322,875
<CURRENT-ASSETS> 17,569,208
<PP&E> 21,676,301
<DEPRECIATION> 4,977,390
<TOTAL-ASSETS> 39,211,709
<CURRENT-LIABILITIES> 15,561,158
<BONDS> 17,406,400
0
0
<COMMON> 19,435
<OTHER-SE> 5,777,265
<TOTAL-LIABILITY-AND-EQUITY> 39,211,709
<SALES> 61,793,870
<TOTAL-REVENUES> 61,933,987
<CGS> 55,742,144
<TOTAL-COSTS> 55,742,144
<OTHER-EXPENSES> 6,475,839
<LOSS-PROVISION> 102,742
<INTEREST-EXPENSE> 1,070,684
<INCOME-PRETAX> 1,354,680
<INCOME-TAX> 110,973
<INCOME-CONTINUING> (1,465,653)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,465,653)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
