<PAGE> 1
.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
-----------
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For The Quarter Ended February 28, 1998
Commission File Number 001 - 12673
RIVIERA TOOL COMPANY
A Michigan Corporation
I.R.S. Employer Identification No. 38- 2828870
5460 Executive Parkway S.E., Grand Rapids, Michigan 49512
Telephone: (616) 698 - 2100
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -----
The number of Common Shares outstanding at March 26, 1998 was 3,065,499.
<PAGE> 2
PART I
FINANCIAL INFORMATION
INDEX
<TABLE>
<CAPTION>
Page No.
Item 1. Financial Statements
<S> <C> <C>
Balance Sheets as of February 28, 1998 and August 31, 1997........ 4
Statements of Operations for the Three Months and Six Months
Ended February 28, 1998 and 1997.................................. 5
Statements of Cash Flows for the Six Months Ended
February 28, 1998 and 1997........................................ 6
Notes to Financial Statements..................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 10
</TABLE>
PART II
OTHER INFORMATION
INDEX
Item 1. Legal Proceedings - Incorporated by reference to Prospectus -
"Business-Legal Proceedings" contained in Registrant's
Registration Statement number 333-14187, effective March 3,
1997.
Item 2. Changes in Securities
On October 10, 1997, and October 24, 1997, the Company issued
67,500 shares and 12,500 shares, respectively, of its 8%
Cumulative Convertible Preferred Stock, no par value, for gross
proceeds of $8,000,000, all to accredited investors as that term
in defined by Regulation D under the Securities Act. These
transactions were exempt from registration under Sections 3(b),
4(2) and 4(6) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder.
On January 9, 1998,the Company registered 1,461,529 shares of
Common Stock under the Securities Act of 1933. These common
shares were issuable upon conversion of the its 8% Cumulative
Convertible Preferred Stock. On January 10, 1998, the Company
sent notice to all holders of the 8% Cumulative Convertible
Preferred Stock that all such shares outstanding will be
automatically converted into Common Stock on or before February
11, 1998 under the mandatory conversion provision which requires
mandatory conversion when the average closing price for the
Common Stock on the American Stock is $10.00 per share (which
occurred during the trading period of November 20 and December 4,
1997).
By March 2, 1998 the Company converted and retired all 80,000
shares of its 8% Cumulative Convertible Preferred Stock into
1,310,499 shares of registered Common Stock.
2.
<PAGE> 3
INDEX - CONTINUED
Item 3. Default Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8 - K.
6(a) Exhibits - None
6(b) Reports on Form 8-K - None
3.
<PAGE> 4
RIVIERA TOOL COMPANY
FINANCIAL STATEMENTS
BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
ASSETS 1998 1997
-------------------- --------------------
CURRENT ASSETS NOTE (UNAUDITED) (AUDITED)
-------------------- --------------------
<S> <C> <C> <C>
Cash.................................................................... $ -- $ --
Accounts Receivable:
Trade............................................................... 4,342,448 4,614,257
Related Party....................................................... -- 201,286
Costs and estimated gross profit in excess
of billings on contracts in process................................ 3 10,629,096 7,138,358
Inventories............................................................. 468,740 468,740
Prepaid expenses and other current assets............................... 395,223 267,554
--------------- ---------------
Total current assets.......................................... 15,835,507 12,690,195
PROPERTY, PLANT AND EQUIPMENT, NET........................................ 4 11,152,030 9,640,330
PERISHABLE TOOLING........................................................ 467,450 572,585
OTHER ASSETS.............................................................. 94,831 187,843
=============== ===============
Total assets.................................................. $ 27,549,818 $ 23,090,953
=============== ===============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt....................................... 5 $ 650,000 $ 650,000
Accounts payable........................................................ 1,292,575 1,241,243
Accrued liabilities..................................................... 405,342 634,924
--------------- ---------------
Total Current liabilities..................................... 2,347,917 2,526,167
LONG-TERM DEBT............................................................ 5 6,684,810 7,202,393
ACCRUED LEASE EXPENSE..................................................... 624,350 605,660
DEFERRED TAX LIABILITY.................................................... 1,463,135 934,400
PREFERRED STOCK - no par value,
$100 mandatory redemption value:
Authorized - 5,000 shares
Issued and outstanding - None...................................... -- --
STOCKHOLDERS' EQUITY:
Preferred Stock -8% Cumulative Convertible Preferred
Stock - no par value,
Authorized - 200,000 shares
Issued and outstanding - None........................................ 2 -- --
Common stock - No par value:
Authorized - 9,785,575 shares
Issued and outstanding - and 3,065,499 shares
at February 28, 1998 and 2,485,000 shares at
August 31, 1997...................................................... 2 13,408,272 9,539,879
Retained earnings....................................................... 3,021,334 2,282,454
--------------- ---------------
Total stockholders' equity.................................... 16,429,606 11,822,333
--------------- ---------------
Total liabilities and stockholders'
equity...................................................... $ 27,549,818 $ 23,090,953
=============== ===============
</TABLE>
See notes to financial statements
4.
<PAGE> 5
RIVIERA TOOL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
---------------------------------- -----------------------------
1998 1997 1998 1997
-------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C>
SALES...................................................... $ 6,095,638 $ 5,405,086 $ 11,539,443 $ 10,885,299
COST OF SALES.............................................. 4,433,736 4,300,066 8,617,806 8,695,329
------------ ------------ ------------ ------------
GROSS PROFIT......................................... 1,661,902 1,105,020 2,921,637 2,188,970
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES................................ 558,958 438,909 1,062,700 869,440
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS............................... 1,102,944 666,111 1,858,937 1,320,530
OTHER INCOME (EXPENSE)
Interest expense........................................ (129,560) (442,700) (261,390) (845,371)
Other expense........................................... (110,686) -- (109,192) --
Gain/(Loss) on asset sales.............................. (40,900) 15,387 (18,634) 30,774
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSE - NET............................ (281,146) (427,313) (389,216) (814,597)
INCOME BEFORE TAXES ON INCOME.............................. 821,798 238,798 1,469,721 505,933
INCOME TAXES............................................... 295,849 81,191 528,735 172,000
------------ ------------ ------------ ------------
NET INCOME.................................... 525,949 157,607 940,986 333,933
DIVIDENDS AND ACCRETION ON
PREFERRED STOCK........................................ 117,736 1,868 201,815 6,480
------------ ------------ ------------ ------------
NET INCOME AVAILABLE FOR COMMON
SHARES................................................. $ 408,213 $ 155,739 $ 739,171 $ 327,453
============ ============ ============ ============
BASIC EARNINGS PER COMMON SHARE............................ $ .20 $ .11 $ .36 $ .22
============ ============ ============ ============
COMMON SHARES OUTSTANDING.................................. 2,017,086 1,460,000 2,042,320 1,460,000
============ ============ ============ ============
DILUTED EARNINGS PER COMMON SHARE.......................... $ .17 $ .11 $ .32 $ .23
============ ============ ============ ============
COMMON SHARES OUTSTANDING.................................. 3,065,499 1,460,000 2,909,423 1,460,000
============ ============ ============ ============
</TABLE>
See notes to financial statements
5.
<PAGE> 6
RIVIERA TOOL COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FEBRUARY 28,
---------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................... $ 940,986 $ 333,933
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization............................................. 574,445 643,045
Loss on sale of equipment................................................. 18,634 --
Amortization of deferred gain............................................. -- (30,774)
Deferred taxes............................................................ 528,735 172,000
Bad debt expense.......................................................... -- (137,378)
(Increase) decrease in assets:
Accounts receivable.................................................... 473,095 1,670,984
Costs and estimated gross profit in
excess of billings on contracts in
process................................................................ (3,490,738) (847,378)
Perishable tooling..................................................... 105,135 86,335
Prepaid expenses and other current assets.............................. (55,103) (54,954)
Increase (decrease) in liabilities:
Accounts payable....................................................... 51,332 (342,294)
Accrued lease expense.................................................. 18,690 23,364
Accrued liabilities.................................................... (229,582) 213,411
----------- -----------
Net cash provided by (used in)
operating activities............................................... (1,064,371) 1,730,294
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of machinery & equipment................................... 1,092,390 (10,753)
Additions to property, plant and equipment.................................... (3,176,723) (181,223)
----------- -----------
Net cash provided by (used in) investing
activity.............................................................. (2,084,333) (191,976)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of) short-
term debt.................................................................... -- (415,435)
Net proceeds from issuance of preferred stock................................. 8,000,000 --
Principal(payments)/proceeds from long-term debt.............................. (517,583) (508,679)
Principal payments under capital lease
obligations................................................................. -- (166,390)
Redemption of preferred stock................................................. -- (95,000)
Capitalized refinancing costs................................................. (1,131,607) (351,164)
Repurchase and retirement of common stock..................................... (3,000,000) --
Preferred stock dividends..................................................... (202,106) --
----------- -----------
Net cash provided by (used in) financing
activities............................................................ 3,148,704 (1,536,668)
----------- -----------
NET INCREASE IN CASH............................................................ $ -- $ 1,650
CASH - Beginning of Period...................................................... -- --
----------- -----------
CASH - End of Period............................................................ $ -- $ 1,650
=========== ===========
</TABLE>
See notes to financial statements
6.
<PAGE> 7
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements (the "Financial
Statements") of Riviera Tool Company (the "Company") have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, the Financial Statements do not include all the information and
footnotes normally included in the annual financial statements prepared in
accordance with generally accepted accounting principles.
In the opinion of management, the Financial Statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
such information in accordance with generally accepted accounting principles.
These Financial Statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's Form 10-K dated
November 26, 1997, for the fiscal year ended August 31, 1997.
The results of operations for the three and six month periods ended February 28,
1998 are not indicative of the results to be expected for the full year.
NOTE 2 -- 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK
In October, 1997, the Company issued and sold 80,000 shares of 8%
Cumulative Convertible Preferred Stock (the "Preferred Shares") at $100.00 per
share. With a portion of the proceeds from this sale, the Company exercised its
option to purchase and retired all 730,000 shares of common stock held by Motor
Wheel Corporation for $3.0 million or $4.11 per share.
The holders of the 8% Cumulative Convertible Preferred Stock will
possess no voting rights except where required by law and under the following
circumstances (i) at whatever time or times dividends are not payable for two
consecutive quarterly periods, the holders of the Preferred Shares have the
right to elect one additional director who shall continue until all such
accumulated dividends have been paid in full, or (ii) for so long as the
Preferred Shares remain outstanding, the Company must obtain a vote of the
holders of 66 2/3% of the then outstanding Preferred Shares to issue any class
of stock ranking senior to the Preferred Shares as to dividends or distribution
of assets on liquidation. Cumulative dividends shall be paid at an annual rate
of 8% payable quarterly, in arrears, at a rate of $2.00 per share per quarter,
commencing December 31, 1997. Upon liquidation, the Shares will be entitled to
seniority to the extent of $100 per share plus cumulative dividends to the date
of payment over the Common Stock and any other capital stock not given senior
rights by the holders of the Shares. Of the 80,000 Preferred Shares issued,
67,500 preferred shares are convertible into Common Stock at any time, and from
time to time, in whole or in part, for the number of shares of Common Stock per
share equal to $100 divided by $6.00. The remaining 12,500 preferred shares are
convertible into Common Stock at any time, and from time to time, in whole or in
part, for the number of shares of Common Stock per share equal to $100 divided
by $6.7375. All Preferred Shares outstanding will be automatically converted
into Common Stock when the average closing price for the Common Stock on the
American Stock Exchange for 10 consecutive trading days is equal to or greater
than $10 per share. The Company shall not be required to issue fractional shares
in connection with any conversion and a cash payment shall be made in lieu
thereof.
On January 9, 1998,the Company registered 1,461,529 shares of Common Stock
under the Securities Act of 1933. These common shares were issuable upon
conversion of the its 8% Cumulative Convertible Preferred Stock. On January
7.
<PAGE> 8
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 2 - 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK - CONTINUED
10, 1998, the Company sent notice to all holders of the 8% Cumulative
Convertible Preferred Stock that all such preferred shares outstanding will be
automatically converted into Common Stock on or before February 11, 1998 under
the mandatory conversion provision which requires mandatory conversion when the
average closing price for the Common Stock on the American Stock Exchange is
$10.00 per share (which occurred during the trading period of November 20 and
December 4, 1997).
Prior to March 2, 1998 the Company had converted and retired all 80,000 shares
of its 8% Cumulative Convertible Preferred Stock into 1,310,499 shares of
registered Common Stock.
NOTE 3 - COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1998 1997
------------------ -----------------
<S> <C> <C>
Costs incurred on contracts in process under the
percentage of completion method ............................................. $14,931,082 $ 9,008,594
Estimated gross profit ......................................................... 800,000 1,325,000
----------- -----------
Total .................................................................. 15,731,082 10,333,594
Less progress payments received and progress
billings to date ............................................................ 5,360,643 3,208,800
Plus costs incurred on contracts in process under
the completed contract method ............................................... 258,657 13,564
=========== ===========
Costs and estimated gross profit in excess
of billings on contracts in process .................................. $10,629,096 $ 7,138,358
=========== ===========
</TABLE>
Included in estimated gross profit for August 31, 1997 and February 28, 1998 are
jobs with losses accrued of $55,529 and $102,396, respectively.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1998 1997
------------------ ----------------
<S> <C> <C>
Lease and leasehold improvements ................................................. $ 1,453,539 $ 1,560,668
Office furniture and fixtures .................................................... 199,311 137,236
Machinery and equipment .......................................................... 14,359,373 14,078,151
Computer equipment and software .................................................. 1,259,169 1,243,048
Transportation equipment ......................................................... 126,365 115,971
----------- -----------
Total cost .................................................................. 17,397,757 17,135,074
Accumulated depreciation and amortization ........................................ 6,245,727 7,494,744
----------- -----------
Net carrying amount ......................................................... $11,152,030 $ 9,640,330
=========== ===========
Depreciation and amortization expense for the period ............................. $ 574,445 $ 1,257,307
=========== ===========
</TABLE>
8.
<PAGE> 9
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NOTE 5 - LONG-TERM DEBT
FEBRUARY 28 AUGUST 31,
LONG-TERM DEBT 1998 1997
- -------------- ----------------- -----------------
<S> <C> <C>
Revolving bank working capital credit line, collateralized by substantially all
assets of the Company. The agreement provides for borrowing, subject to certain
collateral requirements of up to $10.0 million, and bears interest, payable
monthly, at .25% above the bank's prime rate at August 31, 1997 and prime rate
at February 28, 1998(an effective rate of 8.75% and 8.5%, respectively), due
March 1,1999. The Agreement is subject to certain loan covenants discussed below
and requires a commitment fee of .25% per annum on the average daily unused
portion of the revolving credit line............................................ 2,430,901 4,710,726
Note payable to bank, collateralized by substantially all assets of the Company,
payable in monthly installments of $54,166.67 plus interest of .25% above the
bank's prime rate at August 31, 1997 and prime rate at February 28, 1998(an
effective rate of 8.75% and 8.5%, respectively), due July 1, 2002............... 2,816,667 3,141,667
Revolving equipment credit line, collateralized by specific assets of the
Company. The agreement provides for borrowing up to $4.0 million, in $500,000
increments, and bears interest at .25% above the bank's prime rate at August
31, 1997 and prime rate at February 28, 1998(an effective rate of 8.75% and
8.5%, respectively), due in monthly installments over six years from date of
borrowing increment. The Agreement is subject to certain loan covenants
discussed below................................................................. 2,087,242 --
---------------- ----------------
Total long-term debt....................................................... 7,334,810 7,852,393
Total current portion...................................................... 650,000 650,000
================ ================
Long-term debt - Net....................................................... $ 6,684,810 $ 7,202,393
================ ================
</TABLE>
As of August 31, 1997 and February 28, 1998, in connection with the lines of
credit and note payable to bank, the Company has agreed to certain covenants.
The agreements require the Company to maintain certain ratios/levels of tangible
net worth, working capital, liabilities to tangible net worth, earnings before
interest, taxes, depreciation and amortization to debt service and prohibit the
payment of common stock cash dividends. The Company was in compliance at August
31, 1997 and February 28, 1998, with all of these covenants.
9.
<PAGE> 10
RIVIERA TOOL COMPANY
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of the
Company's Statement of Operations as a percentage of sales.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED FEBRUARY 28, ENDED FEBRUARY 28,
-----------------------------------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES .......................................................... 100.0% 100.0% 100.0% 100.0%
COST OF SALES .................................................. 72.7% 79.6% 74.7% 79.9%
----- ----- ----- -----
GROSS PROFIT ............................................ 27.3% 20.4% 25.3% 20.1%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE..................... 9.2% 8.1% 9.2% 8.0%
----- ----- ----- -----
INCOME FROM OPERATIONS .................................. 18.1% 12.3% 16.1% 12.1%
OTHER INCOME (EXPENSE)
INTEREST EXPENSE ............................................. (2.1%) (8.2%) (2.3%) (7.7%)
GAIN ON ASSET SALES .......................................... (2.5%) .3% (1.1%) .3%
----- ----- ----- -----
TOTAL OTHER EXPENSE - NET ............................. (4.6%) (7.9%) (3.4%) (7.4%)
INCOME BEFORE TAXES ON INCOME .................................. 13.5% 4.4% 12.7% 4.7%
INCOME TAXES ................................................... 4.9% 1.5% 4.6% 1.6%
----- ----- ----- -----
NET INCOME ......................................... 8.6% 2.9% 8.1% 3.1%
===== ===== ===== =====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 1998 TO THE THREE MONTHS ENDED
FEBRUARY 28, 1997.
REVENUES - Revenues for the three months ended February 28, 1998 totaled $6.1
million as compared to $5.4 million for the three months ended February 28,
1997, an increase of $.7 million or 13%. This increase was due to the Company
receiving an increase in awarded contracts during the past nine months.
COST OF SALES - Cost of sales increased from $4.3 million for the three months
ended February 28, 1997 to $4.4 million for the three months ended February 28,
1998. As a percent of revenue, cost of sales for the three months ended February
28, 1998 was 72.7% compared to 79.6% for the three months ended February 28,
1997. The improved gross margin was largely due to decreases in the Company's
direct material expense ($27,100) and manufacturing overhead ($150,800), as well
as increases in direct labor ($66,800), outside purchased services ($219,600)
and engineering expense ($25,100).
The decrease in direct material expense was a result of better direct material
pricing that the Company has negotiated with its suppliers. The decrease in
manufacturing overhead was largely due to the decrease in perishable tooling
requirements. This decrease was a result of the lower internal machining
capacity and related machine perishable tooling requirements. Additionally,
medical insurance expense was lower as a result of a refund received from the
10.
<PAGE> 11
Company's medical insurance provider for better medical expense experience than
assumed for the previous year. The increase in direct labor expense was a result
higher manufacturing hour requirements during the second quarter of 1998 as
compared to 1997, as well as higher hourly labor rates in the second quarter of
1998. The increase in outside purchased services was a result of the increase in
the amount of outsourcing requirements during the quarter. This increase is a
result of the fact that the Company is in the process of upgrading the
technology on its machine tools and had less than normal available internal
machining capacity. Upon completion of these technology upgrades the Company's
internal machining capacity will be increased and is expected to be more
efficient. The increase in engineering expense was a result of an increase in
the number of engineering personnel required in order to support the increase in
the Company's revenues and backlog.
S,G & A EXPENSES - Selling, general and administrative expenses increased from
approximately $439,000 for the three months ended February 28, 1997 to
approximately $559,000 for the three months ended February 28, 1998. This
increase was largely due to an increase in public company costs ($47,000), and
selling expense ($58,000). As a percentage of revenue, selling, general and
administrative expenses were 9.2% for the three months ended February 28, 1998
compared to 8.1% for the three months ended February 28, 1997.
The increase in public company costs was due to the cost of the Company's Annual
Report and costs associated with registering the Convertible Preferred Stock
underlying common shares and other services required as a result of being a
public entity, as compared to the second quarter of 1997 when the Company was
privately held. Selling expense increased, as compared to the same period last
year, largely as a result of the increase in sales personnel salaries as well as
additional sales travel and other costs incurred by the Company in its
international marketing efforts.
INTEREST EXPENSE -- Interest expense for the three months ended February 28,
1998 was approximately $130,000 as compared to approximately $443,000 for the
three months ended February 28, 1997. As a percentage of revenue, interest
expense decreased from 8.2% for the three months ended February 28, 1997 as
compared to 2.1% for the three months ended February 28, 1998.
The decrease in interest expense was a result of the Company's refinancing
efforts and lower debt levels resulting from the Company's equity financing
activities ($15,070,000 raised) subsequent to the second quarter of 1997. In the
third quarter of 1997, the Company refinanced its bank debt with a new financial
institution. This refinancing lowered the Company's borrowing costs from prime
plus four percent during the second quarter of 1997 to prime plus one quarter
percent for the second quarter of 1998. Effective September 1, 1997, the
Company's borrowing rate decreased further from prime plus one quarter (8.75%)to
prime rate (8.5%).
OTHER EXPENSE -- Other expense for the three months ended February 28,1998
represents penalties and interest for the Company's 1995 and 1996 state income
taxes. The penalties and interest represent assessments for late payments of
these taxes during these periods. During the second quarter of 1998, the Company
negotiated a settlement and paid such penalties and interest. These expenses are
a one time, non-reoccurring charge and the Company has no other such issues
outstanding.
DIVIDEND EXPENSE -- Dividend expense for the three months ended February 28,
1998 was approximately $117,700 as compared to approximately $1,900 for the
three months ended February 28, 1997. As a percentage of revenue, dividend
expense increased from .03% for the three months ended February 28, 1997 as
compared to 1.9% for the three months ended February 28, 1998. This increase
11.
<PAGE> 12
was due to the Company issuing $8.0 million of 8% Cumulative Convertible
Preferred Stock in October of 1997.
On February 11, 1998, the Company's 8% Cumulative Convertible Preferred Stock
was converted to 1,310,499 shares of registered Common Stock. As a result of
this conversion, no such dividends accrued subsequent to February 11, 1998.
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 1998 TO THE SIX MONTHS ENDED
FEBRUARY 28, 1997
REVENUES -- Revenues for the six months ended February 28, 1997 totaled $10.9
million as compared to $11.5 million for the six months ended February 28, 1998,
an increase of $.6 million or 6%. This revenue increase was due to the Company's
receiving an increase in awarded contracts during the past nine months as the
Company has the proper financing to accept additional contracts. Prior to the
Company going public, the Company did not have additional financing sources to
accept additional contracts and increase revenues.
COST OF SALES -- Cost of sales decreased from $8.7 million for the six months
ended February 28, 1997 to $8.6 million for the six months ended February 28,
1998. As a percent of revenue, cost of sales for the six months ended February
28, 1997 was 79.9% compared to 74.7% for the six months ended February 28, 1998.
The improved gross margin was largely due to decreases in the Company's direct
material expense ($216,600), direct labor ($40,600) and manufacturing overhead
($277,000) as well as increases in outside purchased services ($415,700), and
engineering expense ($40,700).
The decrease in direct material expense was a result of better direct material
pricing that the Company has negotiated with its suppliers as well as the
material requirements of the contracts-in-process required lower levels of
materials during this period. The decrease in direct labor expense was a result
of the Company utilizing less overtime hours while increasing straight time
hours capacity. The manufacturing overhead decrease was largely due to lower
depreciation expense as a result of machinery disposals of $605,000 during the
first two quarters of 1998 as well as a decrease in perishable tooling
requirements. This decrease was a result of the lower internal machining
capacity and related machine perishable tooling requirements. Other
manufacturing overhead decreases included payroll taxes, truck expense,
utilities, workers compensation insurance expense and medical insurance expense.
The increase in outside purchased services was a result of the increase in the
amount of outsourcing requirements. This increase is a result of the fact that
the Company is in the process of upgrading the technology on its machine tools
and had less than normal available internal machining capacity. Upon completion
of these technology upgrades the Company's internal machining capacity will be
increased and is expected to be more efficient. The increases in engineering
expense was a result of an increase in the number of engineering personnel
required in order to support the increase in the Company's revenues and backlog
as well as a decrease in the CAD computer system maintenance expense. The
decrease in CAD computer system maintenance expense was a result of the Company
replacing its old CAD system and reduced the system maintenance.
S,G & A EXPENSES -- Selling, general and administrative expenses increased from
approximately $869,000 for the six months ended February 28, 1997 to
approximately $1,063,000 for the six months ended February 28, 1998. As a
percentage of revenue, selling, general and administrative expenses were 8.0%
for the six months ended February 28, 1997 as compared to 9.2% for the six
months ended February 28,1998.The increase in General and Administrative expense
was due to increases in public company costs and directors and officers
liabilities insurance expense as well as decreases in legal expense,
12.
<PAGE> 13
computer maintenance and deferred compensation expense. The increases in public
company expense and directors and liability insurance expense during the six
months ended February 28, 1998 were due to the Company being a public company as
compared to the six months ended February 28, 1997, when the Company was a
private entity. The decrease in legal expense was due to the Company requiring
less legal services during the six months ended February 28, 1998 as compared to
the six months ended February 28, 1997 when the Company required additional
non-capitalized legal services in preparing for the Company's March, 1997
initial public offering. The decrease in computer maintenance costs was a result
of the Company replacing its mainframe computer system with a PC network which
requires less maintenance. The decrease in deferred compensation expense was due
to the Company receiving forfeited Company matching share funds under the
Company's 401(k) Plan. These funds represent forfeited Company matching
contributions resulting from employees leaving the Company prior to being fully
vested. Under the Company's 401(k) Plan if an employee is terminated or resigns
prior to be fully vested, they are not eligible to retain the unvested portion
of the Company's matching contribution.
Selling expense increased as compared to the same period last year largely as a
result of the increase in sales personnel and related salaries as well as
additional sales travel and commissions incurred by the Company in its
international marketing efforts.
INTEREST EXPENSE -- Interest expense for the six months ended February 28, 1998
was approximately $261,400 as compared to approximately $845,400 for the six
months ended February 28, 1997. As a percentage of revenue, interest expense
decreased from 7.8% for the six months ended February 28, 1997 as compared to
2.3% for the six months ended February 28, 1998.
The decrease in interest expense was a result of the Company's refinancing
efforts and lower debt levels resulting from the Company's equity financing
activities ($15,070,000 raised) subsequent to the second quarter of 1997. In the
third quarter of 1997, the Company refinanced its bank debt with a new financial
institution. This refinancing lowered the Company's borrowing costs from prime
plus four percent during the second quarter of 1997 to prime plus one quarter
percent for the second quarter of 1998. Effective September 1, 1997, the
Company's borrowing rate decreased further from prime plus one quarter (8.75%)
to prime rate (8.5%).
OTHER EXPENSE -- Other expense for the six months ended February 28,1998
represents penalties and interest for the Company's 1995 and 1996 state income
taxes. The penalties and interest represent assessments for late payments of
these taxes during these periods. During the second quarter of 1998, the Company
negotiated a settlement and paid such penalties and interest. These expenses are
a one time, non-reoccurring charge and the Company has no other such issues
outstanding.
DIVIDEND EXPENSE -- Dividend expense for the six months ended February 28, 1998
was approximately $201,800 as compared to approximately $6,500 for the six
months ended February 28, 1997. As a percentage of revenue, dividend expense
increased from .1% for the six months ended February 28, 1997 as compared to
1.7% for the six months ended February 28, 1998. This increase was due to the
Company issuing $8.0 million of 8% Cumulative Convertible Preferred Stock in
October of 1997.
On February 11, 1998, the Company's 8% Cumulative Convertible Preferred Stock
was converted to 1,310,499 shares of registered Common Stock. As a result of
this conversion, no such dividends accrued subsequent to February 11, 1998.
13.
<PAGE> 14
FEDERAL INCOME TAXES
The effective federal income tax rate was 36% for the six months ended February
28, 1998, as compared to 34% for the six months ended February 28, 1997. As of
August 31, 1997, the Company had approximately $1.7 million of net operating
loss carryforwards that expire 2007 through 2009, investment tax credit
carryforwards of approximately $204,900 that expire 1998 through 2003 and
alternative minimum tax credits of approximately $189,300, the use of which do
not expire.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended February 28, 1998, the Company's cash used in
operating activities was $1,064,371. The capital used in operating activities
was primarily due to decreases in the Company's Accounts Receivable of $473,094,
Deferred Taxes of $528,735, and Perishable Tooling of $105,135. Increases
included Work-in-Process of $3,490,738.
From Investing Activities, during the first two quarters of 1998, the Company
acquired additional machinery and equipment of $3,176,723 and had disposal
proceeds of $1,092,390 including four 1,000 ton stamping presses for $2.1
million, $884,200 of machinery and equipment and $192,000 of computer and office
equipment.
From Financing Activities, the Company was provided a total of $3,148,702 during
the six months ended February 28, 1998. In the same period, the Company reduced
its revolving line of credit ($2.3 million) and drew $2.1 million on its
equipment line of credit to finance its acquisition of machinery and equipment.
The Company also received proceeds from issuance of 80,000 shares of 8%
Cumulative Convertible Preferred Stock (net proceeds of $6.9 million) and
subsequently redeemed and retired 730,000 common stock held by Motor Wheel
Corporation for $3.0 million ($4.11 per share). Dividends on the 80,000 shares
of 8% Cumulative Convertible Preferred Stock paid during the first and second
quarter was $202,100. On February 11, 1998, the Company's 8% Cumulative
Convertible Preferred Stock was converted to 1,310,499 shares of registered
Common Stock. As a result of this conversion, no such dividends accrued
subsequent to February 11, 1998.
14.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 26, 1998
Riviera Tool Company
/s/ Kenneth K. Rieth
----------------------
Kenneth K. Rieth
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Peter C. Canepa
----------------------
Peter C. Canepa
Chief Financial Officer, Treasurer
and Secretary (Principal Financial
and Accounting Officer)
15.
<PAGE> 16
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART I
FINANCIAL INFORMATION, ITEM 1, FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH SEC FORM 10Q FOR THE SECOND QUARTER ENDED FEBRUARY
28, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,442,448
<ALLOWANCES> 100,000
<INVENTORY> 11,097,836
<CURRENT-ASSETS> 15,835,507
<PP&E> 17,397,757
<DEPRECIATION> 6,245,727
<TOTAL-ASSETS> 27,549,818
<CURRENT-LIABILITIES> 2,347,917
<BONDS> 6,684,810
0
0
<COMMON> 13,408,272
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,549,818
<SALES> 11,539,443
<TOTAL-REVENUES> 11,539,443
<CGS> 8,617,806
<TOTAL-COSTS> 8,617,806
<OTHER-EXPENSES> 1,190,526
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 261,390
<INCOME-PRETAX> 1,469,721
<INCOME-TAX> 528,735
<INCOME-CONTINUING> 940,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 940,986
<EPS-PRIMARY> .36
<EPS-DILUTED> .30
</TABLE>
