<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 May 31, 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 July 7, 1998 was 3,065,499.
<PAGE> 2
PART I
FINANCIAL INFORMATION
INDEX
Page No.
Item 1. Financial Statements
Balance Sheets as of May 31, 1998 and August 31, 1997...... 4
Statements of Operations for the Three Months and Nine
Months Ended May 31, 1998 and 1997......................... 5
Statements of Cash Flows for the Nine Months Ended May 31,
1998 and 1997.............................................. 6
Notes to Financial Statements.............................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 10
PART II
OTHER INFORMATION
INDEX
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - Incorporated by reference to Note 2 - 8%
Cumulative Convertible Preferred Stock, included herein the
Notes to Financial Statements.
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>
ASSETS MAY 31, AUGUST 31,
------ 1998 1997
-------------------- --------------------
CURRENT ASSETS NOTE (UNAUDITED) (AUDITED)
---- -------------------- --------------------
<S> <C> <C> <C>
Cash.................................................................... $ -- $ --
Accounts Receivable:
Trade............................................................... 2,795,588 4,614,257
Related Party....................................................... -- 201,286
Costs and estimated gross profit in excess
of billings on contracts in process................................. 3 13,649,649 7,138,358
Inventories............................................................. 438,740 468,740
Prepaid expenses and other current assets............................... 446,035 267,554
----------------- -----------------
Total current assets.......................................... 17,330,012 12,690,195
PROPERTY, PLANT AND EQUIPMENT, NET........................................ 4 11,438,257 9,640,330
PERISHABLE TOOLING........................................................ 440,720 572,585
OTHER ASSETS.............................................................. 84,611 187,843
----------------- -----------------
Total assets.................................................. $ 29,293,600 $ 23,090,953
================= =================
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt....................................... 5 $ 650,000 $ 650,000
Accounts payable........................................................ 1,157,127 1,241,243
Accrued liabilities..................................................... 577,559 634,924
----------------- -----------------
Total Current liabilities..................................... 2,384,686 2,526,167
LONG-TERM DEBT............................................................ 5 7,307,841 7,202,393
ACCRUED LEASE EXPENSE..................................................... 633,695 605,660
DEFERRED TAX LIABILITY.................................................... 1,759,885 934,400
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 May 31, 1998 and 2,485,000 shares at
August 31, 1997...................................................... 2 13,471,937 9,539,879
Retained earnings....................................................... 3,735,556 2,282,454
----------------- -----------------
Total stockholders' equity.................................... 17,207,493 11,822,333
----------------- -----------------
Total liabilities and stockholders'
equity...................................................... $ 29,293,600 $ 23,090,953
================= =================
</TABLE>
See notes to financial statements
4.
<PAGE> 5
RIVIERA TOOL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE THREE MONTHS ENDED ENDED
MAY 31, MAY 31,
----------------------------------- --------------------------------------
1998 1997 1998 1997
--------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
SALES..................................... $ 6,878,697 $ 5,000,864 $ 18,418,140 $ 15,886,163
COST OF SALES............................. 5,032,429 3,915,605 13,650,235 12,610,934
--------------- --------------- ---------------- -----------------
GROSS PROFIT........................ 1,846,268 1,085,259 4,767,905 3,275,229
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES............... 548,837 354,947 1,611,537 1,224,387
--------------- --------------- ---------------- -----------------
INCOME FROM OPERATIONS.............. 1,297,431 730,312 3,156,368 2,050,842
OTHER INCOME (EXPENSE)
Interest expense....................... (182,175) (375,463) (443,565) (1,220,834)
Other expense.......................... -- - (110,686) -
Gain/(Loss) on asset sales............. (715) 19,387 (16,425) 46,161
--------------- --------------- ---------------- -----------------
TOTAL OTHER EXPENSE - NET........... (182,890) (356,076) (570,676) (1,170,673)
INCOME BEFORE TAXES ON INCOME............. 1,114,541 374,236 2,585,692 880,169
INCOME TAXES.............................. 401,750 127,231 930,485 299,257
--------------- --------------- ---------------- -----------------
NET INCOME................... 712,791 247,005 1,655,207 580,912
DIVIDENDS AND ACCRETION ON
PREFERRED STOCK....................... -- 2,952 201,815 9,432
--------------- --------------- ---------------- -----------------
NET INCOME AVAILABLE FOR COMMON
SHARES................................ $ 712,791 $ 244,053 $ 1,453,392 $ 571,480
=============== =============== ================ =================
BASIC EARNINGS PER COMMON SHARE........... $ .23 $ .10 $ .61 $ .33
=============== =============== ================ =================
COMMON SHARES OUTSTANDING................. 3,065,499 2,426,086 2,387,326 1,712,500
=============== =============== ================ =================
DILUTED EARNINGS PER COMMON SHARE......... $ .23 $ .10 $ .56 $ .34
=============== =============== ================ =================
COMMON SHARES OUTSTANDING................. 3,065,499 2,426,086 2,962,056 1,712,500
=============== =============== ================ =================
</TABLE>
See notes to financial statements
5.
<PAGE> 6
RIVIERA TOOL COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
MAY 31,
------------------------------------------
1998 1997
----------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income........................................................... $ 1,655,207 $ 580,912
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization.................................... 890,850 1,069,560
Loss on sale of equipment........................................ 18,178 --
Amortization of deferred gain.................................... -- (46,161)
Deferred taxes................................................... 825,485 299,257
Bad debt expense................................................. -- 137,378
Preferred Stock Accretion........................................ -- 10,705
(Increase) decrease in assets:
Accounts receivable........................................... 2,019,955 561,362
Costs and estimated gross profit in
excess of billings on contracts in
process....................................................... (6,511,291) (873,904)
Inventory..................................................... 30,000 --
Perishable tooling............................................ 131,865 127,208
Prepaid expenses and other current assets..................... (105,916) (97,202)
Increase (decrease) in liabilities:
Accounts payable.............................................. (84,116) (1,782,738)
Accrued lease expense......................................... 28,036 35,046
Accrued liabilities........................................... (57,365) (162,066)
----------------- ------------------
Net cash provided by (used in)
operating activities...................................... (1,159,112) (415,399)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in other assets............................................. -- (10,753)
Proceeds from sale of machinery & equipment.......................... 1,092,847 --
Additions to property, plant and equipment........................... (3,769,133) (490,339)
----------------- ------------------
Net cash provided by (used in) investing
activity..................................................... (2,676,286) (501,092)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of) short-
term debt........................................................... -- (10,241,403)
Net proceeds from issuance of preferred stock........................ 8,000,000 --
Principal(payments)/proceeds from long-term debt..................... 105,448 5,933,211
Redemption of preferred stock........................................ -- (95,000)
Capitalized refinancing costs........................................ (1,067,942) 333,325
Net proceeds from issuance of common stock........................... -- 5,238,890
Repurchase and retirement of common stock............................ (3,000,000) --
Preferential stock dividend.......................................... -- (90,000)
Preferred stock dividends............................................ (202,168) --
----------------- ------------------
Net cash provided by (used in) financing
activities................................................... 3,835,398 1,078,923
----------------- ------------------
NET INCREASE IN CASH................................................... $ -- $ 162,432
CASH - Beginning of Period............................................. -- --
----------------- ------------------
CASH - End of Period................................................... $ -- $ 162,432
================= ==================
</TABLE>
See notes to financial statements
6.
<PAGE> 7
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 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 nine month periods ended May 31,
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
MAY 31, 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).
As of May 31, 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>
MAY 31, AUGUST 31,
1998 1997
------------------- ----------------
<S> <C> <C>
Costs incurred on contracts in process under the
percentage of completion method..................................... $ 14,598,768 $ 9,008,594
Estimated gross profit................................................. 425,000 1,325,000
------------------- ----------------
Total.......................................................... 15,023,768 10,333,594
Less progress payments received and progress
billings to date.................................................... 1,374,119 3,208,800
Plus costs incurred on contracts in process under
the completed contract method....................................... -- 13,564
------------------- ----------------
Costs and estimated gross profit in excess
of billings on contracts in process.......................... $ 13,649,649 $ 7,138,358
=================== ================
</TABLE>
Included in estimated gross profit for August 31, 1997 and May 31, 1998 are jobs
with losses accrued of $55,529 and $178,227, respectively.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1998 1997
------------------ ----------------
<S> <C> <C>
Lease and leasehold improvements................................................ $ 1,453,539 $ 1,560,668
Office furniture and fixtures................................................... 203,429 137,236
Machinery and equipment......................................................... 14,949,523 14,078,151
Computer equipment and software................................................. 1,257,314 1,243,048
Transportation equipment........................................................ 126,365 115,971
------------------ ----------------
Total cost................................................................. 17,990,170 17,135,074
Accumulated depreciation and amortization....................................... 6,551,913 7,494,744
------------------ ----------------
Net carrying amount........................................................ $ 11,438,257 $ 9,640,330
================== ================
Depreciation and amortization expense for the period............................ $ 890,850 $ 1,257,307
================== ================
</TABLE>
8.
<PAGE> 9
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31,1998
NOTE 5 - LONG-TERM DEBT
<TABLE>
<CAPTION>
MAY 31, 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 May 31, 1998 (an effective rate of 8.75% and 8.5%, respectively), due
January 1, 2000. 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..................................... $2,961,019 $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 May 31, 1998 (an
effective rate of 8.75% and 8.5%, respectively), due July 1, 2002............... 2,654,167 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 May 31, 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........................................................................... 2,342,655 --
---------- ----------
Total long-term debt....................................................... 7,957,841 7,852,393
Total current portion...................................................... 650,000 650,000
========== ==========
Long-term debt - Net....................................................... $7,307,841 $7,202,393
========== ==========
</TABLE>
As of August 31, 1997 and May 31, 1998, in connection with the lines of credit
and notes 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 May 31, 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 NINE MONTHS
ENDED MAY 31, ENDED MAY 31,
------------------------------ -------------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES........................................... 100.0% 100.0% 100.0% 100.0%
COST OF SALES................................... 73.2% 78.3% 74.1% 79.4%
------------ ----------- ----------- -----------
GROSS PROFIT............................. 26.8% 21.7% 25.9% 20.6%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE..... 8.0% 7.1% 8.7% 7.7%
------------ ----------- ----------- -----------
INCOME FROM OPERATIONS................... 18.9% 14.6% 17.1% 12.9%
OTHER INCOME (EXPENSE)
INTEREST EXPENSE.............................. (2.6%) (7.4%) (2.4%) (7.7%)
OTHER EXPENSE................................. -- -- (.6%) --
GAIN ON ASSET SALES........................... (.1%) .3% (.1%) .3%
------------ ----------- ----------- -----------
TOTAL OTHER EXPENSE - NET.............. (2.7%) (7.1%) (3.1%) (7.4%)
INCOME BEFORE TAXES ON INCOME................... 16.2% 7.5% 14.0% 5.5%
INCOME TAXES.................................... 5.8% 2.5% 5.1% 1.9%
------------ ----------- ----------- -----------
NET INCOME.......................... 10.4% 5.0% 8.9% 3.6%
============ =========== =========== ===========
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED MAY 31, 1998 TO THE THREE MONTHS ENDED MAY
31, 1997.
REVENUES - Revenues for the three months ended May 31, 1998 totaled $6.9 million
as compared to $5.0 million for the three months ended May 31, 1997, an increase
of $1.9 million or 38%. 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 available financing sources to accept
additional contracts and increase revenues.
With respect to the current General Motors Corporation strike, a number of auto
parts and systems suppliers have felt the impact of such strike on their
current operations. However, given that Riviera has a diverse customer base
and is involved in long-term product development, it is management's belief
that the strike will not have a short-term or long-term material effect on the
Company.
COST OF SALES - Cost of sales increased from $3.9 million for the three months
ended May 31, 1997 to $5.0 million for the three months ended May 31, 1998. As a
percent of revenue, cost of sales for the three months ended May 31, 1998 was
73.2% compared to 78.3% for the three months ended May 31, 1997.
The improved gross margin, 26.8% for the third quarter of 1988 as compared to
21.7% for the comparable period of 1997, was largely due to the increase of
revenue of $1.9 million while cost of sales increased by only $1.1 million. The
increases in the cost of goods sold were largely in the Company's direct
material expense ($624,000), direct labor expense ($95,000), outside purchased
10.
<PAGE> 11
services ($313,000), engineering expense ($34,000) and manufacturing overhead
($50,000).
The increase in direct material expense was a result of the increase in new
contracts received in 1998 and the stage of the Company's work-in-process. The
work-in-process during the third quarter of 1998 was in an earlier process where
the Company typically expends larger amounts of direct materials and incurs less
value-added processes. As a percent of revenue, direct materials increased
during the third quarter of 1998 to 17.8% from 12.0% for the third quarter of
1997.
The increase in direct labor expense was a result of higher shop floor
manufacturing hours during the third quarter of 1998 as compared to 1997.
However, as a percent of revenue, direct labor expense decreased during the
third quarter of 1998 to 20.5% from 26.3% for the third quarter of 1997.
The increase in outside purchased services was a result of the increase in the
amount of outsourcing requirements during the quarter. 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 and less outsourcing will be required. As a
percent of revenue, outside services expense increased during the third quarter
of 1998 to 8.8% from 5.8% for the third quarter of 1997.
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. However, as a percent of revenue, engineering expense
decreased during the third quarter of 1998 to 6.2% from 7.8% for the third
quarter of 1997.
The increase in manufacturing overhead was largely due to the increase in
manufacturing supplies and indirect labor. However, as a percent of revenue,
manufacturing overhead expense decreased during the third quarter of 1998 to
19.9% from 26.3% for the third quarter of 1997.
S,G & A EXPENSES - Selling, general and administrative expenses increased from
approximately $355,000 for the three months ended May 31, 1997 to approximately
$549,000 for the three months ended May 31, 1998. This increase was largely due
to an increase in public company costs ($31,000), legal and professional expense
($26,000), insurance expense ($15,000), 401(k) Company match expense ($37,000)
and selling expenses ($62,000). As a percentage of revenue, selling, general and
administrative expenses were 8.0% for the three months ended May 31, 1998 as
compared to 7.1% for the three months ended May 31, 1997.
The increase in public company costs was due to the increase in related costs
and activities of being a public entity, as compared to the third quarter of
1997 when the Company had just gone public. As a percent of revenue, public
company expense increased during the third quarter of 1998 to .64% from .25% for
the third quarter of 1997.
The increase in insurance expense was due to the Company purchasing a
Directors and officers liabilities insurance policy subsequent to the third
quarter of 1997.
The increase in the 401(k) Company match expense was due to the fact that during
the third quarter of 1997 the Company received 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 invested. 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
11.
<PAGE> 12
contribution. As a percent of revenue, 401(k) matching contribution expense
increased during the third quarter of 1998 to .3% as compared to (.3%) for the
third quarter of 1997.
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. As a percent of revenue, sales expense increased during the
third quarter of 1998 to 1.1% from .2% for the third quarter of 1997.
INTEREST EXPENSE -- Interest expense for the three months ended May 31, 1998 was
approximately $182,000, as compared to approximately $210,000 for the three
months ended May 31, 1997. As a percentage of revenue, interest expense
decreased from 4.2% for the three months ended May 31, 1997 to 2.6% for the
three months ended May 31, 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. In the fourth 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 one percent to prime plus one quarter percent.
As of September 1, 1997, the Company's interest rate was lowered further to
prime rate (an effective rate of 8.5%).
Subsequent to the third quarter of 1998, the Company's credit facilities
borrowing rate was reduced further to prime less one-quarter percent or a
Libor plus 2.25% option in minimum increments of $500,000 for 30/60/90 days
(as of June 11, 1998, the Libor rate for 30 days was 5.6563%, 60 days was
5.6836% and 90 days was 5.6875%).
COMPARISON OF THE NINE MONTHS ENDED MAY 31, 1998 TO THE NINE MONTHS ENDED MAY
31, 1997
REVENUES -- Revenues for the nine months ended May 31, 1998 totaled $18.4
million as compared to $15.9 million for the nine months ended May 31, 1997, an
increase of $2.5 million or 16%. This revenue increase was due to the Company's
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 available financing sources to accept
additional contracts and increase revenues.
With respect to the current General Motors Corporation strike, a number of auto
parts and systems suppliers have felt the impact of such strike on their
current operations. However, given that Riviera has a diverse customer base
and is involved in long-term product development, it is management's belief
that the strike will not have a short-term or long-term material effect on the
Company.
COST OF SALES -- Cost of sales increased from $12.6 million for the nine months
ended May 31, 1997 to $13.6 million for the nine months ended May 31, 1998. As a
percent of revenue, cost of sales for the nine months ended May 31, 1997 was
79.4% compared to 74.1% for the nine months ended May 31, 1998.
The improved gross margin, 25.9% for the nine months ended May 31, 1998 as
compared to 20.6% for the comparable period of 1997, was largely due to the
increase of revenue of $2.5 million while increasing cost of sales by only $1.0
million. The increases in cost of sales was largely due to increases in the
Company's direct material expense ($407,000), direct labor expense ($55,000),
outside purchased services ($728,000) and engineering expense ($75,000). For the
nine months of 1998, manufacturing overhead decreased by $226,000 as compared
the same period last year.
The increase in direct material expense was a result of higher sales levels
during the nine months ended May 31, 1998 as compared to the same period last
year. However, as a percent of revenue, direct material expense was consistent
at 15.8%.
12.
<PAGE> 13
The increase in direct labor expense was a result of the Company utilizing less
overtime hours while increasing straight time hours capacity. However, as a
percentage of revenue, direct labor expense decreased from 23.9% for the nine
months ended May 31, 1997 to 20.9% for the nine months ended May 31, 1998.
The increase in outside purchased services was a result of the increase in the
amount of outsourcing requirements. 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. However, as a percentage of revenue, engineering expense
decreased from 7.3% for the nine months ended May 31, 1997 to 6.7% for the nine
months ended May 31, 1998.
The manufacturing overhead decrease was largely due to lower perishable tooling
expense ($95,000), depreciation expense ($47,000), equipment rental expense
($39,000), utilities expense ($30,000) and truck lease expense ($22,000). As a
percentage of revenue, manufacturing overhead expense decreased from 26.6% for
the nine months ended May 31, 1997 to 21.7% for the nine months ended May 31,
1998.
S,G & A EXPENSES -- Selling, general and administrative expenses increased from
approximately $1.2 million for the nine months ended May 31, 1997 to
approximately $1.6 million for the nine months ended May 31, 1998. However, as a
percentage of revenue, selling, general and administrative expenses were 7.7%
for the nine months ended May 31, 1997 as compared to 8.7% for the nine months
ended May 31,1998.The increase in General and Administrative expense was due to
increases in public company costs ($114,000), directors and officers liabilities
insurance expense ($72,000) and sales expense ($146,000).
The increase in public company expense was due to the Company being public for
all nine months ended May 31, 1998, as compared to the nine months ended May 31,
1997, when the Company was public for only three months. As a percentage of
revenue, public company expense increased from .2% for the three months ended
May 31, 1997 to .8% for the three months ended May 31, 1998.
The increase in directors and officers liabilities insurance expense was due to
the Company purchasing an insurance policy subsequent to the third quarter of
1997.
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. As a percentage of revenue, selling expense
increased from .5% for the three months ended May 31, 1997 to 1.2% for the three
months ended May 31, 1998.
INTEREST EXPENSE -- Interest expense for the nine months ended May 31, 1998 was
approximately $444,000, as compared to approximately $1,221,000 for the nine
months ended May 31, 1997. As a percentage of revenue, interest expense
decreased from 6.6% for the nine months ended May 31, 1997 to 2.4% for the nine
months ended May 31, 1998.
The decrease in interest expense was a result of the Company's refinancing
efforts and additional equity funding which resulted in lower debt levels.
Additionally, during the nine months ended May 31, 1997, the Company's borrowing
rates were prime plus four percent during the first and second
13.
<PAGE> 14
quarter and prime plus one percent during the third quarter. As a result of the
Company's refinancing activities, the Company's borrowing rate was prime rate
during the nine months ended May 31, 1998 which resulted in lower interest
expense.
Subsequent to the third quarter of 1998, the Company's credit facilities
borrowing rate was reduced further to prime less one-quarter percent or a
Libor plus 2.25% option in minimum increments of $500,000 for 30/60/90 days
(as of June 11, 1998, the Libor rate for 30 days was 5.6563%, 60 days was
5.6836% and 90 days was 5.6875%).
OTHER EXPENSE -- Other expense for the nine months ended May 31,1998 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-recurring charge.
DIVIDENDS -- Dividend expense for the nine months ended May 31, 1998 was
approximately $201,800 as compared to approximately $9,432 for the nine months
ended May 31, 1997. As a percentage of revenue, dividend expense increased from
.1% for the nine months ended May 31, 1997 as compared to 1.1% for the nine
months ended May 31, 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 dividend expense was incurred subsequent to February 11,
1998.
FEDERAL INCOME TAXES
The effective federal income tax rate was 36% for the nine months ended May 31,
1998, as compared to 34% for the nine months ended May 31, 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 nine months ended May 31, 1998, the Company's cash used in operating
activities was $1,159,112. The capital used in operating activities was
primarily due to decreases in the Company's Accounts Receivable of $2,119,955,
and Perishable Tooling inventory of $131,865 and increases in Deferred Taxes of
$825,485 and Work-in-Process of $6,511,291.
From Investing Activities, during the first three quarters of 1998, the Company
acquired additional machinery and equipment of $3,769,133 and had disposal
proceeds of $1,092,847. Equipment acquisitions include four 1,000 ton stamping
presses for $2.1 million, $1.2 million of machinery and equipment and $434,000
of computer and office equipment.
From Financing Activities, the Company was provided $3,835,398 during the nine
months ended May 31, 1998. In the same period, the Company reduced its
revolving line of credit by $1.7 million, drew $2.3 million on its equipment
line of credit to finance its acquisition of machinery and equipment and paid
$487,500 of principal on its existing equipment term note payable. The Company
also received proceeds from issuance of 80,000 shares of 8%
14.
<PAGE> 15
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 three
quarters 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 dividend expense was incurred
subsequent to February 11, 1998.
15.
<PAGE> 16
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: July 7, 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)
16.
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
17.
<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 THIRD QUARTER ENDED MAY 31,
1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,795,588
<ALLOWANCES> 0
<INVENTORY> 14,088,389
<CURRENT-ASSETS> 17,330,012
<PP&E> 17,990,170
<DEPRECIATION> 6,551,913
<TOTAL-ASSETS> 29,293,600
<CURRENT-LIABILITIES> 2,384,686
<BONDS> 7,307,841
0
0
<COMMON> 13,471,937
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,293,600
<SALES> 18,418,140
<TOTAL-REVENUES> 18,418,140
<CGS> 13,650,235
<TOTAL-COSTS> 13,650,235
<OTHER-EXPENSES> 1,611,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 443,565
<INCOME-PRETAX> 2,858,692
<INCOME-TAX> 930,485
<INCOME-CONTINUING> 1,655,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,655,207
<EPS-PRIMARY> .61
<EPS-DILUTED> .56
</TABLE>
