<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, 1999
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 29, 1999 was 3,317,744.
1.
<PAGE> 2
PART I
FINANCIAL INFORMATION
INDEX
Page No.
Item 1. Financial Statements
Balance Sheets as of February 28, 1999 and August 31, 1998........ 3
Statements of Operations for the Three Months and Six Months
Ended February 28, 1999 and 1998.................................. 4
Statements of Cash Flows for the Six Months Ended February 28,
1999 and 1998..................................................... 5
Notes to Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk - None --
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 - None
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
2.
<PAGE> 3
RIVIERA TOOL COMPANY
FINANCIAL STATEMENTS
BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
ASSETS 1999 1998
----------- -----------
CURRENT ASSETS NOTE (UNAUDITED) (AUDITED)
---- ----------- -----------
<S> <C> <C> <C>
Cash................................................................ $ -- $ 4,206
Accounts Receivable................................................. 3,740,818 1,609,272
Costs and estimated gross profit in excess
of billings on contracts in process............................... 2 13,101,341 11,299,961
Inventories......................................................... 330,566 405,566
Prepaid expenses and other current assets........................... 302,898 172,054
----------- -----------
Total current assets...................................... 17,475,623 13,491,059
PROPERTY, PLANT AND EQUIPMENT, NET.................................... 3 17,457,491 13,237,501
PERISHABLE TOOLING.................................................... 696,576 743,966
OTHER ASSETS.......................................................... 223,885 223,869
----------- -----------
Total assets.............................................. $35,853,575 $27,696,395
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt................................... 4 $ 1,316,672 $ 876,555
Accounts payable.................................................... 4,019,153 1,113,113
Accrued liabilities................................................. 249,000 204,682
----------- -----------
Total Current liabilities................................. 5,584,825 2,194,350
LONG-TERM DEBT........................................................ 4 11,111,126 8,196,641
ACCRUED LEASE EXPENSE................................................. 657,057 643,040
DEFERRED TAX LIABILITY................................................ 1,405,579 780,376
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...................................... -- --
Common stock - No par value:
Authorized - 9,785,575 shares 1 1
Issued and outstanding - 3,317,744 shares at
February 28, 1999 and 3,065,499 shares at
August 31, 1998.................................................... 14,512,185 13,496,937
Retained earnings................................................... 1 2,582,803 2,385,051
----------- -----------
Total stockholders' equity ............................... 17,094,988 15,881,988
----------- -----------
Total liabilities and
stockholders' equity ..................................... $35,853,575 $27,696,395
=========== ===========
</TABLE>
See notes to financial statements
3.
<PAGE> 4
RIVIERA TOOL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
----------------------------- ---------------------------------
1999 1998 1999 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
SALES ................................. $ 5,071,088 $ 6,095,638 $ 10,628,084 $ 11,539,443
COST OF SALES ......................... 3,439,293 4,433,736 7,655,161 8,617,806
------------ ------------ ------------ ------------
GROSS PROFIT .................... 1,631,795 1,661,902 2,972,923 2,921,637
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ........... 551,034 558,958 986,318 1,062,700
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS .......... 1,080,761 1,102,944 1,986,605 1,858,937
OTHER INCOME (EXPENSE)
Interest expense ................... (109,424) (129,560) (232,402) (261,390)
Other expense ...................... -- (110,686) -- (109,192)
Gain (Loss) on asset sales ......... 4,872 (40,900) 6,442 (18,634)
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSE - NET ....... (104,552) (281,146) (225,960) (389,216)
INCOME BEFORE TAXES ON INCOME ......... 976,209 821,798 1,760,645 1,469,721
INCOME TAXES .......................... 280,937 295,849 547,645 528,735
------------ ------------ ------------ ------------
NET INCOME ............... 695,272 525,949 1,213,000 940,986
DIVIDENDS AND ACCRETION ON
PREFERRED STOCK ................... -- 117,736 -- 201,815
------------ ------------ ------------ ------------
NET INCOME AVAILABLE FOR COMMON
SHARES ............................ $ 695,272 $ 408,213 $ 1,213,000 $ 739,171
============ ============ ============ ============
BASIC EARNINGS PER COMMON SHARE ....... $ .21 $ .18 $ .37 $ .32
============ ============ ============ ============
BASIC COMMON SHARES OUTSTANDING ....... 3,317,744 2,269,331 3,317,744 2,294,565
============ ============ ============ ============
DILUTED EARNINGS PER COMMON SHARE ..... $ .21 $ .16 $ .37 $ .30
============ ============ ============ ============
DILUTED COMMON SHARES OUTSTANDING ..... 3,317,744 3,317,744 3,317,744 3,161,668
============ ============ ============ ============
</TABLE>
See notes to financial statements
4.
<PAGE> 5
RIVIERA TOOL COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FEBRUARY 28,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................... $ 1,213,000 $ 940,986
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization .............. 519,977 574,445
Loss (Gain) on sale of equipment ........... -- 18,634
Deferred taxes ............................. 625,203 528,735
(Increase) decrease in assets:
Accounts receivable ..................... (2,131,546) 473,095
Costs and estimated gross profit in
excess of billings on contracts in
process ................................. (1,801,380) (3,490,738)
Perishable tooling ...................... 47,390 105,135
Prepaid expenses and other current assets (130,844) (55,103)
Increase (decrease) in liabilities:
Accounts payable ........................ 2,906,040 51,332
Accrued lease expense ................... 44,318 18,690
Accrued liabilities ..................... 14,017 (229,582)
----------- -----------
Net Cash Provided by (Used in)
operating activities ..................... $ 1,306,175 $(1,064,371)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of machinery & equipment .... -- 1,092,390
Additions to property, plant and equipment ..... (4,664,983) (3,176,723)
----------- -----------
Net cash used in investing activity ...... $(4,664,983) $(2,084,333)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of preferred stock .. -- 8,000,000
Principal(payments)/proceeds from long-term
debt.......................................... 3,354,602 (517,583)
Capitalized refinancing costs .................. -- (1,131,607)
Repurchase and retirement of common stock ...... -- (3,000,000)
Preferred stock dividends ...................... -- (202,106)
----------- -----------
Net cash provided by financing
activities ............................. $ 3,354,602 $ 3,148,704
----------- -----------
NET INCREASE IN CASH ............................. $ (4,206) $ --
----------- -----------
CASH - Beginning of Period ....................... 4,206 --
----------- -----------
CASH - End of Period ............................. $ -- $ --
=========== ===========
</TABLE>
See notes to financial statements
5.
<PAGE> 6
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
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 30, 1998, for the fiscal year ended August 31, 1998.
The results of operations for the three and six month periods ended February 28,
1999 are not indicative of the results to be expected for the full year.
On November 2, 1998, the Company's Board of Directors declared a five percent
common stock dividend, payable on December 18, 1998 to all shareholders of
record on November 17, 1998. On December 18, 1998, 153,245 common shares were
issued as a stock dividend. On November 2, 1999, the Company's Board of
Directors granted stock options for 45,000 shares under the 1996 Incentive Stock
Option Plan, as amended, and 54,000 shares under the 1998 Key Employee Stock
Option Plan, subject to shareholder approval of the 1998 Key Employee Stock
Option Plan. On December 16, 1998, the Company's shareholders approved the 1998
Key Employee Stock Option Plan. In accordance with Generally Accepted Accounting
Principles, such shares are included in shares outstanding as of February 28,
1999 and February 28, 1998. The earnings per share and shares outstanding
amounts for the three months and six months ended February 28, 1998 are adjusted
accordingly.
NOTE 2 - COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1999 1998
---------------- -------------
<S> <C> <C>
Costs incurred on contracts in process under the
percentage of completion method .............. $ 14,254,686 $ 14,949,213
Estimated gross profit .......................... 3,200,000 1,450,000
---------------- -------------
Total ................................... 17,454,686 16,399,213
Less progress payments received and progress
billings to date .............................. 4,353,345 5,099,252
Plus costs incurred on contracts in process under
the completed contract method ................. -- --
================ =============
Costs and estimated gross profit in excess
of billings on contracts in process .......... $ 13,101,341 $ 11,299,961
================ =============
</TABLE>
Included in estimated gross profit for August 31, 1998 and February 28, 1999 are
jobs with losses accrued of $309,565 and $90,295, respectively.
6.
<PAGE> 7
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1999 1998
------------ ------------
<S> <C> <C>
Lease and leasehold improvements .......................... $ 1,599,593 $ 1,453,539
Office furniture and fixtures ............................. 203,514 203,514
Machinery and equipment ................................... 11,923,274 11,594,436
Construction in Process ................................... 9,535,022 5,283,903
Computer equipment and software ........................... 1,457,186 1,518,214
Transportation equipment .................................. 126,365 126,365
------------ ------------
Total cost ........................................... 24,844,954 20,179,971
Accumulated depreciation and amortization ................. 7,387,463 6,942,470
------------ ------------
Net carrying amount .................................. $ 17,457,491 $ 13,237,501
============ ============
</TABLE>
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
LONG-TERM DEBT 1999 1998
- -------------- ----------- -----------
<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% below the bank's prime rate at August 31, 1998 and February 28,
1999 (an effective rate of 8.25% and 7.5%, respectively), due April 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 .......................................................... $ 6,316,688 $ 3,862,874
Note payable to bank, collateralized by substantially all assets of the
Company, payable in monthly installments of $54,166.67 plus interest of .25%
below the bank's prime rate at August 31, 1998 and February 28, 1999 (an
effective rate of 8.25% and 7.5%, respectively), due June, 2002. The Agreement
is subject to certain loan covenants discussed below............................ 2,166,666 2,491,667
Note payable to bank, collateralized by specific assets of the Company, payable
in monthly installments of $55,556 plus interest of 7.26%, due December, 2003
The Agreement is subject to certain loan covenants discussed below.............. 3,944,444 2,718,655
----------- -----------
Total long-term debt ...................................................... 12,427,798 9,073,196
Total current portion ..................................................... 1,316,672 876,555
----------- -----------
Long-term debt - Net ...................................................... $11,111,126 $ 8,196,641
=========== ===========
</TABLE>
As of August 31, 1998 and February 28, 1999, in connection with the line 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
7.
<PAGE> 8
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE 4 - LONG-TERM DEBT - CONTINUED
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, 1998 and February 28, 1999, with all of these
covenants.
-------------------------------------------
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
ENDED MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
-------------------- ------------------
1999 1998 1999 1998
------ -------- ------ ------
<S> <C> <C> <C> <C>
SALES ........................................... 100.0% 100.0% 100.0% 100.0%
COST OF SALES ................................... 67.8% 72.7% 72.0% 74.7%
------ ------ ------ ------
GROSS PROFIT ....................... 32.2% 27.3% 28.0% 25.3%
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE ......................................... 10.9% 9.2% 9.3% 9.2%
------ ------ ------ ------
INCOME FROM OPERATIONS ............ 21.3% 18.1% 18.7% 16.1%
OTHER INCOME (EXPENSE)
INTEREST EXPENSE .............................. (2.2%) (2.1%) (2.2%) (2.3%)
GAIN ON ASSET SALES ........................... .1% (2.5%) .1% (1.1%)
------ ------ ------ ------
TOTAL OTHER EXPENSE - NET .............. (2.1%) (4.6%) (2.1%) (3.4%)
INCOME BEFORE TAXES ON INCOME ................... 19.3% 13.5% 16.6% 12.7%
INCOME TAXES .................................... 5.7% 4.9% 5.2% 4.6%
------ ------ ------ ------
NET INCOME .......................... 13.6% 8.6% 11.4% 8.1%
====== ====== ====== ======
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 1999 TO THE THREE MONTHS ENDED
FEBRUARY 28, 1998.
REVENUES - Revenues for the three months ended February 28, 1999 totaled $5.1
million as compared to $6.1 million for the three months ended February 28,
1998, a decrease of $1.0 million or 17%. Under the Company's percentage of
completion method of recording contracts in process, revenue is recognized as
costs are incurred on such contracts. As a result of the Company experiencing
less direct material expense, outside machining expense and direct labor expense
on contracts in process during the second quarter of 1999, the Company recorded
lower revenue as compared to the comparable quarter in 1998, however these lower
costs should improve margins of such contracts.
8.
<PAGE> 9
COST OF SALES - Cost of sales was $3.4 million for the three months ended
February 28, 1999 as compared 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, 1999 was 67.8% as compared to 72.7% for the three months
ended February 28, 1998. The improved gross margin was largely due to a decrease
in the Company's direct costs expense (a decrease of $1.2 million or 14.5% of
sales) and an increase in manufacturing overhead expense (an increase of
$192,000 or 8.1% of sales).
The decrease in direct costs expense was largely due to a decrease in direct
materials and outside services expense. The decrease from $1,442,000 or 23.7% of
sales for the three months ended February 28, 1998 to $706,000 or 13.9% of sales
for the three months ended February 28, 1999. This decrease was largely a result
of the Company upgrading its machining capability during fiscal 1998 for the
purpose of reducing the future expense of outsource machining. During fiscal
1998, the Company had reduced it's existing machining capacity in that certain
machining centers were taken out-of-service during these upgrades. As a result,
it temporarily reduced the Company's machining capacity and the Company was
required to outsource more of its machining. Those machining centers taken
out-of-service during fiscal 1998, were in-service during the first six months
of 1999 and reduced outsource machining expense from $310,000 for the three
months ended February 28, 1998 to $39,000 for the three months ended February
28, 1999. Direct labor expense was $831,000 or 16.4% of sales for the three
months ended February 28, 1999 as compared to $1,289,000 or 21.1% of sales for
the three months ended February 28, 1998. Direct materials expense decreased
from $952,000 for the three months ended February 28, 1998 to $436,000 for the
three months ended February 28, 1999.
Manufacturing overhead expense increased from $1,299,000 or 21.3% of sales for
thee three months ended February 28, 1998 to $1,491,000 or 29.4% of sales for
the three months ended February 28, 1999. The largest increase in the first
three months of 1999 as compared to 1998 was the increase of $97,000 in
depreciation expense. This increase in depreciation expense was due to the
Company's capital expansion program, which resulted in a $4.7 million increase
in property, plant and equipment as of February 28, 1999 as compared to February
28, 1998. Other manufacturing overhead expense increases include; a $19,000
increase in indirect labor, a $14,000 increase in manufacturing supplies, a
$33,000 increase in property tax expense, a $43,000 increase in health insurance
expense, and a $15,000 decrease in perishable tooling expense. Decreases in
manufacturing overhead expense for the three months ended February 28, 1999, as
compared to the comparable period for 1998, include; a $16,000 decrease in
payroll tax expense and a $4,000 decrease in maintenance supplies expense.
S,G & A EXPENSES - Selling, general and administrative expenses remained
consistent at $.5 million for the three months ended February 28, 1999 and
February 29, 1998. General and administrative expense increases include; an
increase of $72,000 in public company costs and an increase of $21,000 in
deferred compensation/401(k) expense. Decreases in general and administrative
expenses include; a decrease of $33,000 in wages, a decrease of $71,000 in legal
and professional fees, a decrease of $5,000 in supplies and computer
maintenance, a $5,000 decrease in lease expense and a $31,000 decrease in the
Michigan Single Business Tax. As a percentage of sales, general and
administrative expenses were 8.3% for the three months ended February 28, 1999
as compared to 8.0% for the three months ended February 28, 1998.
Selling expense increased from approximately $74,000 for the three months ended
February 28, 1998 to approximately $129,000 for the three months ended February
28, 1999. Increase in sales expense include a $60,000 increase in salaries and
wages and a $4,000 increase in related payroll taxes. Decreases
9.
<PAGE> 10
in sales expense include a $6,000 decrease in commissions expense and travel
related expenses of $2,000.
INTEREST EXPENSE - Interest expense for the three months ended February 28, 1999
was approximately $109,000 as compared to approximately $130,000 for the three
months ended February 28, 1998. As a percentage of sales, interest expense
increased from 2.1% for the three months ended February 28, 1998 to 2.2% for the
three months ended February 28, 1999.
The decrease in interest expense was a result of the Company's lower interest
rates from prime rate during the three months ended February 28, 1998 to one
quarter below prime rate for the three months ended February 28, 1999. During
the second quarter ended February 28, 1999, the Company capitalized
approximately $153,000 of interest on its construction in process. As of
February 28, 1999, the Company had approximately $9.5 million of construction in
process. Lastly, debt levels as of February 28, 1999 were higher than as of
February 28, 1998 by $3.8 million. The increase in debt was a result of higher
work-in-process balances and related working capital line financing as well as
term financing incurred to support the Company's construction in process.
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 1999 TO THE SIX MONTHS ENDED
FEBRUARY 28, 1998
REVENUES -- Revenues for the six months ended February 28, 1999 totaled $10.6
million as compared to $11.5 million for the six months ended February 28, 1998,
a decrease of $.9 million or 8%. Under the Company's percentage of completion
method of recording contracts in process, revenue is recognized as costs are
incurred on such contracts. As a result of the Company experiencing less direct
material expense, outside machining expense and direct labor expense on
contracts in process during the first and second quarters of 1999, the Company
recorded lower revenue as compared to the comparable quarters in 1998, however
these lower costs should improve margins of such contracts.
COST OF SALES -- Cost of sales decreased from $8.7 million for the six months
ended February 28, 1998 to $7.7 million for the six months ended February 28,
1999. As a percent of revenue, cost of sales for the six months ended February
28, 1998 was 74.7% compared to 72.0% for the six months ended February 28, 1999.
The improved gross margin was largely due to decreases in the Company's direct
cost expense of $1,297,000 and engineering expenses of $10,000, whereas
manufacturing overhead expenses increased by $344,000.
The decrease in direct cost expense was largely due to a decrease in direct
materials and outside services expense. Outside service expense decreased from
$1,045,000 for the six months ended February 28, 1998 to $481,000 for the six
months ended February 28, 1999. This decrease was largely a result of the
Company upgrading its machining capability during fiscal 1998 for the purpose of
reducing the future expense of outsource machining. During fiscal 1998, the
Company had reduced its' existing machining capacity in that certain machining
centers were taken out-of-service during these upgrades. As a result, it
temporarily reduced the Company's machining capacity and the Company was
required to outsource more of its machining. Those machining centers taken
out-of-service during fiscal 1998, were in-service during the first six months
of 1999 and reduced outsource machining expense from $618,000 for the six months
ended February 28, 1998 to $71,000 for the six months ended February 28, 1999.
Direct labor expense was $1,900,000 or 17.9% of sales for the six months ended
February 28, 1999 as compared to $2,400,000 or 21.1% of sales for the six months
ended February 28, 1998. Direct materials expense decreased from $1,701,000 for
the six months ended February 28, 1998 to $1,701,000 for the six months ended
February 28, 1999.
Manufacturing overhead expense increased from $2,626,000 or 22.8% of sales for
the six months ended February 28, 1998 to $2,971,000 or 27.9% of sales for the
six months ended February 28, 1999. The largest increase in the first six
10.
<PAGE> 11
months of 1999 as compared to 1998 was the increase of $195,000 in depreciation
expense. This increase in depreciation expense was due to the Company's capital
expansion program, which resulted in a $4.7 million increase in property, plant
and equipment as of February 28, 1999 as compared to February 28, 1998. Other
manufacturing overhead expense increases include; a $36,000 increase in indirect
labor, a $71,000 increase in manufacturing supplies, a $33,000 increase in
property tax expense, a $6,000 increase in health insurance expense, a $14,000
increase in payroll taxes, a $10,000 increase in holiday pay, a $5,000 increase
in employee welfare and a $11,000 increase in perishable tooling expense.
Decreases in manufacturing overhead expense for the six months ended February
28, 1999, as compared to the comparable period for 1998, include; a $16,000
decrease in equipment lease expense, a $28,000 decrease in repairs and
maintenance on building and equipment, a $3,000 decrease in maintenance supplies
and a $4,000 decrease in truck expense.
S,G & A EXPENSES -- Selling, general and administrative expenses decreased from
approximately $1,063,000 for the six months ended February 28, 1998 to
approximately $986,000 for the six months ended February 28, 1999. As a
percentage of revenue, selling, general and administrative expenses were 9.2%
for the six months ended February 28, 1998 as compared to 9.3% for the six
months ended February 28,1999.
Increases in general and administrative expenses during the six months ended
February 28, 1999, include; $23,000 in public company costs, $15,000 in director
fees and expenses, $5,000 in directors and officers liabilities insurance
expense, $64,000 in deferred compensation/401(k) expense, $4,000 in depreciation
expense, $4,000 in telephone expense, $4,000 in office repairs and maintenance
expense and $16,000 in miscellaneous expenses. Decreases in general and
administrative expenses include; $34,000 in salaries and wages, $129,000 in
legal and professional expenses, $20,000 in amortization expense, $36,000 in
Michigan Single Business Tax, $9,000 in lease expenses and $4,000 in training
expenses.
Selling expenses increased as compared to the same period last year largely as a
result of the increase in sales personnel and related salaries.
INTEREST EXPENSE -- Interest expense for the six months ended February 28, 1999
was approximately $232,000 as compared to approximately $261,000 for the six
months ended February 28, 1998. As a percentage of revenue, interest expense
decreased from 2.3% for the six months ended February 28, 1998 as compared to
2.2% for the six months ended February 28, 1999.
The decrease in interest expense was a result of the Company's lower interest
rates from prime rate during the six months ended February 28, 1998 to one
quarter below prime rate for the six months ended February 28, 1999. During the
first and second quarter ended February 28, 1999, the Company capitalized
approximately $274,000 of interest on its construction in process. As of
February 28, 1999, the Company had approximately $9.5 million of construction in
process. Lastly, debt levels as of February 28, 1999 were higher than as of
February 28, 1998 by $3.8 million. The increase in debt was a result of higher
work-in-process balances and related working capital line financing as well as
term financing incurred to support the Company's construction in process.
DIVIDEND EXPENSE -- Dividend expense for the six months ended February 28, 1998
was approximately $201,800. 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.
11.
<PAGE> 12
FEDERAL INCOME TAXES
The effective federal income tax rate was 31% and 36% for the six months ended
February 28, 1999 and February 28, 1998, respectively. As of August 31, 1998,
the Company had approximately $988,000 of net operating loss carryforwards that
expire 2010 through 2017, investment tax credit carryforwards of approximately
$172,000 that expire 1999 through 2003 and alternative minimum tax credits of
approximately $250,000, the use of which do not expire.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended February 28, 1999, the Company's cash from operating
activities was $1,306,175. The capital used in operating activities was
primarily due to increases in the Company's Accounts Receivable of $2,131,546
and Work-in-Process of $1,801,379 and an increase in accounts payable of
$2,906,040.
From Investing Activities, the Company acquired additional machinery and
equipment of $4,664,983.
From Financing Activities, the Company was provided from financing activities a
total of $3,354,602 during the six months ended February 28, 1999. During this
period, the Company increased its revolving line of credit by $2,453,814 in
order to finance the increases in the Company's work-in-process and accounts
receivable. The Company drew $1,225,789 on its equipment line of credit to
finance its acquisition of machinery and equipment. On January 1, 1999 the
Company termed out its $4.0 million Equipment Line of Credit. Under such terms,
monthly payments of $55,556 plus interest of 7.26%, due December 31, 2003 and
collateralized by specific assets of the Company.
YEAR 2000 COMPLIANCE STATEMENT
The Company has reviewed its computer technology in order to ensure year 2000
compliance. The Company primarily utilizes computer technology in its CAD
design, Numerically Controlled programming and its manufacturing information
systems.
The Company has recently replaced and upgraded both its CAD design and
Numerically Controlled programming computer systems. Although both these systems
are not date sensitive, these new systems are year 2000 compliant. The
manufacturing information systems utilize computer software which can be
upgraded to eliminate any timing issues. In addition, the cost of such upgrades
are covered under maintenance contracts with the respective software vendors.
Management believes any other associated costs of such upgrades would be
insignificant. All of the Company's computer hardware equipment appears to be
able to integrate any software upgrades necessary in order to be year 2000
compliant. Moreover, the Company continues to review for any year 2000
compliance issues that customers or suppliers may encounter with their own
systems. Management believes that any customer or supplier year 2000 issues will
not be relevant to the Company's operations or to its interaction with such
persons.
12.
<PAGE> 13
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: April 12, 1999
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)
13.
<PAGE> 14
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, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,740,818
<ALLOWANCES> 0
<INVENTORY> 13,431,907
<CURRENT-ASSETS> 17,475,623
<PP&E> 24,844,954
<DEPRECIATION> 7,387,463
<TOTAL-ASSETS> 35,853,575
<CURRENT-LIABILITIES> 5,584,825
<BONDS> 11,111,126
0
0
<COMMON> 14,512,185
<OTHER-SE> 2,582,803
<TOTAL-LIABILITY-AND-EQUITY> 35,853,575
<SALES> 10,628,084
<TOTAL-REVENUES> 10,628,084
<CGS> 7,655,161
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 979,876
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 232,402
<INCOME-PRETAX> 1,760,645
<INCOME-TAX> 547,645
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,213,000
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
