<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, 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 July 14, 1999 was 3,317,744.
1.
<PAGE> 2
PART I
FINANCIAL INFORMATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Item 1. Financial Statements
Balance Sheets as of May 31, 1999 and August 31, 1998............................................. 3
Statements of Operations for the Three Months and Nine Months
Ended May 31, 1999 and 1998....................................................................... 4
Statements of Cash Flows for the Nine Months Ended May 31, 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................................. -
</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 - 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 - Reported on Form 8-K, Item 4(a). Changes
in Registrant's Certifying Accountant, filed April 28, 1999.
Reports on Form 8-K - Reported on Form 8-K, Item 4(b); changes
in Registrant's Certifying Accountant, filed July 14, 1999.
2.
<PAGE> 3
RIVIERA TOOL COMPANY
FINANCIAL STATEMENTS
BALANCE SHEET
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
ASSETS 1999 1998
------ ---------------- ----------------
CURRENT ASSETS NOTE (UNAUDITED) (AUDITED)
- -------------- ---- ---------------- ----------------
<S> <C> <C> <C>
Cash................................................................. $ -- $ 4,206
Accounts Receivable.................................................. 6,640,471 1,609,272
Costs and estimated gross profit in excess
of billings on contracts in process................................ 2 10,151,498 11,299,961
Inventories.......................................................... 293,066 405,566
Prepaid expenses and other current assets............................ 119,254 172,054
---------------- ----------------
Total current assets....................................... 17,204,289 13,491,059
PROPERTY, PLANT AND EQUIPMENT, NET..................................... 3 18,046,337 13,237,501
PERISHABLE TOOLING..................................................... 614,964 743,966
OTHER ASSETS........................................................... 223,885 223,869
---------------- ----------------
Total assets............................................... $ 36,089,475 $ 27,696,395
================ ================
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt.................................... 4 $ 1,316,674 $ 876,555
Accounts payable-Trade............................................... 1,374,585 1,113,113
Accounts Payable-Capital Equipment................................... 1,552,783 --
Accrued liabilities.................................................. 749,444 204,682
---------------- ----------------
Total Current liabilities.................................. 4,993,486 2,194,350
LONG-TERM DEBT......................................................... 4 10,802,611 8,196,641
ACCRUED LEASE EXPENSE.................................................. 1,728,929 643,040
DEFERRED TAX LIABILITY................................................. 664,065 780,376
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
Issued and outstanding - 3,317,744 shares at
May 31, 1999 and 3,065,499 shares at
August 31, 1998..................................................... 14,512,185 13,496,937
Retained earnings.................................................... 1 3,388,199 2,385,051
---------------- ----------------
Total stockholders' equity................................. 17,900,384 15,881,988
================ ================
Total liabilities and
stockholders' equity....................................... $ 36,089,475 $ 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 NINE MONTHS
ENDED ENDED
MAY 31, MAY 31,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES .......................................... $ 6,444,605 $ 6,878,697 $ 17,072,689 $ 18,418,140
COST OF SALES .................................. 4,505,297 5,032,429 12,160,458 13,650,235
------------ ------------ ------------ ------------
GROSS PROFIT ............................. 1,939,308 1,846,268 4,912,231 4,767,905
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES .................... 550,190 548,837 1,536,508 1,611,537
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS ................... 1,389,118 1,297,431 3,375,723 3,156,368
OTHER INCOME (EXPENSE)
Interest expense ............................ (35,078) (182,175) (267,480) (443,565)
Other expense ............................... (433) -- 6,009 (110,686)
Gain (Loss) on asset sales .................. -- (715) -- (16,425)
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSE - NET ................ (35,511) (182,890) (261,471) (570,676)
INCOME BEFORE TAXES ON INCOME .................. 1,353,607 1,114,541 3,114,252 2,585,692
INCOME TAXES ................................... 548,211 401,750 1,095,856 930,485
------------ ------------ ------------ ------------
NET INCOME ........................ 805,396 712,791 2,018,396 1,655,207
PREFERRED STOCK DIVIDENDS ...................... -- -- -- 201,815
------------ ------------ ------------ ------------
NET INCOME AVAILABLE FOR COMMON
SHARES ..................................... $ 805,396 $ 712,791 $ 2,018,396 $ 1,453,392
============ ============ ============ ============
BASIC EARNINGS PER COMMON SHARE ................ $ .24 $ .21 $ .61 $ .55
============ ============ ============ ============
BASIC COMMON SHARES OUTSTANDING ................ 3,317,744 3,065,499 3,317,744 2,639,571
============ ============ ============ ============
DILUTED EARNINGS PER COMMON SHARE .............. $ .24 $ .21 $ .61 $ .51
============ ============ ============ ============
DILUTED COMMON SHARES OUTSTANDING .............. 3,317,744 3,317,744 3,317,744 3,214,301
============ ============ ============ ============
</TABLE>
See notes to financial statements
4.
<PAGE> 5
RIVIERA TOOL COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MAY 31,
----------------------------------------
1999 1998
------------------ ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................... $ 2,018,396 $ 1,655,207
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization ............................................ 856,916 890,850
Loss (Gain) on sale of equipment ......................................... -- 18,178
Deferred taxes ........................................................... 948,553 825,485
(Increase) decrease in assets:
Accounts receivable ................................................... (5,031,199) 2,019,955
Costs and estimated gross profit in
excess of billings on contracts in
process ............................................................... 1,048,463 (6,511,291)
Inventory ............................................................. 112,500 30,000
Perishable tooling .................................................... 129,002 131,865
Prepaid expenses and other current assets ............................. 52,800 (105,916)
Increase (decrease) in liabilities:
Accounts payable ...................................................... 1,814,255 (84,116)
Accrued lease expense ................................................. 21,025 28,036
Accrued liabilities ................................................... 544,762 (57,365)
----------- -----------
Net Cash Provided by (Used in)
operating activities ................................................... $ 2,515,473 $(1,159,112)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of machinery & equipment .................................. -- 1,092,847
Additions to property, plant and equipment ................................... (5,565,768) (3,769,133)
----------- -----------
Net cash used in investing activity .................................... $(5,565,768) $(2,676,286)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of preferred stock ................................ -- 8,000,000
Principal(payments)proceeds from short-term debt ............................. 440,119 --
Principal(payments)/proceeds from long-term debt ............................. 2,605,970 105,448
Capitalized refinancing costs ................................................ -- (1,067,942)
Repurchase and retirement of common stock .................................... -- (3,000,000)
Preferred stock dividends .................................................... -- (202,168)
----------- -----------
Net cash provided by financing
activities ........................................................... $ 3,046,089 $ 3,835,398
----------- -----------
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
MAY 31, 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 nine month periods ended May 31,
1999 may not be 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 May 31, 1999
and May 31, 1998. The earnings per share and shares outstanding amounts for the
three months and nine months ended May 31, 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>
MAY 31, AUGUST 31,
1999 1998
----------- -----------
<S> <C> <C>
Costs incurred on contracts in process under the
percentage of completion method ............................................. $14,270,543 $14,949,213
Estimated gross profit ......................................................... 4,125,000 1,450,000
----------- -----------
Total .................................................................. 18,395,543 16,399,213
Less progress payments received and progress
billings to date ............................................................. 8,244,045 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 ......................................... $10,151,498 $11,299,961
=========== ===========
</TABLE>
Included in estimated gross profit for August 31, 1998 and May 31, 1999 are jobs
with losses accrued of $309,565 and $119,436, respectively.
6.
<PAGE> 7
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, 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 .................................................... 11,909,769 11,594,436
Construction in Process .................................................... 10,446,999 5,283,903
Computer equipment and software ............................................ 1,459,499 1,518,214
Transportation equipment ................................................... 126,365 126,365
----------- -----------
Total cost ............................................................ 25,745,739 20,179,971
Accumulated depreciation and amortization .................................. 7,699,402 6,942,470
----------- -----------
Net carrying amount ........................................................ $18,046,337 $13,237,501
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
NOTE 4 - LONG-TERM DEBT
MAY 31, 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 May 31, 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............................................................................ $ 5,046,341 $ 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 May 31, 1999 (an effective
rate of 8.25% and 7.5%, respectively), due June, 2002. The Agreement is subject
to certain loan covenants discussed below....................................... 2,004,167 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.............. 3,777,778 2,718,655
$3,271,000 Non-revolving Equipment Line of Credit payable to bank,
collateralized by specific assets of the Company, payable in monthly
installments of $38,941 plus interest of .25% below the bank's prime rate, due
November, 2004. The Agreement is subject to certain loan covenants discussed
below........................................................................... 1,290,999 --
----------- -----------
Total long-term debt....................................................... 12,119,285 9,073,196
Total current portion...................................................... 1,316,674 876,555
----------- -----------
Long-term debt - Net....................................................... $10,802,611 $ 8,196,641
=========== ===========
</TABLE>
As of August 31, 1998 and May 31, 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
MAY 31, 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 May 31, 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 NINE
ENDED MONTHS ENDED
MAY 31, MAY 31,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES .......................................................... 100.0% 100.0% 100.0% 100.0%
COST OF SALES .................................................. 69.9% 73.2% 71.2% 74.1%
----- ----- ----- -----
GROSS PROFIT ...................................... 30.1% 26.8% 28.8% 25.9%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE .................... 8.5% 8.0% 9.0% 8.7%
----- ----- ----- -----
INCOME FROM OPERATIONS ........................... 21.6% 18.9% 19.8% 17.1%
OTHER INCOME (EXPENSE)
INTEREST EXPENSE ............................................. (0.6%) (2.6%) (1.5%) (2.1%)
-- -- -- (.6%)
GAIN ON ASSET SALES .......................................... -- (.1%) -- (.1%)
----- ----- ----- -----
TOTAL OTHER EXPENSE - NET ............................. (0.6%) (2.7%) (1.5%) (3.1%)
INCOME BEFORE TAXES ON INCOME .................................. 21.0% 16.2% 18.3% 14.0%
INCOME TAXES ................................................... 8.5% 5.8% 6.4% 5.1%
----- ----- ----- -----
NET INCOME ......................................... 12.5% 10.4% 11.9% 8.9%
===== ===== ===== =====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED MAY 31, 1999 TO THE THREE MONTHS ENDED MAY
31, 1998.
REVENUES - Revenues for the three months ended May 31, 1999 totaled $6.4 million
as compared to $6.9 million for the three months ended May 31, 1998, a decrease
of $0.5 million or 7.2%. This decrease was largely due to the decrease in shop
floor hours during the quarter ended May 31, 1999 as compared to the third
quarter of 1998. During the third quarter of 1999, the Company had 66,800
work-in-process shop floor hours as compared to 78,100 hours during the third
quarter of 1998, a decrease of 14.5%.
8.
<PAGE> 9
COST OF SALES - Cost of sales was $4.5 million for the three months ended May
31, 1999 as compared 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, 1999 was
69.9% as compared to 73.2% for the three months ended May 31, 1998. The improved
gross margin was largely due to a decrease in the Company's direct costs expense
(a decrease of $670,000 or 10.4% of sales) and an increase in manufacturing
overhead expense (an increase of $147,000 or 2.3% of sales).
The decrease in direct costs expense was largely due to a decrease in direct
materials and outside services expense. The decrease from $1,830,000 or 26.6% of
sales for the three months ended May 31, 1998 to $1,533,000 or 23.8% of sales
for the three months ended May 31, 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 nine months
of 1999 and reduced outsource machining expense from $336,000 for the three
months ended May 31, 1998 to $6,100 for the three months ended May 31, 1999.
Direct labor expense was $1,037,000 or 16.1% of sales for the three months ended
May 31, 1999 as compared to $1,411,000 or 20.5% of sales for the three months
ended May 31, 1998. Direct materials expense decreased from $1,226,000 or 17.8%
of sales for the three months ended May 31, 1998 to $1,025,000 or 15.9% of sales
for the three months ended May 31, 1999.
Manufacturing overhead expense increased from $1,366,000 or 19.9% of sales for
thee three months ended May 31, 1998 to $1,512,000 or 23.5% of sales for the
three months ended May 31, 1999. The largest increase in the third quarter of
1999 as compared to 1998 was the increase of $66,000 in depreciation expense.
This increase in depreciation expense was due to the Company's capital expansion
program, which resulted in a $1.5 million increase in depreciable property,
plant and equipment as of May 31, 1999 as compared to May 31, 1998. Other
manufacturing overhead expense increases include; a $33,000 increase in property
taxes (the Company's tax abatements on 1989 equipment acquisitions expired), a
$25,000 increase in building maintenance expense, and a $18,000 increase in
health insurance expense.
S,G & A EXPENSES - Selling, general and administrative expenses remained
consistent at approximately $550,000 for the three months ended May 31, 1999 and
May 31, 1998. General and administrative expense increases include; an increase
of $94,000 in supervision salaries and an increase of $6,000 in deferred
compensation/401(k) expense. Decreases in general and administrative expenses
include a decrease of $59,000 in the Michigan Single Business Tax, a decrease of
$33,000 in public company costs, a decrease of $10,000 in amortization expense,
a $9,000 decrease in legal expense and a $7,000 decrease in lease expense.
General and administrative expenses were 7.4% for the three months ended May 31,
1999 as compared to 6.9% for the three months ended May 31, 1998.
Selling expense increased from approximately $73,700 for the three months ended
May 31, 1998 to approximately $76,700 for the three months ended May 31, 1999.
This increase was largely due to an increase of $14,000 in travel expense and a
$9,000 decrease in commissions expense. Selling expenses were 1.2% for the three
months ended May 31, 1999 as compared to 1.1% for the three months ended May 31,
1998.
INTEREST EXPENSE - Interest expense for the three months ended May 31, 1999 was
approximately $35,000 as compared to approximately $182,000 for the three months
ended May 31, 1998. As a percentage of sales, interest expense
9.
<PAGE> 10
decreased from 2.6% for the three months ended May 31, 1998 to 0.5% for the
three months ended May 31, 1999.
The decrease in interest expense was a result of the Company capitalizing
approximately $190,000 of interest on its construction in process during the
third quarter ended May 31, 1999. As of May 31, 1999, the Company had
approximately $10.4 million of construction in process. Lastly, debt levels as
of May 31, 1999 were higher than as of May 31, 1998 by $4.2 million. The
increase in debt was a result of higher accounts receivable balance and related
working capital line financing as well as term financing incurred to support the
Company's construction in process and capital expansion program.
COMPARISON OF THE NINE MONTHS ENDED MAY 31, 1999 TO THE NINE MONTHS ENDED
MAY 31, 1998
REVENUES -- Revenues for the nine months ended May 31, 1999 totaled $17.1
million as compared to $18.4 million for the nine months ended May 31, 1998, a
decrease of $1.3 million or 7.1%. This decrease was largely due to the decrease
in shop floor hours during the nine months ended May 31, 1999 as compared to the
same period of 1998. During the nine months ended May 31, 1999, the Company had
188,500 work-in-process shop floor hours as compared to 199,600 hours during the
same period of 1998, a decrease of 5.5%.
COST OF SALES -- Cost of sales decreased from $13.7 million for the nine months
ended May 31, 1998 to $12.2 million for the nine months ended May 31, 1999. As a
percent of revenue, cost of sales for the nine months ended May 31, 1998 was
74.1% compared to 71.2% for the nine months ended May 31, 1999. The improved
gross margin was largely due to decreases in the Company's direct cost expense
of $1,967,000 and engineering expenses of $13,000, whereas manufacturing
overhead expenses increased by $491,000.
The decrease in direct cost expense was largely due to a decrease in direct
materials and outside services expense. Outside service expense decreased from
$1,649,000 for the nine months ended May 31, 1998 to $989,000 for the nine
months ended May 31, 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 nine months
of 1999 and reduced outsource machining expense from $954,000 for the nine
months ended May 31, 1998 to $77,000 for the nine months ended May 31, 1999.
Direct labor expense was $3,851,000 or 20.9% of sales for the nine months ended
May 31, 1998 as compared to $2,935,000 or 17.2% of sales for the nine months
ended May 31, 1999. Direct materials expense decreased from $2,927,000 for the
nine months ended May 31, 1998 to $2,535,000 for the nine months ended May 31,
1999.
Manufacturing overhead expense increased from $3,992,000 or 21.7% of sales for
the nine months ended May 31, 1998 to $4,483,000 or 26.3% of sales for the nine
months ended May 31, 1999. The largest increase in the first nine months of 1999
as compared to 1998 was the increase of $261,000 in depreciation expense. This
increase in depreciation expense was due to the Company's capital expansion
program. Other manufacturing overhead expense increases include; a $33,000
increase in indirect labor, a $70,000 increase in manufacturing supplies, a
$66,000 increase in property tax expense, a $43,000 increase in health insurance
expense, a $20,000 increase in perishable tooling, and a $20,000 increase in
building maintenance. Decreases in manufacturing overhead expense for the nine
months ended May 31, 1999, as compared to the comparable period for 1998,
include; a $11,000 decrease in
10.
<PAGE> 11
general insurance expense and a $9,000 decrease in machinery repairs and
maintenance
S,G & A EXPENSES -- Selling, general and administrative expenses decreased from
approximately $1,612,000 for the nine months ended May 31, 1998 to approximately
$1,537,000 for the nine months ended May 31, 1999. As a percentage of revenue,
selling, general and administrative expenses were 8.8% for the nine months ended
May 31, 1998 as compared to 9.0% for the nine months ended May 31,1999.
Increases in general and administrative expenses during the nine months ended
May 31, 1999, include; $108,000 in supervision salaries, $6,000 in depreciation
expense, $5,000 in directors and officers liabilities insurance expense, $70,000
in deferred compensation/401(k) expense and a $20,000 in miscellaneous expenses.
Decreases in general and administrative expenses include; $44,000 in office
salaries and wages, $138,000 in legal and professional expenses, $31,000 in
amortization expense, $95,000 in Michigan Single Business Tax, $18,000 in lease
expenses and $11,000 in public company expenses.
Selling expenses during the nine months ended May 31, 1999 increased from
$222,000 for the nine months ended may 31, 1998 to $266,000 for the nine months
ended May 31, 1999. Increases in selling expenses for the nine months ended May
31, 1999 include; $60,000 in salaries and wages, and an increase of $16,000 in
travel expenses. The largest decrease for the nine months ended May 31, 1999 was
a $27,000 decrease in commission expense.
INTEREST EXPENSE -- Interest expense for the nine months ended May 31, 1999 was
approximately $267,000 as compared to approximately $444,000 for the nine months
ended May 31, 1998. As a percentage of revenue, interest expense decreased from
2.4% for the nine months ended May 31, 1998 as compared to 1.6% for the nine
months ended May 31, 1999.
The decrease in interest expense was a result of the Company's capitalizing
approximately $464,000 of interest on its construction in process. As of May 31,
1999, the Company had approximately $10.4 million of construction in process.
Lastly, debt levels as of May 31, 1999 were higher than as of May 31, 1998 by
$4.2 million. The increase in debt was a result of higher work-in-process and
accounts receivable 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 nine months ended May 31, 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.
FEDERAL INCOME TAXES
The effective federal income tax rate was 35% and 36% for the nine months ended
May 31, 1999 and May 31, 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 nine months ended May 31, 1999, the Company's cash from operating
activities was $2,515,473. The capital provided from operating activities was
primarily due to the $5,031,199 increase in the Company's Accounts Receivable, a
decrease of $1,048,463 in work-in-process and an increase in accounts payable
and accrued liabilities of $2,359,017. The increase in accounts
11.
<PAGE> 12
receivable was due to the Company shipping and invoicing large contracts during
the last sixty days of the third quarter of 1999. The Company invoiced $6.6
million of invoicing during this period of which $5.1 million was paid in June,
1999. The increase in accounts payable was largely due to $1.6 million payable
for a new machining center which is currently in the process of being installed
as a part of the Company's capital expansion program. Upon final installation
the Company is financing such equipment through a five-year term loan with its
primary financial institution and the related term debt will classified as
long-term debt (less current portion).
From Investing Activities, the Company acquired additional machinery and
equipment of $5,565,768. Such acquisitions include two new machining centers,
installation of five stamping presses and various existing machine upgrades.
From Financing Activities, the Company was provided from financing activities a
total of $3,046,089 during the nine months ended May 31, 1999. During this
period, the Company increased its revolving line of credit by $1.2 million in
order to finance the $5.0 million increase in the Company's accounts receivable.
The Company drew $1.3 million on its Equipment Line of Credit to finance its
acquisition of various machinery and equipment. On January 1, 1999 the Company
termed out this $4.0 million Equipment Line of Credit. Under such terms, the
Company has monthly payments of $55,556 plus interest of 7.26%, due December 31,
2003 and is collateralized by specific assets of the Company. During the third
quarter of 1999, the Company executed a $3.2 million non-revolving equipment
line of credit to finance the acquisition of two new machining centers. The
first machine was installed during the third quarter and $1.3 million was drawn
on such note with the remaining balance to be drawn upon final installation of
the second machining center. Upon final draw the note will amortized commencing
November 1, 1999 in monthly installments of $38,941 plus interest at the banks
prime rate less 25 basis points (currently 7.25%). The maturity date of this
note is November 1, 2004. During the nine months ended May 31, 1999 the Company
paid $0.7 million of principal payments on various term notes.
YEAR 2000 COMPLIANCE STATEMENT
The Company has completed its review and testing of its computer systems and has
concluded that such systems are year 2000 compliant. The Company primarily
utilizes computer technology in its CAD design, Numerically Controlled
programming and its manufacturing information systems.
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: July 14, 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
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
EX-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 third quarter ended May 31,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 6640471
<ALLOWANCES> 0
<INVENTORY> 10444564
<CURRENT-ASSETS> 17204289
<PP&E> 25745739
<DEPRECIATION> 7699402
<TOTAL-ASSETS> 36089475
<CURRENT-LIABILITIES> 4993486
<BONDS> 10802611
0
0
<COMMON> 14512185
<OTHER-SE> 3388199
<TOTAL-LIABILITY-AND-EQUITY> 36089475
<SALES> 17072689
<TOTAL-REVENUES> 17072689
<CGS> 12160458
<TOTAL-COSTS> 1530499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 267480
<INCOME-PRETAX> 3114252
<INCOME-TAX> 1095856
<INCOME-CONTINUING> 2018396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2018396
<EPS-BASIC> .61
<EPS-DILUTED> .61
</TABLE>
