UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to___________________
Commission file no. 001-12673
RIVIERA TOOL COMPANY
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2828870
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5460 Executive Parkway S.E., Grand Rapids, Michigan 49512
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(616) 698-2100
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
There were 3,379,609 shares of the Registrant's common stock outstanding as
April 14, 2003.
PART I
FINANCIAL INFORMATION
INDEX
Page No.
Item 1. Financial Statements
Balance Sheets as of February 28, 2003 and August 31, 2002........................................ 3
Statements of Operations for the Three Months and Six Months Ended
February 28, 2003 and 2002........................................................................ 4
Statements of Cash Flows for the Three Months and Six Months Ended
February 28, 2003 and 2002........................................................................ 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........................................ --
Item 4. Controls and Procedures
PART II
OTHER INFORMATION
INDEX
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8 - K.
Signatures
Certifications
Exhibits
10(cc) Revolving Credit Loan Agreement, including Revolving
Credit Note and Term Note between Registrant and
Comerica Bank, dated December 23, 2002.
10(dd) Subordinated Loan Agreement and Note between
Registrant and Fifth Third Bank, f/k/a Old Kent Bank,
dated December 23, 2002.
2
RIVIERA TOOL COMPANY
FINANCIAL STATEMENTS
BALANCE SHEETS
FEBRUARY 28, AUGUST 31,
2003 2002
------------ ------------
NOTE (UNAUDITED) (AUDITED)
---- ------------ ------------
ASSETS
CURRENT ASSETS
Cash ............................................................. $ -- $ 2,337,743
Accounts receivable .............................................. 9,719,006 2,899,075
Costs in excess of billings on contracts in process ............. 2 1,444,959 3,988,346
Inventories ...................................................... 250,569 250,569
Prepaid expenses and other current assets ........................ 377,531 184,313
------------ ------------
Total current assets ................................... 11,792,065 9,660,046
PROPERTY, PLANT AND EQUIPMENT, NET ................................. 3 13,611,261 14,471,879
PERISHABLE TOOLING ................................................. 582,251 548,606
OTHER ASSETS ....................................................... 325,198 303,060
------------ ------------
Total assets ........................................... $ 26,310,775 $ 24,983,591
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ................................ 4 $ 226,720 $ --
Notes payable .................................................... 4 7,593,937 10,354,499
Accounts payable ................................................. 4,271,608 1,694,779
Accrued liabilities .............................................. 532,896 448,171
------------ ------------
Total current liabilities .............................. 12,625,161 12,497,449
LONG-TERM DEBT ..................................................... 4 1,174,561 --
ACCRUED LEASE EXPENSE .............................................. 658,212 675,735
------------ ------------
Total liabilities ...................................... 14,457,934 13,173,184
------------ ------------
PREFERRED STOCK - no par value, $100 mandatory redemption value:
Authorized - 5,000 shares
Issued and outstanding - no shares .......................... -- --
STOCKHOLDERS' EQUITY:
Preferred stock - no par value,
Authorized - 200,000 shares
Issued and outstanding - no shares ............................ -- --
Common stock - No par value:
Authorized - 9,785,575 shares ................................. 1
Issued and outstanding - 3,379,609 shares
at February 28, 2003 and August 31, 2002 ...................... 15,115,466 15,115,466
Retained deficit ................................................. 1 (3,262,625) (3,305,059)
------------ ------------
Total stockholders' equity ............................. 11,852,841 11,810,407
------------ ------------
Total liabilities and stockholders' equity ......................... $ 26,310,775 $ 24,983,591
============ ============
See notes to financial statements
3
RIVIERA TOOL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
----------------------------- -----------------------------
FEBRUARY 28,
------------------------------------------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
SALES .................................. $ 8,304,121 $ 3,452,082 $12,642,723 $ 6,815,756
COST OF SALES .......................... 7,434,664 3,593,381 11,479,929 7,138,957
----------- ----------- ----------- -----------
GROSS PROFIT (LOSS) .............. 869,457 (141,299) 1,162,794 (323,201)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ............ 416,712 377,939 738,605 843,806
----------- ----------- ----------- -----------
INCOME/(LOSS) FROM OPERATIONS .... 452,745 (519,238) 424,189 (1,167,007)
OTHER EXPENSE
INTEREST EXPENSE .................... 141,534 156,711 298,985 312,001
OTHER EXPENSE ....................... 79,863 12,041 82,770 24,767
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSE .............. 221,397 168,752 381,755 336,768
INCOME/(LOSS) BEFORE INCOME TAX ........ 231,348 (687,990) 42,434 (1,503,775)
----------- ----------- ----------- -----------
INCOME TAXES ........................... -- -- -- --
----------- ----------- ----------- -----------
NET INCOME/(LOSS) AVAILABLE FOR
COMMON SHARES ......................... $ 231,348 $ (687,990) $ 42,434 $(1,503,775)
=========== =========== =========== ===========
BASIC AND DILUTED INCOME/(LOSS)
PER COMMON SHARE ....................... $ .07 $ (.20) $ .01 $ (.44)
=========== =========== =========== ===========
BASIC AND DILUTED
COMMON SHARES OUTSTANDING .............. 3,379,609 3,379,609 3,379,609 3,379,609
=========== =========== =========== ===========
See notes to financial statements
4
RIVIERA TOOL COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
--------------------------- ---------------------------
FEBRUARY 28,
-----------------------------------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) ............................................. $ 231,348 $ (687,990) $ 42,434 $(1,503,775)
Adjustments to reconcile net income/(loss) to net
cash from operating activities:
Depreciation and amortization ............................. 460,482 477,441 920,964 954,882
(Increase) decrease in assets:
Accounts receivable .................................... (1,915,394) (1,026,388) (6,819,931) (2,033,814)
Costs in excess of billings on contracts in process .... (106,658) 618,911 2,543,387 124,473
Perishable tooling ..................................... (33,796) 12,122 (33,645) 38,202
Prepaid expenses and other current assets .............. (204,158) (2,218) (193,218) (35,426)
Increase (decrease) in liabilities:
Accounts payable ....................................... 2,693,668 200,433 2,576,829 (233,739)
Accrued lease expense .................................. (8,762) (4,090) (17,523) (8,180)
Accrued liabilities .................................... (32,818) 69,815 84,725 213,052
----------- ----------- ----------- -----------
Net cash provided by/(used in) operating activities ............. $ 1,083,912 $ (341,964) $ (895,978) $(2,484,325)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in other assets ...................................... -- (42,290) (22,138) (42,290)
Additions to property, plant and equipment .................... (58,122) (23,821) (60,346) (37,917)
----------- ----------- ----------- -----------
Net cash used in investing activities ........................... $ (58,122) $ (66,111) $ (82,484) $ (80,207)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments)on revolving credit line ........... (872,730) 987,000 (872,730) 3,356,728
Issuance of debt .............................................. 3,367,948 -- 3,367,948
Principal payments on notes payable to bank
and non-revolving equipment line of credit ................... (3,521,008) (431,991) (3,854,499) (927,983)
----------- ----------- ----------- -----------
Net cash provided by/(used in) financing activities ............. $(1,025,790) 555,009 $(1,359,281) $ 2,428,745
----------- ----------- ----------- -----------
NET INCREASE/(DECREASE) IN CASH ................................. $ -- 146,934 $(2,337,743) $ (135,787)
CASH - Beginning of Period ...................................... -- -- 2,337,743 282,721
----------- ----------- ----------- -----------
CASH - End of Period ............................................ $ -- 146,934 $ -- $ 146,934
=========== =========== =========== ===========
See notes to financial statements
5
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2003
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements (the "Financial
Statements") of Riviera Tool Company (the "Company") have been prepared by the
Company 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
December 17, 2002, as amended, for the fiscal year ended August 31, 2002.
The results of operations for the three and six month periods ended February 28,
2003 are not indicative of the results to be expected for the full year.
NOTE 2 - COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows:
FEBRUARY 28, AUGUST 31,
2003 2002
------------ ------------
Costs incurred on contracts in process under the percentage of
completion method ................................................. $ 15,825,306 $ 11,248,868
Estimated gross profit/(loss) ..................................... 473,000 (670,000)
------------ ------------
Total ..................................................... 16,298,306 10,578,868
Less progress payments received and progress billings to date ..... 14,854,681 6,682,206
Plus costs incurred on contracts in process under the completed
contract method ................................................... 1,334 91,682
------------ ------------
Costs in excess of billings on contracts in process ............... $ 1,444,959 $ 3,988,346
============ ============
Included in estimated gross profit for February 28, 2003 and estimated gross
loss for August 31, 2002 are jobs with losses accrued of $585,376 and $973,985,
respectively.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consist of the following:
FEBRUARY 28, AUGUST 31,
2003 2002
------------ -----------
Land and leasehold improvements ............. $ 1,367,908 $ 1,367,908
Office furniture and fixtures ............... 164,429 157,868
Machinery and equipment ..................... 22,353,883 22,353,184
Construction in Process ..................... 9,153 1,399
Computer equipment and software ............. 2,164,695 2,119,363
Transportation equipment .................... 61,919 61,919
----------- -----------
Total cost ............................. 26,121,987 26,061,641
Accumulated depreciation and amortization ... 12,510,726 11,589,762
----------- -----------
Net carrying amount .................... $13,611,261 $14,471,879
=========== ===========
6
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2003
NOTE 4 - DEBT
On December 23, 2003, the Company refinanced its outstanding debt. Under such
refinancing, the Company obtained a $7.5 million Revolving Line of Credit and a
$2.0 million Term Loan, each expiring December 1, 2003. The unpaid balance of
approximately $1.4 million with the Company's former lender was converted into a
five-year subordinated note. The Company's current indebtedness, which is
subject to certain covenants discussed below, consists of the following:
FEBRUARY 28 AUGUST 31,
2003 2002
----------- -----------
REVOLVING WORKING CAPITAL CREDIT LINE
The revolving working capital credit line is collateralized by substantially all
assets of the Company and provided for borrowing, subject to certain collateral
requirements up to $7.5 million. The agreement requires a commitment fee of .25%
per annum on the average daily unused portion of the revolving credit line. The
credit line is due December 1, 2003, and bears interest, payable monthly, at
1.0% above the bank's prime rate (as of February 28, 2003, an effective rate of
5.25%) .............................................................................. $ 5,627,270 $ --
The credit line was paid and terminated on December 23, 2002 ........................ -- 6,500,000
NOTES PAYABLE TO BANKS
Note payable to bank, payable in monthly installments of $33,334, plus
interest at the bank's prime rate plus 1.25% (as of February 28, 2003, an
effective rate of 5.50%), due December 1, 2003 ...................................... 1,966,667
Subordinated note payable to bank, payable in monthly installments of
$31,000, including interest at 11%, due January 1, 2008 ............................. 1,401,281 --
Note payable to bank, paid on December 23, 2002 ..................................... -- 1,611,092
Note payable to bank, paid on December 23, 2002 ..................................... -- 416,667
NON-REVOLVING EQUIPMENT LINE OF CREDIT
$3,271,000 equipment line of credit, paid on December 23, 2002 ...................... -- 1,826,740
----------- -----------
Total debt ............................................................... 8,995,218 10,354,499
----------- -----------
Less current portion of long-term debt ................................... 226,720 --
Less notes payable ....................................................... 7,593,937 10,354,499
----------- -----------
Long-term debt -- Net .................................................... $ 1,174,561 $ --
=========== ===========
7
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2003
NOTE 4 - DEBT - CONTINUED
Under the loan agreement, the Company is required to maintain certain levels of
Tangible Net Worth, Debt to Tangible Net Worth and Debt Service Coverage. At
February 28, 2003, the Company was in compliance with 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.
For The Three Months For The Six Months
Ended Ended
-------------------- --------------------
February 28,
-------------------------------------------------
2003 2002 2003 2002
------ ------ ------ ------
SALES ......................................... 100.0% 100.0% 100.0% 100.0%
COST OF SALES ................................. 89.5% 104.1% 90.8% 104.7%
------ ------ ------ ------
GROSS PROFIT /(LOSS) ........... 10.5% (4.1%) 9.2% (4.7%)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ... 5.0% 10.9% 5.8% 12.4%
------ ------ ------ ------
INCOME/(LOSS) FROM OPERATIONS ... 5.5% (15.0%) 3.4% (17.1%)
INTEREST EXPENSE ............................ 1.7% 4.5% 2.4% 4.6%
OTHER EXPENSE ............................... 1.0% 0.4% 0.7% 0.3%
------ ------ ------ ------
TOTAL INTEREST/OTHER EXPENSE ......... 2.7% 4.9% 3.1% 4.9%
INCOME/(LOSS) BEFORE INCOME TAXES ............. 2.8% (19.9%) 0.3% (22.0%)
INCOME TAXES .................................. -- -- -- --
------ ------ ------ ------
NET INCOME/(LOSS) ................. 2.8% (19.9%) 0.3% (22.0%)
====== ====== ====== ======
FORWARD-LOOKING STATEMENT; RISKS AND UNCERTAINTIES
CERTAIN INFORMATION INCLUDED IN THIS QUARTERLY REPORT ON FORM 10-Q AND OTHER
MATERIALS FILED OR TO BE FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION CONTAIN CERTAIN STATEMENTS THAT MAY BE CONSIDERED FORWARD-LOOKING.
FOR THIS PURPOSE, ANY STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT
STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS.
WITHOUT LIMITING THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT,"
"BELIEVE," "ANTICIPATE," "UNDERSTANDING," OR "CONTINUE," THE NEGATIVE OR OTHER
VARIATION THEREOF, OR COMPARABLE TERMINOLOGY, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING
8
STATEMENTS. IN ADDITION, FROM TIME TO TIME, THE COMPANY MAY RELEASE OR PUBLISH
FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS ANTICIPATED FINANCIAL
PERFORMANCE, BUSINESS PROSPECTS, TECHNOLOGICAL DEVELOPMENTS AND SIMILAR MATTERS.
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A SAFE HARBOR FOR
FORWARD-LOOKING STATEMENTS. IN ORDER TO COMPLY WITH THE TERMS OF THE SAFE
HARBOR, THE COMPANY NOTES THAT A VARIETY OF FACTORS COULD CAUSE THE COMPANY'S
ACTUAL RESULTS AND EXPERIENCE TO DIFFER MATERIALLY FROM THE ANTICIPATED RESULTS
OR OTHER EXPECTATIONS EXPRESSED IN THE COMPANY'S FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING UPON A VARIETY OF FACTORS,
INCLUDING CONTINUED MARKET DEMAND FOR THE TYPES OF PRODUCTS AND SERVICES
PRODUCED AND SOLD BY THE COMPANY.
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 2003 TO THE THREE MONTHS ENDED
FEBRUARY 28, 2002.
REVENUES - Revenues for the three months ended February 28, 2003 totaled $8.3
million as compared to $3.5 million for the three months ended February 28,
2002, an increase of $4.8 million or 137%. The revenue increase is a direct
result of the Company being awarded additional contracts during the latter part
of fiscal year ended August 31, 2002. These additional contracts resulted in the
Company incurring approximately 75,000 shop floor hours during the second
quarter of 2003, as compared to 40,500 during the same period of 2002, an
increase of 34,500 hours or 85%.
As of February 28, 2003, the Company had approximately $32.7 million in contract
backlogs. This compares to approximately $6.1 million as of February 28, 2002,
an increase of $26.6 million or 436%. This backlog, in shop floor hours,
increased from 111,152 as of February 28, 2002 to 299,079 as of February 28,
2003, an increase of 169%. The Company was awarded additional contracts in
excess of $16.0 million during the second quarter of 2003, as compared to $4.1
million in the same quarter last year.
COST OF SALES - Cost of sales was $7.4 million or 89.5% of sales for the three
months ended February 28, 2003 as compared to $3.6 million or 104.1% of sales
for the three months ended February 28, 2002. The increase in gross margin was
largely due to the increase in revenue combined with the Company maintaining
manufacturing overhead expense at levels consistent with that of the previous
comparable quarter.
Direct costs increased from $1.8 million for the three months ended February 28,
2002 to $5.1 million for the three months ended February 28, 2003, as a percent
of sales it increased from 51.1% to 62.0%. Direct labor expense was $0.8 million
in 2002 as compared to $1.4 million in 2003 however, as a percent of sales,
direct labor expense decreased from 24.5% to 17.2%. While direct labor expense
increased by $580,000 or 69%, actual shop floor hours increased from 40,500 to
75,000. The increase in shop floor hours was a direct result of higher contract
levels for the three months ended February 28, 2003. Other direct cost increases
included $860,000 in direct material expense and $2,100,000 in outside service
expenses. As a percent of sales, these other direct expenses represented 44.8%
for the three months ended February 28, 2003 as compared to 26.6% for the three
months ended February 28, 2002. These increases were largely due to the
increased volumes and related outsourcing contracts. The Company, as a result of
its increased backlog, is outsourcing certain stamping die construction to other
die manufacturers. As a result, the Company has recorded approximately $1.6
million of expense during the first six months of 2003 related to the
outsourcing die construction. The remaining outside services expense increases
included approximately $195,000 in patterns and $116,000 in other outside
services. These increases were a result of the increase in awarded contracts to
the Company.
Engineering expense increased from $323,000 for the three months ended February
28, 2002 to $584,000 for the three months ended February 28, 2003 however, as a
percent of sales, engineering expense decreased from 9.3% to 7.0%. This increase
was a result of the higher contract backlog in the second quarter ended February
28, 2003 as compared to the previous comparable quarter. The Company during this
quarter increased its engineering staff in order to process the additional
awarded contracts.
Manufacturing overhead expense during the second quarter of 2003 increased by
$191,000 over the same period last year, however due to increased revenues,
manufacturing overhead, as a percent of sales, decreased from 43.7% for the
three months ended February 28, 2002 to 20.5% for the three months ended
February 28, 2003.
SELLING & ADMINISTRATIVE EXPENSES - Selling and administrative expenses
increased from $378,000 for the three months ended February 28, 2002 to $417,000
for the three months ended February 28, 2003. As a percent
9
of sales, selling and administrative expense decreased from 12% to 5%. The
increase in selling and administrative expense was largely due to an increase of
$31,000 in legal and professional expenses.
INTEREST EXPENSE - Interest expense for the three months ended February 28, 2003
was approximately $142,000 as compared to approximately $157,000 for the three
months ended February 28, 2002. As a percentage of sales, interest expense
decreased from 4.5% in the quarter ended February 28, 2002 to 1.7% for the
quarter ended February 28, 2003. This decrease was the result of lower debt
levels and interest rates during the quarter ended February 28, 2003 as compared
to the previous comparable quarter.
OTHER EXPENSE - Other expense for the three months ended February 28, 2003 was
approximately $80,000 as compared to approximately $12,000 for the three months
ended February 28, 2002. As a percentage of sales, other expense increased from
0.4% in the quarter ended February 28, 2002 to 1.0% for the quarter ended
February 28, 2003. This increase was due to fees and expenses incurred during
the second quarter of 2003 in relation to the Company's debt refinancing. Such
expenses and fees will be amortized over the term of the financing (one year).
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 2003 TO THE SIX MONTHS ENDED
FEBRUARY 28, 2002.
REVENUES - Revenues for the six months ended February 28, 2003 totaled $12.6
million as compared to $6.8 million for the six months ended February 28, 2002,
an increase of $5.8 million or 85%. The revenue increase is a direct result of
the Company receiving additional orders. For the six months ended February 28,
2003, the Company had incurred approximately 130,000 shop floor hours as
compared to 89,000 during the same period of 2002, an increase of 41,000 hours
or 46%.
COST OF SALES - Cost of sales was $11.5 million or 90.8% of sales for the six
months ended February 28, 2003 as compared to $7.1 million or 104.7% of sales
for the same period last year. The increase in gross margin was due to the
Company's increased backlog and revenues thus resulting in improved absorption
of the Company's fixed manufacturing overhead.
Direct costs increased from $3.4 million in 2002 to $7.1 million in 2003 and, as
a percent of sales, direct costs increased from 49.7% to 56.4%. Direct labor
expense was $2.4 million in 2003 as compared to $1.8 million in 2002 however, as
a percent of sales, direct labor expense decreased from 26.1% in 2002 to 19.3%
in 2003. The increase in direct labor expense of $0.6 million was a direct
result of higher contract level requirements and resulting increase in shop
floor hours during the first and second quarters of 2003. Direct material
expense increased from $1.2 million in 2002 to $2.2 million in 2003, however as
a result of the increase in revenue, direct material expense, as a percent of
sales, decreased slightly from 17.9% in 2002 to 17.3% in 2003. Outside service
expenses increased from $0.4 million in 2002 to $2.5 million in 2003 and, as a
percent of sales, increased from 6.1% to 19.7%. This significant increase was
largely due to the increased volumes and related outsourcing contracts. The
Company, as a result of its increased backlog, is outsourcing certain stamping
die construction to other die manufacturers. As a result, the Company has
recorded approximately $1.6 million of expense during the first six months of
2003 related to outsourcing die construction. The remaining outside services
expense increases included approximately $232,000 in patterns and $288,000 in
other outside services.
Engineering expense increased from $0.6 million for the six months ended
February 28, 2002 to $1.1 million for same period of 2003 however, as a percent
of sales engineering expense decreased from 9.5% to 8.4%. The increase in
engineering expense was largely in salaries as a result of the Company
increasing its engineering staffing levels for the Company's increased backlog.
Manufacturing overhead expense increased from $3.1 million for the six months
ended February 28, 2002 to $3.3 million for the same period in 2003, however,
due to increased revenues, it decreased, as a percent of sales, from 45.6% to
26.0%. The largest increases during this period in 2003 as compared to 2002
included $60,000 in payroll tax expense, $50,000 in medical, workers
compensation and general insurance and $29,000 in facility utilities.
10
SELLING & ADMINISTRATIVE EXPENSES - Selling and administrative expenses
decreased from $844,000 or 12.4% of sales for the six months ended February 28,
2002 to $739,000 or 5.8% of sales in 2003. The most significant change was a
$103,000 decrease in Michigan Single Business Tax expense.
INTEREST EXPENSE - Interest expense for the six months ended February 28, 2003
slightly decreased to $299,000 or 2.4% of sales from $312,000 or 4.6% of sales
for the 2002.
OTHER EXPENSE - Other expense for the six months ended February 28, 2003 was
approximately $83,000 as compared to approximately $25,000 for the same period
last year. As a percentage of sales, other expense increased from 0.3% in the
six months ended February 28, 2002 to 0.7% for the same period in 2003. This
increase was due to fees and expenses incurred during the second quarter of 2003
in relation to the Company's debt refinancing. Such expenses and fees will be
amortized over the term of the financing (one year).
FEDERAL INCOME TAXES
For the six months ended February 28, 2003, the Company decreased its valuation
allowance by $14,000 to reflect the deferred tax assets utilized to reduce
current income taxes.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended February 28, 2003, the Company's cash used in operating
activities was $896,000. This largely resulted from an increase of $6,820,000 in
account receivables, a decrease of $2,543,000 in contracts in process, and a
$2,662,000 increase in accounts payable and accrued expenses. From investing
activities, the Company incurred an increase in other assets (cash surrender
value of life insurance policies) of $22,000 and acquired $60,000 in plant,
property and equipment. The Company used $873,000 to reduce the revolving credit
line and $486,000 to reduce long-term and subordinated debt.
The Company believes that the unused portion of the Revolving Line of Credit and
funds generated from operations including receipt of progress payments from the
Company's major customer (of which $2.9 million was received in December 2002
and $3.8 million in April, 2003) will be sufficient to cover anticipated cash
needs through fiscal 2003. However, depending on the level of future sales, and
the terms of such sales, an expanded credit line may be necessary to finance
increases in trade accounts receivable and contracts in process. The Company
believes it will be able to obtain such expanded credit line, if required, on
generally the same terms as the existing credit line.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time period specified in the rules
and forms of the Securities and Exchange Commission. Based upon their evaluation
of those controls and procedures performed within 90 days of the filing date of
this report, the Chief Executive and Chief Financial Officers of the Company
concluded that the Company's disclosure controls and procedures were adequate.
The Company made no significant changes in its internal controls or in other
factors that could significantly affect those controls subsequent to the date of
the evaluation of those controls by the Chief Executive and Chief Financial
Officers.
11
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Written Statement of the Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350 Sec. 906
99.2 Written Statement of the Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350 Sec. 906
(b) Reports on Form 8-K:
None
12
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 14, 2003
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
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Riviera Tool Company (the
"Company") on Form 10-Q for the period ending February 28, 2003 as filed with
the Securities and Exchange Commission on the date hereof, I, Kenneth K. Rieth,
Chief Executive Officer of registrant, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
that:
(1) I have reviewed this quarterly report on Form 10-Q of Riviera Tool
Company;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this quarterly report; and
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: April 14, 2003
By: /s/ Kenneth K. Rieth
---------------------------
Kenneth K. Rieth
Chief Executive Officer
14
This certification accompanies this Report on Form 10-Q pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required
by such Act, be deemed filed by registrant for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended.
15
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Riviera Tool Company (the
"Company") on Form 10-Q for the period ending February 28, 2003 as filed with
the Securities and Exchange Commission on the date hereof, I, Peter C. Canepa,
Chief Financial Officer of registrant, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
that:
(1) I have reviewed this quarterly report on Form 10-Q of Riviera Tool
Company;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this quarterly report; and
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: April 14, 2003
By: /s/ Peter C. Canepa
---------------------------
Peter C. Canepa
Chief Financial Officer
16
This certification accompanies this Report on Form 10-Q pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required
by such Act, be deemed filed by registrant for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended.
17
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX- 10(cc) Revolving Credit Loan Agreement, including Revolving Credit Note
and Term Note between Registrant and Comerica Bank, dated December
23, 2002
EX- 10(dd) Subordinated Loan Agreement and Note between Registrant and Fifth
Third Bank, f/k/a Old Kent Bank, dated December 23, 2002
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002