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, 2005
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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
There were 3,774,346 shares of the Registrant's common stock outstanding as of
April 15, 2005.
PART I
FINANCIAL INFORMATION
INDEX
Page No.
Item 1. Financial Statements
Balance Sheets as of February 28, 2005 and August 31, 2004................................. 3
Statements of Operations for the Three Months and Six Months Ended February 28, 2005 and 4
February 29, 2004..........................................................................
Statements of Cash Flows for the Three Months and Six Months Ended February 28, 2005 and 5
February 29, 2004..........................................................................
Notes to Financial Statements.............................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................. 13
Item 4. Controls and Procedures.................................................................... 14
PART II
OTHER INFORMATION
INDEX
Item 1. Legal Proceedings.......................................................................... 15
Item 6. Exhibits and Reports on Form 8 - K......................................................... 15
Signatures................................................................................. 16
Certifications
Exhibits
2
RIVIERA TOOL COMPANY
FINANCIAL STATEMENTS
BALANCE SHEETS
FEBRUARY 28, AUGUST 31,
ASSETS 2005 2004
CURRENT ASSETS NOTE (UNAUDITED) (AUDITED)
-------------- ---- ------------ ------------
Cash ................................................................. $ 209,202 $ 1,200
Accounts receivable .................................................. 2,928,288 13,075,285
Costs in excess of billings on contracts in process .................. 2 2,571,817 669,143
Inventories .......................................................... 238,301 238,301
Prepaid expenses and other current assets ............................ 273,688 235,203
------------ ------------
Total current assets ....................................... 6,221,296 14,219,132
PROPERTY, PLANT AND EQUIPMENT, NET ..................................... 3 11,720,433 12,328,746
PERISHABLE TOOLING ..................................................... 757,744 726,704
OTHER ASSETS ........................................................... 544,181 623,635
------------ ------------
Total assets ............................................... $ 19,243,654 $ 27,898,217
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt .................................... 4 $ 8,201,391 $ 15,742,669
Accounts payable ..................................................... 4,485,557 4,908,893
Accrued liabilities .................................................. 756,979 521,193
------------ ------------
Total current liabilities .................................. 13,443,927 21,172,755
LONG-TERM DEBT ......................................................... 4 8,834 12,703
ACCRUED LEASE EXPENSE .................................................. 787,478 740,894
DEFERRED COMPENSATION .................................................. -- 166,474
DEFERRED INTEREST ...................................................... 4 116,000 25,500
------------ ------------
Total liabilities .......................................... 14,356,239 22,118,326
------------ ------------
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
Issued and outstanding - 3,774,346 shares
As of February 28, 2005 and August 31, 2004 ....................... 16,426,378 16,426,378
Retained deficit ..................................................... (11,538,963) (10,646,487)
------------ ------------
Total stockholders' equity ................................. 4,887,415 5,779,891
------------ ------------
Total liabilities and stockholders' equity ............................. $ 19,243,654 $ 27,898,217
============ ============
See notes to financial statements
3
RIVIERA TOOL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
--------------------------- ---------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 29,
2005 2004 2005 2004
----------- ----------- ----------- -----------
SALES .................................. $ 4,981,009 $ 8,292,900 $ 9,533,560 $16,603,660
COST OF SALES .......................... 4,151,887 7,452,464 8,190,347 14,913,281
----------- ----------- ----------- -----------
GROSS PROFIT ..................... 829,122 840,436 1,343,213 1,690,379
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ............ 867,490 505,652 1,446,831 909,139
----------- ----------- ----------- -----------
INCOME/(LOSS) FROM OPERATIONS .... (38,368) 334,784 (103,618) 781,240
TOTAL INTEREST EXPENSE ........... 389,468 122,701 788,859 331,228
----------- ----------- ----------- -----------
INCOME/(LOSS) BEFORE INCOME TAXES ...... (427,836) 212,083 (892,477) 450,012
----------- ----------- ----------- -----------
INCOME TAXES ........................... -- -- -- --
----------- ----------- ----------- -----------
NET INCOME/(LOSS) AVAILABLE FOR
COMMON SHARES ......................... $ (427,836) $ 212,083 $ (892,477) $ 450,012
=========== =========== =========== ===========
BASIC AND DILUTED INCOME/(LOSS)
PER COMMON SHARE ....................... $ (.11) $ .06 $ (.24) $ .13
=========== =========== =========== ===========
BASIC AND DILUTED
COMMON SHARES OUTSTANDING .............. 3,774,346 3,379,609 3,774,346 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
----------------------------- -----------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 29,
2005 2004 2005 2004
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) ........................................ $ (427,836) $ 212,083 $ (892,477) $ 450,012
Adjustments to reconcile net income/(loss) to net cash
from operating activities:
Depreciation and amortization ........................ 427,701 421,599 855,402 843,198
(Increase) decrease in assets:
Accounts receivable ............................... 6,429,427 (1,444,542) 10,146,997 2,119,551
Costs in excess of billings on contracts in ....... (1,096,106) (180,343) (1,902,674) 718,655
process
Perishable tooling ................................ 23,110 560 (31,040) (5,374)
Prepaid expenses and other current assets ......... (66,222) (236,959) (38,485) (213,563)
Increase (decrease) in liabilities:
Accounts payable .................................. 569,558 1,209,148 (423,336) (538,943)
Accrued outsourced contracts payable .............. -- (182,025) -- 644,386
Accrued lease expense ............................. 23,292 25,050 46,584 50,100
Accrued liabilities ............................... 116,523 86,476 235,786 318,686
Deferred compensation ............................. (166,474) -- (166,474) --
------------ ------------ ------------ ------------
Net cash provided by/(used in) operating activities ........ $ 5,832,973 $ (88,953) $ 7,830,283 $ 4,386,708
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease/(increase) in other assets ...................... 100,000 -- 79,454 (22,462)
Additions to property, plant and equipment ............... (16,806) (166,429) (247,089) (291,223)
------------ ------------ ------------ ------------
Net cash provided by/(used in) investing activities ........ $ 83,194 $ (166,429) $ (167,635) $ (313,685)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on revolving credit line ..... (6,505,958) 380,876 (7,253,654) (3,789,177)
Deferred interest ........................................ 44,588 -- 90,500 --
Principal payments on notes payable to bank .............. (129,024) (125,494) (291,492) (282,646)
------------ ------------ ------------ ------------
Net cash provided by/(used in) financing activities ........ $ (6,590,394) 255,382 $ (7,454,646) $ (4,071,823)
------------ ------------ ------------ ------------
NET INCREASE/(DECREASE) IN CASH ............................ $ (674,227) -- $ 208,002 $ 1,200
CASH - Beginning of Period ................................. 883,429 1,200 1,200 --
------------ ------------ ------------ ------------
CASH - End of Period ....................................... $ 209,202 1,200 $ 209,202 $ 1,200
============ ============ ============ ============
See notes to financial statements
5
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2005
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
United States of America.
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
generally accepted in the United States of America. These Financial Statements
should be read in conjunction with the financial statements and footnotes
thereto included in the Company's Form 10-K, as amended, for the fiscal year
ended August 31, 2004.
The Company's financial statements were prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. During fiscal 2004, the Company sustained both a
significant loss from operations as well as a net loss. This loss resulted in an
accumulated deficit. Further, the Company was not in compliance with the
covenants of its long-term loan agreement causing the Company's debt to be
classified as current in the financial statements. The Company currently entered
into a forebearance agreement that expires April 29, 2005. These factors, among
other things, raised substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
The Company believes that the revolving line of credit (under the existing
forebearance agreement and future extensions of renegotiated facilities or new
facilities) and the funds generated from operations should be sufficient to
cover anticipated cash needs through fiscal 2005. However, depending on the
Company's primary lender's willingness to extend the due date of the facility as
well as the level of future sales, terms of such sales, financial performance
and cash flow of existing contracts, such financing may not be sufficient to
support operations. Therefore, the Company may be required to seek additional
sources of funding.
The results of operations for the three and six-month periods ended February 28,
2005 may not be indicative of the results to be expected for the full year.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment if changes in circumstances
or the occurrence of events suggest the remaining value may not be recoverable.
An asset is deemed impaired and written down to its fair value if estimated
related total future undiscounted cash flows are less than its book (carrying)
value. The Company, in performing its evaluation of long-lived assets for
impairment, utilized financial projections for five future years including total
undiscounted cash flow. In developing the projections, the Company estimated
revenues for each year and estimated resulting margins based upon various
assumptions including future market pricing trends and historical financial
costs. The analysis concluded that the estimated total undiscounted future cash
flows were in excess of the carrying value of long-lived assets. Had the
analysis concluded that the total undiscounted future cash flows were below the
carrying value, an impairment charge of the difference between the carrying
value and the lower of the total discounted cash flows or fair value would have
been recorded.
6
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2005
NOTE 2 - COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows:
FEBRUARY 28, AUGUST 31,
2005 2004
------------ ------------
Costs incurred on contracts in process under the percentage of
completion method ................................................ $ 4,886,647 $ 22,265,744
Estimated gross profit/(loss) .................................... 50,000 (4,250,000)
------------ ------------
Total .................................................... 4,936,647 18,015,744
Less progress payments received and progress billings to date .... 2,390,328 17,586,991
Plus costs incurred on contracts in process
under the completed contract method .............................. 25,498 240,390
------------ ------------
Costs in excess of billings on contracts in process .............. $ 2,571,817 $ 669,143
============ ============
Included in estimated gross profit for February 28, 2005 and August 31, 2004 are
jobs with losses accrued of $152,162 and $5,190,491, respectively.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consist of the following:
FEBRUARY 28, AUGUST 31,
CATEGORY 2005 2004
------------ ------------
Leasehold improvements ........................................... $ 1,489,302 $ 1,367,908
Office furniture and fixtures .................................... 174,524 169,129
Machinery and equipment .......................................... 23,080,863 23,080,863
Construction in Process .......................................... 86,960 --
Computer equipment and software .................................. 2,821,829 2,788,489
Transportation equipment ......................................... 109,782 109,782
------------ ------------
Total cost .................................................. 27,763,260 27,516,171
Less Accumulated depreciation and amortization ................... 16,042,827 15,187,425
------------ ------------
Net carrying amount ......................................... $ 11,720,433 $ 12,328,746
============ ============
NOTE 4 - LONG-TERM DEBT
The Company's long-term debt consists of the following:
FEBRUARY 28, AUGUST 31,
2005 2004
----------- -----------
REVOLVING WORKING CAPITAL CREDIT LINE
The revolving working capital credit line is collateralized
by substantially all assets of the Company and provides for
borrowing, subject to certain collateral requirements up to
$3.75 million until April 29, 2005. 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
April 29, 2005, and bears interest, payable monthly, at 4.0%
above the bank's prime rate (as of February 28, 2005, an
effective rate of 9.5%) ......................................... $ 2,595,878 $ 9,849,532
7
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2005
NOTE 4 - LONG-TERM DEBT - CONTINUED
FEBRUARY 28, AUGUST 31,
NOTES PAYABLE TO BANKS 2005 2004
--------------- ---------------
Note payable to bank, payable in monthly installments of $33,334, plus
interest at the bank's prime rate plus 4.25% (as of February 28, 2005, an
effective rate of 9.75%), due April 29, 2005................................... 1,200,000 1,400,000
Note payable to bank, payable in monthly installments of $9,065, plus
interest at the bank's prime rate plus 4.25% (as of February 28, 2005, an
effective rate of 9.75%), due April 29, 2005................................... 389,777 435,100
Subordinated note payable to bank, payable in monthly installments of
$31,000, including interest at 11%, due January 1, 2008........................ 1,008,124 1,050,670
SUBORDINATED DEBT
Subordinated note payable, principal payable in quarterly installments of
$250,000 commencing September 30, 2007. Interest payable quarterly, in
arrears, commencing on September 30, 2004 at 14%. Deferred interest accrues
at 6%, compounded quarterly and payable at the earlier of loan pay-off or
June 30, 2010.................................................................. 3,000,000 3,000,000
OTHER
Other.......................................................................... 8,834 12,703
------------- -------------
Total debt.......................................................... 8,210,225 15,755,372
------------- -------------
Less current portion of long-term and subordinated debt............. 8,201,391 15,742,669
------------- -------------
Long-term and subordinated debt -- Net.............................. $ 8,834 $ 12,703
============= =============
NOTE 5 - CONTINGENCIES
The Company is a plaintiff and defendant in litigation regarding its contract
with Mercedes Benz and GESTAMP USA as well as certain of the Company's suppliers
the Company does not consider such items require any contingent asset or
liability is deemed necessary at this point in time.
8
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
------------------------------ ------------------------------
Feb. 28, Feb. 29, Feb. 28, Feb. 29,
2005 2004 2005 2004
------------ ------------ ------------ ------------
SALES ......................................... 100.0% 100.0% 100.0% 100.0%
COST OF SALES ................................. 83.4% 89.9% 85.9% 89.8%
------------ ------------ ------------ ------------
GROSS PROFIT ..................... 16.6% 10.1% 14.1% 10.2%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ... 17.4% 6.1% 15.2% 5.5%
------------ ------------ ------------ ------------
INCOME/(LOSS) FROM OPERATIONS ... (0.8)% 4.0% (1.1)% 4.7%
TOTAL INTEREST EXPENSE ........................ 7.8% 1.4% 8.3% 2.0%
INCOME/(LOSS) BEFORE INCOME TAXES ............. (8.6)% 2.6% (9.4)% 2.7%
INCOME TAXES .................................. -- -- -- --
------------ ------------ ------------ ------------
NET INCOME/(LOSS) ................. (8.6)% 2.6% (9.4)% 2.7%
============ ============ ============ ============
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 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.
9
BASIS OF PRESENTATION
The Company's financial statements were prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. During fiscal 2004, the Company sustained both a
significant loss from operations as well as a net loss. This loss resulted in an
accumulated deficit. Further, the Company was not in compliance with the
covenants of its long-term loan agreement causing the Company's debt to be
classified as current in the financial statements. The Company currently entered
into a forebearance agreement that expires April 29, 2005. These factors, among
other things, raised substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
The Company believes that the revolving line of credit (under the existing
forebearance agreement and future extensions of renegotiated facilities or new
facilities) and the funds generated from operations, should be sufficient to
cover anticipated cash needs through fiscal 2005. However, depending on the
Company's primary lender's willingness to extend the due date of the
forebearance agreement as well as the level of future sales, terms of such
sales, financial performance and cash flow of existing contracts, such financing
may not be sufficient to support operations. Therefore, the Company may be
required to seek additional sources of funding.
The results of operations for the three and six month periods ended February 28,
2005 may not be indicative of the results to be expected for the full year.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment if changes in
circumstances or the occurrence of events suggest the remaining value may not be
recoverable. An asset is deemed impaired and written down to its fair value if
estimated related total future undiscounted cash flows are less than its book
(carrying) value. The Company, in performing its evaluation of long-lived assets
for impairment, utilized financial projections for five future years including
total undiscounted cash flow. In developing the projections, the Company
estimated revenues for each year and estimated resulting margins based upon
various assumptions including future market pricing trends and historical
financial costs. The analysis concluded that the estimated total undiscounted
future cash flows were in excess of the carrying value of long-lived assets. Had
the analysis concluded that the total undiscounted future cash flows were below
the carrying value, an impairment charge of the difference between the carrying
value and the lower of the total discounted cash flows or fair value would have
been recorded.
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 2005 TO THE THREE MONTHS ENDED
FEBRUARY 29, 2004.
REVENUES - Revenues for the three months ended February 28, 2005 totaled $5.0
million as compared to $8.3 million for the three months ended February 28,
2004, a decrease of $3.3 million or 40%. This was a result of the Company
beginning the second quarter of 2005 with a contract backlog of $4.6 million as
compared to a $22.1 million contract backlog in 2004, a decrease of 79%. This
lower backlog resulted in the Company incurring a 24% decrease in direct labor
hours during the second quarter of 2005 when compared to 2004 and bringing about
the decrease in second quarter revenues.
The Company's backlog of awarded contracts, which are all believed to be firm,
was approximately $10.1 million and $16.6 million as of February 28, 2005 and
February 29, 2004 respectively. The Company expects all backlog contracts will
be reflected in sales during fiscal years ending August 31, 2005 and 2006.
COST OF SALES - Cost of goods sold decreased from $7.5 million for the second
quarter of fiscal 2004 to $4.2 million for 2005 and, as a percent of sales,
decreased from 89.9% for 2004 to 83.4% for 2005. Direct costs (materials and
labor) decreased by $3.0 million, from $5.0 million for 2004 to $2.0 million for
2005. Engineering expense decreased by $180,000 from $695,000 for 2004 to
$515,000 for 2005. Lastly, of the cost of goods sold, manufacturing overhead
decreased by $90,000 from $1.77 million for 2004 to $1.68 million for 2005.
Additional details of these changes in cost of sales for the second quarter of
fiscal 2004 and 2005 are as follows:
10
o Direct materials expense decreased from $1.6 million for 2004 to $0.5
million for 2005 and decreased as a percent of sales from 19.5% to 9.2%.
This decrease was largely due to lower contract volume requirements and
backlog mix during 2005 as compared to 2004. Outside services expense
decreased from $1.7 million for 2004 to $181,000 for 2005 and as a percent
of sales from 20.2% to 3.6%. This decrease was largely due to the Company
incurring expense related to its outsourced revenue during the second
quarter of 2004. The balance of the outside services expense decrease was
due to lower sales volumes and corresponding decreases in outsourcing
certain machining, die patterns, laser cutting, heat treat and outside
design services.
o Direct labor expense decreased from $1.7 million for 2004 to $1.3 million
for 2005. However, as a percent of sales, direct labor increased from 20.4%
to 26.0%. This change was a result of the Company incurring a 24% decrease
in direct labor hours, from 85,000 hours in 2004 to 65,000 in 2005. Of the
total direct labor expense, regular or straight time decreased by $224,000
however as a percent of sales, increased from 12.7% for 2004 to 16.6% for
2005 due to decreased sales volume. Overtime expense decreased from
$639,000 for 2004 to $485,000 for 2005, however as a percent of sales,
increased from 7.7% for 2004 to 9.7% for 2005.
o Engineering expense decreased from $695,000, 8.4% of sales, for 2004 to
$515,000, 10.3% of sales, for 2005. This decrease was due to the Company's
decrease in awarded contracts and the resulting decrease in the number of
engineering personnel necessary to fulfill the design and project
management portions of the Company's current contract backlog.
o Manufacturing overhead was $1.68 million or 33.8% of sales for 2005 as
compared to $1.77 million or 21.3% of sales for 2004. During 2005,
decreases in manufacturing overhead were largely due to a $54,000 decrease
in manufacturing supplies expense, a $31,000 decrease in machinery repair
and maintenance expense, a $28,000 decrease in medical insurance premiums
and a $18,000 decrease in payroll tax expense. These decreases were offset
by an increase of $37,000 in utilities expense, an increase of $20,000 in
indirect labor expense and an increase of $11,000 in workers compensation
insurance expense. The increase of approximately 12.5% of manufacturing
overhead, as a percent of sales, was largely due to the decrease in sales
volumes.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense increased
from $506,000 for the second quarter of 2004 to $867,000 for 2005. As a percent
of sales, selling and administrative expense increased from 6.1% for 2004 to
17.4% for 2005 due to the lower sales volume and increase in certain
professional advisory fees. The largest selling and administrative expense
increases included $409,000 in legal and professional expenses, $19,000 in sales
salaries and wages, $9,000 in travel expenses and $7,000 in insurance expense.
These increases were offset by decreases including $27,000 in administrative
wages and salaries, $24,000 in public company expense and $19,000 in the State
of Michigan Single Business tax.
The increase in professional and legal expenses related to the Company's primary
lender requiring the Company to retain the services of a consulting company and
the lender's legal counsel at the Company's expense. During the second quarter
of 2005, such expenses totaled approximately $303,000.
INTEREST EXPENSE. Interest expense increased from $123,000 for 2004 to $389,000
for 2005. This increase was largely due to the Company's increased debt levels
during the second quarter of 2005 as compared to 2004. These increases include
$3.0 million of subordinated debt issued in the fourth quarter of fiscal 2004.
In addition, the interest rates on the revolver and certain term debt during the
second quarter of 2005 were higher than during the second quarter of fiscal
2004.
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 2005 TO THE SIX MONTHS ENDED
FEBRUARY 29, 2004.
REVENUES - Revenues for the six months ended February 28, 2005 totaled $9.5
million as compared to $16.6 million for the six months ended February 29, 2004,
a decrease of 43%. This was a result of the Company beginning the fiscal 2005
with a contract backlog of $2.4 million as compared to $26.6 million contract
backlog in 2004, a
11
decrease of 91%. This lower backlog resulted in the Company incurring
approximately 126,000 shop floor hours as compared to 161,000 during the same
period of 2004, a decrease of 35,000 hours or 22%.
COST OF SALES - Cost of goods sold decreased from $14.9 million for the six
months ended February 29, 2004 to $8.2 million for the six months ended February
28, 2005, however as a percent of sales, cost of goods sold decreased slightly
from 89.8% for 2004 to 85.9% for 2005. Direct costs (materials and labor)
decreased by $6.2 million, from $10.1 million for 2004 to $3.9 million for 2005.
Engineering expense decreased by $385,000 from $1.4 million for 2004 to $0.97
million for 2005. Lastly, of the cost of goods sold, manufacturing overhead
decreased by $141,000 from $3.5 million for 2004 to $3.3 million for 2005.
Additional details of these changes in cost of sales for the six months ended
February 29, 2004 and February 28, 2005 are as follows:
o Direct materials expense decreased from $2.7 million to $0.85 million for
the first two quarters of 2004 and 2005, respectively. Outside services
expense decreased from $4.1 million for 2004 to $0.4 million for 2005 and
as a percent of sales decreased from 24.6% to 4.2%. This decrease was
largely due to the Company outsourcing certain manufacturing processes in
an attempt to meet customer delivery dates while incorporating a high
number of customer engineering changes to the tooling during the first six
months of 2004. These services largely consist of machining and laser
cutting services.
o Direct labor expense decreased from $3.3 million for 2004 to $2.6 million
for 2005 however, as a percent of sales, direct labor expense increased
from 19.6% to 27.0%. This change was a result of the Company incurring a
22% decrease in direct labor hours, from 161,000 hours in 2004 to 126,000
in 2005. Of the total direct labor expense, regular or straight time
decreased by $487,000 however, as a percent of sales, it increased from
12.7% for 2004 to 17.0% for 2005. Overtime expense decreased from
$1,154,000 for 2004 to $953,000 for 2005, as a percent of sales, increasing
from 6.9% for 2004 to 10.0% for 2005
o Engineering expense decreased from $1.4 million, 8.2% of sales, for 2004
to $0.97 million, 10.2% of sales, for 2005. This decrease was due to the
Company lowering the level of engineering personnel staffing required to
fulfill the design and project management portions of contracts.
o Manufacturing overhead was $3.5 million or 21.0% of sales for 2004 as
compared to $3.3 million or 35.1% of sales for 2005. During 2005, decreases
in manufacturing overhead were largely due to a $84,000 decrease in
manufacturing supplies expense, a $56,000 decrease in medical insurance
premiums, a $35,000 decrease in indirect labor expense and a $35,000
decrease in payroll tax expense. These decreases were offset by a $50,000
increase in utilities expense, a $14,000 increase in supervision salaries
and a $15,000 increase in workers compensation insurance expense.
SELLING AND ADMINISTRATIVE EXPENSE - Selling and administrative expense
increased from $909,000 for the first two quarters of 2004 to $1,447,000 for
2005. As a percent of sales, selling and administrative expense increased from
5.5% for 2004 to 15.2% for 2005. During 2005, increases in selling and
administrative expense were largely due to a $458,000 increase in legal and
professional expense, a $68,000 increase in travel expenses and a $24,000
increase in sales salaries. These increases were offset by a $19,000 decrease in
State of Michigan Single Business Tax expense.
The increase in professional and legal expenses related to the Company's primary
lender requiring the Company to retain the services of a consulting company and
the lender's legal counsel at the Company's expense. During the first two
quarters of 2005, such expenses totaled approximately $353,000.
INTEREST EXPENSE - Interest expense increased from $331,000 for 2004 to $789,000
for 2005. This increase was largely due to the Company's increased debt levels
during the first half of 2005 as compared to 2004. These increases include $3.0
million of subordinated debt issued in the fourth quarter of fiscal 2004. In
addition, the interest rates on the revolver and certain term debt during 2005
were higher than during 2004. During 2005, the Company incurred $40,000 in bank
forebearance fees to its primary lender.
FEDERAL INCOME TAXES - For the six months ended February 28, 2005, the Company
recorded a valuation allowance of approximately $303,000 to reduce its deferred
tax assets resulting from income tax benefit. For the three months ended
February 28,
12
2005, the Company recorded an increase in the deferred tax asset valuation
allowance of approximately $145,000 to offset the income tax benefit.
LIQUIDITY AND CAPITAL RESOURCES - During the six months ended February 28, 2005,
the Company's cash provided by operating activities was $7.8 million. This
largely resulted from a decrease of $10.1 million in account receivables, a $1.9
million increase in contracts in process and a $423,000 decrease in accounts
payable. From investing activities, the Company incurred a decrease in other
assets of $79,000 and $247,000 in additions to property, plant and equipment.
The Company used $7.3 million to reduce the revolving line of credit and
$291,000 to reduce other debt.
The Company's total bank debt as of February 28, 2005, is $8.2 million, all of
which is classified as short-term debt. As of February 28, 2005, the Company was
in default of its loan covenants with its lenders. As a result the Company has
negotiated a $3.75 million Revolving Line of Credit until April 29, 2005. The
Revolving Line of Credit has a balance outstanding of approximately $3.7
million, as of April 8, 2005. The Company also has term notes with an aggregate
outstanding balance of $1,589,777, expiring April 29, 2005. The Revolving Line
of Credit bears interest at the bank's prime rate plus 4.0 percent (an effective
rate of 9.5% at February 29, 2005) and the term notes bears interest at bank's
prime rate plus 4.25 percent (an effective rate of 9.75% at February 28, 2005).
The Company also has two subordinated debt notes payable totaling $4,008,124
which includes $1,008,124 bearing interest at 11% and $3,000,000 bearing
interest at 14% plus deferred interest of 6%.
The Company believes that the revolving line of credit (under the existing
forebearance agreement and future extensions of renegotiated facilities or new
facilities) and the funds generated from operations, will be sufficient to cover
anticipated cash needs through fiscal 2005. However, depending on the Company's
primary lenders willingness to extend the due date of the facility as well as
the level of future sales, terms of such sales, financial performance and cash
flow of existing contracts, such financing may not be sufficient to support
operations. Therefore, the Company may be required to seek additional sources of
funding.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following table provides information on the Company's debt as of August 31,
2004 and 2003 that are sensitive to changes in interest rates.
AMOUNT
FEBRUARY 28, 2005: OUTSTANDING MATURITY DATE
------------------ ----------- -------------
REVOLVING WORKING CAPITAL CREDIT LINE:
o Variable rate revolving credit line at an interest rate of
prime rate plus 4.0% (as of February 28, 2005, an effective
rate of 9.5%) $2,595,878 April 29, 2005
NOTE PAYABLE TO BANKS:
o At an interest rate of prime plus 4.25% (as of February 28,
2005, an effective rate of 9.75%) $1,200,000 April 29, 2005
o At an interest rate of prime plus 4.25% (as of February 28,
2005, an effective rate of 9.75%) $389,777 April 29, 2005
AUGUST 31, 2004:
REVOLVING WORKING CAPITAL CREDIT LINE:
o Variable rate revolving credit line at an interest rate of
prime rate plus 4% (as of November 17, 2004, an effective rate of
9%) $9,849,532 December 31, 2004
NOTE PAYABLE TO BANKS:
o At an interest rate of prime plus 4.25% (as of November 17,
2004, an effective rate of 9.25%) $1,400,000 December 31, 2004
o At an interest rate of prime plus 4.25% (as of November 17,
2004, an effective rate of 9.25%) $435,100 December 31, 2004
13
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Our management, with the
participation of our principal executive officer and principal financial
officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based on such evaluation,
our principal executive officer and principal financial officer have concluded
that as of such date, our disclosure controls and procedures were designed to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable SEC rules and forms and were
effective.
Changes in Internal Control Over Financial Reporting. There was no change in our
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the period covered by
this Quarterly Report on Form 10-Q that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Gestamp Alabama, et al v Riviera, et al
On February 14, 2005, Gestamp Alabama ("Gestamp"), the alleged successor to
Oxford Automotive, Inc. ("Oxford") brought a civil action against Riviera in the
Circuit Court for the County of Kent, State of Michigan, Case No. 05-01520-CK,
seeking a right to immediate possession of certain tooling for use on
Mercedes-Benz automobiles ( "the Tooling"), as well as unspecified damages. On
February 25, 2005, Mercedes-Benz U.S. International, Inc. ("MBUSI") intervened
in and was added to the litigation aligned as a Plaintiff, and sought virtually
identical relief as that sought by Gestamp. On February 25, 2005, a hearing was
scheduled on Gestamp's motion for immediate possession ("the Motion"). Shortly
before the hearing on the Motion, the parties reached an agreement that the
Motion would be resolved on the following terms: (1) MBUSI would pay Riviera by
wire transfer the sum of $3,375,000.00 without prejudice to the rights of any of
the parties with respect to any claims asserted in the litigation; (2) Riviera
would permit MBUSI to take possession of the Tooling that was the subject of the
Motion; (3) Riviera would execute a bill of sale for the Tooling; (4) MBUSI and
Gestamp would earmark up to $500,000.00, over which they would retain complete
control, to pay the legitimate claims asserted by Riveria's sub-contractors or
trade creditors incurred in connection with work performed by Riviera on Oxford,
Gestamp or MBUSI's work, without prejudice to the rights of the parties to
assert any of the claims in the litigation; and (5) upon reasonable notice to
Riviera, MBUSI would be entitled to immediate possession and use of other tools,
dies, component parts and related accessories that Riviera has used to make
MBUSI parts.
The obligations set forth above have been fulfilled, and certain creditors have
been paid portions of the $500,000.00 earmarked by MBUSI and Gestamp.
Riviera has denied any further entitlement to relief by Gestamp and MBUSI in its
responsive pleadings, and has asserted a counter-claim for damages for work that
Riviera has done for MBUSI or Oxford for which payment has not been received.
The damages sought by Riviera include recovery of additional sums that are due
and owing to Riviera's sub-contractors or trade creditors in connection with
this work, which amounts to approximately $3 million.
One of Riviera's sub-contractors, Eclipse Tool and Die, Inc. ("Eclipse"), was
also named as a defendant in this action. Eclipse has filed a crossclaim against
Riviera and counterclaims against Gestamp and Mercedes seeking recovery of
approximately $900,000.00 for work that it performed for Riviera, Oxford and
MBUSI. Eclipse is also seeking to exercise lien rights, but that will have no
effect on Riviera.
Another of Riviera's sub-contractor's, Ronart Tool Company was also a named
defendant in this action. Ronart's claim has been fully satisfied by MBUSI and
it is expected that Ronart will be dismissed from the litigation. The case is in
the early stages, and the parties have not yet conducted any discovery.
True Industrial v. Riviera
Within the last few days, Riviera received notice of an action brought in the
Circuit Court for the County of Macomb, State of Michigan, Case No. 2005-1356-CK
by True Industrial Corporation d/b/a True Industries, Inc. ("True") seeking
damages in the amount of approximately $409,000.00 for work performed by True in
connection with the MBUSI/Gestamp work described above. Due to the fact that the
Complaint was just received by Riviera's outside counsel, no analysis of the
litigation has been performed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10(kk) Forebearance Agreement between Registrant and Comerica
Bank, dated March 25, 2005
31.1 Written Statement of the Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350 Sec. 302
31.2 Written Statement of the Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350 Sec. 302
15
32 Written Statement of the Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350
Sec. 906
(b) Reports on Form 8-K:
Form 8-K filed on December 15, 2004 - Item 5.02 Departure of
Directors or Principal
Officer
Form 8-K filed on December 20, 2004 - Item 3.01 Notice of
Delisting or Failure to
Satisfy a Continued
Listing Rule or
Standard: Transfer of
Listing
Form 8-K filed on December 20, 2004 - Item 8.01 Other Events
Form 8-K filed on January 19, 2005 - Item 5.02 Election of
Director
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 15, 2005
Riviera Tool Company
/s/ Kenneth K. Rieth
-------------------------------------
Kenneth K. Rieth
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Peter C. Canepa
-------------------------------------
Peter C. Canepa
Chief Financial Officer, Treasurer
and Secretary (Principal Financial
and Accounting Officer)
16
Exhibit Index
No. Description
10(kk) Forebearance Agreement between Registrant and Comerica
Bank, dated March 25, 2005
31.1 Written Statement of the Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350 Sec. 302
31.2 Written Statement of the Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350 Sec. 302
32 Written Statement of the Chief Executive Officer and
Chief Financial Officer Pursuant to 18 U.S.C. Section
1350 Sec. 906